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 four
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." In the Merger, each one hundred shares
of the Company's common stock will be converted into one share of
stock in the surviving corporation. In lieu of the issuance of
fractional shares, each shareholder will instead receive an
amount in cash equal to $.10 in the Merger (the "Surviving
Corporation") multiplied by the shareholder's unconverted shares.
Shareholders with fewer than one hundred shares of common stock
in the Company will cease to be shareholders following the
Merger. The ELI shareholders will receive 95% of the shares in
the Surviving Corporation in exchange for their shares of stock
in ELI, and the SAC shareholders will hold 5% of the shares of
the Surviving Corporation. The Merger will result in a change in
control of the Company by causing the Company's shareholders to
hold collectively 5% of the Surviving Corporation and the two
shareholders of ELI to own the remaining 95% of the Surviving
Corporation. Under the Merger Agreement, four of the Company's
current directors will remain directors of the Surviving
Corporation following the Merger.
Under the second proposal (the "Articles Amendment
Proposal"), you will be asked to approve an amendment of the
Company's Articles. Under the proposal, the Articles will be
amended 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.
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.
Under the fourth proposal (the "Adjournment Proposal"), you
will be asked to approve a proposal to allow management of the
Company, in its discretion, to adjourn the Special Meeting to
permit the solicitation of additional Proxies in the event there
are not sufficient affirmative votes to approve the Merger,
Articles Amendment and By-Law Amendment Proposals.
<PAGE>
Your Board of Directors believes that the Merger Proposal,
the Articles Amendment Proposal, the By-Law Amendment Proposal
and the Adjournment 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. Approval
of the Adjournment Proposal requires that more shares of common
stock of the Company represented at the special meeting in person
or by proxy vote for the proposal than against it.
YOU ARE URGED TO READ CAREFULLY THE ENCLOSED PROXY STATEMENT
IN ITS ENTIRETY FOR A COMPLETE DESCRIPTION OF THE MERGER,
ARTICLES AMENDMENT, BY-LAW AMENDMENT AND ADJOURNMENT 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
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<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:
A proposal to approve and adopt an Agreement and Plan of
Merger, dated as of January 22, 1996, as amended, 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.;"
A proposal that the Company's Articles be amended in
accordance with the article amendment attached to the
enclosed Proxy Statement as Appendix B;
1.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;
2.A proposal that the Company's officers be allowed in their
discretion to adjourn the Special Meeting to solicit
additional Proxies; and
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 four 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, as amended (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. Under the Merger Agreement, each one
hundred shares of the Company Stock will be converted into one
share of the surviving corporation following the Merger (the
"Surviving Corporation"), and in lieu of issuing fractional
shares, the Company will pay shareholders $.10 multiplied by the
number of unconverted shares of Company Stock held by the
shareholder. Shareholders of the Company who hold fewer than one
hundred shares of Company Stock prior to the Merger will cease to
be shareholders of the Surviving Corporation following the
Merger. The Company's shareholders will collectively hold 5% of
the stock in the Surviving Corporation and the two shareholders
of ELI will hold the remaining 95% of the stock. 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 an
amendment to the Company's Articles to add 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 proposed article
amendment is attached to this Proxy Statement as Appendix B, and
any summary contained herein of the proposed article amendment is
qualified by reference to such article amendment.
<PAGE>
Under the third proposal (the "ByLaw 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.
Under the fourth proposal (the "Adjournment Proposal"),
holders of the Company Stock will be asked to approve a proposal
to allow management of the Company, in their discretion, to
adjourn the Special Meeting to permit the solicitation of
additional Proxies.
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.
_______________
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
<S> <C>
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Negotiation with ELI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Recommendations of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Effects of the Merger on the Company's Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Exchange of Stock Certificates and Payment of Cash in Lieu of Fractional Shares . . . . . . . . . . . . 12
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Material Federal Income Tax Consequences of the Merger . . . . . . . . . . . . . . . . . . . . . . . . 13
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
INFORMATION REGARDING THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Business of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Ownership of the Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY . . . 17
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
INFORMATION REGARDING ELI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Business of ELI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Extended Stay Lodging Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
The Efficiency Lodges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ELI . . . . . . . 25
DIVIDENDS ON AND MARKET PRICES OF THE COMPANY AND ELI COMMON STOCK . . . . . . . . . . . . . . . . . . . . 31
COMPARATIVE PER SHARE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
OPERATIONS AFTER THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Business of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Company Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
PROPOSAL TO AMEND AND RESTATE THE ARTICLES OF INCORPORATION OF THE COMPANY . . . . . . . . . . . . . . . . 37
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Recommendation of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Background and Reasons for the Articles Amendment Proposal . . . . . . . . . . . . . . . . . . . . . . 37
Effect of the Article Amendment Proposal on Shareholders . . . . . . . . . . . . . . . . . . . . . . . 38
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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<PAGE>
PROPOSAL TO AMEND ARTICLE III, SECTION 1 OF THE BY-LAWS OF THE COMPANY . . . . . . . . . . . . . . . . . . 39
INFORMATION CONCERNING ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
DATE FOR RECEIPT OF STOCKHOLDERS PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
INDEX TO FINANCIAL
STATEMENTS...................................................................................................F-1
AGREEMENT AND PLAN OF
MERGER........................................................................................APPENDIX A
PROPOSED ARTICLE
AMENDMENT.....................................................................................APPENDIX B
PROPOSED BY-LAW
AMENDMENT.....................................................................................APPENDIX C
TAX OPINION OF KILPATRICK & CODY..............................................................APPENDIX D
</TABLE>
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<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 2,619,453 shares of Company
Stock, a majority of the issued and outstanding shares, are
required to approve the Merger, Articles Amendment and Bylaw
Amendment Proposals. If a quorum is present, the Adjournment
Proposal will be approved if more votes are cast in favor of the
proposal than against it. Directors and executive officers of
the Company who own 347,698 shares, or 6.64% of the outstanding
Company Stock, have indicated that they will vote in favor of the
Merger, Articles Amendment, By-Law Amendment and Adjournment
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 Merger, Article Amendment and By-Law
Amendment Proposals but will have no effect on the outcome of the
vote for the Adjournment Proposal.
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, BY-LAW AMENDMENT AND ADJOURNMENT
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
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<PAGE>
Proxy, which are anticipated by the Company to be approximately
$75,000, 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.
PROPOSAL TO ADOPT AND APPROVE THE MERGER AGREEMENT
(ITEM 1)
General
The following is a brief summary of the material 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, as amended on June 11, 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 therefore, 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." Because the former shareholders of ELI will own 95%
of the shares of the Surviving Corporation following the Merger,
there will be a change in control of the Company if the Merger is
approved.
At the Effective Time, approximately 356 shareholders who
hold fewer than 100 shares of Company Stock will cease to be
shareholders of the Company, and the remaining shareholders of
the Company will own a significantly smaller percentage of the
Company than they did prior to the Merger. Four of the Company's
existing seven directors will continue to serve as directors of
the Surviving Corporation.
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<PAGE>
Parties
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
March 31, 1996, the total assets reflected on the Company's
balance sheets were $262,661. 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 March 31, 1996, the total assets reflected on ELI's
balance sheet were $10.3 million.
Background of the Merger
Background. In the early 1970's the Company encountered
financial difficulties related to its business of building and
operating motels and apartments, and in 1974 the Company declared
bankruptcy. In 1980 the Company emerged from bankruptcy, but its
poor financial performance continued because most of the
Company's properties had been sold in the bankruptcy proceedings,
leaving it with limited personnel and resources. Although
management of the Company worked to conduct the Company's
operations profitably and to realize increased value for the
Company's shareholders, the Company's business continued to
suffer because of insufficient resources and the general decline
in the real estate industry in Georgia in the late 1980s and
early 1990s. From time to time, the Company explored
opportunities to diversify its business. It became increasingly
apparent to the Board of Directors that the Company did not have
the financial resources and sufficient skilled personnel
necessary to compete in real estate sales or development or to
diversify the business of the Company. Although the Company kept
operating expenses to a minimum, such expenses continued to
exceed the Company's operating income. During the past eighteen
months, the Board began to consider a merger with another
enterprise.
The Board believes that if the Company were liquidated today
the shareholders would realize approximately $.03 a share
following payment of liquidation expenses. The Company's stock
is currently held by 3,770 shareholders, many of whom own fewer
than 1,000 shares. Such shareholders would receive $30 or less
in the liquidation, and most have a substantially higher basis in
their shares. Based on conversations with shareholders, the
Directors concluded that a majority would prefer to merge with
another company with a history of profitable operation and growth
than to receive a small amount of money for their stock. As a
result the Board began looking for a merger opportunity in late
1994.
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<PAGE>
The Company's few resources and small size limit its
opportunities. The Board soon found that there was little
interest in the Company's assets and none in its business
operations. The interest of potential merger partners appeared
to be solely in the Company's value as a public company. Because
of the Company's history of operations in real estate and the
directors' own knowledge of the real estate business, the Board
felt most qualified to evaluate merger possibilities with other
real estate companies.
During early 1995 the Company was approached by two
companies concerning a possible merger, one engaged in the used
car business (the "Used Car Company") and one engaged in the sale
of software products for telephone original equipment
manufacturers (the "Software Company"). The Used Car Company
offered to acquire the Company, but the Board believed its
acquisition offer was inadequate. The Used Car Company did not
make a counter-offer. The Board decided not to pursue that
possibility beyond the preliminary stage because (i) of the
inadequacy of the Used Car Company's initial offer, (ii) the Used
Car Company was located out-of-state and (iii) the Board was
uncomfortable investing in the used car industry. The Board did
not believe it was qualified to evaluate the opportunity with the
Software Company and therefore engaged R.J. Wareham & Company, an
investment banking firm, to assist it in analyzing the Software
Company. The investment banking firm advised the Board that the
merger held little upside potential for the Company's
shareholders and considerable risk based on the nature of the
Software Company's business. Also, following its investigation
of the Software Company, the Board did not believe that the
Software Company was financially sound. No offer was made by the
Software Company to acquire the Company. Because of the costs to
the Company of considering merger proposals and the Company's
continuing losses, the Board realized that it was in the interest
of the Company's shareholders to find an acceptable merger
prospect as quickly as possible.
Negotiation with ELI
Al Cochran, Chairman of the Board of the Company, and Roy
Barnes, Secretary/Treasurer of ELI, who were previously
acquainted, had informal discussions over the course of several
months in late 1994 and 1995 concerning the desire of Roy Barnes
and Ray Barnes to eventually conduct an initial public offering
for ELI. Eventually, Messrs. Cochran and Barnes began to discuss
informally the possibility of merging the Company and ELI so that
ELI could realize the benefits of being a public company and the
Company's shareholders could become part of a company with the
potential to grow. During the second quarter of 1995, the Merger
discussions continued and became more serious. Mr. Cochran
informed the Board of Directors of ELI's interest and was
authorized to negotiate on behalf of the Company.
From the second quarter of 1995 until the Merger Agreement
was signed in January of 1996, the parties held numerous informal
discussions concerning the possibility of the Merger. The
negotiations continued to be primarily conducted in a series of
informal telephone conversations by Roy Barnes on behalf of ELI
and Al Cochran on behalf of the Board of Directors of the
Company. Mr. Cochran informed the Board of Directors of the
Company of the status of discussions with ELI and received their
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recommendations regarding the negotiations at the regular board
meetings of the Company and in telephone conferences. The
discussions primarily concerned the structure of the transaction,
the relative financial positions of the parties and the
percentage of the Surviving Corporation to be owned by the SAC
and ELI shareholders respectively. The Board of Directors did
not retain an investment banking firm to assist them to evaluate
the ELI offer because, as discussed in further detail below,
members of the Board were generally familiar with the principals
of ELI and the ELI business. See "PROPOSAL TO ADOPT AND APPROVE
THE MERGER AGREEMENT -- Reasons For the Merger."
