<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1996.
REGISTRATION NO. 33-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SIGNATURE INNS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Indiana
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
7011
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER
35-1426996
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
250 East 96th Street, Suite 450, Indianapolis, Indiana 46240
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE
OF BUSINESS)
John D. Bontreger, 250 East 96th Street, Suite 450, Indianapolis, Indiana 46240
(317) 581-1111
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: NOVEMBER 26, 1996
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
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Common Stock............................... $12.00 $45,540,000 $15,703.45
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Preferred Stock Purchase Rights(2).........
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(1) Estimated solely for the purpose of computing the registration fee.
(2) Preferred Stock Purchase Rights (the "Rights") are evidenced by the
certificates for the shares of Common Stock and trade automatically with the
Common Stock. Any value attributable to the Rights is reflected in the
market price of the Common Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 9(A),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
(SUBJECT TO COMPLETION) ISSUED , 1996
PROSPECTUS
3,300,000 SHARES
SIGNATURE INNS, INC.
COMMON STOCK
All of the 3,300,000 Shares of Common Stock offered hereby are offered by
the Company (the "Offering"). Prior to the Offering, there has been only a
limited public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price per share will be in the range
of $11.00 to $13.00. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price.
Application has been made for quotation of the Common Stock on the NASDAQ
National Market under the symbol "SGNS".
------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF SHARES OF THE COMMON
STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share...............................
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Total(3)................................
==============================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters options, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 495,000
additional shares of Common Stock at the price to public less underwriting
discount for the purpose of covering over-allotments, if any. If the
Underwriters exercise those options in full, the total price to public,
underwriting discount and total net proceeds to the Company will be
$ $ and $ , respectively.
------------------------------------
The shares of Common Stock are offered by the Underwriters, subject to
receipt and acceptance of the shares by them. The Underwriters reserve the right
to reject any order in whole or in part. It is expected that delivery of the
shares of Common Stock will be made against payment therefor at the offices of
McDonald & Company Securities, Inc. on or about , 1996.
MCDONALD & COMPANY
SECURITIES, INC.
The date of this Prospectus is .
<PAGE> 3
INSIDE LEFT HAND PAGE
(Map photo)
Signature Inn has convenient locations in six states.
(Dayton hotel photo)
Original design representative of most hotels.
(Blue roof design photo--Cleveland)
Hotel design introduced in 1989.
(Carmel construction photo)
Newest design is under construction in Carmel, Indiana, just north of
Indianapolis.
(Artist's concept photo)
Artist's rendering of Carmel hotel, scheduled to open in December, 1996.
INSIDE CENTER PAGE
Services and Amenities
- -Free Breakfast Express (R)
- -Free USA Today delivered to room
- -Free local calls
<PAGE> 4
- -Free cable TV/movie channel
- -Free Guest interview centers
- -Free Guest business centers
- -Guest room voice mail
- -Signature Club member benefits
- -Discount at local restaurants
- -Free fax and copy services
- -Pool/on-premise exercise room or nearby health club privileges
(Room recliner/desk photos)
Signature Room, with recliner and 12-foot well-lighted desks.
(Businessman/breakfast photo)
Free Breakfast Express(R) served fresh each morning.
(Disclaimer info. to come)
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Therefore, a prospective investor should read this Prospectus in its entirety.
The information contained herein assumes (i) no currently outstanding
options to purchase the Common Stock of the Company will be exercised prior to
the Offering, and (ii) no exercise of the Underwriters' over-allotment option.
In addition, except where otherwise indicated, information in this Prospectus
has been adjusted to reflect a 1-for-3.701 share reverse stock split to be
effected by the Company prior to the Offering. Unless the context otherwise
requires, the words "Company," "Signature Inns" or "Signature" refer to
Signature Inns, Inc., together with its wholly-owned subsidiaries. The mark
"Signature" is a registered trademark of Signature Inns, Inc.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in the "Risk
Factors" section of this Prospectus.
Market data relating to hotel operations used throughout this Prospectus
were obtained from Smith Travel Research, other industry publications and
internal guest surveys. Industry publications generally state that the
information contained therein has been obtained from sources believed to be
reliable, but that the accuracy and completeness of such information is not
guaranteed. The Company and the Underwriters have not independently verified
this market data, and they make no representation as to the accuracy of such
market data. Similarly, the Company's internal guest surveys, while believed to
be reliable, have not been independently verified.
THE COMPANY
The Company is a leader in the mid-price, limited service segment of the
lodging industry, having developed its "Signature" concept to meet the specific
needs of the business traveler. The Company became a pioneer in the mid-price,
limited service segment with the opening of its first Signature Inn hotel in
March 1981. During the last five years, Signature Inn hotels consistently have
been ranked as one of the premier mid-price, limited service chains of hotels in
terms of overall guest satisfaction, considering price, value, service and
physical facilities. Signature Inn hotels ranked higher in overall customer
satisfaction than every other mid-price hotel chain in the "moderately priced"
group surveyed by Consumer Reports for its July 1994 issue, ahead of nationally
recognized chains such as Hampton Inn, Comfort Inn and Courtyard by Marriott.
The Company has operated primarily as a management company and has derived
a substantial portion of its revenues from management and other fees paid by a
group of 21 entities (the "Affiliated Entities") which own a total of 23
Signature Inn hotels (the "Initial Hotels") having a total of 2,747 guest rooms.
The Initial Hotels are located in the states of Illinois (2), Indiana (13), Iowa
(1), Kentucky (2), Ohio (4) and Tennessee (1). The Company is a substantial
equity owner in, and the general partner of, the Affiliated Entities, and it
manages and franchises the Initial Hotels under agreements with the Affiliated
Entities.
The Company will, using proceeds of the Offering, become the sole owner of
the Initial Hotels by purchasing interests in the Initial Hotels and in the
Affiliated Entities. See "The Purchase Transactions." The Company believes that
the consummation of the purchase transactions will provide several benefits.
First, the purchase transactions will enhance the Company's ability to fund
growth through internal cash flow generated by the consolidated properties.
Second, the purchase transactions will simplify the Company's operating
structure and systems, thereby providing the Company with administrative cost
savings. Third, the Company will improve its access to capital markets and gain
additional financing capabilities by consolidating its operations and properties
in a single financial entity.
<PAGE> 6
Signature Inn hotels are designed to attract business and leisure travelers
who seek exceptional room quality and comfort at moderate room rates. Signature
Inn hotels provide spacious, well appointed guest rooms, swimming pools,
exercise facilities and a complimentary Breakfast Express(R) for their guests,
as well as other amenities offered by full service hotels. However, unlike
full-service hotels, Signature Inn hotels do not provide management-intensive
facilities and services, such as restaurants or cocktail lounges. Because
approximately 65% of Signature Inn guests are business travelers, the Company
emphasizes services designed for the business traveler, such as large, in-room
desks, voice mail and business centers.
COMPETITIVE STRENGTHS
The Company believes that its primary competitive strengths include the
following:
Strong Regional Brand Identity. Since its inception in 1981,
Signature Inns has gained a strong regional brand awareness, as evidenced
by its 15,000 Signature Club members and continuous RevPAR growth.
Consistency and Quality of Services and Facilities. Signature Inn
hotels provide their guests with "Legendary Service," Signature style
facilities and specialized amenities that ensure uniform quality throughout
the Signature chain.
Experienced and Effective Hotel Management. Senior management of the
Company has an average of 15 years of experience in the lodging industry,
covering the entire spectrum of hotel development and operations including
financing, site selection, construction and management.
Special Marketing and Personal Sales Emphasis. The keys to the
Company's success include the development of personal "one-on-one"
relationships with individuals responsible for travel arrangements of
businesses and organizations and relationships with over 250 regional and
national corporations.
GROWTH STRATEGY
The Company intends to expand the Signature chain by constructing new
hotels, and by acquiring and converting other hotels. The Company intends to add
hotels in markets outside the perimeter of its current six-state geographic base
of operations as well as filling in markets within that base. The Company's
management believes there are ample opportunities for growth, and initially has
identified 23 cities in 14 states as potential markets for expansion. The
Company believes that capital from internal cash flow and available mortgage
financing will provide adequate funding over the next several years for the
construction or conversion of three or more Signature Inn hotels annually.
The Company currently has under construction an 81 room Signature Inn hotel
in Carmel, Indiana which is expected to open in December 1996. The Company is
also converting to a Signature Inn a 124 room hotel in Springfield, Illinois,
that it purchased in August 1996, and expects to complete that conversion by
March of 1997. In addition, the Company expects to begin construction of a 75
room Signature Inn hotel on a site that it owns in Nashville, Tennessee,
following the completion of the Offering. The Company has signed a letter of
intent to acquire a 120 room hotel in Louisville, Kentucky, in February of 1997,
and expects to convert it to a Signature Inn hotel by June of 1997. The Company
believes that adding Signature Inn hotels in its current markets and in
contiguous areas will lead to increases in occupancy in the Initial Hotels.
PERFORMANCE
Signature's financial results reflect both the successful implementation of
its business strategy and improvements in the lodging industry. During the
period from 1991 through 1995, the Initial Hotels' aggregate revenue increased
from $31.7 million to $38.6 million, a compound annual growth rate of 5.4%.
Operating results for Signature Inn hotels in the first six months of 1996
versus the same period of 1995 continued this positive trend: RevPAR increased
3.7%, and hotel revenues increased 4.0%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
2
<PAGE> 7
The following graphs depict the Signature Inn hotels' Occupancy, ADR and
RevPAR performance versus its Comparable Group (the group of hotels identified
by Signature's management as primary competitors of the Initial Hotels in their
respective markets), which includes in most markets one or more nationally
recognized chains such as Hampton Inns, Courtyard by Marriott, Comfort Inns,
Holiday Inns and Fairfield Inns.
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OCCUPANCY(1) COMPARISON
Signature Comparable
Inns Group
<S> <C> <C>
1991 62.6 63.1
1992 63.9 64.0
1993 66.2 63.8
1994 67.8 65.9
1995 67.2 65.7
</TABLE>
(1) Occupancy represents total rooms sold (i.e., occupied by a paying guest)
divided by total available rooms. Total available rooms represents the
number of saleable rooms multiplied by the number of days in the reported
period.
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ADR(1) COMPARISON
Signature Comparable
Inns Group
<S> <C> <C>
1991 48.48 48.15
1992 48.95 48.56
1993 50.48 49.51
1994 53.45 51.58
1995 55.81 54.36
</TABLE>
(1) ADR represents total room revenues divided by the total number of rooms
sold.
<TABLE>
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REVPAR(1) COMPARISON
Signature Comparable
Inns Group
<S> <C> <C>
1991 30.35 30.38
1992 31.28 31.08
1993 33.42 31.59
1994 36.24 33.99
1995 37.50 35.71
</TABLE>
(1) RevPAR represents the Occupancy multiplied by the ADR for the reported
period.
3
<PAGE> 8
From 1991 through 1995, the Initial Hotels achieved a compound annual
growth rate of 3.6% in ADR and 5.4% in RevPAR while the Comparable Group
achieved a compound annual growth rate of 3.1% in ADR and 4.1% in RevPAR.
The principal executive offices of the Company are located at 250 East 96th
Street, Suite 450, Indianapolis, Indiana 46240, telephone (317) 581-1111.
THE OFFERING
Common Stock Offered....... 3,300,000 shares(1)
Common Stock To Be
Outstanding After the
Offering................. 5,403,754 shares(1)(2)(3)
Use of Proceeds............ The Company intends to use the net proceeds of this
offering to (i) pay the $27.0 million cash portion
of the purchase prices of the asset and limited
partnership interest acquisitions described under
"The Purchase Transactions" below; (4) (ii) pay
$3.6 million of second mortgage indebtedness on
certain of the Initial Hotels; (iii) pay the $1.4
million balance of the Company's line of credit;
and (iv) provide funds for the acquisition,
development and renovation of, and working capital
for, additional Signature Inn hotels in accordance
with the Company's growth plan.
Proposed NASDAQ National
Market Symbol............ SGNS
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(1) Assumes no exercise of the over-allotment option.
(2) After giving effect to the 1-for-3.701 share reverse stock split which was
declared by the Board of Directors of the Company on , 1996,
to be effective on , 1996.
(3) Does not include 540,375 shares of Common Stock reserved for issuance under
the Company's 1996 Equity Incentive Plan. As of the date of this Prospectus,
there were 169,797 shares subject to options outstanding under the Plan, and
there were 1,667 shares subject to Restricted Stock Grants to the Company's
outside directors which were outstanding under the Plan.
(4) The balance of the purchase prices will be paid through the assumption of
approximately $54.5 million of first mortgage indebtedness of the Initial
Hotels.
4
<PAGE> 9
SUMMARY FINANCIAL DATA
The following table sets forth certain financial information of the
Company, its wholly-owned subsidiaries and its consolidated partnerships and
joint ventures and is qualified in its entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements, the notes thereto and
other financial, pro forma and statistical information included in this
Prospectus.
<TABLE>
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YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
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PRO PRO
FORMA(1) FORMA(1)
1993 1994 1995 1995 1995 1996 1996
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(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Hotel revenues(2)................ $ 9,227 $ 3,842 $ 3,470 $ 38,595 $ 1,659 $ 2,529 $ 19,350
Management and franchise fees.... 2,569 3,022 3,127 -- 1,481 1,524 --
------- ------- ------- ------- ------- ------- -------
Total revenues................. 11,796 6,864 6,597 38,595 3,140 4,053 19,350
Total operating expenses......... 9,484 4,686 4,414 26,329 2,154 2,868 13,767
------- ------- ------- ------- ------- ------- -------
Operating income............... 2,312 2,178 2,183 12,265 986 1,184 5,583
Interest expense................. 3,456 1,275 981 6,341 517 531 2,885
Other income (expense)........... 595 708 385 (65) (112) 272 159
Federal income taxes(3).......... -- -- -- -- -- -- --
Extraordinary gains(4)........... 21,314 495 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income..................... $20,765 $ 2,106 $ 1,617 $ 5,858 $ 357 $ 926 $ 2,857
======= ======= ======= ======= ======= ======= =======
Earnings per share(5)............ $ (0.59) $ 0.92 $ 0.77 $ 1.08 $ 0.16 $ 0.44 $ 0.53
======= ======= ======= ======= ======= ======= =======
Weighted average number of shares
outstanding.................... 924 1,743 2,098 5,403 2,098 2,098 5,403
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents........ $ 2,267 $ 6,765
Total assets..................... 17,448 109,430
Total debt....................... 10,628 67,574
Total shareholders' equity....... 5,928 41,855
OTHER FINANCIAL DATA:
EBITDA(6)........................ $ 4,441 $ 3,495 $ 3,352 $ 15,962 $ 1,401 $ 1,547 $ 7,320
Capital expenditures............. 484 126 130 1,786 70 130 1,169
Cash provided (used) by:
Operating activities........... 2,541 1,996 2,661 1,445 1,568
Investing activities........... (694) 3,989 (462) (110) (316)
Financing activities........... (2,501) (5,169) (1,619) (512) (1,601)
INITIAL HOTELS OPERATING DATA:
Total hotel revenues............. $34,508 $37,536 $38,595 $ 38,595 $18,599 $19,350 $ 19,350
Occupancy(7)..................... 66.2% 67.8% 67.2% 67.2% 65.9% 65.7% 65.7%
ADR(8)........................... $ 50.48 $ 53.45 $ 55.81 $ 55.81 $ 55.14 $ 57.34 $ 57.34
RevPAR(9)........................ 33.42 36.24 37.50 37.50 36.34 37.67 37.67
GOP%(10)......................... 47.5% 48.5% 47.9% 47.9% 48.6% 46.1% 46.1%
</TABLE>
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(1) The pro forma information was calculated assuming the completion of the
Offering and the Purchase Transactions.
(2) Hotel revenues during 1993, 1994, and 1995 include revenues from
consolidated partnerships which own two hotels. For the six-month period
ended June 30, 1996, a third consolidated partnership which owns one hotel
is included. Additionally, 1993 and 1994 hotel revenues include revenues
from six Company-owned hotels which were sold during these periods; five
were sold during 1993 and the sixth was sold in 1994.
(3) As a result of available tax net operating loss carryforwards, the Company
did not pay any federal income tax during the periods presented. At December
31, 1995, the remaining tax net operating loss carryforwards were $5.5
million. See Note 5 to the Company's Consolidated Financial Statements
included in this Prospectus.
(4) The extraordinary gain from debt extinguishment in 1993 and 1994 resulted
from the relinquishment of ownership of six hotels. See Note 4 to the
Company's Consolidated Financial Statements included in this Prospectus.
(5) Earnings per common share are computed using income before extraordinary
gains on the basis of the weighted average number of common shares
outstanding after giving effect to the proposed 1-for-3.701 share reverse
stock split.
5
<PAGE> 10
(6) EBITDA is operating income plus the sum of interest income, other income,
depreciation and amortization and loss on disposal of property and
equipment. EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles, and such information
should not be considered as an alternative to net income, cash flow from
operations or any other measure of performance prescribed by generally
accepted accounting principles. EBITDA is included herein because management
believes that certain investors find it to be a useful tool for measuring
the ability to service debt.
(7) Occupancy represents the average occupancy percentage calculated as total
rooms sold divided by total available rooms. Total available rooms
represents the number of rooms available multiplied by the number of days in
the reported period.
(8) ADR represents total room revenues (after discounts) divided by the total
number of rooms sold.
(9) RevPAR represents the average occupancy percentage multiplied by the average
daily room rate for the reported period.
(10) GOP% represents gross operating profit calculated as a percentage of hotel
revenues. Gross operating profit is the sum of hotel revenues less hotel
operating expenses, exclusive of insurance expenses, real estate taxes,
management fees, interest, depreciation and taxes.
6
<PAGE> 11
RISK FACTORS
Any person contemplating the purchase of the shares being offered hereby
should fully and carefully consider the risk factors described below:
RISKS OF THE LODGING INDUSTRY
The Company's business is subject to all of the risks inherent in the
lodging industry. These risks include, among other things, varying levels of
demand for rooms and related services, adverse effects of general and local
economic and market conditions (particularly in areas where the Company has a
high concentration of Signature Inn hotels), changes in travel patterns, changes
in governmental regulations that influence wages, prices or construction costs,
changes in interest rates, the availability of credit and changes in real estate
taxes and other operating expenses, the recurring need for renovations,
refurbishment and improvements of hotel properties and other factors. Also,
values of hotel properties are sensitive to changes in local market and economic
conditions and to fluctuations in the economy as a whole. In addition, because
of the high level of fixed costs required to operate hotels, certain significant
expenditures cannot generally be reduced when circumstances cause a reduction of
revenue. In addition to general risks that are associated with real property
ownership and development, investments in limited purpose facilities, such as a
hotel, typically involve greater risk than do investments in multi-purpose
properties, some of which risks are as follows:
Over-building. Over-construction of lodging facilities has previously
resulted in an excess supply of available rooms. A period of over-building
occurred in the 1980s and the resulting over-supply had adverse effects upon
occupancy levels and room rates in the lodging industry. Although much of the
over-supply in rooms has been absorbed largely as a result of the growth in
demand during the past several years, there can be no assurance that an
over-supply of rooms will not exist again in the future.
Competition for Market Share. The operation of hotels is a highly
competitive business. Each Signature Inn hotel is in competition with several
hotels in its market area. These hotels are of varying quality and size, may be
part of national or regional chains and may have available to them greater
financial resources than those available to the Company. However, there is no
single competitor or small number of competitors which dominate the industry.
Demographic, economic or other changes in one or more markets could adversely
affect the competitive status of the Company's hotels in those markets, which,
in turn, would affect the overall operations of the Company. In addition, there
can be no assurance that the opening of new competing hotels or the reduction of
room rates in any particular market will not lead to greater competition for any
or all of the Signature Inn hotels than presently exists.
Requirements for Capital and Labor. Hotels are capital intensive. In order
to remain competitive, facilities must be continually maintained, modernized and
refurbished. This increases the need for capital funds (whether from reserves,
current cash flow or debt financing) and thereby increases the sensitivity of
the investment to the cost and availability of such funds. In addition, hotels
are management and labor intensive and are especially susceptible to the impact
of economic and other conditions outside the control of the hotel owner.
Competition for Expansion Opportunities. The Company may compete for the
acquisition of sites and hotels with entities which have greater financial
resources than the Company. The recent recovery in the lodging industry and the
resulting increase in funds available for hotel acquisition may cause an
increase in hotel acquisition costs and greater competition for quality sites
and existing hotels. The Company's inability to acquire desirable sites or
facilities could impede the continued implementation of the Company's growth
plans.
Inflation. Inflationary pressures can increase operating expenses,
including labor and energy costs, for the Company and its Signature Inn hotels
above expected levels and beyond the Company's ability to pass such costs on to
customers through increased room charges. Inflation can have secondary effects
on occupancy rates by increasing the expense or decreasing the popularity of
travel. Although the inflation rate has been low recently, it could increase
significantly during the useful lives of the Company's hotels.
7
<PAGE> 12
Energy and Environmental Factors. Present and future regulations issued to
meet federal or local anti-pollution standards, limitations on or rationing of
gasoline usage, gasoline shortages or other effects of any future energy crisis
or shortage of natural resources may adversely affect utilization of Signature
Inn hotels by travelers or increase the cost of constructing and operating the
Company's hotels, and thus affect adversely the Company's operations and its
ability to meet its obligations. Further, environmental studies required to be
performed by the Company in connection with the acquisition of properties in
order to avoid potential liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Super Fund
Amendments and Reauthorization Act of 1986, add to the costs and risks of
acquisition of real estate sites generally.
Uninsured or Underinsured Liability Risks. The Company may be exposed to
potential liability arising from such matters as property laws, labor
difficulties and personal injuries. Many businesses, including those in the
lodging industry, periodically have experienced increases in insurance costs
while availability of coverage has decreased. Any such occurrence could render
certain types of desired coverage unavailable at commercially reasonable rates,
with the consequence that any related claims might then exceed coverage.
EXPANSION RISKS
The Company's ability to expand depends upon a number of factors, including
the selection and availability of suitable locations at acceptable prices, the
hiring and training of sufficiently skilled management and other personnel and
the availability of financing. There can be no assurance that desirable
locations for acquisition or new development or financing will be available at
all or on terms acceptable to the Company. Although the Company believes that it
has adequate personnel and systems to accommodate its expansion plans, the
Company's corporate management expenses will increase as the number of Signature
Inn hotels grows, which could adversely affect the Company's financial
performance. There can be no assurance that the Company's expansion plans will
be executed successfully or that the nature of such expansion will not be
modified to reflect future economic conditions. It can be expected that newly
acquired or renovated Signature Inn hotels may differ from the Company's
existing hotels in construction, number of rooms, room size, building
configuration, signage and decor, and there can be no assurance that any such
differences will achieve guest acceptance. The Company's inability to implement
its expansion plans would limit the Company's ability to increase its revenues.
HOTEL CONSTRUCTION, CONVERSION AND RENOVATION RISK
The Company intends either to acquire undeveloped land and construct new
Signature Inn hotels or to purchase existing hotels and redevelop or renovate
those hotels as Signature Inn hotels. The construction, conversion and
renovation of hotels involves risks associated with construction, development
and renovation of real property, including the possibility of construction cost
over-runs and delays due to various factors (including regulatory approvals,
inclement weather, labor or material shortages, and the availability of
construction and permanent financing), market or site deterioration after
acquisition or renovation, uncertainties as to market potential and the
emergence of competition from unanticipated sources. See "Business -- Legal
Proceedings" for a discussion of the Company's previous financial difficulties
resulting, in part, from the unavailability of acceptable financing. Also, newly
opened hotels (whether newly developed or renovated) begin with lower occupancy
and room rates than established hotels. In addition, the Company will be
entering new geographic markets and will be required to integrate those hotels
and markets into the regional and national marketing programs developed by the
Company. Although the Company will endeavor to manage its construction,
acquisition and conversion activities so as to minimize these risks, there can
be no assurance that new or renovated Signature Inn hotels will perform in
accordance with the Company's expectations. Moreover, any unanticipated delays,
expenses or disturbances of hotels being constructed or redeveloped could have
an adverse effect on the results of operations and financial condition of the
Company. Finally, as the number of the Company's hotels grows, the number of the
Company's employees will increase substantially, requiring expansion of the
Company's management resources. With the expansion of the scope and geographic
areas of the Company's operations, there can be no assurance that the Company
will be able to maintain the same high operating standards and efficiencies
which it has achieved historically.
8
<PAGE> 13
NUMBER AND GEOGRAPHIC CONCENTRATION OF THE COMPANY'S HOTELS
Because of the limited number of operating Signature Inn hotels and its
limited area of operations, the Signature Inn chain is not recognized
nationally. Further, 13 of the Company's Initial Hotels, representing 57.6% of
the Company's pro forma revenues for the six months ended June 30, 1996, are
located in Indiana, and five of those, representing 21.5% of the Company's pro
forma revenues for that period, are located in the Indianapolis, Indiana
metropolitan area. Therefore, the Company's results of operations and financial
condition are substantially affected by economic conditions in Indiana
(particularly Indianapolis).
RELIANCE UPON KEY PERSONNEL
The Company will place substantial reliance on the knowledge and experience
and continued services of John D. Bontreger, founder, President and Chief
Executive Officer of the Company. The Company's future success and its ability
to manage growth will depend in large part upon the efforts of Mr. Bontreger and
on the Company's ability to attract and retain other highly qualified personnel.
The loss of the services of Mr. Bontreger or the Company's inability to attract
and retain other highly qualified personnel could adversely affect the results
of operation and financial condition of the Company.
LEVERAGE AND AVAILABILITY OF FINANCING
The Company's total long-term indebtedness (including current maturities)
and shareholders' equity, as of June 30, 1996, on a pro forma basis after giving
effect to the Offering and the application of the proceeds therefrom and the
Purchase Transactions, were $63.7 million and $41.9 million, respectively. See
"Capitalization." Of such indebtedness, $22.6 million bears interest which is
subject to interest rate adjustment during the next 12 months, and the Company's
long-term indebtedness matures at various times between 1997 and 2016. The
Company will incur additional indebtedness in connection with its expansion
plans. While the Company will need to refinance certain of its long-term
indebtedness from time to time, the Company expects that its operating cash flow
and available financing will be sufficient to cover its obligations, including
fixed charges. See "Risk Factors -- Expansion Risks." There can be no assurance,
however, that additional financing will be available on terms acceptable to the
Company or that refinancings will be completed successfully. The Company's bank
credit facility and certain mortgage indebtedness agreements may, in certain
circumstances, limit the Company's ability to incur indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Capital Resources and Liquidity." The Company's ability to satisfy
its obligations will be dependent upon its future performance, which is subject
to prevailing economic conditions and financial, business and other factors,
including factors beyond the Company's control.
DILUTION
Purchasers of the Common Stock will experience immediate and substantial
dilution of $4.34 per share in the pro forma net tangible book value per share
of Common Stock from the initial public offering price. See "Dilution."
LIMITED PUBLIC TRADING MARKET FOR THE SHARES
Immediately before the Offering, the Company's Common Stock was not listed
on any securities exchange and was not quoted on the NASDAQ system. In the past
several years, the Company's Common Stock has not been actively traded in any
established public trading market. Immediately before the Offering, the "Pink
Sheets" published by the National Quotation Bureau, Inc. listed only one broker
dealer firm which provided bid and asked quotations for the Common Stock. From
January 1995 to the date of this Prospectus, a total of shares in
transactions were bought and sold through this broker. Accordingly, the market
value of the Company's Common Stock is not readily ascertainable. As of the date
of this Prospectus, there were approximately 4,800 holders of the Company's
Common Stock. See "Price Range of Common Stock."
9
<PAGE> 14
VOLATILITY OF MARKET PRICE
After completion of the Offering, the market price of the Common Stock
could be subject to significant fluctuations due to variations in quarterly
operating results and other factors, such as changes in general conditions in
the economy, the financial markets or the lodging industry, natural disasters or
other developments affecting the Company or its competitors. In addition, the
securities markets have experienced significant price and volume fluctuations
from time to time in recent years. This volatility has had a significant effect
on the market prices of securities issued by many companies for reasons
unrelated to their operating performance, and these broad fluctuations may
materially adversely affect the market price of the Common Stock.
DETERMINATION OF OFFERING PRICE
The public offering price for the shares offered by this Prospectus has
been determined by negotiations among the Company and the representatives of the
Underwriters and may not be indicative of any trading price of the Common Stock
after the Offering. See "Underwriting." There can be no assurance that an active
trading market for the Common Stock ultimately will develop and continue upon
consummation of the Offering or that the price of the Common Stock will not
decline below the initial public offering price.
SHARES AVAILABLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares or the availability of shares for future sale will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock (including shares issuable upon the exercise of stock
options), or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock. See "Ownership of Common Stock,"
"Shares Available for Future Sale," and "Underwriting."
CONFLICTS OF INTEREST BETWEEN THE COMPANY AND ITS AFFILIATED ENTITIES
Transactional Conflicts. The Company will use a substantial portion of the
net proceeds of the Offering to acquire ownership of all of the Initial Hotels.
Each of those hotels currently is owned by an Affiliated Entity in which the
Company acts as general partner and whose affairs the Company effectively
controls through management and franchise agreements. By virtue of its dual
position as the general partner of the selling Affiliated Entities and as the
purchaser in the Purchase Transactions, the Company has conflicts of interest
that could give rise to claims that the Company has breached its fiduciary duty
to the Affiliated Entities and their respective limited partners in connection
with the Purchase Transactions. The Company has endeavored to address these
conflicts by engaging on behalf of the Syndicated Affiliated Entities a
qualified, independent appraiser to appraise the fair market value of the hotel
properties to be acquired in order to assist in the determination of the
purchase prices to be paid by the Company. Further, the Company has endeavored
to structure commercially reasonable sales pursuant to purchase agreements
containing terms which are fair and reasonable both to the Company and to the
Affiliated Entities, and has engaged independent counsel on behalf of the
Affiliated Entities to negotiate the terms of the definitive hotel purchase
agreements.
Continuing Relationship Conflicts. On completion of the Offering and the
closing of the Purchase Transactions, one of the Signature Inn hotels will be
owned by a partnership in which a third party owns an interest. A subsidiary of
the Company, as the general partner of this partnership, will owe fiduciary
duties to the third party, and may encounter conflicts between the interests of
the Company and the third party. In such cases, the subsidiary and its
management may not be free to act solely in the best interests of the Company
and its shareholders.
CONTROL BY MANAGEMENT GROUP: RISK OF CHANGE OF CONTROL
After consummation of the Offering, management will own beneficially
860,297 shares of the Company's Common Stock, representing approximately 15.9%
(14.6% if the Underwriters' over-allotment option is exercised in full) of the
outstanding shares of Common Stock. See "Principal Stockholders." As a result of
10
<PAGE> 15
such ownership, the Company's management, although not owning a majority of the
shares of Common Stock, will own a sufficient percentage of those shares to
afford it substantial control over the operations and affairs of the Company.
COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes that all
Signature hotels are in compliance in all material respects with these
requirements, a determination that the Company is not in compliance with the ADA
could result in the imposition of fines or an award of damages. In addition,
changes in governmental rules and regulations or enforcement policies affecting
the use and operation of the facilities, including changes to building codes and
fire and life-safety codes, may occur. If the Company were required to make
substantial modifications at its facilities to comply with the ADA or other
changes in governmental rules and regulations, the Company's financial condition
and ability to develop new facilities could be materially adversely affected.
ANTI-TAKEOVER CONSIDERATIONS
The following factors could have the effect of making it more difficult for
a third party to acquire control of the Company, which could adversely affect
the market price of the Company's Common Stock.
Blank Check Preferred Stock. The Board of Directors has authority to issue
up to 5,000,000 shares of Preferred Stock in one or more series and to determine
the rights and preferences, including voting rights, of each series without
further vote or action by the Company's shareholders. See "Description of
Capital Stock -- Preferred Stock." The rights of the holders of the Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any series of Preferred Stock that may be issued in the future. Although the
Company has established the terms of its Series A Preferred Stock in conjunction
with adopting the Shareholders' Rights Agreement described below, it has no
present intention to issue any shares of Preferred Stock.
Staggered Board Terms. The Company's Articles of Incorporation and Bylaws
provide that the Board of Directors shall be divided into three classes, as
nearly equal in size as possible, with staggered three-year terms. See
"Description of Capital Stock-Staggered Board of Directors; Removal; Vacancies."
The staggered terms of directors may limit the ability of the holders of Common
Stock to change control of the Company and may discourage offers or other bids
for the Common Stock at a premium over its market price.
Articles and Bylaws. The ownership positions of the executive officers and
directors of the Company as a group, together with the anti-takeover effects of
certain provisions of the Company's Articles of Incorporation and Bylaws, may
have the effect of delaying, deferring or preventing a change of control of the
Company. For example, the Company's Articles of Incorporation require the
affirmative vote of at least 80% of the voting power of all outstanding shares
of Common Stock to amend any provision regarding the term or election of
directors. The Company's Articles of Incorporation and Bylaws require the
affirmative vote of at least 80% of the voting power of all outstanding shares
of Common Stock to approve any "business combination" involving the Company
which is not approved by the Board of Directors or which does not result in a
defined minimum valuation for the Company.
Rights Agreement. The Company has adopted a Shareholders' Rights Plan which
may have the effect of discouraging a third party from making a tender offer or
otherwise attempting to obtain control of the Company even though such a
transaction might be economically beneficial to the Company and its
shareholders. The Shareholders' Rights Plan will become effective only in the
event that the Registration Statement filed by the Company with respect to this
Offering has been declared effective by the Securities and Exchange Commission.
See "Description of Capital Stock -- Stock Purchase Rights under Shareholders'
Rights Plan."
11
<PAGE> 16
Employment Arrangements. The terms of the employment agreements with the
executive officers of the Company, particularly the lump sum severance payments
required in the event of termination without "just cause", may discourage, delay
or inhibit a change of control of the Company. See "Management: Employment
Contracts."
Indiana Anti-Takeover Statutes. The Company is subject to both the Control
Share Acquisition and Business Combinations provisions of the Indiana Business
Corporation Law, which, generally, impose restrictions on the acquisition of 20%
or more, or 10% or more, respectively, of the common stock of an Indiana
corporation. These statutes may delay, defer or prevent a change of control of
the Company.
NO CASH DIVIDENDS
The Company has never paid cash dividends and does not anticipate paying
cash dividends in the foreseeable future.
DILUTION
The net tangible book value of the Company prior to the Offering, at June
30, 1996, was $5.4 million, or $2.57 per share of Common Stock (after adjustment
for the 1-for-3.701 share reverse stock split). Net tangible book value per
share represents the amount of tangible assets of the Company, less total
liabilities, divided by the number of shares of Common Stock outstanding.
Without taking into account any other changes in net tangible book value after
June 30, 1996, other than to reflect the 1-for-3.701 share reverse stock split
and to give effect to the sale of 3,300,000 shares of Common Stock offered
hereby (after deduction of underwriting discounts and other estimated offering
expenses and the application of the estimated net proceeds therefrom), the net
tangible book value of the Company at June 30, 1996, would have been $41.3
million, or $7.66 per share. This represents an immediate increase in net
tangible book value of $5.09 per share of Common Stock to existing shareholders
and an immediate dilution of approximately $4.34 per share to new investors
purchasing shares in the Offering. The following table illustrates the per share
dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $12.00
Net tangible book value per share as of June 30, 1996.............. $2.57
Increase per share attributable to new investors................... 5.09
Pro forma net tangible book value per share after the Offering..... 7.66
------
Dilution per share to new investors................................ $ 4.34
======
</TABLE>
THE PURCHASE TRANSACTIONS
Each Signature Inn hotel is currently owned by a partnership in which the
Company owns a substantial equity interest and acts as the general partner (the
"Affiliated Entities"). Each hotel is operated by the Company under management
and franchise agreements. Seventeen hotels are owned by Affiliated Entities each
of which has 20 or more limited partners (the "Syndicated Affiliated Entities"),
and six of the hotels are owned by Affiliated Entities each of which has one
limited partner (the "Joint Ventures"). The Company will purchase all of the
hotel properties owned by the Syndicated Affiliated Entities and will acquire
all of the limited partnership interests in the Joint Ventures, except for the
Joint Venture that owns the Carmel, Indiana hotel. The purchases of the hotel
properties and partnership interests are referred to collectively as the
"Purchase Transactions". The Company's obligation to consummate the Purchase
Transactions is subject to a number of conditions, including a financing
condition which contemplates the satisfactory completion of the Offering.
The aggregate purchase price to be paid by the Company in the Purchase
Transactions is $85.1 million. Of that amount, $30.6 million will be paid in
cash at the time of closing from the net proceeds of the Offering, $3.6 million
of which will be used to pay off outstanding second mortgage indebtedness on
three of the Initial Hotels. The $54.5 million balance of the purchase price
will be paid through the assumption by the Company of outstanding first mortgage
debt on the Initial Hotels.
12
<PAGE> 17
REAL ESTATE PURCHASE TRANSACTIONS WITH SYNDICATED AFFILIATED ENTITIES
The purchase prices to be paid to the Syndicated Affiliated Entities are
supported by written appraisals of the related hotel properties. The appraisals
have been issued by a nationally recognized, qualified and independent appraisal
firm. The Company has entered into a binding Asset Purchase Agreement with each
Syndicated Affiliated Entity, under the terms of which the Company will acquire
an undivided fractional interest in the real estate, improvements, fixtures,
furnishings, furniture, equipment and all other tangible and intangible personal
property comprising the hotel properties. The fractional interest acquired by
the Company in the assets of each Syndicated Affiliated Entity will be
proportionate to the aggregate percentage of all limited partnership interests
in such entity. Immediately following the Purchase Transaction with each
Syndicated Affiliated Entity, the entity will be dissolved, and the remaining
fractional interest in the entity's assets will be distributed, in-kind, to the
Company. The effect of the Purchase Transactions and the subsequent dissolution
of the Syndicated Affiliated Entities, with the associated distributions of all
remaining partnership assets, will be to convey to the Company ownership of 100%
of the hotel properties previously owned by the Syndicated Affiliated Entities.
Under the terms of the Company's limited partnership agreement with each
Syndicated Affiliated Entity, the Company is required to obtain consents from
the holders of a majority of the limited partnership interests in order to
consummate the Purchase Transactions. The Company solicited such consents by
means of the distribution to each limited partner of a Solicitation and
Information Statement and a form of Irrevocable Consent. The solicitation was
successful, and holders of a majority of the limited partnership interests in
each of the Syndicated Affiliated Entities have consented to the Purchase
Transactions.
PURCHASES OF LIMITED PARTNERSHIP INTERESTS OF THE JOINT VENTURES
The purchase price for each Joint Venture interest was determined through
direct arm's-length negotiations between the Company and its Joint Venture
partner. The Company and its Joint Venture partners have entered into binding
agreements under the terms of which the Company will purchase 100% of the
partnership interests of each partner. Four of the Joint Ventures will be
dissolved immediately after the Purchase Transactions. The existence of the
other two Joint Ventures will be continued in order to avoid the necessity of
refinancing the mortgage indebtedness on their respective hotel properties. The
effect of the Purchase Transactions will be to convey to the Company ownership
or control of 100% of the hotel properties previously owned by the Joint
Ventures.
BENEFITS OF THE PURCHASE TRANSACTIONS
The Company believes that the consummation of the Purchase Transactions
will serve to streamline its operations and enhance its revenues. By replacing
the current system of 21 legally distinct and separate operating entities with a
simplified, unified Company-owned hotel structure, the Company expects to:
- Retain earnings from hotel operations to fund future growth, rather
than paying all cash available for distribution to partners under the
current partnership agreements;
- Enhance its ability to access the capital markets for the purpose of
obtaining financing for new hotels and for refinancings of existing hotels;
- Achieve combined revenues which will afford greater income stability
and predictability than is derived from the current system of essentially
separate hotel operating entities;
- Increase value for its shareholders by reducing the legal risks,
liabilities and obligations which attend the general partner's exercise of
its duties under the existing partnership, management and franchise system;
and
- Pool the furniture, fixture and equipment reserves associated with
the hotel properties so as to provide additional flexibility in utilizing
the Company's financial resources to maintain and improve its hotels.
13
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $35.9 million ($41.5 million if the over-allotment option is
exercised in full), assuming an initial offering price of $12.00 per share and
after reduction for estimated underwriting discounts and offering expenses
payable by the Company.
The Company intends to use the net proceeds of the Offering to (i) pay the
cash portions of the purchase prices of the asset and limited partnership
interest acquisitions described in "The Purchase Transactions" above (with the
assumption of approximately $54.5 million of first mortgage indebtedness on
hotel properties constituting the balance of the purchase prices); (ii) pay $3.6
million of second mortgage indebtedness on certain of the Initial Hotels; (iii)
pay the approximate $1.4 million balance of the Company's line of credit; and
(iv) provide funds for the acquisition, development and renovation of, and
working capital for, additional Signature Inn hotels in accordance with the
Company's growth plan
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common Stock and does
not anticipate that it will do so in the foreseeable future. The Company intends
to retain earnings to provide funds for the continued growth and development of
the Company's business. Further, the Company's current credit agreements
prohibit the payment of cash dividends without the lender's consent. New credit
facilities likely will contain similar restrictions. Any determination to pay
cash dividends in the future will be at the discretion of the Board of Directors
and will be dependent upon the Company's results of operations, financial
condition, contractual restrictions and other factors deemed relevant by the
Board of Directors.
14
<PAGE> 19
CAPITALIZATION
The following table sets forth cash and cash equivalents, short term
borrowings and current installments of long term debt and the capitalization of
the Company as of June 30, 1996, actual and pro forma to reflect the Offering
and the Purchase Transactions. For additional information, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements, the notes thereto, and the other
financial, pro forma and statistical information included in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------
ACTUAL PRO FORMA
------- ---------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Cash and cash equivalents.................................... $ 2,267 $ 6,765
======= =======
Short-term borrowings and current installments of long term
debt....................................................... 225 1,481
------- -------
Long-term debt, excluding current installments:
Mortgage loans, maturing 1999 through 2016................. 9,003 62,253
Bank secured line of credit, maturing May 1997............. 1,400 --
------- -------
Total long-term debt......................................... 10,403 62,253
Shareholders Equity:
Preferred Stock, par value $1.00 per share 5,000,000 shares
authorized; no shares issued and outstanding............ -- --
Common Stock, no par value per share, 13,509,862 shares
authorized; 2,103,754 shares issued and outstanding;
5,403,304 shares issued and outstanding, pro forma...... 10,017 45,945
Accumulated deficit........................................ (4,089) (4,089)
------- -------
Total shareholders' equity................................... 5,928 41,856
------- -------
Total capitalization....................................... $16,556 $105,590
======= =======
</TABLE>
15
<PAGE> 20
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain financial information of the
Company, its wholly-owned subsidiaries and its consolidated partnerships and
joint ventures and is qualified in its entirety by, and should be read in
conjunction with, "Managements's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements, the notes thereto and
other financial and statistical information included in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Hotel revenues(1).......................... $ 9,227 $ 3,842 $ 3,470 $ 1,659 $ 2,529
Management and franchise fees.............. 2,569 3,022 3,127 1,481 1,524
------- ------- ------- ------- -------
Total revenues.......................... 11,796 6,864 6,597 3,140 4,053
Hotel expenses............................. 5,473 2,033 1,758 845 1,366
General and administrative................. 2,382 2,142 2,237 1,121 1,258
Depreciation and amortization.............. 1,474 511 420 187 244
Valuation allowances....................... 155 -- -- -- --
------- ------- ------- ------- -------
Total operating expenses................ 9,484 4,686 4,414 2,154 2,868
Operating income........................... 2,312 2,178 2,183 986 1,184
Interest expense........................... 3,456 1,275 981 517 531
Other income (expense)..................... 595 708 385 (112) 272
Federal income taxes(2).................... -- -- -- -- --
------- ------- ------- ------- -------
Income before extraordinary gain........ (549) 1,611 1,617 357 926
Extraordinary gain from debt
extinguishment(3)....................... 21,314 495 -- -- --
------- ------- ------- ------- -------
Net income.............................. $20,765 $ 2,106 $ 1,617 $ 357 $ 926
======= ======= ======= ======= =======
Earnings per share(4)...................... $ (0.59) $ 0.92 $ 0.77 $ 0.16 $ 0.44
======= ======= ======= ======= =======
Weighted average number of shares
outstanding............................. 924 1,743 2,098 2,098 2,098
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents.................. $ 1,220 $ 2,036 $ 2,615 $ 2,311 $ 2,267
Total assets............................... 17,415 14,094 18,014 13,982 17,448
Total debt................................. 16,189 10,314 12,360 9,766 10,628
Total shareholders' equity................. 497 3,104 4,791 3,531 5,928
OTHER FINANCIAL DATA:
EBITDA(5).................................. $ 4,441 $ 3,495 $ 3,352 $ 1,401 $ 1,547
Capital expenditures....................... 484 126 130 70 130
Cash provided (used) by:
Operating activities.................... 2,541 1,996 2,661 1,445 1,568
Investing activities.................... (694) 3,989 (462) (110) (316)
Financing activities.................... (2,501) (5,169) (1,619) (512) (1,601)
INITIAL HOTELS OPERATING DATA:
Total hotel revenues....................... $34,508 $37,536 $38,595 $18,599 $19,350
Occupancy(6)............................... 66.2% 67.8% 67.2% 65.9% 65.7%
ADR(7)..................................... $ 50.48 $ 53.45 $ 55.81 $ 55.14 $ 57.34
RevPAR(8).................................. 33.42 36.24 37.50 36.34 37.67
GOP%(9).................................... 47.5% 48.5% 47.9% 48.6% 46.1%
</TABLE>
- ---------------
(1) Hotel revenues during 1993, 1994, and 1995 include revenues from
consolidated partnerships which own two hotels. For the six-month period
ended June 30, 1996, a third consolidated partnership which owns one
16
<PAGE> 21
hotel is included. Additionally, 1993 and 1994 hotel revenues include
revenues from six Company-owned hotels which were sold during these periods;
five were sold during 1993 and the sixth was sold in 1994.
(2) As a result of available tax net operating loss carryforwards, the Company
did not pay any federal income tax during the periods presented. At December
31, 1995, the remaining tax net operating loss carryforwards were $5.5
million. See Note 5 to the Company's Consolidated Financial Statements
included in this Prospectus.
(3) The extraordinary gain from debt extinguishment in 1993 and 1994 resulted
from the relinquishment of ownership of six hotels. See Note 4 to the
Company's Consolidated Financial Statements included in this Prospectus.
(4) Earnings per common share are computed using income before extraordinary
gains on the basis of the weighted average number of common shares
outstanding after giving effect to the proposed 1-for-3.701 share reverse
stock split.
(5) EBITDA is operating income plus the sum of interest income, other income,
depreciation and amortization and loss on disposal of property and
equipment. EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles, and such information
should not be considered as an alternative to net income, cash flow from
operations or any other measure of performance prescribed by generally
accepted accounting principles. EBITDA is included herein because management
believes that certain investors find it to be a useful tool for measuring
the ability to service debt.
(6) Occupancy represents the average occupancy percentage calculated as total
rooms sold divided by total available rooms. Total available rooms
represents the number of rooms available multiplied by the number of days in
the reported period.
(7) ADR represents total room revenues (after discounts) divided by the total
number of rooms sold.
(8) RevPAR represents the average occupancy percentage multiplied by the average
daily room rate for the reported period.
(9) GOP% represents gross operating profit calculated as a percentage of hotel
revenues. Gross operating profit is the sum of hotel revenues less hotel
operating expenses, exclusive of insurance expenses, real estate taxes,
management fees, interest, depreciation and taxes.
17
<PAGE> 22
SELECTED PRO FORMA FINANCIAL DATA
The unaudited selected pro forma condensed statement of operations and
balance sheet data presented below reflect the statement of operations and
balance sheet data as reported for the year ended December 31, 1995, and for the
six months ended June 30, 1996, adjusted to reflect the Offering and the
Purchase Transactions as if the transactions had occurred on January 1, 1995 or
at the balance sheet date, respectively. The following table is qualified in its
entirety by, and should be read in conjunction with, the pro forma financial
statements and the combined financial statements of certain affiliated
partnerships and the consolidated financial statements of the Company, the notes
thereto and other financial, pro forma and statistical information included in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues(1)......................................... $ 38,595 $ 19,350
Operating costs and expenses:
Direct and corporate................................... 23,178 12,189
Depreciation and amortization.......................... 3,151 1,578
-------- --------
Total operating costs............................. 26,329 13,767
-------- --------
Operating income.................................. 12,265 5,583
Other (income) expenses:
Net interest expense................................... 6,525 2,731
Other.................................................. (118) (5)
-------- --------
Earnings before income taxes........................... 5,858 2,857
Income taxes(2)........................................... -- --
-------- --------
Net earnings........................................... $ 5,858 $ 2,857
======== ========
Earnings per common share(3).............................. $ 1.08 $ 0.53
======== ========
Weighted average number of common shares outstanding...... 5,403 5,403
======== ========
PRO FORMA
AT
JUNE 30,
1996
BALANCE SHEET DATA:
Total assets.............................................. $109,430
Short-term borrowings and current installments of
long-term debt......................................... 1,481
Long-term debt, excluding current installments............ 62,253
Shareholders' equity...................................... 41,856
</TABLE>
- ---------------
(1) Hotel revenues during 1995 include revenues from consolidated partnerships
which own two hotels. For the six-month period ended June 30, 1996, a third
consolidated partnership which owns one hotel is included.
(2) As a result of available tax net operating loss carryforwards, the Company
did not pay any federal income tax during the periods presented. At December
31, 1995, the remaining tax net operating loss carryforwards were $5.5
million. See Note 5 to the Company's Consolidated Financial Statements
included in this Prospectus.
(3) Earnings per common share are computed using net income on the basis of the
weighted average number of common shares outstanding after giving effect to
the proposed 1-for-3.701 share reverse stock split.
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is engaged in the development, ownership and operation of
Signature Inn hotels. As of June 30, 1996, the Company managed a chain of 23
Signature Inn hotels located in six states. Three hotels are owned by
consolidated affiliates and 20 additional hotels are owned by limited
partnerships in which the Company is the general partner.
The historical consolidated financial statements include the operation of
the Company and three 50% owned consolidated hotel affiliates (Signature Inn
Indianapolis South, Elkhart and, effective December 29, 1995, Indianapolis
East). The equity method is used for investments in other hotel limited
partnerships.
RESULTS OF OPERATIONS
The following is a discussion of the results of the Company's continuing
operations for the six months ended June 30, 1996 and for the three fiscal years
ended December 31, 1995.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH JUNE 30, 1995
Hotel Operations. Hotel revenues of $2,529,000 for the six months ended
June 30, 1996 represented a 52.4% increase compared to the same period of 1995.
Hotel revenues from Indianapolis South and Elkhart increased $48,000 for the
period, with the remainder of the increase attributable to the consolidation of
Indianapolis East. The increased revenues of Indianapolis South and Elkhart
resulted from an increase in average room rates.
Hotel costs and expenses for the six months ended June 30, 1996 represented
a $521,000 increase compared to 1995. Hotel costs and expenses from Indianapolis
South and Elkhart increased $98,000 for the period, with the remainder of the
increase attributable to the consolidation of Indianapolis East.
Hotel depreciation and amortization expense increased $63,000 for the six
months ended June 30, 1996 compared to 1995 due primarily to the consolidation
of Indianapolis East.
Corporate Operations. Management and franchise fees increased $43,000 for
the six months ended June 30, 1996 compared to the same period of 1995. The
increase in fee income is due to increased revenues during the first six months
of 1996 compared to 1995 of the unconsolidated partnership owned hotels. For the
first six months of 1996, these twenty hotels increased revenues $628,000, or
3.9%, due to average daily rate increases offset by a slight decrease in
occupancy.
General and administrative expenses for the six months ended June 30, 1996
increased $136,000 due to the establishment of hotel regional director positions
late in 1995.
Other Income (Expense). Equity in income of hotel limited partnerships
represents the Company's share of the unconsolidated partnerships' income or
loss. The increase of $23,000 for the six months ended June 30, 1996 compared to
1995 is attributable to increased profitability of the partnership owned hotels
in 1996 and an increased ownership percentage in one partnership.
Interest income for the six months ended June 30, 1996 decreased compared
to 1995 as a result of lower interest income from invested cash balances.
Interest expense -- hotels increased for the six months ended June 30, 1996
compared to 1995 due to the consolidation of Indianapolis East. The consolidated
affiliate loan classified as current at December 31, 1995 was restructured in
June 1996 after reaching an agreement with the current lender. Interest
expense -- corporate for the six months ended June 30, 1996 decreased compared
to 1995 due to decreased average outstanding indebtedness, and a decrease in the
interest rates on the Company's borrowing arrangements. In May 1996, the bank
term note with an outstanding balance of $1,422,000 was paid in full.
Simultaneously with this paydown, the Company's available line of credit was
increased to $3,100,000 with interest at prime plus one-half percent.
19
<PAGE> 24
The Company paid the Capital Appreciation Fee on September 1, 1995. During
the six months ended June 30, 1995, related expense of $457,000 was recorded
using a present value estimate of the amount due the lender.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Hotel Operations. Hotel operations of two hotels owned by consolidated
affiliates (Indianapolis South and Elkhart) are included in the statement of
operations for all of 1995 and 1994. Effective December 29, 1995, the operating
results of a third consolidated affiliate (Indianapolis East) are included in
the 1995 statement of operations. The operating results of the Company-owned
Knoxville hotel are reflected through May 1994, when the hotel was sold to an
Affiliated Entity.
Hotel revenues of $3,470,000 for the year ended December 31, 1995
represented a $372,000 decrease compared to 1994. Hotel revenues from
Indianapolis South and Elkhart increased $245,000 for the year, offsetting the
decrease from the sale of the Company-owned Knoxville hotel in May 1994. The
increased revenues of Indianapolis South and Elkhart resulted from a 2.7%
increase in occupancy and a 4.1% increase in average room rates for the year.
Hotel costs and expenses of $1,758,000 for the year ended December 31, 1995
represented a $276,000 decrease compared to 1994. Hotel costs and expenses from
Indianapolis South and Elkhart increased $76,000 for the year, due primarily to
the increase in the number of rooms sold, offsetting the decrease from the sale
of the Company-owned Knoxville hotel in May 1994.
Hotel depreciation and amortization expense decreased $117,000 for the year
ended December 31, 1995 compared to 1994 due primarily to the hotel sale in May
1994. Hotel depreciation and amortization includes $272,000 and $289,000 for
1995 and 1994, respectively, relating to Indianapolis South and Elkhart.
Corporate Operations. Management and franchise fees earned from all
sources increased $105,000 for the year ended December 31, 1995 compared to
1994. Fees earned from affiliated limited partnerships increased $169,000 for
the year ended December 31, 1995 compared to 1994. Management and franchise fees
from the three hotels sold to affiliated limited partnerships in 1994 and 1993
amounted to $419,000 and $318,000 in 1995 and 1994, respectively, an increase of
$102,000. During 1995, the Company began recognizing management and franchise
fee income from a partnership upon the reduction of a fee subordination
limitation and the restructuring of the debt of the partnership; these
recognized fees totaled $49,000 in 1995. The remaining increase in fee income is
due to increased revenues at the other partnership hotels. Through late 1994,
the Company earned fees from managing Signature Inn hotels owned by non-
affiliates, primarily lenders that had taken possession of a Signature Inn hotel
as part of the Company or Affiliated Entities' financial restructuring during
1993 and 1992. Fees earned from nonaffiliates under short-term agreements
amounted to $64,000 in 1994.
General and administrative expenses for the year ended December 31, 1995
were $2,237,000, which represented a $95,000 increase compared to 1994. The
increase is attributable to increased employee compensation and professional
fees incurred during the ordinary course of business.
Other Income (Expense). Equity in income of hotel limited partnerships
represents the Company's share of the partnerships' income or loss. The increase
of $34,000 for the year ended December 31, 1995 is attributable to increased
profitability of the partnership owned hotels in 1995 and an increased ownership
percentage in one hotel. In addition, one time gains totaling $92,000 and
$118,000 were recognized by the Company in 1995 and 1994, respectively (based
upon its ownership share) upon debt restructuring of partnerships.
Interest income for the year ended December 31, 1995 increased $86,000
compared to 1994. The increase was a result of higher investable cash balances
earning a higher yield and interest income earned for a full year in 1995 from
the Company's loan participation agreements. Interest income recognized from the
notes due from the operating management of the Company was $14,000 and $12,000
for 1995 and 1994, respectively.
20
<PAGE> 25
Interest expense for the year ended December 31, 1995 represents a $294,000
decrease compared to 1994 due to decreased average outstanding indebtedness and
the retirement of a higher rate variable note with a term note on September 1,
1995, offset slightly by the increased cost of borrowings due to the increase in
the prime lending rate on the line of credit throughout the year compared to
1994 and a variable rate subordinate note through August 1995.
The Company paid the Capital Appreciation Fee by a cash payment of $900,000
on September 1, 1995. During 1994, $289,000 of related expense was accrued
representing the present value of the estimated amount due the lender based on a
current estimate of the Company's value and payment date.
Gain on Disposition of Hotels and Land, and Extinguishment of Debt. In May
1994, the Company sold the Knoxville hotel to an affiliated limited partnership
resulting in the extinguishment of approximately $4,900,000 of hotel debt and
other obligations. The difference of $223,000 between the debt extinguished and
the selling price of the hotel is reflected as extraordinary gain on
extinguishment of debt in 1994. The excess of the net book value of the hotel
and the sales price of $13,000 is reflected as gain on disposition of hotel in
1994. In November 1994, proceeds of $333,000 were received and a gain of
$132,000 was recognized upon the sale of a tract of land.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Hotel Operations. Hotel operations of two hotels owned by consolidated
affiliates (Indianapolis South and Elkhart) are included in the statement of
operations for all of 1994 and 1993. The operating results of the Company-owned
Knoxville hotel and two other Company-owned hotels (Peoria and Normal) are
reflected through May 1994 and December 1993, respectively, when these hotels
were sold to Affiliated Entities. The operating results of three additional
Company-owned hotels are reflected through the second quarter of 1993, when
ownership of these hotels was transferred to lenders.
Hotel revenues of $3,842,000 for the year ended December 31, 1994
represented a $5,385,000 decrease compared to 1993. Hotel revenues from
Indianapolis South and Elkhart increased $340,000 for the year offsetting the
decrease from the disposition of the Company-owned Knoxville hotel in May 1994
and the five Company-owned hotels in 1993. The increased revenues of
Indianapolis South and Elkhart resulted from a 5.5% increase in occupancy and a
5.2% increase in average room rates for the year.
Hotel costs and expenses of $2,033,000 for the year ended December 31, 1994
represented a $3,439,000 decrease compared to 1993. Hotel costs and expenses
from Indianapolis South and Elkhart increased $119,000 for the year, due
primarily to the increase in the number of rooms sold, offsetting the decrease
from the disposition of the Company-owned Knoxville hotel in May 1994 and the
five Company-owned hotels in 1993.
Hotel depreciation and amortization expense decreased $960,000 for the year
ended December 31, 1994 compared to 1993 due primarily to the hotel dispositions
in 1993 and in May 1994. Hotel depreciation and amortization includes $289,000
and $321,000 for 1994 and 1993, respectively, relating to Indianapolis South and
Elkhart.
Corporate Operations. Management and franchise fees increased $426,000 for
the year ended December 31, 1994 compared to 1993. The Company began recognizing
management and franchise fees under agreements with two hotels sold to an
Affiliated Entity in December 1993 and with another hotel sold to an Affiliated
Entity in May 1994. The remaining increase in fee income is due to increased
revenues at the other hotels. Chain-wide occupancy and average daily rate for
1994 increased 1.7 percentage points and $2.97, respectively.
Through late 1994, the Company earned fees from managing Signature Inn
hotels owned by non-affiliates, primarily lenders that had taken possession of a
Signature Inn hotel as part of the Company or Affiliated Entities' financial
restructuring during 1993 and 1992. Fees earned from non-affiliates under short-
term agreements amounted to $64,000 and $197,000 in 1994 and 1993, respectively.
21
<PAGE> 26
General and administrative expenses for the year ended December 31, 1994
were $2,142,000 which represented a $240,000 decrease compared to 1993. The
decrease is attributable to reduced labor and legal costs.
Other Income (Expense). Equity in income of hotel limited partnerships
represents the Company's share of the partnerships' income or loss. The increase
of $519,000 for the year ended December 31, 1994 is attributable to increased
profitability of the partnership owned hotels in 1994 from increased occupancy
and room rates, increased ownership percentages in two hotels and the
recognition of nonrecurring gains of $118,000.
Interest income for the year ended December 31, 1994 increased $96,000
compared to 1993. The increase was a result of higher investable cash balances
earning a higher yield, interest income recognized from the notes due from the
Operating Management of the Company executed in April 1994, and interest income
earned from the Company's loan participation agreements in connection with the
three hotels sold to affiliated limited partnerships in December 1993 and May
1994.
Interest expense for the year ended December 31, 1994 represents a
$2,181,000 decrease compared to 1993. Interest ceased to accrue on hotel loans
upon the transfer of ownership of three hotels to lenders during May and June of
1993, the sale of two hotels in December 1993 and the sale of the Knoxville
hotel in May 1994. Additionally, the refinancing of corporate debt obligations
in December 1993 resulted in a substantial reduction of the outstanding
interest-bearing indebtedness of the Company.
Gain on Disposition of Hotels and Land, and Extinguishment of Debt. In May
1994, the Company sold the Knoxville hotel to an affiliated limited partnership
resulting in the extinguishment of approximately $4,900,000 of hotel debt and
other obligations. The difference of $223,000 between the debt extinguished and
the selling price of the hotel is reflected as extraordinary gain on
extinguishment of debt in 1994. The excess of $13,000 of the net book value of
the hotel over the sales price is reflected as gain on disposition of hotel in
1994. In November 1994, proceeds of $333,000 were received and a gain of
$132,000 recognized upon the sale of a tract of land.
During 1993, the Company relinquished ownership of five Company-owned
hotels, resulting in the extinguishment of approximately $28,100,000 of hotel
debt obligations and related other obligations. The difference between the total
debt extinguished and the estimated value of the five hotels at the date of
conveyance is reflected as an extraordinary gain on extinguishment of debt. The
excess of the estimated value (based upon appraisals and on firm purchase
contracts) of the five hotels and the net book value of $273,000 is reflected as
gain on disposition of hotels. The discount of the primary lender's debt
obligations in excess of the $6,000,000 payoff achieved in December 1993 is
recorded as gain from debt extinguishment.
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company has funded its operations principally through
cash flow from operations and borrowings under certain credit facilities.
During 1995, the Company generated net cash flow from operations of
$2,660,000 compared to $1,995,000 in 1994, an increase of $665,000. Although
1995 income before extraordinary gains was relatively flat compared to 1994,
additional accrued expenses of $322,000 were incurred in 1995 in connection with
the payment of the capital appreciation fee arrangement. During 1994, cash flow
from operations of $1,995,000 represented a $545,000 decrease compared to 1993,
due primarily to a lower income before extraordinary gain in 1993.
During 1995, the Company used a net of $462,000 in investing activities
compared to a net of $3,989,000 provided in 1994. The primary element of the
change from 1994 is the proceeds of $4,643,000 from the sale of a hotel to an
affiliated limited partnership in 1994. During 1994, cash provided from
investing activities of $3,989,000 represented a $4,683,000 increase compared to
1993 due to the sale of the hotel.
During 1995, the Company used a net of $1,618,000 in financing activities
compared to a net of $5,169,000 during 1994. The decrease is due primarily to
additional borrowings in 1995 of $1,700,000 under
22
<PAGE> 27
the term note and lower repayments of long-term debt during 1995 compared to
1994. During 1994, cash used in financing activities of $5,169,000 represented a
$2,668,000 increase over 1993 due mainly to additional proceeds of long-term
debt received in 1993.
The Company believes that the cash generated from operations, along with
additional borrowing capabilities and cash balances, will provide adequate
liquidity to meet its operating needs and debt service requirements over the
next twelve months.
In August 1996, the Company purchased an operating hotel with funds from
cash balances and a borrowing under the existing line of credit arrangement.
Approximately $1,500,000 will be spent during the next six months to convert the
hotel to a Signature Inn. The Company has secured $1,900,000 of long-term
mortgage financing for this hotel.
The Company has obtained a bank commitment for a $10,000,000 Credit
Facility to be established upon consummation of this Offering and the Purchase
Transactions. Under the Credit Facility, borrowings will be advanced for new
hotel construction projects and hotel acquisitions and conversions. Borrowings
will bear interest at the prime rate plus 1/2 percent. The Credit Facility has a
two year term, and funds will be advanced under separate mortgage notes, each
with a 60 month term and secured by the related hotel project. The facility is
structured to provide only construction and start-up financing for new projects,
and the Company will be required to replace the Credit Facility financings with
long-term permanent financing.
With anticipated new hotel development cost funded at the rate of 60% from
permanent financing and 40% from internally generated cash flow, the Company
believes it will have the financial capacity to fund the development of three or
more hotels annually. It is expected, however, that the cost to develop a new
hotel will vary significantly by geographic location and size. The Company
anticipates developing or acquiring hotels ranging in size from 75 rooms to 125
rooms.
