<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(3)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
SOUTHERN ACCEPTANCE CORPORATION
-----------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or 14a-6(j)(2) or Item 22(a)(2) of Schedule
14A.
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
Common Stock, $.10 par value per share, of Southern Acceptance
Corporation and Common Stock, $1.00 par value per share, of
Efficiency Lodge, Inc.
2) Aggregate number of securities to which transaction
applies:
Up to 992,390 shares of the Southern Acceptance Corporation Common
Stock will be exchanged for 900 shares of the Common Stock of
Efficiency Lodge, Inc.
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
$300.00 - In accordance with Exchange Act Rule 0-11(c)(1)(i)
and (a)(4), the filing fee is calculated on the basis of
$300.00, or one-third of the par value of the outstanding
Efficiency Lodge, Inc. common stock, because there is no
public market for such common stock and Efficiency Lodge,
Inc. has an accumulated capital deficit.
4) Proposed maximum aggregate value of transaction:
$300.00
5) Total fee paid: $.06
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
__________________________________________________
2) Form, Schedule or Registration Statement No.:
__________________________________________________
3) Filing Party:
__________________________________________________
4) Date Filed:
__________________________________________________
<PAGE>
SOUTHERN ACCEPTANCE CORPORATION
277 Pat Mell Road, Suite A
Marietta, Georgia 30060
________________, 1996
To Our Shareholders:
You are cordially invited to attend a Special Meeting (the
"Special Meeting") of Shareholders of Southern Acceptance
Corporation (the "Company") to be held at
_________________________________ on ___________________, 1996,
at 10 a.m., Marietta time.
At the Special Meeting you will be asked to approve three
proposals. Under the first proposal (the "Merger Proposal"), you
will be asked to adopt and approve a merger agreement pursuant to
which Efficiency Lodge, Inc., a Georgia corporation ("ELI"), will
be merged with and into the Company (the "Merger") on the terms
set forth under "PROPOSAL TO ADOPT AND APPROVE THE MERGER
AGREEMENT -- General" in the attached Proxy Statement . As part
of the Merger Proposal, you will also be asked to approve an
amendment of the Company's Articles of Incorporation, as amended
(the "Articles"), to change the name of the Company to
"Efficiency Lodge, Inc."
Under the second proposal (the "Articles Amendment
Proposal"), you will be asked to approve a restatement and
amendment of the Company's Articles. Under the Proposal, the
Articles will be amended to clarify that the duration of the
Company is perpetual and to add certain provisions to limit the
potential monetary liability of directors of the Company for
breaches of their duty of care or other duties as a director to
the extent allowed under Georgia law. The restatement will
permit the Articles, as amended, to be consolidated into a single
document and remove certain obsolete provisions that have no
relevance under present Georgia law.
Under the third proposal (the "By-Law Amendment Proposal"),
you will be asked to approve an amendment to Article III, Section
1 of the Company's By-laws, as amended, to permit the annual
meeting of the Company to be held in May of each year, beginning
in 1996.
Your Board of Directors believes that the Merger Proposal,
the Articles Amendment Proposal and the By-Law Proposal are in
the best interests of the Company and recommends that you vote
"FOR" each of the proposals. Approval of each of the Merger
Proposal, the Articles Amendment Proposal and the By-Law
Amendment Proposal requires the affirmative vote of the holders
of a majority of the issued and outstanding shares of the common
stock of the Company.
You are urged to read carefully the enclosed Proxy Statement
in its entirety for a complete description of the Merger,
Articles Amendment and By-Law Amendment Proposals. Whether or
not you plan to attend the Special Meeting, please be sure to
date, sign and return the enclosed Proxy as promptly as possible
so that your shares may be represented at the Special Meeting and
voted in accordance with your wishes. Your vote is important
regardless of the number of shares you own. If you attend the
Special Meeting, you may vote in person whether or not you have
previously returned your Proxy.
Sincerely,
J.A. Cochran
President<PAGE>
SOUTHERN ACCEPTANCE CORPORATION
277 Pat Mell Road, Suite A
Marietta, Georgia 30060
___________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ______________, 1996
___________________
TO THE SHAREHOLDERS OF SOUTHERN ACCEPTANCE CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of
Shareholders (the "Special Meeting") of Southern Acceptance
Corporation, a Georgia corporation (the "Company"), will be held
at ___________________________________________________________ on
___________________, 1996, at 10 a.m., Marietta time, for the
purpose of considering and voting upon the following matters,
each of which is described in the attached Proxy Statement:
1. A proposal to approve and adopt an Agreement and Plan of
Merger, dated as of January 22, 1996, between the Company
and Efficiency Lodge, Inc., a Georgia corporation ("ELI"), a
copy of which is attached to the enclosed Proxy Statement as
Appendix A. Under the proposal, the Company's Articles of
Incorporation, as amended (the "Articles"), will be amended
to change the name of the Company to "Efficiency Lodge,
Inc.;"
2. A proposal that the Company's Articles be restated and
amended in accordance with the Restated and Amended Articles
attached to the enclosed Proxy Statement as Appendix B (the
"Articles Amendment Proposal");
3. A proposal that Article III, Section 1 of the Company's
By-Laws be amended in accordance with Appendix C of the
enclosed Proxy Statement; and
4. To transact such other business as may properly come before
the Special Meeting, or any adjournments thereof.
Only shareholders of record at the close of business on
_________________, 1996 will be entitled to notice of and to vote
at the Special Meeting.
A Proxy Statement and Proxy Card solicited by the Board of
Directors of the Company are enclosed in the envelope in which
these materials were mailed to you. Please fill in, date and
sign the Proxy Card and return it promptly in the enclosed
postage-paid return envelope. If you attend the Special Meeting,
you may, if you wish, revoke your Proxy and vote in person.
By Order of the Board of Directors
BONNIE L. BYERS
Vice President and Secretary-
Treasurer
Marietta, Georgia, ______________, 1996
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY SO THAT YOUR
VOTE MAY BE RECORDED AT THE SPECIAL MEETING IF YOU DO NOT ATTEND
PERSONALLY.
<PAGE>
SOUTHERN ACCEPTANCE CORPORATION
277 Pat Mell Road, Suite A
Marietta, Georgia 30060
___________________
PROXY STATEMENT FOR SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON ____________, 1996
This Proxy Statement is being furnished to the holders of
common stock, par value $.10 per share (the "Company Stock"), of
Southern Acceptance Corporation, a Georgia corporation (the
"Company"), in connection with the solicitation of proxies by the
Board of Directors to be used at a Special Meeting of
Shareholders of the Company, and any and all adjournments or
postponements thereof (the "Special Meeting"). The Special
Meeting will be held on ______________ ___, 1996 at __________,
Marietta time, at _______________________________ to consider and
vote upon three proposals.
Under the first proposal (the "Merger Proposal"), holders of
Company Stock will be asked to approve and adopt an Agreement and
Plan of Merger dated January 22, 1996 (the "Merger Agreement")
pursuant to which Efficiency Lodge, Inc., a Georgia corporation
("ELI"), will be merged with and into the Company (the "Merger")
on the terms set forth under "PROPOSAL TO ADOPT AND APPROVE THE
MERGER AGREEMENT -- General" in the attached Proxy Statement.
Immediately prior to the Merger, three of the seven members of
the Company's board of directors (the "Board") will resign, and
the remaining directors will appoint Roy Barnes, Ray Barnes and
Annette Bone, each of whom is a designee of ELI, to membership on
the Board. In addition, the Articles of Incorporation of the
Company, as amended (the "Articles"), will be amended upon
consummation of the Merger to change the name of the Company to
"Efficiency Lodge, Inc." The Merger Agreement, including the
proposed Article amendment, is attached to this Proxy Statement
as Appendix A, and any summary contained herein of the terms of
the Merger Agreement is qualified by reference to the Merger
Agreement.
Under the second proposal (the "Articles Amendment
Proposal"), holders of Company Stock will be asked to approve a
restatement and amendment of the Company's Articles. The
proposed Restated and Amended and Articles of Incorporation of
the Company (the "Restated and Amended Articles") are attached to
this Proxy Statement as Appendix B, and any summary contained
herein of the proposed Restated and Amended Articles is qualified
by reference to such Articles.
Under the third proposal (the "By-Law Amendment Proposal"),
holders of the Company Stock will be asked to approve an
amendment to Article III, Section 1 the Company's By-Laws, as
amended (the "By-Laws"), which is attached to this Proxy
Statement as Appendix C.
The approximate date on which this Proxy Statement and the
accompanying Proxy Card are first being sent or given to
shareholders is _________________, 1996. For purposes of this
Proxy Statement, all references to outstanding shares of the
Company are unadjusted for the conversion of Company Stock and
ELI Stock proposed in the Merger unless such shares are
designated as being "Post-Merger Shares."
Any Proxy given pursuant to the solicitation may be revoked
without compliance with any other formalities by any shareholder
who attends the Special Meeting and gives notice of his or her
election to vote in person. In addition, any Proxies given
pursuant to this solicitation may be revoked prior to the Special
Meeting by delivering to Bonnie Byers, the Secretary of the
Company, a notice of revocation or a duly executed Proxy for the
same shares bearing a later date.
_______________
<PAGE>
TABLE OF CONTENTS
Page(s)
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Voting at the Special Meeting . . . . . . . . . . . . . . . . . . . . 1
Proxy Solicitation Expense . . . . . . . . . . . . . . . . . . . . . 1
PROPOSAL TO ADOPT AND APPROVE THE MERGER AGREEMENT . . . . . . . . . . . 2
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Parties and Background . . . . . . . . . . . . . . . . . . . . . . . 2
Recommendations of the Board of Directors . . . . . . . . . . . . . . 3
Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . 3
Effects of the Merger on the Company's Shareholders . . . . . . . . . 4
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . 5
Exchange of Stock Certificates and Payment of Cash in Lieu
of Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . 9
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Interests of Certain Persons in the Merger . . . . . . . . . . . . . 10
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Certain Federal Income Tax Consequences of the Merger . . . . . . . . 10
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . 11
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . 11
INFORMATION REGARDING THE COMPANY . . . . . . . . . . . . . . . . . . . . 12
Business of the Company . . . . . . . . . . . . . . . . . . . . . . . 12
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Description of Property . . . . . . . . . . . . . . . . . . . . . . . 12
Ownership of the Company Stock . . . . . . . . . . . . . . . . . . . 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY . . . . . . . . . . . 14
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY . . . . . . . . . . . . 15
INFORMATION REGARDING ELI . . . . . . . . . . . . . . . . . . . . . . . . 16
Business of ELI . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
The Extended Stay Lodging Industry . . . . . . . . . . . . . . . . . 16
The Efficiency Lodges . . . . . . . . . . . . . . . . . . . . . . . . 16
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . 19
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF ELI . . . . . . . . . . . . . . . 20
<PAGE>
DIVIDENDS ON AND MARKET PRICES OF THE COMPANY AND ELI COMMON STOCK . . . 22
COMPARATIVE PER SHARE DATA . . . . . . . . . . . . . . . . . . . . . . . 23
OPERATIONS AFTER THE MERGER . . . . . . . . . . . . . . . . . . . . . . . 24
Business of the Surviving Corporation . . . . . . . . . . . . . . . . 24
Company Management . . . . . . . . . . . . . . . . . . . . . . . . . 25
PROPOSAL TO AMEND AND RESTATE THE ARTICLES OF
INCORPORATION OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . 27
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Recommendation of the Board . . . . . . . . . . . . . . . . . . . . . 27
Restatement of Articles . . . . . . . . . . . . . . . . . . . . . . . 28
Background and Reasons for the Articles Amendment Proposal . . . . . 28
Effect of the Article Amendment Proposal on Shareholders . . . . . . 29
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 29
PROPOSAL TO AMEND ARTICLE III, SECTION 1 OF THE BY-LAWS OF THE COMPANY . 30
INFORMATION CONCERNING ACCOUNTANTS . . . . . . . . . . . . . . . . . . . 31
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
DATE FOR RECEIPT OF STOCKHOLDERS PROPOSALS . . . . . . . . . . . . . . . 31
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . F-1
AGREEMENT PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . APPENDIX A
RESTATED AND AMENDED ARTICLES OF
INCORPORATION OF SOUTHERN
ACCEPTANCE CORPORATION . . . . . . . . . . . . . . . . . . . . APPENDIX B
BY-LAW REVISION . . . . . . . . . . . . . . . . . . . . . . . . . APPENDIX C
TAX OPINION OF KILPATRICK & CODY . . . . . . . . . . . . . . . . APPENDIX D
-ii-
<PAGE>
THE SPECIAL MEETING
Voting at the Special Meeting
Only holders of record of common stock of Southern Acceptance
Corporation (the "Company"), $.10 par value per share (the "Company
Stock"), outstanding at the close of business on _____________, 1996 (the
"Record Date") are entitled to vote at the Special Meeting and at any
adjournment thereof. As of the close of business on the Record Date,
5,238,905 shares of Company Stock were outstanding and entitled to vote
at the Special Meeting. Unless otherwise indicated, all references in
this Proxy Statement to percentages of outstanding shares of Company
Stock are based on 5,238,905 shares outstanding. In addition, all
references to the outstanding shares of Company Stock are unadjusted for
the conversion of Company Stock and the common stock of Efficiency Lodge,
Inc. ("ELI") pursuant to the Merger, unless such shares are designated as
"Post-Merger Shares."
Each share of Company Stock is entitled to one vote. The presence,
in person or by proxy, of the holders of a majority of the outstanding
shares of Company Stock entitled to vote on a matter is necessary to
constitute a quorum at the Special Meeting. The affirmative vote of a
majority of the issued and outstanding shares are required to approve
the Merger, Articles Amendment and Bylaw Amendment Proposals.
Abstentions and broker non-votes will be counted in determining whether a
quorum is present, but will have the effect of a vote against the
proposals.
All shares of Company Stock represented by properly executed and
unrevoked proxies will be voted at the Special Meeting in accordance with
the direction on the proxies. IF NO DIRECTION IS INDICATED, THE SHARES
WILL BE VOTED "FOR" THE APPROVAL OF THE MERGER, ARTICLES AMENDMENT AND
BY-LAW AMENDMENT PROPOSALS DESCRIBED IN THIS PROXY STATEMENT. The
Company does not know of any matters, other than those described in the
Notice of Special Meeting, which will come before the Special Meeting.
If any other matters are properly presented for action at the Special
Meeting, the persons named in the proxies and acting thereunder will have
discretion to vote on such matters in accordance with their best
judgment.
Proxy Solicitation Expense
In addition to solicitation by mail, directors, officers and
employees of the Company may solicit proxies by telephone, facsimile
transmission, telegram or personal interview, for which they will receive
no compensation in addition to their regular compensation. Each of the
Company and ELI will pay its own expenses related to the Merger. All
expenses of this Proxy solicitation, including the cost of printing and
mailing the Proxy, will be paid by the Company. Copies of solicitation
materials may be furnished to banks, brokerage houses and other
custodians, nominees or fiduciaries for forwarding to beneficial owners
of shares of the Company Stock. Normal handling charges may be paid for
the forwarding service.
-1-
<PAGE>
PROPOSAL TO ADOPT AND APPROVE THE MERGER AGREEMENT
(ITEM 1)
General
The following is a brief summary of certain aspects of the proposed
Merger of ELI with and into the Company (the "Merger"). This summary
does not purport to be complete and is qualified in its entirety by
reference to the Agreement and Plan of Merger by and between the Company
and ELI dated January 22, 1996 (the "Merger Agreement"), which is
attached to this Proxy Statement as Appendix A and is incorporated herein
by reference.
At the effective time of the consummation of the Merger (the
"Effective Time"), ELI will be merged with and into the Company, which
will be the surviving corporation in the Merger (the "Surviving
Corporation"). Shareholders of the Company will receive one Post-Merger
Share of the Company Stock for each one hundred shares of Company Stock
held by them prior to the Merger. In order to avoid the issuance of
fractional Post-Merger Shares, each shareholder of the Company otherwise
entitled to receive a fractional share shall receive in lieu thereof a
cash payment of $.10 multiplied by each unconverted share of Company
Stock held by the shareholder. All of the issued and outstanding shares
of ELI common stock (the "ELI Stock") will be canceled, and the ELI
shareholders will receive 95% of the common stock of the Surviving
Corporation in exchange therefor, which is estimated to be approximately
992,390 shares. In addition, the Articles of Incorporation, as amended
(the "Articles"), of the Company will be amended to change the name of
the Company to "Efficiency Lodge, Inc."
Parties and Background
The Company was incorporated in 1962 and engaged in the business of
real estate investment. In 1974, the Company filed for bankruptcy
protection under Chapter XI of the Federal Bankruptcy Laws. Since
emerging from bankruptcy in 1980, the Company has not engaged in real
estate investment, but instead has been primarily engaged in real estate
sales and rentals. At September 30, 1995, the total assets reflected on
the Company's balance sheets were $372,222. See "INFORMATION REGARDING
THE COMPANY."
ELI was organized in 1992 as the successor by merger to several
other corporations and is engaged in the business of owning and
developing Efficiency Lodges and acquiring existing extended-stay lodges.
As of January 1, 1996, ELI owned and operated six Efficiency Lodges,
which offer both short and long-term accommodations, with an aggregate of
712 guest rooms in Georgia. At September 30, 1995, the total assets
reflected on ELI's balance sheet were $10,639,378.
-2-
<PAGE>
Recommendations of the Board of Directors
At a meeting held on January 19, 1996, the Company's Board of
Directors (the "Board") concluded that the Merger was in the best
interests of the shareholders of the Company and approved the Merger
Agreement. For the reasons outlined below, the Board recommends that the
shareholders of the Company approve the Merger Agreement and the
transactions and proposals contemplated thereby.
Reasons for the Merger
In determining whether to approve the Merger Agreement and to
recommend such approval by the Company's shareholders, the Company's
Board concluded that the Company lacks the financial resources or the
skilled personnel necessary to operate a real estate development company
competitively. The percentage ownership interest of the present
shareholders of the Company in the Surviving Corporation will be greater
than the Company's percentage contribution to the book value of the
Surviving Corporation. The Board believes that the shareholders of the
Company would benefit more from owning a small interest in an expanding
company than from the complete liquidation of the Company.
During the second quarter of 1995, the shareholders of ELI
approached management of the Company concerning the possibility of
merging ELI, a relatively small but growing corporation, into the
Company. Management of ELI desired to merge with the Company in order to
realize certain benefits of being a publicly-held company. Specifically,
management of ELI felt it would be advantageous if potential investors
had ready access to financial and other information about ELI of the
nature filed by public companies with the Securities and Exchange
Commission. Management also desired to have access to the public capital
markets, to facilitate the development of a market for its capital stock
and to utilize SAC's net operating loss carryforwards for tax purposes.
The Board believes the reduction of each one hundred shares of
Company Stock to one Post-Merger Share in the Merger will increase the
market value of the Company Stock following the Merger and decrease the
Surviving Corporation's administrative expenses. The Board has been
advised that certain securities firms limit the extension of margin
credit for, and otherwise discourage their registered representatives
from recommending, the purchase of securities that have a market value of
less than $5.00 per share. Currently, there is no market for the Company
Stock, and the Company Stock has not been actively traded within the last
19 years. In addition, there is currently no market for the ELI Stock.
There is no way to determine in advance of the Merger whether a public
market will develop for the Company's shares, and if one does develop, at
what price the shares would trade. Under the margin regulations of the
Federal Reserve Board, brokers, financial institutions and certain other
lenders may extend credit for the purchase of margin stock (such as the
Company Stock) in an amount not to the exceed 50% of the market value of
such shares. Following the Merger, management of ELI has announced its
intention to explore raising additional capital for the Surviving
Corporation and to develop a trading market for the Company Stock.
-3-
<PAGE>
The Board also believes that the one-for-one hundred conversion of
Company Stock will possibly reduce shareholder communication and
administrative expenses because approximately 356 existing shareholders
of the Company who each hold fewer than one hundred shares of Company Stock
and who collectively hold approximately 15,773 shares of Company Stock
will cease to be shareholders of the Surviving Corporation at the
Effective Time. The Board has therefor determined that the conversion of
each one hundred shares of Company Stock into one Post-Merger Share would
be in the long-term best interests of the Company and its shareholders.
Although there is no assurance that the proposed Merger will achieve
the results outlined above and desired by the Board or that a market for
the Company Stock will develop following the Merger, the Board believes
that the likelihood of these results being achieved will be significantly
improved.
Management of the Company is not aware of any attempts by any person
or other entity to purchase Company Stock in order to obtain control of
the Company, and the proposed conversion of Company Stock in the Merger
is not intended to be an anti-takeover device. In fact, the conversion
of Company Stock is a condition to consummation of the Merger with ELI.
The Company's Board also considered the factors listed in this Proxy
Statement under "PROPOSAL TO ADOPT THE MERGER AGREEMENT -- Interests of
Certain Persons in the Merger" in determining whether to approve the
Merger Agreement and recommend approval thereof by the shareholders of
the Company. The Company's Board determined that the benefits of the
Merger to the Company's shareholders outweighed any potential negative
effects associated with these considerations and the considerations
outlined above.
Effects of the Merger on the Company's Shareholders
General. The new Post-Merger Shares of Company Stock issued to the
Company Shareholders and ELI pursuant to the Merger will be fully paid
and non-assessable. The voting rights and other rights that accompany
Company Stock will not be altered by the Merger, nor will the total
number of shares authorized for issuance under the Articles be amended.
Diminution of Ownership Interest. Following the Merger, the
existing shareholders of the Company (other than those shareholders of
the Company who hold fewer than one hundred shares of Company Stock at
the Effective Time) will collectively hold 5%, and the ELI shareholders
will collectively hold 95%, of the Post-Merger Shares. Thus, the existing
shareholders in the Company will hold a substantially smaller interest
in the Surviving Corporation, which will have greater assets and financial
resources than does the Company presently. Company shareholders who hold
fewer than one hundred shares of Company Stock on consummation of the
Merger will not receive any Post-Merger Shares in the Merger, but instead
will receive a cash payment in an amount less than $10.00 in lieu of the
issuance of a fractional Post-Merger Share of Company Stock. Because the
current ELI shareholders will control 95% of the Post-Merger Shares, they
will be in a position to control the election of Board members and to
exercise control of the Surviving Corporation.
-4-
<PAGE>
Availability of Authorized But Unissued Shares. As a result of the
Merger, the number of outstanding shares of Company Stock will be reduced
from 5,238,905 shares to approximately 1,044,620 shares, as adjusted to
reflect the total number of shares eliminated as a result of the payment
of cash in lieu of the issuance of fractional shares, including the
shares of Company Stock that will be issued to the ELI shareholders as
part of the Merger. The number of Post-Merger Shares authorized for
issuance by the Restated and Amended Articles will continue to be
7,500,000 shares. The authorized but unissued Post-Merger Shares will be
available for general corporate purposes, and can be issued by the Board
from time to time, without further shareholder action, for proper
corporate purposes, including acquisitions, financings, stock dividends,
stock splits, benefit plans and such other proper purposes as the Board
may deem to be in the best interest of the Surviving Corporation.
