-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SeVFYB5TJglm3Hg5mgcu5yMHCPSPe4wOmfse5NAxXnuFJr3zjb/OQk5I3Gm/VNGm uODvglaaf6du8NaNO2ck+g== 0000783728-99-000010.txt : 19991125 0000783728-99-000010.hdr.sgml : 19991125 ACCESSION NUMBER: 0000783728-99-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIDGEWOOD HOTELS INC CENTRAL INDEX KEY: 0000783728 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 581656330 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14019 FILM NUMBER: 99764122 BUSINESS ADDRESS: STREET 1: 2859 PACES FERRY RD STE 700 CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 4044343670 MAIL ADDRESS: STREET 1: 2859 PACES FERRY ROAD STREET 2: SUITE 700 CITY: ATLANTA STATE: GA ZIP: 30339 FORMER COMPANY: FORMER CONFORMED NAME: RIDGEWOOD PROPERTIES INC DATE OF NAME CHANGE: 19920703 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission file number 0-14019 Ridgewood Hotels, Inc. ------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 58-1656330 ------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2859 Paces Ferry Road, Suite 700 Atlanta, Georgia 30339 ---------------------------------------- ----------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (770) 434-3670 -------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value ---------------------------- (Title of Class) 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 voting stock held by non-affiliates on October 31, 1999 - $793,000; Common shares outstanding on October 31, 1999 - 1,513,480 shares (1) Portions of the registrant's Annual Report to Shareholders for the fiscal year ended August 31, 1999 (the "1999 Annual Report to Shareholders") are incorporated by reference in Part II of this Report. (2) Portions of the registrant's definitive Proxy Statement relating to the 2000 Annual Meeting (the "2000 Proxy Statement") to be filed with the Commission on or about December 15, 1999, are incorporated by reference in Part III of this Report. PART I Item 1. Business Ridgewood Hotels, Inc. (the "Company") is primarily engaged in the business of acquiring, developing, operating and selling real estate property in the Southeast and "Sunbelt" areas. Additionally, the Company, through its investment in certain entities, is engaged in acquiring and managing hotel properties in the Southeast, as well as managing other hotels throughout the country. The Company also owns and operates a hotel in Longwood, Florida. All of the Company's other properties are land properties held for sale, and no additional development is currently anticipated for the land. The Company was incorporated under the laws of the State of Delaware on October 29, 1985. In January 1997, the Company changed its name from Ridgewood Properties, Inc. to Ridgewood Hotels, Inc. Prior to December 31, 1985, the Company operated under the name CMEI, Inc. The Company has invested in three hotel entities as follows: RW Hotel Partners, L.P. On August 16, 1995, RW Hotel Partners, L.P. was organized as a limited partnership (the "Partnership") under the laws of the State of Delaware. Concurrently, the Company formed Ridgewood Georgia, Inc., a Georgia corporation ("Ridgewood Georgia") which became the sole general partner in the Partnership with RW Hotel Investments Associates, LLC ("Investor") as the limited partner. Ridgewood Georgia has a 1% base distribution percentage versus 99% for the Investor. However, distribution percentages do vary depending on certain defined preferences and priorities pursuant to the Partnership Agreement ("Agreement") which are discussed below. The Partnership was originally formed to acquire a hotel property in Louisville, Kentucky, but subsequently purchased five additional hotels. The Partnership purchased the hotel in Louisville, Kentucky for approximately $16,000,000. In December 1995 and January 1996, the Partnership purchased four hotel properties in Georgia for approximately $15,000,000 and a hotel in South Carolina for $4,000,000, respectively. Three of the Georgia hotels were sold at a loss in March 1998, and the hotel in Louisville was transferred to a new entity in June 1998 in conjunction with refinancing that hotel (see below). The hotel in Orangeburg, South Carolina was sold for a loss in November 1998. The remaining hotel in the Partnership is in Thomasville, Georgia. See Subsequent Events in Notes to Consolidated Financial Statements in the 1999 Annual Report. Income and loss are allocated to Ridgewood Georgia and the limited partner based upon the formula for allocating Distributable Cash as described below. Distributable Cash is defined as the net income from the property before depreciation plus any net sale proceeds and net financing proceeds less capital costs. Distributions of Distributable Cash shall be made as follows: - First, to the Investor until there has been distributed to the Investor an amount equal to a 15% cumulative internal rate of return on the Investor's investment. - Second, to Ridgewood Georgia until the aggregate amount received by Ridgewood Georgia equals the aggregate cash contributions made by Ridgewood Georgia to the Partnership. - Third, 12% to Ridgewood Georgia and 88% to the Investor until there has been distributed to the Investor an amount equal to a 25% cumulative internal rate of return on Investor's investment. - Fourth, 75% of the residual to the Investor and 25% to Ridgewood Georgia. Management of the Partnership intends to adopt a plan of liquidation and will sell the remaining hotel. Based on management's estimate, Ridgewood Georgia will not receive cash in excess of its investment in the Partnership. See Subsequent Events in Notes to Consolidated Financial Statements in the 1999 Annual Report. A Management Agreement exists between the Partnership and the Company as Manager ("Manager") for the purpose of managing the hotels. The Manager shall be entitled to the following property management fees: (1) 2.5% of the gross revenues from the hotel property. (2) 1% of the gross revenues from the hotel property as an incentive fee if distributable cash equals or exceeds 13.5% of total aggregate acquisition costs. Total management fees for the years ended August 31, 1999, 1998 and 1997 were approximately $68,000, $233,000 and $301,000, respectively. On March 17, 1998, the Partnership sold three of its six hotels. The Company signed a management agreement with the new owner of the three hotels wherein it will receive a management fee equal to 3% of revenues plus 15% of the net operating income plus 5% of any profit realized upon the sale of the hotels. In connection with the management agreement, the Company received management fees totaling approximately $191,000 and $114,000 for the years ended August 31, 1999 and 1998, respectively. Houston Hotel, LLC On December 9, 1997, Houston Hotel, LLC ("Houston Hotel") was organized as a limited liability company under the laws of the State of elaware. The purpose which Houston Hotel was organized is limited solely to owning and managing the Hampton Inn Galleria in Houston, Texas. The Company contributed approximately $316,000 into Houston Hotel which represents a 10% interest, and the other 90% interest is owned by Houston Hotel, Inc. (the "Manager"), a Nevada corporation. Income or loss allocated to the Company and the Managing Member is based upon the formula for distributing cash. Distributable cash is defined as the cash from operations and capital contributions determined by the Manager to be available for distribution. Cash from operations is defined as the net cash realized from the operations of Houston Hotel after payment of all cash expenditures of Houston Hotel including, but not limited to, operating expenses, fees, payments of principal and interest on indebtedness, capital improvements and replacements, and such reserves and retentions as the Manager reasonably determines to be necessary. Distributions of distributable cash shall be made as follows: - First, 100% to the Manager until it has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, 100% to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 80% to the Manager and 20% to the Company. A Property Management Agreement exists between Houston Hotel, LLC and the Company as Property Manager ("Property Manager") for the purpose of managing the hotel. The Property Manager shall be entitled to the following property management fees: (1) 1.5% of the gross revenues from the hotel property. (2) 1.5% of the gross revenues from the hotel property as an incentive fee if 85% of the budgeted net operating income is met. In connection with the management agreement, the Company received management fees totaling approximately $98,000 and $83,000 for the year ended August 31, 1999 and 1998, respectively. See Subsequent Events in Notes to Consolidated Financial Statements in the 1999 Annual Report. RW Louisville Hotel Associates, LLC On May 13, 1998, RW Louisville Hotel Associates LLC ("RW Louisville Hotel Associates") was organized as a limited liability company under the laws of the State of Delaware. The purpose which RW Louisville Hotel Associates was organized is limited solely to owning and managing the Holiday Inn ("the Hotel") in Louisville, Kentucky. The Company's investment in RW Hotel Partners, L.P. of $337,500 (see above) was transferred to RW Louisville Hotel Associates at its historical basis. Simultaneously, the Company invested $362,000 into Louisville Hotel, LLC. The combined equity of $699,500 represents a 10% interest in the Hotel. Louisville Hotel, LLC loaned $3,620,000 to the Hotel in return for all cash flows generated from the Hotel. Income or loss allocated to the Company is based upon the formula for distributing cash. Distributable cash is defined as the net cash realized from operations but after payment of management fees, principal and interest, capital improvements and other such retentions as the managing member determines to be necessary. Distributions of distributable cash from Louisville Hotel, LLC shall be made as follows: - First, to the managing member until the managing member has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 20% to the Company and 80% to the managing member. Cash from a sale or refinancing would be distributed 10% to the Company and 90% to the managing member. A Management Agreement exists between the Owner and the Company as Property Manager ("Property Manager") for the purpose of managing the hotel. The Property Manager shall be entitled to the following property management fees: (1) Base Management Fee equal to 1.5% of gross revenues from the hotel property. (2) Incentive Management Fee equal to 1.5% of gross revenues from the hotel in which the actual net operating income exceeds 85% of the budgeted goal for the year. (3) Super Incentive Management fee equal to: (a) .25% of gross revenues from the hotel in which the net operating income exceeds 106% of the budgeted goal for the year; (b) an additional .25% of gross revenues in which the net operating income exceeds 112% of the budgeted goal; and (c) an additional .50% of gross revenues in which the net operating income exceeds 120% of the budgeted goal. The Company paid an additional $200,000 to Louisville Hotel, LLC as a fee to acquire the management contract for the hotel. This amount is included in other assets. The Company is amortizing the fee $70,000 per year for the first two years and $20,000 per year for the next three years. With respect to the sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC with or without cause and not pursuant to a third party sale prior to June 5, 2000, Louisville Hotel, LLC will pay to the Company the sum of $4,166.67 times the number of months prior to June 5, 2000 that the management contract is terminated. With respect to the second sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC prior to June 5, 2003, Louisville Hotel, LLC will pay to the Company the sum of $1,666.67 times the number of months prior to June 5, 2003 that the management contract is terminated. In connection with the management agreement, the Company received management fees totaling approximately $285,000 and $57,000 for the years ended August 31, 1999 and 1998, respectively. See Subsequent Events in Notes to Consolidated Financial Statements in the 1999 Annual Report. The hotel management business has become very competitive. In order to obtain management agreements, owners of hotels are frequently requiring management companies to acquire an ownership in the hotel. The hotel industry has become very attractive to many investors and, in turn, it has become very competitive to purchase hotels. This has also prompted the building of many new hotels in various markets. The Company believes that it is in a position to remain competitive in this industry. The Company has the ability to provide the management expertise to manage the acquisitions, operations and ultimate disposition of properties so acquired for both the Company and for third-party owners. As the Company identifies hotel properties for acquisition by others, it will enter into management agreements to manage those properties. The Company owns and operates one hotel and owns a number of land parcels which are held for sale. The success of the Company's operations continues to be dependent upon such unpredictable factors as the general and local economic conditions to which the real estate industry is particularly sensitive: zoning, labor, material and energy availability, weather conditions and the availability of satisfactory financing. The annual average occupancy of the Company's only hotel was approximately 56% for the fiscal year 1999. The Company's principal office is located at 2859 Paces Ferry Road, Suite 700, Atlanta, Georgia 30339 (telephone number: (770) 434-3670). The Company employed approximately 90 persons (of which 17 were located at its principal office) at August 31, 1999. Item 2. Properties The Company does not own any real property material to conducting the administrative aspects of its business operations. Its principal office in Atlanta, Georgia is leased until June 2002 and consists of approximately 6,200 square feet. As a result of its operations, the Company is the owner of various other properties, including developed and undeveloped real estate. The Company's operating properties are as follows: Name of Hotel Location # of Rooms Ownership Interest Ramada Inn Longwood, FL 192 Wholly-Owned (a) Holiday Inn Thomasville, GA 147 (b) Holiday Inn Louisville, KY 267 (c) Hampton Inn Houston, TX 176 (d) (a) The hotel serves as collateral for the Company's $2,677,000 term loan with a commercial lender. (b) The Company has a 1% ownership interest in this hotel as the general partner of RW Hotel Partners, L.P., which owns the hotels. See Subsequent Events in Notes to Consolidated Financial Statements in the 1999 Annual Report. (c) The Company has a 10% ownership interest in this hotel as a member of RW Louisville Hotel Associates, LLC and Louisville Hotel, LLC, which owns the hotel. See Subsequent Events in Notes to Consolidated Financial Statements in the 1999 Annual Report. (d) The Company has a 10% ownership interest in this hotel as a member of Houston Hotel, LLC, which owns the hotel. See Subsequent Events in Notes to Consolidated Financial Statements in the 1999 Annual Report. The Company also holds six land parcels for sale, two of which are located in Florida, one in Georgia and one each in Texas, Ohio and Arizona. For further information on such properties, see the accompanying consolidated financial statements and Schedule III, Real Estate and Accumulated Depreciation, contained elsewhere herein. Item 3. Legal Proceedings On May 2, 1995 a complaint was filed in the Court of Chancery of the State of Delaware (New Castle County) entitled William N. Strassburger v. Michael M. Early, Luther A. Henderson, John C. Stiska, N. Russell Walden, and Triton Group, Ltd., defendants, and Ridgewood Hotels, Inc., nominal defendant, C.A. No. 14267 (the "Complaint"). The plaintiff is an individual shareholder of the Company who purports to file the Complaint individually, representatively on behalf of all similarly situated shareholders, and derivatively on behalf of the Company. The Complaint challenges the actions of the Company and its directors in consummating the Company's August 1994 repurchases of its common stock held by Triton Group, Ltd. and Hesperus Partners Ltd. in five counts, denominated Waste of Corporate Assets, Breach of Duty of Loyalty to Ridgewood, Breach of Duty of Good Faith, Intentional Misconduct, and Breach of Duty of Loyalty and Good Faith to Class. On July 5, 1995, the Company filed a timely answer generally denying the material allegations of the complaint and asserting several affirmative defenses. Discovery has been concluded, and on March 19, 1998, the Court dismissed all class claims, with only the derivative claims remaining for trial. The case was tried to Vice Chancellor Jacobs during the period February 1 through February 3, 1999. All post-trial briefing and oral argument has been concluded, and the case has been submitted for decision by the Court. The Company serves as a general partner in a limited partnership. As a general partner, the Company may be liable for certain deficiencies which arise in meeting the terms of loan obligations incurred by the limited partnership and for operating expenses and other liabilities incurred by the partnership in the ordinary course of business. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of the Company's fiscal year ended August 31, 1999. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Information regarding the market for the Company's common stock, the Company's dividend policy and the approximate number of holders of the common stock at October 31, 1999, is included under the caption "Market for Registrant's Common Equity and Related Stockholder Matters" on page 1 of the 1999 Annual Report to Shareholders and is incorporated herein by reference. There were no sales of unregistered securities of the Company in the fourth quarter of the Company's fiscal year ended August 31, 1999. Item 6. Selected Financial Data A summary of selected financial data for the Company for the fiscal years 1995 through 1999 is included under the caption entitled "Selected Financial Data" on page 3 of the 1999 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Information regarding the Company's financial condition, changes in financial condition and results of operations is included under the caption entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 4 through 10 of the 1999 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements Consolidated financial statements and notes thereto for the Company, which are included on pages 11 through 37 of the 1999 Annual Report to Shareholders under the following captions listed below, are incorporated herein by reference. Consolidated Balance Sheets at August 31, 1999 and 1998. Consolidated Statements of Operations for the years ended August 31, 1999, 1998 and 1997. Consolidated Statements of Shareholders' Investment for the years ended August 31, 1999, 1998 and 1997. Consolidated Statements of Cash Flows for the years ended August 31, 1999, 1998 and 1997. Notes to Consolidated Financial Statements. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant Information required by this item with respect to directors and with respect to Item 405 of Regulation S-K is incorporated by reference to the Company's 2000 Proxy Statement. Item 11. Executive Compensation Information regarding compensation of officers and directors of the Company is set forth under the caption entitled "Executive Compensation" in the Company's 2000 Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information regarding ownership of certain of the Company's securities is set forth under the caption entitled "Beneficial Ownership of the Company's Securities" in the Company's 2000 Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information regarding certain relationships and related transactions with the Company is set forth under the caption entitled "Certain Relationships and Related Transactions" in the Company's 2000 Proxy Statement and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)(1) The following financial statements, together with the applicable report of independent public accountants, are set forth on pages 11 through 37 of the 1999 Annual Report to Shareholders and are incorporated by reference at Item 8 herein: Report of Independent Accountants. Consolidated Balance Sheets at August 31, 1999 and 1998. Consolidated Statements of Operations for the years ended August 31, 1999, 1998 and 1997. Consolidated Statements of Shareholders' Investment for the years ended August 31, 1999, 1998 and 1997. Consolidated Statements of Cash Flows for the years ended August 31, 1999, 1998 and 1997. Notes to Consolidated Financial Statements. (a)(2) The following financial statement schedule, together with the applicable report of independent public accountants, are filed as a part of this Report: Page Number(s) in Form 10-K Report of Independent Accountants on Financial Statement Schedule S-1 III - Real Estate and Accumulated Depreciation - August 31, 1999 S-2 thru S-3 All other schedules are omitted because they are not applicable or because the required information is given in the financial statements or notes thereto. (a)(3) The exhibits filed herewith or incorporated by reference herein are set forth on the Exhibit Index on pages E-1 through E-9 hereof. Included in those exhibits are the following Executive Compensation Plans and Arrangements: 10(a) Employment Agreement between N. R. Walden and CMEI, Inc., dated March 28, 1985 (filed as an Exhibit to Registrant's Registration Statement on Form 10 filed November 19, 1985 (Securities Exchange Act File No. 0-14019) and incorporated herein by reference). 10(c) Ridgewood Properties, Inc. Supplemental Retirement and Death Benefit Plan dated January 1, 1987 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1988 and incorporated herein by reference). 10(d) Post-Employment Consulting Agreement between N. R. Walden and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(e) Post-Employment Consulting Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(f) Post-Employment Consulting Agreement between Byron T. Cooper and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(g) Post-Employment Consulting Agreement between M. M. McCullough and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(h) Ridgewood Properties, Inc. Stock Option Plan dated March 30, 1993 and as amended September 14, 1993 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(i) Stock Option Agreement between Byron T. Cooper and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(j) Stock Option Agreement between Luther A. Henderson and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(k) Stock Option Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(l) Stock Option Agreement between M. M. McCullough and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(m) Stock Option Agreement between N. R. Walden and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(n) Stock Option Agreement between Gregory T. Weigle and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(o) Stock Option Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated January 31, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(p) Stock Option Agreement between N. R. Walden and Ridgewood Properties, Inc. dated January 31, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(q) Ridgewood Properties, Inc. 1993 Stock Option Plan, as amended on October 26, 1994 (filed as an Exhibit to Registrant's Registration Statement on Form S-8 filed November 8, 1994 (No. 33-86084) and incorporated herein by reference). 10(ff) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and N. Russell Walden dated August 13, 1998 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1998 and incorporated herein by reference). 10(gg) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and Byron T. Cooper dated August 18, 1998 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1998 and incorporated herein by reference). 10(hh) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and Karen S. Hughes dated August 13, 1998 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1998 and incorporated herein by reference. (b) No reports on Form 8-K were filed during the fourth quarter of the Company's fiscal year ended August 31, 1999. SIGNATURES Pursuant to the requirements of Section 13 or 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. RIDGEWOOD HOTELS, INC. By: /s/ N. R. Walden N. Russell Walden, President, Chief Executive Officer Dated: November 22, 1999 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 date indicated: /s/ N. R. Walden N. Russell Walden, President, Chief Executive Officer and Director /s/ Karen S. Hughes Karen S. Hughes, Vice President, Chief Accounting and Financial Officer and Secretary /s/ Michael M. Earley Michael M. Earley, Director /s/ Luther A. Henderson Luther A. Henderson, Director Dated: November 22, 1999 Report of Independent Accountants on Financial Statement Schedule November 17, 1999 To the Board of Directors of Ridgewood Hotels, Inc. Our audits of the consolidated financial statements referred to in our report dated November 17, 1999 appearing in the 1999 Annual Report to Shareholders of Ridgewood Hotels, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICEWATERHOUSECOOPERS LLP ATLANTA, GEORGIA RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES SCHEDULE III ----------------------------------------- Page 1 of 2 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION ------------------------------------------------------- AUGUST 31, 1999 --------------- (000'S Omitted)
