SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, for Use of the Commission
|_| Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant toss. 240.14a-11(c) or
ss. 240.14a-12
BUCKHEAD AMERICA CORPORATION
-------------------------------------------------------------------------------
(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):
|_| No fee required
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Series
A Preferred Stock, $100 par value
(2) Aggregate number of securities to which transaction applies: 30,000
shares of Preferred Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $100 per
share of Preferred Stock
(4) Proposed maximum aggregate value of transaction: $3,000,000
(5) Total fee paid: $600.00
|_| Fee paid previously 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:
428115.1
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[LOGO]
4243 DUNWOODY CLUB DRIVE
SUITE 200
ATLANTA, GEORGIA 30350
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1997
TO THE STOCKHOLDERS OF
BUCKHEAD AMERICA CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
BUCKHEAD AMERICA CORPORATION (the "Company") will be held at the Dunwoody
Country Club, 1600 Dunwoody Club Drive, Dunwoody, Georgia on May 28, 1997 at
12:00 p.m. (E.D.T.), for the following purposes:
1. To elect five directors to serve until the next annual meeting of
stockholders and until their successors are elected and have
qualified.
2. To consider a proposal to amend the Company's Certificate of
Incorporation to authorize the issuance of up to 200,000 shares of
Preferred Stock.
3. To consider a proposal to approve the Company's 1997 Employee
Stock Option Plan.
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Proxy Statement dated May ____, 1997, is attached. Only record
holders of the Company's $.01 par value Common Stock at the close of business on
April 28, 1997, will be eligible to vote at the meeting.
If you are not able to attend the meeting, please execute, complete, date
and return the proxy in the enclosed envelope. If you attend the meeting, you
may revoke the proxy and vote in person.
By Order of the Board of Directors:
[SIG CUT]
ROBERT B. LEE
Secretary
Date: May ___, 1997
A copy of the Annual Report on Form 10-KSB of Buckhead America Corporation
for the year ended December 31, 1996 containing financial statements is
enclosed.
428706.3
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[LOGO]
4243 DUNWOODY CLUB DRIVE
SUITE 200
ATLANTA, GEORGIA 30350
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1997
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Buckhead America Corporation ("Buckhead" or the
"Company") of proxies for use at the 1997 Annual Meeting of Stockholders to be
held on May 28, 1997 at 12:00 P.M. (E.D.T.), at the Dunwoody Country Club, 1600
Dunwoody Club Drive, Dunwoody, Georgia.
This Proxy Statement and the accompanying form of proxy are being first
mailed to Stockholders on or about May __, 1997. The Stockholder giving the
proxy may revoke it at any time before it is exercised at the meeting by: (i)
delivering to the Secretary of the Company a written instrument of revocation
bearing a date later than the date of the proxy; (ii) duly executing and
delivering to the Secretary a subsequent proxy relating to the same shares; or
(iii) attending the meeting and voting in person (attendance at the meeting will
not in and of itself constitute revocation of a proxy). Any proxy which is not
revoked will be voted at the Annual Meeting in accordance with the Stockholder's
instructions. If a Stockholder returns a properly signed and dated proxy card
but does not mark any choices on one or more items, his or her shares will be
voted in accordance with the recommendations of the Board of Directors as to
such items. The proxy card gives authority to the proxies to vote shares in
their discretion on any other matter properly presented at the Annual Meeting.
Proxies will be solicited from the Company's Stockholders by mail. The
Company will pay all expenses in connection with the solicitation, including
postage, printing and handling, and the expenses incurred by brokers,
custodians, nominees and fiduciaries in forwarding proxy material to beneficial
owners. The Company may employ a proxy solicitation firm to solicit proxies in
connection with the Annual Meeting and the Company estimates that the fee
payable for such services will be less than $10,000. It is possible that
directors, officers and regular employees of the Company may make further
solicitation personally or by telephone, telegraph or mail. Directors, officers
and regular employees of the Company will receive no additional compensation for
any such further solicitation.
Only holders (the "Stockholders") of record of the Company's $.01 par
value Common Stock at the close of business on April 28, 1997 (the "Record
Date"), are entitled to notice of, and to vote at, the Annual Meeting. On the
Record Date, the Company had outstanding a total of 1,771,127 shares of $.01 par
value Common Stock (excluding a total of 46,850 shares of treasury stock held by
the Company, which are not entitled to vote). Each such share will be entitled
to one vote (non-cumulative) on each matter to be considered at the Annual
Meeting. A majority of the outstanding shares of Common Stock, present in person
or represented by proxy at the Annual Meeting, will constitute a quorum for the
transaction of business at the Annual Meeting. Abstentions and broker non-votes
are counted for purposes of determining the presence or absence of a quorum for
the transaction of business.
Votes cast by proxy or in person at the Annual Meeting will be counted
by the persons appointed by the Company to act as election inspectors for the
meeting. Prior to the meeting, the inspectors will sign an oath to
428706.3
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perform their duties in an impartial manner and to the best of their abilities.
The inspectors will ascertain the number of shares outstanding and the voting
power of each of such shares, determine the shares represented at the meeting
and the validity of proxies and ballots, count all votes and ballots and perform
certain other duties as required by law.
The affirmative vote of holders of a majority of all of the outstanding
shares of Common Stock of the Company entitled to vote at the Annual Meeting is
required for approval of the proposal to amend the Company's Certificate of
Incorporation. The affirmative vote of holders of a majority of the outstanding
shares of Common Stock of the Company entitled to vote and present in person or
by proxy at the Annual Meeting is required for approval of the Company's 1997
Employee Stock Option Plan. Nominees for election as directors will be elected
by a plurality of the votes cast by the holders of shares entitled to vote in
the election. Accordingly, the five nominees receiving the highest vote totals
will be elected as directors of the Company at the Annual Meeting. It is
expected that shares held by officers and directors of the Company, which in the
aggregate represent approximately 14% of the outstanding shares of Common Stock,
will be voted in favor of each proposal. With respect to election of directors,
abstentions, votes "withheld" and broker non-votes will be disregarded and have
no effect on the outcome of the vote. With respect to the proposal to approve
the Company's 1997 Employee Stock Option Plan, abstentions will have the effect
of a vote against the proposal and broker non-votes will be disregarded and will
have no effect on the outcome of the vote. With regard to the proposal to amend
the Company's Certificate of Incorporation, abstentions and broker non-votes
will have the effect of a vote against the proposal. There are no rights of
appraisal or similar dissenter's rights with respect to any matter to be acted
upon pursuant to this Proxy Statement.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company recommends a vote FOR the
election of each of the nominees named below for election as director, FOR the
proposal to amend the Company's Certificate of Incorporation to authorize the
issuance of up to 200,000 shares of Preferred Stock, and FOR the proposal to
approve the Company's 1997 Employee Stock Option Plan.
ELECTION OF DIRECTORS
The proxy holders intend to vote FOR election of the nominees named
below as directors of the Company, unless otherwise specified in the proxy.
Directors of the Company elected at the Annual Meeting to be held on May 28,
1997 will hold office until the next Annual Meeting or until their successors
are elected and qualified.
Each of the nominees has consented to serve on the Board of Directors,
if elected. Should any nominee for the office of director become unable to
accept nomination or election, which is not anticipated, it is the intention of
the persons named in the proxy, unless otherwise specifically instructed in the
proxy, to vote for the election of such other person as the Board of Directors
may recommend.
Except for Mr. Lee and Mr. Van Dyke, the individuals listed below as
nominees for the Board of Directors were directors of the Company during 1996.
The name and age of each nominee, his principal occupation, and the period
during which such person has served as a director is also set forth below:
SERVICE AS
NAME OF NOMINEE AGE DIRECTOR POSITION
- --------------- --- -------- --------
Robert M. Miller 45 Since 1992 Chairman of the Board of Directors
Douglas C. Collins 44 Since 1995 President, Chief Executive Officer,
Treasurer and Director
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SERVICE AS
NAME OF NOMINEE AGE DIRECTOR POSITION
- --------------- --- -------- --------
William K. Stern 70 Since 1992 Director
Robert B. Lee 42 Nominee Senior Vice President, Chief
Financial Officer, Secretary
and Director
Steven A. Van Dyke 38 Nominee Director
Robert M. Miller. Mr. Miller, the Chairman of the Board of Directors of
the Company, was a partner in the law firm of Berlack, Israels & Liberman from
1984 to 1995. Mr. Miller's practice involved corporate restructuring and
reorganization, both in and out of bankruptcy. Mr. Miller has been involved in
numerous reorganizations, (including R.H. Macy & Co., Inc., Zale Corporation,
Integrated Resources, Inc., Insilco Corporation and First City Industries). In
1995, Mr. Miller became affiliated with the law firm of Rosenman & Colin. In
November 1996, Mr. Miller founded Cakewalk LLC, which owns various independent
music labels.
Douglas C. Collins. Mr. Collins became President and Chief Executive
Officer of the Company in December 1992. Prior to joining the Company, Mr.
Collins served as President of Days Inns from February 1992 through September
1992 and Director of Days Inns from September 1992 through November 1992. Mr.
Collins served as Senior Vice President and Chief Financial Officer of Days Inns
from August 1990 through February 1992, after serving as President of Imperial
Hotels Corporation, a hotel chain owner and operator, from April 1988 until May
1990. Mr. Collins joined Imperial Hotels Corporation in August, 1980, serving as
Vice President of Finance and Development from June 1984 to April 1988.
William K. Stern. Mr. Stern, a director of the Company, has over forty
years of experience in the hospitality industry. He had served as Vice President
of Loews Hotels since 1969 and as President of Loews Representation
International, Inc. ("LRI"), a separate division of Loews Hotels, since 1972. In
1987, Mr. Stern established "The Grande Collection of Hotels," a deluxe division
of LRI. Mr. Stern also served as the Chief Executive Officer of the Grande
Collection division. Mr. Stern has been the owner of Stern Services
International, a hotel consulting company, since 1992.
Robert B. Lee. Mr. Lee has been nominated by the Board of Directors of
the Company to become a director of the Company. Mr. Lee became Secretary of the
Company in December 1992 and became Vice President and Chief Financial Officer
in July 1993. Mr. Lee was named Senior Vice President of Buckhead in May 1996.
Prior to joining the Company, Mr. Lee served as the Corporate Controller of Days
Inns from October 1990 until December 1992. He functioned in numerous capacities
up to senior manager in the accounting and audit practice of KPMG Peat Marwick
LLP from December 1979 to October 1990.
Steven A. Van Dyke. Mr. Van Dyke has been nominated by the Board of
Directors of the Company to become a director of the Company. For the past five
years, Mr. Van Dyke has served as President and Chief Executive Officer of Tower
Investment Group, Inc. which manages in excess of $________ million in equity
capital.
Mr. Leon M. Wagner, currently a director of the Company, has informed
the Board of Directors that he will not stand for re-election as a director of
the Company at the Annual Meeting.
428706.3
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INFORMATION ABOUT THE BOARD OF DIRECTORS
MEETINGS OF THE BOARD OF DIRECTORS--During 1996 there were six meetings of the
Board of Directors. Each incumbent director who was a director during 1996
attended all meetings of the Board of Directors.
DIRECTOR COMPENSATION--The Company pays directors who are not full-time
employees of the Company an annual fee of $12,000 for service on the Board of
Directors and a fee of $750 for each Board meeting attended. The Company pays
Mr. Miller, the Chairman of the Board of Directors of the Company, an annual fee
of $62,000 and a fee of $750 for each Board meeting attended. Directors are
entitled to reimbursement of their traveling costs and other out-of-pocket
expenses incurred in attending Board and Committee meetings.
Stern Services International, a company owned by Mr. Stern, received $2,000 in
1996 for consulting services performed for the Company.
Due to the limited size of the Board of Directors, all non-employee directors
serve on all standing committees (such as audit, nominations, and compensation).
Functions normally addressed by such committees were conducted at regularly
scheduled and special meetings of the entire Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to
the named executive officers ("Named Executive Officers") for the years ended
December 31, 1996, 1995 and 1994.
<TABLE>
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION SECURITIES
YEAR ENDED ----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION DECEMBER 31, SALARY ($) BONUS ($) OPTIONS(#) COMPENSATION ($)
- ---------------------------- --------------- ----------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Douglas C. Collins 1996 $ 235,000 $ 72,000 7,000 $ 4,750(2)
Chief Executive 1995 210,000 82,500 30,000 4,620(2)
Officer................ 1994 200,000 30,000 ---- 4,620(2)
Robert B. Lee 1996 98,600 22,292 4,000 3,022(2)
Chief Financial 1995 88,800 17,760 10,000 2,664(2)
Officer................ 1994 84,500 10,000 ---- 2,362(2)
Gregory C. Plank(1)
President -
Franchising............ 1996 81,000 24,111 15,000 35,312(3)
</TABLE>
- --------------------
(1) Mr. Plank's employment with the Company began on May 20, 1996.
(2) Employer's portion of 401(k) contribution.
(3) Relocation allowance.
428706.3
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OPTION GRANTS TABLE
The following table sets forth certain information regarding options
granted to the Named Executive Officers during the year ended December 31, 1996.
OPTION GRANTS IN 1996
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
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Number of Securities % of Total Options
Uderlying Options Granted to Employees Exercise Price Expiration
Name Granted(#) in Fiscal Year ($/share)(1) Date (2)
- --------------------- -------------------- -------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Douglas C. Collins 2,333 5.83% 5.38 04/26/01
2,333 5.83% 5.38 04/26/02
2,334 5.84% 5.38 04/26/03
Robert B. Lee 1,333 3.33% 5.38 04/26/01
1,333 3.33% 5.38 04/26/02
1,334 3.34% 5.38 04/26/03
Gregory C. Plank 5,000 12.50% 6.25 10/20/01
5,000 12.50% 6.25 10/20/02
5,000 12.50% 6.25 10/20/03
</TABLE>
_____________________________
(1) The exercise price was fixed as the market price at the date of grant.
(2) The options vest and become exercisable in three equal, annual installments
of 33-1/3% each on (i) the grant date, (ii) the first anniversary of the
grant date, and (iii) the second anniversary of the grant date, and have a
term expiring five years from the date of vesting of the right to purchase
the shares.
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OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth the number and year-end value of
unexercised options granted to the Named Executive Officers as of December 31,
1996. No options were exercised by the Named Executive Officers during 1996.
1996 YEAR-END OPTION VALUES
NUMBER OF SHARES OF
COMMON STOCK UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT YEAR-
YEAR-END (#) END ($)(1)
-------------------------- ------------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------- -------------------------- ------------------------------
Douglas C. Collins 22,333/14,667 $52,646/28,494
Robert B. Lee 7,999/6,001 $17,891/10,189
Gregory C. Plank 5,000/10,000 ---
___________________________
(1) Calculated based on the $6.00 closing sale price on The Nasdaq Stock Market
of the underlying securities on December 31, 1996.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with Mr. Collins and
Mr. Lee in June 1993, and amended each agreement in July 1995. The Company
entered into an employment agreement with Mr. Plank in April 1996. The terms of
the employment agreements extend through July 1999 for Messrs. Collins and Lee,
and through April 1999 for Mr. Plank. The agreements provide that if the
contract is terminated by the Company (1) prior to the end of its term, (2)
other than for cause, and (3) within twelve months following a change-in-control
(generally, acquisition of control of over 50% of the Common Stock or a change
in a majority of the board of directors), each of Messrs. Collins, Lee and Plank
shall be entitled to the greater of (x) his annual base salary payable through
the end of his employment term and (y) one-half of his base salary for the rest
of the year in which such termination occurs. If such event occurred as of
January 1, 1997, Messrs. Collins, Lee and Plank would have been entitled to
payments of $587,500, $262,500 and $427,200, respectively.
If Mr. Collins, Lee or Plank terminates his agreement (1) between 90
and 120 days following a change-in- control or (2) within 30 days following any
demotion, diminution of responsibility or pay or forced relocation occurring
within twelve months of a change-in-control, he shall be entitled to the lesser
of (x) his annual base salary through the end of his employment term, and (y)
one-half of his base salary for the year in which such termination occurs. If
such event occurred as of January 1, 1997, Messrs. Collins, Lee and Plank would
have been entitled to payments of $117,500, $52,500 and $80,000, respectively.
The agreements also provide that if the employment of Mr. Collins, Lee
or Plank is otherwise terminated without cause before the expiration of its
term, the Company must pay an amount equal to his annual base salary for the
year in which such termination occurs. If such event occurred as of January 1,
1997, Messrs. Collins, Lee and Plank would have been entitled to payments of
$235,000, 105,000 and $160,000, respectively.
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BENEFIT PLANS
1995 Employee Stock Option Plan
The Company's 1995 Employee Stock Option Plan (the "1995 Plan")
provides for the grant of options to acquire a maximum of 170,000 shares of
Common Stock. As of March 31, 1997, options for 10,000 shares had been exercised
under the 1995 Plan, options for 156,000 shares were outstanding, and 4,000
shares remained available for issuance under the 1995 Plan. Unless sooner
terminated by the Board, the 1995 Plan terminates on April 17, 2005.
1997 Employee Stock Option Plan
The Board of Directors has recommended that the stockholders approve
the Company's 1997 Employee Stock Option Plan. See "Proposal to Approve the
Buckhead America Corporation 1997 Employee Stock Option Plan" below.
CERTAIN TRANSACTIONS
Robert M. Miller, the Chairman of the Board of Directors of the
Company, was a partner in the law firm of Berlack, Israels & Liberman
("Berlack") during a portion of 1995. Berlack has been engaged by the Company to
provide general corporate legal services. For services provided to the Company
in 1995, Berlack received fees of $97,191.
Berlack also provides legal services to Buckhead Creditors' Trust, a
trust which is beneficially owned by certain former creditors of Buckhead
America Corporation ("Old Buckhead"), a Georgia corporation formerly known as
Days Inns of America, Inc. and created to pursue certain claims against the
former owners of Old Buckhead. The Company acts as the trustee for Buckhead
Creditors Trust. During 1995 and 1996, Berlack billed aggregate fees and
expenses to Buckhead Creditors' Trust of $476,227 and $1,280,640, respectively.
During 1995, Mr. Miller became affiliated with the law firm of Rosenman
& Colin. Buckhead Creditors' Trust paid such law firm $82,203 for services and
expenses incurred in 1995.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors and persons who beneficially own more
than 10% of the Company's stock to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc. Executive officers, directors
and greater than 10% beneficial owners are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of forms received by it pursuant
to Section 16(a) of the Securities Exchange Act of 1934, as amended, or written
representations from certain reporting persons, the Company believes that,
during 1996, all Section 16(a) filing requirements applicable to its executive
officers, directors and greater than 10% beneficial owners were complied with.
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PROPOSAL TO AMEND OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO AUTHORIZE THE ISSUANCE
OF UP TO 200,000 SHARES OF PREFERRED STOCK
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
The Company's Certificate of Incorporation does not currently authorize
the issuance by the Company of any shares of preferred stock. On April 29, 1997,
the Board approved a proposed amendment to Article 4 of the Company's
Certificate of Incorporation which would, if approved by the stockholders,
create and authorize the issuance of up to 200,000 shares of preferred stock,
$100 par value ("Preferred Stock"), of the Company. The text of the proposed
Fourth Article is set out in Appendix A attached hereto.
The proposed creation and authorization of Preferred Stock has been
recommended by the Board to assure that an adequate supply of authorized and
unissued shares of Preferred Stock is available for general corporate purposes.
The availability of shares of Preferred Stock for issue, without the delay and
expense of obtaining the approval of stockholders at a special meeting, will
afford the Company greater flexibility in taking corporate action.
The newly authorized Preferred Stock may be used by the Company for any
proper corporate purpose. Such purposes might include, without limitation,
issuance as part or all of the consideration required to be paid by the Company
in the acquisition of other businesses or properties, or issuance in public or
private sales for cash as a means of obtaining additional capital for use in the
Company's business and operations. Specifically, as further described below,
approximately 30,000 shares of the newly authorized Preferred Stock are proposed
to be issued as consideration in the acquisition of Hatfield Inns, LLC
("Hatfield"), if the transaction is completed.
In March 1997, the Company announced that it had entered an agreement
for the acquisition of eight hotels (one of which is currently under
construction) located in Kentucky and Missouri from Hatfield (the "Hatfield
Transaction"). The Hatfield Transaction, if consummated, would require the
assumption or replacement of approximately $7.25 million in debt by the Company
and the issuance of approximately $3 million of 10% cumulative Preferred Stock
of the Company (approximately 30,000 shares) at $100 per share. Thus, the
proposed amendment to the Certificate of Incorporation is necessary, in part, in
order to provide the Company shares of Preferred Stock to complete the
previously announced terms of the Hatfield Transaction.
If approved by the stockholders, the Preferred Stock will also be
available for issue from time to time for such purposes and consideration as the
Board may approve, and no further vote of the stockholders of the Company will
be required, except as required under the Delaware General Corporation Law
("DGCL") or the rules of any stock exchange or quotation system on which the
shares of the Company are listed (currently the Nasdaq National Market).
The proposed amendment would vest in the Board of Directors the
authority (without further action by the stockholders) to issue up to 200,000
shares of Preferred Stock in one or more series, to designate the number of
shares constituting any series, and to fix, by resolution, the voting powers,
designations, preferences and relative, optional or other special rights
thereof, including liquidation preferences, and the dividend, conversion and
redemption rights of each such series. If the resolutions establishing the
series so provide, holders of any series of Preferred Stock may have the right
to receive a liquidating distribution before any distribution is made to holders
of Common Stock upon liquidation, and holders of Preferred Stock may be entitled
to receive all dividends to which they are entitled before any dividends may be
paid to holders of Common Stock. Holders of each series of Preferred Stock will
have such voting rights (which may include special rights regarding election of
directors) as may be provided in the resolutions establishing such series. Each
series or class of Preferred Stock could, as determined by the Board at the time
of issuance, rank, with respect to dividends, sinking fund provisions and
conversion, voting, redemption and liquidation rights, senior to the Common
Stock.
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The Board of Directors is required to make any determination to issue
shares of Preferred Stock based upon its judgment as to the best interest of the
Company and its stockholders. Holders of Common Stock do not have any preemptive
rights to acquire Preferred Stock or any other securities of the Company.
It is not possible to state the precise effects of the authorization of
shares of Preferred Stock upon the rights of the holders of the Company's Common
Stock until the Board determines the respective preferences, limitations and
relative rights of the holders of each class or series of the Preferred Stock.
