CONFIDENTIAL & DRAFT
PROJECT CUBE
BOARD OF DIRECTORS PRESENTATION
SEPTEMBER 18, 2000
[LOGO]
CONFIDENTIAL & DRAFT
TABLE OF CONTENTS
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I. EXECUTIVE SUMMARY
II. TRANSACTION OVERVIEW
III. REVIEW OF STANDALONE BUSINESS
A. REVIEW OF THE NEW MANAGEMENT ESTIMATES
B. REVIEW OF COMPETITIVE ENVIRONMENT
C. REVIEW OF APPLICATION FEES AND ROYALTY REDUCTION STRATEGIES
D. REVIEW OF BACKLOG COMPLIANCE PROGRAM
IV. ANALYSIS OF STANDALONE BUSINESS
A. COMPARABLE TRANSACTION ANALYSIS
B. COMPARABLE COMPANIES ANALYSIS
C. PREMIUMS PAID ANALYSIS
D DISCOUNTED CASH FLOW ANALYSIS
APPENDICES:
I. UPSIDE AND DOWNSIDE CASES DISCOUNTED CASH FLOW ANALYSES
II. REVISED ANALYSIS OF THE RECAPITALIZATION
III. SUMMARY OF MARKETING PROCESS
CONFIDENTIAL & DRAFT
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EXECUTIVE SUMMARY
[LOGO]
CONFIDENTIAL & DRAFT
EXECUTIVE SUMMARY
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SITUATION UPDATE
- - On the September 7, 2000 Board Meeting, Cube's legal and financial advisors
were directed to explore an all-cash transaction with the Bears for 100% of
the Company at $5.00 per share.
- - The Board indicated their willingness to consider such a transaction
provided that: (i) the price was not less than $5.00 per share; (ii) it was
a "two-step" transaction with a short time period prior to closing; (iii)
there were very limited conditions precedent to closing; and (iv) BAS could
issue a fairness opinion.
- - The September 7th Board meeting was held after an advisor to the Bears
contacted Company counsel to inform them that he was concerned about
changes in the business and operational prospects of Cube that may
constitute a Material Adverse Change ("MAC") under the Recapitalization
Agreement (entitling the Bears not to consummate the transaction) and that
he planned to recommend to the Bears that they propose an all-cash
transaction for 100% of the Company at $4.75 to $5.00 per share instead of
the Recapitalization.
- - The purpose of today's meeting is to review with the Board the outcome of
discussions with the Bears on the points above, to consider and approve, if
appropriate, definitive documentation on the alternative transaction, and
to review BAS' fairness opinion.
1
CONFIDENTIAL & DRAFT
EXECUTIVE SUMMARY
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STATUS OF THE COMPANY
AS OF JUNE 2, 2000
Upon entering into the Recapitalization Agreement with the Bears, the Board of
Directors and BAS were aware of the following issues facing the Company:
- - The cumulative effect of 1999's 3rd and 4th quarter and 2000's 1st quarter
earnings announcements which has eroded investors' confidence in
management's ability to achieve its operating projections.
- - Mike Leven's recent discussions with the Board regarding the inability of
the Company to meet its base case (entitled Upside Case in this
presentation) and Downside Case projections under a status quo scenario.
- - The impact of the shareholder lawsuits on the prospects for a sale to a
third-party strategic or financial buyer and under the Recapitalization.
- - The fragile nature of the Company resulting from the impact of the above
issues on existing and new franchisees. Specifically, there has been some
loss of confidence of many existing and potential franchisees in Cube's
ability to grow its brands, two qualities which are critical to the success
of the business and its ability to achieve its financial projections.
- - Mike Leven, as Chairman and CEO of the Company, has been instrumental in
pursuing all of the bidders. He has always favored completing a transaction
versus the status quo. He has been diligent in pursuing offers from
non-Bears investors putting forward all-cash transactions.
2
CONFIDENTIAL & DRAFT
EXECUTIVE SUMMARY
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STATUS OF THE COMPANY
AS OF SEPTEMBER 12, 2000
The Board of Directors and BAS are aware of the following additional issues
facing the Company since June 2000:
- - Since the execution of the Recapitalization Agreement, the Bears and their
accountants have continues to perform detailed due diligence on the Company
including spending intensive time with senior management. The Bears have
suggested there may be a MAC since the signing of the Recapitalization
Agreement.
- - The new 2000 and 2001 projections (the "New Management Estimates"), as
prepared by senior management, are substantially lower than the previous
Downside case provided. There are three primary areas where the Company is
expecting to miss their 2001 projections contained in the Downside case:
- FRANCHISE APPLICATION FEES are down due to the forgiveness of
notes or rebates when hotels open up on an agreed upon schedule.
Franchise application fees have historically been a profit center;
however, the Company is now projecting that it will lose $(0.5)
million in this area in 2001.
- The Company's GENERAL & ADMINISTRATIVE expenses have continued to
grow dramatically and are now projected to be $3.0 million, or
26.8% more than the original Downside projection.
- INTEREST INCOME has decreased by $(0.5) million, or (45.7)%, due
to a reduction in the amount of cash that Cube presently holds in
the bank and a decrease in the interest income collected and/or
recognized on outstanding notes.
- - Additionally, the BACKLOG has been substantially reduced as part of a
compliance program from 839 under various stages of development as of
3/31/00 to 671 hotels as of 9/6/00, or a decrease of 168 hotels (20.0%).
Management does not believe this reduction will effect openings in 2000 or
2001 or, therefore, affect the financial projections in such years.
- - The impact of these changes is to reduce the estimated 2000 and 2001 EBITDA
by 13.3% and 28.8%, respectively.
- - There has been no communication with equity research analysts in 2000 and
no reports have been published to guide the market.
3
CONFIDENTIAL & DRAFT
EXECUTIVE SUMMARY
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STATUS OF THE COMPANY
AS OF SEPTEMBER 12, 2000 (CONTINUED)
- - The Company has recently hired a new CFO who will replace the current CFO
following the transaction, and he has only recently begun part-time
service.
- - The New Management Estimates were finalized in the last week at the
direction of Mr. Leven and Steve Romaniello. The projections have been
prepared by the Controller who is planning on leaving the Company.
- - Please note that members of the senior management team are part of the
buyout group. Additionally, BAS is not certain whether changes in business
practices since the signing of the Recapitalization were performed
independently or at the direction of (or consultation with) the Pritzkers.
- - Because of uncertainties the Company faces on a stand-alone basis,
including its ability to retain its franchise sales force and issues
arising from its liquidity constraints, and also because of the current
transition of its financial reporting function to its newly hired CFO,
management has advised BAS that it cannot provide meaningful estimates
beyond 2001.
- - Morale is low at the Company and senior executives believe that many of the
Company's most valuable employees, primarily the franchise salesforce, may
leave if a transaction is not completed quickly.
- - The Company is low on cash and is in a cash conservation mode (many bills
are now being paid at 60 days). Mr. Leven has prepared a cash forecast
illustrating that the Company will remain solvent even in the absence of a
transaction with the Bears; however, a substantial number of employees
would be eliminated and growth prospects would be lower than the New
Management Estimates.
- - The Company must still weigh the impact of the shareholder lawsuits under a
"go it alone" scenario or on the prospects for a sale to a third-party
buyer.
4
CONFIDENTIAL & DRAFT
EXECUTIVE SUMMARY
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PRICE VOLUME HISTORY
[Graphic Omitted]
[The following table was depicted as a mountain graph in the printed material.]
IPO to Present (10/25/96 to 9/15/00)
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
10/25/96 2,120,100 $14.5000 Cube completes IPO at $13.50 per share
10/28/96 190,400 $14.1250
10/29/96 268,700 $13.7500
10/30/96 83,300 $14.2500
10/31/96 107,300 $14.5000
11/01/96 43,600 $14.6250
11/04/96 9,400 $14.6250
11/05/96 17,800 $13.8750
11/06/96 74,600 $13.7500
11/07/96 55,300 $13.8750
11/08/96 50,500 $13.5000
11/11/96 18,500 $13.5000
11/12/96 18,000 $13.5000
11/13/96 86,000 $13.2500
11/14/96 26,400 $13.7500
11/15/96 95,200 $13.5000
11/18/96 17,400 $13.5000
11/19/96 31,600 $13.0000
11/20/96 5,800 $13.0000
11/21/96 368,600 $11.5000
11/22/96 158,600 $11.8750
11/25/96 44,500 $12.0000
11/26/96 118,100 $11.1250
11/27/96 100,600 $10.5000
11/29/96 9,300 $10.5000
12/02/96 90,400 $10.0000
12/03/96 33,900 $10.5000
12/04/96 50,900 $10.2500
12/05/96 2,200 $10.0000
12/06/96 18,900 $10.0000
12/09/96 8,600 $10.5000
12/10/96 15,700 $10.1250
12/11/96 2,000 $10.5000
12/12/96 19,700 $10.0000
12/13/96 23,000 $10.0000
12/16/96 21,000 $9.8750
12/17/96 22,700 $9.8750
12/18/96 700 $9.8750
12/19/96 10,500 $10.3750
12/20/96 126,500 $8.7500
12/23/96 144,100 $8.7500
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
12/24/96 121,300 $9.0000
12/26/96 9,700 $9.3750
12/27/96 39,700 $9.8750
12/30/96 21,800 $10.0000
12/31/96 16,900 $10.1250
1/02/97 23,700 $10.5000
1/03/97 14,700 $10.5000
1/06/97 33,100 $10.1250
1/07/97 5,400 $10.0000
1/08/97 2,000 $10.2500
1/09/97 4,900 $10.0000
1/10/97 21,400 $10.5000
1/13/97 27,600 $10.1250
1/14/97 10,400 $10.2500
1/15/97 13,600 $9.8750
1/16/97 16,100 $10.0000
1/17/97 8,100 $9.7500
1/20/97 1,900 $9.6250
1/21/97 7,400 $9.8750
1/22/97 21,400 $9.6250
1/23/97 6,500 $9.7500
1/24/97 10,600 $9.3750
1/27/97 9,200 $9.1250
1/28/97 26,000 $9.2500
1/29/97 6,200 $9.2500
1/30/97 15,100 $9.1250
1/31/97 79,300 $8.6250
2/03/97 29,500 $8.7500
2/04/97 33,700 $8.7500
2/05/97 20,500 $8.6250
2/06/97 136,000 $8.8750
2/07/97 13,700 $9.2500
2/10/97 4,200 $9.2500
2/11/97 8,700 $9.0000
2/12/97 6,100 $9.2500
2/13/97 10,500 $9.0000
2/14/97 3,300 $9.1250
2/18/97 400 $9.0000
2/19/97 50,900 $9.4375
2/20/97 45,700 $10.3750
2/21/97 5,500 $10.2500
2/24/97 14,400 $10.3750
2/25/97 9,100 $10.3750
2/26/97 3,000 $10.4375
2/27/97 700 $10.0000
2/28/97 10,300 $9.8750
3/03/97 5,600 $9.8750
3/04/97 $10.0625
3/05/97 18,900 $9.8750
3/06/97 300 $10.0000
3/07/97 29,500 $9.6250
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
3/10/97 15,900 $9.5000
3/11/97 1,400 $9.7500
3/12/97 44,000 $9.3750
3/13/97 12,000 $9.1250
3/14/97 9,900 $9.0000
3/17/97 13,200 $8.7500
3/18/97 36,600 $9.0000
3/19/97 400 $9.0000
3/20/97 2,500 $9.0000
3/21/97 6,200 $9.0000
3/24/97 11,200 $9.0000
3/25/97 462,600 $8.0000
3/26/97 43,100 $8.2500
3/27/97 6,000 $8.0000
3/31/97 19,800 $8.0000
4/01/97 5,800 $7.6250
4/02/97 3,500 $8.0000
4/03/97 1,600 $7.6250
4/04/97 21,700 $7.2500
4/07/97 25,400 $7.2500
4/08/97 100 $7.1250
4/09/97 10,100 $7.5000
4/10/97 11,500 $7.2500
4/11/97 17,700 $7.1250
4/14/97 7,700 $6.7500
4/15/97 11,700 $7.0000
4/16/97 42,000 $7.5000
4/17/97 6,500 $7.8750
4/18/97 2,000 $7.5000
4/21/97 83,400 $5.2500
4/22/97 44,000 $6.1250
4/23/97 19,000 $6.3750
4/24/97 3,000 $6.3750
4/25/97 5,400 $6.3750
4/28/97 15,900 $7.0000
4/29/97 22,100 $7.0000
4/30/97 6,200 $7.0000
5/01/97 3,300 $7.2500
5/02/97 900 $7.2500
5/05/97 1,400 $7.2500
5/06/97 11,800 $6.8750
5/07/97 27,400 $6.1250
5/08/97 1,700 $6.5000
5/09/97 11,400 $6.2500
5/12/97 10,400 $7.0000
5/13/97 6,600 $7.0000
5/14/97 1,000 $6.8750
5/15/97 29,600 $7.0000
5/16/97 8,200 $7.2500
5/19/97 $7.1250
5/20/97 2,000 $7.5000
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
5/21/97 23,000 $7.7500
5/22/97 5,200 $8.0000
5/23/97 1,900 $7.6250
5/27/97 1,300 $7.7500
5/28/97 7,400 $8.0000
5/29/97 10,300 $7.8750
5/30/97 30,500 $9.0000
6/02/97 12,100 $9.7500
6/03/97 31,200 $9.2500
6/04/97 29,400 $9.5000
6/05/97 2,700 $9.0000
6/06/97 4,300 $8.8750
6/09/97 11,600 $9.0000
6/10/97 12,400 $9.1250
6/11/97 9,000 $9.1250
6/12/97 2,000 $9.1250
6/13/97 11,600 $9.2500
6/16/97 15,800 $9.5000
6/17/97 27,500 $9.7500
6/18/97 9,800 $10.0000
6/19/97 5,300 $9.5000
6/20/97 29,400 $10.1250
6/23/97 2,500 $10.2500
6/24/97 22,500 $9.8750
6/25/97 3,600 $9.7500
6/26/97 $9.7500
6/27/97 1,000 $9.8750
6/30/97 9,000 $9.8750
7/01/97 7,600 $10.0000
7/02/97 4,200 $9.6250
7/03/97 $9.8750
7/07/97 500 $9.7500
7/08/97 9,900 $10.0000
7/09/97 1,800 $9.8750
7/10/97 500 $9.8750
7/11/97 7,700 $9.5000
7/14/97 34,000 $9.3750
7/15/97 15,000 $9.1250
7/16/97 53,000 $9.0000
7/17/97 3,300 $9.0000
7/18/97 16,800 $9.2500
7/21/97 1,500 $9.2500
7/22/97 16,300 $9.0000
7/23/97 28,700 $8.6875
7/24/97 7,300 $8.6250
7/25/97 24,600 $8.7500
7/28/97 25,600 $8.3750
7/29/97 2,500 $8.3750
7/30/97 2,200 $8.3750
7/31/97 8,900 $8.3750
8/01/97 17,200 $8.5000
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
8/04/97 13,800 $8.6250
8/05/97 12,100 $8.2500
8/06/97 17,700 $8.2500
8/07/97 15,200 $8.1250
8/08/97 37,600 $7.8750
8/11/97 31,400 $7.7500
8/12/97 21,500 $7.5000
8/13/97 17,800 $7.5000
8/14/97 46,400 $7.8750
8/15/97 9,100 $7.8750
8/18/97 1,000 $7.5000
8/19/97 13,300 $7.7500
8/20/97 $7.9375
8/21/97 20,300 $7.7500
8/22/97 38,000 $8.1250
8/25/97 7,000 $8.0000
8/26/97 23,600 $8.1250
8/27/97 400 $8.3750
8/28/97 1,300 $8.3750
8/29/97 1,000 $8.2500
9/02/97 6,500 $8.0000
9/03/97 25,600 $8.1250
9/04/97 200 $8.2500
9/05/97 2,700 $8.1250
9/08/97 3,300 $8.2500
9/09/97 7,200 $8.0000