Cost Capitalized Gross Amount at Which Initial Cost Subsequent to Carried at August 31, 1999 to Company Acquisition (A)(B)(D) ------------------ ------------------ ---------------------------------- Building Building Accumu- and Carry- and lated Date of Encum- Improve- Improve- ing Improve- Deprecia- Construc- Date Description brances Land ments ments Costs Land ments Total tion (C) tion Acquired - ----------- -------- ---- -------- -------- ------ ---- -------- ----- -------- -------- -------- LAND - ---- Georgia -- 58 -- -- -- 44 -- 44 -- -- 12/75 Texas -- 5,338 -- 2 -- 3,582 2 3,584 -- -- 12/85 -- Florida -- 475 -- 10 -- 402 10 412 -- -- 3/85 Florida -- 41 -- -- -- 41 -- 41 -- -- 6/78 Arizona -- 978 -- 110 -- 978 110 1,088 -- -- 3/85 Ohio -- 1,006 -- 175 -- 104 74 178 -- -- 12/77 --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Non- operating properties -- 7,896 -- 297 -- 5,151 196 5,347 -- --------- --------- --------- --------- --------- --------- --------- --------- --------- HOTEL - -------------- Florida 2,742 439 1,921 1,175 -- 439 2,514 2,953 1,781 1973 9/74 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total operating properties 2,742 439 1,921 1,175 -- 439 2,514 2,953 1,781 -------- -------- -------- -------- -------- -------- -------- -------- -------- GRAND TOTAL $ 2,742 $ 8,335 $ 1,921 $ 1,472 $ -- $ 5,590 $ 2,710 $ 8,300 $ 1,781 ========= ========= ========= ========= ========= ========= ========= ========= =========
SCHEDULE III Page 2 of 2 (A) Except as discussed in Note 2 to the "Notes to Consolidated Financial Statements," real estate owned is carried at the lower of cost or fair value less costs to sell. At August 31, 1999, the amount of the allowance for possible losses was approximately $3,319,000, which related to land held for sale. (B) Reconciliation of real estate properties: For the Year Ended (000's omitted) 8/31/99 8/31/98 8/31/97 ------- ------- ------- Balance, beginning of year $ 8,735 $ 9,553 $12,612 Additions during the period: Acquisitions -- -- -- Capitalized costs 65 88 78 Deductions during the period: Real estate sold or assets retired (on which financing was provided by the Company in certain cases) 500 906 3,137 ------- ------- ------- Balance, end of year $ 8,300 $ 8,735 $ 9,553 ======= ======= ======= (C) Operating properties and any related improvements are being depreciated by the "straight line" method over the estimated useful lives of such assets, which are generally 30 years for buildings and 5 years for furniture and fixtures. Reconciliation of accumulated depreciation: For the Year Ended (000's omitted) 8/31/99 8/31/98 8/31/97 ------- ------- ------- Balance, beginning of year $1,679 $1,567 $1,460 Additions during the period 130 139 128 Depreciation associated with assets sold or retired (28) (27) (21) ------ ------ ------ Balance, end of year $1,781 $1,679 $1,567 ====== ====== ====== (D) The aggregate cost for federal income tax purposes is approximately $8,479,000 at August 31, 1999. EXHIBIT INDEX Report on Form 10-K for the fiscal year ended August 31, 1999 Page Number Exhibit in Manually Number Description Signed Original 3(a) Certificate of Incorporation of Registrant.* 3(b) By-Laws of Registrant.* 3(c) Certificate of Amendment to the Certificate of Incorporation (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1987 and incorporated herein by reference). 3(d) Certificate of Amendment to the Certificate of Incorporation of the Registrant (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1989 and incorporated herein by reference). 3(e) Certificate of Amendment of the Certificate of Incorporation of Ridgewood Properties, Inc. dated May 23, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 3(f) Certificate of Amendment of the Certificate of Incorporation of Ridgewood Properties, Inc. dated March 30, 1993 (filed as Exhibit 3 to Registrant's Form 10-Q for the fiscal quarter ended February 28, 1993 and incorporated herein by reference). 3(g) Certificate of Amendment of the Certificate of Incorporation of Ridgewood Properties, Inc. dated January 26, 1994 (filed as Exhibit 3 to Registrant's Form 10-Q for the fiscal quarter ended February 28, 1994 and incorporated herein by reference). 3(h) Certificate of Amendment to Certificate of Incorporation by Ridgewood Hotels, Inc. (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 4(a) Stock Purchase Agreement between Ridgewood Properties, Inc. and Triton Group Ltd., dated as of August 15, 1994 (filed as an Exhibit to Registrant's Form 8-K on August 15, 1994, and incorporated herein by reference). 4(b) August 15, 1994 Press Release issued by Ridgewood Properties, Inc. (filed as an Exhibit to Registrant's Form 8-K on August 15, 1994, and incorporated herein by reference). 4(c) Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock of the Registrant (filed as an Exhibit to Registrant's Registration Statement on Form S-8 filed on November 8, 1994 (No. 33-866084) and incorporated herein by reference). 4(d) Notice of Exercise by N. Russell Walden dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 4(e) Notice of Exercise by Karen S. Hughes dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 4(f) Share Security Agreement between N. Russell Walden and Ridgewood Properties, Inc. dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 4(g) Share Security Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997, and incorporated herein by reference). 10(a) Employment Agreement between N. R. Walden and CMEI, Inc., dated March 28, 1985.* 10(b) Bill of Sale and Assumption of Liabilities between CMEI, Inc. and Ridgewood Properties, Inc. dated December 9, 1985.* 10(c) Ridgewood Properties, Inc. Supplemental Retirement and Death Benefit Plan dated January 1, 1987 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1988 and incorporated herein by reference). 10(d) Post-Employment Consulting Agreement between N. R. Walden and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(e) Post-Employment Consulting Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(f) Post-Employment Consulting Agreement between Byron T. Cooper and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(g) Post-Employment Consulting Agreement between M. M. McCullough and Ridgewood Properties, Inc. dated September 4, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991 and incorporated herein by reference). 10(h) Ridgewood Properties, Inc. Stock Option Plan dated March 30, 1993 and as amended September 14, 1993 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(i) Stock Option Agreement between Byron T. Cooper and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(j) Stock Option Agreement between Luther A. Henderson and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(k) Stock Option Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(l) Stock Option Agreement between M. M. McCullough and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(m) Stock Option Agreement between N. R. Walden and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(n) Stock Option Agreement between Gregory T. Weigle and Ridgewood Properties, Inc. dated April 1, 1993 and as approved on January 12, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(o) Stock Option Agreement between Karen S. Hughes and Ridgewood Properties, Inc. dated January 31, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(p) Stock Option Agreement between N. R. Walden and Ridgewood Properties, Inc. dated January 31, 1994 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 10(q) Ridgewood Properties, Inc. 1993 Stock Option Plan, as amended on October 26, 1994 (filed as an Exhibit to Registrant's Registration Statement on Form S-8 filed on November 8, 1994 (No. 33-86084) and incorporated herein by reference). 10(r) Amended and Restated Basic Agreement between RW Hotel Investment Partners, L.P. and Ridgewood Hotels, Inc. dated August 14, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(s) Amended and Restated Limited Partnership Agreement of RW Hotel Partners, L.P. dated September 8, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(t) Management Agreement (Holiday Inn Hurstbourne) between RW Hotel Partners, L.P. and Ridgewood Properties, Inc. dated August 16, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(u) Mortgage, Assignment of Leases and Rents and Security Agreement Between Bloomfield Acceptance Company, L.L.C. and Ridgewood Orlando, Inc. dated June 30, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(v) Security Agreement between Ridgewood Orlando, Inc. and Bloomfield Acceptance Company, L.L.C. dated June 30, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(w) Mortgage Note between Bloomfield Acceptance Company and Ridgewood Orlando, Inc. dated June 30, 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995, and incorporated herein by reference). 10(x) Agreement and Plan of Merger between and among Ridgewood Properties, Inc., Ridgewood Acquisition Corp., Wesley Hotel Group, Inc., Wayne McAteer and Samuel King dated December 7, 1995 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended November 30, 1995, and incorporated herein by reference). 10(y) Shareholders' Agreement by and between Samuel King and Ridgewood Properties, Inc. dated December 1995 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference). 10(z) Warrants to Purchase Shares of Common Stock of Ridgewood Properties, Inc. issued to Hugh Jones on December 16, 1996 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended November 30, 1996, and incorporated herein by reference). 10(aa) Promissory Note between N. Russell Walden and Ridgewood Properties, Inc. dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997 and incorporated herein by reference). 10(bb) Promissory Note between Karen S. Hughes and Ridgewood Properties, Inc. dated January 31, 1997 (filed as an Exhibit to Registrant's Form 8-K on February 5, 1997 and incorporated herein by reference). 10(cc) Operating Agreement between Houston Hotel, LLC and Ridgewood Hotels, Inc. effective December 9, 1997 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended May 31, 1998). 10(dd) Operating Agreement between RW Hurstbourne Hotel, Inc. and RW Louisville Hotel Investors, LLC effective May 13, 1998 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended May 31, 1998). 10(ee) Operating Agreement between Ridgewood Hotels, Inc. and Louisville Hotel, L.P. effective June 5, 1998 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended May 31, 1998). 10(ff) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and N. Russell Walden dated August 13, 1998. 10(gg) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and Byron T. Cooper dated August 18, 1998. 10(hh) Amendment No. 1 to Post-Employment Consulting Agreement between Ridgewood Hotels, Inc. and Karen S. Hughes dated August 13, 1998. 10(ii) First Amendment to Operating Agreement of Louisville, LLC dated September 30, 1999. 10(jj) Secured Promissory Note in the amount of $1,333,000 by Ridgewood Hotels, Inc. to Louisville Hotel, L.P. dated September 30, 1999. 10(kk) Secured Promissory Note (Arizona) in the amount of $300,000 by Ridgewood Hotels, Inc. to Louisville Hotel, L.P. dated September 30, 1999. 10(ll) Secured Promissory Note (Florida) in the amount of $300,000 by Ridgewood Hotels, Inc. to Louisville Hotel, L.P. dated September 30, 1999. 13 1999 Annual Report to Shareholders. 22 Subsidiaries of Registrant. 27 Financial Data Schedule. _______________ * Previously filed as an Exhibit to Registrant's Registration Statement on Form 10 filed on November 19, 1985 (Securities Exchange Act File No. 0-14019), and incorporated herein by reference. EX-10 2 EXHIBIT 10(ii) FIRST AMENDMENT TO THE OPERATING AGREEMENT OF LOUISVILLE HOTEL, LLC This First Amendment ("Amendment") to the Operating Agreement of Louisville Hotel, LLC (the "Agreement"), is entered into by and between Ridgewood Hotels, Inc., a Delaware corporation ("Ridgewood"), and Louisville Hotel, LP. a Delaware limited partnership ("Louisville"), effective as of September 30, 1999. Capitalized terms used in this Amendment are defined as set forth in the Agreement. WHEREAS pursuant to the Operating Agreement of Louisville Hotel, LLC, effective as of May 1998, Louisville was entitled to receive eighty percent (80%) of all Net Income From Operations as set forth in Section 4.1.1(d) of the Agreement and ninety percent (90%) of all Net Income From Sale or Exchange of the Optioned Property or the Hotel as set forth in Section 4.2.1(d) of the Agreement and was entitled to receive distributions of eighty percent (80%) of all Cash From Operations as set forth in Section 5.1.4 of the Agreement and ninety percent (90%) of all Cash From Sale or Refinancing as set forth in Section 5.2.4 of the Agreement. WHEREAS pursuant to that certain Membership Interest Purchase Agreement dated September 30, 1999 by and between Louisville as Seller and Ridgewood as Buyer (the "Purchase Agreement") Louisville is selling to Ridgewood sixty percent (60%) of its eighty percent (80%) of Cash From Operations to be received pursuant to Section 5.1.4 of the Agreement and the allocation of Net Income From Operations as set forth in Section 4.1.1(d) of the Agreement relating to such Distribution and seventy percent (70%) of its ninety percent (90%) of Cash From Sale or Refinancing as set forth in Section 5.2.4 of the Agreement and the allocation of Net Income From Sale or Exchange relating to such Distribution as set forth in Section 4.2.1(d) of the Agreement. WHEREAS Louisville will retain its capital interest in the Company plus its Preferred Return . WHEREAS the parties wish to reflect the sale of this interest by Louisville to Ridgewood and make other revisions to the Operating Agreement. NOW, THEREFORE, the parties hereby agree as follows: 1. Section 1.2 is deleted in its entirety and replaced with the following: 1.2 Name and Place of Business. The name of the Company shall be Louisville Hotel, LLC, and the its principal place of business shall be 2859 Paces Ferry Road, Suite 700, Atlanta, Georgia 30339. The Manager may change such name, change such place of business or establish additional places of business of the Company as the Manager may determine to be necessary or desirable. 2. Section 4.1 is deleted in its entirety and replaced with the following: 4.1 Allocation of Net Income and Net Loss. For each fiscal year, the Net Income and Net Loss of the Company shall be allocated as follows: 4.1.1 Net Income Allocations. After giving effect to the special allocations set forth in the Sections 4.3 and 4.4, Net Income for any fiscal year shall be allocated as follows: (a) First, to the Members, in proportion to and to the extent of the negative balances, if any, in the Members' respective Capital Accounts (as of the last day of such fiscal year); (b) Second, to each Member, pro rata in accordance with their then respective Percentage Interests, until the cumulative Net Income allocated to each Member pursuant to this clause (b) is equal to the cumulative Net Loss allocated to such Member pursuant to Section 4.1.2(g) and Section 4.2 (such Net Income to be allocated first with respect to Net Loss allocated pursuant to Section 4.2 and thereafter in reverse chronological order of the allocation of the Net Loss which has not been previously offset by an allocation under this Section 4.1.1(b)); (c) Third, to Ridgewood in an amount equal to the cumulative interest that has been paid on the Acquisition Loans up to and including the end of the fiscal year less the cumulative Net Income allocated to Ridgewood pursuant to this Section 4.1.1(c) for all prior fiscal years; (d) Fourth, to Louisville to the extent of the cumulative distributions of Preferred Return pursuant to Section 5.1.3 and 5.2.4 for all fiscal years less the cumulative Net Income allocated to Louisville Hotel, L.P., for all prior fiscal years pursuant to this Section 4.1.1(d) and Section 4.1.1(g); (e) Fifth, to Ridgewood, to the extent of the cumulative distributions of Preferred Return pursuant to Section 5.1.4 and 5.2.6 for all fiscal years less the cumulative Net Income allocated to Ridgewood, for all prior fiscal years pursuant to this Section 4.1.1(e) and Section 4.1.1(f); (f) Sixth, to Ridgewood, an amount equal to the original principal amount of the Acquisition Loans less the cumulative Net Income allocated to Ridgewood pursuant to this Section 4.1.1(f) for all prior fiscal years; (g) Seventh, to Louisville until it has been allocated an amount equal to its Preferred Return for all fiscal years less the sum of allocations pursuant to this Section 4.1.1(g) for all prior fiscal years plus allocations pursuant to Section 4.1.1(d) for the current and all prior fiscal years; (h) Eighth, to Ridgewood, until it has been allocated an amount equal to its Preferred Return for all fiscal years less the sum of allocations pursuant to this Section 4.1.1(h) for all prior fiscal years plus allocations pursuant to Section 4.1.1(e) for the current and all prior fiscal years; (i) Ninth, to Louisville, to the extent of the cumulative distributions to Louisville pursuant to Section 5.1.5 and 5.2.8 for all fiscal years less the cumulative Net Income allocated to Louisville, for all prior periods pursuant to this Section 4.1.1(i); (j) Thereafter, to Ridgewood For purposes of determining the amount of Net Income to be allocated pursuant to Section 4.1.1 for any fiscal year, the Capital Account of each Member shall be increased by such Member's share of "partnership minimum gain" as of the last day of such fiscal year, determined pursuant to Section 1.704-2(g)(1) of the Treasury Regulations, and by such Member's share of "partner nonrecourse debt minimum gain" as of the last day of such fiscal year, determined pursuant to Section 1.704-2(i)(5) of the Treasury Regulations. 