<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 13, 1996
-------------------------------
Host Funding, Inc.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Maryland 1-14280 52-1907962
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION) (COMMISSION) (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
1025 Prospect Street, Suite 350, La Jolla, California 92037
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: 619-456-6070
--------------------------
- --------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
Item 1. Change in Control of Registrant
Not applicable
Item 2. Acquisition or Disposition of Assets
On September 30, 1996, the Registrant filed a Report on Form 8-K
relating to (i) the acquisition by CrossHost, Inc., a wholly-owned subsidiary
of the Registrant ("CrossHost"), of three Sleep Inn Hotels located in the State
of Florida and one Sleep Inn Hotel located in the State of Mississippi
(collectively, the "Acquired Properties") and (ii) the transfer of five Super 8
hotel properties owned by the Registrant to CrossHost. The five hotels
represented all of the hotel properties owned by the Registrant and are located
in Somerset, Kentucky; Rock Falls, Illinois; San Diego, California; Miner,
Missouri; and Poplar Bluff, Missouri (collectively, the "Transferred
Properties"). The effective closing dates of the Acquired Properties located
in Florida and Mississippi were September 13, 1996 and September 19, 1996,
respectively. The Transferred Properties were conveyed to CrossHost in a tax
free exchange effective September 13, 1996.
Effective as of the closing of the respective Acquired Properties,
CrossHost (i) leased each of the Acquired Properties by separate lease
agreements (collectively, the "Acquired Property Leases") to Crossroads
Hospitality Tenant Company, L.L.C. ("Crossroads") and (ii) entered into a
Master Agreement with Crossroads and Crossroads Hospitality Company, L.L.C.
("Crossroads Hospitality"). The Registrant also assigned to CrossHost the
lease agreements pertaining to each of the Transferred Properties
(collectively, the "Transferred Property Leases") and the related Master
Agreement.
Reference is made to the Form 8-K filed by the Registrant on
September 30, 1996 which includes a more detailed description of the
transactions described above. The financial statements of the Acquired
Properties and the pro forma financial information of the Registrant which were
not available on the date of filing of the Form 8-K are attached to this
Report. The information set forth below supplements the attached financial
statements and the information previously provided in the Form 8-K and should
be read in accordance therewith.
The term of each of the Acquired Property Leases is for a
period of fifteen (15) years from the date of acquisition of each property (the
"Commencement Date"). The Acquired Property Leases have combined total annual
base rentals of $1,417,500, plus percentage rentals ranging from 30% to 35% of
year to date revenues less varying break-even thresholds
<PAGE> 3
adjusted annually by defined percentages for each hotel. Rentals due CrossHost
from Crossroads from the Commencement Date of the Acquired Property Leases until
December 31, 1996 require only defined base rents. During the first four years
after the Commencement Date, Crossroads will be entitled to accumulate a credit
of 50% of base rent paid in excess of hotel cash flow, if any, as defined in the
Acquired Property Leases, for each of the Acquired Properties, which may be
applied towards future percentage rentals that may be due (the "Negative Base
Rent"). Should no future percentage rental be due under the Acquired Property
Leases during the lease terms, the Negative Base Rent will expire. No Negative
Base Rent credit was outstanding as of September 30, 1996. The Acquired Property
Leases generally require Crossroads to pay all operating expenses of the
properties, including maintenance and insurance, while Crossroads is responsible
for property taxes. In addition, CrossHost is required to set aside in a
replacement reserve an amount equal to 4% of gross room revenue during years one
to four and 6% of gross room revenue during years five and thereafter, to be
used for capital expenditures which generally must be jointly approved by
CrossHost and Crossroads. Further, should CrossHost decide to sell any of the
properties leased to Crossroads under the Acquired Property Leases, Crossroads
will be provided a thirty day right of first refusal to purchase such property
at the price offered CrossHost by the third party. If Crossroads elects not to
exercise its right of first refusal to acquire the properties and should
CrossHost elect to terminate the lease, upon the consent of CrossHost,
Crossroads, and the buyer, Crossroads may be entitled to some portion of the
sale proceeds based on a formula as provided in the applicable Acquired Property
Lease. In addition, CrossHost is required to provide a long-term advance of
$30,000 per Acquired Property to Crossroads, subject to proration adjustments,
to be used for working capital purposes which is due back to CrossHost at the
end of the term of each Acquired Property Lease. As of September 30, 1996,
CrossHost had not funded the long-term advances required under the Acquired
Property Leases.
The Transferred Property Leases were amended on October 1, 1996 (the
"Amended Transferred Property Leases"). As a result of such amendments, the
annual base rentals, effective after December 31, 1996, were increased $183,700
to $1,213,800. The annual base rentals are subject to possible additional
increases annually beginning in calendar year 1998 and thereafter throughout the
term of the Amended Transferred Property Leases based upon increase in average
room rates, as defined in the Amended Transferred Property Leases, while
percentage rentals due remain unchanged. Concurrent with the change in base rent
due for each Transferred Property Lease, the requirement for Crossroads to set
aside in a replacement reserve $125 per room, per quarter, increased annually by
inflation factors, was terminated. CrossHost is now required, under the Amended
Transferred Property Leases effective October 1, 1996, to fund into a
replacement reserve an amount equal to six percent of gross room revenue for the
preceding month, which amount may be expended for capital expenditures upon the
joint approval of CrossHost and Crossroads. All remaining significant terms of
the Transferred Property Leases are unchanged, except as described above.
Item 3. Bankruptcy or Receivership
Not applicable
<PAGE> 4
Item 4. Changes in Registrant's Certifying Accountant
Not applicable
Item 5. Other Events
Not applicable
<PAGE> 5
Item 6. Resignations of Registrant's Directors
Not applicable
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Acquired Properties
Attached to this report are the Financial Statements of the Acquired
Properties required by Rule 3-14 of Regulation S-X.
(b) Pro Forma Financial Information
Attached to this Report are the pro forma condensed financial
statements of the Registrant prepared in accordance with Article 11 of
Regulation S-X.
(c) Exhibits
<TABLE>
<S> <C>
10.1 First Amendment to Lease Agreement dated effective as
of October 1, 1996 by and between Host Funding, Inc.
and Crossroads Hospitality Tenant Company, L.L.C.
(Poplar Bluff, Missouri).
10.2 First Amendment to Lease Agreement dated effective as
of October 1, 1996 by and between Host Funding, Inc.
and Crossroads Hospitality Tenant Company, L.L.C.
(Rock Falls, Illinois).
10.3 First Amendment to Lease Agreement dated effective as
of October 1, 1996 by and between Host Funding, Inc.
and Crossroads Hospitality Tenant Company, L.L.C.
(Somerset, Kentucky).
10.4 First Amendment to Lease Agreement dated effective as
of October 1, 1996 by and between Host Funding, Inc.
and Crossroads Hospitality Tenant Company, L.L.C.
(Miner, Missouri).
10.5 First Amendment to Lease Agreement dated effective as
of October 1, 1996 by and between Host Funding, Inc.
and Crossroads Hospitality Tenant Company, L.L.C.
(San Diego, California).
</TABLE>
Item 8. Change in Fiscal Year
Not applicable
<PAGE> 6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Host Funding, Inc.
/s/ MICHAEL S. McNULTY
--------------------------------------------------
By: Michael S. McNulty, President, Chief Executive
Officer, and Chief Financial and Accounting
Officer
Date November 8, 1996
---------------------------------------------
<PAGE> 7
FINANCIAL STATEMENTS
TO
FORM 8-K/A
HOST FUNDING, INC.
<PAGE> 8
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
I. HOST FUNDING, INC. FINANCIAL STATEMENTS
A. Host Funding, Inc.'s Pro Forma Financial Statements
Introduction to Estimated Pro Forma Financial Statements . . . . . . . . . . . . . . . . . . F-3
Unaudited Estimated Pro Forma Balance Sheet as of June 30, 1996 . . . . . . . . . . . . . . F-4
Unaudited Estimated Pro Forma Statement of Income for the year ended
December 31, 1995, the twelve months ended June 30, 1996 and the
six months ended June 30, 1996 and June 30, 1995 . . . . . . . . . . . . . . . . F-5 - F-8
Notes to Unaudited Estimated Pro Forma Financial Statements . . . . . . . . . . . . . F-9 - F-11
B. Host Funding, Inc.'s Financial Statements for the year ended December 31, 1995
(included in Host Funding, Inc.'s previously filed Form 10-K for the year ended
December 31, 1995, incorporated by reference)
Independent Auditor's Report
Balance Sheet as of April 1, 1995 and December 31, 1995
Statement of Loss for the nine months ended December 31, 1995
Statement of Shareholder's Deficit for the nine months ended December 31, 1995
Statement of Cash Flows for the nine months ended December 31, 1995
Notes to Financial Statements
Independent Auditor's Report
Schedule III - Real Estate and Accumulated Depreciation
C. Host Funding, Inc.'s Financial Statements for the six months ended June 30, 1996
and 1995 (unaudited) (included in Host Funding, Inc.'s previously filed Form 10-Q
for the quarter ended June 30, 1996, incorporated by reference)
Balance Sheets as of June 30, 1996 and December 31, 1996 (unaudited)
Statement of Operations for the six months ended June 30, 1996 and 1995 (unaudited)
Statement of Shareholders' Equity (Deficit) for the six months ended June 30, 1996
(unaudited)
Statement of Cash Flows for the six months ended June 30, 1996 and 1995 (unaudited)
II. CAPITAL CIRCLE HOTEL COMPANY AND AFFILIATES, OCEAN SPRINGS HOTEL COMPANY
A. Financial Statements for the six months ended June 30, 1996 (unaudited)
Independent Auditor's Compilation Report . . . . . . . . . . . . . . . . . . . . . . . . . . F-12
Combined Balance Sheet as of June 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . F-13
Combined Statement of Earnings for the six months ended June 30, 1996 (unaudited) . . . . . F-14
Combined Statement of Retained Earnings for the six months ended June 30, 1996
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Combined Statement of Cash Flows for the six months ended June 30, 1996
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16
Notes to Combined Financial Statements for the six months ended June 30, 1996
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17 - F-21
</TABLE>
F-1
<PAGE> 9
<TABLE>
<S> <C> <C>
B. Financial Statements for the six months ended June 30, 1995 (unaudited)
Independent Auditor's Compilation Report . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
Combined Balance Sheet as of June 30, 1995 (unaudited) . . . . . . . . . . . . . . . F-23 - F-24
Combined Statement of Earnings for the six months ended June 30, 1995 (unaudited) . . . . . F-25
Combined Statement of Retained Earnings for the six months ended June 30, 1995
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Combined Statement of Cash Flows for the six months ended June 30, 1995
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Notes to Combined Financial Statements for the six months ended June 30, 1995
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28 - F-32
C. Financial Statements for the year ended December 31, 1995
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-33
Combined Balance Sheet as of December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . F-34
Combined Statement of Earnings for the year ended December 31, 1995 . . . . . . . . . . . . F-35
Combined Statement of Retained Earnings for the year ended December 31, 1995 . . . . . . . . F-36
Combined Statement of Cash Flows for the year ended December 31, 1995 . . . . . . . . . . . F-37
Notes to Combined Financial Statements for the year ended December 31, 1995 . . . . F-38 - F-42
D. Financial Statements for the year ended December 31, 1994
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-43
Combined Balance Sheet as of December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . F-44
Combined Statement of Operations for the year ended December 31, 1994 . . . . . . . . . . . F-45
Combined Statement of Accumulated Deficit for the year ended December 31, 1994 . . . . . . . F-46
Combined Statement of Cash Flows for the year ended December 31, 1994 . . . . . . . . . . . F-47
Notes to Combined Financial Statements for the year ended December 31, 1994 . . . . F-48 - F-52
E. Financial Statements for the year ended December 31, 1993
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-53
Combined Balance Sheet as of December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . F-54
Combined Statement of Operations for the year ended December 31, 1993 . . . . . . . . . . . F-55
Combined Statement of Accumulated Deficit for the year ended December 31, 1993 . . . . . . . F-56
Combined Statement of Cash Flows for the year ended December 31, 1993 . . . . . . . . . . . F-57
Notes to Combined Financial Statements for the year ended December 31, 1993 . . . . F-58 - F-61
</TABLE>
F-2
<PAGE> 10
HOST FUNDING, INC.
UNAUDITED ESTIMATED PRO FORMA BALANCE SHEET AS OF JUNE 30, 1996
AND UNAUDITED ESTIMATED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
THE TWELVE MONTHS ENDED JUNE 30, 1996
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
The following unaudited estimated pro forma balance sheet gives effect to:
(i) the acquisition of the four Acquired Properties; (ii) the commencement of
the Acquired Properties Leases; and (iii) certain other transactions described
in the notes hereto as through such transactions occurred on June 30, 1996.
The following unaudited estimated pro forma statements of income give effect
to: (i) the acquisition of Mission Bay; (ii) the acquisition of the four
Acquired Properties; (iii) the commencement of the Transfer Leases with
Crossroads; (iv) the commencement of the Acquired Properties Leases with
Crossroads; and (v) certain other transactions described in the notes hereto as
though such transactions occurred on January 1, 1995.
The estimated pro forma information is based in part upon the historical
statements of income or operations and historical balance sheet of the Company,
the Initial Hotels, Mission Bay and the Acquired Properties. Such information
should be read in conjunction with all of the financial statements and notes
thereto included in this Form 8-K. In the opinion of management, all
adjustments necessary to reflect the effects of the transactions discussed
above have been reflected in the estimated pro forma data.
The following unaudited estimated pro forma data is not necessarily
indicative of what the actual financial position or results of operations for
the Company would have been as of the date or for the period indicated, or does
it purport to represent the financial position or results of operations for the
Company for future periods.
F-3
<PAGE> 11
HOST FUNDING, INC.