9/10/97 6,200 $7.6250
9/11/97 58,200 $7.6250
9/12/97 9,100 $7.7500
9/15/97 77,000 $7.3750
9/16/97 1,900 $7.5000
9/17/97 10,000 $7.6250
9/18/97 5,600 $7.4375
9/19/97 600 $7.5000
9/22/97 33,700 $7.5000
9/23/97 19,700 $7.6250
9/24/97 11,800 $7.5000
9/25/97 1,900 $7.7500
9/26/97 7,500 $7.7500
9/29/97 15,900 $7.0000
9/30/97 27,600 $7.7500
10/01/97 42,300 $7.6250
10/02/97 4,000 $7.7500
10/03/97 39,500 $7.7500
10/06/97 8,600 $7.9063
10/07/97 24,500 $8.0000
10/08/97 8,800 $7.7500
10/09/97 4,000 $8.0000
10/10/97 400 $7.7500
10/13/97 15,400 $7.6250
10/14/97 5,700 $8.1250
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
10/15/97 2,900 $7.8750
10/16/97 10,600 $7.8750
10/17/97 10,300 $7.7500
10/20/97 1,100 $7.7500
10/21/97 60,100 $7.8750
10/22/97 51,100 $8.0000
10/23/97 1,800 $7.7500
10/24/97 9,500 $8.0625
10/27/97 600 $8.0000
10/28/97 11,400 $7.7500
10/29/97 48,200 $8.0000
10/30/97 4,600 $7.8750
10/31/97 5,900 $8.0000
11/03/97 900 $8.1250
11/04/97 3,500 $8.0000
11/05/97 11,200 $8.0000
11/06/97 64,200 $8.0000
11/07/97 3,900 $8.0000
11/10/97 8,600 $7.6250
11/11/97 12,600 $8.0000
11/12/97 1,600 $7.8750
11/13/97 1,500 $7.7500
11/14/97 1,700 $7.7500
11/17/97 58,000 $8.0000
11/18/97 55,200 $8.1250
11/19/97 15,500 $8.0000
11/20/97 14,500 $8.1250
11/21/97 115,100 $8.1250
11/24/97 18,400 $8.1875
11/25/97 34,900 $8.0625
11/26/97 2,600 $8.1250
11/28/97 3,100 $8.0625
12/01/97 6,200 $8.1250
12/02/97 10,300 $7.6250
12/03/97 6,000 $7.7500
12/04/97 13,200 $7.7500
12/05/97 38,800 $7.7500
12/08/97 20,800 $7.8750
12/09/97 8,100 $7.8750
12/10/97 32,600 $8.0000
12/11/97 14,700 $7.8750
12/12/97 19,600 $7.8750
12/15/97 28,000 $8.0000
12/16/97 38,000 $8.3750
12/17/97 3,000 $8.1250
12/18/97 33,000 $8.3750
12/19/97 15,000 $8.3750
12/22/97 21,700 $9.0000
12/23/97 28,300 $8.2500
12/24/97 200 $8.5000
12/26/97 1,100 $8.4375
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
12/29/97 24,400 $8.2500
12/30/97 3,300 $8.6250
12/31/97 52,000 $10.0000
1/02/98 11,400 $9.5000
1/05/98 11,800 $9.5000
1/06/98 3,100 $9.3750
1/07/98 8,100 $9.3750
1/08/98 16,700 $9.2500
1/09/98 19,200 $9.2500
1/12/98 11,300 $9.0000
1/13/98 4,800 $9.1250
1/14/98 1,300 $9.1875
1/15/98 4,200 $9.2500
1/16/98 5,200 $9.5000
1/20/98 20,200 $9.8750
1/21/98 17,300 $9.8750
1/22/98 $9.7500
1/23/98 6,300 $10.0000
1/26/98 33,600 $10.1250
1/27/98 17,600 $10.3750
1/28/98 17,100 $10.6250
1/29/98 42,300 $10.2500
1/30/98 13,100 $10.2500
2/02/98 15,000 $10.5000
2/03/98 29,200 $10.5000
2/04/98 7,000 $10.3750
2/05/98 8,300 $10.4375
2/06/98 56,400 $10.5000
2/09/98 14,800 $10.5000
2/10/98 3,700 $10.3750
2/11/98 6,900 $10.3750
2/12/98 3,000 $10.5000
2/13/98 43,400 $10.3750
2/17/98 56,400 $10.3750
2/18/98 7,000 $10.2500
2/19/98 4,800 $10.3750
2/20/98 52,900 $10.5625
2/23/98 33,100 $10.3750
2/24/98 77,300 $10.5000
2/25/98 51,800 $10.6250
2/26/98 93,400 $11.5000
2/27/98 75,000 $11.7500
3/02/98 81,300 $12.3750
3/03/98 21,400 $12.6250
3/04/98 76,200 $12.8750
3/05/98 36,400 $12.5000
3/06/98 25,900 $12.2500
3/09/98 8,300 $12.8750
3/10/98 74,600 $12.8125
3/11/98 33,800 $13.0000
3/12/98 17,400 $13.0000 Cube acquires full ownership of its Hawthorn
Suites brand from HSA
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
3/13/98 36,200 $12.9375
3/16/98 21,700 $12.9375
3/17/98 38,200 $13.0000
3/18/98 125,800 $13.6250
3/19/98 15,600 $13.7500
3/20/98 27,000 $13.2500
3/23/98 31,700 $12.8750
3/24/98 14,400 $12.8750
3/25/98 38,200 $13.0000
3/26/98 1,700 $13.0000
3/27/98 20,100 $12.7500
3/30/98 18,200 $12.1250
3/31/98 92,500 $12.1250
4/01/98 71,200 $12.5000
4/02/98 46,500 $12.5000
4/03/98 22,000 $12.5000
4/06/98 63,200 $12.0000
4/07/98 12,700 $11.8750
4/08/98 52,600 $11.5000
4/09/98 48,300 $11.2500
4/13/98 32,200 $11.6250
4/14/98 6,800 $11.7500
4/15/98 23,400 $11.7500
4/16/98 7,100 $11.6250
4/17/98 9,600 $11.0000
4/20/98 2,900 $11.3750
4/21/98 2,100 $11.0000
4/22/98 18,200 $11.4375
4/23/98 5,600 $11.2500
4/24/98 5,000 $11.0000
4/27/98 16,700 $11.0000
4/28/98 12,100 $11.1250
4/29/98 23,300 $11.1250 Cube acquires exclusive worldwide franchise
rights to Best Inns & Suites, along with 17
of its properties which USFS sold to Alpine
Hospitality Ventures
4/30/98 10,200 $11.0000
5/01/98 11,500 $11.2500
5/04/98 5,300 $11.0000
5/05/98 2,600 $11.0000
5/06/98 15,900 $11.0000
5/07/98 45,300 $11.0000
5/08/98 1,600 $11.1250
5/11/98 15,600 $11.0000
5/12/98 39,000 $11.0625
5/13/98 28,200 $10.7500 Cube completes a $44.6 mm Follow-on at $10.50
per share
5/14/98 1,892,300 $9.7500
5/15/98 318,500 $9.8125
5/18/98 126,400 $9.7500
5/19/98 74,400 $9.7500
5/20/98 80,400 $9.7500
5/21/98 97,800 $9.5000
5/22/98 69,800 $9.5000
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
5/26/98 183,100 $8.5000
5/27/98 57,300 $8.7500
5/28/98 66,100 $8.5000
5/29/98 114,400 $8.9375
6/01/98 37,200 $8.8750
6/02/98 88,000 $8.9375
6/03/98 74,400 $8.9375
6/04/98 57,900 $8.9375
6/05/98 23,100 $8.9375
6/08/98 123,400 $9.0625
6/09/98 21,000 $8.8750
6/10/98 37,100 $8.8125
6/11/98 22,100 $8.7500
6/12/98 42,900 $8.5625
6/15/98 30,400 $8.3750
6/16/98 77,100 $8.0000
6/17/98 38,600 $7.9375
6/18/98 48,900 $7.7500
6/19/98 13,000 $7.6875
6/22/98 11,200 $7.7500
6/23/98 48,500 $7.7500
6/24/98 37,100 $7.7500
6/25/98 22,400 $7.6250
6/26/98 168,900 $7.9375
6/29/98 38,300 $8.0000
6/30/98 54,900 $8.1250
7/01/98 103,400 $7.9375
7/02/98 8,000 $7.8750
7/06/98 292,300 $7.5625
7/07/98 20,700 $7.5000
7/08/98 20,000 $7.5625
7/09/98 36,700 $7.5000
7/10/98 85,100 $7.5625
7/13/98 260,500 $7.5000
7/14/98 99,600 $7.6250
7/15/98 43,700 $7.6875
7/16/98 116,300 $7.7500
7/17/98 61,200 $7.6875
7/20/98 83,900 $7.7188
7/21/98 47,600 $7.6875
7/22/98 176,900 $7.5625
7/23/98 157,100 $7.5000
7/24/98 147,400 $7.2500
7/27/98 50,400 $7.3125
7/28/98 47,000 $7.2500
7/29/98 25,700 $7.1875
7/30/98 159,400 $7.5000
7/31/98 26,000 $7.4375
8/03/98 5,600 $7.3750
8/04/98 162,300 $6.8750
8/05/98 210,700 $6.1250
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
8/06/98 180,800 $6.3125
8/07/98 129,500 $6.3750
8/10/98 54,600 $6.2500
8/11/98 37,600 $5.8125
8/12/98 327,900 $6.3750
8/13/98 63,200 $6.3750
8/14/98 58,000 $6.4375
8/17/98 204,600 $6.5000
8/18/98 7,900 $6.5000
8/19/98 19,600 $6.4375
8/20/98 4,800 $6.5000
8/21/98 72,500 $6.3125
8/24/98 2,700 $6.2500
8/25/98 43,400 $6.1875
8/26/98 47,300 $6.0625
8/27/98 35,600 $6.0000
8/28/98 14,900 $5.8750
8/31/98 48,500 $5.6250
9/01/98 145,500 $5.6250
9/02/98 132,500 $5.2500
9/03/98 225,500 $4.6875
9/04/98 106,100 $4.5000
9/08/98 96,000 $4.7500
9/09/98 9,600 $4.6250
9/10/98 36,600 $4.3750
9/11/98 555,600 $4.5000
9/14/98 47,400 $4.5000
9/15/98 29,100 $4.3750
9/16/98 45,000 $4.3750
9/17/98 34,400 $4.3750
9/18/98 47,400 $4.1250
9/21/98 24,300 $4.0000
9/22/98 38,900 $4.0000
9/23/98 352,200 $4.0313
9/24/98 344,000 $4.1250
9/25/98 68,400 $4.1875
9/28/98 233,000 $4.2500
9/29/98 139,100 $5.1250
9/30/98 238,700 $7.0000
10/01/98 169,400 $6.0625
10/02/98 46,700 $5.8750
10/05/98 21,900 $5.8750
10/06/98 64,100 $6.5000
10/07/98 111,700 $6.0000
10/08/98 227,800 $5.1250
10/09/98 85,600 $5.0000
10/12/98 37,100 $5.3750
10/13/98 162,500 $4.3750
10/14/98 36,200 $4.8750
10/15/98 277,300 $5.3750
10/16/98 50,800 $5.4375
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
10/19/98 90,700 $5.7500
10/20/98 54,600 $5.3750
10/21/98 88,300 $5.6250
10/22/98 113,200 $5.8750
10/23/98 13,600 $5.9375
10/26/98 77,400 $7.0000
10/27/98 107,200 $7.1250
10/28/98 42,800 $7.2500
10/29/98 49,200 $7.6250
10/30/98 335,800 $8.3750
11/02/98 128,800 $8.7500
11/03/98 47,700 $8.3750
11/04/98 37,000 $8.3750
11/05/98 152,200 $8.3750
11/06/98 180,500 $9.2500
11/09/98 162,200 $9.0000
11/10/98 115,300 $8.6875
11/11/98 131,500 $8.6250
11/12/98 150,100 $8.3750
11/13/98 50,600 $8.0000
11/16/98 28,200 $7.3750
11/17/98 99,800 $7.7500
11/18/98 49,400 $7.7500
11/19/98 50,500 $7.3125
11/20/98 46,800 $8.0000
11/23/98 40,400 $7.9375
11/24/98 105,700 $7.3750
11/25/98 53,800 $7.0000
11/27/98 1,800 $7.1250
11/30/98 60,900 $8.1250
12/01/98 41,100 $8.0000
12/02/98 8,700 $7.5625
12/03/98 29,600 $7.7500
12/04/98 207,300 $8.0000
12/07/98 24,400 $8.0000
12/08/98 66,300 $8.2500
12/09/98 83,500 $8.6250
12/10/98 42,300 $8.6250
12/11/98 90,300 $8.7500
12/14/98 52,000 $8.2500
12/15/98 29,800 $8.7500
12/16/98 57,200 $8.7500
12/17/98 19,400 $8.7500
12/18/98 54,500 $8.7500
12/21/98 28,500 $8.7500
12/22/98 23,000 $8.7500
12/23/98 40,900 $8.7500
12/24/98 14,000 $8.7500
12/28/98 21,800 $8.7500
12/29/98 137,900 $9.2500
12/30/98 82,100 $9.7500
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
12/31/98 157,700 $9.8750
1/04/99 13,700 $9.3750
1/05/99 22,300 $9.6875
1/06/99 29,400 $9.7500
1/07/99 14,200 $9.3750
1/08/99 34,100 $9.4375
1/11/99 12,600 $9.5625
1/12/99 10,100 $9.2500
1/13/99 52,200 $9.0000
1/14/99 54,300 $9.6250
1/15/99 45,900 $9.6250
1/19/99 104,700 $8.9375
1/20/99 158,400 $9.1250
1/21/99 125,200 $9.2500
1/22/99 26,800 $9.2500
1/25/99 22,800 $9.2500
1/26/99 16,600 $9.3125
1/27/99 95,900 $9.5000
1/28/99 91,700 $9.3750
1/29/99 43,300 $9.8750
2/01/99 94,700 $9.7500
2/02/99 67,900 $9.7500
2/03/99 13,400 $9.7500
2/04/99 121,100 $9.6250
2/05/99 21,900 $9.3750
2/08/99 65,700 $9.2500
2/09/99 19,000 $9.3750
2/10/99 130,300 $9.7500
2/11/99 128,500 $9.8750
2/12/99 7,000 $9.6250
2/16/99 13,100 $9.3750
2/17/99 5,100 $9.5000
2/18/99 31,100 $9.5000
2/19/99 91,500 $11.0000
2/22/99 1,076,400 $12.4375
2/23/99 486,000 $12.1250
2/24/99 844,800 $11.6250
2/25/99 180,100 $11.2500
2/26/99 195,000 $12.3750
3/01/99 196,300 $12.5625
3/02/99 159,800 $12.3750
3/03/99 77,700 $12.5000
3/04/99 49,800 $12.5000
3/05/99 280,400 $12.3750
3/08/99 30,700 $12.5000
3/09/99 325,700 $12.6250
3/10/99 100,900 $12.5000
3/11/99 53,100 $12.5000
3/12/99 250,000 $13.7500
3/15/99 82,500 $13.2500
3/16/99 232,200 $14.3750
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
3/17/99 53,300 $15.1250
3/18/99 159,900 $15.0000
3/19/99 171,400 $15.0000
3/22/99 37,100 $14.1875
3/23/99 82,400 $14.6250
3/24/99 536,200 $14.5000
3/25/99 274,500 $14.0000
3/26/99 46,100 $14.0625
3/29/99 45,700 $14.6250
3/30/99 29,700 $15.0000
3/31/99 179,500 $14.6250
4/01/99 47,700 $14.8750
4/05/99 3,500 $14.6250
4/06/99 126,300 $14.0000
4/07/99 5,800 $14.0000
4/08/99 58,200 $14.0000
4/09/99 12,500 $13.5625
4/12/99 36,900 $12.7500
4/13/99 65,300 $12.5000
4/14/99 84,900 $12.6250
4/15/99 72,200 $12.7500
4/16/99 62,400 $12.7500
4/19/99 52,100 $12.8750
4/20/99 80,800 $14.2500
4/21/99 71,800 $14.3750
4/22/99 28,200 $14.2500
4/23/99 13,300 $14.1875
4/26/99 1,800 $14.1250
4/27/99 59,300 $14.1250
4/28/99 204,500 $15.2500
4/29/99 136,000 $15.7500
4/30/99 93,000 $16.2500
5/03/99 26,100 $16.3750
5/04/99 74,000 $17.5000
5/05/99 126,300 $17.7500
5/06/99 49,600 $17.5000
5/07/99 106,700 $16.0000
5/10/99 66,200 $16.3750
5/11/99 24,900 $17.0000
5/12/99 28,600 $16.8750
5/13/99 30,300 $17.0000
5/14/99 103,400 $17.4375
5/17/99 16,100 $17.4375
5/18/99 18,900 $16.6250
5/19/99 33,800 $16.6250
5/20/99 10,500 $16.6250
5/21/99 28,500 $16.8750
5/24/99 70,400 $16.7500
5/25/99 157,300 $16.8750
5/26/99 83,800 $17.0000
5/27/99 30,900 $16.7500
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
5/28/99 129,500 $17.7500
6/01/99 20,800 $17.0000
6/02/99 110,100 $18.2500
6/03/99 298,200 $19.1875
6/04/99 143,700 $20.5000
6/07/99 364,600 $20.1250
6/08/99 338,700 $19.2500
6/09/99 134,000 $19.3750
6/10/99 55,200 $19.6250
6/11/99 47,600 $20.0000
6/14/99 69,900 $19.2500
6/15/99 19,600 $19.5000
6/16/99 184,100 $20.1250
6/17/99 128,200 $20.6875
6/18/99 208,800 $20.3750
6/21/99 33,200 $20.1250
6/22/99 243,800 $19.5000
6/23/99 529,900 $19.6250
6/24/99 118,300 $18.8750
6/25/99 110,100 $19.8125
6/28/99 170,700 $21.5000
6/29/99 142,500 $22.1250
6/30/99 420,400 $23.1875
7/01/99 90,600 $22.1875
7/02/99 51,000 $22.2500
7/06/99 73,300 $22.1250
7/07/99 65,200 $21.3125
7/08/99 25,600 $21.4375
7/09/99 36,700 $21.2500
7/12/99 42,200 $20.7500
7/13/99 55,600 $20.7500
7/14/99 193,600 $20.0625
7/15/99 31,500 $19.8750
7/16/99 68,900 $19.8750
7/19/99 134,000 $21.4375
7/20/99 57,100 $20.9375
7/21/99 41,700 $20.7500
7/22/99 23,800 $20.3750
7/23/99 31,500 $20.7500
7/26/99 62,400 $21.0000
7/27/99 106,000 $21.4375
7/28/99 65,900 $21.4375
7/29/99 99,100 $20.7500
7/30/99 28,200 $21.0000
8/02/99 56,200 $18.7500
8/03/99 241,200 $18.7500
8/04/99 40,200 $18.3750
8/05/99 5,100 $18.3750
8/06/99 166,300 $16.0000
8/09/99 179,200 $15.0000
8/10/99 255,500 $15.7500
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
8/11/99 23,800 $16.2500
8/12/99 8,400 $15.6875
8/13/99 48,900 $15.3750
8/16/99 10,500 $15.5000
8/17/99 93,800 $14.5625
8/18/99 46,200 $15.7500
8/19/99 106,700 $14.7500
8/20/99 4,600 $15.3750
8/23/99 16,300 $15.1875
8/24/99 234,900 $15.6250
8/25/99 96,100 $16.0000
8/26/99 67,600 $16.6250
8/27/99 106,800 $16.5625
8/30/99 13,300 $16.3125
8/31/99 55,600 $16.6250
9/01/99 95,000 $18.0625
9/02/99 42,900 $16.8750
9/03/99 6,800 $16.6250
9/07/99 64,600 $16.5000
9/08/99 7,000 $16.1250
9/09/99 23,700 $16.1250
9/10/99 1,300 $16.1250
9/13/99 293,700 $17.2500
9/14/99 12,100 $16.8750
9/15/99 145,600 $17.2500
9/16/99 6,300 $16.3750
9/17/99 70,100 $17.1250
9/20/99 21,000 $16.9375
9/21/99 26,300 $17.1875
9/22/99 29,200 $16.6250
9/23/99 202,800 $16.7500
9/24/99 235,900 $17.3125
9/27/99 29,000 $16.8750
9/28/99 8,200 $17.0000
9/29/99 4,200 $17.0000
9/30/99 302,600 $17.3125
10/01/99 23,800 $17.1250
10/04/99 5,600 $16.8750
10/05/99 5,000 $16.9375
10/06/99 4,900 $16.6250
10/07/99 17,700 $16.5625
10/08/99 27,600 $15.6250
10/11/99 18,600 $15.3125
10/12/99 611,400 $13.0625
10/13/99 1,184,900 $11.5625
10/14/99 361,400 $11.2500
10/15/99 212,900 $11.2500
10/18/99 58,200 $11.0625
10/19/99 82,700 $11.3125
