<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1997.
REGISTRATION NO. 333-12735
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
AMENDMENT NO. 3 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SIGNATURE INNS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Indiana 7011
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) 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: AS SOON AS PRACTICABLE AFTER
THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==========================================================================================================
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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<S> <C> <C> <C>
$1.70 Cumulative Convertible Preferred
Stock, Series A............................ $20.00 $46,000,000 $15,703.45(1)
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Common Stock(2)............................
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Non-Cumulative Preferred Stock, Series One
Purchase Rights(2).......................
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<FN>
(1) Estimated solely for the purpose of computing the registration fee. The
registration fee was calculated and paid at the time of the original filing
of this Registration Statement based on an assumed offering of 3,795,000
shares of Common Stock at a maximum offering price of $13.00 per share.
(2) Such indeterminate number of shares as are issuable on conversion of the
Preferred Stock, including such additional shares as may be issuable as a
result of adjustments to the conversion price. Additionally, certain
Non-Cumulative Preferred Stock, Series One Purchase Rights (the "Rights")
will be evidenced by the certificates for the shares of Common Stock and
trade automatically with the Common Stock. Any value attributable to the
Rights will be reflected in the market price of the Common Stock.
</TABLE>
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
PROSPECTUS
2,000,000 SHARES
SIGNATURE INNS, INC.
$1.70 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
Dividends on the $1.70 Cumulative Convertible Preferred Stock, Series A,
without par value (the "Series A Preferred Stock"), are cumulative from the date
of original issuance and are payable on January 15, April 15, July 15 and
October 15 of each year, commencing April 15, 1997. The Series A Preferred Stock
has a liquidation preference of $20.00 per share. See "Description of Capital
Stock -- Series A Preferred Stock."
The Series A Preferred Stock is convertible at the option of the holder at
any time, unless previously redeemed, into shares of Common Stock, without par
value (the "Common Stock"), of Signature Inns, Inc. (the "Company") at an
initial conversion price of $9.60 per share of Common Stock (equivalent to 2.08
shares of Common Stock for each share of Series A Preferred Stock converted),
subject to adjustment upon certain events as described herein.
Prior to this offering (the "Offering"), no Series A Preferred Stock has
been outstanding, and there has been only a limited public market for the Common
Stock of the Company. See "Underwriting" for a discussion of the factors
considered in determining the initial conversion price.
The Series A Preferred Stock is not redeemable prior to February 1, 2000,
but will be redeemable on that date or thereafter for cash at the election of
the Company, in whole or in part, at the prices set forth under "Description of
Capital Stock -- Series A Preferred Stock."
The Series A Preferred Stock has been approved for listing on the NASDAQ
National Market System, subject to official notice of issuance, under the symbol
"SGNSP."
------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF SHARES OF THE SERIES A
PREFERRED STOCK OFFERED HEREBY.
------------------------------------
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.
<TABLE>
<CAPTION>
=========================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.................................... $20.00 $1.40 $18.60
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Total(3)..................................... $40,000,000 $2,800,000 $37,200,000
=========================================================================================================
<FN>
(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 $1,100,000.
(3) The Company has granted to the Underwriters options, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 300,000
additional shares of Series A Preferred 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
$46,000,000, $3,220,000 and $42,780,000, respectively.
</TABLE>
------------------------------------
The shares of Series A Preferred 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 Series A Preferred Stock will be made against payment
therefor at the offices of McDonald & Company Securities, Inc. on or about
January 24, 1997.
MCDONALD & COMPANY
SECURITIES, INC.
J.C. BRADFORD & CO.
THE OHIO COMPANY
The date of this Prospectus is January 21, 1997.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SERIES A
PREFERRED STOCK OR THE COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
<PAGE> 4
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 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-3.7 share reverse stock split 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. Smith Travel Research has not provided any form of
consultation, advice or counsel regarding any aspects of, and is in no way
whatsoever associated with, the Offering. 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
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
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 become the sole owner of the Initial Hotels by purchasing
interests in the Initial Hotels and in the Affiliated Entities in connection
with the Offering. 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 Purchase Transactions will improve the Company's access to
capital markets and its ability to gain additional financing by consolidating
its operations and properties into a single financial entity.
<PAGE> 5
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 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 Company's success
is, in part, due to 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 17 states as potential markets for expansion. The
Company believes that capital from the Offering proceeds, internal cash flow and
external financing will provide adequate funding over the next several years for
the construction or conversion of two 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 February of 1997. The Company is
also converting to a Signature Inn a 124 room hotel in Springfield, Illinois,
and it expects to complete that conversion by May of 1997. In addition, the
Company expects to begin development 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 contracted to acquire a 120 room hotel in Louisville, Kentucky,
and expects to acquire and 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 5.0%.
Operating results for Signature Inn hotels in the first nine months of 1996
versus the same period of 1995 continued on a positive trend, with RevPAR and
hotel revenues each increasing 1.8%. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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
2
<PAGE> 6
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.
<TABLE>
<CAPTION>
OCCUPANCY(1) COMPARISON
Measurement Period Comparable Signature
(Fiscal Year Covered) Group Inns
<S> <C> <C>
1991 63.1% 62.6%
1992 64.0% 63.9%
1993 63.8% 66.2%
1994 65.9% 67.8%
1995 65.6% 67.2%
<FN>
(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.
</TABLE>
<TABLE>
<CAPTION>
ADR(2) COMPARISON
Measurement Period Comparable Signature
(Fiscal Year Covered) Group Inns
<S> <C> <C>
1991 48.15% 48.48%
1992 48.56% 48.95%
1993 49.51% 50.48%
1994 51.58% 53.45%
1995 54.45% 55.81%
<FN>
(2) ADR represents total room revenues divided by the total number of rooms
sold.
</TABLE>
<TABLE>
<CAPTION>
REVPAR(3) COMPARISON
Measurement Period Comparable Signature
(Fiscal Year Covered) Group Inns
<S> <C> <C>
1991 30.38% 30.35%
1992 31.08% 31.28%
1993 31.59% 33.42%
1994 33.99% 36.24%
1995 35.72% 37.50%
<FN>
(3) RevPAR represents the Occupancy multiplied by the ADR for the reported
period.
</TABLE>
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.
3
<PAGE> 7
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
Preferred Stock Offered.... 2,000,000 shares of $1.70 Cumulative Convertible
Preferred Stock, Series A, without par value (the
"Series A Preferred Stock"). In addition, the
Company has granted the Underwriters an option to
purchase up to 300,000 additional shares to cover
over-allotments, if any. See "Description of
Capital Stock -- Series A Preferred Stock" and
"Underwriting."
Dividends.................. $1.70 annually per share, cumulative from the date
of issuance and payable quarterly, on January 15,
April 15, July 15 and October 15 of each year,
commencing April 15, 1997. See "Description of
Capital Stock -- Series A Preferred
Stock -- Dividends."
Liquidation Preference..... $20.00 per share, plus all accrued and unpaid
dividends. See "Description of Capital
Stock -- Series A Preferred Stock -- Liquidation."
Conversion................. Convertible at the option of the holder at any
time, unless previouslyredeemed, into shares of
Common Stock, without par value (the "Common
Stock"), of the Company at an initial conversion
price of $9.60 per share of Common Stock
(equivalent to 2.08 shares of Common Stock
for each share of Series A Preferred Stock
converted), subject to adjustment upon certain
events. See "Description of Capital Stock -- Series
A Preferred Stock -- Convertibility."
Optional Redemption........ Redeemable on and after February 1, 2000, in whole
or in part, at the election of the Company, at the
redemption prices set forth herein, plus all
accrued and unpaid dividends. See "Description of
Capital Stock -- Series A Preferred
Stock -- Redemption."
Voting Rights.............. The Series A Preferred Stock will be nonvoting
except that holders of the Series A Preferred Stock
will have the right, together with the holders (if
any) of other series of the Company's preferred
stock, to elect two of the nine members of the
Board of Directors of the Company if dividends on
any series of the Company's preferred stock remain
unpaid for six quarters. See "Description of
Capital Stock -- Series A Preferred Stock -- Voting
Rights."
Ranking.................... The Series A Preferred Stock will rank on a parity
with other series of cumulative preferred stock
that may be issued. No class of preferred stock
senior to the Series A Preferred Stock may be
authorized without the consent of the holders of
two-thirds of the Series A Preferred Stock and of
any other series of preferred stock of the Company
ranking on a parity with the Series A Preferred
Stock then outstanding. See "Description of Capital
Stock -- Series A Preferred Stock -- Ranking."
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; (1) (ii) pay
$3.6 million of second mortgage indebtedness on
certain of the Initial Hotels; (iii) pay the
remaining balance of the Company's line of credit;
(iv) pay estimated costs of $.6 million associated
with the Purchase Transactions; and (v) provide
4
<PAGE> 8
funds for the acquisition, development and
renovation of, and working capital for, additional
Signature Inn hotels in accordance with the
Company's growth plan.
NASDAQ National Market
System Symbol............ SGNSP
- ---------------
(1) The balance of the purchase prices will be paid through the assumption or
replacement of approximately $53.2 million of first mortgage indebtedness of
the Initial Hotels.
5
<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>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------- -------------------------------
PRO PRO
FORMA(1) FORMA(1)
1993 1994 1995 1995 1995 1996 1996
------- ------- ------- ----------- ------- ------- -----------
(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 $38,591 $ 2,688 $ 4,089 $ 30,593
Management and franchise
fees......................... 2,569 3,022 3,127 -- 2,405 2,380 --
------- ------- ------- ------- ------- ------- -------
Total revenues............... 11,796 6,864 6,597 38,591 5,093 6,469 30,593
Total operating expenses....... 9,484 4,686 4,414 26,384 3,309 4,365 20,908
------- ------- ------- ------- ------- ------- -------
Operating income............. 2,312 2,178 2,183 12,207 1,784 2,104 9,685
Interest expense............... 3,456 1,275 981 6,345 752 770 4,287
Other income (expense)......... 595 708 415 (62) 227 487 188
Income taxes(3)................ -- -- -- 1,900 -- 150 1,900
Extraordinary gains(4)......... 21,314 495 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income................... 20,765 2,106 1,617 3,900 1,259 1,671 3,686
Less preferred stock
dividend..................... -- -- -- 3,400 -- -- 2,550
------- ------- ------- ------- ------- ------- -------
Net income applicable to common
stock........................ $20,765 $ 2,106 $ 1,617 $ 500 $ 1,259 $ 1,671 $ 1,136
======= ======= ======= ======= ======= ======= =======
Earnings per common share(5)... $ (0.59) $ 0.92 $ 0.77 $ 0.24 $ 0.60 $ 0.79 $ 0.54
======= ======= ======= ======= ======= ======= =======
Weighted average number of
common shares outstanding.... 926 1,747 2,104 2,104 2,104 2,104 2,104
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents...... $ 1,944 $ 4,237
Total assets................... 20,139 109,340
Total debt..................... 11,939 62,342
Total shareholders' equity..... 6,673 42,773
OTHER FINANCIAL DATA:
EBITDA(6)...................... $ 4,363 $ 3,089 $ 3,093 $15,965 $ 2,481 $ 2,637 $ 12,250
Capital expenditures........... 484 126 130 1,786 104 2,042 3,478
Cash provided (used) by:
Operating activities......... 2,541 1,996 2,661 2,387 2,580
Investing activities......... (694) 3,989 (462) (313) (2,304)
Financing activities......... (2,501) (5,169) (1,619) (1,661) (291)
Ratio of earnings to fixed
charges(7)................... 0.91 2.05 2.52 1.07 2.65 3.54 1.21
INITIAL HOTELS OPERATING DATA:
Total hotel revenues........... $34,508 $37,536 $38,591 $38,591 $29,927 $30,488 $ 30,488
Occupancy(8)................... 66.2% 67.8% 67.2% 67.2% 69.4% 68.2% 68.2%
ADR(9)......................... $ 50.48 $ 53.45 $ 55.81 $ 55.81 $ 55.98 $ 57.97 $ 57.97
RevPAR(10)..................... 33.42 36.24 37.50 37.50 38.85 39.54 39.54
GOP%(11)....................... 47.5% 48.5% 47.9% 47.9% 49.3% 48.2% 48.2%
<FN>
- ---------------
(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 nine-month period
ended September 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 disposed of during these
periods; five were disposed of during 1993 and the sixth was disposed of 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. After the completion of the Offering, the Company will be
limited to the annual use of approximately $900,000 of tax net operating
loss carryforwards. Accordingly, income tax expense has been provided for
in the pro forma financial
</TABLE>
6
<PAGE> 10
statements to the extent income before income tax expense exceeds the
limitation. 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 net income applicable to
Common Stock before extraordinary gains on the basis of the weighted
average number of common shares outstanding after giving effect to the
1-for-3.7 share reverse stock split. The effects of the assumed conversion
of the Series A Preferred Stock are anti-dilutive and, accordingly, are not
considered in the calculation of per common share earnings.
(6) EBITDA is operating income plus the sum of interest income, other income,
depreciation and amortization. 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) The ratio of earnings to fixed charges is computed by dividing the sum of
income before income taxes and extraordinary gains (adjusted for
undistributed earnings of affiliated partnerships) and interest, by fixed
charges. Fixed charges represent interest expense and preferred stock
dividends increased to an amount representing the pre-tax earnings which
would be required to cover the dividends. Prior to this Offering, the
Company had not issued any preferred stock; accordingly, the historical
ratios include no amounts with respect to preferred stock dividends.
(8) 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.
(9) ADR represents total room revenues (after discounts) divided by the total
number of rooms sold.
(10) RevPAR represents the average occupancy percentage multiplied by the
average daily room rate for the reported period.
(11) 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.
7
<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 factors, 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 and the recurring need for renovations,
refurbishment and improvements of hotel properties. 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 previously has
resulted in an excess supply of available rooms. A period of over-building
occurred in the 1980s, and the resulting over-supply of rooms adversely affected
occupancy levels and room rates in the lodging industry. Although much of the
over-supply of 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 competitive 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 hotel
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, hotel facilities must be continually maintained,
modernized and refurbished. This increases the need for capital funds (whether
from reserves, current cash flow or external 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 will 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.
8
<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 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 employment and 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, 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.
9
<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 57.1% of
the Company's pro forma revenues for the nine months ended September 30, 1996,
are located in Indiana, and five of those, representing 21.4% 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 September 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 $62.3 million and $42.8 million, respectively.
See "Capitalization." Of such indebtedness, $20.4 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, and the dividends payable on the Series A Preferred Stock. 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.
LIMITED PUBLIC TRADING MARKET FOR THE SHARES
Immediately before the Offering, there was no public trading market for the
Series A Preferred Stock, and the Company's Common Stock has not been actively
traded in any established public trading market. Accordingly, the market values
of the Series A Preferred Stock and of the Company's Common Stock are not
readily ascertainable. As of the date of this Prospectus, there were
approximately 4,500 holders of the Company's Common Stock. See "Price Range of
Capital Stock."
VOLATILITY OF MARKET PRICE
After completion of the Offering, the market price of the Series A
Preferred Stock could be subject to fluctuations because of variations in
quarterly operating results and other factors, such as changes in the market
price of the Company's Common Stock, 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 Series A Preferred Stock.
10
<PAGE> 14
DETERMINATION OF OFFERING PRICE AND CONVERSION RATIO
The public offering price and initial conversion ratio for the shares
offered by this Prospectus have been determined by negotiations between the
Company and the representatives of the Underwriters. The public offering price
for the Series A Preferred Stock may not be indicative of any trading price of
the Series A Preferred Stock after the Offering. See "Underwriting." There can
be no assurance that an active trading market for the Series A Preferred Stock
ultimately will develop and continue upon consummation of the Offering or that
the price of the Series A Preferred Stock will not decline below the initial
public offering price.
LIMITATIONS ON DIVIDENDS
The Company's bank credit facility prohibits the Company from making a
dividend payment on the Series A Preferred Stock if there exists a default
(either matured or unmatured) thereunder, including a default upon one of a
number of financial covenants such as the requirement that the Company maintain,
for each calendar quarter, a ratio of earnings before interest, taxes,
depreciation and amortization to debt service obligations and other fixed
charges plus dividend payments on the Series A Preferred Stock of at least 1:1.
The Company expects that any future credit arrangement will impose similar
restrictions. The issuance by the Company of any additional preferred stock that
ranks on a parity with the Series A Preferred Stock with respect to dividends
would effectively reduce the amount of funds otherwise available for the payment
of dividends on the Series A Preferred Stock. The Company does not currently
anticipate issuing any such additional preferred stock.
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 Series A Preferred Stock prevailing from time to time. Sales of
substantial amounts of Series A Preferred Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Series A Preferred Stock. See "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, franchise and partnership 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 duties 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 (as defined under "The Purchase Transactions") 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.
Several investors in the Syndicated Affiliated Entities have questioned the
fairness of the Purchase Transactions. One investor has demanded consideration
for his limited partnership unit that exceeds the amount that he would receive
in connection with the Purchase Transactions, and he has threatened to take
legal action unless his demand is satisfied. The Company is unable to predict
whether any legal action will be taken by this or any other investor.
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
11
<PAGE> 15
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
Management owns beneficially 860,682 shares of the Company's Common Stock,
representing approximately 40.9% of the outstanding shares of Common Stock. See
"Principal Stockholders." As a result of such ownership, the Company's
management, although not owning a majority of the shares of Common Stock, owns 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.
THE PURCHASE TRANSACTIONS
Each Signature Inn hotel is currently owned by a partnership in which the
Company owns a substantial equity interest and acts (either directly or through
a wholly owned subsidiary) as the general partner (the "Affiliated Entities").
Each hotel is operated by the Company under management and franchise agreements
between it and the Affiliated Entities. 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 partner in addition to the Company (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 $83.8 million. Of that amount, $27.0 million will be paid in
cash at the time of closing from the net proceeds of the Offering, and $3.6
million will be used to pay off outstanding second mortgage indebtedness on
three of the Initial Hotels. The $53.2 million balance of the purchase price
will be paid through the assumption or replacement by the Company of outstanding
first mortgage debt on the Initial Hotels.
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 to be 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
12
<PAGE> 16
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 to be purchased was
determined through direct, arm's-length negotiations between the Company and its
selling 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 selling partner. Three of the
Joint Ventures will be dissolved immediately after the Purchase Transactions.
The existence of the other two Joint Ventures in which the Company is purchasing
interests 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 (except for
the Carmel, Indiana hotel).
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 a portion of which will be
used 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.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $36.1 million ($41.7 million if the over-allotment option is
exercised in full), assuming an initial offering price of $20.00 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
$27.0 million cash portion of the purchase prices of the asset and limited
partnership interest acquisitions described in "The Purchase Transactions" above
(with the assumption or replacement of approximately $53.2 million of first
mortgage indebtedness on hotel properties constituting the balance of the
purchase prices); (ii) pay $3.6 million of
13
<PAGE> 17
second mortgage indebtedness on certain of the Initial Hotels; (iii) pay the
remaining balance of the Company's line of credit; (iv) pay estimated costs of
$.6 million associated with the Purchase Transactions; and (v) 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
Dividends on the Series A Preferred Stock will accrue at an annual rate of
$1.70 per share, will be cumulative from the date of issue and will be payable
quarterly, if declared, on the fifteenth day of January, April, July and October
to shareholders of record on the applicable record date, which will be the first
day of the calendar month in which the applicable dividend payment date falls or
another date designated by the board of directors of the Company that is not
more than 30 nor less than 10 days prior to such dividend payment date. The
first dividend on the Series A Preferred Stock will be payable on April 15,
1997, when and as declared by the board of directors of the Company, at the rate
of $1.70 per share per annum from the date of issue through March 31, 1997. 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's bank credit facility prohibits the Company from making a
dividend payment on the Series A Preferred Stock if there exists a default
(either matured or unmatured) thereunder, including a default upon one of a
number of financial covenants such as the requirement that the Company maintain,
for each calendar quarter, a ratio of earnings before interest, taxes,
depreciation and amortization to debt service obligations and other fixed
charges plus dividend payments on the Series A Preferred Stock of at least 1:1.
The credit facility also prohibits the payment of cash dividends on the Common
Stock without the lender's consent. The Company anticipates that any future
credit facility will contain similar restrictions.
The issuance by the Company of any additional preferred stock that ranks on
a parity with the Series A Preferred Stock with respect to dividends would
effectively reduce the amount of funds otherwise available for the payment of
dividends on the Series A Preferred Stock and the Common Stock. The Company does
not currently anticipate issuing any such additional preferred stock.
14
<PAGE> 18
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 September 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>
SEPTEMBER 30, 1996
--------------------
ACTUAL PRO FORMA
------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.................................... $ 1,944 $ 4,237
======= =======
Short-term borrowings and current portion of long term
debt....................................................... 228 1,504
------- -------
Long-term debt, excluding current portion:
Mortgage loans, maturing 1999 through 2016................. 8,961 60,838
Bank secured line of credit, maturing May 1997............. 2,750 --
------- -------
Total long-term debt......................................... 11,711 60,838
------- -------
Shareholders' Equity:
Preferred Stock, no par value per share, 5,000,000 shares
authorized; no shares issued and outstanding: 2,000,000
shares issued and outstanding, pro forma................ -- 36,100
Common Stock, no par value per share, 13,513,514 shares
authorized; 2,104,413 shares issued and outstanding..... 10,016 10,016
Accumulated deficit........................................ (3,343) (3,343)
------- -------
Total shareholders' equity................................... 6,673 42,773
------- -------
Total capitalization....................................... $18,384 $103,611
======= =======
</TABLE>
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<PAGE> 19
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, "Management'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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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 $ 2,688 $ 4,089
Management and franchise fees.............. 2,569 3,022 3,127 2,405 2,380
------- ------- ------- ------- -------
Total revenues.......................... 11,796 6,864 6,597 5,093 6,469
------- ------- ------- ------- -------
Hotel expenses............................. 5,473 2,033 1,758 1,323 2,146
General and administrative................. 2,382 2,142 2,237 1,669 1,837
Depreciation and amortization.............. 1,474 511 420 317 382
Valuation allowances....................... 155 -- -- -- --
------- ------- ------- ------- -------
Total operating expenses................ 9,484 4,686 4,414 3,309 4,365
Operating income........................... 2,312 2,178 2,183 1,784 2,104
Interest expense........................... 3,456 1,275 981 752 770
Other income (expense)..................... 595 708 415 227 487
Income taxes(2)............................ -- -- -- -- 150
------- ------- ------- ------- -------
Income before extraordinary gain........ (549) 1,611 1,617 1,259 1,671
Extraordinary gain from debt
extinguishment(3)....................... 21,314 495 -- -- --
------- ------- ------- ------- -------
Net income.............................. $20,765 $ 2,106 $ 1,617 $ 1,259 $ 1,671
======= ======= ======= ======= =======
Earnings per share(4)...................... $ (0.59) $ 0.92 $ 0.77 $ 0.60 $ 0.79
======= ======= ======= ======= =======
Weighted average number of shares
outstanding............................. 926 1,747 2,104 2,104 2,104
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents.................. $ 1,220 $ 2,036 $ 2,615 $ 2,449 $ 1,944
Total assets............................... 17,415 14,094 18,014 14,690 20,139
Total debt................................. 16,189 10,314 12,360 9,318 11,939
Total shareholders' equity................. 497 3,104 4,791 4,433 6,673
OTHER FINANCIAL DATA:
EBITDA(5).................................. $ 4,363 $ 3,089 $ 3,093 $ 2,481 $ 2,637
Capital expenditures....................... 484 126 130 104 2,042
Cash provided (used) by:
Operating activities.................... 2,541 1,996 2,661 2,388 2,580
Investing activities.................... (694) 3,989 (462) (313) (2,304)
Financing activities.................... (2,501) (5,169) (1,619) (1,661) (291)
INITIAL HOTELS OPERATING DATA:
Total hotel revenues....................... $34,508 $37,536 $38,591 $29,927 $30,488
Occupancy(6)............................... 66.2% 67.8% 67.2% 69.4% 68.2%
ADR(7)..................................... $ 50.48 $ 53.45 $ 55.81 $ 55.98 $ 57.97
RevPAR(8).................................. 33.42 36.24 37.50 38.85 39.54
GOP%(9).................................... 47.5% 48.5% 47.9% 49.3% 48.2%
<FN>
- ---------------
(1) Hotel revenues during 1993, 1994, and 1995 include revenues from
consolidated partnerships which own two hotels. For the nine-month period
ended September 30, 1996, a third consolidated partnership which
</TABLE>
16
<PAGE> 20
owns one hotel is included. Additionally, 1993 and 1994 hotel revenues
include revenues from six Company-owned hotels which were disposed of during
these periods; five were disposed of during 1993 and the sixth was disposed
of 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. After the completion of the Offering, the Company will be limited
to the annual use of approximately $900,000 of tax net operating loss
carryforwards. Accordingly, income tax expense has been provided for in the
pro forma financial statements to the extent income before income tax
expense exceeds the limitation. 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 1-for-3.7 share reverse stock split.
(5) EBITDA is operating income plus the sum of interest income, other income,
depreciation and amortization. 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> 21
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
nine months ended September 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>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
----------------- -----------------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues(1)............................................ $ 38,591 $ 30,593
Operating costs and expenses:
Direct and corporate...................................... 23,175 18,531
Depreciation and amortization............................. 3,209 2,377
-------- --------
Total operating costs................................ 26,384 20,908
-------- --------
Operating income..................................... 12,207 9,685
Other (income) expenses:
Net interest expense...................................... 6,525 4,055
Other..................................................... (118) 44
-------- --------
Earnings before income taxes.............................. 5,800 5,586
Income taxes(2).............................................. 1,900 1,900
-------- --------
Net income................................................ 3,900 3,686
Less preferred stock dividends............................ 3,400 2,550
-------- --------
Net income applicable to common stock..................... $ 500 $ 1,136
======== ========
Earnings per common share(3)................................. $ 0.24 $ 0.54
======== ========
Weighted average number of common shares outstanding(3)...... 2,104 2,104
======== ========
OTHER FINANCIAL DATA:
EBITDA(4).................................................... $ 15,965 $ 12,250
Capital expenditures......................................... 1,786 3,478
Ratio of earnings to fixed charges(5)........................ 1.07 1.21
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AT
SEPTEMBER 30,
1996
-----------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets................................................. $ 109,340
Short-term borrowings and current portion of long-term
debt...................................................... 1,504
Long-term debt, excluding current portion.................... 60,838
Shareholders' equity......................................... 42,773
<FN>
- ---------------
(1) Hotel revenues during 1995 include revenues from consolidated partnerships
which own two hotels. For the nine-month period ended September 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. After the completion of the Offering, the Company will be limited
to the annual use of approximately $900,000 of tax net operating loss
carryforwards. Accordingly, income tax expense has been provided for in the
pro forma financial statements to the extent income before income tax
expense exceeds the limitation. See Note 5 to the Company's Consolidated
Financial Statements included in this Prospectus.
(3) Earnings per common share are computed using net income applicable to Common
Stock on the basis of the weighted average number of common shares
outstanding after giving effect to the 1-for-3.7 share reverse stock split.
The effects of the assumed conversion of the Series A Preferred Stock are
anti-dilutive and, accordingly, are not considered in the calculation of per
common share earnings.
(4) EBITDA is operating income plus the sum of interest income, other income,
depreciation and amortization. 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.
(5) The ratio of earnings to fixed charges is computed by dividing the sum of
income before income taxes and extraordinary gains (adjusted for
undistributed earnings of affiliated partnerships) and interest, by fixed
charges. Fixed charges represent interest expense and preferred stock
dividends increased to an amount representing the pre-tax earnings which
would be required to cover the dividends. Prior to this Offering, the
Company had not issued any preferred stock; accordingly, the historical
ratios include no amounts with respect to preferred stock dividends.
</TABLE>
18
<PAGE> 22
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 September 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 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 nine months ended September 30, 1996 and for the three fiscal
years ended December 31, 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH SEPTEMBER 30, 1995
Hotel Operations. Hotel revenues of $4,089,000 for the nine months ended
September 30, 1996 represented a 52.2% increase compared to the same period of
1995. Hotel revenues from Indianapolis South and Elkhart increased $30,000 for
the period, with the remainder of the increase attributable to the consolidation
of Indianapolis East and the results of operation of the Springfield hotel
acquired in August 1996. The increased revenues of Indianapolis South and
Elkhart resulted from an increase in average daily rates.
Hotel costs and expenses for the nine months ended September 30, 1996
represented an $823,000 increase compared to 1995. Hotel costs and expenses from
Indianapolis South and Elkhart increased $95,000 for the period, with the
remainder of the increase attributable to the consolidation of Indianapolis East
and the Springfield hotel acquired in August 1996.
Hotel depreciation and amortization expense increased $113,000 for the nine
months ended September 30, 1996 compared to 1995 due primarily to the
consolidation of Indianapolis East.
Corporate Operations. Management and franchise fees decreased $26,000 for
the nine months ended September 30, 1996 compared to the same period of 1995.
The decrease in fee income is due to $101,000 of fee income recognized from
Indianapolis East during the first nine months of 1995 prior to its
consolidation. This decrease is offset partially by a $75,000 increase in fees
during the first nine months of 1996 compared to 1995 from the unconsolidated
partnership owned hotels. During the first nine months of 1996, revenues from
these twenty hotels increased $441,000, or 1.7%, due to average daily rate
increases offset by a slight decrease in occupancy.
