1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
Suburban Lodges of America, Inc.
------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Raymond A.D. French
Paul R. Coulson
Sharwell Securities Trading Ltd.
Kappa Alpha Ltd.
Hibernian Investment Managers
Yeoman International Holdings S.A
------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
2
The following is a press release issued by Raymond A.D. French on May 11, 2001.
SUBURBAN LODGES BOARD CANDIDATES CALL FOR MORE DISCLOSURE REGARDING HOTELTOOLS'
LOSSES
NEW YORK, NEW YORK (May 11, 2001)--Ray French and Paul Coulson, who are
waging a proxy contest for election to the board of Suburban Lodges of America,
Inc. (NASDAQ.SLAM) said today that they had serious questions about the limited
disclosures that have been made regarding the Company's expenditures on the
HotelTools internet start-up.
At the outset of the HotelTools investment, the current board and
management of Suburban Lodges elected to structure the Company's investment in
the Internet startup as a loan-plus-warrant rather than as a 100%-owned
subsidiary. This structure resulted in an accounting treatment under which the
significant losses generated by HotelTools have not appeared on the Suburban
Lodges income statement. However, HotelTools funding requirements are met
entirely by Suburban Lodges, and Suburban Lodges holds a warrant which if
exercised (for a nominal amount) would give the Company ownership of between
99-100% of HotelTools' equity, before the exercise of employee stock options.
Further, this accounting treatment has also greatly reduced the public
disclosures Suburban Lodges is required to make regarding its dealings with
relating to how the $10,192,000 loaned to HotelTools has been spent. As
disclosed only recently by the Company, five senior executives of Suburban
Lodges, including Mr. Krischer (the Company's CEO), have personally been issued
a total of 450,000 options in HotelTools.
According to Mr. Krischer in a recent shareholder conference call,
HotelTools incurred approximately $8,000,000 in losses in 2000. Since Suburban
Lodges' year 2000 pre-tax Income was $8,483,000, virtually all of the Company's
Net Income would have been wiped out if the Company had been consolidated with
HotelTools. So, while management's choice of how to structure the HotelTools
investment may have made the Company's earnings look better, it did not change
two hard facts: 1) HotelTools did, in fact, lose approximately $8,000,000 in
2000, and 2) Suburban Lodges funds all of these losses and its shareholders
alone would bear the full brunt of a failure at HotelTools. "No investment
structure or accounting treatment that we are familiar with changes this
reality," said Mr. French.
In addition, according to Mr. French, his attorneys have received a
letter from the accounting firm, BDO Seidman, LLP (which is attached to this
press release) that raises questions as to whether the Company's accounting
treatment of HotelTools is correct even under the loan-plus-warrant structure.
According to the accounting firm, the Company could be required to write off its
loans to HotelTools if the repayment of the loans is dependent on successful
research and development and marketing of the HotelTools software and to the
extent that the loans exceed the present value of the future HotelTools cash
flow.
"Based on what we know about HotelTools," Mr. French said, "Suburban
Lodges could well be required to write off its loans to HotelTools if these
criteria are applied."
3
Mr. French said that the BDO Seidman letter also stated that the Company's
possession of a warrant to acquire over 99% of HotelTool's outstanding stock at
nominal cost may suggest that HotelTools needs to be consolidated with Suburban
Lodges.
"As non-management shareholders in Suburban Lodges, with little access
to information on HotelTools' operations and financial results, we are disturbed
by BDO Seidman'sletter. In tune with their policy of providing minimal detailed
information to shareholders on HotelTools, management has refused to meet with
the accounting firm to answer the questions they have raised about this
accounting treatment," he added.
"Why shouldn't HotelTools be consolidated with Suburban Lodges if
Suburban Lodges has a nominally priced warrant to acquire virtually all of
HotelTools' equity and is its sole source of funding? Clearly their current
structure and accounting treatment makes the earnings look significantly better
than it would if the Company had elected a more conventional all-equity
structure and consolidated HotelTools, but unfortunately it doesn't eliminate
the disturbing HotelTools reality that lies behind the Suburban Lodges
accounting figures," Mr. French said. He called upon management to give their
reasons for structuring the Company's investment in HotelTools as a
loan-plus-warrant rather than as straight equity ownership. "I have yet to hear
a persuasive non-accounting reason for structuring he investment the way
management did ."
