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, 1999
[ ] 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
BUCKHEAD AMERICA CORPORATION
(Name of small business issuer in its charter)
Delaware 58-2023732
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7000 Central Parkway, Suite 850, Atlanta, GA 30328
(Address of principal executive offices) (Zip Code)
Issuer's telephone number. (770) 393-2662
Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
incorporation or organization)
Securities registered
under Section 12(g) of the Act:
Common stock, par value $.01 (Title of Class)
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 ______
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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. $ 32,298,598
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. As of February 29, 2000: $ 6,049,643
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 29, 2000:Common
Stock, par value $.01 - 2,029,313 shares outstanding
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___
1217939v1
<PAGE>
PART I
Item 1. Description of Business.
BUSINESS DEVELOPMENT
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. Other subsidiaries were subsequently created or
purchased, 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. Prior to 1997, the
Company purchased and sold various assets; primarily hotels, mortgage notes
secured by hotels, hotel franchising rights, and other hospitality related
assets. As of December 31, 1996, the Company owned seven hotels, primarily
limited service, four of which were managed by the Company, including a 150-room
hotel in Orlando, Florida (the"Orlando Hotel") owned by a partnership in which
the Company held a 55% interest. The Company also owned the rights to franchise
and license Country Hearth Inns, a modernized bed and breakfast hotel concept.
As of December 31, 1996, nineteen Country Hearth Inns were open, six of which
were Company owned.
In May 1997, the Company completed its acquisition of The Lodge Keeper
Group, Inc. of Prospect, Ohio ("Lodge Keeper"). Lodge Keeper operated 18 hotels
under long-term leases, held management contracts on six Country Hearth Inn
hotels and owned a 186-room independent extended-stay hotel. Simultaneously,
Lodge Keeper assumed the management responsibilities of the four hotels
previously owned by the Company.
In September 1997, the Company completed its acquisition of Hatfield Inns,
LLC. ("Hatfield"). The acquisition included eight 40-room hotel properties
located in Kentucky and Missouri . All eight properties were converted to
operate as Country Hearth Inns and are managed by Lodge Keeper. The acquisition
also included the plans and design rights which the Company has used for the
development and construction of additional properties.
In December 1997, the Company entered into long-term leases with Host
Funding, Inc. ("Host") on two of the already managed Country Hearth Inn hotels.
In May 1998, the Company acquired a 121-room hotel in Norcross, Georgia
(the "Norcross Hotel"). The hotel is managed by Lodge Keeper and was operated as
a Best Western - Bradbury Suite until December 1999 at which time it was
converted to a Country Hearth Inn.
In June 1998, the Company entered into leases for seven additional hotel
properties owned by Host. The hotel properties are operated under Super 8 (4)
and Sleep Inn (3) license agreements and are managed by Lodge Keeper.
During 1998, the Company sold eight leasehold interests in hotel properties
which had been acquired with the Lodge Keeper acquisition. During 1999, the
Company sold four more leasehold interests in hotel properties which had been
acquired with the Lodge Keeper acquisition.
In June 1999, the Company sold the Orlando Hotel to Orange County, Florida
to make way for the planned expansion of the Orange County Convention Center.
The Company continues to operate the property under a lease agreement which
expires in January 2001.
From 1994 through 1999, the Company expanded its Country Hearth Inn
franchising operations by developing updated prototype hotels, implementing a
franchise sales and marketing plan, and establishing a centralized room
reservation system. The Company is licensed to sell Country Hearth Inn hotel
franchises in 50 states. Presently, 49 Country Hearth Inns are open and
operating in 13 states, 24 of which are Company owned or leased.
In addition to the Company owned and leased properties described above,
Lodge Keeper manages 19 other hotel properties which operate under various brand
names, including five Country Hearth Inns.
BUSINESS
Principal Products and Services. The Company operates in the hospitality
industry and its principal holdings include hotels, leasehold interests in
hotels, loans and other investments secured by hotels, franchising rights, hotel
management contracts 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 activities of the Company involve the expansion of the Country
Hearth Inn chain, limited-service hotel management, and
development/acquisition/sale of hotel properties. Expansion of the Country
Hearth Inn chain has been effected through direct acquisition and conversion of
existing hotels, new construction, and through franchise sales. Additionally,
the Company manages 53 hotels, 34 of which are Company owned or leased. For
certain further information about the Company's hotels, see Item 2. Description
of Property."
Segments. The Company conducts recurring operations in three segments of
the limited-service hotel industry - hotel franchising, hotel management, and
hotel operations. The company generates additional revenues and results of
operations from hotel development activities.
Hotel franchising involves the selling and servicing of rights and licenses
comprising the Country Hearth Inn lodging system. Revenues include initial fees
and continuing royalty, marketing and reservation fees from Company owned and
leased hotels and from unaffiliated customers. Continuing fees are based on each
franchised hotel's room revenues.
Hotel management involves the oversight of day-to-day hotel operations and
accounting for limited-service and some full-service hotels. Revenues include
continuing fees from Company owned and leased hotels and from unaffiliated
customers. Continuing fees are based on each managed hotel's revenues.
Hotel operations involves the operations of Company owned and leased
hotels. Revenues are generated from unaffiliated hotel guests. Hotel operations
also includes the Company's share (equity method) of unconsolidated partnerships
which also operate hotels and the minority interests share of consolidated
partnerships' results which are included in hotel operations.
Hotel development activities involves the development and construction or
purchase of existing hotel properties and subsequent sale thereof along with
related activities such as servicing notes receivable generated from sales.
Corporate activities are generally administrative and also include all interest
income and expense which does not specifically relate to other segment
operations.
Franchise and management fees are charged to Company owned and leased
hotels at the same rates as charged to unaffiliated customers.
Brands. The Company's owned and leased properties as of December 31, 1999
operate under the brand names of Country Hearth Inn (25), Super 8 (4), Sleep Inn
(3), Travelodge (2), Days Inn (1), and unbranded (1). Additionally, the Company,
through Lodge Keeper, manages other hotels which operate under other brand
names, including Holiday Inn, Ramada Inn, Suburban Lodge, Villager, Best
Western, and others.
Competition. There is significant competition in every phase of the
hospitality industry including development, construction, management, and
franchising. There are many hotel management companies in the United States, and
many of them are significantly larger than the Company. The continued growth of
the Company's hotel management operations is partially dependent upon the
Company's development and franchising operations as well as the ability to
identify and successfully negotiate third party contracts.
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
somewhat disadvantaged by the larger companies' reservation systems and national
marketing efforts.
As a hotel operator, the Company's owned and leased properties compete with
other hotels in each local market in which they are located. The Company
competes directly with these other hotels for hotel guests. The Company's rates
and occupancies are directly impacted by activities of these other hotels and by
additions to the supply of competing rooms in each local market.
The Company is a relatively new entrant in the hotel industry. It believes
that its management is experienced in hotel development, hotel franchising, and
hotel management. 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 50
states.
Research and Development. During 1999 and 1998 the Company invested
approximately $28,000 and $42,000, respectively, in market studies,
environmental studies, and other feasibility analyses relating to potential
hotel acquisitions and development.
Environmental Compliance. The Company's operations and maintenance policies
and procedures at each owned, leased, or managed property include policies and
procedures regarding environmental compliance. The costs of such compliance is
not significant.
Employees. As of February 29, 2000, the Company had 801 employees in the
aggregate, including nine full-time and four part-time corporate employees and
355 full-time and 433 part-time hotel employees. Four full-time hotel employees
are employed under a collective bargaining agreement.
RISK FACTORS
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.
The Company is subject to a number of risks, including the general risks of
investing in real estate, the illiquidity of real estate, environmental risks,
possible uninsured or underinsured losses, fluctuations in property taxes, hotel
operating risks, the impact of competition, the difficulty of managing growth,
seasonality, the risks inherent in operating a hotel franchise business, and the
risks involved in hotel renovation and construction. For a discussion of these
and other risk factors, see the "RISK FACTOR" section contained in the Company's
Registration Statement on Form S-3 (File No. 333-37691).
Item 2. Description of Property.
CORPORATE OFFICES
The Company's corporate headquarters are located at 7000 Central Parkway,
Suite 850, Atlanta, Georgia. The Company leases approximately 4,900 square feet
as its corporate headquarters. The lease term extends through December 2002 at
an annual rate of approximately $96,600. The Company believes its headquarters
are adequate for its current needs.
Hotel management and accounting functions are conducted by Lodge Keeper
which operates in leased office space located in Prospect, Ohio. The Lodge
Keeper leased space includes approximately 16,800 square feet and extends
through November 2006 at an annual rate of approximately $60,000. The Company
believes that these offices are adequate for its current needs and provide room
for moderate expansion.
<PAGE>
OWNED REAL PROPERTIES
Land. As of February 29, 2000, the Company owned five parcels of
undeveloped and unencumbered land, with an aggregate book value of $200,889. All
of such parcels are held for sale.
Owned and Leased Hotel Properties. The following table sets forth certain
1999 information for each of the Company's owned and leased hotels:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Average Average per
No. of Year Year Occupancy Daily Available Total
Properties Rooms Built Acquired Rate(a) Rate(a) Room (a) Revenue(b)
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
Days Inn
Daytona, FL 180 1972 1993 40.7% $53.86 $21.94 $1,920,054
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
Country Hearth Inn
Orlando, FL 150 1985 1995 76.7% $69.13 $53.02 $3,466,067
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
Country Hearth Inn
Mason, OH 93 1997 1999 46.9% $70.28 $32.96 $1,189,158
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
Country Hearth Inn
Atlanta, GA 82 1971 1996 57.3% $58.88 $33.74 $1,074,621
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
Rural Gold Country Hearths (14) 1993-1999 1997-1999
in GA, KY, MO, OH 559 53.0% $48.60 $25.76 $4,752,275
KY, MO, OH, GA
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
St. Louis NW Inn 1964-1968
St. Louis, MO 186 1997 92.5% $21.34 $19.74 $1,373,360
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
Host Funding Leases (8) in 1985-1993 1997-1998
FL, MS, KY, MO, IL, IN 565 56.2% $46.83 $26.32 $5,643,244
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
Other Leased Properties (4) 1968-1975
in OH 262 1997 43.0% $50.16 $21.57 $2,150,504
12126 1987 1998 50.1% $53.36 $26.74 $5,643,244
2262 1985-1993 $906,628
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
Travelodge
Coshocton, OH 50 1974 1997 45.1% $38.47 $17.35 $ 324,553
61450 1985-1993 1998 63.2% $47.68 $30.12 $4,695,328
1997-1998
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
Properties Held for Sale (4) 1967-1987 1995-1998
in GA & TX 291 43.0% $50.16 $21.57 $2,571,345
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
Other (c) $1,421,413
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
Total $25,886,594
- ---------------------------------- --------- --------- ----------- -------------- ------------ ------------ --------------
</TABLE>
<PAGE>
(a) Statistical information represents full year of operation.
(b) Total revenue represents revenues earned during ownership period.
(c) Represents revenues earned from properties prior to their sale in 1999.
Daytona Hotel. The Company owns a 180-room Days Inn hotel in Daytona,
Florida (the "Daytona Hotel") which was acquired by the Company in March 1993.
The hotel secures a mortgage note with a December 31, 1999 balance of $2,242,162
which bears interest at 8.5% and is due in monthly installments of $19,960 until
October 2018.
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 1999 was 40.7% and $53.86, respectively.
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. Property taxes in 1999 were approximately $62,000.
Orlando Hotel. In May 1995, the Company acquired the majority ownership
(55%) in a partnership which owned a 150-room hotel in Orlando, Florida (the
"Orlando Hotel"). The hotel was immediately converted to operate as a Country
Hearth Inn which it presently continues to operate as. During 1998 and 1999, the
Company purchased additional interests in the partnership and as of December 31,
1999 held an approximate 73% interest.
In June 1999, the Company sold the Orlando Hotel to Orange County, Florida
to make way for the planned expansion of the Orange County Convention Center.
The Company continues to operate the property under a lease agreement which
initially expires in January 2001. The rent obligation under the initial term is
nominal. Orange County, the lessor, may grant an extension to the lease for rent
of approximately $30,000 per month. The Company is not obligated to accept such
extension.
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 of 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. Occupancy and room rates in 1999 averaged
76.7% and $69.13, respectively.
Environmental programs are continuously ongoing and the Company believes
adequate funds are available for these purposes. Renovation programs have been
scaled back due to the impending demolition of the property. In the opinion of
management, the property is adequately covered by insurance and is suitable and
adequate for its present use. Property taxes in 1999 were approximately
$126,000.
Mason Hotel. The 93-room Country Hearth Inn in Mason, Ohio (the "Mason
Hotel") was constructed in 1996 and 1997 and opened in June 1997. The Company's
investment in the partnership which owns the hotel increased from 27.5% to 44.5%
in May 1997 in connection with the Lodge Keeper acquisition.
The property is subject to a first mortgage loan which was refinanced in
1999. The new loan with a December 31, 1999 balance of $2,508,827, bears
interest at 8.53%, and is due in monthly installments of $23,490 through October
2001, at which time the remaining balance is due. The partnership also has notes
payable to certain partners including $237,151 to the Company and $266,463 to a
minority partner as of December 31, 1999. The note to the minority partner bears
interest at 8.53% and is due in monthly installments of $3,326 through November
2009.
The property is positioned to compete with existing low and moderately
priced hotel properties in the area. It is adjacent to and visible from a major
interstate highway in a highly developed commercial and retail area. Occupancy
and room rates in 1999 averaged 46.9% and $70.28, respectively.
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. Property taxes in 1999 were approximately $47,000.
Atlanta Hotel. In March 1996, the Company acquired an 82-room hotel in
Atlanta, Georgia (the "Atlanta Hotel"). During the latter half of 1996, the
hotel was renovated and refurbished for conversion to operate as a Country
Hearth Inn which it presently continues to operate as. The Atlanta Hotel secures
a first mortgage loan with a December 31, 1999 balance of $2,039,452. The loan
bears interest at 9.5% and requires monthly payments of $20,350 until August
2016.
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. Occupancy and room
rates averaged approximately 57.3% and $58.88 during 1999.
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. Property taxes in 1999 were approximately $59,000.
Rural Gold Country Hearths. In September 1997, the Company acquired eight
40-room hotel properties located primarily in smaller communities of Kentucky
(5) and Missouri (3). All eight were converted to Country Hearth Inns which they
presently continue to operate as. During 1998 and 1999 three additional
Company-owned 40-room Country Hearth Inns were constructed and opened in
Kentucky(2) and Ohio(1).