The Company may seek to increase the amount of its Credit Facility, obtain
additional credit facilities or issue corporate debt or equity securities in
order to raise additional capital. Any debt incurred or issued by the Company
may be secured or unsecured, bear interest at a fixed or variable rate, and be
subject to such other terms as the Board of Directors of the Company considers
appropriate.
IMPACT OF ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation Plans" was issued in October 1995. The Statement is
effective for fiscal years beginning after December 15, 1995. As allowed by the
new Statement, the Company plans to continue to use Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for
stock options. Certain pro forma and other information will be disclosed as if
the company had measured compensation costs in a manner consistent with the new
Statement.
SEASONALITY
Demand for hotel accommodations varies seasonally in the Signature Inns
hotels' market areas. Typically, demand for hotel accommodations and
correspondingly, occupancy rates for the hotels, will be higher during the
period from March through October and lower during the period from November
through February.
INFLATION
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the Company's financial condition or
results of operations for the periods presented.
23
<PAGE> 28
LODGING INDUSTRY OVERVIEW
U.S. LODGING INDUSTRY
The U.S. lodging industry, as a whole, has shown significant improvement
since the beginning of 1992. The Company believes that the key elements
underlying the improvements in the industry's operating performance and
profitability are favorable economic conditions and a rate of room demand growth
which exceeded the growth rate of room supply. The rate of room demand growth
exceeded the rate of room supply growth by 2.6%, 2.8% and 1.3% in 1993, 1994 and
1995, respectively. Occupancy and ADR have increased consistently throughout the
lodging industry from 1993 through 1995. In 1993, 1994 and 1995, Occupancy grew
1.6%, 2.5% and 1.2%, respectively, while ADR increased 2.8%, 4.8% and 4.8%,
respectively.
According to Coopers & Lybrand's "Hospitality Directions", industry-wide
room demand is projected to increase 2.3% annually from 1996 to 1998, compared
to only 1.9% annual growth in supply during this period. This favorable
supply/demand position is projected to lead to growth of 4.0% to 5.0% in ADR
annually through 1998 (a rate that is projected to exceed inflation), coupled
with an increase in Occupancy from 65.9% in 1996 to 66.1% in 1998. RevPAR is
expected to increase 5.3% annually from 1995 to 1998.
MID-PRICE SEGMENT OF LODGING INDUSTRY
Smith Travel Research divides lodging chains into five segments based on
the chains' pricing in urban markets. These segments are: luxury (top 15% room
rates); upscale (next 15% room rates); mid-price (next 30% room rates); economy
(next 20% room rates); and budget (lowest 20% room rates). Signature Inn hotels
are in the mid-price, limited service segment of the hotel industry, as are such
other hotel chains as Hampton Inn, Courtyard by Marriott, Holiday Inn Express,
LaQuinta Inn, Drury Inn and Ramada Limited.
The mid-price, limited service segment of the lodging industry emerged in
the mid-1980s. In contrast to full service hotels, the midprice, limited service
segment eliminated or substantially reduced food and beverage services, and
featured minimal meeting space and fewer amenities, all at a reduced price.
Strong consumer acceptance of this type of hotel product led to significant
growth in the number of midprice, limited service hotels throughout the U.S
Although traditionally associated with "budget" accommodations, the limited
service hotel concept has evolved into different classes of product type, which
now encompass upscale, mid-price, economy and budget properties.
According to Smith Travel Research, the mid-price, limited service segment
in which Signature operates has experienced more favorable operating results
during the 1992 through 1995 period than were experienced by the lodging
industry generally. During the period from 1993 through 1995, demand growth
exceeded supply growth in this segment by a wider margin than in any other
lodging industry segment except luxury hotels. In addition, RevPAR grew by 6.9%
in the mid-price segment in 1994 versus 1993 and by 6.5% in 1995 versus 1994.
Only the luxury segment experienced higher RevPAR growth in 1994 and 1995. The
mid-price limited service segment continued to have strong RevPAR growth in the
first half of 1996, with RevPAR increasing 7.2% over the comparable six-month
period in 1995.
According to Coopers & Lybrand's "Hospitality Directions", demand in the
mid-price segment is projected to increase 3.0% annually from 1996 to 1998
compared to only 2.6% annual growth in supply. This favorable trend is projected
to lead to growth of 4.1% in ADR annually through 1998. In addition, Occupancy
is projected to increase from 66.9% in 1996 to 67.6% in 1998.
OCCUPANCY, ADR AND REVPAR COMPARISONS
The Initial Hotels consist of the 23 hotels currently comprising the
Signature chain, all of which have been operational since 1991 or before. The
"Comparable Group" represents the group of hotels identified by Signature's
management as primary competitors of the Signature Inn hotels in their
respective markets. Management utilizes Comparable Group information for
competitive analysis, employee performance evaluations and incentive
compensation purposes.
24
<PAGE> 29
Smith Travel Research groups U.S. hotels by nine geographic regions. All
but four of Signature's Initial Hotels are located in the region which Smith
Travel Research defines as the states of Illinois, Indiana, Michigan, Ohio and
Wisconsin (the "Region"). The Region is used as the basis for the comparisons
below because over 95% of the Company's hotels are located within or immediately
adjacent to the Region and because the Company believes that regional
comparisons are more relevant than comparisons based upon the entire U.S. hotel
industry.
The following tables compare the Occupancy, ADR and RevPAR of the Initial
Hotels, the Comparable Group, mid-price hotels in the Region and all hotels in
the Region for the period from 1991 through 1995 and for the six-month
comparative periods ended June 30, 1995 and 1996:
OCCUPANCY(1)
<TABLE>
<CAPTION>
SIGNATURE INN
INITIAL COMPARABLE REGION: REGION:
HOTELS GROUP MID-PRICE HOTELS ALL HOTELS
------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
YEAR
1991................... 62.6% 63.1% 58.1% 57.6%
1992................... 63.9% 64.0% 59.4% 58.6%
1993................... 66.2% 63.8% 61.3% 59.5%
1994................... 67.8% 65.9% 64.2% 62.2%
1995................... 67.2% 65.7% 65.1% 62.7%
SIX MONTHS
1995................... 65.9% 64.2% 62.6% 60.1%
1996................... 65.7% 64.0% 62.3% 59.8%
</TABLE>
- ---------------
(1) Occupancy represents total rooms sold (i.e., occupied by a paying guest)
divided by total available rooms. Total available rooms represents the
number of saleable rooms multiplied by the number of days in the reported
period.
ADR(1)
<TABLE>
<CAPTION>
SIGNATURE INN
INITIAL COMPARABLE REGION: REGION:
HOTELS GROUP MID-PRICE HOTELS ALL HOTELS
------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
YEAR
1991................... $ 48.48 $48.15 $51.96 $54.08
1992................... $ 48.95 $48.56 $52.13 $54.89
1993................... $ 50.48 $49.51 $53.46 $56.42
1994................... $ 53.45 $51.58 $55.95 $58.62
1995................... $ 55.81 $54.36 $58.85 $61.56
SIX MONTHS
1995................... $ 55.14 $53.58 $57.33 $59.54
1996................... $ 57.34 $56.02 $60.78 $63.41
</TABLE>
- ---------------
(1) ADR represents total room revenues divided by the total number of rooms
sold.
REVPAR(1)
<TABLE>
<CAPTION>
SIGNATURE INN
INITIAL COMPARABLE REGION: REGION:
HOTELS GROUP MID-PRICE HOTELS ALL HOTELS
------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
YEAR
1991................... $ 30.35 $30.38 $30.19 $31.15
1992................... $ 31.28 $31.08 $30.97 $32.17
1993................... $ 33.42 $31.59 $32.77 $33.57
1994................... $ 36.24 $33.99 $35.92 $36.46
1995................... $ 37.50 $35.71 $38.31 $38.60
SIX MONTHS
1995................... $ 36.34 $34.40 $35.89 $35.78
1996................... $ 37.67 $35.85 $37.87 $37.92
</TABLE>
- ---------------
(1) RevPAR represents Occupancy multiplied by ADR for the reported period.
25
<PAGE> 30
The Initial Hotels have performed favorably as compared to the Comparable
Group since the beginning of 1991. The Initial Hotels' Occupancy has exceeded
the Comparable Group's Occupancy for each of the last three calendar years and
for the six-month period ended June 1996. The Initial Hotels' ADR has exceeded
the Comparable Group's ADR for each of the last five calendar years and for the
six-month period ended June 1996. The Initial Hotels' RevPAR has exceeded the
Comparable Group's RevPAR for each of the last four calendar years and for the
six-month period ended June 1996. Since 1991, the Initial Hotels have
consistently operated at higher Occupancies than all hotels and mid-price hotels
in the Region. The Initial Hotels' ADR growth has exceeded the annual rate of
inflation since the beginning of 1993, increasing by over 4.0% annually during
this period.
26
<PAGE> 31
BUSINESS
THE COMPANY
The Company is a leader in the mid-price, limited service segment of the
hotel industry, having developed its "Signature" concept to meet the specific
needs of the business traveler. The Company became a pioneer in the mid-price,
limited service segment with the opening of its first Signature Inn hotel in
March 1981. During the last five years, Signature Inn hotels consistently have
been ranked as one of the premier mid-price, limited service chains of hotels in
terms of overall guest satisfaction, considering price, value, service and
physical facilities. Signature Inn hotels ranked higher in overall customer
satisfaction than every other mid-price hotel chain in the "moderately priced"
group surveyed by Consumer Reports for its July 1994 issue, ahead of nationally
recognized chains such as Hampton Inn, Comfort Inn and Courtyard by Marriott.
The Company has operated primarily as a management company and has derived
a substantial portion of its revenues from management and other fees paid by the
Affiliated Entities that own the Initial Hotels, which have a total of 2,747
guest rooms. The Initial Hotels are located in the states of Illinois (2),
Indiana (13), Iowa (1), Kentucky (2), Ohio (4) and Tennessee (1). The Company is
a substantial equity owner in, and the general partner of, the Affiliated
Entities, and it manages and franchises the Initial Hotels under agreements with
the Affiliated Entities.
The Company will, using the proceeds of the Offering, become the sole owner
of the Initial Hotels by purchasing interests in the Initial Hotels and in the
Affiliated Entities. The Company believes that the consummation of the purchase
transactions will provide several benefits. First, the purchase transactions
will enhance the Company's ability to fund growth through internal cash flow
generated by the consolidated properties. Second, the purchase transactions will
simplify the Company's operating structure and systems, thereby providing the
Company with administrative cost savings. Third, the Company will improve its
access to capital markets and gain additional financing capabilities by
consolidating its operations and properties in a single financial entity.
The Company currently has under construction an 81 room Signature Inn hotel
in Carmel, Indiana which is expected to open in December 1996. The Company is
also converting to a Signature Inn a 124 room hotel in Springfield, Illinois,
that it purchased in August 1996, and expects to complete that conversion by
March of 1997. In addition, the Company expects to begin construction of a 75
room Signature Inn hotel on a site that it owns in Nashville, Tennessee,
following the completion of the Offering. The Company has signed a letter of
intent to acquire a 120 room hotel in Louisville, Kentucky, in February of 1997,
and expects to convert it to a Signature Inn hotel by June of 1997. The Company
believes that adding Signature Inn hotels in its current markets and in
contiguous areas will lead to increases in occupancy in the Initial Hotels.
SIGNATURE INN CONCEPT, FACILITIES AND SERVICES
Signature Inn hotels are designed to attract business and leisure travelers
who seek exceptional room quality and comfort at moderate room rates. Signature
Inn hotels provide spacious, well appointed guest rooms, swimming pools,
exercise facilities and a complimentary Breakfast Express(R) for their guests,
as well as other amenities offered by full service hotels. However, unlike
full-service hotels, Signature Inn hotels do not provide management-intensive
facilities and services, such as restaurants or cocktail lounges. Because
approximately 65% of Signature Inn guests are business travelers, the Company
emphasizes services designed for the business traveler, such as large, in-room
desks, voice mail and business centers.
The hallmarks of the Signature chain are the friendliness of Signature Inn
hotel staffs and the cleanliness of Signature Inn hotel rooms and related
facilities. The Company's Legendary Service Program is designed to ensure the
selection, training and continuous supervision of a capable, well-groomed and
highly motivated staff of hotel employees who, at all levels, exemplify the
"whatever it takes" attitude toward serving the needs of Signature Inn hotel
guests. The Company's ongoing refurbishing efforts, guest comment card
evaluations and "mystery guest inspection" programs all combine to ensure a high
level of consistency and quality. The attractive architectural design and
landscaping of Signature Inn hotels combine to enhance the experience of
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the Company's hotel guests. Signature Inn hotels qualify for the "Three Diamond"
American Automobile Association ("AAA") rating, based upon the quality of the
hotels' facilities, services and amenities. This is the highest AAA rating
afforded to limited service hotels.
Complimentary services and amenities offered by all Signature Inn hotels
include:
<TABLE>
<S> <C>
* Business center with PC and printer * Cable TV and a movie channel
* Breakfast Express(R) * USA Today delivered to the room
* Individual storage facilities for guests * Large, well-lighted desks
* Guest room voice mail * FAX and copy services
* Modem ports on telephones * Interview centers
* Express check-out service * The Wall Street Journal
* Swimming pool * Local telephone calls
</TABLE>
Additional features include fitness centers at nine hotels, airport shuttle
service at seven hotels, VCRs and new release movies at all hotels. Signature
Inn hotels without fitness centers negotiate arrangements with nearby health
clubs and fitness centers for the use of their facilities by hotel guests. In
addition, hotel management typically makes arrangements with nearby restaurants
for the hotel's guests to qualify for discounts by showing their guest room key
card.
Designed with the convenience and comfort of its guests in mind, a typical
Signature Inn hotel incorporates a large two-story atrium, and a bright,
well-appointed and richly decorated lobby and registration area. Most Signature
Inn hotels contain approximately 120 spacious, quiet and comfortably furnished
guest rooms, averaging 312 square feet in size. Signature Inn hotels are located
near interstate highways, restaurants and business and leisure travelers'
destination points, such as business parks, office buildings and local
attractions.
Approximately 50% of the rooms in a typical Signature Inn are "Signature
Rooms," which are designed specifically for the business traveler. These rooms
feature a queen or king sized bed, a well-lighted 12-foot work center and a
recliner. All other rooms feature two double beds or two queen sized beds and
appeal primarily to families and other leisure travelers. Over 70% of the rooms
in a typical Signature Inn hotel are designated as "non-smoking."
Each Signature Inn hotel devotes an average of 2,000 square feet to meeting
rooms, which management believes substantially exceeds the meeting room space
offered by most of the Company's competitors. Consistent with Signature's
value-oriented approach, a TV monitor, VCR, projection screen, flip charts and
meeting room "survival kit" containing essential supplies such as pencils, name
tags and extension cords, are provided free of charge.
The Company has long recognized the importance of guest safety and security
in the design of Signature Inn hotels and in the special services offered by
Signature's hotel staff. All Signature Inn hotels have interior corridors,
electronic key locks, a deadbolt lock system in all guest rooms and security
cameras which continuously monitor activities at the front desk and hotel
entrances. Twenty-four hour front desk service is also standard in all Signature
Inn hotels. Each hotel is equipped with a centralized smoke, heat and fire
detector system which is hard-wired to each hotel guest room.
The Company believes that not providing full service management-intensive
facilities and services, such as restaurants or cocktail lounges, banquet
centers and room service, enables it to deliver a product that addresses its
guests' needs while meeting their price expectations. Signature Inn hotels are
conveniently located adjacent to or near popular restaurants such as Bob Evans,
Cracker Barrel, Frisch's, Shoney's, Olive Garden, Red Lobster and Outback
Steakhouse. Because Signature Inn hotels do not have restaurant facilities,
Signature Inn hotels, like other limited service hotels, generally have
significantly lower break-even thresholds and are not as labor and management
intensive as full service hotels.
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COMPETITIVE STRENGTHS
The Company believes that its primary competitive strengths include the
following:
Strong Regional Brand Identity. The Company has achieved a strong brand
name awareness in the Midwest. The Company believes that its name recognition in
the Midwest will enhance the performance of both existing and newly acquired
hotel properties in the Midwest, and will provide a strong base for expansion of
the Signature chain. In addition, the Company's frequent stay program, the
Signature Club, has 15,000 members and accounted for approximately 8% of 1995
chain-wide room nights.
Consistency and Quality of Services and Facilities. Since 1981, the
Company has pursued a strategy of offering its guests a high level of
consistency and quality in Signature services, facilities and amenities. Each
Signature Inn hotel provides its guests with "Legendary Service,"
Signature-style facilities and specialized amenities that ensure uniform quality
throughout the Signature chain. The Company has achieved this consistency
through its ties of equity ownership and franchise and management relationships
with the Affiliated Entities. The Company endeavors to achieve consistency and
quality in the construction of its facilities in order to attract customers,
minimize maintenance costs and extend the useful life of Signature Inn hotels.
Management believes the Company has a wide and substantial base of loyal,
satisfied and value conscious guests/customers who view the Company's hotels as
being conveniently located and as providing clean, comfortable rooms and
attractive facilities. Approximately 93% of all 1995 respondents to the
Company's guest comment card program indicated overall favorable responses.
Experienced and Effective Hotel Management. Signature's senior management
has substantial experience in the lodging industry, covering the entire spectrum
of hotel development and operations including financing, site selection,
construction and management. Several of Signature's key officers have been
employed by the Company since the inception of hotel operations in 1981. Senior
management of the Company has an average of 15 years of experience in the
industry. During this period, the Company's management has guided the Company
through a number of cycles in the lodging industry.
Special Marketing and Personal Sales Emphasis. The Company places special
emphasis on direct personal selling through its corporate sales staff and each
hotel's management. This effort is at the heart of the Company's comprehensive
marketing and advertising program. The Company believes that one of the keys to
its success has been the development of personal "one-on-one" relationships with
individual representatives of businesses and organizations in each of the
Signature Inn hotel markets and communities, and on a regional and national
basis. The Company's sales staff has developed relationships with over 250
regional and national corporations and most of the major travel agency
consortiums. The Company's incentive compensation for hotel management is based,
in part, on the successful implementation of the personal sales program.
GROWTH STRATEGY
The Company plans to grow by developing additional Signature Inn hotels.
The Company also anticipates achieving continued growth in the operating
performance of the Initial Hotels and its newly acquired hotels and hotels
currently under development.
Expansion Plans. Following the completion of the Offering and the closings
of the Purchase Transactions, the Company will wholly own and operate all of the
Initial Hotels.
The Company anticipates developing or acquiring hotels ranging in size from
75 rooms to 125 rooms. Management believes that the current development cost of
a new Signature Inn hotel will be approximately $45,000 to $55,000 per room,
depending on the location of the hotel, size of the hotel (number of rooms),
cost of land, local zoning and permitting cost, construction period and local
building costs which are affected by the cost of building materials and
construction labor. The cost to acquire and convert an existing hotel to a
Signature Inn hotel may vary significantly from new development. Management will
consider acquisitions in
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<PAGE> 34
situations when a hotel is available for sale in a desirable market, and when
the cost to acquire and convert is more beneficial than the cost of new
development.
A portion of each new hotel project will be funded by cash flow generated
from operations. With anticipated new development costs funded at the rate of
60% from permanent financing and 40% from internally generated cash flow, the
Company believes it will have the financial capacity to fund the development of
three or more hotels annually. The Company has secured a commitment for a line
of credit to provide funds for interim construction financing and working
capital needs. See "Management's Discussion and Analysis of Financial Condition
and Result of Operations; Capital Resources and Liquidity."
The Company believes that there are ample opportunities to add Signature
Inn hotels on the perimeter of, and within, its current markets. The Company
intends to add Signature Inn hotels by constructing new hotels, and will
continue to evaluate opportunities to acquire and convert other hotels. The
Company's management currently has identified 23 cities in 14 states as
potential markets for expansion. In identifying cities for possible expansion,
the Company typically targets markets with populations of 50,000 or more and
with high levels of business development and multiple sources of room demand.
Within these markets the Company seeks locations near travelers' destination
points, which have good highway visibility and accessibility and are near
popular restaurants.
Carmel, Indiana. An 81 room Signature Inn hotel located in Carmel,
Indiana, is currently under construction and is expected to open in
December 1996. The Carmel hotel is owned by an Affiliated Entity in which
the Company acts as the sole general partner. The hotel will be operated by
the Company under long-term management and franchise agreements. The
estimated development cost, including land, is $3.9 million.
Springfield, Illinois. In August 1996, the Company purchased a 124
room hotel located in Springfield, Illinois. The Company expects to convert
this hotel to a Signature Inn hotel by March of 1997. The estimated
acquisition and development cost, excluding land, is $3.5 million. The
hotel is located on a six acre site which is leased under a long-term
ground lease.
Nashville, Tennessee. The Company also plans to undertake construction
of a 75 room Signature Inn hotel in Nashville, Tennessee following the
completion of the Offering. The hotel will be situated on approximately
three acres of this site. The remaining acreage is intended to be sold to a
restaurant operator or other commercial user.
Louisville, Kentucky. The Company has entered into a nonbinding letter
of intent for the purchase a 120 room hotel located in Louisville,
Kentucky. The Company expects to close the purchase by February 1997 and to
convert the hotel to a Signature Inn by June of 1997. There can be no
assurance that this transaction will be consummated.
The Company has developed prototype plans and specifications for Signature
Inn hotels which include both two-story and three-story building designs, each
with interior corridors, which will allow for the inclusion of a select number
of rooms as suites. Future Signature Inn hotels are expected to contain between
75 and 125 guest rooms, an indoor or outdoor swimming pool, a fitness room and
at least two meeting rooms.
The construction phase of a hotel development generally requires seven to
twelve months after the site and all approvals and permits have been obtained.
The Company's experience in selection and acquisition of sites has varied and
generally averages three to six months. The approval and permitting phase can
occur simultaneously with site acquisition and generally requires from two to
six months. The entire development process generally ranges from twelve to
twenty-four months.
The Company uses independent contractors for the construction of its
hotels, each of whom is selected on the basis of a competitive bidding process.
The Company's management oversees the progress of construction on a regular
basis. The Company has effective working relationships with several
architectural and engineering firms as well as independent contractors. The
Company believes that these relationships and experiences will facilitate the
effective development of additional hotels.
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The Company believes that the experience of its management has been and
will continue to be an important factor in enabling it to execute its growth
strategy. John D. Bontreger, the Company's founder, President, Chief Executive
Officer and Chairman of the Board, was the innovator of the "Signature" idea,
which was one of the industry's first limited service hotel concepts. He has
guided the Company in the development of all Signature Inn hotels. Additionally,
the Company's Vice President of Hotel Operations and Executive Director of
Marketing both have been employed by the Company since the opening of the first
Signature Inn in 1981. The Company's management has substantial experience in
all phases of hotel development, including the selection and acquisition of
hotel sites, the design and supervision of hotel construction and the operation
of hotel properties.
Internal Growth. Management believes that the operating performance of the
Initial Hotels will be enhanced by building new Signature Inn hotels and
acquiring hotels in new "feeder" markets beyond the perimeter of the Company's
existing markets, which will increase Signature name recognition and the number
of reservations generated through the reservation system. The Company believes
that increases in RevPAR will be achieved through the implementation of various
strategies, including periodic increases in ADR consistent with industry and
local economic conditions, maximizing the number of rooms sold during low
occupancy periods by effective management of room rate discounts, and increases
in Occupancy as a result of continual refinement of advertising and promotional
strategies with emphasis on database target marketing.
Portfolio Opportunities, Franchising and Management Contracts. The Company
has pursued and will continue to pursue opportunities to acquire a portfolio of
hotel properties to operate as Signature Inn hotels in its targeted markets. The
Company does not currently intend to actively market franchise and management
services to independent hotel developers or operators, but the Company will
consider franchising to third parties when it can maintain management control
and ensure consistency of services, facilities and amenities. These select
situations most likely would involve contractual franchise and management
arrangements with a "passive" investor or owner. The Company believes its
management system and consistency of services are competitive advantages which
could be jeopardized if management control of hotel operations is relinquished
through truly independent franchising. The Company is not currently engaged in
any discussions regarding the acquisition of a portfolio of hotel properties or
franchising to independent hotel developers or operators.
HOTEL OPERATIONS
Each Signature Inn hotel is operated by a staff of approximately 25
employees, including a General Manager who is responsible for day-to-day
operations. The General Manager is also responsible for developing operating
budgets and implementing hotel policies and procedures. All hotel expenditures,
including payroll, accounts payable and travel agent commissions, are
centralized for approval and payment in the corporate office headquarters.
Standardized property management system software facilitates the capture of
information chain-wide in an efficient and consistent manner. Policies and
procedures for hotel operations are contained in the Signature Inn Confidential
Operations Manual.
Legendary Service Program. The Company believes that its Legendary Service
Program, a unique Company-wide commitment to friendly and helpful guest
services, is a key competitive strength for Signature Inns. To underscore the
importance of the Legendary Service Program, the Company requires each new
employee to sign a written commitment to deliver Legendary Service to the
Company's guests. In addition, each employee receives extensive training in
employee/guest interaction and carries a Legendary Service Card as a reminder of
the four steps of the Legendary Service Program: (1) Big smile and hello; (2)
"How do you feel about your stay?"; (3) Go the extra mile; and (4) Listen,
apologize and correct the problem immediately. The Company has produced a
Legendary Service video and a Signature Inn corporate and hotel information
video which describe Signature Inns' hotel concept and services, corporate
culture and philosophies. Each employee participates in both classroom and
on-the-job training, and must pass various tests before being permitted to serve
guests. Depending on the employee's position, the initial training period can
extend from two to six weeks. Follow-up training, including the introduction of
new policies and procedures, is carried out through a series of weekly and
monthly meetings which assure consistent service is being delivered throughout
the chain.
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The Company reinforces its commitment to Legendary Service with a money
back guarantee to its guests. The General Manager, Assistant General Manager and
Guest Service Coordinator of each Signature Inn hotel are authorized to return a
guest's money when the circumstance warrants in order to insure the guest's
confidence in the Company's commitment to guest satisfaction.
During new employee orientation, weekly departmental awards meetings and
monthly hotel awards meetings, the Legendary Service Program is reviewed and
employees are recognized for delivering Legendary Service to the Company's
guests. General Managers maintain a monthly Legendary Service log which records
guest feedback through comment cards, guest letters, notes and phone calls which
serve to identify the Legendary Service award winners. In addition, each hotel
recognizes a monthly white glove winner for the top housekeeper, and a guest of
the month which is selected by hotel employees. Also, the Company sponsors an
annual chain-wide awards convention to recognize employees for performance and
achievement.
Management believes that the cleanliness and quality of the Company's hotel
facilities, combined with the Legendary Service provided by its hotel staff,
have enabled the Company to provide its guests with value higher than its
competition, as demonstrated by the high levels of chain-wide Occupancy, ADR and
RevPAR achieved by Signature Inn hotels.
HOTEL MANAGEMENT
Hotel operations are under the direction of the Vice President of Hotel
Operations and three Regional Directors, each of whom supervises the operations
of approximately eight hotels. The Vice President of Hotel Operations has 25
years of hotel experience. The Regional Directors each have at least nine years
of hotel experience, all having started their careers as a General Manager of a
Signature Inn hotel. The General Managers of the Signature Inn hotels have an
average of four years of hotel experience.
The Company has implemented a comprehensive cash bonus program to create
incentives for Regional Directors, General Managers and other key hotel staff
members. The bonus amounts are based on specific criteria for each position,
with emphasis on hotel operating performance. Regional Directors and hotel
General Managers are also eligible to participate in the Company's stock option
program. In addition, monthly cash incentives are provided to front desk
personnel for effectiveness in booking reservations to achieve their hotel's
monthly revenue goal.
Budgeting/Information Systems. Each General Manager prepares an annual
business plan including a budget for his or her respective hotel. This process
includes the manager's assessment of the local market and the hotel's
competitive advantages and disadvantages. Each business plan includes sales and
marketing initiatives and other action steps to achieve revenue and expense
goals for the year. Annual business plans for all Signature Inn hotels are
coordinated and approved by corporate management.
Each Signature Inn hotel is equipped with an automated property management
system and related software programs, including a payroll and sales tracking
system, to manage the day-to-day operations of the hotel. Financial and
operating data is electronically transmitted daily to corporate headquarters.
Daily, weekly, monthly, quarterly and year-to-date reports are produced and
reviewed by management to monitor and maintain close control over the Company's
hotel operations.
Quality Control Programs. To ensure compliance with Company policies and
governmental regulations, the Director of Human Resources visits each hotel on
an annual basis. Each applicant for a key hotel staff position is required to
visit the Company's headquarters and take a variety of psychological career
assessment tests to ensure his or her personality is conducive to the
hospitality business. All employees in the chain (including Company headquarters
employees) must pass a drug screening test to become employed and are subject to
random testing thereafter. Additionally, all prospective employees must pass
credit, criminal and automobile driving record background checks.
The Company develops qualifications and a job description for each
position, including General Managers and other hotel employees. The typical
General Manager of a Signature Inn hotel is a college graduate, between 25 and
35 years of age, who possesses a positive mental attitude and strong work ethic.
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General Managers are required to attend a Dale Carnegie course to enhance their
human relations skills and to be actively involved in at least one local civic
organization.
The Company conducts a preventive maintenance program to maintain the
exceptional condition of, and to maximize the useful life of, furnishings and
equipment. To ensure sufficient funds are available to refurbish and upgrade the
facilities when the need arises, the Company deposits 4.0% of revenue into a
separate furniture, fixture and equipment cash account. The Company believes
these expenditures are necessary to build and maintain goodwill with its guests
and to enhance the value and profitability of Signature Inns. The Company has
secured competitive contract pricing for its purchases of supplies and services
and for purchases associated with its refurbishing program.
Each Signature Inn hotel undergoes a two-day, on-site inspection by its
Regional Director at least twice each quarter, and is also formally inspected by
a member of corporate management at least twice each year. The Company also
regularly receives detailed written evaluations of hotel operations from a
guest's perspective through quarterly visits by independent, unannounced
inspectors.
A guest comment card, with pre-paid postage to corporate headquarters, is
placed in each Signature Inn' guest room. Responses are quantified for each
hotel and for the chain as a whole for management review. During 1995, the
Company received approximately 5,000 comment cards with over 93% rating
Signature Inn hotels and services favorably overall. Each guest who submits a
comment card receives a personal letter of appreciation for taking the time to
evaluate the Company's performance. The Company adds and refines hotel amenities
and services as a direct result of input by guests from the Company's comment
card program.
SALES, MARKETING & RESERVATIONS
Guest Profile. During 1995, approximately 65% of Signature Inn guests were
business travelers and approximately 35% were leisure and other nonbusiness
travelers. Business travelers constitute the primary source of weekday room
sales throughout the year while leisure travel is generally the major source of
room sales on weekends. However, during the summer vacation months, leisure
travel demand is also strong throughout the week.
The Company offers a frequent stay program, the Signature Club, to business
travelers who may otherwise not qualify for a volume discount offered to
corporations and travel agency consortiums. The membership is extended free of
charge to travelers who have stayed at least 10 nights at a Signature Inn hotel.
Club benefits include 10% off standard rates, free stay for the guest's spouse,
express hotel reservations, express check-in and special check cashing
privileges. The Company currently has over 15,000 Signature Club members.
Approximately 8% of the Company's chain-wide room nights for 1995 were derived
from Signature Club members.
Sales and Marketing. Since the opening of its first hotel, Signature Inns
has placed a strong emphasis on developing new business relationships through an
aggressive personal sales calling program. Hotel management of each Signature
Inn hotel is responsible for sales in the local market. The Company, through the
development of annual and quarterly corporate and hotel business and sales
plans, establishes a targeted number of sales calls, open-houses and direct
mailings. Incentive compensation for corporate sales and hotel management
personnel is awarded based upon achievement of the goals established in these
plans. The corporate sales staff is responsible for regional and national sales
and the development of relationships with the travel planners of large companies
and large travel agency consortiums. The Company currently has negotiated rate
arrangements with over 250 companies and with most major travel agency
consortiums. Because the Company has management control over all hotels, it can
offer negotiated pricing based upon volume for all hotels in the Signature Inns
chain.
To complement these sales efforts, the Company is active with various
national organizations such as the American Society of Association Executives,
the National Business Travel Association, the American Society for Travel
Agents, the National Tour Association, the American Bus Association and the
Ontario Motor Coach Association.
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To attract the individual senior traveler and capitalize on the growing
senior citizen market, the Company offers a 10% discount to all American
Association of Retired Persons members. Additionally, the Company offers special
motorcoach rates to attract overnight business from the growing senior group
tour market. The Company promotes this business through its development of
prepackaged tours marketed to senior group tour planners and operators. These
competitively priced tour packages available in each Signature Inn market
include popular attractions, theaters, museums, specialty restaurants and
discounted overnight accommodations at a Signature Inn hotel.
To appeal to the 35 million membership of the AAA which consists primarily
of leisure travelers, Signature Inn hotels offer "special value" rates (10%
discount) and each hotel subscribes to the Official Appointment Designation in
all of the applicable AAA Tour Books. In 1996, approximately 6.0% of 1995
chain-wide room nights came from AAA members.
All Signature Inn hotels feature an outdoor swimming pool (or indoor pool
at South Bend, Indiana and Kokomo, Indiana), free stays for children age 17 and
under, complimentary all-you-can-eat Breakfast Express(R) and clean, comfortable
accommodations to appeal to value conscious leisure travelers and families.
These travelers include leisure groups such as overnight guests for weddings,
anniversaries, reunions, athletic teams and group motorcoach tours for senior
citizens.
Signature Inns has utilized the services of a full-service advertising
agency to assist in developing advertising and marketing programs on a local,
regional and national basis. National exposure has been generated by placing
advertisements in targeted business travel publications such as Business Travel
News and Travel Weekly. Regional and local advertising primarily focuses on
radio business publications, direct mail to travel agencies and corporate travel
planners, the Yellow Pages, billboards and local program advertising.
The Company enlists the services of a full service public relations agency
to assist the Company in generating public awareness of Signature Inns within
its markets. During 1996, the Signature Inn chain was the official hotel of the
Indiana State Fair and the Hoosier State Games. Signature Inns sponsors an
annual golf classic for the benefit of Habitat for Humanity, a non-profit
organization which builds homes for the working poor. Funds raised from this
effort, along with funds raised by local hotel fund raisers and other efforts,
have assisted in the building of eight Habitat homes in Indianapolis, Indiana.
As a community service, during the holiday season, each Signature Inn hotel
provides two complimentary rooms per night to families visiting a hospitalized
family member.
Reservations. Signature Inns utilizes TeleServices Resources, Inc., a
subsidiary of AMR Corporation and a sister company of American Airlines, to
provide central reservation services. The chain's toll free number,
1-800-822-5252, can be accessed across the continental U.S., Canada and the
Virgin Islands. The Company believes its system is comparable to systems used by
large national hotel chains. The system is interfaced with the airlines' Global
Distribution System including electronic reservation systems such as Sabre,
Apollo, Worldspan, System One and Amadeus, which are used by travel agencies.
This sophisticated electronic system connects Signature Inns to over 35,000
travel agencies and over 250,000 travel agents in the U.S. and Canada and is
also accessible to travel agents in Central and South America and Europe.
Over 20% of Signature Inns' 1995 chain-wide revenue was generated through
the central reservation system. The Company believes that the availability of
its reservation system, in combination with the increased awareness of its
hotels that is expected to result from its geographic expansion, will contribute
to occupancy growth in its Initial Hotels and new hotels.
SIGNATURE INN HOTEL PROPERTIES
On the completion of the Offering and the closing of the Purchase
Transactions, the Company will own 24 of the 25 Signature Inn hotels listed in
the table below. Signature Inn-Carmel will continue to be owned by an Indiana
limited partnership in which the Company is the general partner and owns a 40%
equity interest. The hotels will have a total of 2,952 guest rooms located in
six states.
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<TABLE>
<CAPTION>
YEAR NO. OF
PROPERTY LOCATION OPENED ROOMS
- ------------------------------------- ---------------------------------------------------- ------ ------
<S> <C> <C> <C>
Signature Inn -- Indianapolis (North) I-465 & Michigan Road, Indianapolis, Indiana 1981 141
Signature Inn -- Fort Wayne I-69 & State Road 3, Fort Wayne, Indiana 1982 102
Signature Inn -- Castleton I-465 & Allisonville Road, Indianapolis, Indiana 1983 125
Signature Inn -- Lafayette I-65 & State Road 26, Lafayette, Indiana 1983 121
Signature Inn -- Muncie McGaillard Road & Chadam Lane, Muncie, Indiana 1984 101
Signature Inn -- Cincinnati (North) I-75 & Sharonville Road, Sharonville, Ohio 1985 130
Signature Inn -- Cincinnati
(Northeast) I-71 & Mason-Montgomery Road, Cincinnati, Ohio 1985 99
Signature Inn -- Southport I-65 & Southport Road, Indianapolis, Indiana 1985 101
I-465 & East Washington Street, Indianapolis,
Signature Inn -- Indianapolis (East) Indiana 1985 101
Signature Inn -- Indianapolis (West) I-465 & West 38th Street, Indianapolis, Indiana 1985 101
Signature Inn -- Columbus I-270 & Cleveland Road, Columbus, Ohio 1986 125
Signature Inn -- Kokomo U.S. 31 & Alto Road, Kokomo, Indiana 1986 101
Signature Inn -- Evansville Green River Road & Vogel Road, Evansville, Indiana 1986 125
Signature Inn -- Terre Haute I-70 & U.S. 41, Terre Haute, Indiana 1987 157
Signature Inn -- Elkhart Indiana Toll Road & State Road 19, Elkhart, Indiana 1987 125
Signature Inn -- Florence Turfway Road & I-71/75, Florence, Kentucky 1987 125
Signature Inn -- Dayton I-75 & State Road 725, Miamisburg, Ohio 1987 125
Signature Inn -- South Bend Indiana Toll Road & U.S. 31, South Bend, Indiana 1987 123
Signature Inn -- Louisville I-65 & Fern Valley Road, Louisville, Kentucky 1988 123
Signature Inn -- Normal 101 South Veterans Parkway, Normal, Illinois 1988 124
Signature Inn -- Peoria 4112 North Brandywine, Peoria, Illinois 1988 124
Signature Inn -- Bettendorf I-74 & Spruce Hill Drive, Bettendorf, Iowa 1989 124
Signature Inn -- Knoxville I-75 & Cedar Bluff Road, Knoxville, Tennessee 1989 124
Signature Inn -- Carmel I-465 & U.S. 31, Carmel, Indiana 1996 81
Signature Inn -- Springfield* I-55 & Stevenson Drive, Springfield, Illinois 1996** 124
</TABLE>
- ---------------
* Upon completion of conversion to a Signature Inn.
** Year acquired.
TRADEMARKS
The trademarks "Signature Inn," "We Help You Get Down to Business,"
"Sincerely Yours," "Breakfast Express," "There's Something Personal about a
Signature" and related marks and logos are actively used by the Company, are
material to the Company's business and are registered with U.S. Patent and
Trademark Office.
EMPLOYEES
On the completion of the Offering and the closing of the Purchase
Transactions, the Company will have approximately 600 employees, including 30 in
the Company's corporate office. The Company's employees are not represented by a
labor union. The Company considers its relationship with its employees to be
good.
COMPETITION
The lodging industry is an extremely competitive business. The Company and
its Signature Inn hotels are each in competition with numerous management
companies and hotel chains of varying quality and size, including national and
regional chains and hotels which have available to them greater name recognition
and financial resources than the Company. Chains such as Hampton Inn, Courtyard
by Marriott, Holiday Inn Express, LaQuinta Inn, Drury Inn and Ramada Limited are
direct competitors of the Company. There is no single competitor or group of
competitors of the Company that is dominant in the lodging industry. Competitive
factors in the industry include reasonableness of room rates, quality of
accommodations, degree of service and convenience of locations. The lodging
industry in general, including the Company, may be adversely affected by
national and regional economic conditions and government regulations. The demand
for accommodations at a particular hotel may be adversely affected by many
factors including changes in travel patterns, local and regional economic
conditions and the degree of competition with other lodging establishments in
the area. The Company believes its management possesses adequate experience and
that the
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Signature Inn concept is sufficiently recognized to enable the Company to
compete successfully against its competitors.
ENERGY AND ENVIRONMENTAL FACTORS
Present and future regulations issued to meet federal or local
antipollution standards, limitations on or rationing of gasoline usage, gasoline
shortages or other effects of any future energy crisis or shortage of natural
resources may adversely affect utilization of one or more of the Signature Inn
hotel properties by travelers or increase the cost of operating such properties
and thus adversely affect the Company's operations. Further, environmental
studies required to be performed by the Company and its Affiliated Entities in
connection with the acquisition of properties in order to avoid potential
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Super Fund Amendments and
Reauthorization Act of 1986, add to the costs and risks of acquisition of real
estate generally.
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances on such property. Such laws often impose
such liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of hazardous or toxic substances. Furthermore, a
person that arranges for the disposal or transports for disposal or treatment of
hazardous substance at a property owned by another may be liable for the costs
of removal or remediation of hazardous substances released into the environment
at that property. The cost of the remediation or removal of such substances may
be substantial, and the presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell such
real estate or to borrow using such real estate as collateral. In connection
with the operation of the hotel properties, the Company may be potentially
liable for any such costs.
The Company has obtained Phase I environmental site assessments ("Phase I
Surveys") on existing Signature Inn properties, and intends to obtain Phase I
Surveys prior to the purchase of any properties after the Purchase Transactions.
The Phase I Surveys are intended to identify potential environmental
contamination and regulatory compliance concerns. Phase I Surveys generally
include historical reviews of the properties, reviews of certain public records,
preliminary investigations of the sites and surrounding properties and the
preparation and issuance of written reports. Phase I Surveys generally do not
include invasive procedures, such as soil sampling or ground water analysis.
The Company is not aware of any environmental liability or compliance
concern that the Company believes would have a material adverse effect on the
Company's business, assets, results of operations or liquidity. Nevertheless, it
is possible that Phase I Surveys will not reveal all environmental liabilities
or compliance concerns or that there will be material environmental liabilities
or compliance concerns of which the Company will not be aware. Moreover, no
assurances can be given that (i) future laws, ordinances or regulations will not
impose any material environmental liability, or (ii) the current environmental
condition of the Company's or Affiliated Entities' existing and future
properties will not be affected by the condition of neighboring properties or by
unaffiliated third parties.
AMERICANS WITH DISABILITIES ACT AND OTHER GOVERNMENTAL REGULATIONS
The Company believes that all hotels within the Signature Inn chain
currently are in compliance in all material respects with the Americans With
Disabilities Act and does not anticipate that future compliance with this
regulation will require substantial cash resources.
A number of states regulate the licensing of hotels by requiring
registration, disclosure statements and compliance with specific standards of
conduct. The Company believes that each Signature Inn hotel has the necessary
permits and approvals to operate its respective business and the Company intends
to continue to obtain such permits and approvals for its new facilities. In
addition, the Company and its Affiliated Entities are subject to laws governing
their relationship with employees, including minimum wage requirements,
overtime, working conditions and work permit requirements. Further increases in
the minimum wage rate, employee benefit costs or the costs associated with
employees could adversely affect the Company.
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<PAGE> 41
LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the normal course of
business. The Company believes that the ultimate outcome of these lawsuits will
not have a material adverse effect on the Company's business, assets, financial
condition or results of operations.
In October 1989, the Company's primary development lender and lead bank on
its line of credit refused to renew on normal terms the Company's line of
credit, which had previously been routinely renewed on an annual basis. In March
1990, the bank refused to further renew the line of credit at all. The bank's
refusal to renew the line of credit, together with other factors, caused the
Company to terminate two ongoing public offerings of affiliated limited
partnership interests and prevented the Company from structuring and syndicating
any such offerings after 1989. As a result, nine hotels in their "start-up"
phase were not adequately financed, and their operation caused the Company to
exhaust substantially all of its cash resources and historically adequate
working capital reserves. In early 1990, the Company was forced to suspend
interest payments to its lenders and, after unsuccessfully attempting to
negotiate an out-of-court debt restructuring with its lenders, filed for
protection under Chapter 11 of the Bankruptcy Code on April 23, 1990. Although a
reorganization plan ultimately was confirmed on March 28, 1991, the confirmed
plan proved unfeasible, requiring the Company again to suspend debt service
payments to its lenders as of January 1, 1992.
During 1992 and 1993, the Company conveyed to its lenders a total of six
Company-owned hotels in lieu of foreclosure and in full release and discharge of
the substantial deficiency obligations (representing the negative difference
between the estimated fair market value of the properties and the indebtedness
owing thereon) owing to those lenders. In addition, on December 23, 1992, the
Company negotiated a substantial restructuring of its indebtedness to its former
primary lender. On December 16, 1993, the Company completed a total
extinguishment at a discount of the Company's indebtedness and warrant
obligations then owing to its former primary lender, pursuant to a comprehensive
refinancing package.
In 1995, the Company paid most of the indebtedness incurred in connection
with the 1993 refinancing, including a $900,000 Capital Appreciation Fee. As of
June 30, 1996, other than non-recourse hotel mortgage loans to its consolidated
Affiliated Entities, the Company had $1.4 million outstanding on its line of
credit facility.
INSURANCE
The Company has comprehensive general liability insurance with an
occurrence limit of $1.0 million, including bodily injury and property damage,
personal and advertising injury, and products and completed operations coverage,
with an aggregate limit of $2.0 million per hotel, for these coverages and
additional excess umbrella liability insurance with a coverage limit of $25.0
million over and above the underlying occurrence limit. The Company believes
these coverages and limits are appropriate for its business. While management
believes that its insurance coverage is adequate, if the Company were held
liable for amounts and claims exceeding the limits of its insurance coverage or
outside the scope of its insurance coverage, the Company's business, results of
operations and financial condition could be materially and adversely affected.
HEADQUARTERS
The Company's corporate headquarters in Indianapolis, Indiana, is occupied
pursuant to a lease that expires in November 1997. Management believes that such
offices are sufficient to meet its present needs and does not anticipate any
difficulty in securing additional space, as needed, on terms acceptable to the
Company.
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<PAGE> 42
MANAGEMENT
The following chart lists the names, ages and current positions with the
Company of each of the Company's current directors and executive officers. Each
director named below has served as a director of the Company for five or more
years, except for Messrs. Carney and Hagood, who became directors in November
1993, and Mr. Huse, who became a director in August 1994.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---------------------------- -----------------------------------------------------------
<S> <C> <C>
President, Chief Executive Officer and Chairman of the
John D. Bontreger 47 Board
Vice President Finance, Chief Financial Officer and
Mark D. Carney 39 Director
Bo L. Hagood 47 Vice President Hotel Operations and Director
Secretary, Executive Director Sales and Marketing and
David R. Miller 55 Director
Martin D. Brew 36 Treasurer and Controller
Stephen M. Huse 53 Director
George A. Morton 59 Director
Richard L. Russell 60 Director
Richard E. Shank 63 Director
Orus E. Weaver 72 Director
</TABLE>
A brief description of the business experience and educational background
of each of the current directors and executive officers is as follows:
John D. Bontreger is the founder of the Company and has served as its
President, Chief Executive Officer, and Chairman of the Board since the
Company's inception in March 1978. He is responsible for the overall management
of the business affairs of the corporation. Prior to founding the Company, Mr.
Bontreger served from 1975 to 1978 as a vice president for an Indiana-based
hotel company. Mr. Bontreger holds a Bachelor of Science Degree from Goshen
College, Goshen, Indiana where he was graduated in 1972.
Mark D. Carney joined the Company in 1992 as the Vice President of
Finance/Chief Financial Officer and is responsible for the financial operations
and finance functions of the Company and affiliated entities. Prior to joining
the Company, Mr. Carney was employed by KPMG Peat Marwick, in Indianapolis,
Indiana. He was responsible for services to public and privately owned real
estate developers and operators, hospitality companies and financial
institutions. Mr. Carney is a 1979 graduate of Indiana University, with a
Bachelor of Science Degree from the School of Business and is a member of the
American Institute of Certified Public Accountants.
Bo L. Hagood has been employed by the Company since December 1980 starting
as a hotel General Manager. In January 1984, he was promoted to Director of
Hotel Operations and then to Vice President Hotel Operations in 1987. Mr. Hagood
has been employed in the hospitality industry for 25 years, having managed
several hotels for national chains prior to joining Signature Inns. Mr. Hagood
was graduated from Appalachian State University in 1971 with a Bachelor of
Science Degree in Business Administration.
David R. Miller has been employed by the Company since August 1978 and has
served as the Secretary (and Treasurer until May 1986) of the Company since
September 1978. Since 1990, Mr. Miller has been the Executive Director Sales and
Marketing responsible for assisting in the development and implementation of the
Company's advertising, marketing and public relation programs. He has served as
liaison with the Company's advertising and public relations agencies and has
directed the local, regional and national hotel room sales program and the
central reservation system. Mr. Miller is a 1965 graduate of Ashland University,
Ashland, Ohio, with a B.S. in Business Administration.
Martin D. Brew has been employed by the Company since April 1986. In
December 1987, Mr. Brew assumed the position of Controller and, in April 1992,
he began serving as Treasurer. Mr. Brew is responsible for the Accounting and
Information Systems Department and the functions of: Financial Reporting,
Investor Reporting, Cash Management, Property and Casualty Insurance, Legal
Compliance, Automation concepts of
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<PAGE> 43
the chain, Tax Planning and Audit Coordination. Prior to his employment with
Signature Inns, Mr. Brew was employed by KPMG Peat Marwick. Mr. Brew is a 1982
graduate of Indiana University, with a Bachelor of Science Degree from the
School of Business and is a member of the American Institute of Certified Public
Accountants.
Stephen M. Huse is President and Chief Executive Officer, Huse Food Group,
Inc., Bloomington, Indiana. In addition, Mr. Huse is President of St. Elmo,
Incorporated, which operates the St. Elmo Steak House in downtown Indianapolis,
and Chief Executive Officer of Beef Corporation of America, franchisee of 11
Arby's Roast Beef Restaurants in Central and Southern Indiana. Previously, Mr.
Huse was President and Chief Executive Officer of Consolidated Products, Inc.,
operator of Steak 'n' Shake restaurants. He is also the founder of Noble Romans
Incorporated, a publicly traded franchisor of pizza parlors in the Midwest. Mr.
Huse is also a director of Marsh Supermarkets, Inc., and a member of the
Advisory Board of KeyBank of Central Indiana, Indianapolis, Indiana. Mr. Huse is
a 1965 graduate of Indiana University.
George A. Morton has been manager, operator and part owner of Morton Farms,
Inc. since 1962, and serves as Vice President and Secretary of that company.
From April 1987 to January 1989, Mr. Morton served as Deputy Commissioner of
Agriculture for the State of Indiana. He served as the Indiana Director of
Farmers Home Administration from 1989 to 1993. Mr. Morton is a 1958 graduate of
Purdue University.
Richard L Russell has been the Executive Director, Direct Regions of the
National Retail Hardware Association, and has been involved in the hardware
industry for nearly thirty years. He has also served as president or director of
several community and civic organizations. Mr. Russell is a 1958 graduate of
Purdue University.
Richard E. Shank has been self-employed in the real estate business since
1961. Mr. Shank was an elected representative in the Indiana General Assembly
for 21 years, and was a State Senator from 1976 to 1987. He served as Executive
Director of the Indiana Professional Licensing Agency during 1988. Mr. Shank
attended Hesston College in Hesston, Kansas.
Orus E. Weaver has been an independent life insurance broker since 1981 and
previously assisted in the sale of limited partnership interests in limited
partnerships formed to develop Signature Inn hotels. Mr. Weaver has been a
member of the Indiana and National Association of Life Underwriters for almost
20 years.
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<PAGE> 44
EXECUTIVE COMPENSATION
The following Summary Compensation Table lists the cash compensation paid
to each of the four highest compensated executive officers of the Company during
the three year period from January 1, 1993 through December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED COMPENSATION
NAME AND PRINCIPAL POSITION DECEMBER 31, SALARY BONUS
- ---------------------------------------- ------------ -------- ------------
<S> <C> <C> <C>
John D. Bontreger 1995 $147,833 $ 61,685
President & CEO 1994 141,901 77,768
1993 136,250 --
Mark D. Carney 1995 89,350 38,217
V.P. Finance & CFO 1994 85,782 47,003
1993 80,337 3,000
Bo L. Hagood 1995 89,350 38,217
V.P. Hotel Operations 1994 85,792 47,003
1993 82,212 7,787
David R. Miller 1995 75,911 24,124
Secretary, Executive Director of 1994 72,795 28,487
Sales and Marketing 1993 69,808 3,330
</TABLE>
OPTION AND RESTRICTED STOCK GRANTS
As of the date of this Prospectus, there are unexercised options to
purchase 2,297 shares of Common Stock under the 1986 Signature Inns, Inc.
Incentive Stock Option Plan. All of those unexercised options expire in July
1997. Except for Mr. Brew, who holds options on a total of 540 shares, none of
those options are held by any of the current directors or executive officers of
the Company.
The following table sets forth the grants of options and restricted stock
made to executive officers during the fiscal 1996 under the Signature Inns,
Inc., 1996 Equity Incentive Plan, which is described more fully below.
OPTION GRANTS IN CURRENT FISCAL YEAR (1)(2)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL EXERCISE
UNDERLYING OPTIONS GRANTED TO OR BASE FAIR MARKET VALUE
OPTIONS EMPLOYEES IN PRICE AT DATE OF EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH)(3) GRANT(3) DATE
- --------------------- --------- ------------------ ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
John D. Bontreger.... 50,000 29.8% $ 12.00 $ 600,000 November 2006
Mark D. Carney....... 25,000 14.9% $ 12.00 $ 300,000 November 2006
Bo L. Hagood......... 25,000 14.9% $ 12.00 $ 300,000 November 2006
David R. Miller...... 15,000 8.9% $ 12.00 $ 180,000 November 2006
</TABLE>
- ---------------
(1) The Company's Compensation Committee and Board of Directors have approved
the grant of the stock options listed in the foregoing table conditioned
upon the successful completion of the Offering. However, no stock option
agreements have yet been signed and no options have yet been granted.
(2) No options were granted during 1995.
(3) Based on the estimated initial public offering price of the Common Stock in
the Offering.
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<PAGE> 45
EMPLOYMENT CONTRACTS
The Company has employment contracts with John D. Bontreger, Bo L. Hagood,
Mark D. Carney, David R. Miller and Martin D. Brew. The terms of the employment
contracts began in December 1993, and the contracts provide for base salaries of
the officers/employees, plus bonuses, as determined annually by the Company's
Board of Directors. In addition, the employment contracts provide for the
payment of other customary benefits, including medical, life and disability
insurance premiums. The current terms of Messrs. Bontreger's, Hagood's and
Carney's contracts expire in December 1996. The current terms of Messrs.
Miller's and Brew's contracts expire in November 1996. The contracts are
renewable for subsequent terms: Mr. Bontreger's for one and one-half years;
Messrs. Hagood's and Carney's for one year; and Messrs. Miller's and Brew's for
six months. The contracts are not terminable by the Company except upon "just
cause" as defined in the contracts.
In the event the Company terminates an officer/employee's employment
without "just cause," or in the event an officer/employee resigns "with just
cause" (i.e., where the Company materially breaches the agreement), the
officer/employee is entitled to receive from the Company lump sum severance
payments equal to a multiple of yearly "regular compensation," as defined in the
contracts. In such events, Mr. Bontreger would receive severance benefits equal
to one and one-half times his "regular compensation," Messrs. Hagood and Carney
would receive severance benefits equal to one time such compensation, and
Messrs. Miller and Brew would each receive severance benefits equal to one-half
times such compensation.
In the event of the termination of an employment contract by the Company
"for just cause" or a resignation by an officer/employee "without just cause,"
the severance benefits would not be payable. In addition, in the event the
Company terminates an employment contract for "just cause" or the
officer/employee resigns "without just cause," the officer/employee must abide
by certain restrictive, non-compete provisions for the same period as the then
current term of the contract.
COMPENSATION OF DIRECTORS
Each of the Company's five non-employee directors (each, an "Outside
Director") is paid a retainer of $5,400 per year, payable quarterly. In
addition, each Outside Director receives a fee of $650 per Board meeting
attended (other than telephonic Board meetings which are covered by the retainer
and receive a fee of $650 for each Committee meeting, unless such Committee
meeting is held "in conjunction with" a Board meeting, in which event, the fee
is $325. Under the terms of the 1996 Equity Incentive Plan, awards of Restricted
Stock to Outside Directors are automatically granted upon such directors'
election or re-election. Initially, each Outside Director was granted 167
shares, 333 shares or 500 shares of Restricted Stock depending on the number of
years then remaining in such director's term. Upon re-election, each Outside
Director is granted awards of 500 shares of Restricted Stock. Outside Directors
are also reimbursed for reasonable costs and expenses, including travel
expenses, incurred by them in connection with their attendance at any board or
committee meeting.
THE 1996 EQUITY INCENTIVE PLAN
Believing that the Company's earnings performance and growth depend on the
best possible management available, the Board of Directors of the Company
adopted a 10-year incentive plan entitled the "Signature Inns, Inc. 1996 Equity
Incentive Plan" (the "Plan") for directors, officers and employees of the
Company and its subsidiaries. The Board believes that the Plan will encourage
equity ownership in the Company by key employees, provide those individuals with
incentive and motivation to perform in the best interests of the Company and its
shareholders and aid in attracting and retaining high quality employees.
The Plan became effective when it was approved by the Company's
shareholders at their 1996 annual meeting. Awards granted under the Plan may be
in the form of Incentive Stock Options, Non-qualified stock options
(collectively) referred to herein as "Stock Options"), Restricted Stock Grants
or any combination thereof within the limitations set forth in the Plan. For
purposes of awarding Stock Options and Restricted Stock Grants, the Plan will
remain in effect for a term of 10 years from the date of adoption of the Plan by
the Board of Directors on February 20, 1996 (the "Plan Term Commencement Date").
The Plan will continue in effect thereafter (i.e., beyond the 10 year term for
making awards) until all matters relating to the payment of
41
<PAGE> 46
awards and the administration of the Plan have been fully settled. The principal
features of the Plan are summarized below.
The Plan is intended to supersede and replace the 1986 Signature Inns, Inc.
Incentive Stock Option Plan (the "1986 Plan"), which expired on March 26, 1996,
it will govern any outstanding unexercised stock options granted under the 1986
Plan. As of the date of this Prospectus, there are unexercised options to
purchase 2,297 shares of Common Stock under the 1986 Plan, at an exercise price
of $4.164, which expire in July 1997.
Administration. The Plan is administered by the Compensation Committee,
one of two standing committees appointed by the Board of Directors. The
Compensation Committee consists of three Directors of the Company, none of whom
are employees of the Company or its subsidiaries. The Compensation Committee and
the Plan are required always to possess characteristics required to comply with
Rule 16b-3 promulgated under the Securities Exchange Act of 1934. The
Compensation Committee has sole authority to administer and interpret the Plan
and to make recommendations for awards thereunder to the Board of Directors. No
awards may be granted other than those recommended by the Compensation
Committee.
Shares Available. The Plan provides that no more than 750,000 shares of
the Company's Common Stock may be awarded as either Stock Options or Restricted
Stock Grants, subject to adjustment in certain circumstances (the "Available
Shares"). Available Shares cannot exceed 10% of the total outstanding shares of
Common Stock of the Company at any time during the term of the Plan, and no more
than 5% of the Available Shares may be awarded in the form of Restricted Stock
Grants.
Eligibility. Only full-time officers and employees of the Company and its
subsidiaries are eligible for awards of Stock Options and Restricted Stock
Grants. Outside Directors are eligible only for awards of Restricted Stock
Grants. Awards of Restricted Stock Grants to Outside Directors will be on an
automatic, non-discretionary basis, upon the election or re-election of each
Outside Director.
Stock Options. Stock Options granted under the Plan may be Incentive Stock
Options or Non-qualified Stock Options. Subject to the terms and provisions of
the Plan, options may be granted to officers or employees at any time and from
time to time as shall be recommended by the Compensation Committee and approved
by the Board of Directors. The Compensation Committee shall have discretion in
recommending to the Board the number of shares subject to options granted to
each Participant.
The option price at which the Participant can exercise each Stock Option
(the "Exercise Price") shall be recommended by the Compensation Committee and
approved by the Board of Directors, provided that the Exercise Price shall not
be less than the Fair Market Value (as such term is defined in the Plan) per
share of the Company's Common Stock at the time of the grant. No Stock Option
may be granted after ten years following the Plan Term Commencement Date. All
Stock Options granted under the Plan shall expire no later than ten years from
the date of the grant, subject to the limitations set forth in the Plan.
Stock Options awarded to Employees under the Plan shall be exercisable at
such times and be subject to such restrictions and conditions as the Committee
shall in each instance approve, which need not be the same for each award or for
each Employee. However, each Non-qualified Stock Option shall become exercisable
in respect of 33 1/3 percent of the shares subject to the option on the first,
second and third anniversary of grant. Notwithstanding any other provision of
the Plan, in no event may any Stock Option awarded under the Plan to an Employee
who is subject to the restrictions of Section 16 of the Exchange Act become
exercisable prior to six months following the date of its award, or following
the date upon which this Plan is approved by stockholders, whichever is later.
In addition, the Plan places limitations on the exercise of options following
termination of employment or in the event of death, disability or retirement or
termination associated with a Change in Control (as defined in the Plan) of the
Company.
Restricted Stock. The Plan provides for the award of shares of Common
Stock of the Company which are subject to certain restrictions provided in the
Plan or otherwise determined by the Compensation Committee ("Restricted Stock").
Restricted Stock issued pursuant to the Plan will be represented by Common Stock
certificates registered in the names of the Participants who receive such
awards. Upon the
42
<PAGE> 47
award of Restricted Stock, the Participant is entitled to vote the Restricted
Stock and to exercise other rights as a shareholder of the Company, including
the right to receive all dividends and other distributions paid or made with
respect to the Restricted Stock. However, the Participant may not sell,
transfer, pledge, exchange, hypothecate or otherwise dispose of the Restricted
Stock during the restriction period designated by the Compensation Committee
except by will or as may be determined by the Compensation Committee. When the
conditions of the Restricted Stock award established by the Compensation
Committee are satisfied, the Company will deliver at the end of the restriction
period stock certificates representing the shares of Common Stock which are no
longer subject to any restrictions, except those restrictions required by
applicable securities laws.
Federal Income Tax Treatment. The following is a brief summary of the
Federal income tax rules currently applicable to participation in the Plan. The
summary is not exhaustive and does not cover any state or local tax consequences
of participation in the Plan. The Company advises Participants to consult their
own tax advisors with respect to the consequences of their participation in the
Plan.
Income is not recognized by a Participant on receipt of an option. Upon the
exercise of a Non-qualified Stock Option, the Participant will recognize
ordinary income in an amount equal to the excess of the fair market value of the
shares of Common Stock on the date of the exercise over the Exercise Price paid
by the Participant. The Participant's tax basis in those shares will be the
Exercise Price paid plus the amount of recognized ordinary income, and the
Participant's holding period will commence on the date the shares are
transferred. Special rules apply in the event all or a portion of the Exercise
Price is paid in the form of shares of Common Stock of the Company. Other
special rules may also apply to a Participant who is subject to Section 16 of
the Securities Exchange Act of 1934.
The exercise of an Incentive Stock Option by payment of cash will generally
have no immediate tax consequences to the Participant (except to the extent it
is an adjustment in computing alternative minimum taxable income). A Participant
who disposes of shares of Common Stock acquired pursuant to the exercise of an
Incentive Stock Option after a certain holding period will generally realize
long-term capital gain or loss equal to the difference between the amount
realized upon the sale and the purchase price of the shares (i.e., the exercise
price paid by the Participant). However, a Participant who disposes of shares
acquired pursuant to exercise of an Incentive Stock Option prior to the
expiration of such holding period will recognize ordinary income equal to the
excess of the fair market value of the shares of Common Stock on the date of
exercise (or the proceeds of the disposition, if less) over the Exercise Price.
Special rules apply in the event all or a portion of the Exercise Price is paid
in the form of shares of Common Stock of the Company.
With respect to Restricted Stock, the Participant will have ordinary income
equal to the fair market value of the Restricted Stock on the date those shares
are no longer subject to forfeiture, unless the Participant elects within 30
days of initial receipt of the Restricted Stock to include as ordinary income
the fair market value of the shares on the date of issuance.
Generally, to the extent a Participant recognizes ordinary income as
described above, the Company (or the subsidiary of the Company for which the
Participant performs services) will be entitled to a corresponding deduction,
provided that, among other things (i) the amount deductible (I) is an ordinary,
necessary and reasonable business expense; (II) is not an excess parachute
payment within the meaning of Section 280G of the Code; and (III) is not
disallowed by the $1.0 million limitation on certain highly compensated
executive compensation pursuant to Section 162(m) of the Code; and (ii) any
applicable reporting obligations are satisfied.
