<PAGE>
As filed with the Securities and Exchange Commission on March 26, 1999
Registration No. 333-74149
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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JAMESON INNS, INC.
(Exact name of Registrant as specified in its Articles)
Georgia
(State or Other Jurisdiction of Organization)
6798
(Primary Standard Industrial Classification Code No.)
58-2079583
(I.R.S. Employer Identification 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
8 Perimeter Center East, Suite 8050
Atlanta, Georgia 30346-1603
(770) 901-9020
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------
Copies to:
Lynnwood R. Moore, Jr. Thomas N. Eckerle Howard H. Lamar III
Conner & Winters, Henderson, Daily, Bass, Berry & Sims, PLC
A Professional Withrow & DeVoe 2700 First American
Corporation 2600 One Indiana Square Center
3700 First Place Tower Indianapolis, IN 46204- Nashville, TN 37238-2700
15 East Fifth Street 2071 (615) 742-6200
Tulsa, OK 74103-4344 (317) 639-4121
(918) 586-5711
Approximate date of commencement of proposed sale to the public: Upon
consummation of the merger of Signature Inns, Inc. ("Signature") with and into
Jameson Inns, Inc. ("Jameson") pursuant to an Agreement and Plan of Merger
dated as of January 27, 1999, described in the enclosed Joint Proxy
Statement/Prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
[Jameson Logo] [Signature Logo]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Jameson Inns, Inc. and Signature Inns, Inc. have
approved a merger of Signature with and into Jameson. The merger will combine
Jameson's chain of limited service hotels in the southeastern United States
with Signature's chain of limited service hotels in the midwestern United
States. We expect the combined company to benefit from increased size, expanded
geographic operating area, consistent marketing approach, greater operating
efficiencies and experienced management.
Consideration for Holders of Signature Common Stock. In connection with the
merger, Signature stockholders will receive one-half share of Jameson common
stock and a cash payment of $1.50 per share for each share of Signature common
stock they own. A portion of the $1.50 cash payment may be paid in the form of
a dividend declared and paid by Signature immediately before the merger is
completed.
Consideration for Holders of Signature Series A Preferred Stock. If the
merger is completed, each outstanding share of Signature Series A Preferred
Stock will be converted into one share of a corresponding series of Jameson
Series S Preferred Stock with substantially the same terms and conditions as
the outstanding Signature Series A Preferred Stock.
If the merger is completed, former Signature common stockholders will own
approximately 10% of the Jameson common stock and current Jameson common
stockholders will own approximately 90% of the Jameson common stock. If the
former holders of the Signature Series A Preferred Stock convert all of the
shares of Jameson Series S Preferred Stock received in the merger into Jameson
common stock, they and the former holders of Signature common stock would own
approximately 26% of the outstanding shares of Jameson common stock, assuming
no other issuances of Jameson common stock in the interim. We describe the
material risks associated with the merger and the transactions contemplated
thereby under the heading "Risk Factors" beginning on page 29 of this Joint
Proxy Statement/Prospectus.
The Boards of Directors of Jameson and Signature have determined that the
merger is in the best interests of their stockholders, and each board
unanimously recommends voting FOR approval of the merger agreement.
The merger cannot be completed unless the stockholders of both companies
approve and adopt the merger agreement. Signature has scheduled a special
meeting for its stockholders to vote on the merger. Holders of Signature common
stock and Series A Preferred Stock will vote as separate classes on the merger.
Jameson common stockholders will vote on the merger at Jameson's annual meeting
of stockholders. Your vote is very important.
You are cordially invited to attend your company's meeting. Whether or not
you plan to attend the meeting, it is important that your shares be voted.
Please take the time to vote by completing and mailing the enclosed proxy card
to us. If you sign, date and mail your proxy card without indicating how you
want to vote, your vote will be counted as a vote in favor of the merger
agreement. If your shares are held in "street name," you must instruct your
broker in order to vote. For Jameson stockholders, if you fail to vote or to
instruct your broker to vote your shares, your failure to vote will not be
counted for or against the merger. For Signature stockholders, if you fail to
vote or fail to instruct your broker to vote your shares, the effect will be
the same as a vote against the merger.
The record date for determining the holders of Jameson common stock entitled
to notice of, and to vote at, the Jameson annual meeting is March 23, 1999. The
record date for determining the holders of Signature common stock and Signature
Series A Preferred Stock entitled to notice of, and to vote at, the Signature
special meeting is March 23, 1999.
The dates, times and places of the special meetings are as follows:
For Jameson stockholders: For Signature stockholders:
May 7, 1999 May 7, 1999
10:00 a.m., local time 10:00 a.m., local time
8 Perimeter Center East--Suite
8050 Four Parkwood Crossing
500 E. 96th Street
Atlanta, Georgia 30346-1603
First Floor Conference Room
Indianapolis, Indiana 46240
This Joint Proxy Statement/Prospectus gives you detailed information about
the proposed merger. We encourage you to read this document carefully. In
addition, you may obtain information about our companies from documents that we
have filed with the Securities and Exchange Commission.
/s/ Thomas W. Kitchin______________________________________ /s/ John D. Botreger
<TABLE>
<S> <C>
Thomas W. Kitchin John D. Bontreger
Chairman and
Chief Executive
Officer Chairman and Chief Executive Officer
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the merger described in this Joint Proxy
Statement/Prospectus or the securities to be issued in the merger, nor have
they determined if this Joint Proxy Statement/Prospectus is accurate or
adequate. Furthermore, the SEC has not determined the fairness or merits of
the merger. Any representation to the contrary is a criminal offense.
This Joint Proxy Statement/Prospectus is dated March 26, 1999, and is first
being mailed to stockholders on or about March 30, 1999.
<PAGE>
This Joint Proxy Statement/Prospectus incorporates important business and
financial information about the companies that is not included in or delivered
with this document. You should refer to "Where You Can Find More Information,"
on page 27 for a description of the documents incorporated by reference in this
Joint Proxy Statement/Prospectus. You may obtain copies of Jameson's and
Signature's documents without charge upon written or oral request to Jameson
directed to: Steven A. Curlee, Secretary, Jameson Inns, Inc., 8 Perimeter
Center East, Suite 8050, Atlanta, Georgia 30346-1603, (770) 901-9020 (e-mail:
[email protected]), or to Signature directed to: Investor Relations
Department, Signature Inns, Inc., One Parkwood Crossing, 250 East 96th Street,
Suite 450, Indianapolis, Indiana 46240, (317) 581-1111 (e-mail:
[email protected]). In order to obtain timely delivery prior to the
meetings, please make your request for documents no later than April 30, 1999.
You should rely only on the information incorporated by reference or
provided in this Joint Proxy Statement/Prospectus to vote at the stockholder
meetings. We have not authorized anyone to give you different information. You
should not assume that the information in this Joint Proxy
Statement/Prospectus, or any supplement, is accurate as of any date other than
the date on the front of such documents, and neither the mailing of this Joint
Proxy Statement/Prospectus to the stockholders of Jameson or Signature nor the
issuance of Jameson capital stock will create any implication to the contrary.
This Joint Proxy Statement/Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, any securities, or the solicitation of a
proxy, in any jurisdiction to or from any person to whom it is not lawful to
make any such offer or solicitation in such jurisdiction.
<PAGE>
JAMESON INNS, INC.
8 Perimeter Center East, Suite 8050 Atlanta, Georgia 30346-1603
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: May 7, 1999
Time: 10:00 a.m., local time
Place: 8 Perimeter Center East--Suite 8050
Atlanta, Georgia
At the annual meeting, the stockholders of Jameson Inns, Inc. will vote upon
the following proposals:
1. Approval and adoption of the Agreement and Plan of Merger, dated as of
January 27, 1999, between Jameson Inns, Inc. and Signature Inns, Inc.,
and of the related Agreement of Merger and the transactions which the
merger agreement contemplates;
2. Election of one director for Class III for a three-year term;
3. Ratification of the appointment of Ernst & Young LLP as independent
auditors of Jameson for 1999; and
4. Transaction of any other business as may properly come before the
meeting or any adjournment of the meeting.
It is important that your shares be voted. Please vote as soon as possible
by completing the proxy card and returning it in the enclosed envelope. If you
decide to attend the meeting in person, you may withdraw your proxy and vote at
that time. Holders of common stock of record on March 23, 1999, are entitled to
one vote for each share of common stock held.
The Board of Directors of Jameson has unanimously approved the merger
agreement and the merger, has determined that the merger and the other items
listed above are in the best interests of the stockholders of Jameson, and
unanimously recommends that stockholders vote to approve and adopt the merger
agreement, elect the named nominee and ratify Ernst & Young LLP as Jameson's
independent auditors for 1999 at the annual meeting.
By order of the Board of Directors,
-----------------------------
Vice President--Legal and Secretary
Atlanta, Georgia
March 30, 1999
It is important that you sign, date and promptly return the enclosed envelope,
so that your shares will be represented whether or not you plan to attend the
meeting. If you receive more than one proxy card because you own shares
registered in different names or at different addresses, each card should be
signed and returned.
<PAGE>
SIGNATURE INNS, INC.
One Parkwood Crossing
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Date:May 7, 1999
Time:10:00 a.m., local time
Place:Four Parkwood Crossing
500 E. 96th Street
First Floor Conference Room
Indianapolis, Indiana 46240
At the special meeting, the stockholders of Signature will be asked to vote
upon a proposal to approve the Agreement and Plan of Merger, dated as of
January 27, 1999, between Jameson Inns, Inc. and Signature Inns, Inc. and the
transactions contemplated by the merger agreement.