Shareholders' Equity. As a result of the Merger, the Surviving
Corporation's stated capital, which consists of the par value per share
of the Company Stock multiplied by the number of shares of Company Stock
outstanding, will be reduced by approximately $528,813 to $105,513 on the
effective date of the Merger. Accordingly, stated capital will be
decreased because the number of shares outstanding will be reduced.
Correspondingly, the Surviving Corporation's capital in excess of par
value, which consists of the difference between the Surviving
Corporation's stated capital and the aggregate amount paid to the
Surviving Corporation upon the issuance of all currently outstanding
Company Stock, will be increased by approximately $6,891,366, and will be
further increased as a result of the Merger.
The Merger Agreement
General. The following is a brief summary of certain aspects of the
Merger Agreement. This summary does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, which is
attached to this Proxy Statement as Appendix A.
The Merger Agreement provides that, upon the satisfaction or waiver
of conditions to the Merger, ELI will be merged with and into the
Company, and the Company will continue as the Surviving Corporation,
although the name of the Company will be changed to "Efficiency Lodge,
Inc." Pursuant to the Merger Agreement and subject to shareholder
approval, the Restated and Amended Articles as described below will be
the Articles of Incorporation of the Surviving Corporation and the bylaws
of the Company in effect at the Effective Time will be the bylaws of the
Surviving Corporation.
Conversion. At the Effective Time, each outstanding one hundred
shares of Company Stock will be converted into the right to receive one
newly-issued Post-Merger Share of Company Stock. In addition, the
outstanding shares of ELI Stock will be converted into 95% of the
outstanding stock of the Surviving Corporation following the Merger.
See "PROPOSAL TO ADOPT AND APPROVE THE MERGER AGREEMENT - Exchange of
Stock Certificates and Payment of Cash in Lieu of Fractional Shares."
-5-
<PAGE>
Issuance of Cash in Lieu of Fractional Shares. To avoid the
existence of fractional shares, shareholders otherwise entitled to
receive a fractional share of the Company Stock following the one-for-one
hundred conversion of Company Stock will instead receive $.10 in cash
multiplied by the number of unconverted shares of Company Stock held by
such shareholder. See "PROPOSAL TO ADOPT AND APPROVE THE MERGER AGREEMENT
- - Exchange of Stock Certificates and Payment of Cash in Lieu of
Fractional Shares." The fractional share price of $.10 per share of the
Company Stock was determined based upon the price paid by the Company on
February 19, 1994 to a shareholder for redemption of such shareholder's
shares.
Closing; Effective Time. The Closing will take place on the day
following the later to occur of the Special Meeting or the date on which
the conditions to Closing in the Merger Agreement are satisfied or
waived, or on such other date as the parties agree. After the conditions
set forth in the Merger Agreement have been satisfied or waived, the
Merger will become effective at such time as the Certificate of Merger
required under Georgia law is filed with the Secretary of State of
Georgia. The Effective Time will be the close of business, Marietta
time, on the date of Closing.
Representations and Warranties. The Merger Agreement contains
various representations and warranties of ELI and the Company relating
to, among other things: (a) organization and similar corporate matters;
(b) capital structure; (c) subsidiaries; (d) the authorization,
execution, delivery, performance and enforceability of the Merger
Agreement and related agreements; (e) corporate books and records; (f)
the accuracy of the information provided in Securities and Exchange
Commission filings and financial statements; (g) the absence of certain
material changes; (h) compliance with certain laws; (i) required
consents; (j) contractual obligations concerning brokers' or finders'
fees; (k) contracts; and (l) title to properties.
Non-Solicitation Agreement. Pursuant to the Merger Agreement, the
Company and ELI have agreed that each will not initiate, solicit or
encourage any proposal or offer to acquire all or any substantial part of
the business and properties or capital stock of it, whether by merger,
purchase of assets, tender offer or otherwise (a "Business Combination
Transaction") and will not provide any confidential information to or
have any discussions with corporations or any other entity ("Third
Party") relating to, or engage in any negotiations concerning, a Business
Combination Transaction. However, the Company may furnish information
concerning its business, properties or assets to a Third Party which has
expressed an interest in making a bona fide offer or proposal to the
Company to enter into a Business Combination Transaction, and which in
the opinion of the Company, has the financial capability to consummate
such transaction (and when the Company has not initiated the offer or
proposal and has not solicited or encouraged such Third Party to express
such offer or proposal). Following receipt of such expression of
interest, the Company may negotiate and enter into any appropriate
agreements with such Third Party with regard to a Business Combination
Transaction, if outside counsel advises the Board of Directors that
failure to furnish such information, negotiate or enter into appropriate
agreements with such Third Party would subject the Board of Directors to
a substantial risk of liability for breach of their fiduciary duties or
-6-
<PAGE>
for failure to comply with the requirements of federal or applicable
state securities laws. If the Company has received an expression of
interest or offer, it has agreed to promptly inform ELI as to, and
provide it with copies of, any such inquiry, offer or proposal.
Operations Pending Closing. Pursuant to the Merger Agreement, the
Company and ELI have agreed that during the period from the date of the
Merger Agreement until the Effective Time, except as permitted by the
Merger Agreement or as consented to in writing by the other party, they
each will carry on their respective businesses only in the ordinary and
usual course and consistent with past practices.
Board of Directors. Three of the Company's directors have tendered
their resignations from the Company's Board effective as of the Effective
Time. Pursuant to the Merger Agreement, the Company's Board will appoint
Ray Barnes, Roy Barnes and Annette Bone to fill the vacancies created by
the resignations of the existing directors. These appointments will be
contingent upon the consummation of the Merger. For more information
regarding the members of the Surviving Corporation's Board after the
Merger, see "OPERATIONS AFTER THE MERGER - Company Management."
Officers. All of the existing officers of the Company have tendered
their resignations from the Company effective as of the Effective Time.
The Merger Agreement provides that Ray Barnes, Roy Barnes, and Annette
Bone will be appointed, effective as of the Effective Time, as the
President and Chairman of the Board, Secretary/Treasurer and Vice
President of Operations, respectively, of the Surviving Corporation.
These appointments will be contingent on consummation of the Merger. For
more information regarding the members of management after the Merger,
see "OPERATIONS AFTER THE MERGER - Company Management."
Amendment of Articles to Effect Name Change. The Merger Agreement
provides that as of the Effective Time, the Articles will be amended to
change the name of the Surviving Corporation to "Efficiency Lodge, Inc."
Registration Rights. The Merger Agreement grants the ELI
shareholders and their respective designees or transferees "piggyback"
registration rights if the Surviving Corporation files one or more
registration statements under the Securities Act of 1933 (the "1933 Act")
within three years after the Effective Time with respect to a public
offering of equity securities of the Surviving Corporation. In addition,
the Merger Agreement grants the ELI shareholders and their designees or
transferees a one-time right to require the Surviving Corporation to use
its reasonable efforts to file a registration statement under the 1933
Act to permit a public offering of the shares of Company Stock held by
the ELI Shareholders. The Surviving Corporation will bear all fees and
expenses incurred in connection with the preparation and filing of any
such registration statements.
Conditions to the Merger. The respective obligations of the Company
and ELI to effect the Merger are subject to a number of conditions,
including, among others:
-7-
<PAGE>
(a) the approval of the Merger Proposal by the Company's
shareholders as described in this Proxy Statement;
(b) no preliminary or permanent injunction or other order or
decree by any court or any governmental agency preventing the
consummation of the Merger will have been issued or taken and
remains in effect;
(c) ELI and the Company will have received a legal opinion to
the effect that the Merger will constitute a tax-free reorganization
under Sections 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code");
(d) all governmental consents required for the consummation of
the Merger will have been received, and such transactions will not
violate any order or decree of any court or governmental body;
(e) the Company and ELI each will have performed and complied
with all covenants and agreements contained in the Merger Agreement
and all representations and warranties of each of the Company and
ELI will be true and correct in all material respects on and as of
the date made and the Effective Time;
(f) all consents required from any party will have been
obtained prior to the Effective Time;
(g) there will have been no material adverse change in the
business, prospects, operations, assets or condition (financial or
otherwise) of the parties since the date of the Merger Agreement and
through the date of Closing; and
(h) certain legal opinions will have been delivered to the
parties.
Right To Terminate. By the Company or ELI. The Merger Agreement
may be terminated (a) at any time by the mutual written consent of the
Company and ELI; (b) unilaterally by either the Company or ELI if: (i)
the Merger has not been consummated prior to 120 days after the filing of
this Proxy Statement with the Securities and Exchange Commission (the
"Termination Date"); (ii) the shareholders of the Company fail to approve
any of the proposals described herein; (iii) a court has issued an order
or decree permanently restraining or enjoining any action contemplated by
the Merger Agreement and such order has become final and non-appealable;
or (iv) any law or regulation has been effected which makes the
consummation of the transactions contemplated by the Merger Agreement
illegal or otherwise prohibited.
By the Company. The Merger Agreement may also be terminated by the
Company if prior to the Effective Time (a) the Company's Board has
withdrawn or modified in a manner adverse to ELI its recommendations that
shareholders of the Company adopt and approve the Merger Proposal in
order for the Company to execute another acquisition agreement or to
approve an offer for the Company Stock (a "Company Withdrawal"); (b)
there has been (x) a material breach of any covenant or agreement in the
-8-
<PAGE>
Merger Agreement on the part of ELI which has not been cured or adequate
assurance of cure given or (y) a material breach of any representation or
warranty in the Merger Agreement which by its nature cannot be cured
prior to the Termination Date (collectively, an "ELI Breach"); or (c) the
Company discovers a condition existing with respect to the earnings of
ELI or any of the properties or assets of ELI which might materially and
adversely affect the earnings, business or prospects of ELI.
By ELI. The Merger Agreement may also be terminated by ELI if prior
to the Effective Time there has been (a) a Company Withdrawal; (b) a
material breach of any covenant or agreement in the Merger Agreement on
the part of the Company which has not been cured or adequate assurance of
cure given or (c) a material breach of any representation or warranty in
the Merger Agreement which by its nature cannot be cured prior to the
Termination Date.
Exchange of Stock Certificates and Payment of Cash in Lieu of Fractional
Shares
As soon as practicable after the Effective Time, each holder as of
the Effective Time of any shares of Company Stock will, upon presentation
and surrender of such certificates representing such shares to the
Company (which serves as its own transfer agent) be entitled to receive
in exchange therefore a certificate or certificates representing the
number of whole Post-Merger Shares of Company Stock to which such holders
shall be entitled together with the amount of cash payable in lieu of a
fractional interest in Company Stock. Beginning at the Effective Time,
each certificate representing shares of the Company Stock held by a
Company shareholder prior to the Merger will be deemed for all corporate
purposes to evidence ownership of the reduced number of shares of Company
Stock. No script or fractional certificates will be issued in connection
with the proposed Merger. The ownership of a fractional interest will
not give the holder thereof any voting, dividend or other rights except
the right to receive payment for such fractional interest at the rate of
$.10 per unconverted share.
Under the escheat laws of various governing jurisdictions, sums due
for fractional interests which are not timely claimed after the Effective
Time may be required to be paid to the designated agent for each such
jurisdiction unless correspondence has been received by the Company or
the Exchange Agent considering ownership of such funds within the time
permitted in such jurisdiction. Thereafter, shareholders who are
otherwise entitled to receive such funds for their fractional share
interest may be required to seek to obtain such funds directly from the
jurisdiction to which they were paid.
Appraisal Rights
Under the Georgia Business Corporation Code, the Company's
shareholders are not entitled to dissenters' rights of appraisal with
respect to the Merger Proposal because the Company has greater than 2,000
shareholders and in the Merger the Company's shareholders will receive
only shares of Company Stock or cash in lieu of fractional shares, and
the Company Stock will continue to be held by greater than 2,000
shareholders.
-9-
<PAGE>
Interests of Certain Persons in the Merger
In considering the recommendation of the Company's Board with
respect to the Merger, shareholders of the Company should be aware that
certain current and proposed members of the Company's management and the
Company's Board have interests in the Merger that may differ from the
interests of shareholders of the Company generally. The Company's Board
was aware of these interests and considered them, among other matters, in
approving the Merger and the transactions contemplated thereby. See
"PROPOSAL TO ADOPT AND APPROVE THE MERGER AGREEMENT -- Reasons for the
Merger."
Under the Merger Agreement, Messrs. Cochran, Crowe, Sweat and
Thigpen will continue to serve as directors of the Company following the
Merger. Messrs. Crowe and Thigpen are also presently directors of ELI.
Each of them abstained from the vote by the Board on the Merger Proposal.
The Merger Agreement contemplates that Ray Barnes and Roy Barnes
(the "Barnes"), the sole shareholders of ELI, will be appointed directors
of the Company following the Merger. Roy and Ray Barnes will each
receive 47.5% of the outstanding Company Stock following the Merger, or
approximately 496,000 shares of Post-Merger Shares, respectively.
Other than as described above, no existing or proposed director or
officer of the Company or any of their affiliates has any direct or
indirect material interest in the Merger, except that such persons may
own shares of Company Stock.
Expenses
Each of the Company and ELI will pay its own expenses incurred in
connection with the Merger Agreement and the transactions contemplated
thereby.
Certain Federal Income Tax Consequences of the Merger
Based upon the opinion of Kilpatrick & Cody, the Company believes
that the Merger will be treated as a "tax-free reorganization" for
federal income tax purposes under Section 368(a)(1)(A) of the Code.
Accordingly, the principal federal income tax consequences of the Merger
will be that (i) neither the Company nor ELI will recognize any gain or
loss; (ii) no gain or loss will be recognized by the ELI shareholders;
and (iii) no gain or loss will be recorded by Company shareholders who
receive Post-Merger Shares of Company Stock. Cash received in lieu of
fractional shares will be treated as amounts distributed in redemption of
their Company Stock and will be taxable under the provisions of Section
302 of the Code as either ordinary income or capital gain or loss,
depending upon the circumstances of the individual shareholder.
The opinion of Kilpatrick & Cody is based upon certain assumptions
and representations with respect to factual matters which are required to
-10-
<PAGE>
qualify the Merger as a "tax-free reorganization" under the Code, all of
which are set forth in such opinion. A copy of such opinion is attached
hereto as Appendix D and incorporated herein by reference.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE
A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A
DECISION OF WHETHER TO VOTE IN FAVOR OF THE MERGER. THE DISCUSSION DOES
NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR
SHAREHOLDER WHO IS SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL
INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE
COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS, AND
SHAREHOLDERS WHO DO NOT HOLD THEIR SHARES OF THE COMPANY STOCK AS
"CAPITAL ASSETS" WITHIN THE MEANING OF SECTION 1221 OF CODE, NOR ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN
JURISDICTION. THE DISCUSSION IS BASED UPON THE CODE, TREASURY
REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS
OF THE DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY
SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. THE
COMPANY AND ELI SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
MERGER TO THEM.
Accounting Treatment
The Company will account for the transaction as a purchase
transaction pursuant to generally accepted accounting principles.
Subsequent to the one-for-one hundred reverse split of Company Stock, the
Company will issue 95% of the "Post-Merger Shares," or approximately
992,390 Post-Merger Shares in exchange for 900 shares of ELI Stock. The
shares of ELI Stock will then be cancelled in exchange for the net assets
of ELI, which will be recorded at the fair market value of the assets
acquired less liabilities assumed. The excess of the fair market value
of the net assets acquired over the par value of the Company Stock issued
in the exchange will be credited to additional paid-in capital resulting
from the business combination. Inasmuch as the business combination will
be accounted for as a purchase, retained earnings of ELI will be eliminated,
the fixed assets will be recorded at their fair market value, and income
will be measured from the Effective Time.
Regulatory Approvals
No governmental regulatory approvals are required with respect to
the Merger, except for the filing of the Certificate of Merger with the
Georgia Secretary of State.
-11-
<PAGE>
INFORMATION REGARDING THE COMPANY
Business of the Company
The Company was incorporated in 1962 as a Georgia corporation, and
for 34 years engaged in the business of real estate sales and development
in Georgia. Specifically, the Company purchased or built and operated
motels and apartments. In 1974, following several years of losses, the
Company filed for bankruptcy under Chapter XI of the federal bankruptcy
laws. At the time the Company filed for bankruptcy in 1974, it owned
approximately 18 properties, most of which the Company sold during the
bankruptcy proceedings.
The Company emerged from bankruptcy in 1980. Thereafter, the
Company operated five motels until the motels were sold in the early
1980s. Following the sale of the motels, the Company continued to engage
to a limited extent in the purchase and sale of real estate in Georgia.
The Company is currently primarily engaged in the business of real
estate sales and earns commissions from such real estate sales. In
addition, the Company earns interest on its notes receivable, rental
income from its rental properties and income from the purchase and sale
of investment properties. The Company retains a limited amount of
investment property for resale, development or subdivision. As of
September 30, 1995, the book value of the Company's assets was $372,222.
Management does not believe there is any substantial unrecognized value
in these assets.
The principal executive offices of the Company are located at 277
Pat Mell Road, Suite A, Marietta, Georgia 30060, and the telephone number
at that address is 770-432-6684.
Legal Proceedings
There are no material legal proceedings pending or known to be
contemplated to which the Company is a party or to which any of its
property is subject.
Description of Property
The Company owns the 3,813 square-foot, one-story office building at
277 Pat Mell Road in Cobb County, Georgia that houses its principal
executive offices as well as one tenant of the Company and two parcels of
undeveloped land aggregating 29.44 acres in Bartow County, Georgia.
These properties constitute substantially all of the assets of the
Company. The Bartow County properties are held for resale, development
or subdivision by the Company. The Pat Mell Road property is subject to
a mortgage, the balance of which as of September 30, 1995 was
approximately $43,400. The mortgage on the Pat Mell Road property
accrues interest at the rate of 10% per year, and will mature in 2004.
Otherwise, none of the properties owned by the Company is subject to any
encumbrances.
-12-
<PAGE>
Ownership of the Company Stock
The following table sets forth the number of shares and percentage
of outstanding shares of the Company Stock beneficially owned on
September 30, 1995, and that will be beneficially owned following
consummation of the Merger, by: (i) each person who is known by
management to be the beneficial owner of more than 5% of the Company
Stock; (ii) each of the existing directors of the Company; (iii) the
Company's existing Chief Executive Officer; and (iv) all of the existing
directors and executive officers of the Company as a group. The
information concerning shares of Company Stock owned following the Merger
reflects the exchange of shares of Company Stock and ELI Stock pursuant
to the Merger.
Except as otherwise indicated, all shares shown in the table below
are held with sole voting and investment power.
<TABLE>
<CAPTION>
Before the Merger Following the Merger
----------------- --------------------
Name of Shares Shares
Beneficial Beneficially Percent Beneficially Percent
Owner Owned of Class Owned of Class
----- ----- -------- ----- --------
<S> <C> <C> <C> <C>
Bonnie L. Byers 103(1) * 1 *
Harry W. Chappell, Jr. 17,139(2) * 171 *
Joseph A. Cochran 34,838(3) * 347 *
Arthur L. Crowe, Jr. 21,186 * 211 *
Wesley Howard Stembridge 2,704 * 27 *
Roy W. Sweat, D.C. 270,698(4) 5.17% 2,706 *
Ken F. Thigpen 1,030 * 10 *
All executive officers and 347,698 6.64% 3,473 *
directors of the Company
as a group (a total of 7
persons)
</TABLE>
* Less than one percent.
(1) Owned by Mrs. Byers jointly with her husband.
(2) Owned by Mr. Chappell jointly with his wife.
(3) 25,550 shares are owned by Mr. Cochran jointly with his wife.
(4) Dr. Sweat's address is 4735 River Court, Duluth, Georgia 30136.
Messrs. Stembridge and Chappell and Ms. Byers have tendered their
resignations from the Board effective upon the consummation of the
Merger, and the Board has appointed Ray Barnes, Roy Barnes (collectively,
the "Barnes") and Annette Bone as directors of the Company effective upon
the consummation of the Merger. The Barnes currently own 1,663 shares of
Company Stock and Ms. Bone currently owns 8,420 shares of Company Stock,
which will be converted in the Merger into 16 and 84 Post-Merger Shares,
respectively. In addition, in the Merger the Barnes will each acquire
47.50% Post-Merger Shares, or collectively 95% of the Post-Merger Shares,
upon conversion of their ELI Stock.
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
The Company is primarily engaged in the business of real estate
sales. The Company also earns commissions from real estate sales and
receives rental income from its office building.
Results of Operations
During each of the four years ended September 30, 1995, the Company
sold either a piece of property in its inventory or a piece of its
investment property at a gain. The revenues from such sales are
classified as "operating revenues." One of these properties for resale
was a lot on which the Company had built a house, and another was a house
which the Company had had to repossess due to a troubled loan. Interest
income decreased in each of these four years as the Company collected its
notes receivable. Although commission income from real estate sales and
rental income fluctuated during this period, the overall trend was
negative. Administrative and general expenses as a single component of
expense exceeded operating revenues in each of the four years ended
September 30, 1995.
Operating revenues decreased 59% during the year ended September 30,
1995 while costs and expenses increased by $11,257 or 8%. During 1995,
the Board of Directors concluded that it would be in the best interest of
the shareholders to merge the Company with ELI. Work was commenced on
the legal and accounting matters necessary to present the Merger Proposal
to the shareholders, resulting in a substantial increase in legal and
accounting expenses. Operating revenues had increased 67% in the fiscal
year ended September 30, 1994, primarily due to the sale of a piece of
investment property at a gain, compared to a 14% decrease in 1993 and a
7% decrease in 1992, reflecting the continued downturn in the economy and
the depressed real estate market in those years. Costs and expenses
increased by $20,171 or 16% in fiscal 1994 compared to a decrease of
$14,788 or 11% in fiscal 1993 and a 1% decrease in 1992.
While the Company still hopes to develop or sell its remaining
investment property, it is suffering from a lack of operating revenues to
offset against overhead expenses.
Liquidity and Sources of Capital
Having sold all of its property designated as property held for resale
and collected all of its notes receivable, the Company is liquid with a
current ratio at September 30, 1995 of 12 to 1.
-14-
<PAGE>
Impact of Inflation
Inflation and changing prices did not have a significant impact on
the Company's revenues or income from continuing operations during the
four years ended September 30, 1995.
SELECTED CONSOLIDATED HISTORICAL
FINANCIAL DATA OF THE COMPANY
The following selected consolidated financial data for the five
fiscal years ended September 30, 1994, has been derived from the
Company's audited, consolidated financial statements and should be read
in conjunction with the consolidated financial statements, related notes,
and other financial information included elsewhere herein. The selected
consolidated financial data as of and for the year ended September 30,
1995 has been derived from the Company's unaudited, consolidated
financial statements and reflects, in the opinion of management of the
Company, all adjustments (consisting of normal accruals) considered
necessary for a fair presentation.
