<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,
1997.
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, 1997, there were 4,840,000 common shares of the registrant
outstanding.
<PAGE> 2
PART I: FINANCIAL INFORMATION
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 903,903 $6,487,764
Accounts receivable 1,446,155 1,018,045
Prepaid expenses 609,911 319,862
Recoverable income taxes - 204,803
----------- ------------
Total current assets 2,959,969 8,030,474
----------- ------------
Property and equipment, at cost 106,198,863 97,574,480
Less accumulated depreciation 16,612,196 15,131,485
----------- ------------
Net property and equipment 89,586,667 82,442,995
----------- ------------
Other assets:
Intangible assets 1,643,214 1,644,939
Other assets 176,386 157,299
----------- ------------
Total other assets 1,819,600 1,802,238
----------- ------------
$ 94,366,236 $92,275,707
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,274,776 $ 786,456
Accrued expenses:
Real estate taxes 1,281,172 1,295,240
Other 3,264,645 1,418,633
----------- ------------
Total accrued expenses 4,545,817 2,713,873
----------- ------------
Current installments of long-term debt 1,774,753 1,067,023
----------- ------------
Total current liabilities 7,595,346 4,567,352
----------- ------------
Deferred income taxes 255,900 54,900
Long-term debt, excluding current installments 56,194,099 58,894,525
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 11,925,962 10,364,001
----------- ------------
Total stockholders' equity 30,320,891 28,758,930
----------- ------------
Commitments and contingency
----------- ------------
$ 94,366,236 $92,275,707
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Motel revenues:
Lodging revenues $11,926,389 $9,175,328 $20,663,633 $16,160,830
Other lodging activities 390,862 293,964 719,298 565,781
----------- ---------- ----------- -----------
Total motel revenues 12,317,251 9,469,292 21,382,931 16,726,611
----------- ---------- ----------- -----------
Direct operating expenses:
Payroll and payroll taxes 2,797,275 2,206,649 5,172,037 4,087,251
Royalties and advertising fund 794,540 604,555 1,369,296 1,060,798
Other lodging 3,141,102 2,490,147 6,044,075 4,625,664
----------- ---------- ----------- -----------
Total lodging expense 6,732,917 5,301,351 12,585,408 9,773,713
Other lodging activities 261,237 217,786 496,358 411,346
Depreciation and amortization 1,009,835 778,843 1,911,171 1,328,591
General and administrative 871,167 631,332 1,591,801 1,308,861
----------- ---------- ----------- -----------
Total direct operating expenses 8,875,156 6,929,312 16,584,738 12,822,511
----------- ---------- ----------- -----------
Operating income 3,442,095 2,539,980 4,798,193 3,904,100
----------- ---------- ----------- -----------
Other income (expense):
Interest expense (1,184,905) (765,216) (2,235,842) (1,439,549)
Miscellaneous income/expense (16,189) (24,998) 40,908 (5,983)
----------- ---------- ----------- -----------
(1,201,094) (790,214) (2,194,934) (1,445,532)
----------- ---------- ----------- -----------
Income before income taxes 2,241,001 1,749,766 2,603,259 2,458,568
Income tax expense 896,400 699,906 1,041,298 983,427
----------- ---------- ----------- -----------
Net income $ 1,344,601 $1,049,860 $ 1,561,961 $ 1,475,141
=========== ========== =========== ===========
Net income per share $ .28 $ .22 $ .32 $ .31
=========== ========== =========== ===========
Weighted average shares outstanding 4,840,000 4,840,000 4,840,000 4,840,000
=========== ========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SUPERTEL HOSPITALITY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $1,561,961 $1,475,141
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,746,626 1,245,601
Amortization 164,545 82,990
Loss on sale of property and equipment 21,463 50,262
Deferred income taxes 201,000 210,187
Changes in assets and liabilities:
Accounts receivable (428,110) (169,672)
Prepaid expenses (290,049) (502,362)
Recoverable income taxes 204,803 241,969
Accounts payable 488,320 (75,492)
Accrued expenses 1,373,692 807,758
Income taxes payable 458,252 277,206
---------- ----------
Net cash provided by operating activities 5,502,503 3,643,588
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (8,928,492) (12,880,684)
Additions to intangibles and other assets (181,907) (144,747)
Proceeds from sale of property and equipment 16,731 6,796
---------- ----------
Net cash used in investing activities (9,093,668) (13,018,635)
---------- ----------
Cash flows from financing activities:
Repayments on long-term debt (21,628,415) (521,842)
Proceeds from long-term debt 19,635,719 4,328,226
---------- ----------
Net cash provided by (used in) financing activities (1,992,696) 3,806,384
