================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-22930
----------
Allstar Inns Inc.
(Exact name of registrant as specified in its charter)
Delaware 77-0323962
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 E. Carrillo Street, #300
Santa Barbara, California 93101
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (805) 730-3383
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of
the Act:
Title of Each Class
Common Stock
$.01 par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES _x_ NO ___
----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 3, 1997, the aggregate market value of the Company's common
stock held by nonaffiliates of the registrant was $30,768,638.
As of March 3, 1997, there were 1,047,443 shares of common stock
outstanding.
----------
Documents Incorporated by Reference: Portions of the following document are
incorporated by reference into the designated parts of this Form 10-K: Proxy
Statement relating to Registrant's 1997 Annual Meeting of Shareholders (in Part
III).
================================================================================
<PAGE>
PART I
ITEM 1. BUSINESS
General
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Annual Report contains information that is forward-looking. Such forward-looking
information involves risks and uncertainties that could significantly affect
expected results. These risks and uncertainties include, but are not limited to,
uncertainties relating to economic conditions, changes in the competitive
environment in which the Company operates, and the continued performance of the
Motel 6 Operator under the Master Lease Agreement.
Allstar Inns Inc., a Delaware corporation (the "Company"), was incorporated
on November 12, 1992 and was formed to succeed to the business and operations of
Allstar Inns, L.P., a Delaware limited partnership (the "Company's
predecessor"). The Company's primary objective is to own and receive rental
income from economy motels or to sell the motels if Motel 6 Operating L.P., a
Delaware limited partnership (the "Motel 6 Operator") exercises its Lease
Purchase Option. At December 31, 1996, the Company owned in fee or leased 71
motels with a total of 7,606 rooms. Of these motels, 44 are located in
California, and the remainder are located in six other western and southwestern
states.
Background
In 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 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. In September 1995 the Company and the Motel 6
Operator entered into a new Master Lease Agreement (the "Master Lease
Agreement") relating to the Company's motels. For a description of the events
leading up to the Master Lease Agreement, see the Company's Proxy Statement
relating to its 1995 Annual Meeting of Stockholders.
The Master Lease Agreement is a "net, net, net" lease for a 15-year term
commencing as of January 1, 1995. Annual rent is an amount sufficient to cover
debt service on the indebtedness secured by the Company's motels plus (i)
through 1998, $3.5 million, (ii) in 1999, satisfaction of the Company's
indebtedness to an affiliate of the Motel 6 Operator (the "Motel 6 Lender")
(approximately $37.0 million at December 31, 1996), plus (iii) annually in 1999
through 2009, $5.0 million (plus cost of living increases from 1995). Under the
Master Lease Agreement, the Motel 6 Operator has 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 the indebtedness,
including the Motel 6 Lender indebtedness, secured by the Company's motels. Upon
such purchase, the Motel 6 Operator would receive $3.0 million representing a
furniture, fixture and equipment reserve. The Master Lease Agreement is
assignable to an assignee with a net worth of at least $350.0 million. The
Purchase Option may be assigned so long as the Motel 6 Operator or its parent
guarantees the performance of the assignee. The Purchase Option was exercised in
January 1997. See "Exercise of Purchase Option" below.
As part of the closing of the Master Lease Agreement, the Company also
completed loan agreement amendments with its primary lender, Wells Fargo Bank
("WFB").
Exercise of Purchase Option
On December 30, 1996 the Company received formal notice from the Motel 6
Operator, Motel 6 G.P. Inc. and IBL Limited, Inc. ("Motel 6") that they are in
the process of finalizing arrangements for financing to exercise the Purchase
Option which is contained in the Master Lease Agreement. On January 30, 1997 the
Motel 6 Operator and its assignees formally exercised the Purchase Option. The
closing of the sale of the Company's motels took place on January 30, 1997.
2
<PAGE>
As a result of the exercise of the Purchase Option, the Company, will have
1,067,043 shares of common stock outstanding (after the exercise of certain
stock options).
Business Plan and Prospects for Future Operations
The Company's recent business strategy has been to engage the Motel 6
Operator to operate the motels under the Motel 6 logo as lessee under the terms
of the Master Lease Agreement.
Under the terms of the Master Lease Agreement and certain debt agreements,
there are restrictions on the ability of the Company to sell its motels,
purchase or construct additional motels or enter into new lines of business
until the Purchase Option has expired without the exercise of the Purchase
Option or until the Company's indebtedness has been paid. Almost all of the
Company's indebtedness will be due and payable on December 31, 1998; however,
the Company is entitled to refinance its indebtedness at any time.
Under the terms of the Master Lease Agreement, the Company is obligated to
sell all of its motel assets to the Motel 6 Operator on the terms and conditions
set forth in the Master Lease Agreement if the Motel 6 Operator elects to
exercise the Purchase Option on or before December 31, 1997.
On December 30, 1996 the Company received formal notice from the Motel 6
Operator, Motel 6 G.P. Inc. and IBL Limited, Inc. ("Motel 6") that they were in
the process of finalizing arrangements for financing to exercise the Purchase
Option which is contained in the Master Lease Agreement. On January 30, 1997 the
Motel 6 Operator and its assignees formally exercised the Purchase Option. The
closing of the sale of the Company's motels took place on January 30, 1997.
At a closing held in Santa Barbara, California, the Motel 6 Operator
purchased the Company's 71 motels at a fixed price of $40.0 million plus
assumption of the debt secured by the motels of approximately $206 million. The
sale of the motel properties constitutes a sale of substantially all of the
assets of the Company. The Company is also in the process of disposing of five
additional parcels of vacant land constituting the balance of the Company's real
estate holdings.
The Company is and will be subject to substantial Federal and State taxes
on the gain realized by the sale of its motel assets and any gain realized on
the disposition of the additional parcels of vacant land.
As a result of the exercise of the Purchase Option, the Company, will have
1,067,043 shares of common stock outstanding (after the exercise of certain
stock options).
The Company's business strategy was to maximize net cash flow through the
leasing of its motel properties to the Motel 6 Operator and, due to the exercise
of the Purchase Option, the Company received $40.0 million in proceeds
subsequent to year-end from sale of the properties to the Motel 6 Operator after
payment of all indebtedness of the Company relating to the motels and before
payment to the Motel 6 Operator of a $3.0 million furniture, fixture and
equipment reserve.
Demand for the Company's motel rooms is dependent in part upon regional and
national economic conditions. In addition, the operations of individual motels
may be adversely affected by changes in local business conditions, travel
patterns, highway relocations and the addition of competitors' motels. The Motel
6 Operator's decision to exercise the Purchase Option depended largely on its
success in maximizing occupancy and operating income at the motel properties.
Market Position and Pricing
The Motel 6 Operator, a major competitor in the economy motel industry, has
positioned itself at or near the low-priced end of the lodging industry market,
seeking to attract value-conscious travelers who desire clean, comfortable,
"no-frills" lodging at reasonable prices. Pursuant to the terms of the Master
Lease Agreement, the Motel 6 Operator was required to make pricing and other
operational decisions with respect to the Company's motels in accordance with
3
<PAGE>
the "Motel 6 Standards", subject to variations reasonably based upon the
specific geographic location, character and circumstances of the motels.
Under the terms of the Master Lease Agreement, the Motel 6 Operator was
required to employ essentially the same policies, procedures, methods of
operations, management practices, purchasing practices, security practices,
employment and hiring policies, incentive programs and advertising policies
(i.e., the "Motel 6 Standards") in operating the Company's motels as it employs
in operating the Motel 6 Motels. Thus, to the extent that the Motel 6 Operator
made modifications to the Motel 6 Standards over the term of the Master Lease
Agreement, as it was permitted to do in its discretion, those modifications were
to be reflected in the operation of the Company's motels by the Motel 6
Operator.
Management believes that the Company's motel's clientele consists primarily
of business travelers and commercial vehicle drivers with limited expense
accounts, students and family travelers, and that its potential market also
includes senior citizens. Economy motels, such as those operated by the Company
and its direct competitors (see "--Competition" below), are positioned at the
lower-priced end of the lodging industry market, while medium priced
"conventional" motels such as those operated by Quality Inns, Holiday Inns,
Ramada Inns and Best Western are positioned in the center, and luxury hotels,
such as those operated by Marriott, Hilton, Hyatt and Sheraton are positioned at
the upper-priced end. Management believes that the most important factors
considered by economy motel users in selecting an economy motel include price,
location, cleanliness and comfort.
Under the terms of the Master Lease Agreement, the Company's room rates, as
determined by the Motel 6 Operator, varied due to geographic and seasonal
factors. At December 31, 1996 one-person rates ranged, depending upon geographic
location, from a low of $23.99 to a high of $47.99 with a nominal charge for
each additional person.
