-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, MHyVVU7/o3DaIbg0dnolTOXgy76U2z1ZARVDYpA34Tb32Rh25FEIjZv5KrRSan/Y xWF0Vrpp14JQ+Nkw5BNOng== 0000912057-95-000101.txt : 19950608 0000912057-95-000101.hdr.sgml : 19950608 ACCESSION NUMBER: 0000912057-95-000101 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19950113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED INNS INC CENTRAL INDEX KEY: 0000101281 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 580707789 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06848 FILM NUMBER: 95501397 BUSINESS ADDRESS: STREET 1: 5100 POPLAR AVE STE 2300 CITY: MEMPHIS STATE: TN ZIP: 38137 BUSINESS PHONE: 9017672880 FORMER COMPANY: FORMER CONFORMED NAME: UNITED ENTERPRISES DATE OF NAME CHANGE: 19720203 10-K 1 FORM 10-K SECURITIES & EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] /X/ For the fiscal year ended September 30, 1994 OR / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the Transition period from ___________ to ______________ Commission file number 1-6848 ___________________ UNITED INNS, INC. (Exact name of registrant as specified in its charter) Delaware 58-0707789 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5100 Poplar Avenue, Suite 2300, Memphis, TN 38137 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (901) 767-2880 _____________________ Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- --------------------- Common Stock, $1.00 par value New York Stock Exchange Pacific Stock Exchange Philadelphia Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------------------- ---------------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ Aggregate market value of the Registrant's voting stock held by non- affiliates, based upon the closing price of said stock on the New York Stock Exchange--Composite Transaction Listing on December 12, 1994, ($24.25 per share): $35,254,965. As of December 12, 1994, 2,665,899 shares of the Common Stock, $1.00 par value, of the Registrant were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: NONE PART I ITEM 1. BUSINESS. (a) The Registrant was organized in 1956 as a corporation. The Registrant engages primarily in the operation of hotels under Holiday Inns, Inc. licenses. The Registrant currently operates twenty-five (25) hotels; eight (8) in Atlanta, Georgia; six (6) in Houston, Texas; four (4) in Jackson, Mississippi; two (2) in Dallas, Texas; two (2) in Colorado Springs, Colorado; one (1) each in Flagstaff, Arizona; Santa Barbara, California; and Scottsdale, Arizona. All the hotels are equipped with year round temperature control, a swimming pool, telephone and free television in each room, twenty four hour switchboard service, wall to wall carpeting, on-premises parking and free advance reservation services. All hotels contain restaurants operated by the Registrant and sell liquor, except for the three (3) Hampton Inns located in Jackson, Mississippi; Atlanta, Georgia; and Houston, Texas; the Days Inn Dallas Regal Row; the two (2) Holiday Inn Express properties located in Atlanta, Georgia, and Colorado Springs, Colorado; which are limited service hotels located within line of sight of various food and beverage facilities. During fiscal year 1994, the Registrant sold the Holiday Inn Near Greenway Plaza located in Houston, Texas; sold a closed hotel located in Houston, Texas; and allowed its property lease to expire on the Super 8 Motel located in San Jose, California. Also during fiscal year 1994 the Registrant negotiated a short term license agreement for a leased property, and converted it from a Holiday Inn to a Howard Johnson Hotel, and subsequent to the close of the fiscal year, on November 30, 1994 allowed its lease to expire and ceased to operate the property. The Registrant owns and operates one (1) Mr. Pride Car Wash unit in Houston, Texas. The car wash center uses modern semi-automatic car washing equipment. Automobiles are pulled by a conveyer through a series of washing, rinsing and drying cycles. The unit is operated on leased property with a lease expiration date of October 31, 1995. Additionally, the Registrant owns four(4) closed car wash units which are being held for disposition. During fiscal year 1994, the Registrant sold one (1) car wash unit in Dallas, Texas. There have been no significant changes in the kinds of products produced or services rendered by the Registrant or in the markets or methods of distribution since the beginning of the fiscal year, October 1, 1993. The Registrant currently has no new hotel developments underway or planned. See Current Developments, Item 1 (d). 2 ITEM 1. (cont.) (b) (1) The Registrant's businesses are highly competitive. The hotels are in competition with hotels and other motels within their immediate area. Due to the highly competitive nature of the lodging industry, the Registrant is required to make continuing expenditures for modernizing, refurnishing and maintaining existing facilities. (2) The Registrant's business is not materially dependent upon a single or few customers, the loss of whom would have a material adverse effect on the business of the Registrant. (3) The license agreements that have been issued by Holiday Inns, Inc., Hampton Inns, Days Inns of America Franchising, Inc., Ramada, Inc., and Howard Johnson Franchise Systems, Inc. to the Registrant are considered to be of considerable importance. The Registrant has location licenses for its properties. The original license agreement for new hotels is generally for a period of twenty (20) years. License agreements for hotel conversions are generally issued for periods of ten (10) to fifteen (15) years. The Registrant may request license extensions from its licensors prior to the end of the term of the license. Each license is terminable by licensors for cause, including failure to conform to certain minimum standards. (4) An insignificant sum was spent by the Registrant during each of the last two fiscal years on research activities. (5) Compliance with federal, state and local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, has not required any capital expenditures of a material nature, nor has it had any material effect on earnings or the competitive position of the Registrant and its subsidiaries. (6) On November 24, 1994, the Registrant had approximately 1,887 employees, including approximately 297 part-time employees who work an average of less than 30 hours per week. (7) Four (4) of the Registrant's hotels located in Colorado and Arizona are dependent to a large extent upon the summer and winter vacation seasons. (c) The Registrant has one primary business segment, the operation of hotel properties. This segment represents greater than 90% of consolidated revenue operating profit and identifiable assets. All revenues were derived from domestic operations. There are no material customers and no material government contracts. (d) Current Development - On November 14, 1994, the Company entered into an Agreement and Plan of Merger with United/Harvey Holdings, L.P., United/Harvey Hotels, Inc. and United/Harvey Sub, Inc. Reference is made to the disclosure concerning such agreement contained in Part II, Item 7, Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operation, under the caption "Current Developments". 3 ITEM 2. PROPERTIES
NUMBER OF ROOMS --------------- HOTEL DIVISION Originally Presently - -------------- - Holiday Inn Hotels: Atlanta, Georgia Airport North - owned(1) 301 492 South (I-75/U.S. 41) - owned(1) 180 180 I-285/Powers Ferry Rd. - owned(1) 300 300 Perimeter Mall/Dunwoody Area - owned(1) 252 250 Colorado Springs, Colorado North - owned 220 220 Dallas, Texas Brook Hollow/Love Field - owned(1) 358 356 Houston, Texas Intercontinental Airport - owned(1) 210 400(3) West Loop Near the Galleria - owned(1) 214 318(3) Medical Center - owned(2) 298 296 I-10 West at Loop 610 - owned(1) 252 249 Jackson, Mississippi North - owned 54 254 Southwest - owned(1) 102 289 Downtown - owned(1) 359 358 Santa Barbara, California - owned(1) 159 154 Holiday Inn Express Hotels: Atlanta Georgia I-85 N/Northcrest (Express) - owned(1) 112 198 I-20 East (Express) - owned(1) 167 165 Colorado Springs, Colorado Central (Express) - owned(1) 167 207 Hampton Inns: Jackson, Mississippi I-55 North - owned(1) 118 118 Marietta, Georgia I-75N (Marietta) - owned(1) 140 140 Houston, Texas I-10 East - owned 89 89 Days Inns: Flagstaff, Arizona 1000 West Highway 66 - owned 120 156 Dallas, Texas Stemmons & Regal Row - owned(1) 202 200 Houston, Texas I-10 East/Mercury Drive - owned 156 156 Ramada Inn: Atlanta, Georgia Downtown - owned(1) 253 473 Howard Johnson Hotels: Scottsdale, Arizona - lease of land (1) 216 216 ----- Total: 6,234 4 (1) Subject to first mortgage. (2) Subject to first and second mortgages. (3) Properties with rooms in reserve, not currently in active inventory: Houston: Intercontinental Airport 96 West Loop Near the Galleria 106
ITEM 3. LEGAL PROCEEDINGS. No material legal proceedings are pending against the Registrant. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. No matters were submitted to a vote of security holders in the fourth quarter of the fiscal year covered by this report. A description of the Company's executive officers is contained under Part III, Item 10 below. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS. The Registrant's Common Stock is traded on the New York Stock Exchange, Pacific Stock Exchange, and Philadelphia Stock Exchange under the symbol "UI". The following table gives the high and low sale prices per share of the Registrant's Common Stock on the New York Stock Exchange - Composite Tape, for the past two fiscal years, as reported by the New York Stock Exchange.
1994 1993 ---------------- ---------------- High Low High Low ---- --- ---- --- 1st Quarter 9 1/4 5 1/2 2 3/8 1 1/2 2nd Quarter 14 1/2 7 1/2 5 2 3/8 3rd Quarter 14 1/4 8 7/8 4 3/8 3 5/8 4th Quarter 18 12 6 3/4 3 5/8
As of December 12, 1994, the approximate number of shareholders was 1,366. No dividends were paid during fiscal 1994 or 1993. 5 ITEM 6. FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(in thousands except per share data, rooms in operation and percentages) FISCAL YEAR ENDED SEPTEMBER 30 ------------------------------------------------------------ 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- OPERATING RESULTS: Revenues............................................ $ 93,130 $ 92,923 $ 99,161 $ 112,591 $ 120,924 ---------- ---------- ---------- ---------- ---------- Costs and expenses.................................. 74,390 76,389 84,376 95,709 97,708 Depreciation........................................ 9,078 9,031 9,939 11,159 11,319 Interest and financing.............................. 10,117 9,946 9,803 13,943 15,968 Minority interest................................... 81 54 39 91 109 ---------- ---------- ---------- ---------- ---------- 93,666 95,420 104,157 120,902 125,104 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations............ (536) (2,497) (4,996) (8,311) (4,180) Gain (loss) from property dispositions.............. (6,266) 1,251 (3,634) 8,319 Loss contingency.................................... 388 (1,718) ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations before income taxes................................ (6,802) (1,246) (8,242) (10,029) 4,139 Income taxes........................................ (1,297) (430) (3,291) (3,317) 4,741 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations............ (5,505) (816) (4,951) (6,712) (602) Discontinued operations Income (loss) from operations of (net of applicable income taxes) Furniture Manufacturing.......................... 139 Gain on disposal of business segments (net of applicable income taxes).................. 4,329 ---------- ---------- ---------- ---------- ---------- Net income (loss) before extraordinary item......... (5,505) (816) (4,951) (6,712) 3,866 Extraordinary item-gain on settlement of debt (net of applicable income taxes)........... 1,907 ---------- ---------- ---------- ---------- ---------- Net income (loss).................................. $ (5,505) $ (816) $ (3,044) $ (6,712) $ 3,866 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Per share of common stock Income (loss) before discontinued operations....... $ (2.08) $ (0.31) $ (1.87) $ (2.54) $ (0.23) Income (loss) from discontinued operations......... 0.05 Gain (loss) on disposal of business segments....... 1.64 Extraordinary item................................. 0.72 ---------- ---------- ---------- ---------- ---------- Net income (loss)................................. $ (2.08) $ (0.31) $ (1.15) $ (2.54) $ 1.46 ---------- ---------- ---------- ---------- ---------- Dividends per share................................. $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 ---------- ---------- ---------- ---------- ---------- Average number of shares outstanding................ 2,644 2,641 2,641 2,641 2,641 ---------- ---------- ---------- ---------- ---------- OTHER INFORMATION: Total assets........................................ $ 129,026 $ 146,733 $ 152,517 $ 162,085 $ 198,592 ---------- ---------- ---------- ---------- ---------- Property and equipment.............................. 95,839 116,306 120,401 135,685 157,628 ---------- ---------- ---------- ---------- ---------- Long-term debt...................................... 91,419 101,165 101,603 104,551 121,771 ---------- ---------- ---------- ---------- ---------- Shareholder' equity................................. 15,571 20,970 21,786 24,831 31,543 ---------- ---------- ---------- ---------- ---------- Book value per share................................ $ 5.84 $ 7.94 $ 8.25 $ 9.40 $ 11.94 ---------- ---------- ---------- ---------- ---------- % of shareholders' equity to total assets........... 12.1% 14.3% 14.3% 15.2% 15.9% ---------- ---------- ---------- ---------- ---------- Ratio of total liabilities to stockholders' equity.. 7.3:1 6.0:1 6.0:1 5.6:1 5.3:1 ---------- ---------- ---------- ---------- ---------- Rooms in operation.................................. 6,244 7,095 7,489 8,629 8,675 ---------- ---------- ---------- ---------- ---------- Occupancy........................................... 54.6% 51.7% 48.7% 49.7% 58.6% ---------- ---------- ---------- ---------- ---------- Average Daily Room Rate............................. $ 55.01 $ 51.91 $ 50.35 $ 51.40 $ 47.64 ---------- ---------- ---------- ---------- ----------
6 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS Current Developments On November 14, 1994, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") (a copy of which is attached to this Form 10-K, as Exhibit 2.0 and incorporated by reference herein) with United/Harvey Holdings, L.P. ("Purchaser"), United/Harvey Hotels, Inc. ("United/Harvey") and United/Harvey Sub, Inc. ("Merger Sub"), pursuant to which the Purchaser agreed to acquire all the shares of the issued and outstanding Common Stock of the Company (the "Shares") at a price of $25.00 per Share (the "Per Share Amount") in cash net to the selling stockholders ("Sellers"). The information set forth in Item 3(b)(ii), "Merger Agreement," in the Schedule 14D-9 filed by the Company with the Securities and Exchange Commission ("SEC") on November 23, 1994, attached hereto as Exhibit 2.1 (the "Schedule 14D-9"), is incorporated by reference herein. The acquisition of the Shares is to occur pursuant to an Offer to Purchase dated November 21, 1994, (the "Offer to Purchase") and the related Letter of Transmittal (which together constitute the "Offer") provided to the stockholders of the Company by the Purchaser and filed by the Purchaser with the SEC as exhibits to a Tender Offer Statement on Schedule 14D-1 on November 21, 1994. The information set forth in Item 3(b)(ii), "Merger Agreement; The Offer," in the Schedule 14D-9, is incorporated by reference herein. The Merger Agreement provides, among other things, that after completion of the Offer, subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged into the Company (the "Merger") and the Company will survive as the surviving corporation and as a wholly-owned subsidiary of United/Harvey. Each outstanding Share, other than those held by United/Harvey or any subsidiary of the Company or in the treasury of the Company (all of which will be cancelled) and those Shares held by stockholders of the Company who promptly demand and perfect appraisal rights under the General Corporation Law of the State of Delaware, will be converted at the effective time of the Merger into the right to receive the Per Share Amount, in cash, without interest thereon. As described in the Offer to Purchase, Purchaser has expressly reserved the right, following the consummation of the Offer, to cause the Merger Agreement to be amended to provide non-tendering stockholders the option (the "Cash/Stock Option") to elect to receive in exchange for each share converted in the merger either (i) cash in the amount at least equal to the Per Share Amount or (ii) shares of common stock of United/Harvey. The Offer to Purchase provides that a number of factors will influence whether or not Purchaser makes the Cash/Stock Option available to non-tendering stockholders. The information set forth in Item 2, "Tender Offer of the Bidder" and in Item 3(b)(ii), "Merger Agreement; The Merger," in the Schedule 14D-9, is incorporated by reference herein. 7 It is contemplated that, upon the purchase of Shares by Purchaser pursuant to the Offer, the Company's Board of Directors will be reconstituted in its entirety to consist soley of Purchaser's designees. Any action of the Company's Board of Directors following the consummation of the Offer with respect to any amendment to the Merger Agreement will constitute an action of the Company's Board of Directors as then reconstituted. The information set forth in Item 3(b)(ii), "Merger Agreement; The Board," in Schedule 14D-9 is incorporated by reference herein. At a special meeting of Company's Board of Directors held on November 14, 1994, the Board of Directors unanimously (a) determined that the Offer and the cash Merger are in the best interests of the Company's stockholders, (b) approved the Merger Agreement and the transactions contemplated thereby, including the Offer and the cash Merger, and (c) resolved to recommend that the Company's stockholders accept the Offer. The Board of Directors recommends that the Company's stockholders accept the Offer as set forth in the Company's response to the Offer filed on Schedule 14D-9. The information set forth in Item 3(b)(ii), "The Offer; Conditions to the Offer," Item 3(b)(ii), "The Merger," and Item 4, "The Solicitation or Recommendation," in the Schedule 14D-9 is incorporated by reference herein. Cockroft Consolidated Corporation, the owner of approximately 45.4% of the Shares, has agreed to and has tendered the Shares owned by it into the Offer pursuant to an agreement between Purchaser and Cockroft Consolidated Corporation (the "Cockroft Agreement"). The information set forth in Item 3(b)(v), "Cockroft Agreement," in the Schedule 14D-9 is incorporated by reference herein The Offer expires January 20, 1995. 8 Item 7 (cont.) Liquidity and Capital Resources Historically cash flow from operations and sales of surplus assets have been the primary sources of liquidity for the Company. Cash flow from operating activities for fiscal 1994 was $8.5 million, an increase of $3.3 million over the 1993 level of $5.2 million. During fiscal 1994 the Registrant expended $5.5 million on capital improvements, consisting principally of $3 million in expenditures on mid-scale renovation projects at ten (10) hotels, $.8 million on the replacement of television sets at thirteen (13) hotels and $.7 million on the purchase and installation of electronic door locks at eight (8) hotels and a telephone system for one (1) hotel. Funding of the expenditures was accomplished with $1.5 million in lease/purchase financing; $1.0 million from restricted cash deposits; with the remaining $3.0 million being provided from operating cash flow. During fiscal 1994 the Registrant sold an operating Holiday Inn in Houston; a hotel in Houston, which had been closed since 1988; surplus vacant land in Atlanta; and a former car wash site in Dallas. Total gross sales proceeds net of the commissions and other costs related to the sales amounted to $11.4 million with $8.7 million applied to payment of debt and property taxes related to the properties, for a net proceeds of $2.7 million. Additionally, $.2 million of sales proceeds were received on the sale of old television sets and other furnishings and equipment. During its ten months of operation in fiscal 1994, the Holiday Inn in Houston had gross revenues of $2.8 million and a net loss before the sale, of $.6 million. The lease on one hotel in San Jose, California expired on the last day of fiscal 1994 and another lease on a hotel in Dallas expired on November 30, 1994. Inasmuch as the Registrant was unable to negotiate acceptable renewal terms or other arrangements the leases were allowed to expire. During fiscal 1994 the combined gross revenue was $3.8 million and the combined net loss was $550,000 for these two hotels. During fiscal year 1994 $1.1 million was deposited into restricted cash accounts held to fund capital expenditures on six of the Registrant's hotel properties. These deposits are reflected in the caption "Other investing activities" of the Consolidated Statement of Cash Flows. At the end of Fiscal 1994 the Registrant had four (4) minor renovation projects underway which it expects to complete at a cost of $ .7 million. As of December 31, 1994, the Registrant failed to meet certain ratios on a first mortgage loan on one of its hotels. Under the loan agreement the lender may, at its option, declare the Registrant to be in default under the loan agreement, accelerate the maturity of the loan, and require future management fees charged to the hotel to be paid to the lender and applied to principal reduction. In addition, the lender has advised the Company that consummation of the Merger will also constitute an event of default and that the lender will not waive the default. The balance on this loan at September 30, 1994, was $1,725,000. Management fees charged to this hotel during fiscal 1994 amounted to $181,770. 9 Item 7 (cont.) The Registrant holds seven unused land parcels and four car wash sites of which all except one land parcel are available for sale, however, none were actively being marketed at the close of year. Results of Operations The following table sets forth for the periods indicated, percentages which certain items reflected in the financial data bear to total revenues of the Company and the percentage increase or decrease in amounts of such items as compared to the indicated prior period:
RELATIONSHIP TO TOTAL REVENUES PERIOD TO PERIOD YEAR ENDED INCREASE (DECREASE) SEPTEMBER 30 YEARS ENDED ----------------------------- ------------------- 1994 1993 1992 1994-93 1993-92 --------- --------- --------- --------- --------- Revenues: Rooms 77.7 % 76.2 % 71.9 % 2.3 % (0.8)% Restaurants 16.0 17.2 18.0 (6.7) (10.4) Car washes 1.0 1.6 5.1 (41.5) (70.0) Telephone & Sundry 5.3 5.0 5.0 6.1 (6.0) --------- --------- --------- Total Revenues 100.0 100.0 100.0 0.2 (6.3) --------- --------- --------- Operating costs and expenses: Direct: * Rooms 63.9 66.9 69.2 (2.2) (4.1) Restaurants 100.0 100.4 101.3 (7.2) (11.2) Car washes 106.5 109.1 88.2 (42.9) (62.9) Telephone and sundry 35.1 41.6 42.5 (10.6) (7.8) Marketing, administrative and general 11.3 10.1 10.4 11.9 (9.3) Depreciation 9.7 9.7 10.0 0.5 (9.1) --------- --------- --------- Total operating costs and expenses: 89.6 91.9 95.1 (2.3) (9.4) --------- --------- --------- Operating income 10.4 8.1 4.9 28.8 54.8 Interest expense (10.9) (10.7) (9.9) (1.7) (1.5) Minority interest (0.1) (0.1) 0.0 (50.9) (39.6) Gain (loss) on disposition of assets (6.7) 1.3 (3.7) (601.0) 134.4 Loss contingency 0.0 0.0 0.4 0.0 (100.0) --------- --------- --------- Income (loss) from operations before income taxes (7.3) (1.4) (8.3) (445.9) 84.9 Income taxes (credit) (1.4) (0.5) (3.3) (202.0) 86.9 --------- --------- --------- --------- --------- Income (loss) before extraordinary item (5.9) (0.9) (5.0) (574.2) 83.5 Extraordinary item-gain on settlement of debt (net of applicable taxes) 0.0 0.0 1.9 0.0 (100.0) --------- --------- --------- --------- --------- Net income (loss) (5.9)% (0.9)% (3.1)% (574.2)% 73.2 % ========= ========= ========= ========= ========= * Percentages of direct costs and expenses are expressed as a percentage of the applicable revenue item, e.g. Direct-Rooms is stated as a percentage of Rooms Revenue, consequently, the sum of percentages of the Operating Costs and Expenses will not equal Total Operating Costs and Expenses.