ELI's management believed that a merger with the Company
would be a relatively easy and inexpensive way to obtain access
to the public capital markets and would facilitate the
development of a public market for its shareholders' stock. ELI
placed little value on the Company's real estate assets and none
on the Company as an operating business. Accordingly, the ELI
shareholders were unwilling to give up more than five percent of
their company to effect the merger with the Company. In
addition, ELI's management desired for SAC to conduct a reverse
stock split as part of the Merger to reduce the number of
outstanding shares in the Surviving Corporation and because it
believed the reduction might help increase the market value of
the stock of the Surviving Corporation. See "PROPOSAL TO ADOPT AND
APPROVE THE MERGER AGREEMENT -- Reasons for the Merger." The
Board of Directors of the Company decided to accept the offer based
on the reasons set forth below.
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
Following is a discussion of the material factors considered
by the Board of Directors of the Company in determining to
approve the Merger and recommend it to the shareholders of the
Company.
The Board of Directors of the Company were generally
familiar with the business of ELI and believed it to have
considerable potential. They also knew Roy and Ray Barnes and
had confidence in their integrity and management skills. The
Directors believed that the ownership of five percent of a
profitable and growing company such as ELI could be worth much
more than the liquidation value of the Company. The Board's
judgment in this regard appears to have been confirmed by the
high valuations placed by the stock market in recent months on
other extended stay motel companies operating in the Atlanta
market.
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The Board recognizes that ELI may not achieve the same level
of success in the capital markets as its competitors, and the
Company's shareholders should consider the risks of the real
estate and motel industries in determining how to cast their
votes on the proposed merger. These risks include the
susceptibility of the extended-stay lodging industry to changes
in national, regional and local economic conditions, the
relatively illiquid nature of real estate holdings, the
possibility of an ongoing need for capital improvements of real
estate investments, and risks associated with real estate
development, including the risk of obtaining financing on
favorable terms, the possibility of costly delays and the
possibility that development costs will exceed budgeted amounts.
In addition, ELI's ability to manage its growth and to compete in
the expanded stay motel market has not been proven. The Board
also considered the fact that the two former ELI shareholders
would own 95% of the Surviving Corporation and consequently would
be able to elect sufficient directors to control the Surviving
Corporation's Board of Directors. The Company's success in the
future will be significantly dependent on the management skills
of Roy and Ray Barnes.
Based on the terms of the proposed Merger, the Company would
contribute less than five percent of the Surviving Corporation's
assets, but because ELI has a stockholder's deficit of $205,621
compared to the Company's stockholders' equity of $213,661 at
March 31, 1996, the book value of the Company's shareholders
would be substantially diluted. See "Unaudited Pro Forma
Financial Statements." However, the Company had revenues for the
quarter ended March 31, 1996 of $9,804, and a net loss of
$31,375, compared to ELI's revenues of $973,927, and net income
of $158,384. In passing judgment on the proposed Merger, the
Board of Directors of the Company carefully considered the track
record of ELI, it plans for growth, and its potential. The Board
believed that the only course open to the Company in the absence
of a merger would be liquidation. The Board of Directors of the
Company concluded after thoughtful deliberation that the
shareholders would benefit more from owning a small interest in
an expanding company than from the liquidation of the Company.
Consequently, the Board of Directors decided to approve the
Merger and to recommend the Merger to the Company's shareholders.
The Company anticipates that the legal, accounting and other fees
associated with the Merger and other Proxy solicitation expenses
will total approximately $75,000.
The Board also evaluated the reduction of each one hundred
shares of Company Stock to one Post-Merger Share and concluded
that the conversion might help to increase the market value of
the Company Stock following the Merger. 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. 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.
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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.
Management of ELI has announced its intention, following the
Merger, to explore raising additional capital for the Surviving
Corporation and to develop a trading market for the Company
Stock. Based on the foregoing the Board 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. If the
Merger is not approved, the Company intends to immediately
commence the liquidation process. The Company believes that if
the Company were liquidated today, the shareholders would realize
approximately $.03 per share in the liquidation process following
the payment of liquidation expenses.
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. At December 31, 1995, the assets
reflected on the Company's balance sheet totaled approximately
$298,628, while the assets reflected on ELI's balance sheet
totaled approximately $10.3 million. In addition, during the
year ended December 31, 1995, the Company had net operating
revenues of $224,574, compared to ELI's net operating revenues
for the year ended December 31, 1995 of $3,249,952. Thus, the
existing shareholders in the Company will hold a substantially
smaller interest in the Surviving Corporation, which will have
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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.
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 $417,000 to approximately $104,000 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 net fair value of
the Company's assets and liabilities received by the Surviving
Corporation upon the issuance of all currently outstanding
Company Stock, will be reduced to approximately $208,000.
The Merger Agreement
General. The following is a brief summary of the material
terms 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.
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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 share 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."
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 parties negotiated the fractional share price of $.10 per
share of the Company Stock based upon the price paid by the
Company on February 19, 1994 to a shareholder for redemption of
such shareholder's shares, which is the only relatively recent
trade of the Company's stock of which the Company is aware. A
more current valuation for the fractional share amount was not
used because no such valuation was available. Based on the
Company's book value per share, management of the Company does
not believe that a valuation would have supported a higher
fractional share price.
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
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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 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
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"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:
(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
toAugust 31, 1996 (the "Termination Date"); (ii) the shareholders
of the Company fail to approve any of the proposals described
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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 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
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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. The Company Stock is currently held
by 3,770 shareholders, and following the Merger the Company Stock
will be held by approximately 3,400 shareholders.
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
currently directors of ELI. Each of them abstained from the vote
by the Board on the Merger Proposal. No shareholders, directors
or officers of the Company own any shares of ELI.
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 Company Stock following
the Merger, or approximately 496,000 Post-Merger Shares,
respectively. At March 31, 1996, the Company's book value was
$213,161, and ELI's book value was ($205,621). Based solely on
the pro forma book value of the Surviving Corporation, the Barnes
would have collectively held an investment with a book value of
approximately ($89,357) had the Merger been completed at
March 31, 1996, compared to the book value of ELI at March 31,
1996 of ($205,621). See "Unaudited Pro Forma Financial
Statements."
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 that will be
converted into shares of the Surviving Corporation in the Merger
on the same terms as shares of Company Stock held by shareholders
of the Company generally. See "INFORMATION REGARDING THE COMPANY
- -- Ownership of the Common Stock." In the Merger, approximately
298 shares of Company Stock held by officers, directors and
holders of greater than 5% of the Company Stock will be converted
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into $29.80 in lieu of the issuance of fractional shares, and the
remaining 347,698 shares held by them will be converted into
3,473 shares, or less than 1% of the outstanding shares, in the
Surviving Corporation.
Expenses
Each of the Company and ELI will pay its own expenses
incurred in connection with the Merger, Merger Agreement and the
transactions contemplated thereby. Management anticipates that
the Company's legal, accounting and other expenses related to the
Merger will total approximately $75,000.
Material Federal Income Tax Consequences of the Merger
The Company has received an opinion of Kilpatrick & Cody,
Atlanta, Georgia, to the effect that, assuming the Merger is
consummated in accordance with the Merger Agreement:
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 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.
The opinion of Kilpatrick & Cody is based upon certain
assumptions and representations with respect to factual matters
which are required to 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
THE MATERIAL 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
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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
Based on the comparative size of the holdings of the
shareholders of each company after the merger, ELI is considered
to be the acquiring company and the Company is the acquired
company under generally accepted accounting principles. The
transaction will be accounted for as a purchase transaction
pursuant to generally accepted accounting principles. The assets
and liabilities of ELI will be recorded by the Surviving
Corporation at the same amounts currently recorded by ELI. ELI's
accumulated deficit will also be recorded by the Surviving
Corporation. The Merger will result in a change of ELI's tax
status from a nontaxable to a taxable entity. Accordingly, a
deferred tax liability of approximately $162,000 will be recorded
by the Surviving Corporation to reflect this change.
The assets and liabilities of the Company will be recorded
by the Surviving Corporation at their fair values. The common
stock of the Surviving Corporation will be recorded at an amount
equal to the par value of all shares issued. The net difference
of all of the above amounts will be recorded as additional paid-
in capital. Revenues and expenses recognized by ELI since the
beginning of its fiscal year will be recognized by the Surviving
Corporation. Revenue and expenses recognized by the Company
prior to the merger will not be recognized by the Surviving
Corporation.
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.
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<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. As of
March 31, 1996, the book value of the Company's assets was
$213,161. 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. This
property constitutes substantially all of the assets of the
Company and is subject to a mortgage, the balance of which as of
March 31, 1996 was approximately $41,600. The mortgage on the
property accrues interest at the rate of 10% per year, and will
mature in 2004.
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<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 March 31, 1996, 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 current
directors of the Company; (iii) the Company's current Chief
Executive Officer; and (iv) all of the current 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.
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<PAGE>
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<F1> * 1 *
Harry W. Chappell, Jr. 17,139<F2> * 171 *
Joseph A. Cochran 34,838<F3> * 348 *
Arthur L. Crowe, Jr. 21,186 * 211 *
Wesley Howard Stembridge 2,704 * 27 *
Dr. Roy W. Sweat, D.C. 270,698<F4> 5.17% 2,706 *
Ken F. Thigpen 1,030 * 10 *
All executive officers and directors of 347,698 6.64% 3,473 *
the Company as a group (a total of 7
persons)
* Less than one percent.
<FN>
<F1> Owned by Mrs. Byers jointly with her husband.
<F2> Owned by Mr. Chappell jointly with his wife.
<F3> 25,550 shares are owned by Mr. Cochran jointly with his wife.
<F4> Dr. Sweat's address is 4735 River Court, Duluth, Georgia, 30136.
</FN>
</TABLE>
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. For
information concerning stock ownership of Messrs. Barnes and Ms.
Bone in the Surviving Corporation following the Merger, see
"PROPOSAL TO ADOPT AND APPROVE THE MERGER AGREEMENT -- Operations
After the Merger -- Ownership of Stock of the Surviving
Corporation."
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.
Although the Company sold a piece of investment property and two
pieces of property held for resale at gains during 1995, the
Company experienced a net loss for the eighth consecutive year.
During 1995 the Company changed its fiscal year from September 30
to December 31 in anticipation of the Merger.
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<PAGE>
Results of Operations
Years Ended December 31, 1995, September 30, 1994 and
September 30, 1993, and Transition Quarter Ended December 31,
1994. Interest income declined steadily during each of the
captioned periods as the Company collected its notes receivable.
Also, there was a general decline in rental income as the Company
was unable to replace tenants who vacated and sales commissions
fluctuated along with the residential sales market. The
Company's results of operations for 1995 were further negatively
impacted by the write down of its remaining piece of investment
property to the property's net realizable value. The Board
decided to sell the property and invest the proceeds after
receiving a lower appraisal of the property in 1995. The value
of the property declined as a result of water shortages following
an increase in commercial use of water in the area. The property
was sold in early 1996 for its net realizable value.
Operating revenues for the year ended December 31, 1995
increased 164% over the year ended September 30, 1994 due
primarily to sales of two pieces of property for resale compared
to a 16% increase of fiscal 1994 over fiscal 1993. Operating
revenues for the fiscal year ended September 30, 1993 decreased
10% over the fiscal year ended September 30, 1992 due to a
decrease in sales commissions and rental income. There were no
such sales in either the year ended September 30, 1994 or the
transition quarter ended December 31, 1994, although there was a
significant gain on the sale of some investment property in
fiscal 1994. There was a small gain on the sale of a piece of
property in the Company's inventory during fiscal 1993. Costs
and expenses for the year ended December 31, 1995 increased 152%
over the year ended September 30, 1994 due primarily to the cost
of sales of property held for resale, for which there were no
comparable transactions in either the year ended September 30,
1994 or the transition quarter ended December 31, 1994 and to the
$50,294 write-down of investment property to its net realizable
value. During 1995, the Board of Directors concluded that it
would be in the best interests of the shareholders to merge the
Company with ELI. Work was commenced on the legal and accounting
matters necessary to present the merger to a vote of
shareholders, resulting in a 16% increase in administrative and
general expenses due to increased legal and accounting fees.
Administration and general expenses for the year ended September
30, 1994 increased 24% over fiscal 1993 due primarily to a $5,679
increase in commissions paid for real estate sales, $5,577 of
expenses incurred in an abandoned attempt to enter the electronic
health claim filing business, a $5,454 increase in advertising,
and the $6,609 loss incurred in the repossession of property
previously sold. Costs and expenses decreased by 9% in fiscal
1993.
