SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement |_| Confidential, for Use of
Commission Only (as permitted
by Rule 14a-6(e)(2))
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ALLSTAR INNS INC.
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant
Payment of filing fee (Check the appropriate box):
|_| $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
|_| $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: In accordance with Rule 0-11(c)
(2), the fee was calculated based on one-fiftieth of 1% of the
aggregate of the cash and the value of the securities and other
property to be distributed to the Registrant's security holders. The
aggregate amount of cash to be distributed to security holders
pursuant to the Plan of Complete Liquidation and Dissolution is based
on a bona fide estimate solely for purposes of calculating the filing
fee.
(4) Proposed maximum aggregate value of transaction: $31,557,000.
(5) Total fee paid: $6,311.40
|X| Fee previously paid with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
ALLSTAR INNS INC.
200 East Carrillo Street, Suite 300
Santa Barbara, California 93101
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 8, 1997
To the Stockholders:
NOTICE is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of Allstar Inns Inc. (the "Company") will be held at the Four Seasons
Biltmore Hotel, Las Flores Room, 1260 Channel Drive, Montecito, California, on
May 8, 1997 at 9:00 a.m. local time, for the following purposes:
1. To elect two directors to serve for a term of one year until the next
Annual Meeting of Stockholders and until their respective successors
have been duly elected and qualified;
2. To consider and act upon a proposal to approve and adopt the Plan of
Complete Liquidation and Dissolution attached as Exhibit A to the
Proxy Statement; and
3. To consider and transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
Holders of the Company's common stock, par value $.01 per share, at the
close of business on March 27, 1997, the record date fixed by the Board of
Directors, are entitled to notice of and to vote at the Annual Meeting. The
Company's Board of Directors urges that all stockholders of record exercise
their right to vote at the meeting personally or by proxy. Accordingly, we are
sending you the following Proxy Statement and the enclosed proxy card.
Whether or not you plan to attend the Annual Meeting, it is important that
your shares be represented. Accordingly, the Board of Directors and management
urges each stockholder to read the Proxy Statement carefully and thereafter to
complete, date and sign the enclosed proxy card and return it promptly in the
enclosed self-addressed, postage-paid envelope. If you plan to attend the
meeting, please mark the box provided on your Proxy Card.
Registered stockholders will be asked for identification. If you are a
beneficial owner of the Company's stock held by a bank, or investment plan ("in
street name"), you will need proof of ownership to be admitted to the meeting. A
recent brokerage statement or letter from the broker or bank are examples of
proof of ownership.
Your prompt response will be appreciated.
By Order of the Board of Directors
Edward A. Paul
Secretary
Santa Barbara, California
March 31, 1997
<PAGE>
ALLSTAR INNS INC.
200 East Carrillo Street, Suite 300
Santa Barbara, California 93101
PROXY STATEMENT
This Proxy Statement and the accompanying proxy is being furnished in
connection with the solicitation of proxies by the Board of Directors (the
"Board") of Allstar Inns Inc. (the "Company") to be used at the Annual Meeting
of Stockholders on May 8, 1997 (the "Annual Meeting") to be held at 9:00 a.m.
local time at the Four Seasons Biltmore Hotel, Las Flores Room, 1260 Channel
Drive, Montecito, California. This Proxy Statement and the enclosed form of
proxy together with the Annual Report to Stockholders (Form 10-K) are first
being mailed to stockholders on or about March 31, 1997.
At the Annual Meeting, stockholders will be asked to consider and vote upon
the following items:
ITEM 1: The election of two directors to serve until the 1998 Annual Meeting of
Stockholders.
ITEM 2: The approval and adoption of the Plan of Complete Liquidation and
Dissolution recommended by the Board of Directors.
The Board of Directors is proposing for approval by the stockholders at the
Annual Meeting a Plan of Complete Liquidation and Dissolution of the Company
(the "Plan"), a copy of which is attached as Exhibit A to this Proxy Statement.
If the Plan is approved by the stockholders, the Company will be liquidated (i)
by the sale of its remaining assets, (ii) after paying or providing for all its
claims, obligations and expenses, by distributing cash to its stockholders pro
rata and, (iii) if required by the Plan or deemed necessary by the Board of
Directors, by distributions of its assets from time to time to one or more
liquidating trusts established for the benefit of the then stockholders, or by a
final distribution of its then remaining assets to a liquidating trust
established for the benefit of the then stockholders. The Board of Directors
presently intends to make an initial cash distribution to stockholders of $28.00
per share, or approximately $29.3 million, promptly following the approval of
the Plan by stockholders. Should the Board of Directors determine that one or
more liquidating trusts are required by the Plan or are otherwise necessary,
appropriate or desirable, approval of the Plan will constitute stockholder
approval of the appointment by the Board of Directors of one or more trustees to
any such liquidating trusts and the execution of liquidating trust agreements
with the trustees on such terms and conditions as the Board of Directors, in its
absolute discretion, shall determine. See "Approval of Plan of Complete
Liquidation and Dissolution" for a complete description of the Plan. See also
"Contingent Liabilities; Contingent Reserve; Liquidating Trust" for further
information relating to circumstances when the establishment of a liquidating
trust would be required by the Plan or would be necessary, appropriate or
desirable.
THE BOARD OF THE COMPANY BELIEVES THAT ELECTION OF ITS DIRECTOR NOMINEES IS
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS TO THE
STOCKHOLDERS THE APPROVAL OF EACH OF THE NOMINEES.
THE BOARD OF DIRECTORS OF THE COMPANY, AFTER CAREFUL REVIEW AND
CONSIDERATION OF THE TERMS OF THE PLAN, BELIEVES THAT THE LIQUIDATION OF THE
COMPANY IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE APPROVAL OF THE
PLAN.
<PAGE>
VOTING
Shares represented by duly executed and unrevoked proxies in the enclosed
form received by the Board will be voted at the Annual Meeting in accordance
with the specifications made therein by the stockholders, unless authority to do
so is withheld. If no specification is made, shares represented by duly executed
and unrevoked proxies in the enclosed form will be voted FOR the election as
directors of the nominees listed herein, FOR adoption of the Plan and, with
respect to any other matter that may properly come before the meeting, in the
discretion of the persons voting the respective proxies. The Board of Directors
currently knows of no other business that will be presented for consideration at
the Annual Meeting. Each stockholder who has executed a proxy and returned it to
the Board of Directors may revoke the proxy by notice in writing to the
Secretary of the Company, or by attending the Annual Meeting in person and
requesting the return of the proxy, in either case at any time prior to the
voting of the proxy. Presence at the Annual Meeting does not itself revoke the
proxy.
Only authorized holders of record at the close of business on March 27,
1997 (the "Record Date") of the Company's common stock, $.01 par value (the
"Common Stock"), which is traded in the OTC Bulletin Board (the "OTC") under the
symbol "ALST," will be entitled to vote at the Annual Meeting, voting as a
single class. On March 27, 1997, there were 1,047,443 shares of Common Stock
outstanding. Each share of Common Stock is entitled to one vote on all matters
presented at the Annual Meeting.
Vote Required
Provided a quorum is present, the election of the director nominees
requires a plurality of the votes cast in person or by proxy at the Annual
Meeting. Under Delaware law, the Company's Certificate of Incorporation and the
Company's By-laws, shares as to which a stockholder abstains or withholds from
voting on the election of directors and shares as to which a broker indicates
that it does not have discretionary authority to vote ("Broker Non-Votes") on
the election of directors will not be counted as voting thereon and therefore
will not affect the election of the nominees receiving a plurality of the votes
cast.
Provided a quorum is present, the affirmative vote of the holders of a
majority of the shares of Common Stock issued and outstanding and entitled to
vote is required for approval of the Plan. Under Delaware law, the Company's
Certificate of Incorporation and the Company's By-laws, abstentions and Broker
Non-Votes are counted as present in determining whether the quorum requirement
is satisfied. Abstentions and Broker Non-Votes have the same legal effect as a
vote against approval of the Plan.
Warburg, Pincus & Co. has informed the Company that each of SHI, Inc., SHI
Partners, L.P. and Warburg, Pincus Associates, L.P. intend to vote all of the
192,944 shares they own, or approximately 18.4% of the outstanding shares, in
favor of adoption of the Plan. Also Mr. Shaughnessy, Chairman of the Board of
Directors, has indicated to the Company that he plans to vote all of the 58,861
shares he owns, or approximately 5.6% of the outstanding shares, in favor of
adoption of the Plan.
The Company will bear all the costs of solicitation of proxies. In addition
to the use of the mail, proxies may be solicited by personal contact or
telephone by certain directors, officers and employees of the Company, without
payment of additional compensation for doing so. The Company may reimburse
brokers or other persons holding stock in their names or in the names of
nominees for their expenses in sending proxy soliciting material to beneficial
owners.
CERTAIN INFORMATION RELATING TO THE COMPANY
For information concerning the Company's business, properties, and legal
proceedings incidental to the Company's business, see Item 1 "Business," Item 2
"Properties" and Item 3 "Legal Proceedings" respectively, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 (the "10-K
Report"), which constitutes part of the accompanying Annual Report to
Stockholders for the year ended December 31, 1996 (the "Annual Report to
Stockholders"). Items 1, 2 and 3 of the 10-K Report are incorporated herein and
made a part
2
<PAGE>
of this Proxy Statement. For information concerning the market price of the
Company's common stock and certain selected financial data concerning the
Company, see Item 5 "Market for Registrant's Common Stock and Related
Stockholder Matters" and Item 6 "Selected Financial Data" in the 10-K Report,
which Items are incorporated herein and made a part of this Proxy Statement.
For a discussion of the Company's financial condition, changes in financial
condition and results of operations, see Item 7 "Management's Discussion and
Analysis of Results of Operations and Financial Condition" in the 10-K Report,
which Item is incorporated herein by reference and made a part of this Proxy
Statement. For a discussion of any changes in or disagreements with the
accountants on accounting and financial disclosure, see Item 9 "Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure" in the
10-K Report, which Item is incorporated by reference and made a part of this
Proxy Statement.
The consolidated financial statements of the Company as of December 31,
1996 and for the year then ended can be found in Item 8 "Financial Statements
and Supplemental Data" to the 10-K Report, which Item is incorporated by
reference and made a part of this Proxy Statement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to (i) those persons
known to the Company to be beneficial owners of more than 5% of the outstanding
Common Stock and (ii) each of the Company's directors, the Named Executive
Officers, as defined below, director nominees and all directors and executive
officers as a group as of February 28, 1997. The percentage ownership figures
set forth in the table are calculated on the basis of the number of shares of
Common Stock outstanding as of February 28, 1997. As of February 28, 1997 there
were 627 stockholders of record and 1,047,443 shares of common stock
outstanding. Beneficial ownership has been calculated in accordance with Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Unless otherwise indicated, all shares are owned directly and
the owner has sole voting and investment power with respect thereto.