---------- ----------
Net decrease in cash and cash equivalents (5,583,861) (5,568,663)
Cash and cash equivalents at beginning of period 6,487,764 6,724,172
---------- ----------
Cash and cash equivalents at end of period $ 903,903 $1,155,509
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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, 1997 and the
condensed consolidated statements of income and cash flows for the three
months and six months ended June 30, 1997 and 1996 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, 1997 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, 1996. The results of
operations for the three months and six months ended June 30, 1997 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, 1997 and 1996, 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
This report contains certain forward-looking statements and
information relating to Supertel that are based on the beliefs of
Supertel's management as well as assumptions made by and information
currently available to Supertel's management. Such statements reflect the
current views of Supertel with respect to future events and are subject to
certain risks, uncertainties and assumptions, including the business
factors described in Supertel's 1996 Form 10-K. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described
herein as believed, estimated or expected.
RESULTS OF OPERATIONS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Total motel revenues for the second quarter were $12,317,251, an
increase of $2,847,959 or 30.1% over total revenues of $9,469,292 for the
second quarter of 1996. Total motel revenues for the first six months
were $21,382,931, an increase of $4,656,320 or 27.8% over the total
revenues of $16,726,611 for the first six months of 1996. The increase
for the second quarter was primarily due to an increase of $2,751,061 in
revenues from lodging operations and $96,898 from other lodging activities
(which consist of telephone, vending and movie revenue). The increase for
the first six months was primarily due to an increase of $4,502,803 in
revenue from lodging operations and $153,517 from other lodging
activities.
The increase in revenues from lodging operations for the second
quarter resulted primarily from renting 274,250 rooms in 1997 compared to
225,571 rooms in the second quarter of 1996, an increase of 48,679 or
21.6%. The increase in revenues from lodging operations for the first six
months resulted primarily from renting 493,331 rooms in 1997 compared to
405,773 rooms rented in the first six months of 1996, an increase of
87,558 or 21.6%.
6
<PAGE> 7
The increase in rooms rented resulted primarily from the opening of
four new properties and the acquisition of seven existing properties since
May 1996. These openings and acquisitions added 867 rooms. Revenues were
also impacted by an increase in the average daily room rate in the second
quarter of 1997. An average daily room rate of $44.91 was achieved
compared to $41.98 for the second quarter of 1996, an increase of $2.93 or
7.0%. For the first six months, the average daily room rate was $43.34 in
1997 compared to $41.22 for the first six months of 1996, an increase of
$2.12 or 5.1%.
Revenue per available room for the second quarter of 1997 increased
to $31.13 from $29.74, an increase of $1.39 or 4.7%. Revenue per
available room for the first six months of 1997 increased to $27.78 from
$27.00, an increase of $.78 or 2.9%.
Motel revenue was also impacted by changes in occupancy. Occupancy
as a percentage of rooms available for the second quarter of 1997
decreased to 69.3% from 70.8% in the second quarter of 1996. The
occupancy percentage in seasoned properties (those owned/opened over one
year) decreased from 72.9% in the second quarter of 1996 to 70.4% in the
second quarter of 1997. Occupancy decreased from 65.5% for the first six
months of 1996 to 64.1% for the first six months of 1997. The occupancy
percentage in seasoned properties decreased from 67.0% for the first six
months of 1996 to 65.3% for the first six months of 1997. 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 1997 were $6,732,917
compared to $5,301,351 for the second quarter of 1996, an increase of
$1,431,566 or 27.0%. Lodging expenses for the first six months of 1997
were $12,585,408 compared to $9,773,713 for the first six months of 1996,
an increase of $2,811,695 or 28.8%. 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 revenues
decreased to 54.7% for the second quarter of 1997 from 56.0% in the second
quarter of 1996. Lodging expenses as a percentage of motel revenues
increased to 58.9% for the first six months of 1997 from 58.4% for the
first six months of 1996.