However, such effects might include: (a) reduction of the amount otherwise
available for payment of dividends on the Common Stock; (b) restrictions on
dividends on the Common Stock; (c) dilution of the voting power of the Common
Stock to the extent that the Preferred Stock had voting rights; (d) conversion
of the Preferred Stock into Common Stock at such prices as the Board determines,
which could include issuance at below the fair market value or original issue
price of the Common Stock; and (e) the holders of Common Stock not being
entitled to share in the Company's assets upon liquidation until satisfaction of
any liquidation preference granted to holders of the Preferred Stock.
The Board has determined the relative rights and preferences of the
Preferred Stock which the Board proposes to issue as consideration in the
Hatfield Transaction. If the transaction is completed, the Board proposes to
issue to the members of Hatfield approximately $3 million (approximately 30,000
shares) of the newly authorized Preferred Stock, which will be designated as
Series A Preferred Stock. The Series A Preferred Stock proposed to be issued in
the transaction will be issued at $100 per share and will be ten percent (10%)
nonvoting cumulative Preferred Stock of the Company. All or a portion of the
Preferred Stock will be callable by the Company at one hundred and ten percent
(110%) of the original issuance price (as defined in the Merger Agreement
attached as Appendix B hereto), at any time after the date which is seven (7)
years from the closing date, upon sixty (60) days written notice to the holders
thereof. The holders of the Series A Preferred Stock will have the right to
convert the Series A Preferred Stock to Common Stock of the Company at any time
after the date which is seven (7) years from the issuance date of the Series A
Preferred Stock, at a conversion price equal to the average trading price of the
Company's Common Stock over the ten (10) trading days immediately preceding the
date of conversion. Additionally, the holders of the Series A Preferred Stock
will have registration rights beginning immediately after the conversion of any
shares of Series A Preferred Stock into shares of Common Stock and will have the
right to put the Series A Preferred Stock back to the Company, if the Company is
more than sixty (60) days late with regard to twelve (12) of any eighteen (18)
consecutive dividend payments due the holders of the Series A Preferred Stock
(exclusive of any late charges, interest or penalties); provided that no holder
may seek to enforce the put obligation until the holder shall have provided the
Company with notice of the exercise of the put and six (6) months have elapsed
from the date of exercise of such notice.
With respect to the relative rights and preferences of the Series A
Preferred Stock described above, the Board may, as a result of currently
proposed legislative tax changes regarding the classification of preferred stock
in certain reorganization transactions, amend the rights and preferences of the
Series A Preferred Stock in order to comply with the new limitations which will
be placed on the issuance of preferred stock and the intention of the parties to
the Merger to have the Series A Preferred Stock issued without the members of
Hatfield recognizing taxable gain. If the Board determines, based on its
judgment as to the best interests of the Company and its stockholders, that an
amendment to the rights and preferences of the Series A Preferred Stock is
desirable as a result of the legislative tax proposals and certain other reasons
set forth above, or otherwise to benefit the Company and Hatfield, the amended
rights and preferences of the Series A Preferred Stock may be modified in any
one or more of the following ways, including, but not limited to: (i)
elimination of the right of Hatfield to put the Series A Preferred Stock back to
the Company, (ii) elimination of any requirement of the Company to redeem or
purchase the Series A Preferred Stock, (iii) elimination of the Company's right
to call or purchase the Series A Preferred Stock, (iv) elimination of the right
of Hatfield to convert the Series A Preferred Stock into the Common Stock of the
Company, or (v) adjustment of the dividend rate such that the rate decreases
from ten percent (10%) to six percent (6%) at some future date. No other
amendments to the current rights and preferences of the Series A Preferred Stock
are currently anticipated a result of the enactment of the legislative tax
proposals. However, depending upon the final form of any such legislation, if
any, additional modifications might be considered.
428706.3
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Although the Board would authorize the issuance of additional shares of
Preferred Stock based on its judgment as to the best interests of the Company
and its stockholders, the issuance of authorized Preferred Stock could have the
effect of diluting the voting power per share and could have the effect of
diluting the book value per share of the outstanding Common Stock. In addition,
the issuance of shares of Preferred Stock could, in certain instances, render
more difficult or discourage a merger, tender offer or proxy contest and thus
potentially have an anti-takeover effect, especially if Preferred Stock were
issued in response to a potential takeover. Such an issuance could deter the
types of transactions that may be proposed or could discourage or limit the
stockholders' participation in certain types of transactions that might be
proposed (such as tender offers), whether or not such transactions were favored
by the majority of the stockholders, and could enhance the ability of officers
and directors to retain their positions. The Company is not currently
contemplating the issuance of any Preferred Stock which may make more difficult
a change of control of the Company, nor is the Company aware of any proposals
relating to a possible change of control of the Company.
The Board of Directors believes that the availability of Preferred
Stock provides the Company with the flexibility to address potential future
financing needs by creating Preferred Stock customized to meet the needs of any
particular transaction and market conditions without having to incur possible
delays and expenses associated with obtaining stockholder approval. The Company
also could issue Preferred Stock for other corporate purposes, such as to
implement joint ventures or to make acquisitions.
The affirmative vote of holders of a majority of the shares of Common
Stock outstanding and entitled to vote at the meeting is required to adopt the
proposed amendment to the Company's Certificate of Incorporation creating and
authorizing the issuance of up to 200,000 shares of Preferred Stock of the
Company. If the amendment is not approved by the stockholders, the Company will
not have any Preferred Stock authorized and will not be able to complete the
Hatfield Transaction. With respect to the proposal to amend the Company's
Certificate of Incorporation to authorize shares of Preferred Stock, all shares
will be voted FOR or AGAINST, or not voted, as specified on each proxy. If no
choice is indicated, a proxy will be voted FOR the proposal to amend the
Company's Certificate of Incorporation to authorize the shares of Preferred
Stock. THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ADOPTION OF THIS PROPOSAL.
INFORMATION ABOUT THE MERGER, BUCKHEAD AMERICA CORPORATION AND HATFIELD INNS,
LLC
The Parties to the Merger
Buckhead.
Buckhead and most of its wholly-owned subsidiaries were incorporated in
Delaware on December 17, 1992 in connection with the bankruptcy reorganization
of Buckhead America Corporation ("Old Buckhead"), a Georgia corporation formerly
known as Days Inns of America, Inc. ("Days Inns"), and certain of its
affiliates. The Company, the successor-in-interest to certain assets and
liabilities of Days Inns, commenced operations on December 29, 1992.
The Company operates in the hospitality industry, and its principal
holdings include hotels, loans and other investments secured by hotels,
franchising rights and other related assets. Its principal product is the
Country Hearth Inn mid-priced hotel chain which the Company acquired in May
1994. The primary activity of the Company involves the expansion of the Country
Hearth chain. Expansion of the chain has been effected through direct
acquisition and conversion of existing hotels and through franchise sales. As of
February 28, 1997, nineteen Country Hearth Inns were open and operating in nine
states, six of which were Company owned.
The Company's principal business strategy is, and the combined
Company's principal business strategy will be, to provide high quality,
responsive hotel management and franchise services designed to improve hotel
428706.3
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profitability, and to provide its hotel guests with a high level of
satisfaction. In executing this business strategy the Company seeks to implement
policies and programs designed to increase revenues while minimizing operating
expenses. The Company seeks to grow hotel revenues by continuing to strengthen
the Country Hearth brand and implementing national, regional and local sales and
marketing programs. Programs designed to reduce costs include providing
purchasing services at favorable prices, offering management services and the
Country Hearth brand for one combined fee, minimizing the costs associated with
operating under the Country Hearth brand name, and promoting employee
productivity and morale. The Company's growth strategy is, and the combined
Company's growth strategy will be, focused on (i) improving the revenue and
operating performance of its existing hotels; and (ii) increasing the number of
rooms under its management or brand in its hotel portfolio.
The address of the principal executive offices of the Company is 4243
Dunwoody Club Drive, Suite 200, Atlanta, Georgia 30350 and its telephone number
is (770) 393-2662.
Hatfield.
Hatfield Inn, Inc. was incorporated on February 10, 1992, as a Delaware
corporation for the purpose of developing and owning hotel properties. On
January 1, 1997, Hatfield Inn, Inc. elected to convert its form of organization
to that of a limited liability company, and changed its name to Hatfield Inns,
LLC ("Hatfield"). As of December 31, 1996, Hatfield owned seven Hatfield Inns
located in Kentucky and Missouri, with one additional Hatfield Inn under
construction in Harrodsburg, Kentucky. The Hatfield hotels, which are less than
four years old, will be converted to the Country Hearth concept as a result of
the Merger. As of March 11, 1997, there were two members of Hatfield holding
membership interests and the membership interests were not publicly traded.
Hatfield has constructed all of its Hatfield Inns using a standard
design, with similar architectural styles, guest room floor plans and similar
construction materials. Generally, each Hatfield Inn includes 40 guest rooms,
six of which are suites. Each Hatfield Inn is a mid-priced limited service hotel
which offers its guests a free continental breakfast.
At March 11, 1997, Hatfield had approximately 28 full-time employees
and 33 part-time employees. Employees at Hatfield's hotels are not presently
employed under collective bargaining agreements.
Set forth below is certain descriptive information regarding each hotel
owned by Hatfield:
Bowling Green, Kentucky Hotel. This two-story, interior-corridor hotel
is located in Bowling Green, Kentucky, and is adjacent to the Corvette Museum,
one of the many lodging demand generators in Bowling Green. The hotel, which
opened in November 1996, is a 40-room hotel, and is in excellent condition.
Approximately 80% of the business at this hotel is generated by the tourist and
leisure attractions of the Corvette Museum and Buick Grand National drag races
held at nearby Beach Bend race track. Other lodging demand generators include
Western Kentucky University and commercial business related to the General
Motors plant, which is approximately four miles from the hotel. The Bowling
Green market is fairly seasonal with spring and summer considered the peak
seasons. The hotel's primary competitors for business include the following
hotels in the area: a Best Western hotel and a Continental Inn. The hotel
secures a mortgage loan with a March 15, 1997 balance of approximately $933,000.
The loan bears interest at 9.75% and requires monthly payments until February 6,
2002. The property also secures a construction mortgage loan for the
Harrodsburg, Kentucky hotel.
Caruthersville, Missouri Hotel. This two-story, interior-corridor hotel
is located directly across from the Casino Aztar, a Riverboat Casino on the
Mississippi River, which is considered the primary demand generator in the area.
The hotel, which opened in January 1996, is a 40-room hotel, and is in very good
condition. Approximately 75% of the business at this hotel is generated by
destination leisure activities. The proximity of the hotel to the Casino is a
major competitive advantage since all of the hotel's competitors are located on
I-55 in Hayti, Missouri which limits their degree of competition with the hotel.
The hotel secures a mortgage loan with a March
428706.3
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15, 1997 balance of approximately $1,021,000. The loan bears interest at prime
plus 1% (9.25% at December 31, 1996) and requires monthly payments until May 3,
2015.
Central City, Kentucky Hotel. This two story, interior-corridor hotel
is located at the intersection of Western Kentucky Parkway and Highway 431. The
hotel, which opened in 1993, is a 39-room hotel, and is in good condition.
Approximately 50% of the hotel's business is generated by highway motorists and
approximately 50% is comprised of destination leisure travel and commercial
transient business related primarily to area power plants and the State prison.
The hotel does not experience any direct competition. The hotel secures a
mortgage loan with a March 15, 1997 balance of approximately $705,000. The loan
bears interest at prime plus 1% (9.25% at December 31, 1996) and requires
monthly payments until November 30, 2007.
Dexter, Missouri Hotel. This two-story, interior-corridor hotel is
located at the intersection of Highways 60 and 25. The hotel, which opened in
February 1995, is a 40-room hotel, and is in good condition. Approximately 72%
of the business at this hotel is comprised of commercial transient business
related to companies located in the area, primarily Union Pacific and Southern
Pacific Railroads. The hotel's primary competitor for business is the 62-room
Dexter Inn located one mile to the west. The hotel secures a mortgage loan with
a March 15, 1997 balance of approximately $840,000. The loan bears interest at
prime plus 1.5% (9.75% at December 31, 1996) and requires monthly payments until
March 20, 2000.
Lebanon, Kentucky Hotel. This two-story, interior-corridor hotel is
located at the intersection of Highways 68 and 55. The hotel, which opened in
December 1994, is a 40-room hotel, and is in good condition. Approximately 85%
of the business at this hotel is comprised of commercial transient business
related to companies located in the area, primarily Angell Manufacturing, Armor
Food Ingredients, Kentucky Coopers, Plastic Products, Wheaton Plastic Products
and Wallace Computer Services. In addition, the local tobacco market generates a
significant amount of demand in November, December and January (which is the
buying season for tobacco). There are no tourist attractions in the area and
leisure demand consists primarily of visits to friends and families. The hotel
secures a mortgage loan with a March 15, 1997 balance of approximately $813,000.
The loan bears interest at 11.25% (as of December 31, 1996) and requires monthly
payments until February 1, 2010. The hotel does not experience any direct
competition.
Leitchfield, Kentucky Hotel. This two-story, interior hotel is located
near the intersection of Western Kentucky Parkway and Highway 259. The hotel,
which opened in August 1995, is a 40-room hotel, and is in very good condition.
Approximately 50% of the business at this hotel is comprised of commercial
transient business related to companies located in the area, primarily MTD (a
parts manufacturer for General Electric), Leitchfield Plastics, Vermont America,
Liggett & Platt and the remainder to destination leisure travelers as a result
of the hotel's close proximity to area lakes for boating and other water related
activities. The hotel secures a mortgage loan with a March 15, 1997 balance of
approximately $863,000. The loan bears interest at prime plus 1% (9.25% at
December 31, 1996) and requires monthly payments until November 10, 2010. There
are no competitors in the immediate area.
Sikeston, Missouri Hotel. This two-story, interior-corridor hotel is
located equidistant from St. Louis and Memphis (approximately 145 miles), and is
adjacent to an outlet mall. The hotel, which opened in August 1995, is a 40-room
hotel, and is in good condition. Approximately 95% of the business at this hotel
is comprised of commercial transient business, destination leisure and highway
motorists. Sikeston is primarily a farming community with agriculture and
agribusiness dominating the local economy. The majority of the commercial
lodging demand is generated, in some way, by the farming industry. The market
for hotel rooms in Sikeston is competitive due to the numerous properties in the
area. The hotel secures a mortgage loan with a March 15, 1997 balance of
approximately $693,000. The loan bears interest at prime plus 1% (9.25% at
December 31, 1996) and requires monthly payments until September 9, 2001.
Harrodsburg, Kentucky Hotel. As of March 11, 1997, a new Hatfield Inn
was under development in Harrodsburg, Kentucky. The hotel will contain 40 guest
rooms, and construction is expected to be completed during
428706.3
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the third quarter of 1997. Construction of the hotel is being financed by a
$650,000 construction loan with a permanent provision, which loan is expected to
be assumed or replaced by the Company when the new hotel is completed. The
construction mortgage loan is secured by the Hatfield Inn located in Bowling
Green, Kentucky. Pursuant to the Merger Agreement, a portion of the purchase
price equal to approximately $600,000 of Preferred Stock (approximately 6,000
shares) will be placed in escrow until such property has received a certificate
of occupancy and is ready to open for business. Hatfield will be responsible for
completing the construction of the property at its sole cost and expense.
With respect to each of the above referenced hotels, assumption or
refinancing of the outstanding mortgage loans thereon on terms and conditions
acceptable to the Company is a condition to the consummation of the Hatfield
Transaction. In addition, with respect to each of the above referenced hotels,
straight-line depreciation methods are used based on useful lives of 39 years
for depreciable real property and 3-7 years for all other depreciable property.
Further, each property listed above is adequately covered by insurance in the
opinion of management.
The Merger Agreement
The following is a brief summary of the material aspects of the
Hatfield Transaction. This summary does not purport to be complete and is
qualified in its entirety by reference to the Agreement of Merger, as amended,
(the "Merger Agreement"), which is attached to this Proxy Statement as Appendix
B.
On March 11, 1997, the Company, its wholly-owned subsidiary, BLM-RH,
Inc., a Delaware corporation ("BLM-RH"), Hatfield Inns, LLC, a Delaware limited
liability company ("Hatfield"), and Guy Hatfield, Dorothy Hatfield and Hatfield
Inns Advisors, LLC, a Delaware limited liability company, the sole members of
Hatfield, signed the Merger Agreement whereby the Company agreed to acquire
Hatfield, an operation of eight hotels (one of which is currently under
construction) in Kentucky and Missouri. The Merger Agreement provides that
Hatfield will merge with and into BLM-RH, which will be the surviving company in
the Merger, and the separate existence of Hatfield will cease. Pursuant to the
Merger Agreement, the Company will assume approximately $7.25 million in debt
and issue approximately $3 million of 10% cumulative preferred convertible stock
of the Company (approximately 30,000 shares of Series A Preferred Stock) at $100
per share, if the Merger Agreement is consummated. The Company paid a $50,000
earnest money deposit upon execution of the Merger Agreement. See "Proposal to
Amend the Company's Certificate of Incorporation" above, for a discussion
regarding the rights and preferences of the Series A Preferred Stock.
Subject to the terms and conditions of the Merger Agreement, the Merger
shall be consummated as promptly as practicable after the satisfaction or waiver
of the conditions set forth in the Merger Agreement. The Merger shall be
effective at such time as the Certificate of Merger is duly filed in accordance
with the DGCL (the "Effective Date").
The Merger Agreement may be terminated, however, if during the due
diligence period (which ends sixty (60) days following the Effective Date), the
Company shall, for any reason, in the Company's sole discretion, disapprove or
be dissatisfied with any aspect of any of the properties subject to the
transaction by giving written notice to Hatfield at or before the expiration of
the due diligence period. Upon Hatfield's receipt of such notice, the Merger
Agreement shall automatically terminate and the $50,000 earnest money deposit
shall be returned to the Company (less One Hundred Dollars ($100.00)), and
neither Hatfield nor the Company shall have any further obligation or liability
to the other hereunder, except for any continuing indemnity obligation as
provided in the Merger Agreement.
Conditions to the Merger
The respective obligations of the Company and Hatfield to effect the
Merger are subject to a number of conditions, including among others: (i) the
approval of the proposal to amend the Company's Certificate of
428706.3
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Incorporation to authorize the issuance of the Series A Preferred Stock no later
than June 15, 1997; (ii) the Company and Hatfield each having performed and
complied with all covenants and agreements contained in the Merger Agreement;
(iii) the truth and accuracy in all material respects of all representations and
warranties of each of the Company and Hatfield on and as of the date made and
the Effective Date; (iv) there having been no material adverse change in the
business, prospects, operations, assets or condition (financial or otherwise) of
the parties since the date of the Merger Agreement and through the Effective
Date; and (v) the Company's ability to assume the existing financing which
currently encumbers the properties on terms and conditions acceptable to the
Company or to otherwise secure financing on terms and conditions acceptable to
the Company.
Reasons for the Transaction
The Board of Directors has considered the terms and conditions of the
Merger Agreement and has determined that the Merger Agreement is fair to, and in
the best interest of the Company. In making their respective determinations,
which determinations were the product of the business judgment of the respective
members thereof, exercised in light of their fiduciary duties to the Company and
the stockholders of the Company, the Board of Directors reviewed and considered
information and documentation relating to the Merger and considered a number of
factors, including, but not limited to, the following: (i) the Hatfield
properties generate positive cash flow and are ideally suited for conversion to
the Country Hearth concept; (ii) the hotels are each less than four years old;
and (iii) the hotels are strategically located in relation to the Company's
existing hotels.
The Board also considered that the Merger is consistent with, and is an
important step in, the Company's growth strategy. The Hatfield hotels provide
for improved national brand/chain awareness. While there can be no assurance
that the integration of the Company and Hatfield will be successful, or
accomplished in a timely fashion if completed, or that the combined Company will
successfully implement its growth strategy, the Board of Directors believes that
the Merger will generate several benefits, including:
o The Company believes that Hatfield has developed a hotel product
design and concept that is well suited to small towns and rural
communities. The Company intends to use Hatfield's construction
plans, designs and schedules to expand the concept to additional
markets through development of additional hotels and sales of
additional franchises.
o The Company believes that the combined Company's expanded size and
diverse geographic presence presents opportunities for enhancing
the Company's brand recognition. The Company currently intends to
convert the Hatfield hotels to the Company's Country Hearth brand,
thereby providing an increase in market coverage for the Company's
product, particularly in the midwestern United States. Based on
its examination of the Hatfield hotels, the Company believes that
such properties are in well maintained condition and of high
quality. As a result the Company does not expect that such hotel
brand conversions will require significant capital expenditures.
o The Company believes that as a result of the Company's increased
brand recognition, marketing strength, and higher average daily
rate ("ADR") structure compared to Hatfield's, the conversion of
the Hatfield hotels to the Company brand presents opportunities
for improvement in both ADR and occupancy rates. The Company
intends to add to or enhance the product features offered at the
hotels, such as, but not limited to, adding coffee makers in each
room, upgraded continental breakfasts, newspapers, and a modest
aminities package.
o The Company believes that the combined Company will create
economies of scale in general areas, such as centralized
reservations services, national sales and marketing departments,
and centralized accounting, advertising, management information
services and other administrative departments. As a result of the
Merger, the Company believes that the combined Company will
achieve additional cost
428706.3
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savings in these centralized services departments over those that
have been experienced by the Company or Hatfield separately.
o The Company believes that the combination of the experienced hotel
employees of the Company and Hatfield will result in the combined
Company having a large pool of hotel employees with proven track
records that can further support the implementation of the
Company's business strategy and support the combined Company's
future growth. In addition, the Merger presents the Company with
the opportunity to augment its successful corporate management
team with individuals from Hatfield's experienced corporate
management team.
o The Company believes it can extend its purchasing power and
leverage with vendors to the Hatfield hotels. The Company offers
purchasing services to the hotels in its portfolio and uses its
purchasing power to negotiate favorable contract terms with
vendors, on both a regional and national basis. The Company
believes that the combined Company's increased size will further
increase its purchasing power with such vendors and any
prospective vendors, which may therefore result in cost savings
and may generate increased profits for the combined Company.
In view of the wide variety of factors considered, the Board of
Directors did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the specific factors considered in making
their determinations.
Appraisal Rights
Under the DGCL, holders of Buckhead Common Stock will not be entitled
to any appraisal or dissenters' rights in connection with the Merger.
Accounting Treatment
The merger will be accounted for under the "purchase" method of
accounting, in accordance with generally accepted accounting principles
("GAAP"). Under this method of accounting, the purchase price will be allocated
to assets acquired and liabilities assumed based on their estimated fair values
at the effective time.