<TABLE>
<CAPTION>
Southern Acceptance Corporation And Subsidiaries
Year Ended September 30,
--------------------------------------------------------------------
1990 1991 1992 1993 1994 1995
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $130,731 $62,877 $58,693 $50,438 $85,072 $34,723
(Loss) from continuing (65,008) (76,357) (81,780) (75,247) (60,784) (122,390)
operations
(Loss) from continuing (.01) (.01) (.01) (.01) (.01) (.02)
operations per common
share
Total assets 904,335 869,834 742,154 751,103 499,692 372,222
Long-term obligations 77,014 73,626 69,820 65,540 60,726 55,307
</TABLE>
-15-
<PAGE>
INFORMATION REGARDING ELI
Business of ELI
ELI, a Georgia corporation, was formed in January 1993, as the
result of the consolidation of five existing companies, each of which
operated an extended-stay facility. ELI is engaged in the business of
developing and owning Efficiency Lodges (the "Lodges"), which are lodging
facilities that offer both temporary and long-term accommodations. As of
September 30, 1995, ELI owned and operated six Efficiency Lodges which
were located in or near East Point, Douglasville, Atlanta, Carrollton,
Cartersville and Forest Park, Georgia. The Lodges have an aggregate of
712 guest rooms. In addition, ELI had, as of September 30, 1995, one
Lodge under development in DeKalb County, Georgia, which management
anticipates will open in 1996 and will have 100 guest rooms. The
principal executive offices of ELI are located at 928 Bankhead Highway,
Mableton, Georgia, and its telephone number at that address is (770) 948-
2447.
The Extended Stay Lodging Industry
Extended stay lodges such as the Efficiency Lodges are designed to
serve guests who require lodging for a minimum of seven days in rooms
designed to include functional space, and in particular, fully-equipped
cooking facilities The extended stay lodging industry (which includes
economy extended stay motels) is a relatively small but growing part of
the lodging industry. Management of ELI believes that the consumer
demand for economy extended stay lodges is underserved and increasing.
The economic, social and demographic changes in the United States
contributing to the demand for extended stay lodging include, among
others, the restructuring of corporate America, the increased mobility of
the population of the United States, the increase in single person
households, the travel requirements of a service economy and the
increasingly strict credit standards of many apartment operators. Unlike
most types of rental property which are generally subject to leases of
six months or longer, extended stay lodges, including Efficiency Lodges,
may raise or lower rents (i.e. room rates) with much greater frequency
based upon occupancy levels. Typical guests in economy extended stay
properties include people on short-term work or training assignments,
individuals in the midst of relocation for business or personal reasons,
military and government personnel, recreational travelers and persons who
cannot meet the credit standards of apartments.
The Efficiency Lodges
ELI has constructed or is constructing of all but one of its
Efficiency Lodges using a standard design, with similar architectural
styles and guest room floor plans and similar construction materials.
One Efficiency Lodge was purchased from another operator. Each
Efficiency Lodge includes guest rooms, a manager's apartment, an office
and a guest laundry room. Each guest room contains a combination living
room and bedroom, a bathroom, a closet, a fully-equipped kitchenette, and
a table and chairs. Guest services, which are minimal in comparison to
motels or hotels, typically include limited front desk hours and limited
maid service, and extra charges for amenities, such as televisions.
-16-
<PAGE>
Each Efficiency Lodge is an economy extended-stay facility with room
rates that are typically lower than those charged by most motels and
hotels in its market. Although daily rates are available, most guests at
the Efficiency Lodges choose to occupy rooms on a weekly basis, at rates
which, as of September 30, 1995, ranged from $109 to $139 per week for
single occupancy. The Efficiency Lodges are able to charge lower rates
because of the elimination of certain amenities found in higher-priced
lodging facilities, such as restaurants, cocktail lounges, meeting rooms,
retail shops, pools and other large common areas, which ELI has found to
be unnecessary for the comfort and enjoyment of its extended stay guests,
and because it uses economical furniture, fixtures and equipment. ELI
provides its extended stay guests with free access to satellite TV,
convenience items for sale in the front office, and an on-premises
laundry facility.
Following is information with respect to each of the Efficiency
Lodges:
East Point Lodge. This two-story Lodge is located at 1275 Norman
Berry Drive near East Point, Georgia on approximately two-thirds of an
acre. The Lodge has been owned by ELI since 1987. The property, which
has 40 guest rooms, is pledged to secure long-term debt of ELI with two
lenders with outstanding balances at December 31, 1995 of approximately
$894,077.
Douglasville Lodge. This two-story, 148-room Lodge is located in
Douglasville, Georgia on 92 Highway. The Lodge has been owned by ELI
since 1988. The facility is pledged to secure long-term debt to one
lender with an outstanding balance at December 31, 1995 of approximately
$1.74 million.
Fulton Lodge. This two-story Lodge is located on a approximately
2.77 acres at 4050 Wendell Drive in Atlanta. ELI has owned this 152-room
Lodge since 1989. This facility secures debt to two lenders with outstanding
balances at December 31, 1995 of approximately $2.5 million.
Forest Park Lodge. This two-story Lodge is located on approximately
2.28 acres in Forest Park, a commercial area of Atlanta. The property,
has 120 guest rooms and an approximately 2,500 square-foot auxiliary
building used for office and retail space and secures long-term debt
with an outstanding balance at December 31, 1995 of approximately $1.89
million.
Bartow Lodge. A two-story, 124-room facility, this Lodge is located
on approximately 3.89 acres near Highway 20 in Cartersville, Georgia.
ELI has owned this Lodge since July 1995. The property secures debt to three
lenders, including the former owner of the property, with outstanding balances
at December 31, 1995 of approximately $2.37 million.
West Georgia Lodge. This two-story lodge with 128 guest rooms is
located on 4.18 acres on Bankhead Highway in Carrollton, Georgia. The
West Georgia lodge secures long-term debt with an outstanding balance
of approximately $1.5 million.
Total debt of ELI as of December 31, 1995 was approximately $10.3
million. The outstanding balances on the notes detailed above total
approximately $10.9 million because the Fulton and East Point Lodges
are pledged to secure one note with an outstanding balance at December 31,
1995 of $566,257, and the note balance is included in the description of
both of the properties above.
Operations
ELI's operations manual guides on-site management of each Lodge,
which is managed by a Property Manager, who resides on site, and an
Assistant Manager. Managers are trained in all aspects of extended stay
lodge operations, with particular emphasis placed on customer service.
-17-
<PAGE>
The managers are trained to provide conscientious customer service, are
provided with incentives to exercise the authority granted to them, and
are efficiently supervised through management information systems and on-
site audits by ELI management, which visits and inspects each Efficiency
Lodge on a regular basis to ensure that consistency and quality standards
are being met. Managers and staff receive bonuses based on both
performance and occupancy.
Each Efficiency Lodge is computerized with a software package that
handles all on-site transactions and recordkeeping. The software
provides on-site management with a database of updated information such
as available units, units needing cleaning or repairs, room charges due,
guest payment history, and telephone volume. Operating results are
compiled and reviewed regularly. The ELI corporate office handles
purchasing supplies and virtually all payments of property expenses.
Each of the Efficiency Lodges collects data about each new guest
including his or her occupation, permanent residence, length of stay and
how they learned about the Lodge. The ELI uses this information in the
preparation of advertising and sales materials for each specific
Efficiency Lodge. ELI employs various marketing techniques, including
billboard and print, as well as direct marketing to potential customer
groups.
Expansion
Future plans and commitments of ELI include building Lodges in new
locations. The following lists the locations and details the level of
planning or commitment for each.
- -- DeKalb County, Georgia:
----------------------
This project is well under way with a contract on the property and
the architectural and engineering work completed for a 100-room
facility. Written commitment from Columbus Bank and Trust has been
received for a $1.5 million construction and permanent loan.
- -- Columbus, Georgia:
-----------------
The property has been located and discussions are underway with
Columbus Bank and Trust regarding the financing arrangements. Their
verbal commitment has been received to coordinate the financing.
- -- Columbia , South Carolina and Nashville, Tennessee:
--------------------------------------------------
These two locations are in the preliminary market research stages.
The current outlook is good for both.
-18-
<PAGE>
Management believes that the national demand for these facilities far
exceeds the current supply and plans to continue to expand. Financial
plans for future expansion include the use of cash flow from operations
as well as outside financing.
Employees
As of September 30, 1995, ELI did not have any employees.
Instead, ELI leased approximately 35 full-time and five part-time
employees, including managers, pursuant to an agreement with Team Staff,
a temporary employment service. ELI believes that its relationship with
its leased employees is good.
Environmental Matters
Under various federal, state and local laws and regulations, an
owner or operator of real estate may be liable for the costs of removal
or remediation of certain hazardous, toxic or petroleum substances on
such property. Such laws often impose such liability without regard to
whether the owner or operator knew of, or was responsible for, the
presence of such substances. Furthermore, a person that arranges for the
disposal or transports for disposal or treatment a hazardous, toxic or
petroleum substance to another property may be liable for the costs of
removal or remediation of substances released into the environment at
that property. The costs of remediation or removal of such substances
may be substantial, and the presence of such substances, or the failure
to conduct remediation promptly, may adversely affect the value of the
real estate or the owner's ability to sell the real estate or to borrow
using the real estate as collateral.
Phase I environmental audits have been obtained on all of the
Lodges. The Phase I audits were intended to identify potential sources
of contamination for which the Lodges may be responsible and to assess
the status of environmental regulatory compliance. These audits included
historical reviews of the Lodges, reviews of certain public records,
preliminary investigations of the sites and surrounding properties,
screening for the presence of asbestos, PCB's and underground storage
tanks, and the preparation and issuance of a written report. The Phase I
assessments did not include invasive procedures, such as soil sampling or
ground water analysis.
The Phase I audit reports have not revealed any environmental
liability that ELI believes would have a material adverse effect on ELI's
business, assets or results of operations, nor is ELI aware of any such
liability. Nevertheless, it is possible that these reports do not reveal
all environmental liabilities or that there are material environmental
liabilities of which ELI is unaware.
ELI believes that the Lodges are in compliance in all material
respects with all federal, state and local ordinances and regulations
regarding hazardous or toxic substances and other environmental matters.
ELI has not been notified by any governmental authority of any material
noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental issues in connection with any of its
present or former properties.
-19-
<PAGE>
Competition
The lodging industry is highly competitive. Each Efficiency Lodge
is located in a developed area that includes motels and other lodges and
in some cases other economy extended stay lodges. ELI does not believe
that any single competitor or small number of competitors is dominant in
the markets in which the Lodges are located. The number of competitive
facilities in a particular area has a material effect on occupancy and
revenues of the Lodges. ELI seeks to compete based on the price charged,
the quality of the Lodges, and service to guests.
ELI competes for investment opportunities with entities which have
substantially greater financial resources than ELI and which as a
consequence may be in a position to accept more risk with respect to
investment opportunities than ELI, including risks with respect to the
creditworthiness of an operator of a facility or the locations of
facilities. Such competition may reduce the number of suitable
investment opportunities offered to ELI and increase the bargaining power
of property owners seeking to sell.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF ELI
ELI owns and operates Lodges which offer both temporary and long-
term accommodations to residents. As of May 1995, ELI purchased the
Bartow Lodge in Cartersville, Georgia, which it operates in a similar
manner to its other locations. Prior to this purchase, it operated five
Lodges at five different metro Atlanta locations. See "INFORMATION
REGARDING ELI - Business of ELI."
All of the Lodges' day to day operations are overseen by the
President who reviews financial and operational information on a daily
basis.
The following comments on the financial condition and the results of
operations for the full 1993 and 1994 fiscal years, and the nine months
ended September 30, 1994, and 1995, should be read in conjunction with
the Financial Statements of ELI and notes thereto included elsewhere in
this Proxy Statement.
Results of Operations
Fiscal Years Ended December 31, 1994 and 1993. The operating
revenue for 1994 was $2,641,091, compared with $2,304,252 for 1993, an
increase of $336,839, which can be attributed to increases in occupancy.
The annual average occupancy rate for the East Point, Douglasville,
Fulton and Forest Park Lodges was 72.58% in 1993, 83.5% in 1994 and
84.25% and for the first six months of 1995. Management believes that
this increase in occupancy rates will continue in the future, and
occupancy will reach 90% for the East Point, Douglasville, Fulton and
Forest Park Lodges in 1996. The West Georgia and Bartow Lodges are
excluded from the occupancy - rate comparison because the West Georgia
Lodge was not operated by ELI during the period and the Bartow Lodge was
-20-
<PAGE>
purchased in 1995. Management estimates, based on the 1995 results for
these two Lodges, that their occupancy rates will reach 90% in 1996. ELI
experienced a decrease in operating expenses by approximately 4.5% from
1993 to 1994.
The decrease consists primarily of a (decrease) increase in the
following expenses:
Compensation Costs $ 45,784
Depreciation (33,181)
Insurance (12,095)
Legal & Professional (5,816)
Property Tax (88,368)
Phone Lease 7,779
Utilities 22,699
The decrease in property taxes is a result of prior years taxes on
appeal being paid in 1993.
During 1993, ELI entered into an annually-renewable agreement to
lease its employees for all Lodges from an unrelated third party.
Accordingly, payrolls from all Lodge locations are now handled by one
contract.
Interest expenses for 1994 and 1993, respectively, were $781,351 and
$699,461, an increase of $81,890. ELI's lodge-related debts decreased
from 1993 to 1994 by $360,357. There are several reasons that interest
expense increased even though debt decreased. The notes have variable
rates, and there was an increase in the prime rate from 1993 to 1994.
The note payable to Community Bank with a balance of $602,702 at December
31, 1993, began in March of 1993, and only ten payments were made in
1993, as opposed to twelve payments made in 1994. In 1993, by mutual
agreement with the lender, nine payments were made on one mortgage
because negotiations were under way to purchase this debt, as described
below. Twelve payments were made on this debt in 1994.
Nine months ended September 30, 1995 and 1994. Operating revenues
for the nine months ended September 30, 1995 and 1994, respectively, were
$2,268,433 and $1,951,649, an increase of $316,784. This increase can be
attributed to an increase in occupancy rates at the East Point,
Douglasville, Fulton and Forest Park Lodges, and the increase of
available space. The Bartow Lodge was purchased in 1995, and income for
July through September for this new location is included in the
September 30, 1995 operating revenues.
The total amount of operating expenses increased for this period by
$190,417. As a percentage of revenue, these expenses increased by
approximately 8.39%.
Lodge-related debt at September 30, 1995 exceeds that of the
previous period by $2,060,815. This increase in debt is due to the
purchase of the Bartow Lodge. See "Liquidity and Capital Resources."
Interest expense at September 30, 1995 exceeds that at September 30, 1994
by $130,010. Interest expense as a percentage of total debt increased
.28% from September 30, 1994 to 1995.
General
Fleet Finance, one of ELI's lenders, elected to reduce its
commercial lending operations in 1993 and thereafter sold a portfolio of
commercial loans in Georgia, including a loan made to ELI. The
subsequent purchaser of the portfolio offered each borrower the
opportunity to purchase its loan at a discount. As a consequence, ELI
purchased its loan at a $396,809 discount. ELI financed the note
purchase with a participatory SBA note through Georgia Banker's Bank.
Closing costs of $48,900 were paid in this matter.
-21-
<PAGE>
West Georgia Lodge was operated differently than the other Lodges
from December 1992 to June 30, 1995. During this time, the West Georgia
Lodge was leased in its entirety for operation to an unrelated third
party. Effective July 1, 1995, this arrangement ceased, and ELI
management resumed operation of the West Georgia Lodge. At that time,
the former third party lessee became an employee of ELI.
The spring through the fall are generally the best seasons of
operation of the Lodges, and management of ELI estimates that about 10-
15% of ELI's total revenue is affected by seasonality. Typically,
revenue declines at the end of November and begins to increase again in
mid-February. This seasonality is primarily due to the large number of
Lodge residents who work in the construction industry. The effect of the
seasonal changes was more significant in prior years than recently, and
management of ELI believes that the occupancy rates are now consistently
high enough that the impact of seasonal fluctuations has significantly
decreased. Management believes that the effect of seasonal fluctuations
will continue to lessen.
Liquidity and Capital Resources
Within the industry, cash flow from operations ("FFO") is considered
an important criterion for measuring performance. ELI's FFO is defined
as earnings before interest, taxes, depreciation and amortization
("EBITDA"). By dividing FFO by the cost of property and equipment, ELI
can measure its rate of return on FFO. ELI uses this formula to analyze
operating performance, leverage and liquidity. The FFO for 1994 and
1993, respectively, was $1,376,622 and $992,727. Management's
calculation of the rate of return on FFO for 1994 and 1993 was 15.50% and
11.18%, respectively. The FFO is not used to measure financial
performance under generally accepted accounting principles and is not an
alternative to net income or a replacement to cash flow as a measure of
liquidity.
ELI purchased Bartow Lodge, an existing extended-stay facility, in
May of 1995 for $2,382,903. The debt structure is as follows:
- -- Note payable of $1,000,000 at 10% per annum interest, payable monthly at
$8,775.72 for 360 months.
- -- Note Payable of $101,008 at 8.99% per annum interest, payable monthly
at $955.68 for 240 months.
- -- Note payable of $1,281,895 at prime plus 2% per annum interest,
adjusted quarterly, payable monthly at approximately $10,000 for 300
months.
DIVIDENDS ON AND MARKET PRICES OF
THE COMPANY AND ELI COMMON STOCK
There is no public trading market for the Company Stock. As of
January 1, 1996, there were 5,238,905 outstanding shares of Company Stock
and 3,335 holders of record of such shares. The Although there are
currently no legal or contractual restrictions on the payment of
dividends by the Company, it has not paid any dividends since 1974
because of poor operational results and insufficient earnings. It is
-22-
<PAGE>
anticipated that the Surviving Corporation will retain earnings for
expansion. Consequently, it is anticipated that the Surviving
Corporation will not pay dividends in the near term, and there is no
assurance that the Surviving Corporation will ever pay dividends.
The last sales price of the Company Stock known to management prior
to the public announcement of the Merger on June 19, 1995 was $.10 per
share. Management is unaware of any trades since that date.
There are no outstanding options or warrants to purchase, or
securities convertible into, Company Stock, and all of its shares of the
Company Stock would be eligible for sale under Rule 144 under the
Securities Act of 1933 (the "Securities Act") if these were a public
trading market for the stock. The Company does not have any agreements
to register any shares of the Company Stock held by existing securities
holders for sale under the Securities Act; however, the Merger Agreement
grants the ELI shareholders certain registration rights pursuant to which
the Barnes, who will collectively own or control 95% of the issued and
outstanding shares of the Surviving Corporation following the Merger,
can cause the Surviving Corporation to register the shares of Company
Stock received by them in the Merger. See "PROPOSAL TO ADOPT AND
APPROVE THE MERGER AGREEMENT -- The Merger Agreement."
There is no public trading market for ELI Stock. As of January 1,
1996, there were two holders of record of the ELI Stock. ELI has never
paid any dividends on its common stock. There are currently no legal or
contractual restrictions on the payment of dividends by ELI.
No shares of ELI Stock are subject to outstanding options or
warrants to purchase, or securities convertible into, the ELI Stock. In
addition, no shares of the ELI Stock are eligible for sale under Rule 144
under the Securities Act, nor has ELI agreed to register any shares of
ELI Stock under the Securities Act for sale by its security holders.
COMPARATIVE PER SHARE DATA
The following table sets forth selected comparative unaudited per
share data for the Company on a historical basis (the "Company
Historical"), for ELI on a historical basis (the "ELI Historical"), for
the Company and ELI on a pro forma basis assuming the Merger had been
effective for the periods indicated (the "Pro Forma Combined"), for the
Company on a pro forma equivalent basis (the "Company Pro Forma
Equivalent") and for ELI on a pro forma equivalent basis (the "ELI Pro
Forma Equivalent"). The Merger will be accounted for as a purchase
transaction in accordance with generally accepted accounting principles.
The information presented below should be read in conjunction with the
Pro Forma Financial Information and the historical financial statements
of the Company and ELI included elsewhere in this Proxy Statement. The
pro forma equivalent per share data shows, for each share of Company
Stock and ELI Stock outstanding prior to the Merger, its equivalent
position after giving effect to the exchange of ELI and Company Stock as
contemplated by the Merger Agreement.
-23-
<PAGE>
<TABLE>
<CAPTION>
COMPARATIVE PER-SHARE DATA
Company ELI Pro
Company ELI Pro Forma Pro Forma Forma
Historical Historical Combined Equivalent Equivalent
--------- ---------- --------- ---------- ----------
<C> <C> <C> <C> <C> <C>
Book value per share as of
September 30, 1995 $0.06 $(76.29) $6.33 $0.32 $6.01
Cash dividends declared per
share for the year ended
September 30, 1995 -0- -0- -0- -0- -0-
Income (loss) per share from
continuing operations for the (0.02) 330.35 0.10 0.005 0.095
year ended September 30,
1995
</TABLE>
OPERATIONS AFTER THE MERGER
Business of the Surviving Corporation
Management of ELI and the Company anticipate that the Surviving
Corporation will (i) develop additional Lodges, (ii) purchase motels for
conversion to the Efficiency Lodge format or purchase existing economy
extended stay motels that meet current ELI acquisition criteria and (iii)
realize increased lease revenues from growth in room revenues.
Management of the Surviving Corporation plans to dispose of the Company's
remaining properties following the Merger on an orderly basis at the best
available terms.
Management of ELI and the Company anticipate that the Surviving
Corporation will focus initially on development and acquisition
opportunities available in the Southeastern United States. Additional
Lodges may be financed, in whole or in part, with cash flow, borrowings,
proceeds from subsequent securities issuances or from the exchange of the
Surviving Corporation's securities for existing facilities.
As of December 31, 1995, ELI had debt of approximately 10.3 million
related to financing the construction of facilitates, and the Surviving
Corporation may seek to borrow additional amounts to fund investments in
additional Lodge properties.
ELI is currently developing one additional Efficiency Lodge in
DeKalb County, Georgia, and is contemplating developing additional
Efficiency Lodges in Columbus, Georgia, Columbia, South Carolina and
-24-
<PAGE>
Nashville, Tennessee. See "INFORMATION REGARDING ELI." In considering
opportunities for developing additional Lodges, ELI's historical policy
has been to give strong consideration to demographic and traffic studies,
and to review the availability and pricing of suitable sites, the costs
and risks of developing, the availability of financing, as well as any
other factors deemed relevant. ELI has historically selected sites for
the development of Efficiency Lodges by conducting an analysis of
neighborhood demographics and economic variables. This data is compared
against site selection criteria employed by ELI and compiled from the
base of existing Lodges. Each site must satisfy the two most important
variables: a high daily automobile traffic count and a significant amount
of employment within a three-mile radius.