7
<PAGE> 8
Depreciation and amortization expenses for the second quarter of 1997
were $1,009,835 compared to $778,843 for the second quarter of 1996, an
increase of $230,992 or 29.7%. Depreciation and amortization expenses for
the first six months of 1997 were $1,911,171 compared to $1,328,591 for
the first six months of 1996, an increase of $582,580 or 43.8%. 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 1997
were $871,167 compared to $631,332 in the second quarter of 1996, an
increase of $239,835 or 38.0%. General and administrative expenses as a
percent of sales increased in the second quarter of 1997 to 7.1% from 6.7%
of sales in the second quarter of 1996. General and administrative
expenses for the first six months of 1997 were $1,591,801 compared to
$1,308,861 for the first six months of 1996, an increase of $282,940 or
21.6%. General and administrative expenses as a percent of sales
decreased in the first six months of 1997 to 7.4% from 7.8% of sales in
the first six months of 1996.
Interest expense increased by $419,689 or 54.8% for the second
quarter of 1997 from $765,216 for the second quarter of 1996 to $1,184,905
in 1997. Interest expense increased by $796,293 for the first six months
of 1997 from $1,439,549 in 1996 to $2,235,842 in 1997 or 55.3%. The
increase was primarily due to the new borrowings for acquisitions and new
constructions. Average bank borrowings for the second quarter of 1997
increased to $58,297,477 from $40,421,800 for the comparable period in
1996, an increase of $17,875,677 or 44.2%. Bank borrowings at June 30,
1997 were $57,968,852.
As a result of the aforementioned operating factors and general
business conditions, net income for the second quarter of 1997 from
continuing operations was $1,344,601 or $.28 per share versus net income
of $1,049,860 or $.22 per share for the corresponding period in 1996.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
for the second quarter of 1997, were $4,435,740, an increase of $1,141,915
or 34.7% over EBITDA of $3,293,825 for the second quarter of 1996.
8
<PAGE> 9
Net income for the six months of 1997 from continuing operations was
$1,561,961 or $.32 per share versus net income of $1,475,141 or $.31 per
share, for the corresponding period in 1996. EBITDA for the first six
months of 1997 were $6,750,272, an increase of $1,523,564 or 29.1% over
EBITDA of $5,226,708 for the first six months of 1996.
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 $5,503,000 for the first six months of 1997
and $3,644,000 for the first six months of 1996. Supertel requires
capital principally for the construction, acquisition and improvement of
lodging facilities. Capital expenditures for such purposes were
approximately $8,928,000 in the first six months of 1997 and approximately
$12,881,000 in the first six months of 1996.
Long-term debt (excluding current installments of long-term debt) was
$56,194,099 at June 30, 1997 and $58,894,525 at December 31, 1996.
Supertel's current installments of long-term debt were $1,774,753 at June
30, 1997 and $1,067,023 at December 31, 1996. 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, 1997, Supertel was in compliance with
these covenants.
Supertel entered into a new ten-year $14,745,500 term loan agreement
with a bank in May 1997. At the same time, Supertel decreased its line of
credit from $40,000,000 to $25,000,000. The line of credit had an
outstanding balance of $15,164,412 (classified as long-term debt) at June
30, 1997. Supertel's ratio of long-term debt (including current
installments) to long-term debt and stockholders' equity was 65.7% at June
30, 1997, compared to 67.6% at December 31, 1996.
Supertel previously reported its plan to construct/acquire
approximately 400-600 motel rooms in 1997 with approximately $14,000,000 -
$19,000,000 of capital funds necessary to finance such development.
During the first six months Supertel has acquired one motel, an 81-room
property in
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<PAGE> 10
Menomonie, Wisconsin, and opened one new hotel in the Las Colinas area of
Irving, Texas, and completed a 22 room addition in Lincoln, Nebraska. In
addition, a new 101 room property in Houston, Texas is scheduled to open
in August 1997. Supertel had 4,359 rooms in operation as of June 30, 1997
compared to 3,760 rooms in operation as of June 30, 1996, an increase of
599 rooms or 15.9%.