The Motel 6 Operator is the entity that owns or leases all of the motels
which comprise the Motel 6 chain of motels. The chain is the largest chain of
owner-operated budget motels in the country. On December 31, 1996, the Motel 6
Operator owned or leased 740 motels with 83,482 rooms in 48 states plus the
District of Columbia. The motels are concentrated in California (181), Texas
(87), Arizona (40), Florida (31), Illinois (27), New Mexico (21), Ohio and
Washington (18) and North Carolina (17). The sole limited partner of the Motel 6
Operator is IBL Limited, Inc., a Delaware corporation. The sole general partner
of the Motel 6 Operator is Motel 6 G.P., a Delaware corporation wholly owned by
IBL Limited. IBL Limited is wholly owned by IBL S.A., a French company which is
a subsidiary of ACCOR S.A., a French lodging and food services company. The
Motel 6 Operator's headquarters are located at 14651 Dallas Parkway, Dallas,
Texas 75240. The foregoing information has been provided to the Company by the
Motel 6 Operator and included herein without independent verification.
Operations
The following discussion describes the Company's motels and their
operations prior to the exercise of the Purchase Option pursuant to which such
motels were sold on January 30, 1997.
General. The Company's motels typically are located in potentially high
traffic areas or close to medium to large cities and near reasonably priced
restaurants. Each motel provides on-premise parking facilities, and the majority
of the motels have an outdoor swimming pool. The Company's motel rooms are
generally more modest in size and appearance than motel rooms available in
non-economy motels. Individual rooms are generally 216- square feet or
264-square feet in size, with bathtub/shower combinations and closet areas.
Refurbishments. The Master Lease Agreement required the Motel 6 Operator to
perform the periodic refurbishment, rehabilitation and routine repair and
maintenance of the motels at the expense of Motel 6 Operator. Under the Master
Lease Agreement, refurbishment and rehabilitation of the motels was to occur, in
accordance with each annual refurbishment plan and at such times, and in the
same manner and with the same level of expenditure as the Motel 6 Motels are
rehabilitated in accordance with Motel 6's system-wide rehabilitation policies
and procedures.
4
<PAGE>
The amount spent in 1996 by the Motel 6 Operator to maintain, refurbish and
rehabilitate the Company's motels under the Master Lease Agreement was $11.0
million.
Under terms of the Master Lease Agreement, the Motel 6 Operator was
obligated to expend no less than 5% of gross room rentals on capital
expenditures alone over the term of the Master Lease Agreement, including at
least $15.0 million during the period beginning January 1, 1995 and ending
December 31, 1998.
Employees. At December 31, 1996 seven employees were employed by the
Company to monitor the operation of the motels and the rehabilitation program,
to prepare financial and tax reports of the Company and to make required filings
with the Securities and Exchange Commission and other governmental agencies and
otherwise to carry out the continuing responsibilities of the Company. None of
the Company's employees is currently covered by a collective bargaining
agreement. Management believes that the Company's relations with its employees
are satisfactory.
All personnel engaged in the day to day operation of the Company's motels
under the terms of the Master Lease Agreement are employees of the Motel 6
Operator. The parties hired by the Motel 6 Operator are employed in accordance
with the standard terms applicable to employees engaged in operating the Motel 6
motels. Generally, the Company's motels are managed by a resident manager that
has been trained at a management school operated by the Motel 6 Operator. The
manager is responsible for directing the on-site operations of the motel and
daily reporting of receipts, disbursements and occupancy. In addition to the
motel manager, each motel is generally staffed with housekeepers, desk clerks
and maintenance personnel. A significant portion of the staff is usually
employed on a part-time basis. As of December 31, 1996, approximately 1,631
employees of the Motel 6 Operator were engaged in operating the Company's motels
pursuant to the Master Lease Agreement.
Marketing and Advertising. Under the terms of the Master Lease Agreement,
the Motel 6 Operator at its expense operated, marketed and advertised the
Company's motels under the "Motel 6" logo. The Company's motels are also
included in the Motel 6 Operator's centralized reservation system. The Company
is not obligated to pay any trademark license fees to the Motel 6 Operator or
any overhead allocations, marketing/accounting, centralized reservation system
or other fees.
Competition
The Company's motels are in competition with other major lodging brands.
Each of the Company's motels competes in its market area with numerous
full-service lodging brands, mid-priced motels and other economy motels,
including other Motel 6 motels owned by the Motel 6 Operator. Chains such as
Comfort Inns, Red Roof Inns, La Quinta, Super 8, Econolodge, Hampton Inns, Days
Inns and Fairfield Inns are the most direct competitors of the Company's motels.
Other well-known higher priced competitors include Holiday Inns, Ramada Inns,
Quality Inns and Best Western. Competitive factors in the industry include
reasonableness of room rates, quality of accommodations, degree of service and
convenience of location.
The lodging industry in general, including the Company's motels, may be
adversely affected by national and regional economic conditions and government
regulations. The demand for accommodations at a particular motel may be
adversely affected by many factors including changes in travel patterns and
local and regional economic conditions and the degree of competition with other
motels in the area. For the competitive success of its motels, the Company
relied on the Master Lease Agreement and the Motel 6 Operator's competitive
position in the economy motel industry.
Seasonality
The overall demand for the Company's motel rooms has been moderately
seasonal with the average chain-wide occupancy rate lower in the first and
fourth quarters of the calendar year and commensurately higher in the second and
third quarters. Individual motels, depending on their geographic location, may
exhibit degrees of seasonality unrelated to the Company's overall occupancy
rates. The Company's rental receipts under the Master Lease Agreement were not
seasonally affected.
5
<PAGE>
Executive Officers
The Executive Officers of the Company, as of December 31, 1996, are as set
forth below. Brief summaries of the Officers' respective business experience and
certain other information are as set forth following the table.
Name Age Position(s)
---- --- -----------
Daniel R. Shaughnessy 69 Director, Chairman of the Board and
Chief Executive Officer
Edward J. Gallagher 60 Vice Chairman and Principal
Accounting Officer
Edward A. Paul 55 Vice President and Principal
Financial Officer
Mr. Shaughnessy has been Chairman of the Board and Chief Executive Officer
of the Company's predecessors since April 1983.
Mr. Gallagher has been Vice Chairman and Principal Accounting Officer since
April 1994. During the period August 1992 to April 1994 he participated in the
transition of Allstar Inns to the Motel 6 Management Contract. From May 1983
thru July 1992, he was President and Chief Operating Officer of the Company's
predecessors.
Mr. Paul has been Vice President, Treasurer and Assistant Secretary of the
Company's predecessors since April 1983 and has held the additional positions of
Secretary and Principal Financial Officer of the Company since August 1992.
ITEM 2. PROPERTIES
As of December 31, 1996, the Company owned in fee or leased 71 motels with
7,606 rooms in seven states. These properties are concentrated in California (44
motels), with additional properties located in Texas (9 motels), Arizona (8
motels), New Mexico (3 motels), Nevada (3 motels), Oregon (2 motels) and
Washington state (2 motels). The Company owned both the building and the land
for 63 of these motels, owned the building and leased the land for seven of
these motels, and leased both the building and the land for one motel. As of
January 1, 1997, 31% of the motels had been constructed within the last 15
years.
The Company's motels have an average of 107 rooms. In addition to guest
rooms, motels include a manager's apartment, an office/lobby, a vending machine
area and various utility rooms. Each motel provides on-premise parking
facilities, and the majority of the motels have an outdoor swimming pool. The
Company's motels do not include on-premise restaurants or provide convention
halls, meeting rooms, large lobbies or recreational facilities. Individual rooms
are generally 216-square feet or 264-square feet in size, with bathtub/shower
combinations and closet areas. All rooms have air conditioning (with the
exception of one motel), wall-to-wall carpeting, color televisions and private
telephones. The Motel 6 Operator on behalf of the Company maintains fire,
earthquake, flood and extended coverage insurance on its properties in amounts
it deems appropriate.
As of December 31, 1996, each of the Company's motels was encumbered with a
first mortgage in favor of the Company's bank lenders and a second mortgage in
favor of the Motel 6 Lender securing an aggregate of approximately $204 million
principal amount of indebtedness. Such indebtedness was assumed by the Motel 6
Operator in connection with the purchase of the motels.
The net ground leases for seven motels are for original terms of between 25
and 46 years, have initial remaining terms of two years and four months or more
and expire on various dates to 2021. Four of those leases have renewal options
ranging from five to 25 years. The current minimum rents range from $20,800 to
6
<PAGE>
$53,500 per annum for the motels. Each net ground lease provides for a cost of
living adjustment which is based upon the consumer price index applicable in the
vicinity of the leased premises or for payment of a percentage of gross revenues
above the minimum annual rent. Each net ground lease provides that the leased
property cannot be assigned or sublet without the lessor's prior written
approval. The net ground leases do not provide the Company with an option to
purchase the leased property, but several leases do provide the Company with a
right of first refusal to purchase the property if the lessor elects to sell.