The Surviving Corporation may continue to acquire additional economy
extended stay lodges and convert them to Efficiency Lodges. In
appropriate circumstances, the Surviving Corporation may also acquire and
convert conventional motels to Efficiency Lodges.
Historically, ELI has considered investments in existing properties,
including properties that would require complete renovation, which meet
one or more of the following criteria: (i) the facility is located in an
area with relatively high demand for rooms, a relatively low supply of
extended stay lodges, and barriers to easy entry into the lodge business,
such as a scarcity of suitable sites or zoning restrictions; and (ii) the
facility is in an attractive location that ELI believes could benefit
significantly by becoming an Efficiency Lodge.
Company Management
Board of Directors. Three of the seven current directors of the
Company have tendered their resignations from the Company's Board
effective as of the Effective Time. Pursuant to the Merger Agreement,
the Company's Board has appointed Ray Barnes, Roy Barnes and Annette Bone
to fill the vacancies created by the resignations of the existing
directors. The appointment of these directors is contingent upon the
consummation of the Merger and will be effective as of the Effective
Time.
The following table sets forth certain information, as of September
30, 1995, concerning each of the individuals who will be a director of
the Surviving Corporation. Roy and Ray Barnes are brothers; otherwise,
there are no family relationships between any of the current or proposed
directors, nor between any of them and any current or proposed executive
officers of the Company.
-25-
<PAGE>
<TABLE>
<CAPTION>
Name (Age) Principal Occupation During the Past Five Years
---------- -----------------------------------------------
<S> <C>
Roy E. Barnes (47) Mr. Barnes has served as
Secretary/Treasurer of ELI and its
predecessors since 1986. Mr. Barnes, an
attorney, has been a partner with
Barnes, Browning, Tanksley & Casurella
and has served as a member of the
Georgia State Legislature since 1975.
W. Ray Barnes (56) Mr. Barnes has served as President and
Chief Executive Officer of ELI and its
predecessors since 1986. Mr. Barnes has
owned and operated Barnes Store in
Mableton, Georgia since 1954. He is
also a director of Georgia State Bank.
C. Annette Bone (54) Ms. Bone has served as Vice President
of Operations of ELI since July 1, 1995.
Prior to that, Ms. Bone operated the
West Georgia Lodge under a lease
agreement with ELI and the Bartow Lodge
before it was purchased by ELI. Since
1989 she has served as President and
Chief Executive Officer of Bone
Properties, a real estate and financial
consulting and management firm.
Arthur L. Crowe, Jr. (71) A director of the Company since 1994,
Mr. Crowe is an attorney. He is
currently of counsel with the law firm
of Cauthorn & Phillips, P.C. in
Marietta, Georgia. From 1989 to 1994,
Mr. Crowe was a sole practitioner.
Joseph A. Cochran (65) Mr. Cochran has been director of the
Company and its affiliates, Piedmont
Southern Co., Pacemaker Properties,
Inc., Ramco Inns of Georgia, Inc., SAC
Building, Piedmont Southern Insurance
Agency and SAC Holdings, since 1966 and
President of each of the foregoing since
1990. Mr. Cochran, an attorney, has
been a member of the law firm of Cochran
Camp & Snipes since 1966.
Ken F. Thigpen (55) Mr. Thigpen has served as a director of
the Company and Piedmont Southern Co.,
Pacemaker Properties, Inc., Ramco Inns
of Georgia, Inc., SAC Building, Piedmont
Southern Insurance Agency and SAC
Holdings, since 1994. Mr. Thigpen has
been President and Chief Executive
Officer of Georgia State Bank since
1990. Mr. Thigpen has also served as a
director of ELI since 1994.
Dr. Roy W. Sweat, D.C. (68) Dr. Sweat has been a director of the
Company and Piedmont Southern Co.,
Pacemaker Properties, Inc., Ramco Inns
of Georgia, Inc., SAC Building, Piedmont
Southern Insurance Agency and SAC
Holdings, since 1963 and Vice President
-26-
<PAGE>
of each of the foregoing since 1990.
Dr. Sweat, a chiropractor, is president
of Sweat Chiropractic Clinic, P.C. Dr.
Sweat is also a director of Capital City
Bank & Trust.
</TABLE>
Executive Officers. Pursuant to the Merger Agreement, all of the
Company's current executive officers have tendered their resignations,
effective as of the Effective Time, and the Company and ELI have agreed
to appoint Roy Barnes as Secretary/Treasurer, Ray Barnes as President and
Chief Executive Officer and Annette Bone as Vice President of Operations
of the Surviving Corporation. Officers are elected by the Company's
Board annually for one-year terms or until their successors are elected
and qualified. All executive officers are United States citizens.
PROPOSAL TO RESTATE AND AMEND THE ARTICLES OF
INCORPORATION OF THE COMPANY
(ITEM 2)
General
Under the Articles Amendment Proposal, the Articles will be restated
and amended to (i) clarify that the duration of the Company is perpetual
as permitted under Georgia law; (ii) limit the potential monetary
liability of directors of the Company for breaches of duty of care and
other duties as a director to the full extent permitted by Georgia law;
and (iii) to permit the Articles, as amended, to be consolidated into a
single document and to remove certain obsolete provisions that have no
relevance under present Georgia law. The following brief summary of the
proposed material changes in the Articles is not be complete and is
qualified in all instances by reference to the proposed Restated and
Amended Articles of Incorporation of the Company (the "Restated and
Amended Articles"), a copy of which is attached to this Proxy Statement
as Appendix B and is incorporated into the Proxy Statement by reference.
The effective date of the Article Amendment will be the date on which the
Restated and Amended Articles are filed with the Secretary of State of
Georgia, which is anticipated to occur immediately prior to the
Effective Time of the Merger.
Recommendation of the Board
At a meeting held on January 19, 1996, the Company's Board concluded
that adoption of the Restated and Amended Articles was in the best
interests of the Company and its shareholders. For the reasons stated
below, the Board unanimously recommends that all shareholders of the
Company vote "FOR" the approval of the Articles Amendment Proposal.
-27-
<PAGE>
Restatement of Articles
Pursuant to the proposal, the Articles, as amended, will be
consolidated and certain obsolete provisions that have no relevance under
current Georgia law will be deleted. A provision in the Articles
limiting the Company's duration will be removed to clarify that the
Company has unlimited duration under the current Georgia Business
Corporation Code (the "Corporate Code"). In addition, provisions
regarding initial directors of the Company will be removed as permitted
under current Georgia law.
Georgia law permits the Board to make a determination that a
restatement of the Articles as described in the preceding paragraph is in
the best interests of the Company and its shareholders and to effect such
a change without shareholder approval. Therefore, even if the Articles
Amendment Proposal is not approved by the shareholders of the Company,
the Board may nonetheless cause the Articles to be restated to make the
duration of the Company perpetual and to remove other obsolete provisions
from the Articles.
Background and Reasons for the Articles Amendment Proposal
The Board is required by Georgia law to seek shareholder approval of
the proposed amendment to limit the directors' liability for monetary
damages to the Company described below. Under the Corporate Code,
directors are required to discharge their duties with the care of an
ordinarily prudent person. Should the Board of Directors fail to
exercise such care, the Board's actions could be enjoined or rescinded by
court order or the directors themselves could be sued for damages. The
proposed amendment would limit a director's liability to the Company to
the full extent permitted by Georgia law but would not permit the Company
to preclude the availability of equitable remedies, such as injunction or
rescission, for breach of a duty of care or other duty as a director. In
addition, the amendment may not eliminate or limit the liability of any
director for any act or omission which has occurred prior to the date on
which the Restated and Amended Articles become effective.
The proposed amendment would eliminate certain of the potential
liabilities of directors of the Company for monetary damages for breach
of the directors' duty of care and other duties as directors. Section
14-2-202(b)(4) of the Corporate Code permits Georgia corporations to
eliminate or limit directors' personal liability to the corporation or
shareholders for monetary damages for breaches of a duty of care or other
duty as a director, except that the corporation may not eliminate or
limit the liability of a director for (i) any appropriation, in violation
of such director's duties, of any business opportunity of the
corporation; (ii) acts or omissions which involve intentional misconduct
or a knowing violation of law; (iii) any action for which the director
could be found liable pursuant to Section 14-2-832 of the Corporate Code,
which is generally concerned with the improper declaration of dividends,
purchase of the corporation's shares or distribution of its assets; or
(iv) any transaction from which the director derives an improper personal
benefit. Thus, under Georgia law, a director's liability is based upon
any one of the foregoing grounds, the director may still be found liable
for monetary damages. A director's liability for violation of federal
securities laws is unaffected by the Corporate Code.
The provisions limiting or eliminating the potential monetary
liability of directors apply only to the "duties of care" of directors,
that is unintentional errors in deliberation or judgments made with the
care an ordinary person in a like position would exercise under similar
circumstances and not to any form of "bad faith" conduct.
The Board believes that the amendment to limit a director's
potential liability for monetary damages to the Company is necessary due
to changes in recent years in the market for directors' liability
insurance and to significant increases in the number of magnitude of
lawsuits against directors. The Board believes that these changes may
threaten the quality and stability of the governance of the Company
because directors may be deterred from serving or from making
entrepreneurial decisions because of the threat of personal liability.
In addition, the Board believes that the amendment may benefit the
Company through lower liability insurance premiums. Although adoption of
the proposed amendment will affect the potential liability of current
directors who will remain members of the Board of the Surviving
Corporation following adoption of the proposal, and such members are,
therefore, interested in its adoption, the entire Board believes that the
proposed amendment is important in order to help assure the ability of
the Company to continue to recruit and retain competent directors.
-28-
<PAGE>
Effect of the Article Amendment Proposal on Shareholders
While the Board believes that the amendment is in the best interests
of the shareholders as well as the Company, such an amendment will limit
the remedies available to a shareholder dissatisfied with Board decisions
protected by the amendment, including responses to any takeover proposals
of the Company. A shareholder's only remedy under the Corporate Code in
such circumstances may be to sue to stop the completion of the Board's
action. In many situations, this remedy may not be effective.
Shareholders, for example, may not be aware of a transaction or an event
until it is too late to be prevented. In these cases, the shareholders
and the Company could be injured by, and yet have no effective remedy
under the Corporate Code for a Board decision which is negligent or even
grossly negligent, to the extent that such negligence is not deemed to
constitute bad faith or intentional misconduct. In addition, although
the Board anticipates that the amendment may have the positive effects
outlined above, no assurances can be given that such results will be
achieved.
The Board believes that the diligence exercised by directors of the
Company stems primarily from their desire to act in the best interest of
the Company and not from a fear of monetary damage awards. Consequently,
the Board believes that the level of scrutiny and care exercised by
directors will not be lessened by the adoption of the Restated and
Amended Articles. The Board and its members have not been involved in
any recent litigation which would have been affected by the proposed
provision had it been in effect.
Appraisal Rights
Under the Corporate Code, the Company's shareholders are not
entitled to dissenter's rights of appraisal with respect to the Articles
Amendment Proposal because the Company has greater than 2,000
shareholders.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of Company Stock is required for approval of the
Articles Amendment Proposal. The Board recommends a vote "FOR" the
proposal, and the enclosed Proxy will be so voted unless the shareholder
executing the Proxy specifically votes against the amendment or abstains
from voting by marking the appropriately designated block on the Proxy.
-29-
<PAGE>
PROPOSAL TO AMEND ARTICLE III, SECTION 1
OF THE BY-LAWS OF THE COMPANY
(ITEM 3)
Article III, Section 1 of the Company's By-Laws stipulates that the
annual meeting of shareholders shall be held in March of each year at a
time and place established by the Board of Directors. As discussed
below, the Board has concluded that it is in the best interest of the
Company to amend Article III, Section 1 of the By-Laws to provide that
the annual meeting of the Company's shareholders shall be held in May of
each year, beginning in 1996. The By-Laws of the Company may only be
altered, amended or repealed or a new by-law adopted by a vote of the
shareholders at any annual shareholders' meeting or a special
shareholders' meeting when the proposed amendment has been set out in the
notice of such a meeting. Accordingly, approval of the shareholders is
sought to amend Article III, Section 1 of the By-Laws. Appendix C of
this Proxy Statement sets forth the proposed revised by-law in its
entirety.
Because the Special Meeting of Shareholders of the Company will be
held in _________ of 1996, the Board of Directors has concluded that it
is desirable, more efficient and less costly that the Company's next
Annual Meeting be held in May of 1996 rather than in March. The Company
has not held an annual meeting since February 8, 1990. The Surviving
Corporation, which will have greater resources than the Company, intends
to resume holding an annual meeting of shareholders for the election of
directors and any other matters that may come before such a meeting in
1996 and each year thereafter. Management believes that it is in the
best interests of the Company and its shareholders to allow the new
management of the Surviving Corporation several months following
consummation of the Merger to operate the Company prior to holding the
annual meeting to determine if matters may need to come before the
Company's Shareholders at the 1996 annual meeting in addition to the
election of directors and to prepare a proxy statement, annual report and
other periodic reports or filings required of a public company.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of Company Stock is required for approval of the By-
Law Amendment Proposal. The Board recommends a vote "FOR" the proposal,
and the enclosed Proxy will be so voted unless the shareholder executing
the Proxy specifically votes against the amendment or abstains from
voting by marking the appropriately designated block on the Proxy.
-30-
<PAGE>
INFORMATION CONCERNING ACCOUNTANTS
For the last fiscal year and interim period, Randall C. Brown &
Associates, P.C. has served as the Company's principal independent public
accountants, and Moore & Cubbedge has served as ELI's principal
independent public accountants. Representatives of Randall C. Brown &
Associates and Moore & Cubbedge are expected to be present at the Special
Meeting, will have the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate
questions. Neither the Company nor ELI has had any changes of or
disagreements with its principal accountants during the periods for which
financial statements are presented in this Proxy Statement.
EXPERTS
The audited financial statements of the Company appearing in this
Proxy Statement, have been audited by Randall C. Brown & Associates,
P.C., independent auditors, as set forth in their report thereon included
in the Proxy Statement. Such financial statements have been included in
this Proxy Statement in reliance upon the authority of such firm as
experts in accounting and auditing.
The audited financial statements of ELI included in this Proxy
Statement have been audited by Moore & Cubbedge, as set forth in their
report thereon included in this Proxy Statement. Such financial
statements have been included in this Proxy Statement in reliance upon
the authority of such firm as experts in accounting and auditing.
DATE FOR RECEIPT OF STOCKHOLDERS PROPOSALS
If the By-Law Amendment Proposal is passed by the shareholders and
the annual meeting of the Company's shareholders is held in May of 1997,
proposals of shareholders intended to be presented at such annual meeting
must be received by ______________ in order to be eligible for inclusion
in the Company's Proxy Statement and Proxies for that meeting. If the
By-Law Amendment Proposal is not passed by the shareholders and the 1997
Annual Meeting is held on March of 1997, any shareholder proposal
intended to be presented at such meeting must be received by _____ in
order to be eligible for inclusion in the Company's Proxy Statement and
Proxies for that meeting.
OTHER BUSINESS
Management of the Company does not presently know of any matters
which may be presented for action at the Special Meeting other than those
set forth herein. However, if any other matters properly come before the
Special Meeting, it is the intention of the persons named in the Proxies
solicited by management to exercise their discretionary authority to vote
the shares represented by all effective Proxies on such matters in
accordance with their best judgment.
If you do not expect to be personally present at this meeting,
please fill in, date and sign the enclosed Proxy Card and return it
promptly in the enclosed return envelope which requires no additional
postage if mailed in the United States.
By Order of the Board of Directors
Bonnie L. Byers
Vice President and Secretary-Treasurer
______________,1996
-31-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Historical Financial Statements: Page
----
Southern Acceptance Corporation
Report of Independent Auditor . . . . . . . . . .
Consolidated Balance Sheets For the Years Ended
September 30, 1995 (Unaudited), 1994 and 1993 .
Consolidated Statements of Operations and Retained
Earnings For the Years Ended September 30, 1995
(Unaudited), 1994, 1993 and 1992 . . . . . . .
Consolidated Statements of Cash Flows For the
Years Ended September 30, 1995 (Unaudited), 1994, 1993 and
1992
Consolidated Statements of Cash Flows For the Years Ended
September 30, 1995 (Unaudited), 1994, 1993 and 1992
Notes to Consolidated Financial Statements . . .
Efficiency Lodges, Inc.
Report of Independent Auditor . . . . . . . . . .
Balance Sheets For the Years Ended
December 31, 1994 and 1993 . . . . . . . . . .
Statements of Income For the Years Ended
December 31, 1994 and 1993 . . . . . . . . . .
Statements of Stockholders Equity For the
Years Ended December 31, 1994 and 1993 . . . .
Statements of Cash Flows For the Years Ended
December 31, 1994 and 1993 . . . . . . . . . .
Notes to Financial Statements . . . . . . . . . .
Supplemental Data: Schedule of Operating Expenses
For the Years Ended December 31, 1994 and 1993
Balance Sheets For the Nine Months Ended September 30, 1995
and 1994 (Unaudited) . . . . . . . . . . . . .
Statements of Income For the Nine Months Ended
September 30, 1995 and 1994 (Unaudited) . . . .
Statements of Stockholder's Equity For the
Nine Months Ended September 30, 1995 and 1994 (Unaudited)
Statements of Cash Flows For the Nine Months Ended
September 30, 1995 and 1994 (Unaudited) . . . .
Unaudited Pro Forma Financial Statements
Pro Forma Balance Sheet - September 30, 1995 (Unaudited)
Pro Forma Statements of Operations For the Year
Ended September 30, 1995 (Unaudited) . . . . .
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Southern Acceptance Corporation
Marietta, Georgia 30067
We have audited the accompanying consolidated balance sheets of
Southern Acceptance Corporation and subsidiaries as of September 30, 1993
and 1994, and the related consolidated statements of operations and
retained-earnings (deficit) and cash flows for each of the three years in
the period ended September 30, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Southern Acceptance Corporation and subsidiaries at September 30, 1993
and 1994, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended September 30, 1994,
in conformity with generally accepted accounting principles.
Randall C. Brown and Associates, P.C.
Atlanta, Georgia
November 10, 1994, except as to Notes H and I as to which the date is
September 27, 1995.<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
September 30,
------------------------------------
1993 1994 1995
-------- --------- ---------
(Unaudited)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 13,243 $ 11,681 $131,933
Current maturities of notes receivable - Note C 35,503 71,641 -0-
Property for resale 114,653 167,735 -0-
Other current assets 8,202 3,303 4,152
------- ------- -------
TOTAL CURRENT ASSETS 171,601 254,360 136,085
PROPERTY, PLANT AND EQUIPMENT - Note A
Land 20,000 20,000 20,000
Building and improvements 168,882 169,542 174,387
Furniture and equipment 11,010 13,845 13,845
------- ------- -------
199,892 203,387 208,232
Less allowance for depreciation 122,215 134,043 148,083
------- ------- -------
TOTAL PROPERTY, PLANT AND EQUIPMENT 77,677 69,344 60,149
INVESTMENTS AND OTHER ASSETS
Notes and mortgages receivable, less current
maturities and allowances for doubtful amounts -
Note C 122,743 -0- -0-
Investment property 375,203 175,988 175,988
Deferred charges 3,879 -0- -0-
------- ------- -------
TOTAL INVESTMENTS AND OTHER ASSETS 501,825 175,988 175,988
------- ------- -------
$751,103 $499,692 $372,222
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
September 30,
--------------------------------------
1993 1994 1995
----------- ------- ---------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $ 88,000 $ -0- $ -0-
Trade accounts payable 5,562 4,727 2,836
Accrued interest 254 -0- -0-
Current maturities of long-term
debt - Note D 4,279 4,814 5,419
Other current liabilities 1,450 1,250 2,875
--------- ---------- --------
TOTAL CURRENT LIABILITIES 99,545 10,791 11,130
LONG-TERM DEBT, less current
maturities - note D 65,540 60,726 55,307
STOCKHOLDERS' EQUITY - Note F
Common stock - par value $.10 per
share - authorized 7,500,000 shares;
issued and outstanding (including
shares held in treasury: 116,053 in
1993 and 1,034,352 in 1994 and 1995)
6,273,257 shares 627,326 627,326 627,326
Additional paid-in capital 2,615,506 2,615,506 2,615,506
Retained-earnings (deficit) (2,642,617) (2,708,678) (2,831,068)
---------- ---------- ----------
600,215 534,154 411,764
Less treasury stock, at cost 14,197 105,979 105,979
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 586,018 428,175 305,785
---------- ---------- ----------
$ 751,103 $ 499,692 $ 372,222
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED-EARNINGS (DEFICIT)
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------------
1992 1993 1994 1995
-------------- --------------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Income
Interest $ 21,190 $ 19,145 $ 10,450 $ 6,214
Rents and commissions 35,369 28,717 13,175 23,473
Other Income 2,134 2,576 61,447 5,036
---------- ---------- ---------- ----------
58,693 50,438 85,072 34,723
Cost and expenses
Interest 11,287 8,473 8,078 8,578
Commissions 20,820 16,813 22,510 16,238
Administrative &
General Expenses 95,084 87,967 103,440 118,257
Depreciation 13,282 12,432 11,828 14,040
---------- ---------- ---------- ----------
140,473 125,685 145,856 157,113
---------- ---------- ---------- ----------
(LOSS) FROM CONTINUING
OPERATIONS BEFORE
PROVISION FOR INCOME TAXES (81,780) (75,247) (60,784) (122,390)
Provision for income taxes
Notes A and E -0- -0- -0- -0-
---------- ---------- ---------- ----------
(LOSS) FROM CONTINUING
OPERATIONS (81,780) (75,247) (60,784) (122,390)
(LOSS) FROM DISCONTINUED
OPERATIONS - NOTE G -0- -0- (5,277) -0-
---------- ---------- ---------- ----------
NET (LOSS) (81,780) (75,247) (66,061) (122,390)
Retained-earnings (deficit)
at beginning of year (2,485,590) (2,567,370) (2,642,617) (2,708,678)
---------- ---------- ---------- ----------
RETAINED-EARNINGS
(DEFICIT) AT END OF YEAR (2,567,370) (2,642,617) (2,708,678) (2,831,068)
========== ========== ========== ==========
Net (loss) per common
share - Note A $ (0.01) $ (0.01) $ (0.01) $ (0.02)
========== ========== ========== ==========
Average number of common shares
outstanding during the year 6,157,204 6,157,204 5,591,129 5,238,905
========= =========== ========== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES Year Ended September 30,
----------------------------------------------------------
1992 1993 1994 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net (loss) $ (81,780) $(75,247) $(66,061) $(122,390)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation 13,282 12,432 11,828 14,040
Bad debt expense -0- -0- 6,609 -0-
Property for resale:
Additions to -0- (91,542) (59,691) (6,090)
Proceeds from sale of 1,000 24,975 -0- 178,861
Gain on sale of (1,889) (1,865) -0- (5,036)
Gain on sale of investment property -0- -0- (35,354) -0-
Change in assets and liabilities:
Decrease in notes receivable 14,122 68,703 86,605 71,641
Decrease (increase) in other
current assets & liabilities - net 4,544 (5,262) 3,610 (1,115)
--------- -------- -------- --------
Total Adjustments 31,059 7,441 13,607 252,301
--------- -------- -------- --------
Net cash provided by (used in)
operating activities (50,721) (67,806) (52,454) 129,911
Investing activities
Capital expenditures (2,653) -0- (3,495) (4,845)
Proceeds from sale of investment property -0- -0- 234,569 -0-
Deductions from (additions to) deferred charges -0- (3,879) 3,879 -0-
--------- -------- -------- --------
Net cash provided by (used in)
investing activities (2,653) (3,879) 234,953 (4,845)
Financing activities
Short-term borrowing 5,000 93,000 5,000 -0-
Payments on notes payable and long term debt (53,388) (8,807) (97,279) (4,814)
Purchase of treasury stock -0- -0- (91,782) -0-
--------- -------- -------- --------
Net cash provided by (used in)
financing activities (48,388) 84,193 (184,061) (4,814)
--------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents (101,762) 12,508 (1,562) 120,252
Cash and cash equivalents at beginning of period 102,497 735 13,243 11,681
--------- -------- -------- -------
Cash and cash equivalents at end of period $ 735 $ 13,243 $ 11,681 $131,933
========= ======== ======== =======
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest $ 11,250 $ 10,572 $ 11,617 $ 8,578
Income taxes -0- -0- -0- -0-
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTE A - Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and all of its subsidiaries. No
minority interest is reflected as the subsidiary with minority ownership,
Nu-Moo Lite Industries, Inc. (56.67% owned), had a negative net worth.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
Cash Equivalents - The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
Income Taxes - Income taxes reported for financial reporting purposes are
substantially the same as amounts payable under applicable federal income
tax rules and regulations. The investment tax credit is recognized as a
reduction of the income tax provision in the year in which credits become
available for tax purposes. The Company has sizeable net operating loss
carryforwards, which are included in the same type of income of the
current year that absorbs that particular operating loss carryforward.