Regulatory Requirements
Other than the filing of a Certificate of Merger with the State of
Delaware, there are no Federal or State regulatory requirements which must be
complied with or approvals which must be obtained in connection with the Merger.
Certain Federal Income Tax Considerations
The following discussion summarizes certain federal income tax
consequences of the Merger to the Company and BLM-RH. It is the intention of the
parties that the Merger qualify for federal income tax purposes as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), by application of Section 368(a)(2)(D) of the Code. If the
Merger is treated as a reorganization under Section 368(a) of the Code, neither
the Company nor BLM-RH will recognize gain or loss as a result of the Merger.
BLM-RH's adjusted tax basis in the assets acquired in the Merger generally will
equal Hatfield's adjusted tax basis in such assets as determined immediately
prior to the Merger. BLM-RH will also succeed to certain tax attributes of
Hatfield such as net operating loss and capital loss carryforwards and earnings
and profits.
428706.3
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF HATFIELD
Results of Operations.
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with the Hatfield financial
statements and accompanying notes appearing elsewhere in this Proxy Statement.
The Hatfield hotels are operated as a chain of low to moderately priced, limited
service hotels in Kentucky and Missouri. The following is a breakdown of the
average occupancy rates and room revenues per hotel during 1996:
Average Year Annual Average
Occupancy Opened Room Daily Rate
Rate Revenue
Central City 74.31% 1993 447,116 41.10
Sikeston 61.07% 1994 394,602 44.14
Lebanon 61.56% 1994 394,120 43.73
Dexter 56.03% 1995 348,902 42.59
Leitchfield 62.42% 1995 390,200 42.70
Caruthersville* 51.69% 1996 (Jan.) 384,844 54.18
Bowling Green* 10.22% 1996 (Nov.) 9,306 49.50
- -----------------
* Reflects operation from the dates of opening in January and November 1996,
respectively.
The following is a breakdown of the average occupancy rates, average
room revenue per hotel and average daily rates for all Hatfield hotels during
1996:
Average occupancy rate* 61.18%
Average room revenue per hotel* $393,297
Average daily rate* $44.72
- -------------------
* Due to its limited operating history, the results of operations from the
Bowling Green hotel opened in November 1996 are not reflected in the table
above. The Bowling Green hotel, during two months of operations in 1996, had an
average room occupancy of 10.22%, annual room revenue of $9,306 and an average
daily rate of $49.50. Each of the hotels has 40 rooms, except the Central City
hotel, which has 39 rooms.
Operating expenses for the Hatfield hotels averaged approximately
$8,000 per room per year for 1996 (excluding interest expense). The major
components of expense include staff expense ($2,343 per room), depreciation
($1,574 per room), administrative expense ($1,535 per room) and utilities ($542
per room). In addition, Hatfield paid management fees of $123,634 ($503 per
room) to an affiliate in 1996. If the Merger is completed, these management fees
will no longer be paid, and the Company will assume management responsibility
for the Hatfield hotels.
Hatfield's hotels have historically experienced seasonal variances
typical of the hotel industry, with higher revenues in the second and third
quarters of calendar years compared with the first and fourth quarters.
428706.3
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Liquidity and Capital Resources
Most of Hatfield's hotels were constructed and opened during the past
four years. The construction was financed through bank construction loans which
were converted to permanent mortgages upon completion. Equity capital was
provided by contributions from the sole stockholder of Hatfield's predecessor.
Hatfield's cash flow from hotel operations has been sufficient to cover normal
operating costs. However, due to Hatfield's new mortgage debt service
requirements and relatively new hotels that have required start-up costs and
have initially provided minimal cash flow, Hatfield has relied on advances from
its predecessor's sole stockholder to service its debt. Upon consummation of the
Merger, the Company intends to refinance portions of the Hatfield mortgage debt.
In addition, Hatfield has historically paid in excess of $100,000 per year to
affiliates in management fees which will no longer be paid after the Merger. The
Company believes that, with these adjustments, the Hatfield hotels' operations
will generate sufficient cash flow to fund operations and debt service.
Unaudited Pro Forma Financial Information and Historical Financial Information
of Hatfield Inn, Inc.
On January 1, 1997, Hatfield Inn, Inc. ("Predecessor") was merged into
Hatfield. The merger of these entities qualified as a tax-free reorganization
and was accounted for as a transaction between entities under common control.
The companies merged using historical costs in a manner similar to a pooling of
interests. The financial statements included herein reflect the operations of
the Predecessor.
The following unaudited pro forma condensed consolidated financial
statements (collectively referred to hereinafter as the "Pro Forma Statements")
are presented as if the consummation of the acquisition of Hatfield had been
consummated for balance sheet presentation purposes as of December 31, 1996 and
for income statement purposes as of January 1, 1996. The Pro Forma Statements
are not necessarily indicative of the financial position or the results of
operations of the Company, as they may be in the future or as they might have
been had the acquisition been consummated on the dates indicated.
The Pro Forma Statements include historical information of the Company.
The Company's balance sheet as of December 31, 1996 and income statement for the
year then ended were derived from the Company's Form 10-KSB for the year ended
December 31, 1996.
The Pro Forma Statements also include historical information of the
Predecessor. The Predecessor's balance sheet as of December 31, 1996 and income
statement for the year then ended were derived from financial statements for the
year ended December 31, 1996 included herein.
For purposes of preparing the Pro Forma Statements, the historical
balance sheet of the Predecessor as of December 31, 1996 has been combined with
assets and liabilities of Hatfield that existed as of December 31, 1996 and that
will be transferred to the Company as part of the Merger Agreement to form an
"as if" Hatfield balance sheet as of December 31, 1996. These combining entries
are reflected below in the "Hatfield Inns, LLC Pro Forma Adjustments". However,
no similar adjustments were necessary for the income statement for the year
ended December 31, 1996, as the effects are not significant.
The pro forma adjustments are based upon currently available
information and upon certain assumptions that the Company believes are
reasonable in the circumstances. The Pro Forma Statements and accompanying notes
should be read in conjunction with the historical financial statements of the
Company included in its Form 10-KSB for the year ended December 31, 1996 and the
historical financial statements of the Predecessor included herein for the year
ended December 31, 1996.
428706.3
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BUCKHEAD AMERICA CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL HATFIELD INNS, HISTORICAL PURCHASE CONSOLIDATED
HATFIELD INN, INC. LLC BUCKHEAD ACCOUNTING INCOME
(PREDECESSOR) PRO FORMA AMERICA ADJUSTMENTS STATEMENT
------------------- ----------------- ------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Hotel revenues $ 2,477,308 2,477,308 9,979,477 12,456,785
------------------ ----------------- ------------ ----------------
Interest income:
Notes receivable 256,228 256,228
Investments 786,641 786,641
------------------ ----------------- ------------ ----------------
Total interest income 1,042,869 1,042,869
Other income 2,850,459 2,850,459
------------------ ----------------- ------------ ----------------
Total revenues 2,477,308 2,477,308 13,872,805 16,350,113
------------------ ----------------- ------------ ----------------
Expenses:
Hotel operations 1,462,774 1,462,774 8,659,355 (80,000)(a) 10,042,129
Depreciation and amortization 386,814 386,814 956,900 (69,692)(b) 1,274,022
Other operating and administrative 126,363 126,363 934,543 1,060,906
Interest 495,529 495,529 1,505,163 (12,666)(c) 1,988,026
------------------ ----------------- ------------ --------------- ----------------
Total operating,
administrative and
interest expenses 2,471,480 2,471,480 12,055,961 (162,358) 14,365,083
------------------ ----------------- ------------ --------------- ----------------
Income before income taxes 5,828 5,828 1,816,844 1,985,030
Provision for income taxes 1,601 1,601 (1,601)(d) 0
------------------ ----------------- ------------ --------------- ----------------
Net income $ 4,227 4,227 1,816,844 (163,959) 1,985,030
=================== ================= ============ =============== ================
Dividends paid on redeemable
preferred stock (176,816)(e) (176,816)
----------------
Net income applicable to
common shareholders 1,808,214
================
Net income per common and common equivalent share:
Primary $ 1.00 1.00
============ ================
Fully diluted $ 1.00 0.94
============ ================
Weighted average number of common and common equivalent shares used to calculate
net income per share:
Primary 1,814,510 (f) 1,814,510
============ ================
Fully Diluted 1,815,049 (g) 2,115,481
============ ================
</TABLE>
See Notes to the Pro Forma Condensed Consolidated Financial
Statements.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HATFIELD INNS, LLC HATFIELD HISTORICAL PURCHASE PRO FORMA
HATFIELD INN, INC. PRO FORMA INNS, LLC BUCKHEAD ACCOUNTING CONSOLIDATED
ASSETS (PREDECESSOR) ADJUSTMENTS PRO FORMA AMERICA ADJUSTMENTS BALANCE SHEET
- --------------------------------- ------------------ ------------------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 40,320 40,320 1,801,670 1,841,990
Short-term investments 3,026,873 3,026,873
Current portions of notes receivable 466,988 466,988
Other current assets 152,878 152,878 565,864 718,742
------------------ ------- ---------- ------------
Total current assets 193,198 193,198 5,861,395 6,054,593
Noncurrent portions of notes
receivable
Property and equipment, 465,517 465,518
at cost, net of accumulated
depreciation 7,289,575 7,289,575 18,730,897 26,020,472
Construction in progress 97,003(h) 97,003 1,152,997(k) 1,250,000
Excess of purchase price over
historical cost of net assets
acquired 2,078,159(l) 2,078,159
Other assets 82,266 82,266 1,977,285 2,059,551
------------------ --------- --------- ----------- ---------- -----------
$ 7,565,039 97,003 7,662,042 27,035,095 3,231,156 37,928,293
================== =================== ============ ============ ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses 349,764 349,764 933,884 450,000(m) 1,733,648
Advances from shareholder 485,025 485,025 485,025
Current portions of notes payable 401,250 33,937(i) 435,187 337,567 772,754
------------------ ------------------- ------------ ------------ ------------- -------------
Total current liabilities 1,236,039 33,937 1,269,976 1,271,451 450,000 2,991,427
Advances from affiliate 449,421 (383,478)(j) 65,943 65,943
Deferred tax liability 48,574 48,574 (48,574)(n) 0
Noncurrent portions of notes payable 5,676,019 5,676,019 12,081,392 650,000(o) 18,407,411
------------------ ------------------- ------------ ------------ ------------- -------------
Total liabilities 7,410,053 (349,541) 7,060,512 13,352,843 1,051,426 21,464,781
------------------ ------------------- ------------ ------------ ------------- -------------
Minority interest in partnership 598,118 598,118
Redeemable preferred stock 2,781,260(p) 2,781,260
Shareholders' equity 154,986 446,544 601,530 13,084,134 (601,530)(q) 13,084,134
------------------ ------------------- ------------ ------------ ------------- -------------
$ 7,565,039 97,003 7,662,042 27,035,095 3,231,156 37,928,293
================== =================== ============ ============ ============= =============
</TABLE>
See Notes to the Pro Forma Condensed Consolidated Financial Statements.
428706.3
18
<PAGE>
Buckhead America Corporation and Subsidiaries
Notes to the Pro Forma Condensed Consolidated
Financial Statements
The planned acquisition of Hatfield will be accounted for as a purchase
with a total purchase price of $10,250,000 plus estimated closing costs of
approximately $450,000. The purchase price includes the assumption of debt of
approximately $7,250,000 and net deficit (as defined) at closing (estimated to
be a net deficit of $220,000) and the issuance of redeemable preferred stock of
the Company ("Preferred Stock") for the remainder.
The purchase price will be allocated to the tangible and intangible assets
and liabilities of Hatfield based upon their respective fair values. Such
allocations will be based on appraisals and valuations which have not yet been
completed. Accordingly, the allocations reflected in the Pro Forma Statements
are preliminary and, among other things, no fair value allocations have been
made to the property and equipment of Hatfield. The unallocated excess purchase
price is included in excess of purchase price over historical cost of net assets
acquired in the pro forma condensed consolidated balance sheet.
As of December 31, 1996, a hotel that will be acquired from Hatfield was in
the early stages of construction and had no existing financing. The Merger
Agreement allocates $1,250,000 of the total purchase price to this hotel under
construction. Approximately $600,000 of the Preferred Stock will be held back
until the completion of the hotel. The remaining consideration for the hotel
will consist of the assumption of approximately $650,000 in debt. The $1,250,000
is recorded as construction in progress in the pro forma condensed consolidated
balance sheet. However, the $650,000 of debt and $600,000 of Preferred Stock are
not considered outstanding for purposes of the pro forma consolidated income
statement or earnings per share calculations.
The Predecessor historical financial statements include the results of a
hotel that was completed and opened for operations in late November of 1996. For
the Pro Forma Statements, the portion of Preferred Stock consideration allocated
to this hotel (approximately $413,000) was not considered to be outstanding
until the opening of the hotel. Consequently, the earnings per share
calculations only assume the issuance of Preferred Stock for this hotel as of
December 1, 1996.
(a) To eliminate the management fees with the exception of the estimated
incremental costs to the Company associated with managing the hotel
properties. The management fees were paid to an affiliated company and such
fees would not have been incurred by the Company.
(b) To adjust depreciation and amortization expense of the acquired assets for
the new cost basis and to conform with the Company's depreciation policies.
Amount includes amortization of the excess of purchase price over
historical cost of net assets acquired, which is being amortized on a
straight-line basis over 40 years. No depreciation was recorded on the
costs allocated to construction in progress since the hotel is not yet
completed.
(c) To adjust interest expense on one mortgage note for the new valuation based
on the rate expected to be obtained upon refinancing by the Company.
(d) To adjust the provision for income taxes after giving affect to the
Company's tax position.
(e) To record cash dividends on redeemable preferred stock. Dividends paid on
redeemable preferred stock were calculated based on the total preferred
stock outstanding ($2,781,260), less preferred stock held back until
completion of the hotel currently under construction ($600,000), less the
preferred stock allocated to a hotel property that was not completed until
the end of November 1996 ($413,095).
(f) There was no change in the weighted average number of common shares
outstanding as the redeemable preferred stock is not a common stock
equivalent.
(g) The fully diluted number of common shares and common share equivalents
outstanding is computed after giving effect to the redeemable preferred
stock using the "if-converted" method and the assumptions in (e) above.
(h) Represents historical cost of property and equipment contributed to
Hatfield by its members.
(i) Represents debt assumed by Hatfield.
(j) Represents advances to Predecessor forgiven by Hatfield.
(k) Represents the estimated additional costs for a hotel in progress that is
being acquired by the Company.
(l) Represents the unallocated excess of the total purchase price of Hatfield
over the historical cost of net assets acquired.
(m) To record estimated closing costs for the acquisition of Hatfield.
(n) To remove the deferred tax liability from the balance sheet due to the
available offsetting tax carryforwards of the Company.
(o) To record the estimated amount of an additional Hatfield mortgage to be
assumed by the Company upon the completion of the hotel in progress.
(p) To record the redeemable preferred stock issued to the former owners of
Hatfield.
(q) To eliminate Hatfield stockholder's equity.
428706.3
19
<PAGE>
Independent Auditors' Report
The Board of Directors
Hatfield Inn, Inc.:
We have audited the accompanying balance sheet of Hatfield Inn, Inc. as of
December 31, 1996, and the related statements of income, shareholder's equity
(deficit), and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hatfield Inn, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
April 11, 1997
Atlanta, Georgia
428706.3
20
<PAGE>
HATFIELD INN, INC.
Balance Sheet
December 31, 1996
Assets
<TABLE>
<S> <C>
Current assets:
Cash $ 40,320
Accounts receivable (note 3) 87,227
Inventories 43,277
Prepaid expenses 22,374
-------------
Total current assets 193,198
-------------
Hotel property and equipment (notes 2, 3, and 4) 8,092,388
Less accumulated depreciation 802,813
-------------
Net hotel property and equipment 7,289,575
-------------
Deferred loan costs, net of accumulated amortization of $8,309 64,869
Other assets 17,397
$ 7,565,039
==============
Liabilities and Shareholder's Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 349,764
Advances from shareholder (note 6) 485,025
Note payable (note 4) 180,000
Current portion of mortgage notes payable (note 3) 221,250
-------------
Total current liabilities 1,236,039
Deferred income taxes (note 5) 48,574
Noncurrent portion of mortgage notes payable (note 3) 5,676,019
Advances from affiliate (note 6) 449,421
-------------
Total liabilities 7,410,053
-------------
Shareholder's equity:
Common stock, par value $.15 per share, 1,000 shares
authorized; 1,000 shares issued and outstanding 150
Additional paid-in capital 194,286
Accumulated deficit (39,450)
-------------
Total shareholder's equity 154,986
Commitments (note 6) -------------
$ 7,565,039
=============
</TABLE>
See accompanying notes to financial statements.
428706.3
21
<PAGE>
HATFIELD INN, INC.
Statement of Income
Year ended December 31, 1996
<TABLE>
<S> <C>
Revenues:
Room $ 2,369,090
Other 108,218
---------
Total revenues 2,477,308
Operating expenses:
Direct:
Room 575,599
Other 81,277
General and administrative 377,051
Utilities 133,146
Management fees (note 6) 123,634
Advertising and promotion 91,238
Repairs and maintenance 83,178
Property taxes 70,655
Insurance 53,359
Depreciation and amortization 386,814
---------
Total operating expenses 1,975,951
Income from operations 501,357
Interest expense 495,529
--------
Income before income taxes 5,828
Deferred income tax expense (note 5) 1,601
--------
Net income $ 4,227
========
</TABLE>
See accompanying notes to financial statements.
428706.3
22
<PAGE>
HATFIELD INN, INC.
Statement of Shareholder's Equity (Deficit)
Year ended December 31, 1996
<TABLE>
<S> <C> <C> <C> <C>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED SHAREHOLDER'S
STOCK CAPITAL DEFICIT EQUITY (DEFICIT)
------------- ---------------- ----------------- ---------------------
Balances at December 31, 1995 $ -- -- (43,677) (43,677)
Contribution of capital through
forgiveness of shareholder's
advances (note 6) 150 356,486 -- 356,636
Liquidating dividends -- (168,000) -- (168,000)
Contribution -- 5,800 -- 5,800
Net Income -- -- 4,227 4,227
-------- -------- -------- --------
Balances at December 31, 1996 $ 150 194,286 (39,450) 154,986
========= ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
428706.3
23
<PAGE>
HATFIELD INN, INC.
Statement of Cash Flows
Year ended December 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 4,227
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 386,814
Deferred income tax expense 1,601
Increase in accounts receivable (43,732)
Increase in inventories (6,011)
Increase in prepaid expenses (6,759)
Increase in accounts payable and accrued expenses 185,830
-----------
Net cash provided by operating activities 521,970
-----------
Cash flows from investing activities:
Additions to hotel property and equipment (1,795,730)
Additions to other assets (17,397)
-----------
Net cash used in investing activities (1,813,127)
-----------
Cash flows from financing activities:
Repayments of mortgage notes payable (872,579)
Proceeds from mortgage notes payable 1,833,688
Proceeds from note payable 180,000
Capital contribution 5,800
Dividends (168,000)
Repayment of advances from affiliate (227,237)
Proceeds from advances from shareholder 485,025
Deferred loan costs (9,444)
-----------
Net cash provided by financing activities 1,227,253
-----------
Net decrease in cash (63,904)
Cash at beginning of year 104,224
-----------
Cash at end of year $ 40,320
===========
Supplemental disclosure of cash flow information - cash paid during the year for
interest, net of interest capitalized of $34,643 $ 489,529
===========
Supplemental disclosure of noncash financing activities - contribution of capital
through forgiveness of shareholder's advances (note 6) $ 356,636
===========
</TABLE>
See accompanying notes to financial statements.
428706.3
24
<PAGE>
HATFIELD INN, INC.
Notes to Financial Statements
December 31, 1996
(1) Summary of Significant Accounting Policies
(a) General Information
The financial statements represent the accounts of Hatfield Inn, Inc.
(the "Predecessor" - see note 7). The Predecessor was formed on February 10,
1992 for the purpose of developing and operating hotel properties. As of
December 31, 1996, the Predecessor owned seven Hatfield Inns located in Kentucky
and Missouri. The sixth hotel was opened in January 1996 and the seventh was
opened in November 1996.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is generally
determined using the first-in, first-out method.
(c) Hotel Property and Equipment
Hotel property and equipment are stated at cost. Depreciation of hotel
property and equipment is calculated on the straight-line method over the
following useful lives:
Years
-----
Buildings 39
Land improvements 7
Furniture, fixtures, and equipment 3 to 7
(d) Deferred Loan Costs
Costs incurred to obtain the mortgage notes payable were deferred and are
being amortized on a straight-line basis over the terms of the loans.
(e) Income Taxes
The Predecessor accounts for income taxes in accordance with the asset
and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
428706.3
25
<PAGE>
HATFIELD INN, INC.
Notes to Financial Statements
(f) Advertising
The cost of advertising is expensed as incurred.
(g) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Predecessor 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.
(h) Fair Value of Financial Instruments
Management believes that the carrying amounts of cash, accounts
receivable, accounts payable and accrued expenses, advances from shareholder,
note payable, and current portions of mortgage notes payable are reasonable
approximations of their fair value because of the short maturity of these
instruments.
The fair value of the Predecessor's noncurrent portions of mortgage
notes payable is estimated by discounting the future cash flows of each
instrument at rates currently offered to the Predecessor for similar debt
instruments of comparable maturities by the Predecessor's bankers. Based on this
valuation methodology, management believes that the carrying amount of the
noncurrent portions of mortgage notes payable is a reasonable estimation of its
fair value.
(2) Hotel Property and Equipment
The cost basis of hotel property and equipment is summarized as follows:
Land $ 765,417
Land improvements 537,374
Buildings 5,198,630
Furniture, fixtures, and equipment 1,590,967
---------
$ 8,092,388
=========
428706.3
26
<PAGE>
HATFIELD INN, INC.