ESTIMATED PRO FORMA BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
As of June 30, 1996
----------------------------------------------------
Pro Forma
Historical (A) Adjustments Pro Forma
---------- --- ------------ ---------
<S> <C> <C> <C>
ASSETS
Land, property and equipment, net $ 5,365,310 $ 13,853,042 (B) $ 19,218,352
Rent receivable - Crossroads 136,673 136,673
Due from related parties 34,256 34,256
Long-term advances to Crossroads 150,000 120,000 (C) 270,000
Other assets 31,314 753,165 (D) 784,479
Restricted cash - 160,722 (E) 160,722
Cash 470,181 (27,401)(F) 442,780
------------ -------------
Total $ 6,187,734 $ 21,047,262
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Long-term debt $ 996,160 $ (979,097)(G) $ 17,063
Note payable - 15,500,000 (H) 15,500,000
Accounts payable and accrued expenses 71,641 71,641
Accounts payable - stock issuance cos 17,478 17,478
Total liabilities 1,085,279 15,606,182
------------ -------------
Shareholders' Equity
Class A Common Stock, $.01 par value;
authorized 50,000,000 shares; issued
and outstanding 1,234,049 share 11,920 420 (I) 12,340
Class B Common Stock, $.01 par value;
authorized 4,000,000 shares; issued
and outstanding 140,000 shares. 1,400 1,400
Class C Common Stock, $.01 par value;
authorized 1,000,000 shares; issued
and outstanding 140,000 shares. 1,400 1,400
Additional paid in capital 7,160,811 338,205 (J) 7,499,016
Retained earnings 22,391 22,391
Less: Related party note receivab (1,805,675) (1,805,675)
Less: Unearned directors' compens (289,792) (289,792)
Total shareholders' equity 5,102,455 5,441,080
Total $ 6,187,734 $ 21,047,262
============ =============
</TABLE>
See notes to estimated pro forma financial statements.
F-4
<PAGE> 12
HOST FUNDING, INC.
ESTIMATED PRO FORMA STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Twelve Months Ended
December 31, 1995
--------------------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Revenues:
Lease revenue $ 806,670 $ 2,195,341 (K) $ 3,002,011
Interest income - related parties 135,673 102,008 (K) 237,681
FF&E reserve income - related parties 0 (L)
------------- --------------- -------------
Total revenues 942,343 2,297,349 3,239,692
------------- --------------- -------------
Expenses:
Interest 322,461 1,048,167 (M) 1,370,628
Property taxes - 230,000 (N) 230,000
Depreciation and amortization 111,099 589,891 (O) 700,990
Advisory fees - related parties - 30,000 (P) 30,000
Administrative expenses - related par 540,000 (540,000) (Q) -
Administrative expenses - other - 175,000 (R) 175,000
Amortization of unearned directors' compensation - 54,000 (S) 54,000
Provision for income taxes (3,000) 3,000 (T) -
------------- --------------- -------------
Total expenses 970,560 1,590,058 2,560,618
------------- --------------- -------------
Estimated net income $ (28,217) $ 707,291 $ 679,074
============= =============== =============
Estimated net income per share $ 0.45
=============
Estimated weighted average shares outstanding 1,514,049
=============
</TABLE>
See notes to estimated pro forma financial statements.
F-5
<PAGE> 13
HOST FUNDING, INC.
ESTIMATED PRO FORMA STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Twelve Months Ended
June 30, 1996
------------------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
-------------- --------------------- -------------
<S> <C> <C> <C>
Revenues:
Lease revenue $ 1,004,260 $ 2,106,584 (K) $ 3,110,844
Interest income - related parties 186,680 51,001 (K) 237,681
FF&E reserve income - related parties 77,941 (77,941) (L) 0
------------- ------------- ------------
Total revenues 1,268,881 2,079,644 3,348,525
------------- ------------- ------------
Expenses:
Interest 379,139 991,489 (M) 1,370,628
Property taxes 40,016 189,984 (N) 230,000
Depreciation and amortization 171,272 529,718 (O) 700,990
Advisory fees - related parties 6,083 23,917 (P) 30,000
Administrative expenses - related par 584,000 (584,000) (Q) -
Administrative expenses - other 73,155 101,845 (R) 175,000
Amortization of unearned directors' compensation 10,208 43,792 (S) 54,000
Provision for income taxes (7,345) 7,345 (T) -
------------- ------------- ------------
Total expenses 1,256,528 1,304,090 2,560,618
------------- ------------- ------------
Estimated net income $ 12,353 $ 775,554 $ 787,907
============= ============= ============
Estimated net income per share $ 0.52
============
Estimated weighted average shares outstanding 1,514,049
============
</TABLE>
See notes to estimated pro forma financial statements.
F-6
<PAGE> 14
HOST FUNDING, INC.
ESTIMATED PRO FORMA STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
-------------------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Revenues:
Lease revenue $ 481,984 $ 1,116,522 (K) $ 1,598,506
Interest income - related parties 105,177 13,664 (K) 118,841
FF&E reserve income - related parties 77,941 (77,941) (L) -
------------- ------------- -------------
Total revenues 665,102 1,052,245 1,717,347
------------- ------------- -------------
Expenses:
Interest 160,826 524,489 (M) 685,315
Property taxes 40,016 74,984 (N) 115,000
Depreciation and amortization 97,206 253,289 (O) 350,495
Advisory fees - related parties 6,083 8,917 (P) 15,000
Administrative expenses - related parties 224,000 (224,000) (Q) -
Administrative expenses - other 73,155 14,345 (R) 87,500
Amortization of unearned directors' compensation 10,208 16,792 (S) 27,000
Provision for income taxes - 0 (T) -
Total expenses 611,494 668,816 1,280,310
------------- ------------- -------------
Estimated net income $ 53,608 $ 383,429 $ 437,037
============= ============= =============
Estimated net income per share $ 0.29
=============
Estimated weighted average shares outstanding 1,514,049
=============
</TABLE>
See notes to estimated pro forma financial statements.
F-7
<PAGE> 15
HOST FUNDING, INC.
ESTIMATED PRO FORMA STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995
---------------------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Revenues:
Lease revenue $ 284,394 $ 1,234,847 (K) $ 1,519,241
Interest income - related parties 54,170 64,671 (K) 118,841
FF&E reserve income - related parties 0 (L)
----------- ------------ ------------
Total revenues 338,564 1,299,518 1,638,082
----------- ------------ ------------
Expenses:
Interest 104,148 581,167 (M) 685,315
Property taxes - 115,000 (N) 115,000
Depreciation and amortization 37,033 313,462 (O) 350,495
Advisory fees - related parties - 15,000 (P) 15,000
Administrative expenses - related parties 180,000 (180,000) (Q) -
Administrative expenses - other - 87,500 (R) 87,500
Amortization of unearned directors' compensation - 27,000 (S) 27,000
Provision for income taxes 4,345 (4,345) (T) -
----------- ------------ ------------
Total expenses 325,526 954,784 1,280,310
----------- ------------ ------------
Estimated net income 13,038 $ 344,734 $ 357,772
=========== ============ ============
Estimated net income per share $ 0.24
============
Estimated weighted average shares outstanding 1,514,049
============
</TABLE>
See notes to estimated pro forma financial statements.
F-8
<PAGE> 16
HOST FUNDING, INC.
NOTES TO ESTIMATED PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(A) Represents the historical balance sheet of the Company as of June 30,
1996.
(B) Represents the acquisition of the four Acquired Properties on a pro
forma basis as of June 30, 1996.
(C) Represents the long-term advances to Crossroads required under the new
Acquired Property Leases.
(D) Represents the loan commitment fees totaling $693,165, and the
franchise fees totaling $60,000 incurred as a result of the Acquired Properties
acquisition on a pro forma basis as of June 30, 1996
(E) Represents the restricted cash escrow deposit required for property
taxes and capital expenditures as a result of the execution of the Loan
Facility.
(F) Net change in cash represents the following transactions on a pro
forma basis as of June 30, 1996:
<TABLE>
<S> <C>
Proceeds from note payable incurred to finance the acquisition of Sleep Inns $ 15,500,000
Land, property and equipment costs of the Sleep Inns (13,514,417)
Long-term advances to Crossroads (120,000)
Restricted cash (160,722)
Other assets (753,165)
Long-term debt paid off (979,097)
-------------
$ (27,401)
=============
</TABLE>
(G) Represents the payoff of the Rock Falls long-term debt upon the
acquisition of the new loan facility.
(H) Represents the acquisition of the new Loan Facility used to acquire
the four Acquired Properties and to pay off the Rock Falls long-term debt.
(I) Represents the Class A Common Stock par value $0.01 issued to HMR
Capital, LLC, the related party acquisition company, for the Acquired
Properties Acquisition Fee on the Acquired Properties transaction.
(J) Represents the additional paid in capital issued to HMR Capital, LLC,
the parent of the related party acquisition company, for the Acquired
Properties Acquisition Fee on the Acquired Properties transaction.
(K) Represents the effect of the Transferred Leases and Acquired
Properties Leases with Crossroads, Unsecured Directors' Compensation Notes and
Related Party Note Receivable on revenues. Rent is derived from annual base
rent and percentage rent calculated based upon various revenue and percentage
levels for individual leases on individual hotels as follows:
<TABLE>
<CAPTION>
Twelve Six Six
Mo. Ended Year Ended Mo. Ended Mo. Ended
June 30, December 31, June 30, June 30,
1996 1995 1996 1995
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Base and Percentage Rent $ 3,110,844 $ 3,002,011 $ 1,598,506 $ 1,519,241
Less: Amounts included in historical
operating results (1,004,260) (806,670) (481,984) (284,394)
------------ ------------ ------------ ------------
$ 2,106,584 $ 2,195,341 $ 1,116,522 $ 1,234,847
============ ============ ============ ============
Interest Income - related parties is as follows:
Related party note receivable $ 237,681 $ 237,681 $ 118,841 $ 118,841
Less: Amounts included in historical
operating results (186,680) (135,673) (105,177) (54,170)
------------ ------------ ------------ ------------
$ 51,001 $ 102,008 $ 13,664 $ 64,671
============ ============ ============ ============
</TABLE>
F-9
<PAGE> 17
In addition, the Company is responsible for replacement reserve expenditures
under the Transferred and Acquired Properties Leases with Crossroads, which
amounts are equal to 6% of Transferred Property gross revenues and 4% of
Acquired Properties gross revenues.
(L) Represents the reversal of the FF&E reserve income - related parties
which was a one-time occurrence upon the completion of the Stock Offering.
(M) Represents the effects of payments due and amortization of loan fees
for the loan Facility after the Acquired Properties acquisition as follows:
<TABLE>
<CAPTION>
Twelve Six Six
Mo. Ended Year Ended Mo. Ended Mo. Ended
June 30, December 31, June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Expense $ 1,370,628 $ 1,370,628 $ 685,315 $ 685,315
Less: Amounts included in historical
operating results (379,139) (322,461) (160,826) (104,148)
------------ ------------ ------------ ------------
$ 991,489 $ 1,048,167 $ 524,489 $ 581,167
============ ============ ============ ============
</TABLE>
(N) Represents the estimated property taxes due after execution of the
Transfer Leases and the Acquired Properties Leases.
(O) Represents the effect of the acquisition of the Initial Hotels,
Mission Bay and the Acquired Properties on depreciation and amortization
expense. Depreciation expense is calculated on a straight line basis over the
estimated lives of buildings, improvements and equipment of up to 35 years.
Franchise fee amortization is calculated on a straight-line basis over the life
of the franchise agreement.
<TABLE>
<CAPTION>
Twelve Six Six
Mo. Ended Year Ended Mo. Ended Mo. Ended
June 30, December 31, June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Depreciation and amortization $ 700,990 $ 700,990 $ 350,495 $ 350,495
Less: Amounts included in historical
operating results (171,272) (111,099) (97,206) (37,033)
------------ ------------ ------------ ------------
$ 529,718 $ 589,891 $ 253,289 $ 313,462
============ ============ ============ ============
</TABLE>
(P) Under the terms of the Advisory Agreement, Advisors is paid its fee
for providing investment, management and administrative services to Host
Funding. The advisory fee is currently fixed at $30,000 annually.
<TABLE>
<CAPTION>
Twelve Six Six
Mo. Ended Year Ended Mo. Ended Mo. Ended
June 30, December 31, June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Advisory fee $ 30,000 $ 30,000 $ 15,000 $ 15,000
Less: Amounts included in historical
operating results (6,083) 0 (6,083) 0
------------ ------------ ------------ ------------
$ 23,917 $ 30,000 $ 8,917 $ 15,000
============ ============ ============ ============
</TABLE>
(Q) Represents the reversal of the administrative expenses - related
parties, which agreement was canceled upon completion of the Stock Offering.
F-10
<PAGE> 18
(R) Represents estimated general and administrative expenses of Host
Funding related to independent trustee fees, legal, accounting and other
administrative expenses as detailed below.
<TABLE>
<CAPTION>
Twelve Six Six
Mo. Ended Year Ended Mo. Ended Mo. Ended
June 30, December 31, June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Independent trustee fees $ 20,000 $ 20,000 $ 10,000 $ 10,000
Legal fees 20,000 20,000 10,000 10,000
Accounting fees 30,000 30,000 15,000 15,000
Other administrative expense 105,000 105,000 52,500 52,500
Less: Amounts included in historical
operating results (73,155) 0 (73,155) 0
------------ ----------- ----------- -----------
$ 101,845 $ 175,000 $ 14,345 $ 87,500
============ =========== ============ ============
</TABLE>
These amounts have been estimated by Host Funding based on management's
experience and/or discussions with service providers.
(S) Represents amortization of unearned director's compensation for
independent directors pursuant to vesting provisions in the share purchase plan
agreements and the assumption the directors will become fully vested.
(T) Represents reversal of federal tax provision due to election of Host
Funding to be taxed as a REIT under the Code.
F-11
<PAGE> 19
Board of Directors
Capital Circle Hotel Company and
Ocean Springs Hotel Company
Somerville, Tennessee
We have compiled the accompanying combined balance sheet of Capital Circle
Hotel Company's Tallahassee, Destin and Sarasota, Florida, hotels and
affiliate, Ocean Springs Hotel Company's Ocean Springs, Mississippi, hotel, as
of June 30, 1996, and the related combined statements of earnings, retained
earnings, and cash flows for the six months then ended, in accordance with
STATEMENTS ON STANDARDS FOR ACCOUNTING AND REVIEW SERVICES issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying combined financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
Columbus, Mississippi
September 9, 1996
F-12
<PAGE> 20
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED BALANCE SHEET
JUNE 30, 1996
SEE ACCOUNTANTS' COMPILATION REPORT
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 150,346
Accounts receivable (Note A-3) 128,990
Prepaid expenses 98,680
--------------
Total current assets 378,016
PROPERTY AND EQUIPMENT (Notes A-4 and C)
Land 1,297,038
Buildings 7,568,692
Signs 65,220
Hotel furniture and fixtures 1,063,998
Office equipment 69,223
Automobiles 33,765
--------------
Total 10,097,936
Accumulated depreciation 1,336,354
--------------
8,761,582
INTERCOMPANY ACCOUNTS 246,196
OTHER ASSETS (Notes A-5 and B) 329,535
--------------
Total Assets $ 9,715,329
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt (Note C) $ 4,594,867
Accounts payable and accrued expenses 233,449
--------------
Total current liabilities 4,828,316
LONG-TERM DEBT, less current maturities (Note C) 4,259,030
STOCKHOLDERS' EQUITY
Retained earnings 627,983
--------------
Total Liabilities and Stockholders' Equity $ 9,715,329
==============
</TABLE>
The accompanying notes are an integral part of this statement.