10/20/99 156,600 $11.6250
10/21/99 46,600 $12.0000
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
10/22/99 495,300 $11.1250
10/25/99 606,600 $9.8750
10/26/99 467,300 $11.1875
10/27/99 205,700 $11.2500
10/28/99 182,900 $11.1875
10/29/99 184,500 $12.7500
11/01/99 3,025,400 $7.5313 Cube reports warning about fourth quarter
earnings
11/02/99 3,851,000 $5.1250
11/03/99 1,092,500 $5.0000
11/04/99 903,200 $4.6250
11/05/99 559,900 $4.7188
11/08/99 417,800 $5.3125
11/09/99 316,300 $5.3125
11/10/99 429,700 $4.8125
11/11/99 228,200 $4.8125
11/12/99 74,100 $4.8750
11/15/99 215,200 $4.5000
11/16/99 207,500 $4.6250
11/17/99 194,700 $4.5625
11/18/99 304,000 $4.4688
11/19/99 57,700 $4.5625
11/22/99 195,200 $4.8750
11/23/99 123,600 $4.7500
11/24/99 55,700 $4.7500
11/26/99 46,200 $4.8750
11/29/99 61,400 $4.8125
11/30/99 173,500 $4.9375
12/01/99 70,200 $4.8750
12/02/99 54,200 $4.9375
12/03/99 70,200 $4.7500
12/06/99 91,100 $4.7500
12/07/99 77,200 $4.7500
12/08/99 110,800 $4.6406
12/09/99 59,300 $4.7500
12/10/99 61,900 $4.6875
12/13/99 88,300 $4.6875
12/14/99 223,500 $4.7500
12/15/99 91,200 $4.7500
12/16/99 69,300 $4.7500
12/17/99 119,400 $4.6875
12/20/99 162,100 $4.5625
12/21/99 211,300 $4.6250
12/22/99 216,200 $4.5000
12/23/99 127,100 $4.2500
12/27/99 109,300 $4.3438
12/28/99 106,300 $4.2500
12/29/99 180,600 $4.3125
12/30/99 186,500 $4.3438
12/31/99 162,400 $4.5000
1/03/00 31,100 $4.5625
1/04/00 68,300 $4.6250
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
1/05/00 74,000 $4.6250
1/06/00 54,900 $4.6250
1/07/00 72,400 $4.8750
1/10/00 246,400 $5.2500
1/11/00 136,700 $5.4375
1/12/00 96,700 $5.3750
1/13/00 117,200 $5.3125
1/14/00 76,200 $5.3750
1/18/00 136,600 $5.4063
1/19/00 151,500 $5.3438
1/20/00 92,800 $5.2813
1/21/00 105,200 $5.2813
1/24/00 83,100 $4.9375
1/25/00 63,900 $4.8125
1/26/00 155,500 $4.7188
1/27/00 117,500 $4.8750
1/28/00 71,500 $4.7813
1/31/00 113,100 $4.9375
2/01/00 22,600 $4.8125
2/02/00 23,700 $4.8750
2/03/00 34,200 $5.0000
2/04/00 19,500 $4.8750
2/07/00 29,100 $4.8438
2/08/00 204,000 $4.8125
2/09/00 97,200 $4.7500
2/10/00 165,700 $5.0000
2/11/00 93,400 $5.0000
2/14/00 156,000 $4.9375
2/15/00 276,400 $4.7500
2/16/00 529,200 $4.2500
2/17/00 370,800 $4.5938
2/18/00 143,400 $4.6875
2/22/00 172,700 $4.8750
2/23/00 25,800 $4.9688
2/24/00 425,200 $5.3125
2/25/00 414,300 $5.3750
2/28/00 195,700 $5.2500
2/29/00 143,700 $5.1875
3/01/00 127,600 $5.2188
3/02/00 188,100 $4.9688
3/03/00 128,600 $5.1875
3/06/00 336,300 $5.6250
3/07/00 464,100 $6.3750
3/08/00 438,100 $6.0625
3/09/00 815,300 $6.3125
3/10/00 304,700 $6.5000
3/13/00 86,600 $6.2500
3/14/00 176,900 $6.1875
3/15/00 103,400 $6.1875
3/16/00 218,300 $6.6875
3/17/00 161,500 $6.5000
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
3/20/00 86,800 $6.3125
3/21/00 211,500 $6.1875
3/22/00 352,500 $5.3750
3/23/00 211,300 $5.8438
3/24/00 371,000 $5.5625
3/27/00 142,200 $5.4375
3/28/00 132,700 $5.3750
3/29/00 176,500 $5.6250
3/30/00 450,900 $5.0000
3/31/00 385,200 $5.0000
4/03/00 376,400 $5.0625
4/04/00 97,300 $4.9375
4/05/00 180,000 $5.0000
4/06/00 152,400 $5.3750
4/07/00 123,600 $5.5625
4/10/00 69,000 $5.2188
4/11/00 88,000 $5.0625
4/12/00 101,600 $4.7813
4/13/00 90,500 $4.3750
4/14/00 163,000 $4.5313
4/17/00 55,400 $4.6250
4/18/00 95,700 $4.5469
4/19/00 153,400 $4.6250
4/20/00 55,000 $4.8125
4/24/00 54,100 $4.6250
4/25/00 54,700 $4.4375
4/26/00 20,600 $4.7188
4/27/00 121,700 $4.3750
4/28/00 136,800 $4.8125
5/01/00 71,100 $4.8750
5/02/00 203,700 $5.1250
5/03/00 127,000 $5.1250
5/04/00 58,300 $5.1875
5/05/00 37,600 $5.0625
5/08/00 72,600 $5.2500
5/09/00 52,600 $5.1875
5/10/00 32,300 $4.7500
5/11/00 24,700 $4.7500
5/12/00 71,800 $4.8125
5/15/00 85,300 $5.0625
5/16/00 37,600 $5.0000
5/17/00 46,200 $4.8125
5/18/00 89,500 $4.8438 Shareholder lawsuit announced
5/19/00 129,200 $4.7500
5/22/00 72,200 $4.8750
5/23/00 66,100 $4.7500
5/24/00 72,300 $4.3750
5/25/00 90,000 $4.3750
5/26/00 81,200 $4.5625
5/30/00 144,900 $4.8125
5/31/00 256,500 $5.4375
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
6/01/00 180,000 $6.0000
6/02/00 253,100 $5.8750 Announcement of Recapitalization Plan
6/05/00 566,900 $5.6250
6/06/00 100,000 $5.3125
6/07/00 192,500 $5.0625
6/08/00 81,200 $5.0000
6/09/00 76,100 $4.7500
6/12/00 14,600 $4.7500
6/13/00 57,900 $4.6563
6/14/00 117,900 $4.6250
6/15/00 149,300 $4.5625
6/16/00 68,500 $4.4688
6/19/00 122,400 $4.7500
6/20/00 61,800 $4.8125
6/21/00 74,300 $4.8750
6/22/00 73,800 $4.8750
6/23/00 27,400 $4.8125
6/26/00 70,600 $4.8125
6/27/00 81,100 $4.7813
6/28/00 109,400 $4.4375
6/29/00 96,200 $4.5000
6/30/00 313,400 $4.8125 Preliminary Proxy Statement re-filed with
the SEC
7/03/00 19,600 $4.9688
7/05/00 103,200 $4.6250
7/06/00 39,100 $4.6875
7/07/00 41,200 $4.5625
7/10/00 16,300 $4.5000
7/11/00 52,600 $4.4375
7/12/00 24,400 $4.4375
7/13/00 4,300 $4.4063
7/14/00 33,800 $4.6250
7/17/00 13,900 $4.6250
7/18/00 11,100 $4.5625
7/19/00 22,100 $4.4375
7/20/00 51,700 $4.7500
7/21/00 32,700 $4.6250
7/24/00 18,000 $4.6250
7/25/00 154,400 $4.4375
7/26/00 118,000 $4.3125
7/27/00 25,200 $4.3750
7/28/00 25,600 $4.3750
7/31/00 12,900 $4.5000
8/01/00 98,600 $4.5625
8/02/00 64,100 $4.4375
8/03/00 3,700 $4.5625
8/04/00 50,800 $4.5000
8/07/00 39,000 $4.4375
8/08/00 13,100 $4.5000
8/09/00 26,400 $4.4375
8/10/00 5,800 $4.4063
8/11/00 2,900 $4.4375
Date Volume Close Comment
----------- --------------------- ----------- -------------------------------------------
8/14/00 14,700 $4.4375
8/15/00 24,700 $4.4375
8/16/00 23,200 $4.4375
8/17/00 6,300 $4.4375
8/18/00 14,400 $4.4375
8/21/00 12,600 $4.4688
8/22/00 16,800 $4.3125
8/23/00 46,700 $4.4375
8/24/00 66,900 $4.3125
8/25/00 11,900 $4.4375
8/28/00 3,000 $4.3750
8/29/00 43,600 $4.4375
8/30/00 32,200 $4.4375
8/31/00 25,500 $4.3750
9/01/00 12,800 $4.3750
9/05/00 46,100 $4.3125
9/06/00 43,700 $4.3125
9/07/00 33,400 $4.2500
9/08/00 25,000 $4.1250
9/11/2000 14,600 $4.1250
9/12/2000 33,200 $4.3750
9/13/2000 5,500 $4.3750
9/14/2000 56,100 $4.3750
9/15/2000 27,100 $4.3438
Stock Price Summary
---------------------------------------------
Hi $23.19 6/30/1999
Low 4.00 9/22/1998
Average 9.29 10/25/96 to 9/15/00
Volume Traded Summary
---------------------------------------------
HI 3,851,000 11/2/1999
LOW 100 4/8/1997
AVERAGE 90,127 10/25/96 to 9/15/00
Source: FactSet Data Systems and Company press releases.
CONFIDENTIAL & DRAFT
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
SUMMARY OF MARKETING PROCESS
PRIOR TO JUNE 2, 2000 AND THE RECAPITALIZATION AGREEMENT.
- - Cube entered into a transaction with the Bears after an extensive marketing
process which is summarized below:
- - In total, BAS contacted 30 potential acquirors, executed ten
confidentiality agreements and distributed nine offering memoranda.
- - The Company has included in two press releases that it was reviewing
strategic alternatives and had engaged BAS to advise the Board on analyzing
such alternatives.
- - Four companies (Carlson, Cendant, Choice and the Bears) performed
substantial due diligence on the Company, with only the Bears reaching a
definitive agreement.
- On May 25th, the Redskins informed BAS they had officially decided
to "take a pass" on the opportunity. They cited their inability to
get comfortable with the Company's prospects and the pending
shareholder lawsuits.
- On May 26th, the Giants informed the Company that they were no
longer interested in acquiring Cube at the price level previously
indicated or proceeding with the transaction on an accelerated
time frame. The Giants cited the recently filed shareholder
lawsuits, among other issues, and said they would only be
interested if there was a significant reduction in price (although
no "clearing" price was given despite the request).
- Carlson was also unable to reach an acceptable price and thus
decided to forgo further negotiations.
SINCE JUNE 2, 2000
- - Cube and its financial and legal advisors have been prohibited under the
terms of the Recapitalization Agreement from "shopping" the Company.
- - No parties have independently contacted the Company or the financial or
legal advisors regarding a potential topping transaction since the
announcement of the Recapitalization (to the best knowledge of both BAS and
Paul, Weiss).
6
CONFIDENTIAL & DRAFT
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
CUBE PER SHARE EQUITY REFERENCE RANGES - NEW MANAGEMENT ESTIMATES
The $5.00 all-cash purchase price represents a 15.1% premium to Cube's
closing price on 9/15/00 of $4.344.
[GRAPHIC OMITTED]
[The following table was depicted as a bar chart in the printed material.]
------------------------------------- ------------------------------------
Current Price: $4.344 Purchase Price: $5.00
------------------------------------- ------------------------------------
Equity Value per Share
---------------------------------
Low High
------------ ------------
Comparable Transactions $2.34 $3.40
Comparable Company $1.58 $3.92
Premiums Paid (1) $5.39 $5.79
DCF (2) $4.88 $7.92
(1) BAS places less weight on the Premiums Paid Analysis because
Cube's trading price reflects the announcement of the
Recapitalization Agreement and, therefore, already contains
a change of control premium.
(2) BAS has not been provided with updated management projections
for the years 2002 through 2004 and has built such forecasts
independently in order to complete the analysis. Please see
page 15 for a review of BAS' assumptions. As a result, BAS
places less weight on this analysis.
7
CONFIDENTIAL & DRAFT
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
CUBE PER SHARE EQUITY REFERENCE RANGES - DOWNSIDE CASE ASSUMPTIONS
The $5.00 all-cash purchase price represents a 15.1% premium to Cube's
closing price on 9/15/00 of $4.344.
[GRAPHIC OMITTED]
[The following table was depicted as a bar chart in the printed material.]
------------------------------------- ------------------------------------
Current Price: $4.344 Purchase Price: $5.00
------------------------------------- ------------------------------------
Equity Value per Share
-----------------------------------------
Low High
------------ ------------
Comparable Transactions $2.70 $ 3.44
Comparable Company $1.84 $ 6.12
Premiums Paid (1) $5.39 $ 5.79
DCF $6.28 $10.07
(1) BAS places less weight on the Premiums Paid Analysis because
Cube's trading price reflects the announcement of the
Recapitalization Agreement and, therefore, already contains
a change of control premium.
8
CONFIDENTIAL & DRAFT
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
ANALYSIS AT VARIOUS PRICES
(Dollars in millions, except per share figures)
Consideration:
-----
Current Cube Stock Price $4.34
----- ------
$4.50 $4.75 $5.00 $5.50 $6.00 $6.50 $7.00 $7.50
Premium to Current Stock Price 0.0% 3.6% 9.4% 15.1% 26.6% 38.1% 49.6% 61.2% 72.7%
Shares Outstanding 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1
Total Equity Consideration $87.2 $90.3 $95.4 $100.4 $110.4 $120.4 $130.5 $140.5 $150.6
Plus Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Less Cash 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4
----- ----- ----- ------ ------ ------ ------ ------ ------
Aggregate Value $84.8 $87.9 $92.9 $98.0 $108.0 $118.0 $128.1 $138.1 $148.1
Upside Case
Consideration as a Multiple of:
Equity Consideration/
Net Income (1)
-----
LTM $4.8 18.2x 18.8x 19.9x 20.9x 23.0x 25.1x 27.2x 29.3x 31.4x
2000E $8.1 10.8x 11.2x 11.8x 12.4x 13.6x 14.9x 16.1x 17.4x 18.6x
2001E $18.8 4.6x 4.8x 5.1x 5.3x 5.9x 6.4x 6.9x 7.5x 8.0x
Aggregate Value/
EBITDA (2)
LTM $7.3 11.6x 12.0x 12.7x 13.4x 14.8x 16.2x 17.5x 18.9x 20.3x
2000E $11.0 7.7x 8.0x 8.4x 8.9x 9.8x 10.7x 11.6x 12.5x 13.4x
2001E $22.8 3.7x 3.9x 4.1x 4.3x 4.7x 5.2x 5.6x 6.1x 6.5x
-----
Downside Case
Consideration as a Multiple of:
Equity Consideration/
Net Income (1)
-----
LTM $4.8 18.2x 18.8x 19.9x 20.9x 23.0x 25.1x 27.2x 29.3x 31.4x
2000E $4.6 18.9x 19.5x 20.6x 21.7x 23.9x 26.1x 28.2x 30.4x 32.6x
2001E $10.2 8.6x 8.9x 9.4x 9.9x 10.9x 11.9x 12.9x 13.8x 14.8x
Aggregate Value/
EBITDA (2)
LTM $7.3 11.6x 12.0x 12.7x 13.4x 14.8x 16.2x 17.5x 18.9x 20.3x
2000E $7.3 11.6x 12.0x 12.7x 13.4x 14.8x 16.2x 17.5x 18.9x 20.3x
2001E $13.6 6.2x 6.5x 6.8x 7.2x 7.9x 8.7x 9.4x 10.2x 10.9x
-----
- --------------------------------------------------------------------------------------------------------------------------
New Management Estimates
Consideration as a Multiple of:
Equity Consideration/
Net Income (1)
-----
LTM $4.8 18.2x 18.8x 19.9x 20.9x 23.0x 25.1x 27.2x 29.3x 31.4x
2000E $3.9 22.1x 22.9x 24.2x 25.5x 28.0x 30.6x 33.1x 35.7x 38.2x
2001E $6.6 13.3x 13.8x 14.5x 15.3x 16.8x 18.4x 19.9x 21.4x 23.0x
Aggregate Value/
EBITDA (2)
LTM $7.3 11.6x 12.0x 12.7x 13.4x 14.8x 16.2x 17.5x 18.9x 20.3x
2000E $6.4 13.3x 13.8x 14.6x 15.4x 17.0x 18.5x 20.1x 21.7x 23.3x
2001E $9.7 8.8x 9.1x 9.6x 10.1x 11.2x 12.2x 13.3x 14.3x 15.3x
----- ------
- --------------------------------------------------------------------------------------------------------------------------
(1) Net Income includes the effect of the Company's NOLs.
(2) EBITDA includes interest income.
Note: LTM as of June 30, 2000
9
CONFIDENTIAL & DRAFT
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
PROS AND CONS
- - The Bears have made it clear that they are not willing to improve their
$5.00 per share acquisition proposal. Therefore, the Board's likely
alternatives are:
i) If the Bears indicate they are not prepared to consummate the
Recapitalization Agreement: "go it alone."
ii) Sell to the Bears at $5 a share.