4.1.2 Net Loss Allocations. After giving effect to the special allocations set forth in Section 4.3 and 4.4, Net Loss for any fiscal year shall be allocated as follows: (a) First, to the Members in proportion to and to the extent of Net Income allocated to the Members under Section 4.1.1(j) until the aggregate Net Loss allocated pursuant to this Section 4.1.2(a) for such fiscal year and all previous fiscal years equals the aggregate Net Income allocated to the Members pursuant to Section 4.1.1(j) for all previous fiscal years; (b) Second, to the Members in proportion to and to the extent of Net Income allocated to the Members under Section 4.1.1(i) until the aggregate Net Loss allocated pursuant to this Section 4.1.2(b) for such fiscal year and all previous fiscal years equals the aggregate Net Income allocated to the Members pursuant to Section 4.1.1(i) for all previous fiscal years; (c) Third, to the Members in proportion to and to the extent of Net Income allocated to the Members under Section 4.1.1(h) until the aggregate Net Loss allocated pursuant to this Section 4.1.2(c) for such fiscal year and all previous fiscal years equals the aggregate Net Income allocated to the Members pursuant to Section 4.1.1(h) for all previous fiscal years; (d) Fourth, to the Members in proportion to and to the extent of Net Income allocated to the Members under Section 4.1.1(g) until the aggregate Net Loss allocated pursuant to this Section 4.1.2(d) for such fiscal year and all previous fiscal years equals the aggregate Net Income allocated to the Members pursuant to Section 4.1.1(g) for all previous fiscal years; (e) Fifth, to the Members in proportion to and to the extent of Net Income allocated to the Members under Section 4.1.1(f) until the aggregate Net Loss allocated pursuant to this Section 4.1.2(e) for such fiscal year and all previous fiscal years equals the aggregate Net Income allocated to the Members pursuant to Section 4.1.1(f) for all previous fiscal years; (f) Sixth, to the Members in proportion to and to the extent of Net Income allocated to the Members under Section 4.1.1(e) until the aggregate Net Loss allocated pursuant to this Section 4.1.2(f) for such fiscal year and all previous fiscal years equals the aggregate Net Income allocated to the Members pursuant to Section 4.1.1(e) for all previous fiscal years; (g) Seventh, to the Members in proportion to and to the extent of Net Income allocated to the Members under Section 4.1.1(d) until the aggregate Net Loss allocated pursuant to this Section 4.1.2(g) for such fiscal year and all previous fiscal years equals the aggregate Net Income allocated to the Members pursuant to Section 4.1.1(d) for all previous fiscal years; (h) Eighth, to the Members in proportion to and to the extent of Net Income allocated to the Members under Section 4.1.1(c) until the aggregate Net Loss allocated pursuant to this Section 4.1.2(h) for such fiscal year and all previous fiscal years equals the aggregate Net Income allocated to the Members pursuant to Section 4.1.1(c) for all previous fiscal years; (i) Ninth, to the Members in proportion to and to the extent of Net Income allocated to the Members under Section 4.1.1(b) until the aggregate Net Loss allocated pursuant to this Section 4.1.2(i) for such fiscal year and all previous fiscal years equals the aggregate Net Income allocated to the Members pursuant to Section 4.1.1(b) for all previous fiscal years; and, (j) Thereafter, to the Members in proportion their respective Percentage Interests. 3. Section 4.2 is deleted in its entirety and replaced with the following: 4.2 Net Loss Limitation. Notwithstanding any provision of this Agreement to the contrary, except as otherwise specifically provided in this Section 4.2, in no event shall Net Loss be allocated to a Member if such allocation would result in such Member's having an Adjusted Capital Account Deficit at the end of any fiscal year. All Net Loss in excess of the limitation set forth in this Section 4.2 shall be allocated to any remaining Member without an Adjusted Capital Account Deficit, and if all Members have an Adjusted Capital Account Deficit, to the Members under Section 4.1.2(j). 4. Section 4.3(a) is deleted in its entirety and replaced with the following: Qualified Income Offset. Except as provided in Section 4.3(b), in the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.604-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit created by such adjustment, allocation or distribution as quickly as possible; provided, that an allocation pursuant to this Section 4.3(a) shall be made only if and only to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article 4 have been tentatively made as if this Section 4.3(a) were not in this Agreement. 5. Section 4.3(b) is deleted in its entirety. 6. Section 4.3(e) is deleted in its entirety and replaced with the following: Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or other period shall be allocated to the Members in proportion to their respective Percentage Interests. "Excess nonrecourse liabilities" of the Company within the meaning of Regulations Section 1.752-3(a)(3) shall be allocated among the Members in proportion to their respective Percentage Interests. 7. Section 4.8.1 is deleted in its entirety and replaced with the following: In the event of the assignment of an Interest, the Net Income and Net Loss shall be allocated as between the Owner and the assignee based on their respective ownership in accordance with Code Section 706, and the Regulations thereunder, using any convention permitted by law and selected by the Company and approved by the Owner and the assignee provided, however, unless otherwise agreed such allocations shall be made pursuant to an interim closing of the Company's books as of the Amendment Date. 8. Section 5.1 is deleted in its entirety and replaced with the following: 5.1 Cash From Operations. Except as otherwise provided in Section 12, Distributable Cash From Operations with respect to each fiscal year shall be distributed to the Members in the following order of priority: 5.1.1 First, to pay any Member Loans made pursuant to Section 3.5 in proportion to the outstanding interest and principal balances of such loans; 5.1.2 Second, to Ridgewood, in an amount equal to the cumulative interest paid on the Acquisition Loans less all prior distributions pursuant to this Section 5.1.2 and Section 5.2.2 for all prior fiscal years; 5.1.3 Third, to Louisville until it has received aggregate distributions pursuant to this Section 5.1.3 and Section 5.2.4 for the current and all prior fiscal years in amount equal to its Preferred Return; 5.1.4 Fourth, to Ridgewood until it has received aggregate distributions pursuant to this Section 5.1.4 and Section 5.2.5 for the current and all prior fiscal years in amount equal to its Preferred Return; 5.1.5 Thereafter, to the Members in proportion to their respective Percentage Interests. 9. Section 5.2 is deleted in its entirety and replaced with the following: 5.2 Cash From Sale or Refinancing. Cash From Sale or Refinancing shall be distributed to the Members in the following order of priority: 5.2.1 First, to pay any Member Loans made pursuant to Section 3.5 in proportion to the outstanding interest and principal balances of such loans; 5.2.2 Second, to Ridgewood, in an amount equal to the cumulative interest paid on the Acquisition Loans less all prior distributions pursuant to this Section 5.2.2 and Section 5.1.2 for the current and all prior fiscal years; 5.2.3 Third, to Ridgewood in an amount equal to the aggregate original principal amount of the Acquisition Loans less all prior distributions pursuant to this Section 5.2.3 for all prior fiscal years; 5.2.4 Fourth, to Louisville until it has received aggregate distributions pursuant to this Section 5.2.4 and Section 5.1.3 for the current and all prior fiscal years in amount equal to its Preferred Return; 5.2.5 Fifth, to the Louisville until its Net Capital Contribution is reduced to zero; 5.2.6 Sixth, to Ridgewood until it has received aggregate distributions pursuant to this Section 5.2.5 and Section 5.1.4 for the current and all prior fiscal years in amount equal to its Preferred Return; 5.2.7 Seventh, to Ridgewood until its Net Capital Contribution is reduced to zero; and 5.2.8 Thereafter, to the Members in proportion to their respective Percentage Interests; provided, however, (X) if the distribution occurs prior to the first anniversary of the Amendment Date then such amounts shall be distributed 10% to Louisville and 90% to Ridgewood; or (Y) if the distribution occurs following the first anniversary of the Amendment Date but before the second anniversary of the Amendment Date then such amounts shall be distributed 15% to Louisville and 85% to Ridgewood 10. The following is added as a new Section 5.3: 5.3 Special Provisions. Notwithstanding the provisions in Section 5.1.5 and Section 5.2.8 the amount distributed to Louisville, and the corresponding allocation in Section 4.1.1(i) shall be reduced by the amount of the asset management fee paid pursuant to Section 6.1.2 and such amount shall be paid to Ridgewood 11. Section 6.1.1 is deleted in its entirety and replaced with the following: 6.1.1 Ridgewood shall receive the fees set forth in the Property Management Agreement pursuant to the terms in the Property Management Agreement. Ridgewood hereby agrees that if for any reason there is any default under any of the Loan Documents as described in the Purchase Agreement (the "Loan Documents") then 50% of its fees under the Property Management Agreement will be automatically subordinated to all obligations of Ridgewood to Louisville under the Loan Documents and this Agreement and Ridgewood agrees to execute any and all reasonable documents as necessary to confirm this subordination. 12. The following is added as a new Section 6.1.2: 6.1.2 Louisville will receive an asset management fee equal to one half of one percent (1/2 of 1%) of the Gross Revenues of the Hotel and any other revenues generated by the Company, which shall be paid monthly. If Gross Revenues are not sufficient to pay this asset management fee, it shall accrue and be paid in the next period when such Gross Revenues are available. Ridgewood will be entitled to its full property management fee set forth in the Property Management Agreement prior to the payment of this asset management fee. 13. Section 7.2 is deleted in its entirety and replaced it with the following: 7.2 The Company shall have one Manager which shall be Ridgewood The Manager shall hold office until such Manager withdraws or resigns. Any other references to the Manager in the Agreement shall refer to Ridgewood 14. The following is added as a new Section 7.9: 7.9 Special Rule: The Manager agrees not to exercise the Option without providing at least 30 days prior written notice to Louisville. Further, the Manager shall not enter into or modify any agreement between the Company and Ridgewood or its Affiliates without the prior consent of Louisville. 15. Section 8.3 is deleted in its entirety and replaced with the following: 8.3 Member Vote; Consent of Manager. Matters upon which the Members may vote shall require a Majority Vote of the Members and the consent of the Manager (which may be withheld for any or no reason) to pass and become effective; provided, however, any amendment to this Agreement shall require the unanimous consent of the Members. 16. Section 13.1 entitled "Purchase or Sale Offer" is deleted in its entirety. 17. Section 14 is deleted in its entirety and replaced with the following: 14.1 Right to Purchase Louisville Membership Interest. In addition to all other rights as set forth in this Amendment, Ridgewood shall have the absolute right (the "Purchase Right"), at any time by providing written notice to Louisville, to purchase Louisville's membership interest and all rights of interest of Louisville under the Operating Agreement for an amount equal to the sum of the following (the "Purchase Right Price"): (1) Louisville's total Capital Contributions, (2) any accrued but unpaid Preferred Return on such Capital Contribution, and (3) the value of Louisville's remaining interest which is the amount which would have been distributed to Louisville had the Company sold the Property for its fair market value and distributed the net proceeds to Louisville pursuant to Section 5.2 as of the date of the Closing (the "Equity Appreciation Value"). The parties agree and acknowledge that the total amount of the Equity Appreciation Value will be determined through Ridgewood and Louisville requesting and equally sharing the cost of an appraisal of such amount from HVS International (the "Appraisal"). The Appraisal shall be jointly requested by the parties within ten (10) days after Louisville's receipt of the exercise notice from Ridgewood and the determination of the Equity Appreciation Value as set forth in the Appraisal shall be final and binding upon both parties. Notwithstanding anything to the contrary set forth above, Ridgewood shall not have the right to exercise the Purchase Right and to acquire the interests of Louisville hereunder except in connection with the concurrent payment in full to Louisville of all remaining amounts due under the Promissory Notes as described in the Purchase Agreement. In the event the Purchase Right is exercised hereunder, the closing shall occur as provided in Section 13.2 of the Operating Agreement. 14.2 Obligation to Purchase Louisville Membership Interest. As provided in Section 14.1 above, in connection with the execution of the Purchase Agreement, Ridgewood executed certain Promissory Notes in favor of Louisville in the total cumulative amount of One Million Nine Hundred Thirty Three Thousand Dollars ($1,933,000.00), bearing interest at thirteen percent (13%) per annum. The Promissory Notes indicate that they are fully due and payable on the first to occur of (i) September 30, 2002 and (ii) the closing of the acquisition of the Louisville membership interest by Ridgewood as provided in Section 14.1 above. In the event that on or before September 30, 2002 Ridgewood has not exercised the Purchase Right above and fully paid the Purchase Right Price pursuant to the provisions of Section 14.1, then Ridgewood shall be obligated to purchase Louisville's interest and to pay the full amount of the Purchase Right Price described in Section 14.1 above on September 30, 2002. In the event of a default by Ridgewood hereunder, the provisions of Section 14.3 below shall apply. 14.3 Default Under Section 14.2 or Under Loan Documents. Any default by Ridgewood under the Operating Agreement not cured within any cure period provided herein shall also constitute a default under the Promissory Notes. In the event that (i) Ridgewood fails to acquire the Louisville membership interest and pay the Purchase Right Price as required pursuant to Sections 14.1 and 14.2 above, or (ii) Ridgewood defaults under any of the Promissory Notes or the other Loan Documents as defined in the Purchase Agreement and fails to cure such default within any cure period set forth therein, or (iii) Ridgewood otherwise defaults under any of its obligations under the Operating Agreement where such default is not cured within the earlier of (a) twenty (20) days after written notice from Louisville or (b) on or before September 30, 2002, then Louisville shall have the right to pursue all rights and remedies based upon such default as provided in the Loan Documents or available pursuant to applicable law. 18. Section 19.5 is deleted and replaced with the following: 19.5 Managers Address. The name and address of the Manager is as follows: Ridgewood Hotels, Inc. 2859 Paces Ferry Road, Suite 700 Atlanta, Georgia 30339. Attn: Ms. Karen Hughes 19. Section 19.12 is deleted and replaced with the following: 19.12 Legal Counsel. Louisville acknowledges and agrees that counsel representing the Company, the Manager and their Affiliates does not represent and shall not be deemed under the applicable Codes of Professional Responsibility to have represented or to be representing Louisville or any of its Affiliates in any respect. In addition, Louisville consents to the Manager hiring counsel for the Company which is also counsel to the Manager. 20. The following definitions are either deleted and replaced (to the extent already defined) or insert, as the case may be, as follows: "Acquisition Loans" shall mean the aggregate obligations of Ridgewood pursuant to the promissory notes described in the Membership Interest Purchase Agreement between Louisville and Ridgewood dated as of the Amendment Date. The aggregate original principal amount of such obligations being $1,933,000.00. "Amendment Date" shall mean September 30, 1999. Capital Account", paragraph (ii)(d) shall read as follows: (d) the fair market value, as agreed to by the Manager and the Members pursuant to a Majority Vote, of any Property (reduced by any liabilities assumed by the Member in connection with the Distribution or to which the distributed Property is subject) distributed to such Member; provided that, upon liquidation and winding up of the Company, unsold Property will be valued for Distribution at its fair market value and the Capital Account of each Member before such Distribution shall be adjusted to reflect the allocation of gain or loss that would have been realized had the Company then sold the Property for its fair market value and distributed the proceeds pursuant to Section 5.2. Such fair market value shall not be less than the amount of any nonrecourse indebtedness that is secured by the Property. "Manager" shall mean Ridgewood The term Manager shall also refer to any successor or additional Manager who is admitted to the Company as the Manager. "Net Capital Contribution" of any Member shall be the excess, if any, of (a) the aggregate Capital Contributions of such Member less (b) the aggregate distributions to such Member pursuant to Section 5.2.6 or 5.2.7, as the case may be, of this Agreement; provided, however, with respect to Ridgewood, solely for purposes of this definition, its Capital Contributions shall be deemed to include additional contributions of $844,778. "Net Income and Net Loss From Operations" - deleted in its entirety. "Net Income and Net Loss From Sale or Exchange" - deleted in its entirety. "Percentage Interests" shall be twenty percent (20%) for Louisville and eighty percent (80%) for Ridgewood. "Stated Value" - deleted in its entirety. 21. As amended hereby, the Agreement shall continue in full force and effect. 22. The terms and provisions of this Amendment shall be binding upon and shall inure to the benefit of the successors and assigns of the respective Members. 20. This Amendment may be executed in several counterparts, and all so executed shall constitute one Agreement, binding on all of the parties hereto, notwithstanding that all of the parties are not signatory to the original or the same counterpart. IN WITNESS WHEREOF, this Amendment is effective as of the date first set forth above. RIDGEWOOD HOTELS, INC., a Delaware corporation By: Its: LOUISVILLE HOTEL, LP, a Delaware limited partnership By: Louisville Hotel Inc., a Delaware corporation By:___________________________________________ Its:________________________________________ EX-10 3 SECURED PROMISSORY NOTE $1,333,000.00 September 30, 1999 Scottsdale, Arizona FOR VALUE RECEIVED, RIDGEWOOD HOTELS, INC., A Delaware corporation ("Maker"), hereby promises to pay to LOUISVILLE HOTEL, L.P., a Delaware limited partnership ("Holder"), or order, at 6900 East 2nd Street, Scottsdale, Arizona, the principal amount of One Million Three Hundred Thirty Three Thousand Dollars ($1,333,000.00), with interest on such amount until paid, at the rate set forth below and payable as follows: 1. INTEREST RATE The amount of outstanding principal shall bear interest at the rate of 13% per annum. Interest shall commence on the princi-pal balance from and after October 1, 1999 and shall be calculated on the basis of a 365-day year. 2. TERM All unpaid principal, together with any and all accrued and unpaid interest, shall be due upon the earlier of (i) three (3) years after the date hereof which is September 30, 2002 or (ii) the acquisition of Holder's membership interest in Louisville Hotel, LLC (the "LLC") pursuant to the Operating Agreement of Louisville Hotel, LLC effective as of May 1998, as amended by that First Amendment to the Operating Agreement of Louisville Hotel, LLC dated as of September 30, 1999 (such Operating Agreement of Louisville Hotel, LLC as at any time amended, modified, revised or replaced, the "Operating Agreement") (the "Maturity Date"). 3. PAYMENT Interest only shall be payable in monthly installments due on the first (1st) day of each month beginning on November 1, 1999, and continuing to the Maturity Date, on which date the amount equal to the outstanding princi-pal balance, together with accrued and unpaid interest, shall be due and payable. Any payment hereunder shall be applied first to the payment of costs and charges of collection, if any, then to accrued in-terest, and the balance, if any, shall be then applied to reduc-tion of principal. Principal and interest are payable in lawful money of the United States of America. 4. LATE PAYMENT Maker agrees that if for any reason it fails to make any on the monthly payments required herein, including the amount due at the Maturity Date, within five (5) days after the due date, Holder shall be entitled to damages for the detriment caused thereby, the extent of which damages are extremely difficult and impractical to ascertain. Maker there-fore agrees that a sum equal to five percent (5%) of such delin-quent payment is a reasonable estimate of such damages and Maker agrees to pay such sum upon demand by Holder. Accept-ance of such late charge by the Holder shall in no event consti-tute a waiver of Maker's default with respect to such overdue amount nor pre-vent the Holder from exercising any of the other rights and remedies granted hereunder. 5. SECURITY AGREEMENT This Note is secured by (i) a Membership Interest Security Agreement, executed contemporaneously herewith by Maker in favor of Holder, which grants security interests in Maker's ownership interests in Louisville Hotel LLC, a Delaware limited liability company (the "Security Agreement") (ii) the Arizona Deed of Trust (as defined on Exhibit A) and (iii) the Florida Deed of Trust (as defined on Exhibit A). 