F-13
<PAGE> 21
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1996
SEE ACCOUNTANTS' COMPILATION REPORT
<TABLE>
<S> <C>
REVENUE
Rooms $ 2,115,516
Telephone 55,908
Other 11,951
------------
Total revenue 2,183,375
COST OF SALES
Rooms Department $ 443,043
Telephone Department 37,567 480,610
----------- ------------
Gross operating income 1,702,765
GENERAL AND UNAPPLIED EXPENSES
Administrative and general 100,107
Sales, marketing and finance 149,764
Utilities 86,134
Maintenance 58,231 394,236
-----------
CAPITAL EXPENSES
Property insurance 35,052
Real estate taxes 51,159 86,211
----------- ------------
Income before other expenses 1,222,318
OTHER EXPENSES
Amortization 49,967
Interest expense 390,260
Depreciation expense 215,538 655,765
----------- ------------
Loss before income taxes 566,553
Income taxes (Note A-6):
Assumed payable 188,832
Benefits arising from special tax election by shareholders (188,832)
------------
Net Earnings $ 566,553
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-14
<PAGE> 22
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF RETAINED EARNINGS
SIX MONTHS ENDED JUNE 30, 1996
SEE ACCOUNTANTS' COMPILATION REPORT
<TABLE>
<S> <C>
Balance at beginning of period $ 61,430
Net earnings for the period 566,553
---------------
Balance at end of period $ 627,983
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-15
<PAGE> 23
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996
SEE ACCOUNTANTS' COMPILATION REPORT
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 566,553
Adjustments to reconcile net earnings to net cash and cash equivalents:
Depreciation 215,538
Amortization 49,967
Increase in receivables (9,301)
Increase in prepaid expenses (78,516)
Decrease in accounts payable and accrued expenses (131,023)
------------
Net cash provided by operations 613,218
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (53,582)
Change in intercompany accounts (407,336)
------------
Net cash used in investing activities (460,918)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (78,587)
------------
Net cash used in financing activities (78,587)
------------
Net increase in cash and cash equivalents 73,713
Cash and cash equivalents at beginning of period 76,633
------------
Cash and cash equivalents at end of period $ 150,346
============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 390,260
</TABLE>
The accompanying notes are an integral part of this statement.
F-16
<PAGE> 24
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
BUSINESS
Capital Circle Hotel Company was organized on August 9, 1990, in the State
of Florida for the purpose of ownership and management of hotels. The
Company was in the construction stage from its formation until January 31,
1992, with hotel operations beginning on February 1, 1992. The Company
currently operates Sleep Inn Hotels in Tallahassee, Destin and Sarasota,
Florida, with construction in progress on a Sleep Inn at Orange Beach,
Alabama.
Ocean Springs Hotel Company was organized on December 28, 1993, in the State
of Mississippi for the purpose of ownership and management of hotels. The
Company was in the construction stage from its formation until February 28,
1995, with the hotel operations beginning on March 1, 1995.
COMBINED FINANCIAL STATEMENTS
The Companies are under common management and control. The president and
sole stockholder of Capital Circle Hotel Company is also the president of
Ocean Springs Hotel Company.
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows.
1. FINANCIAL STATEMENTS
The accompanying financial statements only include the accounts of the
Companies' Sleep Inn Hotels located at Tallahassee, Destin and Sarasota,
Florida, and Ocean Springs, Mississippi. The statement of operations
includes six months for the hotels located at Tallahassee, Destin, and
Sarasota, and for the hotel located at Ocean Springs. All intercompany
transactions have been eliminated.
2. CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
( Continued )
F-17
<PAGE> 25
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
3. ACCOUNTS RECEIVABLE
The Companies consider the accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, including capitalized
interest and other costs incurred during the period of construction.
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives on a straight-line basis for financial and tax purposes. The
estimated lives used are:
Buildings and improvements 35 years
Machinery and equipment 5 - 15 years
Office furniture and equipment 5 - 7 years
5. AMORTIZATION OF OTHER ASSETS
Hotel franchise - Franchise costs are capitalized in the year the franchise
is acquired. Franchises acquired after August 10, 1993, are amortized
straight-line over fifteen years beginning with date acquired.
Costs incurred to obtain long-term financing are deferred and amortized over
the terms of the related financing on a straight-line basis.
Preopening costs and expense are capitalized as incurred and amortized
straight-line over five years beginning with the month of hotel occupancy.
6. INCOME TAXES
The income taxes on the net earnings for the year are payable personally by
the stockholders pursuant to an election as an S Corporation under the
Internal Revenue Code not to have the Company taxed as a corporation.
( Continued )
F-18
<PAGE> 26
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
7. CONCENTRATION OF CREDIT RISK - CASH
The Companies maintain their cash balances primarily in two financial
institutions which, at times, may exceed federally insured limits. The
Companies have not experienced any losses in such accounts and believe they
are not exposed to any significant credit risk on cash and cash equivalents.
8. CONCENTRATION OF CREDIT RISK - CREDIT RECEIVABLES
Credit receivables have concentration of credit risks in the hotel sector.
The Companies rent rooms on a daily basis to individuals and to companies.
Historically, the Companies have not experienced significant losses related
to receivables from individual customers or groups of customers.
9. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those amounts.
NOTE B - OTHER ASSETS
Other assets consist of:
<TABLE>
<S> <C>
Sleep Inn franchises $ 140,000
Less amortization of franchise acquired after August 10,
1993, over fifteen years beginning with date acquired 3,112
------------
136,888
Fees of obtaining financing 36,279
Less amortization over the term of the related financing
beginning February, 1993 13,882
------------
22,397
Preopening costs and expense 464,509
Less amortization over five years beginning with the month
of occupancy 294,259
------------
170,250
------------
$ 329,535
============
</TABLE>
F-19
<PAGE> 27
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
<TABLE>
<CAPTION>
NOTE C - LONG-TERM DEBT
<S> <C>
Details of long-term debt at June 30, 1996, were as follows:
Note payable to a mortgage company, due in monthly installments of
$20,951, including interest with final installment of $2,158,574 due
February, 1997. Collateralized by Hotel property. $ 2,148,038
Note payable to a mortgage company, due in monthly installments of
$22,618, including interest with final installment of $2,330,278 due
June, 1997. Collateralized by Hotel property. 2,326,828
Note payable to a mortgage company. Due in monthly installments of
$24,284, including interest with final installment of $2,501,982 due
March, 1998. Collateralized by Hotel property. 2,507,667
Note payable to a mortgage company, due in monthly installments of
$18,468, including interest with final installment of $944,631 due
July, 2000. Collateralized by Hotel property. 1,352,723
Note payable to the Small Business Administration, due in monthly
installments of $4,353, including interest with final installment due
June, 2020. Collateralized by Hotel property. 518,641
-------------
8,853,897
Less current maturities 4,594,867
-------------
$ 4,259,030
=============
</TABLE>
<TABLE>
<CAPTION>
Aggregate maturities of long-term debt for the next five years are as follows:
<S> <C>
1997 $ 4,594,867
1998 2,596,404
1999 116,790
2000 128,969
2001 952,237
Thereafter 464,630
</TABLE>
F-20
<PAGE> 28
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE D - FINANCIAL INSTRUMENTS
The financial statements include various estimated fair value information as
of June 30, 1996, as required by FINANCIAL ACCOUNTING STANDARDS BOARD
STATEMENT 107. Such information, which pertains to the Companies' financial
instruments, is based on the requirements set forth in that Statement and
does not purport to represent the aggregate fair value of the Companies.
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 approximates fair value.
Long-term debt: Rates currently available for debt with similar issues and
remaining maturities are used to estimate the fair value of the Companies'
long-term debt.
The estimated fair values of the Companies' financial instruments are as
follows:
All of the Companies' financial instruments are held for purposes other
than trading. The carrying amounts in the table below are the amounts at
which the financial instruments are reported in the financial statements.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
Of Assets Of Assets
(Liabilities) (Liabilities)
--------------- ---------------
<S> <C> <C>
Cash $ 150,346 $ 150,346
Long-term debt (8,853,897) (9,001,438)
</TABLE>
F-21
<PAGE> 29
Board of Directors
Capital Circle Hotel Company and
Ocean Springs Hotel Company
Somerville, Tennessee
We have compiled the accompanying combined balance sheet of Capital Circle
Hotel Company's Tallahassee, Destin and Sarasota, Florida, hotels and
affiliate, Ocean Springs Hotel Company's Ocean Springs, Mississippi, hotel, as
of June 30, 1995, and the related combined statements of earnings, retained
earnings, and cash flows for the six months then ended, in accordance with
STATEMENTS ON STANDARDS FOR ACCOUNTING AND REVIEW SERVICES issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying combined financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
Columbus, Mississippi
September 9, 1996
F-22
<PAGE> 30
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED BALANCE SHEET
JUNE 30, 1995
SEE ACCOUNTANTS' COMPILATION REPORT
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 86,112
Accounts receivable (Note A-3) 97,109
Prepaid expenses 63,541
----------------
Total current assets 246,762
PROPERTY AND EQUIPMENT (Notes A-4 and C)
Land 1,297,038
Buildings 7,181,950
Signs 63,418
Hotel furniture and fixtures 978,998
Office equipment 55,197
Automobiles 33,765
----------------
Total 9,610,366
Accumulated depreciation 899,838
----------------
8,710,528
OTHER ASSETS (Notes A-5 and B) 428,027
----------------
Total Assets $ 9,385,317
================
</TABLE>
F-23
<PAGE> 31
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
CURRENT LIABILITIES
Current maturities of long-term debt (Note C) $ 141,968
Accounts payable and accrued expenses 200,344
----------------
Total current liabilities 342,312
OTHER LIABILITIES
Accounts payable - construction costs 33,500
LONG-TERM DEBT, less current maturities (Note C) 8,764,536
INTERCOMPANY ACCOUNT 123,238
STOCKHOLDERS' EQUITY
Retained earnings 121,731
----------------
Total Liabilities and Stockholders' Equity $ 9,385,317
================
</TABLE>
The accompanying notes are an integral part of this statement.
F-24
<PAGE> 32
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1995
SEE ACCOUNTANTS' COMPILATION REPORT
<TABLE>
<S> <C> <C>
REVENUE
Rooms $ 1,907,798
Telephone 44,383
Other 11,090
-----------
Total revenue 1,963,271
COST OF SALES
Rooms Department $ 371,395
Telephone Department 33,960 405,355
------------ -----------
Gross operating income 1,557,916
GENERAL AND UNAPPLIED EXPENSES
Administrative and general 98,080
Sales, marketing and finance 122,430
Utilities 84,274
Maintenance 50,303 355,087
------------
CAPITAL EXPENSES
Property insurance 49,132
Real estate taxes 87,999 137,131
------------ -----------
Earnings before other expenses 1,065,698
OTHER EXPENSES
Amortization 44,093
Interest expense 422,772
Depreciation expense 170,109 636,974
------------ -----------
Earnings before income taxes 428,724
Income taxes (Note A-6):
Assumed payable 145,168
Benefits arising from special tax election by shareholders (145,168)
-----------
Net Earnings $ 428,724
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-25
<PAGE> 33
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF RETAINED EARNINGS
SIX MONTHS ENDED JUNE 30, 1995
SEE ACCOUNTANTS' COMPILATION REPORT
<TABLE>
<S> <C>
Balance at beginning of period (deficit) $ (306,993)
Net earnings for the period 428,724
---------------
Balance at end of period $ 121,731
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-26
<PAGE> 34
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995
SEE ACCOUNTANTS' COMPILATION REPORT
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 428,724
Adjustments to reconcile net earnings to net cash and cash equivalents:
Depreciation 170,109
Amortization 44,093
Increase in receivables (24,320)
Increase in prepaid expenses (34,238)
Decrease in accounts payable and accrued expenses (68,966)
Decrease in accounts payable - construction costs (230,991)
---------------
Net cash provided by operations 284,411
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (290,323)
Increase in other assets (155,824)
Decrease in intercompany account (154,622)
---------------
Net cash used in investing activities (600,769)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 533,000
Principal payments on long-term debt (199,736)
---------------
Net cash provided by financing activities 333,264
---------------
Net increase in cash and cash equivalents 16,906
Cash and cash equivalents at beginning of period 69,206
---------------
Cash and cash equivalents at end of period $ 86,112
===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 422,772
</TABLE>
The accompanying notes are an integral part of this statement.
F-27
<PAGE> 35
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995
BUSINESS
Capital Circle Hotel Company was organized on August 9, 1990, in the State
of Florida for the purpose of ownership and management of hotels. The
Company was in the construction stage from its formation until January 31,
1992, with hotel operations beginning on February 1, 1992. The Company
currently operates Sleep Inn Hotels in Tallahassee, Destin and Sarasota,
Florida, with construction in progress on a Sleep Inn at Orange Beach,
Alabama.
Ocean Springs Hotel Company was organized on December 28, 1993, in the State
of Mississippi for the purpose of ownership and management of hotels. The
Company was in the construction stage from its formation until February 28,
1995, with the hotel operations beginning on March 1, 1995.
COMBINED FINANCIAL STATEMENTS
The Companies are under common management and control. The president and
sole stockholder of Capital Circle Hotel Company is also the president of
Ocean Springs Hotel Company.
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows.
1. FINANCIAL STATEMENTS
The accompanying financial statements only include the accounts of the
Companies' Sleep Inn Hotels located at Tallahassee, Destin and Sarasota,
Florida, and Ocean Springs, Mississippi. The statement of operations
includes six months for the hotels located at Tallahassee, Destin, and
Sarasota, and four months for the hotel located at Ocean Springs. All
intercompany transactions have been eliminated.
2. CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
( Continued )
F-28
<PAGE> 36
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
3. ACCOUNTS RECEIVABLE
The Companies consider the accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, including capitalized
interest and other costs incurred during the period of construction.