Amendment and Termination. The Compensation Committee may amend, alter or
discontinue the Plan, but no amendment, alteration or discontinuation shall be
made more than every six months or if it would (i) impair an Award without the
consent of the Participant, except such an amendment made to cause the Plan to
qualify for the exemption provided by Rule 16b-3 of the Securities Exchange Act
of 1934, or (ii) disqualify the Plan from the exemption provided by Rule 16b-3.
In addition, no such amendment shall be made without the approval of the
Company's shareholders to the extent such approval is required by law, agreement
or the rules of any exchange upon which the Common Stock is listed or quoted.
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<PAGE> 48
PRINCIPAL STOCKHOLDERS
Set forth in the following table are the beneficial holdings as of
September 20, 1996, of the Company's Common Stock (as adjusted on a pro forma
basis for the 1-for-3.701 share reverse stock split) of each of the current
directors of the Company, which include each person known to the Company who may
be deemed to own more than 5% of the Company's Common Stock and all directors
and officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(2) AFTER OFFERING(2)
NAME AND --------------------- ---------------------
ADDRESS(1) NUMBER PERCENTAGES NUMBER PERCENTAGES
- ------------------------------------------------ ------- ----------- ------- -----------
<S> <C> <C> <C> <C>
John D. Bontreger............................... 409,427 19.49% 409,427 7.58%
Mark D. Carney.................................. 119,689 5.70% 119,689 2.22%
Bo L. Hagood.................................... 115,073 5.48% 115,073 2.13%
David R. Miller................................. 80,918 3.85% 80,918 1.50%
Orus E. Weaver.................................. 29,731 (3) 1.42% 29,693 (3) *
George A. Morton................................ 27,693 (4) 1.32% 27,062 (4) *
Richard E. Shank................................ 27,062 (5) 1.29% 27,347 (5) *
Richard L. Russell.............................. 16,347 (6) * 16,347 (6) *
Stephen M. Huse................................. 45 * 45 *
All directors, executive officers as a group
(Includes 10 persons)......................... 860,297 40.95% 860,297 15.93%
</TABLE>
- ---------------
* Represents less than 1% of the outstanding Common Stock
(1) The address of each beneficial owner is in care of Signature Inns, Inc., 250
East 96th Street, Suite 450, Indianapolis, Indiana, 46240.
(2) Each stockholder possesses sole voting and investment power with respect to
the shares listed, except as otherwise indicated.
(3) Mr. Weaver holds 29,373 shares in his name of record and has sole voting and
investment power over such shares, and he owns 327 shares jointly with his
wife with whom he shares voting and investment power over such shares.
(4) Mr. Morton holds 16,857 shares in his name of record and has sole voting and
investment power over such shares, and 10,808 shares are held by trusts for
which his wife acts as trustee with investment power over such shares.
(5) Mr. Shank holds all shares as a joint tenant with his wife with whom he
shares voting and investment power over all such shares.
(6) Mr. Russell holds 6,890 shares in his name of record and has sole voting and
investment power over such shares and 9,457 shares jointly with his wife
with whom he shares voting and investment power over such shares.
44
<PAGE> 49
MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Shares of the Company's Common Stock are not listed on any securities
exchange and are not the subject of any quotations under the "NASDAQ" system.
The range of high and low bids for the Company's Common Stock for each
quarter within the last two fiscal years (as adjusted on a pro forma basis for
the 1-for-3.701 share reverse stock split) is set forth below:
<TABLE>
<CAPTION>
HIGH LOW
QUARTER BID(1) BID(1)
- -------- ---------- ---------
<S> <C> <C>
6/30/96 $3.701 $ 1.851
3/31/96 4.164 1.851
12/31/95 2.776 1.851
9/30/95 2.776 1.851
6/30/95 1.851 1.851
3/31/95 1.851 .463
12/31/94 .925 .463
9/30/94 .925 .463
6/30/94 .463 .463
3/31/94 .925 .463
</TABLE>
- ---------------
(1) Quotations may reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Quotations as provided by Paragon Capital for the Company's Common Stock
have averaged approximately $ "bid" and $ "offered" during
the 90 days preceding the date of this filing.
45
<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 13,509,862 shares
of Common Stock, no par value per share, and 5,000,000 shares of preferred
stock, no par value per share (the "Preferred Stock"). Upon completion of the
Offering, 5,403,754 shares of Common Stock will be issued and outstanding and
none of the Preferred Stock will be outstanding. The following description is a
summary and is qualified in its entirety by reference to the provisions of the
Company's Amended and Restated Articles of Incorporation (the "Articles"), and
its By-Laws, as amended (the "By-Laws"), copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. Holders of a
majority of the shares of Common Stock represented at a meeting can elect all of
the directors standing for election at the meeting. Shareholders must follow an
advance notification procedure for certain shareholder nominations of candidates
for the Board of Directors and for certain other business to be conducted at any
meeting of shareholders. Subject to preferences that may be applicable to any
then outstanding Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefore. See "Dividend Policy." In the event of a
liquidation, dissolution, or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive rights and have no right to
convert their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are, and the Common Stock to be outstanding upon consummation of
the Offering will be, fully paid and non-assessable.
PREFERRED STOCK
The authorized Preferred Stock may be issued from time to time in one or
more designated series or classes. The Company's Board of Directors, without
approval of the shareholders, is authorized to establish the voting, dividend,
redemption, conversion, liquidation and other relevant provisions that may be
provided with respect to a particular series or class. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, adversely affect the voting
power of the holders of the Company's Common Stock and, under certain
circumstances, make it more difficult for a third party to acquire, or
discourage a third party from acquiring, a majority of the outstanding voting
stock of the Company. The Company has no present intention to issue any series
or class of Preferred Stock, except in the limited circumstances set forth in
the Shareholders' Rights Plan. The Company has reserved 54,038 shares of Series
A Preferred Stock that is issuable upon the exercise of the Stock Purchase
Rights pursuant to the Shareholders' Rights Plan. The Stock Purchase Rights are
not exercisable except upon certain events in connection with a potential change
in control. See "-- Stock Purchase Rights under Shareholders' Rights Plan" for a
description of the Stock Purchase Rights and the Series A Preferred Stock.
STOCK PURCHASE RIGHTS UNDER SHAREHOLDERS' RIGHTS PLAN
Upon the date on which the Commission declares the Registration Statement
for the Offering (the "Record Date"), each holder of shares of the Company's
Common Stock as of the Record Date will receive a distribution of one Stock
Purchase Right (a "Right") per share of the Company's Common Stock in accordance
with and pursuant to the Shareholders' Rights Plan. A Right will also accompany
each share of the Company's Common Stock issued following the Record Date. Each
Right, when it first becomes exercisable, entitles the holder to purchase from
the Company one-hundredth of one share of the Company's Series A Preferred Stock
at an initial exercise price of $55.00 per hundredth of a share (the "Exercise
Price"), subject to adjustment.
46
<PAGE> 51
Exercisability of Rights. Initially, the Rights will not be exercisable or
transferable apart from the shares of the Common Stock with respect to which
they are distributed, and will be evidenced only by the certificates
representing shares of Common Stock. The Rights will become exercisable and
transferable apart from the Common Stock on a date (the "Exercisability Date")
that is the earlier of (a) the close of business on the tenth day after the
Stock Acquisition Date, defined as the first date of a public announcement that
a person or group of affiliated or associated persons has become an Acquiring
Person (as defined below); or (b) the close of business on such date as a
majority of the Company's Board of Directors shall determine, which date may
occur only following the commencement of a tender or exchange offer that, if
consummated, would result in a person or group becoming an Acquiring Person. The
Rights will be exercisable from the Exercisability Date until the Expiration
Date (which is the earlier of (x) the close of business on the tenth anniversary
of the Record Date (the "Final Expiration Date") or (y) the date the Rights are
redeemed by the Company (the "Redemption Date")), at which time they will
expire.
With certain exceptions described in the Rights Agreement, a person or
group becomes an Acquiring Person when such person or group acquires or obtains
the rights to acquire beneficial ownership of 20% or more of the then
outstanding shares of the Common Stock (other than as a result of a Permitted
Offer, as defined below), or 10% or more of such shares if the Company's Board
of Directors, after reasonable inquiry and investigation, declares the acquiring
person an Adverse Person under guidelines set forth in the Rights Agreement. A
"Permitted Offer" is a tender or exchange offer for all outstanding shares of
the Common Stock upon terms that a majority of the members of the Board of
Directors and who qualify as Continuing Directors under the Rights Agreement
determines to be adequate and in the best interests of the Company and its
shareholders. The Board of Directors may declare any person to be an Adverse
Person after it determines that (i) such person, alone or together with its
affiliates and associates, has become the beneficial owner of 10% or more of the
Company's Common Stock and (ii) after reasonable inquiry and investigation, such
Person's ownership in the Company is reasonably likely (x) to cause the Company
to take action that would provide such person with short-term gain to the
detriment of the long-term interests of the Company and its shareholders, or (y)
to have a material adverse impact on the business or prospects of the Company.
Transferability of Rights. Prior to the Exercisability Date, the Rights
will not be transferable apart from the shares of the Common Stock to which they
are attached. Thus, the surrender or transfer of any Common Stock certificate
prior to that date will also constitute the transfer of the Rights associated
with the shares represented by such certificate. As soon as practicable after
the Exercisability Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to each record holder of shares of the Common
Stock as of the close of business on the Exercisability Date and, in certain
circumstances, holders of certain shares issued after the Exercisability Date.
Flip-In Rights. Upon the occurrence of an Exercisability Date (a "Flip-In
Event"), each holder of a Right will thereafter have the right (the "Flip-In
Right") to receive, upon exercise, the number of shares of the Common Stock (or,
in certain circumstances, at the discretion of the Company's Board of Directors,
cash, property, other securities of the Company or other consideration) having a
market value immediately prior to the Flip-In Event equal to two times the then
current Exercise Price of the Right; provided, however, that any Right that is
(or, in certain circumstances specified in the Rights Agreement, was)
beneficially owned by an Acquiring Person (or any of its affiliates or
associates) will become null and void upon the occurrence of the Flip-In Event.
Flip-Over Rights. If, at any time following a Stock Acquisition Date,
either (i) the Company is acquired in a merger or other business combination
transaction, or (ii) the Company sells or otherwise transfers more than 50% of
its aggregate assets, cash flow, or earning power, each holder of a Right
(except Rights previously voided as described above) will thereafter have the
right (the "Flip-Over Right") to receive, upon exercise, shares of common stock
of the Acquiring Person having a value equal to two times the then current
Exercise Price of the Right. The Flip-Over Right shall be exercisable apart
from, and regardless of the exercise or surrender of, the Flip-In Right.
47
<PAGE> 52
Redemption of the Rights. At any time prior to the earlier of (i) the
close of business on the tenth business day following the Stock Acquisition
Date, or (b) the close of business on the Final Expiration Date, and in certain
other circumstances, the Company's Board of Directors may redeem the Rights, in
whole but not in part, at a Redemption Price of $.001 per Right.
Exchange of the Rights. At any time after any person becomes an Acquiring
Person, the Board of Directors may exchange the Rights (other than Rights owned
by such Acquiring Person which have become void), in whole or in part, at an
exchange ratio of one share of Common Stock per Right. Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such exchange
at any time after such Acquiring Person becomes the beneficial owner of 50% or
more of the shares of Common Stock then outstanding.
Amendment of the Rights Agreement. At any time prior to the Exercisability
Date, the Board of Directors may amend any provision of the Rights Agreement in
any manner. Thereafter, the Board may amend the Rights Agreement in certain
respects, including generally (a) to shorten or lengthen any time period under
the Rights Agreement or (b) in any manner that the Company's Board of Directors
deems necessary or desirable, so long as such amendment is consistent with and
for the purpose of fulfilling the objectives of the Board in originally adopting
the Rights Plan. Certain amendments (including changes to the Redemption Price,
Exercise Price, Expiration Date, or number of shares for which a Right is
exercisable), whether prior to the Exercisability Date or thereafter, are
permitted only upon approval by a majority of the Board of Directors.
Series A Preferred Stock. Each one hundredth of a share of Series A
Preferred Stock, if issued, will have one vote per hundredth of a share and will
vote on all matters submitted to a vote of the Company's shareholders, except as
otherwise required by law. Subject to prior dividend rights and sinking fund or
redemption or purchase rights which may be applicable to any other series of
Preferred Stock, the holders of the Series A Preferred Stock will be entitled to
share ratably in such dividends, if any, as may be declared from time to time by
the Company's Board of Directors in its discretion out of funds legally
available therefor with respect to the Series A Preferred Stock and on a one
hundred-to-one basis with respect to the Common Stock. The holders of each
one-hundredth of a share of Series A Preferred stock are entitled to share in
any assets remaining after satisfaction of all prior claims upon liquidation of
the Company, including prior claims of any other series of Preferred Stock,
ratably with the holders of each share of the Company's Common Stock. Holders of
the Series A Preferred Stock will have no preemptive or other subscription
rights, and the Series A Preferred Stock is not subject to call.
CERTAIN PROVISIONS OF INDIANA LAW AND THE COMPANY'S ARTICLES OF INCORPORATION
AND BYLAWS
The following summary of certain provisions of Indiana law and the Articles
of Incorporation and Bylaws of the Company does not purport to be complete and
is subject to and qualified in its entirety by reference to Indiana law and the
Articles of Incorporation and Bylaws of the Company. Certain provisions of
Indiana law and the Articles of Incorporation and Bylaws are described elsewhere
in this Prospectus.
Staggered Board of Directors; Removal; Vacancies. The Articles of
Incorporation and Bylaws provide that the number of Directors of the Company may
be established by the Board of Directors but may not be fewer than two nor more
than nine. The Board of Directors is divided into three classes of directors
serving staggered three-year terms. The classification of directors has the
effect of making it more difficult for shareholders to change the composition of
the Board of Directors. The Company believes, however, that the longer time
required to elect a majority of a classified Board of Directors will help to
ensure continuity and stability of the Company's management and policies. The
classification provisions could also have the effect of discouraging a third
party from accumulating large blocks of the Company's stock or attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its shareholders. Accordingly, shareholders could be deprived
of certain opportunities to sell their shares of Common Stock at a higher market
price than might otherwise be the case. See "Risk Factors -- Anti-Takeover
Considerations -- Staggered Board Terms."
48
<PAGE> 53
Any vacancy in the Board of Directors, including newly created
directorships, will be filled at any regular meeting or at any special meeting
called for that purpose, by action of a majority of the remaining directors. A
vacancy resulting from an increase in the number of directors also must be
filled by action of a majority of the entire Board of Directors. The Articles of
Incorporation provide that directors may be removed at any time but only for
cause by the Affirmative vote of the holders of at least 80% of the voting power
of all outstanding shares of Common Stock then entitled to vote on the election
of the directors, voting together as a single class at a special meeting called
for that purpose. This provision, when coupled with the provisions of the Bylaws
authorizing the Board of Directors to fill vacant directorships, precludes the
Company's shareholders from removing incumbent directors, except for cause and
upon the existence of a substantial affirmative vote, and filling the vacancies
created by such removal with their own nominees.
Amendment. The Articles of Incorporation may be amended by the affirmative
vote of the holders of at least 80% of the voting power of all outstanding
shares of Common Stock entitled to vote at a meeting at which a quorum is
present, with the shareholders voting as a class with one vote per share. The
company's Bylaws may be amended by the affirmative vote of a majority of the
Board of Directors.
Business Combinations. The Company's Articles of Incorporation and Bylaws
require the affirmative vote of at least 80% of the voting power of all
outstanding Shares of Common Stock to approve any business combination involving
the Company which is not approved by the Board of Directors or which does not
result in a deferred minimum valuation for the Company. In addition, the Company
is subject to both the Control Share Acquisition and Business Combinations
provisions of the Indiana Business Corporation Law, which, generally, impose
restrictions on the acquires of 20% or more, or 10% of more, respectively, of
the Common Stock of an Indiana corporation. These statutes may delay, defer or
prevent a change of control of the Company.
Indemnification of Directors and Officers. The Articles of Incorporation
of the Company provide that the Company shall indemnify any person who has or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason
of the fact that he is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably by him
in connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, except that no
indemnification shall be made in relation to matters as to which he shall be
adjudged in such action, suit or proceeding to be liable for negligence or
misconduct in the performance of duty to the Company. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Company.
49
<PAGE> 54
Any such director, officer, employee or agent who has been wholly
successful, on the merits or otherwise, with respect to any claim, suit or
proceeding of the character described herein shall be entitled to
indemnification as of right. Except as provided in the preceding sentence, any
indemnification hereunder shall be made at the discretion of the Company, but
only if the Board of Directors, acting by a quorum consisting of directors who
are not parties to or who have been wholly successful with respect to such
claim, action, suit or proceeding, shall find that the director, officer,
employee or agent has met the standards of conduct set forth in the first
sentence of this section. The directors may request independent legal counsel
(who may be regular counsel of the Company) to deliver to it their written
opinion as to whether such director, officer, employee or agent has met such
standards.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank (Chicago).
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have outstanding
5,403,754 shares of Common Stock. The 3,300,000 shares of Common Stock sold in
the Offering, together with all other shares outstanding as of the effective
date of the Offering, will be freely tradable without restriction or further
registration under the Securities Act, except for 860,297 shares then held by an
"affiliate" of the Company and purchased by an affiliate in this Offering, which
will be subject to the limitations of Rule 144 promulgated under the Securities
Act ("Rule 144").
The Company, its directors and executive officers have agreed with the
Underwriters not to sell any shares of Common Stock, except for shares purchased
in the Offering or acquired thereafter in the public market, for a period of 180
days following the date of the Prospectus, without the prior written consent of
McDonald & Company Securities, Inc., which it may withhold in its sole
discretion.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who holds shares of Restricted Securities as to
which a minimum of two years has elapsed since the later of the date of
acquisition from an issuer or from an affiliate of the issuer, and any person
who is an "affiliate" as that term is defined under the Securities Act, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of (i) one percent of the then outstanding shares of the
Common Stock of the Company (approximately 54,038 shares immediately following
this Offering) or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding a sale by such person. Sales under Rule
144 are also subject to certain manner-of-sale provisions, notice requirements
and the availability of current public information about the Company. Under Rule
144, however, a person who holds shares of Restricted Securities as to which a
minimum of three years has elapsed since their acquisition from the issuer or an
affiliate of the issuer and who is not, and for three months prior to the sale
of such shares has not been, an affiliate of the Company is free to sell such
shares without regard to the volume, manner-of-sale and certain other
limitations contained in Rule 144.
On the closing date of the Offering, there will be outstanding options to
purchase 169,797 shares of its Common Stock, and the Company is authorized to
grant options to purchase an additional 370,581 shares under the Company's 1996
Equity Incentive Plan. The Company expects to file a Registration Statement
under the Securities Act after the date of this Prospectus to register the
shares of Common Stock that may be issued upon the exercise of options granted
under the 1996 Plan. Shares issued under the Company's stock option plans after
the effective date of such Registration Statement will be freely tradeable in
the open market,
50
<PAGE> 55
subject, in the case of sales by affiliates, to the volume, manner of sale,
notice and public information requirements of Rule 144. See "Management -- 1996
Equity Incentive Plan."
Prior to the Offering, there has been only a limited public market for the
Common Stock, and no prediction can be made as to the effect, if any, that sales
of shares or the availability of shares for sale will have on the prevailing
market price of the Common Stock. Nevertheless, sales of substantial amounts of
Common Stock in the public market could have an adverse effect on prevailing
market prices.
CERTAIN TRANSACTIONS
In late 1993, the Company underwent a debt restructuring and refinancing.
As part of that restructuring and refinancing, management committed to invest a
minimum of $500,000 in equity capital in the Company. Immediately prior to the
Company's "Rights Offering" to its Shareholders which began on April 7, 1994,
Management performed its commitment and purchased, at the same price per share,
i.e., $.74 per share, paid by public purchasers in the "Rights Offering", the
number of shares at the aggregate purchase prices shown in the table below:
PRIVATE PLACEMENT SHARES PURCHASED IN APRIL 1994 BY MANAGEMENT HOLDERS
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES NUMBER OF SHARES
SHARES HELD PURCHASED AT AGGREGATE PRICE HELD FOLLOWING
NAME BEFORE PURCHASE $.74 PER SHARE FOR THE SHARES(1) PURCHASE
- ----------------- --------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
John D.
Bontreger...... 134,657 274,771 $ 203,400 409,427
Mark D. Carney... 811 118,878 88,000 119,689
Bo L. Hagood..... 45 115,028 85,150 115,073
David R.
Miller......... 2,229 78,689 58,250 80,918
Paul A. Taylor... 35 67,680 50,100 67,715
Martin D. Brew... 0 33,772 25,000 33,772
------- ------- ------- -------
Total... 137,776 688,818 $ 509,900 826,594
======= ======= =======
</TABLE>
- ---------------
(1) The purchasers were required to pay in cash at the time of their purchases a
total of $231,400. The $278,500 balance of the subscriptions was represented
by interest-bearing, recourse promissory notes which were executed by the
purchasers in favor of the Company and which recently have been paid in
full.
Certain officers and directors of the Company are beneficial owners of
limited partnership interests in certain of the Company's Syndicated Affiliated
Entities. David R. Miller, Secretary, Executive Director of Sales and Marketing
and a Director of the Company, owns a one-half unit interest in each of two of
the Syndicated Affiliated Entities and will receive an aggregate of $10,556 in
the Purchase Transactions and subsequent liquidations in exchange for those
interests. Richard L. Russell, a Director of the Company, owns a two-unit
interest in one of the Syndicated Affiliated Entities, a one-unit interest in
each of three of the Syndicated Affiliated Entities, and a one-half unit
interest in one of the Syndicated Affiliated Entities, and will receive an
aggregate of $55,980 in the Purchase Transactions and subsequent liquidations in
exchange for those interests. George A. Morton, a Director of the Company, owns
a one-unit interest in one of the Syndicated Affiliated Entities and will
receive $2,000 in the Purchase Transactions and subsequent liquidations in
exchange for that interest. The officers and directors of the Company owning
limited partnership interests in the Company's Affiliated Entities have not
received, and will not receive, any extra or special benefit not shared
proportionally by all other holders of such limited partnership interests.
51
<PAGE> 56
UNDERWRITING
The Underwriters named below, represented by McDonald & Company Securities,
Inc. (the "Representative"), has agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company the number
of shares of Common Stock indicated below opposite their respective names, at
the public offering price less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters are committed to purchase all of the shares of Common
Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
UNDERWRITERS PURCHASED
--------------------------------------------------------------------- ------------
<S> <C>
McDonald & Company Securities, Inc...................................
Total..............................................................
</TABLE>
The Representative has advised the Company that they propose to offer the
Common Stock to the public on the terms set forth on the cover page of this
Prospectus. The Underwriters may allow selected dealers a concession of not more
than $ per share, and the Underwriters may allow, and such dealers may
reallow, a concession of not more than $ per share to certain other
dealers. After the Offering, the offering price and other selling terms may be
changed by the Underwriters. The Common Stock is offered subject to receipt and
acceptance by the Representative and to certain other conditions, including the
right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 495,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 3,300,000 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise this option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
The Company and each of its directors and executive officers have agreed
that for a period of 180 days from the date of this Prospectus they will not,
directly or indirectly, offer to sell, contract to sell or otherwise sell or
dispose of any shares of their Common Stock or options or warrants to acquire
shares of Common Stock without the prior written consent of McDonald & Company
Securities, Inc.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
At the request of the Company, up to 330,000 shares of Common Stock offered
in the Offering have been reserved for sale to employees of the Company and
certain members of their families. The price of such shares to such persons will
be $12.00 per share (the public offering price set forth on the cover of this
Prospectus). The number of shares available to the general public will be
reduced to the extent those persons purchase reserved shares. Any shares not so
purchased will be offered in the Offering at the public offering price set forth
on the cover of this Prospectus.
Prior to the Offering, there has been a limited public trading market for
the Common Stock. Consequently, the public offering price will be determined by
negotiation between the Company and the Representatives. Among the factors to be
considered in such negotiations will be the history of, and the
52
<PAGE> 57
prospects for, the Company and the industry in which it competes, an assessment
of the Company's management, the Company's past and present operations, the
prospects for future earnings of the Company, the present state of the Company's
development, the general condition of the securities markets at the time of the
Offering and the market prices of and demand for publicly traded Common Stock of
comparable companies in recent periods.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1994 and for each of the years in the three-year period ended December
31, 1995, the combined financial statements of the Certain Affiliated
Partnerships as of December 31, 1995 and 1994, and for each of the years in the
two-year period ended December 31, 1995, and the Statement of Operations of
Signature Northwestern Ltd.-I Limited Partnerships for each of the years in the
two-year period ended December 31, 1995, included in this Prospectus have been
included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL OPINIONS
Certain legal matters relating to the shares of Common Stock are being
passed upon for the Company by Johnson Smith Pence Densborn Wright & Heath.
Certain legal matters will be passed upon for the Underwriters by Baker &
Hostetler, Cleveland, Ohio.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which is a part of the Registration Statement, omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement and the exhibits thereto for further
information with respect to the Company and the Common Stock offered hereby.
Statements contained herein concerning the provisions of any documents are not
necessarily complete, and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by such reference. The Registration Statement,
including exhibits filed therewith, may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and will also be available for inspection
and copying at the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 upon payment of the fees prescribed
by the Commission. Application has been made for quotation on the NASDAQ
National Market System, subject to official notice of issuance.
The Company is required to file reports and other information with the
Commission pursuant to the Securities Exchange Act of 1934. The Company will
furnish its shareholders annual reports containing audited consolidated
financial statements and quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year.
53
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SIGNATURE INNS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996 (unaudited)..... F-2
Pro Forma Condensed Consolidated Statements of Operations (unaudited) for the six
months ended June 30, 1996 and the year ended December 31, 1995................. F-3
Notes to Pro Forma Condensed Consolidated Financial Statements (unaudited)......... F-4
HISTORICAL FINANCIAL STATEMENTS
Independent Auditors' Report....................................................... F-5
Consolidated Balance Sheets as of June 30, 1996 (unaudited) and December 31, 1995
and 1994........................................................................ F-6
Consolidated Statements of Operations for the six months ended June 30, 1996 and
1995 (unaudited) and the years ended December 31, 1995, 1994 and 1993........... F-7
Consolidated Statements of Shareholders' Equity for the six months ended June 30,
1996 (unaudited) and the years ended December 31, 1995, 1994 and 1993........... F-8
Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and
1995 (unaudited) and the years ended December 31, 1995, 1994 and 1993........... F-9
Notes to the Consolidated Financial Statements..................................... F-10
SIGNATURE INN CERTAIN AFFILIATED PARTNERSHIPS
HISTORICAL FINANCIAL STATEMENTS
Independent Auditors' Report....................................................... F-16
Combined Balance Sheets as of June 30, 1996 (unaudited) and December 31, 1995 and
1994............................................................................ F-17
Combined Statements of Operations for the six months ended June 30, 1996 and 1995
(unaudited) and the years ended December 31, 1995 and 1994...................... F-18
Combined Statements of Partners' Equity for the six months ended June 30, 1996
(unaudited) and the years ended December 31, 1995 and 1994...................... F-19
Combined Statements of Cash Flows for the six months ended June 30, 1996 and 1995
(unaudited) and the years ended December 31, 1995 and 1994...................... F-20
Notes to the Combined Financial Statements......................................... F-21
SIGNATURE NORTHWESTERN LTD. - I LIMITED PARTNERSHIP
HISTORICAL FINANCIAL STATEMENTS
Independent Auditors' Report....................................................... F-24
Statements of Operations for the years ended December 31, 1995 and 1994............ F-25
Notes to the Statements of Operations.............................................. F-26
</TABLE>
F-1
<PAGE> 59
<TABLE>
PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma financial statements are presented assuming (i) the completion of the Offering and (ii) the acquisition of
the 23 hotels owned by the Affiliated Entities. The pro forma balance sheet assumes that these transactions were consummated on June
30, 1996, and the pro forma statements of operations assume that these transactions were consummated on January 1, 1995. The pro
forma statement of operations for 1995 has also been adjusted to include the operations of Signature Inn East for the entire year as
if the Company's equity interest in this hotel was consolidated as of January 1, 1995. In management's opinion, all material
adjustments necessary to reflect the transactions are presented in the pro forma adjustments. The pro forma statements do not
purport to project the Company's financial position or results of operations at any future date or for any future period, and should
be read in conjunction with the Company's consolidated financial statements and the combined financial statements of the Certain
Affiliated Partnerships.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
--------------------------- ---------------------------------------------------------
ACQUISITION
CERTAIN COMPLETION OF ACQUISITION
THE AFFILIATED OF MINORITY OF PRO FORMA
COMPANY PARTNERSHIPS OFFERING INTERESTS HOTELS OTHER TOTAL
----------- ------------ ----------- ----------- ------------ ----------- ------------
(A) (B) (C) (D) (E) (F)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents..... $ 2,266,766 $ 4,806,410 $34,528,000 $(2,135,763) $(28,487,745) $(2,712,667)(1) $ 6,765,001
(1,500,000)(4)
Other current
assets.......... 726,023 1,846,698 2,572,721
----------- ----------- -----------
TOTAL
CURRENT
ASSETS.... 2,992,789 6,653,108 9,337,722
----------- ----------- -----------
Hotel limited
partnerships:
Equity
investments..... 1,774,833 (1,288,833) 486,000
Receivables,
net............. 3,491,698 (3,491,698) --
----------- -----------
5,266,531 486,000
----------- -----------
Property and
equipment, net.... 8,663,320 67,856,111 2,001,712 19,530,920 (470,845)(2) 97,581,218
Furniture and
equipment
reserves.......... 1,658,429 (1,658,429)(1) 1,500,000
1,500,000 (4)
Deferred costs and
other assets...... 524,871 964,650 (964,650) 524,871
----------- ----------- ----------- -------- ---------- ---------- -----------
$17,447,511 $77,132,298 $34,528,000 $ (134,051) $ (9,921,475) $(9,622,472) $109,429,811
=========== =========== =========== ======== ========== ========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of
long-term
debt............ 225,239 1,255,836 1,481,075
Other current
liabilities..... 757,549 3,082,693 3,840,242
----------- ----------- -----------
TOTAL CURRENT
LIABILITIES... 982,788 4,338,529 5,321,317
Long-term debt, less
current portion... 10,403,107 59,837,220 (1,400,000) (3,095,700) (3,491,698)(3) 62,252,929
Other partners'
equity............ 134,051 (134,051) --
----------- ----------- -----------
TOTAL
LIABILITIES... 11,519,946 64,175,749 67,574,246
----------- ----------- -----------
(4,371,096)(1)
Partners' equity.... 12,956,549 (6,825,775) (1,759,678)(2) --
Shareholders'
equity:
Common stock...... 10,016,515 35,928,000 45,944,515
Accumulated
deficit......... (4,088,950) (4,088,950)
----------- -----------
TOTAL
SHAREHOLDERS'
EQUITY.... 5,927,565 41,855,565
----------- ----------- ----------- -------- ---------- ---------- -----------
$17,447,511 $77,132,298 $34,528,000 $ (134,051) $ (9,921,475) $(9,622,472) $109,429,811
=========== =========== =========== ======== ========== ========== ===========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
F-2
<PAGE> 60
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------
CERTAIN SIGNATURE PRO FORMA PRO FORMA
THE AFFILIATED INN ADJUSTMENTS TOTAL
COMPANY PARTNERSHIPS EAST ----------- -----------
---------- ------------ ----------
(A) (B) (B)
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1996
Revenues:
Hotel revenues....................... $2,528,819 $ 16,821,230 $19,350,049
Management and franchise fees........ 1,523,990 $(1,523,990)(G) --
---------- ---------- ----------
4,052,809 16,821,230 19,350,049
---------- ---------- ----------
Costs and expenses:
Hotel costs and expenses............. 1,366,578 11,088,802 (1,523,990)(G) 10,931,390
Depreciation and amortization........ 243,930 1,618,702 (284,632)(K) 1,578,000
General and administrative........... 1,257,518 1,257,518
---------- ---------- ----------
2,868,026 12,707,504 13,766,908
---------- ---------- ----------
OPERATING INCOME................... 1,184,783 4,113,726 5,583,141
---------- ---------- ----------
Other income (expenses):
Interest expense..................... (531,421) (2,773,699) 349,000 (I) (2,885,120)
71,000 (J)
Interest income...................... 104,585 120,121 (71,000)(J) 153,706
Equity in income of hotel limited
partnerships....................... 323,523 (323,523)(H) --
Other partners' equity in income..... (172,219) 172,219 (H) --
Other, net........................... 16,546 (11,144) 5,402
---------- ---------- ----------
(258,986) (2,664,722) (2,726,012)
---------- ---------- ----------
NET INCOME......................... $ 925,797 $ 1,449,004 $ 2,857,129
========== ========== ==========
Per common share....................... $0.44 $0.53
========== ==========
Weighted average common shares
outstanding.......................... 2,103,405 3,300,000 (A) 5,403,405
========== ==========
YEAR ENDED DECEMBER 31, 1995
Revenues:
Hotel revenues....................... $3,470,062 $ 33,611,567 $1,512,874 $38,594,503
Management and franchise fees........ 3,126,972 $(3,126,972)(G) --
---------- ---------- --------- ----------
6,597,034 33,611,567 1,512,874 38,594,503
---------- ---------- --------- ----------
Costs and expenses:
Hotel costs and expenses............. 1,757,515 21,376,292 934,871 (3,126,972)(G) 20,941,706
Depreciation and amortization........ 419,576 3,429,710 135,076 (833,362)(K) 3,151,000
General and administrative........... 2,236,622 2,236,622
---------- ---------- --------- ----------
4,413,713 24,806,002 1,069,947 26,329,328
---------- ---------- --------- ----------
OPERATING INCOME................... 2,183,321 8,805,565 442,927 12,265,175
---------- ---------- --------- ----------
Other income (expenses):
Interest expense..................... (980,907) (5,814,798) (486,284) 778,000 (I) (6,341,989)
162,000 (J)
Capital appreciation fee............. (610,990) (610,990)
Interest income...................... 276,423 302,167 11,129 (162,000)(J) 427,719
Equity in income of hotel limited
partnerships....................... 761,523 (761,523)(H) --
Other partners' equity in income..... (226,044) 226,044 (H) --
Other, net........................... 214,090 (90,176) (5,525) 118,389
---------- ---------- --------- ----------
(565,905) (5,602,807) (480,680) (6,406,871)
---------- ---------- --------- ----------
NET INCOME......................... $1,617,416 $ 3,202,758 $ (37,753) $ 5,858,304
========== ========== ========= ==========
Per common share....................... $0.77 $1.08
Weighted average common shares
outstanding.......................... 2,103,304 3,300,000 (A) 5,403,304
========== ==========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
F-3
<PAGE> 61
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(A) Reflects the historical financial statements of the Company as of June 30,
1996 (which includes three hotels owned by consolidated affiliates) and for
the periods indicated. The weighted average common shares outstanding have
been adjusted to reflect a proposed 1-for-3.701 share reverse stock split.
(B) Reflects the historical financial statements of the Certain Affiliated
Partnerships as of June 30, 1996 (which includes 20 hotels) and for the
periods indicated and the 1995 operations of Signature Northwestern
Ltd. - I Limited Partnership, which owns Signature Inn East. The Company
began consolidating the financial statements of this partnership into its
financial statements effective December 29, 1995.
(C) Reflects the estimated net proceeds of the Offering and a repayment of the
Company's line of credit.
(D) Reflects the estimated use of the proceeds to acquire the three hotels
owned by the consolidated affiliates.
(E) Reflects the estimated use of the proceeds to acquire the twenty hotels
owned by the seventeen Certain Affiliated Partnerships, the elimination of
the deferred financing costs and the payment of second mortgage loans by
Certain Affiliated Partnerships.
(F) Reflects the following other pro forma adjustments:
(1) The distribution to the limited partners of their portion of the
remaining cash balances, including amounts effectively reimbursed for
the furniture and equipment cash reserves, hotel inventories, supplies,
prepaid insurance and similar items.
(2) The elimination of the Company's investment in the Certain Affiliated
Partnerships. The remaining investment represents the Company's 40%
ownership interest in Signature Inn Carmel.
(3) The elimination of receivables and payables between the Company and the
Certain Affiliated Partnerships.
(4) Reflects the establishment of a furniture and fixture cash reserve for
the hotels acquired.
(G) Reflects the elimination of intercompany management and franchise fees.
(H) Reflects the elimination of the Company's equity interest in the net income
of the Certain Affiliated Partnerships and the other partners' equity
interest in the net income of the consolidated affiliates.
(I) Reflects the elimination of the interest expense related to the bank line
of credit and the second mortgage loans of the Certain Affiliated
Partnerships.
(J) Reflects the elimination of the interest income and expense related to
advances by the Company to the Certain Affiliated Partnerships.
(K) Reflects adjustment to depreciation expense based on the Company's new basis
of the hotel properties acquired and the elimination of amortization expense
of the Certain Affiliated Partnerships related to previously deferred
financing costs.
F-4
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SIGNATURE INNS, INC.:
We have audited the accompanying consolidated balance sheets of Signature
Inns, Inc. and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Signature
Inns, Inc. and subsidiaries as of December 31, 1995 and 1994 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Indianapolis, Indiana
February 23, 1996
F-5
<PAGE> 63
SIGNATURE INNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------
1996 1995 1994
ASSETS ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents
Corporate.......................................... $ 1,007,779 $ 1,213,078 $ 1,153,753
Consolidated hotels................................ 1,258,987 1,402,047 881,760
----------- ----------- -----------
2,266,766 2,615,125 2,035,513
Other current assets.................................. 726,023 500,492 491,886
----------- ----------- -----------
TOTAL CURRENT ASSETS.......................... 2,992,789 3,115,617 2,527,399
----------- ----------- -----------
Hotel limited partnerships (note 2):
Equity investments.................................... 1,774,883 2,224,857 1,377,930
Receivables, net...................................... 3,491,648 3,571,648 3,429,712
----------- ----------- -----------
5,266,531 5,796,505 4,807,642
----------- ----------- -----------
Property and equipment, net (notes 3 and 4)............. 8,663,320 8,763,787 6,543,205
Deferred costs and other assets, net of accumulated
amortization of $541,178, $530,114 and $452,990....... 524,871 338,542 215,721
----------- ----------- -----------
$17,447,511 $18,014,451 $14,093,967
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 4):
Corporate.......................................... -- 533,340 --
Consolidated hotels................................ 225,239 3,188,376 3,128,478
Other current liabilities............................. 757,549 822,961 527,037
----------- ----------- -----------
TOTAL CURRENT LIABILITIES..................... 982,788 4,544,677 3,655,515
----------- ----------- -----------
Long-term debt, less current portion (note 4):
Corporate............................................. 1,400,000 2,166,660 3,589,010
Consolidated hotels................................... 9,003,107 6,471,734 3,596,888
----------- ----------- -----------
10,403,107 8,638,394 7,185,898
Other partners' equity.................................. 134,051 40,154 148,369
----------- ----------- -----------
TOTAL LIABILITIES............................. 11,519,946 13,223,225 10,989,782
----------- ----------- -----------
Shareholders' equity (note 6):
Common stock, no par value. Authorized 50,000,000
shares............................................. 10,016,515 9,805,973 9,736,348
Accumulated deficit................................... (4,088,950) (5,014,747) (6,632,163)
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY.................... 5,927,565 4,791,226 3,104,185
----------- ----------- -----------
$17,447,511 $18,014,451 $14,093,967
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 64
SIGNATURE INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Hotel revenues................ $ 2,528,819 $ 1,659,126 $ 3,470,062 $ 3,842,149 $ 9,226,870
Management and franchise
fees....................... 1,523,990 1,480,808 3,126,972 3,021,857 2,568,945
----------- ----------- ----------- ----------- -----------
4,052,809 3,139,934 6,597,034 6,864,006 11,795,815
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Hotel costs and expenses...... 1,366,578 845,411 1,757,515 2,033,395 5,472,837
Hotel depreciation and
amortization............... 194,163 130,878 272,290 389,255 1,348,993
General and administrative
expenses................... 1,257,518 1,121,498 2,236,622 2,141,792 2,382,219
Other depreciation and
amortization............... 49,767 55,953 147,286 121,614 124,940
Valuation allowances.......... -- -- -- -- 155,000
----------- ----------- ----------- ----------- -----------
2,868,026 2,153,740 4,413,713 4,686,056 9,483,989
----------- ----------- ----------- ----------- -----------
OPERATING INCOME...... 1,184,783 986,194 2,183,321 2,177,950 2,311,826
----------- ----------- ----------- ----------- -----------
Other income (expenses):
Equity in income of hotel
limited partnerships, net
(note 2)................... 323,523 300,970 761,523 727,398 208,744
Interest income (note 2)...... 104,585 116,803 276,423 190,717 94,666
Interest expense -- hotels
(note 4)................... (460,777) (317,002) (653,338) (834,626) (2,567,210)
Interest expense -- corporate
(note 4)................... (70,644) (199,757) (327,569) (440,376) (888,615)
Capital appreciation fee (note
4)......................... -- (456,641) (610,990) (289,010) --
Gain on disposition of hotels,
land and related assets
(note 3)................... -- -- 163,032 148,171 272,710
Other partners' equity in
income..................... (172,219) (103,556) (226,044) (130,336) (35,744)
Other......................... 16,546 30,299 51,058 60,885 54,587
----------- ----------- ----------- ----------- -----------
(258,986) (628,884) (565,905) (567,177) (2,860,862)
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY
GAIN................ 925,797 357,310 1,617,416 1,610,773 (549,036)
Extraordinary gain from debt
extinguishment (note 4)....... -- -- -- 495,282 21,314,412
----------- ----------- ----------- ----------- -----------
NET INCOME............ $ 925,797 $ 357,310 $ 1,617,416 $ 2,106,055 $20,765,376
=========== =========== =========== =========== ===========
Per common share:
Income (loss) before
extraordinary gain......... $ 0.12 $ 0.05 $ 0.21 $ 0.25 $ (0.16)
Extraordinary gain............ -- -- -- 0.08 6.22
----------- ----------- ----------- ----------- -----------
NET INCOME............ $ 0.12 $ 0.05 $ 0.21 $ 0.33 $ 6.06
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding................... 7,784,703 7,784,327 7,784,327 6,464,688 3,426,307
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 65
SIGNATURE INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993................ 3,426,307 $ 9,235,445 $(29,503,594) $(20,268,149)
Net income.............................. -- -- 20,765,376 20,765,376
----------- ----------- ----------- -----------
Balance at December 31, 1993.............. 3,426,307 9,235,445 (8,738,218) 497,227
Net income.............................. -- -- 2,106,055 2,106,055
Common shares issued (note 6)........... 4,358,020 779,403 -- 779,403
Notes receivable (note 6)............... -- (278,500) -- (278,500)
----------- ----------- ----------- -----------
Balance at December 31, 1994.............. 7,784,327 9,736,348 (6,632,163) 3,104,185
Net income.............................. -- -- 1,617,416 1,617,416
Collection of notes receivable (note
6)................................... -- 69,625 -- 69,625
----------- ----------- ----------- -----------
Balance at December 31, 1995.............. 7,784,327 9,805,973 (5,014,747) 4,791,226
Net income (unaudited).................. -- -- 925,797 925,797
Collection of notes receivable
(unaudited) (note 6)................. -- 208,875 -- 208,875
Issuance of common stock (unaudited).... 1,667 1,667 -- 1,667
----------- ----------- ----------- -----------
Balance at June 30, 1996 (unaudited)...... 7,785,994 $10,016,515 $ (4,088,950) $ 5,927,565
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 66
SIGNATURE INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31
------------------------- ---------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 925,797 $ 357,310 $ 1,617,416 $ 2,106,055 $20,765,376
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 244,455 186,831 419,576 510,869 1,473,933
Equity in income of hotel limited
partnerships, net of distributions
received of $783,761, $717,947,
$632,673, $456,489 and $450,557... 460,238 416,977 (128,850) (270,909) 241,813
Other partners' equity in income.... 172,219 103,556 226,044 130,336 35,744
Capital appreciation fee............ -- 456,641 610,990 289,010 --
Gain on disposition of hotels, land
and related assets................ -- -- (163,032) (148,171) (272,710)
Gain from debt extinguishment....... -- -- -- (495,280) (21,314,412)
Valuation allowances................ -- -- -- -- 155,000
Other items......................... (234,328) (76,387) 78,423 (126,338) 1,456,136
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES................... 1,568,381 1,444,928 2,660,567 1,995,572 2,540,880
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of hotels, land and
related assets...................... -- -- 163,032 4,643,452 --
Property and equipment additions....... (130,258) (69,930) (130,321) (126,369) (484,363)
Investment in hotel limited
partnerships........................ -- -- (486,000) (150) (150)
Loans to hotel limited partnerships.... -- -- -- (526,600) (19,700)
Advances to hotel limited partnerships,
net................................. 80,000 19,000 (141,936) 50,000 (77,000)
Deferred costs and other assets........ (265,268) (59,153) (91,973) (50,934) (112,637)
Cash balance of consolidated hotel
limited partnership................. -- -- 224,927 -- --
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES......... (315,526) (110,083) (462,271) 3,989,399 (693,850)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds of long-term debt............. -- -- 1,700,000 -- 4,300,000
Repayments of long-term debt........... (2,031,764) (5,451) (1,965,256) (4,662,807) (6,801,014)
Net borrowings (repayments) of
revolving line of credit............ 300,000 (1,000,000) (400,000) (1,000,000) --
Payment of capital appreciation fee.... -- -- (900,000) -- --
Proceeds from issuance of common
stock............................... 208,875 500,903 69,625 500,903 --
Distributions to other partners by
consolidated hotel.................. (78,325) (7,500) (123,053) (7,500) --
----------- ----------- ----------- ----------- -----------
NET CASH USED BY FINANCING
ACTIVITIES................... (1,601,214) (512,048) (1,618,684) (5,169,404) (2,501,014)
----------- ----------- ----------- ----------- -----------
Net change in cash and cash
equivalents............................ (348,359) 822,797 579,612 815,567 (653,984)
Cash and cash equivalents at beginning of
period................................. 2,615,125 2,035,513 2,035,513 1,219,946 1,873,930
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ 2,266,766 $ 2,858,310 $ 2,615,125 $ 2,035,513 $ 1,219,946
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 67
SIGNATURE INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF ACCOUNTING POLICIES
Business
The Company developed and currently manages a chain of 23 Signature Inn
hotels in the Midwest. Three hotels are owned by consolidated affiliates and 20
other hotels are owned by limited partnerships in which the Company is the
general partner. The partnership agreements provide for distributions of
available cash to the Company based on its ownership interest.
Basis of Presentation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, the Company-owned hotels (Knoxville through May
1994, Peoria and Normal through December 1993) through the respective date these
hotels were sold to affiliated partnerships, and three 50% owned consolidated
hotel affiliates (Signature Inn South, Elkhart and effective December 29, 1995
Indianapolis East) in which the Company exercises legal, financial and
operational control. Effective December 29, 1995, the Company obtained effective
control of the Indianapolis East partnership with the repayment of the mortgage
loan provided by the 50% limited partner. Summary financial information of
Indianapolis East as of the date of consolidation is as follows: cash $224,927;
other net current liabilities $143,783; net property and equipment $2,492,273,
and long-term debt, net $2,945,516. The effects of all significant intercompany
accounts and transactions have been eliminated in consolidation. The equity
method is used for investments in hotel limited partnerships in which the
Company is a partner with 50% or less ownership and the Company does not
exercise legal, financial and operational control.
Certain reclassifications of prior year amounts have been made to conform
with current year presentations.
Revenues
Management and franchise fees are based on a percentage of revenues or
house profits of the hotels owned by hotel limited partnerships and are
recognized as hotel revenues and profits are earned.
Net Income Per Share
Net income per share is calculated using the weighted average number of
shares outstanding during the year. Common stock equivalents that in the
aggregate dilute income per share by less than 3% are not considered in
computing average shares outstanding.
Cash Equivalents
Cash equivalents represent highly liquid short-term investments with
original maturities of three months or less, stated at cost which approximates
market.
Investments in Hotel Limited Partnerships
Investments in hotel limited partnerships are recorded at the Company's
initial investment, increased or decreased by the Company's share of the
partnership's income or loss, less distributions received.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation
and includes interest incurred during construction. Depreciation is provided on
the straight-line basis over the estimated useful lives of the related assets as
follows: 40 years for buildings, 15 to 20 years for land improvements and 3 to
10 years for furniture and equipment.
Land held for sale or development is carried at the lower of cost or
estimated fair value.
F-10
<PAGE> 68
SIGNATURE INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Costs
Fees and other costs incurred in obtaining long-term financing are
amortized on the straight-line basis over the life of the related loan.
Unamortized costs are charged to expense upon the early payment of the related
financing.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
The Company evaluates its real estate and partnership investments
periodically to assess whether any impairment indications are present, including
recurring operating losses and significant adverse changes in legal factors or
business climate that affect the recovery of recorded value. If any real estate
or partnership investments are considered impaired, a loss is provided to reduce
the carrying value to its estimated fair value.
Fair Value of Financial Instruments
The carrying amount of long-term debt approximates its fair value because
the interest rates are currently at market. A reasonable estimate of the fair
value of the receivables from hotel limited partnerships is not practicable
without incurring excessive costs because there is no market for comparable
instruments. The carrying amounts of all other financial instruments approximate
fair value because of the short-term maturity of these items.
F-11
<PAGE> 69
SIGNATURE INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) HOTEL LIMITED PARTNERSHIPS
Summary financial information for the hotel limited partnerships reported
on the equity method is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Hotel properties........................... $ 69,588,332 $ 72,891,402 $ 70,378,113
Net current assets......................... 4,478,542 2,240,875 3,093,072
Deferred costs............................. 1,013,523 1,149,763 1,123,360
Long-term debt............................. (58,499,873) (63,055,671) (62,747,042)
----------- ----------- -----------
Net assets............................... 16,580,524 13,226,369 11,847,503
Less:
Equity of other partners................. 13,868,164 11,280,163 10,132,937
Income not recognized.................... 487,503 568,276 629,851
----------- ----------- -----------
Investments in hotel limited
partnerships.......................... $ 2,224,857 $ 1,377,930 $ 1,084,715
=========== =========== ===========
Revenues................................... 35,432,793 33,899,680 26,916,722
Operating expenses......................... (32,267,788) (31,153,735) (26,260,994)
Extraordinary gains........................ 1,835,952 683,020 --
----------- ----------- -----------
Net income............................ 5,000,957 3,428,965 655,728
Less other partners' share................. 4,239,434 2,701,567 446,984
----------- ----------- -----------
Equity in income......................... $ 761,523 $ 727,398 $ 208,744
=========== =========== ===========
</TABLE>
As of December 31, 1995 and 1994, net receivables from hotel limited
partnerships, classified as long-term investments, included $647,987 and
$506,051, respectively, of interest-bearing advances at the prime rate plus 1.0%
(9.5% at December 31, 1995 and 1994). The Company also has a $2,377,361
non-interest bearing note receivable from a partnership which is dependent on
future cash flows of the partnership for repayments and matures in 2004. In
1995, the Company contributed $486,000 for a 40% general partner interest in a
hotel limited partnership. This partnership-owned hotel is expected to open in
1996. In 1993, the Company established a reserve of $362,000 and a valuation
allowance of $70,000 based on estimated recoverability of advances due from two
partnerships.
In conjunction with the sale of the three Company-owned hotels to
affiliated limited partnerships in 1993 and 1994, the Company acquired
participations in partnership mortgage loans totaling $546,300 which bear
interest at 12% and mature in 1999.
Interest income on receivables from limited partnerships was $159,435 in
1995, $114,506 in 1994 and $39,868 in 1993.
F-12
<PAGE> 70
SIGNATURE INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment representing hotels, corporate office equipment and
land held for sale or development are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Land....................................................... $ 1,210,500 $ 710,500
Leasehold and land improvements............................ 759,890 451,559
Buildings.................................................. 7,394,047 5,200,170
Furniture and equipment.................................... 3,518,317 2,459,770
Land held for sale or development.......................... 913,739 913,739
----------- -----------
13,796,493 9,735,738
Accumulated depreciation................................... 5,032,706 3,192,533
----------- -----------
$ 8,763,787 $6,543,205
=========== ===========
</TABLE>
During 1995, the Company sold its easement rights of a billboard for net
proceeds of $163,032.
During 1994, the Company sold a hotel to an affiliated limited partnership
for $4.3 million, resulting in a $13,000 gain. Additionally, in 1994, the
Company sold a tract of land adjacent to a Signature Inn hotel to a restaurant
operator; net proceeds of $333,000 were received, resulting in a gain of
$132,000.
During 1993, the Company transferred ownership of three hotels to lenders
and sold two additional hotels to an affiliated limited partnership. The
combined net carrying value of the five hotels was $17.0 million at the time of
disposition, resulting in a gain of $273,000.
A valuation allowance of $85,000 was provided in 1993 to reduce the
carrying value of land held for sale to estimated net realizable value.
(4) LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Corporate:
Line of credit.......................................... $ 1,100,000 $ 1,500,000
Term note............................................... 1,600,000 --
Variable rate note...................................... -- 1,800,000
Capital appreciation fee................................ -- 289,010
----------- -----------
2,700,000 3,589,010
Consolidated hotels....................................... 9,660,110 6,725,366
----------- -----------
Total................................................... 12,360,110 10,314,376
Less current portion:
Corporate............................................... 533,340 --
Consolidated hotels..................................... 3,188,376 3,128,478
----------- -----------
Long-term portion....................................... $ 8,638,394 $ 7,185,898
=========== ===========
</TABLE>
At December 31, 1995 and 1994, respectively, the revolving line of credit
bears interest at prime plus .75% and 1.25% (9.25% and 9.75% at December 31,
1995 and 1994), matures on May 31, 1997, and is secured by substantially all
assets of the Company. The original $2.5 million available line of credit was
reduced to $1.6 million effective September 1, 1995.
F-13
<PAGE> 71
SIGNATURE INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 1, 1995, the Company repaid Banc One Capital Partners II the
$1.8 million variable rate note along with a $900,000 cash payment related to
the capital appreciation fee. The variable rate note agreement required a
capital appreciation fee equal to 25% of the value of the Company, as defined,
at a specific time in the future. The accrued fee at December 31, 1994
represented the present value of the estimated amount due the lender based on an
estimate of the Company's value and a December 1996 payment date. If a change of
control of the Company, as defined, occurs prior to December 1996, an additional
fee may be payable to the lender.
The source of funds for this transaction was provided by a new $1.7 million
term note from Bank One, Indianapolis along with an advance from the Company's
line of credit and corporate cash. The term note requires monthly principal
payments of $44,445 through December 1998 along with interest at the prime rate
plus 1.25% (9.75% at December 31, 1995).
The unsecured variable rate note carried an interest rate of 8.72% above
the 30-day "AA" commercial paper rate (14.79% at December 31, 1994).
Upon the sale of a Company-owned hotel in May 1994 to a limited
partnership, a $4.9 million hotel loan and related hotel obligations were
extinguished at a discount resulting in an extraordinary gain of $223,000.
Additionally, a tract of land was sold in November 1994, and the land loan notes
were extinguished at a discount, resulting in an extraordinary gain of $217,000.
In October 1993, the Company reached an agreement for a negotiated
discounted payoff of all obligations due to its previous primary lender. In
December 1993, the note payable to the lender of $9.6 million and other
obligations of $1.1 million were extinguished for a $6.0 million cash payment,
and a $4.4 million loan guarantee claim was cancelled, resulting in an
extraordinary gain of $8.2 million after certain related expenses. Concurrently,
two Company-owned hotels were sold to an affiliated limited partnership. The
related hotel loans of $9.7 million and other obligations of $572,000 were
extinguished resulting in an extraordinary gain of $3.2 million, with the
limited partnership assuming $7.0 million of hotel loans.
During 1993, ownership of three other Company-owned hotels was relinquished
resulting in the extinguishment of approximately $18.4 million of loans and
related hotel obligations of $497,000 resulting in an extraordinary gain of $9.8
million.
The consolidated hotel affiliates' mortgage loans are non-recourse to the
Company, bear interest at rates ranging from 9.25% to 9.80%, and mature in April
1996, 2006 and 2016. The Company anticipates extending the Indianapolis South
loan maturing in 1996 to 1999.
The aggregate annual scheduled principal payments of long-term debt during
the next five years are: $3,721,716 in 1996 (including a consolidated hotel
affiliate loan), $1,769,300 in 1997 (including the outstanding line of credit),
$668,829 in 1998, $146,832 in 1999 and $163,766 in 2000.
Interest paid amounted to $978,649, $1,295,394 and $2,704,516 in 1995, 1994
and 1993, respectively. Accrued interest of $2,099,538 was added to loan
obligations in 1993 under an agreement with a lender.
F-14
<PAGE> 72
SIGNATURE INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INCOME TAXES
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Hotel limited partnership investments................... $ 1,229,000 $ 1,572,000
Land held for sale or development....................... 600,000 600,000
Partnership advances.................................... 419,000 419,000
Net operating loss carry forwards....................... 1,869,000 2,433,000
Other................................................... 621,000 718,000
---------- ---------
Gross deferred tax assets............................... 4,738,000 5,742,000
Less valuation allowance................................ (2,111,000) (1,772,000)
---------- ---------
Net deferred tax assets.............................. $ 2,627,000 $ 3,970,000
========== =========
Deferred tax liabilities:
Depreciation............................................ 45,000 51,000
Hotel limited partnerships.............................. 2,582,000 3,919,000
---------- ---------
Deferred tax liabilities............................. $ 2,627,000 $ 3,970,000
========== =========
</TABLE>
At December 31, 1995, the tax net operating loss carry forwards, which
expire in 2007, are approximately $5.5 million.
(6) SHAREHOLDERS' EQUITY
On April 7, 1994, a private placement of 2,549,500 shares of common stock
at $.20 per share was completed with the operating management of the Company.
Cash proceeds of $231,400 along with $278,500 of recourse promissory notes were
received by the Company. The notes carried interest at 6.0% and were
collateralized by the stock issued. The outstanding balances of the notes were
repaid in 1996.
Net cash proceeds of $269,503 were received on May 12, 1994, from a rights
offering to existing shareholders and 1,808,520 shares of common stock were
issued at $.20 per share.
The 1986 Stock Option Plan provided for the granting of options to purchase
a maximum of 300,000 common shares to employees of the Company through March 26,
1996. The options granted to employees have an exercise price equal to the fair
value of the shares at the date of grant. As of December 31, 1995, there are
8,500 options outstanding at an exercise price of $1 1/8 which expire on July 1,
1997.
F-15
<PAGE> 73
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SIGNATURE INNS, INC.:
We have audited the accompanying combined balance sheets of Signature Inn
Certain Affiliated Partnerships as of December 31, 1995 and 1994 and the related
combined statements of operations, partners' equity and cash flows for the years
then ended. These combined financial statements are the responsibility of the
Partnerships' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Signature Inn
Certain Affiliated Partnerships as of December 31, 1995 and 1994 and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Indianapolis, Indiana
February 23, 1996
F-16
<PAGE> 74
SIGNATURE INN CERTAIN AFFILIATED PARTNERSHIPS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------
1996 1995 1994
ASSETS ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 5,174,096 $ 7,173,679 $ 6,683,898
Accounts receivable............................... 697,598 594,559 547,099
Other current assets.............................. 781,414 667,815 743,688
----------- ----------- -----------
TOTAL CURRENT ASSETS........................... 6,653,108 8,436,053 7,974,685
----------- ----------- -----------
Property and equipment:
Land.............................................. 10,821,850 10,821,850 10,821,850
Land improvements................................. 4,574,274 4,574,274 4,562,831
Buildings......................................... 63,872,743 63,856,052 63,553,040
Furniture and equipment........................... 17,040,900 16,407,709 15,531,750
----------- ----------- -----------
96,309,767 95,659,885 94,469,471
Less accumulated depreciation..................... 28,453,656 26,975,922 24,098,075
----------- ----------- -----------
NET PROPERTY AND EQUIPMENT..................... 67,856,111 68,683,963 70,371,396
----------- ----------- -----------
Furniture and equipment cash reserve................ 1,658,429 1,462,770 1,116,087
Deferred costs, net of accumulated amortization of
$1,931,336, $1,800,153, and $1,851,417............ 964,650 971,951 1,145,221
----------- ----------- -----------
$77,132,298 $79,554,737 $80,607,389
========== ========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of long-term debt................. 1,255,836 3,145,668 1,175,261
Accounts payable.................................. 765,077 410,928 572,706
Accrued payroll and related taxes................. 377,056 351,335 302,299
State and local taxes............................. 1,780,942 1,550,977 1,452,157
Accrued interest.................................. 159,618 226,794 276,291
----------- ----------- -----------
TOTAL CURRENT LIABILITIES...................... 4,338,529 5,685,702 3,778,714
Long-term debt, less current portion................ 56,442,593 55,080,012 59,969,264
Amounts due general partner......................... 3,394,627 3,423,499 3,155,920
----------- ----------- -----------
TOTAL LIABILITIES.............................. 64,175,749 64,189,213 66,903,898
----------- ----------- -----------
Partners' equity:
Signature Inns, Inc............................... 1,759,678 2,226,361 2,104,083
Other partners.................................... 11,196,871 13,139,163 11,599,408
----------- ----------- -----------
12,956,549 15,365,524 13,703,491
----------- ----------- -----------
$77,132,298 $79,554,737 $80,607,389
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-17
<PAGE> 75
SIGNATURE INN CERTAIN AFFILIATED PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
--------------------------- ---------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Guest room revenue.................. $16,303,948 $15,685,702 $32,671,596 $31,220,623
Other hotel revenue................. 517,282 507,421 939,971 959,212
Interest income..................... 120,121 115,209 302,167 197,020
----------- ----------- ----------- -----------
16,941,351 16,308,332 33,913,734 32,376,855
----------- ----------- ----------- -----------
Costs and expenses:
Hotel operations.................... 9,007,977 8,299,691 17,226,359 16,464,691
Management and franchise fees....... 1,494,030 1,440,105 2,977,971 2,859,269
Advertising and reservations........ 586,795 564,616 1,171,962 1,121,985
Interest expense.................... 2,773,699 2,952,602 5,814,798 5,739,201
Depreciation and amortization....... 1,618,702 1,632,345 3,429,710 3,374,081
Loss on disposal of equipment....... 11,144 40,715 90,176 61,253
----------- ----------- ----------- -----------
15,492,347 14,930,074 30,710,976 29,620,480
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY
GAIN........................... 1,449,004 1,378,258 3,202,758 2,756,375
Extraordinary gain from debt
restructuring....................... -- -- 1,835,952 683,020
----------- ----------- ----------- -----------
NET INCOME....................... 1,449,004 1,378,258 5,038,710 3,439,395
Signature Inns, Inc. share............ 275,612 276,675 695,755 636,343
----------- ----------- ----------- -----------
Other partners' share................. $ 1,173,392 $ 1,101,583 $ 4,342,955 $ 2,803,052
========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-18
<PAGE> 76
SIGNATURE INN CERTAIN AFFILIATED PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
SIGNATURE OTHER
INNS, INC. PARTNERS TOTAL
---------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1993......................... $1,830,670 $10,714,541 $12,545,211
Net income......................................... 636,343 2,803,052 3,439,395
Capital contributions.............................. 150 850 1,000
Cash distributions................................. (363,080) (1,919,035) (2,282,115)
---------- ----------- -----------
Balance at December 31, 1994......................... 2,104,083 11,599,408 13,703,491
Net income......................................... 695,755 4,342,955 5,038,710
Capital contributions.............................. 3,018 17,099 20,117
Cash distributions................................. (576,495) (2,820,299) (3,396,794)
---------- ----------- -----------
Balance at December 31, 1995......................... 2,226,361 13,139,163 15,365,524
Net income (unaudited)............................. 275,612 1,173,392 1,449,004
Cash distributions (unaudited)..................... (742,295) (3,115,684) (3,857,979)
---------- ----------- -----------
Balance at June 30, 1996 (unaudited)................. $1,759,678 $11,196,871 $12,956,549
========= ========== ==========
</TABLE>
See accompanying notes to combined financial statements
F-19
<PAGE> 77
SIGNATURE INN CERTAIN AFFILIATED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED JUNE 30, DECEMBER 31,
------------------------ -----------------------
1996 1995 1995 1994
----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 1,449,004 $1,378,257 $5,038,710 $3,439,395
Items which do not use cash:
Depreciation of property and
equipment............................. 1,514,288 1,527,825 3,220,405 3,165,529
Amortization of deferred costs.......... 104,413 216,969 209,304 208,552
Amortization of debt discount........... -- -- 131,189 224,896
Gain on debt extinguishment............. -- -- (1,835,952) (683,020)
Loss on disposal of equipment........... 11,060 50,944 77,508 64,323
Write-off of deferred costs............. -- 12,666 12,668 --
Change in accrued management and
franchise fees........................ -- 51,165 70,274 108,587
Change in accrued interest payable...... (63,767) (39,381) (47,730) 159,694
Accrued revenue and other expenses,
net................................... 440,916 243,690 99,481 110,224
----------- ---------- ---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES......................... 3,455,914 3,442,135 6,975,857 6,798,180
----------- ---------- ---------- ----------
Cash flows from investing activities:
Additions to furniture and equipment cash
reserve................................. (699,608) (635,825) (1,422,747) (1,191,992)
Proceeds from disposal of equipment........ 659 3,690 14,387 1,320
Other additions to property and
equipment............................... (194,207) (289,490) (580,191) (185,327)
Additions to deferred costs................ (97,111) 3,415 -- (3,174)
Acquisition of hotel property and
equipment............................... -- -- -- (4,370,000)
----------- ---------- ---------- ----------
NET CASH USED IN INVESTING
ACTIVITIES......................... (990,267) (918,210) (1,988,551) (5,749,173)
----------- ---------- ---------- ----------
Cash flows from financing activities:
Scheduled payments on long-term debt....... (527,251) (499,994) (1,154,357) (1,261,238)
Retirement of long-term debt............... -- -- (1,972,977) --
Proceeds from long-term debt............... -- 200,905 2,294,309 4,658,000
Advances from general partner.............. 40,000 30,000 270,000 --
Repayments of advances from general
partner................................. (120,000) (69,000) (128,065) (50,000)
Proceeds from installment note............. -- -- 18,943 --
Extinguishment of long-term debt........... -- -- (400,000) --
Deferred financing costs................... -- (48,502) (48,701) (236,305)
Partner contributions...................... -- -- 20,117 1,000
Distributions to partners.................. (3,857,979) (3,396,794) (3,396,794) (2,282,115)
----------- ---------- ---------- ----------
NET CASH USED IN FINANCING
ACTIVITIES......................... (4,465,230) (3,783,385) (4,497,525) 829,342
----------- ---------- ---------- ----------
Change in cash and cash equivalents.......... (1,999,583) (1,259,460) 489,781 1,878,349
Cash and cash equivalents at beginning of
period..................................... 7,173,679 6,683,898 6,683,898 4,805,549
----------- ---------- ---------- ----------
Cash and cash equivalents at end of period... $ 5,174,096 $5,424,438 $7,173,679 $6,683,898
========== ========= ========= =========
Additional disclosures:
Interest paid.............................. $ 2,793,311 $2,808,043 $5,733,619 $5,378,476
========== ========= ========= =========
Additions to property and equipment from
furniture and equipment cash reserve.... $ 844,431 $ 868,132 $1,076,064 $ 872,269
========== ========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-20
<PAGE> 78
SIGNATURE INN CERTAIN AFFILIATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
The financial statements present the combined balance sheets, and statement
of operations, cash flows and partners' equity of 17 affiliated hotel limited
partnerships managed by Signature Inns, Inc. that own 20 Signature Inn hotels.