Although the Company continues to experience losses from
operations, the Company has been able to continue its operations
and generate cash flow by collecting receivables, rents and sales
commissions. The Company has also occasionally sold parcels of
real property held by it.
Quarters Ended March 31, 1996 and 1995. Operating revenues
for the quarter ended March 31, 1996 decreased 926% from the
quarter ended March 31, 1995, due in part to a 54% decrease in
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<PAGE>
rental income, as described below, and in part to the fact that
there were no sales of property held for resale during the
quarter ended March 31, 1996 compared to the sale of a lot and
house during the quarter ended March 31, 1995. Rental income for
the quarter ended March 31, 1996 decreased from the corresponding
quarter in the preceding year due to the loss of a tenant in its
office building and also to the sale of a piece of adjacent
rental property. This decrease in revenue was compensated for by
$6,242 in commissions earned from residential sales activity
during the quarter ended March 31, 1996 compared to an uneventful
corresponding quarter in the preceding year. Although the Company
is exercising tight expense controls, it continues to suffer from
a lack of sufficient operating revenues to cover administrative
and general expenses.
Liquidity and Sources of Capital
The ratio of current assets to current liabilities was 19 to
1 at March 31, 1996; 9 to 1 at December 31, 1995; 7 to 1 at
December 31, 1994; 24 to 1 at September 30, 1994; and 2 to 1 at
September 30, 1993. The Company hopes to use some of its funds
to buy and sell property at a profit. There is no assurance,
however, that such transactions will be consummated. Management
anticipates that some of the Company's funds will continue to be
used to pay legal, accounting and other expenses in connection
with the proposed Merger.
SELECTED CONSOLIDATED HISTORICAL
FINANCIAL DATA OF THE COMPANY
The following selected consolidated financial data for the
four fiscal years ended September 30, 1994, the transition
quarter ended December 31, 1994 and the fiscal year ended
December 31, 1995, 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 financial data as of and for the quarter ended March
31, 1996 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. The pro
forma selected financial data for the quarter ended March 31,
1996 has been derived from the unaudited pro forma condensed
financial statements and reflects in the opinion of management,
all adjustments (consisting of normal accruals) considered
necessary for a fair presentation.
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<PAGE>
Southern Acceptance Corporation And Subsidiaries
<TABLE>
<CAPTION>
Pro Forma
Quarter Ended Year Ended Quarter Ended Combined For
March 31 December 31, December 31, Year Ended September 30, Quarter Ended
----------------------------------- March 31
1996 1995 1994 1994 1993 1992 1991 1996
----------- ----------- --------- ------- ------- ------ -------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net operating revenues $9,804 $224,574 $16,225 $85,072 $73,548 $81,103 $109,229 $973,927
Income (Loss) from continuing (31,375) (156,302) (27,337) (66,061) (75,247) (81,780) (76,357) 89,009
operations
Total assets 262,661 298,628 497,689 499,692 751,103 742,154 869,834 10,707,797
Current portion of long-term 3,693 3,603 5,958 4,814 4,279 3,806 3,388 607,741
debt
Long-term debt, less current 37,985 38,943 59,431 60,726 65,540 69,820 73,626 9,709,848
maturities
Income (Loss) from continuing (.01) (.03) (.01) (.01) (.01) (.01) (.01) .08
operations per common share
Net income (loss) per common share (.01) (.03) (.01) (.01) (.01) (.01) (.01) .08
Cash dividends per common .00 .00 .00 .00 .00 .00 .00 .00
share
Average number of common and 5,238,905 5,238,905 5,238,905 5,591,129 6,157,204 6,157,204 6,157,204 1,044,620
common equivalent shares
outstanding
</TABLE>
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 March 31, 1996, 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. 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.
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<PAGE>
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 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.
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 March 31, 1996,
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 Lodges
owned by ELI:
East Point Lodge. This two-story Lodge is located at 1275
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<PAGE>
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 March 31, 1996 of approximately $885,090.
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
March 31, 1996 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 March 31, 1996
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 with an outstanding balance at
March 31, 1996 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 March 31,
1996 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 at
March 31, 1996, with an outstanding balance of approximately $1.5
million.
Total debt of ELI as of March 31, 1996 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 March 31, 1996 of $561,702, and the note
balance is included in the description of both of the properties
above.
As of March 31, 1996 there were no lease agreements in
effect for any of the Lodges, nor any contracts in place to sell
any such properties.
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<PAGE>
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. 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
As of March 31, 1996, a new Lodge was under development in
DeKalb County, Georgia, by Efficiency Lodge of DeKalb, Inc.
("ELI-DeKalb"), a corporation owned by ELI's sole shareholders,
Roy Barnes and Ray Barnes. As with the development of past
Lodges, Messrs. Barnes have formed a new corporation for purposes
of obtaining construction financing and developing the proposed
Lodge. ELI and ELI-DeKalb have entered into a letter agreement
pursuant to which ELI-DeKalb has agreed to transfer the Lodge for
no consideration to ELI when it has been built and ELI has agreed
to assume all of the obligations of ELI-DeKalb with respect to
the Lodge. As of June 1, 1996, construction on the Lodge, which
will contain 100 guest rooms, has begun, and management
anticipates that construction will be complete and the Lodge will
be transferred to ELI, during the third quarter of 1996.
Construction of the Lodge is being financed by a $1.5 million
dollar construction loan with a permanent provision by Columbus
Bank & Trust, which loan will be assumed by ELI when the new
Lodge is acquired by it.
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.
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<PAGE>
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.
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 March 31, 1996, ELI did not have any employees.
Instead, ELI leased approximately 38 full-time employees,
including members of management, pursuant to an agreement with
Team Staff. Under ELI's agreement with Team Staff, ELI selects
its employees who are hired by Team Staff, which provides
administrative services and is responsible for the payment of all
employee wages, payroll taxes and employee benefits. ELI also
occasionally hires part-time employees through Team Staff. ELI
has elected to lease employees to minimize its administrative
expenses and to take advantage of economies of scale offered by
Team Staff in providing workers' compensation insurance, employee
benefits and administrative services. ELI is charged a fee for
the employee and administrative services received. The fee is
based on the hourly rate of the employee and hours worked plus a
percentage of gross wages for payroll taxes, insurance and other
benefits. The lease was renewed on May 1, 1996 and may be
terminated by ELI on May 1, 1997. 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
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<PAGE>
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.
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 June 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
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<PAGE>
daily basis.
The following comments on the financial condition and the
results of operations for the full 1994 and 1995 fiscal years,
and the three months ended March 31, 1995, and 1996, 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, 1995 and 1994. Operating
revenue for 1995 was $3,292,952, compared with $2,641,091 for
1994, an increase of $651,861, which can be attributed to the
purchase of the Bartow Lodge in June of 1995 and the assumption
of management of operations of the West Georgia Lodge. Prior to
July of 1995 when ELI began operating the West Georgia Lodge, ELI
had a leasing contract which generated fixed monthly revenue of
$17,000. When ELI took over the operations of the West Georgia
Lodge, the Lodge generated $253,458 in additional revenue. The
West Georgia Lodge and the Bartow Lodge account for 89% of the
increase in revenue. The remaining 11% is attributable to
increases in occupancy.
ELI experienced an increase in operating expenses of
approximately 32% from 1994 to 1995. 72% of the increase is due
to the purchase of the Bartow Lodge and from managing the
operations of the West Georgia Lodge in 1995. The following is a
detail of increased expenses relating to the purchase of Bartow
Lodge and the assumption of management of West Georgia Lodge:
Advertising $ 6,719
Auto 1,632
Bonuses 7,969
Cable TV Expense 6,718
Depreciation 82,983
Employee Leased Expense 102,930
Maintenance Supplies 33,655
Management Fee 21,899
Office Expense 2,378
Pest Control 1,841
Subcontractor 10,338
Telephone 20,238
Utilities 48,044
The remaining increase consists primarily of increases (or
decreases) in the following expenses, which account for 28% of
the total increase in operating expenses:
Compensation Costs $ 54,738
Depreciation (17,068)
Supplies 20,231
Legal & Professional 28,987
Cable TV 9,583
Utilities 28,940
Advertising 10,964
Compensation costs increased primarily due to an increase in
management fees of $24,019 and an increase in employee lease
expense of $22,113, which was primarily attributable to increases
in employee bonuses that are tied to revenues and therefore
increased with the increase in revenues. Legal and professional
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<PAGE>
fees increased due to additional services required in connection
with the proposed Merger. Supplies, cable TV, and utilities also
increased, partially due to the 3% increase in occupancy.
Interest expense for 1995 and 1994, respectively, was
$1,039,805 and $781,351, an increase of $258,454. ELI's lodge-
related debts increased from 1994 to 1995 by $2,060,941. The
increase in debt was due primarily to the purchase of the Bartow
Lodge.
Quarters Ended March 31, 1996 and 1995. Operating revenues
for the three months ended March 31, 1996 and 1995, respectively,
were $973,927 and $642,636, an increase of $331,291.
Approximately $310,735, or 94% of the total increase, is
attributable to the purchase of Bartow Lodge and ELI's assumption
of management of operations of West Georgia Lodge.
Total operating expenses increased from March 31, 1995 to
March 31, 1996 by $169,053. As a percentage of revenue, these
expenses increased by approximately 17%.
Lodge-related debt at March 31, 1996 exceeded that at March
31, 1995 by $2,045,074. This increase in debt is due to the
purchase of the Bartow Lodge. See "Liquidity and Capital
Resources." Interest expense for the quarter ended March 31,
1996 exceeded that for the quarter ended March 31, 1995 by
$47,150. Interest expense as a percentage of total debt
increased by .46% from March 31, 1995 to 1996.
General
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.
-28-
<PAGE>
Following is a breakdown of the average occupancy rate per
Lodge during the quarter ended March 31, 1996 and the years ended
December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Quarter Ended Years Ended December 31,
March 31, 1996 1995 1994 1993
-------------- ---- ---- ----
<S> <C> <C> <C> <C>
East Point Lodge 98.8% 98.9% 99.8% 99.5%
Douglasville Lodge 93.1 88.7 92.0 78.3
Fulton Lodge 92.8 90.1 79.9 78.2
Forest Park Lodge 99.8 99.8 99.8 99.6
Bartow Lodge 91.7 <F1> <F1> <F1>
West Georgia Lodge 87.7 <F2> <F2> <F2>
<FN>
<F1> Average occupancy rates preceding the purchase of Bartow
Lodge by ELI are unknown to management of ELI. The average
occupancy rate from July through December 1995 was 91.4%.
<F2> West Georgia Lodge was leased for operation to an unrelated
third party prior to July 1995, and the occupancy rates are
unknown for December 1992 through June 1995. The occupancy
rate for July through December 1995 was 90%.
<F3> Occupancy rates were determined by dividing the total number
of guest rooms sold by the total number of available guest
rooms for the applicable period.
</FN>
</TABLE>
The following table sets forth the average weekly and annual
rates per available room and revenue per available room for all
of the Lodges operated by ELI during the quarter ended March 31,
1996 and the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Quarter Ended Year Ended December 31,
March 31, 1996 1995 1994 1993
-------------- ---- ---- ----
<S> <C> <C> <C> <C>
Average weekly rental $108.93 $106.50 $108.87 $99.59
Annual average rate 56.64 55.38 56.61 51.79
Revenue per available
room 101.72 98.81 98.96 85.59
</TABLE>
Average weekly rates are determined by dividing room revenue
by guest rooms sold and multiplying by seven. Average annual
rate is determined by multiplying the average weekly rate by
52. Weekly revenue per available room is determined by dividing
room revenue by the number of available guest rooms and
multiplying by seven.
-29-
<PAGE>
The increase in occupancy from the year ended December 31,
1993 through the year ended December 31, 1995 can be attributed
to the increased market demand as well as the competitive rate
and attractiveness of the Lodges. Management believes that the
demand for the "extended stay" accommodations will continue to
rise because guests will continue to be attracted to the
affordable rates, amenities and convenience of the Lodges.
However, there is no assurance that the occupancy rates will
continue to increase.