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives on a straight-line basis for financial and tax purposes. The
estimated lives used are:
<TABLE>
<S> <C>
Buildings and improvements 35 years
Machinery and equipment 5 -15 years
Office furniture and equipment 5 - 7 years
</TABLE>
5. AMORTIZATION OF OTHER ASSETS
Hotel franchise - Franchise costs are capitalized in the year the franchise
is acquired. Franchises acquired after August 10, 1993, are amortized
straight-line over fifteen years beginning with date acquired.
Costs incurred to obtain long-term financing are deferred and amortized over
the terms of the related financing on a straight-line basis.
Preopening costs and expense are capitalized as incurred and amortized
straight-line over five years beginning with the month of hotel occupancy.
6. INCOME TAXES
The income taxes on the net earnings for the year are payable personally by
the stockholders pursuant to an election as an S Corporation under the
Internal Revenue Code not to have the Company taxed as a corporation.
( Continued )
F-29
<PAGE> 37
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
7. CONCENTRATION OF CREDIT RISK - CASH
The Companies maintain their cash balances primarily in two financial
institutions which, at times, may exceed federally insured limits. The
Companies have not experienced any losses in such accounts and believe they
are not exposed to any significant credit risk on cash and cash equivalents.
8. CONCENTRATION OF CREDIT RISK - CREDIT RECEIVABLES
Credit receivables have concentration of credit risks in the hotel sector.
The Companies rent rooms on a daily basis to individuals and to companies.
Historically, the Companies have not experienced significant losses related
to receivables from individual customers or groups of customers.
9. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those amounts.
NOTE B - OTHER ASSETS
<TABLE>
<CAPTION>
Other assets consist of:
<S> <C>
Sleep Inn franchises $ 140,000
Less amortization of franchise acquired after August 10, 1993,
over fifteen years beginning with date acquired 778
---------------
139,222
Deferred financing costs and fees of obtaining financing 36,279
Less amortization over the term of the related financing beginning
February, 1993 7,465
---------------
28,814
Preopening costs and expense 464,509
Less amortization over five years beginning with the month of
occupancy 204,518
---------------
259,991
---------------
$ 428,027
===============
</TABLE>
F-30
<PAGE> 38
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE C - LONG-TERM DEBT
<TABLE>
<S> <C>
Details of long-term debt at June 30, 1995, were as follows:
Note payable to a mortgage company, due in monthly installments of
$20,951, including interest with final installment of $2,158,574 due
February, 1997. Collateralized by Hotel property. $ 2,162,303
Note payable to a mortgage company, due in monthly installments of
$22,618, including interest with final installment of $2,330,278 due
June, 1997. Collateralized by Hotel property. 2,343,718
Note payable to a mortgage company. Due in monthly installments of
$24,284, including interest with final installment of $2,501,982 due
March, 1998. Collateralized by Hotel property. 2,429,858
Note payable to a mortgage company, due in monthly installments of
$18,468, including interest with final installment of $944,631 due
July, 2000. Collateralized by Hotel property. 1,437,625
Note payable to the Small Business Administration, due in monthly
installments of $4,353, including interest with final installment due
June, 2020. Collateralized by Hotel property. 533,000
---------------
8,906,504
Less current maturities 141,968
---------------
$ 8,764,536
===============
</TABLE>
<TABLE>
<CAPTION>
Aggregate maturities of long-term debt for the next five years are as follows:
<S> <C>
1996 $ 141,966
1997 4,595,952
1998 2,503,910
1999 116,790
2000 129,737
Thereafter 1,418,147
</TABLE>
F-31
<PAGE> 39
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE D - RELATED PARTY TRANSACTIONS
The Company president and sole stockholder of Capital Circle Hotel Company
and minority stockholder of Ocean Springs Hotel Company is also an officer
of a company that has hotel construction contracts with the Company. The
following is a summary of transactions with the affiliates in 1995.
Purchases and construction services $ 2,177,862
NOTE E - FINANCIAL INSTRUMENTS
The financial statements include various estimated fair value information as
of June 30, 1995, as required by FINANCIAL ACCOUNTING STANDARDS BOARD
STATEMENT 107. Such information, which pertains to the Companies' financial
instruments, is based on the requirements set forth in that Statement and
does not purport to represent the aggregate fair value of the Companies.
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 approximates fair value.
Long-term debt: Rates currently available for debt with similar issues and
remaining maturities are used to estimate the fair value of the Companies'
long-term debt.
The estimated fair values of the Companies' financial instruments are as
follows:
All of the Companies' financial instruments are held for purposes other
than trading. The carrying amounts in the table below are the amounts at
which the financial instruments are reported in the financial statements.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
Of Assets Of Assets
(Liabilities) (Liabilities)
--------------- ---------------
<S> <C> <C>
Cash $ 86,112 $ 86,112
Long-term debt (8,906,504) (9,055,355)
</TABLE>
F-32
<PAGE> 40
REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Capital Circle Hotel Company and
Ocean Springs Hotel Company
Somerville, Tennessee
We have audited the accompanying combined balance sheet of Capital Circle Hotel
Company's Tallahassee, Destin and Sarasota, Florida, hotels, and affiliate,
Ocean Springs Hotel Company's Ocean Springs, Mississippi, hotel, as of December
31, 1995, and the related combined statements of operations, retained earnings
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 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 Capital Circle Hotel Company's
Tallahassee, Destin, and Sarasota, Florida, hotels, and affiliate, Ocean
Springs Hotel Company's Ocean Springs, Mississippi, hotel, as of December 31,
1995, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
Columbus, Mississippi
March 29, 1996
F-33
<PAGE> 41
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 76,633
Accounts receivable (Note A-3) 119,689
Prepaid expenses 20,164
---------------
Total current assets 216,486
PROPERTY AND EQUIPMENT (Notes A-4 and C)
Land 1,297,038
Buildings 7,554,669
Signs 65,221
Hotel furniture and fixtures 1,024,437
Office equipment 69,224
Automobiles 33,765
---------------
Total 10,044,354
Accumulated depreciation 1,120,816
---------------
8,923,538
OTHER ASSETS (Notes A-5 and B) 379,502
---------------
Total Assets $ 9,519,526
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt (Note C) $ 148,751
Accounts payable 139,846
Accrued expenses 224,626
---------------
Total current liabilities 513,223
LONG-TERM DEBT, less current maturities (Note C) 8,783,733
INTERCOMPANY ACCOUNTS 161,140
---------------
Total liabilities 9,458,096
STOCKHOLDERS' EQUITY
Retained earnings 61,430
---------------
Total Liabilities and Stockholders' Equity $ 9,519,526
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-34
<PAGE> 42
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
REVENUE
Rooms $ 3,677,319
Telephone 84,350
Other 41,436
---------------
Total revenue 3,803,105
COST OF SALES
Rooms Department $ 821,792
Telephone Department 86,359 908,151
-------------- ---------------
Gross operating income 2,894,954
GENERAL AND UNAPPLIED EXPENSES
Administrative and general 245,442
Sales, marketing and finance 309,053
Utilities 215,412
Maintenance 152,359 922,266
--------------
CAPITAL EXPENSES
Property insurance 100,784
Real estate taxes 108,187 208,971
-------------- ---------------
Income before other expenses 1,763,717
OTHER EXPENSES
Amortization 89,994
Interest expense 914,213
Depreciation expense 391,087 1,395,294
-------------- ---------------
Earnings before income taxes 368,423
Income taxes (Note A-6):
Assumed payable 114,211
Benefits arising from special tax election by shareholders (114,211)
----------------
Net Earnings $ 368,423
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-35
<PAGE> 43
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Balance at beginning of year (deficit) $ (306,993)
Net earnings for the year 368,423
---------------
Balance at end of year $ 61,430
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-36
<PAGE> 44
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 368,423
Adjustments to reconcile net earnings to net cash and cash equivalents:
Depreciation 391,087
Amortization 89,994
Increase in receivables (46,900)
Decrease in prepaid expenses 9,139
Increase in accounts payable and accrued expenses 95,162
Decrease in accounts payable - construction costs (264,491)
---------------
Net cash provided by operations 642,414
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (724,311)
Increase in other assets (153,200)
---------------
Net cash used in investing activities (877,511)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in intercompany account (116,720)
Proceeds from long-term debt 533,000
Principal payments on long-term debt (173,756)
---------------
Net cash provided by financing activities 242,524
---------------
Net increase in cash and cash equivalents 7,427
Cash and cash equivalents at beginning of year 69,206
---------------
Cash and cash equivalents at end of year $ 76,633
===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 913,833
</TABLE>
The accompanying notes are an integral part of this statement.
F-37
<PAGE> 45
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
BUSINESS
Capital Circle Hotel Company was organized on August 9, 1990, in the State
of Florida for the purpose of ownership and management of hotels. The
Company was in the construction stage from its formation until January 31,
1992, with hotel operations beginning on February 1, 1992. The Company
currently operates Sleep Inn Hotels in Tallahassee, Destin and Sarasota,
Florida, with construction in progress on a Sleep Inn at Orange Beach,
Alabama.
Ocean Springs Hotel Company was organized on December 28, 1993, in the State
of Mississippi for the purpose of ownership and management of hotels. The
Company was in the construction stage from its formation until February 28,
1995, with the hotel operations beginning on March 1, 1995.
COMBINED FINANCIAL STATEMENTS
The Companies are under common management and control. The president and
sole stockholder of Capital Circle Hotel Company is also the president of
Ocean Springs Hotel Company.
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows.
1. FINANCIAL STATEMENTS
The accompanying financial statements only include the accounts of the
Companies' Sleep Inn Hotels located at Tallahassee, Destin and Sarasota,
Florida, and Ocean Springs, Mississippi. The statement of operations
includes twelve months for the hotels located at Tallahassee, Destin, and
Sarasota, and ten months for the hotel located at Ocean Springs. All
intercompany transactions have been eliminated.
2. CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
( Continued )
F-38
<PAGE> 46
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
3. ACCOUNTS RECEIVABLE
The Companies consider the accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, including capitalized
interest and other costs incurred during the period of construction.
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives on a straight-line basis for financial and tax purposes. The
estimated lives used are:
<TABLE>
<S> <C>
Buildings and improvements 35 years
Machinery and equipment 5 - 15 years
Office furniture and equipment 5 - 7 years
</TABLE>
5. AMORTIZATION OF OTHER ASSETS
Hotel franchise - Franchise costs are capitalized in the year the franchise
is acquired. Franchises acquired after August 10, 1993, are amortized
straight-line over fifteen years beginning with date acquired.
Costs incurred to obtain long-term financing are deferred and amortized over
the terms of the related financing on a straight-line basis.
Preopening costs and expense are capitalized as incurred and amortized
straight-line over five years beginning with the month of hotel occupancy.
6. INCOME TAXES
The income taxes on the net earnings for the year are payable personally by
the stockholders pursuant to an election as an S Corporation under the
Internal Revenue Code not to have the Company taxed as a corporation.
( Continued )
F-39
<PAGE> 47
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
7. CONCENTRATION OF CREDIT RISK - CASH
The Companies maintain their cash balances primarily in two financial
institutions which, at times, may exceed federally insured limits. The
Companies have not experienced any losses in such accounts and believe they
are not exposed to any significant credit risk on cash and cash equivalents.
8. CONCENTRATION OF CREDIT RISK - CREDIT RECEIVABLES
Credit receivables have concentration of credit risks in the hotel sector.
The Companies rent rooms on a daily basis to individuals and to companies.
Historically, the Companies have not experienced significant losses related
to receivables from individual customers or groups of customers.
9. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those amounts.
NOTE B - OTHER ASSETS
Other assets consist of:
<TABLE>
<S> <C>
Sleep Inn franchises $ 140,000
Less amortization of franchise acquired after August 10, 1993,
over fifteen years beginning with date acquired 1,945
---------------
138,055
Deferred financing costs and fees of obtaining financing 36,279
Less amortization over the term of the related financing beginning
February, 1993 9,585
---------------
26,694
Preopening costs and expense 464,509
Less amortization over five years beginning with the month of
occupancy 249,756
---------------
214,753
---------------
$ 379,502
===============
</TABLE>
F-40
<PAGE> 48
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE C - LONG-TERM DEBT
Details of long-term debt at December 31, 1995, were as follows:
<TABLE>
<S> <C>
Note payable to a mortgage company, due in monthly installments of
$20,951, including interest with final installment of $2,158,574 due
February, 1997. Collateralized by Hotel property. $ 2,155,366
Note payable to a mortgage company, due in monthly installments of
$22,618, including interest with final installment of $2,330,278 due
June, 1997. Collateralized by Hotel property. 2,331,853
Note payable to a mortgage company. Due in monthly installments of
$24,284, including interest with final installment of $2,501,982 due
March, 1998. Collateralized by Hotel property. 2,515,146
Note payable to a mortgage company, due in monthly installments of
$18,468, including interest with final installment of $944,631 due
July, 2000. Collateralized by Hotel property. 1,404,889
Note payable to the Small Business Administration, due in monthly
installments of $4,353, including interest with final installment due
June, 2020. Collateralized by Hotel property. 525,230
---------------
8,932,484
Less current maturities 148,751
---------------
$ 8,783,733
===============
</TABLE>
Aggregate maturities of long-term debt for the next five years are as
follows:
<TABLE>
<S> <C>
1996 $ 148,751
1997 4,574,435
1998 2,593,472
1999 122,727
2000 1,017,004
Thereafter 476,095
</TABLE>
F-41
<PAGE> 49
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE D - RELATED PARTY TRANSACTIONS
The Company president and sole stockholder of Capital Circle Hotel Company
and minority stockholder of Ocean Springs Hotel Company is also an officer
of a company that has hotel construction contracts with the Company. The
following is a summary of transactions with the affiliates in 1995.
<TABLE>
<S> <C>
Purchases and construction services $ 2,177,862
</TABLE>
NOTE E - FINANCIAL INSTRUMENTS
The financial statements include various estimated fair value information as
of December 31, 1995, as required by Financial Accounting Standards Board
Statement 107. Such information, which pertains to the Companies' financial
instruments, is based on the requirements set forth in that Statement and
does not purport to represent the aggregate fair value of the Companies.
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 approximates fair value.
Long-term debt: Quoted market prices for the same or similar issues or the
current rates offered to the Companies for debt of the same remaining
maturities are used to estimate the fair value of the Companies' long-term
debt.