Signature Inns, Inc. is the general partner in each partnership with an
ownership interest varying from 5% to 50%. All of the hotels began operations
prior to 1994. The 20 hotels and their respective owners are as follows:
<TABLE>
<CAPTION>
SIGNATURE INN HOTEL OWNER
- --------------------------------- ------------------------------------------------
<S> <C>
Fort Wayne Signature I Ltd. Limited Partnership
Castleton (Indianapolis) Signature II Ltd. Limited Partnership
Lafayette Signature III Ltd. Limited Partnership
Muncie Signature IV Ltd. Limited Partnership
Northeast (Cincinnati) Signature V Ltd. Limited Partnership
Indianapolis West Signature VI Ltd. Limited Partnership
Columbus Signature VII Ltd. Limited Partnership
Kokomo Signature VII Ltd. Limited Partnership
Evansville Signature VIII Ltd. Limited Partnership
Terre Haute Signature IX Ltd. Limited Partnership
Florence Signature X Ltd. Limited Partnership
Sharonville Signature X Ltd. Limited Partnership
Dayton Signature XI Ltd. Limited Partnership
South Bend Signature XII Ltd. Limited Partnership
Louisville Signature XIV Ltd. Limited Partnership
Indianapolis North Signature XVII Ltd. Limited Partnership
Bettendorf Signature XXI Ltd. Limited Partnership
Normal Peoria/Normal Signature Limited Partnership
Peoria Peoria/Normal Signature Limited Partnership
Knoxville Knoxville Signature Limited Partnership
</TABLE>
Property and Equipment
Property and equipment are recorded at cost and include assets leased under
noncancelable agreements and construction loan interest and fees. Depreciation
is provided on the straight-line basis over the estimated useful lives of the
related assets as follows: 40 years for buildings, 15 to 20 years for land
improvements and 3 to 10 years for furniture and equipment.
Deferred Costs
Fees and other costs incurred in financing the hotels are amortized on the
straight-line basis over the life of the respective mortgages. Loan fees of
$48,502 in 1995 and $32,497 in 1994 were paid related to financings completed in
1995 and 1994, and unamortized loan fees of $12,668 in 1994 and relating to
retired loans were written.
Cash and Cash Equivalents
Cash and cash equivalents represent cash on deposit with banks and highly
liquid short-term cash investments with original maturities of three months or
less.
F-21
<PAGE> 79
SIGNATURE INN CERTAIN AFFILIATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Furniture and Equipment Cash Reserve
Each partnership contributes 4% of gross receipts, as defined, to
respective cash reserve accounts for refurbishings, replacements and major
repair contingencies, with the exception of Signature XI which contributes
$107,000 per year and Signature XVII which contributes $90,000 per year.
Income Taxes
As each of the combined entities are partnerships, the allocated share of
taxable income or loss is includable in the income tax returns of the partners;
accordingly, income taxes are not reflected in the combined financial
statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
Property and equipment is periodically evaluated to assess whether any
impairment indications are present, including recurring operating losses and
significant adverse changes in legal factors or business climate that affect the
recovery of recorded value. If any property and equipment is considered
impaired, a loss is provided to reduce the carrying value to its estimated fair
value.
Financial Instruments
The fair value of the $58,225,680 of long-term debt at December 31, 1995 is
estimated to be $57,890,000 by discounting the future cash flow payments at
rates which are believed to be currently available to the Partnerships for
similar debt instruments of comparable maturities. The carrying amount of the
advances from Signature Inns, Inc. approximate fair value because the interest
rate on the advances changes with market interest rates. Since there is no
market for instruments comparable to the note payable to Signature Inns, Inc.
and the timing of future payments is contingent on cash flow, a reasonable
estimate of the fair value of the note is not practicable without incurring
excessive costs. The carrying amount of all other financial instruments
approximate fair value because of the short-term maturity of these items.
(2) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
First mortgage loans...................................... $51,026,323 $51,638,649
Other debt, primarily second mortgage loans............... 7,199,357 9,505,876
----------- ----------
58,225,680 61,144,525
Less current portion...................................... 3,145,668 1,175,261
----------- ----------
$55,080,012 $59,969,264
=========== ==========
</TABLE>
Each hotel is encumbered by a separate non-recourse first mortgage loan.
The first mortgage loans generally require monthly payments of principal and
interest and mature at varying dates through 2016. At December 31, 1995, the
rates on the first mortgage loans ranged from 7.45% to 10.75%. The weighted
average interest rate at December 31, 1995 and 1994 was 9.22% and 9.21%,
respectively. Certain loans on three hotel properties require additional
interest payments based on the cash flow of the related hotel. Three of the
mortgage loans are related to economic development bonds which require the
maintenance of a debt service fund before cash distributions can be made to the
partners.
F-22
<PAGE> 80
SIGNATURE INN CERTAIN AFFILIATED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Other debt obligations, which primarily consists of second mortgage loans,
have a weighted average interest rate at December 31, 1995 and 1994 of 8.25% and
8.95%, respectively, and mature through 2000.
In 1995, Signature XXI Ltd. recognized an extraordinary gain of $1,835,952
in connection with the an early extinguishment of its second and third
mortgages. During 1994, Peoria/Normal Signature retired certain obligations at a
discount and recorded an extraordinary gain of $22,336.
At December 31, 1995, aggregate scheduled maturities of all long-term debt
over the next five years are as follows: 1996 -- $3,145,668; 1997 -- $3,795,767;
1998 -- $7,247,673; 1999 -- $21,031,377; and 2000 -- $658,537.
(3) SIGNATURE INNS, INC.
Signature Inns, Inc. receives 9% of defined gross revenue from each hotel
for hotel management and franchise fees, with the exception of three hotels
which pay a 4% franchise fee and a incentive management fee based on the
achievement of defined operating income targets. Each Partnership pays an annual
fee ranging from $3,000 to $7,000 for partnership accounting and related
services. Each hotel contributes 3.5% of defined gross revenue to a cooperative
advertising and reservation fund administered by Signature Inns, Inc.
The advances from Signature Inns, Inc. bear interest at the prime rate plus
1.0% adjusted quarterly (9.75% and 9.5% at December 31, 1995 and 1994,
respectively). Interest expense on the advances from Signature Inns, Inc.
amounted to $64,358 and $47,524 in 1995 and 1994, respectively, and related
accrued interest amounted to $4,803 and $2,445 at December 31, 1995 and 1994,
respectively.
In 1994, a Signature X Ltd. note payable to Signature Inns, Inc. of
$3,038,045 was restructured, and the balance was reduced $2,377,361 resulting in
an extraordinary gain from restructuring of $660,684. The restructured note is
non-interest bearing and repayments are dependent on future cash flows of the
partnership through maturity in 2004.
Management and franchise fee payments to Signature Inns, Inc. from
Signature XXI Ltd. are subordinate to payments on its first mortgage loan. In
1995 and 1994, management and franchise fees of $70,274 and $108,587,
respectively, have been deferred until excess cash flow as defined in the debt
agreement becomes available.
P&N Corporation, a wholly-owned subsidiary of Signature Inns, Inc. owns 15%
of the second mortgage loans on three hotels which totaled $546,700 at December
31, 1995.
F-23
<PAGE> 81
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SIGNATURE INNS, INC.:
We have audited the accompanying statements of operations of Signature
Northwestern Ltd. - I Limited Partnership for the years ended December 31, 1995
and 1994. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Signature Northwestern
Ltd. - I Limited Partnership for the years ended December 31, 1995 and 1994 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Indianapolis, Indiana
February 16, 1996
F-24
<PAGE> 82
SIGNATURE NORTHWESTERN LTD. - I LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Revenue:
Room revenue...................................................... $1,464,094 $1,467,728
Other hotel revenue............................................... 48,780 46,183
Interest.......................................................... 11,129 8,914
---------- ----------
1,524,003 1,522,825
---------- ----------
Costs and expenses:
Hotel operations.................................................. 399,214 401,052
Salaries and benefits............................................. 355,016 346,168
Management fees (note 3).......................................... 127,906 129,030
Advertising and reservations (note 3)............................. 52,735 52,849
Interest (note 2)................................................. 486,284 472,712
Loss on disposal of equipment..................................... 5,525 --
Depreciation and amortization..................................... 135,076 131,444
---------- ----------
1,561,756 1,533,255
---------- ----------
NET LOSS....................................................... $ 37,753 $ 10,430
========== ==========
</TABLE>
See accompanying notes to statements of operations.
F-25
<PAGE> 83
SIGNATURE NORTHWESTERN LTD. - I LIMITED PARTNERSHIP
NOTES TO STATEMENTS OF OPERATIONS
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Signature Northwestern Ltd. - I Limited Partnership (the "Partnership") was
organized on December 31, 1984 between Signature Inns, Inc. and Northwestern
National Life Insurance Company to operate as a franchisee of Signature Inns,
Inc. In July 1985, the Partnership completed construction and began operating
Signature Inn East in Indianapolis, Indiana.
Signature Inns, Inc., the general partner, is responsible for the overall
management and operation of the Partnership and received 30% of partner
distributions until the limited partner's cumulative cash distributions equaled
its original capital contributions in 1994. Subsequently, the general partner is
to receive 50% of partner distributions until disposition and liquidation at
which point it increases to 60%.
Property and Equipment
Property and equipment are recorded at cost and include assets leased under
noncancelable agreements and construction loan interest and fees. Depreciation
is provided on the straight-line basis over the estimated useful lives of the
related assets as follows: 40 years for buildings, 15 to 20 years for land
improvements and 3 to 10 years for furniture and equipment.
Deferred Costs
Fees and other costs incurred in financing the hotel are amortized on the
straight-line basis over the life of the mortgage. Loan fees of $104,014 were
paid in 1995 related to the new financing completed in 1995.
Cash and Cash Equivalents
Cash and cash equivalents represent cash on deposit with banks and highly
liquid short-term cash investments with original maturities of three months or
less.
Furniture and Equipment Cash Reserve
Cash reserves for refurbishings, replacements and major repair
contingencies are established at amounts equal to 4% of gross receipts for 1995,
as defined. Starting in 1996, monthly payments are to be equal to 4% of the
prior year gross receipts, as defined. The monthly payment in 1996 is to be
$5,036. Related expenditures are disbursed from this account.
Income Taxes
As a partnership, the allocated share of taxable income or loss is
includable in the income tax returns of the partners; accordingly, income taxes
are not reflected in the Partnership's financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
Financial Instruments
The carrying amount of the long-term debt approximates its fair value
because the interest rate approximates the current market interest rate. The
carrying amounts of all other financial instruments approximate fair value
because of the short-term maturity of these items.
F-26
<PAGE> 84
SIGNATURE NORTHWESTERN LTD. - I LIMITED PARTNERSHIP
NOTES TO STATEMENTS OF OPERATIONS -- (CONTINUED)
(2) LONG-TERM DEBT
In December 1995, a mortgage loan of $2,662,800 and the related accumulated
deferred interest note of $750,000, which required interest at 13.94%, were paid
in full from the proceeds of a nonrecourse mortgage loan of $3,000,000. The new
mortgage is secured by property and equipment and is payable in monthly
installments of $27,476, including interest at a fixed rate of 9.25% to maturity
at 2006.
The aggregate maturities of long-term debt for each of the next five years
range from $54,484 to $78,766.
(3) SIGNATURE INNS, INC.
The general partner receives management fees of 15% of house profits (gross
revenue less operating expenses, as defined) and $3,000 for annual partnership
accounting and related services. The Partnership contributes 3.5% of defined
gross revenue to a cooperative advertising and reservation fund administered by
the general partner.
F-27
<PAGE> 85
INSIDE RIGHT HAND PAGE
(Interview center photo)
Free Interview Centers
(Business center photo)
Free Guest Business Center
(Meeting room montage)
First class meeting rooms for 5 to 85 people.
(Family/breakfast photo)
Great family value. Children age 17 and under stay free with parents.
(Pool photo)
Large swimming pool (indoor at 2 locations).
(Double bed photo)
A room for the family features two double or queen-size beds.
<PAGE> 86
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON IS AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................... 1
Risk Factors............................... 7
Dilution................................... 12
The Purchase Transactions.................. 12
Use of Proceeds............................ 14
Dividend Policy............................ 14
Capitalization............................. 15
Selected Historical Financial Data......... 16
Selected Pro Forma Financial Data.......... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Lodging Industry Overview.................. 24
Business................................... 27
Management................................. 38
Principal Stockholders..................... 44
Market for the Registrant's Common Stock
and Related Stockholder Matters.......... 45
Description of Capital Stock............... 46
Shares Eligible for Future Sale............ 50
Certain Transactions....................... 51
Underwriting............................... 52
Experts.................................... 53
Legal Opinions............................. 53
Additional Information..................... 53
Index to Financial Statements.............. F-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
3,300,000 SHARES
LOGO
SIGNATURE INNS, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MCDONALD & COMPANY
SECURITIES, INC.
, 1996
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of the Company provide that the Company shall
indemnify any person who has or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that he is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful, except that no indemnification shall be made in relation
to matters as to which he shall be adjudged in such action, suit or proceeding
to be liable for negligence or misconduct in the performance of duty to the
Company. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Company.
Any such director, officer, employee or agent who has been wholly
successful, on the merits or otherwise, with respect to any claim, suit or
proceeding of the character described herein shall be entitled to
indemnification as of right. Except as provided in the preceding sentence, any
indemnification hereunder shall be made at the discretion of the Company, but
only if the Board of Directors, acting by a quorum consisting of directors who
are not parties to or who have been wholly successful with respect to such
claim, action, suit or proceeding, shall find that the director, officer,
employee or agent has met the standards of conduct set forth in the first
sentence of this section. The directors may request independent legal counsel
(who may be regular counsel of the Company) to deliver to it their written
opinion as to whether such director, officer, employee or agent has met such
standards.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
II-1
<PAGE> 88
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses to be borne by the Company in connection with the Offering are as
follows:
<TABLE>
<S> <C>
Registration Fee-Securities and Exchange Commission................................ $15,703
NASD Fee........................................................................... *
Printing........................................................................... *
Legal Expenses..................................................................... *
Accounting Expenses................................................................ *
Blue Sky Expenses and Fees......................................................... *
Mailing, Postage, Certificates and Subscription Agent Fees......................... *
-------
Total Expenses................................................................... $ *
=======
</TABLE>
- ---------------
* Will be provided by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The information set forth under the heading "Certain Transactions" in the
Prospectus included in Part I of this registration statement is incorporated
herein by reference. The management purchase transactions described therein were
consummated in reliance on the exemption from registration set forth in Section
4(2) of the Securities Act of 1933, as amended.
ITEM 27. EXHIBITS
The exhibits to this Registration Statement required under Item 601 of
Regulation S-B are attached hereto together with an index of exhibits, listing
the exhibits in the same order as called for under Item 601(b) of Regulation
S-B.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Company hereby undertakes that
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as of that
time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 89
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe it meets all of the
requirements for filing on Form SB-2 and has duly caused this Form SB-2
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Indianapolis, Indiana on the 26th day of
September, 1996.
<TABLE>
<S> <C>
SIGNATURE INNS, INC.
By: /s/ John D. Bontreger
------------------------
John D. Bontreger, President,
Chief Executive Officer and
Chairman of the Board
ATTEST:
/s/ David R. Miller
- --------------------------------
David R. Miller, Secretary
Date: September 26, 1996
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed below by the following persons on behalf
of the Company and in the capacities indicated on September 26, 1996.
<TABLE>
<S> <C>
/s/ John D. Bontreger
-----------------------------------
John D. Bontreger, President,
Chief Executive Officer and
Chairman of the Board
/s/ Mark D. Carney
-----------------------------------
Mark D. Carney, Vice President
Finance, Chief Financial Officer
and Director
/s/ Bo L. Hagood
-----------------------------------
Bo L. Hagood, Vice President
Hotel Operations and Director
/s/ David R. Miller
-----------------------------------
David R. Miller, Secretary and Director
/s/ Martin D. Brew
-----------------------------------
Martin D. Brew, Treasurer and
Controller
</TABLE>
II-3
<PAGE> 90
<TABLE>
<S> <C>
-----------------------------------------------
Orus E. Weaver, Director
/s/ Richard L. Russell
-----------------------------------------------
Richard L. Russell, Director
-----------------------------------------------
Stephen M. Huse, Director
-----------------------------------------------
Richard E. Shank, Director
-----------------------------------------------
George A. Morton, Director
</TABLE>
II-4
<PAGE> 91
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------
<S> <C>
*1. Form of Underwriting Agreement
*3.1 Amended and Restated Articles of Incorporation of Signature Inns, Inc.
3.2 Code of Bylaws of Signature Inns, Inc.
*4.1 Specimen Stock Certificate
4.2 Form of Rights Agreement adopted by the Board of Directors of Signature Inns, Inc.
*5. Opinion of Johnson Smith Pence Densborn Wright and Heath.
10.1 Form of Contract for Purchase of Real Estate to be used in connection with the
Purchase Transactions.
10.2 Employment Agreement between the Company and John D. Bontreger.
10.3 Employment Agreement between the Company and Mark D. Carney.
10.4 Employment Agreement between the Company and Bo L. Hagood.
10.5 Employment Agreement between the Company and David R. Miller.
10.6 Employment Agreement between the Company and Martin D. Brew.
10.7 The Company's 1996 Equity Incentive Plan.
13.1 The Company's Form 10-KSB for the fiscal year ended December 31, 1996, filed with
the Commission on , is hereby incorporated by reference.
13.2 The Company's Form 10-QSB for the six months ended June 30, 1996, filed with the
Commission on , is hereby incorporated by reference.
21. Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 The consent of Johnson Smith Pence Densborn Wright & Heath is included in its
opinion filed as Exhibit 5 hereto.
</TABLE>
- ---------------
* To be filed by amendment.
II-5
<PAGE> 1
EXHIBIT 3.2
SIGNATURE INNS, INC.
MANAGEMENT AGREEMENT
THIS AGREEMENT is made at Indianapolis, Indiana this 2nd day of
January, 1991, by and between SIGNATURE INNS, INC., an Indiana corporation
("Operator") and Signature I Ltd. Limited Partnership ("Owner").
WHEREAS, Operator is the owner of a Signature Inn Motel located at 1734
West Washington Center Road, Fort Wayne, Indiana 46818 (the "Motel"), and
WHEREAS, Operator is engaged in the business of operating Signature
Inn Motels; and
WHEREAS, Owner desires to employ Operator to provide management
services in connection with the operation and management of the Motel and
related facilities for the account of Owner in a manner as is customary and
usual in the operation of comparable facilities, and so far as is economically
and legally possible, in accordance with the same procedures, practices,
management techniques and other rules of operation used by similar Motels; and
WHEREAS, Operator desires to accept such employment:
NOW, THEREFORE, in consideration of the mutual promises and convenants
contained herein, the parties agree as follows:
ARTICLE I
APPOINTMENT OF OPERATOR
Owner hereby appoints and employs Operator and grants to Operator the
sole and exclusive right to manage and operate the Motel, and Operator hereby
accepts such appointment and agrees during the term of this Agreement to
supervise, direct and control the management and operation of the Motel upon the
terms and conditions set forth in this Agreement.
<PAGE> 2
ARTICLE II
DUTIES AND SERVICES OF OPERATOR
In connection with its operation and management of the Motel, Operator
shall have the following duties and shall render the following services AT THE
OWNER'S SOLE COST AND EXPENSE:
(a) Operator shall select, supervise, direct, train and assign the
dates of and terminate all employees, agents and contractors employed by the
Owner of similar persons engaged by Owner in the operation of the motel. The
terms of employment, rates of compensation and all other matters relating to
employment of such personnel by Owner shall he determined and controlled solely
by Operator. However, it is expressly understood and agreed that, except for the
Motel General Manager and the Motel Assistant Manager who shall be employees of
Operator, all such personnel shall be employees of and shall he paid by Owner.
Owner shall not interfere with or give orders or instructions relating to the
operations of the Motel to any such personnel,
(b) Operator shall pay the salary of its own employees who are engaged
in the performance of duties imposed under this Agreement; provided, however,
that Owner shall reimburse Operator for all costs associated with Operator's
employment of the Motel General Manager or Motel Assistant Manager, including
without implied limitation, salary, bonuses, if any, insurance benefits, pension
and profit sharing contributions, sick and vacation pay and incidental benefits.
(c) Subject to the foregoing, the costs, fees, compensations, traveling
expenses or other related expenses of persons engaged by Owner or Operator for
the benefit of Owner to perform duties directly related to the operation of the
Motel of any nature shall be paid by Owner and shall be charged as an operating
expense of the Motel within an approved budget.
-2-
<PAGE> 3
Everything done by Operator in the performance of its obligations under this
Agreement and all its expenses incurred shall be for and on behalf of Owner and
for Owner and for Owner's account, subject to the limitations set forth herein,
and Owner agrees to reimburse Operator for all such expenses paid or incurred
shall be for and on behalf of Owner and for Owner's account, subject to the
limitations set forth herein, and owner agrees to reimburse Operator for all
such expenses paid or incurred by Operator's employees or other persons while
engaged in the performance of Services under this Agreement, including
incidental expenses.
(d) Operator shall establish all prices, price schedules, rates and
rate schedules.
(e) Operator shall apply for, obtain and maintain in the name and at
the expense of Owner, all Licenses and permits required of Owner or Operator in
connection with the management and operation at the Motel. Owner agrees to
execute and deliver any and all applications and other documents necessary
therefore and to cooperate to the fullest extent possible with Operator in the
performance of said obligations.
(f) Operator may obtain and/or grant such concessions and privileges
including, but not limited to, vending machines and newsstands, as Operator may
deem reasonably necessary or desirable in connection with the operation of the
Motel.
(g) Operator shall install reliable accounting and internal auditing
systems.
(h) Operator, at Owner's expense, on Owner's behalf, shall negotiate
Service and other contracts reasonably necessary or desirable in connection with
the operation of the Motel in the usual course of business, except as otherwise
provided in this Agreement.
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(i) Operator. at Owner's expense, shall purchase such inventories,
provisions, supplies and equipment as Operator may deem reasonably necessary in
order to properly maintain and operate the Motel.
(j) Operator, at Owner's expense, shall plan, prepare and contract for
advertising and promotional programs for the Motel.
(k) Operator shall plan and implement a program for the refurbishing of
the Motel, the costs of which shall be paid from the furniture, fixture and
equipment reserve established and maintained by Owner.
(l) Operator shall perform all acts reasonably necessary in connection
with the operation of the Motel in an efficient and proper manner and in
accordance with standards and policies established or to be established for the
operation of similar motels.
ARTICLE III
MANAGEMENT FEE
In consideration of Operator's performance of its duties and services
as described in Article II hereof and subject to the provisions of Article III
herein, Owner shall pay to Operator a Management and Accounting Fee equal to
Five percent (5%) of "Gross Receipts" (as hereinafter defined). The term "Gross
Receipts" as used herein shall mean all income derived from the renting, use or
occupancy of guest rooms, interview centers, and meeting rooms in the motel,
less sales tax or any similar taxes which are required by law to be specially
computed and paid by guests. The Management and Accounting Fees shall be
computed and paid monthly on or before the 25th day of the month following each
calendar month or part thereof during the term of this Agreement.
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ARTICLE IV
EXCESS REVENUES
All revenues remaining after payment of all cash expenses of operation of the
Motel and after payment to Operator of all sums to which it is entitled under
this Agreement shall belong to Owner, and such payments shall be made to Owner
concurrently with the monthly payments to Operator or at such other intervals as
Owner may select providing that such payments are subject to the provisions of
Article V below.
ARTICLE V
WORKING CAPITAL
Owner agrees that the Working Capital required for the operation of the
Motel shall be an amount which Operator deems adequate. Owner shall provide at
its expense said Working Capital which funds may be drawn upon by Operator in
accordance with a budget prepared by Operator and approved by Owner for use in
the operation of any or all of the motels owned by Owner.
All Working Capital furnished by Owner to Operator pursuant to this
Article received in trust by Operator pursuant to this Article shall be received
in trust by Operator to be used exclusively in the operation of the Motel,
subject to Operator's rights to withdraw its Management and Accounting Fees
pursuant to Article III, and its right to pay charges accrued pursuant to
Article XIII.
Notwithstanding the above, should the experience of operating the Motel
show that the Working Capital is inadequate to provide cash on hand to pay
operating and other expenses, Owner shall provide sufficient additional funds to
meet such expenses.
ARTICLE VI
TERM
The term of this Agreement shall commence on January 1, 1991, and shall
continue until January 1, 2002. The term may be renewed upon mutual
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agreement between the parties.
ARTICLE VII
RELATIONSHIP OF THE PARTIES
All duties to be performed under this Agreement shall be for and on
behalf of Owner, by Operator as an independent contractor and not as servant or
agent of Owner. In taking any action pursuant to this Agreement, Operator will
be acting as an independent contractor for Owner only, and nothing in this
agreement shall be construed as creating a partnership or any other relationship
between the parties hereto.
ARTICLE VIII
INSURANCE
Owner agrees that at all times during the term at this Agreement it
will procure, maintain and keep in force at its expense and for the mutual
benefit of Owner and Operator the types and amounts of insurance required under
its Partnership Agreement.
ARTICLE IX
INDEMNITY
Owner is RESPONSIBLE FOR ALL LOSS, DAMAGE AND CONTRACTUAL LIABILITIES
RESULTING FROM OR IN CONNECTION WITH THE ACTIVITIES OF THE OWNER'S EMPLOYEES,
AGENTS OR CONTRACTORS (OTHER THAN OPERATOR) IN CONJUNCTION WITH THE OPERATION OF
THE MOTEL AND FOR ALL CLAIMS OR DEMANDS FOR DAMAGE TO PROPERTY OR FOR INJURY,
ILLNESS OR DEATH OF PERSONS DIRECTLY OR INDIRECTLY RESULTING THEREFROM. OWNER
AGREES TO DEFEND, INDEMNIFY AND HOLD OPERATOR HARMLESS OF, FROM AND WITH RESPECT
TO ANY AND ALL CLAIMS, DEMANDS, ACTIONS, AND LIABILITIES, INCLUDING ATTORNEYS'
FEES AND EXPENSES, ARISING FROM CONNECTED WITH OR RELATED TO THE ACTIVITIES OF
THE OWNER'S EMPLOYEES, AGENTS OR CONTRACTORS (OTHER THAN OPERATOR) IN
CONJUNCTION WITH THE OPERATION OF THE MOTEL.
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ARTICLE X
ACCOUNTING SERVICES AND FEES
In addition to its other services as described in Article II hereof,
Operator agrees to keep and maintain accurate books, records and accounts
relating to the operation of the Motel, including check backs, bank statements,
ledgers, journals and such other records as sound bookkeeping practice requires.
Operator shall also prepare and furnish to Owner monthly and annual financial
reports including profit and loss statements.
The accounting services to be provided by Operator under this Article
do not include the costs incurred for income tax work or a certified annual
report. Owner or its designated representative shall have access to said
accounting records at all reasonable times during normal business hours.
ARTICLE XI
TERMINATION
Owner or Operator may terminate this Agreement in the following events:
(a) In the event Owner sells, leases of otherwise disposes of the
Motel;
(b) In the event a receiver or trustee has been appointed for either
Owner of Operator, or in the event of the insolvency, bankruptcy, merger or
corporate reorganization of Operator or Owner.
ARTICLE XII
LAWS AND ORDINANCES
Operator agrees that it will at all times conduct the business on the
Motel premises in a lawful manner and in full compliance with all government
laws, ordinances, rules and regulations.
ARTICLE XIII
CHARGES
It is agreed that Operator shall not be liable to third parties for
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any debts, liabilities or obligations of the Motel arising in the course of
business of the Motel or by virtue of its management, supervision, control and
operation of said property for Owner. Operator shall be liable only to Owner for
the faithful performance of Operator's obligations under this Agreement.
ARTICLE XIV
MISCELLANEOUS
(a) Non-Waiver. No waiver of any condition or covenant contained in
this Agreement or failure to exercise a right or remedy by either of the parties
hereto shall he considered to imply or constitute a further waiver by such party
of the same of any other condition, convenant, right or remedy.
(b) Governing Law. The validity and construction of the Agreement shall
be governed by the laws of the State of Indiana.
(c) Construction. Throughout this Agreement the use of the singular
number shall be construed to include the plural, the plural the singular, and
the use of any gender shall include all genders, whenever required by the
context.
(d) Obligation to Execute Documents. Each party to this Agreement shall
from time to time, upon request by the other party, execute, acknowledge and
deliver to such other party a written statement certifying that this Agreement
has not been modified and is in full force and effect (or if there have been
modifications, that the same are in full force and effect and stating such
modifications). Each party to this Agreement shall also, from time to time, upon
request by the other pary, execute any additional documents which may reasonably
be required to effectuate the purposes of this Agreement.
(e) Successors and Assigns. The provisions of this Agreement shall
insure to the benefit of and be binding upon the parties and their respective
representatives, successors and assigns.
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(f) Severability of Provisions. If any provision of this Agreement is
held invalid by any tribunal in a final decision from which no appeal is or can
by taken, such provision shall be deemed modified to eliminate the invalid
element, and, as so modified, such provision shall be deemed a part of this
Agreement as though originally included herein. The remaining provisions of this
Agreement shall not be affected by such modification.
(g) Extent of Agreement. This Agreement represents the entire agreement
between the parties, and supersedes all prior negotiations, representations or
agreements (including addenda thereto), either written or oral. This Agreement
may ha amended only by a written instrument signed by both parties.
(h) Warranties of Representatives. Each person executing this Agreement
on behalf of a party hereto represents and warrants that he has been fully
empowered to execute this Agreement, and that all necessary action for the
execution of this Agreement has been taken.
(i} Notices. All notices under this Agreement shall be in writing and
may be given by personal delivery or by mailing by certified or registered mail
addressed as follows:
If to Owner, at Signature Inns, Inc., 0335 Allison Pointe Trail, Suite #300,
Indianapolis, Indiana 46250; if to Operator, at Signature Inns, Inc., 8335
Allison Pointe Trail, Suite #300, Indianapolis, Indiana 46250; or at such other
address as either party may designate in a notice to the other party given in
such manner, Any notice given by mail shall be considered given when deposited
in the United States mail, postage prepaid, addressed as provided above.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"OPERATOR"
SIGNATURE INNS, INC.
By: /s/ John D. Bontreger
-----------------------------
John D. Bontreger, President
ATTEST:
/s/ David R. Miller
- --------------------------
David R. Miller, Secretary
"OWNER"
SIGNATURE I LTD. LIMITED PARTNERSHIP, an
Indiana limited partnership by Signature
Inns, Inc., general partner
By: /s/ John D. Bontreger
-----------------------------
John D. Bontreger, President
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SIGNATURE INNS, INC.
INDIVIDUAL MOTEL LICENSE AGREEMENT
THIS AGREEMENT is made and entered into at Indianapolis, Indiana,
effective this 1st day of January, 1991, by and between SIGNATURE INNS, INC.,
an Indiana corporation with its principal offices located in Indianapolis,
Indiana ("Licensor") and Signature I Ltd. Limited Partnership whose address is
8335 Allison Pointe Trail, Suite 300, Indianapolis, Indiana, 46250 ("Licensee").
RECITALS
A. Licensor is engaged in the business of owning and operating motels
under the distinctive service mark "Signature Inn" and is also engaged in the
business of licensing others to use the service mark "Signature Inn" in the
operation of their motels.
B. In connection with its businesses, Licensor has originated,
developed and made operational a system ("the Signature System") for providing
to the general public high quality, reasonably priced lodging accommodations
tailored to meet the particular needs of the business and commercial traveler,
as well as those of the leisure vacationer guest, while eliminating typical
restaurant and lounge facilities.
<PAGE> 12
C. The Signature System is identified and set apart by many
distinguishing features, including (1) the use of specially designed interiors,
exteriors, equipment, furniture and layouts for its motel buildings; (2) the use
of methods of operation which are unique, innovative and known only to Licensor
and its licensees; (3) the use of service marks, including but not limited to
the mark "Signature Inn," which are distinctive in design, attractive in
appearance and calculated to distinguish Licensor's services from those
generally available; and (4) clean, comfortable and unique motels, providing
efficient and courteous service at moderate prices.
D. Licensor is the sole and exclusive owner of all proprietary and
other property rights, interests and goodwill in and to the Signature System and
all trademarks, service marks, copyrights, slogans, and trade names associated
with that system, including, without implied limitation, "Signature Inn".
F. Licensee understands that the motel to be operated by Licensee under
this Agreement, together with motels now or hereafter operated by Licensor and
other Licensees, will constitute part of the Signature System. Licensee also
acknowledges that each motel in the Signature System is dependent on the others
in that system to establish and maintain the goodwill necessary for a successful
operation. Licensee agrees that it is, therefore, a benefit to, as well as an
obligation of, Licensee to conform strictly to the terms and conditions of this
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Agreement, all of which terms and conditions are essential for the success of
the Signature System. Licensee also understands that Licensor must develop,
implement and enforce uniform standards of operation in order to facilitate the
successful operation of each of its licensees.
F. Licensee desires to utilize and obtain the benefits of the Signature
System and to operate a motel under the distinctive service mark "Signature
Inn," as well as the other distinctive marks, slogans and names listed on
Schedule "A" hereto, upon the terms and conditions herein set forth.
G. Licensor is willing to permit Licensee to use such marks, slogans
and names for and with respect to the licensed motel (without responsibility or
liability upon Licensor for the operation thereof), upon the terms and
conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, the parties hereby agree as follows:
ARTICLE I
LICENSE AND TERM
Section 1.1. Grant of License. Subject to Licensee's compliance with
all the terms and conditions of this Agreement, Licensor hereby grants to
Licensee a non-assignable, non-exclusive license:
(a) To use on a non-exclusive basis the Signature System, the service
mark "Signature Inn" and all other trademarks, service marks, copyrights,
slogans and trade names listed on
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Schedule "A" hereto, solely in connection with one licensed motel which is owned
and operated by Licensee at the location set forth in Section 1.3 of this
Article;
(b) To use Licensor's operating methods and procedures at that
location; and
(c) To render the services specified by Licensor at that location
according to the procedures, systems and methods defined herein.
Section 1.2. Acceptance of Grant of License. Licensee hereby accepts
the grant of license from Licensor and agrees:
(a) To use the Signature System, the service mark "Signature Inn" and
all trademarks, service marks, copyrights, slogans and trade names listed on
Schedule "A" hereto, as veil as any other mark, right or name which Licensor
subsequently prescribes for the Signature System, in the manner and to the
extent set forth in this Agreement and solely in connection with one licensed
motel which is owned by Licensee at the location set forth in Section 1.3 of
this Article;
(b) To use the procedures and methods of operation at that location
which are established by Licensor and modified from time to time; and
(c) To render the services at that location which, from time to time,
are specified by Licensor, according to the procedures, Systems and methods
established in this Agreement.
Section 1.3. Location of Licensed Motel. The license
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granted under Section 1.1 of this Article and accepted under Section 1.2 of this
Article is for the ownership and operation of a "Signature Inn" motel containing
103 guest rooms units and such other facilities as Licensor approves ("the
Licensed Motel") located at the following specific site: 1734 West Washington
Center Road, Fort Wayne, Indiana 46818.
Section 1.4. Limitations on Use of the Mark and Name "Signature Inn"
and on the Marks, Rights, Slogans and Names Listed on Schedule "A". Licensee
shall not use the name and mark "Signature Inn" or any mark, right, slogan or
name listed on Schedule "A" hereto in the name of any corporation, partnership,
joint venture, association, company, proprietorship or other business entity.
Any application by Licensee to use the name and mark "Signature Inn" as a trade
or assumed business name, which may be required by the statutes or laws of any
jurisdiction, shall specify that Licensee's use of such name and mark is limited
to the premises stated in Section 1.3 of this Article and limited by the terms
of this Agreement. The license granted under section 1.1 and accepted under
Section 1.2 of this Article is non-exclusive, and no property right or privilege
to use any mark, right, slogan or name is created which will extend beyond
termination of this Agreement. Licensee hereby agrees that Licensee shall not
acquire any rights in the name and mark "Signature Inn" and the other marks,
rights, slogans and names
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listed on Schedule "A" through Licensee's use thereof in connection with the
operation of the Licensed Motel.
Section 1.5. Initial Term of License. Unless earlier terminated for
cause as hereinafter provided, the license granted under Section 1.1 and
accepted under Section 1.2 of this Article shall continue in full force and
effect until August 22, 1998.
Section 1.6. Additional Term. Provided that Licensee shall fully,
faithfully and timely carry out and perform all of its obligations under this
Agreement, Licensee may renew the license granted hereunder for any additional
term of five (5) years upon the expiration of the initial term. In the event
Licensee desires to exercise its option to renew, Licensee shall provide
Licensor with a written notification of Licensee's intent to renew at least 120
days before the expiration date of the initial term of this Agreement. Renewal
of the license shall be effectuated by the execution by Licensor and Licensee of
Licensor's then current form of license agreement at the then current franchise
rates and all other documents then customarily used by Licensor in the grant of
licenses. THE LICENSE GRANTED HEREUNDER SHALL NOT BE RENEWABLE FOLLOWING THE
EXPIRATION OF THE ADDITIONAL TERM, IF ANY, EXCEPT UPON SUCH TERMS AS MAY BE
MUTUALLY AGREED BETWEEN BOTH PARTIES.
ARTICLE II
EXCLUSIVE AREA
In order to facilitate the successful operation of the Licensed Motel
and to protect Licensee's investment in the
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Licensed Motel, Licensor hereby grants to Licensee the exclusive right to own
and operate one (and only one) "Signature Inn" within the geographic area
described in Schedule "B" hereto ("the Exclusive Area"). During the term of this
Agreement, neither Licensor nor any other of its licensees shall be allowed to
establish or operate a "Signature Inn" within the Exclusive Area; provided,
however, Licensor is not prohibited from developing other motel/hotels or other
lodging facility within the Exclusive Area, as long as the lodging facility is
developed and operated under another name.
Licensee acknowledges that the grant of an Exclusive Area under this
Article shall not be construed to authorize Licensee to construct, own or
operate any additional Signature Inn motel facilities within the Exclusive Area,
and that construction, ownership or operation of any additional motel in the
exclusive area or any additional motel facilities on the site of the Licensed
Motel is hereby prohibited.
ARTICLE III
ADDITIONAL COVENANTS OF LICENSOR
Section 3.1. Knowledge and Experience. Licensor agrees to make
available to Licensee the benefit of Licensor's knowledge and experience in the
financing, ownership and operation of Signature Inns. Licensee shall have the
right to consult with Licensor's officers, employees and agents at Licensor's
principal offices concerning any matter relating to the financing, ownership,
leasing and operation of Licensee's Signature Inn.
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Section 3.2. Sources of Equipment, Furniture, Fixtures and Supplies. It
is the sole responsibility of Licensee to select and obtain suppliers of motel
equipment. However, if requested in writing by Licensee, Licensor agrees to
suggest to Licensee persons or firms believed to be in the business of supplying
motel equipment, furniture, furnishings, fixtures and supplies. However, it is
expressly understood and agreed that Licensor shall have no liability,
responsibility or obligation to Licensee or any other person with respect to the
ultimate terms of any contractual relationships with suppliers, nor shall
Licensor have any such liability, responsibility or obligation with respect to
the quality, merchantability, fitness or workmanship of any goods supplied.
Section 3.3. Operations Manual. Licensor agrees to loan Licensee a copy
of the Signature Inn Confidential Manual of Standard Operating Procedures ("the
Manual") upon execution of this Agreement, the receipt of which Licensee
acknowledges by the execution of this Agreement. The Manual, which is
confidential, is designed to insure uniform and high standards of quality,
service and appearance among all Signature Inn motels in order to create and
maintain Signature Inn's goodwill and consumer acceptance. It is understood that
the Manual, including all subsequent amendments thereto, shall remain the
property of Licensor and shall be returned by Licensee to Licensor upon
termination of this Agreement.
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3.4. Training of Licensee's Employees. Licensor will also furnish
technical and procedural advice regarding the operation of the Licensed Motel to
Licensee's employees at Licensor's principal offices. In the event Licensee
requires the service or presence of any officer, employee or agent of Licensor
to aid in operating the Licensed Motel subsequent to the effective date of
this Agreement, Licensee shall pay Licensor all costs of travel and other
expenses of such persons, plus a per diem amount equivalent to the normal daily
remuneration received by such persons from Licensor.
Section 3.5. Promotion of Signature Inns. Licensor agrees to promote
Signature Inns and the use of those Inns by members of the public through such
advertising and public relations programs as Licensor, in its discretion,
determines to be suitable and appropriate.
Section 3.6. Supervision of Licensees. Licensor agrees to supervise
Licensee and other of its licensees as often as Licensor shall deem necessary in
order to assure compliance by all licensees with the Signature Inn Confidential
Manual of Standard Operating Procedures, including the Rules of Operation
contained therein. For that purpose, Licensor agrees to maintain such staff as
is necessary and desirable to allow for on-site inspections of Licensee's
Licensed Motel, as well as on-site inspections of motels of other licensee's and
in conjunction with those inspections to provide guidance in the management and
operations
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of the motels.
Section 3.7. Signs, Insignia and Decalcomania. Licensor agrees, from
time to time, to suggest to Licensee, persons or firms believed to be in the
business of supplying signs, decalcomania, forms, stationery, bulletins and
procedures which at that time are required by Licensor for use in Signature
Inns, and to furnish specifications for standardized signs, letterheads,
registration cards, statements and other similar materials.
Section 3.8. Advertising and Promotion Expenditures. Licensor agrees to
expend all sums received from Licensee pursuant to Article V for the publication
of a directory and for national and/or regional advertising and promotion, as
provided for in that Section.
Section 3.9. Reservations System. Licensor has implemented a
reservations system for the transmission and receipt of reservation requests
among all Signature Inns. Licensor shall make such reservations system available
to Licensee upon the terms set forth in Section 5.2 hereof.
ARTICLE IV
LICENSE FEES AND ACCOUNTING
Section 4.1. Royalty Fee. In consideration of the rights, privileges
and license granted to Licensee under this Agreement and the services to be
rendered to Licensee by Licensor under the terms hereof and subject to Section
4.5 hereof, Licensee hereby agrees to pay to Licensor a license royalty fee
equal to four percent (4%) of Licensee's "Gross Receipts", as defined in Section
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4.2 hereof (hereinafter "License Fee"). Licensee shall pay the License Fee on or
before the 25th day of the month following each calendar month or part thereof,
during the term of this Agreement. Each payment shall be accompanied by a
monthly Statement of Operations on a form provided to Licensee by Licensor,
certified to be true and correct by Licensee, showing, among other information,
the number of rooms rented, the average daily room rate, the percentage of
occupancy and the "Gross Receipts" during the preceding month, or part thereof.
Section 4.2. Definition of "Gross Receipts". The term "Gross Receipts"
as used herein shall include all income derived from the renting, use or
occupancy of quest rooms, working areas, meeting rooms and storage facilities in
the Licensed Motel, less sales tax or any similar taxes which are required by
law to be specially computed and paid by the guests.
Section 4.3. Examination of Licensee's nooks and Records; Annual
Audited Statements. Licensee shall keep on the premises of the Licensed Motel
true and accurate books, records and accounts relating to Gross Receipts. In
order to provide Licensor with a method to insure the accuracy and completeness
of Licensee's monthly Statements of Operations, Licensee hereby grants to
Licensor the right to examine all books, records, accounts and tax returns of
Licensee at all reasonable times and places upon reasonable notice. Licensor
may, at anytime upon reasonable notice, conduct an audit of the books, records
and accounts of the
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Licensed Motel, which shall be conducted at Licensor's expense, except in the
case where Gross Receipts have been understated by two percent (2%) or more by
Licensee for the period covered by the audit. in which event the cost of the
audit shall be borne by Licensee. Within 75 (seventy-five) days after the close
of Licensee's fiscal year, Licensee shall prepare and furnish to Licensor a
Statement of Operations, including a balance sheet and profit and loss statement
for such fiscal year. Such Statement of Operations shall be certified by an
independent certified public accountant to be true and correct and prepared in
conformity with generally accepted accounting principles. In addition to
providing the annual statement, a true copy of Licensee's federal income tax
return and state sales tax returns for the fiscal year shall be furnished.
Section 4.4. Interest on Past Due Amounts. All fees to be paid by
Licensee to Licensor under this Article and under Article V hereof which become
past due shall bear interest at the rate of 1 1/2% of the amount past due per
month. Licensee authorizes Licensor to deduct any such past due amounts from any
sums which may be payable by Licensor to Licensee.
ARTICLE V
ADVERTISING AND RESERVATION SYSTEM
Section 5.1. Advertising. Licensee shall pay to Licensor an amount
equal to two percent (2%) of Licensee's Gross Receipts, as defined in Section
4.2 hereof, for use by Licensor for the publication and distribution of
directories and other advertising
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materials, for radio, television, magazine, newspaper and other forms of media
advertising on a state. regional or national basis as Licensor, in its sole
discretion, deems appropriate. In addition, those amounts may be used by
licensor to pay salaries, benefits and expenses of individuals employed to carry
out and administer direct sales efforts on behalf of the chain. Such payments
shall be made on a monthly basis at the time and in the manner set forth under
Article IV for the payment of License Fees. Licensor shall deposit all such
payments in a separate bank account designated "Signature Inn National
Advertising Trust Account." Licensor hereby warrants that all sums collected
under this Article shall be used for advertising purposes as described above.
Licensor shall maintain accurate books, records and accounts for all receipts
and expenditures from the special account, which books, records and accounts
shall be available for inspection by Licensee at all reasonable times. Licensee
shall be responsible for its own local advertising and promotion.
Section 5.2. Central Reservation System. Licensee shall pay to Licensor
an amount equal to one percent (1%) of Licensee's Gross Receipts, as defined in
Section 4.2 hereof, for use or Licensor in its Central Reservation System. In
addition, the licensee shall pay a specified dollar amount per available room
per month as reasonably determined by the Franchisor. Such payment shall be made
on a monthly basis at the time and in the manner set forth under Article IV for
the payment of License Fees.
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Licensor shall deposit all such payments in a separate bank account designated
"Signature Inn National Reservation Trust Account." Licensor hereby warrants
that all sums collected under this Article shall be used for reservation
purposes as described above. Licensor shall maintain accurate books, records,
and accounts of all receipt and expenditures from this special account, which
books, records and accounts shall be available for inspection by Licensee at all
reasonable times.
ARTICLE VI
ADDITIONAL COVENANTS OF LICENSEE
Section 6.1. Use of Licensed Motel. Licensee hereby covenants that the
Licensed Motel shall be used solely for the purpose of operating a Signature Inn
motel pursuant to the terms of this Agreement, and that its business operations
will be conducted exclusively from the location described in Section 1.3 of
Article I hereof.
Section 6.2. Compliance With the Manual. Licensee covenants that it
shall observe strictly all standards of service and operation prescribed by
Licensor in this Agreement and in the Signature Inn Confidential Manual of
Standard Operating Procedures, as revised or amended by Licensor from time to
time. Licensee acknowledges that the Manual and the Rules of Operation set forth
therein will require amendment from time to time, and Licensee agrees that
Licensor, in its discretion, may make revisions and amendments to the Manual,
provided only that
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Licensor shall apply those provisions and amendments uniformly to all licensees.
Licensee expressly agrees to comply with all such revisions and amendments.
Licensee further agrees that it will maintain the confidentiality of the Manual
and amendments thereto and that it will return all copies of the Manual and
amendments to Licensor upon termination of this Agreement.
Section 6.3. Operating standards, Licensee agrees to maintain a high
moral and ethical standard and atmosphere at the Licensed Motel and to strictly
comply with all local, state and federal laws, ordinances, rules and regulations
relating to the premises or to the improvements thereon. Licensee covenants that
it will maintain its premises and accommodations in a clean, safe and orderly
manner and will provide efficient, courteous and high quality service to the
public. Licensee covenants that it will furnish such motel accommodations,
services and conveniences of the quality and type as are prescribed by Licensor
for motels in the Signature System, such that the Licensed Motel shall help to
create, maintain and enhance the reputation and goodwill of the Signature
System.
Section 6.4. Trademarks, Service Marks and Trade Names.
(a) Licensee agrees to comply with all requests of Licensor with
respect to the appearance and use of the trademarks, service marks, slogans,
copyrights and trade names licensed hereunder, including any request to change
the form or style or discontinue using any of said marks and names. Unless
instructed
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otherwise by Licensor, Licensee covenants to feature in the operation of the
Licensed Motel and in all advertising matter the words "Signature Inn" with
related logo and all other marks prescribed by Licensor, so that Licensee's
motel will be distinctly recognized by the public as an integral part of the
Signature System. In addition, Licensee shall employ such trademarks, service
marks, slogans and copyrights as prescribed by Licensor, from time to time, on
all stationery, linens, towels, furniture, furnishings, advertising matter,
signs or other articles, in the same combination, arrangement and manner as
required or approved by Licensor for the Signature System.
(b) Licensee shall make every effort to protect, maintain and advance
the name "Signature Inn" and all other trademarks, service marks, copyrights,
trade names and slogans which stand for or represent the Signature System as
determined from time to time by Licensor.
(c) Licensee agrees that it shall not use any trademarks, service
marks, copyrights, trade names or slogans licensed hereunder in whole or in part
for any purpose or in conjunction with any product, service or business other
than the business to be conducted under this Agreement.
(d) Licensee acknowledges and agrees that all trademarks, service
marks. copyrights, trade names and slogans (including the goodwill associated
therewith) licensed hereunder and/or used in the Signature System are owned by
Licensor, and
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that Licensee has no interest in or to any such mark, right, name or slogan or
the goodwill associated therewith. Licensee shall not register or attempt to
register such trademarks, service marks, copyrights, trade names or slogans in
its own name or that of any other person, firm, association or corporation.
(e) Licensee agrees that, upon termination of this Agreement, Licensee
will immediately cease using and thereafter abstain from using all trademarks,
service marks, copyrights, trade names and slogans licensed hereunder and/or
used in the Signature System, and will surrender and assign to Licensor any and
all rights and goodwill which Licensee may have acquired in or under said marks,
copyrights, names or slogans.
(f) Licensee agrees that in the event Licensor should cease doing
business under the name of "Signature Inn" at any time during the term of this
Agreement for any reason whatsoever, Licensor may select such other name as it
may determine and Signature System and this Agreement shall be thereby amended
in such respect.
Section 6.5. Promotion of Business. Licensee agrees to diligently
promote and make every reasonable effort to steadily increase its business by
printed advertisements, brochures, highway signs and by placing advertising in
any other suitable manner upon its premises and for a reasonable distance
thereof. In addition, Licensee agrees to use every reasonable means to encourage
and promote the use of Signature Inns on a national and
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regional basis by the traveling public. Licensee further agrees that it will use
the name "Signature Inn" in all of its own advertising, and that all such
advertising will be submitted to Licensor for approval before publication.
Section 6.6. Participation in Reservation System. Licensee agrees to
participate in the Central Reservation System of Licensor and to install in the
licensed Motel all equipment which is necessary or desirable for such
participation. Licensee further covenants that it will observe the practices,
procedures and policies as from time to time are prescribed by Licensor for the
operation of the reservation system.
Section 6.7. Equipment, Furnishings and Fixtures. Licensee agrees to
purchase (or lease) and use exclusively at all times during the term of this
Agreement furniture, fixtures, equipment and supplies as shall strictly comply
with the specifications which, from time to time, are prescribed by Licensor
Licensee acknowledges that such specifications are necessary to insure the high
quality of the furniture, fixtures, equipment and supplies to be used in
Signature Inns.
Section 6.8. Inspection of Premises. Licensee agrees to permit Licensor
to inspect the Licensed Motel at anytime During regular business hours. without
notice, so as to assure compliance with the terms of this Agreement and the
Manual. Licensee further agrees to take immediate remedial action to correct any
deficiencies discovered during any such inspection. If necessary,
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Licensee shall provide free lodging to the representative conducting the
inspection.
Section 6.9. Credit Cards. Licensee agrees to recognize for the purpose
of identification and credit all credit cards which Licensor now or hereafter
specifies in accordance with Licensor's procedures established from time to time
in the Manual and to execute central billing agreements as may by required by
the issuers of such credit cards. It is understood that Licensor shall not be
responsible for any charges incurred by the holder of any such credit card.
Section 6.10. Taxes, Licensee agrees to be responsible for all local,
state and federal taxes arising as a result of Licensee's operation of the
Licensed Motel under this Agreement, and Licensee shall indemnify Licensor and
hold it harmless against any claim arising out of Licensee's failure to pay such
taxes.
Section 6.11. Defense of Actions. Licensee agrees that it will
undertake, on behalf of Licensor, the defense of any lawsuit filed against
Licensor on the basis of which is alleged to be the breach of any obligation or
contract by Licensee or the occurrence of any tort or negligence in connection
with the operation of the Licensed Motel. Licensee agrees to retain counsel of
Licensor's choice to represent Licensor in any such suit and to file any
pleadings required or permitted in the defense of such suit. Should Licensee
fail or refuse to secure counsel to represent Licensor in such suit, Licensee
agrees that it shall be
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responsible for all legal fees and expenses incurred by Licensor in defending
such suit. In the event of the entry of any judgment against Licensor, Licensee
expressly agrees to pay such judgment on behalf of Licensor and to indemnify and
save harmless Licensor from such judgment.
Section 6.12. Signs. Licensee agrees to erect on or attach to the
premises of the Licensed Motel such signs as are prescribed by Licensor.
Licensor will recommend to Licensee possible source or sources of signs.
Licensee shall be entitled to acquire the signs from any source. However, all
signs must comply with the standards and specifications required by Licensor
Licensee shall obtain Licensor's approval of the type, quality and design of all
signs (on site and off) prior to their erection. Licensee acknowledges that the
signs will have distinctive characteristics used to identify Signature Inns.
Immediately upon termination of this Agreement, Licensee shall cease using all
such signs and shall remove all such signs, at Licensee's cost.
Section 6.13. Refurbishing. Licensee agrees to effect such refurbishing
of the Licensed Motel (in addition to regular maintenance and repair) as
Licensor reasonably may require to maintain or improve the appearance and
efficient operation of the Licensed Motel and/or increase its sales potential.
Refurbishing may include: (a) replacement of worn out or obsolete equipment,
fixtures, furniture and signs; (b) substitution or addition of new or improved
equipment, fixtures, furniture and signs; (c)
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redecorating; and (a) repair of the interior and exterior of the premises and
repair and resurfacing of parking facilities.
ARTICLE VII
RELATIONSHIP OF PARTIES
Section 7.1. Limitations on Licensor's control of Licensee. Except as
specifically provided in this Agreement, Licensee shall he responsible to
Licensor only for the requirements and results contemplated by the Agreement.
Licensee shall not be subject to Licensor's control with respect to the physical
actions or activities of Licensee or of its employees or agents in connection
with the operation of the Licensed Motel or Licensee's fulfilling the
requirements and accomplishing the results contemplated by this Agreement,
Section 7.2. Scope of Authority. Licensee is, and at all times during
the term of this Agreement, shall represent and conduct itself as an independent
contractor. Licensee shall not have the authority, express or implied, to bind
or obligate Licensor in any way.
Section 7.3. Placard. Licensee shall maintain on the premises at the
front desk in open view to the public a placard which shall designate Licensee
as the owner and operator of the premises under a license from Licensor.
Section 7.4. No Authority to Grant: Sub-Licenses. Licensee agrees that
it has no express or implied right to sub-license others to use the Signature
System.
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ARTICLE VIII
INDEMNITY
Licensee is RESPONSIBLE FOR ALL LOSS, DAMAGE AND CONTRACTUAL
LIABILITIES TO THIRD PERSONS RESULTING FROM OR IN CONNECTION WITH THE
CONSTRUCTION AND OPERATION OF THE LICENSED MOTEL AND FOR ALL CLAIMS OR DEMANDS
FOR DAMAGE TO PROPERTY OR FOR INJURY, ILLNESS OR DEATH OF PERSONS DIRECTLY OR
INDIRECTLY RESULTING THEREFROM. LICENSEE AGREES TO DEFEND, INDEMNIFY AND HOLD
LICENSOR HARMLESS OF, FROM AND WITH RESPECT TO ANY AND ALL CLAIMS, DEMANDS,
ACTIONS AND LIABILITIES, INCLUDING ATTORNEYS' FEES AND EXPENSES, ARISING FROM,
CONNECTED WITH OR RELATED TO THE CONSTRUCTION OR OPERATION OF THE LICENSED
MOTEL.
ARTICLE IX
INSURANCE
During the term of this Agreement, Licensee agrees to procure,
maintain and keep in force at its expense insurance for the mutual benefit of
Licensor and Licensee including, but not limited to, general public liability
insurance against claims for personal injury, death and/or property damage
occurring on or about the premises or adjacent thereto with policy limits of at
least $1,000,000 combined single limit bodily injury and personal property
damage with extended coverage endorsement; general liability coverage,
including, but not limited to protection for premises operations, personal
injury, products liability, innkeepers legal liability; comprehensive automobile
coverage with limits of $250,000/$500,000 bodily injury and $100,000 property
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damage liability; statutory workman's compensation insurance with a minimum or
$100,000 employers' liability; fire and business interruption insurance
coverage, all in such minimum amounts as set forth herein, or as from time to
time changed by Licensor in its absolute discretion. Any and all insurance
obtained by the Licensee shall be in form and with insurers acceptable to
Licensor. Licensor shall be named as an additional insured under each of the
said policies, and Licensor shall annually be furnished with copies of the
policies or certificates thereof. All policies of insurance required to be
maintained by the Licensee hereunder shall be renewed (and policies or
certificates together with evidence of payment of premiums delivered to
Licensor) at least thirty (30) days prior to the respective expiration dates of
existing policies of insurance. All such policies shall contain endorsements
requiring the insurer to give Licensor at least ten (10) days' written notice
before cancellation or making any changes in the policy.
ARTICLE X
TRANSFER AND ASSIGNMENT
Section 10.1. General Assignments and Transfers. The license granted
hereunder is personal to Licensee, Accordingly, Licensee shall neither sell,
assign, transfer nor encumber this Agreement or any right or interest herein,
nor suffer or permit any such assignment, transfer or encumbrance to occur by
operation of law, unless the written consent of Licensor shall be first
obtained. If a corporation or partnership, Licensee hereby
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represents and warrants to Licensor that the statement of its legal composition
furnished to Licensor is true and complete as of the date hereof. Licensee shall
not cause any change to be made in its legal composition, or issue any share of
its stock, nor cause or permit any share of its stock to be sold, transferred,
pledged or assigned, after the date of this Agreement, without the prior written
consent of Licensor The assignment of any interest, other than as provided in
this Article, shall constitute a material breach of this Agreement.
Section 10.2. Change to Corporation. If Licensee desires to conduct
business in a corporate capacity, Licensor will consent to the assignment of
this Agreement to a corporation approved by Licensor provided Licensee complies
with the following provisions: At the time of assignment and at all times
thereafter during the term of this Agreement, (a) Fifty-one percent (51%) of the
stock of such assigned corporation shall be held by Licensee, (b) Licensee shall
be the chief executive officer of such assignee, and (c) the assignee shall not
engage in any business activity other than those directly related to the
operation of a "Signature Inn."
Section 10.3. Approved Transfers. In the event of any assignment or
transfer of this Agreement which has been approved by Licensor, Licensee, (and
if a corporation or partnership, then the individual shareholders, directors and
officers, or partners, and each of them) shall nevertheless continue and remain
obligated
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and subject to all the terms hereof.
Section 10.4. Transfer Fee. Licensor may require as a condition to any
assignment or transfer under Section 10.1 hereof that the prospective successor
pay to Licensor a fee of $1,000 for Licensor's time and expenses in determining
and reviewing the qualifications of the prospective successor.
Section 10.5. Transfer and Assignments By Licensor. Licensor may
assign or transfer its interests (but not its duties, responsibilities or
obligations) under this Agreement to any person. In the event of any such
transfer or assignment, Licensor shall notify Licensee of the transfer or
assignment.
ARTICLE XI
TERMINATION AND DEFAULT
Section 11.1. Automatic Termination. This Agreement shall automatically
terminate upon the happening of any of the following events, but in no event
shall such termination relieve Licensee of any of its obligations hereunder:
(a) The filing by or against Licensee of any proceeding under the
Bankruptcy Act or any Chapters thereof if the proceeding shall not be dismissed
within thirty (30) days after filing .
(b) The discontinuance of operations of the Licensed Motel (other than
as a result of fire or other casualty) for a period longer than thirty (30)
days, or abandonment of the franchised business premises.
(c) A general assignment for the benefit of creditors
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by Licensee.
(d) The appointment of a receiver for Licensee by any court of
competent jurisdiction.
(a) Any execution, attachment or other creditors' process issuing
against Licensee or any of Licensee's assets.
Section 11.2. Licensor's Option to Terminate Upon Default. The
occurrence of any of the following events shall constitute good cause for
Licensor, at its option and without prejudice to any other rights or remedies
provided for hereunder or by law or equity, to terminate this Agreement:
(a) A default by Licensee in the payment of any monies due hereunder or
in the submission of financial statements or data or reports on Gross Receipts
as provided herein, which is not cured within ten (10) days after notification
thereof.
(b) Any material false statement or omission in connection with any
financial statement or information furnished by Licensee.
(c) Failure on the part of Licensee to maintain the standards as set
forth in this Agreement, and as may be supplemented by the Manual as to
cleanliness, health and sanitation, and uniformity, which is not cured within
ten (10) days after notification thereof; or repeated serious violations of such
provisions by Licensee.
(d) The violation by Licensee of any law, ordinance, rule or regulation
of a governmental agency in connection with the
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operation of the Licensed Motel, which is not cured within ten (10) days after
notification thereof, unless there is a bona fide dispute as to the violation or
legality of such law, ordinance, rule or regulation, and Licensee promptly
resorts to courts or forums of appropriate jurisdiction to contest such
violation of legality.
(e) A default by Licensee under any lease or sublease or contract to
purchase real estate resulting in the loss of its right to possession of the
Licensed Motel premises.
(f) A violation of any covenant or provision contained in Article XII
hereof.
(g) The violation of any of the other terms or conditions of this
Agreement by Licensee, which is not cured within thirty (30) days after written
notice from Licensor.
Section 11.3. Effects of Termination,
(a) Termination of Right to Use System and Marks. Upon termination of
this Agreement, Licensee's right to use the mark "Signature inn" or any other
mark, name, insignia or slogan used by Licensor in connection with its business
shell terminate forthwith. Licensee shall not thereafter, directly or
indirectly, identify itself in any manner as a "Signature Inn" licensee, or
publicly identify itself as a former "Signature Inn" licensee or use any of
Licensor's trade secrets, signs, symbols, devices, or other materials
constituting part of Licensor's system or process. Licensee agrees that, upon
termination of this Agreement
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by lapse of time or default, or for any reason, it will immediately make such
removals or changes in signs and colors of buildings and structure. as Licensor
shall reasonably request so as to distinguish effectively said premises from
their former appearance and from any other "Signature Inn" motel. If Licensee
shall fail to make such changes forthwith, then Licensor may enter upon
Licensee's premises and make such changes at Licensee's expense.
