U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to _________________
Commission file number 0-22132
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BUCKHEAD AMERICA CORPORATION
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(Name of small business issuer in its charter)
DELAWARE 58-2023732
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization
4243 Dunwoody Club Drive, Suite 200, Atlanta, Georgia 30350
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(Address of principal executive offices)
Issuer's telephone number. (770)-393-2662
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Securities registered under Section 12(b) of the Exchange Act:
None None
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(Title of each class) (Name of each exchange on which registered)
Securities registered under Section 12(g) of the Exchange Act:
Common stock, par value $.01
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(Title of Class) $.01
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.[X]
State issuer's revenues for its most recent fiscal year. $ 13,872,805
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. As of February 28, 1997: $ 5,889,439
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of February 28, 1997:
Common Stock, par value $.01 - 1,771,127 shares outstanding
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DOCUMENTS INCORPORATED BY REFERENCE
No documents which are required to be listed under this caption are
incorporated by reference.
Transitional Small Business Disclosure Format (Check one): Yes ; No X .
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT
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FORM AND YEAR OF ORGANIZATION. Buckhead America Corporation ("Buckhead" or
the "Company") 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. Other
wholly-owned subsidiaries were subsequently created, generally for the purpose
of acquiring assets. Unless the context otherwise requires, references to the
Company herein include the Company and its subsidiaries.
MATERIAL PURCHASES AND SALES OF SIGNIFICANT ASSETS.. In March 1993, the
Company acquired through foreclosure a 180-room Days Inn hotel in Daytona,
Florida (the "Daytona Hotel") and in September 1994, the Company acquired
through foreclosure a 150-room Days Inns hotel in Miami, Florida (the "Miami
Hotel").
In May 1994, the Company, through a newly formed, wholly-owned subsidiary,
BAC Franchising Inc., a Delaware corporation, acquired the trademark rights and
license agreements comprising the Country Hearth Inn mid-priced hotel franchise
system.
On May 15, 1995, Buckhead acquired a fifty-five percent (55%) interest in
Heritage Inn Associates, Ltd., a partnership which owns a 150-room hotel in
Orlando, Florida formerly known as the Heritage Inn. Immediately upon
acquisition, the hotel (the "Orlando Hotel")was converted to operate as a
Country Hearth Inn.
On December 7, 1995 Buckhead purchased three Homeplace Inn hotel
properties in Texas from affiliates of American Liberty Hospitality, Inc.
("ALH"). Immediately upon acquisition, the acquired hotels (the "Texas Hotels")
along with three other ALH owned Homeplace Inn properties were converted to
operate as Country Hearth Inns.
Buckhead and ALH also entered into an agreement which granted ALH
preferential rights to licensing of Country Hearth Inns in Texas. ALH agreed to
develop 12 new Country Hearth Inns in Texas over a five year period.
On March 11, 1996 the Company acquired an 82-room hotel in Atlanta,
Georgia. During the latter half of 1996 the hotel (the "Atlanta Hotel") was
renovated and refurbished and presently operates as a Country Hearth Inn.
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On August 30, 1996 the Company acquired a 96-room hotel in Dalton,
Georgia. Renovation and refurbishment of that hotel was completed in February
1997 and the hotel (the "Dalton Hotel") presently operates as a Country Hearth
Inn.
On December 28, 1996 the Company sold the Miami Hotel.
Additionally, during 1994, 1995, and 1996 the Company expanded its hotel
franchising operations by developing updated prototype hotels, implementing a
franchise sales and marketing plan, and establishing a centralized room
reservation system. The Company became licensed to sell Country Hearth Inn hotel
franchises in 49 states. As of February 28, 1997, nineteen Country Hearth Inns
were open and operating in nine states, six of which were Company owned.
BUSINESS
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PRINCIPAL PRODUCTS AND SERVICES. 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.
A substantial portion of the Company's assets were transferred to it by
Old Buckhead. In addition to a significant amount of cash, the principal assets
transferred to the Company were notes receivable primarily secured by limited
service hotel properties, other unsecured receivables, and limited service hotel
properties acquired through foreclosure. As a result of the assets transferred
to it, the initial operations of the Company included mortgage servicing and
hotel management.
The Daytona hotel is operated under a Days Inn license agreement.
Marketing is generally conducted on a localized basis and through national and
regional programs implemented by the franchisor. The Daytona Hotel is managed by
the Company.
The Orlando, Atlanta, Dalton, and Texas hotels are operated under Country
Hearth Inns license agreements. Marketing is generally conducted on a localized
basis and through national and regional programs implemented by the Company. ALH
manages the Texas Hotels under a hotel management agreement. All other Company
owned hotels are managed by the Company. Additionally, the Company manages a
Country Hearth Inn in Lake Park, Georgia under a hotel management agreement.
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COMPETITION. There is significant competition in every phase of the
hospitality industry including development, construction, management,
franchising, and in loan servicing. The Company competes in a very limited way
with other hotel management companies because the Company generally manages only
hotels which it owns. There are many hotel management companies in the United
States, and many of them are significantly larger than the Company. The
Company's operations also involve collecting and servicing hotel mortgage
receivables. The terms of these mortgages are fixed. The Company does not
compete as it relates to those mortgages. However, the mortgages are on
hospitality related properties and the collectibility of the mortgages could be
affected by competition faced by the maker of the mortgage. As stated earlier,
there is significant competition in the hospitality industry. There are numerous
hotel chains that operate on a national and regional basis. There is significant
competition in the areas of price, location, quality and service. This
competition could affect the collectibility of these mortgages.
As a franchisor, the Company competes with a large number of hotel
franchise companies, most of whom are much larger than the Company and own
brands which are more nationally recognized than the Company's.
The Company is a relatively new entrant in the hotel industry. It believes
that its management is experienced in hotel franchising, hotel management and in
loan servicing. In addition, the Company may identify other opportunities in the
hospitality industry. However, existing hotel companies and new entrants to the
hotel industry in markets which the Company may pursue will present significant
competition which may have an adverse effect on the Company.
REGULATION. Sales of franchises are principally regulated through fairly
uniform state laws. Such laws generally provide for registration by the
franchisor of standardized offering documents and compliance with numerous
financial qualifications. The Company undertook substantial registration
activities and is presently licensed to sell Country Hearth Inn franchises in 49
states.
RESEARCH AND DEVELOPMENT. During 1995 and 1996, the Company invested
approximately $25,000 each year in market studies, environmental studies, and
other feasibility analyses relating to potential hotel acquisitions.
ENVIRONMENTAL COMPLIANCE. The Company's operations and maintenance
policies and procedures at each owned property include policies and procedures
regarding environmental compliance. The costs of such compliance is not
significant.
EMPLOYEES. As of February 28, 1997, the Company has 11 full-time corporate
employees and 117 full-time and 40 part-time hotel employees. No Company
personnel are presently employed under collective bargaining agreements.
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RISK FACTORS
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This Form 10-KSB contains forward looking statements that involve risks
and uncertainties. Statements contained in this Form 10-KSB that are not
historical facts are forward looking statements that are subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995. The
Company's actual results may differ significantly from the results indicated by
such forward looking statements. For a discussion of risk factors, see the "RISK
FACTOR" section contained in the Company's Registration Statement on Form S-3
(File No. 333-05313).
ITEM 2. DESCRIPTION OF PROPERTY.
CORPORATE OFFICES
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The Company's corporate headquarters are located at 4243 Dunwoody Club
Drive, Suite 200, Atlanta, Georgia. The Company leases approximately 3,600
square feet as its corporate headquarters. The lease term extends through
October 1997 at an annual rate of approximately $49,000. The Company believes
that such headquarters are adequate for its current needs.
OWNED REAL PROPERTIES
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LAND. As of February 28, 1997, the Company owned six parcels of
undeveloped and unencumbered land, with an aggregate book value of $215,500. All
of such parcels are held for sale.
DAYTONA HOTEL. The Company owns a 180-room Days Inn hotel in Daytona,
Florida (the "Daytona Hotel"), which was acquired by the Company through
foreclosure in March 1993. The hotel was acquired subject to a first mortgage
which was in default. The mortgage note was restructured effective May 15, 1994
and as of December 31, 1996 had an unpaid balance of $2,108,868. The
restructured note bears interest at 8%, and is due in monthly installments of
$15,850 until April 15, 1999 at which time the then remaining balance will be
due.
The market for comparable rooms is extremely competitive due to the large
number of hotels/motels in the Daytona area. The area does benefit, however,
from certain event related demand peaks. Average room occupancy and average
daily rate during 1996 was 46.0% and $41.45, respectively.
Renovation and environmental programs are continuously ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management, the property is adequately covered by insurance and is suitable
and adequate for its present use. Property taxes in 1996 were approximately
$64,000.
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Differences between financial reporting asset bases and federal tax bases
are not significant. Straight-line depreciation methods are used based on useful
lives of 40 years for depreciable real property and 5-10 years for all other
depreciable property.
ORLANDO HOTEL. On May 15, 1995, the Company acquired the majority
ownership of a 150-room hotel in Orlando, Florida (the "Orlando Hotel"). Prior
to the acquisition, the Company held a second mortgage on the property with an
aggregate principal and interest balance of approximately $2.8 million (the "Old
Second Mortgage"). The second mortgage balance was reduced to $1 million (the
"New Second Mortgage") in exchange for a fifty-five percent (55%) interest in
Heritage Inn Associates, Ltd., the partnership which owns the hotel. The hotel
was also subject to a first mortgage which collateralized certain Orange County,
Florida industrial development bonds (the "Orlando IRB").
The Orlando IRB and the New Second Mortgage were fully paid and satisfied
in November 1996 with proceeds from a new first mortgage loan secured by the
property (the "First Mortgage Loan"). The First Mortgage Loan had a December 31,
1996 balance of $4,593,580, bears interest at 9.55% and requires monthly
principal and interest payments of $43,028 until December 2016 at which time the
then remaining balance is due and payable.
The market for hotel rooms in Orlando is extremely competitive due to the
multitude of properties in the area. The Orlando Hotel does benefit from the
large number or local attractions and from the Orlando Convention Center
activities. The hotel is positioned as a lower priced alternative property
situated among mega-room high rises. Average room occupancy and average daily
rate during 1996 was 84.7% and $63.12, respectively.
Renovation and environmental programs are continuously ongoing and the
Company believes adequate funds are available for these purposes. The First
Mortgage Loan required the Company to expend approximately $200,000 for
maintenance and improvements; as of February 28, 1997, these requirements were
substantially completed. In the opinion of management, the property is
adequately covered by insurance and is suitable and adequate for its present
use. Property taxes in 1996 were approximately $110,000.
Differences between financial reporting asset bases and federal tax bases
are not significant. Straight-line depreciation methods are used based on useful
lives of 40 years for depreciable real property and 5-10 years for all other
depreciable property.
TEXAS HOTELS. On December 7, 1995 Buckhead purchased three Homeplace Inn
hotel properties in Texas from affiliates of American Liberty Hospitality, Inc.
("ALH"). The three hotels secure a first mortgage loan with a December 31, 1996
balance of $2,355,362. The remainder of the $3.6 million purchase price (the
estimated fair value) was paid with approximately $950,000 cash and 41,558
shares of the Company's common stock. The first mortgage loan matures December
7, 2002, bears interest at 9.05%, requires monthly payments of $21,680, is
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guaranteed by the Company, and contains certain minimum net worth and debt to
equity ratio requirements -- See "MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS -- DIVIDENDS."
Immediately upon acquisition, the acquired hotels (the "Texas Hotels")
along with three other ALH owned Homeplace Inn properties were converted to
operate as Country Hearth Inns.
The Texas Hotels are limited service 40-room properties located in smaller
southeastern Texas cities. Generally, comparable rooms are not immediately
available in their selected markets. Occupancy and room rates averaged
approximately 58.3% and $45.01, respectively, during 1996.
Renovation and environmental programs are continuously ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management, the properties are adequately covered by insurance and are
suitable and adequate for their present use. Property taxes in 1996 totaled
approximately $41,000.
Differences between financial reporting asset bases and federal tax bases
are not significant. Straight-line depreciation methods are used based on useful
lives of 40 years for depreciable real property and 5-10 years for all other
depreciable property.
ATLANTA HOTEL. On March 11, 1996, the Company acquired an 82-room hotel in
Atlanta, Georgia formerly known as the Sandy Springs Inn (the "Atlanta Hotel").
During the latter half of 1996, the hotel was renovated and refurbished for
conversion to operate as a Country Hearth Inn. The conversion was substantially
completed in January 1997 at a total cost of approximately $800,000,
approximately half of such was financed through lease arrangements.
The Atlanta Hotel secures a first mortgage loan with a December 31, 1996
balance of $2,170,713. The loan bears interest at 9.5% and requires monthly
payments of $20,350 until August 11, 2006.
The market for hotel rooms in Atlanta is extremely competitive due to the
multitude of properties in the area.. The hotel is positioned as a moderately
priced property targeted primarily at business travelers . Prior to and during
renovation, the hotel had average room occupancy of 46.6% and an average daily
rate of $59.18. Due to the recent renovation, performance of the hotel will be
more dependent on future marketing efforts as opposed to historical performance.
Renovation and environmental programs are continuously ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management, the property is adequately covered by insurance and is suitable
and adequate for its present use. Property taxes in 1996 were approximately
$40,000.
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Differences between financial reporting asset bases and federal tax bases
are not significant. Straight-line depreciation methods are used based on useful
lives of 40 years for depreciable real property and 5-10 years for all other
depreciable property.
DALTON HOTEL. On August 30, 1996 , the Company acquired a 96-room hotel in
Dalton, Georgia formerly known as the Sunset Inn (the "Dalton Hotel"). The
Company immediately initiated a renovation and refurbishment project to convert
the hotel to operate as a Country Hearth Inn. The project was substantially
completed in February 1997 at a total cost of approximately $650,000.
The Dalton Hotel secures a first mortgage loan with a December 31, 1996
balance of $1,046,148. The loan bears interest at 9.15% and requires monthly
payments of $9,549 until September 1, 2001 at which time the then remaining
balance is due.
The property is positioned to compete with the existing low and moderately
priced properties in the area. It will also compete with new properties
presently under development in the area. It is located adjacent to and is highly
visible from I-75, a major north/south interstate highway. Performance
statistics during 1996 are not meaningful due to the heavy renovations which
were in progress. Future operations of the property will be dependent on the
success of future marketing efforts.
Renovation and environmental programs are continuously ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management, the property is adequately covered by insurance and is suitable
and adequate for its present use. Property taxes in 1996 were approximately
$21,000 on an annualized basis.
Differences between financial reporting asset bases and federal tax bases
are not significant. Straight-line depreciation methods are used based on useful
lives of 40 years for depreciable real property and 5-10 years for all other
depreciable property.
REAL PROPERTIES PROPOSED TO BE ACQUIRED
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The Company announced in March 1997 that it had entered into two separate
purchase agreements for the acquisition of hotels, hotel management contracts,
and a hotel management business--See "Managements Discussion and Analysis of
Financial Condition and Results of Operations--FINANCIAL CONDITION AND CHANGES
IN FINANCIAL CONDITION."
INVESTMENT POLICIES
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A substantial portion of the Company's existing real estate and real
estate related assets were acquired directly or indirectly as a result of the
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transfer of assets from Old Buckhead and are principally hospitality related.
Asset acquisitions since inception have also been predominately hospitality
related and made for the primary purpose of generating additional income.
Further, management's experience and expertise is in the hospitality business.