The estimated fair values of the Companies' financial instruments are as
follows:
All of the Companies' financial instruments are held for purposes other
than trading. The carrying amounts in the table below are the amounts at
which the financial instruments are reported in the financial statements.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
Of Assets Of Assets
(Liabilities) (Liabilities)
--------------- ---------------
<S> <C> <C>
Cash $ 76,633 $ 76,633
Long-term debt (8,932,484) (9,081,335)
</TABLE>
F-42
<PAGE> 50
REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Capital Circle Hotel Company and
Ocean Springs Hotel Company
Somerville, Tennessee
We have audited the accompanying combined balance sheet of Capital Circle Hotel
Company's Tallahassee, Destin and Sarasota, Florida, hotels, and affiliate,
Ocean Springs Hotel Company's Ocean Springs, Mississippi, hotel, as of December
31, 1994, and the related combined statements of operations, accumulated
deficit 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 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 Capital Circle Hotel Company's
Tallahassee, Destin, and Sarasota, Florida, hotels, and affiliate, Ocean
Springs Hotel Company's Ocean Springs, Mississippi, hotel, as of December 31,
1994, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
Columbus, Mississippi
March 21, 1995
F-43
<PAGE> 51
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 69,206
Accounts receivable (Note A-3) 72,789
Prepaid expenses 29,303
---------------
Total current assets 171,298
PROPERTY AND EQUIPMENT (Notes A-4 and C)
Land 1,297,038
Buildings 7,161,601
Signs 51,534
Hotel furniture and fixtures 720,907
Office equipment 55,198
Automobiles 33,765
---------------
Total 9,320,043
Accumulated depreciation 729,729
---------------
8,590,314
OTHER ASSETS (Notes A-5 and B) 316,296
---------------
Total Assets $ 9,077,908
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt (Note C) $ 41,466
Accounts payable 93,023
Accrued expenses 176,287
---------------
Total current liabilities 310,776
OTHER LIABILITIES
Accounts payable - construction costs (Note D) 264,491
LONG-TERM DEBT, less current maturities (Note C) 8,531,774
INTERCOMPANY ACCOUNTS 277,860
---------------
Total liabilities 9,384,901
STOCKHOLDERS' EQUITY
Retained earnings (306,993)
---------------
Total Liabilities and Stockholders' Equity $ 9,077,908
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-44
<PAGE> 52
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C> <C>
REVENUE
Rooms $ 2,555,180
Telephone 65,729
Other 19,794
---------------
Total revenue 2,640,703
COST OF SALES
Rooms Department $ 639,921
Telephone Department 52,329 692,250
-------------- ---------------
Gross operating income 1,948,453
GENERAL AND UNAPPLIED EXPENSES
Administrative and general 204,765
Sales, marketing and finance 258,485
Utilities 173,511
Maintenance 124,492 761,253
--------------
CAPITAL EXPENSES
Property insurance 38,738
Real estate taxes 78,518 117,256
-------------- ---------------
Income before other expenses 1,069,944
OTHER EXPENSES
Amortization 66,204
Interest expense 778,608
Depreciation expense 310,426 1,155,238
-------------- ---------------
Net Loss $ (85,294)
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-45
<PAGE> 53
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF ACCUMULATED DEFICIT
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Balance at beginning of year $ (221,699)
Net loss for the year (85,294)
---------------
Balance at end of year $ (306,993)
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-46
<PAGE> 54
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (85,294)
Adjustments to reconcile net loss to net cash and cash equivalents:
Depreciation 310,426
Amortization 66,204
Increase in receivables (7,168)
Increase in prepaid expenses (9,265)
Increase in accounts payable and accrued expenses 83,443
Increase in accounts payable - construction costs 264,491
---------------
Net cash provided by operations 622,837
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,709,438)
Increase in other assets (39,917)
---------------
Net cash used in investing activities (1,749,355)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in intercompany account (60,188)
Proceeds from long-term debt 1,529,410
Payments to stockholder (268,002)
Principal payments on long-term debt (38,152)
---------------
Net cash provided by financing activities 1,163,068
---------------
Net decrease in cash and cash equivalents 36,550
Cash and cash equivalents at beginning of year 32,656
---------------
Cash and cash equivalents at end of year $ 69,206
===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 778,267
</TABLE>
The accompanying notes are an integral part of this statement.
F-47
<PAGE> 55
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994
BUSINESS
Capital Circle Hotel Company was organized on August 9, 1990, in the State
of Florida for the purpose of ownership and management of hotels. The
Company was in the construction stage from its formation until January 31,
1992, with hotel operations beginning on February 1, 1992. The Company
currently operates Sleep Inn Hotels in Tallahassee, Destin and Sarasota,
Florida, with construction in progress on a Sleep Inn at Orange Beach,
Alabama.
Ocean Springs Hotel Company was organized on December 28, 1993, in the State
of Mississippi for the purpose of ownership and management of hotels. The
Company was in the construction stage from its formation until February 28,
1995, with the hotel operations beginning on March 1, 1995.
COMBINED FINANCIAL STATEMENTS
The Companies are under common management and control. The president and
sole stockholder of Capital Circle Hotel Company is also the president of
Ocean Springs Hotel Company.
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows.
1. FINANCIAL STATEMENTS
The accompanying financial statements only include the accounts of the
Companies' Sleep Inn Hotels located at Tallahassee, Destin and Sarasota,
Florida, and Ocean Springs, Mississippi. The statement of operations
includes twelve months for the hotels located at Tallahassee, Destin and
Sarasota, Florida. The hotel located at Ocean Springs was under
construction at December 31, 1994. All intercompany transactions have been
eliminated.
2. CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
( Continued )
F-48
<PAGE> 56
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
3. ACCOUNTS RECEIVABLE
The Companies consider the accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, including capitalized
interest and other costs incurred during the period of construction.
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives on a straight-line basis for financial and tax purposes. The
estimated lives used are:
<TABLE>
<S> <C>
Buildings and improvements 35 years
Machinery and equipment 5 - 15 years
Office furniture and equipment 5 - 7 years
</TABLE>
5. AMORTIZATION OF OTHER ASSETS
Hotel franchise - Franchise costs are capitalized in the year the franchise
is acquired. Franchises acquired after August 10, 1993, are amortized
straight-line over fifteen years beginning with date acquired.
Costs incurred to obtain long-term financing are deferred and amortized over
the terms of the related financing on a straight-line basis.
Preopening costs and expense are capitalized as incurred and amortized
straight-line over five years beginning with the month of hotel occupancy.
6. INCOME TAXES
The income taxes on the net earnings for the year are payable personally by
the stockholders pursuant to an election as an S Corporation under the
Internal Revenue Code not to have the Company taxed as a corporation.
( Continued )
F-49
<PAGE> 57
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
7. CONCENTRATION OF CREDIT RISK - CASH
The Companies maintain their cash balances primarily in two financial
institutions which, at times, may exceed federally insured limits. The
Companies have not experienced any losses in such accounts and believe they
are not exposed to any significant credit risk on cash and cash equivalents.
8. CONCENTRATION OF CREDIT RISK - CREDIT RECEIVABLES
Credit receivables have concentration of credit risks in the hotel sector.
The Companies rent rooms on a daily basis to individuals and to companies.
Historically, the Companies have not experienced significant losses related
to receivables from individual customers or groups of customers.
9. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those amounts.
NOTE B - OTHER ASSETS
Other assets consist of:
<TABLE>
<S> <C>
Sleep Inn franchises $ 140,000
Deferred financing costs and fees of obtaining financing 13,942
Less amortization over the term of the related financing
beginning February, 1993. 5,344
---------------
8,598
Preopening costs and expense 331,022
Less amortization over five years beginning with the
month of occupancy 163,324
---------------
167,698
---------------
$ 316,296
===============
</TABLE>
F-50
<PAGE> 58
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE C - LONG-TERM DEBT
Details of long-term debt at December 31, 1994, were as follows:
<TABLE>
<S> <C>
Note payable to a mortgage company, due in monthly installments of
$20,951, including interest with final installment of $2,158,574 due
February, 1997. Collateralized by Hotel property. $ 2,168,870
Note payable to a mortgage company, due in monthly installments of
$22,618, including interest with final installment of $2,330,278 due
June, 1997. Collateralized by Hotel property. 2,345,910
Note payable to a mortgage company. Due in monthly installments of
$24,284, including interest with final installment of $2,501,982 due
March, 1998. Collateralized by Hotel property. 2,529,050
Note payable to a mortgage company, due in monthly installments of
$18,468, including interest with final installment of $944,631 due
July, 2000. 1,529,410
---------------
8,573,240
Less current maturities 41,466
---------------
$ 8,531,774
===============
</TABLE>
Aggregate maturities of long-term debt for the next five years are as
follows:
<TABLE>
<S> <C>
1995 $ 41,466
1996 140,806
1997 4,565,301
1998 2,583,691
1999 112,253
Thereafter 1,129,723
</TABLE>
F-51
<PAGE> 59
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE D - ACCOUNTS PAYABLE CONSTRUCTION COSTS
Accounts payable construction costs are paid from construction loan proceeds
and will be subsequently financed with long-term permanent loans. The
amounts payable are shown as noncurrent to reflect the subsequent long-term
financing.
NOTE E - RELATED PARTY TRANSACTIONS
The Company president and sole stockholder of Capital Circle Hotel Company
and minority stockholder of Ocean Springs Hotel Company is also an officer
of a company that has hotel construction contracts with the Company. The
following is a summary of transactions with the affiliate.
<TABLE>
<S> <C>
Purchases $ 1,715,636
Accounts payable (included in accounts
payable - construction costs) 264,491
</TABLE>
F-52
<PAGE> 60
REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Capital Circle Hotel Company and
Ocean Springs Hotel Company
Somerville, Tennessee
We have audited the accompanying combined balance sheet of Capital Circle Hotel
Company's Tallahassee, Destin and Sarasota, Florida, hotels, and affiliate,
Ocean Springs Hotel Company's Ocean Springs, Mississippi, hotel, as of December
31, 1993, and the related combined statements of operations, accumulated
deficit and cash flows for the eleven months 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 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 Capital Circle Hotel Company's
Tallahassee, Destin, and Sarasota, Florida, hotels, and affiliate, Ocean
Springs Hotel Company's Ocean Springs, Mississippi, hotel, as of December 31,
1993, and the results of their operations and their cash flows for the eleven
months then ended in conformity with generally accepted accounting principles.
Columbus, Mississippi
March 3, 1994
F-53
<PAGE> 61
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<S> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 32,656
Accounts receivable (Note A-3) 65,621
Prepaid expenses 20,038
---------------
Total current assets 118,315
PROPERTY AND EQUIPMENT (Notes A-4 and C)
Land 1,097,038
Buildings 5,687,939
Signs 51,534
Hotel furniture and fixtures 718,896
Office equipment 55,198
---------------
7,610,605
Accumulated depreciation 419,303
---------------
7,191,302
OTHER ASSETS (Notes A-5 and B) 342,583
---------------
Total Assets $ 7,652,200
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt (Note C) $ 38,152
Accounts payable 50,545
Accrued expenses 135,322
---------------
Total current liabilities 224,019
LONG-TERM DEBT, less current maturities (Note C) 7,043,830
NOTES PAYABLE - STOCKHOLDERS 268,002
INTERCOMPANY ACCOUNT 338,048
STOCKHOLDERS' EQUITY
Accumulated deficit (221,699)
---------------
Total Liabilities and Stockholders' Equity $ 7,652,200
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-54
<PAGE> 62
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF OPERATIONS
ELEVEN MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<S> <C> <C>
REVENUE
Rooms $ 2,017,690
Telephone 60,376
Other 12,988
---------------
Total revenue 2,091,054
COST OF SALES
Rooms Department $ 528,768
Telephone Department 53,779 582,547
-------------- ---------------
Gross operating income 1,508,507
GENERAL AND UNAPPLIED EXPENSES
Administrative and general 183,621
Sales, marketing and finance 144,717
Utilities 119,390
Maintenance 70,703 (518,431)
--------------
CAPITAL EXPENSES
Property insurance 56,871
Real estate taxes 48,088 (104,959)
-------------- ---------------
Income before other expenses 885,117
OTHER EXPENSES
Amortization 50,900
Interest expense 626,830
Depreciation expense 248,070 (925,800)
-------------- ---------------
Net Loss $ (40,683)
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-55
<PAGE> 63
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF ACCUMULATED DEFICIT
ELEVEN MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
Balance at beginning of period $ (181,016)
Net loss for the period (40,683)
---------------
Balance at end of period $ (221,699)
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-56
<PAGE> 64
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
COMBINED STATEMENT OF CASH FLOWS
ELEVEN MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (40,683)
Adjustments to reconcile net loss to net cash and cash equivalents:
Depreciation 248,070
Amortization 50,900
Increase in receivables (20,042)
Increase in prepaid expenses (10,841)
Increase in accounts payable and accrued expenses 72,718
Decrease in accounts payable - construction costs (304,572)
---------------
Net cash used in operations (4,450)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (473,384)
Increase in other assets (91,948)
---------------
Net cash used in investing activities (565,332)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in intercompany account 262,407
Proceeds from long-term debt 517,816
Payments to stockholder (94,418)
Principal payments on long-term debt (117,398)
---------------
Net cash provided by financing activities 568,407
---------------
Net decrease in cash and cash equivalents (1,375)
Cash and cash equivalents at beginning of period 34,031
---------------
Cash and cash equivalents at end of period $ 32,656
===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 624,766
</TABLE>
The accompanying notes are an integral part of this statement.
F-57
<PAGE> 65
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993
BUSINESS
Capital Circle Hotel Company was organized on August 9, 1990, in the State
of Florida for the purpose of ownership and management of hotels. The
Company was in the construction stage from its formation until January 31,
1992, with hotel operations beginning on February 1, 1992. The Company
currently operates Sleep Inn Hotels in Tallahassee, Destin and Sarasota,
Florida, with construction in progress on a Sleep Inn at Orange Beach,
Alabama.
Ocean Springs Hotel Company was organized on December 28, 1993, in the State
of Mississippi for the purpose of ownership and management of hotels. The
Company was in the construction stage from its formation until February 28,
1995, with the hotel operations beginning on March 1, 1995.
COMBINED FINANCIAL STATEMENTS
The Companies are under common management and control. The president and
sole stockholder of Capital Circle Hotel Company is also the president of
Ocean Springs Hotel Company.