Under the terms of the merger, (a) holders of Signature common stock will
receive one-half of one share of Jameson common stock and $1.50 per share in
exchange for each share of Signature common stock and (b) holders of Signature
Series A Preferred Stock will receive one share of Jameson Series S Preferred
Stock in exchange for each share of Signature Series A Preferred Stock. The
terms, rights and preferences of the Jameson Series S Preferred Stock are
intended to replicate and restate, as nearly as possible, each and every
provision of the terms, rights and preferences of the outstanding Signature
Series A Preferred Stock.
The Joint Proxy Statement/Prospectus which accompanies this notice includes
a summary of the basic terms and conditions of the merger, the fairness opinion
of McDonald Investments Inc. relating to the consideration that holders of
Signature common stock and Series A Preferred Stock would receive in the
merger, certain financial and other information relating to Signature and
Jameson and a copy of the merger agreement. We encourage you to review and
consider these materials carefully.
All stockholders are invited to attend the special meeting in person. The
Board of Directors of Signature has fixed the close of business on March 23,
1999, as the record date for the determination of stockholders entitled to
receive notice of and to vote at the special meeting, and only stockholders of
record at such time will be entitled to receive notice of and to vote at the
special meeting and any adjournments or postponements of the meeting.
It is important that your shares be voted. Please vote as soon as possible
by completing the proxy card and returning it in the enclosed envelope.
Approval of the proposal requires the affirmative vote, in person or by
proxy, of (a) a majority of the actual number of outstanding shares of
Signature common stock and (b) a majority of the actual number of outstanding
shares of Signature Series A Preferred Stock, each voting separately as a
class.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted by (a) filing with the
Secretary of Signature, at or before the special meeting, a written notice of
revocation bearing a date no later than the date of the proxy; (b) duly
executing a subsequent proxy relating to the same shares and delivering it to
the Secretary of Signature at or before the special meeting; or (c) attending
the special meeting and voting in person (although attendance at the special
meeting will not in and of itself constitute a revocation of a proxy).
<PAGE>
The Board of Directors of Signature has determined that the merger is in the
best interests of the stockholders of Signature, has unanimously approved the
merger agreement and the merger, and unanimously recommends that stockholders
vote to approve and adopt the merger agreement at the special meeting.
By order of the Board of Directors,
-----------------------------
John D. Bontreger, Secretary
Indianapolis, Indiana
March 30, 1999
It is important that you sign, date and promptly return the enclosed envelope
so that your shares will be represented whether or not you plan to attend the
special meeting. If you receive more than one proxy card because you own shares
registered in different names or at different addresses, each card should be
signed and returned.
DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS & ANSWERS ABOUT THE MERGER....................................... 1
SUMMARY.................................................................... 4
FORWARD LOOKING STATEMENTS................................................. 26
WHERE YOU CAN FIND MORE INFORMATION........................................ 27
RISK FACTORS............................................................... 29
Risks of the Merger....................................................... 29
Risks of an Investment in Jameson......................................... 30
Tax Risks................................................................. 34
THE JAMESON ANNUAL MEETING................................................. 36
THE SIGNATURE SPECIAL MEETING.............................................. 38
THE MERGER................................................................. 40
General................................................................... 40
Background of the Merger.................................................. 41
Jameson's Rationale for the Merger; Recommendation of the Jameson Board of
Directors................................................................ 44
Signature's Rationale for the Merger; Recommendation of the Signature
Board of Directors....................................................... 45
Opinion of Jameson's Financial Advisor.................................... 47
Opinion of Signature's Financial Advisor.................................. 51
Interests of Persons Other than Stockholders in the Merger................ 57
Federal Income Tax Consequences........................................... 58
Accounting Treatment...................................................... 61
No Appraisal Rights....................................................... 61
Restrictions on Resales by Affiliates..................................... 61
Nasdaq National Market Listing of Common and Series S Preferred Stock..... 62
Amendment to Rights Agreement............................................. 62
Third Party Approvals..................................................... 62
THE MERGER AGREEMENT....................................................... 63
General................................................................... 63
Representations and Warranties............................................ 63
Pre-Closing Restructuring of Signature.................................... 64
Other Pre-Closing Covenants and Agreements................................ 64
No Solicitation of Transactions........................................... 66
Signature Stock Options................................................... 67
Maintenance of Indemnification Obligations................................ 67
Fees and Expenses......................................................... 67
Conditions to the Consummation of the Merger.............................. 67
Termination............................................................... 69
THE COMPANIES.............................................................. 72
Jameson................................................................... 72
Signature................................................................. 89
COMPARISON OF RIGHTS OF STOCKHOLDERS OF JAMESON AND SIGNATURE.............. 97
DESCRIPTION OF JAMESON CAPITAL STOCK AFTER THE MERGER...................... 114
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF JAMESON.................. 125
FEDERAL INCOME TAXATION OF REITS AND REIT STOCKHOLDERS.................... 126
OTHER ANNUAL MEETING PROPOSALS OF JAMESON................................. 137
OTHER MATTERS............................................................. 145
EXPERTS................................................................... 145
LEGAL..................................................................... 145
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS................................ 145
INDEX TO FINANCIAL STATEMENTS............................................. F-1
Appendix A--Agreement and Plan of Merger
Appendix B--Amendment to the Amended and Restated Articles of
Incorporation of Jameson Inns, Inc. Setting Forth the Terms of
the Jameson Series S Preferred Stock
Appendix C--Opinion of The Robinson-Humphrey Company, LLC
Appendix D--Opinion of McDonald Investments Inc.
</TABLE>
ii
<PAGE>
QUESTIONS & ANSWERS ABOUT THE MERGER
Q: Why are Jameson and Signature proposing to merge?
A: For Jameson, the merger represents an opportunity to increase the number of
hotel properties which it owns at attractive per-unit prices and to expand
the geographic region in which Jameson's properties are located in a
strategically desirable manner. Jameson's management believes that this
growth will enhance Jameson's ability to compete more successfully with
larger hotel chains. Jameson also expects that the addition of Signature
after the merger will increase Jameson's funds from operations per share.
The lessee of Jameson's hotels, Jameson Hospitality Company, LLC, will
acquire from Signature quality personnel with valuable experience in hotel
operations.
For Signature, the merger presents an opportunity for its stockholders to
participate in a combined company with greater financial resources and
increased ability to compete in the hotel industry. Specifically,
Signature's management believes that the merger will improve the combined
company's access to capital, including capital at a lower cost, and provide
an improved dividend coverage ratio. Further, management believes that the
merger will be attractive to Signature stockholders since those
stockholders will receive shares of Jameson capital stock. Jameson common
stock is more liquid than Signature common stock. Jameson also pays a
dividend on its common stock while Signature has not historically paid
dividends on its common stock.
Q: What will I receive in the merger?
A: Holders of Signature common stock will receive one-half share of Jameson
common stock and a cash payment of $1.50 for each
share of Signature common stock they own. A portion of the cash payment may
be paid in the form of a dividend on the Signature common stock immediately
before the merger because of the rules that apply to real estate investment
trusts such as Jameson.
Holders of Signature Series A Preferred Stock will receive one share of a
corresponding series of Jameson cumulative convertible preferred stock
(which will be designated as Jameson Series S Preferred Stock) for each
share of Signature Series A Preferred Stock they own. The Jameson Series S
Preferred Stock has substantially the same terms and conditions as the
outstanding Signature Series A Preferred Stock and is intended to duplicate
the preferences, voting and other rights of the Signature Series A
Preferred Stock.
Holders of Jameson common and Series A Preferred Stock will continue to own
the shares they now hold without any changes.
After the merger, former Signature common stockholders will own
approximately 10% of the outstanding Jameson common stock and former
Jameson common stockholders will own approximately 90%. If the former
holders of the Signature Series A Preferred Stock were to convert all of
the shares of Jameson Series S Preferred Stock received in the merger into
shares of Jameson common stock, they and the former holders of Signature
common stock would own approximately 26% of the outstanding shares of
Jameson common stock, assuming no issuances of Jameson common stock in the
interim.
Q: How will I be taxed on the merger?
A: We expect that Signature stockholders will not realize taxable gain or loss
for federal income tax purposes as a result of the exchange of their
1
<PAGE>
Signature stock for Jameson stock in the merger. However, Signature common
stockholders will have to pay income taxes on (a) the dividend paid out
before the merger, if any, and (b) the total of $1.50 per share cash payment
and the cash they receive in lieu of any fractional share of Jameson common
stock (less the dividend amount) if the value of the Jameson common stock
and cash received exceeds their adjusted tax basis in their Signature common
stock. There will be no tax consequences of the merger to current Jameson
stockholders. To review the tax consequences of the merger in greater
detail, see pages 58 through 61.
The tax consequences of the merger to you will depend on your own situation.
You should consult your tax advisors to get a full understanding of the tax
consequences of the merger to you.
Q: How will the merger affect dividend payments?
A: Current holders of Jameson common stock and Jameson Series A Preferred Stock
will not experience any change in their dividends as a result of the merger.
Signature common stockholders, who have not been receiving cash dividends,
will, as a result of the merger, receive shares of Jameson common stock on
which cash dividends historically have been paid. After the merger, holders
of Signature Series A Preferred Stock will be entitled to receive the same
dividend with the same dividend preference on shares of Jameson Series S
Preferred Stock as they were entitled to receive on shares of Signature
Series A Preferred Stock before the merger. Depending on the date the merger
is completed, holders of Signature Series A Preferred Stock may receive a
portion of their quarterly dividend for that quarter from Signature for that
part of the quarter before the merger effective date and the rest of the
quarterly dividend from Jameson for that part of the quarter following the
effective date.
Q: Are there risks to be considered?