(b) Phone Numbers. Licensee acknowledges that the phone number(s) used
by it will become inextricably bound up with the Signature System through
advertising of the numbers in conjunction with the marks associated with the
system. Licensee agrees that Licensor shall have the exclusive proprietary
interest in such phone number(s) and that Licensee will take all action
necessary to having the phone company records reflect Licensor's interest.
Licensee agrees that it may not, without Licensor's consent, change such
number(s) during the term of this Agreement. In addition, Licensee agrees that,
upon termination of this Agreement, it will take all action necessary to change
such numbers and assign the number to Licensor.
(c) Payment of Amounts Due Upon Termination. Upon termination of this
Agreement, Licensee shall immediately pay to Licensor all amounts owing under
Articles IV and V hereof computed through the date of termination,
(d) Liquidated Damages. Both parties agree that
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termination of the Agreement prior to the end of the then current term will
result in substantial damages to Licensor, which damages would be very
difficult, to calculate in terms of a dollar amount. In order to avoid the
problem of calculation of damages, the parties agree that, in lieu of actual
damages, Licensee shall pay to Licensor liquidated damages equal to the greater
of (a) the product of the multiplication of the total of all fees earned by
Licensor under Article IV hereof during the twelve (12) months immediately
preceding termination times two and one-half (2 1/2) or (b) Thirty-five Thousand
Dollars ($35,000).
(e) Option to Purchase Goods. Licensee grants to Licensor the option to
purchase all paper goods, containers, signs, and any and all goods bearing
Licensor's marks thereon at the lower of cost or fair market value at the time
of termination.
Section 11.5. Attorneys Fees. Upon the occurrence of an event of
default by Licensee, Licensor shall be entitled to recover from Licensee
reasonable attorneys' fees incurred by Licensor as a result of such default.
Section 11.6. Remedies Cumulative. The remedies provided under this
Article are not exclusive and shall be in addition to any other remedy which
Licensor may have at law or in equity.
ARTICLE XII
TRADE SECRETS
Licensee recognizes that during the term of this Agreement it will have
access to the Licensor's trade secrets and confidential information. Licensee
acknowledges that the knowledge associated
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with the Signature System constitutes confidential information and trade secrets
of Licensor and that the same have been revealed to it in confidence. Licensee
further acknowledges that it acquires no right to use or duplicate such
operations and the confidential information associated therewith and contained
in the Manual other than at the location of the Licensee's business and only
during the term of this Agreement. To safeguard such trade secrets and
confidential information, Licensee agrees:
(a) All information designated by Licensor as confidential information
shall be marked as such at the time of delivery, if delivered in writing, or if
delivered orally, shall be reduced to writing and so marked as soon as
convenient thereafter. Licensee shall acknowledge receipt of such information,
confirming that the same is received in confidence and will be treated as
prescribed herein, and a copy of such acknowledgment shall be attached to each
copy of such information furnished to or made by Licensee.
(b) Licensee shall not disclose such trade secrets or confidential
information to his employees without taking all steps necessary to safeguard the
confidentiality of such information.
(c) Such information shall not be disclosed to any third parties,
including without limitation affiliates, subcontractors, customers, licensees,
consultants, or prospective purchasers of any part of Licensee's business,
without the prior written consent of Licensor.
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(d) All trade secrets, confidential information and knowledge of
information not made available to the public respecting Licensor's products,
methods, designs, systems, improvements, trade secrets, or other confidential
information shall be regarded by Licensee as strictly confidential and shall not
be directly or indirectly used or disclosed or divulged by Licensee or its
shareholders, directors, officers or partners at any time during the term of
this Agreement, or thereafter without Licensor express written permission.
(e) In the event of any disclosure or the use of confidential
information, inadvertent or otherwise, in violation of this Agreement or any
employee commitment executed pursuant hereto, Licensor may, notwithstanding any
other provision of this Agreement) terminate this Agreement or, at its option
without terminating this Agreement, apply to a court of competent jurisdiction
for an order restraining any further disclosure of such information and for such
other relief as it may deem appropriate, and Licensee shall, at Licensor's
request, initiate and diligently prosecute at its own expense legal proceedings
to restrain such disclosure or to obtain such other relief. Licensee agrees that
the disclosure or use of any confidential information or trade secrets would
irreparably harm Licensor and that Licensor shall have the right to injunctive
relief to enforce these restrictions.
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ARTICLE XIII
RIGHT OF FIRST REFUSAL
If Licensee, at any time during the term hereof, shall receive a bona
fide offer acceptable to Licensee to purchase, lease or sublease the Licensed
Motel, Licensee shall promptly inform Licensor in writing, setting forth the
full terms of such offer, and Licensor may, within thirty (30) days after
receipt of such written notice, at its option, elect, by giving written notice
to Licensee, to purchase, lease or sublease the Licensed Motel on the same terms
and conditions contained in said offer, until the end of the thirty (30) day
option period, Licensee shall not accept any third party bona fide offer. If, at
the expiration of the thirty (30) day period, Licensor has failed to elect to
exercise the option, Licensee may transfer, sell, lease or sublease the Licensed
Motel on the same terms as those submitted to Licensor in writing, subject to
Licensor's approval of the prospective purchaser or lessee, as hereinafter
provided. Licensor shall have sixty (60) days from and after the expiration of
the thirty (30) day period to approve or disapprove of the prospective successor
in writing. In the event the prospective successor is not acceptable, Licensor
shall notify the Licensee of this fact in writing, and shall provide to Licensee
the reasons for its decision. In such event, Licensee shall not be permitted to
transfer its interest in this Agreement and in the license granted hereby to
such party.
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ARTICLE XIV
MISCELLANEOUS
Section 14.1. Non-Waiver. No waiver of any condition or covenant
contained in this Agreement or failure to exercise a right or remedy by either
of the parties hereto shall be considered to imply or constitute a further
waiver by such party of the same or any other condition, covenant, right or
remedy.
Section 14.2. Governing Law. The validity and construction of this
Agreement shall be governed by the laws of the State of Indiana.
Section 14.3. Construction. Throughout this Agreement, the use of the
singular number shall be construed to include the plural, the plural the
singular, and the use of any gender shall include all genders, whenever required
by the context.
Section 14.4. Obligation to Execute Documents. Each party to this
Agreement shall from time to timer upon request by the other party, execute,
acknowledge and deliver to such other party a written statement certifying that
this Agreement has not been modified and is in full force and effect (or if
there have been modifications. that the same are in full force and effect and
stating such modifications). Each party to this Agreement shall also, from time
to time, upon request by the other party, execute any additional documents which
may reasonably be required to effectuate the purposes of this Agreement.
Section 14.5. Successors and Assigns. The provisions of this Agreement
shall inure to the benefit of and be binding upon
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the parties and their respective representatives, successors and assigns.
Section 14.6. Severability of Provisions. If any provision of this
Agreement is held invalid by any tribunal in a final decision from which no
appeal is or can be taken, such provision shall be deemed modified to eliminate
the invalid element, and, as so modified, such provision shall be deemed a part
of this Agreement as though originally included herein. The remaining provisions
of this Agreement shall not be affected by such modification.
Section 14.7. Extent of Agreement. This Agreement represents the entire
agreement between Licensor and Licensee, and supersedes all prior negotiations,
representations or agreements (including addenda thereto), either written or
oral. This Agreement may be amended only by a written instrument signed by
Licensor and Licensee.
Section 14.8. Warranties of Representatives. Each person executing this
Agreement on behalf of a party hereto represents and warrants that he has been
fully empowered to execute this Agreement, and that all necessary action for the
execution of this Agreement has been taken.
Section 14.9. Inconsistencies With Applicable State Law. If any of the
provisions of this Agreement are inconsistent with applicable state law, then
the state law shall apply.
Section 14.10. Notices. All notices under this Agreement
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shall be in writing and may be given by personal delivery or by mailing by
certified or registered mail addressed as follows: If to Licensee, at 8335
Allison Pointe Trail, Suite 300, Indianapolis, IN 46250; if to Licensor, at same
as above, Indianapolis, Indiana; or at such other address as either party may
designate in a notice to the other party given in such manner. Any notice given
by mail shall be considered given when deposited in the United States mail,
postage prepaid, addressed as provided above.
35
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the dates indicated below their respective signatures.
SIGNATURE INNS, INC. LICENSOR
By /s/ John D. Bontreger
-----------------------------
John D. Bontreger, President
ATTEST:
/s/ David R. Miller
- ----------------------------------
David R. Miller, Secretary
Date of Execution by
SIGNATURE INNS, INC.
1-2-91
--------------------------------
(Licensor 's Acknowledgement)
STATE OF INDIANA )
) SS:
COUNTY OF MARION )
On January 2, 1991, before me, the undersigned, a Notary Public in
and for said County and State, personally appeared John D. Bontreger and David
a. Miller, known to me to be the President and Secretary, respectively, of
Signature Inns, Inc., and acknowledged to me that they have executed the within
instrument for and on behalf of Signature Inns, Inc., being thereunto duly
authorized.
WITNESS my hand and official seal.
/s/ Kimberly A. Ammerman
--------------------------
Kimberly A. Ammerman
Notary
Kimberly A. Ammerman
--------------------------
Printed Signature
My Commission Expires:
February 8, 1994
- -----------------------------
My County of Residence:
Hamilton
- -----------------------------
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<PAGE> 47
SIGNATURE I LTD., Limited partnership
an Indiana limited partnership by
Signature Inns, Inc., general partner
By /s/ John D. Bontreger, President
___________________________________
John D. Bontreger, President
ATTEST:
/s/ David R. Miller
____________________________
Signature and Title
(Licensee's Acknowledgement: Individual)
STATE OF __________________ )
) ss:
COUNTY OF _________________ )
On ____________________ 19__, before me, a Notary Public in and for
said County and State, personally appeared _____________________________, known
to me to be the person(s) who subscribed to the within instrument and
acknowledged that they executed the same.
WITNESS my hand and official seal.
___________________________
Notary Public
___________________________
(Printed Signature)
My Commission Expires:
_____________________________
My County of Residence:
_____________________________
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<PAGE> 48
(Licensee's Acknowledgement: Corporation)
STATE OF Indiana )
) SS:
COUNTY OF Marion )
On January 2, 1991, before me, the undersigned, a Notary Public in and
for said County and State, personally appeared John D. Bontreger and David R.
Miller, known to me to be the president and Secretary, respectively, of the
corporation that executed the within instrument, and acknowledged to me that
they have executed the within instrument for and on behalf of such corporation
being thereunto duly authorized.
WITNESS my hand and official seal.
/s/ Kimberly A. Ammerman
------------------------------
Notary Public
Kimberly A. Ammerman
------------------------------
(Printed Signature)
My Commission Expires:
February 8, 1994
- ----------------------------
My County of Residence:
Hamilton
- ----------------------------
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<PAGE> 49
SCHEDULE "A"
MARKS, NAMES AND SLOGANS
The following service marks, trademarks, slogans, copyrights and names
are licensed under the Agreement, subject to change as provided in the
Agreement:
"A Home away from the Home - An Office away from the Office"
"We help you get down to business."
"Sincerely Yours."
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SCHEDULE "B"
EXCLUSIVE AREA
The "Exclusive Area" provided under Article II of the Agreement is
defined as follows:
A one-half mile radius from the center point of the
intersection of I-69 and State Road 3, Ft. Wayne, Indiana.
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AMENDMENT
Effective May 1, 1991
The Individual Motel Franchise Agreement dated January 1, 1991 by and between
Signature Inns, Inc. and Signature I Ltd, Article V, Advertising and Reservation
System, should be amended as follows:
ARTICLE V
ADVERTISING AND RESERVATION SYSTEM
Section 5.1 Advertising. Licensee shall pay to Licensor an amount equal
to two percent (2%) or Licensee's Gross Receipts, as defined in Section 4.2
hereof, for use by Licensor for the publication and distribution of directories
and other advertising materials, for radio, television, magazine, newspaper and
other forms of media advertising on a state, regional or national basis as
Licensor, in its sole discretion, deems appropriate. In addition, those amounts
may be used by licensor to pay salaries, benefits and expenses of individuals
employed to carry out and administer direct sales efforts on behalf of the
chain. Such payments shall be made on a monthly basis at the time and in the
manner set forth under Article IV for the payment of License Fees. Licensor
shall deposit all such payments in a separate bank account designated "Signature
Inn National Advertising Trust Account." Licensor hereby warrants that all sums
collected under this Article shall be used for advertising purposes as described
above or may be combined with reservation receipts and utilized for joint
purposes or projects as deemed appropriate. Licensor shall maintain accurate
books, records and accounts for all receipts and expenditures from the special
account, which books, records and accounts shall be available for inspection for
its own local advertising and promotion.
Section 5.2. Central Reservation System. Licensee shall pay to Licensor
an amount equal to one and one half percent (1.5%) of Licensee's Gross Receipts,
as defined in Section 4.2 hereof, for use by Licensor in its Central Reservation
System. Such payment shall be made on a monthly basis at the time in the manner
set forth under Article IV for the payment of License Fees. Licensor shall
deposit all such payments in a separate bank account designated "Signature Inn
National Reservation Trust Account." Licensor hereby warrants that all suing
collected under this Article shall be used for reservation purposes as described
above or combined with advertising receipts and utilized for joint purposes or
projects as deemed appropriate. Licensor shall maintain accurate books, records,
and accounts of all receipts and expenditures from this special account, which
books, records and accounts shall be available for inspection by Licensee at all
reasonable times.
SIGNATURE INNS, INC., LICENSOR
By: /s/ John D. Bontreger
----------------------------------
John D. Bontreger, President
<PAGE> 52
/s/ David K. Miller
- -----------------------------------
David K. Miller, Secretary
Date of Execution by
Signature Inns, Inc.
-------------------------------------
SIGNATURE I LTD, BY
SIGNATURE INNS, INC.
GENERAL PARTNER
By: /s/ John D. Bontreger
-------------------------------------
John D. Bontreger
Attest:
/s/ David R. Miller
- -----------------------------------------
David R. Miller, Secretary
SIGNATURE INNS, INC., GENERAL PARTNER
<PAGE> 1
EXHIBIT 4.2
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of the ____ day of __________, 1996 (the
"Agreement"), between Signature Inns, Inc., an Indiana corporation (the
"Company"), and _______________________________________ (the "Rights Agent").
RECITALS
WHEREAS, on _________________, 1996 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company (the "Board") authorized and
declared a distribution of one Right (as defined in Section 1 hereof) for each
share of the Company's common stock, without par value ("Common Stock"),
outstanding on the Record Date (as defined in Section 1 hereof), subject to the
execution of this Agreement and to certain other conditions, and the issuance of
one Right (as such number may hereinafter be adjusted pursuant hereto) with
respect to each share of Common Stock issued (whether originally issued or
delivered from the Company's treasury) between the Record Date and the earlier
of the Exercisability Date (as defined in Section 3(a) hereof) or the Expiration
Date (as defined in Section 7(a) hereof), each Right initially representing the
right to purchase, upon the terms and subject to the conditions hereinafter set
forth, one hundredth of one share of Series A Preferred Stock, without par value
(the "Preferred Stock"), having the relative rights, preferences and limitations
set forth in the Company's Amended and Restated Articles of Incorporation (the
"Articles of Incorporation");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions.
For purposes of this Agreement, the following terms have the meanings
indicated:
(a) "Acquiring Person" means (i) any Person which (or which, together
with all its Affiliates and Associates) shall be the Beneficial Owner of [20%]
or more of the shares of Common Stock then outstanding (other than as a result
of a Permitted Offer) or (ii) any Adverse Person. Notwithstanding the foregoing,
(x) the term "Acquiring Person" shall not include the Company, any Subsidiary of
the Company, any employee benefit plan maintained by the Company or any of its
Subsidiaries, or any trustee or fiduciary with respect to such plan acting in
such capacity or John Bontreger (either alone or together with his Affiliates
and Associates); and (y) no Person shall become an "Acquiring Person" as the
result of (A) the acquisition of Common Stock (or other securities convertible
into shares of Common Stock or other rights with respect to Common Stock)
directly from the Company, or (B) an acquisition of Common Stock by the Company
which, by reducing the number of shares outstanding, increases the proportionate
number of shares beneficially owned by such Person (alone or together with all
Affiliates and Associates) to [20%] or more of the shares of Common Stock then
outstanding; provided, however, that if a Person (together with its
<PAGE> 2
Affiliates and Associates) becomes the Beneficial Owner of [20%] or more of the
Common Stock then outstanding by reason of share purchases by the Company, and
such Person (or an Affiliate or Associate) subsequently becomes the Beneficial
Owner of any additional Common Stock, then such Person shall be deemed to be an
"Acquiring Person."
(b) "Adverse Person" means any person declared by the Board to be an
Adverse Person after (i) a determination by the Board that such Person, alone or
together with its Affiliates and Associates, has become the Beneficial Owner of
[10%] or more of the shares of Common Stock then outstanding; and (ii) a
determination by the Board, after reasonable inquiry and investigation
(including such consultation, if any, with such persons as such directors shall
deem appropriate), that:
(A) such Beneficial Ownership by such Person is intended to, is
reasonably likely to, or will, either cause the Company to repurchase the
Common Stock beneficially owned by such Person or cause pressure on the
Company to take action or enter into a transaction or series of
transactions that would provide such Person with short-term financial
gain under circumstances where the Board determines that the best
long-term interests of the Company and its shareholders, but for the
actions and possible actions of such Person, would not be served by
taking such action or entering into such transactions or series of
transaction at that time; or
(B) such Beneficial Ownership is causing or reasonably likely to
cause a material adverse impact (including, but not limited to,
impairment of relationships with customers or impairment of the Company's
ability to maintain its competitive position) on the business or
prospects of the Company;
provided, however, that the Board may not declare a Person to be an Adverse
Person if, prior to the time that such Person acquired [10%] or more of the
Common Stock, such Person provided to the Board a written statement of such
Person's acquisition of such Common Stock, together with any other information
reasonably requested of such Person by the Board, and the Board, based on such
statement and reasonable inquiry and investigation (including such consultation,
if any, with such persons as the directors shall deem appropriate), determines
to notify and notifies such Person in writing that it will not declare such
Person to be an Adverse Person; and provided, further, that the Board may
expressly condition in any manner a determination not to declare a Person an
Adverse Person on such conditions as the Board may select, including, without
limitation, that such Person shall not acquire more than a specified amount of
Company stock and/or that such Person shall not take actions inconsistent with
the purposes and intentions disclosed by such Person in the statement provided
by such Person to the Board. In the event that the Board should at any time
determine, upon reasonable inquiry and investigation (including consultation
with such persons as the directors shall deem appropriate), that such Person has
not met or complied with any condition specified by the Board, the Board may at
any time thereafter declare such Person to be an Adverse Person. No
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<PAGE> 3
delay or failure by the Board to declare a Person to be an Adverse Person shall
in any way waive or otherwise affect the power of the Board subsequently to
declare a Person to be an Adverse Person.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in
effect on the date of this Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) of which such Person or any of such Person's Affiliates or
Associates is considered to be a "beneficial owner" under Rule 13d-3 of
the General Rules and Regulations under the Exchange Act (the "Exchange
Act Regulations") as in effect on the date hereof; provided, however,
that a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subparagraph (i) as a result
of an agreement, arrangement or understanding to vote such security if
such agreement, arrangement or understanding (A) arises solely from a
revocable proxy given in response to a proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions of the
Exchange Act and the Exchange Act Regulations, and (B) is not reportable
by such Person on Schedule 13D under the Exchange Act (or any comparable
or successor report);
(ii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate of such other Person) with
which such Person (or any of such Person's Affiliates or Associates) has
any agreement, arrangement or understanding (whether or not in writing)
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in the proviso to subparagraph (i) of this
paragraph (d)) or disposing of such securities (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities); or
(iii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether
such right is exercisable immediately or only after the passage of time
or upon the satisfaction of conditions) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights, warrants or
options, or otherwise;
provided, however, that under this paragraph (d), a Person shall not be deemed
the "Beneficial Owner" of, or to "beneficially own," (x) securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange, (y) securities issuable upon exercise of
Rights at any time prior to the occurrence of a Triggering Event, or (z)
securities issuable upon exercise of Rights from and after the occurrence of a
Triggering Event, which Rights were acquired
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<PAGE> 4
by such Person or any of such Person's Affiliates or Associates prior to the
Exercisability Date or pursuant to Section 3(a) or Section 22 hereof (the
"Original Rights") or pursuant to Section 11(i) hereof in connection with an
adjustment made with respect to any Original Rights.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference to a
person's Beneficial Ownership of securities of the Company, shall mean the
number of securities then issued and outstanding together with the number of
such securities not then actually issued and outstanding which such Person would
be deemed to own beneficially hereunder.
(e) "Board" has the meaning set forth in the Recitals.
(f) "Business Day" means any day other than a Saturday, a Sunday, or a
day on which banking institutions in Indianapolis, Indiana or are authorized or
obligated by law or executive order to close.
(g) "Close of Business" on any given date means 5:00 P.M., Indianapolis,
Indiana local time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., Indianapolis, Indiana local time, on the
next succeeding Business Day.
(h) "common stock" of any Person other than the Company means such
Person's capital stock with the greatest voting power, or, if such Person shall
have no capital stock, the equity securities or other equity interest having
power to control or direct the management of such Person.
(i) "Common Stock" means the shares of common stock, without par value,
of the Company or, in the event of a stock split or reverse stock split with
respect to such shares of Common Stock, the shares of Common Stock of the
Company resulting from such stock split or reverse stock split.
(j) "Continuing Director" means any Person who is a member of the Board,
while such Person is a member of the Board, who is not an Acquiring Person, or
an Affiliate or Associate of an Acquiring Person, or a nominee or representative
of an Acquiring Person or of an Acquiring Person's Affiliate or Associate, and
who (i) was a member of the Board prior to the date of this Agreement, or (ii)
becomes a member of the Board after the date of this Agreement if such Person's
nomination for election to the Board is recommended or approved by a majority of
the Continuing Directors.
(k) "Exercisability Date" has the meaning set forth in Section 3(a)
hereof.
(l) "Exercise Price" has the meaning set forth in Section 7(b) hereof.
(m) "Expiration Date" has the meaning set forth in Section 7(a) hereof.
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<PAGE> 5
(n) "Final Expiration Date" has the meaning set forth in Section 7(a)
hereof.
(o) "Permitted Offer" means a tender or exchange offer which is for all
outstanding shares of Common Stock at a price and on terms determined, prior to
the purchase of shares under such tender or exchange offer and by at least a
majority of the members of the Board of Directors who qualify as Continuing
Directors, to be adequate (taking into account all factors that such Directors
deem relevant including, without limitation, prices that reasonably could be
achieved if the Company or its assets were sold on an orderly basis designed to
realize maximum value) and otherwise in the best interests of the Company and
its shareholders, other than the Person or any Affiliate or Associate thereof on
whose basis the offer is being made (taking into account all factors that such
Directors may deem relevant).
(p) "Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange
Act.
(q) "Record Date" means that date, if any, that the Company's
Registration Statement on Form S-__ (File No. 333- ) is declared
to be effective by the Securities and Exchange Commission (the "SEC").
(r) "Redemption Date" has the meaning set forth in Section 7(a) hereof.
(s) "Right" means one of the stock purchase rights created hereunder.
(t) "Rights Certificate" has the meaning set forth in Section 3(a)
hereof.
(u) "Rights Dividend Declaration Date" has the meaning set forth in the
Recitals.
(v) "Section 11(a)(ii) Event" means any event described in Section
11(a)(ii) hereof.
(w) "Section 13 Event" means any event described in clause (x), (y) or
(z) of Section 13(a) hereof.
(x) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such.
(y) "Subsidiary" means, with reference to any Person, any corporation of
which an amount of voting securities sufficient to elect at least a majority of
the directors of such corporation is beneficially owned, directly or indirectly,
by such Person, or otherwise controlled by such Person.
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<PAGE> 6
(z) "Triggering Event" means any Section 11(a)(ii) Event or any Section
13 Event.
Section 2. Appointment of Rights Agent.
The Company hereby appoints the Rights Agent to act as agent for the
Company in accordance with the terms and conditions hereof, and the Rights Agent
hereby accepts such appointment. The Company may from time to time appoint such
Co-Rights Agents as it may deem necessary or desirable.
Section 3. Issuance of Rights Certificates.
(a) Until the earlier of:
(i) the Close of Business on the tenth day after the Stock
Acquisition Date (or, if the tenth day after the Stock Acquisition Date
occurs before the Record Date, the Close of Business on the Record Date),
and
(ii) the Close of Business on such date as a majority of the Board
shall determine, which date shall follow the commencement of a tender
offer (as determined by reference to Rule 14d-2(a) under the Exchange
Act) or exchange offer by any Person, if upon consummation thereof such
Person would become an Acquiring Person (the earlier of (i) and (ii)
above being the "Exercisability Date"),
the Rights:
(x) will be evidenced (subject to the provisions of paragraph (b)
of this Section 3) by the certificates for shares of Common Stock
registered in the names of the holders thereof as of and subsequent to
the Record Date (which certificates for shares of Common Stock shall be
deemed also to be certificates for Rights) and not by separate
certificates, and
(y) will be transferable only in connection with the transfer of
the underlying shares of Common Stock (including a transfer to the
Company).
As soon as practicable after the Exercisability Date, the Rights Agent will send
by first-class, postage prepaid mail, to each record holder of shares of Common
Stock as of the Close of Business on the Exercisability Date, at the address of
such holder shown on the records of the Company, a certificate for Rights,
substantially in the form of Exhibit A attached hereto (the "Rights
Certificate"), evidencing one Right for each share of Common Stock so held,
subject to adjustment as provided herein. In the event that an adjustment in the
number of Rights per share of Common Stock has been made pursuant to Section 11
hereof, then at the time of distribution of the Rights Certificates, the Company
shall make the necessary and appropriate rounding adjustments (in accordance
with Section 14(a) hereof) so that Rights Certificates representing only whole
numbers of Rights are
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<PAGE> 7
distributed and cash is paid in lieu of any fractional Rights. As of and after
the Exercisability Date, the Rights will be evidenced solely by such Rights
Certificates.
(b) On the Record Date or as soon as practicable thereafter, the Company
will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form attached hereto as Exhibit B (the "Summary of Rights"),
by first-class, postage prepaid mail, to each record holder of Common Stock as
of the Close of Business on the Record Date at the address of such holder shown
on the records of the Company. With respect to certificates for Common Stock
outstanding as of the Record Date, until the earlier of the Exercisability Date,
the Expiration Date and the Final Expiration Date (as such terms are defined in
this Section 3 and in Section 7 hereof), the Rights will be evidenced by such
certificates for Common Stock registered in the names of the holders thereof
(together with a copy of the Summary of Rights). Until the earlier of the
Exercisability Date, the Expiration Date and the Final Expiration Date, the
surrender for transfer of any certificate for Common Stock outstanding on the
Record Date, with or without a copy of the Summary of Rights attached thereto,
shall also constitute the transfer of the Rights associated with the Common
Stock represented thereby.
(c) Rights shall, without any further action, be issued in respect of all
shares of Common Stock which are issued (including any shares of Common Stock
held in treasury) after the Record Date but prior to the earlier of the
Exercisability Date and the Expiration Date. Certificates representing such
shares of Common Stock issued after the Record Date shall bear the following
legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in the Rights Agreement between Signature
Inns, Inc. (the "Company") and _____________________________ (the "Rights
Agent") dated as of______________ 1996 (the "Rights Agreement"), the
terms of which are hereby incorporated herein by reference and a copy of
which is on file at the principal office of the stock transfer
administration office of the Rights Agent. Under certain circumstances,
as set forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this certificate a
copy of the Rights Agreement, as in effect on the date of mailing,
without charge promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement, Rights
issued to, or held by, any Person who is, was or becomes an Acquiring
Person or any Affiliate or Associate thereof (as such terms are defined
in the Rights Agreement), whether currently held by or on behalf of such
Person or by any subsequent holder, may become null and void.
With respect to certificates representing shares of Common Stock (whether or not
such certificates include the foregoing legend), until the earlier of the
Exercisability Date and the Expiration Date, (i) the Rights associated with the
shares of Common Stock represented by such certificates shall be evidenced by
such certificates alone, (ii) registered holders of the shares of Common Stock
shall also
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<PAGE> 8
be the registered holders of the associated Rights, and (iii) the transfer of
any of such certificates shall also constitute the transfer of the Rights
associated with the shares of Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to purchase
Preferred Stock and of assignment to be printed on the reverse thereof) shall
each be substantially in the form of Exhibit A attached hereto and may have such
marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or any rule or regulation thereunder or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date and on their face shall entitle the holders thereof
to purchase such number of one hundredths of a share of Preferred Stock as shall
be set forth therein at the price per share set forth therein (the "Exercise
Price"), but the amount and type of securities, cash or other assets that may be
acquired upon the exercise of each Right and the Exercise Price thereof shall be
subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant hereto that represents Rights
that are beneficially owned by:
(i) an Acquiring Person or any Affiliate or Associate of an
Acquiring Person,
(ii) a transferee of an Acquiring Person (or of any such Affiliate
or Associate) which becomes a transferee after the Acquiring Person
becomes such, or
(iii) a transferee of an Acquiring Person (or of any such Affiliate
or Associate) which becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and which receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from
the Acquiring Person (or any such Affiliate or Associate) to holders of
equity interests therein, or to any Person with whom such Acquiring
Person (or Affiliate or Associate) has any continuing agreement,
arrangement or understanding regarding the transferred Rights, shares of
Common Stock, or the Company, or (B) a transfer which a majority of the
Board has determined to be part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of Section 7(e)
hereof, and any Rights Certificate issued pursuant to Section 6 or
Section 11 hereof upon transfer, exchange, replacement or adjustment of
any other Rights Certificate referred to in this sentence,
shall, upon the written direction of a majority of the Board, contain (to the
extent feasible) the following legend:
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<PAGE> 9
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or
an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights Certificate
and the Rights represented hereby may become null and void in the
circumstances specified in Section 7(e) of such Agreement.
The provisions of Section 7(e) of this Rights Agreement shall be operative
whether or not the foregoing legend is contained on any Rights Certificate.
Section 5. Countersignature and Registration.
(a) Rights Certificates shall be executed on behalf of the Company by its
Chairman of the Board, Chief Executive Officer, President, any Vice President,
or Treasurer and shall be attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Rights Certificates
may be manual or facsimile. The Rights Certificates shall be countersigned by
the Rights Agent, by manual signature (or by facsimile signature if permitted by
law) of an authorized officer, and no Rights Certificate shall be entitled to
any benefit under this Agreement or be valid for any purpose unless so
countersigned. A Rights Certificate bearing the manual or facsimile signatures
of individuals who were the proper officers of the Company at the actual date of
execution of such Rights Certificate shall bind the Company, notwithstanding
that such individuals or any of them ceased to hold such offices prior to the
countersignature of such Rights Certificate or did not hold such offices at the
date of execution of this Rights Agreement. Such countersignature upon any
Rights Certificate shall be conclusive evidence, and the only evidence, that
such Rights Certificate has been duly countersigned as required hereunder.
(b) Following the Exercisability Date, the Rights Agent will keep or
cause to be kept, at its office designated as the appropriate place for
surrender of Rights Certificates upon exercise or transfer, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the name and address of each holder of a Rights Certificate,
the number of Rights evidenced on its face by each Rights Certificate, and the
certificate number and date of each Rights Certificate.
Section 6. Transfer. Split Up. Combination and Exchange of Rights
Certificates: Mutilated. Destroyed. Lost or Stolen Rights
Certificates.
(a) Subject to the provisions of Sections 4(b), 7(e) and 14 hereof, at
any time after the Close of Business on the Exercisability Date, and at or prior
to the Close of Business on the Expiration Date, any Rights Certificate or
Certificates may be transferred, split up, combined, or exchanged for another
Rights Certificate or Certificates entitling the registered holder to purchase a
like number of one hundredths of a share of Preferred Stock (or, following a
Triggering Event,
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<PAGE> 10
other securities, cash or other assets, as the case may be) as the Rights
Certificate or Certificates surrendered then entitle such holder to purchase.
Any registered holder desiring to transfer, split up, combine or exchange any
Rights Certificate or Certificates shall make such request in writing delivered
to the Rights Agent and shall execute and surrender the Rights Certificate or
Certificates to be transferred, split up, combined or exchanged at the office of
the Rights Agent designated for such purpose. Neither the Rights Agent nor the
Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment set forth on the reverse side of such Rights Certificate and shall
have provided such additional evidence of the identity of the Beneficial Owner
or former Beneficial Owner (or Affiliates or Associates thereof) of the Rights
represented by such Rights Certificate as the Company shall reasonably request;
whereupon the Rights Agent shall, subject to the provisions of Sections 4(b),
7(e) and 14 hereof, countersign and deliver to the Person entitled thereto a
Rights Certificate or Rights Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Rights Certificates.
(b) If a Rights Certificate shall be mutilated, lost, stolen or
destroyed, upon request by the registered holder of the Rights represented
thereby, there shall be issued, in exchange for and upon cancellation of the
mutilated Rights Certificate, or in substitution for the lost, stolen or
destroyed Rights Certificate, a new Rights Certificate, in substantially the
form of the prior Rights Certificate, of like tenor and representing the
equivalent number of Rights; provided, however, that a new Rights Certificate
shall be issued only upon reimbursement to the Company or the Rights Agent (as
the case may be) of all reasonable expenses incidental thereto, if such
reimbursement is requested by the Company or the Rights Agent; and provided
further, that, in the case of loss, theft or destruction of a Rights
Certificate, a new Rights Certificate shall be issued only upon receipt of
evidence satisfactory to the Company and the Rights Agent of such loss, theft or
destruction and, if requested by the Company or the Rights Agent, indemnity or
security reasonably satisfactory to the Company or the Rights Agent (as the case
may be).
Section 7. Exercise of Rights: Exercise Price: Expiration Date of Rights.
(a) At any time after the Exercisability Date and prior to the earlier of
(i) the Close of Business on the tenth anniversary of the Record Date (the
"Final Expiration Date"), or (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof (the "Redemption Date") (the earlier of (i) and
(ii) being the "Expiration Date"), the registered holder of any Rights
Certificate may, subject to the provisions of Section 7(e) hereof, exercise the
Rights evidenced thereby in whole or in part upon surrender of the Rights
Certificate, with the form of election to purchase and the certificate on the
reverse side thereof duly executed, to the Rights Agent at the office of the
Rights Agent designated for such purpose, together with payment of the aggregate
Exercise Price (as hereinafter defined) for the total number of one hundredths
of a share of Preferred Stock (or,
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<PAGE> 11
following a Triggering Event, other securities, cash or other assets, as the
case may be) for which such surrendered Rights are then exercisable.
(b) The purchase price for each one hundredth of a share of Preferred
Stock upon exercise of the Rights initially shall be [$ , subject to adjustment
from time to time as provided in the next sentence and in Sections 11 and 13(a)
hereof (such purchase price, as so adjusted, being the "Exercise Price"), and
shall be payable in accordance with paragraph (c) below. Anything in this
Agreement to the contrary notwithstanding, in the event that, at any time after
the effective date of this Agreement and prior to the Exercisability Date, the
Company shall (i) declare a dividend on the Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock; then, in
any such case, each share of Common Stock outstanding following such dividend,
subdivision, combination or reclassification shall continue to have a Right
associated therewith, and the Exercise Price following any such event shall be
proportionately adjusted to equal the result obtained by multiplying the
Exercise Price immediately prior to such event by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event. The adjustment provided for in the
preceding sentence shall be made successively whenever such a dividend is
declared or such a subdivision, combination or reclassification is effected.
(c) Upon receipt of a Rights Certificate representing exercisable Rights,
with the form of election to purchase and the certificate duly executed,
accompanied by payment in the manner described below, with respect to each Right
so exercised, of the Exercise Price for the one hundredth of a share of
Preferred Stock (or, following a Triggering Event, other securities, cash or
other assets, as the case may be) to be purchased thereby, and of an amount
equal to any applicable transfer tax required to be paid by the holder in
accordance with Section 6 hereof or evidence satisfactory to the Company of
payment of such tax), the Rights Agent shall, subject to Section 20(j) hereof,
thereupon promptly:
(i) requisition from the transfer agent for the Preferred Stock
certificates for such total number of one hundredths of a share of
Preferred Stock as are to be purchased, and the Company will direct the
transfer agent to comply with such request;
(ii) requisition from the Company the amount of cash, if any, to be
paid in lieu of fractional shares in accordance with Section 14 hereof;
(iii) after receipt of such Preferred Stock certificates, cause the
same to be delivered to or upon the order of the registered holder of
such Rights Certificate, registered in such name or names as may be
designated by such holder; and
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(iv) after receipt of such cash, if any, deliver the same to or
upon the order of the registered holder of such Rights Certificate.
In the event that the Company is obligated to issue other securities of the
Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate. The payment of the Exercise Price (as
such amount may be reduced pursuant to Section 11(a)(iii) hereof) may be made in
cash or by certified or bank check or bank draft payable to the order of the
Company. The Company reserves the right to require prior to the occurrence of a
Triggering Event that, upon any exercise of Rights, a number of Rights be
exercised so that only whole shares of Preferred Stock would be issued.
(d) In the event of an exercise of the Rights by a holder pursuant to
Section 11(a)(ii) hereof, the Rights Agent shall return such Rights Certificate
to the registered holder thereof after imprinting, stamping, or otherwise
indicating thereon that the rights represented by such Rights Certificate no
longer include the rights provided by Section 11(a)(ii) of the Rights
Agreement. In addition, in the event that the registered holder of any Rights
Certificate shall exercise less than all the Rights evidenced thereby, a new
Rights Certificate evidencing the Rights remaining unexercised (and, if some of
the Rights exercised were exercised pursuant to Section 11 (a)(ii), indicating
by imprint, stamp or otherwise the number of Rights remaining which continue to
include rights provided by Section 11 (a)(ii)) shall be issued by the Rights
Agent and delivered to, or upon the order of, the registered holder of such
Rights Certificate, registered in such name or names as may be designated by
such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from and
after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by any of the Persons described below shall be null and void
without any further action, and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise:
(i) an Acquiring Person or an Affiliate or Associate of an
Acquiring Person;
(ii) a transferee of an Acquiring Person (or of any such Affiliate
or Associate) which becomes a transferee after the Acquiring Person
becomes such; or
(iii) a transferee of an Acquiring Person (or of any such Affiliate
or Associate) which becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and which receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from
the Acquiring Person (or any such Affiliate or Associate) to holders of
equity interests therein, or to any Person with whom such Acquiring
Person (or Affiliate or Associate) has any continuing agreement,
arrangement or understanding regarding the transferred Rights, shares of
Common Stock, or the Company, or (B) a transfer which a
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<PAGE> 13
majority of the Board has determined to be part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of
this Section 7(e).
The Company shall use all reasonable efforts to ensure that the provisions of
this Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Rights or any other Person as a result of its failure
to make any determination under this Section 7(e) or such Section 4(b) with
respect to an Acquiring Person or its Affiliates, Associates or transferees.
(f) Notwithstanding anything in this Agreement or any Rights Certificate
to the contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise by such registered holder unless such registered holder
shall have (i) completed and executed the certificate following the form of
election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner or former Beneficial Owner (or Affiliates or
Associates thereof) of the Rights represented by such Rights Certificate as the
Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates.
All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the Company
or any of its agents, be delivered to the Rights Agent for cancellation or in
canceled form, or, if surrendered to the Rights Agent, shall be canceled by it,
and no Rights Certificates shall be issued in lieu thereof except as expressly
permitted by this Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel and retire,
any Rights Certificates acquired by the Company otherwise than upon the exercise
thereof. The Rights Agent shall deliver all canceled Rights Certificates to the
Company, or, at the written request of the Company, shall destroy such canceled
Rights Certificates and, in such case, shall deliver a certificate of
destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company shall (i) at all times prior to the Expiration Date cause
to be reserved and kept available out of its authorized and unissued shares of
Preferred Stock, or any authorized and issued shares of Preferred Stock held in
its treasury, the number of shares of Preferred Stock that, as provided in this
Agreement, including, without limitation, Section 11 (a)(iii) hereof, will be
sufficient to permit the exercise in full of all outstanding Rights; and (ii) at
all times following the occurrence of a Section 11 (a)(ii) Event, shall so
reserve and keep available a sufficient number of any other securities that may
be required to permit the exercise in full of the Rights pursuant to this
Agreement.
(b) The Company shall use its best efforts:
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<PAGE> 14
(i) as soon as practicable following (A) the occurrence of a
Section 11(a)(ii) Event and a determination by the Company in accordance
with Section 11 (a)(iii) hereof of the consideration to be delivered by
the Company upon exercise of the Rights or (B) if so required by law, the
Exercisability Date, to file a registration statement (the "Registration
Statement") on an appropriate form under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities that may
be acquired upon exercise of the Rights;
(ii) to cause the Registration Statement to become effective as
soon as practicable after the date of such filing (such date being the
"Registration Date");
(iii) to cause the Registration Statement to remain effective (and
to include a prospectus complying with the requirements of the Securities
Act) until the earlier of (A) the date as of which the Rights are no
longer exercisable for the securities covered by the Registration
Statement, and (B) the Expiration Date; and
(iv) as soon as practicable following the Registration Date, to
take such action as may be required to ensure that any acquisition of
securities upon exercise of the Rights complies with any applicable state
securities or "blue sky" laws.
The Company may temporarily suspend the exercisability of the Rights, for a
period of time not to exceed ninety (90) days after the date set forth in
subclause (A) or (B), whichever applies, of clause (i) of the first sentence of
this Section 9(b) in order to prepare and file such Registration Statement and
permit it to become effective. Upon any such suspension of exercisability, the
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended and, upon termination of such suspension,
the Company shall issue a public announcement stating that the suspension is no
longer in effect. In addition, if the Company shall determine that a
Registration Statement is required following the Exercisability Date, the
Company may temporarily suspend the exercisability of the Rights until such time
as such Registration Statement has been declared effective. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be exercisable
in any jurisdiction if the requisite qualification in such jurisdiction shall
not have been obtained, the exercise thereof shall not be permitted under
applicable law, or a Registration Statement, as described above, shall not have
been declared effective.
(c) The Company shall take such action as may be necessary to ensure that
all one hundredths of a share of Preferred Stock (and, following the occurrence
of a Triggering Event, any other securities) that may be delivered upon exercise
of Rights shall be, at the time of delivery of the certificates for such
securities, duly and validly authorized and issued, and fully paid and
nonassessable.
(d) So long as the shares of Preferred Stock (and, after the occurrence
of a Triggering Event, any other securities) issuable upon the exercise of the
Rights may be listed on any national
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<PAGE> 15
securities exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
(e) The Company may pay or may require the Rights holder to pay any
documentary, stamp or transfer tax imposed in connection with the issuance or
delivery of the Rights Certificates or certificates for shares of Preferred
Stock (or, following the occurrence of a Triggering Event, any other securities
or other assets) upon the exercise of Rights. The Company shall not be required
to issue or deliver any certificates for shares of Preferred Stock (or any other
securities, cash or assets, as the case may be) to or in the name of the
registered holder upon the exercise of any Rights until any such tax shall have
been paid (any such tax being payable by the holder of such Rights Certificate
at the time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date.
Each Person in whose name any certificate for a number of one hundredths
of a share of Preferred Stock (or, following the occurrence of a Triggering
Event, other securities) is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of such fractional shares
of Preferred Stock or other securities represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Exercise Price
(and any applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Preferred Stock (or
other securities) transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such securities fractional or
otherwise on, and such certificate shall be dated as of the next succeeding
Business Day on which the Preferred Stock (or other securities) transfer books
of the Company are open. Prior to the exercise of the Rights evidenced thereby,
the holder of a Rights Certificate shall not be entitled to any rights of a
stockholder of the Company with respect to securities for which the Rights shall
be exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions, or to exercise any preemptive rights, and
shall not be entitled to receive any notice of any proceedings of the Company,
except as provided herein.
Section 11. Adjustment of Exercise Price. Number and Kind of Shares or
Number of Rights.
The Exercise Price, the number and kind of securities covered by each
Right, and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) In the event that the Company, at any time after the date of this
Agreement, shall (A) declare a dividend on the Preferred Stock payable in shares
of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine
the outstanding Preferred Stock into
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<PAGE> 16
a smaller number of shares, or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), except as otherwise provided in this Section 11 (a)
and Section 7(e) hereof, the Exercise Price in effect at the time of the record
date for such dividend or of the effective date of such subdivision, combination
or reclassification, and the number and kind of shares of Preferred Stock or
other capital stock, as the case may be, issuable on such date upon exercise of
the Rights, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of the
Exercise Price then in effect, the aggregate number and kind of shares of
Preferred Stock or other capital stock, as the case may be, which, if such Right
had been exercised immediately prior to such date, such holder would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that if the
record date for any such dividend, subdivision, combination or reclassification
shall occur prior to the Exercisability Date, the Company shall make an
appropriate adjustment to the Exercise Price in lieu of adjusting (as described
above) the number of shares of Preferred Stock (or other capital stock, as the
case may be) issuable upon exercise of the Rights. If an event occurs which
would require an adjustment under both this Section 11(a)(i) and Section 11
(a)(ii) hereof, the adjustment provided for in this Section 11 (a)(i) shall be
in addition to, and shall be made prior to, any adjustment required pursuant to
Section 11 (a)(ii) hereof.
(ii) In the event that any Person shall become an Acquiring Person, other
than pursuant to any transaction set forth in Section 13(a) hereof, then,
promptly following the occurrence of such event (a "Section 11 (a)(ii) Event"),
proper provision shall be made so that each holder of a Right (except as
provided below and in Section 7(e) hereof) shall thereafter have, and proper
provision shall be made so that each such holder shall have, the right to
receive, upon exercise thereof at a price equal to the then current Exercise
Price in accordance with the terms of this Agreement, in lieu of a number of one
hundredths of a share of Preferred Stock, such number of shares of Common Stock
as shall equal the result obtained by (x) multiplying the then current Exercise
Price by the number of one hundredths of a share of Preferred Stock for which a
Right was potentially exercisable immediately prior to the first occurrence of a
Section 11 (a)(ii) Event (such that if the Right was potentially exercisable for
one hundredth of one share of Preferred Stock immediately prior to such Section
11 (a)(ii) Event, the Exercise Price would be multiplied by one), and dividing
that product by (y) 50% of the current market price (as determined pursuant to
Section 11(d) hereof) per share of the Common Stock on the date of the first
occurrence of a Section 11 (a)(ii) Event (such number of shares, the "Adjustment
Shares").
(iii) In the event that the number of shares of Common Stock which are
authorized by the Company's Articles of Incorporation but are not outstanding
and are not reserved for issuance for purposes other than upon exercise of the
Rights are not sufficient
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<PAGE> 17
to permit the exercise in frill of the Rights in accordance with the foregoing
subparagraph (ii) of this Section 11(a), the Company shall:
(A) determine the excess of(1) the value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current Value") over (2) the
Exercise Price (such excess being the "Spread"); and
(B) with respect to each Right, make adequate provision to substitute for
the Adjustment Shares, upon payment of the applicable Exercise Price, (1) cash,
(2) a reduction in the Exercise Price, (3) other equity securities of the
Company, (such other equity securities being referred to as "capital stock
equivalents"), (4) debt securities of the Company, (5) other assets, or (6) any
combination of the foregoing, such substituted items having an aggregate value
equal to the Current Value, where such aggregate value has been determined by a
majority of the Board of Directors after receiving advice from a nationally
recognized investment banking firm;
provided, however, that if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within thirty (30)
days following the later of (x) the first occurrence of a Section 11 (a)(ii)
Event and (y) the date on which the Company's right of redemption pursuant
to Section 23(a) expires (the later of (x) and (y) being referred to herein
as the "Section 11 (a)(ii) Trigger Date"), then the Company shall be
obligated to deliver, upon the surrender for exercise of a Right and without
requiring payment of the Exercise Price, shares of Common Stock (to the
extent available) and then, if necessary, cash, which shares and/or cash
shall have an aggregate value equal to the Spread. To the extent that the
Company determines that some action need be taken pursuant to the first
sentence of this Section 11 (a)(iii), the Company shall provide, subject to
Section 7(e) hereof, that such action shall apply uniformly to all
outstanding Rights. For purposes of this Section 11 (a)(iii), the value of
the Common Stock shall be the current market price (as determined pursuant
to Section 11(d) hereof) per share of Common Stock on the Section 11(a)(ii)
Trigger Date and the value of any "common stock equivalent" shall be deemed
to have the same value as the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within forty-five (45) calendar
days after such record date) Preferred Stock (or shares having the same rights,
privileges and preferences as shares of Preferred Stock ("equivalent preferred
stock")) or securities convertible into Preferred Stock or equivalent preferred
stock at a price per share of Preferred Stock or per share of equivalent
preferred stock (or having a conversion price per share, if a security
convertible into Preferred Stock or equivalent preferred stock) less than the
current market price (as determined pursuant to Section 11(d) hereof) per share
of Preferred Stock on such record date, then the Exercise Price to be in effect
after such record date shall be determined by multiplying the Exercise Price in
effect immediately prior to such record date by a fraction, the
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<PAGE> 18
numerator of which shall be the sum of the number of shares of Preferred Stock
outstanding on such record date plus the number of shares of Preferred Stock
which the aggregate offering price of the total number of shares of Preferred
Stock and/or equivalent preferred stock so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such current market price, and the denominator of which shall be the
number of shares of Preferred Stock outstanding on such record date plus the
number of additional shares of Preferred Stock and/or equivalent preferred stock
to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). In case such
subscription price may be paid by delivery of consideration part or all of which
may be in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board, whose determination shall be described in
a statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Shares of Preferred Stock owned by or held for
the account of the Company or any Subsidiary shall not be deemed outstanding for
the purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed, and in the event that such rights or
warrants are not so issued, the Exercise Price shall be adjusted to be the
Exercise Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for a distribution to all
holders of shares of Preferred Stock (including any such distribution made in
connection with a share exchange or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a regular
quarterly cash dividend out of the earnings or retained earnings of the
Company), assets (other than a dividend payable in shares of Preferred Stock but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), then the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the then current
market price (as determined pursuant to Section 11(d) hereof) per share of
Preferred Stock on such record date less the fair market value (as determined in
good faith by the Board, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent and the
holders of the Rights) of the portion of the cash, assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to a share of Preferred Stock and the denominator of which shall be
such current market price (as determined pursuant to Section 11(d) hereof) per
share of Preferred Stock. Such adjustments shall be made successively whenever
such a record date is fixed, and in the event that such distribution is not so
made, the Exercise Price shall be adjusted to be the Exercise Price which would
have been in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current market
price" per share of Common Stock (or, after the occurrence of a Triggering
Event, any other securities) on any date shall be deemed to be the average of
the daily closing prices per share of such Common Stock or other securities for
the thirty (30) consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; provided, however, that if, prior to the
expiration of such requisite thirty Trading Day period, the issuer announces
either (A) a dividend or distribution on such
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<PAGE> 19
Common Stock (or other securities) payable in such Common Stock (or other
securities) or securities convertible into such Common Stock (or other
securities), other than the Rights, or (B) any subdivision, combination or
reclassification of such Common Stock (or other securities), then, following the
ex-dividend date for such dividend or the record date for such subdivision, as
the case may be, the "current market price" shall be properly adjusted to take
into account such event. The closing price for each day shall be, if the shares
of Common Stock (or other securities) are listed and admitted to trading on a
national securities exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such shares are listed or admitted to
trading or, if such shares of Common Stock (or other securities) are not listed
or admitted to trading on any national securities exchange, the last quoted
sales price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported on The Nasdaq Stock Market's
National Market (the "Nasdaq National Market") or such other system then in use,
or, if on any such date such shares are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the shares of Common Stock (or other securities)
selected by the Board. If on any such date no market maker is making a market in
such shares, the fair value of such shares on such date as determined in good
faith by the Board, shall be used. The term "Trading Day" shall mean a Business
Day or, if such shares are listed or admitted to trading on any national
securities exchange, a day on which the principal national securities exchange
on which such shares are listed or admitted to trading is open for the
transaction of business.
(ii) For the purpose of any computation of the current market price per
share of Preferred Stock, if the shares of Preferred Stock are not publicly held
or not so listed or traded, "current market price" per share of the Preferred
Stock shall be conclusively determined to be the current market price per share
of the Common Stock as determined pursuant to Section 11 (d)(i) (appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof), multiplied by one hundred. If neither the
Common Stock nor the Preferred Stock is publicly held or so listed or traded,
the "current market price" per share of Preferred Stock shall mean the fair
value per share as determined in good faith by the Board, whose determination
shall be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no adjustment in the
Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Exercise Price;
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest one ten-thousandth of a share of Common
Stock (or other securities) or one hundred-thousandth of a share of Preferred
Stock. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which mandates such adjustment or (ii)
the Expiration Date.
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(f) It as a result of an adjustment made pursuant to Sections 11 (a)(ii)
or 13(a) hereof the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock other than Preferred Stock,
thereafter the number of such other shares so receivable upon exercise of any
Right and the Exercise Price thereof shall be subject to adjustment from time to
time in the manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections 11(a), (b),
(c), (e), (g), (h), (i), (j), (k), and (m), and the provisions of Sections
7.9, 10.13 and 14 hereof with respect to the Preferred Stock shall apply on like
terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of shares of Preferred
Stock (or other securities or amount of cash or combination thereof) that may be
acquired from time to time hereunder upon exercise of the Rights, all subject to
further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i) hereof, upon each adjustment of the Exercise Price as a result of
the calculations made in Sections 11(b) and (c) hereof each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of one hundredths
of a share of Preferred Stock or other securities (calculated to the nearest
one-millionth of a share) obtained by
(i) multiplying (x) the number of one hundredths of a share of
Preferred Stock or other securities covered by a Right immediately prior
to this adjustment by (y) the Exercise Price in effect immediately prior
to such adjustment of the Exercise Price; and
(ii) dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment of the Exercise Price.
(i) The Company may elect on or after the date of any adjustment of the
Exercise Price to adjust the number of Rights, in lieu of any adjustment in the
number of one hundredths of a share of Preferred Stock (or other securities)
that may be acquired upon the exercise of a Right. Each of the Rights
outstanding after the adjustment in the number of Rights shall be exercisable
for the number of one hundredths of a share of Preferred Stock (or other
securities) for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest
ten-thousandth) obtained by dividing the Exercise Price in effect immediately
prior to adjustment of the Exercise Price by the Exercise Price in effect
immediately after adjustment of the Exercise Price. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Exercise
Price is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, shall be at least ten (10) days later
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<PAGE> 21
than the date of such public announcement, If Rights Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(j), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates to be so
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Exercise
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement,
(j) Irrespective of any adjustment or change in the Exercise Price or the
number of one hundredths of a share of Preferred Stock (or other securities)
issuable upon the exercise of the Rights, the Rights Certificates theretofore
and thereafter issued may continue to express the Exercise Price per one
hundredth of a share and the number of one hundredths of a share of Preferred
Stock (or other securities) which were expressed in the initial Rights
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Exercise Price below the then par value, if any, of the number of one hundredths
of a share of Preferred Stock (or other securities) issuable upon exercise of
the Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly and
legally issue such fully paid and nonassessable number of one hundredths of a
share of Preferred Stock (or other securities) at such adjusted Exercise Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Exercise Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such record date of that
number of one hundredths of a share of Preferred Stock and shares of other
capital stock or securities of the Company, if any, issuable upon such exercise
over and above the number of one hundredths of a share of Preferred Stock and
shares of other capital stock or securities of the Company, if any, issuable
upon such exercise on the basis of the Exercise Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares (fractional or otherwise) or securities upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Exercise Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their good faith judgment the Board shall determine to be
advisable in order that any (i) consolidation or subdivision of the Preferred
Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less
than the current market price,
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(iii) issuance wholly for cash of shares of Preferred Stock or securities which
by their terms are convertible into or exchangeable for shares of Preferred
Stock, (iv) stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11, hereafter made by the Company to holders of its
Preferred Stock, shall not be taxable to such holders or shall reduce the taxes
payable by such holders.
(n) The Company shall not, at any time after the Exercisability Date:
(i) consolidate with any other Person (other than a Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof);
(ii) merge with or into any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o)
hereof); or
(iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions,
assets, cash flow or earning power aggregating more than 50% of the
assets, cash flow or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Company
and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof);
if
(x) at the time of or immediately after such consolidation, merger
or sale, there are any rights, warrants or other instruments or
securities outstanding or agreements in effect which would substantially
diminish or otherwise eliminate the benefits intended to be afforded by
the Rights; or
(y) prior to, simultaneously with, or immediately after such share
exchange, merger or sale, the Person which constitutes, or would
constitute, the "Principal Party" for purposes of Section 13(a) hereof
shall have distributed or otherwise transferred to its stockholders (or
other persons holding an equity interest in such Person) Rights
previously owned by such Person or any of its Affiliates and Associates;
provided, however, that this Section 11(n) shall not affect the ability of any
Subsidiary of the Company to effect a share exchange with, merge with or into,
or sell or transfer assets or earning power to, the Company or any other
Subsidiary of the Company.
(o) After the Exercisability Date, the Company shall not, except as
permitted by Section 23 or Section 27 hereof, take (or permit any Subsidiary to
take) any action if at the time such action is taken it is reasonably
foreseeable that such action will materially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights.
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Section 12. Certificate of Adjusted Exercise Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 and Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Common Stock, a copy of such certificate, and (c) mail a brief summary thereof
to each holder of a Rights Certificate (or, if prior to the Exercisability Date,
to each holder of a certificate representing shares of Common Stock) in
accordance with Section 26 hereof. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment therein contained and
shall not be deemed to have knowledge of any such adjustment unless and until it
shall have received such certificate.
Section 13. Consolidation. Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following the Stock Acquisition Date, directly or
indirectly:
(x) the Company shall consolidate with, or merge with and into, any
other Person (other than a Subsidiary of the Company in a transaction
which complies with Section 11(o) hereof), and the Company shall not be
the continuing or surviving corporation of such share exchange or merger,
(y) any Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof) shall effect a
consolidation with, or merge with or into, the Company, and the Company
shall be the continuing or surviving corporation of such share exchange
or merger and, in connection with such share exchange or merger, all or
part of the outstanding shares of Common Stock shall be converted into or
exchanged for stock or other securities of any other Person or cash or
any other property, or
(z) the Company shall sell or otherwise transfer (or one or more of
its Subsidiaries shall sell or otherwise transfer) to any Person or
Persons (other than the Company or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), in one or
more transactions, assets, cash flow or earning power aggregating more
than 50% of the assets, cash flow or earning power of the Company and its
Subsidiaries (taken as a whole),
(any such event described in clause (x), (y) or (z) above being a "Section 13
Event"); then and in each such case, proper provision shall be made so that:
(i) each holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive, upon the exercise
thereof at the then current Exercise Price (disregarding any adjustment
of the Exercise Price pursuant to Section 11 (a)(ii) hereof),
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such number of validly authorized and issued, fully paid, nonassessable and
freely tradeable shares of common stock of the Principal Party (as such term is
hereinafter defined), which shares shall not be subject to any liens,
encumbrances, rights of first refusal, transfer restrictions or other adverse
claims, as shall be equal to the result obtained by:
(A) multiplying the then current Exercise Price by the number of
one hundredths of a share of Preferred Stock for which a Right is
exercisable immediately prior to the first occurrence of a Section 13
Event (or, if a Section 11 (a)(ii) Event has occurred prior to the first
occurrence of a Section 13 Event, multiplying the number of one
hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to the first occurrence of such Section 11
(a) (ii) Event by the Exercise Price in effect immediately prior to such
first occurrence), and
(B) dividing that product (which, following the first occurrence of
a Section 13 Event, shall be the "Exercise Price" for all purposes of
this Agreement) by 50% of the current market price (determined pursuant
to Section 11(d) hereof) per share of the common stock of such Principal
Party on the date of consummation of such Section 13 Event;
(ii) such Principal Party shall thereafter be liable for, and shall
assume, by virtue of such Section 13 Event, all the obligations and duties of
the Company pursuant to this Agreement;
(iii) the term "Company" shall thereafter be deemed to refer to such
Principal Party, it being specifically intended that the provisions of Section
11 hereof shall apply only to such Principal Party following the first
occurrence of a Section 13 Event;
(iv) such Principal Party shall take such steps (including, but not
limited to, the reservation of a sufficient number of shares of its common
stock) in connection with the consummation of any such transaction as may be
necessary to ensure that the provisions of this Agreement shall thereafter be
applicable to its shares of common stock thereafter deliverable upon the
exercise of the Rights; and
(v) the provisions of Section 11(a)(ii) hereof shall be of no further
effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or (y) of the
first sentence of Section 13(a) hereof, (A) the Person that is the issuer of any
securities into which shares of Common Stock are converted in such merger or
consolidation, or, if there is more
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<PAGE> 25
than one such issuer, the issuer of common stock that has the highest aggregate
current market price (determined pursuant to Section 11(d) hereof) and (B) if no
securities are so issued, the Person that is the other party to such merger or
consolidation, or, if there is more than one such Person, the Person the common
stock of which has the highest aggregate current market price (determined
pursuant to Section 11(d) hereof); and
(ii) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a) hereof, the Person that is the party receiving
the largest portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power transferred pursuant to such transaction or transactions or if the Person
receiving the largest portion of the assets or earning power cannot be
determined, whichever Person the common stock of which has the highest aggregate
current market price (determined pursuant to Section 11(d) hereof); provided,
however, that in any such case:
(A) if the common stock of such Person is not at such time, and has
not been continuously over the preceding twelve-month period, registered
under Section 12 of the Exchange Act ("Registered Common Stock"), or such
Person is not a corporation, and such Person is a direct or indirect
Subsidiary of another Person that has Registered Common Stock
outstanding, "Principal Party" shall refer to such other Person;
(B) if the common stock of such Person is not Registered Common
Stock or such Person is not a corporation, and such Person is a direct or
indirect Subsidiary of another Person but is not a direct or indirect
Subsidiary of another Person which has Registered Common Stock
outstanding, "Principal Party" shall refer to the ultimate parent entity
of such first-mentioned Person;
(C) if the common stock of such Person is not Registered Common
Stock or such Person is not a corporation, and such Person is directly or
indirectly controlled by more than one Person, and one or more of such
other Persons has Registered Common Stock outstanding, "Principal Party"
shall refer to whichever of such other Persons is the issuer of the
Registered Common Stock having the highest aggregate current market price
(determined pursuant to Section 11(d) hereof); and
(D) if the common stock of such Person is not Registered Common
Stock or such Person is not a corporation, and such Person is directly or
indirectly controlled by more than one Person, and none of such other
Persons have Registered Common Stock outstanding, "Principal Party" shall
refer to whichever ultimate parent entity is the corporation having the
greatest stockholders equity or, if no such ultimate parent entity is a
corporation, shall refer to whichever ultimate parent entity is the
entity having the greatest net assets.
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<PAGE> 26
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its common stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13, and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that the Principal Party will:
(i) (A) file on an appropriate form, as soon as practicable
following the execution of such agreement, a registration statement under
the Securities Act with respect to the common stock that may be acquired
upon exercise of the Rights, (B) cause such registration statement to
remain effective (and to include a prospectus complying with the
requirement of the Securities Act) until the Expiration Date, and (C) as
soon as practicable following the execution of such agreement, take such
action as may be required to ensure that any acquisition of such common
stock upon the exercise of the Rights complies with any applicable state
securities or "blue sky" laws; and
(ii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form 10
under the Exchange Act.
(d) In case the Principal Party which is to be a party to a transaction
referred to in this Section 13 has a provision in any of its authorized
securities or in its certificate of incorporation or Bylaws or other instrument
governing its corporate affairs, which provision would have the effect of
(i) causing such Principal Party to issue, in connection with, or
as a consequence of, the consummation of a transaction referred to in
this Section 13, shares of common stock of such Principal Party at less
than the then current market price per share (determined pursuant to
Section 11(d) hereof) or securities exercisable for, or convertible into,
common stock of such Principal Party at less than such then current
market price (other than to holders of Rights pursuant to this Section
13); or
(ii) providing for any special payment, tax or similar provisions
in connection with the issuance of the common stock of such Principal
Party pursuant to the provisions of Section 13;
then in such event, the Company shall not consummate any such transaction unless
prior thereto the Company and such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing that the
provision in question of such Principal Party shall have been canceled, waived
or amended, or that the authorized securities shall be redeemed, so that the
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<PAGE> 27
applicable provision will have no effect in connection with, or as a consequence
of; the consummation of the proposed transaction.