These eleven wholly-owned properties (the owned "Rural Gold Country
Hearths") secure first and second mortgage notes payable with December 31, 1999
balances aggregating $9,829,982. Three of the mortgage notes with aggregate
December 31, 1999 balances of $2,974,040 bear interest at prime plus 1%, require
aggregate monthly payments of $32,916, and mature at various dates through 2015.
The remaining mortgage notes bear interest at rates ranging from 8.25% to 9.18%,
require aggregate monthly payments of $64,130, and mature at various dates
through 2018.
The Company also operates three 40-room properties in Georgia (the leased
"Rural Gold Country Hearths") under long term triple-net lease agreements. Each
lease has an initial term of 15 years and options for up to an additional 15
years. Each lease requires annual base rent of $150,000 and provides for
additional percentage rent based on hotels revenues over certain levels.
The Rural Gold Country Hearths are generally limited service 40-room
interior corridor properties located in smaller communities where they enjoy
limited competition in their selected markets. Occupancy and room rates in 1999
averaged approximately 53.0% and $48.60, respectively.
Differences between personal property financial reporting asset bases and
federal tax bases are not significant. Federal tax bases of owned real property
are approximately $2.4 million less than financial reporting asset bases.
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.
Aggregate property taxes in 1999 were approximately $146,000.
St. Louis NW Inn. The Company acquired the 186-room Northwest Inn in St.
Louis, Missouri (the "NW Inn"), as part of the May 1997 Lodge Keeper
acquisition. The property is an extended-stay facility which is positioned to
compete with existing low priced extended-stay properties in the area. It will
also compete with new extended-stay properties presently under development in
the area. Occupancy and room rates in 1999 averaged approximately 92.5% and
$21.34, respectively.
The property secures a first mortgage loan with a December 31, 1999 balance
of $1,709,307. The loan bears interest at 8.5% and requires monthly payments of
$13,178 until February 2004.
Differences between personal property financial reporting asset bases and
federal tax bases are not significant. Federal tax bases of real property are
approximately $1.7 million less than financial reporting asset bases.
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.
Property taxes in 1999 were approximately $84,000.
Host Funding Leases. During 1997 and 1998, the Company, in two separate
transactions, entered into long term lease agreements for four Super 8 Motels,
three Sleep Inns, and two Country Hearth Inns owned by Host Funding, Inc.
("Host"). One of the Country Hearth Inn leases was terminated in 1999. The
leased properties (the "Host Funding Leases") are located in Florida,
Mississippi, Missouri, Illinois, Kentucky, and Indiana. Lease terms are for
fifteen (15) years with two extension options of five years each, and provide
for contingent payments based on a percentage of revenues. Base rents for the
eight properties aggregates $2,246,841 per year. Host is responsible for
property taxes and capital expenditures.
The leased properties are generally located along highways and interstates
and compete with similarly situated budget properties. Seven of the eight leases
provide for reductions in base rent as a result of additional competition.
Occupancy and room rates in 1999 averaged 56.2% and $46.83, respectively.
Other Leased Hotels. In addition to the Rural Gold Country Hearths and Host
lease properties described above, the Company leases four other limited-service
hotels which are located in Ohio (the "Other Leased Hotels"). Three properties
operate as Country Hearth Inns and one as a Travelodge. Lease terms range from
10 to 30 years with options to renew at varying terms. Certain of the leases
provide for contingent payments based upon a percentage of revenues. Base
rentals on the four properties aggregates $268,747.
The Other Leased Hotels are generally located along highways and
interstates and compete with similarly situated budget properties. Occupancy and
room rates in 1999 averaged 43.0% and $50.16, respectively. Aggregate property
taxes in 1999 were approximately $87,000.
Coshocton Hotel. The Company acquired fee-simple interest in the 50-room
Travelodge in Coshocton, Ohio (the "Coshocton Hotel") in September 1998. The
hotel was previously operated by the Company under a lease agreement. The
Coshocton Hotel secures a mortgage note with a December 31, 1999 balance of
$675,319 which bears interest at 8.75% and requires monthly payments of $7,009
until December 2013.
The Coshocton Hotel is an older limited service 50-room interior corridor
property located in an area which is facing new competition in its market.
Occupancy and room rates in 1999 averaged approximately 45.1% and $38.47,
respectively.
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. Property taxes in 1999 were approximately $7,000.
Properties Held for Sale. As of December 31, 1999, the Company owned four
hotel properties which were being marketed for sale (the "Properties Held for
Sale"). Two properties are located in Texas and two in Georgia.
Wharton, TX. This 40-room Country Hearth Inn was sold in January 2000.
A portion of the proceeds was used to payoff a $600,000 mortgage note.
Occupancy and room rates in 1999 averaged approximately 47.9% and $51.21,
respectively.
Angleton, TX. This 40-room Country Hearth Inn secures a mortgage note
with a December 31, 1999 balance of $1,073,147. Occupancy and room rates in
1999 averaged approximately 56.2% and $47.30, respectively.
Dalton, GA. This 90-room Country Hearth Inn secures two mortgage notes
with a combined December 31, 1999 balance of $1,235,772. Occupancy and room
rates in 1999 averaged approximately 63.8% and $26.76, respectively.
Norcross, GA. This 121-room Country Hearth Inn secures a mortgage note
with a December 31, 1999 balance of $3,709,761 and is presently under
contract for sale. No assurances can be made that such transaction will
close. Occupancy and room rates in 1999 averaged approximately 54.1% and
$42.78, respectively.
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. Property taxes in 1999 aggregated approximately $117,000.
Unless otherwise indicated, renovation and environmental programs are
continuously ongoing at all Company owned and leased hotels and management
believes adequate funds are available for these purposes. In the opinion of
management, the properties are adequately covered by insurance and are suitable
and adequate for their present use.
<PAGE>
INVESTMENT POLICIES
Most of the Company's initial real estate holdings were principally
hospitality related. Asset acquisitions since inception have also been
predominately hospitality related and made for the primary purpose of generating
additional income. Further, management's experience and expertise is in the
hospitality business. Accordingly, the Company has determined that it will
primarily seek out investments in the hospitality industry. In that regard, the
Board of Directors has determined that the Company will focus upon investments
in hospitality related companies with income growth potential. Such investments
could take the form of (a) hotel property purchases, (b) hotel mortgage
purchases, (c) hotel mortgage servicing, (d) hotel management and/or (e) hotel
franchising. The Board of Directors has not set any limitations on the
percentage of assets which may be invested in any one investment. These policies
may be changed without a vote of security holders.
Item 3. Legal Proceedings.
The Company is not a party in any pending legal proceedings other than
routine litigation that is incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
MARKET INFORMATION
The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol: BUCK.
The following table presents the high and low sales prices for the Common
Stock for each quarter of 1998 and 1999.
($ Per Share)
-------------
High Low
-------------
Quarter ended March 31, 1998 7.88 6.00
Quarter ended June 30, 1998 7.75 6.50
Quarter ended September 30, 1998 7.50 5.38
Quarter ended December 31, 1998 6.75 4.75
Quarter ended March 31, 1999 6.12 4.25
Quarter ended June 30, 1999 6.50 4.75
Quarter ended September 30, 1999 6.12 5.50
Quarter ended December 31, 1999 6.00 5.37
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
As of February 29, 2000, the Company estimates that there were
approximately 1,100 beneficial holders of its Common Stock.
DIVIDENDS
On September 23, 1997, the Company issued 30,000 unregistered shares of
$100 par value ten percent (10%) nonvoting cumulative Series A Preferred Stock
as partial consideration for the acquisition of Hatfield Inns, LLC. The Series A
Preferred Stock has certain rights, privileges and preferences that limit and
qualify the rights of the Common Shareholders of the Company. Holders of the
Series A Preferred Stock are entitled to receive, prior and in preference to any
distribution to the holders of Common Stock, cumulative dividends at the rate of
10% per annum, to the extent declared by the Board of Directors. All accrued but
unpaid dividends of the Series A Preferred Stock must be paid in full before any
cash dividend may be declared on the Common Stock. Further, holders of the
Series A Preferred Stock have certain preferential distribution rights in the
event of any liquidation, dissolution or winding-up of the Company.
During 1999 and 1998, the Board of Directors declared dividends of $163,750
and $300,000 respectively, on the Series A Preferred Stock. As of December 31,
1999, there was $136,250 of cumulative preferred dividends in arrears. The
holders of the Series A preferred stock have agreed to forgive the cumulative
preferred dividends in arrears in exchange for the settlement of certain claims
the Company has against them in connection with the acquisition.
Certain of the Company's debt obligations contain provisions relating to
minimum net worth and debt to equity ratios. In the opinion of management, such
restrictions are not likely to limit the ability to pay dividends in the future.
The Company has not sold any securities during the last quarter of the
period covered by this report without registering them under the Securities Act
of 1933.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
The Company has continued its expansion of the Country Hearth Inn lodging
system. The number of Country Hearth Inns open increased by eight in 1998 and by
12 in 1999 bringing the total number of properties open to 49. An additional 26
properties are in various stages of development; most of which are expected to
open within the next 12 months. Included in these numbers are 18 "Rural Gold"
properties open at the end of 1999, up from 11 at the end of 1998. The "Rural
Gold" properties are the interior corridor 40-room properties designed for
smaller communities which have historically been overlooked by the lodging
industry.
The Company also has continued expansion of its hotel management business
through it's wholly-owned subsidiary, The Lodge Keeper Group, Inc. ("Lodge
Keeper"). In addition to managing 34 Company owned or leased properties, Lodge
Keeper manages 19 other properties for third parties which operate under
numerous national brand names. Additionally, Lodge Keeper has executed
agreements for the management of three more hotels yet to be constructed. Total
properties managed increased to 53 as of the end of 1999, up from 40 in 1998.
In June 1999, the Company completed the sale of the Country Hearth Inn
located in Orlando, Florida for $13.5 million. The Company held an approximate
59% interest in the partnership which owned the hotel in addition to holding
franchise and hotel management contracts relating to the operation of the
property. After retirement of an approximate $4.4 million first mortgage loan,
payment of certain fees, costs, bonuses, and minority interest shares, the
Company's share of net proceeds was approximately $5.5 million. After
distributions to minority interest partners of approximately $3.2 million, the
Company began soliciting for additional partnership units and the Company has
purchased an additional 14% of the partnership. The Company has no obligation to
continue to operate the property, but plans to continue to operate the hotel
under an agreement with Orange County, Florida (the purchaser) until January
2001 at which time the property is to be demolished to make way for expansion of
the Orange County Convention Center.
In August 1999, the Company purchased nine hotel management agreements from
the members of Quality Lodging, LLC ("Quality") for an aggregate purchase price
of approximately $900,000, including the issuance of 65,378 unregistered shares
of the Company's common stock. The Company has agreed to purchase additional
contracts from Quality when the related hotel properties are completed and
opened.
The Company sold its leasehold interests in four hotel properties during
1999 resulting in aggregate gains of approximately $500,000. These sales
represent a continuation of the Company's previously announced desire to divest
itself of older properties.
In July 1999, the Company completed the sale of one of its three 40-room
hotel properties in Texas. A second of these properties was sold in January 2000
and the third property remains held for sale. Operating profit contribution from
these hotels has not been significant. Management has estimated the losses on
sales of these three properties to aggregate approximately $300,000. Such loss
was recognized in the second quarter of 1999 by the recording of a provision for
impairment.
The Company holds a 44.5% interest in a partnership which owns a 93-room
Country Hearth Inn in Mason, Ohio. Due to an increase in effective control, the
Company consolidated the partnership in its 1999 financial statements. As a
result of the consolidation, the Company's property and equipment increased by
approximately $4 million and notes payable by approximately $3 million. During
1999, the Company loaned the partnership approximately $240,000 which, along
with $268,000 from another partner, was used to reduce the first mortgage
obligation on the hotel.
Capital expenditures during 1999 aggregated approximately $3 million and
mostly related to two new Company owned Country Hearth Inns in Eddyville,
Kentucky and Washington Courthouse, Ohio. Approximately $1.5 million of such
expenditures was funded by construction loan commitments and the remainder was
funded by working capital and the Company's line of credit.
During the first half of 1999, the Company drew down $1 million on its bank
line of credit in order to fund working capital needs and construction
commitments. Also, the Company temporarily suspended payment of dividends on its
Series A preferred stock. As has been previously disclosed, the Company's hotel
operations are highly seasonal. Historically, the Company's hotel revenues and
operating profits have been stronger during the second and third quarters as
opposed to the first and fourth quarters. Management expects this trend to
continue. The line of credit was fully repaid in July from a portion of the
proceeds from the Orlando hotel sale. The Company also resumed payment of Series
A preferred dividends. The Company does not presently have a line of credit
arrangement and does not expect to need such within the next year.
The Company continued to acquire interests in hotel properties during 1998.
The most significant transaction was the purchase of leasehold interests in
seven hotel properties owned by Host Funding, Inc. ("Host"). The properties
operate as Sleep Inn (3) and Super 8 (4) hotels. The leasehold interests were
purchased in June 1998 for an aggregate purchase price of approximately $1.3
million, including approximately $500,000 in cash, $400,000 of Company common
stock, and $400,000 of notes payable. The Company committed to expend
approximately $400,000 for renovations and other improvements to the properties
for which it would receive dollar for dollar credits against its notes payable
to Host. Such expenditures were completed during 1999. The Company had
previously leased two Country Hearth Inns owned by Host; such transactions
having been completed in October 1997. During 1999, one of the Country Hearth
Inn properties was sold and the lease terminated.
The Company also acquired a 121-room hotel in Norcross, Georgia which was
operated as a Best Western-Bradbury Suite. The acquisition was completed in May
1998 for an aggregate purchase price of approximately $4 million, including cash
of approximately $200,000 and an assumed mortgage note payable of approximately
$3.8 million. During 1999, the property was converted to a Country Hearth Inn
and marketed for sale. The hotel is presently under contract for sale; no
assurances can be made that such transaction will close.
In September 1998, the Company acquired a 50-room hotel property in
Coshocton, Ohio for approximately $725,000. The property is operated under a
Travelodge license agreement. The Company had previously held a leasehold
interest in the property. The purchase price was partially financed by a
$600,000 mortgage note which was later paid off with the proceeds from a new
$700,000 mortgage note.