6. DEFAULT/ACCELERATION If any one or more of the following events shall occur (hereinafter called an "Event of Default"), namely: (i) default shall be made in the payment of any installment here-under, when due; or (ii) default shall be made in the punc-tual payment of any other obligation of the Maker to the Holder under the Membership Interest Purchase Agreement dated concurrently herewith by and between Maker and Holder (the "Purchase Agreement") or otherwise when due; or (iii) there is any default or event of default under any of the loan documents as described on Exhibit "A" attached hereto and incorporated herein by this reference (as at any time amended, modified, renewed or replaced, the "Loan Documents") which is not cured within any applicable cure period; or (iv) Maker shall become insolvent, or shall be unable to pay its debts as they mature; or shall admit in writing its inability to pay its debts as they mature; or shall make an assignment for the benefit of its creditors; or shall file or commence or have filed or commenced against it any proceeding for any relief under any bankruptcy or insolvency law or any law or laws relat-ing to the relief of debtors, readjustment of indebtedness, reorganizations, compositions or extensions, or a receiver or trustee shall be appointed for the undersigned; or (v) an event of default shall exist under the Security Agreement which is not cured within any applicable cure period; or (vi) Maker shall fail to comply with any other provision of this Note; or (vi) any representation or warranty made herein or in the Security Agreement shall be false in any material respect; or (vii) there is any default or event of default under the Operating Agreement by Maker which is not cured within any applicable cure period, and with respect to each of the foregoing, in the case of any monetary obligation, the same shall not be paid within five (5) days of written notice of such failure by Holder to Maker, except that after two (2) such notices shall have been given by Holder under any Loan Document, no such further notices will be given by Holder and Maker shall be in default with respect to any monetary obligation if the same is not paid within five (5) days of when due, and in the case of any non-monetary obligation which is curable, the same shall not be cured within twenty (20) days of written notice of such failure by Holder to Maker (provided that if a cure period is provided in any other Loan Document or the Operating Agreement, such cure periods shall control with respect to defaults under such agreements, and the cure period provided herein shall not apply with respect thereto), THEN, upon the occurrence of any such Event of Default, or upon the expiration of the term of this Note, Holder at its election, and without presentment, demand, notice of any kind, all of which are ex-pressly waived by Maker, may declare the entire outstanding balance of principal and interest thereon immediately due and payable, together with all costs of collec-tion, including attorneys' fees, or may exercise upon or enforce its rights to its collateral, as may be set forth in the Security Agreement or otherwise. 7. NO WAIVER BY HOLDER The acceptance by Holder of any payment under this Note after the date such payment is due, or the failure to declare an Event of Default as herein provided, shall not constitute a waiver of any of the terms of this Note or the right to require the prompt payment when due of future or succeeding pay-ments or to declare an Event of Default for any failure to so pay or for any other default. The acceptance by Holder of a payment of a portion of any installment at any time that such installment is due in full shall not cure or excuse the default caused by the failure to pay such installment in full and shall not constitute a waiver of the right to require full payment when due of all future or succeed-ing installments. 8. ATTORNEYS' FEES AND COSTS In the event Holder takes any action to enforce any provision of this Note, either through legal proceedings or otherwise, Maker promises to immediately reimburse Holder for reasonable attorneys' fees and all other costs and expenses so incurred. Maker shall also reimburse Holder for all reasonable attorneys' fees and costs reason-ably incurred in the representation of Holder in any bankruptcy, insolvency, reorganization or other debtor-relief proceeding of or relating to Maker or any security for the obligations hereunder, or for any action to enforce any judgment rendered hereon or relating to enforcement hereof. 9. WAIVERS The Maker, endorsers, guarantors and sureties of this Note hereby waive diligence, demand, presentment, notice of non-payment, protest and notice of protest; expressly agree that this Note, or any payment hereunder, may be renewed, modified or extended from time to time and at any time; and consent to the acceptance or release of security for this Note or the release of any party or guaran-tor, all without in any way affecting their liability and waive the right to plead any and all statutes of limitations as a de-fense to any demand on this Note, or on any guaranty thereof, or to any agree-ment to pay the same to the full extent permissible by law. 10. MAXIMUM INTEREST In no event whatsoever shall the amount paid, or agreed to be paid, to Holder for the use, forbearance or deten-tion of money to be loaned hereunder or otherwise, for the per-formance or payment of any covenant or obligation contained herein, exceed the maxi-mum amount permissible under applicable law. If from any circum-stance whatsoever fulfillment of any provision hereof exceeds the limit of validity prescribed by law, then, ipso facto, the obli-gation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstance Holder shall ever receive as interest under this Note or other-wise an amount that would exceed the highest lawful rate, such amount that would be excessive interest shall be applied to the reduction of the prin-cipal amount owing hereunder and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of prin-cipal, such excess shall be refunded to Maker. 11. PREPAYMENT Maker may prepay this Note in full or in part at any time without prepayment charge. No partial prepayment shall release Maker from thereafter tendering all regular scheduled monthly payments required herein until the Note is paid in full. 12. NOTICES Any notice which a party is required or may desire to give the other shall be in writing and may be sent by personal delivery or by mail (either (i) by United States registered or certified mail, return receipt requested, postage prepaid, or (ii) by Federal Express or similar generally recognized overnight carrier regularly providing proof of delivery), addressed as follows (subject to the right of a party to designate a different address for itself by notice similarly given): To Maker: 2859 Paces Ferry Road, Suite 700 Atlanta, Georgia 30339 Attention: Mr. N. Russell Walden Ms. Karen Hughes Telecopier: (770) 433-8935 Telephone: (770) 434-3670 To Holder: Louisville Hotel, L.P. 6900 East 2nd Street Scottsdale, Arizona 85251 Attention: Mr. Timothy Wright Telecopier: (602) 874-0678 Telephone: (602) 874-0706 Any notice so given by mail shall be deemed to have been given as of delivery (whether accepted or refused) established by U.S. Post Office return receipt or the overnight carrier's proof of delivery, as the case may be. Any such notice not so give shall be deemed given upon receipt of the same by the party to whom the same is to be given. 13. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS Maker is a corporation formed and incorporated under the laws of the State of Delaware. The principal place of business and chief executive office of Maker is located at the address for notice to such party as set forth herein. The registered agent of Maker and its address is: Ms. Karen Hughes 2859 Paces Ferry Road, Suite 700 Atlanta, Georgia 30339 Telecopier: (770) 433-8935 Telephone: (770) 434-3670 Maker shall, from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be reasonably necessary or desirable or that Holder may request, in order to effectuate the provisions of this Note. 14. MISCELLANEOUS The terms of this Note shall inure to the benefit of and bind the parties hereto and their successors and assigns. As used herein the term "Maker" shall include the undersigned Maker and any other person or entity who may subsequently become liable for the payment hereof. All obligations hereunder are joint and several and references to "Maker" shall refer to each and every one of them. The term of this Note shall inure to the benefit of and bind Maker and Holder and their successors and assigns. The term "Holder" shall include the named Holder as well as any other person or entity to whom this Note or any interest in this Note is conveyed, transferred or assigned. Each person signing this Note on behalf of Maker represents and warrants that he has full authority to do so and that this Note binds Maker. 15. TIME OF ESSENCE It is agreed that time is of the essence as to every term, condition and provision of this Note. 16. SEVERABILITY Every provision hereof is intended to be several and if any provision is determined by a court of competent jurisdiction to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not affect the other provisions hereof, which shall remain binding and enforceable. 17. MODIFICATION This Note may not be changed or modified orally, nor may any right or provision hereof be waived orally, but in each instance only by an instrument in writing signed by the party against which enforcement of such change, modification or waiver is sought. 18. REMEDIES CUMULATIVE Each and every right, remedy and power hereby granted to Holder or allowed it by law or other agreement shall be cumulative and not exclusive and may be exercised by Holder from time to time. 19. NONRECOURSE Notwithstanding any other provision of this Note or the Loan Documents, except as provided hereinbelow, Maker shall not be personally liable for the payment of the principal sum or any interest due or any other amount under this Note, and Holder agrees that in no event shall any monetary deficiency judgment for such amount be sought or secured against Maker for the payment of sums due hereunder. Notwithstanding the foregoing, however, nothing in this Note or other Loan Documents shall be deemed to limit the rights and remedies of Holder with respect to, or limit the liability of Maker for, any and all losses, costs, claims, demands, judgments, penalties, fines, liabilities, damages or expenses arising (directly or indirectly), by reason of the occurrence or existence of or relating to any of the following: (a) fraud or misrepresentation by Maker, (b) misappropriation or misapplication of any property securing the obligations under this Note, including, but not limited to rents, issues, profits or other revenues, and/or other revenues and/or monies, including security deposits, insurance proceeds and condemnation awards, including any failure to apply the same to amounts under the Note or (c) intentional waste with regard to any security for the obligations hereunder. 20. GOVERNING LAW This Note shall be governed by and construed under the laws of the State of Arizona. MAKER: RIDGEWOOD HOTELS, INC., a Delaware corporation By: Its: EXHIBIT "A" LIST OF LOAN DOCUMENTS [All Dated September 30, 1999] 21. Secured Promissory Note in the principal amount of $1,333,000.00 executed by Ridgewood Hotels, Inc. ("Ridgewood") as Maker in favor of Louisville Hotel L.P. ("Louisville") as Holder. 22. Membership Interest Security Agreement executed by Ridgewood as Debtor in favor of Louisville as Creditor. 23. Secured Promissory Note [Arizona] in the principal amount of $300,000.00 executed by Ridgewood as Maker in favor of Louisville as Holder. 24. Deed of Trust executed by Ridgewood as Trustor in favor of Louisville as Beneficiary encumbering certain real property located in Glendale, Arizona (the "Arizona Deed of Trust"). 25. Secured Promissory Note [Florida] in the principal amount of $300,000.00 executed by Ridgewood as Maker in favor of Louisville as Holder. 26. Mortgage, Assignment of Rents and Security Agreement executed by Ridgewood as Mortgagor in favor of Louisville as Mortgagee encumbering certain real property located in Orlando, Florida (the "Florida Deed of Trust"). EX-10 4 SECURED PROMISSORY NOTE [Arizona] $300,000.00 September 30, 1999 Scottsdale, Arizona FOR VALUE RECEIVED, RIDGEWOOD HOTELS, INC., A Delaware corporation ("Maker"), hereby promises to pay to LOUISVILLE HOTEL, L.P., a Delaware limited partnership ("Holder"), or order, at 6900 East 2nd Street, Scottsdale, Arizona, the principal amount of Three Hundred Thousand Dollars ($300,000.00), with interest on such amount until paid, at the rate set forth below and payable as follows: 1. INTEREST RATE The amount of outstanding principal shall bear interest at the rate of 13% per annum. Interest shall commence on the princi-pal balance from and after October 1, 1999 and shall be calculated on the basis of a 365-day year. 2. TERM All unpaid principal, together with any and all accrued and unpaid interest, shall be due upon the earlier of (i) three (3) years after the date hereof which is September 30, 2002 or (ii) the acquisition of Holder's membership interest in Louisville Hotel, LLC (the "LLC") pursuant to the Operating Agreement of Louisville Hotel, LLC effective as of May 1998, as amended by that First Amendment to the Operating Agreement of Louisville Hotel, LLC dated as of September 30, 1999 (such Operating Agreement of Louisville Hotel, LLC as at any time amended, modified, revised or replaced, the "Operating Agreement") (the "Maturity Date"). 3. PAYMENT Interest only shall be payable in monthly installments due on the first (1st) day of each month beginning on November 1, 1999, and continuing to the Maturity Date, on which date the amount equal to the outstanding princi-pal balance, together with accrued and unpaid interest, shall be due and payable. Any payment hereunder shall be applied first to the payment of costs and charges of collection, if any, then to accrued in-terest, and the balance, if any, shall be then applied to reduc-tion of principal. Principal and interest are payable in lawful money of the United States of America. 4. LATE PAYMENT Maker agrees that if for any reason it fails to make any on the monthly payments required herein, including the amount due at the Maturity Date, within five (5) days after the due date, Holder shall be entitled to damages for the detriment caused thereby, the extent of which damages are extremely difficult and impractical to ascertain. Maker there-fore agrees that a sum equal to five percent (5%) of such delin-quent payment is a reasonable estimate of such damages and Maker agrees to pay such sum upon demand by Holder. Accept-ance of such late charge by the Holder shall in no event consti-tute a waiver of Maker's default with respect to such overdue amount nor pre-vent the Holder from exercising any of the other rights and remedies granted hereunder. 5. SECURITY AGREEMENT This Note is secured by (i) a Membership Interest Security Agreement, executed contemporaneously herewith by Maker in favor of Holder, which grants security interests in Maker's ownership interests in Louisville Hotel LLC, a Delaware limited liability company (the "Security Agreement") (ii) the Arizona Deed of Trust (as defined on Exhibit A) and (iii) the Florida Deed of Trust (as defined on Exhibit A). 6. DEFAULT/ACCELERATION If any one or more of the following events shall occur (hereinafter called an "Event of Default"), namely: (i) default shall be made in the payment of any installment here-under, when due; or (ii) default shall be made in the punc-tual payment of any other obligation of the Maker to the Holder under the Membership Interest Purchase Agreement dated concurrently herewith by and between Maker and Holder (the "Purchase Agreement") or otherwise when due; or (iii) there is any default or event of default under any of the loan documents as described on Exhibit "A" attached hereto and incorporated herein by this reference (as at any time amended, modified, renewed or replaced, the "Loan Documents") which is not cured within any applicable cure period; or (iv) Maker shall become insolvent, or shall be unable to pay its debts as they mature; or shall admit in writing its inability to pay its debts as they mature; or shall make an assignment for the benefit of its creditors; or shall file or commence or have filed or commenced against it any proceeding for any relief under any bankruptcy or insolvency law or any law or laws relat-ing to the relief of debtors, readjustment of indebtedness, reorganizations, compositions or extensions, or a receiver or trustee shall be appointed for the undersigned; or (v) an event of default shall exist under the Security Agreement which is not cured within any applicable cure period; or (vi) Maker shall fail to comply with any other provision of this Note; or (vi) any representation or warranty made herein or in the Security Agreement shall be false in any material respect; or (vii) there is any default or event of default under the Operating Agreement by Maker which is not cured within any applicable cure period, and with respect to each of the foregoing, in the case of any monetary obligation, the same shall not be paid within five (5) days of written notice of such failure by Holder to Maker, except that after two (2) such notices shall have been given by Holder under any Loan Document, no such further notices will be given by Holder and Maker shall be in default with respect to any monetary obligation if the same is not paid within five (5) days of when due, and in the case of any non-monetary obligation which is curable, the same shall not be cured within twenty (20) days of written notice of such failure by Holder to Maker (provided that if a cure period is provided in any other Loan Document or the Operating Agreement, such cure periods shall control with respect to defaults under such agreements, and the cure period provided herein shall not apply with respect thereto), THEN, upon the occurrence of any such Event of Default, or upon the expiration of the term of this Note, Holder at its election, and without presentment, demand, notice of any kind, all of which are ex-pressly waived by Maker, may declare the entire outstanding balance of principal and interest thereon immediately due and payable, together with all costs of collec-tion, including attorneys' fees, or may exercise upon or enforce its rights to its collateral, as may be set forth in the Security Agreement or otherwise. 7. NO WAIVER BY HOLDER The acceptance by Holder of any payment under this Note after the date such payment is due, or the failure to declare an Event of Default as herein provided, shall not constitute a waiver of any of the terms of this Note or the right to require the prompt payment when due of future or succeeding pay-ments or to declare an Event of Default for any failure to so pay or for any other default. The acceptance by Holder of a payment of a portion of any installment at any time that such installment is due in full shall not cure or excuse the default caused by the failure to pay such installment in full and shall not constitute a waiver of the right to require full payment when due of all future or succeed-ing installments. 8. ATTORNEYS' FEES AND COSTS In the event Holder takes any action to enforce any provision of this Note, either through legal proceedings or otherwise, Maker promises to immediately reimburse Holder for reasonable attorneys' fees and all other costs and expenses so incurred. Maker shall also reimburse Holder for all reasonable attorneys' fees and costs reason-ably incurred in the representation of Holder in any bankruptcy, insolvency, reorganization or other debtor-relief proceeding of or relating to Maker or any security for the obligations hereunder, or for any action to enforce any judgment rendered hereon or relating to enforcement hereof. 9. WAIVERS The Maker, endorsers, guarantors and sureties of this Note hereby waive diligence, demand, presentment, notice of non-payment, protest and notice of protest; expressly agree that this Note, or any payment hereunder, may be renewed, modified or extended from time to time and at any time; and consent to the acceptance or release of security for this Note or the release of any party or guaran-tor, all without in any way affecting their liability and waive the right to plead any and all statutes of limitations as a de-fense to any demand on this Note, or on any guaranty thereof, or to any agree-ment to pay the same to the full extent permissible by law. 10. MAXIMUM INTEREST In no event whatsoever shall the amount paid, or agreed to be paid, to Holder for the use, forbearance or deten-tion of money to be loaned hereunder or otherwise, for the per-formance or payment of any covenant or obligation contained herein, exceed the maxi-mum amount permissible under applicable law. If from any circum-stance whatsoever fulfillment of any provision hereof exceeds the limit of validity prescribed by law, then, ipso facto, the obli-gation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstance Holder shall ever receive as interest under this Note or other-wise an amount that would exceed the highest lawful rate, such amount that would be excessive interest shall be applied to the reduction of the prin-cipal amount owing hereunder and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of prin-cipal, such excess shall be refunded to Maker. 11. PREPAYMENT Maker may prepay this Note in full or in part at any time without prepayment charge. No partial prepayment shall release Maker from thereafter tendering all regular scheduled monthly payments required herein until the Note is paid in full. 12. NOTICES Any notice which a party is required or may desire to give the other shall be in writing and may be sent by personal delivery or by mail (either (i) by United States registered or certified mail, return receipt requested, postage prepaid, or (ii) by Federal Express or similar generally recognized overnight carrier regularly providing proof of delivery), addressed as follows (subject to the right of a party to designate a different address for itself by notice similarly given): To Maker: 2859 Paces Ferry Road, Suite 700 Atlanta, Georgia 30339 Attention: Mr. N. Russell Walden Ms. Karen Hughes Telecopier: (770) 433-8935 Telephone: (770) 434-3670 To Holder: Louisville Hotel, L.P. 6900 East 2nd Street Scottsdale, Arizona 85251 Attention: Mr. Timothy Wright Telecopier: (602) 874-0678 Telephone: (602) 874-0706 Any notice so given by mail shall be deemed to have been given as of delivery (whether accepted or refused) established by U.S. Post Office return receipt or the overnight carrier's proof of delivery, as the case may be. Any such notice not so give shall be deemed given upon receipt of the same by the party to whom the same is to be given. 13. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS Maker is a corporation formed and incorporated under the laws of the State of Delaware. The principal place of business and chief executive office of Maker is located at the address for notice to such party as set forth herein. The registered agent of Maker and its address is: Ms. Karen Hughes 2859 Paces Ferry Road, Suite 700 Atlanta, Georgia 30339 Telecopier: (770) 433-8935 Telephone: (770) 434-3670 Maker shall, from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be reasonably necessary or desirable or that Holder may request, in order to effectuate the provisions of this Note. 14. MISCELLANEOUS The terms of this Note shall inure to the benefit of and bind the parties hereto and their successors and assigns. As used herein the term "Maker" shall include the undersigned Maker and any other person or entity who may subsequently become liable for the payment hereof. All obligations hereunder are joint and several and references to "Maker" shall refer to each and every one of them. The term of this Note shall inure to the benefit of and bind Maker and Holder and their successors and assigns. The term "Holder" shall include the named Holder as well as any other person or entity to whom this Note or any interest in this Note is conveyed, transferred or assigned. Each person signing this Note on behalf of Maker represents and warrants that he has full authority to do so and that this Note binds Maker. 15. TIME OF ESSENCE It is agreed that time is of the essence as to every term, condition and provision of this Note. 16. SEVERABILITY Every provision hereof is intended to be several and if any provision is determined by a court of competent jurisdiction to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not affect the other provisions hereof, which shall remain binding and enforceable. 17. MODIFICATION This Note may not be changed or modified orally, nor may any right or provision hereof be waived orally, but in each instance only by an instrument in writing signed by the party against which enforcement of such change, modification or waiver is sought. 18. REMEDIES CUMULATIVE Each and every right, remedy and power hereby granted to Holder or allowed it by law or other agreement shall be cumulative and not exclusive and may be exercised by Holder from time to time. 19. NONRECOURSE Notwithstanding any other provision of this Note or the Loan Documents, except as provided hereinbelow, Maker shall not be personally liable for the payment of the principal sum or any interest due or any other amount under this Note, and Holder agrees that in no event shall any monetary deficiency judgment for such amount be sought or secured against Maker for the payment of sums due hereunder. Notwithstanding the foregoing, however, nothing in this Note or other Loan Documents shall be deemed to limit the rights and remedies of Holder with respect to, or limit the liability of Maker for, any and all losses, costs, claims, demands, judgments, penalties, fines, liabilities, damages or expenses arising (directly or indirectly), by reason of the occurrence or existence of or relating to any of the following: (a) fraud or misrepresentation by Maker, (b) misappropriation or misapplication of any property securing the obligations under this Note, including, but not limited to rents, issues, profits or other revenues, and/or other revenues and/or monies, including security deposits, insurance proceeds and condemnation awards, including any failure to apply the same to amounts under the Note or (c) intentional waste with regard to any security for the obligations hereunder. 20. GOVERNING LAW This Note shall be governed by and construed under the laws of the State of Arizona. MAKER: RIDGEWOOD HOTELS, INC., a Delaware corporation By: Its: EXHIBIT "A" LIST OF LOAN DOCUMENTS [All Dated September 30, 1999] 21. Secured Promissory Note in the principal amount of $1,333,000.00 executed by Ridgewood Hotels, Inc. ("Ridgewood") as Maker in favor of Louisville Hotel L.P. ("Louisville") as Holder. 22. Membership Interest Security Agreement executed by Ridgewood as Debtor in favor of Louisville as Creditor. 23. Secured Promissory Note [Arizona] in the principal amount of $300,000.00 executed by Ridgewood as Maker in favor of Louisville as Holder. 24. Deed of Trust executed by Ridgewood as Trustor in favor of Louisville as Beneficiary encumbering certain real property located in Glendale, Arizona (the "Arizona Deed of Trust"). 25. Secured Promissory Note [Florida] in the principal amount of $300,000.00 executed by Ridgewood as Maker in favor of Louisville as Holder. 26. Mortgage, Assignment of Rents and Security Agreement executed by Ridgewood as Mortgagor in favor of Louisville as Mortgagee encumbering certain real property located in Orlando, Florida (the "Florida Deed of Trust"). EX-10 5 SECURED PROMISSORY NOTE [Florida] $300,000.00 September 30, 1999 Scottsdale, Arizona FOR VALUE RECEIVED, RIDGEWOOD HOTELS, INC., A Delaware corporation ("Maker"), hereby promises to pay to LOUISVILLE HOTEL, L.P., a Delaware limited partnership ("Holder"), or order, at 6900 East 2nd Street, Scottsdale, Arizona, the principal amount of Three Hundred Thousand Dollars ($300,000.00), with interest on such amount until paid, at the rate set forth below and payable as follows: 1. INTEREST RATE The amount of outstanding principal shall bear interest at the rate of 13% per annum. Interest shall commence on the princi-pal balance from and after October 1, 1999 and shall be calculated on the basis of a 365-day year. 2. TERM All unpaid principal, together with any and all accrued and unpaid interest, shall be due upon the earlier of (i) three (3) years after the date hereof which is September 30, 2002 or (ii) the acquisition of Holder's membership interest in Louisville Hotel, LLC (the "LLC") pursuant to the Operating Agreement of Louisville Hotel, LLC effective as of May 1998, as amended by that First Amendment to the Operating Agreement of Louisville Hotel, LLC dated as of September 30, 1999 (such Operating Agreement of Louisville Hotel, LLC as at any time amended, modified, revised or replaced, the "Operating Agreement") (the "Maturity Date"). 3. PAYMENT Interest only shall be payable in monthly installments due on the first (1st) day of each month beginning on November 1, 1999, and continuing to the Maturity Date, on which date the amount equal to the outstanding princi-pal balance, together with accrued and unpaid interest, shall be due and payable. Any payment hereunder shall be applied first to the payment of costs and charges of collection, if any, then to accrued in-terest, and the balance, if any, shall be then applied to reduc-tion of principal. Principal and interest are payable in lawful money of the United States of America. 4. LATE PAYMENT Maker agrees that if for any reason it fails to make any on the monthly payments required herein, including the amount due at the Maturity Date, within five (5) days after the due date, Holder shall be entitled to damages for the detriment caused thereby, the extent of which damages are extremely difficult and impractical to ascertain. Maker there-fore agrees that a sum equal to five percent (5%) of such delin-quent payment is a reasonable estimate of such damages and Maker agrees to pay such sum upon demand by Holder. Accept-ance of such late charge by the Holder shall in no event consti-tute a waiver of Maker's default with respect to such overdue amount nor pre-vent the Holder from exercising any of the other rights and remedies granted hereunder. 5. SECURITY AGREEMENT This Note is secured by (i) a Membership Interest Security Agreement, executed contemporaneously herewith by Maker in favor of Holder, which grants security interests in Maker's ownership interests in Louisville Hotel LLC, a Delaware limited liability company (the "Security Agreement") (ii) the Arizona Deed of Trust (as defined on Exhibit A) and (iii) the Florida Deed of Trust (as defined on Exhibit A). 6. DEFAULT/ACCELERATION If any one or more of the following events shall occur (hereinafter called an "Event of Default"), namely: (i) default shall be made in the payment of any installment here-under, when due; or (ii) default shall be made in the punc-tual payment of any other obligation of the Maker to the Holder under the Membership Interest Purchase Agreement dated concurrently herewith by and between Maker and Holder (the "Purchase Agreement") or otherwise when due; or (iii) there is any default or event of default under any of the loan documents as described on Exhibit "A" attached hereto and incorporated herein by this reference (as at any time amended, modified, renewed or replaced, the "Loan Documents") which is not cured within any applicable cure period; or (iv) Maker shall become insolvent, or shall be unable to pay its debts as they mature; or shall admit in writing its inability to pay its debts as they mature; or shall make an assignment for the benefit of its creditors; or shall file or commence or have filed or commenced against it any proceeding for any relief under any bankruptcy or insolvency law or any law or laws relat-ing to the relief of debtors, readjustment of indebtedness, reorganizations, compositions or extensions, or a receiver or trustee shall be appointed for the undersigned; or (v) an event of default shall exist under the Security Agreement which is not cured within any applicable cure period; or (vi) Maker shall fail to comply with any other provision of this Note; or (vi) any representation or warranty made herein or in the Security Agreement shall be false in any material respect; or (vii) there is any default or event of default under the Operating Agreement by Maker which is not cured within any applicable cure period, and with respect to each of the foregoing, in the case of any monetary obligation, the same shall not be paid within five (5) days of written notice of such failure by Holder to Maker, except that after two (2) such notices shall have been given by Holder under any Loan Document, no such further notices will be given by Holder and Maker shall be in default with respect to any monetary obligation if the same is not paid within five (5) days of when due, and in the case of any non-monetary obligation which is curable, the same shall not be cured within twenty (20) days of written notice of such failure by Holder to Maker (provided that if a cure period is provided in any other Loan Document or the Operating Agreement, such cure periods shall control with respect to defaults under such agreements, and the cure period provided herein shall not apply with respect thereto), THEN, upon the occurrence of any such Event of Default, or upon the expiration of the term of this Note, Holder at its election, and without presentment, demand, notice of any kind, all of which are ex-pressly waived by Maker, may declare the entire outstanding balance of principal and interest thereon immediately due and payable, together with all costs of collec-tion, including attorneys' fees, or may exercise upon or enforce its rights to its collateral, as may be set forth in the Security Agreement or otherwise. 7. NO WAIVER BY HOLDER The acceptance by Holder of any payment under this Note after the date such payment is due, or the failure to declare an Event of Default as herein provided, shall not constitute a waiver of any of the terms of this Note or the right to require the prompt payment when due of future or succeeding pay-ments or to declare an Event of Default for any failure to so pay or for any other default. The acceptance by Holder of a payment of a portion of any installment at any time that such installment is due in full shall not cure or excuse the default caused by the failure to pay such installment in full and shall not constitute a waiver of the right to require full payment when due of all future or succeed-ing installments. 8. ATTORNEYS' FEES AND COSTS In the event Holder takes any action to enforce any provision of this Note, either through legal proceedings or otherwise, Maker promises to immediately reimburse Holder for reasonable attorneys' fees and all other costs and expenses so incurred. Maker shall also reimburse Holder for all reasonable attorneys' fees and costs reason-ably incurred in the representation of Holder in any bankruptcy, insolvency, reorganization or other debtor-relief proceeding of or relating to Maker or any security for the obligations hereunder, or for any action to enforce any judgment rendered hereon or relating to enforcement hereof. 9. WAIVERS The Maker, endorsers, guarantors and sureties of this Note hereby waive diligence, demand, presentment, notice of non-payment, protest and notice of protest; expressly agree that this Note, or any payment hereunder, may be renewed, modified or extended from time to time and at any time; and consent to the acceptance or release of security for this Note or the release of any party or guaran-tor, all without in any way affecting their liability and waive the right to plead any and all statutes of limitations as a de-fense to any demand on this Note, or on any guaranty thereof, or to any agree-ment to pay the same to the full extent permissible by law. 10. MAXIMUM INTEREST In no event whatsoever shall the amount paid, or agreed to be paid, to Holder for the use, forbearance or deten-tion of money to be loaned hereunder or otherwise, for the per-formance or payment of any covenant or obligation contained herein, exceed the maxi-mum amount permissible under applicable law. If from any circum-stance whatsoever fulfillment of any provision hereof exceeds the limit of validity prescribed by law, then, ipso facto, the obli-gation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstance Holder shall ever receive as interest under this Note or other-wise an amount that would exceed the highest lawful rate, such amount that would be excessive interest shall be applied to the reduction of the prin-cipal amount owing hereunder and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of prin-cipal, such excess shall be refunded to Maker. 11. PREPAYMENT Maker may prepay this Note in full or in part at any time without prepayment charge. No partial prepayment shall release Maker from thereafter tendering all regular scheduled monthly payments required herein until the Note is paid in full. 12. NOTICES Any notice which a party is required or may desire to give the other shall be in writing and may be sent by personal delivery or by mail (either (i) by United States registered or certified mail, return receipt requested, postage prepaid, or (ii) by Federal Express or similar generally recognized overnight carrier regularly providing proof of delivery), addressed as follows (subject to the right of a party to designate a different address for itself by notice similarly given): To Maker: 2859 Paces Ferry Road, Suite 700 Atlanta, Georgia 30339 Attention: Mr. N. Russell Walden Ms. Karen Hughes Telecopier: (770) 433-8935 Telephone: (770) 434-3670 To Holder: Louisville Hotel, L.P. 6900 East 2nd Street Scottsdale, Arizona 85251 Attention: Mr. Timothy Wright Telecopier: (602) 874-0678 Telephone: (602) 874-0706 Any notice so given by mail shall be deemed to have been given as of delivery (whether accepted or refused) established by U.S. Post Office return receipt or the overnight carrier's proof of delivery, as the case may be. Any such notice not so give shall be deemed given upon receipt of the same by the party to whom the same is to be given. 13. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS Maker is a corporation formed and incorporated under the laws of the State of Delaware. The principal place of business and chief executive office of Maker is located at the address for notice to such party as set forth herein. The registered agent of Maker and its address is: Ms. Karen Hughes 2859 Paces Ferry Road, Suite 700 Atlanta, Georgia 30339 Telecopier: (770) 433-8935 Telephone: (770) 434-3670 Maker shall, from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be reasonably necessary or desirable or that Holder may request, in order to effectuate the provisions of this Note. 14. MISCELLANEOUS The terms of this Note shall inure to the benefit of and bind the parties hereto and their successors and assigns. As used herein the term "Maker" shall include the undersigned Maker and any other person or entity who may subsequently become liable for the payment hereof. All obligations hereunder are joint and several and references to "Maker" shall refer to each and every one of them. The term of this Note shall inure to the benefit of and bind Maker and Holder and their successors and assigns. The term "Holder" shall include the named Holder as well as any other person or entity to whom this Note or any interest in this Note is conveyed, transferred or assigned. Each person signing this Note on behalf of Maker represents and warrants that he has full authority to do so and that this Note binds Maker. 15. TIME OF ESSENCE It is agreed that time is of the essence as to every term, condition and provision of this Note. 16. SEVERABILITY Every provision hereof is intended to be several and if any provision is determined by a court of competent jurisdiction to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not affect the other provisions hereof, which shall remain binding and enforceable. 17. MODIFICATION This Note may not be changed or modified orally, nor may any right or provision hereof be waived orally, but in each instance only by an instrument in writing signed by the party against which enforcement of such change, modification or waiver is sought. 18. REMEDIES CUMULATIVE Each and every right, remedy and power hereby granted to Holder or allowed it by law or other agreement shall be cumulative and not exclusive and may be exercised by Holder from time to time. 19. NONRECOURSE Notwithstanding any other provision of this Note or the Loan Documents, except as provided hereinbelow, Maker shall not be personally liable for the payment of the principal sum or any interest due or any other amount under this Note, and Holder agrees that in no event shall any monetary deficiency judgment for such amount be sought or secured against Maker for the payment of sums due hereunder. Notwithstanding the foregoing, however, nothing in this Note or other Loan Documents shall be deemed to limit the rights and remedies of Holder with respect to, or limit the liability of Maker for, any and all losses, costs, claims, demands, judgments, penalties, fines, liabilities, damages or expenses arising (directly or indirectly), by reason of the occurrence or existence of or relating to any of the following: (a) fraud or misrepresentation by Maker, (b) misappropriation or misapplication of any property securing the obligations under this Note, including, but not limited to rents, issues, profits or other revenues, and/or other revenues and/or monies, including security deposits, insurance proceeds and condemnation awards, including any failure to apply the same to amounts under the Note or (c) intentional waste with regard to any security for the obligations hereunder. 20. GOVERNING LAW This Note shall be governed by and construed under the laws of the State of Arizona. MAKER: RIDGEWOOD HOTELS, INC., a Delaware corporation By: Its: EXHIBIT "A" LIST OF LOAN DOCUMENTS [All Dated September 30, 1999] 21. Secured Promissory Note in the principal amount of $1,333,000.00 executed by Ridgewood Hotels, Inc. ("Ridgewood") as Maker in favor of Louisville Hotel L.P. ("Louisville") as Holder. 22. Membership Interest Security Agreement executed by Ridgewood as Debtor in favor of Louisville as Creditor. 23. Secured Promissory Note [Arizona] in the principal amount of $300,000.00 executed by Ridgewood as Maker in favor of Louisville as Holder. 24. Deed of Trust executed by Ridgewood as Trustor in favor of Louisville as Beneficiary encumbering certain real property located in Glendale, Arizona (the "Arizona Deed of Trust"). 25. Secured Promissory Note [Florida] in the principal amount of $300,000.00 executed by Ridgewood as Maker in favor of Louisville as Holder. 26. Mortgage, Assignment of Rents and Security Agreement executed by Ridgewood as Mortgagor in favor of Louisville as Mortgagee encumbering certain real property located in Orlando, Florida (the "Florida Deed of Trust"). EX-13 6 EXHIBIT 13 RIDGEWOOD HOTELS, INC. ANNUAL REPORT 1999 FINANCIAL STATEMENTS Ridgewood Hotels, Inc. (the "Company") is primarily engaged in the business of acquiring, developing, operating and managing hotel properties in the Southeast and "Sunbelt" areas. Additionally, the Company owns several land parcels which are held for sale. Board of Directors Officers Michael M. Earley N. Russell Walden President - Triton Group President Management Luther A. Henderson Byron T. Cooper President - Pirvest, Inc. Vice President, Construction and Planning N. Russell Walden President - Ridgewood Karen S. Hughes Hotels, Inc. Vice President, Chief Financial Officer and Secretary Corporate Offices 2859 Paces Ferry Road, Suite 700 Atlanta, Georgia 30339 Telephone: (770) 434-3670 Market For Registrant's Common Equity and Related Stockholder Matters The common stock, $0.01 par value per share (the "Common Stock"), of the Company is listed in the National Association of Securities Dealers (NASDAQ) over-the-counter bulletin board service. However, there effectively has been an absence of an established public trading market for the Common Stock. Shares outstanding and per share amounts for all periods presented have been retroactively adjusted for a three-for-one stock split effected in the form of a stock dividend on October 31, 1994. On October 31, 1999, there were 1,513,480 shares of Common Stock outstanding held by approximately 206 shareholders of record. The Company paid its first and only cash dividend on the Common Stock during fiscal year 1990. The dividend paid was approximately $0.06 per share of Common Stock, which totaled approximately $397,000. The Company may pay future dividends if and when earnings and cash are available. The declaration of dividends on the Common Stock is within the discretion of the Board of Directors of the Company and is, therefore, subject to many considerations, including operating results, business and capital requirements and other factors. Selected Financial Data
----------------------------------------------------------------- ($000's omitted, except per share data) 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------- Balance Sheet Data as of August 31 Total Assets $ 5,910 $ 7,280 $ 8,266 $ 8,724 $ 9,673 Term Loan(s) Payable 2,682 2,744 2,804 2,858 2,796 Shareholders' Investment 1,556 2,944 4,038 4,441 5,612 Income Statement Data Year Ended August 31 Net Revenues 4,547 5,830 8,209 4,314 8,675 Net Loss (1,283) (622) (463) (1,178) (1,656) Basic and Diluted Loss Per Common Share (1) $ (1.09) $ (0.64) $ (0.58) $ (1.29) $ (1.90) (1) Retroactively adjusted for a three-for-one stock split effected in the form of a stock dividend on October 31, 1994.
Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources - During fiscal year 1999, the Company received net proceeds of approximately $423,000 from the sale of undeveloped land in Texas, Ohio and Georgia. The proceeds were used to provide additional working capital to the Company. In June 1995, the Company received a loan from a commercial lender to refinance the Ramada Inn in Longwood, Florida. The loan proceeds were $2,800,000. The loan is for a term of 20 years with an amortization period of 25 years, and an interest rate of 10.35%. Principal and interest payments were approximately $26,000 per month beginning August 1, 1995. A portion of the proceeds from the loan was used to repay a term loan, and the remaining proceeds of approximately $1,500,000 were used for working capital. In addition, the Company is required to make a repair escrow payment comprised of 4% of estimated revenues, as well as real estate tax and insurance escrow payments. The total amount for these items amount to a payment of approximately $22,000 per month and are adjusted annually. The escrow funds are used as tax, insurance and repair needs arise. As of August 31, 1999, there was approximately $249,000 of escrowed funds related to this loan agreement. In June 1999, the Company entered into a contract for the sale of its hotel and land in Longwood, Florida for approximately $6,100,000. In November 1999, the contract was amended to include only the sale of the hotel for $5,000,000. The Company would recognize net profit on the sale of approximately $3,500,000. There are numerous contingencies which allow the seller to cancel the contract. Closing would occur approximately 75 days from the amendment date. The Company has invested in three hotel entities as follows: RW Hotel Partners, L.P. On August 16, 1995, RW Hotel Partners, L.P. was organized as a limited partnership (the "Partnership") under the laws of the State of Delaware. Concurrently, the Company formed Ridgewood Georgia, Inc., a Georgia corporation ("Ridgewood Georgia") which became the sole general partner in the Partnership with RW Hotel Investments Associates, LLC ("Investor") as the limited partner. Ridgewood Georgia has a 1% base distribution percentage versus 99% for the Investor. However, distribution percentages do vary depending on certain defined preferences and priorities pursuant to the Partnership Agreement ("Agreement") which are discussed below. The partnership was originally formed to acquire a hotel property in Louisville, Kentucky, but subsequently purchased five additional hotels. The Partnership purchased the hotel in Louisville, Kentucky for approximately $16,000,000. In December 1995 and January 1996, the Partnership purchased four hotel properties in Georgia for approximately $15,000,000 and a hotel in South Carolina for $4,000,000, respectively. Three of the Georgia hotels were sold at a loss in March 1998, and the hotel in Louisville was transferred to a new entity in June 1998 in conjunction with refinancing that hotel (see below). The hotel in Orangeburg, South Carolina was sold for a loss in November 1998. The remaining hotel in the Partnership is in Thomasville, Georgia. See Subsequent Events in Notes to Consolidated Financial Statements. Income and loss are allocated to Ridgewood Georgia and the limited partner based upon the formula for allocating Distributable Cash as described below. Distributable Cash is defined as the net income from the property before depreciation plus any net sale proceeds and net financing proceeds less capital costs. Distributions of Distributable Cash shall be made as follows: - First, to the Investor until there has been distributed to the Investor an amount equal to a 15% cumulative internal rate of return on the Investor's investment. - Second, to Ridgewood Georgia until the aggregate amount received by Ridgewood Georgia equals the aggregate cash contributions made by Ridgewood Georgia to the Partnership. - Third, 12% to Ridgewood Georgia and 88% to the Investor until there has been distributed to the Investor an amount equal to a 25% cumulative internal rate of return on Investor's investment. - Fourth, 75% of the residual to the Investor and 25% to Ridgewood Georgia. Management of the Partnership intends to adopt a plan of liquidation and will sell the remaining two hotels. Based on management's estimate, Ridgewood Georgia will not receive cash in excess of its investment in the Partnership. See Subsequent Events in Notes to Consolidated Financial Statements. A Management Agreement exists between the Partnership and the Company as Manager ("Manager") for the purpose of managing the hotels. The Manager shall be entitled to the following property management fees: (1) 2.5% of the gross revenues from the hotel property. (2) 1% of the gross revenues from the hotel property as an incentive fee if distributable cash equals or exceeds 13.5% of total aggregate acquisition costs. Total management fees for the years ended August 31, 1999, 1998 and 1997 were approximately $68,000, $233,000 and $301,000, respectively. On March 17, 1998, the Partnership sold three of its six hotels. The Company signed a management agreement with the new owner of the three hotels wherein it will receive a management fee equal to 3% of revenues plus 15% of the net operating income plus 5% of any profit realized upon the sale of the hotels. In connection with the management agreement, the Company received management fees totaling approximately $191,000 and $114,000 for the years ended August 31, 1999 and 1998, respectively. Houston Hotel, LLC On December 9, 1997, Houston Hotel, LLC ("Houston Hotel") was organized as a limited liability company under the laws of the State of Delaware. The purpose which Houston Hotel was organized is limited solely to owning and managing the Hampton Inn Galleria in Houston, Texas. The Company contributed approximately $316,000 into Houston Hotel which represents a 10% interest, and the other 90% interest is owned by Houston Hotel, Inc. (the "Manager"), a Nevada corporation. Income or loss allocated to the Company and the Managing Member is based upon the formula for distributing cash. Distributable cash is defined as the cash from operations and capital contributions determined by the Manager to be available for distribution. Cash from operations is defined as the net cash realized from the operations of Houston Hotel after payment of all cash expenditures of Houston Hotel including, but not limited to, operating expenses, fees, payments of principal and interest on indebtedness, capital improvements and replacements, and such reserves and retentions as the Manager reasonably determines to be necessary. Distributions of distributable cash shall be made as follows: - First, 100% to the Manager until it has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, 100% to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 80% to the Manager and 20% to the Company. A Property Management Agreement exists between Houston Hotel, LLC and the Company as Property Manager ("Property Manager") for the purpose of managing the hotel. The Property Manager shall be entitled to the following property management fees: (1) 1.5% of the gross revenues from the hotel property. (2) 1.5% of the gross revenues from the hotel property as an incentive fee if 85% of the budgeted net operating income is met. In connection with the management agreement, the Company received management fees totaling approximately $98,000 and $83,000 for the years ended August 31, 1999 and 1998, respectively. See Subsequent Events in the Notes to Consolidated Financial Statements. RW Louisville Hotel Associates, LLC On May 13, 1998, RW Louisville Hotel Associates LLC ("RW Louisville Hotel Associates") was organized as a limited liability company under the laws of the State of Delaware. The purpose which RW Louisville Hotel Associates was organized is limited solely to owning and managing the Holiday Inn ("the Hotel") in Louisville, Kentucky. The Company's investment in RW Hotel Partners, L.P. of $337,500 (see above) was transferred to RW Louisville Hotel Associates at its historical basis. Simultaneously, the Company invested $362,000 into Louisville Hotel, LLC. The combined equity of $699,500 represents a 10% interest in the Hotel. Louisville Hotel, LLC loaned $3,620,000 to the Hotel in return for all cash flows generated from the Hotel. Income or loss allocated to the Company is based upon the formula for distributing cash. Distributable cash is defined as the net cash realized from operations but after payment of management fees, principal and interest, capital improvements and other such retentions as the managing member determines to be necessary. Distributions of distributable cash from Louisville Hotel, LLC shall be made as follows: - First, to the managing member until the managing member has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 20% to the Company and 80% to the managing member. Cash from a sale or refinancing would be distributed 10% to the Company and 90% to the managing member. A Management Agreement exists between the Owner and the Company as Property Manager ("Property Manager") for the purpose of managing the hotel. The Property Manager shall be entitled to the following property management fees: (1) Base Management Fee equal to 1.5% of gross revenues from the hotel property. (2) Incentive Management Fee equal to 1.5% of gross revenues from the hotel in which the actual net operating income exceeds 85% of the budgeted goal for the year. (3) Super Incentive Management fee equal to: (a) .25% of gross revenues from the hotel in which the net operating income exceeds 106% of the budgeted goal for the year; (b) an additional .25% of gross revenues in which the net operating income exceeds 112% of the budgeted goal; and (c) an additional .50% of gross revenues in which the net operating income exceeds 120% of the budgeted goal. The Company paid an additional $200,000 to Louisville Hotel, LLC as a fee to acquire the management contract for the hotel. This amount is included in other assets. The Company is amortizing the fee $70,000 per year for the first two years and $20,000 per year for the next three years. With respect to the sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC with or without cause and not pursuant to a third party sale prior to June 5, 2000, Louisville Hotel, LLC will pay to the Company the sum of $4,166.67 times the number of months prior to June 5, 2000 that the management contract is terminated. With respect to the second sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC prior to June 5, 2003, Louisville Hotel, LLC will pay to the Company the sum of $1,666.67 times the number of months prior to June 5, 2003 that the management contract is terminated. In connection with the management agreement, the Company received management fees totaling approximately $285,000 and $57,000 for the years ended August 31, 1999 and 1998, respectively. See Subsequent Events in Notes to Consolidated Financial Statements. Since the Company is not currently generating sufficient operating cash to cover overhead and debt service, the Company must continue to sell its real estate assets, seek alternative financing or otherwise recapitalize the Company. There is currently approximately $200,000 of available cash. This available cash will be used to fund operating losses until new sources of income can be generated. The Company also intends to aggressively pursue the acquisition of hotel management contracts through entities similar to those described above which would provide additional cash flow. However, given increased competition in the hotel acquisition market, management contracts may be difficult to obtain. The Company owns one hotel, has 10% ownership interest in two other hotels and has a 1% ownership interest in another (see Subsequent Events in Notes to Consolidated Financial Statements). The Company also currently has fourteen other hotels which it manages but has no ownership interest. Under the terms of franchise agreements, the Company is required to comply with standards established by franchisors, including property renovations and upgrades. The success of the Company's operations continues to be dependent upon such unpredictable factors as the general and local economic conditions to which the real estate and hotel industry is particularly sensitive: labor, environmental issues, weather conditions, consumer spending or general business conditions and the availability of satisfactory financing. Results of Operations - Sales of real estate properties for the fiscal year ended August 31, 1999 decreased compared to 1998 due primarily to greater sales in Ohio and Florida during 1998. Sales of real estate properties for the fiscal year ended August 31, 1998 decreased compared to 1997 due primarily to the sale of the Company's undeveloped land in Maitland, Florida in 1997. The Company had gains from real estate sales of approximately $80,000, $744,000 and $1,354,000 during fiscal years 1999, 1998 and 1997, respectively. Gains or losses on real estate sales are dependent upon the timing, sales price and the Company's basis in specific assets sold and will vary considerably from period to period. Revenues from wholly-owned hotel operations for fiscal year 1999 decreased $331,000, or 11%, compared to 1998. Revenues from wholly-owned hotel operations for fiscal year 1998 decreased $14,000, or .5%, compared to 1997. The decreases were due to lower occupancy at the Company's hotel in Longwood, Florida in 1999 and 1998. Revenues from hotel management increased $137,000, or 13%, and $26,000, or 2%, compared to 1999 and 1998 compared to 1997, respectively. The increases were due to a larger number of hotels under management in both years. Due to the Company's investment in unconsolidated entities during fiscal years 1999, 1998 and 1997, the Company recognized equity in the income (loss) of the entities of approximately $156,000, $(98,000), and $65,000, respectively. A provision of $199,000 for possible losses on investments in unconsolidated entities in fiscal year 1997 was recorded as there is no indication that the Company will be able to recover the equity income in the partnership. In turn, the equity in net loss of the unconsolidated entities reported for 1997 was $134,000. The other revenue of $117,000 received during fiscal year 1998 was primarily from profits received on land joint ventures in Atlanta, Georgia and a worker's compensation insurance refund. The Company received approximately $398,000 as a consulting fee during fiscal year 1997. This consulting fee was earned by the Company for its involvement in the negotiations and purchase of a large hotel by another hotel company. Expenses of wholly-owned real estate increased $38,000, or 2%, for the fiscal year ended August 31, 1999 compared to 1998 due to increased expenses at the Company's hotel in Longwood, Florida. Expenses of wholly-owned real estate decreased $69,000, or 3%, for the fiscal year ended August 31, 1998 compared to 1997 due primarily to fewer land parcels (and their associated expenses) held by the Company. Depreciation and amortization expense increased by $199,000, or 77%, during fiscal year 1999 compared to 1998. The increase was due to greater amortization of the Company's hotel management agreements and the write-off of the remaining investment in the hotel management company. General, administrative and other expenses decreased $116,000, or 5%, for fiscal year 1999 compared to 1998. General, administrative and other expenses increased $101,000, or 5%, for fiscal year 1998 compared to 1997. Expenses in fiscal year 1998 were unusually high due to severance paid to the executive in charge of hotel operations. During fiscal years 1999, 1998 and 1997, while the Company was aggressively pursuing the business of acquiring, developing, operating and selling hotel properties throughout the country, the Company incurred business development costs of $148,000, $361,000 and $1,067,000, respectively. Approximately $878,000 of the business development expense in fiscal year 1997 related to costs on the unsuccessful purchase of a hotel in Atlanta, Georgia. Effect of Inflation - Inflation tends to increase the Company's cash flow from income producing properties since rental rates generally increase by a greater amount than associated expenses. Inflation also generally tends to increase the value of the Company's land portfolio. Offsetting these beneficial effects of inflation are the increased cost and decreased supply of investment capital for real estate that generally accompany inflation. Year 2000 - The Company has established policies and procedures to coordinate changes to computer systems and applications necessary to achieve a year 2000 date conversion with no effect on customers or disruption to business operations. These actions are necessary to ensure that the systems and applications will recognize and process the year 2000 and beyond. Major areas of potential business impact have been identified and conversion efforts have been completed or are underway. The Company's primary operating and financial systems are already Year 2000 compliant. The Company also is communicating with suppliers, vendors, financial institutions and others with which it does business to coordinate Year 2000 conversion. The total cost of compliance and its effect on the Company's future results of operations is being determined as part of the conversion planning, but is not expected to be material. RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AUGUST 31, 1999 AND 1998 ($000'S omitted, except per share data)
August 31, August 31, ASSETS: 1999 1998 ------ --------- --------- Current Assets: Cash and Cash Equivalents $ 471 $ 1,255 Receivables 241 240 Other Current Assets 394 438 ---------- ---------- Total Current Assets 1,106 1,933 Real Estate Investments: Real Estate Properties Operating Properties, net 1,172 1,248 Land Held for Sale, net 2,028 2,361 Investment in Unconsolidated Hotel Entities 1,016 832 ---------- ---------- Total real estate investments 4,216 4,441 Other Assets 588 906 ---------- ---------- $ 5,910 $ 7,280 ========== ========== (continued) The accompanying notes are an integral part of these consolidated financial statements.
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AUGUST 31, 1999 AND 1998 ($000's omitted, except per share data) LIABILITIES AND SHAREHOLDERS' INVESTMENT
August 31, August 31, 1999 1998 ---------- ---------- LIABILITIES: ----------- Current Liabilities: Current Maturities of Long-Term Debt $ 40 $ 53 Accounts Payable 246 260 Accrued Salaries, Bonuses and Other Compensation 84 107 Accrued Property Tax Expense 111 116 Accrued Interest and Other Liabilities 338 289 ---------- ---------- Total Current Liabilities 819 825 Accrued Pension Liability 893 820 Long-Term Debt 2,642 2,691 ---------- ---------- Total Liabilities 4,354 4,336 ---------- ---------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' INVESTMENT: Series A Convertible Cumulative Preferred Stock, $1 par value, 1,000,000 shares authorized, 450,000 shares issued and outstanding in 1999 and 1998 450 450 Common stock, $0.01 par value, 5,000,000 shares authorized, 1,513,480 shares issued and outstanding in 1999 and 1998 15 15 Paid-in Surplus 15,681 15,861 Note receivable from officer for purchase of common stock -- (75) Accumulated deficit since December 30, 1985 (14,590) (13,307) ---------- ---------- Total Shareholders' Investment 1,556 2,944 ---------- ---------- $ 5,910 $ 7,280 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 ($000's Omitted, except per share data)
1999 1998 1997 --------- ------- --------- REVENUES: Revenues from wholly-owned hotel operations........ $ 2,703 $ 3,034 $ 3,048 Revenues from hotel management .................... 1,213 1,076 1,050 Sales of real estate properties ................... 458 1,655 3,808 Equity in net income (loss) of unconsolidated entities ......................... 156 (98) (134) Interest income ................................... 15 46 40 Other.............................................. 2 117 397 ---------- - -------- ---------- $ 4,547 $ 5,830 $ 8,209 ---------- ---------- ---------- COSTS AND EXPENSES: Expenses of wholly-owned real estate properties ... $ 2,365 $ 2,327 $ 2,396 Costs of real estate sold ......................... 379 911 2,454 Depreciation and amortization ..................... 459 260 258 Interest expense .................................. 342 340 345 General, administrative and other.................. 2,137 2,253 2,152 Business development .............................. 148 361 1,067 ---------- ---------- ---------- $ 5,830 $ 6,452 $ 8,672 ---------- ---------- ---------- NET LOSS $ (1,283) $ (622) $ (463) OTHER COMPREHENSIVE INCOME (LOSS) -- -- -- ---------- ---------- ---------- COMPREHENSIVE LOSS (1,283) (622) (463) ---------- ---------- ---------- BASIC AND DILUTED LOSS PER COMMON SHARE $ (1.09) $ (0.64) $ (0.58) ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT FOR THE YEARS ENDED AUGUST 31, 1999, 1998 AND 1997 ($000's Omitted, except per share data) Note
Receivable Preferred Common From Stock Stock Officer for Total ---------------------- ------------------------ Paid-in Purchase of Accumulated Shareholders' Shares Amount Shares Amount Surplus Common Stock Deficit Investment ---------- ---------- ------------ ---------- ---------- ------------ ---------- ---------- Balance, August 31, 1996 450,000 $ 450 1,088,480 $ 11 $ 16,202 $ -- $ (12,222) $ 4,441 Dividends on Preferred Stock -- -- -- -- (315) -- -- (315) Issuance of Common Stock -- -- 450,000 4 446 (75) -- 375 Net Loss -- -- -- -- -- -- (463) (463) ----------- ----------- ------------- ----------- ----------- ------------- ----------- ----------- Balance, August 31, 1997 450,000 $ 450 1,538,480 $ 15 $ 16,333 $ (75) $ (12,685) $ 4,038 Repurchase of Common Stock -- -- (25,000) -- (112) -- -- (112) Dividends on Preferred Stock -- -- -- -- (360) -- -- (360) Net Loss -- -- -- -- -- -- (622) (622) ----------- ----------- ------------- ----------- ----------- ------------- ----------- ----------- Balance, August 31, 1998 450,000 $ 450 1,513,480 $ 15 $ 15,861 $ (75) $ (13,307) $ 2,944 Repayment of Note Receivable -- -- -- -- -- 75 -- 75 Dividends on Preferred Stock -- -- -- -- (180) (180) Net Loss -- -- -- -- -- -- (1,283) (1,283) ----------- ---------- ------------ ----------- ----------- ------------ ----------- ----------- Balance, August 31, 1999 450,000 $ 450 1,513,480 $ 15 $ 15,681 -- $ (14,590) $ 1,556 =========== =========== ============ =========== =========== ============= =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
Ridgewood Hotels, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended August 31, 1999, 1998 and 1997 ($000's Omitted)
1999 1998 1997 --------- --------- --------- Cash flows from operating activities: Net loss ................................................... $ (1,283) $ (622) $ (463) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization .......................... 459 260 258 Increase in allowance for possible losses on investment in unconsolidated entities ............. -- -- 199 Gain from sale of real estate properties ............... (79) (744) (1,354) Distributions from unconsolidated entities greater (less) than equity in net (loss) income ..................... -- 184 (14) (Increase) decrease in other assets .................... 32 185 (571) Increase (decrease) in accounts payable and accrued liabilities .............................. 80 168 (1) ---------- ---------- ---------- Total adjustments ...................................... 492 53 (1,483) ---------- ---------- ---------- Net cash used in operating activities .................. (791) (569) (1,946) ---------- ---------- ---------- Cash flows from investing activities: Principal payments received on mortgage loans ............ -- -- 3 Investment in unconsolidated entities .................... (184) (678) -- Proceeds from sale of real estate ........................ 423 1,526 3,313 Additions to real estate properties ...................... (65) (88) (78) ---------- ---------- ---------- Net cash provided by investing activities .............. 174 760 3,238 ---------- ---------- ---------- Cash flows from financing activities: Dividends on preferred stock ............................. (180) (360) (315) Issuance of common stock upon exercise of stock options .. -- -- 375 Repurchase of common stock ............................... -- (112) -- Repayments of debt ....................................... (62) (60) (54) Payment received on note receivable from stock issuance... 75 -- -- ---------- ---------- ---------- Net cash (used in) provided by financing activities .... (167) (532) 6 ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents ......... (784) (341) 1,298 Cash and cash equivalents at beginning of year ............... 1,255 1,596 298 ---------- ---------- ---------- Cash and cash equivalents at end of year ..................... $ 471 $ 1,255 $ 1,596 ========== ========== ========== (continued) The accompanying notes are an integral part of these consolidated financial statements.