10 Item 7 (cont.) 1994 Compared to 1993 REVENUES - total revenues for fiscal 1994 were $93.1 million or an increase of $.2 million from those reported in fiscal 1993. Gross revenues attributable to two hotels which were disposed of in fiscal 1993 were $1.7 million. While the two hotels with expiring leases, referred to in the discussion of liquidity and capital resources, were operated for the full fiscal year 1994, gross revenues on these hotels decreased by $1.7 million. Gross revenues of the operating hotel in Houston sold in fiscal 1994 decreased $.8 million. Additionally, gross revenues from car washes declined by $ .6 million over those reported in fiscal 1993 resulting principally from the disposition of five car wash units in December 1992 and closing of one other in May 1993. Revenues of the twenty-five continuing operating hotels and corporate increased by $5.0 million. Following is a table reflecting the elements of the net change in revenue:
In Millions Increase (Decrease) ----------- Continuing operating 25 hotels & corporate $ 5.0 Hotels with expiring leases (1.7) Hotels disposed of (2.5) Car wash units ( .6) ----- Net change in revenue $ .2 ----- -----
Following is a table comparing room revenues, relative occupancy levels and average daily room rates (ADR) of the twenty-five hotels remaining in the system at fiscal year end and after termination of lease of one hotel in November 1994:
1994 1993 ------------ ------------ Room revenue $ 67,024,836 $62,314,231 Occupancy 56.68% 54.06% ADR $54.58 $51.38
OPERATING COSTS AND EXPENSES - total operating costs and expenses decreased by $2.0 million in fiscal 1994 as compared with fiscal 1993. The reduction of operating costs and expenses attributable to the two hotels which were disposed of in 1993 was $1.9 million, costs and expenses of the two hotels with expiring leases decreased by $1.2 million. Operating costs and expenses on the operating hotel in Houston, sold in fiscal 1994 decreased $.7 million. Additionally, operating costs and expenses from car washes decreased $.9 million. Operating costs and expenses of the twenty-five continuing operating hotels and corporate increased by $2.7 million. INTEREST EXPENSE - interest expense increased by $171,000 in fiscal 1994 as compared with fiscal 1993 interest expense, reflecting increases due to addition of $1.5 million in lease/purchase financing of television sets, electronic locks and a telephone system; and provision for interest on estimated additional income taxes. 11 Item 7 (cont.) GAIN (LOSS) ON DISPOSITION OF ASSETS - a loss of $6.6 million was recognized on the sale of a hotel in Houston. Additionally, a loss of $548,000 was recognized upon the sale of another hotel in Houston, which had been closed since 1988. In addition, gains were recognized on the sale of an unimproved tract of land in Atlanta and a former car wash unit in Dallas, in the amounts of $.775 million and $.1 million, respectively. PROVISION FOR INCOME TAXES - the effective tax rate for 1994 was a net credit of 19.1%. The federal statutory rate of 34% was reduced by 5.9% resulting from the change in valuation allowance in accounting for income taxes under the liability method required by Statement of Financial Standards No. 109. The relatively high overall effective income tax rate was influenced by the fact that taxable income was earned in states with state income taxes, while losses were incurred in states having no state income taxes. A detailed reconciliation of the effective tax rate with statutory rates is set out in Note 2 of Notes to Consolidated Financial Statements. 1993 Compared to 1992 REVENUES - total revenues for fiscal 1993 decreased by $6.2 million from those reported in fiscal 1992. Hotel rooms revenues decreased by $.5 million and gross hotel revenues, including rooms, decreased by $2.7 million. Hotel dispositions, five in fiscal 1992 and two in fiscal 1993 affected the net change in revenues markedly. Gross revenues attributable to these seven hotels reflected a net decrease in gross revenues of $5.6 million. Gross revenues of the twenty-eight hotels remaining in the system at the end of fiscal 1993 reflected an increase in gross revenue of $2.9 million. Following is a table comparing room revenues, relative occupancy levels and average daily room rates (ADR) of the twenty-eight hotels remaining in the system at fiscal year end:
1993 1992 ------------ ----------- Room revenue $ 69,447,000 $65,720,000 Occupancy 52.17% 50.59% ADR $52.11 $50.78
Additionally, gross revenues of the car wash units declined by $3.5 million due to sales and closings of units in 1992. Seventeen units were in operation at the beginning of the year while only seven were in operation at the close of the year. In fiscal 1993 five of the units were sold in early December, 1992 and one was closed during the year. Only one unit is in current operation. 12 Item 7 (cont.) OPERATING COSTS AND EXPENSES - total operating costs and expenses decreased by $8.9 million in fiscal 1993 as compared with fiscal 1992. The reduction of operating costs and expenses attributable to the seven hotels which were disposed of was $6.9 million. Additionally, operating costs and expenses of the car washes decreased by $3.4 million. INTEREST EXPENSE - while the net change in interest expense for fiscal 1993 was an increase of only $143,000, two factors are worthy of note in this comparison. Interest expense attributable to the seven hotels which were disposed of reflected a decrease of $1.1 million. In 1992 there was a $1.8 million credit for interest forbearance in the renewal of $42.3 million in first mortgage debt. GAIN (LOSS) ON DISPOSITION OF ASSETS - a gain of $1.2 million was recognized on the sale of a hotel in Houston. A deferred gain of $.2 million was recognized when the purchaser of a hotel during fiscal 1992 prepaid the outstanding purchase money note. A loss of $.2 million was recorded upon the termination of a lease on a hotel in Dallas. PROVISION FOR INCOME TAXES - the effective tax rate for 1993 was a net credit of 34.5% resulting principally from recognition of Federal income tax benefits in 1993 through the elimination of net deferred tax credits. A detailed reconciliation of the effective tax rate with statutory rates is set out in Note 2 of Notes to Consolidated Financial Statements. 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholders United Inns, Inc. Memphis, Tennessee We have audited the accompanying consolidated balance sheets of United Inns, Inc., and subsidiaries as of September 30, 1994 and 1993, and the related consolidated statements of income and stockholders' equity and cash flows for each of the three years in the period ended September 30, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Inns, Inc. and subsidiaries as of September 30, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1994 in conformity with generally accepted accounting principles. FRAZEE, TATE & ASSOCIATES /s/ Frazee, Tate & Associates Memphis, Tennessee December 8, 1994 14 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
SEPTEMBER 30, -------------------------- 1994 1993 ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ 7,984,467 $ 4,095,215 Current portion of long-term receivables 1,022,664 1,072,113 Accounts receivable - net of allowance for bad debts of $120,174 in 1994 and $78,835 in 1993 Trade 2,946,509 2,593,459 Other 539,459 1,085,197 Inventories (Note 1) 842,770 886,483 Prepaid expenses 6,538,167 6,084,713 ------------ ------------ Total current assets 19,874,036 15,817,180 ------------ ------------ INVESTMENTS (Note 1) Long-term receivables less current maturities 258,103 313,424 Land not in use - at cost 8,018,648 8,907,151 Other investments 10,000 10,000 ------------ ------------ 8,286,751 9,230,575 ------------ ------------ PROPERTY AND EQUIPMENT - at cost (Notes 1 and 3) Land 12,361,729 13,696,986 Buildings and improvements 136,461,189 154,266,283 Furnishings and equipment 26,822,381 30,508,425 Leased property under capital leases (Note 4) 2,891,392 4,608,045 ------------ ------------ 178,536,691 203,079,739 Less accumulated depreciation 85,879,095 91,457,432 ------------ ------------ 92,657,596 111,622,307 Construction in progress 1,212,736 575,851 Property held for sale 1,968,472 4,107,880 ------------ ------------ 95,838,804 116,306,038 ------------ ------------ OTHER ASSETS (Note 1) Franchises 534,085 674,143 Deposits and prepaid expenses 1,379,296 1,590,596 Restricted cash 3,112,803 3,114,320 ------------ ------------ 5,026,184 5,379,059 ------------ ------------ $129,025,775 $146,732,852 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the financial statements. 15 Item 8 (cont.) LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, -------------------------- 1994 1993 ------------ ------------ CURRENT LIABILITIES Long-term debt due within one year $ 2,439,311 $ 3,243,325 Note payable 258,103 261,160 Accounts payable 2,242,810 2,418,739 Sales and occupancy taxes 1,208,706 1,211,561 Accrued expenses: Payroll and payroll taxes 1,689,162 1,421,127 Rent and property taxes 2,149,927 2,706,849 Insurance 3,541,341 3,281,682 Interest and other 2,368,243 2,183,724 Income taxes payable (Notes 1 & 2) 1,100,338 219,802 ------------ ------------ Total current liabilities 16,997,941 16,947,969 ------------ ------------ LONG-TERM DEBT (Note 3) First mortgages 91,699,684 102,926,861 Capitalized lease obligations 53,892 542,121 Chattel mortgages 1,799,666 625,934 Installment loans and other 305,170 313,692 ------------ ------------ 93,858,412 104,408,608 Less amounts due within one year 2,439,311 3,243,325 ------------ ------------ 91,419,101 101,165,283 ------------ ------------ MINORITY INTEREST 523,490 517,096 ------------ ------------ DEFERRED OTHER 949,466 1,410,978 ------------ ------------ DEFERRED INCOME TAXES (Notes 1 and 2) 3,565,052 5,721,882 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 4 and 6) STOCKHOLDERS' EQUITY Common stock - $1 par value - authorized 10,000,000 shares - issued 4,117,813 shares 4,117,813 4,117,813 Paid-in capital 14,613,138 14,613,138 Retained earnings 40,057,754 46,327,055 ------------ ------------ 58,788,705 65,058,006 Less treasury shares at cost - 1,451,914 in 1994 and 1,476,904 in 1993 43,217,980 44,088,362 ------------ ------------ Total stockholders' equity 15,570,725 20,969,644 ------------ ------------ $129,025,775 $146,732,852 ------------ ------------ ------------ ------------
16 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30, ------------------------------------------ 1994 1993 1992 ------------ ------------ ------------ Revenues Rooms $ 72,403,178 $ 70,772,351 $ 71,322,112 Restaurants 14,924,087 15,999,888 17,856,821 Car washes 886,714 1,516,848 5,054,354 Telephone and sundry 4,916,338 4,633,732 4,927,705 ------------ ------------ ------------ 93,130,317 92,922,819 99,160,992 ------------ ------------ ------------ Operating costs and expenses: Direct: Rooms 46,300,258 47,347,003 49,387,399 Restaurants 14,916,698 16,069,407 18,093,393 Car washes 944,397 1,654,204 4,456,532 Telephone and sundry 1,724,643 1,929,668 2,093,579 Marketing, administrative and general 10,503,853 9,388,355 10,345,753 Depreciation 9,078,070 9,030,861 9,938,793 ------------ ------------ ------------ 83,467,919 85,419,498 94,315,449 ------------ ------------ ------------ Operating income 9,662,398 7,503,321 4,845,543 Interest expense (net of capitalized interest) (10,117,188) (9,946,202) (9,802,783) Minority interest (81,394) (53,932) (38,636) Gain (loss) on disposition of assets (6,266,287) 1,250,732 (3,633,571) Loss contingency 387,839 ------------ ------------ ------------ Income (loss) before income taxes (6,802,471) (1,246,081) (8,241,608) Income taxes (credit) (1,297,420) (429,604) (3,290,512) ------------ ------------ ------------ Income (loss) before extraordinary item (5,505,051) (816,477) (4,951,096) Extraordinary item-gain on settlement of debt (net of income taxes of $1,092,511) 1,906,834 ------------ ------------ ------------ Net income (loss) $ (5,505,051) $ (816,477) $ (3,044,262) ------------ ------------ ------------ ------------ ------------ ------------ Earnings per common share Income (loss) before extraordinary item ($2.08) ($0.31) ($1.87) Income (loss) from extraordinary item 0.00 0.00 0.72 ------------ ------------ ------------ Net income (loss) ($2.08) ($0.31) ($1.15) ------------ ------------ ------------ ------------ ------------ ------------ Weighted average shares of common stock 2,644,259 2,640,909 2,640,942 ------------ ------------ ------------ ------------ ------------ ------------ Cash dividends per share $0.00 $0.00 $0.00 ------------ ------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the financial statements. 17 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK PAID-IN RETAINED TREASURY -------------------- SHARES AMOUNT CAPITAL EARNINGS STOCK ------ ------ ---------- ----------- ---------- Balance September 30, 1991 4,117,813 $4,117,813 $14,613,138 $50,187,794 $(44,088,110) Purchase of 70 treasury shares (252) Net loss for year (3,044,262) --------- -------- ----------- ----------- ----------- Balance September 30, 1992 4,117,813 4,117,813 14,613,138 47,143,532 (44,088,362) Net loss for year (816,477) --------- --------- ---------- ----------- ----------- Balance September 30, 1993 4,117,813 4,117,813 14,613,138 46,327,055 (44,088,362) Purchase of 10 treasury shares (118) Reissue of 25,000 treasury shares (764,250) 870,500 Net loss for year (5,505,051) --------- --------- ----------- ----------- ----------- Balance September 30, 1994 4,117,813 $4,117,813 $14,613,138 $40,057,754 $(43,217,980) --------- ---------- ----------- ----------- ------------ --------- ---------- ----------- ----------- ------------
The accompanying notes are an integral part of the financial statements. 18 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, ------------------------------------------ 1994 1993 1992 ------------ ------------- ------------- OPERATING ACTIVITIES Net loss $(5,505,051) $ (816,477) $ (3,044,262) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 9,585,072 9,476,776 10,173,167 Loss (gain) from properties sold 6,170,581 (1,250,732) 246,386 Deferred income taxes (2,156,830) (728,751) (2,561,308) Minority interest 6,394 3,932 3,636 Debt reduction (433,411) Non-cash compensation 106,250 Changes to operating assets and liabilities: Accounts receivable 192,688 260,134 (294,709) Inventories 20,374 110,346 274,421 Prepaid expenses (456,511) (667,787) (743,961) Accounts payable (146,054) 74,420 (726,816) Accrued expenses 285,005 (1,158,771) 579,402 Income taxes payable 880,536 (72,733) 195,263 ------------ ------------- ------------- Net cash provided by operating activities 8,549,043 5,230,357 4,101,219 ------------ ------------- ------------- INVESTING ACTIVITIES Payments on settlement on car wash assets (1,200,000) Purchase of property, plant and equipment (2,973,856) (4,437,071) (2,980,300) Proceeds from sales of fixed assets 2,867,311 3,233,854 5,208,873 Payments received on notes receivable 54,770 504,274 26,598 Other investing activities (1,117,683) (1,136,277) (1,606,767) ------------ ------------- ------------- Net cash used for investing activities (1,169,458) (1,835,220) (551,596) ------------ ------------- ------------- FINANCING ACTIVITIES Proceeds from long-term borrowings 2,000,000 Payments on long-term debt (3,454,316) (3,214,299) (4,455,184) Purchase of treasury shares (118) (252) Other financing activities (35,899) (2,000) 187,660 ------------ ------------- ------------- Net cash used for financing activities (3,490,333) (3,216,299) (2,267,776) ------------ ------------- ------------- Increase in cash and cash equivalents 3,889,252 178,838 1,281,847 Cash and cash equivalents at beginning of year 4,095,215 3,916,377 2,634,530 ------------ ------------- ------------- Cash and cash equivalents at end of year $ 7,984,467 $ 4,095,215 $ 3,916,377 ------------ ------------- ------------- ------------ ------------- -------------
The accompanying notes are an integral part of the financial statements. 19 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
YEAR ENDED SEPTEMBER 30, ------------------------------------------ 1994 1993 1992 ------------ ------------- ------------- Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized $9,666,258 $ 9,981,680 $ 8,168,690 Income taxes 383,764 368,120 198,422 Supplemental schedule of non-cash investing and financing activities: Debt to acquire property, plant and equipment 1,447,213 879,793 Restricted cash used to purchase property, plant and equipment 1,078,145 1,369,863 512,401 Acquisition (revaluation) of car wash assets (1,168,774) Debt to acquire partnership interest 1,698,693 Note received in exchange for property 300,000 1,000,000 Property disposition under debt settlement agreement 15,818,650 Other property dispositions 1,951,899 Debt reduction 433,411 Debt payment from fixed asset sales proceeds 8,572,654 Compensation paid with treasury stock 106,250
The accompanying notes are an integral part of the financial statements. 20 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the results of operations, account balances and cash flows of the Company, its wholly-owned subsidiaries, and a 75% owned subsidiary. During 1992 a 50% owned joint venture which was previously consolidated was acquired in full. All material intercompany transactions and accounts have been eliminated in consolidation. RECLASSIFICATIONS The consolidated financial statements for prior years reflect certain reclassifications as the result of a Securities and Exchange Commission review. The SEC believes it more appropriate to classify the operations and property sales of the Company's car wash division as continuing operations rather than discontinued operations as previously reported. From 1990 through the present year, the Company has been in the process of selling car wash properties and withdrawing from the car wash business. At present the Company has disposed of or closed all locations except for one operating unit under a lease expiring October 31, 1995. Certain other reclassifications have been made to prior years to conform with income and expense classifications adopted in the year ended September 30, 1993. These reclassifications have no effect on net income (loss) or stockholders' equity as previously reported. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company places its temporary cash investments with high credit quality financial institutions. At times such investments may be in excess of the FDIC insurance limit. INVENTORIES Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method. INVESTMENTS Classified as land not in use are various parcels of land held for possible future development or sale. This cost is not in excess of net realizable value. PROPERTY HELD FOR SALE Properties classified as current have an approved contract to sell or were sold before issuance of the financial statements. Noncurrent properties are either operating properties that management is actively seeking to sell or idle properties which are no longer operating. Both current and noncurrent are stated at the lower of cost or estimated net realizable value. 21 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) PROPERTY AND EQUIPMENT Property and equipment are depreciated on the straight line method over the estimated useful life of the property. The cost of replacements and improvements are capitalized. Estimated useful lives utilized for computation of depreciation on property and equipment are as follows:
Building and improvements 10 to 40 years Furnishings and equipment 3 to 10 years Capitalized leases 25 years
Interest costs of $76,359 for 1992 were capitalized on major renovation projects. No interest was capitalized for 1994 or 1993. OTHER ASSETS Franchise costs, deferred mortgage, loan and other expenses exclusive of security deposits are recorded at cost and amortized on a straight line basis over the terms of the related agreements. These are presented net of accumulated amortization of $2,400,280 and $2,209,108 at September 30, 1994 and 1993 respectively. Restricted cash is held for capital improvements on six of the Company's properties. EARNINGS PER SHARE Earnings per common share are based on the weighted average number of shares outstanding during the period plus (in periods in which they have a dilutive effect) the effect of common shares contingently issuable from stock options. SELF INSURANCE The Company is self insured for various levels of general liability, worker's compensation and employee medical coverages. Accrued insurance includes the accrual of estimated settlements from known and anticipated claims. INCOME TAXES Effective October 1, 1993, the Company changed its method of accounting for income taxes from the deferred method of Accounting Principles Board Opinion No. 11 to the asset and liability method required by Statement of Financial Accounting Standards No. 109. Prior year financial statements were not restated. The cumulative effect of adopting this accounting statement was immaterial. The effect of the adoption on income before income taxes was not significant. 22 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. FEDERAL AND STATE INCOME TAXES The Company files a consolidated federal income tax return. Deferred income taxes and benefits are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. The statutory federal income tax rate and the effective tax rate are reconciled below:
YEAR ENDED SEPTEMBER 30, ------------------------ 1994 1993 1992 ------ ------ ------ Statutory tax rate (34.0%) (34.0%) (34.0%) Increases (decreases) in tax resulting from: New jobs credit (0.5) Change in valuation allowance 5.9 State taxes net of U. S. federal benefit 5.9 4.7 0.3 Minimum tax 0.6 2.7 2.6 Other 2.5 (7.9) (10.3) ------ ------ ------ Effective tax rate (19.1%) (34.5%) (41.9%) ------ ------ ------ ------ ------ ------ The income tax provision (benefit) consists of: YEAR ENDED SEPTEMBER 30, ------------------------------------------ 1994 1993 1992 ----------- ---------- ---------- Current - Federal $ 172,418 $ 194,565 $ 233,386 - State 686,992 104,578 133,437 ---------- ---------- ---------- 859,410 299,143 366,823 ---------- ---------- ---------- Deferred - Federal (2,076,422) (713,094) (2,454,957) - State (80,408) (15,653) (109,867) ---------- ---------- ---------- (2,156,830) (728,747) (2,564,824) ---------- ---------- ---------- $(1,297,420) $ (429,604) $(2,198,001) ----------- ---------- ----------- ----------- ---------- ----------- Income tax expense for fiscal 1992 consists of ($3,290,512) on loss from operations and $1,092,511 on the extraordinary item. The deferred tax provisions are summarized below: YEAR ENDED SEPTEMBER 30, ------------------------------------------- 1994 1993 1992 ------------ ------------ ------------ Accelerated depreciation $(2,312,226) $ (309,752) $(3,136,146) Capitalized interest and taxes (721,953) (8,894) (848,489) Capitalized leases 115,473 193,075 101,171 Change in valuation allowance 401,264 Utilization of NOL carryforwards 411,295 Other (50,683) (25,435) (447) Reinstatement (elimination) of net deferred tax credits (577,741) 1,319,087 ------------ ------------ ------------ $(2,156,830) $ (728,747) $(2,564,824) ------------ ------------ ------------ ------------ ------------ ------------
23 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. FEDERAL AND STATE INCOME TAXES (Continued) For Federal tax reporting purposes, net operating losses of $20,047,975 and tax credits of $657,020 are available to be carried to future periods expiring in fiscal years 2002 through 2008. A valuation allowance of $3,441,517 at September 30, 1994, has been recognized to offset the deferred tax assets related to these items. Following is a summary of the significant components of the Company's deferred tax assets and (liabilities):
SEPTEMBER 30, OCTOBER 1, 1994 1993 ------------ ------------- Depreciation $(8,271,596) $(11,305,775) Other (261,652) (255,223) ------------ ------------- Gross deferred tax liabilities (8,533,248) (11,560,998) ------------ ------------- Tax credit and net operating loss carryforwards 7,739,388 8,150,682 Vacation 293,217 283,566 Other 377,108 445,121 ------------ ------------- Gross deferred tax assets 8,409,713 8,879,369 ------------ ------------- Valuation allowance (3,441,517) (3,040,253) ------------ ------------- Net deferred tax liability $(3,565,052) $ (5,721,882) ------------ ------------- ------------ -------------
The Company is presently under examination by a state revenue department. The Company has determined and provided for an estimated liability. It is expected that resolution of this matter will be lengthy and may require litigation. 3. LONG-TERM DEBT The range of interest rates and maturities of the long-term debt at September 30, 1994, are summarized below: First mortgages - 7.25% to prime + 2%, due 1995 to 2007 Capitalized lease - 10.5%, due 1995 Chattel mortgages - 11% to 12.77%, due 1995 to 1999 Installment loans and others - 6.5% to 10%, due 1995 to 2000 Long-term debt including capitalized leases matures as follows:
YEAR ENDED SEPTEMBER 30, ------------------------ 1994 1993 ---------- ----------- 1994 $ $ 3,243,325 1995 2,439,311 10,353,060 1996 37,800,961 38,205,212 1997 34,426,711 40,722,026 1998 2,255,366 1,798,862 1999 1,561,204 Subsequent 15,374,859 10,086,123 ----------- ------------ $93,858,412 $104,408,608 ----------- ------------ ----------- ------------
24 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. LONG-TERM DEBT (Continued) The major portion of the Company's property and equipment is pledged as collateral on mortgage and lease obligations. The Company is guarantor of the major portion of the debt of its subsidiaries. Under terms of a debt renewal agreement completed on December 22, 1992, with one of its major lenders, the Company refinanced $42,269,013 of debt, on which the Company gave an unlimited guarantee for a period of one year. Stock of a Company subsidiary is pledged for the debt. The lender retained a first mortgage on previously secured assets and obtained a second mortgage on additional property which was owned by the Company's subsidiary. The agreement contains certain covenants including limitations on dividend distributions and fixed charge ratios of a subsidiary. The debt matures September 30, 1997. The Company has failed to meet the minimum cash flow coverage ratio on one of its loans. If such failure continues through December 31, 1994, the lender may, at their option, declare the Company to be in default under the loan agreement, and the accrued incentive management fee may not be paid for that period. Subsequent management fees would then be required to be paid to the lender and applied to principal reduction. The balance on this loan at September 30, 1994, is $1,725,000 and this is included as noncurrent. 4. LEASES The Company is obligated under long-term leases primarily for the lease of various hotel properties and equipment. In addition to specified minimum annual rentals, some of the leases provide for contingent rentals based on percentages of revenue; most require payment by the lessee of property taxes, insurance and maintenance. The leases extend for varying periods; some contain renewal options. Rentals to be received from noncancelable subleases are not material. The Company's property held under capital leases, included in property, plant, and equipment in the balance sheet, consists of real estate of $2,891,392 in 1994 and $4,608,045 in 1993. Accumulated depreciation was $2,872,121 in 1994 and $4,404,447 in 1993. Lease payments included in the accompanying consolidated statements of income were as follows:
YEAR ENDED SEPTEMBER 30, ------------------------------------------- 1994 1993 1992 ----------- ---------- ---------- Capital Leases: Minimum $ 522,100 $ 633,655 $ 656,488 Contingent 355,707 515,914 633,266 ----------- ---------- ---------- 877,807 1,149,569 1,289,754 ----------- ---------- ---------- Operating Leases: Minimum 897,898 1,053,342 1,313,731 Contingent 768,375 641,842 493,975 ----------- ---------- ---------- 1,666,273 1,695,184 1,807,706 ----------- ---------- ---------- $2,544,080 $2,844,753 $3,097,460 ----------- ---------- ---------- ----------- ---------- ----------
25 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. LEASES (Continued) The future minimum rental commitments for all noncancelable leases at September 30, 1994, are summarized below:
CAPITAL OPERATING LEASE LEASES ---------- ---------- 1995 $ 54,600 $ 304,174 1996 34,849 1997 33,889 1998 33,889 1999 33,889 Subsequent years 1,773,316 ---------- ---------- Total minimum rentals 54,600 $2,214,006 Less interest portion 708 ---------- ---------- ---------- Present value of net minimum rentals $ 53,892 ---------- ----------
The interest rate on the capital lease is 10.5%; this rate was used in computing the present value. 5. PENSION, POSTEMPLOYMENT AND BONUS PLANS The Company's 1993 Stock Incentive Plan for key employees and directors provides for the issuance of stock options at not less than fair market value on the date of grant. Options are exercisable from one to five years after the grant date. No options may be granted after October 1, 2003. At September 30, 1994, 296,000 shares were available for the granting of additional options. The Company issues treasury shares to fulfill its obligations under the stock option plans. Transactions since inception are summarized as follows:
Fair Market Value at Number of Date of Shares Grant --------- ----------- Options granted 4,000 $ 12.875 --------- ----------- Outstanding at September 30, 1994 4,000 $ 12.875 --------- ----------- --------- -----------
The Company granted 25,000 shares and an option for 35,000 shares to a consultant outside of the plan in 1993. The fair market value of $4.25 per share at contract date was used to measure consulting expense of $106,250 and the exercise price of the option. The 35,000 share option is exercisable up to 1999. The Company adopted in 1994 a severance pay policy concerning termination of employment due to elimination of an employee's position as a result of a reduction in force, merger with another entity, sale of Company assets or other similar events. The Company pays for unused vacation plus severance pay based on years of service. 26 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. PENSION, POSTEMPLOYMENT AND BONUS PLANS (Continued) The Company has an executive bonus plan which covers full time executive officers of the Company. The plan provides for a distribution of 1% to 3% of consolidated income before taxes and unusual items. No amounts were approved for distribution in 1994, 1993 or 1992. Effective January, 1992, the Company adopted a Retirement Savings 401(k) Plan. The plan is available to all employees with one year of service who are not covered by a collective bargaining agreement and who have attained age 21. The Company deposits elective deferral contributions which have been withheld from employee compensation. The Company may also make a discretionary contribution in such amount it deems advisable. No discretionary contributions have been made by the Company. In addition, the Company matches a portion of the employee contribution up to 4% of their annual earnings. The Company contribution was $292,926 for 1994, $287,923 for 1993 and $178,635 for 1992. All contributions to the Plan, other than discretionary contributions, are 100% non-forfeitable. 6. COMMITMENTS AND CONTINGENCIES Under the terms of the Holiday Inn, Hampton Inn, Ramada, Howard Johnson, Super 8 and Days Inn franchises, the Company is committed to make annual payments for franchise fees, reservation service, and advertising. The amounts due under the agreements were $5,896,426 for 1994, $5,735,441 for 1993, and $5,757,912 for 1992. There are a number of guest and customer claims, employee wage claims, and other disputed amounts outstanding against the Company, all of which occurred in the ordinary course of business. Counsel has advised that there is no material exposure to the Company in these matters. 27 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. (UNAUDITED) QUARTERLY RESULTS OF OPERATIONS The following is a summary of the (unaudited) quarterly results of operations for the years ended September 30, 1994, and September 30, 1993:
QUARTERS ------------------------------------------------------------------------ FIRST SECOND THIRD FOURTH ----------- ----------- ----------- ----------- 1994 Revenues $20,369,965 $23,424,110 $23,998,310 $25,337,932 ----------- ----------- ----------- ----------- Net income (loss) $(1,295,334) $ 585,388 $(4,235,847) $ (559,258) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Earnings per share $ (0.49) $ 0.22 $ (1.60) $ (0.21) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 1993 Revenues $21,400,817 $22,881,441 $24,400,817 $24,239,744 ----------- ----------- ----------- ----------- Net income (loss) $(1,909,569) $ 563,693 $ (63,724) $ 593,123 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Earnings per share $ (0.72) $ 0.21 $ (0.02) $ 0.22 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
8. SEGMENT INFORMATION The Company has one primary business segment, the operation of hotel properties. This segment represents more than 90% of consolidated revenue, operating profit and identifiable assets. All revenues were derived from domestic operations. There are no major customers and no government contracts. 28 Item 8 (cont.) UNITED INNS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. GAIN (LOSS) FROM ASSET DISPOSITIONS Loss from disposition in 1994 includes a $6,599,719 loss on sale of an operating hotel and a loss of $548,407 on sale of a closed hotel. Gains of $774,597 and $110,969 were recognized on the sales of an unimproved tract of land and a former car wash unit. Gain on asset dispositions in 1993 include gain of $1,257,943 on the sale of one property, recognition of a deferred gain of $183,927 on a property sold in 1992 and a loss of $191,138 on termination of a lease. Included in 1992 property dispositions were the sale of two operating properties for a net gain of $482,378, the demolition and write off of a closed hotel for a loss of $1,187,963, and a loss of $431,454, resulting from the exercise of a purchase option for the joint venture partner's 50% interest in a hotel. Additionally the termination of a lease on an operating property resulted in a loss of $464,467. A $2,029,865 loss resulting from the sale and write down of car wash properties was also recognized in 1992. 10. DEBT EXTINGUISHMENT AND LOSS CONTINGENCY In March, 1992, a conveyance was made of two hotels to the mortgage holder, resulting in a debt deficiency of $4,200,000. This deficiency was settled for a cash payment of $1,200,000 resulting in a net of tax gain of $1,906,834 on the debt settlement. An estimated loss contingency of $1,718,279 recorded in 1991 on the property conveyance was settled at $1,330,440 in March, 1992, resulting in a loss recovery credit of $387,839. 11. SUBSEQUENT EVENTS On November 14, 1994, the Company entered into a merger agreement with the United/Harvey Holdings, L.P. (purchaser) whereby the purchaser has tendered an offer to acquire all of the outstanding shares of the Company at $25 per share. At November 14, 1994, the Company had 2,665,899 shares issued and outstanding and 39,000 shares subject to outstanding options. Under the merger agreement, the Company along with Harvey Hotels, an operator of eight hotels, will become wholly owned subsidiaries of United/Harvey, a wholly owned subsidiary of the purchaser. 29 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements on accounting and financial disclosure. PART III ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS' OF THE REGISTRANT.
Name Age Since Position - ---- --- ----- -------- Don Wm. Cockroft 56 1967 President and Chief Executive (brother of Officer and Director Robert L. Cockroft and Janet C. Virgin, brother-in-law of J. Howard Lammons) (a) J. Howard Lammons 65 1957 Director (brother-in-law of Private investor. Advisory Don Wm. Cockroft Director, Memphis NationsBank Robert L. Cockroft, of TN. and Janet C. Virgin) (a) Robert L. Cockroft 53 1971 Director (brother of Don Wm. Physician-Memphis Cockroft and Janet C. Radiological Professional Virgin, brother-in-law Corporation - of J. Howard Lammons) Practitioner of (c) Medicine. Howard W. Loveless 67 1977 Director (b) and (c) Private consultant. Janet C. Virgin 60 1991 Director (sister of Don Wm. Private Investor Cockroft and Robert L. Cockroft; sister-in-law of J. Howard Lammons) (a) Ronald J. Wareham 50 1993 Director (a), (b) and (c) President - R. J. Wareham & Company Incorporated, a corporate financial advisory firm. Augustus B. Randle, III 54 Secretary and General Counsel J. Don Miller 59 Vice President - Finance John M. Dollar 53 Vice President (a) Member of the Executive Committee of the Board. (b) Member of the Audit Committee of the Board. (c) Member of the Compensation Committee of the Board.