A: Yes. Among other risks, the ratio of one share of Signature common stock for
one-half share of Jameson common stock in the merger will not change even if
the market price of Jameson common stock and/or Signature common stock
changes before the merger is completed. As a result, the market value of
Jameson common stock to be received in the merger may be lower or higher
than its current market value. However, Signature has the right to terminate
the merger if the market price of Jameson common stock falls below $7.00 per
share during a designated period prior to the Signature special meeting. For
other risks, see pages 29 through 35.
Q: Do any Signature or Jameson stockholders have dissenters' or appraisal
rights?
A: No.
Q: When will the merger be completed?
A: We are working to complete the merger as promptly as possible and expect to
complete it by May 7, 1999; however, the failure to satisfy closing
conditions, including, among other things, the receipt of third-party
consents and approvals, could delay or prevent completion of the merger.
Q: Should I send in my stock certificates now?
A: No. If you are a holder of Signature common stock or Signature Series A
Preferred Stock, after the merger is completed, we will promptly send you
written instructions for exchanging your Signature stock certificates for
Jameson stock certificates and the cash payment due to holders of Signature
common stock. If you are a Jameson stockholder, you should retain your stock
certificates since there will be no change in them after the merger.
Q: What do I need to do now?
A: Just indicate on your proxy card how you want to vote, and sign and mail the
proxy card in the enclosed return envelope as soon as possible so that your
shares may be represented at your stockholders' meeting.
2
<PAGE>
If you are a Jameson or Signature stockholder and you sign and send in your
proxy but do not indicate how you want to vote, your proxy will be counted
as a vote in favor of the merger. If you are a Signature stockholder and you
do not vote on the merger or you abstain, the effect will be a vote against
the merger. Abstentions and shares held in street name that are not voted on
this matter will not be included in determining the number of votes of
Jameson common stock cast in favor of or against the merger.
Q: Can I change my vote after I have mailed my proxy card?
A: Yes. You can change your vote at any time before your proxy is voted at your
company's stockholder meeting. You can do this in any of three ways. First,
you can send a written notice stating that you are revoking your proxy.
Second, you can complete and submit a new proxy card. If you choose either
of these two methods, you must submit your notice of revocation or your new
proxy card to the Secretary of Jameson at the address below if you are a
Jameson stockholder or to the Secretary of Signature at the address below if
you are a Signature stockholder. Third, you can attend the applicable
stockholder meeting and vote in person. Simply attending the meeting,
however, will not revoke your proxy. If you are a Jameson stockholder, you
should send any written notice or new proxy card to the Secretary of Jameson
at the following address: Jameson Inns, Inc., 8 Perimeter Center East, Suite
8050, Atlanta, Georgia 30346-1603, or, if you are a Signature stockholder,
to the Secretary of Signature, at the following address: Signature Inns,
Inc., One Parkwood Crossing, 250 East 96th Street, Suite 450, Indianapolis,
Indiana 46240.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Only if you provide instructions on how your broker should vote. You should
instruct your broker how to vote your shares, following the directions your
broker provides. Without instructions from you to your broker, your shares
will not be voted and this will effectively be a vote against the merger if
you are a Signature stockholder but not against the merger if you are a
Jameson stockholder.
If you would like additional copies of this Joint Proxy Statement/Prospectus,
or if you have questions about the merger, you should contact:
Jameson Inns, Inc.
Steven A. Curlee, Secretary
8 Perimeter Center East--Suite 8050
Atlanta, Georgia 30346-1603
Phone Number: (770) 901-9020
Signature Inns, Inc.
Investor Relations Department
One Parkwood Crossing
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
Phone Number: (317) 581-1111
3
<PAGE>
SUMMARY
This summary highlights selected information from this Joint Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. For a more complete understanding of the merger and for a
more complete description of the legal terms of the merger, you should read
this entire document carefully, as well as the additional documents to which we
refer you. See "Where You Can Find More Information" (page 27). For your
convenience we have included page references to direct you to more complete
descriptions of the topics presented in this summary.
The Companies
Jameson (page 72)
Jameson Inns, Inc.
8 Perimeter Center East
Suite 8050
Atlanta, Georgia 30346-1603
(770) 901-9020
Jameson is a regional hotel chain which owns and develops limited service
hotels. The company is organized as a real estate investment trust ("REIT") for
federal income tax purposes. At December 31, 1998, Jameson had a total of 114
Jameson Inns located in eight states in the southeastern United States. This
includes 81 Jameson Inns in operation (3,748 available rooms), 20 Jameson Inns
under construction and contracts to acquire 13 parcels of land on which
additional Jameson Inns are expected to be constructed during 1999. In
addition, at December 31, 1998, eight of the Jameson Inns in operation were
undergoing 20-room expansions. Upon completion of these projects (and not
taking the effect of the merger into account), Jameson expects to have
approximately 6,000 available rooms.
Jameson has focused on developing Jameson Inns in communities in the
southeastern United States which have a strong and growing industrial or
commercial base and a shortage of quality hotel rooms. Generally, Jameson Inns
are rooms-only facilities designed to appeal to price and quality conscious
business travelers, such as sales representatives, government officials and
others who travel to these communities on business, as well as family and
leisure travelers attending activities in the communities such as college and
university sponsored events, fairs, festivals and other cultural events and
family reunions.
Jameson Inns are generally two- to three-story, Colonial-style structures
with 38 to 80 rooms located on a one- to two-acre tract with an outdoor
swimming pool, fitness center and parking area. Jameson Inns feature amenities
such as remote-controlled television with access to cable programming,
including HBO, free local calls, complimentary continental breakfast and
newspaper, king-sized or double beds, attractive decor, quality furnishings
and, in select rooms, whirlpool baths and small refrigerators. Based on market
demand, 22 Jameson Inns have been expanded one or more times since their
initial construction. Using standard hotel industry classification criteria,
Jameson Inns typically fall within the category of small, limited service
economy hotels.
As a REIT, Jameson is prohibited from operating its properties. Accordingly,
all Jameson Inns are leased to Jameson Hospitality, LLC. Under master leases
with Jameson Hospitality, Jameson receives a fixed base rent per room and
percentage rent based on room revenues. In 1998, base rent totaled $10.5
million and percentage rent totaled $7.7 million.
Jameson Hospitality is wholly owned by Thomas W. Kitchin, chairman and chief
executive officer of Jameson, and his spouse. References to Jameson Hospitality
throughout this Joint Proxy Statement/Prospectus refer to either Jameson
Hospitality or its predecessors, Jameson Operating Company, Jameson Operating
Company, LLC and Jameson Operating Company II, LLC, as the context requires.
4
<PAGE>
Signature (page 89)
Signature Inns, Inc.
One Parkwood Crossing
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
(317) 581-1111
Signature owns and operates a total of 25 Signature Inns (2,978 available
rooms) and manages one additional Signature Inn (81 available rooms), all of
which are located in six midwestern states. Signature Inns are designed to
attract business and leisure travelers who seek room quality and comfort at
moderate room rates. A typical Signature Inn incorporates a large two-story
atrium, and a lobby and registration area. Most Signature Inns contain
approximately 120 furnished guest rooms with an average of over 300 square feet
per room, swimming pools, exercise facilities and a complimentary breakfast for
their guests, as well as suite-like amenities including a microwave,
refrigerator, in-room coffee, iron and ironing board and hair dryer in all
guest rooms. However, unlike full-service hotels, Signature Inns do not provide
management-intensive facilities and services, such as restaurants or cocktail
lounges. Because approximately 65% of Signature Inn guests are business
travelers, Signature emphasizes services designed for the business traveler,
such as large, in-room desks, voice mail and business centers.
Signature Inns are located near interstate highways, restaurants and
business and leisure travelers' destination points, such as business parks,
office buildings and local attractions. The Signature Inn chain of hotels is
classified in the mid-scale chain without food and beverage segment of the
hotel industry.
The Meetings (pages 36 and 38)
The meeting of the Jameson stockholders will be held on May 7, 1999 at 10:00
a.m., local time. The record date for Jameson stockholders entitled to receive
notice of and to vote at the Jameson annual meeting is the close of business on
March 23, 1999. On that date, there were 9,910,896 shares of Jameson common
stock outstanding and entitled to vote at the meeting.
The meeting of the Signature stockholders will be held on May 7, 1999 at
10:00 a.m., local time. The record date for Signature stockholders entitled to
receive notice of and to vote at the Signature special meeting is the close of
business on March 23, 1999. On that date, there were 2,105,703 shares of
Signature common stock outstanding and entitled to vote at the meeting and
2,256,000 shares of Signature Series A Preferred Stock outstanding and entitled
to vote at the meeting. Each of the two classes of Signature capital stock vote
separately on the merger.
Vote Required (pages 36 and 38)
A majority of the shares of Jameson common stock present and voting at the
Jameson annual meeting must vote in favor of the proposal authorizing the
merger in order for the proposal to be approved.
Approval of the merger by the Signature stockholders requires the approval
of a majority of the outstanding shares of Signature common stock entitled to
be voted at the Signature special meeting. In addition, approval is required by
a majority of the outstanding shares of Signature Series A Preferred Stock
entitled to be voted at the Signature special meeting, voting separately as a
class. See "Comparison of Rights of Stockholders of Jameson and Signature--
Mergers" (page 97) and "Comparison of Rights of Stockholders of Jameson and
Signature--Summary Comparison of Jameson Series S Preferred Stock and Signature
Series A Preferred Stock" (page 112). As of March 22, 1999, directors and
executive officers of Signature and their affiliates beneficially owned 804,319
shares of Signature common stock which represented 38.2% of the outstanding
common stock at that date. As a condition to Jameson's willingness to enter
into the merger agreement, Signature's directors and executive officers have
agreed to vote their shares of Signature common stock and Series A Preferred
Stock in favor of the merger.