In addition to planned development expenditures, Supertel has
principal payments totaling $1,067,023 due under existing debt obligations
during 1997. 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 four
unencumbered properties will be sufficient to fund scheduled development
and debt repayment.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which revises the calculation and
presentation provisions of Accounting Principles Board Opinion 15 and
related interpretations. Statement No. 128 is effective for Supertel's
fiscal year ending December 31, 1997. Retroactive application will be
required. Supertel believes the adoption of Statement No. 128 will not
have a significant effect on its reported income per share.
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
10.1 Term Loan Agreement dated May 9, 1997 between
Supertel 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.
By: /s/ Troy M. Beatty
--------------------------------
Troy M. Beatty
Senior Vice President and
Chief Financial Officer
DATED this 12th day of August, 1997.
<PAGE> 1
EXHIBIT 10.1
TERM LOAN AGREEMENT
$14,745,500.00 May 9, 1997
THIS AGREEMENT is made and entered into this 9th day of May, 1997, by and
between Supertel Hospitality, Inc., a Delaware corporation (hereinafter
referred to as "Borrower") and First Bank, National Association, with its
offices located at 233 South 13th Street, Lincoln, Nebraska 68508 (hereinafter
referred to as "Bank").
WHEREAS, Borrower requested and the Bank agreed to extend a term loan to
the Borrower in the principal amount of Fifteen Million Dollars
($15,000,000.00) upon certain terms and conditions; and
WHEREAS, one of the conditions of the loan commitment was a limitation of
loan amount based upon appraisals of various properties and based upon the
appraisals obtained the maximum loan amount shall be $14,745.500.00 instead of
$15,000,000.00.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Borrower and Bank agree as follows:
1. LOAN. Bank shall lend Borrower the principal sum of Fourteen Million
Seven Hundred Forty-Five Thousand Five Hundred Dollars ($14,745,500.00) (herein
the "Loan"). The initial rate of interest on the Loan shall be 8.65% per annum
which is derived from the March 31, 1997 five year United States Treasury
Security Index plus 1.9% (190 basis points). The rate of interest shall be
fixed at 8.65% until June 1, 2002, at which time the rate of interest shall be
adjusted and fixed until maturity based on the weekly average of the five year
United States Treasury Security Index for the week immediately preceding April
15, 2002, plus 1.9% (190 basis points). Payments on the Loan shall be in the
following manner:
a) On June 1, 1997, payment of any and all interest accrued to
said date.
b) Thereafter, consecutive equal monthly payments of principal
and interest based upon a fifteen (15) year amortization due and
payable on the first day of each month. The first of such payments
shall be due and payable on July 1, 1997. Based upon the initial
rate of interest, monthly payments of principal and interest shall
be in the amount of $146,504.18 each. The amount of the monthly
payments shall be recalculated based upon the interest rate
adjustment on June 1, 2002, recomputed based upon a remaining ten
(10) year amortization. Said recomputed amount shall be due and
payable on July 1, 2002 and the first date of each month thereafter.
c) Notwithstanding amortizations of longer duration, the entire
unpaid principal balance, accrued interest and any other sums shall
balloon and be due and payable in full on June 1, 2007 (the
"Maturity Date").
Interest on this Loan is computed on a 30/360 simple interest basis; that
is, with the exception of odd days in the first payment period, monthly
interest is calculated by applying the ratio of the annual interest rate over a
year of 360 days multiplied by the outstanding principal balance, multiplied by
a month of 30 days. Interest for the odd days is calculated on the basis of
actual days to the next full month and a 360 day year.
1
<PAGE> 2
The undersigned may prepay this Loan in part or in full at any time
without penalty provided however any partial prepayments shall be in increments
of thousands of dollars and shall be applied to the last maturing installment
payments and shall not postpone or reduce the Borrower's obligation to make
regularly scheduled payments until the entire unpaid principal balance and
interest and any other sums due have been paid in full.
This Loan shall be evidenced by thirteen separate Promissory Notes (herein
"Notes") with an initial aggregate principal balance totaling $14,745,500.00.