The Company completed construction of a 40-room hotel in Nicholasville,
Kentucky which opened in September 1998 and began construction on the 40-room
property in Eddyville, Kentucky which opened in March 1999. Construction of both
of these properties was partially financed by construction loans ($1 million
each) from a local bank and by purchase money notes to the land sellers for an
aggregate of $225,000.
During 1998, the Company completed significant renovations on three leased
hotels in Ohio which were converted to operate as Country Hearth Inns. Also,
eight 40-room hotel properties which had been acquired in 1997 were converted to
operate as Country Hearth Inns. These were the original "Rural Gold" properties.
In the aggregate, the Company spent approximately $6 million on capital
expenditures during 1998 in addition to approximately $900,000 on the Host lease
acquisition and renovation expenditures. Proceeds from notes payable of
approximately $3 million during 1998 partially financed these expenditures. The
remaining proceeds from the Company's December 1997 sale of $5 million of
convertible debentures provided the additional funds needed.
Another source of funds during 1998 was the sale of certain leasehold
interests. The Company had previously announced its intention to divest its
investments in older less profitable hotel properties. During 1998, the Company
sold eight of its leasehold interests in hotel properties which resulted in
gains of approximately $1.6 million. The operating profit contribution from
these properties was not significant.
The Company's balance sheet at December 31, 1999 includes a deferred tax
asset of $2,788,000. 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 not 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 whether a valuation allowance is necessary.
Although no assurances can be made, realization of the Company's deferred tax
assets should occur if the Company generates approximately $7.1 million of
taxable income over the next 7 to 19 years.
RESULTS OF OPERATIONS
The Company conducts recurring operations in three segments of the
limited-service hotel industry - hotel franchising, hotel management, and hotel
operations. The company generates additional revenues and results of operations
from hotel development activities.
Hotel franchising involves the selling and servicing of rights and licenses
comprising the Country Hearth Inn lodging system. Revenues include initial fees
and continuing royalty, marketing and reservation fees from Company owned and
leased hotels and from unaffiliated customers. Continuing fees are based on each
franchised hotel's room revenues.
Hotel management involves the oversight of day-to-day hotel operations and
accounting for limited-service and some full-service hotels. Revenues include
continuing fees from Company owned and leased hotels and from unaffiliated
customers. Continuing fees are based on each managed hotel's revenues.
Hotel operations involves the operations of Company owned and leased
hotels. Revenues are generated from unaffiliated hotel guests. Hotel operations
also includes the Company's share (equity method) of unconsolidated partnerships
which also operate hotels and the minority interests share of consolidated
partnerships' results which are included in hotel operations.
Hotel development activities involves the development and construction or
purchase of existing hotel properties and subsequent sale thereof along with
related activities such as servicing notes receivable generated from sales.
Corporate activities are generally administrative and also include all interest
income and expense which does not specifically relate to other segment
operations.
Franchise and management fees are charged to Company owned and leased
hotels at the same rates as charged to unaffiliated customers and are eliminated
in consolidation.
Hotel franchising revenues and income before taxes amounted to $2,141,373
and $901,020, respectively, in 1999, as compared to $1,320,327 and $14,046,
respectively, in 1998. The 1999 results include termination fees of $640,895
from the Orlando hotel sale transaction. The remaining increases in revenues and
profits are attributable to the previously discussed increases in the number of
Country Hearth Inns opened in 1998 and 1999. Revenues also include fees from
Company owned or leased hotels of $809,624 in 1999 and $621,119 in 1998.
Management's continued goal is the expansion of the Country Hearth Inn chain due
to the high profit margins on incremental franchise revenues.
Hotel management revenues and income(loss) before taxes amounted to
$2,324,275 and $451,908, respectively, in 1999, as compared to $1,193,417 and
$(593,398), respectively, in 1998. The 1999 results include termination fees of
$604,220 from the Orlando hotel sale transaction. The remaining increases in
revenues and profits are attributable to the previously discussed increases in
the number of properties managed. Revenues also include fees from Company owned
or leased hotels of $992,252 in 1999 and $968,963 in 1998. The largest increase
in recurring, non-eliminating revenues in 1999 occurred in the hotel management
segment. This is attributable to a significant increase in the number of hotels
managed for unaffiliated third parties. Management believes that a solid base of
managed properties has been established and that incremental management revenues
from additional management contracts will provide relatively high profit
margins. The Company has significantly increased its marketing efforts in 2000
with a goal of the attainment of additional third party hotel management
contracts. Further, Lodge Keeper has enhanced its competitiveness in seeking
additional contracts as a result of the increase in the number of nationally
recognized brands which it manages.
Hotel revenues amounted to $25,886,594 in 1999 and $25,720,086 in 1998.
Hotel earnings before interest, taxes, depreciation and amortization ("EBITDA")
declined from $4,539,531 in 1998 to $4,257,365 in 1999. As previously discussed,
the Company has purchased and sold numerous properties during 1998 and 1999. The
changes specified above are mostly attributable to those transactions. However,
the Company did experience declines in revenue per available room ("REVPAR") at
several of its owned or leased properties. These declines are primarily
attributable to new properties being opened in our markets. A notable exception
to this is the Company's "Rural Gold" properties which generally enjoyed
increases in REVPAR and EBITDA. Management continues to believe in the "Rural
Gold" concept and intends to commit additional resources to its growth.
Management views hotel operations as a less profitable, but necessary,
segment to support development and franchising activities. Growth of the Country
Hearth brand has been partially effected through development activities which
result in hotel ownership. Until hotel properties are eventually sold, the
operations of the hotels impact the results of the Company. Margins on hotel
revenues are not as profitable as the fee based segments (franchising and
management). However, in order to grow the fee based segments, the Company has
had to invest in hotel operations assets. Note that owned and leased hotel
operations contributed $1,801,876 in 1999 and $1,590,082 in 1998, to the fee
based segments. Management continues to believe that development activities
which result in hotel or leasehold ownership will be necessary to enhance the
growth of the fee based segments.
Other non-segment related expenses in 1999 such as non-mortgage related
interest expense and corporate expenses were comparable to 1998 and in line with
management expectations. Development related revenues in 1999 primarily
consisted of gains on property sales of $3,214,110. These gains resulted from
the Orlando hotel sale and the sale of leasehold interests previously discussed.
The 1999 gains amount is net of the provision for impairment recognized by the
Company relating to properties held for sale. 1998 results included gains of
$1,648,894 from the leasehold sales. Investment income increased from $201,334
in 1998 to $495,531 in 1999 primarily as a result of the notes receivable
generated from the leasehold sales.
Other income in 1999 and 1998 amounted to $38,591 and $675,167,
respectively. The 1998 amount includes a $510,000 nonrecurring item.
Changes in interest expense and depreciation expense are directly related
to changes in owned hotel properties. All Company owned hotels are encumbered by
mortgage obligations, most of which are fixed rate. The Company uses consistent
straight-line depreciation methods for all owned hotels which results in
depreciation expense recognition consistent with hotel ownership changes.
The Company recognized income tax expense in 1999 of $1,055,000. Actual
payments are expected to be nominal due to the utilization for tax purposes of
net operating loss carryforwards ("NOLs") which have previously been recognized
for financial reporting purposes. The Company has approximately $7.1 million of
NOLs available to offset future taxable income. These NOLs have previously been
recognized for financial reporting purposes. In 1998, the Company recognized an
income tax benefit of $901,000 resulting primarily from a decrease in the
valuation allowance for deferred tax assets.
RISK FACTORS
This report contains forward looking statements that involve risks and
uncertainties. Statements contained in this report 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.
The Company is subject to a number of risks, including the general risks of
investing in real estate, the illiquidity of real estate, environmental risks,
possible uninsured or underinsured losses, fluctuations in property taxes, hotel
operating risks, the impact of competition, the difficulty of managing growth,
seasonality, the risks inherent in operating a hotel franchise business, and the
risks involved in hotel renovation and construction. For a discussion of these
and other risk factors, see the "RISK FACTOR" section contained in the Company's
Registration Statement on Form S-3 (File No. 333-37691).
Item 7. Financial Statements.
ANNUAL FINANCIAL STATEMENTS
The Company's consolidated financial statements with independent auditors'
report thereon are included on pages 21 through 48 which follow.
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
<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, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity and comprehensive
income, 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, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Atlanta, Georgia
March 3, 2000
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Assets 1999 1998
------------------- --------------
Current assets:
Cash and cash equivalents, including restricted cash of $486,160
in 1999 and $547,695 in 1998 (note 3) $ 2,390,856 1,604,194
Investment securities, including restricted securities of $215,849
in 1999 (note 4) 1,312,256 120,496
Accounts receivable, net 1,857,002 1,886,341
Current portions of notes receivable, net (note 5) 517,870 367,017
Property held for sale, net (note 6) 8,114,083 --
Other current assets 666,439 344,669
------------------- --------------
Total current assets 14,858,506 4,322,717
Investment securities (note 4) 139,977 139,977
Noncurrent portions of notes receivable, net (note 5) 3,482,633 2,696,561
Property and equipment, at cost, net (notes 6, 8, and 9) 31,979,242 42,306,067
Deferred costs, net (note 7) 2,513,249 1,892,195
Leasehold interests, net (note 7) 2,526,599 3,192,939
Deferred tax assets, net (note 12) 2,788,000 3,831,000
Other assets (note 7) 426,495 1,159,662
------------------- --------------
$ 58,714,701 59,541,118
=================== ==============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,634,184 3,618,621
Current portions of notes payable (note 8) 8,681,568 1,251,251
------------------- --------------
Total current liabilities 11,315,752 4,869,872
Noncurrent portions of notes payable (note 8) 24,097,774 33,357,178
Other liabilities (note 4) 396,266 256,049
------------------- --------------
Total liabilities 35,809,792 38,483,099
------------------- --------------
Minority interest in partnerships 450,290 565,694
Shareholders' equity (notes 10 and 13):
Series A preferred stock; par value $100; 200,000 shares
authorized; 30,000 shares issued and outstanding 3,000,000 3,000,000
Common stock; $.01 par value; 5,000,000 shares
authorized; 2,094,655 and 2,003,277 shares issued
and 2,029,313 and 1,943,935 shares outstanding in
1999 and 1998, respectively 20,947 20,033
Additional paid-in capital 7,854,921 7,362,487
Retained earnings 12,234,054 10,728,847
Accumulated other comprehensive loss (148,023) (148,023)
Treasury stock, 65,342 and 59,342 common shares
in 1999 and 1998, respectively (507,280) (471,019)
------------------- --------------
Total shareholders' equity 22,454,619 20,492,325
Commitments and contingency (notes 7, 9, and 15)
$ 58,714,701 59,541,118
=================== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
--------------------- ----------------
Revenues:
Hotel revenues $ 25,886,594 25,720,086
Management fee income (note 6) 1,332,023 224,454
Franchise fee income (note 6) 1,331,749 699,208
Gains on property and leasehold interest sales, net (notes 6 and 7) 3,214,110 1,648,894
Investment income (note 4) 495,531 201,334
Other income, net (note 11) 38,591 675,167
---------------- ----------------
Total revenues 32,298,598 29,169,143
---------------- ----------------
Expenses:
Hotel operations 21,131,049 20,795,383
Management operations 823,644 767,347
Franchise operations 808,909 946,834
Other operating and administrative (note 14) 1,702,913 1,569,793
Depreciation and amortization 1,808,843 1,773,346
Interest 3,299,283 2,981,945
---------------- ----------------
Total operating, administrative, and
interest expenses 29,574,641 28,834,648
---------------- ----------------
Income before income taxes 2,723,957 334,495
Provision for income tax expense (benefit) - (note 12) 1,055,000 (901,000)
---------------- ----------------
Net income $ 1,668,957 1,235,495
================ ================
Net income per common share (note 10):
Basic $ 0.69 0.48
================ ================
Diluted $ 0.61 0.47
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Additional other Total
Comprehensive Common Preferred paid-in Retained comprehensive Treasury shareholders'
income stock stock capital earnings loss stock equity
------------- ------- --------- --------- ----------- ------------- ---------- -------------
Balances at December 31, 1997 $19,496 3,000,000 6,963,024 9,793,352 -- (422,321) 19,353,551
Issuance of 53,647 common shares
for asset acquisition 537 -- 399,463 -- -- -- 400,000
Acquisition of 7,492 common shares -- -- -- -- -- (48,698) (48,698)
Preferred stock dividends paid -- -- -- (300,000) -- -- (300,000)
Comprehensive income:
Net income $ 1,235,495 -- -- -- 1,235,495 -- -- 1,235,495
Unrealized loss on investment (148,023) -- -- -- -- (148,023) -- (148,023)
securities
-------------
Total comprehensive income $ 1,087,472
============= ------- --------- --------- ----------- ------------- ---------- -------------
Balances at December 31, 1998 20,033 3,000,000 7,362,487 10,728,847 (148,023) (471,019) 20,492,325
Issuance of 65,378 common shares
for asset acquisition 654 -- 391,614 -- -- -- 392,268
Issuance of 26,000 common shares
pursuant to exercise of options 260 -- 100,820 -- -- -- 101,080
Acquisition of 6,000 common shares -- -- -- -- -- (36,261) (36,261)
Preferred stock dividends paid -- -- -- (163,750) -- -- (163,750)
Comprehensive income:
Net income $ 1,668,957 -- -- -- 1,668,957 -- -- 1,668,957
Change in unrealized loss on
investment securities -- -- -- -- -- -- -- --
-------------
Total comprehensive income $ 1,668,957
============= ------- --------- --------- ----------- ------------- ---------- -------------
Balances at December 31, 1999 $20,947 3,000,000 7,854,921 12,234,054 (148,023) (507,280) 22,454,619
======= ========= ========= =========== ============= ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
----------------- ---------------
Cash flows from operating activities:
Net income $ 1,668,957 1,235,495
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,808,843 1,773,346
(Purchases) sales of trading securities, net (1,127,927) 2,998,950
Realized gains on trading securities (39,377) (37,260)
Unrealized holding (gains) losses on trading securities (16,033) 105,929
Gains on property and leasehold interest sales (5,883,451) (1,648,894)
Provision for impairment on property held for sale 373,529 --
Minority interest in partnership income 2,544,050 250,015
Equity in joint venture losses 131,065 124,480
Deferred income tax expense (benefit) 1,055,000 (901,000)
Change in assets and liabilities:
Accounts receivable, net 29,339 (837,332)
Accounts payable and accrued expenses (830,826) 295,140
Other, net (45,069) 198,690
----------------- ---------------
Net cash (used in) provided by operating activities (331,900) 3,557,559
----------------- ---------------
Cash flows from investing activities:
Principal receipts on notes receivable 288,075 704,970
Originations of notes receivable (400,000) (1,018,721)
Acquisitions of businesses and hotels (506,041) (707,783)
Capital expenditures (2,990,276) (5,966,947)
Investments in joint ventures -- (148,873)
Proceeds from property and leasehold interest sales 8,043,247 989,064
Acquisition of additional partnership interests (110,000) (60,000)
----------------- ---------------
Net cash provided by (used in) investing activities 4,325,005 (6,208,290)
----------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable 2,762,902 2,969,091
Repayments of notes payable (2,663,520) (1,723,092)
Net proceeds from refinancing of notes payable -- 374,440
Distributions to minority interest partners (3,206,894) (298,590)
Proceeds from issuance of common shares 101,080 --
Purchase of treasury shares (36,261) (48,698)
Preferred stock dividends paid (163,750) (300,000)
----------------- ---------------
Net cash (used in) provided by financing activities (3,206,443) 973,151
----------------- ---------------
Net increase (decrease) in cash and cash equivalents 786,662 (1,677,580)
Cash and cash equivalents at beginning of year 1,604,194 3,281,774
----------------- ---------------
Cash and cash equivalents at end of year $ 2,390,856 1,604,194
================= ===============
(Continued)
</TABLE>
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
----------------- ---------------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest, net of interest capitalized
of $34,024 in 1999 and $48,542 in 1998 $ 3,362,708 2,765,901
================= ===============
Cash paid during the year for income taxes $ 12,000 --
================= ===============
Supplemental disclosures of noncash and partial cash investing
and financing activities: During 1999, the Company recorded
the following partial cash activity relating to the sale of a
150-room hotel in Orlando, Florida:
Gross sales price $ 13,500,000
Gross sales price allocated to management and
franchise contract termination (1,446,590)
-----------------
Net sales price 12,053,410
Payoff of note payable 4,383,335
Other costs 330,505
-----------------
Net cash proceeds 7,339,570
-----------------
Basis of assets sold:
Property and equipment, net 6,191,988
Note payable (4,383,335)
Other 149,305
-----------------
1,957,958
-----------------
Gain on sale 5,381,612
Minority interests' share of gain on sale (2,319,182)
-----------------
Company share of gain on sale $ 3,062,430
=================
During 1999, the Company also recorded the following partial
cash activity relating to the sale of one other hotel and
leasehold interests in four hotels:
Proceeds:
Cash, net of closing costs $ 703,677
Notes receivable 825,000
-----------------
1,528,677
-----------------
Basis of assets sold:
Property and equipment, net 896,829
Leasehold interests, net 655,009
Note payable (525,000)
-----------------
1,026,838
-----------------
Gain on sales, net $ 501,839
=================
(Continued)
</TABLE>
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
----------------- ---------------
During 1999, the Company recorded the following partial cash
activity relating to the acquisition of management contracts
on nine hotel properties:
Costs:
Cash $ 506,041
Common stock issued - 65,378 shares 392,268
-----------------
Allocated to deferred costs $ 898,309
=================
During 1999, the Company acquired additional control in a
partnership which owns a hotel property subject to mortgage
notes payable. Prior to 1999, the Company's investment in the
partnership had been accounted for on the equity method. Due
to the increase in control, the 1999 financial statements
include the accounts of the partnership on a consolidated
basis. The noncash impact on investing and financing
activities of consolidating the partnership in 1999 was as
follows:
Investing:
Increase in property and equipment, net $ 3,956,581
Decrease in investments in partnerships (365,907)
-----------------
$ 3,590,674
=================
Financing:
Increase in notes payable $ 3,091,339
Increase in minority interests 502,015
Other, net (2,680)
-----------------
$ 3,590,674
=================
In May 1998, the Company recorded the following partial cash
activity relating to the acquisition of a 121-room hotel in
Norcross, Georgia.