The Company's net ground and building lease is for an original term of 25
years, ending in 1999, and has no renewal option. The current annual rent is
$95,800 with a cost of living adjustment based upon the national average
consumer price index. The lease provides that the leased property cannot be
assigned or sublet without the lessor's prior written approval and that the
lessee does not have an option to purchase the leased property but does have a
right of first refusal to purchase the property if the lessor elects to sell.
Under the terms of the Master Lease Agreement (i) the Motel 6 Operator
agreed to comply with the terms and conditions of the Company's leases on the
Company's behalf; (ii) upon the expiration or earlier termination of any such
lease, the motel subject to the lease shall no longer be subject to the Master
Lease Agreement, however, no reduction of the Motel 6 Operator's rent payment
obligations will occur as a result of such expiration; (iii) no surrender,
extension or material modification of any lease and, upon the termination of any
lease, no reinstatement of the lease or execution of a new lease, shall be
undertaken without the written agreement of the Company; (iv) the Motel 6
Operator as lessee is obligated to pay all amounts due as ground rent or lease
payments under the ground leases and the ground and building lease; and (v) the
Master Lease Agreement contains certain restrictions on the rights of the
Company to amend, extend or renew the ground leases and ground and building
lease prior to 1999.
All of the foregoing leases were all assigned to and assumed by the Motel 6
Operator in connection with the purchase of the motels.
In addition to its motel properties, the Company owns five parcels of
unimproved land suitable for the construction of new motels, of which two are
located in California, and one in each of Texas, Oklahoma and Oregon. The
Company in 1995 wrote down the carrying value of the vacant land held for sale
by $1.0 million and is currently offering all of the unimproved land parcels for
sale.
The Company's headquarters are located in Santa Barbara, California. The
Company began leasing its office space from an independent third party in
October 1993. The original term of the lease is for five years with current
minimum rent payments of $75,800 per annum.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is a party to lawsuits arising in the
ordinary course of its business. Substantially all of the claims made in these
lawsuits (other than any claims for punitive damages made in certain actions)
are covered by the Company's insurance policies. Management believes that such
lawsuits arising in the ordinary course of business will not have a material
adverse effect on the financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'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 each of the quarters during 1996 are set forth
below:
1996
----------------
High Low
------ ------
First Quarter............... 23-3/4 23-1/2
Second Quarter.............. 22-1/4 23
Third Quarter............... 23-1/4 23-1/4
Fourth Quarter.............. 27 24-1/2
As of February 28, 1997, there were 627 shareholders of record holding
1,047,443 shares of Common Stock.
On November 5, 1996 the Company announced the declaration of a cash
dividend to be paid out of the Company's statutory surplus. A special dividend
of $2.00 per outstanding Share of Common Stock was paid on December 2, 1996 to
stockholders of record on November 15, 1996. Under the terms of the WFB loan
modification agreement, the Company was permitted to pay dividends out of its
statutory surplus cash.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The Company assumed operations of the Company's predecessor on November 25,
1993 and retained December 31st as the end of its fiscal year. The Company's
motels were operated under a Management Contract until December 31, 1994.
Effective January 1, 1995, the Company's motels were leased to the Motel 6
Operator pursuant to the Master Lease Agreement. Set forth on the next page are
selected financial data of the Company for the years ended December 31, 1992,
1993, 1994, 1995 and 1996.
SUMMARY FINANCIAL AND OPERATING DATA (1)
(in thousands except per share, motels, rooms,
rentals, occupancy and room rates)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
STATEMENT OF OPERATING DATA
<S> <C> <C> <C> <C> <C>
Revenues ..................... $ 41,058 $ 52,034 $ 56,842 $ 52,424 $ 24,743
Operating, administrative and
lease expenses ............ 25,423 28,182 30,800 22,921 1,227
Motel 6 field overhead ....... 469 1,323 1,468 1,006 --
Motel 6 accounting and
marketing fee ............. 724 2,084 2,277 1,809 --
Motel 6 license fee .......... 543 1,563 1,708 1,356 --
Motel 6 incentive fee ........ -- 832 -- 897 --
Interest expense ............. 13,785 15,920 17,132 20,064 19,061
Depreciation and amortization 9,300 9,851 9,240 9,001 8,608
Other expense ................ -- -- -- 4,953 12
Restructuring and refinancing
costs ..................... 8,633 -- -- -- --
Write down and losses on sales
of assets ................. 826 -- 476 1,036 (3) 123
Effect of Master Lease
Agreement settlement ...... -- -- -- (2,870) --
Tax litigation expense ....... 5,648 -- -- -- --
Provision (benefit) for income
taxes ..................... -- -- 2 (7,012) (23,306)
Net income (loss) ............ (24,293) (7,721) (6,261) (737) 19,018
Income (loss) per Share (2) .. (26.46) (8.17) (6.63) (.77) 17.82
Dividend per Common Share (2) 3.75 (4) -- -- 2.00 2.00
STATISTICAL DATA
Motels at end of period ...... 73 73 72 72 71
Average number of rooms
available ................. 7,747 7,747 7,734 7,641 7,606
Room rentals per available
room (5) .................. $ 5,300 $ 6,717 $ 7,350 $ 7,671 $ 8,007
Occupancy percentage ......... 57.5% 61.6% 66.2% 67.1% 66.1%
Average daily room rates ..... $ 25.17 $ 29.88 $ 30.41 $ 31.31 $ 33.11
BALANCE SHEET DATA
Total assets ................. $ 172,866 $ 172,757 $ 174,048 $ 160,290 $ 177,679
Total debt and lease
obligations ............... 195,312 202,472 199,086 206,967 204,189
Shareholders' deficit ........ (37,801) (45,522) (51,784) (54,470) (37,173)
</TABLE>
- ----------
9
<PAGE>
(1) Amounts are set forth accounting for different time periods in which the
Company's motels were (i) operated by the Company; (ii) operated by the
Motel 6 Operator under a management contract; and (iii) leased to the Motel
6 Operator and, as a result, such amounts are not comparable.
(2) Amounts reflect the conversion to corporation and one-for-fifteen reverse
stock split.
(3) See Note 7 of the Audited Consolidated Financial Statements.
(4) Represents the Special Distribution paid in connection with the approval of
the Management Contract.
(5) Room rentals per available room represents room rentals divided by the
average number of rooms available during the period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
General
As of December 31, 1996, the Company owned in fee or leased 71 motels with
a total of 7,606 rooms. The Company's business strategy is to maximize net cash
flow through the leasing of its motel properties to the Motel 6 Operator and,
due to the exercise of the Purchase Option, the Company received $40.0 million
in proceeds subsequent to year-end from sale of the properties to the Motel 6
Operator after payment of all indebtedness of the Company relating to the
motels.
Demand for the Company's motel rooms is dependent in part upon regional and
national economic conditions. In addition, the operations of individual motels
may be adversely affected by changes in local business conditions, travel
patterns, highway relocations and the addition of competitors' motels. Under the
Master Lease Agreement, however, such business factors do not affect the Motel 6
Operator's obligation to pay rent to the Company at the agreed rate. The Motel 6
Operator's decision to exercise the Lease Purchase Option depended largely on,
its success in maximizing occupancy and operating income at the motel
properties.
In the fourth quarter of 1995 the Company leased its motels to the Motel 6
Operator as opposed to the first three quarters of 1995 and all of 1994 when the
Motel 6 Operator operated the Company's motels under a Management Contract.
Operations under terms of the Master Lease Agreement have resulted in
significant changes in the income and expense structure of the Company which
should be considered in reviewing this comparison:
On December 30, 1996 the Company received formal notice from the Motel 6
Operator, Motel 6 G.P. Inc. and IBL Limited, Inc. that they were in the process
of finalizing arrangements for financing to exercise the Purchase Option which
is contained in the Master Lease Agreement. On January 30, 1997 the Motel 6
Operator and its assignees formally exercised the Purchase Option. The closing
of the sale of the Company's motels took place on January 30, 1997.
At a closing held in Santa Barbara, California, the Motel 6 Operator
purchased the Company's 71 motels at a fixed price of $40.0 million plus
assumption of the debt secured by the motels of approximately $206 million. The
sale of the motel properties constitutes a sale of substantially all of the
assets of the Company. The Company is also in the process of disposing of five
additional parcels of vacant land constituting the balance of the Company's real
estate holdings.
The Company is and will be subject to substantial Federal and State taxes
on the gain realized by the sale of its motel assets and any gain realized on
the disposition of the additional parcels of vacant land.
10
<PAGE>
Fiscal Year Ended December 31, 1996
vs. December 31, 1995
Total revenues for 1996 were $24.7 million compared to $52.4 million for
1995 and comprised: rent income, resulting from leasing the Company's motels to
the Motel 6 Operator, of $24.0 million for twelve months of 1996 compared to
$6.1 million for three months of 1995; interest income of $.7 million for 1996
versus $1.2 million for 1995, earned from short-term investments of the
Company's cash balances; and room rentals of $-0- for 1996 compared to $45.2
million for 1995.