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows.
1. FINANCIAL STATEMENTS
The accompanying financial statements only include the accounts of the
Company's Sleep Inn Hotels located at Tallahassee, Destin and Sarasota,
Florida. The statement of operations includes eleven months for the hotels
located at Tallahassee and Destin and nine months for the hotel located at
Sarasota. The hotel located at Ocean Springs was not under construction at
December 31, 1993. All intercompany transactions have been eliminated.
The Company changed its accounting year ending from January 31 to December
31.
2. CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
( Continued )
F-58
<PAGE> 66
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
3. ACCOUNTS RECEIVABLE
The Companies consider the accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, including capitalized
interest and other costs incurred during the period of construction.
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives on a straight-line basis for financial and tax purposes. The
estimated lives used are:
<TABLE>
<S> <C>
Buildings and improvements 35 years
Machinery and equipment 5 - 15 years
Office furniture and equipment 5 - 7 years
</TABLE>
5. AMORTIZATION OF OTHER ASSETS
Hotel franchise - Franchise costs are capitalized in the year the franchise
is acquired. Franchises acquired after August 10, 1993, are amortized
straight-line over fifteen years beginning with date acquired.
Costs incurred to obtain long-term financing are deferred and amortized over
the terms of the related financing on a straight-line basis.
Preopening costs and expense are capitalized as incurred and amortized
straight-line over five years beginning with the month of hotel occupancy.
6. INCOME TAXES
The income taxes on the net earnings for the year are payable personally by
the stockholders pursuant to an election as an S Corporation under the
Internal Revenue Code not to have the Company taxed as a corporation.
( Continued )
F-59
<PAGE> 67
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
7. CONCENTRATION OF CREDIT RISK - CASH
The Companies maintain their cash balances primarily in two financial
institutions which, at times, may exceed federally insured limits. The
Companies have not experienced any losses in such accounts and believe they
are not exposed to any significant credit risk on cash and cash equivalents.
8. CONCENTRATION OF CREDIT RISK - CREDIT RECEIVABLES
Credit receivables have concentration of credit risks in the hotel sector.
The Companies rent rooms on a daily basis to individuals and to companies.
Historically, the Companies have not experienced significant losses related
to receivables from individual customers or groups of customers.
9. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those amounts.
NOTE B - OTHER ASSETS
Other assets consist of:
<TABLE>
<S> <C>
Sleep Inn franchises $ 105,000
Deferred financing costs and fees of obtaining financing to be
amortized over the term of the related financing beginning
February, 1993 3,681
Preopening costs and expense 330,309
Less amortization over five years beginning with the month of
occupancy 96,407
---------------
233,902
---------------
$ 342,583
===============
</TABLE>
F-60
<PAGE> 68
CAPITAL CIRCLE HOTEL COMPANY
AND AFFILIATE,
OCEAN SPRINGS HOTEL COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE C - LONG-TERM DEBT
Details of long-term debt at December 31, 1993, were as follows:
<TABLE>
<S> <C>
Note payable to a mortgage company, due in monthly installments of
$20,951, including interest with final installment of $2,158,574 due
February, 1997. Collateralized by Hotel property. $ 2,180,975
Note payable to a mortgage company, due in monthly installments of
$22,618, including interest with final installment of $2,330,278 due
June, 1997. Collateralized by Hotel property. 2,358,509
Note payable to a mortgage company. Due in monthly installments of
$24,284, including interest with final installment of $2,501,982 due
March, 1998. Collateralized by Hotel property. 2,541,510
Unsecured note payable to a bank. Due in monthly installments of
$145, including interest. 988
---------------
7,081,982
Less current maturities 38,152
---------------
$ 7,043,830
===============
</TABLE>
Aggregate maturities of long-term debt for the next four years are as
follows:
<TABLE>
<S> <C>
1994 $ 38,152
1995 41,465
1996 46,262
1997 4,473,774
Thereafter 2,482,329
</TABLE>
F-61
<PAGE> 69
INDEX TO EXHIBITS
10.1 First Amendment to Lease Agreement dated effective as of
October 1, 1996 by and between Host Funding, Inc. and
Crossroads Hospitality Tenant Company, L.L.C. (Poplar Bluff,
Missouri).
10.2 First Amendment to Lease Agreement dated effective as of
October 1, 1996 by and between Host Funding, Inc. and
Crossroads Hospitality Tenant Company, L.L.C. (Rock Falls,
Illinois).
10.3 First Amendment to Lease Agreement dated effective as of
October 1, 1996 by and between Host Funding, Inc. and
Crossroads Hospitality Tenant Company, L.L.C. (Somerset,
Kentucky).
10.4 First Amendment to Lease Agreement dated effective as of
October 1, 1996 by and between Host Funding, Inc. and
Crossroads Hospitality Tenant Company, L.L.C. (Miner, Missouri).
10.5 First Amendment to Lease Agreement dated effective as of
October 1, 1996 by and between Host Funding, Inc. and
Crossroads Hospitality Tenant Company, L.L.C. (San Diego,
California).
<PAGE> 1
EXHIBIT 10.1
First Amendment to Lease Agreement
(Super 8 Poplar Bluff, Missouri)
This First Amendment to Lease Agreement (this "First Amendment") is
entered into by and between Host Funding, Inc., a Maryland corporation
("Lessor"), and Crossroads Hospitality Tenant Company, L.L.C., a Delaware
limited liability company ("Lessee"), and is dated effective as of October 1,
1996 (the "Effective Date").
RECITALS
A. Lessor and Lessee have previously entered into that certain
Lease Agreement (Super 8 Poplar Bluff, Missouri) (the "Lease Agreement") dated
March 29, 1996, by and between Lessor, as Lessor, and Lessee, as Lessee, and
covering the "Leased Property" known as the Super 8 Motel, Poplar Bluff,
Missouri.
B. Lessor and Lessee now desire to modify and amend the Lease
Agreement in certain respects as provided hereinbelow.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. As of the Effective Date, Section 2 of the Lease Agreement is
amended by the addition thereto of the definition of "Gross Room Revenues," as
follows:
Gross Room Revenues: All revenues derived from the rental,
sale, use or occupancy of guest rooms or meeting rooms within the
Leased Property, including cash and credit transactions, but excluding
sales taxes or other taxes collected from guests, or in conjunction
with the rental of guest rooms or meeting rooms.
2. As of the Effective Date, the Lease is hereby amended by the
deletion therefrom of Exhibit G in its entirety, and, in place of and in
substitution therefor, a new Exhibit G added, said new Exhibit G attached
hereto as Exhibit "A" and incorporated herein by reference for all purposes.
3. As of the Effective Date, the Lease Agreement is hereby
amended by the deletion therefrom of Section 40 in its entirety, and, in the
place of and in substitution therefor, a new Section 40 added, as follows:
Section 40
Capital Expenditures and Reserves
(A) Exhibit "G" contains specific line items for necessary
deferred maintenance and the costs thereof (the "Deferred Maintenance Costs").
On or before October 1, 1996, Lessor and Lessee
<PAGE> 2
will contribute into the Capital Expenditure Reserve Account their respective
portions of the Deferred Maintenance Costs, all as more particularly described
in attached "Exhibit G".
(B) Not later than October 31 of each Fiscal Year, Lessee shall
submit to Lessor for Lessor's approval pursuant to the provisions of Section
3.3 hereof, a Capital Expenditure Budget for the next Fiscal Year as part of
Lessee's submission to Lessor of the Annual Budget. The purpose for the
Capital Expenditure Budget shall be to keep the Leased Property competitive
with any hotel or hotels similar in nature and type to the Leased Property in
the area of the Competitive Set and to keep the Leased Property in compliance
with the applicable provisions of the Franchise Agreement. The Capital
Expenditure Budget shall include without limitation, the expenditures required,
necessary and/or anticipated for the repair, replacement or refurbishment of
carpet, soft goods, FF&E and structural and mechanical items, alterations to
the Leased Property (but only in accordance with Section 10.1 hereof),
reconstruction in the event of damages or destruction of the Leased Property
(but only in accordance with Section 14 hereof), restoration pursuant to a
Taking (but only in accordance with Section 15 of this Lease), other required
or desirable capital improvements to the Leased Property or any of the
components, other required or desirable capital improvements to the Leased
Property or any of the components, other required or desired working capital,
and such other items characterized as capital expenditures under the Uniform
System (excluding, however, items required to be maintained at Lessor's cost
pursuant to Section 9.1.2 of this Lease). Lessor shall maintain a separate
interest bearing account referred to as the Capital Expenditure Reserve Account
from which all costs and expenses reflected in an approved Capital Expenditure
Budget should be paid; provided, however, Lessee shall be an authorized
signatory on such account. Effective October 1, 1996, Lessor shall, within
five (5) days of its receipt of the monthly profit and loss statement described
in Section 25(b)(3) hereof, fund into the Capital Expenditure Reserve Account,
an amount equal to six percent (6%) of the Gross Room Revenues for the
preceding month (pro-rated for any partial calendar month). Lessee understands
and agrees that after the approval by Lessor of any annual Capital Expenditure
Reserve Budget, no monies can be expended from the Capital Expenditure Reserve
Account for the applicable year which were not reflected in that year's annual
Capital Expenditure Budget (or if such expenditures were reflected on the
applicable budget, but were underestimated) without the prior written consent
of Lessor, which will not be unreasonably withheld or delayed; provided, that
in the event of an emergency necessitating expenditures for the protection of
life or health or the protection of the Leased Property (a) Lessee shall
immediately pay or incur the costs and expenses in its reasonable judgment
necessary to insure such protection and irrespective of whether such sums are
reflected on the applicable Capital Expenditure Budget, and (b) Lessor shall
fund additional monies into the Capital expenditure Revenue Account with regard
to same if monies in said account are insufficient to pay the costs and
expenses associated with such emergency. In addition to those statements
required by Section 25 hereof, Lessee agrees during the Term hereof to provide
to Lessor monthly reports and invoices as to the expenditures made from the
Capital Expenditure Reserve Account for the operations of the Leased Property
for the immediately preceding month.
(C) Lessor represents and warrants to the best of its knowledge,
that the Leased Property is in full compliance with the Americans With
Disabilities Act and all rules and regulations promulgated thereunder or in
connection therewith (the "ADA Act") and has received no notice from any
governmental authority, or complaint for allegation from any third party
asserting that the Leased
<PAGE> 3
Property is not in full compliance with the ADA Act.
4. As of the Effective Date, the Lease Agreement is hereby
amended by the deletion therefrom of Exhibit D in its entirety, and in place of
and in substitution therefor, a new Exhibit D added, said new Exhibit D is
attached hereto as Exhibit "B" and incorporated herein by reference for all
purposes.
5. Except as amended hereby, the Lease Agreement remains
unchanged, in full force and effect, and the binding obligation of Lessor and
Lessee. Capitalized terms used herein and not otherwise defined shall have the
meanings asserted thereto in the Lease Agreement.
Executed effective as of the aforementioned Effective Date.
Lessor:
HOST FUNDING, INC., a Maryland corporation
By:
---------------------------------------
Michael S. McNulty, President
LESSEE:
CROSSROADS HOSPITALITY TENANT
COMPANY, L.L.C., a Delaware limited
liability company
By: /s/ KEVIN P. KILKEARY
---------------------------------------
Kevin P. Kilkeary, President
<PAGE> 4
EXHIBIT "A"
EXHIBIT G
(Poplar Bluff, Missouri)
Lessor's Contribution for Deferred Maintenance Costs $91,565.00*
Lessee's Contribution for Deferred Maintenance Costs $15,750.00
* Less amounts impounded with CS First Boston Mortgage Capital Corp. for
FF&E Reserves.
<PAGE> 5
EXHIBIT "B"
EXHIBIT D BASE RENT MONTHLY SCHEDULE
<TABLE>
<CAPTION>
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOT
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Poplar
Bluff Mo. $10,100 $11,500 $17,200 $17,800 $20,600 $21,300 $21,000 $19,700 $17,800 $19,500 $14,600 $10,900 $202,000
</TABLE>
Lessor and Lessee agree that during the Fiscal Year 1996, Monthly Base Rent due
to Lessor from Lessee will be adjusted using the following formula:
Monthly Base Rent
reduced by
One Percent (1%) of Monthly Gross Room Revenue
Commencing December 1996, the base rent for the months of March, June,
September and December are to be increased by an amount equal to $125.00 per
room (pro rated for any partial calendar quarter) contained within the Leased
Property; Commencing with 1998, this amount will be increased annually by the
percentage increase of the average daily room rate for the previous year for
the Leased Property. However, at no time is this amount to be more than $250.00
per room per quarter.
<PAGE> 1
EXHIBIT 10.2
First Amendment to Lease Agreement
(Super 8 Rock Falls, Illinois)
This First Amendment to Lease Agreement (this "First Amendment") is
entered into by and between Host Funding, Inc., a Maryland corporation
("Lessor"), and Crossroads Hospitality Tenant Company, L.L.C., a Delaware
limited liability company ("Lessee"), and is dated effective as of October 1,
1996 (the "Effective Date").
RECITALS
A. Lessor and Lessee have previously entered into that certain Lease
Agreement (Super 8 Rock Falls, Illinois) (the "Lease Agreement") dated March
29, 1996, by and between Lessor, as Lessor, and Lessee, as Lessee, and covering
the "Leased Property" known as the Super 8 Motel, Rock Falls, Illinois.
B. Lessor and Lessee now desire to modify and amend the Lease
Agreement in certain respects as provided hereinbelow.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. As of the Effective Date, Section 2 of the Lease Agreement is
amended by the addition thereto of the definition of "Gross Room Revenues," as
follows:
Gross Room Revenues: All revenues derived from the rental, sale,
use or occupancy of guest rooms or meeting rooms within the Leased
Property, including cash and credit transactions, but excluding sales
taxes or other taxes collected from guests, or in conjunction with the
rental of guest rooms or meeting rooms.
2. As of the Effective Date, the Lease is hereby amended by the
deletion therefrom of Exhibit G in its entirety, and, in place of and in
substitution therefor, a new Exhibit G added, said new Exhibit G attached
hereto as Exhibit "A" and incorporated herein by reference for all purposes.
