<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1999
REGISTRATION NO. 333-20143
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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JAMESON INNS, INC.
(Exact name of registrant as specified in governing instruments)
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GEORGIA 58-207958
(State or other jurisdiction of organization) (I.R.S. Employer I.D. No.)
8 PERIMETER CENTER EAST -- SUITE 8050
ATLANTA, GEORGIA 30346-1603
(770) 901-9020
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
STEVEN A. CURLEE
GENERAL COUNSEL
JAMESON INNS, INC.
8 PERIMETER CENTER EAST -- SUITE 8050
ATLANTA, GEORGIA 30346-1604
(770) 901-9020
(Name, address of agent for service)
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COPIES TO:
LYNNWOOD R. MOORE, JR., ESQ. JAMES R. TANENBAUM, ESQ.
CONNER & WINTERS, A PROFESSIONAL CORPORATION STROOCK & STROOCK & LAVAN LLP
15 E. 5TH STREET, SUITE 3700 180 MAIDEN LANE
TULSA, OKLAHOMA 74103-4344 NEW YORK, NEW YORK 10038-4982
(918) 586-5711 (212) 806-5400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time
to time or at one time after the effective date of this Post-Effective Amendment
No. 1 to the Registration Statement as determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
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 earlier effective
registration statement for the same offering. [ ]
<PAGE> 2
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. [X]
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THE REGISTRANT HEREBY AMENDS THIS POST-EFFECTIVE AMENDMENT TO 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 POST-EFFECTIVE AMENDMENT TO THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS POST-EFFECTIVE AMENDMENT TO THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been declared effective
by the Securities and Exchange Commission pursuant to Section 8(a) of the
Securities Act of 1933. This prospectus supplement and the accompanying
prospectus will be delivered to purchasers of these securities. This prospectus
supplement and the accompanying prospectus do not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 1999
Prospectus supplement
(To prospectus dated September __, 1999)
JAMESON INNS, INC.
1,000,000 Shares
of Common Stock
This prospectus supplement and the accompanying prospectus relate to
the issuance and sale of up to 1,000,000 shares of our common stock from time to
time through RCG Brinson Patrick, a division of Ramius Securities, LLC, as our
sales agent. These sales, if any, will be made pursuant to the terms of a sales
agency agreement among us, Jameson Hospitality, LLC and the agent, a form of
which has been filed as an exhibit to the registration statement of which this
prospectus supplement is a part and is incorporated herein by reference.
Our common stock trades on the Nasdaq National Market under the symbol
"JAMS." The sales of shares of our common stock under this prospectus
supplement, if any, will be made by means of ordinary brokers' transactions
through the facilities of the Nasdaq National Market at prices prevailing at the
time of sale. These sales will be effected during a series of one or more sales
periods, each consisting of five consecutive calendar days, commencing on Monday
and ending on Friday, unless a shorter period has been agreed to by us and the
agent. These sales will be made by the agent on a best efforts basis.
The net proceeds to us for sales of common stock sold during a sales
period will equal 96.5% of the net proceeds from sales during the sales period.
The net proceeds from any sales under this prospectus supplement will be used as
described under "Use of Proceeds" in the accompanying prospectus. The
compensation to the agent for sales of common stock during a sales period will
be 3.5% of the net proceeds from sales during the sales period.
If required by the Securities and Exchange Commission, promptly
following the end of each sales period, we will file an additional prospectus
supplement under the applicable paragraph of Rule 424(b) under the Securities
Act of 1933, as amended. The additional prospectus supplement will set forth the
dates included in the related sales period, the number of shares of common stock
sold through the agent during the sales period, the net proceeds to us and the
compensation to the agent.
In connection with the sale of common stock on our behalf, the agent
may be deemed to be an "underwriter" within the meaning of the Securities Act,
and the compensation of the agent may be deemed to be underwriting commissions
or discounts. We have agreed to provide indemnification and contribution to the
agent against certain liabilities, including liabilities under the Securities
Act.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 3 IN THE ACCOMPANYING PROSPECTUS.
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Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus supplement and the accompanying prospectus. Any
representation to the contrary is a criminal offense.
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The date of this prospectus supplement is September __, 1999.
<PAGE> 4
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been declared effective
by the Securities and Exchange Commission pursuant to Section 8(a) of the
Securities Act of 1933. An accompanying prospectus supplement and this
prospectus will be delivered to purchasers of these securities. This prospectus
does not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 1999
PROSPECTUS
$100,000,000
JAMESON INNS, INC.
COMMON STOCK, COMMON STOCK WARRANTS
AND PREFERRED STOCK
We are a self-administered real estate investment trust. We may from
offer and sell from time to time in one or more series up to $100,000,000 in the
aggregate of:
- shares of our common stock, par value $.10 per share,
- warrants to purchase our common stock, and
- shares or fractional shares of our preferred stock, par value
$1.00 per share.
We may also issue common stock upon conversion, exchange or exercise of
any of the securities listed above.
When we sell a particular series of securities, we will prepare a
prospectus supplement describing the offering and terms of that series of
securities. You should read this prospectus and that prospectus supplement
carefully.
We may offer these securities directly, through agents designated from
time to time by us, or to or through underwriters or dealers. If we designate
any agents or underwriters in connection with the sale of any offered
securities, we will include their names, and any applicable purchase price, fee,
commission or discount arrangement with them in the applicable prospectus
supplement. See "Plan of Distribution."
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INVESTING IN THESE SECURITIES INVOLVES CERTAIN RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 3
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Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES
UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
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The date of this prospectus is ___________, 1999
<PAGE> 5
FORWARD-LOOKING STATEMENTS
This prospectus, including the information incorporated in this
prospectus by reference and included in the accompanying prospectus supplement,
contains certain forward-looking statements. These include statements about our
expansion plans, acquisition or leasing of additional land parcels, construction
of new hotels and expansion of existing hotels, access to debt financing and
capital, payment of quarterly dividends and other matters. These statements are
not historical facts but are expectations or projections based on certain
assumptions and analyses made by our senior management in light of their
experience and perception of historical trends, current conditions, expected
further developments and other factors. Whether actual results and developments
will conform to our expectations and predictions is, however, subject to a
number of risks and uncertainties. These include, but are not limited to:
- Our ability to:
- integrate Signature Inns, Inc., which we recently
acquired, into our ownership and administrative
structure;
- secure construction and permanent financing for new
hotels on favorable terms and conditions;
- assess accurately the market demand for new hotels
and expansions of existing hotels;
- identify and purchase or lease new sites which meet
our various criteria, including reasonable land
prices or ground lease terms;
- contract for the construction of new hotels and
expansions of existing hotels in a manner which
produces hotels consistent with our present quality
and standards at a reasonable cost and without
significant delay;
- provide ongoing renovation and refurbishment of our
hotels sufficient to maintain consistent quality
throughout the chain; and
- manage our business in a cost-effective manner given
the increase in the number of hotels we own and the
geographic areas in which they are located.
- The ability of our lessee, Jameson Hospitality, LLC, to manage
our hotels profitably.
- General economic, market and business conditions, particularly
those in the lodging industry and in the geographic markets in
which our hotels are located.
- The business opportunities (or lack of opportunities) that may
be presented to and pursued by us.
- Availability of qualified managers and employees necessary to
execute our growth strategy, particularly in light of current
low rates of unemployment.
- Changes in laws or regulations.
- Our continued qualification as a real estate investment trust,
or REIT, and continuation of favorable income tax treatment
for REITs under federal tax laws.
The words "estimate," "project," "intend," "expect," "anticipate,"
"believe" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are found at various places
throughout this prospectus and the accompanying prospectus supplement and the
documents incorporated in this prospectus and the prospectus supplement by
reference as well as in other written materials, press releases and oral
statements issued by us or on our behalf. We caution you not to place undue
reliance on these forward-looking statements, which speak only as of the date
that they are made. We do not undertake any obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this prospectus.
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THE COMPANY
We are a self-administered real estate investment trust ("REIT"),
headquartered in Atlanta, Georgia. We develop and own limited service hotel
properties ("Inns") in the southeastern United States under the trademark "The
Jameson Inn(R)." In addition, as a result of our acquisition of Signature Inns,
Inc. in May of 1999, we own Inns in the Midwest operating under the trademark
"Signature Inn(R)."
We focus on developing Inns in communities which have a strong and
growing industrial or commercial base and a shortage of quality hotel rooms.
Generally, our Inns are rooms-only facilities designed to appeal to price and
quality conscious travelers. Our target customers are business travelers, such
as sales representatives and government employees, as well as families and
leisure travelers attending events in our markets, such as college or cultural
gatherings, fairs, festivals and family reunions.
As a REIT, we are prohibited from operating our properties.
Accordingly, all Jameson Inns and all 25 of the wholly-owned Signature Inns are
leased to Jameson Hospitality under master leases. The master leases require
Jameson Hospitality to pay us base rent based on the number of rooms in
operation on the first day of each month and, where required under the formulas
in the master leases, percentage rent based on room revenues as defined in the
master leases. Percentage rent is designed to allow us to participate in any
growth in revenues at the Inns. The master leases generally provide that a
portion of aggregate room revenues in excess of specified amounts will be paid
to us as percentage rent.
Jameson Hospitality is wholly owned by Thomas W. Kitchin, our Chairman
and Chief Executive Officer, and his spouse. References to Jameson Hospitality
throughout this prospectus refer to either Jameson Hospitality or its
predecessors, Jameson Operating Company, Jameson Operating Company, LLC and
Jameson Operating Company II, LLC, as appropriate.
Our mailing address is: Jameson Inns, Inc., 8 East Perimeter Center
East, Atlanta, Georgia 30346-1604. Our telephone number is: (770) 901-9020.
USE OF PROCEEDS
Unless we describe a different use in a prospectus supplement, we
intend to use the net proceeds from any sale of securities for working capital
and for general corporate purposes This may include the repayment of
indebtedness, the financing of capital commitments and possible future
acquisitions associated with the continued expansion of our business.
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth our consolidated ratios of earnings to
combined fixed charges and preferred stock dividends for the six months ended
June 30, 1999 and for each of the last five fiscal years.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- ----------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined fixed charges
and preferred stock dividends(1) 3.16 1.37 2.84 5.21 1.50 1.48
</TABLE>
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(1) For purposes of computing these ratios, earnings are calculated by
adding fixed charges (excluding capitalized interest and preferred
stock dividends) to income (loss) before extraordinary items. Fixed
charges consist of interest costs whether expensed or capitalized,
amortization of debt discounts and issuance costs whether expensed or
capitalized and preferred stock dividend requirements in applicable
periods. Preferred stock dividend requirements represent dividend
requirements on the outstanding preferred stock adjusted to reflect the
pre-tax earnings that would be required to cover such dividend
requirements. Jameson paid preferred stock dividends in 1995, 1998 and
during the six months ended June 30, 1999.
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<PAGE> 7
RISK FACTORS
In addition to the other information provided or incorporated by
reference in this prospectus, you should consider the following factors
carefully in evaluating whether to invest in any securities that we may offer.
You should also refer to "Forward Looking Statements" on page 1.
OUR RAPID EXPANSION CREATES FINANCIAL AND OPERATING RISKS. Our growth
strategy contemplates a rapid and continuous development of new Inns and
expansions of existing properties. We plan to borrow 100% of the related
development and expansion costs. The successful implementation of this strategy
depends on numerous factors, including those unique to us and those generally
associated with overall hotel, real estate and general economic conditions.
Those factors specific to us include our ability to:
- secure construction and permanent financing to finance such
development on terms and conditions favorable to us;
- assess accurately the market demand for new Inns and
expansions of existing properties;
- identify and purchase or lease new sites which meet our
various criteria, including reasonable land prices and ground
lease terms;
- contract for the construction of new Inns and expansions in a
manner which produces hotel properties consistent with present
quality and standards at a reasonable cost and without
significant delays; and
- manage our business in a cost-effective manner given the
increase in the number and geographic dispersion of our Inns.
In addition, risk factors affecting our profitability include Jameson
Hospitality's ability both to manage our Inns and to attract, develop and retain
the personnel, procedures and practices necessary to generate the room revenues
(as defined in the following sentence) which we anticipate will result from
development and expansions of Inns. Under the master leases with Jameson
Hospitality, which we refer to collectively as the Jameson Lease, room revenues
include all gross room rentals from our rooms, telephone, vending and other
miscellaneous income and exclude all credits, commissions, rebates and refunds,
sales taxes and other excise taxes.
No assurance can be given that some or all of the factors discussed
above will not preclude or at least delay the development of new Inns and the
expansion of existing properties. Similarly, we cannot assure you that the terms
of financing available to us or the operating results of any new or expanded
hotel properties will not have a negative economic effect on us and reduce the
amount of cash available for distribution as dividends.
POTENTIAL CONFLICTS OF INTEREST EXIST AMONG US AND OUR CHIEF EXECUTIVE
OFFICER AND COMPANIES HE OWNS. In addition to his positions with and stock
ownership interest in us, Thomas W. Kitchin, Chairman and Chief Executive
Officer of Jameson, and his spouse are the owners of Jameson Hospitality, which
constructs and operates all of the Inns. Mr. Kitchin also is the sole owner of
Kitchin Investments, Inc., the entity which pays and allocates all of our
administrative overhead expenses. As a result of Mr. Kitchin's positions with
and ownership interests in the various entities, there are inherent conflicts of
interest among us, Mr. Kitchin and these other two companies in connection with
our development of new and expansion of existing Inns. These relationships
create conflicts of interest in our dealings with Jameson Hospitality under the
Jameson Lease and the various construction agreements, and with Kitchin
Investments in our allocation and payment of our overhead expenses. In that
regard, the Jameson Lease, the form of the construction agreements and the cost
reimbursement agreement under which Kitchin Investments pays and allocates our
overhead were not negotiated on an arm's-length basis.
WE DEPEND EXCLUSIVELY ON JAMESON HOSPITALITY FOR LEASE REVENUES.
Certain rules relating to the qualification of REITs prohibit us from operating
our hotels. To comply with these rules, we have leased our hotels to Jameson
Hospitality. As a result, we depend exclusively on Jameson Hospitality for lease
revenues. Jameson Hospitality's obligations under the Jameson Lease are
unsecured. Jameson Hospitality has few liquid assets, a history of operating
losses and limited net worth. As a result, Jameson Hospitality has very limited
resources to perform certain of its financial obligations under the Jameson
Lease. These include indemnifying us against various claims, damages and losses
and making payments of base rent.
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<PAGE> 8
Also, under the Jameson Lease, Jameson Hospitality controls the daily
operations of the Inns and we have no ability to participate in those decisions.
Thus, even if Jameson Hospitality were managing the Inns inefficiently or in a
manner which failed to maximize the amount of percentage rent we receive, we
would be unable to require a change in operating procedures. The Jameson Lease
limits us to seeking redress only if Jameson Hospitality violates the lease
terms, and then only to the extent of the remedies set forth in the Jameson
Lease. Those remedies include our ability to terminate the Jameson Lease upon
certain limited events of default, including Jameson Hospitality's failure to
pay base rent.
WE WILL NEED ADDITIONAL DEBT FINANCING ON FAVORABLE TERMS TO CARRY OUT
OUR EXPANSION PLANS. We intend to borrow 100% of the funds required to finance
the development of new Inns and the expansion of existing Inns. There is no
assurance that we will be able to obtain this financing. In addition, we may
borrow additional funds in the future and/or issue corporate debt securities in
public or private offerings. We also may need to borrow funds to pay the costs
of replacement and refurbishment of furniture, fixtures and equipment of the
Inns that we are required to pay under the Jameson Lease. We cannot assure you
that we will be able to continue to meet our debt service obligations. To the
extent that we cannot, we risk the loss of some or all of our assets, including
the Inns, to foreclosure.
INTEREST RATE INCREASES COULD INCREASE OUR COST OF CURRENT AND FUTURE
DEBT. A significant portion of our current loan agreements provide for
borrowings at adjustable interest rates secured by a substantial number of our
Inns and billboards. Because of the current relative unavailability and high
cost of fixed interest rate long-term financing, we anticipate that our future
borrowings will be at interest rates which adjust with certain indices.
Therefore, our cost of financing will vary subject to events beyond our control.
Adverse economic conditions could result in higher interest rates which would
increase debt service requirements on floating rate debt and could reduce cash
available for distribution. Adverse economic conditions could also cause the
terms on which borrowings are available to us to be unfavorable. In those
circumstances, if we were in need of capital to repay indebtedness, we could be
required to sell one or more Inns at times which might not permit realization of
the maximum return on our investment.
CROSS-COLLATERALIZATION OF PROPERTIES INCREASES RISK OF LOSS. Our
current loan agreements provide for cross-collateralization and cross-default
with respect to our debt, and future loan agreements will likely contain similar
provisions. The results of a cross-default provision are that all of the loans
effectively secure repayment of all of our other loans and a default on one loan
results in a default on all other loans. In general, these provisions in our
loans may place our assets at a greater risk of foreclosure.
THE FORECLOSURE OF A MORTGAGE ON AN INN COULD HAVE MATERIAL ADVERSE TAX
EFFECTS ON US. In the event a mortgage lender were to foreclose on an Inn to
enforce its lien in satisfaction of non-recourse debt, we might be required to
recognize income. If the amount of the debt discharged exceeded that property's
fair market value, the amount of debt discharge income to be recognized would be
equal to the excess of the amount of such debt over the fair market value of the
property. In addition, we would recognize a capital gain to the extent, if any,
that the fair market value of the property exceeded our basis in it. We also
could recognize gain in the event a mortgage lender were to foreclose on a
recourse debt. The debt discharge income would be subject to the 95%
distribution requirement described below in "Federal Income Tax
Considerations--Annual Distribution Requirements."
DEBT REPAYMENT TERMS COULD AFFECT OUR ABILITY TO MAKE CASH
DISTRIBUTIONS. If our debt service obligations continue to be based on 15- to
20-year amortizations, the portion of our cash flow necessary to make principal
payments on obligations to finance future Inns may exceed the cost recovery
deductions, which are based on 39-year useful lives, we can take on our federal
income tax return. As a result, our cash available for distribution to our
shareholders may not be adequate to allow distribution of 95% of our taxable
income. We might be forced to borrow to fund such distribution. If we were
unable to borrow the money, and as a result did not make the requisite
distribution, our status as a REIT would be jeopardized.
WE COULD BECOME MORE HIGHLY LEVERAGED. We currently have a policy of
limiting our outstanding indebtedness to 65% of the aggregate appraised value of
the Inns. However, our organizational documents do not limit the amount of
indebtedness that we may incur. Accordingly, our Board of Directors could change
the current policies and we could become more highly leveraged, resulting in an
increased risk of default on our obligations and in an increase in debt service
requirements. Such an increase could adversely affect our financial condition
and results of operations, our ability to make dividend distributions to our
shareholders which could, as a result, jeopardize our status as a REIT. See
"Federal Income Tax Considerations."
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LACK OF INDUSTRY DIVERSIFICATION INCREASES ECONOMIC RISKS. We currently
invest only in Inns and intend to continue to limit our investments in the
future to Inns. As a result, an investment in Jameson carries with it the risks
of an investment concentrated in a single industry and in two closely related
segments of that industry. This concentration of our investments in narrow
segments of a single industry makes us more vulnerable to adverse effects of
occurrences such as economic recessions. Any such occurrence could have a more
significant effect on the operation of the Inns and, therefore, on lease
revenues and cash available for distribution than if our investments were more
economically diverse.
THE GEOGRAPHIC CONCENTRATION OF INNS INCREASES THE RISKS FROM LOCAL AND
REGIONAL ECONOMIC DOWNTURNS AND OTHER EVENTS. All currently operating Jameson
Inns are located in the Southeast and approximately 40% of our Jameson Inns'
rooms are located in Georgia. All Signature Inns are in the Midwest and
approximately 50% of our Signature Inns' rooms are located in Indiana. For the
foreseeable future we will continue to restrict development of new Inns to those
two regions of the country. This geographic concentration makes us more
vulnerable to local and regional occurrences such as economic downturns,
seasonal factors and natural disasters. Any of these could adversely affect our
lease revenues and cash available for distribution.
WE RELY HEAVILY ON OUR CURRENT MANAGEMENT. We and Jameson Hospitality
have relied and will continue to rely upon the services and expertise of Thomas
W. Kitchin, Chairman, and Chief Executive Officer of Jameson and Jameson
Hospitality, for strategic business direction. In addition, certain of our loan
agreements provide for a default upon a change of management. The occurrence of
any event which would cause us to lose the services of Mr. Kitchin could have a
material adverse effect on us. We have purchased a $1.0 million key-man life
insurance policy on the life of Mr. Kitchin. There is no assurance, however,
that we will continue to maintain such insurance policy in effect or that any
proceeds thereof would be sufficient to compensate us for the loss of Mr.
Kitchin's services.
INCREASES IN OUR OUTSTANDING SHARES COULD DILUTE SHAREHOLDERS'
INVESTMENTS. We maintain certain stock option and stock grant plans to provide
incentive compensation to our directors, officers and key employees and to those
of Jameson Hospitality (the "Stock Plans"). The availability for resale of
shares of our common stock issued or issuable under the Stock Plans may depress
the market price of the our common stock. In addition, to the extent stock
options and other incentive awards which may be granted under the Stock Plans
vest and are exercised at prices below the net book value of the our common
stock, the resulting issuance of shares of our common stock will cause an
immediate dilution of the interests of our other shareholders.
INTEREST RATES AND LIMITED TRADING VOLUME MAY DEPRESS THE PRICE OF OUR
CAPITAL STOCK. One of the factors that may influence the price of the our
capital stock in public trading markets will be the annual yield from
distributions by us on the price paid for shares of our common and preferred
stock as compared to yields on other financial instruments. Thus, an increase in
market interest rates may result in higher yields on other financial
instruments, which could adversely affect the market price of the our common and
preferred stock. In addition, the trading volume of equity interests in REITs is
generally not as high as in equity interests in other entities. Accordingly, the
trading volume of shares of our common and preferred stock may be adversely
affected by our status as a REIT, thereby reducing the liquidity of an
investment in Jameson.
WE HAVE CERTAIN ANTITAKEOVER PROVISIONS THAT MAY REDUCE THE LIKELIHOOD
OF OUR ACQUISITION BY ANOTHER COMPANY. Certain provisions of our articles of
incorporation and bylaws may have the effect of discouraging a third party from
making an acquisition proposal for us without the approval of the our Board of
Directors and may thereby inhibit a change in control of Jameson under
circumstances that could give the holders of our stock the opportunity to
realize a premium over the then prevailing market prices. For example, our Board
of Directors has three classes of directors with staggered terms of office.
Directors for each class have been elected for a three-year term upon the
expiration of the then current class term. The staggered terms of directors may
affect the shareholders' ability to change control of Jameson even if a change
of control were in the shareholders' interest. In addition, to comply with the
various restrictions imposed on REITs, our articles of incorporation contain a
provision limiting the amount of our voting stock which a shareholder or group
of shareholders may own. This limit may have the effect of precluding an
acquisition of control of Jameson without the approval of our Board of
Directors.
Our articles of incorporation authorize the Board of Directors to issue
up to 10,000,000 shares of preferred stock and to establish the preferences and
rights of any shares so issued. Accordingly, our Board of Directors is
authorized, without shareholder approval, to issue preferred stock with
distribution, dividend, liquidation, conversion, voting or other rights which
could adversely affect the voting power or other rights of the holders of shares
of our common stock. Issuance of preferred stock could have the effect of
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<PAGE> 10
delaying or preventing a change of control of Jameson even if a change of
control were in our shareholders' interest. To date, our Board has approved the
issuance of the 9.25% Series A Cumulative Preferred Stock ("Series A Preferred
Stock") and the $1.70 Series S Cumulative Convertible Preferred Stock ("Series S
Preferred Stock") totaling 3,528,727 shares.
CHANGES IN INVESTMENT AND FINANCING POLICIES MAY ADVERSELY AFFECT OUR
FINANCIAL CONDITION OR RESULTS OF OPERATIONS. Our Board of Directors determines
our investment and financing policies and our policies with respect to certain
other activities, including growth, debt capitalization, distributions,
operating policies and our qualification as a REIT. Among other things, our
Board of Directors could make financing decisions which could result in the
creation of interests in Jameson and/or the Inns with priority over the
interests of the shareholders, and/or make equity investments in concerns with
debt superior to our equity interest. Our Board of Directors has no present
intention to amend or revise these policies. However, except with respect to our
qualification as a REIT, our Board of Directors may do so at any time without
the approval of the shareholders. Any decision by our Board of Directors to
relinquish our status as a REIT is subject to the approval of a majority of our
voting stock present at a meeting of our shareholders. A change in these
policies could adversely affect our financial condition or results of
operations.
RISKS OF HOTEL INVESTMENTS
AN INVESTMENT IN JAMESON WILL BE AFFECTED BY GENERAL REAL ESTATE AND
ECONOMIC CONDITIONS. Our ownership of the Inns is subject to varying degrees of
risk generally incident to the ownership and operation of real property and, in
particular, hotels. Our ownership may be adversely affected by a number of
factors, including:
- the national, regional or local economic climate (which may be
adversely impacted by plant closings, industry slowdowns,
inflation and other factors);
- local hotel market conditions (such as an oversupply of guest
rooms);
- perceptions by travelers of the safety, convenience and
attractiveness of the Inns;
- the willingness and ability of Jameson Hospitality to provide
capable management and adequate maintenance;
- changes in governmental regulations, zoning or tax laws;
- operating cost increases, labor problems, potential
environmental or other legal liabilities, and changes in
interest rate levels.
Although we do not operate the Inns, the impact of these factors on
Jameson Hospitality's ability to manage the Inns profitably may affect not only
the Inns' value, but room revenues from the Inns and, therefore, rental payments
under the Jameson Lease and the amount of distributions to our shareholders.
WE FACE SIGNIFICANT COMPETITION. There are numerous hotels, including
those that are part of major chains with substantial advertising budgets,
national reservation systems, marketing programs and greater name recognition
than we have, that compete with the Inns in attracting travelers. In addition,
many of the Inns are located in smaller communities where the entry of even one
additional competitor into the market may materially affect the financial
performance of the Inn in that community. Also, to the extent we build new Inns
in larger communities, Jameson Hospitality may encounter additional and stronger
competition. Increased competition could adversely affect Jameson Hospitality's
ability to make lease payments to us.
WE ARE REQUIRED TO INCUR SIGNIFICANT RENOVATION AND REFURBISHMENT
COSTS. Hotels in general, including the Inns, have an ongoing need for
renovation and refurbishment. We have adopted a policy of maintaining sufficient
cash or available borrowings to fund expenditures for replacement and
refurbishment of furniture, fixtures and equipment for the Inns up to an amount
equal to 4% of Jameson Hospitality's total aggregate room revenues since July 1,
1995, less the amounts actually expended since that date. The actual amounts
expended have exceeded this amount and we are considering an increase in this
percentage.
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WE CANNOT ALWAYS BE SURE THAT WE ARE ADEQUATELY INSURED. The ownership
of hotel properties by its nature presents risks of liability resulting from
injuries to guests and resulting litigation. Under the terms of the Jameson
Lease, we carry comprehensive liability, fire, extended coverage, rental loss
and business interruption insurance covering all of the Inns with policy
specifications and insured limits customarily carried for similar properties.
However, we cannot assure you that our insurance coverage will be sufficient to
fully protect our business and assets from all claims or liabilities, including
environmental liabilities, or that we will be able to obtain additional
insurance at commercially reasonable rates. In the event losses or claims are
beyond the limits or scope of our insurance coverage, our business and assets
could be materially adversely affected. In addition, certain types of losses
(such as certain environmental liabilities) are not generally insured because
they are either uninsurable or not economically insurable. If an uninsured loss
or a loss in excess of insured limits occurs, we could lose our capital invested
in the affected Inn, as well as anticipated future revenues from that Inn, while
remaining obligated for any mortgage indebtedness or other financial obligations
related to that Inn. Any such loss could have a material adverse effect on our
financial condition and results of operations.
WE MUST COMPLY WITH THE 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. If we were required to make modifications to comply with the
ADA, our ability to make expected distributions to our shareholders could be
adversely affected. In addition to remedial costs, noncompliance with the ADA
could result in imposition of fines or an award of damages in private
litigation.
OUR BUSINESS IS SUBJECT TO SEASONAL FLUCTUATIONS. The hotel industry is
seasonal in nature. Hotel revenues are generally greater in the second and third
calendar quarters than in the first and fourth quarters. This seasonality will
cause quarterly fluctuations in our lease revenues.
RISKS OF REAL ESTATE INVESTMENTS
REAL ESTATE INVESTMENTS ARE TYPICALLY VERY ILLIQUID. Equity real estate
investments, including our investments in the Inns, are relatively illiquid. The
illiquidity of our investment in the Inns is further increased by the many of
the Inns' location in smaller communities. As a result, our ability to sell or
otherwise dispose of any Inn in response to changes in economic or other
conditions may be limited.
WE ARE SUBJECT TO A NUMBER OF ENVIRONMENTAL LAWS AND REGULATIONS. Under
various federal, state and local environmental laws, ordinances and regulations,
a current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
such property. These laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of hazardous or toxic
substances. In addition, the presence of hazardous or toxic substances, or the
failure to properly remediate the property, may adversely affect the owner's
ability to borrow using that real property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances may also be
liable for the costs of removal or remediation of those substances at the
disposal or treatment facility, whether or not that facility is owned or
operated by that person. We cannot assure you that
- there are no material claims or liabilities related to our
real property ownership;
- future laws, ordinances or regulations will not impose any
material environmental liability on us; and
- the current environmental condition of the Inns will not be
affected by operation of the Inns, by the condition of
properties in the vicinity of the Inns (such as the presence
of underground storage tanks) or by third parties.
Under the terms of the Jameson Lease, we indemnify Jameson Hospitality
against environmental liabilities, except those caused by the acts or negligent
failures of Jameson Hospitality. In addition, the Jameson Lease provides that
Jameson Hospitality will indemnify us against environmental liabilities caused
by Jameson Hospitality's acts or negligent failures, although Jameson
Hospitality's financial condition may limit the value of such indemnity and, in
any event, such indemnity will not apply to or protect us against past unknown
violations and related liabilities.
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TAX RISKS
THERE ARE RISKS RELATING TO OUR CONTINUED QUALIFICATION AND OPERATION
AS A REIT. We intend to continue to operate in a manner so as to qualify as a
REIT under the Internal Revenue Code. A REIT generally is not taxed at the
corporate level on income it currently distributes to its shareholders, so long
as it distributes at least 95% of its taxable income and satisfies certain other
technical and complex requirements. Each offering of securities under the
prospectus will require an opinion from Conner & Winters, A Professional
Corporation, that commencing with our taxable year beginning January 1, 1994, we
have qualified as a REIT under the Internal Revenue Code and that our proposed
manner of operation will enable us to continue to meet the requirements for
qualification as a REIT. The opinion will be based upon certain representations
made by us and upon existing law, which is subject to change, both retroactively
and prospectively, and to possibly different interpretations. Furthermore,
Conner & Winters' opinion will not be binding upon either the Internal Revenue
Service (the "IRS") or the courts. Because our qualification as a REIT in our
current and future taxable years depends upon our meeting the requirements of
the Internal Revenue Code in future periods, no assurance can be given that we
will continue to qualify as a REIT. If, in any taxable year, we were to fail to
qualify as a REIT for federal income tax purposes, we would not be allowed a
deduction for distributions to shareholders in computing taxable income and
would be subject to federal income tax (including any applicable alternative
minimum tax) on our taxable income at regular corporate rates. In addition,
unless entitled to relief under certain statutory provisions, we would be
disqualified from treatment as a REIT for federal income tax purposes for the
four taxable years following the year during which qualification was lost. The
additional tax liability resulting from the failure to so qualify would
significantly reduce the amount of funds available for distribution to our
shareholders.
WE MAY NEED TO BORROW FUNDS IN ORDER TO MAKE THE DISTRIBUTIONS REQUIRED
BY THE TAX LAWS. To obtain the favorable tax treatment associated with REITs, we
generally will be required each year to distribute to our shareholders at least
95% of our net taxable income (excluding any net capital gain). In addition, we
will be subject to tax on our undistributed net taxable income and net capital
gain, and a 4% nondeductible excise tax on the amount, if any, by which certain
distributions which we pay with respect to any calendar year are less than the
sum of 85% of our ordinary net income plus 95% of our capital gain net income
for the calendar year.
We intend to make distributions to our shareholders to comply with the
distribution provisions of the Internal Revenue Code and to avoid or minimize
income taxes and the nondeductible excise tax. Our income and cash flow will
consist primarily of the rents received under the Jameson Lease. Differences in
timing between the receipt of income and the payment of expenses in arriving at
our taxable income and the effect of required debt amortization payments could
require us to borrow funds on a short-term basis to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT. In these instances, we might need to borrow funds, if they
are available to us, in order to avoid adverse tax consequences, even if we
believe that then prevailing market conditions are not generally favorable for
such borrowings or that such borrowings would not be advisable in the absence of
such tax considerations. For federal income tax purposes, distributions paid to
shareholders may consist of ordinary income, capital gains, nontaxable return of
capital or a combination thereof. We provide each shareholder with an annual
statement indicating the tax character of the distributions.
Distributions are determined by our Board of Directors and depend on a
number of factors, including the amount of cash available for distribution, our
financial condition, any decision to reinvest rather than to distribute such
funds, our capital expenditures, the annual distribution requirements under the
REIT provisions of the Internal Revenue Code and such other factors as our Board
of Directors considers important. Accordingly, we cannot assure you that we will
be able to maintain our expected distribution rate. See "Federal Income Tax
Considerations -- Requirements for Qualification" and "-- Annual Distribution
Requirements."
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ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
Shareholders' rights and related matters are governed by our articles
of incorporation and bylaws. Certain provisions of our articles of incorporation
and bylaws may make it more difficult to change the composition of our Board of
Directors and may discourage or make more difficult any attempt by a person or
group to acquiring a controlling interest in us. We have summarized certain
provisions of our articles of incorporation and bylaws in this section.
MAJORITY VOTING REQUIREMENT
Amendments of our articles of incorporation requires the affirmative
vote of the holders of at least a majority of the voting stock, voting as a
single voting group. Our bylaws may be amended by either the affirmative vote of
a majority of all voting stock, voting as a single group, or by an affirmative
vote of a majority of our directors then holding office, unless the shareholders
prescribe that any such bylaw may not be amended or repealed by our Board of
Directors.
SPECIAL MEETINGS
Our articles of incorporation and bylaws provide that, subject to the
rights of any holders of preferred stock to elect additional directors under
specified circumstances, shareholder action can be taken at an annual or special
meeting of shareholders or by written consent. Shareholders holding 25% or more
of the voting stock entitled to vote on any issue to be considered at a proposed
special meeting may call a special meeting of shareholders.
STAGGERED BOARD OF DIRECTORS
Our articles of incorporation and the bylaws provide that the Board of
Directors will be divided into three classes of directors, each class
constituting approximately one-third of the total number of directors. The
separate classes serve staggered three-year terms. The classification of
directors will have the effect of making it more difficult for shareholders to
change the composition of our Board of Directors. We believe, however, that this
longer time required to elect a majority of a classified Board of Directors will
help to ensure continuity and stability of our management and policies.
The classification provisions may also discourage a third party from
accumulating large blocks of our stock or attempting to obtain control of
Jameson, even though such an attempt might be beneficial to the our
shareholders. Accordingly, shareholders could be deprived of certain
opportunities to sell their shares at a higher market price than might otherwise
be the case.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
Under our articles of incorporation, the number of directors is fixed
by the bylaws or pursuant to a resolution passed by the Board of Directors or by
holders of at least a majority of the voting stock. In addition, our articles of
incorporation and the bylaws provide that any vacancies may be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum; provided that vacancies created by an increase by shareholder vote of
the number of members of the Board of Directors will be filled by a vote of the
holders of a majority of the voting stock.
Under Georgia law, unless the articles of incorporation provide
otherwise, directors serving on a classified board may only be removed by the
shareholders for cause. Our articles of incorporation and the bylaws provide
that directors may be removed for cause upon the affirmative vote of holders of
at least a majority of the voting stock, voting together as a single class.
Directors may be removed without cause upon the affirmative vote of at least 75%
of the voting stock voting together as a single class.
These provisions, as they relate to holders of our common stock, are
subject to any rights of holders of our preferred stock, including the right to
elect additional directors under certain circumstances.
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RELEVANT FACTORS TO BE CONSIDERED BY THE BOARD OF DIRECTORS
Our articles of incorporation provide that in determining what is in
the best interest of Jameson, a director must consider the interests of our
shareholders and, in his or her discretion, may consider:
- the interests of our employees, suppliers, creditors and
customers;
- the economy of the nation;
- community and societal interests; and
- the long-term as well as short-term interests of Jameson and
our shareholders, including the possibility that these
interests may be best served by our continued independence.
Thus, our Board of Directors may consider numerous judgmental or
subjective factors affecting a proposal, including certain nonfinancial matters,
and on the basis of these considerations may oppose a business combination or
other transaction which, as an exclusively financial matter, might be attractive
to some or a majority of our shareholders.
RIGHTS TO ISSUE SECURITIES
Our articles of incorporation authorize the Board of Directors to
create and issue rights to purchase shares of Jameson capital stock or other
securities or property. The times at which and terms upon which such rights are
to be issued are to be determined by the Board of Directors and set forth in the
instruments governing such rights. This provision confirms our Board of
Directors' authority to issue share purchase rights, which may have terms that
could impede a merger, tender offer or other takeover attempt, or other rights
to purchase securities of Jameson or any other corporation.
RELINQUISHMENT OF REIT STATUS
Approval of a majority of the directors and the affirmative vote of the
holders of a majority of the voting stock, voting together as a single class,
present at a meeting of shareholders are required before we may relinquish our
status as a REIT.
LIMITATION OF LIABILITY OF DIRECTORS
Our articles of incorporation and bylaws provide that no officer or
director shall be personally liable to us or our shareholders for monetary
damages for any breach of his duty of care or any other duty he may have as an
officer or director, except liability for any appropriation, in violation of the
director's duties, of any business opportunity of Jameson, for any acts or
omissions that involve intentional misconduct or a knowing violation of law, for
liability under Georgia law for unlawful distributions to shareholders, and for
any transaction from which the director receives an improper personal benefit.
Our articles of incorporation also provide that if Georgia law is amended to
authorize the further elimination or limitation of an officer's or director's
liability, then the liability of each officer or director will be further
eliminated or limited in such manner, without further action by our shareholders
(unless such amended provisions of Georgia law require such further action).
Our bylaws provide that each officer and director will be indemnified
for all losses and expenses (including attorneys' fees and costs of
investigation) arising from any action or other legal proceeding, whether civil,
criminal, administrative or investigative, including any action by and in the
right of Jameson, because he is or was a director, officer, employee or agent of
Jameson or, at our request, of any other organization. This indemnification is
subject to the same exceptions, described in the preceding paragraph, that apply
to the limitation of a director's monetary liability to us or our shareholders.
Our bylaws also provide for the advance of expenses with respect to any such
action, subject to the officer's or director's written affirmation of his good
faith belief that he has met the applicable standard of conduct, and the
officer's or director's written agreement to repay any advances if it is
determined that he is not entitled to be indemnified. The bylaws permit us to
enter into agreements providing to each officer or director indemnification
rights substantially similar to those set forth in the bylaws, and such
agreements will be executed between Jameson and each director. Although the form
of indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the articles
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of incorporation and bylaws, it provides greater assurances to officers and
directors that indemnification will be available, because, as a contract, it
cannot be modified unilaterally in the future by the Board of Directors or by
the shareholders to eliminate the rights it provides.
In accordance with the applicable provisions of Georgia law, our
shareholders approved the limitation of liability provision in the articles of
incorporation and the indemnification provisions of the bylaws.
Any indemnification by us pursuant to the provisions of our articles of
incorporation and bylaws described above will be paid out of our assets and will
not be recoverable from the shareholders. To the extent that the foregoing
indemnification provisions include indemnification for liabilities arising under
the Securities Act, in the opinion of the Securities and Exchange Commission
such indemnification is contrary to public policy and, therefore, unenforceable.
We expect to carry director and officer liability insurance for the purpose of
providing a source of funds to pay any indemnification described above.
RESTRICTIONS ON TRANSFER
For us to continue to qualify as a REIT under the Internal Revenue Code
after January 1, 1995, not more than 50% in value of our outstanding stock may
be owned, directly or indirectly, by five or fewer individuals (including
certain entities) during the last half of a taxable year, and our stock must be
owned by 100 or more persons during at least 92% of a taxable year. In addition,
certain percentages of our gross income must be from particular activities (see
"Federal Income Tax Considerations -- Requirements for Qualification" and "--
Income Tests"). Because our Board of Directors believes it is essential for us
to continue to qualify as a REIT, the Ownership Limit (as defined below) was
added to our articles of incorporation.
The Ownership Limit varies among the different classes of our capital
stock. With respect to our common stock and our Series A Preferred Stock, it
provides that, subject to certain exceptions:
- Mr. Thomas W. Kitchin cannot own, or be deemed to own by
virtue of the attribution provisions of the Internal Revenue
Code, more than that number of shares of our common stock or
Series A Preferred Stock which is equal to 20.75% of the
outstanding shares of that class of stock or the Related Party
Limit (as defined below);
- American Real Estate Company Ltd. cannot own, directly or
indirectly, more than that number of shares of our common
stock or Series A Preferred Stock which is equal to 9% of the
outstanding shares of that class of stock; and
- no other shareholder may own, or similarly be deemed to own,
more than 6.75% of our outstanding common stock or Series A
Preferred Stock.
For our Series S Preferred Stock, the Ownership Limit restricts any
shareholder from owning more than 11.3% of the outstanding shares, provided that
the total shares of all classes and series of our capital stock owned by any
shareholder may not exceed 9.9% of all of the outstanding shares.
In addition, since rent from any tenant 10% of which is owned, directly
or constructively, by Jameson, including an owner of 10% or more of Jameson, is
not qualifying rent for purposes of the gross income tests under the Internal
Revenue Code, our articles of incorporation include an additional ownership
restriction referred to as the "Related Party Limit." The Related Party Limit
provides that any shareholder who owns, or is deemed to own by virtue of the
attribution provisions of the Internal Revenue Code (which differ from the
attribution provisions applied to the Ownership Limit), in excess of a 9.9%
interest or voting power in the capital stock, net assets or profits of an
entity from whom we derive gross income cannot own more than 9.9% of our
outstanding common stock. A shareholder may request the Board of Directors to
grant a waiver of the Ownership Limit or the Related Party Limit. As a condition
to granting the request, the Board of Directors may require opinions of counsel
satisfactory to it and/or an undertaking from the applicant with respect to
preserving our REIT status. The Ownership Limit and Related Party Limit will not
apply if the Board of Directors and our shareholders determine that it is no
longer in our best interests to continue to qualify as a REIT. If shares in
excess of the Ownership Limit, or shares which would cause us to be beneficially
owned by fewer than 100 persons, are issued or transferred to any person, such
issuance or transfer shall be null and void and the intended transferee will
acquire no rights to the stock.
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Shares owned, or deemed to be owned, or transferred to a shareholder in
excess of the Ownership Limit or Related Party Limit ("Excess Shares") will be
automatically transferred to us as trustee for the exclusive benefit of the
transferee or transferees to whom the shares are ultimately transferred (without
violating the Ownership Limit or Related Party Limit). While the Excess Shares
are held in trust, they will not be entitled to vote, they will not be
considered for purposes of any shareholders vote or the determination of a
quorum for such vote and they will not be entitled to participate in any
distributions we make. The intended transferee-shareholder may, at any time the
Excess Shares are held by us in trust, transfer the Excess Shares at a price not
to exceed the price paid by the intended transferee-shareholder to any
individual whose ownership of such Excess Shares would be permitted under the
Ownership Limit, at which time the Excess Shares would no longer be Excess
Shares. In addition, we have the right, for a period of 90 days during the time
the Excess Shares are held by us in trust, to purchase all or any portion of the
Excess Shares from the intended transferee-shareholder at the lesser of the
price paid for the common stock by the intended transferee- shareholder and the
closing market price for the common stock on the date we exercise our option to
purchase. The 90-day period commences on the date of the violative transfer of
ownership if the intended transferee-shareholder gives us notice of the
transfer, or, if no notice is given, the date the Board of Directors determines
that a violative transfer of ownership has occurred.
The Ownership Limit will not be automatically removed even if the REIT
provisions of the Internal Revenue Code are changed so as to no longer contain
any ownership concentration limitation or if the ownership concentration
limitation is increased. Except as otherwise described above, any change in the
Ownership Limit or Related Party Limit would require an amendment to our
articles of incorporation. In addition to preserving our status as a REIT, the
Ownership Limit and Related Party Limit may have the effect of precluding an
acquisition of control of Jameson without the approval of the Board of
Directors.
All certificates representing shares of common stock and preferred
stock will bear a legend referring to these restrictions. All persons who own,
directly or by virtue of the attribution provisions of the Internal Revenue
Code, more than 5% of the outstanding shares of each class and series of our
capital stock must file an affidavit with us containing the information
specified in the articles of incorporation within 30 days after January 1 of
each year. In addition, if we ask, each shareholder must disclose in writing
such information with respect to the direct, indirect and constructive ownership
of shares as the Board of Directors deems necessary to comply with the
provisions of the Internal Revenue Code applicable to a REIT or to comply with
the requirements of any taxing authority or governmental agency.
COMMON STOCK
Under our articles of incorporation, we are authorized to issue a total
of 20,000,000 shares of common stock, par value $.10 per share. At September 15,
1999, a total of 11,008,821 shares of common stock were issued and outstanding,
held by approximately 4,700 holders of record and approximately 9,500 beneficial
holders.
The following description of the common stock describes certain general
terms and provisions of the common stock to which any prospectus supplement may
relate, including a prospectus supplement providing that common stock will be
issuable upon conversion of preferred stock or upon the exercise of common stock
warrants. The description of our common stock is a summary only and the complete
terms and provisions are contained in our articles of incorporation.
The holders of common stock are entitled to one vote per share on all
matters voted on by shareholders, including elections of directors, and the
holders of such shares exclusively possess all voting power, except as otherwise
required by law or contained in the instrument containing the terms, rights and
conditions applicable to any series of preferred stock established by our Board
of Directors. Our articles of incorporation do not provide for cumulative voting
in the election of directors. Subject to any preferential rights of any
outstanding series of preferred stock, the holders of common stock are entitled
to any distributions as may be declared from time to time by the Board of
Directors from available funds, and upon liquidation are entitled to receive pro
rata all Jameson assets available for distribution to such holders. All shares
of common stock issued in any offering pursuant to a prospectus supplement will
be fully paid and nonassessable and the holders thereof will not have preemptive
rights.
First Union National Bank, Charlotte, North Carolina, is the transfer
and dividend payment agent for our common stock.
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COMMON STOCK WARRANTS
We may issue common stock warrants for the purchase of common stock.
Common stock warrants may be issued independently or together with any other
securities offered pursuant to any prospectus supplement and may be attached to
or separate from any other securities. Each series of common stock warrants will
be issued under a separate warrant agreement to be entered into between us and
the common stock warrant recipient or, if the recipients are numerous, a warrant
agent identified in the applicable prospectus supplement. The warrant agent, if
engaged, will act solely as our agent in connection with the common stock
warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of common stock
warrants. Further terms of the common stock warrants and the applicable warrant
agreements will be set forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe the terms of any
common stock warrants in respect of which this prospectus is being delivered,
including, where applicable, the following: (1) the title of such common stock
warrants; (2) the aggregate number of such common stock warrants; (3) the price
or prices at which such common stock warrants will be issued; (4) the
designation, number and terms of the shares of common stock purchasable upon
exercise of such common stock warrants; (5) the designation and terms of the
other securities with which such common stock warrants are issued and the number
of such common stock warrants issued with those other securities; (6) the date,
if any, on and after which such common stock warrants and the related common
stock will be separately transferable; (7) the price at which each share of
common stock purchasable upon exercise of such common stock warrants may be
purchased; (8) the date on which the right to exercise such common stock
warrants shall commence and the date on which such right shall expire; (9) the
minimum or maximum amount of such common stock warrants which may be exercised
at any one time; (10) information with respect to book-entry procedures, if any;
(11) a discussion of certain federal income tax considerations relevant to a
holder of such common stock warrants; and (12) any other terms of such common
stock warrants, including terms, procedures and limitations relating to the
exchange and exercise of such common stock warrants.