(See Note E.)
Property, Plant and Equipment - Property, plant and equipment are stated
at cost. Depreciation is determined principally by the straight-line
method over the estimated useful life of each asset as follows:
Buildings 15 years
Furniture and equipment 5 - 10 years
Expenditures for maintenance, repairs and improvements which do not
materially prolong the life of the related asset are charged to expense.
The cost of assets retired or sold and the related accumulated
depreciation are removed from the accounts upon such disposition and any
gain or loss is included in income.
Net Income Per Common Share - Net income per common share is based upon
the number of shares of Common Stock outstanding during each year, not
including the shares held in treasury by the Company. There were no
common stock equivalents or dilutive instruments outstanding.
NOTE B - Basis of Presentation
The unaudited consolidated balance sheet as of September 30, 1995, and
the unaudited consolidated statements of operations and retained-earnings
(deficit) and cash flows for the nine months ended September 30, 1994 and
1995 are presented for comparative purposes only and reflect, in the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation.<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTE C - Notes and Mortgages Receivable
Notes receivable are summarized as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------------------
1993 1994 1995
-------- --------- ----------
(Unaudited)
<S> <C> <C> <C>
Mortgage notes receivable $ 160,246 $ 73,641 $ -0-
Less allowance for doubtful amounts 2,000 2,000 -0-
158,246 71,641 -0-
Less current maturities 35,503 71,641 -0-
$ 122,743 $ -0- $ -0-
</TABLE>
The mortgage notes receivable, which bear interest at rates ranging from
9% to 12%, consist of first mortgages on residential real estate and are
secured by the properties. None of these notes arose from retail land
sales activity.
NOTE D - Long-term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
September 30,
----------------------------------
1993 1994 1995
-------- --------- -----------
<S> <C> <C> <C>
(Unaudited)
Mortgage notes payable:
10% note maturing in 1997 $ 49,452 $ 46,572 $ 43,391
15.5% note maturing in 2001 20,367 18,968 17,335
69,819 65,540 60,726
Less current maturities 4,279 4,814 5,419
$ 65,540 $ 60,726 $ 55,307
</TABLE>
Minimum aggregate payments on long-term debt for the five fiscal years
subsequent to September 30, 1995 are approximately as follows:
1996 $ 5,419
1997 6,104
1998 6,880
1999 7,760
2000 8,760
Thereafter 25,803
$60,726
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTE E - Income Taxes
The Company has available certain net operating loss carryovers and
investment tax credit carryforwards, both of which are generally carried
forward for fifteen years from the year incurred. The approximate
remaining carryforwards at September 30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Date of Net Operating Investment
Expiration Loss Tax Credit
---------- ------------ ----------
<C> <C> <C>
September 30,
1996 $ 107,671 $ 166
1997 106,028 -0-
1999 76,652 381
2003 276,723 -0-
2004 68,760 -0-
2005 39,863 -0-
2006 52,383 -0-
2007 78,820 -0-
2008 72,822 -0-
2009 56,693 -0-
$ 936,415 $ 547
</TABLE>
Nu-Moo Lite Industries, Inc., a 56.67% owned subsidiary, does not meet
the 80% ownership requirement for filing a consolidated income tax return
with Southern Acceptance Corporation. Thus this subsidiary may also
generate net operating loss carryforwards which may be utilized to the
extent of the income taxes on its future earnings.
NOTE F - Changes in Capital
The only change in Common Stock, additional paid-in capital, or treasury
stock during the three years ended September 30, 1995 was the purchase of
918,299 shares of the Company's common stock for the treasury during the
year ended September 30, 1994.
NOTE G - Discontinued Operations
During fiscal 1993 and into 1994 the company incurred some prepaid
expenses and deferred charges in connection with a planned venture to
process insurance claims electronically for providers of medical care.
This venture was abandoned in fiscal 1994.<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTE H - Proposed Merger
On May 30, 1995 the Company signed a letter of intent to effect a merger
with Efficiency Lodge, Inc. pursuant to which an unspecified number of
shares of the Company's common stock would be issued in exchange for the
net assets of Efficiency Lodge, Inc., at which time each share of the
latter's common stock issued and outstanding prior to the Effective Time
would be canceled and extinguished.
NOTE I - Change in Fiscal Year
On September 12, 1995, the Company's Board of Directors voted to change
the Company's fiscal year from September 30 to December 31 in
anticipation of the proposed merger discussed in Note H, and a Form 8-K
to report this event was filed with the Securities and Exchange
Commission.
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
(AN S CORPORATION)
FINANCIAL STATEMENTS
DECEMBER 31, 1994<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
DECEMBER 31, 1994
================================================================
Page(s)
Independent Auditor's Report . . . . . . . . . . . . . . . 1
Financial Statements:
Balance Sheet . . . . . . . . . . . . . . . . . . . . . 2 - 3
Statement of Income . . . . . . . . . . . . . . . . . . . 4
Statement of Stockholder's Equity . . . . . . . . . . . . 5
Statement of Cash Flows . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . . 7 - 11
Supplementary Data:
Schedule of Operating Expenses . . . . . . . . . . . . . . .12
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
Efficiency Lodge, Inc.
Mableton, Georgia
We have audited the accompanying balance sheet of Efficiency Lodge, Inc.
(an S Corporation) as of December 31, 1994, and the related statement of
income, stockholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Efficiency Lodge,
Inc. as of December 31, 1994, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary data is presented
for purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Moore & Cubbedge
Moore & Cubbedge
August 29, 1995
<PAGE>
<PAGE>
FINANCIAL STATEMENTS<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
BALANCE SHEET
DECEMBER 31, 1994
===============================================================================
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets:
Cash $ 6,933
Employee advances 831
Due from related parties (Note 4) 55,935
Notes receivable - employees (Note 3) 12,254
Inventory 4,694
-----------
Total current assets 80,647
-----------
Property and equipment, net of
accumulated depreciation (Note 5) 7,137,620
-----------
Other assets:
Note receivable - related party (Note 2) 470,000
Notes receivable - employees (Note 3) 2,608
Deposits 7,364
Loan fees (net of accumulated amortization) (Note 6) 266,755
Interest Receivable (Note 2) 44,800
Other assets (Note 7) 19,350
------------
Total other assets 810,877
------------
Total assets $ 8,029,144
============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
BALANCE SHEET (CONTINUED)
DECEMBER 31, 1994
==============================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities:
Sales tax payable $ 892
Bank overdraft 36,449
Customer deposits 11,399
Current maturity of long-term debt (Note 8) 342,392
----------
Total current liabilities 391,132
----------
Long-term debt (Note 8) 7,939,066
----------
Due to related party (Note 10) 130,010
----------
Total liabilities 8,460,208
----------
Stockholders' equity:
Common stock - $1 par value, 100,000
shares authorized; 900 shares issued
and outstanding 900
Retained earnings (deficit) (431,964)
-----------
Total stockholders' equity (deficit) (431,064)
-----------
Total liabilities and stockholders'
equity $8,029,144
==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
==========================================================================
<TABLE>
<CAPTION>
<S> <C>
Revenue $2,641,091
Operating expenses 1,554,811
----------
Income from operations 1,086,280
----------
Other income (expense):
Interest income 25,915
Interest expense (781,351)
Other income 1,474
----------
Total other income (expense) (753,962)
----------
Net income $ 332,318
==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1994
===============================================================================
<TABLE>
<CAPTION>
Retained
Common Earnings
Stock (Deficit) Total
------ --------- ----------
<S> <C> <C> <C>
Balance at December 31, 1993 $ 900 $(543,282) $(542,382)
Payment made to former share-
holder for retired
treasury stock -- (21,000) (21,000)
Distribution to shareholders -- (200,000) (200,000)
Net income for year ended
December 31, 1994 -- 332,318 332,318
------ --------- ----------
Balance at December 31, 1994 $ 900 $(431,964) $(431,064)
====== ========= ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
=========================================================================
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 332,318
---------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 288,868
Increase in interest receivable (25,450)
Increase in due from related parties (55,935)
Decrease in inventories 3,306
Increase in other assets (5,427)
---------
Total adjustments 205,362
---------
Net cash provided by operating activities (Note 13) 537,680
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,375)
Loans made to employees (19,928)
Repayments of employee loans 5,816
---------
Net cash used by investing activities (16,487)
---------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Payments made on notes (377,857)
Distributions made to shareholders (200,000)
Payments made on previously retired treasury stock (21,000)
---------
Net cash used by financing activities (598,857)
---------
Net decrease in cash (77,664)
Cash at beginning of year 48,148
----------
Cash (overdraft) at end of year $ (29,516)
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Cash paid during the year for interest $ 781,351
=========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
==============================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity
----------------------------------
The Company was incorporated on May 31, 1988, under the laws of the State
of Georgia. The Company owns and operates five lodges which offer both
temporary and long-term accommodations to residents.
Basis of Accounting
-------------------
Assets and liabilities are recorded and revenues and expenses are
recognized on the accrual basis of accounting.
Cash
----
For purposes of the cash flow statement, cash includes demand deposit
accounts at local financial institutions.
Inventory
---------
Inventory consists of various convenience items available for sale to
residents and is stated at cost.
Employee Advances
-----------------
Employee advances represent short-term advances to lodge employees and
are being repaid as required.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Maintenance and repairs are
expensed when incurred. Additions and improvements are capitalized.
Depreciation is computed using the straight-line method for book
purposes and accelerated methods for tax purposes.
Loan Fees
---------
Loan fees and other associated closing costs are recorded at cost.
Amortization is calculated using a straight-line method over the
term of the related loan.
7
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
==============================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
------------
The Company elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code, effective for the tax year ended December 31,
1992. Under those provisions, the Company does not pay federal and
state income taxes. Instead, the stockholders are taxed on their
proportionate share of the Company's taxable income. Therefore,
no provision or liability for federal and state taxes has been included
in the financial statements.
2. NOTE RECEIVABLE - RELATED PARTY
Note receivable at year end consisted of the following:
Note receivable, dated
February 14, 1993, due
from a related party $470,000
========
The note is due from a business which is 100% owned by the Company's
shareholders.
The above note has an interest rate of 7% and matures on
February 14, 1998. Accrued interest as of December 31, 1994 totaled
$44,800.
3. NOTES RECEIVABLE - EMPLOYEES
Notes receivable at year end consisted of the following:
Notes receivable, dated
various dates, due from
employees $ 14,862
Less: current portion (12,254)
--------
Notes receivable - noncurrent $ 2,608
========
8
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
===============================================================================
4. DUE FROM RELATED PARTIES
Due from related parties at year end consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Amount due from business which
is 100% owned by the company's
shareholders $ 5,000
Amount due from individual related
to lease of West Georgia Lodge 17,000
Amount due from shareholders 33,935
---------
Total due from related parties $ 55,935
=========
</TABLE>
5. PROPERTY AND EQUIPMENT
At December 31, the Company's property and equipment consisted of the
following:
<TABLE>
<CAPTION>
<S> <C>
Land $1,241,949
Buildings 6,435,853
Furniture and equipment 836,307
Capitalized interest 365,516
---------
8,879,625
Less: accumulated depreciation 1,742,005
----------
Net property and equipment $7,137,620
==========
Depreciation expense $ 270,090
==========
</TABLE>
6. LOAN FEES
At December 31, loan fees and other related closing costs were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Loan fees $ 405,522
Less: accumulated amortization 138,767
----------
Net loan fees $ 266,755
==========
Amortization expense $ 18,778
==========
</TABLE>
9
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
==============================================================================
7. OTHER ASSETS
Other assets relate to preliminary costs associated with the construction
of three lodges located in Columbus, Georgia, Columbia, South Carolina,
and Atlanta, Georgia.
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
<S> <C>
Notes payable due to various financial
institutions related to construction of
lodges $8,281,458
Less: current maturities 342,392
----------
Long-term debt $7,939,066
==========
</TABLE>
The above notes have interest rates from 8 to 9.5% and various maturity
dates.
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Years ending December 31, Amount
------------------------ --------
<S> <C>
1995 480,495
1996 566,847
1997 1,568,572
1998 279,908
Thereafter 5,385,636
---------
8,281,458
Less: current maturities 342,392
----------
Total long-term debt $7,939,066
==========
</TABLE>
9. COMMITMENTS
Leases
------
During the year ended December 31, 1994, the Company entered into an
agreement to lease employees for the lodges.
This lease agreement extends only for a year and is therefore classified
as an operating lease.
Employee lease expense was $379,048 for the year ended December 31, 1994.
10
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
==============================================================================
10. RELATED PARTY TRANSACTIONS
Management fees of $71,582 were paid in 1994 to a stockholder who owns
fifty percent of the outstanding stock of the company.
As of December 31,1994, $130,010 was owed to a stockholder who owns fifty
percent of the outstanding stock of the Company.
11. SUBSEQUENT EVENT
On May 16, 1995, the Company purchased the Bartow Lodge, located in
Cartersville, Georgia for $2,382,903. The operation of this lodge
will be substantially similar to that of the other lodges.
12. TREASURY STOCK
During the year ended DECEMBER 31, 1994, $21,000 was paid to a former
stockholder for treasury stock which was retired in the previous year.
13. CASH FLOW FROM OPERATIONS
During the year ended DECEMBER 31, 1994, the Company generated a positive
cash flow from operating activities of $537,680. Cash flow from
operating activities is computed by adjusting the company's net income
for the year for certain noncash operating transactions which do not
affect cash flow for the year.
In addition to the cash flow from operating activities, the Company
utilizes EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) for the purpose of analyzing operating performance,
leverage and liquidity. The EBITDA, sometimes referred to as Flow
From Operations, of the Company for 1994 was $1,376,622. Such data
is not a measure of financial performance under generally accepted
accounting principles and should not be considered as an alternative
to net income as an indicator of the Company's operating performance
or as an alternative to cash flow as a measure of liquidity.
11
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
SCHEDULE OF OPERATING EXPENSES
FOR THE YEAR DECEMBER 31, 1994
==============================================================================
<TABLE>
<S> <C>
Accounting $ 22,359
Advertising 948
Amortization 18,778
Auto expense 3,990
Bank charges 2,800
Bonuses 24,750
Cable television 34,112
Cleaning supplies 1,304
Computer maintenance expense 9,934
Depreciation 270,090
Dues and subscriptions 236
Employee lease expense 379,048
Garbage collection 8,999
Insurance 40,229
Legal and professional 2,908
Linen expense 39
Maintenance supplies 90,371
Management fees 71,582
Medical expense 97
Miscellaneous 1,238
Office supplies 4,082
Pest control 435
Phone system lease 27,383
Postage 500
Repairs and maintenance 19,246
Salaries 143
Subcontractor expense 24,537
Taxes and licenses 156,344
Telephone 80,506
Utilities 257,823
----------
Total operating expenses $1,554,811
==========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
(AN S CORPORATION)
FINANCIAL STATEMENTS
DECEMBER 31, 1993
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
DECEMBER 31, 1993
==============================================================================
Page(s)
------
Independent Auditor's Report . . . . . . . . . . . . . . . . 1
Financial Statements:
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . 2 - 3
Statement of Income . . . . . . . . . . . . . . . . . . . 4
Statement of Stockholder's Equity . . . . . . . . . . . . 5
Statement of Cash Flows . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . . 7 - 11
Supplementary Data:
Schedule of Operating Expenses . . . . . . . . . . . . . . 12<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
Efficiency Lodge, Inc.
Mableton, Georgia
We have audited the accompanying balance sheet of Efficiency
Lodge, Inc. (an S Corporation) as of December 31, 1993, and the
related statement of income, stockholder's equity and cash flows
for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Efficiency Lodge, Inc. as of December 31, 1993, and the
results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The
supplementary data is presented for purposes of additional
analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Moore & Cubbedge
Moore & Cubbedge
June 19, 1995
1
<PAGE>
<PAGE>
FINANCIAL STATEMENTS
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
BALANCE SHEET
DECEMBER 31, 1993
============================================================================
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets:
Cash $ 48,148
Employee advances 1,581
Interest received 19,350
Inventory 8,000
-----------
Total current assets 77,079
-----------
Property and equipment, net of
accumulated depreciation (Note 4) 7,405,335
-----------
Other assets:
Note receivable (Note 2) 470,000
Deposits 7,364
Loan fees (net of accumulated amortization)
(Note 5) 285,533
Other assets (Note 3) 13,923
-----------
Total other assets 776,820
-----------
Total assets $ 8,259,234
===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
BALANCE SHEET (CONTINUED)
DECEMBER 31, 1993
=============================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
Current liabilities:
Sales tax payable $ 892
Customer deposits 11,399
Current maturity of long-term debt (Note 6) 354,409
----------
Total current liabilities 366,700
----------
Long-term debt (Note 6) 8,287,406
----------
Due to related party 147,510
----------
Total liabilities 8,801,616
----------
Stockholders' equity:
Common stock - $1 par value, 100,000
shares authorized; 900 shares issued
and outstanding 900
Retained earnings (deficit) (543,282)
----------
Total stockholders' equity (deficit) (542,382)
----------
Total liabilities and stockholders'
equity $8,259,234
==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
===========================================================================
<TABLE>
<CAPTION>
<S> <C>
Revenue $2,304,252
Operating expenses 1,633,534
----------
Income from operations 670,718
----------
Other income (expense):
Interest income 28,511
Interest expense (699,461)
Other income (4,758)
-----------
Total other income (expense) (675,708)
-----------
Net loss before extraordinary item $ (4,990)
Extraordinary item - gain on early
extinguishment of debt (Note 11) 420,799
-----------
Net income $ 415,809
===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1993
=============================================================================
<TABLE>
<CAPTION>
Retained
Common Earnings
Stock (Deficit) Total
------ ---------- ---------
<S> <C> <C> <C>
Balance at December 31, 1992 $1,500 $(900,191) $(898,691)
Retirement of treasury stock
(Note 12) (600) (58,900) (59,500)
Net income for year ended
December 31, 1993 -- 415,809 415,809
------- ---------- ----------
Balance at December 31, 1993 $ 900 $(543,282) $(542,382)
======= ========= ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
============================================================================
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 415,809
---------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 326,767
Gain on early extinguishment of debt (420,799)
Increase in employee advances (775)
Increase in interest receivable (19,350)
Decrease in inventories 5,451
Decrease in other receivables 1,147
Increase in other assets (7,858)
Decrease in payroll withholding (3,845)
Increase in sales tax payable 892
----------
Total adjustments (118,370)
----------
Net cash provided by operating activities (Note 10) 297,439
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,475)
----------
Net cash used by investing activities (2,475)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes 633,181
Payments made on notes (421,250)
Increase in related party receivable (470,000)
Purchase of treasury stock (27,500)
----------
Net cash used by financing activities (285,569)
----------
Net increase in cash 9,395
Cash at beginning of year 38,753
---------
Cash at end of year $ 48,148
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Cash paid during the year for interest $ 699,461
=========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Treasury stock of $32,000 was purchased during the year through a
reduction in a note receivable due from a former stockholder.
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
==================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity
-----------------------------------
The Company was incorporated on May 31, 1988, under the laws
of the State of Georgia. The Company owns and operates five
lodges which offer both temporary and long-term
accommodations to residents.
Basis of Accounting
-------------------
Assets and liabilities are recorded and revenues and
expenses are recognized on the accrual basis of accounting.
Cash
----
For purposes of the cash flow statement, cash includes
demand deposit accounts at local financial institutions.
Inventory
---------
Inventory consists of various convenience items available
for sale to residents and is stated at cost.
Employee Advances
-----------------
Employee advances represent short-term advances to lodge
employees and are being repaid as required.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Maintenance
and repairs are expensed when incurred. Additions and
improvements are capitalized. Depreciation is computed
using the straight-line method for book purposes and
accelerated methods for tax purposes.
Loan Fees
---------
Loan fees and other associated closing costs are recorded at
cost. Amortization is calculated using a straight-line
method over the term of the related loan.
7
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
==================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
------------
The Company elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code, effective for the
tax year ended December 31, 1992. Under those provisions,
the Company does not pay federal and state income taxes.
Instead, the stockholders are taxed on their proportionate
share of the Company's taxable income. Therefore, no
provision or liability for federal and state taxes has been
included in the financial statements.
2. NOTE RECEIVABLE - NONCURRENT
Note receivable at year end consisted of the following:
Note receivable, dated
February 23, 1993, due
from a related party $470,000
========
The note is due from a business which is 100% owned by the
Company's shareholders.