Notes to Financial Statements
(3) Mortgage Notes Payable
<TABLE>
<S> <C>
Mortgage notes payable, which are personally guaranteed by the Predecessor's
shareholder, consist of the following:
Mortgage note payable to a bank dated August 4, 1992, bearing interest at prime
plus 1% (9.25% at December 31, 1996), payable in 180 monthly installments of
principal and interest. The note is secured by real estate, furniture,
fixtures, equipment, and accounts receivable of a hotel property located in
Central City, Kentucky $ 710,324
Mortgage note payable to a bank dated September 9, 1996, bearing interest at
prime plus 1% (9.25% at December 31, 1996), payable in 59 monthly
installments of principal and interest, with the remaining principal due
September 9, 2001. The note is secured by real estate, furniture, fixtures,
equipment, and accounts receivable of a hotel property located in Sikeston,
Missouri 697,399
Mortgage note payable to a bank dated January 23, 1995, bearing interest at the
yield of five-year U.S. Treasuries plus 3.5% (11.25% at December 31, 1996),
payable in 180 monthly installments of principal and interest. The note is
secured by real estate, furniture, fixtures, equipment, and accounts
receivable of a hotel property located in Lebanon, Kentucky 817,149
Mortgage note payable to a bank dated March 23, 1995, bearing interest at prime
plus 1.5% (9.75% at December 31, 1996), payable in 59 monthly installments of
principal and interest, with the remaining principal due March 20, 2000. The
note is secured by real estate of a hotel property located in Dexter,
Missouri 844,582
Mortgage note payable to a bank dated November 10, 1995, bearing interest at
prime plus 1% (9.25% at December 31, 1996), payable in 180 monthly
installments of principal and interest. The note is secured by real estate,
furniture, fixtures, equipment, and accounts receivable of a hotel property
located in Leitchfield, Kentucky 868,104
Mortgage note payable to a bank dated May 3, 1995, bearing interest at prime
plus 1% (9.25% at December 31, 1996), payable in 240 monthly installments of
principal and interest. The note is secured by real estate of a hotel
property located in Caruthersville, Missouri 1,024,711
Construction mortgage note payable to a bank dated May 6, 1996, originally
bearing interest at prime plus 2% (10.25% at December 31, 1996) with required
monthly interest payments and was scheduled to mature on February 6, 1997.
Hatfield Inns, LLC, the successor to the Predecessor (note 7), refinanced
this note on a long-term basis on February 6, 1997. Accordingly, the balance
as of December 31, 1996 is classified in the accompanying balance sheet as
long-term. The refinanced note bears interest at 9.75% and is payable in 59
monthly installments of principal and interest, with the remaining principal
due February 6, 2002. The note is secured by real estate of a hotel property
located in Bowling Green, Kentucky 935,000 ---------
Total 5,897,269
Less current portion 221,250
---------
Noncurrent portion of mortgage notes payable $ 5,676,019
==========
</TABLE>
428706.3
27
<PAGE>
HATFIELD INN, INC.
Notes to Financial Statements
The combined aggregate amount of maturities for all mortgage notes payable for
each of the next five years and thereafter is as follows:
Year ending
December 31,
1997 $221,000
1998 249,000
1999 273,000
2000 946,000
2001 819,000
Thereafter 3,389,000
---------
$5,897,000
=========
(4) Note Payable
Note payable represented a $180,000 note payable to a bank dated February
12, 1996, which bore interest at prime plus 1% (9.25% at December 31, 1996) due
quarterly. The note was secured by a second mortgage on a hotel property located
in Caruthersville, Missouri, and was guaranteed by the Predecessor's
shareholder. The note was fully paid and satisfied in January 1997 by Hatfield
Inns, LLC, the successor to the Predecessor (note 7).
(5) Income Taxes
The provision for income tax expense, principally Federal, consists of the
following:
Current expense $ ---
Deferred expense 1,601
-----
$ 1,601
=====
Total income tax expense recognized differs from the amount computed by applying
the U.S. Federal income tax rate of 34% to pretax income as a result of the
following:
Computed "expected" tax expense $ 1,982
State income taxes, net of Federal income tax benefit 308
Other, net (689)
-----
$ 1,601
=======
The tax effects of temporary differences that give rise to the deferred tax
asset and liability are presented below:
Deferred tax asset - net operating loss carryforward $ 134,952
Deferred tax liability - property and equipment (183,526)
--------
Net deferred tax liability $ (48,574)
==========
428706.3
28
<PAGE>
HATFIELD INN, INC.
Notes to Financial Statements
At December 31, 1996, the Predecessor had a net operating loss carryforward
for Federal income tax purposes of approximately $337,000 which is available to
offset future taxable income, if any, through 2011.
(6) Transactions with Affiliates
(a) Advances from Shareholder
Advances from shareholder of $485,025 consist of the following:
(i) $115,000 advance relating to a shareholder bank note payable of the
same amount bearing interest at 9.75% through April 2, 1997, at which time the
note maturity date was extended to October 2, 1997 and the interest rate
increased to 10%. This shareholder note payable is secured by the shareholder's
stock in another company.
(ii) $370,025 advance relating to a shareholder $400,025 line of credit
with a bank bearing interest at prime plus 1%. The shareholder's line of credit
matures on May 2, 1997 and is secured by the shareholder's stock in another
company.
These advances from shareholder have terms consistent with the terms of
the related underlying shareholder's debt.
(b) Advances from Affiliate
The Predecessor has received advances from All American Group, Inc. (a
corporation wholly owned by the shareholder of the Predecessor). There are no
payment terms, interest, or due dates on these advances.
(c) Management Fees
Fees are paid to All American Group, Inc. based on 5% of gross revenues
for management and accounting services rendered. The total expense for these
services was $123,634 for the year ended December 31, 1996.
(d) Contribution from Shareholder
During 1996, the Predecessor's shareholder forgave advances totaling
$356,636, which were then recorded by the Predecessor as additional paid-in
capital.
428706.3
29
<PAGE>
HATFIELD INN, INC.
Notes to Financial Statements
(7) Subsequent Event
On January 1, 1997, the Hatfield Inn, Inc. (Predecessor) was merged into
Hatfield Inns, LLC (a corporation wholly owned by the shareholder of the
Predecessor). The merger of these entities qualified as a tax-free
reorganization and was accounted for as a transaction between entities under
common control. The companies merged using historical costs in a manner similar
to a pooling of interests.
On March 11, 1997, Hatfield Inns, LLC entered into an agreement to merge with
and into Buckhead America Corporation ("Buckhead"). In the planned merger,
Buckhead would assume the outstanding debt of Hatfield Inns, LLC and issue
approximately $3,000,000 of Buckhead redeemable preferred stock to the members
in Hatfield Inns, LLC. The merger is subject to the approval of the issuance of
preferred stock by the shareholders of Buckhead at their annual meeting, which
is scheduled to occur on May 28, 1997.
428706.3
30
<PAGE>
PROPOSAL TO APPROVE THE COMPANY'S
1997 EMPLOYEE STOCK OPTION PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
On April 29, 1997, the Board adopted, subject to stockholder approval, the
1997 Employee Stock Option Plan (the "1997 Plan"). The 1997 Plan authorizes the
issuance of options covering up to 80,000 shares of Common Stock (subject to
adjustment in the event of stock dividends, stock splits, combination of shares,
recapitalizations, or other changes in the outstanding Common Stock). The 1997
Plan will be utilized to attract, retain and motivate key employees and advisors
of the Company and to align key employee and stockholder interests.
Options may be granted under the 1997 Plan to those employees, officers or
directors of, and consultants and advisors to, the Company, who, in the opinion
of the Board of Directors (the "Board"), are in a position to contribute
materially to the Company's continued growth and development and to its
long-term financial success. The Company estimates that, as of the date of this
Proxy Statement, approximately 12 employees (including officers), 3 non-officer
directors and no more than 1 consultants and advisors of the Company will be
eligible to participate in the 1997 Plan. The following discussion contains a
summary of the 1997 Plan.
Shares Reserved for the Plan
The Company's 1997 Plan provides for the grant of options to acquire a
maximum of 80,000 shares of Common Stock, subject to adjustment in the event of
stock dividends, stock splits, combination of shares, recapitalizations, or
other changes in the outstanding Common Stock. Any such adjustment will be made
by the Board in its discretion. Shares issued under the 1997 Plan may consist,
in whole or in part, of authorized and unissued shares, treasury shares or
shares purchased on the open market.
The 1997 Plan permits the grant of options intended to be incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") ("ISO's"), and options which are not ISOs ("NSOs"). The
Board determines the terms and conditions of options granted under the 1997
Plan, including exercise prices and whether or not an option is a NSO or an ISO.
ISO's, however, may only be granted to persons who are employees.
Purpose of Plan
The Company desires to attract and retain persons of skill and experience
and to encourage their highest levels of performance on behalf of the Company
and its subsidiaries. The 1997 Plan accordingly affords eligible persons the
opportunity to acquire stock rights in the Company. Only a limited number
(4,000) of additional shares are available for grant under the Company's 1995
Plan. The 1997 Plan is not qualified under Section 401(a) of the Code and is not
subject to the provisions of the Employee Retirement Income Security Act of
1974.
Duration of Plan
Stock options may be granted pursuant to the 1997 Plan from time to time
prior to the earliest of (1) April 29, 1997; (2) the date on which all Shares
have been issued under the 1997 Plan; or (3) such date as the Board of Directors
shall determine in its sole discretion.
Administration of the Plan
The 1997 Plan is administered by the Board. Subject to the terms of the
1997 Plan, in administering the 1997 Plan and the stock options granted under
the 1997 Plan, the Board shall have the authority to (1) determine the employees
of the Company and its subsidiaries to whom ISOs may be granted and to determine
the directors, officers and employees of the Company and its subsidiaries, and
the consultants and advisors,
428706.3
31
<PAGE>
to whom NSOs may be granted; (2) determine the time or times at which options
may be granted; (3) determine the option price for shares subject to each
option; (4) determine whether each option granted shall be an ISO or a NSO; (5)
determine the time or times when each option shall become exercisable and the
duration of the exercise period; (6) determine whether restrictions are to be
imposed on shares subject to options and the nature of such restrictions; and
(7) interpret the 1997 Plan and prescribe and rescind rules and regulations, if
any, relating to and consistent with the 1997 Plan.
No members of the Board of Directors shall be liable for any action or
determination made in good faith with respect to the 1997 Plan or any option. No
member of the Board shall be liable for any act or omission of any other member
of the Board or for any act or omission on his own part, including but not
limited to the exercise of any power or discretion given to him under the 1997
Plan, except those resulting from his own gross negligence or willful
misconduct. In addition to such other rights of indemnification as he may have
as a member of the Board, each member of the Board shall be entitled to
indemnification by the Company with respect to administration of the 1997 Plan
and the granting of stock options under it.
Amendment of the Plan
The 1997 Plan may be terminated or amended by the Board of Directors at any
time, except that the following actions may not be taken without stockholder
approval: (a) materially increasing the number of shares that may be issued
under the 1997 Plan (except by certain adjustments under the 1997 Plan); (b)
materially modifying the requirements as to eligibility for participation in the
1997 Plan; and (c) materially increasing the benefits accruing to participants
under the 1997 Plan. Stock options may not be granted under the 1997 Plan after
the date of termination of the 1997 Plan, but options granted prior to that date
shall continue to be exercisable according to their terms.
Eligibility for Participation
Each person who is serving as an officer, director, or employee of the
Company or any of its subsidiaries is eligible to participate in the 1997 Plan.
Furthermore, certain consultants and advisors to the Company may also be
eligible to participate in the 1997 Plan.
Nothing contained in the 1997 Plan or in any stock option agreement may
confer upon any person any right to continue as director, officer or employee of
the Company or its subsidiaries or as a consultant or advisor, or limit in any
way any right of stockholders or of the Board, as applicable, to remove such
person.
New Plan Benefits
It is not possible to determine how many eligible employees will
actually participate in the 1997 Plan in the future, and the Board has currently
made no decisions with respect to stock option grants thereunder. Therefore, it
is not possible to determine the dollar value or number of shares of Common
Stock that will be distributed under the 1997 Plan in the future or the
identities of the recipients of those grants.
Grant of Stock Options
The Board may grant stock options to eligible persons in such amounts and
on such terms not inconsistent with the 1997 Plan as it may deem appropriate up
to the number of shares remaining subject to the 1997 Plan. The date upon which
a stock option is approved by the Board shall be the "Grant Date."
The Company and each eligible person shall execute an agreement providing
for the grant of stock options in accordance with the pertinent provisions of
the 1997 Plan. No consideration shall be paid in connection with any such grant
unless the sale of shares is made simultaneously with the grant.
428706.3
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<PAGE>
Option Exercise Price
The exercise price per share for the shares subject to NSOs shall be at
whatever price is approved by the Board, but not less than 90% of the fair
market value per share of the Common Stock on the Grant Date. The exercise price
per share for the shares subject to ISOs shall be not less than the fair market
value per share of Common Stock on the Grant Date, except that in the case of an
ISO to be granted to an employee owning more than 10% of the total combined
voting power of all classes of stock of the Company, the exercise price per
share shall be not less than 110% of the fair market value per share of Common
Stock on the Grant Date. The "fair market value" shall be the highest closing
price on the Nasdaq National Market on the last business day for which the price
or quotes are available prior to the Grant Date.
Vesting of Options
Unless otherwise provided by the Board, options granted under the 1997 Plan
will generally vest at the rate of 33 1/3% per annum over a two-year period,
with 33 1/3% vesting on the grant date, 33 1/3% on the first anniversary thereof
and the remaining 33 1/3% on the second anniversary thereof, so that all options
are vested after two years.
Adjustments to Exercise Price and Number of Shares
Except as set forth above, in the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or other changes in
corporate structure affecting the Common Stock, such substitution or adjustment
shall be made in the aggregate number of shares reserved for issuance under the
Plan and in the number and option price of shares subject to outstanding options
granted under the Plan as may be determined to be appropriate by the Board, in
its sole discretion, provided that the number of shares subject to any award
shall always be a whole number.
In general, if the Company is merged into or consolidated with another
corporation under circumstances in which the Company is not the surviving
corporation, or if the Company is liquidated or sells or otherwise disposes of
substantially all of its assets to another corporation (any such merger,
consolidation, etc., being hereinafter referred to as a "Non-Acquiring
Transaction") while unexercised options are outstanding under the Plan, after
the effective date of a Non-Acquiring Transaction each holder of an outstanding
option shall be entitled, upon exercise of such option, to receive such stock or
other securities as the holders of the same class of stock as those shares
subject to the option shall be entitled to receive in such Non-Acquiring
Transaction based upon the agreed upon conversion ratio or per share
distribution. However, in the discretion of the Board of Directors, any
limitations on exercisability of options may be waived so that all options, from
and after a date prior to the effective date of such Non-Acquiring Transaction
shall be exercisable in full. Furthermore, in the discretion of the Board, the
right to exercise may be given to each holder of an option during a 30-day
period preceding the effective date of such Non-Acquiring Transaction. Any
outstanding options not exercised within such 30-day period may be canceled by
the Board as of the effective date of any such Non-Acquiring Transaction. To the
extent that the foregoing adjustments relate to stock or securities of the
Company, such adjustments shall be made by the Board, whose determination in
that respect shall be final, binding and conclusive.
Except as specifically described above, optionees shall have no rights by
reason of any subdivision or consolidation of shares of stock of any class or
the payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation or spinoff of stock of another
corporation, and no issue by the Company of shares of stock of any class shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares subject to the option. The grant of any option
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure or to merge or to consolidate or to dissolve,
liquidate or sell, or to transfer all or any part of its business or assets.
428706.3
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Duration and Termination of Options
Each option expires on the date specified by the Board, but not more than
(i) ten years from the Grant Date in the case of NSOs, (ii) ten years from the
Grant Date in the case of ISOs generally, and (iii) five years from the Grant
Date in the case of ISOs granted to an employee owning more than 10% of the
total combined voting power of all classes of stock of the Company. If approved
by the Board, after request by the grantee, an ISO may be converted into an NSO
and the term of such option may be extended.
In general, if an optionee's employment terminates by reason of death, the
stock option held by such optionee may thereafter be exercised to the extent
such option was exercisable at the time of death or on such accelerated basis as
the Board may determine at or after grant, by the legal representative of the
estate or the legatee of the optionee under the will of the optionee, for a
period of one (1) year from date of such optionee's death or until the
expiration of the stock option, whichever period is shorter. In the event of the
termination of optionee's employment by reason of his disability, the stock
option may generally be exercised, to the extent it was exercisable at the time
of his termination or on such accelerated basis as the Board shall determine at
or after grant, for a period of three (3) years from the date of such
termination until the expiration of the stated term of the stock option,
whichever period is shorter. In any event, if the stock option is designated as
an ISO, and is exercised more than one (1) year after termination of employment
due to disability, the stock option shall be treated as a NSO. In the event an
employee's employment is terminated due to normal or early retirement, the
option may generally be exercised by the optionee, to the extent it was
exercisable at the time of such normal or early retirement or on such
accelerated basis as the Board shall determine at or after grant, for a period
of three (3) years from the date of such termination or the expiration of the
stated term of the stock option, whichever period is shorter. In such event, if
the stock option was designated as an ISO and is exercised more than three (3)
months after such termination of employment due to normal or early retirement,
the stock option shall be treated as a NSO. In the event that employment is
terminated due to voluntary resignation of employment by the optionee, the stock
option shall thereupon terminate. In the event of involuntary termination of the
optionee's employment by the Company or any Subsidiary without "cause", the
stock option may be exercised, to the extent otherwise then exercisable, for the
lesser of three (3) months or the balance of such stock option's term. In the
event the optionee's employment with the Company is terminated for any other
reason, including termination of the optionee's employment for "cause," the
stock option shall thereupon terminate. For purposes of the 1997 Plan, "cause"
means a felony conviction of a participant or the failure of a participant to
contest prosecution for a felony or participant's willful misconduct or
dishonesty, or other unauthorized activity, any of which, in the good faith
opinion of the Board, is directly and materially harmful to the business or
reputation of the Company or any Subsidiary.
All options must be exercised prior to expiration and all options not
vested at the time of expiration may not be exercised.
Means of Exercise of Options
Options are exercised by giving written notice to the Company at its
principal office address, accompanied by full payment of the purchase price
therefor either (a) in United States dollars in cash or by check, or (b) if
permitted at or after grant, the delivery of shares of Common Stock having a
fair market value equal as of the date of the exercise to the cash exercise
price of the option, or a combination of (a) or (b).
Non-transferability of Options
No option is transferable except by will or by the laws of descent and
distribution, and all options are exercisable, during the lifetime of the
optionee, only by the optionee or the optionee's guardian or legal
representative. Shares subject to options granted under the 1997 Plan that have
lapsed or terminated may again be subject to options granted under such 1997
Plan.
428706.3
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<PAGE>
Tax Treatment
The following discussion addresses certain anticipated federal income tax
consequences to recipients of options made under the 1997 Plan. It is based on
the Code and interpretations thereof as in effect on the date of this Proxy
Statement. This summary is not intended to be exhaustive and, among other
things, does not describe state, local or foreign tax consequences.
Generally, an optionee to whom a NSO is granted will not recognize income
as a result of the grant of the option. However, upon exercise of the NSO, the
optionee will generally recognize ordinary compensation income equal to the
excess, if any, of the fair market value of the stock received pursuant to
exercise of the option (the "Shares") over the exercise price. Such taxation
upon the exercise of the option will be deferred (i) if the shares are subject
to restrictions imposed by the Board which could result in a substantial risk of
their forfeiture or (ii) if the optionee is subject to the "short-swing profit"
forfeiture provisions of Section 16(b) of the Securities Exchange Act ("Section
16(b) Liability"), unless in either event, the optionee makes an election
pursuant to Section 83(b) of the Code (an "83(b) Election"), within 30 days of
receipt of the Shares, to be taxed on the date of receipt of the Shares. If no
83(b) Election is made, the optionee will recognize ordinary compensation income
at the time the shares are no longer subject to such restrictions or the
optionee is no longer subject to Section 16(b) Liability as a result of the
transfer of the Shares, in an amount equal to the excess of the value of the
Shares at such time over the amount paid for them. Provided it complies with any
applicable income tax reporting requirements, the Company normally will be
entitled to a deduction for federal income tax purposes at the time that the
optionee recognizes compensation income due to the exercise of the option. The
amount of the deduction is equal to the amount of compensation income recognized
by the optionee due to the exercise of the option.
An optionee to whom an ISO which qualifies under Section 422 of the Code is
granted generally will not recognize income at the time of grant of the ISO or
at the time of its exercise. However, the excess of the fair market value of the
Shares of stock subject to the option (the "Incentive Shares") over the exercise
price of the option at the time of its exercise is an adjustment to taxable
income in determining an optionee's alternative minimum taxable income and
ultimately his alternative minimum tax alternative minimum taxable income and
ultimately his alternative minimum tax (AMT). As a result, this adjustment could
cause the optionee to be subject to AMT or increase his existing AMT liability.
If an optionee who has exercised an ISO does not sell the Incentive Shares
until more than one year after exercise and more than two years after the date
of the grant, such optionee will normally recognize long-term capital gain or
loss equal to the difference, if any, between the selling price of the Incentive
Shares and the exercise price. If the optionee sells the Incentive Shares before
the time periods expire (a "disqualifying disposition") he or she will recognize
ordinary compensation income equal to the lesser of (i) the difference, if any,
between the fair market value of the Incentive Shares on the date of exercise
and the exercise price of the option, and (ii) the difference, if any between
the selling price for the Incentive Shares and the exercise price of the option.
Any other gain or loss on such sale will normally be capital gain or loss.
Unless there is a disqualifying disposition of the Incentive Shares, the Company
does not receive a deduction for federal income tax purposes with respect to the
Incentive Shares. Upon disqualifying disposition and provided the Company
complies with any applicable reporting requirements, the Company normally will
be entitled to a deduction for federal income tax purposes at the time that the
optionee recognizes compensation income due to the exercise of the option. The
amount of the deduction is equal to the amount of compensation income recognized
by the optionee due to the exercise of the option.
428706.3
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<PAGE>
OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND CERTAIN EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 31, 1997 by: (i)
each person (or group of affiliated persons) known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock; (ii) the Named
Executive Officers who beneficially own shares of the Company's Common Stock;
(iii) each director and nominee for director of the Company; and (iv) all of the
Company's executive officers, directors and nominee for director as a group.
Except as otherwise indicated in the footnotes to this table, the Company
believes that the persons named in this table have sole voting and investment
power with respect to all the shares of Common Stock indicated.
BENEFICIAL OWNERSHIP
BENEFICIAL OWNER AS OF 3/31/97
- ---------------- -------------
SHARES PERCENTAGE
------ ----------
Tower Investment Group, Inc.(1) 264,531 14.94
Hotel-Motel Management Corporation(2) 210,200 11.87
Heartland Advisors, Inc.(3) 183,000 10.33
NY Motel Enterprises(4) 103,700 5.86
Robert M. Miller(5) 45,255 2.39
Douglas C. Collins(6) 53,274 2.81
Robert B. Lee(7) 26,474 1.40
Gregory C. Plank(8) 7,000 *
William K. Stern(9) 33,333 1.76
Steven A. Van Dyke(1) 264,531 14.94
Leon M. Wagner(10) 103,943 5.49
All officers, directors and nominees for 527,302 27.84
directors as a group (7 persons)(11)
__________________________
* Represents beneficial ownership of less than 1%.