3. As of the Effective Date, the Lease Agreement is hereby amended
by the deletion therefrom of Section 40 in its entirety, and, in the place of
and in substitution therefor, a new Section 40 added, as follows:
Section 40
Capital Expenditures and Reserves
(A) Exhibit "G" contains specific line items for necessary deferred
maintenance and the costs thereof (the "Deferred Maintenance Costs"). On or
before October 1, 1996, Lessor and Lessee
<PAGE> 2
will contribute into the Capital Expenditure Reserve Account their respective
portions of the Deferred Maintenance Costs, all as more particularly described
in attached "Exhibit G".
(B) Not later than October 31 of each Fiscal Year, Lessee shall
submit to Lessor for Lessor's approval pursuant to the provisions of Section
3.3 hereof, a Capital Expenditure Budget for the next Fiscal Year as part of
Lessee's submission to Lessor of the Annual Budget. The purpose for the
Capital Expenditure Budget shall be to keep the Leased Property competitive
with any hotel or hotels similar in nature and type to the Leased Property in
the area of the Competitive Set and to keep the Leased Property in compliance
with the applicable provisions of the Franchise Agreement. The Capital
Expenditure Budget shall include without limitation, the expenditures required,
necessary and/or anticipated for the repair, replacement or refurbishment of
carpet, soft goods, FF&E and structural and mechanical items, alterations to
the Leased Property (but only in accordance with Section 10.1 hereof),
reconstruction in the event of damages or destruction of the Leased Property
(but only in accordance with Section 14 hereof), restoration pursuant to a
Taking (but only in accordance with Section 15 of this Lease), other required
or desirable capital improvements to the Leased Property or any of the
components, other required or desirable capital improvements to the Leased
Property or any of the components, other required or desired working capital,
and such other items characterized as capital expenditures under the Uniform
System (excluding, however, items required to be maintained at Lessor's cost
pursuant to Section 9.1.2 of this Lease). Lessor shall maintain a separate
interest bearing account referred to as the Capital Expenditure Reserve Account
from which all costs and expenses reflected in an approved Capital Expenditure
Budget should be paid; provided, however, Lessee shall be an authorized
signatory on such account. Effective October 1, 1996, Lessor shall, within
five (5) days of its receipt of the monthly profit and loss statement described
in Section 25(b)(3) hereof, fund into the Capital Expenditure Reserve Account,
an amount equal to six percent (6%) of the Gross Room Revenues for the
preceding month (pro-rated for any partial calendar month). Lessee understands
and agrees that after the approval by Lessor of any annual Capital Expenditure
Reserve Budget, no monies can be expended from the Capital Expenditure Reserve
Account for the applicable year which were not reflected in that year's annual
Capital Expenditure Budget (or if such expenditures were reflected on the
applicable budget, but were underestimated) without the prior written consent
of Lessor, which will not be unreasonably withheld or delayed; provided, that
in the event of an emergency necessitating expenditures for the protection of
life or health or the protection of the Leased Property (a) Lessee shall
immediately pay or incur the costs and expenses in its reasonable judgment
necessary to insure such protection and irrespective of whether such sums are
reflected on the applicable Capital Expenditure Budget, and (b) Lessor shall
fund additional monies into the Capital expenditure Revenue Account with regard
to same if monies in said account are insufficient to pay the costs and
expenses associated with such emergency. In addition to those statements
required by Section 25 hereof, Lessee agrees during the Term hereof to provide
to Lessor monthly reports and invoices as to the expenditures made from the
Capital Expenditure Reserve Account for the operations of the Leased Property
for the immediately preceding month.
(C) Lessor represents and warrants to the best of its knowledge, that
the Leased Property is in full compliance with the Americans With Disabilities
Act and all rules and regulations promulgated thereunder or in connection
therewith (the "ADA Act") and has received no notice from any governmental
authority, or complaint for allegation from any third party asserting that the
Leased
<PAGE> 3
Property is not in full compliance with the ADA Act.
4. As of the Effective Date, the Lease Agreement is hereby amended
by the deletion therefrom of Exhibit D in its entirety, and in place of and in
substitution therefor, a new Exhibit D added, said new Exhibit D is attached
hereto as Exhibit "B" and incorporated herein by reference for all purposes.
5. Except as amended hereby, the Lease Agreement remains unchanged,
in full force and effect, and the binding obligation of Lessor and Lessee.
Capitalized terms used herein and not otherwise defined shall have the meanings
asserted thereto in the Lease Agreement.
Executed effective as of the aforementioned Effective Date.
Lessor:
HOST FUNDING, INC., a Maryland
corporation
By: /s/ MICHAEL S. MCNULTY
---------------------------------
Michael S. McNulty, President
LESSEE:
CROSSROADS HOSPITALITY TENANT
COMPANY, L.L.C., a Delaware limited
liability company
By: /s/ KEVIN P. KILKEARY
---------------------------------
Kevin P. Kilkeary, President
<PAGE> 4
EXHIBIT "A"
EXHIBIT G
(Rock Falls, Illinois)
Lessor's Contribution for Deferred Maintenance Costs $31,424.00*
Lessee's Contribution for Deferred Maintenance Costs $15,750.00
* Less amounts impounded with CS First Boston Mortgage Capital Corp. for
FF&E Reserves.
<PAGE> 5
EXHIBIT "B"
EXHIBIT D BASE RENT MONTHLY SCHEDULE
<TABLE>
<CAPTION>
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOT
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ROCK FALLS
IL $13,300 $10,500 $14,600 $15,900 $19,300 $20,100 $20,300 $21,600 $20,100 $17,600 $15,100 $12,100 $200,500
</TABLE>
Lessor and Lessee agree that during the Fiscal Year 1996, Monthly Base Rent due
to Lessor from Lessee will be adjusted using the following formula:
Monthly Base Rent
reduced by
One Percent (1%) of Monthly Gross Room Revenue
Commencing December 1996, the base rent for the months of March, June,
September and December are to be increased by an amount equal to $125.00 per
room (pro rated for any partial calendar quarter) contained within the Leased
Property; Commencing with 1998, this amount will be increased annually by the
percentage increase of the average daily room rate for the previous year for
the Leased Property. However, at no time is this amount to be more than $250.00
per room per quarter.
<PAGE> 1
EXHIBIT 10.3
First Amendment to Lease Agreement
(Super 8 Somerset, Kentucky)
This First Amendment to Lease Agreement (this "First Amendment") is
entered into by and between Host Funding, Inc., a Maryland corporation
("Lessor"), and Crossroads Hospitality Tenant Company, L.L.C., a Delaware
limited liability company ("Lessee"), and is dated effective as of October 1,
1996 (the "Effective Date").
RECITALS
A. Lessor and Lessee have previously entered into that certain
Lease Agreement (Super 8 Somerset, Kentucky) (the "Lease Agreement") dated
March 29, 1996, by and between Lessor, as Lessor, and Lessee, as Lessee, and
covering the "Leased Property" known as the Super 8 Motel, Somerset, Kentucky.
B. Lessor and Lessee now desire to modify and amend the Lease
Agreement in certain respects as provided hereinbelow.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. As of the Effective Date, Section 2 of the Lease Agreement is
amended by the addition thereto of the definition of "Gross Room Revenues," as
follows:
Gross Room Revenues: All revenues derived from the rental,
sale, use or occupancy of guest rooms or meeting rooms within the
Leased Property, including cash and credit transactions, but excluding
sales taxes or other taxes collected from guests, or in conjunction
with the rental of guest rooms or meeting rooms.
2. As of the Effective Date, the Lease is hereby amended by the
deletion therefrom of Exhibit G in its entirety, and, in place of and in
substitution therefor, a new Exhibit G added, said new Exhibit G attached
hereto as Exhibit "A" and incorporated herein by reference for all purposes.
3. As of the Effective Date, the Lease Agreement is hereby
amended by the deletion therefrom of Section 40 in its entirety, and, in the
place of and in substitution therefor, a new Section 40 added, as follows:
Section 40
Capital Expenditures and Reserves
(A) Exhibit "G" contains specific line items for necessary
deferred maintenance and the costs thereof (the "Deferred Maintenance Costs").
On or before October 1, 1996, Lessor and Lessee
<PAGE> 2
will contribute into the Capital Expenditure Reserve Account their respective
portions of the Deferred Maintenance Costs, all as more particularly described
in attached "Exhibit G".
(B) Not later than October 31 of each Fiscal Year, Lessee shall
submit to Lessor for Lessor's approval pursuant to the provisions of Section
3.3 hereof, a Capital Expenditure Budget for the next Fiscal Year as part of
Lessee's submission to Lessor of the Annual Budget. The purpose for the
Capital Expenditure Budget shall be to keep the Leased Property competitive
with any hotel or hotels similar in nature and type to the Leased Property in
the area of the Competitive Set and to keep the Leased Property in compliance
with the applicable provisions of the Franchise Agreement. The Capital
Expenditure Budget shall include without limitation, the expenditures required,
necessary and/or anticipated for the repair, replacement or refurbishment of
carpet, soft goods, FF&E and structural and mechanical items, alterations to
the Leased Property (but only in accordance with Section 10.1 hereof),
reconstruction in the event of damages or destruction of the Leased Property
(but only in accordance with Section 14 hereof), restoration pursuant to a
Taking (but only in accordance with Section 15 of this Lease), other required
or desirable capital improvements to the Leased Property or any of the
components, other required or desirable capital improvements to the Leased
Property or any of the components, other required or desired working capital,
and such other items characterized as capital expenditures under the Uniform
System (excluding, however, items required to be maintained at Lessor's cost
pursuant to Section 9.1.2 of this Lease). Lessor shall maintain a separate
interest bearing account referred to as the Capital Expenditure Reserve Account
from which all costs and expenses reflected in an approved Capital Expenditure
Budget should be paid; provided, however, Lessee shall be an authorized
signatory on such account. Effective October 1, 1996, Lessor shall, within
five (5) days of its receipt of the monthly profit and loss statement described
in Section 25(b)(3) hereof, fund into the Capital Expenditure Reserve Account,
an amount equal to six percent (6%) of the Gross Room Revenues for the
preceding month (pro-rated for any partial calendar month). Lessee understands
and agrees that after the approval by Lessor of any annual Capital Expenditure
Reserve Budget, no monies can be expended from the Capital Expenditure Reserve
Account for the applicable year which were not reflected in that year's annual
Capital Expenditure Budget (or if such expenditures were reflected on the
applicable budget, but were underestimated) without the prior written consent
of Lessor, which will not be unreasonably withheld or delayed; provided, that
in the event of an emergency necessitating expenditures for the protection of
life or health or the protection of the Leased Property (a) Lessee shall
immediately pay or incur the costs and expenses in its reasonable judgment
necessary to insure such protection and irrespective of whether such sums are
reflected on the applicable Capital Expenditure Budget, and (b) Lessor shall
fund additional monies into the Capital expenditure Revenue Account with regard
to same if monies in said account are insufficient to pay the costs and
expenses associated with such emergency. In addition to those statements
required by Section 25 hereof, Lessee agrees during the Term hereof to provide
to Lessor monthly reports and invoices as to the expenditures made from the
Capital Expenditure Reserve Account for the operations of the Leased Property
for the immediately preceding month.
(C) Lessor represents and warrants to the best of its knowledge,
that the Leased Property is in full compliance with the Americans With
Disabilities Act and all rules and regulations promulgated thereunder or in
connection therewith (the "ADA Act") and has received no notice from any
governmental authority, or complaint for allegation from any third party
asserting that the Leased
<PAGE> 3
Property is not in full compliance with the ADA Act.
4. As of the Effective Date, the Lease Agreement is hereby
amended by the deletion therefrom of Exhibit D in its entirety, and in place of
and in substitution therefor, a new Exhibit D added, said new Exhibit D is
attached hereto as Exhibit "B" and incorporated herein by reference for all
purposes.
5. Except as amended hereby, the Lease Agreement remains
unchanged, in full force and effect, and the binding obligation of Lessor and
Lessee. Capitalized terms used herein and not otherwise defined shall have the
meanings asserted thereto in the Lease Agreement.
Executed effective as of the aforementioned Effective Date.
Lessor:
HOST FUNDING, INC., a Maryland
corporation
By: /s/ MICHAEL S. MCNULTY
--------------------------------
Michael S. McNulty, President
LESSEE:
CROSSROADS HOSPITALITY TENANT
COMPANY, L.L.C., a Delaware limited
liability company
By: /s/ KEVIN P. KILKEARY
-------------------------------
Kevin P. Kilkeary, President
<PAGE> 4
EXHIBIT "A"
EXHIBIT G
(Somerset, Kentucky)
Lessor's Contribution for Deferred Maintenance Costs $56,718.00*
Lessee's Contribution for Deferred Maintenance Costs $15,750.00
* Less amounts impounded with CS First Boston Mortgage Capital Corp. for
FF&E Reserves.
<PAGE> 5
EXHIBIT "B"
EXHIBIT D BASE RENT MONTHLY SCHEDULE
<TABLE>
<CAPTION>
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOT
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SOMERSET
KY $ 6,200 $ 6,300 $ 7,500 $ 8,800 $10,400 $11,500 $13,100 $11,600 $11,100 $10,300 $ 8,600 $ 6,900 $112,300
</TABLE>
Lessor and Lessee agree that during the Fiscal Year 1996, monthly Base Rent due
to Lessor from Lessee will be adjusted using the following formula:
Monthly Base Rent
reduced by
One Percent (1%) of Monthly Gross Room Revenue
Commencing December 1996, the base rent for the months of March, June,
September and December are to be increased by an amount equal to $125.00 per
room (pro rated for any partial calendar quarter) contained within the Leased
Property; Commencing with 1998, this amount will be increased annually by the
percentage increase of the average daily room rate for the previous year for
the Leased Property. However, at no time is this amount to be more than $250.00
per room per quarter.
<PAGE> 1
EXHIBIT 10.4
First Amendment to Lease Agreement
(Super 8 Miner, Missouri)
This First Amendment to Lease Agreement (this "First Amendment") is
entered into by and between Host Funding, Inc., a Maryland corporation
("Lessor"), and Crossroads Hospitality Tenant Company, L.L.C., a Delaware
limited liability company ("Lessee"), and is dated effective as of October 1,
1996 (the "Effective Date").
RECITALS
A. Lessor and Lessee have previously entered into that certain Lease
Agreement (Super 8 Miner, Missouri) (the "Lease Agreement") dated March 29,
1996, by and between Lessor, as Lessor, and Lessee, as Lessee, and covering the
"Leased Property" known as the Super 8 Motel, Miner, Missouri.