Set forth below is the amount of annual realty taxes paid
for each Lodge in 1995:
Year ended December 31, 1995
----------------------------
East Point Lodge $10,071
Douglasville Lodge 20,216
Fulton Lodge 29,002
Forest Park Lodge 18,682
Bartow Lodge 13,397
West Georgia Lodge 20,639
No realty improvements are proposed with respect to any of
the Lodges.
ELI calculates depreciation for book and federal tax
purposes using an accelerated method. At December 31, 1995, ELI
calculated depreciation for federal tax purposes as follows:
<TABLE>
<CAPTION>
Cost Life in Yrs. Method
---------- ------------ -------------
<S> <C> <C> <C>
Buildings $8,680,967 31.50 Straight line
Furniture & fixtures 1,138,259 5-7 Double declining balance
</TABLE>
Liquidity and Capital Resources
ELI has historically funded its operations primarily with
cash flow from operations. For the year ended December 31, 1995,
ELI generated $506,519 in cash flow from operations compared to
$615,952 for the year ended December 31, 1994. Although
operating profits increased by $147,803 in 1995, interest expense
increased by $258,454, leading to an approximate $110,000
decrease in net cash from operating activities. The Company had
cash balances of $6,933 and $84,064 at December 31, 1994 and 1995
respectively. For the three months ended March 31, 1995 and
1996, net cash provided by operating activities was $224,323 and
$289,960, respectively. Operating profit for this period as a
percent of revenue was approximately 41% and 43%, respectively,
with net earnings at approximately 6% and 16%, respectively.
Interest paid during the three months ended March 31, 1995 as a
percentage of revenue was 24% compared to 20% for the three
months ended March 31, 1996. ELI's cash balances at March 31,
1995 and 1996 were $178,227 and $269,194.
Historically, ELI has funded the development of the Lodges
principally from borrowings. As of March 31, 1996, ELI had
outstanding indebtedness on its six Lodges of approximately $10.3
-30-
<PAGE>
million. In 1994 the Company used $58,310 in cash for investing
activities contrasted with $2,480,329 in 1995. This increase is
largely due to the purchase of Bartow Lodge, an existing
facility, in June of 1995. Although there were no loan proceeds
in 1994, in 1995 proceeds from notes payable were approximately
$2.3 million, primarily due to the purchase of Bartow Lodge.
Debt reduction used cash of $377,857 and $321,962 in 1994 and
1995 respectively, and distributions to shareholders were
$200,000 and $10,000 for the same period. Without any cash flow
from financing during 1994, ELI used cash in financing activities
of $598,857. In 1995, borrowings to purchase Bartow Lodge
resulted in net cash provided by financing of $2,050,941. There
are no material unused sources of liquidity.
ELI anticipates building or acquiring additional Lodges in
the future and may seek to do so by incurring debt, by exchanging
capital stock, through cash flow or by or issuing equity. See
"OPERATIONS AFTER THE MERGER -- Business of the Surviving
Corporation." A Lodge is being constructed in DeKalb County
Georgia by ELI-DeKalb, a corporation owned by the sole
shareholders of ELI. See "Operations Following the Merger."
This Lodge will be transferred to ELI following construction, and
ELI will assume all of the related obligations, including a $1.5
million mortgage. Management believes that no additional
financing will be required for this Lodge and that its income
from operations will be sufficient to fund its working capital
and debt amortization requirements. Other than the DeKalb Lodge,
ELI has no current commitments for the purchase or construction
of any facility.
ELI anticipates that the cash flow from operations will be
sufficient to meet its current and future working capital needs.
Management intends for financing to be utilized only for the
acquisition or construction of new Lodges and not for working
capital. Management's anticipation of meeting working capital
needs through current operations is based on the past performance
of the Lodges, which have not historically required borrowings to
finance working capital needs. However, there can be no
assurance in the future that any new or existing facility will be
able to fully fund its working capital through operations.
There are no future short-term financing commitments and,
except for DeKalb Lodge, as noted above, ELI has no commitments
for additional future long-term financing. It may, however, seek
to increase its debt, issue equity securities or negotiate
additional debt. Any such commitment would be subject to such
terms as approved by ELI's Board of Directors.
Two risk factors which may effect costs related to
operations and development, and thus affect liquidity, are
increases in interest rates and inflation. Management of ELI
recognizes these factors and intends to manage to reduce these
risks. However, there can be no assurance that present or future
performances will be in accordance with the management's
expectations.
Transactions with Related Parties
At March 31, 1996, ELI held an unsecured note receivable of
Ray Barnes, a fifty percent shareholder of ELI, in the principal
amount of $470,000. The Note bears interest at 7% and matures on
February 14, 1998. At March 31, 1996, Mr. Barnes also owed
accrued interest on the note totaling $66,864. In addition, at
March 31, 1996, a $156,691 receivable was due from Mr. Barnes to
ELI. This receivable is unsecured and does not bear interest.
At March 31, 1996, there were no specified repayment terms with
respect to the receivable.
During the 1995 fiscal year, management fees totaling
$117,500 were paid to Ray Barnes by ELI to compensate him for
management services rendered to the Corporation. The fees were
not paid pursuant to a management contract.
-31-
<PAGE>
DIVIDENDS ON AND MARKET PRICES OF
THE COMPANY AND ELI COMMON STOCK
There is no public trading market for the Company Stock. As
of March 31, 1996, there were 5,238,905 outstanding shares of
Company Stock and 3,335 holders of record of such shares.
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 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
March 31, 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.
-32-
<PAGE>
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.
-33-
<PAGE>
COMPARATIVE PER-SHARE DATA
<TABLE>
<CAPTION>
Company ELI
---------------------------- -----------------------------
Pro Forma Pro Forma
Historical Equivalent<F1> Historical Equivalent<F2>
---------- ------------- ---------- --------------
<S> <C> <C> <C> <C>
Book value per share as of $0.04 $-0- $(228.47) $(99.29)
March 31, 1996
Cash dividends declared per share:
For the year ended -0- -0- -0- -0-
December 31, 1995
For the three months ended March 31, -0- -0- -0- -0-
1996
Income (loss) per share from continuing
operations:
For the year ended (0.03) -0- 166.73 (42.59)
December 31, 1995
For the three months ended (0.01) -0- 110.43 93.95
March 31, 1996
<FN>
<F1> Company pro forma equivalent amounts were computed based on
the pro forma financial statements included elsewhere in
this Proxy Statement and the percentage of the Surviving
Corporation that will be owned by Company shareholders (5%).
Each of the computed amounts is less than one-half cent per
share. The Company pro forma equivalent amounts do not
reflect the 1-for-100 stock split.
<F2> ELI pro forma equivalent amounts were computed based on the
pro forma financial statements included elsewhere in this
Proxy Statement and on the percentage of the Surviving
Corporation that will be owned by ELI shareholders (95%).
ELI stockholders will receive approximately 1102.66 shares
of Company stock for each one share of ELI stock.
</FN>
(/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.
-34-
<PAGE>
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 March 31, 1996, ELI had debt of approximately $10.3
million related to financing the construction of facilities, and
the Surviving Corporation may seek to borrow additional amounts
to fund investments in additional Lodge properties.
A Lodge is under construction in DeKalb County, Georgia, by
ELI-DeKalb, a corporation owned by the sole shareholders of ELI.
The Lodge will be transferred to ELI and ELI will assume all of
the obligations of ELI-DeKalb with respect thereto, including a
$1.5 million mortgage, upon completion of the project, which is
anticipated to occur in the third quarter of 1996. ELI is also
currently contemplating developing additional Efficiency Lodges
in Columbus, Georgia, Columbia, South Carolina and 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.
-35-
<PAGE>
The following table sets forth certain information, as of
December 31, 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.
</TABLE>
<TABLE>
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. A director of the Company since 1994,
(71) 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 Mr. Cochran has been director of the
(65) 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.
-36
<PAGE>
Dr. Roy W. Sweat, Dr. Sweat has been a director of the
D.C. (68) 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
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.
Stock Ownership. The following table sets forth the number
of shares and percentage of outstanding shares of the Company
Stock that will be beneficially owned following consummation of
the Merger (based on the number of shares of the Company and ELI
held at March 31, 1996) by: (i) each person who will
beneficially own more than 5% of the stock of the Surviving
Corporation; (ii) each of the directors of the Surviving
Corporation; (iii) the Chief Executive Officer of the Surviving
Corporation; and (iv) all of the directors and executive officers
of the Surviving Corporation as a group.
<TABLE>
<CAPTION>
Name of Beneficial Shares Beneficially Owned Percent
Owner Following the Merger of Class
- ----------------- ------------------------- ---------
<S> <C> <C>
Roy E. Barnes 496,195 47.50%
W. Ray Barnes. 496,195 47.50%
C. Annette Bone 84 *
Arthur L. Crowe, Jr. 211 *
Joseph A. Cochran 347 *
Ken F. Thigpen 10 *
Dr. Roy W. Sweat, D.C. 2,706 *
All officers and directors 995,478 95.3%
as a group (7 persons)
______________
*Less than one percent
</TABLE>
-37-
<PAGE>
PROPOSAL TO AMEND THE ARTICLES OF
INCORPORATION OF THE COMPANY
(ITEM 2)
General
Under the Articles Amendment Proposal, the Articles will be
amended to add a new Article 11 limiting 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. The following summary of the material features
of the proposed amendment to the Articles is qualified in all
instances by reference to the proposed Article amendment, 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 Article amendment is 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 Article Amendment 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.
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
amendment becomes 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
-38-
<PAGE>
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. Although the
Company has not experienced difficulties in recruiting or
retaining directors as a result of the current provisions in the
Articles regarding director's liability, the Company's Board
believes that such difficulties could be encountered in the
future. 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.
Effect of the Articles 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
-39-
<PAGE>
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 Article amendment. 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.
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.
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.
The Board of Directors has concluded that it is desirable
that the Company's Annual Meeting be held in May of each year
rather than in March. During 1995, the Company changed from a
fiscal year ending September 30, to a fiscal year ending
December 31. Although 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. The Company has been advised that under Federal
securities laws and regulations, an Annual Report to Shareholders
containing audited financial statements must accompany any proxy
statement for a meeting of shareholders at which directors will
be elected. Because the Company's fiscal year now ends on
December 31, management believes it is unrealistic to expect that
the auditors of the Surviving Corporation would be able to
complete an audit in time to mail an Annual Report to
-40-
<PAGE>
Shareholders prior to a March Annual Meeting. Management also
believes that it is in the best interests of the Company and its
shareholders to allow the new management of the Surviving
Corporation time 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
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.
PROPOSAL TO PERMIT MANAGEMENT OF THE COMPANY TO ADJOURN THE
SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES
(ITEM 4)
If there are an insufficient number of affirmative votes to
approve the Merger Proposal, the Articles Amendment Proposal or
the By-Law Amendment Proposal, management of the Company may seek
to adjourn the Special Meeting to permit solicitation of
additional Proxies. The place and date to which the Special
Meeting would be adjourned would be announced at the Special
Meeting. In the event of such an adjournment, the Company would
not be obligated to notify shareholders not attending the Special
Meeting of the adjournment or to fix in advance thereof a new
record date. Such an adjournment would not invalidate any
Proxies previously filed.
The affirmative vote of a majority of the shares of the
Company Stock represented in person or by proxy at the Special
Meeting is required for approval of the Adjournment 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 proposal or abstains from voting
by marking the appropriately designated block on the Proxy.
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
-41-
<PAGE>
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 for the year ended December 31, 1995 have been
audited by Grant Thornton, L.L.P., and the audited financial
statements of ELI included in this Proxy Statement for the year
ended December 31, 1994, have been audited by Moore & Cubbedge,
each 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 firms 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
-42-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Historical Financial Statements: Page
Southern Acceptance Corporation
Report of Independent Auditors.......................F-1
Consolidated Balance Sheets as of December 31,
1995, December 31, 1994 and
September 30, 1994 ..................................F-2
Consolidated Statements of Operations and
Retained Earnings For the Years Ended
December 31, 1995 and September 30, 1994
and 1993 and the Quarter Ended December
31, 1994...........................................F-4
Consolidated Statements of Cash Flows For the
Years Ended December 31, 1995 and
September 30, 1994 and 1993 and the
Quarter Ended December 31, 1994....................F-5
Notes to Consolidated Financial Statements............F-6
Consolidated Balance Sheets as of March 31, 1996,
and 1995 (unaudited)................................F-10
Consolidated Statement of Operations and Retained-
Earnings for the Quarters Ended March 31, 1996
and 1995 (unaudited)..............................F-12
Consolidated Statement of Cash Flows for the
Quarters Ended March 31, 1996 and 1995
(unaudited)........................................F-13
Notes to Interim Consolidated Financial
Statements (Unaudited).............................F-14
Efficiency Lodges, Inc.