3
<PAGE>
Common Stock of Company
-----------------------------------
Name and Address of Beneficial Owner Number of Shares Percent of Class
- ------------------------------------ ---------------- ----------------
SHI Partners, L.P. 128,058 (1) 12.2%
c/o E.M. Warburg, Pincus & Co., LLC
466 Lexington Avenue, 10th Floor
New York, New York 10017
Gotham Partners, L.P. 149,363 (5) 14.3%
110 E. 42nd Street, 18th Floor
New York, New York 10017
First Chicago Investment Corporation 79,646 7.6%
c/o: Madison Dearborn Partners, Inc.
Three First National Plaza, Suite 1330
Chicago, Illinois 60670
Meridian Properties, No. Five 68,267 6.5%
(USA) Ltd.
c/o Enpro International, Inc.
152 W. 57th Street, 58th Floor
New York, New York 10019
SHI, Inc. 57,255 (1) 5.5%
c/o E.M. Warburg, Pincus & Co., LLC
466 Lexington Avenue, 10th Floor
New York, New York 10017
The Rainbow Fund, L.P. 54,019 (7) 5.2%
888 West Sixth Street, 10th Floor
Los Angeles, California 90017
Daniel R. Shaughnessy 58,861 (2) 5.6%
200 East Carrillo Street, Suite 300
Santa Barbara, California 93101
Edward J. Gallagher 27,506 (6) 2.6%
200 East Carrillo Street, Suite 300
Santa Barbara, California 93101
Edward A. Paul 13,818 (6) 1.3%
200 East Carrillo Street, Suite 300
Santa Barbara, California 93101
Christopher W. Brody 192,944 (3) 18.4%
466 Lexington Avenue, 10th Floor
New York, New York 10017
All directors and executive officers 293,129 (2)(4)(6) 28.0%
as a group (4 persons)
- ----------
4
<PAGE>
(1) Warburg, Pincus & Co. ("WP & Co.") owns all of the outstanding voting stock
of SHI, Inc. and is the sole general partner of SHI Partners, L.P. WP &
Co., as the sole general partner of Warburg, Pincus Associates, L.P.
("Associates"), has a 21% interest in the profits of Associates. Associates
owns 7,631 shares of Common Stock (approximately 0.7%) of the Company.
(2) Includes 20,000 shares of restricted stock.
(3) Mr. Brody is a general partner of WP & Co. All of the shares indicated as
owned by Mr. Brody are owned directly by SHI, Inc., SHI Partners, L.P. and
Associates, respectively, and are included because of Mr. Brody's
affiliation with WP & Co. Mr. Brody disclaims "beneficial ownership" within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934 of
these shares. Mr. Brody is a Director of the Company.
(4) The shares indicated include shares of Common Stock owned by SHI Partners,
L.P. and the shares owned by SHI, Inc. See note (3) above regarding
disclaimers of beneficial ownership by Mr. Brody.
(5) The Company has been advised that Gotham Partners, L.P. and Gotham Partners
II, L.P., partnerships organized under the laws of New York ("Gotham"),
filed Amendment No. 4 to Schedule 13D with the Securities and Exchange
Commission on March 3, 1997 indicating aggregate holdings of 149,363
(14.3%) shares of the Company's common stock. Gotham has disclosed in the
Schedule 13D that it "has acquired the shares for investment purposes...".
(6) Includes shares underlying options which were exercised on February 27,
1997 by Mr. Gallagher (19,933) and Mr. Paul (10,400) and shares of
restricted stock held by Mr. Gallagher (5,000) and Mr. Paul (3,000).
(7) The Company has been advised that The Rainbow Fund, L.P., a partnership
organized under the laws of California ("Rainbow") filed Schedule 13D with
the Securities and Exchange Commission on September 26, 1996 indicating
aggregate holdings of 54,019 (5.2%) shares of the Company's common stock.
Rainbow has disclosed in the Schedule 13D the purpose of the acquisition is
"capital appreciation of stock".
ITEM 1. ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and By-laws require that the
number of directors on the Board be not less than two. The Board currently
consists of the following persons: Daniel R. Shaughnessy and Christopher W.
Brody. At each annual meeting of stockholders, the term of each director expires
and director nominees are elected to the Board for terms of one year.
At the Annual Meeting, two directors are to be elected to serve until the
1998 Annual Meeting of Stockholders and until their successors are elected and
qualified. Unless authority to vote for directors is withheld in the proxy card,
it is the intention of the persons named in the enclosed form of proxy to vote
FOR the re-election of Daniel R. Shaughnessy and Christopher W. Brody as
directors. The persons designated as proxies will have discretion to cast votes
for other persons in the event any nominee for director is unable to serve. At
present, it is not anticipated that any nominee will be unable to serve. The
Board recommends a vote FOR the election of the two nominees for director named
below.
Director Nominees
Daniel R. Shaughnessy, Age 70, has been Chairman of the Board and Chief
Executive Officer of the Company since its formation in 1992. Prior to that and
since 1983, Mr. Shaughnessy was Chairman and Chief Executive Officer of the
Company's predecessors.
Christopher W. Brody, Age 52, has served as a Director of the Company since
its formation in 1992. Prior to that and since 1983, Mr. Brody was a Director of
the Company's predecessors. Mr. Brody has been a Managing
5
<PAGE>
Director of E.M. Warburg, Pincus & Co., LLC, which is a venture banking and
investment counseling firm, for more than the past five years. Mr. Brody is a
director of Intuit, Inc.
INFORMATION REGARDING THE BOARD OF DIRECTORS
AND ITS COMMITTEES
The Board met twice during fiscal 1996. Each current director attended at
least 75% of the total number of meetings of the Board held during the period
for which he has been a director. The Board has no standing Audit, Executive,
Stock Option, Nominating or Compensation Committees or committees performing
similar functions. The Board is responsible for reviewing the compensation of
the Company's officers. The Board also administers the Company's Restricted
Stock Plan and the Company's Employee Stock Option Plan (1990), as amended (the
"Amended Plan"), which task includes, among other things, granting and setting
the terms of stock options and stock appreciation rights.
The customary functions of an audit committee are performed by Christopher
W. Brody, with Daniel R. Shaughnessy serving ex officio. Such directors meet
periodically with the Company's independent accountants and management to
discuss accounting principles, financial and accounting controls, the scope of
the annual audit, internal control and other matters, and review management's
selection of independent accountants. The independent accountants and the
internal auditors have complete access to Mr. Brody without management present,
to discuss results of their audit and their opinions on adequacy of internal
controls, quality of financial reporting, and other accounting and auditing
matters.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary of Compensation
The following Summary Compensation Table sets forth the annual and
long-term compensation for services in all capacities to the Company paid (or
accrued) by the Company or its predecessor partnership during each of the last
three fiscal years to the Chief Executive Officer, Vice Chairman and the Vice
President - Secretary and Treasurer, who were the only officers whose annual
salary and bonus exceeded $100,000 during 1996 (the "Named Executive Officers").
6
<PAGE>
TABLE I
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION (3)
-------------------------------------- --------------------------------------
Other Annual Restricted Stock Securities Underlying
Name & Principal Position Year Salary ($) Bonus ($) Compensation (1) Award(s) ($) (2) Options/SARs (#)
- ------------------------- ---- ---------- --------- ---------------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Daniel R. Shaughnessy 1996 200,000 -- 76,701 -- --
Chief Executive Officer 1995 200,000 1,000,000 70,450 400,000 --
1994 200,000 -- 58,163 -- --
Edward J. Gallagher 1996 140,000 -- 18,241 -- --
Vice Chairman 1995 140,000 100,000 15,723 100,000 6,733
1994 137,111 -- 12,127 -- 5,000
Edward A. Paul 1996 87,000 -- 1,069 -- --
Vice President - 1995 79,833 50,000 2,162 60,000 3,000
Secretary & Treasurer 1994 81,167 -- 2,162 -- 3,000
</TABLE>
- ----------
(1) For Mr. Shaughnessy, Other Annual Compensation includes the value of a
company automobile and life insurance in the amounts of $1,500 and $75,201,
respectively, for the year 1996.
For Mr. Gallagher, Other Annual Compensation includes the value of a
company automobile and life insurance in the amounts of $1,500 and $16,741,
respectively, for the year 1996.
For Mr. Paul, Other Annual Compensation is life insurance in the amount of
$1,069 for the year 1996.
(2) The number of shares and value of the restricted stock award to all Company
employees on the award date, as determined by the closing price on the OTC
Bulletin Board, was 40,000 and $800,000. The number of shares and value of
restricted stock holdings of each of the named officers on the date of
award, December 31, 1996 and February 28, 1997 were 20,000, $400,000,
$540,000 and $590,000 (Mr. Shaughnessy); 5,000, $100,000, $135,000 and
$147,500 (Mr. Gallagher); and 3,000, $60,000, $81,000 and $88,500 (Mr.
Paul). The forfeiture expiration dates for the restricted stock are January
3, 1999 (50%) and January 3, 2001 (50%). Holders of restricted stock have
voting rights and receive dividends.
(3) On January 30, 1997 the Motel 6 Operator and its assignees purchased all
the Company's motels under the terms of the Master Lease Agreement Purchase
Option (the "Purchase Option"). As a result of this transaction, the
forfeiture conditions of the Restricted Stock were waived.
Option Grants in Last Fiscal Year
No stock option grants were made during fiscal 1996. No Stock Appreciation
Rights ("SARs") were granted in fiscal 1996.
Option Exercises and Year-End Values
Table II sets forth information regarding unexercised stock options held by
each of the Named Executive Officers. No Named Executive Officers exercised any
stock options during fiscal 1996.
7
<PAGE>
TABLE II
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (1) (2) AT FY-END (2)
---------------------------- ---------------------------
Value
Shares Acquired Realized Exercisable Unexercisable Exercisable Unexercisable
Name on Exercise (#)(2) ($) (#) (#) ($) ($)
- --------------------- ------------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel R. Shaughnessy -- -- 19,000(3) -- 370,500 --
Edward J. Gallagher -- -- 13,777(4) 6,156 205,516 90,637
Edward A. Paul -- -- 7,400(4) 3,000 133,174 46,750
</TABLE>
- ----------
(1) These options terminate on the tenth anniversary of the grant date. The
option exercise price per underlying share of Common Stock is $7.50 per
share for Mr. Shaughnessy and a range of $2.25 to $22.50 per share of
Common Stock for both Mr. Gallagher and Mr. Paul, the fair market values on
the grant dates.
(2) On January 30, 1997 the Motel Operator and its assignees purchased all of
the Company's motels under the terms of the Master Lease Agreement Purchase
Option. As a result of this transaction, all Stock Option grants became
fully vested.