- ---------------------------------------------------------------------------------------------------------------------------
ALTERNATIVES PROS CONS
- ---------------------------------------------------------------------------------------------------------------------------
NEW BEARS' - Provides cash to shareholders at a premium - No potential for upside if the Company
TRANSACTION to the current share price. recovers and achieves financial results
superior to current projections.
- Is an "all cash, all shares" transaction.
- Eliminates further downside risk to
shareholders if the Company's business
prospects continue to deteriorate.
- Avoids potential lawsuit with the Bears.
- ---------------------------------------------------------------------------------------------------------------------------
TERMINATE THE - Potential for upside if the Company recovers - Further downside risk to shareholders
RECAPITALIZATION and achieves financial results superior to if the Company's business prospects
WITHOUT ANOTHER current projections. continue to deteriorate.
TRANSACTION
- Company retains flexibility to seek strategic - Shareholders are subject to downside
alternatives once business has stabilized and risk of existing and potential
ramped-up. additional shareholder lawsuits.
- Significant risk that key management,
primarily franchise salesforce, may
leave the Company.
- Management does not believe it is able
to achieve New Management Estimates
without a stabilizing transaction.
- Cash to be tight going forward.
Relatively limited capital availability.
- Stock may not trade up even with
improved financial results until
management regains investor confidence.
10
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
TRANSACTION OVERVIEW
[LOGO]
CONFIDENTIAL & DRAFT
TRANSACTION OVERVIEW
- --------------------------------------------------------------------------------
BEARS' PROPOSAL
STRUCTURAL OVERVIEW:
- - "All cash, all shares" transaction at $5.00 per share.
- - Two - Step, "going private" transaction
-- Tender offer
-- Back-end merger
- - Minimum condition in tender offer: approximately 8 million shares.
- - Accelerated vesting and cash-out of options and restricted stock.
- - Agreement by Neal Aronson and Mike Leven to tender shares.
- - Agreement by Mike Leven (and his family members) to contribute 870,000
shares of Cube common stock for same number of acquirer's stock. Also SARs
equivalent to 200,000 shares.
- - Agreement to permit Romaniello to purchase 400,000 shares of acquirer's
stock and to loan him funds to do so. Also SARs equivalent to 250,000
shares.
MATERIAL CONDITIONS:
- - Limited conditions and all representations and warranties qualified by any
information provided in the diligence process. Material Adverse Change
condition excludes known conditions and runs from date of new agreement.
Also, "prospects" has been removed from definition of Material Adverse
Effect.
12
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
REVIEW OF STAND ALONE BUSINESS
[LOGO]
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
INFORMATION PROVIDED TO BAS
- BAS was provided updated 2000 and 2001 estimates for the Company
by Mike Leven. Mr. Leven also provided verbal updates,
confirmations and details regarding such estimates.
- BAS conducted several conference calls with Mr. Leven, Steve
Romaniello and Paula Charles to discuss these projections and the
current state of the Company and its business prospects. These
discussions included a review of the following items (among
others):
- A reduction in projected 2001 EBITDA below management's
previous Downside case.
- A reduction in the Company's backlog.
- A discussion of the difficulties the Company expects to
have retaining key employees, primarily its franchise
salesforce, in a stand-alone case.
- Because of uncertainties the Company faces on a stand-alone basis,
including its ability to retain its franchise sales force and
issues arising from its liquidity constraints, and also because of
the current transition of its financial reporting function to its
newly hired CFO, management has advised BAS that it cannot provide
meaningful estimates beyond 2001.
- BAS interviewed representatives of the Bears and was verbally told
a limited number of their financial modeling assumptions and views
regarding future prospects of the business. However, the Bears
would not disclose any additional information about their models
or give BAS a copy of their model.
14
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
NEW MANAGEMENT PROJECTIONS
Management Estimates BAS Extrapolation
------------------------------ -----------------------------------------------
2000E 2001E 2002E 2003E 2004E
----- ----- ----- ----- -----
Revenues:
------------- ------------- ------------- ------------- -------------
Franchise Royalty Fees (1) $17,000,000 $22,625,267 $30,892,322 $39,592,802 $48,617,377
Other Fee Income (2) 1,548,000 1,700,000 1,785,000 1,874,250 1,967,963
Franchise Application Fees 4,130,000 2,500,000 2,500,000 2,500,000 2,500,000
----------- ----------- ----------- ----------- -----------
Total Revenues 22,678,000 26,825,267 35,177,322 43,967,052 53,085,339
Expenses:
G&A - Franchise (3) 12,756,000 14,000,000 15,057,897 16,166,667 17,328,412
Franchise Sales Commissions 4,242,000 3,000,000 3,000,000 3,000,000 3,000,000
Public Company Expenses (4) 772,500 795,675 819,545 844,132
Interest Income (5) (684,000) (600,000) (916,166) (1,145,103) (1,382,347)
----------- ----------- ----------- ----------- -----------
Total Expenses 16,314,000 17,172,500 17,937,406 18,841,110 19,790,196
EBITDA 6,364,000 9,652,767 17,239,916 25,125,942 33,295,143
Depreciation and Amortization 2,126,000 2,600,000 2,600,000 2,600,000 2,600,000
Interest Expense 2,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Pre Tax Income 4,236,000 7,052,767 14,836,617 22,942,108 31,340,246
Taxes (6) 296,520 493,694 1,038,563 6,452,106 11,229,210
----------- ----------- ----------- ----------- -----------
Net Income $3,939,480 $6,559,073 $13,798,054 $16,490,003 $20,111,036
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Wtd Avg Shares Outstanding 20,000,000 20,100,000 20,100,000 20,100,000 20,100,000
EPS $0.20 $0.33 $0.69 $0.82 $1.00
------------- ------------- ------------- ------------- -------------
Current Year Openings (7)
------------- ------------- ------------- ------------- -------------
Microtel 58 50 56 56 54
Hawthorn 40 44 37 37 36
Best 65 65 56 56 54
----------- ----------- ----------- ----------- -----------
Total 163 159 150 149 144
----------- ----------- -----------
Total Open Hotels
Microtel 228 270
Hawthorn 140 175
Best 174 229
----------- -----------
Total 542 674
------------- -------------
Downside Case Franchise Royalties $16,077,329 $22,499,484 $31,105,320 $40,316,064 $50,086,620
New Mgt. Estimates as a % of Downside 105.7% 100.6% 99.3% 98.2% 97.1%
Downside Case G&A Franchise $10,244,806 $11,040,550 $11,874,819 $12,749,207 $13,665,371
Growth Rate 7.8% 7.6% 7.4% 7.2%
Downside Case EPS $0.23 $0.51 $0.86 $0.92 $1.23
New Mgt. Estimates as a % of Downside 85.6% 64.0% 79.8% 89.2% 81.3%
(1) Franchise Royalty fees are projected assuming the openings as given above
and similar RevPAR growth rate as the Downside case.
(2) Other Fee Income assumed to grow at a 5.0% rate in BAS Extrapolation.
(3) G&A Franchise assumed to grown at same annual rates of growth as Downside
case in BAS Extrapolation.
(4) G&A Public Company Expenses assumed to grow at a 3.0% rate in BAS
Extrapolation.
(5) Interest income equals 5.5% of the projected average cash balance in BAS
Extrapolation.
(6) Taxes increase as NOLs are completely utilized.
(7) Openings reduced by (6.5)%, (7.0)% and (10)% for 2002, 2003 and 2004,
respectively. Such percentage reductions equal the decline in the backlog
(6/30/00 vs 3/31/00) for hotels under construction for 2002 and executed
agreements not under construction not under construction for 2 [ILLEGIBLE]
15
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
REVIEW OF NEW MANAGEMENT ESTIMATES
[LOGO]
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
REVIEW OF COMPANY PROJECTIONS
- - BAS has reviewed three sets of projections provided by management.
- The "UPSIDE CASE" is the original projections provided by the
Company at the beginning of Q1 2000 and were included in the
Offering Memorandum.
- The "DOWNSIDE CASE" was provided to BAS later in the process
before the signing of the Recapitalization Agreement as it became
apparent to management that they would likely not be able to
achieve the Upside Case as the competitive environment worsened
and the state of the business and management's views on the future
prospects of the business declined. The Downside case was provided
to the Bears.
- The "NEW MANAGEMENT ESTIMATES" were provided by senior management
after the Recapitalization proposal was executed. Management has
advised BAS that this forecast represents management's views on
the business given the current competitive environment and state
of the Company due to the sales process. This forecast assumes a
strategic transaction is completed that will stabilize the Company
and provide it with some liquidity; however, no changes in the
business model or strategic direction have been made and public
company expenses have remained in the model.
- - Management has advised BAS that it does not believe it can achieve the New
Management Estimates absent a transaction with the Bears and has not
produced estimates that project the operating results of the business
absent a strategic transaction.
- - It is important to note that the Bears had prepared their own independent
financial projections for the Company (which they informed BAS were
different than the Upside or Downside cases) at the time they entered into
the Recapitalization Agreement.
- - Preparation of "New Management Estimates" does not, in any way, suggest
that the Bears were unaware of the factors underlying these revised
estimates or the consequences of those estimates on the Company at the time
the Recapitalization Agreement was entered into.
- - A review of the three scenarios and a listing of some of the major
assumptions for each has been provided on the following pages.
17
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
REVIEW OF COMPANY PROJECTIONS
2000E 2001E 2002E 2003E 2004E
----------- ----------- ----------- ----------- -----------
Upside Case (1)
Total Revenues $24,740,268 $36,444,709 $48,198,715 $60,630,964 $73,717,166
EBITDA 11,037,268 22,814,722 34,716,504 47,507,115 61,312,266
Pre-Tax Income 8,667,472 20,219,926 31,896,708 44,462,319 58,042,470
EPS $0.40 $0.93 $1.06 $1.40 $1.83
Downside Case (2)
Total Revenues $21,901,329 $28,567,484 $37,423,320 $46,884,064 $56,904,620
EBITDA 7,338,655 13,563,263 22,200,504 31,609,931 41,733,754
Pre-Tax Income 4,968,859 10,918,467 19,280,708 28,415,135 38,263,958
EPS $0.23 $0.51 $0.86 $0.92 $1.23
New Management Estimates (1)
Total Revenues $22,678,000 $26,825,267
EBITDA 6,364,000 9,652,767
Pre-Tax Income 4,236,000 7,052,767
EPS $0.20 $0.33
Downside Revenues / Upside Revenues 88.5% 78.4% 77.6% 77.3% 77.2%
Downside EBITDA / Upside EBITDA 66.5% 59.4% 63.9% 66.5% 68.1%
Downside Pre-Tax/Upside Pre-Tax 57.3% 54.0% 60.4% 63.9% 65.9%
Downside EPS / Upside EPS 57.3% 55.1% 81.5% 65.5% 67.1%
Downside Revenues / New Management Revenues 3.5% -6.1%
Downside EBITDA / New Management EBITDA -13.3% -28.8%
Downside Pre-Tax / New Management Pre-Tax -14.7% -35.4%
Downside EPS / New Management EPS -13.4% -36.0%
(1) Excludes management company operating results.
(2) Includes management company operating results.
Note: All Estimates taken from projections provided to BAS by Cube management.
18
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
MAJOR ASSUMPTIONS
---------------------------------------------- ----------------------------------------------
Upside Case Downside Case
---------------------------------------------- ----------------------------------------------
2000E 2001E 2002E 2003E 2004E 2000E 2001E 2002E 2003E 2004E
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Hotel Openings
Microtel 60 60 60 60 60 60 60 60 60 60
Hawthorn 49 49 49 49 49 40 40 40 40 40
Best 73 73 73 73 73 60 60 60 60 60
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 182 182 182 182 182 160 160 160 160 160
Total Chain Sizes
Microtel 237 295 353 411 469 237 295 353 411 469
Hawthorn 149 197 245 293 341 140 179 218 257 296
Best 178 241 304 367 430 165 215 265 315 365
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total 564 733 902 1,071 1,240 542 689 836 983 1,130
RevPar Change
Microtel 9.3% 7.0% 5.5% 4.6% 4.2% 9.3% 3.6% 3.0% 3.0% 3.0%
Hawthorn -5.0% 4.1% 3.7% 3.1% 2.9% -9.5% 3.1% 3.0% 3.0% 3.0%
Best -6.3% 0.5% 1.1% 1.5% 1.7% -11.6% 1.0% 1.0% 1.0% 1.0%
Chain RevPar
Microtel $27.65 $29.59 $31.20 $32.65 $34.04 $27.66 $28.64 $29.50 $30.40 $31.31
Hawthorn $48.70 $50.71 $52.60 $54.24 $55.77 $46.37 $47.81 $49.25 $50.74 $52.27
Best $27.30 $27.43 $27.72 $28.13 $28.61 $25.76 $26.01 $26.27 $26.54 $26.80
Chain ADR
Microtel $48.50 $50.10 $51.70 $53.31 $54.96 $48.50 $48.50 $48.89 $49.62 $50.56
Hawthorn $81.50 $82.32 $83.47 $84.80 $86.24 $81.00 $81.00 $81.57 $82.79 $84.36
Best $52.00 $53.14 $54.26 $55.40 $56.56 $51.00 $51.51 $52.03 $52.55 $53.07
Chain Occupancy
Microtel 57.0% 59.1% 60.4% 61.3% 61.9% 57.0% 59.1% 60.4% 61.3% 61.9%
Hawthorn 59.8% 61.6% 63.0% 64.0% 64.7% 57.3% 59.0% 60.4% 61.3% 62.0%
Best 52.5% 51.6% 51.1% 50.8% 50.6% 50.5% 50.5% 50.5% 50.5% 50.5%
---------------------------------------
New Management Estimates
---------------------------------------
% Change from Downside
2000E 2001E 2000E 2001E
------ ------ ------ ------
Hotel Openings
Microtel 58 50 -3.3% -16.7%
Hawthorn 40 44 0.0% 10.0%
Best 65 65 8.3% 8.3%
------ ------ ------ ------
Total 163 159 1.9% -0.6%
Total Chain Sizes
Microtel 228 270 -3.8% -8.5%
Hawthorn 140 175 0.0% -2.2%
Best 174 229 5.5% 6.5%
------ ------ ------ ------
Total 542 674 0.0% -2.2%
RevPar Change
Microtel 3.8% 5.6%
Hawthorn 3.0% -3.2%
Best 1.0% 0.0%
Chain RevPar
Microtel
Hawthorn
Best
Chain ADR
Microtel
Hawthorn
Best
Chain Occupancy
Microtel
Hawthorn
Best
Note: All estimates taken from projections provided to BAS by Cube management.
19
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
REVIEW OF 2001 ESTIMATES: NEW MANAGEMENT CASE VS. DOWNSIDE CASE
New Mgt Downside % Change
2001E 2001E From Downside Comment
------------- ------------- ------------- ------------------------------------------------------
Revenues: ----------- ----------- -----
Franchise Royalty Fees $22,625,267 $22,499,484 0.6% RevPAR projections have not changed materially.
Hotel Management Fees -- 900,000 -- Cube is no longer managing hotels.
Other Fee Income 1,700,000 1,585,000 7.3%
Franchise Application Fees 2,500,000 3,583,000 (30.2%) Fee level suffering from loan forgiveness and rebates.
----------- ----------- -----
Total Revenues 26,825,267 28,567,484 (6.1%) Down -2.9% excluding management business.
Expenses:
G&A - Franchise 14,000,000 11,040,550 26.8% Expenses growing at an accelerated rate.
G&A - Management Co. -- 1,000,000 Cube is no longer managing hotels.
Franchise Sales Commissions 3,000,000 3,296,360 (9.0%) No reduction to go along with lower App. Fees.
Public Company Expenses 772,500 772,500 0.0%
Interest Income (600,000) (1,105,189) (45.7%) Lower cash balance and collections on notes.
----------- ----------- -----
Total Expenses 17,172,500 15,004,221 14.5% Up 21.1% excluding management busines.
EBITDA (1) 9,652,767 13,563,263 (28.8%) Down -29.6% excluding management business.
Depreciation and Amortization 2,600,000 2,644,796 (1.7%)
Interest Expense -- -- --
----------- ----------- -----
Pre Tax Income 7,052,767 10,918,467 (35.4%)
Taxes at 7% 493,694 764,293 (35.4%)
----------- ----------- -----
Net Income $6,559,073 $10,154,174 (35.4%) Down -36.3% excluding management
------------- ------------- ------------- business (tax affected).
------------- ------------- -------------
Wtd Avg Shares Outstanding 20,100,000 20,100,000 0.00%
EPS $0.33 $0.51 (35.4%)
------------- ------------- -------------
Current Year Openings ------------- ------------- -------------
Microtel 50 60 (16.7%)
Hawthorn 44 40 10.0%
Best 65 60 8.3%
----------- ----------- -----
Total 159 160 (0.6%) On target on a consolidated basis.
Total Open Hotels
Microtel 270 260 3.8%
Hawthorn 175 179 (2.2%)
Best 229 224 2.2%
----------- ----------- -----
Total 674 663 1.7% Less terminations predicted.
------------- ------------- -------------
(1) All Interest Income has been included in EBITDA.
20
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
REVIEW OF 2001 ESTIMATES: NEW MANAGEMENT CASE VS. DOWNSIDE CASE
- - GENERAL OBSERVATIONS
- The industry has continued its pre-transaction trend of becoming
increasingly competitive as multiple hotel companies have started
a variety of aggressive franchising programs similar to those
operated by Cube. Additionally, management believes that industry
conditions have contributed to poor RevPAR performance at many of
Cube's hotels which have fallen below management's original
expectations resulting in lower royalty revenues. Management has,
therefore, reduced RevPAR growth in the projections.
- Additionally, as the Company's cash balance has deteriorated, Cube
was forced to offer other incentive programs in order to "win" new
contracts. The Company has increasingly relied on royalty rate
reductions and other rebates on recent deals instead of
development subsidies and other up-front investments. Cube's
royalty rate structure and franchise pricing (application fees)
power have deteriorated and are under significant pressure. BAS is
not certain whether this change in business practice (or other
similar changes) were performed independently or at the direction
of the Bears.
- - REVENUES
- Franchise royalty fees have increased $0.1 million from the
downside case, from $22.5 million to $22.6 million, or 0.6%.