5
<PAGE>
The Merger (page 40)
At the effective time, Signature will be merged with and into Jameson, and
Jameson will be the sole surviving company. We expect that after the merger,
Jameson will continue to operate Signature Inns under that name as a separate
division.
As a result of the merger, the holders of Signature common stock will
receive one-half share of Jameson common stock plus cash in the amount of $1.50
for each share of Signature common stock owned. A portion of the $1.50 cash
payment may be paid in the form of a dividend declared and paid by Signature
immediately before the merger is completed.
The holders of Signature Series A Preferred Stock will receive one share of
Jameson Series S Preferred Stock for each outstanding share of Signature Series
A Preferred Stock owned. The Jameson Series S Preferred Stock will have
substantially the same terms and conditions as are applicable to the Signature
Series A Preferred Stock, adjusted to reflect the conversion of Signature
common stock to Jameson common stock and cash in the merger.
Immediately following the merger, shares of Jameson Series S Preferred Stock
will be listed for trading on the Nasdaq National Market.
Jameson's Rationale for the Merger (page 44).
The following are the principal reasons why Jameson and its Board of
Directors believe that the merger is in the best interests of Jameson and its
stockholders:
. the similarities between Jameson Inns and Signature Inns which should
enable the combined company to achieve efficiencies of scale;
. the geographic region in which Signature Inns are located which is
adjacent to and a logical geographical extension of the current operating
territory of Jameson;
. the larger asset and capital base that will result from the merger which
should provide the combined company greater financial stability and
enhance its ability to compete with larger chains and hotel brands;
. an expected increase in funds from operations per share of Jameson common
stock after the merger; and
. the management and staff of Signature which will become part of Jameson
Hospitality and should complement the capabilities of Jameson Hospitality
to operate and manage the greater number of properties that will be owned
by Jameson after the merger.
6
<PAGE>
Signature's Rationale for the Merger (page 45).
The following are the principal reasons why Signature and its Board of
Directors believe that the merger is in the best interests of Signature and its
stockholders:
. the present and anticipated competitive environment of the hotel industry
generally and of the mid-priced segment of the midwest region,
specifically, which has increased the need for Signature to be a part of
a larger company with greater financial resources and a larger and more
geographically dispersed pool of hotel properties;
. the curtailment of Signature's ability to execute its growth strategy;
. the anticipated financial performance, business operations, capital
levels, asset quality and competitive position of Signature and Jameson
on a combined basis;
. the relative stability of the market price of Jameson common stock in
recent years, particularly in light of the declining market price of
Signature common stock and Signature Series A Preferred Stock recently
and during the past two years;
. improved access to capital, including access to capital at a lower cost,
which is anticipated to result from the merger and which is not presently
available to Signature;
. the terms of the merger agreement, including: (1) the financial terms,
resulting in a significant premium over the market price for the
Signature common stock prevailing prior to the public announcement of the
proposed transaction; (2) the expectation that the merger can be
accomplished on a partially tax-free basis to Signature stockholders; (3)
the right of Signature's Board of Directors to exercise its fiduciary
duty and to engage in discussions with other parties regarding
alternative transactions; and (4) the conditions of the parties to
closing;
. the opinion of Signature's financial advisor to the effect that the
consideration to be received by the holders of Signature common stock and
Series A Preferred Stock pursuant to the merger is fair from a financial
point of view; and
. the compatibility of the similar business philosophies of Signature and
Jameson and the non-overlapping markets in which Signature and Jameson
currently operate.
Opinions of Financial Advisors
Jameson (page 47). In deciding to approve the merger, the Jameson Board of
Directors received and considered the opinion dated January 27, 1999, of The
Robinson-Humphrey Company, LLC, its financial advisor, as to the fairness of
the merger consideration from a financial point of view to Jameson as of that
date. A copy of Robinson-Humphrey's opinion is attached to this Joint Proxy
Statement/Prospectus as Appendix C. The opinion of Robinson-Humphrey does not
constitute a recommendation as to how any Jameson stockholder should vote with
respect to the proposed merger. You should read the opinion in its entirety to
understand the assumptions made, matters considered and limitations of the
review undertaken by Robinson-Humphrey in providing its opinion. In addition to
agreeing to reimburse Robinson-Humphrey for expenses incurred in connection
with its services to Jameson and agreeing to indemnify Robinson-Humphrey
against certain liabilities, Jameson has paid Robinson-Humphrey a fee in
connection with rendering the fairness opinion to the Jameson Board of
Directors and has agreed to pay Robinson-Humphrey a transaction fee if the
merger is completed.
7
<PAGE>
Signature (page 51). In deciding to approve the merger, the Signature Board
of Directors received and considered the opinion, dated January 26, 1999, of
McDonald Investments Inc., Signature's financial advisor, as to the fairness of
the merger consideration to the Signature stockholders from a financial point
of view as of that date. A copy of McDonald Investments' opinion is attached to
this Joint Proxy Statement/Prospectus as Appendix D. The opinion of McDonald
Investments does not constitute a recommendation as to how any Signature
stockholders should vote with respect to the proposed merger. You should read
the opinion in its entirety to understand the assumptions made, matters
considered and limitations of the review undertaken by McDonald Investments in
providing its opinion. In addition to reimbursement for expenses incurred in
connection with its services to Signature and indemnification against certain
liabilities, Signature has paid McDonald Investments a fee in connection with
rendering the fairness opinion to the Signature Board of Directors and has
agreed to pay McDonald Investments a transaction fee if the merger is
completed.
The Merger Agreement
We have attached the merger agreement, which is the legal document that
governs the merger, as Appendix A and we encourage you to read it. We have also
filed other related agreements as exhibits to Jameson's registration statement.
Please see the section titled "Where You Can Find More Information," on page
27, for instructions on how to obtain copies of these exhibits.
Conditions (page 67). We will complete the merger only if certain conditions
are satisfied or waived, including the following:
. approval by the Jameson and Signature stockholders;
. receipt of consents and approvals required from third parties;
. approval for trading on the Nasdaq National Market of the Jameson common
stock and Series S Preferred Stock to be issued in the merger;
. execution of employment agreements between Jameson Hospitality and the
Signature senior management;
. receipt of legal opinions that:
. the merger and other transactions contemplated by the merger agreement
will not cause Jameson to cease to qualify as a REIT for federal
income tax purposes; and
. Signature stockholders will not recognize any gain or loss for federal
income tax purposes as a result of the merger except as to the cash
consideration Signature common stockholders will receive.
Termination (page 69). The merger agreement may be terminated under certain
conditions, including the following:
. Either company may terminate the merger agreement if:
. the merger is not completed by July 31, 1999;
. a final and nonappealable order is issued enjoining or prohibiting the
proposed merger; or
. the stockholders of either Jameson or Signature fail to approve the
merger.
. Jameson may terminate the merger agreement if:
. Signature's Board of Directors withdraws or adversely changes its
approval or recommendation of the merger or recommends a competing
transaction to Signature stockholders; or
. Signature fails to comply materially with its obligations in certain
circumstances.
8
<PAGE>
. Signature may terminate the merger agreement if:
. Signature's Board of Directors enters into a binding agreement
concerning a competing transaction and Jameson does not make a
counter-offer which is at least as favorable;
. Jameson fails to comply materially with its obligations in certain
circumstances; or
. the market price of Jameson common stock is less than $7.00 per share
during a ten trading day period ending five business days before the
Signature special meeting.
Break-up Fees (page 70). The merger agreement requires Signature to pay
Jameson a break-up fee of $2,000,000 plus Jameson's reasonable out-of pocket
fees and expenses up to $500,000 in the aggregate if the merger agreement
terminates in either of the following ways:
. the merger agreement is terminated
. by Jameson because the Signature Board of Directors withdraws or
adversely modifies its recommendation or because Signature materially
breaches its obligations under the merger agreement, or
. by Signature in order to consummate a competing proposal.
. the Signature stockholders do not approve the merger agreement and either
. the Signature Board of Directors does not recommend approval of the
merger agreement or changes its recommendation for approval before the
Signature special meeting, or
. before the Signature special meeting a third party commences a tender
or exchange offer for Signature common stock or preferred stock or
solicits proxies voting against approval of the merger agreement and
the Signature Board of Directors fails to take an opposing position.
Accounting Treatment (page 61). Jameson will account for the merger as a
purchase.
Nasdaq National Market Listing. Jameson will list the shares of Jameson
common stock and Series S Preferred Stock to be issued in the merger for
trading on the Nasdaq National Market.
Benefits to Officers and Directors of Signature in the Merger (page
57). Signature's executive officers and directors have interests in the merger
that are different from, or in addition to, yours as a stockholder. If the
merger is completed, all five of Signature's senior executives will enter into
employment agreements with Jameson Hospitality. In addition, if the merger is
completed, options to purchase Signature common stock held by Signature's
officers and other employees will be replaced by options to acquire the same
number of shares of Jameson common stock at an exercise price equal to the
market price of Jameson common stock on the closing date rather than the
current exercise prices which are generally higher than the current market
prices for Signature common stock. Signature's executive officers and directors
will also receive transaction bonuses if the merger is completed.
Nonsolicitation. Under the terms of the merger agreement, Signature will not
solicit other proposals from third parties for competing transactions. However,
if Signature receives an unsolicited offer before the Signature special meeting
for a more favorable transaction, Signature may enter into a binding agreement
with a third party unless Jameson makes a counter-offer which is at least as
favorable to Signature. See "The Merger Agreement--No Solicitation of
Transactions" (page 66).
Merger-Related Expenses
Jameson and Signature estimate that the merger will result in fees and
expenses totaling approximately $4.5 million. After the merger, Jameson may
also incur charges and expenses relating to integrating the operations of
Signature into Jameson. We did not adjust the pro forma financial information
for these integration charges and expenses or for any operating efficiencies
that the combined companies may realize after the merger.