The table below sets forth the Aggregated Option/SAR Exercise position of the
named officers as of February 28, 1997:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR-TO-DATE 1997
AND SAR VALUES AS OF FEBRUARY 28, 1997
----------------------------------------------------------------------------
Number of Value of Unexercised
Unexercised Options In-The-Money Options
------------------- --------------------
Option/
SAR Value
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
--------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel R. Shaughnessy 19,000 (3) 418,000 -- -- -- --
Edward J. Gallagher 19,933 (4) 588,024 -- -- -- --
Edward A. Paul 10,400 (4) 306,800 -- -- -- --
</TABLE>
(3) On February 10, 1997 Mr. Shaughnessy exercised his SAR with respect to
19,000 shares pursuant to terms of his stock option agreement dated October
6, 1992. The exercise was at the average of the closing bid and asked price
($29.50) as furnished by NASDAQ Over-The-Counter Market on February 10,
1997. The SAR exercise resulted in a payment of $418,000 to Mr.
Shaughnessy.
(4) On February 27, 1997 Mr. Gallagher and Mr. Paul exercised all of their
Stock Option grants which were fully vested and fully paid.
Compensation of Directors
Directors receive no compensation for their service rendered but are
reimbursed for cost of attending Board meetings.
8
<PAGE>
Employment and Change-in-Control Arrangements and Certain Transactions
Mr. Shaughnessy is employed to manage the Company pursuant to an Executive
Employment Agreement (the "Shaughnessy Agreement") on a part-time basis. The
Shaughnessy Agreement expires the earlier of (i) the closing date of a sale of
the assets of the Company to the Motel 6 Operator upon exercise under the Master
Lease Agreement of the Purchase Option; (ii) the closing date of any other sale
of the Company or its assets; or (iii) December 31, 1998. During October 1992,
Mr. Shaughnessy's salary was reduced from $518,000 to $200,000 annually, but he
continues to receive substantially the same employee benefits as he previously
received and is entitled to receive all other benefits which have generally been
granted to senior executives of the Company. The Shaughnessy Agreement expired
on January 30, 1997, the date the Purchase Option was exercised.
Mr. Shaughnessy was granted Options and related Stock Appreciation Rights,
which were fully vested at April 30, 1993, to purchase 19,000 common shares. The
options are exercisable for a period of ten years. The option price of $7.50 per
share was the fair market value of a Share of Common Stock on the date of the
grant. As disclosed above, on February 10, 1997 Mr. Shaughnessy exercised his
SAR with respect to the 19,000 shares.
In 1995, Mr. Shaughnessy received an award of 20,000 common shares under
the Restricted Stock Plan.
In 1995, the Company entered into agreements with its other six Company
employees which provide that in the event of a change of control of the Company
or an early purchase under the Purchase Option, that the Company will pay the
employees their current salaries through December 31, 1998. Under these
circumstances, the Company vested all of the Stock Options and waived the
forfeiture conditions of the Restricted Stock applicable to each of the six
employees. As part of this agreement, each employee has agreed to stay in the
employ of the Company through December 31, 1998.
As a result of the early purchase under the Purchase Option in January
1997, three of the employees will leave the employment of the Company and will
receive a severance payment equal to their current salary through December 31,
1998. The three terminating employees have exercised all of their rights to
Stock Options and Restricted Stock which has become fully vested and
nonforfeitable under terms of their employment agreement.
Three employees (Mr. Gallagher, Mr. Paul and Donna L. Quaglia) will remain
with the Company to manage the winding-up and liquidation activities. These
three employees have served the Company from its inception in 1983 and have made
exceptional contributions toward the enhancement of the value of the Company. In
noting the significant service of the three remaining employees and their
faithful performance, and the absence of a retirement plan, the Board of
Directors has unanimously approved full payment and full vesting of shares under
the three employees' Stock Option Agreements. This action by the Board of
Directors will result in $428,784 of additional compensation to the three
employees, $242,038, $100,877 and $85,869 of which will be paid to Mr.
Gallagher, Mr. Paul and Ms. Quaglia, respectively. As of February 28, 1997 there
were no outstanding Stock Options.
As of December 31, 1996 there were 81,333 shares outstanding with respect
to Stock Options.
REPORT ON REPRICING OF OPTIONS/SARS
The Company did not during fiscal 1996 adjust or amend the exercise price
of stock options or SARs previously awarded to any of the Named Executive
Officers, whether through amendment, cancellation, replacement grant or any
other means.
REPORT OF THE BOARD OF DIRECTORS REGARDING COMPENSATION
The Board has no Compensation Committee or committee performing similar
functions. The Board is responsible for setting the terms of and reviewing the
compensation of the Company's officers and key employees.
9
<PAGE>
Current Compensation Philosophy
The attraction and retention of highly competent and motivated executives
is an important objective of the Company's compensation practices. The Board
believes it has achieved this goal by providing top employees with competitive
salaries, offering bonuses to reward the achievement of Company goals, such as
value enhancement of the Company's stock, and providing long-term incentives
through stock options, which give executives an opportunity to share in the
Company's success as reflected by increases in its stock price. The Company has
experienced unusual enhancement of its per share stock value as the bid price,
which has risen from $2.37 at year end 1994, to $27.00 at the end of 1996 and is
currently $29 1/4 at March 18, 1997.
Base Salary and Bonus. During 1996, the Board did not grant salary
increases nor bonuses to management employees.
Long-Term Incentive Compensation. The Amended Stock Option Plan and the
Restricted Stock Plan provides an incentive for key employees of the Company to
increase stockholder value by aligning their own interests with those of the
Company's stockholders. Because the exercise price of stock options granted
under the Amended Plan may not be set at less than market value, participants
will not realize value on such options unless the Company's stock price
increases. No Stock Option Plan shares were granted during 1996.
Philosophy on the Deductibility of Compensation
The Board designs its compensation arrangements to provide competitive
levels of compensation that align compensation with the Company's annual and
long-term performance goals, reward strong performance, recognize individual
achievement and assist the Company in attracting and retaining qualified
executives, and in this way, achieve the best returns for the Company's
stockholders.
In accordance with changes made in 1993 to the Internal Revenue Code
relating to the disallowance of deduction for remuneration in excess of
$1,000,000 to certain officers, through adoption of an annual incentive plan,
the Company has secured the deductibility of annual incentive awards paid. Under
the Code, any compensation expense relating to options granted under the Company
stock option plans is also deductible.
As stated above, the Board designs its compensation arrangements to achieve
various objectives and, to the extent these objectives can be achieved in a
manner which maximizes the deductibility of compensation paid by the Company, it
will seek to do so.
The Board will continue to strive to achieve its compensation objectives in
a manner which causes the incentive compensation paid to the Company's executive
officers to be fully deductible and will consider possible changes to the
Company's compensation policies when final regulations are issued.
BOARD OF DIRECTORS
Daniel R. Shaughnessy
Christopher W. Brody
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has no Compensation Committee or other committee performing
similar functions. The Board, which makes decisions with respect to executive
compensation, consists of two members, one of which, Daniel R. Shaughnessy, is
the Chief Executive Officer. To eliminate any conflicts of interest and to
insure independence, the outside Director votes on Mr. Shaughnessy's
compensation. There are no Compensation Committee Interlocks as that term is
defined under Item 402(j) of Regulation S-K as promulgated under the Exchange
Act, among the members of the Board.
10
<PAGE>
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return of the
Company, based on share price and distributions to security holders, with the
cumulative total return of the Nasdaq Stock Market index (U.S. companies) and an
industry index published by the Center for Research in Security Prices
consisting of companies in the Company's three-digit Standard Industrial
Classification Code, 701, representing hotel and motel operators in the United
States. For the period shown, the Company paid a $2.00 per share dividend in
each of the years 1996 and 1995 and paid no dividends in the other years. Except
as set forth in the next sentence, the graph assumes $100 invested on December
31, 1991 in the limited partnership interests (the "Units") of the Partnership
and each of the other indices. Because of the change in the Company's capital
structure upon the merger (the "Merger") of the Partnership and Allstar Inns
Operating L.P., a Delaware limited partnership into the Company, effected on
November 25, 1993 (the "Effective Date"), for periods subsequent to the
Effective Date the graph assumes $100 invested on the Effective Date in the
Company's Common Stock and each of the other indices. Effective as of the
Effective Date and pursuant to the Merger, holders of the Partnership Units
outstanding prior to the effectiveness of the Merger received one share of
Common Stock in exchange for each 15 Units.
11
<PAGE>
Comparison of Cumulative Total Return to the Nasdaq Stock Market Index and
Industry Index*
[The following table was represented by a line graph in the printed material.]
<TABLE>
<CAPTION>
LEGEND
Nov. 23 Nov. 25 Dec.
1991 1992 1993 1993 1993 1994 1995 1996
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
o Allstar Inns Inc. 100.00 50.00 100.00 100.00 62.50 29.69 318.75 362.50
o Nasdaq Stock Market 100.00 116.36 129.96 100.00 103.17 100.87 142.61 174.77
o Industry Index 100.00 140.01 179.61 100.00 114.12 102.34 123.83 169.44
</TABLE>
- ----------
* Source: Center for Research in Security Prices
12
<PAGE>
MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The common stock of the Company began trading on the OTC Bulletin Board
Service on November 26, 1993 and the high bid and low ask prices are currently
reported under the symbol "ALST". The range of the high bid and low ask prices
of the Company's Common stock for the years 1994, 1995 and 1996 are set forth
below:
High Low
---- ---
1994 $5 $2
1995 $25 $2 1/4
1996 $27 $23
As of February 28, 1997 there were 627 stockholders of record holding
1,047,443 shares of common stock.
The Company paid a $2.00 per share dividend in each of the years 1995 and
1996 and paid no dividend for 1994.
ITEM 2. APPROVAL OF PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
General
The Board of Directors is proposing the Plan for approval by the
stockholders at the Annual Meeting. The Plan was adopted by the Board of
Directors, subject to stockholder approval, on March 14, 1997. A copy of the
Plan is attached as Exhibit A to this Proxy Statement. Certain material features
of the Plan are summarized below; these summaries do not purport to be complete
and are subject in all respects to the provisions of, and are qualified in their
entirety by reference to, the Plan. STOCKHOLDERS ARE URGED TO READ THE PLAN IN
ITS ENTIRETY.
The following resolution will be offered at the Annual Meeting:
"RESOLVED, that the Plan of Complete Liquidation and Dissolution
recommended by the Board of Directors be authorized and approved."
Background and Reasons for the Plan; Directors' Recommendation
In July 1992, the security holders of the Company approved a plan that
placed the business and operations of the Company's motels under the management
of Motel 6 Operating L.P., a Delaware limited partnership (the "Motel 6
Operator"). The Company entered into a Management Contract which provided that
the Motel 6 Operator would operate and manage all the Company's motels through
December 31, 2011. The Motel 6 Operator also had an option to purchase the
Company's motels between January 1, 1997 and December 31, 1998 at a price fixed
by formula (zero value to the Stockholders at December 31, 1994).