Report of Independent Certified Public
Accountants...........................................F-15
Independent Auditor's Report..........................F-16
Balance Sheets For the Years Ended December
31, 1995 and 1994 and the Three Months
Ended March 31, 1996 (unaudited)...................F-17
Statements of Income For the Years Ended
December 31, 1995 and 1994 and the Three
Months Ended March 31, 1996 and 1995
(unaudited)........................................F-18
Statements of Stockholders' Equity For the
Years Ended December 31, 1993, 1995 and
1994 and the Three Months Ended March 31,
1996 (unaudited)...................................F-19
Statements of Cash Flows For the Years Ended
December 31, 1995 and 1994 and the Three
Months Ended March 31, 1995 and 1996
(unaudited)........................................F-20
Notes to Financial Statements.........................F-22
Bartow Lodge (A division of Sound Builders & Investment
Corporation)
Report of Independent Certified Public
Accountants........................................F-28
Statement of Operations For the Period
January 1, 1995 through June 15, 1995..............F-29
Statement of Cash Flow for the Period January 1,
1995 through June 15, 1995.........................F-30
Statement of Changes in Division Equity for the
Period January 1, 1995 through June 15, 1995.......F-31
Notes to Financial Statements.........................F-32
<PAGE>
Unaudited Pro Forma Financial Statements
Unaudited Pro Forma Condensed Combined Balance
Sheet - March 31, 1996.............................F-33
Unaudited Pro Forma Condensed Combined Statement
of Operations For the Year Ended December 31,
1995..................................................F-34
Unaudited Pro Forma Condensed Combined Statement of
Operations For the Three Months Ended
March 31, 1996......................................F-35
Notes to Unaudited Condensed Combined
Financial Statements...............................F-36
<PAGE>
RANDALL C. BROWN & ASSOCIATES, P.C.
Certified Public Accountants
338 Paces Center
455 E. Paces Ferry Road, N.E.
Atlanta, Georgia 30305-3329
404-237-4732
Fax 404-266-2943
Report of Independent Auditors
Board of Directors
Southern Acceptance Corporation
Marietta, Georgia 30067
We have audited the consolidated financial statements of
Southern Acceptance Corporation and subsidiaries listed in the
accompanying index to financial statements (Item 14(a)). 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 listed in the
accompanying index to financial statements (Item 14(a)) present
fairly, in all material respects, the consolidated financial
position of Southern Acceptance Corporation and subsidiaries at
December 31, 1995 and 1994 and September 30, 1994, and the
consolidated results of their operations and their cash flows for
each of the two years in the period ended September 30, 1994, the
quarter ended December 31, 1994 and the year ended December 31,
1995, in conformity with generally accepted accounting
principles.
/s/ Randall C. Brown & Associates, P.C.
Atlanta, Georgia
March 20, 1996
F-1<PAGE>
CONSOLIDATED BALANCE SHEETS
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31, September 30,
------------------- -------------
1995 1994 1994
------- ------- ------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $128,728 $ 11,093 $ 11,681
Current maturities of note
receivable - Note B -0- 72,755 71,641
Property for resale -0- 167,735 167,735
Other current assets 852 3,781 3,303
-------- -------- --------
TOTAL CURRENT ASSETS 129,580 255,364 254,360
PROPERTY, PLANT AND EQUIPMENT - Note A
Land 15,000 20,000 20,000
Buildings and improvements 133,727 169,542 169,542
Furniture and equipment 13,447 13,845 13,845
-------- -------- --------
162,174 203,387 203,387
Less allowance for depreciation 118,820 137,050 134,043
-------- -------- --------
TOTAL PROPERTY, PLANT AND
EQUIPMENT 43,354 66,337 69,344
INVESTMENT PROPERTY - Notes A, G and J 125,694 175,988 175,988
-------- -------- --------
$298,628 $497,689 $499,692
======== ======== ========
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
December 31, September 30,
------------------- -------------
1995 1994 1994
------- ------- ------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $ -0- $ 22,370 $ -0-
Trade accounts payable 10,171 8,771 4,727
Accrued interest -0- 71 -0-
Current maturities of long-term
debt - Note C 3,603 4,958 4,814
Other current liabilities 1,375 1,250 1,250
------- -------- -------
TOTAL CURRENT LIABILITIES 15,149 37,420 10,791
LONG-TERM DEBT, less current
maturities - Note C 38,943 59,431 60,726
STOCKHOLDERS' EQUITY - Note E
Common Stock - par value $.10 per
share - authorized 7,500,000
shares; issued and outstanding
(including 1,034,352 shares held
in treasury); 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) (2,892,317) (2,736,015) (2,708,678)
---------- ---------- ----------
350,515 506,817 534,154
Less treasury stock, at cost 105,979 105,979 105,979
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 244,536 400,838 428,175
---------- ---------- ----------
$ 298,628 $ 497,689 $ 499,692
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED-EARNINGS (DEFICIT)
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended Quarter Ended Year Ended September 30,
December 31, December 31, -------------------------
1995 1994 1994 1993
------------ ------------- ---------- ---------
<S> <C> <C> <C> <C>
Income
Interest $ 5,594 $ $ 1,650 $ 10 450 $ 19,145
Rental income 7,481 3,690 9,255 8,800
Sales commissions 2,341 10,885 3,920 19,917
Sales of property held
for resale 180,263 -0- -0- 24,975
Gain on sale of
investment property 28,895 -0- 61,447 -0-
Other income -0- -0- -0- 711
------- ------- ------- -------
224,574 16,225 85,072 73,548
Costs and Expenses
Interest 8,104 2,046 8,078 8,473
Commissions 10,490 8,164 22,510 16,813
Cost of sales of property
held for resale 175,327 -0- -0- 23,110
Administrative and
general expenses 125,742 30,345 108,717 87,967
Depreciation 10,919 3,007 11,828 12,432
Loss on write-down of investment
property - Notes G and J 50,294 -0- -0- -0-
-------- ------- -------- --------
380,876 43,562 151,133 148,795
-------- ------- -------- --------
(LOSS) BEFORE PROVISION
FOR INCOME TAXES (156,302) (27,337) (66,061) (75,247)
Provision for income taxes -
Notes A and D -0- -0- -0- -0-
--------- -------- -------- --------
NET (LOSS) (156,302) (27,337) (66,061) (75,247)
Retained-earnings (deficit)
at beginning of period (2,736,015) (2,708,678) (2,642,617) (2,567,370)
---------- ---------- ---------- ----------
RETAINED-EARNINGS
(DEFICIT) AT END OF PERIOD $(2,892,317) $(2,736,015) $(2,708,678) $(2,642,617)
========== ========== ========== ==========
Net (loss) per common
share - Note A $ (.03) $ (.01) $ (.01) $ (.01)
========== ========== ========== ==========
Average number of common
shares outstanding
during the period 5,238,905 5,238,905 5,591,129 6,157,204
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended Quarter Ended Year Ended September 30,
December 31, December 31, -----------------------------
1995 1994 1994 1993
----------- ------------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) $(156,302) $(27,337) $ (66,061) $(75,247)
Adjustments to reconcile net
(loss) to net cash (used
in) operating activities:
Depreciation 10,919 3,007 11,828 12,432
Bad debt expense (recovery) -0- (2,000) 6,609 -0-
Property for resale:
Additions to (7,592) -0- (5,882) (91,542)
Proceeds from sale of 171,839 -0- -0- 24,975
(Gain) Loss on sale of 3,488 -0- -0- (1,865)
(Gain) on sale of fixed assets
or investment property (25,675) -0- (35,354) -0-
Loss on write-down of investment
property 50,294 -0- -0- -0-
Change in assets and
liabilities:
Decrease in notes receivable 72,755 886 32,796 68,703
Decrease (increase) in other
current assets and
liabilities - net 4,383 3,637 3,610 (5,262)
------- ------- ------- ------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 124,109 (21,807) (52,454) (67,806)
INVESTING ACTIVITIES
Capital expenditures (3,584) -0- (3,495) -0-
Proceeds from sale of fixed
assets or investment property 41,323 -0- 234,569 -0-
Deductions from (additions to)
deferred charges -0- -0- 3,879 (3,879)
------- ------- ------- ------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 37,739 -0- 234,953 (3,879)
FINANCING ACTIVITIES
Short-term borrowing 10,500 22,370 5,000 93,000
Payments on notes payable and
long-term debt (54,713) (1,151) (97,279) (8,807)
Purchase of treasury Stock -0- -0- (91,782) -0-
------- ------- ------- ------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (44,213) 21,219 (184,061) 84,193
------- ------- ------- ------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 117,635 (588) (1,562) 12,508
Cash and cash equivalents at
beginning of period 11,093 11,681 13,243 735
------- ------- ------- ------
Cash and cash equivalents at
end of period $ 128,728 $ 11,093 $ 11,681 $ 13,243
======== ======= ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 7,855 $ 2,296 $ 11,617 $ 10,572
Income taxes -0- -0- -0- -0-
</TABLE>
See notes to consolidated financial statements.
F-5<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
December 31, 1995
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 and carryforward. (See Note D).
Property for Resale - Property for resale consists of residential lots,
- -------------------
some of which include houses built by the Company. These properties
are valued at the lower of cost or estimated net realizable value.
Investment Property - Investment property consists of land held for
- -------------------
eventual development, subdivision, or sale depending on the market and
other factors. Such properties are valued at the lower of cost or
estimated net realizable value.
Revenue Recognition - Interest income is recognized when earned; rental
- -------------------
income is recognized on a straight-line basis in accordance with the lease
terms; and sales commissions, sales of property held for resale, and gains
on sale of investment property are recognized when market transactions are
consummated as evidenced by a real estate closing. Gain
recognition with regard to sales of properties complies with the
provisions of Statement of Financial Accounting Standards No. 66.
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 period, not including the shares held in treasury by
the Company. There were no common stock equivalents or
dilutive instruments outstanding.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
December 31, 1995
NOTE B - MORTGAGE NOTE RECEIVABLE
The mortgage note receivable is summarized as follows:
<TABLE>
<CAPTION>
December 31, September 30,
------------------- ------------
1995 1994 1994
-------- ------- ------------
<S> <C> <C> <C>
Mortgage note receivable $ -0- $72,755 $73,641
Less allowance for doubtful amounts -0- -0- 2,000
------ ------ ------
-0- 72,755 71,641
Less current maturities -0- 72,755 71,641
------ ------ ------
$ -0- $ -0- $ -0-
====== ====== ======
</TABLE>
The mortgage note receivable, which bears interest at 9%,
consists of a first mortgage residential real estate and is
secured by the property. This note did not arise from retail
land sales activity.
NOTE C - Long-term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31, September 30,
------------------- ------------
1995 1994 1994
-------- ------- ------------
<S> <C> <C> <C>
Mortgage note payable:
10% note maturing in 2004 42,546 45,807 $46,572
15.5% note maturing in 2001 -0- 18,582 18,968
------ ------ ------
42,546 64,389 65,540
Less current maturities 3,603 4,958 4,814
------ ------ ------
$38,943 $59,431 $60,726
====== ====== ======
</TABLE>
Minimum aggregate payments on long-term debt for the five fiscal years
subsequent to December 31, 1995 are approximately as follows:
1996 $3,603
1997 3,980
1998 4,396
1999 4,857
2000 5,365
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
December 31, 1995
NOTE D - 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 December
31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Date of Net Operating Investment
Expiration Loss Tax Credit
------------- ------------- ----------
<S> <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 E - CHANGES IN CAPITAL
The only change in Common Stock, additional paid-in capital, or
treasury stock during the four and one-quarter years ended
December 31, 1995 was the purchase of 918,299 shares of the
Company's common stock for the treasury during the year ended
September 30, 1994. This stock was purchased from a Canadian
stockholder at the price he paid to acquire the stock from other
stockholders when he wanted to be become active in the
Company. He later decided to discontinue participating in the
Company's activities and offered to sell his stock to the
Company at his cost. After obtaining a favorable legal
opinion, the Company accepted his offer.