9
<PAGE>
Treatment of Signature Stock Options in the Merger
In connection with the merger, all unexercised Signature stock options will
be canceled and exchanged for Jameson stock options. The new Jameson stock
options will entitle the holders to purchase the same number of shares of
Jameson common stock as the number of shares of Signature common stock covered
by the canceled options. The exercise price for purchase of the Jameson common
stock will be equal to the closing price of Jameson common stock as reported on
the Nasdaq National Market on the closing date. The options will vest in one-
third increments on the first, second and third anniversary of the closing date
of the merger.
No Dissenters Rights
Neither Jameson nor Signature stockholders will have any dissenters' or
appraisal rights in connection with the merger.
Other Jameson Annual Meeting Proposals
At the Jameson annual meeting, Jameson stockholders will also be asked to
vote on the election of one director for a three-year term, ratification of
Ernst & Young LLP as Jameson's independent auditors for 1999 and on any other
matters that properly come before the meeting.
10
<PAGE>
SELECTED FINANCIAL INFORMATION
Jameson. In the table below, we provide you with selected financial and
operating information on a pro forma and historical basis for Jameson. You
should read the following information in conjunction with the consolidated
financial statements and accompanying notes and management's discussion and
analysis included in this Joint Proxy Statement/Prospectus. We derived the
consolidated historical financial data from the audited historical consolidated
financial statements of Jameson. Certain of the other data (occupancy rate,
ADR, REVPAR, room nights available, and room revenues) are from Jameson
Hospitality's operating results.
For the 1994 pro forma data, we assumed that Jameson's 1994 initial public
offering and all related transactions occurred on January 1, 1994, and that
Jameson qualified as a REIT, distributed all of its taxable income and,
therefore, incurred no income tax expense during the period. For the 1998 pro
forma data, we assumed that the merger and all related transactions were
consummated on January 1, 1998 for the financial data and other data and on
December 31, 1998 for the balance sheet data, that Jameson continued to qualify
as a REIT, distributed all of its taxable income, and, therefore, incurred no
income tax expense during the period.
Historical financial and operating information of Jameson includes all
Jameson Inns, including both those under development as well as operating
Jameson Inns. Because of Jameson's development of new Jameson Inns and
expansion of existing Jameson Inns, you cannot compare the information between
periods. Historical and pro forma operating results, including net income, may
not be comparable to future operating results.
11
<PAGE>
Jameson
Selected Financial Information
(dollars in thousands, except per share data, ADR and REVPAR)
<TABLE>
<CAPTION>
Pro
Historical Forma
----------------------------------------- --------
December 31,
--------------------------------------------------
1994 1995 1996 1997 1998 1998
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Investment in real estate
(before accumulated
depreciation)............. $38,525 $57,370 $80,816 $117,515 $168,880 $275,387
Net investment in real
estate.................... 33,760 50,780 71,611 104,931 152,125 258,632
Total assets............... 35,074 52,806 73,985 107,606 156,329 268,202
Total mortgage debt........ 11,530 30,214 22,317 29,625 53,697 123,347
Stockholders' equity....... 23,282 21,754 50,763 75,161 98,869 138,519
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Historical Pro Forma
--------- -------------------------------------------------- ----------
Year Ended December 31,
-------------------------------------------------------------------------
1994 1994 1995 1996 1997 1998 1998
--------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Data:
Gross revenues:
Lease revenue from
Jameson Hospitality... $ 3,973 $ 3,973 $ 6,342 $ 9,376 $ 12,966 $ 18,230 $35,156
Expenses:
Depreciation........... 1,471 1,427 1,825 2,670 3,898 5,636 10,848
Property tax and
insurance expense..... 412 412 514 733 1,107 1,524 3,423
General and
administrative
expenses.............. 479 479 622 499 445 592 906
Loss on disposal of
furniture and
equipment............. -- -- -- 48 144 508 508
Loss on impairment of
real estate........... -- -- -- -- -- 2,507 2,507
-------- -------- -------- -------- -------- ---------- ----------
Income from operations.. 1,611 1,655 3,381 5,426 7,372 7,463 16,964
Other income (expense):
Interest expense, net
of amounts
capitalized........... (187) (339) (1,590) (1,386) (778) (1,656) (7,920)
Equity in income (loss)
of hotel limited
partnership........... -- (5) -- -- -- -- 23
Interest income........ -- -- -- -- -- -- 590
-------- -------- -------- -------- -------- ---------- ----------
Income before
extraordinary item..... 1,424 1,311 1,791 4,040 6,595 5,807 9,657
Extraordinary loss...... -- 250 19 989 689 134 134
-------- -------- -------- -------- -------- ---------- ----------
Net income.............. 1,424 1,061 1,772 3,051 5,906 5,673 9,523
Preferred stock
dividends.............. -- -- 490 -- -- 2,788 6,023
-------- -------- -------- -------- -------- ---------- ----------
Net income attributable
to common
stockholders........... 1,424 1,061 1,282 3,051 5,906 3,485 3,500
Basic earnings before
extraordinary item..... 0.42 0.43 0.35 0.65 0.72 0.37 0.34
Diluted earnings before
extraordinary item..... 0.37 0.43 0.46 0.63 0.70 0.36 0.33
Basic earnings per
common share........... 0.42 0.35 0.34 0.49 0.64 0.36 0.32
Diluted earnings per
common share........... 0.37 0.34 0.45 0.48 0.63 0.35 0.32
Dividends paid per
common share........... -- 0.50 0.80 0.86 0.90 0.94 -- (1)
Cash flow provided by
operating activities... -- 2,528 4,181 6,626 11,911 13,845 -- (2)
Cash flow used in
investing activities... -- (10,845) (18,845) (23,548) (37,362) (55,845) -- (2)
Cash flow provided by
financing activities... -- 8,592 14,546 16,895 25,581 42,161 -- (2)
Other Data:
Funds from
operations(3).......... $ 2,895 $ 2,738 $ 3,616 $ 6,758 $ 10,637 $ 12,270 $ 17,497
Occupancy rate.......... 70.1% 70.1% 67.5% 66.9% 64.9% 61.7% 61.8%
ADR..................... $ 39.43 $ 39.43 $ 42.80 $ 45.80 $ 47.25 $ 50.60 $ 55.24
REVPAR.................. $ 27.64 $ 27.64 $ 28.89 $ 30.64 $ 30.68 $ 31.21 $ 34.16
Room revenues(4)........ $ 8,373 $ 8,373 $ 13,310 $ 19,950 $ 27,588 $ 38,787 $ 81,191
Room nights available... 295,193 295,193 448,906 634,549 878,056 1,216,998 2,302,393
Operating hotels (at
period end)............ 20 20 32 43 62 81 106
Rooms available (at
period end)............ 966 966 1,537 2,107 2,924 3,748 6,726
Ratio of earnings to
fixed charges and
preferred stock
dividends(5)........... 4.35 3.16 1.37 2.84 5.21 1.50 1.17
</TABLE>
12
<PAGE>
- --------
(1) Amounts are not presented as dividends are discretionary decisions of the
Board of Directors and therefore can not be calculated on a pro forma
basis.
(2) Amounts are not practicable to calculate due to the separation of the
Signature business between hotel operations and Signature Inn ownership,
resulting from the sale of certain Signature assets and liabilities to
Jameson Hospitality.
(3) Funds from operations is defined by the National Association of Real Estate
Investment Trusts ("NAREIT") according to the March 1995 interpretation as
net income (computed in accordance with generally accepted accounting
principles ("GAAP")) excluding gains (or losses) from debt restructuring
and sales of property, plus depreciation and after adjustments for
unconsolidated partnerships and joint ventures. Jameson has made
adjustments to its net income (loss) consisting only of depreciation, loss
on disposals, loss on impairment of real estate and the extraordinary item.
Jameson notes that industry analysts and investors use funds from
operations as another tool to evaluate and compare equity REITs. Jameson
also believes it is meaningful as an indicator of net income excluding most
non-cash items and provides information about Jameson's cash available for
distributions, debt service and capital expenditures. Other non-cash
expenses such as deferred finance cost amortization and stock-based
compensation expense have not been added back in funds from operations.
Funds from operations does not represent cash flow from operating
activities in accordance with GAAP and is not indicative of cash available
to fund all of Jameson's cash needs. Funds from operations should not be
considered as an alternative to net income or any other GAAP measure as an
indicator of performance and should not be considered as an alternative to
cash flows as a measure of liquidity. In addition, Jameson's funds from
operations may not be comparable to other companies' funds from operations
due to differing methods of calculating funds from operations and varying
interpretations of the NAREIT definition.
(4) The lease between Jameson and Jameson Hospitality with regard to the
Jameson Inns defines "Room Revenues" to include gross room rentals,
revenues from telephone charges, vending machine payments and other
miscellaneous revenues and excludes all credits, rebates and refunds, sales
taxes and other excise taxes. The lease between Jameson and Jameson
Hospitality with regard to the Signature Inns defines "Room Revenues" in an
identical manner except that long distance telephone expenses are deducted.
(5) For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest and preferred stock
dividends) to income before extraordinary item. Fixed charges consist of
interest costs whether expensed or capitalized, amortization of debt
discounts and issue costs whether expensed or capitalized and preferred
stock dividends in applicable periods. Jameson paid preferred stock
dividends in 1995 and 1998.
13
<PAGE>
Signature. In the table below, we provide you the selected historical
consolidated financial data of Signature for each of the five years in the
period ended December 31, 1998. You should read the following information in
conjunction with the consolidated financial statements, including the notes
thereto and management's discussion and analysis of financial condition and
results of operations included in this Joint Proxy Statement/Prospectus. We
derived the consolidated historical financial data from the audited
consolidated financial statements of Signature.