The above directors and executive officers have had the principal occupations set forth above for at least five years, except for Mr. Wareham, Mr. Lammons and Mr. Loveless. Mr. Wareham has been President of R. J. Wareham & Company, Incorporated, a corporate financial advisory firm since 1991. From 30 1984 to 1991, he was a managing director of Dean Witter Reynolds' Corporate Finance Office in Atlanta, Georgia. Mr. Lammons has been principally involved in private investment activities since his retirement from the Company in March 1994. Prior to his retirement, Mr. Lammons served as Executive Vice-President of the Company since 1978. Mr. Loveless has been principally involved in private consulting activities since January 1, 1994. Prior to that date and for over five years prior thereto, Mr. Loveless served as President of Haas, Inc., a private investment advisory company. It is contemplated that, upon the purchase of Shares by the Purchaser pursuant to the Offer, that the Company's Board of Directors will be reconstituted in its entirety to consist solely of Purchaser's designees. Information regarding such Purchaser designees is contained under the caption "Individuals Designated by Purchaser As Purchaser Designees" found in Annex A to the Schedule 14D-9, which information is incorporated by reference herein. 31 ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION The following table sets forth the compensation awarded to, earned by or paid to the Company's Chief Executive Officer and its other most highly compensated executive officer, whose total annual salary and bonus for the Company's 1994 fiscal year exceeded $100,000, for services rendered in all capacities during the fiscal years ended September 30, 1994, 1993 and 1992. ANNUAL COMPENSATION
All Other Fiscal Salary Compensation Name and Principal Position Year ($)(2) ($)(1)(3) --------------------------- ---- ------ --------- Don Wm. Cockroft 1994 233,250 11,174 President and Chief Executive 1993 216,000 169,262 Officer 1992 216,000 John M. Dollar 1994 117,167 8,272 Vice President 1993 113,000 47,191 1992 113,000 (1) In accordance with transitional provisions of the rules of the Securities and Exchange Commission (the "SEC") on executive compensation disclosure, amounts of All Other Compensation have not been included for fiscal year 1992. (2) Salary includes base salary earned and paid in cash during the fiscal year and the amount of base salary deferred at the election of the executive officer under the United Inns, Inc. Retirement Savings Plan (401(K) Plan) for fiscal years 1992, 1993, and 1994. (3) All Other Compensation consists of (a) the amount ($3,585) in insurance premiums provided to each executive officer through the Company's Group Health Insurance Plan that is not available generally to all salaried employees, and (b) matching contributions to the United Inns, Inc. Retirement Savings Plan (401(K) Plan); Such amounts, respectively were as follows for 1994: Mr. Cockroft, $7,589; and Mr. Dollar, $4,687.
CHANGE IN CONTROL CONTRACTS On June 1, 1987, the Company entered into a severance agreement with Mr. John M. Dollar. Under this agreement, Mr. Dollar would be entitled to severance compensation in the event that his employment is terminated following a change in control of the Company. The amount of compensation would be equal to a maximum of 200% of his base compensation for the twelve months prior to his termination plus an additional amount for benefits. The maximum amount of compensation which would be payable to Mr. Dollar, if his employment was terminated, as of November 14, 1994, would be $236,000 plus an additional amount for benefits. Additionally, on June 1, 1987 the Company has entered into Severance Agreements with two other executive officers of the Company. Under the agreements, Mr. Augustus B. Randle, III and Mr. J. Don Miller are entitled to severance compensation in the event that their employment is terminated following a change in control of the Company. Reference is made to the Schedule 14D-9, Item 3(b)(vi) "Severance Agreements" which sets forth in greater detail the terms of these agreements. COMPENSATION OF DIRECTORS For fiscal year 1994 all directors are to be paid a fee of $750 for each Board meeting attended. In addition, directors who are not employees of the Company are to be paid a quarterly fee of $1,500, plus $400 for each Board Committee meeting attended. The Company has a consulting arrangement with R. J. Wareham & Company, Incorporated ("Wareham & Co."), under the terms of which Wareham & Co. is to be paid by the Company for Ronald J. Wareham's time and expenses for financial advice to the Company related to a variety of corporate projects. Mr. Wareham is the sole shareholder of Warehem & Co. The Company has made payments in the aggregate amount of $26,450 to Wareham & Co., during the Company's fiscal year ended September 30, 1994. 32 The Company's 1993 Stock Incentive Plan provides that each director who is not also an employee of the Company and who is incumbent at the date of each of the five consecutive annual meetings of stockholders beginning with the Company's 1994 annual meeting of stockholders shall automatically be granted, immediately after the conclusion of each such annual meeting, an option to purchase 1,000 shares of Common Stock. In connection with the Company's 1994 annual meeting of shareholders held on February 11, 1994, pursuant to the Company's 1993 Stock Incentive Plan the Company granted to each of Robert L. Cockroft, Howard W. Loveless, Janet C. Virgin and Ronald J. Wareham, an option to purchase up to 1,000 shares of Common Stock at an exercise price of $12.87 per share of Common Stock. EXECUTIVE BONUS PLAN The Company has an executive bonus plan under which individual discretionary awards can be made to the full-time executive officers of the Company. The sum to be distributed ranges from 1% to 3% of the consolidated net income of the Company before income taxes. No cash amounts have been paid under such plan since the fiscal year ended September 30, 1985. LONG-TERM INCENTIVES Stock options are authorized to be granted as long-term incentives to certain key employees of the Company, including executive officers, under the Company's 1993 Stock Incentive Plan (the "1993 Plan"). Under the terms of this plan, the Company may grant options to key employees (determined by the Compensation Committee) to purchase such number of shares of the Common Stock of the Company as is determined by the Compensation Committee. The number of shares for which options will be granted to executive officers will be determined by the Compensation Committee based upon performance, potential and other subjective factors. However, no set criteria will be used and other factors may influence the Compensation Committee's determination with respect to the number of shares granted, such as the promotion of an individual to a higher position, a desire to retain a valued executive or the number of shares then available for grant under 1993 Plan. The stock option holdings of an individual at the time of a grant will not generally be considered in determining the size of a grant to that individual. EMPLOYEE BENEFIT PLANS The material which follows in this section describes the provisions of employee benefit plans now in effect, or in effect during the Company's last fiscal year, other than group life and accident insurance, group hospitalization and other similar group payments and benefits, in which some or all of the employees of the Company participate. 1993 STOCK INCENTIVE PLAN On November 19, 1993, the Company's Board of Directors adopted the 1993 Plan, which was approved by the Company's stockholders at the Company's annual meeting of stockholders held on February 11, 1994 (the "1994 Annual Meeting"). The 1993 Plan provides for the granting of options to purchase for cash an aggregate of not more than 300,000 shares of Common Stock. Such options may be granted to key employees, including officers of the Company and its subsidiaries, as may be designated by the Compensation Committee of the Board. At November 14, 1994, the Company had granted an aggregate of 4,000 options to non-employee directors of the Company at an exercise price of $12.87 per share of Common Stock. Under the terms of the 1993 Plan, the Compensation Committee may from time to time grant options to key employees to purchase Common Stock at a price which may not be less than the fair market value of the shares, as determined by the mean between the high and low prices of the stock on the New York Stock Exchange on the date the option is granted. In addition, the 1993 Plan provides that each director who is not also an employee of the Company and who is an incumbent at the date of each of the five consecutive annual meetings of stockholders beginning with the 1994 Annual Meeting shall automatically be granted, immediately after the conclusions of each such annual meeting, an option to purchase 1,000 Shares. Each person who is not also an employee of the Company and who is elected or appointed a director during such five-year period other than at an annual meeting shall, upon such election or appointment, be granted an option to purchase 1,000 shares of Common Stock. The exercise price of options granted to directors under the 1993 Plan must be equal to the mean between the high and low prices of the stock on the New York Stock Exchange on the date of grant of the option and the right to exercise such options will vest one year from the date of the grant, if not earlier upon the occurrence of certain specified events as described below. 33 Options may not be exercised later than five years after the date of grant. Subject to the limitations imposed by the provisions of the Internal Revenue Code, certain of the options granted under the 1993 Plan to key employees may be designated "incentive stock options." The Company may make interest-free demand loans to holders of options not designated as incentive stock options for the purpose of exercising such options and paying any tax liability associated with such exercise. Except as provided herein, no option may be exercised until the optionee has completed one year of service after the option is granted, except in the case of termination of an employee's employment or a director's directorship because of death or disability, nor may an option be exercised after termination of an employee's employment or a director's directorship for any reason other than death, disability, retirement or for cause. Options may be exercised within twelve months (a) after the optionee retires, (b) after termination of an employee's employment or a director's directorship on account of permanent disability, or (c) after death when in the service of the Company or any of its subsidiaries. Options may also be exercised within three months after termination of an employee's employment or director's directorship if termination is for reasons other than death, disability or retirement so long as such termination is not for cause, as determined by the Compensation Committee. If termination is for cause, all unexercised options of optionee terminated for cause shall immediately terminate and be of no further force or effect. In the event of death within the twelve- month period following termination of an employee's employment or a director's directorship for retirement or permanent disability, options may be exercised by the optionee's legal representative within twelve months following the date of death. However, under no circumstances may an option be exercised after the expiration of the stated period of the option. No cash consideration is paid for the granting of the options. Payment in full of the option price must be made upon exercise of any option. The 1993 Plan provides for the use of treasury shares. No options or awards may be granted under the 1993 Plan after October 1, 2003, but options or awards granted prior to October 1, 2003, may extend beyond that date. The 1993 Plan may be discontinued by the Company's Board of Directors, but no termination may impair options or awards granted prior hereto. Upon the occurrence of a Change in Control (as defined in the 1993 Plan) of the Company, each holder of an unexpired option under the 1993 Plan will have the right to exercise the option in whole or in part without regard to the date that such option would be first exercisable, except no option may be exercised less than six months from the date of grant, and such right will continue, with respect to any such holder whose employment with the Company or subsidiary or whose directorship terminates following a change in control, for a period ending on the earlier of the date of expiration of such option or the date which is twelve months after such termination of employment or directorship. The Compensation Committee may alter or amend the 1993 Plan at any time. No amendment by the Compensation Committee, however, may increase the total number of shares reserved for purposes of the 1993 Plan, reduce the option price to an amount less than the fair market value at the time the option was granted, extend the duration of the 1993 Plan or modify the provision for the automatic grant of options to directors, unless such amendment is approved by the stockholders. No amendment or alteration may impair the rights of optionees with respect to options theretofore granted, except the Compensation Committee may revoke and cancel any outstanding options which, in the aggregate, would create a significant adverse effect on the Company's financial statement in the event that the Financial Accounting Standards Board issues a statement requiring an accounting treatment which causes such adverse effect with respect to options then outstanding. The Compensation Committee has the power to interpret the 1993 Plan and to make all other determinations necessary or advisable for its administration. 34 Under current federal tax law, non-incentive stock options granted under the 1993 Plan will not result in any taxable income to the optionee at the time of grant or any tax deduction to the Company. Upon the exercise of such option, the excess of the market value of the shares acquired over their cost is taxable to the optionee as compensation income and is generally deductible by the Company. The optionee's tax basis for the shares is the market value thereof at the time of exercise. Neither the grant nor the exercise of an option designated as an incentive stock option results in any federal tax consequences to either the optionee or the Company. At the time the optionee sells shares acquired pursuant to the exercise of an incentive stock option, the excess of the sale price over the exercise price will qualify as a capital gain, provided the applicable holding period is satisfied. If the optionee disposes of such shares within two years of the date of grant or within one year of the date of exercise, an amount equal to the lesser of (a) the difference between the fair market value of the shares on the date of exercise and the exercise price, or (b) the difference between the exercise price, and the sale price will be taxed as ordinary income and the Company will be entitled to a deduction in the same amount. The excess, if any, of the sale price over the sum of the exercise price and the amount taxed as ordinary income will qualify as capital gain if the applicable holding period is satisfied. If the optionee exercises an incentive stock option more than three months after his or her termination of employment due to retirement, he or she is deemed to have exercised a non-incentive stock option. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Name and Address Number of Shares Percent of of Beneficial Owner Title of Class Beneficially Owned Class - ------------------- -------------- ------------------ ---------- Cockroft Consolidated Common 1,209,214(1) 45.4 Corporation Suite 2300 5100 Poplar Avenue Memphis, TN 38137 Dimensional Fund Advisors Common 182,400(2) 6.8 Inc. 1299 Ocean Avenue, Ste.650 Santa Monica, CA 90401 Mario J. Gabelli Common 581,300(3) 21.8 One Corporate Center Rye, NY 10580 (1) Don Wm. Cockroft, Robert L. Cockroft, Janet Virgin, and Katherine Lammons beneficially own a controlling interest in Cockroft Consolidated Corporation. Pursuant to the Cockroft Agreement, Cockroft Consolidated Corporation has agreed to tender the shares shown in the above table into the Offer. Under the Cockroft Agreement, Cockroft Consolidated Corporation has also granted to the Purchaser an option to purchase all (but not less than all) of the shares, which option is exercisable by the Purchaser on or after January 1, 1995 and on or prior to March 31, 1995 provided that certain events have occurred. Reference is made to the Schedule 14D-9, Item 3 (b)(v), "Cockroft Agreement," which sets forth the terms of such agreements. (2) According to Schedule 13G as filed with the SEC by Dimensional Fund Advisors Inc., reporting ownership as of February 19,1991, Dimensional Fund Advisors Inc. has beneficial ownership of 182,400 shares. Dimensional Fund Advisors Inc. has sole voting and sole dispositive power over 116,600 of these shares and officers of Dimensional Fund Advisors Inc. have sole voting and dispositive power over 65,800 of these shares. The shares of Dimensional Fund Advisors Inc., a registered investment advisor, are held in portfolios of DFA Investment Dimensions Group Inc., a registered open- end investment company, or the DFA Group Trust, an investment vehicle for qualified employee benefit plans, for both of which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional Fund Advisors Inc. disclaims beneficial ownership of all such shares.
35 SECURITIES BENEFICIALLY OWNED BY DIRECTORS AND MANAGEMENT (3) According to Schedule 13D as filed with the SEC by Gabelli Funds, Inc., Gamco Investors, Inc., Gabelli International Limited II, and Mario J. Gabelli (the "Reporting Persons") reporting ownership as of June 6, 1994, Gamco Investors, Inc. is deemed to have beneficial ownership of 420,800 of these shares; Gabelli Funds, Inc. is deemed to have beneficial ownership of 160,000 of these shares; Gabelli International Limited II is deemed to have beneficial ownership of 500 of these shares; Mario J. Gabelli is deemed to have beneficial ownership of all of the 581,300 shares; and Gabelli Funds, Inc. is deemed to have beneficial ownership of the securities owned by each of the foregoing persons other than Mario J. Gabelli. Each of the Reporting Persons has the sole power to vote and sole power to dispose of the securities reported except that Gamco Investors, Inc. does not have the authority to vote 50,000 of the reported shares; except that Gabelli Funds, Inc. has sole dispositive and voting power with respect to the shares held by The Gabelli Asset Fund, The Gabelli Growth Fund, The Gabelli Convertible Securities Fund, The Gabelli Value Fund, Inc., The Gabelli Small Cap Growth Fund, The Gabelli Equity Income Fund, The Gabelli Equity Trust, The Gabelli Global Telecommunications Fund, The Gabelli Global Convertible Securities Fund, The Gabelli Interactive Couch Potato Fund, and/or The Gabelli ABC Fund with respect to the 160,000 shares held by one or more of such funds, and except that the power of Mr. Mario J. Gabelli and Gabelli Funds, Inc. is indirect with respect to securities beneficially owned directly by other Reporting Persons. The Reporting Persons do not admit that they constitute a group. The following table sets forth, as of November 14, 1994, the amount and percentage of the Shares beneficially owned by each director and executive officer and by the directors and officers as a group:
Amount and Nature of Percent of Name of Beneficial Owner Beneficial Ownership Ownership - ------------------------ -------------------- --------- Directors: - --------- Don Wm. Cockroft 1,891(1) * J. Howard Lammons 950(1) * Robert L. Cockroft 0 -- Howard W. Loveless 500 * Janet C. Virgin 31 * Ronald J. Wareham 0 -- Non-Director Executive Officer: - ------------------------------ John M. Dollar 24 * All directors, officers as a group 4,996(2) * (9 persons) *Less than 1% (1) Includes: (a) 1,800 shares owned by the wife and dependent child of Don Wm. Cockroft; and (b) 490 shares owned by the wife of J. Howard Lammons. Except as noted hereinabove, all of the shares are owned directly by said persons with sole voting and investment power. (2) Does not include 1,209,214 shares owned by Cockroft Consolidated Corporation. The controlling shareholders of Cockroft Consolidated Corporation are Don Wm. Cockroft, Robert L. Cockroft, Katherine Lammons, the wife of J. Howard Lammons, and Janet C. Virgin.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. There are no relationships or related transactions to report. 36 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K: (a) 1. Financial statements required are reported in Item 8 of this Report. 2. Financial Statement Schedules Required By Item 8: PAGE ---- Report of Independent Accountants (45) Schedules: Schedule III--Condensed Financial Information of the Registrant (Parent Company): Comparative Balance Sheet--September 30, 1994, 1993, and 1992 (46) Comparative Statement of Income--Years ended September 30, 1994, 1993 and 1992. (48) Comparative Statement of Retained Earnings--Years Ended September 30, 1994, 1993 and 1992. (49) Statement of Comparative Cash Flows--Years ended September 30, 1994, 1993 and 1992. (50) Notes to Financial Statements (51) Schedule IV---Indebtedness Of Affiliates And Other Persons--Not Current--Three Years Ended September 30, 1994. (52) Schedule V----Property And Equipment--Three Years Ended September 30, 1994. (53) Schedule VI---Accumulated Depreciation Of Property And Equipment--Three Years Ended September 30, 1994. (54) Schedule VIII-Valuation And Qualifying Accounts-- Three Years Ended September 30, 1994. (55) Schedule X----Supplementary Income Statement Information--Three Years Ended September 30, 1994. (56) Other schedules are omitted due to the absence of conditions under which they are required or because the required information is provided in the financial statements or notes thereto. (b) Reports on Form 8-K: The Registrant did not file any reports on Form 8-K during the last quarter of the period covered by this Report. 37 (c) EXHIBITS FORM 10-K INDEX TO EXHIBITS EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO. - ----------- ------------------- -------- 2.0 Agreement and Plan of Merger dated November 14, 1994. (13) 2.1 Schedule 14D-9 filed with the Commission on November 23, 1994. 2.2 Agreement between Purchaser and Cockroft Consolidated, dated November 21, 1994. (14) 3.1 Articles of Incorporation and Amendments (1) 3.2 Bylaws of Registrant as currently in effect 3.3 Articles of Incorporation Amendment 2/16/87 (9) 10.1 Holiday Inns, Inc. License Agreement 9/18/61 (1) 10.2 Holiday Inns, Inc. License Agreement 10/29/62 (1) 10.3 Holiday Inns, Inc. License Agreement 5/08/67 (1) 10.4 Holiday Inns, Inc. License Agreement 5/08/67 (1) 10.5 Holiday Inns, Inc. License Agreement 9/05/67 (1) 10.6 Holiday Inns, Inc. License Agreement 9/13/67 (1) 10.7 Holiday Inns, Inc. License Agreement 7/16/68 (1) 10.8 Holiday Inns, Inc. License Agreement 7/16/68 (1) 10.9 Holiday Inns, Inc. License Agreement 8/29/69 (1) 10.10 Holiday Inns, Inc. License Agreement 2/06/70 (1) 10.11 Holiday Inns, Inc. License Agreement 3/22/71 (1) 10.12 Holiday Inns, Inc. License Agreement 11/22/71 (1) 10.13 Holiday Inns, Inc. License Agreement 11/22/71 (1) 10.14 Holiday Inns, Inc. License Agreement 3/20/72 (1) 10.15 Holiday Inns, Inc. License Agreement 8/21/72 (1) 10.16 Holiday Inns, Inc. License Agreement 8/21/72 (1) 10.17 Holiday Inns, Inc. License Agreement 8/21/72 (1) 10.18 Holiday Inns, Inc. License Agreement 8/21/72 (1) 10.19 Holiday Inns, Inc. License Agreement 8/21/72 (1) 10.20 Holiday Inns, Inc. License Agreement 8/11/72 (1) 10.21 Holiday Inns, Inc. License Agreement 8/21/72 (1) 10.22 Holiday Inns, Inc. License Agreement 8/21/72 (1) 10.23 Holiday Inns, Inc. License Agreement 8/21/72 (1) 10.24 Holiday Inns, Inc. License Agreement 6/25/76 (1) 10.25 Holiday Inns, Inc. License Agreement 9/01/78 (1) 10.26 Holiday Inns, Inc. License Agreement 9/01/78 (1) 10.27 Holiday Inns, Inc. Licenses Extension Agreement 3/5/76 (1) 38 INDEX TO EXHIBITS (cont.)
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO. - ----------- ------------------- -------- 10.28 Lease, Millsaps College Development Corp. to Jackson Med.-Center Inn, Inc. (2) 10.29 Lease, Paul Drummett to Houston Airport Inn, Inc. (2) 10.30 Addendum to Lease, Paul Drummett to Houston Airport Inn, Inc., Item 10.29 above. (1) 10.31 Lease, Mid Atlanta Investment Company to Lammons Hotel Courts, Inc. (2) 10.32 Amendments to Lease, Mid Atlanta Investment Company to Lammons Hotel Courts, Inc., Item 10.31 above. (1) 10.33 Lease, Natala Corp. to United Enterprises, Inc. (2) 10.34 Amendments to Lease, Natala Corp. to United Enterprises, Inc., Item 10.33 above. (1) 10.35 Lease Marietta Inns, Inc. to Hardy Inn, Inc. (2) 10.36 Lease, Paul Barkley to United Enterprises, Inc. (2) 10.37 Lease, 555 Real Estate Company to Jacksonville Motor Inn, Inc. (2) 10.38 Lease, Gaines Manufacturing Co., Inc. and City of McKenzie (2) 10.39 Amendment to Lease, Gaines Manufacturing Co., Inc. and City of McKenzie, Item 10.38 above (1) 10.40 Sub-lease, C.W.S. Scottsdale, Inc. and Transcontinental Motor Hotels, Inc. and underlying ground lease between Raymond and Lenore R. Silverman and C.W.S. Scottsdale, Inc. (1) 10.41 Lease, C.W.S. San Jose, Inc. to TMH Motor Hotels, Inc. with option agreement and underlying sub-lease between Claitor Properties, Inc. and C.W.S. San Jose, Inc. and ground lease between Dorothy Kiersted and Claitor Properties (filed as Exhibits 13(b)(1) through 13(b)(8) to Midwestern Companies, Inc. (which subsequently changed its name to Transcontinental Motor Hotels, Inc., which merged with Registrant on December 1, 1972) Form 8-K for month of November, 1968 filed on December 9, 1968 and incorporated herein by reference) (1) 10.42 Lease and Amendment, B.R.S.T. Corporation and Transcontinental Motor Hotels, Inc. (1) 10.43 Lease, Amendment and Guaranties, Elm Place Corp. and Transcontinental Motor Hotels, Inc. (1) 10.44 Lease and Amendment, Trammell Crow and Glenjon, Inc. (1)
39 INDEX TO EXHIBITS (cont.)
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO. - ----------- ------------------- -------- 10.45 Joint Venture Agreement between Allied Investments and Northside Inns, Inc. and Management Agreement between the Joint Venture (Northside Hotel Investors) and United Inns of Tennessee, Inc. (1) 10.46 Description of the criteria of the Executive Bonus Plan of United Inns, Inc. (1) 10.47 Holiday Inns, Inc. License Agreement 2/10/78 (3) 10.48 Holiday Inns, Inc. License Agreement 2/16/79 (3) 10.49 Holiday Inns, Inc. License Agreement 10/2/80 (3) 10.50 Holiday Inns, Inc. License Agreement 1/23/81 (3) 10.51 Holiday Inns, Inc. License Agreement 5/11/81 (3) 10.52 Amendments to Joint Venture Agreement between Allied Investments and Northside Inn, Inc., Item 10.45 above (3) 10.53 Assignment of interest in Master Lease to Transcontinental Motor Hotels, Inc., Item 10.40 above (3) 10.54 United Inns, Inc. Employees Pension Plan (3) 10.55 Holiday Inns, Inc. License Agreement 10/2/80 (4) 10.56 Hilton Inns, Inc. License Agreement 10/27/80 (4) 10.57 Holiday Inns, Inc. License Agreement 12/19/80 (4) 10.58 Holiday Inns, Inc. License Agreement 12/19/80 (4) 10.59 Holiday Inns, Inc. License Agreement 3/27/81 (4) 10.60 Holiday Inns, Inc. License Agreement 4/7/81 (4) 10.61 Holiday Inns, Inc. License (5) Agreement 5/2/79 10.62 Holiday Inns, Inc. License (5) Agreement 12/19/80 10.63 Holiday Inns, Inc. License (5) Agreement 3/31/81
40 INDEX TO EXHIBITS (cont.)
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO. - ----------- ------------------- -------- 10.64 Holiday Inns, Inc. License (5) Agreement 5/12/83 10.65 Holiday Inns, Inc. License (6) Agreement 4/25/84 10.66 Executives Optional Deferred (7) Compensation Plan of United Inns, Inc. 10/1/84 10.67 Hilton Inns, Inc. (7) License Agreement 6/13/85 10.68 Termination of Lease and Guaranty (7) (Exhibit 10.37) 10/31/85 10.69 Hampton Inns, Inc., a division (8) of Holiday Inns, Inc. License Agreement 10/23/85 10.70 Holiday Inns, Inc. (8) License Agreement 1/17/86 10.71 Hampton Inns, Inc., a division (8) of Holiday Inns, Inc. License Agreement 7/10/86 10.72 Best Western International, Inc. (8) License Agreement 7/28/86 10.73 Termination of Lease and Agreement (9) (Exhibit 10.35) 5/19/87 10.74 Days Inns of America Franchising, Inc. License Agreement 4/17/89 (Flagstaff) (10) 10.75 Days Inns of America Franchising, Inc. (11) License Agreement 12/29/89 (Houston I-10 East) 10.76 Days Inns of America Franchising, Inc. (11) License Agreement 12/29/89 (Houston I-10 West) 10.77 Days Inns of America Franchising, Inc. (11) License Agreement 02/07/90 (Dallas Regal Row) 10.78 Ramada, Inc. License Agreement 09/17/91 (12) (Atlanta Downtown) 10.79 Hampton Inn Hotel Division of Embassy (12) Suites, Inc. License Agreement 03/20/91 Houston I-10 East) 10.80 Holiday Inns Franchising, Inc. License (12) Agreement 10/11/90 (Jackson Medical Center) 10.81 Holiday Inns Franchising, Inc. License (12) Agreement 06/18/91 (Houston Medical Center)
41 INDEX TO EXHIBITS (cont.)
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO. - ----------- ------------------- -------- 10.82 Holiday Inn Franchising, Inc. License (12) Agreement 06/18/91 (Santa Barbara) 10.83 Termination of Lease and Agreement (12) (Exhibit 10.33) 02/10/91 10.84 Hanna Acceptance Corporation, John (12) Mitchell, Inc., Chapter 11 Trustee of Daniel C. Hanna 10.85 Consulting Agreement between the Company and Smith Barney, Inc., dated July 11, 1994, as amended on September 1, 1994 11 Statement Regarding Computation of Per Share Earnings 21 Subsidiaries of the Registrant 27 Financial Data Schedule for EDGAR filers.