The above note has an interest rate of 7% and matures on
February 27, 1998. Accrued interest as of December 31, 1993
totaled $19,350.
3. OTHER ASSETS
Other assets relate to preliminary costs associated with the
construction of two lodges located in Columbus, Georgia and
Columbia, South Carolina.
8<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
========================================================================
4. PROPERTY AND EQUIPMENT
At December 31, the Company's property and equipment
consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Land $1,241,949
Buildings 6,856,653
Equipment 75,985
Furniture and fixtures 337,147
Capitalized interest 365,516
----------
8,877,250
Less: accumulated depreciation 1,471,915
----------
Net property and equipment $7,405,335
==========
Depreciation expense $ 303,271
==========
</TABLE>
5. LOAN FEES
At December 31, loan fees and other related closing costs were as follows:
<TABLE>
<CAPTION>
<S> <C>
Loan fees $ 405,522
Less: accumulated amortization 119,989
----------
Net loan fees $ 285,533
==========
Amortization expense $ 23,496
==========
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
<S> <C>
Notes payable due to various financial
institutions related to construction of
lodges $8,641,815
Less: current maturities 354,409
----------
Long-term debt $8,287,406
==========
</TABLE>
The above notes have interest rates ranging from 8 to 9.5% and various
maturity dates.
9
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
=================================================================
LONG-TERM DEBT (CONTINUED)
Future maturities of long-term debt are as follows:
Years ending December 31, Amount
------------------------- ------
1994 $ 354,409
1995 480,495
1996 566,847
1997 1,568,572
1998 279,908
Thereafter 5,391,584
----------
8,641,815
Less: current maturities 354,409
----------
Total long-term debt $8,287,406
==========
7. COMMITMENTS
Leases
------
During the year ended December 31, 1993, the Company entered
into an agreement to lease employees for the lodges.
This lease agreement extends only for a year and is
therefore classified as an operating lease.
Employee lease expense was $170,882 for the year ended
December 31, 1993.
8. RELATED PARTY TRANSACTIONS
Management fees of $123,952 were paid in 1993 to a
stockholder who owns fifty percent of the outstanding stock
of the company.
9. SUBSEQUENT EVENT
On May 16, 1995, the Company purchased the Bartow Lodge,
located in Cartersville, Georgia for $2,382,903. The
operation of this lodge will be substantially similar to that
of the other lodges.
10
<PAGE>
<PAGE>
10. CASH FLOW FROM OPERATIONS
During the year ended December 31, 1993, the Company
generated a positive cash flow from operating activities of
$297,439. Cash flow from operating activities is computed
by adjusting the company's net income for the year for
certain noncash operating transactions which do not affect
cash flow for the year.
In addition to the cash flow from operating activities, the
Company utilizes EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) for the purpose of analyzing
operating performance, leverage and liquidity. The EBITDA,
sometimes referred to as Flow From Operations, of the
Company for 1993 was $992,727. Such data is not a measure of
financial performance under generally accepted accounting
principles and should not be considered as an alternative to
net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure
of liquidity.
11. EXTRAORDINARY ITEM
During the year ended December 31, 1993, the Company paid
off outstanding mortgage debt of $2,147,908 with new
financing of $1,727,109 obtained from a local financial
institution. This resulted in a gain of $420,799, which is
presented as an extraordinary item on the Company s
statement of income for the year ended December 31, 1993.
12. TREASURY STOCK
During the year ended December 31, 1993, the Company
purchased and permanently retired 600 shares of its stock
from a former shareholder for $59,500.
11
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
SCHEDULE OF OPERATING EXPENSES
FOR THE YEAR DECEMBER 31, 1993
======================================================================
<TABLE>
<CAPTION>
<S> <C>
Accounting $ 21,160
Advertising 4,508
Amortization 23,496
Auto expense 4,103
Bank charges 2,149
Bonuses 5,177
Cable television 40,580
Cleaning supplies 929
Computer maintenance expense 3,373
Contributions 518
Depreciation 303,271
Dues and subscriptions 829
Employee lease expense 170,882
Freight 29
Garbage collection 9,662
Insurance 52,324
Legal and professional 8,724
Linen expense 17,013
Maintenance supplies 65,976
Management fees 123,952
Medical expense 1,315
Miscellaneous 4,644
Office supplies 7,712
Officer's compensation 35,800
Payroll taxes 12,503
Pest control 435
Phone system lease 19,604
Postage 238
Repairs and maintenance 26,079
Salaries 91,270
Subcontractor expense 14,692
Sign Expense 2,220
Taxes and licenses 244,712
Telephone 77,709
Travel 822
Utilities 235,124
----------
Total operating expenses $1,633,534
==========
</TABLE>
See independent auditor's report.
12
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
(AN S CORPORATION)
FINANCIAL STATEMENTS
SEPTEMBER 30, 1994 AND 1995
UNAUDITED
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
BALANCE SHEET
SEPTEMBER 30, 1994 AND 1995
UNAUDITED
==============================================================================
<TABLE>
<CAPTION>
ASSETS
------
1994 1995
--------- -----------
<S> <C> <C>
Current assets:
Cash $ 338,538 $ 372,935
Employee advances 831 831
Due from related parties 12,127 5,250
Notes receivable - employees 7,820 8,044
Inventory 14,850 15,237
---------- -----------
Total current assets 374,166 402,297
---------- -----------
Property and equipment, net of
accumulated depreciation 7,205,942 9,326,669
---------- -----------
Other assets:
Note receivable - related party 470,000 465,000
Notes receivable - employees 858 2,682
Loan fees (net of accumulated amortization) 270,978 254,689
Interest Receivable 44,025 61,192
Other assets 19,121 126,849
---------- ---------
Total other assets 804,982 910,412
---------- -----------
Total assets $8,385,090 $10,639,378
========== ===========
</TABLE>
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
BALANCE SHEET (CONTINUED)
SEPTEMBER 30, 1994 AND 1995
UNAUDITED
==============================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1994 1995
---------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities $ 69,626 $ 107,220
Customer deposits 11,399 10,461
Current maturity of long-term debt 354,409 342,392
---------- -----------
Total current liabilities 435,434 460,073
---------- -----------
Long-term debt 8,045,127 10,117,959
---------- -----------
Due to related party 130,010 130,010
---------- -----------
Total liabilities 8,610,571 10,708,042
---------- -----------
Stockholders' equity:
Common stock - $1 par value, 100,000
shares authorized; 900 shares issued
and outstanding 900 900
Retained earnings (deficit) (226,381) (69,564)
--------- -----------
Total stockholders' equity (deficit) (225,481) (68,664)
--------- -----------
Total liabilities and stockholders'
equity $8,385,090 $10,639,378
========== ===========
</TABLE>
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
UNAUDITED
==============================================================================
<TABLE>
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Revenue $1,951,649 $2,268,433
Operating expenses:
Employee lease expense 282,607 344,788
Utilities 172,161 202,443
Telephone 76,637 73,644
Taxes and licenses 76,644 87,684
Management fees 71,582 86,000
Repairs 64,953 87,526
Depreciation and amortization 215,521 229,566
Other operating expenses 112,069 150,940
--------- ---------
Total operating expenses 1,072,174 1,262,591
--------- ---------
Income from operations 879,475 1,005,842
--------- ---------
Other income (expense):
Interest income 24,930 25,260
Interest expense (518,372) (673,252)
Other income 11,368 4,550
--------- --------
Total other income (expense) (482,074) (643,442)
--------- --------
Net income $ 397,401 $ 362,400
========= =========
</TABLE>
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
UNAUDITED
=============================================================================
<TABLE>
<CAPTION>
Retained
Common Earnings
Stock (Deficit) Total
-------- --------- ----------
<S> <C> <C> <C>
Balance at December 31, 1993 $ 900 $(543,282) $(542,382)
Distribution to shareholders -- (63,000) (63,000)
Payment made to former share-
holder for retired treasury
stock -- (17,500) (17,500)
Net income for nine months
ended September 30, 1994 -- 397,401 397,401
------ --------- ---------
Balance at September 30, 1994 $ 900 $(226,381) (225,481)
====== ========= =========
Balance at December 31, 1994 $ 900 $(431,964) (431,064)
Net income for the nine months
ended September 30, 1995 -- 362,400 362,400
------ --------- ----------
Balance at September 30, 1995 $ 900 $ (69,564) $ (68,664)
====== ========== ==========
</TABLE>
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
UNAUDITED
=========================================================================
<TABLE>
<CAPTION>
1994 1995
-------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 397,401 $ 362,400
--------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Decrease in employee advances 750 --
Depreciation and amortization 215,521 229,566
(Increase) decrease in interest
receivable (24,675) (16,392)
(Increase) decrease in due from related
parties (12,127) 50,685
(Increase) decrease in inventories (6,850) (10,543)
(Increase) decrease in other assets 2,167 (100,135)
Increase in accounts payable, accrued
liabilities 68,734 106,329
Decrease in customer deposits -- (938)
--------- -----------
Total adjustments 243,520 258,572
--------- -----------
Net cash provided by operating activities 640,921 620,972
--------- -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of property and equipment (1,574) (23,647)
Loans made to employees (8,678) --
Repayments of employee loans -- 4,136
Repayments of notes receivable-related
party -- 5,000
---------- ----------
Net cash used by investing activities (10,252) (14,511)
---------- -----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Payments made on notes (242,279) (204,010)
Payments made on amount due to related
party (17,500) --
Repurchase and retirement of company's
stock (17,500) --
Distributions to shareholders (63,000) --
---------- -----------
Net cash used by financing activities (340,279) (204,010)
---------- -----------
Net increase in cash 290,390 402,451
Cash (overdraft) at beginning of year 48,148 (29,516)
--------- -----------
Cash at September 30 $ 338,538 $ 372,935
========= ===========
</TABLE>
<PAGE>
<PAGE>
EFFICIENCY LODGE, INC.
STATEMENT OF CASH FLOWS (COND.)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995
UNAUDITED
========================================================================
<TABLE>
<CAPTION>
1994 1995
---------- ---------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine months
for interest $ 518,372 $ 673,252
---------- ---------
</TABLE>
Noncash Financing Activities: In 1995, the company purchased a lodge
located in Bartow County, Georgia by incurring debt in the amount of
$2,282,903.
<PAGE>
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information is presented to give effect to the
business combination of the Company and ELI in a purchase transaction as if it
had been consummated at the beginning of the fiscal year presented.
Accordingly, this information includes a pro forma condensed balance sheet as
of September 30, 1995 and a pro forma condensed statement of operations for the
year then ended. The pro forma adjustments reflect (1) the conversion of each
100 shares of the Company's common stock to one share; (2) the cancellation of
ELI's common stock and the issuance of 992,390 shares of the Company's common
stock in exchange for the net assets of ELI at their fair market value; and
(3) additional depreciation expense based on the excess of the fair market
value over the net book value of the fixed assets acquired in the
exchange. These statements should be read in conjunction with the respective
financial statements and notes thereto contained elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED BALANCE SHEET
September 30, 1995
Pro Forma Adjustments
Company ELI ------------------------- Pro Forma
ASSETS (Unaudited) (Unaudited) Dr. Cr. Combined
------------ ------------ --- --- ---------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $131,933 $ 372,935 $ $ 16(1) $ 504,852
Accounts receivable from related parties -0- 5,250 5,250
Accounts and notes receivable from employees -0- 8,875 8,875
Inventory -0- 15,237 15,237
Other current assets 4,152 4,152
------- ---------- ----------
Total current assets 136,085 402,297 538,366
PROPERTY, PLANT AND EQUIPMENT
Land 20,000 1,466,949 1,012,870(2) 2,499,819
Building and improvements 174,387 8,689,646 3,805,615(2) 12,669,648
Furniture and equipment 13,845 1,129,580 339,758(2) 803,667
------- ---------- ----------
208,232 11,286,175 15,973,134
Less accumulated depreciation 148,083 1,959,506 1,959,506(2) 66,827(3) 214,910
------- ---------- ----------
Total property, plant and equipment 60,149 9,326,669 15,758,224
OTHER ASSETS
Note receivable from related party -0- 465,000 465,000
Notes receivable from employees -0- 2,682 2,682
Loan fees (net of accumulated amortization) -0- 254,689 254,689
Interest receivable -0- 61,192 61,192
Investment property 175,988 -0- 175,988
Miscellaneous -0- 126,849 126,849
------- ---------- ----------
Total other assets 175,988 910,412 1,086,400
------- ---------- ----------
Total assets $372,222 $10,639,378 $17,382,990
======= ========== ===========
</TABLE>
<PAGE>
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET (CONTINUED)
September 30, 1995
<TABLE>
<CAPTION>
Pro Forma Adjustments
Company ELI ------------------------- Pro Forma
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) (Unaudited) Dr. Cr. Combined
------------ ------------ --- --- ---------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 5,419 $ 342,392 $ $ $ 347,811
Other current liabilities 5,711 117,681 123,392
--------- ---------- ----------
Total current liabilities 11,130 460,073 471,203
LONG-TERM DEBT 55,307 10,117,959 10,173,266
INDEBTEDNESS TO RELATED PARTY-NONCURRENT -0- 130,010 130,010
STOCKHOLDERS' EQUITY
Common stock 627,326 900 621,052(1)
900(2) 99,239(2) 105,513
Additional paid-in capital 2,615,506 -0- 2,615,506
Additional paid-in capital resulting
from reverse stock split -0- -0- 621,036(1) 621,036
Additional paid-in capital resulting
from business combination -0- -0- 6,270,330(2) 6,270,330
Retained-earnings (deficit) (2,831,068) (69,564) 66,827(3) 69,564(2) (2,897,895)
---------- ---------- ----------
411,764 (68,664) 6,714,490
Less treasury stock, at cost 105,979 -0- 105,979
---------- ---------- ----------
Total stockholders' equity 305,785 (68,664) 6,608,511
---------- ---------- ----------
Total liabilities and stockholders'
equity $ 372,222 $10,639,378 $17,382,990
========== ========== ==========
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Year Ended September 30, 1995
Pro Forma Adjustments
Company ELI ------------------------- Pro Forma
(Unaudited) (Unaudited) Dr. Cr. Combined
------------ ------------ --- --- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 34,723 $2,957,875 $ $ $2,992,598
Costs and expenses 157,113 2,660,558 66,827(3) 2,884,498
--------- --------- ---------
Income (loss) from continuing operations
before provision for income taxes (122,390) 297,317 108,100
Provision for income taxes -0- -0- -0-
--------- --------- ---------
Income (loss) from continuing (122,390) 297,317 108,100
--------- --------- ---------
Net income (loss) $(122,390) $ 297,317 $ 108,100
========= ========= =========
Net income (loss) per common share $ (.02) $ 330.35 $ 0.10
========= ========= =========
</TABLE>
<PAGE>
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
between
SOUTHERN ACCEPTANCE CORPORATION
and
EFFICIENCY LODGE, INC.
Dated January 22, 1996
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into
this 22nd day of January, 1996, by and between SOUTHERN
ACCEPTANCE CORPORATION, a Georgia corporation ("SAC"), and
EFFICIENCY LODGE, INC. a Georgia corporation ("ELI").
WHEREAS, the Boards of Directors of ELI and SAC deem it
advisable and in the best interests of their respective
shareholders to effect the merger (the "Merger") of ELI and SAC
upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, the Board of Directors of SAC has duly approved the
Merger and the other transactions contemplated by this Agreement
and resolved to recommend the approval of this Agreement and such
transactions to its shareholders; and
WHEREAS, the Board of Directors and the shareholders of ELI
have duly approved the Merger;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, and other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, ELI and SAC hereby agree as follows:
ARTICLE 1. THE MERGER
At the Effective Time (as defined in Section 3.3), upon the
terms and subject to the conditions set forth in this Agreement,
and in accordance with the applicable corporation law of the
state of Georgia, ELI shall be merged with and into SAC, the
separate existence of ELI (except as may be continued by
operation of law) shall cease, and SAC shall continue as the
surviving corporation. SAC, after the Merger, is sometimes
referred to herein as the "Surviving Corporation." At the
Effective Time, the Surviving Corporation shall continue its
corporate existence under the laws of the State of Georgia and
shall succeed to all rights, privileges, immunities, franchises
and powers, and be subject to all duties, liabilities, debts and
obligations, of SAC and ELI in accordance with the provisions of
the laws of Georgia.
ARTICLE 2. THE SURVIVING CORPORATION
2.1 Articles. The Articles of Incorporation of SAC as in
effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation, and in
the Merger said Articles of Incorporation shall be amended as of
the Effective Time to change the name of the Surviving
Corporation to "Efficiency Lodge, Inc." and to change the
principal address of the Surviving Corporation to 928 Bankhead
Highway, Mableton, Georgia.
A-2
<PAGE>
2.2 Bylaws. The Bylaws of SAC as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving
Corporation until thereafter amended in accordance with
applicable law, the Articles of Incorporation of such Surviving
Corporation and such Bylaws.
ARTICLE 3. CONVERSION; CLOSING
3.1 Conversion of Shares. At the Effective Time, by virtue
of the Merger and without any action on the part of the holders
thereof, (a) every one hundred (100) shares of SAC common stock
issued and outstanding immediately prior to Effective Time held
by each shareholder of record ("Pre-Merger Shares") shall be
converted into and become the right to receive one new share of
the common stock of the Surviving Corporation, $.10 par value per
Share (the common stock to be received by shareholders of SAC is
referred to herein as the "New Shares"), and the number of New Shares
received by shareholders of SAC shall constitute five percent (5%) of the
shares of outstanding stock of the Surviving Corporation; (b) each share
of common stock of ELI issued and outstanding immediately prior to the
Effective Time that is owned by ELI or held in the treasury of
ELI shall be cancelled and retired, and no payment shall be made
with respect thereto; (c) all shares of common stock of ELI
issued and outstanding immediately prior to the Effective Time
shall be cancelled and extinguished and shall be converted into
and become the right to receive such number of shares as shall constitute
95% of the outstanding shares of the common stock of the Surviving
Corporation, $.10 par value per share (the common stock to be received
by the shareholders of ELI is referred to herein as the "Shares") and each
share of common stock of ELI shall be converted into that number of shares
of the Surviving Corporation as shall constitute a proportionate share of
the total Shares to be issued to the ELI shareholders upon consummation
of the Merger. No scrip or fractional share certificate of the Surviving
Corporation shall be issued to the SAC or ELI shareholders in connection
with the Merger, and an outstanding fractional share interest will not
entitle the owner thereof to vote, to receive dividends or to have any
of the rights of a shareholder with respect to such fractional interest.
In lieu of the issuance of any fractional interest, there shall
be paid in cash to (i) each former ELI shareholder an amount
(computed to the nearest cent) equal to such fraction multiplied
by $.10 and (ii) to each former SAC shareholder an amount
(computed to the nearest cent) equal to the number of shares of
SAC common stock held by such shareholder that were not converted
to shares of the Surviving Corporation in the Merger multiplied
by $.10 per share.
3.2 Closing of Transfer Books. (a) At the Effective Time,
the stock transfer books of ELI shall be closed and there shall
be no further registration or transfers of shares thereafter on
the records of ELI. If, after the Effective Time, certificates
formerly representing shares of ELI are presented for transfer,
they shall be cancelled and exchanged for Shares as provided in
this Article 3. From and after the Effective Time, the holders
of certificates representing shares of ELI shall cease to have
any rights with respect to such shares, except as otherwise
provided herein or by law, and such shares of ELI common stock
shall instead represent the right to receive Shares as provided
herein.
(b) At the Effective Time, the stock transfer books of
SAC shall be closed, and there shall be no further registration
or transfers of Pre-Merger shares thereafter on the records of
SAC. If, after the Effective Time, certificates formerly
representing Pre-Merger Shares are presented for transfer, they
shall be cancelled and exchanged for New Shares or cash as
provided in this Article 3. From and after the Effective time,
the holders of certificates representing Pre-Merger Shares shall
cease to have any rights with respect to such shares, except as
otherwise provided herein or by applicable law, and such
A-3
<PAGE>
Pre-Merger Shares shall instead represent the right to receive
New Shares or cash as provided herein.
3.3 Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices
of Kilpatrick & Cody, 1100 Peachtree Street, Atlanta, Georgia
30309 at 10:00 a.m., local time, on the day after the later to
occur of the Special Meeting (as defined in Section 6.4(c)) or
the date on which all the conditions set forth in Article 7
hereof are satisfied or waived, or at such other date, time and
place as SAC and ELI shall agree. On the date of Closing, SAC
and ELI shall file the Certificate of Merger in accordance with
Georgia law. The Merger shall become effective at the close of
business on the date of Closing (the "Effective Time").
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SAC
SAC has delivered to ELI certain documents and materials
pursuant to this Agreement, and all such documents and materials
are true, correct and complete as of the date furnished, and any
and all modifications or amendments thereto have been delivered
to ELI. At all times prior to and including the date of Closing,
SAC shall promptly provide ELI with written notification of any
event, occurrence or other information of any kind whatsoever
which affects, or may affect, the continued truth, correctness or
completeness of any representation or warranty made in this
Agreement or in any other document or writing furnished to ELI
pursuant to this Agreement. SAC represents and warrants to ELI
as follows:
4.1 Organization and Qualification. SAC is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Georgia and has the requisite corporate
power to own, lease or operate its properties and to carry on its
business as and in all places where such business is now
conducted and such properties are owned or leased. SAC is duly
qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its
properties owned, leased or operated or the nature of its
activities makes such qualification necessary, except for
failures to be so qualified or in good standing which would not
have a material adverse effect on its business, operations,
properties, assets, liabilities, condition (financial or
otherwise) or results of operations ("Material Adverse Effect").
4.2 Capitalization. SAC's authorized share capital is as
set forth in SAC's Form 10-K filed for the year ended September
30, 1994, and the Articles of Incorporation previously delivered
to ELI. All of the issued and outstanding shares of SAC common
stock, par value $.10 per share (the "SAC Stock"), have been duly
and validly authorized and are validly issued, fully paid and
non-assessable. Following the effectiveness of the Merger, the
Shares will be duly authorized and reserved for issuance. There
are no preemptive rights to the issuance of the Shares. There
are no outstanding (a) securities of SAC convertible into or
exchangeable for shares of share capital or other voting
securities of SAC, and (b) options or other rights to acquire
from SAC, and no other obligation of SAC to issue, any share
capital, voting securities or other ownership interests in SAC.
A-4
<PAGE>
There are no outstanding obligations of SAC to repurchase, redeem
or otherwise acquire any of its outstanding securities.
4.3 Subsidiaries. The Subsidiaries of SAC are as set forth
on Exhibit 21 to SAC's Form 10-K filed for the year ended
September 30,1994. For purposes of this Agreement, "Subsidiary"
means (i) any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a
majority of the Board of Directors or other persons performing
similar functions are directly or indirectly owned by a person,
or (ii) any partnership (whether or not a limited partnership) or
similar entity in which a person directly or indirectly owns an
equity interest entitling such person to 50% or more of the
voting interests therein.