General and administrative expenses for the nine months ended September 30,
1996 increased $168,000 due primarily to the establishment of additional 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. For the nine months ended September 30, 1996 compared to 1995, the equity
in income of hotel limited partnerships is flat due to a slight increase of
income before extraordinary gains of the partnership owned hotels in 1996 and an
increased ownership percentage in one partnership.
Interest income for the nine months ended September 30, 1996 decreased
compared to 1995 as a result of lower interest income from invested cash
balances. Interest expense -- hotels increased for the nine months ended
September 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 nine months ended September 30,
19
<PAGE> 23
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.
The Company paid a Capital Appreciation Fee on September 1, 1995. During
the nine months ended September 30, 1995, related expense of $610,990 was
recorded.
Based on the results of a routine examination by the Indiana Department of
Revenue, the Company accrued $150,000 of state income tax expense during the
quarter ended September 30, 1996.
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.
20
<PAGE> 24
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.
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 $453,000 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.
21
<PAGE> 25
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.
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
$2,661,000 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.
22
<PAGE> 26
During 1995, the Company used a net of $1,619,000 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 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 $1,900,000 will be spent 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 $6,000,000 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 but only
after the Company has repaid approximately $10,200,000 of its term indebtedness
which encumbers five Signature Inns hotels. During 1997, management intends to
repay the term indebtedness through proceeds from the refinancing of existing
hotels or other capital available to the Company. There can be no assurance that
any such refinancing or capital will be available. 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 or Offering
proceeds, the Company believes it will have the financial capacity to fund over
the next several years the construction or conversion of two or more Signature
Inn hotels annually. It is expected 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> 27
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," both
industry-wide room demand and supply are projected to increase 2.4% annually
from 1996 to 1999. This supply/demand position is projected to lead to growth of
5.0% to 6.0% in industry-wide ADR annually through 1999 (a rate that is
projected to exceed inflation), coupled with industry-wide Occupancy remaining
above 65.5% through 1999. Industry-wide RevPAR is expected to increase 5.8%
annually from 1996 to 1999.
MID-PRICE SEGMENT OF LODGING INDUSTRY
Smith Travel Research divides the lodging industry into five segments based
on the pricing of individual hotels 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 data compiled by 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 eight months of 1996, with RevPAR increasing 4.4% over the comparable
eight-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> 28
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 nine-month
comparative periods ended September 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% 65.6% 65.1% 62.7%
NINE MONTHS
1995................... 69.4% 67.8% 67.1% 64.6%
1996................... 68.2% 66.8% 65.9% 63.7%
<FN>
- ---------------
(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.
</TABLE>
ADR(2)
<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 $54.45 $58.85 $61.56
NINE MONTHS
1995................... $ 55.98 $54.75 $58.82 $61.16
1996................... $ 57.97 $57.24 $62.30 $65.15
<fn.
- ---------------
(2) ADR represents total room revenues divided by the total number of rooms
sold.
</TABLE>
REVPAR(3)
<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 $35.72 $38.31 $38.60
NINE MONTHS
1995................... $ 38.85 $37.10 $39.49 $39.54
1996................... $ 39.54 $38.24 $41.07 $41.53
<FN>
- ---------------
(3) RevPAR represents Occupancy multiplied by ADR for the reported period.
</TABLE>
25
<PAGE> 29
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 nine-month period ended September 30, 1996. The Initial Hotels' ADR has
exceeded the Comparable Group's ADR for each of the last five calendar years and
for the nine-month period ended September 30, 1996. The Initial Hotels' RevPAR
has exceeded the Comparable Group's RevPAR for each of the last four calendar
years and for the nine-month period ended September 30, 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.
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<PAGE> 30
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
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 become the sole owner of the Initial Hotels by purchasing
interests in the Initial Hotels and in the Affiliated Entities in connection
with the Offering. 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 Purchase Transactions will
improve the Company's access to capital markets and its ability to gain
additional financing by consolidating its operations and properties into 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 February of 1997. The Company is
also converting to a Signature Inn a 124 room hotel in Springfield, Illinois,
and it expects to complete that conversion by May of 1997. In addition, the
Company expects to begin development 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 contracted to acquire a 120 room hotel in Louisville, Kentucky,
and expects to acquire and 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 the
Company's hotel guests. Signature Inn hotels qualify for the "Three Diamond"
American Automobile
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<PAGE> 31
Association ("AAA") rating which is based upon the quality of a hotel's
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, and 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 chart 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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<PAGE> 32
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 1996
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 90% of all 1996 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
29
<PAGE> 33
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 or
Offering proceeds, the Company believes it will have the financial capacity to
fund over the next several years the construction or conversion of two or more
Signature Inn hotels annually. The Company has secured a commitment for a $6.0
million line of credit to provide funds for interim construction financing and
working capital needs subject to the Company repaying approximately $10,200,000
of its term indebtedness. 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 17 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. The Company currently has four hotel development projects
underway.
Carmel, Indiana. An 81 room Signature Inn hotel located in Carmel,
Indiana, is currently under construction and is expected to open in
February of 1997. 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 May 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 development
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 contracted to acquire a 120 room
hotel located in Louisville, Kentucky. The Company expects to acquire and
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
30
<PAGE> 34
firms as well as independent contractors. The Company believes that these
relationships and experiences will facilitate the effective development of
additional hotels.
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
31
<PAGE> 35
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.
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.
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<PAGE> 36
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.
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
condition of, and to maximize the useful life of, furnishings and equipment. To
ensure sufficient funds are available to refurbish and upgrade 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 1996, the Company
received approximately 4,000 comment cards with over 90% 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 AND RESERVATIONS
Guest Profile. During 1996, 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 1996 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 chain-wide room rate 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
33
<PAGE> 37
for Travel Agents, the National Tour Association, the American Bus Association
and the Ontario Motor Coach Association.
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. Approximately 6% of 1996 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 fundraisers 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' 1996 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
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<PAGE> 38
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.
<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
Signature Inn -- Indianapolis (East) I-465 & East Washington Street, Indianapolis,
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 -- Springfield* I-55 & Stevenson Drive, Springfield, Illinois 1996** 124
Signature Inn -- Carmel*** I-465 & U.S. 31, Carmel, Indiana 1997 81
<FN>
- ---------------
* Upon completion of conversion to a Signature Inn.
** Year acquired.
*** Expected to open February 1997.
</TABLE>
TRADEMARKS
The trademarks "Signature Inn," "We Help You Get Down to Business,"
"Sincerely Yours," "Breakfast Express(R)," "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 630 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
35
<PAGE> 39
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 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 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 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
36
<PAGE> 40
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.
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 September 30, 1996, other than non-recourse hotel
mortgage loans to its consolidated Affiliated Entities, the Company had $2.75
million outstanding on its line of credit facility.
Several investors in the Syndicated Affiliated Entities have questioned the
fairness of the Purchase Transactions. One investor has demanded consideration
for his limited partnership unit that exceeds the amount that he would receive
in connection with the Purchase Transactions, and he has threatened to take
legal action unless his demand is satisfied. The Company is unable to predict
whether any legal action will be taken by this or any other investor. The
Company believes that the purchase prices to be paid in, and the terms of, the
Purchase Transactions are fair and reasonable.
INSURANCE
The Company has commercial 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.
37
<PAGE> 41
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.
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, Mr. Huse, who became a director in August 1994, and Mr. Watson, who became
a director in October 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---------------------------- -----------------------------------------------------------
<S> <C> <C>
John D. Bontreger 48 President, Chief Executive Officer and Chairman of the
Board
Mark D. Carney 40 Vice President Finance, Chief Financial Officer and
Director
Bo L. Hagood 47 Vice President Hotel Operations and Director
David R. Miller 55 Secretary, Executive Director Sales and Marketing and
Director
Martin D. Brew 36 Treasurer and Controller
Stephen M. Huse 54 Director
George A. Morton 59 Director
Richard L. Russell 61 Director
Richard E. Shank 63 Director
William S. Watson 52 Director
Orus E. Weaver 72 Director Emeritus
</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 Company. 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
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<PAGE> 42
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 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 Chairman 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 12
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.
William S. Watson currently provides hotel industry consulting services
through WSRW Enterprise, which is affiliated with Stratus Management Group, Inc.
Mr. Watson previously served as Vice-Chairman of Pegasus Systems, Inc., and
Chairman of THISCO (The Hotel Industry Switch Company). Mr. Watson previously
held positions with Best Western International as Senior Vice President
Worldwide Marketing and Executive Vice President. Mr. Watson was also employed
as a Vice President of ITT Sheraton Corporation, and held executive positions
with Bicoastal Air Service, Inc., Altair Airlines, Inc., and Pan American World
Airways. Mr. Watson holds a Mechanical Engineering degree from Croydon
Polytechnic in England.
Orus E. Weaver, who served as a Director of the Company from its inception
through October 1996, was designated a Director Emeritus by the Board of
Directors on October 22, 1996. As a Director Emeritus Mr. Weaver is invited to
attend meetings of the Board of Directors and receives the same compensation as
a Director, but has no vote with respect to any matter coming before the Board.
Mr. Weaver's invitation to attend Board meetings and his compensation therefor
terminate in May 1998. He 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> 43
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 four year period from January 1, 1993 through December 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED COMPENSATION
NAME AND PRINCIPAL POSITION DECEMBER 31, SALARY BONUS (1)
- ---------------------------------------- ------------ -------- ------------
<S> <C> <C> <C>
John D. Bontreger 1996 $153,317 $ 89,066
President & CEO 1995 147,833 61,685
1994 141,901 77,768
1993 136,250 --
Mark D. Carney 1996 92,663 56,679
V.P. Finance & CFO 1995 89,350 38,217
1994 85,782 47,003
1993 80,337 3,000
Bo L. Hagood 1996 92,663 56,679
V.P. Hotel Operations 1995 89,350 38,217
1994 85,792 47,003
1993 82,212 7,787
David R. Miller 1996 78,624 32,388
Secretary, Executive Director of 1995 75,911 24,124
Sales and Marketing 1994 72,795 28,487
1993 69,808 3,330
<FN>
- ---------------
(1) Represents amounts earned during the year preceding the year shown and
determined by the board of directors of the Company and paid in the year
shown. The Company anticipates that bonus amounts earned during 1996 will be
determined and paid in the first quarter of 1997.
</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 (the "1986 Plan"). All of those unexercised options
expire in July 1997. Except for Mr. Brew, who holds options on a total of 540
shares, no other director or executive officer of the Company holds any options
under the 1986 Plan.
The following table sets forth the grants of options to be made to the four
highest compensated executive officers during fiscal 1997 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
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH)(3) DATE
- ------------------------- --------- ------------------ ----------- ------------
<S> <C> <C> <C> <C>
John D. Bontreger........ 25,000 27.5% $8.00 January 2007
Mark D. Carney........... 12,500 13.7% 8.00 January 2007
Bo L. Hagood............. 12,500 13.7% 8.00 January 2007
David R. Miller.......... 7,500 8.2% 8.00 January 2007
</TABLE>
40
<PAGE> 44
- ---------------
(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 1996.
(3) Based on the estimated fair market value (as defined in the Signature Inns,
Inc., 1996 Equity Incentive Plan) of the Common Stock.
COMMITTEES OF THE BOARD
Audit Committee. The Audit Committee meets as necessary to (i) recommend
to the Board of Directors the retention, from time to time, of the independent
auditing firm to be engaged by the Company, (ii) coordinate the annual audit of
the Company between management and the auditing firm, (iii) meet with the
auditors at least two times during the year, including one meeting before the
audit is commenced and one meeting following the completion of the audit, and to
meet at such other times as the Board of Directors, in its discretion, directs
or as the Committee determines. Committee members serve one-year terms, from one
annual shareholders' meeting to the next. The current members of the Audit
Committee are Richard E. Shank, Chairman, and Richard L. Russell. The Audit
Committee met twice during 1996.
Compensation Committee. The members of the Compensation Committee serve
from year to year from one annual meeting of shareholders to the next. The
purposes and functions of the Compensation Committee are to (i) develop and
recommend to the Board of Directors for approval a compensation plan for the
president and chief executive officer and all other individuals within the
Company who are designated as "senior management," (ii) review benefit, bonus
and incentive plans and other corporate perquisites on an annual basis, (iii)
review and recommend to the Board suggested changes in compensation to be paid
to outside members of the Board, and (iv) review expense reimbursement policies
of the Company as they pertain to directors and management. The Compensation
Committee meets as determined necessary by the Board or by the Committee. The
current members of the Compensation Committee are George A. Morton, Chairman and
Stephen M. Huse. The Compensation Committee met twice during 1996.
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. Mr. Bontreger's contract expires in June 1998. Messrs.
Hagood's and Carney's contracts expire in December 1997. Messrs. Miller's and
Brew's contracts expire in June 1997. 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 times 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.
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<PAGE> 45
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 receives 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 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,
and 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 $4.163, 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 two Directors of the Company, neither of whom
is an employee 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
42
<PAGE> 46
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. 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 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
43
<PAGE> 47
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. 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.
44
<PAGE> 48
PRINCIPAL STOCKHOLDERS
Set forth in the following table are the beneficial holdings as of January
20, 1997 and as of the time of completion of the Offering, of the Company's
Common Stock (as adjusted for the 1-for-3.7 share reverse stock split) and the
Series A Preferred Stock 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>
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY SERIES A PREFERRED STOCK
OWNED OWNED BENEFICIALLY OWNED AFTER
PRIOR TO OFFERING(2) AFTER OFFERING(2) OFFERING(2)
---------------------- ------------------------ -------------------------
NAME AND NUMBER NUMBER NUMBER
ADDRESS(1) OF SHARES PERCENTAGE OF SHARES PERCENTAGE(3) OF SHARES(4) PERCENTAGE
- --------------------- --------- ---------- --------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
John D. Bontreger.... 409,568 19.46% 409,568 6.53% -- --
Mark D. Carney....... 119,730 5.69% 119,730 1.91% -- --
Bo L. Hagood......... 115,112 5.47% 115,112 1.84% -- --
David R. Miller...... 80,946 3.85% 80,946 1.29% -- --
Orus E. Weaver....... 29,741(5) 1.41% 29,741(5) * -- --
George A. Morton..... 27,703(6) 1.32% 27,703(6) * -- --
Richard E. Shank..... 27,071(7) 1.29% 27,071(7) * -- --
Richard L. Russell... 16,351(8) * 16,351(8) * -- --
Stephen M. Huse...... 45 * 45 * -- --
William S. Watson.... 90 * 90 * -- --
All directors,
executive officers
as a group
(Includes 11
persons)........... 860,682 40.90% 860,682 13.72% -- --
<FN>
- ---------------
* 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) Percentages are calculated as if all of the Series A Preferred Stock had
been converted into Common Stock at the conversion price set forth on the
cover page of this Prospectus.
(4) It is not anticipated that any of the holders listed above will acquire any
of the shares of Series A Preferred Stock offered hereby.
(5) Mr. Weaver holds 29,412 shares of Common Stock in his name of record and has
sole voting and investment power over such shares, and he owns 329 shares of
Common Stock jointly with his wife with whom he shares voting and investment
power over such shares.
(6) Mr. Morton holds 16,893 shares of Common Stock in his name of record and has
sole voting and investment power over such shares, and 10,810 shares of
Common Stock are held by trusts for which his wife acts as trustee with
investment power over such shares.
(7) Mr. Shank holds all shares of Common Stock as a joint tenant with his wife
with whom he shares voting and investment power over all such shares.
(8) Mr. Russell holds 6,892 shares of Common Stock in his name of record and has
sole voting and investment power over such shares and 9,459 shares of Common
Stock jointly with his wife with whom he shares voting and investment power
over such shares.
</TABLE>
45
<PAGE> 49
MARKET FOR THE REGISTRANT'S CAPITAL STOCK AND
RELATED STOCKHOLDER MATTERS
No Series A Preferred Stock was outstanding prior to this Offering. The
Company's Common Stock previously was not listed on any securities exchange, and
first became subject to quotation on the "NASDAQ" National Market system on
January 21, 1997.
The range of high and low bids for Company's Common Stock for each quarter
within the last two fiscal years (as adjusted for the 1-for-3.7 share reverse
stock split) is set forth below:
<TABLE>
<CAPTION>
QUARTER HIGH LOW
ENDED BID(1) BID(1)
- -------- ---------- ---------
<S> <C> <C>
12/31/96 $ 12.950 $ 7.400
9/30/96 14.800 1.850
6/30/96 3.700 1.850
3/31/96 4.163 1.850
12/31/95 2.775 1.850
9/30/95 2.775 1.850
6/30/95 1.850 1.850
3/31/95 1.850 .463
12/31/94 .925 .463
9/30/94 .925 .463
6/30/94 .463 .463
3/31/94 .925 .463
<FN>
- ---------------
(1) Quotations may reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
</TABLE>
46
<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is an Indiana corporation originally organized in 1978. The
authorized capital stock of the Company consists of 13,513,514 shares of common
stock, no par value per share (the "Common Stock"), and 5,000,000 shares of
preferred stock, no par value per share (the "Preferred Stock"). Upon completion
of the Offering, 2,104,413 shares of Common Stock will be issued and outstanding
and 2,000,000 shares (2,300,000 shares if the Underwriters' over-allotment
option is exercised) of the Preferred Stock will be issued and 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.
PREFERRED STOCK
The authorized class of Preferred Stock consists of two
sub-classifications, namely, Cumulative Preferred Stock and Non-Cumulative
Preferred Stock, each of which may be issued from time to time in one or more
designated series. The Company's Board of Directors, without approval of the
shareholders, is authorized to establish the attributes, designations,
preferences and voting, dividend, redemption, conversion, liquidation and other
relevant terms of a particular series of either sub-classification of the
Preferred Stock. Pursuant to its authority, the Company's Board of Directors has
designated as a series of the Cumulative Preferred Stock offered hereby, which
is more fully described in the section below entitled "Series A Preferred
Stock." The Company's Board of Directors also has designated as a series of the
Non-Cumulative Preferred Stock, the Series One Non-Cumulative Preferred Stock,
which is issuable upon the exercise of certain Stock Purchase Rights pursuant to
the Company's Shareholders' Rights Plan which is more fully described below
under the heading "Stock Purchase Rights Under Shareholders' Rights Plan."
SERIES A PREFERRED STOCK
The Series A Preferred Stock offered hereby is a single series consisting
of up to 2,300,000 shares (including shares issuable on exercise of the
Underwriters' over-allotment option). The holders of Series A Preferred Stock
have no preemptive rights. The Series A Preferred Stock, upon issuance against
full payment of the purchase price therefor, will be fully paid and
nonassessable. For a description of certain tax consequences relating to the
purchase and ownership of the Series A Preferred Stock, see "Federal Income Tax
Considerations."
Ranking. The Series A Preferred Stock will rank senior to the Common Stock
and any series of the Non-Cumulative Preferred Stock with respect to dividend
rights and rights on any liquidation, winding up and dissolution of the Company.
The Series A Preferred Stock will rank on a parity with other series of the
Company's Cumulative Preferred Stock with respect to dividends, liquidation and
voting rights. All of the Company's Preferred Stock is junior to all
indebtedness and other liabilities of the Company.
Dividends. The holders of Series A Preferred Stock are entitled to
cumulative dividends in the annual amount of $1.70 per share, when, as and if
declared by the Board of Directors out of funds legally available therefor,
payable quarterly on the fifteenth day of January, April, July and October of
each year. Dividends on the Series A Preferred Stock will accrue and be
cumulative from the date of first issuance. The first dividend will be payable
on April 15, 1997, when and as declared by the Board of Directors of the
Company, at that rate from the date of issue through March 31, 1997. Unless all
prior dividends on the Series A Preferred Stock, and on any other class of
Cumulative Preferred Stock of the Company ranking on a parity with the Series A
Preferred Stock as to dividends, have been paid in full or have been declared
and a sum sufficient for payment thereof has been set aside, (i) no cash
dividend or distribution (other than in shares of Common Stock or other
securities ranking junior to the Series A Preferred Stock as to dividends) may
be declared or paid on the Common Stock or other securities ranking junior to
the Series A Preferred Stock, and (ii) the Company may not purchase, retire or
otherwise acquire any shares of its Common Stock or other securities ranking
junior to
47
<PAGE> 51
the Series A Preferred Stock as to dividends. After completion of the Offering,
the Company will not have outstanding any Cumulative Preferred Stock other than
the Series A Preferred Stock.
Dividends paid on shares of Series A Preferred Stock in an amount less than
the total amount of the dividends at the time accumulated and payable on those
shares will be allocated pro rata among all such shares at the time outstanding.
If a dividend upon any shares of Series A Preferred Stock, or any other
outstanding Parity Preferred Stock, is in arrears, all dividends or other
distributions declared upon shares of each series of such stock (other than
dividends paid in Common Stock or in any other stock ranking junior to the
Series A Preferred Stock as to dividends and upon liquidation, dissolution or
winding up) will be declared pro rata so that in all cases the amounts of
dividends or other distributions declared per share on each such series bear to
each other the same ratio that accumulated and unpaid dividends per share on
each such series bear to each other.
Convertibility. Holders of Series A Preferred Stock will have the right,
at their option, to convert any or all of their shares of Series A Preferred
Stock into shares of Common Stock, at any time or from time to time, at the
conversion price set forth on the cover page hereof (equivalent to a conversion
ratio of approximately 2.08 shares of Common Stock for each share of Series A
Preferred Stock), subject to adjustment from time to time as described below.
The right to convert any share of Series A Preferred Stock called for redemption
will terminate at the close of business on the redemption date in respect
thereof.
Fractional shares of Common Stock will not be delivered upon any
conversion, but cash will be paid in respect of such fractional shares, based on
the applicable market price (as defined in the Articles) of the Common Stock.
Holders of shares of Series A Preferred Stock surrendered for conversion or
redemption after the record date for a dividend payment and prior to the next
succeeding dividend payment date are entitled to the declared dividend
notwithstanding such conversion or redemption.
The conversion price is subject to adjustments upon the occurrence of
certain events, including (i) dividends on the Common Stock payable in capital
stock and stock splits, combinations or reclassifications of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the surviving corporation) occurring after the
date of this Prospectus, (ii) issuance to all holders of Common Stock (not
available on an equivalent basis to holders of the Series A Preferred Stock on
conversion) of rights or warrants to subscribe for or purchase shares of Common
Stock at less than the current market price, (iii) certain distributions of
evidences of indebtedness or assets (including securities but excluding cash
dividends or distributions paid out of retained earnings or dividends payable in
Common Stock) or of subscription rights and warrants (excluding those referred
to in (ii) above) to holders of Common Stock, and (iv) the events described in
the paragraph below. No adjustment in the conversion price will be made for the
issuance of shares of capital stock to employees pursuant to the Company's or
any of its subsidiaries' stock option, stock ownership or other benefit plans,
including the 1996 Equity Incentive Plan. No adjustment will be required to be
made in the conversion price until cumulative adjustments require an adjustment
of at least 1% of the conversion price as last adjusted.
In the case of any consolidation of the Company with, or merger of the
Company into, any other entity, any merger of another entity into the Company
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock) or any sale or
transfer of all or substantially all of the assets of the Company, each holder
of a share of Series A Preferred Stock then outstanding may thereafter convert
such share only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock into which such shares of Series A Preferred
Stock might have been converted immediately prior to such consolidation, merger,
sale or transfer, assuming such holder of Common Stock (i) is not an entity with
which the Company consolidated or into which the Company merged or which merged
into the Company or to which such sale or transfer was made, as the case may be,
or an affiliate of such an entity and (ii) has not failed to exercise his rights
of election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer.
48
<PAGE> 52
Redemption. The Series A Preferred Stock is not subject to any mandatory
redemption, sinking fund or other similar provisions. The Series A Preferred
Stock is not redeemable by the Company before February 1, 2000. The Series A
Preferred Stock is redeemable, in whole or in part, at the option of the Company
upon not less than 30 nor more than 60 days notice at any time on or after
February 1, 2000, at the redemption prices set forth below, plus accrued and
unpaid dividends.
<TABLE>
<CAPTION>
PERIOD REDEMPTION PREMIUM PRICE
- ------------------------------------- ------------------ ------
<S> <C> <C>
February 1, 2000 to January 31, 2001 104.8572% $20.97
February 1, 2001 to January 31, 2002 103.6429% $20.72
February 1, 2002 to January 31, 2003 102.4286% $20.49
February 1, 2003 to January 31, 2004 101.2143% $20.24
February 1, 2004 and thereafter 100.0000% $20.00
</TABLE>
If less than all the outstanding shares of Series A Preferred Stock are to
be redeemed, the Company will select those to be redeemed either on a pro rata
basis or by lot as determined in the discretion of the Company's Board of
Directors. On and after the redemption date, dividends will cease to accrue on
the shares of Series A Preferred Stock called for redemption and those shares
will be considered no longer outstanding, so long as the redemption price
(including any accrued and unpaid dividends to the date fixed for redemption)
has been duly paid or provided for.
Liquidation. On a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, the holders of the Series A Preferred
Stock will be entitled, subject to the rights of creditors, but before any
distribution or payment to the holders of Common Stock, any series of
Non-Cumulative Preferred Stock or any other shares ranking junior to the Series
A Preferred Stock on liquidation, to a liquidation preference of $20.00 per
share, plus accrued and unpaid dividends to the date of distribution. If, upon
any liquidation, dissolution or winding up of the Company, the amounts available
for distribution with respect to the Series A Preferred Stock and all other
outstanding stock of the Company ranking on a parity with the Series A Preferred
Stock upon liquidation are not sufficient to satisfy the full liquidation rights
of all of the outstanding Series A Preferred Stock and stock ranking on parity
therewith, then the holders of Series A Preferred Stock and each stock ranking
on a parity therewith will share ratably in any such distribution of assets in
proportion to the full respective preferential amount to which they are
entitled. After payment of the full amount of the liquidation preference, the
holders of shares of Series A Preferred Stock will not be entitled to any
further participation in any distribution of assets by the Company.
Voting Rights. The Series A Preferred Stock is not entitled to vote,
except as described below and as required by applicable law. If the Company is
in default in the payment of the full dividends on the Series A Preferred Stock
or any other series of Cumulative Preferred Stock for six dividend payment
periods (whether or not consecutive), the holders of Series A Preferred Stock
(together with all other outstanding series of Cumulative Preferred Stock)
become entitled to vote as a separate class, at a meeting at which the holders
of at least one-third thereof are represented, to elect two of the nine
directors of the Company to serve until all accrued dividends thereon have been
paid. The consent of the holders of at least two-thirds of the Series A
Preferred Stock and and other series of Cumulative Preferred Stock will be
necessary (i) to amend the Articles or the By-Laws of the Company, whether in
connection with a merger or consolidation or otherwise, in a manner materially
adversely affecting the preferences or the voting or other rights of the holders
of Series A Preferred Stock and or other Cumulative Preferred Stock; but neither
the amendment of the Articles to authorize, create or change the authorized or
outstanding number of shares of Cumulative Preferred Stock or of any shares of
Cumulative Preferred Stock or shares ranking junior to the Cumulative Preferred
Stock nor the amendment of the Articles or By-Laws so as to change the number or
classification of directors of the Company is considered to have such an adverse
effect, (ii) to authorize any shares, or any security convertible into shares,
in either case, ranking prior to the Cumulative Preferred Stock, or (iii) to
purchase or redeem (for sinking fund purposes or otherwise) less than all of the
Cumulative outstanding Preferred Stock, except in accordance with an offer made
to all holders of record of the Preferred Stock, when there exists a default in
the payment of dividends on any thereof or in meeting any sinking fund
requirement for any thereof.
49
<PAGE> 53
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 Company's holders of Common
Stock. Subject to preferences that may be applicable to any outstanding
Preferred Stock, 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
(except in the limited circumstances described above). Holders of Common Stock
must follow an advance notification procedure for certain 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 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 therefor. 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 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 fully paid and non-assessable.
STOCK PURCHASE RIGHTS UNDER SHAREHOLDERS' RIGHTS PLAN
Pursuant to the Company's Shareholders Rights Plan, each holder of shares
of the Company's Common Stock as of the close of business on March 18, 1997 (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 Amended and Restated Rights Agreement, dated as of January 17, 1997,
between the Company and Harris Trust Savings Bank, as Rights Agent (the "Rights
Agreement"). A Right will also accompany each share of the Company's Common
Stock issued following the Record Date including upon conversion of the Series A
Preferred Stock. 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 One Non-Cumulative Preferred Stock at an initial exercise price of $40.00
per hundredth of a share (the "Exercise Price"), subject to adjustment, or,
under certain circumstances, Common Stock having a market value equal to at
least two times the Exercise Price of the Right. See "-- Flip-In Rights." The
Company has reserved 90,000 shares of Series One Non-Cumulative Preferred Stock
for issuance upon the exercise of the Rights.
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.
Pursuant to the terms of the Rights Agreement, holders of the Series A Preferred
Stock will be deemed beneficial owners of shares of Common Stock since the
Series A Preferred Stock is convertible, at the option of the holders thereof,
into Common Stock. Immediately following the Offering, an acquiror of 252,529
shares of Series A Preferred Stock may be deemed to be an Acquiring Person under
the Rights
50
<PAGE> 54
Agreement. Accordingly, management of the Company will limit the amount of
shares of Series A Preferred Stock that may be purchased by any one person in
the Offering to avoid inadvertently causing that result. A "Permitted Offer" is
a tender or exchange offer for all outstanding shares of the Common Stock (or
securities convertible into shares of Common Stock) upon terms that a majority
of the members of the Board of Directors 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 (or securities convertible into
shares of 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 at least 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.