42 INDEX TO EXHIBITS (cont.)
(1) Filed as an Exhibit to the Registrant's report on Form 10-K (File No. 1-6848) filed with the Commission on December 27, 1980 and incorporated herein by reference. (2) Filed as an Exhibit to Registration Statement No. 2-42059, Form S-1, filed with the commission on October 7, 1971 and incorporated herein by reference. (3) Filed as an Exhibit to the Registrant's report on Form 10-K (File No. 1-6848) filed with the Commission on December 28, 1981 and incorporated herein by reference. (4) Filed as an Exhibit to the Registrant's report on (Form 10-K File No. 1-6848) filed with the Commission on December 28, 1982 and incorporated herein by reference. (5) Filed as an Exhibit to the Registrant's report on (Form 10-K File No. 1-6848) filed with the Commission on December 28, 1983 and incorporated herein by reference. (6) Filed as an Exhibit to the Registrant's report on (Form 10-K File No. 1-6848) filed with the Commission on December 28, 1984, and incorporated herein by reference. (7) Filed as an Exhibit to the Registrant's report on (Form 10-K File No. 1-6848) filed with the Commission on December 27, 1985, and incorporated herein by reference. (8) Filed as an Exhibit to the Registrant's report on (Form 10-K File No. 1-6848) filed with the Commission on January 12, 1987, and incorporated herein by reference. (9) Filed as an Exhibit to the Registrant's report on (Form 10-K File No. 1-6848) filed with the Commission on January 6, 1988, and incorporated herein by reference. (10) Filed as an Exhibit to the Registrant's report on (Form 10-K File No. 1-6848) filed with the Commission on January 4, 1990, and incorporated herein by reference. (11) Filed as an Exhibit to the Registrant's report on (Form 10-K File No. 1-6848) filed with the Commission on January 15, 1991, and incorporated herein by reference. (12) Filed as an Exhibit to the Registrant's report on (Form 10-K File No. 1-6848) filed with the Commission on January 14, 1992, and incorporated herein by reference. (13) Filed as Exhibit 1 to Schedule 14D-9, filed with the Commission on November 23, 1994, and incorporated herein by reference. (14) Filed as Exhibit 7 to Schedule 14D-9, filed with the Commission on November 23, 1994 and incorporated herein by reference.
43 SIGNATURES Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED INNS, INC. By: /s/ Don Wm. Cockroft -------------------------------- Don Wm. Cockroft Principal Executive Officer and Director By: /s/ J. D. Miller -------------------------------- J. D. Miller Vice President Finance Principal Financial Officer Principal Accounting Officer Date: 1/12/95 ------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: /s/ Howard W. Loveless 1/12/95 - ------------------------------- --------------------------- By: Howard W. Loveless Date Director /s/ J. Howard Lammons 1/12/95 - ------------------------------- --------------------------- By: J. Howard Lammons Date Director /s/ Robert L. Cockroft 1/12/95 - ------------------------------- --------------------------- By: Robert L. Cockroft Date Director /s/ Janet C. Virgin 1/12/95 - ------------------------------- --------------------------- By: Janet C. Virgin Date Director 44 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholders United Inns, Inc. Memphis, Tennessee We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of United Inns, Inc., and subsidiaries included in this Form 10-K, and have issued our report thereon dated December 8, 1994. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The supplemental financial statement schedules listed in the index on page 37 of this Form 10-K are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. FRAZEE, TATE AND ASSOCIATES /s/ Frazee, Tate and Associates Memphis, Tennessee December 8, 1994 45 SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED INNS, INC. (PARENT COMPANY) COMPARATIVE BALANCE SHEET
ASSETS September 30, ------------------------------------------- 1994 1993 1992 ------------- ------------- ------------- Current Assets Cash and cash equivalents $ 3,209,994 $ 124 $ 3,013,672 Accounts receivable-other 251,315 4,325 513,901 Prepaid expenses 5,827,380 5,477,653 4,261,480 Property held for sale 1,500,000 ------------- ------------- ------------- Total current assets 9,288,689 5,482,102 9,289,053 ------------- ------------- ------------- Investments Investments in Subsidiaries (43,922,705) (39,451,590) (37,047,574) Due from Subsidiaries 56,044,824 60,041,607 55,479,840 Investments--at cost 10,000 10,000 10,000 ------------- ------------- ------------- 12,132,119 20,600,017 18,442,266 ------------- ------------- ------------- Other Assets Deposits and prepaid expenses 641,123 623,584 4,588,925 ------------- ------------- ------------- Deferred income taxes 168,590 ------------- ------------- ------------- $ 22,230,521 $ 26,705,703 $ 32,320,244 ------------- ------------- ------------- ------------- ------------- -------------
The accompanying notes are an integral part of the financial statements. 46 SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED INNS, INC. (PARENT COMPANY) COMPARATIVE BALANCE SHEET LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, ------------------------------------------- 1994 1993 1992 ------------- ------------- ------------- Current Liabilities Bank overdraft $ $ 483,802 $ Long-term debt--current 14,436 Accounts payable--trade 853,593 287,231 2,186,129 Accrued expenses--interest and other 3,947,909 3,388,791 3,658,344 Income taxes payable 959,228 70,329 161,177 ------------- ------------- ------------- Total current liabilities 5,760,730 4,230,153 6,020,086 ------------- ------------- ------------- Long-Term Debt First mortgages--deferred portion 2,378,459 ------------- ------------- ------------- Deferred Other 899,066 1,363,849 1,916,833 ------------- ------------- ------------- Deferred Income Taxes 142,057 218,745 ------------- ------------- ------------- Stockholders' Equity Common stock--$1 par value-- authorized 10,000,000 shares, issued 4,117,813 shares 4,117,813 4,117,813 4,117,813 Paid-in capital 14,613,138 14,613,138 14,613,138 Retained earnings 40,057,754 46,327,055 47,143,532 ------------- ------------- ------------- 58,788,705 65,058,006 65,874,483 Less treasury shares at cost-- 1,451,914 shares in 1994 and 1,476,904 shares in 1993 and 1992 43,217,980 44,088,362 44,088,362 ------------- ------------- ------------- Total stockholders' equity 15,570,725 20,969,644 21,786,121 ------------- ------------- ------------- $ 22,230,521 $ 26,705,703 $ 32,320,244 ------------- ------------- ------------- ------------- ------------- -------------
47 SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED INNS, INC. (PARENT COMPANY) COMPARATIVE STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, ----------------------------------------- 1994 1993 1992 ------------- ------------- ------------- Income from Subsidiaries Fees $ 1,031,876 $ 1,077,893 $ 1,507,634 Interest 0 0 738,265 Income from Outsiders Interest 261,401 216,422 211,901 Other 426,462 25,989 34,416 ------------- ------------- ------------- 1,719,739 1,320,304 2,492,216 ------------- ------------- ------------- Expenses Administrative and general 1,393,785 757,645 586,989 Interest and financing 590,580 224,975 667,726 ------------- ------------- ------------- 1,984,365 982,620 1,254,715 ------------- ------------- ------------- Operating income (loss) (264,626) 337,684 1,237,501 Loss on disposition of assets (2,029,865) ------------- ------------- ------------- Income (loss) from operations before income taxes (264,626) 337,684 (792,364) ------------- ------------- ------------- Income Taxes State 550,901 29,662 3,499 U S Federal 285,820 12,776 1,011,580 ------------- ------------- ------------- 836,721 42,438 1,015,079 ------------- ------------- ------------- Income (loss) before equity in subsidiaries' net income (1,101,347) 295,246 (1,807,443) Subsidiaries' dividends 800,000 1,000,000 Equity in subsidiaries' undistributed net income (4,403,704) (1,911,723) (2,236,819) ------------- ------------- ------------- Net income (loss) ($5,505,051) ($816,477) ($3,044,262) ------------- ------------- ------------- ------------- ------------- -------------
The accompanying notes are an integral part of the financial statements. 48 SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED INNS, INC. (PARENT COMPANY) COMPARATIVE STATEMENT OF RETAINED EARNINGS
Balance September 30, 1991 $ 50,187,794 Net loss for year (3,044,262) ------------- Balance September 30, 1992 47,143,532 Net loss for year (816,477) ------------- Balance September 30, 1993 46,327,055 Reissue of 25,000 treasury shares (764,250) Net loss for year (5,505,051) ------------- Balance September 30, 1994 $ 40,057,754 ------------- -------------
The accompanying notes are an integral part of the financial statements. 49 SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNITED INNS, INC. (PARENT COMPANY) COMPARATIVE STATEMENT OF CASH FLOWS YEAR ENDED SEPTEMBER 30,
------------------------------------------- 1994 1993 1992 OPERATING ACTIVITIES ------------- ------------- ------------- Net loss ($5,505,051) ($816,477) ($3,044,262) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Amortization 417,054 Loss on disposal of assets 2,029,865 Deferred income taxes (310,647) (76,688) (306,456) Equity in subsidiaries' net loss 4,403,704 1,604,011 1,236,819 Debt reduction (433,411) Non-cash compensation 106,250 Changes to operating assets and liabilities: Accounts receivable (246,990) (409,874) Prepaid expenses (352,784) (1,093,573) (744,382) Bank overdraft (483,802) 483,802 Accounts payable 569,419 449,101 (711,020) Accrued expenses 324,203 29,738 53,771 Income taxes payable 888,899 (90,848) 113,302 ------------- ------------- ------------- Net cash provided by (used in) operating activities (1,040,210) 489,066 (1,365,183) ------------- ------------- ------------- INVESTING ACTIVITIES Proceeds from sale of assets 2,652,038 Payments on settlement on car wash assets (1,200,000) Other intercompany transactions--net change 4,299,109 (2,999,278) 2,265,039 Other investing activities (17,539) 49,648 (355,667) ------------- ------------- ------------- Net cash provided by (used in) investing activities 4,281,570 (2,949,630) 3,361,410 ------------- ------------- ------------- FINANCING ACTIVITIES Payments on long-term debt (573,267) Purchase of treasury shares (118) (252) Other financing activities (31,372) (552,984) 31,322 ------------- ------------- ------------- Net cash used in financing activities (31,490) (552,984) (542,197) ------------- ------------- ------------- Increase (decrease) in cash and cash equivalents 3,209,870 (3,013,548) 1,454,030 Cash and cash equivalents at beginning of year 124 3,013,672 1,559,642 ------------- ------------- ------------- Cash and cash equivalents at end of year $3,209,994 $124 $3,013,672 ------------- ------------- ------------- ------------- ------------- ------------- Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized $148,838 $257,685 $543,838 State and federal income taxes 41,800 189,865 Supplemental schedule of noncash investing and financing activities: Acquisition (revaluation) of car wash assets (1,168,774) Debt reduction 433,411 Compensation paid with treasury stock 106,250
The accompanying notes are an integral part of the financial statements. 50 UNITED INNS, INC. (PARENT COMPANY) NOTES TO FINANCIAL STATEMENTS INVESTMENTS Investments in, and notes and advances to, subsidiaries (eliminated in consolidation) are stated at cost and have been adjusted for net advances, note payments, and undistributed earnings and losses since acquisition. LONG-TERM DEBT The long-term debt of Parent Company matures as follows:
Year Ended September 30, ----------------------------------------- 1994 1993 1992 ------------- ------------- ------------- 1993 $ $ $ 14,436 1994 39,628 1995 50,950 1996 68,273 1997 2,219,608 ------------- ------------- ------------- $ 0 $ 0 $ 2,392,895 ------------- ------------- ------------- ------------- ------------- -------------
The Parent Company is guarantor of the major portion of the debt of its subsidiaries. OTHER MATTERS Refer to the notes to the consolidated financial statements for further information. 51 SCHEDULE IV -- INDEBTEDNESS OF AFFILIATES -- NOT CURRENT UNITED INNS, INC. FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994 (IN THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C & D COLUMN E - -------------------------------------------------------------------------------------------------------------- NAME OF PERSONS BALANCE AT BEGINNING NET BALANCE AT END OF PERIOD TRANSACTIONS (A) OF PERIOD - -------------------------------------------------------------------------------------------------------------- ADVANCES TO WHOLLY-OWNED SUBSIDIARIES CONSOLIDATED IN THE FINANCIAL STATEMENTS: Year Ended September 30, 1992 $54,010 $1,470 $55,480 ------- ------- ------- ------- ------- ------- Year Ended September 30, 1993 $55,480 $4,562 $60,042 ------- ------- ------- ------- ------- ------- Year Ended September 30, 1994 $60,042 $(3,997) $56,045 ------- ------- ------- ------- ------- ------- Amounts consist of working capital advances to subsidiaries, return of excess funds not required for the normal operation of subsidiaries, administrative charges by the parent, and federal income tax charges or credit.
52 SCHEDULE V--PROPERTY AND EQUIPMENT UNITED INNS, INC. AND SUBSIDIARIES FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994 (IN THOUSANDS OF DOLLARS)
BALANCE AT ADDITIONS RETIREMENTS BALANCE AT BEGINNING AT OR RECLASSIFY END CLASSIFICATION OF PERIOD COST SALES OF PERIOD - ------------------------------------------------------------------------------------------------------------ ---------------- Year Ended September 30, 1992 Land $ 22,848 $ $ (447) $ (49) $ 22,352 (1) Buildings and improvements 161,896 3,801 (9,606) (13) 156,078 Furniture and equipment 37,541 1,531 (6,879) (1) 32,192 Leased property under capital leases 5,135 5,135 Property held for sale 11,288 20 (6,785)(3) 4,523 ------------- ------------- ------------- ------------- ------------- 238,708 5,352 (23,717) (63) 220,280 Construction in progress 425 (97) 328 ------------- ------------- ------------- ------------- ------------- $ 239,133 $ 5,255 $ (23,717) $ (63)(2) $ 220,608 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Year Ended September 30, 1993 Land $ 22,352 $ 382 $ (130) $ $ 22,604 (1) Buildings and improvements 156,078 2,201 (3,119) 155,160 Furniture and equipment 32,192 3,835 (5,519) 30,508 Leased property under capital leases 5,135 (1,420) 3,715 Property held for sale 4,523 (415)(3) 4,108 ------------- ------------- ------------- ------------- ------------- 220,280 6,418 (10,603) 0 216,095 Construction in progress 328 248 576 ------------- ------------- ------------- ------------- ------------- $ 220,608 $ 6,666 $ (10,603) $ 0 $ 216,671 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Year Ended September 30, 1994 Land $ 22,604 $ $ (2,224) $ $ 20,380 (1) Buildings and improvements 155,160 961 (18,766) (893) 136,462 Furniture and equipment 30,508 3,842 (7,527) 26,823 Leased property under capital leases 3,715 (1,717) 893 2,891 Property held for sale 4,108 (2,140)(3) 1,968 ------------- ------------- ------------- ------------- ------------- 216,095 4,803 (32,374) 0 188,524 Construction in progress 576 637 1,213 ------------- ------------- ------------- ------------- ------------- $ 216,671 $ 5,440 $ (32,374) $ 0 $ 189,737 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (1)Land classified on balance sheet as: 1994 1993 1992 ------------- ------------- ------------- Land not in use--under investments $ 8,018 $ 8,907 $ 8,525 Land in use--under property & equipment 12,362 13,697 13,827 ------------- ------------- ------------- $ 20,380 $ 22,604 $ 22,352 ------------- ------------- ------------- ------------- ------------- ------------- (2)Reclassification: Land, buildings and improvements, and furnishings and equipment of two hotels to Long-Term Debt (See Note 10 to Consolidated Financial Statements) and land, buildings and and improvements, and furnishings and equipment of one hotel and car washes to Property Held For Sale. (3)Property Held for Sale--Retirements/Sales 1994 1993 1992 ------------- ------------- ------------- Net book value of property dispositions $ (1,912) $ (151) $ (878) Recovery of prior years' costs (2,817) Depreciation (228) (264) (421) Write down to estimated realizable value (1,169) Reclassified to current assets (1,500) ------------- ------------- ------------- $ (2,140) $ (415) $ (6,785) ------------- ------------- ------------- ------------- ------------- -------------
53 SCHEDULE VI--ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT UNITED INNS, INC. AND SUBSIDIARIES FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994 (IN THOUSANDS OF DOLLARS)
BALANCE AT ADDITIONS RETIREMENTS BALANCE AT BEGINNING AT OR RECLASSIFY END CLASSIFICATION OF PERIOD COST SALES OF PERIOD - -------------------------------------------------------------------------------------------------------------------------- Year Ended September 30, 1992: Buildings and improvements $ 65,192 $ 5,969 $ (7,026) $ (114) $ 64,021 Furniture and equipment 25,543 3,765 (6,422) (307) 22,579 Leased property under capital leases 4,877 205 5,082 ------------- ------------- ------------- ------------- ------------- $ 95,612 $ 9,939 $ (13,448) $ (421) $ 91,682 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Year Ended September 30, 1993: Buildings and improvements $ 64,021 $ 5,591 $ (2,356) $ $ 67,256 Furniture and equipment 22,579 2,979 (5,295) 20,263 Leased property under capital leases 5,082 196 (1,340) 3,938 ------------- ------------- ------------- ------------- ------------- $ 91,682 $ 8,766 $ (8,991) $ 0 $ 91,457 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Year Ended September 30, 1994: Buildings and improvements $ 67,256 $ 5,707 $ (5,633) $ (466) $ 66,864 Furniture and equipment 20,263 2,960 (7,079) 16,144 Leased property under capital leases 3,938 184 (1,717) 466 2,871 ------------- ------------- ------------- ------------- ------------- $ 91,457 $ 8,851 $ (14,429) $ 0 $ 85,879 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Reclassifications: 1992 1993 1994 ------------- ------------- ------------- Accumulated depreciation on car wash assets (to) from Property Held for Sale $ (421) $ $ ------------- ------------- ------------- ------------- ------------- -------------
54 SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS UNITED INNS, INC. AND SUBSIDIARIES FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994 (IN THOUSANDS OF DOLLARS)
- ---------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ---------------------------------------------------------------------------------------------------------- BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT BEGINNING (CHARGED TO END DESCRIPTION OF PERIOD P & L) OF PERIOD - ---------------------------------------------------------------------------------------------------------- Allowance for Doubtful Receivables Year Ended September 30, 1992 $ 120 $ 394 $ 432 $ 82 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Year Ended September 30, 1993 $ 82 $ 466 $ 469 $ 79 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Year Ended September 30, 1994: $ 79 $ 457 $ 416 $ 120 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Deferred Income Tax Asset Valuation Allowance Year Ended September 30, 1994 $ 0 $ 3,442 $ $ 3,442 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Accrual for Self Insurance Year Ended September 30, 1992 $ 2,879,811 $ 3,891,753 $ 3,236,510 $ 3,535,054 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Year Ended September 30, 1993 $ 3,535,054 $ 2,822,190 $ 2,857,627 $ 3,499,617 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Year Ended September 30, 1994 $ 3,499,617 $ 2,780,707 $ 2,473,426 $ 3,806,898 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
55 SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION UNITED INNS, INC. AND SUBSIDIARIES (IN THOUSANDS OF DOLLARS)
The following amounts were charged to costs and expenses: YEAR ENDED SEPTEMBER 30, ------------------------------------------- 1994 1993 1992 ------------- ------------- ------------- Consolidated: Maintenance and repairs: Other profit and loss accounts $ 3,073 $ 3,174 $ 3,249 ------------- ------------- ------------- ------------- ------------- ------------- Depreciation: Costs and expenses--not allocated $ 9,078 $ 9,031 $ 9,939 ------------- ------------- ------------- ------------- ------------- ------------- Property Taxes: Other profit and loss accounts $ 3,066 $ 3,804 $ 4,195 ------------- ------------- ------------- ------------- ------------- ------------- Media Advertising: Other profit and loss accounts $ 58 $ 41 $ 24 ------------- ------------- ------------- ------------- ------------- -------------
56 EX-2.1 2 EXHIBIT 2.1 EXHIBIT 2.1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________________ SCHEDULE 14D-9 SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 ________________________________ UNITED INNS, INC. (Name of Subject Company) UNITED INNS, INC. (Name of Person(s) Filing Statement) COMMON STOCK, PAR VALUE $1.00 PER SHARE (Title of Class of Securities) 910688 10 0 (CUSIP Number of Class of Securities) ________________________________ AUGUSTUS B. RANDLE, III SECRETARY AND GENERAL COUNSEL UNITED INNS, INC. 5100 POPLAR AVENUE SUITE 2300, CLARK TOWER MEMPHIS, TENNESSEE 38137 (901) 767-2880 (Name, address and telephone number of person authorized to receive notices and communications on behalf of the person(s) filing statement) ________________________________ WITH COPY TO: WAYNE SHORTRIDGE, ESQ. SIOBHAN MCBREEN BURKE, ESQ. PAUL, HASTINGS, JANOFSKY & WALKER PAUL, HASTINGS, JANOFSKY & WALKER GEORGIA PACIFIC CENTER TWENTY-THIRD FLOOR FORTY-SECOND FLOOR 555 SOUTH FLOWER STREET 133 PEACHTREE STREET, N.E. LOS ANGELES, CALIFORNIA 90071 ATLANTA, GEORGIA 30303-1840 (213) 683-6000 (404) 588-9900 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ITEM 1. SECURITY AND SUBJECT COMPANY. The name of the subject company is United Inns, Inc., a Delaware corporation (the "Company"). The address of the principal executive offices of the Company is 5100 Poplar Avenue, Suite 2300, Clark Tower, Memphis, Tennessee 38137. The class of equity securities to which this Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") relates is the common stock, par value $1.00 per share (the "Common Stock"), of the Company. ITEM 2. TENDER OFFER OF THE BIDDER. This Schedule 14D-9 relates to the tender offer being made by United/Harvey Holdings, L.P., a Delaware limited partnership ("Purchaser"), to acquire all shares of issued and outstanding Common Stock (the "Shares") at a price of $25.00 per Share (such amount, or such other amount in cash as Purchaser may pay pursuant to the Offer, being hereinafter referred to as the "Per Share Amount"), net to the seller thereof in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated November 21, 1994 (the "Offer to Purchase") and the related Letter of Transmittal (which together constitute the "Offer"). The Offer is disclosed in the Tender Offer Statement on Schedule 14D- 1, dated November 21, 1994 and filed with the Securities and Exchange Commission (the "SEC") on November 21, 1994 (the "Schedule 14D-1"). The address of the principal executive offices of Purchaser, as set forth in the Schedule 14D-1, is 2200 Ross Avenue, 4200 Texas Commerce Tower West, Dallas, Texas 75201. The Offer is being made pursuant to the terms of the Agreement and Plan of Merger, dated as of November 14, 1994 (the "Merger Agreement"), among the Company, Purchaser, United/Harvey Hotels, Inc., a Delaware corporation ("United/Harvey"), and United/Harvey Sub, Inc., a Delaware corporation ("Merger Sub"). The Merger Agreement provides that after completion of the Offer, subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into the Company (the "Merger") and the Company will survive as the surviving corporation and a wholly-owned subsidiary of United/Harvey. Each outstanding Share, other than those held by United/Harvey or any subsidiary of the Company or in the treasury of the Company (all of which will be cancelled) and those Shares held by stockholders of the Company who properly demand and perfect appraisal rights under the General Corporation Law of the State of Delaware (the "Delaware Law"), will be converted at the effective time of the Merger (the "Effective Time") into the right to receive the Per Share Amount, in cash, without interest thereon. The Merger Agreement provides for the conversion of nontendered Shares into the right to receive the Per Share Amount in a cash merger as described above. As described in the Offer to Purchase, Purchaser expressly has reserved the right, following the consummation of the Offer, to cause the Merger Agreement to be amended to provide nontendering stockholders the option (the "Cash/Stock Option") to elect to receive in exchange for each Share converted in the Merger either (i) cash in an amount at least equal to the Per Share Amount or (ii) shares of common stock of United/Harvey. The Offer to Purchase provides that a number of factors will influence whether or not Purchaser makes the Cash/Stock Option available to nontendering stockholders, including the number of the Shares owned by persons other than Purchaser following the consummation of the Offer and compliance with applicable legal requirements, including the Securities Act of 1933, as amended (the "Securities Act") and that, as a result, there can be no assurance as to whether the Cash/Stock Option will be made available to nontendering stockholders or, if so, as to the timing thereof. The Offer to Purchase further states that, regardless of whether the Cash/Stock Option is made available, Purchaser will, either pursuant to the Merger Agreement as presently in effect or otherwise, subject to conditions no more favorable to Purchaser than those contained in the Merger Agreement as presently in effect, provide nontendering stockholders an opportunity following the consummation of the Offer to receive cash in an amount at least equal to the Per Share Amount in exchange for each Share not tendered pursuant to the Offer. It is contemplated that, upon the purchase of Shares by Purchaser pursuant to the Offer, the Company's Board of Directors will be reconstituted in its entirety to consist solely of Purchaser's designees. Any action of the Company's Board of Directors following the consummation of the Offer with respect to any amendment to the Merger Agreement to provide for the Cash/Stock Option will constitute an action of the Company's Board of Directors as then reconstituted. This Schedule 14D-9 relates only to the Merger Agreement as presently in effect and to the transactions contemplated thereby, including without limitation the cash Merger, and all references herein to the Merger Agreement and such transactions are to the Merger Agreement as presently in effect and to such transactions as contemplated by the Merger Agreement as presently in effect, respectively, and not as it may be subsequently amended by the Company's Board of Directors as reconstituted upon the purchase of Shares by Purchaser pursuant to the Offer. ITEM 3. IDENTITY AND BACKGROUND. (a) The name and address of the Company, which is the person filing this Schedule 14D-9, are set forth in Item 1 above. (b) Certain contracts, agreements, arrangements and understandings between the Company and certain of its executive officers, directors and affiliates are described under "Board of Directors" and "Employee Benefit Plans" of the Company's Information Statement, a copy of which is attached hereto as Annex A and which is incorporated herein by reference. Certain other contracts, agreements and understandings between the Company and its directors, executive officers and affiliates and between the Company and Purchaser are set forth below: (i) INDEMNIFICATION. The Company's Certificate of Incorporation, as amended, provides that no director shall be personally liable to the Company or any stockholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director shall be liable under Section 174 of the Delaware Law or shall be liable by reason that such director (a) shall have breached his duty of loyalty to the Company or its stockholders, (b) shall not have acted in good faith, (c) shall have acted in a manner involving intentional misconduct or a knowing violation of law, or (d) shall have derived an improper personal benefit. In addition, the Company's By-laws provide that the Company shall indemnify all of its officers and directors against any liability on their part which may at any time be claimed to have resulted to any third person or to the Company by reason of any acts or omissions by them, in connection with the business or on behalf of the Company, not resulting from or arising out of fraud or bad faith. The Company also has entered into indemnification agreements with each of its officers and directors, which agreements provide that, in addition to certain rights of indemnification, the Company will purchase and maintain in effect one or more policies of director and officer insurance covering the Company's officers and directors, as can be obtained for the present premium payments of $177,840 per year. (ii) MERGER AGREEMENT. On November 14, 1994, the Company, Purchaser, United/Harvey and Merger Sub entered into the Merger Agreement. The following discussion of the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, does not purport to be complete and is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which has been filed as an exhibit hereto and is incorporated herein by reference. THE OFFER. The Merger Agreement provides that Purchaser will make the Offer and, subject to the terms and conditions of the Offer, Purchaser shall accept for payment and pay for Shares which have been validly tendered and not withdrawn pursuant to the Offer at the Per Share Amount net to the seller thereof in cash at the earliest time following expiration of the Offer that all conditions to the Offer -2- have been satisfied or waived by Purchaser. Purchaser may waive any of the conditions to the Offer or make any other changes in the terms and conditions of the Offer, except that no change may be made (a) that decreases the price per Share payable in the Offer, except for decreases, if any, to reflect the difference, if any, between 2,704,899 shares and the number of shares of Common Stock outstanding as of the expiration of the Offer, calculated on a fully diluted basis, (b) that reduces the maximum number of Shares to be purchased in the Offer, (c) that changes the form of consideration to be paid in the Offer, or (d) that imposes conditions to the Offer in addition to those described below. In addition, Purchaser has agreed not to extend the expiration date of the Offer, except (a) in the event that any condition to the Offer is not satisfied on the initial expiration date of the Offer, (b) as may be required by law, or (c) with the Company's written permission. CONDITIONS TO THE OFFER. The Merger Agreement provides that Purchaser will not be required to accept for payment, or to purchase or pay for, any tendered Shares and Purchaser may terminate or amend the Offer and may postpone the purchase of, and payment for, Shares if (a) there shall not have been validly tendered to Purchaser pursuant to the Offer and not withdrawn immediately prior to the expiration of the Offer at least that number of Shares that, when taken as a whole with all other Shares owned or acquired by Purchaser (whether pursuant to the Offer or otherwise), constitutes at least a majority of the Shares on a fully diluted basis (the "Minimum Condition"), (b) prior to the time of payment for any such Shares, any waiting period (and any extension thereof) applicable to the Offer under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act") shall not have expired or otherwise been terminated or (c) at any time on or after the date of the Merger Agreement and prior to the time of payment for any such Shares: (1) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by or before any governmental, regulatory or administrative agency or authority, domestic, foreign or transnational, which (A) seeks to restrain or prohibit the making or consummation of the Offer or the Merger or seeks damages in connection therewith or resulting therefrom, (B) seeks to prohibit or restrict the ownership or operation by Purchaser (or any of its affiliates or subsidiaries) of any portion of its or the Company's business or assets which is material to the business of all such entities taken as a whole, or to compel Purchaser (or any of its affiliates or subsidiaries) to dispose of or hold separate any portion of the Company's business or assets which is material to the business of all such entities taken as a whole, (C) seeks to impose material limitations on the ability of Purchaser effectively to acquire or to hold or to exercise full rights of ownership of the Shares, including without limitation the right to vote the Shares purchased by Purchaser on all matters properly presented to the stockholders of the Company, (D) seeks to impose any limitations on the ability of Purchaser or any of its affiliates or subsidiaries effectively to control in any material respect the business and operations of the Company, or (E) would otherwise be reasonably likely to have a material adverse effect on the business, operations, property or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole; or (2) the representations and warranties of the Company set forth in the Merger Agreement shall have been breached in any material respect (or, with respect to those representations and warranties qualified by material adverse effect, in any respect) or the Company shall have failed to perform any obligation or covenant required by the Merger Agreement to be performed or complied with by it in any material respect; or (3) there shall have occurred (A) any general suspension of, or limitation on prices for, or trading in, securities on the New York Stock Exchange, (B) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (C) a commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the United States, (D) any material limitation (whether or not mandatory) by a governmental authority, or any other event that is reasonably likely to materially adversely affect the extension of credit by banks or other financial institutions, or (E) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; or (4) a tender or exchange offer for some portion of or all the Shares shall have been publicly proposed to be made or shall have been commenced at an all cash price per share in excess of the Per Share Amount (or at any other price if the Board of Directors of the Company does not promptly announce publicly that it is recommending that the Company's stockholders not tender into such offer) by another person or entity or Purchaser shall have otherwise learned that any person, entity or "group" (within the meaning of Section 13(d)(3) of the -3- Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall have acquired beneficial ownership of more than 25% of the Shares, through the acquisition of stock, the formation of a group or otherwise, or shall have been granted any right, option or warrant, conditional or otherwise, to