Notwithstanding multiple Notes, Borrower shall make one monthly payment to the
Bank covering all thirteen Notes. The payment shall be allocated by the Bank
amongst the thirteen Notes in proportion to the amount due under each
particular Note in proportion to the amount due under all thirteen Notes
collectively. In the event of default by the Borrower, Bank may elect to apply
payments to any Note that it deems fit in its sole discretion. Borrower waives
and shall not have any right to direct allocation of payments to any particular
Note or amongst the Notes contrary to the foregoing provisions.
This is a term loan and not a revolving line of credit. No funds will be
readvanced to Borrower after the initial funding of this Loan, except to the
extent that the Bank in its sole discretion elects to advance funds to protect
its security or otherwise exercise rights in the event of default or
non-performance by the Borrower. Proceeds of this Loan shall be utilized
solely to partially pay down the outstanding amount owed by Borrower to Bank on
a Revolving Term Promissory Note and Loan Agreement in the original amount of
$40,000,000.00.
In the event the monthly payment of interest or the monthly payments of
principal and interest on this Loan have not been paid within fifteen (15) days
following the due date on any such payment, a late charge of five percent (5%)
of the amount of said delinquent payments may be assessed by the Bank to cover
the extra expense involved in handling the delinquent payments. The Bank shall
have no obligation to accept any late payments unless such payment shall be
accompanied by the full amount of the late charge assessed as provided for
herein.
From and after the maturity of this Loan or from any default, the entire
principal 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 (the
Default Rate of Interest).
2. SECURITY. This Loan shall at all times be secured by a first and
paramount lien in favor of the Bank upon real estate operated as motels by
Borrower and all of Borrower's right, title and interest in and to all
furniture, fixtures, equipment, personal property, located thereon, and all
income, rents and accounts therefrom all as to motels owned by the Borrower at
the following locations:
Moberly, Missouri
Kingdom City, Missouri
Manhattan, Kansas
Wayne, Nebraska
Muscatine, Iowa
Ft. Madison, Iowa
Watertown, South Dakota
Portage, Wisconsin
Antigo, Wisconsin
Shawano, Wisconsin
Minocqua, Wisconsin
Sheboygan, Wisconsin
Tomah, Wisconsin
2
<PAGE> 3
The legal descriptions for such properties are attached hereto as Exhibit "A".
Borrower agrees to deliver and execute in favor of the Bank and to redeliver or
reexecute in favor of Bank Deeds of Trust (or Mortgages if preferred by Bank),
Assignment of Leases and Rents, Security Agreements, and Financing Statements
(collectively referred to as the "Collateral Security") in form satisfactory to
Bank for the aforestated purpose of securing the Loan by the above-described
properties.
Borrower warrants and represents that the motel facilities at Sheboygan
and Minocqua, Wisconsin are operated as Comfort Inns and the motels at the
other locations are operated as Super 8 motels.
Although Borrower shall execute thirteen separate Promissory Notes in
favor of Bank in varying amounts totaling $14,745,500.00 in the aggregate and
although each Promissory Note will be primarily secured by assets at one of the
aforestated thirteen property locations, it is nonetheless agreed and the
intention of the parties that all properties serve as cross-collateral for all
Notes to the maximum extent allowable up to the total amount of this
$14,745,500.00 Loan.
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 loan 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.
3. DEFINED TERMS.
a) Loan Debt Service Coverage Ratio. Loan Debt Service Coverage
Ratio as used herein shall be 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 date of newly
constructed properties, with actual EBITDA information replacing the
comparable proforma information at the end of each quarter during
such twelve month period.
b) Consolidated Debt Service Coverage Ratio. Consolidated Debt
Service Coverage Ratio as used herein shall be defined as EBITDA
(all earnings of Borrower from all assets before interest expense,
income tax, depreciation and amortization)/(all indebtedness of
Borrower determined as if repayment 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 date
of newly constructed properties, with actual EBITDA information
replacing the comparable proforma information at the end of each
quarter during such twelve month period. For purposes of this
definition, the terms "indebtedness" and "debt" shall refer only to
the current portion and long-term portion of Borrower's debt for
borrowed money.