B. Lessor and Lessee now desire to modify and amend the Lease
Agreement in certain respects as provided hereinbelow.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. As of the Effective Date, Section 2 of the Lease Agreement is
amended by the addition thereto of the definition of "Gross Room Revenues," as
follows:
Gross Room Revenues: All revenues derived from the rental, sale,
use or occupancy of guest rooms or meeting rooms within the Leased
Property, including cash and credit transactions, but excluding sales
taxes or other taxes collected from guests, or in conjunction with the
rental of guest rooms or meeting rooms.
2. As of the Effective Date, the Lease is hereby amended by the
deletion therefrom of Exhibit G in its entirety, and, in place of and in
substitution therefor, a new Exhibit G added, said new Exhibit G attached
hereto as Exhibit "A" and incorporated herein by reference for all purposes.
3. As of the Effective Date, the Lease Agreement is hereby amended
by the deletion therefrom of Section 40 in its entirety, and, in the place of
and in substitution therefor, a new Section 40 added, as follows:
Section 40
Capital Expenditures and Reserves
(A) Exhibit "G" contains specific line items for necessary deferred
maintenance and the costs thereof (the "Deferred Maintenance Costs"). On or
before October 1, 1996, Lessor and Lessee
<PAGE> 2
will contribute into the Capital Expenditure Reserve Account their respective
portions of the Deferred Maintenance Costs, all as more particularly described
in attached "Exhibit G".
(B) Not later than October 31 of each Fiscal Year, Lessee shall
submit to Lessor for Lessor's approval pursuant to the provisions of Section
3.3 hereof, a Capital Expenditure Budget for the next Fiscal Year as part of
Lessee's submission to Lessor of the Annual Budget. The purpose for the
Capital Expenditure Budget shall be to keep the Leased Property competitive
with any hotel or hotels similar in nature and type to the Leased Property in
the area of the Competitive Set and to keep the Leased Property in compliance
with the applicable provisions of the Franchise Agreement. The Capital
Expenditure Budget shall include without limitation, the expenditures required,
necessary and/or anticipated for the repair, replacement or refurbishment of
carpet, soft goods, FF&E and structural and mechanical items, alterations to
the Leased Property (but only in accordance with Section 10.1 hereof),
reconstruction in the event of damages or destruction of the Leased Property
(but only in accordance with Section 14 hereof), restoration pursuant to a
Taking (but only in accordance with Section 15 of this Lease), other required
or desirable capital improvements to the Leased Property or any of the
components, other required or desirable capital improvements to the Leased
Property or any of the components, other required or desired working capital,
and such other items characterized as capital expenditures under the Uniform
System (excluding, however, items required to be maintained at Lessor's cost
pursuant to Section 9.1.2 of this Lease). Lessor shall maintain a separate
interest bearing account referred to as the Capital Expenditure Reserve Account
from which all costs and expenses reflected in an approved Capital Expenditure
Budget should be paid; provided, however, Lessee shall be an authorized
signatory on such account. Effective October 1, 1996, Lessor shall, within
five (5) days of its receipt of the monthly profit and loss statement described
in Section 25(b)(3) hereof, fund into the Capital Expenditure Reserve Account,
an amount equal to six percent (6%) of the Gross Room Revenues for the
preceding month (pro-rated for any partial calendar month). Lessee understands
and agrees that after the approval by Lessor of any annual Capital Expenditure
Reserve Budget, no monies can be expended from the Capital Expenditure Reserve
Account for the applicable year which were not reflected in that year's annual
Capital Expenditure Budget (or if such expenditures were reflected on the
applicable budget, but were underestimated) without the prior written consent
of Lessor, which will not be unreasonably withheld or delayed; provided, that
in the event of an emergency necessitating expenditures for the protection of
life or health or the protection of the Leased Property (a) Lessee shall
immediately pay or incur the costs and expenses in its reasonable judgment
necessary to insure such protection and irrespective of whether such sums are
reflected on the applicable Capital Expenditure Budget, and (b) Lessor shall
fund additional monies into the Capital expenditure Revenue Account with regard
to same if monies in said account are insufficient to pay the costs and
expenses associated with such emergency. In addition to those statements
required by Section 25 hereof, Lessee agrees during the Term hereof to provide
to Lessor monthly reports and invoices as to the expenditures made from the
Capital Expenditure Reserve Account for the operations of the Leased Property
for the immediately preceding month.
(C) Lessor represents and warrants to the best of its knowledge, that
the Leased Property is in full compliance with the Americans With Disabilities
Act and all rules and regulations promulgated thereunder or in connection
therewith (the "ADA Act") and has received no notice from any governmental
authority, or complaint for allegation from any third party asserting that the
Leased
<PAGE> 3
Property is not in full compliance with the ADA Act.
4. As of the Effective Date, the Lease Agreement is hereby amended
by the deletion therefrom of Exhibit D in its entirety, and in place of and in
substitution therefor, a new Exhibit D added, said new Exhibit D is attached
hereto as Exhibit "B" and incorporated herein by reference for all purposes.
5. Except as amended hereby, the Lease Agreement remains unchanged,
in full force and effect, and the binding obligation of Lessor and Lessee.
Capitalized terms used herein and not otherwise defined shall have the meanings
asserted thereto in the Lease Agreement.
Executed effective as of the aforementioned Effective Date.
Lessor:
HOST FUNDING, INC., a Maryland corporation
By: /s/ MICHAEL S. MCNULTY
---------------------------------------
Michael S. McNulty, President
LESSEE:
CROSSROADS HOSPITALITY TENANT
COMPANY, L.L.C., a Delaware limited
liability company
By: /s/ KEVIN P. KILKEARY
---------------------------------------
Kevin P. Kilkeary, President
<PAGE> 4
EXHIBIT "A"
EXHIBIT G
(Miner, Missouri)
Lessor's Contribution for Deferred Maintenance Costs $15,740.00*
Lessee's Contribution for Deferred Maintenance Costs $15,750.00
* Less amounts impounded with CS First Boston Mortgage Capital Corp. for
FF&E Reserves.
<PAGE> 5
EXHIBIT "B"
EXHIBIT D BASE RENT MONTHLY SCHEDULE
<TABLE>
<CAPTION>
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOT
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MINER
Mo. $20,900 $20,800 $24,400 $23,600 $23,500 $23,200 $25,300 $25,300 $22,800 $22,000 $18,100 $15,400 $265,300
</TABLE>
Lessor and Lessee agree that during the Fiscal Year 1996, monthly Base Rent due
to Lessor from Lessee will be adjusted using the following formula:
Monthly Base Rent
reduced by
One Percent (1%) of Monthly Gross Room Revenue
Commencing December 1996, the base rent for the months of March, June,
September and December are to be increased by an amount equal to $125.00 per
room (pro rated for any partial calendar quarter) contained within the Leased
Property; Commencing with 1998, this amount will be increased annually by the
percentage increase of the average daily room rate for the previous year for
the Leased Property. However, at no time is this amount to be more than $250.00
per room per quarter.
<PAGE> 1
EXHIBIT 10.5
First Amendment to Lease Agreement
(Super 8 San Diego, California)
This First Amendment to Lease Agreement (this "First Amendment") is
entered into by and between Host Funding, Inc., a Maryland corporation
("Lessor"), and Crossroads Hospitality Tenant Company, L.L.C., a Delaware
limited liability company ("Lessee"), and is dated effective as of October 1,
1996 (the "Effective Date").
RECITALS
A. Lessor and Lessee have previously entered into that certain Lease
Agreement (Super 8 San Diego, California) (the "Lease Agreement") dated March
29, 1996, by and between Lessor, as Lessor, and Lessee, as Lessee, and covering
the "Leased Property" known as the Super 8 Motel, San Diego, California.
B. Lessor and Lessee now desire to modify and amend the Lease
Agreement in certain respects as provided hereinbelow.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. As of the Effective Date, Section 2 of the Lease Agreement is
amended by the addition thereto of the definition of "Gross Room Revenues," as
follows:
Gross Room Revenues: All revenues derived from the rental, sale,
use or occupancy of guest rooms or meeting rooms within the Leased
Property, including cash and credit transactions, but excluding sales
taxes or other taxes collected from guests, or in conjunction with the
rental of guest rooms or meeting rooms.
2. As of the Effective Date, the Lease is hereby amended by the
deletion therefrom of Exhibit G in its entirety, and, in place of and in
substitution therefor, a new Exhibit G added, said new Exhibit G attached
hereto as Exhibit "A" and incorporated herein by reference for all purposes.
3. As of the Effective Date, the Lease Agreement is hereby amended
by the deletion therefrom of Section 40 in its entirety, and, in the place of
and in substitution therefor, a new Section 40 added, as follows:
Section 40
Capital Expenditures and Reserves
(A) Exhibit "G" contains specific line items for necessary deferred
maintenance and the costs thereof (the "Deferred Maintenance Costs"). On or
before October 1, 1996, Lessor and Lessee
<PAGE> 2
will contribute into the Capital Expenditure Reserve Account their respective
portions of the Deferred Maintenance Costs, all as more particularly described
in attached "Exhibit G".
(B) Not later than October 31 of each Fiscal Year, Lessee shall
submit to Lessor for Lessor's approval pursuant to the provisions of Section
3.3 hereof, a Capital Expenditure Budget for the next Fiscal Year as part of
Lessee's submission to Lessor of the Annual Budget. The purpose for the
Capital Expenditure Budget shall be to keep the Leased Property competitive
with any hotel or hotels similar in nature and type to the Leased Property in
the area of the Competitive Set and to keep the Leased Property in compliance
with the applicable provisions of the Franchise Agreement. The Capital
Expenditure Budget shall include without limitation, the expenditures required,
necessary and/or anticipated for the repair, replacement or refurbishment of
carpet, soft goods, FF&E and structural and mechanical items, alterations to
the Leased Property (but only in accordance with Section 10.1 hereof),
reconstruction in the event of damages or destruction of the Leased Property
(but only in accordance with Section 14 hereof), restoration pursuant to a
Taking (but only in accordance with Section 15 of this Lease), other required
or desirable capital improvements to the Leased Property or any of the
components, other required or desirable capital improvements to the Leased
Property or any of the components, other required or desired working capital,
and such other items characterized as capital expenditures under the Uniform
System (excluding, however, items required to be maintained at Lessor's cost
pursuant to Section 9.1.2 of this Lease). Lessor shall maintain a separate
interest bearing account referred to as the Capital Expenditure Reserve Account
from which all costs and expenses reflected in an approved Capital Expenditure
Budget should be paid; provided, however, Lessee shall be an authorized
signatory on such account. Effective October 1, 1996, Lessor shall, within
five (5) days of its receipt of the monthly profit and loss statement described
in Section 25(b)(3) hereof, fund into the Capital Expenditure Reserve Account,
an amount equal to six percent (6%) of the Gross Room Revenues for the
preceding month (pro-rated for any partial calendar month). Lessee understands
and agrees that after the approval by Lessor of any annual Capital Expenditure
Reserve Budget, no monies can be expended from the Capital Expenditure Reserve
Account for the applicable year which were not reflected in that year's annual
Capital Expenditure Budget (or if such expenditures were reflected on the
applicable budget, but were underestimated) without the prior written consent
of Lessor, which will not be unreasonably withheld or delayed; provided, that
in the event of an emergency necessitating expenditures for the protection of
life or health or the protection of the Leased Property (a) Lessee shall
immediately pay or incur the costs and expenses in its reasonable judgment
necessary to insure such protection and irrespective of whether such sums are
reflected on the applicable Capital Expenditure Budget, and (b) Lessor shall
fund additional monies into the Capital expenditure Revenue Account with regard
to same if monies in said account are insufficient to pay the costs and
expenses associated with such emergency. In addition to those statements
required by Section 25 hereof, Lessee agrees during the Term hereof to provide
to Lessor monthly reports and invoices as to the expenditures made from the
Capital Expenditure Reserve Account for the operations of the Leased Property
for the immediately preceding month.
(C) Lessor represents and warrants to the best of its knowledge, that
the Leased Property is in full compliance with the Americans With Disabilities
Act and all rules and regulations promulgated thereunder or in connection
therewith (the "ADA Act") and has received no notice from any governmental
authority, or complaint for allegation from any third party asserting that the
Leased
<PAGE> 3
Property is not in full compliance with the ADA Act.
4. As of the Effective Date, the Lease Agreement is hereby amended
by the deletion therefrom of Exhibit D in its entirety, and in place of and in
substitution therefor, a new Exhibit D added, said new Exhibit D is attached
hereto as Exhibit "B" and incorporated herein by reference for all purposes.
5. Except as amended hereby, the Lease Agreement remains unchanged,
in full force and effect, and the binding obligation of Lessor and Lessee.
Capitalized terms used herein and not otherwise defined shall have the meanings
asserted thereto in the Lease Agreement.
Executed effective as of the aforementioned Effective Date.
Lessor:
HOST FUNDING, INC., a Maryland corporation
By: /s/ MICHAEL S. MCNULTY
---------------------------------------
Michael S. McNulty, President
LESSEE:
CROSSROADS HOSPITALITY TENANT
COMPANY, L.L.C., a Delaware limited
liability company
By: /s/ KEVIN P. KILKEARY
---------------------------------------
Kevin P. Kilkeary, President
<PAGE> 4
EXHIBIT "A"
EXHIBIT G
(San Diego, California)
Lessor's Contribution for Deferred Maintenance Costs $39,973.00*
Lessee's Contribution for Deferred Maintenance Costs $19,074.00
* Less amounts impounded with CS First Boston Mortgage Capital Corp. for
FF&E Reserves.
<PAGE> 5
EXHIBIT "B"
EXHIBIT D BASE RENT MONTHLY SCHEDULE
<TABLE>
<CAPTION>
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOT
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAN DIEGO
$15,800 $14,300 $17,600 $18,400 $21,200 $23,400 $32,500 $34,600 $23,600 $22,300 $15,200 $11,100 $250,000
</TABLE>
Lessor and Lessee agree that during the Fiscal Year 1996, monthly Base Rent due
to Lessor from Lessee will be adjusted using the following formula:
Monthly Base Rent
reduced by
One Percent (1%) of Monthly Gross Room Revenue
Commencing December 1996, the base rent for the months of March, June,
September and December are to be increased by an amount equal to $125.00 per
room (pro rated for any partial calendar quarter) contained within the Leased
Property; Commencing with 1998, this amount will be increased annually by the
percentage increase of the average daily room rate for the previous year for
the Leased Property. However, at no time is this amount to be more than $250.00
per room per quarter.