Ridgewood Hotels, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended August 31, 1999, 1998 and 1997 - -------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information and non-cash activity: 1999 1998 1997 ------------ ------------ ---------- Interest paid ....................................... $ 342,000 $ 340,000 $ 345,000 Repurchase of 25,000 shares of common stock subject to a Put Agreement, at $4.50 per share ............ $ -- $ 112,500 $ -- Decrease in allowance for possible losses due to sale of parcel of land ......................... $ 128,000 $ 97,000 $ 1,156,000 During the second quarter of fiscal year 1997, the Company's President and Chief Financial Officer exercised their stock options for 450,000 shares of the Company's common stock. In conjunction with the exercise, a promissory note and cash were received by the Company and common stock issued as follows: Cash received from Company's President .......... $ -- $ -- $ 375,000 Promissory Note received from Chief Financial Officer upon exercise of stock options ...... $ -- $ -- $ 75,000 Issuance of 450,000 shares of common stock, $0.01 par value, in 1997 .................... $ -- $ -- $ 450,000 - ------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements.
Ridgewood Hotels, Inc. and Subsidiaries Notes to Consolidated Financial Statements August 31, 1999, 1998 and 1997 1. Description of Business and Significant Accounting Policies Description of the Business and Future Prospects Ridgewood Hotels, Inc. (the "Company") is primarily engaged in the business of acquiring, developing, operating and managing hotel properties in the Southeast and "Sunbelt" areas. Additionally, the Company owns several land parcels which are held for sale. The Company's common stock is listed in the National Association of Securities Dealers (NASDAQ) over-the-counter bulletin board service. During the fourth quarter of fiscal year 1994, the Company purchased and retired all of the shares of common stock owned by the Company's then-majority stockholder, Triton Group, Ltd. On April 15, 1997, Security Systems Holdings, Inc. merged with Triton Group Ltd., and the newly-combined entity was named Alarmguard Holdings, Inc. ("Alarmguard"). The cash used to purchase the common stock ("Alarmguard Shares") was from the proceeds received by the Company from the sale of its mobile home parks in June 1994. The Company has incurred losses from operations and experienced negative cash flow from operations for each of the past five years. In order to satisfy operating needs and other cash requirements, the Company has generated cash from the sale of its real estate assets and, to a lesser extent, debt financing. The Company believes that, barring unforeseen events, it has sufficient working capital ($287,000 at August 31, 1999) to cover its operating needs and debt service requirements through August 31, 2000. However, existing working capital as reduced by expected operating needs and debt service requirements is not sufficient to pay dividends on the Company's preferred stock. The Company has instituted several measures to generate additional cash. At August 31, 1999, the Company has binding contracts from potential purchasers covering certain of its real estate assets. Additionally, the Company continues to seek new contracts to manage hotel properties owned by third parties. However, there can be no assurance that the binding contracts will close or that the Company will be able to generate new hotel management contracts. In the event that unforeseen events arise during the year ending August 31, 2000, the Company will be required to sell additional real estate assets, seek alternative financing or otherwise recapitalize the Company. There can be no assurance that the Company will be able to generate cash from real estate sales or through additional debt or equity financing since such activities will be dependent upon future market conditions and other factors which presently cannot be foreseen. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Basis of Presentation and Consolidation - The consolidated financial statements of the Company include the accounts of all of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The investments in the unconsolidated entities are being accounted for using the equity method of accounting (See Note 8). Per Share Data - In fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share ("FAS 128"). Basic earnings per share is based on the weighted average effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income available to common stockholders, adjusted for the effect, if any, from assumed conversion of all potentially dilutive common shares outstanding, by the weighted average number of common shares used in the basic earning per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding. All historical earnings per share amounts have been restated to conform to provisions of this statement. Valuation of Real Estate Properties - In 1997, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("FAS 121"). This statement requires that long-lived assets and certain identified intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The statement requires the use of undiscounted estimated cash flows expected from the asset's operations and eventual disposition. If the sum of the expected future cash flows is less than the carrying value of the asset, an impairment loss is recognized based on the fair value of the asset. Under FAS 121, properties are classified as either operating properties or properties held for sale. If determined to be impaired, operating properties are written down to their fair value, and the associated loss cannot be recovered if the fair value of the property increases. Properties held for sale are written down to their fair value less cost to sell, but the associated loss can be recovered in the event the fair value of the property increases. Stock-Based Compensation - During 1997, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). This statement provides entities a choice between fair value and intrinsic value based methods of accounting for stock based compensation plans. The Company has elected to continue using the intrinsic value method. Depreciation and Amortization Policies - The Company depreciates operating properties and any related improvements by using the straight-line method over the estimated useful lives of such assets, which are generally 30 years for building and land improvements and 5 years for furniture, fixtures and equipment. Depreciation expense for the years ended August 31, 1999, 1998 and 1997 was approximately $180,000, $172,000 and $166,000, respectively. The Company amortizes certain intangible assets over the useful life of those assets. Amortization expense for the years ended August 31, 1999, 1998 and 1997 was approximately $279,000, $88,000 and $92,000, respectively. Capitalization Policies - Repairs and maintenance costs are expensed in the period incurred. Major improvements to existing properties which increase the usefulness or useful life of the property are capitalized. Sale of Real Estate - All revenue related to the sale of real estate is recognized at the time of closing. The Company allocates costs of real estate sold using the specific identification or relative sales value methods based on the nature of the development. Profit recognition is based upon the Company receiving adequate cash down payments and other criteria specified by existing accounting literature. Cash and Cash Equivalents - For the purpose of the Consolidated Statements of Cash Flows, cash includes cash equivalents. Cash equivalents include all highly liquid investments with maturities of three months or less. Fair Value of Financial Instruments - The recorded values of cash, accounts receivable, accounts payable and accrued liabilities reflected in the financial statements are representative of their fair value due to the short-term nature of the instruments. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Significant estimates included in the Company's financial statements include allowances for impairment of real estate assets and for deferred tax assets. Reclassifications - Certain prior year amounts have been reclassified to conform with the current year presentation. New Accounting Pronouncements - In fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). This statement requires enterprises to classify items of other comprehensive income by their nature in the financial statements and to display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity statement of the financial statements. Adoption of this pronouncement had no material effect on the consolidated statement of operations for the year ended August 31, 1999. In fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). This standard requires that enterprises report financial and descriptive information about its reportable operating segments. The Company currently has only one segment, real estate ownership and management, which is the basis for the consolidated information in the financial statements. 2. Real Estate Investments The Company's real estate properties by type at August 31, 1999, and 1998 were as follows ($000's omitted):
Furniture, August 31, 1998 Land & Fixtures & Type of Project Buildings Equipment Total Wholly-owned hotel $ 2,535 $ 392 $ 2,927 Less -- accumulated depreciation (1,679) ------- Net operating property 1,248 Land $ 5,808 -- 5,808 Less -- allowance for possible losses (3,447) ------- Net land 2,361 Investment in unconsolidated hotel entities 832 ------- Total net real estate investments $ 4,441 ======= Furniture August 31, 1999 Land & Fixtures & Type of Project Buildings Equipment Total Wholly-owned hotel $ 2,535 $ 418 $ 2,953 Less -- accumulated depreciation (1,781) ------- Net operating property 1,172 Land $ 5,347 -- 5,347 Less -- allowance for possible losses (3,319) ------- Net land 2,028 Investment in unconsolidated hotel entities 1,016 ------- Total net real estate investments $ 4,216 =======
Changes in the allowance for possible losses on real estate investments for the years ended August 31, 1999, 1998 and 1997 were as follows ($000's omitted):
1999 1998 1997 ---- ---- ---- Allowance, beginning of year $3,447 $3,544 $4,700 Reversal of reserves associated with sales of real estate assets (128) (97) (1,156) Allowance, end of year $3,319 $3,447 $3,544 ====== ====== ======
3. Commitments and Contingencies In August 1991, each executive officer was offered a two year Post-Employment Consulting Agreement (the "Consulting Agreement(s)") whereby the officer agrees that if he or she is terminated by the Company for other than good cause, the officer will be available for consulting at a rate equal to their annual compensation immediately prior to termination. All officers have chosen to enter into Consulting Agreements. In August 1998, an amendment was signed by the two executive officers reducing the consulting period by one month for each month that the executive continues to be employed by the Company through August 31, 1999, such that if the executive remains employed by the Company through August 31, 1999, the consulting period shall be twelve months in duration. In addition, two other employees were offered and have chosen to enter into one year Consulting Agreements. The executives and two other employees, upon termination, agree to sign an unconditional release of all claims and liability in exchange for a one year consulting fee arrangement. On May 2, 1995 a complaint was filed in the Court of Chancery of the State of Delaware (New Castle County) entitled William N. Strassburger v. Michael M. Early, Luther A. Henderson, John C. Stiska, N. Russell Walden, and Triton Group, Ltd., defendants, and Ridgewood Hotels, Inc., nominal defendant, C.A. No. 14267 (the "Complaint"). The plaintiff is an individual shareholder of the Company who purports to file the Complaint individually, representatively on behalf of all similarly situated shareholders, and derivatively on behalf of the Company. The Complaint challenges the actions of the Company and its directors in consummating the Company's August 1994 repurchase of its common stock held by Triton Group, Ltd. and Hesperus Partners Ltd. in five counts, denominated Waste of Corporate Assets, Breach of Duty of Loyalty to Ridgewood, Breach of Duty of Good Faith, Intentional Misconduct, and Breach of Duty of Loyalty and Good Faith to Class. On July 5, 1995, the Company filed a timely answer generally denying the material allegations of the complaint and asserting several affirmative defenses. Discovery has been concluded, and on March 19, 1998, the Court dismissed all class claims, with only the derivative claims remaining for trial. The case was tried to Vice Chancellor Jacobs during the period February 1 through February 3, 1999. All post-trial briefing and oral argument has been concluded, and the case has been submitted for decision by the Court. The Company serves as a general partner in a limited partnership. As a general partner, the Company may be liable for certain deficiencies which arise in meeting the terms of loan obligations incurred by the limited partnership and for operating expenses and other liabilities incurred by the partnership in the ordinary course of business. 4. Notes Payable In June 1995, the Company entered into a loan with a commercial lender to refinance the Ramada Inn in Longwood, Florida. The loan proceeds are $2,800,000, and the hotel serves as collateral for the loan. The loan is for a term of 20 years with an amortization period of 25 years, at a fixed interest rate of 10.35%. Principal and interest payments are approximately $26,000 per month beginning August 1, 1995. In addition, the Company is required to make a repair escrow payment comprised of 4% of estimated revenues, as well as real estate tax and insurance escrow payments. The total amount for these items will be a payment of approximately $22,000 per month and can be adjusted annually. The escrow funds will be used as tax, insurance and repair needs arise. As of August 31, 1999, there was approximately $249,000 of escrowed funds related to this loan agreement that are included with Other Assets on the balance sheet. Also, commitment fees and loan costs of approximately $159,000 were deferred and are being amortized over 20 years. The approximate average amount of borrowings on the term loan during fiscal year 1998 was $2,694,000, at an average interest rate of 10.35%. The maximum amount of borrowings outstanding under this loan was $2,711,000. The balance of the loan at August 31, 1999 was approximately $2,676,000. The carrying value of the note approximates its fair value at August 31, 1999. In December 1995 and in conjunction with the acquisition of a hotel management company, the Company assumed three promissory notes dated September 22, 1994 and payable to three different Georgia corporations. The total combined outstanding principal was approximately $106,000. All three notes are for a term of five years at a rate of 6.83%. Combined principal and interest payments are approximately $2,667 per month through October 1, 1999. The combined balance of these loans at August 31, 1999 was approximately $5,300. The approximate average amount of borrowings on the three promissory notes during fiscal year 1999 was $19,000, at an average interest rate of 6.83%. The maximum amount of combined borrowings outstanding under these loans was approximately $33,000. Maturities of long-term debt during the Company's next five fiscal years are as follows: 2000 - $40,000; 2001 - $42,000; 2002 - $47,000; 2003 - $52,000; 2004 - $58,000; thereafter - $2,443,000. 5. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes", which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The income tax provision (benefit) is as follows:
1999 1998 ---- ---- Current: Federal $ -- $ -- State -- -- ---- ---- Total current -- -- Deferred: Federal -- -- State -- -- ---- ---- Total deferred $ -- $ --
==== ==== A reconciliation of the provision for income taxes (benefit) to the federal statutory rate is as follows:
1999 1998 ---- ---- Tax at statutory rate $ (404) $(194) State taxes, net of federal benefit (43) -- Permanent items 36 17 Valuation reserve 1,101 186 Other (690) (9) ------ ----- $ -- $ -- ====== =====
Deferred tax assets (liabilities) are composed of the following at August 31, 1999 and August 31, 1998, respectively:
000's Omitted 1999 1998 ---- ---- Allowance for possible losses $ 1,246 $ 1,169 Excess of tax over book basis, land held for sale or future development -- 16 Depreciation and amortization 86 71 Excess of tax over book basis, income from partnership -- 40 Other 378 331 Tax loss carryforwards 5,966 4,724 ------- -------- Gross deferred tax assets 7,676 6,351 ------- -------- Excess of book over tax basis, income from partnership (213) -- Loan amortization (37) (26) ------- -------- Gross deferred tax liabilities (250) (26) ------- -------- Deferred tax assets valuation allowance (7,426) (6,325) ------- -------- $ 0 $ 0 ======= ========
For financial reporting purposes, a valuation allowance has been recognized at August 31, 1999 and 1998 to reduce the net deferred income tax assets to zero. The net change in the valuation allowance for deferred tax asset was an increase of $1,101,000. This change resulted primarily from an increase in the Company's deferred tax assets relating to state net operating loss carryforwards. The Company has unused net operating loss carryforwards in certain states in which it operates which are available to offset future state taxable income in those states. In prior years, no benefit for the unused state loss carryforwards was recognized in the financial statements. In the current year, the unused state loss carryforwards were booked as a deferred tax asset with the benefit offset by a corresponding valuation allowance. On August 31, 1999, the Company had federal net operating loss carryforwards for income tax purposes of approximately $15,394,000, which will begin to expire in 2005. Under the Internal Revenue Code, if certain substantial changes in the Company's ownership occur, there are annual limitations on the amount of loss carryforwards. 6. Shareholders' Investment Authorized Shares of Common and Preferred Stock - On January 4, 1995, the Company approved an increase in the authorized number of shares of the Company's common stock from 3,000,000 shares to 5,000,000 shares and increased the number of authorized shares of the Company's preferred stock from 500,000 shares to 1,000,000 shares. In addition, the Company increased the number of shares reserved under the Ridgewood Hotels, Inc. 1993 Stock Option Plan from 900,000 to 1,200,000 shares. There are currently 1,513,480 shares of common stock outstanding, of which approximately 51% is owned by the Company's President, N. Russell Walden. There are currently 1,000,000 authorized shares of the Company's Series A Convertible Preferred Stock. The Company has issued 450,000 shares of Series A Convertible Preferred Stock to Alarmguard. The preferred stock is redeemable by the Company at $8.00 per share and accrues dividends at a rate of $0.40 per share annually for the first two years and at a rate of $0.80 per share annually thereafter. Dividends are payable quarterly commencing on November 1, 1994. Each share of the preferred stock is convertible into three shares of the Company's common stock effective August 16, 1996 and is subject to certain anti-dilution adjustments. As of August 31, 1999, no shares have been converted. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the shares of preferred stock shall be entitled to receive $8.00 per share of preferred stock plus all dividends not previously declared and unpaid thereon. As of August 31, 1999, there are $180,000 of dividends in arrears. Loss Per Share - The following table sets forth the computation of basic and diluted loss per share:
1999 1998 1997 ---- ---- ---- Net loss $(1,283,000) $(622,000) $ (463,000) Less preferred dividends paid (180,000) (360,000) (315,000) Less undeclared preferred dividends (180,000) -- -- ------------ ---------- ----------- Net loss applicable to common shareholders $(1,643,000) $ (982,000) $ (778,000) Weighted average shares outstanding - basic and diluted 1,513,000 1,526,000 1,350,000 ============ =========== =========== Net loss per share - basic and diluted $ (1.09) $ (0.64) $ (0.58) ============ ========== ===========
The effect of the Company's stock options and convertible securities was excluded from the computations for each of the three years ended August 31, 1999, 1998 and 1997 as it is antidilutive. Accordingly, for the periods presented, diluted net loss per share is the same as basic net loss per share. Issuance and Repurchase of Common Shares - In December 1995, the Company purchased a hotel management company in part by issuing 125,000 shares of the Company's common stock: 100,000 shares and 25,000 shares to the President and Senior Vice President of Wesley Hotel Group ("Wesley"), respectively. See also Note 10. The 25,000 shares issued to the Senior Vice President of Wesley were subject to a Put Agreement ("Agreement"). The Agreement states that within ninety days after the two year anniversary of the effective date of the Agreement (which was effective in December 1995), the Company shall be obligated to purchase all or part of the 25,000 shares from the Senior Vice President of Wesley at a purchase price of $4.50 per share. In March 1998, the Put Agreement was exercised, whereby the shares were repurchased by the Company and subsequently cancelled. 1993 Stock Option Plan - On March 30, 1993, the Company granted options to purchase 378,000 shares of common stock at a price of approximately $1.83 per share to its key employees and one director under the Ridgewood Hotels, Inc. 1993 Stock Option Plan (the "Plan"). The options vested over a four year period in 25% increments. All options expire ten years from the date of grant, unless earlier by reason of death, disability, termination of employment, or for other reasons outlined in the Plan. As of August 31, 1999, all of the options are exercisable. On January 28, 1994, the Company granted options to purchase 375,000 and 75,000 shares of common stock at a price of $1.00 per share to its President and Chief Financial Officer, respectively, under the Plan. On January 31, 1997, all of the options were exercised. In conjunction with the exercise, a promissory note for $75,000 was received from the Chief Financial Officer in exchange for the Company's common stock. The $75,000 promissory note due from the Chief Financial Officer was payable in full on January 31, 1998 and accrues interest at a rate per annum of 8.25%. The note was extended and was payable in full on January 31, 1999, along with any accrued interest. The note was paid in full in April 1999. Warrants - On December 16, 1996, 75,000 warrants were issued to Hugh Jones, a hotel acquisitions consultant for the Company. Each warrant represents the right to purchase from the Company one share of common stock at the exercise price of $3.50 per share. The warrants may be exercised at any time within five years from the date of issuance. 7. Supplemental Retirement and Death Benefit Plan The Company implemented a non-qualified Supplemental Retirement and Death Benefit Plan with an effective date of January 1, 1987. The Plan supplements other retirement plans and also provides pre-retirement death benefits to participants' beneficiaries. The net periodic pension cost includes the following components:
August 31, 1999 August 31, 1998 --------------- --------------- Service cost for the period $39,256 $34,628 Interest cost on projected benefit obligation 52,014 46,170 Net amortization of transition liability 11,026 11,026 Recognized net actuarial gain (28,848) (39,938) ------- ------- Net periodic pension cost $73,448 $51,886 ======= =======
The following sets forth the funded status of the plan and the amounts shown in the accompanying balance sheet as of August 31, 1999 and 1998.