Accordingly, the Company has determined that it will primarily seek out
investments in the hospitality industry. In that regard, the Board of Directors
has determined that the Company will focus upon investments in hospitality
related companies with income growth potential. Such investments could take the
form of (a) hotel property purchases, (b) hotel mortgage purchases, (c) hotel
mortgage servicing, (d) hotel management and/or (e) hotel franchising. The Board
of Directors has not set any limitations on the percentage of assets which may
be invested in any one investment. The policy herein may be changed without a
vote of security holders.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party in any pending legal proceedings other than
routine litigation that is incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
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The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol: BUCK.
The following table presents the high and low sales prices for the Common
Stock for each quarter of 1995 and 1996.
($ Per Share)
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High Low
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Quarter ended March 31, 1995 4.00 3.25
Quarter ended June 30, 1995 5.12 3.25
Quarter ended September 30, 1995 5.25 4.50
Quarter ended December 31, 1995 6.62 5.00
Quarter ended March 31, 1996 6.62 5.00
Quarter ended June 30, 1996 7.75 5.00
Quarter ended September 30, 1996 6.87 5.62
Quarter ended December 31, 1996 6.87 5.50
The sales price amounts have been supplied by The Nasdaq Stock Market and
do not include retail mark-up, mark-down, or commission and may not represent
actual transactions.
HOLDERS
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As of February 28, 1997, the Company estimates that there were
approximately 1,000 holders of record of its Common Stock.
DIVIDENDS
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The Company has no specific restrictions which prohibit the payment of
dividends to its shareholders. Dividends, if any, would be limited to
unrestricted cash and other assets not otherwise pledged.
The first mortgage loan documents related to the Company's Texas Hotels
contain certain financial covenants regarding the Company's net worth and debt
to equity ratio -- See "Description of Property -- OWNED REAL PROPERTIES - TEXAS
HOTELS." As of December 31, 1996, the Company's adjusted net worth, as defined
in the loan documents, exceeded the minimum (i.e. was favorable) by over $4.3
million. The Company's debt to equity ratio, as defined in the loan documents,
was below the maximum (i.e. was favorable) by 66%.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
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The Company completed its second full year of Country Hearth Inn
franchising, marketing, and conversion activities. At the start of 1995, the
Country Hearth chain had five properties open and operating in three states. As
of February 28, 1997, there were nineteen properties open and operating in nine
states. Further, the Company has more than thirty properties under contract
which, upon closing, would be converted to operate as Country Hearth Inns.
Approximately half of these conversions would occur in 1997.
The Company completed its licensing and registration activities and is
presently authorized to sell Country Hearth Inn franchises in 49 states. The
Company hired full time sales and marketing professionals, developed updated
prototype hotels, developed hotel operations manuals, designed and produced
franchise marketing materials, began significant trade advertising campaigns,
and established a centralized room reservation system. The Company also sought
out suitable acquisition candidates for conversion to Country Hearth Inns.
Future activities of the Company are expected to continue to be focused on the
growth of the Country Hearth system.
Growth of the Country Hearth system in 1995 and 1996 was attributable to
direct acquisition and conversion of existing properties and through franchise
sales activities. In May 1995, the Company acquired majority ownership in a
150-room hotel in Orlando, Florida (the "Orlando Hotel"). Upon acquisition, the
property was immediately converted to operate as a Country Hearth Inn. In
December 1995, the Company acquired three additional hotel properties located in
southeastern Texas (the "Texas Hotels"). These properties, along with three
other existing Texas properties, were also immediately converted to operate as
Country Hearth Inns. The Company has executed development agreements which
provide for further expansion of the chain in Texas and in the Midwest.
In 1996, the Company acquired an 82-room hotel in Atlanta, Georgia (the
"Atlanta Hotel") and a 96-room hotel in Dalton, Georgia (the "Dalton Hotel").
Both of these properties have been fully renovated and refurbished and are
presently operating as Country Hearth Inns. Additionally, the Company executed
nine license agreements for development or conversion of Country Hearth Inns in
seven states.
The primary source of funds for the hotel acquisitions was the use of new
and existing mortgage financing. Renovations and refurbishments are being
financed through lease arrangements, unrestricted cash, and mortgage note
increases. Management believes that property operations will generate adequate
cash flows for the servicing of such debt and that adequate sources are
available for similar future transactions.
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In March 1997, the Company announced that it had entered into two separate
agreements for the acquisition of hotels, hotel management contracts, and a
hotel management business. One agreement provides for the purchase of eight
Hatfield Inns located in Kentucky and Missouri (the "Hatfield Agreement"). The
Hatfield Agreement, if consummated, would require the assumption of
approximately $7 million in debt and the issuance of $3 million of 10%
cumulative preferred convertible stock of the Company. The preferred stock would
be convertible to common stock after seven years at the then market price. The
Company intends to convert the properties to Country Hearth Inns; conversion
costs are not expected to be significant. The operations of the hotels are
expected to service the debt and the preferred stock requirements.
The second agreement is for the acquisition of Lodgekeeper Group, Inc.
("Lodgekeeper"), a closely held concern that manages 24 hotels in Ohio, Indiana,
and Michigan. Lodgekeeper operates 18 hotels under long-term leases, holds
management contracts on five Country Hearth Inns, and owns one independent
hotel, among other assets. The transaction, if consummated, would require the
payment of approximately $850,000 in cash and the issuance of approximately
$850,000 of Company common stock, along with the assumption of approximately $4
million in debt. If the transaction is consummated, the Company would evaluate
each property acquired for possible conversion to a Country Hearth Inn.
Both agreements are subject to significant due diligence and other
contingencies. The authorization to issue preferred shares of the Company is
subject to shareholder approval. Management of the Company provides no
assurances that either transaction will be completed or that, if completed, the
final terms will be the same as described above.
A significant source of unrestricted funds during the last two years has
been the successful resolution of claims against the former Days Inns of
America, Inc. ("Old Buckhead"). Approximately $2.4 million in 1995 and $1
million in 1996 were released to the Company as a result of favorable
settlements of these claims. The remaining liabilities and restricted funds for
these claims now total less than $20,000. Management believes such amounts are
adequate; however, actual settlements could vary significantly from estimated
amounts. Further material amounts to be released to the Company are not
anticipated.
During 1995 and 1996, the Company received aggregate note receivable
principal payments in excess of $5 million. Most of these receipts were used to
reduce the Company's note payable to Trilon International, Inc. ("Trilon").
Additionally, the Company received nearly $1 million of collections on impaired
notes, including a $700,000 deposit from the sale of one note. The sale was
completed in 1997 resulting in an additional $800,000 receipt.
The Company's note payable to Trilon had been secured by notes receivable,
cash, and the Company's interest in the Orlando Hotel and two Days Inns, one in
Daytona, Florida (the "Daytona Hotel") and one in Miami, Florida (the "Miami
Hotel"). The Trilon note was fully paid and satisfied in November 1996 with the
proceeds from the refinancing of the Orlando Hotel.
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The combined result of the above transactions resulted in a decrease in
current maturities of long-term debt from more than $4.1 million as of December
31, 1995 to less than $350,000 as of December 31, 1996. Aggregate maturities of
long-term debt over the next two years totals less than $600,000. Management
believes that the operations of the secured hotels will adequately service their
debt requirements as presently structured.
The Company's financial position was further improved in December 1996
upon the sale of the Miami Hotel. The Company received net cash proceeds of $1.2
million in addition to retiring $5.5 million of long-term debt.
All of the hotel property debt previously described is nonrecourse to the
Company except for debt on the Texas Hotels which is guaranteed by the Company.
Such debt obligation also contains certain requirements as to minimum net worth
and maximum debt to equity ratios. Management does not expect these requirements
to significantly impact future financing options.
The Company has not encountered liquidity shortfalls, the need for short
term financing, or the need to raise additional equity capital. As of December
31, 1996, the Company had approximately $4.5 million of unrestricted cash and
short-term investments. Management believes such amount to be adequate for its
present operational and financing needs.
Approximately $1.6 million of the December 31, 1996 short-term investments
are represented by industrial revenue bonds ("IRB's") secured by a hotel. The
IRB's were called at par and as a result, the Company's shareholders' equity at
December 31, 1996 includes a $455,000 unrealized gain. Such gain was realized in
February 1997 when the IRB's were liquidated.
Not reflected on the Company's balance sheet are potential net deferred
tax assets of approximately $4 million. The benefit of these assets will be
realized if and to the extent the Company sustains continued profitable
operations.
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RESULTS OF OPERATIONS
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The acquisition of the Miami Hotel in September 1994 and the Orlando Hotel
in May 1995 caused hotel revenues to nearly triple in 1995 and contributed to
hotel profit before interest and depreciation of $1.9 million. The inclusion of
the Orlando Hotel and the Texas Hotels for a full year in 1996 along with the
1996 acquisitions of the Atlanta and Dalton Hotels caused hotel revenues to
exceed $9.9 million and hotel profit before interest and depreciation grew to
nearly $2.6 million.
Due to the seasonality of the lodging industry, the Company's fiscal
fourth quarter hotel results are traditionally lower than other periods.
All of the Company's owned hotels reported positive cash flow after debt
service in 1995 and 1996, except for the Dalton Hotel which was undergoing
renovations. Hotel revenues and profit before interest and depreciation in 1997
will be reduced as a result of the sale of the Miami Hotel in December 1996.
However, if the proposed Hatfield and Lodgekeeper transactions are consummated,
such revenues and profits would be significantly increased. Their combined
revenues for 1996 amounted to $14 million. The impact on the Company's 1997
revenues and profits is dependent on the timing of the completion of the
transactions, if completed.
The second largest source of recurring revenues in 1995 and 1996 was
interest income. These revenues decreased in both years, however, as the note
portfolio and funds available for investment decreased. Further decreases in
note receivable interest income are expected in 1997 as a result of the
declining note portfolio. Investment interest income will be dependent on the
amount of funds available for investment which is mostly dependent on the volume
and nature of capital transactions the Company completes.
Franchising activities generated revenues of more than $400,000 in 1995,
the first full year of franchising activity, and more than $550,000 in 1996. The
Company's intention is to dedicate most of its resources (financial and
personnel) to the growth of its Country Hearth Inn franchise system.
Management's goal is to significantly increase franchise fee revenues.
The Company recognized gains on property sales in 1996 of nearly $600,000,
including the gain on the sale of the Miami Hotel of $445,000. The Company
expects it may sell one or two parcels of undeveloped land in 1997; the proceeds
from such sales are presently unknown.
As previously stated, the Company realized gains of $2.4 million in 1995
and an additional $1 million in 1996 from favorable settlements of Old Buckhead
claims. Half of the 1995 amount resulted from the resolution the Glenstone Lodge
claim which was settled in the third quarter of 1995. The remaining reserves for
similar claims are not significant.
14
<PAGE>
Other income also includes $153,000 in 1995 and $831,000 in 1996 from
collections on impaired loans. As previously stated, an additional $800,000 was
collected in 1997.
Franchise operations expenses nearly doubled in 1996 compared with 1995.
Such increases are attributable to personnel additions in the areas of franchise
sales and marketing , and franchise services and administration. Also,
significant expenditures were made in the sales and marketing of Country Hearth
Inn franchise opportunities in addition to consumer marketing. Management
believes these investments will be recouped from future franchise fee revenues.
Interest expense increased in 1995 and 1996 as a result of the mortgage
financing on the acquired hotels. Based on the Company's current debt structure,
interest expense in 1997 will decline primarily as a result of the sale of the
Miami Hotel and the payoff of Trilon. All of the Company's present debt
obligations are fixed rate until December 2000, at which time the rate on the
Texas Hotels debt may change. The proposed acquisitions would significantly
increase interest expense, if consummated. Average borrowing rates related to
the transactions are presently expected to range from 9% to 11%.
Similarly, depreciation and amortization expenses increased in 1995 and
1996 as a result of the hotel acquisitions and will decrease in 1997 due to the
sale of the Miami Hotel. The proposed acquisitions would also significantly
increase depreciation expense.
The Company reported no income tax expense in 1995 or 1996. This is
attributable to differences in the book and tax bases of certain assets and
liabilities. The Company expects its 1996 federal income tax return, which has
not yet been filed, will report a net operating loss carryforward of
approximately $23 million. The benefits from such a carryforward will be
realized if and to the extent the Company sustains continued profitable
operations.
15
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
ANNUAL FINANCIAL STATEMENTS
- ---------------------------
The Company's consolidated financial statements with independent auditors'
report thereon are included on pages 17 through 42 which follow.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
16
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1996 and 1995
With Independent Auditors' Report Thereon
17
<PAGE>
Independent Auditors' Report
The Board of Directors
Buckhead America Corporation:
We have audited the accompanying consolidated balance sheets of Buckhead America
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Buckhead America
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
February 21, 1997, except for
note 13, which is dated as of
March 13, 1997
18
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents, including restricted cash of
$338,882 in 1996 and $2,164,417 in 1995 (note 3) $ 1,801,670 3,172,661
Short-term investments (note 4) 3,026,873 1,691,547
Current portions of notes receivable (note 5) 466,988 2,577,134
Accounts receivable 305,229 270,901
Accrued interest receivable 91,641 145,406
Other current assets 168,994 120,422
------------ ------------
Total current assets 5,861,395 7,978,071
Noncurrent portions of notes receivable (note 5) 465,518 792,455
Property and equipment, at cost, net of accumulated
depreciation (notes 6 and 8) 18,730,897 19,580,248
Long-term investments (note 4) -- 1,191,589
Deferred costs (note 7) 1,650,558 1,473,785
Other assets (note 7) 326,727 --
------------ ------------
$ 27,035,095 31,016,148
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 915,576 948,782
Current portions of notes payable (note 8) 337,567 4,168,912
Estimated allowed amounts of unsettled claims (notes 3 and 9) 18,308 738,352
------------ ------------
Total current liabilities 1,271,451 5,856,046
Noncurrent portions of notes payable (note 8) 12,081,392 13,884,730
------------ ------------
Total liabilities 13,352,843 19,740,776
------------ ------------
Minority interest in partnership 598,118 445,893
Shareholders' equity (notes 8 and 11):
Common stock; $.01 par value; 3,000,000 shares
authorized; 1,817,977 and 1,807,977 shares issued
and 1,771,127 and 1,761,127 shares outstanding
at December 31, 1996 and 1995, respectively 18,180 18,080
Additional paid-in capital 6,288,574 6,254,274
Retained earnings 6,712,073 4,895,229
Unrealized gain on investment securities 455,128 51,717
Treasury stock, 46,850 shares in 1996 and 1995
(notes 6 and 12) (389,821) (389,821)
------------ ------------
Total shareholders' equity 13,084,134 10,829,479
Commitment (note 8)
$ 27,035,095 31,016,148
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996 and 1995
1996 1995
---- ----
Revenues:
Hotel revenues $ 9,979,477 6,719,030
----------- -----------
Interest income:
Notes receivable 256,228 718,413
Investments 786,641 714,040
----------- -----------
Total interest income 1,042,869 1,432,453
----------- -----------
Franchise fee income 554,073 407,184
Gains on property sales (note 6) 586,864 --
Other income (notes 9 and 12) 1,709,522 2,508,113
----------- -----------
Total revenues 13,872,805 11,066,780
----------- -----------
Expenses:
Hotel operations 7,404,412 4,819,475
Franchise operations 1,254,943 660,636
Other operating and administrative (note 12) 934,543 1,067,516
Depreciation and amortization 956,900 678,434
Interest 1,505,163 1,369,405
----------- -----------
Total operating, administrative, and
interest expenses 12,055,961 8,595,466
----------- -----------
Income before income taxes 1,816,844 2,471,314
Provision for income taxes (note 10) -- --
----------- -----------
Net income $ 1,816,844 2,471,314
=========== ===========
Primary and fully diluted net income per common
and common equivalent share $ 1.00 1.41
==== ====
Weighted average number of common and common
equivalent shares used to calculate net income
per share:
Primary 1,814,510 1,751,190
========= =========
Fully diluted 1,815,049 1,755,361
========= =========
See accompanying notes to consolidated financial statements.