Operating expenses, lease, Motel 6 field overhead, Motel 6 accounting and
marketing fee, Motel 6 license fee and Motel 6 incentive fee were expenses
pertaining to the operating of the Company's motels by the Motel 6 Operator
under the Management Contract, which was replaced with the Master Lease
Agreement in the fourth quarter of 1995. As a result, for 1996, there were no
expenses for these items; this compares to $26.2 million of these expenses for
nine months of 1995.
Administrative and general expenses were $1.2 million for 1996 compared to
$1.8 million for 1995.
Depreciation and amortization was $8.6 million in 1996 compared to $9.0
million in 1995. The decrease was due to lower overall depreciation charges
resulting from fully depreciated assets.
Other expense for 1996 was $12.0 thousand compared to $5.0 million for
1995. 1995's expense included $1.6 million in legal costs in connection with the
Master Lease Agreement, $2.6 million in litigation settlement costs and a $.7
million write-off of prepaid loan fees.
Write-down and losses on sales of assets for 1996 was $.1 million, due to a
loss on a sale of an additional land parcel adjacent to one of the Company's
motels, compared to $1.0 million for 1995, which reflected a write-down in the
realizable carrying value of the remaining vacant land parcels held for sale.
Effect of Master Lease Agreement settlement was not applicable for 1996,
but was $(2.9) million for 1995 and represented the write-off of accrued assets
and liabilities in connection with the termination of the Management Contract.
Interest expense in 1996 amounted to $19.1 million, compared to $20.1
million in 1995, all of which was paid by the Motel 6 Operator on the Company's
behalf to the Company's lenders. The amount of this interest is also reflected
in the Company's total revenues. The lower interest expense for 1996 primarily
reflects no tax deficiency interest incurred during 1996 compared to $.9 million
in 1995. The Company concluded its tax deficiency matter on October 3, 1995 by
paying taxes and interest to the IRS and California Franchise Tax Board the
aggregate amount of $9.0 million.
Provision (benefit) for income taxes for 1996 was $(23.3) million compared
to $(7.0) million for 1995. The amount for 1996 reflects realizing all future
deferred tax benefits. The amount for 1995 reflects the future deferred tax
benefits for the cumulative net operating losses for 1993, 1994 and 1995. As a
result of the exercise of the Purchase Option, subsequent to year-end, the
Company will use all net deferred tax assets to offset future Federal and State
tax liabilities.
Fiscal Year Ended December 31, 1995
vs. December 31, 1994
Total revenues for 1995 were $52.4 million compared to $56.8 million for
1994 and comprised: rent income of $6.1 million for 1995, resulting from leasing
the Company's motels to the Motel 6 Operator; interest income of $1.2 million
for 1995, earned from short-term investments of the Company's cash balances; and
room rentals of $45.2 million for nine months of 1995 compared to $56.8 million
for twelve months of 1994.
11
<PAGE>
Operating expenses, lease, Motel 6 field overhead, Motel 6 accounting and
marketing fee, Motel 6 license fee and Motel 6 incentive fee were expenses
pertaining to the operating of the Company's motels by the Motel 6 Operator
under the Management Contract. For nine months of 1995, these expenses totalled
$26.2 million compared to $33.8 million for all of 1994.
Administrative and general expenses were $1.8 million for 1995 compared to
$2.5 million for 1994.
Other expense for 1995 was $5.0 million which includes $1.6 million in
legal costs in connection with the Master Lease Agreement, $2.6 million in
litigation settlement costs and a $.7 million write-off of prepaid loan fees.
Write-down and losses on sales of assets was $1.0 million due to a loss on
a sale of a parcel of vacant land and a write-down of the realizable carrying
value of the remaining vacant land parcels held for sale.
Effect of Master Lease Agreement settlement was $(2.9) million for 1995 and
represented the write-off of accrued assets and liabilities in connection with
the termination of the Management Contract.
Interest expense in 1995 amounted to $20.1 million, all of which was paid
by the Motel 6 Operator on the Company's behalf to the Company's lenders. The
amount of this interest is also reflected in the Company's total revenues. In
1994 under the Management Contract, $17.1 millon in interest expense was paid by
the Company to its lenders. The increase in interest expense is attributable to
a $9.0 million increase in borrowings to pay the taxes and interest described in
Part 1, Item 3, of the Form 10-K for the fiscal year ended December 31, 1995 and
a 119 basis point increase in interest rates in 1995 over 1994.
Provision (benefit) for income taxes in 1995 reflects a $7.0 million credit
resulting from recognizing deferred tax assets. In prior years, the Company had
a valuation allowance for the amount of deferred tax assets. As a result of
entering into the Master Lease Agreement, it is more likely than not that the
net operating loss carry-forward of the deferred tax assets will be realized.
Liquidity and Capital Resources
At December 31, 1996, the Company had $15.1 million of cash and cash
equivalents as compared to $13.5 million at December 31, 1995. In addition, the
Motel 6 Operator owes the Company $1.6 million of reimbursements for principal
payments made, since the inception of the Master Lease Agreement, by the Company
toward reducing the WFB loan. This amount is included in the Receivable from
Motel 6 on the Company's Balance Sheet. As of December 31, 1996, the Company has
no borrowing capacity available on its credit facilities with its lenders.
Under the terms of the WFB Loan Modification Agreement entered into in
1995, the Company is required to provide annually out of the Basic Rent payment
an annual principal payment based on a 25-year amortization schedule in an
amortization account with WFB. Under terms of the Master Lease Agreement, the
Motel 6 Operator is required to reimburse the Company for these payments. Such
reimbursement shall come from an annual calculation of excess cash flow from the
WFB mortgaged motels, or in lump sum at December 31, 1998 if the interim years'
annual excess cash flow payments have not been sufficient for full reimbursement
to the Company. During 1996, the Motel 6 Operator paid $78.0 thousand to the
Company representing the 1995 Excess Cash Flow from the motels collateralizing
the WFB loan.
EBITDA increased to $23.4 million during 1996, an increase of 9.7% over
1995. EBITDA, as used above, is defined as earnings before interest expense,
income taxes, depreciation and amortization. The Company believes this
definition of EBITDA provides a meaningful measure of its ability to service
debt, especially when considering that any increase in debt service will be
largely offset by an increase in debt service rent paid by the Motel 6 Operator.
Net cash provided by operating activities was $6.0 million for 1996
compared to $(12.9) million used in operating activities for 1995. This year's
favorable result is primarily due to receipt of 1997's $3.5 million Basic Rent
12
<PAGE>
payment from the Motel 6 Operator on December 31, 1996 and from receiving, as
part of the rent income from the Motel 6 Operator, $1.4 million of principal
payments paid directly to the Company's lenders.
Net cash provided by investing activities was $.3 million in the year 1996
versus $.1 million for 1995. This year's balance reflects the proceeds received
from the sale of two parcels of land.
Net cash used in financing activities was $(4.7) million in 1996 compared
to $5.9 million provided by financing activities in 1995. Included in this
year's activity was a $1.1 million WFB loan amortization payment required under
the terms of the WFB Loan Modification Agreement entered into in 1995, $1.7
million of principal payments made to the Company's lenders and $2.0 million for
dividends paid to Company's stockholders.
On January 30, 1997 the Motel 6 Operator and its assignees formally
exercised the Purchase Option. At a closing held in Santa Barbara, California,
the Motel 6 Operator purchased the Company's 71 motels at a fixed price of $40.0
million plus assumption of the debt secured by the motels of approximately $206
million. The Company received net cash proceeds of $35.8 million, after payments
to the Motel 6 Operator of $3.2 million for refund of 1997's unearned Deferred
Basic Rent and for the payment of $3.0 million furniture, fixture and equipment
reserve.
The Company is and will be subject to substantial Federal and State taxes
on the gain realized by the sale.
The Company intends to adopt a Plan of Complete Liquidation and will
provide further explanation of such plan in its proxy material for the 1997
Annual Meeting.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are included in response and
incorporated by reference to Item 14 of this Report.
13
<PAGE>
ALLSTAR INNS INC.