Costs:
Cash $ 191,148
Payables 31,953
Note payable assumed 3,818,798
---------------
Property and equipment $ 4,041,899
===============
In June 1998, the Company recorded the following partial cash
activity relating to the acquisition of leasehold interests in
seven hotels owned by Host Funding, Inc.:
Costs:
Cash $ 516,635
Common stock issued 400,000
Notes payable issued 400,000
---------------
$ 1,316,635
===============
Allocated to:
Lessor's common stock $ 288,000
Leasehold interests 1,028,635
---------------
$ 1,316,635
===============
(Continued)
</TABLE>
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
----------------- ---------------
In August and September 1998, the Company recorded the
following partial cash activity relating to the refinancing of
four owned hotels:
New notes payable issued $ 4,885,000
Discharge of old notes payable (4,323,476)
Notes payable issuance costs (187,084)
---------------
Net proceeds $ 374,440
===============
In 1998, the Company recorded the following partial cash
activity relating to the sales of leasehold interests in eight
hotels:
Proceeds:
Cash, net of closing costs $ 989,064
Notes receivable, net 1,655,000
---------------
2,644,064
---------------
Basis in leasehold interests sold:
Leasehold interests, net 270,002
Leasehold improvements, net 725,168
---------------
995,170
---------------
Gains on leasehold interest sales, net $ 1,648,894
===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) The Company
Buckhead America Corporation (the Company) was created in December 1992 and
effectively commenced operations on January 1, 1993. The Company operates
in the hospitality industry and its principal holdings include hotels,
loans, leasehold interests and other investments secured by hotels, hotel
management contracts, hotel franchising rights, and other related assets.
Its principal product is the Country Hearth Inn midpriced hotel franchise
system.
The primary activities of the Company involve the franchising of the
Country Hearth Inn chain, limited-service hotel management and the
operation, development, and sales of hotel properties.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its wholly owned subsidiaries. They also include, on a
consolidated basis, the accounts of two partnerships controlled by the
Company, each of which owns a hotel subject to a nonrecourse mortgage.
The accounts of the partnerships are consolidated on a gross basis
with the minority partners' interests reflected separately on a net
basis. All significant intercompany accounts have been eliminated in
the consolidated financial statements.
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 as of the balance
sheet date and revenues and expenses during the reporting period to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(b) Revenue Recognition
Hotel revenues are recognized as earned, which is generally defined as
the date upon which a guest occupies a room and utilizes the hotel's
services.
Initial 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 room revenues. These
continuing fees are recognized when earned. Management fees are
generally based on a percentage of each managed hotel's gross revenues
and are recognized when earned.
Investment income is recognized as earned. Changes in the market value
of investments classified as trading securities are included in
investment income.
(c) Cash and Cash Equivalents
Cash and cash equivalents include demand and savings deposits with
financial institutions and cash on hand. Restricted cash includes
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.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(d) Investment Securities
The Company has classified all of 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 other comprehensive income. Trading securities are
also recorded at fair value with unrealized gains and losses reported
as investment income in the consolidated statements of income.
Available-for-sale securities are classified as long-term, while
trading securities are classified as current in the accompanying
balance sheets.
(e) Notes Receivable
Notes receivable are recorded at cost, less the related general
allowance for doubtful accounts and any allowances for impaired notes
receivable. 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. 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.
(f) Property and Equipment
Property and equipment is stated at cost, less accumulated
depreciation.
Depreciation on property and equipment is calculated on the
straight-line method over the estimated useful lives of the assets.
Property and equipment held under capital leases and leasehold
improvements are amortized over the shorter of the lease term or
estimated useful life of the asset. Estimated useful lives of property
and equipment are as follows:
Buildings 25 to 40 years
Furniture, fixtures, and equipment 5 to 10 years
Leasehold improvements 5 to 20 years
(g) Property Held for Sale
Property held for sale is stated at the lower of cost or fair value
less costs to sell. Fair value of property held for sale has been
determined by the Company based upon current market information. At
the date on which a decision is made to dispose of a property, any
amount by which the carrying amount of an asset exceeds the fair value
less cost to sell is reported as a provision for impairment and is
reflected as a component of gains on sales. Due to the intent of the
Company to dispose of such properties in the short-term, the
properties and all related notes payable have been reflected as
current in the accompanying balance sheets. The Company has the
ability to remove such properties from operations at the current time.
(h) Deferred Costs
Deferred costs include the costs associated with the acquisition of
trademark rights and franchise licenses which are amortized on a
straight-line basis over the estimated useful lives of the assets,
which range from 10 - 20 years. Deferred costs also include
unamortized note payable issuance costs which are amortized over the
term of the related debt. Deferred costs also include the acquisition
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
costs of long-term hotel management contracts which are amortized over
the related terms of the contracts.
(i) Leasehold Interests
Leasehold interests are intangible assets that represent the right to
operate certain hotel properties, inclusive of the right to use the
properties under existing lease agreements, and are stated at cost,
less accumulated amortization. Amortization is calculated on the
straight-line method over the terms of the related leases.
(j) Other Assets
Other assets primarily 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.
(k) Treasury Stock
Treasury stock is stated at cost. In noncash exchanges, fair value
represents cost.
(l) 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 $1,156,983 and
$1,114,777 for the years ended December 31, 1999 and 1998,
respectively, and are included in franchise operations expense
($101,161 and $123,625, respectively) and in hotel operations expense
($1,055,822 and $991,152, respectively) in the accompanying
consolidated statements of income.
(m) 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.
(n) Fair Value of Financial Instruments
Management believes that the carrying amounts of cash and cash
equivalents, accounts receivable, other current assets, accounts
payable and accrued expenses, and current portions of notes receivable
and payable are reasonable approximations of their fair value because
of the short-term nature of these instruments.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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.
Investment securities (both trading and available-for-sale) are stated
at fair value in the accompanying consolidated balance sheets. These
fair values are based on quoted market prices at the reporting date
for those or similar investments.
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.
(o) Stock Options
The Company accounts for its stock options in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation, which encourages entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123
allows entities to continue to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and record compensation expense on the date of grant
only if the current market price of the underlying stock exceeds the
exercise price. In addition, pro forma net income and pro forma
earnings per share disclosures for employee stock option grants must
be provided as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company continues to apply the provisions of APB
Opinion No. 25 and provides the pro forma disclosures required by SFAS
No. 123.
(p) Impairment of Long-Term Assets
Property and equipment, deferred costs and leasehold interests are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of these assets may not be
recoverable. Recoverability 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 an asset is considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds the fair value of the asset.
(q) Comprehensive Income
Comprehensive income of the Company consists of net income and net
unrealized gains (losses) on investment securities (Other
Comprehensive Income) and is presented in the consolidated statements
of shareholders' equity and comprehensive income. Other Comprehensive
Income does not affect the Company's financial position or
consolidated results of operations.
(r) Reportable Segments
The Company is required to report both quantitative and qualitative
information regarding its reportable operating segments. Operating
segments are determined by assessing what information is reviewed by
the chief operating decision maker in evaluating the performance of
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
the Company. The Company has determined its reportable operating
segments to be hotel operations, management, and franchising and has
presented the required information for each of these segments.
(s) Reclassifications
Certain reclassifications have been made to the 1998 balances to
conform with classifications adopted in 1999.
(3) Cash and Cash Equivalents
Cash and cash equivalents at December 31, 1999 and 1998 included the
following:
1999 1998
---------- ----------
Unrestricted cash:
Operating accounts, money market funds,
and overnight investments $ 961,989 550,855
Hotel operating accounts, savings
accounts, and cash on hand 942,707 505,644
---------- ----------
1,904,696 1,056,499
---------- ----------
Restricted cash:
Unsettled claim reserves (a) -- 609
Mortgage-related escrows (b) 436,160 494,596
Insurance deposits (c) 50,000 52,490
------ ------
486,160 547,695
---------- ----------
$2,390,856 1,604,194
========== ==========
(a) The Company acted as a trustee and administered 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
inured to the benefit of the Company (note 11). Accordingly,
these accounts, along with the related liabilities, are reflected
in the accompanying consolidated balance sheets. Such
liabilities, which equal the restricted cash balances, are
included in accounts payable and accrued expenses.
(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.
(c) The Company is self-insured for workers' compensation liabilities
relating to certain employees in certain locations. Some states
require deposits be made by self-insuring companies. Such
deposits are restricted to the payment of workers' compensation
claims which are otherwise not settled.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(4) Investment Securities
The amortized cost, gross unrealized holding 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, 1999
and 1998, are as follows:
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------------------
Gross Gross
unrealized unrealized
Amortized holding holding Fair
cost gains losses value
-------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
U.S. government and
agency obligations $ 986,109 -- -- 986,109
Equity securities 11,812 103,007 (4,521) 110,298
Third-party managed
funds 189,618 26,231 -- 215,849
-------------- --------------- -------------- ----------------
1,187,539 129,238 (4,521) 1,312,256
Available-for-sale
securities - equity
securities 288,000 -- (148,023) 139,977
-------------- --------------- -------------- ----------------
Total $ 1,475,539 129,238 (152,544) 1,452,233
============== =============== ============== ================
1998
-----------------------------------------------------------------------
Gross Gross
unrealized unrealized
Amortized holding holding Fair
cost gains losses value
-------------- --------------- -------------- ----------------
Trading securities -
equity securities $ 11,812 112,082 (3,398) 120,496
Available-for-sale
securities - equity
securities 288,000 -- (148,023) 139,977
-------------- --------------- -------------- ----------------
Total $ 299,812 112,082 (151,421) 260,473
============== =============== ============== ================
</TABLE>
Equity securities are primarily concentrated in hospitality related
companies.
The available-for-sale securities were acquired in 1998 in connection with
the purchase of certain leases (note 7) and are restricted as to their
sale. Other comprehensive loss in 1998 consists of an unrealized loss on
available-for-sale securities of $148,023. There was no change in this
unrealized loss in 1999.
Third party managed funds consist of trading securities held by a Rabbi
Trust for the benefit of certain employees who participate in a Company
deferred compensation plan. Such funds are restricted to the payment of
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
deferred compensation liabilities. Such liabilities are included in "other
liabilities" in the accompanying consolidated balances sheets at amounts
equal to the fair value of the restricted funds. None of the third-party
managed funds are invested in the common stock of the Company.
Proceeds from the sale of trading securities were $3,500,000 and $3,000,000
in 1999 and 1998, respectively. Net realized gross gains calculated on a
specific identification basis and included in investment income in 1999
were $39,377 and in 1998 were $37,260.