20
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Additional gain on Total
Common paid-in Retained investment Treasury shareholders'
stock capital earnings securities stock equity
----- ------- -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 $ 17,664 6,010,537 2,423,915 - (357,993) 8,094,123
Acquisition of 7,073 common
shares (notes 6 and 12) - - - - (31,828) (31,828)
Issue of 41,558 common shares
for acquisition of assets (note 6) 416 243,737 - - - 244,153
Change in unrealized gain on
investment securities - - - 51,717 - 51,717
Net income - - 2,471,314 - - 2,471,314
------ ----------- --------- -------- -------- -----------
Balances at December 31, 1995 18,080 6,254,274 4,895,229 51,717 (389,821) 10,829,479
Issue of 10,000 common shares
pursuant to exercise of option 100 34,300 - - - 34,400
Change in unrealized gain on
investment securities - - - 403,411 - 403,411
Net income - - 1,816,844 - - 1,816,844
------ ----------- --------- -------- -------- -----------
Balances at December 31, 1996 $ 18,180 6,288,574 6,712,073 455,128 (389,821) 13,084,134
====== ========= ========= ======= ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,816,844 2,471,314
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 956,900 678,434
Sales (purchases) of trading securities, net 417,525 (206,477)
Realized gains on trading securities (24,748) (81,019)
Unrealized holding gains on trading securities (163,103) (103,265)
Gains on property sales (586,864) --
Minority interest in partnership profits 174,725 39,420
Interest added to notes receivable -- (80,000)
(Decrease) increase in accounts payable and
accrued expenses (33,206) 226,761
Settlements of allowed claims (720,044) (2,568,240)
Working capital surplus assumed in acquisitions -- 747,798
Other, net (89,135) (102,717)
----------- -----------
Net cash provided by operating activities 1,748,894 1,022,009
----------- -----------
Cash flows from investing activities:
Note receivable principal receipts 2,719,472 2,509,394
Originations of notes receivable (282,389) (730,000)
Cash portion of asset acquisitions (1,163,457) (956,217)
Increase in other assets (326,727) --
Acquisition of trademark rights and franchise licenses (63,942) (120,443)
Investment maturities 90,000 75,000
Proceeds from property sales 1,342,859 --
Capital expenditures (1,681,306) (435,938)
----------- -----------
Net cash provided by investing activities 634,510 341,796
----------- -----------
Cash flows from financing activities:
Repayments of notes payable (4,143,064) (2,772,008)
Distribution to minority interest partners (22,500) (36,002)
Issuance of common shares 34,400 --
Proceeds from property refinancing 376,769 --
----------- -----------
Net cash used in financing activities (3,754,395) (2,808,010)
----------- -----------
Net decrease in cash and cash equivalents (1,370,991) (1,444,205)
Cash and cash equivalents at beginning of period 3,172,661 4,616,866
----------- -----------
Cash and cash equivalents at end of period $ 1,801,670 3,172,661
=========== ===========
Supplemental disclosures of cash flow information -
cash paid for interest, net of interest capitalized
of $110,412 in 1996 $ 1,476,618 1,391,142
=========== ===========
(Continued)
</TABLE>
22
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Supplemental disclosures of noncash investing and financing activities:
In 1996, the Company recorded the following activity related to noncash and
partial cash transactions:
<S> <C>
Acquisition of two hotels through partial cash transactions:
Cash portions $ 1,163,457
Debt issued 3,450,000
-----------
Property and equipment acquired $ 4,613,457
===========
Sale of two hotels through partial cash transactions:
Book value of properties sold $ 6,297,614
Debt retired (5,541,619)
-----------
755,995
Gains on property sales 586,864
-----------
Proceeds from property sales $ 1,342,859
===========
Refinanced debt relating to hotel property:
New debt issued $ 4,600,000
Old debt retired (4,000,000)
-----------
600,000
New debt issuance costs (223,231)
-----------
Proceeds from property refinancing $ 376,769
===========
In 1995, the Company recorded the following activity related to noncash and
partial cash transactions:
Acquisition of hotel through a noncash debt for equity swap:
Costs:
Note receivable forgiven $ 1,799,600
Debt assumed 5,400,000
Minority interest remaining 442,475
-----------
$ 7,642,075
===========
Allocated to:
Working capital acquired $ 747,798
Property and equipment, net 6,523,466
Deferred costs 370,811
-----------
$ 7,642,075
===========
(Continued)
</TABLE>
23
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
<S> <C>
Acquisition of three hotels through a partial cash transaction:
Costs:
Cash $ 956,217
41,558 common shares issued 244,153
Debt issued 2,400,000
-----------
$ 3,600,370
===========
Allocated to:
Property and equipment $ 3,450,000
Deferred costs 150,370
------------
$ 3,600,370
===========
</TABLE>
The Company acquired 3,938 shares of its own common stock during 1995 as
additional contingent consideration in connection with a 1993 sale of a
hotel property.
See accompanying notes to consolidated financial statements.
24
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) The Company
-----------
Buckhead America Corporation and its consolidated subsidiaries (the
Company) were created in December 1992 and effectively commenced
operations on January 1, 1993. The Company also includes a 55% interest
in a partnership acquired in May 1995. All other subsidiaries are
directly or indirectly wholly owned.
The Company operates in the hospitality industry and its principal
holdings include hotels, loans and other investments secured by hotels,
hotel franchising rights, and other related assets. Its principal product
is the Country Hearth Inn mid-priced hotel franchise system which the
Company acquired in May 1994. The primary activity of the Company
involves the expansion of the Country Hearth franchise system. Expansion
of the franchise system has been effected through direct acquisition and
conversion of existing hotels and through franchise sales. The Company is
licensed to sell Country Hearth Inn hotel franchises in 49 states.
Other activities of the Company include loan servicing, hotel management,
and administration of certain trust funds and trust assets (notes 3(a)
and 12). The Company earns fees and other income from these activities.
(2) Summary of Significant Accounting Policies
------------------------------------------
(a) Principles of Consolidation
---------------------------
The accompanying financial statements include the accounts of the
Company and its consolidated wholly owned subsidiaries. They also
include, on a consolidated basis, the accounts of a 55%-owned
partnership which owns a hotel subject to a nonrecourse mortgage. The
accounts of the partnership are consolidated on a gross basis with
the minority partners' balance sheet interest reflected separately on
a net basis. The minority partners' share of partnership income was
$174,725 and $39,420 in 1996 and 1995, respectively, and is included
in hotel operations expense in the accompanying consolidated
statements of income.
(b) Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include demand and savings deposits with
financial institutions, cash on hand, and funds held by trustees for
the benefit of the Company or its creditors. The Company considers
all highly liquid instruments with maturities of less than three
months to be cash equivalents.
(Continued)
25
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(c) Notes Receivable
----------------
Notes receivable are recorded at cost, less the related allowance for
impaired notes receivable. As of January 1, 1995, the Company adopted
the provisions of Statement of Financial Accounting Standard (SFAS)
No. 114, Accounting by Creditors for Impairment of a Loan, as amended
by SFAS No. 118, Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosure. The Company, considering
current information and events regarding the borrowers' ability to
repay their obligations, values its notes receivable, for which it is
probable that the Company will be unable to collect the full amount
due in accordance with the note agreement, at the present value of
the expected future cash flows, market price of the loan, if
available, or the value of the underlying collateral, if any. The
Company does not accrue interest for notes receivable considered to
be impaired under SFAS No. 114. Cash receipts on impaired notes
receivable is either applied against principal or may be reported as
interest income depending on management's judgment as to the
collectibility of principal. The adoption of SFAS No. 114 and SFAS
No. 118 required no increase to the allowance for impaired notes
receivable and had no impact on net income in 1996 or 1995.
(d) Property and Equipment
----------------------
Property and equipment is stated at cost, including interest and
taxes incurred during construction, less accumulated depreciation.
Properties acquired by foreclosure are recorded at the lower of cost
or fair value at the time of foreclosure.
Depreciation is calculated on the straight-line method over the
estimated useful lives of the assets.
(e) Deferred Costs
--------------
Deferred costs primarily consist of costs associated with the
acquisition of trademark rights and franchise licenses and are
amortized over the estimated useful lives of the assets, which range
from 10 - 20 years. Deferred costs also include unamortized debt
issue costs which are amortized on the interest method over the term
of the related debt.
(f) Investments
-----------
The Company classifies its debt and marketable equity securities in
one of three categories: trading, available for sale, or held to
maturity. The Company has classified all its investments as either
"trading" or "available for sale." Available for sale securities are
recorded at fair value with unrealized gains and losses, net of the
related tax effect, reported as a separate component of shareholders'
equity until realized. Trading securities are also recorded at fair
value. Unrealized holding gains and losses on trading securities are
included in interest income on the consolidated statements of income.
(Continued)
26
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(g) Other Assets
------------
Other assets consist of deposits and investments in partnerships or
corporate joint ventures other than those which are consolidated due
to control. Investees in which the Company has the ability to
exercise significant influence are accounted for using the equity
method.
(h) Income Taxes
------------
Income taxes are accounted for under 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 and operating loss and tax credit
carryforwards. 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.
A valuation allowance is recognized when it appears it is more likely
than not that some or all of deferred tax assets will not be
realized.
(i) Treasury Stock
--------------
Treasury stock is stated at cost. In noncash exchanges, fair value
represents cost.
(j) Revenue Recognition
-------------------
Initial hotel franchise fees are recognized as income upon receipt as
the Company has no future obligations associated with the initial
fees. The Company also receives continuing royalty, marketing, and
other fees based upon a percentage of each hotel's gross revenues.
These continuing fees are recognized when earned.
(k) Marketing Costs
---------------
The Company incurs costs for various marketing and advertising
efforts. All costs related to marketing and advertising are expensed
in the period incurred. Marketing costs amounted to $397,555 and
$242,968 for the years ended December 31, 1996 and 1995,
respectively, and are included in franchise operations expense in the
accompanying consolidated statements of income.
(l) Fair Value of Financial Instruments
-----------------------------------
Management believes that the carrying amounts of cash and cash
equivalents, accounts and interest receivable, other current assets,
accounts payable and accrued expenses, estimated allowed amounts of
unsettled claims, current portions of notes receivable and payable
are reasonable approximations of their fair value because of the
short maturity of these instruments.
(Continued)
27
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The fair value of noncurrent portions of notes receivable is
determined as the present value of expected future cash flows
discounted at the interest rate currently offered by the Company,
which approximates rates currently offered by local lending
institutions for loans of similar terms to companies with comparable
credit risk. Based on this valuation methodology, management believes
that the carrying amount of the noncurrent portions of notes
receivable is a reasonable approximation of its fair value.
The fair values of short-term and long-term investments (both trading
and available-for-sale) are based on quoted market prices at the
reporting date for those or similar investments. The fair values of
the Company's short-term and long-term investments are disclosed in
note 4.
The fair value of the Company's noncurrent portions of notes payable
is estimated by discounting the future cash flows of each instrument
at rates currently offered to the Company for similar debt
instruments of comparable maturities by the Company's bankers. Based
on this valuation methodology, management believes that the carrying
amount of the noncurrent portions of notes payable is a reasonable
estimation of its fair value.
(m) Reclassifications
-----------------
Certain reclassifications have been made to the 1995 balances to
conform with classifications adopted in 1996.
(n) Use of Estimates
----------------
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(o) Stock Options
-------------
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB Opinion 25"), and related
interpretations. As such, compensation expense is recorded only to
the extent that the market price of the underlying stock at the date
of grant exceeds the exercise price. In October 1995, SFAS No. 123,
Accounting for Stock-Based Compensation, was issued. SFAS 123 allows
entities to apply the provisions of APB Opinion 25 for recognizing
stock-based compensation expense in the basic financial statements.
However, companies are encouraged to adopt a new accounting method
based on the estimated fair value of stock-based compensation.
Companies that do not follow the new fair value based method are
required to provide expanded disclosures in the footnotes. SFAS 123
is effective for the fiscal year ended December 31, 1996. The Company
has elected to continue to apply the provisions of APB Opinion 25
and, to the extent material, follow the disclosure provisions of SFAS
123.
(Continued)
28
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock options granted represent common stock equivalents for the
purpose of computing net income per share amounts. The Company uses
the treasury stock method for computing common stock equivalents
resulting from grants of stock options. Under the treasury stock
method, outstanding options, whether or not exercisable, are assumed
to have been exercised and the proceeds from such used to acquire
treasury shares at market prices. The average market price during the
period is used for the purpose of computing primary net income per
share. The market price at the end of the period, if higher than the
average, is used for the purpose of computing fully diluted net
income per share.
(p) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
---------------------------------------------------------------------
Of
--
The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on January 1, 1996. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of this statement did not have a material impact on
the Company's financial position, results of operations, or
liquidity.
(Continued)
2
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Cash and Cash Equivalents
Cash and cash equivalents at December 31, 1996 and 1995 included the
following:
1996 1995
---- ----
Unrestricted cash:
Demand deposits, money market funds,
and overnight investments $ 1,244,396 595,069
Hotel demand deposits, savings accounts,
and cash on hand 218,392 413,175
--------- ---------
1,462,788 1,008,244
Restricted cash:
Unsettled claim reserves (a) 18,308 838,641
Trilon collateral (note 8) - 470,000
Orlando IRB reserve (note 8) - 500,000
Miami IRB reserve (note 8) - 339,510
Mortgage-related escrows (b) 320,574 16,266
--------- ---------
338,882 2,164,417
$ 1,801,670 3,172,661
========= =========
(a) The Company acts as a trustee and administers certain aspects
of claims asserted in the bankruptcy of the entity formerly
known as Days Inns of America, Inc. (the Days Bankruptcy). The
residual amounts, if any, in certain of the related reserve
accounts inure to the benefit of the Company. Accordingly,
these accounts, along with the related liabilities, are
reflected in the accompanying consolidated balance sheets. Such
liabilities are reflected as "estimated allowed amounts of
unsettled claims" (note 9).
(b) Mortgage-related escrows are standard reserve accounts held by
or on behalf of the holders of mortgages on certain Company
properties (note 8). Such amounts are restricted to the payment
of insurance, property taxes, and/or property and equipment
replacements and enhancements relating to the mortgaged
properties.
(Continued)
30
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Investments
The amortized cost, gross unrealized gains, gross unrealized holding
losses, and fair value for trading and available for sale securities by
investment type and class of investment at December 31, 1996 and 1995,
were as follows:
<TABLE>
<CAPTION>
1996
------------------------------------------------------
Gross Gross
unrealized unrealized
Amortized holding holding Fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Trading securities:
U.S. government and
agency obligations $ 1,184,742 - - 1,184,742
Equity securities 10,763 268,703 (2,335) 277,131
--------- ------- ----- ----------
1,195,505 268,703 (2,335) 1,461,873
Available for sale securities:
IRBs ($1,565,000 par
value) 1,109,872 455,128 - 1,565,000
--------- ------- ------ ---------
Total $ 2,305,377 723,831 (2,335) 3,026,873
========= ======= ===== =========
1995
-----------------------------------------------------
Gross Gross
unrealized unrealized
Amortized holding holding Fair
cost gains losses value
---- ----- ------ -----
Trading securities:
U.S. government and
agency obligations $ 1,578,949 416 (670) 1,578,695
Equity securities 9,333 105,561 (2,042) 112,852
--------- ------- ------ ---------
Total $ 1,588,282 105,977 (2,712) 1,691,547
========= ======= ===== =========
Available for sale securities:
IRBs ($1,655,000 par
value) $ 1,139,872 51,717 - 1,191,589
DIMT - - - -
--------- --------- ------ ---------
Total $ 1,139,872 51,717 - 1,191,589
========= ========= ====== =========
</TABLE>
At December 31, 1996, all investments are classified as short-term. At
December 31, 1995, all trading securities are classified as short-term
and all available for sale securities are classified as long-term.