4.4 Authority; No Inconsistent Agreements. (a) The officers
executing this Agreement on behalf of SAC have full power and
authority to execute and perform this Agreement and the other
agreements contemplated hereby and to perform SAC's obligations
hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. All proceedings and actions
required to be taken by SAC to authorize the execution,
delivery and performance of this Agreement have been properly
taken. Except for the approval of SAC's shareholders to be
sought at the Special Meeting, no other corporate proceeding
on the part of SAC is necessary to authorize this Agreement
or the transactions contemplated hereby. This Agreement has
been, and any other agreements contemplated hereby
to which SAC is or will be a party, have been, or will be, duly
executed and delivered by SAC and constitute, or when executed
and delivered will constitute, the valid and binding obligation
of SAC and will be enforceable, in accordance with their
respective terms, except as (i) such enforcement may be subject
to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors'
rights generally, and (ii) the remedy of specific performance and
injunctive relief may be subject to equitable defenses and to the
discretion of the court in which any proceeding may be brought.
(b) Neither the execution, delivery or performance of
this Agreement or of any other agreement contemplated hereby nor
the consummation of the transactions contemplated hereby or
thereby does or will (with the passage of time, the giving of
notice or otherwise) constitute a violation of or conflict with
any provision of (i) the Articles of Incorporation or the Bylaws
of SAC; (ii) any term or provision of any indenture, note,
mortgage, bond, security agreement, loan agreement, guaranty,
pledge or other agreement, instrument or commitment to which SAC
is a party; (iii) any writ, order, judgment, decree, ruling,
consent agreement or award ("Order") of any court, government or
administrative body of competent jurisdiction; (iv) any
constitution, statute, rule, regulation, ordinance, act, code,
legislation, treaty, convention or judicial decision ("Law"); or
(v) any other written commitment or restriction to which SAC is a
party or by which SAC or any of its assets or properties is
subject or bound; nor will such actions result in (1) the
creation of any lien, claim, charge, encumbrance, or restriction
("Lien") on any of the assets or properties of SAC; (2) the
creation or acceleration of any obligation of SAC; or (3) the
forfeiture of any right or privilege of SAC, except for
violations or defaults which will not in the aggregate have a
Material Adverse Effect on SAC.
A-5
<PAGE>
4.5 Corporate Books and Records. All of the minute books
of SAC have heretofore been furnished to ELI by SAC and correctly
show all corporate action taken by the shareholders, directors
and committees of the Board of Directors of SAC and contain
copies or originals of SAC's Articles of Incorporation and Bylaws
and all amendments thereto.
4.6 Commission Filings; Financial Statements. (a) SAC has
heretofore made available to ELI the following reports, documents
and other materials (collectively, the "SEC Reports"):
(i) its Annual Report on Form 10-K for the fiscal year
ended September 30, 1994;
(ii) its Quarterly Reports on Form 10-Q for the fiscal
quarters ended June 30, 1995, March 31, 1995, and December 31,
1994; and
(iii) all other reports and registration statements
(in the forms in which such registration statements were declared
effective) filed by SAC with the Securities and Exchange
Commission (the "Commission") since September 30, 1990 through
the date of this agreement.
As of their respective dates, the SEC Reports did not
contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) The audited financial statements and unaudited
interim financial statements of SAC included or incorporated by
reference in the SEC Reports (the "SAC Financial Statements")
have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis
during the periods involved, and fairly present, in all material
respects, the financial position, results of operations and
changes in financial position as of such dates and for the
periods then ended, subject, in the case of unaudited interim
financial statements, to normal year-end adjustments. As of
September 30, 1995, the date of the unaudited interim financial
statements in SAC's Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission, to the knowledge of SAC, (a)
SAC had no liability or expense of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become
due, which was not reflected in the September 30, 1995 Balance
Sheet forming part of the SAC Financial Statements and which was
of a nature required under GAAP to be reflected in the SAC
Financial Statements or disclosed in the notes thereto; (b) all
allowances and reserves set forth in the SAC Financial Statements
were adequate for the respective purposes for which they were
established; and (c) there were no loss contingencies (as such
term is used in Statement of Financial Accounting Standards No.
5) which were of a nature required under GAAP to be reflected or
disclosed therein and were not reflected in the SAC Financial
Statements or disclosed in the notes thereto and which would have
a Material Adverse Effect on SAC. Since September 30, 1995,
except for liabilities that have been incurred in the ordinary
course of business consistent with past practices, SAC has not
incurred any liability of any nature (whether accrued, absolute,
contingent or otherwise).
A-6
<PAGE>
4.7 Absence of Changes. Except as expressly provided for
in this Agreement, since September 30, 1994:
(a) there has been no change in the business,
properties, financial condition or actual or anticipated results
of operations of SAC or in its relationships with suppliers,
customers, employees, lessors, or others, other than changes in
the ordinary course of business, none of which have had or will
have, a Material Adverse Effect on SAC; (b) the
business of SAC has been operated in the ordinary course and
consistent with its prior practices; and
(c) the books, accounts and records of SAC have been
maintained in the usual, regular and ordinary manner on a basis
consistent with prior years.
4.8 No Violation. SAC is not in default under or in
violation of (a) its Articles of Incorporation or Bylaws;
(b) any Order; (c) any Law; or (d) any material contract
to which SAC is a party, in each case, except for violations
or defaults which will not in the aggregate have a
Material Adverse Effect on SAC.
4.9 Compliance with Laws. SAC has in the past duly
complied, and is presently duly complying, with all applicable
Laws except where the failure to have so complied or be so
complying would not have a Material Adverse Effect on SAC.
SAC has not received any notification of any asserted past
or present failure by it to comply with any such Laws.
4.10 Broker's Fees. SAC has not authorized any person to
act as a broker, finder or financial advisor or in any similar
capacity in connection with the Merger or the transactions
contemplated by this Agreement in such a manner as to give rise
to a valid claim against SAC or ELI for any brokers', finders',
financial advisors' or similar fees or expenses.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF ELI
ELI has delivered to SAC certain documents and materials
pursuant to this Agreement, and all such documents and materials
are true, correct and complete as of the date furnished and any
and all modifications or amendments thereto have been delivered
to SAC. At all times prior to and including the date of Closing,
ELI shall promptly provide SAC with written notification of any
event, occurrence or other information of any kind whatsoever
which affects, or may affect, the continued truth, correctness or
completeness of any representation or warranty made in this
Agreement or any other document or writing furnished to SAC
pursuant to this Agreement. ELI represents and warrants to SAC
as follows:
5.1 Organization and Qualification. ELI is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Georgia and has the requisite corporate
power to own, lease or operate its properties and to carry on its
business as and in all places where such business is now
A-7
<PAGE>
conducted and such properties are owned or leased. ELI is duly
qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its
properties owned, leased or operated or the nature of its
activities makes such qualification necessary, except for
failures to be so qualified or in good standing which would not
have a Material Adverse Effect on ELI.
5.2 Capitalization. (a) The authorized share capital, the
total number of outstanding shares of ELI, and the number of
shares owned by each shareholder of ELI, are set forth on
Schedule 5.2 hereto. All of the issued and outstanding shares of
ELI have been duly and validly authorized and are validly issued,
fully paid and non-assessable, free and clear of Liens, were
authorized, issued and sold in accordance with all applicable Law
and were not issued in violation of the preemptive rights of any
shareholder. The Articles of Incorporation of ELI do not provide
for preemptive rights in favor of any person.
(b) There are no outstanding subscriptions, options,
warrants, rights, convertible or exchangeable securities or other
agreements or commitments of any character relating to the issued
or unissued share capital, or other securities of ELI obligating
ELI to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of share capital, or other securities
of ELI or obligating ELI to grant, extend or enter into any
subscription, option, warrant, right, convertible security or
other similar agreement or commitment with respect thereto. ELI
is not liable for any dividends declared or accrued, but unpaid,
with respect to its share capital.
5.3 Subsidiaries. ELI has no Subsidiaries.
5.4 Authority; No Inconsistent Agreements. (a) The
officers executing this Agreement on behalf of ELI have full
power and authority to execute and perform this Agreement and the
other agreements contemplated hereby and to perform the
obligations of ELI hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. All proceedings
and actions required to be taken by ELI to authorize the
execution, delivery and performance of this Agreement have been
properly taken. No other corporate proceedings on the part of
ELI are necessary to authorize this Agreement or the transactions
contemplated hereby. This Agreement has been, and the other
agreements contemplated hereby to which ELI is or will be a
party, have been or will be, duly executed and delivered by ELI
and constitute, or when executed and delivered will constitute,
the valid and binding obligation of ELI, enforceable in
accordance with their respective terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally, and (ii) the
remedy of specific performance and injunctive relief may be
subject to equitable defenses and to the discretion of the court
in which any proceeding may be brought.
(b) Neither the execution, delivery or performance by
ELI of this Agreement or of any other agreement contemplated
hereby, nor the consummation by ELI of any of the transactions
contemplated hereby or thereby, does or will (with the passage of
time, the giving of notice or otherwise), constitute a violation
or conflict with, any provision (i) of the Articles of
Incorporation or Bylaws of ELI; (ii) any term of any indenture,
note, mortgage, bond, security agreement, loan agreement, pledge
A-8
<PAGE>
or other agreement, instrument or commitment to which ELI is a
party; (iii) any Order; (iv) any applicable Law; or (v) any other
written commitment or restriction to which ELI is a party or by
which ELI or any of its assets or properties is subject or bound;
nor will such actions result in (1) the creation of any Lien on
any of the assets or properties of ELI; (2) the creation or
acceleration of any obligation of ELI; or (3) the forfeiture of
any right or privilege of ELI, except for violations or defaults
which will not in the aggregate have a Material Adverse Effect on
ELI.
5.5 Corporate Books and Records. All of the share records
and minute books of ELI have heretofore been furnished to SAC by
ELI and reflect fully all issuances, transfers and redemptions of
the share capital of ELI, correctly show all corporate action
taken by the shareholders, directors and committees of the Board
of Directors of ELI, and contain copies or originals of ELI's
Articles of Incorporation and Bylaws and all amendments thereto.
5.6 Consents. Schedule 5.6 sets forth a true, correct and
complete list of all consents as may be necessary or appropriate
to consummate the transactions contemplated by this Agreement in
accordance with the terms of this Agreement and to enable the
Surviving Corporation to carry on and conduct the business of ELI
in all material respects subsequent to the Closing in
substantially the same manner as was carried on and conducted
prior to the Closing, or that are necessary to prevent a breach
of, or a default or penalty under, or increase the payments
under, or decrease the obligations of any party to, or cause or
permit a termination of, a contract relating to the business and
operations of ELI, which would have a Material Adverse Effect on
ELI.
5.7 Financial Statements. (a) Prior to the date hereof,
ELI has delivered to SAC copies of (i) the balance sheet of ELI
as of December 31, 1994 and the related statements of income,
changes in stockholders equity, and cash flows for the period
ended December 31, 1994, together with the auditors' report
thereon of Moore & Cubbedge, independent certified public
accountants, and (ii) the unaudited balance sheet of ELI as of
August 31, 1995, and the related statements of income, changes in
stockholders equity, and cash flows for the period ended August
31, 1995 (the "ELI Financial Statements"). The ELI Financial
Statements have been prepared in accordance with GAAP applied on
a consistent basis during the periods involved, and fairly
present, in all material respects, the financial position,
results of operations and changes in financial position for the
periods then ended, subject, in the case of unaudited interim
financial statements, to normal year-end adjustments.
(b) As of August 31, 1995, to the knowledge of ELI,
(i) ELI had no liability or expense of any nature, whether
accrued, absolute, contingent or otherwise, and whether due or to
become due, which was not reflected in the August 31, 1995
Balance Sheet forming part of the ELI Financial Statements and
which was of a nature required under GAAP to be reflected in the
ELI Financial Statements or disclosed in the notes thereto; (ii)
all allowances and reserves set forth in the ELI Financial
Statements were adequate for the respective purposes for which
they were established; and (iii) there were no loss contingencies
(as such term is used in Statement of Financial Accounting
Standards No. 5) which were of a nature required under GAAP to be
reflected or disclosed therein and were not reflected in the ELI
Financial Statements or disclosed in the notes thereto and which
A-9
<PAGE>
would have a Material Adverse Effect on ELI. Since August 31,
1995, except for liabilities that have been incurred in the
ordinary course of business consistent with past practices, ELI
has not incurred any liability of any nature (whether accrued,
absolute, contingent or otherwise).
5.8 Absence of Changes. Except as expressly provided for
in this Agreement, since December 31, 1994:
(a) there has been no change in the business,
properties, financial condition or actual or anticipated results
of operations of ELI or in its relationships with suppliers,
customers, employees, lessors or others, other than changes in
the ordinary course of business, none of which have had or will
have a Material Adverse Effect on ELI;
(b) the business of ELI has been operated in the
ordinary course and consistent with its prior practices;
(c) the books, accounts and records of ELI have been
maintained in the usual, regular and ordinary manner on a basis
consistent with prior years.
5.9 No Violation. ELI is not in default under or in
violation of (a) its Articles of Incorporation or Bylaws; (b)
any Order; (c) any applicable Law; or (d) any material contract
to which ELI is a party; except, in each case, for violations
or defaults which will not in the aggregate have a Material
Adverse Effect on ELI.
5.10 Title to Properties. ELI owns or has the right to use
all properties and assets necessary to conduct its business as
such business is currently being conducted and was conducted
during the periods covered by the ELI Financial Statements and
through the date hereof. ELI has full title to all properties
and assets owned by it, real and personal (including intellectual
property), including, without limitation, those reflected on the
August 31, 1995 Balance Sheet constituting part of the ELI
Financial Statements, free and clear of Liens except:
(a) assets sold or otherwise disposed of in the
ordinary course of business, since August 31, 1995;
(b) as expressly set forth in the ELI Financial
Statements as securing specific liabilities (with respect to
which no default exists);
(c) Liens for applicable taxes which are not past due;
(d) easements for the erection and maintenance of
public utilities serving the owned or leased properties of ELI;
and
(e) minor imperfections of title and encumbrances, if
any, which are not substantial in amount, did not arise from the
borrowing of money or the obtaining of advances or credit, do not
A-10
<PAGE>
detract from the value of the property subject thereto or impair
the operations of ELI and have arisen only in the ordinary course
of business.
5.11 Contracts. All material contracts to which ELI is a
party are valid and binding upon ELI and the other parties
thereto and are in full force and effect and enforceable in
accordance with their terms, and ELI nor, to the knowledge of
ELI, any other party to any of such material contracts has
breached any provision of, or is in default in any respect under
the terms of, any material contract.
5.12 Compliance with Laws. ELI has in the past duly
complied, and is presently duly complying, with all applicable
Laws, except where the failure to have so complied or be so
complying would not have a Material Adverse Effect on ELI. ELI
has not received any notification of any asserted past or present
failure by it to comply with any of such Laws. Without limiting
the generality of the foregoing, ELI is in compliance with, and
has been in compliance with, all permits, regulatory plans, and
compliance schedules and applicable Laws relating to pollution
and environmental control, including but not limited to, said
requirements relating to the disposal, treatment, transportation
or other handling of hazardous or toxic waste, materials and
substances on, in, under or off-site from any facility used for
manufacturing or for storage of raw materials or byproducts or
relating to emissions or potential emissions into the environment
of solids, liquids, gases, heat, light, noise, or radiation or
the proper disposal of materials, including without limitation
solid and liquid waste materials that are applicable to ELI.
5.13 Broker's Fees. ELI has not paid or become obligated
to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated
hereby, and SAC shall not become obligated to pay any fee or
commission to such persons or entities.
ARTICLE 6. ADDITIONAL AGREEMENTS
6.1 Conduct of Businesses. Except as otherwise
specifically provided in this Agreement, from the date hereof to
the Effective Time, each of ELI and SAC shall carry on their
respective businesses only in the ordinary and usual course and
consistent with past practice and shall use their best efforts to
(a) preserve intact their respective business organizations, (b)
maintain in effect all licenses, approvals, qualifications and
authorizations that are required to carry on their respective
businesses, (c) keep available the services of their respective
key officers and employees, and (d) maintain satisfactory
relationships with their lenders, suppliers, customers, and
others having business relationships with them.
6.2 Non-Solicitation of Third Party Offers. SAC, on the
one hand, and ELI, on the other hand, each agrees not to
initiate, solicit or encourage, and will direct and use its best
efforts to cause each officer, director, employee, investment
banker, attorney, accountant or other agent employed or retained
by it not to initiate, solicit or encourage, any proposal or
offer to acquire all or any substantial part of its business and
properties or share capital, whether by merger, purchase of
assets, tender offer or otherwise (each, a "Business Combination
Transaction"), and not to engage in any negotiations concerning,
A-11
<PAGE>
or provide any confidential information or data to, or have any
discussions with a corporation, partnership, person or other
entity or group ("Third Party") relating to a Business
Combination Transaction; provided, however, that SAC may furnish
information concerning its business, properties or assets to a
Third Party which has expressed an interest in making a bona fide
offer or proposal to enter into a Business Combination
Transaction and which in the opinion SAC has the financial
capability to consummate such a Business Combination Transaction
subject to receipt of appropriate information (and when SAC has
not initiated the offer or proposal and has not solicited or
encouraged such Third Party to express such offer or proposal in
breach of this Section) and, following receipt of such expression
of interest, may negotiate any of the actions otherwise
prohibited by this Section, including without limitation,
entering into appropriate agreements with such Third Party with
regard to a Business Combination Transaction, if outside counsel
to SAC advises the Board of Directors of SAC to the effect that
the failure to furnish such information or negotiate or enter
into appropriate agreements with such Third Party would subject
said directors to a substantial risk of liability for breach of
their fiduciary duties or for failure to comply with the
requirements of applicable Law. If either party shall receive an
expression of interest or offer of the type referred to in this
Section, it shall promptly inform the other party as to (and
provide the other party with copies of) any such inquiry, offer
or proposal.
6.3 Access to Information. From the date hereof until the
Closing, ELI and SAC shall, and shall cause the officers,
directors, employees and agents of each to, afford to the other
and to the other's financial advisors, legal counsel,
accountants, consultants and other representatives full access
(during regular business hours and upon reasonable notice) to all
of its officers, employees, agents, properties, offices and other
facilities, and to the books, records and contracts of each and
shall furnish to the other all financial, operating and other
data and information as such other party may reasonably request
through its officers, employees or agents from time to time. No
investigation pursuant to this Section shall affect any
representations or warranties of the parties hereto or the
conditions to the obligations of the parties hereto.
6.4 Proxy Statement; SAC Shareholder Approvals. (a) As
promptly as practicable following the execution of this
Agreement, SAC shall file with the Commission a Proxy Statement
(the "Proxy Statement") with respect to the proposals described
below. SAC and ELI shall (i) use all reasonable efforts to have
the Proxy Statement cleared by the Commission at the earliest
practicable time; and (ii) prepare and file any other filings
required under the Securities Exchange Act of 1934, as amended,
or any other federal or state securities or blue sky laws
relating to the Merger and the other transactions contemplated
hereby at the earliest practicable time. The Proxy Statement
shall comply as to form in all material respects with all
applicable requirements of the federal securities laws.
(b) The information to be provided by ELI for use in
the Proxy Statement shall not contain any untrue statement of any
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances, not misleading at the
time the documents are filed with the Commission, at the time it
is mailed, and at the time of the Special Meeting.
A-12
<PAGE>
(c) SAC, acting through its Board of Directors, shall,
in accordance with applicable Georgia law and its Articles of
Incorporation and Bylaws, promptly and duly call and give notice
of, convene and hold as soon as practicable a meeting of its
shareholders (the "Special Meeting") for the purpose of voting to
approve the Merger on the terms and conditions contained herein
(the "Merger Proposal"). Consistent with the fiduciary duties of
directors under Georgia law as advised by counsel, the SAC Board
of Directors shall recommend approval of the Merger Proposal by
the shareholders of SAC and include in the Proxy Statement such
recommendations.
6.5 Registration Rights; Resale. (a) If at any time
during the three years after the Closing the Surviving
Corporation shall file one or more registration statements under
the Securities Act of 1933, as amended, with respect to a public
offering of equity securities of the Surviving Corporation (the
"1933 Act"), or of any such securities of the Surviving
Corporation held by its security holders, the Surviving
Corporation will include in any such registration statement such
information as may be required to permit a public offering of the
shares of the SAC Stock beneficially owned by the former
shareholders of ELI or their respective designees or transferees
(such shareholders and their designees or transferees are
referred to collectively herein as the "Designees"). The number
of shares of the Surviving Corporation stock held by such persons
as may be requested by them shall be included in such
registration statement. The Surviving Corporation shall bear all
fees and expenses incurred in connection with the preparation and
filing of such registration statement.
(b) In the event of such a proposed registration, the
Surviving Corporation shall furnish the Designees with not less
than 30 days' written notice prior to the proposed date of filing
of the registration statement. Such notice shall continue to be
given by the Surviving Corporation to the Designees until such
time as these "piggy-back" registration rights shall expire or
until all of the Surviving Corporation stock owned by any of them
shall have been registered pursuant to these "piggy-back" rights.
The "piggy-back" rights provided for herein shall be exercised by
written notice of the Designees given to the Surviving
Corporation within 20 days of receipt of the Surviving
Corporation's notice of its intention to file a registration
statement.
(c) In addition to the foregoing "piggy-back"
registration rights, at any time during the three years after
Closing, the Designees holding a majority of the Shares, acting
together, shall have the one-time right to require the Surviving
Corporation to use its reasonable best efforts to promptly file a
registration statement under the 1933 Act in order to permit a
public offering of the Shares beneficially owned by the
Designees. Such right shall be exercised by written notice from
Designees holding a majority of the Shares to the Surviving
Corporation. The Surviving Corporation shall bear all fees and
expenses incurred in connection with the preparation and filing
of such registration statement.
A-13
<PAGE>
(d) Each Designee will not offer to sell, sell or
otherwise dispose of any of the shares of the Surviving
Corporation issued to him pursuant to the Merger, except pursuant
to an effective registration statement or in compliance with Rule
145 or another exemption from the registration requirements of
the Securities Act of 1933.
6.6 Best Efforts. Subject to the terms and conditions
contained herein, SAC and ELI agree to use their reasonable best
efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with each other in
doing, all things necessary, proper or advisable under applicable
Law to ensure that the conditions set forth in this Agreement are
satisfied and to consummate and make effective the transactions
contemplated by this Agreement and to obtain in a timely manner
all waivers, consents, approvals of, and to make filings with and
notifications to, any third parties as are necessary in order to
consummate the transactions contemplated by this Agreement.