Signature
Selected Financial Information
(dollars in thousands, except per share data, ADR and REVPAR)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Property and equipment
(before accumulated
depreciation).......... $ 9,736 $ 13,796 $ 15,685 $ 118,873 $ 123,708
Property and equipment.. 6,543 8,764 10,358 108,671 108,825
Total assets............ 14,094 18,014 20,611 124,828 124,010
Total debt.............. 10,314 12,360 12,317 71,218 69,650
Stockholders' equity.... 3,104 4,791 6,662 48,989 49,033
<CAPTION>
Year ended December 31,
------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Financial Data:
Hotel revenues.......... $ 3,842 $ 3,470 $ 5,504 $ 39,938 $ 42,404
Management and franchise
fees................... 3,022 3,127 3,062 208 94
-------- -------- ---------- ---------- ----------
Total revenues......... 6,864 6,597 8,566 40,146 42,498
Operating costs and ex-
penses................. 4,686 4,394 6,085 28,862 31,498
-------- -------- ---------- ---------- ----------
Operating income....... 2,178 2,203 2,481 11,284 11,000
Other income (net of ex-
pense)................. 708 415 430 846 666
Interest expense........ (1,275) (981) (1,035) (5,805) (6,264)
-------- -------- ---------- ---------- ----------
Income before income
tax expense and
extraordinary gain
from debt
extinguishment........ 1,611 1,637 1,876 6,325 5,402
Income tax expense...... -- 20 217 1,150 1,525
-------- -------- ---------- ---------- ----------
Income before
extraordinary gain
from debt
extinguishment........ 1,611 1,617 1,659 5,175 3,877
Extraordinary gain from
debt extinguishment.... 495 -- -- -- --
-------- -------- ---------- ---------- ----------
Net income............. 2,106 1,617 1,659 5,175 3,877
Preferred stock divi-
dends.................. -- -- -- 3,621 3,835
-------- -------- ---------- ---------- ----------
Net income available to
common stockholders... 2,106 1,617 1,659 1,554 42
Basic and fully diluted
earnings per common
share before extraordi-
nary gain.............. 0.92 0.77 0.79 0.74 0.02
Other Data:
Occupancy rate(1)....... 67.8% 67.2% 65.9% 64.6% 62.0%
ADR(1).................. $ 53.45 $ 55.81 $ 57.02 $ 58.12 $ 60.40
REVPAR(1)............... $ 36.24 $ 37.50 $ 37.55 $ 37.53 $ 37.46
Guest room revenues(1).. $ 36,177 $ 37,440 $ 38,331 $ 39,588 $ 40,659
Room nights avail-
able(1)................ 998,275 998,275 1,020,758 1,054,829 1,085,395
Operating hotels (at pe-
riod end)(1)........... 23 23 24 25 25
Rooms available (at pe-
riod end)(1)........... 2,735 2,735 2,859 2,978 2,978
Ratio of earnings to
fixed charges and
preferred stock
dividends(2)........... 1.83 1.90 2.93 1.27 1.00
</TABLE>
14
<PAGE>
- --------
(1) Represents information for the 25 wholly owned Signature Inns as if they
were wholly owned since the beginning of 1994 (as a result of the January
1997 purchase of Signature's interests in 20 hotels previously held in
unconsolidated partnerships and three hotels previously held in
consolidated joint ventures) and excludes the 40% owned Signature Inn in
Carmel, Indiana.
(2) For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest and preferred stock
dividends) to income before extraordinary gain from debt extinguishment.
Fixed charges consist of interest costs, amortization of debt discounts and
issue costs and preferred stock dividends in applicable periods. Signature
paid preferred stock dividends in 1997 and 1998.
Selected Pro Forma Financial Statements
Jameson. In the following pages, we provide you with the unaudited pro forma
condensed financial statements for Jameson as if this proposed merger had been
completed on January 1, 1998 for the statement of operations and on December
31, 1998 for the balance sheet.
You should read these unaudited selected pro forma condensed financial
statements in conjunction with the separate historical financial statements and
accompanying notes of Jameson that are included elsewhere in this Joint Proxy
Statement/Prospectus. You should not rely on the unaudited selected pro forma
financial statements or information as an indication of the results of
operations or financial position that would have been achieved if the merger
and related net asset sales had taken place earlier or of the results of
operations or financial position of Jameson after the completion of the merger.
15
<PAGE>
Jameson Inns, Inc.
Unaudited Pro Forma Condensed Balance Sheet
December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Sale to Other Pro
Historical Historical Jameson Pro Forma Forma
Jameson Signature Hospitality(1) Adjustments Jameson
---------- ---------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Assets
Property and equipment.. $168,881 $123,708 $ (194) $ (250)(1) $275,387
(16,758)(2)
Less accumulated depre-
ciation................ (16,755) (14,883) -- 14,883 (2) (16,755)
-------- -------- ------- -------- --------
152,126 108,825 (194) (2,125) 258,632
Cash and cash equiva-
lents.................. 500 10,715 -- (7,659)(3) 3,806
250 (1)
Restricted cash......... -- 758 -- -- 758
Accounts receivable..... -- 1,015 (1,015) -- --
Inventory............... -- 164 (164) -- --
Lease revenue receiv-
able................... 2,290 -- -- -- 2,290
Prepaid expenses........ 14 -- -- -- 14
Deferred finance costs,
net.................... 1,110 814 (23) (789)(2) 1,112
Hotel limited partner-
ship
investment............. -- 813 -- -- 813
Other assets............ 289 906 (418) -- 777
-------- -------- ------- -------- --------
$156,329 $124,010 $(1,814) $(10,323) $268,202
======== ======== ======= ======== ========
Liabilities and
Stockholders' Equity
Mortgage notes payable.. $ 53,697 $ 69,650 -- -- $123,347
Accounts payable and
accrued expenses....... 200 588 (588) -- 200
Accounts payable to af-
filiates............... 2,087 -- -- -- 2,087
Accrued interest pay-
able................... 350 105 -- -- 455
Accrued property taxes.. 432 1,510 -- -- 1,942
Accrued payroll......... -- 910 (910) -- --
Preferred stock
dividends payable...... 694 958 -- -- 1,652
Deferred income taxes... -- 886 -- (886)(2) --
Other current liabili-
ties................... -- 370 (370) -- --
-------- -------- ------- -------- --------
57,460 74,977 (1,868) (886) 129,683
Stockholders' equity:
Preferred stock--Series
A...................... 1,200 40,776 -- (40,776)(4) 1,200
Preferred stock--Series
S...................... -- -- -- 2,256 (3) 2,256
Common stock............ 990 10,016 -- 105 (3) 1,095
(10,016)(4)
Additional paid-in capi-
tal.................... 97,706 -- -- 37,289 (3) 134,995
Retained deficit........ (1,027) (1,759) -- 1,759 (4) (1,027)
-------- -------- ------- -------- --------
Total stockholders'
equity............... 98,869 49,033 -- (9,383) 138,519
-------- -------- ------- -------- --------
$156,329 $124,010 $(1,868) $(10,269) $268,202
======== ======== ======= ======== ========
</TABLE>
16
<PAGE>
- --------
Explanations of Pro Forma Adjustments:
(1) Reflects the pre-merger sale of the net assets related to the hotel
operations of Signature to Jameson Hospitality for $250.
(2) These amounts are to adjust historical cost of Signature to fair values
based on Jameson management's preliminary estimates and the total
consideration to be paid.
(3) The following tables set forth the determination of and preliminary
allocation of the purchase price based on estimated fair values (in
thousands, except per share amounts):
<TABLE>
<S> <C>
Common stock:
Number of Signature common stock shares outstanding............... 2,106
Cash to be paid per share......................................... $ 1.50
--------
$ 3,159
Plus: estimated transaction costs and expenses to be paid by
Jameson and Signature (a)........................................ 4,500
Less: dividend paid to Signature common stockholders to distribute
earnings and profits............................................. 0
--------
Total estimated cash consideration................................ $ 7,659
========
Number of shares of Signature common stock outstanding............ 2,106
Conversion factor to Jameson common stock......................... 0.5
--------
Newly issued shares of Jameson common stock....................... 1,053
Jameson closing common stock price on March 22, 1999.............. $ 8.0625
--------
Total estimated common stock consideration ($105 par, $8,384
additional paid-in capital)...................................... $ 8,489
========
Preferred stock:
Number of shares of Signature Series A Preferred Stock
outstanding...................................................... 2,256
Conversion factor to Jameson Series S Preferred Stock............. 1.0
--------
Newly issued shares of Jameson Series S Preferred Stock........... 2,256
Estimated fair value per share(b)................................. $13.8125
--------
Total estimated preferred stock consideration ($2,256 par, $28,905
additional paid-in capital)...................................... $ 31,161
========
Total estimated consideration....................................... $ 47,309
========
</TABLE>
--------
(a) Estimated transaction costs include financial advisors' fees of $1,850,
legal of $750, accounting and tax advisors of $425, printing of $425,
Signature transaction bonuses of $587 and other of $463.
(b) Represents the closing price of $13.8125 on March 22, 1999 of Signature
Series A Preferred Stock which management believes is a reasonable
estimate of the value of the Jameson Series S Preferred Stock. The actual
value of Jameson Series S Preferred Stock will be determined by the
prices in the trading market following the effective time of the merger.
(4) To eliminate equity accounts of Signature.
17
<PAGE>
Jameson Inns, Inc.