The IRBs were secured by a Days Inn hotel located in Birmingham, Alabama
and were called at par on February 1, 1997. Their floating tax-exempt
interest rate averaged 7% during 1996 and 1995.
(Continued)
31
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Equity securities are primarily concentrated in hospitality related
companies.
Proceeds from the sale of investment securities were $3,887,000 and
$4,972,000 in 1996 and 1995, respectively. Net realized gains calculated
on a specific identification basis and included in investment income in
1996 was $24,748 and in 1995 was $81,019.
The Company owned the equity certificates representing the residual
interest in the Days Inns Mortgage Trust (DIMT), a special-purpose CMO
Trust. The Company initially recorded the investment at zero which was
the estimated net realizable value of the certificates. During 1996, the
Company sold an option to purchase the equity certificates to a DIMT
bondholder. As a result of the sale of the option, the Company
reclassified its investment in DIMT from available for sale to trading,
and the option price of $275,000 is included in 1996 investment income.
In February 1997, the option was exercised and the Company sold the DIMT
equity certificates for $100,000. Such amount is included in unrealized
holding gains on trading securities at December 31, 1996.
During 1995, equity securities with net unrealized holding gains
amounting to $103,519 were reclassified from available for sale to
trading; such gains are included in 1995 investment income.
(5) Notes Receivable
----------------
Notes receivable at December 31, 1996 consist of the following:
Other
Secured notes Total
------- ----- -----
Principal balances $ 1,849,254 525,062 2,374,316
Less allowances 1,341,810 100,000 1,441,810
--------- ------- ---------
507,444 425,062 932,506
Less current portions 359,481 107,507 466,988
----------- ------- ------------
Noncurrent portions $ 147,963 317,555 465,518
=========== ======= ============
Number of notes 6 2 8
= = =
Notes receivable at December 31, 1995 consist of the following:
<TABLE>
<CAPTION>
Secured
------------------------- Other
Pledged Unpledged notes Total
------- --------- ----- -----
<S> <C> <C> <C> <C>
Principal balances $ 4,497,410 730,000 522,629 5,750,039
Less allowances 2,048,982 - 331,468 2,380,450
--------- --------- ------- ---------
2,448,428 730,000 191,161 3,369,589
Less current portions 1,780,118 730,000 67,016 2,577,134
--------- ------- ---------- ---------
Noncurrent portions $ 668,310 - 124,145 792,455
============ ========= ======= ============
Number of notes 9 1 2 12
== = = ==
</TABLE>
(Continued)
3
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The secured notes are primarily collateralized by mortgages on hotel
properties and provide for an average effective yield of approximately
9%. The 1995 pledged notes were part of the Trilon note payable
collateral (note 8).
The recorded investment in notes receivable for which an impairment has
been recognized as of December 31, 1996 and 1995 was approximately
$1,290,954 and $2,122,000, respectively, and the Company has fully
reserved for these notes. Cash received in payment of impaired loans
during 1996 and 1995 amounted to $831,468 and $153,681, respectively, and
is included in other income.
The activity in the allowance for doubtful accounts for impaired notes
receivable for the years ended December 31, 1996 and 1995 was:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Allowance for doubtful accounts at beginning of year $ 2,122,422 3,076,103
Additions charged to bad debt expense - -
Write-downs charged against the allowance - (800,000)
Collections on impaired notes (831,468) (153,681)
--------- ---------
Allowance for doubtful accounts at end of year $ 1,290,954 2,122,422
========= =========
</TABLE>
(Continued)
33
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Property and Equipment
----------------------
Property and equipment at December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Hotel properties:
Country Hearth Inn in Atlanta, Georgia:
Land and building $ 3,592,420 -
Furniture, fixtures, and equipment 230,011 -
------------- ------------
3,822,431 -
Accumulated depreciation (18,500) -
------------- ------------
3,803,931 -
------------- ------------
Country Hearth Inn in Dalton, Georgia:
Land and building 1,821,040 -
Furniture, fixtures, and equipment 100,000 -
------------- ------------
1,921,040 -
------------- ------------
Country Hearth Inn hotel in Orlando, Florida:
Land and building 6,909,268 6,778,734
Furniture, fixtures, and equipment 546,419 531,481
------------- -------------
7,455,687 7,310,215
Accumulated depreciation (1,080,268) (840,268)
------------- -------------
6,375,419 6,469,947
Three Country Hearth Inn hotels in southeastern Texas:
Land and buildings 3,033,000 3,033,000
Furniture, fixtures, and equipment 522,793 417,000
------------- -------------
3,555,793 3,450,000
Accumulated depreciation (162,500) (6,500)
------------- -------------
3,393,293 3,443,500
Days Inn hotel in Daytona, Florida:
Land and building 3,025,591 2,976,151
Furniture, fixtures, and equipment 326,729 320,433
------------- -------------
3,352,320 3,296,584
Accumulated depreciation (359,391) (263,391)
------------- -------------
2,992,929 3,033,193
Days Inn hotel in Miami, Florida:
Land and building - 5,355,616
Furniture, fixtures, and equipment - 1,463,915
------------- -------------
- 6,819,531
Accumulated depreciation - (390,000)
------------- -------------
- 6,429,531
Other furniture and equipment, net 28,785 38,577
Land held for sale 215,500 165,500
------------- -------------
Total property and equipment $ 18,730,897 19,580,248
============= =============
</TABLE>
(Continued)
34
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In March 1996, the Company acquired an 82-room hotel in Atlanta, Georgia
formerly known as the Sandy Springs Inn. The $3,060,000 purchase price
was partially funded by a seller-provided $2,330,000 first mortgage loan
(note 8). The remainder was paid in cash. During the latter half of 1996,
the Company spent approximately $700,000 for renovations and
refurbishments and converted the hotel to a Country Hearth Inn. The
operations of the hotel are included in the 1996 consolidated income
statement from the date of acquisition.
In August 1996, the Company acquired a 96-room hotel in Dalton, Georgia
formerly known as the Sunset Inn. The $1,400,000 purchase price was
partially funded by a $1,050,000 first mortgage loan from a local bank
and a seller-provided $70,000 purchase money note (note 8). The remainder
was paid in cash. The Company completed renovations and refurbishments in
February 1997 and converted the hotel to a Country Hearth Inn.
Expenditures for such in 1996 amounted to $444,970. The operations of the
hotel are included in the 1996 consolidated income statement from the
date of acquisition.
In May 1995, the Company acquired majority ownership in a 150-room hotel
in Orlando, Florida formerly known as the Heritage Inn. Prior to the
acquisition, the Company held a second mortgage on the property with an
aggregate principal and interest balance of approximately $2,800,000 (the
Old Second Mortgage). The second mortgage balance was reduced to
$1,000,000 (the New Second Mortgage) in exchange for a fifty-five percent
(55%) interest in Heritage Inn Associates, Ltd., the partnership which
owns the hotel. The hotel was also subject to a first mortgage which
collateralized certain Orange County, Florida industrial development
bonds with an aggregate unpaid balance of $4,400,000 at December 31, 1995
(note 8). The new second mortgage and the industrial development bonds
were fully paid and satisfied in November 1996 with proceeds from a new
$4,600,000 first mortgage loan (note 8) secured by the property.
Immediately upon acquisition, the hotel was converted to operate as a
Country Hearth Inn. The hotel operates as a Country Hearth Inn under a
license agreement with the Company and is also managed by the Company.
The accounts of Heritage Inn Associates, Ltd. are included in the
consolidated balance sheet at December 31, 1996 and 1995, and the results
of its operations are included in the consolidated income statements
since May 1995.
In December 1995, the Company purchased three Homeplace Inn hotel
properties in southeastern Texas from affiliates of American Liberty
Hospitality, Inc. (ALH). The three hotels secure a $2,400,000 first
mortgage loan (note 8). The remainder of the purchase price was paid with
$956,217 cash and 41,558 shares of the Company's common stock. The
operations of the three hotels are included in the accompanying
consolidated statements of income from the date of acquisition.
Immediately upon acquisition, the acquired hotels along with three other
ALH owned Homeplace Inn properties were converted to operate as Country
Hearth Inns under license agreements with the Company. ALH continues to
manage the hotels under agreements which provide for management fees
equal to 4% of gross revenues. The Company and ALH also entered into an
agreement which grants ALH preferential rights to licensing of Country
Hearth Inns in Texas.
The 180-room hotel in Daytona, Florida was acquired through foreclosure
in 1993. The Company's foreclosure was completed subject to a first
mortgage note payable (note 8). The hotel is managed by the Company.
(Continued)
35
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
All of the above described hotel acquisitions were accounted for using
the purchase method. The following table presents, on an unaudited pro
forma basis, the Company's 1996 and 1995 consolidated revenues, net
income, and net income per share that would have been reported if all of
these transactions had occurred at the beginning of the periods
presented. The unaudited pro forma results are not necessarily indicative
of the results which will occur in the future.
For the year ended
------------------
1996 1995
---- ----
Revenues $ 14,688,596 14,928,806
Net income 1,964,128 2,630,757
Net income per share 1.08 1.49
The 150-room hotel in Miami, Florida was acquired through foreclosure in
September 1994. The acquisition of the hotel was subject to an Industrial
revenue bond and a tax note payable (note 8). The hotel was sold in
December 1996 resulting in a gain of $445,761.
In 1996, the Company acquired and sold a hotel in Lake Park, Georgia
resulting in gain of $141,103.
The Company acquired 3,938 shares of its own common stock during 1995 as
additional contingent consideration in connection with a 1993 sale of a
hotel property.
(7) Deferred Costs and Other Assets
-------------------------------
Deferred costs at December 31, 1996 and 1995 consist of the following:
1996 1995
---- ----
Country Hearth Inn franchise system:
Trademark rights $ 584,300 584,300
Franchise licenses 931,117 912,416
Other deferred costs 142,243 97,002
---------- ----------
1,657,660 l,593,718
Accumulated amortization (230,333) (119,933)
---------- ----------
1,427,327 1,473,785
Unamortized debt issue costs 223,231 -
---------- ---------
$ 1,650,558 1,473,785
========= =========
(Continued)
36
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other assets at December 31, 1996 and 1995 consist of the following:
1996 1995
---- ----
Contract deposits $ 35,000 -
Investment in joint venture 291,727 -
------- ---------
$ 326,727 -
======= =========
The investment in joint venture represents a 27% interest in a joint
venture to develop and construct a 93-room County Hearth Inn in Mason,
Ohio. The property is expected to commence operations in May 1997.
(8) Notes Payable
-------------
Notes payable at December 31, 1996 and 1995 consist of the following:
1996 1995
---- ----
Trilon note payable $ - 3,201,871
First mortgage note payable (Daytona) 2,108,868 2,129,228
First mortgage note payable (Texas) 2,355,362 2,400,000
Industrial revenue bond payable (Orlando) - 4,400,000
First mortgage note payable (Orlando) 4,593,580 -
First mortgage note payable (Atlanta) 2,170,713 -
Industrial revenue bond payable (Miami) - 5,123,149
Capital leases (Miami) - 16,894
Tax note payable (Miami) - 513,701
First mortgage note payable (Dalton) 1,046,148 -
Purchase money note payable (Dalton) 70,000 -
Wrapped mortgage note payable 74,288 135,466
Promissory notes payable - 133,333
---------- ----------
12,418,959 18,053,642
Less current portions 337,567 4,168,912
---------- ----------
Noncurrent portions of notes payable $ 12,081,392 13,884,730
========== ==========
The Trilon note payable bore interest at 10% and was secured by
restricted cash, hotel properties, and notes receivable with an aggregate
net book value of approximately $7,000,000 as of December 31, 1995. The
Trilon note payable was fully paid and satisfied in November 1996.
Proceeds from notes receivable and the Orlando refinancing (see below)
were used to retire the debt.
The Daytona first mortgage note payable is secured by the Daytona hotel
property. The note bears interest at 8% and requires monthly payments of
$15,850 until April 15, 1999 at which time the then remaining balance is
due and payable.
(Continued)
37
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Texas first mortgage note payable is secured by the three
southeastern Texas hotel properties. The note bears interest at 9.056%
and requires monthly payments of $21,680 until December 7, 2000 at which
time the interest rate and payment amount may be adjusted. The entire
unpaid balance is due and payable on December 7, 2002.
The partnership which owns the Orlando hotel property was obligated on an
industrial revenue bond (Orlando IRB) with a December 31, 1995 balance of
$4,400,000, which was collateralized by the Orlando hotel property and
certain restricted cash. The Orlando IRB bore interest at a floating
tax-exempt rate and also required the payment of certain credit
enhancement fees. The average effective borrowing rate on the Orlando
IRB, including enhancement during 1995, was approximately 6.5%.
The Orlando IRB was paid off in November 1996 with proceeds from a new
$4,600,000 first mortgage note payable. The new note is secured by the
Orlando hotel property, bears interest at 9.55%, and requires monthly
payments of $43,028 until December 11, 2016 at which time the then
remaining balance is due and payable.
The Atlanta first mortgage note payable is secured by the Atlanta hotel
property, bears interest at 9.5%, and requires monthly payments of
$20,350 until August 11, 2006.
The Company acquired the Miami hotel subject to an industrial revenue
bond (Miami IRB) and a tax note payable. The Miami IRB, which was
collateralized by the Miami hotel property and certain restricted cash,
had a principal due balance of $4,075,000 along with deferred interest
which had accrued on the debt totaling $1,048,149. The Miami IRB bore
interest at 11.315%. The tax note related to delinquent property taxes of
the former owner having an original principal amount of $625,638 bearing
interest at 9%. The Company also assumed ownership of various
miscellaneous capital leases on property at the Miami hotel. All of the
debt relating to the Miami hotel was fully paid and satisfied upon the
sale of the hotel by the Company in December 1996 (note 6).
The Dalton first mortgage note payable is secured by the Dalton hotel
property, bears interest at 9.15%, and requires monthly payments of
$9,549 until September 1, 2001 at which time the then remaining balance
is due and payable.
The purchase money note bears interest at 10% and is due in one lump-sum
payment of principal and interest on August 30, 1997.
The wrapped mortgage note payable represents a note collateralized by a
property on which the Company holds a wrap-around mortgage note
receivable with an aggregate book value of approximately $215,000 and
$347,000 at December 31, 1996 and 1995, respectively. The note bears
interest at 11% and requires monthly payments of $6,088 until February 1,
1998.
The promissory notes payable were incurred by the Company in connection
with the purchase of the Country Hearth Inn trademark and franchise
rights in May 1994. Originally, there were three notes, each with
principal balances of $66,667 bearing interest at 8%. One such note was
paid off in 1995 and the remaining two were paid off in 1996.
(Continued)
3
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The combined aggregate amount of maturities for all notes payable for
each of the next five years and thereafter is as follows:
Minimum
Year ending December 31, amount
------------------------ ------
1997 $ 337,567
1998 242,072
1999 2,290,337
2000 248,148
2001 1,202,092
Thereafter 8,098,743
-------------
$ 12,418,959
=============
Except for the purchase money note and the Texas first mortgage note, all
notes payable are nonrecourse and the Company is not a guarantor or
otherwise contingently liable on any other indebtedness.
The Texas first mortgage note is guaranteed by the Company, contains
certain minimum net worth requirements, and requires the maintenance of
certain debt to equity ratios.
The Orlando first mortgage note requires approximately $200,000 of
capital expenditures in 1997.