(e) The provisions of this Section 13 shall similarly apply to successive
mergers or share exchanges or sales or other transfers. In the event that a
Section 13 Event shall occur at any time after the occurrence of a Section 11
(a)(ii) Event, the Rights which have not theretofore been exercised shall
thereafter become exercisable in the manner described in Section 13(a) hereof.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights or to
distribute Rights Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the Persons to which such fractional
Rights would otherwise be issuable an amount in cash equal to such fraction of
the market value of a whole Right. For purposes of this Section 14(a), the
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price of the Rights for any day shall
be:
(i) if the Rights are listed or admitted to trading on a national
securities exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Rights are listed or
admitted to trading; or
(ii) if the Rights are not listed or admitted to trading on any
national securities exchange, the last quoted sales price; or
(iii) if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported on the Nasdaq National
Market or such other system then in use; or
(iv) if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights
selected by a majority of the Board of Directors; or
(v) if on any such date no such market maker is making a market in
the Rights, the fair value of the Rights on such date as determined in
good faith by a majority of the Board of Directors, which determination
shall be described in a statement filed with the Rights Agent and the
holders of the Rights.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one
hundredth of a share of Preferred Stock) (or other securities) upon exercise of
the Rights or to distribute certificates which evidence such
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<PAGE> 28
fractional shares of Preferred Stock (other than fractions which are integral
multiples of one hundredth of a share of Preferred Stock) (or other securities).
In lieu of such fractional shares of Preferred Stock that are not integral
multiples of one hundredth of a share of Preferred Stock (or other securities),
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the then current market value of one hundredth of a share of
Preferred Stock (or other securities). For purposes of this Section 14(b), the
current market value of one hundredth of a share of Preferred Stock (or other
securities) shall be the closing price (as the term "closing price" is used in
Section 11(d) hereof) of one hundredth of a share of Preferred Stock (or other
securities) for the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right, by the acceptance of the Right, expressly
waives his or her right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action.
All rights of action in respect of this Agreement, other than rights of
action vested in the Rights Agent pursuant to Section 18 hereof, are vested in
the respective registered holders of the Rights Certificates (and, prior to the
Exercisability Date, the registered holders of certificates representing shares
of Common Stock); and any registered holder of a Rights Certificate (or, prior
to the Exercisability Date, of a certificate representing shares of Common
Stock), without the consent of the Rights Agent or of the holder of any other
Rights Certificate (or, prior to the Exercisability Date, of a certificate
representing shares of Common Stock), may, in his own behalf and for his own
benefit, enforce (and may institute and maintain any suit, action or proceeding
against the Company or any other Person to enforce, or otherwise act in respect
of) his right to exercise the Rights evidenced by such Rights Certificate in the
manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance of the obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders.
Every holder of a Right, by accepting the same, consents and agrees with
the Company and the Rights Agent and with every other holder of a Right that:
(a) prior to the Exercisability Date, the Rights shall be
transferable only in connection with the transfer of Common Stock;
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<PAGE> 29
(b) after the Exercisability Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the office of the Rights Agent designated for such
purpose, duly endorsed or accompanied by a proper instrument of transfer
and with the appropriate forms and certificates duly executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company
and the Rights Agent may deem and treat the person in whose name a Rights
Certificate (or, prior to the Exercisability Date, the associated Common
Stock certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Rights Certificate or the associated Common Stock
Certificate made by anyone other than the Company or the Rights Agent)
for all purposes whatsoever, and neither the Company nor the Rights
Agent, subject to the last sentence of Section 7(e) hereof, shall be
affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any
holder of a Right or any other Person as a result of its inability to
perform any of its obligations under this Agreement by reason of any
preliminary or permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such
obligation; provided, however, that the Company must use its best efforts
to have any such order, decree or ruling lifted or otherwise overturned
as promptly as practicable.
Section 17. Rights Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Rights Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the shares of
Preferred Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby; nor shall anything
contained herein or in any Rights Certificate be construed to confer upon the
holder of any Rights Certificate, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or, except as provided in Section 25 hereof, to
receive notice of meetings or other actions affecting stockholders, or to
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable compensation
for all services rendered by it hereunder and, from time to time, on demand of
the Rights Agent, its reasonable expenses, including reasonable fees and
disbursements of its counsel, incurred in
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<PAGE> 30
connection with the execution and administration of this Agreement and the
exercise and performance of its duties hereunder. The Company shall indemnify
the Rights Agent, its officers, employees, agents and directors for, and hold
each of them harmless against, any losses, expenses, claims, damages or
liabilities incurred without gross negligence, bad faith or willful misconduct
on the part of the Rights Agent, for anything done or omitted by the Rights
Agent or such other indemnified party in connection with the acceptance or
administration of this Agreement and performance hereunder, including without
limitation, the costs and expenses of defending against any claim of liability
therefrom, directly or indirectly, and will promptly reimburse the Rights Agent
for legal and other expenses reasonably incurred in defending any such loss,
expense, claim, damage or liability.
(b) The Rights Agent shall be protected by the indemnity provided by this
Section and shall incur no liability for or in respect of any action taken,
suffered or omitted by it in connection with its administration of this
Agreement or the performance of its duties hereunder in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement or other
paper or document believed by it to be genuine and to have been signed, executed
and, where necessary, verified or acknowledged by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
corporate trust or stockholder services businesses of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any document or any further act on
the part of any of the parties hereto; provided, however, that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case, at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned, the Rights
Agent
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may countersign such Rights Certificates either in its prior name or in its
changed name; and in all such cases such Rights Certificates shall have the full
force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent.
The Rights Agent undertakes the duties and obligations expressly imposed
by this Agreement (and no implied duties or obligations shall be read into this
Agreement against the Rights Agent) upon the following terms and conditions, by
all of which the Company and the holders of Rights Certificates, by their
acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person, Affiliate
or Associate and the determination of "current market price") be proved or
established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be specified
herein) may be deemed to be conclusively proved and established by a certificate
signed by any person reasonably believed by the Rights Agent to be the Chairman
of the Board, the Chief Executive Officer, the President, any Vice President,
the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary
of the Company and delivered to the Rights Agent; provided, however, that such
certificate shall be full authorization to the Rights Agent for any action taken
or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(d) The Rights Agent is serving as an administrative agent and,
accordingly, shall not have any responsibility for the validity or legality of
any provision of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or for the validity, legality or
execution of any Rights Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or failure
by the Company to satisfy conditions contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any adjustment required
under the provisions of Section 11 or Section 13 hereof or for the manner,
method or amount of any such adjustment or the ascertaining of the existence of
facts that would require any such adjustment (except with respect to the
exercise of Rights evidenced
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by Rights Certificates after receipt by the Rights Agent of the certificate
describing any such adjustment contemplated by Section 12 hereof); nor shall it
by any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock or any other
securities to be issued pursuant to this Agreement or any Rights Certificate or
as to whether any shares of Common Stock or any other securities will, when so
issued, be validly authorized and issued, fully paid and nonassessable.
(e) The Company shall perform, execute, acknowledge and deliver or cause
to be performed, executed, acknowledged and delivered all such further acts,
instruments and assurances as may reasonably be required by the Rights Agent for
the performance by the Rights Agent of its duties under this Agreement.
(f) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be the Chairman of the Board,
the Chief Executive Officer, the President, any Vice President, the Secretary,
any Assistant Secretary, the Treasurer or any Assistant Treasurer of the
Company, and to apply to such officers for advice or instructions in connection
with its duties; and it shall not be liable to the Company, the holder of any
Rights Certificate or any stockholder of the Company for any action taken or
suffered to be taken by it in good faith in accordance with instructions of any
such officer or for any delay in acting while awaiting instructions. Any
application by the Rights Agent for written instructions from the Company may,
at the option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent under this Rights Agreement and the date
on and/or after which such action shall be taken or such omission shall be
effective. The Rights Agent shall not be liable for any action taken by, or
omission of, the Rights Agent in accordance with a proposal included in any such
application on or after the date specified in such application (which date shall
not be less than five Business Days after the date any such officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to an earlier date) unless, prior to taking any such action
(or the effective date in the case of an omission), the Rights Agent shall have
received written instructions in response to such application specifying the
action to be taken or omitted.
(g) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or offer
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(h) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
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neglect or misconduct if reasonable care was exercised in the selection and
continued employment thereof.
(i) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties or in the exercise of its rights hereunder if
the Rights Agent in its sole judgment shall have reasonable grounds for
believing that repayment of such funds or adequate indemnification against such
risk or liability is not reasonably assured to it.
(j) If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, either has not
been completed, has not been signed, or indicates an affirmative response to
clause 1 and/or 2 thereof, the Rights Agent shall not take any further action
with respect to such requested exercise or transfer without first consulting
with the Company. If such certificate has been completed and signed, the Rights
Agent may assume without further inquiry that the Rights Certificate is not
owned by a person described in Section 4(b) or Section 7(e) hereof and shall not
be charged with any knowledge to the contrary.
(k) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own gross negligence, bad faith or willful misconduct.
Section 21. Change of Rights Agent.
The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon thirty (30) days' notice in
writing mailed to the Company and to each transfer agent of the Common Stock and
the Preferred Stock by registered or certified mall, and to the holders of
Rights Certificates by first-class mail. The Company may remove the Rights Agent
or any successor Rights Agent upon thirty (30) days' notice in writing mailed to
the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Stock and the Preferred Stock by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of thirty
(30) days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Rights Certificate (who shall, with such
notice, submit his Rights Certificate for inspection by the Company), then any
registered holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
any state of the United States, in good standing, and may be the Company or a
Subsidiary of the Company. After appointment, the successor Rights Agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but
33
<PAGE> 34
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock and the Preferred Stock, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21 however, or any defect therein, shall not affect
the legality or validity of the resignation or removal of the Rights Agent or
the appointment of the successor Rights Agent.
Section 22. Issuance of New Rights Certificates.
Notwithstanding any of the provisions of this Agreement or the Rights to
the contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by the Board to reflect any
adjustment or change made in accordance with the provisions of this Agreement in
the Exercise Price or the number or kind or class of shares or other securities
or property that may be acquired under the Rights Certificates. In addition, in
connection with the issuance or sale of shares of Common Stock following the
Exercisability Date and prior to the Expiration Date, the Company:
(i) shall, with respect to shares of Common Stock so issued or sold
pursuant to the exercise of stock options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company, and
(ii) may, in any other case, if deemed necessary or appropriate by
the Board, issue Rights Certificates representing the appropriate number
of Rights in connection with such issuance or sale; provided, however,
that no such Rights Certificate shall be issued if, and to the extent
that (x) the Company shall be advised by counsel that such issuance would
create a significant risk of material adverse tax consequences to the
Company or the person to whom such Rights Certificate would be issued, or
(y) appropriate adjustment shall otherwise have been made in lieu of the
issuance thereof
Section 23. Redemption.
(a) The Rights may be redeemed by action of the Board pursuant to
paragraph (b) of this Section 23 and shall not be redeemed in any other manner.
Notwithstanding anything contained or implied in this Agreement to the contrary,
the Rights shall not be exercisable after the occurrence of a Section 11 (a)(ii)
Event until such time as the Company's right of redemption hereunder have
expired.
(b) The Board may, at its option, at any time prior to the earlier of (i)
the Close of Business on the tenth Business Day after the Stock Acquisition Date
or, if the Stock Acquisition Date shall have occurred prior to the Record Date,
the Close of Business on the tenth day following
34
<PAGE> 35
the Record Date, or (ii) the Final Expiration Date, redeem all, but not less
than all, of the then outstanding Rights at a redemption price of $.001 per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"); provided, however, that with
respect to any redemption of Rights under either of the circumstances set forth
in clauses (i) and (ii) below, the Rights may be redeemed only if there are
Continuing Directors then in office and the Board of Directors of the Company,
with the concurrence of a majority of the Continuing Directors then in office,
approves such redemption: (i) such approval occurs at any time after any Person
becomes an Acquiring Person, or (ii) such approval occurs at any time after a
change (resulting from a proxy solicitation or from a vote of stockholders or in
any other manner) in a majority of the directors in office at the commencement
of such solicitation, or prior to such vote if any Person who is a participant
in such solicitation or vote has stated (or, if the majority of the directors in
office at the commencement of such solicitation or prior to such vote has
determined in good faith) that such Person (or any of its Affiliates or
Associates) intends to take or may consider taking, any action that would result
in such Person becoming an Acquiring Person or that would result in the
occurrence of a Section 11(a)(ii) Event. The Company may, at its option, pay the
Redemption Price in cash, shares of Common Stock (based on the current per share
market price of shares of Common Stock at the time of redemption determined
pursuant to Section 11(d) hereof) or any other form of consideration deemed
appropriate by the Board; provided that if the Company elects to pay the
Redemption Price in shares of Common Stock, the Company shall not be required to
issue fractional shares of Common Stock. In lieu of such fractional shares of
Common Stock, the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional shares of Common Stock would
otherwise be issuable an amount of cash equal to the same fraction of the
current per share market price of a whole share of Common Stock.
(c) Immediately upon the action of the Board ordering the redemption of
the Rights pursuant to paragraph (b) of this Section 23, and without any further
action and without any notice, the right to exercise the Rights will terminate
and the only right thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right so held. The Company shall promptly give public
notice of any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such redemption.
Within 10 days after such action of the Board of Directors ordering the
redemption of the Rights pursuant to paragraph (b), the Company shall mall a
notice of redemption to all the holders of the then outstanding Rights at their
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Exercisability Date, on the registry books of the transfer agent for the
Common Stock of the Company. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof and other than in connection with the purchase of shares of
Common Stock prior to the Exercisability Date.
35
<PAGE> 36
Section 24. Exchange.
(a) The Board may, at its option, at any time after any Person becomes an
Acquiring Person, exchange all or any part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11 (a)(ii) hereof) for shares of Common
Stock at an exchange ratio of one share of Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"); provided, however, that with respect to any such
action by the Board as to such an exchange, the Rights may be so exchanged only
if (i) there are Continuing Directors then in office and (ii) the Board approves
such exchange with the concurrence of a majority of the Continuing Directors
then in office.
(b) Immediately upon the action of the Board ordering the exchange of any
Rights pursuant to paragraph (a) of this Section 24, and without any further
action and without any notice, the right to exercise such Rights shall terminate
and the only right thereafter of a holder of such Rights shall be to receive
that number of shares of Common Stock equal to the number of such Rights held by
such holder multiplied by the Exchange Ratio. The Company shall promptly give
public notice of any such exchange; provided, however, that the failure to give,
or any defect in, such notice shall not affect the validity of such exchange.
The Company shall promptly mail a notice of any such exchange to all of the
holders of such Rights at their addresses as they appear upon the registry books
of the Rights Agent. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice. Each such
notice of exchange will state the method by which the exchange of the shares of
Common Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
shall be effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Section 11(a)(ii) hereof)
held by each holder of Rights.
(c) In the event that there shall not be sufficient shares of Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
shares of Common Stock for issuance upon exchange of the Rights.
(d) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of such fractional shares of Common Stock, the Company
shall pay to the registered holders of the Right Certificates with regard to
which such fractional shares of Common Stock would otherwise be issuable an
amount in cash equal to the same fraction of the current per share market price
of a whole share of Common Stock. For the purposes of this paragraph (d), the
current market price of a whole share of Common Stock shall be the closing price
of a share of Common Stock (as determined pursuant to the second and third
sentences of Section 11(d) hereof) for the Trading Day immediately prior to the
date of exchange pursuant to this Section 24.
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<PAGE> 37
Section 25. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Exercisability Date,
(i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the
holders of Preferred Stock (other than a regular quarterly cash dividend
out of earnings or retained earnings of the company);
(ii) to offer to the holders of Preferred Stock rights or warrants
to subscribe for or to purchase any additional shares of Preferred Stock
or shares of stock of any class or any other securities, rights or
options;
(iii) to effect any reclassification of its Preferred Stock (other
than a reclassification involving only the subdivision of outstanding
shares of Preferred Stock);
(iv) to effect any consolidation or merger into or with any other
Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale
or other transfer), in one or more transactions, of more than 50% of the
assets, cash flow or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Company
and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof); or
(v) to effect the liquidation, dissolution or winding up of the
Company;
then, in each such case, the Company shall give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 26 hereof, a
notice of such proposed action (which shall specify the record date for the
purposes of such stock dividend or distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Preferred Stock, if any
such date is to be fixed), and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least twenty (20) days prior to
the record date for determining holders of the shares of Preferred Stock for
purposes of such action, and in the case of any such other action, at least
twenty (20) days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the shares of Preferred Stock,
whichever shall be the earlier; provided, however, that no such notice shall be
required pursuant to this Section 25 if any Subsidiary of the Company effects a
consolidation or merger with or into, or effects a sale or other transfer of
assets or earning power to, any other Subsidiary of the Company.
(b) In case any of the events set forth in Section 11(a)(ii) hereof
shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 26 hereof, a notice of the
37
<PAGE> 38
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11 (a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
Section 26. Notices.
All notices and other communications provided for hereunder shall, unless
otherwise stated herein, be in writing (including by telex, telegram or cable)
and be mailed or sent or delivered, if to the Company, at the following address
(until another address is filed in writing by the Company):
Signature Inns, Inc.
250 East 96th Street
Suite 450
Indianapolis, Indiana 46240
Attention: Mr. John Bontreger
and, if to the Rights Agent, at the following address (until another address is
filed in writing by the Rights Agent):
________________________________
________________________________
________________________________
Attention: _____________________
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Exercisability Date, to the holder of certificates representing
shares of Preferred Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments.
Prior to the Exercisability Date and subject to the penultimate sentence
of this Section 27, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend any provision of this Agreement without the
approval of any holders of certificates representing shares of Common Stock.
From and after the Exercisability Date and subject to the penultimate sentence
of this Section 27, the Company and the Rights Agent shall, if the Company by
action of a majority of the Continuing Directors so directs, supplement or amend
this Agreement without the approval of any holders of Rights Certificates in
order:
(i) to cure any ambiguity;
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<PAGE> 39
(ii) to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provisions herein;
(iii) to shorten or lengthen any time period hereunder; or
(iv) to change or supplement the provisions hereunder in any manner
which the Company may deem necessary or desirable and which shall be
consistent with, and for the purpose of fulfilling, the objectives of the
Board in adopting this Agreement, including any change in the number or
class of shares of capital stock of the Company for which the Rights are
potentially exercisable prior to a Triggering Event;
provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights; and provided, further,
that this Agreement may not be supplemented or amended to lengthen, pursuant to
clause (iii) of this sentence (A) subject to Section 31 hereof, a time period
relating to when the Rights may be redeemed at such time as the Rights are not
then redeemable, or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Without limiting the foregoing, the Company
may at any time prior to such time as any Person becomes an Acquiring Person
amend this Agreement to change the Exercise Price hereunder. Upon the delivery
of a certificate from an appropriate officer of the Company or, so long as any
Person is an Acquiring Person hereunder, from the majority of the Board of
Directors, which states that the proposed supplement or amendment is in
compliance with the terms of this Section 27, the Rights Agent shall execute
such supplement or amendment. Notwithstanding anything contained in this
Agreement to the contrary, no supplement or amendment which changes the rights
and duties of the Rights Agent under this Agreement shall be effective without
the consent of the Rights Agent, and no supplement or amendment shall be made
which changes the Redemption Price, the Exercise Price, the Expiration Date or
the number of shares of Common Stock (or other securities) for which a Right is
exercisable without the approval of a majority of the Board of Directors. Prior
to the Exercisability Date, the interests of the holders of Rights shall be
deemed coincident with the interests of the holders of Common Stock.
Section 28. Determinations and Actions by the Board of Directors, etc.
For all purposes of this Agreement, any calculation of the number of
shares of Common Stock or other securities outstanding at any particular time,
including for purposes of determining the particular percentage of outstanding
shares of Common Stock of which any Person is the Beneficial Owner, shall be
made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the Exchange
Act Regulations as in effect on the date hereof. Except as otherwise
specifically provided herein, the Board shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board, or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power (i) to interpret the provisions of this
Agreement, and (ii) to make all determinations
39
<PAGE> 40
deemed necessary or advisable for the administration of this Agreement. All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board or by a majority of the Board in good faith (x)
shall be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights and all other parties, and (y) shall not subject the Board
or any member thereof to any liability to the holders of the Rights.
Section 29. Successors.
All the covenants and provisions of this Agreement by or for the benefit
of the Company or the Rights Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 30. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any Person other
than the Company, the Rights Agent and the registered holders of the Rights
Certificates (and, prior to the Exercisability Date, registered holders of
shares of Common Stock) any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the registered holders of the Rights Certificates
(and, prior to the Exercisability Date, registered holders of shares of Common
Stock).
Section 31. Severability.
If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated; provided, however, that
notwithstanding anything in this Agreement to the contrary, if (i) any such
term, provision, covenant or restriction is held by such court or authority to
be invalid, void or unenforceable, and a majority of the Board determines in its
good faith judgment that severing the invalid language from this Agreement would
adversely affect the purpose or effect of this Agreement; and (ii) at the time
of such holding by such court or authority, the Rights are not redeemable, then
the right of redemption set forth in Section 23 hereof shall be reinstated and
shall not expire until the Close of Business on the tenth day following the date
of such determination by a majority of the Board as described above.
Section 32. Governing Law.
This Agreement, each Right and each Rights Certificate issued hereunder
shall be governed by, and construed in accordance with, the laws of the State of
Indiana.
40
<PAGE> 41
Section 33. Counterparts.
This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original, but all of which taken together shall
constitute one and the same instrument.
Section 34. Descriptive Headings.
The headings contained in this Agreement are for descriptive purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
Section 35. Effective Date.
Notwithstanding anything contained or implied in this Agreement to the
contrary, this Agreement shall become effective only in the event that the
Company's Registration Statement on Form [ ] (File No. 333 ) is declared
effective by the SEC. In the event such Registration Statement is, for any
reason, not declared effective by the SEC or is withdrawn or otherwise
terminated by the Company, this Agreement shall be of no force or effect.
41
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the date first above written.
SIGNATURE INNS, INC.
By:
-------------------------------------
Name:
Title:
[ ]
------------------------
By:
-------------------------------------
Name:
Title:
42
<PAGE> 43
EXHIBIT A
[Form of Rights Certificate]
Certificate No. ___________ Rights
NOT EXERCISABLE AFTER THE EXPIRATION DATE (AS DEFINED IN THE RIGHTS
AGREEMENT). THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY,
ON THE TERMS SET FORTH IN THE AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED
IN THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS (AS
DEFINED IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR
WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.]
Rights Certificate
SIGNATURE INNS, INC.
This certifies that [ ], or registered assigns, is the registered
holder of the number of Rights set forth above, each of which entitles the
registered holder thereof, subject to the terms and conditions of the Rights
Agreement dated ____________ 1996 (the "Rights Agreement") between Signature
Inns, Inc., an Indiana corporation (the "Company"), and
[_______________________________], as Rights Agent (the "Rights Agent", which
term shall
___________________
The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
<PAGE> 44
include any successor Rights Agent under the Rights Agreement), to purchase from
the Company at any time after the Exercisability Date (as such term is defined
in the Rights Agreement) and prior to the Expiration Date (as such term is
defined in the Rights Agreement) at the office of the Rights Agent or its
successor designated for such purpose, one-hundredth of one fully paid
nonassessable share of Preferred Stock, without par value, of the Company (the
"Preferred Stock") at the Exercise Price initially of $[ ] per one hundredth
of one share of Preferred Stock, upon presentation and surrender of this Rights
Certificate with the Election to Purchase and related certificate duly executed.
The number of Rights evidenced by this Rights Certificate (and the number of
shares of Preferred Stock which may be purchased upon exercise thereof) set
forth above, and the Exercise Price per share set forth above shall be subject
to adjustment in certain events as provided in the Rights Agreement.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement) or, under certain circumstances described in the Rights Agreement, a
transferee of any such Acquiring Person, Associate or Affiliate, such Rights
shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11 (a)(ii)
Event.
In certain circumstances described in the Rights Agreement, the Rights
evidenced hereby may entitle the registered holder thereof to purchase shares of
capital stock of an entity other than the Company or receive cash or other
assets, all as provided in the Rights Agreement.
<PAGE> 45
This Rights Certificate is subject to all of the terms and conditions
of the Rights Agreement, which terms and conditions are hereby incorporated
herein by reference and made a part hereof and to which Rights Agreement
reference is hereby made for a full description of the rights, limitations of
rights, obligations, duties and immunities hereunder of the Rights Agent, the
Company and the holders of the Rights Certificates. Copies of the Rights
Agreement are on file at the principal office of the Rights Agent and are
available from the Company upon written request.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing an aggregate number of Rights equal to the aggregate
number of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered. If this Rights Certificate shall be exercised in part, the
registered holder shall be entitled to receive; upon surrender hereof, another
Rights Certificate or Rights Certificates for the number of whole Rights not
exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Company under certain circumstances
at its option at a redemption price of $.01 per Right, payable at the Company's
option in cash or in Common Stock, subject to adjustment in certain events as
provided in the Rights Agreement.
No fractional shares of Preferred Stock (other than fractions which are
integral multiples of one hundredth of a share of Preferred Stock) will be
issued upon the exercise of any Right or Rights evidenced hereby, but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
<PAGE> 46
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of Preferred
Stock or of any other securities which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Rights evidenced by this Rights Certificate shall have been exercised as
provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the signature of the proper officers of the Company. Dated as
of__________ ______, 1996.
ATTEST: SIGNATURE INNS, INC.
_______________________ By:_________________________________
Title:____________ Title:____________________________
Countersigned:
_______________________
By ____________________
Authorized Signature
<PAGE> 47
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if
such holder desires to transfer the
Rights Certificate)
FOR VALUE RECEIVED ___________________________________ hereby sells, assigns and
transfers unto _________________________________________________
(Please print name and address of transferee)
____________________________________________________________________ this Rights
Certificate , together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ______________ Attorney, to transfer
the within Rights Certificate on the books of the within-named Company, with
full power of substitution.
Dated:___________ , [___].
_________________________________
Signature
Signature Guaranteed:
<PAGE> 48
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
pursuant to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated:_____________, [___] ______________________________
Signature
Signature Guaranteed:
________________________________________________________________________________
NOTICE
This signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
Signature must be guaranteed by a member finn of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
In the event the certification set forth above is not completed, the
Company will deem the beneficial owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement) and, in the case of an Assignment, will affix a
legend to that effect on any Rights Certificates issued in exchange for this
Rights Certificate.
<PAGE> 49
FORM OF ELECTION TO PURCHASE
(To be executed if the registered holder
desires to exercise Rights represented
by the Rights Certificate)
To: SIGNATURE INNS, INC.
The undersigned hereby irrevocably elects to exercise ________________
Rights represented by this Rights Certificate to purchase the number of
hundredths of a share of Preferred Stock issuable upon the exercise of the
Rights (or such other securities of the Company or of any other person which may
be issuable upon the exercise of the Rights) and requests that certificates for
such shares be issued in the name of and delivered to:
(Please print name and address)
________________________________________________________________________
________________________________________________________________________
Please insert social security
or other identifying number:____________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
(Please print name and address)
_________________________________________________________________________
Please insert social security
or other identifying number:_____________________________________________
Dated:______________________,[ ].
____________________________
Signature
Signature Guaranteed:
________________________________________________________________________
<PAGE> 50
Certificate
The undersigned hereby certifies by checking the appropriate boxes tat:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
beneficially owned by an Acquiring Person or an Affiliate or an Associate
thereof (as defined in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, the
undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate thereof.
Dated: , [ ]
-------- --- -----------------------------
Signature
Signature Guaranteed:
- --------------------------------------------------------------------------------
NOTICE
This signature to the foregoing Election to Purchase and Certificate
must conform to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
Signature must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
In the event the certification set fort above is not completed, the
Company will deem the beneficial owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement) and, in the case of an Assignment, will affix a
legend to that effect on any Rights Certificates issued in exchange for this
Rights Certificate.
<PAGE> 51
EXHIBIT B
SUMMARY OF RIGHTS AGREEMENT
Each holder of shares of Common Stock of SIGNATURE INNS, INC. (the
"Company") as of the Record Date will receive, a distribution of one Stock
Purchase Right (a "Right") per share of the Common Stock in accordance with and
pursuant to the Rights Agreement. A Right will also accompany each share of the
Common Stock issued following the Record Date. Each Right, when it first becomes
exercisable, entitles the holder to purchase from the Company one hundredth of
one share of Preferred Stock at an initial exercise price of $[ ] per
one-hundredth of one share (the "Exercise Price"), subject to adjustment.
Exercisability of Rights. Initially, the Rights will not be exercisable
or transferable apart from the shares of the Common Stock with respect to which
they are distributed, and will be evidenced only by the certificates
representing shares of Common Stock. The Rights will become exercisable and
transferable apart from the Common Stock on a date (the "Exercisability Date")
that is the earlier of (a) the close of business on the tenth day after the
Stock Acquisition Date, defined as the first date of a public announcement that
a person or group of affiliated or associated persons has become an Acquiring
Person (as defined below); or (b) the close of business on such date as a
majority of the Company's Board of Directors shall determine, which date may
occur only following the commencement of a tender or exchange offer that, if
consummated, would result in a person or group becoming an Acquiring Person. The
Rights will be exercisable from the Exercisability Date until the Expiration
Date (which is the earlier of (x) the close of business on the tenth anniversary
of the Record Date (the "Final Expiration Date") or (y) the date the Rights are
redeemed by the Company (the "Redemption Date")), at which time they will
expire.
With certain exceptions described in the Rights Agreement, a person or
group becomes an Acquiring Person when such person or group acquires or obtains
the rights to acquire beneficial ownership of [20%] or more of the then
outstanding shares of the Common Stock (other than as a result of a Permitted
Offer, as defined below), or [10%] or more of such shares if the Company's Board
of Directors, after reasonable inquiry and investigation, declares the acquiring
person an Adverse Person under guidelines set forth in the Rights Agreement. A
"Permitted Offer" is a tender or exchange offer for all outstanding shares of
the Common Stock upon terms that a majority of the members of the Board of
Directors and who qualify as Continuing Directors under the Rights Agreement
determines to be adequate and in the best interests of the Company and its
shareholders. The Board of Directors may declare any person to be an Adverse
Person after it determines that (i) such person, alone or together with its
affiliates and associates, has become the beneficial owner of [10%] or more of
the Company's Common Stock and (ii) after reasonable inquiry and investigation,
such Person's ownership in the Company is reasonably likely (x) to cause the
Company to take action that would provide such person with short-term gain to
the detriment of the long-term
<PAGE> 52
interests of the Company and its shareholders, or (y) to have a material adverse
impact on the business or prospects of the Company.
Transferability of Rights. Prior to the Exercisability Date, the Rights
will not be transferable apart from the shares of the Common Stock to which they
are attached. Thus, the surrender or transfer of any Common Stock certificate
prior to that date will also constitute the transfer of the Rights associated
with the shares represented by such certificate. As soon as practicable after
the Exercisability Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to each record holder of shares of the Common
Stock as of the close of business on the Exercisability Date and, in certain
circumstances, holders of certain shares issued after the Exercisability Date.
Flip-In Rights. Upon the occurrence of an Exercisability Date (a
"Flip-In Event"), each holder of a Right will thereafter have the right (the
"Flip-In Right") to receive, upon exercise, the number of shares of the
Preferred Stock (or, in certain circumstances, at the discretion of the
Company's Board of Directors, cash, property, other securities of the Company or
other consideration) having a market value immediately prior to the Flip-In
Event equal to two times the then current Exercise Price of the Right; provided,
however, that any Right that is (or, in certain circumstances specified in the
Rights Agreement, was) beneficially owned by an Acquiring Person (or any of its
affiliates or associates) will become null and void upon the occurrence of the
Flip-In Event. Cash will be paid in lieu of issuing fractional shares of
Preferred Stock pursuant to an exercise of the Rights.
Flip-Over Rights. It at any time following a Stock Acquisition Date,
either (i) the Company is acquired in a merger or other business combination
transaction, or (ii) the Company sells or otherwise transfers more than 50% of
its aggregate assets, cash flow, or earning power, each holder of a Right
(except Rights previously voided as described above) will thereafter have the
right (the "Flip-Over Right") to receive, upon exercise, shares of common stock
of the Acquiring Person having a value equal to two times the then current
Exercise Price of the Right. The Flip-Over Right shall be exercisable apart
from, and regardless of the exercise or surrender of the Flip-In Right.
Redemption of the Rights. At any time prior to the earlier of (i) the
close of business on the tenth day following the Stock Acquisition Date, or (b)
the close of business on the Final Expiration Date, and in certain other
circumstances, the Company's Board of Directors may redeem the Rights, in whole
but not in part, at a Redemption Price of $.01 per Right.
Exchange of the Rights. At any time after any person becomes an
Acquiring Person, the Board of Directors may exchange the Rights (other than
Rights owned by such Acquiring Person which have become void), in whole or in
part, at an exchange ratio of one share of Common Stock per right.
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after such Acquiring Person becomes the
beneficial owner of 50% or more of the shares of Common Stock then outstanding.
<PAGE> 53
Amendment of the Rights Agreement. At any time prior to the
Exercisability Date, the Board of Directors may amend any provision of the
Rights Agreement in any manner. Thereafter, the Board may amend the Rights
Agreement in certain respects, including generally (a) to shorten or lengthen
any time period under the Rights Agreement or (b) in any manner that the
Company's Board of Directors deems necessary or desirable, so long as such
amendment is consistent with and for the purpose of fulfilling the objectives of
the Board in originally adopting the Rights Plan. Certain amendments (including
changes to the Redemption Price, Exercise Price, Expiration Date, or number of
shares for which a Right is exercisable), whether prior to the Exercisability
Date or thereafter, are permitted only upon approval by a majority of the Board
of Directors.
Series A Preferred Stock. Each one hundredth of a share of Series A
Preferred Stock, if issued, will have one vote per hundredth of a share and will
vote on all matters submitted to a vote of the Company's shareholders, except as
otherwise required by law. Subject to prior dividend rights and sinking fund or
redemption or purchase rights which may be applicable to any other series of
Preferred Stock, the holders of the Series A Preferred Stock will be entitled to
share ratably in such dividends, if any, as may be declared from time to time by
the Company's Board of Directors in its discretion out of funds legally
available therefor with respect to the Series A Preferred Stock and on a one
hundred-to-one basis with respect to the Common Stock. The holders of each
one-hundredth of a share of Series A Preferred stock are entitled to share in
any assets remaining after satisfaction of all prior claims upon liquidation of
the Company, including prior claims of any other series of Preferred Stock,
ratably with the holders of each share of the Company's Common Stock. Holders of
the Series A Preferred Stock will have no preemptive or other subscription
rights, and the Series A Preferred Stock is not subject to call.
<PAGE> 54
SIGNATURE INNS, INC.
RESOLUTIONS TO BE CONSIDERED BY THE BOARD OF DIRECTORS
ON SEPTEMBER 19, 1996
WHEREAS, the Board of Directors deems it desirable and in the best
interest of the Corporation's shareholders that steps be taken to preserve for
the Corporation's shareholders the long-term value of the Corporation in the
event of a takeover; and
WHEREAS, the Board of Directors believes that a dividend to the holders
of the Corporation's common stock, no par value per share ("Common Shares"), of
rights ("Rights") to purchase shares of a newly established and designated
series of the Corporation's preferred stock, no par value per share, having the
relative rights, preferences, and limitations set forth on Exhibit A hereto
("Preferred Shares"), on the terms and subject to the conditions hereinafter
provided, will contribute to the preservation of the Corporation's long-term
value for its shareholders;
Authorization of Rights Agreement and Rights to Purchase Preferred Shares
NOW, THEREFORE, BE IT RESOLVED, that the form of Rights Agreement which
has been presented to this meeting (the "Rights Agreement") with such additions,
deletions, or modifications from such form as have been approved at this meeting
be, and hereby is, approved and ordered placed in the minute book for the
Corporation.
RESOLVED, that each of the officers of the Corporation is authorized,
in the name and on behalf of the Corporation, to execute the Rights Agreement
with such additions, deletions, or modifications as have been approved at this
meeting, and with such other additions, deletions, or modifications to or from
such form as the officer or officers executing the same shall approve at the
recommendation O{ or after consulting with, the Corporation's legal and
financial advisors, and to deliver the same to the Rights Agent thereunder, such
execution and delivery conclusively to evidence the due authorization and
approval thereof by the Corporation.
RESOLVED, that the Corporation is authorized [and directed] to issue to
the holder of each Common Share outstanding on the Record Date (as hereinafter
defined) and thereafter as set forth in the Rights Agreement one Right initially
representing the right to purchase one one-hundredth of a Preferred Share, which
Right shall be issued pursuant to, and governed by, the terms of the Rights
Agreement.
RESOLVED, that each of the officers of the Corporation is authorized to
take any and all such action as they or any of them may deem necessary,
appropriate or desirable to make the Rights Agreement and the Rights binding and
legal obligations of the Corporation in accordance with their terms, and to
comply with each and all of the obligations imposed upon the Corporation by the
provisions of the Rights Agreement and the Rights which may at any time be
outstanding thereunder.
<PAGE> 55
Designation of Preferred Stock
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Corporation in accordance with the provisions of the
Corporation's Amended and Restated Articles of Incorporation (the "Articles of
Incorporation"), the Board of Directors hereby creates a Series A Preferred
Stock, no par value per share, of the Corporation and hereby states the
designation and number of shares and fixes the relative rights, preferences, and
limitations thereof (in addition to the provisions set forth in the Articles of
Incorporation, which are applicable to the Preferred Stock of all classes and
series), as set forth in the Certificate of Designations attached hereto as
Exhibit A and incorporated herein by reference.
Dividend and Issuance of Rights
RESOLVED, that the Board of Directors hereby declares that a dividend
of one Right be paid at the close of business on the date which is the same date
upon which the Securities and Exchange Commission (the "Commission") declares
the Registration Statement on Form SB-2 (File No.333- ) relating to
Corporations's currently proposed public offering of Common Stock effective (the
"Record Date") to the holders of record of the Common Shares issued and
outstanding at the close of business on such date.
RESOLVED, that the exercise price of the Rights shall be $_____ per
Right and that the redemption price therefor shall be $.001 per Right.
RESOLVED, that each Common Share (other than a Common Share issued upon
exercise of any Right) issued or delivered by the Corporation (whether
originally issued or delivered from the Corporation's treasury) after the Record
Date but prior to the earlier of the Exercisability Date and the Final
Expiration Date (as each of those terms is defined in the Rights Agreement)
shall be entitled to and accompanied by one Right and the certificate evidencing
such Common Share shall bear a legend to such effect.
RESOLVED, that the Corporation is authorized to issue such number of
Preferred Shares for which the Rights are initially exercisable and any such
additional shares of capital stock or other rights for which the Rights may
become exercisable upon the conditions set forth in the Rights Agreement; and
that the number of Preferred Shares for which the Rights are initially
exercisable (such number to be subject to adjustment from time to time in
accordance with the Rights Agreement) are reserved until such time as they are
issued pursuant to the exercise of the Rights or until the Final Expiration
Date.
2
<PAGE> 56
Right Certificates
RESOLVED, that the certificates evidencing the Rights (the "Right
Certificates") shall be substantially in the form attached as Exhibit A to the
Rights Agreement, with such additions, deletions, or modifications to or from
such form as the officer or officers of the Corporation executing the Rights
Agreement or any Right Certificate shall deem necessary, appropriate or
desirable, as conclusively evidenced by the execution thereof by such officer or
officers, and shall be issued and delivered as provided in the Rights Agreement.
RESOLVED, that each of the officers of the Corporation is authorized,
in the name and on behalf of the Corporation, to execute and deliver Right
Certificates as provided in the Rights Agreement in fully registered form.
RESOLVED, that the signatures of the officers of the Corporation so
authorized to execute the Right Certificates may be the facsimile signatures of
the present or any future such authorized officers and may be imprinted or
otherwise reproduced thereon, the Corporation for such purpose hereby adopting
each such facsimile signature as binding upon it, notwithstanding the fact that
at the time the Right Certificates shall be countersigned, delivered or disposed
of the officer so executing shall have ceased to be an officer of the
Corporation or the Secretary or an Assistant Secretary, as the case may be.
RESOLVED, that after the Exercisability Date, each of the officers of
the Corporation is authorized to deliver the Right Certificates to the Rights
Agent (appointed as described below) in such denominations as may be determined
by the officers delivering the Right Certificates (such determination to be
conclusively evidenced by the delivery of the Right Certificates), and to
request the Rights Agent to countersign the Right Certificates and to deliver
the same pursuant to the Rights Agreement.
Rights Agent
RESOLVED, that each of the officers of the Corporation is authorized to
appoint as Rights Agent under the Rights Agreement [_________________] or any
other bank selected by any of them in his or her discretion (the "Rights Agent")
and, after the Exercisability Date, upon presentation to it of Right
Certificates for the purpose of exercise in accordance with the Rights
Agreement, such Rights Agent so appointed is hereby authorized to act as
[TRANSFER AGENT AND REGISTRAR] for the Rights and the Preferred Shares issued
upon the exercise thereof.
RESOLVED, that for the purpose of the original issue of the Rights
Certificates, the Rights Agent be, and it hereby is, authorized and directed:
(a) to countersign when signed manually or by facsimile by the
proper officers of the Corporation, original certificates for up to the
aggregate number of the Rights to be issued;
3
<PAGE> 57
(b) to record and register the Right Certificates when so
countersigned in the books for registration and transfer thereof, showing
the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on the face of each of the
Right Certificates and the date of each of the Right Certificates, as
provided in the Rights Agreement; and
(c) upon request of the Corporation, to send Right Certificates
when so countersigned, recorded and registered to the respective holders
of Common Shares, at the addresses of the holders shown on the records of
the Corporation.
Exchange Act Registration and Form 8-K
RESOLVED, that each of the officers of the Corporation is authorized to
file with the Commission all appropriate applications or registration statements
(and any amendments or supplements thereto) to effect the registration of the
Rights, Preferred Shares or other securities issuable upon the exercise of
Rights, or any or all thereof, under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and to appear before the Commission and to take
all such further actions and to execute all such additional documents as they or
any of them may deem necessary, appropriate, or desirable in connection
therewith.
RESOLVED, that each of the officers of the Corporation is authorized to
prepare, execute and file with the Commission a Current Report on Form 8-K
relating to the adoption of the Rights Agreement.
General
RESOLVED, that any actions taken by the officers of the Corporation
prior to the adoption of the foregoing resolutions that are within the authority
conferred thereby be, and each of them hereby is, ratified, confirmed and
approved as the act and deed of the Corporation.
RESOLVED, that the officers of the Corporation be, and each of them
hereby is, authorized and empowered to execute and deliver any and all other
documents, papers or instruments and to do or cause to be done any and all such
acts and things as they or any of them may deem necessary, appropriate or
desirable in order to enable the Corporation fully and promptly to carry out the
purposes and intent of the foregoing resolutions.
4
<PAGE> 58
DRAFT DESIGNATION OF
SERIES A PREFERRED STOCK OF
SIGNATURE INNS, INC.
1. Series A Preferred Stock.
(a) Designation. There shall be a series of Preferred Stock to be
known and designated as Series A Preferred Stock (the "Series A Preferred
Stock") and the number of shares constituting such series shall be .
(b) Dividends. Subject to the prior and superior rights of the
holders of any shares of any other series of Preferred Stock or any other
shares of Preferred Stock of the Corporation ranking prior and superior
to the shares of Series A Preferred Stock with respect to dividends, each
holder of one-hundredth (1/100) of a share (a "Unit") of Series A
Preferred Stock shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for that purpose,
such dividends as may be declared from time to time by the Board of
Directors in its discretion, in the same kind and in an amount per Unit
equal to the aggregate per share amount of all dividends (whether payable
in cash or stock or other securities or property) declared, if any, on
shares of Common Stock of the Corporation. In the event the Corporation
shall at any time after the date of issuance of the Series A Preferred
Stock (i) increase by way of a stock split or similar transaction the
number of outstanding shares of Common Stock (except by way of a stock
dividend received by holders of Units and shares of Common Stock in
accordance with this Section 1(b)), (ii) subdivide the outstanding shares
of Common Stock or (iii) combine the outstanding shares of Common Stock
into a smaller number of shares, then in each such case the amount per
Unit of any dividend payable in accordance with the preceding sentence of
this Section 1(b) shall be adjusted proportionately so that the holders
of each Unit shall receive an amount per Unit equal to the amount that
would be received per share of Common Stock outstanding prior to such
stock split or similar transaction, subdivision or combination of the
shares (as if such stock split or similar transaction, subdivision or
combination had not occurred).
(c) Voting Rights. The holders of Units of Series A Preferred Stock
shall have the following voting rights.
(1) Each Unit of Series A Preferred Stock shall entitle the
holder thereof to one vote on all matters submitted to a vote of
the shareholders of the Corporation. In the event the Corporation
shall at any time after the date of issuance of the Series A
Preferred Stock (i)
<PAGE> 59
increase by way of a stock split or similar transaction the number
of outstanding shares of Common Stock (except by way a stock
dividend received by holders of Units and shares of Common Stock in
accordance with Section 1(b) above), (ii) subdivide the outstanding
shares of Common Stock or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, then in each such
case the number of votes per Unit to which holders of Units of
Series A Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction
the numerator of which shall be the number of shares of Common
Stock outstanding immediately after such event and the denominator
of which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.
(2) Except as otherwise provided herein or required by law,
the holders of Units of Series A Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all
matters submitted to a vote of shareholders of the Corporation.
(3) Except as set forth herein or required by law, holders of
Units of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of shares of Common
Stock as set forth herein or as otherwise required by law) for the
taking of any corporate action.
d. Reacquired Shares. Any Units of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such Units
shall, upon their cancellation, become authorized but unissued Units of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
e. Liquidation. Dissolution or Winding Up.
(1) In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation and
after payment or provision for payment of the debts and other
liabilities of the Corporation, including the prior claims of the
holders of any other series of Preferred Stock, the holders of each
Unit of Series A Preferred Stock shall be entitled to share in any
assets remaining, ratably with the holders of each share of Common
Stock. In the event the Corporation shall at any time after the
date of issuance of the Series A Preferred
2
<PAGE> 60
Stock (i) increase by way of a stock split or similar transaction
the number of outstanding shares of Common Stock (except by way of
a stock dividend received by holders of Units and shares of Common
Stock in accordance with Section 1(b)), (ii) subdivide the
outstanding shares of Common Stock or (iii) combine the outstanding
shares of Common Stock into a smaller number of shares, then in
each such case the amount per Unit of any distribution in
accordance with this Section 1(e)(i) shall be adjusted
proportionately so that the holders of each Unit shall receive an
amount per Unit equal to the amount that would be received per
share of Common Stock outstanding prior to such stock split or
similar transaction, subdivision or combination of the shares (as
if such stock split or similar transactions, subdivision or
combination had not occurred).
(2) If upon the merger or consolidation of the Corporation
into or with any other corporation, or the merger of any other
corporation into it, the capital stock of the Corporation is to be
converted into or exchanged for cash or other property or
securities of a corporation other than the Corporation, the
allocation of any such cash, securities or other property into
which shares of capital stock of the Corporation are to be
converted or for which it is to be exchanged shall be made in
accordance with the provisions of paragraph (i) of this Section
1(e) as if such merger or consolidation were a liquidation of the
Corporation. Nothing herein shall be construed as requiring or
permitting a merger or consolidation to be treated as a liquidation
for any purpose other than the allocation provided for in this
Section.
f. Redemption. The Units of Series A Preferred Stock shall not be
redeemable at the option of the Corporation or any holder thereof.
Notwithstanding the foregoing sentence of this Section, the Corporation may
acquire Units of Series A Preferred Stock in any other manner permitted by law
and the Amended and Restated Articles of Incorporation or by-laws of the
Corporation.
g. Conversion. The Series A Preferred Stock is not convertible into
shares of any other class or series of stock of the Corporation.
h. Amendment. The Amended and Restated Articles of Incorporation,
including without limitation the provisions hereof, shall not hereafter be
amended, either directly or indirectly, or through merger or share exchange with
another corporation, in any manner that would alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
the holders thereof adversely without the affirmative vote of the
3
<PAGE> 61
holders of a majority or more of the outstanding Units of Series A Preferred
Stock, voting separately as a class.
i. Fractional Shares. The Series A Preferred Stock may be issued in
Units or other fractions of a share, which Units or fractions shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Preferred Stock.
Dated: September ____, 1996 SIGNATURE INNS, INC.
By__________________________
Name:
Title:
4
<PAGE> 1
EXHIBIT 10.1
DRAFT September 24, 1996
( ---------- , ------ )
CONTRACT FOR PURCHASE OF REAL ESTATE
THIS CONTRACT FOR PURCHASE OF REAL ESTATE, is made as of the _____ day
of ________, 1996, by and between ______________ LIMITED PARTNERSHIP, an Indiana
limited partnership ("Seller"), and SIGNATURE INNS, INC., an Indiana corporation
("Purchaser") .
AGREEMENT
In consideration of the payment by Purchaser to Seller of Ten Dollars
($10) and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and the mutual covenants herein contained, Seller
and Purchaser agree as follows:
1. PURCHASE AND SALE. Purchaser hereby agrees to purchase from Seller
and Seller hereby agrees to sell to Purchaser the undivided interest as
tenant-in-common set forth on Schedule I attached hereto and made a part hereof
in and to the motel commonly referred to as Signature Inn ________________
located at ____________________, _______ County, ________________ (collectively,
the "Project") (the undivided interest in the Project which is being purchased
and sold hereunder being referred to herein as the "Transferred Interest" and
the undivided interest as tenant-in-common in the Project which will be retained
by Seller as of the Closing (as hereinafter defined), as such interest is set
forth on Schedule I, being referred to herein as the "Remaining Interest"),
which Project consists of (a) the real estate described in Exhibit A attached
hereto and made a part hereof (the "Real Estate"), together with all rights,
privileges, easements and interests appurtenant thereto, including, but not
limited to, any rights, title and interests in and to any streets or other
public ways adjacent to the Real Estate; (b) all improvements located on the
Real Estate, which shall include not less than _______________ (____) guest
rooms and suites and any and all amenities located on the Real Estate,
including, without limitation, any recreational facilities (all such
improvements being referred to herein as the "Improvements," and the Real Estate
and the Improvements being referred to herein collectively as the "Real
Property") (the undivided interest as tenant-in-common in and to the Real
Property being purchased and sold hereunder as part of the Transferred Interest
being referred to herein as the "Transferred Real Property Interest"); (c) all
personal property owned by Seller located on or in the Real Property or used in
connection with the operation or maintenance of the Real Property, including,
without limitation, all inventory, foodstuffs, alcoholic and non-alcoholic
beverages, furniture (including, without limitation, beds, nightstands, chests
of drawers, tables, chairs, lobby furniture and outdoor furniture), fixtures,
heating, plumbing, ventilating and air conditioning equipment, electrical
systems, elevators and other machinery, appliances (including, without
limitation, refrigerators, freezers, ice machines, stoves, ranges, and ovens) ,
vending machines, mini-bars, trade fixtures, office equipment and supplies,
tools and maintenance equipment and supplies, fuels, drapery shades and blinds,
lamps, chandeliers and other lighting fixtures, rugs, carpets, carpeting and
other floor coverings, sculptures and art work, landscaping, linen, case goods,
silverware, china, dishes, glassware, computer equipment and hardware, computer
software, telephones, telephone systems, televisions and radios and motor
vehicles, but excluding all cash and cash equivalents (whether on hand or in
reserve or other accounts maintained with third parties) (all such personal
property being referred to herein collectively as the "Tangible Personal
Property") (the undivided interest as tenant-in-common in and to the Tangible
Personal Property being purchased and sold hereunder as part of the Transferred
<PAGE> 2
Interest being referred to herein as the "Transferred Tangible Personal
Property Interest"); (d) all of Seller's rights and interests in all leases,
room rental agreements and other agreements pursuant to which Seller agrees to
provide accommodations in, or the use of, the Improvements, or any part thereof,
to guests, licensees or invitees on and after the Closing Date (as hereinafter
defined) (the "Rental and Guest Agreements"); (e) all of Seller's rights, title
and interests in and to the leases of equipment used in or relating to the
ownership, maintenance, use or operation of the Real Property (the "Equipment
Leases") and the contracts relating to the ownership, maintenance, use or
operation of the Real Property (the "Service Contracts") (the Equipment Leases
and the Service Contracts being referred to herein collectively as the
"Operations Contracts"); and (f) all of Seller's rights, title and interests in
and to all intangible property used or useful in connection with the foregoing,
including without limitation, all books, records, plans, specifications,
drawings and reports, and all contract rights, guarantees, licenses and permits
(including any liquor licenses and permits) and warranties (collectively, the
"Intangible Personal Property") (the undivided interest as tenant-in-common in
and to the Intangible Personal Property being purchased and sold hereunder as
part of the Transferred Interest being referred to herein as the "Transferred
Intangible Personal Property") (the Tangible Personal Property, Rental and Guest
Agreements, Operations Contracts, and Intangible Personal Property being
referred to herein collectively as the "Personal Property") .
On the Closing Date, immediately following the Closing, the
Remaining Interest will be conveyed to Purchaser, as the general partner of
Seller, as a liquidating distribution of Seller (the "Liquidating Distribution")
As a result of the sale and purchase of the Transferred Interest as
contemplated hereby and the Liquidating Distribution, immediately after the
Closing, Purchaser will own the Transferred Interest and the Remaining Interest
and therefore One Hundred Percent (100%) of the Project.
2. EARNEST MONEY. Concurrently with the execution of this
Contract, Purchaser is delivering earnest money in the amount of ____________
Dollars ($ ) (the "Earnest Money") to the Indianapolis office of Lawyers
Title Insurance Corporation (the "Title Company") . The Earnest Money shall be
held by the Title Company in escrow, subject to the terms and conditions
hereinafter set forth, and shall be invested in a time deposit of a federally
insured banking institution approved by Purchaser and Seller. The Earnest
Money, and any interest thereon, shall be applied to the obligation of
Purchaser at the Closing and shall be credited against any portion of the
Purchase Price (as hereinafter defined) payable in cash.
3. PURCHASE PRICE AND MANNER OF PAYMENT. The purchase price for the
Transferred Interest (the "Purchase Price") shall be an amount equal to
_____________________ Dollars ($_______) . The Purchase Price shall be paid at
the Closing as follows:
a. Purchaser will assume (i) the Transferred Interest's share of
the principal balance outstanding as of the Closing Date of the
Existing Financing (as hereinafter defined); and (ii) all accrued and
unpaid interest on the Existing Loan as of the Closing Date. For the
purposes hereof, the "Existing Loan" shall mean the loan described on
Schedule II attached hereto and made a part hereof (the "Existing
Financing") , which Existing Financing is secured by a first
mortgage/deed of trust lien on the Project (the "Existing Financing
Lien") . Because Purchaser will own the entire Project after its
acquisition of the Transferred Interest and the Remaining Interest,
Purchaser may enter into an assumption agreement at the Closing for One
Hundred Percent (100%) of the Existing Financing. If Purchaser enters
into such an agreement at the Closing, it will
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be deemed to have satisfied the requirement of this subparagraph (a);
and
b. Purchaser shall pay to Seller by wire transfer of federal funds,
the difference between the Purchase Price, as adjusted as provided
herein, and the amount of the Existing Loan, principal and interest,
assumed by Purchaser pursuant to Paragraph (a) (i) and (ii) above.
The Purchase Price shall be allocated among the Project assets in the manner set
forth in Schedule III hereto. Each party agrees that it will not take any
position that varies from or is inconsistent with such allocation in any filing
made by such party with the Internal Revenue Service or any other federal, state
or local governmental or regulatory authority.
The Purchase Price shall be increased by an amount equal to the Transferred
Interest's Share of all amounts held in escrow or reserve as of the Closing Date
by Seller, a lenders or any other party for the payment of taxes and insurance
or as a furniture, fixture and equipments reserve or other reserve for the
Project (the "Escrows") . Seller shall transfer the Transferred Interest's Share
of the Escrows to Purchaser at Closing.
4. CLOSING. The purchase and sale of the Transferred Interest shall be
closed on a date specified by Purchaser which is not earlier than five (5) days
after the date on which the conditions precedent set forth in Paragraph 5 (a) -
(f) have been fulfilled (or waived by Purchaser) and which is not later than
_______ , 1996.
The purchase and sale of the Transferred Interest shall be closed at
the offices of Johnson, Smith, Pence, Densborn, Wright & Heath, One Indiana
Square, Suite 1800, Indianapolis, Indiana 46204, or at such other location as
may be mutually agreed to by the parties. The date and event of the consummation
of the purchase and sale of the Transferred Interest as contemplated hereby are
referred to herein, respectively, as the "Closing Date" and the "Closing."
5. CONDITIONS PRECEDENT TO CLOSING. Purchaser's obligations hereunder
shall be subject to the condition that as of the Closing Date there is no breach
of any of Seller's covenants, representations or warranties hereunder and to the
satisfaction of the following conditions precedent:
a. BUILDING DOCUMENTS. Within ______ ( ) days after the Effective
Date (as hereinafter defined) , Seller shall have furnished to
Purchaser the following documents (the "Building Documents") :
i. copies of architectural drawings and plans and
specifications for the Project in Seller's Possession (as
hereinafter defined);
ii. all Service Contracts, including, but not limited to, any
and all utility contracts, construction contracts and employment
and labor agreements, maintenance agreements (including, without
limitation, all janitorial, elevator, scavenger, laundry and
landscaping agreements) .
iii. all books and records and other documents relating to
the Project maintained by Seller or their agents in connection with
the ownership and operation of the Project in Seller's Possession
which Purchaser may reasonably require .
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iv. copies of all certificates of occupancy, licenses,
permits, authorizations and approvals (other than any such
certificates, licenses, permits, authorizations and approvals which
are no longer in effect) required by law as a condition to
occupancy of the Project or to any of its present uses or otherwise
issued with respect to the Project by any governmental authorities
having jurisdiction affecting the Project (the "Governmental
Approvals") , which are in Seller's possession.
v. copies of the bill or bills issued for the years 1994 and
1995 for real estate taxes and any special assessments and copies
of any subsequently issued notices pertaining to real estate taxes
or assessments applicable to the Project.
vi. copies of any engineering reports or other studies
(including inspection reports of governmental authorities or
insurance carriers) in Seller's Possession concerning the physical
condition and operation of the Project or recommended improvements
thereto .
vii. copies of any contracts entered into by Seller or its
agents for repairs or other work to be performed to the Project or
covering repairs or other work performed during the three (3) years
immediately preceding the Effective Date for a contract price in
excess of Ten Thousand Dollars ($10,000), which are in Seller's
Possession .
viii. copies of any reports or inspections of the Real
Property with respect to environmental, health or safety matters,
which are in Seller's Possession.
ix. such other documents as Purchaser may reasonably request
which are in Seller's Possession.
For purposes of this subparagraph 5(a), "Seller's Possession" shall
mean in Seller's actual possession or under Seller's reasonable control, or
reasonably available to Seller.
b. TITLE INSURANCE. Within _______ (____) days after the Effective
Date, Seller shall have furnished Purchaser, at Seller's expense, a commitment
for an owner's policy of title insurance (the "Title Commitment") issued by the
Title Company containing the agreement of the Title Company to issue an owner's
policy of title insurance (ALTA Form 1992) insuring fee simple title to the
Transferred Real Property Interest in the name of Purchaser upon delivery of a
limited warranty deed from Seller to Purchaser. The Title Commitment shall set
forth the state of title to the Real Estate together with all exceptions or
conditions to such title, including, but not limited to, all easements,
restrictions, rights-of-way, covenants, reservations and all other encumbrances
affecting the Real Estate which would appear in an owner's policy of title
insurance issued pursuant to the Title Commitment. Purchaser shall receive with
the Title Commitment, legible copies of the special exceptions set forth
therein. The Title Commitment shall contain the commitment of the Title Company
to insure such title to the Transferred Real Property Interest in Purchaser for
the full amount
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of the Purchase Price, shall contain the further agreement of the Title Company
to insure access from the Real Estate to a dedicated public right-of-way which
is contiguous to the boundary of the Real Estate, a 3.0 zoning endorsement
certifying that the Real Estate is zoned under the zoning ordinance of the
zoning jurisdiction in which the Property is located to permit the use of the
Real Property as a room motel.
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c. SURVEY. Within _______ (____) days after the Effective Date, Seller
shall have furnished Purchaser, at Seller's expense, a boundary survey of the
Real Estate prepared by a surveyor or engineer who is licensed by the
appropriate governmental authorities of the state in which the Real Estate is
located and who is acceptable to Purchaser (such boundary survey for the Real
Estate being referred to herein as the "Survey") , and certified as of a date
not more than ten (10) days prior to the date of delivery to Purchaser. The
Survey shall be prepared in accordance with Minimum Standard Detail Requirements
for Land Title Surveys jointly established and adopted by [the Indiana Land
Title Association] [ALTA and ACSM in 1992] , and shall certify that the Real
Estate is not located within a Special Flood Hazard Area. The Survey shall be
certified to Seller, Purchaser, and such other parties as Purchaser may request.
Within _____ (____) days after receipt by Purchaser of the Title
Commitment and the Survey, Purchaser shall advise Seller of any defect or
objections affecting the marketability of title to the Real Property or the use
of the Real Property as a motel, whether disclosed by the Title Commitment or
the Survey. Any item to which no objection is made by that date shall thereafter
be a "Permitted Exception." Purchaser agrees that the Existing Financing Lien
shall be a Permitted Exception, and that Purchaser shall not be entitled to
raise such Existing Financing Lien as a defect or objection affecting the
marketability of title to the Real Property, so long as no event of default is
continuing thereunder. If any objection is timely made, Seller shall endeavor to
satisfy the same within ______ (___) days after Seller's receipt of such
objection. If Seller fails to satisfy such objection within such _________ (___)
day period, Purchaser may, by written notice given to Seller within __________
(____) days after the expiration of such _______________ (____) day period,
terminate this Contract, in which event the Earnest Money, together with all
interest thereon, shall be returned to Purchaser, and neither Seller nor
Purchaser shall have any further rights, remedies or obligations hereunder.
Purchaser's failure to so terminate this Contract shall be deemed a waiver of
any objection not satisfied by Seller, other than objection to liens (other than
the Existing Financing Lien) that may be satisfied out of the Purchase Price at
Closing, and all such objections deemed waived shall thereafter constitute
Permitted Exceptions.
d. ADDITIONAL SIGNATURE INN PROJECTS. Within ___________ (_____) days
after the Effective Date (the "Additional Contract Deadline") , Purchaser shall
have entered into a binding contract (including and subject to terms and
conditions similar to those included herein) with the owner of each Signature
Inn project set forth on Schedule IV attached hereto and made a part hereof
(such projects being referred to herein singly, as an "Additional Signature Inn
Project," and collectively as the "Additional Signature Inn Projects") for the
acquisition by Purchaser of the interests in such Additional Signature Inn
Project set forth on Schedule IV (such interests being referred to herein singly
as an
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"Additional Signature Inn Interest," and collectively as the "Additional
Signature Inn Interests") . In the event Purchaser is unable to enter into such
a binding contract in respect of each Additional Signature Inn Interest by the
Additional Contract Deadline, Purchaser may terminate this Contract by written
notice given to Seller within ______ (____) days after the Additional Contract
Deadline. If Purchaser fails to terminate this Contract within such ___________
(______) day period, Purchaser shall be deemed to have waived the condition set
forth herein. In the event this Contract is so terminated, the Earnest Money,
together with all interest thereon, shall be returned to Purchaser, and neither
Seller nor Purchaser shall have any further rights, remedies or obligations
hereunder .
e. FINANCING. By no later than _______________, Purchaser shall have
obtained:
(i) the consent of the party holding the Existing Financing to the
assumption by Purchaser of the Transferred Interest's Share (as
hereinafter defined) thereof, which consent shall be upon terms and
conditions acceptable to Purchaser; and
(ii) a commitment for the funding of the amounts necessary to pay
Seller that portion of the Purchase Price payable in cash in accordance
with the terms of this Contract, which commitment shall be upon terms
and conditions acceptable to Purchaser.
f. INSPECTION. By no later than the Closing Date, Purchaser shall have
received, at its expense, a satisfactory inspection report describing the
physical condition of the Real Property .
In the event a condition set forth in Paragraph 5(e) or (f) is not
timely and completely satisfied, Purchaser may terminate this Contract by
written notice given to Seller within _________ (____) days after the date for
satisfaction of such condition. If Purchaser fails to terminate this Contract
within such _________ (____) day period, Purchaser shall be deemed to have
waived the respective condition. In the event this Contract is so terminated,
the Earnest Money, together with all interest thereon, shall be returned to
Purchaser, and neither Seller nor Purchaser shall have any further rights,
remedies or obligations hereunder .
Purchaser obligations hereunder shall be subject to the additional
condition that, by no later than the Closing Date, Purchaser shall have acquired
(or shall be acquiring simultaneously with the Closing) each Additional
Signature Inn Interest (other than Excluded Additional Signature Inn Interests
(as hereinafter defined) ) . If Purchaser does not so acquire each Additional
Signature Inn Interest (other than Excluded Additional Signature Inn Interests)
and such failure is not due to default by Purchaser under the contract in
respect thereof, Purchaser may terminate this Contract by written notice given
to Seller by the last day provided for the Closing pursuant to Paragraph 4
hereof. In the event this Contract is so terminated, the Earnest Money, together
with all interest thereon, shall be returned to Purchaser, and neither Seller
nor Purchaser shall have any further rights, remedies or obligations hereunder.