Ray French can be contacted at (212) 582-0900 or (516) 924-1176. Or you
can contact our proxy solicitors, Mackenzie Partners, at (212) 929-5239
(attention: Larry Dennedy).
4
[BDO Seidman, LLP Letterhead]
[Atlanta, Georgia]
May 7, 2001
Leonard Chazen, Esq.
Covington & Burling
1330 Avenue of the Americas
New York, NY 10019
Dear Mr. Chazen:
You have asked us to read certain available public information about
Suburban Lodges of America, Inc. ("Suburban") on behalf of your clients, Raymond
A.D. French and entities he advises, who have investments in Suburban. The
information we read was Suburban's Form 10-K for the year ended December 31,
2000 and the proxy statement dated April 10, 2001. In particular, you asked us
to focus on accounting considerations relative to the relationship between
Suburban and HotelTools, Inc. ("Tools"), a company whose sole shareholder is the
former head of operations for Suburban. Since we were not able to review any
legal documents or debt agreements between Suburban and Tools, our comments are
limited by the public disclosures made by Suburban. Our comments in this letter
do not represent an opinion regarding the appropriateness of accounting for
transactions between Suburban and Tools.
OUR COMMENTS REGARDING THE ACCOUNTING FOLLOWED BY SUBURBAN
Note 11 to Suburban's financial statements describes the relationship
between Suburban and Tools. At December 31, 2000, Suburban was owed
approximately $8.0 million under demand loans with an interest rate of 7%. The
footnote further indicates that Suburban holds an option to acquire 20 million
shares of Tool's stock at a nominal amount which would give Suburban ownership
of approximately 99% of Tool's outstanding stock. This may suggest that Tools
may need to be consolidated into the accounts of Suburban.
Note 11 also indicates that Tools will not be able to make either
principal or interest payments on these loans in 2001. The loans are accounted
for on the cost recovery method and interest income is not recognized on these
loans. This accounting method is acceptable under FASB 114 and 118 provided the
present value of the cash flows available to service the loans is greater than
the recorded balance of the loans. The implication from the footnote is that
this is the case, but available information does not permit us to make an
evaluation of this conclusion and the reasonableness of the 7% interest rate. If
the present value of projected cash flows were less than the recorded loan
balances, FAS 114 would require a loss to be recorded.
To assess these two issues, we suggested writing management and the
outside directors about these concerns and asking for the opportunity to have
us, as your
5
representative, review these analyses. We understand from you that Suburban
refused to have this meeting. Our review would have encompassed an assessment of
the propriety of Tools' expenditures which created the $8.0 million loans from
Suburban. Our impression is that $8.0 million spent in one year to migrate an
existing PC-based hotel management system to one that is web-based may be
excessive. In addition, the Form 10-K suggests an additional $7.0 million will
be needed for this project in 2001. Only an analysis of these costs would permit
a proper assessment of their propriety. Likewise, we would have assessed the
nature of the licensing agreement between Suburban and Tools, since amounts
received by Suburban appear to be immaterial to the financial statements.
OTHER ACCOUNTING CONSIDERATIONS
It appears that the company and its independent auditors concluded that
FAS 68 (Research and Development Arrangements) did not apply. Not being able to
review legal documents and the complete terms of Suburban's loan to Tools do not
permit us to fully assess this relationship. However, paragraph 12 of FAS 68
indicates:
"If repayment to the enterprise of any loan or advance by the
enterprise to the other parties depends solely on the results of
the research and development having future economic benefit, the
loan or advance shall be accounted for as costs incurred by the
enterprise."
Since the Form 10-K indicates that Tools has no other source of funding,
it may be that these expenditures should be recorded as expenses of Suburban.
From an accounting standpoint, this arrangement would be referred to as a
"contract to perform services." FASB's Emerging Issues Task Force opinion 99-16
and The Securities and Exchange Commission Staff Accounting Bulletin (SAB) 63,
Topic 5-0, further support this concept. Also, as indicated previously, it may
be more appropriate to consolidate Tools into Suburban's finanical results.
Furthermore, in FASB 86 (Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed), paragraph 3 states "all costs
incurred to establish the technological feasibility of a computer software
product are research and development costs." Paragraph 4 of that opinion
describes the circumstances when technological feasibility has been achieved.
From the available information, we cannot assess the status of Tools' efforts.
However, it appears that FAS 86 may be applicable in these circumstances.
Should you have questions regarding the comments in this letter, please
do not hesitate to contact us.
Very truly yours,
/s/ BDO Seidman, LLP