In May 1995, the security holders of the Company approved the plan to
terminate the Management Contract effective January 1, 1995 and replace it with
a Master Lease Agreement under terms of which the Motel 6 Operator would lease
the Company's motels through December 31, 2009. Under the Master Lease
Agreement, the Motel 6 Operator had an option (the "Purchase Option") to
purchase the Company's motels prior to the end of 1998 at a price of $40.0
million plus assumption by the Motel 6 Operator of all indebtedness secured by
the Company's motels. The Purchase Option was exercised by the Motel 6 Operator
in January 1997.
Pursuant to the Master Lease Agreement as approved by the stockholders at
the Company's 1995 Annual Meeting, effective as of January 30, 1997, all of the
Company's motels were sold to the Motel 6 Operator and its
13
<PAGE>
Assignees. The Company now holds only five parcels of unimproved land which the
Company intends to sell for cash.
Since the Company's restructuring in July 1992, management and the Board of
Directors have effectively terminated the Company's participation in
acquisitions and steps have been initiated to reduce costs and to orient the
Company's administrative structure toward implementation of a liquidation of the
Company following the exercise of the Purchase Option by the Motel 6 Operator.
In deciding to adopt the Plan, the Board also considered the undesirability of
continuing as a public company and of effectuating the investments necessary to
re-commence active operations.
The Board of Directors did not deem it to be necessary to obtain a
valuation or appraisal of the Company's assets from an investment banker or
other outside source because the Company's assets consist primarily of cash. It
is the intention of the Company to distribute rather than reinvest the Company's
cash. The Board of Directors believes that it is in the best interests of the
Company's stockholders to distribute to the stockholders the Company's cash
through distributions of the proceeds of sale of the Company's motels and of the
remaining assets, together with other available cash.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE PLAN.
In adopting the plan, the Board of Directors recognized that stockholders,
depending on their tax basis in their shares, may be required to recognize gain
for tax purposes upon receipt of distributions in liquidation and upon the
possible transfer of assets to a liquidating trust or trusts. See "Material
Federal Income Tax Consequences."
THIS PROXY STATEMENT CONTAINS CERTAIN FORWARD LOOKING STATEMENTS INCLUDING
STATEMENTS BASED ON THE BOARD'S ESTIMATE OF THE VALUES OF THE COMPANY'S NET
ASSETS. THE METHODS USED BY THE BOARD OF DIRECTORS AND MANAGEMENT IN ESTIMATING
THE VALUE OF THE COMPANY'S ASSETS DO NOT RESULT IN AN EXACT DETERMINATION OF
VALUE NOR ARE THEY INTENDED TO INDICATE THE AMOUNT A STOCKHOLDER WILL RECEIVE IN
LIQUIDATION. THE PRICES AT WHICH THE COMPANY WILL BE ABLE TO SELL ITS VARIOUS
REMAINING ASSETS DEPEND LARGELY ON FACTORS BEYOND THE COMPANY'S CONTROL,
INCLUDING, WITHOUT LIMITATION, THE RATE OF INFLATION, CHANGES IN INTEREST RATES,
THE CONDITION OF REAL ESTATE AND FINANCIAL MARKETS AND THE AVAILABILITY OF
FINANCING TO PROSPECTIVE PURCHASERS. NO ASSURANCE CAN BE GIVEN THAT THE AMOUNT
TO BE RECEIVED IN LIQUIDATION WILL EQUAL OR EXCEED THE PRICE OR PRICES AT WHICH
THE COMMON STOCK HAS GENERALLY TRADED OR IS EXPECTED TO TRADE IN THE FUTURE.
If the Plan is not approved by the stockholders, the Board of Directors
will explore the alternatives then available for the future of the Company.
Possible Effects of the Approval of the Plan upon Directors and Officers
The approval of the Plan by stockholders may have certain effects upon the
Company's officers and directors, including those set forth below:
Three employees (Mr. Gallagher, Mr. Paul and Donna L. Quaglia) will remain
with the Company to manage the winding-up and liquidation activities. These
three employees have served the Company from its inception in 1983 and have
made exceptional contributions toward the enhancement of the value of the
Company. In addition, Mr. Gallagher, Mr. Paul and Ms. Quaglia are parties
to employment agreements entitling such persons to compensation,
notwithstanding that the responsibilities of these employees in liquidating
and dissolving the Company may be less than their present responsibilities.
The Company has entered into agreements with its employees which provide
that in the event of a change of control of the Company or an early
purchase under the Purchase Option, that the Company will pay the employees
their current salaries, benefits and
14
<PAGE>
insurance through December 31, 1998. Following that date, it will be the
responsibility of each individual to pay any premiums related to such
benefits and insurance. Mr. Shaughnessy, one of the members of the
two-person Board of Directors and the Chief Executive Officer of the
Company, received the salary and benefits described under "Compensation of
Executive Officers and Directors".
Principal Provisions of the Plan
Pursuant to the Plan:
(a) The Company will distribute pro rata to its stockholders the cash
received from the sale of its property and assets. The liquidation is expected
to commence as soon as practicable after approval of the Plan by the
stockholders and to be concluded prior to the third anniversary thereof by a
final liquidating distribution either directly to the stockholders or to one or
more liquidating trusts. Any sales of the Company's assets will be made, in
private or public transactions, on such terms and conditions it deems expedient
and in the best interests of the Company and its stockholders. It is not
anticipated that any further stockholder votes will be solicited with respect to
the approval of the specific terms of any particular sales of assets as the
Company has been advised by its counsel that such further votes are not required
by the Delaware General Corporate Law ("DGCL"). See "Sales of the Company's
Assets."
(b) Subject to the payment or the provision for payment of the Company's
indebtedness and other obligations, the cash proceeds of any asset sales
together with other available cash will be distributed from time to time pro
rata to the holders of the Common Stock on record dates selected by the Board of
Directors with respect to each such distribution. Only stockholders of record on
the record date set for the particular distribution will receive distributions
with respect to such record date. The Company may establish a reasonable reserve
(a "Contingency Reserve") in an amount determined to be sufficient to satisfy
the liabilities, expenses and obligations of the Company not otherwise paid,
provided for or discharged. The net balance, if any, of any such Contingency
Reserve remaining after payment, provision or discharge of all such liabilities,
expenses and obligations will also be distributed to the Company's stockholders
pro rata. The Company has no current or long-term bank indebtedness. The
Company's accrued obligations at February 28, 1997 were approximately $3.3
million with the balance accrued with respect to federal income taxes payable.
See "Condensed Unaudited Pro Forma Statement of Net Assets in Liquidation."
(c) The Company does not intend to make distributions in any form other
than cash.
(d) If deemed necessary, the Company may, from time to time, transfer any
of its unsold assets to one or more trusts established for the benefit of the
then stockholders which property would thereafter be sold on terms approved by
its trustees. If all of the Company's assets (other than the Contingency
Reserve) are not sold prior to the third anniversary of the approval of the Plan
by the Company's stockholders, the Company must transfer in final distribution
such remaining assets to a trust. The Company may also elect in its discretion
to transfer the Contingency Reserve, if any, to such a trust. Any of such trusts
are referred to herein as "liquidating trusts."
Notwithstanding the foregoing, to the extent that a distribution or
transfer of any asset cannot be effected without the consent of a governmental
authority, no such distribution or transfer shall be effected without such
consent. In the event of a transfer of assets to a liquidating trust, the
Company would distribute, pro rata to the holders of its Common Stock,
beneficial interests in any such liquidating trust or trusts. It is anticipated
that the interests in any such trusts will not be transferable; hence, although
the recipients of the interests would be treated for tax purposes as having
received their pro rata share of property transferred to the liquidating trust
or trusts and will thereafter take into account for tax purposes their allocable
portion of any income, gain or loss realized by such liquidating trust or
trusts, the recipients of the interests will not realize the value thereof
unless and until such liquidating trust or trusts distributes cash or other
assets to them. The Plan authorizes the Company to appoint one or more
individuals or entities to act as trustee or trustees of the liquidating trust
or trusts and to enter into a liquidating trust agreement or agreements with
such trustee or trustees on such terms and conditions the Company may deem
necessary, appropriate or desirable. Approval of the Plan also will constitute
the approval by the Company's stockholders of any such appointment and any
liquidating trust agreement or agreements. For further
15
<PAGE>
information relating to liquidating trusts, the appointment of trustees and the
liquidating trust agreements, reference is made to "Contingent Liabilities;
Contingent Reserve; Liquidating Trusts."
(e) The Company will close its stock transfer books and discontinue
recording transfers of shares of Common Stock on the earlier to occur of (i) the
close of business on the record date fixed by the Board of Directors for the
final liquidating distribution, or (ii) the date on which the dissolution
becomes effective under the DGCL (the "Final Record Date"), and thereafter
certificates representing shares Common Stock will not be assignable or
transferable on the books of the Company except by will, intestate succession or
operation of law. After the Final Record Date the Company will not issue any new
stock certificates, other than replacement certificates. See "Listing and
Trading of the Common Stock and interests in the Liquidating Trust or Trusts"
and "Final Record Date" below.
(f) A Certificate of Dissolution will be filed with the State of Delaware
dissolving the Company. The dissolution of the Company will become effective, in
accordance with the DGCL upon proper filing of the Certificate of Dissolution
with the Secretary of State or upon such later date as may be specified in the
Certificate of Dissolution. Pursuant to the DGCL, the Company will continue to
exist for three years after the dissolution becomes effective or for such longer
period as the Delaware Court of Chancery shall direct, for the purpose of
prosecuting and defending suits, whether civil, criminal or administrative, by
or against it, and enabling the Company gradually to settle and close its
business, to dispose of and convey its property, to discharge its liabilities
and to distribute to its stockholders any remaining assets, but not for the
purpose of continuing the business for which the Company was organized.
Abandonment; Amendment
Under the Plan, the Board of Directors may modify, amend or abandon the
Plan, notwithstanding stockholder approval, to the extent permitted by the DGCL.
Liquidating Distributions; Nature; Amount; Timing
Although the Board of Directors has not established a firm timetable for
distributions to stockholders if the Plan is approved by the stockholders, the
Company will, subject to exigencies inherent in winding up the Company's
business, make such distributions as promptly as practicable. Notwithstanding,
the liquidation is expected to commence as soon as practicable after approval of
the Plan by the stockholders and the Board of Directors presently intends to
make an initial cash distribution to stockholders of $28.00 per share, promptly
following the approval of the Plan by stockholders. The liquidation is expected
to be concluded prior to the third anniversary thereof by a final liquidating
distribution either directly to the stockholders or to a liquidating trust. The
Board of Directors is, however, currently unable to predict the precise nature,
amount or timing of any distributions pursuant to the Plan. The actual nature,
amount and timing of, and record date for all distributions will be determined
by the Board of Directors, in its sole discretion. The Company does not plan to
satisfy all of its liabilities and obligations prior to making distributions to
its stockholders, but instead will reserve assets deemed by management and the
Board of Directors to be adequate to provide for such liabilities and
obligations. See "Contingent Liabilities; Contingency Reserve; Liquidating
Trust." Management and the Board of Directors believe that the Company has
sufficient cash to pay its current and accrued obligations, without the sale of
any of its remaining assets. The sale of all of the Company's motels has
resulted and it is anticipated that the sale or distribution of the Company's
other assets will result in the net realization of substantial net gain and the
recognition of substantial tax obligations. The Company believes that it has the
cash to meet such tax obligations.