acquire beneficial ownership of more than 25% of the Shares other than acquisitions for bona fide arbitrage purposes only and other than by persons, entities or groups that have publicly disclosed such ownership in a Schedule 13D or 13G on file with the SEC on the date of the Merger Agreement; or (5) any other person or entity shall have commenced a proxy or consent solicitation of the Company's stockholders to approve a transaction other than transactions contemplated by the Merger Agreement; or (6) the Merger Agreement shall have been terminated in accordance with its terms; or (7) the Board of Directors of the Company shall not have taken all necessary actions to fulfill the Company's obligations to reconstitute the Company's Board of Directors as described under the heading "The Board" below; or (8) Purchaser and the Company shall have agreed that Purchaser shall amend or terminate the Offer or postpone the payment for Shares pursuant thereto. The Merger Agreement provides that the foregoing conditions are for the sole benefit of Purchaser. Such conditions may be waived by Purchaser with the approval of the Board of Directors of the Company. Any determination by Purchaser will be final and binding upon all parties including tendering stockholders. The failure by Purchaser at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right and each such right will be deemed an ongoing right which may be asserted at any time and from time to time. THE BOARD. The Merger Agreement provides that, promptly upon the purchase by Purchaser of a majority of the outstanding Shares pursuant to the Offer, Purchaser shall be entitled, subject to compliance with applicable law, to designate up to that number of members, rounded up to the nearest whole number, of the Company's Board of Directors as will make the percentage of the members designated by Purchaser equal to the percentage of outstanding Shares held by Purchaser and its affiliates (other than the Company and its subsidiaries). Pursuant to Merger Agreement, the Company has agreed to increase the size of its Board and/or use its reasonable efforts to secure the resignation of such number of directors as is necessary to enable Purchaser's designees to be elected to the Company's Board of Directors and to cause Purchaser's designees to be so elected effective immediately upon Purchaser's acquisition of a majority of the outstanding Shares pursuant to the Offer or otherwise. In this regard, on November 14, 1994, the Company's Board of Directors took written action to (a) increase the number of directors of the Company from six to nine, such increase to be effective immediately prior to Purchaser's acquisition of a majority of the Shares, (b) elect Messrs. J. Peter Kline, Donald J. McNamara and Robert A. Whitman (collectively, the "Purchaser Designees"), as designees of Purchaser to fill the vacancies created by such increase, with such elections to be effective immediately upon Purchaser's acquisition of a majority of the Shares, and (c) accept the written resignation as a director of the Company of each of the existing members of the Board of Directors of the Company, such resignations being effective immediately upon Purchaser's acquisition of a majority of the Shares; the Company has represented to Purchaser that such action will be in effect immediately prior to Purchaser's acquisition of a majority of the Shares. If any Purchaser Designee becomes unable or unwilling to serve as a member of the Company's Board of Directors, it is contemplated that an appropriate substitute will be elected to such Board in place of such Purchaser Designee. In addition, the Company will cause the Purchaser Designees to constitute the same percentage (rounded up to the nearest whole number) on each of the following: (a) each committee of such Board designated by Purchaser, (b) each board of directors of each subsidiary of the Company designated by Purchaser, and (c) each committee of each such board designated by Purchaser. The Company's obligations to appoint designees to the Company's Board of Directors will be subject to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. In this regard, the Company has prepared and filed with the SEC an Information Statement, a copy of which is attached as Annex A to this Schedule 14D-9 and which is incorporated herein by reference. The Merger Agreement provides that, from the date of the Merger Agreement to the date on which the Purchaser Designees first become directors of the Company as described above, the -4- Company will notify Purchaser in advance of every meeting of the Company's Board of Directors (or any committee thereof) and will permit a representative of Purchaser to attend, as an observer, each such meeting. THE MERGER. The Merger Agreement provides that Merger Sub will be merged with and into the Company in accordance with the relevant provisions of the Delaware Law as soon as practicable following the satisfaction or waiver of the conditions to the Merger described below under the heading "Conditions to the Merger". Following the Merger, the Company shall continue as the surviving corporation (the "Surviving Corporation") and the separate corporate existence of Merger Sub will cease. The Certificate of Incorporation and By-laws of the Company to be in effect from and after the Effective Time, until amended in accordance with their respective terms and the Delaware Law will be the Certificate of Incorporation and By-laws, respectively, of the Company, as amended and restated in the form attached to the Merger Agreement. The directors and officers of Merger Sub immediately prior to the Effective Time shall be the initial directors and officers of the Surviving Corporation until their respective successors are duly elected or appointed and qualified. As provided in the Merger Agreement, each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by United/Harvey or any subsidiary of the Company or held in the treasury of the Company, all of which shall be cancelled without consideration, and other than Dissenting Shares, as defined below) shall, by virtue of the Merger and without any action on the part of Merger Sub, the Company or United/Harvey, be converted into and become the right to receive the Per Share Amount, in cash, without interest thereon and each share of common stock, par value $0.01 per share, of Merger Sub ("Merger Sub Common Shares") issued and outstanding immediately prior to the Effective Time will, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and become one share of common stock, par value $0.01 per share, of the Surviving Corporation. Each Merger Sub Common Share held in Merger Sub's treasury or by any subsidiary of Merger Sub immediately prior to the Effective Time will be cancelled without the payment of any consideration therefor. The Merger Agreement provides that the Merger will be consummated as promptly as practicable after the satisfaction or waiver of the conditions set forth in the Merger Agreement. The Merger will become effective at the time of filing of a certificate of merger as required by the Delaware Law. Any Shares held by a holder who has demanded and perfected the right for appraisal of such Shares in accordance with the Delaware Law and who, as of the Effective Time, has not effectively withdrawn or lost such right to such appraisal ("Dissenting Shares") will be entitled only to such rights as are granted by the Delaware Law. If any holder of Shares who demands appraisal of such Shares under the Delaware Law shall effectively withdraw or lose (through failure to perfect or otherwise) the right to such appraisal, then, as of the later of the Effective Time or the occurrence of such event, such holder's Shares will automatically be converted into and represent only the right to receive the Per Share Amount in cash, without interest thereon. The Merger Agreement provides that if required following the completion of the Offer, the Company shall promptly take all action necessary in accordance with the Delaware Law and its Certificate of Incorporation and By- laws to duly call, give notice of, convene and hold a special meeting of its stockholders (the "United Stockholders' Meeting") to consider and vote upon the approval and adoption of the Merger. Purchaser has agreed to cause all Shares purchased pursuant to the Offer and all other Shares owned by the Purchaser or any affiliate thereof to be voted in favor of the approval the Merger. If the Minimum Condition is satisfied and Purchaser purchases the Shares pursuant to the Offer, Purchaser will be able to effect the adoption of the Merger Agreement (whether in its present form or as it may be amended to implement the Cash/Stock Option or otherwise) either at a meeting of the Company's stockholders or pursuant to written consent in lieu of such a meeting, without the affirmative vote or consent of any other stockholder of the Company. -5- CONDITIONS TO THE MERGER. Under the Merger Agreement, the respective obligations of each party to effect the Merger are subject to the satisfaction or waiver at or prior to the Effective Time of the following conditions: (a) the Offer shall have been consummated; (b) the Merger Agreement shall have been adopted by the requisite vote of the stockholders of the Company if required by applicable law; (c) any waiting period (and extension thereof) applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated; and (d) no United States or state governmental authority or other agency or commission or United States or state court of jurisdiction shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, writ, injunction or other order which is in effect and has the effect of making the Merger or the Offer illegal or otherwise prohibiting the consummation of the transactions contemplated by the Merger Agreement. REPRESENTATION AND WARRANTIES. The Merger Agreement contains various customary representations and warranties of the parties. Representations and warranties of Purchaser include certain matters relating to its organization, its authority to enter into the Merger Agreement and to consummate the transactions contemplated thereby, its filings with the SEC in connection with the Offer, the consents and approvals required for the execution and delivery of the Merger Agreement and the consummation of the transactions contemplated thereby and the availability of funds sufficient to consummate the Offer and the Merger on the terms contemplated thereby. Representations and warranties of United/Harvey and Merger Sub include certain matters relating to their organization, their authority to enter into the Merger Agreement and to consummate the transactions contemplated thereby and the consents and approvals required for the execution and delivery of the Merger Agreement and the consummation of the transactions contemplated thereby. Representations and warranties of the Company include certain matters relating to its organization and qualification to do business, its capitalization, its authority to enter into the Merger Agreement and to consummate the transactions contemplated thereby, the consents and approvals required for the execution and delivery of the Merger Agreement and the consummation of the transactions contemplated thereby, its filings with the SEC, the absence of certain changes suffered by the Company since August 31, 1994, its litigation, employees and employee benefit plans, taxes and environmental matters. CONDUCT OF BUSINESS PENDING THE MERGER. Pursuant to the Merger Agreement, the Company has agreed that, during the period from the date of the Merger Agreement to the Effective Time, except as otherwise provided in the Merger Agreement or unless Purchaser otherwise agrees in writing, the businesses of the Company and its subsidiaries will be conducted only in, and the Company and its subsidiaries will not take any action except in, the ordinary course of business consistent with past practices. The Company has further agreed that it will (a) use its reasonable best efforts to (i) preserve substantially intact the business organization of the Company and its subsidiaries, (ii) keep available the services of the present officers, employees and consultants of the Company and its subsidiaries, and (iii) preserve the present relationships of the Company and its subsidiaries with customers, suppliers and other persons with whom the Company or any of its subsidiaries has significant business relations, (b) continue in full force and effect without material modification all existing policies or binders of insurance currently maintained in respect of the Company and each of its subsidiaries and their respective assets, and (c) pay, and cause each of its subsidiaries to pay, its indebtedness and otherwise discharge its liabilities punctually when and as the same become due and payable and perform and observe, and cause each of its subsidiaries to perform and observe, its duties and obligations under its material contracts. By way of amplification of the foregoing, the Company has agreed that, except as expressly contemplated by the Merger Agreement, neither the Company nor any of its subsidiaries will, between the date of the Merger Agreement and the Effective Time, directly or indirectly do, or propose to do, any of the following without the prior written consent of Purchaser: (a) amend or otherwise change its Certificate of Incorporation or By-laws; (b) issue, sell, pledge, dispose of encumber, or authorize the -6- issuance, sale, pledge, disposition or encumbrance of, (i) any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interests, of the Company or any of its subsidiaries (except for the issuance of shares pursuant to certain options and other arrangements previously disclosed to Purchaser), or (ii) any assets of the Company or any of its subsidiaries (except for the sale of non-material assets in the ordinary course of business consistent with past practices); (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock; (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (e)(i) acquire (by merger, consolidation or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof, (ii) incur any indebtedness or issue any debt securities or assume, guarantee or endorse or otherwise as an accommodation or become responsible for, the obligations of any person, or make any loans or advances, (iii) enter into any contract or agreement (except for certain specified contracts and agreements and except for those non-material contracts and agreements entered into in the ordinary course of business consistent with past practices), (iv) authorize new capital expenditures (other than expenditures incurred in the ordinary course of business consistent with past practices or as required by the direction or acts of a franchisor and expenditures required by governmental direction), or (v) amend any contract, agreement, commitment or arrangement (other than certain specified contracts and agreements) with respect to any of the foregoing matters; (f) increase the compensation payable or to become payable to, or grant or pay any severance or termination pay to, the officers or employees of the Company or its subsidiaries (except as may be necessary to comply with applicable law, except for increases in salary or wages of employees of the Company or its subsidiaries in accordance with existing policies or past practices, and except pursuant to terms of contracts, policies or benefit arrangements in effect on the date of the Merger Agreement), enter into any employment or severance agreement with, any director, officer or other employee of the Company or any of its subsidiaries, or establish, adopt, enter into or amend any bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any of the directors, officers or employees of the Company or its subsidiaries (except as may be necessary to comply with applicable law); (g) take any action other than in the ordinary course of business consistent with past practices (none of which actions shall be unreasonable or unusual) with respect to accounting policies or procedures (including without limitation procedures with respect to the payment of accounts payable and collection of accounts receivable); (h) make any tax election or settle or compromise any tax liability; or (i) pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of the same in the ordinary course of business consistent with past practices (including payment of the Company's liabilities in accordance with their terms). ACCESS. Pursuant to the Merger Agreement, the Company has agreed that, from the date of the Merger Agreement to the Effective Time, it will, and will cause its subsidiaries, officers, directors, employees, auditors and agents to, afford the officers, employees and agents of Purchaser reasonable access to its officers, employees, agents, properties, offices, plants and other facilities and to all books and records, and will furnish Purchaser with all financial, operating and other data and information as Purchaser, through its officers, employees, or agents, may reasonably request. EMPLOYEE BENEFIT PLANS. The Merger Agreement provides that the Surviving Corporation will pay, in accordance with their terms, all amounts which are or become due and payable under the terms of all written employment, severance and termination contracts, agreements, plans, policies and commitments of the Company and its subsidiaries with or with respect to its current or former employees, officers and directors. The Surviving Corporation will maintain, for at least a one year period after the Effective Time, employee plans of the Company in effect on the date of the Merger Agreement or provide benefits to employees of the Surviving Corporation who were employees of the Company and its subsidiaries immediately prior to the Effective Time ("United Employees") that are at least substantially comparable to the benefits provided to similarly situated employees of the Surviving Corporation who are not United Employees. In addition, from the date of the Merger Agreement and until the Effective Time, -7- the Company will use its reasonable efforts to enter into employment contracts, effective not later than the Effective Time, with those persons identified by United/Harvey to the Company on or before December 1, 1994, provided that the Company's obligations under each such contract will be conditioned upon the agreement of the employee party thereto to cancel any severance or termination agreement between the Company and such employee in effect on the date of the Merger Agreement. EXCLUSIVE NEGOTIATIONS. In the Merger Agreement, the Company represents and warrants that, on November 4, 1994, it ceased and caused to be terminated any existing negotiations, or prior negotiations with any party previously conducted, with respect to a business combination with the Company or a change in control of the Company (a "Change in Control Transaction"). The Company also agrees that, from and after the execution and delivery of the Merger Agreement, the Company will not and will cause its affiliates and its or their representatives not to, solicit any offers from any person or entity in respect of, or, except as described in the following paragraph, engage in any negotiations relating to or provide any information in respect of, any Change in Control Transaction. The Merger Agreement provides that if any person (other than a person who participated in the process to which the Company selected Purchaser to the make the Offer and effect the Merger (a "Prior Person")) publicly announces or notifies the Company in writing that it intends to commence a tender or exchange offer to purchase Shares on financial and legal terms which the Company's Board of Directors determines, based upon advice from the Company's independent financial and legal advisors, are more favorable to the Company than those contemplated by the Merger Agreement (an "Unsolicited Proposal"), the Company will notify Purchaser in writing of such Unsolicited Proposal by 5:00 p.m., Eastern Time, on the business day next following the business day on which the Company receives notice of the Unsolicited Proposal. Any such notice given by the Company (a "Proposal Notice") is required to state the terms and conditions of such Unsolicited Proposal and the identity of the person making it (and to include a copy of such Unsolicited Proposal). The Merger Agreement further provides that, if the Company's Board of Directors determines, based upon advice from the Company's independent legal advisors, that its fiduciary duties under applicable law require that the Company commence negotiations with respect to such Unsolicited Proposal or furnish information in respect thereof, Purchaser will have the option to terminate the Merger Agreement, whereupon Purchaser will be entitled to its expenses and a termination fee as described under the heading "Fees and Expenses" below. The Merger Agreement also provides that, in the event that a Prior Person makes an Unsolicited Proposal, the Company will deliver to Purchaser a Proposal Notice with respect thereto, but will not recommend any such Unsolicited Proposal to its stockholders. CERTAIN OTHER AGREEMENTS. Pursuant to the Merger Agreement, each of the Company, Purchaser, United/Harvey and Merger Sub has agreed to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all other things necessary, proper or advisable to consummate or make effective as promptly as practicable the transactions contemplated by the Merger Agreement and to obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings. INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that the limitations of liability of directors and the indemnification provisions of the Certificate of Incorporation and the By-laws of the Surviving Corporation will not be amended, repealed, contradicted by any other provision of such Certificate of Incorporation or By-laws or otherwise modified for a period of seven years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at the time of execution and delivery of the Merger Agreement were directors, officers, employees or agents of the Company, unless such modification is required by a change in applicable law. The Merger Agreement further provides that the Company will to the fullest extent permitted under applicable law or under the Company's Certificate of Incorporation or By-laws or pursuant to the Directors/Officers Indemnification Agreements previously entered into and in effect on the date of the Merger Agreement and regardless of whether the Merger becomes effective, indemnify and hold harmless, and after the Effective Time, the -8- Surviving Corporation will, to the fullest extent permitted under applicable law or under the Surviving Corporation's Certificate of Incorporation or By-laws, indemnify and hold harmless, each present and former director, officer, employee, fiduciary and agent of the Company or any of its subsidiaries against any cost or expenses (including attorneys' fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to any action or omissions occurring prior to the Effective Time (including, without limitation any claim, action suit, proceeding or investigation arising out of or pertaining to the transactions contemplated by the Merger Agreement) for a period of seven years after the date of the Merger Agreement. Under the Merger Agreement, the Surviving Corporation is obligated for five years after the Effective Time to maintain in effect, if available, directors' and officers' liability insurance substantially comparable in scope and coverage to the Company's current directors' and officers' liability insurance policy covering those persons who are presently covered by such policy, except that the Surviving Corporation shall only be obligated to maintain such coverage at a cost not to exceed $177,840 per year. INDEMNIFICATION OF PURCHASER AND AFFILIATES. Under the Merger Agreement, the Company has agreed to indemnify and hold harmless each of Purchaser and its affiliates (including United/Harvey and Merger Sub), and their respective partners, officers, directors, employees, agents, and controlling persons from and against any loss, damage, or expense, including without limitation reasonable attorneys' and accountants' fees suffered by any indemnified party, (a) as a result of any action, suit, proceeding or investigation which is based upon, relates to or results from the Merger Agreement or any of the transactions contemplated thereby, except to the extent that it is finally judicially determined by a court of competent jurisdiction that the loss in question resulted from a breach by Purchaser of any of the representations and warranties set forth in the Merger Agreement, or (b) from and after the Effective Time, or, if applicable, the termination of the Merger Agreement as a result of any inaccuracy in or breach of any of the representations, warranties or covenants of the Company set forth in the Merger Agreement. INDEMNIFICATION OF THE COMPANY. From and after the Effective Time, or, if applicable, the termination of the Merger Agreement, Purchaser, United/Harvey and Merger Sub have agreed to indemnify and hold harmless the Company and its current and future officers, directors, employees and agents from and against damage or expense (including without limitation reasonable attorneys' and accountants' fees) suffered by any of them as a result of any inaccuracy in or breach of any of the representations, warranties or covenants made by Purchaser, United/Harvey or Merger Sub under the Merger Agreement. TERMINATION, AMENDMENT AND WAIVER. The Merger Agreement provides that it may be terminated at any time prior to the Effective Time: (a) by mutual consent of Purchaser, United/Harvey and the Boards of Directors of Merger Sub and the Company; (b) by either Purchaser or the Company if (i) the Merger shall not have been consummated by March 31, 1995; provided, however, that such right of termination shall not be available to any party whose failure to fulfill any obligation under the Merger Agreement has been the cause of, or resulted in, the failure of the Merger to occur on or before such date, or (ii) a court of competent jurisdiction or governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action which permanently restrains, enjoins or otherwise prohibits the transactions contemplated by the Merger Agreement; (c) by Purchaser if (i) due to an occurrence that would result in a failure to satisfy any of the conditions to the Offer, Purchaser shall have terminated the Offer or failed to pay for Shares pursuant to the Offer within 180 days after the commencement of the Offer, or (ii) prior to the purchase of Shares pursuant to the Offer, the Company's Board of Directors shall have withdrawn or modified in a manner adverse to Purchaser its approval or recommendation of the Offer or the Merger or shall have recommended another offer or transaction; (d) by the Company if (i) due to an occurrence that would result in a failure to satisfy any of the conditions to the Offer, Purchaser shall have terminated the Offer or failed to pay for Shares pursuant to the Offer within 180 days after the commencement of the Offer, or (ii) prior to the purchase of Shares pursuant to the Offer, the Company's Board of Directors shall have withdrawn its recommendation to the -9- Company's stockholders to accept the Offer and shall have recommended another offer or transaction, provided that, the Company shall not recommend another Offer or transaction if such Offer is made by or such transaction is to be with a Prior Person, and accordingly, may not terminate the Merger Agreement pursuant to this provision under such circumstances; or (e) by Purchaser as described under the heading "Exclusive Negotiations" above. The Merger Agreement provides that it may be amended only by action taken by Purchaser, United/Harvey and the Boards of Directors of the Company and Merger Sub at any time before or after approval of the Merger Agreement and by the stockholders of the Company, if required by applicable law. The Merger Agreement provides that any party may (a) extend the time for performance of any of the obligations or other acts of the other parties to the Merger Agreement, (b) waive any inaccuracies in the representations and warranties contained in the Merger Agreement, and (c) waive compliance with any of the agreements or conditions of the other parties contained in the Merger Agreement. FEES AND EXPENSES. The Merger Agreement provides that all reasonable out-of-pocket fees, costs and expenses incurred in connection with the Offer, the Merger Agreement and the transactions contemplated thereby will be paid or reimbursed by the Company, except that each party will pay its own fees, costs and expenses in the event that the Offer is not consummated. Notwithstanding the foregoing, the Merger Agreement provides that the Company will pay or reimburse to Purchaser an amount equal to the sum of all reasonable documented fees, costs and expenses in an amount not to exceed $1.0 million incurred by Purchaser and its affiliates in connection with the Merger Agreement and the transactions contemplated thereby subsequent to October 26, 1994, immediately upon the first to occur of: (a) prior to the acceptance for payment of Shares pursuant to the Offer, the Company's Board of Directors having withdrawn or modified in a manner adverse to Purchaser its approval or recommendation of the Offer or having recommended another offer or transaction; (b) the Company having failed to perform or comply in any material respect with any obligation or covenant required by the Merger Agreement to be performed or complied with by it or breached any representation or warranty of the Company set forth in the Merger Agreement in any material respect (or with respect to those representations and warranties qualified by material adverse effect, in any respect); or (c) if the Merger Agreement is terminated as described under the heading "Exclusive Negotiations" above as a result of an Unsolicited Proposal; provided that no such payment shall be made to Purchaser if Purchaser, United/Harvey or Merger Sub, as the case may be, shall have failed to perform or comply in any material respect with any obligation or covenant required by the Merger Agreement to be performed or complied with by it or breached any representation or warranty of it set forth in the Merger Agreement in any material respect (or with respect to those representations and warranties qualified by material adverse effect, in any respect). In addition, the Company will pay to Purchaser immediately upon termination of the Merger Agreement pursuant to clause (c)(ii), (d)(ii) or (e) under the first paragraph of the heading "Termination, Amendment and Waiver" above, an amount equal to $1.0 million if such termination occurs on or before November 30, 1994, and an amount equal to $1.5 million if such termination occurs after November 30, 1994. The parties have agreed that any amount to be paid as described in this paragraph will be the exclusive remedy of Purchaser in connection with any such termination. GUARANTY OF PERFORMANCE. In the Merger Agreement, United/Harvey, Merger Sub and The Hampstead Group, Inc. have, jointly and severally, (a) represented and warranted to the Company that the representations and warranties of Purchaser set forth in the Merger Agreement are true and correct in all material respects, and (b) agreed to cause Purchaser to perform and comply in all material respects with the obligations and covenants required by the Merger Agreement to be performed or complied with by it, effective up to the Effective Time. The provisions of the Merger Agreement described in the immediately preceding sentence will terminate at the Effective Time and thereupon become null and void. -10- (iii) CONFIDENTIALITY AGREEMENT. The Company and an affiliate of Purchaser, Hampstead Investments, Inc. ("HII") entered into a Confidentiality Agreement, dated July 14, 1994 (the "Confidentiality Agreement"), relating to HII's receipt and review of certain confidential evaluation materials and information furnished by or on behalf of the Company (the "Evaluation Materials"). Pursuant to the Confidentiality Agreement, HII agreed to use the Evaluation Materials solely for the purpose of evaluating a possible investment in the Company, to refrain from allowing such information to be used for private use or commercial purpose and to take all appropriate measures to safeguard the confidentiality of the Evaluation Materials. Pursuant to the Confidentiality Agreement, HII also agreed, on behalf of itself and its principals, not to actively engage in the purchase of Shares on the open market and not to contact any mortgagee, note holder, bond holder, lessor or hotel franchisor of the Company, without prior approval. The foregoing description of the Confidentiality Agreement is qualified in its entirety by reference to the complete text of the Confidentiality Agreement, a copy of which has been filed as a exhibit hereto and is incorporated herein by reference. (iv) LETTER AGREEMENT. Purchaser, the Company and Harvey Hotel Co., Ltd. entered into a letter agreement dated as of November 4, 1994 (the "Letter Agreement"). Pursuant to the Letter Agreement, the Company agreed that: (a) it would immediately cease and cause to be terminated any existing negotiations, or prior negotiations with any party previously conducted, with respect to a business combination or a change in control (a "Change in Control Transaction"); (b) from the date of the Letter Agreement until the signing of a definitive agreement, but not later than January 31, 1995 (the "Exclusivity Period"), it would not, and it would cause its respective representatives not to, solicit any offers from any other party relating to a Change in Control Transaction; and (c) it would, during the Exclusivity Period, exclusively negotiate with Purchaser in good faith to reach a definitive agreement and enter into definitive documentation relating to a business combination, except as otherwise required by fiduciary obligations under applicable law, as advised by counsel in respect of Another Proposal (as hereinafter defined). The Letter Agreement also provided that Purchaser could terminate its negotiations with the Company if the Company were to receive an unsolicited proposal providing for a Change in Control Transaction from any person or entity who or which was not given an opportunity prior to the date of the Letter Agreement to propose a Change in Control Transaction, which unsolicited proposal was on financial and legal terms more favorable to the Company than Purchaser's proposal ("Another Proposal"), and the Company in the exercise of its fiduciary duties under applicable law elected to commence negotiations with respect to Another Proposal. In the event that Purchaser were to terminate its negotiations in connection with a Unsolicited Proposal or the Company were to enter into an agreement providing for a Change in Control Transaction with any person other than Purchaser or its affiliates prior to the expiration of the Exclusivity Period, the Company would reimburse Purchaser up to $500,000 for all reasonable out-of-pocket expenses incurred from and after October 26, 1994, relating to matters contemplated by Purchaser's proposal to the Company. In addition, if Purchaser were to terminate its negotiations pursuant to Another Proposal, then