Franchise royalty fee projections have not changed dramatically
from the Downside Case; however, they are significantly lower than
the Upside case for a number of reasons, primarily lower RevPAR
performance of the existing portfolio and reduced projections for
RevPAR growth. Additionally, the Company is projecting a decline
in the number of royalty paying hotels (from the Upside Case) as
the number of projected openings in 2001 has decreased from 182 to
159 and the number of projected terminations has increased from 15
to 30 (and such terminations include a number of Hawthorns that
are among the largest revenue producers).
- Additionally, the Company has projected an increased number of
royalty rebates from hotels which are not performing
satisfactorily. Such rebates are not always contractual
obligations; however, management believes they are necessary to
keep hotels in the chain and represents good long-term business
decisions.
- Other fee income has increased $0.1 million from the Downside
case, from $1.6 million to $1.7 million, or 7.3%, due to minor
changes in the Company's projections.
- Application fees have decreased $(1.1) million from the Downside
case, from $3.6 million to $2.5 million, or (30.2)% as a result of
lower effective application fees after taking into consideration
forgiven notes and refunded fees on a higher percentage of deals
than originally projected.
21
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
REVIEW OF 2001 ESTIMATES: NEW MANAGEMENT CASE VS. DOWNSIDE CASE
- - EXPENSES
- General and administrative expenses are projected to increase $3.0
million (excluding one time costs) from the Downside case, from
$11.0 million to $14.0 million, or 26.8% due to the following
factors some of which may have existed before the signing of the
Recapitalization:
- an increase in legal expenses from loan write-offs and
other ongoing business problems.
- an increase in bad debt expense.
- an increase in personnel and administrative costs due
to hotel openings.
- an increase in other operating expenses associated with
more open hotels.
- a decrease in deferred expense in 2000 due to more
terminated and fewer executed franchise agreements.
- a decrease in deferred commission expense resulting
from less covered draws.
- Franchise sales commissions, which were historically lower than
application fees, are now greater than these fees. Franchise sales
commissions are projected to decrease ($0.3) million from the
Downside case, from $3.3 million to $3.0 million, or (9.0)%. The
profit on application fees is projected to decrease $(0.8) million
from the Downside case, from $0.3 million to $(0.5) million due to
the following factors:
- an increase in the forgiveness of notes issued by the
Company and used by the franchisees to pay the
application fees.
- an increase in refunded application fees for those
franchisees who develop and open their hotels upon an
agreed upon schedule.
- an increase in the number of license agreements
terminated without a corresponding decrease in
commissions refunded by the salesforce.
- Interest income has also decreased $(0.5) million from the
Downside case, from $1.1 million to $0.6 million, or (45.7)% due
to a reduction in the amount of cash that Cube presently holds in
the bank and a decrease in the interest income collected and/or
recognized on outstanding notes.
22
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
REVIEW OF COMPETITIVE ENVIRONMENT
[LOGO]
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
CHANGING COMPETITIVE ENVIRONMENT IN FRANCHISING SINCE SIGNING RECAPITALIZATION
- - Both Secondary and Primary hotel brands have continued to become more
aggressive in their franchising efforts, reducing application fees,
offering more up-front cash and reducing royalty and reservation/marketing
fees in order to sign new deals. Examples of increased competitiveness
which have had an effect on Cube's business since the signing of the
Recapitalization Agreement are provided below:
- - CENDANT. Cendant has redoubled its efforts in growing its original core
business of hotel franchising. Examples include:
- Created a $50 million development fund offering mezzanine
financing in order to provide incentive programs for new
construction and conversion projects which will finance up to 20%
of the project cost and provide a development incentive up to a
maximum loan amount of 5% of project cost.
- Acquisition of the AmeriHost brand, an all new-build, budget
competitor to Microtel.
- Travelodge's new "No Gain, No Pain" policy which guarantees that a
conversion hotel's business will improve by at least 15%.
- - PARK INN. The Park Inn brand has entered into a joint venture with Carlson
Hospitality in order to jump-start their franchising program. The JV is
hiring eight franchise sales staff and has contacted several of the
Company's salesman.
- - LAQUINTA. LaQuinta announced the imminent launch of its new franchising
program which is expected to kick-off at the beginning of next year. The
Company believes this new program may be particularly successful in Texas
and other areas in the Southwest.
24
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
CHANGING COMPETITIVE ENVIRONMENT IN FRANCHISING SINCE SIGNING RECAPITALIZATION
(CONT.)
- - CHOICE. Many of Choice's brands have launched aggressive franchising
programs including the following:
- Econo Lodge - For new construction and conversion properties less
than five years old, $7,500 reduction in initial fee (from $25,000
to $17,500); cash payment of $25,000 if property opens within 15
months of contract execution (new construction) or converts within
the required date and is less than 5 years old. This brand is also
offering a 1% rebate in royalty paid at the end of each year for
years one and two (or 25% of the 4% fee).
- Sleep Inn and Sleep Inn & Suites - Incentives up to $80,000 in
cash to build a new franchise if open in specified time periods
(after payment of a $40,000 application fee). No royalty fee paid
in the first year and the royalty fee is 2.5% in the second year
(or 50% of the full 5% rate).
- Quality Inn and Quality Inn & Suites - Incentives up to $50,000 in
cash to build a new franchise if the hotel opens in the specified
time period (after payment of a $35,000 application fee). No
royalty fee paid for 12 months running from the end of 20 months
after contract execution, rebate of marketing fee for 12 months,
and royalty reduction in year one from 4% to 3.25% and year two
from 4% to 3.75%.
- - VAGABOND INNS. Vagabond, an economy hotel brand focussed in the Western
U.S., announced the kick-off of their franchising effort led by two former
HFS executives. Application fees are targeted at $1,500 per hotel.
- - Other hotel franchising companies such as Accor, AmericInn, Bass, Best
Western, Candlewood, Hilton, Prime, Suburban Lodge and Wyndham (among
others) continue to aggressively pursue hotel owners offering various
incentives, many of which are similar to the new programs listed above.
25
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
REVIEW OF APPLICATION FEES AND ROYALTY REDUCTION STRATEGIES
[LOGO]
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
REVIEW OF APPLICATION FEES AND ROYALTY REDUCTION PROGRAM
- - Historically, the Company has often attracted franchising applications by
offering certain financial incentives (in addition to attracting
franchisees through the quality of its brands and attention to the needs of
franchisees, among other factors) including (i) up-front development
subsidies which are amortized over the life of the contract and repaid only
if the hotel leaves the system; (ii) lower application fees and the
forgiveness of application fees under certain circumstances; (iii) rebates
and/or the reduction of royalty rates under certain circumstances and (iv)
to aid in the development of the properties.
- - In response to the intensifying competitive landscape in the franchising
market and the Company's limited cash position, Cube has limited any sales
incentives which require up-front capital investments and, instead,
increasingly utilized lower effective application fees and reduced royalty
rates to win applications.
- - Application fees now average approximately $20,000 per hotel, with 55%
being paid in cash and 45% paid in a note. However the note is often
forgiven or up to 100% of the application fee is refunded if the hotel
opens according to an agreed-upon schedule. Average current application
fees for the three brands versus the average fees received several months
ago are provided on the following page.
- - Additionally, franchise salesmen are still paid their full commission for
deals even if much of the application fee is refunded or forgiven by the
Company. Therefore, application fees are no longer a profit center for the
Company and are a net drain on cash.
- - Although management states there is no standard deal, a significant number
of all deals are getting rebates or other credits to the traditional
royalty rate structure and only 1% of new deals will get a development
subsidy. A review of a comparison of royalty rates being currently
negotiated versus the traditional standard is provided on the following
page.
27
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
REVIEW OF APPLICATION FEES AND ROYALTY REDUCTION PROGRAM
- - AVERAGE APPLICATION FEES:
------------------------------------------------------------------------------------------------------------------------
HISTORICAL AVG. CURRENT AVG. OTHER
APPLICATION FEE APPLICATION FEE (1) COMMENTS
------------------- --------------------------- -------------------------------------------------
MICROTEL $18,000 $17,000 - $20,000 Management is now forgiving many of the notes
issued to franchisees and/or rebating up to 100%
of the application fees.
HAWTHORN $22,000 $25,000 Same as Microtel.
BEST $11,000 $10,000 - $15,000 Most severe problem, Company will make the
most aggressive deals with this brand.
------------------------------------------------------------------------------------------------------------------------
- - AVERAGE ROYALTY RATES:
------------------------------------------------------------------------------------------------------------------------
HISTORICAL AVG. CURRENT AVG. APPROX. PERCENTAGE OF NEW APPLICATIONS
ROYALTY RATES ROYALTY RATES WHERE ROYALTY RATES ARE REDUCED
------------------- --------------------------- -------------------------------------------------
MICROTEL 4%, 5%, 6% 3%, 4.5%, 6% 20%
HAWTHORN 5% Less 1% - 2% for one to 30% - 40%
two years
BEST 3%, 4%, 5% 1%, 2%, 3%, 4%, 5% Greater than 50%
------------------------------------------------------------------------------------------------------------------------
Source: Cube Management.
(1) Current averages include notes issued by Cube and do not take into account
the forgiveness of such notes or the fees that may be refunded.
28
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
REVIEW OF BACKLOG COMPLIANCE PROGRAM
[LOGO]
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
REVIEW OF BACKLOG COMPLIANCE PROGRAM
- - THE COMPLIANCE PROCESS THAT HAS REDUCED THE COMPANY'S BACKLOG DID NOT
SIGNIFICANTLY DECREASE THE NUMBER OF PROJECTED OPENINGS FOR 2001 (159
COMPARED TO DOWNSIDE CASE TOTAL OF 165) AND, THEREFORE, IT DOES NOT HAVE A
SIGNIFICANT IMPACT ON THE COMPANY'S FINANCIAL PROJECTIONS FOR 2001.
- - HOWEVER, MANAGEMENT BELIEVES THAT THE BACKLOG REDUCTION COULD HAVE AN
EFFECT ON THE PROJECTIONS IN FUTURE YEARS (ALTHOUGH SUCH PROJECTIONS HAVE
NOT BEEN PREPARED BY MANAGEMENT).
- During the first half of 2000, the Company implemented a
comprehensive franchisee compliance program and restructured its
sales force. The initiatives were undertaken to enable the Company
to more effectively evaluate and, if necessary, terminate the
license agreements of non-complying hotels, thereby "opening up"
the related territory to new prospective franchisees.
- The program evaluates hotels in development and open hotels to
ensure such hotels conform to the license agreements in terms of
opening milestones, quality standards, and financial obligations.
- Additionally, the Company has begun to more stringently monitor
the progress of franchisees converting accepted applications into
executed license agreements and has more aggressively terminated
accepted applications that have not progressed as required.
30
CONFIDENTIAL & DRAFT
REVIEW OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
BACKLOG COMPARISON BETWEEN 3/31/00 AND 6/30/00 TOTALS
- ------------------------------------------------------------------------------------------------
Backlog as of 3/31/00 Hawthorn Microtel Best Total
- --------------------- -------- -------- ---- -----
Open 110 190 125 425
Executed Agreements and Under Construction 40 56 28 124
Executed Agreements but Not Under Construction 135 253 31 419
Approved Applications 66 102 128 296
----- ----- ----- -----
Total Under Development 241 411 187 839
Open Plus Future Openings 351 601 312 1,264
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Backlog as of 6/30/00 Hawthorn Microtel Best Total
- --------------------- -------- -------- ---- -----
Open 126 196 142 464
Executed Agreements and Under Construction 32 58 26 116
Executed Agreements but Not Under Construction 125 237 28 390
Approved Applications 46 26 53 125
----- ----- ----- -----
Total Under Development 203 321 107 631
Open Plus Future Openings 329 517 249 1,095
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Difference (Number of Hotels) Hawthorn Microtel Best Total
- ----------------------------- -------- -------- ---- -----
Open 16 6 17 39
Executed Agreements and Under Construction (8) 2 (2) (8)
Executed Agreements but Not Under Construction (10) (16) (3) (29)
Approved Applications (20) (76) (75) (171)
----- ----- ----- -----
Total Under Development (1) (38) (90) (80) (208)
Open Plus Future Openings (1) (22) (84) (63) (169)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Difference (%) Hawthorn Microtel Best Total
- -------------- -------- -------- ---- -----
Open 14.5% 3.2% 13.6% 9.2%
Executed Agreements and Under Construction -20.0% 3.6% -7.1% -6.5%
Executed Agreements but Not Under Construction -7.4% -6.3% -9.7% -6.9%
Approved Applications -30.3% -74.5% -58.6% -57.8%
----- ----- ----- -----
Total Under Development (1) -15.8% -21.9% -42.8% -24.8%
Open Plus Future Openings (1) -6.3% -14.0% -20.2% -13.4%
- ------------------------------------------------------------------------------------------------
(1) Does not take into account historical opening percentages provided by the
Company.
Source: Cube 3/31/00 and 6/30/00 10Q's.
- --------------------------------------------------------------------------------
The most current backlog (which is updated daily) totals 1,152 open hotels or
hotels in development, or an increase of 57 hotels since 6/30/00. The backlog is
composed of 481 open hotels, 108 hotels under construction, 371 executed
agreements and 192 approved applications.
- --------------------------------------------------------------------------------
31
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
ANALYSIS OF STAND ALONE BUSINESS
CONFIDENTIAL & DRAFT
ANALYSIS OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
CUBE PER SHARE EQUITY REFERENCE RANGES - NEW MANAGEMENT ESTIMATES
The $5.00 all-cash purchase price represents a 15.1% premium to Cube's
closing price on 9/15/00 of $4.344.
[GRAPHIC OMITTED]
[The following table was depicted as a bar chart in the printed material.]
------------------------------------- ------------------------------------
Current Price: $4.344 Purchase Price: $5.00
------------------------------------- ------------------------------------
Equity Value per Share
---------------------------------
Low High
------------ ------------
Comparable Transactions $2.34 $3.40
Comparable Company $1.58 $3.92
Premiums Paid (1) $5.39 $5.79
DCF (2) $4.88 $7.92
(1) BAS places less weight on the Premiums Paid Analysis because
Cube's trading price reflects the announcement of the
Recapitalization Agreement and, therefore, already contains
a change of control premium.
(2) BAS has not been provided with updated management projections
for the years 2002 through 2004 and has built such forecasts
independently in order to complete the analysis. Please see
page 15 for a review of BAS' assumptions. As a result, BAS
places less weight on this analysis.
33
CONFIDENTIAL & DRAFT
ANALYSIS OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
CUBE PER SHARE EQUITY REFERENCE RANGES - DOWNSIDE CASE ASSUMPTIONS
The $5.00 all-cash purchase price represents a 15.1% premium to Cube's
closing price on 9/15/00 of $4.344.
[GRAPHIC OMITTED]
[The following table was depicted as a bar chart in the printed material.]
------------------------------------- ------------------------------------
Current Price: $4.344 Purchase Price: $5.00
------------------------------------- ------------------------------------
Equity Value per Share
-----------------------------------------
Low High
------------ ------------
Comparable Transactions $2.70 $ 3.44
Comparable Company $1.84 $ 6.12
Premiums Paid (1) $5.39 $ 5.79
DCF $6.28 $10.07
(1) BAS places less weight on the Premiums Paid Analysis because
Cube's trading price reflects the announcement of the
Recapitalization Agreement and, therefore, already contains
a change of control premium.
34
CONFIDENTIAL & DRAFT
ANALYSIS OF STANDALONE BUSINESS
- --------------------------------------------------------------------------------
ANALYSIS AT VARIOUS PRICES
(Dollars in millions, except per share figures)
Consideration:
-----
Current Cube Stock Price $4.34
-----
------
$4.50 $4.75 $5.00 $5.50 $6.00 $6.50 $7.00 $7.50
Premium to Current Stock Price 0.0% 3.6% 9.4% 15.1% 26.6% 38.1% 49.6% 61.2% 72.7%
Shares Outstanding 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1
Total Equity Consideration $87.2 $90.3 $95.4 $100.4 $110.4 $120.4 $130.5 $140.5 $150.3
Plus Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Less Cash 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4
----- ----- ----- ------ ------ ------ ------ ------ ------
Aggregate Value $84.8 $87.9 $92.9 $98.0 $108.0 $118.0 $128.1 $138.1 $148.1
Upside Case
Consideration as a Multiple of:
Equity Consideration/
Net Income (1)
-----
LTM $4.8 18.2x 18.8x 19.9x 20.9x 23.0x 25.1x 27.2x 29.3x 31.4x
2000E $8.1 10.8x 11.2x 11.8x 12.4x 13.6x 14.9x 16.1x 17.4x 18.6x
2001E $18.8 4.6x 4.8x 5.1x 5.3x 5.9x 6.4x 6.9x 7.5x 8.0x
Aggregate Value/
EBITDA (2)
LTM $7.3 11.6x 12.0x 12.7x 13.4x 14.8x 16.2x 17.5x 18.9x 20.3x
2000E $11.0 7.7x 8.0x 8.4x 8.9x 9.8x 10.7x 11.6x 12.5x 13.4x
2001E $22.8 3.7x 3.9x 4.1x 4.3x 4.7x 5.2x 5.6x 6.1x 6.5x
-----
Downside Case
Consideration as a Multiple of:
Equity Consideration/
Net Income (1)
-----
LTM $4.8 18.2x 18.8x 19.9x 20.9x 23.0x 25.1x 27.2x 29.3x 31.4x
2000E $4.6 18.9x 19.5x 20.6x 21.7x 23.9x 26.1x 28.2x 30.4x 32.6x
2001E $10.2 8.6x 8.9x 9.4x 9.9x 10.9x 11.9x 12.9x 13.8x 14.8x
Aggregate Value/
EBITDA (2)
LTM $7.3 11.6x 12.0x 12.7x 13.4x 14.8x 16.2x 17.5x 18.9x 20.3x
2000E $7.3 11.6x 12.0x 12.7x 13.4x 14.8x 16.2x 17.5x 18.9x 20.3x
2001E $13.6 6.2x 6.5x 6.8x 7.2x 7.9x 8.7x 9.4x 10.2x 10.9x
-----
- --------------------------------------------------------------------------------------------------------------------------
New Management Estimates
Consideration as a Multiple of:
Equity Consideration/
Net Income (1)
-----
LTM $4.8 18.2x 18.8x 19.9x 20.9x 23.0x 25.1x 27.2x 29.3x 31.4x
2000E $3.9 22.1x 22.9x 24.2x 25.5x 28.0x 30.6x 33.1x 35.7x 38.2x
2001E $6.6 13.3x 13.8x 14.5x 15.3x 16.8x 18.4x 19.9x 21.4x 23.0x
Aggregate Value/
EBITDA (2)
LTM $7.3 11.6x 12.0x 12.7x 13.4x 14.8x 16.2x 17.5x 18.9x 20.3x
2000E $6.4 13.3x 13.8x 14.6x 15.4x 17.0x 18.5x 20.1x 21.7x 23.3x
2001E $9.7 8.8x 9.1x 9.6x 10.1x 11.2x 12.2x 13.3x 14.3x 15.3x
----- ------
- --------------------------------------------------------------------------------------------------------------------------
(1) Net Income includes the effect of the Company's NOLs.