(1) The shares beneficially owned include 264,531 shares held of record by
Trophy Hunter Investments,Ltd. ("Trophy"). Through contracts and arrangements,
voting and disposition power over these shares is held by Tower Investment
Group, Inc. ("Tower"), a registered investment advisor under the Investment
Advisors Act of 1940. Mr. Steven A. Van Dyke is the majority stockholder,
President and Chief Executive Officer of Tower, and beneficially owns the sole
general partner of Trophy, and may therefore be deemed to be the beneficial
owner of the shares held by Tower. Of the 264,531 shares held by Tower, Mr. Van
Dyke directly owns 2,531 shares. The address of Tower Investment Group, Inc., is
Suite 270, 777 South Harbour Island Boulevard, Tampa, FL 33602.
(2) The address of Hotel-Motel Management Corporation is 3485 N. Desert
Drive, Suite 106, Building 2, East Point, GA 30344.
(3) The address of Heartland Advisors, Inc. is 790 North Milwaukee Street,
Milwaukee, WI 53202.
(4) The address of NY Motel Enterprises is 440 West 57th Street, New York,
NY 10019.
(5) Includes options to purchase 24,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this Proxy
Statement.
(6) Includes 6,508 shares beneficially held by DC Hospitality, Inc., which
is 85% owned by Mr. Collins and 15% owned by Mr. Lee and 34,666 shares which are
either currently exercisable or which become exercisable within 60 days of the
date of this Proxy Statement.
(7) Includes 6,508 shares beneficially held by DC Hospitality, Inc., which
is 15% owned by Mr. Lee and 85% owned by Mr. Collins and 12,666 shares which are
either currently exercisable or which become exercisable within 60 days of the
date of this Proxy Statement.
(8) Includes options to purchase 5,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this Proxy
Statement.
428706.3
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<PAGE>
(9) Includes options to purchase 23,333 shares which are either currently
exercisable or which become exercisable within 60 days of the date of this Proxy
Statement.
(10) Mr. Wagner holds 13,299 shares directly and shares voting and
investment power of 67,311 shares held jointly with his spouse. Includes options
to purchase 23,333 shares which are eihter currently exercisable or which become
exercisable within 60 days of the date of this Proxy Statement. Does not include
12,082 shares held by his spouse, as to which Mr. Wagner disclaims beneficial
ownership. Mr. Leon M. Wagner, currently a director of the Company, has informed
the Board of Directors that he will not stand for re-election as a director of
the Company at the Annual Meeting.
(11) Includes options to purchase 122,998 shares which are currently
exercisable or which become exercisable within 60 days of the date of this Proxy
Statement. Does not include 19,002 shares subject to outstanding options which
options are not currently exercisable and will not become exercisable within 60
days of the date of this Proxy Statement.
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of KPMG Peat Marwick LLP has been the independent
certified public accountants of the Company since March 1993. Approval or
selection of the independent certified public accountants of the Company is not
submitted for a vote at the Annual Meeting of Stockholders. The Board of
Directors of the Company has historically selected the independent certified
public accountants of the Company, and the Board believes that it would be to
the detriment of the Company and its Stockholders for there to be any impediment
(such as selection or ratification by the Stockholders) to its exercising its
judgment to remove the Company's independent certified public accountants if, in
its opinion, such removal is in the best interest of the Company and its
Stockholders.
It is anticipated that a representative from the accounting firm of KPMG
Peat Marwick LLP will be present at the Annual Meeting of Stockholders to answer
appropriate questions and make a statement if the representative desires to do
so.
STOCKHOLDER PROPOSALS
Appropriate proposals of stockholders intended to be presented at the
Company's 1998 Annual Meeting of Stockholders must be received by the Company by
December 26, 1997 for inclusion in its Proxy Statement and form of proxy
relating to that meeting. If the date of the next Annual Meeting is advanced or
delayed by more than 30 calendar days from the date of the annual meeting to
which this Proxy Statement relates, the Company shall, in a timely manner,
inform its stockholders of the change, and the date by which proposals of
stockholders must be received.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission, 450 Fifth Street,
N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549; and at regional
offices of the Commission at the Citicorp Center, 500 West Madison, Suite 1400,
Chicago, Illinois 60661 and at 7 World Trade Center, New York, New York 10048.
Copies of such material may be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such material may also be inspected and copied at the offices
of the Nasdaq Stock Market, 1735 K Street, Washington, D.C. 20006-1500, on which
the Company's Common Stock is listed. In addition, the Commission maintains a
site on the World Wide Web portion of the Internet that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Buckhead (File No.
0-22132) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement:
1. Buckhead's Annual Report on Form 10-KSB for the Year Ended December 31,
1996.
428706.3
37
<PAGE>
2. All documents and reports filed by the Company with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act after the date hereof and
prior to the date of the Annual Meeting shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
or in any other subsequently filed document (which also is or is deemed to be
incorporated by reference herein) modifies or supersedes such statement. Any
such statement so modified or superseded, except as so modified or superseded,
shall not be deemed to constitute a part of this Proxy Statement.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY, STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO SIGN, COMPLETE, DATE AND
RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE, TO WHICH NO POSTAGE NEED BE
AFFIXED.
By Order of the Board of Directors
[Sig Cut]
ROBERT B. LEE
Secretary
Dated: May ____, 1997
428706.3
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<PAGE>
APPENDIX "A"
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BUCKHEAD AMERICA CORPORATION
Adopted in accordance with the provisions of
Section 242 of the
General Corporation Law of the State of Delaware
BUCKHEAD AMERICA CORPORATION, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), does hereby certify
as follows:
FIRST: The Corporation has received payment for its capital stock.
SECOND: In accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation has duly adopted a resolution setting forth and declaring advisable
the amendment to Article FOURTH of the Certificate of Incorporation of the
Corporation set forth below.
THIRD: The shareholders owning a majority of the outstanding common
stock, par value $.01 per share, of the Corporation entitled to vote thereon in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware duly authorized, adopted and approved a resolution
amending Article FOURTH of the Certificate of Incorporation of the Corporation
as set forth below.
FOURTH: Article FOURTH of the Certificate of Incorporation of Buckhead
America Corporation, a Delaware corporation, is hereby deleted in its entirety
and the following is inserted in lieu thereof:
"FOURTH: The total number of shares of all classes of
stock which the Corporation shall have authority to issue is
3,200,000 shares, of which 3,000,000 shares shall be
designated as "Common Stock" $.01 par value per share and
200,000 shares shall be designated as "Preferred Stock" with a
par value of $100 per share.
A statement of the powers, preferences and rights,
and the qualifications, limitations or restrictions thereof,
in respect of each class of stock of the Corporation is as
follows:
A. COMMON STOCK
Except as otherwise required by law or as provided by
the Board of Directors with respect to any class or series of
Preferred Stock, the entire voting power and all voting rights
shall be vested exclusively in the Common Stock. Each holder
of shares of Common Stock shall be entitled to one vote for
each share outstanding in his or her name on the books of the
Corporation.
428706.3
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<PAGE>
Subject to the preferred rights of the stockholders
of shares of any series of Preferred Stock as provided by the
Board of Directors with respect to any such series of
Preferred Stock, the holders of the Common Stock shall be
entitled to receive, as and when declared by the Board of
Directors out of the funds of the Corporation legally
available therefor, such dividends (payable in cash, stock or
otherwise) as the Board of Directors may from time to time
determine, payable to stockholders of record on such dates,
not exceeding 60 days preceding the dividend payment dates, as
shall be fixed for such purpose by the Board of Directors in
advance of payment of each particular dividend.
In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or
involuntary, after the distribution or payment to the holders
of shares of any series of Preferred Stock as provided by the
Board of Directors with respect to any such series of
Preferred Stock, the remaining assets of the Corporation
available for distribution to stockholders shall be
distributed among and paid to the holders of Common Stock
ratably in proportion to the number of shares of Common Stock
held by them respectively.
B. PREFERRED STOCK
The Board of Directors is hereby authorized as it may
determine to issue shares of Preferred Stock at any time and
from time to time, in one or more series, and to fix or alter
the designations, preferences and relative, participating,
optional or other special rights and qualifications,
limitations or restrictions, of such shares of Preferred
Stock, including without limitation of the generality of the
foregoing, dividend rights, dividend rates, conversion rights,
voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price or prices and
liquidation preferences of any wholly unissued series of
preferred shares and the number of shares constituting any of
such series and the designation thereof, or any of them; and
to increase or decrease the number of shares of that series,
but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such
series."
FIFTH: This Certificate of Amendment shall be effective upon its filing
with the Secretary of State for the State of Delaware.
428706.3
40
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed and sealed by Douglas C. Collins, its President and Chief
Executive Officer, and attested by Robert B. Lee, its Secretary, Senior Vice
President and Chief Financial Officer, this ____ day of _______, 1997.
BUCKHEAD AMERICA CORPORATION
By:
Douglas C. Collins
President and Chief Executive Officer
[Corporate Seal]
ATTEST:
Robert B. Lee
Secretary, Senior Vice President and Chief Financial Officer
428706.3
41
<PAGE>
APPENDIX "B"
AGREEMENT OF MERGER
BY AND BETWEEN
HATFIELD INNS, LLC
GUY HATFIELD
DOROTHY HATFIELD
AND
HATFIELD INNS ADVISORS, LLC
AND
BLM-RH, INC.
AND
BUCKHEAD AMERICA CORPORATION
MARCH 11, 1997
<PAGE>
THIS AGREEMENT OF MERGER ("Agreement") is made and entered into as of
this 11th day of March, 1997 (the "Execution Date"), by and between Hatfield
Inns, LLC, a Delaware limited liability company, ("Seller"), Guy Hatfield,
Dorothy Hatfield and Hatfield Inns Advisors, LLC, a Delaware limited liability
company, the sole members of Seller (collectively, "Members"), and BLM-RH, Inc.,
a Delaware corporation ("Purchaser") the sole shareholder of which is Buckhead
America Corporation, a Delaware corporation, ("Parent Corporation").
WHEREAS, Seller is the owner of the Properties (as defined in Section 1
hereof);
WHEREAS, Subject to the approval of the shareholders holding a majority
of the outstanding stock of Parent Corporation entitled to vote thereon,
Purchaser and Seller desire to effect, and have approved on the terms and
subject to the conditions of this Agreement, a business combination in which
Seller will merge with and into the Purchaser (such merger being referred to
herein as the "Merger"), pursuant to which among other things, the Members of
Seller will receive at Closing Preferred Stock (as hereinafter defined) of
Parent Corporation;
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the above premises, the mutual
promises and covenants contained herein, Ten and No/100 Dollars ($10.00), and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Merger.
1.1 Merger. On the Effective Date and subject to the terms and
conditions of this Agreement and the provisions of the General Corporate Law of
Delaware ("GCL"), the separate existence of Seller shall thereupon cease and the
Purchaser shall continue as the surviving corporation (the "Surviving
Corporation"). Seller and the Purchaser are sometimes hereinafter referred to
collectively as the "Constituent Entities."
1.2 Effect of the Merger. The separate corporate existence of the
Purchaser, as the Surviving Corporation, with all its purposes, objects, rights,
privileges, powers, certificates and franchises, shall continue unimpaired by
the Merger. The Surviving Corporation shall succeed to all the Properties and
other assets of the Constituent Entities and to all debts, choses in action and
other interests due or belonging to the Constituent Entities and shall be
subject to, and responsible for, all the debts, liabilities, obligations and
duties of the Constituent Entities with the effect set forth in the GCL.
1.3 Effective Date. Subject to the terms and conditions hereof,
the Merger shall be consummated as promptly as practicable after the
satisfaction or waiver of the conditions of this Agreement by duly filing an
appropriate Certificate of Merger in such form as is required by, and executed
in accordance with, the relevant provision of the GCL. The
362691.12
<PAGE>
Merger shall be effective at such time as the Certificate of Merger is duly
filed with the Secretary of State of the State of Delaware in accordance with
the GCL or at such later time as is specified in the Certificate of Merger (the
"Effective Date").
1.4 Articles of Incorporation and By-Laws of the Surviving
Corporation.
(a) On the Effective Date and without any further action on
the part of the Seller or Purchaser, the Certificate of Incorporation of
Purchaser, as in effect on the Effective Date, shall be the Certificate of
Incorporation of the Surviving Corporation.
(b) On the Effective Date and without further action on the
part of the Seller or Purchaser, the By-laws of Purchaser, as in effect on the
Effective Date, shall be the By-laws of the Surviving Corporation.
1.5 Directors and Officers of the Surviving Corporation. On the
Effective Date, the directors of Purchaser immediately prior to the Effective
Date shall be the directors of the Surviving Corporation, each of such directors
to hold office, subject to the applicable provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until the next annual
shareholders' meeting of the Surviving Corporation and until their successors
shall be duty elected or appointed and shall duly qualify. On the Effective
Date, the officers of the Surviving Corporation shall consist of the Persons
designated in writing by the Parent Corporation prior to the Closing who shall
hold the positions designated by Parent Corporation, which officers shall be the
officers of the Surviving Corporation until their respective successors are duly
elected or appointed and qualified.
1.6 Approval by Parent Corporation. The Merger and the amendment
to the Parent Corporation's Articles of Incorporation to authorize the Preferred
Stock are subject to the approval of the Board of Directors of Parent
Corporation (which approval has been received) and the approval of the
shareholders holding a majority of the outstanding stock of Parent Corporation.
The parties hereto agree that this Agreement, the Merger and the transaction
contemplated hereby shall be submitted to the shareholders of Parent Corporation
for consideration and approval at the annual meeting of Parent Corporation
scheduled for May 28, 1997 in Atlanta, Georgia.
1.7 Conversion of Interest. At the Effective Date and by virtue
of the Merger and without any action on the part of the holders thereof, each
percent of Member interest of Seller issued and outstanding immediately prior to
the Effective Date shall be converted into "X" validly issued, fully paid and
non-assessable shares of Preferred Stock of the Parent Corporation, where "X" is
determined by dividing the aggregate Merger consideration (defined as the
Purchase Price in Section 4.1 hereof) by the Original Issuance Price (as defined
in Section 4.3 below) per share of Preferred Stock and dividing such number by
100.
2. Property. Seller is the owner of the Real Property, Improvements,
Personal Property, Warranties, Contracts, Licenses, Inventory, Books and
Records, Bookings, Intangibles and Plans of Studies (as said terms are defined
hereinbelow) used in connection with the ownership and operation of eight (8)
motels known as the Hatfield Inns, located in Missouri and Kentucky, (one (1) of
which is currently under construction) which property and other assets owned by
Seller are herein referred to collectively as the "Properties", and more
particularly described as follows:
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2.1 Real Property. The eight (8) tracts or parcels of land
together with all right, title, and interest of Seller in and to any and all
easements, interests, appurtenances, benefits, adjacent waterways or other
bodies of water, courses, streets, roads, alleys, or rights-of-way, more as
particularly described on Exhibits "A1 - A8", attached hereto and made a part
hereof by this reference (collectively, the "Real Property").
2.2 Improvements. Any and all buildings, fixtures, structures,
betterments or other improvements located on the Real Property, including,
without limitation those certain motel buildings, parking facilities, waste
water treatment facilities, office facilities, lobbies, swimming pools,
restaurants, and other facilities and betterments (collectives, the
"Improvements").
2.3 Personal Property. All equipment, appliances, furniture,
fixtures, trade fixtures, china, glassware, flatware, table linens, bed linens
and towels, telephones, televisions, bedding, window treatments, safety
equipment, computers, vehicles, appliances, uniforms, signs and all other items
of personalty which are now, or later may be, placed upon, attached to, or used
in connection with the operation of the Properties, regardless of whether
enumerated herein (the "Personal Property"; the Real Property, Improvements and
Personal Property are hereinafter sometimes referred to collectively as the
"Motels").
2.4 Warranties. All of Seller's rights in and under all unexpired
warranties, guaranties, indemnities and sureties, which are in any way related
to the Properties or the operation of the Motels (the "Warranties").
2.5 Contracts. All of Seller's right, title and interest under
and with respect to all contracts, service contracts, supply contracts,
maintenance agreements, franchise agreements, operating agreements, Benefit
Plans (as hereinafter defined), notes, debentures, contracts evidencing
indebtedness, employment contracts or any other agreement which materially
affects Seller or its business and relating to Seller's ownership, management,
maintenance, service, use or operation of the Properties (the "Contracts").
2.6 Leases. All of Seller's right, title, and interest in all
leases and tenancies affecting the Properties ("Leases"), which Leases are
listed on Exhibit B.
2.7 Licenses and Permits. All of Seller's right, title and
interest in all licenses, permits, authorizations, variances, waivers or
consents relating to the ownership, occupancy or operation of the Motels
("Licenses and Permits") to the extent that the same are transferable.
2.8 Inventory. All inventory of food, beverages (including
alcoholic beverages), guest supplies, housekeeping, laundry and cleaning
supplies, stationery and printing supplies, and all other like items located at
or held for use at the Motels, subject to depletion and including resupplies as
shall occur and be made in the normal course of business, but in no event below
levels normal and customary for comparable motel properties ("Inventory").
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2.9 Book and Records. All books of account, records, financial
data, customer or guest lists, maintenance records, insurance policies,
employment records, reservation records and all other documents, software or
records used in connection with the ownership or operation of the Motels ("Books
and Records").
2.10 Bookings. All contracts or agreements for the use or
occupancy of guest rooms or other facilities of the Motels including deposits
therefore ("Bookings").
2.11 Intangibles. All trademarks, tradenames or logos used by or
associated with the Motels, the telephone number 800-822-REST, goodwill and all
other intangible assets related to the ownership and operation of the Motels
("the Intangibles") except the name "Hatfield Inn" which shall be retained by
Seller and licensed to Purchaser for use in the operation of the Properties for
a period of one (1) year following the Closing without charge or fee.
2.12 Plans and Studies. All plans, specifications, drawings,
studies, engineering reports, environmental reports, soil reports, test results,
title insurance policies, surveys and similar materials related to the ownership
or operation of the Properties ("Plan and Studies").
2.13 Cash, Receivables and Other Assets. All cash, accounts
receivable, notes, debentures, bonds and other assets of every type and nature
owned by Seller.
3. Covenants of Seller. Seller covenants and agrees as follows:
3.1 Taking of Inventory. During the Due Diligence Period, at the
request of Purchaser, the parties will jointly take an inventory of the
Personalty and Inventory at each Motel and prepare an inventory report which
shall be signed by both parties as an accurate inventory of the Personalty and
Supplies as of the date thereof (the "Initial Inventory"). If no such inventory
is taken, then the inventory furnished by Seller to Purchaser pursuant to
Section 9.1 of this Agreement shall constitute the Initial Inventory.
Immediately prior to the Closing, at the request of Purchaser, the parties will
jointly take another inventory of the Personalty and Inventory at each Motel and
prepare an inventory report which shall be signed by both parties as an accurate
inventory of the Personalty and Inventory as of the Closing Date (the "Closing
Inventory"). The Closing Inventory shall identify deficiencies, if any, between
the Initial Inventory and the Closing Inventory, but shall exclude (i) any
supplies used or consumed in the normal course of business provided that the
remaining supplies do not fall below levels normal and customary for comparable
motel properties and (ii) any Personalty removed from any Motel that has been
replaced with an item of like kind and quality (the "Deficiencies").
3.2 Employees of Seller. Seller shall cause its affiliated
management company, to the extent applicable, comply with the Federal Worker
Adjustment and Retraining Notification Act ("WARN ACT"). On the Closing Date,
the employment of all employees of Seller's affiliated management company
employed at the Properties shall be terminated. Purchaser or the entity or
entities that Purchaser designates to manage the Motels, shall have the right,
but not the obligation, to extend offers to the employees terminated by Seller's
affiliated management company. Payment of all costs and expenses associated with
accrued but unpaid salary, accrued but unpaid vacation, pension and welfare
benefits, Consolidated
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Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") benefits,
employee fringe benefits, employee termination payments or any other employee
benefits due such employees through the Closing Date shall be the sole
responsibility and obligation of Seller or its affiliated management company.
The provisions of this Section 3.2 shall survive the Closing.
4. Purchase Price.
4.1 Price and Terms of Payment. The Merger consideration shall be
Ten Million Two Hundred Fifty Thousand and No/100 Dollars ($10,250,000.00) (the
"Purchase Price") minus the amount of Financing (as defined in Section 4.2
below), adjusted for prorations and minus the amount of any Liabilities (as
defined in Section 16.2 below) not assumed by Purchaser or taken into account in
the proration pursuant to Section 14.14 hereof. The Purchase Price shall be paid
by Purchaser to the Members at Closing as follows:
4.2 Financing. "Financing" mean the existing financing
encumbering the Properties which is approximately Seven Million Two Hundred
Fifty Thousand and no/100 Dollars ($7,250,000.00). Seller shall use its best
efforts in order that the Purchaser may assume the existing Financing on the
Properties evidenced by the loans set forth on Exhibit C, attached hereto and
incorporated by reference herein and/or shall cooperate with Purchaser in
securing any other financing. Seller's best efforts and cooperation shall not
require Seller or its Members incur any liability or guarantee any obligation so
assumed other than as provided in Section 4.4 regarding the Horrodsburg Motel,
provided that in all events at Closing Purchaser shall either assume or pay-off
the existing Financing.
4.3 Stock of Purchaser. The Purchase Price shall be paid by
delivery to the Members at Closing of One Hundred and No/100 Dollars ($100.00)
original issuance price ("Original Issuance Price"), ten percent (10%) class "A"
nonvoting cumulative preferred stock of Parent Corporation (the "Preferred
Stock"), with the number of shares to be delivered at Closing to be determined
by subtracting the aggregate principal balance of the Financing at the Closing
from Ten Million Two Hundred Fifty Thousand and No/100 Dollars ($10,250,000.00),
as adjusted for prorations and minus the amount of any Liabilities not assumed
by Purchaser or taken into account in the proration pursuant to Section 14.14
hereof (the "Stock Portion of the Purchase Price") and thereafter dividing the
Stock Portion of the Purchase Price by the Original Issuance Price per share of
said Preferred Stock. All or a portion of the Preferred Stock will be callable
by the Parent Corporation at One Hundred and Ten Percent (110%) of the Original
Issuance Price at any time and from time to time after the date which is seven
(7) years from the Closing Date upon sixty (60) days written notice to the
Members. The holder of the Preferred Stock will not have any right to put the
stock to the Parent Corporation unless the Parent Corporation is more than sixty
(60) days late with regard to twelve (12) of any eighteen (18) consecutive
dividend payments due the holders of the Preferred Stock (exclusive of any late
charges, interest or penalties); provided that no holder shall seek to enforce
such monetary obligation due holder from Parent Corporation with respect to the
put obligation until, holder shall have provided Parent Corporation with notice
of the exercise of the put and six (6) months have elapsed from the date of
holder's exercise of the put. Holder's conversion rights for the Preferred Stock
are described in Section 12 below.