PREFERRED STOCK
GENERAL
Under our articles of incorporation, we are authorized to issue
10,000,000 shares of preferred stock, par value of $1.00 per share. At September
15, 1999, there were 1,272,727 shares of our 9.25% Series A Cumulative Preferred
Stock ("Series A Preferred Stock") and 2,256,000 shares of our $1.70 Series S
Cumulative Convertible Preferred Stock ("Series S Preferred Stock") outstanding.
We are describing in this section certain anticipated general terms and
provisions of the preferred stock which may be offered by any prospectus
supplement. Certain other terms of any series of preferred stock (which terms be
different from those stated below) will be described in the prospectus
supplement to which such series relates. This description is a summary of
anticipated terms and the complete terms of any preferred stock which may be
offered will be described in the applicable provisions of the prospectus
supplement and our articles of incorporation (including the amendment describing
the designations, rights and preferences for each series of preferred stock) and
bylaws.
Our Board of Directors is empowered by our articles of incorporation to
designate and issue from time to time one or more classes or series of preferred
stock without shareholder approval. The Board of Directors may affix and
determine the relative rights, preferences and privileges of each class or
series of preferred stock to be issued. Because the Board of Directors has the
power to establish the preferences and rights of each class or series of
preferred stock, it may afford the holders in any series or class of preferred
stock preferences, powers and rights, voting or otherwise, senior to the rights
of holders of our common stock. The preferred stock will, when issued, be fully
paid and nonassessable. The issuance of preferred stock could have the effect of
delaying or preventing a change in control of Jameson.
The prospectus supplement relating to any offering of our preferred
stock will describe the specific terms of the stock, including:
- its title and stated value;
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- the number of shares of offered;
- the liquidation preference per share;
- the offering price;
- the dividend or distribution rate(s), period(s), and/or
payment date(s) or method(s) of calculation thereof applicable
to such preferred stock;
- the date from which dividends shall accumulate, if applicable;
- the procedures for any auction and remarketing, if any, for
such preferred stock;
- the provision for a sinking fund, if any;
- the redemption provisions, if applicable;
- any listing on any securities exchange;
- the terms and conditions, if applicable, upon which the
preferred stock will be convertible into common stock,
including the conversion price (or manner of calculation
thereof);
- a discussion of certain federal income tax considerations
relevant to a holder;
- the relative ranking and preferences as to dividend rights and
rights upon liquidation, dissolution or winding up of the
affairs of Jameson;
- any limitation on issuance of any series of preferred stock
ranking senior to or on a parity with such series of preferred
stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of Jameson;
- any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate
to preserve our status as a REIT; and
- any other specific terms, preferences, rights, limitations or
restrictions.
RANK
Unless otherwise specified in the prospectus supplement, the preferred
stock will, with respect to dividend or distribution rights and rights upon
liquidation, dissolution or winding up of Jameson, rank
- senior to all classes or series of our common stock, and to
all other equity and debt securities which are specifically
designated as ranking junior to the preferred stock with
respect to dividend rights or rights upon liquidation,
dissolution or winding up of Jameson;
- on a parity with all equity securities issued by us the terms
of which specifically provide that such equity securities rank
senior to the common stock with respect to dividend rights or
rights upon our liquidation, dissolution or winding up; and
- junior to all of our debt securities (unless the terms of the
debt securities provide otherwise) and our other secured and
unsecured indebtedness.
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DIVIDENDS
Holders of shares of the preferred stock of each series will be
entitled to receive, when, as and if declared by our Board of Directors, out of
our assets legally available for payment, cash dividends (or dividends in kind
or in other property if expressly permitted and described in the applicable
prospectus supplement) at such rates and on such dates as will be set forth in
the applicable prospectus supplement. Each dividend shall be payable to holders
of record as they appear on our stock transfer books on record dates which are
fixed by our Board of Directors.
The applicable prospectus supplement will state whether dividends on
any series of the preferred stock are cumulative or non-cumulative. Dividends,
if cumulative, will be cumulative from and after the date stated in the
prospectus supplement. If our Board of Directors fails to declare a dividend
payable on a dividend payment date on any series of the preferred stock for
which dividends are noncumulative, then the holders of that series of our
preferred stock will have no right to receive a dividend for the dividend period
ending on that dividend payment date, and we will have no obligation to pay the
dividend accrued for that period, whether or not dividends on that series are
declared payable on any future dividend payment date.
Unless the applicable prospectus supplement states otherwise, if any
shares of the preferred stock of any series are outstanding, if we may not pay,
declare or set apart for payment full dividends on preferred stock of any other
series ranking, as to dividends, on a parity with or junior to the preferred
stock of that series for any period., we fail to pay full dividends (which
include all unpaid dividends in the case of cumulative dividend preferred
stock), or to contemporaneously declare and pay, or to declare and set apart a
sum sufficient for the payment thereof, full dividends on a series of preferred
stock.
If we do not pay full dividends (or do not set apart a sum sufficient
for payment of full dividends) upon the shares of our preferred stock of any
series and the shares of any other series of preferred stock ranking on a parity
as to dividends with the preferred stock of that series, we must declare all
dividends upon shares of preferred stock pro rata among the holders of such
series. We will not pay any interest, or sum of money in lieu of interest, on
any dividend payment or payments on preferred stock of any series which may be
in arrears.
Until we pay required dividends on our preferred stock, we may not
declare or pay or set aside for payment or other distribution any dividends upon
the common stock or on any other shares of our capital stock ranking junior to
or on a parity with the preferred stock of that series as to dividends or upon
liquidation (other than on preferred stock or other capital stock ranking on a
parity to the preferred stock of that series as to dividends and upon
liquidation), nor may we redeem, purchase or otherwise acquire for any
consideration (or pay any money to or make available any money for a sinking
fund for the redemption of any shares of any such stock) any common stock or any
other shares of our capital stock ranking junior to or on a parity with the
preferred stock of that series as to dividends or upon liquidation, except by
conversion into or exchange for other capital stock ranking junior to the
preferred stock of that series as to dividends and upon liquidation.
Any dividend payment we make on shares of a series of preferred stock
will first be credited against the earliest accrued but unpaid dividend due with
respect to shares of preferred stock of that series which remains payable.
REDEMPTION
If stated in the applicable prospectus supplement, we may redeem shares
of our preferred stock either at our option or by mandatory redemption, as a
whole or in part, in each case upon the terms, at the times and at the
redemption prices stated in the applicable prospectus supplement.
The prospectus supplement relating to a series of preferred stock that
is subject to mandatory redemption will specify the number of shares of such
preferred stock that we will redeem in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which will not, if
such preferred stock does not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. We may pay the redemption price in cash or other property,
as stated in the prospectus supplement. If the redemption price for preferred
stock of any series is payable only from the net proceeds of the issuance of our
capital stock, the terms of the preferred stock may provide that, if no such
capital stock has been issued, or to the extent the net proceeds from any
issuance
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are insufficient to pay in full the aggregate redemption price then due, the
preferred stock will automatically and mandatorily be converted into shares of
our applicable capital stock pursuant to conversion provisions specified in the
applicable prospectus supplement.
So long as any dividends on shares of any series of our preferred stock
ranking on a parity as to dividends and distributions of assets with that series
of the preferred stock are in arrears, we may not redeem any shares of any such
series of our preferred stock (whether by mandatory or optional redemption)
unless we redeem at the same time all such shares, and we will not purchase or
otherwise acquire any such shares. However, this restriction will not prevent
the purchase or acquisition of such shares of preferred stock to preserve our
REIT status or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding shares of preferred stock of that series. In
addition, unless we have paid or contemporaneously declared and paid for all
past dividend periods the full cumulative dividends on all outstanding shares of
any cumulative preferred stock of that series and any other of our stock ranking
on a parity with that series as to dividends and upon liquidation, we will not
purchase or otherwise acquire directly or indirectly any shares of preferred
stock of that series (except by conversion into or exchange for stock ranking
junior to the preferred stock of that series as to dividends and upon
liquidation). These restrictions will not, however, prevent us from purchasing
or acquiring shares of our preferred stock to preserve our REIT status or
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding shares of preferred stock of that series.
If we are going to redeem fewer than all of the outstanding shares of
preferred stock of any series, we will determine the number of shares to be
redeemed and we may redeem the shares pro rata from the holders of record of
those shares in proportion to the number of shares held by such holders (with
adjustments to avoid redemption of fractional shares) or any other equitable
method we determine that will not result in the issuance of any Excess Shares.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of a share of
preferred stock of any series to be redeemed at the address shown on our stock
transfer books. If notice of redemption of any shares of preferred stock has
been given and if we have set aside the funds necessary for such redemption in
trust for the benefit of the holders of any shares of preferred stock so called
for redemption, then from and after the redemption date dividends will cease to
accrue on the shares of preferred stock, which shall no longer be deemed
outstanding, and all rights of the holders of those shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding
up of our affairs, then, before any distribution or payment is made to the
holders of our common stock, or any other class or series of our capital stock
ranking junior to the preferred stock in the distribution of our assets upon our
liquidation, dissolution or winding up, the holders of each series of preferred
stock shall be entitled to receive out of our assets legally available for
distribution to shareholders liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable prospectus
supplement), plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such preferred stock does not have a cumulative
dividend). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of shares of preferred stock will have no
right or claim to any of our remaining assets. In the event that, upon any such
voluntary or involuntary liquidation, dissolution or winding up, our legally
available assets are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of preferred stock and the corresponding
amounts payable on all shares of our other classes or series of capital stock
ranking on a parity with our preferred stock in the distribution of assets upon
liquidation, dissolution or winding up, then the holders of our preferred stock
and all other such classes or series of our capital stock will share ratably in
any such distribution of our assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
If liquidating distributions have been made in full to all holders of
shares of our preferred stock, our remaining assets will be distributed among
the holders of any other classes or series of our capital stock ranking junior
to our preferred stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares.
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VOTING RIGHTS
Holders of our preferred stock will not have any voting rights, except
as described below or as otherwise from time to time required by law or as
indicated in the applicable prospectus supplement.
Any series of preferred stock may provide that, so long as any shares
of that series of preferred stock remain outstanding, the holders of that series
may vote as a separate class on certain specified matters, which may include
changes in our capitalization, amendments to our articles of incorporation, and
mergers and dispositions.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
occurs, we have redeemed or called for redemption all outstanding shares of that
series of preferred stock after giving prior notice and have irrevocably
deposited in trust sufficient funds to redeem the shares.
The provisions of a series of our preferred stock may provide for
additional rights, remedies and privileges if dividends on that series are in
arrears for specified periods, which rights and privileges will be described in
the applicable prospectus supplement.
In any event, under Georgia law, holders of each series of our
preferred stock will be entitled to vote upon a proposed amendment to our
articles of incorporation, whether or not entitled to vote thereon by our
articles of incorporation, if the amendment would alter the contract rights, as
set forth in the articles of incorporation, of their shares of stock.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
our preferred stock are convertible into common stock will be set forth in the
applicable prospectus supplement. These terms will include the number of shares
of our common stock into which the preferred stock is convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at our option or the option of the
holders of the preferred stock, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such preferred stock.
RESTRICTIONS ON OWNERSHIP
Our preferred stock is subject to certain restrictions on ownership and
transfer described above under "Restrictions on Transfer."
First Union National Bank, Charlotte, North Carolina, is the transfer
and dividend payment agent for the outstanding series of our preferred stock.
PLAN OF DISTRIBUTION
The distribution of our securities may be made from time to time in one
or more transactions (which may involve block transactions) on the Nasdaq
National Market, in negotiated transactions, through the writing of common stock
warrants or through the issuance of preferred stock convertible into common
stock (whether such common stock warrants or preferred stock is listed on a
securities exchange or otherwise, or a combination of these methods of
distribution, at a fixed price or prices, which may be changed, at market prices
prevailing at the time of the sale, at prices related to such prevailing market
prices or at negotiated prices. Further, the distribution of any securities in
one or more special offerings pursuant to a dividend reinvestment plan or other
similar plan may be made from time to time at a fixed price or prices, which may
be changed, at market prices prevailing at the time of the sale, at prices
related to such prevailing market prices or at negotiated prices. Each
prospectus supplement will describe the method of distribution of the securities
offered therein.
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We may sell securities in any of three ways: (1) to or through
underwriters or dealers; (2) through agents; or (3) directly to one or more
purchasers. Each prospectus supplement will set forth the terms of that offering
of the securities, including the name or names of any underwriters, dealers or
agents, the purchase price of such securities, the proceeds we will receive from
such sale, any delayed delivery arrangements, any underwriting discounts and
other items constituting underwriters' compensation, any initial public offering
price, any discounts or concessions allowed or reallowed or paid to dealers and
any securities exchanges on which such securities may be listed.
If underwriters are used in the sale, the securities will be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. The underwriter or underwriters with respect to a
particular underwritten offering of the securities will be named in the
prospectus supplement relating to such offering, and if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of such prospectus supplement. Unless otherwise stated in the
prospectus supplement relating thereto, the obligations of the underwriters or
agents to purchase a particular offering of securities will be subject to
conditions precedent, and the underwriters will be obligated to purchase all the
particular securities offered if any are purchased.
If dealers are utilized in the sale of a particular offering of
securities with respect to which this prospectus is delivered, we will sell the
securities to the dealers as principal. The dealers may then resell such
securities to the public at varying prices to be determined by the dealers at
the time of resale. The names of the dealers and the terms of the transaction
will be stated in the prospectus supplement relating thereto. Any initial public
offering price and any discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time.
Only underwriters named in a prospectus supplement will be deemed to be
underwriters in connection with the securities described therein. Firms not so
named will have no direct or indirect participation in the underwriting of such
securities, although such a firm may participate in the distribution of such
securities under circumstances entitling it to a dealer's commission. It is
anticipated that any underwriting agreement pertaining to any such securities
will (1) entitle the underwriters to indemnification by us against certain civil
liabilities under the Securities Act or to contribution with respect to payments
which the underwriters may be required to make in respect thereof, (2) provide
that the obligations of the underwriters will be subject to certain conditions
precedent and (3) provide that the underwriters generally will be obligated to
purchase all such securities if any are purchased.
We may offer securities directly or through agents we designate from
time to time at fixed prices, which may be changed, or at varying prices
determined at the time of sale. Any such agent will be named, and the terms of
any such agency (including any commissions payable to the agent) will be set
forth in the prospectus supplement. Unless otherwise indicated in the prospectus
supplement, any such agent will act on a reasonable best efforts basis for the
period of its appointment. Agents named in a prospectus supplement may be deemed
to be underwriters (within the meaning of the Securities Act) of the securities
described therein and, under agreements which may be entered into with us, may
be entitled to indemnification by us against certain civil liabilities under the
Securities Act or to contribution with respect to payments which the agents may
be required to make in respect thereof.
If stated in a prospectus supplement, we will authorize underwriters or
other agents to solicit offers by certain specified entities to purchase
securities from us pursuant to delayed delivery contracts providing for payment
and delivery at a specified future date. The obligations of any purchaser under
any such contract will not be subject to any conditions except those described
in such prospectus supplement. Such prospectus supplement will set forth the
commissions payable for solicitations of such contracts.
Underwriters and agents may purchase and sell the securities in the
secondary market, but are not obligated to do so. There can be no assurance that
there will be a secondary market for the securities or liquidity in the
secondary market if one develops. From time to time, underwriters and agents may
make a market in the securities.
Underwriters and agents may engage in transactions with, or perform
services for, us and our subsidiaries in the ordinary course of business.
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Each class or series of securities will be a new issue of securities
with no established trading market, other than the common stock, the Series A
Preferred Stock, and the Series S Preferred Stock, which are each listed on
Nasdaq National Market. We may elect to list any other class or series of
securities on any exchange or on The Nasdaq Stock Market, but we are not
obligated to do so. However, any shares of common stock, Series A Preferred
Stock or Series S Preferred Stock sold pursuant to a prospectus supplement will
be listed on the Nasdaq National Market, subject to official notice of issuance.
Any underwriters to whom we sell securities for public offering and
sale may make a market in such securities, but those underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
any of our securities.
Certain persons participating in any offering of securities may engage
in transactions that stabilize, maintain or otherwise affect the price of the
securities offered. In connection with any such offering, the underwriters or
agents, as the case may be, may purchase and sell securities in the open market.
These transactions may include overallotment and stabilizing transactions and
purchases to cover syndicate short positions created in connection with the
offering. Stabilizing transactions consist of certain bids or purchases for the
purpose of preventing or retarding a decline in the market price of the
securities; and syndicate short positions involve the sale by the underwriters
or agents, as the case may be, of a greater number of securities than they are
required to purchase from us in the offering. The underwriters may also impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers for the securities sold for their account may be reclaimed by the
syndicate if such securities are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the securities, which may be higher than the price
that might otherwise prevail in the open market, and if commenced, may be
discontinued at any time. These transactions may be effected on The Nasdaq Stock
Market or otherwise. For a description of these activities, see "Plan of
Distribution" or "Underwriting" in the applicable prospectus supplement.
In order to comply with the securities laws of certain states, if
applicable, securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states
securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
We have entered into a Sales Agency Agreement (the "Sales Agency
Agreement") with RCG Brinson Patrick, a division of Ramius Securities, LLC (the
"Agent"), a copy of which has been filed as an exhibit to the Registration
Statement. Subject to the terms and conditions of the Sales Agency Agreement, we
may issue and sell up to 1,000,000 shares of common stock (subject to the
provisions described in the next paragraph) from time to time through the Agent,
as our exclusive sales agent. Such sales, if any, will be made by means of
ordinary brokers' transactions through the facilities of the Nasdaq National
Market at prices prevailing at the time of sale. These sales will be made during
a series of one or more sales periods, each consisting of five consecutive
calendar days, each commencing on Monday and ending on Friday, or such lesser
number of days to be agreed to by us and the Agent. These sales will be made by
the Agent on a best efforts basis.
We may terminate the Sales Agency Agreement on its second anniversary.
The Agent has the right to terminate the Sales Agency Agreement under certain
circumstances specified in that agreement.
FEDERAL INCOME TAX CONSIDERATIONS
This summary of material federal income tax considerations regarding
the offering is based on current law. It does not deal with all aspects of
taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances, or to certain types of shareholders
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the federal
income tax laws.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND SALE OF THE SHARES AND OF OUR
ELECTION TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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TAXATION OF JAMESON
We made an election to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code, commencing with our taxable year beginning
January 1, 1994. We believe that commencing with the 1994 taxable year, we were
organized and we have operated in such a manner as to qualify for taxation as a
REIT under the Internal Revenue Code. We intend to continue to operate in such a
manner, but we cannot guarantee that we have operated in a manner, or will
operate in a manner in the future, so as to remain qualified as a REIT.
The sections of the Internal Revenue Code relating to qualification and
operation as a REIT are highly technical and complex. The following discussion
summarizes the material aspects of the Internal Revenue Code sections that
govern the federal income tax treatment of a REIT and its shareholders. Because
it is a summary, it does not cover all aspects of this subject. In order to
understand all of the rules and regulations applicable to us as a REIT, you need
to refer to the applicable Internal Revenue Code provisions, Treasury
Regulations and administrative and judicial interpretations thereof.
It is the opinion of Conner & Winters, A Professional Corporation
("Conner & Winters"), our counsel, that, commencing with our taxable year
beginning January 1, 1994, we were organized and have operated in conformity
with the requirements for qualification as a REIT and our proposed method of
operations will enable us to continue to meet the requirements for qualification
and taxation as a REIT under current Internal Revenue Code provisions. Conner &
Winters' opinion is based on various assumptions and is conditioned upon certain
representations we made as to factual matters, including representations
regarding the nature of our properties and the future conduct of our business.
Such factual assumptions and representations are set out in the federal income
tax opinion that will be delivered by Conner & Winters. Moreover, such
qualification and taxation as a REIT depend upon our ability to meet on a
continuing basis, through actual annual operating results, distribution levels
and stock ownership, the various qualification tests imposed under the Code.
Conner & Winters will not review our compliance with those tests on a continuing
basis. Accordingly, no assurance can be given that the actual results of our
operations for any particular taxable year will satisfy such requirements. For a
discussion of the tax consequences of our failure to qualify as a REIT, see "--
Failure to Qualify" below.
As long as we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income tax on our net income that is currently
distributed to our shareholders. This treatment substantially eliminates the
"double taxation" (at the corporate and shareholder levels) that generally
results from investment in a corporation. However, we will be subject to federal
income or excise tax as follows: First, we will be taxed at regular corporate
rates on our REIT taxable income, which is defined generally as taxable income
(subject to certain adjustments), including net capital gains, less dividends
(or certain deemed dividends) paid to shareholders. Second, we will generally be
subject to the "alternative minimum tax" if REIT taxable income plus any tax
adjustments and preferences is greater than dividends paid to shareholders.
Third, if we have (1) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of a trade of business or (2) other nonqualifying net income
from foreclosure property, we will be subject to tax at the highest corporate
rate on such income. Fourth, if we have net income from prohibited transactions
(generally certain sales or other dispositions of property (other than
foreclosure property) held primarily for sale to customers in the ordinary
course of business), this income will be subject to a 100% tax. Fifth, if we
should fail to satisfy the 75% or 95% gross income tests discussed below and
have nonetheless maintained our qualification as a REIT because certain other
requirements have been met, we will be subject to a 100% tax on the net income
attributable to the greater of the amount by which we fail the 75% or 95% gross
income tests. Sixth, generally, if we fail to distribute to our shareholders
during each calendar year an amount equal to our required distribution, we will
be subject to a 4% nondeductible excise tax on the excess of such required
distribution amount over the amount actually distributed for the year. The
amount of required distribution is equal to the sum of (1) 85% of our ordinary
income for such year, (2) 95% of our REIT capital gain net income for such year
and (3) the amount, if any, of the required distribution for the previous year
over the amount actually distributed for that year.
In addition, pursuant to IRS Notice 88-19, if during the 10-year period
(the "Recognition Period") beginning on the first day of the first taxable year
for which we qualified as a REIT, we recognize gain on the disposition of any
asset held by us as of the beginning of such Recognition Period, then, to the
extent of the excess of (1) the fair market value of such asset as of the
beginning of such Recognition Period over (2) our adjusted basis in such asset
as of the beginning of the Recognition Period (the "Built-In Gain"), such
Built-In Gain, which may be reduced by certain net operating loss carryforwards,
will be subject to tax at the highest regular corporate rate. The Recognition
Period began January 1, 1994, and will expire December 31, 2003. Further, if we
acquire any asset from a C corporation in a transaction in which the basis of
the asset in our hands is determined by reference to the basis of the asset (or
any
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other property) in the hands of the C corporation (such as our acquisition of
Signature Inns by reason of our acquisition of Signature Inns, Inc. on May 7,
1999), and we recognize gain on the disposition of such asset during the
ten-year period beginning on the date on which such asset was acquired by us,
then, to the extent of the Built-In Gain, such gain will be subject to tax at
the highest regular corporate rate, pursuant to regulations that have not yet
been promulgated. The amount of our Built-In-Gain based on the appraisals
obtained in connection with its initial public offering in 1994 is approximately
$8.1 million and will discourage a disposition by us of any Inn held at the time
until after 2003. The amount of our Built-In Gain attributable to the Signature
Inns acquisition is less than $1.0 million.
REQUIREMENTS FOR QUALIFICATION
The Internal Revenue Code defines a REIT as a corporation, trust or
association (1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 860 of the Internal Revenue
Code; (4) which is neither a financial institution nor an insurance company
subject to certain provisions of the Internal Revenue Code; (5) the beneficial
ownership of which is held by 100 or more persons; (6) at any time during the
last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by five or fewer individuals
(as defined in the Internal Revenue Code to include certain entities); (7) which
makes an election to be a REIT and satisfies all relevant filing and other
administrative requirements established by the IRS that must be met in order to
elect and maintain REIT status; (8) which uses a calendar year for federal
income tax purposes and complies with the record keeping requirements of the
Internal Revenue Code and Treasury Regulations promulgated thereunder; and (9)
which meets certain other tests, described below, regarding the nature of its
income and assets. The Internal Revenue Code provides that conditions (1) to
(4), inclusive, must be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. We have
represented that we have met since we became a publicly held company, and we
currently do meet, all of such definitional requirements.
INCOME TESTS
In order for us to maintain our qualification as a REIT, we must
satisfy two gross income tests annually.
- First, at least 75% of our gross income (excluding gross income from
prohibited transactions) for each taxable year must consist of defined
types of income derived directly or indirectly from investments
relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or
qualified temporary investment income.
- Second, at least 95% of our gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from
such real property or temporary investments, and from dividends and
other types of interest and gain from the sale or disposition of stock
or securities.
Rents received by us under the master leases with Jameson Hospitality
will qualify as "rents from real property" in satisfying the gross income
requirements for a REIT described above only if several conditions are met.
- First, the amount of rent must not be based in whole or in part on
the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Therefore, the percentage rent
provisions of the master leases should not disqualify rental income
received from Jameson Hospitality.
- Second, the Internal Revenue Code provides that rents received from a
tenant, directly or indirectly, will not qualify as "rents from real
property" in satisfying the gross income tests if the REIT, or a direct
or indirect owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party
Tenant"). We have represented that we have since January 1, 1994,
satisfied, and we will use our best efforts to continue to satisfy this
requirement. Therefore,
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Jameson Hospitality is not and should not become a Related Party Tenant
of Jameson (by reason of our adherence to the Ownership Limit and
the Related Party Limit).
- Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the
total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from
real property." Applicable Internal Revenue Code provisions provide
that with respect to each lease, rent attributable to the personal
property for the taxable year is that amount which bears the same ratio
to total rent as the average of a REIT's adjusted bases of all personal
property at the beginning and at the end of each taxable year bears to
the average of the REIT's aggregate adjusted bases of all real and
personal property at the beginning and at the end of such taxable year.
We have represented that the resulting rental income attributable to
personal property since January 1, 1994 has been, and will continue to
be less than 15%; however, if we project that for any Inn for any
taxable year the resulting rental income attributable to personal
property may exceed 15% of all rental income, a portion of the personal
property of that Inn may be sold by us to Jameson Hospitality, with the
lease payments adjusted accordingly.
- Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the leased property or
furnish or render services to the tenants of such property, other than
through an independent contractor from whom the REIT derives no
revenue; provided, however, we may directly perform certain services
other than services which are considered rendered to the occupant of
the property.
We have represented that we have not, do not and will not knowingly (1)
charge rent for any property that is based in whole or in part on the income or
profits of any person (except by reason of being based on a percentage of
receipts or sales, as described above); (2) rent any property to a Related Party
Tenant; (3) lease personal property in connection with the rental of any Inn
which would cause the rental income attributable to such personal property to
exceed 15% of the amount of total rental income; or (iv) perform services
considered to be rendered for the occupants of the Inns other than through an
independent contractor.
Under the master leases, Jameson Hospitality has leased the land,
buildings, improvements, furnishings, and equipment comprising the Inns from us.
Jameson Hospitality pays us a per room rent ("Base Rent") plus additional rent
based on a percentage of the gross room rental revenues ("Percentage Rent,"
with the total of the Base Rent and Percentage Rent being called "Total Rent").
In order for the Total Rent to constitute "rents from real property," the leases
must be respected as true leases for federal income tax purposes and not treated
as service contracts, joint venture or some other type of arrangement. The
determination of whether the leases are true leases depends on an analysis of
all of the surrounding facts and circumstances.
In addition, pursuant to Section 7701(e) of the Internal Revenue Code,
a service contract, partnership agreement, or some other type of arrangement may
be treated instead as a lease of property if the contract, agreement or
arrangement is properly treated as a lease of property, taking into account all
relevant factors, including whether or not: (1) the service recipient is in
physical possession of the property, (2) the service recipient controls the
property, (3) the service recipient has a significant economic or possessory
interest in the property (e.g., the property's use is likely to be dedicated to
the service recipient for a substantial portion of the useful life of the
property, the service recipient shares the risk that the property will decline
in value, the service recipient shares in any appreciation in the value of the
property, the service recipient shares in savings in the property's operating
costs, or the service recipient bears the risk of damage to or loss of the
property), (4) the service provider does not bear any risk of substantially
diminished receipts or substantially increased expenditures if there is
nonperformance under the lease, (5) the service provider does not use the
property concurrently to provide significant services to entities unrelated to
the service recipient and (6) the contract price does not substantially exceed
the rental value of the property for the term of the lease.
Under the master leases, (1) Jameson Hospitality has the right to
exclusive possession, use and quiet enjoyment of the Inns during the term of the
master leases, (2) Jameson Hospitality bears the cost of, and is responsible for
daily maintenance and repair of the Inns, other than the cost of maintaining
underground utilities and structural elements (including the roofs) of the
improvements, (3) Jameson Hospitality dictates how the Inns are operated,
maintained, and improved and bears all of the costs and expenses of operating
the Inns (including the cost of any inventory used in their operation) during
the term of the leases (other than real and personal property taxes, casualty,
liability and other types of insurance and equipment and the maintenance of
structural elements, roofs and underground utilities), (4) Jameson Hospitality
benefits from any savings in the costs of operating the Inns during the term of
the leases, (5) in the event of damage or destruction to an Inn, Jameson
Hospitality is at economic risk because it will be obligated to
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restore the property to its prior condition and bear all costs of such
restoration in excess of any insurance proceeds (except, under certain
circumstances, during the last six months of the term of the master leases), (6)
Jameson Hospitality has indemnified us against all liabilities imposed on us
during the term of the master leases by reason of injury to persons or damage to
property occurring at the Inns or due to Jameson Hospitality's use, management,
maintenance or repair of the Inns, and (7) Jameson Hospitality is obligated to
pay substantial fixed rent for the term of the leases. In addition, we have
represented that the Total Rent under the leases does not substantially exceed
the fair rental value of the Inns.
Pursuant to IRS Revenue Ruling 55-540, if one or more of the following
conditions are present, the master leases will instead be considered as
conditional contracts for purchase and sale of the Inns:
- portions of the periodic payments are made specifically
applicable to an equity interest in the property to be
acquired by Jameson Hospitality,
- Jameson Hospitality will acquire title upon the payment of a
stated amount of "rentals" under the contract which it is
required to make,
- the total amount which Jameson Hospitality is required to pay
for a relatively short period of use constitutes an
inordinately large proportion of the total sum required to be
paid to secure the transfer of the title,
- the agreed "rental" payments materially exceed the current
fair rental value,
- the property may be acquired under a purchase option at a
price which is nominal in relation to the value of the
property at the time when the option may be exercised, as
determined at the time of entering into the original
agreement, or which is a relatively small amount when compared
with the total payments which are required to be made, and
- some portion of the periodic payments is specifically
designated as interest or is otherwise readily recognizable as
the equivalent of interest.
Under the master leases, (1) no portion of the Total Rent has been or
will be applied to any equity interest in the Inns to be acquired by Jameson
Hospitality, (2) Jameson Hospitality has not acquired and will not be acquiring
title to the Inns upon the payment of a stated amount of either Base Rent or
Percentage Rent, (3) the Total Rent does not and will not materially exceed the
current fair rental value of the Inns (according to the Company's
representation), (4) the Inns may not be acquired by Jameson Hospitality under a
purchase option and (5) no portion of either Base Rent or Percentage Rent has
been or will be specifically designated as interest or will be recognizable as
the equivalent of interest. Based on a review of the relevant authorities, and
such facts and representations of the Company, Conner & Winters is of the
opinion that the master leases will be treated as true leases for federal income
tax purposes. As stated above, an opinion of counsel is not binding on the IRS
or any court. Accordingly, we cannot assure you that the IRS will not challenge
the tax treatment of the master leases, or, if it does, that it will not be
successful. If the master leases are recharacterized as a service contract,
partnership agreement, or some other type of arrangement rather than a true
lease, part or all of the payments that we receive from Jameson Hospitality may
not satisfy the various requirements for qualification as "rents from real
property." In that case, we likely would not be able to satisfy either the 75%
or 95% gross income tests and, as a result, would fail to qualify as a REIT.
Any gross income derived from a prohibited transaction is subject to a
100% tax. The term "prohibited transaction" generally includes a sale or other
disposition of property (other than foreclosure property) that is held primarily
for sale to customers in the ordinary course of a trade or business. We have
represented that none of our assets are or have been held for sale to customers
in the ordinary course of its business and that the sale of an Inn and
associated property will not be in the ordinary course of our business. Whether
property is held "primarily for sale to customers in the ordinary course of a
trade or business" depends, however, on the facts and circumstances in effect
from time to time, including those related to a particular property.
Nevertheless, we have represented that we have since January 1, 1994 complied
with and covenanted that we will attempt to continue to comply with the terms of
the safe- harbor provisions in the Internal Revenue Code prescribing when asset
sales will not be characterized as prohibited transactions. Complete assurance
cannot be given, however, that the Company can comply with the safe-harbor
provisions of the Internal Revenue Code or avoid owning property that may be
characterized as property held "primarily for sale to customers in the ordinary
course of a trade or business."
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If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under certain provisions of the Internal Revenue Code.
These relief provisions will generally be available if (1) our failure to meet
such tests is due to reasonable cause and not due to willful neglect, (2) we
attach a schedule of the sources of our gross income to our return, and (3) any
incorrect information on such schedule was not due to fraud with intent to evade
tax. We cannot state, however, whether in all circumstances we would be entitled
to the benefit of these relief provisions. As discussed above, even if these
relief provisions apply, a 100% tax would be imposed which would be equal to the
excess of 75% or 95% of our gross income over our qualifying income in the
relevant category, whichever is greater, multiplied by the ratio that REIT
taxable income bears to gross income for the taxable year (with certain
adjustments).
ASSET TESTS
At the close of each quarter of our taxable year, we must also satisfy
three tests relating to the nature of our assets. First, at least 75% of the
value of our total assets must be represented by "real estate assets" which
means (1) real property (including interests in real property and interests in
mortgages on real property), (2) shares in other REIT's (3) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company,
and (4) cash, cash items (including receivables) and government securities.
Second, not more than 25% of our total assets may be represented by securities
other than those in the 75% asset class. Third, of the investments included in
the 25% asset class, the value of any one issuer's securities owned by us may
not exceed 5% of the value of our total assets and we may not own more than 10%
of such issuer's outstanding voting securities. We have represented that we have
satisfied these asset tests since December 31, 1993, and we have agreed that we
will use our best efforts to continue to satisfy such tests in the future.
After meeting the assets tests at the close of any quarter, we will not
lose our status as a REIT for failure to satisfy the asset tests at the end of a
later quarter solely by reason of changes in asset values. If the failure to
satisfy the asset tests results from an acquisition of securities or other
property during a quarter, the failure can be cured by disposition of sufficient
nonqualifying assets within 30 days after the close of that quarter. We have
represented that we maintain adequate records of the value of our assets to
ensure compliance with the asset test and we intend to take such other action
within 30 days after the close of any quarter as may be required to cure any
noncompliance. However, we can't assure you that this action will always be
successful.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, we are required to distribute dividends
(other than capital gain dividends) to our shareholders in an amount at least
equal to (A) the sum of (1) 95% of our "REIT taxable income" (computed without
regard to the dividends paid deduction and any net capital gain) and (2) 95% of
our net income (after tax), if any, from foreclosure property, minus (B) the sum
of certain items of noncash income. In addition, if we dispose of any asset
during our Recognition Period, we will be required to distribute at least 95% of
the Built-In Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before we timely file our tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that we do not distribute all of our net
capital gain or distribute at least 95%, but less than 100% of our "REIT taxable
income," as adjusted, we will be subject to tax thereon at regular corporate tax
rates. Furthermore, if we should fail to distribute our required distribution
during each calendar year, we would be subject to a 4% nondeductible excise tax
on the excess of such required distribution over the amounts actually
distributed.
We have represented that we have since January 1, 1994 made, and
covenanted that we hereafter will make, timely distributions sufficient to
satisfy all annual distribution requirements. However, it is possible that, from
time to time, we may experience timing differences between (1) the actual
receipt of income and actual payment of deductible expenses and (2) the
inclusion of that income and deduction of such expenses in arriving at our REIT
taxable income. Therefore, we could have less cash available for distribution
than would be necessary to meet our annual 95% distribution requirement or to
avoid federal corporate income tax with respect to capital gain or the 4%
nondeductible excise tax imposed on certain undistributed income. To meet the
95% distribution requirement necessary to qualify as a REIT or to avoid federal
income tax with respect to capital gain or the excise tax, it could be necessary
for us to borrow funds.
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Under certain circumstances, we may be able to rectify a failure to
meet the distribution requirement for a year by paying dividends to shareholders
in a later year. If we declare a dividend before the date on which our tax
return is due for a taxable year (including extensions) and distribute the
amount of such dividend to shareholders in the 12-month period following the
close of such taxable year, such subsequent year dividend may be deductible in
computing our REIT taxable income for the immediately preceding year. The
distribution of such dividend must be made no later than the date of the first
regular dividend payment made after the declaration and distribution of such
dividend and we must elect such treatment in our return.
Shareholders receiving subsequent year distributions are taxable on
such distributions in the year of actual receipt except in the following case.
Any distributions we declare in October, November or December of any year
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by us and received by the shareholder on December 31,
provided that the distribution is actually paid during January of the following
calendar year. However, if we actually pay the declared distributions before
December 31, the distributions will be treated as both paid by us and received
by the shareholders on the actual dates paid and received, respectively.
If, as a result of an audit by the IRS, the REIT taxable income for a
prior taxable year is increased, we may elect to distribute an additional
"deficiency dividend," as defined under Section 860 of the Internal Revenue
Code, and claim an additional deduction for dividends paid for such taxable year
in order to meet the annual distribution requirement. All deficiency dividends
must be distributed within 90 days after the final determination of an audit,
and the claim for such deficiency dividends must be filed within 120 days of
such determination. We would also be liable for the payment of interest charges
on the amount of the deficiency dividend. However, the payment of such dividends
would ensure that our qualification as a REIT would not be jeopardized due to a
failure to meet our annual distribution requirement.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to shareholders in any year in which we fail to qualify
will not be deductible by us nor will they be required to be made. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income, and, subject
to certain limitations of the Internal Revenue Code, corporate distributees may
be eligible for the dividends received deduction (such deduction is not
available to corporate distributees so long as we qualify as a REIT). Unless
entitled to relief under specific statutory provisions, we will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which we ceased to qualify as a REIT.
TAXATION OF SHAREHOLDERS
Tax Consequences to Non Tax-Exempt U.S. Shareholders
As long as we qualify as a REIT, distributions made to our taxable U.S.
shareholders from current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by such U.S.
shareholders as ordinary income in the year they are received and will not be
eligible for the dividends received deduction for corporations. Such
distributions will be treated as portfolio income and not as income from passive
activities. Accordingly, shareholders will not be able to apply any passive
losses against such income. Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent they do not
exceed our actual net capital gain for the taxable year) without regard to the
period for which a shareholder has held our stock. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a U.S. shareholder to the extent such distributions do
not exceed the adjusted basis of such U.S. shareholder's shares, but rather will
reduce the adjusted basis of such shares. To the extent that distributions in
excess of current and accumulated earnings and profits exceed the adjusted basis
of a U.S. shareholder's shares, such distributions will be included in income as
long-term capital gain (or short-term capital gain if the shares have been held
for one year or less) assuming the shares are held as a capital asset by the
U.S. shareholder. Shareholders may not include in their income tax returns any
net operating losses or capital losses of the Company. Finally, in general, any
loss upon a sale or exchange of shares by a shareholder who has held such shares
for six months or less (after applying certain holding period rules),
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will be treated as a long-term capital loss to the extent of distributions from
us required to be treated by such shareholder as long-term capital gain.
In determining the extent to which a distribution on the Series A
Preferred Stock or Series S Preferred Stock constitutes a dividend for tax
purposes, our earnings and profits will be allocated, on a pro rata basis, first
to distributions with respect to the Series A Preferred Stock and the Series S
Preferred Stock, and then to the common stock.
Under the Internal Revenue Code we are permitted to make an election to
treat all or a portion of our undistributed net capital gain as if it had been
distributed to our shareholders. If we were to make such an election, our
shareholders would be required to include in their income as long-term capital
gain their proportionate share of our undistributed net capital gain, as we
designated. Each of our shareholders would be deemed to have paid his
proportionate share of our income tax with respect to such undistributed net
capital gain, and this amount would be credited or refunded to the shareholder.
In addition, the tax basis of the shareholder's stock would be increased by his
or her proportionate share of undistributed net capital gain included in his or
her income less his or her proportionate share of our income tax with respect to
such gains. With respect to distributions we designate as capital gain
dividends, we may designate (subject to certain limits) whether the dividend is
taxable to shareholders as a 20% rate gain distribution or as an unrecaptured
depreciation distribution taxed at a 25% rate.
Information Reporting Requirements and Backup Withholding
We will report to our U.S. shareholders and the IRS the amount of
distributions paid during each calendar year and the amount of tax withheld, if
any. Under the backup withholding rules, a U.S. shareholder may be subject to
backup withholding at the rate of 31% with respect to distributions paid unless
such holder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact, or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide us with his correct
taxpayer identification number may also be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status to us. See below "-- Taxation of Non-U.S.
Shareholders."
Taxation of Tax-Exempt Shareholders
Distributions to a U.S. shareholder that is a tax-exempt entity should
not constitute "unrelated business taxable income" as defined in Section 512(a)
of the Internal Revenue Code ("UBTI"), provided that the tax-exempt entity has
not financed the acquisition of our shares with "acquisition indebtedness"
within the meaning of Section 514(c) of the Internal Revenue Code and the shares
are not otherwise used in an unrelated trade or business of the tax-exempt
entity. In addition, if we are considered to be a pension-held REIT, then a
portion of the dividends paid to qualified trusts (any trust defined under
Section 401(a) and exempt from tax under Section 501(a)) that owns more than 10
percent by value in the REIT may be considered UBTI. In general, a pension-held
REIT is a REIT that is held by at least one qualified trust holding more than
25% by value of the interests in the REIT or by one or more qualified trusts
(each of whom owns more than 10% by value) holding in the aggregate more than
50% by value of the interests in the REIT. We are not currently a pension-held
REIT.
Taxation of Non-U.S. Shareholders
The rules governing United States federal income taxation of
nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign shareholders (collectively, "Non-U.S. Shareholders") are complex
and we will make no attempt herein to provide more than a summary of such rules.
The Treasury Department issued new final regulations relating to withholding,
information reporting and backup withholding on U.S. source income paid to
foreign persons (including, for example, dividends we pay to our foreign
shareholders). These regulations generally will be effective with respect to
payments made after December 31, 2000, subject to certain transition rules. We
urge prospective investors to consult their own tax advisors as to the effect,
if any, of the final regulations on their purchase, ownership and disposition of
shares of common stock.
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Distributions to Non-U.S. Shareholders that are not attributable to
gain from sales or exchanges by us of United States real property interests and
not designated by us as capital gains dividends will be treated as dividends of
ordinary income to the extent their source is our current or accumulated
earnings and profits. Such distributions will ordinarily be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. However, if income from a
Non-U.S. Shareholder's investment in our stock is treated as effectively
connected with the Non-U.S. Shareholder's conduct of a United States trade or
business, the Non-U.S. Shareholder generally will be subject to a tax at
graduated rates, in the same manner as U.S. Shareholders are taxed with respect
to such distributions (and may also be subject to the 30% branch profits tax in
the case of a shareholder that is a foreign corporation). We expect to withhold
United States income tax at the rate of 30% on the gross amount of any such
distributions made to a Non-U.S. Shareholder unless (1) a lower treaty rate
applies or (2) the Non-U.S. Shareholder files an IRS Form 4224 with us claiming
that the distribution is "effectively connected" income within the meaning of
Section 871 of the Internal Revenue Code. Distributions in excess of our current
and accumulated earnings and profits will not be taxable to a Non-U.S.
Shareholder to the extent that such distributions do not exceed the adjusted
basis of the Non-U.S. Shareholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a Non-U.S.
Shareholder's shares, such distributions will give rise to tax liability if the
Non-U.S. Shareholder would otherwise be subject to tax on any gain from the sale
or disposition of his shares in Jameson, as described below. If it cannot be
determined at the time a distribution is made whether or not such distribution
will be in excess of our current and accumulated earnings and profits, the
distribution will be subject to withholding at a 30% rate. Further, pursuant to
recently enacted legislation, we will be required to withhold 10% of any
distribution in excess of our current and accumulated earnings and profits.
However, amounts withheld may be refundable if it is subsequently determined
that such distribution was in excess of our current and accumulated earnings and
profits and the amount withheld exceeded the Non-U.S. Shareholder's U.S. tax
liability, if any.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from our sales or exchanges of United States real property
interests will be taxed to a Non-U.S. Shareholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
distributions attributable to gain from sales of United States real property
interests are taxed to a Non-U.S. Shareholder as if such gain were "effectively
connected" with a United States business. Non-U.S. Shareholders would thus be
taxed at the normal capital gain rates applicable to U.S. Shareholders (subject
to any applicable alternative minimum tax). Also, distributions subject to
FIRPTA may be subject to a 30% branch profits tax in the case of a foreign
corporate shareholder not entitled to treaty exemption. We are required by
Treasury Regulations to withhold 35% of any distribution to a Non-U.S.
Shareholder that could be designated by us as a capital gains dividend. This
amount is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares
generally will not be taxed under FIRPTA if we are a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the REIT's stock was held directly or
indirectly by foreign persons. We believe that we are a "domestically controlled
REIT," and therefore the sale of our shares should not be subject to taxation
under FIRPTA. We anticipate that we will continue to be a "domestically
controlled REIT" and that sales of our shares by Non-U.S. Shareholders will not
be subject to U.S. taxation unless (1) the investment in the shares is
"effectively connected" with the Non-U.S. Shareholder's trade or business in the
United States, in which case such Non-U.S. Shareholder would be taxed at the
normal capital gain rates applicable to U.S. Shareholders (subject to any
applicable alternative minimum tax), or (2) in the case of a Non-U.S.
Shareholder who is a "nonresident alien individual", such Non-U.S. Shareholder
was present in the United States for a period or periods aggregating 183 days or
more during the taxable year and certain other conditions apply, in which case
such person would be subject to a 30% tax on his capital gains.
OTHER TAX CONSEQUENCES
We and our shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which we or they
transact business or reside. The state and local tax treatment of us and our
shareholders may not conform to the federal income tax consequences discussed
above. Consequently, you should consult your own tax advisor regarding the
effect of state and local tax laws on an investment in us.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited Jameson's
consolidated financial statements and schedule and Jameson Hospitality's
consolidated financial statements included in Jameson's Annual Report on Form
10-K, for the year ended December 31, 1998, as set forth in their reports, which
are incorporated by reference in this prospectus and elsewhere in the
registration statement. Jameson and Jameson Hospitality's financial statements
and schedule are incorporated by reference in reliance on Ernst & Young LLP's
reports, given on their authority as experts in accounting and auditing.
The consolidated financial statements of Signature as of December 31,
1998, are incorporated herein by reference in reliance upon the report of KPMG
LLP, independent certified public accountants, and upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of our stock and warrants offered hereby
will be passed upon by Conner & Winters, A Professional Corporation, Tulsa,
Oklahoma. Conner & Winters may rely on the opinion of Steven A. Curlee, Esq.,
our General Counsel, or other counsel named in the applicable prospectus
supplement, with respect to all matters involving Georgia law. The description
of federal income tax considerations in this prospectus under the caption
"Federal Income Tax Considerations" is based upon the opinion of Conner &
Winters.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any report, statements or
other information we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the Internet world wide web site maintained by the SEC at
http://www.sec.gov.
In addition, our common and preferred stock are traded on the Nasdaq
National Market. You can read and copy any report, proxy, statement or
information we file at The Nasdaq Stock Market, Inc., 1725 K Street, N.W.,
Washington, D.C. 10006-1506.
You can find additional information concerning us at our web sites at
http://www.jamesoninns.com and http://www.signatureinns.com. Our web sites do
not constitute a part of this prospectus.
We have filed a Registration Statement on Form S-3 to register with the
SEC the shares of our securities to be issued to purchasers in any offering
conducted pursuant to this prospectus and any accompanying prospectus
supplement. This prospectus is a part of that Registration Statement. As allowed
by SEC rules, this prospectus does not contain all the information you can find
in the Registration Statement or the exhibits to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information in this prospectus. This prospectus
incorporates by reference the documents set forth below that we have previously
filed with the SEC. These documents contain important information about us and
our finances.
The documents listed below have been filed by us under the Securities
Exchange Act of 1934 with the SEC (Commission File No. 0-23256) and are
incorporated by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1998;
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<PAGE> 33
(b) Quarterly Report on Form 10-Q for the period ended March 31, 1999,
as amended by the Form 10-Q/A1 filed on May 27, 1999, and Quarterly Report on
Form 10-Q for the period ended June 30, 1999;
(c) Current Reports on Form 8-K filed February 2, 1999, March 9, 1999,
and May 26, 1999; and
(d) Definitive Proxy Statement on Schedule 14A filed March 31, 1999.
We also incorporate by reference each of the following documents that
we will file with the SEC after the date of this prospectus:
- any reports filed under Sections 13(a) and (c) of the
Securities Exchange Act;
- definitive proxy or information statements filed under Section
14 of the Securities Exchange Act in connection with any
subsequent stockholders' meetings; and
- any reports filed under Section 15(d) of the Securities
Exchange Act.
You may obtain a copy of our SEC filings at no cost by writing or telephoning us
at the following address and telephone number:
Steven A. Curlee, Secretary
8 Perimeter Center East -- Suite 8050
Atlanta, Georgia 30346-1603
(770) 901-9020
Any statement contained in a document incorporated, or deemed to be
incorporated, by reference herein or contained in this prospectus or any
prospectus supplement shall be deemed to be modified or superseded for purposes
of this prospectus or any prospectus supplement to the extent that a statement
contained herein or therein or in any other subsequently filed document which
also is, or is deemed to be, incorporated by reference herein or therein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus or any prospectus supplement.
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<PAGE> 34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses (not including underwriting
commissions and fees) in connection with the issuance and distribution of the
securities being registered hereunder. Except for the Securities and Exchange
Commission registration fee and the NASD filing fee, all amounts are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................... $ 30,304
NASD filing fee........................................................ 10,500
Accounting fees and expenses........................................... 300,000
Counsel fees and expenses.............................................. 500,000
Blue sky fees and expenses............................................. 0
Miscellaneous expenses................................................. 200,000
Total........................................................ $1,040,804
==========
</TABLE>
- -------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended and Restated Articles of Incorporation of Jameson Inns.,
Inc. (the "Company") (the "Articles of Incorporation") and the Bylaws of the
Company, as amended, generally limit the liability of our directors and officers
to the Company and the shareholders for money damages to the fullest extent
permitted from time to time by the laws of the State of Georgia. The Articles of
Incorporation also provide, generally, for the indemnification of directors and
officers, among others, in connection with any proceeding to which they may be
made parties by reason of their service in those or other capacities except in
connection with a proceeding by or in the right of the Company in which the
director was adjudged liable to the Company or in connection with any other
proceeding charging improper personal benefit to him whether or not involving
action in his official capacity in which he was adjudged liable on the basis
that personal benefit was improperly received by them. Insofar as
indemnification for liabilities arising under the Securities act of 1933, as
amended (the "Securities Act"), may be permitted to directors and officers 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 Securities
Act, and is, therefore, unenforceable.
The Company has purchased and maintains director and officer liability
insurance. The Company has also entered into an agreement with each of its
officers and directors which provides for indemnification of liabilities arising
from their services as an officer or director of the Company.
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<PAGE> 35
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1 -- Form of Underwriting Agreement (for Common Stock)*
1.2 -- Form of Underwriting Agreement (for Common Stock
Warrants)*
1.3 -- Form of Underwriting Agreement (for preferred stock)*
1.4 -- Sales Agency Agreement with RCG Brinson Patrick dated
September 3, 1999
3.1 -- Articles of Incorporation of the Registrant incorporated by
reference to Exhibit 3.1.1 to the Registration Statement
filed on Form S-11, File No. 33-71160
3.2 -- Articles of Amendment to the Articles of Incorporation
of the Registrant incorporated by reference to Exhibit
3.1.2 to the Registration Statement filed on Form S-11,
File No.
33-71160
3.3 -- Articles of Amendment to the Articles of Incorporation of
the Registrant setting forth the Designation of Preferences,
Rights, Privileges and Restrictions of the 9.25% Series A
Cumulative Preferred Stock the Registrant incorporated by
reference to Exhibit 2.1 to the Registrant's Form 10-K/A1
(Amendment No. 1 to the Registrant's Annual Report on
Form 10-K) for the year ended December 31, 1993
3.4 -- Articles of Amendment to the Articles of Incorporation
of the Registrant incorporated by reference to Exhibit
3.3.1 to Form 10-K/A2 (Amendment No. 2 to the Registrant's
Annual Report on Form 10-K) for the year ended December
31, 1993
3.5 -- Articles of Amendment to the Articles of Incorporation of
the Registrant amending the Designation of Preferences,
Rights, Privileges and Restrictions of the 9.25% Series A
Cumulative Preferred Stock of the Registrant incorporated
by reference to Exhibit 3.6 to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1994
</TABLE>
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<PAGE> 36
<TABLE>
<S> <C>
3.6 -- Articles of Amendment to the Articles of Incorporation
of the Registrant amending the Designation of Preferences,
Rights, Privileges and Restrictions of the 9.25% Series A
Cumulative Preferred Stock incorporated by reference to
Exhibit 3.5 to the Registration Statement on Form S-4,
File No. 333-74149
3.7 -- Articles of Amendment to the Articles of Incorporation
of the Registrant setting forth the Designation of
Preferences, Rights, Privileges and Restrictions of the
$1.70 Series S Cumulative Convertible Preferred Stock
3.8 -- Bylaws of the Registrant incorporated by reference to
Exhibit 3.2.1 to the Registration Statement on Form S-11,
File No. 33-71160
3.9 -- Amendment to the Bylaws of the Registrant incorporated
by reference to Exhibit 3.2.2 to the Registration Statement
on Form S-11, File No. 33-71160
3.10 -- Amendment No. 2 to the Bylaws of Registrant
incorporated by reference to Exhibit 3.8 to the Annual
Report on Form 10-K for the year ended December 31, 1995
4.1 -- Specimen certificate of Common Stock incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-11 (File No. 33-71160)
4.2 -- Form of Common Stock Warrant Agreement*
4.3 -- Specimen certificate of 9.25% Series A Cumulative
Preferred Stock incorporated by reference to Exhibit 1 to
the Registration Statement on Form 8-A filed March 13,
1998 (File No. 23256)
4.4 -- Specimen certificate of $1.70 Series S Cumulative
Convertible Preferred Stock incorporated by reference to
Exhibit 1 to the Registration Statement on Form 8-A filed
March 26, 1999 (File no. 000-23256)
5.1 -- Opinion of Conner & Winters, A Professional
Corporation, regarding legality of securities being
offered (previously filed)
8 -- Opinion of Conner & Winters, A Professional Corporation,
regarding tax matters
10.1 -- Master Lease Agreement (relating to Jameson Inns)
incorporated by reference to Exhibit 10.1 to the Annual
Report filed on Form 10-K for the year ended December 31,
1993
</TABLE>
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<PAGE> 37
<TABLE>
<S> <C>
10.2 -- Amendment No. 1 to Master Lease Agreement (relating to
Jameson Inns) between Jameson Inns., Inc. and Jameson
Operating Company (revised) incorporated by reference to
Exhibit 10.2 to the Annual Report filed on Form 10-K for
the year ended December 31, 1995
10.3 -- Amendment No. 2 to Master Lease Agreement (relating to
Jameson Inns) between Jameson Inns., Inc. and Jameson
Operating Company (revised) incorporated by reference to
Exhibit 10.3 to the Annual Report filed on Form 10-K for
the year ended December 31, 1996
10.4 -- Amendment No. 3 to Master Lease Agreement (relating to
Jameson Inns) between Jameson Inns., Inc. and Jameson
Operating Company (revised) incorporated by reference to
Exhibit 10.4 to the Annual Report filed on Form 10-K for
the year ended December 31, 1996
10.5 -- Amendment No. 4 to Master Lease Agreement (relating to
Jameson Inns) between Jameson Inns., Inc. and Jameson
Operating Company (revised) incorporated by reference to
Exhibit 10.5 to the Annual Report filed on Form 10-K for
the year ended December 31, 1997
10.6 -- Amendment No. 5 to Master Lease Agreement (relating to
Jameson Inns) between Jameson Inns., Inc. and Jameson
Alabama, Inc., as lessor, and Jameson Development
Company, LLC incorporated by reference to Exhibit 10.6 to
the Registration Statement on Form S-4, File No. 33-74149
10.7 -- Schedule of documents substantially similar to Exhibit 10.1
incorporated by reference by Exhibit 10.7 to the
Registration Statement on Form S-4, File No. 33-74149
10.8 -- Schedule of documents substantially similar to Exhibit 10.6
incorporated by reference by Exhibit 10.8 to the
Registration Statement on Form S-4, File No. 000-23256
10.9 -- Master Lease Agreement (relating to Signature Inns)
10.10 -- Amendment No. 1 to Master Lease Agreement (relating to
Signature Inns)
10.11 -- Cost Reimbursement Agreement between Jameson Inns., Inc.
and Kitchin Investments, Inc. incorporated by reference
to Exhibit 10.2 to the Registration Statement on Form S-11,
File No. 33-71160
</TABLE>
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<PAGE> 38
<TABLE>
<S> <C>
10.12 -- Form of Construction Contract between Jameson Inns.,
Inc., and Jameson Construction Company for construction of
Jameson Inns incorporated by reference to Exhibit 10.7 to
the Annual Report filed on Form 10-K for the year ended
December 31, 1995
10.13 -- Jameson 1993 Stock Incentive Plan incorporated by
reference to Exhibit 10.22.1 to the Registration Statement
on Form S-11, File No. 33-71160
10.14 -- Form of Stock Option Agreement under Jameson Inns, Inc.
Stock Incentive Plan incorporated by reference to Exhibit
10.23 to the Registration Statement on Form S-11, File No.
33-71160
10.15 -- Amendment No. 1 to Jameson 1993 Stock Incentive Plan
incorporated by reference to Exhibit 10.10 to the Annual
Report filed on Form 10-K for the year ended December 31,
1995
10.16 -- 1994 Amendment to Jameson 1993 Stock Incentive Plan
incorporated by reference to Exhibit 10.11 to the Annual
Report filed on Form 10-K for the year ended December 31,
1995
10.17 -- Amendment No. 3 to Jameson 1993 Stock Incentive Plan
incorporated by reference to Exhibit 10.12 to the Annual
Report filed on Form 10-K for the year ended December 31,
1995
10.18 -- Jameson Inns., Inc. Director Stock Option Plan
incorporated by reference to Exhibit 10.13 to the Annual
Report filed on Form 10-K for the year ended December 31,
1995
10.19 -- Jameson 1996 Stock Incentive Plan incorporated by
reference to Exhibit 10.45 to the Annual Report filed on
Form 10-K for the year ended December 31, 1995
10.20 -- Jameson 1997 Director Stock Option Plan incorporated by
reference to Exhibit 10.17 to the Annual Report filed on
Form 10-K for the year ended December 31, 1997
10.21 -- Employment Agreement between Jameson Inns., Inc. and
Thomas W. Kitchin incorporated by reference by Exhibit
10.24 to the Registration Statement on Form S-11, File No.
33-71160
10.22 -- Amendment No. 1 to Employment Agreement between
Jameson Inns, Inc. and Thomas W. Kitchin incorporated by
reference to Exhibit 10.15 to the Annual Report filed on
Form 10-K for the year ended December 31, 1995
10.23 -- Amendment No. 2 to Employment Agreement between
Jameson Inns, Inc. and Thomas W. Kitchin incorporated by
reference to Exhibit 10.16 to the Annual Report filed on
Form 10-K for the year ended December 31, 1995
</TABLE>
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<PAGE> 39
<TABLE>
<S> <C>
10.24 -- Amendment No. 3 to Employment Agreement between
Jameson Inns, Inc. and Thomas W. Kitchin incorporated by
reference to Exhibit 10.46 to the Annual Report filed on
Form 10-K for the year ended December 31, 1996
10.25 -- Indemnification and Hold Harmless Agreement between
Jameson Inns, Inc. and Jameson Operating Company
incorporated by reference to Exhibit 10.25 to the
Registration Statement on Form S-11, File No. 33-71160
10.26 -- Indemnification and Hold Harmless Agreement between
Jameson Inns, Inc. and Kitchin Investments, Inc.
incorporated by reference to Exhibit 10.26 to the
Registration Statement on Form S-11, File No. 33-71160
10.27 -- Form of Indemnification agreement between Jameson Inns.,
Inc. and Directors and Officers incorporated by reference to
Exhibit 10.27 to the Registration Statement on Form S-11,
File No. 33-71160
10.28 -- Form of Construction Loan Agreement, Indenture, Security
Agreement and Promissory Note for loan from Empire
Financial Services, Inc. to Jameson Inns., Inc. (formerly
Jameson Company) for construction of Jameson Inn
incorporated by reference to Exhibit 10.39 to the
Registration Statement on Form S-11, File No. 33-71160
10.29 -- Form of Construction Loan Indenture, Security Agreement,
Assignment of Fees and Income, Promissory note for $4.2
million revolving loan from Empire Financial Services, Inc.
to Jameson Inns., Inc. incorporated by reference to Exhibit
10.21 to the Annual Report filed on Form 10-K for the year
ended December 31, 1993
10.30 -- Form of Deed to Secure Debt, Security Agreement,
Assignment of Operating Lease, Assignment of Fees and
Income, Promissory Note for loan from Empire Financial
Services, Inc. to Jameson Inns., Inc. incorporated by
reference to Exhibit 10.24 to the Annual Report filed on
Form 10-K for the year ended December 31, 1995
10.31 -- Loan Modification Agreement and Note increasing by $2.6
million the revolving loan from Empire Financial Services,
Inc. to Jameson Inns., Inc. incorporated by reference to
Exhibit 10.26 to the Annual Report filed on Form 10-K for
the year ended December 31, 1995
10.32 -- Deeds to Secure Debt, Mortgages, Assignments and
Security Agreements, Assignment of Rents and Leases,
Assignments of Income and Promissory Note for
$17,171,717 loan from Bank Midwest, N.A. to Jameson
Inns, Inc. secured by 14 separate Jameson Inns incorporated
by reference to Exhibit 10.34 to the Registration Statement
on Form S-4, File No. 333-74149
</TABLE>
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<PAGE> 40
<TABLE>
<S> <C>
10.33 -- Adjustable Rate Note dated June 30, 1996 in the amount of
$1,050,000 from Jameson Inns., Inc. to Empire Financial
Services, Inc. for loan on Waynesboro, Georgia
incorporated by reference to Exhibit 10.3 to the Report for
the quarter ended March 31, 1996
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of KPMG LLP
23.3 -- Consent of Conner & Winters, A Professional Corporation
(contained in its opinions filed as Exhibits 5.1 and 8)
24 -- Powers of Attorney (previously filed)
</TABLE>
----------
* To be filed by amendment or by a current report on Form 8-K pursuant to the
Securities Exchange Act of 1934, as appropriate.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii)To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement; provided, however,
that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrants
pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment
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.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated
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<PAGE> 41
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant 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 registrant 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
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<PAGE> 42
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Atlanta, State of Georgia, on September 22,
1999.
JAMESON INNS, INC.
BY: /s/ CRAIG R. KITCHIN
----------------------------
Craig R. Kitchin
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ THOMAS W. KITCHIN Chairman of the Board September 22, 1999
- ------------------------------------------- of Directors, Chief Executive
Thomas W. Kitchin Officer(principal executive
officer)
/s/ CRAIG R. KITCHIN President and Chief Financial September 22, 1999
- ------------------------------------------- Officer (principal accounting
Craig R. Kitchin officer)
/s/ ROBERT D. HISRICH* Director September 22, 1999
- -------------------------------------------
Robert D. Hisrich
/s/ MICHAEL E. LAWRENCE* Director September 22, 1999
- -------------------------------------------
Michael E. Lawrence
/s/ THOMAS J. O'HAREN* Director September 22, 1999
- -------------------------------------------
Thomas J. O'Haren
</TABLE>
* Executed pursuant to Power of Attorney
/s/ CRAIG R. KITCHIN
- -------------------------------------------
Craig R. Kitchin, Attorney-in-Fact
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<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
-------- ----------- ----
<S> <C> <C>
1.1 -- Form of Underwriting Agreement (for Common Stock)*
1.2 -- Form of Underwriting Agreement (for Common Stock
Warrants)*
1.3 -- Form of Underwriting Agreement (for preferred stock)*
1.4 -- Sales Agency Agreement with RCG Brinson Patrick dated
September 3, 1999
3.1 -- Articles of Incorporation of the Registrant incorporated by
reference to Exhibit 3.1.1 to the Registration Statement filed
on Form S-11, File No. 33-71160
3.2 -- Articles of Amendment to the Articles of Incorporation of
the Registrant incorporated by reference to Exhibit 3.1.2 to
the Registration Statement filed on Form S-11, File No.
33-71160
3.3 -- Articles of Amendment to the Articles of Incorporation of
the Registrant setting forth the Designation of Preferences,
Rights, Privileges and Restrictions of the 9.25% Series A
Cumulative Preferred Stock the Registrant incorporated by
reference to Exhibit 2.1 to the Registrant's Form 10-K/A1
(Amendment No. 1 to the Registrant's Annual Report on Form
10-K) for the year ended December 31, 1993
3.4 -- Articles of Amendment to the Articles of Incorporation of
the Registrant incorporated by reference to Exhibit 3.3.1 to
Form 10-K/A2 (Amendment No. 2 to the Registrant's Annual
Report on Form 10-K) for the year ended December 31, 1993
3.5 -- Articles of Amendment to the Articles of Incorporation of
the Registrant amending the Designation of Preferences,
Rights, Privileges and Restrictions of the 9.25% Series A
Cumulative Preferred Stock of the Registrant incorporated by
reference to Exhibit 3.6 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994
3.6 -- Articles of Amendment to the Articles of Incorporation of
the Registrant amending the Designation of Preferences,
Rights, Privileges and Restrictions of the 9.25% Series A
Cumulative Preferred Stock incorporated by reference to
Exhibit 3.5 to the Registration Statement on Form S-4, File
No. 333-74149
3.7 -- Articles of Amendment to the Articles of Incorporation of
</TABLE>
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<PAGE> 44
<TABLE>
<S> <C>
the Registrant setting forth the Designation of Preferences,
Rights, Privileges and Restrictions of the $1.70 Series S
Cumulative Convertible Preferred Stock,
3.8 -- Bylaws of the Registrant incorporated by reference to
Exhibit 3.2.1 to the Registration Statement on Form S-11,
File No. 33-71160
3.9 -- Amendment to the Bylaws of the Registrant incorporated by
reference to Exhibit 3.2.2 to the Registration Statement on
Form S-11, File No. 33-71160
3.10 -- Amendment No. 2 to the Bylaws of Registrant incorporated by
reference to Exhibit 3.8 to the Annual Report on Form 10- K
for the year ended December 31, 1995
4.1 -- Specimen certificate of Common Stock incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-11 (File No. 33-71160)
4.2 -- Form of Common Stock Warrant Agreement*
4.3 -- Specimen certificate of 9.25% Series A Cumulative Preferred
Stock incorporated by reference to Exhibit 1 to the
Registration Statement on Form 8-A filed March 13, 1998 (File
No. 23256)
4.4 -- Specimen certificate of $1.70 Series S Cumulative
Convertible Preferred Stock incorporated by reference to
Exhibit 1 to the Registration Statement on Form 8-A filed
March 26, 1999 (File no. 000-23256)
5.1 -- Opinion of Conner & Winters, A Professional Corporation,
regarding legality of securities being offered (previously
filed)
8 -- Opinion of Conner & Winters, A Professional Corporation,
regarding tax matters
10.1 -- Master Lease Agreement incorporated by reference to Exhibit
10.1 to the Annual Report filed on Form 10-K for the year
ended December 31, 1993
10.2 -- Amendment No. 1 to Master Lease Agreement between Jameson
Inns., Inc. and Jameson Operating Company (revised)
incorporated by reference to Exhibit 10.2 to the Annual Report
filed on Form 10-K for the year ended December 31, 1995
10.3 -- Amendment No. 2 to Master Lease Agreement between Jameson
Inns., Inc. and Jameson Operating Company (revised)
incorporated by reference to Exhibit 10.3 to the Annual Report
filed on Form 10-K for the year ended December 31, 1996
</TABLE>
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<PAGE> 45
<TABLE>
<S> <C>
10.4 -- Amendment No. 3 to Master Lease Agreement between Jameson
Inns., Inc. and Jameson Operating Company (revised)
incorporated by reference to Exhibit 10.4 to the Annual Report
filed on Form 10-K for the year ended December 31, 1996
10.5 -- Amendment No. 4 to Master Lease Agreement between Jameson
Inns., Inc. and Jameson Operating Company (revised)
incorporated by reference to Exhibit 10.5 to the Annual Report
filed on Form 10-K for the year ended December 31, 1997
10.6 -- Amendment No. 5 to Master Lease Agreement between
Jameson Inns., Inc. and Jameson Alabama, Inc., as lessor,
and Jameson Development Company, LLC incorporated by
reference to Exhibit 10.6 to the Registration Statement on
Form S-4, File No. 33-74149
10.7 -- Schedule of documents substantially similar to Exhibit 10.1
incorporated by reference by Exhibit 10.7 to the Registration
Statement on Form S-4, File No. 33-74149
10.8 -- Schedule of documents substantially similar to Exhibit 10.6
incorporated by reference by Exhibit 10.8 to the Registration
Statement on Form S-4, File No. 000-23256
10.9 -- Master Lease Agreement (relating to Signature Inns)
10.10 -- Amendment No. 1 to Master Lease Agreement (relating to
Signature Inns)
10.11 -- Cost Reimbursement Agreement between Jameson Inns., Inc.
and Kitchin Investments, Inc., incorporated by reference to
Exhibit 10.2 to the Registration Statement on Form S-11, File
No. 33-71160
10.12 -- Form of Construction Contract between Jameson Inns., Inc.,
and Jameson Construction Company for construction of Jameson
Inns incorporated by reference to Exhibit 10.7 to the Annual
Report filed on Form 10-K for the year ended December 31,
1995
10.13 -- Jameson 1993 Stock Incentive Plan incorporated by reference
to Exhibit 10.22.1 to the Registration Statement on Form
S-11, File No. 33-71160
10.14 -- Form of Stock Option Agreement under Jameson Inns, Inc.
Stock Incentive Plan incorporated by reference to Exhibit
10.23 to the Registration Statement on Form S-11, File No.
33-71160
</TABLE>
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<PAGE> 46
<TABLE>
<S> <C>
10.15 -- Amendment No. 1 to Jameson 1993 Stock Incentive Plan
incorporated by reference to Exhibit 10.10 to the Annual
Report filed on Form 10-K for the year ended December 31, 1995
10.16 -- 1994 Amendment to Jameson 1993 Stock Incentive Plan
incorporated by reference to Exhibit 10.11 to the Annual
Report filed on Form 10-K for the year ended December 31, 1995
10.17 -- Amendment No. 3 to Jameson 1993 Stock Incentive Plan
incorporated by reference to Exhibit 10.12 to the Annual
Report filed on Form 10-K for the year ended December 31, 1995
10.18 -- Jameson Inns., Inc. Director Stock Option Plan incorporated
by reference to Exhibit 10.13 to the Annual Report filed on
Form 10-K for the year ended December 31, 1995
10.19 -- Jameson 1996 Stock Incentive Plan incorporated by reference
to Exhibit 10.45 to the Annual Report filed on Form 10-K for
the year ended December 31, 1995
10.20 -- Jameson 1997 Director Stock Option Plan incorporated by
reference to Exhibit 10.17 to the Annual Report filed on Form
10-K for the year ended December 31, 1997
10.21 -- Employment Agreement between Jameson Inns., Inc. and Thomas
W. Kitchin incorporated by reference by Exhibit 10.24 to the
Registration Statement on Form S-11, File No.
33-71160
10.22 -- Amendment No. 1 to Employment Agreement between
Jameson Inns, Inc. and Thomas W. Kitchin incorporated by
reference to Exhibit 10.15 to the Annual Report filed on
Form 10-K for the year ended December 31, 1995
10.23 -- Amendment No. 2 to Employment Agreement between
Jameson Inns, Inc. and Thomas W. Kitchin incorporated by
reference to Exhibit 10.16 to the Annual Report filed on
Form 10-K for the year ended December 31, 1995
10.24 -- Amendment No. 3 to Employment Agreement between
Jameson Inns, Inc. and Thomas W. Kitchin incorporated by
reference to Exhibit 10.46 to the Annual Report filed on
Form 10-K for the year ended December 31, 1996
10.25 -- Indemnification and Hold Harmless Agreement between
Jameson Inns, Inc. and Jameson Operating Company
incorporated by reference to Exhibit 10.25 to the Registration
Statement on Form S-11, File No. 33-71160
10.26 -- Indemnification and Hold Harmless Agreement between
Jameson Inns, Inc. and Kitchin Investments, Inc.
incorporated by reference to Exhibit 10.26 to the Registration
Statement on Form S-11, File No. 33-71160
</TABLE>
-42-
<PAGE> 47
<TABLE>
<S> <C>
10.27 -- Form of Indemnification agreement between Jameson Inns.,
Inc. and Directors and Officers incorporated by reference to
Exhibit 10.27 to the Registration Statement on Form S-11, File
No. 33-71160
10.28 -- Form of Construction Loan Agreement, Indenture, Security
Agreement and Promissory Note for loan from Empire
Financial Services, Inc. to Jameson Inns., Inc. (formerly
Jameson Company) for construction of Jameson Inn
incorporated by reference to Exhibit 10.39 to the Registration
Statement on Form S-11, File No. 33-71160
10.29 -- Form of Construction Loan Indenture, Security Agreement,
Assignment of Fees and Income, Promissory note for $4.2
million revolving loan from Empire Financial Services, Inc. to
Jameson Inns., Inc. incorporated by reference to Exhibit 10.21
to the Annual Report filed on Form 10-K for the year ended
December 31, 1993
10.30 -- Form of Deed to Secure Debt, Security Agreement, Assignment
of Operating Lease, Assignment of Fees and Income, Promissory
Note for loan from Empire Financial Services, Inc. to Jameson
Inns., Inc. incorporated by reference to Exhibit 10.24 to the
Annual Report filed on Form 10-K for the year ended December
31, 1995
10.31 -- Loan Modification Agreement and Note increasing by $2.6
million the revolving loan from Empire Financial Services,
Inc. to Jameson Inns., Inc. incorporated by reference to
Exhibit 10.26 to the Annual Report filed on Form 10-K for the
year ended December 31, 1995
10.32 -- Deeds to Secure Debt, Mortgages, Assignments and Security
Agreements, Assignment of Rents and Leases, Assignments of
Income and Promissory Note for $17,171,717 loan from Bank
Midwest, N.A. to Jameson Inns, Inc. secured by 14 separate
Jameson Inns incorporated by reference to Exhibit 10.34 to the
Registration Statement on Form S-4, File No.
333-74149
10.33 -- Adjustable Rate Note dated June 30, 1996 in the amount of
$1,050,000 from Jameson Inns., Inc. to Empire Financial
Services, Inc. for loan on Waynesboro, Georgia incorporated by
reference to Exhibit 10.3 to the Report for the quarter ended
March 31, 1996
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of KPMG LLP
23.3 -- Consent of Conner & Winters, A Professional Corporation
(contained in its opinions filed as Exhibits 5.1 and 8)
24 -- Powers of Attorney (previously filed)
</TABLE>
----------
* To be filed by amendment or by a current report on Form 8-K pursuant to the
Securities Exchange Act of 1934, as appropriate.
-43-
<PAGE> 1
EXHIBIT 1.4
JAMESON INNS, INC.
DOCS(R) FINANCING PROGRAM
1,000,000 SHARES
(COMMON STOCK, $.10 PAR VALUE)
SALES AGENCY AGREEMENT
SEPTEMBER 3, 1999
<PAGE> 2
THIS SALES AGENCY AGREEMENT (the "Agreement") dated as of September 3,
1999 among RCG Brinson Patrick, a division of Ramius Securities, LLC, having its
principal office at 757 Third Avenue, New York, New York 10017 (the "Agent"),
Jameson Inns, Inc., a corporation organized and existing under the laws of the
State of Georgia (the "Company"), and Jameson Hospitality, LLC, a limited
liability company formed and existing under the laws of the State of Georgia
(the "Lessee").
WHEREAS, the Company desires to issue and sell through the Agent up to
1,000,000 shares (the "Maximum Amount") of its common stock, par value $.10 per
share (the "Stock"), on the terms set forth in Article II hereof.
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company, the Lessee and the Agent agree as follows:
ARTICLE I.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE LESSEE
1.1. For purposes of this Agreement, unless the context requires to the
contrary, the term (i) "Company" shall also include Jameson Alabama, Inc., an
Alabama corporation, Jameson Properties of Tennessee, L.P., a Tennessee limited
partnership, Jameson Properties, LLC, a Georgia limited liability company,
Jameson Outdoor Advertising Company, a Georgia corporation, Signature
Properties, Kentucky, L.L.C., a Kentucky limited liability company, and
Signature Properties of Illinois, L.P., an Illinois limited partnership and (ii)
"Lessee" shall include the predecessors of the Lessee. The Company owns hotels
(individually, a "Hotel" and collectively, the "Hotels") and developing hotels
(individually, a "Development Hotel" and, collectively, the "Development
Hotels"). The Company leases the Hotels to the Lessee, which is wholly owned by
Thomas W. Kitchin and his spouse, pursuant to master leases, as amended and
substantially similar in form (collectively referred to herein as the "Lease").
The Company will lease the Development Hotels to the Lessee pursuant to the
Lease.
The Company and, where applicable, the Lessee represent and warrant to,
and agree with, the Agent that:
(a) The Company meets the requirements for use of Form S-3 under
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations thereunder ("Rules and Regulations"). A registration statement on
Form S-3 (Registration No. 333-20143) with respect to, among other securities,
the Stock, including a form of prospectus, has been prepared by the Company in
conformity with the requirements of the Act and the Rules and Regulations and
filed with the Securities and Exchange Commission (the "Commission") and has
become effective. Such registration statement and prospectus may have been
amended or supplemented. Any such
<PAGE> 3
amendment or supplement was so prepared and filed, and any such amendment or
supplement filed after the effective date of such registration statement has
become effective. No stop order suspending the effectiveness of the registration
statement has been issued, and no proceeding for that purpose has been
instituted or threatened by the Commission. Copies of such registration
statement and prospectus, any such amendment or supplement and all documents
incorporated by reference therein that were filed with the Commission have been
delivered to the Agent. Such registration statement, as it may have heretofore
been amended, is referred to herein as the "Registration Statement," and the
final form of prospectus included in the Registration Statement, as amended or
supplemented from time to time, is referred to herein as the "Prospectus." Any
reference herein to the Registration Statement, the Prospectus, or any amendment
or supplement thereto shall be deemed to refer to and include the documents
incorporated (or deemed to be incorporated) by reference therein, and any
reference herein to the terms "amend," "amendment" or "supplement" with respect
to the Registration Statement or Prospectus shall be deemed to refer to and
include the filing after the execution hereof of any document with the
Commission deemed to be incorporated by reference therein. The Company may sell
1,000,000 shares of Stock in at the market offerings pursuant to the
Registration Statement. To the extent the Company desires to sell more than
1,000,000 shares of Stock pursuant to this Agreement, the Company shall file a
new registration statement with respect to such shares and shall cause such
registration statement to become effective. After the effectiveness of said
registration statement, all references to "Registration Statement" included in
this Agreement shall be deemed to include such new registration statement.
(b) Each part of the Registration Statement, when such part became
or becomes effective, and the Prospectus and any amendment or supplement
thereto, on the date of filing thereof with the Commission and at each
Settlement Date (as hereinafter defined), conformed or will conform in all
material respects with the requirements of the Act and the Rules and
Regulations; each part of the Registration Statement, when such part became or
becomes effective, did not or 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; and the Prospectus and any
amendment or supplement thereto, on the date of filing thereof with the
Commission and at each Settlement Date, did not or will not include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; except that the foregoing shall not apply to statements in
or omissions from any such document in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of the Agent,
specifically for use in the Registration Statement, the Prospectus or any
amendment or supplement thereto.
(c) The documents incorporated by reference in the Registration
Statement or the Prospectus, or any amendment or supplement thereto, when they
became or become effective under the Act or were or are filed with the
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as the case may be, conformed or will conform in all material respects
with the requirements of the Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder.
-2-
<PAGE> 4
(d) The financial statements of the Company, the Lessee and
Signature Inns, Inc., an Indiana corporation ("Signature"), together with the
related schedules and notes thereto, set forth or included or incorporated by
reference in the Registration Statement and Prospectus fairly present the
financial condition of the Company, the Lessee and Signature as of the dates
indicated and the results of operations, changes in financial position,
stockholders' equity or members' equity, as applicable, and cash flows for the
periods therein specified, in conformity with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise stated therein). The summary and selected financial and statistical
data included or incorporated by reference in the Registration Statement and the
Prospectus present fairly the information shown therein and, to the extent based
upon or derived from the financial statements, have been compiled on a basis
consistent with the financial statements presented therein. In addition, the pro
forma financial statements of the Company, the Lessee and Signature and the
related notes thereto, included or incorporated by reference in the Registration
Statement and the Prospectus, present fairly the information shown therein, have
been prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly compiled on the
basis described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions and circumstances referred to therein. Furthermore, all
financial statements required by Rule 3-14 of Regulation S-X ("Rule 3-14"), if
any, have been included or incorporated by reference in the Registration
Statement and the Prospectus and any such financial statements are in conformity
with the requirements of Rule 3-14. No other financial statements are required
to be set forth or incorporated by reference in the Registration Statement or
the Prospectus under the Rules and Regulations.
(e) Ernst & Young LLP, whose reports are incorporated by reference
in the Registration Statement, are and, during the periods covered by their
reports, were independent public accountants of the Company and the Lessee as
required by the Act and the Rules and Regulations. KPMG LLP, whose reports are
incorporated by reference in the Registration Statement, are and, during the
periods covered by their reports, were independent public accountants of
Signature as required by the Act and the Rules and Regulations.
(f) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Georgia. Other
than Jameson Alabama, Inc., an Alabama corporation, Jameson Properties of
Tennessee, L.P., a Tennessee limited partnership, Jameson Properties, LLC, a
Georgia limited liability company, Jameson Outdoor Advertising Company, a
Georgia corporation, Signature Properties, Kentucky, L.L.C., a Kentucky limited
liability company, Signature Properties of Illinois, L.P., an Illinois limited
partnership, P & N Corporation, an Indiana corporation, S I Springfield
Corporation, an Illinois corporation, SIE Corporation, an Indiana corporation,
Signature Meridian LP, an Indiana limited partnership, and as disclosed in
writing by the Company to the Agent from time to time, the Company has no
subsidiary or subsidiaries and does not control, directly or indirectly, any
corporation, partnership, limited liability company, joint venture, association
or other business organization. The Company is duly qualified and in good
standing as a foreign corporation in each jurisdiction in which the character or
location of its assets or properties (owned, leased or licensed) or the nature
of its business makes such qualification necessary (including every jurisdiction
in which it
-3-
<PAGE> 5
owns or leases property), except for such jurisdictions where the failure to so
qualify would not have a material adverse effect on the assets or properties,
business, results of operations, prospects or condition (financial or otherwise)
of the Company. Each of the Company's subsidiaries is validly existing as a
corporation, limited liability company or partnership, as applicable, in its
respective jurisdiction of formation. None of P & N Corporation, an Indiana
corporation, S I Springfield Corporation, an Illinois corporation, SIE
Corporation, an Indiana corporation, and Signature Meridian LP, an Indiana
limited partnership is a significant subsidiary (as defined in Section 1-02 of
Regulation S-X) of the Company. All of the issued and outstanding capital stock,
limited liability company interests or partnership interests, as applicable, of
each subsidiary has been duly authorized and validly issued, is fully paid and
nonassessable and (except as otherwise disclosed or incorporated by reference in
the Registration Statement) is owned by the Company, directly, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or equity.
Except as disclosed or incorporated by reference in the Registration Statement
and the Prospectus, the Company does not own, lease or license any asset or
property or conduct any business outside the United States of America. The
Lessee, a Georgia limited liability company which is lessee of each Hotel owned
by the Company, has been duly formed and is validly existing as a limited
liability company in -good standing under the laws of the State of Georgia. The
Lessee is duly qualified and in good standing as a foreign limited liability
company in each jurisdiction in which the character or location of its assets or
properties (owned, leased or licensed) or the nature of its business makes such
qualification necessary (including every jurisdiction in which it is acting as
lessee of a Hotel), except for such jurisdictions where the failure to so
qualify would not have a material adverse effect on the assets or properties,
business, results of operations, prospects or condition (financial or otherwise)
of the Lessee or the Company. Each of the Company and the Lessee has all
requisite corporate or limited liability company power and authority, as
applicable, and all necessary authorizations, approvals, consents, orders,
licenses, certificates and permits of and from all governmental orders or
regulatory bodies or any other person or entity, to own, lease, license and
operate their respective assets and properties and conduct their respective
businesses as now being conducted and as described or incorporated by reference
in the Registration Statement and the Prospectus; except for such
authorizations, approvals, consents, orders, licenses, certificates and permits
the absence of which would not have a material adverse effect upon the assets or
properties, business, results of operations, prospects or condition (financial
or otherwise) of the Company or the Lessee; and no such authorization, approval,
consent, order, license, certificate or permit contains a materially burdensome
restriction other than as disclosed or incorporated by reference in the
Registration Statement and the Prospectus.
(g) The Company owns or possesses adequate and enforceable rights
to use all trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how and other similar rights
(collectively, the "Intangibles") necessary for the conduct of its business as
now being conducted and as described or incorporated by reference in the
Registration Statement and the Prospectus. The Lessee owns the trademark "The
Jameson Inn," and the Company has an enforceable option to purchase such
trademark for $25,000 subject to the terms and provisions of such option.
Neither the Company nor the Lessee has infringed, is infringing, or has received
any notice of infringement of, any Intangible of any other person, that will
have a material adverse effect upon the assets or
-4-
<PAGE> 6
properties, business, results of operations, prospects or condition (financial
or otherwise) of the Company and the Lessee and the Company does not know of any
basis therefor.
(h) The Company has good title to each of the items of personal
property which are reflected in the financial statements referred to in Section
1.1(d) or are referred to in the Registration Statement and the Prospectus or
any document incorporated by reference therein as being owned by the Company and
valid and enforceable leasehold interests in each of the items of real and
personal property which are referred to in the Registration Statement and the
Prospectus or any document incorporated by reference therein as being leased by
the Company, in each case free and clear of all liens, encumbrances, claims,
security interests and defects, other than those described in the Registration
Statement and the Prospectus and those which do not and will not have a material
adverse effect upon the assets or properties, business, results of operations,
prospects or condition (financial or otherwise) of the Company.
(i) The Company has good and marketable title to, or leasehold
interests in, all properties and assets (including, without limitation,
mortgaged assets) as described in the Registration Statement and the Prospectus
or any document incorporated by reference therein, owned by the Company, free
and clear of all liens, charges, encumbrances or restrictions, except such as
are described in the Registration Statement and the Prospectus or any document
incorporated by reference therein, or are not material in relation to the
business of the Company; no lessee under any of the leases pursuant to which the
Company leases its properties has an option or right of first refusal to
purchase the premises demised under such lease; the use and occupancy of each of
the properties owned by the Company complies in all material respects with all
applicable codes and zoning laws and regulations; there is no pending or, to the
knowledge of the Company and the Lessee, threatened condemnation or zoning
change that will in any material manner affect the size of, use of, improvements
on, construction on, or access to any of the properties owned by the Company,
which would have a material adverse effect upon the proposed use of such
property as a limited service inn; and there is no pending or, to the knowledge
of the Company and the Lessee, threatened proceeding or action that will in any
material respect affect the size of, use of, improvement of, construction on, or
access to any of the properties owned by the Company.
(j) Title insurance in favor of the mortgagee and the Company is
maintained with respect to each of the properties owned by the Company in an
amount at least equal to the greater of (i) the cost of acquisition of such
property or (ii) the cost of construction of the improvements located on such
property (measured at the time of such construction).
(k) The mortgages and deeds of trust encumbering the properties
and assets described or incorporated by reference in the Registration Statement
and the Prospectus are not convertible into shares of common stock of the
Company or other equity interests in the Company nor does the Company hold a
participating interest therein.
(l) There is no litigation or governmental or other proceeding or
investigation before any court or before or by any public body or board pending
or, to the knowledge of the Company and the Lessee, threatened (and neither the
Company nor the Lessee knows of any basis therefor)
-5-
<PAGE> 7
against, or involving the assets, properties or businesses of the Company or the
Lessee which would materially adversely affect the value or the operation of any
such assets or properties or the business, results of operations, prospects or
condition (financial or otherwise) of the Company or the Lessee.
(m) Except as disclosed in the Registration Statement or the
Prospectus or any document incorporated by reference therein, (i) there is not
present on any of the properties owned by the Company any hazardous substances,
hazardous materials, toxic substances, asbestos or waste materials
(collectively, "Hazardous Materials"), (ii) there has not occurred or is not
presently occurring from any of such properties any unlawful spills, releases,
discharges or disposal of Hazardous Materials, and (iii) all such properties are
in compliance with all applicable local, state and federal environmental laws,
regulations, ordinances and administrative and judicial orders relating to the
generation, recycling, reuse, sale, storage, handling, transport and disposal of
any Hazardous Materials, which failure would have a material adverse effect on
the earnings, business, results of operations, prospects or condition (financial
or otherwise) of the Company.
(n) Each of the Company and the Lessee maintains insurance (issued
by insurers of recognized financial responsibility) of the types and in the
amounts generally deemed adequate for its businesses and, to the knowledge of
the Company and the Lessee, consistent with insurance coverage maintained by
similar companies in similar businesses, including, but not limited to,
insurance covering real and personal property owned or leased by the Company and
the Lessee against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect.
(o) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
therein, (i) there has not been any material adverse change in the assets or
properties, business, results of operations, prospects or condition (financial
or otherwise) of the Company or the Lessee, whether or not arising from
transactions in the ordinary course of business; (ii) neither the Company nor
the Lessee has sustained any material loss or interference with its assets,
businesses or properties (whether owned or leased) from fire, explosion,
earthquake, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or any court or legislative or other governmental action,
order or decree; (iii) since the date of the latest balance sheet, included or
incorporated by reference in the Registration Statement and the Prospectus,
except as reflected therein, neither the Company nor the Lessee has undertaken
any liability or obligation, direct or contingent, except such liabilities or
obligations undertaken in the ordinary course of business; and (iv) there has
not been any transaction that is material to the Company or the Lessee, except
transactions in the ordinary course of business or as otherwise disclosed in the
Registration Statement and the Prospectus.
(p) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. Each mortgage, line of credit agreement, loan agreement, guarantee,
employee leasing agreement, property management agreement, franchise
-6-
<PAGE> 8
agreement, cost reimbursement agreement, employment contract, stock option
agreement, warrant agreement, registration rights agreement, leasing agreement,
construction contract, purchase agreement and all other agreements of the
Company and the Lessee described in the Registration Statement or the Prospectus
or incorporated by reference therein or listed as exhibits to the Registration
Statement are in full force and effect and are valid and enforceable by and
against the Company or the Lessee, as the case may be, in accordance with their
terms, assuming the due authorization, execution and delivery thereof by each of
the other parties thereto. Neither the Company or the Lessee, nor to the
knowledge of the Company and the Lessee, any other party is in default in the
observance or performance of any term or obligation to be performed by it under
any such agreement, and no event has occurred which with notice or lapse of time
or both would constitute such a default, which default or event would have a
material adverse effect on the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company or
the Lessee. No default exists, and no event has occurred which with notice or
lapse of time or both would constitute a default, in the due performance and
observance of any term, covenant or condition, by the Company or the Lessee, as
the case may be, of any other agreement or instrument to which the Company or
the Lessee is a party or by which they or their properties or businesses may be
bound or affected, which default or event would have a material adverse effect
on the assets or properties, business, results of operations, prospects or
condition (financial or otherwise) of the Company or the Lessee.
(q) Neither the Company nor the Lessee is in violation of any term
or provision of their respective charter, by-laws or operating agreement, as
applicable, or of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation, where the consequences of such violation would have
a material adverse effect on the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company or
the Lessee.
(r) Neither the execution, delivery and performance of this
Agreement by the Company or the Lessee nor the consummation of any of the
transactions contemplated hereby (including, without limitation, the issuance
and sale by the Company of the Stock) will give rise to a right to terminate or
accelerate the due date of any payment due under, or conflict with or result in
the breach of any term or provision of, or constitute a default (or an event
which with notice or lapse of time or both would constitute a default) under, or
require any consent or waiver under, or result in the execution or imposition of
any lien, charge, encumbrance, claim, security interest, restriction or defect
upon any properties or assets of the Company pursuant to the terms of, any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or the Lessee is a party or by which either is bound, or any other
respective properties or businesses are bound, or any franchise, license,
permit, judgment, decree, order, statute, rule or regulation applicable to the
Company or the Lessee or violate any provision of the charter, by-laws or
operating agreement of the Company or the Lessee, as applicable, except for such
consents or waivers which have already been obtained and are in full force and
effect.
(s) All of the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable and none of the them was issued in violation of any preemptive or
other similar right. The Stock, when issued and sold pursuant to this Agreement,
will be duly authorized and validly issued, fully paid and
-7-
<PAGE> 9
nonassessable and will not be issued in violation of any preemptive or other
similar right. Except as disclosed in the Registration Statement and the
Prospectus, there is no outstanding option, warrant or other right calling for
the issuance of, and there is no commitment, plan or arrangement to issue, any
capital stock of the Company or any security convertible into or exercisable or
exchangeable for, such capital stock. The common stock of the Company and the
Stock conform in all material respects to all statements relating thereto
contained in the Registration Statement and the Prospectus.
(t) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described or
referred to therein, the Company has not (i) issued any securities or incurred
any liability or obligation, direct or contingent, except such liabilities or
obligations incurred in the ordinary course of business including, without
limitation, debt financing to acquire properties and to construct hotels
thereon, (ii) entered into any transaction not in the ordinary course of
business or (iii) declared or paid any dividend or made any distribution on any
shares of its capital stock or redeemed, purchased or otherwise acquired or
agreed to redeem, purchase or otherwise acquire any shares of its capital stock.
(u) No holder of any security of the Company has the right which
has not been waived to have any security owned by such holder included in the
Registration Statement or any right to demand registration of any security owned
by such holder during the period ending 45 days after the date of this
Agreement.
(v) All necessary corporate or limited liability company action,
as applicable, has been duly and validly taken by the Company and the Lessee to
authorize the execution, delivery and performance of this Agreement and the
issuance and sale of the Stock by the Company. This Agreement has been duly and
validly authorized, executed and delivered by the Company and the Lessee and
constitutes and will constitute the legal, valid and binding obligations of the
Company and the Lessee, enforceable against the Company and the Lessee in
accordance with its terms. Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and delivery
by the Company and the Lessee of this Agreement and the consummation of the
transactions contemplated hereby and the issuance and sale of the Stock by the
Company (except such as may be required under the Act or such additional steps
as may be required by the National Association of Securities Dealers, Inc. (the
"NASD") or by the Nasdaq National Market, if any) has been obtained or made and
is in full force and effect. The Stock is included for quotation on the Nasdaq
National Market.
(w) The Company has not incurred any liability for a fee,
commission or other compensation on account of the employment of a broker or
finder in connection with the transactions contemplated by this Agreement other
than as contemplated hereby or as described in the Registration Statement.
(x) Neither the Company nor the Lessee is involved in any labor
dispute nor, to the knowledge of the Company or the Lessee, is any such dispute
threatened, which dispute would
-8-
<PAGE> 10
have a material adverse effect on the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the Company or
the Lessee.
(y) The Company and the Lessee are conducting their respective
businesses in compliance with all applicable laws, rules and regulations of the
jurisdictions in which they are conducting business, including, without
limitation, the Americans with Disabilities Act of 1990 and all applicable
local, state and federal employment, truth-in-advertising, franchising and
immigration laws and regulations, except where the failure to be so in
compliance would not have a material adverse effect on the assets or properties,
business, results of operations, prospects or condition (financial or otherwise)
of the Company or the Lessee.
(z) No transaction has occurred between or among the Company and
any of its officers or directors or any affiliate or affiliates of any such
officer or director that is required to be described in and is not described in
the Registration Statement and the Prospectus.
(aa) Neither the Company nor the Lessee has taken, nor will either
take, directly or indirectly, any action designed to or which might reasonably
be expected to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the common stock of the Company to facilitate the sale or resale of any
of the Stock.
(bb) The Company and the Lessee have filed all federal, state,
local and foreign tax returns which are required to be filed through the date
hereof (and will file all such tax returns when and as required to be filed
after the date hereof), or have received extensions thereof, and have paid all
taxes shown on such returns to be due on or prior to the date hereof (and will
pay all taxes shown on such returns to be due after the date hereof) and all
assessments received by it to the extent that the same are material and have
become due.
(cc) The Lease has been duly authorized, executed and delivered by
the Company and the Lessee and constitutes a legal, valid and binding
obligation, enforceable in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization or other
laws of general applicability relating to or affecting creditors' rights or by
general equity principles.
(dd) The execution, delivery and performance of each of the
Property Purchase Agreements (other than any letters of intent) and the
consummation of the transactions contemplated therein have been duly authorized
by all necessary action, and will not conflict with or constitute a breach of,
or a default under, or result in the creation or imposition of any lien, charge
or encumbrance under any property or assets of the Company, nor will such action
result in a violation of the Company's charter, by-laws, or any applicable law,
administrative regulation or administrative or court decree.
(ee) The Company has met the qualification requirements for a "real
estate investment trust" during its taxable years ending on or after December
31, 1994 and its proposed method of operations will enable it to continue to
meet the requirements for qualification and taxation as a
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<PAGE> 11
"real estate investment trust" under the Internal Revenue Code of 1986, as
amended (the "Code"), assuming no change in the applicable underlying law. The
Company does not know of any event which would cause or is likely to cause the
Company to fail to qualify as a "real estate investment trust" at any time.
(ff) The Company is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
(gg) The Company's and the Lessee's systems of internal accounting
controls taken as a whole are sufficient to meet the broad objectives of
internal accounting control insofar as those objectives pertain to the
prevention or detection of errors or irregularities in amounts that would be
material in relation to the Company's financial statements; and, to the best of
the Company's knowledge, neither the Company nor any employee or agent thereof
has made any payment of funds of the Company or received or retained any funds,
and no funds of the Company have been set aside to be used for any payment, in
each case in violation of any law, rule or regulation.
(hh) The Company has complied with all of the requirements and
filed the required forms as specified in Florida Statutes Section 517.075.
ARTICLE II.
SALE AND DELIVERY OF SECURITIES
2.1. (a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to issue and sell through the Agent, subject to Section 3.1(i),
as exclusive agent, and the Agent agrees to sell, as agent for the Company, on a
best efforts basis, up to the Maximum Amount of the Stock during the term of
this Agreement on the terms set forth herein; provided, however, that the
Company shall not be obligated to issue and sell, and the Agent shall not be
obligated to use its best efforts to sell, Stock if the Stock is then trading on
the Trading Market (as defined below) at a price lower than the Minimum Price
(as defined below). "Minimum Price" means the price per share determined by the
Company from time to time and which is communicated to the Agent by telephone
and confirmed promptly by telecopy, each such price to become effective upon
receipt of such notice by the Agent and to apply to sales made thereafter.
(b) The Company shall open and maintain a trading account (the
"Trading Account") at a clearing agent designated by the Agent (the "Clearing
Agent") to facilitate the transactions contemplated by this Agreement. The Agent
shall effect any sales of the Stock from such account. The Company shall deliver
(or cause its transfer agent to deliver) shares of the Stock to such account to
settle any such sales. Proceeds from such sales shall be collected in the
Trading Account.
(c) The Stock, up to the Maximum Amount, is to be sold during one
or more periods each consisting of five consecutive calendar days, commencing on
Monday and ending on Friday
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<PAGE> 12
(each, a "Sales Period"), or such lesser number of days as shall be agreed to by
the Company and the Agent. Subject to the terms and conditions hereof, the Agent
shall sell, on a best efforts basis, up to the Maximum Amount of the Stock
during the term of this Agreement. The Agent shall sell the shares of the Stock
by means of ordinary brokers' transactions (which may involve block
transactions) on the Trading Market (as hereinafter defined) for the Stock at
market prices prevailing at the time of sale. The "Trading Market" is (i) the
New York Stock Exchange, Inc., the American Stock Exchange or any national
securities exchange on which the Stock is admitted for trading or (ii) the
facilities of The Nasdaq Stock Market ("Nasdaq"). The Company or the Agent may,
upon notice to the other party hereto by telephone (confirmed promptly by
telecopy), at any time and from time to time suspend the offering of Stock;
provided, however, that such suspension or termination shall not affect or
impair the parties' respective obligations with respect to shares of Stock sold
hereunder prior to the giving of such notice.
(d) The net proceeds (the "Net Proceeds") to the Company for the
shares of the Stock sold by the Agent during a Sales Period (the "Sales Period
Shares") will equal 96.5% times the Sales Proceeds. "Sales Proceeds" means, for
a given Sales Period, the aggregate gross sales proceeds for the sale of the
Sales Period Shares, minus any fees imposed by any governmental or
self-regulatory organization with respect to such sales. The compensation
payable by the Company to the Agent for the Sales Period Shares sold in each
Sales Period (the "Agent's Compensation") will equal 3.5% times the Sales
Proceeds.
(e) The Agent shall provide written confirmation to the Company on
the business day following the final day of each Sales Period during which sales
of Sales Period Shares are made setting forth, with regard to such Sales Period,
the dates included in the Sales Period, the number of Sales Period Shares sold,
the gross proceeds from the sale of such shares, the highest and lowest executed
sales price at which such shares were sold, any fees imposed by any governmental
or self-regulatory organization, the Sales Proceeds, the Agent's Compensation
and the Net Proceeds to the Company.
(f) The Net Proceeds from the sale of the Stock shall be available
in the Trading Account on the third business day following each sale of the
Stock hereunder or such later date on which the Clearing Agent actually effects
the settlement of such sale (each, a "Settlement Date"). The Company shall
effect the delivery of the applicable number of shares of Stock to the Clearing
Agent's account at The Depository Trust Company on or before the Settlement Date
of each sale hereunder. The Agent will direct the Clearing Agent to withhold the
Agent's Compensation from the Sales Proceeds on each Settlement Date and to pay
such compensation to the Agent.
(g) At each Settlement Date, the Company shall be deemed to have
affirmed each representation, warranty, covenant and other agreement contained
in the Agreement. Any obligation of the Agent to use its best efforts to sell
the Stock shall be subject to the continuing accuracy of the representations and
warranties of the Company herein, to the performance by the Company of its
obligations hereunder and to the continuing satisfaction of the additional
conditions specified in Article IV of this Agreement.
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<PAGE> 13
ARTICLE III.
COVENANTS OF THE COMPANY
3.1. The Company covenants and agrees with the Agent that:
(a) As promptly as practicable after the date of this Agreement,
the Company will file a post-effective amendment to the Registration Statement
to permit sales of the Stock under the Act. The Company will use its best
efforts to cause such post-effective amendment to the Registration Statement to
become effective as promptly as possible thereafter.
(b) During the period in which a prospectus relating to the Stock
is required to be delivered under the Act, the Company will notify the Agent
promptly of the time when any subsequent amendment to the Registration Statement
has become effective or any subsequent supplement to the Prospectus has been
filed and of any request by the Commission for any amendment or supplement to
the Registration Statement or the Prospectus or for additional information; it
will prepare and file with the Commission, promptly upon the Agent's request,
any amendments or supplements to the Registration Statement or Prospectus that,
in the Agent's reasonable opinion, may be necessary or advisable in connection
with the distribution of the Stock by the Agent; the Company will not file any
amendment or supplement to the Registration Statement or Prospectus (other than
any prospectus supplement relating to the offering of other securities
(including, without limitation, common stock not included in an Delayed Offering
of Equity Securities, as defined below) registered under the Registration
Statement) unless a copy thereof has been submitted to the Agent a reasonable
period of time before the filing and the Agent has not reasonably objected
thereto; and it will furnish to the Agent at the time of filing thereof a copy
of any document that upon filing is deemed to be incorporated by reference in
the Registration Statement or Prospectus; and the Company will cause each
amendment or supplement to the Prospectus to be filed with the Commission as
required pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations or, in the case of any document to be incorporated therein by
reference, to be filed with the Commission as required pursuant to the Exchange
Act, within the time period prescribed.
(c) The Company will advise the Agent, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement, of
the suspension of the qualification of the Stock for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceeding for any such
purpose; and it will promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such a stop order should be
issued.
(d) Within the time during which a prospectus relating to the
Stock is required to be delivered under the Act, the Company will comply as far
as it is able with all requirements imposed upon it by the Act and by the Rules
and Regulations, as from time to time in force, so far as necessary to permit
the continuance of sales of or dealings in the Stock as contemplated by the
provisions hereof and the Prospectus. If during such period any event occurs as
a result of
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<PAGE> 14
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances then existing, not
misleading, or if during such period it is necessary to amend or supplement the
Registration Statement or Prospectus to comply with the Act, the Company will
promptly notify the Agent to suspend the offering of Stock during such period
and the Company will amend or supplement the Registration Statement or
Prospectus (at the expense of the Company) so as to correct such statement or
omission or effect such compliance and will use its best efforts to have any
amendment or supplement to the Registration Statement or Prospectus declared
effective as soon as possible, unless the Company has reasonable business
reasons to defer public disclosure of the relevant information.
(e) The Company will use its best efforts to qualify the Stock for
sale under the securities laws of such jurisdictions as the Agent designates and
to continue such qualifications in effect so long as required for the
distribution of the Stock, except that the Company shall not be required in
connection therewith to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction.
(f) The Company will furnish to the Agent and its counsel (at the
expense of the Company) copies of the Registration Statement, the Prospectus
(including all documents incorporated by reference therein) and all amendments
and supplements to the Registration Statement or Prospectus that are filed with
the Commission during the period in which a prospectus relating to the Stock is
required to be delivered under the Act (including all documents filed with the
Commission during such period that are deemed to be incorporated by reference
therein), in each case as soon as available and in such quantities as the Agent
may from time to time reasonably request and, in the case when the Trading
Market is a national securities exchange, the Company will also furnish copies
of the Prospectus to such exchange in accordance with Rule 153 of the Rules and
Regulations.
(g) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than 15 months after
the end of the Company's current fiscal quarter, an earnings statement (which
need not be audited) covering a 12-month period that satisfies the provisions of
Section 11(a) of the Act and Rule 158 of the Rules and Regulations.
(h) The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is terminated, will pay all of its
expenses incident to the performance of its obligations hereunder (including,
but not limited to, any transaction fees imposed by any governmental or
self-regulatory organization with respect to transactions contemplated by this
Agreement and any blue sky fees) and will pay the expenses of printing all
documents relating to the offering. The Company will reimburse the Agent for its
reasonable out-of-pocket costs and expenses incurred in connection with entering
into this Agreement, including, without limitation, reasonable travel,
reproduction, printing and similar expenses, as well as the reasonable fees and
disbursements of its legal counsel, which costs and expenses are not expected to
exceed $25,000.
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<PAGE> 15
(i) The Company agrees not to engage, enter into any agreement
with or solicit any other party to provide advice in respect of or otherwise act
as underwriter for any offering of securities involving a program similar, as
determined by the Agent, to the Agent's DOCS(R) transaction contemplated by this
Agreement (a "Delayed Offering of Equity Securities") until the date two years
from the date of this Agreement.
(j) The Company will apply the Net Proceeds from the sale of the
Stock as set forth in the Prospectus.
(k) The Company will not, directly or indirectly, offer or sell
any shares of common stock (other than the Stock) or securities convertible into
or exchangeable for, or any rights to purchase or acquire, common stock during
the period from the date of this Agreement through the final Settlement Date for
the sale of Stock hereunder without (i) giving the Agent at least three business
days' prior written notice specifying the nature of the proposed sale and the
date of such proposed sale and (ii) suspending activity under this program for
such period of time as may reasonably be determined by agreement of the Company
and the Agent; provided, however, that no such notice and suspension shall be
required in connection with the Company's issuance or sale of (i) shares of
common stock pursuant to any employee or director stock option or benefits plan,
stock ownership plan, dividend reinvestment plan now in effect as such plans may
be amended from time to time, and (ii) common stock issuable upon conversion of
securities or the exercise of warrants, options or other rights in effect or
outstanding on the date hereof.
(l) The Company will, at any time during the term of this
Agreement, as supplemented from time to time, advise the Agent immediately after
it shall have received notice or obtain knowledge thereof, of any information or
fact that would alter or affect any opinion, certificate, letter and other
document provided to the Agent pursuant to Article IV herein.
(m) Each time that (i) the Registration Statement or the
Prospectus shall be amended or supplemented (other than a supplement filed
pursuant to Rule 424(b) of the Rules and Regulations that contains solely the
information set forth in Section 2.1(e) of this Agreement) or (ii) there is
filed with the Commission any document incorporated by reference into the
Prospectus (other than any Quarterly Report on Form 10-Q or a Current Report on
Form 8-K, unless the Agent shall otherwise reasonably request), the Company and
the Lessee shall each furnish or cause to be furnished to the Agent forthwith a
certificate dated the date of filing with the Commission of such amendment,
supplement or other document, the date of effectiveness of amendment, as the
case may be, in form satisfactory to the Agent to the effect that the statements
contained in the certificate referred to in Sections 4.1(g) and (h) hereof that
were last furnished to the Agent are true and correct at the time of such
amendment, supplement, filing, as the case may be, as though made at and as of
such time (except that such statements shall be deemed to relate to the
Registration Statement and the Prospectus as amended and supplemented to such
time) or, in lieu of such certificates, certificates of the same tenor as the
certificates referred to in said Sections 4.1(g) and (h), modified as necessary
to relate to the Registration Statement and the Prospectus as amended and
supplemented to the time of delivery of such certificate.
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<PAGE> 16
(n) Each time that (i) the Registration Statement or the
Prospectus is amended or supplemented (other than a supplement filed pursuant to
Rule 424(b) of the Rules and Regulations that contains solely the information
set forth in Section 2.1(e) of this Agreement) or (ii) there is filed with the
Commission any document incorporated by reference into the Prospectus (other
than any Quarterly Report on Form 10-Q or a Current Report on Form 8-K, unless
the Agent shall otherwise reasonably request), the Company shall furnish or
cause to be furnished forthwith to the Agent and to counsel to the Agent (1) a
written opinion of Conner & Winters, A Professional Corporation, counsel to the
Company ("Company Counsel"), or other counsel satisfactory to the Agent, dated
the date of filing with the Commission of such amendment, supplement or other
document and the date of effectiveness of such amendment, as the case may be, in
form and substance satisfactory to the Agent, of the same tenor as the opinion
referred to in Section 4.1(d) hereof, but modified as necessary to relate to the
Registration Statement and the Prospectus as amended and supplemented to the
time of delivery of such opinion.
(o) Each time that the Registration Statement or the Prospectus
shall be amended or supplemented to include additional amended financial
information or there is filed with the Commission any document incorporated by
reference into the Prospectus which contains additional amended financial
information, the Company shall cause Ernst & Young LLP, or other independent
accountants satisfactory to the Agent, forthwith to furnish the Agent a letter,
dated the date of effectiveness of such amendment, or the date of filing of such
supplement or other document with the Commission, as the case may be, in form
satisfactory to the Agent, of the same tenor as the letter referred to in
Section 4.1(e) hereof but modified to relate to the Registration Statement and
the Prospectus, as amended and supplemented to the date of such letter.
(p) The Company shall use its best efforts to list, subject to
notice of issuance, the Stock on the applicable Trading Market.
ARTICLE IV.
CONDITIONS OF THE AGENT'S OBLIGATIONS
4.1. The obligations of the Agent to sell the Stock as provided herein
shall be subject to the accuracy, as of the date hereof, and as of each
Settlement Date for any Sales Period contemplated under this Agreement, of the
representations and warranties of the Company and the Lessee herein, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The post-effective amendment to the Registration Statement
contemplated by Section 3.1(a) shall have been declared effective. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been instituted or, to the
knowledge of the Company or the Agent, threatened by the Commission, and any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the Agent's satisfaction.
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<PAGE> 17
(b) The Agent shall not have advised the Company that the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, contains an untrue statement of fact that in the Agent's reasonable
opinion is material, or omits to state a fact that in the Agent's reasonable
opinion is material and is required to be stated therein or is necessary to make
the statements therein not misleading.
(c) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall not have been any material change in the capital
stock of the Company, or any material adverse change, or any development that
may reasonably be expected to cause a material adverse change, in the condition
(financial or other), business, prospects, net worth or results of operations of
the Company or the Lessee, or any change in the rating assigned to any
securities of the Company.
(d) The Agent shall have received at the date of the commencement
of the first Sales Period hereunder (the "Commencement Date") and at every other
date specified in Section 3.1(n) hereof, opinions of Company Counsel, dated as
of the Commencement Date and dated as of such other date, respectively, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Georgia; the Company is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the character or
location of its assets or properties (owned, leased or licensed) or by
the nature of its business makes such qualification necessary
(including every jurisdiction in which it owns or leases property),
except for such jurisdictions where the failure to so qualify would not
have a material adverse effect on the assets or properties, business,
results of operations, prospects or condition (financial or otherwise)
of the Company; to the best of such counsel's knowledge, the Company
has no subsidiary or subsidiaries (other than Jameson Alabama, Inc.,
Jameson Properties, LLC, Jameson Properties of Tennessee, L.P., Jameson
Outdoor Advertising Company, Signature Properties, Kentucky, L.L.C.,
Signature Properties of Illinois, L.P., P & N Corporation, S I
Springfield Corporation, SIE Corporation and Signature Meridian LP) and
does not control, directly or indirectly, any corporation, partnership,
joint venture, association or other business organization; and the
Company has all requisite corporate power and authority to own, lease,
license and operate its assets and properties and conduct its business
as now being conducted and as described in the Registration Statement
and the Prospectus or any document incorporated by reference therein.
(ii) The Lessee has been duly formed and is validly
existing as a limited liability company in good standing under the laws
of the State of Georgia; the Lessee is duly qualified and in good
standing as a foreign limited liability company in each jurisdiction in
which the character or location of its assets or properties (owned,
leased or licensed) or by the nature of its businesses makes such
qualification necessary (including every jurisdiction in which it is
acting as lessee of a Hotel), except for such jurisdictions
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<PAGE> 18
where the failure to so qualify would not have a material adverse
effect on the assets or properties, business, results of operations,
prospects or condition (financial or otherwise) of the Lessee; and the
Lessee has all requisite power and authority to own, lease, license and
operate its assets and properties and conduct its business as now being
conducted and as described in the Registration Statement and the
Prospectus or any document incorporated by reference therein.
(iii) The certificates evidencing the Stock are in due and
proper legal form and have been duly authorized for issuance by the
Company; all of the outstanding shares of capital stock of the Company
have been duly authorized and validly issued; and all of the
outstanding shares of capital stock of the Company are fully paid and
nonassessable and none of them was issued in violation of any
preemptive or other similar right. The Stock, when issued and sold
pursuant to this Agreement, will be duly and validly issued, fully paid
and nonassessable and none of them will have been issued in violation
of any preemptive or other similar right. The Stock is subject of an
effective registration statement permitting their sale in the manner
contemplated by this Agreement. Except as disclosed in the Registration
Statement and the Prospectus, there is no outstanding option, warrant
or other right calling for the issuance of, and, to the knowledge of
such counsel, there is no commitment, plan or arrangement to issue, any
share of capital stock, of the Company or any security convertible into
or exercisable or exchangeable for, capital stock of the Company. The
Stock conform in all material respects to all statements relating
thereto contained in the Registration Statement and the Prospectus.
(iv) The information set forth under the captions
"Articles of Incorporation and Bylaw Provisions," "Restrictions on
Transfer" and "Common Stock" in the Prospectus, to the extent that it
constitutes matters of law, summaries of legal matters, documents, or
legal conclusions, has been reviewed by such counsel and is correct in
all material respects and presents the information called for by the
Act and the Rules and Regulations.
(v) The descriptions contained or incorporated by
reference in the Registration Statement and the Prospectus of statutes,
legal and governmental proceedings, contracts and other documents are
accurate, and insofar as such statements constitute a summary of
documents referred to therein, matters of law or legal conclusions, are
fair summaries of the material provisions thereof and accurately
present the information required with respect to such documents and
matters. All statutes, legal or governmental proceedings, and all
agreements and other documents required to be described in the
Registration Statement (or incorporated by reference therein) have been
so described. All agreements and other documents known to such counsel
to be required to be filed as exhibits to the Registration Statement
have been so filed or incorporated by reference therein.
(vi) All necessary corporate or limited liability company
action has been duly and validly taken by the Company and the Lessee,
as applicable, to authorize the execution, delivery and performance of
this Agreement and the issuance and sale of the Stock by the Company.
This Agreement has been duly and validly executed and delivered by the
Company and the Lessee and constitutes the legal, valid and binding
obligation of the Company and the Lessee, enforceable in accordance
with its terms.
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<PAGE> 19
(vii) No filing, consent, approval, authorization, order,
license, certificate, permit, registration, designation or filing with
any court or governmental agency or body is required for the valid
authorization, issue, delivery and sale of the Stock or the
consummation by the Company or the Lessee of the transactions
contemplated by this Agreement, except the registration under the Act
of the Stock, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the distribution of the
Stock by the Agent.
(viii) Neither the execution, delivery and performance of
this Agreement by the Company and the Lessee nor the consummation of
any of the transactions contemplated hereby (including, without
limitation, the issuance and sale by the Company of the Stock) will
give rise to a right to terminate or accelerate the due date of any
payment due under, or conflict with or result in the breach of any term
or provision of, or constitute a default (or any event which with
notice or lapse of time, or both, would constitute a default) under, or
require consent or waiver under, or result in the execution or
imposition of any lien, charge or encumbrance upon any properties or
assets of the Company or the Lessee pursuant to the terms of, any
indenture, mortgage, deed of trust, note, franchise, license, permit or
other agreement or instrument known to such counsel and to which the
Company or the Lessee is a party or by which they or any of their
respective properties or businesses are bound, or any judgment, decree,
order, statute, rule or regulation or violate any provision of the
charter, by-laws or operating agreement of the Company or the Lessee,
as applicable.
(ix) To the best of such counsel's knowledge, no default
exists, and no event has occurred which with notice or lapse of time,
or both, would constitute a default, in the due performance and
observance by the Company of any term, covenant or condition of any
agreement, instrument or other document to which the Company is a party
or by which its assets or properties or businesses are bound or
affected.
(x) To the best of such counsel's knowledge, neither the
Company nor the Lessee is in violation of any term or provision of its
charter, by-laws or operating agreement, as applicable, and neither the
Company nor the Lessee is in violation of any term or provision of any
franchise, license, permit, judgment, decree, order, statute, rule or
regulation.
(xi) To the best of such counsel's knowledge, there is no
litigation or governmental or other proceeding or investigation before
any court or before or by any public body or board pending or
threatened against, or involving the assets, properties or businesses
of, the Company which is reasonably likely to have a material adverse
effect upon the properties, business, results of operations, prospects
or condition (financial or otherwise) of the Company.
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<PAGE> 20
(xii) The Registration Statement, when it became effective,
the Prospectus, each of the documents incorporated by reference in the
Registration Statement and the Prospectus and each amendment or
supplement thereto, on the date of filing thereof with the Commission
(and at each Settlement Date on or prior to the date of the opinion)
(except for the financial statements and notes and schedules and other
financial and statistical information included therein, as to which
such counsel expresses no opinion) complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations
and the Exchange Act and the rules and regulations promulgated
thereunder, as the case may be.
(xiii) The Registration Statement has become effective under
the Act; if applicable, the filing of the Prospectus Supplements
pursuant to Rule 424(b) of the Rules and Regulations have been made in
the manner and within the time period required by Rule 424(b) of the
Rules and Regulations; and, to the best of such counsel's knowledge, no
stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or are threatened or pending. The Stock has been approved
for quotation on the Nasdaq National Market.
(xiv) The Company has met the qualification requirements
for a "real estate investment trust" during its taxable years ending on
or after December 31, 1994 and its proposed method of operation will
enable it to continue to meet the requirements for qualification and
taxation as a "real estate investment trust" under the Internal Revenue
Code of 1986, as amended, assuming no change in the applicable
underlying law. The discussion in the Prospectus under the caption
"Federal Income Tax Considerations" is accurate and complete.
(xv) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(xvi) To the best of such counsel's knowledge, the
conditions for use of a Registration Statement on Form S-3 set forth in
the General Instructions to Form S-3 have been satisfied with respect
to the Company and the transactions contemplated by this Agreement and
the Registration Statement.
To the extent deemed advisable by such counsel, they may rely as to matters of
fact on certificates of responsible officers of the Company and public
officials, and with respect to matters of Georgia law, they may rely upon the
opinion of Steven A. Curlee, Esq., general counsel to the Company. Copies of
such certificates and opinion shall be furnished to the Agent and its counsel.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company and representatives of the independent certified public accountants of
the Company, at which conferences the contents of the Registration Statement and
the Prospectus and related matters were discussed and, although such counsel is
not passing upon and does not assume any responsibility for any accuracy,
completeness or fairness of the statements contained or incorporated by
reference in the
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<PAGE> 21
Registration Statement and the Prospectus (except as specified in the foregoing
opinion), on the basis of the foregoing no facts have come to the attention of
such counsel which have caused such counsel to believe that the Registration
Statement at the time it (including each post-effective amendment thereto)
became effective, contained any 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, or that the Prospectus and any amendments or
supplements thereto, on the date of filing thereof with the Commission and at
the Commencement Date and at each Settlement Date on or prior to the date of the
opinion, contained any untrue statement of a material fact or omitted 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 (it being
understood that such counsel need not express any belief with respect to matters
of title to properties owned by the Company or as to the financial statements
and schedules and other financial information included or incorporated by
reference in the Registration Statement or the Prospectus).
(e) At the Commencement Date and at such other dates specified in
Section 3.1(o) hereof, the Agent shall have received a letter from Ernst & Young
LLP, independent public accountants for the Company, or other independent
accountants satisfactory to the Agent, dated the date of delivery thereof, in
form and substance satisfactory to the Agent.
(f) At the Commencement Date, the Agent shall have received a
letter from KPMG LLP, independent public accountants for Signature, dated the
date of delivery thereof, in form and substance satisfactory to the Agent.
(g) The Agent shall have received from the Company a certificate,
or certificates, signed by the Chairman of the Board, the President or a Vice
President and by the principal financial or accounting officer of the Company,
dated as of the Commencement Date and dated as of the first business day of each
calendar month thereafter (each, a "Certificate Date"), to the effect that, to
the best of their knowledge based upon reasonable investigation:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made at and as of the
Commencement Date or the Certificate Date (as the case may be), and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Commencement Date and each such Certificate Date (as the case may be);
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceeding for that
purpose has been instituted or, to the knowledge of such officer after
due inquiry, is threatened, by the Commission;
(iii) Since the date of this Agreement there has occurred
no event required to be set forth in an amendment or supplement to the
Registration Statement or Prospectus that has not been so set forth and
there has been no document required to be filed under the Exchange Act
and the rules and regulations of the Commission thereunder that upon
such filing would be deemed to be incorporated by reference in the
Prospectus that has not been so filed; and
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<PAGE> 22
(iv) Since the date of this Agreement, there has not been
any material adverse change in the assets or properties, business,
results of operations, prospects or condition (financial or otherwise)
of the Company, which has not been described in an amendment or
supplement to the Registration Statement or Prospectus (directly or by
incorporation).
In addition, on each Certificate Date the certificate shall
also reconfirm that the shares of Stock sold during each Sales Period
in the immediately preceding month were duly and validly authorized by
the Company and that all corporate action required to be taken for the
authorization, issuance and sale of such Stock had been validly and
sufficiently taken.
(h) The Agent shall have received from the Lessee a certificate,
or certificates, signed by the Chairman of the Board, the President or a Vice
President and by the principal financial or accounting officer of the Lessee,
dated as of each Certificate Date, to the effect that, to the best of their
knowledge based upon reasonable investigation:
(i) The representations and warranties of the Lessee in
this Agreement are true and correct, as if made at and as of the
Commencement Date or the Certificate Date (as the case may be); and
(ii) Since the date of this Agreement, there has not been
any material adverse change in the assets or properties, business,
results of operations, prospects or condition (financial or otherwise)
of the Lessee, which has not been described in an amendment or
supplement to the Registration Statement or Prospectus (directly or by
incorporation).
(i) At the Commencement Date and on each Settlement Date, the
Company shall have furnished to the Agent such appropriate further information,
certificates and documents as the Agent may reasonably request.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to the Agent. The Company will furnish the Agent with such conformed
copies of such opinions, certificates, letters and other documents as the Agent
shall reasonably request.
ARTICLE V.
INDEMNIFICATION AND CONTRIBUTION
5.1. (a) The Company agrees to indemnify and hold harmless the Agent
and each person, if any, who controls the Agent within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, as follows:
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<PAGE> 23
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), 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;
(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 any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any 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 5(c) hereof, the reasonable fees and
disbursements of counsel chosen by the Agent), reasonably incurred in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any 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 is not paid under (i) or
(ii) above;
provided, however, that this indemnity agreement shall not apply 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 the
Agent expressly for use in the Registration Statement (or any amendment thereto)
or any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(b) The Agent agrees to indemnify and hold harmless the Company
and its directors and each officer of the Company who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in Section 5.1(a), as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendments 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 the Agent
expressly for use in the Registration Statement (or any amendment thereto) or
such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
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<PAGE> 24
(c) Any indemnified party that proposes to assert the right to be
indemnified under this Article VI will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Article V, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying party
will not relieve the indemnifying party from (i) any liability that it might
have to any indemnified party otherwise than under this Article V and (ii) any
liability that it may have to any indemnified party under the foregoing
provision of this Article V unless, and only to the extent that, such omission
results in the forfeiture of substantive rights or defenses by the indemnifying
party. If any such action is brought against any indemnified party and it
notifies the indemnifying party of its commencement, the indemnifying party will
be entitled to participate in and, to the extent that it elects by delivering
written notice to the indemnified party promptly after receiving notice of the
commencement of the action from the indemnified party, jointly with any other
indemnifying party similarly notified, to assume the defense of the action, with
counsel satisfactory to the indemnified party, and after notice from the
indemnifying party to the indemnified party of its election to assume the
defense, the indemnifying party will not be liable to the indemnified party for
any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the indemnified party
in connection with the defense. The indemnified party will have the right to
employ its own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such indemnified party unless
(1) the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to it or other indemnified parties that are different from or in
addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (4) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or
parties. All such fees, disbursements and other charges will be reimbursed by
the indemnifying party promptly as they are incurred. An indemnifying party will
not be liable for any settlement of any action or claim effected without its
written consent (which consent will not be unreasonably withheld).
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Article V is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Agent, the Company
and the Agent will contribute to the total losses, claims, liabilities, expenses
and damages (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, but after deducting any contribution
received by the Company from persons other than the Agent, such as persons who
control the Company within the meaning of the Act, officers
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<PAGE> 25
of the Company who signed the Registration Statement and directors of the
Company, who also may be liable for contribution) to which the Company and the
Agent may be subject in such proportion as shall be appropriate to reflect the
relative benefits received by the Company on the one hand and the Agent on the
other. The relative benefits received by the Company on the one hand and the
Agent on the other hand 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 compensation (before deducting expenses) received by
the Agent from the sale of Stock on behalf of the Company. If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company, on the one hand,
and the Agent, on the other, with respect to the statements or omission which
resulted in such loss, claim, liability, expense or damage, or action in respect
thereof, as well as any other relevant equitable considerations with respect to
such offering. Such relative fault shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Agent, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Agent agree that it would not be just and equitable if
contributions pursuant to this Section 5.1(d) were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, liability, expense or
damage, or action in respect thereof, referred to above in this Section 5(d)
shall be deemed to include, for the purpose of this Section 5(d), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
foregoing provisions of this Section 5(d), the Agent shall not be required to
contribute any amount in excess of the amount by which the total actual sales
price at which Stock sold by the Agent exceeds the amount of any damages that
the Agent has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission and no person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 5.1(d), any person
who controls a party to this Agreement within the meaning of the Act will have
the same rights to contribution as that party, and each officer of the Company
who signed the Registration Statement will have the same rights to contribution
as the Company, subject in each case to the provisions hereof. Any party
entitled to contribution, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim for contribution may
be made under this Section 5.1(d), will notify any such party or parties from
whom contribution may be sought, but the omission so to notify will not relieve
that party or parties from whom contribution may be sought from any other
obligation it or they may have under this Section 5.1(d). No party will be
liable for contribution with respect to any action or claim settled without its
written consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution provided by this Article V
shall not relieve the Company and the Agent from any liability the Company and
the Agent may otherwise have (including, without limitation, any liability the
Agent may have for a breach of its obligations under Article II hereof).
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<PAGE> 26
ARTICLE VI.
REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY
6.1. All representations, warranties and agreements of the Company and
the Lessee herein or in certificates delivered pursuant hereto, and the
agreements of the Agent contained in Article V hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Agent or any controlling persons, or the Company or the Lessee (or
any of their officers, directors or controlling persons), and shall survive
delivery of and payment for the Stock.
ARTICLE VII.
TERMINATION
7.1. The Agent shall have the right by giving notice as hereinafter
specified at any time at or prior to any Settlement Date, to terminate this
Agreement if (i) any material adverse change, or any development that has
actually occurred and that is reasonably expected to cause material adverse
change, in the assets or properties, business, results of operations, prospects
or condition (financial or otherwise) of the Company has occurred which, in the
judgment of the Agent, materially impairs the investment quality of the Stock,
(ii) the Company shall have failed, refused or been unable, at or prior to any
Settlement Date, to perform any agreement on its part to be performed hereunder,
(iii) any other condition of the Agent's obligations hereunder is not fulfilled,
(iv) any suspension or limitation of trading in the Stock on the Trading Market,
or any setting of minimum prices for trading of the Stock on such Trading
Market, shall have occurred, (v) any banking moratorium shall have been declared
by Federal or New York authorities or (vi) an outbreak or material escalation of
major hostilities in which the United States is involved, a declaration of war
by Congress, any other substantial national or international calamity or any
other event or occurrence of a similar character shall have occurred since the
execution of this Agreement that, in the judgment of the Agent, makes it
impractical or inadvisable to proceed with the completion of the sale of and
payment for the Stock to be sold by the Agent on behalf of the Company. Any such
termination shall be without liability of any party to any other party except
that the provisions of Section 3.1(h), Article V and Article VI hereof shall
remain in full force and effect notwithstanding such termination. If the Agent
elects to terminate this Agreement as provided in this Article, the Agent shall
provide the required notice as specified herein.
7.2. Notwithstanding the provisions of Section 3.1(i) hereof, the
Company shall have the right, by giving notice as hereinafter specified, to
terminate this Agreement in its sole discretion at any time after the second
anniversary of the date of this Agreement (such date being the "Permitted
Termination Date"). Any such termination shall be without liability of any party
to
-25-
<PAGE> 27
any other party except that the provisions of Section 3.1(h), Article V and
Article VI hereof shall remain in full force and effect notwithstanding such
termination. If the Company terminates this Agreement prior to the Permitted
Termination Date, the Company shall pay the Agent liquidated damages in an
amount equal to $50,000.
7.3. The Agent shall have the right, by giving notice as hereinafter
specified, to terminate this Agreement in its sole discretion at any time after
the earlier of (i) the first anniversary of the date of this Agreement and (ii)
the Company's engagement of another party to act as underwriter pursuant to
Section 3.1(i) hereof in connection with an Delayed Offering of Equity
Securities. Any such termination shall be without liability of any party to any
other party except that the provisions of Article 3.1(h), Article V and Article
VI hereof shall remain in full force and effect notwithstanding such
termination.
7.4. This Agreement shall remain in full force and effect unless
terminated pursuant to Section 7.1, 7.2 or 7.3 above or otherwise by mutual
agreement of the parties; provided that any such termination by mutual agreement
shall in all cases be deemed to provide that Section 3.1(h), Article V and
Article VI shall remain in full force and effect.
7.5. Any termination of this Agreement shall be effective on the date
specified in such notice of termination; provided that such termination shall
not be effective until the close of business on the date of receipt of such
notice by the Agent or the Company, as the case may be. If such termination
shall occur during a Sales Period, any Sales Period Shares shall settle in
accordance with the provisions of Section 2.1(f) hereof.
ARTICLE VIII.
NOTICES
8.1. All notices or communications hereunder shall be in writing and if
sent to the Agent shall be mailed, delivered or telecopied and confirmed to the
Agent at RCG Brinson Patrick at 757 Third Avenue, New York, New York 10017,
facsimile number (212) 453-5555, Attention: Corporate Finance (with a copy sent
in the same manner to Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York,
New York 10038-4982, Attention: James R. Tanenbaum, Esq.), or if sent to the
Company, shall be mailed, delivered or telecopied and confirmed to the Company
at Jameson Inns, Inc., 8 Perimeter Center East, Suite 8050, Atlanta, Georgia
30346-1603, Attention: Craig R. Kitchin (with a copy sent in the same manner to
Conner & Winters, A Professional Corporation, 3700 First Place Tower, Tulsa,
Oklahoma 74103, Attention: Lynwood R. Moore, Jr., Esq.). Each party to this
Agreement may change such address for notices by sending to the parties to this
Agreement written notice of a new address for such purpose.
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<PAGE> 28
ARTICLE IX.
MISCELLANEOUS
9.1. This Agreement shall inure to the benefit of and be binding upon
the Company, the Lessee and the Agent and their respective successors and the
controlling persons, officers and directors referred to in Article V hereof, and
no other person will have any right or obligation hereunder.
9.2. This Agreement constitutes the entire agreement and supersedes all
other prior and contemporaneous agreements and undertakings, both written and
oral, among the parties hereto with regard to the subject matter hereof.
9.3. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS.
9.4. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If the foregoing correctly sets forth the understanding among the
Company, the Lessee and the Agent, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company, the Lessee and the Agent. Alternatively, the
execution of this Agreement by the Company and the Lessee and its acceptance by
or on behalf of the Agent may be evidenced by an exchange of telegraphic or
other written communications.
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<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
JAMESON INNS, INC.
By:
--------------------------------------
Name:
Title:
JAMESON HOSPITALITY, LLC
By:
--------------------------------------
Name:
Title:
RCG BRINSON PATRICK, a division of
RAMIUS SECURITIES, LLC
By:
--------------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 3.7
ARTICLES OF AMENDMENT
OF
JAMESON INNS, INC.
In accordance with Section 14-2-602 of the Georgia Business
Corporation Code (O.C.G.A. ss. 14-2-602), Jameson Inns, Inc. (the
"Corporation") hereby delivers these Articles of Amendment to the Secretary of
State for filing.
I
The name of the Corporation is Jameson Inns, Inc.
II
The Amended and Restated Articles of Incorporation of the Corporation
(the"Articles") shall be amended by adding the following:
DESIGNATION OF PREFERENCES, RIGHTS, PRIVILEGES
AND RESTRICTIONS OF $1.70 SERIES S
CUMULATIVE CONVERTIBLE PREFERRED STOCK
1. Designation and Initial Number. Two million two hundred
fifty-six thousand (2,256,000) shares of the preferred stock of the
Corporation, par value $1.00 per share (the "Preferred stock"), are hereby
classified into one series which shall be designated the $1.70 Series S
Cumulative Convertible Preferred Stock (the "Series S Preferred Stock"). With
respect to matters of dividends and distribution on liquidation, the shares of
Series S Preferred Stock authorized hereby:
(a) shall be senior to (i) all shares of the Corporation's common
stock, par value $.10 per share ("Common Stock"), and (ii) all shares of the
Corporation's non-cumulative preferred stock, if any, and all shares of any
other class of the Corporation's stock ranking junior to the Series S Preferred
Stock; and
(b) shall be on a parity with the Corporation's 9.25% Series A
Cumulative Preferred Stock and any other series of shares of cumulative
preferred stock ranking on a parity with the Series S Preferred Stock ("Parity
Preferred").
In no event shall any preferred stock senior to the Series S Preferred
Stock be authorized or issued without the affirmative vote of two-thirds of the
outstanding shares of Series S Preferred Stock.
2. Dividends. Holders of shares of the Series S Preferred Stock are
entitled to the payment of dividends only in accordance with the following:
<PAGE> 2
(a) The holders of Series S Preferred Stock, in preference to the
holders of Common Stock and of any other class of shares ranking junior to the
Series S Preferred Stock, shall be entitled to receive out of any funds legally
available for Series S Preferred Stock, when and as declared by the Board of
Directors, dividends in cash at the annual rate of $1.70 and no more, payable
quarterly in arrears on or before the 20th day of January, April, July and
October of each year, or if not a business day, the next succeeding business
day (each, a "Dividend Payment Date"). Such dividends shall accrue and be
cumulative from and after May 8, 1999 and the initial Dividend Payment Date
shall be July 20, 1999. No dividends shall be paid upon or declared or set
apart for any Parity Preferred for any dividend period unless at the same time
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 the
Series S Preferred Stock then issued and outstanding and entitled to receive
such dividend.
(b) So long as the Series S Preferred Stock shall be outstanding, no
dividend, except a dividend payable in Common Stock or other shares ranking
junior to the Series S Preferred Stock, shall be paid or declared or any
distribution made, except as aforesaid, in respect of the shares of the
Corporation's Common Stock or any other shares ranking junior to the Series S
Preferred Stock, nor shall any Common Stock or any other shares ranking junior
to or on a parity with the Series S Preferred Stock be purchased, redeemed,
retired or otherwise acquired by the Corporation, except (i) out of the
proceeds of the sale of Common Stock or other shares of the Corporation ranking
junior to the Series S Preferred Stock received by the Corporation subsequent
to the date of first issuance of the Series S Preferred Stock or (ii) by
conversion into or exchange for other capital stock of the Corporation ranking
junior to the Series S Preferred Stock as to dividends and upon liquidation or
redemption for the purpose of preserving the Corporation's qualification as a
real estate investment trust under sections 856 through 860 of the Internal
Revenue Code of 1986, as amended ("REIT"), unless: (x) all accrued and unpaid
dividends on all outstanding Series S 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 (y) there shall be no
arrearages with respect to the redemption of the Series S Preferred Stock.
(c) No dividends on shares of Series S Preferred Stock shall be
declared by the Board of Directors or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of the
Corporation, including any agreement relating to the Corporation's
indebtedness, prohibits such declaration, payment or setting apart for payment
or provides that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such declaration or
payment shall be restricted or prohibited by law.
(d) Notwithstanding subparagraph (c) above, dividends on the Series
S Preferred Stock shall accrue whether or not the Corporation has earnings,
whether or not there are funds legally available for the payment of such
dividends and whether or not such dividends are declared. Accrued but unpaid
dividends on the Series S Preferred Stock will not bear interest and holders of
the Series S Preferred Stock will not be entitled to any distributions in
excess of full cumulative distributions
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<PAGE> 3
described above. Any dividend payment made on shares of the Series S Preferred
Stock shall first be credited against the earliest accrued but unpaid dividend
due with respect to such shares which remains payable.
3. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
Series S Preferred Stock 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 Series S
Preferred Stock, the sum of (i) $20.00 per share plus (ii) an amount equal to
all dividends accrued and unpaid thereon, whether or not declared, to the date
of payment of the amount due pursuant to such liquidation, dissolution or
winding up of the affairs of the Corporation. In the event the net assets of
the Corporation legally available therefor are insufficient to permit the
payment upon all outstanding Series S Preferred Stock and all Parity Preferred
of the full preferential amount to which they are respectively entitled, then
such net assets shall be distributed ratably upon all outstanding Series S
Preferred Stock and Parity Preferred in proportion to the full preferential
amount to which each such share is entitled.
(b) After payment to the holders of Series S Preferred Stock of the
full preferential amounts as aforesaid, the holders of Series S 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.
4. Redemption. Shares of Series S Preferred Stock shall be
redeemable only in accordance with the following:
(a) All or any part of the Series S 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,
plus accrued and unpaid dividends:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD 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% $20.73
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>
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<PAGE> 4
(b) Notice of any proposed redemption of Series S Preferred Stock
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 Series S Preferred Stock
to be redeemed, at their respective addresses then appearing upon the books of
the Corporation. In case of the redemption of a part only of the Series S
Preferred Stock 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 Series S Preferred Stock
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 national bank or trust company, organized under the laws of
the United States of America, in good standing 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 shall be impaired by the mailing of such
notice or the making of such deposit. The Corporation shall not purchase any
shares of Common Stock, any shares ranking junior to the Series S Preferred
Stock, or any Parity Preferred unless and except as provided in Paragraph 2.
5. Voting Rights. Holders of the Series S Preferred Stock will not
have any voting rights, except as set forth below or as otherwise from time to
time required by law.
(a) If, and so often as, the Corporation shall fail to declare and
pay dividends on the Series S Preferred Stock at the time outstanding at the
rate specified for such shares for six (6) Dividend Payment Dates (whether or
not consecutive) the holders of the Series S Preferred Stock (voting separately
as a voting group with all Parity Preferred upon which like voting rights have
been conferred and are exercisable ("Voting Parity Preferred") will be entitled
to vote separately as a voting group for the election, as herein provided, of
two additional members of the Board of Directors of the Corporation and the
holders of Common Stock, voting separately as a class, and all other series of
Parity Preferred upon which different voting rights have been conferred and are
exercisable, voting separately as a class, and all other classes or series upon
which voting rights have been conferred and are exercisable, shall elect the
remaining directors; provided, however, that the holders of the Series S
Preferred Stock and the holders of any Voting Parity Preferred 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 Series S Preferred Stock and any Voting
Parity Preferred, then outstanding, are present in person or by proxy; and
provided further that the special class voting rights provided for in this
subparagraph (a) shall remain vested in the holders of Series S Preferred Stock
and any Voting Parity Preferred until all accrued and unpaid
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dividends on the Series S Preferred Stock and any Voting Parity Preferred then
outstanding shall have been declared and paid, whereupon the holders of Series
S Preferred Stock and any Voting Parity Preferred 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 subparagraph (a). The directors elected by the holders of the
Series S Preferred Stock and any Voting Parity Preferred shall not be removable
by vote of directors, but shall be removable by vote of the holders of the
Series S Preferred Stock and any Voting Parity Preferred, voting separately as
a combined class, with or without cause. In no event shall any voting or
consent rights be created with respect to any class or series of preferred
stock of the Corporation which would be senior to the voting or consent rights
of the Series S Preferred Stock, or those rights as set forth in this paragraph
5 and in paragraph 9 of this Designation.
(b) At any meeting at which the holders of shares of Series S
Preferred Stock and any Voting Parity Preferred shall be entitled to elect
directors, the holders of one-third of the Series S Preferred Stock and any
Voting Parity Preferred, present in person or by proxy, shall be sufficient to
constitute a quorum, and the vote of holders of a plurality 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 such
holders are entitled to elect as herein provided. Nothing in this subparagraph
(b) 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 subparagraph (b).
Notwithstanding any classification of the other directors of the Corporation,
any directors elected by the holders of Series S Preferred Stock and any Voting
Parity Preferred 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 (c) below.
(c) Upon any divesting of the special class of voting rights of the
holders of the Series S Preferred Stock and any Voting Parity Preferred in
respect of elections of directors as provided in this Paragraph 5, 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 such holders may elect a successor
who shall hold office for the unexpired term in respect of which such vacancy
occurred.
6. Conversion Rights. The holders of the Series S Preferred Stock
shall have the following conversion rights:
(a) Right to Convert. Each share of Series S Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such Series S Preferred Stock and before any redemption date in
respect thereof, at the office of the Corporation or any transfer agent for the
Series S 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.
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(b) Conversion Price. Each share of Series S Preferred Stock shall
be convertible into (i) the number of shares of Common Stock that results from
dividing $20.00 by the Conversion Price, as hereinafter defined, plus (ii) the
right to receive a cash payment from the Corporation of $3.125 (the "Conversion
Cash Payment"). The Conversion Price as of the original date of issuance of the
Series S Preferred Stock shall be $19.20 per Share of Common Stock subject to
adjustment from time to time as provided herein. Holders of shares of Series S
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.
(c) Mechanics of Conversion. Any holder of Series S 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 S Preferred Stock or Common
Stock on a date prior to the close of business on the day before the date fixed
for redemption of such shares of Series S 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 S Preferred
Stock being converted and the name or names in which the certificate or
certificates for Common Stock are to be issued. Upon the Corporation'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 S 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 together with
the Corporation's check in the amount of the aggregate Conversion Cash Payment
due. Such Conversion shall be deemed to have been made immediately prior to the
close of business on the Conversion Date of the Series S 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.
(d) 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 S 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 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 Designation, include the number of
shares of Common Stock into which any convertible securities of the Company,
including the Series S 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 Designation 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
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an adjustment in the Conversion Price shall be given to holders of the Series S
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 Price 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 Price 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. There shall be no adjustment in the
amount of the Conversion Cash Payment except in connection with a split-up,
combination, reverse split or other event involving the outstanding shares of
Series S Preferred Stock which would result in a change in the amount of the
liquidation preference per share of Series S Preferred Stock set forth in
Section 3(a)(i) above, in which event the amount of the per share Conversion
Cash Payment would be adjusted proportionately to the adjustment in such
liquidation preference amount.
(e) 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 S 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 provision shall be made so that the
holders of Series S 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 S Preferred Stock could then have been converted.
The Corporation reserves the right to make such changes in the Conversion Price
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.
(f) Adjustments for Reclassification, Exchange or Substitution. If
the Common Stock issuable upon the conversion of the Series S 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 Paragraph 6), then and in each such event
the holders of Series S 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 S Preferred Stock could have been converted immediately
prior to such reorganization, reclassification or change, all subject to
further adjustment as provided herein.
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(g) 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 in this Paragraph 6) 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 be made so that each holder of
the Series S Preferred Stock shall thereafter be entitled to receive, upon
conversion of the Series S 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 S 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 Paragraph
6 with respect to the rights of the holders of the Series S Preferred Stock
after the reorganization, merger, consolidation or sale to the end that the
provisions of this Paragraph 6 (including adjustment of the Conversion Price
then in effect and the number of shares purchasable upon conversion of the
Series S Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
(h) 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 S 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.
(i) No Sinking Fund. The Series S Preferred Stock shall not be
subject to any sinking fund for the purchase or redemption of shares.
(j) Accountant's Certificate of Adjustment. In each case of an
adjustment or readjustment of a Conversion Price for Common Stock issuable upon
conversion of Series S 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 Series S
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.
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<PAGE> 9
(k) Fractional Shares. No fractional share of Common Stock shall be
issued upon conversion of Series S 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.
(l) Reservation of Shares Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued Common Stock such number of shares of Common Stock as shall from time
to time be sufficient to effect the conversion of all outstanding Series S
Preferred Stock. As a condition precedent to the taking of any action which
would cause an adjustment to the Conversion Price for Series S 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 be issuable pursuant to such adjusted Conversion Price.
(m) 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 Series S Preferred Stock) that may be imposed
in respect of the issue or delivery of Common Stock upon conversion of Series S
Preferred Stock.
7. Restrictions on Ownership and Transfer; Redemption of Excess
Stock.
(a) Definitions. For the purposes of Sections 7 and 8 of this
Designation, the following terms shall have the following meanings:
(i) "Beneficial Ownership" shall mean ownership of Series S
Preferred Stock by a Person who is or would be treated as an owner of such
Series S Preferred Stock either directly or constructively through the
application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of
the Code. The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially
Owned" shall have the correlative meanings.
(ii) "Beneficiary" shall mean the beneficiary of the Trust as
determined pursuant to Paragraph 8 of this Designation.
(iii) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(iv) "Constructive Ownership" shall mean ownership of Series S
Preferred Stock by a Person who is or would be treated as an
owner of such Series S Preferred Stock either directly or
constructively through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructive Owner," "Constructively Owns" and "Constructively
Owned" shall have the correlative meanings.
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(v) "Excess Stock" shall mean those shares of Series S Preferred
Stock Constructively Owned by a Person in excess of the
Ownership Limit.
(vi) "Initial Offering" shall mean the issuance of Series S
Preferred Stock pursuant to the merger of Signature Inns, Inc. with and into
the Corporation pursuant to that certain Agreement and Plan of Merger dated as
of January 27, 1999, as more fully described in that certain joint proxy
statement/prospectus of the Corporation and Signature Inns, Inc. dated as of
March 26, 1999 and which is Part I of the effective registration statement on
Form S-4 covering such Series S Preferred Stock filed under the Securities Act
of 1933, as amended.
(vii) "Market Price" shall mean the value per share equal to the
average of the closing price of a share of Series S Preferred Stock as reported
by The Nasdaq Stock Market ("Nasdaq") (or, if the Series S Preferred Stock is
then reported on a stock exchange, the closing price as reported on such
exchange) for the 10 calendar days preceding the relevant date, or if the
Series S Preferred Stock is not then traded over any exchange or quotation
system, then the market price of the Series S Preferred Stock on the relevant
date as determined in good faith by the Board of Directors of the Corporation.
(viii) "Ownership Limit" shall mean the lesser of: (i) not more than
11.3% of the outstanding Series S Preferred Stock (in value or in number of
shares, whichever is more restrictive), provided, however, no person shall own
shares of Series S Preferred Stock which, when aggregated with all other shares
of the capital stock of the Corporation owned by such Person within the
Ownership Limitations applicable thereto under these articles of incorporation
results in such Person owning greater than 9.9% of the outstanding capital
stock of the Corporation of all classes and all series (in value or in number
of shares, whichever is more restrictive), or (ii) with respect to any Person
(including those named in (i) above) who owns, directly or constructively
(through the application of Section 318(a) of the Code, as modified by Section
856(d)(5) of the Code), 9.9% or more of a Person (in the case of a corporation,
of the total combined total combined voting power of all classes of stock
entitled to vote or the total number of shares of all classes of stock of such
corporation and, in the case of any Person which is not a corporation, of the
assets or net profits of such person), from which the Corporation derives gross
income, not more than 9.9% of the total combined voting power of all classes of
stock entitled to vote or of the number of shares of all classes of stock of
the Corporation (the "Related Party Limit").
(ix) "Person" shall mean an individual, corporation, partnership,
estate, trust (including a trust qualified under Section 401(a) or 501(c)(17)
of the Code), a portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock corporation or other entity, and also includes a group as
that term is used for purposes of Section 13(d)(3) of the Exchange Act; but
does not include an underwriter which participates in a public offering of the
Series S Preferred Stock, provided that the ownership of Series S Preferred
Stock by such underwriter would not result in the Corporation's being "closely
held" within the meaning of
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Section 856(h) of the Code, or would otherwise result in the Corporation's
failing to qualify as a REIT.
(x) "Purported Beneficial Transferee" shall mean, with respect to
any purported Transfer which results in Excess Stock, the purported beneficial
transferee or owner for whom the Purported Record Transferee would have
acquired or owned shares of Series S Preferred Stock, if such Transfer had been
valid under subparagraph (b) of this Paragraph 7.
(xi) "Purported Record Transferee" shall mean, with respect to any
purported Transfer which results in Excess Stock, the record holder of the
Series S Preferred Stock if such Transfer had been valid under subparagraph (b)
of this Paragraph 7.
(xii) "REIT" shall mean a Real Estate Investment Trust under Section
856 of the Code.
(xiii) "Transfer" shall mean any sale, transfer, gift, assignment,
devise or other disposition of Series S Preferred Stock, including (i) the
granting of any option or entering into any agreement for the sale, transfer or
other disposition of Series S Preferred Stock, or (ii) the sale, transfer,
assignment or other disposition of any securities (or rights convertible into
or exchangeable for Series S Preferred Stock), whether voluntary or
involuntary, whether of record or beneficially or Beneficially or
Constructively (including but not limited to transfers of interests in other
entities which results in changes in Beneficial or Constructive Ownership of
Series S Preferred Stock), and whether by operation of law or otherwise.
(xiv) "Trust" shall mean the trust created pursuant to subparagraph
(a) of Paragraph 8 of this Designation.
(xv) "Trustee" shall mean the Corporation as Trustee for the Trust,
and any successor trustee appointed by the Corporation.
(b) Restriction on Ownership and Transfer.
(i) Except as provided in subparagraph (i) of this
Paragraph 7, from and after the date of the Initial Offering, no Person shall
Beneficially Own or Constructively Own Series S Preferred Stock in excess of
the Ownership Limit.
(ii) Except as provided in subparagraph (i) of this
Paragraph 7, from the date of the Initial Offering, any Transfer (whether or
not such Transfer is the result of a transaction entered into through Nasdaq),
that, if effective, would result in any Person Beneficially Owning Series S
Preferred Stock in excess of the Ownership Limit shall be void ab initio as to
the Transfer of such Series S Preferred Stock which would be otherwise
Beneficially Owned by such Person in excess of the Ownership Limit; and the
intended transferee shall acquire no rights in such Series S Preferred Stock.
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(iii) Except as provided in subparagraph (i) of this
Paragraph 7, from and after the date of the Initial Offering, any Transfer
(whether or not such Transfer is the result of a transaction entered into
through Nasdaq) that, if effective, would result in any Person Constructively
Owning Series S Preferred Stock in excess of the Ownership Limit shall be void
ab initio as to the Transfer of such Series S Preferred Stock which would be
otherwise Constructively Owned by such Person in excess of the Ownership Limit;
and the intended transferee shall acquire no rights in such Series S Preferred
Stock.
(iv) Except as provided in subparagraph (i) of this Paragraph
7, from and after the date of the Initial Offering, any Transfer (whether or
not such Transfer is the result of a transaction entered into through Nasdaq)
that, if effective, would result in the Series S Preferred Stock being
beneficially owned by less than 100 Persons (determined without reference to
any rules of attribution) shall be void ab initio as to the Transfer of such
Series S Preferred Stock which would be otherwise beneficially owned by the
transferee; and the intended transferee shall acquire no rights in such Series
S Preferred Stock.
(v) Notwithstanding any other provisions contained in this
Designation, from and after the date of the Initial Offering, any Transfer
(whether or not such Transfer is the result of a transaction entered into
through Nasdaq) or other event that, if effective, would result in the
Corporation being "closely held" within the meaning of Section 856(h) of the
Code, or would otherwise result in the Corporation failing to qualify as a REIT
(including, but not limited to, a Transfer or other event that would result in
the Corporation owning (directly or Constructively) an interest in a tenant
that is described in Section 856(d)(2)(B) of the Code if the income derived by
the Corporation from such tenant would cause the Corporation to fail to satisfy
any of the gross income requirements of Section 856(c) of the Code), shall be
void ab initio as to the Transfer of the Series S Preferred Stock or other
event which would cause the Corporation to be "closely held" within the meaning
of Section 856(h) of the Code or would otherwise result in the Corporation
failing to qualify as a REIT; and the intended transferee or owner or
Constructive or Beneficial Owner shall acquire or retain no rights in such
Series S Preferred Stock.
(c) Series S Preferred Stock Deemed Excess Stock. If,
notwithstanding the other provisions contained in this Designation, at any time
after the date of the Initial Offering, there is a purported Transfer (whether
or not such Transfer is the result of a transaction entered into through
Nasdaq), change in the capital structure of the Corporation or other event such
that one or more of the restrictions on ownership and transfers described in
subparagraph (b) of this Paragraph 7 has been violated, then the Series S
Preferred Stock being Transferred (or in the case of an event other than a
Transfer, the Series S Preferred Stock owned or Constructively Owned or
Beneficially Owned) which would cause one or more of the restrictions on
ownership or transfer to be violated (rounded up to the nearest whole share)
shall be deemed Excess Stock effective as of the closed of business on the
business day prior to the date of such Transfer or other event.
(d) Remedies For Breach. If the Board of Directors or its designees
shall at any time determine in good faith that a Transfer or other event has
taken place in violation of subparagraph
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(b) of this Paragraph 7 or that a Person intends to acquire, has attempted to
acquire or may acquire direct ownership, beneficial ownership (determined
without reference to any rules of attribution), Beneficial Ownership or
Constructive Ownership of any shares of the Corporation in violation of
subparagraph (b) of this Paragraph 7, the Board of Directors or its designees
shall take such action as it deems advisable to refuse to give effect to or to
prevent such Transfer or other event, including, but not limited to, refusing
to give effect to such Transfer or other event on the books of the Corporation
or instituting proceedings to enjoin such Transfer or other event.
(e) Notice of Restricted Transfer. Any Person who acquires or
attempts to acquire Series S Preferred Stock or other securities in violation
of subparagraph (b) of this Paragraph 7, shall immediately give written notice
to the Corporation of such event and shall provide to the Corporation such
other information as the Corporation may request in order to determine the
effect, if any, of such Transfer or attempted Transfer or other event on the
Corporation's status as a REIT.
(f) Owners Required To Provide Information. From and after the date
of the Initial Offering, each Person who is a Beneficial Owner or Constructive
Owner of more than 5% of Series S Preferred Stock must file an affidavit with
the Corporation within 30 days after January 1st of each year containing
information that the Corporation may require, in order to determine the
Corporation's status as a REIT. From and after the date of the Initial
Offering, each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of any Series S Preferred Stock and each Person (including
the stockholder of record) who is holding Series S Preferred Stock for a
Beneficial Owner or Constructive Owner shall provide to the Corporation such
information that the Corporation may request, in good faith, in order to
determine the Corporation's status as a REIT.
(g) Remedies Not Limited. Nothing contained in this Designation (but
subject to subparagraph (f) of Paragraph 8 hereof) shall limit the authority of
the Board of Directors to take such other action as it deems necessary or
advisable to protect the Corporation and the interests of its stockholders by
preservation of the Corporation's status as a REIT; provided, however, that no
action by the Board of Directors shall be authorized or allowed which would
have an adverse effect upon the preferences or voting or other rights of the
Series S Preferred Stock unless and until the Board of Directors obtains the
consent of the holders of two-thirds of the shares of such series pursuant to
the provisions of paragraph 9 hereof.
(h) Ambiguity. In the case of an ambiguity in the application of any
of the provisions of Paragraph 7, including any definition contained in
subparagraph (a) of this Paragraph 7, the Board of Directors shall have the
power to determine the application of the provisions of this Paragraph 7 with
respect to any situation based on the facts known to it (subject, however, to
the provisions of subparagraph (f) of Paragraph 8 of this Designation).
(i) Exceptions.
(i) Subject to subparagraph (b)(v) of this Paragraph 7, the
Board of Directors, in its sole and absolute discretion, may exempt a Person
from the Ownership Limit if such Person is
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<PAGE> 14
not an individual for purposes of Section 542(a)(2) of the Code and the Board
of Directors obtains such representations and undertakings from such Person as
are reasonably necessary to ascertain that no individual's Beneficial Ownership
of such Series S Preferred Stock will violate the Ownership Limit and such
Person agrees that any violation of such representations or undertaking (or
other action which is contrary to the restrictions contained in this Paragraph
7) or attempted violation will result in Excess Stock in accordance with
subparagraph (c) of this Paragraph 7.
(ii) Subject to subparagraph (b)(v) of this Paragraph 7, the
Board of Directors, in its sole and absolute discretion, may exempt a Person
from the limitation on a Person Constructively Owning Series S Preferred Stock
in excess of the Ownership Limit, if such Person does not and represents that
it will not own, directly or constructively (through the application of Section
318(a) of the Code, as modified by Section 856(d)(5) of the Code), more than a
9.9% interest (within the meaning of Section 856(d)(2)(B)) in a Person from
whom the Corporation derives gross income and the Board of Directors obtains
such representations and undertakings from such Person as reasonably necessary
to ascertain this fact and such Person agrees that any violation or attempted
violation will result in such Series S Preferred Stock in excess of the
Ownership Limit being deemed Excess Stock in accordance with subparagraph (c)
of this Paragraph 7.
(iii) Prior to granting any exception pursuant to subparagraph
(i)(i) or (i)(ii) of this Paragraph 7, the Board of Directors may require a
ruling from the Internal Revenue Service, or an opinion of counsel, in either
case in form and substance satisfactory to the Board of Directors in its sole
discretion as it may deem necessary or advisable in order to determine or
ensure the Corporation's status as a REIT; provided, however, that obtaining a
favorable ruling or opinion shall not be required for the Board of Directors to
grant an exception hereunder.
(j) Legend. Each certificate representing one or more shares of
Series S Preferred Stock shall bear the following legend:
"The Corporation is authorized to issue two classes of capital
stock which are designated as Common Stock and Preferred Stock. The Board of
Directors is authorized, without action by the Corporation's stockholders, to
determine the preferences, limitations and relative rights of the Preferred
Stock before the issuance of any Preferred Stock. The Corporation will furnish,
without charge, to any stockholder making a written request therefor, a copy of
the Corporation's articles of incorporation and a written statement of the
designations, relative rights, preferences and limitations applicable to each
class of stock. Requests for such written statement may be directed to Jameson
Inns, Inc., 8 Perimeter Center East, Suite 8050, Atlanta, Georgia 30346-1603.
"The shares of $1.70 Series S Cumulative Convertible Preferred
Stock("Series S Preferred Stock") represented by this certificate are subject
to restrictions on ownership and transfer for the purpose of the Corporation's
maintenance of its status as a Real Estate Investment Trust under the Internal
Revenue Code of 1986, as amended. No Person may own, Beneficially Own or
Constructively Own Series S Preferred Stock in excess of 11.3% (in value or in
number of shares, whichever is more restrictive) of the outstanding Series S
Preferred Stock of the Corporation, with
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<PAGE> 15
certain further restrictions and exceptions set forth in the Corporation's
articles of incorporation. Any Person who attempts to own, Beneficially Own or
Constructively Own Series S Preferred Stock in excess of the above limitations
must immediately notify the Corporation. All capitalized terms in this legend
have the meanings defined in the Corporation's articles of incorporation.
Transfers in violation of the restrictions described above may be void ab
initio.
"In addition, upon the occurrence of certain events, if the
restrictions on ownership are violated, the Series S Preferred Stock
represented hereby may be redeemed or held in trust by the Corporation. The
Corporation has an option to acquire Excess Stock under certain circumstances.
The Corporation will furnish to the holder hereof upon request and without
charge a complete written statement of the terms and conditions of the Excess
Stock. Requests for such statement may be directed to Jameson Inns, Inc., 8
Perimeter Center East, Suite 8050, Atlanta, Georgia 30346-1603.
"Capitalized terms used herein shall, where the context permits,
have the same meaning assigned to such terms as are assigned in the
Corporation's articles of incorporation."
(k) Separability. If any provision of Paragraph 7 or 8 of this
Designation or any application of any such provision is determined to be
invalid by any federal or state court having jurisdiction, the validity of the
remaining provisions shall not be affected and other applications of such
provision shall be affected only to the extent necessary to comply with the
determination of such court.
8. Excess Stock.
(a) Ownership In Trust. Upon any purported Transfer (whether or not
such Transfer is the result of a transaction entered into through Nasdaq) that
results in Excess Stock pursuant to subparagraph (c) of Paragraph 7 of this
Designation, such Excess Stock shall be deemed to have been transferred to the
Corporation, as Trustee of a Trust for the exclusive benefit of such
Beneficiary or Beneficiaries to whom an interest in such Excess Stock may later
be transferred pursuant to subparagraph (d) of this Paragraph 8. The Purported
Record Transferee shall have no rights in such Excess Stock except the right to
designate a transferee of such Excess Stock upon the terms specified in
subparagraph (d) of this Paragraph 8. The Purported Beneficial Transferee shall
have no rights in such Excess Stock except as provided in subparagraph (d) of
this Paragraph 8. If the Corporation does not receive a notice pursuant to
subparagraph (e) of Paragraph 7 of a Transfer in violation of subparagraph (b)
of Paragraph 7, the Corporation will provide notice to the Purported Beneficial
Transferee within five business days after the Board of Directors determines in
good faith that a Transfer or other event resulting in Excess Stock has
occurred. Such notice will state that the shares Transferred are Excess Shares
and that the Purported Beneficial Transferee shall have no right to vote such
shares, realize any appreciation with respect thereto or receive any dividends
or other distributions on such Excess Shares and of the Corporation's right to
purchase such shares under subparagraph (e) of this paragraph 8 hereof.
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<PAGE> 16
(b) Dividend Rights. Any dividends paid on Excess Shares shall be
paid to or retained by the Corporation as Trustee of the Trust and shall be
held for the benefit of and paid to the Beneficiary. Any dividend or
distribution paid prior to the discovery by the Corporation that shares of
Series S Preferred Stock have been converted into Excess Stock shall be repaid
upon demand to the Corporation as Trustee and held for the benefit of and paid
to the Beneficiary.
(c) Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution of
the assets of, the Corporation, each holder of Excess Stock shall be entitled
to receive, ratably with each other holder of Series S Preferred Stock, the
amount provided in Section 3 above. The Corporation, as holder of the Excess
Stock in trust, or if the Corporation shall have been dissolved, any trustee
appointed by the Corporation prior to its dissolution, shall distribute ratably
to the Beneficiaries of the Trust, when and if determined in accordance with
subparagraph (d) of this Paragraph 8, any such assets received in respect of
the Excess Stock in any liquidation, dissolution or winding up of, or any
distribution of the assets of the Corporation.
(d) Restrictions On Transfer; Designation of Beneficiary.
(i) Excess Stock shall not be transferable. Subject to the
last sentence of this clause (i), the Purported Record Transferee may freely
designate a Beneficiary of an interest in the Trust (representing the number of
shares of Excess Stock held by the Trust attributable to a purported Transfer
that resulted in Excess Stock), if (1) the Excess Stock held in the Trust would
not be Excess Stock in the hands of such Beneficiary and (2) the Purported
Beneficial Transferee does not receive a price for designating such Beneficiary
that reflects a price per share for such Excess Stock that exceeds (x) the
price per share such Purported Beneficial Transferee paid for the Series S
Preferred Stock in the purported Transfer that resulted in Excess Stock, or (y)
if the Transfer or other event that resulted in Excess Stock was not a
transaction in which the Purported Beneficial Transferee gave full value for
such Excess Stock, a price per share equal to the Market Price on the date of
the purported Transfer or other event that resulted in the issuance of Excess
Stock. Upon such transfer of an interest in the Trust, the corresponding shares
of Excess Stock in the Trust shall automatically cease to be Excess Stock and
such Series S Preferred Stock and any dividends received in respect thereof
shall be transferred of record to the transferee of the interest in the Trust
if such Series S Preferred Stock would not be Excess Stock in the hands of such
transferee. Prior to any transfer of any interest in the Trust, the Purported
Record Transferee must give advance notice to the Corporation of the intended
transfer and the Corporation must have waived in writing its purchase rights
under subparagraph (e) of this Paragraph 8.
(ii) Notwithstanding the foregoing, if a Purported Beneficial
Transferee receives a price for designating a Beneficiary of an interest in the
Trust that exceeds the amounts allowable under subparagraph (d)(i) of this
Paragraph 8, such Purported Beneficial Transferee shall pay, or cause such
Beneficiary to pay, such excess to the Corporation.
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<PAGE> 17
(e) Purchase Right in Excess Stock. Notwithstanding the provisions
of subparagraph (d) of this Paragraph 8, Excess Stock shall be deemed to have
been offered for sale to the Corporation, or its designee, at a price per share
equal to the price per share in the transaction that resulted in such Excess
Stock (or, if the Transfer or other event that resulted in such Excess Stock
was not a transaction in which the Purported Beneficial Transferee gave full
value for such Excess Stock, a price per share equal to the Market Price on the
date of the purported Transfer or other event that resulted in Excess Stock).
The Corporation shall have the right to accept such offer for a period of
thirty days after the later of (i) the date of the Transfer or other event
which resulted in such Excess Stock and (ii) the date the Board of Directors
determines in good faith that a Transfer or other event resulting in such
Excess Stock has occurred, if the Corporation does not receive a notice of such
Transfer or other event pursuant to subparagraph (e) of Paragraph 7 of this
Designation. The Corporation may appoint a special trustee of the trust
established under subparagraph (a) of this Paragraph 8 for the purpose of
consummating the purchase of Excess Stock by the Corporation.
(f) Settlement. Nothing in Paragraph 7 or this Paragraph 8 of this
Designation shall preclude the settlement of any transaction entered into
through Nasdaq.
9. Required Consent. The affirmative vote or consent of the holders
of two-thirds of the shares of Series S Preferred Stock and all other series of
Parity Preferred and having similar consent rights as the Series S Preferred
Stock ("Consent Parity Preferred"), 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:
(a) 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 S Preferred Stock; provided, however, that the amendment of the Amended
and Restated Articles of Incorporation or the By-Laws, as amended, so as to:
(i) authorize, create or change the authorized or outstanding number of shares
of Series S Preferred Stock, Parity Preferred, or of any shares ranking junior
to the Series S Preferred Stock, or (ii) 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 Series S Preferred Stock;
(b) 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 Series S Preferred Stock; or
(c) The purchase or redemption of less than all of the Series S
Preferred Stock and all other shares ranking on a parity with the Series S
Preferred Stock upon purchase or redemption then outstanding except in
accordance with a stock purchase offer made to all holders of record of the
Series S Preferred Stock and all other shares ranking on a parity with the
Series S Preferred Stock upon purchase or redemption, unless all dividends on
the Series S Preferred Stock then outstanding
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<PAGE> 18
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.
10. General Provisions.
(a) Notices. Any notice required by the provisions of this
Designation to be given to holders of record of Series S Preferred Stock 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.
(b) No Impairment. The Corporation shall not amend the Amended and
Restated 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.
(c) Status of Series S Preferred Stock Upon Redemption or
Conversion. Any share of Series S 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.
III
The amendment set forth in Section II of these Articles of Amendment
was duly adopted by the affirmative vote of a majority of the members of the
Board of Directors of the Corporation on January 27, 1999. Pursuant to Section
14-2-602 of the Georgia Business Corporation Code, the shareholders of the
Corporation were not required to take any action in connection herewith.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed by its duly authorized officer on the 7th day of
May, 1999.
JAMESON INNS, INC.
By: /s/ Steven A. Curlee
---------------------------------------
Steven A. Curlee, Secretary and
Vice President-Legal
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<PAGE> 1
EXHIBIT 8
[CONNER & WINTERS LETTERHEAD]
A PROFESSIONAL CORPORATION
3700 FIRST PLACE TOWER
15 EAST FIFTH STREET
TULSA, OKLAHOMA 74103-4344
(918) 586-5711
FAX (918) 586-8982
------
September 22, 1999
Board of Directors
Jameson Inns, Inc.
8 Perimeter Center East, Suite 8050
Atlanta, GA 30346-1603
Gentlemen:
We have acted and will act as counsel to Jameson Inns, Inc., a Georgia
corporation (the "Company"), in connection with the offer and sale of up to
$100,000,000 in the aggregate of shares of the Company's common stock, par value
$0.10 per share, warrants to purchase shares of the Company's Common Stock, and
shares of the Company's preferred stock, par value $1.00 per share
(collectively, the "Securities"). We have also acted as counsel to the Company
in connection with the preparation and filing with the Securities and Exchange
Commission (the "Commission"), in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (the "Act"), a Registration Statement on Form S-3 with
respect to the Securities (the "Registration Statement"), and Post-Effective
Amendment No. 1 to the Registration Statement, including the drafts of the
prospectus and the prospectus supplement included in such Post-Effective
Amendment No. 1 (collectively, including all information incorporated by
reference therein, the "Prospectus"). All terms capitalized in this opinion
shall have the same meanings as in the Registration Statement, Post-Effective
Amendment No. 1 thereto or the Prospectus unless otherwise defined herein.
In connection with this opinion, we have examined such certificates,
documents and instruments as we have deemed necessary as a basis for the
opinions hereinafter expressed. In our examination, we have assumed the
genuineness of all signatures, the accuracy, authenticity and completeness of
all documents, certificates and records submitted to us as originals, and the
conformity with the originals of all documents, certificates and records
submitted to us as copies. In addition, for purposes of our opinion we have
relied upon the initial and continuing accuracy of the statements,
representations and covenants which have been made by the Company to us in a
<PAGE> 2
September 22, 1999
Page 2
certificate of the President and Chief Financial Officer of the Company dated
September 22, 1999. A copy of such certificate is attached hereto as Exhibit A.
After reasonable investigation and inquiry, we have no reason to believe that
our assumptions and such statements, representations and covenants are not
accurate.
On the basis of the foregoing and subject to the qualifications and
limitations set forth herein, it is our opinion that the Company has met the
requirements for qualification and taxation as a "real estate investment trust"
during each of its taxable years ended December 31, 1994, through December 31,
1998, and its proposed method of operation will enable it to continue to meet
the requirements for qualification and taxation as a "real estate investment
trust" under the Code for its taxable year ended December 31, 1999, and future
years, assuming no change in applicable underlying law. It is our opinion that
the discussion in the Prospectus under the caption "Federal Income Tax
Considerations" is accurate and complete in all material respects.
We are members of the Oklahoma Bar and, accordingly, do not express or
purport to express any opinions with respect to any laws other than the laws of
the State of Oklahoma and the federal laws of the United States of America.
This opinion is being rendered for your benefit and is not to be used,
circulated or otherwise referred to in connection with any transactions other
than those contemplated in the Agreement.
Sincerely,
CONNER & WINTERS,
A Professional Corporation
<PAGE> 3
EXHIBIT A
JAMESON INNS, INC.
8 Perimeter Center East, Suite 8050
Atlanta, Georgia 30346-1603
OFFICER'S CERTIFICATE RELATING TO
CONNER & WINTERS TAX OPINION
September 22, 1999
I, Craig R. Kitchin, hereby certify that I am President and Chief
Financial Officer of Jameson Inns, Inc., a Georgia corporation ("Jameson"). The
following information, representations and covenants are provided to you for
your use as Counsel to Jameson in connection with your rendition of your opinion
on the date hereof to Jameson as to certain federal income tax matters, related
to the offer and sale of up to $100,000,000 in the aggregate of shares of
Jameson's common stock, par value $0.10 per share (the "Common Stock"), warrants
to purchase Common Stock, and shares or fractional shares of Jameson's preferred
stock, par value $1.00 per share. On January 17, 1997, Jameson filed with the
Securities and Exchange Commission (the "Commission"), in accordance with the
provisions of the Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder (the "Act"), a Registration Statement
on Form S-3 with respect to the shares of Common Stock. On September 23, 1999,
Jameson will file Post-Effective Amendment No. 1 to such Registration Statement
(such Registration Statement and Post-Effective Amendment No. 1 thereto are
referred to herein jointly as the "Registration Statement"). Included as a part
of Post-Effective Amendment No. 1 are the drafts of the prospectus and
prospectus supplement (collectively, including all information incorporated by
reference therein, the "Prospectus"). All terms capitalized in this letter shall
have the same meanings as in the Registration Statement or the Prospectus unless
otherwise defined herein and, unless otherwise indicated, all section references
herein are to the Internal Revenue Code of 1986, as amended (the "Code").
As President and Chief Financial Officer of Jameson, I represent,
covenant and certify that:
1. As of the date hereof with respect to Jameson, the
Registration Statement does not contain any 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.
2. The accountants who certified or will certify the financial
statements included in the financial reports of Jameson to be delivered to
prospective investors with the Registration Statement or incorporated by
reference in the Registration Statement are and will be independent certified
public accountants with respect to Jameson.
3. The Pro Forma Condensed Consolidated Financial Statements of
Jameson as of December 31, 1998, and June 30, 1999, which are included in the
Prospectus (and which reflect the merger of Signature Inns, Inc., with and into
Jameson), present fairly Jameson's financial position as of the dates indicated;
said statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis; and since June 30, 1999,
through the date hereof, there has not been any material adverse change in the
financial position of Jameson.
<PAGE> 4
4. The amount of Jameson's Built-In Gain as of January 1, 1994,
as presented in the Prospectus is accurately stated. The amount of Built-In Gain
in the assets that Jameson acquired from Signature Inns, Inc., is less than $1.0
million.
5. On or before the due date (including extensions, if
applicable) for the filing of its federal income tax return for its taxable year
ended December 31, 1994, Jameson made an election with the filing of such return
to be taxed as a real estate investment trust ("REIT") under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). Such
election has not been terminated, revoked, or challenged by the IRS.
6. Jameson has been continuously since January 1, 1994, and
currently is a corporation: (1) which is managed by one or more directors; (2)
the beneficial ownership of which is evidenced by transferable shares; (3) which
would be taxable as a domestic corporation, but for Sections 856 through 860 of
the Code; (4) which is neither (A) a financial institution referred to in Code
Section 582(c)(5), nor (B) an insurance company to which subchapter L of the
Code applies; (5) which uses a calendar year for income tax purposes; (6) which
maintains the actual ownership records as required by Code Section 857(a)(2) as
well as other recordkeeping, filing and other administrative requirements of the
Code and Treasury Regulations that must be met in order to elect and maintain
REIT status; and (7) which meets certain other tests described below regarding
the nature of its income and assets which are necessary to qualify for and
remain qualified as a REIT.
7. The beneficial ownership of Jameson has been since the date of
the closing of its initial public offering of stock (the "IPO Closing Date")
through the date hereof held by 100 or more persons. At no time since the
Closing Date has more than 50 percent of the value of the outstanding shares of
capital stock of Jameson been owned directly or indirectly by five or fewer
individuals (as defined in the Code to include certain entities).
8. Beginning January 1, 1994, through: (i) December 31, 1998, at
least 95 percent of Jameson's gross income for each tax year (excluding gross
income from "prohibited transactions" as such term is defined in Code Section
857(b)(6)) has been derived from the following sources: dividends, interest,
rents from real property and gross income from the other remaining sources
listed in Code Section 856(c)(2); (ii) December 31, 1998, at least 75 percent of
its gross income for each tax year (excluding gross income from "prohibited
transactions") has been derived from the following sources: rents from real
property, interest on obligations secured by mortgages on real property or on
interests in real property and gross income from the other remaining sources
listed in Code Section 856(c)(3); and (iii) December 31, 1997, less than 30
percent of its gross income has been derived from the sale or other disposition
of stock or securities held for less than one year, property in a "prohibited
transaction", and real property held for less than four years other than
property which is involuntarily converted or which is foreclosure property
within the definition of Code Section 856(e). Jameson expects to satisfy the 95%
and 75% gross income tests for the current taxable year, taking into account the
effects of Jameson's acquisition of Signature Inns, Inc.
9. Jameson currently satisfies the following assets tests and has
satisfied such tests at the end of each calendar quarter beginning on or after
January 1, 1994: (i) at least 75 percent of value of Jameson's total assets is
represented by "real estate assets," as such term is defined in Section
856(b)(6) of the Code, cash, cash items (including receivables) and government
securities; and (ii) no more than 25 percent of the value of Jameson's total
assets is represented by securities other than those includable in the 75
percent asset class, with the value of any one issuer's securities
<PAGE> 5
owned by Jameson not exceeding 5 percent of the value of Jameson's total assets
and with not more than 10 percent of the outstanding voting securities of such
issuer being owned by Jameson. For this purpose, the term "real estate assets"
includes (i) land, (ii) improvements on land, which are defined as buildings or
other inherently permanent structures (including, for example, the wiring in a
building, plumbing systems, central heating or air conditioning machinery, pipes
or ducts, elevators or escalators, or other items which are structural
components of a building or other permanent structure, but not including any
personal property associated with such real property, such as motel furnishings,
appliances, etc., even though such items may be termed "fixtures" under local
law), and (iii) interests in real property (including fee ownership and
co-ownership of land or improvements thereon, leaseholds of land or improvements
thereon, options to acquire lands or improvements thereon, and options to
acquire leaseholds of land or improvements thereon).
10. Before January 1, 1994, Jameson distributed all of its
earnings and profits, if any, as of December 31, 1993. At December 31, 1993,
Jameson had no accumulated or current earnings and profits, and had no
accumulated earnings and profits from any non-REIT year as of the end of any
subsequent taxable year.
11. Before December 31, 1999, Jameson will distribute the earnings
and profits, if any, to which it succeeded by reason of the merger of Signature
Inns, Inc. with and into Jameson.
12. Jameson made an election, as provided by Internal Revenue
Notice 88-19, to allow it to be subject to rules similar to those imposed on S
corporations under Section 1374 of the Code with respect to the recognition of
the "built-in-gain", as defined in Code Section 1374(a), of Jameson's assets at
the effective time of its REIT election at January 1, 1994. Jameson intends to
file a timely election under IRS Notice 88-19 with respect to the Built-In Gain
in the assets it acquired from Signature Inns, Inc.
13. Other than one Signature Inn located in Indiana and owned by a
limited partnership of which a subsidiary of Jameson is the general partner
("Carmel Inn"), Jameson has not managed and will not manage or operate the
Jameson Inns (for purposes of this letter and as the context permits, such term
includes the Signature Inns which Jameson acquired (including direct and
indirect interests in Signature Inns by reason of the ownership of an interest
in an entity that owns a Signature Inn) pursuant to the Merger); Jameson has not
furnished or rendered and will not furnish or render services of any kind to the
occupants of the Jameson Inns.
14. Jameson entered into the Jameson Lease with Jameson Operating
Company (a predecessor of Jameson Hospitality) on the IPO Closing Date; and the
Jameson Lease has been in effect, subject to amendments, continuously since such
date through the date hereof.
15. Jameson entered into a Master Lease Agreement (the "Signature
Lease") with Jameson Hospitality, dated as of May 7, 1999, the date Signature
Inns, Inc., merged with and into Jameson; under the Signature Lease, Jameson
Hospitality, as tenant, leases all of the Signature Inns other than the Carmel
Inn; and the Signature Lease has been in effect continuously since May 7, 1999.
16. As of December 28, 1997, Jameson Operating Company assigned
the Jameson Lease to Jameson Operating Company, LLC, a Georgia limited liability
Jameson ("JOC-LLC"), and Jameson executed an amendment to the Jameson Lease to
consent to the assumption by JOC-LLC
<PAGE> 6
of the tenant's obligations and rights under the Jameson Lease. Jameson does not
provide, has not provided, and will not provide services to Jameson Hospitality,
formerly JOC-LLC (or its predecessor, Jameson Operating Company), in connection
with the Jameson Lease that are not customarily provided to other lessees of
comparable hotels located in the same geographic areas as the Jameson Inns are
located.
17. Jameson does not provide, has not provided, and will not
provide services to Jameson Hospitality in connection with the Signature Lease
that are not customarily provided to other lessees of comparable hotels located
in the same geographic areas as the Signature Inns are located.
18. On September 12, 1997, Thomas Kitchin purchased from the
Jameson Equity Trust 90.1 percent of the outstanding shares of common stock of
Jameson Operating Company for a purchase price of $25,000; and such purchase
price was distributed to Mr. Steven A. Curlee, the sole trustee and beneficiary
of the Jameson Equity Trust, in addition to and without any decrease in any
compensation or benefits paid or payable to Mr. Curlee in respect of his
services to Jameson, Jameson Operating Company, or any entity in which Thomas
Kitchin has an equity interest.
19. Jameson has not charged and does not and will not charge rent
for any property that is based in whole or in part on the income or profits of
any person (except by reason of being based on a percentage of gross daily room
revenues under the Jameson Lease and the Signature Lease).
20. The "Personal Property Adjusted Basis Ratio" (as defined
below) with respect to each Jameson Inn was less than or equal to 15 percent for
each taxable year ended December 31, 1994, through December 31, 1998, and is
projected to be less than or equal to 15 percent for the current taxable year.
With respect to any Jameson Inn, the Personal Property Adjusted Basis Ratio for
any taxable year equals (i) the average of the adjusted basis of the personal
property leased in connection with that Jameson Inn as of the beginning of the
taxable year (or, if later, the date on which Jameson acquired the Jameson Inn)
and the end of the taxable year, divided by (ii) the average of the adjusted
basis of all property (both real and personal) leased in connection with that
Jameson Inn as of such dates.
21. With respect to each Signature Inn, the average of the
adjusted basis of the personal property leased in connection with that Signature
Inn as of May 7, 1999 (the date on which Signature Inns., Inc., merged with and
into Jameson) and, on a projected basis, as of December 31, 1999, divided by the
average of the adjusted basis (actual as of the date of such merger and
projected as of December 31, 1999) of all property (both real and personal)
leased in connection with that Signature Inn as of such dates was less than or
equal to 15 percent.
22. Jameson has not received and will not receive income, directly
or indirectly, from any person in which it owns, directly or indirectly (within
the limitations of Code Section 318(a) as modified by Code Section 856(d)(5))
(i) in the case of any person which is a corporation, either 10 percent or more
of the total combined voting power of all classes of stock of the corporation
entitled to vote, or 10 percent or more of the total number of shares of all
classes of stock of the corporation, and (ii) in the case of a person which is
not a corporation, an interest of 10 percent or more in the net assets or net
profits of such person. In this regard, Thomas W. Kitchin hereby makes the
following representations in his individual capacity:
<PAGE> 7
(a) From and after January 31, 1994, until September 12,
1997, I did not own, directly or constructively (under Code section
318(a), as modified by Code section 856(d)(5)) 10 percent or more (in
the case of a corporation, of the total combined voting power of all
classes of stock entitled to vote or the total number of shares of all
classes of stock of such corporation and in the case of any person
which is not a corporation, in the assets or not profits of such
person) of a person, as such term is defined in the Code, from whom
Jameson derived rental income.
(b) From and after December 31, 1993, I have not owned
and I will not acquire ownership, directly or constructively (under
Code section 318(a), as modified by Code section 856(d)(5)), any
interest in any partnership, limited liability company, or trust in
which Steve Curlee, Jameson Equity Trust, or any shareholder of Jameson
(other than my spouse, my children and trusts of which I, my spouse or
my children are the only beneficiaries) has owned or owns any interest.
(c) From and after December 31, 1996, I have not owned
and I will not acquire ownership, directly or constructively (under
Code section 318(a)), ten percent (10%) or more in value of the
outstanding capital stock of Jameson.
23. Jameson has adhered and will adhere to the terms of the
Jameson Lease. Further, (i) the total amount of the rent under the Jameson
Lease, as it has been amended, has not substantially exceeded and will not
substantially exceed the fair rental value of the Jameson Inns; (ii) there has
not been and there is no arrangement, agreement or understanding between Jameson
and Jameson Hospitality whereby it is contemplated that Jameson Hospitality will
or may acquire the Jameson Inns (or any interest therein); and (iii) no portion
of the rent has been or will be specifically designated as interest or has been
or will be recognizable as the equivalent of interest.
24. Jameson has adhered and will adhere to the terms of the
Signature Lease. Further, (i) the total amount of the rent under the Signature
Lease has not substantially exceeded and will not substantially exceed the fair
rental value of the Signature Inns; (ii) there has not been and there is no
arrangement, agreement or understanding between Jameson and Jameson Hospitality
whereby it is contemplated that Jameson Hospitality will or may acquire the
Signature Inns (or any interest therein); and (iii) no portion of the rent has
been or will be specifically designated as interest or has been or will be
recognizable as the equivalent of interest.
25. Jameson has not been since January 1, 1994, and is not and
will not be primarily engaged in the business of the sale of Jameson Inns or
Signature Inns. However, in the event Jameson decides to sell a Jameson Inn or
Signature Inn and associated property at a future time, Jameson will comply with
the safe harbor provisions of the Code with respect to such sales, as provided
in Code Section 857(b)(6).
26. Jameson has observed and will observe the restrictions on
ownership provided for in its Amended and Restated Articles of Incorporation
(the "Ownership Limit" and the "Related Party Limit" provisions) and will not
amend such provisions. Within 30 days after the close of each of the taxable
years ended December 31, 1994, through December 31, 1998, Jameson has requested
the information required by Treasury Regulation ss.1.857-8 regarding the actual
and constructive ownership of its shares during such taxable years from each
shareholder of record whose ownership exceeded the applicable percentage (as
specified by such Treasury Regulation) of Jameson's outstanding stock, as well
as any other information required by such Treasury Regulation. When
<PAGE> 8
making the request described in the preceding sentence, Jameson has advised each
such shareholder of his duty, if he should fail or refuse to comply with such
request, to submit with his federal income tax return a statement regarding
information as to the actual and constructive ownership of Jameson's shares.
Jameson has maintained a list of those persons who have refused to comply with
its request, as well as the other records required to be maintained under
Treasury Regulation ss.1.857-8. The responses to the requests described in this
paragraph, as well as information contained on any Schedules 13-D or 13-G filed
with respect to Jameson (which Jameson has monitored), do not contain any
information that would indicate that either the Ownership Limit or the Related
Party Limit provisions has been violated.
27. Jameson has distributed for each of its taxable years
beginning on or after January 1, 1994 and will distribute to its stockholders
each taxable year dividends in an amount at least equal to: (A) the sum of (i)
95 percent of the "real estate investment trust taxable income" for the taxable
year (as defined in Code Section 857(b)(2)) computed without regard to the
dividends paid deduction and excluding net capital gain; and (ii) 95 percent of
its net income (after tax), if any from foreclosure property as defined in Code
Section 856(e); less (B) the sum of certain items of noncash income, as
determined under Code Section 857(e).
28. Jameson owns the following interests in the following
entities:
(a) 100% of the stock of Jameson Alabama, Inc., an
Alabama corporation;
(b) 100% of the stock of Jameson Outdoor Advertising
Company, a Georgia corporation;
(c) 100% of the stock of SI Springfield Corporation, an
Indiana corporation;
(d) 100% of the stock of SIE Corporation, an Indiana
corporation;
(e) 100% of the stock of P&N Corporation, an Indiana
corporation, which owns a 40% capital, profits and income interest in
Signature Meridian Limited Partnership, an Indiana limited partnership,
and acts as general partner of such partnership;
(f) a 99.8% capital, profits and income interest in and
as a member of Signature Properties, LLC, a Kentucky limited liability
company;
(g) a 99.8% capital, profits and income interest in and
as a member of Jameson Properties, LLC, a Georgia limited liability
company; and
(h) a 99.8% capital, profits and income interest in and
as a partner of Jameson Properties of Tennessee, L.P., a Tennessee
limited partnership.
29. Other than the ownership interests in the entities identified
above, Jameson owns no interest, either direct or indirect through another
entity or under an arrangement whereby another person or entity holds title, in
any corporation, partnership, trust, limited liability company or other entity.
<PAGE> 9
30. Other than the ownership interests identified above in
Paragraph 29, none of the entities listed in Paragraph 29 owns any interest,
either direct or indirect through another entity or under an arrangement whereby
another person or entity holds title, in any corporation, partnership, trust,
limited liability company or other entity.
31. The advertising billboard structures that have been leased
from Jameson Outdoor Advertising Company to Jameson Hospitality are inherently
permanent structures due to their manner of affixation to the land and the
permanency with which they are designed to remain in place. The billboard
structures, by reason of their design, construction and affixation to the land,
would be reasonably difficult to move or transport, and any such removal would
be time-consuming and potentially damaging to such structures. Further, and as
of the date hereof, there are no plans (or documents regarding the same) that
would tend to evidence or demonstrate that the billboard structures are intended
or expected to have a limited length of affixation; i.e., that the billboard
structures may or will be moved in the future.
32. In connection with the lease(s) of such advertising billboard
structures, Jameson Outdoor Advertising Company has provided and intends to
provide certain services (e.g., maintenance of surrounding grounds and lighting)
directly to and for the benefit of Jameson Hospitality. Such services are
customarily furnished or rendered in connection with the rental of such property
in the geographic market in which the advertising billboard structures are
located.
33. All non-customary services (e.g., design and placement on the
billboard of customized graphics) that are provided primarily for the
convenience of Jameson Hospitality in connection with the lease(s) of such
advertising billboard structures will be furnished through an independent
contractor (as defined in Section 856(d)(3) and subject to the attribution rules
of the Code) from which neither Jameson nor Jameson Outdoor Advertising Company
will receive, either directly or indirectly, any income. Non-customary services
that will be provided by an independent contractor include those services that,
in the geographic market in which such advertising billboard structures are
located, lessees of billboards of a similar class are not customarily provided.
34. In the event that the periodic rental income received by
Jameson Outdoor Advertising Company (and ultimately Jameson) from Jameson
Hospitality under the advertising billboard structure lease(s) is (i)
attributable to any services provided by Jameson Outdoor Advertising Company to
Jameson Hospitality and/or (ii) such income is further characterized for federal
income tax matters as something other than rent from real property for purposes
of the gross income tests of Section 856(c)(2) and (3), then, in such case,
Jameson will continue to satisfy the aforementioned gross income tests because
such income, together will all other nonqualifying income excluded by reason of
Section 856(c)(2) and (3), will in the aggregate total less than 5 percent of
Jameson's gross income for each taxable year.
35. There are no other documents or agreements which alter, modify
or change in any way the validity and accuracy of the above representations and
information.
I understand that Conner & Winters, A Professional Corporation, as
Counsel for Jameson, will rely on this certificate in delivering its opinion
concerning certain of the federal income tax consequences of the acquisition and
ownership of shares of Common Stock.
Certified this 22 day of September, 1999.
Jameson Inns, Inc.
By: /s/ Craig R. Kitchin
-------------------------------------
Craig R. Kitchin
President and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.9
MASTER
LEASE AGREEMENT
DATED AS OF MAY 7, 1999
BETWEEN
JAMESON INNS, INC., SIGNATURE PROPERTIES, LLC,
SIGNATURE PROPERTIES OF ILLINOIS, L.P.,
SIE CORPORATION, AND
SI SPRINGFIELD CORPORATION
COLLECTIVELY,
AS LESSOR
AND
JAMESON HOSPITALITY, L.L.C.
AS LESSEE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION Page
<S> <C>
ARTICLE I.....................................................................1
1.1 Leased Property..............................................1
1.2 Term.........................................................2
ARTICLE II....................................................................3
Definitions...........................................................3
ARTICLE III..................................................................10
3.1 Rent........................................................10
3.2 Payment of Percentage Rent..................................12
3.3 Confirmation of Percentage Rent.............................13
3.4 Additional Charges..........................................13
3.5 Net Lease Provision.........................................14
3.6 Conversion of Property......................................14
ARTICLE IV...................................................................14
4.1 Payment of Impositions......................................14
4.2 Notice of Impositions.......................................15
4.3 Adjustment of Impositions...................................15
4.4 Utility Charges.............................................16
4.5 Insurance Premiums..........................................16
ARTICLE V....................................................................16
5.1 No Termination, Abatement, etc..............................16
5.2 Abatement Procedures........................................16
ARTICLE VI...................................................................17
6.1 Ownership of the Leased Property............................17
6.2 Lessee's Personal Property..................................17
6.3 Lessor's Lien...............................................17
ARTICLE VII..................................................................17
7.1 Condition of the Leased Property............................17
7.2 Use of the Leased Property..................................18
7.3 Lessor to Grant Easements, etc..............................19
ARTICLE VIII.................................................................20
8.1 Compliance with Legal and Insurance Requirements, etc.......20
8.2 Legal Requirement Covenants.................................20
8.3 Environmental Covenants.....................................20
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
SECTION Page
<S> <C>
ARTICLE IX...................................................................23
9.1 Maintenance and Repair......................................23
9.2 Encroachments, Restrictions, etc............................24
ARTICLE X....................................................................24
10.1 Alterations.................................................24
10.2 Salvage.....................................................25
10.3 Joint Use Agreements........................................25
ARTICLE XI...................................................................25
Liens ............................................................25
ARTICLE XII..................................................................26
Permitted Contests...................................................26
ARTICLE XIII.................................................................27
13.1 General Insurance Requirements..............................27
13.2 Replacement Cost............................................28
13.3 Waiver of Subrogation.......................................28
13.5 Increase in Limits..........................................28
13.6 Blanket Policy..............................................29
13.7 No Separate Insurance.......................................29
ARTICLE XIV..................................................................29
14.1 Insurance Proceeds..........................................29
14.2 Reconstruction in the Event of Damage or Destruction........29
14.3 Lessee's Property...........................................30
14.4 Non-Abatement of Rent.......................................30
14.5 Damage Near End of Term.....................................30
14.6 Waiver......................................................30
ARTICLE XV...................................................................30
15.1 Definitions.................................................30
15.2 Parties' Rights and Obligations.............................31
15.3 Total Taking................................................31
15.4 Allocation of Award.........................................31
15.5 Partial Taking..............................................31
15.6 Temporary Taking............................................31
ARTICLE XVI..................................................................32
16.1 Events of Default...........................................32
16.2 Surrender...................................................33
16.3 Damages.....................................................33
16.4 Waiver......................................................34
16.5 Application of Funds........................................35
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
SECTION Page
<S> <C>
ARTICLE XVII.................................................................35
Lessor's Right to Cure Lessee's Default..............................35
ARTICLE XVIII................................................................35
18.1 Personal Property Limitation................................35
18.2 Sublease Rent Limitation....................................35
18.3 Sublease Tenant Limitation..................................35
18.4 Lessee Ownership Limitation.................................36
ARTICLE XIX..................................................................36
Holding Over.........................................................36
ARTICLE XX...................................................................36
Risk of Loss.........................................................36
ARTICLE XXI..................................................................36
Indemnification......................................................36
ARTICLE XXII.................................................................37
22.1 Subletting and Assignment...................................37
22.2 Attornment..................................................38
ARTICLE XXIII................................................................38
Officer's Certificates; Financial Statements; Lessor's
Estoppel Certificates and Covenants..................................38
ARTICLE XXIV.................................................................39
Lessor's Right to Inspect............................................39
ARTICLE XXV..................................................................40
No Waiver............................................................40
ARTICLE XXVI.................................................................40
Remedies Cumulative..................................................40
ARTICLE XXVII................................................................40
Acceptance of Surrender..............................................40
ARTICLE XXVIII...............................................................40
No Merger of Title...................................................40
ARTICLE XXIX.................................................................40
Conveyance by Lessor.................................................40
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
SECTION Page
<S> <C>
ARTICLE XXX..................................................................41
Quiet Enjoyment......................................................41
ARTICLE XXXI.................................................................41
Notices ............................................................41
ARTICLE XXXII................................................................41
32.1 Lessor May Grant Liens......................................41
32.2 Lessee's Right to Cure......................................42
32.3 Breach by Lessor............................................42
ARTICLE XXXIII...............................................................43
33.1 Miscellaneous...............................................43
33.2 Transfer of Licenses........................................43
33.3 Waiver of Presentment, etc..................................43
ARTICLE XXXIV................................................................43
Memorandum of Lease..................................................43
ARTICLE XXXV.................................................................44
Lessor's Option to Purchase Assets of Lessee.........................44
ARTICLE XXXVI................................................................44
Lessor's Option to Terminate Lease...................................44
ARTICLE XXXVII...............................................................45
Furniture, Fixture and Equipment Reserve.............................45
ARTICLE XXXVIII...............................................................45
38.1 Trademark...................................................45
38.2 Protection of Trademark.....................................45
</TABLE>
EXHIBIT A - Description of Leased Property
EXHIBIT B - Form of Supplement adding hotel property to Leased Properties
EXHIBIT C - Form of Supplement releasing one or more Individual Leased
Properties from the Lease
iv
<PAGE> 6
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT (hereinafter called "Lease"), made as of
the 7th day of May, 1999, by and between Jameson Inns, Inc., a Georgia
corporation; Signature Properties, LLC, a Kentucky limited liability company;
Signature Properties of Illinois, L.P., an Illinois limited partnership; SIE
Corporation, an Indiana corporation; and SI Springfield corporation, an Illinois
corporation (hereinafter collectively called "Lessor"), and Jameson Hospitality,
LLC, a Georgia limited liability company (hereinafter called "Lessee"), provides
as follows:
RECITALS:
Lessor owns the "Leased Property" (as hereinafter defined) which at the
date hereof consists of 25 operating hotel properties and may, in the future,
consist of additional or substituted hotel properties.
In furtherance of the purposes described herein, Lessor and Lessee wish
to enter into this Lease.
NOW, THEREFORE, Lessor, in consideration of the payment of rent by
Lessee to Lessor, the covenants and agreements to be performed by Lessee, and
upon the terms and conditions hereinafter stated, does hereby rent and lease
unto Lessee, and Lessee does hereby rent and lease from Lessor, the Leased
Property.
ARTICLE I
1.1 LEASED PROPERTY. The "Leased Property" is comprised of
Lessor's interest in the following:
(1) the parcels of land or ground leasehold interest
described in Exhibit "A" attached hereto and by reference incorporated
herein (the "Land");
(2) all buildings, structures and other improvements of
every kind including, but not limited to, alleyways and connecting
tunnels, sidewalks, utility pipes, conduits and lines (on-site and
offsite), parking areas and roadways appurtenant to such buildings and
structures presently situated upon the Land (collectively, the "Leased
Improvements");
(3) all easements, rights and appurtenances relating to
the Land and the Leased Improvements;
(4) all equipment, machinery, fixtures, and other items
of property required or incidental to the use of the Leased
Improvements as a hotel, including all components thereof, including,
without limitation, all furnaces, boilers, heaters, electrical
equipment,
1
<PAGE> 7
heating, plumbing, lighting, ventilating, refrigerating, incineration,
air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and
theft protection equipment, all of which to the greatest extent
permitted by law are hereby deemed by the parties hereto to constitute
real estate, together with all replacements, modifications, alterations
and additions thereto (collectively, the "Fixtures");
(5) all furniture and furnishings and all other items of
personal property (excluding Inventory and personal property owned by
Lessee) located on and used in connection with the operation of the
Leased Improvements as a hotel, together with all replacements,
modifications, alterations and additions thereto; and
(6) all existing leases of space within the Leased
Property (including any security deposits or collateral held by Lessor
pursuant thereto).
The land; improvements; related easements, rights and appurtenances; fixtures,
furniture and furnishings and related facilities comprising one or more
additional hotel properties may become Leased Property hereunder by virtue of
the execution and delivery by the parties hereto of a supplement to this Lease
in the form attached hereto as Exhibit B. Any of the foregoing comprising the
Leased Property attributable to any hotel property which is subject hereto may
be released from the provisions hereof and eliminated from the definition of
Leased Property hereunder by the execution and delivery by the parties hereto of
a supplement to this Lease in the form attached hereto as Exhibit C. As used
herein, the term Leased Property shall, unless the context clearly requires to
the contrary, mean all of the hotel properties comprising the Leased Property
collectively and each hotel property individually, and an "Individual Leased
Property" shall refer to a single specific hotel property which is subject to
the terms of this Lease. Lessor and Lessee acknowledge, covenant and agree that,
notwithstanding the fact that the Leased Property is comprised of a number of
Individual Leased Properties, this Lease shall be severable as to each
respective Individual Leased Property such that (except as may now or hereafter
otherwise be set forth in this Lease) any termination of this Lease as to one
Individual Leased Property (including, by way of illustration and not
limitation, termination arising by reason of a foreclosure of an Encumbrance
affecting an Individual Leased Property) shall not result in a termination of
this Lease as to any other Individual Leased Property.
THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION
OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF
PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL
COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD
INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS, THE LIEN OF FINANCING INSTRUMENTS,
MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH
WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE
SURVEY THEREOF.
2
<PAGE> 8
1.2 TERM. The term of the Lease (the "Term") shall commence on May
7, 1999 (the "Commencement Date"), and shall end on December 31, 2012, unless
sooner terminated in accordance with the provisions hereof.
ARTICLE II
DEFINITIONS. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (a) the terms
defined in this article have the meanings assigned to them in this Article and
include the plural as well as the singular, (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as are at the time applicable, (c) all
references in this Lease to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease and (d) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Lease as a whole and not to any particular
Article, Section or other subdivision:
Additional Charges: As defined in Section 3.4.
Affiliate: As used in this Lease the term "Affiliate" of a person shall
mean (a) any person that, directly or indirectly, controls or is controlled by
or is under common control with such person, (b) any other person that owns,
beneficially, directly or indirectly, five percent or more of the outstanding
capital stock, shares or equity interests of such person, or (c) any officer,
director, employee, partner or trustee of such person or any person controlling,
controlled by or under common control with such person (excluding trustees and
persons serving in similar capacities who are not otherwise an Affiliate of such
person). The term "person" means and includes individuals, corporations, general
and limited partnerships, stock companies or associations, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, or other entities and governments and agencies and political
subdivisions thereof. For the purposes of this definition, "control" (including
the correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such person, through the ownership, direct or indirect, of
voting securities, partnership interests or other equity interests.
Average Daily Per Room Revenues: As Defined in Section 3.1(2)
Award: As defined in Section 15.1(3).
Base Rate: The rate of interest announced publicly by NationsBank,
N.A., in Atlanta, Georgia, from time to time, as such bank's base rate. If no
such rate is announced or becomes discontinued, then such other rate as Lessor
may reasonably designate.
Base Rent: As defined in Section 3.1(1).
3
<PAGE> 9
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that
is not a day on which national banks in the City of New York, New York, or in
the municipality wherein the Leased Property is located are closed.
CERCLA: The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: As defined in Section 1.2.
Condemnation, Condemnor: As defined in Section 15.1.
Consolidated Financials: For any fiscal year or other accounting period
for Lessee and its consolidated Subsidiaries, statements of earnings and
retained earnings and of changes in financial position for such period and for
the period from the beginning of the respective fiscal year to the end of such
period and the related balance sheet as at the end of such period, together with
the notes thereto, all in reasonable detail and setting forth in comparative
form the corresponding figures for the corresponding period in the preceding
fiscal year, and prepared in accordance with generally accepted accounting
principles and for those Consolidated Financials covering at or as of the end of
a Fiscal Year.
Consolidated Net Worth: At any time, the sum of the following for
Lessee and any consolidated Subsidiaries, on a consolidated basis determined in
accordance with generally accepted accounting principles:
(a) the amount of capital or stated capital (after
deducting the cost of any shares held in its treasury), plus
(b) the amount of capital surplus and retained earnings
(or, in the case of a capital or retained earnings deficit, minus the
amount of such deficit), minus
(c) the sum of the following (without duplication of
deductions with respect to items already deducted in arriving at
surplus and retained earnings): (1) unamortized debt discount and
expense; and (2) any write-up in the book value of assets resulting
from a revaluation thereof subsequent to the most recent Consolidated
Financials prior to the date thereof, except any net write-up in value
of foreign currency in accordance with generally accepted accounting
principles.
Date of Taking: As defined in Section 15.
Encumbrance: As defined in Section 32.1.
Environmental Authority: Any department, agency or other body or
component of any Government that exercises any form of jurisdiction or authority
under any Environmental Law.
4
<PAGE> 10
Environmental Authorization: Any license, permit, order, approval,
consent, notice, registration, filing or other form of permission or
authorization required under any Environmental Law.
Environmental Laws: All applicable federal, state, local and foreign
laws and regulations relating to pollution of the environment (including without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including without limitation laws and regulations relating to
emissions, discharges, Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials. Environmental
Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA.
Environmental Liabilities: Any and all obligations to pay the amount of
any judgment or settlement, the cost of complying with any settlement, judgment
or order for injunctive or other equitable relief, the cost of compliance or
corrective action in response to any notice, demand or request from an
Environmental Authority, the amount of any civil penalty or criminal fine, and
any court costs and reasonable amounts for attorney's fees, fees for witnesses
and experts, and costs of investigation and preparation for defense of any claim
or any Proceeding, regardless of whether such Proceeding is threatened, pending
or completed, that may be or have been asserted against or imposed upon Lessor,
Lessee, any Predecessor, any Leased Property or any property used therein and
arising out of:
(a) Failure of Lessee, any Predecessor or any Leased
Property to comply at any time with all Environmental Laws;
(b) Presence of any Hazardous Materials on, in, under, at
or in any way affecting any Leased Property;
(c) A Release at any time of any Hazardous Materials on,
in, at, under or in any way affecting the Leased Property or any
adjacent site or facility;
(d) Identification of Lessee, or any Predecessor as a
potentially responsible party under CERCLA or under any Environmental
Law similar to CERCLA;
(e) Presence at any time of any above-ground and/or
underground storage tanks, as defined in RCRA or in any applicable
Environmental Law on, in, at or under any Leased Property or any
adjacent site or facility; or
(f) Any and all claims for injury or damage to persons or
property arising out of exposure to Hazardous Materials originating or
located at any Leased Property, or resulting from operation thereof or
any adjoining property.
Event of Default: As defined in Section 16.1.
5
<PAGE> 11
Facility: Each hotel and/or other facility offering lodging and other
services or amenities being operated or proposed to be operated on an Individual
Leased Property.
FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act, as
amended.
Fiscal Year: The 12-month period from January 1 to December 31.
Fixtures: As defined in Section 1.1.
Government: The United States of America, any state, district,
territory, county, parish, city, town or other political division thereof, any
foreign nation, any state, district, department, territory or other political
division thereof, or any political subdivision of any of the foregoing.
Hazardous Materials: All chemicals, pollutants, contaminants, wastes
and toxic substances, including without limitation:
(a) Solid or hazardous waste, as defined in RCRA or in
any Environmental Law;
(b) Hazardous substances, as defined in CERCLA or in any
Environmental Law;
(c) Toxic substances, as defined in TSCA or in any
Environmental Law;
(d) Insecticides, fungicides, or rodenticides, as defined
in FIFRA or in any Environmental Law; and
(e) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenols, asbestos and urea formaldehyde.
Impositions: Collectively, all taxes (including, without limitation,
all ad valorem, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same relate to or are imposed upon
Lessee or its business conducted upon the Leased Property), assessments
(including, without limitation, all assessments for public improvements or
benefit, whether or not commenced or completed prior to the date hereof and
whether or not to be completed within the Term), ground rents, water, sewer or
other rents and charges, excises, tax inspection, authorization and similar fees
and all other governmental charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character in
respect of the Leased Property or the business conducted thereon by Lessee
(including all interest and penalties thereon caused by any failure in payment
by Lessee), which at any time prior to, during or with respect to the Term
hereof may be assessed or imposed on or with respect to or be a lien upon (a)
any Leased Property, or any part thereof or any rent therefrom or any estate,
right, title or interest therein, or (b) any occupancy, operation, use or
possession of, or sales from, or activity conducted on or in connection with any
Leased Property, or the leasing or use of any Leased Property or any part
thereof by Lessee. Nothing contained in this definition of Impositions shall be
construed to require Lessee to pay (1) any tax based on net income (whether
denominated as a franchise or capital stock or other tax) imposed on Lessor or
any other person, or (2) any net revenue tax of Lessor or any other person, or
(3) any tax
6
<PAGE> 12
imposed with respect to the sale, exchange or other disposition by Lessor of any
Leased Property or the proceeds thereof, or (4) any single business, gross
receipts (other than a tax on any rent received by Lessor from Lessee),
transaction, privilege or similar taxes as the same relate to or are imposed
upon Lessor, except to the extent that any tax, assessment, tax levy, or charge
that Lessee is obligated to pay pursuant to the first sentence of this
definition and that is in effect at any time during the Term hereof is totally
or partially repealed, and a tax, assessment, tax levy or charge set forth in
any of clauses (1) through (4) is levied, assessed or imposed expressly in lieu
thereof.
Indemnified Environmental Liability: An Environmental Liability for
which indemnification is provided in Section 8.3.
Indemnified Party: Either of a Lessee Indemnified Party or a Lessor
Indemnified Party.
Indemnifying Party: Any party obligated to indemnify an Indemnified
Party pursuant to Section 8.3.
Individual Leased Property: As defined in Section 1.1. Any reference in
this Lease to the Leased Property or any portion or part thereof shall mean all
of the Leased Property, one or more Individual Leased Properties or any portion
or part of, or interest in, any Individual Leased Property.
Initial Per Room Revenues Amount: As defined in Section 3.1(2).
Insurance Requirements: All terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy.
Inventory: All "Inventories of Merchandise" and "Inventories of
Supplies" as defined in the Uniform System.
Land: As defined in Article I.
Lease: This Lease.
Leased Improvements; Leased Property: Each as defined in Section 1.1.
Legal Requirements: All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either any of the Leased Property or the
maintenance, construction, use or alteration thereof (whether by Lessee or
otherwise), whether or not hereafter enacted and in force, including (a) all
laws, rules or regulations pertaining to the environment, occupational health
and safety and public health, safety or welfare, and (b) any laws, rules or
regulations that may (1) require repairs, modifications or alterations in or to
any Leased Property or (2) in any way adversely affect the use and enjoyment
thereof; and all permits, licenses and authorizations and regulations relating
thereto and all covenants, agreements, restrictions and encumbrances contained
in any instruments, either of record or known to Lessee (other than encumbrances
created by Lessor without the consent of Lessee), at any time in force affecting
any Leased Property.
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Lessee: The Lessee designated in this Lease and its respective
permitted successors and assigns.
Lessee Indemnified Party: Lessee, any Affiliate of Lessee, any other
Person against whom any Indemnified Environmental Liability may be asserted as a
result of a direct or indirect ownership interest (including a stockholder's
interest) in Lessee, the officers, directors, stockholders, employees, agents
and representatives of any corporate Indemnified Party, and the respective
heirs, personal representatives, successors and assigns of any Indemnified
Party.
Lessee's Personal Property: As defined in Section 6.2.
Lessor: The parties who are collectively designated Lessor on this
Lease and their respective successors and assigns. For purposes of this Lease,
each reference to Lessor shall mean the party or parties who own the specific
hotel property or properties being referred to unless the context clearly
requires the contrary. Each party designated as a Lessor shall be (i) liable and
responsible for the obligations, duties and responsibilities of the Lessor
hereunder only with respect to and to the extent that such obligations, duties
and responsibilities are required or imposed with respect to the specific hotel
properties owned by such party which comprise part of the Leased Property, and
(ii) entitled to the rights, benefits and interests of the Lessor hereunder only
with respect to such specific hotel properties; provided, however, that
Signature Inns, Inc. (and its successor or assign) shall be jointly and
severally liable with each other party comprising the Lessor for the
obligations, duties and responsibilities of that party hereunder as a Lessor.
Lessor Indemnified Party: Lessor, any Affiliate of Lessor, any other
Person against whom any Indemnified Environmental Liability may be asserted as a
result of a direct or indirect ownership interest (including a stockholder's
interest) in Lessor, the officers, directors, stockholders, employees, agents
and representatives of any corporate Indemnified Party, and the respective
heirs, personal representatives, successors and assigns of any Indemnified
Party.
Notice: A notice given pursuant to Article XXXI.
Officer's Certificate: A certificate of Lessee signed by the chief
financial officer or another officer authorized so to sign by the board of
directors or by-laws of Lessee, or any other person whose power and authority to
act has been authorized by delegation in writing by any such officer.
Overdue Rate: On any date, a rate equal to the Base Rate plus five
percentage points per annum, but in no event greater than the maximum rate then
permitted under applicable law.
Payment Date: Any due date for the payment of any installment of Base
Rent.
Percentage Rent: As defined in Section 3.1(2).
Person: Any Government, natural person, corporation, partnership or
other legal entity. See definition of "Affiliate."
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Predecessor: Any Person whose liabilities arising under any
Environmental Law have or may have been retained or assumed by Lessee, either
contractually or by operation of law relating to the Leased Property.
Primary Intended Use: As defined in Section 7.2(2).
Proceeding: Any judicial action, suit or proceeding (whether civil or
criminal), any administrative proceeding (whether formal or informal), any
investigation by a governmental authority or entity (including a grand jury),
and any arbitration, mediation or other non-judicial process for dispute
resolution.
RCRA: The Resource Conservation and Recovery Act, as amended.
Real Estate Taxes: All real estate taxes, including general and special
assessments, if any, which are imposed upon the Land, and any improvements
thereon.
Release: A "Release" as defined in CERCLA or in any other Environmental
Law, unless such Release has been properly authorized and permitted in writing
by all applicable Environmental Authorities or is allowed by such Environmental
Law without authorizations or permits.
Rent: Collectively, the Base Rent, Percentage Rent, and Additional
Charges.
Room: A guest room or suite in any Facility which is available for
occupancy by customers or guests of the Lessee.
Room Revenues: Shall mean gross revenue from the rental of Rooms,
whether to individuals, groups or transients, together with any fees collected
for amenities including, but not limited to telephone (net of long distance
telephone expenses), laundry, movies or concessions, but excluding the
following:
(a) The amount of all credits, rebates or refunds to customers,
guests or patrons;
(b) All sales taxes or any other excise taxes imposed on the
rental of such guest rooms; and
(c) Revenues from the sale of any alcoholic beverages, if and to
the extent prohibited by applicable law of the jurisdiction in
which a particular Individual Leased Property is located.
SARA: The Superfund Amendments and Reauthorization Act of 1986, as
amended.
State: The State or Commonwealth of the United States in which each
Individual Leased Property is located.
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Subsidiaries: Corporations, partnerships, limited liability companies
and any other form of business entity in which Lessee owns, directly or
indirectly, more than 50% of the voting stock, interest or control, as
applicable (individually, a "Subsidiary").
Taking: A taking or voluntary conveyance during the Term hereof of all
or part of any Leased Property, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of, any Condemnation
or other eminent domain proceeding affecting any Leased Property whether or not
the same shall have actually been commenced.
Term: As defined in Section 1.2.
Trademark: Signature Inn.(R)
TSCA: The Toxic Substances Control Act, as amended.
Unavoidable Delays: Delays due to strikes, lock-outs, labor unrest,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty or other
causes beyond the control of the party responsible for performing an obligation
hereunder, provided that lack of funds shall not be deemed a cause beyond the
control of either party hereto unless such lack of funds is caused by the
failure of the other party hereto to perform any obligations of such party under
this Lease or any guaranty of this Lease.
Uneconomic for its Primary Intended Use: A state or condition of the
Facility such that, in the good faith judgment of Lessee, reasonably exercised
and evidenced by the resolution of the board of directors or other governing
body of Lessee, a Facility cannot be operated on a commercially practicable
basis for its Primary Intended Use, taking into account, among other relevant
factors, the number of usable rooms and projected revenues, such that Lessee
intends to, and shall, complete the cessation of operations from the Individual
Leased Property.
Uniform System: Shall mean the Uniform System of Accounts for Hotels
(8th Revised Edition, 1986) as published by the Hotel Association of New York
City, Inc., as same may hereafter be revised.
Unsuitable for its Primary Intended Use: A state or condition of a
Facility such that, in the good faith judgment of Lessee, reasonably exercised
and evidenced by the resolution of the board of directors or other governing
body of Lessee, due to casualty damage or loss through Condemnation, that
Facility cannot function as an integrated hotel facility consistent with
standards applicable to a well-maintained and operated hotel.
ARTICLE III
3.1 RENT. Lessee will pay to Lessor in lawful money of the United
States of America which shall be legal tender for the payment of public and
private debts, in immediately available funds, at Lessor's address set forth in
Article XXXI hereof or at such other place or to such other
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Person, as Lessor from time to time may designate in a Notice, all Base Rent,
Percentage Rent and Additional Charges, during the Term, as follows:
(1) Base Rent: The "Base Rent" shall be $394.00 per Room
per month multiplied by the number of Rooms comprising the Leased
Property on the first day of any calendar month during the Term, and
shall be payable on or before the twenty-fifth day of such calendar
month; provided however, that the first monthly payment of Base Rent
shall be payable on the Commencement Date and that the first and last
monthly payments of Base Rent shall be prorated as to any partial
month.
(2) Percentage Rent: Percentage rent ("Percentage Rent")
shall be determined as follows:
(i) First, by adding amounts equal to
37% of the Average Daily Per Room Revenues up to the
Initial Per Room Revenues Amount, 65% of the next
$10.00 in Average Daily Per Room Revenues and 70% of
the amount by which Average Daily Per Room Rentals
exceed the sum of the Initial Per Room Revenues
Amount plus $10.00;
(ii) Second, such sum shall be
multiplied by the number of the Rooms comprising the
Leased Property each day during the applicable
period;
(iii) Third, such product for each day
will then be added to the product for each other day
during the period for which the Percentage Rent is
being computed; and
(iv) Fourth, such product shall be
reduced by the amount of Base Rent paid with respect
to the period for which Percentage Rent is being
computed.
Anything to the contrary in this item b. notwithstanding, the
aggregate amount of Percentage Rent payable hereunder with
respect to the second, third and fourth quarters of 1999 and
any calendar year during the term of this Lease commencing
after December 31, 1999, when added to the amount of Base Rent
paid with respect to such calendar quarter or year, as
applicable, shall never exceed an amount equal to 47% of the
Room Revenues realized during such calendar quarter or year,
as applicable. The amount of Percentage Rent otherwise payable
with respect to the fourth quarter of any calendar year
commencing after December 31, 1999, during the Term shall be
reduced as appropriate to comply with the foregoing
limitation.
"Average Daily Per Room Revenues" means an amount determined
by dividing the total Room Revenues attributable to the Leased Property
received by the Lessee during any period for which the Percentage Rent
computation is to be made by the sum of the number of the Rooms
comprising the Leased Property each day during the applicable period.
For
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example, if the total Room Revenues for a Fiscal Year were $10,500,000
during which there were 614 Rooms during 180 days of the Fiscal Year
and 820 Rooms during 185 days of the Fiscal Year, the Average Per Room
Revenues for that Fiscal Year would be calculated by dividing
$10,500,000 by 262,220 (614 x 180 plus 820 x 185) and would be $40.0427
(even though the Average Daily Rate would be $57.20 per day if the
Lessee were realizing a 70% average occupancy during the Fiscal Year).
"Initial Per Room Revenues Amount" from the execution of this
Lease until December 31, 1999 shall be $35.00, subject to adjustment as
provided in the following paragraph.
The Initial Per Room Revenues Amount shall each be adjusted on
January 1 of each Fiscal Year beginning after December 31, 1999,
beginning with January 1, 2000, by adding to the Initial Per Room
Revenues Amount for the immediately preceding Fiscal Year a dollar
amount determined by multiplying the Initial Per Room Revenues Amount
in effect for the immediately preceding Fiscal Year by the percentage
increase, if any, in the CPI (as herein below defined) for the
immediately preceding Fiscal Year as compared to the CPI for the next
preceding Fiscal Year. The term "CPI" means the Consumer Price Index
for all Urban Consumers - U. S. City Average for all Items (1982-84 =
100) of the Bureau of Labor Statistics of the United States Department
of Labor. If the CPI published by the Department of Labor, Bureau of
Labor Statistics is changed so that it affects the calculations
hereunder, the CPI shall be converted in accordance with a conversion
factor published by the United States Department of Labor, Bureau of
Labor Statistics. If the CPI is discontinued or revised, Lessor and
Lessee shall in good faith agree upon a suitable substitute.
3.2 PAYMENT OF PERCENTAGE RENT. Percentage Rent, if any, shall be
paid quarterly. An Officer's Certificate shall be delivered to Lessor, together
with each quarterly Percentage Rent payment, if any, setting forth the
calculation of such rent payment for such quarter, within 30 days after each of
the first three quarters of each Fiscal Year (or part thereof) in the Term.
There shall be no reduction in the Base Rent regardless of the result of the
Percentage Rent computation.
In addition, on or before March 1 of each year, commencing with March
1, 2000, Lessee shall deliver to Lessor an Officer's Certificate reasonably
acceptable to Lessor setting forth the computation of the actual Percentage Rent
that accrued for each quarter of the Fiscal Year that ended on the immediately
preceding December 31 and shall pay to Lessor Percentage Rent, if due and
payable, for the last quarter of the applicable Fiscal Year. Such computation
shall also be accompanied by a report prepared (at the expense of Lessee) by the
same accounting firm serving as independent auditors of the financial statements
of the Lessor which shall state that (i) such firm has reviewed the computation
of Percentage Rent, (ii) it has examined the Room Revenues recorded for such
Fiscal Year in accordance with generally accepted auditing standards, and (iii)
that the amount of Room Revenues has been recorded properly, free from any
material misstatements, and the amount of Percentage Rent for such Fiscal Year
has been accurately computed in accordance with the terms of this Lease.
Additionally, if the annual Percentage Rent due and payable for any Fiscal Year
(as shown in the applicable Officer's Certificate) exceeds the amount actually
paid as Percentage Rent by Lessee for such year, Lessee also shall pay such
excess to Lessor at the time such
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certificate is delivered. If the Percentage Rent actually due and payable for
such Fiscal Year is shown by such certificate to be less than the amount
actually paid as Percentage Rent for the applicable Fiscal Year, Lessor, at its
option, shall reimburse such amount to Lessee or credit such amount against the
next month's Base Rent and, to the extent necessary, the next quarter's
Percentage Rent payments.
Any difference between the annual Percentage Rent due and payable for
any Fiscal Year (as shown in the applicable Officer's Certificate) and the total
amount of quarterly payments for such Fiscal Year actually paid by Lessee as
Percentage Rent, if payable by Lessee to Lessor, shall bear interest at the
Overdue Rate, which interest shall accrue from the close of such Fiscal Year
until the amount of such difference shall be paid or otherwise discharged by
credit to Lessee. Any such interest payable to Lessor shall be deemed to be and
shall be payable as Additional Charges.
The obligation to pay Percentage Rent shall survive the expiration or
earlier termination of the Term, and a final reconciliation, taking into
account, among other relevant adjustments, any adjustments which are accrued
after such expiration or termination date but which related to Percentage Rent
accrued prior to such termination date, and Lessee's good faith best estimate of
the amount of any unresolved contractual allowances, shall be made not later
than two years after such expiration or termination date, but Lessee shall
advise Lessor within 60 days after such expiration or termination date of
Lessee's best estimate at that time of the approximate amount of such
adjustments, which estimate shall not be binding on Lessee or have any legal
effect whatsoever.
3.3 CONFIRMATION OF PERCENTAGE RENT. Lessee shall utilize, or
cause to be utilized, an accounting system for the Leased Property in accordance
with its usual and customary practices, and in accordance with generally
accepted accounting principles and the Uniform System, that will accurately
record all data necessary to compute Percentage Rent, and Lessee shall retain,
for at least four years after the expiration of each Fiscal Year (and in any
event until the reconciliation described in Section 3.2 for such Fiscal Year has
been made), reasonably adequate records conforming to such accounting system
showing all data necessary to compute Percentage Rent for the applicable Fiscal
Years. Lessor, at its expense (except as provided herein below), shall have the
right from time to time by its accountants or representatives to audit the
information that formed the basis for the data set forth in any Officer's
Certificate provided under Section 3.2 and, in connection with such audits, to
examine all Lessee's records (including supporting data and sales and excise tax
returns) reasonably required to verify Percentage Rent. If any such audit
discloses a deficiency in the payment of Percentage Rent, and either Lessee
agrees with the result of such audit or the matter is otherwise determined or
compromised, Lessee shall forthwith pay to Lessor the amount of the deficiency,
as finally agreed or determined, together with interest at the Overdue Rate from
the date when said payment should have been made to the date of payment thereof;
provided, however, that as to any audit that is commenced more than two years
after the date Percentage Rent for any Fiscal Year is reported by Lessee to
Lessor, the deficiency, if any, with respect to such Percentage Rent shall bear
interest at the Overdue Rate only from the date such determination of deficiency
is made unless such deficiency is the result of gross negligence or willful
misconduct on the part of Lessee. If any such audit discloses that the
Percentage Rent actually due from Lessee for any Fiscal Year exceed those
reported by Lessee by more than 3%, Lessee shall pay the cost of such audit and
examination. Any proprietary information obtained by Lessor pursuant to the
provisions of this
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Section shall be treated as confidential, except that such information may be
used, subject to appropriate confidentiality safeguards, in any litigation
between the parties and except further that Lessor may disclose such information
to prospective lenders and as may be required for it to comply with its
disclosure obligations under applicable corporate and securities laws. The
obligations of Lessee contained in this Section shall survive the expiration or
earlier termination of this Lease.
3.4 ADDITIONAL CHARGES. In addition to the Base Rent and
Percentage Rent, (a) Lessee also will pay and discharge as and when due and
payable all other amounts, liabilities, obligations and Impositions that Lessee
assumes or agrees to pay under this Lease, and (b) in the event of any failure
on the part of Lessee to pay any of those items referred to in clause (a) of
this Section 3.3, Lessee also will promptly pay and discharge every fine,
penalty, interest and cost that may be added for non-payment or late payment of
such items (the items referred to in clauses (a) and (b) of this Section 3.3
being additional rent hereunder and being referred to herein collectively as the
"Additional Charges"), and Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided either in this Lease or by
statute or otherwise in the case of non-payment of the Additional Charges as in
the case of non-payment of the Base Rent. If any installment of Base Rent,
Percentage Rent or Additional Charges (but only as to those Additional Charges
that are payable directly to Lessor) shall not be paid on its due date, Lessee
will pay Lessor on demand, as Additional Charges, a late charge (to the extent
permitted by law) computed at the Overdue Rate on the amount of such
installment, from the due date of such installment to the date of payment
thereof. To the extent that Lessee pays any Additional Charges to Lessor
pursuant to any requirement of this Lease, Lessee shall be relieved of its
obligation to pay such Additional Charges to the entity to which they would
otherwise be due and Lessor shall pay same from monies received from Lessee.
3.5 NET LEASE PROVISION. The Rent shall be paid absolutely net to
Lessor, so that this Lease shall yield to Lessor the full amount of the
installments of Base Rent, Percentage Rent and Additional Charges throughout the
Term, all as more fully set forth in Article V, but subject to any other
provisions of this Lease that expressly provide for adjustment or abatement of
Rent or other charges or expressly provide that certain expenses or maintenance
shall be paid or performed by Lessor.
3.6 CONVERSION OF PROPERTY. Lessee represents and warrants to
Lessor that (a) it does not contemplate that there will be any material revenues
from sales of food or beverages in connection with the operation of the Leased
Property and (b) all revenues currently generated by the Leased Property are
included within the definition of Room Revenues. Lessee further covenants that
it will not engage in any operations involving the sale of food or beverages
(other than providing continental breakfasts as part of the room rental and
vending machine services) or providing other ancillary services not being
provided at the date of this Lease without the prior written consent of the
Lessor, which consent Lessor may withhold or condition upon, without limitation,
adjustment to the Rent payable under this Lease.
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ARTICLE IV
4.1 PAYMENT OF IMPOSITIONS. Subject to Article XII relating to
permitted contests, Lessee will pay, or cause to be paid, all Impositions (other
than Real Estate Taxes and personal property taxes, which shall be paid by
Lessor), before any fine, penalty, interest or cost may be added for
non-payment, such payments to be made directly to the taxing or other
authorities where feasible, and will promptly furnish to Lessor copies of
official receipts or other satisfactory proof evidencing such payments. Lessee's
obligation to pay such Impositions shall be deemed absolutely fixed upon the
date such Impositions become a lien upon the Leased Property or any part
thereof. If any such Imposition may, at the option of the taxpayer, lawfully be
paid in installments (whether or not interest shall accrue on the unpaid balance
of such Imposition), Lessee may exercise the option to pay the same (and any
accrued interest on the unpaid balance of such Imposition) in installments and
in such event, shall pay such installments during the Term hereof (subject to
Lessee's right of contest pursuant to the provisions of Article XII) as the same
respectively become due and before any fine, penalty, premium, further interest
or cost may be added thereto. Lessor, at its expense, shall, to the extent
required or permitted by applicable law, prepare and file all tax returns in
respect of Lessor's net income, gross receipts, sales and use, single business,
transaction privilege, rent, ad valorem, franchise taxes, Real Estate Taxes,
personal property taxes and taxes on its capital stock, and Lessee, at its
expense, shall, to the extent required or permitted by applicable laws and
regulations, prepare and file all other tax returns and reports in respect of
any Imposition as may be required by governmental authorities. If any refund
shall be due from any taxing authority in respect of any Imposition paid by
Lessee, the same shall be paid over to or retained by Lessee if no Event of
Default shall have occurred hereunder and be continuing. Any such funds retained
by Lessor due to an Event of Default shall be applied as provided in Article
XVI. Lessor and Lessee shall, upon request of the other, provide such data as is
maintained by the party to whom the request is made with respect to the Leased
Property as may be necessary to prepare any required returns and reports.
Lessor, or Lessee, on behalf of Lessor, shall file all personal property tax
returns in such jurisdictions where it is legally required to so file. Lessor,
to the extent it possesses the same, and Lessee, to the extent it possesses the
same, will provide the other party, upon request, with cost and depreciation
records necessary for filing returns for any property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, Lessee shall provide Lessor with copies of assessment notices in
sufficient time for Lessor to file a protest. Lessor may, upon notice to Lessee,
at Lessor's option and at Lessor's sole expense, protest, appeal, or institute
such other proceedings (in its or Lessee's name) as Lessor may deem appropriate
to effect a reduction of any assessments for those Impositions to be paid by
Lessor, and Lessee, at Lessor's expense as aforesaid, shall fully cooperate with
Lessor in such protest, appeal, or other action. Lessor hereby agrees to
indemnify, defend, and hold harmless Lessee from and against any claims,
obligations, and liabilities against or incurred by Lessee in connection with
such cooperation. Billings to Lessor for reimbursement of Real Estate Taxes or
personal property taxes paid by Lessee shall be accompanied by copies of a bill
therefor and payments thereof which identify the real or personal property with
respect to which such payments are made. Lessor, however, reserves the right to
effect any such protest, appeal or other action and, upon notice to Lessee,
shall control any such activity, which shall then go forward at Lessor's sole
expense. Upon such notice, Lessee, at Lessor's expense, shall cooperate fully
with such activities.
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4.2 NOTICE OF IMPOSITIONS. Lessor shall give prompt Notice to
Lessee of all Impositions payable by Lessee hereunder of which Lessor at any
time has knowledge, provided that Lessor's failure to give any such Notice shall
in no way diminish Lessee's obligations hereunder to pay such Impositions, but
such failure shall obviate any default hereunder for a reasonable time after
Lessee receives Notice of any Imposition which it is obligated to pay during the
first taxing period applicable thereto.
4.3 ADJUSTMENT OF IMPOSITIONS. Impositions imposed in respect of
the tax-fiscal period during which the Term terminates shall be adjusted and
prorated between Lessor and Lessee, whether or not such Imposition is imposed
before or after such termination, and Lessee's obligation to pay its prorated
share thereof after termination shall survive such termination.
4.4 UTILITY CHARGES. Lessee will be solely responsible for
obtaining and maintaining utility services to the Leased Property and will pay
or cause to be paid all charges for electricity, gas, oil, water, sewer and
other utilities used in the Leased Property during the Term.
4.5 INSURANCE PREMIUMS. Lessee will pay or cause to be paid all
premiums for the insurance coverages required to be maintained by it under
Article XIII.
ARTICLE V
5.1 NO TERMINATION, ABATEMENT, ETC. Except as otherwise
specifically provided in this Lease, Lessee, to the extent permitted by law,
shall remain bound by this Lease in accordance with its terms and shall neither
take any action without the written consent of Lessor to modify, surrender or
terminate the same, nor seek nor be entitled to any abatement, deduction,
deferment or reduction of the Rent, or setoff against the Rent, nor shall the
obligations of Lessee be otherwise affected by reason of (a) any damage to, or
destruction of, any Leased Property or any portion thereof from whatever cause
or any Taking of the Leased Property or any portion thereof, (b) the lawful or
unlawful prohibition of, or restriction upon, Lessee's use of any Leased
Property, or any portion thereof, or the interference with such use by any
Person or by reason of eviction by paramount title, (c) any claim which Lessee
has or might have against Lessor by reason of any default or breach of any
warranty by Lessor under this Lease or any other agreement between Lessor and
Lessee, or to which Lessor and Lessee are parties, (d) any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation, dissolution,
winding up or other proceedings affecting Lessor or any assignee or transferee
of Lessor, or (e) for any other cause whether similar or dissimilar to any of
the foregoing other than a discharge of Lessee from any such obligations as a
matter of law. Lessee hereby specifically waives all rights, arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it by law to
(1) modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof, or (2) entitle Lessee to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by Lessee
hereunder, except as otherwise specifically provided in this Lease. The
obligations of Lessee hereunder shall be separate and independent covenants and
agreements and the Rent and all other sums payable by Lessee hereunder shall
continue to be payable in all events unless the obligations to pay the same
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shall be terminated pursuant to the express provisions of this Lease or by
termination of this Lease other than by reason of an Event of Default.
5.2 ABATEMENT PROCEDURES. In the event of a partial Taking as
described in Section 15.5, the Lease shall not terminate, but the Base Rent
shall be abated in the manner and to the extent that is fair, just and equitable
to both Lessee and Lessor, taking into consideration, among other relevant
factors, the number of usable Rooms, the amount of square footage, or the
revenues affected by such partial Taking. If Lessor and Lessee are unable to
agree upon the amount of such abatement within 30 days after such partial
Taking, the matter may be submitted by either party to a court of competent
jurisdiction for resolution.
ARTICLE VI
6.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee acknowledges that the
Leased Property is the property of Lessor and that Lessee has only the right to
the possession and use of the Leased Property upon the terms and conditions of
this Lease.
6.2 LESSEE'S PERSONAL PROPERTY. Lessee will acquire and maintain
throughout the Term such Inventory as is required to operate each Facility in
the manner contemplated by this Lease. Lessee may (and shall as provided herein
below), at its expense, install, affix or assemble or place on any parcels of
the Land or in any of the Leased Improvements, any items of personal property
(including Inventory) owned by Lessee. Lessee, at the commencement of the Term,
and from time to time thereafter, shall provide Lessor with an accurate list of
all such items of Lessee's personal property (collectively, "Lessee's Personal
Property"). Subject to the option of the Lessor provided in Article XXXV below,
Lessee may, subject to the conditions set forth below, remove any of Lessee's
Personal Property set forth on such list at any time during the Term or upon the
expiration or any prior termination of the Term. All of Lessee's Personal
Property not removed by Lessee within ten days following the expiration or
earlier termination of the Term or purchased by Lessor pursuant to such option,
shall be considered abandoned by Lessee and may be appropriated, sold, destroyed
or otherwise disposed of by Lessor without first giving Notice thereof to
Lessee, without any payment to Lessee and without any obligation to account
therefor. Lessee will, at its expense, restore the Leased Property to the
condition required by Section 9.1(4), including repair of all damage to the
Leased Property caused by the removal of Lessee's Personal Property, whether
effected by Lessee or Lessor. Lessee may make such financing arrangements, title
retention agreements, leases or other agreements with respect to the Lessee's
Personal Property as it sees fit provided that Lessee first advises Lessor of
any such arrangement and such arrangement expressly provides that in the event
of Lessee's default thereunder, Lessor may assume Lessee's obligations and
rights under such arrangement. Such financing arrangements shall also provide
that they will be assumable by the Lessor in the event of its purchase of
Lessee's Personal Property subject thereto in the event of Lessor's purchase
thereof pursuant to the terms of this Lease.
6.3 LESSOR'S LIEN. To the fullest extent permitted by applicable
law, Lessor is granted a lien and security interest on all Lessee's Personal
Property now or hereinafter placed in or upon the Leased Property, and such lien
and security interest shall remain attached to such Lessee's Personal
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Property until payment in full of all Rent and satisfaction of all of Lessee's
obligations hereunder; provided, however, Lessor shall subordinate its lien and
security interest to that of any non-Affiliate of Lessee which finances such
Lessee's Personal Property, such subordination to be satisfactory to Lessor in
the exercise of reasonable discretion. Lessee shall, upon the request of Lessor,
execute such financing statements or other documents or instruments reasonably
requested by Lessor to perfect the lien and security interests herein granted.
ARTICLE VII
7.1 CONDITION OF THE LEASED PROPERTY. Lessee acknowledges receipt
and delivery of possession of the Leased Property. Lessee has examined and
otherwise has knowledge of the condition of the Leased Property and has found
the same to be satisfactory for its purposes hereunder. Lessee is leasing the
Leased Property "as is" in its present condition. Lessee waives any claim or
action against Lessor in respect of the condition of the Leased Property. LESSOR
MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE
LEASED PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN
OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY
OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT
ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED
PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT. Provided,
however, to the extent permitted by law, Lessor hereby assigns to Lessee all of
Lessor's rights to proceed against any predecessor in title other than Lessor
(or any Affiliate of Lessor, or any partnership of which any Affiliate or former
Affiliate of Lessee served as general or managing partner, which previously held
title to any of the Leased Property) for breaches of warranties or
representations or for latent defects in the Leased Property. Lessor shall fully
cooperate with Lessee in the prosecution of any such claim, in Lessor's or
Lessee's name, all at Lessee's sole cost and expense. Lessee hereby agrees to
indemnify, defend and hold harmless Lessor from and against any claims,
obligations and liabilities against or incurred by Lessor in connection with
such cooperation.
7.2 USE OF THE LEASED PROPERTY.
(1) Lessee covenants that it will proceed with all due
diligence and will exercise its best efforts to obtain and to maintain
all approvals needed to use and operate the Leased Property and each
Facility under applicable local, state and federal law. Lessee
represents to Lessor that Lessee presently has such certificates,
licenses, permits and other authorizations reasonably required to
conduct the Primary Intended Uses thereof.
(2) Lessee shall use or cause to be used the Leased
Property only as hotel facilities, and for such other uses as may be
necessary or incidental to such use or such other use as otherwise
approved by Lessor (the "Primary Intended Use"). Lessee shall not use
the Leased Property or any portion thereof for any other use, or
include in the Primary Intended Use such ancillary uses such as sales
of food or beverages, without the prior written consent of Lessor,
which consent may be granted, denied or conditioned in Lessor's sole
discretion.
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No use shall be made or permitted to be made of the Leased Property,
and no acts shall be done, which will cause the cancellation or
increase the premium of any insurance policy covering the Leased
Property or any part thereof (unless another adequate policy
satisfactory to Lessor is available and Lessee pays any premium
increase), nor shall Lessee sell or permit to be kept, used or sold in
or about any Leased Property any article which may be prohibited by law
or fire underwriter's regulations. Lessee shall, at its sole cost,
comply with all of the requirements pertaining to any Leased Property
of any insurance board, association, organization or company necessary
for the maintenance of insurance, as herein provided, covering such
Leased Property and Lessee's Personal Property.
(3) Subject to the provisions of Articles XIV and XV,
Lessee covenants and agrees that during the Term it will (1) operate
continuously the Leased Property as hotel facilities, (2) maintain
appropriate certifications and licenses for such use and (3) use its
best efforts to maximize the gross revenues generated therefrom
consistent with sound business practices. Lessor further covenants and
agrees that it will operate the Leased Property in such a manner as
will maintain at least the standards of quality that have been
heretofore established in the ownership and operations of the Leased
Property by Affiliates of the Lessor prior to the date of this Lease.
Lessee will engage in (and commit resources for) such promotional and
advertising activities with respect to the Leased Property as shall be
reasonably required or advisable, under all of the facts and
circumstances, to effectively and efficiently promote the business and
operations of the Leased Properties.
(4) Lessee shall not commit or suffer to be committed any
waste on any Leased Property, or in any Facility, nor shall Lessee
cause or permit any nuisance thereon.
(5) Lessee shall neither suffer nor permit the Leased
Property or any portion thereof, or Lessee's Personal Property, to be
used in such a manner as (1) might reasonably tend to impair Lessor's
(or Lessee's, as the case may be) title thereto or to any portion
thereof, or (2) may reasonably make possible a claim or claims of
adverse usage or adverse possession by the public, as such, or of
implied dedication of the Leased Property or any portion thereof,
except as necessary in the ordinary and prudent operation of the
Facility on such Leased Property.
(6) Lessee or any Affiliate of Lessee shall not own, or
have any interest in, any hotel or motel property in which Lessor or an
Affiliate of Lessor does not have an interest. Neither Lessee nor an
Affiliate of Lessee shall operate or manage any hotel or motel that is
within a 20-mile radius of any hotel or motel property in which Lessor
or an Affiliate of Lessor has an interest on the date Lessee or its
Affiliate would otherwise commence operating or managing such property,
other than pursuant to this Lease or another lease, agreement or
arrangement with Lessor or an Affiliate of Lessor. Lessor agrees to
notify Lessee promptly of the location of any hotel or motel property
in which Lessor or an Affiliate of Lessor has an interest.
7.3 LESSOR TO GRANT EASEMENTS, ETC. Lessor will, from time to
time, so long as no Event of Default has occurred and is continuing, at the
request of Lessee and at Lessee's cost and expense
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(but subject to the approval of Lessor, which approval shall not be unreasonably
withheld or delayed), (a) grant easements and other rights in the nature of
easements with respect to any Leased Property to third parties, (b) release
existing easements or other rights in the nature of easements which are for the
benefit of any Leased Property, (c) dedicate or transfer unimproved portions of
any Leased Property for road, highway or other public purposes, (d) execute
petitions to have any Leased Property annexed to any municipal corporation or
utility district, (e) execute amendments to any covenants and restrictions
affecting any Leased Property and (f) execute and deliver to any person any
instrument appropriate to confirm or effect such grants, releases, dedications,
transfers, petitions and amendments (to the extent of its interest in the Leased
Property), but only upon (i) delivery to Lessor of an Officer's Certificate
stating that such grant, release, dedication, transfer, petition or amendment is
not detrimental to the proper conduct of the business of Lessee on such Leased
Property and does not materially reduce the value of such Leased Property, and
(ii) obtaining all necessary consents or approvals of any lender holding a
mortgage or other security interest in the Leased Property in question.
ARTICLE VIII
8.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS, ETC. Subject
to Article XII relating to permitted contests, Lessee, at its expense, will
promptly (a) comply with all applicable Legal Requirements and Insurance
Requirements in respect of the use, operation maintenance, repair and
restoration of the Leased Property, and (b) procure, maintain and comply with
all appropriate licenses and other authorizations required for any use of the
Leased Property and Lessee's Personal Property then being made, and for the
proper erection, installation, operation and maintenance of the Leased Property
or any part thereof.
8.2 LEGAL REQUIREMENT COVENANTS. Lessee covenants and agrees that
none of the Leased Property or Lessee's Personal Property shall be used for any
unlawful purpose, and that Lessee shall not permit or suffer to exist any
unlawful use of any Leased Property by others. Lessee shall acquire and maintain
all appropriate licenses, certifications, permits and other authorizations and
approvals needed to operate the Leased Property in its customary manner for the
Primary Intended Use, and any other lawful use conducted on the Leased Property
as may be permitted from time to time hereunder. Lessee further covenants and
agrees that Lessee's use of the Leased Property and maintenance, alteration, and
operation of the same, and all parts thereof, shall at all times conform to all
Legal Requirements, unless the same are finally determined by a court of
competent jurisdiction to be unlawful (and Lessee shall cause all such
sub-tenants, invitees or others to so comply with all Legal Requirements).
Lessee may, however, upon prior Notice to Lessor, contest the legality or
applicability of any such Legal Requirement or any licensure or certification
decision if Lessee maintains such action in good faith, with due diligence,
without prejudice to Lessor's rights hereunder, and at Lessee's sole expense.
If, by the terms of any such Legal Requirement, compliance therewith may legally
be delayed pending the prosecution of any such proceeding without the incurrence
of any lien, charge or liability of any kind against the Facility or Lessee's
leasehold interest therein and without subjecting Lessee or Lessor to any
liability, civil or criminal, for failure so to comply therewith, Lessee may
delay compliance therewith until the final determination of such proceeding. If
any lien, charge or civil or criminal liability would be incurred by reason of
any such
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delay, Lessee, on the prior written consent of Lessor, which consent shall not
be unreasonably withheld, may nonetheless contest as aforesaid and delay as
aforesaid provided that such delay would not subject Lessor to criminal
liability and Lessee both (a) furnishes to Lessor security reasonably
satisfactory to Lessor against any loss or injury by reason of such contest or
delay and (b) prosecutes the contest with due diligence and in good faith.
8.3 ENVIRONMENTAL COVENANTS. In addition to, and not in diminution
of, Lessee's covenants and undertakings in Sections 8.1 and 8.2 hereof, Lessee
covenants and undertakes with Lessor as follows:
(1) At all times hereafter until such time as all
liabilities, duties or obligations of Lessee to the Lessor under the
Lease have been satisfied in full, Lessee shall fully comply with all
Environmental Laws applicable to the Leased Property and the operations
thereon. Lessee agrees to give Lessor prompt written notice of (1) all
Environmental Liabilities; (2) all pending, threatened or anticipated
Proceedings, and all notices, demands, requests or investigations,
relating to any Environmental Liability or relating to the issuance,
revocation or change in any Environmental Authorization required for
operation of any Leased Property; (3) all Releases at, on, in, under or
in any way affecting any Leased Property, or any Release known by
Lessee at, on, in or under any property adjacent to any Leased
Property; and (4) all facts, events or conditions that could reasonably
lead to the occurrence of any of the above-referenced matters.
(2) Lessor hereby agrees to defend, indemnify and save
harmless any and all Lessee Indemnified Parties from and against any
and all Environmental Liabilities other than Environmental Liabilities
which were caused by the acts or negligent failures to act of Lessee.
(3) Lessee hereby agrees to defend, indemnify and save
harmless any and all Lessor Indemnified Parties from and against any
and all Environmental Liabilities caused by the acts or negligent
failure of Lessee.
(4) If any Proceeding is brought against any Indemnified
Party in respect of an Environmental Liability with respect to which
such Indemnified Party may claim indemnification under either Section
8.3(2) or (3), the Indemnifying Party, upon request, shall at its sole
expense resist and defend such Proceeding, or cause the same to be
resisted and defended by counsel designated by the Indemnified Party
and approved by the Indemnifying Party, which approval shall not be
unreasonably withheld; provided, however, that such approval shall not
be required in the case of defense by counsel designated by any
insurance company undertaking such defense pursuant to any applicable
policy of insurance. Each Indemnified Party shall have the right to
employ separate counsel in any such Proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel will be
at the sole expense of such Indemnified Party. The Indemnifying Party
shall not be liable for any settlement of any such Proceeding made
without its consent, which shall not be unreasonably withheld, but if
settled with the consent of the Indemnifying Party, or if settled
without its consent (if its consent shall be unreasonably withheld), or
if there be a
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final, nonappealable judgment for an adversary party in any such
Proceeding, the Indemnifying Party shall indemnify and hold harmless
the Indemnified Parties from and against any liabilities incurred by
such Indemnified Parties by reason of such settlement or judgment.
For purposes of this Section 8.3, all amounts for which any
Indemnified Party seeks indemnification shall be computed net of (a)
any actual income tax benefit resulting therefrom to such Indemnified
Party, (b) any insurance proceeds received (net of tax effects) with
respect thereto, and (c) any amounts recovered (net of tax effects)
from any third parties based on claims the Indemnified Party has
against such third parties which reduce the damages that would
otherwise be sustained; provided that in all cases, the timing of the
receipt or realization of insurance proceeds or income tax benefits or
recoveries from third parties shall be taken into account in
determining the amount of reduction of damages. Each Indemnified Party
agrees to use its reasonable efforts to pursue, or assign to the
Indemnifying Party, any claims or rights it may have against any third
party which would materially reduce the amount of damages otherwise
incurred by such Indemnified Party.
Notwithstanding anything to the contrary contained in this
Agreement, if Lessor shall become entitled to the possession of any
Leased Property by virtue of the termination of the Lease or
repossession of the Leased Property, then Lessor may assign its
indemnification rights under Section 8.3 of this Agreement (but not any
other rights hereunder) to any Person to whom the Lessor subsequently
transfers such Leased Property, subject to the following conditions and
limitations, each of which shall be deemed to be incorporated into the
terms of such assignment, whether or not specifically referred to
therein:
(i) The indemnification rights referred to in
this section may be assigned only if a known Environmental
Liability then exists or if a Proceeding is then pending or,
to the knowledge of Lessee or Lessor, then threatened with
respect to any Leased Property.
(ii) Such indemnification rights shall be limited
to Environmental Liabilities relating to or specifically
affecting such Leased Property.
(iii) Any assignment of such indemnification
rights shall be limited to the immediate transferee of Lessor,
and shall not extend to any such transferee's successors or
assigns.
(5) At any time any Indemnified Party has reasons to
believe circumstances exist which could reasonably result in an
Environmental Liability, upon reasonable prior written notice to the
Indemnifying Party stating such Indemnified Party's basis for such
belief, an Indemnified Party shall be given immediate access to the
Leased Property (including, but not limited to, the right to enter
upon, investigate, drill wells, take soil borings, excavate, monitor,
test, cap and use available land for the testing of remedial
technologies), Lessee's employees, and to all relevant documents and
records regarding the matter as to which a responsibility, liability or
obligation is asserted or which is the subject of any Proceeding;
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provided that such access may be conditioned or restricted as may be
reasonably necessary to ensure compliance with law and the safety of
personnel and facilities or to protect confidential or privileged
information. All Indemnified Parties requesting such immediate access
and cooperation shall endeavor to coordinate such efforts to result in
as minimal interruption of the operation of such Leased Property as
practicable.
ARTICLE IX
9.1 MAINTENANCE AND REPAIR.
(1) Lessee, at its sole expense, will keep the Leased
Property and all private roadways, sidewalks and curbs appurtenant
thereto that are under Lessee's control, including windowpanes and
plate glass, parking lots, swimming pool, mechanical, electrical and
plumbing systems and equipment (including conduit and ductware), and
non-load bearing interior walls in good order and repair, except for
ordinary wear and tear (whether or not the need for such repairs
occurred as a result of Lessee's use, any prior use, the elements or
the age of the Leased Property, or any portion thereof), and, except as
otherwise provided in Section 9.1(2), Article XIV or Article XV, with
reasonable promptness, make all necessary and appropriate repairs,
replacements, and improvements thereto of every kind and nature,
whether interior or exterior, ordinary or extraordinary, foreseen or
unforeseen or arising by reason of a condition existing prior to the
commencement of the Term of this Lease (concealed or otherwise), or
required by any governmental agency having jurisdiction over the Leased
Property, except as to the physical structure of the Leased
Improvements. All repairs shall, to the extent reasonably achievable,
be a least equivalent in quality to the original work. Lessee will not
take or omit to take any action, the taking or omission of which might
materially impair the value or the usefulness of the Leased Property or
any part thereof for its Primary Intended Use.
(2) Notwithstanding Lessee's obligations under Section
9.1(1) above, unless caused by Lessee's negligence or willful
misconduct or that of its employees or agents, Lessor shall be required
to bear the cost of maintaining any underground utilities (to the
extent not maintained by any other Person) and the structural elements
of the Leased Improvements including the roof of each Facility (but
excluding windowpanes and plate glass); provided Lessee shall give
Lessor reasonable advance Notice of the need for such maintenance as
soon as Lessee becomes aware thereof. Failure of Lessee to give such
Notice shall render Lessee responsible for all maintenance costs which
could have been avoided had such Notice been timely given. Except as
set forth in the first sentence of this subparagraph (b), Lessor shall
not under any circumstances be required to build or rebuild any
improvement on the Leased Property, or to make any repairs,
replacements, alterations, restorations or renewals of any nature or
description to the Leased Property, whether ordinary or extraordinary,
foreseen or unforeseen, or to make any expenditure whatsoever with
respect thereto, in connection with this Lease, or to maintain the
Leased Property in any way. Lessee hereby waives, to the extent
permitted by law, the right to make repairs at the expense of Lessor
pursuant to any law in effect at the time of the execution of this
Lease or hereafter
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enacted. Lessor shall have the right to give, record and post, as
appropriate, notices of nonresponsibility under any mechanic's lien
laws now or hereafter existing.
(3) Nothing contained in this Lease and no action or
inaction by Lessor shall be construed as (i) constituting the request
of Lessor, expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor
or services or the furnishing of any materials or other property for
the construction, alteration, addition, repair or demolition of or to
any Leased Property or any part thereof, or (ii) giving Lessee any
right, power or permission to contract for or permit the performance of
any labor or services which could result in the creation of any claim
against Lessor in respect thereof or to make any agreement that may
create, or in any way be the basis for any right, title, interest,
lien, claim or other encumbrance upon the estate of Lessor in the
Leased Property, or any portion thereof.
(4) Lessee will, upon the expiration or prior termination
of the Term, vacate and surrender the Leased Property to Lessor in the
condition in which the Leased Property was originally received from
Lessor, except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Lease and except for
ordinary wear and tear (subject to the obligation of Lessee to maintain
the Leased Property in good order and repair, as would a prudent owner,
during the entire Term of the Lease), or damage by casualty or
Condemnation (subject to the obligations of Lessee to restore or repair
as set forth in the Lease.)
9.2 ENCROACHMENTS, RESTRICTIONS, ETC. If any of the Leased
Improvements, at any time, materially encroach upon any property, street or
right-of-way adjacent to any Leased Property, or violate the agreements or
conditions contained in any lawful restrictive covenant or other agreement
affecting such Leased Property, or any part thereof, or impair the rights of
others under any easement or right-of way to which such Leased Property is
subject, then promptly upon the request of Lessor or at the behest of any person
affected by any such encroachment, violation or impairment, Lessee shall, at its
expense and upon written notice to Lessor, subject to its right to contest the
existence of any encroachment, violation or impairment and in such case, in the
event of an adverse final determination, either (a) obtain valid and effective
waivers or settlements of all claims, liabilities and damages resulting from
each such encroachment, violation or impairment, whether the same shall affect
Lessor or Lessee or (b) make such changes in the Leased Improvements, and take
such other actions, as Lessee in the good faith exercise of its judgment deems
reasonably practicable to remove such encroachment, and to end such violation or
impairment, including, if necessary, the alteration of any of the Leased
Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Leased Improvements for the
Primary Intended Use substantially in the manner and to the extent the Leased
Improvements were operated prior to the assertion of such violation, impairment
or encroachment. Any such alteration shall be made in conformity with the
applicable requirements of Article X. Lessee's obligations under this Section
9.2 shall be in addition to and shall in no way discharge or diminish any
obligation of any insurer under any policy of title or other insurance held by
Lessor.
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ARTICLE X
10.1 ALTERATIONS. Lessee shall have the right to make additions,
modifications or improvements to any Leased Property from time to time as
Lessee, in its discretion, may deem to be desirable for its permitted uses and
purposes, provided that such action will not noticeably alter the character or
purposes or noticeably detract from the value or operating efficiency thereof
and will not noticeably impair the revenue-producing capability of the Leased
Property or adversely affect the ability of the Lessee to comply with the
provisions of this Lease. In the case of any such additions, modifications or
improvements to any Leased Property, Lessee shall prosecute the performance
thereof with all due diligence and on a continuous basis, in a good and
workmanlike manner, so as to complete the performance thereof as expeditiously
as reasonably practicable. In the event of any such additions, modifications or
improvements having an estimated cost in excess of $100,000, such work shall be
conducted under the supervision of a qualified architect, engineer and/or
contractor reasonably satisfactory to Lessor, shall be completed substantially
in accordance with plans and specifications previously approved in writing by
Lessor, and shall be commenced only after Lessee shall have furnished to Lessor
such assurances of payment and performance as may reasonably be required by
Lessor under the circumstances. The cost of such additions, modifications or
improvements to the Leased Property shall be paid by Lessee, and all such
additions, modifications and improvements shall, without payment by Lessor at
any time, be included under the terms of this Lease and upon expiration or
earlier termination of this Lease shall pass to and become the property of
Lessor.
10.2 SALVAGE. All materials which are scrapped or removed in
connection with the making of repairs required by Articles IX or X shall be or
become the property of Lessor or Lessee depending on which party is paying for
or providing the financing for such work.
10.3 JOINT USE AGREEMENTS. Subject to Section 7.2(2) hereof, if
Lessee constructs additional improvements that are connected to any Leased
Property or share maintenance facilities, HVAC, electrical, plumbing or other
systems, utilities, parking or other amenities, the parties shall enter into a
mutually agreeable cross-easement or joint use agreement to make available
necessary services and facilities in connection with such additional
improvements, to protect each of their respective interests in the properties
affected, and to provide for separate ownership, use, and/or financing of such
improvements.
ARTICLE XI
LIENS. Subject to the provision of Article XII relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon any Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including, however, (a) this
Lease, (b) the matters, if any, included as exceptions in the title policy
insuring Lessor's interest in the Leased Property, (c) restrictions, liens and
other encumbrances which are consented to in writing by Lessor or any easements
granted pursuant to the provisions of Section 7.3 of this Lease, (d) liens for
those taxes upon Lessor which Lessee is not required to pay hereunder, (e)
subleases permitted
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by Article XXII hereof, (f) liens for Impositions or for sums resulting from
noncompliance with Legal Requirements so long as (1) the same are not yet
payable or are payable without the addition of any fine or penalty or (2) such
liens are in the process of being contested as permitted by Article XII, (g)
liens of mechanics, laborers, materialmen, suppliers or vendors for sums either
disputed or not yet due provided that (1) the payment of such sums shall not be
postponed under any related contract for more than 60 days after the completion
of the action giving rise to such lien and such reserve or other appropriate
provisions as shall be required by law or generally accepted accounting
principles shall have been made therefor or (2) any such liens are in the
process of being contested as permitted by Article XII hereof, and (h) any liens
which are the responsibility of Lessor pursuant to the provisions of Article
XXXII of this Lease.
ARTICLE XII
PERMITTED CONTESTS. Lessee shall have the right, upon prior written
notice to Lessor, to contest the amount or validity of any Imposition to be paid
by Lessee or any Legal Requirement or Insurance Requirement or any lien,
attachment, levy, encumbrance, charge or claim ("Claims") not otherwise
permitted by Article XI, by appropriate legal proceedings in good faith and with
due diligence (but this shall not be deemed or construed in any way to relieve,
modify or extend Lessee's covenants to pay or its covenants to cause to be paid
any such charges at the time and in the manner as in this Lease provided), on
condition, however, that such legal proceedings shall not operate to relieve
Lessee from its obligations hereunder and shall not cause the sale or risk the
loss of the Leased Property, or any part thereof, or cause Lessor or Lessee to
be in default under any mortgage, deed of trust or security deed encumbering the
Leased Property or any part thereof or interest therein. Upon the request of
Lessor, Lessee shall either (a) provide a bond or other assurance reasonably
satisfactory to Lessor that all Claims which may be assessed against such Leased
Property together with interest and penalties, if any, thereon will be paid, or
(b) deposit within the time otherwise required for payment with a bank or trust
company as trustee upon terms reasonably satisfactory to Lessor, as security for
the payment of such Claims, money in an amount sufficient to pay the same,
together with interest and penalties in connection therewith, as to all Claims
which may be assessed against or become a Claim on such Leased Property, or any
part thereof, in said legal proceedings. Lessee shall furnish Lessor and any
lender of Lessor with reasonable evidence of such deposit within five days of
the same. Lessor agrees to join in any such proceedings if the same be required
to legally prosecute such contest of the validity of such Claims; provided,
however, that Lessor shall not thereby be subjected to any liability for the
payment of any costs or expenses in connection with any proceedings brought by
Lessee; and Lessee covenants to indemnify and save harmless Lessor from any such
costs or expenses. Lessee shall be entitled to any refund of any Claims and such
charges and penalties or interest thereon which have been paid by Lessee or paid
by Lessor and for which Lessor has been fully reimbursed. In the event that
Lessee fails to pay any Claims when due or to provide the security therefor as
provided in this paragraph and to diligently prosecute any contest of the same,
Lessor may, upon ten days' advance Notice to Lessee, pay such charges together
with any interest and penalties and the same shall be repayable by Lessee to
Lessor as Additional Charges at the next Payment Date provided for in this
Lease; provided, however, that should Lessor reasonably determine that the
giving of such Notice would risk loss to the Leased Property or cause damage to
Lessor, then Lessor shall give such Notice as is practical under the
circumstances. Lessor
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reserves the right to contest any of the Claims at its expense not pursued by
Lessee. Lessor and Lessee agree to cooperate in coordinating the contest of any
claims.
ARTICLE XIII
13.1 GENERAL INSURANCE REQUIREMENTS. During the Term of this Lease,
Lessee shall at all times keep the Leased Property insured with the kinds and
amounts of insurance described below. This insurance shall be written by
companies authorized to issue insurance in the State. The policies (other than
Workers' Compensation Insurance) must name Lessor as an additional insured.
Losses shall be payable to Lessor or Lessee as provided in this Lease. Any loss
adjustment shall require the written consent of Lessor and Lessee, each acting
reasonably and in good faith. Evidence of insurance shall be deposited with
Lessor. The policies on the Leased Property, including the Leased Improvements,
Fixtures and Lessee's Personal Property, shall include:
(1) Building insurance on the "Special Form" (formerly
"All Risk" form) (excluding earthquake and flood in an amount not less
than 100% of the then full replacement cost thereof (as defined in
Section 13.2) or such other amount which is acceptable to Lessor, and
personal property insurance on the "Special Form" in the full amount of
the replacement cost thereof;
(2) Loss of income insurance on the "Special Form," with
respect to Percentage Rent attributable to each Individual Leased
Property (determined on the basis of the average Percentage Rent
attributable to the operations of each Individual Leased Property in
question over the prior three Fiscal Years or if three Fiscal Years
have not elapsed, the average of the Percentage Rent for an Individual
Leased Property determined by reference to the Percentage Rent during
the preceding Fiscal Years during which the Lease was in effect) for
the benefit of Lessor, and business interruption insurance on the
"Special Form" in the amount of one year of gross profit, for the
benefit of Lessee;
(3) Commercial general liability insurance, with amounts
not less than $6,000,000 covering each of the following: bodily injury,
death, or property damage liability per occurrence, personal and
advertising injury, general aggregate, products and completed
operations, with respect to and insuring Lessor, and "all risk legal
liability" (including liquor law or "dram shop" liability) with respect
to and insuring Lessor and Lessee;
(4) Insurance covering such other hazards and in such
amounts as may be customary for comparable properties in the area of
the Leased Property and is available from insurance companies,
insurance pools or other appropriate companies authorized to do
business in the State at rates which are economically practicable in
relation to the risks covered as may be reasonably requested by Lessor;
(5) Fidelity bonds with limits and deductibles as may be
reasonably requested by Lessor, covering Lessee's employees in job
classifications normally bonded under prudent hotel management
practices in the United States or otherwise required by law;
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(6) Workers' compensation insurance to the extent
necessary to protect Lessor and the Leased Property against Lessee's
workers' compensation claims and as may be required by law, including
coverage for all persons employed by Lessee on the Leased Property
(such insurance to be in accordance with the requirements of applicable
local, state and federal law);
(7) Vehicle liability insurance for owned, non-owned, and
hired vehicles, in the amount of $1,000,000;
(8) Such other insurance (reasonably available from
insurance companies) as Lessor may reasonably request for facilities
such as the Leased Property and the operation thereof; and
Notwithstanding anything in this Lease to the contrary, Lessor shall be
obligated to pay the premiums and other costs of the insurance required hereby
other than Workers' Compensation insurance.
13.2 REPLACEMENT COST. The term "full replacement cost" as used
herein shall mean the actual replacement cost of an Individual Leased Property
requiring replacement from time to time including an increased cost of
construction endorsement, if available, and the cost of debris removal. In the
event either party believes that full replacement cost (the then replacement
cost less such exclusions) has increased or decreased at any time during the
Lease Term, it shall have the right to have such full replacement cost
redetermined.
13.3 WAIVER OF SUBROGATION. All insurance policies carried by
Lessor or Lessee covering the Leased Property, the Fixtures, the Facility or
Lessee's Personal Property, including, without limitation, contents, fire and
casualty insurance, shall expressly waive any right of subrogation on the part
of the insurer against the other party. The parties hereto agree that their
policies will include such waiver clause or endorsement so long as the same is
obtainable without extra cost, and in the event of such an extra charge, the
other party, at its election, may pay the same, but shall not be obligated to do
so.
13.4 FORM SATISFACTORY, ETC. All of the policies of insurance
referred to in this Article XIII shall be written in a form satisfactory to
Lessor and by insurance companies satisfactory to Lessor. Lessor agrees that it
will not unreasonably withhold its approval as to the form of the policies of
insurance or as to the insurance companies selected by Lessee. Each insurer
mentioned in this Article XIII shall agree, by endorsement to the policy or
policies issued by it, or by independent instrument furnished to Lessor, that it
will give to Lessor 30 days' written notice before the policy or policies in
question shall be materially altered, allowed to expire or canceled.
13.5 INCREASE IN LIMITS. If either Lessor or Lessee at any time
deems the limits of the personal injury or property damage under the
comprehensive public liability insurance then carried to be either excessive or
insufficient, Lessor or Lessee shall endeavor in good faith to agree on the
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proper and reasonable limits for such insurance to be carried and such insurance
shall thereafter be carried with the limits thus agreed on until further change
pursuant to the provisions of this Section.
13.6 BLANKET POLICY. Notwithstanding anything to the contrary
contained in this Article XIII, Lessee's obligations to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Lessee; provided,
however, that the coverage afforded to Lessor will not be reduced or diminished
or otherwise be different from that which would exist under a separate policy
meeting all other requirements of this Lease by reason of the use of such
blanket policy of insurance, and provided further that the requirements of this
Article XIII are otherwise satisfied.
13.7 NO SEPARATE INSURANCE. Lessee shall not on Lessee's own
initiative or pursuant to the request or requirement of any third party, take
out separate insurance concurrent in form or contributing in the event of loss
with that required in this Article to be furnished by Lessee, or increase the
amount of any then existing insurance by securing an additional policy or
additional policies, unless all parties having an insurable interest in the
subject matter of the insurance, including in all cases Lessor, are included
therein as additional insureds, and the loss is payable under such additional
separate insurance in the same manner as losses are payable under this Lease.
Lessee shall immediately give Notice to Lessor that Lessee has obtained any such
separate insurance or of the increasing of any of the amounts of the then
existing insurance.
ARTICLE XIV
14.1 INSURANCE PROCEEDS. All proceeds payable by reason of any loss
or damage to any Leased Property, or any portion thereof, and insured under any
policy of insurance required or permitted by Article XIII of this Lease shall be
paid to Lessor and held in trust by Lessor in an interest-bearing account
(subject to the provisions of Section 14.5) and shall be made available for
reconstruction or repair, as the case may be, of any damage to or destruction of
such Leased Property, or any portion thereof, and shall be paid out by Lessor
from time to time for the reasonable costs of such reconstruction or repair upon
satisfaction of reasonable terms and conditions; provided, that loss of income
insurance payable to Lessor or due Lessor under the terms of this Lease shall
remain the sole property of Lessor. Any excess proceeds of insurance remaining
after the completion of the restoration or reconstruction of such Leased
Property shall be retained by Lessor for its own account. If neither Lessor nor
Lessee is required or elects to repair and restore, and the Lease is terminated,
all such insurance proceeds shall be retained by Lessor. All salvage resulting
from any risk covered by insurance shall belong to Lessor.
14.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION
(1) Except as provided in Section 14.5, if during the
Term any Leased Property is totally or partially damaged or destroyed
(regardless of whether such damage or destruction is by a risk covered
by the insurance described in Article XIII), Lessee shall restore the
Facility to substantially the same condition as existed immediately
before the damage or destruction and otherwise in accordance with the
terms of the Lease. In
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connection with Lessee's restoration of the Facility, any insurance
proceeds shall be paid out by Lessor from time to time for the
reasonable costs of such restoration upon satisfaction of reasonable
terms and conditions, and any excess proceeds remaining after such
restoration shall be retained by Lessor.
(2) If the cost of the repair or restoration exceeds the
amount of any proceeds received by Lessor from the insurance required
under Article XIII, Lessee shall be obligated to contribute any excess
amounts needed to restore the Facility prior to commencing work
thereon.
14.3 LESSEE'S PROPERTY. All insurance proceeds payable by reason of
any loss of or damage to any of Lessee's Personal Property shall be paid to
Lessee; provided, however, no such payments shall diminish or reduce the
insurance payments otherwise payable to or for the benefit of Lessor hereunder.
14.4 NON-ABATEMENT OF RENT. This Lease shall remain in full force
and effect and, except to the extent Lessor is entitled to receive the proceeds
of business interruption insurance with respect to lost Percentage Rent,
Lessee's obligation to make rental payments and to pay all other charges
required by this Lease with respect to such Individual Leased Property shall
remain unabated during any period required for repair and restoration.
14.5 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of
Section 14.2 appearing to the contrary, if damage to or destruction of the
Facility occurs during the last 6 months of the Term, then Lessee shall have the
right to terminate this Lease as to such Individual Leased Property by giving
written notice to Lessee within 30 days after the date of damage or destruction,
whereupon all accrued Rent attributable to such Individual Leased Property shall
be paid immediately.
14.6 WAIVER. Lessee hereby waives any statutory rights of
termination that may arise by reason of any damage or destruction of the
Facility that Lessee is obligated to restore or may restore under any of the
provisions of this Lease.
ARTICLE XV
15.1 DEFINITIONS.
(1) "Condemnation" means a Taking resulting from (1) the
exercise of any governmental power, whether by legal proceedings or
otherwise, by a Condemnor, and (2) a voluntary sale or transfer by
Lessor to any Condemnor, either under threat of condemnation or while
legal proceedings for condemnation are pending.
(2) "Date of Taking" means the date the Condemnor has the
right to possession of the property being condemned.
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(3) "Award" means all compensation, sums or anything of
value awarded, paid or received on a total or partial Condemnation.
(4) "Condemnor" means any public or quasi-public
authority, or private corporation or individual, having the power of
Condemnation.
15.2 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is
any Condemnation of all or any part of the Leased Property or any interest in
this Lease, the rights and obligations of Lessor and Lessee shall be determined
by this Article XV.
15.3 TOTAL TAKING. If title to the fee of the whole of any
Individual Leased Property is condemned by any Condemnor, this Lease shall cease
and terminate as to such Individual Leased Property as of the Date of Taking by
the Condemnor. If title to the fee of less than the whole of the Individual
Leased Property is so taken or condemned, which nevertheless renders such
Individual Leased Property Unsuitable or Uneconomic for its Primary Intended
Use, Lessee and Lessor shall each have the option, by notice to the other, at
any time prior to the Date of Taking, to terminate this Lease as to such
Individual Leased Property as of the Date of Taking. Upon such date, if such
Notice has been given, this Lease shall thereupon cease and terminate as to such
Individual Leased Property but it shall continue as to all other Leased Property
subject hereto. All Base Rent, Percentage Rent and Additional Charges paid or
payable by Lessee hereunder as to such Individual Leased Property shall be
apportioned as of the Date of Taking, and Lessee shall promptly pay Lessor such
amounts.
15.4 ALLOCATION OF AWARD. The total Award made with respect to the
Leased Property or for loss of rent, or for Lessor's loss of business beyond the
Term of this Lease, shall be solely the property of and payable to Lessor. Any
Award made for loss of business during the remaining Term of this Lease, if any,
for the taking of Lessee's Personal Property, or for removal and relocation
expenses of Lessee in any such proceedings shall be the sole property of and
payable to Lessee. In no event will any Award payable to Lessee diminish the
Award payable to Lessor. In any Condemnation proceedings Lessor and Lessee shall
each seek its Award in conformity herewith, at its respective expense; provided,
however, Lessee shall not initiate, prosecute or acquiesce in any proceedings
that may result in a diminution of any Award payable to Lessor.
15.5 PARTIAL TAKING. If title to less than the whole of an
Individual Leased Property is condemned, and the Individual Leased Property is
still suitable for its Primary Intended Use, and not Uneconomic for its Primary
Intended Use, or if Lessee or Lessor is entitled but neither elects to terminate
this Lease as to such Individual Leased Property as provided in Section 15.3
hereof, Lessee at its cost shall with all reasonable dispatch restore the
untaken portion of any Leased Improvements so that such Leased Improvements
constitute a complete architectural unit of the same general character and
condition (as nearly as may be possible under the circumstances) as the Leased
Improvements existing immediately prior to the Condemnation. Lessor shall
contribute to the cost of restoration that part of its Award specifically
allocated to such restoration, if any, together with severance and other damages
awarded for the taken Leased Improvements; provided, however, that the amount of
such contribution shall not exceed such cost.
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15.6 TEMPORARY TAKING. If the whole or any part of an Individual
Leased Property or of Lessee's interest under this Lease attributable thereto is
condemned by any Condemnor for its temporary use or occupancy, this Lease shall
not terminate as to such Individual Leased Property by reason thereof, and
Lessee shall continue to pay, in the manner and at the terms herein specified,
the full amounts of Base Rent and Additional Charges attributable to such
Individual Leased Property. In addition, Lessee shall pay Percentage Rent at a
rate equal to the average Percentage Rent attributable to such Individual Leased
Property during the last three preceding Fiscal Years (or if three Fiscal Years
shall not have elapsed, the average during the preceding Fiscal Years). Except
only to the extent that Lessee may be prevented from so doing pursuant to the
terms of the order of the Condemnor, Lessee shall continue to perform and
observe all of the other terms, covenants, conditions and obligations hereof on
the part of the Lessee to be performed and observed, as though such Condemnation
had not occurred. In the event of any Condemnation described in this Section
15.5, the entire amount of any Award made for such Condemnation allocable to the
Term of this Lease, whether paid by way of damages, rent or otherwise, shall be
paid to Lessee. Lessee covenants that upon the termination of any such period of
temporary use or occupancy it will, at its sole cost and expense (subject to
Lessor's contribution as set forth below), restore the Individual Leased
Property as nearly as may be reasonably possible to the condition in which the
same was immediately prior to such Condemnation, unless such period of temporary
use or occupancy extends beyond the expiration of the Term, in which case Lessee
shall not be required to make such restoration. If restoration is required
hereunder, Lessor shall contribute to the cost of such restoration that portion
of its entire Award that is specifically allocated to such restoration in the
judgment or order of the court, if any, and Lessee shall fund the balance of
such costs in advance of restoration in a manner reasonably satisfactory to
Lessor.
ARTICLE XVI
16.1 EVENTS OF DEFAULT. If any one or more of the following events
(individually, an "Event of Default") occurs:
(1) if Lessee fails to make any payment of Rent or other
sum payable by Lessee to Lessor hereunder when the same becomes due and
payable for a period of ten days after receipt by the Lessee of Notice
from the Lessor thereof; or
(2) if Lessee fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by
Lessee within a period of 30 days after receipt by the Lessee of Notice
thereof from Lessor, unless such failure cannot with due diligence be
cured within a period of 30 days, in which case it shall not be deemed
an Event of Default if Lessee proceeds promptly and with due diligence
to cure the failure and diligently completes the curing thereof
provided, however, in no event shall such cure period extend beyond 90
days after such Notice; or
(3) if Lessee shall file a petition under any Chapter of
the United States Bankruptcy Code, as amended, or under any similar law
or statute of the United States or any State, or there shall be filed
against Lessee a petition in bankruptcy or insolvency or a similar
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proceeding, which petition or proceeding is not dismissed within sixty
(60) days following the filing thereof, or if Lessee shall be adjudged
insolvent in any proceedings filed against Lessee, or if a receiver of
the Lessee or of the whole or substantially all of the assets of the
Lessee shall be appointed in any proceeding brought by the Lessee or if
any such receiver, trustee or liquidator shall be appointed in any
proceeding brought against the Lessee and shall not be vacated or set
aside or stayed within 60 days after such appointment; or
(4) if Lessee is liquidated or dissolved, or begins
proceedings toward such liquidation or dissolution, or, in any manner,
permits the sale or divestiture of substantially all of its assets; or
(5) if the estate or interest of Lessee in the Leased
Property or any part thereof is voluntarily or involuntarily
transferred, assigned, conveyed, levied upon or attached in any
proceeding (unless Lessee is contesting such lien or attachment in good
faith in accordance with Article XII hereof); or
(6) if, except as a result of damage, destruction or a
partial or complete Condemnation, Lessee voluntarily ceases operations
on any Leased Property for a period in excess of five days without the
consent or Lessor;
then, and in any such event, Lessor may exercise one or more remedies available
to it herein or at law or in equity, including but not limited to its right to
terminate this Lease either in whole or in respect of any Individual Leased
Property (without thereby affecting the remainder thereof) by giving Lessee not
less than ten days' Notice of such termination.
If litigation is commenced with respect to any alleged default
under this Lease, the prevailing party in such litigation shall receive, in
addition to its damages incurred, such sum as the court shall determine as its
reasonable attorneys' fees, and all costs and expenses incurred in connection
therewith.
16.2 SURRENDER. If an Event of Default occurs (and the event giving
rise to such Event of Default has not been cured within the curative period
relating thereto as set forth in Section 16.1) and is continuing, whether or not
this Lease has been terminated pursuant to Section 16.1, Lessee shall, if
requested by Lessor so to do, immediately surrender to Lessor the Leased
Property or any Individual Leased Property specified by Lessor (without
affecting this Lease in respect of the remainder thereof) including, without
limitation, any and all books, records, files, licenses, permits and keys
relating thereto, and quit the same and Lessor may enter upon and repossess the
Leased Property or any Individual Leased Property specified by Lessor (without
affecting this Lease in respect of the remainder thereof) by summary
proceedings, ejectment or otherwise, and may remove Lessee and all other persons
and any and all personal property from the Leased Property or any Individual
Leased Property specified by Lessor (without affecting this Lease in respect of
the remainder thereof), subject to rights of any hotel guests and to any
requirement of law. Lessee hereby waives any and all requirements of applicable
laws for service of notice to re-enter any of the Leased Property. Lessor shall
be under no obligation to, but may if it so chooses, relet the Leased Property
or otherwise mitigate Lessor's damages.
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16.3 DAMAGES. None of (a) the termination of this Lease (either in
whole or in respect of any Individual Leased Property or Properties), (b) the
repossession of the Leased Property (either in whole or in respect of any
Individual Leased Property or Properties), (c) the failure of Lessor to relet
all or any portion of the Leased Property, nor (d) the reletting of all or any
portion thereof, shall relieve Lessee of its liability and obligations
hereunder, all of which shall survive any such termination, repossession or
reletting. In the event of any such termination, Lessee shall forthwith pay to
Lessor all Rent due and payable with respect to the Leased Property to and
including the date of such termination.
Lessee shall forthwith pay to Lessor, at Lessor's option, as
and for liquidated and agreed current damages for Lessee's default, either:
(a) Without termination of Lessee's right to possession
of the Leased Property, each installment of Rent and other sums payable by
Lessee to Lessor under the Lease as the same becomes due and payable, which Rent
and other sums shall bear interest at the Overdue Rate, and Lessor may enforce,
by action or otherwise, any other term or covenant of this Lease; or
(b) the sum of:
(1) the unpaid Rent which had been earned at the
time of termination, repossession or reletting, and
(2) the worth (computed by discounting such
amount at the discount rate of the Federal Reserve Bank of New
York at the time of award plus 1%) at the time of termination,
repossession or reletting of the amount by which the unpaid
Rent for the balance of the Term after the time of
termination, repossession or reletting, exceeds the amount of
such rental loss that Lessee proves could be reasonably
avoided, and
(3) any other amount necessary to compensate
Lessor for all the detriment proximately caused by Lessee's
failure to perform its obligations under this Lease or which
in the ordinary course of things would be likely to result
therefrom.
Percentage Rent for the purposes of this Section 16.3 shall be a sum equal to
the average of the annual amounts of the Percentage Rent for the three Fiscal
Years immediately preceding the Fiscal Year in which the termination, re-entry
or repossession takes place, or if three Fiscal Years shall not have elapsed,
the average of the Percentage Rent during the preceding Fiscal Years during
which the Lease was in effect.
16.4 WAIVER. If this Lease is terminated pursuant to Section 16.1,
Lessee waives, to the extent permitted by applicable law, (a) any right to a
trial by jury in the event of summary proceedings to enforce the remedies set
forth in this Article XVI, and (b) the benefit of any laws now or hereafter in
force exempting property from liability for rent or for debt and Lessor waives
any right to "pierce the corporate veil" of Lessee other than to the extent
funds shall have been distributed to any stockholders of Lessee in a manner
which does not comply with applicable state corporate law
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or are inappropriately paid to any Affiliate of Lessee following a default
resulting in an Event of Default.
16.5 APPLICATION OF FUNDS. Any payments received by Lessor under
any of the provisions of this Lease during the existence or continuance of any
Event of Default shall be applied to Lessee's obligations in the order that
Lessor may determine or as may be prescribed by the laws of the State.
ARTICLE XVII
LESSOR'S RIGHT TO CURE LESSEE'S DEFAULT. If Lessee fails to make any
payment or to perform any act required to be made or performed under this Lease
and fails to cure the same within the relevant time periods provided in Section
16.1 (or sooner in the case of an emergency in the reasonable judgment of
Lessor), Lessor, without waiving or releasing any obligation of Lessee, and
without waiving or releasing any obligation or default, may (but shall be under
no obligation to) at any time thereafter make such payment or perform such act
for the account and at the expense of Lessee, and may, to the extent permitted
by law, enter upon any Leased Property for such purpose and, subject to Section
16.4, take all such actions thereon as, in Lessor's opinion, may be necessary or
appropriate therefor. No such entry shall be deemed an eviction of Lessee. All
sums so paid by Lessor and all costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses, in each case to the extent
permitted by law) so incurred, together with a late charge thereon (to the
extent permitted by law) at the Overdue Rate from the date on which such sums or
expenses are paid or incurred by Lessors, shall be paid by Lessee to Lessor on
demand. The obligations of Lessee and rights of Lessor contained in this Article
shall survive the expiration or earlier termination of this Lease.
ARTICLE XVIII
18.1 PERSONAL PROPERTY LIMITATION. Anything contained in this Lease
to the contrary notwithstanding, if the average of the adjusted tax bases of the
items of personal property that are leased to the Lessee under this Lease at the
beginning and at the end of any Fiscal Year (as projected at least one month
prior to the end of such Fiscal Year) exceeds 15% of the average of the
aggregate adjusted tax bases of the Leased Property at the beginning and at the
end of such Fiscal Year, then a portion of such personal property will be sold
by Lessor to Lessee at the Lessor's depreciated cost for such property before
the end of the Fiscal Year and the amount payable by Lessee to Lessor hereunder
shall be adjusted accordingly. This Section 18.1 is intended to ensure that the
Rent qualifies as "rents from real property," within the meaning of Section
856(d) of the Code, or any similar or successor provisions thereto, and shall be
interpreted in a manner consistent with such intent.
18.2 SUBLEASE RENT LIMITATION. Anything contained in this Lease to
the contrary notwithstanding, Lessee shall not sublet the Leased Property or any
part thereof on any basis such that the rental to be paid by the sublessee
thereunder would fail to qualify as "rents from real
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property" within the meaning of Section 856(d) of the Code, or any similar or
successor provision thereto.
18.3 SUBLEASE TENANT LIMITATION. Anything contained in this Lease
to the contrary notwithstanding, Lessee shall not sublease the Leased Property
or any part thereof to any person in which Jameson Inns, Inc. owns, directly or
indirectly, a 10% or more interest, within the meaning of Section 856(d)(2)(B)
of the Code, or any similar or successor provisions thereto. For purposes of
this Section, the rules prescribed by Section 318(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), shall apply for determining the ownership
of stock except that "10 percent" shall be substituted for "50 percent" in
subparagraph (C) of Section 318(a)(2) and 318 (a)(3).
18.4 LESSEE OWNERSHIP LIMITATION. Anything contained in this Lease
to the contrary notwithstanding, neither Lessee nor an Affiliate of the Lessee
shall acquire, directly or indirectly, a 10% or more interest in Jameson Inns,
Inc., within the meaning of Section 856(d)(2)(B) of the Code, or any similar or
successor provision thereto. For purposes of this Section, the rules prescribed
by Section 318(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
shall apply for determining the ownership of stock except that "10 percent"
shall be substituted for "50 percent" in subparagraph (C) of Section 318(a)(2)
and 318 (a)(3).
ARTICLE XIX
HOLDING OVER. If Lessee for any reason remains in possession of any
Leased Property after the expiration or earlier termination of the Term, such
possession shall be as a tenant at sufferance during which time Lessee shall pay
as rental each month two times the aggregate of (a) one-twelfth of the aggregate
Base Rent and Percentage Rent attributable to such Leased Property payable with
respect to the last Fiscal Year of the Term, (b) all Additional Charges accruing
during the applicable month and (c) all other sums, if any, payable by Lessee
under this Lease with respect to such Leased Property. Nothing contained herein
shall constitute the consent, express or implied, of Lessor to the holding over
of Lessee after the expiration of earlier termination of this Lease.
ARTICLE XX
RISK OF LOSS. During the Term, the risk of loss or of decrease in the
enjoyment and beneficial use of any Leased Property in consequence of the damage
or destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise, or in consequence of foreclosures, attachments, levies or executions
(other than those caused by Lessor and those claiming from, through or under
Lessor) is assumed by Lessee, and, in the absence of gross negligence, willful
misconduct or breach of this Lease by Lessor pursuant to Section 32.3, Lessor
shall in no event be answerable or accountable therefor, nor shall any of the
events mentioned in this Section entitle Lessee to any abatement of Rent except
as specifically provided in this Lease.
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ARTICLE XXI
INDEMNIFICATION. Notwithstanding the existence of any insurance
provided for in Article XIII, and without regard to the policy limits of any
such insurance provided for in Article XIII, but subject to Section 16.4, Lessee
will protect, indemnify, hold harmless and defend Lessor from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses), to the extent permitted by law, imposed upon or incurred by or
asserted against Lessor as owner of the Leased Property by reason of: (a) any
accident, injury to or death of persons or loss of or damage to property
occurring on or about the Leased Property or adjoining sidewalks, including
without limitation any claims under liquor liability, "dram shop" or similar
laws, (b) any past, present or future use, misuse, non- use, condition,
management, maintenance or repair by Lessee of such Leased Property or Lessee's
Personal Property or any litigation, proceeding or claim by governmental
entities or other third parties to which Lessor is made a party or participant
related to such use, misuse, non-use, condition, management, maintenance, or
repair thereof by Lessee, including Lessee's failure to perform obligations
(other than Condemnation proceedings), (c) any Impositions that are the
obligations of Lessee pursuant to the applicable provisions of this Lease, (d)
any failure on the part of Lessee to perform or comply with any of the terms of
this Lease, and (e) the non-performance of any of the terms and provisions of
any and all existing and future subleases of any Leased Property to be performed
by the landlord thereunder. Any amounts that become payable by Lessee under this
Section shall be paid within ten days after liability therefor on the part of
Lessee is determined by litigation or otherwise, and if not timely paid, shall
bear interest on the amount of such payment (to the extent permitted by law) at
the Overdue Rate from the date of such determination to the date of payment.
Lessee, at its expense, shall contest, resist and defend any such claim, action
or proceeding asserted or instituted against Lessor or may compromise or
otherwise dispose of the same as Lessee sees fit. Nothing herein shall be
construed as indemnifying Lessor against its own grossly negligent acts or
omissions or willful misconduct.
Lessor shall indemnify, save harmless and defend Lessee from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses imposed upon or incurred by or asserted against
Lessee as a result of the gross negligence or willful misconduct of Lessor
arising in connection with this Lease.
Lessee's or Lessor's liability for a breach of the provisions of this
Article shall survive any termination of this Lease.
ARTICLE XXII
22.1 SUBLETTING AND ASSIGNMENT. Subject to the provisions of
Article XVIII and Section 22.2 and any other express conditions or limitations
set forth herein, Lessee may, but only with the prior written consent of Lessor
(which consent shall not be unreasonably withheld unless there has been a change
of control of the Lessee or such transaction results in a change of control in
the assignee or sublessee, in which event such consent shall be at the sole and
absolute discretion of the Lessor), (a) assign this Lease or sublet all or any
part of the Leased Property to an Affiliate of
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Lessee, or (b) sublet any retail or restaurant portion of the Leased
Improvements in the normal course of the Primary Intended Use previously
approved by Lessor under Section 7.2; provided that any subletting to any party
other than an Affiliate of Lessee shall not individually as to any one such
subletting, or in the aggregate, materially diminish the actual or potential
Percentage Rent payable under this Lease. Any other assignment or transfer by
Lessee shall be made only with the prior written consent of Lessor, which such
consent shall be at the sole and absolute discretion of Lessor. Any transfer of
the stock of Lessee which individually or in the aggregate results in a change
of control shall be deemed a transfer for purposes of the prior sentence. In the
case of a subletting, the sublessee shall comply with the provisions of Section
22.2, and in the case of an assignment, the assignee shall assume in writing and
agree to keep and perform all of the terms of this Lease on the part of Lessee
to be kept and performed and shall be, and become, jointly and severally liable
with Lessee for the performance thereof. An original counterpart of each such
sublease and assignment and assumption, duly executed by Lessee and such
sublessee or assignee, as the case may be, in form and substance satisfactory to
Lessor, shall be delivered promptly to Lessor. In case of either an assignment
or subletting made during the Term, Lessee shall remain primarily liable, as
principal rather than as surety, for the prompt payment of the Rent and for the
performance and observance of all of the covenants and conditions to be
performed by Lessee hereunder. As used herein, a change of control shall be
deemed to have occurred when (i) any Person other than any existing stockholder
becomes the beneficial owner of 50% or more of the outstanding common stock of
the subject Person, (ii) the membership of the Board of the subject Person is
changed as a result of a contested election for directors so that the nominees
for directors in such election designated by the pre-election board of directors
or any nominating or other committee fail to be elected or to constitute a
majority of persons who are elected in such election, (iii) there is a merger,
liquidation, dissolution, consolidation, reorganization or reverse stock split
as a result of which there is a material change in the control of the subject
Person, or (iv) there is a lease, sale, exchange, transfer or other disposition
of all or substantially all of the assets of the subject Person as a result of
which there is a material change in the control of the subject Person.
22.2 ATTORNMENT. Lessee shall insert in each sublease permitted
under Section 22.1 provisions to the effect that (a) such sublease is subject
and subordinate to all of the terms and provisions of this Lease and to the
rights of Lessor hereunder (b) if this Lease terminates before the expiration of
such sublease, the sublessee thereunder will, at Lessor's option, attorn to
Lessor and waive any right the sublessee may have to terminate the sublease or
to surrender possession thereunder as a result of the termination of this Lease,
and (c) if the sublessee receives a written Notice from Lessor or Lessor's
assignees, if any, stating that an uncured Event of Default exists under this
Lease, the sublessee shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice, or as such party
may direct. All rentals received from the sublessee by Lessor or Lessor's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Lessee under this Lease.
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<PAGE> 44
ARTICLE XXIII
OFFICER'S CERTIFICATES; FINANCIAL STATEMENTS; LESSOR'S ESTOPPEL
CERTIFICATES AND COVENANTS.
(1) At any time and from time to time upon not less than
20 days' notice by Lessor, Lessee will furnish to Lessor an Officer's
Certificate certifying that this Lease is unmodified and in full force
and effect (or that this Lease is in full force and effect as modified
and setting forth the modifications), the date to which the Rent has
been paid, whether to the knowledge of Lessee any default or Event of
Default exists hereunder by Lessor or Lessee, and such other
information as may be reasonably requested by Lessor. Any such
certificate furnished pursuant to this Section may be relied upon by
Lessor, any lender and any prospective purchaser of the Leased Property
or any part thereof.
(2) Lessee will furnish the following statements to
Lessor:
(i) with reasonable promptness, an Officer's
Certificate certifying as to such information respecting the
financial condition and affairs of Lessee including, if and to
the extent otherwise obtained by Lessee, financial statements
audited by an independent accounting firm, as Lessor may
reasonably request from time to time; and
(ii) an Officer's Certificate certifying as to
the most recent Consolidated Financials of Lessee within 45
days after each quarter of any Fiscal Year (or, in the case of
the final quarter in any Fiscal Year, the most recent
Consolidated Financials of Lessee within 90 days); and
(iii) on or about the 15th day of each month, a
detailed profit and loss statement for the Leased Property for
the preceding month, a balance sheet for the Leased Property
as of the end of the preceding month, and a detailed
accounting of revenues for the Leased Property for the
preceding month, each in form acceptable to Lessor.
(3) At any time and from time to time upon not less than
20 days' notice by Lessee, Lessor will furnish to Lessee or to any
person designated by Lessee an estoppel certificate certifying that
this Lease is unmodified and in full force and effect (or that this
Lease is in full force and effect as modified and setting forth the
modifications), the date to which Rent has been paid, whether to the
knowledge of Lessor there is any existing default or Event of Default
on Lessee's part hereunder, and such other information as may be
reasonably requested by Lessee.
(4) Lessee covenants that if at any time during the Term
when Lessee's Consolidated Net Worth is less than an amount then equal
to three months' Base Rent it will not, without the prior written
consent of Lessor, (i) make any distributions of assets (including but
not limited to dividend payments) to any of its stockholders (ii) pay
any compensation to any of
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<PAGE> 45
its executive officers or directors in excess of compensation which is,
on a pro rata basis, greater than the compensation paid to Lessor's
executive officers, or (iii) make any capital expenditures in excess of
$25,000 other than those required or necessary to meet Lessee's
obligations under this Lease.
ARTICLE XXIV
LESSOR'S RIGHT TO INSPECT. Lessee shall permit Lessor and its
authorized representatives as frequently as reasonably requested by Lessor to
inspect any of Leased Property and Lessee's accounts and records pertaining
thereto and make copies thereof, during usual business hours upon reasonable
advance notice, subject only to any business confidentiality requirements
reasonably requested by Lessee.
ARTICLE XXV
NO WAIVER. No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
ARTICLE XXVI
REMEDIES CUMULATIVE. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor or Lessee now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor or Lessee of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Lessor or Lessee of any or all of such
other rights, powers and remedies.
ARTICLE XXVII
ACCEPTANCE OF SURRENDER. No surrender to Lessor of this Lease or of the
Leased Property or any part thereof, or of any interest therein, shall be valid
or effective unless agreed to and accepted in writing by Lessor and no act by
Lessor or any representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.
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<PAGE> 46
ARTICLE XXVIII
NO MERGER OF TITLE. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person or
entity may acquire, own or hold, directly or indirectly (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
ARTICLE XXIX
CONVEYANCE BY LESSOR. If Lessor or any successor owner of any Leased
Property conveys such Leased Property in accordance with the terms hereof other
than as security for a debt, and the grantee or transferee of such Leased
Property expressly assumes all obligations of Lessor hereunder arising or
accruing from and after the date of such conveyance or transfer, Lessor or such
successor owner, as the case may be, shall thereupon be released from all future
liabilities and obligations of Lessor under this Lease arising or accruing from
and after the date of such conveyance or other transfer as to such Leased
Property and all such future liabilities and obligations shall thereupon be
binding upon the new owner.
ARTICLE XXX
QUIET ENJOYMENT. So long as Lessee pays all Rent as the same becomes
due and complies with all of the terms of this Lease and performs its
obligations hereunder, in each case within the applicable grace periods, if any,
Lessee shall peaceably and quietly have, hold and enjoy the Leased Property for
the term hereof, free of any claim or other action by Lessor or anyone claiming
by, through or under Lessor, but subject to the terms and provisions of this
Lease and all liens and encumbrances existing at the date of this Lease or
hereafter consented to by Lessee or provided for herein.
ARTICLE XXXI
NOTICES. All notices, demands, requests, consents, approvals and other
communications ("Notice" or "Notices") hereunder shall be in writing and served,
either in person, by telefax or by a nationally recognized overnight delivery
service, or mailed (by registered or certified mail, return receipt requested
and postage prepaid), addressed to Lessor at its principal office, 8 Perimeter
Center East, Suite 8050, Atlanta, GA 30346-1603, Telephone No. 770-901-9020,
Telefax No. 770-901-9203, Attention: President, and addressed to Lessee at 8
Perimeter Center East, Suite 8050, Atlanta, GA 30346-1603, Telephone No.
770-901-9020, Telefax No. 770-901-9203, Attention: President, or to such other
address or addresses as either party may hereafter designate. Personally
delivered Notice shall be effective upon receipt. Notice given by mail shall be
complete at the time of deposit in the U.S. Mail system, but any prescribed
period of Notice and any right or duty to do any act or make any response within
any prescribed period or on a date certain after the service of such Notice
given by mail shall be extended five days.
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ARTICLE XXXII
32.1 LESSOR MAY GRANT LIENS. Without the consent of Lessee, Lessor
may, from time to time, directly or indirectly, create or otherwise cause to
exist any lien, encumbrance or title retention agreement ("Encumbrance") upon
any Leased Property, or any portion thereof or interest therein, whether to
secure any borrowing or other means of financing or refinancing. Lessor shall
use its good faith efforts in negotiating with the proposed holder of any such
Encumbrance to cause (but Lessor shall have no obligation to Lessee to so cause)
the documentation relating thereto to (a) contain the right to prepay (whether
or not subject to a prepayment penalty); and (b) contain the agreement by the
holder of the Encumbrance that it will (1) give Lessee the same notice, if any,
given to Lessor of any default or acceleration of any obligation underlying any
such Encumbrance or any sale in foreclosure under such Encumbrance, (2) permit
Lessee to cure any such default on Lessor's behalf within any applicable cure
period, and (3) permit Lessee to appear by its representative and to bid at any
sale in foreclosure made with respect to any such Encumbrance. For purposes of
any assignment of rents or other pledge or grant of a security interest in the
rents or income from one or more, but less than all Individual Leased
Properties, the Percentage Rent attributable to any Individual Leased Property
for this purpose shall mean the difference between (i) Percentage Rent for any
period determined as provided in Section 3.1(2) hereof with respect to all
Leased Properties and Rooms covered hereby, and (ii) Percentage Rent determined
as provided in Section 3.1(2) hereof using all of the Leased Properties and the
Rooms thereof except for the Individual Leased Properties and Rooms attributable
thereto which are the subject of such assignment, pledge or grant. Upon the
reasonable request of Lessor, Lessee shall subordinate this Lease to the lien of
a new mortgage on any Individual Leased Property, on the condition that the
proposed mortgagee executes a non-disturbance agreement recognizing this Lease
and Lessee's rights hereunder, which non-disturbance agreement shall be in such
form and substance as are reasonably acceptable to such mortgagee. Lessee agrees
to attorn to and recognize the holder of any such Encumbrance or other purchaser
at foreclosure as the successor landlord under this Lease with respect to any
such Individual Leased Property so foreclosed.
32.2 LESSEE'S RIGHT TO CURE. Subject to the provisions of Section
32.3, if Lessor breaches any covenant to be performed by it under this Lease,
Lessee, after Notice to and demand upon Lessor, without waiving or releasing any
obligation hereunder, and in addition to all other remedies available to Lessee,
may (but shall be under no obligation at any time thereafter to) make such
payment or perform such act for the account and at the expense of Lessor;
provided Lessee is not in default hereunder. All sums so paid by Lessee and all
costs and expenses (including, without limitation, reasonable attorneys' fees)
so incurred, together with interest thereon at the Overdue Rate from the date on
which such sums or expenses are paid or incurred by Lessee, shall be paid by
Lessor to Lessee on demand or, following entry of a final, nonappealable
judgment against Lessor for such sums, may be offset by Lessee against the Base
Rent payments next accruing or coming due. The rights of Lessee hereunder to
cure and to secure payment from Lessor in accordance with this Section 32.2
shall survive the termination of this Lease with respect to the Leased Property.
Notwithstanding anything to the contrary in this Section 32.2, Lessee shall have
no recourse against any of the assets of the Lessor with respect to any
liability or obligation Lessor may have hereunder except for its interest in the
Individual Leased Property with respect to which Lessee may have taken action to
cure a default by Lessor.
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32.3 BREACH BY LESSOR. It shall be a breach of this Lease if Lessor
fails to observe or perform any material term, covenant or condition of this
Lease on its part to be performed and such failure continues for a period of 30
days after Notice thereof from Lessee, unless such failure cannot with due
diligence be cured within a period of 30 days, in which case such failure shall
not be deemed to continue if Lessor, within such 30-day period, proceeds
promptly and with due diligence to cure the failure and diligently completes the
curing thereof. The time within which Lessor shall be obligated to cure any such
failure also shall be subject to extension of time due to the occurrence of any
Unavoidable Delay. Notwithstanding anything in this Section 32.3 or elsewhere in
this Lease to the contrary, Lessor shall have no liability hereunder except with
respect to, and Lessee shall have no recourse against any of the assets of
Lessor except for its interest in the Leased Property.
ARTICLE XXXIII
33.1 MISCELLANEOUS. Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities of, Lessee or
Lessor arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable law,
the parties agree that such charges shall be fixed at the maximum permissible
rate. Neither this Lease nor any provision hereof may be changed, waived,
discharged or terminated except by a written instrument signed by Lessor and
Lessee. All the terms and provisions of this Lease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. The headings in this Lease are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof. This Lease shall be
governed by and construed in accordance with the laws of the State, but not
including its conflicts of laws rules.
33.2 TRANSFER OF LICENSES. Upon the expiration or earlier
termination of the Term, Lessee shall use its best efforts to transfer to Lessor
or Lessor's nominee, or to cooperate with Lessor or Lessor's nominee in
connection with the processing by Lessor or Lessor's nominee of any applications
for, all licenses, operating permits and other governmental authorizations and
all contracts, including contracts with governmental or quasi-governmental
entities, that may be necessary for the operation of the Facility; provided that
the costs and expenses of any such transfer or the processing of any such
application shall be paid by Lessor or Lessor's nominee. Lessee shall also
cooperate with Lessor or Lessor's nominee in effecting a transfer or duplication
and delivery of all relevant records, data, files and other information
necessary or useful in the continued operation of the Leased Property.
33.3 WAIVER OF PRESENTMENT, ETC. Lessee waives all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance and waives all notices
of the existence, creation, or incurring of new or additional obligations,
except as expressly granted herein.
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ARTICLE XXXIV
MEMORANDUM OF LEASE. Lessor and Lessee shall promptly upon the request
of either enter into a short form memorandum of this Lease with respect to any
Individual Leased Property, in form suitable for recording under the laws of the
State in which reference to this Lease, and all options contained herein, shall
be made. Lessee shall pay all costs and expenses of recording such memorandum of
this Lease.
ARTICLE XXXV
LESSOR'S OPTION TO PURCHASE ASSETS OF LESSEE. Effective on not less
than 90 days' prior Notice given at any time within 180 days before the
expiration of the Term, but not later than 90 days prior to such expiration, or
upon such shorter Notice period as shall be appropriate if this Lease is
terminated prior to its expiration date, Lessor (or its assignee or nominee)
shall have the option to purchase all (but not less than all) of the assets of
Lessee, tangible and intangible, relating to the Leased Property (other than
this Lease), at the expiration or termination of this Lease for an amount
(payable in cash on the expiration date of this Lease or otherwise setoff
against obligations of Lessee hereunder) equal to the Fair Market Value thereof
as appraised in conformity with Article XXXVI, except that the appraisers need
not be members of the American Institute of Real Estate Appraisers, but rather
shall be appraisers having at least ten years' experience in evaluating similar
assets.
ARTICLE XXXVI
LESSOR'S OPTION TO TERMINATE LEASE. In the event Lessor enters into a
bona fide contract to sell any Leased Property to a non-Affiliate of Lessor,
Lessor may terminate the Lease with respect to such Leased Property by giving
not less than 30 days' prior Notice to Lessee of Lessor's election to terminate
this Lease effective upon the closing under such contract. Effective upon such
closing, this Lease shall terminate as to such Leased Property and be of no
further force and effect except as to any obligations of the parties existing as
of such date that survive termination of this Lease; provided, however, that the
termination of this Lease with respect to such Leased Property shall not affect
the effectiveness of this Lease with respect to all of the other Leased
Property. In the event that during any period of 12 consecutive months within
the first five years of the Term, this Lease shall be terminated pursuant to
this Article XXXVI as to Leased Properties representing an aggregate of 25% of
the total Rooms of all Leased Property at the beginning of such period, Lessor
shall, as compensation for the early termination of its leasehold estate under
this Article XXXVI, within 90 days of such closing, either (a) pay to Lessee an
amount equal to the Fair Market Value of Lessee's leasehold estate in such
Leased Property so terminated hereunder as of the closing of the sale of the
Leased Property or (b) offer to lease to Lessee one or more substitute hotel
facilities pursuant to one or more leases that would create for the Lessee
leasehold estates that have an aggregate Fair Market Value of no less than 85%
of the Fair Market Value of the original leasehold estate, both such values as
determined as of the closing of the sale of such Leased Property. In the event
Lessor and Lessee are unable to agree upon the Fair Market Value of an original
or replacement leasehold estate, Lessee shall provide to Lessor a Notice of the
name of a person selected to act as appraiser on its behalf.
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<PAGE> 50
Within 10 days after Notice, Lessor shall by Notice to Lessee appoint a second
person as appraiser on its behalf. The appraisers thus appointed, each of whom
must be a member of the American Institute of Real Estate Appraisers (or any
successor organization thereto) with at least five years' experience in the
State appraising property similar to such Leased Property, shall, within 45 days
after the date of the Notice appointing the first appraiser, proceed to appraise
the leasehold estate in such Leased Property to determine the Fair Market Value
thereof as of the relevant date (giving effect to the impact, if any, of
inflation from the date of their decision to the relevant date); provided,
however, that if only one appraiser shall have been so appointed, then the
determination of such appraiser shall be final and binding upon the parties. If
two appraisers are appointed and if the difference between the amounts so
determined does not exceed 5% of the lesser of such amounts, then the Fair
Market Value shall be an amount equal to 50% of the sum of the amounts so
determined. If the difference between the amounts so determined exceeds 5% of
the lesser of such amounts, then such two appraisers shall have 20 days to
appoint a third appraiser. If no such appraiser shall have been appointed within
such 20 days or within 90 days of the original request for a determination of
Fair Market Value, whichever is earlier, either Lessor or Lessee may apply to
any court having jurisdiction to have such appointment made by such court. Any
appraiser appointed by the original appraisers or by such court shall be
instructed to determine the Fair Market Value within 45 days after appointment
of such appraiser. The determination of the appraiser which differs most in the
terms of dollar amount from the determinations of the other two appraisers shall
be excluded, and 50% of the sum of the remaining two determinations shall be
final and binding upon Lessor and Lessee as the Fair Market Value of the
leasehold estate in such Leased Property. This provision for determining by
appraisal shall be specifically enforceable to the extent such remedy is
available under applicable law, and any determination hereunder shall be final
and binding upon the parties except as otherwise provided by applicable law.
Lessor and Lessee shall each pay the fees and expenses of the appraiser
appointed by it and each shall pay one-half of the fees and expenses of the
third appraiser and one-half of all other costs and expenses incurred in
connection with each appraisal.
ARTICLE XXXVII
FURNITURE, FIXTURE AND EQUIPMENT RESERVE. Lessor covenants that it
will, at its own cost and expense, refurbish and replace the furniture, fixtures
and equipment that constitute Leased Property in connection with the Primary
Intended Use as required.
ARTICLE XXXVIII
38.1 TRADEMARK. Lessee is the owner of the Trademark and agrees to
use the Trademark in connection with the operation of the Facilities. Lessee
further agrees that during the Term or any renewal thereof, Lessee will not use,
or license any other party to use, the Trademark in connection with the
operation or ownership of any hotel properties which (i) are not the subject of
this Lease or any other Lease by and between the Lessee and the Lessor or (ii)
are not owned by Lessor or in which Lessor has no material direct or indirect
financial interest (any such use being referred to herein as an "Unrelated Use")
if the Lessor shall object in writing within thirty (30) days after Notice
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<PAGE> 51
from Lessee of its proposed Unrelated Use. Any such objection shall be given
only with the vote of a majority of the members of the Board of Directors of
Lessor who are not officers or employees of Lessor or Lessee or members of the
immediate families of any officers or employees of the Lessor or Lessee.
38.2 PROTECTION OF TRADEMARK. Lessee shall challenge all
unauthorized uses or infringements of the Trademark, and Lessee shall prosecute
any person or firm who unlawfully uses or attempts to use the Trademark in
connection with the operation of hotel properties, or other facilities which may
be competitive with the Leased Property or any portion thereof, or would
otherwise materially affect the value or results of operations of the Leased
Property or the prospects or goodwill of the Lessor. Lessee shall also seek to
cancel registrations or applications for registration of trademarks that
infringe or reasonably appear to infringe on the trademark. The costs and
expenses (including reasonable attorneys fees) incurred by Lessee in connection
with any such actions shall be reimbursed to it in full by Lessor provided that
the Trademark is then being used by Lessee only in connection with the Leased
Property.
38.3 INDEMNIFICATION. Lessee agrees that it will indemnify Lessor
and hold Lessor harmless from all fines, suits, proceedings, claims, demands, or
actions of any kind or nature, from anyone whomsoever, arising or growing out of
or otherwise connected with the use of the Trademark in connection with Lessee's
operation of the Leased Property.
38.4 OPTION TO PURCHASE OR LICENSE. At the expiration of the Term
or upon the earlier termination of this Lease with respect to all of the Leased
Property for any reason, Lessor shall have the option to either purchase the
Trademark or obtain an assignable, paid-up royalty, license to use the Trademark
at a price of $50,000. Such option shall be exercised by Lessor giving Notice to
Lessee of Lessor's exercise of the option not less than 30 days prior to the end
of the Term (or such shorter Notice period as may be practical under the
circumstances if it is not practical to provide at least 30 days' Notice). In
such event, Lessee shall prepare, execute and deliver to Lessor on or before the
last day of the Term such documentation and instruments as shall be necessary or
appropriate to convey all of Lessee's right, title and interest in the Trademark
to Lessor or to license the use of the Trademark to Lessor, as the case may be.
In addition, in the event that this Lease is terminated with respect to any
Individual Leased Property which the Lessor thereafter desires to sell or lease
to a third person, the Lessee will, upon the request of Lessor, enter into a
non-exclusive license agreement with such purchaser if such purchaser agrees to
enter into a license agreement mutually acceptable to Lessee, Lessor and such
purchaser which provides for the imposition, maintenance and enforcement of
physical and operational standards of quality which are consistent with those
being maintained by the Lessee and which are reasonably necessary to protect the
enforceability and value of the Trademark.
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IN WITNESS WHEREOF, the parties have executed this Lease under seal by
their duly authorized officers as of the date first above written.
"LESSOR"
JAMESON INNS, INC.
By: /s/ Craig R. Kitchin
-------------------------------------
Attest: Craig R. Kitchin, President
/s/ Steven A. Curlee
- ----------------------------
Secretary
SIGNATURE PROPERTIES, LLC
By: /s/ Craig R. Kitchin
-------------------------------------
Attest: Craig R. Kitchin, President/Manager
/s/ Steven A. Curlee
- ----------------------------
Secretary SIGNATURE PROPERTIES OF
ILLINOIS, L.P.
By: Kitchin Investments, Inc.,
General Partner
By: /s/ Thomas W. Kitchin
-------------------------------------
Attest: Thomas W. Kitchin, President
/s/ Steven A. Curlee
- ----------------------------
Secretary SIE CORPORATION
By: /s/ Craig R. Kitchin
-------------------------------------
Attest: Craig R. Kitchin, President
/s/ Steven A. Curlee
- ----------------------------
Secretary SI SPRINGFIElD CORPORATION
By: /s/ Craig R. Kitchin
-------------------------------------
Attest: Craig R. Kitchin, President
/s/ Steven A. Curlee
- ----------------------------
Secretary
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<PAGE> 53
"LESSEE"
Jameson Hospitality, LLC
By: /s/Thomas W. Kitchin
-------------------------------------
Attest: Thomas W. Kitchin, President/Manager
/s/ Steven A. Curlee
- ----------------------------
Secretary
STATE OF GEORGIA )
) ss.
COUNTY OF DEKALB )
The foregoing instrument was acknowledged before me this 7th day of
May, 1999, by Craig R. Kitchin, as President of Jameson Inns, Inc.
/s/ Beatrice H. Kelly
------------------------
Notary Public
My commission expires: [Notary Seal]
November 3, 2002
- ----------------
STATE OF GEORGIA )
) ss.
COUNTY OF DEKALB )
The foregoing instrument was acknowledged before me this 7th day of
May, 1999, by Craig R. Kitchin, as Manager of Signature Properties, LLC.
/s/ Beatrice H. Kelly
------------------------
Notary Public
My commission expires: [Notary Seal]
November 3, 2002
- ----------------
48
<PAGE> 54
STATE OF GEORGIA )
) ss.
COUNTY OF DEKALB )
The foregoing instrument was acknowledged before me this 7th day of
May, 1999, by Thomas W. Kitchin, as President of Kitchin Investments, Inc.,
General Partner of Signature Properties of Illinois, L.P.
/s/ Beatrice H. Kelly
----------------------------------
Notary Public
My commission expires: [Notary Seal]
November 3, 2002
- -----------------------
STATE OF GEORGIA )
) ss.
COUNTY OF DEKALB )
The foregoing instrument was acknowledged before me this 7th day of
May, 1999, by Craig R. Kitchin, as President of SIE Corporation.
/s/ Beatrice H. Kelly
----------------------------------
Notary Public
My commission expires: [Notary Seal]
November 3, 2002
- -----------------------
49
<PAGE> 55
STATE OF GEORGIA )
) ss.
COUNTY OF DEKALB )
The foregoing instrument was acknowledged before me this 7th day of
May, 1999, by Craig R. Kitchin, as President of SI Springfield Corporation.
/s/ Beatrice H. Kelly
----------------------------------
Notary Public
My commission expires:
November 3, 2002
- ------------------------ [Notary Seal]
STATE OF GEORGIA )
) ss.
COUNTY OF DeKALB )
The foregoing instrument was acknowledged before me this 7th day of
May, 1999, by Thomas W. Kitchin, as President and Manager of Jameson
Hospitality, LLC.
/s/ Beatrice H. Kelly
----------------------------------
Notary Public
My commission expires:
November 3, 2002
- ------------------------ [Notary Seal]
50
<PAGE> 56
EXHIBIT B
SUPPLEMENT TO MASTER LEASE AGREEMENT
THIS SUPPLEMENT is entered into as of the __ day of ____, 199__ by and
between Lessor and Lessee (as defined in that certain Master Lease Agreement
dated as of the 7th day of May, 1999, as heretofore amended and supplemented
heretofore, referred to herein as the "Lease") for the purpose of adding to the
Leased Property covered thereby the following described property:
(herein referred to as the "Added Leased Property"). All capitalized terms used
herein shall, except as may be otherwise provided herein, have the meanings
ascribed to them in the Lease.
NOW, THEREFORE, Lessor, in consideration of the payment of rent by
Lessee to Lessor, the covenants and agreements to be performed by Lessee, and
upon the terms and conditions stated in the Lease, as supplemented hereby, does
hereby rent and lease unto Lessee, and Lessee does hereby rent and lease from
Lessor, the Added Leased Property. It is understood and agreed that by the
execution and delivery of this Supplement, the Added Leased Property shall be
included within the definition of Leased Property under and subject to the terms
of the Lease, and all of the provisions of the Lease, including the various
representations, warranties, covenants and conditions contained therein, shall
apply to the Added Leased Property as fully and completely as if the Lease had
been executed and delivered as of the date of this Supplement (without thereby
extending the Term of the Lease) and the Added Leased Property were included
among the Leased Property described therein.
Except as supplemented hereby, the Lease shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Supplement to the
Lease under seal by their duly authorized officers as of the date first above
written.
"LESSOR"
JAMESON INNS, INC.
By:
-------------------------------
Attest: , President
------------------
- --------------------------
Secretary
<PAGE> 57
SIGNATURE PROPERTIES, LLC
By:
-------------------------------
Attest: , Manager
------------------
- --------------------------
Secretary SIGNATURE PROPERTIES OF
ILLINOIS, L.P.
By:
--------------------------------
Attest: General Partner
- --------------------------
Secretary SIE CORPORATION
By:
-------------------------------
Attest: , President
------------------
- --------------------------
Secretary SI SPRINGFIElD CORPORATION
By:
-------------------------------
Attest: , President
------------------
- --------------------------
Secretary
"LESSEE"
JAMESON HOSPITALITY, LLC
By:
-------------------------------
Attest: , Manager
------------------
- --------------------------
Secretary
<PAGE> 58
EXHIBIT C
SUPPLEMENT TO MASTER LEASE AGREEMENT
THIS SUPPLEMENT is entered into as of the __ day of ____, 199__ by and
between Lessor and Lessee (as defined in that certain Master Lease Agreement
dated as of the 7th day of May, 1999, as heretofore amended and supplemented
heretofore, referred to herein as the "Lease") for the purpose of terminating
the Lease as to the following Individual Leased Property only:
(herein referred to as the "Released Leased Property"). All capitalized terms
used herein shall, except as may be otherwise provided herein, have the meanings
ascribed to them in the Lease.
NOW, THEREFORE, Lessee, in consideration of the payment of Ten Dollars
($10.00) and other good and valuable consideration, and as pursuant to the terms
of the Lease, does hereby release, waive, terminate, quit claim, grant, sell and
convey unto Lessor all of Lessee's right title and interest in and to the
Released Leased Property under the terms of the Lease or otherwise. It is
understood and agreed that by the execution and delivery of this Supplement, the
Released Leased Property shall be eliminated from the definition of Leased
Property under and subject to the terms of the Lease and the Lease shall be
terminated as to the Released Property. The release of the Released Leased
Property from the Lease shall not affect the rights, duties and obligations of
the parties hereto under the terms of the Lease with respect to all of the
Leased Property remaining subject thereto which shall be all of the Leased
Property described therein other than the Released Leased Property.
Except as supplemented hereby, the Lease shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Supplement to the
Lease under seal by their duly authorized officers as of the date first above
written.
"LESSOR"
JAMESON INNS, INC.
By:
------------------------------
Attest: , President
-------------------
- --------------------------
Secretary
<PAGE> 59
SIGNATURE PROPERTIES, LLC
By:
---------------------------------
Attest: , Manager
--------------------
- --------------------------
Secretary SIGNATURE PROPERTIES OF
ILLINOIS, L.P.
By:
---------------------------------
Attest: General Partner
- --------------------------
Secretary SIE CORPORATION
By:
---------------------------------
Attest: , President
------------------
- --------------------------
Secretary SI SPRINGFIELD CORPORATION
By:
---------------------------------
Attest: , President
------------------
- --------------------------
Secretary
"LESSEE"
Jameson Hospitality, LLC
By:
---------------------------------
Attest: , Manager
--------------------
- ----------------------------
Secretary
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NO. 1
TO
MASTER
LEASE AGREEMENT
BETWEEN
JAMESON INNS, INC., SIGNATURE PROPERTIES, LLC,
SIGNATURE PROPERTIES OF ILLINOIS, L.P.,
SIE CORPORATION, AND
SI SPRINGFIELD CORPORATION
AS LESSOR,
AND
JAMESON HOSPITALITY, LLC,
AS LESSEE
AMENDMENT DATED AS OF MAY 7, 1999
<PAGE> 2
AMENDMENT NO. 1 TO MASTER LEASE AGREEMENT
THIS AMENDMENT NO. 1 TO MASTER LEASE AGREEMENT (hereinafter called
"Lease"), made as of the 7th day of May, 1999, by and between Jameson Inns,
Inc., a Georgia corporation (hereinafter called "Lessor"), and Jameson Operating
Company, a Delaware corporation (hereinafter called "Lessee"), provides as
follows:
RECITALS:
The parties hereto entered into that certain Master Lease Agreement
dated as of May 7, 1999 (the "Lease") covering the "Leased Property" as therein
defined. The parties desire to amend the Lease in the manner hereinafter set
forth.
NOW, THEREFORE, the parties hereto, in consideration of the covenants
and agreements to be performed by them as provided hereby, and upon the terms
and conditions hereinafter stated, does hereby amend the Lease in the manner and
subject to the terms and conditions hereinafter set forth. Unless otherwise
defined herein, capitalized terms shall have the meanings ascribed to them in
the Lease.
A. AMENDMENT TO PROVISION DEFINING ROOM REVENUES
The definition of Room Revenues set forth in Article III shall be
amended and restated in its entirety so that it provides as follows:
Room Revenues: Shall mean gross revenue from the rental of
Rooms, whether to individuals, groups or transients, together with any
fees collected for amenities including, but not limited to telephone,
laundry, movies or concessions, but excluding the following:
(a) The amount of all credits, rebates or refunds to
customers, guests or patrons;
(b) All sales taxes or any other excise taxes imposed on
the rental of such guest rooms; and
(c) Revenues from the sale of any alcoholic beverages, if
and to the extent prohibited by applicable law of the
jurisdiction in which a particular Individual Leased
Property is located.
B. AMENDMENT TO PROVISIONS REGARDING RENT
Section 3.1 of Article III shall be amended and restated in its
entirety so that it provides as follows:
-1-
<PAGE> 3
3.1. RENT. Lessee will pay to Lessor in lawful money of the United
States of America which shall be legal tender for the payment of public and
private debts, in immediately available funds, at Lessor's address set forth in
Article XXXI hereof or at such other place or to such other Person, as Lessor
from time to time may designate in a Notice, all Base Rent, Percentage Rent and
Additional Charges, during the Term, as follows:
a. Base Rent: The "Base Rent" shall be $394.00 per Room
per month multiplied by the number of Rooms comprising the Leased
Property on the first day of any calendar month during the Term, and
shall be payable on or before the twenty-fifth day of such calendar
month; provided however, that the first monthly payment of Base Rent
shall be payable on the Commencement Date and that the first and last
monthly payments of Base Rent shall be prorated as to any partial
month.
b. Percentage Rent: Percentage rent ("Percentage Rent")
shall be determined as follows:
(i) First, by adding amounts equal to 37% of the
Average Daily Per Room Revenues up to the Initial Per Room
Revenues Amount, 65% of the next $10.00 in Average Daily Per
Room Revenues and 70% of the amount by which Average Daily Per
Room Rentals exceed the sum of the Initial Per Room Revenues
Amount plus $10.00;
(ii) Second, such sum shall be multiplied by the
number of the Rooms comprising the Leased Property each day
during the applicable period;
(iii) Third, such product for each day will then be
added to the product for each other day during the period for
which the Percentage Rent is being computed; and
(iv) Fourth, such product shall be reduced by the
amount of Base Rent paid during the period for which
Percentage Rent is being computed.
"Average Daily Per Room Revenues" means an amount determined by
dividing the total Room Revenues attributable to the Leased Property received by
the Lessee during any period for which the Percentage Rent computation is to be
made by the sum of the number of the Rooms comprising the Leased Property each
day during the applicable period. For example, if the total Room Revenues for a
Fiscal Year were $10,500,000 during which there were 614 Rooms during 180 days
of the Fiscal Year and 820 Rooms during 185 days of the Fiscal Year, the Average
Per Room Revenues for that Fiscal Year would be calculated by dividing
$10,500,000 by 262,220 (614 x 180 plus 820 x 185) and would be $40.0427 (even
though the Average Daily Rate would be $57.20 per day if the Lessee were
realizing a 70% average occupancy during the Fiscal Year).
-2-
<PAGE> 4
"Initial Per Room Revenues Amount" from the execution of this Lease
until December 31, 1999 shall be $35.80, subject to adjustment as provided in
the following paragraph.
The Initial Per Room Revenues Amount shall each be adjusted on January
1 of each Fiscal Year beginning after December 31, 1999, beginning with January
1, 2000, by adding to the Initial Per Room Revenues Amount for the immediately
preceding Fiscal Year a dollar amount determined by multiplying the Initial Per
Room Revenues Amount in effect for the immediately preceding Fiscal Year by the
percentage increase, if any, in the CPI (as hereinbelow defined) for the
immediately preceding Fiscal Year as compared to the CPI for the next preceding
Fiscal Year. The term "CPI" means the Consumer Price Index for all Urban
Consumers - U.S. City Average for all Items (1982-84 = 100) of the Bureau of
Labor Statistics of the United States Department of Labor. If the CPI published
by the Department of Labor, Bureau of Labor Statistics is changed so that it
affects the calculations hereunder, the CPI shall be converted in accordance
with a conversion factor published by the United States Department of Labor,
Bureau of Labor Statistics. If the CPI is discontinued or revised, Lessor and
Lessee shall in good faith agree upon a suitable substitute.
C. CONTINUATION OF LEASE EXCEPT AS SPECIFICALLY AMENDED HEREBY
Except as specifically amended and modified hereby, the terms and
provisions of the Lease as heretofore in effect are hereby ratified and
confirmed and remain in full force and effect.
"LESSOR"
JAMESON INNS, INC.
By: /s/ Craig R. Kitchin
--------------------------------------
Attest: Craig R. Kitchin, President
/s/ Steven A. Curlee
- ---------------------------
Secretary
SIGNATURE PROPERTIES, LLC
By: /s/ Craig R. Kitchin
--------------------------------------
Attest: Craig R. Kitchin, President/Manager
/s/ Steven A. Curlee
- ---------------------------
Secretary
-3-
<PAGE> 5
SIGNATURE PROPERTIES OF
ILLINOIS, L.P.
By: Kitchin Investments, Inc., General
Partner
By: /s/ Thomas W. Kitchin
--------------------------------------
Attest: Thomas W. Kitchin, President
/s/ Steven A. Curlee
- ---------------------------
Secretary
SIE CORPORATION
By: /s/ Craig R. Kitchin
--------------------------------------
Attest: Craig R. Kitchin, President
/s/ Steven A. Curlee
- --------------------------
Secretary
SI SPRINGFIElD CORPORATION
Attest: By: /s/ Craig R. Kitchin
--------------------------------------
Craig R. Kitchin, President
/s/ Steven A. Curlee
- --------------------------
Secretary
"LESSEE"
JAMESON HOSPITALITY, LLC
By: /s/ Thomas W. Kitchin
--------------------------------------
Attest: Thomas W. Kitchin, President
/s/ Steven A. Curlee
- -------------------------
Secretary
-4-
<PAGE> 6
STATE OF GEORGIA )
) ss.
COUNTY OF DeKALB )
The foregoing instrument was acknowledged before me this 22nd day of
July, 1999, by Craig R. Kitchin as President of Jameson Inns, Inc..
/s/ Beatrice H. Kelly
--------------------------------------
Notary Public
My commission expires:
November 3, 2002
- ----------------------
STATE OF GEORGIA )
) ss.
COUNTY OF DEKALB )
The foregoing instrument was acknowledged before me this 7th day of
May, 1999, by Craig R. Kitchin, as Manager of Signature Properties, LLC.
/s/ Beatrice H. Kelly
--------------------------------------
Notary Public
My commission expires:
November 3, 2002
- ----------------------
-5-
<PAGE> 7
STATE OF GEORGIA )
) ss.
COUNTY OF DEKALB )
The foregoing instrument was acknowledged before me this 7th day of
May, 1999, by Thomas W. Kitchin, as President of Kitchin Investments, Inc.,
General Partner of Signature Properties of Illinois, L.P.
/s/ Beatrice H. Kelly
--------------------------------------
Notary Public
My commission expires:
November 3, 2002
- ----------------------
STATE OF GEORGIA )
) ss.
COUNTY OF DEKALB )
The foregoing instrument was acknowledged before me this 7th day of
May, 1999, by Craig R. Kitchin, as President of SIE Corporation.
/s/ Beatrice H. Kelly
--------------------------------------
Notary Public
My commission expires:
November 3, 2002
- ----------------------
-6-
<PAGE> 8
STATE OF GEORGIA )
) ss.
COUNTY OF DEKALB )
The foregoing instrument was acknowledged before me this 7th day of
May, 1999, by Craig R. Kitchin, as President of SI Springfield Corporation.
/s/ Beatrice H. Kelly
--------------------------------------
Notary Public
My commission expires:
November 3, 2002
- ----------------------
STATE OF GEORGIA )
) ss.
COUNTY OF DeKALB )
The foregoing instrument was acknowledged before me this 7th day of
May, 1999, by Thomas W. Kitchin, as President and Manager of Jameson
Hospitality, LLC .
/s/ Beatrice H. Kelly
--------------------------------------
Notary Public
My commission expires:
November 3, 2002
- ----------------------
-7-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Post-Effective Amendment No.1 to the Registration Statement (Form S-3 No.
333-20143) and related Prospectus Supplement of Jameson Inns, Inc. for the
registration of 1,000,000 shares of its common stock and to the incorporation by
reference therein of our reports dated February 12, 1999, with respect to the
consolidated financial statements and schedule of Jameson Inns, Inc. and
February 19, 1999 with respect to the consolidated financial statements of
Jameson Hospitality, LLC included in the Annual Report (Form 10-K) of Jameson
Inns, Inc. for the year ended December 31, 1998, filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
Atlanta, Georgia
September 20, 1999
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
Jameson Inns, Inc.:
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to the registration statement (No. 333-20143) on Form S-3 of Jameson Inns, Inc.
of our report dated February 18, 1999, relating to the consolidated balance
sheets of Signature Inns, Inc. as of December 31, 1998 and 1997, 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, 1998,
which report appears in the December 31, 1998 annual report on Form 10-KSB of
Signature Inns, Inc. and to the reference to our firm under the heading
"Experts" in the Form S-3.
KPMG LLP
Indianapolis, Indiana
September 20, 1999