If Purchaser is unable to enter into a binding contract with respect to an
Additional Signature Inn Interest, but Purchaser does not terminate this
contract as a result thereof, such Additional Signature Inn shall thereafter be
deemed an "Excluded Additional Signature Inn Interest."
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6. CLOSING ADJUSTMENTS AND PRORATIONS.
a. TAXES AND ASSESSMENTS. All real estate and personal property taxes
assessed against the Project for years prior to the year of the Closing and all
penalties and interest thereon shall be paid by Seller. The Transferred
Interest's Share of all real estate and personal property taxes assessed against
the Project for the year of the Closing shall be prorated between Seller and
Purchaser as of the Closing Date on the basis of the exact number of days each
will own the Transferred Interest during the year of the Closing. If the amount
of such real estate and personal property taxes is not known at the Closing,
closing adjustments will be finally made on the basis of the most recent tax
rate and assessed valuation for the Project and, if the Real Property has been
taxed as part of a tax parcel including other real estate, a reasonable estimate
as to the allocation of taxes between the Real Property and such other real
estate. Purchaser shall have the right, in the name of Seller or Purchaser, to
contest or appeal any such tax or assessment. Immediately upon conveyance of the
Transferred Interest, Seller shall pay all state, county and city property
transfer taxes, documentary stamp taxes and gross income or adjusted gross
income taxes then due and payable in respect of the transfer hereby
contemplated. The Transferred Interest's Share of any taxes and assessments in
respect of the Project for the year of Closing shall be paid by Purchaser and
Purchaser will assume the same at Closing. Purchaser shall be allowed as a
credit against that portion of the Purchase Price payable in cash at the
Closing, the Transferred Interest's Share of the taxes and assessments in
respect of the Project for the year of Closing. The owner of the Remaining
Interest shall be liable for the Remaining Interest's Share of any taxes and
assessments in respect of the Project for the year of Closing .
b. RECORDING FEES. Seller shall pay all state, county and city
recording fees and costs related to the conveyance of the Transferred Interest
to Purchaser. Purchaser shall pay all recording costs and fees related to the
financing of the Transferred Interest, including any recording costs and fees
for the assignment and assumption agreement in respect of the Existing
Financing.
c. ROOM RENTALS. Seller shall be entitled to all guest room rental
charges, public room rental charges, food and beverage charges and other charges
and revenues derived from the operation of the Project ("Charges") for the
period prior to the Closing Date. Purchaser shall be entitled to the Transferred
Interest's Share of all Charges derived from the operation of the Project from
and after the Closing Date. The owner of the Remaining Interest shall be
entitled to the Remaining Interest's Share (as hereinafter defined) of all
charges derived from the operation of the Project on and after the Closing Date.
d. UTILITIES. Water, electricity, sewer, gas, cable television,
telephone and other utility charges shall be prorated based, to the extent
practicable, on the average monthly charges for such utilities over the twelve
months immediately preceding the month in which the Closing is held, and on the
basis of the actual number of days of the month which shall have elapsed as of
the Closing Date. Seller shall be responsible for all such charges for the
periods prior to the Closing Date. Purchaser shall be responsible for the
Transferred Interest's Share of such charges for the period on and after the
Closing Date. The owner of the
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Remaining Interest shall be responsible for the Remaining Interest's Share of
all such charges for the periods on and after the Closing Date.
e. OPERATIONS CONTRACTS. Amounts paid or payable under the Operations
Contracts shall be prorated as of the Closing Date on the basis of the actual
number of days of the month which shall have elapsed as of the Closing Date.
Seller shall be responsible for all such amounts payable for the period prior to
the Closing Date. Purchaser shall be responsible for the Transferred Interest's
Share of such amounts payable under the Operation's Contract for the period on
and after the Closing Date. The Owner of the Remaining Interest shall be
responsible for the Remaining Interest's Share of such amounts payable under the
Operation's Contract for the period on and after the Closing Date. At the
Closing, Purchaser, as the owner of the Transferred Interest and the Remaining
Interest, shall assume and agree to pay, perform and discharge, pursuant to an
Assignment and Assumption Agreement in a form reasonably satisfactory to Seller
and Purchaser (the "Assignment and Assumption") , all obligations accruing on
and after the Closing Date under the Operations Contracts (the "Assumed
Liabilities") .
f. EMPLOYMENT EXPENSES. All payroll, F.I.C.A., employee benefits and
employee-related taxes and accrued and unpaid vacation and sick pay for the
Project for the period prior to the Closing Date shall be paid by Seller in full
at or prior to the Closing, without contribution or proration from Purchaser.
g. MAINTENANCE ASSESSMENTS. All Maintenance Assessments (as hereinafter
defined) for years prior to the year of Closing and all penalties and interest
thereon shall be paid by Seller. The Transferred Interest's Share of any unpaid
Maintenance Assessments assessed against the Project for the year of Closing
shall be prorated between Seller and Purchaser as of the Closing Date on the
basis of the exact number of days each will own the Transferred Interest during
the year of Closing. If the amount of such Maintenance Assessments is not known
at the Closing, closing adjustments will be finally made on the basis of the
amount of the most recent Maintenance Assessments. Purchaser shall have the
right, in the name Seller or Purchaser, to contest or appeal any such
Maintenance Assessment. The Transferred Interest's Share of any unpaid
Maintenance Assessments for the year of it shall be paid by Purchaser, and
Purchaser will assume the same at Closing. Purchaser shall be allowed as a
credit against that portion of the Purchase Price payable in cash at the
Closing, the amount so assumed. The owner of the Remaining Interest shall be
liable for the Remaining Interest's Share of any unpaid Maintenance Assessments
for the year of Closing. For the purposes hereof, "Maintenance Assessments"
shall mean all amounts payable by Seller, as the owner of the Project, under any
declaration, easement or other agreement for the maintenance, repair or use by
the Project of any road, street sign, easement, utility (including any storm
sewer or sanitary sewer) , common area or other area.
h. ESCROW. The Transferred Interest's share of all amounts held in
escrow or reserve for the Project (the "Escrowed Amounts") , including, without
limitation amounts escrowed for taxes and insurance, and furniture, fixture and
equipment reserves, whether held by the lender of the Existing Financing or any
other party, shall be transferred to Purchaser at the Closing. The Purchase
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Price shall be increased by the amount of any Escrowed Amounts so transferred to
Purchaser.
i. ADDITIONAL ITEMS. Such other items that are customarily prorated
in transactions of this nature shall be ratably prorated.
For the purposes hereof, the "Transferred Interest's Share" shall be a
fraction which is equal to the undivided interest in the Project described on
Schedule I attached hereto being sold to, and purchased by, Purchaser pursuant
to this Contract, and the " Remaining Interest's Share" shall be a fraction
which is equal to the undivided interest in the Project described on Schedule I
attached hereto which is not sold under this Contract. Seller and Purchaser
acknowledge and agree that any reference herein to the owner of the Remaining
Interest shall be a reference to Purchaser after the Closing. For purposes of
calculating prorations under this Contract, Purchaser shall be deemed to be in
title to the Transferred Interest and the Remaining Interest, and therefore
entitled to the income in respect thereof and responsible for the expenses in
respect thereof, for the entire day upon which the Closing occurs. Bills
received after the Closing which relate to expenses incurred, services performed
or other amounts allocable to the period prior to the Closing Date shall be paid
by Seller, except to the extent this Contract otherwise provides.
All credits to Purchaser from the closing adjustments and prorations
described above or elsewhere in this Contract shall reduce the cash portion of
the Purchase Price payable at the Closing and all credits to Seller from the
closing adjustments and prorations described above or elsewhere in this Contract
shall increase the cash portion of the Purchase Price payable at the Closing.
Any accounts receivable for Charges accruing prior to the Closing Date (all
accounts receivable for Charges accruing prior to the Closing Date being
referred to herein as "Pre-Closing Accounts Receivable") , shall remain the sole
property of Seller and Purchaser shall have no rights, title or interests
therein. In no event shall any adjustment be made to the Purchase Price as a
result of uncollectible Pre-Closing Accounts Receivable. All costs, expenses,
bills and other obligations relating to the operation of the Project which are
incurred or accrued through the day immediately preceding the Closing Date shall
be the obligation of Seller.
Except as set forth in Paragraph 3 (a) hereof and Paragraph 6 (a) ,
6(e) and 6(f) hereof, Purchaser shall not assume any indebtedness, obligations,
commitments or liabilities of Seller of any nature whatsoever, including,
without limitation (a) any obligation for federal, state and local income taxes
incurred by Seller or arising out of transactions entered into or any state of
facts existing at or prior to the Closing or arising out of or incident to the
sale of the Transferred Interest to Purchaser; (b) any obligation or liability
relating to the Project imposed under any law relating to the environment,
health or safety, and arising out of any act, event or condition occurring or
existing prior to the Closing; (c) the obligations and liabilities of Seller
imposed hereunder and under any other documents delivered by Seller at the
Closing; and (d) any obligations and liabilities of Seller in respect of any and
all present and former employees of the Project, including, without limitation,
liabilities and obligations for (x) all disability income; unemployment
benefits; workers' compensation claims and benefits; (y) all benefits and
liabilities under any employee benefit plans (within the meaning of Section 3(3)
of the Employee Retirement Income Securities Act of 1974, as amended) ,
programs, or arrangements maintained by or contributed to by Seller; and (z)
violations by Seller of the Immigration Reform and Control Act of 1986,
including Form 1-9 requirements. Purchaser agrees solely for the benefit of
Seller, but not for the benefit of any other person, that the Assumed
Liabilities shall be paid and discharged in accordance with the terms thereof,
provided that Purchaser may in good faith contest any Assumed Liability. Seller
agrees, solely for the benefit of Purchaser but not for the benefit of any other
person, that any liabilities or
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obligations of Seller not included in the Assumed Liabilities will be paid and
discharged by Seller in accordance with the terms thereof, provided that Seller
may in good faith contest any such liability or obligation.
7. INSPECTIONS. Purchaser and its employees, agents, contractors and
engineers shall, upon reasonable notice to Seller, have the right to enter the
Project at any time and from time to time for purposes of inspecting, surveying,
making engineering studies and geotechnical and soil tests of the same and
making such other investigations and tests as Purchaser deems necessary or
desirable. Purchaser shall repair any damage incurred or arising in connection
with inspections or work performed by Purchaser, its agents, contractors or
engineers pursuant to the provisions of this Paragraph 7 and Purchaser shall
indemnify Seller against any losses, claims, damages or liabilities arising from
any such inspections or work. Such indemnity shall be deemed to include the
payment of reasonable attorneys' fees and court costs incurred in defending any
such claim and shall survive any rescission or termination of this Contract.
8. RISK OF LOSS: CONDEMNATION. Until the purchase and sale of the
Transferred Interest is consummated at the Closing, the risks of ownership and
loss of the Project shall be borne by Seller.
In the event the Project or any part thereof is taken by condemnation
or other exercise of the power of eminent domain prior to the Closing, Purchaser
shall have the option to:
a. Require Seller to convey to Purchaser in accordance with the
terms of this Contract the Transferred Interest in and to that part of
the Project not taken and assign to Purchaser, as the owner of the
Transferred Interest and the Remaining Interest, all condemnation
proceeds payable in respect of that part of the Project taken; or
b. If the taking materially adversely affects the use of the
Project or reduces the number of rooms or parking spaces, terminate
this Contract.
Seller shall promptly notify Purchaser of any condemnation or eminent domain
proceeding affecting the Project of which it receives notice.
If, prior to the Closing, any portion of the Project is damaged or
destroyed to a "material" (as hereinafter defined) extent, Seller shall give
Purchaser prompt written notice thereof, and Purchaser may, at its option,
terminate this Contract by delivery to Seller of written notice of such
termination within fourteen (14) days after receipt of notice of such damage or
destruction. If damage or destruction occurs within fourteen (14) days prior to
the Closing, the Closing shall be extended to the date which is fourteen (14)
days after the occurrence of such damage or destruction. Upon receipt of such
notice of termination, the Earnest Money, together with all interest thereon,
shall be returned to Purchaser, and the parties shall have no further rights,
remedies or obligations hereunder. If Purchaser elects not to so terminate this
Contract, then: (a) the Closing shall take place as provided in this Contract;
(b) Seller shall assign to Purchaser, as the owner of the Transferred Interest
and the Remaining Interest, all of Seller's rights with respect to the
settlement of all insurance proceeds receivable in respect of such damage or
destruction; and (c) Purchaser shall receive credit at the Closing against the
Purchase Price in an amount equal to the Transferred Interest's Share of
applicable insurance deductibles After the Closing, Purchaser shall have the
exclusive right to settle the loss and shall receive all proceeds of the
insurance covering the Improvements so damaged or destroyed, if a settlement of
insurance proceeds has not occurred. If any amounts remain after the complete
restoration of the Project, Purchaser shall be entitled to the Transferred
Interest's Share of such
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remainder and the owner of the Retained Interest shall be entitled to the
Retained Interest's Share of such remainder.
If, prior to the Closing, any portion of the Project is damaged or
destroyed, but such damage or destruction is not "material," Seller shall give
Purchaser prompt written notice thereof and shall use its best efforts to
restore, prior to the Closing, the Project to its previous condition. If Seller
is unable to complete said restoration prior to the Closing, Purchaser shall be
entitled to elect by written notice to Seller either (a) to receive credit at
the Closing for the entire cost of restoration of the Project, or (b) to accept
an assignment from Seller to Purchaser of all of Seller's rights with respect to
the settlement of all insurance proceeds receivable in respect of such damage or
destruction and to receive credit at the Closing equal to the Transferred
Interest's Share of all insurance deductibles therefrom. If Purchaser elects the
option set forth in clause (b) of this subparagraph, until the settlement of
loss there shall be retained in escrow out of the proceeds at the Closing such
sum as the parties shall agree upon as sufficient to pay the Transferred
Interest's Share of the estimated cost of fully repairing and rehabilitating
such damaged or destroyed Project (and to pay all indirect and incidental costs
and expenses) . Upon ascertainment of the actual cost of repairs and
rehabilitation and receipt of the insurance proceeds an appropriate refund shall
be made to Seller of any excess sum in said escrow which was not required to
complete the work. In the event Purchaser elects the option set forth in clause
(a) of this subparagraph, Seller shall be entitled to retain all insurance
proceeds with respect to such damage or destruction.
For purposes of this Paragraph 8, "material" shall mean damage to or
destruction of the Project for which the aggregate estimated cost of repair,
restoration and rehabilitation (including all indirect and incidental costs and
expenses) is in excess of Twenty Five Thousand Dollars ($25,000) .
9. POSSESSION OF THE PROJECT; TERMINATION OF EMPLOYEES. Possession of
the Project shall be delivered by Seller to Purchaser at the Closing, free and
clear of the rights of any other party to possession thereof (excluding the
rights of the owner of the Retained Interest as a tenant-in-common with
Purchaser and excluding the rights of guests under Rental and Guest Agreements).
Upon delivery of possession to Purchaser, the Project shall be in the same
condition as it is on the date hereof, ordinary wear and tear excepted.
Effective as of 12:01 a.m. on the Closing Date of all of the employees of Seller
at the Project will be terminated.
10. SELLER'S OBLIGATIONS AT CLOSING. At the Closing, Seller agrees to
deliver to Purchaser in accordance with the terms of this Contract the
following:
a. an owner's policy of title insurance issued by the Title Company
(the "Title Policy") with an effective date as of the Closing Date in
the amount of the Purchase Price, which shall insure fee simple,
indefeasible title in and to the Transferred Real Property Interest in
the name of Purchaser as legal owner, subject only to the Permitted
Exceptions. The Title Policy shall be issued on ALTA Form 1992, shall
certify in a form 3.0 zoning endorsement the zoning of the Real
Property as of the Closing Date and shall insure access from the Real
Property to a dedicated public right-of-way which is contiguous to the
boundary of the Real Estate. All standard pre-printed exceptions shall
be deleted from such Title Policy. Any closing fee charged by the Title
Company to issue the Title Policy with an effective date as of the
Closing Date and the use of its personnel and facilities shall be paid
one-half (1/2) by Seller and one-half (1/2) by Purchaser. All other
costs in respect of the Title Policy shall be borne by Seller. The
requirement set forth in this Section 10(a) shall be deemed to be
satisfied if, at
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<PAGE> 12
the Closing, the Title Company issues to Purchaser an owner's policy of
title insurance which insures fee simple, indefeasible title to the
entire Real Property; provided, however, in no event shall Seller be
required to bear any greater cost for such title policy than it would
be required to bear hereunder for the Title Policy;
b. A duly authorized and executed Limited Warranty Deed in
recordable form conveying good and marketable title to the Transferred
Interest, free and clear of all liens, claims, encumbrances, security
interests or other defects in title, other than Permitted Exceptions
(including the Existing Loan, the Transferred Interest's Share in which
Purchaser will assume in such deed);
c. A bill of sale executed by Seller conveying and assigning title
to the Transferred Tangible Personal Property Interest and Intangible
Personal Property Interest to Purchaser free and clear of all liens,
claims, encumbrances or security interests or other defects in title;
d. A duly authorized and executed Affidavit in the form required by
the Title Company to provide extended coverage under the Title Policy;
e. A duly authorized and executed Assignment and Assumption and an
assignment of all Governmental Approvals and Building Documents, and
Escrows;
f. A duly authorized and executed affidavit in a form reasonably
satisfactory to Purchaser stating that Seller is not a "Foreign Person"
as such term is used in Section 1445 of the Internal Revenue Code;
g. A duly authorized and executed sales disclosure statement, as
required by I.C. 6-1.1-5.5, et seq, which allocates the Purchase Price
between the Transferred Real Property Interest and the Transferred
Personal Property Interest as set forth on Schedule III (the "Sales
Disclosure Statement");
h. Evidence that all employees of Seller at the Project have been
terminated as of 12:01 a.m. on the Closing Date.
i. Such other documents relating to Seller's authorization,
existence, and organization as Purchaser or the Title Company may
reasonably require and such other documents as are contemplated by this
Contract.
All of the documents and instruments required pursuant to this
Paragraph 10 or otherwise in connection with the consummation of this Contract
shall be in a form and manner reasonably satisfactory to Purchaser's and
Seller's counsel.
11. PURCHASER'S OBLIGATIONS AT CLOSING. At the Closing, Purchaser
agrees to deliver to Seller in accordance with the terms of this Contract the
following:
a. the Assignment and Assumption;
b. the amount of the Purchase Price payable under Paragraph 3 (b)
above, subject to the Closing adjustments and prorations provided for
herein;
12
<PAGE> 13
c. an assignment and assumption with the holder of the Existing
Financing pursuant to which Purchaser assumes the Transferred Interests
Share of the Existing Financing; and
d. a duly authorized and executed Sales Disclosure Statement .
12. SELLER'S COVENANTS. Seller covenants and agrees:
a. Seller shall not enter into any new undertakings or agreements
relating to the management, financing or maintenance of the Project,
other than the agreements entered into the ordinary course of Seller's
operation and management of the Project which do not create or permit a
lien or interest in the Project and will not survive the Closing,
without the prior written approval of Purchaser, which approval shall
not be unreasonably withheld.
b. Seller shall continue to operate and maintain the Project in the
same manner that Seller has operated and maintained the Project during
its ownership, which includes maintaining the Project in such a manner
that all rooms in the Project are habitable in accordance with state
and local laws, and complying with the provisions of all Service
Contracts and other agreements to which it is a party or by which it is
bound and all applicable laws, ordinances, rules and regulations which
affect the Project.
c. Seller shall maintain all insurance on the Project that is in
effect as of the date hereof.
d. Seller shall not remove any Personal Property from the Project
unless such Personal Property is replaced with personal property of
like kind and like value.
e. Seller shall not, after the date of this Contract and prior to
the Closing, enter into any contract, agreement or option granting to
any party the right to purchase the Property or alienate, lien,
encumber or otherwise transfer the Project, any part thereof or any
interest therein, except in connection with a refinancing of the
indebtedness presently on the Project.
13. REPRESENTATIONS AND WARRANTIES. As a material inducement to
Purchaser for entering into this Contract, Seller hereby represents and warrants
to Purchaser as follows:
a. Seller is a limited partnership duly organized and validly
existing under the laws of the State of Indiana [and is duly qualified
to do business in the State of ______________ as a foreign
-------------- ];
b. Seller has the power and authority to enter into and perform its
obligations under this Contract and all necessary action has been taken
to authorize Seller's execution and performance of this Contract and
the consummation of the transactions herein contemplated;
c. Seller owns good, marketable and indefeasible fee simple title
to the Real Property free and clear of all liens, encumbrances,
security interests or other defects in title, other than Permitted
Exceptions; and
13
<PAGE> 14
d. Seller owns good and marketable title to the Personal Property
free and clear of all liens, encumbrances, security interests or other
defects in title, other than Permitted Exceptions .
Each of the foregoing representations and warranties shall be and
remain true at and as of the Closing Date.
14. DEFAULT. In the event the purchase and sale contemplated by this
Contract is not consummated due to the breach hereof or default hereunder by
Purchaser and such breach or default shall not have been cured by Purchaser
within thirty (30) days (or such additional time as may be reasonably necessary
to cure any non-payment default) after delivery by Seller of written notice
thereof to Purchaser, then the Earnest Money shall be forfeited to Seller as
full liquidated damages and Seller shall have no further rights to a claim for
damages, specific performance or otherwise, and this Contract shall be of no
further force or effect.
In the event the purchase and sale contemplated by this Contract is not
consummated due to the breach hereof or default hereunder by Seller, or if any
representation or warranty made herein by Seller is untrue or breached as of the
Closing Date, then, after notifying Seller in writing of such breach, default or
misrepresentation and allowing Seller thirty (30) days (or such additional time
as may be reasonably necessary) to cure, the Earnest Money, together with all
interest earned thereon, shall be returned immediately to Purchaser, and
Purchaser may avail itself of any and all remedies at law or in equity,
including, but not limited to, a suit for specific performance of this Contract
or for damages for the breach of this Contract or any of the representations or
warranties set forth herein.
15. USE OF BROKERS. Purchaser represents and warrants to Seller that it
has contracted with no real estate broker, finder or other person with respect
to this Contract or the transactions contemplated hereby; and, insofar as it
knows, no real estate broker or other person claiming through Purchaser is
entitled to any commission or finder's fee in any such connection. Seller
represents and warrants to Purchaser that it has neither contracted nor dealt
with any real estate broker, finder or other person with respect to this
Contract or the transactions contemplated hereby; and, insofar as it knows, no
other real estate broker or other person claiming through Seller is entitled to
any commission or finder's fee in any such connection. Seller and Purchaser each
agree to indemnify and hold harmless one another against any loss, liability,
damage or claim incurred by reason of any brokerage commission or finder's fee
alleged to be payable because of the indemnifying party's representation in this
Paragraph 15 being untrue. Such indemnity obligation shall be deemed to include
the payment of reasonable attorneys' fees and court costs incurred in defending
any such claim.
16. NOTICES. All notices, requests, demands, consents and other
communications required or permitted under this Contract shall be in writing and
shall be deemed to have been duly and properly given on the date of service if
delivered personally or on the date of mailing if deposited in a receptacle of
the United States mail, first class postage prepaid, addressed appropriately as
follows :
14
<PAGE> 15
If to Seller: _______________________________
250 East 96th Street, Suite 450
One Parkwood Crossing
Indianapolis, IN 46240
Attention: John D. Bontreger
With a copy to: Steven Lee, Esquire
Barnes & Thornburg
11 South Meridian Street, Suite 1313
Indianapolis, Indiana 46204
If to Purchaser: Signature Inns, Inc.
250 East 96th Street, Suite 450
One Parkwood Crossing
Indianapolis, IN 46240
With a copy to: Thomas N. Eckerle, Esquire
Johnson, Smith, Pence, Densborn,
Wright & Heath
One Indiana Square, Suite 1800
Indianapolis, Indiana 46204
Either party may change its address for purposes of this Paragraph 16 by giving
the other party written notice of the new address in the manner set forth above.
17. ASSIGNMENT. Purchaser may assign its interest in this Contract to
any person or entity which is an affiliate of Purchaser or may nominate any such
person or entity to receive title to the Transferred Interest pursuant to this
Contract. Except as provided in the preceding sentence, neither party may assign
its interest in this Contract without the prior written consent of the other
party.
18. BINDING ON SUCCESSORS. This Contract shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
representatives, successors and permitted assigns.
19. GOVERNING LAW. This Contract shall be governed by and construed in
accordance with the laws of the State of Indiana.
20. COUNTERPARTS. This Contract may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
21. MODIFICATION. This Contract may not be changed or modified except
by an agreement in writing signed by the party sought to be charged with such
modification.
22. WAIVER. No failure on the part of either party to exercise any
power or right given hereunder or to insist upon strict compliance with any
obligations specified herein, and no custom or practice at variance with the
terms hereof, shall constitute a waiver of either party's right to demand exact
compliance with the terms hereof; provided, however, that either party may, at
its sole option, waive in writing any requirement, covenant or condition herein
established for the benefit of such party without affecting any of the other
terms or provisions of this Contract. No delay on the part of either party in
the exercise of any power or right hereunder shall operate as a waiver thereof
nor shall any single or partial exercise of any power or right preclude other or
further exercise thereof or the exercise of any other power or right. All rights
and remedies existing under this Contract shall be cumulative and shall be in
addition to those otherwise provided by law.
15
<PAGE> 16
23. RECORDING OF CONTRACT. In the event Seller or Purchaser desires to
record this Contract, the parties agree to execute for recording purposes a
memorandum thereof indicating the parties to this Contract and a legal
description of the Real Estate, but omitting the payment provisions and other
terms hereof, notice of which is not required to protect the respective
interests of the parties hereto as against third persons. Purchaser shall bear
the cost of the preparation and recording of any such memorandum.
24. ENTIRE AGREEMENT. This Contract constitutes the entire agreement
among the parties hereto and supersedes all prior discussions, letters of
intent, agreements, writings and representations between Seller and Purchaser
with respect to the Transferred Interest and the transaction contemplated
herein.
25. LIMITED PARTNERSHIP APPROVAL. The rights and obligations hereunder
of Purchaser and Seller and the effectiveness of this Contract shall be subject
to the condition that a Majority (as such term is defined in the Partnership
Agreement of Seller) of the limited partners of Seller shall have approved the
transaction contemplated hereby and the execution hereof by the general partner
of Seller. Seller shall notify Purchaser in writing immediately upon the
determination of the approval or non-approval by the Majority of the limited
partners of Seller of the transaction contemplated hereby. In the event such
approval is not obtained by _______________, the Earnest Money shall be returned
to Purchaser and neither Seller nor Purchaser shall have any further rights,
remedies or obligations hereunder. In the event such approval is obtained, the
date upon which Purchaser receives notice from Seller of such approval shall be
referred to herein as the "Effective Date."
IN WITNESS WHEREOF, Purchaser and Seller have executed this Contract as
of the date first hereinabove written.
"SELLER"
___________________PARTNERSHIP ,
an Indiana limited partnership
By: Signature Inns, Inc., an Indiana corporation,
Its General Partner
By: _________________________________
Printed : ___________________________
Title : _____________________________
"PURCHASER"
SIGNATURE INNS, INC., an Indiana corporation
By: _____________________________________________
Printed : _______________________________________
Title : _________________________________________
16
<PAGE> 17
DESCRIPTION OF REAL ESTATE
Exhibit A
<PAGE> 18
TRANSFERRED INTEREST
Purchaser is purchasing an undivided ___________ interest as
tenant-in-common in and to the Project.
RETAINED INTEREST
Seller is retaining an undivided _____________ interest as
tenant-in-common and to the Project.
SCHEDULE I
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT CONTRACT
AGREEMENT, dated this 16th day of December , 1993, between Signature
Inns, Inc., hereinafter referred to as the "Employer", and John D Bontreger,
hereinafter referred to as the "Employee".
1. Employment. The Employer hereby employs the Employee and the
Employee hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. Term. The employment hereunder shall commence on Dec. 16, 1993, and
shall continue for three (3) years, unless previously terminated pursuant to the
provisions hereinafter contained. At the expiration date of the initial three
(3) year term of this Agreement, the Agreement shall be subject to automatic
renewal for additional terms of one and one-half (1 1/2) years each, unless
either party delivers notice of termination to the other party no later than
thirty (30) days prior to the first day of the applicable renewal term.
3. Salary and Bonus. For all services rendered by the Employee under
this Agreement, Employer shall pay the Employee annualized base compensation of
One Hundred Thirty-Six Thousand Five Hundred Dollars ($ 136,500.00) (less all
ordinary employment tax deductions) payable in equal installments every two
weeks of employment. Employee's performance and salary shall be reviewed
annually by Employer's Board of Directors. Employee's salary shall be subject to
increase at the discretion of the Employer's Board of Directors. In addition
thereto, Employee also shall be eligible to
<PAGE> 2
receive bonuses, if any, including but not limited to, the Executive Incentive
Compensation Program (EICP), in such amounts and on such terms as the Board of
Directors of the Employer shall determine in its sole discretion, but with the
understanding that the EICP bonus is earned and accrued monthly.
4. Duties. The Employee is engaged as President and Chief Executive
Officer of the Employer. The general duties of the position are set forth in
either or both the Employer By-laws or the "Schedule of Employee Duties" which
is attached hereto as Exhibit "A" and by this reference made a part hereof. The
precise duties and services of the Employee may be extended or curtailed, from
time to time, at the direction of the Board of Directors of the Employer. The
Employee's duties shall be reasonably related to those ordinarily performed by a
person employed in such a job position.
5. Extent of Services. The Employee shall devote all of his/her
professional time, efforts, skill and ability to the business of the Employer,
and shall not, during the term of this Agreement, be engaged in any other
business activity, whether or not such business activity is pursued for gain,
profit or other pecuniary advantage, unless any such other business activity is
disclosed to and approved by the Board of Directors of the Employer. Nor shall
this paragraph 5 be construed as preventing the Employee from investing his/her
assets in such form or manner as will not require any services on the part of
the Employee in the
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<PAGE> 3
operation of the affairs of the companies in which such investments are made.
6. Expenses and Limitation of Authority. Employer shall reimburse the
Employee for all reasonable out-of-pocket expenses incurred by Employee directly
for and on behalf of Employer upon the presentation by the Employee, from time
to time, of an itemized account of such expenditures. Employee shall not have
the authority to monetarily obligate the Employer without the prior written
approval of the Employer. Employee shall not have any authority to change the
terms of employment, including but not limited to compensation, of any employee
of Employer, without the prior written approval of the Employer. Employee agrees
to indemnify and hold Employer harmless as to any and all disputes, actions, or
claims, including all costs and attorney's fees, asserted against Employer,
arising from Employee's willful misconduct.
7. Fringe Benefits. Employee shall be entitled to all fringe benefits
given other employees of Employer of equal rank or compensation as set forth in
the manual of standard company policies. Employee understands and agrees that
all benefits are subject to change from time to time at the sole discretion of
the Board of Directors of Employer to the extent permitted by law. All corporate
employees are eligible for participation in the Corporate Stock Option Plan.
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<PAGE> 4
8. Restrictive Covenant. For a period of time equal to the term of
employment most recently in effect under Paragraph 2 of this Agreement, after
termination of employment for just cause by Employer or resignation without just
cause by Employee, Employee agrees:
(1) not to compete with Employer or any of its franchisees or
affiliated partnerships as an officer, director, partner, employee, or
individually, by directly or indirectly assisting in the operation of a hotel or
motel within a five (5) mile radius of any Signature Inn in operation at the
time of the termination of employment;
(2) not to attempt to hire, engage or employ, or solicit, contact or
communicate with, for the purpose of hiring, employing or engaging any person
who is then an employee or commissioned agent of the Employer (or of a franchise
or affiliated partnership) or who was such an employee at any time within the
twelve-month period immediately prior thereto.
The Employee acknowledges that the restricted period of time and
geographic region specified are reasonable in view of the nature of the business
in which the Employer is engaged and the Employee's knowledge of the Employer's
operations. If the scope of any stated restriction is too broad to permit
enforcement of such restriction to its full extent, then such restriction shall
be enforced to the maximum extent permitted by law. Employee hereby agrees that
regardless of the actual date employment commences,
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<PAGE> 5
this covenant is supported by consideration consisting of continued employment,
and refusal to abide by this covenant constitutes just cause for termination.
9. Acknowledgement. Employee recognizes that Employer's business
involves all aspects of hotel/motel operation. Employee acknowledges that:
a. Employer's services and system are highly specialized items;
b. Employer has a proprietary interest in the documents and
information regarding its methods of development, customers,
computer software, sales, pricing, costs, and the specialized
requirements of Employer's operation; and
c. Such information is highly confidential and possesses a commercial
value from not being generally known.
10. Employer Trade Secret Information. Employee hereby understands and
agrees that Employee will, at all times, conform his/her conduct to the
requirements of the Indiana Trade Secrets Act, I.C. Section 24-2-3-1, et seq.,
a copy of which is attached hereto as Exhibit "B" and by this reference made a
part hereof. Employee will not misappropriate (e.g., use or disclose to any
third party) any trade secret of Employer. Employee recognizes that the
penalties for a trade secret violation include disgorgement of profits, payment
of royalties, compensatory damages, punitive damages, and attorney's fees.
Employee understands that he/she may ask Employer to render an opinion as to
whether the Employer considers certain knowledge to be a trade secret, if such
a question should arise. Employee understands that upon termination
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<PAGE> 6
of employment with the Employer for any reason, Employee will continue to be
prohibited at any time thereafter from misappropriating any trade secret of
Employer.
11. Confidential/Proprietary Information of Employer. Employee agrees
that during the period of employment by the Employer, and for a period of twelve
(12) months following termination of employment, for any reason, Employee will
not disclose, cause to be disclosed, or otherwise allow to be disclosed, any
confidential/proprietary information of the Employer that, while not a "trade
secret" under the Indiana Trade Secrets Act, possesses independent economic
value to the Employer from not being generally known by other persons who can
obtain economic value from its disclosure or use. Employee understands that
he/she can ask Employer to render an opinion as to whether the Employer
considers certain knowledge or information to be confidential/proprietary
information, if such a question should arise.
12. Employee Work product. Employee agrees that any invention,
enhancement, process, method, design and any other creation (hereinafter
"Product") that Employee may develop, invent, discover, conceive or originate,
along or in conjunction with any other person during business hours or on behalf
of the Employer, during the term of the Employee's employment, and for a period
of twelve (12) months thereafter, that relates to the business of Employer now
or hereafter carried on by it, or to the use of any
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<PAGE> 7
product involved therein, shall be the exclusive property of the Employer.
Employee understands and agrees that in partial consideration of Employee's
employment for the compensation received, and for continued employment, all such
products shall be the exclusive property of the Employer and thus subject to
patent, copyright, registration or other legal protective custody by the
Employer.
Employer shall have the authority and this instrument shall operate:
(1) to give the Employer authority to execute, sell and deliver as the act of
the Employee, any license agreement, contract, assignment or other instrument in
writing that may be necessary or proper; (2) to convey to Employer the entire
right, title and interest in and to any such product. Employee further agrees to
hold Employer and its assigns harmless by reason of Employer's acts pursuant to
this paragraph. Employee further agrees that, during the term of his/her
employment and any time thereafter, Employee shall cooperate with the Employer
and its counsel in the prosecution and/or defense of any litigation which may
arise in connection with any product referred to in this paragraph.
13. Return of Property. Employee agrees to return all property of
Employer, including, but not limited to equipment, prices, specifications,
programs and any other proprietary data or objects acquired through Employee's
employment with the Employer, as well as any and all copies of such items,
within seven (7) days
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<PAGE> 8
upon the termination of employment, whether said termination be with or without
just cause.
14. Injunction. In the event of breach of any provisions of this
Agreement, Employer shall be entitled to seek damages if determinable but it is
hereby agreed that any such remedy at law is inadequate as to a breach of
paragraphs 8, 10, 11, 12, or 13 of this Agreement, and thus, Employer shall also
be entitled to injunctive relief. Such a breach shall cause the applicable
restrictive time period stated herein to be extended to run from the date of
full compliance with any court-ordered injunction. Employer also shall be
entitled to reasonable attorney's fees incurred in the enforcement of all such
relief. The remedies herein provided shall be cumulative and no single remedy
shall be construed as exclusive of any other or of any remedy provided at law.
Failure of Employer to exercise any remedy at any time shall not operate as a
waiver of the right of Employer to exercise any remedy for the same or
subsequent breach at any time thereafter.
15. Termination. Employment may be terminated as follows;
a. By mutual agreement of the parties upon such terms as may be agreed
to by the parties;
b. For just cause. The Employer may terminate the Employee's
employment hereunder for just cause. For purposes of this Agreement
the Employer shall have "just cause" to terminate the Employee's
employment hereunder upon conviction of a felony, or continued
willful or grossly negligent failure by the Employee to
substantially perform his duties hereunder (other than any failure
resulting from Employee's incapacity due to physical or mental
illness). In the event of termination
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<PAGE> 9
for just cause, employee shall not be entitled to any severance
pay.
c. Without just cause/resignation with just cause. The Employer may
terminate Employee's employment without just cause upon forty-five
(45) days prior written notice to Employee. Termination of
Employee's employment for any reason, other than specified as for
just cause (as defined in paragraph 15. b. of this Agreement),
shall constitute termination of this Agreement "without just
cause." In addition, any material breach of this Agreement by
Employer, unless cured by Employer within forty-five (45) days
after written notice from Employee, shall constitute grounds for
resignation with just cause. This shall include the situation where
Employee determines in good faith that his status or
responsibilities with the Employer has or have diminished
subsequent to a change in control as defined in paragraph 25, and
Employee has given notice to the Employer of his resignation for
this reason within two (2) years after such change in control. In
the event of termination without just cause, or resignation,
Employee, if requested by the Employer, shall continue to render
his services during the forty-five (45) day notice period, and
shall be paid his regular compensation up to the date of cessation
of service. After completion of such service, to the extent
required by this Agreement, the Employer shall make a lump sum
severance payment equal to regular compensation as defined in
paragraph 15. e., within thirty (30) days of the last day of
employment. If Employee resigns without just cause, or is
terminated with just cause, Employee will not be entitled to
severance pay.
d. Death or Disability. In the event of the death of the Employee
during the term of this Agreement, the Agreement shall terminate as
of that date without bonus or severance pay. In the event Employee
becomes disabled and cannot continue to perform his/her duties, the
Employee shall be treated in conformity with the manual of standard
company policies then in effect. Employee shall also retain all
rights under COBRA.
e. Regular Compensation. For purposes of this paragraph 15, regular
compensation shall be understood to mean three (3) times the base
annual compensation for the prior year, excluding any bonus. For
any renewal periods after the completion of three years of
employment under this Agreement, regular compensation shall be
understood to mean one and one-half times the most recent annual
base
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<PAGE> 10
compensation plus any bonuses received by Employee during the most
recent one and one-half year period, plus one and one-half year of
continued health insurance coverage. It is understood that any
notice period shall count toward calculation of whether the
Employee has worked a full term under the Agreement.
Provided, however, that upon termination of employment, notwithstanding
any other provisions contained herein to the contrary, the provisions of
paragraphs 8 through 14, 22, and 23 shall continue in full force and effect for
the period of time therein stated.
16. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing, and sent by certified mail to the last known
residential address in the case of the Employee, or to its principal office in
the case of the Employer.
17. Assignment. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The contract cannot be assigned by the Employer
without the written consent of the Employee. This Agreement shall also be
binding upon the heirs and executor or administrator of Employee.
18. Integration. This instrument contains the entire agreement of the
parties. It may not be changed orally but only by an agreement in writing signed
by the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
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<PAGE> 11
19. Severability. Should any clause of this Agreement be found void by
a court of law, that fact shall not impair the remainder of this Agreement.
20. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Indiana.
21. Warranty. Employee hereby warrants and represents as follows:
a. That the execution of this Agreement and the discharge of
Employee's obligations hereunder will not breach or conflict with
any other contract, agreement, or understanding between Employee
and any other party or parties;
b. Employee has ideas, information and know-how relating to the type
of business conducted by Employer, and Employee's disclosure of
such ideas, information and know-how to Employer will not conflict
with or violate the rights of any third party or parties.
22. Arbitration. In the event of any dispute over the terms of this
Agreement, excluding any violation of the provisions of paragraphs 8 through 14,
the parties agree to arbitrate such dispute pursuant to the rules and procedures
of the American Arbitration Association.
23. Attorney's Fees. If any party to this Agreement breaches any of the
terms of this Agreement, then that party shall pay to the non-breaching party
all of the non-breaching party's costs and expenses, including attorney's fees,
incurred by that party in enforcing the terms of this Agreement.
24. Construction of Agreement. The parties hereby confirm and agree
that this Agreement is the result of negotiation and
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<PAGE> 12
compromise, and that in interpreting this Agreement neither party shall be
considered to be the drafter of the document, and that the language should not
be strictly construed against either party. Instead, the language of the
Agreement should be interpreted consistent with the ordinary and reasonable
meaning of the words used.
25. Change in Control. For purposes of this Agreement, a "change in
control" shall be deemed to have occurred if and when:
a. Any person or group of persons acting in concert shall have
acquired ownership of or the right to vote or to direct the voting
of shares of capital stock of the Employer representing 15% or more
of the total voting power of the Employer, or
b. The Employer shall have merged into or consolidated with another
corporation, or merged another corporation into the Employer, on a
basis whereby less than 50% of the total voting power of the
surviving corporation is represented by shares held by former
shareholders of the Employer prior to such merger or consolidation,
or
c. The Employer shall have sold substantially all of its assets to
another corporation or other entity or person.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day, month and year first above written.
SIGNATURE INNS, INC.
By:/s/ John D. Bontreger
-------------------------
President
EMPLOYER
/s/ John D. Bontreger
-------------------------
EMPLOYEE
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/s/ JB /s/ B
Affirmed: April 14, 1995
<PAGE> 13
EXHIBIT A
JOB DESCRIPTION
JOB TITLE
Exempt
President, Chief Executive Officer
GENERAL RESPONSIBILITIES
Overall management of the business affairs of the corporation.
SPECIFIC DUTIES
1. Overall management of the business affairs of the corporation
2. Supervision of the Vice president of Finance, Vice President of Hotel
Operations, Executive Director of Franchising/Real Estate and Director of
Human Resources
3. Shareholders communications and presiding at shareholders meetings
4. Responsible for the leading and coordination of strategic planning
5. Chairman of the Executive Committee
6. Chairman of the Board of Directors of the corporation
The above duties may be supplemented occasionally with additional duties
related to company objectives.
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EXHIBIT 10.3
EMPLOYMENT CONTRACT
AGREEMENT, dated this 16th day of December , 1993, between Signature
Inns, Inc., hereinafter referred to as the "Employer", and Mark D. Carney ,
hereinafter referred to as the "Employee".
1. Employment. The Employer hereby employs the Employee and the
Employee hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. Term. The employment hereunder shall commence on Dec. 16, 1993, and
shall continue for two (2) years, unless previously terminated pursuant to the
provisions hereinafter contained. At the expiration date of the initial two (2)
year term of this Agreement, the Agreement shall be subject to automatic renewal
for additional terms of one (1) year each, unless either party delivers notice
of termination to the other party no later than thirty (30) days prior to the
first day of the applicable renewal term.
3. Salary and Bonus. For all services rendered by the Employee under
this Agreement, Employer shall pay the Employee annualized base compensation of
Eighty Two Thousand Five Hundred Dollars ($ 82,500 ) (less all ordinary
employment tax deductions) payable in equal installments every two weeks of
employment. Employee's performance and salary shall be reviewed annually by
Employer's Board of Directors. Employee's salary shall be subject to increase at
the discretion of the Employer's Board of Directors. In addition thereto,
Employee also shall be eligible to
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receive bonuses, if any, including but not limited to, the Executive Incentive
Compensation Program (EICP), in such amounts and on such terms as the Board of
Directors of the Employer shall determine in its sole discretion, but with the
understanding that the EICP bonus is earned and accrued monthly.
4. Duties. The Employee is engaged as Vice President Finance & Chief
Financial Officer of the Employer. The general duties of the position are set
forth in either or both the Employer By-laws or the "Schedule of Employee
Duties" which is attached hereto as Exhibit "A" and by this reference made a
part hereof. The precise duties and services of the Employee may be extended or
curtailed, from time to time, at the direction of the Board of Directors of the
Employer. The Employee's duties shall be reasonably related to those ordinarily
performed by a person employed in such a job position.
5. Extent of Services. The Employee shall devote all of his/her
professional time, efforts, skill and ability to the business of the Employer,
and shall not, during the term of this Agreement, be engaged in any other
business activity, whether or not such business activity is pursued for gain,
profit or other pecuniary advantage, unless any such other business activity is
disclosed to and approved by the Board of Directors of the Employer. Nor shall
this paragraph 5 be construed as preventing the Employee from investing his/her
assets in such form or manner as will not require any services on the part of
the Employee in the
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operation of the affairs of the companies in which such investments
are made.
6. Expenses and Limitation of Authority. Employer shall reimburse the
Employee for all reasonable out-of-pocket expenses incurred by Employee directly
for and on behalf of Employer upon the presentation by the Employee, from time
to time, of an itemized account of such expenditures. Employee shall not have
the authority to monetarily obligate the Employer without the prior written
approval of the Employer. Employee shall not have any authority to change the
terms of employment, including but not limited to compensation, of any employee
of Employer, without the prior written approval of the Employer. Employee agrees
to indemnify and hold Employer harmless as to any and all disputes, actions, or
claims, including all costs and attorney's fees, asserted against Employer,
arising from Employee's willful misconduct.
7. Fringe Benefits. Employee shall be entitled to all fringe benefits
given other employees of Employer of equal rank or compensation as set forth in
the manual of standard company policies. Employee understands and agrees that
all benefits are subject to change from time to time at the sole discretion of
the Board of Directors of Employer to the extent permitted by law. All corporate
employees are eligible for participation in the Corporate Stock Option Plan.
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8. Restrictive Covenant. For a period of time equal to the term of
employment most recently in effect under Paragraph 2 of this Agreement, after
termination of employment for just cause by Employer or resignation without just
cause by Employee, Employee agrees:
(1) not to compete with Employer or any of its franchisees or
affiliated partnerships as an officer, director, partner, employee, or
individually, by directly or indirectly assisting in the operation of a hotel or
motel within a five (5) mile radius of any Signature Inn in operation at the
time of the termination of employment;
(2) not to attempt to hire, engage or employ, or solicit, contact or
communicate with, for the purpose of hiring, employing or engaging any person
who is then an employee or commissioned agent of the Employer (or of a franchise
or affiliated partnership) or who was such an employee at any time within the
twelve-month period immediately prior thereto.
The Employee acknowledges that the restricted period of time and
geographic region specified are reasonable in view of the nature of the business
in which the Employer is engaged and the Employee's knowledge of the Employer's
operations. If the scope of any stated restriction is too broad to permit
enforcement of such restriction to its full extent, then such restriction shall
be enforced to the maximum extent permitted by law. Employee hereby agrees that
regardless of the actual date employment commences,
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this covenant is supported by consideration consisting of continued employment,
and refusal to abide by this covenant constitutes just cause for termination.
9. Acknowledgement. Employee recognizes that Employer's business
involves all aspects of hotel/motel operation. Employee acknowledges that:
a. Employer's services and system are highly specialized items;
b. Employer has a proprietary interest in the documents and
information regarding its methods of development, customers,
computer software, sales, pricing, costs, and the specialized
requirements of Employer's operation; and
c. Such information is highly confidential and possesses a commercial
value from not being generally known.
10. Employer Trade Secret Information. Employee hereby understands and
agrees that Employee will, at all times, conform his/her conduct to the
requirements of the Indiana Trade Secrets Act, I.C. Section 24-2-3-1, et seq., a
copy of which is attached hereto as Exhibit "B" and by this reference made a
part hereof. Employee will not misappropriate (e.g., use or disclose to any
third party) any trade secret of Employer. Employee recognizes that the
penalties for a trade secret violation include disgorgement of profits, payment
of royalties, compensatory damages, punitive damages, and attorney's fees.
Employee understands that he/she may ask Employer to render an opinion as to
whether the Employer considers certain knowledge to be a trade secret, if such a
question should arise. Employee understands that upon termination
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of employment with the Employer for any reason, Employee will continue to be
prohibited at any time thereafter from misappropriating any trade secret of
Employer.
11. Confidential/Proprietary Information of Employer. Employee agrees
that during the period of employment by the Employer, and for a period of twelve
(12) months following termination of employment, for any reason, Employee will
not disclose, cause to be disclosed, or otherwise allow to be disclosed, any
confidential/proprietary information of the Employer that, while not a "trade
secret" under the Indiana Trade Secrets Act, possesses independent economic
value to the Employer from not being generally known by other persons who can
obtain economic value from its disclosure or use. Employee understands that
he/she can ask Employer to render an opinion as to whether the Employer
considers certain knowledge or information to be confidential/proprietary
information, if such a question should arise.
12. Employee Work Product. Employee agrees that any invention,
enhancement, process, method, design and any other creation (hereinafter
"Product") that Employee may develop, invent, discover, conceive or originate,
along or in conjunction with any other person during business hours or on behalf
of the Employer, during the term of the Employee's employment, and for a period
of twelve (12) months thereafter, that relates to the business of Employer now
or hereafter carried on by it, or to the use of any
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product involved therein, shall be the exclusive property of the Employer.
Employee understands and agrees that in partial consideration of Employee's
employment for the compensation received, and for continued employment, all such
products shall be the exclusive property of the Employer and thus subject to
patent, copyright, registration or other legal protective custody by the
Employer.
Employer shall have the authority and this instrument shall operate:
(1) to give the Employer authority to execute, sell and deliver as the act of
the Employee, any license agreement, contract, assignment or other instrument in
writing that may be necessary or proper; (2) to convey to Employer the entire
right, title and interest in and to any such product. Employee further agrees to
hold Employer and its assigns harmless by reason of Employer's acts pursuant to
this paragraph. Employee further agrees that, during the term of his/her
employment and any time thereafter, Employee shall cooperate with the Employer
and its counsel in the prosecution and/or defense of any litigation which may
arise in connection with any product referred to in this paragraph.
13. Return of Property. Employee agrees to return all property of
Employer, including, but not limited to equipment, prices, specifications,
programs and any other proprietary data or objects acquired through Employee's
employment with the Employer, as well as any and all copies of such items,
within seven (7) days
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upon the termination of employment, whether said termination be with or without
just cause.
14. Injunction. In the event of breach of any provisions of this
Agreement, Employer shall be entitled to seek damages if determinable but it is
hereby agreed that any such remedy at law is inadequate as to a breach of
paragraphs 8, 10, 11, 12, or 13 of this Agreement, and thus, Employer shall also
be entitled to injunctive relief. Such a breach shall cause the applicable
restrictive time period stated herein to be extended to run from the date of
full compliance with any court-ordered injunction. Employer also shall be
entitled to reasonable attorney's fees incurred in the enforcement of all such
relief. The remedies herein provided shall be cumulative and no single remedy
shall be construed as exclusive of any other or of any remedy provided at law.
Failure of Employer to exercise any remedy at any time shall not operate as a
waiver of the right of Employer to exercise any remedy for the same or
subsequent breach at any time thereafter.
15. Termination. Employment may be terminated as follows:
a. By mutual agreement of the parties upon such terms as may be agreed
to by the parties;
b. For just cause. The Employer may terminate the Employee's
employment hereunder for just cause. For purposes of this Agreement
the Employer shall have "just cause" to terminate the Employee's
employment hereunder upon conviction of a felony, or continued
willful or grossly negligent failure by the Employee to
substantially perform his duties hereunder (other than any failure
resulting from Employee's incapacity due to physical or mental
illness). In the event of termination
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for just cause, employee shall not be entitled to any severance
pay.
c. Without just cause/resignation with just cause. The Employer may
terminate Employee's employment without just cause upon forty-five
(45) days prior written notice to Employee. Termination of
Employee's employment for any reason, other than specified as for
just cause (as defined in paragraph 15. b. of this Agreement),
shall constitute termination of this Agreement "without just
cause." In addition, any material breach of this Agreement by
Employer, unless cured by Employer within forty-five (45) days
after written notice from Employee, shall constitute grounds for
resignation with just cause. This shall include the situation where
Employee determines in good faith that his status or
responsibilities with the Employer has or have diminished
subsequent to a change in control as defined in paragraph 25, and
Employee has given notice to the Employer of his resignation for
this reason within two (2) years after such change in control. In
the event of termination without just cause, or resignation,
Employee, if requested by the Employer, shall continue to render
his services during the forty-five (45) day notice period, and
shall be paid his regular compensation up to the date of cessation
of service. After completion of such service, to the extent
required by this Agreement, the Employer shall make a lump sum
severance payment equal to regular compensation as defined in
paragraph 15. e., within thirty (30) days of the last day of
employment. If Employee resigns without just cause, or is
terminated with just cause, Employee will not be entitled to
severance pay.
d. Death or Disability. In the event of the death of the Employee
during the term of this Agreement, the Agreement shall terminate as
of that date without bonus or severance pay. In the event Employee
becomes disabled and cannot continue to perform his/her duties, the
Employee shall be treated in conformity with the manual of standard
company policies then in effect. Employee shall also retain all
rights under COBRA.
e. Regular Compensation. For purposes of this paragraph 15, for the
initial term of employment under this Agreement, regular
compensation shall be understood to mean two (2) times the base
annual compensation for the prior year, excluding any bonus. For
any renewal periods after the initial two years of employment under
this Agreement, regular compensation shall be understood to include
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annual base compensation plus any annual bonus received by Employee
during the most recent year prior to termination, plus one year of
continued health insurance coverage. It is understood that any notice
period shall count toward calculation of whether the Employee has
worked a full term under the Agreement.
Provided, however, that upon termination of employment, notwithstanding
any other provisions contained herein to the contrary, the provisions of
paragraphs 8 through 14, 22, and 23 shall continue in full force and effect for
the period of time therein stated.
16. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing, and sent by certified mail to the last known
residential address in the case of the Employee, or to its principal office in
the case of the Employer.
17. Assignment. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The contract cannot be assigned by the Employer
without the written consent of the Employee. This Agreement shall also be
binding upon the heirs and executor or administrator of Employee.
18. Integration. This instrument contains the entire agreement of the
parties. It may not be changed orally but only by an agreement in writing signed
by the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
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19. Severability. Should any clause of this Agreement be
found void by a court of law, that fact shall not impair the remainder of this
Agreement.
20. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Indiana.
21. Warranty. Employee hereby warrants and represents as follows:
a. That the execution of this Agreement and the discharge of
Employee's obligations hereunder will not breach or conflict with
any other contract, agreement, or understanding between Employee
and any other party or parties;
b. Employee has ideas, information and know-how relating to the type
of business conducted by Employer, and Employee's disclosure of
such ideas, information and know-how to Employer will not conflict
with or violate the rights of any third party or parties.
22. Arbitration. In the event of any dispute over the terms of this
Agreement, excluding any violation of the provisions of paragraphs 8 through 14,
the parties agree to arbitrate such dispute pursuant to the rules and procedures
of the American Arbitration Association.
23. Attorney's Fees. If any party to this Agreement breaches any of the
terms of this Agreement, then that party shall pay to the non-breaching party
all of the non-breaching party's costs and expenses, including attorney's fees,
incurred by that party in enforcing the terms of this Agreement.
24. Construction of Agreement. The parties hereby confirm and agree
that this Agreement is the result of negotiation and
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compromise, and that in interpreting this Agreement neither party shall be
considered to be the drafter of the document, and that the language should not
be strictly construed against either party. Instead, the language of the
Agreement should be interpreted consistent with the ordinary and reasonable
meaning of the words used.
25. Change in Control. For purposes of this Agreement, a "change in
control" shall be deemed to have occurred if and when:
a. Any person or group of persons acting in concert shall have
acquired ownership of or the right to vote or to direct the voting
of shares of capital stock of the Employer representing 15% or more
of the total voting power of the Employer, or
b. The Employer shall have merged into or consolidated with another
corporation, or merged another corporation into the Employer, on a
basis whereby less than 50% of the total voting power of the
surviving corporation is represented by shares held by former
shareholders of the Employer prior to such merger or consolidation,
or
c. The Employer shall have sold substantially all of its assets to
another corporation or other entity or person.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day, month and year first above written.
SIGNATURE INNS, INC.
By: /s/ John D. Bontreger - President
--------------------------
EMPLOYER
/s/ Mark D. Carney
---------------------------
EMPLOYEE
Affirmed: April 14, 1995
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EXHIBIT A
JOB DESCRIPTION
JOB TITLE
Exempt
Vice President of Finance/Chief Financial Officer
GENERAL RESPONSIBILITIES
Responsible for the Financial Operations and functions of the corporation and
affiliated entities.
SPECIFIC DUTIES
1. Financing Negotiations
Expand and maintain banking relationships (including investment bankers)
Restructuring, workouts, fefinancing existing property debt
Evaluate acquisition opportunities
Structuring corporate financing alternatives/debt & equity
2. Transaction negotiations related to finance, legal, insurance, leases, case
investments
3. Assist CEO with strategic planning
4. Responsible for the ongoing functions of the General Accounting Department
Supervise Controller and Treasurer
Financial reporting
Tax planning and compliance
Computer information systems
Independent audits: corporation and partnerships
Cash management system
5. Develop a strong team of persons responsible for the Company's financial
operations
6. Develop and maintain strong business relationships with leaders of the
community, attorneys, accountants, consultants and vendors related to
financial functions
7. Develop and maintain business relationships with hospitality industry groups
related to financial functions
8. Manage investor communications - stockholders and limited partners
9. Chairman of the Finance Committee
10. Member of Executive Committee, Franchise Committee, Refurbishing Committee,
Investment Committee, Automation Committee, Human Resource Committee and
Strategic Planning Team
11. Reports to Chief Executive Officer
The above duties may be supplemented occasionally with additional duties
related to company objectives.
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT CONTRACT
AGREEMENT, dated this 16th day of December, 1993, between signature
Inns( Inc., hereinafter referred to as the "Employer", and Bo L. Hagood,
hereinafter referred to as the "Employee".
1. Employment. The Employer hereby employs the Employee and the
Employee hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. Term. The employment hereunder shall commence on Dec. 16,
1993, and shall continue for two (2) years, unless previously terminated
pursuant to the provisions hereinafter contained. At the expiration date of the
initial two (2) year term of this Agreement, the Agreement shall be subject to
automatic renewal for additional terms of one (1) year each, unless either party
delivers notice of termination to the other party no later than thirty (30) days
prior to the first day of the applicable renewal term.
3. Salary and Bonus. For all services rendered by the Employee under
this Agreement, Employer shall pay the Employee annualized base compensation of
Eighty-Two Thousand Five Hundred Dollars ($ 82,500 ) (less all ordinary
employment tax deductions) payable in equal installments every two weeks of
employment. Employee's performance and salary shall be reviewed annually by
Employer's Board of Directors. Employee's salary shall be subject to increase at
the discretion of the Employer's Board of Directors. In addition thereto,
Employee also shall be eligible to
<PAGE> 2
receive bonuses, if any, including but not limited to, the Executive Incentive
Compensation Program (EICP), in such amounts and on such terms as the Board of
Directors of the Employer shall determine in its sole discretion, but with the
understanding that the EICP bonus is earned and accrued monthly.
4. Duties. The Employee is engaged as Vice President Hotel Operations
of the Employer. The general duties of the position are set forth in either or
both the Employer By-laws or the "Schedule of Employee Duties" which is attached
hereto as Exhibit "A" and by this reference made a part hereof. The precise
duties and services of the Employee may be extended or curtailed, from time to
time, at the direction of the Board of Directors of the Employer. The Employee's
duties shall be reasonably related to those ordinarily performed by a person
employed in such a job position.
5. Extent of Services. The Employee shall devote all of his/her
professional time, efforts, skill and ability to the business of the Employer,
and shall not, during the term of this Agreement, be engaged in any other
business activity, whether or not such business activity is pursued for gain,
profit or other pecuniary advantage, unless any such other business activity is
disclosed to and approved by the Board of Directors of the Employer. Nor shall
this paragraph 5 be construed as preventing the Employee from investing his/her
assets in such form or manner as will not require any services on the part of
the Employee in the
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operation of the affairs of the companies in which such investments
are made.
6. Expenses and Limitation of Authority. Employer shall reimburse the
Employee for all reasonable out-of-pocket expenses incurred by Employee directly
for and on behalf of Employer upon the presentation by the Employee, from time
to time, of an itemized account of such expenditures. Employee shall not have
the authority to monetarily obligate the Employer without the prior written
approval of the Employer. Employee shall not have any authority to change the
terms of employment, including but not limited to compensation, of any employee
of Employer, without the prior written approval of the Employer. Employee agrees
to indemnify and hold Employer harmless as to any and all disputes, actions, or
claims, including all costs and attorney's fees, asserted against Employer,
arising from Employee's willful misconduct.
7. Fringe Benefits. Employee shall be entitled to all fringe benefits
given other employees of Employer of equal rank or compensation as set forth in
the manual of standard company policies. Employee understands and agrees that
all benefits are subject to change from time to time at the sole discretion of
the Board of Directors of Employer to the extent permitted by law. All corporate
employees are eligible for participation in the Corporate Stock Option Plan.
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8. Restrictive Covenant. For a period of time equal to the term of
employment most recently in effect under Paragraph 2 of this Agreement, after
termination of employment for just cause by Employer or resignation without just
cause by Employee, Employee agrees:
(1) not to compete with Employer or any of its franchisees or
affiliated partnerships as an officer, director, partner, employee, or
individually, by directly or indirectly assisting in the operation of a hotel or
motel within a five (5) mile radius of any Signature Inn in operation at the
time of the termination of employment;
(2) not to attempt to hire, engage or employ, or solicit, contact or
communicate with, for the purpose of hiring, employing or engaging any person
who is then an employee or commissioned agent of the Employer (or of a franchise
or affiliated partnership) or who was such an employee at any time within the
twelve-month period immediately prior thereto.
The Employee acknowledges that the restricted period of time and
geographic region specified are reasonable in view of the nature of the business
in which the Employer is engaged and the Employee's knowledge of the Employer's
operations. If the scope of any stated restriction is too broad to permit
enforcement of such restriction to its full extent, then such restriction shall
be enforced to the maximum extent permitted by law. Employee hereby agrees that
regardless of the actual date employment commences,
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of employment with the Employer for any reason, Employee will continue to be
prohibited at any time thereafter from misappropriating any trade secret of
Employer.
11. Confidential/Proprietary Information of Employer. Employee agrees
that during the period of employment by the Employer, and for a period of twelve
(12) months following termination of employment, for any reason, Employee will
not disclose, cause to be disclosed, or otherwise allow to be disclosed, any
confidential/proprietary information of the Employer that, while not a "trade
secret" under the Indiana Trade Secrets Act, possesses independent economic
value to the Employer from not being generally known by other persons who can
obtain economic value from its disclosure or use. Employee understands that
he/she can ask Employer to render an opinion as to whether the Employer
considers certain knowledge or information to be confidential/proprietary
information, if such a question should arise.
12. Employee Work Product. Employee agrees that any invention,
enhancement, process, method, design and any other creation (hereinafter
"Product") that Employee may develop, invent, discover, conceive or originate,
along or in conjunction with any other person during business hours or on behalf
of the Employer, during the term of the Employee's employment, and for a period
of twelve (12) months thereafter, that relates to the business of Employer now
or hereafter carried on by it, or to the use of any
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product involved therein, shall be the exclusive property of the Employer.
Employee understands and agrees that in partial consideration of Employee's
employment for the compensation received, and for continued employment, all such
products shall be the exclusive property of the Employer and thus subject to
patent, copyright, registration or other legal protective custody by the
Employer.
Employer shall have the authority and this instrument shall operate:
(1) to give the Employer authority to execute, sell and deliver as the act of
the Employee, any license agreement, contract, assignment or other instrument in
writing that may be necessary or proper; (2) to convey to Employer the entire
right, title and interest in and to any such product. Employee further agrees to
hold Employer and its assigns harmless by reason of Employer's acts pursuant to
this paragraph. Employee further agrees that, during the term of his/her
employment and any time thereafter, Employee shall cooperate with the Employer
and its counsel in the prosecution and/or defense of any litigation which may
arise in connection with any product referred to in this paragraph.
13. Return of Property. Employee agrees to return all property of
Employer, including, but not limited to equipment, prices, specifications,
programs and any other proprietary data or objects acquired through Employee's
employment with the Employer, as well as any and all copies of such items,
within seven (7) days
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upon the termination of employment, whether said termination be with or without
just cause.
14. Injunction. In the event of breach of any provisions of this
Agreement, Employer shall be entitled to seek damages if determinable but it is
hereby agreed that any such remedy at law is inadequate as to a breach of
paragraphs 8, 10, 11, 12, or 13 of this Agreement, and thus, Employer shall also
be entitled to injunctive relief. Such a breach shall cause the applicable
restrictive time period stated herein to be extended to run from the date of
full compliance with any court-ordered injunction. Employer also shall be
entitled to reasonable attorney's fees incurred in the enforcement of all such
relief. The remedies herein provided shall be cumulative and no single remedy
shall be construed as exclusive of any other or of any remedy provided at law.
Failure of Employer to exercise any remedy at any time shall not operate as a
waiver of the right of Employer to exercise any remedy for the same or
subsequent breach at any time thereafter.
15. Termination. Employment may be terminated as follows:
a. By mutual agreement of the parties upon such terms as may be agreed
to by the parties;
b. For just cause. The Employer may terminate the Employee's
employment hereunder for just cause. For purposes of this Agreement
the Employer shall have "just cause" to terminate the Employee's
employment hereunder upon conviction of a felony, or continued
willful or grossly negligent failure by the Employee to
substantially perform his duties hereunder (other than any failure
resulting from Employee's incapacity due to physical or mental
illness). In the event of termination
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for just cause, employee shall not be entitled to any severance pay.
c. Without just cause/resignation with just cause. The Employer may
terminate Employee's employment without just cause upon forty-five
(45) days prior written notice to Employee. Termination of
Employee's employment for any reason, other than specified as for
just cause (as defined in paragraph 15. b. of this Agreement),
shall constitute termination of this Agreement "without just
cause." In addition, any material breach of this Agreement by
Employer, unless cured by Employer within forty-five (45) days
after written notice from Employee, shall constitute grounds for
resignation with just cause. This shall include the situation where
Employee determines in good faith that his status or
responsibilities with the Employer has or have diminished
subsequent to a change in control as defined in paragraph 25, and
Employee has given notice to the Employer of his resignation for
this reason within two (2) years after such change in control. In
the event of termination without just cause, or resignation,
Employee, if requested by the Employer, shall continue to render
his services during the forty-five (45) day notice period, and
shall be paid his regular compensation up to the date of cessation
of service. After completion of such service, to the extent
required by this Agreement, the Employer shall make a lump sum
severance payment equal to regular compensation as defined in
paragraph 15. e., within thirty (30) days of the last day of
employment. If Employee resigns without just cause, or is
terminated with just cause, Employee will not be entitled to
severance pay.
d. Death or Disability. In the event of the death of the Employee
during the term of this Agreement, the Agreement shall terminate as
of that date without bonus or severance pay. In the event Employee
becomes disabled and cannot continue to perform his/her duties, the
Employee shall be treated in conformity with the manual of standard
company policies then in effect. Employee shall also retain all
rights under COBRA.
e. Regular Compensation. For purposes of this paragraph 15, for the
initial term of employment under this Agreement, regular
compensation shall be understood to mean two (2) times the base
annual compensation for the prior year, excluding any bonus. For
any renewal periods after the initial two years of employment under
this Agreement, regular compensation shall be understood to include
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annual base compensation plus any annual bonus received by Employee
during the most recent year prior to termination, plus one year of
continued health insurance coverage. It is understood that any notice
period shall count toward calculation of whether the Employee has
worked a full term under the Agreement.
Provided, however, that upon termination of employment, notwithstanding
any other provisions contained herein to the contrary, the provisions of
paragraphs 8 through 14, 22, and 23 shall continue in full force and effect for
the period of time therein stated.
16. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing, and sent by certified mail to the last known
residential address in the case of the Employee, or to its principal office in
the case of the Employer.
17. Assignment. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The contract cannot be assigned by the Employer
without the written consent of the Employee. This Agreement shall also be
binding upon the heirs and executor or administrator of Employee.
18. Integration. This instrument contains the entire agreement of the
parties. It may not be changed orally but only by an agreement in writing signed
by the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
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<PAGE> 11
19. Severability. Should any clause of this Agreement be found void by
a court of law, that fact shall not impair the remainder of this Agreement.
20. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Indiana.
21. Warranty. Employee hereby warrants and represents as follows:
a. That the execution of this Agreement and the discharge of
Employee's obligations hereunder will not breach or conflict with
any other contract, agreement, or understanding between Employee
and any other party or parties;
b. Employee has ideas, information and know-how relating to the type
of business conducted by Employer, and Employee's disclosure of
such ideas, information and know-how to Employer will not conflict
with or violate the rights of any third party or parties.
22. Arbitration. In the event of any dispute over the terms of this
Agreement, excluding any violation of the provisions of paragraphs 8 through 14,
the parties agree to arbitrate such dispute pursuant to the rules and procedures
of the American Arbitration Association.
23. Attorney's Fees. If any party to this Agreement breaches any of the
terms of this Agreement, then that party shall pay to the non-breaching party
all of the non-breaching party's costs and expenses, including attorney's fees,
incurred by that party in enforcing the terms of this Agreement.
24. Construction of Agreement. The parties hereby confirm and agree
that this Agreement is the result of negotiation and
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<PAGE> 12
compromise, and that in interpreting this Agreement neither party shall be
considered to be the drafter of the document, and that the language should not
be strictly construed against either party. Instead, the language of the
Agreement should be interpreted consistent with the ordinary and reasonable
meaning of the words used.
25. Change in Control. For purposes of this Agreement, a "change in
control" shall be deemed to have occurred if and when:
a. Any person or group of persons acting in concert shall have
acquired ownership of or the right to vote or to direct the voting
of shares of capital stock of the Employer representing 15% or more
of the total voting power of the Employer, or
b. The Employer shall have merged into or consolidated with another
corporation, or merged another corporation into the Employer, on a
basis whereby less than 50% of the total voting power of the
surviving corporation is represented by shares held by former
shareholders of the Employer prior to such merger or consolidation,
or
c. The Employer shall have sold substantially all of its assets to
another corporation or other entity or person.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day, month and year first above written.
SIGNATURE INNS, INC.
By: /s/ John D. Bontreger
----------------------------------
EMPLOYER
/s/ Bo L. Hagood
----------------------------------
Bo L. Hagood
EMPLOYEE
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<PAGE> 13
Exhibit A
JOB DESCRIPTION
JOB TITLE
Exempt Vice President of Hotel Operations
GENERAL RESPONSIBILITIES
Responsible for overall management of Hotel Operations.
SPECIFIC DUTIES
1. Direct supervision of:
Regional Directors, Area Manager, Director of Refurbishing Management &
Purchasing, Executive Director of Sales and Marketing, Hotel Operations
Administration, Assistant to Vice President of Hotel Operations
2. Responsible for the hotel budgeting process and budget achievement
3. Monitor weekly communication to hotels
4. Monitor Guest relations program
5. Monitor Central Reservation program
6. Monitor hotel refurbishing
7. Coordination of hotel inspection program
8. Monitor the Signature Club program
9. Member of Executive Committee, Refurbishing Committee, Finance Committee,
Franchise/Project Development Committee, Automation Committee, Human
Resources Committee, Marketing Committee, Strategic Planning Team
10. Coordinate and approve General Manager Meetings, Annual Conventions, Annual
Golf Classic, etc.
11. Approve final selection of General and Assistant General Manager Candidates
12. Coordinate content of The Standards and Operations Manuals/Updates
13. Coordinate training at the Corporate Office for new General Managers,
Assistant General Managers and Guest Service Managers
14. Coordinate General Manager, Regional Directors, Area Manager and hotel
bonus programs
15. Attend national conference and trade shows
16. Coordinate annual setting of meeting room and guest room rates
17. Reports To Chief Executive Officer
The above dudes may be supplemented occasionally with additional duties
related to company objectives.
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT CONTRACT
AGREEMENT, dated this 16th day of December , 1993, between Signature
Inns, Inc., hereinafter referred to as the "Employer", and David R. Miller,
hereinafter referred to as the "Employee".
1. Employment. The Employer hereby employs the Employee and the
Employee hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. Term. The employment hereunder shall commence on Dec. 16, 1993, and
shall continue for one and one-half (1 1/2) years, unless previously terminated
pursuant to the provisions hereinafter contained. At the expiration date of the
initial one (1 1/2) year term of this Agreement, the Agreement shall be subject
to one automatic renewal for an additional term of one (1) year, and thereafter,
subsequent renewal terms of six (6) months each, unless either party delivers
notice of termination to the other party no later than thirty (30) days prior to
the first day of the applicable renewal term.
3. Salary and Bonus. For all services rendered by the Employee under
this Agreement, Employer shall pay the Employee annualized base compensation of
Seventy Thousand and 00/100 Dollars ($ 70,000.00) (less all ordinary employment
tax deductions) payable in equal installments every two weeks of employment.
Employee's performance and salary shall be reviewed annually by Employer's Board
of Directors. Employee's salary shall be subject to increase at the discretion
of the Employer's Board of
<PAGE> 2
Directors. In addition thereto, Employee also shall be eligible to receive
bonuses, if any, including but not limited to, the Executive Incentive
Compensation Program (EICP), in such amounts and on such terms as the Board of
Directors of the Employer shall determine in its sole discretion, but with the
understanding that the EICP bonus is earned and accrued monthly.
4. Duties. The Employee is engaged as Executive Director of Sales &
Marketing of the Employer. The general duties of the position are set forth in
either or both the Employer By-laws or the "Schedule of Employee Duties" which
is attached hereto as Exhibit "A" and by this reference made a part hereof. The
precise duties and services of the Employee may be extended or curtailed, from
time to time, at the direction of the Board of Directors of the Employer. The
Employee's duties shall be reasonably related to those ordinarily performed by a
person employed in such a job position.
5. Extent of Services. The Employee shall devote all of his/her
professional time, efforts, skill and ability to the business of the Employer,
and shall not, during the term of this Agreement, be engaged in any other
business activity, whether or not such business activity is pursued for gain,
profit or other pecuniary advantage, unless any such other business activity is
disclosed to and approved by the Board of Directors of the Employer. Nor shall
this paragraph 5 be construed as preventing the Employee from investing his/her
assets in such form or manner as will not require any services on the part of
the Employee in the
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<PAGE> 3
operation of the affairs of the companies in which such investments are made.
6. Expenses and Limitation of Authority. Employer shall reimburse the
Employee for all reasonable out-of-pocket expenses incurred by Employee directly
for and on behalf of Employer upon the presentation by the Employee, from time
to time, of an itemized account of such expenditures. Employee shall not have
the authority to monetarily obligate the Employer without the prior written
approval of the Employer. Employee shall not have any authority to change the
terms of employment, including but not limited to compensation, of any employee
of Employer, without the prior written approval of the Employer. Employee agrees
to indemnify and hold Employer harmless as to any and all disputes, actions, or
claims, including all costs and attorney's fees, asserted against Employer,
arising from Employee's willful misconduct.
7. Fringe Benefits. Employee shall be entitled to all fringe benefits
given other employees of Employer of equal rank or compensation as set forth in
the manual of standard company policies. Employee understands and agrees that
all benefits are subject to change from time to time at the sole discretion of
the Board of Directors of Employer to the extent permitted by law. All corporate
employees are eligible for participation in the Corporate Stock Option Plan.
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<PAGE> 4
8. Restrictive Covenant. For a period of time equal to the term of
employment most recently in effect under Paragraph 2 of this Agreement, after
termination of employment for just cause by Employer or resignation without just
cause by Employee, Employee agrees :
(1) not to compete with Employer or any of its franchisees or
affiliated partnerships as an officer, director, partner, employee, or
individually, by directly or indirectly assisting in the operation of a hotel or
motel within a five (5) mile radius of any Signature Inn in operation at the
time of the termination of employment;
(2) not to attempt to hire, engage or employ, or solicit, contact or
communicate with, for the purpose of hiring, employing or engaging any person
who is then an employee or commissioned agent of the Employer (or of a franchise
or affiliated partnership) or who was such an employee at any time within the
twelve-month period immediately prior thereto.
The Employee acknowledges that the restricted period of time and
geographic region specified are reasonable in view of the nature of the business
in which the Employer is engaged and the Employee's knowledge of the Employer's
operations. If the scope of any stated restriction is too broad to permit
enforcement of such restriction to its full extent, then such restriction shall
be enforced to the maximum extent permitted by law. Employee hereby agrees that
regardless of the actual date employment commences,
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<PAGE> 5
this covenant is supported by consideration consisting of continued employment,
and refusal to abide by this covenant constitutes just cause for termination.
9. Acknowledgement. Employee recognizes that Employer's business
involves all aspects of hotel/motel operation. Employee acknowledges that :
a. Employer's services and system are highly specialized items;
b. Employer has a proprietary interest in the documents and
information regarding its methods of development, customers,
computer software, sales, pricing, costs, and the specialized
requirements of Employer's operation; and
c. Such information is highly confidential and possesses a commercial
value from not being generally known.
10. Employer Trade Secret Information. Employee hereby understands and
agrees that Employee will, at all times, conform his/her conduct to the
requirements of the Indiana Trade Secrets Act, I.C. section 24-2-3-1, et seq.,
a copy of which is attached hereto as Exhibit "B" and by this reference made a
part hereof. Employee will not misappropriate (e.g., use or disclose to any
third party) any trade secret of Employer. Employee recognizes that the
penalties for a trade secret violation include disgorgement of profits, payment
of royalties, compensatory damages, punitive damages, and attorney's fees.
Employee understands that he/she may ask Employer to render an opinion as to
whether the Employer considers certain knowledge to be a trade secret, if such
a question should arise. Employee understands that upon termination
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<PAGE> 6
of employment with the Employer for any reason, Employee will continue to be
prohibited at any time thereafter from misappropriating any trade secret of
Employer.
11. Confidential/Proprietary Information of Employer. Employee agrees
that during the period of employment by the Employer, and for a period of twelve
(12) months following termination of employment, for any reason, Employee will
not disclose, cause to be disclosed, or otherwise allow to be disclosed, any
confidential/proprietary information of the Employer that, while not a "trade
secret" under the Indiana Trade Secrets Act, possesses independent economic
value to the Employer from not being generally known by other persons who can
obtain economic value from its disclosure or use. Employee understands that
he/she can ask Employer to render an opinion as to whether the Employer
considers certain knowledge or information to be confidential/proprietary
information, if such a question should arise.
12. Employee Work Product. Employee agrees that any invention,
enhancement, process, method, design and any other creation (hereinafter
"Product") that Employee may develop, invent, discover, conceive or originate,
along or in conjunction with any other person during business hours or on behalf
of the Employer, during the term of the Employee's employment, and for a period
of twelve (12) months thereafter, that relates to the business of Employer now
or hereafter carried on by it, or to the use of any
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<PAGE> 7
product involved therein, shall be the exclusive property of the Employer.
Employee understands and agrees that in partial consideration of Employee's
employment for the compensation received, and for continued employment, all such
products shall be the exclusive property of the Employer and thus subject to
patent, copyright, registration or other legal protective custody by the
Employer.
Employer shall have the authority and this instrument shall operate:
(1) to give the Employer authority to execute, sell and deliver as the act of
the Employee, any license agreement, contract, assignment or other instrument in
writing that may be necessary or proper; (2) to convey to Employer the entire
right, title and interest in and to any such product. Employee further agrees to
hold Employer and its assigns harmless by reason of Employer's acts pursuant to
this paragraph. Employee further agrees that, during the term of his/her
employment and any time thereafter, Employee shall cooperate with the Employer
and its counsel in the prosecution and/or defense of any litigation which may
arise in connection with any product referred to in this paragraph.
13. Return of Property. Employee agrees to return all property of
Employer, including, but not limited to equipment, prices, specifications,
programs and any other proprietary data or objects acquired through Employee's
employment with the Employer, as well as any and all copies of such items,
within seven (7) days
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<PAGE> 8
upon the termination of employment, whether said termination be with or without
just cause.
14. Injunction. In the event of breach of any provisions of this
Agreement, Employer shall be entitled to seek damages if determinable but it is
hereby agreed that any such remedy at law is inadequate as to a breach of
paragraphs 8, 10, 11, 12, or 13 of this Agreement, and thus, Employer shall also
be entitled to injunctive relief. Such a breach shall cause the applicable
restrictive time period stated herein to be extended to run from the date of
full compliance with any court-ordered injunction. Employer also shall be
entitled to reasonable attorney's fees incurred in the enforcement of all such
relief. The remedies herein provided shall be cumulative and no single remedy
shall be construed as exclusive of any other or of any remedy provided at law.
Failure of Employer to exercise any remedy at any time shall not operate as a
waiver of the right of Employer to exercise any remedy for the same or
subsequent breach at any time thereafter.
15. Termination. Employment may be terminated as follows:
a. By mutual agreement of the parties upon such terms as may be agreed
to by the parties;
b. For just cause. The Employer may terminate the Employee's
employment hereunder for just cause. For purposes of this Agreement
the Employer shall have "just cause" to terminate the Employee's
employment hereunder upon conviction of a felony, or continued
willful or grossly negligent failure by the Employee to
substantially perform his duties hereunder (other than any failure
resulting from Employee's incapacity due to physical or mental
illness). In the event of termination
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<PAGE> 9
for just cause, employee shall not be entitled to any severance
pay.
c. Without just cause/resignation with just cause. The Employer may
terminate Employee's employment without just cause upon forty-five
(45) days prior written notice to Employee. Termination of
Employee's employment for any reason, other than specified as for
just cause (as defined in paragraph 15. b. of this Agreement),
shall constitute termination of this Agreement "without just
cause." In addition, any material breach of this Agreement by
Employer, unless cured by Employer within forty-five (45) days
after written notice from Employee, shall constitute grounds for
resignation with just cause. This shall include the situation where
Employee determines in good faith that his status or
responsibilities with the Employer has or have diminished
subsequent to a change in control as defined in paragraph 25, and
Employee has given notice to the Employer of his resignation for
this reason within two (2) years after such change in control. In
the event of termination without just cause, or resignation,
Employee, if requested by the Employer, shall continue to render
his services during the forty-five (45) day notice period, and
shall be paid his regular compensation up to the date of cessation
of service. After completion of such service, to the extent
required by this Agreement, the Employer shall make a lump sum
severance payment equal to regular compensation as defined in
paragraph 15. e., within thirty (30) days of the last day of
employment. If Employee resigns without just cause, or is
terminated with just cause, Employee will not be entitled to
severance pay.
d. Death or Disability. In the event of the death of the Employee
during the term of this Agreement, the Agreement shall terminate as
of that date without bonus or severance pay. In the event Employee
becomes disabled and cannot continue to perform his/her duties, the
Employee shall be treated in conformity with the manual of standard
company policies then in effect. Employee shall also retain all
rights under COBRA.
e. Regular Compensation. For purposes of this paragraph 15, for the
initial term of employment, regular compensation shall be
understood to mean one and one-half times the base annual
compensation for the prior year, excluding any bonus. For the
initial one year renewal period of employment under this Agreement,
regular compensation shall be understood to include annual base
compensation
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<PAGE> 10
plus any annual bonuses received by Employee during the most recent
year prior to termination, plus one year of continued health
insurance coverage. For any renewal periods after the initial one
year renewal period of employment under this Agreement, regular
compensation shall be understood to include six (6) months base
compensation plus 50% of any bonuses received by Employee during
the most recent year prior to termination, plus six (6) months of
continued health insurance coverage. It is understood that any
notice period shall count toward calculation of whether the
Employee has worked a full term under the Agreement.
Provided, however, that upon termination of employment, notwithstanding
any other provisions contained herein to the contrary, the provisions of
paragraphs 8 through 14, 22, and 23 shall continue in full force and effect for
the period of time therein stated.
16. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing, and sent by certified mail to the last known
residential address in the case of the Employee, or to its principal office in
the case of the Employer.
17. Assignment. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The contract cannot be assigned by the Employer
without the written consent of the Employee. This Agreement shall also be
binding upon the heirs and executor or administrator of Employee.
18. Integration. This instrument contains the entire agreement of the
parties. It may not be changed orally but only by an agreement in writing signed
by the party against whom
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<PAGE> 11
enforcement of any waiver, change, modification, extension or
discharge is sought.
19. Severability. Should any clause of this Agreement be found void by
a court of law, that fact shall not impair the remainder of this Agreement.
20. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Indiana.
21. Warranty. Employee hereby warrants and represents as follows :
a. That the execution of this Agreement and the discharge of
Employee's obligations hereunder will not breach or conflict with
any other contract, agreement, or understanding between Employee
and any other party or parties;
b. Employee has ideas, information and know-how relating to the type
of business conducted by Employer, and Employee's disclosure of
such ideas, information and know-how to Employer will not conflict
with or violate the rights of any third party or parties.
22. Arbitration. In the event of any dispute over the terms of this
Agreement, excluding any violation of the provisions of paragraphs 8 through 14,
the parties agree to arbitrate such dispute pursuant to the rules and procedures
of the American Arbitration Association.
23. Attorney's Fees. If any party to this Agreement breaches any of the
terms of this Agreement, then that party shall pay to the non-breaching party
all of the non-breaching party's costs and expenses, including attorney's fees,
incurred by that party in enforcing the terms of this Agreement.
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<PAGE> 12
24. Construction of Agreement. The parties hereby confirm and agree
that this Agreement is the result of negotiation and compromise, and that in
interpreting this Agreement neither party shall be considered to be the drafter
of the document, and that the language should not be strictly construed against
either party. Instead, the language of the Agreement should be interpreted
consistent with the ordinary and reasonable meaning of the words used.
25. Change in Control. For purposes of this Agreement, a "change in
control" shall be deemed to have occurred if and when:
a. Any person or group of persons acting in concert shall have
acquired ownership of or the right to vote or to direct the voting
of shares of capital stock of the Employer representing 15% or more
of the total voting power of the Employer, or
b. The Employer shall have merged into or consolidated with another
corporation, or merged another corporation into the Employer, on a
basis whereby less than 50% of the total voting power of the
surviving corporation is represented by shares held by former
shareholders of the Employer prior to such merger or consolidation,
or
c. The Employer shall have sold substantially all of its assets to
another corporation or other entity or person.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day, month and year first above written.
SIGNATURE INNS, INC.
By: /s/ John D. Bontreger
-----------------------
EMPLOYER
/s/ David R. Miller
---------------------------
EMPLOYEE
David R. Miller
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Affirmed: April 14, 1995
<PAGE> 13
Exhibit A
JOB DESCRIPTION
JOB TITLE
Exempt
Executive Director of Sales and Marketing
GENERAL RESPONSIBILITIES
Develop, implement and monitor sales, marketing and advertising programs both on
local and national level.
SPECIFIC DUTIES
1. Supervision of sales and marketing support personneL
2. Manage and control the Central Reservation System (TeleService
Resources) and attend users conferences.
3. Manage motorcoach program for the chain and attend the corresponding
travel shows and conferences.
4. Develop and implement the overall marketing plan for each hotel as part
of yearly Business Plan, including a customized local sales plan and
regional advertising.
5. Visit all hotels twice a year to insure implementation of local sales
plan.
6. Act as liaison with advertising agency.
7. Manage and control the overall SAMR budget.
8. Coordinate the database information as it pertains to marketing.
9. Manage hotel incentive marketing contest and program.
10. Review weekly sales reports from hotels.
11. Approve certain negotiated rates for volume and preferred directories.
12. Supervise the hotel room rates and review procedures to insure proper
pricing structure at all times.
13. Chair monthly Marketing Committee Meeting.
14. Member of Franchise and Executive Committee.
15. Reports to Vice President of Operations.
The above duties may be supplemented occasionally with additional duties related
to company objectives.
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT CONTRACT
AGREEMENT, dated this 16th day of December, 1993, between Signature
Inns, Inc., hereinafter referred to as the "Employer", and Martin D. Brew ,
hereinafter referred to as the "Employee".
1. Employment. The Employer hereby employs the Employee and the
Employee hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. Term. The employment hereunder shall commence on Dec. 16, 1993, and
shall continue for one (1) year, unless previously terminated pursuant to the
provisions hereinafter contained. At the expiration date of the initial one (1)
year term of this Agreement, the Agreement shall be subject to one automatic
renewal for an additional term of one (1) year, and thereafter, subsequent
renewal terms of six (6) months each, unless either party delivers notice of
termination to the other party no later than thirty (30) days prior to the first
day of the applicable renewal term.
3. Salary and Bonus. For all services rendered by the Employee under
this Agreement, Employer shall pay the Employee annualized base compensation of
Sixty-Eight Thousand Five Hundred Dollars ($ 68,500.00) (less all ordinary
employment tax deductions) payable in equal installments every two weeks of
employment. Employee's performance and salary shall be reviewed annually by
Employer's Board of Directors. Employee's salary shall be subject to increase at
the discretion of the Employer's Board of
<PAGE> 2
Directors. In addition thereto, Employee also shall be eligible to receive
bonuses, if any, including but not limited to, the Executive Incentive
Compensation Program (EICP), in such amounts and on such terms as the Board of
Directors of the Employer shall determine in its sole discretion, but with the
understanding that the EICP bonus is earned and accrued monthly.
4. Duties. The Employee is engaged as Controller and Treasurer of the
Employer. The general duties of the position are set forth in either or both the
Employer By-laws or the "Schedule of Employee Duties" which is attached hereto
as Exhibit "A" and by this reference made a part hereof. The precise duties and
services of the Employee may be extended or curtailed, from time to time, at the
direction of the Board of Directors of the Employer. The Employee's duties shall
be reasonably related to those ordinarily performed by a person employed in such
a job position.
5. Extent of Services. The Employee shall devote all of his/her
professional time, efforts, skill and ability to the business of the Employer,
and shall not, during the term of this Agreement, be engaged in any other
business activity, whether or not such business activity is pursued for gain,
profit or other pecuniary advantage, unless any such other business activity is
disclosed to and approved by the Board of Directors of the Employer. Nor shall
this paragraph 5 be construed as preventing the Employee from investing his/her
assets in such form or manner as will not require any services on the part of
the Employee in the
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<PAGE> 3
operation of the affairs of the companies in which such investments are made.
6. Expenses and Limitation of Authority. Employer shall reimburse the
Employee for all reasonable out-of-pocket expenses incurred by Employee directly
for and on behalf of Employer upon the presentation by the Employee, from time
to time, of an itemized account of such expenditures. Employee shall not have
the authority to monetarily obligate the Employer without the prior written
approval of the Employer. Employee shall not have any authority to change the
terms of employment, including but not limited to compensation, of any employee
of Employer, without the prior written approval of the Employer. Employee agrees
to indemnify and hold Employer harmless as to any and all disputes, actions, or
claims, including all costs and attorney's fees, asserted against Employer,
arising from Employee's willful misconduct.
7. Fringe Benefits. Employee shall be entitled to all fringe benefits
given other employees of Employer of equal rank or compensation as set forth in
the manual of standard company policies. Employee understands and agrees that
all benefits are subject to change from time to time at the sole discretion of
the Board of Directors of Employer to the extent permitted by law. All corporate
employees are eligible for participation in the Corporate Stock Option Plan.
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<PAGE> 4
8. Restrictive Covenant. For a period of time equal to the term of
employment most recently in effect under Paragraph 2 of this Agreement, after
termination of employment for just cause by Employer or resignation without just
cause by Employee, Employee agrees:
(1) not to compete with Employer or any of its franchisees or
affiliated partnerships as an officer, director, partner, employee, or
individually, by directly or indirectly assisting in the operation of a hotel or
motel within a five (5) mile radius of any Signature Inn in operation at the
time of the termination of employment;
(2) not to attempt to hire, engage or employ, or solicit, contact or
communicate with, for the purpose of hiring, employing or engaging any person
who is then an employee or commissioned agent of the Employer (or of a franchise
or affiliated partnership) or who was such an employee at any time within the
twelve-month period immediately prior thereto.
The Employee acknowledges that the restricted period of time and
geographic region specified are reasonable in view of the nature of the business
in which the Employer is engaged and the Employee's knowledge of the Employer's
operations. If the scope of any stated restriction is too broad to permit
enforcement of such restriction to its full extent, then such restriction shall
be enforced to the maximum extent permitted by law. Employee hereby agrees that
regardless of the actual date employment commences,
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<PAGE> 5
this covenant is supported by consideration consisting of continued employment,
and refusal to abide by this covenant constitutes just cause for termination.
9. Acknowledgement. Employee recognizes that Employer's business
involves all aspects of hotel/motel operation. Employee acknowledges that:
a. Employer's services and system are highly specialized items;
b. Employer has a proprietary interest in the documents and
information regarding its methods of development, customers,
computer software, sales, pricing, costs, and the specialized
requirements of Employer's operation; and
c. Such information is highly confidential and possesses a commercial
value from not being generally known.
10. Employer Trade Secret Information. Employee hereby understands and
agrees that Employee will, at all times, conform his/her conduct to the
requirements of the Indiana Trade Secrets Act, I.C. Section 24-2-3-1, et seq., a
copy of which is attached hereto as Exhibit "B" and by this reference made a
part hereof. Employee will not misappropriate (e.g., use or disclose to any
third party) any trade secret of Employer. Employee recognizes that the
penalties for a trade secret violation include disgorgement of profits, payment
of royalties, compensatory damages, punitive damages, and attorney's fees.
Employee understands that he/she may ask Employer to render an opinion as to
whether the Employer considers certain knowledge to be a trade secret, if such a
question should arise. Employee understands that upon termination
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<PAGE> 6
of employment with the Employer for any reason, Employee will continue to be
prohibited at any time thereafter from misappropriating any trade secret of
Employer.
11. Confidential/Proprietary Information of Employer. Employee agrees
that during the period of employment by the Employer, and for a period of twelve
(12) months following termination of employment, for any reason, Employee will
not disclose, cause to be disclosed, or otherwise allow to be disclosed, any
confidential/proprietary information of the Employer that, while not a "trade
secret" under the Indiana Trade Secrets Act, possesses independent economic
value to the Employer from not being generally known by other persons who can
obtain economic value from its disclosure or use. Employee understands that
he/she can ask Employer to render an opinion as to whether the Employer
considers certain knowledge or information to be confidential/proprietary
information, if such a question should arise.
12. Employee Work Product. Employee agrees that any invention,
enhancement, process, method, design and any other creation (hereinafter
"Product") that Employee may develop, invent, discover, conceive or originate,
along or in conjunction with any other person during business hours or on behalf
of the Employer, during the term of the Employee's employment, and for a period
of twelve (12) months thereafter, that relates to the business of Employer now
or hereafter carried on by it, or to the use of any
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<PAGE> 7
product involved therein, shall be the exclusive property of the Employer.
Employee understands and agrees that in partial consideration of Employee's
employment for the compensation received, and for continued employment, all such
products shall be the exclusive property of the Employer and thus subject to
patent, copyright, registration or other legal protective custody by the
Employer.
Employer shall have the authority and this instrument shall operate:
(1) to give the Employer authority to execute, sell and deliver as the act of
the Employee, any license agreement, contract, assignment or other instrument in
writing that may be necessary or proper; (2) to convey to Employer the entire
right, title and interest in and to any such product. Employee further agrees to
hold Employer and its assigns harmless by reason of Employer's acts pursuant to
this paragraph. Employee further agrees that, during the term of his/her
employment and any time thereafter, Employee shall cooperate with the Employer
and its counsel in the prosecution and/or defense of any litigation which may
arise in connection with any product referred to in this paragraph.
13. Return of Property. Employee agrees to return all property of
Employer, including, but not limited to equipment, prices, specifications,
programs and any other proprietary data or objects acquired through Employee's
employment with the Employer, as well as any and all copies of such items,
within seven (7) days
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upon the termination of employment, whether said termination be with or without
just cause.
14. Injunction. In the event of breach of any provisions of this
Agreement, Employer shall be entitled to seek damages if determinable but it is
hereby agreed that any such remedy at law is inadequate as to a breach of
paragraphs 8, 10, 11, 12, or 13 of this Agreement, and thus, Employer shall also
be entitled to injunctive relief. Such a breach shall cause the applicable
restrictive time period stated herein to be extended to run from the date of
full compliance with any court-ordered injunction. Employer also shall be
entitled to reasonable attorney's fees incurred in the enforcement of all such
relief. The remedies herein provided shall be cumulative and no single remedy
shall be construed as exclusive of any other or of any remedy provided at law.
Failure of Employer to exercise any remedy at any time shall not operate as a
waiver of the right of Employer to exercise any remedy for the same or
subsequent breach at any time thereafter.
15. Termination. Employment may be terminated as follows:
a. By mutual agreement of the parties upon such terms as may be agreed
to by the parties;
b. For just cause. The Employer may terminate the Employee's
employment hereunder for just cause. For purposes of this Agreement
the Employer shall have "just cause" to terminate the Employee's
employment hereunder upon conviction of a felony, or continued
willful or grossly negligent failure by the Employee to
substantially perform his duties hereunder (other than any failure
resulting from Employee's incapacity due to physical or mental
illness). In the event of termination
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for just cause, employee shall not be entitled to any severance
pay.
c. Without just cause/resignation with just cause. The Employer may
terminate Employee's employment without just cause upon forty-five
(45) days prior written notice to Employee. Termination of
Employee's employment for any reason, other than specified as for
just cause (as defined in paragraph 15. b. of this Agreement),
shall constitute termination of this Agreement "without just cause.
" In addition, any material breach of this Agreement by Employer,
unless cured by Employer within forty-five (45) days after written
notice from Employee, shall constitute grounds for resignation with
just cause. This shall include the situation where Employee
determines in good faith that his status or responsibilities with
the Employer has or have diminished subsequent to a change in
control as defined in paragraph 25, and Employee has given notice
to the Employer of his resignation for this reason within two (2)
years after such change in control. In the event of termination
without just cause, or resignation, Employee, if requested by the
Employer, shall continue to render his services during the
forty-five (45) day notice period, and shall be paid his regular
compensation up to the date of cessation of service. After
completion of such service, to the extent required by this
Agreement, the Employer shall make a lump sum severance payment
equal to regular compensation as defined in paragraph 15. e.,
within thirty (30) days of the last day of employment. If Employee
resigns without just cause, or is terminated with just cause,
Employee will not be entitled to severance pay.
d. Death or Disability. In the event of the death of the Employee
during the term of this Agreement, the Agreement shall terminate as
of that date without bonus or severance pay. In the event Employee
becomes disabled and cannot continue to perform his/her duties, the
Employee shall be treated in conformity with the manual of standard
company policies then in effect. Employee shall also retain all
rights under COBRA.
e. Regular Compensation. For purposes of this paragraph 15, for the
initial term of employment and the one year renewal period under
this Agreement, regular compensation shall be understood to mean
the base annual compensation for the prior year, excluding any
bonus. For any renewal periods after the initial one year renewal
period of employment under this Agreement, regular compensation
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shall be understood to include six (6) months base compensation
plus 50% of any annual bonuses received by Employee during the most
recent year prior to termination, plus six (6) months of continued
health insurance coverage. It is understood that any notice period
shall count toward calculation of whether the Employee has worked a
full term under the Agreement.
Provided, however, that upon termination of employment, notwithstanding
any other provisions contained herein to the contrary, the provisions of
paragraphs 8 through 14, 22, and 23 shall continue in full force and effect for
the period of time therein stated.
16. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing, and sent by certified mail to the last known
residential address in the case of the Employee, or to its principal office in
the case of the Employer.
17. Assignment. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Employer. The contract cannot be assigned by the Employer
without the written consent of the Employee. This Agreement shall also be
binding upon the heirs and executor or administrator of Employee.
18. Integration. This instrument contains the entire agreement of the
parties. It may not be changed orally but only by an agreement in writing signed
by the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
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19. Severability. Should any clause of this Agreement be found void by
a court of law, that fact shall not impair the remainder of this Agreement.
20. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Indiana.
21. Warranty. Employee hereby warrants and represents as follows:
a. That the execution of this Agreement and the discharge of
Employee's obligations hereunder will not breach or conflict with
any other contract, agreement, or understanding between Employee
and any other party or parties;
b. Employee has ideas, information and know-how relating to the type
of business conducted by Employer, and Employee's disclosure of
such ideas, information and know-how to Employer will not conflict
with or violate the rights of any third party or parties.
22. Arbitration. In the event of any dispute over the terms of this
Agreement, excluding any violation of the provisions of paragraphs 8 through 14,
the parties agree to arbitrate such dispute pursuant to the rules and procedures
of the American Arbitration Association.
23. Attorney's Fees. If any party to this Agreement breaches any of the
terms of this Agreement, then that party shall pay to the non-breaching party
all of the non-breaching party's costs and expenses, including attorney's fees,
incurred by that party in enforcing the terms of this Agreement.
24. Construction of Agreement. The parties hereby confirm and agree
that this Agreement is the result of negotiation and
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compromise, and that in interpreting this Agreement neither party shall be
considered to be the drafter of the document, and that the language should not
be strictly construed against either party. Instead, the language of the
Agreement should be interpreted consistent with the ordinary and reasonable
meaning of the words used.
25. Change in Control. For purposes of this Agreement, a "change in
control" shall be deemed to have occurred if and when:
a. Any person or group of persons acting in concert shall have
acquired ownership of or the right to vote or to direct the voting
of shares of capital stock of the Employer representing 15% or more
of the total voting power of the Employer, or
b. The Employer shall have merged into or consolidated with another
corporation, or merged another corporation into the Employer, on a
basis whereby less than 50% of the total voting power of the
surviving corporation is represented by shares held by former
shareholders of the Employer prior to such merger or consolidation,
or
c. The Employer shall have sold substantially all of its assets to
another corporation or other entity or person.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day, month and year first above written.
SIGNATURE INNS, INC.
By: /s/ John D. Bontreger
-----------------------
EMPLOYER
/s/ Martin D. Brew
-----------------------
Martin D. Brew
EMPLOYEE
Affirmed: April 14, 1995
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Exhibit A
JOB DESCRIPTION
JOB TITLE
Exempt
Treasurer and Controller
GENERAL RESPONSIBILITIES
Manage Accounting Department, perform treasury functions, and promote
automation strategy and implementation for hotels and corporate office.
SPECIFIC DUTIES
1. Management of Accounting Department
Supervise Accounting Managers
Financial statement reporting including SEC Reporting
Corporate budget preparation and monitoring
Coordinate audits and tax filings for corporation and partnerships
Annual reports coordination including preparation and distribution
Legal compliance reporting
Coordinate legal services with outside attorney
Limited Partner database maintenance and contact person
Corporate budgeting preparation and monitoring
2. Treasury Functions
Cash management supervision and monitoring
Property and casualty insurance renewal and administration
Company shareholders, contacts, meetings, proxy, votes, etc.
3. Automation Responsibilities
Chairman of Automation Committee
4. Member of Executive Committee, Finance Committee, and Human Resources
Committee (provide input to Refurbishing Committee)
5. Reports to Vice President of Finance/Chief Financial Officer
The above duties may be supplemented occasionally with additional duties related
to company objectives.
<PAGE> 1
EXHIBIT 10.7
SIGNATURE INNS, INC.
1996 EQUITY INCENTIVE PLAN
ARTICLE 1
ESTABLISHMENT, PURPOSE AND DURATION
1.1. Establishment of the Plan. Signature Inns, Inc., an Indiana
corporation (hereinafter referred to as the "Company"), hereby establishes an
equity incentive compensation plan to be known as the "Signature Inns, Inc. 1996
Equity Incentive Plan" (hereinafter referred to as the "Plan"), as set forth in
this document. The Plan permits the granting of Non-qualified Stock Options,
Incentive Stock Options and Restricted Stock.
Upon approval by the Board of Directors of the Company, subject to
ratification by an affirmative vote of holders of a majority of Shares present
and entitled to vote at the 1996 Annual Meeting at which a quorum is present,
the Plan shall become effective as of February 20, 1996 (the "Effective Date"),
and shall remain in effect as provided in Section 1.3 herein.
1.2. Purpose of the Plan. The purpose of the Plan is to promote the
success, and enhance the value, of the Company by linking the personal interests
of Employees and Directors with those of Company stockholders.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract and retain the services of Employees upon whose
judgment, interest and special effort the successful conduct of its operation
largely is dependent.
1.3. Duration of the Plan. Subject to approval by the Board of
Directors of the Company and ratification by the stockholders of the Company,
the Plan shall commence on the Effective Date and shall remain in effect,
subject to the right of the Board of Directors to terminate the Plan at any time
pursuant to Article 14 herein, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan on or after the tenth (10th) anniversary
of the Plan's Effective Date.
<PAGE> 2
1.4. Prior Incentive Stock Option Plan Superseded. The Plan is intended
to supersede and replace the 1986 Signature Inns, Inc. Incentive Stock Option
Plan and to govern in all respects any outstanding unexercised stock options
granted under that plan. In addition, any unissued incentive stock options
reserved for issuance under the prior plan are, upon adoption of this Plan,
reserved for issuance hereunder.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
2.1. Definitions. Whenever used in the Plan, the following terms shall
have the meanings set forth below:
(a) "Award" means, individually or collectively, a grant under this
Plan of Non-qualified Stock Options, Incentive Stock Options or
Restricted Stock.
(b) "Board" or "Board or Directors" means the Board of Directors of the
Company.
(c) "Cause" means Participant's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or
material breach of this agreement. For purposes of this subsection,
no act, or failure to act, on Participant's part shall be
considered "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or
omission was in the best interest of the Company. In determining
incompetence, the acts or omissions shall be measured against
standards generally prevailing in the hotel industry.
Notwithstanding the foregoing, the Participant shall be deemed to
have been terminated for Cause upon the affirmative vote of not
less than fifty
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<PAGE> 3
percent (50%) of the quorum of the Board at a meeting of the Board
called and held for that purpose, which vote shall be recorded in
the minutes of such meeting.
(d) "Change in Control" of the Company shall be defined in accordance
with Section 10.2 herein.
(e) "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any successor statute thereto.
(f) "Committee" means the Committee, as specified in Article 3,
appointed by the Board to administer the Plan or the Board if a
Committee has not been appointed.
(g) "Company" means Signature Inns, Inc., an Indiana corporation
(including any and all Subsidiaries), or any successor thereto as
provided in Article 14 herein.
(h) "Director" means any individual who is a member of the Board of
Directors of the Company or Subsidiary who is not an Employee of
the Company or Subsidiary on the relevant date.
(i) "Disability" means a permanent and total disability as determined
under procedures established by the Committee for purposes of the
Plan.
(j) "Employee" means a full-time, salaried Employee of the Company or a
Subsidiary. Directors who are not otherwise employed by the Company
shall not be considered Employees under this Plan.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended and in effect from time to time, or any successor statute
thereto.
(1) "Fair Market Value" of a Share on any particular date is the
closing market price of a Share on the relevant date, according to
a stock quotation
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<PAGE> 4
source selected by the Committee. If the Shares did not trade on
the relevant date, the Fair Market Value is determined as of the
most recent preceding date for which a quoted price is available,
or as of the most recent date for which quoted bid and asked prices
are available, whichever is the most recent, from a qualified third
party selected by the Committee. Should Fair Market Value be
determined at the time of the most recent quoted bid and asked
prices, Fair Market Value shall be equal to the average of such bid
and asked prices. In the event none of the foregoing information is
available, Fair Market Value for a relevant date shall be
established by the Board of Directors.
(m) "Incentive Stock Option," or "ISO," means an option to purchase
Shares granted under Article 6 herein, which is designated as an
Incentive Stock Option and is intended to meet the requirements of
Section 422 of the Code.
(n) "Non-qualified Stock Option," or "NQSO," means an option to
purchase Shares, granted under Article 6 herein, which is not
intended to be an Incentive Stock Option.
(o) "Option" means an Incentive Stock Option or a Non-qualified Stock
Option.
(p) "Option Price" means the price at which a Share may be purchased by
a Participant pursuant to an Option, as determined by the
Committee.
(q) "Participant" means an Employee or Director of the Company who has
outstanding an Award granted under the Plan.
(r) "Period of Restriction" means the period during which the transfer
of Shares of Restricted Stock is limited in some way (based on the
passage of time, the achievement of performance goals, or upon the
occurrence of other events as determined by the Committee, in its
discretion), and the Shares are
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<PAGE> 5
subject to a substantial risk of forfeiture, as provided in Article
7 herein.
(s) "Person" shall have the meaning ascribed to such term in Section
3(a) (9) of the Exchange Act.
(t) "Retirement" means termination of a Participant's employment with
the Company after the Participant attains age 65.
(u) "Restricted Stock" means an Award granted to an Employee or
Director pursuant to Article 7 herein.
(v) "Rule 16b-3" means Rule 16b-3, as promulgated by the Securities and
Exchange Commission, or its successor agency, under Section 16(b)
of the Exchange Act, as amended and in effect from time to time, or
its successor provision.
(w) "Shares" mean the Common Stock of the Company.
(x) "Subsidiary" means any corporation in which the Company owns
directly, or indirectly through subsidiaries, at least 50 percent
of the total combined voting power of all classes of stock, or any
other entity (including, but not limited to, partnerships and joint
ventures) in which the Company owns at least 50 percent of the
combined equity thereof; provided, however, that with respect to
Incentive Stock Options, it has the meaning set forth in Section
424(f) of the Code.
2.2. Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; and,
the plural shall include the singular and the singular shall include the plural.
2.3. Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
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<PAGE> 6
ARTICLE 3
ADMINISTRATION
3.1. The Committee. The Plan shall be administered exclusively by a
Committee appointed by the Board of Directors consisting of not less than two
(2) Directors who serve on the Compensation Committee and who shall be appointed
from time to time by, and shall serve at the discretion of, the Board. No member
of the Committee shall receive any Award pursuant to the Plan or any similar
plan of the Company or any of its Subsidiaries while serving on the Committee,
or shall have received any such Award at any time within one (1) year prior to
his or her service on the Committee (or, if different, for the time period just
necessary to fulfill the then requirements of Rule 16b-3), other than Restricted
Stock Shares pursuant to Section 7.2. However, if for any reason the Committee
does not qualify to administer the Plan, as contemplated by Rule 16b-3, the
Board may appoint a new Committee so as to comply with Rule 16b-3. Subject to
the foregoing, the Board may from time to time remove members from the
Committee, fill all vacancies in the Committee, however caused, and may select
one of the members of the Committee to serve as its Chairman.
3.2. Authority of the Committee. The Committee shall have sole power
except as limited by law or by the Articles of Incorporation or Bylaws of the
Company, and subject to the provisions herein, to determine the size and types
of Awards; to determine the terms and conditions of such Awards in a manner
consistent with the Plan; and (subject to the provisions of Article 11 herein)
to amend the terms and conditions of any outstanding Award to the extent such
terms and conditions are within the discretion of the Committee as provided in
the Plan. The Committee shall recommend any of foregoing determinations and
actions in respect of Awards to the Board of Directors, which shall only accept
or reject such recommendations, acting by affirmative vote of not less than
fifty percent of Directors attending a meeting of the Board called and held for
that purpose. No Awards may be granted other than those recommended by the
Committee.
The Committee shall also have the sole power to construe and interpret
the Plan and any agreement or instrument entered into under the Plan; and to
establish, amend or waive rules and regulations for the Plan's administration.
Further, the Committee
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<PAGE> 7
shall make all other determinations which may be necessary or advisable for the
administration of the Plan. As permitted by law, the Committee may delegate its
authorities as identified hereunder.
The discretion of the Committee shall be limited to the extent
necessary to retain the status of the members of the Committee as "disinterested
persons" pursuant to Rule 16b-3.
3.3. Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all Persons,
including the Company, its stockholders, Employees, Participants and their
respective successors.
ARTICLE 4
SHARES SUBJECT TO THE PLAN
4.1. Number of Shares. Subject to adjustment as provided in Section 4.3
herein, the aggregate number of Shares available for grant under the Plan shall
not exceed 750,000 (which includes all Shares in any options awarded under prior
plans), provided, however, (i) no more than five (5) percent of the Shares
available for grant under the Plan shall be granted other than through Options;
and (ii) Shares subject to the Plan (and prior plans) at any time shall not
exceed ten (10) percent of then issued and outstanding Shares. The Shares
available for grant under the Plan may be either authorized but unissued or
Shares that have been reacquired by the Company. The grant of an Option or
Restricted Stock Award shall reduce the Shares available for grant under the
Plan by the number of Shares subject to such Award.
4.2. Lapsed Awards. If any Award granted under this Plan (or prior
plans) terminates, expires, or lapses for any reason, any Shares subject to such
Award again shall be available for the grant of an Award under the Plan, with
the exception of Restricted Stock Awards upon which dividends have been paid to
the Participants.
4.3. Adjustments in Authorized Shares. Except as provided in Section
4.4 hereof, in the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock
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<PAGE> 8
dividend, split-up, Share combination, or other change in the corporate
structure of the Company affecting the Shares, such adjustment shall be made in
the number and class of Shares which may be delivered under the Plan, and in the
number and class of and/or price of Shares subject to outstanding Options and
Restricted Stock granted under the Plan, as may be determined to be appropriate
and equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; and provided that the number of Shares subject to any
Award shall always be a whole number.
4.4. Certain Capital Readjustments Ignored. Section 4.3 hereof will not
apply to a change in corporate structure of the Company affecting the Shares
which occurs within twelve (12) months after approval by the stockholders of the
Company of the Plan.
ARTICLE 5
ELIGIBILITY AND PARTICIPATION
5.1. Eligibility. Persons eligible to participate in this Plan include
all Employees of the Company, including Employees who are members of the Board,
and all Directors, including Directors of Subsidiaries; provided, however, that
Directors shall be eligible to receive Awards only pursuant to Section 7.2 of
this Plan.
5.2. Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees those to
whom Awards shall be granted and shall determine the nature and amount of each
Award. No Employee or Director shall have any right to be granted an Award under
this Plan.
ARTICLE 6
STOCK OPTIONS
6.1. Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees at any time and from time to time as shall
be determined by the Committee. The Committee shall have discretion in
determining the number of Shares subject to Options granted to each Employee.
The Committee may
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<PAGE> 9
grant ISOs, NQSOs, or a combination thereof. Nothing in this Article 6 shall be
deemed to prevent the grant of NQSOs in excess of the limits on ISO grants
imposed by Section 422 of the Code. Notwithstanding anything in this Section 6.1
to the contrary, the aggregate Fair Market Value of Shares with respect to which
ISOs are exercisable, determined as of the date of grant, for the first time by
a grantee in any calendar year under the Plan shall not exceed $100,000.
6.2. Option Agreement. Each Option grant shall be evidenced by an
Option agreement that shall specify the Option Price, the duration of the
Option, the number of Shares to which the Option pertains, and the percentage of
the Option that becomes exercisable on specified dates in the future. The Option
agreement also shall specify whether the Option is intended to be an ISO within
the meaning of Section 422 of the Code or a NQSO whose grant is intended not to
be subject to the provisions of such Section 422. The Option agreement may
contain such other provisions as the Committee deems advisable, including an
obligation of the Company, to be undertaken at its own expense, to list,
register or qualify Shares subject to the Option upon any applicable securities
exchange or under any applicable Federal or state law.
6.3. Option Price. The Option Price for each grant of an Option to an
Employee shall be determined by the Committee, provided that (a) the Option
Price shall not be less than the Fair Market Value of the Share(s) covered by
the Option on the date of grant; and (b) if at the time an ISO is granted the
grantee owns or would be considered to own by reason of Section 424(d) of the
Code more than ten (10) percent of the total combined voting power of all
classes of stock of the Company or any Subsidiary, the Option Price of the
Shares covered by such ISO shall be not less than 110 percent of the Fair Market
Value of a Share on the date of grant.
6.4. Duration of Options. Except as otherwise provided in this Section
6.4 or in Section 6.8 below, each Option granted to an Employee shall expire or
terminate at such time as the Committee shall determine at the time of grant. No
Option shall be exercisable later than (i) ten (10) years from the date of grant
or (ii) five (5) years from the date of grant in the case of an ISO the grantee
of which, on the date of grant, owns or would be considered to own by reason of
Section 424 (d) of the Code more than ten (10) percent of the total combined
voting power of all classes
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<PAGE> 10
of stock of the Company or any Subsidiary.
6.5. Exercise of Options. Options granted to Employees under the Plan
shall be exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which need not be
the same for each grant or for each Employee. However, each Non-qualified Stock
Option shall become exercisable in respect of 33 1/3 percent of the Shares
subject to the Option on the first, second and third anniversary of grant.
Notwithstanding any other provision of the Plan, in no event may any Option
granted under this Plan to an Employee subject to the restrictions of Section 16
of the Exchange Act become exercisable prior to six (6) months following the
date of its grant, or following the date upon which this Plan is approved by
stockholders, whichever is later.
6.6. Payment. Options shall be exercised by the delivery of a written
notice of exercise to the Chief Financial Officer of the Company, setting forth
the number of Shares with respect to which the Option is to be exercised,
accompanied by payment in full of the Option Price.
The Option Price upon exercise of any Option shall be payable to the
Company in full either (a) in cash or its equivalent, (b) by tendering
previously acquired Shares having a Fair Market Value at the time of exercise
equal to the total Option Price (provided that the Shares which are tendered
must have been held by the Participant for at least six (6) months prior to
their tender to satisfy the Option Price), or (c) by a combination of (a) and
(b) . The proceeds from such a payment shall be added to the general funds of
the Company and shall be used for general corporate purposes. In addition, the
Company may establish a cashless exercise program in accordance with Federal
Reserve Board Regulation T.
As soon as practicable after receipt of a written notification of
exercise and payment in full of the Option Price, the Company shall deliver to
the Participant, in the participant's name, Share certificates in an appropriate
amount based upon the number of Shares purchased under the Option(s).
6.7. Restrictions on Share Transferability. The Committee shall impose
such restrictions on any Shares acquired pursuant to
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<PAGE> 11
the exercise of an Option under the Plan, as it may deem advisable, including,
without limitation, restrictions under applicable Federal securities laws, under
the requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.
6.8. Termination of Service Due to Death. Disability, or Retirement .
(a) Termination by Death. In the event death terminates the
employment of a Participant, any outstanding Options granted to him
that are not exercisable as of the date of termination shall
immediately become exercisable. All of such Options shall remain
exercisable until their respective expiration dates, or for one (1)
year after the termination date, whichever period is shorter, by such
Person or Persons as shall have acquired the rights of the Participant
under the Option by will or by the laws of descent and distribution.
(b) Termination by Disability. In the event Disability terminates
the employment of a Participant, any outstanding Options granted to him
that are not exercisable as of the date of termination shall
immediately become exercisable. All of such Options shall remain
exercisable until their respective expiration dates, or for one (1)
year after the date such Disability is determined by the Committee to
be total and permanent, whichever period is shorter. Should the
Participant die during this period, exercisability of his Options shall
be permitted for a period of one (1) year following the date of death.
(c) Termination by Retirement. In the event Retirement terminates
the employment of a Participant, any outstanding Options granted to him
that are not exercisable as of the date of termination shall
immediately become exercisable. All of such Options shall remain
exercisable until their respective expiration dates, or for one (1)
year after the date of such termination, whichever period is shorter.
6.9. Termination of Employment for Other Reasons. Except as otherwise
provided in Section 6.8. above, if the employment of a Participant shall
terminate, all outstanding Options that are not
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exercisable as of the date of termination immediately shall be forfeited to the
Company. However, unless such termination is for Cause, the Committee, in its
sole discretion, shall have the right immediately to make exercisable all or any
portion of such Options. Thereafter, all exercisable Options shall remain
exercisable at any time prior to their expiration date, or for one (1) year
after the date of termination, whichever period is shorter. If termination is
for Cause, all outstanding Options shall be immediately forfeited to the Company
and no additional exercise period shall be allowed, regardless of the status of
the Options.
6.10. Nontransferability of Options. No Option granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or the laws of descent and distribution.
Further, all Options granted to an Employee under the Plan shall be exercisable
during his or her lifetime only by such Employee.
6.11. Shareholder Rights. A Participant holding an Option shall have no
rights as a holder of the Shares subject to such Option until the actual
issuance of such Shares to him and his payment to the Company of the full
purchase price for the Shares. No adjustment will be made for dividends or other
rights for which the record date is prior to the date of issuance of the Shares.
ARTICLE 7
RESTRICTED STOCK
7.1. Grant of Restricted Stock to Employees. Subject to the terms and
provisions of the Plan, the Committee, at any time and from time to time, may
grant Shares of Restricted Stock to Employees in such amounts as the Committee
shall determine.
7.2. Grant of Restricted Stock to Directors. Subject to the terms and
provisions of the Plan, including Sections 4.3 and 4.4, the Committee shall
grant to each Director for no consideration five hundred (500) Shares of
Restricted Stock, effective as of the date of his election or re-election to the
Board of Directors by the Company's stockholders, provided such Director serves
his full term as Director and subject to such other restrictions and conditions
as the Committee shall determine pursuant to Section 7.3
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hereof. In addition, subject to the foregoing restrictions and conditions, the
Committee shall grant to each Director on the Board, on the date of stockholder
approval of the Plan, for no consideration that number of Shares of Restricted
Stock equal to five hundred (500) multiplied by the fraction obtained from
dividing the number of years remaining in such Director's present term, rounded
to the nearest complete year, by three (3), with the resulting number of Shares
rounded to the nearest whole number.
7.3. Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock agreement that shall specify the Period (or
Periods) of Restriction and the number of Restricted Stock Shares granted. A
Restricted Stock agreement shall also contain such other provisions as the
Committee shall determine, including an obligation of the Company, to be
undertaken at its own expense, to list, register or qualify Restricted Stock
shares upon any applicable securities exchange or under any applicable Federal
or state law.
7.4. Transferability. Except as provided in this Section 7.4, the
Shares of Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the end of the applicable
Period of Restriction established by the Committee and specified in the
Restricted Stock agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion and set forth
in the Restricted Stock agreement. The Restricted Stock is subject to
substantial risk of forfeiture during the Period of Restriction. However,
notwithstanding any other provisions of the Plan, in no event may any Restricted
Stock granted under the Plan become vested in a Participant prior to six (6)
months following the date of its grant, or following the date upon which this
Plan is approved by stockholders, whichever is later. All rights with respect to
the Restricted Stock granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant and may not be transferred.
7.5. Other Restrictions. The Committee may impose such other
restrictions on any Shares of Restricted Stock as it may deem advisable
including, without limitation, restrictions based upon the achievement of
specific performance goals (Company-wide, Subsidiary, and/or individual), and/or
restrictions under or in respect of applicable Federal or state securities or
tax laws; and
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may legend the certificate representing Restricted Stock to give appropriate
notice of such restrictions. The Committee may also require that Participants
make cash payments at the time of grant or upon lapsing of restrictions. Such
cash payments, if imposed, will be in an amount not less than the par value of
the Shares.
7.6. Certificate Legend. In addition to any legends placed on
certificates pursuant to Section 7.5 herein, each certificate representing
Shares of Restricted Stock granted pursuant to the Plan shall bear the following
legend:
"The sale or other transfer of the Shares of stock represented by
this certificate, whether voluntary, involuntary, or by operation of
law, is subject to certain restrictions on transfer as set forth in
the Signature Inns Inc. 1996 Equity Incentive Plan, and in a
Restricted Stock agreement dated . A copy of the Plan and such
Restricted Stock agreement may be obtained from the Chief Financial
Officer of Signature Inns Inc."
7.7. Removal of Restrictions. Except as otherwise provided in this
Section 7.7, Shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan shall become freely transferable by the participant after
the last day of the Period of Restriction. Once the Shares are released from the
restrictions, the Participant shall be entitled to have the legend required by
Section 7.6 removed from his or her Share certificate.
7.8. Voting Rights. During the Period of Restriction, Participants
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares.
7.9. Dividends and Other Distributions. During the Period of
Restriction, Participants holding Shares of Restricted Stock granted hereunder
shall be entitled to receive all dividends and other distributions paid with
respect to those Shares while they are so held. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
7.10. Termination of Service Due to Death or Disability. In the event
death or Disability terminates a Participant's employment
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<PAGE> 15
with, or a Director's service on the Board of Directors for, the Company, the
restrictions on the Restricted Stock held by him shall lapse as of the date of
termination (in the case of Disability, the restrictions shall lapse on the date
the Participant's Disability is determined by the Committee to be total and
permanent) .
7.11. Termination of Service for Other Reasons. Except as otherwise
provided in Section 7.10. above, if the employment of the Participant or service
of a Director shall terminate for any reason, all nonvested Shares of Restricted
Stock held by him at that time immediately shall be forfeited and returned to
the Company. In the case of such a termination other than for Cause, the
Committee, in its sole discretion and with any affected Director abstaining,
shall have the right to provide for lapsing of the restrictions on Restricted
Stock following termination, upon such terms and provisions as it deems proper.
No such right shall exist in respect of a termination for Cause.
ARTICLE 8
BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Chief Financial Officer of the Company during
the Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to his estate.
ARTICLE 9
RIGHTS OF EMPLOYEES
9.1. Employment. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continue in the employ of
the Company.
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<PAGE> 16
For purposes of the Plan, transfer of employment of a Participant
between the Company and any one of its Subsidiaries (or between Subsidiaries)
shall not be deemed a termination of employment .
9.2. Participation. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.
ARTICLE 10
CHANGE IN CONTROL
10.1. General. In the event of a Change in Control of the Company as
defined in Section 10.2 below, all Options granted under this Plan that are
still outstanding and not yet exercisable shall become immediately exercisable
as of the date of the Change in Control and shall remain exercisable for their
term. Further, all restrictions placed on Restricted Stock Awards shall lapse in
the event of a Change in Control.
10.2. Definition. For purposes of the Plan, a Change in Control shall
mean liquidation, dissolution, consolidation, or merger of the Company in which
the Company is not the resulting institution, or transfer of all or
substantially all of its assets in which the Company is not the resulting
institution, except, in each case, where the resulting institution is a
Subsidiary of the Company. The Board has final authority to determine the exact
date on which a Change in Control has been deemed to have occurred.
ARTICLE 11
AMENDMENT, MODIFICATION, AND TERMINATION
The Committee may amend, alter, or discontinue the Plan, but no
amendment, alteration or discontinuation shall be made more than once every six
(6) months or which would (i) impair an Award without the consent of the
Participant, except such an amendment made to cause the Plan to qualify for the
exemption provided by Rule 16b-3 or (ii) disqualify the Plan from the exemption
provided by Rule 16b-3. In addition, no such amendment shall be made
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<PAGE> 17
without the approval of the Company's stockholders to the extent such approval
is required by law, agreement or the rules of any exchange upon which the Common
Stock is listed or quoted.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
the Participant without his consent except such an amendment made to cause the
Plan or Award to qualify for the exemption provided by Rule 16b-3. The Committee
may also substitute new Options for previously granted Options, including
previously granted Stock Options having higher option prices.
Subject to the above provisions, the Committee shall have the authority
to amend the Plan to take into account changes in law and tax and accounting
rules, as well as other factors necessary to administer the Plan in accordance
with the intentions of the Company in establishing the Plan and to grant Awards
which qualify for beneficial treatment under such rules without shareholder
approval .
ARTICLE 12
WITHHOLDING
12.1. Tax Withholding. The Company shall have the power and the right
to deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy Federal, state and local income, payroll and
unemployment taxes required to be withheld with respect to any grant, exercise,
or payment made under or as a result of this Plan.
12.2. Share Withholding. With respect to withholding required upon the
exercise of Options, upon the lapse of restrictions on Restricted Stock, or upon
any other taxable event hereunder, Employees may elect, subject to the approval
of the Committee, to satisfy the withholding requirement, in whole or in part,
by having the Company withhold Shares having a Fair Market Value, on the date
the tax is to be determined, equal to the minimum marginal tax which could be
imposed on the transaction.
Stock withholding upon the exercise of an Option will be done
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<PAGE> 18
if the Participant makes a signed, written election and one of the
following occurs:
(a) The Option exercise occurs during a "window period" and the
election to use stock withholding is made at any time prior to
exercise. For this purpose, "window period" means the period beginning
on the third (3rd) business day following the date of public release of
the Company's quarterly financial information and ending on the twelfth
(12th) business day following such date. An earlier election can be
revoked up until the exercise of the Option during the window period;
or
(b) An election to withhold stock is made at least six (6) months
before the Option is exercised. If this election is made, then the
Option can be exercised outside of the window period.
Stock withholding upon the vesting of Restricted Stock will be done if
the Participant makes a signed, written election and one of the following
occurs:
(a) The election occurs during a window period, and the Restricted
Stock Award is subject to vesting according to a fixed schedule
established by the Committee at the time of grant; or
(b) An election to use stock withholding is made at least six (6)
months before vesting occurs.
ARTICLE 13
INDEMNIFICATION
Each Person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified and held harmless by the Company against and
from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid
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<PAGE> 19
by him or her in satisfaction of any judgment in any such action, suit, or
proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing right
of indemnification shall not be exclusive of any other rights of indemnification
to which such Persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless .
ARTICLE 14
SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company .
ARTICLE 15
REQUIREMENTS OF LAW
15.1. Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
15.2. Governing Law. To the extent not pre-empted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Indiana.
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EXHIBIT 21
Subsidiaries of the Registrant
The registrant's subsidiaries are P&N Corporation, an Indiana
corporation; SI Springfield Corporation, an Indiana corporation; and SIE
Corporation, an Indiana corporation.
II-7
<PAGE> 1
EXHIBIT 23.1
CONSENT OF KPMG PEAT MARWICK LLP
THE BOARD OF DIRECTORS
SIGNATURE INNS, INC.:
We consent to the use of our auditors' reports on the financial statements of
Signature Inns, Inc. and subsidiaries, Signature Inn Certain Affiliated
Partnerships and Signature Northwestern Ltd. - I Limited Partnership and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
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KPMG Peat Marwick LLP
Indianapolis, Indiana
September 23, 1996