Unaudited Pro Forma Condensed Statement of Operations
Year Ended December 31, 1998
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Sale to Pro
Historical Historical Jameson Pro Forma Forma
Jameson Signature(1) Hospitality(2) Adjustments Jameson
---------- ------------ -------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Lease revenue.......... $18,230 $ -- $ -- $16,926 (3) $35,156
Room revenues.......... -- 40,659 (40,659) -- --
Telephone revenues..... -- 834 (834) -- --
Other inn-related
sales................. -- 1,137 (1,137) -- --
Management and
franchise fees........ -- 94 (94) -- --
------- ------- -------- ------- -------
18,230 42,724 (42,724) 16,926 $35,156
Expenses:
Room expenses.......... -- 13,734 (13,734) -- --
Utilities.............. -- 1,881 (1,881) -- --
Inn manager salaries... -- 1,655 (1,655) -- --
Property tax expense... 1,042 1,548 -- -- 2,590
Insurance expense...... 482 351 -- -- 833
Maintenance............ -- 2,983 (2,983) -- --
Advertising............ -- 1,768 (1,768) -- --
Depreciation........... 5,636 4,685 (108) 635 (4) 10,848
Amortization........... -- 67 -- (67)(5) --
General and
administrative
expenses.............. 592 2,828 (2,514) -- 906
Loss on disposal of
furniture and
equipment............. 508 -- -- -- 508
Loss on impairment of
property.............. 2,507 -- -- -- 2,507
Merger transaction
costs................. -- 224 -- (224)(6) --
------- ------- -------- ------- -------
Total expenses.......... 10,767 31,724 (24,643) 344 18,192
------- ------- -------- ------- -------
Income from operations.. 7,463 11,000 (18,081) 16,582 16,964
Other income (expenses):
Interest expense, net
of capitalized
amounts............... (1,656) (6,264) -- -- (7,920)
Equity in income of
hotel limited
partnership........... -- 23 -- -- 23
Interest income........ -- 590 -- -- 590
Other income........... -- 53 (53) -- --
------- ------- -------- ------- -------
Income before income tax
expense and
extraordinary loss..... 5,807 5,402 (18,134) 16,582 9,657
Extraordinary loss..... 134 -- -- -- 134
------- ------- -------- ------- -------
Income before income tax
expense................ 5,673 5,402 (18,134) 16,582 9,523
Income tax expense..... -- 1,525 -- (1,525)(7) --
------- ------- -------- ------- -------
Net income.............. 5,673 3,877 (18,134) 18,107 9,523
Preferred stock
dividends.............. 2,188 3,835 -- -- 6,023
------- ------- -------- ------- -------
Net income attributable
to common
stockholders........... $ 3,485 $ 42 $(18,134) $18,107 $ 3,500
======= ======= ======== ======= =======
Funds from
operations(8).......... $12,270 $17,497
======= =======
Per common share(9):
Income before
extraordinary loss:
Basic.................. $ 0.37 $ 0.34
Diluted................ $ 0.36 $ 0.33
Net income:
Basic.................. $ 0.36 $ 0.32
Diluted................ $ 0.35 $ 0.32
Weighted average shares:
Basic.................. 9,772 10,825
Diluted................ 9,929 10,982
</TABLE>
18
<PAGE>
- --------
Explanations of Pro Forma Adjustments:
(1) Certain amounts of Signature have been reclassified to conform to the
Jameson classifications.
(2) Reflects the income and expenses related to the sale to Jameson Hospitality
of the net assets and liabilities used in operating the Signature Inns. See
unaudited pro forma condensed financial statements of Jameson Hospitality.
(3) Jameson will lease the Signature Inns to Jameson Hospitality under the
terms of a master lease. The base rent will be $394.00 per room per month
and the percentage rate will be equal to 37% of the first $35.00 of average
daily per room rental revenues; plus 65% of the next $10.00 of average
daily room rentals plus 70% of the average daily room rental greater than
$45.00, less 100% of base rent. The $35.00 amount will increase for the
year 2000 and subsequent years by a percentage equal to the increase in the
consumer price index during the preceding year. Room revenues will be
defined in the lease between Jameson and Jameson Hospitality with respect
to the Signature Inns to include gross room rentals, revenues from
telephone charges less long distance telephone expense, vending machine
payments and other miscellaneous revenues and excludes all credits, rebates
and refunds, sales taxes and other excise taxes. The total amount of
rentals payable under this lease is the sum of the base rent ($14,080) and
the percentage rent ($2,846) as follows:
<TABLE>
<S> <C>
Base Rent:
Signature rooms available at year end multiplied by 12......... 35,736
Base rent per room............................................. $ 394
----------
Total base rent (in 000's)..................................... $ 14,080
==========
Percentage rent:
Signature room revenues, as defined (in 000's)................. $ 42,403
Divided by room nights available............................... 1,085,395
----------
Average daily room revenues.................................... $ 39.07
==========
</TABLE>
<TABLE>
<CAPTION>
Average Daily Percentage Room Nights Percentage
Room Revenues Rent Rate Available Rent (in 000's)
------------- ---------- ----------- ---------------
<S> <C> <C> <C>
$35.00 37% 1,085,395 $14,056
4.07 65% 1,085,395 2,870
------ -------
$39.07 16,926
======
</TABLE>
<TABLE>
<S> <C>
Less base rent (in 000's)......................................... (14,080)
-------
Total percentage rent............................................. $ 2,846
=======
Total rent due...................................................... $16,926
=======
</TABLE>
(4) Net increase reflects depreciation on new basis of property as recorded in
purchase of Signature by Jameson and removal of original depreciation
recorded by Signature. Depreciation was calculated using 15 years for land
improvements, 39 years for buildings, and 5 years for furniture and
equipment.
(5) Relates to deferred finance costs of Signature, which asset was assigned no
value in the preliminary purchase price allocation, therefore amortization
expense is eliminated.
(6) Non-recurring merger expense.
(7) Income tax expense is eliminated due to Jameson's REIT status.
19
<PAGE>
(8) The following table illustrates the calculation of funds from operations on
a pro forma basis (in 000's):
<TABLE>
<S> <C>
Net income attributable to common stockholders..................... $ 3,500
Add:
Depreciation expense............................................. 10,848
Loss on disposal of furniture and equipment...................... 508
Loss on impairment of real estate................................ 2,507
Extraordinary loss............................................... 134
-------
Funds from operations, as determined by March 1995 NAREIT
interpretation.................................................... $17,497
=======
</TABLE>
(9) The following table sets forth the computation of pro forma basic and
diluted earnings per share:
<TABLE>
<S> <C>
Numerator (in 000's):
Income from continuing operations............................... $ 9,657
Extraordinary loss.............................................. (134)
-------
Net income...................................................... 9,523
Preferred stock dividends....................................... (6,023)
-------
Numerator for basic earnings per share--income available to
common stockholders............................................ $ 3,500
=======
Denominator (in 000's):
Weighted average shares outstanding............................. 10,889
Less: Unvested restricted shares................................ (64)
-------
Denominator for basic earnings per share........................ 10,825
Plus: Effect of dilutive securities
Employee and director stock options............................ 95
Unvested restricted shares..................................... 62
-------
Total dilutive potential common shares.......................... 157
-------
Denominator for diluted earnings per share--adjusted weighted
average shares and assumed conversions......................... 10,982
=======
</TABLE>
<TABLE>
<CAPTION>
Basic Diluted
------ -------
<S> <C> <C>
Earnings Per Common Share:
Income before extraordinary loss........................... $ 0.34 $0.33
Extraordinary loss......................................... (0.02) (.01)
------ -----
Net income per common share................................ $ 0.32 $0.32
====== =====
</TABLE>
Options and warrants to purchase 579,833 and 260,000 shares of Jameson
common stock, respectively, were all outstanding on a pro forma basis
during 1998 but were not included in the computation of diluted earnings
per share because the securities' exercise price was greater than the
average market price of the common shares and, therefore, the effect would
be antidilutive. The options for the purchase of 579,833 shares of Jameson
common stock include options issuable to Signature's current option holders
to purchase 76,000 shares of Jameson common stock at the fair market value
at the date of the consummation of the merger. In addition, 2,350,000
shares of common stock issuable upon conversion of the Jameson Series S
Preferred Stock were not included in the computation of earnings per share
as the effect would be antidilutive.
20
<PAGE>
Jameson Hospitality. In the table below, we provide you with the unaudited
pro forma condensed financial information for Jameson Hospitality as if the
merger and certain merger-related net asset sales had been completed on January
1, 1998, for the statement of operations and December 31, 1998, for the balance
sheet.
You should read this unaudited pro forma condensed financial information in
conjunction with the separate historical financial statements and accompanying
notes of Jameson Hospitality that are presented elsewhere in the Joint Proxy
Statement/Prospectus. You should not rely on the unaudited selected pro forma
financial statements or information as an indication of the results of
operations or financial position that would actually have been achieved if the
merger and related net asset sales had taken place earlier or of the results of
operations or financial position of Jameson Hospitality after the completion of
the merger.