BALANCE SHEETS
(in thousands of dollars)
- --------------------------------------------------------------------------------
December 31,
------------------------
1996 1995
------ ------
ASSETS
Current assets:
Cash and cash equivalents (Note 1)............ $ 15,131 $ 13,518
Receivable from Motel 6 (Note 1).............. 3,620 2,089
Other current assets.......................... 29 46
Deferred tax assets (Note 3).................. 30,320 --
--------- --------
Total current assets.................... 49,100 15,653
Net property and equipment (Note 1)............... 127,436 136,232
Land held for sale (Notes 1 and 7)................ 1,107 1,339
Other assets including leased property under
capital lease, less accumulated amortization
of $222 (1996) and $205 (1995) (Notes 1 and 4) 36 53
Deferred tax assets (Note 3)...................... -- 7,013
--------- --------
$177,679 $160,290
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities...... $ 5,215 $ 5,817
Deferred Basic Rent (Note 1).................. 3,500 --
Accrued interest.............................. 2,032 2,089
--------- --------
Total current liabilities............... 10,747 7,906
Long-term debt (Note 2)........................... 204,105 206,854
Commitments and contingencies (Notes 4)........... -- --
Stockholders' deficit:
Preferred stock, $.01 par value, authorized
1,000,000 shares; no shares issued and
outstanding at December 31, 1996 and 1995.. -- --
Common stock, $.01 par value, authorized
10,000,000 shares; 985,710 shares and
984,710 shares issued and outstanding at
December 31, 1996 and 1995, respectively... 10 10
Additional paid-in capital.................... 21,360 23,081
Accumulated deficit........................... (58,543) (77,561)
---------- ----------
Total stockholders' deficit....................... (37,173) (54,470)
---------- ----------
$177,679 $160,290
========= ========
See accompanying notes.
- --------------------------------------------------------------------------------
14
<PAGE>
ALLSTAR INNS INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
- --------------------------------------------------------------------------------
Years Ended December 31,
1996 1995 1994
-------- -------- --------
Revenues:
Rent income ................................ $ 23,999 $ 6,108 $ --
Interest income ............................ 744 1,164 --
Room rentals ............................... -- 45,152 56,842
-------- -------- --------
Total Revenues ....................... 24,743 52,424 56,842
-------- -------- --------
Expenses:
Operating .................................. -- 20,850 27,978
Lease ...................................... -- 271 335
Administrative and general ................. 1,227 1,800 2,487
Motel 6 field overhead ..................... -- 1,006 1,468
Motel 6 accounting and marketing fee ....... -- 1,809 2,277
Motel 6 license fee ........................ -- 1,356 1,708
Motel 6 incentive fee ...................... -- 897 --
Depreciation and amortization .............. 8,608 9,001 9,240
Other expense .............................. 12 4,953 --
Write down and losses on sales of assets
(Note 7) ................................ 123 1,036 476
Effect of Master Lease Agreement settlement -- (2,870) --
-------- -------- --------
Total expenses ....................... 9,970 40,109 45,969
-------- -------- --------
Operating income ............................. 14,773 12,315 10,873
Interest expense ............................. 19,061 20,064 17,132
-------- -------- --------
Net loss before provision for income taxes ... (4,288) (7,749) (6,259)
Provision (benefit) for income taxes ......... (23,306) (7,012) 2
-------- -------- --------
Net income (loss) ............................ 19,018 (737) (6,261)
======== ======== ========
Net income (loss) per common share (Note 1) .. $ 17.82 $ (.77) $ (6.63)
======== ======== ========
Weighted average common shares outstanding
plus antidilutive common stock equivalents
(Note 1) ................................. 1,067 954 945
======== ======== ========
See accompanying notes.
- --------------------------------------------------------------------------------
15
<PAGE>
ALLSTAR INNS INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands)
- --------------------------------------------------------------------------------
For the Three Years Ended December 31, 1996
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 ......... 945 $ 9 $ 25,032 $(70,563)
Net loss ......................... -- -- -- (6,261)
Redemption of fractional shares
of Common Stock ............... -- -- (1) --
-------- -------- -------- --------
Balance, December 31, 1994 ......... 945 9 25,031 (76,824)
======== ======== ======== ========
Net loss ......................... -- -- -- (737)
Dividends ($2.00 per common share) -- -- (1,950) --
Common stock grant ............... 40 1 -- --
-------- -------- -------- --------
Balance, December 31, 1995 ......... 985 10 23,081 (77,561)
======== ======== ======== ========
Net income ....................... -- -- -- 19,018
Dividends ($2.00 per common share) -- -- (1,956) --
Employee stock options ........... 1 -- 22 --
Amortization of 1995's
Restricted Stock Plan ......... -- -- 213 --
-------- -------- -------- --------
Balance, December 31, 1996 ......... 986 $ 10 $ 21,360 $(58,543)
======== ======== ======== ========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
16
<PAGE>
ALLSTAR INNS INC.
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Years Ended December 31,
-----------------------------
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
Cash received ................................ $ 28,317 $ 50,326 $ 56,856
Cash paid to suppliers and employees ......... (3,195) (35,448) (30,976)
Interest paid ................................ (19,119) (18,730) (16,025)
Tax deficiency payment ....................... -- (9,002) --
-------- -------- --------
Net cash provided by (used in) operating
activities ............................. 6,003 (12,854) 9,855
Cash flows from investing activities:
Capital expenditures ......................... (23) -- (2,498)
Proceeds from sale of assets ................. 336 139 1,450
Other ........................................ -- (19) --
-------- -------- --------
Net cash provided by (used in) investing
activities ............................. 313 120 (1,048)
Cash flows from financing activities:
Borrowing under credit agreements ............ -- 8,996 2,179
Payments under credit agreements ............. (1,439) (189) (295)
Principal payments - mortgages and capital
lease obligation .......................... (1,310) (926) (5,270)
Dividends paid to stockholders ............... (1,956) (1,950) --
Redemption of fractional shares of
common stock .............................. -- -- (1)
Proceeds from exercise of stock options ...... 2 -- --
Proceeds from common stock grant ............. -- 1 --
-------- -------- --------
Net cash provided by (used in)
financing activities ................... (4,703) 5,932 (3,387)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents ............................. 1,613 (6,802) 5,420
Cash and cash equivalents at beginning of period 13,518 20,320 14,900
-------- -------- --------
Cash and cash equivalents at end of period ..... $ 15,131 $ 13,518 $ 20,320
======== ======== ========
(Continued on next page)
- --------------------------------------------------------------------------------
17
<PAGE>
ALLSTAR INNS INC.
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Years Ended December 31,
-----------------------------
1996 1995 1994
-------- -------- --------
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities:
Net income (loss) ........................... $ 19,018 $ (737) $ (6,261)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization .......... 8,608 9,001 9,240
Write down of assets ................... -- 1,000 --
Loss on sale of assets ................. 123 36 476
Amortization of restricted stock and
exercise of employee stock options .... 234 -- --
Changes in assets and liabilities:
Decrease (increase) in restricted cash -- 2,500 (2,500)
Increase in receivable from Motel 6 ... (1,531) (108) (1,981)
Decrease (increase) in other current
assets ............................... 17 119 (58)
Decrease in property and equipment .... -- 567 --
Decrease in other assets .............. -- 734 --
Increase in deferred tax assets ....... (23,307) (7,013) --
Increase (decrease) in accounts
payable and accrued liabilities ...... (602) (11,284) 9,835
Increase in deferred Basic Rent ....... 3,500 -- --
Increase (decrease) in accrued interest (57) 469 226
Increase (decrease) in accrued tax
litigation liabilities ............... -- (8,138) 878
-------- -------- --------
Net cash provided by (used in)
operating activities .......................... $ 6,003 $(12,854) $ 9,855
======== ======== ========
See accompanying notes.
- --------------------------------------------------------------------------------
18
<PAGE>
ALLSTAR INNS INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation
The Company at December 31, 1996 owned in fee or leased 71 motels with a
total of 7,606 rooms. In 1996 and 1995 the Company's business was to lease the
motels to the Motel 6 Operator to operate under the "Motel 6" logo under the
terms of the Master Lease Agreement. In 1994 the Company engaged the Motel 6
Operator to operate its motels under terms of a Management Contract.
Accordingly, the accompanying financial statements reflects the business as
conducted in each period.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
statement, which is effective for fiscal years beginning after December 15,
1995, requires that an entity evaluate long-lived assets and certain other
identifiable intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the asset may not be
recoverable. An impairment loss meeting the recognition criteria is to be
measured as the amount by which the carrying amount for financial reporting
purposes exceeds the fair value of the asset. The Company adopted this statement
in 1996 and the adoption of the statement has had no effect on the Company's
financial position or results of operations.
Master Lease Agreement
In 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. In September 1995 the Company and the Motel 6 Operator entered into a new
Master Lease Agreement (the "Master Lease Agreement") relating to the Company's
motels. For a description of the events leading up to the Master Lease
Agreement, see the Company's Proxy Statement relating to its 1995 Annual Meeting
of Stockholders.
The Lease is a "net, net, net" lease for a 15-year term commencing as of
January 1, 1995. Annual rent is an amount sufficient to cover debt service on
the indebtedness secured by the Company's motels plus (i) through 1998, $3.5
million, (ii) in 1999, satisfaction of the Company's indebtedness to the an
affiliate of the Motel 6 Operator (the "Motel 6 Lender") (approximately $37.0
million at December 31, 1996), plus (iii) annually in 1999 through 2009, $5.0
million (plus cost of living increases from 1995). Under the Master Lease
Agreement, the Motel 6 Operator has 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 the indebtedness, including
the Motel 6 Lender indebtedness, secured by the Company's motels. Upon such
purchase, the Motel 6 Operator would receive $3.0 million representing a
furniture, fixture and equipment reserve. The Master Lease Agreement is
assignable to an assignee with a net worth of at least $350 million. The
Purchase Option may be assigned so long as the Motel 6 Operator or its parent
guarantees the performance of the assignee.