(5) Notes Receivable
Notes receivable at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
1999
----------------------------------------------------
Other
Secured notes Total
------------- -------------- ----------------
<S> <C> <C> <C>
Principal $ 3,542,587 834,067 4,376,654
Less allowances 284,071 92,080 376,151
------------- -------------- ----------------
3,258,516 741,987 4,000,503
Less current portions 192,228 325,642 517,870
------------- -------------- ----------------
Noncurrent portions $ 3,066,288 416,345 3,482,633
============= ============== ================
Number of notes 19 11 30
============= ============== ================
1998
----------------------------------------------------
Other
Secured notes Total
------------- -------------- ----------------
Principal $ 2,652,398 787,331 3,439,729
Less allowances 284,071 92,080 376,151
------------- -------------- ----------------
2,368,327 695,251 3,063,578
Less current portions 121,495 245,522 367,017
------------- -------------- ----------------
Noncurrent portions $ 2,246,832 449,729 2,696,561
============= ============== ================
Number of notes 14 10 24
============= ============== ================
</TABLE>
The secured notes are primarily collateralized by mortgages and leasehold
interests on hotel properties.
The recorded investment in impaired notes receivable as of December 31,
1999 and 1998 was $906 and $17,080, respectively, and the Company has fully
reserved for these notes. Cash received in payment of impaired notes during
1999 and 1998 amounted to $16,174 and $9,938, respectively.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The activity in the allowance for doubtful notes receivable for the years
ended December 31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- ---------------
<S> <C> <C>
Allowance for doubtful notes receivable at
beginning of year $ 376,151 57,874
Allowances recorded in connection with leasehold
interest sales (note 7) -- 350,215
Additions charged to bad debt expense 16,174 --
Write-downs charged against the allowance -- (22,000)
Collections on impaired notes (16,174) (9,938)
----------------- ---------------
Allowance for doubtful notes receivable
at end of year $ 376,151 376,151
================= ===============
</TABLE>
(6) Property Held for Sale and Property and Equipment
Property held for sale at December 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1999 1998
----------------- ---------------
<S> <C> <C>
Property and equipment (four hotels at
December 31, 1999) $ 8,364,083 --
Allowance for impairment (250,000) --
----------------- ---------------
$ 8,114,083 --
================= ===============
</TABLE>
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Property and equipment at December 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Owned hotel properties (16 in 1999 and 19 in 1998):
Land and buildings $ 28,991,188 38,510,080
Furniture, fixtures, and equipment 3,328,214 4,577,638
--------------- ----------------
32,319,402 43,087,718
Accumulated depreciation (2,681,531) (3,790,817)
--------------- ----------------
29,637,871 39,296,901
--------------- ----------------
Leased hotel properties (16 in 1999 and 18 in 1998):
Leasehold improvements 1,344,847 1,083,967
Furniture, fixtures, and equipment 834,499 799,496
--------------- ----------------
2,179,346 1,883,463
Accumulated depreciation (256,702) (165,195)
--------------- ----------------
1,922,644 1,718,268
--------------- ----------------
Construction-in-progress 111,433 1,001,213
--------------- ----------------
Other:
Land 200,889 214,198
Other 239,339 183,337
--------------- ----------------
440,228 397,535
Accumulated depreciation (132,934) (107,850)
--------------- ----------------
307,294 289,685
--------------- ----------------
$ 31,979,242 42,306,067
=============== ================
</TABLE>
In 1999, the Company completed the sale of the Country Hearth Inn located
in Orlando, Florida for $13.5 million. The Company held an approximate
59% interest in the partnership which owned the hotel in addition to
holding franchise and hotel management contracts relating to the
operation of the property. After retirement of an approximate $4.4
million first mortgage loan, payment of certain fees, costs, bonuses, and
minority interest shares, the Company's share of net proceeds was
approximately $5.5 million. The Company has no obligation to continue to
operate the property, but plans to continue to operate the hotel under an
agreement with Orange County, Florida (the purchaser) until January 2001
at which time the property is to be demolished to make way for expansion
of the Orange County Convention Center.
The Company's share of the gain on sale, net of the minority interests'
share approximated $3.1 million. The Company also received franchise
termination fees and hotel management fees of approximately $640,000 and
$605,000, respectively. Such fees are included in the Company's
franchising and management operating segments (note 16).
During 1999, the Company began to actively market for sale five hotel
properties (three in Texas and two in Georgia). The income statement for
the year ended December 31, 1999 includes a provision for impairment of
$373,529 which represents management's estimate of losses expected to be
incurred in connection with the hotel sales. One of the Texas hotel
properties was sold in 1999 resulting in a loss of $123,529 which was
charged to the allowance for impairment. As of December 31, 1999, four
properties with an aggregate net carrying value of $8,114,083 remained
held for sale. In January 2000, another Texas hotel property was sold
resulting in a charge to the remaining allowance for impairment of
approximately $65,000.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Revenues and expenses for the years ended December 31, 1999 and 1998
relating to the properties held for sale were as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Hotel revenues $ 2,751,345 2,575,175
Less:
Hotel operations expense 2,316,579 2,086,038
Depreciation 206,851 328,272
Interest 612,592 552,686
-------------- --------------
Loss before income taxes $ 384,677 391,821
============== ==============
</TABLE>
The revenues and expenses relating to hotel properties held for sale are
included in the Company's hotel operations business segment (note 16).
All of the Company's owned hotel properties are encumbered by mortgage
obligations (note 8).
During 1999, the Company acquired additional control in a partnership which
owns a 93-room hotel property in Mason, Ohio (Mason Hotel). Prior to 1999,
the Company's investment in the partnership had been accounted for on the
equity method (note 7). Due to the increase in control, the accompanying
1999 financial statements include the accounts of this partnership on a
consolidated basis with the minority partners' interests reflected
separately on a net basis.
(7) Deferred Costs, Leasehold Interests, and Other Assets
Deferred costs at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
1999 1998
--------------- -------------
<S> <C> <C>
Country Hearth Inn franchise system:
Trademark rights $ 584,300 584,300
Franchise licenses 939,778 939,778
Other deferred costs 247,885 163,549
--------------- -------------
1,771,963 1,687,627
Accumulated amortization (590,333) (470,333)
--------------- -------------
1,181,630 1,217,294
--------------- -------------
Hotel management contract acquisition costs 898,309 --
Accumulated amortization (25,000) --
--------------- -------------
873,309 --
--------------- -------------
Notes payable acquisition costs, net 439,084 674,901
--------------- -------------
Other, net 19,226 --
--------------- -------------
$ 2,513,249 1,892,195
=============== =============
</TABLE>
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Leasehold interests represent the cost of leasehold rights in real property
acquired by the Company and consist of the following at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------- -------------
<S> <C> <C>
Leasehold interests $ 2,851,984 3,431,867
Accumulated amortization (325,385) (238,928)
--------------- -------------
$ 2,526,599 3,192,939
=============== =============
</TABLE>
During 1999, the Company sold four leasehold interests in hotel properties.
The Company received net proceeds of approximately $500,000 in cash and
$825,000 in notes receivable. The notes receivable are secured by the
related leasehold interests. The Company recorded approximately $500,000 in
gains in connection with those sales. The Company remains contingently
liable for rent payments due in accordance with the leases on certain of
the properties (note 9).
During 1998, the Company sold eight leasehold interests in hotel
properties. The Company received net proceeds of approximately $990,000 in
cash and $1,655,000 in notes receivable. The notes receivable are secured
by the related leasehold interests. The Company recorded approximately $1.6
million in gains in connection with these sales. The Company remains
contingently liable for rent payments due in accordance with the leases on
certain of the properties (note 9).
In June 1998, the Company entered into leases for seven hotel properties
owned by Host Funding, Inc. The hotel properties are operated under Super 8
(4) and Sleep Inn (3) license agreements. All of the leases are accounted
for as operating leases (note 9). The Company paid approximately $500,000
in cash, $400,000 in common stock and $400,000 in notes payable for the
leasehold interests. In addition to the leases, the Company received
$288,000 of Host Funding, Inc. common stock; the remainder of the
acquisition fee was allocated to leasehold interests.
Other assets at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Investments in joint ventures/partnerships $ 369,080 1,159,662
Other 57,415 --
------------- -------------
$ 426,495 1,159,662
============= =============
</TABLE>
Investments in joint ventures/partnerships consists of investments in
partnership entities (five in 1999 and six in 1998), each of which owns a
single hotel property. The Company accounts for its interests on the equity
method and recognized aggregate losses from these entities of $131,065 and
$124,480 during 1999 and 1998, respectively.
Such losses are included in hotel operations expense in the accompanying
consolidated statements of income and in the Company's hotel operations
business segment (note 16). One partnership which was previously accounted
for on the equity method is consolidated in the 1999 financial statements
(note 6).
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(8) Notes Payable
Notes payable at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Variable rate mortgage notes $ 2,974,040 3,095,776
Fixed rate mortgage notes 22,916,151 24,057,934
Unsecured subordinated notes 1,755,779 2,034,011
Convertible debenture notes, net of
unamortized discount 4,940,555 4,920,555
Other notes payable 155,270 448,132
Capital lease obligations (note 9) 37,547 52,021
--------------- ---------------
32,779,342 34,608,429
Less current portions 8,681,568 1,251,251
--------------- ---------------
Noncurrent portions of notes payable $ 24,097,774 33,357,178
=============== ===============
</TABLE>
The variable rate mortgage notes consist of four notes secured by four
hotel properties. The notes bear interest at prime plus 1% (9.5% at
December 31, 1999), require aggregate monthly payments of $32,916, and
mature at various dates through 2015.
The fixed rate mortgage notes consist of 18 notes secured by 16 hotel
properties. The notes bear interest at rates ranging from 8.25% to 9.5%
(weighted average at December 31, 1999 of 8.81%). The notes require
aggregate monthly payments of $217,896 and mature at various dates through
2018.
The unsecured subordinated notes consist of three notes which are due in
varying amounts of monthly and quarterly payments and mature at various
dates through December 2002. The stated balances represent the present
value of amounts to be paid at a discount rate of 9%.
The convertible debentures, which were issued to investment funds managed
by a related party (note 14), consist of five notes aggregating $5,000,000
net of unamortized original issue discount of $59,445 in 1999 and $79,445
in 1998. The notes bear interest at 8%, are unsecured, require quarterly
interest only payments, and mature in December 2002. Under the debenture
agreements, the holders also have certain rights of conversion (note 10).
The combined aggregate amount of maturities for all notes payable for each
of the next five years and thereafter is as follows:
Year ending December 31,
---------------------------------
2000 $ 8,681,568
2001 2,079,324
2002 8,482,059
2003 247,929
2004 2,036,522
Thereafter 11,251,940
----------------
$ 32,779,342
================
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Current portions of notes payable include $6,618,680 relating to four notes
secured by four hotel properties held for sale (note 6). The actual amount
required to be paid in the year 2000 under the terms of these notes is
$132,641.
(9) Leases
The Company leases certain equipment under agreements that are classified
as capital leases. The leases have remaining terms ranging from one to
three years and have purchase options at the end of the original lease
terms.
Capital lease assets included in property and equipment at December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------- ---------------
<S> <C> <C>
Equipment $ 69,284 69,284
Accumulated amortization (26,309) (14,830)
------------- ---------------
$ 42,975 54,454
============= ===============
</TABLE>
The Company operates several of its locations in leased facilities. Lease
terms range from 10 to 30 years with options to renew at varying terms.
Certain of the leases provide for contingent payments based upon a percent
of revenues. Some leased vehicles and equipment are classified as operating
leases.
Future minimum payments, by year and in the aggregate, under noncancelable
capital leases and operating leases with initial or remaining terms of one
year or more consist of the following at December 31, 1999:
<TABLE>
<CAPTION>
Year ending Capital Operating
December 31, leases leases
------------ ------------- ---------------
<S> <C> <C>
2000 $ 19,818 2,821,668
2001 14,449 3,104,217
2002 9,632 3,060,007
2003 -- 2,920,039
2004 -- 2,828,603
Subsequent years -- 25,418,911
------------- ---------------
Total minimum lease payments 43,899 40,153,445
===============
Amounts representing interest 6,352
-------------
Present value of net minimum payments 37,547
Current portions 16,114
-------------
Long-term capitalized lease obligation $ 21,433
=============
</TABLE>
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Rental expense, including contingent rentals of $176,774 in 1999 and
$230,376 in 1998 and net of sublease rentals of $78,040 in 1999 and $80,129
in 1998, for all operating leases was $3,350,064 in 1999 and $3,300,307 in
1998.
Leases described in the preceding paragraphs include leases between the
Company and operating companies whose shareholders are common shareholders
of the Company. Such amounts totaled $60,512 in 1999 and $69,984 in 1998.
Total future minimum payments under these related party leases amount to
$424,826.
The Company remains contingently liable for future minimum rental payments
of $3,679,233 on sold leasehold interests (note 7) and on subleased and
assigned properties and equipment in the event of default by the
purchasers, sublessees and assignees.
(10) Capital Structure and Net Income Per Share
Series A Preferred Stock
In connection with an acquisition in 1997, the Company issued 30,000 shares
of Series A (par value $100) preferred stock. The Series A preferred stock
is nonvoting and accrues cumulative dividends at the rate of 10% per annum,
payable when and to the extent declared by the Company's Board of
Directors. All accrued but unpaid dividends of the Series A preferred stock
must be paid in full before any cash dividend may be declared on the
Company's common stock. As of December 31, 1999, there was $136,250 of
cumulative preferred dividends in arrears. The holders of the Series A
preferred stock have agreed to forgive the cumulative preferred dividends
in arrears in exchange for the settlement of certain claims the Company has
against them in connection with the acquisition.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding-up of the Company, the holders of the Series A preferred stock
shall be entitled to receive, prior and in preference to any distribution
to the holders of the Company's common stock, an amount equal to the par
value of the preferred shares held plus any unpaid cumulative dividends.
At any time after September 17, 2004, each holder of Series A preferred
stock may convert any or all such stock, at par, into common shares of the
Company. The conversion price for such common shares shall be the market
price of such shares immediately prior to conversion.
At any time after September 17, 2004, the Company may convert all of the
Series A preferred stock, at 110% of par, into common shares of the
Company. The conversion price for such common shares shall be the market
price of such shares immediately prior to conversion. If the Company
converts the Series A preferred stock into common shares of the Company,
the holders of such converted shares have certain rights for a limited time
period to put the shares back to the Company for cash.