August 31, 1999 August 31, 1998 --------------- --------------- Unfunded excess of projected benefit obligation over plan assets $(893,274) $(819,826) ========= ========= Projected benefit obligation (778,536) (654,260) Unrecognized net obligation at transition 33,074 44,100 Unrecognized net gain (147,812) (209,666) --------- --------- Net accrued pension liability $(893,274) $(819,826) ========= =========
The weighted average discount rate used to measure the projected benefit obligation was 7.0% in 1999 and 7.5% in 1998. There was no compensation increase and no expected return on plan assets assumed for 1998 and 1997. Concurrent with the implementation of the Supplemental Retirement and Death Benefit Plan, the Company purchased key-person life insurance contracts on the lives of the Plan participants. The policies are owned by and payable to the Company and are "increasing whole life" insurance. The Company pays level annual premiums, may borrow against cash values earned, and pays interest annually on any loans which may be cumulatively outstanding. The Company has recorded a total pension liability of approximately $893,000 as of August 31, 1999. At August 31, 1999 the net cash surrender value available to settle the outstanding pension liability was approximately $45,000. 8. Investment in Unconsolidated Entities RW Hotel Partners, L.P. On August 16, 1995, RW Hotel Partners, L.P. was organized as a limited partnership (the "Partnership") under the laws of the State of Delaware. Concurrently, the Company formed Ridgewood Georgia, Inc., a Georgia corporation ("Ridgewood Georgia") which became the sole general partner in the Partnership with RW Hotel Investments Associates, L.L.C. ("Investor") as the limited partner. Ridgewood Georgia has a 1% base distribution percentage versus 99% for the Investor. However, distribution percentages do vary depending on certain defined preferences and priorities pursuant to the Partnership Agreement ("Agreement") which are discussed below. The partnership was originally formed to acquire a hotel property in Louisville, Kentucky, but subsequently purchased five additional hotels. The Partnership purchased the hotel in Louisville, Kentucky for approximately $16,000,000. In December 1995 and January 1996, the Partnership purchased four hotel properties in Georgia for approximately $15,000,000 and a hotel in South Carolina for $4,000,000, respectively. Three of the Georgia hotels were sold at a loss in March 1998, and the hotel in Louisville was transferred to a new entity in June 1998 in conjunction with refinancing that hotel (see below). The hotel in Orangeburg, South Carolina was sold at a loss in November 1998. The only remaining hotel in the Partnership is in Thomasville, Georgia (see Subsequent Events). Income and loss are allocated to Ridgewood Georgia and the limited partner based upon the formula for allocating Distributable Cash as described below. Distributable Cash is defined as the net income from the property before depreciation plus any net sale proceeds and net financing proceeds less capital costs. Distributions of Distributable Cash shall be made as follows: - First, to the Investor until there has been distributed to the Investor an amount equal to a 15% cumulative internal rate of return on the Investor's investment. - Second, to Ridgewood Georgia until the aggregate amount received by Ridgewood Georgia equals the aggregate cash contributions made by Ridgewood Georgia to the Partnership. - Third, 12% to Ridgewood Georgia and 88% to the Investor until there has been distributed to the Investor an amount equal to a 25% cumulative internal rate of return on Investor's investment. - Fourth, 75% of the residual to the Investor and 25% to Ridgewood Georgia. Management of the Partnership intends to adopt a plan of liquidation and will sell the remaining hotel. Based on management's estimate, Ridgewood Georgia will not receive cash in excess of its investment in the Partnership (see Subsequent Events). A Management Agreement exists between the Partnership and the Company as Manager ("Manager") for the purpose of managing the hotels. The Manager shall be entitled to the following property management fees: (1) 2.5% of the gross revenues from the hotel property. (2) 1% of the gross revenues from the hotel property as an incentive fee if distributable cash equals or exceeds 13.5% of total aggregate acquisition costs. Total management fees for the years ended August 31, 1999, 1998 and 1997 were approximately $68,000, $233,000 and $301,000 respectively. On March 17, 1998, the Partnership sold three of its six hotels. The Company signed a management agreement with the new owner of the three hotels wherein it will receive a management fee equal to 3% of revenues plus 15% of the net operating income plus 5% of any profit realized upon the sale of the hotels. In connection with the management agreement, the Company received management fees totaling approximately $191,000 and $114,000 for the years ended August 31, 1999 and 1998, respectively. For the fiscal year ended August 31, 1997, the Company recorded equity in income (loss) of the Partnership totaling $(134,000) net of provision for possible losses. The Company has recorded during 1997 a provision for possible losses of approximately $199,000 as there is no indication that the Company will be able to recover the equity income in the Partnership given the provisions of the partnership agreement regarding the distribution of cash to the partners upon liquidation. Houston Hotel, LLC On December 9, 1997, Houston Hotel, LLC ("Houston Hotel") was organized as a limited liability company under the laws of the State of Delaware. The purpose which Houston Hotel was organized is limited solely to owning and managing the Hampton Inn Galleria in Houston, Texas. The Company contributed approximately $316,000 into Houston Hotel which represents a 10% interest, and the other 90% interest is owned by Houston Hotel, Inc. (the "Manager"), a Nevada corporation. Income or loss allocated to the Company and the Managing Member is based upon the formula for distributing cash. Distributable cash is defined as the cash from operations and capital contributions determined by the Manager to be available for distribution. Cash from operations is defined as the net cash realized from the operations of Houston Hotel after payment of all cash expenditures of Houston Hotel including, but not limited to, operating expenses, fees, payments of principal and interest on indebtedness, capital improvements and replacements, and such reserves and retentions as the Manager reasonably determines to be necessary. Distributions of distributable cash shall be made as follows: - First, 100% to the Manager until it has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, 100% to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 80% to the Manager and 20% to the Company. A Property Management Agreement exists between Houston Hotel, LLC and the Company as Property Manager ("Property Manager") for the purpose of managing the hotel. The Property Manager shall be entitled to the following property management fees: (1) 1.5% of the gross revenues from the hotel property. (2) 1.5% of the gross revenues from the hotel property as an incentive fee if 85% of the budgeted net operating income is met. In connection with the management agreement, the Company received management fees totaling approximately $98,000 and $83,000 for the fiscal years ended August 31, 1999 and 1998, respectively. See Subsequent Events. RW Louisville Hotel Associates, LLC On May 13, 1998, RW Louisville Hotel Associates LLC ("RW Louisville Hotel Associates") was organized as a limited liability company under the laws of the State of Delaware. The purpose which RW Louisville Hotel Associates was organized is limited solely to owning and managing the Holiday Inn ("the Hotel") in Louisville, Kentucky. The Company's investment in RW Hotel Partners, L.P. of $337,500 (see above) was transferred to RW Louisville Hotel Associates at its historical basis. Simultaneously, the Company invested $362,000 into Louisville Hotel, LLC. The combined equity of $699,500 represents a 10% interest in the Hotel. Louisville Hotel, LLC loaned $3,620,000 to the Hotel in return for all cash flows generated from the Hotel. Income or loss allocated to the Company is based upon the formula for distributing cash. Distributable cash is defined as the net cash realized from operations but after payment of management fees, principal and interest, capital improvements and other such retentions as the managing member determines to be necessary. Distributions of distributable cash from Louisville Hotel, LLC shall be made as follows: - First, to the managing member until the managing member has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Second, to the Company until the Company has been distributed an amount equal to its accrued but unpaid 13% preferred return. - Third, 20% to the Company and 80% to the managing member. Cash from a sale or refinancing would be distributed 10% to the Company and 90% to the managing member. A Management Agreement exists between the Owner and the Company as Property Manager ("Property Manager") for the purpose of managing the hotel. The Property Manager shall be entitled to the following property management fees: (1) Base Management Fee equal to 1.5% of gross revenues from the hotel property. (2) Incentive Management Fee equal to 1.5% of gross revenues from the hotel in which the actual net operating income exceeds 85% of the budgeted goal for the year. (3) Super Incentive Management fee equal to: (a) .25% of gross revenues from the hotel in which the net operating income exceeds 106% of the budgeted goal for the year; (b) an additional .25% of gross revenues in which the net operating income exceeds 112% of the budgeted goal; and (c) an additional .50% of gross revenues in which the net operating income exceeds 120% of the budgeted goal. The Company paid an additional $200,000 to Louisville Hotel, LLC as a fee to acquire the management contract for the hotel. This amount is included in other assets. The Company is amortizing the fee $70,000 per year for the first two years and $20,000 per year for the next three years. With respect to the sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC with or without cause and not pursuant to a third party sale prior to June 5, 2000, Louisville Hotel, LLC will pay to the Company the sum of $4,166.67 times the number of months prior to June 5, 2000 that the management contract is terminated. With respect to the second sum of $100,000, in the event that the management contract is terminated by Louisville Hotel, LLC prior to June 5, 2003, Louisville Hotel, LLC will pay to the Company the sum of $1,666.67 times the number of months prior to June 5, 2003 that the management contract is terminated. In connection with the management agreement, the Company received management fees totaling approximately $285,000 and $57,000 for the years ended August 31, 1999 and 1998, respectively. See Subsequent Events. A summary of the investment in unconsolidated entities is as follows:
1999 1998 ---- ---- Beginning balance of investment in unconsolidated entities $ 832 $ 338 Capital contributions 184 678 Equity in loss -- (98) Distributions -- (86) ------ ------ Ending balance of investment in unconsolidated entities $1,016 $ 832 ====== ======
The unaudited combined balance sheet and statement of operations of the unconsolidated entities are as follows: COMBINED UNCONSOLIDATED ENTITIES CONDENSED BALANCE SHEET UNAUDITED (000's omitted)
8/31/99 8/31/98 ---------- ---------- CURRENT ASSETS $ 2,018 $ 2,730 PROPERTY AND EQUIPMENT, net 37,499 36,410 INTANGIBLE ASSETS, net 629 565 ---------- ---------- TOTAL ASSETS $ 40,146 $ 39,705 ========== ========== CURRENT LIABILITIES $ 1,854 $ 1,850 LONG-TERM DEBT 31,622 28,382 ---------- ---------- TOTAL LIABILITIES 33,476 30,232 CAPITAL, net 6,670 9,473 ---------- ---------- TOTAL LIABILITIES AND CAPITAL $ 40,146 $ 39,705 ========== ==========
COMBINED UNCONSOLIDATED ENTITIES CONDENSED STATEMENT OF OPERATIONS UNAUDITED ($000's Omitted)
8/31/99 8/31/98 8/31/97 --------- --------- --------- HOTEL OPERATIONS: Revenues $ 11,681 $ 17,057 $ 17,058 Operating Expenses 10,146 12,781 13,696 ---------- ---------- ---------- Income From Hotel Operations 1,535 4,276 3,362 ---------- ---------- ---------- Interest Expense 2,632 2,059 1,682 Depreciation/Amortization 1,562 1,943 1,926 Loss due to change to liquidation basis of accounting for RW Hotel Partners, L.P. -- 2,828 -- ---------- ---------- ---------- NET INCOME (LOSS) $ (2,659) $ (2,554) $ (246) ========== ========== ==========
9. Employee Savings Plan The Ridgewood Hotels Employee Savings Plan ("Savings Plan") is a savings and salary deferral plan which is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986. The Savings Plan includes all employees of the Company who have completed one year of service and have attained age twenty-one. Each participant in the Savings Plan may elect to reduce his or her compensation by any percentage, not to exceed 15% of compensation when combined with any Matching Basic or Discretionary Employer Contributions (below) made on behalf of the participant, and have such amount contributed to his or her account under the Savings Plan. Elective employer contributions are made prior to the withholding of income taxes on such amounts. A participant may also elect to contribute to the Plan an amount of cash or property equal to or up to 10% of his or her compensation ("Voluntary Contributions"). Voluntary Contributions are made on an after-tax basis. The Savings Plan provides for an employer matching contribution in an amount equal to 50% of the elective employer contributions, provided that in no event shall such employer matching contributions exceed 3% of the participant's compensation. In addition, the Board of Directors of the Company is authorized to make discretionary contributions to the Savings Plan out of the Company's current or accumulated profits ("Discretionary Contributions"). Discretionary Contributions are allocated among those participants who complete at least 1,000 hours of service during the plan year and are employed by the Company on the last day of the plan year. Employees are subject to a seven year graduated vesting schedule with respect to Basic Employer Contributions, Matching Employer Contributions and Discretionary Contributions. Distributions from the Savings Plan will generally be available upon or shortly following a participant's termination of employment with the Company, with additional withdrawal rights with respect to Voluntary Contributions. For the fiscal years ending August 31, 1999, 1998 and 1997, expense for the Employee Savings Plan was approximately $18,000, $18,000 and $21,000, respectively. 10. Acquisition of Hotel Management Company In December 1995, the Company acquired the Wesley Hotel Group, a hotel management company located in Atlanta, Georgia. At the time of acquisition, Wesley managed five hotels. The acquisition has been accounted for using the purchase method of accounting. In conjunction with the acquisition, the Company issued 125,000 shares of common stock with a determined market value of $1.50 per share (see Note 6) and assumed three promissory notes with a combined outstanding principal of approximately $106,000, bringing the total investment in Wesley to $293,000. The investment recorded by the Company for the acquisition is being amortized over the useful life of the assets acquired. As of August 31, 1999 the useful life of the assets acquired was determined to be -0-, so the entire investment has been fully amortized. 11. Subsequent Events On September 30, 1999, the Company purchased additional equity in Louisville Hotel, LLC. The Company increased its ownership from 10% to 80%. The consideration issued to acquire the increased ownership was $2,500,000, composed of the following: Transfer of 10% ownership interest in Houston Hotel, LLC $443,000 Cash payment 124,000 Promissory note to Louisville Hotel, L.P. secured by the Company's ownership interest in Louisville Hotel, LLC(2) 1,333,000 Promissory note to Louisville Hotel, L.P. secured by the Company's Phoenix, Arizona land(2) 300,000 Promissory note to Louisville Hotel, L.P. secured by one parcel of the Company's Longwood, Florida land (2) 300,000 ---------- Total additional equity in Louisville Hotel, LLC $2,500,000 ========== (1) The cash to make this payment was obtained from Louisville Hotel, LLC in connection with a modification of the management contract of the hotel. This amount represents the unamortized portion of the original $200,000 participation fee paid to Louisville Hotel, LLC to acquire the management contract of the hotel. (2) The three promissory notes are cross defaulted. The three promissory notes bear interest at 13% and mature on September 30, 2002. With 80% ownership, the Company is now the Managing Member of Louisville Hotel, LLC. Louisville Hotel, L.P. now has 20% ownership in Louisville Hotel, LLC and is the Non-Managing Member. Income or loss allocated to the Company is based upon the formula for distributing cash. Distributable cash is defined as the net cash realized from operations but after payment of management fees, principal and interest, capital improvements and other such retentions as the managing member determines to be necessary. Distributions of distributable cash from Louisville Hotel, LLC shall be made as follows: - First, to the Company in an amount equal to the cumulative interest paid on the acquisition loans of $1,333,000, $300,000 and $300,000. The Company would then use these funds to pay Louisville Hotel, L.P. - Second, a 13% preferred return to Louisville Hotel, L.P. on their original $3,061,000 investment. - Third, a 13% preferred return to the Company on its capital contribution of $1,207,000. - Fourth, 80% to the Company and 20% to Louisville Hotel, L.P. Cash from a sale or refinancing would be distributed 10% to Louisville Hotel, L.P. and 90% to the Company. If a sale or refinancing occurs after September 30, 2000 but before September 30, 2001, then the distribution would change to 15% and 85%, respectively. On November 18, 1999, RW Hotel Partners, L.P. sold the partnership's remaining hotel in Thomasville, Georgia at a loss. The partnership will be dissolved, and the Company will neither receive cash nor be required to pay out cash related to the partnership. Report of Independent Accountants November 17, 1999 To the Board of Directors and Shareholders of Ridgewood Hotels, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of shareholders' investment present fairly, in all material respects, the financial position of Ridgewood Hotels, Inc. and its subsidiaries (the "Company") at August 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Atlanta, Georgia Market Information The Company's common stock is listed in the National Association of Securities Dealers (NASDAQ) over-the-counter bulletin board service. Transfer Agent Harris Trust and Savings Bank, Dallas, Texas is the Company's stock transfer agent. Harris maintains the Company's shareholder records. To change name, address or ownership of stock, to report lost certificates, or to consolidate accounts, contact: Harris Trust and Savings Bank 1601 Elm Street Thanksgiving Tower, Suite 2320 Dallas, Texas 75201 (214) 665-6033 General Counsel Rogers & Hardin 2700 International Tower 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Independent Accountants PricewaterhouseCoopers LLP 50 Hurt Plaza Suite 1700 Atlanta, Georgia 30303 Shareholder and General Inquiries The Company is required to file an Annual Report on Form 10-K for its fiscal year ended August 31, 1999 with the Securities and Exchange Commission. Copies of this annual report may be obtained without charge upon written request to: Ridgewood Hotels, Inc. Shareholder Relations 2859 Paces Ferry Road Suite 700 Atlanta, Georgia 30339 (770) 434-3670 EX-22 7 EXHIBIT 22 RIDGEWOOD HOTELS, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT Percentage State or of Voting Jurisdiction Securities of Incorporation Owned ---------------- ---------- Florida Communities, Inc. Florida 100% Ridgewood Orlando, Inc. Florida 100% Ridgewood Georgia, Inc. Georgia 100% Wesley Hotel Group, Inc. Georgia 100% Florida Beta Hotel Corp. Florida 100% California Zeta Hotel Corp. California 100% Capitol Alpha Hotel Corp. Washington, D.C. 100% California Eta Hotel Corp. California 100% The foregoing subsidiaries are included in the consolidated financial statements of the Company. EX-27 8
5 The Schedule contains summary financial information extracted from the Consolidated Balance Sheets, Statements of Consolidated Loss and Consolidated Statement of Cash Flow and is qualified in its entirety by reference to such financial statements. 12-MOS AUG-31-1999 AUG-31-1999 471,000 0 241,000 3,319,000 18,000 0 3,174,000 1,914,000 5,910,000 0 0 0 450,000 15,000 1,091,000 5,910,000 458,000 4,547,000 379,000 3,203,000 2,285,000 0 342,000 (1,283,000) 0 (1,283,000) 0 0 0 (1,283,000) (1.09) (1.09)
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