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
51
<PAGE> 55
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 One Non-Cumulative Preferred Stock. Each one hundredth of a share
of Series One Non-Cumulative 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 One
Non-Cumulative 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 One Non-Cumulative 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 One Non-Cumulative 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 One Non-Cumulative Preferred Stock will have no
preemptive or other subscription rights, and the Series One Non-Cumulative
Preferred Stock is not subject to call.
CERTAIN PROVISIONS OF INDIANA LAW AND THE COMPANY'S ARTICLES OF INCORPORATION
AND BY-LAWS
The following summary of certain provisions of Indiana law and the Articles
of Incorporation and By-Laws 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 By-Laws of the Company. Certain provisions of
Indiana law and the Articles of Incorporation and By-Laws are described
elsewhere in this Prospectus.
Staggered Board of Directors; Removal; Vacancies. The Articles of
Incorporation and By-Laws 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.
Except in the limited circumstances described above under " Series A
Preferred Stock," 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 and
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
By-Laws 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. Except in the limited circumstances described above under
"Series A Preferred Stock," (i) 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 and (ii) the Company's By-Laws may be amended by the affirmative vote of a
majority of the Board of Directors.
52
<PAGE> 56
Business Combinations. The Company's Articles of Incorporation and By-Laws
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. 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 acquirors 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 was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the 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 his 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 a matter of right. Except as provided in the preceding
sentence, any indemnification 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 them a 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 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.
53
<PAGE> 57
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and Series A
Preferred Stock is Harris Trust and Savings Bank (Chicago).
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have outstanding
2,104,413 shares of Common Stock and 2,000,000 shares of Series A Preferred
Stock. The 2,000,000 shares of Series A Preferred Stock sold in the Offering,
together with all shares of Common Stock outstanding as of the effective date of
the Offering, will be freely tradable without restriction or further
registration under the Securities Act, except for 860,682 shares of Common Stock
then held by "affiliates" of the Company and any Series A Preferred Stock
purchased by any affiliate of the Company 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 Series A Preferred Stock or 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 that
class of shares or (ii) the average weekly trading volume of shares of that
class of shares 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 93,297 shares of Common Stock, and the Company is authorized to grant
options to purchase an additional 117,144 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, 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 no public market for the Series A
Preferred 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 Series A Preferred Stock. Nevertheless, sales of
substantial amounts of Series A Preferred Stock in the public market could have
an adverse effect on prevailing market prices.
54
<PAGE> 58
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...... 134,704 274,864 $ 203,400 409,568
Mark D. Carney... 812 118,918 88,000 119,730
Bo L. Hagood..... 45 115,067 85,150 115,112
David R.
Miller......... 2,230 78,716 58,250 80,946
Paul A. Taylor... 35 67,702 50,100 67,737
Martin D. Brew... 0 33,784 25,000 33,784
------- ------- ------- -------
Total... 137,826 689,051 $ 509,900 826,877
======= ======= ======= =======
<FN>
- ---------------
(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 have been paid in full.
</TABLE>
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.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the expected material U.S. Federal
income tax consequences resulting from the purchase, ownership and disposition
of the Series A Preferred Stock. This summary does not purport to consider all
the possible U.S. Federal income tax consequences of those transactions and is
not intended to reflect the individual tax position of any holder of Series A
Preferred Stock. The actual tax consequences of those transactions to any such
holder will depend on that holder's own tax circumstances. This summary deals
with Series A Preferred Stock held as a capital asset. It is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), and regulations as now
in effect and as currently interpreted and does not take into account possible
changes in such laws or interpretations, any of which may be applied
retroactively. This summary does not address the U.S. Federal income tax
consequences applicable to holders who are not United States persons or which
are organizations exempt from U.S. Federal income
55
<PAGE> 59
tax, financial institutions or similarly-unique organizations in respect of U.S.
Federal income taxes. This summary does not include any description of the tax
laws of any state, local or foreign government possibly applicable to the
purchase, ownership or disposition of the Series A Preferred Stock. A copy of
the opinion of Johnson, Smith, Pence, Densborn, Wright & Heath, counsel to the
Company, on the matters described below has been or will be filed with the
Commission as an exhibit to the Registration Statement of which this Prospectus
is a part, and the following summary is qualified in its entirety by reference
thereto, including the assumptions set forth therein.
POTENTIAL PURCHASERS OF SERIES A PREFERRED STOCK SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL TAX LAWS TO THEIR
PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES TO THEM UNDER THE LAWS OF ANY
OTHER TAXING JURISDICTION
DIVIDENDS
Distributions paid on the Series A Preferred Stock will constitute
dividends taxable as ordinary income to the extent of the Company's current and
accumulated earnings and profits for tax purposes. To the extent that the amount
of distributions paid on the Series A Preferred Stock exceeds the Company's
current and accumulated earnings and profits, such distributions will be treated
first as a return of capital and will reduce the adjusted tax basis of the
Series A Preferred Stock in the hands of its holder, but not to below zero. Any
remaining amount will then be taxed as capital gain, and will be long-term
capital gain if the holder's holding period of the Series A Preferred Stock
exceeds one year. Domestic corporations in receipt of distributions taxable as
dividends will generally qualify for a 70% dividends-received deduction under
Section 243 of the Code, if (i) the holder has held the Series A Preferred Stock
for a sufficient time (more than 45 days, or 91 days in the case of a dividend
attributable to a period of more than 366 days); (ii) the holder is not under an
obligation with respect to substantially similar or related property to make
payments corresponding to the dividends received, (iii) the dividends-received
deduction does not exceed 70% of the holder's taxable income (with certain
adjustments); and (iv) the Series A Preferred Stock is not treated as acquired
with borrowed funds for purposes of Section 246A of the Code. However, in
certain circumstances, the benefit of a dividends-received deduction may be
reduced by the alternative minimum tax applicable to corporations.
Under Section 1059 of the Code, a corporate holder of Series A Preferred
Stock that received an "extraordinary dividend" will be required to reduce its
tax basis at the time it disposes of the Series A Preferred Stock by the portion
of the extraordinary dividend that was not taxed because of the dividends-
received deduction if the Series A Preferred Stock had not been held for more
than two years before the announcement or agreement in respect of either the
amount or the payment of such dividend. An "extraordinary dividend" with respect
to the Series A Preferred Stock would generally be a dividend that (a) equals or
exceeds 5% of the holder's basis in such stock, treating all dividends having
ex-dividend dates within an 85-day period as one dividend, or (b) exceeds 20% of
the holder's basis in such stock, treating all dividends having ex-dividend
dates within a 365-day period as one dividend, but in either case, market value,
if it can be established by the holder, may be substituted for stock basis. The
length of time that a taxpayer is considered to have held stock for purposes of
Section 1059 is determined under principles similar to those applied in respect
of the dividends-received deduction.
SALE OR EXCHANGE OF PREFERRED STOCK
Upon the sale or exchange of Series A Preferred Stock to or with a person
other than the Company, a holder will generally recognize gain or loss equal to
the difference between (i) the amount of cash and the fair market value of any
property received (less any portion thereof attributable to accumulated and
declared but unpaid dividends, which will be taxable as a dividend to the extent
of the Company's current and accumulated earnings and profits) and (ii) the
holder's adjusted tax basis in such shares. Such gain or loss will be a long-
term capital gain or loss if the Series A Preferred Stock has been held for more
than one year
56
<PAGE> 60
REDEMPTION
Redemption of shares of the Series A Preferred Stock generally will be
taxable to each transferring holder as capital gain or loss, in an amount equal
to the difference between the proceeds received on redemption and the holder's
tax basis in the Series A Preferred Stock redeemed, provided the redemption is
described in Section 302(b) of the Code. Generally, a redemption falls within
Section 302(b) if it (i) results in a "complete termination" of the holder's
stock interest in the Company under Section 302(b)(3) of the Code; (ii) is
"substantially disproportionate" with respect to the shareholder under Section
302(b)(2) of the Code; or (iii) is "not essentially equivalent to a dividend"
with respect to the shareholder under Section 302(b)(1) of the Code. In
determining whether any such test has been met, shares considered to be owned by
the holder by reason of the constructive ownership rules set forth in Section
318 of the Code (pursuant to which a shareholder will be deemed to own shares
owned or deemed owned by certain related individuals and entities and shares
subject to option), as well as shares actually owned, would generally be taken
into account. The Internal Revenue Service ("IRS") has formally ruled that a
redemption is taxable as an exchange of stock if (i) the holder's relative stock
interest in the company is minimal; (ii) the holder exercises no control over
the company's affairs and (iii) the holder experiences an actual reduction in
proportionate interest in the company (taking into account the constructive
ownership rules mentioned above and all related transactions in the issuing
company's stock). Any capital gain recognized from the redemption of the Series
A Preferred Stock will be long-term capital gain if the holding period for the
Series A Preferred Stock exceeds one year.
A redemption of Series A Preferred Stock not described in Section 302(b) is
treated as a distribution possibly taxable as a dividend, and the entire amount
of redemption proceeds may be taxed as ordinary income, subject to the dividends
received deduction. A Section 1059 "extraordinary dividend" will include
proceeds from the redemption of stock which is taxable as a dividend and non-pro
rata as to all shareholders. See the discussion of distributions, the
dividends-received deductions and Section 1059 in "-- Dividends" above.
REDEMPTION PREMIUM
Under Section 305 of the Code and applicable regulations, the excess of the
redemption price of the Series A Preferred Stock over the issue price of that
stock will be treated as a distribution potentially taxable as a dividend on an
economic accrual basis each year during the period during which the Series A
Preferred Stock cannot be redeemed unless (i) based on all facts and
circumstances as of the issue date, redemption at the Company's option is not
more likely than not to occur; or (ii) the redemption premium is solely in the
nature of a penalty for premature redemption. The Company has determined, based
on available guidance on constructive distributions arising from redemption
premiums, that exercise of its redemption rights in the Series A Preferred Stock
will not be treated as more likely than not to occur. That determination will be
binding on each holder of Preferred Stock unless such holder discloses a
different determination on its timely filed federal income tax return for the
year that includes the date such holder acquired the Preferred Stock.
CONVERSION BY HOLDERS INTO COMMON STOCK
As a general rule, no gain or loss will be recognized by a holder upon
conversion of Series A Preferred Stock into shares of Common Stock. Gain may be
recognized, however, to the extent such holder receives cash in lieu of
fractional shares of Common Stock. In addition, dividend income may result from
the conversion of Series A Preferred Stock with accrued but unpaid dividends not
previously included in income in the event the fair market value of the Common
Stock exceeds the issue price of the corresponding converted Series A Preferred
Stock. The aggregate tax basis for the shares of Common Stock received upon
conversion will generally be equal to the aggregate tax basis of the Series A
Preferred Stock converted (adjusted to reflect any income recognized on the
conversion). The holding period of the shares of such Common Stock will
generally include the holding period of the Series A Preferred Stock converted.
The holding period of any shares deemed to be received as a dividend will begin
on the date following the date of conversion.
57
<PAGE> 61
ADJUSTMENT OF CONVERSION PRICE
Certain adjustments or failures to make adjustments to the conversion
price, based on the Company's making certain taxable distributions to holders of
Common Stock, may result in constructive distributions taxable as dividends to
the holders of the Series A Preferred Stock.
BACKUP WITHHOLDING
Under the "backup withholding" provisions of the Code, unless the
conditions in the next sentence are satisfied and except in the case of certain
foreign persons to whom regular withholding rules apply, non-corporate holders
of the Series A Preferred Stock may be subject to backup withholding at the rate
of 31 percent with respect to any dividends paid on the Series A Preferred Stock
and, under certain circumstances, on any proceeds realized on any redemption or
retirement of the Series A Preferred Stock. Backup withholding will not apply to
a payment if the payee provides his taxpayer identification number to the payor
and certifies under penalties of perjury that (i) such number is correct (or
that he is awaiting a taxpayer identification number) and (ii) that (x) the
payee is exempt from backup withholding, (y) the payee has not yet been notified
by the IRS that he is subject to backup withholding as a result of a failure to
report all interest or dividends, or (z) the IRS had notified the payee that he
is no longer subject to backup withholding.
UNDERWRITING
The Underwriters named below, represented by McDonald & Company Securities,
Inc., J.C. Bradford & Co. and The Ohio Company (the "Representatives"), have
agreed, subject to the terms and conditions contained in the Underwriting
Agreement, to purchase from the Company the number of shares of Series A
Preferred 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 Series A Preferred
Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
UNDERWRITERS PURCHASED
--------------------------------------------------------------------- ------------
<S> <C>
McDonald & Company Securities, Inc................................... 434,000
J.C. Bradford & Co................................................... 433,000
The Ohio Company..................................................... 433,000
City Securities Corp................................................. 70,000
Crowell, Weedon & Co................................................. 70,000
Friedman, Billings, Ramsey & Co., Inc................................ 70,000
Morgan Keegan & Co., Inc............................................. 70,000
NatCity Investments, Inc............................................. 70,000
Raymond James & Associates, Inc...................................... 70,000
Roney & Co., LLC..................................................... 70,000
Sutro & Co........................................................... 70,000
Traub & Co. Inc...................................................... 70,000
Tucker Anthony Inc................................................... 70,000
---------
Total.............................................................. 2,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the Series A Preferred 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 $.80 per share, and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $.10 per share to
certain other dealers. After the Offering, the offering price and other selling
terms may be changed by the Underwriters. The Series A Preferred Stock is
offered subject to receipt and acceptance by the Representatives and to certain
other conditions, including the right to reject orders in whole or in part. In
addition to the underwriting discount
58
<PAGE> 62
identified on the cover page of this Prospectus, the Company has agreed to pay
to McDonald & Company Securities, Inc. for financial advisory services a fee in
an amount equal to one percent of the difference between the current market
capitalization of the Company and the market capitalization of the currently
outstanding shares immediately following the Offering.
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 300,000 additional shares of Series A Preferred Stock to cover
over-allotments, if any, at the same price per share as the initial 2,000,000
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 Series A Preferred Stock or Common Stock or
options or warrants to acquire shares of Common Stock without the prior written
consent of McDonald & Company Securities, Inc.
The Representatives have 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 Series A Preferred Stock
offered hereby.
At the request of the Company, up to 200,000 shares of Series A Preferred
Stock offered in the Offering have been reserved for sale to employees and
certain business associates of the Company and certain members of their
families. The price of such shares to such persons will be 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 no public trading market for the
Series A Preferred Stock and only a limited public trading market for the Common
Stock. Consequently, the public offering price and the initial conversion 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 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
preferred stock and 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 Partnership 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.
59
<PAGE> 63
LEGAL OPINIONS
Certain legal matters relating to the shares of Series A Preferred Stock
are being passed upon for the Company by Johnson Smith Pence Densborn Wright &
Heath, Indianapolis, Indiana. 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 Series A Preferred
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 Series A Preferred 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. The Commission maintains a Web
site (address http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Application has been made for quotation of the Series A
Preferred Stock on the NASDAQ National Market System.
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.
60
<PAGE> 64
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 September 30, 1996
(unaudited)..................................................................... F-2
Pro Forma Condensed Consolidated Statements of Operations (unaudited) for the nine
months ended September 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 September 30, 1996 (unaudited) and December 31,
1995 and 1994................................................................... F-6
Consolidated Statements of Operations for the nine months ended September 30, 1996
and 1995 (unaudited) and the years ended December 31, 1995, 1994 and 1993....... F-7
Consolidated Statements of Shareholders' Equity for the nine months ended September
30, 1996 (unaudited) and the years ended December 31, 1995, 1994 and 1993....... F-8
Consolidated Statements of Cash Flows for the nine months ended September 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 September 30, 1996 (unaudited) and December 31, 1995
and 1994........................................................................ F-17
Combined Statements of Operations for the nine months ended September 30, 1996 and
1995 (unaudited) and the years ended December 31, 1995 and 1994................. F-18
Combined Statements of Partners' Equity for the nine months ended September 30,
1996 (unaudited) and the years ended December 31, 1995 and 1994................. F-19
Combined Statements of Cash Flows for the nine months ended September 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> 65
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 September 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)
SEPTEMBER 30, 1996
<TABLE>
<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.... $ 1,944,269 $ 6,146,554 $33,350,000 $(2,382,000) $(28,777,329) $ (4,544,706)(1) $ 4,236,788
(1,500,000)(4)
Restricted
cash........... 403,661 579,669 983,330
Other current
assets......... 743,318 1,454,976 2,198,294
----------- ----------- -----------
TOTAL
CURRENT
ASSETS... 3,091,248 8,181,199 7,418,412
----------- ----------- -----------
Hotel limited
partnerships:
Equity
investments.... 2,106,270 (1,620,270)(2) 486,000
Receivables,
net............ 3,371,648 (3,371,648)(3) --
----------- -----------
5,477,918 486,000
----------- -----------
Property and
equipment, net... 10,460,081 67,808,979 2,106,707 18,914,903 (464,283)(2) 98,826,387
Furniture and
equipment
reserves......... 252,137 1,464,320 (1,464,320)(1) 1,752,137
1,500,000(4)
Deferred costs and
other assets..... 857,408 914,451 (914,451) 857,408
----------- ----------- ----------- -------- ---------- ---------- -----------
$20,138,792 $78,368,949 $33,350,000 $ (275,293) $(10,776,877) $(11,465,227) $109,340,344
=========== =========== =========== ======== ========== ========== ===========
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Current
liabilities:
Current portion
of long-term
debt........... $ 228,235 $ 1,275,486 $ 1,503,721
Other current
liabilities.... 1,251,483 2,973,981 4,225,464
----------- ----------- -----------
TOTAL
CURRENT
LIABILITIES.. 1,479,718 4,249,467 5,729,185
Long-term debt,
less current
portion.......... 8,960,536 59,435,833 $ (4,186,807) $ (3,371,648)(3) 60,837,914
Line of credit..... 2,750,000 $(2,750,000) --
Other partners'
equity........... 275,293 $ (275,293) --
----------- ----------- -----------
TOTAL
LIABILITIES... 13,465,547 63,685,300 66,567,099
----------- ----------- -----------
(6,009,026)(1)
Partners' equity... 14,683,649 (6,590,070) (2,084,553)(2) --
Shareholders'
equity:
Preferred
stock.......... -- 36,100,000 36,100,000
Common stock..... 10,016,515 10,016,515
Accumulated
deficit........ (3,343,270) (3,343,270)
----------- -----------
TOTAL
SHAREHOLDERS'
EQUITY... 6,673,245 42,773,245
----------- ----------- ----------- -------- ---------- ---------- -----------
$20,138,792 $78,368,949 $33,350,000 $ (275,293) $(10,776,877) $(11,465,227) $109,340,344
=========== =========== =========== ======== ========== ========== ===========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
F-2
<PAGE> 66
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------
CERTAIN SIGNATURE
THE AFFILIATED INN PRO FORMA PRO FORMA
COMPANY PARTNERSHIPS EAST ADJUSTMENTS TOTAL
---------- ------------ ---------- ----------- -----------
(A) (B) (B)
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenues:
Hotel revenues................................. $4,089,258 $ 26,504,084 $30,593,342
Management and franchise fees.................. 2,379,532 $(2,379,532)(G) --
---------- ---------- ----------
6,468,790 26,504,084 30,593,342
---------- ---------- ----------
Costs and expenses:
Hotel costs and expenses....................... 2,145,886 16,927,249 (2,379,532)(G) 16,693,603
Depreciation and amortization.................. 381,925 2,428,862 (433,787)(K) 2,377,000
General and administrative..................... 1,837,158 1,837,158
---------- ---------- ----------
4,364,969 19,356,111 20,907,761
---------- ---------- ----------
OPERATING INCOME............................. 2,103,821 7,147,973 9.685,581
---------- ---------- ----------
Other income (expenses):
Interest expense............................... (769,872) (4,119,321) 491,000(I) (4,287,193)
111,000(J)
Capital appreciation fee....................... -- --
Interest income................................ 162,872 180,033 (111,000)(J) 231,905
Equity in income of hotel limited
partnerships................................. 649,780 (649,780)(H) --
Other partners' equity in income............... (313,461) 313,461(H) --
Other, net..................................... (11,663) (32,581) (44,244)
---------- ---------- ----------
(282,344) (3,971,869) (4,099,532)
---------- ---------- ----------
INCOME BEFORE INCOME TAX EXPENSE............. 1,821,477 3,176,104 5,586,049
Income tax expense............................... 150,000 1,750,000(L) 1,900,000
---------- ---------- ----------
NET INCOME................................... 1,671,477 $ 3,176,104 3,686,049
==========
LESS: PREFERRED STOCK DIVIDEND............... -- (2,550,000) (2,550,000)
---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK........ $1,671,477 $ 1,136,049
========== ==========
Per common share................................. $0.79 $0.54
========== ==========
Weighted average common shares outstanding....... 2,104,091 2,104,091
========== ==========
YEAR ENDED DECEMBER 31, 1995
Revenues:
Hotel revenues................................. $3,470,062 $ 33,611,567 $1,512,874 $ (3,479)(G) $38,591,024
Management and franchise fees.................. 3,126,972 (3,126,972)(G) --
---------- ---------- --------- ----------
6,597,034 33,611,567 1,512,874 38,591,024
---------- ---------- --------- ----------
Costs and expenses:
Hotel costs and expenses....................... 1,757,515 21,376,292 934,871 (3,130,451)(G) 20,938,227
Depreciation and amortization.................. 419,576 3,429,710 135,076 (775,362)(K) 3,209,000
General and administrative..................... 2,236,622 2,236,622
---------- ---------- --------- ----------
4,413,713 24,806,002 1,069,947 26,383,849
---------- ---------- --------- ----------
OPERATING INCOME............................. 2,183,321 8,805,565 442,927 12,207,175
---------- ---------- --------- ----------
Other income (expenses):
Interest expense............................... (980,907) (5,814,798) (486,284) 778,000(I) (6,344,989)
159,000(J)
Capital appreciation fee....................... (610,990) (610,990)
Interest income................................ 276,423 302,167 11,129 (159,000)(J) 430,719
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)
---------- ---------- --------- ----------
INCOME BEFORE INCOME TAX EXPENSE............. 1,617,416 3,203,758 (37,753) 5,800,304
Income tax expense............................... -- 1,900,000(L) 1,900,000
---------- ---------- --------- ----------
NET INCOME................................... 1,617,416 $ 3,202,758 $ (37,753) 3,900,304
========== =========
LESS: PREFERRED STOCK DIVIDEND............... -- (3,400,000) (3,400,000)
---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK........ $1,617,416 $ 500,304
========== ==========
Per common share................................. $0.77 $0.24
========== ==========
Weighted average common shares outstanding....... 2,103,872 2,103,872
========== ==========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
F-3
<PAGE> 67
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(A) Reflects the historical financial statements of the Company as of September
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 1-for-3.7 share reverse stock split
declared by the Board of Directors of the Company on October 22, 1996, to
be effective on the effective date of the Offering.
(B) Reflects the historical financial statements of the Certain Affiliated
Partnerships as of September 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,
including fees in the amount of $503,141, by Certain Affiliated
Partnerships, and the reduction of one mortgage loan of $1,091,107.
(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 and
elimination of revenues and expenses for Signature Northwestern Ltd. -- 1
Limited Partnership included in the Company's operating results after
December 29, 1995.
(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.
(L) Reflects income tax expense at a combined federal and state statutory rate
after assuming the annual use of approximately $900,000 of net operating
loss carryforwards which is the expected maximum annual allowable amount
available for tax purposes after the completion of the Offering.