the Company would pay to Purchaser a fee in an amount equal to $500,000 if Purchaser were to receive notice of Another Proposal on or before November 10, 1994, or in an amount equal to $1.0 million if Purchaser were to receive notice of Another Proposal after November 10 and on or before November 20, 1994 or in an amount equal to $1.5 million if Purchaser were to receive notice of Another Proposal after November 20, 1994 but prior to the expiration of the Exclusivity Period. In addition, the Company agreed to indemnify and hold Purchaser and its affiliates harmless for any loss, cost, damage, expense (including reasonable attorneys' fees and charges) or liability relating to, resulting from or arising out of any action, suit or proceeding initiated by any stockholder, other security holder or lender of the Company, any employee or former employee of the Company or by any other person or entity based upon or relating to, in whole or in part, facts arising out of the negotiations between Purchaser and the Company during the Exclusivity Period or relating to the Letter Agreement. The foregoing description of the Letter Agreement is qualified in its entirety by reference to the complete text of the Letter Agreement, a copy of which has been filed as an exhibit hereto and is incorporated herein by reference. -11- (v) COCKROFT AGREEMENT. Purchaser and Cockroft Consolidated Corporation ("Cockroft Consolidated") have entered into an agreement (the "Cockroft Agreement") pursuant to which Purchaser has agreed to provide that the expiration date of the Offer will occur in January 1995, subject to extension only as provided in the Merger Agreement, and further agreed that, regardless of whether the Cash/Stock Option is made available, Purchaser will, either pursuant to the Merger Agreement as presently in effect or otherwise, subject to conditions no more favorable to Purchaser than those contained in the Merger Agreement as presently in effect, provide nontendering stockholders an opportunity following the consummation of the Offer to receive cash in an amount at least equal to the Per Share Amount in exchange for each Share not tendered pursuant to the Offer. Pursuant to the Cockroft Agreement, Cockroft Consolidated has agreed to tender pursuant to the Offer and not withdraw all of the 1,209,214 Shares held by Cockroft Consolidated (the "Cockroft Shares"), constituting approximately 45.4% of the total number of Shares. In addition, Cockroft Consolidated has granted to Purchaser an irrevocable option (the "Cockroft Option") to purchase all (but not less than all) of the Cockroft Shares. The Cockroft Option is exercisable on or after January 1, 1995 and on or prior to March 31, 1995, provided that one of the events referred to in clause (c) (4) or (5) under the heading "The Merger Agreement -- Conditions to the Offer" above has occurred. The price per share payable upon the exercise of the Cockroft Option is the greater of (a) the Per Share Amount and (b) the per share amount of any competing offer which gives Purchaser the right to terminate the Merger Agreement in the manner described in the second paragraph under the heading "The Merger Agreement -- Exclusive Negotiations" above. Pursuant to the Cockroft Agreement, Cockroft Consolidated has represented to Purchaser that Cockroft Consolidated has good and valid title to all of the Cockroft Shares and sole and unrestricted voting power and power of disposition with respect thereto. In addition, Cockroft Consolidated has agreed, prior to the expiration of the Cockroft Option, not to, among other things, (a) sell or otherwise dispose of or encumber any of the Cockroft Shares, (b) grant any proxy with respect to any of the Cockroft Shares (other than to Purchaser), or (c) exercise any voting or consent rights with respect to the Cockroft Shares in a manner inconsistent with the intent and purposes of the Merger Agreement or the Cockroft Agreement. Mr. Don Cockroft, Chief Executive Officer, President and a director of the Company, Mr. Robert Cockroft and Mrs. Janet Virgin, both directors of the Company, and Mrs. Katherine Lammons, beneficially own a controlling interest in Cockroft Consolidated. The foregoing description of the Cockroft Agreement is qualified in its entirety by reference to the complete text of the Cockroft Agreement, a copy of which has been filed as an exhibit hereto and is incorporated herein by reference. (vi) SEVERANCE AGREEMENTS. In June 1987, the Company entered into severance agreements with certain executive officers of the Company. Under the agreements with Mr. Augustus B. Randle, III and Mr. J. Don Miller, they would be entitled to severance compensation in the event that their employment is terminated following a change in control of the Company. The amount of compensation would be equal to a maximum of 200% of their base compensation for the twelve months prior to the their termination. The maximum amount of compensation which would be payable to Messrs. Randle and Miller, if their employment were terminated, as of November 14, 1994 would be $172,000 and $178,000, respectively, plus an additional amount for benefits. The foregoing description of the severance agreements is qualified in its entirety by reference to the complete text of the severance agreements, a copy of which have been filed as exhibits hereto and are incorporated herein by reference. Except as set forth above, to the best knowledge of the Company, there are no contracts, agreements or understandings or any actual or potential conflicts of interest between the Company -12- or its affiliates, and (a) the Company's executive officers, directors or affiliates or (b) Purchaser or their respective executive officers, directors or affiliates. ITEM 4. THE SOLICITATION OR RECOMMENDATION. (a) (i) RECOMMENDATION REGARDING THE OFFER AND THE CASH MERGER. At a special meeting of the Company's Board of Directors held on November 14, 1994, the Board of Directors unanimously (a) determined that the Offer and the cash Merger are in the best interests of the Company's stockholders, (b) approved the Merger Agreement and the transactions contemplated thereby, including the Offer and the cash Merger, and (c) resolved to recommend that the Company's stockholders accept the Offer. The Company's Board of Directors recommends that the Company's stockholders accept the Offer and tender their Shares to Purchaser in the Offer. A copy of a form of letter to stockholders communicating the Board of Director's recommendation is filed as an exhibit to this Schedule 14D-9 and is incorporated herein by reference. (ii) NO RECOMMENDATION REGARDING THE POSSIBLE CASH/STOCK OPTION. The Company's Board of Directors (a) has not made and does not intend to make any determination with respect to the Cash/Stock Option, including whether the Cash/Stock Option or any amendment to the Merger Agreement to provide for the Cash/Stock Option would be in the best interests of the Company's stockholders, (b) has not approved and does not intend to approve the Cash/Stock Option or any amendment to the Merger Agreement with respect thereto, and (c) has not made and does not intend to make any recommendation to the Company's stockholders with respect to the Cash/Stock Option or any amendment to the Merger Agreement with respect thereto. (b) (i) BACKGROUND. The Company owns and operates 25 hotel properties located in selected cities in the Southern United States. The Company operates hotels under the Holiday Inn, Holiday Inn Express, Days Inn, Hampton Inns, Howard Johnson and Ramada flags. The Company's hotels are located in Atlanta, Georgia (8 hotels), Jackson, Mississippi (4 hotels), Houston and Dallas, Texas (8 hotels), Colorado Springs, Colorado (2 hotels), Scottsdale and Flagstaff, Arizona (2 hotels) and Santa Barbara, California (1 hotel). In addition, the Company owns 11 non-hotel properties, principally land, in the same cities as the above hotel properties. During the mid to late 1980's the hotel industry in the United States was characterized by over-building and intense competition. Room rates remained relatively fixed because of the intense competitive pressures, although operating expenses tended to increase because of increases in the prevailing wage rates and increases in the cost of other goods and services. Due to these factors as well as the war in the Middle East and its negative impact on domestic travel, the Company experienced poor operating results in 1990, 1991 and 1992. As a result of these conditions and following a restructuring of the Company's debt, in mid-1993, the Company engaged Michael S. McNulty ("McNulty"), on an informal basis, and Geller & Co. ("GellerCo") to explore certain plans to enhance stockholder value. The initial purpose in retaining these advisors was to obtain a review of the Company's operations and to obtain suggestions on improving operating results. In July 1994, the Company retained Smith Barney Inc. ("Smith Barney") to act as financial advisor to the Company to assist the Company in exploring various strategic alternatives to maximize stockholder value, including the possible sale of all or a portion of the Company's assets. On July 12, 1994, the Company issued a press release announcing its retention of Smith Barney in this regard. At a Board of Directors' meeting held on September 9, 1994, the Board reviewed the status of efforts to identify potentially desirable strategic transactions for the Company, and the Board was advised that (a) approximately 100 persons both within and outside the hotel industry had been identified and contacted for an indication of interest on their part with regard to a transaction involving the Company, (b) -13- a memorandum containing detailed information regarding the Company and its assets, properties and operations had been distributed to approximately one-half of the persons contacted, and (c) preliminary proposals regarding possible transactions involving the Company had been received. At this meeting, the Board of Directors authorized the Company's representatives to assemble and make available to these interested parties additional information regarding the Company. On October 27, 1994, the Board of Directors held a special meeting at which the Board reviewed, with its financial and legal advisors, proposals submitted by three entities, including Purchaser, together with, among other items, a proposed form Agreement and Plan of Merger which had been submitted to the potential bidders. After extensive discussion, the Board authorized the Company's representatives to continue discussions with these three entities. A special meeting of the Board of Directors was held on November 1, 1994, at which the Board reviewed the newly revised terms of the three proposals, two of which were all-cash proposals. One of the all-cash proposals was from Purchaser. Following this Board meeting on November 1, 1994, the Company issued a press release announcing that it had entered into negotiations regarding an all-cash business combination, a copy of which is attached to this Schedule 14D-9 as an exhibit and is incorporated herein by reference. On November 3, 1994, the Board of Directors held a special meeting to review the status of the discussions with the two all-cash bidders. The November 3 special meeting of the Board of Directors was reconvened on November 4, 1994 to review the final proposals of the two all-cash bidders. The Board of Directors extensively discussed the terms and conditions of the two final proposals. At the conclusion of this meeting, the Board of Directors authorized the Company's representatives to negotiate with Purchaser or its affiliates the terms of an agreement whereby the Company would agree under certain circumstances not to solicit or enter into or continue negotiations with respect to alternative proposals (a "no-shop agreement"), as well as the terms of a definitive Merger Agreement. Following this Board meeting on November 4, 1994, the Company's representatives negotiated the terms of, and the Company entered into, a no-shop agreement with The Hampstead/Harvey Group, an affiliate of Purchaser, in the form of the letter agreement, a copy of which is attached as an exhibit hereto and which is incorporated herein by reference. On that date, the Company issued a press release with respect to this no-shop agreement, a copy of which is attached hereto and which is incorporated herein by reference. Also, during the ensuing ten days, the Company's representatives negotiated with representatives of Purchaser the terms of the Merger Agreement, a copy of which is attached as an exhibit hereto and which is incorporated herein by reference. At a special meeting of the Board of Directors held on November 14, 1994, Smith Barney delivered to the Board its written opinion to the effect that, as of such date and based upon and subject to certain matters stated in such opinion, the cash consideration to be received by holders of Shares pursuant to the Offer and the Merger was fair to such stockholders from a financial point of view. Following considerable deliberation at this November 14 Board of Directors' meeting, the Board unanimously (a) determined that the Offer and the cash Merger are in the best interests of the Company's stockholders, (b) approved the Merger Agreement and the transactions contemplated thereby, including the Offer and the cash Merger, and (c) resolved to recommend that the Company's stockholders accept the Offer. Following the conclusion of this meeting, on November 14, 1994, the parties entered into the Merger Agreement and later that afternoon, the Company issued a press release announcing the execution of the Merger Agreement, a copy of which is attached hereto and which is incorporated herein by reference. (ii) REASONS FOR RECOMMENDATION REGARDING THE OFFER AND THE CASH MERGER. On November 14, 1994, the Company's Board of Directors met to review the terms of the Merger Agreement -14- (including all Annexes, Schedules and Exhibits thereto) which had been previously distributed to the Board. Prior to approving the Merger Agreement and the transactions contemplated thereby, the Board of Directors reviewed the terms and conditions of the Offer and the Merger with the Company's management, legal counsel and financial advisor. In reaching its conclusion set forth in Item 4(a) (i) above, the Board of Directors considered a number of factors, including, without limitation, the following: (a) The Company's industry profile, including an analysis of the Company's competitive position in the hotel industry and the necessity for substantial capital improvements to be made to upgrade a number of the Company's hotel properties. (b) The Board's belief that the process undertaken by the Company in obtaining proposals with respect to a business combination with the Company was comprehensive and that, after consultation with Smith Barney based on its involvement in such process, the Company had received the best and final offer from interested parties. (c) The Board's belief that the Offer represents an attractive opportunity for stockholders to promptly receive fair value in cash for their investment in light of the Company's current and prospective financial condition and the inherent risks in the hotel industry. (d) A review of various financial and other considerations, including the Company's historical and recent stock prices, values placed by the market on certain other publicly-traded hotel companies and a comparative analysis of the capitalization rate (based on the earnings of the Company before income taxes, depreciation and amortization) of the Company's cash flow as compared to the capitalization rate of other similarly situated companies. (e) The written opinion of Smith Barney dated November 14, 1994, to the effect that, as of such date and based upon and subject to certain matters stated in such opinion, the cash consideration to be received by holders of Shares in the Offer and the Merger was fair to such stockholders from a financial point of view. The full text of Smith Barney's written opinion, which sets forth the assumptions made, matters considered and limitations on the review undertaken by Smith Barney, is attached as an exhibit hereto and is incorporated herein by reference. Smith Barney's opinion is directed only to the fairness, from a financial point of view, of the cash consideration to be received by holders of Shares pursuant to the transactions contemplated by the Merger Agreement and is not intended to constitute, and does not constitute, a recommendation as to whether any stockholder should tender Shares pursuant to the Offer. Stockholders are urged to read such opinion carefully in its entirety. (f) The fact that the consideration to be paid to the Company's stockholders in the Offer is all cash and is for all of the outstanding Shares. (g) The terms and conditions of the Offer and the Merger Agreement, which the Board believes are fair and reasonable, including the absence of any financing condition. (h) The provisions of the Merger Agreement that could have a detrimental effect on third parties who might be interested in a proposed business combination with the Company. These provisions include the obligation of the Company to pay a termination fee of up to $1.5 million and reimburse Purchaser for its out-of-pocket expenses up to $1.0 million if the Offer does not go forward under certain circumstances. In addition, the Company has agreed not to solicit or engage in any negotiations relating to or providing information with respect of any "change of control" transaction except in the event that the Company receives an unsolicited proposal regarding a business combination from a person or an entity (other than a person or entity which participated in the solicitation process described above), in which event, in the exercise of its fiduciary duties under applicable law, the Company may commence negotiations with such person or entity submitting the unsolicited proposal. In that event, Purchaser will have the option to terminate the Merger Agreement and be reimbursed for its expenses and be paid a termination fee (as -15- described above). The Company has further agreed that if a person or entity which participated in the solicitation process as described above makes an unsolicited proposal, the Company will not make a positive recommendation to its stockholders with respect to such unsolicited proposal. The Board recognized that these and certain other terms were required by Purchaser as a condition to entering into the Merger Agreement. In view of the wide variety of factors considered in connection with its evaluation of the Offer and the Merger, the Board of Directors did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered in reaching its determination. (iii) REASONS FOR NO RECOMMENDATION REGARDING THE POSSIBLE CASH/STOCK OPTION. In determining not to approve or make any recommendation regarding the Cash/Stock Option, the Board of Directors considered a number of factors, including, without limitation, the following: (a) The fact that the Company has not assessed and does not intend to assess the value of any noncash consideration that may be received by holders of Shares pursuant to the Merger or any other transaction if the Merger Agreement is amended to provide for the Cash/Stock Option or otherwise. (b) The fact that the written opinion of Smith Barney does not address and is not intended to address the fairness, from a financial point of view, to the holders of Shares of any noncash consideration that may be received by such stockholders pursuant to the Merger or any other transaction if the Merger Agreement is amended to provide for the Cash/Stock Option or otherwise, and the fact that Purchaser has not sought or obtained any advice or opinion from an independent financial advisor with respect thereto. (c) The fact that as described in the Offer to Purchase, whether Purchaser will amend the Merger Agreement to provide for the Cash/Stock Option will depend upon a number of factors and will be subject to compliance with applicable legal requirements, and Purchaser states that no assurance can be given as to whether the Cash/Stock Option will be made available or, if so, the timing thereof. ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The Company retained Smith Barney as financial advisor to the Company to furnish financial advisory and investment banking services in connection with a potential sale or other transfer of all or substantially all of the outstanding capital stock or assets of the Company to one or more potential purchasers (a "Transaction"). The Company has agreed to pay Smith Barney for its services an aggregate financial advisory fee in an amount equal to 1.25% of the total proceeds and other consideration paid or received in connection with a Transaction which occurs during Smith Barney's engagement or, with respect to certain parties, during a period of 12 months thereafter. The Company also has agreed to reimburse Smith Barney for its reasonable out-of-pocket expenses (including reasonable travel and legal expenses) and to indemnify Smith Barney and certain related parties against certain liabilities, including liabilities under the federal securities laws, arising out of Smith Barney's engagement. Pursuant to a Consulting Agreement, dated August 13, 1993 (the "Geller Consulting Agreement"), the Company retained GellerCo for a one-year period as a financial advisor to the Company to develop and assist in the implementation of a strategic plan for the future operation of the Company. Under the Geller Consulting Agreement, the Company agreed to pay GellerCo a monthly retainer of $12,500 and awarded GellerCo 25,000 shares of Common Stock and granted to GellerCo options to purchase 35,000 shares of Common Stock. On August 31, 1994, Smith Barney, GellerCo, Laurence Geller (together with GellerCo, "Geller") and the Company entered into a compensation agreement (the "Compensation Agreement"), pursuant to which the parties agreed, among other things, that Geller would receive a fee from Smith Barney equal to 20% of the Transaction Fee received by Smith Barney from the Company in the event that the Company successfully completes a Transaction within 12 months of the of the date of the Compensation Agreement. -16- In July 1994, the Company formally retained Michael S. McNulty ("McNulty") to explore certain plans for the Company's operations to enhance stockholder value. In consideration for such services, the Company has agreed to pay McNulty a fee of $124,000 and an additional incentive bonus of $50,000 upon completion of the Offer by Purchaser. Except as set forth above, neither the Company nor any person acting on its behalf intends to employ, retain or compensate any person to make solicitations or recommendations to stockholders on its behalf concerning the Offer. ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES. (a) Pursuant to the Geller Consulting Agreement, on August 13, 1994, 25,000 shares of the Company's Common Stock issued to GellerCo became fully vested and options to purchase 35,000 shares of the Company's Common Stock granted to GellerCo became exercisable, at an exercise price of $4.55 per share. The Common Stock issued and issuable upon the exercise of options to GellerCo is required to be registered under the Securities Act. In connection with the foregoing, the Company filed a Registration Statement on Form S-1 (Reg. No. 33- 54925), with the SEC on August 4, 1994, as amended by Amendment No. 1 thereto filed with the SEC on September 26, 1994, Amendment No. 2 thereto filed with the SEC on October 13, 1994, Amendment No. 3 thereto filed with the SEC on October 31, 1994, and Amendment No. 4 thereto filed with the SEC on November 4, 1994. On February 11, 1994, the Company granted pursuant to its 1993 Stock Incentive Plan to each of four directors of the Company, Robert L. Cockroft, Howard W. Loveless, Janet C. Virgin and Robert J. Wareham, an option to purchase up to 1,000 shares of Common Stock at an exercise price of $12.87 per share. All such options become immediately exercisable upon a Change in Control as defined in the 1993 Stock Incentive Plan. On November 21, 1994, Purchaser and Cockroft Consolidated entered into the Cockroft Agreement. See Item 3 above for a description of the Cockroft Agreement. Except as set forth above, to the best of the Company's knowledge, neither the Company nor any director, executive officer, affiliate or subsidiary of the Company has effected transactions in the Shares during the past 60 days. (b) To the best of the Company's knowledge, GellerCo and each of the directors described in Item 6(a) intend to exercise his/her option and tender at least a majority of all Shares held of record or beneficially by them pursuant to the Offer. To the best of the Company's knowledge, its executive officers, other directors and affiliates currently intend to tender at least a majority of all Shares held of record or beneficially by them pursuant to the Offer. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY. (a) On November 14, 1994, the Company, Purchaser, United/Harvey and Merger Sub entered into the Merger Agreement. See Item 3 above for a description of the Merger Agreement and certain other agreements and transactions relating thereto. Except as described in Items 2 and 3(b) above, no negotiation is underway or is being undertaken by the Company in response to the Offer which relates to or could result in: (i) an extraordinary transaction such as a merger or reorganization, involving the Company or any of its subsidiaries; (ii) a purchase, sale or transfer of a material amount of assets by the Company or any of its subsidiaries; (iii) a tender offer for or other acquisition of securities by or of the Company; or (iv) any material change in the present capitalization or dividend policy of the Company. -17- (b) Except as described in Items 3(b) and 4 hereof, there are no transactions, board resolutions, agreements in principle or signed contracts in response to the Offer, which relate to or would result in one or more of the matters referred to in Item 7(a). ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED. None. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. EXHIBIT DESCRIPTION NO. 1. Agreement and Plan of Merger among the Company, Purchaser, United/Harvey and Merger Sub, dated as of November 14, 1994. 2. Press release issued by the Company on November 1, 1994. 3. Press release issued by the Company on November 4, 1994. 4. Press release issued by the Company and Purchaser on November 14, 1994. 5. Confidentiality Agreement between the Company and HII, dated July 14, 1994. 6. Letter agreement among the Company, Purchaser and Harvey Hotel Co., Ltd., dated November 4, 1994. 7. Agreement between Purchaser and Cockroft Consolidated, dated November 21, 1994. 8. Agreement between the Company and Augustus B. Randle, III, dated June 1, 1987. 9. Agreement between the Company and J. Don Miller, dated June 1, 1987. *10. Letter from the Company to the Company's stockholders, dated November 22, 1994. *11. Opinion of Smith Barney Inc., dated November 14, 1994. ______________________ * Exhibits 10 and 11 are being distributed to all stockholders. -18- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: November 23, 1994 UNITED INNS, INC. By: /s/ Don Wm. Cockroft ----------------------------- Don Wm. Cockroft President, Chief Executive Officer and Director -19- ANNEX A UNITED INNS, INC. 5100 Poplar Avenue Suite 2300, Clark Tower Memphis, Tennessee 38137 INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER This Information Statement, which is being mailed on or about November 23, 1994 to holders of record of shares of Common Stock as of November 10, 1994, is being furnished in connection with the possible designation by Purchaser pursuant to an Agreement and Plan of Merger, dated as of November 14, 1994 (the "Merger Agreement"), among United Inns, Inc. (the "Company"), United/Harvey Holdings, L.P. ("Purchaser"), United/Harvey Hotels, Inc. ("United/Harvey") and United/Harvey Sub, Inc. ("Merger Sub") of certain persons to be elected to the Board of Directors (the "Board") of the Company by means other than through a meeting of the Company's stockholders. This Information Statement is being distributed with the Company's Schedule 14D-9, to which this Information Statement is attached as Annex A thereto. Pursuant to the Merger Agreement, Purchaser commenced a cash tender offer on November 21, 1994 to acquire all of the issued and outstanding shares of Common Stock (the "Shares") at a price of $25.00 per Share (such amount, or such other amount in cash as Purchaser may pay pursuant to the Offer, being hereinafter referred to as the "Per Share Amount"), net to the seller thereof in cash, upon the terms and subject to the conditions set forth in Purchaser's Offer to Purchase, dated November 21, 1994, and the related Letter of Transmittal. The Merger Agreement also provides that after completion of the Offer, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will be merged with and into the Company and the Company will survive as the surviving corporation (the "Surviving Corporation"). Each outstanding Share, other than those held by United/Harvey or in the treasury of the Company or by any subsidiary of the Company (all of which will be cancelled) and other than Shares held by holders who have demanded and perfected and not withdrawn or lost the right for appraisal of such Shares under the Delaware General Corporation Law, will be converted at the effective time (the "Effective Time") of the Merger into the right to receive the Per Share Amount, in cash, without interest thereon. The Merger Agreement provides that, promptly upon the purchase by Purchaser of a majority of the outstanding Shares pursuant to the Offer (the "Share Acquisition"), Purchaser shall be entitled, subject to compliance with applicable law, to designate up to that number of members, rounded up to the nearest whole number, of the Board as will make the percentage of the members designated by Purchaser equal to the percentage of outstanding Shares held by Purchaser and its affiliates (other than the Company and its subsidiaries). The Company has agreed to increase the size of its Board and/or use its reasonable efforts to secure the resignation of such number of directors as is necessary to enable Purchaser's designees to be elected to the Board and will cause Purchaser's designees to be so elected effective immediately upon Purchaser's acquisition of a majority of the outstanding Shares pursuant to the Offer or otherwise. In connection with the foregoing, the Board has taken written action to (a) increase the number of directors of the Company from six to nine, such increase to be effective immediately prior to the Share Acquisition, (b) elect Messrs. J. Peter Kline, Donald J. McNamara and Robert A. Whitman (collectively, the "Purchaser Designees"), as designees of Purchaser, to fill the vacancies created by such increase, with such elections to be effective immediately upon the Share Acquisition, and (c) accept the written resignation as a director of the Company of each of the existing members of the Board, such resignations being effective immediately upon the Share Acquisition; the Company has represented to Purchaser that such action will be in effect immediately prior to the Share Acquisition. In addition, the Company has agreed to cause persons designated by Purchaser to constitute the same percentage (rounded up to the nearest whole number) on each of the following as the designees of Purchaser then constitutes on the Board: (a) each committee of such Board designated by Purchaser, (b) each board of directors of each subsidiary designated by Purchaser, and (c) each committee of each such board designated by Purchaser. The Company's obligation to appoint Purchaser Designees to its Board is subject to Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14f-1 promulgated thereunder. No action is required by the stockholders of the Company in connection with the election of the Purchaser Designees to the Board. However, Section 14(f) of the Exchange Act requires the mailing to the Company's stockholders of the information set forth in this Information Statement prior to a change of a majority of the Company's directors. The purpose of this Information Statement is to satisfy the requirements of Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in connection with the reconstitution of the Board pursuant to the Merger Agreement, and to provide information regarding the Board and executive officers of the Company and the Purchaser Designees. The information contained in this Information Statement concerning the Purchaser Designees has been furnished to the Company by Purchaser and the Company assumes no responsibility for the accuracy or completeness of such information and Purchaser shall be solely responsible for such information. BOARD OF DIRECTORS General The shares of Common Stock are the only class of voting securities of the Company outstanding. Each share of Common Stock is entitled to one vote on each matter to be considered at meetings of stockholders, including the election of directors. As of November 14, 1994, there were 2,665,899 shares of Common Stock outstanding. The Certificate of Incorporation of the Company provides that directors of the Company shall be not less than three nor more than ten and shall be elected by the stockholders at their annual meeting to serve for a term of one year or until their successors are duly elected and qualified. Directors and Executive Officers of the Company as of November 14, 1994 The following table sets forth certain information with respect to each of the current directors and executive officers of the Company including their names, ages, principal occupations for the past five years, (in the case of directors) their directorships with other corporations and their terms as directors and executive officers: -2-
PRINCIPAL OCCUPATION DURING EXECUTIVE THE PAST FIVE YEARS DIRECTOR OFFICER NAME AGE AND OTHER DIRECTORSHIP SINCE SINCE - ---- --- --------------------------- ----- ----- DIRECTORS: - --------- Don Wm. Cockroft 56 President and Chief Executive Officer of 1967 1966 (a) the Company (brother of Robert L. Cockroft and Janet C. Virgin, brother-in-law of J. Howard Lammons) J. Howard Lammons 65 Private investor (brother-in-law of Don 1957 -- (a) Wm. Cockroft, Robert L. Cockroft and Janet C. Virgin); Advisory Director of Memphis, NationsBank of TN Robert L. Cockroft 53 Physician - Memphis Radiological 1971 -- (c) Professional Corporation (brother of Don Wm. Cockroft and Janet C. Virgin, brother-in-law of J. Howard Lammons) Howard W. Loveless 67 Private consultant 1977 -- (b) and (c) Janet C. Virgin 60 Private investor (sister of Don Wm. 1991 -- (a) Cockroft and Robert L. Cockroft, sister-in-law of J. Howard Lammons) Ronald J. Wareham 50 President - R.J. Wareham & Company, 1993 -- (a),(b) and (c) Incorporated, a corporate financial advisory firm NON-DIRECTOR - ------------ EXECUTIVE OFFICERS: - ------------------ Augustus B. Randle, 53 Secretary and General Counsel -- 1972 III J. Don Miller 59 Vice President-Finance -- 1975 John M. Dollar 53 Vice President -- 1973 (a) Member of the Executive Committee of the Board. (b) Member of the Audit Committee of the Board. (c) Member of the Compensation Committee of the Board.