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4.4 Holdback. Notwithstanding the foregoing, Purchaser, Seller
and the Members agree that until such time as the Motel which is currently under
construction in Harrodsburg, Kentucky is completed, has received a certificate
of occupancy and is ready to open, a portion of the Purchase Price equal to
approximately Six Hundred Thousand and No/100 Dollars ($600,000.00) of Preferred
Stock, (the exact amount shall be the difference between the maximum principal
balance of the partially disbursed loan encumbering the Harrodsburg, Kentucky
Property and One Million Two Hundred Fifty Thousand and No/100 Dollars
($1,250,000.00), which is the portion of the Purchaser Price allocable thereto)
shall be placed in escrow with the Title Company. The Members shall be
responsible for completing the development of the Harrodsburg, Kentucky Motel at
their sole cost and expense. At such time as construction of the Motel is
completed, a certificate of occupancy is issued and the Motel is ready to open
for business, the Preferred Stock held in escrow shall be delivered to the
Members and the Seller and the Members shall be released from any obligation
regarding the portion of the Financing described in Section 4.2 above
attributable to the Harrodsburg, Kentucky Motel in an amount equal to
approximately Six Hundred and Fifty Thousand and No/100 Dollars ($650,000.00).
On or before the Date of Closing the Members and Purchaser shall enter into a
development agreement (the form of which is attached hereto as Exhibit "D", the
"Development Agreement") pursuant to which the Members shall complete the
development of the Harrodsburg Kentucky Motel.
5. Earnest Money. Within five (5) business days after the execution of
this Agreement, Purchaser shall deposit with an office or agent of a national
title insurance company (the "Title Company") the sum of Fifty Thousand Dollars
($50,000.00) (the "Earnest Money") which amount shall constitute an escrow
deposit to be held by the Title Company subject to the terms and provisions
hereof. The Earnest Money shall be invested by the Title Company in a short term
interest bearing account at a financial institution approved by Purchaser. Any
interest earned on the Earnest Money shall be disbursed to the party who is
entitled to receive the Earnest Money under the applicable provisions of this
Agreement. In the event the transactions contemplated herein are closed in
accordance with the provisions hereof, the Earnest Money and accrued interest
shall be returned to Purchaser. In the event the transactions contemplated
herein are not closed in accordance with the provisions hereof, the Earnest
Money and accrued interest shall be disbursed to either Seller or Purchaser as
provided in this Agreement.
6. Title Insurance.
6.1 Title Insurance. Prior to the expiration of the Due Diligence
Period (as defined in Section 9 hereof), Purchaser shall obtain (i) title
commitments (the "Title Commitments") for issuance of a title insurance policy
from Title Company for each parcel of the Real Property and Improvements and
(ii) surveys of each parcel of the Real Property and Improvements ("Surveys")
and shall notify Seller in writing of any objections it has to the title to the
Properties as reflected in the Title Commitments or on the Surveys ("Title
Objections"). Seller shall convey good, marketable and insurable fee simple
title to each parcel of the Real Property and Improvements to Purchaser free and
clear of all liens and encumbrances and subject only to the matters of record
not objected to by Purchaser (the "Permitted Exceptions") with the standard
printed exceptions deleted and without any exception(s) taken as to conditions
shown on the Surveys. Seller shall notify Purchaser within ten (10) days after
receipt of Purchaser's Title Objections, whether Seller will cure such Title
Objections. Seller's failure to respond within said ten (10) day period shall be
deemed to be its agreement
362691.12
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to cure said Title Objections at or prior to Closing. If Seller is unwilling to
remove any Title Objection, Seller shall so advise Purchaser thereof in writing
within said ten (10) day period and Purchaser shall have ten (10) days from its
receipt of said notice from Seller to either (i) terminate this Agreement, in
which event the Earnest Money, together with all interest earned thereon shall
be refunded to Purchaser (less the sum of One Hundred Dollars ($100.00) which
shall be delivered to Seller), this Agreement shall terminate and neither party
shall have any further liability to the other hereunder, or (ii) accept title to
the Real Property and Improvements subject to such Title Objections, which shall
thereafter be considered Permitted Exceptions. From time to time, Purchaser may
update the effective date of the initial and subsequent Title Commitments and
the Surveys and give notice to Seller of all Title Objections which were not
reflected in the previous Title Commitment(s) or Survey(s) (the "Subsequent
Title Defects").
7. Conduct and Operations Pending Closing. Seller agrees that between
the Execution Date hereof and the Closing Date:
7.1 The Motels will continue to be operated and maintained
substantially in accordance with the current standards of Seller and consistent
with standards customary for motels of a like character, quality and location.
7.2 Seller will not enter into any new Contracts or Leases, or
cancel, modify or renew any existing Contracts or Leases, without the prior
written consent of Purchaser, which shall not be unreasonably withheld.
7.3 Seller shall have the right to make Bookings in the ordinary
course of business consistent with standards existing for motels of like
character, quality and location, provided the Purchaser's consent shall be
required for any Booking affecting the post closing period for (i) less than the
current rates charged by the Seller for similar bookings or (ii) involving an
amount in excess of Five Hundred Dollars ($500.00).
7.4 Seller shall not remove any Personalty from the Motels unless
it is replaced with an item of like kind and quality.
7.5 Upon expiration of the Due Diligence Period, Seller will
execute, and, where necessary, Purchaser will join in the execution of all
applications and instruments required in connection with the transfer of the
Licenses and Permits to Purchaser on the Closing Date. Seller shall use
commercially reasonable efforts to keep in force all existing Licenses and
Permits and to cause all those expiring to be renewed prior to the Closing Date.
If any such License and Permit shall be suspended or revoked, Seller shall
promptly notify Purchaser and shall take all measures necessary to cause the
reinstatement of such License and Permit without any additional limitation or
condition.
7.6 Seller shall notify Purchaser promptly if Seller becomes aware
of any transaction or occurrence prior to the Closing Date which would make any
of the representations, warranties or agreements of Seller or the Members
contained herein not true in any material respect.
362691.12
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7.7 Seller will maintain in effect all policies of casualty
insurance, worker's compensation insurance, liability insurance or other
policies of insurance, with no less than the limits of coverage now carried with
respect to each of the Motels.
7.8 As of the Closing Date, no room in any of the Motels shall be
occupied by any person under any written or oral lease or other agreement for
more than seven (7) days following the Closing Date.
7.9 The Motels shall be maintained in good repair, order and
condition. All guest rooms, meeting facilities, banquet rooms and public
facilities shall be delivered to Purchaser fully equipped (in accordance with
the Initial Inventory), rentable and available for use in the manner originally
intended.
7.10 Seller shall conduct and complete by the Closing Date all
on-going scheduled and/or budgeted repairs, renovations and improvements to the
Motels (including, without limitations, those required by law).
7.11 Inventory shall be maintained at levels which are consistent
with the Inventory noted on the Initial Inventory and shall be on hand at the
Motels at the Closing Date for Purchaser's use.
7.12 Seller shall not: (a) declare, set aside or pay any dividend
or other distribution in respect of the interest of the Members or redeem,
purchase or acquire any interest of the Members; (b) admit any new Members; (c)
amend its Certificate of Formation, its operating agreement or any employee
benefit plan; (d) make any capital expenditure or capital commitment, other than
in the ordinary course of business; (e) make any change in its business, as
currently conducted by Seller; (f) dispose of any material rights with respect
to any Property, other than in the ordinary course of business; (g) change its
accounting principles, methods or practices, investment practices, payment and
processing practices or policies; (h) hire, or renew any existing Contract with,
any person as an officer or director; (i) hire, or renew any existing Contract
with, any person as a consultant, independent contractor or non-officer
employee; (j) incur any obligation (not part of normal, continuing operations in
the ordinary course of business); (k) reduce, draw-down or reverse any of its
reserves, except in the ordinary course of business; or (l) settle or institute
any litigation or dispute.
8. Seller's and Members' Representations and Warranties. Seller and
each Member makes the following representations and warranties to Purchaser,
each of which is material to, and is relied upon, by Purchaser:
8.1 Authority and Noncontravention. Seller is a limited liability
company, validity existing under the laws of the State of Delaware, qualified to
conduct business in each state where the Properties are located and has all
necessary power to execute and deliver this Agreement and perform its
obligations hereunder. No consent or approval of any person, firm, corporation
or governmental authority is required to be obtained by Seller in order for
Seller to enter into this Agreement or to perform Seller's obligations under
this Agreement.
8.2 Litigation. There are no actions, suits, or proceeding pending
against Seller or any Member regarding any of the Motels, affecting any of
Seller's rights with respect to the Motels, or events that may have occurred at
the Motels, or Seller's responsibilities with
362691.12
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respect to its employees at the Motels, at law or in equity, or before any
federal, state, municipal, or other governmental agency or body, which might
result in any order, injunction, decree, judgment or other relief having an
adverse effect on any of the Motels or the Properties, nor is Seller or any
Member aware of any facts which might result in any such action, suit or
proceeding. Seller is not in default with respect to any decree of any court.
8.3 Violation of Laws. To the best knowledge of Seller and the
Members, there are no existing violations of any Federal, state or municipal
law, statute, ordinance, rule or regulation applicable to the Properties or the
operations of the Motels including without limitation the Americans with
Disabilities Act and the Employee Retirement Income Security Act "ERISA" (herein
referred to as "Applicable Laws").
8.4 Hazardous Substances. No Hazardous Substances (as defined
below) have been or, prior to Closing, shall be discharged, disbursed, released,
stored, treated, generated, disposed of on, in, or under any of the Properties
or to Seller's or any Members' knowledge on any property or water ways adjacent
to or in the immediate vicinity of any of the Properties. No asbestos or
asbestos containing materials have been installed, used, incorporated into, or
disposed of at the Property. No polychlorinated biphenyls are located on or at
the Property, whether in electrical transformers, fluorescent light fixture,
ballasts, cooling oils, or otherwise. No underground storage tanks are currently
at nor have they ever been located at the Property or to Seller's or any
Members' knowledge on or at any property adjacent to or in the immediate
vicinity of any of the Properties. To Seller's or any Members' knowledge, no
investigation, administrative order, consent order or agreement, litigation, or
settlement with respect to Hazardous Substances, public health and safety laws,
or water treatment facilities is proposed, threatened, anticipated or in
existence with respect to the Properties. For purposes of this Agreement,
"Hazardous Substances" shall mean all hazardous waste, polychlorinated biphenyls
(commonly known as PCBs), asbestos, radon, urea formaldehyde, petroleum products
(including gasoline and fuel oil) toxic chemical and biological substances and
similar substances, including, without limitation, (i) any "hazardous, toxic, or
dangerous waste, substance or material" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq. ("CERCLA"), (ii) any "hazardous material" as defined
by the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section
1801 et seq., (iii) any "hazardous waste" as defined by the Resource,
Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901, et
seq., and (iv) any hazardous, toxic or dangerous waste, substance or material as
defined in any so-called "superfund" or "superlien" law or any other federal,
state or local statute, law, ordinance, code, rule, regulations, order or decree
regulating, relating to or imposing liability or standards of conduct concerning
such waste, substance, material or otherwise.
8.5 Condition of Properties. To the best knowledge of Seller and
the Members, (i) all motel rooms, the lobby, and the common areas of each Motel
are in rentable and/or usable condition, normal wear and tear excepted, and (ii)
there are no material defects in any of the service systems at any of the Motel
including the electrical, sanitary sewage, water, heating, air ventilation, air
conditioning or mechanical systems which would interfere with the use of the
Improvements or the normal operation of such systems.
8.6 Taxes. All federal and local employment taxes, payroll taxes,
excise taxes, ad valorem taxes, real property taxes, and all sales, hotel,
occupancy and other taxes
362691.12
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which are due and payable as of the date of this Agreement in connection with
the operation of the Motel have been paid. Seller has filed all tax returns and
reports required to be filed by it as of the date of this Agreement.
8.7 Condemnation. Neither Seller nor any Members has received
written notice of nor are they aware of any intent of any public authority or
other entity to take or use any of the Properties or any part(s) thereof
pursuant to any condemnation or eminent domain proceeding.
8.8 FIRPTA. Seller is not a "foreign person" under Section 1445 of
the Internal Revenue Code of 1954, as amended (the "Code").
8.9 Contracts. The Contracts identified in Schedule I constitute
all contracts or agreements affecting the Properties or the operation thereof.
Each copy of a Contract delivered to Purchaser is a true, correct and complete
copy of such Contract, with any and all amendments and modifications thereto.
There are no oral agreements in existence affecting any of the Properties or
their operations. The Contracts are in full force and effect, and there are no
uncured defaults by any party under any of the Contracts.
8.10 Special Assessments. None of the, Properties, nor any portions
thereof, has been affected by, nor does Seller or any Member have knowledge of,
any pending or threatened special assessments or impositions.
8.11 Financial Statements. The financial statements for the twelve
(12) month period ended December 31,1996 and for the one (1) period ended
January 31, 1997 (collectively the "Financial Statements") submitted to
Purchaser regarding the operation of the Motels fairly present the results of
operation of the Motels for the periods indicated in all material respects, were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, and to Seller's and each Members' knowledge there has been
no material adverse change in the results of the operations of the Motel since
the last date of the Financial Statements.
8.12 Permits. Seller has not received any notice to the effect that
there is lacking any License or Permit needed in connection with the operation
of any of the Motels, or that any existing License or Permit is in danger of
being revoked.
8.13 Personalty. Seller owns the Personal Property and none is held
by Seller under a lease or installment sales contract.
8.14 Commissions. There are no commissions or other fees due any
party for guest room rentals other than those which are normal and customary in
the motel industry and as reflected on the financial statements of Seller.
8.15 Attachments. There are no attachments, executions, assignments
for the benefit of creditors, or voluntary or involuntary proceedings in
bankruptcy or under any other debt relief laws contemplated by or pending
against Seller. Except for the Financing, there is no claim against any portion
of any of the Properties or Seller for or on account of work done, materials
furnished or utilities supplied to the Motel.
362691.12
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8.16 Insurance. Seller has not received any notice from any
insurance company or board of fire underwriters requesting the performance of
any work or alteration with respect to the Motel, or requiring an increase in
the insurance rates applicable to any of the Motels.
8.17 No Inaccuracies. Seller's knowledge, there are no material
inaccuracies in the documents and items to be submitted to Purchaser for its
review pursuant to Section 9.1 of this Agreement.
8.18 Access. Each of the Properties has full vehicular and
pedestrian access to a dedicated public right-of-way. Neither Seller nor any
members has any knowledge of federal, state, or local plans to change the
highway or road system in the vicinity of any of the Properties or otherwise to
modify visibility thereof or vehicular or pedestrian access thereto (including,
without limitation, plans to install medians or other barriers within adjacent
rights-of-way or otherwise restrict the ability of motor vehicles to turn into
or out of driveways on the Properties.)
8.19 Harrodsburg Kentucky Motel. The Harrodsburg Kentucky Motel,
which is currently under construction, shall be built and constructed lien free
(other than the portion of the Financing applicable to the Harrodsburg, Kentucky
Motel) in a good and workmanlike manner in accordance with the plans and
specifications and pursuant to a fixed price or guaranteed maximum price
construction contract. The plans and specifications and construction contract
shall be subject to the approval of Purchaser, not to be unreasonably withheld
and the Motel shall be designed and be of a quality of construction consistent
with the existing Motels.
8.20 Investment Intent.
(a) Each Member and Seller acknowledges, represents and
warrants that such party has received and reviewed a copy of the Parent
Corporation's most recent Form 10-K, each subsequently filed Form 10-Q and all
press releases issued since the issuance of the most recent Form 10-K; that such
party has such knowledge and experience in financial and business matters that
such party is capable of evaluating the merits and risks of such party's
investment in the Preferred Stock and the Common Stock into which it is
convertible; that such party has had reasonable opportunity to ask questions of
and receive answers from Purchaser's and Parent Corporation's officers and
directors and to obtain any additional information, documents or instruments
available from Purchaser or the Parent Corporation or the Securities and
Exchange Commission that such party has reasonably requested; that such party is
aware that Purchaser has no material assets or operating history and upon
consummation of the Closing the sole business of Purchaser will be the
Properties acquired hereunder; that such party is aware that the sole
outstanding shares of capital stock of Purchaser consist of _________ shares of
Common Stock held by Parent Corporation; and that no oral information furnished
to such parties inconsistent with this Agreement or any such disclosure
documents of Purchaser or Parent Corporation.
(b) Seller and each Member further represents and warrants
that the Preferred Stock (or shares of Common Stock into which the Preferred
Stock is converted) is being acquired solely for such party's own account for
investment purposes and not with a view to or in connection with any sale,
distribution or other distribution thereof within the
362691.12
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meaning of the Securities Act of 1933, as amended (the "Act") and applicable
state securities laws and that such shares may not be transferred or sold except
under an effective registration statement under the Act and such state
securities laws or pursuant to an exemption under the Act and such state
securities laws; that no federal or state agency has made any recommendation or
endorsement of the shares or any finding or determination as to the fairness of
the investment in such shares; that such shares are a speculative investment and
such party can bear the economic risks of such investment; and that each such
party has consulted with such party's own legal, tax and financial advisors with
respect to the tax consequences of acquiring such shares and has not relied upon
Purchaser, Parent Corporation or its representatives as to such matters.
8.21 Absence of Undisclosed Liabilities. Except as set forth in
Exhibit "E" annexed hereto or in the Financial Statements provided to Purchaser,
as of the date hereof, the Seller nor its predecessor in interest has any
indebtedness, duties, responsibilities, liabilities, claims or obligations of
any nature, whether absolute, accrued, contingent or otherwise, whether as
principal, agent, partner, co-venturer, guarantor or in any capacity whatsoever,
related to or arising from the operation of its businesses or other ownership,
possession or use of its respective Properties, other than indebtedness, duties,
responsibilities, liabilities, claims or obligations which were incurred by the
Purchaser in the ordinary course of business and which are reflected on its
Financial Statements.
8.22 Absence of Specified Changes. Except as set forth in Exhibit
"F" annexed hereto, there has not been with respect to the Seller any:
(a) sales of Properties or assets not in the ordinary course
of business;
(b) material damage, destruction or loss, whether or not
insured, (i) affecting its business, as currently conducted or as proposed by
the Seller to be conducted, or (ii) to its Properties;
(c) failure to maintain in full force and effect substantially
the same level and types of Insurance coverage as current in effect for, damage
to, or loss of any of its Properties;
(d) change in accounting principles, methods or practices or
investment practices,
(e) change in payment and processing practices or policies;
(f) write-ups of the valuation of any Properties on its books
or records;
(g) declaration, setting aside, or payment of a dividend or
other distribution in respect of its Members, or any direct or indirect
redemption, purchase or other acquisition of any interest of its Members;
(h) amendment to its organizational documents,
(i) increase or commitment to increase the salary or other
compensation payable, or to pay any bonus, to
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(j) any of its employees, agents or independent contractors
except in the ordinary course of business;
(k) reduction, draw-down or reversal of its reserves, except
in the ordinary course of business.
8.23 Taxes.
(a) All tax returns for all periods ending on or before the
Closing Date that are or were required to be filed by the Seller or any Member
on or before the Closing Date have been or shall be filed on a timely basis
(after taking into account all extensions which may be available) in accordance
with the Applicable Laws of the applicable governmental authorities. All such
tax returns that have been filed were, when filed, and continue to be, true,
correct and complete in all material respects.
(b) All taxes proposed to be assessed (plus interest,
penalties and additions to tax that were or are proposed to be assessed thereon,
if any) as a result of any examinations have been paid, reserved against or
settled. There are no outstanding waivers or extensions of any statute of
limitations relating to the assessment or collection of taxes for which the
Seller or any Member may be liable and no governmental authority has requested
such a waiver or extension.
(c) The Seller and each Member has paid, will pay prior to the
Closing Date or will make provision for the payment of all taxes that have or
may become due for all periods ending on or before the Closing Date, including
all taxes reflected on the tax returns of Seller, or in any assessment, proposed
assessment or notice, either formal or informal, received by the Seller. The
charges, accruals and reserves with respect to taxes on the consolidated books
and records of the Seller (determined in accordance with GAAP) are adequate for
taxes of the Seller. All taxes that the Seller is or was required by law to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the appropriate governmental authorities. There are
no Liens with respect to taxes upon any of the Properties of the Seller.
(d) The Purchaser is not currently or ever was included in a
consolidated or combined tax return for federal or state tax purposes.
8.24 lnsurance. Exhibit "G" annexed hereto sets forth, as of the
date hereof, an accurate, correct and complete list of all binders or policies
of fire, liability, product liability, directors' and officers' liability,
workers compensation, vehicular, unemployment and other insurance, self
insurance programs and fidelity bonds (collectively, "Insurance") maintained by
Seller. All Insurance has been issued under valid and enforceable policies or
binders for the benefit of the Seller, and all such policies or binders are in
full force and effect and none of the premiums therefor are past due. Seller is
in compliance with the terms of all such policies and binders in all material
respects. All Insurance is of such types and in such amounts and for such risks,
casualties and contingencies as is reasonable based upon the business of the
Seller. As of the date hereof, there are no pending or asserted claims
outstanding against any Insurance carrier as to which any insurer has denied
liability, and there are no pending or asserted claims outstanding under any
Insurance policy or binder that have been disallowed or improperly filed. The
Seller shall promptly notify the Purchaser if,
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from the date hereof through the Closing Date, (i) any insurer has denied
liability of any pending or asserted claim outstanding against any Insurance
carrier or (ii) any pending or asserted claim outstanding under any Insurance
policy or binder is disallowed or improperly filed.
8.25 Employee Benefit Plans.
(a) Exhibit "H" annexed hereto sets forth a correct and
complete list (including the name of the plan, the employee class covered
thereunder, the annual contribution by the Seller and, in the case of
profit-sharing plans, the payments made by the Seller to such plan during the
last three (3) fiscal years) of all "employee benefit plans" (as defined in
Section 3(3) of ERISA), bonus, profit sharing, deferred compensation, incentive
or other compensation plans or arrangements, welfare benefit plans (as defined
in Section 3(1) of ERISA) and other employee fringe benefit plans, whether
funded or unfunded, qualified or unqualified, maintained or contributed to by
Seller (all the foregoing are collectively referred to herein as the "Benefit
Plans"). All Benefit Plans, related trust agreement or annuity contracts (or any
other funding instrument) are in full force and effect. Except as set forth on
Exhibit "H" annexed hereto, no Benefit Plan which had previously been in effect
has been terminated.