NOTE F - PURCHASES AND SALES OF PROPERTY FOR RESALE
During the year ended September 30, 1993, the Company sold one
of its residential lots at a gain of $1,865 and began
construction of a house on another of its lots. The project was
completed in the year ended September 30, 1994, and the improved
property was sold during the year ended December 31, 1995 at a
gain of $2,090.
During the year ended September 30, 1994, the Company
repossessed a home which it had previously sold in 1986 because
the buyers were experiencing financial difficulty and had become
unable to service their mortgage debt to the Company. In
recording the property at its estimated net realizable value in
exchange for the note receivable and accrued interest, the
Company recognized bad debt expense in the amount of $6,609.
The Company resold the property during the year ended December
31, 1995 at a gain of $2,846.
F-8
<PAGE>
NOTE G - SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
During the fiscal year ended September 30, 1994, the Company
repossessed a house due to a troubled loan (See Note F) resulting
in the following noncash transaction:
Assets exchanged for the property:
Note receivable $51,569
Accrued interest receivable 2,060
------
Noncash items 53,629
Cash paid to attorney 180
------
53,809
Cash paid for improvements 1,625
------
55,434
Estimated net realizable value 48,825
------
Bad debt expense recognized $ 6,609
======
During the fiscal year ended December 31, 1995, the Company wrote
down the carrying value of its remaining piece of investment property
to net realizable value as evidenced by a sale subsequent to year end
(See Note J) resulting in the following noncash transaction:
Cost of property $175,988
Loss on valuation adjustment (50,294)
--------
Net realizable value $125,694
=======
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 of the latter's common stock
issued and outstanding prior to the Effective Time would be
canceled and extinguished. On January 25, 1996, a preliminary
proxy statement which indicated, among other things, that under
the proposed merger up to 992,390 shares of the Company's
common stock would be exchanged for 900 shares of the common
stock of Efficiency Lodge, Inc. was filed with the Securities and
Exchange Commission.
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 B, and a
Form 8-K to report this event was filed with the Securities and
Exchange Commission.
NOTE J - SUBSEQUENT EVENT
On February 1, 1996, the Company sold its remaining 29.433 acres
of investment property at a loss in the amount of $50,294. The
carrying amount of this property was accordingly reduced to net
realizable value at December 31, 1995 with a corresponding charge
to income at that date.
F-9
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
March 31,
------------------------------
1996 1995
-------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 217,942 $ 76,076
Note receivable -0- 69,849
Property for resale -0- 48,825
Other current assets 852 4,301
--------- --------
TOTAL CURRENT ASSETS 218,794 199,051
PROPERTY, PLANT AND EQUIPMENT
Land 15,000 20,000
Buildings and improvements 137,040 169,542
Furniture and equipment 13,447 13,845
---------- ---------
165,487 203,387
Less allowance for depreciation 121,620 141,063
---------- ---------
TOTAL PROPERTY, PLANT AND
EQUIPMENT 43,867 62,324
INVESTMENT PROPERTY -0- 175,988
---------- ---------
$ 262,661 $ 437,363
========== =========
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
March 31,
-----------------------------------
1996 1995
-------------- ------------
(Unaudited) (Unaudited)
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 6,997 $ 400
Current maturities of long-term
debt 3,693 4,704
Other current liabilities 825 1,250
--------- ---------
TOTAL CURRENT LIABILITIES 11,515 6,354
LONG-TERM DEBT, less current
maturities 37,985 58,097
STOCKHOLDERS' EQUITY
Common Stock - par value $.10 per
share - authorized 7,500,000
shares; issued and outstanding
(including 1,034,352 shares held
in treasury); 6,273,257 shares 627,326 627,326
Additional paid-in capital 2,615,506 2,615,506
Retained-earnings (deficit) (2,923,692) (2,763,941)
--------- ----------
319,140 478,891
Less treasury stock, at cost 105,979 105,979
--------- ----------
TOTAL STOCKHOLDERS' EQUITY 213,161 372,912
--------- ----------
$ 262,661 $ 437,363
========= ==========
</TABLE>
See notes to interim consolidated financial statements (unaudited).
F-11
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED-EARNINGS (DEFICIT)
(UNAUDITED)
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Quarter Ended
March 31,
----------------------------------
1996 1995
(Unaudited) (Unaudited)
------------- ------------
<S> <C> <C>
Income
Interest $ 1,820 $ 1,630
Rental income 1,742 3,806
Sales commissions 6,242 -0-
Sales of property held
for resale -0- 127,922
--------- ---------
9,804 133,358
Costs and Expenses
Interest 1,056 2,981
Commissions 9,461 7,021
Cost of sales of property
held for resale -0- 124,330
Administrative and
general expenses 27,862 28,510
Depreciation 2,800 3,510
-------- ---------
41,179 166,352
-------- ---------
(LOSS) BEFORE PROVISION
FOR INCOME TAXES (31,375) (32,994)
Provision for income taxes -0- -0-
-------- ----------
NET (LOSS) (31,375) (32,994)
Retained-earnings (deficit)
at beginning of period (2,892,317) (2,730,947)
----------- -----------
RETAINED-EARNINGS
(DEFICIT) AT END OF PERIOD $(2,923,692) $(2,763,941)
============ ===========
Net (loss) per common share $ (.01) $ (.01)
======== ========
Average number of common
shares outstanding
during the period 5,238,905 5,238,905
========= =========
</TABLE>
See notes to interim consolidated financial statements (unaudited).
F-12
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Quarter Ended
March 31,
--------------------------------------
1996 1995
(Unaudited) (Unaudted)
------------- -------------
<S> <C>
OPERATING ACTIVITIES
Net (loss) $ (31,375) $ (32,994)
Adjustments to reconcile net
(loss) to net cash (used
in) operating activities:
Depreciation 2,800 3,510
Property for resale:
Additions to -0- (6,923)
Proceeds from sale of -0- 127,923
(Gain) Loss on sale of -0- (2,090)
Change in assets and
liabilities:
Decrease in notes receivable -0- 906
Decrease (increase) in other
current assets and
liabilities - net (3,724) (1,761)
------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (32,299) 88,571
INVESTING ACTIVITIES
Capital expenditures 3,313 -0-
Proceeds from sale of fixed
assets or investment property 125,694 -0-
------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 122,381 -0-
FINANCING ACTIVITIES
Payments on notes payable and
long-term debt (868) (23,588)
------- ---------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (868) (23,588)
------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 89,214 64,983
Cash and cash equivalents at
beginning of period 128,728 11,093
------- --------
Cash and cash equivalents at
end of period $217,942 $ 76,076
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 1,056 $ 2,981
Income taxes -0- -0-
</TABLE>
See notes to interim consolidated financial statements (unaudited).
F-13<PAGE>
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SOUTHERN ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTE A - BASIS OF PREPARATION
The accompanyig unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
The results of operations for the quarter ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the full
year. These interim consolidated financial statements should be read in
conjunction with the Company's 1995 consolidated financial statements
and related notes contained elsewhere herein.
NOTE B - RECENTLY ISSUED ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed Of" was issued in March 1995. The standard will be adopted
as of January 1, 1996 and is not expected to have a material impact
on financial position or results of operations.
F-14<PAGE>
Grant Thornton
2300 North Tower
235 Peachtree Street, N.E.
Atlanta, Georgia 30303-1499
404-330-2000
fax - 404-330-2047
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors and Stockholders
Efficiency Lodge, Inc.
We have audited the accompanying balance sheet of Efficiency Lodge,
Inc. (a Georgia S Corporation) as of December 31, 1995, and the related
statement of earnings, stockholders' 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. 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 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, 1995, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ Grant Thornton LLP
Atlanta, Georgia
February 9, 1996
F-15<PAGE>
MOORE & CUBBEDGE, L.L.P.
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
Efficiency Lodge, Inc.
Mableton, Georgia
We have audited the accompanying balance sheet of Efficiency Lodge, Inc.
as of December 31, 1994, and the related statements of earnings, stockholders'
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.
/s/ Moore & Cubbedge
Moore & Cubbedge
Marietta, Georgia
August 29, 1995
F-16<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Efficiency Lodge, Inc.
BALANCE SHEETS
ASSETS
December 31,
----------------------------- March 31,
1994 1995 1996
---------- ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Property and equipment - net (Note B) $6,987,620 $ 9,058,165 $ 8,973,698
Cash 6,933 84,064 269,194
Inventory 4,694 23,611 27,547
Due from stockholder (Note F) 55,935 129,714 156,691
Note receivable - stockholder (Note C) 470,000 470,000 470,000
Interest receivable - stockholder (Note C) 44,800 58,639 66,864
Loan fees, net of accumulated amortization (Note D) 266,755 248,053 243,832
Other assets 42,407 82,949 138,910
--------- ---------- ----------
$7,879,144 $10,155,195 $10,346,736
========= ========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Mortgage notes payable (Note E) $8,281,458 $10,342,399 $10,279,604
Accounts payable and accrued expenses 37,341 26,329 162,281
Customer deposits 11,399 10,462 10,462
Due to stockholder (Note F) 130,010 130,010 100,010
--------- ---------- ----------
Total liabilities 8,460,208 10,509,200 10,552,357
STOCKHOLDERS' DEFICIT
Common stock - $1 par value, 100,000
shares authorized; 900 shares issued
and outstanding 900 900 900
Accumulated deficit (581,964) (354,905) (206,521)
--------- ---------- ----------
(581,064) (354,005) (205,621)
--------- ---------- ----------
$7,879,144 $10,155,195 $10,346,736
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Efficiency Lodge, Inc.
STATEMENTS OF EARNINGS
Three months ended
Year ended December 31, March 31,
----------------------- ------------------
1994 1995 1995 1996
-------- --------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 2,641,091 $3,292,952 $642,636 $973,927
Operating expenses 1,554,811 2,058,869 381,826 550,879
--------- --------- ------- -------
Operating profit 1,086,280 1,234,083 260,810 423,048
Other expense (income)
Interest income (Note B) (465) (627) (326) (154)
Interest income from stockholder (25,450) (32,681) (8,225) (8,225)
Interest expense 781,351 1,039,805 231,284 278,434
Other income (1,474) (9,473) (3,988) (5,391)
--------- --------- ------- -------
753,962 997,024 218,745 264,664
--------- --------- ------- -------
Net earnings $ 332,318 $ 237,059 $ 42,065 $158,384
========= ========= ======= =======
Net earnings per share $ 369.24 $ 264.40 $ 46.74 $ 175.98
========= ========= ======= =======
Weighted average shares outstanding 900 900 900 900
========= ========= ======= =======
Historical net earnings $ 332,318 $ 237,059 $ 42,065 $158,384
Pro forma income tax expense 128,000 87,000 16,000 59,000
--------- --------- ------- -------
Pro forma net earnings $ 204,318 $ 150,059 $ 26,065 $ 99,384
========= ========= ======= =======
Pro forma net earnings per share $ 227.02 $ 166.73 $ 28.96 $ 110.43
========= ========= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Efficiency Lodge, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
Common Accumulated
stock deficit Total
------- ----------- -----
<S> <C> <C> <C>
Balance at January 1, 1994 $ 900 $ (714,282) $ (713,382)
Net earnings for the year - 332,318 332,318
Distributions to shareholders - (200,000) (200,000)
------- --------- ---------
Balance at December 31, 1994 900 (581,964) (581,064)
Net earnings for the year - 237,059 237,059
Distributions to stockholders - (10,000) (10,000)
------- --------- ---------
Balance at December 31, 1995 900 (354,905) (354,005)
Net earnings for the quarter - 158,384 158,384
Distributions to stockholders - (10,000) (10,000)
------- --------- ---------
Balance at March 31, 1996 (Unaudited) $ 900 $ (206,521) $ (205,621)
======= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-19
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Efficiency Lodge, Inc.