THE ABOVE DIRECTORS AND EXECUTIVE OFFICERS HAVE HAD THE PRINCIPAL OCCUPATIONS SET FORTH ABOVE FOR AT LEAST FIVE YEARS, EXCEPT FOR MR. WAREHAM, MR. LAMMONS AND MR. LOVELESS. MR. WAREHAM HAS BEEN PRESIDENT OF R.J. WAREHAM & COMPANY, INCORPORATED, A CORPORATE FINANCIAL ADVISORY FIRM SINCE 1991. FROM 1984 TO 1991, HE WAS A MANAGING DIRECTOR OF DEAN WITTER REYNOLDS' CORPORATE FINANCE OFFICE IN ATLANTA, GEORGIA. MR. LAMMONS HAS BEEN PRINCIPALLY INVOLVED IN PRIVATE INVESTMENT ACTIVITIES SINCE HIS RETIREMENT FROM THE COMPANY IN MARCH 1994. PRIOR TO HIS RETIREMENT, MR. LAMMONS SERVED AS EXECUTIVE VICE-PRESIDENT OF THE COMPANY SINCE 1978. MR. LOVELESS HAS BEEN PRINCIPALLY INVOLVED IN PRIVATE CONSULTING -3- ACTIVITIES SINCE JANUARY 1, 1994. PRIOR TO THAT DATE AND FOR OVER FIVE YEARS, MR. LOVELESS SERVED AS PRESIDENT OF HAAS, INC., A PRIVATE INVESTMENT ADVISORY COMPANY. INDIVIDUALS DESIGNATED BY PURCHASER AS PURCHASER DESIGNEES THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION WITH RESPECT TO EACH OF THE PURCHASER DESIGNEES INCLUDING THEIR NAMES, AGES, PRINCIPAL OCCUPATIONS FOR THE PAST FIVE YEARS AND THEIR DIRECTORSHIPS WITH OTHER CORPORATIONS: PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS NAME AGE AND OTHER DIRECTORSHIPS - ---- --- ---------------------------- Donald J. McNamara 41 Chairman of the Board of Directors and Co-Chief Executive Officer of The Hampstead Group, Inc. (which makes and manages real estate and health-care related investments); director of LaQuinta Inns, Inc. (which owns and operates hotels); director of Forum Retirement, Inc., the general partner of Forum Retirement Partners, L.P., a public master limited partnership (which owns retirement communities) director of FelCor Suite Hotels (a real estate investment trust). Robert A. Whitman 41 President and Co-Chief Executive Officer of The Hampstead Group, Inc., from 1992 to present; Chairman of the Board of Forum Group, Inc. (which owns and operates retirement communities) from June 1993 to present; President and Chief Executive Officer of Forum Group, Inc. from June 1993 to October 1994; Managing Partner and Chief Executive Officer for Trammel Crow Ventures (the real estate investment, banking and investment management unit of the Trammel Crow Company) from prior to 1989 to 1992; and Chief Financial Officer for Trammel Crow Group and Trammel Crow Company from prior to 1988 to 1991. J. Peter Kline 47 President of Harvey Hotels, Inc., (which owns and operates hotels) from prior to 1983 to present. Meetings and Committees of the Board -4- The Company's Board conducted nine meetings during fiscal year 1994, four of which were regular meetings and five of which were special meetings of the Board. Each of the directors attended at least 75% of the meetings of the Board and any Committee of the Board on which they serve, except for Mr. Loveless who attended 66-2/3% of the Board meetings. Among the three Committees of the Board are an Executive Committee, an Audit Committee and a Compensation Committee. The Company does not have a standing Nominating Committee of the Board of Directors. The Audit Committee (a) meets and reviews with the independent auditors their audit and non-audit services, (b) meets and reviews with management the audit and non-audit services, (c) meets and reviews with management the audit and non-audit services of the independent auditors, and (d) makes such recommendations to management and the independent auditors as it deems appropriate. The Audit Committee held one meeting during fiscal year 1994. The Compensation Committee determines the salaries, bonuses and other remuneration of the officers of the Company, administers the Company's Bonus Plan, and makes recommendations to the Board with respect to the Company's compensation policies. The Compensation Committee held one meeting during fiscal year 1994. Compensation of Directors For fiscal year 1994 all directors are to be paid a fee of $750 for each Board meeting attended. In addition, directors who are not employees of the Company are to be paid a quarterly fee of $1,500, plus $400 for each Board Committee meeting attended. The Company has a consulting arrangement with R.J. Wareham & Company, Incorporated ("Wareham & Co."), under the terms of which Wareham & Co. is to be paid by the Company for Ronald J. Wareham's time and expenses for financial advice to the Company related to a variety of corporate projects. Mr. Wareham is the sole shareholder of Wareham & Co. The Company has made payments in the aggregate amount of $26,450 to Wareham & Co., during the Company's fiscal year ended September 30, 1994. The Company's 1993 Stock Incentive Plan provides that each director who is not also an employee of the Company and who is incumbent at the date of each of the five consecutive annual meetings of stockholders beginning with the Company's 1994 annual meeting of stockholders shall automatically be granted, immediately after the conclusion of each such annual meeting, an option to purchase 1,000 shares of Common Stock. In connection with the Company's 1994 annual meeting of stockholders held on February 11, 1994, the Company granted to each of Robert L. Cockroft, Howard W. Loveless, Janet C. Virgin and Ronald J. Wareham, an option to purchase up to 1,000 shares of Common Stock at an exercise price of $12.87 per share of Common Stock. -5- EXECUTIVE COMPENSATION The following table sets forth the compensation awarded to, earned by or paid to the Company's Chief Executive Officer and its other most highly compensated executive officer, whose total annual salary and bonus for the Company's 1994 fiscal year exceeded $100,000, for services rendered in all capacities during the fiscal years ended September 30, 1994, 1993 and 1992. Annual Compensation
ALL OTHER FISCAL SALARY COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($)(2) ($)(1)(3) - --------------------------- ------ ------ --------- Don Wm. Cockroft 1994 233,250 11,174 President and Chief Executive 1993 216,000 169,262 Officer 1992 216,000 John M. Dollar 1994 117,167 8,272 Vice President 1993 113,000 47,191 1992 113,000 (1) In accordance with transitional provisions of the rules of the Securities and Exchange Commission (the "SEC") on executive compensation disclosure, amounts of All Other Compensation have not been included for fiscal year 1992. (2) Salary includes base salary earned and paid in cash during the fiscal year and the amount of base salary deferred at the election of the executive officer under the United Inns, Inc. Retirement Savings Plan (401(K) Plan) for fiscal years 1992, 1993, and 1994. (3) All Other Compensation consists of (a) the amount ($3,585) in insurance premiums provided to each executive officer through the Company's Group Health Insurance Plan that is not available generally to all salaried employees, and (b) matching contributions to the United Inns, Inc. Retirement Savings Plan (401(K) Plan); Such amounts, respectively were as follows for 1994: Mr. Cockroft, $7,589; and Mr. Dollar, $4,687.
REPORT ON EXECUTIVE COMPENSATION OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS The compensation of the Company's executives consists of three basic components: base salary, an executive bonus plan, if applicable, and long-term incentives. The Compensation Committee of the Board, based upon recommendations of the chief executive officer of the Company, determines the compensation of the executive officers of the Company, approves the funding of the executive bonus plan, if applicable, determines the awards of long-term incentives and the individuals to whom such awards are made, and establishes the compensation of the chief executive officer of the Company. For fiscal year 1994, the members of the Company's Compensation Committee were Mr. Howard W. Loveless, who was the Chairman, and Messrs. Robert L. Cockroft and Ronald J. Wareham. Base Salary The establishment of competitive base compensation for the Company's executives is the primary objective in setting base salaries. The Company considers a number of factors to determine base salary including company and individual performance, business conditions, the relative importance of an executive officer's position, the extent of accountability of the position and the skills required to perform the duties of the position. -6- None of the factors mentioned above is given any particular weight in determining base compensation. Other factors also may influence such determination, such as the relative extent of an individual's experience or a desire to retain a valuable executive. Executive Bonus Plan The Company has an executive bonus plan under which individual discretionary awards can be made to the full-time executive officers of the Company. The sum to be distributed ranges from 1% to 3% of the consolidated net income of the Company before income taxes. No cash amounts have been paid under such plan since fiscal year ending September 30, 1985. Long-Term Incentives Stock options are authorized to be granted as long-term incentives to certain key employees of the Company, including executive officers, under the Company's 1993 Stock Incentive Plan (the "1993 Plan"). Under the terms of this plan, the Company may grant options to key employees (determined by the Compensation Committee) to purchase such number of shares of the Common Stock of the Company as is determined by the Compensation Committee. The number of shares for which options will be granted to executive officers will be determined by the Compensation Committee based upon performance, potential and other subjective factors. However, no set criteria will be used and other factors may influence the Compensation Committee's determination with respect to the number of shares granted, such as the promotion of an individual to a higher position, a desire to retain a valued executive or the number of shares then available for grant under 1993 Plan. The stock option holdings of an individual at the time of a grant will not generally be considered in determining the size of a grant to that individual. STOCK PERFORMANCE GRAPH The Stock Performance Graph below shall not be deemed incorporated by reference by any general statement incorporating by reference this Information Statement into any filing under the Securities Act of 1933, as amended, or under the Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. The following graph shows changes over the past five fiscal years in the value of $100 invested on September 30, 1989, in (a) the Common Stock, (b) the Standard & Poor's 500 Composite Index, and (c) the Dow Jones Lodging Index. -7- COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG THE COMPANY, THE S&P 500 INDEX AND THE DOW JONES LODGING INDEX
9/89 9/90 9/91 9/92 9/93 9/94 ----- ----- ----- ----- ----- ----- S&P 500 100 91 119 132 149 155 D J Lodging 100 32 47 55 79 100 Company 100 31 13 7 20 56
* $100 INVESTED ON 9/30/89 IN STOCK OR INDEX- INCLUDING REINVESTMENT OF DIVIDENDS FISCAL YEAR ENDING SEPTEMBER 30. EMPLOYEE BENEFIT PLANS The material which follows in this section describes the provisions of employee benefit plans now in effect, or in effect during the Company's last fiscal year, other than group life and accident insurance, group hospitalization and other similar group payments and benefits, in which some or all of the employees of the Company participate. 1993 Stock Incentive Plan On November 19, 1993, the Company's Board of Directors adopted the 1993 Plan, which was approved by the Company's stockholders at the Company's annual meeting of stockholders held on February 11, 1994 (the "1994 Annual Meeting"). The 1993 Plan provides for the granting of options to purchase for cash an aggregate of not more than 300,000 shares of Common Stock. Such options may be granted to key employees, including officers of the Company and its subsidiaries, as may be designated by the Compensation Committee of the Board. At November 14, 1994, the Company had granted an aggregate -8- of 4,000 options to non-employee directors of the Company at an exercise price of $12.87 per share of Common Stock. Under the terms of the 1993 Plan, the Compensation Committee may from time to time grant options to key employees to purchase Common Stock at a price which may not be less than the fair market value of the shares, as determined by the mean between the high and low prices of the stock on the New York Stock Exchange on the date the option is granted. In addition, the 1993 Plan provides that each director who is not also an employee of the Company and who is incumbent at the date of each of the five consecutive annual meetings of stockholders beginning with the 1994 Annual Meeting shall automatically be granted, immediately after the conclusion of each such annual meeting, an option to purchase 1,000 Shares. Each person who is not also an employee of the Company and who is elected or appointed a director during such five-year period other than at an annual meeting shall, upon such election or appointment, be granted an option to purchase 1,000 shares of Common Stock. The exercise price of options granted to directors under the 1993 Plan must be equal to the mean between the high and low prices of the stock on the New York Stock Exchange on the date of grant of the option and the right to exercise such options will vest one year from the date of the grant, if not earlier upon the occurrence of certain specified events as described below. Options may not be exercised later than five years after the date of grant. Subject to the limitations imposed by the provisions of the Internal Revenue Code, certain of the options granted under the 1993 Plan to key employees may be designated "incentive stock options." The Company may make interest-free demand loans to holders of options not designated as incentive stock options for the purpose of exercising such options and paying any tax liability associated with such exercise Except as provided herein, no option may be exercised until the optionee has completed one year of service after the option is granted, except in the case of termination of an employee's employment or a director's directorship because of death or disability, nor may an option be exercised after termination of an employee's employment or a director's directorship for any reason other than death, disability, retirement or for cause. Options may be exercised within twelve months (a) after the optionee retires, (b) after termination of an employee's employment or a director's directorship on account of permanent disability, or (c) after death when in the service of the Company or any of its subsidiaries. Options may also be exercised within three months after termination of an employee's employment or director's directorship if termination is for reasons other than death, disability or retirement so long as such termination is not for cause, as determined by the Compensation Committee. If termination is for cause, all unexercised options of optionee terminated for cause shall immediately terminate and be of no further force or effect. In the event of death within the twelve-month period following termination of an employee's employment or a director's directorship for retirement or permanent disability, options may be exercised by the optionee's legal representative within twelve months following the date of death. However, under no circumstances may an option be exercised after the expiration of the stated period of the option. No cash consideration is paid for the granting of the options. Payment in full of the option price must be made upon exercise of any option. The 1993 Plan provides for the use of treasury shares. No options or awards may be granted under the 1993 Plan after October 1, 2003, but options or awards granted prior to October 1, 2003, may extend beyond that date. The 1993 Plan may be discontinued by the Company's Board of Directors, but no termination may impair options or awards granted prior thereto. -9- Upon the occurrence of a Change in Control (as defined in the 1993 Plan) of the Company, each holder of an unexpired option under the 1993 Plan will have the right to exercise the option in whole or in part without regard to the date that such option would be first exercisable, except no option may be exercised less than six months from the date of grant, and such right will continue, with respect to any such holder whose employment with the Company or subsidiary or whose directorship terminates following a change in control, for a period ending on the earlier of the date of expiration of such option or the date which is twelve months after such termination of employment or directorship. The Compensation Committee may alter or amend the 1993 Plan at any time. No amendment by the Compensation Committee, however, may increase the total number of shares reserved for purposes of the 1993 Plan, reduce the option price to an amount less than the fair market value at the time the option was granted, extend the duration of the 1993 Plan or modify the provision for the automatic grant of options to directors, unless such amendment is approved by the stockholders. No amendment or alteration may impair the rights of optionees with respect to options theretofore granted, except the Compensation Committee may revoke and cancel any outstanding options which, in the aggregate, would create a significant adverse effect on the Company's financial statement in the event that the Financial Accounting Standards Board issues a statement requiring an accounting treatment which causes such adverse effect with respect to options then outstanding. The Compensation Committee has the power to interpret the 1993 Plan and to make all other determinations necessary or advisable for its administration. Under current federal tax law, non-incentive stock options granted under the 1993 Plan will not result in any taxable income to the optionee at the time of grant or any tax deduction to the Company. Upon the exercise of such option, the excess of the market value of the shares acquired over their cost is taxable to the optionee as compensation income and is generally deductible by the Company. The optionee's tax basis for the shares is the market value thereof at the time of exercise. Neither the grant nor the exercise of an option designated as an incentive stock option results in any federal tax consequences to either the optionee or the Company. At the time the optionee sells shares acquired pursuant to the exercise of an incentive stock option, the excess of the sale price over the exercise price will qualify as a capital gain, provided the applicable holding period is satisfied. If the optionee disposes of such shares within two years of the date of grant or within one year of the date of exercise, an amount equal to the lesser of (a) the difference between the fair market value of the shares on the date of exercise and the exercise price, or (b) the difference between the exercise price, and the sale price will be taxed as ordinary income and the Company will be entitled to a deduction in the same amount. The excess, if any, of the sale price over the sum of the exercise price and the amount taxed as ordinary income will qualify as capital gain if the applicable holding period is satisfied. If the optionee exercises an incentive stock option more than three months after his or her termination of employment due to retirement, he or she is deemed to have exercised a non-incentive stock option. -10- Change in Control Contracts On June 1, 1987, the Company entered into a severance agreement with Mr. John M. Dollar. Under this agreement, Mr. Dollar would be entitled to severance compensation in the event that his employment is terminated following a change in control of the Company. The amount of compensation would be equal to a maximum of 200% of his base compensation for the twelve months prior to his termination plus an additional amount for benefits. The maximum amount of compensation which would be payable to Mr. Dollar, if his employment was terminated, as of November 14, 1994, would be $236,000 plus an additional amount for benefits. Effect of Merger Pursuant to the Merger Agreement, the Surviving Corporation will maintain, for at least a one year period after the Effective Time, the employee plans of the Company in effect on the date of the Merger Agreement or provide benefits to employees of the Surviving Corporation who were employees of the Company and its subsidiaries immediately prior to the Effective Time ("United Employees") that are at least substantially comparable to the benefits provided to similarly situated employees of the Surviving Corporation who are not United Employees. BENEFICIAL OWNERS OF MORE THAN 5% OF COMMON STOCK The following table sets forth the ownership of the Common Stock by the persons, companies or groups known to the Company on the basis of internal records and/or required filings under Section 13 of the Exchange Act to be the beneficial owner of more than 5% of the outstanding shares of Common Stock on November 14, 1994. As used in this information statement, beneficial ownership means generally the power to vote or dispose of the shares, regardless of any personal economic interest therein. Unless otherwise noted these individuals or entities have sole voting and investment power with respect to their shares. -11-
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIALLY OWNED CLASS - ------------------- -------------- ------------------ ---------- Cockroft Consolidated Common 1,209,214(1) 45.4 Corporation Suite 2300 5100 Poplar Avenue Memphis, TN 38137 Dimensional Fund Advisors Inc. Common 182,400(2) 6.8 1299 Ocean Avenue, Ste. 650 Santa Monica, CA 90401 Mario J. Gabelli Common 581,300(3) 21.8 One Corporate Center Rye, NY 10580 (1) Don Wm. Cockroft, Robert L. Cockroft, Janet Virgin, and Katherine Lammons beneficially own a controlling interest in Cockroft Consolidated Corporation. (2) According to Schedule 13G as filed with the SEC by Dimensional Fund Advisors Inc., reporting ownership as of February 19, 1991, Dimensional Fund Advisors Inc. has beneficial ownership of 182,400 shares. Dimensional Fund Advisors Inc. has sole voting and sole dispositive power over 116,600 of these shares and officers of Dimensional Fund Advisors Inc. have sole voting and dispositive power over 65,800 of these shares. The shares of Dimensional Fund Advisors Inc., a registered investment advisor, are held in portfolios of DFA Investment Dimensions Group Inc., a registered open- end investment company, or the DFA Group Trust, an investment vehicle for qualified employee benefit plans, for both of which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional Fund Advisors Inc. disclaims beneficial ownership of all such shares. (3) According to Schedule 13D as filed with the SEC by Gabelli Funds, Inc., Gamco Investors, Inc., Gabelli International Limited II, and Mario J. Gabelli (the "Reporting Persons") reporting ownership as of June 6, 1994, Gamco Investors, Inc. is deemed to have beneficial ownership of 420,800 of these shares; Gabelli Funds, Inc. is deemed to have beneficial ownership of 160,000 of these shares; Gabelli International Limited II is deemed to have beneficial ownership of 500 of these shares; Mario J. Gabelli is deemed to have beneficial ownership of all of the 581,300 shares; and Gabelli Funds, Inc. is deemed to have beneficial ownership of the securities owned by each of the foregoing persons other than Mario J. Gabelli. Each of the Reporting Persons has the sole power to vote and sole power to dispose of the securities reported except that Gamco Investors, Inc. does not have the authority to vote 50,000 of the reported shares; except that Gabelli Funds, Inc. has sole dispositive and voting power with respect to the shares held by The Gabelli Asset Fund, The Gabelli Growth Fund, The Gabelli Convertible Securities Fund, The Gabelli Value Fund, Inc., The Gabelli Small Cap Growth Fund, The Gabelli Equity Income Fund, The Gabelli Equity Trust, The Gabelli Global Telecommunications Fund, The Gabelli Global Convertible Securities Fund, The Gabelli Interactive Couch Potato Fund, and/or The Gabelli ABC Fund with respect to the 160,000 shares held by one or more of such funds, and except that the power of Mr. Mario J. Gabelli and Gabelli Funds, Inc. is indirect with respect to securities beneficially owned directly by other Reporting Persons. The Reporting Persons do not admit that they constitute a group.
-12- SECURITIES BENEFICIALLY OWNED BY DIRECTORS, MANAGEMENT AND PURCHASER DESIGNEES The following table sets forth, as of November 14, 1994, the amount and percentage of the Shares beneficially owned by each director, executive officer and Purchaser Designee and by the directors, officers and Purchaser Designees, as a group:
AMOUNT AND NATURE OF PERCENT OF NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OWNERSHIP - ------------------------ -------------------- --------- DIRECTORS: - --------- Don Wm. Cockroft 1,891(1) * J. Howard Lammons 950(1) * Robert L. Cockroft 0 -- Howard W. Loveless 500 * Janet C. Virgin 31 * Ronald J. Wareham 0 -- NON-DIRECTOR EXECUTIVE OFFICER: - ------------------------------ John M. Dollar 24 * PURCHASER DESIGNEES: - ------------------- Donald J. McNamara 0 -- Robert A. Whitman 0 -- J. Peter Kline 0 -- All directors, officers and Purchaser Designees 4,996(2) as a group (12 persons) *Less than 1% (1) Includes: (a) 1,800 shares owned by the wife and dependent child of Don Wm. Cockroft; and (b) 490 shares owned by the wife of J. Howard Lammons. Except as noted hereinabove, all of the shares are owned directly by said persons with sole voting and investment power. (2) Does not include 1,209,214 shares owned by Cockroft Consolidated Corporation. The controlling shareholders of Cockroft Consolidated Corporation are Don Wm. Cockroft, Robert L. Cockroft, Katherine Lammons, the wife of J. Howard Lammons, and Janet C. Virgin.