(b) All contributions to, and payments from, the Benefit Plans
that may have been required to be made in accordance with the Benefit Plans have
been made in a timely manner during the prior three (3) Benefit Plan years. All
such contributions to the Benefit Plans for any period ending before the Closing
that are not yet required to be made shall be properly accrued. No Benefit Plan
is a "defined benefit plan" within the meaning of Section 3(35) of ERISA.
(c) All necessary governmental approvals for the Benefit Plans
have been obtained. Seller and each Benefit Plan (and any related trust
agreement or annuity contract or any other funding instrument) complies
currently, and has complied in the past, both as to form and operation, with the
provisions of all Applicable Laws.
(d) Each Benefit Plan has been administered in compliance, in
all material respects, with the requirements of the Internal Revenue Code and
ERISA. All reports, Returns and similar documents with respect to the Benefit
Plans required to be filed since the commencement of the Benefit Plans with any
government authority or distributed to any Benefit Plan participant have been
duly and timely filed or distributed (after taking into account all extensions
and deferral rights). There are no investigations by any governmental authority,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Benefit Plans), suits or proceedings against or
involving any Benefit Plan or asserting any rights or claims to benefits under
any Benefit Plan pending or, to the best knowledge of the Seller, threatened
that could give rise to any liability in any material respect to any of the
Seller Members or employees of the Seller or a trustee, administrator or other
fiduciary of any trusts created under any Benefit Plan.
(e) No "prohibited transaction" (as defined in Section 4975 of
the Code or Section 406 of ERISA) has ever occurred which involves the property
of any Benefit Plan and which could subject to a material extent the Seller, or
any of the Members or employees of the Seller, or a trustee, administrator or
other fiduciary of any trusts created under any Benefit
362691.12
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Plan, to the tax or penalty on prohibited transactions imposed by Section 4975
of the Code or the sanctions imposed under Title I of ERISA. Neither the Seller
nor, to the best knowledge of the Seller and Members, or the employees of the
Seller, a trustee, administrator or other fiduciary of any Benefit Plan, nor any
agent of any of the foregoing, has ever engaged in any transaction or acted or
failed to act in a manner which could subject any of the Seller, their
businesses, the Surviving Corporation or the Parent Corporation to any liability
for breach of fiduciary duty under ERISA or any other applicable Law, except for
such liability which could not, individually or in the aggregate, in the sole
good faith opinion of the Parent Corporation, have a Material Adverse Effect.
(f) None of the Benefit Plans is, nor the Seller has ever been
a party to, a "multiemployer pension plan" as defined in Section 3(37) of ERISA.
(g) No Benefit Plan, including any welfare plan (as defined in
Section 3(1) of ERISA), maintained by Seller provides medical or death benefits
with respect to current or former employees beyond their termination of
employment (other than coverage mandated by Applicable Law). Each such welfare
benefit plan to which Section 601-609 of ERISA and Section 4980B of the Internal
Revenue Code apply has been administered in compliance in all material respects,
with such sections.
(h) No Contract entitles any individual to severance or
termination pay or accelerates the time of payment and vesting, or increases the
amount of compensation due, or benefits payable under any Benefit Plan
8.26 Accounts Receivable. All accounts receivable of the Seller
reflected on the current balance sheet and all accounts receivable of the Seller
arising subsequent to the date thereof have arisen in the ordinary course of
business and, are subject to no defenses, offsets or counterclaims, and other
than for the reserves reflected on the balance sheet are fully collectable.
8.27 No Brokers. The Seller has not entered into any Contract,
arrangement or understanding with any Person or incurred any liability which
could result in the obligation of any Person to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with this Agreement
or the transactions contemplated hereby except as set forth in Section 13.3,
hereof.
8.28 Disclosure. No representation, warranty or statement made by
the Seller or any Member in this Agreement, the Exhibits and the Schedules, or
in any other material furnished or to be furnished by the Seller to Purchaser or
to the Parent Corporation or its representatives, financing sources, attorneys
and accountants, pursuant to this Agreement or the transactions contemplated
hereby, contains to the best knowledge of Seller and the Members or shall
contain any untrue statement of a material fact, or omits or shall omit to state
a material fact required to be stated herein or therein or necessary to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
8.29 Labor Matters.
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(a) Affiliate.Contracts. Exhibit "I" annexed hereto sets
forth, as of the date hereof, a correct and complete list (including the name of
the parties, term and rate of compensation) of all contracts (other than stock
option agreements) between the Seller and any executive officer and director of
the Seller, or of any of the foregoing (collectively, "Affiliate Contracts").
Prior to the Closing, the Seller will provide to the Purchaser a correct and
complete list of all Affiliate Contracts entered into by the Seller from the
date hereof through the Closing Date.
(b) Termination Agreements; Compensation. Exhibit "J" annexed
hereto sets forth a correct and complete list of all termination, severance, or
similar agreements with the Seller's employees or consultants (the "Termination
Agreements") in effect as of the date hereof to which the Seller is or may be
bound or affected and under which the Seller has any remaining obligations.
Exhibit "J" annexed hereto sets forth a correct and complete list of the fifteen
(15) most highly compensated employees of the Seller (including bonuses,
commissions and deferred compensation) for the Seller's current fiscal year.
(c) Labor Contracts; Disputes. There are no controversies
pending (including alleged violations of Applicable Laws) or, to the best
knowledge of the Seller or any Member, threatened involving the employees of the
Seller and, except as set forth on Exhibit "K" annexed hereto, there are no
collective bargaining or other union contracts to which the Seller is a party or
by which the Purchaser or any of its Subsidiaries may be bound. The Seller has
not suffered or sustained any work stoppage and, to the best knowledge of the
Seller, no such work stoppage is threatened. To the best knowledge of the Seller
and the Members, no union organizing, election or other activities involving any
employees of the Seller are in progress or threatened.
9. Due Diligence Period. During the period (the "Due Diligence
Period") commencing on the Execution Date (as hereinafter defined) and ending on
the date which is sixty (60) days following the Effective Date, Purchaser, and
its authorized agents or representatives, shall be entitled to enter upon the
Properties at all reasonable times during the normal business hours to conduct
inspections and tests (including, but not limited to, structural and
environmental tests), so long as such inspections and tests do not unduly
interfere with the operation of the Motels. Seller shall cooperate with
Purchaser and Purchaser's agents in arranging inspections of the Motels, which
inspections may include, but shall not be limited to, the roof, electrical,
heating, ventilating, air conditioning, mechanical and plumbing systems,
landscaping and the interior of the Motels and Seller shall cooperate with
Purchaser should Purchaser elect to have audited financial statements for the
Properties prepared. As part of its inspections, Purchaser shall be entitled to
remove wallboard in a few of the rooms chosen by Purchaser and approved by
Seller at each Motel for the purpose of inspecting the condition of the framing,
electrical and plumbing of the Improvements provided that Purchaser, at its
expense, shall restore the rooms to habitable condition after the removal of
such wallboard upon conclusion of the inspection. As used in this Agreement,
"habitable condition" shall mean repair or replacement of wallboard and painting
of any wall from which wallboard was removed, which paint shall be in a color
that is reasonably harmonious with the wallcoverings on any undisturbed walls of
the room. Purchaser shall have no obligation to match, duplicate, or replace
Seller's existing wallcovering, or to remove and replace all wallcoverings in a
particular room to cause all walls in that room to have an identical
362691.12
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appearance, unless Seller, at Seller's cost, provides to Purchaser materials for
such purpose. Purchaser shall bear the cost of all inspections and tests.
9.1 Document Review. To the extent available and in Seller's or
Seller's agent's possession, Seller will furnish to Purchaser (within five (5)
days after the Execution Date with respect to each Motel items (a)-(c) listed
below and within ten (10) days after the Effective Date items (d)-(q) listed
below) true, correct and complete copies of the following:
(a) Seller's title policies or evidence of title;
(b) any existing as-built surveys of the Real Property and
Improvements;
(c) any environmental assessments of the Real Property and
Improvements;
(d) the Contracts, Leases, Bookings, Warranties, and Licenses
and Permits;
(e) the Initial Inventory to the extent not jointly prepared
pursuant to Section 3.1, hereof;
(f) the real estate tax bills and personal property tax bills
for the current year and for the past two calendar years;
(g) the most recent utility bills for the Motel;
(h) the certificate of occupancy for the Improvements;
(i) architectural, structural, and mechanical plans and
specifications for the Improvements;
(j) the most recent year-to-date financial statements for the
Motel and the financial statements for the past two
calendar years;
(k) any appraisals of the Motel;
(l) any collective bargaining agreements covering employees at
the Motel;
(m) income tax returns of Seller and any predecessor in
interest for the last three (3) years which may only be
reviewed and not copied by Purchaser;
(n) all employee Benefit Plans;
(o) books, records and minutes of Seller; and
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(p) evidence of Seller existence and a copy of Seller's
operating agreement;
(q) All Exhibits and Schedules to this Agreement not otherwise
attached hereto on the Execution Date.
Seller agrees to allow Purchasers, its authorized agents or
representatives, to inspect and make copies of all other books, records,
correspondence, files and all other items reasonably requested by Purchaser
relating to the ownership, operation, maintenance or equipping of the Motels,
which are in Seller's, or its agent's, possession, each of which shall be kept
confidential by Purchaser and returned to Seller if the transaction does not
close.
9.2 Indemnification for Inspections. Purchaser shall indemnify and
hold Seller harmless from and against any and all liens, claims, causes of
action, and expenses (including reasonable attorneys' fees) arising out of the
conducting of any tests and/or inspections performed by Purchaser, its
authorized agents or representatives, pursuant to the provisions of Section 9 of
this Agreement. The indemnification provisions of this Section 9.2 shall survive
the termination of this Agreement or the Closing.
9.3 Right of Termination. If during the Due Diligence Period,
Purchaser shall, for any reason, in Purchaser's sole discretion, disapprove or
be dissatisfied with any aspect of any of the Properties or for any other
reason, Purchaser shall be entitled to terminate this Agreement by giving
written notice to Seller at or before the expiration of the Due Diligence
Period. Upon Seller's receipt of such notice this Agreement shall automatically
terminate and the Earnest Money shall be promptly refunded to Purchaser (less
One Hundred Dollars ($100.00) which shall be delivered to Seller) and neither
Seller nor Purchaser shall have any further obligation or liability to the other
hereunder, except for any continuing indemnity obligations as provided in this
Agreement.
10. Financing Contingency and Conditions to Purchasers and Parent
Corporation's Obligation to Close.
(a) It shall be a condition to Purchaser's obligation to close that
Purchaser shall be able to assume the Financing (as described in Section 4.2
hereof) which currently encumbers the Properties on terms and conditions
acceptable to Purchaser or to otherwise secure financing on terms and conditions
acceptable to Purchaser which in conjunction with the portion of the Financing
which Purchaser is able to assume is equal to or greater than Seven Million Two
Hundred Fifty Thousand and No/100 Dollars ($7,250,000.00). Seller shall have
until the expiration of the Due Diligence Period (as set forth in Section 9
hereof) within which to provide Purchaser with evidence that Purchaser will be
permitted to assume the Financing on terms and conditions acceptable to
Purchaser.
(b) Accuracy of the Seller's Representations and Warranties. The
representations and warranties of the Seller and the Members set forth herein
are true and correct in all material respects as of the date hereof and as of
the Closing Date.
(c) Performance by the Seller. The Seller shall have performed,
satisfied and complied with all covenants, agreements, and conditions required
to be performed by it.
362691.12
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(d) Shareholder and Board Approval. This Agreement and the
transactions contemplated hereby shall have been adopted and approved by the
shareholders holding a majority of the outstanding stock of Parent Corporation
entitled to vote thereon and by the Board of Directors of Parent Corporation
(which Board of Directors approval has been received.)
(e) Officer's Certificate. Purchaser shall have received from the
Seller's Chief Accounting Officer a certificate stating that there has been (f)
no change in the Seller's balance sheet which is reasonably likely to
individually, or in the aggregate with all other such changes, have a material
adverse effect on the Seller or its Properties.
11. Conditions to Sellers and Members Obligation to Close.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser set forth herein are true and
correct in all material respects as of the date hereof and as of the Closing
Date.
(b) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied with all covenants, agreements, and conditions
required to be performed by it.
(c) Shareholder and Board Approval. This Agreement and the
transactions contemplated hereby shall have been adopted and approved by the
shareholders holding a majority of the outstanding stock of Parent Corporation
entitled to vote thereon and by the Board of Directors of Parent Corporation
(which Board of Directors approval has been received.) no later than June 15,
1997.
(d) Officer's Certificate. Seller shall have received from the
Parent Corporation's Chief Accounting Officer a certificate stating that there
has been (e) no change in the Parent Corporation's balance sheet which is
reasonably likely to individually, or in the aggregate with all other such
changes, have a material adverse effect on the Seller or its properties.
12. Conversion of Preferred Stock and Parent Corporation's Call Right.
The holders of the Preferred Stock shall have the right at any time after the
date which is seven (7) years from the date that the Members are issued the
Preferred Stock, to convert the Preferred Stock held by the Members to common
stock of the Parent Corporation at a conversion price equal to the average
trading price of the Parent Corporation's common stock ten (10) days before the
date of conversion. Parent Corporation may at any time and from time to time,
after the date which is seven (7) years after the date of Closing call (by sixty
(60) days written notice to the Members) all or any portion of the Preferred
Stock held by the Members at a call price equal to one hundred ten percent
(110%) of the Original Issuance Price of such Preferred Stock. Upon receipt of
such notice from Parent Corporation (and subject to the Member's right to
convert the Preferred Stock to common stock of Parent Corporation during such
sixty (60) day period), Seller shall tender to Parent Corporation the shares of
Preferred Stock called and Parent Corporation shall deliver to Seller the call
price for such shares.
Parent Corporation agrees that if at any time after the Members or any
Member converts Preferred Stock to common stock of Parent Corporation it is
necessary to register
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the common stock of Parent Corporation in order for the common stock of Parent
Corporation to be freely tradable, Parent Corporation agrees to so register such
common stock.
13. Closing.
13.1 Closing. "Closing" under this Agreement shall occur on the
"Closing Date" which shall be the first business day which is thirty (30) days
after the expiration of the Due Diligence Period and the satisfaction of the
Financing Contingency.
13.2 Closing Costs. Any escrow fee charged by the Title Company
shall be equally divided between Seller and Purchaser, Seller shall pay all
recording, transfer taxes, intangibles taxes, documentary stamps or similar fees
related to the transfer of the Motels. The title insurance premiums and the cost
of the Surveys shall be shared equally by the Purchaser and the Seller. All
other costs shall be apportioned between the parties by the Title Company in the
manner customary in the county where the Motels are situated. Purchaser shall be
responsible for any costs associated with the assumption of the Financing. Each
party shall be responsible for the payment of its own attorney's fees in
connection with the transaction which is the subject of this Agreement.
13.3 Brokers or Finders. Seller, the Members and Purchaser
represent and warrant to each other that the only broker or finder in connection
with the transaction contemplated by this Agreement is Donegal Partners Ltd.
("Finder"), who acted as a Finder in this transaction. Upon Closing, Purchaser
agrees to pay a commission to Finder of Three Hundred Thousand and No/100
Dollars ($300,000.00). If this transaction does not close for any reason
whatsoever including the default of Purchaser or Seller, Finder shall not be
entitled to any commission. Seller and Purchaser each hereby agree to indemnify,
defend and hold the other harmless of and from any and all claims, liabilities,
losses, damages, attorneys' fees and expenses, incurred by either party and
arising out of, or resulting from, any claim by any other broker, finder or
sales agent or similar party for a commission or fee claimed to be due under the
terms of any agreement made by the indemnifying party or otherwise claimed due
in consequence of any actions taken by the indemnifying party. Finder executes
this Agreement to acknowledge Finder's acceptance of this provision.
13.4 Seller's Obligations at Closing. At the Closing, Seller, shall
deliver to Purchaser the following:
(a) Warranty Deed. Properly executed Warranty Deeds conveying
each parcel of the Real Property, Improvements and any other portion of the
Properties comprised of real estate, subject only to the Permitted Exceptions.
If any of the Surveys obtained by Purchaser reflect a discrepancy from the legal
description pursuant to which Seller took title to any of the Properties, Seller
shall also execute a quitclaim deed using the Survey legal description.
(b) Bill of Sale and Assignment. Properly executed Bills of
Sale and Assignment that transfers and assigns the Personal Property, Plans and
Studies, Warranties, Contracts, Licenses, Inventory, Books and Records, and
Intangibles to Purchaser. The Bills of Sale and Assignment shall convey the
aforesaid items and have attached thereto a full and complete list of all items
being sold to Purchaser, as well as a complete list of all the obligations of
Seller relative to the Properties which Purchaser has agreed to assume. If any
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of the Personal Property includes vehicles, Seller shall deliver a Certificate
of Title, for each vehicle assigned to Purchaser in accordance with the law of
the state where the vehicles are registered.
(c) Books and Records. (a) all Books and Records, (b) all keys
for the Properties and (c) any other asset, item or component of the Properties
contemplated hereby.
(d) Certificate of Non-Foreign Status. A properly executed
affidavit certifying the non-foreign status of Seller in form sufficient to
satisfy Section 1445 of the Code, together with any other similar affidavits
required by state or local law.
(e) Closing Statement. A properly executed Closing Statement
setting forth the Purchase Price, closing costs, prorations, charges and credits
provided for in this Agreement.
(f) Affidavit. A property execute affidavit executed by
Seller, in form and substance satisfactory to the Title Company necessary to
delete all exceptions from the Purchaser's title insurance policies, except for
the Permitted Exceptions.
(g) List. A current listing of any deposits and prepaid rents
held by Seller with respect to any of the Properties and an assignment of such
deposits and prepaid rents.
(h) Seller's Authority Documents. Resolutions of the Seller
and the consent of each Member to this transaction, certified as true, complete
and unrevoked by the Managing Member of Seller, evidencing the power and
authority of Seller to enter into and consummate this Agreement and the
transactions contemplated hereby.
(i) Termination of Management and Franchise Agreements. A
termination agreement relative to any management agreement or franchise
agreement affecting any of the Motels.
(j) Original Documents. Originals of all Leases, Licenses and
Permits, Plans and Specifications, Contracts and any other approvals in Seller's
or any Members' possession.
(k) Seller's Certificate. A certificate duly executed by
Seller and each Member and certifying that each and every warranty and
representation made by Seller and the Members in this Agreement is true and
correct as of Closing, as if made at such time.
(l) Other Instruments. Such other documents as are customary
in the jurisdiction in which any of the Properties are located in connection
with the conveyance of real property, including all indemnities, affidavits, and
other instruments required by the Title Company.
(m) Possession. Seller shall deliver possession of the
Properties to Purchaser at Closing, subject only to the rights of guests and
occupants of the Properties and tenants in possession under Leases.
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(n) Evidence of the filing with the office of the Secretary of
State of Delaware of the Certificate of Merger, pursuant to the GCL, with
respect to the Merger in a form acceptable to Purchaser and consistent with the
GCL and this Agreement.
(o) A statement upon which the Parent Corporation and its
transfer agent shall rely which shall provide the percentage member interest of
each Member of Seller.
(p) The third-party consents required to consummate the
transactions contemplated hereby without breach or acceleration of any
agreements, covenants or obligations of Seller to any third party.
13.5 Purchaser's Obligations At Closing. At Closing Purchaser shall
deliver to or for the benefit of Seller and the Members the following:
(a) Payment of Purchase Price. At the Closing, Purchaser shall
pay the Purchase Price, pursuant to Section 4 hereof (and subject to Section 4.4
hereof, plus or minus any adjustments for prorations, closing costs, charges and
other credits provided for in this Agreement.
(b) Financing Documents. The documents evidencing the
assumption or the payoff of the Financing.
(c) Securities. The Stock Portion of the Purchase Price.
(d) Purchaser's Authority Documents. Resolutions of the Board
of Directors of Purchaser, and Parent Corporation certified as true, complete
and unrevoked executed by the Corporate Secretary (or assistant secretary) of
Purchaser and Parent Corporation, evidencing the power and authority of
Purchaser and Parent Corporation to enter into and consummate this Agreement and
the transactions contemplated hereby.
(e) Closing Statement. A Closing Statement setting forth the
Purchase Price, closing costs, prorations, charges and credits provided for in
this Agreement.
(f) Other Instruments. Such other documents as are customary
in the jurisdiction in which the Properties are located in connection with the
conveyance of real property.
14. Prorations. The following shall be apportioned on an accrual basis
between Seller and Purchaser as of 12:01 P.M. on the Closing Date (the
"Apportionment Date") unless otherwise herein provided and the Purchase Price or
the dividends payable to the Members holding Preferred Stock adjusted to reflect
such prorations:
14.1 Real estate taxes, assessments, personal property ad valorem
taxes, water or sewer rates and charges (if not metered), or any other
governmental tax or charge levied or assessed against the Properties
(collectively, the "Taxes"), on the basis of the respective periods for which
each is assessed or imposed in accordance with Section 13412, hereof.
362691.12
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<PAGE>
14.2 Charges for water, fuel oil, electricity, telephone,
television, cable television, steam, gas and any other utilities (collectively,
"Utilities") made by the utility companies servicing each of the Motels in
accordance with Section 14.13(a) below, and transferred utility deposits, if
any.
14.3 Prepaid fees or other charges for transferable licenses and
permits which are properly assigned under Applicable Laws.
14.4 Rental income, from Lease and other items, if any, for which
Seller may be reimbursed if same be assignable under Applicable Laws or
agreements which Purchaser has agreed in writing to assume same.
14.5 Amounts paid or payable under the Contracts.
14.6 Room charges and other guest charges to be apportioned and
collected in accordance with Section 14.13(b) below.
14.7 Tour agents' and travel agents' commissions.
14.8 Vending and concession commissions due.
14.9 Sales tax rebates, if applicable.
14.10 Debt service for the month in which the Closing takes place,
if applicable.
14.11 Such other items of income and expense relating to any of the
Motels to the extent consistent with the terms of this Agreement and customarily
prorated in similar transactions.