(2) EBITDA includes interest income.
Note: LTM as of June 30, 2000
35
CONFIDENTIAL & DRAFT
ANALYSIS OF STANDALONE BUSINESS
- --------------------------------------------------------------------------------
SUMMARY SHARES OUTSTANDING
- -----------------------------------
ACQUISITION PRICE $5.00
- -----------------------------------
Option Number of Value of Less Exercise Net Option Incremental
Price Options Options Price Value Shares Out.
- ------ --------- ---------- ------------- ---------- -----------
$0.10 38,990 $194,950 $4,032 $190,918 38,184
$0.11 18,817 94,085 2,140 91,945 18,389
$4.50 545,700 2,728,500 2,455,650 272,850 54,570
$4.55 36,000 180,000 163,800 16,200 3,240
$4.81 155,450 777,250 747,715 29,536 5,907
$5.81 32,000 -- -- -- --
$6.38 2,000 -- -- -- --
$8.13 1,000 -- -- -- --
$9.78 14,000 -- -- -- --
$10.00 10,000 -- -- -- --
$13.00 4,000 -- -- -- --
$13.50 22,000 -- -- -- --
------- ---------- ---------- -------- ----------
879,957 $3,974,785 $3,373,336 $601,449 120,290
Incremental Shares from Options (Treasury Method) 120,290
Class A Shares 17,245,834
Class B Shares 2,707,919
----------
- --------------------------------------------------------------------------------
Full Diluted Shares Outstanding 20,074,043
- --------------------------------------------------------------------------------
Note: Share and Option information from Cube management.
36
CONFIDENTIAL & DRAFT
ANALYSIS OF STAND ALONE BUSINESS
- --------------------------------------------------------------------------------
COMPONENTS OF ANALYSIS
BAS CONSIDERED FOUR PRIMARY FINANCIAL ANALYSES IN ITS REVIEW OF THE STANDALONE
BUSINESS:
A. COMPARABLE TRANSACTION ANALYSIS: This analysis focuses on multiples
paid in the most comparable change of
control transactions, therefore
reflecting the theoretical values
which could be paid for the Company.
Selected pending and completed M&A
transactions are analyzed with respect
to both operating performance and
valuation data, resulting in an
implied private market valuation.
B. COMPARABLE COMPANY ANALYSIS: This analysis focuses on multiples of
currently traded public companies,
therefore reflecting the theoretical
values which public investors would
pay for the Company. Selected publicly
traded companies are analyzed with
respect to both operating performance
and valuation data, resulting in an
implied public market valuation.
C. PREMIUMS PAID ANALYSIS: This analysis focuses on premiums paid
in the most comparable change of
control transactions, therefore
reflecting the theoretical values
which could be paid for the Company.
Selected completed M&A transactions
are analyzed with respect to premiums
paid compared to the closing trading
price of the target one day, one week
and one month prior to announcement of
the transaction.
D. DISCOUNTED CASH FLOW ANALYSIS: The Company's long-term earnings
potential is analyzed by looking at
its ability to generate free cash flow
to the investor. The cash flows
estimated to be generated by the
Company and the potential terminal
value of the Company five years out is
discounted back to the current date at
various discount rates to determine
the potential value of such cash flow
streams in current dollars.
37
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
COMPARABLE TRANSACTION ANALYSIS
[LOGO]
CONFIDENTIAL & DRAFT
COMPARABLE TRANSACTION ANALYSIS
- --------------------------------------------------------------------------------
REFERENCE RANGE
Equity Value Range
Multiple Range Aggregate Value Range Equity Value Range per Share
Operating -------------- --------------------- Less ------------------ ------------------
Statistic (1) Low High Low High Net Debt (2) Low High Shares Low High
------------- ----- ------ --------- ----------- ------------ ------- -------- ------ ------- --------
Upside Case
2000 EBITDA $11.0 7.0x - 9.0x $77.3 - $99.3 ($2.4) $79.7 - $101.8 20.1 $3.97 - $5.07
Downside Case
2000 EBITDA $7.4 7.0x - 9.Ox $51.8 - $66.6 ($2.4) $54.2 - $69.0 20.1 $2.70 - $3.44
- ------------------------------------------------------------------------------------------------------------------------------------
New Management Estimates
LTM EBITDA $7.3 7.0x - 9.0x $51.2 - $65.8 ($2.4) $53.6 - $68.2 20.1 $2.67 - $3.40
2000 EBITDA $6.4 7 Ox - 9.Ox $44.5 - $57.3 ($2.4) $47.0 - $59.7 20.1 $2.34 - $2.97
- ------------------------------------------------------------------------------------------------------------------------------------
BAS Reference Ran $2.34 - $3.40
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Projections from Cube management.
(2) Equals cash balance as of June 30, 2000.
39
CONFIDENTIAL & DRAFT
COMPARABLE TRANSACTION ANALYSIS
- --------------------------------------------------------------------------------
MERGER MARKET ANALYSIS
(dollars in millions, except per share data)
====================================================================================================================================
Date Agg. Val. Number Agg. Value/ Agg. Value/
Ann. Target Name Acquiror Name ($mil) of Keys Num. of Keys LTM EBITDA
- ------------------------------------------------------------------------------------------------------------------------------------
8/18/00 Brands of AmeriHost Properties Cendant Corporation NA 5,203 NA NA
2/28/00 Bristol Hotels & Resorts, Inc. Bass PLC $155.6 29,228 $5,322 10.3x
9/19/99 Promus Hotel Corp. Hilton Hotels Corp. 3,783.1 198,526 19,056 8.8x
1/6/99 ExecuStay Corp Marriott International Inc 139.9 5,350 26,150 11.1x
3/23/98 Summerfield Hotel Corp Patriot Amer Hosp/Wyndham Intl 298.9 4,681 63,857 8.9x
9/9/97 Westin Hotel Co Starwood Lodging Trust 1,829.6 49,661 36,842 13.Ox
9/2/97 Doubletree Corp Promus Hotel Corp 2,217.2 59,059 37,541 12.8x
4/14/97 Wyndham Hotel Corp Patriot Amer Hosp/Wyndham Intl 850.2 26,595 31,967 15.0x
3/1/97 Renaissance Hotel Group Marriott International 1,000.0 46,425 21,540 NA
9/19/96 Equity Inns Lessee Interstate Hotels 53.0 6,246 8,485 6.7x
12/20/95 Nat'l Gaming, Motels of Amer, Travelodge HFS 170.0 36,000 4,722 NA
12/19/95 RFS, Inc. Doubletree Corp 58.1 6,700 8,672 9.2x
11/28/94 Westin Hotels & Resorts Starwood Capital, Goldman Sachs 561.0 40,000 14,025 10.2x
2/15/93 Super 8 Hotels Hospitality Franchise Systems 125.0 NA NA 7.8x
1/13/92 Days Inns of America, Inc. Hospitality Franchise Systems 251.0 NA NA 5.0x
6/10/90 Howard Johnson & Ramada (Prime Motor Inns) Blackstone Capital 170.0 NA NA 11.3x
- ------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total Average $23,182 1O.Ox
Total Median $2O,298 1O.2x
--------------------------------------------------------------------------------
Source: Securities Data Company, SEC Filings, FactSet, Bloomberg News.
Note: Aggregate value and number of keys data obtained from press releases and
SEC public filings.
40
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS
[LOGO]
CONFIDENTIAL & DRAFT
COMPARABLE COMPANY ANALYSIS
- --------------------------------------------------------------------------------
REFERENCE RANGE
(dollars in million except per share figures)
Equity Value Range
Multiple Range Aggregate Value Range Equity Value Range per Share
Operating -------------- --------------------- Less ------------------ ------------------
Statistic (1) Low High Low High Net Debt (2) Low High Shares Low High
------------- ----- ------ --------- ----------- ------------ ------- -------- ------ ------- --------
Upside Case
2000 EPS $0.40 8.0x - 13.0x $3.20 - $5.20
2001 EPS $0.92 7.0x - 12.0x $6.44 - $11.04
2000 EBITDA $11.0 6.0x - 8.0x $66.2 - $88.3 ($2.4) $68.6 - $90.7 20.1 $3.42 - $4.52
2001 EBITDA $22.8 5.0x - 7.5x $114.1 - $171.1 ($2.4) $116.5 - $173.5 20.1 $5.80 - $8.64
Downside Case
2000 EPS $0.23 8.0x - 13.0x $1.84 - $2.99
2001 EPS $0.51 7.0x - 12.0x $3.57 - $6.12
2000 EBITDA $7.4 6.0x - 8.0x $44.4 - $59.2 ($2.4) $46.8 - $61.6 20.1 $2.33 - $3.07
2001 EBITDA $13.6 5.0x - 7.5x $68.0 - $102.0 ($2.4) $70.4 - $104.4 20.1 $3.51 - $5.20
- ------------------------------------------------------------------------------------------------------------------------------------
New Management Estimates
LTM EPS $0.24 8.0x - 13.0x 20.1 $1.91 - $3.10
2000 EPS $0.20 8.0x - 13.0x 20.1 $1.58 - $2.56
2001 EPS $0.33 7.0x - 12.0x 20.1 $2.28 - $3.92
LTM EBITDA $7.3 6.0x - 8.0x $43.8 - $58.4 ($2.4) $46.2 - $60.8 20.1 $2.30 - $3.03
2000 EBITDA $6.4 6.0x - 8.0x $38.2 - $50.9 ($2.4) $40.6 - $53.3 20.1 $2.02 - $2.66
2001 EBITDA $9.7 5.0x - 7.5x $48.3 - $72.4 ($2.4) $50.7 - $74.8 20.1 $2.52 - $3.73
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
BAS Reference Range $1.58 - $3.92
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Projections from Cube management.
(2) Equals cash balance as of June 30, 2000.
42
CONFIDENTIAL & DRAFT
COMPARABLE COMPANY ANALYSIS
- --------------------------------------------------------------------------------
MULTIPLE RANGES
(Dollars in millions, except per share data)
12 Month
Shares Price ------------- % Above Market
Company Symbol O/S 9/8/00 Low High Low Cap.
- -------------------------------------------------------------------------------------------------------------------------------
------
Franchisors/ Choice Hotels International, Inc. CHH 52.8 $8.50 $8.13 17.38 4.6% $448.8
Management Four Seasons Hotels FS 33.8 78.50 34.06 81.25 130.5% 2,653.3
Companies Cendant Corporation (3) CD 726.2 13.00 11.84 26.94 9.8% 9,440.6
Marriott International, Inc. MAR 240.1 38.63 26.13 42.38 47.8% 9,272.7
MeriStar Hotels & Resorts, Inc. MMH 35.9 2.44 2.13 3.63 14.7% 87.4
U.S. Franchise Systems, Inc. (4) USFS 20.1 4.13 3.75 17.38 10.0% 82.8
Average 36.2%
Average (excluding Cube and Four Seasons) 19.2%
Median 12.4%
Median (excluding Cube and Four Seasons) 12.2%
Owners/ Accor SA (8) ACRFY 393.6 $21.63 $18.13 26.47 19.3% $8,510.7
Operators Bass PLC (9) BAS 873.0 9.88 9.56 13.88 3.3% 8,620.9
WestCoast Hospitality Corp. WEH 12.9 6.44 5.50 8.63 17.0% 83.4
Granada Compass PLC (9) GCP LN 2,236.0 12.03 10.99 12.25 9.5% 26,906.1
Hilton Hotels Corp. (5) HLT 368.5 11.50 6.38 11.63 80.4% 4,237.9
Prime Hospitality Corp. PDQ 45.1 10.38 7.25 11.00 43.1% 467.9
Starwood Hotels & Resorts (6) HOT 193.3 32.69 19.50 35.56 67.6% 6,319.9
Wyndham International (7) WYN 167.8 2.19 1.69 3.94 29.6% 367.1
Average 33.7%
Median 36.6%
Overall Average (excluding Cube and Four Seasons) 28.9%
Overall Median (excluding Cube and Four Seasons) 18.2%
S&P 500 SP50 1,494.50 1,233.70 1,553.11 21.1%
Nasdaq COMP 3,978.41 2,632.01 5,132.52 51.2%
------
Calendar EPS (2) Secular Price/Earnings 1999 P/E
Agg. -------------------- Growth ------------------- to Growth
Company Value (1) 1999A 2000E 2001E Rate 1999A 2000E 2001E Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Franchisors/ Choice Hotels International, Inc. $767.4 $1.03 $1.09 $1.22 16% 8.3x 7.8x 7.0x 51.6%
Management Four Seasons Hotels 2,768.5 1.71 1.95 2.48 16% 45.9x 40.3x 31.7x 286.9%
Companies Cendant Corporation (3) 12,647.6 1.04 1.04 1.10 15% 12.5x 12.5x 11.8x 83.3%
Marriott International, Inc. 10,820.7 1.60 1.90 2.17 15% 24.1x 20.3x 17.8x 160.9%
MeriStar Hotels & Resorts, Inc. 179.7 0.24 0.31 0.39 22% 10.2x 7.9x 6.3x 46.2%
U.S. Franchise Systems, Inc. (4) 80.4 0.28 0.20 0.33 30% 14.7x 20.9x 12.6x 49.1%
Average 19% 19.3x 18.3x 14.5x 11.3%
Average (excluding Cube and Four Seasons) 17% 13.8x 12.1x 10.7x 125.8%
Median 16% 13.6x 16.4x 12.2x 67.5%
Median (excluding Cube and Four Seasons) 16% 11.3x 10.2x 9.4x 83.3%
Owners/ Accor SA (8) $10,359.7 $0.90 $1.05 $1.25 17% 24.0x 20.6x 17.3x 141.3%
Operators Bass PLC (9) 11,176.9 1.03 0.90 0.92 6% 9.6x 11.0x 10.7x 159.8%
WestCoast Hospitality Corp. 254.7 0.71 0.61 NA 15% 9.1x 10.6x NA 60.4%
Granada Compass PLC (9) 30,059.8 0.48 0.53 0.59 12% 25.1x 22.7x 20.4x 208.9%
Hilton Hotels Corp. (5) 10,160.9 0.58 0.69 0.78 15% 19.8x 16.7x 14.7x 132.2%
Prime Hospitality Corp. 846.7 1.05 1.16 1.29 10% 9.9x 8.9x 8.0x 98.8%
Starwood Hotels & Resorts (6) 11,746.9 1.54 1.90 2.23 17% 21.2x 17.2x 14.7x 124.9%
Wyndham International (7) 4,024.1 (1.21) (0.65) (0.49) 8% NM NM NM NM
Average 13% 17.0x 15.4x 14.3x 132.3%
Median 12% 16.9x 13.8x 14.3x 146.1%
Overall Average (excluding Cube and Four Seasons) 14% 15.8x 14.2x 12.9x 115.3%
Overall Median (excluding Cube and Four Seasons) 15% 12.5x 12.5x 13.2x 124.9%
S&P 500 50.82 57.65 63.04 NA 29.4x 25.9x 23.7x NA
Nasdaq
------------ --------
(1) Aggregate value is defined as market capitalization plus total debt less
cash and cash equivalents.
(2) Estimates are from Banc of America, IBES or First Call.
(3) Cendant financials are pro forma for all one time expenses associated with
the CUC merger and settlement.
(4) USFS estimates are from management.
(5) Hilton operating data and debt pro forma for Promus acquisition.
(6) Starwood financials are pro forma for ITT and Westin acquisitions, and
sale of Caesars.
(7) Wyndham financials are pro forma for Apollo/Thomas H. Lee/Beacon
Investment, C-Corp restructuring, new debt financing and Interstate
spin-off.
(8) Accor information converted to US Dollars from Euros using exchange rate
of $0.87 per Euro, as of 9/8/00.
(9) Bass and Granada information converted to U.S. Dollars from pounds using
exchange rate of $12.03 per pound, as of 9/8/00.