Net value of the Company's non-cash assets and the ultimate amount of its
liabilities make it impracticable to predict the aggregate net values ultimately
distributable to stockholders. Claims, liabilities and expenses from operations
(including operating costs, salaries, income taxes, payroll and local taxes and
miscellaneous office expenses), although currently declining, will continue to
occur following approval of the Plan, and the Company anticipates that expenses
for professional fees and other expenses of liquidation will be significant.
These expenses will reduce the amount of cash available for ultimate
distribution to stockholders, and, the Company does not believe that a precise
estimate of those expenses can currently be made. Management and the Board of
Directors believe that available cash and amounts received on the sale of assets
will be adequate to provide for the Company's
16
<PAGE>
obligations, liabilities, expenses and claims (including contingent liabilities)
and to make cash distributions to stockholders. However, no assurances can be
given that available cash and amounts received on the sale of assets will be
adequate to provide for the Company's obligations, liabilities, expenses and
claims and to make cash distributions to stockholders. If such available cash
and amounts received on the sale of assets are not adequate to provide for the
Company's obligations, liabilities, expenses and claims, distributions of cash
and other assets to the Company's stockholders will be reduced.
Sales of The Company's Assets
The Plan gives the Company authority to sell all of the remaining assets.
As of March 27, 1997 the Company's non-cash assets consist of five parcels of
vacant land located in Carson, CA, Buellton, CA, Grants Pass, OR, Oklahoma City,
OK and Pharr, TX, and agreements for the sale of such real estate may be entered
into prior to the Annual Meeting. Stockholder approval of the Plan will
constitute approval of any such agreements. Sales of the Company's assets will
be made on such terms as are approved by the Company and may be conducted by
competitive bidding, public sales or privately negotiated sales. Any sales will
only be made after it is determined that any such sale is in the best interests
of the stockholders. It is not anticipated that any further stockholder votes
will be solicited with respect to the approval of the specific terms of any
particular sales of assets, as the Company has been advised by its counsel that
such further votes are not required by the DGCL. The Company does not anticipate
amending or supplementing this Proxy Statement to reflect any such agreement or
sale. The prices at which the Company will be able to sell its various assets
will depend largely on factors beyond the Company's control, including, without
limitation, the rate of inflation, changes in interest rates, the condition of
real estate and financial markets and the availability of financing to
prospective purchasers of the assets. In addition, the Company may not obtain as
high a price for a particular property as it might secure if the Company were
not in liquidation.
Conduct of the Company Following Adoption of the Plan
Since the sale of the Company's motel assets and the adoption of the Plan
by the Board of Directors, the Board and management have effectively terminated
the Company's participation in the active management of its assets to the extent
conducted under the Master Lease Agreement. It is anticipated that the present
directors and principal executive officers of the Company will continue to serve
in such capacities following approval of the Plan by the stockholders. The
continuing officers will receive compensation for the duties then being
performed as determined by the Board of Directors.
Following approval of the Plan by the Company's stockholders, the Company's
activities will be limited to winding up its affairs, taking such action as may
be necessary to preserve the value of its assets and distributing its assets in
accordance with the Plan. The Company will seek to distribute or liquidate all
of its assets in such manner and upon such terms as the Board of Directors
determines to be in the best interests of the Company's stockholders.
Following the approval of the Plan by the Company's stockholders, the
Company shall continue to indemnify its officers, directors, employees and
agents in accordance with its Certificate of Incorporation, as amended, and
By-laws and any contractual arrangements, for actions taken in connection with
the Plan and the winding up of the affairs of the Company. The Company's
obligation to indemnify such persons may be satisfied out of the assets of any
liquidating trust. The Board of Directors and the trustees of any liquidating
trust, in their absolute discretion, are authorized to obtain and maintain
insurance as may be necessary to cover the Company's indemnification obligations
under the Plan.
Contingent Liabilities; Contingency Reserve; Liquidating Trust
Under Delaware law the Company is required, in connection with its
dissolution, to pay or provide for payment of all of its liabilities and
obligations. Following approval of the Plan by the Company's stockholders, the
Company will pay all expenses and fixed and other known liabilities, or set
aside as a Contingency Reserve assets which it believes to be adequate for
payment thereof. The Company is currently unable to estimate with precision the
amount of any Contingency Reserve, which may be required, but any such amount
(in addition to any cash
17
<PAGE>
contributed to a liquidating trust, if one is utilized) will be deducted before
the determination of amounts available for distribution to stockholders.
The actual amount of the Contingency Reserve will be based upon estimates
and opinions of management and the Board of Directors and derived from
consultations with outside tax experts and review of the Company's estimated
operating expenses, including, without limitation, anticipated compensation
payments, estimated legal and accounting fees, rent, payroll and other taxes
payable, miscellaneous office expenses and expenses accrued in the Company's
financial statements. There can be no assurance that the Contingency Reserve in
fact will be sufficient. The Company has not made any specific provision for an
increase in the amount of the Contingency Reserve. Subsequent to the
establishment of the Contingency Reserve, the Company will distribute to its
stockholders any portions of the Contingency Reserve which it deems no longer to
be required. After the liabilities, expenses and obligations for which the
Contingency Reserve had been established have been satisfied in full, the
Company will distribute to its stockholders any remaining portion of the
Contingency Reserve.
If deemed necessary, appropriate or desirable for any reason, the Company
may, from time to time, transfer any of its unsold assets to one or more
liquidating trusts established for the benefit of the then stockholders which
property would thereafter be sold or distributed on terms approved by its
trustees. The Company may determine to transfer assets to a liquidating trust in
circumstances where the nature of an asset is not susceptible to distribution
(for example, interests in real estate). If all of the Company's assets (other
than the Contingency Reserve) are not sold or distributed prior to the third
anniversary of the approval of the Plan by the Company's stockholders, the
Company must transfer in final distribution such remaining assets to a
liquidating trust. The Company may also elect in its discretion to transfer the
Contingency Reserve, if any, to such a liquidating trust. Notwithstanding the
foregoing, to the extent that the distribution or transfer of any asset cannot
be effected without the consent of a governmental authority, no such
distribution or transfer shall be effected without such consent. The purpose of
a liquidating trust would be to distribute such property or to sell such
property on terms satisfactory to the liquidating trustees, and distribute the
proceeds of those liabilities of the Company, if any, assumed by the trust, to
the Company's stockholders. Any liquidating trust acquiring all the unsold
assets of the Company will assume all of the liabilities and obligations of the
Company and will be obligated to pay any expenses and liabilities of the Company
which remain unsatisfied. If the Contingency Reserve transferred to the
liquidating trust is exhausted, such expenses and liabilities will be satisfied
out of the liquidating trust's other unsold assets.
The Plan authorizes the Company to appoint one or more individuals or
entities to act as trustee or trustees of the liquidating trust or trusts and to
cause the Company to enter into a liquidating trust agreement or agreements with
such trustee or trustees on such terms and conditions as may be approved by the
Board of Directors. It is anticipated that the Company will select such trustee
or trustees on the basis of the experience of such individual or entity in
administering and disposing of assets and discharging liabilities of the kind to
be held by the liquidating trust or trusts and the ability of such individual or
entity to serve the best interests of the Company's stockholders. Approval of
the Plan by the stockholders will also constitute the approval by the Company's
stockholders of any such appointment and any liquidating trust agreement or
agreements.
The Company has no present plans to use a liquidating trust or trusts, but
the Board of Directors believes the flexibility provided by the Plan with
respect to the liquidating trusts to be advisable. The trust would be evidenced
by a trust agreement between the Company and the trustees. The purpose of the
trust would be to serve as a temporary repository for the trust property prior
to its disposition. The transfer to the trust and distribution of interests
therein to the Company's stockholders would enable the Company to divest itself
of the trust property and permit the Company's stockholders to enjoy the
economic benefits of ownership thereof. Pursuant to the trust agreement, the
trust property would be transferred to the trustees immediately prior to the
distribution of interests in the trust to the Company's stockholders, to be held
in trust for the benefit of the stockholder beneficiaries subject to the terms
of the trust agreement. It is anticipated that the interests would be evidenced
only by the records of the trust and there would be no certificates or other
tangible evidence of such interests and that no holder of Common Stock would be
required to pay any cash or other consideration for the interests to be received
in the distribution or to surrender or exchange shares of Common Stock in order
to receive the interests. It is further anticipated that pursuant to the trust
agreements (i) approval of a majority of the trustees would be required to take
any action; (ii) the trust would be irrevocable and would terminate after, the
earlier of (x) the proceeds of the sale of trust property having been fully
distributed, or (y) a majority in interest of the beneficiaries of the trust, or
a
18
<PAGE>
majority of the trustees, having approved of such termination, or (z) a
specified number of years having elapsed after the creation of the trust.
Under the DGCL, in the event the Company fails to create an adequate
Contingency Reserve for payment of its expenses and liabilities, or should such
Contingency Reserve and the assets held by the liquidating trust or trusts be
exceeded by the amount ultimately found payable in respect of expenses and
liabilities, each stockholder could be held liable for the payment to creditors
of such stockholder's pro rata share of such excess, limited to the amounts
theretofore received by such stockholder from the Company or from the
liquidating trust or trusts.
If the Company were held by a court to have failed to make adequate
provision for its expenses and liabilities or if the amount ultimately required
to be paid in respect of such liabilities exceeded the amount available from the
Contingency Reserve and the assets of the liquidating trust or trusts, a
creditor of the Company could seek an injunction against the making of
distributions under the Plan on the ground that the amounts to be distributed
were needed to provide for the payment of the Company's expenses and
liabilities. Any such action could delay or substantially diminish the cash
distributions to be made to stockholders and/or interest holders under the Plan.