On December 30, 1996 the Company received formal notice from the Motel 6
Operator, Motel 6 G.P. Inc. and IBL Limited, Inc. ("Motel 6") that they were in
the process of finalizing arrangements for financing to exercise the Purchase
Option which is contained in the Master Lease Agreement. On January 30, 1997 the
Motel 6 Operator and its assignees formally exercised the Purchase Option. The
closing of the sale of the Company's motels took place on January 30, 1997.
At a closing held in Santa Barbara, California, the Motel 6 Operator
purchased the Company's 71 motels at a fixed price of $40.0 million plus
assumption of the debt secured by the motels of approximately $206 million. The
sale of the motel properties constitutes a sale of substantially all of the
assets of the Company. The Company is also in the process of disposing of five
19
<PAGE>
ALLSTAR INNS INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
additional parcels of vacant land is also in the process of disposing of five
additional parcels of vacant land constituting the balance of the Company's real
estate holdings.
The Company is and will be subject to substantial Federal and State taxes
on the gain realized by the sale of its motel assets and any gain realized on
the disposition of the additional parcels of vacant land.
The Company intends to adopt a Plan of Complete Liquidation and will
provide further explanation of such plan in its proxy material for the 1997
Annual Meeting.
As a result of the exercise of the Purchase Option, the Company will have
1,067,043 shares of common stock outstanding (after the exercise of certain
stock options).
As part of the closing of the Master Lease Agreement, the Company completed
loan agreement amendments with its primary lender, Wells Fargo Bank ("WFB").
Under the terms of the WFB Loan Modification Agreement entered into in 1995, the
Company is required to provide annually out of the Basic Rent payment an annual
principal payment based on a 25 year amortization schedule in an amortization
account with WFB. Under terms of the Master Lease Agreement, the Motel 6
Operator is required to reimburse the Company for these payments. Such
reimbursement shall come from an annual calculation of excess cash flow from the
WFB mortgaged motels, or in a lump sum at December 31, 1998 if the interim
years' annual excess cash flow payments have not been sufficient for full
reimbursement to the Company. During 1996, the Motel 6 Operator paid $78.0
thousand to the Company representing the 1995 Excess Cash Flow from the motels
collateralizing the WFB loan.
Under terms of the Master Lease Agreement, the Motel 6 Operator is
obligated to expend no less than 5% of gross room rentals on capital
expenditures for the refurbishment of the Company's motels over the term of the
Lease, including at least $15.0 million during the period ending December 31,
1998.
The Company's business strategy was to maximize net cash flow through the
leasing of its motel properties to the Motel 6 Operator and, due to the exercise
of the Purchase Option, the Company received $40.0 million in proceeds
subsequent to year-end from sale of the properties to the Motel 6 Operator after
payment of all indebtedness of the Company relating to the motels and before
payment to the Motel 6 Operator of a $3.0 million furniture, fixture and
equipment reserve.
Reclassifications
Certain amounts as previously reported have been reclassified to conform to
the December 31, 1996 presentation.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment
Depreciation and amortization of property and equipment, leasehold
interests and leased property under capital lease is computed on the
straight-line basis over the estimated useful lives of the assets as follows:
20
<PAGE>
ALLSTAR INNS INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Property and equipment:
Buildings........................................ 30 - 40 years
Improvements..................................... 3 - 22 years
Furniture and equipment.......................... 3 - 11 years
Leasehold interests.................................. Lease term
Leased property under capital lease.................. 16 years
Property and equipment is stated at cost and consists of the following at
December 31:
(in thousands)
1996 1995
-------- --------
Land ................................... $ 30,843 $ 31,067
Buildings and improvements ............. 166,199 166,957
Furniture and equipment ................ 42,477 42,750
Leasehold interests .................... 2,498 2,539
-------- --------
242,017 243,313
Less accumulated depreciation
and amortization .................... 114,581 107,081
-------- --------
Net property and equipment ............. $127,436 $136,232
======== ========
Maintenance and repairs in 1994 were charged to earnings as incurred and
expenditures for improvements were capitalized. Under terms of the Master Lease
Agreement, the Motel 6 Operator was responsible for these expenditures in 1995
and 1996.
Cash Equivalents
All highly liquid investments with a maturity of three months or less at
the date of acquisition are considered cash equivalents.
Net Income (Loss) Per Common Share
Net income (loss) per common share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding plus
antidilutive common stock equivalents. Common stock equivalents consist of
outstanding stock options and restricted stock under the Company's stock option
and restricted stock plans, respectively.
Accounting for Stock Based Compensation
The Company accounts for its stock based compensation arrangements under
the provisions of APB 25, Accounting for Stock Issued to Employees, and the
Company has adopted the disclosure only provisions of Statement of Accounting
Financial Standards No. 123, Accounting for Stock Based Compensation.
Receivable from Motel 6
Receivable from Motel 6 is comprised of the following:
21
<PAGE>
ALLSTAR INNS INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(in thousands)
1996 1995
------ ------
Amount owed to the Company ..................... $1,588 $ --
Interest owed to the Company's lenders ......... 2,032 2,089
------ ------
Receivable from Motel 6 ..................... $3,620 $2,089
====== ======
Deferred Basic Rent
Deferred Basic Rent is 1997's annual Basic Rent payment received from the
Motel 6 Operator on December 31, 1996.
Land Held for Sale
Land held for sale is stated at the lower of cost or estimated net
realizable value. In 1995 the Company wrote down the carrying value of the land
held for sale by $1.0 million.
(2) LONG-TERM DEBT
(in thousands)
December
-------------------
1996 1995
-------- --------
WFB mortgage loans maturing 1998 (9.50% weighted average) $102,105 $103,494
Coast Federal Bank mortgage loans maturing 1998
(7.91% weighted average) ............................. 44,643 45,489
Great Western Bank and WHC-One Investors, L.P. mortgage
loans maturing 2005 and 2006 (8.22% weighted average) 20,317 20,781
Motel 6 Lender secured subordinated loans maturing 1998
(11.00% weighted average) ............................ 37,040 37,090
-------- --------
Total long-term debt .............................. $204,105 $206,854
======== ========
All of the Company's assets serve as collateral for the indebtedness of the
Company.
Maturities on long-term debt are as follows:
(in thousands)
1997.......................... $ 2,588
1998.......................... 182,256
1999.......................... 596
2000.......................... 646
2001.......................... 701
Thereafter.................... 17,318
---------
$204,105
22
<PAGE>
ALLSTAR INNS INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has classified 1997 maturities as long-term since these
maturities will not use the current assets of the ensuing fiscal year. Under the
Master Lease Agreement, the Motel 6 Operator is required to make these payments
directly to the Company's lenders.
During 1996, 1995 and 1994 interest expense totaled $19.1 million, $20.1
million and $17.1 million, respectively.
(3) INCOME TAXES
Pursuant to SFAS 109, the Company has deferred tax assets of $30.3 million
as of December 31, 1996. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
(in thousands)
1996 1995
-------- --------
Deferred tax assets:
Prior years' bases differences ................ $ 21,038 $ 21,260
Contingent liability provision ................ 1,107 2,008
Deferred loan fees ............................ 1,008 1,380
Write-down of land held for sale .............. 1,058 1,140
Net operating loss carry-forward .............. 8,493 7,013
Deferred Basic Rent ........................... 1,400 --
Other ......................................... 72 77
-------- --------
Total deferred tax assets .................. 34,176 32,878
Valuation allowance for deferred assets ........... -- (21,596)
-------- --------
Net deferred assets ........................ 34,176 11,282
Deferred tax liabilities:
Tax depreciation in excess of book depreciation 3,490 3,938
Tax loss over book loss on asset sale ......... 44 10
Capitalized interest .......................... 322 321
-------- --------
Total deferred tax liabilities ............. 3,856 4,269
Net deferred tax assets ........................... $ 30,320 $ 7,013
======== ========
The valuation allowance decreased $21.6 million from 1995 due primarily to the
Motel 6 Operator exercising their Purchase Option. As a result, the Company will
be able to utilize all of its net deferred tax assets.
At December 31, 1996, the Company had a net operating loss carry-forward of
approximately $21.5 million for Federal income tax purposes of which $3.4
million expires in the year 2011, $9.4 million expires in the year 2010, $7.6
million expires in the year 2009 and $1.1 million expires in the year 2008.
The Company had a net operating loss carryover of $6.4 million for state
purposes of which $1.0 million expires in the year 2001, $2.9 million expires in
the year 2000, $2.2 million expires in the year 1999 and $.3 million expires in
the year 1998.