43
CONFIDENTIAL & DRAFT
COMPARABLE COMPANY ANALYSIS
- --------------------------------------------------------------------------------
MULTIPLE RANGES
(Dollars in millions, except per share data)
LTM (1) LTM Margins
LTM -------------------------- --------------------
Company Ended Revenues EBIDTA EBIT EBITDA EBIT Net
- ----------------------------------------------------------------------------------------------------------------------------
Franchisors/ Choice Hotels International, Inc. 6/30/00 $162.9 $104.4 $94.1 64.1% 57.8% 32.4%
Management Four Seasons Hotels 6/30/00 211.4 81.8 73.0 38.7% 34.5% 30.6%
Companies Cendant Corporation (3) 6/30/00 4,959.0 -744.0 -931.0 NM NM NM
Marriott International, Inc. 6/30/00 9,360.0 1,041.0 861.0 11.1% 9.2% 4.3%
MeriStar Hotels & Resorts, Inc. 6/30/00 1,334.2 34.4 27.7 2.6% 2.1% 1.0%
U.S. Franchise Systems, Inc. (4) 6/30/00 23.4 7.3 4.8 31.2% 20.5% NM
Average
Average (excluding Cube and Four Seasons)
Median
Median (excluding Cube and Four Seasons)
Owners/ Accor SA (8) 12/31/99 $5,289.6 $937.5 $626.4 17.7% 11.8% 5.6%
Operators Bass PLC (9) 4/15/00 7,032.0 1,632.4 1,249.6 23.2% 17.8% 6.9%
WestCoast Hospitality Corp. 6/30/00 120.2 30.5 21.3 25.4% 17.7% 5.4%
Granada Compass PLC (9) 12/31/00 12,690.7 2,150.5 0.0 16.9% NM 5.8%
Hilton Hotels Corp. (5) 6/30/00 3,309.0 1,137.0 748.0 34.4% 22.6% 7.2%
Prime Hospitality Corp. 6/30/00 551.9 170.9 136.9 31.0% 24.8% 10.8%
Starwood Hotels & Resorts (6) 6/30/00 4,198.0 1,447.0 961.0 34.5% 22.9% 7.7%
Wyndham International (7) 6/30/00 2,489.7 668.4 382.8 26.8% 15.4% NM
Average
Median
Overall Average (excluding Cube and Four Seasons)
Overall Median (excluding Cube and Four Seasons)
Aggregate Value/ Capitalization
------------------------------- --------------------------------
LTM LTM 2000E 2001E Total Debt/ Debt/ LTM Price/
Company Revenues EBIDTA EBIDTA EBIDTA Debt (2) Equity Ttl. Cap ROE Book
- ------------------------------------------------------------------------------------------------------------------------------------
Franchisors/ Choice Hotels International, Inc. 4.7x 7.4x 6.9x 6.4x 336.2 NM 82.5% 73.8% 6.3x
Management Four Seasons Hotels 13.1x 33.9x NM 24.9x 256.0 58.9% 37.0% 14.9% 6.1x
Companies Cendant Corporation (3) 2.6x NM 7.3x 6.3x 4,441.0 178.6% 64.1% NM 3.8x
Marriott International, Inc. 1.2x 10.4x 10.2x 8.8x 1,958.0 68.2% 40.6% 14.1% 3.2x
MeriStar Hotels & Resorts, Inc. 0.1x 5.2x 5.8x 4.5x 85.4 87.8% 46.7% 13.6% 0.9x
U.S. Franchise Systems, Inc. (4) 3.4x 11.0x 12.6x 8.3x 0.0 0.0% 0.0% NM 1.5x
Average 13.6x 8.6x 9.9x 45.2% 29.1% 3.6x
Average (excluding Cube and Four Seasons) 7.7x 7.5x 6.5x 58.5% 33.9% 3.5x
Median 10.4x 7.3x 7.4x 43.7% 14.5% 3.5x
Median (excluding Cube and Four Seasons) 7.4x 7.1x 6.3x 55.4% 14.1% 3.5x
Owners/ Accor SA (8) 2.0x 11.1x 8.1x 7.2x $2,997.0 91.4% 47.8% 9.0% 3.0x
Operators Bass PLC (9) 1.6x 6.8x 9.0x 10.3x 2,598.0 62.9% 38.6% 11.7% 1.5x
WestCoast Hospitality Corp. 2.1x 8.4x 6.7x NA 170.9 159.9% 61.5% 6.0% 0.8x
Granada Compass PLC (9) 2.4x 14.0x 18.4x 17.3x 3,456.3 178.4% 64.1% 37.9% 9.8x
Hilton Hotels Corp. (5) 3.1x 8.9x 8.0x 7.6x 6,031.0 392.6% 79.7% 15.4% 2.8x
Prime Hospitality Corp. 1.5x 5.0x 5.1x 5.3x 405.8 63.5% 38.8% 9.3% 11.1x
Starwood Hotels & Resorts (6) 2.8x 8.1x 7.6x 7.2x 5,663.0 152.1% 60.3% 8.7% 34.4x
Wyndham International (7) 1.6x 6.0x 6.1x 5.9x 3,564.4 170.9% 63.1% NM 2.3x
Average 8.5x 8.6x 8.7x 56.7%
Median 8.2x 7.8x 7.2x 60.9%
Overall Average (excluding Cube and Four Seasons) 8.3x 8.3x 7.9x 57.3%
Overall Median (excluding Cube and Four Seasons) 8.1x 7.5x 7.2x 60.9%
--------------- ------
(1) All data excludes extraordinary items, losses or gains from discontinued
operations and cumulative effects of accounting change.
(2) Total debt includes short-term debt.
(3) Cendant financials are pro forma for all one time expenses associated with
the CUC merger and settlement.
(4) USFS estimates are from management.
(5) Hilton operating data and debt pro forma for Promus acquisition.
(6) Starwood financials are pro forma for ITT and Westin acquisitions, and
sale of Caesars.
(7) Wyndham financials are pro forma for Apollo/Thomas H. Lee/Beacon
Investment, C-Corp restructuring, new debt financing and Interstate
spin-off.
(8) Accor information converted to US Dollars from Euros using exchange rate
of $0.87 per Euro, as of 9/8/00.
(9) Bass and Granada information converted to U.S. Dollars from pounds using
exchange rate of $12.03 per pound, as of 9/8/00.
44
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
PREMIUMS PAID ANALYSIS
[LOGO]
CONFIDENTIAL & DRAFT
PREMIUMS PAID ANALYSIS
- --------------------------------------------------------------------------------
REFERENCE RANGE
-----------------------------
PREMIUM OVER STOCK PRICE
PRIOR TO ANNOUNCEMENT
-----------------------------
One Day One Week One Month
-----------------------------
Median Premium - All Transactions 24.7% 30.0% 33.4%
Implied Value based on 9/15/00 Price of $4.34 $5.42 $5.65 $5.79
Median Premium - Purchase Transactions Only 24.1% 29.3% 32.4%
Implied Value based on 9/15/00 Price of $4.34 $5.39 $5.62 $5.75
-------------------------------------------------------------------
Implied Cube Reference Range $5.39 - $5.79
-------------------------------------------------------------------
- ----------
Based on Completed acquisitions between $100 million and $300 million, excluding
technology and biotech deals announced between 1/1/98 and 9/9/90.
Excludes share repurchases, privatizations and transactions with undisclosed
terms.
Includes 281 transactions.
Source: Thomson Financial Securities Data.
(1) BAS places less weight on the Premiums Paid Analysis because Cube's
trading price reflects the announcement of the Recapitalization Agreement
and, therefore, already contains a change of control premium.
46
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
[LOGO]
CONFIDENTIAL & DRAFT
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
DCF - ASSUMES NEW MANAGEMENT CASE
(Dollars in millions, except per share data)
Fiscal Year Ended December 31,
1999 2000P 2001P 2002P 2003P 2004P
----- ----- ----- ----- ----- -----
Revenues $19.7 $22.7 $26.8 $35.2 $44.0 $53.1
EBITDA (1) 7.5 6.4 9.7 17.2 25.1 33.3
Depreciation & Amortization 1.9 2.1 2.6 2.6 2.6 2.6
----- -----------------------------------------
EBIT 5.6 4.2 7.1 14.6 22.5 30.7
Taxes 0.3 0.5 1.0 6.5 11.2
-----------------------------------------
Unlevered Net Income 3.9 6.6 13.6 16.1 19.5
Plus: Depreciation & Amortization 2.1 2.6 2.6 2.6 2.6
Less: (Increase)/Decrease in Working Capital (0.0) (0.1) (0.1) (0.1) (0.1)
Less: Capital Expenditures (0.3) (0.3) (0.3) (0.3) (0.3)
Less: Development Subsidies (3.4) (0.6) (0.6) (0.6) (0.6)
----- ----- ----- ----- -----
Unlevered Free Cash Flow $2.3 $8.2 $15.2 $17.7 $21.1
Assumptions:
Revenue Growth 15.1% 18.3% 31.1% 25.0% 20.7%
EBITDA Margin 38.3% 28.1% 36.0% 49.0% 57.1% 62.7%
EBITDA Growth (15.7%) 51.7% 78.6% 45.7% 32.5%
Tax Rate 7.0% 7.0% 7.1% 28.6% 36.6%
Change in Wkg. Capital as as a % of Total Revenues 0.2% 0.4% 0.3% 0.3% 0.2%
Note: BAS has not been provided with updated management projections for the
years 2002 through 2004 and has built such forecasts independently in order to
complete the analysis. Please see page 15 for a review of BAS' assumptions. As a
result, BAS places less weight on this analysis.
(1) EBITDA includes all interest income.
Note: Projections from Cube.
48
CONFIDENTIAL & DRAFT
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
DISCOUNT RATE / EXIT MULTIPLE MATRIX - ASSUMES NEW MANAGEMENT CASE
(Dollars in millions, except per share data)
------------- -------------------------- ---------------------------
A B = C
------------- -------------------------- ---------------------------
NPV of NPV of Terminal Value as a Firm Value
Free Cash Multiple of 2004P EBITDA ---------------------------
Discount Rate Flows -------- ---------------- 6.0x 7.0x 8.0x
- ------------- ------------- 6.0x 7.0x 8.0x -------- ------- --------
-------- ------- -------
14.0% $40.0 $91.0 $106.2 $121.4 $131.0 $146.2 $161.4
16.0% $37.6 $82.0 $95.7 $109.3 $119.6 $133.3 $147.0
18.0% 35.4 74.0 86.3 98.7 $109.4 121.8 134.1
20.0% 33.4 66.9 78.1 89.2 $100.3 111.5 122.6
------------- --------------------------
D E ---------------------------
------------- -------------------------- Equity Value Per Share(2)
Net Debt as Equity Value New Management Case
Discount Rate of 6/30/00(1) -------------------------- ---------------------------
- ------------- ------------- 6.0x 7.0x 8.0x 6.0x 7.0x 8.0x
-------- ------- ------- -------- ------- --------
14.0% $2.4 $128.6 $143.8 $159.0 $6.41 $7.16 $7.92
16.0% 2.4 117.2 130.9 144.5 $5.84 $6.52 $7.20
18.0% 2.4 107.0 119.4 131.7 $5.33 $5.95 $6.56
20.0% 2.4 97.9 109.1 120.2 $4.88 $5.43 $5.99
---------------------------
(1) Cash balance as of 6/301/00.
(2) Assumes 20.1 million fully diluted shares outstanding.
49
CONFIDENTIAL & DRAFT
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
Debt/Total Market Cap = 24.9%
Risk Free Rate (1) = 6.25%
Average Unlevered Beta = 0.84
Relevered Beta = 0.97
Market Premium = 8.4%
Small Private Company Premium = 2.0%
Cost of Equity = 16.4%
Pro-Tax Cost of Debt = 8.5%
Tax Rate = 38.0%
--------------------------------------------------
WACC 13.6%
--------------------------------------------------
RELEVANT DATA:
Agg. Mkt. Debt/ Unlev.
Comparable Companies Value(2) Cap.(2) Debt(2) Total Cap Beta(3) Beta
-------------------- -------- ------- ------- --------- ------- ------
Choice Hotels International, Inc. $764.5 $453.6 $320.1 41.9% 0.54 0.43
Four Seasons Hotels 2,848.4 2,735.4 257.7 9.0% 1.02 0.97
Cendant Corporation 14,406.7 9,463.7 4,412.0 30.6% 1.29 1.08
Marriott International, Inc. 11,340.7 9,644.7 2,068.0 18.2% 0.97 0.87
---------------------------------------------------
Average 24.9% 0.84
Median 24.4% 0.92
---------------------------------------------------
----------
(1) 30-year treasury rate as of 9/8/00.
(2) All share and debt data taken from most recent SEC public filing.
(3) Betas calculated by FactSet for past year versus S&P500.
Pre-Tax Cost of Debt
8.0% 8.5% 9.0% 9.5% 10.0% 9.5% 10.0%
------------------------------------------------------------------
35.0% 12.0% 12.1% 12.2% 12.3% 12.4% 12.3% 12.4%
30.0% 12.3% 12.4% 12.5% 12.6% 12.7% 12.6% 12.7%
Debt/ 25.0% 12.7% 12.8% 12.8% 12.9% 13.0% 12.9% 13.0%
Total 20.0% 13.0% 13.1% 13.1% 13.2% 13.2% 13.2% 13.2%
Cap. 15.0% 13.3% 13.3% 13.4% 13.4% 13.5% 13.4% 13.5%
10.0% 13.6% 13.6% 13.6% 13.7% 13.7% 13.7% 13.7%
5.0% 13.8% 13.8% 13.8% 13.9% 13.9% 13.9% 13.9%
0.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0%
50
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
APPENDICES
[LOGO]
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
UPSIDE & DOWNSIDE CASES DISCOUNTED CASH FLOW ANALYSIS
[LOGO]
CONFIDENTIAL & DRAFT
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
DCF- ASSUMES UPSIDE CASE
(Dollars in millions, except per share data) Fiscal Year Ended December 31,
-------------------------------------------------
1999 2000P 2001P 2002P 2003P 2004P
----- ----- ----- ----- ----- -----
Revenues $19.7 $24.7 $36.3 $48.0 $60.4 $73.4
EBITDA(1) 7.5 11.0 22.7 34.5 47.2 61.0
Depreciation & Amortization 1.9 2.4 2.6 2.8 3.0 3.3
----- ----- ----- ----- ----- -----
EBIT 5.6 8.7 20.1 31.7 44.2 57.7
Taxes 0.6 1.4 10.3 15.8 20.7
----- ----- ----- ----- -----
Unlevered Net Income 8.1 18.7 21.3 28.4 37.0
Plus: Depreciation & Amortization 2.4 2.6 2.8 3.0 3.3
Less: (Increase)/Decrease in Working Capital (0.1) (0.1) (0.1) (0.2) (0.2)
Less: Capital Expenditures (0.8) (0.5) (0.5) (0.5) (0.5)
Less: Development Subsidies (2.0) (2.0) (2.0) (2.0) (2.0)
----- ----- ----- ----- -----
Unlevered Free Cash Flow $7.5 $18.6 $21.5 $28.8 $37.7
Assumptions:
- -----------
Revenue Growth 25.6% 46.7% 32.3% 25.8% 21.6%
EBITDA Margin 38.2% 44.6% 62.4% 71.9% 78.2% 83.1%
EBITDA Growth 46.7% 105.3% 52.3% 36.9% 29.1%
Tax Rate 7.0% 7.0% 32.6% 35.8% 35.8%
Change in Working Capital as a % of
Total Revenues 0.3% 0.4% 0.3% 0.3% 0.2%
(1) EB1TDA includes all interest income.
Note: Projections from Cube management.
CONFIDENTIAL & DRAFT
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
DISCOUNT RATE / EXIT MULTIPLE MATRIX - ASSUMES UPSIDE CASE
(Dollars in millions, except per share data)
--------- + -------------------------- = ------------------------
A B C
--------- -------------------------- ------------------------
NPV of NPV of Terminal Value as a Firm Value
Free Cash Multiple of 2004P EBITDA ------------------------
Discount Rate Flows -------------------------- 6.0 x 7.0 x 8.0 x
- ------------- --------- 6.0 x 7.0 x 8.0 x ------------------------
--------------------------
14.0% $50.9 $117.9 $137.5 $157.2 $168.8 $188.4 $208.1
16.0% $48.0 $106.2 $123.9 $141.6 $154.2 $171.9 $189.6
18.0% 45.3 95.8 111.8 127.8 141.1 157.1 173.1
20.0% 42.8 86.6 101.1 115.5 129.4 143.9 158.3
------------- = --------------------------
D E --------------------------
------------- -------------------------- Equity Value Per Share (2)
Net Debt as Equity Value Downside Case
Discount Rate of 6/30/00 (1) -------------------------- --------------------------
- ------------- -------------- 6.0 x 7.0 x 8.0 x 6.0 x 7.0 x 8.0 x
-------------------------- --------------------------
14.0% ($2.4) $171.2 $190.9 $210.5 $ 8.53 $ 9.51 $10.49
16.0% (2.4) 156.6 174.3 192.0 $ 7.80 $ 8.68 $ 9.56
18.0% (2.4) 143.5 159.5 175.5 $ 7.15 $ 7.95 $ 8.74
20.0% (2.4) 131.9 146.3 160.7 $ 6.57 $ 7.29 $ 8.01
--------------------------
(1) Equals cash balance as of 6/30/00.
(2) Assumes 20.1 million fully diluted shares outstanding.
54
CONFIDENTIAL & DRAFT
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
DCF - ASSUMES DOWNSIDE CASE
(Dollars in millions, except per share data)
Fiscal Year Ended December 31,
-------------------------------------------------------------------
1999 2000P 2001P 2002P 2003P 2004P
------- ------- ------- ------- ------- -------
Revenues $ 19.7 $ 21.9 $ 28.6 $ 37.4 $ 46.9 $ 56.9
EBITDA (1) 7.5 7.3 13.6 22.2 31.6 41.7
Depreciation & Amortization 1.9 2.4 2.6 2.9 3.2 3.5
------- ------- ------- ------- ------- -------
EBIT 5.6 5.0 10.9 19.3 28.4 38.3
Taxes 0.3 0.8 2.2 10.2 13.7
------- ------- ------- ------- -------
Unlevered Net Income 4.6 10.2 17.1 18.2 24.6
Plus: Depreciation & Amortization 2.4 2.6 2.9 3.2 3.5
Less: (Increase)/Decrease in Working Capital (0.0) (0.1) (0.1) (0.1) (0.1)
Less: Capital Expenditures (0.8) (0.5) (0.5) (0.5) (0.5)
Less: Development Subsidies (2.0) (2.0) (2.0) (2.0) (2.0)
------- ------- ------- ------- -------
Unlevered Free Cash Flow $ 4.1 $ 10.2 $ 17.4 $ 18.8 $ 25.4
Assumptions:
Revenue Growth 11.2% 30.4% 31.0% 25.3% 21.4%
EBITDA Margin 38.3% 33.5% 47.5% 59.3% 67.4% 73.3%
EBITDA Growth (2.7%) 84.8% 63.7% 42.4% 32.0%
Tax Rate 7.0% 7.0% 11.4% 35.8% 35.8%
Change in Working Capital as a % of Total Revenues 0.2% 0.4% 0.3% 0.2% 0.2%
(1) EBITDA includes all interest income.
Note: Projections from Cube management.