Final Record Date
The Company will close its stock transfer books and discontinue recording
transfers of shares of Common Stock on the Final Record Date, and thereafter
certificates representing shares of Common Stock will not be assignable or
transferable on the books of the Company except by will, intestate succession or
operation of law. After the Final Record Date the Company will not issue any new
stock certificates, other than replacement certificates. It is anticipated that
no further trading of the Company's shares will occur on or after the Final
Record Date. See "Listing and Trading of the Common Stock and Interests in the
Liquidating Trust or Trusts" below. All liquidating distributions from the
Company or a liquidating trust on or after the Final Record Date will be made to
stockholders according to their holdings of Common Stock as of the Final Record
Date. Subsequent to the Final Record Date, the Company may at its election
require stockholders to surrender certificates representing their shares of the
Common Stock in order to receive subsequent distributions. Stockholders should
not forward their stock certificates before receiving instructions to do so. If
surrender of stock certificates should be required, all distributions otherwise
payable by the Company or the liquidating trust, if any, to stockholders who
have not surrendered their stock certificates may be held in trust for such
stockholders, without interest, until the surrender of their certificates
(subject to escheat pursuant to the laws relating to unclaimed property). If a
stockholder's certificate evidencing the Common Stock has been lost, stolen or
destroyed, the stockholder may be required to furnish the Company with
satisfactory evidence of the loss, theft or destruction thereof, together with a
surety bond or other indemnity, as a condition to the receipt of any
distribution.
Listing and Trading of the Common Stock and Interests in the Liquidating Trust
or Trusts
The Company currently intends to close its stock transfer books on the
Final Record Date and at such time cease recording stock transfers and issuing
stock certificates (other than replacement certificates). Accordingly, it is
expected that trading in the shares will cease on and after such date. The
Common Stock is currently listed for trading on the OTC Bulletin Board.
It is anticipated that the interests in a liquidating trust or trusts will
not be transferable, although no determination has yet been made. Such
determination will be made by the Board of Directors and management prior to the
transfer of unsold assets to the liquidating trust and will be based on, among
other things, the Board of Directors and managements' estimate of the value of
the assets being transferred to the liquidating trust or trusts, tax matters and
the impact of compliance with applicable securities laws. Should the interests
be transferable, the Company plans to distribute an information statement with
respect to the liquidating trust or trusts at the time of the transfer of assets
and the liquidating trust or trusts may be required to comply with the periodic
reporting and proxy requirements of the Exchange Act. The costs of compliance
with such requirements would reduce the amount which otherwise could be
distributed to interest holders. Even if transferable, the interests are not
expected to be listed on a national securities exchange or quoted through Nasdaq
and the extent of any trading market therein cannot be predicted. Moreover, the
interests may not be accepted by commercial lenders as security for loans as
readily as more conventional securities with established trading markets.
19
<PAGE>
As stockholders will be deemed to have received a liquidating distribution
equal to their pro rata share of the value of the net assets distributed to an
entity which is treated as a liquidating trust for tax purposes (see "Material
Federal Income Tax Consequences--Liquidating Trust"), the distribution of
non-transferable interests could result in tax liability to the interest holders
without their being readily able to realize the value of such interests to pay
such taxes or otherwise.
Absence of Appraisal Rights
Under the DGCL, the stockholders of the Company are not entitled to
appraisal rights or to any similar rights of dissenters for their shares of
Common Stock in connection with the approval or consummation of the transactions
contemplated by the Plan.
Regulation During Liquidation
Except for compliance by the Company with the applicable rules and
regulations of the Securities and Exchange Commission in connection with the
distributions by the Company, no United States federal or state regulatory
requirements must be complied with or approvals obtained in connection with the
liquidation.
Because of the sale of the Company's motel assets, the Company may be an
"investment company" as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). The 1940 Act generally requires investment companies
to register with the Securities and Exchange Commission after which their
capital structure, securities issuances, investments and transactions with
affiliates, along with numerous other activities would become subject to
extensive regulation. The 1940 Act does not, however, require an investment
company to register if its only activities are those "merely incidental to its
dissolution". The Company believes that in light of the dissolution exception
from registration under the 1940 Act, the Company will not have to register
under the 1940 Act, assuming that the Plan is approved by the stockholders.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion is a general summary of the federal income tax
consequences that will result from the liquidation of the Company and the
distribution of its assets to its stockholders pursuant to the Plan. This
summary does not discuss all aspects of federal income taxation that may be
relevant to a particular stockholder or to certain types of persons subject to
special treatment under federal income tax laws (for example, life insurance
companies, tax-exempt organizations or financial institutions) and does not
discuss any aspects of state, local or foreign tax laws that may apply to a
particular stockholder. Because distributions pursuant to the Plan may occur at
various times and in more than one tax year, no assurances can be given that the
tax treatment described herein will continue to apply unchanged at the time of
later distributions. Stockholders are urged to consult their personal tax
advisors as to their own tax situation.
Consequences to the Company
After adoption of the Plan, the Company will continue to be subject to
federal income tax on its income until it completes the distribution of all of
its cash and other properties to stockholders or liquidation trusts.
Consequences to Stockholders
On receipt of liquidating distributions from the Company, each stockholder
will recognize gain or loss equal to the difference between (i) the sum of the
amount of cash distributed to such stockholder, and (ii) the stockholder's tax
basis in Company shares. Provided the stockholder holds the Company shares as
capital assets, gain or loss recognized by a stockholder will be capital gain or
loss and will be long-term if the stockholder's holding period for Company
shares is more than one year, and short-term if such holding period is one year
or less.
20
<PAGE>
A stockholder's gain or loss will be computed on a "per share" basis. Each
stockholder must allocate liquidating distributions from the Company equally to
each Company share and compare the allocated portion of each liquidating
distribution with the stockholder's tax basis in each share. Because the Company
will pay the liquidating distributions in installments, each stockholder must
first recover the stockholder's tax basis in each share before recognizing any
gain or loss. Thus, each stockholder will recognize gain on an installment only
to the extent that the aggregate value of the installment, and all prior
installments the stockholder received with respect to any Company share, exceeds
the tax basis in that share, and will recognize a loss with respect to any
Company share only when the stockholder has received the final installment and
the aggregate value of all liquidating distributions from the Company with
respect to that Company share is less than the stockholder's tax basis in the
Company share.
The Company expects that all distributions to stockholders will be made in
cash.
Liquidating Trust
If the Company transfers its assets to a liquidating trust, the
stockholders will be treated for tax purposes as having received their pro rata
share of those Company assets when the transfer occurs. The amount of the
taxable distribution to the stockholders on the transfer of the Company's assets
to the liquidating trust will be reduced by the amount of the Company's known
liabilities which the liquidating trust assumes or to which such transferred
assets are subject. The liquidating trust itself generally will not be subject
to tax, and, after the formation of the liquidating trust, each stockholder will
take into account for federal income tax purposes the stockholder's allocable
portion of any income, gain, deduction or loss which the liquidating trust
recognizes. Distributions by the liquidating trust to the stockholders will not
be taxable to them. Each stockholder may become liable for tax as a result of
the ongoing operations of the liquidating trust, even if the liquidating trust
has not made any actual distributions to stockholders. At this time, the Company
does not intend to transfer its assets to a liquidating trust.
Taxation of Non-United States Stockholders
Foreign corporations or persons who are not citizens or residents of the
United States should consult their tax advisors with respect to the U.S. and
non-U.S. tax consequences of the Plan.
State And Local Tax
Stockholders may also be subject to state or local taxes, and should
consult their tax advisors with respect to the state and local tax consequences
of the Plan.
THE FOREGOING SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO
ANY STOCKHOLDER. THE TAX CONSEQUENCES OF THE PLAN MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF THE STOCKHOLDER. THE COMPANY RECOMMENDS THAT EACH
STOCKHOLDER CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
THE PLAN.
CONDENSED UNAUDITED PRO FORMA STATEMENT
OF NET ASSETS IN LIQUIDATION
Unaudited Condensed Consolidated Pro Forma Financial Information
The unaudited condensed consolidated pro forma financial information of the
Company presented below is based on the historical consolidated financial
statements of the Company and reflects (i) the exercise of the purchase option
under the Master Lease Agreement on January 30, 1997 (ii) the conversion of all
remaining assets into cash pursuant to the proposed Plan of Liquidation (iii)
the payment of all accounts payable, accrued expenses and all other claims
against the Company including tax obligations and (iv) the distribution of the
remaining cash
21
<PAGE>
to the Company's common stockholders. The pro forma condensed consolidated
statement of operations and balance sheet data for the year ended December 31,
1996 were prepared assuming that the Motel 6 Operator's exercise of the purchase
option under the Master Lease Agreement and the Company's Plan of Liquidation
was consummated on such date.
The pro forma financial information presented does not purport to represent
what the Company's financial position or results of operations would have been
had the transaction described in the preceding paragraph occurred on such date,
nor to project the Company's financial position or results of operations to any
future period. The Company's financial position and results of operations may
vary, possibly by material amounts, from those presented herein. The pro forma
condensed consolidated financial information should be read in conjunction with
the historical financial statements of the Company, including the notes thereto,
appearing in the Company's Annual Report on Form 10-K provided to the Company's
stockholders.