STATEMENTS OF CASH FLOWS
Three months ended
Year ended December 31, March 31,
----------------------- ---------------------
1994 1995 1995 1996
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
(Unaudited)
Increase (Decrease) in Cash
Cash flows from operating activities
Net earnings $ 332,318 $ 237,059 $ 42,065 $ 158,384
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation and amortization 288,868 354,707 73,363 93,746
Change in assets and liabilities
Increase in interest receivable (25,450) (13,839) (8,225) (8,225)
(Increase) decrease in inventories 3,306 (18,917) (1,546) (3,936)
(Increase)decrease in other assets (19,539) (40,542) 5,972 (55,961)
Increase (decrease) in accounts
payable and accrued expenses 36,449 (11,012) 112,694 135,952
Decrease in customer deposits - (937) - -
--------- ---------- --------- ---------
Net cash provided by
operating activities 615,952 506,519 224,323 319,960
Cash flows from investing activities
Purchases of property and equipment (2,375) (2,406,550) (1,301) (5,058)
Increase in due from stockholder (55,935) (73,779) (4,800) (26,977)
--------- ---------- --------- ---------
Net cash used by investing
activities (58,310) (2,480,329) (6,101) (32,035)
Cash flows from financing activities
Proceeds from notes payable - 2,382,903 - -
Payments made on notes payable (377,857) (321,962) (46,928) (62,795)
Decrease in due to stockholder - - - (30,000)
Distributions made to shareholders (200,000) (10,000) - (10,000)
Payments made on due to former
stockholder (21,000) - - -
--------- ---------- --------- ---------
Net cash provided (used) by
financing activities (598,857) 2,050,941 (46,928) (102,795)
--------- ---------- --------- ---------
F-20<PAGE>
<PAGE>
</TABLE>
<TABLE>
Efficiency Lodge, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
Three months ended
Year ended December 31, March 31,
----------------------- --------------------
1994 1995 1995 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
(Unaudited)
Net increase (decrease) in cash (41,215) 77,131 171,294 185,130
Cash at beginning of period 48,148 6,933 6,933 84,064
------- ------- -------- --------
Cash at end of period $ 6,933 $ 84,064 $ 178,227 $ 269,194
======= ======= ======== ========
Cash paid during the period for
interest $ 781,351 $ 1,039,805 $ 155,527 $ 196,427
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-21<PAGE>
<PAGE>
Efficiency Lodge, Inc.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the accounting policies consistently applied in the
accompanying financial statements follows.
1. Nature of Operations
--------------------
The Company owns and operates lodging facilities in Georgia which offer
both temporary (minimum seven days) and long-term accommodations which
include fully-equipped cooking facilities and on-premises laundry
facilities. Customers include people on short-term work or training
assignments, recreational travelers, and people in the midst of
relocation.
2. Inventory
---------
Inventory consists of personal care items and snack foods for resale
and is stated at the lower of cost or market using the first-in, first-
out method.
3. Property and Equipment
----------------------
Property and equipment are recorded at cost including capitalized
interest cost incurred during the period of construction. Depreciation
is provided for in amounts sufficient to relate the cost of depreciable
assets to operations over their estimated service lives using the
straight-line method for buildings and accelerated methods for
furniture and equipment.
4. Loan Fees
---------
Loan fees and other associated closing costs are recorded at cost.
Amortization is calculated using the straight-line method over the term
of the related loan.
5. Income Taxes
------------
The Company has elected to be taxed under the provisions of Subchapter
S of the Internal Revenue code. 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 these financial statements. The net income tax basis
of the Company's assets and liabilities is approximately $425,000 less
than the amounts reported in the Company's financial statements. If
the Company were to convert to a Subchapter C corporation, in which
income taxes are payable by the Company rather than it's stockholders,
the Company would record a deferred tax liability and income tax
expense for the income tax effect of the $425,000 difference noted
above.
F-22<PAGE>
Efficiency Lodge, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
6. Use of Estimates
----------------
In preparing the Company's financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
7. Recently Issued Accounting Standard
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed Of, was issued in March 1995. This standard will be adopted
as of January 1, 1996 and is not expected to have a material impact on
financial position or results of operations. The Company currently
evaluates impairment by consideration of the undiscounted cash flows
from its properties.
8. Interim Financial Statements
Interim financial statements reflected herein, include all adjustments
which, in the opinion of management, are necessary in order to make the
interim financial statements not misleading.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of:
<TABLE>
<CAPTION>
December 31,
Depreciable ----------------------------- March 31,
lives 1994 1995 1996
----------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Buildings 31 years $6,901,369 $8,680,967 $8,680,967
Furniture and equipment 5-7 years 836,307 1,138,259 1,143,317
--------- --------- ---------
7,637,676 9,819,226 9,824,284
Less accumulated depreciation 1,742,005 2,078,010 2,167,535
--------- --------- ---------
5,895,671 7,741,216 7,656,749
Land 1,091,949 1,316,949 1,316,949
--------- --------- ---------
$6,987,620 $9,058,165 $8,973,698
========= ========= =========
</TABLE>
NOTE C - NOTE RECEIVABLE - STOCKHOLDER
The $470,000 note receivable from stockholder bears interest at
7%, matures on February 14, 1998 and is uncollateralized.
Accrued interest on this note totalled $44,800 and $58,639 as
of December 31, 1994 and 1995, respectively. Interest income
on this note totalled $25,450 and $32,681, for the years ended
December 31, 1994 and 1995, respectively.
F-23<PAGE>
<PAGE>
Efficiency Lodge, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - LOAN FEES
Loan fees were as follows as of:
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995 1996
---------- --------- ----------
(Unaudited)
<S> <C> <C> <C>
Loan fees $ 405,522 $ 405,522 $405,522
Less: accumulated amortization 138,767 157,469 161,690
--------- -------- -------
Net loan fees $ 266,755 $ 248,053 $243,832
</TABLE>
NOTE E - MORTGAGE NOTES PAYABLE
Mortgage notes payable consists of the following notes payable
collateralized by all of the Company's real property.
<TABLE>
<CAPTION>
December 31, March 31,
--------------------
1994 1995 1996
-------- --------- -----------
<S> <C> <C> <C>
(Unaudited)
Variable rate notes - 10.5% to 11% and
payments of principal and interest totalling
$104,000 per month at December 31, 1995,
maturing on various dates through 2019 $8,281,458 $ 9,245,630 $ 9,185,221
Fixed rate notes - 10%, payments of principal
and interest totalling $11,000 per month,
maturing on various dates through 2025 - 1,096,769 1,094,383
--------- ----------- ----------
$8,281,458 $ 10,342,399 $10,279,604
========= =========== ==========
</TABLE>
Future maturities of long-term debt as of December 31, 1995 are as follows:
1996 $ 604,138
1997 1,676,337
1998 300,568
1999 327,835
2000 357,552
Thereafter 7,075,969
----------
$ 10,342,399
F-24<PAGE>
<PAGE>
Efficiency Lodge, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE F - RELATED PARTY TRANSACTIONS
Management fees of $71,582 and $117,500 were paid in 1994 and
1995, respectively, to a stockholder who owns fifty percent of
the outstanding stock of the Company. Management fees are determined
periodically by the Board of Directors based upon such factors
as profitability and cash flows of the Company. Historically,
there have been no written agreements or formulas for the calculation
of these amounts.
As of December 31, 1994 and 1995, $130,010 was due to a
stockholder who owns fifty percent of the outstanding stock of
the Company. This payable is non-interest bearing and has no
specified repayment terms.
As of December 31, 1994 and 1995, $55,935 and $129,714 was due
from a stockholder who owns fifty percent of the outstanding
stock of the Company. This unsecured receivable is non-
interest bearing and has no specified repayment terms.
During 1994 and 1995, the Company purchased maintenance
supplies totalling $62,900 and $89,400, respectively, from a
stockholder who owns fifty percent of the outstanding stock of
the Company.
On January 1, 1993, the Company repurchased and retired 600
shares of its common stock for $80,500. The purchase price
consisted of forgiveness of a $32,000 note receivable from the
stockholder and a non-interest bearing note payable for
$48,500. Payments on the note payable totalled $27,500 in 1993
and $21,000 in 1994.
NOTE G - FINANCIAL INSTRUMENTS
The table below includes estimated fair value information as of
December 31, 1995 for the Company's financial instruments.
Such information, which pertains to the Company's financial
instruments, does not purport to represent the aggregate net
fair value of the Company. The following methods and
assumptions were used to estimate the fair value of each class
of financial instruments for which it is practicable to
estimate that value:
CASH: The carrying amount represents fair value because these
amounts are on deposit at local banks and are available upon
demand.
NOTES RECEIVABLE AND DUE FROM RELATED PARTIES: The interest
rates that would currently be offered by the Company for
similar instruments are used to value these receivables.
LONG-TERM DEBT: The current rates offered to the Company for
debt of the same remaining maturities are used to estimated the
fair value of the Company's long-term debt.
F-25<PAGE>
Efficiency Lodge, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE G - FINANCIAL INSTRUMENTS - Continued
The carrying values and estimated fair values of the Company's
financial instruments as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
------------ -------------
<S> <C> <C>
Cash $ 84,064 $ 84,064
Due from related parties $ 129,714 $ 118,000
Notes receivable - employees $ 9,936 $ 9,936
Note receivable - stockholder $ 470,000 $ 455,000
Long-term debt $(10,342,399) $(10,342,399)
</TABLE>
NOTE H - BARTOW LODGE ACQUISITION
On June 16, 1995, the Company acquired a lodge facility located
in Bartow County, Georgia for $2,382,903. The purchase was
accomplished by the assumption of loans totalling $1,382,903
and the issuance of a $1,000,000 note payable. The acquisition
has been accounted for as a purchase and there was no goodwill
associated with the transaction. Results of operations of the
facility have been included in the statement of earnings from
the date of acquisition. Unaudited pro forma financial
information as if the acquisition had occurred at the beginning
of fiscal year 1995 is as follows:
Revenue $3,523,214
Net earnings $ 115,949
Earnings per share $ 128.83
These pro forma amounts are not necessarily indicative of what
the actual results of operations might have been if the
acquisition had occurred at the beginning of fiscal year 1995.
NOTE I - OPERATING LEASE
During 1994 and the period January 1, 1995 through June 30, 1995
(termination date of the lease) the Company leased one of its facilities
under an operating lease. Under this lease rental income of $190,000 and
$102,000 was recognized during 1994 and 1995, respectively. No contingent
rental revenue was recognized under this lease. The cost and accumulated
depreciation for this facility as of December 31, 1995 was approximately
$1,994,000 and $435,000, respectively.
F-26
<PAGE>
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
BARTOW LODGE
(A division of Sound Builders &
Investment Corporation)
For the period January 1, 1995 through June 15, 1995
F-27<PAGE>
<PAGE>
Grant Thornton
2300 North Tower
235 Peachtree Street, N.E.
Atlanta, Georgia 30303-1499
404-330-2000
Fax 404-330-2047
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors
Sound Builders & Investment Corporation
We have audited the accompanying statements of operations, cash flows
and changes in division equity of Bartow Lodge (a division of Sound Builders
& Investment Corporation) for the period January 1, 1995 through June 15,
1995. 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. 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the operations, cash flows and changes
in division equity of Bartow Lodge (a division of Sound Builders &
Investment Corporation) for the period January 1, 1995 through June 15,
1995 in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Atlanta, Georgia
May 24, 1996
F-28<PAGE>
<PAGE>
Bartow Lodge
(A Division of Sound Builders & Investment Corporation)
STATEMENT OF OPERATIONS
For the period January 1, 1995 through June 15, 1995
<TABLE>
<S> <C>
Revenue $ 230,262
Operating expenses 184,922
--------
Operating profit 45,340
Interest expense 66,786
--------
Net loss $ (21,446)
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-29<PAGE>
<PAGE>
Bartow Lodge
(A Division of Sound Builders & Investment Corporation)
STATEMENT OF CASH FLOWS
For the period January 1, 1995 through June 15, 1995
<TABLE>
<CAPTION>
<S> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net loss $(21,446)
Adjustments to reconcile netlott to net cash provided
by operating activities
Depreciation and amortization 39,733
---------
Net cash provided by operating activities 18,287
Cash flows from financing activities
Payments on mortgage notes payable (6,710)
Distributions to corporate division (23,800)
---------
Net cash used by financing activities (30,510)
----------
Net decrease in cash (12,223)
Cash at January 1, 1995 47,310
---------
Cash at June 15, 1995 $ 35,087
=========
Cash paid during the period for interest $ 66,786
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-30
<PAGE>
<PAGE>
Bartow Lodge
(A Division of Sound Builders & Investment Corporation)
STATEMENT OF CHANGES IN DIVISION EQUITY
For the period January 1, 1995 through June 15, 1995
Division equity at January 1, 1995 $110,228
Net loss for the period (21,446)
Distributions to the corporate division (23,800)
--------
Division equity at June 15, 1995 $ 64,982
========
The accompanying notes are an integral part of this statement.