23
<PAGE>
ALLSTAR INNS INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(4) COMMITMENTS AND CONTINGENCIES
Leases
The Company is a party to nine lease agreements involving motel land and
buildings and the Company's headquarters having an initial remaining term of two
years and four months or more and expiring on various dates to 2021. Four of
these leases contain renewal options ranging from 5 to 25 years. The following
is a schedule by years of future minimum rental payments required under leases:
(in thousands)
Capital
Operating Lease
Leases Obligation
------- ----------
1997 ................................... $ 320 $ 45
1998.................................... 304 45
1999.................................... 232 11
2000.................................... 203 --
2001.................................... 171 --
Thereafter.............................. 1,644 --
------ ----
Total minimum lease payments............ $2,874 $101
====== ====
Less amount representing interest................ 17
----
Present value of lease payments.................. 84
Less amount due within one year.................. 34
----
Obligation under capital lease................... $ 50
====
The Company's headquarters are located in Santa Barbara, California. The
Company began leasing its office space from an independent third party in
October 1993. The original term of the lease is for five years with current
minimum rent payments of $75,800 per annum.
Contingent rentals included in lease expense amounted to $-0- for the year
ended December 31, 1996 ($-0- and $48,000 in 1995 and 1994, respectively).
Contingent rentals are based upon a percentage of total revenues at two motel
locations. In 1995 and 1996 contingent rentals were the obligation of the Motel
6 Operator.
Employment Agreements
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 Lease 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.
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 on the date of the grant.
24
<PAGE>
ALLSTAR INNS INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has entered into agreements with the other six Company
employees which provide that in the event of a change of control of the Company
or an early purchase under the Lease Purchase Option, that the Company will pay
the employees their current salaries through December 31, 1998. Under these
circumstances, the Company will also vest all of the Stock Options and waive 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.
(5) EMPLOYEE STOCK OPTION PLAN
Under the Company's employee stock option plan, options to acquire a
maximum of 63,333 common shares may be granted to employees of the Company at an
exercise price not less than the fair market value of a Share on the date of
grant. Any option granted under this Plan may, at the discretion of the Board of
Directors, include a related Stock Appreciation Right (SAR). Upon exercise of a
SAR, the Company shall pay to the optionee an amount equal to one hundred
percent (100%) of the difference between (i) the fair market value of the shares
subject to the option (or portion thereof) surrendered by the optionee, and (ii)
the aggregate exercise price of such shares. The Company shall make such
payments in cash or with shares valued at fair market value as of the date of
exercise, or in any combination of cash and shares as the optionee shall elect.
However, the Board of Directors may disapprove the election of the optionee to
receive cash in full or partial payment of the SAR. At December 31, 1996, 1995
and 1994 there were outstanding options for the purchase of 62,333, 63,333 and
44,600 shares, respectively, at prices ranging from $2.25 to $22.50 per share.
The weighted-average exercise price for all options outstanding on December
31, 1996 is $10.35 and the weighted-average remaining contractual life is 7.2
years; 31,400 options have a weighted-average exercise price and remaining
contractual life of $17.92 and 7.1 years, respectively; and 30,933 options have
a weighted-average exercise price and remaining contractual life of $2.66 and
7.3 years, respectively. In addition, 41,510 options are exercisable (as
compared to 25,732 as of December 31, 1995 and 15,089 as of December 31, 1994)
at a weighted-average exercise price of $9.61 and a weighted-average remaining
contractual life of 6.5 years; 16,911 options have a weighted-average exercise
price and remaining contractual life of $19.57 and 5.6 years, respectively; and
24,599 options have a weighted-average exercise price and remaining contractual
life of $2.76 and 7.2 years, respectively.
Employee
Stock Options
-------------
Outstanding, December 31, 1995 ......................... 63,333
Granted ............................................. --
Cancelled ........................................... --
Exercised ........................................... 1,000
------
Outstanding, December 31, 1996 ......................... 62,333
======
Exercisable, December 31, 1996
at prices ranging from $2.25 to $22.50 .............. 41,510
======
The 62,333 outstanding options include 22,600 with stock appreciation
rights. One thousand options were exercised in 1996 and no options were
exercised during 1995 or 1994. Unless the Board of Directors determines
otherwise, commencing one year from the date of grant, options and related Stock
Appreciation Rights become exercisable at a rate of 33-1/3% per year for three
years and options expire ten years from the date of grant.
As discussed above, the Company has an employee stock option plan which
provides for grants of nonqualified stock options, restricted stock awards and
stock appreciation rights. The Company has adopted the disclosure only
provisions of Statement of Financial Accounting Standards No. 123, Accounting
25
<PAGE>
ALLSTAR INNS INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
for Stock Based Compensation. Accordingly, no compensation cost has been
recognized for the stock options granted after December 31, 1994. Had
compensation cost for the Company's stock options been determined based on the
fair value at the grant date for awards in 1995 consistent with the provisions
of SFAS No. 123, the Company's net income (loss) and net income (loss) per
common share would have been reduced to the pro forma amounts indicated below:
(in thousands, except
per share amounts)
1996 1995
-------- --------
Net income (loss) - as reported .................... $ 19,018 $ (737)
Net income (loss) - pro forma ...................... $ 19,010 $ (739)
Net income (loss) per common share - as reported ... $ 17.82 $ (.77)
Net income (loss) per common share - pro forma ..... $ 17.82 $ (.77)
The fair value of the options is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995: dividend yield of 12.5%; expected
volatility of 0.346%; risk-free interest rate of 6.5%; and expected life of 3.0
years.
(6) RESTRICTED STOCK PLAN
Restricted Stock awards of a total of 40,000 shares of the Company's Common
Stock were granted by the Board of Directors on October 11, 1995 to the
Company's employees. The restrictions applicable to such stock require that the
employees, in order to obtain ownership of the shares granted to them, must
remain in the employment of the Company for the restriction period. On December
31, 1998, plus three days, the restriction with respect to one-half of the
shares will lapse; and on December 31, 2000, plus three days, the restriction
for the remaining one-half of the shares will lapse.
Restrictions will lapse earlier if the Master Lease Agreement Lease
Purchase Option is exercised or the Company is subject to a change in control.
The employees are entitled to receive dividends and vote Restricted Stock
prior to the lapse of the restrictions applicable thereto.
The value of such stock was established by the market price on the date of
grant and is being amortized ratably over the restricted period. During 1996 and
1995, $213,000 and $-0-, respectively, was amortized relating to the plan.
(7) VACANT LAND
At December 31, 1996, the Company owned five parcels of unimproved land
suitable for the construction of new motels, of which two are located in
California, and one in each of Texas, Oklahoma and Oregon. The Company in 1995
wrote down the carrying value of the vacant land held for sale by $1.0 million
and is currently offering all of the unimproved land parcels for sale.
(8) LEGAL PROCEEDINGS
From time to time the Company is a party to lawsuits arising in the
ordinary course of its business. Substantially all of the claims made in these
lawsuits (other than any claims for punitive damages made in certain actions)
26
<PAGE>
ALLSTAR INNS INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
are covered by the Company's insurance policies. Management believes that such
lawsuits arising in the ordinary course of business will not have a material
adverse effect on the financial statements of the Company.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practical to estimate the
value:
Cash and Cash Equivalents. The carrying amounts approximates fair value
because of the short-term maturity of the instruments.
Receivable from Motel 6. The carrying amount approximates fair value
because of its short-term due date and the estimated underlying value of the
collateral.
Long-Term Debt. The fair value of the Company's long-term debt is estimated
based on using a discounted cash flow approach and a borrowing rate which the
Company believes to be available in the market place.
The estimated fair values of the Company's financial instruments are
summarized as follows:
(in thousands)
December 31, 1996 December 31, 1995
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Cash and cash equivalents $ 15,131 $ 15,131 $ 13,518 $ 13,518
Receivable from Motel 6 3,620 3,620 2,089 2,089
Long-term debt 204,105 200,252 206,854 207,516
27
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
Allstar Inns Inc.
We have audited the accompanying balance sheets of Allstar Inns Inc. as of
December 31, 1996 and December 31, 1995, and the related statements of
operations, shareholders' deficit and cash flows for each of the three years
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Allstar Inns Inc. at December
31, 1996 and December 31, 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
January 24, 1997
Woodland Hills, California
28
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are incorporated in this Item 10 by reference those portions of the
Company's definitive Proxy Statement for the Company's 1997 Annual Meeting of
Stockholders (the "Proxy Statement") appearing under the captions "Nominees for
Election as Directors" and "Information Regarding the Board of Directors and Its
Committees". Information with respect to Executive Officers may be found in Part
I, Item 1, hereof under the caption "Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated in this Item 11 by reference that portion of the
Proxy Statement appearing under the caption "Compensation of Executive Officers
and Directors".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated in this Item 12 by reference that portion of the
Proxy Statement appearing under the caption "Security Ownership of Certain
Beneficial Owners and Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements of the Company as set forth under Item 8 are filed
as part of this Report.