22
<PAGE>
SELECTED PRO FORMA FINANCIAL INFORMATION - 1996
AFTER EXERCISING THE PURCHASE OPTION
<TABLE>
<CAPTION>
Year Ended December 31, 1996
------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
------------------------------ ---------
(in thousands, except per share data)
<S> <C> <C> <C>
OPERATING DATA:
Rent income $ 23,999 $ 23,999
Interest income 744 744
Administration expense 1,227 $ 4,136 (2) 5,363
Depreciation and amortization &
other expense 8,743 8,743
Gain from sale of assets -- 115,689 (1) 115,689
--------------------------- --------
Operating income 14,773 111,553 126,326
Interest expense 19,061 19,061
--------------------------- --------
Net income (loss) before taxes (4,288) 111,553 107,265
Provision (benefit) for income taxes (23,306) 45,082 (3) 21,776
--------------------------- --------
Net income $ 19,018 $ 66,471 $ 85,489
=========================== ========
Net income per common share $ 17.82 $ 81.65
=========================== ========
Weighted average common
shares outstanding 1,067 (20)(14) 1,047
=========================== ========
BALANCE SHEET DATA
(AT END OF PERIOD):
Cash and cash equivalents $ 15,131 $ 35,036 (4) $ 50,167
Receivable from Motel 6 3,620 (3,620)(5) --
Other current assets 29 29
Deferred tax assets 30,320 (30,320)(3) --
--------------------------- --------
Total current assets 49,100 1,096 50,196
Net property and equipment 127,436 (127,436)(6) --
Land held for sale 1,107 (432)(7) 675
Leased property under capital
lease, less accumulated
amortization 36 (36)(8) --
--------------------------- --------
Total assets $177,679 $(126,808) $ 50,871
=========================== ========
Accounts payable and accrued
liabilities $ 5,215 $ (663)(9) $ 4,552
Deferred basic rent 3,500 (3,500)(10) --
Accrued interest 2,032 (2,032)(5) --
Federal and state taxes payable -- 14,762 (3) 14,762
--------------------------- --------
Total current liabilities $ 10,747 $ 8,567 $ 19,314
Long-term debt 204,105 (204,105)(11) --
Stockholders' equity (deficit):
Common stock, $.01 par value 10 1 (12) 11
Additional paid-in capital 21,360 2,258 (12) 23,618
Accumulated equity (deficit) (58,543) 66,471 (13) 7,928
--------------------------- --------
Total stockholders' equity (deficit) (37,173) 68,730 31,557 (17)
--------------------------- --------
Total liabilities and stockholders'
equity (deficit) $177,679 $(126,808) $ 50,871
=========================== ========
</TABLE>
23
<PAGE>
SELECTED PRO FORMA FINANCIAL INFORMATION - 1996
AFTER COMPLETION OF THE PLAN OF LIQUIDATION
<TABLE>
<CAPTION>
Year Ended December 31, 1996
---------------------------------------------------------------------
Pro Forma Adjustments
---------------------------------------------
Exercise of the Lease
Historical Purchase Option Plan of Liquidation Pro Forma
---------- --------------- ------------------- ---------
(in thousands)
BALANCE SHEET DATA
(AT END OF PERIOD):
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 15,131 $ 35,036 (4) $(50,167) (16) $ --
Receivable from Motel 6 3,620 (3,620) (5) --
Other current assets 29 (29) (15) --
Deferred tax assets 30,320 (30,320) (3) --
-------- ---------------- --------------- ---------
Total current assets 49,100 1,096 (50,196) --
Net property and equipment 127,436 (127,436) (6) --
Land held for sale 1,107 (432) (7) (675) (15) --
Leased property under capital
lease, less accumulated
amortization 36 (36) (8) --
-------- ---------------- --------------- ---------
Total assets $177,679 $(126,808) $(50,871) $ --
======== ================ =============== =========
Accounts payable and accrued
liabilities $ 5,215 $ (663) (9) $ (4,552) (16) $ --
Deferred basic rent 3,500 (3,500) (10) --
Accrued interest 2,032 (2,032) (5) --
Federal and state taxes payable -- 14,762 (3) (14,762) (16) --
-------- ---------------- --------------- ---------
Total current liabilities 10,747 8,567 (19,314) --
Long-term debt 204,105 (204,105) (11) --
Stockholders' equity (deficit):
Common stock, $.01 par value 10 1 (12) (11) (16) --
Additional paid-in capital 21,360 2,258 (12) (23,618) (16) --
Accumulated equity (deficit) (58,543) 66,471 (13) (7,928) (16) --
-------- ---------------- --------------- ---------
Total stockholders' equity
(deficit) (37,173) 68,730 (31,557) (17) -- (17)
-------- ---------------- --------------- ---------
Total liabilities and stock-
holders' equity (deficit) $177,679 $(126,808) $(50,871) $ --
======== ================ =============== =========
</TABLE>
Stockholders' equity of $31,557,000, or $30.13 per share of common stock,
represents the estimated amount of cash available for distribution to
stockholders. The distributions of cash will be accomplished in a series of
distributions. The Company intends to initially distribute $28.00 per common
share ($29,328,404) to stockholders as soon as practicable after approval of the
Plan of Liquidation by stockholders on May 8, 1997. The Company will retain
$2,228,596, or $2.13 per common share, as the Contingency Reserve until such
time as all claims against the Company, including tax obligations, are
satisfied.
The Company will file a final federal tax return with the Internal Revenue
Service and final state tax returns with six of the states in which it did
business. The Company will ask for a prompt assessment of tax liability by each
taxing authority and where required will submit to a tax audit. When all tax
claims against the Company are satisfied, the Company will distribute the
balance of its cash on hand to its stockholders.
24
<PAGE>
- ----------
(1) The pro forma adjustment reflects the gain, $115,689,000, resulting from
the exercise of the purchase option.
(2) As a result of the exercise of the Purchase Option, the Company is
required, FASB Statement 123 - Accounting for Stock-Based Compensation, to
expense the fair market value of employee stock options of approximately
$2.7 million; and recognize as an expense employee severance pay of $1.3
million payable thru December 31, 1998.
(3) The pro forma adjustment reflects the Federal and State tax liability
resulting from the exercise of the Purchase Option. The Federal and state
taxes payable of $14,762,000 is the net of the provision for income taxes
of $45,082,000 offset by prior years tax loss carryforward of $30,320,000
(the deferred tax assets).
(4) This adjustment reflects the receipt of $41,588,000 from the Motel 6
Operator less payments to the Motel 6 Operator of $3,500,000 for refund of
1997's deferred basic rent, the payment of a $3,000,000 furniture, fixture
and equipment reserve.
(5) The pro forma receivable from Motel 6 reflects the payments, by the Motel 6
Operator of $2,032,000 for accrued interest owed to the Company's bank
lenders and $1,588,000 owed to the Company.
(6) The pro forma adjustment gives effect to the write-off of the book value of
the motels sold.
(7) This adjustment is the result of reducing the carrying value of land based
on a long-term sales program to recognize the liquidation and dissolution
of the Company.
(8) This adjustment reflects the assignment of leases and lease obligations to
the Motel 6 Operator.
(9) Primarily represents a reduction in a reserve for bad debts as a result of
receiving full payment of an accounts receivable due from Motel 6.
(10) Reflects the refund to the Motel 6 Operator of 1997's annual Basic Rent
received on December 31, 1996.
(11) Reflects the payment of long-term debt to banks and the Motel 6 Lender from
the proceeds of the sale.
(12) These Capital account adjustments reflect the deferred tax asset benefit
which accrues to the Company as a result of the exercise of all employee
stock options and the vesting of restricted stock.
(13) The pro forma adjustment gives effect to the gain from the sale of the
motel properties (Note 1); the increase in the provision for income taxes
(Note 3); and recognizing the expense of Stock Based Compensation and
severance pay (Note 2).
(14) Adjustment of Common Shares outstanding, including the exercise of 19,000
stock appreciation rights.
(15) Reflects converting all the remaining Company's assets into cash.
(16) The pro forma adjustment reflects the paying-off of all the Company's
liabilities, $4,552,000 accounts payable and accrued liabilities and
$14,762,000 of Federal and State taxes, and the distribution of the
remaining cash to the Company's common stockholders, $31,557,000, or $30.13
per share of common stock.
(17) The stockholders' equity of $31,557,000, or $30.13 per share of common
stock, represents the estimated amount of cash available for distribution
to stockholders. The distributions of cash will be accomplished in a series
of distributions. The Company intends to initially distribute $28.00 per
common share ($29,328,404) to stockholders as soon as practicable after
approval of the Plan of Liquidation by stockholders on May 8, 1997. The
Company will retain $2,228,596, or $2.13 per common share, as the
Contingency Reserve until such time as all claims against the Company,
including tax obligations, are satisfied.
The Company will file a final federal tax return with the Internal Revenue
Service and final state tax returns with six of the states in which it did
business. The Company will ask for a prompt assessment of tax liability by
each taxing authority and where required will submit to a tax audit. When
all tax claims against the Company are satisfied, the Company will
distribute the balance of its cash on hand to its stockholders.
25
<PAGE>
COMPANY'S AUDITORS
Ernst & Young LLP, independent public accountants, were selected to audit
the financial statements of the Company for the year ending December 31, 1996.
The Company's policy is to select the independent public accountants to audit
the current year's financial statements by December 31, 1997. Accordingly, no
independent public accountant has been selected or recommended to stockholders
at the Annual Meeting. Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting, will be given an opportunity to make a statement
if they desire to do so and are expected to be available to answer appropriate
questions.
OTHER MATTERS
The Board is not aware of any other matters to be presented at the meeting.
If any other matters should properly come before the meeting, the persons named
in the proxy will vote the proxies according to their discretion.
STOCKHOLDER PROPOSALS
Stockholder proposals, if any, which may be considered for inclusion in the
Company's proxy materials for the 1998 Annual Meeting must be received by the
Company at its offices at 200 East Carrillo Street, Suite 300, Santa Barbara,
California 93101 no later than December 31, 1997.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1996, which is being sent to the Company's stockholders with this Proxy
Statement in connection with the annual meeting, is incorporated herein by
reference. All information appearing in this Proxy Statement is qualified in its
entirety by the information and financial statements (including notes thereto)
appearing in the documents incorporated herein by reference.
ANNUAL REPORT
An Annual Report to Stockholders (Form 10-K) for fiscal 1996 is being
mailed to stockholders with this Proxy Statement on or about March 31, 1997. The
Company files its annual report on Form 10-K with the SEC. Stockholders may
obtain a copy of this report without charge by writing to the Secretary of the
Company, 200 East Carrillo Street, Suite 300, Santa Barbara, California 93101 or
by telephone request to (805) 730-3383.
26
<PAGE>
EXHIBIT A
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION OF
ALLSTAR INNS INC.
This Plan of Complete Liquidation and Dissolution (the "Plan") of the
Company, Allstar Inns Inc., a Delaware corporation (the "Company"), is intended
to accomplish the complete liquidation and dissolution of the Company in
accordance with the Delaware General Corporation Law and Section 331 of the
Internal Revenue Code of 1986, as amended (the "Code"), as follows:
1. The Board of Directors of the Company has adopted this Plan and called a
meeting of the Company's stockholders to take action on this Plan. If at said
meeting of the Company's stockholders a majority of the outstanding Common
Stock, par value $.01 per share (the "Common Stock"), of the Company votes for
the adoption of this Plan, the Plan shall constitute the adopted Plan of the
Company as of the date on which such stockholder approval is obtained (the
"Adoption Date").
2. After the Adoption Date, the Company shall not engage in any business
activities except to the extent necessary for preserving the values of its
assets, winding up its business and affairs, and distributing its cash, all in
accordance with this Plan.
3. From and after the Adoption Date, the Company shall complete the
following corporate actions:
(a) The Company shall collect, sell, or otherwise dispose of all of
its property and assets in one or more transactions upon such terms and
conditions as it deems expedient and in the best interests of the Company
and its stockholders. In connection with such collection, sale, or other
disposition, the Company shall marshall its assets and collect or make
provision for the collection of all accounts receivable, debts and claims
owing to the Company.
(b) The Company shall pay or make reasonable provision to pay, all
claims and obligations of the Company, including all contingent,
conditional or unmatured claims known to the Company and all claims which
are known to the Company but for which the identity of the claimant is
unknown.
(c) The Company shall distribute pro rata to the Company's
stockholders all its remaining cash, including the proceeds of any sale or
disposition, except such cash or assets as are required for paying or
making provision for the claims and obligations of the Company. Such
distribution may occur all at once or in a series of distributions and will
be in cash, in such manner, and at such time, as the Company may determine.