(9) Other Income
------------
Other income primarily consists of favorable settlements of Days
Bankruptcy claims and changes in estimates of allowed amounts of
remaining unsettled claims (note 3). Other income in 1995 includes a
$1,200,000 gain resulting from the favorable settlement of a claim
asserted by Glenstone Lodge. Management considers remaining reserves to
be adequate for all future allowed claims.
Other income also includes $831,468 in 1996 and $153,681 in 1995 relating
to collections on impaired loans (note 5).
(Continued)
39
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Income Taxes
------------
The Company recognized no current or deferred, Federal or state, income
tax expense for the years ended December 31, 1996 and 1995. 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:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Computed "expected" tax expense $ 618,000 840,000
Increase (reduction) in income taxes resulting from:
State taxes, net of Federal tax benefit 39,000 (9,000)
Income not subject to taxation (282,000) (915,000)
Change in valuation allowance for deferred
tax assets (375,000) 84,000
------- ----------
$ - -
========= =========
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards
for Federal income tax purposes of approximately $23 million which is
available to offset future taxable income, if any, through 2010.
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 1996
and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Notes receivable allowances $ 490,000 810,000
IRB discount 155,000 175,000
Net operating loss carryforwards 6,595,000 6,535,000
Effect of state income taxes 360,000 400,000
Other, net 26,000 26,000
--------- ---------
Total deferred tax assets 7,626,000 7,946,000
Less valuation allowance 3,511,000 3,886,000
--------- ---------
Net deferred tax assets 4,115,000 4,060,000
Deferred tax liabilities - Partnership losses 4,115,000 4,060,000
--------- ---------
Net deferred taxes $ - -
========= =========
</TABLE>
(Continued)
4
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The valuation allowance for deferred tax assets as of December 31, 1996
and 1995 was $3,511,000 and $3,886,000, respectively. The net change in
the total valuation allowance for the year ended December 31, 1996 was a
decrease of $375,000 and for year ended December 31, 1995 was an increase
of $84,000. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion
or all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income by the Company during the periods in which those
temporary differences become deductible. Management considers the
projected future taxable income and tax planning strategies in
determining the valuation allowance.
(11) Stock Option Plan
-----------------
The Company's 1995 Stock Option Plan (the Option Plan) was adopted on
April 17, 1995 and approved at the Company's Annual Meeting of
Shareholders on May 25, 1995. The Option Plan authorized the issuance of
options for up to 170,000 shares of the Company's common stock. Granted
options vest one-third immediately, one-third on the first anniversary of
the grant date, and one-third on the second anniversary of the grant
date. The exercise price for all options represents the fair value of the
common stock at the grant date. All options terminate five years after
vesting, or earlier under certain conditions.
The following stock option activity during the periods is as follows:
Number Weighted-average
of shares exercise price
--------- --------------
Balance at December 31, 1994 - $ -
Granted 110,000 3.44
------- ----
Balance at December 31, 1995 110,000 3.44
Granted 56,000 5.69
Exercised (10,000) 3.44
------- ----
Balance December 31, 1996 156,000 $ 4.25
======= ====
The pro forma and fair value disclosures required by SFAS 123 are not
provided herein due to their immaterial effect resulting from the
immaterial options granted and outstanding.
(12) Related Party Transactions
--------------------------
Following the Days Bankruptcy, a trust was created (the Creditors' Trust)
to pursue certain claims for the benefit of unsecured creditors. The
Company acts as trustee for the Creditors' Trust. The Company was
reimbursed $100,000 and $60,000 in 1996 and 1995, respectively, for
expenses incurred related to the Creditors' Trust. Other operating and
administrative expenses in the accompanying 1996 and 1995 consolidated
statements of income are presented net of such amounts, respectively.
(Continued)
41
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The three outside directors of the Company received consulting fees of
$20,000 each in 1995 for services provided to the Creditors' Trust.
Similarly, the Company's president and chief executive officer received
$30,000.
The Company performed accounting and tax services for DIMT. Other income
in 1996 and 1995 includes $31,025 and $75,200, respectively, for the
performance of such services. A portion of the 1995 amount was paid with
3,135 shares of the Company's common stock.
The Chairman of the Company's board of directors was a partner in the law
firm of Berlack, Israels, & Liberman (Berlack) during a portion of 1995.
Berlack has provided legal services to the Company and the Creditors'
Trust. Fees and expenses incurred by the Company and the Creditors' Trust
to Berlack are as follows:
1996 1995
---- ----
Incurred by the Company $ - 97,191
========= =======
Incurred by the Creditors' Trust $ 1,280,640 476,227
========= =======
During 1995, the Company's chairman affiliated with the law firm of
Rosenman & Colin. The Creditors' Trust paid such law firm $82,203 for
services and expenses incurred in 1995.
(13) Subsequent Events
-----------------
On March 12, 1997, the Company entered into an agreement to acquire
Hatfield Inns LLC, a closely held owner and operator of eight hotels in
Kentucky and Missouri. The transaction, if consummated, would include the
assumption of approximately $7,000,000 in debt and the issuance of
$3,000,000 in convertible preferred shares of Company stock. The Company
intends to convert the hotels to Country Hearth Inns.
On March 13, 1997, the Company entered into an agreement to acquire
Lodgekeeper Group, Inc., a closely held concern that manages 24 hotels in
Ohio, Indiana, and Michigan. Lodgekeeper operates 18 hotels under
long-term leases, holds management contracts on five Country Hearth Inns,
and owns one independent hotel, among other assets. The transaction, if
consummated, would require the payment of approximately $850,000 in cash
and approximately $850,000 in Company common stock along with the
assumption of approximately $4,000,000 in debt. If the transaction is
consummated, the Company would evaluate each property acquired for
possible conversion to a Country Hearth Inn.
Both agreements are subject to significant due diligence and other
contingencies. The authorization to issue preferred shares of the Company
is subject to shareholder approval.
42
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------
The directors and executive officers of the Company are as follows:
Year Joined
Name Age Position The Company
- ---- --- -------- -----------
Robert M. Miller 45 Chairman of the Board of Directors 1992
Douglas C. Collins 44 Director 1992
President, Chief Executive
Officer and Treasurer
William K. Stern 70 Director 1992
Leon M. Wagner 44 Director 1994
Robert B. Lee 42 Senior Vice President, Chief 1992
Financial Officer and Secretary
Gregory C. Plank 51 President - BAC Franchising, Inc. 1996
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 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.
43
<PAGE>
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.
LEON M. WAGNER. Mr. Wagner, a director of the Company, is Managing
Director of CIBC Wood Gundy Securities Corp., a registered broker-dealer. Prior
to joining CIBC in 1995, Mr. Wagner was the Vice Chairman of Argosy Securities
Group ("Argosy"). Argosy was an investment firm and a registered broker-dealer.
Mr. Wagner became a director of the Company on June 27, 1994. Prior to joining
Argosy, Mr. Wagner was a partner in Dabney/Resnick and Wagner, a Los Angeles
based firm specializing in high yield securities. Between 1986 and 1990 Mr.
Wagner was a Senior Vice President in the High Yield and Convertible Bond
Department at Drexel Burnham Lambert where he participated in the structuring,
issuance and trading of many debt and equity securities.
ROBERT B. LEE. 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 from December
1979 to October 1990.
GREGORY C. PLANK. Mr. Plank became President of BAC Franchising, Inc., the
Company's Country Hearth Inn franchising subsidiary, in May 1996. From 1991 to
1996, Mr. Plank served as Executive Vice President of Forte Hotels, Inc.
overseeing Travelodge and Thriftlodge in North and South America. Mr. Plank
previously served as Vice President of Marketing for Ramada and has held Vice
President positions in development and operations for Sheraton Inns, Hawthorn
Suites, and independent developers.
The members of the Company's Board of Directors are elected annually to
serve one year terms. The holders of Common Stock will elect a new Board of
Directors at the next annual meeting, which is scheduled to occur on or about
Wednesday, May 28, 1997.
44
<PAGE>
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
- ----------------------------------------
None
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- -------------------------------------------------------
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.
45
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
- --------------------------
The following table sets forth the compensation paid by the Company to the
named executive officers for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Annual Compensation Securities All Other
Name and Salary Bonus Underlying Compensa-
Principal Position Year ($) ($) Options (#) tion ($)
- ------------------ -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Douglas C. Collins 1996 $235,000 72,000 7,000 (b) $4,750(c)
Chief Executive Officer 1995 210,000 82,500 30,000 (b) 4,620(c)
1994 200,000 30,000 4,620(c)
Robert B. Lee 1996 98,600 22,292 4,000 (b) 3,022(c)
Chief Financial Officer 1995 88,800 17,760 10,000 (b) 2,664(c)
1994 84,500 10,000 2,362(c)
Gregory C. Plank 1996 (a) 81,000 24,111 15,000 (b) 35,312(d)
President - Franchising
</TABLE>
(a) Mr. Plank's employment with the Company began on May 20, 1996.
(b) See "OPTION GRANTS TABLE."
(c) Employer's portion of 401(k) contribution.
(d) Relocation allowance.
46
<PAGE>
OPTION GRANTS TABLE
- -------------------
The following table sets forth the number of shares of Common Stock
underlying options granted to the named executive officers during the year ended
December 31, 1996.
<TABLE>
<CAPTION>
Number of Percent of
Shares of Total
Common Stock Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted (#) in Fiscal 1996 ($/Share) Date (e)
- ---- ----------- -------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Douglas C. Collins 2,333 5.83% $ 5.38 (d) April 26, 2001
2,333 5.83% $ 5.38 (d) April 26, 2002
2,334 5.84% $ 5.38 (d) April 26, 2003
Robert B. Lee 1,333 3.33% $ 5.38 (d) April 26, 2001
1,333 3.33% $ 5.38 (d) April 26, 2002
1,334 3.34% $ 5.38 (d) April 26, 2003
Gregory C. Plank 5,000 12.50% $ 6.25 (d) October 20, 2001
5,000 12.50% $ 6.25 (d) October 20, 2002
5,000 12.50% $ 6.25 (d) October 20, 2003
</TABLE>
(d) The exercise price was fixed as the market price at the date of grant.
(e) The options expire five years after the date they become vested.
47
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
- ------------------------------------------------------------------
The following table sets forth the number and fiscal year-end value of
unexercised options granted to the named executive officers as of December 31,
1996.
Number of
Shares of
Common Stock Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End(#) FY-End($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
---- ------------- -------------
Douglas C. Collins 22,333/ $52,646/
14,667 28,494
Robert B. Lee 7,999/ $17,891/
6001 10,189
Gregory C. Plank 5,000/ -
10,000 -
No options were exercised by the named executive officers during 1996.
COMPENSATION OF DIRECTORS
- -------------------------
Mr. Miller, the chairman of the board of directors of the Company,
receives annual fees of $62,000 and $750 per attendance at board of directors
meetings.
Each of the Company's other outside directors, Mr. Stern and Mr. Wagner,
receive an annual fee of $12,000 and $750 per attendance at board of directors
meetings.
Stern Services International, a company owned by Mr. Stern, received
$2,000 in 1996 for consulting services performed for the Company.
48
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
- --------------------------------------------------------------------------------
ARRANGEMENTS
- ------------
DOUGLAS C. COLLINS. The Company has entered into an employment contract
with Mr. Collins for a term which expires in July 1999. 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), Mr. Collins 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, Mr. Collins would be
entitled to a payment of $587,500.
If Mr. Collins terminates his contract (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, Mr. Collins would be entitled to a payment of
$117,500.
If Mr. Collins' employment is otherwise terminated without cause before
the expiration of his employment term, the Company must pay him 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, Mr. Collins would be entitled to a payment
of $235,000.
ROBERT B. LEE. The Company has entered into an employment contract with
Mr. Lee for a term which expires in July 1999. 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), Mr. Lee 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, Mr. Lee would be entitled to a payment of
$262,500.
If Mr. Lee terminates his contract (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, Mr. Lee would be entitled to a payment of $52,500.
If Mr. Lee's employment is otherwise terminated without cause before the
expiration of his employment term, the Company must pay him 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, Mr. Lee would be entitled to a payment of
$105,000.
49
<PAGE>
GREGORY C. PLANK. The Company has entered into an employment contract
with Mr. Plank for a term which expires in April 1999. 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), Mr. 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, Mr. Plank would be
entitled to a payment of $427,200.
If Mr. Plank terminates his contract (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, Mr. Plank would be entitled to a payment of
$80,000.
If Mr. Plank's employment is otherwise terminated without cause before
the expiration of his employment term, the Company must pay him 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, Mr. Plank would be entitled to a payment
of $160,000.
50
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- -----------------------------------------------
The following table sets forth information as of February 28, 1997 with
respect to the beneficial ownership of shares of the Common Stock held by
beneficial owners of more than 5% of the Common Stock. The information set forth
below is based upon the Company's stock records and information obtained by the
Company from the persons named below. Unless otherwise indicated, each person
has sole voting and investment power with respect to such shares.
Name and Address Amount and Nature of Percent
of Beneficial Ownership Beneficial Ownership of Class
----------------------- -------------------- --------
NY Motel Enterprises 103,700 - Direct 5.86%
440 West 57th Street
New York, NY 10019
Leon M. & Marsha C. Wagner 116,025 - (a) 6.47%
1325 Avenue of the Americas
22nd Floor
New York, NY 10019
Heartland Advisors, Inc. 183,000 - Investment 10.33%
790 North Milwaukee Street Advisor
Milwaukee, WI 53202
Hotel-Motel Management Corporation 210,200 - Direct 11.87%
3485 N. Desert Drive - Suite 106
Building 2
East Point, GA 30344
Tower Investment Group, Inc. 264,531 - Investment 14.94%
Suite 270 Advisor
777 South Harbour Island Boulevard
Tampa, FL 33602
(a) Mr. Wagner holds 13,299 shares directly and Ms. Wagner, his spouse, holds
12,082 shares directly. They share investment and voting power with respect to
67,311 shares. Mr. Wagner also has the right to acquire an additional 23,333
shares within the next 60 days pursuant to an option agreement.
51
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
- --------------------------------
The following table sets forth, as of February 28, 1997, all beneficial
holdings of outstanding Common Stock by the directors and the named executive
officers of the Company and all directors and executive officers as a group. The
information set forth below is based upon the Company's stock records and
information obtained by the Company from the persons named below. Unless
otherwise indicated, each person has sole voting and investment power with
respect to such shares.
Name of Amount and Nature of Percent
Beneficial Holder Beneficial Ownership of Class
----------------- -------------------- --------
Robert M. Miller 45,255 - (a) 2.39 %
Douglas C. Collins 53,274 - (b) 2.81 %
William K. Stern 33,333 - (c) 1.76 %
Leon M. Wagner 103,943 - (d) 5.49 %
Robert B. Lee 26,474 - (e) 1.40 %
Gregory C. Plank 7,000 - (f) 0.4 %
Directors and Officers 262,771 - (a-f) 13.87 %
as a group (6 persons)
(a) Mr. Miller holds 21,255 shares directly and has the right to acquire
24,000 additional shares within the next 60 days pursuant to an option
agreement.
(b) Mr. Collins holds 12,100 shares directly and holds 6,508 shares
indirectly through DC Hospitality, Inc., which is 85% owned by Mr. Collins and
15% owned by Mr. Lee. Mr. Collins also has the right to acquire an additional
34,666 shares within the next 60 days pursuant to an option agreement
(c) Mr. Stern holds 10,000 shares directly and has the right to acquire
23,333 additional shares within the next 60 days pursuant to an option
agreement.
(d) Mr. Wagner holds 13,299 shares directly and shares voting and
investment power of 67,311 shares held jointly with his spouse. Mr. Wagner also
has the right to acquire an additional 23,333 shares within the next 60 days
pursuant to an option agreement. (Excludes 12,082 shares held by his spouse, as
to which Mr. Wagner disclaims beneficial ownership.)
(e) Mr. Lee holds 7,300 shares directly and holds 6,508 shares indirectly
through DC Hospitality, Inc., which is 15% owned by Mr. Lee and 85% owned by Mr.
Collins. Mr. Lee also has the right to acquire an additional 12,666 shares
within the next 60 days pursuant to an option agreement.
(f) Mr. Plank holds 2,000 shares directly and has the right to acquire
5,000 additional shares within the next 60 days pursuant to an option agreement.
The address of each director and executive officer is in care of the
Company, Suite 200, 4243 Dunwoody Club Drive, Atlanta, Georgia 30350.
52
<PAGE>
CHANGES IN CONTROL
- ------------------
To the best of the Company's knowledge, there are no arrangements which
may result in a change of control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 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 Old Buckhead 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 affiliated with the law firm of Rosenman & Colin.
Buckhead Creditors' Trust paid such law firm $82,203 for services and expenses
incurred in 1995.
53
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) INDEX TO EXHIBITS
-----------------
Exhibit Description Page
------- ----------- ----
2(a) Closing Agreement dated May 15, 1995 between ***
Heritage Inn Associates, Ltd. and
BLM EB, Inc.
2(b) Agreement for Purchase and Sale of Hotel between ****
Buckhead and ALH Properties No. One, Inc.
2(c) Agreement for Purchase and Sale of Hotel between ****
Buckhead and ALH Properties No. Two, Inc.
3(i) Articles of Incorporation *
3(i)(a) Certificate of Amendment of Certificate of Incorporation **
3(ii) By-Laws - Amended and Restated as of June 27, 1994 **
4(ii) Mortgage Note Payable dated as of November 7. 1996 58
made by Heritage Inn Associates, LP as maker,
to Bloomfield Acceptance Company, LLC
10(ii)(a) Employment Agreement dated as of June 30, 1993 *
between the Company and Douglas C. Collins
10(ii)(b) Amendment to Douglas C. Collins Employment Agreement #
10(ii)(c) Employment Agreement dated as of June 30, 1993 #
between the Company and Robert B. Lee
10(ii)(d) Amendment to Robert B. Lee Employment Agreement #
10(ii)(e) Employment Agreement dated as of April 29, 1996 65
between the Company and Gregory C. Plank
10(ii)(f) 1995 Stock Option Plan *****
21 Subsidiaries of the Company 75
23 Accountants' Consent 76
27 Financial Data Schedule (Electronic filing only)
54
<PAGE>
* Previously filed as an Exhibit to the Registrant's Registration
Statement on Form 10-SB which became effective on November 22,
1993 and incorporated herein by reference.
** Previously filed as the same Exhibit number to the Registrant's
December 31, 1994 Form 10-KSB and incorporated herein by
reference.
*** Previously filed as an Exhibit to the Registrant's May 15, 1995
Form 8-K and incorporated herein by reference.
**** Previously filed as an Exhibit to the Registrant's December 7,
1995 Form 8-K and incorporated herein by reference.
***** Previously filed as Appendix A to the Registrant's Definitive
Proxy Statement dated April 25, 1995 and incorporated herein by
reference.
# Previously filed as an Exhibit to the Registrant's December 31,
1995 Form 10-KSB and incorporated herein by reference.
55
<PAGE>
(b) REPORTS ON FORM 8-K.
--------------------
The Company has not filed any reports on Form 8-K during the last quarter of
the period covered by this report.
56
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
(Registrant) BUCKHEAD AMERICA CORPORATION
----------------------------
By: (Signature and Title):
/s/ Douglas C. Collins By: /s/ Robert B. Lee
---------------------------- ------------------------------
Douglas C. Collins Robert B. Lee
President & Senior Vice President & Chief
Chief Executive Officer Financial & Accounting Officer
Date: March 31 , 1997 Date: March 31 , 1997
---- ----
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: (Signature and Title) Date
/s/ Douglas C. Collins March 31 , 1997
- --------------------------- ------
Douglas C. Collins
Director
/s/ Robert M. Miller March 31 , 1997
- --------------------------- ------
Robert M. Miller
Director
/s/ William K. Stern March 31 , 1997
- --------------------------- -------
William K. Stern
Director
/s/ Leon M. Wagner March 31 , 1997
- --------------------------- -------
Leon M. Wagner
Director
57
Exhibit 4(ii) to Buckhead America Corporation
December 31, 1996 Form 10-KSB
MORTGAGE NOTE
Loan No. 04-05-FL-0001
$4,600,000 November 7, 1996
FOR VALUE RECEIVED, HERITAGE INN ASSOCIATES. LP., a Georgia limited
partnership, having its principal place of business at 4243 Dunwoody Club Drive,
Suite 200, Atlanta, Georgia 30350 (hereinafter referred to as "Maker"), promises
to pay to the order of BLOOMFIELD ACCEPTANCE COMPANY, LLC., a Michigan limited
liability company, at its principal place of business at Suite 350, 260 East
Brown Street, Birmingham, Michigan 48009-6229 (hereinafter referred to as
"Payee"), or at such place as the holder hereof may from time to time designate
in writing, the principal sum of Four Million Six Hundred Thousand Dollars
($4,600,000), in lawful money of the United States of America, with interest
thereon to be computed on the unpaid principal balance from time to time
outstanding at the Applicable Interest Rate (as hereinafter defined), and to be
paid in installments as follows:
A. A payment of interest only upon the execution of this Note,
representing the interest that will accrue hereunder through
November 10,1996;
B. A constant payment of $43,028.34. (such amount hereinafter the
"Monthly Debt Service Payment Amount"), on the eleventh day of
December, 1996, and on the eleventh day of each calendar month
thereafter up to and Including the eleventh day of November,
2016, each of such payments to be applied (a) to the payment
of interest computed at the Initial Interest Rate (as
hereinafter defined); and (b) the balance applied toward the
reduction of the principal sum; and
C. The balance of said principal sum, together with all accrued
and unpaid interest thereon and any other amounts due under
this Note shall be due and payable on the eleventh day of
December, 2016 (the" Maturity Date").
Interest on the principal sum of this Note shall be calculated on the basis of
the actual number of days elapsed in a three-hundred-sixty (360) day year. The
constant payment required hereunder is based upon an amortization schedule of
twenty (20) years. All amounts due under this Note shall be payable without
setoff, counterclaim or any other deduction whatsoever.
1. The term 'Applicable Interest Rate" as used in this Note shall mean
from (a) the date of this Note through but not including the Optional Prepayment
Date (as hereinafter defined), a rate of Nine and Fifty Five Hundredths percent
(9.55%) per annum (the "Initial Interest Rate') and (b) from and after the
Optional Prepayment Date through and including the date this Note is paid in
full, a rate per annum equal to the greater of (I) the Initial Interest Rate
plus five (5) percentage points or (ii) the Treasury Rate (as hereinafter
defined) plus five (5) percentage points (the "Revised Interest Rate"). For
purposes of this Note, (A) the term "Optional Prepayment Date" shall mean,
December 11, 2011 and (B) the term 'Treasury Rate" shall mean, as of the
Optional Prepayment Date, the yield, calculated by linear interpolation (rounded
to the nearest one thousandth of one percent [i.e., 0.001%]) of the yields of
noncallable United States Treasury obligations with terms (one longer and one
shorter) most nearly approximating the period from the Optional Prepayment Date
to the Maturity Date, as determined by Payee on the basis of Federal Reserve
Statistical Release H.15-Selected Interest Rates under the heading U.S.
Governmental Security/Treasury Constant Maturities, or other recognized source
of financial market information selected by Payee.
2. This Note is evidence of that certain loan made by Payee to Maker
contemporaneously herewith (the "Loan"). This Note is secured by (a) a Mortgage,
Assignment of Leases and Rents and Security Agreement of even date herewith in
the amount of this Note, given by Maker for the use and benefit of Payee and
covering the fee estate of Maker in certain premises as more particularly
described therein (the "Mortgage"), (b) an Assignment of Leases and Rents of
58
<PAGE>
even date herewith executed by 58 Maker in favor of Payee (the "Assignment of
Leases'), and (a) the other Loan Documents (as hereinafter defined). The term
"Loan Documents"' as used in this Note relates collectively to this Note, the
Mortgage, the Assignment of Leases, and any and all other documents securing,
evidencing or guaranteeing all or any portion of the Loan or otherwise executed
and/or delivered in connection with this Note and the Loan.
3. If any sum payable under this Note is not paid on the date on which
it is due. Maker shall pay to Payee upon demand an amount equal to the lesser of
five percent (5%) of such unpaid sum or the maximum amount permitted by
applicable law in order to defray a portion of the expenses incurred by Payee in
handling and processing such delinquent payment and to compensate Payee for the
loss of the use of such delinquent payment. if the day when any payment required
under this Note is due is not a Business Day (as hereinafter defined), then
payment shall be due on the first Business Day immediately prior to that
required payment date. The term "Business Day" shall mean a day other than (i) a
Saturday or Sunday. or (ii) any day on which banking and savings and loan
institutions in New York are authorized or obligated by law or executive order
to be closed.
4 The whole of the principal sum of this Note, together with all
interest accrued and unpaid thereon and all other sums due under the Loan
Documents (all such sums hereinafter collectively referred to as the "Debt"), or
any portion thereof, shall without notice become immediately due and payable at
the option of Payee (i) if any payment required in this Note is not paid on the
date on which it is due; or (ii) upon the happening of any other Event of
Default (as defined in the Mortgage). In the event that it should become
necessary to employ counsel to collect or enforce the Debt or to protect or
foreclose the security therefor, Maker also shall pay on demand all costs of
collection incurred by Payee, including attorneys' fees and costs reasonably
incurred for the services of counsel whether or not suit be brought.
5 Maker does hereby agree that upon the occurrence of an Event of
Default (including upon the failure of Maker to pay the Debt in full on the
Maturity Date), Payee shall be entitled to receive and Maker shall pay interest
on the entire unpaid principal sum and any other amounts due at a rate (the
"Default Rate") equal to the lesser of (a)the maximum rate permitted by
applicable law, or (b) five percent (5%) above the Applicable Interest Rate The
Default Rate shall be computed from the occurrence of the Event of Default until
the actual receipt and collection of the Debt (or that portion thereof that is
then due). This charge shall be added to the Debt and shall be secured by the
Mortgage. This paragraph, however, shall not be construed as an agreement or
privilege to extend the date of the payment of the Debt, nor as a waiver of any
other right or remedy accruing to Payee by reason of the occurrence of any Event
of Default.
6. This Note may not be prepaid prior to the Optional Prepayment Date;
provided, however, Maker shall have the right and option to release the
Mortgaged Property (as defined in the Mortgage) from the lien of the Mortgage in
accordance with the terms and provisions set forth in Paragraph 56 of the
Mortgage (the "Defeasance Option"). Notwithstanding the foregoing sentence,
Maker shall have the privilege to prepay the entire principal balance of this
Note and any other amounts outstanding on any scheduled payment date during the
three (3) months preceding the Optional Prepayment Date without payment of the
Yield Maintenance Premium (as defined in the Mortgage) or any other premium or
penalty. In addition, on the Optional Prepayment Date or on any scheduled
payment date thereafter, the Maker may, at its option and upon thirty (30) days
prior written notice from Maker to Payee, prepay in whole or in part the
outstanding principal balance of this Note and any other amounts outstanding
without payment of the Yield Maintenance Premium or any other premium or
penalty. If prior to the Optional Prepayment Date and following the occurrence
of any Event of Default, Maker shall tender payment of an amount sufficient to
satisfy the Debt at any time prior to a sale of the Mortgaged Property, either
through foreclosure or the exercise of the other remedies available to Payee
under the Mortgage, such tender by Maker shall be deemed to be voluntary and
Maker shall pay, in addition to the Debt, the Yield Maintenance Premium, it any,
that would be required under the Defeasance Option.
59
<PAGE>
7 (a) From and after the date that the Cash Management Agreement (as
defined in the Mortgage) is executed pursuant to Paragraph 57 of the Mortgage
until the Optional Prepayment Date, Maker shall cause all Rents (as defined in
the Mortgage) and other sums collected from, or arising with respect to, the
Mortgaged Property to be deposited in the deposit account (the "Deposit Account)
established pursuant to the Cash Management Agreement. The Cash Management
Agreement shall require the deposit bank to wire all amounts that it receives in
the Deposit Account to the Maker on a weekly basis, provided, however, that on
the sixth (6th) day of each month (or if such 6th day is not a Business Day, the
first Business Day preceding such day) the deposit bank shall wire the amount
collected in the Deposit Account to the Maker.
(b) For each calendar year commencing on December 11, 2010, and for
each calendar year thereafter, the Maker shall submit to the Payee for the
Payee's written approval an annual budget (an "Annual Budget") not later than
sixty (60) days prior to the commencement of such calendar year, in form
satisfactory to Payee setting forth in reasonable detail budgeted monthly
operating income and monthly operating capital and other expenses for the
Mortgaged Property. Each Annual Budget shall contain, among other things.
limitations on management fees, third party service fees, and other expenses as
the Payee may reasonably determine. Payee shall have the right to approve such
Annual Budget and in the event that Payee objects to the proposed Annual Budget
submitted by Maker, Payee shall advise Maker of such objections within fifteen
(15) days after receipt thereof (and deliver to Maker a reasonably detailed
description of such objections) and Maker shall within three (3) days after
receipt of notice of any such objections revise such Annual Budget and resubmit
the same to Payee. Payee shall advise Maker of any objections to such revised
Annual Budget within ten (10) days after receipt thereof (and deliver to Maker a
reasonably detailed description of such objections) and Maker shall promptly
revise the same in accordance with the process described in this subparagraph
until the Payee approves an Annual Budget. provided, however, that if Payee
shall not advise Maker of its objections to any proposed Annual Budget within
the applicable time period set forth in this paragraph, then such proposed
Annual Budget shall be deemed approved by Payee. Each such Annual Budget
approved by Payee in accordance with terms hereof shall hereinafter be referred
to as an "Approved Annual Budget" Until such time that Payee approves a proposed
Annual Budget, the most recently Approved Annual Budget shall apply; provided
that, such Approved Annual Budget shall be adjusted to reflect actual increases
in real estate taxes, insurance premiums and utilities expenses.
8. In the event that the Maker does not prepay the entire principal
balance of this Note and any other amounts outstanding on or before the Optional
Prepayment Date, the provisions of subparagraph 7(b) as set forth above shall
remain in full force and effect, and the following subparagraphs also shall
apply:
(a) From and after the Optional Prepayment Date, interest shall accrue
on the unpaid principal balance from time to time outstanding on this Note at
the Revised Interest Rate. Interest accrued at the Revised Interest Rate and not
paid pursuant to the preceding sentence shall be deferred and added to the Debt
and shall earn interest at the Revised Interest Rate to the extent permitted by
applicable law (such accrued interest is hereafter defined as "Accrued
Interest"). All of the Debt, including any Accrued Interest. shall be due and
payable on the Maturity Date.
(b) Maker shall pay on the Optional Prepayment Date and the eleventh day
of each calendar month thereafter up to and including the Maturity Date the
following payments from Rents in the listed order of priority:
(i) First, payments to the Tax and Insurance Escrow Fund (as defined in
the Mortgage) in accordance with the terms and conditions of the
Mortgage;
(ii) Second, a payment of the Monthly Debt Service Payment Amount to be
applied first to the payment of interest computed at the Initial
Interest Rate with the remainder applied to the reduction of the
outstanding principal balance of the Note;
60
<PAGE>
(iii) Third, payments to the Replacement Escrow Fund (as defined in the
Mortgage) in accordance with the terms and conditions of the
Mortgage;
(iv) Fourth, payments for monthly Cash Expenses (as hereinafter defined).
less management fees payable to affiliates of Maker, pursuant to the
terms and conditions of the related Approved Annual Budget;
(v) Fifth, payment for Extraordinary Expenses (as hereinafter defined)
approved by Payee, if any;
(vi) Sixth. payments to the Payee to be applied against the outstanding
principal due under this Note until such principal amount is paid in
full;
(vii) Seventh, payments to the Payee for Accrued interest;
(viii)Eighth, payments to the Payee of any other amounts due under the
Loan Documents; and
(ix) Lastly, payment to the Maker of any excess amounts.
(c) Nothing in this paragraph 8 shall limit, reduce or otherwise affect
Maker's obligations to make payments of the Monthly Debt Service Payment Amount,
payments to the Tax and Insurance Escrow Fund, the Replacement Escrow Fund, and
payments of other amounts due hereunder and under the other Loan Documents,
whether or not Rents are available to make such payments.
(d) In the event that the Maker must incur an extraordinary operating
expense or capital expense not set forth in the Annual Budget or allotted for in
the Replacement Escrow Fund (each an "Extraordinary Expense"), then the Maker
shall promptly deliver to Payee a reasonably detailed explanation of such
proposed Extraordinary Expense for the Payee's approval.
(e) For the purposes of this Note, "Cash Expenses" shall mean. for any
period, the operating expenses for the Operation and maintenance of the
Mortgaged Property as set forth in an Approved Annual Budget to the extent that
such expenses are actually incurred by Maker minus payments into the Tax and
Insurance Escrow Fund, and the Replacement Escrow Fund.
9. It is expressly stipulated and agreed to be the intent of Maker and
Payee at all times to comply with applicable state law or applicable United
States federal law (to the extent that it permits Payee to contract for, charge,
take, reserve, or receive a greater amount of interest than under state law) and
that this paragraph shall control every other covenant and agreement In this
Note and the other Loan Documents If the applicable law (state or federal) is
ever judicially interpreted so as to render usurious any amount called for under
this Note or under any of the other Loan Documents, or contracted for, charged,
taken, reserved, or received with respect to the Debt, or if Payee's exercise of
the option to accelerate the Maturity Date, or if any prepayment or exercise of
any Defeasance Option by Maker results in Maker having paid any interest in
excess of that permitted by applicable law, then it is Payee's express intent
that all excess amounts theretofore collected by Payee shall be credited on the
principal balance of this Note and all other Debt and the provisions of this
Note and the other Loan Documents immediately be deemed reformed and the amounts
thereafter collectible hereunder and thereunder reduced, without the necessity
of the execution of any new documents, so as to comply with the applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
hereunder or thereunder. All sums paid or agreed to be paid to Payee for the
use, forbearance, or detention of the Debt shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Debt until payment in full so that the note or amount of
interest on account of the Debt does not exceed the maximum lawful rate from
time to time in effect and applicable to the Debt for so long as the Debt is
outstanding. Notwithstanding anything to the contrary contained herein or in any
of the other Loan Documents, it is not the intention of Payee to accelerate the
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maturity of any interest that has not accrued at the time of such acceleration
or to collect unearned interest at the time of such acceleration.
10. This Note may not be modified, amended, waived, extended, changed.
discharged or terminated orally or by any act or failure to act on the part of
Maker or Payee, but only by an agreement in writing signed by the party against
whom enforcement of any modification, amendment, waiver, extension, change.
discharge or termination is sought. Whenever used, the singular number shall
include the plural, the plural the singular, and the words "Payee" and "Make?'
shall include their respective successors, assigns, heirs, executors and
administrators. If Maker consists of more than one person or party, the
obligations and liabilities of each such person or party shall be joint and
several.
11. Maker and all others who may become liable for the payment of all or
any part of the Debt do hereby severally waive presentment and demand for
payment, notice of dishonor, protest, notice of protest, notice of nonpayment,
notice of intent to accelerate the maturity hereof and of acceleration. No
release of any security for the Debt or any person liable for payment of the
Debt, no extension of time for payment of this Note or any installment hereof,
and no alteration, amendment or waiver of any provision of the Loan Documents
made by agreement between Payee and any other person or party shall release,
modify, amend, waive, extend, change. discharge, terminate or affect the
liability of Maker, and any other person or party who may become liable under
the Loan Documents for the payment of all or any part of the Debt.
12 Subject to the qualifications below. Payee shall not enforce the
liability and obligation of Maker to perform and observe the obligations
contained in this Note, the Mortgage or the other Loan Documents by any action
or proceeding wherein a money judgment shall be sought against Maker, except
that Payee may bring a foreclosure action, an action for specific performance or
any other appropriate action or proceeding to enable Payee to enforce and
realize upon its interest under this Note, the Mortgage and the other Loan
Documents, or in the Mortgaged Property, the Rents, or any other collateral
given to Payee pursuant to the Loan Documents; provided. however, that, except
as specifically provided herein, any judgment in any such action or proceeding
shall be enforceable against Maker or its partners only to the extent of Maker's
or its partners' interest in the Mortgaged Property, in the Rents and in any
other collateral given to Payee, and Payee, by accepting this Note, the Mortgage
and the other Loan Documents, agrees that it shall not sue for, seek or demand
any deficiency judgment against Maker or its partners in any such action or
proceeding under or by reason of or under or in connection with this Note, the
Mortgage or the other Loan Documents, The provisions of this paragraph shall
not. however, (a) constitute a waiver, release or impairment of any obligation
evidenced or secured by any of the Loan Documents; (b) impair the right of Payee
to name Maker as a party defendant in any action or suit for foreclosure and
sale under the Mortgage; (c) affect the validity or enforceability of any
guaranty made in connection with the Loan or any of the rights and remedies of
the Payee thereunder: (d) impair the right of Payee to obtain the appointment of
a receiver; (e) impair the enforcement of the Assignment of Leases or the
Environmental Indemnity; or (t) constitute a waiver of the right of Payee to
enforce the liability and obligation of Maker, by money judgment or otherwise,
to the extent of any loss, damage, cost, expense, liability, claim or other
obligation incurred by Payee (including attorneys' fees and costs reasonably
incurred) arising out of or in connection with the following:
(a) fraud or intentional misrepresentation by Maker or any guarantor in
connection with the Loan;
(b) the gross negligence or willful misconduct of Maker;
(c) physical waste of the Mortgaged Property;
(d) the breach of any representation, warranty, covenant or
indemnification provision in that certain Environmental and
Hazardous Substance Indemnification Agreement of even date herewith
given by Maker to Payee or in the Mortgage concerning environmental
laws, hazardous substances and asbestos;
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(e) the removal or disposal of any portion of the Mortgaged Property
after an Event of Default;
(t) the misapplication or conversion by Maker of (i) any insurance
proceeds paid by reason of any loss, damage or destruction to the
Mortgaged Property, (ii) any awards or other amounts received in
connection with the condemnation of all or a portion of the
Mortgaged Property, or (iii) any Rents (as defined in the Mortgage),
following an Event of Default;
(g) costs incurred by Payee (including reasonable attorneys' fees) in
the collection or enforcement of the Debt, the protection or
foreclosure of the security therefor, or the enforcement of the Loan
Documents;
(h) failure to pay taxes (provided that the liability cf Maker shall be
only for amounts in excess of the amount held by Payee in escrow for
the payment of taxes, computed without taking into consideration any
portion of any such escrow that Payee may have applied in
satisfaction of any portion of the Debt other than those taxes),
assessments, changes for labor or materials or other charges that
can create liens on any portion of the Mortgaged Property; and
(i) any security deposits collected with respect to the Mortgaged
Property which are not delivered to Payee upon a sale or foreclosure
of the Mortgaged Property or other action in lieu thereof, except to
the extent any such security deposits were applied in accordance
with the terms and conditions of any of the Leases (as defined in
the Mortgage) prior to the occurrence of the Event of Default that
gave rise to such sale or foreclosure or action in lieu thereof.
Notwithstanding anything to the contrary in this Note or any of the Loan
Documents, (i) Payee shall not be deemed to have waived any right which Payee
may have under Section 506(a), 506(b), 1111(b) or any other provisions of the
U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by
the Mortgage or to require that all collateral shall continue to secure all of
the Debt owing to Payee in accordance with the Loan Documents, and (ii) the Debt
shall be fully recourse to Maker, in the event that:
(i) the first full monthly payment of principal and interest under this
Note is not paid when due;
(ii) Maker fails to permit on site inspections of the Mortgaged Property,
fails to provide financial information (if unremedied after any
applicable notice and cure period under the Mortgage), or fails to
maintain its status as a single purpose entity, each as required by,
and in accordance with the terms and provisions of; the Mortgage;
(iii) Maker fails to obtain Payee's prior written consent to any
subordinate financing or other voluntary lien encumbering the
Mortgaged Property; or
(iv) Maker fails to obtain Payee's prior written consent to any
"Transfer" (as defined in the Mortgage), as required by the
Mortgage.
13. Maker (and the undersigned representative of Maker, if any)
represents that Maker has full power, authority and legal right to execute,
deliver and perform its obligations pursuant to this Note, the Mortgage and the
other Loan Documents and that this Note, the Mortgage and the other Loan
Documents constitute valid and binding obligations of Maker.
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14. All notices or other communications required or permitted to be
given pursuant hereto shall be given in the manner specified in the Mortgage
directed to the parties at their respective addresses as provided therein
15. MAKER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN
DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION
THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND
VOLUNTARILY BY MAKER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE
AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE.
PAYEE IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS
CONCLUSIVE EVIDENCE OF THIS WAIVER BY MAKER.
16. This Note shall be governed by and construed in accordance with the
laws of the State of Florida, in which the real property encumbered by the
Mortgage is located, and the applicable laws of the United States of America.
Maker has duly executed this Note the day and year first above written.
MAKER:
HERITAGE INN ASSOCIATES, L.P., a Georgia limited
partnership, by its general partner, BLM EB ORLANDO. INC.,
a Delaware corporation
By: /s/ Douglas C. Collins
----------------------
Name and Title: Douglas C. Collins, President
64
Exhibit 10(ii)(e)
to Buckhead America Corporation
December 31, 1996 Form 10-KSB
EMPLOYMENT AGREEMENT
THIS AGREEMENT IS MADE AS OF 29th day of April, 1996 (the "Effective
Date"), between Buckhead America Corporation, a Delaware corporation (the
"Company"), and Gregory Plank (the "Executive").
WITNESSETH:
WHEREAS, the Executive will be employed by the Company as an executive
officer effective May 20, 1996, and;
WHEREAS, the Company desires to continue the employment of the Executive
as an executive officer of the Company and the Executive desires to continue
such employment on the terms and conditions set forth in this Agreement:
NOW, THEREFORE, in consideration of the above and the employment of the
Executive by the Company, and the mutual agreements hereinafter set forth, the
parties agree as follows:
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SECTION 1
DEFINITIONS
(a) "Affiliate" means (1) any corporation which is a member of the same
controlled group of corporations (within the meaning of Section 414(b) of the
Internal Revenue Code) as is an entity, and (2) any other trade or business
(whether or not incorporated) controlling, controlled by, or under common
control (within the meaning of section 414(c) of the Internal Revenue Code) with
an entity.
(b) "Associate means (1) any corporation, partnership, or other
organization of which such specified person is an officer or general partner,
(2) any trust or other estate in which such specified person has a substantial
beneficial interest or as to which such specified person serves as director or
in a similar fiduciary capacity, (3) any relative or spouse of such specified
person, or any relative or such spouse who has the same home as such specified
person, or who is a director or officer of the Company or any of its parents or
subsidiaries, and (4) any person who is a director, officer, or partner of such
specified person or of any corporation (other than the Company or an Affiliate),
partnership, or other entity which is an Affiliate of such specified person.
(c) "Board of Directors" means the Board of Directors of the Company.
(d) "Business of the Company"' means the business of owning, operating.
managing, marketing and franchising hotels, motels, lodges and restaurants;
mortgage servicing; and such other business as the Company may hereafter
conduct.
(e) "Change of Control" means a change in control of the Company, which
shall be deemed to have occurred upon any sale of shares of capital stock,
(other then a sale of shares for cash in a public offering), merger or
consolidation, or sale of all or substantially all of the assets of the Company
in any transaction or series of transactions, if after such transaction or
series of transactions the current shareholders of the Company or their
Associates and Affiliates no longer own, directly or indirectly 51% of the
outstanding shares of voting stock of, or all or substantially all the capital
stock of, the Company, or a change in the majority of the Company's Board of
Directors other than election of the current Board's members.
(f) "Business" means any business which is the same as or essentially the
same as the Business of the Company.
(g) "Disability" means a disability of the Executive such that the
Executive is entitled to disability retirement benefits under the federal Social
Security Act or such that the Executive is unable to perform his duties
hereunder. The determination of whether disability exists shall be made by the
Board of Directors and shall be substantiated by competent medical evidence.
(h) "Discharge for Cause" means a termination of the employment
relationship between the Employee and the Company, and its Affiliates by the
Company or any Affiliate, for any of the following reasons, as determined in
good faith by the Board of Directors of the Company:
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(1) continued failure to substantially perform his duties with the Company or
all Affiliate, (other than any such failure resulting from his incapacity during
physical or mental illness); (2) willful conduct which is demonstrably and
materially injurious to the Company or its Affiliates, monetarily or otherwise;
(3) personal dishonesty; (4) incompetence; (5) breach of fiduciary duty
involving personal profit; (6) willful violation of any law, rule, or regulation
(other than traffic violations or similar offenses); (7) engaging in the
activities prohibited by Sections 6,7,8, or 9 hereof; or (8) expiration of this
Agreement.
(i) "Discharge without Cause"' means a termination of the employment
relationship between the Employee and the Company and its Affiliates due to a
discharge of the Employee by the Company or an Affiliate, other than a Discharge
for Cause.
(j) "Proprietary Information" means information of a secret, special and
unique value to the Company concerning the Company's business and method of
operation, which information is not in the public domain Proprietary Information
shall include, without limitation, any technical or nontechnical data, formulas,
patterns, compilations, programs, devices, methods, techniques, drawings,
processes, financial data or plans, product plans, and lists of actual or
potential customers, franchisees, or suppliers. Proprietary information also
includes information which as been disclosed to the Company or its Affiliates by
a third party and which the Company or its Affiliates are obligated to treat as
confidential.
(k) "Restricted Area" means the period of time that begins on the date
hereof and extends for the period of the employment of the Executive by the
Company hereunder and for a period of thirty~six (36) months following the
termination of such employment for any reason whatsoever.
SECTION 2
EMPLOYMENT, DUTIES
(a) The Company hereby employs the Executive, and the Executive hereby
accepts employment by the Company to perform the duties and responsibilities of
President and Chief Operating Officer, BAC Franchising, Inc., dba "Country
Hearth Inns", as described on Exhibit A attached hereto and such other duties as
may be assigned to the Executive by the Board of Directors and/or the President
The Executive shall perform and discharge well and faithfully the duties which
may be assigned to Executive from time to time in connection with the conduct of
the Business of the Company.
(b) In addition to the duties and responsibilities specifically assigned
to the Executive pursuant to Section 2(a) hereof the Executive shalt: (1)
diligently follow and implement all management policies and decisions
communicated to the Executive by the Board of Directors and/or the President;
(2) timely prepare and forward to the Board of Directors and/or the President of
the Company or the designee all reports and accounts as my be requested of the
Executive; and (3) devote all of the Executive's time, energy and skill during
regular business
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hour to the performance of the duties of the Executive's employment (reasonable
vacations and reasonable absences due to illness excepted), and faithfully and
industriously perform such duties.