2. Financial Statement Schedules
All financial statement schedules are omitted since the required
information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements and notes thereto.
3. Exhibits
See the Exhibit Index included in paragraph (c) below.
(b) Reports on Form 8-K
None.
29
<PAGE>
(c) Exhibits
The exhibits listed below are filed with this Report.
(7) 3.1 Certificate of Incorporation of Allstar Inns Inc.
(7) 3.2 By Laws of Allstar Inns Inc.
(8) 3.3 Certificate of Merger dated November 11, 1993.
(8) 4.1 Form of certificate representing the Registrant's Common Stock.
(2) 10.1 Executive Employment Agreement, dated April 26, 1983 by and between
Shaughnessy Holdings, Inc. and Daniel R. Shaughnessy.
(1) 10.2 Form of Indemnification Agreement by and among Shaughnessy
Holdings, Inc. and its officers.
(1) 10.3 Form of Indemnification Agreement by and among Shaughnessy
Holdings, Inc. and its directors.
(3) 10.4 Form of Deed of Trust, Financing Statement, Security Agreement and
Fixture Filing (with Assignment of Rents and Leases) by and among
Allstar Inns Operating L.P., as Trustor, Coast Fed Services, as
Trustee, and Coast Savings and Loan Association, as Beneficiary.
(3) 10.5 First Amendment to Promissory Note, Deed of Trust, and Assignment
of Lessor's Interest in Leases, dated as of December 21, 1987, by
and among Allstar Inns Operating L.P., and Coast Savings and Loan
Association.
(3) 10.6 Form of Security Agreement by and between Allstar Inns Operating
L.P. and Coast Savings and Loan Association.
(3) 10.7 License of Tradename and Logo, dated as of December 21, 1987, by
and between Allstar Inns Operating L.P. and Coast Fed Mortgage
Corporation.
(4) 10.8 Form of Mortgage, Deed of Trust, Assignment of Rents, Security
Agreement, Financing Statement and Fixture Filing by and among
Allstar Inns Operating L.P., as Trustor, Ticor Title Insurance
Company of California, as Trustee, and Wells Fargo Bank, National
Association, as Beneficiary.
(4) 10.9 Form of Deed of Trust, Financing Statement, Security Agreement and
Fixture Filing (with Assignment of Rents and Leases) by and among
Allstar Inns Operating L.P., as Trustor, Ticor Title Insurance
Company of California, as Trustee, and Coast Fed Mortgage
Corporation, as Beneficiary.
(4) 10.10 Form of Security Agreement by and between Allstar Inns Operating
L.P. and Coast Fed Mortgage Corporation.
(4) 10.11 First Amendment to Security Agreement and First Amendment to
Assignment of Operating Agreements and Warranties by and between
Allstar Inns Operating L.P. and Coast Savings and Loan Association.
(4) 10.12 Form of Consent of Guarantor and Agreement by and between Allstar
Inns, L.P. and Coast Savings and Loan Association.
(2) 10.13 Allstar Inns Inc. Employee Stock Option Plan (1990), as amended.
30
<PAGE>
(2) 10.14 Form of Allstar Inns Inc. Non-Qualified Stock Option Agreement.
(6) 10.15 Amended and Restated Credit Agreement, dated as of July 27, 1992,
by and among Allstar Inns, L.P., Allstar Inns Operating L.P., and
Wells Fargo Bank, N.A.
(6) 10.16 Loan Modification Agreement, dated as of July 28, 1992, by and
among Allstar Inns Operating L.P., Allstar Inns, L.P. and Coast
Federal Bank.
(6) 10.17 Texas Loan Modification Agreement, dated as of May 28, 1992, by and
between Allstar Inns Operating L.P. and Great Western Bank.
(6) 10.18 California Loan Modification Agreement, dated as of May 28, 1992,
by and between Allstar Inns Operating L.P. and Great Western Bank.
(6) 10.19 Credit Agreement, dated as of August 3, 1992, by and among Allstar
Inns, L.P., Allstar Inns Operating L.P. and Motel 6 Financial
Services, L.P.
(2) 10.20 Executive Employment Agreement dated August 6, 1992, as amended,
granted to Daniel R. Shaughnessy.
(2) 10.21 Allstar Inns Inc. Restricted Stock Plan.
(2) 10.22 Form of Allstar Inns Inc. Restricted Stock Plan Restricted Stock
Award Agreement.
(9) 10.23 Master Lease Agreement dated as of January 1, 1995 among Allstar
Inns Inc., Motel 6 Operating L.P., Motel 6 G.P. Inc. and IBL
Limited, Inc.
(10) 10.24 Loan Modification Agreement, dated as of September 29, 1995 by and
between Allstar Inns Inc. and Wells Fargo Bank, N.A.
(10) 10.25 Amendment to Credit Agreement, dated September 28, 1995, by and
between Motel 6 Financial Services, L.P. and Allstar Inns Inc.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule
- ----------
(1) Incorporated herein by reference to an exhibit previously filed with the
Registration Statement on Form S-1 (Registration No. 33-12223) filed with
the Securities and Exchange Commission on February 25, 1987 by Allstar
Inns, L.P.
(2) Incorporated herein by reference to an exhibit previously filed with the
Registration Statement on Form S-8 (File No. 333-00432) filed with the
Securities and Exchange Commission on January 9, 1996 by Allstar Inns Inc.
(3) Incorporated herein by reference to an exhibit previously filed with the
Form 10-K (File No. 1-9415) filed with the Securities and Exchange
Commission for the period ended December 31, 1987 by Allstar Inns, L.P.
(4) Incorporated herein by reference to an exhibit previously filed with the
Form 10-K (File No. 1-9415) filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1988 by Allstar Inns,
L.P.
31
<PAGE>
(5) Incorporated herein by reference to an exhibit previously filed with the
Form 10-K (File No. 1-9415) filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1989 by Allstar Inns,
L.P.
(6) Incorporated herein by reference to an exhibit previously filed with the
Registration Statement on Form S-1 (Registration No. 33-43509) filed with
the Securities and Exchange Commission on July 17, 1992.
(7) Incorporated herein by reference to an exhibit previously filed with the
Registration Statement on Form S-4 (Registration No. 33-53654) filed with
the Securities and Exchange Commission on September 2, 1993.
(8) Incorporated herein by reference to an exhibit previously filed with the
Form 10-K (File No. 0-22930) filed with the Securities and Exchange
Commission on March 18, 1994.
(9) Incorporated herein by reference to an exhibit previously filed with the
Form 10-K (File No. 0-22930) filed with the Securities and Exchange
Commission on March 30, 1995.
(10) Incorporated herein by reference to an exhibit previously filed with the
Form 10-K (File No. 0-22930) filed with the Securities and Exchange
Commission on March 18, 1996.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALLSTAR INNS INC.
(Registrant)
By: /S/ Daniel R. Shaughnessy
-------------------------------
Daniel R. Shaughnessy
Chairman of the Board and
Chief Executive Officer
Date: March 5, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title
------------------------- -------------------------
/S/ Daniel R. Shaughnessy Chairman of the Board and
------------------------- Chief Executive Officer
Daniel R. Shaughnessy
/S/ Edward J. Gallagher Vice Chairman and Principal
------------------------- Accounting Officer
Edward J. Gallagher
/S/ Edward A. Paul Vice President and Principal
------------------------- Financial Officer
Edward A. Paul
/S/ Christopher W. Brody Director
-------------------------
Christopher W. Brody
Date: March 5, 1997
33
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8) and related Prospectus pertaining to the Allstar Inns Inc. Employee Stock
Option Plan (1990), as amended, the Allstar Inns Inc. Restricted Stock Plan and
the Allstar Inns Inc. Executive Stock Option Agreement, and to the incorporation
by reference therein of our report dated January 24, 1997, with respect to the
financial statements of Allstar Inns Inc. included in its Annual Report (Form
10-K) for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
January 24, 1997
Woodland Hills, California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the
financial statements of Part II. Item 8 of the December 31, 1996
Form 10-K and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15131
<SECURITIES> 0
<RECEIVABLES> 3649
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 49100
<PP&E> 242017
<DEPRECIATION> 114581
<TOTAL-ASSETS> 177679
<CURRENT-LIABILITIES> 10747
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> (37183)
<TOTAL-LIABILITY-AND-EQUITY> 177679
<SALES> 0
<TOTAL-REVENUES> 24743
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9847
<LOSS-PROVISION> 123
<INTEREST-EXPENSE> 19061
<INCOME-PRETAX> (4288)
<INCOME-TAX> (23306)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19018
<EPS-PRIMARY> 19.29
<EPS-DILUTED> 17.82
</TABLE>