F-31
<PAGE>
<PAGE>
Bartow Lodge
(A division of Sound Builders & Investment Corporation)
NOTES TO FINANCIAL STATEMENTS
For the period January 1, 1995 through June 15, 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the accounting policies consistently applied in the
accompanying financial statements follows.
1. Nature of Operations
--------------------
The Bartow Lodge division of Sound Builders & Investment Corporation
(the "Company") owns and operates a lodging facility in Georgia that
offers both temporary and long-term accommodations. Customers include
people on short-term work or training assignments, recreational
travelers, and people in the midst of relocation.
2. Depreciation
------------
Depreciation is provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service lives
using the straight-line method for buildings and accelerated methods
for furniture and equipment. Estimated service lives are 31 years for
buildings and 5-7 years for furniture and equipment. Depreciation
expense for the period January 1, 1995 to June 15, 1995 was $35,741.
3. Income Taxes
------------
The Company has elected to be taxed under the provisions of Subchapter
S of the Internal Revenue Code. Under those provisions, the Company
does not pay federal and state income taxes. Instead, its stockholders
are taxed on their proportionate share of the Company's taxable income.
Therefore, no provision or benefit for federal and state income taxes
has been included in the accompanying financial statement.
Proforma results of operations of the Bartow Lodge division, assuming
the Company is a taxable entity, have not been provided, since the
proforma results do not differ from the actual results. The potential
tax benefit from the Bartow Lodge division's net loss has not been
recognized due to uncertainty over whether the loss could be used to
offset potential future income.
4. Use of Estimates
----------------
In preparing the Division's financial statement, management is required
to make estimates and assumptions that affect the recorded amounts of
assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. Actual results could differ from
those estimates.
F-32<PAGE>
<PAGE>
Bartow Lodge
(A division of Sound Builders & Investment Corporation)
NOTES TO FINANCIAL STATEMENTS
For the period January 1, 1995 through June 15, 1995
NOTE B - SUBSEQUENT EVENT
Immediately after the close of business on June 15, 1995, the Bartow Lodge
division was sold. Accordingly, the accompanying financial statements do
not reflect this transaction.
F-33<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 1996
ASSETS
Pro
Pro Forma Forma
ELI Company Adjustments Combined
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Property and equipment, net $ 8,973,698 $ 43,867 $ 100,000 (6) $ 9,117,565
Cash 269,194 217,942 (1,600)(1) 485,536
Other assets 1,103,844 852 - 1,104,696
----------- ----------- ------------ -----------
Total assets $10,346,736 $ 262,661 $ 98,400 $10,707,797
=========== =========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Mortgage notes payable $10,279,604 $ 37,985 $ - $10,317,589
Other liabilities 272,753 11,515 200,000 (2,6) 484,268
----------- ----------- ---------- -----------
Total liabilities 10,552,357 49,500 200,000 10,801,857
Stockholders' deficit
Common stock 900 521,347 (417,785)(1) 104,462
Additional paid-in capital - 2,615,506 (2,445,507)(1,6) 169,999
Accumulated deficit (206,521) (2,923,692) 2,761,692 (1,2) (368,521)
Total stockholders' deficit (205,621) 213,161 (101,600) (94,060)
---------- ----------- ---------- -----------
Total liabilities and
stockholders' deficit $10,346,736 $ 262,661 $ 98,400 $10,707,797
=========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-33<PAGE>
c
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 1995
Pro forma Pro forma
Company ELI Bartow Adjustments Combined
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ - $3,292,952 $ 230,262 $ - $ 3,523,214
Operating expenses - 2,058,869 184,922 42,450(3) 2,286,241
---------- ---------- ---------- ----------- -----------
Operating income - 1,234,083 45,340 (42,450) 1,236,973
Other (income) expense, net 156,302 997,024 66,786 57,214(4) 1,277,326
---------- ---------- ---------- ----------- -----------
Income (loss) before
income taxes (156,302) 237,059 (21,446) (99,664) (40,353)
Provision for income taxes - - - - -
---------- ---------- ---------- --------- -----------
Net income (loss) $ (156,302) $ 237,059 $ (21,446) $ (99,664) $ (40,353)
========== ========== ========== ========= ===========
Net loss per common
share $ (0.04)
===========
Weighted average number of
common shares outstanding 1,044,620
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-34<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Three months ended March 31, 1996
Pro forma Pro forma
Company ELI Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ - $ 973,927 $ - $ 973,927
Operating expenses - 550,879 - 550,879
---------- ---------- --------- ---------
Operating income - 423,048 - 423,048
Other (income) expense, net 31,375 264,664 - 296,039
---------- ---------- --------- ---------
Income (loss) before
income taxes (31,375) 158,384 - 127,009
Provision for income taxes - - 38,000(5) 38,000
---------- ---------- --------- ---------
Net income (loss) $ (31,375) $ 158,384 $ (38,000) $ 89,009
========= ========== ========= =========
Net income per
common share $ 0.08
=========
Weighted average number of
common shares outstanding
1,044,620
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-35<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Assumptions
-----------
At the effective time of the consummation of the Merger, ELI will be
merged with and into the Company, which will be the Surviving Corporation.
For accounting purposes, the transaction has been treated as a recapitalization
of ELI with ELI as the acquirer (reverse acquisition).
The unaudited pro forma condensed balance sheet as of March 31, 1996 gives
effect to the Merger as if the Merger had occurred on March 31, 1996. The
unaudited pro forma condensed statements of operations for the year ended
December 31, 1995 and for the three months ended March 31, 1996 give
effect to the merger as if the merger had been consummated as of January 1,
1995. The unaudited pro forma condensed statement of operations for the
year ended December 31, 1995 also includes the results of operations for
Bartow Lodge for the period January 1, 1995 through June 15, 1995 (the
date of acquisition by ELI).
Unaudited pro forma balance sheets and statements of operations are
presented for informational purposes only and do not purport to be
indicative of the financial condition that actually would have resulted
if the merger had been consummated at March 31, 1996 or the results of
operations that actually would have resulted if the merger had been
consummated on January 1, 1995 nor which may result from future operations.
2. Stockholders' Equity
--------------------
The pro forma adjustments to common stock and additional paid-in-capital
as of March 31, 1996, reflect the one hundred for one conversion of the
Company's outstanding stock, redemption of fractional shares for $1,600
and the issuance of 992,390 shares of common stock for all of the
outstanding common stock of ELI.
3. Reclassifications
-----------------
Certain reclassifications have been made to historical amounts of the
Company to conform the financial presentation of the three companies.
4. Weighted Average Shares Outstanding
-----------------------------------
The weighted average number of outstanding shares of common stock on a
pro forma basis gives effect to the merger transactions described in Note
2.
F-36<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -
CONTINUED
5. Pro Forma Adjustments
---------------------
The following adjustments have been made to the historical financial
statements.
<TABLE>
<CAPTION>
Year ended Three months
December 31, ended March 31,
1995 1996
----------- ---------------
<S> <C> <C>
(1) Elimination of Southern Acceptance's
equity as a result of the merger
Common stock $ (521,347)
Additional paid-in capital (2,615,506)
Accumulated deficit 2,923,692
Elimination of ELI common stock
Common stock (900)
Issuance of 1,044,620 shares in
surviving corporation and redemption
of fractional shares
Cash (1,600)
Common stock 104,462
Additional paid-in capital 107,999
Summary of above adjustments
Cash (1,600)
Common stock (417,785)
Additional paid-in capital (2,507,507)
Accumulated deficit 2,923,692
(2) Change in ELI's tax status from a non-taxable
to a taxable entity
Deferred tax liability 162,000
Accumulated deficit (162,000)
(3) Additional depreciation expense for
Bartow Lodge based on ELI's cost
Operating expenses $ 42,450
</TABLE>
F-37<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
Year ended Three months
December 31, ended March 31,
1995 1996
----------- ---------------
<S> <C> <C>
5. Pro Forma Adjustments - Continued
---------------------------------
(4) Additional interest expense for Bartow
Lodge based on ELI's financing cost
Other expenses $ 57,214 $
(5) Income tax expense based on the combined
entity being a taxable entity
Income tax expense 38,000
(6) Because the acquisition would be accounted for as
a reverse acquisition, the purchase price is deemed
to be the fair value of the net tangible assets of the
Company. This is approximately $275,000 and was allocated
to the net assets as follows:
Property and equipment, 143,867; Cash 217,942;
Other assets, 852; Mortgage notes payable, 37,985;
Other liabilities, 49,515
Property and Equipment 100,000
Other liabilities 38,000
Additional paid-in capital 62,000
</TABLE>
F-38
<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
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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
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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
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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
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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,
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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.
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(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.
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(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.
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(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.
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(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
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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.
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(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>
AMENDMENT NUMBER ONE TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NUMBER ONE TO AGREEMENT AND PLAN OF MERGER is
made and entered into this 11th day of June, 1996, by and between
SOUTHERN ACCEPTANCE CORPORATION, a Georgia corporation ("SAC"),
and EFFICIENCY LODGE, INC. a Georgia corporation ("ELI").
WHEREAS, ELI and SAC have entered into an Agreement and Plan
of Merger dated January 22, 1996 (the "Merger Agreement")
providing for the merger (the "Merger") of ELI and SAC upon the
terms and subject to the conditions set forth in the Merger
Agreement; and
WHEREAS, under the Merger Agreement either party may
terminate the Agreement because the Merger was not consummated
within 120 days of the date that the Proxy Statement of SAC with
respect to the Merger (the "Proxy Statement") was filed with the
Securities and Exchange Commission, unless the parties agree
otherwise; and
WHEREAS, the parties now desire to amend the Merger
Agreement to extend the date by which the Merger Agreement may be
terminated due to the passage of time;
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 to amend the
Merger Agreement as follows:
1. Section 8.1(b)(i) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
(i) the Merger has not been consummated on or
prior to August 31, 1996 (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;
2. Except as specifically set forth herein, the Merger
Agreement shall continue in full force and effect until further
modified or terminated in accordance with its terms.
3. This Amendment shall be binding upon the respective
parties hereto and their respective heirs, personal
representatives, successors and assigns.
4. This Amendment shall be construed under and governed
by the internal laws of the State of Georgia without regard to
principles of conflicts of laws.
5. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
6. Capitalized terms used herein but not otherwise defined
shall have the meaning assigned to them in the Merger Agreement.<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused
this Amendment 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
<PAGE>
APPENDIX B
PROPOSED ARTICLE AMENDMENT
11.
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.
B-1<PAGE>
APPENDIX C
PROPOSED BY-LAW AMENDMENT
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.
D-1
<PAGE>
Southern Acceptance Corporation
January 25, 1996
Page 2
(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\
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>
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 RESULTING IN CHANGE OF CONTROL OF THE COMPANY.
Proposal for the approval and adoption of an Agreement and
Plan of Merger, dated as of January 22, 1996 as amended on
June 11, 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, resulting in control of the Company by the former ELI
shareholders.
/ / FOR / / AGAINST / / ABSTAIN
2. ARTICLES AMENDMENT PROPOSAL. Proposal for the approval and
adoption of an amendment of the Company's Articles of
Incorporation to add certain provisions regarding the
limitation of a director's liability for monetary damages for
certain breaches of fiduciary duty.
/ / 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. ADJOURNMENT PROPOSAL. Proposal to allow for the
adjournment of the Special Meeting in the discretion of
management to permit the solicitation of additional Proxies.
/ / FOR / / AGAINST / / ABSTAIN
5. 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.
<PAGE>