(c) The Executive shall not during the term of this Agreement be engaged
(whether or not during normal business hours) in any other business activity,
whether or not such activity is pursued for gain, profit or other pecuniary
advantage; but this shall not be construed as preventing the Executive from (1)
investing his personal assets in any business which is not a Competing Business,
and will not require any services on the part of the Executive in its operation
or affairs and in which his participation is solely that of an investor, (2)
serving on the board of directors of any business which is not a Competing
Business, (3) purchasing securities in any corporation whose securities are
regularly traded on a public securities exchange provided that such purchase
shall not result in the Executive collectively owning beneficially at any time
five percent (5%) or more of the equity securities of any Competing Business, or
(4) participating in conferences, preparing or publishing papers or books or
teaching, Prior to commencing any activity described in clause (4) above, the
Executive shall inform the Board of Directors and/or the President of the
Company or the designee of any such activity.
(d) The Executive shall not have the right to make contracts binding the
Company, except to the extent consistent with standard written policies or
programs of the Company and except as authorized by the Company through the
Board of Directors of the Company or the designee.
(e) All funds and property received by the Executive on behalf of the
Company shall be received and held by the Executive in trust for the Company,
and the Executive shall account for and remit all such funds to the Company, as
applicable.
SECTION 3
COMPENSATION, BENEFITS
(a) The Company shall pay to the Executive as compensation for the
Executive's services hereunder, a base salary at a rate equal to One Hundred
Sixty Thousand ($160,000) per annum (the "Base Salary"), $25,000 of which will
be an advance on the bonus plans, which will not be reimburseable to the
Company. Base Salary shall be payable in accordance with the Company's standard
payroll procedures. The Board of Directors shall review the Executive's Base
Salary on an annual basis commencing January 1, 1997, and may increase the
Executive's Base Salary by an amount the Board of Directors deems appropriate in
its sole discretion.
(b) During the term of the Executive's employment, the Executive shall be
entitled to participate in any employee benefit plan and program of the Company
and to receive vacation time to the extent that the Executive's position,
tenure, salary, age, health and other qualifications' make the Executive
eligible to participate in such plans and programs and to receive such vacation
time, subject to the rules and regulations applicable thereto. Such additional
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benefits shall include, without limitation, subject to the approval of the Board
of Directors, life, health, dental and disability insurance benefits and cash
bonuses.
(c) The Executive shall be entitled to be reimbursed in accordance with
the policies of the company, as adopted and amended from time to time, for all
reasonable and necessary expenses incurred by the Executive in connection with
the performance of the Executive's duties of employment hereunder; provided that
the Executive shall, as a condition of such reimbursement, submit verification
of the nature and amount of such expenses in accordance with the reimbursement
policies from time to time adopted by the Company.
(d) The Executive shall receive no compensation in addition to that set
forth in this Agreement for any services rendered by him in any capacity to the
Company; provided that to the extent that the Executive becomes eligible to
participate in any stock option or bonus plan of the Company, the terms and
conditions of any options or bonuses granted to the Executive shall be governed
by the terms and conditions of such plan and any related stock option agreement
or bonus plan entered into between the Executive and the Company. If the
Executive is elected or appointed a director or officer of any Affiliate of the
company during the term of this Agreement, the Executive will serve in such
capacity without further compensation.
(e) The Company may deduct from each payment of compensation hereunder all
amounts required to be deducted and withheld in accordance with applicable
federal and state income, FICA and other withholding requirements.
(f) In addition to the Base Salary in item 3(a), The Executive will earn a
bonus of $1,500 per each property added to the Country Hearth Inn System either
through company purchase or franchise sale. Also, the Executive will be included
in the company-wide bonus system and is entitled to earn a maximum of forty
percent (40%) of the $135,000 Base Salary. The per property bonus is paid on a
quarterly basis ten (10) days at the end of the calendar quarter with the draw
applied on a pro rata basis. The company-wide bonus is paid similar to all home
office employees at the end of each fiscal year.
The per property bonus will remain at the same level through calendar
years 1996 and 1997 and will be reviewed again on an appropriate level
thereafter. The company-wide bonuses are reviewed each calendar year by the
Board of Directors of the Company.
SECTION 4
TERM
(a) The term of the employment of the Executive by the Company hereunder
shall commence on the date hereof and expire on the third anniversary of the
date hereof, unless sooner terminated as provided herein as follows:
(1) By the Company by way of Discharge for Cause effective immediately
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upon written notice of termination specifying the cause given to the Executive;
(2) By the Company upon the death or disability of the Executive; or
(3) By either party, at any time upon thirty (30) days prior written
notice of termination given to the other party.
(b) Upon the termination of the Executive's employment hereunder, the
Company shall have no further obligation to the Executive, or his or her
personal representative, with respect to this Agreement (notwithstanding
anything to the contrary set forth in this Agreement, including Section 3
hereof), except as follows:
(1) The Company shall pay to the Executive the Base Salary accrued up to
the date of termination hereunder and unpaid at such date of termination. Such
payment of the unpaid Base Salary shall be due and payable within thirty (30)
days of the date of termination.
(2) If the Company terminates this Agreement pursuant to Section 4(a) (3)
within twelve (12) months after a Change of Control, then in addition to the
amount payable pursuant to Section 4(b)(1), the Company shall pay to the
Executive severance pay in an amount equal to the greater of the Base Salary the
Executive would have earned from the date of termination through the remaining
balance of the term of employment pursuant to Section 4(a) if he had remained in
the employ of the Company for the remaining balance of such term, or one- half
of the Executive's Base Salary for the year in which the termination occurs, but
reduced by the amount, if any, which in the opinion of legal counsel acceptable
to the Company, would, if paid, constitute an "excess parachute payment", within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended,
regardless of the source of such payment. Such severance payment shall be
payable on the date ten (10) days from the date of termination.
(3) If the Company terminates this Agreement pursuant to Section 4(a)(3)
without Cause (other than due to the Executive's death or disability), then in
addition to the amount payable pursuant to Section 4(b)(1), the Company shall
pay to the Executive severance pay in an amount equal to the Base Salary the
Executive would have earned from the date of termination to the first
anniversary of the date of termination. Such severance payment shall be payable
on the date ten (10) days from the date of termination.
(4) If the Executive terminates this Agreement for any reason between 90
and 120 days following a Change of Control, then in addition to the amount
payable pursuant to Section 4(b)(l), the Company shall pay to the Executive
severance pay in an amount equal to the lesser of (i) the Base Salary the
Executive would have earned from the date of termination through the remaining
balance of such term, or (ii) one-half of the Executive's annual Base Salary for
the year in which the termination occurs. Such severance payment shall be
payable on the date ten (10) days from the date of termination.
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(c) As a condition precedent to the obligation of the Company to make the
severance payments described in Sections 4(b)(2), 4(b)(3) and 4(b) (4), the
Executive (1) shall execute and deliver to the Company a termination agreement
in form and substance satisfactory to the Company releasing all claims the
Executive may have arising out of this Agreement against the Company, and the
officers, directors and agents of the Company, and reaffirming the continuing
obligations of the Executive under this Agreement, and (2) shall not have
violated any of the covenants of the Executive in Sections 6 and 7 prior to the
time any installment of such severance is due. Notwithstanding any other
provision hereof, in the event the Executive violates any of the covenants of
the Executive in Sections 6 and 7, the Company shall have no obligation to pay
to the Executive any unpaid portion of any severance payment determined pursuant
to Section 4(b)(2), 4(b)(3), or 4(b)(4), as applicable.
(d) The covenants of the Executive in Sections 6 and 7 shall survive the
termination of this Agreement and the Executive's employment hereunder and shall
not be extinguished thereby.
SECTION 5
LOCATION
The location of the Executive's work will he in the Atlanta, Georgia area.
SECTION 6
OWNERSHIP, NONDISCLOSURE AND NONUSE OF PROPRIETARY INFORMATION
(a) The Executive acknowledges and agrees that all Proprietary
Information, and all physical embodiments thereof, are confidential to and shall
be and remain the sole and exclusive property of the Company. Upon request by
the Company and in any event upon termination of the Executive's employment with
the Company, for any reason, the Executive shall promptly deliver to the Company
all property belonging to the Company, including, with limitation, all
Proprietary Information (and all embodiments thereof) then in the Executive's
custody, control or possession.
(b) The Executive agrees that all Proprietary Information received or
developed by the Executive as a result of the Executive's employment with the
Company pursuant to this Agreement and prior to the effective date of this
Agreement will be held in trust and in strictest confidence by the Executive.
The Executive will protect such Proprietary Information from disclosure, and
without the prior written consent of the Company, will make absolutely no use of
the Proprietary Information except in connection with and as a part of the
Executive's employment with the Company. The Executive shall maintain and
observe the obligations of confidentiality contained in this Agreement with
respect to the Proprietary Information during the term of his or her employment
with the Company and at all times following the termination of such employment
for any reason whatsoever.
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SECTION 7
AGREEMENT NOT TO SOLICIT EMPLOYEES
The Executive agrees that during the Restricted Period, the Executive will
not, either directly or indirectly, on the Executive's own behalf or in the
service or on behalf of others, solicit, divert or hire, or attempt to solicit,
divert or hire, any person employed by the Company or its Affiliates with whom
the Executive has had material contact, whether or not such employee is a
full-time or a temporary employee of the Company and whether or not such
employment is pursuant to a written agreement, for a determined period, or at
will.
SECTION 8
SEVERABILITY
The Executive agrees that the covenants and agreements contained in
Sections 6 and 7 of this Agreement, are of the essence of this Agreement; that
each of such covenants is reasonable and necessary to protect and preserve the
interests and properties of the Company and the Business of the Company; that
the Company is engaged in and throughout the Restricted Area in the Business of
the Company; that irreparable loss and damage will be suffered by the Company
should the Executive breach any of such covenants and agreements; that each of
such covenants and agreements is separate, distinct arnd severable not only from
the other of such covenants and agreements, but also from the other and
remaining provisions of this Agreement; that the unenforceability of any
covenant or agreement contained in Sections 6 and 7 shall not affect the
validity or enforceability of any other such covenants or agreements or any
other provision or provisions of this Agreement; that, in addition to other
remedies available to it, the Company shall be entitled to both temporary and
permanent injunctions to prevent a breach or contemplated breach by Executive of
any of the covenants or agreements contained in Sections 6 and 7; and that the
Executive hereby waives any requirements for the posting of a bond or any other
security by the Company in connection therewith.
SECTION 9
GOVERNING LAW AND JURISDICTION
This Agreement shall be governed and construed as to both substantive and
procedural matters in accordance with the laws of the State of Georgia. The
parties agree that if a dispute or claim between the parties arises related to
this Agreement, any legal action or proceeding shall be initiated in the state
or federal courts of the State of Georgia, and by execution and delivery of this
Agreement the parties hereto submit to and accept with regard to any such legal
action or proceeding, for themselves and with respect to their property, the
jurisdiction of such courts and agree to be bound by any and all judgments and
orders rendered by such courts.
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SECTION 11
MISCELLANEOUS
(a) This Agreement may be assigned by the Company and shall inure to the
benefit of any such assignee. This Agreement and the right of the Executive to
receive compensation, or other payments hereunder is personal to the Executive.
The Executive may not sell, assign, transfer, convey, pledge, encumber or
hypothecate in any way, any rights, duties and obligations under this Agreement
without the prior written consent of the Company. This Agreement may be amended
only by a writing signed by the parties hereto (but without the consent of any
other person). The waiver by the Company of any breach of this Agreement by the
Executive shall not be effective unless in writing, and no such waiver shall
operate or be construed as the waiver of the same or another breach on a
subsequent occasion. This Agreement and any stock option agreement between the
Executive and the Company embody the entire agreement of the parties hereto
relating to the employment by the Company of the Executive in the capacity
herein stated and, except as specifically proved herein, no provisions of any
employee manual, personnel policies, Company directives or other agreement or
document shall be deemed to modify the terms of this Agreement between the
Executive and the Company. All other prior understandings and agreements
relating to the employment of the Executive by the Company in whatever capacity,
are hereby expressly terminated.
(b) Any notice required or permitted to be given to the parties pursuant
to this Agreement shall be in writing, and deemed given to a party and effective
when personally delivered, or when deposited in the United States mails, by
certified mail, return receipt requested, at the address set forth below such
party's signature on this Agreement or at such other address as such party shall
designate by written notice given in accordance with this Section 11(b).
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first shown above.
THE EXECUTIVE: BUCKHEAD AMERICA CORPORATION:
/s/ Gregory C. Plank By: /s/ Douglas C. Collins
--------------------- --------------------------
Gregory C. Plank Title: CEO
--------------------
Address: Address:
343 Horizon Hills Drive 4243 Dunwoody Club Drive
El Cajon, CA 92020 Dunwoody, GA 30350
73
<PAGE>
EXHIBIT A
DUTIES AND RESPONSIBILITIES OF THE EXECUTIVE
The Executive will be employed as President and Chief Operating Officer of
Buckhead America Corporations's franchise business doing business as Country
Hearth Inns and will be responsible for the overall operations of the Country
Hearth franchising system including, but not limited to, franchise sales,
franchise services, quality assurance, new property openings, reservations,
franchise relations, advertising and any other services necessary to operate a
lodging system. The Executive will report directly to the CEO and Chairman of
BAC Franchising, Inc.
74
Exhibit 21 to Buckhead America Corporation
December 31, 1996 Form 10-KSB
BUCKHEAD AMERICA CORPORATION
(A Delaware Corporation)
SUBSIDIARY COMPANIES
As of December 31, 1996
Delaware Corporations
---------------------
BLM Virginia, Inc.
BLM Prime, Inc.
CHI - Sandy Springs, Inc.
BLM-I, Inc.
BAC Hotel Management, Inc.
BLM CMO Holdings, Inc.
BLM EB Orlando, Inc.
BLM EB, Inc.
BLM EB Miami, Inc.
BLM EB Daytona, Inc.
BLM-F, Inc.
BLM-RH, Inc.
BLM-RF, Inc.
BAC Franchising Inc.
Delaware Trust
--------------
Days Inn Mortgage Trust
Texas Corportion
----------------
Country Hearth Inns/Texas, Inc.
Georgia Corporation
-------------------
Country Hearth Inns - Dalton, Inc.
75
Exhibit 23 to Buckhead America Corporation
December 31, 1996 Form 10-KSB
ACCOUNTANTS' CONSENT
--------------------
The Board of Directors
Buckhead America Corporation:
We consent to incorporation by reference in the Registration Statement (No.
333-05313) on Form S-3 and in the Registration Statement (No. 33-97046) on Form
S-8 of Buckhead America Corporation of our report dated February 21, 1997,
except for note 13, which is dated as of March 13, 1997 relating to the
consolidated balance sheets of Buckhead America Corporation and subsidiaries as
of December 31, 1996 and 1995, and the related consolidated statements of
income, shareholders' equity, and cash flows for the years then ended, which
report appears in the December 31, 1996 annual report on Form 10- KSB of
Buckhead America Corporation.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 31, 1997
76
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BUCKHEAD AMERICA CORPORATION FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,802
<SECURITIES> 3,027
<RECEIVABLES> 2,374
<ALLOWANCES> 1,442
<INVENTORY> 0
<CURRENT-ASSETS> 5,861
<PP&E> 20,352
<DEPRECIATION> 1,621
<TOTAL-ASSETS> 27,035
<CURRENT-LIABILITIES> 1,271
<BONDS> 12,419
0
0
<COMMON> 18
<OTHER-SE> 13,066
<TOTAL-LIABILITY-AND-EQUITY> 27,035
<SALES> 9,979
<TOTAL-REVENUES> 13,873
<CGS> 8,659
<TOTAL-COSTS> 10,552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,505
<INCOME-PRETAX> 1,817
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,817
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