14.12 Taxes shall be apportioned on the basis of the fiscal period
for which assessed. If the Closing Date shall occur either before an assessment
is made or a tax rate is fixed for the tax period in which the Closing occurs,
the apportionment of such Taxes based thereon shall be made at the Closing by
applying the tax rate for the preceding year to the latest assessed valuation.
At such time as the assessment and tax rate for the current year are fixed, the
apportionment thereof shall be recalculated and Seller or Purchaser, as the case
may be, shall make an appropriate payment to the other based on such
recalculation. Taxes or other governmental assessments which constitute or may
become a lien upon any of the Properties as of the Closing Date, shall be the
responsibility of Seller. The obligations set forth in this Section 14.12 shall
survive the Closing.
14.13 The following items of income and expense shall be
apportioned between Seller and Purchaser and prorated as follows:
(a) Utilities shall be apportioned (i) by having the utility
company make a meter reading on or immediately prior to the Apportionment Date,
or (ii) if such readings cannot be obtained, on the basis of the most recent
utility bills that are available. If the apportionment is not based on actual
readings, then, upon the taking of a subsequent
362691.12
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<PAGE>
actual reading, such apportionment shall be readjusted and Seller or Purchaser,
as the case may be, shall make an appropriate payment to the other based upon
the actual reading
(b) Room charges and other guest charges incurred on or before
the Apportionment Date shall be paid to Seller, as and when collected. Purchaser
shall use commercially reasonable efforts to, collect such room charges and
other guest charges. Room charges and other guest charges commencing on the
Apportionment Date shall belong to Purchaser. Commissions due to travel agents
and tour agents, to the extent attributable to any period through and including
the day prior to the Apportionment Date shall be Seller's obligation.
Commissions due to travel agents and tour agents, to the extent attributable to
any period on or after the Apportionment Date shall be Purchaser's obligation.
(c) All other items of income and expense (not otherwise
herein specifically described) shall be apportioned as of the Apportionment Date
as agreed upon by Seller and Purchaser.
14.14 Current Payables, Cash Equivalents and Current Assets. The
parties shall adjust the Purchase Price at Closing or the dividends payable to
the Members holding Preferred Stock to reflect the amount by which cash,
receivables, cash equivalents and other current assets exceed current payables
or the amount by which current payables exceed cash, receivables, cash
equivalents and other current assets as the case may be.
14.15 Reservation Deposits. The aggregate amount of any reservation
deposits ("Reservation Deposits") paid prior to the Closing Date as a down
payment for all reservations shall be adjusted between the parties. Purchaser
shall receive a credit for all Reservation Deposits made by existing or future
guests of any of the Motels relating to dates after the Apportionment Date.
15. Defaults; Remedies; Liquidated Damages. Purchaser and Seller
acknowledge that it would be extremely impracticable and difficult to ascertain
the actual damages that would be suffered by Seller if Purchaser fails to
consummate the purchase and sale of the Properties herein (for any reason other
than Seller's failure, refusal or inability of Seller to perform any of its
covenants and agreements hereunder or the failure of any other conditions to
Purchaser's obligation to close hereunder which have not been waived by
Purchaser). Purchaser and Seller have considered carefully the loss to Seller as
a consequence of the negotiation and execution of this Agreement; and the
personal expenses of Seller incurred in connection with the preparation of this
Agreement and Seller's performance hereunder; and the other damages, general and
special, that Purchaser and Seller realize and recognize Seller will sustain,
but that Seller cannot at this time calculate with absolute certainty. Based on
all those considerations, Purchaser and Seller have agreed that the damage to
Seller would reasonably be expected to amount to the Earnest Money.
Accordingly, if all conditions precedent to Purchaser's obligation to
consummate the purchase of the Properties have been waived by Purchaser or
satisfied, and if Seller has performed its covenants and agreements hereunder,
but Purchaser has breached its covenants and agreements hereunder and has
failed, refused or is unable to consummate the purchase and sale of the
Properties by the Closing Date, then the Escrow Agent shall deliver the Earnest
Money to Seller as full and complete liquidated damages. Upon proper delivery of
the Earnest Money to Seller, as above provided, no party to this Agreement shall
have any liability to any other party to this Agreement, and this Agreement
shall, in its entirety, be deemed of no
362691.12
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<PAGE>
further force and effect, except for the survival of certain indemnities as
expressly provided for herein.
If all conditions precedent to Seller's obligation to consummate the
purchase of the Properties have been waived by Seller or satisfied, and if
Purchaser has performed its covenants and agreements hereunder, but Seller has
breached its covenants and agreements under this Agreement and has failed,
refused or is unable to consummate any purchase and sale contemplated herein by
the Closing Date, then Escrow Agent shall return the Earnest Money and all
interest thereon to Purchaser and Purchaser shall also have all rights and
remedies available at law or in equity, including, without limitation the right
to maintain an action for specific performance.
16. Disclaimer, Release, Waiver of Claims and Indemnification.
16.1 Purchaser's Indemnity. Purchaser hereby agrees to indemnify,
protect, defend, save and hold harmless Seller, and Seller's subsidiaries,
affiliates, employees, officers, directors, representatives, attorneys and
agents from and against any and all debts, duties, obligations, liabilities,
suits, claims, demands, causes of action, damages, losses, costs and expenses
(including, without limitation, attorneys' fees and expenses) arising out of
facts or circumstances which existed or occurred after the Closing Date in any
manner relating to, connected with, or arising out of the Properties or the
ownership, leasing, use, operation (including employment matters of any kind),
maintenance or management thereof.
16.2 Member's Indemnity. Each Member jointly and severally hereby
agrees to indemnify, protect, defend, save and hold harmless Purchaser, Parent
Corporation and their subsidiaries, affiliates, employees, officers, directors,
representatives, attorneys and agents from and against any and all debts,
duties, obligations, liabilities, suits, claims, demands, causes of action,
damages, losses, costs and expenses (including, without limitation, attorneys'
fees and expenses) arising out of facts or circumstances which existed or
occurred on or prior to the Closing Date, in any manner relating to, connected
with, or arising out of the Properties or the ownership, leasing, use, operation
(including employment matters of any kind), maintenance or management thereof
and not assumed by Purchaser pursuant to the terms of this Agreement
(collectively "Liabilities") or otherwise included as an adjustment to the
Purchase Price.
16.3 In addition to any other remedies it may have at law or equity
Purchaser and Parent Corporation shall have the right to offset any such
Liabilities from the next dividend payment(s) due the holders of the Preferred
Stock.
17. Destruction or Damage Prior to Closing. Seller shall bear the risk
of all loss, destruction or damage to any of the Properties until the Closing
Date.
17.1 Condemnation. If all or any portion of the Properties shall be
subject to an actual or threatened taking by condemnation or right of eminent
domain Purchaser may, either: (i) terminate this Agreement by notifying Seller
in writing on or before the last date for Closing, in which case the Earnest
Money shall be refunded to Purchaser, and all rights and obligations of the
parties under this Agreement shall expire and this Agreement shall terminate and
be of no further force and effect, except for the survival of certain
indemnities as expressly provided for herein; or (ii) proceed to Closing, in
which event the Seller shall remit to Purchaser any and all awards or other
proceeds received by Seller on or before the date of Closing with respect to any
taking, and, at Closing, Seller shall assign to Purchaser all of its
362691.12
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<PAGE>
right to any and all awards or other proceeds paid or payable thereafter by
reason of any taking. Seller shall notify Purchaser of the existence or threat
of any condemnation or eminent domain proceedings or threat thereof Seller
learns thereof, but in all events prior to Closing.
17.2 Casualty. If any portion of any of the Properties is destroyed
or damaged by fire or other casualty prior to Closing, Seller shall give
Purchaser immediate written notice thereof (the "Casualty Notice"). Purchaser
shall have the option for fifteen (15) days after receipt of the Casualty Notice
to terminate this Agreement by written notice to Seller, in which case Seller
shall return the Earnest Money to Purchaser, each party shall pay all costs and
expenses which it has incurred, and thereafter neither party shall have any
further liability hereunder except for liabilities which by the terms hereof
survive the termination of this Agreement. In the event that Purchaser does not
so terminate this Agreement, the Purchase Price will be paid by Purchaser at
Closing without reduction for such damage, except that Seller shall pay to
Purchaser an amount equal to the difference of the cost to repair the casualty
damage and the insurance proceeds available for such purposes which insurance
proceeds shall be assigned to Purchaser at Closing.,
18. Miscellaneous.
18.1 Survival. All representations, warranties, covenants, and
agreements of the Seller, the Members, Purchaser and Parent Corporation set
forth herein, shall survive the Closing.
18.2 Notices. Any and all notices to be sent pursuant to the terms
of this Agreement shall be in writing and delivered in person, by overnight
delivery or by facsimile transmission. Every notice deposited in overnight
delivery or delivered by facsimile transmission shall be effective on the date
on which it is so delivered. For the purposes of notice, the addresses of the
parties, unless changed by formal notice, shall be as follows:
IF TO SELLER: Guy Hatfield and Dorothy Hatfield
5130 East Charleston Boulevard
Las Vegas, Nevada 89122
WITH COPIES TO: Peter Alyward, Esq.
3250 Vista Diego Road
Jamul, California 91935
IF TO PURCHASER: Buckhead America Corporation
OR PARENT 4243 Dunwoody Club Drive, Suite 200
CORPORATION Suite 200
Atlanta, Georgia 30350-5206
Attn: Douglas C. Collins
Fax No.: 770-393-2480
WITH COPY TO: Arnall Golden & Gregory
- ------------ 1201 West Peachtree Street
2800 One Atlantic Center
Atlanta, Georgia 30309-3450
Attn: Jeffrey B. Berg, Esquire
Fax No. 404-873-8705
362691.12
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<PAGE>
A party may change its address or the address of its attorney for
notice upon written notice to the other parties pursuant to the terms hereof.
18.3 Law. This Agreement shall be construed under and in accordance
with the laws of the State of Georgia.
18.4 Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the parties to this Agreement and their respective heirs,
executors, administrators, legal representatives, successors and assigns.
18.5 Captions. The captions heading the various paragraphs of this
Purchase Agreement are for convenience and shall not be considered to limit,
expand, or define the contents of the respective paragraphs. Masculine,
feminine, or neuter gender and the singular and the plural number, shall each be
considered to include the other whenever the context so requires.
18.6 Time of Essence. Time is of the essence of this Agreement.
18.7 Effective Date. The Effective Date of this Contract shall be
the date of the first above written.
18.8 Calendar Days and Deadlines. As used herein, "days" shall mean
and refer to calendar days but if a deadline falls or notice is required on a
Saturday, Sunday or legal banking holiday, the deadline or notice shall be
extended to the next calendar day which is neither a Saturday, Sunday nor a
legal banking holiday.
18.9 Assignment. Purchaser shall have the right to assign this
Agreement to an entity in which Purchaser or an affiliate of Purchaser has an
economic interest; provided, however, Purchaser shall remain fully liable for
obligations of Purchaser hereunder.
18.10 Counterpart. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date hereinafter set forth.
SELLER:
HATFIELD INNS, LLC
____________________________ By:___________________________________
WITNESS Its:__________________________________
362691.12
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<PAGE>
MEMBERS:
_____________________________
WITNESS Guy Hatfield
_____________________________
WITNESS Dorothy Hatfield
HATFIELD INNS ADVISORS, LLC
By:
WITNESS Its:
PURCHASER:
BLM-RH, INC.
____________________________ By:
ATTEST Its:
PARENT CORPORATION:
BUCKHEAD AMERICA CORPORATION
____________________________ By:
ATTEST Its:
FINDER EXECUTES THIS AGREEMENT FOR THE PURPOSE OF ACKNOWLEDGING ITS
AGREEMENT TO SECTION 13.3 HEREOF.
FINDER:
DONEGAL PARTNERS LTD.
____________________________ By:
ATTEST Its:
362691.12
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<PAGE>
MEMBERS:
_____________________________
WITNESS Guy Hatfield
_____________________________
WITNESS Dorothy Hatfield
HATFIELD INNS ADVISORS, LLC,
By:
WITNESS Its:
PURCHASER:
____________________________ By:
ATTEST Its:
PARENT CORPORATION:
BUCKHEAD AMERICA CORPORATION
____________________________ By:
ATTEST Its:
FINDER EXECUTES THIS AGREEMENT FOR THE PURPOSE OF ACKNOWLEDGING ITS
AGREEMENT TO SECTION 13.3 HEREOF.
FINDER:
DONEGAL PARTNERS LTD.
____________________________ By:
ATTEST Its:
362691.12
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<PAGE>
[EXHIBITS OMITTED]
<PAGE>
FIRST AMENDMENT TO AGREEMENT OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT OF MERGER ("First Amendment") is made and
entered into as of this ____ day of March, 1997 by and between HATFIELD INNS,
LLC, a Delaware limited liability company ("Seller"), GUY HATFIELD, DOROTHY
HATFIELD, AND HATFIELD INNS ADVISORS, LLC, a Delaware limited liability company,
the sole members of Seller (collectively, "Members") and BLM-RH, INC., a
Delaware corporation ("Purchaser"), the sole shareholder of which is BUCKHEAD
AMERICA CORPORATION, a Delaware corporation ("Parent Corporation").
W I T N E S S E T H :
WHEREAS, the above referenced parties entered into that certain Agreement
of Merger dated as of March 11, 1997 (the "Agreement");
WHEREAS, Seller is obligated to provide Purchaser with certain items and
information pursuant to Section 9.1 of the Agreement;
WHEREAS, Seller desires additional time in which to assemble and provide
Purchaser with the items and information pursuant to Section 9.1 of the
Agreement;
WHEREAS, shareholder approval is required only with regard to the amendment
to the Parent Corporation's Articles of Incorporation to authorize the Preferred
Stock;
WHEREAS, the parties hereto desire to amend the Agreement in order to
accommodate Seller's request and to make certain other amendments to the
Agreement.
NOW THEREFORE, in consideration of the above premises, the mutual promises
and covenants contained herein, Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto do hereby agrees as follows:
1. Section 8.6 is deleted in its entirety.
418921.3
<PAGE>
2. Section 8.20(a) is hereby amended by placing the number of "1,000" in
the blank space in front of the word "shares" in the third from the last line of
Section 8.20(a).
3. Section 8.23 is deleted in its entirety and the following Section 8.23
is substituted in lieu thereof:
"8.23 Taxes. As used in this Agreement, the term "Taxes" shall
mean any and all federal, state and local income, franchise, sales,
use, hotel, occupancy, payroll, employment, excise, business, license,
ad valorem and real property tax, plus any interest, penalties or other
additions to any such tax, of Seller.
(a) All returns (collectively, "Tax Returns") regarding Taxes
for all periods ending on or before the Closing Date that are or were
required to be filed by the Seller or any Member on or before the
Closing Date have been or shall be filed on a timely basis (after
taking into account all extensions which may be available) in
accordance with the Applicable Laws of the applicable governmental
authorities. All such Tax Returns that have been filed, were, when
filed, and continue to be, true correct and complete in all materials
respects. All such Tax Returns that are not yet required to be filed
and have not been filed, will, when filed, be true correct and complete
in all materials respects.
(b) All Taxes proposed to be assessed (plus interest,
penalties and additions to Tax that were or are proposed to be assessed
thereon, if any) as a result of any examinations have been paid or
settled. There are no outstanding waivers or extensions of any statute
of limitations relating to the assessment or collection of Taxes for
which the Seller or any Member may be liable and no governmental
authority has requested such a waiver or extension.
(c) The Seller and/or each Member has paid, will pay prior to
the Closing Date or will pay after the Closing Date, all Taxes that
have or may become due for all periods ending on or before the Closing
Date, including all Taxes reflected on the Tax Returns of Seller, all
Taxes which result from the Closing, and any Taxes which result from
any assessment for any period ending on or before the Closing Date. All
Taxes that the Seller is or was required by law to withhold or collect
have been duly withheld or collected and, to the extent required, have
been paid to the appropriate governmental authorities. There are no
Liens with respect to Taxes upon any of the Properties of the Seller.
(d) The Seller is not currently or ever was included in a
consolidated or combined tax return for federal or state tax purposes.
418921.3
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<PAGE>
4. Section 9 is hereby amended by providing that the Due Diligence Period
shall begin on the date that Seller has provided Purchaser with all of the items
and information identified in Section 9.1 of the Agreement and shall end sixty
(60) days thereafter. Any reference to "Execution Date" or "Effective Date" in
Section 9 is hereby deleted.
5. Section 9.1 is hereby amended by providing that Seller shall provide
Purchaser with items (a) through (q) as soon as is reasonably practicable, but
in all events on or before April 25, 1997. Any reference to "Execution Date" or
"Effective Date" in Section 9.1 is hereby deleted.
6. Section 16.1 is deleted in its entirety and the following Section 16.1
is substituted in lieu thereof:
"Section 16.1 Purchaser's Indemnity. Purchaser hereby agrees to
indemnify, protect, defend, save and hold harmless Seller, and Seller's
subsidiaries, affiliates, employees, officers, directors,
representatives, attorneys and agents from and against any and all
debts, duties, obligations, liabilities, taxes, suits, claims, demands,
causes of action, damages, losses, costs and expenses (including,
without limitation, attorneys' fees and expenses) (a) arising out of or
relating to any breach of any representation or warranty of Purchaser
contained herein or breach, non-fulfillment of or failure to perform
any covenant, obligation or agreement of Purchaser contained herein or
(b) arising out of facts or circumstances which existed or occurred
after the Closing Date in any manner relating to, connected with, or
arising out of the Properties or the ownership, leasing, use, operation
(including employment matters of any kind), maintenance or management
thereof, or Purchaser."
7. Section 16.2 is deleted in its entirety and the following Section 16.2
is substituted in lieu thereof:
"Section 16.2. Member's Indemnity. Each Member jointly and severally
hereby agrees to indemnify, protect, defend, save and hold harmless
Purchaser, Parent Corporation and their subsidiaries, affiliates,
employees, officers, directors, representatives, attorneys and agents
from and against any and all debts, duties, obligations, liabilities,
taxes, suits, claims, demands, causes of action, damages, losses, costs
and expenses (including, without limitation, attorneys' fees and
expenses) (a) arising out of or relating to any breach of any
representation or warranty of Seller or the Members contained herein or
breach, non-fulfillment of or failure to perform any covenant,
obligation or agreement of Seller or the Members contained herein or
(b) arising out of facts or circumstances which existed or occurred on
or prior to the Closing Date, in any manner relating to, connected
with, or arising out of the Properties or the
418921.3
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<PAGE>
ownership, leasing, use, operation (including employment matters of any
kind), maintenance or management thereof or Seller (including any
income tax liability associated with this transaction) and not assumed
by Purchaser pursuant to the terms of this Agreement (collectively
"Liabilities") or otherwise included as an adjustment to the Purchase
Price."
8. Section 18.7 is hereby deleted in its entirety.
9. Section 1.6 is amended and restated as follows:
"1.6 Approval by Parent Corporation. The Merger and the amendment to
the Parent Corporation's Articles of Incorporation to authorize the
Preferred Stock ("Amendment") are subject to the approval of the Board
of Directors of Parent Corporation (which approval has been received)
and the Amendment is subject to the approval of the shareholders
holding a majority of the outstanding stock of Parent Corporation. The
parties hereto agree that the Amendment shall be submitted to the
shareholders of Parent Corporation for consideration and approval at
the annual meeting of Parent Corporation scheduled for May 28, 1997 in
Atlanta, Georgia."
10. Section 11(c) is amended and restated as follows:
"(c) Shareholder and Board Approval. This Agreement and the
transactions contemplated hereby shall have been adopted and approved
by the Board of Directors of Parent Corporation (which Board of
Directors approval has been received), and the Amendment shall have
been adopted and approved by the shareholders holding a majority of the
outstanding stock of Parent Corporation entitled to vote thereon, no
later than June 15, 1997."
Defined terms set forth herein shall have the meaning ascribed to them in
the Agreement. Except as set forth above, the Agreement shall remain unmodified
and in full force and effect. This First Amendment may be executed in more than
one counterpart, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
418921.3
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
under seal as of date hereinabove set forth.
SELLER:
____________________________ HATFIELD INNS, LLC, a Delaware limited
Witness liability company
By:________________________________________
Its:__________________________________
MEMBERS:
____________________________ ___________________________________________
Witness GUY HATFIELD
____________________________ ___________________________________________
Witness DOROTHY HATFIELD
____________________________ HATFIELD INNS ADVISORS, LLC, a
Witness Delaware limited liability company
By:________________________________________
Its:__________________________________
PURCHASER:
____________________________ BLM-RH, INC., a Delaware corporation
Attest
By:________________________________________
Its:__________________________________
(signatures continued on following page)
418921.3
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<PAGE>
PARENT CORPORATION:
____________________________ BUCKHEAD AMERICA CORPORATION, a
Attest Delaware corporation
By:_______________________________________
Its:_________________________________
418921.3
-6-
<PAGE>
ANNEX
PROXY
BUCKHEAD AMERICA CORPORATION
4243 DUNWOODY CLUB DRIVE
SUITE 200
ATLANTA, GA 30350
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Douglas C.
Collins and Robert B. Lee, and each of them, as Proxies, each with the power to
appoint his substitute, and hereby authorizes each of them to represent and to
vote, as designated below, all the shares of Common Stock of Buckhead America
Corporation (the "Company") held of record by the undersigned on April 28, 1997,
at the Annual Meeting of Shareholders to be held on May 28, 1997 or any
adjournment thereof (the "Meeting").
1. ELECTION OF DIRECTORS
<TABLE>
<S> <C>
FOR all nominees listed below REFRAIN FROM VOTING FOR election of the
(except as marked to the contrary below) |_| individuals set forth as directors |_|
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list below.)
Douglas C. Collins, Robert M. Miller, William K. Stern, Robert B. Lee and Steven
A. Van Dyke
2. Proposal to amend the Company's Certificate of Incorporation to authorize the
issuance of up to 200,000 shares of Preferred Stock.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Proposal to approve the adoption of the Company's 1997 Employee Stock Option
Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
(CONTINUED ON REVERSE SIDE)
424179.1
<PAGE>
4. In their discretion, the Proxies are authorized to vote upon such other
business as may property come before the Meeting. THE PROXIES SHALL VOTE AS
SPECIFIED ABOVE, OR IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH
OF THE LISTED PROPOSALS.
Date: ___________________, 1997
_______________________________
(Signature)
(Signature if held jointly) (Stockholders should
sign exactly as name appears on stock. Where there
is more than one owner each should sign.
Executors, Administrators, Trustees and others
signing in a representative capacity should so
indicate.) Please enter your Social Security
Number or Federal Employer Identification Number
here:_________________________________
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
424179.1