F-4
<PAGE> 68
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> 69
SIGNATURE INNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER 31,
30, -------------------------
ASSETS 1996 1995 1994
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents
Corporate.......................................... $ 1,014,029 $ 1,213,078 $ 1,153,753
Consolidated hotels................................ 1,586,038 1,402,047 881,760
----------- ----------- -----------
2,600,067 2,615,125 2,035,513
Other current assets.................................. 743,318 500,492 491,886
----------- ----------- -----------
TOTAL CURRENT ASSETS.......................... 3,343,385 3,115,617 2,527,399
----------- ----------- -----------
Hotel limited partnerships (note 2):
Equity investments.................................... 2,106,270 2,224,857 1,377,930
Receivables, net...................................... 3,371,648 3,571,648 3,429,712
----------- ----------- -----------
5,477,918 5,796,505 4,807,642
----------- ----------- -----------
Property and equipment, net (notes 3 and 4)............. 10,460,081 8,763,787 6,543,205
Deferred costs and other assets, net of accumulated
amortization of $553,121, $530,114 and $452,990....... 857,408 338,542 215,721
----------- ----------- -----------
$20,138,792 $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................................ 228,235 3,188,376 3,128,478
Other current liabilities............................. 1,251,483 822,961 527,037
----------- ----------- -----------
TOTAL CURRENT LIABILITIES..................... 1,479,718 4,544,677 3,655,515
----------- ----------- -----------
Long-term debt, less current portion (note 4):
Corporate............................................. 2,750,000 2,166,660 3,589,010
Consolidated hotels................................... 8,960,536 6,471,734 3,596,888
----------- ----------- -----------
11,710,536 8,638,394 7,185,898
Other partners' equity.................................. 275,293 40,154 148,369
----------- ----------- -----------
TOTAL LIABILITIES............................. 13,465,547 13,223,225 10,989,782
----------- ----------- -----------
Shareholders' equity (note 6):
Preferred stock, no par value. Authorized 5,000,000
shares............................................. -- -- --
Common stock, no par value. Authorized 50,000,000
shares............................................. 10,016,515 9,805,973 9,736,348
Accumulated deficit................................... (3,343,270) (5,014,747) (6,632,163)
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY.................... 6,673,245 4,791,226 3,104,185
----------- ----------- -----------
$20,138,792 $18,014,451 $14,093,967
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 70
SIGNATURE INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Hotel revenues................ $ 4,089,258 $ 2,687,484 $ 3,470,062 $ 3,842,149 $ 9,226,870
Management and franchise
fees....................... 2,379,532 2,405,060 3,126,972 3,021,857 2,568,945
----------- ----------- ----------- ----------- -----------
6,468,790 5,092,544 6,597,034 6,864,006 11,795,815
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Hotel costs and expenses...... 2,145,886 1,322,526 1,757,515 2,033,395 5,472,837
Hotel depreciation and
amortization............... 309,358 196,317 272,290 389,255 1,348,993
General and administrative
expenses................... 1,837,158 1,668,903 2,236,622 2,141,792 2,382,219
Other depreciation and
amortization............... 72,567 120,451 147,286 121,614 124,940
Valuation allowances.......... -- -- -- -- 155,000
----------- ----------- ----------- ----------- -----------
4,364,969 3,308,197 4,413,713 4,686,056 9,483,989
----------- ----------- ----------- ----------- -----------
OPERATING INCOME...... 2,103,821 1,784,347 2,183,321 2,177,950 2,311,826
----------- ----------- ----------- ----------- -----------
Other income (expenses):
Equity in income of hotel
limited partnerships, net
(note 2)................... 649,780 649,072 761,523 727,398 208,744
Interest income (note 2)...... 162,872 195,748 276,423 190,717 94,666
Interest expense -- hotels
(note 4)................... (676,675) (477,682) (653,338) (834,626) (2,567,210)
Interest expense -- corporate
(note 4)................... (93,197) (274,050) (327,569) (440,376) (888,615)
Capital appreciation fee (note
4)......................... -- (610,990) (610,990) (289,010) --
Gain on disposition of hotels,
land and related assets
(note 3)................... -- 163,032 163,032 148,171 272,710
Other partners' equity in
income..................... (313,461) (191,349) (226,044) (130,336) (35,744)
Other......................... (11,663) 20,738 51,058 60,885 54,587
----------- ----------- ----------- ----------- -----------
(282,344) (525,481) (565,905) (567,177) (2,860,862)
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAX EXPENSE
AND EXTRAORDINARY
GAIN................ 1,821,477 1,258,866 1,617,416 1,610,773 (549,036)
Income tax expense.............. 150,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY
GAIN................ 1,671,477 1,258,866 1,617,416 1,610,773 (549,036)
Extraordinary gain from debt
extinguishment (note 4)....... -- -- -- 495,282 21,314,412
----------- ----------- ----------- ----------- -----------
NET INCOME............ $ 1,671,477 $ 1,258,866 $ 1,617,416 $ 2,106,055 $20,765,376
=========== =========== =========== =========== ===========
Per common share:
Income (loss) before
extraordinary gain......... $ 0.21 $ 0.16 $ 0.21 $ 0.25 $ (0.16)
Extraordinary gain............ -- -- -- 0.08 6.22
----------- ----------- ----------- ----------- -----------
NET INCOME............ $ 0.21 $ 0.16 $ 0.21 $ 0.33 $ 6.06
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding................... 7,785,136 7,784,327 7,784,327 6,464,688 3,426,307
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 71
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).................. -- -- 1,671,477 1,671,477
Collection of notes receivable
(unaudited) (note 6)................. -- 208,875 -- 208,875
Issuance of common stock (unaudited).... 1,667 1,667 -- 1,667
----------- ----------- ----------- -----------
Balance at September 30, 1996
(unaudited)............................. 7,785,994 $10,016,515 $ (3,343,270) $ 6,673,245
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 72
SIGNATURE INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31
------------------------- ---------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 1,671,477 $ 1,258,866 $ 1,617,416 $ 2,106,055 $20,765,376
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 373,095 316,768 419,576 510,869 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... 133,981 68,875 (128,850) (270,909) 241,813
Other partners' equity in income.... 313,461 191,347 226,044 130,336 35,744
Capital appreciation fee............ -- 610,990 610,990 289,010 --
Gain on disposition of hotels, land
and related assets................ -- (163,032) (163,032) (148,171) (272,710)
Gain from debt extinguishment....... -- -- -- (495,280) (21,314,412)
Valuation allowances................ -- -- -- -- 155,000
Other items......................... 87,578 103,770 78,423 (126,338) 1,456,136
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES................... 2,579,592 2,387,584 2,660,567 1,995,572 2,540,880
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of hotels, land and
related assets...................... -- 163,032 163,032 4,643,452 --
Property and equipment additions....... (2,042,383) (104,359) (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................................. 200,000 (201,000) (141,936) 50,000 (77,000)
Deferred costs and other assets........ (461,478) (171,007) (91,973) (50,934) (112,637)
Cash balance of consolidated hotel
limited partnership................. -- -- 224,927 -- --
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES......... (2,303,861) (313,334) (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........... (2,071,339) (3,707,812) (1,965,256) (4,662,807) (6,801,014)
Net borrowings (repayments) of
revolving line of credit............ 1,650,000 2,100,000 (400,000) (1,000,000) --
Payment of capital appreciation fee.... -- -- (900,000) -- --
Proceeds from issuance of common
stock............................... 208,875 69,625 69,625 500,903 --
Distributions to other partners by
consolidated hotel.................. (78,325) (123,053) (123,053) (7,500) --
----------- ----------- ----------- ----------- -----------
NET CASH USED BY FINANCING
ACTIVITIES................... (290,789) (1,661,240) (1,618,684) (5,169,404) (2,501,014)
----------- ----------- ----------- ----------- -----------
Net change in cash and cash
equivalents............................ (15,058) 413,010 579,612 815,567 (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................................. $ 2,600,067 $ 2,448,523 $ 2,615,125 $ 2,035,513 $ 1,219,946
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
SIGNATURE INN CERTAIN AFFILIATED PARTNERSHIPS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------
ASSETS 1996 1995 1994
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 6,726,223 $ 7,173,679 $ 6,683,898
Accounts receivable............................... 728,285 594,559 547,099
Other current assets.............................. 726,691 667,815 743,688
------------- ----------- -----------
TOTAL CURRENT ASSETS........................... 8,181,199 8,436,053 7,974,685
------------- ----------- -----------
Property and equipment:
Land.............................................. 10,821,850 10,821,850 10,821,850
Land improvements................................. 4,588,571 4,574,274 4,562,831
Buildings......................................... 63,957,443 63,856,052 63,553,040
Furniture and equipment........................... 17,631,386 16,407,709 15,531,750
------------- ----------- -----------
96,999,250 95,659,885 94,469,471
Less accumulated depreciation..................... 29,190,271 26,975,922 24,098,075
------------- ----------- -----------
NET PROPERTY AND EQUIPMENT..................... 67,808,979 68,683,963 70,371,396
------------- ----------- -----------
Furniture and equipment cash reserve................ 1,464,320 1,462,770 1,116,087
Deferred costs, net of accumulated amortization of
$1,981,535, $1,800,153, and $1,851,417............ 914,451 971,951 1,145,221
------------- ----------- -----------
$ 78,368,949 $79,554,737 $80,607,389
========== ========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of long-term debt................. $ 1,275,486 $ 3,145,668 $ 1,175,261
Accounts payable.................................. 603,235 410,928 572,706
Accrued payroll and related taxes................. 254,258 351,335 302,299
State and local taxes............................. 1,776,567 1,550,977 1,452,157
Accrued interest.................................. 339,921 226,794 276,291
------------- ----------- -----------
TOTAL CURRENT LIABILITIES...................... 4,249,467 5,685,702 3,778,714
Long-term debt, less current portion................ 56,159,746 55,080,012 59,969,264
Amounts due general partner......................... 3,276,087 3,423,499 3,155,920
------------- ----------- -----------
TOTAL LIABILITIES.............................. 63,685,300 64,189,213 66,903,898
------------- ----------- -----------
Partners' equity:
Signature Inns, Inc............................... 2,084,553 2,226,361 2,104,083
Other partners.................................... 12,599,096 13,139,163 11,599,408
------------- ----------- -----------
14,683,649 15,365,524 13,703,491
------------- ----------- -----------
$ 78,368,949 $79,554,737 $80,607,389
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-17
<PAGE> 81
SIGNATURE INN CERTAIN AFFILIATED PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------- ---------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Guest room revenue.................. $25,753,099 $25,347,702 $32,671,596 $31,220,623
Other hotel revenue................. 750,985 715,699 939,971 959,212
Interest income..................... 180,033 187,766 302,167 197,020
----------- ----------- ----------- -----------
26,684,117 26,251,167 33,913,734 32,376,855
----------- ----------- ----------- -----------
Costs and expenses:
Hotel operations.................... 13,678,553 13,010,007 17,226,359 16,464,691
Management and franchise fees....... 2,324,505 2,312,346 2,977,971 2,859,269
Advertising and reservations........ 924,191 908,875 1,171,962 1,121,985
Interest expense.................... 4,119,321 4,357,521 5,814,798 5,739,201
Depreciation and amortization....... 2,428,862 2,449,959 3,429,710 3,374,081
Loss on disposal of equipment....... 32,581 91,604 90,176 61,253
----------- ----------- ----------- -----------
23,508,013 23,130,312 30,710,976 29,620,480
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY
GAIN........................... 3,176,104 3,120,855 3,202,758 2,756,375
Extraordinary gain from debt
restructuring....................... -- 1,835,952 1,835,952 683,020
----------- ----------- ----------- -----------
NET INCOME....................... 3,176,104 4,956,807 5,038,710 3,439,395
Signature Inns, Inc. share............ 600,487 670,760 695,755 636,343
----------- ----------- ----------- -----------
Other partners' share................. $ 2,575,617 $ 4,286,047 $ 4,342,955 $ 2,803,052
========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-18
<PAGE> 82
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)............................. 600,487 2,575,617 3,176,104
Cash distributions (unaudited)..................... (742,295) (3,115,684) (3,857,979)
---------- ----------- -----------
Balance at September 30, 1996 (unaudited)............ $2,084,553 $12,599,096 $14,683,649
========= ========== ==========
</TABLE>
See accompanying notes to combined financial statements
F-19
<PAGE> 83
SIGNATURE INN CERTAIN AFFILIATED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------ -----------------------
1996 1995 1995 1994
----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 3,176,104 $4,956,807 $5,038,710 $3,439,395
Items which do not use cash:
Depreciation of property and
equipment............................. 2,271,430 2,181,771 3,220,405 3,165,529
Amortization of deferred costs.......... 157,432 157,013 209,304 208,552
Amortization of debt discount........... -- 131,189 131,189 224,896
Gain on debt extinguishment............. -- (1,835,952) (1,835,952) (683,020)
Loss on disposal of equipment........... 32,581 91,604 77,508 64,323
Write-off of deferred costs............. -- -- 12,668 --
Change in accrued management and
franchise fees........................ 52,588 119,997 70,274 108,587
Change in accrued interest payable...... 113,127 64,244 (47,730) 159,694
Accrued revenue and other expenses,
net................................... 128,218 151,655 99,481 110,224
----------- ---------- ---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES......................... 5,931,480 6,018,328 6,975,857 6,798,180
----------- ---------- ---------- ----------
Cash flows from investing activities:
Additions to furniture and equipment cash
reserve................................. (1,060,163) (1,042,536) (1,422,747) (1,191,992)
Proceeds from disposal of equipment........ 6,597 21,602 14,387 1,320
Other additions to property and
equipment............................... (377,011) (369,997) (580,191) (185,327)
Additions to deferred costs................ (99,932) (36,036) -- (3,174)
Acquisition of hotel property and
equipment............................... -- -- -- (4,370,000)
----------- ---------- ---------- ----------
NET CASH USED IN INVESTING
ACTIVITIES......................... (1,530,509) (1,426,967) (1,988,551) (5,749,173)
----------- ---------- ---------- ----------
Cash flows from financing activities:
Scheduled payments on long-term debt....... (790,448) (758,780) (1,154,357) (1,261,238)
Retirement of long-term debt............... -- (1,972,977) (1,972,977) --
Proceeds from long-term debt............... -- 2,274,441 2,294,309 4,658,000
Advances from general partner.............. 80,000 320,000 270,000 --
Repayments of advances from general
partner................................. (280,000) (119,514) (128,065) (50,000)
Proceeds from installment note............. -- -- 18,943 --
Extinguishment of long-term debt........... -- (400,000) (400,000) --
Deferred financing costs................... -- -- (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 PROVIDED (USED) BY FINANCING
ACTIVITIES......................... (4,848,427) (4,053,624) (4,497,525) 829,342
----------- ---------- ---------- ----------
Change in cash and cash equivalents.......... (447,456) 537,737 489,781 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... $ 6,726,223 $7,221,635 $7,173,679 $6,683,898
========== ========= ========= =========
Additional disclosures:
Interest paid.............................. $ 4,006,194 $4,162,088 $5,733,619 $5,378,476
========== ========= ========= =========
Additions to property and equipment from
furniture and equipment cash reserve.... $ 1,058,613 $ 955,968 $1,076,064 $ 872,269
========== ========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-20
<PAGE> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
- ------------------------------------------------------------
- ------------------------------------------------------------
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 SERIES A PREFERRED
STOCK OR 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............................... 8
The Purchase Transactions.................. 12
Use of Proceeds............................ 13
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..................... 45
Market for the Registrant's Capital Stock
and Related Stockholder Matters.......... 46
Description of Capital Stock............... 47
Shares Eligible for Future Sale............ 54
Certain Transactions....................... 55
Federal Income Tax Considerations.......... 55
Underwriting............................... 58
Experts.................................... 59
Legal Opinions............................. 60
Additional Information..................... 60
Index to Financial Statements.............. F-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
2,000,000 SHARES
[LOGO]
SIGNATURE INNS, INC.
$1.70 CUMULATIVE CONVERTIBLE
PREFERRED STOCK, SERIES A
------------------------
PROSPECTUS
------------------------
MCDONALD & COMPANY
SECURITIES, INC.
J.C. BRADFORD & CO.
THE OHIO COMPANY
JANUARY 21, 1997
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 92
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> 93
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses to be borne by the Company in connection with the
Offering are as follows:
<TABLE>
<S> <C>
Registration Fee-Securities and Exchange Commission.............................. $ 16,000
NASD Fee......................................................................... 5,000
NASDAQ Filing Fees............................................................... 40,000
Printing......................................................................... 220,000
Legal Fees and Expenses.......................................................... 400,000
Accounting Fees and Expenses..................................................... 120,000
Directors and Officers Insurance Premium......................................... 192,000
Blue Sky Expenses and Fees....................................................... 8,000
Mailing, Postage, Certificates and Transfer Agent Fees........................... 20,000
Miscellaneous Expenses........................................................... 79,000
----------
Total Expenses................................................................. $1,100,000
==========
</TABLE>
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> 94
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 Amendment No. 3 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Indianapolis, Indiana on the 21st day
of January, 1997.
<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: January 21, 1997
-------------------------
</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 January 21, 1997.
<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> 95
<TABLE>
<S> <C>
/s/ WILLIAM S. WATSON
------------------------------
William S. Watson, Director
/s/ RICHARD L. RUSSELL
------------------------------
Richard L. Russell, Director
/s/ STEPHEN M. HUSE
------------------------------
Stephen M. Huse, Director
/s/ RICHARD E. SHANK
------------------------------
Richard E. Shank, Director
/s/ GEORGE A. MORTON
------------------------------
George A. Morton, Director
</TABLE>
II-4
<PAGE> 96
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------
<C> <S>
*1. Form of Underwriting Agreement
*3.1 Amended and Restated Articles of Incorporation of Signature Inns, Inc.
3.2 Code of By-Laws of Signature Inns, Inc.
*4.1 Specimen Common Stock Certificate
*4.2 Specimen Preferred Stock Certificate
*4.3 Form of Rights Agreement adopted by the Board of Directors of Signature Inns, Inc.
*5. Legality Opinion of Johnson Smith Pence Densborn Wright and Heath.
*8. Tax 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.
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.
27. Financial Data Schedule.
<FN>
- ---------------
* This exhibit is filed herewith. All other exhibits have been previously filed.
</TABLE>
II-5
<PAGE> 1
Exhibit 1
2,000,000 Shares
SIGNATURE INNS, INC.
(an Indiana corporation)
Preferred Stock
(No Par Value)
UNDERWRITING AGREEMENT
January 20, 1997
McDONALD & COMPANY SECURITIES, INC.
J.C. BRADFORD & CO.
THE OHIO COMPANY
as Representatives of the Several Underwriters
c/o McDonald & Company Securities, Inc.
McDonald Investment Center
Cleveland, Ohio 44114
Ladies and Gentlemen:
Signature Inns, Inc., an Indiana corporation (the "Company"),
confirms its agreement with McDonald & Company Securities, Inc. ("McDonald"),
J.C. Bradford & Co. ("J.C. Bradford"), The Ohio Company and each of the
other underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof), for whom McDonald, J.C. Bradford
and The Ohio Company are acting as representatives (in such capacity, McDonald,
J.C. Bradford and The Ohio Company shall hereinafter be referred to as
"Representatives"), with respect to the sale by the Company of 2,000,000 shares
of $1.70 Cumulative Convertible Preferred Stock, Series A, no par value (the
"Preferred Stock"), of the Company, and the purchase by the Underwriters,
acting severally and not jointly, of the respective numbers of shares of
Preferred Stock set forth in said Schedule A, aggregating 2,000,000 shares of
Preferred Stock, and with respect to the grant by the Company of the option
described in Section 2(b) hereof to purchase all or any part of 300,000 shares
of Preferred Stock, no par value, solely to cover over-allotments, in each case
except as may otherwise be provided in the Pricing Agreement, as hereinafter
defined. The aforesaid 2,000,000 shares of Preferred Stock (the "Initial
Securities") to be purchased by the Underwriters and all or any part of the
300,000 shares of Preferred Stock subject to the option described in Section
2(b) hereof (the "Option Securities") are collectively hereinafter called the
"Securities."
<PAGE> 2
Capitalized terms that are used but not defined in this Agreement have the
meanings assigned to them in the Prospectus.
Prior to the purchase and public offering of the Securities by
the Underwriters, the Representatives, acting on behalf of the several
Underwriters, shall enter into an agreement substantially in the form of
Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the
form of an exchange of any standard form of written communication or
telecommunication between the Company and the Representatives and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering
of the Securities will be governed by this Underwriting Agreement (this
"Agreement"), as supplemented by the Pricing Agreement. From and after the
date of the execution and delivery of the Pricing Agreement, this Agreement
shall be deemed to incorporate the Pricing Agreement.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form SB-2 (No.
333-12735) and a related preliminary prospectus for the registration of the
Securities under the Securities Act of 1933, as amended (the "1933 Act"), and
has filed such amendments thereto, if any, and such amended preliminary
prospectuses as may have been required to the date hereof. Such registration
statement (as amended, if applicable) and the prospectus constituting a part
thereof (including the documents incorporated therein by reference and the
information, if any, deemed to be part thereof pursuant to Rule 430A(b) of the
rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations")), as from time to time amended or supplemented pursuant to the
1933 Act or otherwise, are hereinafter referred to as the "Registration
Statement" and the "Prospectus," respectively, except that if any revised
prospectus shall be provided to the Underwriters by the Company in connection
with the offering of the Securities which differs from the Prospectus on file
at the Commission at the time the Registration Statement becomes effective
(whether or not such revised prospectus is required to be filed by the Company
pursuant to Rule 424(b) of the 1933 Act Regulations), the term "Prospectus"
shall refer to such revised Prospectus from and after the time it is first
provided to the Underwriters for such use. Any reference herein to the
Registration Statement, any preliminary prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated therein by reference.
The Company understands that the Underwriters propose to make
a public offering of the Securities as soon as the Representatives deem
advisable after the Registration Statement becomes effective and the Pricing
Agreement has been executed and delivered.
SECTION 1. Representations and Warranties. (a) The
Company represents and warrants to each Underwriter as of the
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<PAGE> 3
date hereof and as of the date of the Pricing Agreement (such latter date being
hereinafter referred to as the "Representation Date") as follows:
(i) The Company is a small business issuer as defined in
Regulation S-B of the 1933 Act Regulations and otherwise satisfies all
applicable requirements for the use of Form SB-2 under the 1933 Act in
connection with the transactions contemplated hereby and by the Registration
Statement.
(ii) The Company has been subject to the requirements of
Section 12 or 15(d) of the Securities Exchange Act of 1934 (the "1934 Act") for
a period of at least 12 months prior to the initial filing of the Registration
Statement and has filed all the material required to be filed pursuant to
Section 13, 14 or 15 of the 1934 Act for a period of at least 12 calendar
months immediately preceding the initial filing of the Registration Statement
and through and including the Representation Date in a timely manner. The
documents incorporated by reference in the Prospectus, when they were filed
with the Commission, conformed in all material respects to the requirements of
the 1934 Act and the rules and regulations of the Commission thereunder (the
"1934 Act Regulations"), and none of such documents contained at the date of
such filing an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(iii) At the time the Registration Statement becomes
effective and at the Representation Date, the Registration Statement will
comply in all material respects with the requirements of the 1933 Act and the
1933 Act Regulations, and the Registration Statement will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Prospectus, at the Representation Date (unless the term "Prospectus" refers to
a prospectus which has been provided to the Underwriters by the Company for use
in connection with the offering of the Securities which differs from the
Prospectus on file at the Commission at the time the Registration Statement
becomes effective, in which case at the time it is first provided to the
Underwriters for such use) and at the Closing Time referred to in Section 2,
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; but the
representations and warranties in this subsection shall not apply to statements
in or omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished to the Company in writing by
any Underwriter through the Representatives expressly for use in the
Registration Statement or Prospectus.
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<PAGE> 4
(iv) The accountants who certified the financial
statements and supporting schedules included or incorporated by reference in
the Registration Statement are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(v) The financial statements included or incorporated by
reference in the Registration Statement and the Prospectus present fairly the
financial position of the Company and its consolidated subsidiaries and
consolidated Affiliated Entities, and of the unconsolidated Affiliated
Entities, as at the dates indicated and the results of their operations for the
periods specified; and except as otherwise stated in the Registration
Statement, said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis.
(vi) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise
stated therein, (A) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries, considered as one enterprise, or
of the Affiliated Entities, considered as one enterprise, whether or not
arising in the ordinary course of business, (B) there have been no transactions
entered into by the Company or any of its subsidiaries or with respect to
Affiliated Entities, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries, considered as
one enterprise, or of the Affiliated Entities, considered as one enterprise,
and (C) there has been no dividend or distribution of any kind declared, paid
or made by the Company on any class of its capital stock.
(vii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Indiana with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and to enter into and
perform its obligations in connection with the Purchase Transactions; and the
Company is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business except where the failure to so qualify would not have a material
adverse effect on the condition, financial or otherwise, or the earnings,
business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise.
(viii) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its
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<PAGE> 5
properties and to conduct its business as described in the Prospectus and is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify would not have a material adverse effect
on the condition, financial or otherwise, or the earnings, business affairs or
business prospects of that subsidiary; all of the issued and outstanding
capital stock of each such subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company, directly
or through one or more direct of indirect subsidiaries, free and clear of any
security interest, pledge, lien, encumbrance or claim.
(ix) Each Affiliated Entity has been duly formed and is in
full force and existence as a limited partnership under the laws of Indiana
with the power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and to enter into and
perform its obligations in connection with the Purchase Transactions; and each
Affiliated Entity is duly qualified as a foreign limited partnership to
transact business and is in full force and existence in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business except where the failure to so
qualify would not have a material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business prospects of such
Affiliated Entity.
(x) The Company has the authorized, issued and
outstanding capitalization set forth in the Prospectus; the shares of issued
and outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable; the shares of Preferred
Stock to be issued and sold by the Company have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company in the manner contemplated by this
Agreement, will be validly issued and fully paid and nonassessable; the
issuance of shares of Preferred Stock contemplated by this Agreement is not
subject to preemptive or other similar rights; the shares of the Company's
Common Stock, no par value (the "Common Stock") issuable on conversion of the
Preferred Stock have been duly authorized and reserved for issuance and, when
delivered on conversion of the Preferred Stock, will have been validly issued
and fully paid and will be nonassessable and free of preemptive or other
similar rights; the Preferred Stock and the Common Stock conform in all
material respects to all statements relating thereto contained in the
Prospectus; the certificates for the Securities are in due and proper form; and
the holders of the Securities will not be subject to personal liability by
reason of being such holders.
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<PAGE> 6
The reverse stock split described in the Prospectus has been effected in
compliance with all applicable laws.
(xi) This Agreement has been duly authorized, executed and
delivered by the Company.
(xii) Neither the Company nor any of its subsidiaries nor any
Affiliated Entity is in violation of its respective charter or limited
partnership agreement, as applicable, or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, loan agreement or note or in any material
contract, lease or other instrument to which it is a party or by which it may
be bound, or to which any of its property or assets is subject; the
consummation of the transactions contemplated herein and by the Pricing
Agreement has been duly authorized by the Company by all necessary corporate
action and the issuance, sale and delivery of the shares of Preferred Stock to
be issued and sold by the Company, the issuance of Common Stock on conversion
of the Preferred Stock, and the execution, delivery and performance of this
Agreement by the Company will not conflict with or constitute a breach of, or
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, any of its subsidiaries
or any Affiliated Entity pursuant to, any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Company, any of its
subsidiaries or any Affiliated Entity is a party or by which it or any of them
may be bound, or to which any of the property or assets of the Company, any of
its subsidiaries or any Affiliated Entity is subject, nor will such action
result in any violation of the provisions of the charter or by-laws of the
Company or of any of its subsidiaries or the limited partnership agreement of
any Affiliated Entity, or any applicable law, administrative regulation or
administrative or court decree. The partnership agreement of each Affiliated
Entity is in full force and effect.
(xiii) No labor dispute with the employees of the Company or
of any of its subsidiaries or of any Affiliated Entity exists or, to the
knowledge of the Company, is imminent.
(xiv) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending or, to
the knowledge of the Company, threatened, against or affecting the Company or
any of its subsidiaries or any Affiliated Entity, which is required to be
disclosed in the Registration Statement (other than as disclosed therein), or
which, considered singly or in the aggregate, may result in any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its subsidiaries,
considered as one enterprise, or of the Affiliated Entities, considered as one
enterprise, or which may materially and adversely affect the properties or
assets of
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<PAGE> 7
the Company and its subsidiaries, considered as one enterprise, or of the
Affiliated Entities, considered as one enterprise, or which may adversely
affect the consummation of this Agreement or the Pricing Agreement; all pending
legal or governmental proceedings to which the Company or any subsidiary or
Affiliated Entity is a party or of which any of their respective property or
assets is the subject which are not described in the Registration Statement,
including ordinary routine litigation incidental to the business, are,
considered in the aggregate, not material; and there are no contracts or
documents of the Company or of any of its subsidiaries or of any Affiliated
Entity which are required to be filed as exhibits to the Registration Statement
by the 1933 Act or by the 1933 Act Regulations which have not been so filed.
(xv) The Company owns or possesses the licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names (collectively, "Intellectual
Property") employed by the Company, its subsidiaries or the Affiliated Entities
in connection with the businesses now operated by them, except for situations
in which the failure to own or possess any such intellectual property would not
have a material adverse effect on the condition, financial or otherwise, or on
the earnings, business affairs or business prospects of the Company and its
subsidiaries, considered as on enterprise, or of the Affiliated Entities,
considered as one enterprise, and neither the Company nor any of its
subsidiaries nor any Affiliated Entity has received any notice of infringement
of or conflict with asserted rights of others with respect to any of the
foregoing which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries, considered as one
enterprise, or of the Affiliated Entities, considered as one enterprise.
(xvi) No authorization, approval or consent of any court or
governmental authority or agency is necessary in connection with the sale of
the Securities hereunder, except such as may be required under the 1933 Act or
the 1933 Act Regulations, which qualification has been obtained, or state and
foreign securities laws.
(xvii) The Company and its subsidiaries and the Affiliated
Entities possess such certificates, authorizations or permits as are necessary
to conduct the business now operated by them, and neither the Company nor any
of its subsidiaries nor any Affiliated Entity has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition, financial or
-7-
<PAGE> 8
otherwise, or the earnings, business affairs or business prospects of the
Company and its subsidiaries, considered as one enterprise, or of any
Affiliated Entity.
(xviii) All United States federal income tax returns of the
Company and of each of its subsidiaries and of each Affiliated Entity required
by law to be filed have been filed and all taxes shown by those returns or
otherwise assessed which are due and payable have been paid, except assessments
against which appeals have been or will be promptly taken. The United States
federal income tax returns of the Company and its subsidiaries on a
consolidated basis and of each Affiliated Entity through its latest completed
fiscal year have been filed and no assessment in connection therewith has been
made against the Company or any subsidiary or Affiliated Entity. The Company
and its subsidiaries and the Affiliated Entities have filed all other tax
returns which are required to have been filed by them pursuant to applicable
state, local or other law and have paid all taxes due pursuant to said returns
or pursuant to any assessment received by the Company or its subsidiaries or
any Affiliated Entity, except for such taxes, if any, as are being contested in
good faith and as to which adequate reserves have been provided. The charges,
accruals and reserves on the consolidated books of the Company in respect of
any income and corporation tax liability and on the books of each Affiliated
Entity for any years not finally determined are adequate to meet any
assessments or re-assessments for additional income tax for any years not
finally determined, except to the extent of any inadequacy which would not have
a material adverse effect on the condition, financial or otherwise, or on the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise or on any Affiliated Entity. Each of
the Affiliated Entities has, since its formation, been properly treated for
purposes of the Code and applicable state law as a partnership and not as an
association taxable as a corporation or a "publicly traded partnership" within
the meaning of Section 7704(b) of the Code.
(xix) The Company and its subsidiaries maintain, and each
Affiliated Entity maintains, a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are executed
in accordance with management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (C) access to assets is permitted only in
accordance with management's general or specific authorization, and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
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<PAGE> 9
(xx) There are no holders of securities (debt or equity) of
the Company or of any of its subsidiaries or of any Affiliated Entity, or
holders of rights, options or warrants to obtain securities of the Company or
of any of its subsidiaries or of any Affiliated Entity, who, by reason of the
filing of the Registration Statement under the 1933 Act, have the right to
request the Company or any of its subsidiaries or any Affiliated Entity to
register any security under the 1933 Act. The Company and its subsidiaries and
the Affiliated Entities have complied in all material respects with all of the
terms of any of their outstanding agreements relating to the rights of any
holder of securities to have securities registered under the Registration
Statement. Except as described in the Prospectus, there are no outstanding
options, warrants or other rights that may require the issuance of, and there
are no commitments, plans or arrangements to issue, any shares of Preferred
Stock or Common Stock or any security convertible into or exchangeable or
exercisable for any shares of Preferred Stock or Common Stock.
(xxi) The Company, its subsidiaries and the Affiliated
Entities have good title to all properties owned by them, in each case free and
clear of all liens, encumbrances and defects except for (A) those items that do
not materially interfere with the use made and proposed to be made of such
properties, and (B) the mortgage liens and other items described in the
Registration Statement.
(xxii) Except as disclosed in the Registration Statement, the
Company, its subsidiaries and the Affiliated Entities are in compliance with
all applicable federal, state and local laws and regulations relating to
protection of human health or the environment or imposing liability or
standards of conduct concerning any Hazardous Material (as hereinafter defined)
("Environmental Laws"), except, in each case, where any noncompliance, singly
or in the aggregate, would not have a material and adverse effect on the
condition, financial or otherwise, or the earnings or business affairs of the
Company, any subsidiary or any Affiliated Entity. The term "Hazardous
Material" means (A) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, (B)
any "hazardous waste" as defined by the Resource Conservation and Recovery Act,
as amended, (C) any petroleum or petroleum product, (D) any polychlorinated
biphenyl, and (E) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material, waste or substance regulated under or within the meaning of
any other Environmental Law.
(xxiii) There is no alleged liability, or to the best
knowledge and information of the Company, potential liability (including,
without limitation, alleged or potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) of the Company, any subsidiary or any
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<PAGE> 10
Affiliated Entity arising out of, based on or resulting from (A) the presence
or release into the environment of any Hazardous Material at any location at
which the Company, any of its subsidiaries or any Affiliated Entity has
previously conducted or is currently conducting any business (whether or not
owned by the Company, any subsidiary or any Affiliated Entity) or has
previously owned or currently owns any property, or, (B) any violation or
alleged violation of any Environmental Law, (x) which alleged or potential
liability is required to be disclosed in the Registration Statement, other than
as disclosed therein, or (y) which alleged or potential liability, singly or in
the aggregate, would have a material and adverse effect on the condition,
financial or otherwise, or the earnings or business affairs of the Company, any
of its subsidiaries or any Affiliated Entity.
(xxiv) Each of the Initial Hotels complies in all material
respects with all applicable codes and zoning laws and resolutions, and there
is no pending or, to the knowledge of the Company or any Affiliated Entity,
threatened condemnation, zoning change, or other proceeding or action that will
in any manner affect the size of, use of, improvements on, construction on, or
access to any Initial Hotel. The improvements comprising any portion of any
Initial Hotel's property (the "Improvements") are free of any and all material
physical, mechanical, structural, design and construction defects which would,
singly or in the aggregate, have a material adverse effect on that hotel's
property and the mechanical, electrical and utility systems servicing the
Improvements (including, without limitation, all water, electric, sewer,
plumbing, heating, ventilation, gas and air conditioning) are in good condition
and proper working order and are free of defects (for which provision to repair
has not been made) which would, singly or in the aggregate, have a material
adverse effect on that hotel's property.
(xxv) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(xxvi) The Company, each of its subsidiaries and each
Affiliated Entity maintains reasonably adequate insurance with respect to its
properties and business against loss or damage of the kinds customarily insured
against by corporations of established reputation engaged in the same or
similar businesses and similarly situated, of such types and in such amounts as
are customarily carried under similar circumstances by such other corporations.
(xxvii) The shares of Common Stock outstanding prior to the
Representation Date have not been listed on any securities exchange. The
shares of freely tradeable Common Stock outstanding prior to the Representation
Date will be listed on the National Association of Securities Dealers Automated
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<PAGE> 11
Quotation National Market System ("NASDAQ NMS") no later than the next trading
day after the Representation Date. The shares of Preferred Stock to be issued
and sold by the Company pursuant to this Agreement and 4,166,667 shares of
Common Stock issuable on conversion of the Preferred Stock will at the Closing
Time be duly authorized for listing on the NASDAQ NMS, subject only to official
notice of issuance.
(xxviii) The Company has furnished the Representatives
letters from each of the executive officers and directors of the Company
pursuant to which such persons have agreed during a period of 180 days from the
date hereof that, without the prior written consent of McDonald, such persons
will not sell, offer to sell, contract to sell, or otherwise dispose of,
directly or indirectly, any shares of Preferred Stock, any other equity
security of the Company, or any security convertible into or exchangeable or
exercisable for shares of Preferred Stock or Common Stock, beneficially owned
by such person or with respect to which such person has the power of
disposition, other than as bona fide gifts.
(xxix) The purchase agreements (the "Purchase Agreements")
pursuant to which the Company will acquire the interests in the Initial Hotels
to be acquired in the Purchase Transactions (those hotels, the "Acquired
Hotels") have been duly authorized, executed and delivered by the Company and
the other parties thereto. The Purchase Agreements and all deeds, assignments
of partnership interests, assignments of leases and other documents delivered
or to be delivered in connection therewith are legally sufficient to effect the
transfer to the Company of all right, title and interest in and to the Acquired
Hotels upon payment of the consideration therefor. Within two business days
after the sale of the Initial Securities at the Closing Time, the Company will
have good and marketable title in fee simple absolute to all real property and
good and marketable title to each of the items of personal property which are
included in the Acquired Hotels or are referred to in the Registration
Statement and the Prospectus or are reflected in the financial statements
referred to herein as being owned by any of them, and will have valid
and enforceable leasehold interests in each of the items of real and
personal property which are included in the Acquired Hotels or are referred to
in the Registration Statement and the Prospectus as being leased by any of
them, in each case free and clear of all liens, claims, security interests, and
other encumbrances except such as are immaterial.
(xxx) Other than this Agreement and as set forth in the
Prospectus under the heading "Underwriting," there are no contracts, agreement
or understandings between the Company and any person that would give rise to a
valid claim against the Company or any Underwriter for a brokerage commission,
finder's
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<PAGE> 12
fee or other like payment with respect to the consummation of the transactions
contemplated by this Agreement.
(xxxi) Except as described in the Prospectus or the
Registration Statement, the Company has not sold or issued any equity security
during the six-month period preceding the date of the Prospectus, including any
sales pursuant to Rule 144A or Regulation D or S, under the 1993 Act.
(xxxii) No relationship, direct or indirect, exists between
or among the Company on the one hand, and the directors, officers or
stockholders of the Company on the other hand, which is required to be
described in the Prospectus which is not so described.
(xxxiii) The Company and its subsidiaries and each
Affiliated Entity are in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974,
as amended, including the regulations and published interpretations thereunder
("ERISA"); no "reportable event" (as defined in ERISA) has occurred with
respect to any "pension plan" (as defined in ERISA) for which the Company or
any such subsidiary or Affiliated Entity would have any liability; neither the
Company, any such subsidiary or any Affiliated Entity has incurred nor does it
expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Section 412 or
4971 of the Code, as amended, including the regulations and published
interpretations thereunder, and each "pension plan" for which the Company or
any such subsidiary or Affiliated Entity would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified in
all material respect and nothing has occurred, whether by action or by failure
to act, which would cause the loss of such qualification.
(xxxiv) All information supplied, delivered or made available
to any Underwriter or to counsel to the Underwriters by the Company or its
agents, during the course of the Underwriters' review of the Company, the
Affiliated Entities and the Initial Hotels, including without limitation all
information supplied, delivered or made available to any Underwriter or to
counsel to the Underwriters prior to the Closing Time is (or was at the time
such information was supplied, delivered or made available) true, correct and
complete.
(b) Any certificate signed by an officer of the Company and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to each Underwriter as to
the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
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(a) On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to each Underwriter, and each Underwriter, severally
and not jointly, agrees to purchase from the Company, at the price agreed upon
by the Representatives and the Company as set forth in the Pricing Agreement,
the number of shares of Preferred Stock set forth in Schedule A opposite the
name of such Underwriter (except as otherwise provided in the Pricing
Agreement).
(i) If the Company has elected not to rely upon Rule 430A
under the 1933 Act Regulations, the initial public offering price of the
Securities and the purchase price of the Securities to be paid by the several
Underwriters shall be agreed upon and set forth in the Pricing Agreement, dated
the date hereof, and an amendment to the Registration Statement and the
Prospectus will be filed before the Registration Statement becomes effective.
(ii) If the Company has elected to rely upon Rule 430A
under the 1933 Act Regulations, the initial public offering price of the
Securities and the purchase price of the Securities to be paid by the several
Underwriters shall be determined by agreement among the Representatives and the
Company and set forth in the Pricing Agreement. In the event that such prices
have not been agreed upon and the Pricing Agreement has not been executed and
delivered by all parties thereto by the close of business on the fourth
business day following the date of this Agreement, this Agreement shall
terminate forthwith, without liability of any party to any other party, unless
otherwise agreed to by the Company and the Representatives.
(b) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Underwriters, severally and
not jointly, to purchase up to 300,000 shares of Preferred Stock at the price
per share set forth in the Pricing Agreement. The option hereby granted will
expire 30 days after (i) the date the Registration Statement becomes effective,
if the Company has elected not to rely on Rule 430A under the 1933 Act
Regulations or (ii) the date of the Pricing Agreement, if the Company has
elected to rely on Rule 430A under the 1933 Act Regulations, and may be
exercised in whole or in part from time to time (but not more than twice) only
for the purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Initial Securities upon notice by the
Representatives to the Company setting forth the number of Option Securities as
to which the several Underwriters are then exercising the option and the time
and date of payment and delivery for such Option Securities. Any such time and
date of payment (a "Date of Delivery") shall be determined by the
Representatives, but shall not be later than seven full Business Days after the
exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined,
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unless otherwise agreed by the Representatives and the Company. If the option
is exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that proportion
of the total number of Option Securities then being purchased which the number
of Initial Securities set forth in Schedule A opposite the name of such
Underwriters bears to the total number of Initial Securities (except as
otherwise provided in the Pricing Agreement), subject in each case to such
adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares.
(c) Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
McDonald &: Company Securities, Inc., McDonald Investment Center, Cleveland,
Ohio or at such other place as shall be agreed upon by the Representatives and
the Company, at 10:00 A.M. on the third business day (unless postponed in
accordance with the provisions of Section 10) following the date the
Registration Statement becomes effective (or, if the Company has elected to
rely upon Rule 430A, the third business day after execution of the Pricing
Agreement), or such other time not later than ten business days after such date
as shall be agreed upon by the Representatives and the Company (such time and
date of payment and delivery being herein called the "Closing Time"); provided,
however, that if the Registration Statement becomes effective later than 4:30
p.m., Eastern Time, on any date, then, subject to the foregoing, the Closing
Time shall be the fourth business day thereafter (or, if the Company has
elected to rely upon Rule 430A, and the Pricing Agreement is not executed until
after 4:30 p.m., Eastern Time, on any date, the fourth business day after
execution of the Pricing Agreement). In addition, in the event that any or all
of the Option Securities are to be purchased by the Underwriters, payment of
the purchase price for, and delivery of certificates for, such Option
Securities shall be made at the above-mentioned offices of McDonald & Company
Securities, Inc., or at such other place as shall be agreed upon by the
Representatives and the Company on each Date of Delivery as specified in the
notice from the Representatives to the Company. Payment shall be made to the
Company by wire transfer of immediately available funds to the account
designated by the Company, against delivery of the Securities to the
Underwriters. The certificates representing Securities shall be in such
denominations and registered in such names as the Representatives may request
in writing at least two business days before the Closing Time. It is
understood that each Underwriter has authorized the Representatives, for their
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Securities which it has agreed to purchase. The Representatives
may (but shall not be obligated to) make payment of the purchase price for the
Securities to be purchased by any Underwriter whose check has not been received
by the Closing Time, but such payment shall not relieve such Underwriter from
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its obligations hereunder. The Securities will be made available for
examination and packaging by the Underwriters not later than 10:00 A.M. on the
last business day prior to the Closing Time at such place as the Underwriters
may designate in New York, New York.
SECTION 3. Covenants of the Company. The Company
covenants with each Underwriter as follows:
(a) The Company will notify the Underwriters immediately, and
confirm the notice in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-effective amendment),
(ii) of the receipt of any comments from the Commission, (iii) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose or the suspension of the qualification of the
Securities for offering or sale, in any jurisdiction, or the threatening or
initiation of any proceeding for that purpose. The Company will make every
reasonable effort to prevent the issuance of any stop order or any order
preventing or suspending the use of any preliminary prospectus or suspending
such qualification and, if any stop order or any order preventing or suspending
the use of any preliminary prospectus or suspending such qualification is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) The Company will give the Underwriters notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the prospectus on file with the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the 1933 Act Regulations), will furnish
the Underwriters with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file any such amendment or supplement or use any such prospectus
without the prior written consent of the Underwriters.
(c) The Company will deliver to the Underwriters two signed copies
of the Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith or incorporated by reference therein) and
will also deliver to the Underwriters conformed copies of the Registration
Statement as originally filed and of each amendment thereto (without exhibits).
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<PAGE> 16
(d) The Company will furnish to each Underwriter, from time to
time during the period when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as
amended or supplemented) as such Underwriter may reasonably request for the
purposes contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act
or the 1934 Act Regulations.
(e) If any event shall occur as a result of which counsel for the
Company and counsel for the Underwriters mutually agree that it is necessary to
amend or supplement the Prospectus in order to make the Prospectus not
misleading in light of the circumstances existing at the time it is delivered
to a purchaser or if for any other reason it shall be necessary to amend or
supplement the Prospectus in order to comply with the 1933 Act, the 1933 Act
Regulations, the 1934 Act or the 1934 Act Regulations, the Company will
forthwith amend or supplement the Prospectus (in form and substance mutually
satisfactory to counsel for the Underwriters and counsel for the Company and in
compliance with the 1933 Act and the 1933 Act Regulations) so that, as so
amended or supplemented, the Prospectus will not include an untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances existing at the time it is
delivered to a purchaser, not misleading and will comply with the 1933 Act, the
1933 Act Regulations, the 1934 Act and the 1934 Act Regulations, and the
Company will furnish to the Underwriters a reasonable number of copies of such
amendment or supplement.
(f) The Company will endeavor, in cooperation with the
Underwriters, to qualify the Securities for offering and sale under the
applicable securities laws of such states and other jurisdictions of the United
States as the Representatives may designate; provided, however, that the
Company shall not be obligated to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified. In each jurisdiction in which
the Securities have been so qualified, the Company will file such statements
and reports as may be required by the laws of such jurisdiction to continue
such qualification in effect, for a period of not less than one year from the
effective date of the Registration Statement.
(g) The Company will make generally available to its security
holders as soon as practicable, but not later than 90 days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month
period beginning on the first day of the Company's fiscal quarter next
following the fiscal quarter in which the "effective date" (as defined in said
Rule 158) of the Registration Statement occurs.
(h) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in
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<PAGE> 17
reliance upon Rule 430A of the 1933 Act Regulations, then immediately following
the execution of the Pricing Agreement, the Company will prepare, and file or
transmit for filing with the Commission in accordance with such Rule 430A and
Rule 424(b) of the 1933 Act Regulations, copies of an amended Prospectus, or,
if required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted.
(i) The Company, during the period when the Prospectus is required to
be delivered under the 1933 Act, will file all documents required to be filed
with the Commission pursuant to Section 13, 14 or 15 of the 1934 Act within the
time periods required by the 1934 Act and the 1934 Act Regulations.
(j) The Company will effect the listing of the Preferred Stock issued
and sold pursuant to this Agreement on the NASDAQ NMS.
(k) During a period of 180 days from the date hereof, the Company
will not, without the prior written consent of McDonald, sell, offer to sell,
contract to sell, or otherwise dispose of, directly or indirectly, any shares
of Preferred Stock or Common Stock, any other equity security of the Company or
any security convertible into or exchangeable or exercisable for Preferred
Stock or Common Stock (except for shares of Preferred Stock issued pursuant to
this Agreement and the Pricing Agreement, the grant of options or the issuance
of shares of Common Stock upon the exercise of outstanding options under the
Company's existing stock option plans, in each case as described in the
Prospectus).
(1) The Company will use all commercially reasonable efforts to do
and perform all things required or necessary to be done and performed by it
under this Agreement prior to the Closing Time and will satisfy all conditions
precedent to the delivery of the Securities.
SECTION 4. Payment of Expenses. The Company will pay
all expenses incident to the performance of its obligations under this
Agreement, including those associated with (i) the printing and filing and
delivery to the Underwriters of copies of the Registration Statement as
originally filed and of each amendment thereto, during the period specified in
Section 3(d) hereof (excluding any fees, costs or expenses of counsel to the
Underwriters), (ii) the printing of this Agreement and the Pricing Agreement,
(iii) the preparation, issuance and delivery of the certificates for the
Securities to the Underwriters, (iv) the fees and disbursements of the
Company's counsel and accountants, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the fees and disbursements of counsel for the
Underwriters in connection therewith and in connection with the preparation of
the Blue Sky Survey, (vi) the
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<PAGE> 18
printing and delivery to the Underwriters of copies of the Registration
Statement as originally filed and each amendment thereto, of the preliminary
prospectuses, and of the Prospectus and any amendments or supplements thereto,
(vii) the printing and delivery to the Underwriters of the Blue Sky Survey,
(viii) the fees and expenses of the Company's transfer agent, (ix) the fee of
the National Association of Securities Dealers, Inc. and (x) the fees and
expenses incurred in connection with the listing of the Securities on the
NASDAQ NMS.
If this Agreement is terminated by the Representatives in accordance
with the provisions of Section 5 or Section 9(a)(i), the Company shall
reimburse the Underwriters for all of their out-of-pocket expenses relating to
the transactions contemplated hereby, including the reasonable fees and
disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations.
The obligations of the Underwriters hereunder are subject to the accuracy of
the representations and warranties of the Company herein contained, to the
performance by the Company of its obligations hereunder, and to the following
further conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M. on the date hereof, or with the consent of the
Representatives, at a later time and date, not later, however, than 5:30 P.M.
on the first business day following the date hereof, or at such later time and
date as may be approved by the Underwriters and at the Closing Time no stop
order suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act or proceedings therefor initiated or threatened
by the Commission. If the Company has elected to rely upon Rule 430A of the
1933 Act Regulations, the price of the Securities and any price related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the 1933 Act Regulations within the
prescribed time period, and prior to Closing Time, the Company shall have
provided evidence satisfactory to McDonald that such timely filing, or a
post-effective amendment containing price related information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the 1993 Act Regulations.
(b) At the Closing Time the Underwriters shall have received:
(i) An opinion, dated the Closing Time, of counsel for
the Company and its subsidiaries and the Affiliated Entities, substantially
in the form set forth on Annex I attached hereto, and
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(ii) An opinion, dated the Closing Time, of Baker &
Hostetler LLP, counsel for the Underwriters, in form and substantially
satisfactory to the Underwriters.
In giving their opinions required by subsections (i) and (ii),
respectively, of this section 5, counsel for the Company and Baker & Hostetler
LLP shall each additionally state that although such counsel has not
undertaken to determine independently the accuracy, completeness and
fairness of the information contained in the Registration Statement or in
the Prospectus and takes no responsibility therefor, such counsel has
participated in discussions and meetings with officers and other
representatives of the Company and discussions with the auditors for the
Company in connection with the preparation of the Registration Statement and
the Prospectus, and that nothing has come to such counsel's attention that has
caused such counsel to believe that the Registration Statement, at the time it
became effective, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or required in order to
make the statements therein not misleading, or that the Prospectus, at the
Closing Time, contained any untrue statement of a material fact or omitted to
state a material fact required in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that in each case such counsel need not express any opinion or belief with
respect to the financial or statistical statements or other financial data
contained in the Registration Statement or the Prospectus.
(c) At the Closing Time, there shall not have been, since the date
hereof or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its Subsidiaries, considered as one
enterprise, or in the Affiliated Entities, considered as one enterprise,
whether or not arising in the ordinary course of business, and the Underwriters
shall have received a certificate of the Chairman and Chief Executive Officer
of the Company and the chief financial or chief accounting officer of the
Company, dated as of the Closing Time, to the effect that (A) there has been no
such material adverse change, (B) the representations and warranties in Section
1 are true and correct with the same force and effect as though expressly made
at and as of the Closing Time, (C) the Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied at or
prior to the Closing Time, and (D) no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been initiated or threatened by the Commission.
(d) On the date of the execution of this Agreement, the
Underwriters shall have received from KPMG Peat Markwick, LLP,
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independent certified public accountants, a letter dated such date, in form and
substance previously approved by the Representatives, with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(e) At the Closing Time, the Underwriters shall have received from
KPMG Peat Markwick, LLP,, independent certified public accountants, a letter,
dated as of Closing Time, to the effect that they reaffirm the statements made
in the letter furnished pursuant to subsection (d) of this Section, except that
the review cutoff date referred to in the Closing Time letter shall be a date
not more than five days prior to the Closing Time.
(f) At the Closing Time, the Representatives shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling counsel for the Underwriters to pass upon the issuance
and sale of the Securities as herein contemplated and related proceedings, or
in order to evidence the accuracy of any of the representations or warranties,
or the fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company in connection with the issuance and sale of
the Securities as herein contemplated and in connection with the Purchase
Transactions shall be reasonably satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
(g) At the time of the execution of this Agreement, the
Representatives shall have received from each of the executive officers and
directors of the Company a letter in which each such person agrees during a
period of 180 days from the date hereof, that such person will not, without the
prior written consent of McDonald, sell, offer to sell, contract to sell, or
otherwise dispose of, directly or indirectly, any shares of Common Stock, any
other equity security of the Company or any security convertible into or
exchangeable or exercisable for shares of Common Stock, beneficially owned by
such person or with respect to which such person has the power of disposition,
other than as bona fide gifts.
(h) In the event that the Underwriters exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the Option
Securities, the representations and warranties of the Company contained herein
and the statements in any certificates furnished by the Company hereunder shall
be true and correct as of each Date of Delivery and, at the relevant Date of
Delivery, the Representatives shall have received:
(i) A certificate, dated such Date of Delivery, of the
Chairman and Chief Executive officer of the Company and of the chief financial
or chief accounting officer of the Company confirming that the certificate
delivered at the Closing Time
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pursuant to Section 5 (c) hereof remains true and correct as of such Date of
Delivery.
(ii) An opinion, dated such Date of Delivery, of counsel
for the Company and its Subsidiaries, substantially in the form set forth on
Annex I attached hereto.
(iii) An opinion, dated such Date of Delivery, of Baker &
Hostetler LLP, counsel for the Underwriters, in form and substance reasonably
satisfactory to the Underwriters.
(iv) A letter from KPMG Peat Markwick, LLP, in form and
substance satisfactory to the Representatives and dated such Date of Delivery,
substantially the same in form and substance as the letter furnished to the
Underwriters pursuant to Section 5(e) hereof, except that the review cutoff
date in the letter furnished pursuant to this Section 5(h)(vi) shall be a date
not more than five days prior to such Date of Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Representatives by notice to the Company at any time at or
prior to Closing Time, and such termination shall be without liability of any
party to any other party except as provided in Section 4. Notwithstanding any
such termination, the provisions of Sections 6 and 7 shall remain in effect.
SECTION 6. Indemnification. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act, and
each officer and director of each Underwriter and any such controlling person
to the extent and in the manner set forth as follows:
(i) against any and all loss, liability, claim, damage,
and expense whatsoever, as incurred, arising out of anyuntrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto) including the information deemed to be
part of the Registration Statement pursuant to Rule 430A(b) of the 1933 Act
regulations, if applicable, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
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(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or arising from any investigation or proceeding
by any governmental agency or body, commenced or threatened, or arising from
any claim whatsoever based upon such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with the
written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including, subject to Section 6(c) hereof, the fees and disbursements of
counsel chosen by the Underwriters), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by a governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense not
paid under (i) or (ii) above; but this indemnity agreement shall not apply (A)
to any loss, liability, claim, damage or expense to the extent arising out of
any untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives expressly for use in the
Registration Statement or Prospectus and (B) with respect to the Prospectus or
any preliminary prospectus to the extent that any loss, liability, claim,
damage or expense results from the fact that such Underwriter sold Securities
to a person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus (and any amendment or
supplement thereto) in any case where such delivery is required by the 1933 Act
if the Company timely furnished copies thereof to such Underwriter and the
loss, liability, claim, damage or expense results from an untrue statement or
omission of a material fact contained in the Prospectus or any preliminary
prospectus which was corrected in the Prospectus (or any amendment or
supplement thereto).
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) in reliance upon and
in conformity with written information furnished to the Company by such
Underwriter through the Representatives expressly for use in the Registration
Statement (or any amendment thereto) or such
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<PAGE> 23
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) Each indemnified party shall give notice as promptly
as reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying party
from any liability which it may have otherwise than on account of this
indemnity agreement. An indemnifying party may participate at its own expense
in the defense of any such action. In no event shall the indemnifying parties
be liable for fees and expenses (which fees and expenses shall be reasonable)
of more than one counsel (in addition to any local counsel) separate from their
own counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances; but if an indemnified party
shall have been advised in writing by counsel selected to represent the
indemnified parties that an actual or potential conflict of interest exists
between the position of that indemnified party and other indemnified parties,
that indemnified party shall have the right to select separate counsel to
participate in the defense of such action on behalf of that indemnified party,
and the indemnifying parties shall be responsible for the reasonable fees and
expenses of such separate counsel.
SECTION 7. Contribution. If the indemnification
provided for in Section 6 is unavailable or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), as incurred, in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other from the offering of the Preferred
Stock. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party, as
incurred, in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand
and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the
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<PAGE> 24
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and the opportunity to
correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contributions were determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the equitable
considerations referred to above. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to above shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Preferred Stock underwritten by it and distributed to the public was offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute are
several in proportion to their respective underwriting obligations and not
joint.
SECTION 8. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties and agreements contained in
this Agreement and the Pricing Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall remain operative and
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or controlling person, or by or on behalf of the Company,
and shall survive delivery of the Securities to the Underwriters.
SECTION 9. Termination of the Agreement.
(a) The Representatives may terminate this Agreement, by notice to the
Company, at any time at or prior to Closing Time (i) if there has been, since
the date of this Agreement or since the respective dates as of which
information is given in the Registration Statement, any material adverse change
in the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries
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<PAGE> 25
considered as one enterprise, or in the Affiliated Entities, considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States, or any new outbreak of hostilities or material escalation
thereof or other calamity or crisis, the effect of which is to make it, in the
judgment of the Representatives, impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading in the
Preferred Stock or the Common Stock has been suspended by the Commission, or if
trading generally on either the New York Stock Exchange, the American Stock
Exchange or the NASDAQ National Market System has been suspended, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by any of said exchanges or system or by order
of the Commission or any other governmental authority, or if a banking
moratorium has been declared by either federal, New York or Ohio authorities.
(b) If this Agreement is terminated pursuant to this Section 9,
such termination shall be without liability of any party to any other party
except as provided in Section 4. Notwithstanding any such termination, the
provisions of Sections 6 and 7 shall remain in effect.
SECTION 10. Default by One or More of the Underwriters.
If one or more of the Underwriters shall fail at Closing Time to purchase the
Initial Securities which it or they are obligated to purchase under this
Agreement and the Pricing Agreement (the "Defaulted Securities"), the
Representatives shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the nondefaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representatives shall not have completed such
arrangements with such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the number of Initial Securities, the nondefaulting Underwriters shall be
obligated to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all nondefaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Initial Securities, this Agreement shall terminate without liability
on the part of any nondefaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
-25-
<PAGE> 26
In the event of any such default which does not result in the
termination of this Agreement, either the Representatives or the Company shall
have the right to postpone the Closing Time for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements.
The Underwriters shall have the right to amend Schedule A hereto by
making such substitutions or corrections as are indicated in the Pricing
Agreement.
SECTION 11. Notices. All notices and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if mailed or transmitted by any standard form of telecommunications.
Notices to the Underwriters shall be directed in care of the Representatives at
McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio 44114,
attention: Victor Farris, Senior Managing Director, and notices to the Company
shall be directed to it at One Parkwood Crossing, 250 East 96th Street, Suite
450, Indianapolis, Indiana 46240, attention: John D. Bontreger, telecopy
number (317) 574-7396.
SECTION 12. Parties. This Agreement and the Pricing
Agreement shall each inure to the benefit of and be binding upon the
Underwriters and the Company and their respective successors. Nothing
expressed or mentioned in this Agreement or the Pricing Agreement is intended
or shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or the Pricing Agreement or any
provision herein and therein contained. This Agreement and the Pricing
Agreement and all conditions and provisions hereof and thereof are intended to
be for the sole and exclusive benefit of the Underwriters and the Company and
their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No Purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason of such purchase.
SECTION 13. Governing Laws and Time. This Agreement and
the Pricing Agreement shall be governed by and construed in accordance with the
internal laws of the State of Ohio without giving effect to principles of
conflict of laws. Specified times of day refer to the time in Cleveland, Ohio.
As used herein, the term "business day" means any day on which the NASDAQ
National Market System is open for business.
-26-
<PAGE> 27
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its
terms.
Very truly yours,
SIGNATURE INNS, INC.
By:_______________________
Name:
Title:
-27-
<PAGE> 28
CONFIRMED AND ACCEPTED
as of the date first above written:
McDONALD & COMPANY SECURITIES, INC.
J.C. BRADFORD & CO.
THE OHIO COMPANY
BY: McDONALD & COMPANY SECURITIES, INC.
By: ____________________________
Name:
Title:
For themselves and as Representatives of the
other Underwriters in Schedule A hereto.
-28-
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
Number
Of Shares
Underwriters To Be Purchased
- ------------ ---------------
<S> <C>
McDonald & Company Securities, Inc. 434,000
J.C. Bradford & Co. 433,000
The Ohio Company 433,000
City Securities Corp. 70,000
Crowell, Weedon & Co. 70,000
Friedman, Billings, Ramsey & Co., Inc. 70,000
Morgan Keegan & Co., Inc. 70,000
NatCity Investments, Inc. 70,000
Raymond James & Associates, Inc. 70,000
Roney & Co., LLC 70,000
Sutro & Co. 70,000
Traub & Co. Inc. 70,000
Tucker Anthony Inc. 70,000
TOTAL 2,000,000
</TABLE>
<PAGE> 30
EXHIBIT A
2,000,000 Shares
SIGNATURE INNS, INC.
(an Indiana corporation)
Preferred Stock
(No Par Value)
PRICING AGREEMENT
January 20, 1997
McDONALD & COMPANY SECURITIES, INC.
J.C. BRADFORD & CO.
THE OHIO COMPANY
as Representatives of the Several Underwriters
c/o McDonald & Company Securities, Inc.
McDonald Investment Center
Cleveland, Ohio 44114
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated
January 20, 1997 (the "Underwriting Agreement"), relating to the purchase by
the several Underwriters named in Schedule A thereto, for whom McDonald &
Company Securities, Inc., J.C. Bradford & Co. and The Ohio Company are acting
as representatives, of the above shares of the Preferred Stock, no par value,
of Signature Inns, Inc. (the "Company").
Pursuant to Section 2 of the Underwriting Agreement, the
Company agrees with the Underwriters as follows:
1. The initial public offering price per share for the
Securities, determined as provided in said Section 2, is $20.
2. The purchase price per share for the Securities to be
paid by the several Underwriters is $18.60, being an amount equal to the
initial public offering price set forth above less $1.40 per share.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the
<PAGE> 31
Company a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement between the Underwriters and the
Company in accordance with its terms.
Very truly yours,
SIGNATURE INNS, INC.
By: _______________________
Name:
Title:
CONFIRMED AND ACCEPTED
as of the date first above written:
McDONALD & COMPANY SECURITIES, INC.
J.C. BRADFORD & CO.
THE OHIO COMPANY
BY: McDONALD & COMPANY SECURITIES, INC.
By: ____________________________
Name:
Title:
For themselves and as Representatives of the
other Underwriters in Schedule A to the
Underwriting Agreement.
-2-
<PAGE> 32
Annex I
Form of opinion of
Issuer's Counsel
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
--------------------
ARTICLES OF INCORPORATION
-------------------------
OF
--
SIGNATURE INNS, INC.
--------------------
Signature Inns, Inc., an Indiana corporation, (hereinafter referred to
as the "Corporation"), acting pursuant to the provisions of the Indiana Business
Corporation Law of 1986, as amended (hereinafter referred to as the "Act"),
hereby amends and restates its Articles of Incorporation, as follows:
ARTICLE I
---------
NAME
----
The name of the Corporation is Signature Inns, Inc..
ARTICLE II
----------
PURPOSES
--------
The purposes for which the Corporation is formed are:
SECTION 1. To administer, implement and manage a franchise program for
the licensing of others (including affiliated limited partnerships) to use the
Corporation's trade names, trademarks, service marks and proprietary information
in connection with the construction and operation of hotels and motels; and to
build, own, manage and operate hotels and motels under the Corporation's
distinctive trade names, trademarks, service marks and proprietary information,
or under other trade names, trademarks, service marks and proprietary
information.
SECTION 2. To acquire by purchase, exchange, lease, hire or otherwise,
and to hold, own, improve, develop, subdivide, plat, manage, operate, license,
lease as lessee, let as lessor, sell, convey, or mortgage, either alone or in
conjunction with other real estate of every kind, character and description, and
wheresoever situated, and any interest therein.
SECTION 3. To purchase, construct, fabricate, assemble, process, sell,
trade, distribute and otherwise deal in industrial, commercial, residential,
hotel or motel buildings, and buildings, and structures of every kind and
character, and all kinds of furnishings, fixtures, appliances, equipment,
accessories and other products and materials of every description.
<PAGE> 2
SECTION 4. To engage in a general investment business, including the
investment in, and the acquisition, holding and disposal of, and the dealing
with, property of every kind and character, real, personal or mixed, tangible
and intangible, and irrespective of location.
SECTION 5. To acquire by purchase, exchange, lease, hire or otherwise,
and to hold, mortgage, pledge, hypothecate, exchange, sell, deal with and
dispose of, alone or in syndicates or otherwise in conjunction with others,
stocks, bonds, notes, evidences of debt or ownership, contracts, options,
commodities, securities, and other personal property, tangible or intangible, of
every kind, character and description, wheresoever situated, and any interest
therein.
SECTION 6. To purchase, take, receive, subscribe for or otherwise
acquire, and to own, hold, vote, use, employ, sell, mortgage, lend, pledge or
otherwise dispose of, and to otherwise use and deal in and with, shares or other
interests in, or obligations of, other individuals, domestic or foreign
corporations, associations or partnerships, for whatever purpose or purposes
formed or operating, and direct or indirect obligations of any government,
state, territory, governmental district or any municipality or of any
instrumentality thereof.
SECTION 7. To acquire by purchase, exchange, lease, hire or otherwise,
all or any part of the goodwill, rights, property and business of any person,
entity, partnership, association, or corporation; to pay for the same in cash,
stock, bonds, or other obligations of the Corporation, or otherwise; to hold,
utilize, deal with in any manner, and dispose of the whole, or any part, of the
rights and property so acquired, and to assume in connection therewith any
liabilities of such person, entity, partnership, association, or corporation;
and to conduct in any lawful manner the whole, or any part, of the business thus
acquired.
SECTION 8. To make any guaranty, or act as surety with respect to any
obligation, stock, dividend, security, indebtedness, interest, contract or other
undertaking.
SECTION 9. To enter into any lawful arrangement for sharing profits,
union of interest, reciprocal association, partnership, joint venture, syndicate
or cooperative association with any corporation, association, partnership,
individual or other legal entity or group, for the carrying on of any business
which the Corporation is authorized to carry on, or any business or transaction
deemed necessary, convenient, expedient, or incidental to the carrying out of
any of the purposes or powers of the Corporation.
SECTION 10. To borrow or raise monies for any of the purposes of the
Corporation, and, from time to time, without limitation as to amount, to draw,
make, accept, endorse, execute and issue promissory notes, drafts, bills and
exchange, warrants, bonds, debentures and other negotiable or non-negotiable
instruments and evidences of indebtedness, and to secure the payment thereof,
and the interest thereon, by mortgage on, or pledge, conveyance or assignment in
trust of, the whole or any part of the assets of the Corporation, real, personal
or mixed, including contract rights, whether at the time owned or thereafter
acquired, and to sell, pledge or otherwise dispose of such securities or other
obligation of the Corporation for its corporate purposes.
2
<PAGE> 3
SECTION 11. To acquire by purchase, exchange or otherwise, and to hold,
sell, transfer, reissue or cancel the shares of its own capital stock, or any
securities or other obligations of the Corporation, in the manner and to the
extent now or hereafter permitted by the laws of the State of Indiana, except
that the Corporation shall not use its funds or other assets for the purchase of
its own shares of stock if the capital of the Corporation is or would thereby
become impaired, and except that shares of its own capital stock beneficially
owned by the Corporation shall not be voted directly or indirectly by the
Corporation.
SECTION 12. To enter into, make, perform and carry out, or cancel and
rescind, contracts and other obligations for any lawful purposes pertaining to
the business of the Corporation.
SECTION 13. To act in any state or nation, in which the Corporation may
lawfully act, as principal or as agent or representative for any individual,
association, corporation, or legal entity, respecting business which the
Corporation is authorized to transact.
SECTION 14. In general, to carry on all other business which is or may
be appropriately, expediently or conveniently carried on as a part of, or in
connection with, any of the foregoing purposes of the Corporation; to have the
capacity to act possessed by natural persons; and, subject to any limitations or
restrictions imposed by law or by these Articles of Incorporation to have and
exercise all of the general rights, privileges and powers permitted to be had
and exercised by the provisions of the Act.
SECTION 15. To perform all lawful acts permitted by the Act, as
amended, and any future Acts amendatory thereof or supplemental thereto.
SECTION 16. It is the intention that the purposes specified in the
foregoing clauses of this Article II shall, except where otherwise expressed in
said Article II, be in no wise limited or restricted by reference to or
inference from the terms of any clause of this or any other article in this
certificate, but that the purpose specified in each of the clauses of this
Article shall be regarded as independent purposes. It is also the intention that
the foregoing clauses shall be construed both as purposes and powers, and the
foregoing enumeration of specific powers shall not be held to limit or restrict
in any manner the general powers which the Corporation may have under the
present or future laws of the State of Indiana.
ARTICLE III
-----------
PERIOD OF EXISTENCE
-------------------
The period during which the Corporation shall continue is perpetual.
3
<PAGE> 4
ARTICLE IV
----------
RESIDENT AGENT AND PRINCIPAL OFFICE
-----------------------------------
SECTION 1. RESIDENT AGENT. The name and address of the Corporation's
Resident Agent for service of process is John D. Bontreger, 250 East 96th
Street, Suite 450, Indianapolis, Indiana 46240.
SECTION 2. PRINCIPAL OFFICE. The post office address of the principal
office of the Corporation is 250 East 96th Street, Suite 450, Indianapolis,
Indiana 46240.
ARTICLE V
---------
AUTHORIZED SHARES
-----------------
SECTION 1. NUMBER AND CLASSES OF SHARES:
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 18,509,862 shares, of which
13,509,862 shares shall be Common Stock and of which 5,000,000 shares shall be
Preferred Stock.
A. The number of authorized shares which the Corporation designates as
having par value is none.
B. The number of authorized shares which the Corporation designates as
without par value is 18,509,862.
ARTICLE VI
----------
TERMS OF AUTHORIZED SHARES
--------------------------
SECTION 1. DESIGNATION. The authorized shares of the Corporation shall
be of two classes and kinds; Common Stock and Preferred Stock, and further
series, designations, voting powers, preferences and relative participating,
optional or other special rights, and qualifications, limitations or
restrictions of each of the above classes of stock and other general provisions
relating thereto shall be as follows:
(a) COMMON STOCK. The Common Stock of the Corporation shall be
voting stock without par value and shall otherwise be issued subject
to the terms applicable to Common Stock of the Corporation as set
forth in this Article VI.
(b) PREFERRED STOCK. The Preferred Stock of the Corporation shall
be subdivided into such series and shall have such designations,
preferences, conversion rights, cumulative,
4
<PAGE> 5
relative, participating, optional or other rights, including voting
rights, qualifications, limitations or restrictions thereof as shall be
determined by the Board of Directors.
(I) SUB-CLASSIFICATIONS OF PREFERRED STOCK. The
Preferred Stock of the Corporation shall be comprised
of two sub-classifications, Cumulative
Preferred Stock and Non-Cumulative Preferred Stock,
each of which shall have such attributes,
designations, preferences, conversion rights,
cumulative, relative, participating, optional or
other rights, including, without limitation, voting
rights, qualifications, limitations, or restrictions
as shall be determined by the Board of Directors.
(II) CUMULATIVE PREFERRED STOCK.
(i) SERIES. The Cumulative Preferred Stock
may be issued from time to time in one or more
series. All shares of Cumulative Preferred Stock
shall be of equal rank and shall be identical, except
in respect of the matters that may be fixed by the
Board of Directors as hereinafter provided, and each
share of a series shall be identical with all other
shares of such series. Subject to the provisions of
Sections 1(b)(II)(ii) through 1(B)(II)(vi), both
inclusive, which provisions shall apply to all
Cumulative Preferred Stock, the Board of Directors
hereby is authorized to cause such shares to be
issued in one or more series and with respect to each
such series to determine and fix prior to the
issuance thereof (and thereafter, to the extent
provided in clause (B) of this Section) the
following:
(A) The designation of the series,
which may be by distinguishing number,
letter or title;
(B) The authorized number of shares
of the series, which number the Board of
Directors may (except where otherwise
provided in the creation of the series)
increase or decrease from time to time
before or after the issuance thereof (but
not below the number of shares thereof then
outstanding);
(C) The dividend rate or rates of
the series, including the means by which
such rates may be established (the "Annual
Dividend Rate");
(D) The date or dates from which
dividends shall accrue and be cumulative,
the initial dividend payment date (the
"Initial Dividend Date") and the dates on
which and the period or periods for which
dividends, if declared, shall be payable
(the "Dividend Payment
5
<PAGE> 6
Dates"), including the means by which such
dates and periods may be established;
(E) The redemption rights and price
or prices, if any, for shares of the series;
(F) The terms and amount of the
sinking fund, if any, for the purchase or
redemption of shares of the series;
(G) The amounts payable on shares of
the series in the event of any voluntary or
involuntary liquidation, dissolution or
winding up of the affairs of the corporation
(the "Liquidation Preference");
(H) Whether the shares of the series
shall be convertible into Common Stock or
shares of any other class and, if so, the
conversion rate or rates or price or prices,
any adjustments thereof and all other terms
and conditions upon which such conversion
may be made;
(I) Restrictions (in addition to
those set forth in Section 1(b)(II)(i)(B))
on the issuance of shares of the same series
or of any other class or series.
The Board of Directors is authorized to adopt from time to
time amendments to the Amended and Restated Articles of
Incorporation fixing, with respect to each such series, the
matters described in clauses (A) through (I) of this Section
1(b)(II)(i) and is authorized to take such actions with
respect thereto as may be required by law in order to effect
such amendments.
(ii) DIVIDENDS.
(A) The holders of Cumulative
Preferred Stock of each series, in
preference to the holders of Common Stock
and of any other class of shares ranking
junior to the Cumulative Preferred Stock,
including, without limitation, the
Non-Cumulative Preferred Stock, shall be
entitled to receive out of any funds legally
available for Cumulative Preferred Stock,
when and as declared by the Board of
Directors, dividends in cash at the rate or
rates for such series fixed in accordance
with the provisions of Section
1(b)(II)(i)(C) and no more, payable on the
dates fixed for such series. Such dividends
shall accrue and be cumulative, in the case
of shares of each particular series, from
and after the date or dates fixed with
respect to such series. No
6
<PAGE> 7
dividends shall be paid upon or declared or
set apart for any series of the Cumulative
Preferred Stock for any dividend period
unless at the same time (1) a like
proportionate dividend for the dividend
periods terminating on the same or any
earlier date, ratably in proportion to the
respective dividend rates fixed therefor,
shall have been paid upon or declared or set
apart for all series of the Cumulative
Preferred Stock then issued and outstanding
and entitled to receive such dividend.
(B) So long as any series of
Cumulative Preferred Stock shall be
outstanding, no dividend, except a dividend
payable in Common Stock or other shares
ranking junior to the Cumulative Preferred
Stock, shall be paid or declared or any
distribution made, except as aforesaid, in
respect of the Common Stock or any other
shares ranking junior to the Cumulative
Preferred Stock, nor shall any Common Stock
or any other shares ranking junior to the
Cumulative Preferred Stock be purchased,
retired or otherwise acquired by the
Corporation, except out of the proceeds of
the sale of Common Stock or other shares of
the Corporation ranking junior to the
Cumulative Preferred Stock received by the
Corporation subsequent to the date of first
issuance of Cumulative Preferred Stock of
any series, unless:
(1) All accrued and unpaid
dividends on all outstanding series
of Cumulative Preferred Stock,
including the full dividends for all
current dividend periods, shall have
been declared and paid or a sum
sufficient for payment thereof set
apart; and
(2) There shall be no
arrearages with respect to the
redemption of Cumulative Preferred
Stock of any series.
(iii) LIQUIDATION RIGHTS.
(A) In the event of any voluntary or
involuntary liquidation, dissolution or
winding up of the affairs of the
Corporation, the holders of Cumulative
Preferred Stock of any series shall be
entitled to receive in full out of the
assets of the Corporation, before any amount
shall be paid or distributed among the
holders of Common Stock or any other shares
ranking junior to the Cumulative Preferred
Stock, the amounts fixed with respect to the
shares of such series in accordance with
Section 1(b)(II)(i)(G), plus an amount equal
to all dividends accrued and unpaid thereon
to the date of payment of the amount due
pursuant to such liquidation, dissolution or
winding up of the affairs of the
7
<PAGE> 8
Corporation. In the event the net assets of
the Corporation legally available therefor
are insufficient to permit the payment upon
all outstanding Cumulative Preferred Stock
of the full preferential amount to which
they are respectively entitled, then such
net assets shall be distributed ratably upon
all outstanding Cumulative Preferred Stock
in proportion to the full preferential
amount to which each such share is entitled.
(B) After payment to the holders of
Cumulative Preferred Stock of the full
preferential amounts as aforesaid, the
holders of Cumulative Preferred Stock, as
such, shall have no right or claim to any of
the remaining assets of the Corporation.
(C) The merger or consolidation of
the Corporation into or with any other
corporation, the merger of any other
corporation into it, or the sale, lease or
conveyance of all or substantially all the
assets of the Corporation, shall not be
deemed to be a dissolution, liquidation or
winding up for the purposes of this Section.
(iv) VOTING RIGHTS.
(A) LIMITATION. The holders of
Cumulative Preferred Stock shall have no
voting rights, except as provided in Section
1(b)(II)(iv)(B) or as required by law.
(B) ELECTION OF DIRECTORS.
(1) If, and so often as,
the Corporation shall fail to
declare and pay dividends on any
series of Cumulative Preferred Stock
at the time outstanding at the rate
specified for such series for six
(6) Dividend Payment Dates (whether
or not consecutive) the holders of
the Cumulative Preferred Stock,
voting separately as a class, shall
be entitled to elect, as herein
provided, two members of the Board
of Directors of the Corporation and
the holders of Common Stock, voting
separately as a class, shall elect
the remaining directors; provided,
however, that the holders of the
Cumulative Preferred Stock shall
exercise such special voting rights
only at the next annual meeting of
shareholders or any special meeting
of shareholders held in lieu thereof
after the sixth such payment date
at which directors are elected and
at which the holders of not less
than one-third of the shares of
Cumulative Preferred Stock then
outstanding are present in person
or by proxy; and provided further
that the
8
<PAGE> 9
special class voting rights provided
for in this Section
1(b)(II)(iv)(B)(1) shall remain
vested in the holders of Cumulative
Preferred Stock until all accrued
and unpaid dividends on the
Cumulative Preferred Stock then
outstanding shall have been declared
and paid, whereupon the holders of
Cumulative Preferred Stock shall be
divested of their special voting
rights in respect of subsequent
elections of directors, subject to
the revesting of such special class
voting rights in the event above
specified in this Section
1(b)(II)(iv)(B)(1). The directors
elected by the holders of the
Cumulative Preferred Stock shall not
be removable by vote of directors,
and shall be removable by vote of
the holders of the Cumulative
Preferred Stock, voting separately
as a class, only for cause.
(2) At any meeting at which
the holders of shares of
Cumulative Preferred Stock shall
be entitled to elect directors,
the holders of one-third of the
Cumulative Preferred Stock at the
time outstanding, present in person
or by proxy, shall be sufficient to
constitute a quorum, and the vote
of holders of a majority of such
shares so present at any such
meeting at which there shall be
such a quorum shall be sufficient
to elect the two members of the
Board of Directors which the
holders of Cumulative Preferred
Stock are entitled to elect as
herein provided. Nothing in this
Section 1(b)(II)(iv)(B)(2) shall
prevent any change otherwise
permitted in the total number of or
classifications of directors of the
Corporation nor require the
resignation of any director elected
other than pursuant to this Section
1(b)(II)(iv)(B)(2). Notwithstanding
any classification of the other
directors of the Corporation, any
directors elected by the holders of
Cumulative Preferred Stock shall be
elected annually for terms expiring
at the next succeeding annual
meeting of shareholders, subject to
earlier termination pursuant to
the provisions of subparagraph
1(b)(II)(iv)(B)(3) below.
(3) Upon any divesting of
the special class of voting rights
of the holders of the Cumulative
Preferred Stock in respect of
elections of directors as provided
in this Section 1(b)(II)(iv)(B), the
terms of office of all directors
then in office elected by such
holders shall terminate immediately.
If the office of any director
elected by such holders, voting as a
class, becomes vacant by reason of
death, resignation, removal from
office or otherwise, the remaining
director elected by
9
<PAGE> 10
such holders may elect a successor who
shall hold office for the unexpired term
in respect of which such vacancy
occurred.
(C) REQUIRED CONSENT. The affirmative
vote or consent of the holders of two-thirds of
the shares of Cumulative Preferred Stock at the
time outstanding, voting or consenting separately
as a class, given in person or by proxy either in
writing or at a meeting called for the purpose,
shall be necessary to effect any one or more of
the following:
(1) Any amendment,
alteration or repeal, whether by
merger, consolidation or otherwise, of
any of the provisions of the Amended and
Restated Articles of Incorporation or of
the By-Laws of the Corporation which
affects adversely the preferences or
voting or other rights of the holders of
Cumulative Preferred Stock; provided,
however, that the amendment of the
Amended and Restated Articles of
Incorporation or the By-Laws so as to:
(a) authorize, create or change the
authorized or outstanding number of
shares of Cumulative Preferred Stock
or of any shares ranking on a parity
with or junior to the Cumulative
Preferred Stock or (b) change the number
or classification of directors shall
not be deemed to affect adversely the
preferences or voting or other rights
of the holders of Cumulative Preferred
Stock;
(2) The authorization,
creation or the increase in the
authorized number of any shares, or of
any security convertible into shares, in
either case ranking senior to the
Cumulative Preferred Stock; or
(3) The purchase or
redemption of less than all of the
Cumulative Preferred Stock then
outstanding except in accordance with a
stock purchase offer made to all holders
of record of Cumulative Preferred Stock,
unless all dividends on all Cumulative
Preferred Stock then outstanding for all
previous Dividend Payment Dates and for
the dividend period ending on the next
Dividend Payment Date shall have been
declared and paid or provision made for
payments thereof.
(v) REDEMPTION PROCEDURES. Notice of any
proposed redemption of Cumulative Preferred Stock
of any series shall be given by the Corporation by
mailing a copy of such notice, at least thirty
(30) days, and not more than sixty (60) days,
prior to the date fixed for such redemption, to
the holders of record of the Cumulative Preferred
Stock to be redeemed, at their respective
addresses then appearing upon the books of the
corporation. In case of the
10
<PAGE> 11
redemption of a part only of the Cumulative
Preferred Stock of any series at the time
outstanding, the shares to be redeemed shall be
selected by lot or pro rata, as the Board of
Directors may determine. The Board of Directors
shall have full power and authority, subject to the
limitations and provisions herein contained, to
prescribe the manner in which, and the terms and
conditions upon which, the shares of the Cumulative
Preferred Stock of any series shall be redeemed from
time to time. On or at any time before the
redemption date specified in such notice, the
Corporation shall deposit in trust, for the account
of the holders of the shares to be redeemed, funds
necessary for such redemption with a bank or trust
company in good standing, (1) organized under the
laws of the United States of America or the State of
New York and doing business in the Borough of
Manhattan, City of New York, or (2) organized under
the laws of the United States of America or of the
State of Indiana and doing business in the City of
Indianapolis; and designated in such notice of
redemption. Upon mailing of the notice of redemption
as above provided, or upon the making of such
deposit, whichever is later, all shares with respect
to the redemption of which such notice and deposit
shall have been given and made shall be deemed to be
no longer outstanding for any purpose, and all
rights with respect to such shares shall thereupon
cease and terminate, except only the right of the
holders of the certificates for such shares to
receive, out of the funds so deposited in trust,
from and after the date of such deposit, the amount
payable upon the redemption thereof, without
interest; provided, however, that no right of
conversion (if any) belonging to such shares, if
such right of conversion is, by its terms, to exist
for a period beyond the date of the mailing of such
notice or the making of such deposit, shall be
impaired by the mailing of such notice or the making
of such deposit. At the expiration of seven (7)
years after the date fixed for such redemption, such
trust shall terminate. Any moneys then remaining on
deposit with such bank or trust company shall be
deemed abandoned property under Indiana law, and
thereafter the holders of the certificates for such
shares shall have no claims against such bank or
trust company, or the Corporation, but only claims
against the State of Indiana pursuant to Indiana
law. Subject to the limitations of subparagraph
1(b)(II)(iv)(C)(3), the Corporation may also
purchase shares of its outstanding Cumulative
Preferred Stock of any series at prices not
exceeding the current redemption price thereof. The
Corporation shall not, however, purchase any shares
of Common Stock or any other shares ranking junior
to the Cumulative Preferred Stock unless full
dividends at the dividend rate or rates therefor
with respect to all past dividend periods and the
current dividend period in which such purchase is to
be made shall have been paid or declared and set
apart for payment on all shares of Cumulative
Preferred Stock then outstanding and not then to be
redeemed.
11
<PAGE> 12
(vi) GENERAL PROVISIONS.
(A) ACCOUNTANTS' CERTIFICATE OF
ADJUSTMENT. In each case of an adjustment or
readjustment of a conversion price for
Common Stock issuable upon conversion of any
Cumulative Preferred Stock, the Corporation,
at its expense, shall cause independent
certified public accountants of recognized
standing selected by the Corporation (who
shall be the independent certified public
accountants then reviewing or auditing the
books of the Corporation) to compute such
adjustment or readjustment in accordance
herewith and prepare a certificate showing
such adjustment or readjustment, and shall
mail such certificate, by first-class mail,
postage prepaid, to each registered holder
of that Cumulative Preferred Stock, at the
holder's address as shown in the
Corporation's books. The certificate shall
set forth such adjustment or readjustment
and show in detail the facts upon which such
adjustment or readjustment is based.
(B) FRACTIONAL SHARES. No fractional
share of Common Stock shall be issued upon
conversion of any Cumulative Preferred
Stock. In lieu of any fractional shares
to which the holder would otherwise be
entitled, the Corporation shall pay cash
equal to the product of such fraction
multiplied by the fair market value of one
share of Common Stock on the date of
conversion, as reasonably determined in
good faith by the Board of Directors.
(C) RESERVATION OF SHARES ISSUABLE
UPON CONVERSION. The Corporation shall at
all times reserve and keep available out of
its authorized but unissued Common Stock:
(i) such number of shares of Common Stock as
may from time to time be required, at such
time, to be issued by the Corporation upon
exercise of all then-exercisable warrants
and options to purchase Common Stock or the
right to convert other convertible
securities into Common Stock, and (ii) such
number of shares of Common Stock as shall
from time to time be sufficient to effect
the conversion of all outstanding
convertible Cumulative Preferred Stock.
As a condition precedent to the taking of
any action which would cause an adjustment
to the conversion price for any series of
convertible Cumulative Preferred Stock, the
Corporation will take such corporate action
as may, in the opinion of its counsel, be
necessary to authorize such number of
shares of Common Stock as shall issuable
pursuant to such adjusted conversion price.
(D) NOTICES. Any notice required by
the provisions of this Section 1(b)(II) to
be given to holders of record of
Cumulative Preferred Stock
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<PAGE> 13
shall be deemed given when personally
delivered to such holder or five
business days after the same has been
deposited in the United States mail,
certified or registered mail, return
receipt requested, postage prepaid, and
addressed to that holder of record at
its address appearing on the books of
the Corporation.
(E) PAYMENT OF TAXES. The
Corporation will pay all transfer taxes
and other similar governmental charges
(but not taxes measured by the revenue
or income of the holders of the
Cumulative Preferred Stock) that may be
imposed in respect of the issue or
delivery of Common Stock upon conversion
of any convertible Cumulative Preferred
Stock.
(F) NO IMPAIRMENT. The
Corporation shall not amend these
Articles of Incorporation or participate
in any reorganization, recapitalization,
transfer of assets, consolidation,
merger, dissolution, issue or sale of
securities or any other voluntary
action, for the purpose of avoiding or
seeking to avoid the observance or
performance of any of the terms to be
observed or performed hereunder by the
Corporation.
(G) STATUS OF CUMULATIVE
PREFERRED STOCK UPON REDEMPTION OR
CONVERSION. Any share of Cumulative
Preferred Stock which is (1) redeemed by
the Corporation, (2) converted in
accordance with the express terms
thereof, or (3) otherwise acquired by
the Corporation, shall resume the status
of authorized but unissued Preferred
Stock without designation.
(vii) $1.70 CUMULATIVE CONVERTIBLE
PREFERRED STOCK, SERIES A. There is hereby created
an initial series of Cumulative Preferred Stock
designated "$1.70 Cumulative Convertible Preferred
Stock, Series A" (the "Series A Preferred Stock")
which shall be subject to the provisions of
Sections 1(b)(II)(ii) through 1(b)(II)(vi)
applicable to all Cumulative Preferred Stock and
the following:
(A) The authorized number of
shares constituting the Series A
Preferred Stock shall be 2,300,000;
(B) The Annual Dividend Rate
for the Series A Preferred Stock shall
be $1.70;
(C) Dividends on the Series A
Preferred Stock shall accrue from their
date of issue, the Initial Dividend Date
shall be April 15,
13
<PAGE> 14
1997, and the Dividend Payment Dates shall
be January 15, April 15, July 15 and October
15 of each year;
(D) All or any part of the Series A
Preferred Stock shall be redeemable by the
Corporation, at any time on or after
February 1, 2000, at the option of the Board
of Directors, at the redemption prices set
forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PREMIUM PRICE
----------------------------------- ------------------ -----
<S> <C> <C>
February 1, 2000 to January 31, 2001 104.8572% $20.97
February 1, 2001 to January 31, 2002 103.6429% $20.72
February 1, 2002 to January 31, 2003 102.4286% $20.49
February 1, 2003 to January 31, 2004 101.2143% $20.24
February 1, 2004 and thereafter 100.0000% $20.00
</TABLE>
(E) The Liquidation Preference for
the Series A Preferred Stock shall be the
sum of (i) $20.00 per share plus (ii) an
amount equal to all accrued and unpaid
dividends thereon, whether or not declared,
to and including the date full payment shall
be tendered to holders of the Series A
Preferred Stock with respect to such
Liquidation Preference;
(F) The holders of the Series A
Preferred Stock shall have the following
conversion rights (the "Conversion Rights"):
(1) RIGHT TO CONVERT. Each
share of Series A Preferred Stock
shall be convertible, at the option
of the holder thereof, at any time
after the date of issuance of such
Series A Preferred Stock and before
any redemption date in respect
thereof, at the office of the
Corporation or any transfer agent
for the Series A Preferred Stock or
Common Stock, into fully paid and
nonassessable shares of Common
Stock, at the Conversion Price (as
hereafter defined) therefor in
effect at the time of conversion
determined as provided herein.
(2) CONVERSION PRICE. Each
share of Series A Preferred Stock
shall be convertible into the number
of shares of Common Stock that
results from dividing $20.00 by the
Conversion Price, as hereinafter
defined. The Conversion Price as of
the original date of issuance of the
Series A Preferred Stock shall be
$9.60 per Share of Common Stock.
14
<PAGE> 15
subject to adjustment from time to
time as provided herein. Holders of
shares of Series A Preferred Stock
surrendered for conversion or
redemption after the record date for
a dividend payment and prior to the
next succeeding dividend payment
date shall be entitled to the
dividend falling due on that next
succeeding dividend payment date
notwithstanding such conversion or
redemption.
(3) MECHANICS OF
CONVERSION. Any holder of Series A
Preferred Stock shall be entitled to
convert the same into Common Stock
by surrendering the certificate or
certificates therefor, duly
endorsed, at the office of the
Corporation or of any transfer agent
for the Series A Preferred Stock or
Common Stock on a date prior to the
close of business on the tenth day
preceding the date fixed for
redemption of such shares of Series
A Preferred Stock called for
redemption (the "Conversion Date"),
and shall give prior written notice
by mail, postage prepaid, to the
Corporation at such office, that
such holder elects to convert the
same and shall state therein the
number of shares of Series A
Preferred Stock being converted and
the name or names in which the
certificate or certificates for
Common Stock are to be issued. Upon
the Corporations's receipt of notice
of conversion and the holder's
surrender of the certificate or
certificates on the Conversion Date,
the Corporation shall promptly issue
and deliver at such office to such
holder of Series A Preferred Stock
or to the nominee or nominees of
such holder a certificate or
certificates for the number of
shares of Common Stock to which such
holder shall be entitled. Such
Conversion shall be deemed to have
been made immediately prior to the
close of business on the Conversion
Date of the Series A Preferred Stock
to be converted, and the person or
persons entitled to receive the
Common Stock issuable upon such
conversion shall be treated for all
purposes as the record holder or
holders of such Common Stock on such
date.
(4) ADJUSTMENTS FOR STOCK
SPLITS AND COMBINATIONS. If the
Corporation shall at any time or
from time to time after the original
issue date of the Series A Preferred
Stock effect a subdivision or
combination of any outstanding
Common Stock, including a dividend
payable in Common Stock, the
Conversion Price then in effect
immediately before such subdivision
or combination shall be
15
<PAGE> 16
proportionately adjusted by
multiplying the then effective
Conversion Price by a fraction, (i)
the numerator of which shall be the
number of shares of Common Stock
issued and outstanding immediately
prior to such subdivision or
combination, and (ii) the
denominator of which shall be the
number of shares of Common Stock
issued and outstanding immediately
after such subdivision or
combination. The number of shares of
Common Stock outstanding at any time
shall, for the purposes of this
Section 1(b)(II)(vii)(F), include
the number of shares of Common Stock
into which any convertible
securities of the Company, including
the Series A Preferred Stock, may be
converted, or for which any warrant,
option or rights of the Corporation
may be exercised or exchanged. Any
adjustment under this Section
1(b)(II)(vii)(F) shall become
effective at the close of business
on the date the subdivision or
combination becomes effective.
Advance notice of events which
would give rise to an adjustment in
the conversion rate shall be given
to holders of the Series A
Preferred Stock, but failure to
give such notice shall not affect
the validity or effectiveness of
such event. No adjustment of the
conversion price shall be made for
the issuance of shares of Common
Stock to employees pursuant to the
Company's or any subsidiary's stock
ownership, stock option or other
benefit plan. No adjustment of the
conversion rate will be required to
be made in any case until
cumulative adjustments amount to
one percent or more of the
conversion price. The Corporation
reserves the right to make such
changes in the conversion rate in
addition to those required in the
foregoing provisions as the
Corporation in its discretion shall
determine to be advisable in order
that certain stock-related
distributions hereafter made by the
Corporation to its shareholders
shall not be taxable.
(5) ADJUSTMENTS FOR OTHER
DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or
from time to time after the original
issue date of the Series A Preferred
Stock shall make or issue, or fix a
record date for the determination of
holders of Common Stock entitled to
receive, a dividend or other
distribution payable in (i)
evidences of indebtedness of the
Corporation, (ii) assets of the
Corporation (other than cash
dividends or distributions paid out
of retained earnings), or (iii)
securities of the Corporation other
than Common Stock, then and in each
such event
16
<PAGE> 17
provision shall be made so that the
holders of Series A Preferred Stock
shall receive upon conversion
thereof, in addition to the number
of shares of Common Stock receivable
thereupon, the amount of such
evidences, assets or securities that
they would have received had they
held, on such record date, the
maximum number of shares of Common
Stock into which their Series A
Preferred Stock could then have been
converted. The Corporation reserves
the right to make such changes in
the conversion rate in addition to
those required in the foregoing
provisions as the Corporation in its
discretion shall determine to be
advisable in order that certain
stock-related distributions
hereafter made by the Corporation
to its shareholders shall not be
taxable.
(6) ADJUSTMENTS FOR
RECLASSIFICATION, EXCHANGE OR
SUBSTITUTION. If the Common Stock
issuable upon the conversion of the
Series A Preferred Stock shall be
changed into the same or a different
number of shares of any class or
classes of stock, whether by capital
reorganization, reclassification or
otherwise (other than a subdivision
or combination of shares or stock
dividend provided for above, or a
reorganization, merger,
consolidation or sale of assets
provided for elsewhere in this
Section 1(b)(II)(vii)), then and in
each such event the holders of
Series A Preferred Stock shall have
the right thereafter to convert each
such share into the kind and amounts
of shares of stock and other
securities and property receivable
upon such reorganization,
reclassification or other change, by
holders of the maximum number of
shares of Common Stock into which
such Series A Preferred Stock could
have been converted immediately
prior to such reorganization,
reclassification or change, all
subject to further adjustment as
provided herein.
(7) REORGANIZATION,
MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS OR CAPITAL STOCK. If at any
time or from time to time there
shall be a capital reorganization of
the Common Stock (other than a
subdivision, combination,
reclassification or exchange of
shares provided for elsewhere in
this Section 1(b)(II)(vii)) or a
merger or consolidation of the
Corporation with or into another
corporation, or the sale of all or
substantially all the Corporation's
properties and assets or capital
stock to any other person, then, as
a part of such reorganization,
merger, consolidation or sale,
provision shall
17
<PAGE> 18
be made so that each holder of the
Series A Preferred Stock shall
thereafter be entitled to receive,
upon conversion of the Series A
Preferred Stock, the number of
shares of stock or other securities
or property of the Corporation, or
of the successor corporation
resulting from such merger of
consolidation or sale as though
conversion of the Series A Preferred
Stock had occurred immediately prior
to such event, provided such holder
(x) is not the entity with which the
Company consolidated or into which
the Company merged or which merged
into the Company or to which such
sale or transfer was made, as the
case may be, or an affiliate of such
an entity and (y) failed to exercise
its rights of election, if any, as
to the kind or amount of securities,
cash and other property receivable
upon such consolidation, merger,
sale or transfer. In any such case,
appropriate adjustment shall be made
in the application of the provisions
of this Section 1(b)(II)(vii) with
respect to the rights of the holders
of the Series A Preferred Stock
after the reorganization, merger,
consolidation or sale to the end
that the provisions of this Section
1(b)(II)(vii) (including adjustment
of the Conversion Price then in
effect and the number of shares
purchasable upon conversion of the
Series A Preferred Stock) shall be
applicable after that event as
nearly equivalent as may be
practicable.
(8) ISSUE OF RIGHTS OR
WARRANTS TO SUBSCRIBE FOR COMMON
STOCK AT LESS THAN MARKET VALUE. In
the event the Corporation at any
time or from time to time after the
original issue date of the Series A
Preferred Stock shall make or issue,
or fix a record date for the
determination of holders of Common
Stock entitled to receive, rights or
warrants to subscribe for shares of
Common Stock at a price less than
the then current market price for
the Common Stock (the "Subscription
Price"), then, and in each such
instance, the Conversion Price shall
be reduced as of the opening of
business on the date of such issue
of rights or warrants to a price
equal to the Subscription Price.
(9) NO SINKING FUND. The
Series A Preferred Stock shall not
be subject to any sinking fund for
the purchase or redemption of
shares.
(III) NON-CUMULATIVE PREFERRED STOCK.
(i) SERIES. The Non-Cumulative Preferred
Stock may be issued from time to time in one or more
series. All shares of Non-Cumulative Preferred Stock
shall be of equal rank and shall be identical, except
for matters that may be fixed by the Board of
Directors as hereinafter provided, and each share of
a series shall be identical with all other shares of
such series. All shares of Non-Cumulative Preferred
Stock shall be junior to all shares of Cumulative
Preferred Stock with respect to dividends and
Liquidation Preference. The Board of Directors hereby
is authorized to cause such shares to be issued in
one or more series and with respect to each such
series to determine and fix prior to the issuance
thereof (and thereafter, to the extent provided in
clause (B) of this Section) the following:
18
<PAGE> 19
(A) The designation of the
series, which may be by distinguishing
number, letter or title;
(B) The authorized number of
shares of the series, which number the
Board of Directors may (except where
otherwise provided in the creation of
the series) increase or decrease from
time to time before or after the
issuance thereof (but not below the
number of shares thereof then
outstanding);
(C) The Annual Dividend Rate;
(D) The Initial Dividend Date
and the Dividend Payment Dates,
including the means by which such dates
and periods may be established;
(E) The redemption rights and
price or prices, if any, for shares of
the series;
(F) The terms and amount of
the sinking fund, if any, for the
purchase or redemption of shares of the
series;
(G) The Liquidation
Preference;
(H) Whether the shares of the
series shall be convertible into Common
Stock or shares of any other class and,
if so, the conversion rate or rates or
price or prices, any adjustments thereof
and all other terms and conditions upon
which such conversion may be made;
(I) Restrictions (in addition
to those set forth in Section
1(b)(III)(i)(B)) on the issuance of
shares of the same series or of any
other class or series.
The Board of Directors is authorized to adopt from time to
time amendments to the Amended and Restated Articles of
Incorporation fixing, with respect to each such series, the
matters described in clauses (A) through (I) of this Section
1(b)(III)(i) and is authorized to take such actions with
respect thereto as may be required by law in order to effect
such amendments.
(ii) NON-CUMULATIVE PREFERRED STOCK,
SERIES ONE. There is hereby created an initial
series of Non-Cumulative Preferred Stock
designated "NonCumulative Preferred Stock, Series
One" ("Series One Preferred Stock") which shall be
subject to the provisions of Sections 1(b)(III)(i)
applicable to
19
<PAGE> 20
all Non-Cumulative Preferred Stock and which shall also be
subject to the following special provisions:
(A) AUTHORIZED SHARES. The number of
shares constituting the Series One Preferred
Stock shall be 90,000.
(B) DIVIDENDS. Subject to the prior
rights of the holders of any other shares of
Preferred Stock of the Corporation ranking prior
to the shares of Series One Preferred Stock with
respect to dividends, each holder of one
one-hundredth (1/100) of a share (a "Unit") of
Series One 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 per share amount of the
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 One Preferred Stock
(x) 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)(III)(ii)), (y) subdivide the outstanding
shares of Common Stock or (z) 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)(III)(ii) shall be adjusted by
multiplying the amount of such dividend by a
fraction, (i) the numerator of which shall be the
number of shares of Common Stock issued and
outstanding immediately prior to such split,
subdivision or combination, and (ii) the
denominator of which shall be the number of shares
of Common Stock issued and outstanding immediately
after such split, subdivision or combination.
(C) VOTING RIGHTS. The holders of Units
of Series One Preferred Stock shall have the
following voting rights.
(1) Each Unit of Series One
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 One
Preferred Stock (x) 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)(III)(ii) above), (y)
subdivide the outstanding
20
<PAGE> 21
shares of Common Stock or (z) 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
One 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 One 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 One 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 One 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 one one-hundredth fractional share 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 any prior claims of the
holders of any other series of Preferred
Stock, the holders of each Unit of
Series One 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
21
<PAGE> 22
Corporation shall at any time after the
date of issuance of the Series One
Preferred Stock (x) 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)(III)(ii)), (y) subdivide
the outstanding shares of Common Stock
or (z) 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(d)(ii)
shall be adjusted by multiplying the
amount of such distribution by a
fraction, (i) the numerator of which
shall be the number of shares of Common
Stock issued and outstanding
immediately prior to such split,
subdivision or combination, and (ii)
the denominator of which shall be the
number of shares of Common Stock issued
and outstanding immediately after such
split, subdivision or combination.
(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,
or if 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 (A) of this Section
1(b)(III)(ii) 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 One
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 One 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 One Preferred
Stock is not convertible into shares of any other
class or series of stock of the Corporation.
22
<PAGE> 23
(H) AMENDMENT. The affirmative vote or
consent of the holders of two-thirds of the
shares of Series One Preferred Stock at the time
outstanding, voting or consenting separately as a
class, given in person or by proxy either in
writing or at a meeting called for the purpose,
shall be necessary to effect any amendment,
alteration or repeal, whether by merger,
consolidation or otherwise, of any of the
provisions of the Amended and Restated Articles
of Incorporation or of the By-Laws of the
Corporation which affects adversely the
preferences or voting or other rights of the
holders of Series One Preferred Stock; provided,
however, that the amendment of the Amended and
Restated Articles of Incorporation so as to
authorize, create or change the authorized or
outstanding number of shares of Series One
Preferred Stock or of any shares ranking on a
parity with or junior to the Series One
Preferred Stock shall not be deemed to affect
adversely the preferences or voting or other
rights of the holders of Series One Preferred
Stock.
(I) FRACTIONAL UNITS/SHARES. The Series
One Preferred Stock may be issued in Units or
other fractions of a share, which Units or
fractions shall entitle the holder to exercise
voting rights, receive dividends, participate in
distributions and to have the benefit of all
other rights of holders of Units of Series One
Preferred Stock, in proportion to the number of
units or fractional units held by such holder.
SECTION 2. ISSUANCE OF SHARES. The shares of capital stock of the
Corporation may be issued by the Corporation from time to time at the discretion
of the Board of Directors to such persons for such consideration, including
consideration less than par value, and upon such terms and conditions as it may
determine, subject to the provisions of the Act and these Articles. Such of its
shares as the Corporation may reacquire may be resold or otherwise disposed of
upon such terms and conditions and for such consideration as the Board of
Directors may determine from time to time. The Board of Directors may from time
to time grant or issue options, warrants, or rights to purchase shares of
capital stock of the Corporation upon such terms and conditions and for such
consideration as it shall determine, subject to the provisions of the Act.
SECTION 3. STATED CAPITAL. The amount of the consideration received by
the Corporation, less the amounts allocated to capital surplus, from time to
time, shall be the stated capital of the Corporation. The consideration received
by the Corporation for authorized shares of any class shall, subject to the
provisions of the Act, be allocated to stated capital and to capital surplus by
resolution of the Board of Directors within a period of sixty (60) days after
the issuance of such shares. The stated capital of the Corporation may be
increased from time to time by resolution of the Board of Directors directing a
transfer from capital or earned surplus.
SECTION 4. DIVIDENDS. Dividends and other distributions (hereinafter
referred to as "Dividends") shall be payable with respect to shares of the
capital stock of the Corporation or classes or series thereof when and as
declared by the Board of Directors and subject to the relative rights,
limitations, restrictions and qualifications of the shares. Dividends shall be
paid out of the unreserved and unrestricted capital or earned surplus of the
Corporation or other sources legally available therefor, and may be paid in cash
or property. Such dividends may be declared in respect of the
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<PAGE> 24
capital stock of the Corporation from time to time to be paid by the Corporation
in its own authorized but unissued shares of such capital stock or in treasury
shares of capital stock out of any unreserved or unrestricted capital or earned
surplus or any other legally available source.
SECTION 5. DISSOLUTION DISTRIBUTION ON COMMON STOCK. In the event of
any voluntary or involuntary dissolution, liquidation or winding up of the
Corporation, the holders of the outstanding shares of common stock shall be
entitled, after due payment or provisions for payment of the debts and other
liabilities of the Corporation and after and subject to such distributions as
may be required with respect to any shares of Preferred Stock outstanding (if
any), to share ratably share for share, in the remaining net assets of the
Corporation.
SECTION 6. VOTING RIGHTS OF COMMON STOCK. The holder of each share of
the Common Stock of the Corporation, subject to the provisions of the Act, shall
be entitled to one (1) vote for each share of such stock standing in his name on
the books of the Corporation at all meetings of the shareholders of the
Corporation.
ARTICLE VII
-----------
REQUIREMENTS PRIOR TO DOING BUSINESS
------------------------------------
The Corporation will not commence business until consideration of the
value of at least $1,000 (one thousand dollars) has been received for the
issuance of shares.
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<PAGE> 25
ARTICLE VIII
------------
DIRECTORS
---------
SECTION 1. NUMBER OF DIRECTORS. The number of Directors of the
Corporation shall not be less than two (2) nor more than nine (9), as may be
specified from time to time by the Code of ByLaws of the Corporation. If and
whenever the Code of By-Laws of the Corporation does not contain a provision
specifying the number of Directors, the number shall be six (6). Subject to the
rights of the holders of any series of Preferred Stock then outstanding, the
Code of By-Laws of the Corporation may provide that the Directors shall be
divided into two (2) or more classes whose terms of office shall expire at
different times, but no terms shall continue longer than three (3) years.
Directors need not be Shareholders of the Corporation.
SECTION 2. NAMES AND POST OFFICE ADDRESSES OF THE DIRECTORS: The names
and addresses of the current Directors of the Corporation are as follows:
<TABLE>
<CAPTION>
NAME BUSINESS ADDRESS CITY STATE
- ---- ---------------- ---- -----
<S> <C> <C> <C>
John D. 250 East 96th Street, Indianapolis IN 46240
Bontreger Suite 450
David R. 250 East 96th Street, Indianapolis IN 46240
Miller Suite 450
Orus E. 250 East 96th Street, Indianapolis IN 46240
Weaver Suite 450
George A. 250 East 96th Street, Indianapolis IN 46240
Morton Suite 450
Richard E. 250 East 96th Street, Indianapolis IN 46240
Shank Suite 450
Richard L. 250 East 96th Street, Indianapolis IN 46240
Russell Suite 450
Stephen M. 250 East 96th Street, Indianapolis IN 46240
Huse Suite 450
Mark D. 250 East 96th Street, Indianapolis IN 46240
Carney Suite 450
</TABLE>
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<PAGE> 26
<TABLE>
<S> <C> <C> <C>
Bo L. 250 East 96th Street, Indianapolis IN 46240
Hagood Suite 450
</TABLE>
SECTION 3. QUALIFICATIONS OF DIRECTORS (IF ANY): The qualifications of
Directors of the Corporation shall be prescribed by the By-Laws of the
Corporation.
SECTION 4. VACANCIES. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, newly created directorships
resulting from any increase in the authorized number of Directors or any
vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall be filled
by a majority vote of the Directors then in office, and Directors so chosen
shall hold office for a term expiring at the Annual Meeting of Shareholders at
which the term of the class to which they have been elected expires.
SECTION 5. REMOVAL. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, any Director, or the entire Board of
Directors, may be removed by the shareholders from office at any time, but only
for cause and only by the affirmative vote of the holders of at least 80% of the
voting power of all of the shares of the Corporation entitled to vote generally
in the election of Directors, voting together as a single class. In addition,
the Directors are hereby authorized to adopt in the Code of By-Laws a procedure
for the removal of Directors with or without cause.
SECTION 6. AMENDMENT, REPEAL. Notwithstanding anything contained in the
Articles of Incorporation or the Code of By-Laws of the Corporation to the
contrary (and notwithstanding the fact that a lesser percentage may be specified
by law, in these Articles of Incorporation or the Code of By-Laws of the
Corporation), the affirmative vote of the holders of at least 80% of the voting
power of all of the shares of the Corporation entitled to vote generally in the
election of Directors, voting together as a single class, shall be required to
alter, amend or repeal this Article VIII.
ARTICLE IX
----------
INCORPORATOR
------------
The name and post office address of the incorporator of the Corporation
is John D. Bontreger, 250 East 96th Street, Suite 450, Indianapolis, Indiana
46240.
ARTICLE X
---------
PROVISIONS FOR REGULATION OF BUSINESS
AND CONDUCT OF AFFAIRS OF CORPORATION
-------------------------------------
SECTION 1. AFFAIRS OF CORPORATION. The Board of Directors shall manage
and conduct the affairs of the Corporation and shall have the power to adopt
by-laws for the regulation of its business and to amend its by-laws.
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<PAGE> 27
SECTION 2. MEETINGS OF SHAREHOLDERS. Meetings of the shareholders of
the Corporation shall be held at such place, within or without the State of
Indiana, as may be specified in the respective notices, or waivers of notice,
thereof.
SECTION 3. ISSUANCE OF STOCK BY CORPORATION. The Board of Directors
shall have the authority to fix from time to time the amount of consideration
for which shares may be issued by the Corporation.
SECTION 4. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. The
Corporation 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 Corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, 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 Corporation. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation.
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 Corporation,
but only if the Board
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<PAGE> 28
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 Corporation) to deliver to it their written opinion as to whether such
director, officer, employee or agent has met such standards.
If several claims, issues or matters of action are involved, any such
person may be entitled to indemnification as to some matters even though he is
not so entitled to others.
The Corporation may advance expenses incurred in defending a civil or
criminal action to, or where appropriate may, at its expense undertake the
defense of, any such director, officer, employee or agent upon receipt of an
undertaking by or on behalf of such person to repay such expenses if it should
ultimately be determined that he is not entitled to indemnification under this
section.
The provisions of this section shall be applicable to claims, actions,
suits or proceedings made or commenced before or after the adoption hereof and
whether arising from acts or omissions occurring before or after the adoption
hereof.
The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any by-law, agreement, vote or stockholders or disinterested
directors as a matter of law, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this section.
ARTICLE XI
----------
PROVISIONS FOR CERTAIN BUSINESS COMBINATIONS
--------------------------------------------
SECTION 1. VOTE REQUIRED.
CLAUSE (A). HIGHER VOTE FOR CERTAIN BUSINESS COMBINATIONS. In
addition to any affirmative vote required by law or these Articles of
Incorporation, and except as otherwise expressly provided in Section 2 of this
Article XI:
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<PAGE> 29
(1) Any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (A) any Interested Shareholder (as
hereinafter defined), or (B) any other corporation (whether or not itself an
Interested Shareholder) which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or
(2) Any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with
any Interested Shareholder or any Affiliate of any Interested Shareholder of any
assets, of the Corporation or any Subsidiary, having an aggregate Fair Market
Value of $1,000,000 or more; or
(3) The issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate
of any Interested Shareholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value of $1,000,000
or more; or
(4) The adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of an Interested
Shareholder or any Affiliate of any Interested Shareholder; or
(5) Any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an Interested
Shareholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Shareholder or any Affiliate of any
Interested Shareholder; shall require the affirmative vote of the holders of at
least 80% of the voting power of the then outstanding shares of stock of the
Corporation entitled to vote generally in election of directors (the "Voting
Stock"), voting together as a single class (it being understood that for
purposes of this Article XI, each share of the Voting Stock shall have the
number of votes granted to it pursuant to these Articles of Incorporation and
the Act, as amended). Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage may be
specified, by law or in any agreement with any national securities exchange or
otherwise.
CLAUSE (b). DEFINITION OF "BUSINESS COMBINATION." The term
"Business Combination" as used in this Article XI shall mean any transaction
which is referred to in any one or more of paragraphs (1) through (5) of Clause
(a) of this Section 1 of this Article XI.
SECTION 2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of Section
1 of this Article XI shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law and any other provision of these Amended Articles of
Incorporation, if all of the conditions specified in either of the following
Clauses (a) and (b) are met:
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<PAGE> 30
CLAUSE (A). APPROVAL BY CONTINUING DIRECTORS. The Business
Combination shall have been approved by a majority of the Continuing Directors
(as hereinafter defined).
CLAUSE (B). PRICE AND PROCEDURAL REQUIREMENTS. All of the
following conditions shall have been met:
(1) The aggregate amount of the cash and the Fair Market Value
(as hereinafter defined) as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share by holders
of Common Stock in such Business Combination shall be at least equal to the
highest of the following:
(A) The highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the
interested Shareholders for any shares of Common Stock acquired by it (i) within
the two-year period immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement Date") or (ii) in the
transaction in which it became an Interested Shareholder, whichever is higher;
(B) The Fair Market Value per share of the Common
Stock on the Announcement Date or on the date of which the Interested
Shareholder became an Interested Shareholder (such latter date is referred to in
this Article XI as the "Determination Date"), whichever is higher; and
(C) The price per share equal to the Fair Market
Value per share of Common Stock determined pursuant to Clause (b)(1)(B) above,
multiplied by the ratio of (i) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Shareholder for any shares of Common Stock acquired by it within the
two-year period immediately prior to the Announcement Date to (ii) the Fair
Market Value per share of Common Stock on the first day in such two-year period
upon which the Interested Shareholder acquired any shares of Common Stock.
(2) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of consideration
other than cash to be received per share by holders of shares of any other class
of outstanding Voting Stock shall be at least equal to the highest of the
following (it being intended that the requirements of this Clause (b)(2) shall
be required to be met with respect to every class of outstanding Voting Stock
whether or not the Interested Shareholder has previously acquired any shares of
a particular class of Voting Stock):
(A) The highest per share price (including any
brokerage commissions, transfer fees and soliciting dealer's fees) paid by the
Interested Shareholder for any shares of such class of Voting Stock acquired by
it (i) within the two-year period immediately prior to the Announcement Date or
(ii) in the transaction in which it became an Interested Shareholder, whichever
is higher;
30
<PAGE> 31
(B) The highest preferential amount per share to
which the holders of shares of such class of Voting Stock are entitled in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation;
(C) The Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the Determination Date, whichever is
higher; and
(D) The price per share equal to the Fair Market
Value per share of such class of Voting Stock determined pursuant to Clause
(b)(2)(C) above, multiplied by the ratio of (i) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealer's
fees) paid by the Interested Shareholder for any shares of such class of Voting
Stock acquired by it within the two-year period immediately prior to the
Announcement Date to (ii) the Fair Market Value per share of such class of
Voting Stock on the first day in such two-year period upon which the Interested
Shareholder acquired any shares of such class of Voting Stock;
(3) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common Stock) shall be
in cash or in the same form as the Interested Shareholder has previously paid
for shares of such class of Voting Stock. If the Interested Shareholder has paid
for shares of any class of Voting Stock with varying forms of consideration, the
form of consideration for such class of Voting Stock shall be either cash of the
form used to acquire the largest number of shares of such class of Voting Stock
previously acquired by it.
(4) After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business Combination: (A)
except as approved by a majority of the Continuing Directors, there shall have
been no failure to declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any then outstanding
Preferred Stock; (B) there shall have been (i) no reduction in the annual rate
of dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by a majority of the
Continuing Directors, and (ii) an increase in such annual rate or dividend as
necessary to reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has the effect
of reducing the number of outstanding shares of the Common Stock, unless the
failure so to increase such annual rate is approved by a majority of the
Continuing Directors; and (C) such Interested Shareholder shall have not become
the beneficial owner of any additional shares of Voting Stock except as part of
the transaction which results in such Interested Shareholder becoming an
Interested Shareholder.
(5) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the benefit,
directly or indirectly (except proportionately as a Shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by the Corporation (or any Subsidiary of the
Corporation), whether in anticipation of or in connection with such Business
Combination or otherwise.
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<PAGE> 32
(6) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to
Shareholders of the Corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provisions).
SECTION 3. CERTAIN DEFINITIONS. For the purposes of Article XI:
CLAUSE (A). A "person" shall include any individual, firm,
corporation or other entity. When two or more persons act as a partnership,
limited partnership, syndicate or group for the purpose of acquiring voting
stock of the Corporation, such partnership, syndicate or group shall be deemed a
"person."
CLAUSE (B). "Interested Shareholder" shall mean any person
(other than the Corporation or any Subsidiary) who or which:
(1) Is the beneficial owner, directly or indirectly, of more
than 10% of the voting power of the outstanding Voting Stock; or
(2) Is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the then
outstanding Voting Stock; or
(3) Is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period immediately
prior to the date in question beneficially owned, by any Interested Shareholder,
if such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
"Interested Shareholder" shall not mean any person who, but for this exception,
would be deemed an Interested Shareholder on May 19, 1987.
CLAUSE (C). A person shall be a "beneficial owner" of any
Voting Stock:
(1) Which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or indirectly; or
(2) Which such person or any of its Affiliates or Associates
has (A) the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (B) the right to vote pursuant to any
agreement, arrangement or understanding; or
32
<PAGE> 33
(3) Which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
CLAUSE (D). For the purpose of determining whether a person is
an Interested Shareholder pursuant to Clause (b) of this Section 3 of this
Article XI, the number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through applications of Clause (c) of this Section 3
of this Article XI, but shall not include any other shares of Voting Stock which
may be issuable pursuant to any agreement, arrangement or understanding, or upon
exercises of conversion rights, warrants or options, or otherwise.
CLAUSE (E). "Affiliate" or "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 in effect on
February 28, 1987.
CLAUSE (F). "Subsidiary" means any corporation of which a
majority of any class of equity security is owned directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Shareholder set forth in Clause (b) of this Section 3 of this Article
XI, the term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
CLAUSE (G). "Continuing Director" means any member of the
Board of Directors of the Corporation (the "Board") who is unaffiliated with the
Interested Shareholder and was a member of the Board prior to the date that the
Interested Shareholder became an Interested Shareholder, and any successor of a
Continuing Director who is unaffiliated with the Interested Shareholder and is
recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board.
CLAUSE (H). "Fair Market Value" means:
(1) In the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of a share
of such stock on the Composite Tape for New York Stock Exchange-Listed Stock, or
if such stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the stock is not listed on such Exchange, on the principal
United States securities exchange registered under the Securities Exchange Act
of 1934 on which such stock is listed, or, if such stock is not listed on any
such exchange, the highest closing bid quotation with respect to a share of such
stock during the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or any then
in use, or if no such quotation is available, the fair market value of a share
of such stock as determined by the Board in good faith; and
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<PAGE> 34
(2) In the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by the Board
in good faith.
CLAUSE (i). In the event of any Business Combination in which
the Corporation survives, the phrase "other consideration to be received" as
used in Clauses (b)(1) and (2) of Section 2 of this Article XI shall include the
shares of Common Stock and/or other shares of any other class of outstanding
Voting Stock by the holders of such shares.
SECTION 4. POWERS OF THE BOARD OF DIRECTORS. A majority of the
directors of the Corporation shall have the power and duty to determine for the
purposes of this Article XI, on the basis of information known to them after
reasonable inquiry, (a) whether a person is an Interested Shareholder, (b) the
number of shares of Voting Stock beneficially owned by any person, (c) whether a
person is an Affiliate or Associate of another and (d) whether the assets which
are the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market Value of
$1,000,000 or more.
SECTION 5. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED
SHAREHOLDER. Nothing contained in this Article XI shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
SECTION 6. AMENDMENT, REPEAL, ETC. Notwithstanding any other provisions
of these Articles of Incorporation or the Code of By-Laws of the Corporation
(and notwithstanding the fact that a lesser percentage may be specified by law,
in these Articles of Incorporation or the Code of By-Laws of the Corporation),
the affirmative vote of the holders of 80% or more of the voting power of the
shares of the then outstanding Voting Stock, voting together as a single class,
shall be required to amend or repeal, or adopt provisions inconsistent with,
this Article XI of these Articles of Incorporation.
IN WITNESS WHEREOF, the undersigned, being the Secretary of the
Corporation, executes these Articles of Incorporation and certifies to the truth
of the facts herein stated, this 14th day of November, 1996.
/S/DAVID R. MILLER
-----------------------------
(Written Signature)
DAVID R. MILLER
-----------------------------
(Printed Signature)
34
<PAGE> 1
EXHIBIT 4.1
-----------
NARRATIVE DESCRIPTION OF SIGNATURE INNS, INC., COMMON STOCK SHARE CERTIFICATE
Decorative engraving covers approximately 3/4 inch of the top edge and
1/2 inch of the side edges and bottom of the share certificate (the
"Certificate"). Larger and more elaborate decorative engraving is included in
the upper left and right corners and down approximately 1/3 of the left and
right sides. The center of the decorative engraving across the top of the
Certificate contains an arching design with points extending to the left and
right. Centered in the decorative engraving along the bottom of the Certificate
is a space of approximately 2 inches where the engraving is narrowed to
approximately 1/8 inch and bordered by decorative engraving simulating waves
breaking.
Centered directly below the arch in the center of the decorative
engraving across the top of the Certificate in large text is the word
"Signature." Centered directly below the word "Signature," also in large text,
are the word "Inns" and the Company's stylized "S" logo. Centered directly below
the word "Inns" and the stylized "S" logo in smaller text is the word "Inc."
Centered directly below the word "Inc." is the text: "INCORPORATED UNDER THE
LAWS OF THE STATE OF INDIANA" on one line and the text: "THIS CERTIFICATE IS
TRANSFERABLE EITHER IN CHICAGO, IL. OR IN NEW YORK, N.Y." on the line directly
below. In the upper left and right corners of the Certificate are boxes with
elaborate decorate engraving, each containing a rectangular shaded box
(approximately 3/4 inch by 1 1/2 inches). Above each elaborately engraved box
are the words "COMMON STOCK." Situated in an arching banner above the shaded
rectangular box within the decoratively engraved box in the upper left corner of
the Certificate is the word "NUMBER." Situated in an arching banner above the
shaded rectangular box within the decoratively engraved box in the upper right
corner of the Certificate is the word "SHARES." Directly below the elaborately
engraved box in the upper right corner of the Certificate is the text: "CUSIP
826680 20 9" and "SEE REVERSE FOR CERTAIN DEFINITIONS.
Centered in the middle of the Certificate is a large shaded box
(approximately 1 3/4 inches by 8 1/2 inches). In the upper left corner of the
large shaded box is the text (in script): "This Certifies that." In the lower
left corner of the large shaded box is the text (in script): "is the owner of."
Centered below the large shaded box is the following text:
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK WITHOUT PAR VALUE
OF
SIGNATURE INNS, INC.
(in script) (herein called the "Corporation") transferrable on the books of the
corporation by said owner in person or by duly authorized attorneys upon
surrender of this Certificate properly endorsed. This Certificate and the shares
of stock represented hereby are issued and shall be held subject to all of the
provisions of the Articles of Incorporation and the By-Laws of the Corporation,
and any amendments thereto, copies of which are on file with the Secretary of
the Corporation and to the laws of the State of Indiana from time to time in
effect, to all of which the holder, by acceptance hereof assents. This
Certificate is not valid until countersigned and registered by the Transfer
Agent and
<PAGE> 2
Registrar. Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers. Dated: [blank]
/s/ David R. Miller /s/ John D. Bontreger
Secretary President
In the lower left corner of the Certificate is circular corporate seal
of Signature Inns, Inc. (approximately 2 inches in diameter) containing the
text: "Signature Inns, Inc." "Corporate Seal" "Indiana."
On the lower right side of the Certificate in small capital letters the
following words appear vertically: "Countersigned and Registered:" "Harris Trust
and Savings Bank" "Transfer Agent and Registrar" "By" "Authorized Signature."
The back of the Certificate contains the following text:
The Corporation is authorized to issue preferred shares having such
designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof as shall be determined by
the Corporation's Board of Directors. The Corporation shall furnish the holder
hereof with a written summary of the relative rights, preferences and
limitations applicable to each class of shares the Corporation is authorized to
issue upon written request without charge.
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in the Rights Agreement between Signature Inns, Inc.
and Harris Trust and Savings Bank (the "Rights Agent") dated as of October 31,
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
Corporation 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 officer, may become null and void.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ___, Custodian_____
TEN ENT - as tenants by the entities (cust) (minor)
JT TEN - as joint tenants with rights under Uniform Transfers to Minors
<PAGE> 3
of survivorship and not Act_________________
tenants in common (state)
Additional abbreviations may be used though not in the above list.
FOR VALUE RECEIVED, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
Irrevocably constitute and appoint
________________________________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Date____________________________ ___________________________________
Signature
___________________________________
Signature
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN
UPON THE FACE OF THE
CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT,
OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed: ___________________________
<PAGE> 4
THE SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS,
SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT
UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 4.2
-----------
NARRATIVE DESCRIPTION OF SIGNATURE INNS, INC., CUMULATIVE CONVERTIBLE
PREFERRED STOCK, SERIES A, CERTIFICATE
Decorative engraving covers approximately 3/4 inch of the top edge and
1/2 inch of the side edges and bottom of the share certificate (the
"Certificate"). Larger and more elaborate decorative engraving is included in
the upper left and right corners and down approximately 1/3 of the left and
right sides. The center of the decorative engraving across the top of the
Certificate contains an arching design with points extending to the left and
right. Centered in the decorative engraving along the bottom of the Certificate
is a space of approximately 2 inches where the engraving is narrowed to
approximately 1/8 inch and bordered by decorative engraving simulating waves
breaking.
Centered directly below the arch in the center of the decorative
engraving across the top of the Certificate in large text is the word
"Signature." Centered directly below the word "Signature," also in large text,
are the word "Inns" and the Company's stylized "S" logo. Centered directly below
the word "Inns" and the stylized "S" logo in smaller text is the word "Inc."
Centered directly below the word "Inc." is the text: "INCORPORATED UNDER THE
LAWS OF THE STATE OF INDIANA" on one line and the text: "THIS CERTIFICATE IS
TRANSFERABLE EITHER IN CHICAGO, IL. OR IN NEW YORK, N.Y." on the line directly
below. In the upper left and right corners of the Certificate are boxes with
elaborate decorate engraving, each containing a rectangular shaded box
(approximately 3/4 inch by 1 1/2 inches). Above each elaborately engraved box
are the words "_____% SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK." Situated
in an arching banner above the shaded rectangular box within the decoratively
engraved box in the upper left corner of the Certificate is the word "NUMBER."
Situated in an arching banner above the shaded rectangular box within the
decoratively engraved box in the upper right corner of the Certificate is the
word "SHARES." Directly below the elaborately engraved box in the upper right
corner of the Certificate is the text: "CUSIP 826680 ____" and "SEE REVERSE FOR
CERTAIN DEFINITIONS."
Centered in the middle of the Certificate is a large shaded box
(approximately 1 3/4 inches by 8 1/2 inches). In the upper left corner of the
large shaded box is the text (in script): "This Certifies that." In the lower
left corner of the large shaded box is the text (in script): "is the owner of."
Centered below the large shaded box is the following text:
FULLY PAID AND NON-ASSESSABLE SHARES OF THE _____% SERIES A
CUMULATIVE CONVERTIBLE PREFERRED STOCK _______ PAR VALUE
OF
SIGNATURE INNS, INC.
(in script) (herein called the "Corporation") transferrable on the
books of the corporation by said owner in person or by duly authorized
attorneys upon surrender of this Certificate properly endorsed. This
Certificate and the shares of
<PAGE> 2
stock represented hereby are issued and shall be held subject to all of
the provisions of the Articles of Incorporation and the By-Laws of the
Corporation, and any amendments thereto, copies of which are on file
with the Secretary of the Corporation and to the laws of the State of
Indiana from time to time in effect, to all of which the holder, by
acceptance hereof assents. This Certificate is not valid until
countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated: [blank]
/s/ David R. Miller /s/ John D. Bontreger
Secretary President
In the lower left corner of the Certificate is circular
corporate seal of Signature Inns, Inc. (approximately 2 inches in
diameter) containing the text: "Signature Inns, Inc." "Corporate Seal"
"Indiana."
On the lower right side of the Certificate in small capital letters the
following words appear vertically: "COUNTERSIGNED AND REGISTERED:" "HARRIS TRUST
AND SAVINGS BANK" "TRANSFER AGENT AND REGISTRAR" "BY" "AUTHORIZED SIGNATURE."
The back of the Certificate contains the following text:
The Corporation is authorized to issue preferred shares having
such designations, preferences, conversion rights, cumulative,
relative, participating, optional or other rights, including voting
rights, qualifications, limitations or restrictions thereof as shall be
determined by the Corporation's Board of Directors. The Corporation
shall furnish the holder hereof with a written summary of the relative
rights, preferences and limitations applicable to each class of shares
the Corporation is authorized to issue upon written request without
charge.
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ___, Custodian_____
TEN ENT - as tenants by the entities (cust) (minor)
JT TEN - as joint tenants with rights under Uniform Transfers to Minors
of survivorship and not Act_________________
tenants in common (state)
Additional abbreviations may be used though not in the above list.
<PAGE> 3
FOR VALUE RECEIVED, __________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
Shares
of the Preferred Stock represented by the within Certificate, and do hereby
Irrevocably constitute and appoint
- ------------------------------------------------------------
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Date_______________________
- --------------------------------------
Signature
- --------------------------------------
Signature
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST
CORRESPOND WITH THE
NAME AS WRITTEN UPON
THE FACE OF THE
CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT
ALTERATION OR
ENLARGEMENT, OR ANY
CHANGE WHATSOEVER.
<PAGE> 4
Signature(s) Guaranteed:
- ------------------------------------------ THE SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS,
SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT
UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE
GUARANTEE MEDALLION
PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 1
of survivorship and not Act___________________
tenants in common (state)
Additional abbreviations may be used though not in the above list.
FOR VALUE RECEIVED, __________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
Irrevocably constitute and appoint
_______________________________________________________________________________
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Date ___________________________ ___________________________________________
Signature
___________________________________________
Signature
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT,
OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed ___________________________________________
<PAGE> 2
Exhibit 4.3
SIGNATURE INNS, INC.
and
HARRIS TRUST AND SAVINGS BANK
RIGHTS AGENT
---------------
AMENDED AND RESTATED
RIGHTS AGREEMENT
DATED JANUARY 17, 1997
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3. Issuance of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4. Form of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5. Countersignature and Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates . . . . . . . . . . . . . . . . . . . . . . 9
Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights . . . . . . . . . . . . . . . . . . . 10
Section 8. Cancellation and Destruction of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 9. Reservation and Availability of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 10. Series One Preferred Stock Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 11. Adjustment of Exercise Price, Number and Kind of Shares or Number of Rights . . . . . . . . . . . . 15
Section 12. Certificate of Adjusted Exercise Price or Number of Shares . . . . . . . . . . . . . . . . . . . . . 23
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power . . . . . . . . . . . . . . . . 23
Section 14. Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 15. Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 16. Agreement of Rights Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 17. Rights Certificate Holder Not Deemed a Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 19. Merger or Consolidation or Change of Name of Rights Agent . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 20. Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 21. Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 22. Issuance of New Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 23. Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 24. Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 25. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 27. Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 28. Determinations and Actions by the Board of Directors, etc . . . . . . . . . . . . . . . . . . . . 39
Section 29. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 30. Benefits of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 31. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 32. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 33. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 34. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 35. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Exhibit A. Form of Rights Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B. Summary of Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>
ii
<PAGE> 5
AMENDED AND RESTATED RIGHTS AGREEMENT
AMENDED AND RESTATED RIGHTS AGREEMENT, dated as of the 17th day of
January, 1997 (the "Agreement"), between Signature Inns, Inc., an Indiana
corporation (the "Company"), and Harris Trust and Savings Bank (the "Rights
Agent").
R E C I T A L S
WHEREAS, on September 19, 1996 (the "Rights Dividend Declaration
Date"), the Board 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, one hundredth of one share of a newly
designated Series A Preferred Stock, without par value;
WHEREAS, the Company and the Rights Agent entered into that certain
Rights Agreement, dated as of October 31, 1996 (the "Initial Rights
Agreement"); and
WHEREAS, on January 15, 1997, the Board, in accordance with Section 27
of the Initial Rights Agreement and in connection with the Company's offering
(the "Preferred Offering") of Cumulative Convertible Preferred Stock, Series A,
without par value (the "Series A Preferred Stock"), determined it desirable and
in the best interests of the Company and its shareholders that the Initial
Rights Agreement be amended and restated in order to, among other things, (i)
redesignate each Right so that it represents the right to purchase, upon the
terms and subject to the conditions hereinafter set forth, one hundredth of one
share of Non-cumulative Preferred Stock, Series One, without par value (the
"Series One 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") and (ii) amend the Exercise
Price (as herein defined) in connection with the Preferred Offering;
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.
<PAGE> 6
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 (or other securities convertible into shares of Common Stock or
other rights with respect to 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 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 (or other securities convertible into
shares 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 such person was the Beneficial Owner of 10% or more of the Common
Stock outstanding on the Close of Business on the day prior to the Effective
Date of this Agreement determined in accordance with Section 35 hereof, or 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
2
<PAGE> 7
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 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
3
<PAGE> 8
(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 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 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.
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<PAGE> 9
(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.
(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 (and/or other securities convertible
into 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 the Close of Business on March 18, 1997.
(r) "Redemption Date" has the meaning set forth in Section 7(a)
hereof.
(s) "Registration Statement" means the Company's Registration
Statement on Form SB-2 (File No. 333-12735).
(t) "Right" means one of the stock purchase rights created
hereunder.
(u) "Rights Certificate" has the meaning set forth in Section 3(a)
hereof.
(v) "Rights Dividend Declaration Date" has the meaning set forth in
the Recitals.
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<PAGE> 10
(w) "Section 11(a)(ii) Event" means any event described in Section
11(a)(ii) hereof.
(x) "Section 13 Event" means any event described in clause (x),
(y) or (z) of Section 13(a) hereof.
(y) "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.
(z) "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.
(aa) "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 Business 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
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<PAGE> 11
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 at the expense of the Company 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 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 Agreement, 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 Amended and Restated Rights
Agreement between Signature Inns, Inc. (the "Company") and Harris
Trust and Savings Bank (the "Rights Agent") dated as of January 17,
1997 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by
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<PAGE> 12
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 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
Series One 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 Series One Preferred Stock as shall be set forth therein at 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
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<PAGE> 13
(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 other securities
convertible into 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:
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.
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<PAGE> 14
(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 Series One Preferred Stock (or,
following a Triggering Event, 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,
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<PAGE> 15
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 Series One Preferred Stock (or, 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 Series
One Preferred Stock upon exercise of the Rights initially shall be $40
assuming the 1-for-3.7 reverse stock split with respect to the Common Stock as
described in the Registration Statement, and 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 Series One 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
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<PAGE> 16
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 Series
One Preferred Stock certificates for such total number of one
hundredths of a share of Series One 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 Series One 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
(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 Series One 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
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<PAGE> 17
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 other securities
convertible into 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 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
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<PAGE> 18
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 Series One Preferred Stock, or any authorized and issued shares of
Series One Preferred Stock held in its treasury, the number of shares of Series
One 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:
(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 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 such registration statement to become
effective as soon as practicable after the date of such filing (such
date being the "Registration Date");
(iii) to cause such 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
such 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
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<PAGE> 19
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 Series One 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 Series One 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 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 Series One
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 Series One
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. Series One Preferred Stock Record Date.
Each Person in whose name any certificate for a number of one
hundredths of a share of Series One 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 Series One 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 Series One 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
Series
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<PAGE> 20
One 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 Series
One Preferred Stock payable in shares of Series One Preferred Stock,
(B) subdivide the outstanding Series One Preferred Stock, (C) combine
the outstanding Series One Preferred Stock into a smaller number of
shares, or (D) issue any shares of its capital stock in a
reclassification of the Series One 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 Series One
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 Series One
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 Series One 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
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<PAGE> 21
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 Series One 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
Series One 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 Series One 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 to permit the exercise in full 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
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<PAGE> 22
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 Series One Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within
forty-five (45) calendar days after such record date) Series One Preferred Stock
(or shares having the same rights, privileges and preferences as shares of
Series One Preferred Stock ("equivalent preferred stock")) or securities
convertible into Series One Preferred Stock or equivalent preferred stock at a
price per share of Series One Preferred Stock or per share of equivalent
preferred stock (or having a conversion price per share, if a security
convertible into Series One Preferred Stock or equivalent preferred stock) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per share of Series One 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 numerator of which shall be the sum of the number of shares of
Series One Preferred Stock outstanding on such record date plus the number of
shares of Series One Preferred Stock which the aggregate offering price of the
total number of shares of Series One 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 Series One
Preferred Stock outstanding on such record date plus the number of additional
shares of Series One 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 Series One 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 Series One 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
Series One Preferred Stock but including any dividend payable in stock other
than Series One Preferred Stock) or
18
<PAGE> 23
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
Series One 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 Series One Preferred Stock and the denominator of which
shall be such current market price (as determined pursuant to Section 11(d)
hereof) per share of Series One 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 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.
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<PAGE> 24
(ii) For the purpose of any computation of the current market
price per share of Series One Preferred Stock, if the shares of Series One
Preferred Stock are not publicly held or not so listed or traded, "current
market price" per share of the Series One 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 Series
One Preferred Stock is publicly held or so listed or traded, the "current
market price" per share of Series One 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 Series One
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.
(f) If, 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 Series One
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 Series One 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
Series One 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 Series One
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 Series One Preferred Stock or other securities
(calculated to the nearest one-millionth of a share) obtained by
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<PAGE> 25
(i) multiplying (x) the number of one hundredths of a
share of Series One 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 Series One 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 Series One 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 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(i), 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 Series One 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 Series One Preferred Stock (or other securities) which were
expressed in the initial Rights Certificates issued hereunder.
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<PAGE> 26
(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 Series One 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 Series One 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 Series One 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
Series One 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 Series One
Preferred Stock, (ii) issuance wholly for cash of any shares of Series One
Preferred Stock at less than the current market price, (iii) issuance wholly
for cash of shares of Series One Preferred Stock or securities which by their
terms are convertible into or exchangeable for shares of Series One 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
Series One 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
22
<PAGE> 27
(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.
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:
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<PAGE> 28
(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), 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 Series One
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 Series One 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
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<PAGE> 29
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 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
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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.
(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
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(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
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:
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(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 Series One Preferred Stock (other than fractions which are integral
multiples of one hundredth of a share of Series One Preferred Stock) (or other
securities) upon exercise of the Rights or to distribute certificates which
evidence such fractional shares of Series One Preferred Stock (other than
fractions which are integral multiples of one hundredth of a share of Series
One Preferred Stock) (or other securities). In lieu of such fractional shares
of Series One Preferred Stock that are not integral multiples of one hundredth
of a share of Series One 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 Series One
Preferred Stock (or other securities). For purposes of this Section 14(b), the
current market value of one hundredth of a share of Series One 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 Series One
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.
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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;
(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
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<PAGE> 34
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 Series One 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 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. The indemnity provided herein shall survive the expiration of the
Rights and the termination of this Agreement. The costs and expenses reasonably
and actually incurred by the Rights Agreement in successfully enforcing a claim
for indemnification shall be paid by the Company.
(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
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<PAGE> 35
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 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
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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 change in the
exercisability of the Rights (including the Rights becoming void pursuant to
Section 7(e) hereof) without actual knowledge of such change, 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 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.
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(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, 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
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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 Series One Preferred Stock by registered or certified mail, and at the
expense of the Company 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 Series One 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 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 Series One 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.
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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 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
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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 mail 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.
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
36
<PAGE> 41
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. Notwithstanding the foregoing, the Board
shall not be empowered to effect such exchange at any time after any Adverse
Person becomes the Beneficial Owner of 50% or more of the Common Stock then
outstanding.
(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.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Exercisability Date,
37
<PAGE> 42
(i) to pay any dividend payable in stock of any class to
the holders of Series One Preferred Stock or to make any other
distribution to the holders of Series One 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 Series One Preferred Stock
rights or warrants to subscribe for or to purchase any additional
shares of Series One Preferred Stock or shares of stock of any class
or any other securities, rights or options;
(iii) to effect any reclassification of its Series One
Preferred Stock (other than a reclassification involving only the
subdivision of outstanding shares of Series One 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 Series One 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 Series
One 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 Series One 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
occurrence of such event, which shall specify the event and the consequences of
the event to holders
38
<PAGE> 43
of Rights under Section 11(a)(ii) hereof, and (ii) all references in the
preceding paragraph to Series One 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):
Harris Trust and Savings Bank
211 W. Monroe Street
16th Floor
Chicago, IL 60606
Attention: Mr. Charlie Zade
All said notices shall be deemed given upon receipt. 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
Series One 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:
39
<PAGE> 44
(i) to cure any ambiguity;
(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
40
<PAGE> 45
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 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.
41
<PAGE> 46
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
Registration Statement 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.
42
<PAGE> 47
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:
HARRIS TRUST AND SAVINGS BANK
By:
-------------------------------------
Name:
Title:
43
<PAGE> 48
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 Amended and Restated Rights Agreement dated January 17, 1997 (the
"Rights Agreement") between Signature Inns, Inc., an Indiana corporation (the
"Company"), and Harris Trust and Savings Bank, as Rights Agent (the "Rights
Agent", which term shall include any
__________________________________
* The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
<PAGE> 49
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 Series One Preferred Stock, without par value, of the Company (the
"Series One Preferred Stock") at the Exercise Price initially of $40 per one
hundredth of one share of Series One 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 Series One 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> 50
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 $.001 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 Series One Preferred Stock (other than
fractions which are integral multiples of one hundredth of a share of Series
One 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> 51
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 Series One
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 _______ __, ____.
ATTEST: SIGNATURE INNS, INC.
____________________________ By:_________________________________
Title:______________________ Title:______________________________
Countersigned:
By _________________________
Authorized Signature
<PAGE> 52
[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> 53
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 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 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> 54
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 Series One 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> 55
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(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 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> 56
EXHIBIT B
SUMMARY OF RIGHTS AGREEMENT
Each holder of shares of Common Stock of SIGNATURE INNS, INC. (the
"Company") as of the close of business on March 18, 1997 (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 Series One Preferred
Stock at an initial exercise price of $40 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 business 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 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
<PAGE> 57
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. Cash will be paid in lieu of issuing fractional shares of Series
One Preferred Stock pursuant to an exercise of the Rights.
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.
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.
<PAGE> 58
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.
Non-cumulative Preferred Stock, Series One. Each one hundredth of a
share of Series One 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 Series One Preferred Stock, the holders of
the Series One 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 One 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 One 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 One
Preferred Stock will have no preemptive or other subscription rights, and the
Series One Preferred Stock is not subject to call.
<PAGE> 1
EXHIBIT 5
LEGALITY OPINION OF JOHNSON SMITH PENCE DENSBORN WRIGHT & HEATH
January __, 1997
Signature Inns, Inc.
250 East 96th Street
Suite 450
Indianapolis, Indiana 46240
Re: Signature Inns, Inc.
Gentlemen:
We have acted as counsel to Signature Inns, Inc. (the "Company") in
connection with the proposed offering and sale ("Offering") of up to 2,300,000
shares of the Company's Cumulative Convertible Preferred Stock, Series A (the
"Preferred Stock") pursuant to the registration statement on Form SB-2
originally filed with the Securities and Exchange Commission on September 26,
1996 (Registration No. 333-12735) (such registration statement and all
amendments thereto are referred to hereinafter as the "Registration Statement").
In this regard, you have requested our opinion with respect to certain
matters relating to the securities described in the Registration Statement.
Terms used herein and not otherwise defined shall have the meanings ascribed to
them in the Registration Statement.
In acting as your counsel for the Offering, we have examined and relied
upon originals or copies, certified or otherwise identified to our satisfaction,
of such records of the Company, including the Company's Amended and Restated
Articles of Incorporation, Code of By-Laws and corporate minute books, other
agreements and instruments, certificates of public officials and other documents
as we have deemed necessary or appropriate as a basis for the opinions expressed
herein.
In connection with our examination, we have assumed the genuiness of
all signatures, the authenticity of all documents tendered to us as originals,
the legal capacity of natural persons executing such documents and the
conformity to original documents of all documents submitted to us as certified
or photostatic copies.
Based on such examination, and subject to the qualifications and
limitations set forth herein, we are of the opinion that:
<PAGE> 2
Signature Inns, Inc.
January ___, 1997
Page Two
1. The Preferred Stock has been duly authorized and, when
certificates therefor have been duly executed and delivered,
will be validly issued and, when the consideration therefor,
as contemplated by the Registration Statement, has been fully
paid, will be fully paid and nonassessable; and
2. The shares of the Company's common stock issuable upon
conversion of the Preferred Stock have been duly authorized
for issuance and, when certificates therefor have been duly
issued and delivered upon conversion of the Preferred Stock in
accordance with the requirements for conversion set forth in
the Company's Amended and Restated Articles of Incorporation,
will be validly issued, fully paid and nonassessable.
This opinion is limited to the matters set forth herein, and no opinion
may be inferred or implied beyond the matters expressly stated herein. Without
limiting the generality of the foregoing, except as expressly stated herein, we
express no opinion as to the compliance with the state and federal securities
laws, including without limitation, antifraud provisions thereof. We undertake
no responsibility to revise this opinion in the event of any change in the
relevant law or facts first occurring or first disclosed to us after the date
hereof.
We are opining solely with respect to the laws of the State of Indiana.
We express no opinion as to the matters governed or affected by the laws of
other states or federal law, and we have made no independent examination of the
laws of any other states.
This opinion is solely for the information of the Company and is not to
be quoted in whole or in part or otherwise referred to, nor is it to be filed
with or delivered or communicated to any government agency or any other persons
without our prior written consent, and no one other than the Company is entitled
to rely on this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of the Registration Statement.
Very truly yours,
JOHNSON SMITH PENCE
DENSBORN WRIGHT & HEATH
<PAGE> 1
EXHIBIT 8
TAX OPINION OF JOHNSON SMITH PENCE DENSBORN WRIGHT & HEATH
January __, 1997
Signature Inns, Inc.
250 East 96th Street
Suite 450
Indianapolis, IN 46240
Re: Signature Inns, Inc.
Gentlemen:
We have acted as counsel to Signature Inns, Inc. (the "Company"), in
connection with the proposed offering and sale of up to 2,300,000 shares of the
Company's Cumulative Convertible Preferred Stock, Series A (the "Preferred
Stock"), pursuant to the registration statement on Form SB-2 originally filed
with the Securities and Exchange Commission on September 26, 1996 (Registration
No. 333-12735) (such registration statement and all amendments thereto are
referred to hereinafter as the "Registration Statement").
In acting as your counsel, we have examined and relied upon originals
or copies, certified or otherwise identified to our satisfaction, of such
records of the Company, including the Company's Amended and Restated Articles of
Incorporation, Code of By-Laws and corporate minute books, other agreements and
instruments, certificates of public officials and other documents as we have
deemed necessary or appropriate as a basis for the opinions expressed herein. As
to various questions of fact material to such opinions, we have relied upon
certificates of officers of the Company.
In connection with our examination, we have assumed the genuineness of
all signatures, the authenticity of all documents tendered to us as originals,
the legal capacity of natural persons and the conformity to original documents
of all documents submitted to us as certified or photostatic copies.
Based upon the foregoing and having regard for such legal questions as
we have deemed relevant, it is our opinion that:
The summary of the law and legal conclusions contained in the
Registration Statement under the caption "Federal Income Tax Consequences" is
correct in all material respects and fairly summarizes the federal tax
consequences that are material to a holder of the Preferred Stock.
<PAGE> 2
Signature Inns, Inc.
January ___, 1997
Page 2
We call to your attention that we are members of the bar of the State
of Indiana and do not purport to be experts in, or to render any opinions with
respect to, the laws of jurisdictions other than the State of Indiana, except
for the federal income tax laws of the United States of America.
This opinion is solely for the information of the Company and is not to
be quoted in whole or in part or otherwise referred to, nor is it to be filed
with or delivered or communicated to any government agency or any other persons
without our prior written consent, and no one other than the Company is entitled
to rely on this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption
"Federal Income Tax Consequences" in the Prospectus constituting part of the
Registration Statement.
Very truly yours,
JOHNSON SMITH PENCE
DENSBORN WRIGHT & HEATH
<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 reports included herein on the consolidated
financial statements of Signature Inns, Inc. and subsidiaries, the combined
financial statements of Signature Inn Affiliated Partnerships, and the
statements of operations of Signature Northwestern Ltd.-I Limited Partnership.
We also consent to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Indianapolis, Indiana
January 21, 1997