55
CONFIDENTIAL & DRAFT
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
DISCOUNT RATE / EXIT MULTIPLE MATRIX - ASSUMES DOWNSIDE CASE
(Dollars in millions, except per share data)
--------- + -------------------------- = ------------------------
A B C
--------- -------------------------- ------------------------
NPV of NPV of Terminal Value as a Firm Value
Free Cash Multiple of 2004P EBITDA ------------------------
Discount Rate Flows -------------------------- 6.0 x 7.0 x 8.0 x
- ------------- --------- 6.0 x 7.0 x 8.0 x ------------------------
--------------------------
14.0% $ 47.6 $114.1 $133.1 $152.1 $161.6 $180.6 $199.7
16.0% $ 44.8 $102.8 $119.9 $137.0 $147.6 $164.7 $181.8
18.0% 42.2 92.8 108.2 123.7 135.0 150.4 165.9
20.0% 39.9 83.9 97.8 111.8 123.7 137.7 151.7
------------- = --------------------------
D E --------------------------
------------- -------------------------- Equity Value Per Share (2)
Net Debt as Equity Value Downside Case
Discount Rate of 6/30/00 (1) -------------------------- --------------------------
- ------------- -------------- 6.0 x 7.0 x 8.0 x 6.0 x 7.0 x 8.0 x
-------------------------- --------------------------
14.0% ($2.4) $164.0 $183.1 $202.1 $ 8.17 $ 9.12 $10.07
16.0% (2.4) 150.0 167.1 184.2 $ 7.47 $ 8.32 $ 9.18
18.0% (2.4) 137.4 152.9 168.3 $ 6.84 $ 7.61 $ 8.38
20.0% (2.4) 126.2 140.1 154.1 $ 6.28 $ 6.98 $ 7.68
(1) Equals cash balance as of 6/30/00.
(2) Assumes 20.3 million fully diluted shares outstanding.
56
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
REVISED ANALYSIS OF THE RECAPITALIZATION
[LOGO]
CONFIDENTIAL & DRAFT
REVISED ANALYSIS OF RECAPITALIZATION
- --------------------------------------------------------------------------------
VALUATION OF RECAPITALIZATION PROPOSAL
- - In BAS' June 2, 2000 presentation to the Board, BAS calculated potential
reference ranges for the Recapitalization proposal. The BAS reference
ranges assumed that shareholders receive $3.58 in cash at the closing of
the transaction plus the present value of the remaining stock based upon
management's Upside and Downside business scenarios. The ranges obtained
are provided below:
UPSIDE CASE REFERENCE RANGE EQUALS: $7.69 TO $8.71
DOWNSIDE CASE REFERENCE RANGE EQUALS: $6.18 TO $7.04
- - BAS has applied this same methodology to the New Management Estimates in
order to ascertain a reference range for the Company if Cube completes the
Recapitalization transaction as currently agreed upon and achieves the
results now projected by management. Please note, however, that BAS has not
been provided with updated management projections for the years 2002
through 2004 and has built such forecasts independently in order to
complete the analysis. Please see page 15 for a review of BAS' assumptions.
NEW MANAGEMENT ESTIMATES REFERENCE RANGE EQUALS: $4.81 TO $6.28
NOTE: BAS IS NOT REPRESENTING THAT SUCH SHARE VALUES WILL ACTUALLY BE OBTAINED
IN THE FUTURE.
Note: Estimates provided by Cube management.
58
CONFIDENTIAL & DRAFT
REVISED ANALYSIS OF THE RECAPITALIZATION
- --------------------------------------------------------------------------------
SUMMARY TERMS
Series B
Series A Convertible
Preferred Stock Preferred Stock Total
--------------- --------------- -----
Number of Shares 65,000 10,000,000
Price Per Share 1,000 1,000
Face Value 65,000,000 10,000,000 75,000,000
Dividend Rate 8.5% 6.0%
Payment Method cash or Series A cash or Series B
for two years
Conversion Features:
Number of Common Shares per Preferred (1) 1,154
Total Common Shares Issued upon Conversion
before Limitation (1) 11,538,462
Maximum Shares which may be Issued (2) 10,000,000
Initial Conversion Price $7.50
130% of CURRENT STOCK price of $5.44 (3): $7.07
Less Potential Downward Adjustments of $0.0 mm (4) $0.00
- --------------------------------------------------------------
Back-End Conversion Price (3) $6.50
Conversion Price at Lesser Value (1) $75,000,000
- --------------------------------------------------------------
- ---------------------------------------------------------------
Sources & Uses of Funds (5)
Sources:
Series A Preferred Stock $65,000,000
Series B Convertible Preferred Stock 10,000,000
Common Equity --
-----------
Total $75,000,000
Uses:
Additional Growth Capital $10,000,000
Purchase of Common Equity 65,000,000
-----------
Total $75,000,000
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Model Assumptions:
Upside Case = "1"; Downside Case = "2"
-------
1
-------
Series A Preferred Dividends Payable in Cash = "1"
PIK for 2 Years with Additional Series A = "2"
-------
2
-------
Series B Preferred Dividends Payable in Cash = "1"
PIK with Additional Series B = "2"
-------
1
- ---------------------------------------------------------------
(1) Bears have an anti-dilution clause that allows them to convert a minimum
of $75.0 million face value of preferred securities into common shares of
Cube at the Lesser Conversion Price. If conversion price is $7.50, Bears
receive 1,000 shares common per share of series B.
(2) Bears agreed that regardless of conversion price, the maximum number of
shares to be issued shall equal $75.0 million face value of both preferred
divided by $7.50 conversion price.
(3) Equals 130% of stock price during measurement period, as long as such
price is between $7.50 and $6.50.
(4) Equals total adjustments from Alpine Settlement (and PaineWebber),
shareholder lawsuits and Management Company shutdown costs in excess of
allowable totals of $0.0 mm divided by fully-diluted shares outstanding
pro forma for convert.
(5) Excludes all transaction related expenses.
59
CONFIDENTIAL & DRAFT
REVISED ANALYSIS OF THE RECAPITALIZATION
- --------------------------------------------------------------------------------
QUANTITATIVE ANALYSIS
- - To ascribe a value to the Bear's proposal, BAS has assumed all common will
tender for $7.50 and therefore will exchange 47.7% of their common shares
for cash, arriving at an immediate cash value of $3.58.
- - In order to determine the value of the remaining 52.3% of the common value
("the stub"), BAS has utilized management projections and:
- Applied earnings multiples at the end of each year to the
predicted earnings to determine a year end share price - BAS
assumed Cube's 2000E PE multiple as of June 2nd of 13.6x (based on
management Upside Case 2000 earnings estimate of $0.40) with no
expansion or contraction,
- Discounted that share price at 18% annually to determine the
present value of the "stub",
- Added the initial cash from the tender to the present value of the
stub to arrive at a hypothetical current valuation of the Bear's
proposal.
- - The key assumptions driving the analysis that should be considered by the
Board are:
- Cube's ability to achieve its projections under the Recapitalized
structure and under Bear's control,
- Appropriate year-end earnings multiple,
- Market reaction to transaction (i.e., stock price during the
conversion price adjustment period post closing),
- Structure of the series A preferred and series B preferred.
60
CONFIDENTIAL & DRAFT
REVISED ANALYSIS OF THE RECAPITALIZATION
- --------------------------------------------------------------------------------
QUANTITATIVE ANALYSIS
o As well as reviewing all of the management projections, BAS analyzed the
transaction under various scenarios in which the series A and series B
preferred stock either accrue using a PIK or pay dividends in cash. BAS
believes the Board should compare the following scenarios versus the
status quo:
2000E 2001E 2002E 2003E 2004E
------- ------- ------- ------- -------
SCENARIOS UNDER BEARS PROPOSAL:
47.7% of $7.50 initial consideration per share $ 3.58 $ 3.58 $ 3.58 $ 3.58 $ 3.58
1) Upside Case, PIK A, Current Pay B
52.3% of discounted value per share (Stub Value) (1) $ 2.36 $ 4.11 $ 3.99 $ 4.58 $ 5.14
---------------------------------------------------------------------------------------------------------------------
Total Value Per Share - Base Case, PIK A, Current Pay B $ 5.94 $ 7.69 $ 7.56 $ 8.16 $ 8.71
---------------------------------------------------------------------------------------------------------------------
2) Downside Case, PIK A, Current Pay B
52.3% of discounted value per share (Stub Value) (1) $ 1.31 $ 2.61 $ 3.25 $ 3.05 $ 3.46
---------------------------------------------------------------------------------------------------------------------
Total Value Per Share - Downside Case PIK A, Current Pay B $ 4.88 $ 6.18 $ 6.82 $ 6.62 $ 7.04
---------------------------------------------------------------------------------------------------------------------
3) New Management Estimates, PIK A, Current Pay B
52.3% of discounted value per share (Stub Value) (1) $ 1.02 $ 1.23 $ 2.48 $ 2.56 $ 2.70
---------------------------------------------------------------------------------------------------------------------
Total Value Per Share - Downside Case P1K A, Current Pay B $ 4.60 $ 4.81 $ 6.05 $ 6.14 $ 6.28
---------------------------------------------------------------------------------------------------------------------
STATUS QUO:
1) Upside Case, Status Quo:
---------------------------------------------------------------------------------------------------------------------
Total Value Per Share - Base Case Status Quo (1) $ 5.40 $ 9.04 $ 8.73 $ 9.85 $ 10.90
---------------------------------------------------------------------------------------------------------------------
2) Downside Case, Status Quo:
---------------------------------------------------------------------------------------------------------------------
Total Value Per Share - Downside Case, Status Quo (1) $ 3.24 $ 5.97 $ 7.24 $ 6.72 $ 7.48
---------------------------------------------------------------------------------------------------------------------
3) Downside Case, Status Quo:
---------------------------------------------------------------------------------------------------------------------
Total Value Per Share - Downside Case, Status Quo (1) $ 2.68 $ 3.19 $ 5.68 $ 5.75 $ 5.95
---------------------------------------------------------------------------------------------------------------------
(1) Assumed current Cube 2000E PE multiple of 13.6x (based on management
estimate of $0.40) and a discount rate of 18.0%.
Note: BAS is not representing that such share values will actually be obtained
in the future.
Note: All estimates taken from projections provided to BAS by Cube management.
61
CONFIDENTIAL & DRAFT
- --------------------------------------------------------------------------------
SUMMARY OF THE MARKETING PROCESS
[LOGO]
CONFIDENTIAL & DRAFT
SUMMARY OF THE MARKETING PROCESS
- --------------------------------------------------------------------------------
SUMMARY OF MARKETING PROCESS
PRIOR TO JUNE 2, 2000 AND THE RECAPITALIZATION AGREEMENT.
- - Cube entered into a transaction with the Bears after an extensive marketing
process which is summarized below:
- - In total, BAS contacted 30 potential acquirors, executed ten
confidentiality agreements and distributed nine offering memoranda.
- - The Company has included in two press releases that it was reviewing
strategic alternatives and had engaged BAS to advise the Board on analyzing
such alternatives.
- - Four companies (Carlson, Cendant, Choice and the Bears) performed
substantial due diligence on the Company, with only the Bears reaching a
definitive agreement.
- On May 25th, the Redskins informed BAS they had officially decided
to "take a pass" on the opportunity. They cited their inability to
get comfortable with the Company's projections and the pending
shareholder lawsuits.
- On May 26th, the Giants informed the Company that they were no
longer interested in acquiring Cube at the price level previously
indicated or proceeding with the transaction on an accelerated
time frame. The Giants cited the recently filed shareholder
lawsuits and some issues related to due diligence and said they
would only be interested if there was a significant reduction in
price (although no "clearing" price was given despite the
request).
- Carlson was also unable to reach an acceptable price and thus
decided to forgo further negotiations.
SINCE JUNE 2, 2000
- - Cube and its financial and legal advisors have been prohibited under the
terms of the Recapitalization Agreement from "shopping" the Company.
- - No parties have independently contacted the Company or the financial or
legal advisors regarding a potential topping transaction since the
announcement of the Recapitalization (to the best knowledge of both BAS and
Paul, Weiss).
63
CONFIDENTIAL & DRAFT
SUMMARY OF THE MARKETING PROCESS
- --------------------------------------------------------------------------------
TIMELINE
==================================================================================================================================
DATE COMMENT
--------------------- ---------------------------------------------------------------------------------------------------------
1/17/00 - Based upon the receipt of unsolicited offers, the Board authorizes BAS to provide non-public
information to Starwood (HOT); Choice (CHH); Carlson and Cendant (CD).
----------------------------------------------------------------------------------------------------------------------------------
2/10/00 - Board reviewed proposals from HOT ($5.00 to $6.00 per share); CHH ($6.50 to $8.00); Carlson ($8.00
to $12.00) and CD ($5.00 to $7.00).
- The Board authorizes BAS to continue discussions with CHH and Carlson.
----------------------------------------------------------------------------------------------------------------------------------
3/16/00 - After completing extensive due diligence, CHH provides an all cash proposal of $7.75 to $8.00 per
share and a mark-up of the definitive agreement with several open items.
- After performing limited due diligence, Carlson provides a preliminary indication of value in
the form of a reverse merger of $8.00 to $12.00. BAS' analysis of the Carlson proposal
indicates a valuation range below $6.00.
- Board authorizes the Company to execute an exclusivity letter and attempt to negotiate a definitive
agreement with CHH at $8.00 per share.
----------------------------------------------------------------------------------------------------------------------------------
Week of - CHH continues to raise outstanding issues and indicates desire to postpone transaction until
3/16/00 to after the 1999 4th quarter earnings announcement. CHH also indicates that its board of directors has
3/23/00 not approved the transaction.
- Upon expiration of the exclusivity agreement, CHH pulls its offer pending further due diligence.
----------------------------------------------------------------------------------------------------------------------------------
3/28/00 - BAS informs the Board of the negative developments with CHH.
- Mike Leven and Steve Romaniello inform the Board of their desire to pursue a transaction with the
Bears.
- In anticipation of the Bears proposal, the Board authorizes BAS to contact other potential strategic
and financial buyers.
==================================================================================================================================
64
CONFIDENTIAL & DRAFT
SUMMARY OF THE MARKETING PROCESS
- --------------------------------------------------------------------------------
TIMELINE (CONTINUED)
==================================================================================================================================
DATE COMMENT
--------------------- ---------------------------------------------------------------------------------------------------------
Week of - Bears commence formal due diligence on the Company.
4/03/00
- BAS begins contacting other strategic and financial buyers. Over the course of the next several
weeks, BAS contacts 8 additional strategic buyers and 17 financial buyers.
- No strategic buyers expressed interest in pursuing a transaction for several reasons including
the perceived strength of the brands, wrong property type (limited service / budget segments)
and lack of financing.
- Ten confidentiality agreements were sent to financial buyers, six were successfully negotiated
and five offering memoranda were delivered.
- The financial buyers spent several weeks reviewing the information with Mike Leven participating
on calls with two sponsors.
- BAS received no formal offers or indications of value from any sponsors.
----------------------------------------------------------------------------------------------------------------------------------
5/2/00 - The Company received the initial Bears proposal.
- The Board authorizes the Company to pursue a definitive agreement and to check again with parties
that had expressed interest in an all cash transaction.
----------------------------------------------------------------------------------------------------------------------------------
Week of - CD informs the Company of its renewed interest in a transaction. CD indicates a valuation range
5/01/00 above $7.00 per share and is allowed to commence due diligence.
- BAS inquires of CHH's interest in again pursuing a transaction. CHH requests and receives additional
non-public information.
----------------------------------------------------------------------------------------------------------------------------------
5/18/00 - Shareholder lawsuit filed.
----------------------------------------------------------------------------------------------------------------------------------
5/25/00 - CHH confirms BAS of its decision not to pursue a transaction based upon its inability to get
comfortable with the Company's projections going forward and the unknown liability of the
shareholder lawsuits.
----------------------------------------------------------------------------------------------------------------------------------
5/26/00 - CD informs BAS of its decision not to pursue a transaction based upon its inability to get
comfortable with the impact of the shareholder lawsuit.
==================================================================================================================================
65
CONFIDENTIAL & DRAFT
SUMMARY OF THE MARKETING PROCESS
- --------------------------------------------------------------------------------
SUMMARY OF INTERESTED PARTIES
o The following lists the status with parties other than the Bears who at
one point expressed an interest in a transaction:
==========================================================================================================================
Buyer Most Recent Proposal Reason for No Offer
- ----------------------- ---------------------------------------------------- -----------------------------------------
Choice Hotels Completed extensive legal and accounting due Inability to get confortable with the
International, Inc. diligence, $7.75 to $8.00 cash offer; 1-Step Merger; Company's projections going forward
Several significant outstanding due diligence items; and the unknown liability of the
concerns over impact on investment grade rating. shareholder lawsuit.
Cendant Corp. $7.50 cash. Performed extensive due diligence. Withdrew offer due to shareholder
lawsuit.
Carlson Hotels 25% ownership in a Carlson / Cube Valuation of combined companies.
Worldwide combined entity. Subject to completing
due diligence. BAS valued offer below
$6.00 per share. Completed some legal and
accounting due diligence.
Starwood Hotels and $5.00 to $7.00. Unknown.
Resorts Worldwide, Inc.
Prime Hospitality Corp. No offer. Inability to do an accretive transaction.
==========================================================================================================================
66
CONFIDENTIAL & DRAFT
SUMMARY OF THE MARKETING PROCESS
- --------------------------------------------------------------------------------
SUMMARY OF CALLING PROGRAM
o The following list summarizes the level of contact BAS had with each
party contacted:
---------------------------------------------------------------------------------------------------------
Parties Contacted (30) Sent CA Executed CA Received OM
----------------------------------------- --------- ------------- -------------
Parties Listed on Prior Page (6 parties): 6 6 6
Other Parties (24):
Accor SA -- -- --
AEW Capital Management 1 -- --
Amstar Group -- -- --
Bain Capital -- -- --
Bass PLC -- -- --
Blackstone Real Estate Advisors 1 -- --
Colony Capital -- -- --
Crestline Capital -- -- --
Extended Stay America -- -- --
Forstmann Little & Co. -- -- --
Freeman Spogli & Co. 1 1 1
Granada -- -- --
Hampstead Group -- -- --
Hellman & Friedman LLC 1 1 --
J.H. Whitney -- -- --
La Quinta -- -- --
MeriStar / Oakhill 1 -- --
Olympus Real Estate (Hicks Muse) -- -- --
Thayer Capital -- -- --
The Cypress Group, LLC -- -- --
Thomas H. Lee -- -- --
Walton Street Capital 1 -- --
Westbrook Partners, LLC 1 1 1
Whitehall Real Estate L.P. 1 1 1
-------- -------- -------
14 10 9
Note: Total or 30 includes Bears.
67