-13- EX-3.2 3 EXHIBIT 3.2 EXHIBIT 3.2 BYLAWS OF UNITED INNS, INC. SECTION l OFFICE The principal office and place of business of the corporation shall be located in the City of Memphis, Tennessee; the corporation may have such other offices or places of business within or without the State of Tennessee as the directors may from time to time designate. SECTION 2 STOCK The stock of the corporation shall consist of such numbers of shares, of such classes, and having such par value or characteristics as may from time to time be set forth in the certificate of incorporation or any amendment thereof. Each share of voting stock which may be issued shall entitle the holder thereof to one vote, which may be cast by such holder in person or by proxy in all meetings of stockholders. At all meetings of stockholders, every stockholder entitled to vote shall have the right to vote in person or by proxy the number of shares standing in his name on the stock records of the corporation. Any shares of stock entitled to vote, which may at any time be held by or stand in the name of any person then under any disability, whether of minority or otherwise, or which may stand in the name of any person or persons as guardian of any stockholder then under disability, and any stock, which may stand in the name of any person then deceased or in the name of the estate or personal representative of any deceased stockholder, may be voted by the guardian of such minor stockholder or stockholder under other disability, or by personal representative of any deceased stockholder, in the same manner and to the same extent as could a stockholder living and sui juris; and such guardian or personal representative shall be entitled to receive all notices required to be given with respect to such stock, and may waive any such notice to which he or said stockholder may be entitled, with respect to meetings of such stock, in the same manner and as fully as could a stockholder living and sui juris. Any shares of stock held by any corporation as trustee may be voted, and any notices required with respect to such stock may be waived, by such corporate trustee, acting through any of its officers generally or specifically authorized. All certificates of stock shall be signed by the President or Vice President, and countersigned by the Secretary, on behalf of the corporation. Certificates shall be bound in a book, shall be numbered consecutively and issued in consecutive order therefrom, and in the margin of such stock book shall be entered the name of the person owning the shares and the number thereof, together with the date of issue. Proper revenue stamps shall be affixed to the stubs, upon issue of any certificate of stock or upon any transfer of same. Each certificate of stock issued shall be receipted for in the margin of the stock book at the time of the issue of such certificate. All certificates exchanged or returned for transfer shall be cancelled by the Secretary, and such cancelled certificates shall be pasted in their original places in the stock book. No new certificate shall be issued until the old certificate shall have been returned for cancellation; except that in cases of lost or destroyed certificates, new certificates in lieu of the same may be issued, upon the holder giving such bond or other security as the Board of Directors may in their discretion require. Transfer of stock shall be made only on the books of the corporation, by the holder in person, or by power of attorney duly executed and acknowledged before a witness. No transfer of stock of the corporation shall be complete, or pass title to the purchaser, as against this corporation, until the same shall have been recorded upon the books of the corporation. The Board of Directors is hereby authorized to fix a day, not more than fifty (50) days prior to the date of holding any meeting of stockholders, as the day as of which stockholders entitled to notice of and to vote at such meeting shall be determined, and only stockholders of record at the close of business on such day shall be entitled to notice or to vote at such meeting. SECTION 3 STOCKHOLDERS The regular Annual Meeting of the Stockholders of the corporation shall be held in the City of Memphis, Tennessee, or such other city as may be designated by the Board of Directors on the third Thursday of January of each year, or on such other date as may be determined by the Board of Directors not later than ninety (90) days thereafter at such place and at such hour as may be designated by the Board of Directors, unless said date be a legal holiday in which event the meeting shall be held on the next succeeding business date. Special meetings of the stockholders may be held for any purpose on any business day and at such time and place as may be designated by the Board of Directors. Such meetings may be called by the President, the Board of Directors, or upon written request by stockholders representing fifty percent of the outstanding common stock of the corporation. Not ice of all stockholders meetings stating the time, place and the objects for which such meetings are called shall be given by the President or Vice President or the Treasurer or the Secretary or an Assistant Secretary to each stockholder of record not less than ten (10) nor more than forty (40) days prior to the date of the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail in a sealed envelope with postage thereon prepaid, addressed to the stockholder at his address as it appears on the stock books of the corporation unless he shall have filed with the Secretary of the corporation a written request that notice intended for him be mailed to some other address, in which case it shall be mailed to the address designated in such request. Any meeting of which all stockholders entitled to vote have waived or at any time shall waive notice in writing shall be a legal meeting for the transaction of business, notwithstanding that notice has not been given as hereinbefore provided. Any and all waivers of notice of meeting of stockholders shall be placed in the custody of the Secretary and shall be by him placed in the minute book of the corporation and shall constitute part of the corporate records. At all meetings of stockholders, a majority of the stock outstanding and entitled to vote shall constitute a quorum for the transaction of business. If a quorum be not present at any stated meeting, those present at such meeting may adjourn from time to time without further notice until a quorum be had. SECTION 4 DIRECTORS The directors of the corporation shall be not less than three (3) nor more than ten (10) and shall be elected by the stockholders at their annual meeting to serve for a term of one (l) year or until their successors are duly elected and qualified. The first Board of Directors shall consist of the incorporators. Such first Board, or any subsequent Board consisting of less than nine (9) members, shall have the power at any time to add to the directors up to the number of nine (9) which said added directors shall hold office as such until the next annual meeting of stockholders, or until their successors are duly elected and qualified. The original Board of three (3) directors (consisting of the incorporators) and any directors who may have been added to the Board by such original Board shall serve until the first annual meeting of the corporation to be held during the year 1957, or until their successors are duly elected and qualified. Any vacancy in the first or any succeeding Board of Directors shall be filled by the remaining directors for the unexpired term; and in the event that vacancies in such Board shall reduce the acting number of directors to a number which is less than a quorum, such directors, less than a quorum, may fill such vacancies as hereinabove set forth. The annual meeting of the Board of Directors shall be held immediately following the annual meeting of stockholders. Special meetings of the Board may be held at any time or place upon two (2) days written notice, upon call of President, or upon call of a majority of the membership of the Board; or such special meetings may be had without notice, at any time or place, by unanimous consent, such consent to be expressed by written waiver of notice of such meeting, before or after such meeting, or by actual attendance at such meeting. Any and all waivers of notice of meetings of directors shall be placed in the custody of the Secretary and shall be by him placed in the minute book of the corporation, and shall constitute a part of the corporate records. The Board of Directors may, by resolution, provide for meetings at such specific dates or regular intervals, in addition to the annual meeting, as such Board may in its discretion deem proper, and in the event such regular meetings are so provided for, no further notice of such regular meetings need be given. A majority in number of the Board of Directors, as it may then be constituted, shall constitute a quorum for the transaction of business. In the event that at any stated meeting a quorum is not present, those directors present may adjourn from time to time without further notice until a quorum be had. The directors of the corporation shall have full and complete power to authorize the sale, conveyance, transfer, assignment, trade, exchange, or other disposition or alienation, or lease, and the mortgage or other encumbrance, or pledge, of any property, real or personal, of the corporation, specifically without necessity for action or approval by the stockholders of the corporation. SECTION 5 OFFICERS The officers of this corporation shall consist of a President, a Vice-President, a Secretary, a Treasurer, and a Chairman of the Board of Directors, and such other officers as the Board of Directors may determine from time to time to be necessary or proper. Any offices, except those of the President and Secretary, may be combined in one person. The President, Vice-President, Secretary, Treasurer, and/or Chairman of the Board of Directors, who shall be elected by the incorporators and directors at their first meeting, shall serve as such until the first annual meeting of the directors of the corporation to be held in the year 1957; and, beginning with such meeting and thereafter, such officers shall be elected by the Board of Directors at their annual meeting, and shall serve for a term of one year, or until their successors are duly elected and qualified, or unless sooner removed from office for cause by the affirmative vote of a majority of the entire Board of Directors. All other officers of the corporation shall be appointed by the Board of Directors, to serve upon such terms and for such periods as the Board shall determine to be proper in each case. Salaries of all officers shall be determined and fixed by the Board of Directors. It shall not be necessary that any officer of the company be a director or a stockholder. Any officer of the corporation may at any time be required by the Board of Directors to give bond for the faithful performance of his duties, in such amount and upon such terms as the Board in its discretion may prescribe. SECTION 6 DUTIES OF THE PRESIDENT It shall be the duty of the President to preside (in the absence of the Chairman of the Board of Directors) at all meetings of the directors and of the stockholders, to sign with the Secretary all certificates of stock, to sign and execute on behalf of the corporation any and all contracts, notes, deeds, conveyances or other written instruments; to have, subject to the powers of the directors, general supervision and control over the entire business of the corporation, to employ and discharge all non-elective officers and employees, and to fix the compensation of same, and in general to perform all of the duties and exercise all of the powers usually incident to the office, or which may be assigned to him by the Board of Directors. SECTION 7 DUTIES OF THE VICE-PRESIDENT The duties of the President shall be performed by the Vice-President in the event of absence or inability to act on the part of the President; and he shall also perform such other duties as may be assigned to him by the Board of Directors. SECTION 8 DUTIES OF THE SECRETARY It shall be the duty of the Secretary to keep the minutes of the meetings of the Board of Directors and of the Stockholders, to issue all necessary notices of meetings, to have custody of the stock certificate book, stock records and corporate records of the corporation, to counter-sign with the President all stock certificates, and to execute on behalf of the corporation, alone or with any other designated officer, any contracts, notes, deeds, conveyances, or other written instruments which he may be authorized or directed by the directors to so execute; and to have and exercise, subject to the powers of the directors, all of the duties and powers usually incident to the office, or which may be assigned to him by the Board of Directors. SECTION 9 DUTIES OF THE TREASURER It shall be the duty of the Treasurer to have the custody of the funds of the corporation, and to deposit same to the credit of the corporation in such bank as may be designated by the directors; he shall have the custody of all financial records, stocks, bonds, notes, or valuable papers of the corporation, and he shall keep or cause to be kept a set of books which shall adequately show the financial status of the corporation, which books shall be at all times open to the inspection of the Board of Directors, or any member thereof. In addition to the above, he shall in general exercise all of the powers and perform all of the duties usually incident to the office or which may be assigned to him by the Board of Directors. SECTION 10 DUTIES OF THE CHAIRMAN OF THE BOARD The Chairman of the Board of Directors shall preside at all meetings of the stockholders and directors at which he may be present, and shall perform any and all other duties which may be assigned to him by the Board of Directors. SECTION 11 FISCAL YEAR The fiscal year of the corporation shall be fixed by the Board of Directors, and may be altered by such Board of Directors on resolution from time to time. SECTION 12 SEAL The corporation shall have a seal, an impression whereof appears in the margin. SECTION 13 AMENDMENT These Bylaws may be amended or repealed, or new Bylaws may be adopted, at any annual or special meeting of the stockholders by a majority of the total votes of the stockholders, present in person or represented by proxy, and entitled to vote on such action; provided, however, that the notice of such meeting shall have been given as provided in these Bylaws, which notice shall mention that amendment or repeal of these Bylaws or the adoption of new Bylaws, is one of the purposes of such meeting. These Bylaws may also be amended or repealed or new Bylaws may be adopted by the Board at any meeting thereof; provided, however, that notice of such meeting shall have been given as provided in these Bylaws, which notice shall mention that amendment or repeal of the Bylaws, or the adoption of new Bylaws, is one of the purposes of such meetings; and provided further that the Board shall have no power to adopt a bylaw (a) requiring more than a majority of the voting shares for a quorum at any meeting of stockholders, or more than a majority of the votes cast to constitute action by the stockholders, except where higher percentages are required by law, and (b) classifying and staggering the election of directors. All Bylaws adopted by the Board under the provisions of this section may be amended or repealed by the stockholders as hereinabove provided. SECTION 14 INDEMNIFICATION 1. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 2. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. 3. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise, including the dismissal of an action without prejudice, the disposition of a claim or issue by partial summary judgment, or any other partial success, or the settlement of any action without admission of liability, in defense of any action, suit or proceeding referred to in Paragraphs 1 or 2 of this Section 14, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 4. Expenses incurred in defending or investigating a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation. 5. The indemnification and advancement of expenses provided by, or granted pursuant to, the other portions of this Section 14 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors, court order or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. It is the policy of the Corporation that indemnification shall be made to the fullest extent permitted by law. All rights to indemnification under this Section 14 shall be deemed to be provided by a contract between the Corporation and the director, officer, employee or agent who serves in such capacity at any time while these Bylaws and other relevant provisions of the General Corporation Law of the State of Delaware and other applicable law, if any, are in effect. Any repeal or modification thereof shall not effect any rights or obligations then existing. The Board of Directors is authorized to enter into agreements from time to time with any director, officer, employee or agent of the Corporation providing for indemnification to the fullest extent permitted by applicable law. 6. Any indemnification or advance shall be made promptly and in any event within forty-five (45) days, upon the written request of the director, officer, employee or agent, unless a determination is reasonably and promptly made that such director, officer, employee or agent failed to meet the applicable standard of conduct set forth in Paragraphs 1 or 2 of this Section 14. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of disinterested directors, or (2) if such a quorum is not obtainable, or, even if obtainable and a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. If the request for indemnification involves an action, suit or proceeding that arises from the merger, consolidation, reorganization, liquidation, sale of all or substantially all of the assets, or other extraordinary transaction of the Corporation, the inquiry and resolution thereof required by this Paragraph 6, at the option of the person seeking indemnification, shall be made by a neutral person mutually acceptable to the Corporation and the person seeking indemnification (the "Neutral Person"). If no disposition of such claim for indemnification is made within forty-five (45) days, a favorable determination of entitlement to indemnification shall be deemed to have been made. The director's, officer's, employee's or agent's expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, shall also be indemnified by the Corporation. 7. The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 14 shall, unless otherwise provided, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. 8. Neither the repeal or modification of this Section 14 nor the adoption of any provision of the Certificate of Incorporation or the Bylaws inconsistent with this Section 14 shall adversely affect the rights of any director, officer, employee or agent of the Corporation with respect to causes of action, suits or claims that accrue or arise prior to such repeal, modification or adoption of an inconsistent provision. If this Section 14 or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer, employee and agent against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding whether civil, criminal, administrative or investigative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the Corporation, to the fullest extent permitted by applicable portions of this Section 14 that shall not have been invalidated, or by any other applicable law. In the event the General Corporation Law of the State of Delaware is amended following the date of the latest modification, amendment or revision of this Section so as to permit indemnification by the corporation of any person to a greater extent (either as to matters or persons which may be the subject of indemnity) than permitted in this Section, then the Board of Directors shall have the power to authorize such greater indemnification in accordance with the amended provisions of said General Corporation Law. 9. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Section 14. 10. Upon resolution adopted by the Board of Directors, the Corporation may establish a trust or other designated account, grant a security interest or use other means (including, without limitation, a letter of credit), to ensure the payment of certain of its obligations arising under this Section 14 and/or agreements which may be entered into between the Corporation and its directors, officers, employees and agents from time to time. 11. For purposes of this Section 14, references to "the Corporation" shall include, in addition to the resulting or surviving corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Section 14 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued; references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed against a person with respect to any employee benefit plan; references to "serving at the request of the Corporation" shall include any service as a director or officer of the Corporation which imposes duties on, or involves services by, such director or officer with respect to any employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Section 14. EX-10.85 4 EXHIBIT 10.85 EXHIBIT 10.85 SMITH BARNEY, INC. 1345 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10105 CONFIDENTIAL July 11, 1994 United Inns, Inc. 2300 Clark Tower Memphis, TN 38137 Attention: Don Wm. Cockroft President Gentlemen: The purpose of this letter is to set forth the terms of the engagement by United Inns, Inc. and its subsidiaries (collectively the "Company") of Smith Barney Inc. ("Smith Barney") to act as exclusive financial advisor to the Company and to furnish financial advisory and investment banking services in connection with a potential Transaction (as hereafter defined) involving the Company and one or more potential purchasers (the "Acquiror"). For purposes hereof, a "Transaction" shall mean, directly or indirectly, and whether in one or a series of transactions, the sale or other transfer of all or substantially all of the outstanding capital stock or assets of the Company, whether by way of a leveraged buyout, merger or consolidation, reorganization, recapitalization or restructuring, exchange offer, negotiated purchase, or otherwise. l. The Company hereby engages Smith Barney as its exclusive financial advisor to render financial advisory services to the Company concerning the Transaction. 2. In undertaking this assignment, Smith Barney will, at the request of the Company, provide the following services to the Company: (a) Study and review the business, operations, historical financial performance and anticipated future financial performance of the Company and, if appropriate, the Acquiror; (b) Assist in the preparation of confidential information to be provided to Acquirors; (c) Assist the Company in negotiations and related strategy with the Acquiror and its financial and legal advisors; (d) Assist in any presentation to the Board of Directors of the Company, as requested; (e) If requested, render an opinion ("Opinion") to the Board of Directors of the Company as to whether the terms of any proposed Transactions are fair to the Company from a financial point of view; and (f) Assist and advise the Company in any other matters related to the Transaction. 3. The Company hereby agrees to pay Smith Barney, as compensation for its services hereunder and subject to such conditions as are described in each case, the following fees, subject to certain fee credits described below. (a) RETAINER FEE The Company hereby agrees to pay Smith Barney a retainer fee (the "Retainer Fee") of $100,000, payable in cash immediately upon execution of this letter. (b) TRANSACTION FEE The Company shall pay to Smith Barney a transaction fee (the "Transaction Fee") which shall be 1% of the transaction value (the "Transaction Value"), as hereinafter defined. The Transaction Fee shall be payable in cash on the date of the closing of the Transaction. (c) OPINION FEE If Smith Barney is requested to render an Opinion as contemplated by subparagraph 2(e) above, an opinion fee of $250,000 (the "Opinion Fee"), payable in cash promptly upon delivery by Smith Barney of an Opinion (whether oral or written, as requested by the Company). (d) CERTAIN FEE CREDITS The Retainer Fee and the Opinion Fee, to the extent previously paid, shall be credited against the Transaction Fee payable to Smith Barney hereunder. 4. For the purpose of calculating the Transaction Fee, Transaction Value shall equal the total proceeds and other consideration paid or received and to be paid or received (which shall be deemed to include amounts paid or to be paid into escrow) in connection with a Transaction, including, without limitation: (i) cash; (ii) notes, securities and other property valued at the fair market value thereof; (iii) all debt for borrowed money and notes and loans payable (but excluding any other current liabilities), preferred stock, pension liabilities and guarantees, assumed; (iv) payments to be made in installments; (v) amounts paid or payable under consulting agreements, agreements not to compete or similar arrangements (including such payments to management); and (vi) the net present value of any contingent payments (whether or not related to future earnings or operations). For purposes of computing any fees payable to Smith Barney hereunder, non-cash consideration shall be valued as follows: (i) publicly traded securities shall be valued at the average of their closing prices (as reported in THE WALL STREET JOURNAL) for the five trading days prior to the closing of the Transaction and (ii) any other non-cash consideration shall be valued at the fair market value thereof as determined in good faith by the Company and Smith Barney and in the case of future payments to be made based upon the future financial performance of the Company, then such payments shall be valued at their discounted present value (using a 10% discount rate per annum) assuming the most recent projections as provided by the Company to Smith Barney are achieved. 5. If a Transaction occurs either: (a) during the term of Smith Barney's engagement hereunder or (b) at any time during a period of 12 months following the effective date of termination of Smith Barney's engagement hereunder, involving a party Smith Barney engaged in discussions with during the term of its engagement hereunder, which parties shall be identified by Smith Barney at the time of termination then the Company shall pay to Smith Barney the Transaction Fee outlined in subparagraph 3(b) above. 6. In addition to any fees that may be payable to Smith Barney hereunder and regardless of whether any proposed Transaction is consummated, the Company hereby agrees from time to time, upon request, to reimburse Smith Barney for all reasonable travel, legal and other out-of-pocket expenses incurred in performing the services hereunder, including fees and disbursements of Smith Barney's counsel. Such out-of-pocket expenses shall not exceed $30,000 without the prior consent of the Company, which consent shall not be unreasonably withheld. 7. Any Opinion delivered pursuant to this Agreement shall be based upon such financial review of the Acquiror and the Company and their respective businesses and operations as Smith Barney shall deem appropriate and feasible, limited in any event to an analysis of (i) publicly available information with respect to each such corporation and such other matters as Smith Barney deems appropriate and (ii) such other information as shall be supplied to Smith Barney by the Company or the Acquiror (the "Information"). The Company hereby warrants that any Information with respect to the Company will be fair, accurate and complete and will not contain any material omissions or misstatements of fact. The Company recognizes and confirms that Smith Barney will rely upon the Information, will assume the accuracy and completeness of the Information and will not attempt independently to verify any of the Information and will not make an appraisal of any of the assets of the Company or the Acquiror. The Opinion may be in such form as Smith Barney shall determine and Smith Barney may qualify the Opinion in such manner as Smith Barney believes appropriate. The Opinion shall be limited to the fairness, from a financial point of view, to the Company's stockholders of the consideration to be offered to the Company in the Transaction, and shall not address the Company's underlying business decision to effect the Transaction. The Company agrees that the Opinion shall be used solely by the Board of Directors of the Company in considering the terms of the proposed Transaction and, except as set forth below that the Company shall not publish or refer to the Opinion in any proxy statement or otherwise in connection with the proposed Transaction, furnish the Opinion or any summaries or excerpts thereof to any other person or persons or use the Opinion for any other purpose without the prior written approval of Smith Barney. It is understood, however, that the Opinion may be referred to or summarized in filings required to be made by the Company under applicable law (including under the federal securities laws); provided, however, that any description of Smith Barney or any summary or excerpts of the Opinion shall be subject to Smith Barney's prior review and approval, which review and approval shall not be unreasonably delayed or withheld. 8. Smith Barney agrees to keep confidential all non-public information which it receives or develops concerning the Company and to disclose that information only with the consent of the Company or as required by law, regulation, regulatory authority or legal process. 9. The term of this engagement shall run from the date of this letter to a minimum of 12 months thereafter (subject to earlier termination as provided in paragraph 11), and may be extended by mutual consent of the parties. The Company agrees that except as required by applicable law, any advice to be provided by Smith Barney under this engagement letter shall not be disclosed publicly or made available to third parties without the prior approval of Smith Barney. 10. The Company agrees to indemnify Smith Barney in accordance with the indemnification, contribution and expense reimbursement provisions set forth in Schedule A attached hereto and incorporated herein by reference. 11. This agreement may be terminated with or without cause by either party upon furnishing 30 days prior written notice to the other party, provided that such termination shall not affect the indemnification and contribution obligations of the Company or the right of Smith Barney to receive the Transaction Fee as provided in paragraph 5, or the right of Smith Barney to receive reimbursement for out-of-pocket expenses described above. 12. This agreement and the indemnification letter, attached hereto as Schedule A, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. This letter agreement may not be amended or modified except in writing signed by the parties hereto. 13. The Company represents that this Agreement has been duly authorized, executed and delivered on its behalf and constitutes its legal, valid, binding and enforceable obligation. 14. The Company acknowledges that Smith Barney in connection with its engagement hereunder is acting as an independent contractor with duties owing solely to the Company and that, other than as set forth in Schedule A, nothing in this agreement is intended to confer upon any other person any rights or remedies hereunder or by reason hereof. 15. This letter of agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflict of laws rules thereof. If the foregoing correctly reflects our understanding, please sign and return the enclosed copy of this letter, whereupon this letter will constitute an agreement between us. Very truly yours, SMITH BARNEY INC. By:/s/ Brian W. Keane --------------------------- Brian W. Keane Director Accepted and Agreed to: UNITED INNS, INC. By:/s/ Don Wm. Cockroft --------------------------- Don Wm. Cockroft President SCHEDULE A INDEMNIFICATION Recognizing that transactions of the type contemplated in this engagement sometimes result in litigation and that Smith Barney's role is advisory, the Company agrees to indemnify and hold harmless Smith Barney, its affiliates and their respective officers, directors, employees, agents and controlling persons (collectively, the "Indemnified Parties"), from and against any losses, claims, damages and liabilities, joint or several, related to or arising in any manner out of any transaction, proposal or any other matter (collectively, the "Matters") contemplated by the engagement of Smith Barney hereunder, and will promptly reimburse the Indemnified Parties for all expenses (including fees and expenses of legal counsel) as incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim related to or arising in any manner out of any Matter contemplated by the engagement of Smith Barney hereunder, or any action or proceeding arising therefrom (collectively, "Proceedings"), whether or not such Indemnified Party is a formal party to any such Proceeding. Notwithstanding the foregoing, the Company shall not be liable in respect of any losses, claims, damages, liabilities or expenses that a court of competent jurisdiction shall have determined by final judgment resulted * from the gross negligence or willful misconduct of an Indemnified Party. The Company further agrees that it will not, without the prior written consent of Smith Barney, settle, compromise or consent to the entry of any judgment in any pending or threatened Proceeding in respect of which indemnification may be sought hereunder (whether or not Smith Barney or any Indemnified Party is an actual or potential party to such Proceeding), unless such settlement, compromise or consent includes an unconditional release of Smith Barney and each other Indemnified Party hereunder from all liability arising out of such Proceeding. The Company agrees that if any indemnification or reimbursement sought pursuant to this letter were for any reason not to be available to any Indemnified Party or insufficient to hold it harmless as and to the extent contemplated by this letter, then the Company shall contribute to the amount paid or payable by such Indemnified Party in respect of losses, claims, damages and liabilities in such proportion as is appropriate to reflect the relative benefits to the Company and its stockholders on the one hand, and Smith Barney on the other, in connection with the Matters to which such indemnification or reimbursement relates or, if such allocation is not permitted by applicable law, not only such relative benefits but also the relative faults of such parties as well as any other equitable considerations. It is hereby agreed that the relative benefits to the Company and/or its stockholders and to Smith Barney with respect to Smith Barney's engagement shall be deemed to be in the same proportion as (i) the total value paid or received or to be paid or received by the Company and/or its stockholders pursuant to the Matters (whether or not consummated) for which Smith Barney is engaged to render financial advisory * primarily services bears to (ii) the fees paid to Smith Barney in connection with such engagement. In no event shall the Indemnified Parties contribute or otherwise be liable for an amount in excess of the aggregate amount of fees actually received by Smith Barney pursuant to such engagement (excluding amounts received by Smith Barney as reimbursement of expenses). The Company further agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company for or in connection with Smith Barney's engagement hereunder except for losses, claims, damages, liabilities or expenses that a court of competent jurisdiction shall have determined by final judgment resulted * from the gross negligence or willful misconduct of such Indemnified Party. The indemnity, reimbursement and contribution obligations of the Company shall be in addition to any liability which the Company may otherwise have and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company or an Indemnified Party. The indemnity, reimbursement and contribution provisions set forth herein shall remain operative and in full force and effect regardless of (i) any withdrawal, termination or consummation of or failure to initiate or consummate any Matter referred to herein, (ii) any investigation made by or on behalf of any party hereto or any person controlling (within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended) any party hereto, (iii) any termination or the completion or expiration of this letter or Smith Barney's engagement and (iv) whether or not Smith Barney shall, or shall not be called upon to, render any formal or informal advice in the course of such engagement. Very truly yours, SMITH BARNEY INC. By:/s/ Brian W. Keane --------------------------- Brian W. Keane Director Accepted and Agreed to: UNITED INNS INC. By:/s/Don Wm. Cockroft --------------------------- Don Wm. Cockroft President *primarily Acknowledged and Accepted: SMITH BARNEY INC. /s/Brian W. Keane --------------------------- By: Brian W. Keane Director CONFIDENTIAL September 1, 1994 Brian W. Keane Director Smith Barney Inc. 1345 Avenue of the Americas New York, New York 10105 RE: MODIFICATION OF ENGAGEMENT LETTER --------------------------------- Dear Mr. Keane: This letter serves as written confirmation of an agreed-upon modification to the engagement letter dated July 11, 1994 between United Inns, Inc. ("United") and Smith Barney Inc. ("Smith Barney") (the "Engagement Letter"). In return for Smith Barney's willingness to enter into the Compensation Agreement dated August 31, 1994, among United, Smith Barney, Laurence Geller and Geller & Co., United has agreed to modify Paragraph 3(b) of the Engagement Letter to increase the Transaction Fee (as defined therein) to 1.25% from 1.00% of the Transaction Value (as defined therein). All other provisions of the Engagement Letter remain in full force and effect. Very truly yours, UNITED INNS, INC. /s/Don Wm. Cockroft - ------------------------- By: Don Wm. Cockroft President Acknowledged and Accepted: SMITH BARNEY INC. /s/Brian W. Keane -------------------------- By: Brian W. Keane Director EX-11 5 EXHIBIT 11 EXHIBIT 11 - ---------- STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - ----------------------------------------------------- This information is submitted in accordance with Item 601 (b) (11) of Regulation S-K and is contrary to provisions of Accounting Principles Board Opinion No. 15 because it results in a reduction of loss per share.
Net loss for 1994 $(5,505,051) ---------- ---------- Loss per common and common equivalent share $ (2.05) ---------- ---------- Loss per common share - assuming issuance of all contingent shares $ (2.04) ---------- ---------- Weighted average common and common equivalent shares (using average market value) 2,688,225 ---------- ---------- Weighted average common and common equivalent shares assuming issuance of all contingent shares (using ending market value) 2,692,014 ---------- ----------
The treasury stock method was used for both shares computations. EX-21 6 EXHIBIT 21 EXHIBIT NO. 21 PARENT AND SUBSIDIARIES OF REGISTRANT. The following listed subsidiary corporations are all included in the consolidated financial statements included herein, and the Registrant is the owner of 100% of the capital stock of each subsidiary, unless otherwise indicated.
STATE OF CORPORATION RELATIONSHIP INCORPORATION ----------- ------------ ------------- United Inns, Inc. Parent Delaware United Inns, Inc. of Tennessee Subsidiary Tennessee United Inns of Colorado, Inc. Subsidiary Colorado United Supply Company Subsidiary Tennessee Gary Hotel Courts, Inc. Subsidiary Georgia Stagner Hotel Courts, Inc. Subsidiary Georgia Kizer Motel Courts, Inc. Subsidiary Texas Lammons Hotel Courts, Inc. Subsidiary Georgia Turley Inns, Inc. Subsidiary Texas Rodgers Hotel Courts, Inc. Subsidiary Georgia Dotson, Inc. Subsidiary Texas Haywood Hotel Courts, Inc. Subsidiary Georgia Sepp Hotel Courts, Inc. Subsidiary Georgia Scott Inn, Inc. Subsidiary Texas Johnson Inn, Inc. Subsidiary Texas South Jacksonville Inn, Inc. Subsidiary Florida Eastex Inn, Inc. Subsidiary Texas Croswell Inn, Inc. Subsidiary Texas Rier Inn, Inc. Subsidiary Texas Clayton County Inn, Inc. Subsidiary Georgia Houston Airport Inn, Inc. Subsidiary Texas Peachtree Lenox Inn, Inc. Subsidiary Georgia I-20 East Inn, Inc. Subsidiary Georgia Jackson Downtown Inn, Inc. Subsidiary Mississippi Northside Inn, Inc. Subsidiary Georgia Old National Inn, Inc. Subsidiary Georgia Gaines, Inc. Subsidiary Tennessee Friscia Inn, Inc. Subsidiary Texas Airport Utilities, Inc. Subsidiary Texas Transcontinental Motor Hotels, Inc. Subsidiary Texas Ellison Hotel Corporation Subsidiary Texas Glenjon, Inc. Subsidiary Texas TMH Motor Hotels, Inc. Subsidiary California Houston Inns Service Co., Inc. Subsidiary Texas Ox John, Inc. Subsidiary Texas La Mancha Club, Inc. Subsidiary Texas La Strada Club, Inc. Subsidiary Texas Roswell Road Inn, Inc. Subsidiary Georgia Memorial Katy Inn, Inc. Subsidiary Texas Greenway Plaza Inn, Inc. Subsidiary Texas Hobby Inn, Inc. Subsidiary Texas Chamblee-Dunwoody Inn, Inc. Subsidiary Georgia Southwest, Inc. Subsidiary Mississippi Mid-Atlanta Investment Company Subsidiary (75% owned) Georgia Penrod Club Subsidiary Texas The Thicket Club Subsidiary Texas Limited Service Inns, Inc. of Georgia Subsidiary Georgia Austin Innkeepers, Inc. Subsidiary Texas Indian Trail Inn, Inc. Subsidiary Georgia Memphis Carwash, Inc. Subsidiary Tennessee Carwash Number 2, Inc. Subsidiary Tennessee 9 Up Club, Inc. Subsidiary Texas Limited Service Inns, Inc. of Houston Subsidiary Texas Limited Service Inns, Inc. of Mississippi Subsidiary Mississippi Limited Service Inns, Inc. of Georgia Number Two Subsidiary Georgia Rier Properties, Inc. Subsidiary Texas
EX-27 7 EXHIBIT 27
5 12-MOS SEP-30-1994 OCT-01-1993 SEP-30-1994 7984467 0 3066683 120174 842770 19874036 181717899 85879095 129025775 16997941 91419101 4117813 0 0 11452912 129025775 0 93130317 0 72964066 0 0 10117188 (6802471) (1297420) (5505051) 0 0 0 (5505051) (2.08) (2.08) Current portion excluded
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