6.7 Notification of Certain Matters. ELI shall give prompt
notice to SAC, and SAC shall give prompt notice to ELI, of the
occurrence, or failure to occur, of any event which the
occurrence or failure to occur is likely to cause (i) any
representation or warranty contained in this Agreement (and made
by the party required to give such notice) to be untrue or
inaccurate in any material respect at any time from the date
hereof to the Effective Time, or (ii) any material failure of the
party required to give such notice, or of any officer, director,
employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied
by it under this Agreement, provided that no such notification
shall affect the representations or warranties of the parties or
the conditions to the obligations of the parties hereunder.
6.8 Public Announcements. SAC and ELI will each consult
with the other before issuing any press releases or making any
public statement with respect to this Agreement and the
transactions contemplated hereby and will not issue any such
press release or make any such public statement prior to such
consultation; provided, however, that SAC may issue such press
releases or make other disclosures as required by applicable Law.
ARTICLE 7. CONDITIONS
7.1 Conditions to Obligations of Each Party. The
respective obligations of each party to effect the Merger shall
be subject to the satisfaction or waiver at or prior to the
Effective Time of each of the following conditions:
(a) Shareholder Approval. The Merger Proposal shall
have been approved and adopted by the holders of a majority of
the outstanding shares of SAC Stock.
(b) Legal Proceedings. No Order issued by a court of
competent jurisdiction or by a governmental, regulatory or
administrative agency or commission and no Law promulgated or
enacted by any governmental authority shall be in effect which
prohibits the consummation of the Merger shall have been issued
or adopted and remain in effect.
A-14
<PAGE>
(c) Tax Opinion. ELI and SAC shall have received from
Kilpatrick & Cody its opinion, in form and substance reasonably
satisfactory to ELI, dated as of the date of Closing,
substantially to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion:
(i) The Merger of ELI into SAC and the issuance
of Shares in connection therewith, as described herein,
will constitute a tax-free reorganization under Section
368 of the Code.
(ii) No gain or loss will be recognized by ELI or
SAC or by holders of share capital of ELI upon the
exchange of such stock for Shares as a result of the
Merger.
(iii) The tax basis of the Shares received in
the Merger by any shareholder of ELI will (on an
aggregate basis) be the same as the tax basis of the
stock exchanged therefor.
(iv) The holding period of the Shares received by
the shareholders of ELI will include the holding period
during which such shareholders respectively held the
shares of ELI exchanged for the Shares, provided that
such shares were held as a capital asset at the
Effective Time.
(d) Governmental Consents. All consents,
authorizations, orders, and approvals from any and all public or
governmental authorities, bodies or agencies and judicial
authorities having jurisdiction over the transactions
contemplated by this Agreement, or any part hereof (including
without limitation permits or other actions regarding the
issuance of securities pursuant to this Agreement and approvals
under the HSR Act), necessary for the consummation thereof shall
have been received, and such transactions shall not violate any
order, decree or judgment of any court or governmental body
having competent jurisdiction.
7.2 Conditions to the Obligations of SAC. The obligations
of SAC to effect the Merger shall also be subject to the
satisfaction or waiver at or prior to the date of Closing of each
of the following conditions:
(a) Performance of Obligations. ELI shall have
performed or complied with all agreements, obligations and
covenants required by this Agreement to be performed by it on or
prior to the date of Closing, and ELI shall have delivered to SAC
a certificate to that effect.
(b) Representations and Warranties. The
representations and warranties of ELI contained herein or in any
certificate, schedule or other document delivered pursuant hereto
shall be true and correct in all material respects on the date of
execution of this Agreement and at and as of the date of Closing
as if made at and as of such date, and ELI shall have delivered
to SAC certificates to that effect.
A-15
<PAGE>
(c) Legal Opinion. ELI shall have delivered to SAC an
opinion of Barnes, Browning, Tanksley & Casurella, counsel for
ELI, as of the date of Closing in form and substance reasonably
satisfactory to SAC and its counsel.
(d) Consents. ELI shall have obtained prior to the
date of Closing each consent or waiver specified in Schedule 5.6.
(e) Absence of Material Adverse Changes. ELI shall
not have experienced or suffered any material adverse change in
its business, prospects, operations, assets or condition
(financial or otherwise) since the date hereof.
7.3 Conditions to Obligations of ELI. The obligations of
ELI to effect the Merger shall be subject to the satisfaction or
waiver at or prior to the Effective Time of each of the following
conditions:
(a) Performance of Obligations. SAC shall have
performed or complied in all material respects with all
agreements, obligations and covenants required by this Agreement
to be performed by it on or prior to the Effective Time and shall
have delivered to ELI a certificate to that effect.
(b) Representations and Warranties. The
representations and warranties of SAC contained herein or in any
certificate, schedule or other document delivered pursuant hereto
shall be true and correct in all material respects at and as of
the date of Closing as if made at and as of such date and SAC
shall have delivered to ELI a certificate to that effect.
(c) Legal Opinion. SAC shall have delivered to ELI an
opinion of Kilpatrick & Cody, counsel for SAC, as of the date of
Closing in form and substance reasonably satisfactory to ELI and
its counsel.
(d) Consents. ELI shall have obtained prior to the
date of Closing each consent or waiver specified in Schedule 5.6.
(e) Board of Directors. Wesley Howard Stembridge,
Harry W. Chappell, Jr., and Bonnie L. Byers shall have tendered
their resignations from the Board of Directors of SAC effective
as of the Effective Time, and the remaining directors of SAC
shall have appointed Roy Barnes, Ray Barnes and Annette Bone as
directors to fill the vacancies created by their resignations,
which appointment will be contingent upon consummation of the
Merger and will be effective as of the Effective Time.
(f) Resignation of Officers. All of the officers of
SAC shall have tendered their resignations as officers of SAC
effective as of the Effective Time, and the Board of Directors of
SAC shall have appointed Roy Barnes as Chairman of the Board of
Directors and Secretary of SAC, Annette Bone as Vice President
A-16
<PAGE>
and Chief Operating Officer and Ray Barnes as President and Chief
Executive Officer of SAC, which appointments shall be contingent
upon consummation of the Merger and will be effective as of the
Effective Time.
(g) Authorization. All action necessary to authorize
the execution, delivery and performance of this Agreement and the
other agreements and transactions contemplated hereby by SAC
shall have been duly and validly taken on or prior to the date of
Closing.
(h) Absence of Material Adverse Changes. SAC shall
not have experienced or suffered any material adverse change in
its business, prospects, operations, assets or condition
(financial or otherwise) since the date hereof.
ARTICLE 8. TERMINATION
8.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time,
whether prior to or after approval by the shareholders of SAC and
ELI:
(a) by mutual written consent of SAC and ELI.
(b) By SAC or ELI if:
(i) the Merger has not been consummated on or
prior to 120 days after filing of the Proxy Statement
with the Commission (the "Termination Date") or such
other date, if any, as SAC and ELI shall agree upon,
provided that the right to terminate this Agreement
under this Section 8.1(b)(i) shall not be available to
any party whose failure to fulfill any obligation under
this Agreement has been the cause of or resulted in the
failure of the Merger to be consummated by such date;
(ii) the stockholders of SAC fail to adopt and
approve the Merger Proposal at the Special Meeting
(including any adjournment thereof);
(iii) a court of competent jurisdiction or a
governmental, regulatory or administrative agency or
commission shall have issued an order, decree, or
ruling or taken any other action, in each case
permanently restraining, enjoining or otherwise
prohibiting any action contemplated by this Agreement
and such order, decree, ruling or other action shall
have become final and nonappealable; or
(iv) there shall be any Law that makes
consummation of the transactions contemplated by this
Agreement illegal or otherwise prohibited.
A-17
<PAGE>
(c) By SAC if prior to the Effective Time (i) the
Board of Directors of SAC shall have withdrawn, modified or
amended in a manner adverse to ELI its approval or recommendation
that the shareholders of SAC adopt and approve the Merger
Proposal in order to permit SAC to execute a definitive agreement
providing for the acquisition of SAC, or in order to approve an
offer for any or all of the SAC Stock, in either case, as
determined by the Board of Directors of SAC, pursuant to the
actions permitted by Section 6.4, or (ii) if there has been (x) a
material breach of any covenant or agreement herein on the part
of ELI which has not been cured or adequate assurance (acceptable
to SAC in its reasonable discretion) of cure given, in either
case within 10 business days following receipt of notice of such
breach, or (y) a breach of a representation or warranty herein
which by its nature cannot be cured prior to the Termination
Date, or (iii) if SAC shall have discovered, upon a review of any
document or upon an investigation of the matters to which any of
such documents pertain, a condition existing with respect to the
earnings of ELI or any of the properties or assets of ELI which
might materially adversely affect the earnings, business or
prospects of ELI. SAC shall notify ELI in writing of any such
condition on or before February 1, 1996, and such notice shall be
deemed to be a termination of this Agreement. SAC's failure to
so notify ELI on or before such date shall be deemed to
conclusively indicate that the conditions set forth in Subsection
8(c)(iii) have been satisfied.
(d) By ELI, if prior to the Effective Time, (i) the
SAC Board of Directors shall have withdrawn, modified or amended
in a manner adverse to ELI its approval or recommendation that
the shareholders of SAC adopt and approve the Merger Proposal in
order to permit SAC to execute a definitive agreement providing
for the acquisition of SAC, or in order to approve an offer for
any or all of the SAC Stock, in either case, as determined by the
Board of Directors of SAC pursuant to the actions permitted by
Section 6.4, or (ii) if there has been (x) a material breach of
any covenant or agreement herein on the part of SAC which has not
been cured or adequate assurance (acceptable to ELI in its
reasonable discretion) of cure given, in either case within 10
business days following receipt of notice of such breach, or (y)
a breach of a representation or warranty of SAC herein which by
its nature cannot be cured prior to the Termination Date.
8.2 Effect of Termination. In the event of the termination
of this Agreement as provided in Section 8.1, this Agreement
shall become void and of no further force or effect; provided,
however, that such termination shall not eliminate any claims
which one party may have against the other arising out of a
breach of this Agreement before such termination.
ARTICLE 9. MISCELLANEOUS
9.1 Survival. The representations and warranties contained
herein and in any certificate or other writing delivered pursuant
hereto shall survive the date of Closing, the consummation of the
transactions contemplated hereby and any investigation made at
any time by or on behalf of the parties and shall continue in
full force and effect for a period of three years after the date
of Closing. Covenants and agreements set forth in this Agreement
to be performed after the Closing will survive the Closing in
accordance with their terms.
A-18
<PAGE>
9.2 Amendments; No Waivers. Any provision of this
Agreement may be amended or waived prior to the date of Closing,
if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by ELI and SAC or, in the
case of a waiver, by the party against whom the waiver is to be
effective. No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies
provided herein shall be cumulative and not exclusive of any
rights or remedies provided by law.
9.3 Notices. All notices, requests and other
communications to any party hereunder shall be in writing and
shall be deemed given if delivered personally or by telecopy to
the respective parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to SAC, to:
Southern Acceptance Corporation
c/o Cochran, Camp & Snipes
2950 Atlanta Street, S.E.
Smyrna, Georgia 30080
Telephone No. (770) 435-2131
Fax No. (770) 436-6877
Attn.: J. Al Cochran, President
with copies to:
Kilpatrick & Cody
1100 Peachtree Street
Atlanta, Georgia 30309
Telephone No. (404) 815-6500
Fax No. (404) 815-6555
Attn.: Michael H. Trotter, Esq.
(b) if to ELI:
Efficiency Lodge, Inc.
P.O. Box 635
Mableton, Georgia 30059
Attn.: W. Ray Barnes
A-19
<PAGE>
with a copy to:
Barnes, Browning, Tanksley & Casurella
166 Anderson Street
Suite 225
Marietta, Georgia 30060
Telephone No. (770) 424-1500
Fax No. (770) 424-1740
Attn.: Roy E. Barnes, Esq.
Each such notice, request or other communication shall be
effective when delivered at the address specified in this
Section.
9.4 Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns. No party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement without the
consent of the other party hereto.
9.5 Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of
Georgia, without giving effect to the principles of conflict of
laws thereof.
9.6 Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signature thereto and
hereto were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
9.7 Entire Agreement; Severability. This Agreement
constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all other
prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof. Any term
or provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability
without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity of
this Agreement in any other jurisdiction.
9.8 Parties In Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this
Agreement.
A-20
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed as of the date first above written
by their respective duly authorized officers.
SOUTHERN ACCEPTANCE CORPORATION
By: /S/ J. A. Cochran
Name: J.A. Cochran
Title: President
Attest: /s/ Bonnie L. Byers
Name: Bonnie L. Byers
Title:Vice President/Sec.Treas.
EFFICIENCY LODGE, INC.
By: /s/ W. Ray Barnes
Name: w/ Ray Barnes
Title: President
Attest: /s/ Roy E. Barnes
Name: Roy E. Barnes
Title: Secretary
A-21
<PAGE>
<PAGE>
SCHEDULE 5.2
CAPITALIZATION OF ELI
Authorized Share Capital: 100,000 shares, $1.00 par value per
share
Number of Outstanding Shares: 900 shares
Shareholders: Ray Barnes, 450 shares
Roy Barnes, 450 shares
A-22
<PAGE>
<PAGE>
SCHEDULE 5.6
REQUIRED CONSENTS
None
A-23
<PAGE>
<PAGE>
APPENDIX B
RESTATED AND AMENDED
ARTICLES OF INCORPORATION
OF
SOUTHERN ACCEPTANCE CORPORATION
I.
The name of the Corporation is:
Southern Acceptance Corporation
II.
The Corporation shall have authority to issue not more than
7,500,000 shares, all having a par value of $0.10 each, which shall be of
the same class and designated the "Common Stock." The Common Stock shall
together have unlimited voting rights and be entitled to receive the net
assets of the Corporation upon dissolution
III.
The Corporation shall have perpetual duration.
IV.
The mailing address of the initial principal office of the
corporation shall be:
277 Pat Mell Road
Marietta, Georgia 30060
B-1
<PAGE>
V.
No director of the Corporation shall be personally liable to
the Corporation or its shareholders for monetary damages for breach of
his duty of care or other duty as a director, provided, that this
provision shall eliminate or limit the liability of a director only to
the extent permitted from time to time by the Georgia Business
Corporation Code or any successor law or laws.
Any appeal or modification of the foregoing provisions of this
Article V shall not adversely affect the elimination or limitation of
liability or alleged liability pursuant hereto of any director of the
Corporation for or with respect to any alleged act or omission of the
director occurring prior to such a repeal or modification.
VI.
The above Article V is an amendment to the Corporation's
Articles of Incorporation. The restatement and amendment of the Articles
of Incorporation, as set forth herein, were duly adopted by the Board of
Directors of the Corporation at a meeting duly called and held on
_______________, 1995. Pursuant to O.C.G.A. Section 14-2-1003, the
Shareholders of the Corporation approved the restatement and amendment
of the Articles of Incorporation, as set forth herein, at a meeting
duly called and held on ______________, 1996.
IN WITNESS WHEREOF, the Corporation has caused these Amended
and Restated Articles of Incorporation to be executed by its duly
authorized officer as of this _____ day of _____________, 1996.
SOUTHERN ACCEPTANCE CORPORATION
By:_____________________________________
_____________________, President
-2-
<PAGE>
APPENDIX C
ARTICLE III: STOCKHOLDERS
Section 1. Stockholders' Meetings: The annual meeting of the
stockholders shall be held in the month of May in each year. The day,
hour and place of such meeting shall be fixed by the Board of Directors
in their regular monthly meeting held in the month preceding the proposed
stockholders' meeting, the purpose of which will be the election of
Directors and the transaction of such other business as may come before
the meeting.
C-1
<PAGE>
APPENDIX D
January 25, 1996
Southern Acceptance Corporation
277 Pat Mell Road, Suite A
Marietta, GA 30060
Ladies and Gentlemen:
We have been requested, as special tax counsel for Southern Acceptance
Corporation (the "Company"), to render our opinion expressed below to the
Company in connection with the proposed merger (the "Merger") of Efficiency
Lodge, Inc., a Georgia corporation ("ELI"), with and into the Company,
pursuant to the terms and conditions of that certain Agreement and Plan of
Merger, dated as of January 22, 1996, by and between the Company and ELI (the
"Merger Agreement"), as described in that certain Proxy Statement on Schedule
14A to be filed by the Company with the Securities and Exchange Commission
(the "Proxy Statement"). This opinion is delivered to you pursuant to Section
7.1(c) of the Merger Agreement. Unless otherwise indicated, capitalized terms
used herein shall have the same meanings as defined in the Proxy Statement.
In rendering our opinion, we have examined copies of the Merger
Agreement and the Proxy Statement. We also have considered such matters of
applicable law and of fact, together with such other regulations, rulings,
decisions, records, and documents as we have deemed appropriate for the
opinions and confirmations herein set forth.
Our opinions set forth below are subject to the following assumptions,
qualifications, and exceptions:
A. During the course of all of the foregoing examinations, we have
assumed (i) the genuineness of all signatures, (ii) the authenticity of all
documents submitted to us as originals, (iii) the legal capacity of all
individuals, (iv) the conformity to original documents of all documents
submitted to us as certified, conformed, or photostatic copies, and (v) the
authority of each person or persons who executed any document on behalf of
another person.
B. As to various factual matters that are material to our opinions
set forth herein, we have relied upon the factual representations and
warranties set forth in the Merger Agreement, the Proxy Statement, and related
documents. We have not independently verified, nor do we assume any
responsibility for, the factual accuracy or completeness of any such
representations, warranties, statements, or certificates.
Based on and in reliance on the foregoing and the further qualifications
set forth below, and provided that the Merger is consummated in accordance
with the Merger Agreement, it is our opinion that:
(1) The Merger and the issuance of Post-Merger Shares to the holders
of ELI Stock in connection therewith, as described in the Merger
Agreement, will constitute a tax-free reorganization under section
368(a)(1)(A) of the Code. The issuance of Post-Merger Shares to
the holders of Company Stock in connection with the Merger, as
described in the Merger Agreement, will constitute a tax-free
reorganization under section 368(a)(1)(E) of the Code.
(2) Except for the recognition of gain as required by section 302 of
the Code with respect to the receipt by the holders of Company
Stock and ELI Stock of cash in lieu of the issuance of fractional
Post-Merger Shares, no gain or loss will be recognized by the
Company, ELI, or holders of Company Stock or ELI Stock as a result\
D-1
<PAGE>
Southern Acceptance Corporation
January 25, 1996
Page 2
of the Merger.
(3) The aggregate tax basis of the Post-Merger Shares received by a
holder of Company Stock or ELI Stock pursuant to the Merger will
be the same as the tax basis of the shares of Company Stock or ELI
Stock exchanged therefor, decreased by any portion of such tax
basis allocated to shares of Company Stock or ELI Stock that are
treated as redeemed by the Company.
(4) The holding period of the Post-Merger Shares received by a holder
of Company Stock or ELI Stock as part of the Merger will include
the holding period of the shares of Company Stock or ELI Stock
exchanged therefor, provided that the Company Stock or ELI Stock,
as the case may be, is held as a capital asset on the date of
consummation of the Merger.
We express no opinion as to the following: (a) the tax consequences that
might be relevant to a particular holder of Company Stock or ELI Stock who is
subject to special treatment under certain federal income tax laws, such as
dealers in securities, banks, insurance companies, tax-exempt organizations,
non-United States persons, persons who do not hold their Company Stock or ELI
Stock as "capital assets" within the meaning of section 1221 of the Code, and
persons who acquired their Company Stock or ELI Stock pursuant to the exercise
of options or otherwise as compensation, or (b) any consequences arising under
the laws of any state, locality, or foreign jurisdiction.
This opinion has been delivered solely for the benefit of ELI and the
Company in connection with the Merger and, except for any holder of Company
Stock or ELI Stock, it may not be relied upon by any other person or entity or
for any other purpose without our express prior written permission. We
expressly disclaim any duty to update this letter in the future in the event
there are any changes in relevant fact or law that may affect any of our
opinions expressed herein; provided that we will update this letter to reflect
changes in fact or law prior to the effectiveness of the Proxy Statement.
KILPATRICK & CODY
By: /s/ Lynn E. Fowler
Lynn E. Fowler, a partner
D-2
<PAGE>
<PAGE>
COMMON STOCK
SOUTHERN ACCEPTANCE CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR
THE _____________, 1996 SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints J. A. Cochran and Dr. Roy W. Sweat, or
either of them, with power of substitution to each, the proxies of the
undersigned to vote the Common Stock of the undersigned at the Special
Meeting of Shareholders of SOUTHERN ACCEPTANCE CORPORATION (the
"Company") to be held on _____________, 1996 and any adjournment thereof.
THE BOARD OF DIRECTORS OF THE COMPANY FAVORS A VOTE "FOR" EACH OF THE
FOLLOWING PROPOSALS:
1. Merger Proposal. Proposal for the approval and adoption of an Agreement
and Plan of Merger, dated as of January 22, 1996 (the "Merger
Agreement"), by and between the Company and Efficiency Lodge, Inc., a
Georgia corporation ("ELI"), pursuant to which, among other things,
(i) ELI will be merged with and into the Company (the "Merger"); (ii)
shareholders of the Company will receive one share of Company Stock
outstanding after the proposed Merger for each one hundred shares held
prior to the Merger; (iii) in lieu of the issuance of fractional share
amounts there will be paid an amount equal to $.10 multiplied by the
number of shares held by each shareholder prior to the Merger and not
converted into a whole share; and (iv) shareholders of ELI will
receive 95% of the outstanding shares of Company Stock following the
Merger.
-- FOR -- AGAINST -- ABSTAIN
2. Articles Amendment Proposal. Proposal for the approval and adoption
of a restatement and amendment of the Company's Articles of Incorporation
to (i) add certain provisions regarding the limitation of a director's
liability for monetary damages for certain breaches of fiduciary duty;
(ii) consolidate the Articles into a single document; (iii) remove
certain obsolete provisions that have no relevance under current
Georgia law; and (iv) clarify that the duration of the Company is
perpetual.
-- FOR -- AGAINST -- ABSTAIN
3. By-Law Amendment Proposal. Proposal to amend Article III,
Section 1 of the Company's By-Laws to permit the annual meeting of the
Company's shareholders to be held in May of each year.
-- FOR -- AGAINST -- ABSTAIN
4. In accordance with their best judgment with respect to any
other matters that may property come before the board,
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" EACH OF THE PROPOSALS
DESCRIBED ABOVE AND IN THE PROXY STATEMENT AND, UNLESS INSTRUCTIONS TO
THE CONTRARY ARE INDICATED IN THE SPACE PROVIDED, THIS PROXY WILL BE SO
VOTED.
Please date and sign this Proxy exactly as name appears.
Signed:_______________________________
Dated:________________________________
NOTE: When signing as an
attorney, trustee, administrator
or guardian, please give your
title as such. In the case of
joint tenants, each joint owner
must sign.