Convertible Debentures
The convertible debentures (note 8) are convertible into common shares of
the Company any time at the option of the holder at a price of $9 per
share. If all such debentures were converted, an additional 555,555 shares
of common stock would be issued.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Net Income Per Share
The following table sets forth the computations of basic and diluted net
income per common share for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Numerator:
Net income $ 1,668,957 1,235,495
Less Series A preferred stock dividends (300,000) (300,000)
-------------- --------------
Numerator for basic net income per common shares 1,368,957 935,495
Add back Series A preferred stock dividends
(assumed converted) 300,000 --
Add back debenture interest, net of tax (assumed
converted) 248,000 248,000
-------------- --------------
Numerator for diluted net income per common shares $ 1,916,957 1,183,495
============== ==============
Denominator:
Denominator for basic net income per common share:
Actual weighted-average shares outstanding 1,983,114 1,926,511
Effect of dilutive securities:
Series A preferred stock 558,423 --
Convertible debentures 555,555 555,555
Outstanding stock options 30,189 45,852
-------------- --------------
Denominator for diluted net income per common share 3,127,281 2,527,918
============== ==============
Net income per common share:
Basic $ 0.69 0.48
==== ====
Diluted $ 0.61 0.47
==== ====
</TABLE>
The assumed conversion of the convertible preferred stock was excluded from
the computation of diluted net income per common share in 1998 because the
effect would be antidilutive.
(11) Other Income
Other income in 1998 includes $510,000 from favorable settlements of Days
Bankruptcy claims and changes in estimates of allowed amounts of remaining
unsettled claims (note 3).
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(12) Income Taxes
Total income tax expense (benefit), principally Federal and all deferred,
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>
1999 1998
--------------- ---------------
<S> <C> <C>
Computed "expected" tax expense $ 926,000 114,000
Increase (reduction) in income taxes resulting from:
State taxes, net of Federal tax benefit 108,000 13,000
Increase (decrease) in valuation allowance for
deferred tax assets 65,000 (1,028,000)
Other (44,000) --
--------------- ---------------
$ 1,055,000 (901,000)
=============== ===============
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $7.1 million which are
available to offset future taxable income, if any, and expire at dates from
2006 through 2018.
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 1999 and
1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
<S> <C> <C>
Notes receivable allowances $ 128,000 128,000
Net operating loss and AMT carryforwards 2,405,000 4,602,000
Partnership basis differences 650,000 --
Effect of state income taxes 307,000 421,000
Other 40,000 --
---------------- ---------------
Total deferred tax assets 3,530,000 5,151,000
Less valuation allowance (127,000) (62,000)
---------------- ---------------
Deferred tax assets 3,403,000 5,089,000
---------------- ---------------
Deferred tax liabilities:
Partnership basis differences -- (30,000)
Property and equipment basis differences (615,000) (1,228,000)
---------------- ---------------
Gross deferred tax liabilities (615,000) (1,258,000)
---------------- ---------------
Net deferred tax assets $ 2,788,000 3,831,000
================ ===============
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1999 and
1998 was $127,000 and $62,000, respectively. The net change in the total
valuation allowance for the year ended December 31, 1999 was an increase of
$65,000 and for the year ended December 31, 1998 a decrease of $1,028,000.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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 not 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. In 1998,
based on actual events and other information available, it appeared more
likely than not that additional portions of the deferred tax assets would
be realized and the Company recognized an additional net deferred tax asset
of $901,000. Although no assurances can be made, realization of the
Company's deferred tax assets should occur if the Company generates
approximately $7.1 million of taxable income over the next 7 to 19 years.
(13) Stock Option Plan
The Company's 1995 Stock Option Plan (the 1995 Plan) authorized the
issuance of options for up to 170,000 shares of the Company's common stock.
The Company's 1997 Stock Option Plan (the 1997 Plan) authorized the
issuance of options for up to 80,000 shares of the Company's common stock.
The Company's 1998 Stock Option Plan (the 1998 Plan) authorized the
issuance of options for up to 90,000 shares of the Company's common stock.
The Company's 1999 Stock Option Plan (the 1999 Plan) authorized the
issuance of options for up to 90,000 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. Plan options terminate ten
years after vesting, or earlier under certain conditions.
The granted stock option activity is as follows:
Number Weighted-average
of shares exercise price
------------- -------------------
Balance December 31, 1997 206,000 $ 5.27
Granted in 1998 90,000 7.37
------ ----
Balance December 31, 1998 296,000 5.91
Granted in 1999 93,000 5.26
Exercised in 1999 (26,000) 3.89
Forfeited in 1999 (52,000) 6.59
------- ----
Balance December 31, 1999 311,000 $ 5.77
======= =========
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The following table summarizes information concerning stock options
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------------------- -----------------------------
Weighted- Weighted- Weighted-
Range of average average average
exercise remaining exercise exercise
prices Shares life price Shares price
----------------- ----------- -------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 3.44 60,000 6.3 years $ 3.44 60,000 $ 3.44
$ 5.38 - 6.13 31,000 7.7 years 5.54 29,000 5.54
$ 6.88 63,000 8.5 years 6.88 63,000 6.88
$ 7.37 75,000 9.5 years 7.37 50,000 7.37
$ 5.25 82,000 10.4 years 5.25 27,333 5.25
------ ---- ------ ----
311,000 $ 5.77 229,333 $ 5.72
======= ======== ======= ============
</TABLE>
No compensation expense has been recognized for the Company's stock option
plans. Had compensation cost for the Company's stock option plans been
determined based upon the fair value methodology prescribed under SFAS No.
123, the Company's net income would have been reduced by approximately
$113,000 or approximately $0.06 per common share (basic) and $0.04 per
common share (diluted) in 1999 and reduced by $151,000 or approximately
$0.08 per common share (basic) and $0.06 per common share (diluted) in
1998. The effects of either recognizing or disclosing compensation cost
under SFAS No. 123 may not be representative of the effects on reported net
income for future years. The fair value of options granted during 1999 is
estimated as $1.65 on the date of grant using the Black-Sholes
option-pricing model with the following assumptions: dividend yield 0%,
volatility 20%, risk-free interest rate of 6.0%, and an expected life of
five years. The fair value of the options granted during 1998 is estimated
as $2.31 on the date of grant using the Black-Sholes option-pricing model
with the following assumptions: dividend yield 0%, volatility of 20%,
risk-free interest rate of 6.0%, and an expected life of five years.
(14) 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 in 1999 and 1998 for expenses incurred related to the
Creditors' Trust. Other operating and administrative expenses in the
accompanying 1999 and 1998 consolidated statements of income are presented
net of such amounts.
Other notes receivable (note 5) at December 31, 1999 and 1998 includes
$156,705 and $187,583, respectively, due from an officer and shareholder of
the Company. Such note bears interest at 10% and is due in monthly
installments of $5,312 until June 2002.
The convertible debentures (notes 8 and 10) were issued to investment funds
managed by a subsidiary of Bay Harbour Management, formerly known as Tower
Investment Group, Inc. (Bay Harbour). Bay Harbour owns or controls
approximately 27.2% of the Company's outstanding common stock. An executive
officer of Bay Harbour is on the Company's Board of Directors.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
A director of the Company is a principal in a hotel brokerage company. Such
company acted as the broker in the sales of the four leasehold interests in
1999 (note 7) and received aggregate commissions of $63,000, in connection
therewith.
(15) Commitments
In conjunction with master development agreements executed with two
developers, the Company is required to advance certain amounts to the
developers at certain points in the construction of the properties. Under
an agreement executed with Marion and Cass St. Corporation (Cassland),
owned by a significant shareholder, the Company is required to advance a
total of $135,000 per property constructed. The agreement specifies the
construction of five properties. As of December 31, 1999, the Company had
advanced Cassland a total of $495,000 and is required to advance an
additional $180,000 once certain construction points are achieved on the
fourth and fifth properties. These advances are recorded as notes
receivable with interest accruing at a rate of 8% per annum. Hotel
operations expenses in 1999 includes $220,000 of rent expense to Cassland.
The master development agreement entered into with H&W Ventures, Inc. (H&W)
requires the Company to advance H&W a total of $75,000 per property
developed. The agreement calls for a maximum of five properties. For the
first two properties, the advances are required once H&W purchases land and
executes the related license agreements. For the last three properties, the
advances are made once a property is opened in accordance with the license
agreement. Currently, one of the last three properties is under
construction and is expected to be completed in April 2000.
During 1999, the Company entered into an agreement to purchase management
contracts on 12 hotel properties owned by Quality Lodging, LLC. The
purchase of nine of these contracts was completed during 1999. At December
31, 1999, the Company was still contractually obligated to purchase the
remaining three contracts for a purchase price of approximately $289,000 to
be paid in cash and stock. The Company anticipates completing the purchase
of these contracts during 2000.
(16) Operating Segments
The Company conducts recurring operations in three segments of the
limited-service hotel industry - hotel franchising, hotel management, and
hotel operations. The Company generates additional revenues and results of
operations from hotel development activities.
Hotel franchising involves the selling and servicing of rights and licenses
comprising the Country Hearth Inn lodging system. Revenues include initial
fees and continuing royalty, marketing and reservation fees from Company
owned and leased hotels and from unaffiliated customers. Continuing fees
are based on each franchised hotel's room revenues.
Hotel management involves the oversight of day-to-day hotel operations and
accounting for limited-service and some full-service hotels. Revenues
include continuing fees from Company owned and leased hotels and from
unaffiliated customers. Continuing fees are based on each managed hotel's
revenues.
Hotel operations involves the operations of Company owned and leased
hotels. Revenues are generated from unaffiliated hotel guests. Hotel
operations also includes the Company's share (equity method) of
unconsolidated partnerships which also operate hotels and the minority
interests' share of consolidated partnerships' results which are included
in hotel operations.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Hotel development activities involve the development and construction or
purchase of existing hotel properties and subsequent sale thereof along
with related activities such as servicing notes receivable generated from
sales. Corporate activities are generally administrative and also include
all interest income and expense which does not specifically relate to other
segment operations.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Franchise and management fees are charged to Company owned and leased
hotels at the same rates as charged to unaffiliated customers and are
eliminated in consolidation.
Condensed operating results, assets, and notes payable related to each segment
as of and for the years ended December 31, 1999 and 1998 are presented below.
Segment assets and notes payable exclude intercompany balances which eliminate
in consolidation. No specific assets or notes payable relate to development
activities and such activities are generally conducted by corporate personnel on
a nonrecurring basis. Thus, development results are included with corporate
segment results. Assets of hotel operations and the related notes payable are
reflected in the hotel operations through the date of sale. Net gains from such
sales are reflected in the development and corporate segment. Capital
expenditures in 1999 and 1998 amounted to $2,990,276 and $5,966,947,
respectively, and principally related to hotel operations. Income tax expense
(benefit) is not allocated to the various segments.
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------------------------------
Hotel Hotel Hotel Development
operations management franchising & corporate Eliminations Consolidated
----------- ------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 25,886,594 2,324,275 2,141,373 3,748,232 (1,801,876) 32,298,598
Expenses 21,629,229 1,815,896 1,120,353 1,702,913 (1,801,876) 24,466,515
----------- ------------- ------------ ------------- -------------
EBITDA* 4,257,365 508,379 1,021,020 2,045,319 7,832,083
Depreciation 1,620,372 56,471 120,000 12,000 1,808,843
Interest 2,599,222 -- -- 700,061 3,299,283
----------- ------------- ------------ ------------- -------------
Income before
income taxes $ 37,771 451,908 901,020 1,333,258 2,723,957
=========== ============= ============ ============= =============
Assets $ 45,934,343 1,686,226 1,424,376 9,669,756 58,714,701
=========== ============= ============ ============= =============
Notes payable $ 26,083,007 6,696,335 32,779,342
=========== ============= =============
1998
--------------------------------------------------------------------------------------------------
Hotel Hotel Hotel Development
operations management franchising & corporate Eliminations Consolidated
----------- ------------- ------------ ------------- ------------- -------------
Revenues $ 25,720,086 1,193,417 1,320,327 2,525,395 (1,590,082) 29,169,143
Expenses 21,180,555 1,736,310 1,182,781 1,569,793 (1,590,082) 24,079,357
----------- ------------- ------------ ------------- -------------
EBITDA* 4,539,531 (542,893) 137,546 955,602 5,089,786
Depreciation 1,587,341 50,505 123,500 12,000 1,773,346
Interest 2,298,223 -- -- 683,722 2,981,945
----------- ------------- ------------ ------------- -------------
Income(loss)before
income taxes $ 653,967 (593,398) 14,046 259,880 334,495
=========== ============= ============ ============= =============
Assets $ 47,454,314 759,474 1,333,294 9,994,036 59,541,118
=========== ============= ============ ============= =============
Notes payable $ 27,408,994 7,199,435 34,608,429
=========== ============= =============
*Earnings before interest, taxes, depreciation, and amortization.
</TABLE>
<PAGE>
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Joined
The Company
Name Age Position
- -------------------------------------- ------------ -------------------------------------------- ---------------------
Douglas C. Collins 47 Chairman of the Board of Directors 1992
President, Chief Executive
Officer and Treasurer
Ronald L. Devine 56 Director 1997
President - The Lodge Keeper Group
Robert B. Lee 45 Director 1992
Senior Vice President, Chief
Financial Officer and Secretary
David C. Glickman 37 Director 1999
David B. Mumford 41 Director 1999
William K. Stern 73 Director 1992
Steven A. Van Dyke 41 Director 1997
</TABLE>
Douglas C. Collins. Mr. Collins became President and Chief Executive
Officer of the Company in December 1992, became a director of the Company in May
1995 and became Chairman of the Board of Directors in March 1999. 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.
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 and became a director in
June 1997. Prior to joining the Company, Mr. Lee served as the Corporate
Controller of Days Inns from October 1990 until December 1992. Prior to that, he
functioned in numerous capacities up to senior manager in the accounting and
audit practice of KPMG LLP from December 1979 to October 1990.
Ronald L. Devine. Mr. Devine was the President and Chief Executive Officer
of The Lodge Keeper Group, Inc. ("Lodge Keeper") prior to its acquisition by the
Company and served in that capacity for more than the last five years. Mr.
Devine continues to serve as President of Lodge Keeper and is an executive
officer of the Company. Mr. Devine became a director of the Company in March
1999.
William K. Stern. Mr. Stern became a director of the Company in December
1992. He has over forty-five years of experience in the hospitality industry. He
served as Vice President of Loews Hotels and as President of Loews
Representation International, Inc. ("LRI"), a separate division of Loews Hotels.
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.
Steven A. Van Dyke. Mr. Van Dyke became a director of the Company in June
1997. He is the President and Chief Executive Officer of Bay Harbour Management,
L.C. ("Bay Harbour"), formerly known as Tower Investment Group, Inc. and has
served in that capacity for more than the last five years. Bay Habour is an
investment advisor and manages multimillion dollar private equity and debt
funds.
David C. Glickman. Mr. Glickman became a director of the Company in March
1999. Mr. Glickman is a Senior Vice President and Partner of Roulston & Company,
a firm which provides financial management services to individuals and
institutions. Until March 1999, he was an Associate Director with Bear Stearns &
Co., Inc., an investment banking firm, and had served in that capacity for more
than the last five years.
David B. Mumford. Mr. Mumford became a director of the Company in March
1999. He is the President of Mumford Company, Inc., a national leader in the
brokerage of hotel real estate, and has served in that capacity for more than
the last five years.
The members of the Company's Board of Directors are elected annually to
serve one year terms. Messrs. Devine, Glickman, and Mumford were appointed to
the Board in March 1999 in order to fill a vacated seat and to fill additional
seats which were concurrently created. The holders of Common Stock will elect
directors at the next annual meeting, which is scheduled to occur on or about
Thursday, May 25, 2000.
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
1999 all Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied with.
<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, 1999, 1998 and
1997. These are the only executive officers who received annual salary and bonus
in excess of $100,000 in 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Long Term
Compensation
Awards
Annual Compensation Securities
Name and Salary Bonus Underlying All Other
Principal Position Year ($) ($) Options (#) Compensation ($)
- --------------------------------- -------------- -------------- ------------- ------------------- --------------------------
Douglas C. Collins 1999 $260,000 158,265 17,000 (b) $8,600 (c)
Chief Executive Officer 1998 250,000 110,470 18,000 14,000
1997 235,000 94,005 16,000 1,500
Ronald L. Devine 1999 $121,866 34,368 8,000 (b) $8,532(d)
President - Lodge Keeper 1998 111,481 24,572 9,000 5,000
1997 (a) 70,240 21,005 9,000 -
Robert B. Lee 1999 $121,275 39,868 11,000 (b) $8,531(e)
Chief Financial Officer 1998 115,500 25,457 12,000 9,000
1997 105,000 31,502 9,000 1,449
</TABLE>
(a) Mr. Devine's employment with the Company began on May 8, 1997.
(b) See "OPTION GRANTS TABLE."
(c) Employer's portion of 401(k) contribution ($3,600) and non-qualified
deferred compensation plan ($5,000).
(d) Employer's portion of 401(k) contribution ($3,532) and non-qualified
deferred compensation plan ($5,000).
(e) Employer's portion of 401(k) contribution ($3,531) and non-qualified
deferred compensation plan ($5,000).
<PAGE>
OPTION GRANTS TABLE
The following table sets forth the number of shares of Common Stock
underlying options granted to the named executive officers during the year ended
December 31, 1999. No stock appreciation rights were granted.
Individual Grants
- -------------------------------- -----------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Percent of
Shares of Total
Common Stock Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted (#) in Fiscal 1999 ($/Share) Date (g)
- -------------------------------- ----------------------- ------------------------ ------------------- ----------------------
Douglas C. Collins 5,667 7.8% $ 5.25 (f) May 27, 2009
5,667 7.8% $ 5.25 (f) May 27, 2010
5,666 7.8% $ 5.25 (f) May 27, 2011
Ronald L. Devine 2,667 3.7% $ 5.25 (f) May 27, 2009
2,667 3.7% $ 5.25 (f) May 27, 2010
2,666 3.7% $ 5.25 (f) May 27, 2011
Robert B. Lee 3,667 5.0% $ 5.25 (f) May 27, 2009
3,667 5.0% $ 5.25 (f) May 27, 2010
3,666 5.0% $ 5.25 (f) May 27, 2011
</TABLE>
(f) The exercise price was fixed as the market price at the date of grant.
(g) The options expire ten years after the date they become vested.
<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,
1999.
<TABLE>
<CAPTION>
<S> <C> <C>
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 70,667 / 17,333 $66,745 / 3,547
Ronald L. Devine 17,667 / 8,333 835 / 1,669
Robert B. Lee 34,667 / 11,333 23,110 / 2,295
</TABLE>
No options were exercised by the named executive officers during 1999. No
stock appreciation rights have been issued or exercised.
COMPENSATION OF DIRECTORS
Robert M. Miller, the former Chairman of the Board of Directors of the
Company, resigned as a director of the Company in March 1999. Mr. Miller
received total compensation in 1999 of $78,750.
Each of the Company's other outside (non-employee) directors receive an
annual fee of $12,000 and $750 per attendance at board of directors meetings.
<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 2002. 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 salary (as defined) payable through the end of his employment term
and (y) one-half of his annual salary for the rest of the year in which such
termination occurs. If such event occurred as of January 1, 2000, Mr. Collins
would be entitled to a payment of $1,141,662.
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 salary through the end of his employment term, and (y) one-half of his
annual salary for the year in which such termination occurs. If such event
occurred as of January 1, 2000, Mr. Collins would be entitled to a payment of
$220,967.
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 salary for the year in which such termination occurs. If such event
occurred as of January 1, 2000, Mr. Collins would be entitled to a payment of
$441,934.
Ronald L. Devine. The Company has entered into an employment contract with
Mr. Devine for a term which expires in May 2003. 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 (as defined above), Mr.
Devine 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, 2000, Mr. Devine would be entitled to a payment of $418,333.
If Mr. Devine 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, 2000, Mr. Devine would be entitled to a payment of $62,750.
If Mr. Devine'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, 2000, Mr. Devine would be entitled to a payment
of $125,500.
<PAGE>
Robert B. Lee. The Company has entered into an employment contract with Mr.
Lee for a term which expires in July 2002. 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 (as defined above), Mr. Lee
shall be entitled to the greater of (x) his annual salary (as defined) payable
through the end of his employment term and (y) one-half of his annual salary for
the rest of the year in which such termination occurs. If such event occurred as
of January 1, 2000, Mr. Lee would be entitled to a payment of $477,732.
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 salary
through the end of his employment term, and (y) one-half of his annual salary
for the year in which such termination occurs. If such event occurred as of
January 1, 2000, Mr. Lee would be entitled to a payment of $92,464.
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 salary for the year in which such termination occurs. If such event
occurred as of January 1, 2000, Mr. Lee would be entitled to a payment of
$184,929.
REPORT ON REPRICING OF OPTIONS/SARS
Not applicable.
<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 29, 2000 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address Amount and Nature of Percent
of Beneficial Ownership Beneficial Ownership of Class
- ---------------------------------------------------------------------------------------------------------
NY Motel Enterprises 112,821 - Direct 5.56%
440 West 57th Street
New York, NY 10019
Leon M. & Marsha C. Wagner 124,181 - (a) 6.12%
8 Lincoln Woods
Purchase, NY 10577
Heartland Advisors, Inc. 184,600 - Investment 9.10%
789 North Water Street Advisor
Milwaukee, WI 53202
Hotel-Motel Management Corporation 238,960 - Direct 11.78%
3485 North Desert Drive
Suite 106 - Building 2
East Point, GA 30344
Bay Harbour Management, L.C. 1,107,002 - Investment 42.83%
Suite 270 Advisor (b)
777 South Harbour Island Boulevard
Tampa, FL 33602
</TABLE>
(a) Mr. Wagner holds 111,036 shares directly and Ms. Wagner, his spouse,
holds 13,145 shares directly.
(b) Includes 551,447 shares owned by investment funds managed by Bay
Harbour and 555,555 contingently issuable shares from the conversion
of debentures owned by investment funds managed by Bay Harbour.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of February 29, 2000, 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. The address of each director and executive officer is in
care of the Company, Suite 850, 7000 Central Parkway, Atlanta, Georgia 30328.
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Amount and Nature of Percent
Beneficial Holder Beneficial Ownership of Class
- ----------------------------------------------------------------------------------------------
Douglas C. Collins 89,775 - (a) 4.28 %
Ronald L. Devine 83,119 - (b) 4.06 %
Robert B. Lee 48,475 - (c) 2.35 %
David C. Glickman 3,667 - (d) 0.18 %
David B. Mumford 3,167 - (e) 0.16 %
William K. Stern 47,667 - (f) 2.31 %
Steven A. Van Dyke 1,127,700 - (g) 43.41 %
Directors and Officers 1,397,062 - (a-g) 50.59 %
as a group (7 persons)
</TABLE>
(a) Mr. Collins holds 12,600 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 70,667 shares within the next 60 days pursuant
to option agreements.
(b) Mr. Devine holds 65,452 shares directly and has the right to acquire
an additional 17,667 shares within the next 60 days pursuant to option
agreements.
(c) 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 34,667 shares within the next 60 days pursuant to option
agreements.
(d) Mr. Glickman holds 2,000 shares directly and has the right to acquire
1,667 additional shares within the next 60 days pursuant to option
agreements.
(e) Mr. Mumford holds 1,500 shares directly and has the right to acquire
1,667 additional shares within the next 60 days pursuant to option
agreements.
(f) Mr. Stern holds 10,000 shares directly and has the right to acquire
37,667 additional shares within the next 60 days pursuant to option
agreements.
(g) Mr. Van Dyke holds 8,031 shares directly and has the right to acquire
an additional 12,667 shares within the next 60 days pursuant to option
agreements. Mr. Van Dyke is the President and Chief Executive Officer
of Bay Harbour. Bay Harbour manages investment funds which own 551,447
shares and have the right to acquire 555,555 within the next 60 days
from the conversion of debentures.
<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.
On December 22, 1997, the Company issued $5,000,000 of Convertible
Debentures to investment funds managed by Tower Investment Group, Inc., now
known as Bay Harbour Management, L.C. ("Bay Harbour"). Bay Harbour manages
investment funds which, at that time, owned 262,000 (13.8%) of the outstanding
common shares of the Company. Bay Harbour presently owns 551,447 (27.2%) common
shares. Mr. Van Dyke, a director of the Company is the Chief Executive Officer
of Bay Harbour.
The related debenture notes bear interest at 8%, payable quarterly in
arrears, and are due December 22, 2002. The debentures are convertible into
common shares of the Company at any time at $9.00 per share. If all such
debentures were converted, an additional 555,555 shares of Common Stock would be
issued.
In connection with the 1997 Lodge Keeper acquisition, the Company assumed a
lease for office space in Prospect, Ohio. The lease requires annual rent
payments of approximately $60,000 through 2006. Members of the immediate family
of Mr. Devine, an executive officer and director of the Company, own 50% of the
lessor.
Also in connection with the Lodge Keeper acquisition, Mr. Devine executed a
$250,000 note payable to the Company for certain inventory and equipment which
did not relate to Lodge Keeper's primary business. The note bears interest at
10% and is due in monthly installments of $5,312 until June 2002.
During 1999 and 1998, Mumford Company, Inc. earned aggregate brokerage
commissions of $63,000 and $142,313, respectively, relating to the Company's
sale of eleven leasehold interests in hotel properties. Mr. Mumford, a director
of the Company, is the President of Mumford Company, Inc.
The Company has entered into five hotel lease agreements with an affiliate
(the "Lessor") of Hotel-Motel Management Corporation, a beneficial holder of
more than 5 percent of the Common Stock. As of December 31, 1999, the Company
had advanced the Lessor a total of $495,000 in lease deposits and is committed
to advance an additional $180,000. Such deposits bear interest at 8%. Three of
the leased properties have been opened and the Company paid rent in 1999 of
$220,000 to the Lessor. Once all five properties are opened, aggregate annual
rent to the Lessor will be $750,000 plus contingent percentage rents based on
certain hotel revenue levels.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) INDEX TO EXHIBITS
-----------------
Exhibit Description
------- -----------
2.1 Stock Purchase Agreement dated as of March 7, 1997 among the
Registrant, The Lodge Keeper Group, Inc. ("Lodge Keeper") and the
Stockholders of Lodge Keeper. (Incorporated by reference to Exhibit
2.1 to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1997.)
2.2 Agreement of Merger dated as of March 11, 1997 among the Registrant,
BLM-RH, Inc., Hatfield Inns, LLC, Guy Hatfield Dorothy Hatfield, and
Hatfield Inns Advisors, LLC. (Incorporated by reference to Appendix B
to the Registrant's Definitive Proxy Statement filed with the
Securities and Exchange Commission on June 9, 1997.)
2.3 Second Amendment to Agreement of Merger, dated as of September 17,
1997 among the Company, BLM-RH, Inc., Hatfield Inns, LLC, Guy
Hatfield, Dorothy Hatfield, and Hatfield Inn Advisors, LLC.
(Incorporated by reference to Exhibit 2.1.1 to the Registrant's
Current Report on Form 8-K filed October 8, 1997.)
3.1 Articles of Incorporation. (Incorporated by reference to Exhibit 2.1
to the Registrant's Registration Statement on Form 10-SB (No.
0-22132) which became effective on November 22, 1993.)
3.2 Certificate of Amendment of Certificate of Incorporation.
(Incorporated by reference to Exhibit 3(i)(a) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1994.)
3.3 Certificate of Amendment of Certificate of Incorporation
(Incorporated by reference to Appendix "A" to the Registrant's
Definitive Proxy Statement filed with the Securities and Exchange
Commission on June 9, 1997.)
3.4 Certificate of Amendment of Certificate of Incorporation
(Incorporated by reference to Appendix "A" to the Registrant's
Definitive Proxy Statement filed with the Securities and Exchange
Commission on May 5, 1998.)
3.5 By-Laws - Amended and Restated as of June 27, 1994. (Incorporated by
reference to Exhibit 3(ii) to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994.)
4.1 Form of Stock Certificate (Incorporated by reference to Exhibit 4.3
to the Registrant's Registration Statement on Form S-8 (No.333-58375)
filed on July 2, 1998.
4.2 Certificate of Designation, Preference and Rights of Series A
Preferred Stock of the Registrant. (Incorporated by reference to
Exhibit 3.1(c) to the Registrant's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1997.)
10.1 Employment Agreement dated as of June 30, 1993 between the Company
and Douglas C. Collins. (Incorporated by reference to Exhibit 6.2 to
the Registrant's Registration Statement on Form 10-SB (No.022132)
which became effective on November 22, 1993.)
10.2 First Amendment to Douglas C. Collins Employment Agreement.
(Incorporated by reference to Exhibit 10(ii)(b) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995.)
10.3* Second Amendment to Douglas C. Collins Employment Agreement.
10.4 Employment Agreement dated as of June 30, 1993 between the Company
and Robert B. Lee. (Incorporated by reference to Exhibit 10(ii)(c) to
the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995.)
10.5 First Amendment to Robert B. Lee Employment Agreement. (Incorporated
by reference to Exhibit 10(ii)(d) to the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995.)
10.6* Second Amendment to Robert B. Lee Employment Agreement.
10.7* Employment Agreement dated as of May 8, 1997 between the Company and
Ronald L. Devine.
10.8* First Amendment to Ronald L. Devine Employment Agreement.
10.9 1995 Stock Option Plan. (Incorporated by reference to Appendix A to
the Registrant's Definitive Proxy Statement dated April 25, 1995.)
10.10 1997 Employee Stock Option Plan (Incorporated by reference to Annex 1
to the Registrant's Definitive Proxy Statement filed with the
Securities and Exchange Commission on June 9, 1997.)
10.11 1998 Employee Stock Option Plan (Incorporated by reference to Annex 1
to the Registrant's Definitive Proxy Statement filed with the
Securities and Exchange Commission on May 5, 1998.)
10.12 1999 Employee Stock Option Plan (Incorporated by reference to Annex 1
to the Registrant's Definitive Proxy Statement filed with the
Securities and Exchange Commission on April 29, 1999.)
21* Subsidiaries of the Company
23* Accountants' Consent
27* Financial Data Schedule (Electronic filing only)
-------------------------------
* Filed herewith.
(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.
<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
<TABLE>
<CAPTION>
<S> <C> <C>
By: (Signature and Title): /s/ Douglas C. Collins /s/ Robert B. Lee
---------------------- --------------------
Douglas C. Collins Robert B. Lee
President & Senior Vice President & Chief
Chief Executive Officer Financial & Accounting Officer
Date: March 29 , 2000 March 29 , 2000
</TABLE>
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 29 , 2000
- ------------------------- ------------------
Douglas C. Collins
Director
/s/ Ronald L. Devine March 29 , 2000
- ------------------------- ------------------
Ronald L. Devine
Director
- ------------------------- -------------------
David C. Glickman
Director
/s/ Robert B. Lee March 29 , 2000
- ------------------------- ------------------
Robert B. Lee
Director
/s/ David B. Mumford March 29 , 2000
- ------------------------- -------------------
David B. Mumford
Director
/s/ William K. Stern March 29 , 2000
- ------------------------- -------------------
William K. Stern
Director
/s/ Steven A. Van Dyke March 29 , 2000
- ------------------------- -------------------
Steven A. Van Dyke
Director
Exhibit 10.3
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT, dated as of the 21st day of July, 1998, by and between
BUCKHEAD AMERICA CORPORATION ("Company"), a Delaware corporation, and DOUGLAS C.
COLLINS ("Executive").
W I T N E S S E T H:
WHEREAS, Company and Executive entered into that certain Employment
Agreement dated July 1, 1993 ("Agreement" providing for employment of Executive
by the Company; and
WHEREAS, Company and Executive desire to enter into this Amendment for the
purpose of evidencing their mutual understanding and agreement regarding the
extension of the term of Executive's employment by the Company and certain other
matters relating to such employment as set forth herein below.
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Company and Executive,
intending to be legally bound, agree as follows:
1. Defined Terms. All terms used herein and denoted by their initial
capitalization shall have the meanings set forth in the Agreement or
First Amendment unless set forth herein to the contrary.
2. Extension of Employment Term. The term of employment described at
Section 4 of the Agreement shall be extended to July 31, 2002.
3. Definition of Base Salary. The definition of Base Salary only as it
pertains to Section 4B of The Agreement shall be amended and the
following definition shall apply:
"Base Salary" - Base Salary shall be defined for the purpose of
Section 4B as the Executive's annual salary plus the average annual
bonus for the two years proceeding termination plus the annual cost of
group insurance.
4. Continued Validity. Except as specifically amended by this Amendment
as herein above provided, all other terms and conditions of the
Agreement shall remain unchanged and in full force and effect.
1216296v1
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands and affixed their
seals to this Amendment to be effective as of the day and year first above
written.
COMPANY: EXECUTIVE:
Buckhead America Corporation
BY: /s/ Robert M. Miller /s/ Douglas C. Collins
-------------------------- ----------------------------
Title: Chairman Douglas C. Collins
Exhibit 10.6
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT, dated as of the 21st day of July, 1998, by and between
BUCKHEAD AMERICA CORPORATION ("Company"), a Delaware corporation, and Robert B.
Lee ("Executive").
W I T N E S S E T H:
WHEREAS, Company and Executive entered into that certain Employment
Agreement dated July 1, 1993 ("Agreement" providing for employment of Executive
by the Company; and
WHEREAS, Company and Executive desire to enter into this Amendment for the
purpose of evidencing their mutual understanding and agreement regarding the
extension of the term of Executive's employment by the Company and certain other
matters relating to such employment as set forth herein below.
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Company and Executive,
intending to be legally bound, agree as follows:
1. Defined Terms. All terms used herein and denoted by their initial
capitalization shall have the meanings set forth in the Agreement or
First Amendment unless set forth herein to the contrary.
2. Extension of Employment Term. The term of employment described at
Section 4 of the Agreement shall be extended to July 31, 2002.
3. Definition of Base Salary. The definition of Base Salary only as it
pertains to Section 4B of The Agreement shall be amended and the
following definition shall apply:
"BaseSalary" - Base Salary shall be defined for the purpose of Section
4B as the Executive's annual salary plus the average annual bonus for
the two years proceeding termination plus the annual cost of group
insurance.
4. Continued Validity. Except as specifically amended by this Amendment
as herein above provided, all other terms and conditions of the
Agreement shall remain unchanged and in full force and effect.
1216297v1
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands and affixed their
seals to this Amendment to be effective as of the day and year first above
written.
COMPANY: EXECUTIVE:
Buckhead America Corporation
BY: /s/ Robert M. Miller /s/ Robert B. Lee
-------------------------- ----------------------
Title: Chairman Robert B. Lee
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT IS MADE AS OF 8th day of May, 1997 (the "Effective Date"),
between Buckhead America Corporation, a Delaware corporation (the "Company"),
and Ronald L. Devine (the "Executive").
WITNESSETH:
WHEREAS, the Executive will be employed by the Company as an executive
officer effective May 8, 1997, 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:
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 of 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.
<PAGE>
(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 than 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 by election of the current Board's members.
(f) "Competing 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: (1) continued failure to
substantially perform his duties with the Company or an 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.
<PAGE>
(k) "Restricted Period" 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 of The Lodge Keeper Group and Senior Vice President of Buckhead
America Corporation 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 of Buckhead America Corporation. 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 shall: (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 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. The company waives two provisions
concerning the Executive's activities with Devine's Coffee, Concepts in Lodging
and Timmons Woods.
<PAGE>
(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
Five Thousand ($105,000) per annum (the "Base Salary"). 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 each anniversary of this contract and may increase the Executive's
Base Salary by an amount the Board of Directors deems approprate in its sole
discretion.
(b) During the term of the Executive's employment, the Executive shall be
entitled to particpate 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 particpate in such plans and programs and to receive such vacation time,
subject to the rules and regulations applicable thereto. Such additional
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 Excecutive shall be entitled to be reimbursed in accordance with
the policies of the company, as adopted and amended from time to time, for all
reaonsable 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 t 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.
<PAGE>
(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 be
included in the company-wide bonus system and is entitled to earn a maximum of
forty percent (40%) of the $105,000 Base Salary. The company-wide bonus is paid
similarly to all home office employees at the end of each fiscal year. The bonus
plan can be amended from time to time 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
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 ten (10) 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
28OG 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.
<PAGE>
(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)(1), 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.
(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 &, 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.
<PAGE>
SECTION 5
LOCATION
The location of the Executive's work will be in the Prospect, Ohio 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.
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.
<PAGE>
SECTION 8
SEVERABILITY
The Executive agrees that the covenants and agreements contained in
Sections & and 7 of this Agreement, are of the essence of this Agreement; that
each of such covenants if 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 and 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 Ohio. 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.
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.
<PAGE>
(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 12(b).
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first shown above.
THE EXECUTIVE: BUCKHEAD AMERICA CORPORATION
By: /s/ Ronald L. Devine By: /s/ Douglas C. Collins
-------------------------- ------------------------
Ronald L. Devine Title: President
Address: Address:
705 King Avenue 4243 Dunwoody Club Drive
Marion, Ohio 43302 Dunwoody, GA 30350
<PAGE>
EXHIBIT A
DUTIES AND RESPONSIBILITIES OF THE EXECUTIVE
The Executive will be employed as President of The Lodge Keeper Group, Inc.
and Senior Vice President of Development and Administration of Buckhead America
Corporation. He will be responsible for the overall operations of the Prospect
Ohio headquarters of The Lodge Keeper Group including, but not limited to,
development of new Country Hearth Inns, renovations of properties for conversion
to Country Hearth Inns, administration of the Prospect headquarters and any
other services necessary to assist in the operations of The Lodge Keeper Group
and Buckhead America Corporation. The Executive will report directly to the CEO
of Buckhead America Corporation.
Exhibit 10.8
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT dated as of the 4th day of January, 2000, by and between
BUCKHEAD AMERICA CORPORATION ("Company"), a Delaware corporation, and RONALD L.
DEVINE ("Executive"),
W I T N E S E T H
WHEREAS, Company and Executive entered into that certain Employment
Agreement dated May 1, 1997 ("Agreement") providing for employment of Executive
by the Company; and
WHEREAS, Company and Executive desire to enter into this Amendment for the
purpose of evidencing their mutual understanding and agreement regarding the
extension of the term of Executive's employment by the Company and certain other
matters relating to such employment as set forth herein below.
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Company and Executive,
intending to be legally bound, agree as follows:
1. Defined Terms. All terms used herein and denoted by their initial
capitalization shall have the meanings set forth in the Agreement
unless set forth herein to the contrary.
2. Extension of Employment Term. The term of employment described at
Section 4 of the Agreement shall be extended to May 1, 2003.
3. Definition of "Change of Control". The definition of "Change of
Control" set forth at Section 1(e) of the Agreement shall be deleted
in its entirety, and the following definition shall apply:
"Change of Control" means (i) the acquisition by any person, entity or
group within the meaning of Sections 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 ("34 Act"), excluding for this purpose
the Company, its parent and its subsidiaries, of beneficial ownership
(within the meaning of Rule 13(d)-3 promulgated under the 34 Act) of
more than 51 percent of either the then outstanding shares of common
stock of the Company or of the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the
election of directors; or (ii) the individuals who, as of the date
hereof, constitute the Board of Directors ("Incumbent Board") cease
for any reason to constitute a majority of the Board of Directors
(provided that individuals becoming a director hereafter who are
nominated or who are elected by the Incumbent Board shall be
considered as though such individuals are members of the Incumbent
Board); or (iii) the merger, consolidation or reorganization, which
results in the shareholders of the Company prior to the merger,
consolidation or reorganization, holding after the merger,
consolidation, or reorganization less than 51 percent of the combined
voting power entitled to vote generally in the election of directors
of the merged, consolidated, or reorganized corporation.
4. Definition of "Restricted Period". The definition of "Restricted
Period" set forth at Section 1(k) of the Agreement shall be deleted in
its entirety, and the following definition shall apply:
"Restricted Period" means the period of time that begins on the date
hereof and extends for the period of employment of the Executive by
the Company hereunder and for a period of twenty-four (24) months
following the termination of such employment for any reason
whatsoever.
5. Continued Validity. Except as specifically amended by this Amendment
as herein above provided, all other terms and conditions of the
Agreement shall remain unchanged and in full force and effect.
1216298v1
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands and affixed their
seals to this Amendment to be effective as of the day and year first above
written.
COMPANY: EXECUTIVE:
Buckhead America Corporation
By: /s/ Douglas C. Collins /s/ Ronald L. Devine
------------------------ ----------------------
Title: CEO Ronald L. Devine
Exhibit 21 to Buckhead America Corporation
December 31, 1999 Form 10-KSB
BUCKHEAD AMERICA CORPORATION
(A Delaware Corporation)
SUBSIDIARY COMPANIES
As of December 31, 1999
Delaware Corporations
BLM Virginia, Inc.
BLM Prime, Inc.
CHI - Sandy Springs, Inc.
BAC Hotel Management, Inc.
BLM EB Orlando, Inc.
BLM EB, Inc.
CHI Dixie, Inc.
BLM EB Daytona, Inc.
BLM-F, Inc.
BLM-RH, Inc.
BLM-RF, Inc.
BAC Franchising Inc.
Texas Corportion
Country Hearth Inns/Texas, Inc.
Georgia Corporation
Country Hearth Inns - Dalton, Inc.
Ohio Corporations
The Lodge Keeper Group, Inc.
Integrated Motel Management Group of Ohio, Inc.
HOMANCO, Inc.
LKG Development I, Inc.
EXHIBIT 23
[U-P-D-A-T-E]
ACCOUNTANTS' CONSENT
The Board of Directors
Buckhead America Corporation:
We consent to incorporation by reference in the Registration Statements (Nos.
333-05313 and 333-37691) on Form S-3 and in the Registration Statements (Nos.
333-97046, 333-33097,333-58375 and 333-80865) on Form S-8 of Buckhead America
Corporation of our report dated March 3, 2000, relating to the consolidated
balance sheets of Buckhead America Corporation and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of income,
shareholders' equity and comprehensive income, and cash flows for the years then
ended, which report appears in the December 31, 1999 annual report on Form
10-KSB of Buckhead America Corporation.
/s/ KPMG LLP
Atlanta, Georgia
March 30, 2000
<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, 1999, 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,391
<SECURITIES> 1,312
<RECEIVABLES> 4,377
<ALLOWANCES> 376
<INVENTORY> 0
<CURRENT-ASSETS> 14,859
<PP&E> 43,414
<DEPRECIATION> 3,321
<TOTAL-ASSETS> 58,715
<CURRENT-LIABILITIES> 11,316
<BONDS> 32,779
<COMMON> 21
0
3,000
<OTHER-SE> 19,434
<TOTAL-LIABILITY-AND-EQUITY> 58,715
<SALES> 25,887
<TOTAL-REVENUES> 32,299
<CGS> 21,131
<TOTAL-COSTS> 22,940
<OTHER-EXPENSES> 3,336
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,299
<INCOME-PRETAX> 2,724
<INCOME-TAX> 1,055
<INCOME-CONTINUING> 1,669
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,669
<EPS-BASIC> 0.69
<EPS-DILUTED> 0.61
</TABLE>