3
<PAGE> 4
c) Debt Per Room Limits. Debt per room limits as used herein
shall mean that any motel owned and operated by Borrower, regardless
of whether subject to Collateral Security, shall not have debt per
room in excess of the following amounts:
i) Super 8 facility $15,000.00 debt per room maximum,
ii) Comfort Inn facility $16,500.00 debt per room
maximum and
iii) Wingate Inn facility $25,000.00 debt per room
maximum.
For the purposes of this definition, the terms "indebtedness" and
"debt" shall refer only to the current portion and long-term
portion of Borrower's debt for borrowed money.
d) Franchise Agreement. Franchise Agreement shall mean any
agreement that Borrower has with a franchisor that allows Borrower
to operate motel facilities either as a Super 8 motel or a Comfort
Inn motel.
4. CONDITIONS. The obligations of Bank to make the Loan hereunder shall
be subject to the conditions that Bank shall have received at the time of such
advance:
a) Delivery of Deeds of Trust (or Mortgages if preferred by
Bank), Assignment of Leases and Rents and Financing Statements and
Security Agreements (collectively referred to in this Agreement as
the "Collateral Security"), in form satisfactory to Bank granting
Bank a first and paramount lien upon the previously identified
thirteen real estate properties operated as motels by Borrower and
all of Borrower's right, title and interest in and to all furniture,
fixtures, equipment, personal property, located thereon and all
income, rents and accounts therefrom.
b) Current appraisals of the real estate subject to the
Collateral Security showing that the total principal amount of the
Loan would not exceed 70% of the appraised value. The appraisals
shall be completed by a designated appraiser acceptable to Bank
conforming to Uniform Standard Professional Appraisal Practice
(USPAP) standards. The appraisals will be directed to and for the
benefit of the Bank with Borrower being responsible for the cost of
the appraisal.
c) Certified copies of all corporate action taken by the
Borrower authorizing the execution of this Loan Agreement, the
Notes, the Collateral Security contemplated herein and the
transaction contemplated hereby and such other documents relating
thereto as Bank may reasonably request.
d) 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.
e) Favorable written opinion of the counsel to Borrower
addressed to Bank, in form and substance acceptable to Bank,
relating to Sections 5a), 5b), 5c) and 5d) of the warranties set
forth hereinbelow, provided that as to the matter set out in
Sections 5c) and 5d) that opinion may be limited to matters of which
counsel has knowledge.
4
<PAGE> 5
f) 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.
g) Delivery of an acceptable survey on all real estate assets
serving as collateral.
h) 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.
i) Documentary evidence from the Borrower satisfactory to Bank
that the Loan Debt Service Coverage Ratio and Consolidated Debt
Service Ratio will not be less than 1.50.
j) Documentary evidence from the Borrower satisfactory to the
Bank that the Debt Per Room Limits will not be exceeded.
k) Documentary evidence satisfactory to Bank as to the Franchise
Agreements for the properties subject to Collateral Security and
that the Franchise Agreements are in full force and effect without
default.
5. WARRANTIES. Borrower hereby represents and warrants:
a) 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 Loan
Agreement and to execute and deliver the Collateral Security.
b) The execution, delivery and performance of this Loan
Agreement, the Notes, the Collateral Security 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 Loan Agreement, the
Notes, the Collateral Security, 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,
5
<PAGE> 6
insolvency, or laws affecting creditors rights generally and
subject to general principles of equity.
c) The execution, delivery and performance of this Loan
Agreement, the Notes, the Collateral Security, 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.
d) 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.
e) The balance sheet of Borrower as of December 31, 1996 and the
related financial information of the fiscal year ended on that date,
and the Form 10-K for the fiscal year ended December 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 Loan Agreement 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 December 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.
f) 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 December 31, 1996, or previously
disclosed to Bank in writing.
g) 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
6
<PAGE> 7
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.
6. COVENANTS. Borrower agrees that until payment in full of all sums due
Bank, Borrower shall, unless Bank shall otherwise consent in writing:
a) 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.
b) 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.
c) 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;
iii) Promptly upon the receipt thereof by Borrower, copies of any
detailed audit reports submitted to Borrower by independent
accountants in connection
7
<PAGE> 8
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.
d) 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.
e) 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 insured's
as their interest may appear in connection with the items of
collateral subject to the Collateral Security.
f) 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.
g) 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.
h) Maintain at all time a Loan Debt Service Coverage Ratio and
Consolidated Debt Service Coverage Ratio of at least 1.50.
i) Maintain at all times debt per room less than the Debt Per
Room Limits.
j) Not further encumber except to the extent permitted herein
any of the property which is subject to Collateral Security.
k) Annually provide Bank written documentation satisfactory to
Bank that the Franchise Agreements are still in effect without
default and warranting the same to the Bank.
l) Not sell, convey, transfer, contract to sell, lease with
option to purchase, or otherwise dispose of any of the real estate
which is subject to Collateral Security.
8
<PAGE> 9
m) Not sell, convey, transfer, contract to sell, lease with
option to purchase, or otherwise dispose of any of the personal
property which is subject to Collateral Security outside the
ordinary course of business.
7. DEFAULT. Each of the following shall constitute an Event of Default:
a) failure to pay any sum due under any of the thirteen
Promissory Notes executed pursuant to this Loan Agreement within
fifteen days of the due date of any such Notes thereof; or
b) failure to comply with the Loan Debt Service Coverage Ratio
or Consolidated Debt Service Coverage Ratio covenants; or
c) 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
d) 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
e) if Borrower fails to cure a default in the performance of any
of the other covenants, or conditions, or representations of this
Loan Agreement, or any Note or the Collateral Security executed
pursuant hereto, within thirty days after written notice from Bank;
or
f) 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
g) 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
h) 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
i) 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; or
j) failure to comply with the Debt Per Room Limits; or
k) material default by Borrower on any of Borrower's Franchise
Agreements as to properties subject to Collateral Security.
9
<PAGE> 10
Upon the occurrence of an Event of Default then, or any time thereafter, the
Bank or said holder hereof may declare all sums of principal and interest then
remaining unpaid hereunder, or under any or all of the Notes 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 Loan 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 interest 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.
Borrower hereby acknowledges that this Loan is to be evidenced by thirteen
separate Notes 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.
Although each Note shall be primarily secured by one of the thirteen properties
identified, each property shall also constitute security for all other Notes to
the maximum extent allowable. 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 any Note by suit, deficiency 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 the Loan, 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 Loan 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 Loan 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
arising pursuant to this Loan Agreement, the Notes, and Collateral Security
executed incident thereto.
8. MISCELLANEOUS. This Loan Agreement covers and applies to the thirteen
properties identified and the thirteen Promissory Notes and various Collateral
Security that will be executed pursuant hereto.
This Loan Agreement, even though limited in amount to $14,745,500.00, may
through inadvertence and oversight be referenced as a $15,000,000.00 Term Loan
Agreement in other Loan
10
<PAGE> 11
Documents, Collateral Security Agreements, Modifications or other
documents executed in connection herewith and any such reference
notwithstanding the error in amount shall be deemed referenced to this Loan
Agreement.
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 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 Loan, as well as
all persons becoming liable hereon, severally waive presentment for payment,
demand, protest, notice of protest, and notice of dishonor.
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
Loan Agreement, the Notes, or the Collateral Security.
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 Agreement inures to the benefit of, and binds the Borrower and Bank
and their successors and assigns.
If any provisions of this Agreement 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
TITLE: President
FIRST BANK, NATIONAL ASSOCIATION
BY: /s/ Gerald L. Holscher
____________________________
Gerald L. Holscher
TITLE: Senior Vice President
11
<PAGE> 12
STATE OF NEBRASKA )
) ss.
COUNTY OF MADISON )
The foregoing instrument was acknowledged before me this 9th day of May,
1997, by Paul J. Schulte, President of Supertel Hospitality, Inc., a Delaware
corporation, on behalf of the corporation.
/s/ Patricia Morland
[NOTARY SEAL] _______________________________
Notary Public
STATE OF NEBRASKA )
) ss.
COUNTY OF MADISON )
The foregoing instrument was acknowledged before me this 9th day of May,
1997, by Gerald L. Holscher, Senior Vice President, First Bank, National
Association, on behalf of the bank.
/s/ Patricia Morland
[NOTARY SEAL] ________________________________
Notary Public
12
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