If and to the extent deemed necessary, appropriate or desirable the Company
may establish and set aside a reasonable amount (the "Contingency Reserve") to
satisfy claims against the Company (other than claims of a stockholder in its
capacity as such) including without limitation tax obligations and all expenses
of the sales of the Company's property and assets, of the collection and defense
of the Company's property and assets, and of the liquidation and dissolution
provided for in this Plan. The Contingency Reserve will consist of cash and/or
property.
(d) If and to the extent deemed necessary, appropriate or desirable
the Company may distribute assets in trust for the benefit of the
stockholders, provided that such trust is intended to constitute a trust
the assets of which are treated as owned by the stockholders for federal
income tax purposes. The Company is hereby authorized to appoint one or
more individuals, corporations, partnerships or other persons, or any
combination thereof, to act as the trustees for the benefit of the
Company's stockholders and to receive any such assets distributed to it.
Any conveyance to such trustees shall be deemed to be a distribution of
property and assets by the Company to its stockholders.
Any such conveyance to such trustees shall be in trust for the stockholders
of the Company and not for the use or benefit of the trustees or any other
person and any assumption of liabilities and obligations of the Company by the
trustees shall be solely in their capacity as trustees. The Company may enter
into a trust agreement with such trustee or trustees, on such terms and
conditions as the Company may deem necessary, appropriate or desirable.
<PAGE>
Adoption of this Plan by a majority of the outstanding Common Stock shall
constitute the approval of the Company's stockholders of any such appointment
and any such trust agreement as their act and as a part hereof as if herein
written.
4. The distributions to the Company's stockholders pursuant to Section 3
hereof shall be in complete redemption and cancellation of all of the
outstanding Common Stock of the Company. If requested by the Company as a
condition to receipt of any distribution, the Company's stockholders shall
surrender their certificates evidencing the Common Stock to the Company or its
agent for recording of such distributions thereon. As a condition to receipt of
any distribution to the Company's stockholders, the Company may require
stockholders to (i) surrender their certificates evidencing the Common Stock to
the Company or its agent for cancellation or (ii) furnish the Company with
evidence satisfactory to management of the loss, theft or destruction of their
certificates evidencing the Common Stock, together with such surety bond or
other security or indemnity as may be required by and satisfactory to
management.
The Company will finally close its stock transfer books and discontinue
recording transfers of Common Stock on the earlier to occur of (i) the close of
business on the record date fixed by the Board of Directors for the final
liquidating distribution, or (ii) the date on which the dissolution becomes
effective under the Delaware General Corporation Law, and thereafter
certificates representing Common Stock will not be assignable or transferable on
the books of the Company except by will, intestate succession or operation of
law.
5. If any distribution to a stockholder cannot be made, whether because the
stockholder cannot be located, has not surrendered its certificates evidencing
the Common Stock as required hereunder or for any other reason, the distribution
to which such stockholder is entitled shall (unless transferred to a trust
established pursuant to Section 6 hereof) be transferred at such time as the
final liquidating distribution is made by the Company to and deposited with the
state official authorized by the laws of the State of Delaware to receive the
proceeds of such distribution. The proceeds of such distribution shall
thereafter be held solely for the benefit of and for ultimate distribution to
such stockholder as the sole equitable owner thereof and shall escheat to the
State of Delaware or be treated as abandoned property in accordance with the
laws of the State of Delaware. In no event shall the proceeds of any such
distribution revert to or become the property of the Company.
6. If deemed necessary, appropriate or desirable by the Company to effect
the liquidation and distribution of the Company's assets to the Company's
stockholders, the Company may from time to time transfer to one or more
liquidating trustees for the benefit of the Company's stockholders (the
"Trustees") under a trust or trusts (the "Trusts"), any assets of the Company
which are (i) not reasonably susceptible to distribution to the Company's
stockholders, including, assets held on behalf of the Company's stockholders who
cannot be located or who do not tender their certificates evidencing the Common
Stock to the Company or its agent as hereinafter required; and/or (ii) held as
the Contingency Reserve.
The Company is hereby authorized to appoint one or more individuals,
corporations, partnerships or other persons, or any combination thereof, to act
as the Trustees for the benefit of the Company's stockholders and to receive all
remaining assets of the Company. Any Trustee appointed as provided in the
preceding sentence shall succeed to all the right, title and interest of the
Company of any kind and character, including, without limitation, any
uncollected claims, contingent assets and any Contingency Reserve, and shall
assume all of the liabilities and obligations of the Company, including, without
limitation, any unsatisfied claims and unascertained or contingent liabilities.
Further, the Trustee or Trustees shall have the full power to liquidate, deal
with, give receipt for and manage all of the property and assets by the Company,
to the exclusion of the Company and its officers and directors, and any
conveyance of assets to the Trustees shall be deemed to be a distribution of
property and assets by the Company to its stockholders for the purposes of
Section 3 of this Plan. Any such conveyance to the Trustees shall be in trust
for the stockholders of the Company and not for the use or benefit of the
Trustees or any other person and any assumption of liabilities and obligations
of the Company by the Trustees shall be solely in their capacity as Trustees.
The Company, subject to this Section 6, may enter into a liquidating trust
agreement with the Trustee or Trustees, on such terms and conditions as it may
deem necessary, appropriate or desirable. Adoption of this Plan by a majority of
the outstanding Common Stock shall constitute the approval of the Company's
EXHIBIT A
2
<PAGE>
stockholders of any such appointment and any such liquidating trust agreement as
their act and as a part hereof as if herein written.
7. Whether or not a Trust is established pursuant to Section 6, in the
event it should not be feasible for the Company to make the final distribution
to stockholders of all assets and properties of the Company (other than the
Contingency Reserve) prior to the date which is three years after the Adoption
Date, then, on or before such date the Company shall transfer any remaining
assets and properties (other than the Contingency Reserve) to one or more
Trustees as set forth in Section 6. Such distribution may include the
Contingency Reserve. Notwithstanding the foregoing, to the extent that
distribution of any asset of the Company cannot be effected without the consent
of a governmental authority, no such distribution shall be effected without such
consent.
8. After the Adoption Date, the officers of the Company shall, at such time
as the Company deems it necessary, appropriate or desirable, obtain any
certificates required from the Delaware tax authorities, and on or after
obtaining such certificates, the Company shall file with the Secretary of State
of the State of Delaware a certificate of dissolution (the "Certificate of
Dissolution") in accordance with Section 275 of the Delaware General Corporation
Law. Adoption of this Plan by a majority of the outstanding Common Stock shall
constitute the approval of the Company's stockholders of any such filing of a
Certificate of Dissolution as their act and as a part hereof as if herein
written.
9. Adoption of this Plan by a majority of the outstanding Common Stock
shall constitute the approval of the Company's stockholders of the sale,
exchange or other disposition in liquidation of all of the property and assets
of the Company, whether such sale, exchange or other disposition occurs in one
transaction or a series of transactions, and shall constitute ratification of
all contracts for sale, exchange or other disposition entered into prior to the
date upon which the Certificate of Dissolution becomes effective under the
Delaware General Corporation Law which are conditioned on adoption of this Plan.
10. In connection with and for the purpose of implementing and assuring
completion of this Plan, the Company may pay any brokerage, agency and other
fees and expenses of persons rendering services to the Company in connection
with the collection, sale, exchange or other disposition of the Company's
property and assets and the implementation of this Plan.
11. The Company shall continue to indemnify its officers, directors,
employees and agents in accordance with its certificate of incorporation, as
amended, and by-laws and any contractual arrangements, for actions taken in
connection with this Plan and the winding up of the affairs of the Company. The
Company's obligation to indemnify such persons may be satisfied out of the
assets of the Trust. The Board of Directors and the Trustees, in their absolute
discretion, are authorized to obtain and maintain insurance as may be necessary
to cover the Company's obligations hereunder.
12. Notwithstanding authorization or consent to this Plan and the
transactions contemplated hereby by the Company's stockholders, the Board of
Directors may modify, amend or abandon this Plan and the transactions
contemplated hereby without further action by the Company's stockholders to the
extent permitted by the Delaware General Corporation Law.
13. The Board of Directors of the Company is hereby authorized, without
further action by the Company's stockholders, to do and perform, or cause the
officers of the Company, subject to approval of the Board of Directors, to do
and perform, any and all acts, and to make, execute, deliver or adopt any and
all agreements, resolutions, conveyances, certificates and other documents of
every kind which are deemed necessary, appropriate or desirable, in the absolute
discretion of the Board of Directors, to implement this Plan and the
transactions contemplated hereby, including, without limiting the foregoing, all
filings or acts required by any state or federal law or regulation to wind up
its affairs.
EXHIBIT A
3
<PAGE>
Attachment
ALLSTAR INNS INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING - MAY 8, 1997
Allstar Inns Inc.
200 East Carrillo Street, Suite 300
Santa Barbara, California 93101
The undersigned hereby appoints Daniel R. Shaughnessy and Edward J.
Gallagher, and each of them, proxies, each with full power of substitution, to
vote all stock of the undersigned at the annual meeting of shareholders of
Allstar Inns Inc. (the "Company"), to be held on May 8, 1997 at 9:00 a.m. at the
Four Seasons Biltmore Hotel, Montecito, California, and/or at any adjournment of
the annual meeting, in the manner indicated on the reverse side, all in
accordance with and as more fully described in the Notice of Annual Meeting and
accompanying Proxy Statement for the meeting, receipt of which is hereby
acknowledged.
(Continued on reverse side)
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY SHALL BE VOTED AS INDICATED BELOW:
Please mark
your votes as [X]
indicated in
this example
1. To elect Daniel R. Shaughnessy and Christopher W. Brody as directors to
serve for a term of one year until the next Annual Meeting of Stockholders
and until their respective successors have been duly elected and qualified.
FOR WITHHOLD
authority to vote for all nominees
[ ] [ ]
Withhold authority to vote for the following nominee(s):
- --------------------------------------------------------------------------------
If you do not vote for or withhold to vote for a particular nominee, the shares
represented by your proxy will be voted FOR that nominee.
2. To approve the Plan of Complete Liquidation and Dissolution of the Company.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
If no markings are made for Item 2 above, the shares represented by your proxy
will be voted FOR the Plan of Complete Liquidation and Dissolution of the
Company.
3. To vote in their discretion on such other business as may properly come
before the annual meeting or any adjournment thereof.
Check here if you plan to attend the Annual Meeting [ ]
IF YOU DO NOT SPECIFY A CHOICE AS TO ANY OF THE ABOVE MATTERS OR IF ANY OTHER
BUSINESS IS PRESENTED, THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF MANAGEMENT.
Please mark, date and sign as your name appears to the left and return in the
enclosed envelope. If acting as executor, administrator, trustee or guardian,
state your full title and authority when signing. If the signer is a
corporation, please sign the full corporate name, by a duly authorized officer.
If shares are held jointly, each stockholder named should sign.
Signature________________________ Signature________________________ Date_______
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
[logo]
Allstar Inns
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE
