<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- - - - - - - - - - - - - -
FORM 10-Q
- - - - - - - - - - - - - -
(Mark One)
( X ) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended June 30, 1996.
or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission file number: 0-23536
----------------
SUPERTEL HOSPITALITY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 47-0774097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
309 NORTH 5TH STREET
NORFOLK, NEBRASKA 68701
(Address of principal executive offices)
Telephone number: (402) 371-2520
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months, and (2) has been subject to such
filing requirements for the past ninety days:
Yes ( X ) No ( )
As of June 30, 1996, there were 4,840,000 common shares of the registrant
outstanding.
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PART I: FINANCIAL INFORMATION
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1996 1995
----------- ------------
<S> <C> <C>
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,155,509 $ 6,724,172
Accounts receivable 792,170 622,498
Prepaid expenses 733,926 231,564
Recoverable income taxes - 241,969
----------- -----------
Total current assets 2,681,605 7,820,203
----------- -----------
Property and equipment, at cost 83,732,502 71,309,946
Less accumulated depreciation 13,733,238 12,888,707
----------- -----------
Net property and equipment 69,999,264 58,421,239
----------- -----------
Other assets:
Intangible assets 1,270,825 1,213,698
Deferred income taxes 123,513 333,700
Other assets 143,311 138,681
----------- -----------
Total other assets 1,537,649 1,686,079
----------- -----------
$74,218,518 $67,927,521
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,357,694 $ 1,433,186
Accrued expenses:
Real estate taxes 1,029,036 925,331
Other 1,626,702 922,649
----------- -----------
Total accrued expenses 2,655,738 1,847,980
----------- -----------
Income taxes payable 277,206 -
Current installments of long-term debt 1,120,571 1,070,370
----------- -----------
Total current liabilities 5,411,209 4,351,536
----------- -----------
Long-term debt, excluding current installments 41,944,485 38,188,302
Stockholders' equity:
Preferred stock, $1.00 par value. Authorized
1,000,000 shares; none issued - -
Common stock, $0.01 par value. Authorized 10,000,000
shares; issued and outstanding 4,840,000 shares 48,400 48,400
Additional paid-in capital 18,346,529 18,346,529
Retained earnings 8,467,895 6,992,754
----------- -----------
Total stockholders' equity 26,862,824 25,387,683
----------- -----------
Commitments and contingency
----------- -----------
$74,218,518 $67,927,521
=========== ===========
</TABLE>
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SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- ------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Motel revenues:
Lodging revenues $9,175,328 $8,112,963 $16,160,830 $14,336,866
Other lodging activities 293,964 288,263 565,781 537,600
---------- ---------- ----------- -----------
Total motel revenues 9,469,292 8,401,226 16,726,611 14,874,466
---------- ---------- ----------- -----------
Direct operating expenses:
Payroll and payroll taxes 2,206,649 1,913,787 4,087,251 3,588,503
Royalties and advertising fund 604,555 530,042 1,060,798 932,641
Other lodging 2,490,147 2,087,871 4,625,664 3,980,898
---------- ---------- ----------- -----------
Total lodging expense 5,301,351 4,531,700 9,773,713 8,502,042
Other lodging activities 217,786 195,726 411,346 375,818
Depreciation and amortization 778,843 563,744 1,328,591 1,090,255
General and administrative 631,332 534,721 1,308,861 1,035,630
---------- ---------- ----------- -----------
Total direct operating expenses 6,929,312 5,825,891 12,822,511 11,003,745
---------- ---------- ----------- -----------
Operating income 2,539,980 2,575,335 3,904,100 3,870,721
---------- ---------- ----------- -----------
Other expenses:
Interest 765,216 603,369 1,439,549 1,171,682
Miscellaneous 24,998 28,994 5,983 3,170
---------- ---------- ----------- -----------
790,214 632,363 1,445,532 1,174,852
---------- ---------- ----------- -----------
Income before income taxes 1,749,766 1,942,972 2,458,568 2,695,869
Income tax expense (note 3) 699,906 792,726 983,427 1,099,908
---------- ---------- ----------- -----------
Net income $1,049,860 $1,150,246 $ 1,475,141 $ 1,595,961
========== ========== =========== ===========
Net income per share $ .22 $ .24 $ .31 $ .33
========== ========== =========== ===========
Weighted average shares outstanding 4,840,000 4,840,000 4,840,000 4,840,000
========== ========== =========== ===========
</TABLE>
3
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SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,475,141 $ 1,595,961
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,245,601 1,012,132
Amortization 82,990 78,123
Loss on sale of property and equipment 50,262 60,213
Deferred income taxes 210,187 154,000
(Increase) decrease in current assets:
Accounts receivable (169,672) (254,553)
Prepaid expenses (502,362) (526,167)
Recoverable income taxes 241,969 172,344
Increase (decrease) in current liabilities:
Accounts payable (75,492) 350,510
Accrued expenses 807,758 805,532
Income taxes payable 277,206 400,004
----------- ------------
Net cash provided by operating activities 3,643,588 3,848,099
----------- ------------
Cash flows from investing activities:
Additions to property and equipment (12,880,684) (8,559,258)
Increase in intangibles and other assets (144,747) (101,973)
Proceeds from sale of property and equipment 6,796 112,588
----------- ------------
Net cash used in investing activities (13,018,635) (8,548,643)
----------- ------------
Cash flows from financing activities:
Repayments on long-term debt (521,842) (583,925)
Proceeds from long-term debt 4,328,226 3,239,866
Repayments of notes payable to banks - (70,200)
----------- ------------
Net cash provided by financing activities 3,806,384 2,585,741
----------- ------------
Net decrease in cash and cash equivalents (5,568,663) (2,114,803)
Cash and cash equivalents at beginning of period 6,724,172 2,601,747
----------- ------------
Cash and cash equivalents at end of period $ 1,155,509 $ 486,944
=========== ============
</TABLE>
4
<PAGE> 5
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of June 30, 1996 and the
condensed consolidated statements of income and cash flows for the three
months and six months ended June 30, 1996 and 1995 have been prepared by
Supertel Hospitality, Inc. (the "Company"), without audit. In the opinion
of management, all necessary adjustments (which include normal recurring
adjustments) have been made to present fairly the financial position at
June 30, 1996 and for all periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K
Annual Report for the year ended December 31, 1995. The results of
operations for the three months and six months ended June 30, 1996 are not
necessarily indicative of the operating results for the full year.
(2) Net Income Per Share
For the three months and six months ended June 30, 1996 and 1995, the
net income per share was calculated based on the weighted average number of
common shares outstanding.
(3) Income Taxes
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse.
The Company does not expect the effective tax rate or the components of
income tax expense to cause variation from the expected statutory Federal
and state income tax rates totaling 40 percent. A valuation allowance for
deferred tax assets has not been provided since all tax benefits are
expected to be used to offset future taxable income.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Total motel revenues for the second quarter were $9,469,292, an
increase of $1,068,066 or 12.7% over total revenues of $8,401,226 for the
second quarter of 1995. Total motel revenues for the first six months
were $16,726,611, an increase of $1,852,145 or 12.5% over the total
revenues of $14,874,466 for the first six months of 1995. The increase
for the second quarter was primarily due to an increase of $1,062,365 in
revenues from lodging operations and $5,701 from other lodging activities
(which consist of telephone and vending revenue). The increase for the
first six months was primarily due to an increase of $1,823,964 in revenue
from lodging operations and $28,181 from other lodging activities.
The increase in revenues from lodging operations for the second
quarter resulted primarily from renting 225,571 rooms in 1996 compared to
211,636 rooms in the second quarter of 1995, an increase of 13,935 or
6.6%. The increase in revenues from lodging operations for the first six
months resulted primarily from renting 405,773 rooms in 1996 compared to
383,138 rooms rented in the first six months of 1995, an increase of
22,635 or 5.9%.
The increase in rooms rented resulted from the acquisition of two
properties with an aggregate of 109 rooms in the second quarter of 1996, a
35 room addition to a Nebraska property in June 1996, and the opening of
five new properties in Texas. Two Texas properties with a total 182 rooms
opened in the fourth quarter of 1995 and three Texas properties with 286
rooms opened in the second quarter of 1996. Revenues were also impacted by
an increase in the average daily room rate in the second quarter of 1996.
An average daily room rate of $41.98 was achieved compared to $39.70 for
the second quarter of 1995 and increase of $2.28 or 5.7%. For the first
six months, the average daily room rate was $41.22 in 1996 compared to
$38.82 for the first six months of 1995, an increase of $2.40 or 6.2%.
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<PAGE> 7
Revenue per available room for the second quarter of 1996 increased
to $29.74 from $29.28, an increase of $.46 or 1.6%. Revenue per available
room for the first six months of 1996 increased to $27.00 from $26.65, an
increase of $.35 or 1.3%.
Motel revenue was also impacted by changes in occupancy. Occupancy
as a percentage of rooms available for the second quarter of 1996
decreased to 73.8% from 70.8% in the second quarter of 1995. The decrease
in the occupancy percentage resulted primarily from the opening of two
large properties in late 1995 in Plano and McKinney, Texas, and the
opening of three large properties in the second quarter of 1996 in Denton,
Grapevine and Wichita Falls, Texas. The initial occupancy rates at these
larger properties were below expectations but have improved. The
occupancy percentage in seasoned properties (those owned/opened over one
year) decreased from 75.6% in the second quarter of 1995 to 72.9% in the
second quarter of 1996. Occupancy decreased from 68.6% for the first six
months of 1995 to 65.5% for the first six months of 1996. The occupancy
percentage in seasoned properties decreased from 70.2% for the first six
months 1995 to 67.0% for the first six months of 1996. Supertel's
"seasoned" properties include three motels in Texas where occupancy has
been below expectations and three properties where occupancy has dropped
following room additions aggregating 72 rooms in 1996. Exclusive of the
results from these six "seasoned" properties, occupancy for seasoned
properties was 75.1% in the second quarter of 1996 compared to 75.2% in
the same quarter of 1995 and 67.9% in the first half of 1996 compared to
69.6% in the first six months of 1995. Occupancy is seasonal. Occupancy
is lowest in the first quarter, increases in the second, peaks in the
third and then drops down again in the fourth quarter. The increases in
revenue from other lodging activities resulted from the increase in the
number of rooms rented.
Lodging expenses for the second quarter of 1996 were $5,301,351
compared to $4,531,700 for the second quarter of 1995, an increase of
$769,651 or 17.0%. Lodging expenses for the first six months of 1996 were
$9,773,713 compared to $8,502,042 for the first six months 1995, an
increase of $1,271,671 or 15.0%. The increase in lodging expenses was due
primarily to the increase in the number of rooms available to rent and
rooms rented. Lodging expenses as a percentage of motel
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<PAGE> 8
revenues increased to 56.0% for the second quarter of 1996 from 53.9% in
the second quarter of 1995. Lodging expenses as a percentage of motel
revenues increased to 58.4% for the first six months of 1996 from 57.2%
for the first six months of 1995. These increases are primarily due to
operating costs increasing at a slightly higher rate than revenue
increased.
Depreciation and amortization expenses for the second quarter of 1996
were $778,843 compared to $563,744 for the second quarter of 1995, an
increase of $215,099 or 38.2%. Depreciation and amortization expenses for
the first six months of 1996 were $1,328,591 compared to $1,090,255 for
the first six months of 1995, an increase of $238,336 or 21.9%. The
higher level of depreciation is associated with newly constructed
properties and is expected to have a similar impact on third and fourth
quarter comparisons.
General and administrative expenses for the second quarter of 1996
were $631,332 compared to $534,721 in the second quarter of 1995, an
increase of $96,611 or 18.1%. General and administrative expenses as a
percent of sales increased in the second quarter of 1996 to 6.7% from 6.4%
of sales in the second quarter of 1995. General and administrative
expenses for the first six months of 1996 were $1,308,861 compared to
$1,035,630 for the first six months 1995, an increase of $273,231 or
26.4%. General and administrative expenses as a percent of sales
increased in the first six months of 1996 to 7.8% from 7.0% of sales in
the first six months of 1995. The increase in general and administrative
expenses was due primarily to increased expenses associated with the
Company's higher level of acquisition and development efforts as well as
the expansion of staff to handle current and anticipated motel growth.
Interest expense increased by $161,847 for the second quarter of 1996
from $603,369 for the second quarter of 1995 to $765,216 in 1996 or 26.8%.
Interest expense increased by $267,867 for the first six months of 1996
from $1,171,682 in 1995 to $1,439,549 in 1996 or 22.9%. The increase was
primarily due to the new borrowings for acquisitions and new
constructions. Average bank borrowings for the second quarter of 1996
increased to $40,421,800 from $27,791,995 for the comparable period in
1995, an increase of $12,629,805 or 45.4%. Bank borrowings at June 30,
1996 were $43,065,056.
8
<PAGE> 9
As a result of the aforementioned operating factors and general
business conditions, net income for the second quarter of 1996 from
continuing operations was $1,049,860 or $.22 per share versus net income
of $1,150,246 or $.24 per share for the corresponding period in 1995.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
for the second quarter of 1996, were $3,293,825, an increase of $183,740
or 5.9% over EBITDA of $3,110,085 for the second quarter of 1995.
Net income for the six months of 1996 from continuing operations was
$1,475,141 or $.31 per share versus net income of $1,595,961 or $.33 per
share, for the corresponding period in 1995. EBITDA for the first six
months of 1996 were $5,226,708, an increase of $268,902 or 5.4% over
EBITDA of $4,957,806 for the first six months of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Supertel's growth has been financed through a combination of cash
provided from operations and long-term debt financing. Cash provided from
operations was approximately $3,644,000 for the first six months of 1996
and $3,848,000 for the first six months of 1995. Supertel requires
capital principally for the construction, acquisition and improvement of
lodging facilities. Capital expenditures for such purposes were
approximately $12,881,000 in the first six months of 1996 and
approximately $8,559,000 in the first six months of 1995.
Long-term debt (excluding current installments of long-term debt) was
$41,944,485 at June 30, 1996 and $38,188,302 at December 31, 1995.
Supertel's current installments of long-term debt were $1,120,571 at June
30, 1996 and $1,070,370 at December 31, 1995. Supertel's loan agreements
contain certain restrictions and covenants related to, among other things,
minimum debt service, maximum debt per motel room, and maximum debt to
tangible net worth. At June 30, 1996, Supertel was in compliance with
these covenants.
9
<PAGE> 10
Supertel has increased its line of credit from $15,000,000 to
$25,000,000 during the second quarter of 1996, with an outstanding balance
of $17,743,879 (classified as long-term debt) at June 30, 1996.
Supertel's ratio of long-term debt (including current installments) to
long-term debt and stockholders' equity was 61.6% at June 30, 1996,
compared to 60.8% at December 31, 1995.
Supertel previously reported its plan to construct/acquire
approximately 400-600 motel rooms in 1996 with approximately $13,000,000 -
$15,000,000 of capital funds necessary to finance such development.
During the first six months Supertel has acquired two motels, a 48-room
property in Parsons, Kansas, and a 61-room property in Portage, Wisconsin;
and opened three new motels in Texas which added 286 rooms. Supertel also
completed the reconfiguration of its Bullhead City, Arizona property from
120 rooms to 76 rooms, which created larger but fewer rooms consistent
with motels and casinos in the area. Supertel had 3,760 rooms in
operation as of June 30, 1996 compared to 3,153 rooms in operation as of
June 30, 1995, an increase of 607 rooms or 19.3%.
Subsequent to June 30, 1996, Supertel has acquired four additional
motels in Wisconsin, consisting of two existing Super 8 motels totaling
107 rooms and two Comfort Inn motels totaling 110-rooms. A new 116-room
motel under construction in Bedford, Texas is expected to open in the
third quarter of 1996.
Supertel has revised its plan for the balance of 1996 and now intends
to construct/acquire between 700 and 900 motel rooms in 1996 with
approximately $13,000,000 - $27,000,000 of capital funds necessary to
finance such development.
In addition to planned development expenditures, Supertel has
principal payments totaling $1,070,370 due under existing debt obligations
during 1996. Supertel believes that a combination of cash flow from
operations, borrowings available under its line of credit, securing new
short- and long-term facilities and the ability to leverage three
unencumbered properties will be sufficient to fund scheduled development
and debt repayment.
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
Supertel's annual meeting of stockholders was held on May 3, 1996. The
stockholders elected four directors and ratified the appointment of independent
public accountants. Voting on these matters was as follows:
1. ELECTION OF DIRECTORS.
FOR WITHHELD
Paul Schulte.............. 4,058,662 4,225
Steve Borgmann............ 5,058,662 4,225
Joseph Caggiano........... 4,059,162 3,725
Loren Steele.............. 4,059,162 3,725
2. RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK AS
INDEPENDENT ACCOUNTANTS FOR FISCAL YEAR 1996:
FOR....................4,039,123
AGAINST................ 3,540
ABSTAIN................ 20,224
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
10.1 Revolving Term Promissory Note and Loan Agreement
(modified and extended) dated May 28, 1996 between the Company
and First Bank National Association
B. Reports on Form 8-K. The Company did not file any reports on
Form 8-K during the calendar quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SUPERTEL HOSPITALITY, INC.
/s/ Ronald L. Boettcher
By:____________________________
Ronald L. Boettcher
Senior Vice President and
Chief Financial Officer
DATED this ___ day of August, 1996.
<PAGE> 1
EXHIBIT 10.1
REVOLVING TERM PROMISSORY NOTE AND LOAN AGREEMENT
(Modified and Extended)
$25,000,000.00 May 28, 1996
For value received Supertel Hospitality, Inc., a Delaware corporation
(hereinafter referred to as "Borrower"), promises to pay to the order of First
Bank, National Association (hereinafter referred to as "Bank"), at its offices
located at 233 South 13th Street, Lincoln, Nebraska 68508, or such other place
as the holder hereof may, from time to time, designate in writing, the
principal sum of Twenty-Five Million Dollars ($25,000,000.00) or so much
thereof as is actually advanced hereunder, from time to time, or upon
repayment, readvanced to the Borrower and unpaid, together with interest on the
unpaid principal balance hereof at a per annum rate equal to the New York Prime
Rate as published daily in the Wall Street Journal less One Fourth of One
Percent (1/4%). Said interest shall be calculated daily on the unpaid
principal balance disbursed hereunder on the basis of a year of 360 days and
shall be payable on the first day of each month hereafter until February 1,
1998, at which time the entire unpaid principal balance hereof, all accrued
interest thereon and any other sums hereunder shall be due and payable in full.
Adjustments in the interest rate shall be made daily to reflect increases
or decreases in the New York Prime Rate as published daily in the Wall Street
Journal. In the event the Wall Street Journal ceases publication of the
foregoing interest rate index, the interest rate shall be based upon an
alternative comparable rate index selected by Bank, in its sole discretion. No
representation is made that the New York Prime Rate is either the lowest, the
best or favored rate.
This Note evidences a revolving credit line in the maximum principal
amount of $25,000,000.00 at any one time outstanding in favor of the Borrower.
The sole purpose of this loan is for the refinancing and acquisition of motels,
capital assets and other general corporate purposes. The obligation of the
Bank to loan, and upon repayment, reloan funds hereunder shall at all times be
subject to the limitation that the total principal amount of funds outstanding
hereunder shall not exceed at any one time in the aggregate 70% of the
appraised value of the real estate subject to the Collateral Security (as
hereinafter defined). The foregoing limitation is hereafter sometimes referred
to as the "LTV Ratio".
The Borrower may at anytime, prepay this Note in full or make partial
prepayments therein, without penalty or premium. The borrower agrees that it
shall pay to the Bank beginning July 1, 1996, and continuing on the first day
of each and every third calendar month thereafter during the term of this Note
an unused
<PAGE> 2
commitment fee in arrears on the average daily amount of unused but available
credit hereunder during the three calendar month period immediately preceding
the date such payment is due. The fee shall be computed as follows: on the
amount of daily average of unused available credit a sum equal to 1/4 of one
percent per annum. Unused available credit shall mean the difference between
$25,000,000.00 ($15,000,000.00 from April 1, 1996 to the date of this Note) and
the outstanding principal balance of funds disbursed to Borrower hereunder at
any time.
The obligations of Bank to make the initial advance or future advances
hereunder shall be subject to the conditions that Bank shall have received at
the time of such advance or at the time of any previous advance:
1) Delivery of Deeds of Trust (or Mortgages if preferred by
Bank), Assignment of Leases and Rents and Financing Statements and
Security Agreements (hereinafter sometimes collectively referred to
as the "Collateral Security"), in form satisfactory to Bank granting
Bank a first and paramount lien upon real estate operated as motels
by Borrower and all furniture, fixtures, equipment, personal
property, located thereon and all income, rents and accounts
therefrom, such motels to be selected by Borrower and acceptable by
Bank and having an aggregate appraised value sufficient to satisfy
the LTV ratio.
2) Current appraisals of the real estate subject to the
Collateral Security showing that the total principal amount of funds
outstanding hereunder including such advance would not exceed the
LTV Ratio. The appraisals shall be completed by a designated
appraiser acceptable to Bank conforming to Uniform Standard
Professional Appraisal Practice (USPAP) standards. The loan amount
shall not exceed 70% of the appraisal amount. The appraisal will be
directed to and for the benefit of the Bank with Borrower being
responsible for the cost of the appraisal. Appraisals accepted by
Bank on property subject to Collateral Security on prior advances do
not need to be updated for subsequent advances.
3) Certified copies of all corporate action taken by the
Borrower authorizing the execution of this Note, the Collateral
Security contemplated herein and the transaction contemplated hereby
and such other documents relating thereto as Bank may reasonably
request.
4) A copy of the Certificate of Incorporation and a copy of the
Bylaws of the Borrower currently certified by Borrower's secretary
or other appropriate officer.
5) Favorable written opinion of the counsel to Borrower
addressed to Bank, in form and substance acceptable to Bank,
relating to Sections 1, 2, 3 and 4 of the
<PAGE> 3
representations and warranties set forth hereinbelow, provided that
as to the matter set out in Sections 3 and 4 that opinion may be
limited to matters of which counsel has knowledge.
6) Delivery of Phase 1 Environmental Assessment on all real
estate serving as collateral and, if requested by Bank, or upon the
recommendation of Borrower's environmental consultant, a Phase 2
Environmental Assessment, with findings of Assessments acceptable to
Bank, and indemnifications of Bank for any loss as a result of
environmental matters in form satisfactory to Bank.
7) Delivery of an acceptable survey on all real estate assets
serving as collateral.
8) A Mortgage Title Insurance Commitment and Policy in the full
amount of the loan value of each property issued by insurers
acceptable to Bank reflecting fee simple indefeasible title of the
real estate subject to the Collateral Security in the name of the
Borrower and insuring Bank's Collateral Security to be a valid first
lien on the real estate with standard exceptions deleted and such
other exceptions only as satisfactory to Bank with such endorsements
as Bank may reasonably request.
9) Documentary evidence from the Borrower satisfactory to Bank
that the Debt Service Coverage Ratio as hereinafter defined will not
be less than 1.50 on the real estate subject to the Collateral
Security.
The obligation of the Bank to make each subsequent advance hereunder is subject
to the following and further conditions precedent at the time of each borrowing
hereunder:
1) Borrower shall not be in default hereunder and shall have
complied in all material respects with all of the terms, covenants
and conditions set forth herein.
2) The representations and warranties contained herein shall be
true with the same effect as though such representations and
warranties had been made at the time of the making of such advance.
3) Bank having received from Borrower the items set forth in
paragraph 1 through 9 for the initial advance as stated above and
further receiving the items set forth in paragraph 1, 2, 6, 7 and 8
thereof as to any additional real estate or personal property that
will be subject to the Collateral Security and the execution of
documents incident thereto not previously provided.
4) Documentary evidence from the Borrower satisfactory to Bank
that the Debt Service Coverage Ratio as hereafter
<PAGE> 4
defined will not be less than 1.50 on the real estate subject to
the Collateral Security.
Borrower hereby represents and warrants:
1) Borrower is a corporation duly organized and existing under
the laws of the State of Delaware without limit as to the duration
of its existence, and is authorized and in good standing to do
business in the State of Nebraska and in any and all states in which
the property subject to the Collateral Security is located; the
Borrower has corporate powers, adequate authority, rights and
franchises to own property and to carry on its business as now
conducted, and is duly qualified and in good standing in each state
where the property subject to the Collateral Security is located,
where such qualification is required; and Borrower has the corporate
power and adequate authority to make and carry out this Note and to
execute and deliver the Collateral Security.
2) The execution, delivery and performance of this Note and
other documents provided for herein, are duly authorized by all
requisite action on the part of Borrower and do not require the
consent or approval of any governmental body or other regulatory
authority; are not in contravention of or conflict with any
applicable law or regulation which Borrower is aware of or any term
or provision of Borrower's Certificate of Incorporation or Bylaws;
and this Note is, and other documents provided for herein, when
delivered for value received will be the valid, binding and legally
enforceable obligation of Borrower and in accordance with their
terms, except to the extent enforcement may be limited by
bankruptcy, insolvency, or laws affecting creditors rights generally
and subject to general principles of equity.
3) The execution, delivery and performance of this Note and the
execution and delivery of the other documents provided herein, are
not in contravention of or conflict with any agreement, indenture or
undertaking to which the Borrower is a party or any of its property
and does not cause any lien, charge or other encumbrance to be
created or imposed upon any such property other than the lien
granted to Bank under the Collateral Security.
4) There is no litigation or other proceeding pending or
threatened against Borrower which would have a materially adverse
affect upon the transactions contemplated herein or Borrower's
ability to perform its obligations hereunder and Borrower is not in
default with respect to any order, writ, injunction, decree or
demand of any court or other governmental or regulatory authority or
any financial obligations in excess of $250,000.00.
<PAGE> 5
5) The balance sheet of Borrower as of March 31, 1996 and the
related financial information of the three month period ended on
that date, and the Form 10-Q for the quarter ended March 31, 1996,
copies of which have heretofore been delivered to Bank by Borrower,
and all of the statements and data submitted in writing by Borrower
to Bank in connection with the request for the credit granted by
this Note are true and correct in all material respects; said
balance sheet and financial information fairly present the financial
condition of Borrower for the period covered thereby in all material
respects, and have been prepared in accordance with generally
accepted accounting principles on a basis consistently maintained.
Since March 31, 1996, there have been no changes in the assets or
the liabilities or financial condition of Borrower, other than
changes in the ordinary course of business and such changes as have
not been materially adverse changes except as previously disclosed
in writing to Bank. Borrower has no knowledge of any liabilities,
contingent or otherwise, required to be reflected in said balance
sheet and not so reflected, and Borrower has not entered into any
special commitments or substantial contracts which are not reflected
in said balance sheet, (other than in the ordinary and normal course
of its business) which may have a materially adverse affect upon its
financial condition, operation or business as now conducted except
as previously disclosed in writing to Bank.
6) Borrower has good title to its assets, and the same are not
subject to any liens or encumbrances other than those set forth in
the financial information as of March 31, 1996, or previously
disclosed to Bank in writing.
7) Borrower has filed when due all applicable federal, state and
local tax returns. Borrower has paid all taxes and governmental
charges assessed on or existing against the property or the business
of Borrower other than taxes or charges:
i) The payment of which is not yet due, or if due,
are not yet delinquent; or
ii) Which have not yet been determined or which are
being contested in good faith with adequate reserve for
payment acceptable to Bank.
To the best knowledge of Borrower there are currently no Internal Revenue
audits or review proceedings pending, threatened or proposed against Borrower.
Borrower agrees that so long as any credit hereunder shall be available and
until payment in full of all sums due hereunder, Borrower shall, unless Bank
shall otherwise consent in writing:
<PAGE> 6
1) Do all things necessary to maintain and keep in full force
and effect its corporate existence, its right to do business and own
property and keep in full force and effect its material franchises,
licenses, permits, governmental authorizations, and other authority
adequate for the conduct of its business; comply in all material
respects with all applicable laws and regulations; maintain its
properties, equipment and facilities in good repair, working order
and condition, excepting the effects of the ordinary wear and
depreciation arising from lapse of time or use with appropriate
maintenance or arising from damage by fire, other casualties, and
make or cause to be made all necessary and proper repairs thereto
and their replacements thereof; and conduct its business in an
orderly manner without voluntary interruption.
2) Pay and discharge, before the same become delinquent and
before penalties accrue thereon, all taxes assessments and
governmental charges upon or against it or any of its properties,
and all its other tax liabilities at any time existing, except to
the extent and so long as:
i) The same are being contested in good faith and by
appropriate proceedings in such manner as not to cause any
materially adverse affect upon its financial condition or the
loss of any right of redemption from any sale thereunder; and
ii) It shall have set aside on its books reserves
(segregated to the extent required by sound accounting
practice) acceptable by Bank as adequate with respect thereto.
3) Maintain a system of accounting in accordance with generally
accepted accounting principles on a basis consistently maintained;
permit representatives of Bank to have access to and to examine its
properties, account books and records at all reasonable times; and
furnish Bank:
i) As soon as available, and in any event within 90
days after the close of each fiscal year of Borrower, an audit
quality financial statement of Borrower as of the close of and
for such fiscal year, all in reasonable detail and stating in
comparative form the figures at the close of and for the
previous fiscal year, with the opinion of a certified public
accountant satisfactory to Bank;
ii) Within 45 days after the end of each calendar quarter,
Borrower prepared financial statements;
<PAGE> 7
iii) Promptly upon the receipt thereof by Borrower, copies of
any detailed audit reports submitted to Borrower by
independent accountants in connection with each annual or
interim audit or the accounts of Borrower;
iv) Promptly upon the request of Bank, such monthly financial
information as may be reasonably requested by Bank and
prepared by personnel of the Borrower; and
v) Promptly, with all credit, financial and other
information respecting the business, properties, or condition
or operations, financial or otherwise of Borrower as Bank may
from time to time reasonably request.
4) Permit any officer and duly authorized employees or
representatives of Bank to visit and inspect any of its properties
and to discuss its affairs, finances and accounts with its officers,
all as often as Bank may reasonably request, and so long as such
does not significantly interfere with normal operations. The cost
associated with inspections shall be paid by Borrower.
5) Maintain and provide for adequate property, liability,
workmen's compensation, flood and other forms of insurance, in good
and responsible insurance companies, for all insurable property
owned by Borrower including all collateral set forth in the
Collateral Security, against all liability, loss or damage from fire
or such other hazards or risks as are customarily insured against by
companies similarly situated and operating like property. Borrower
will provide Bank with appropriate certificates of insurance with
loss payable in favor of Bank showing Borrower and Bank as insureds
as their interest may appear in connection with the items of
collateral subject to the Collateral Security.
6) Pay any reasonable legal fees associated with the drafting of
documents, preparation of Collateral Security, title insurance,
costs of perfection of security interests and the like in connection
with this loan.
7) Pay all reasonable costs and expense of Bank, including but
not limited to appraisal, title insurance, filing fees, mortgage
registration fees, legal and travel associated with the closing of
this loan or any advances hereunder.
8) Maintain at all time a Debt Service Coverage Ratio on funds
disbursed hereunder of at least 1.50 on an aggregate basis. Debt
Service Coverage Ratio shall be
<PAGE> 8
defined as EBITDA (earnings from the real estate subject to
Collateral Security before interest expense, income tax,
depreciation and amortization)/(the principal and interest payable
on this loan during the next twelve months determined as if this
loan required equal monthly payments amortized over fifteen years)
measured quarterly based on the last four quarters; provided,
Borrower's proforma income and expenses shall be used for the first
twelve months following the acquisition date of properties acquired
hereafter or the placed-in-service data of newly constructed
properties, with actual EBITDA information replacing the comparable
proforma information at the end of each quarter during such twelve
month period.
Each of the following shall constitute an Event of Default:
1) failure to pay any sum due under this Note within fifteen
days of the due date thereof; or
2) failure to comply with the Debt Service Coverage Ratio
covenant; or
3) if Borrower merges with another organization, company,
corporation, partnership or other entity, or acquires any of the
same, without the Bank's prior written approval, unless Borrower is
the surviving entity; or
4) if Borrower fails to correct non-compliance with the
Americans with Disabilities Act (ADA) within six months after date
of notification of non-compliance on any real estate subject to the
Collateral Security; or
5) if Borrower fails to cure a default in the performance of any
of the other covenants, or conditions, or representations of this
Note or the Collateral Security within thirty days after written
notice from Bank; or
6) if any statement or certificate at any time given in writing
pursuant hereto or in connection herewith, shall be false in a
material respect, and if such matter is correctable, it is not
corrected within fifteen days after notice from Bank; or
7) if Borrower should become insolvent, or admit in writing its
inability to pay its debts generally as they become due or, make an
assignment for the benefit of creditors; or, apply for or consent to
the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or, such a receiver or trustee
shall otherwise be appointed and shall not be discharged for sixty
days after such appointment; or
<PAGE> 9
8) if bankruptcy, insolvency or reorganization or liquidation
proceedings or the proceedings for the relief under any bankruptcy
law, code; or, any law for the relief of debtors shall be instituted
by or against Borrower and, if instituted against, shall be
consented to or shall not be dismissed within sixty days after such
institution; or
9) if Borrower fails to cure within thirty days any default
under a financial obligation with any other entity or person and
such financial obligation involves $250,000.00 or more.
Upon the occurrence of an Event of Default then, or any time thereafter, at the
option of the holder hereof, the Bank or said holder hereof may terminate all
credit hereunder and all obligations of Bank to make any advances hereunder;
and, in addition, at the option of Bank or the holder hereof, make all sums of
principal and interest then remaining unpaid hereunder immediately due and
payable in full, all without demand, present or notice, all of which hereby are
waived. From and after the maturity of this Note or from and after an Event of
Default the entire principal then remaining unpaid shall bear interest at the
rate of three percent (3%) per annum above the note rate then in effect until
the same is paid. Failure to exercise any of the foregoing options or any
other right the Bank may be entitled to in the Event of Default, shall not
constitute a waiver of the right to exercise such option, or any other right,
in the event of any subsequent Event of Default, whether the same or different
in nature.
In the event the monthly payments of interest or the quarterly payments of
unused commitment fees are not paid within fifteen days of the due date
thereof, a late charge of five percent (5%) of the amount of the delinquent
payment may be assessed by the Bank to cover the extra expense in handling the
delinquent payment. The Bank shall not be obligated to accept any late
payments unless accompanied by the full amount of the late charge assessed by
the Bank as provided for herein.
Borrower hereby acknowledges that Bank shall have, at all times, a
security interest in and a right of setoff against any deposit balances, or the
property of the Borrower, or any endorser or guarantors hereof, in the
possession of the Bank or the holder hereof; and Bank may at any time, without
notice, apply the same against payment of this Notice or any obligations of the
Borrower, or any guarantor or endorser to the Bank, regardless of the existence
of or amount of any other collateral held by Bank.
The holder hereof may, without notice and without release of the liability
of any maker, endorser, surety or guarantor, add or release one or more such
parties or release any security in whole or in part. The holder hereof shall
not be liable for, or be
<PAGE> 10
prejudiced by, failure to collect or the lack of diligence in bringing suit
upon this Note or any modification hereof.
The Borrower, endorser, sureties and guarantors of this Note, as well as
all persons becoming liable hereon, severally waive presentment for payment,
demand, protest, notice of protest, and notice of dishonor.
As herein used, the word "holder" shall mean the payee or other endorsee
of this Note who is in possession, or the bearer hereof if this Note is at any
time payable to bearer.
Borrower agrees to pay, to the extent permitted by law, all costs,
charges, legal fees, and costs incurred by Bank in collecting or enforcing this
Note, or the Collateral Security. This Note shall be deemed to be made under,
and construed in accordance with and governed by, the laws of the state of
Nebraska.
Borrower acknowledges that the Bank may, at its option, grant a
participation interest in, or assign all or a part of, the obligation evidenced
hereby to such parties as Bank shall determine in its sole discretion;
provided, (i) prior to an event of default Bank shall act as the agent for
participants for the purposes of servicing and administration of the loan, (ii)
such participation shall be in compliance with any laws applicable to Bank and
(iii) such participation shall be made only to FDIC insured institutions or
their affiliates.
This Note constitutes a modification, extension and renewal of that
certain Revolving Term Promissory Note and Loan Agreement dated December 22,
1994, and the Revolving Term Promissory Note and Loan Agreement (Modified and
Extended) dated December 1, 1995, each in the original principal amount of
$15,000,000.00 (herein collectively referred to as "Prior Notes"). This Note
is executed and delivered not in payment of the Prior Notes but for the purpose
of modifying, extending and renewing the Prior Notes upon the terms and
conditions herein stated. All existing Collateral Security for the Prior Notes
shall secure this Note as well.
Borrower acknowledges that this Note is to be secured by assets in various
states evidenced by various Collateral Security documents filed in each state
and that the Bank's remedies in the event of a default may differ under varying
state laws and procedures. Borrower agrees that the Bank shall have the
greatest flexibility, collection rights and alternatives available. Without
limiting or otherwise restricting any other rights of the Bank, pursuant to the
Collateral Security documents or applicable law, the Borrower agrees to the
following. In the event of a default, Bank shall have the option: 1) to seek
recovery of the collateral by foreclosure (judicial or nonjudicial), exercise
of power of sale, replevin, self help, appointment of receiver or as otherwise
permitted in the Collateral Security documents or under applicable law (any of
which is hereinafter referred to as "foreclosure") and/or, 2) to enforce
payment of this Note by suit, deficiency
<PAGE> 11
proceedings or any other legal remedies allowable (any of which is
herein referred to as "payment proceedings"). Bank shall have the option to
pursue foreclosure of all, any, or none of the properties pledged as collateral
concurrently, at differing times, or any time, in its sole discretion and Bank
may in each or any foreclosure, seek recovery of all or any part of the unpaid
amount of this Note, in Bank's sole discretion. If Bank pursues foreclosure
against property for an amount in excess of the amount realized by Bank from
the foreclosure of said property and if there are any restrictions or
limitations on pursuing a deficiency, the restriction or limitation shall not
prevent or preclude Bank from seeking recovery of the unpaid amount in
foreclosure against other properties or payment proceedings in any other
jurisdictions, it being the intention of the parties that the Note be fully
cross-collateralized by all Collateral Security. Borrower agrees that any
statute of limitations on deficiency actions for payment proceedings shall be
tolled and suspended until ninety days after Bank has completed the last of any
foreclosures that Bank elects to pursue. Notwithstanding the fact that Bank
may maintain foreclosures each seeking recovery of the full unpaid amount of
this Note or amounts in the aggregate exceeding the total amount owed, the
Bank's total recovery from all foreclosures or payment proceedings or any other
legal or equitable remedies shall not exceed the total amount of all amounts
owing under this Note.
This Agreement inures to the benefit of, and binds the Borrower and Bank
and their successors and assigns.
If any provisions of this Note or any other document issued in connection
herewith should be unenforceable or invalid, such provisions shall be deleted
and the reminder of the provisions shall be enforced just as if the deleted
provisions had never been made a part hereof or such other document.
SUPERTEL HOSPITALITY, INC.,
A Delaware Corporation
BY: /s/ Paul J. Schulte
----------------------------
Paul J. Schulte, President
STATE OF NEBRASKA )
) ss.
COUNTY OF MADISON )
The foregoing instrument was acknowledged before me this 28th day of May,
1996, by Paul J. Schulte, President of Supertel-Hospitality, Inc., a Delaware
corporation, on behalf of the corporation.
/s/ Patricia Milander
----------------------------
Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,155,509
<SECURITIES> 0
<RECEIVABLES> 792,170
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,681,605
<PP&E> 83,732,502
<DEPRECIATION> 13,733,238
<TOTAL-ASSETS> 74,218,518
<CURRENT-LIABILITIES> 5,411,209
<BONDS> 41,944,485
0
0
<COMMON> 48,400
<OTHER-SE> 26,814,424
<TOTAL-LIABILITY-AND-EQUITY> 74,218,518
<SALES> 16,726,611
<TOTAL-REVENUES> 16,726,611
<CGS> 0
<TOTAL-COSTS> 10,185,059
<OTHER-EXPENSES> 2,637,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,439,549
<INCOME-PRETAX> 2,458,568
<INCOME-TAX> 983,427
<INCOME-CONTINUING> 1,475,141
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,475,141
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