21
<PAGE>
Jameson Hospitality, LLC
Unaudited Pro Forma Condensed Balance Sheet
December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
Jameson Pro Forma Jameson
Hospitality Adjustments Hospitality
----------- ----------- -----------
<S> <C> <C> <C>
Assets
Current assets:
Cash .................................... $1,078 $ (250)(1) $ 828
Marketable securities.................... 200 -- 200
Accounts receivable...................... 854 1,015(1) 1,869
Predevelopment costs..................... 457 -- 457
Accounts receivable from affiliates...... 2,755 -- 2,755
Prepaid expenses and other assets........ 358 -- 358
Inventory................................ 626 164(1) 790
Other current assets..................... -- 418(1) 418
------ ------ -------
Total current assets.................... 6,328 1,347 7,675
Property and equipment, net............... 2,992 194(1) 3,186
Leasehold improvements, net............... 35 -- 35
Intangibles, net.......................... 22 304(1) 326
Deferred costs and other assets, net...... -- 23(1) 23
------ ------ -------
$9,377 $1,868 $11,245
====== ====== =======
Liabilities and Members' Capital
Current liabilities:
Notes payable, current portion........... $ 651 $ -- $ 651
Accounts payable......................... 1,089 588(1) 1,677
Lease expense payable to Jameson Inn,
Inc..................................... 2,290 -- 2,290
Subcontractors payable................... 3,106 -- 3,106
Accrued payroll.......................... -- 910(1) 910
Accrued liabilities...................... 485 370(1) 855
Accrued interest......................... 22 -- 22
------ ------ -------
Total current liabilities............... 7,643 1,868 9,511
Notes payable, long-term portion.......... 1,665 -- 1,665
------ ------ -------
Total liabilities....................... 9,308 1,868 11,176
Members' capital.......................... 69 -- 69
------ ------ -------
$9,377 $1,868 $11,245
====== ====== =======
</TABLE>
- --------
Explanations of Pro Forma Adjustments:
(1) To reflect the purchase of the net assets used in Signature's hotel
operations for $250 in cash. See unaudited pro forma condensed balance
sheet of Jameson for assets and liabilities related to ownership of the
Signature Inns. The purchase price is allocated as follows:
<TABLE>
<S> <C>
Accounts receivable................... $1,015
Inventory............................. 164
Other current assets.................. 418
Property and equipment, net........... 194
Intangibles, net...................... 304*
Deferred costs and other assets, net.. 23
Accounts payable...................... (588)
Accrued payroll....................... (910)
Accrued liabilities................... (370)
------
$ 250
======
</TABLE>
* Reflects as goodwill the excess of the purchase price of $250 over the fair
value of negative $54 of the net tangible assets acquired and liabilities
assumed.
22
<PAGE>
Jameson Hospitality, LLC
Unaudited Pro Forma Condensed Statement of Operations
Year Ended December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
Jameson Pro Forma Jameson
Hospitality Adjustments Hospitality
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Room revenues............................ $37,982 $40,659(1) $ 78,641
Telephone revenues....................... 757 834(1) 1,591
Other inn-related sales.................. 47 1,137(1) 1,184
Contract revenues........................ 40,991 -- 40,991
Billboard sales.......................... 91 -- 91
Flight revenues.......................... 7 -- 7
Management and franchise fees............ -- 94(1) 94
------- ------- --------
Total revenues.......................... 79,875 42,724 122,599
Expenses:
Costs of contract revenues............... 35,519 -- 35,519
Lease expense............................ 18,230 16,926(2) 35,156
Room expenses............................ 8,889 13,733(1) 22,622
Utilities................................ 3,346 1,881(1) 5,227
General and administrative............... 3,886 2,462(1) 6,348
Inn manager salaries..................... 2,511 1,655(1) 4,166
Maintenance.............................. 1,367 2,983(1) 4,350
Advertising.............................. 2,196 1,768(1) 3,964
Insurance................................ 199 -- 199
Management fee to affiliate.............. 2,655 -- 2,655
Prospective site expense................. 614 -- 614
Interest, net of amounts capitalized..... 166 -- 166
Depreciation, amortization and
retirements............................. 456 108(1) 579
15(3)
------- ------- --------
Total expenses............................ 80,034 41,531 121,565
------- ------- --------
Net (loss) income......................... $ (159) $ 1,193 $ 1,034
======= ======= ========
</TABLE>
- --------
Explanations of Pro Forma Adjustments:
(1) Reflects the historical hotel operations of Signature excluding income
taxes since Jameson Hospitality elects to be taxed as a partnership and
hence excludes any provision for income taxes. Expenses related to the
ownership of the Signature Inns are included in the unaudited pro forma
condensed financial statements of Jameson.
(2) Jameson will lease the Signature Inns to Jameson Hospitality under the
terms of a master lease. See footnote 3 to the Jameson unaudited pro forma
condensed statement of operations on page 19 for details of calculation.
(3) Reflects amortization of goodwill generated in purchase of the net assets
and liabilities used in hotel operations of the Signature Inns. Goodwill is
being amortized over a period of 20 years.
23
<PAGE>
Comparative Per Share Market Price and Dividend Information
The following table sets forth the high and low sale prices for Jameson
common stock, Signature common stock, Jameson Series A Preferred Stock and
Signature Series A Preferred Stock for the periods indicated. The prices are as
reported on the Nasdaq National Market based on published financial sources.
The table also sets forth the cash dividends paid per share for the periods
indicated for a share of each of Jameson common stock, Jameson Series A
Preferred Stock and Signature Series A Preferred Stock. No dividends have ever
been paid on the Signature common stock.
<TABLE>
<CAPTION>
Signature
Jameson Common Jameson Series A Signature Series A
Common Stock(1) Stock(2) Preferred Stock(3) Preferred Stock(4)
----------------------- ----------- ----------------------- -----------------------
Cash Cash Cash
Dividends Dividends Dividends
Per Per Per
High Low Share High Low High Low Share High Low Share
------ ------ --------- ----- ----- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997
First Quarter........... $13.75 $11.25 $.22 $9.00 $6.88 -- -- -- $20.13 $18.50 --
Second Quarter.......... 12.25 10.88 .22 6.88 5.38 -- -- -- 19.25 17.75 $.330
Third Quarter........... 13.13 11.38 .23 7.00 5.00 -- -- -- 20.25 17.75 .425
Fourth Quarter.......... 12.50 11.00 .23 6.88 4.50 -- -- -- 19.75 16.25 .425
1998
First Quarter........... 12.88 11.25 .23 7.25 4.50 $25.25 $25.00 -- 19.25 16.00 .425
Second Quarter.......... 12.38 9.75 .23 6.50 4.75 25.63 24.50 $.09 18.50 15.13 .425
Third Quarter........... 11.50 9.06 .24 5.13 3.13 24.63 22.00 .58 15.38 11.25 .425
Fourth Quarter.......... 10.25 8.75 .24 3.63 2.00 23.00 20.00 .58 15.25 10.63 .425
1999
First Quarter (through
March 22, 1999)........ 9.38 7.63 .24 5.75 2.94 21.63 19.38 .58 15.50 13.75 .425
</TABLE>
- --------
(1) Jameson common stock trades on the Nasdaq National Market under the symbol
"JAMS."
(2) Signature common stock was first traded on the Nasdaq National Market on
January 21, 1997, under the symbol "SGNS."
(3) Jameson Series A Preferred Stock was first traded on the Nasdaq National
Market on March 18, 1998, under the symbol "JAMSP."
(4) Signature Series A Preferred Stock was first traded on the Nasdaq National
Market on January 21, 1997, under the symbol "SGNSP."
The market prices of Jameson capital stock and Signature capital stock
fluctuate. The market price of Jameson capital stock (common stock, Series A
Preferred Stock and the to-be-listed Series S Preferred Stock) on the date the
merger is completed, on the date certificates for shares of Jameson capital
stock are received by holders of Signature capital stock or the date on which
such shares of Jameson capital stock are eventually sold may be more or less
than the price of Jameson capital stock as of the date of this Joint Proxy
Statement/Prospectus. As a result, stockholders are encouraged to obtain
current market quotations.
On the Jameson record date, there were approximately 680 holders of record
and approximately 8,500 beneficial owners of Jameson common stock and 43
holders of record and approximately 3,100 beneficial owners of Jameson Series A
Preferred Stock. On the Signature record date, there were 4,173 holders of
record and approximately 4,700 beneficial owners of Signature common stock and
93 holders of record and approximately 3,100 beneficial owners of Signature
Series A Preferred Stock.
Comparative Market Price Data
The following table presents trading information for Jameson common stock
and Signature common stock and Series A Preferred Stock on the Nasdaq National
Market on January 27, 1999 (the last full trading day
24
<PAGE>
prior to announcement of the signing of the merger agreement), and March 24,
1999 (the last practicable trading day for which information was available
prior to the date of this Joint Proxy Statement/Prospectus). Also set forth
below for each of those dates is the equivalent pro forma price of Signature
common stock (determined by multiplying the applicable price of Jameson common
stock by the .5 exchange ratio and then adding the $1.50 per share cash
payment). Because the exchange ratio is fixed and because the market price of
Jameson common stock is subject to fluctuation, the market value of Jameson
common stock that Signature shareholders will receive in the merger may
increase or decrease prior to and following completion of the merger. We urge
you to obtain current market quotations.
<TABLE>
<CAPTION>
March
January 27, 1999 24, 1999
----------------- -------------
High Low High Low
-------- -------- ------ ------
<S> <C> <C> <C> <C>
Jameson Common Stock........................... $ 9.13 $ 8.75 $ 8.44 $ 8.13
Signature Common Stock......................... 3.88 3.63 5.19 5.19
Signature Series A Preferred Stock............. 13.94 13.88 13.88 13.81
Signature Common Stock Equivalent Pro Forma.... 6.07 5.88 5.72 5.57
</TABLE>
Selected Unaudited Comparative Per Share Data
The following table sets forth for 1998 (a) the historical basic and diluted
earnings per share of the Jameson and Signature common stock, (b) the pro forma
and equivalent pro forma basic and diluted earnings per share of Jameson and
Signature, respectively, (c) the historical book value per share of the Jameson
and Signature common stock and (d) the pro forma and equivalent pro forma book
value per share of Jameson and Signature, respectively. The Signature
equivalent pro forma amounts represent the Jameson pro forma amounts multiplied
by the .5 exchange ratio. The pro forma data does not purport to be indicative
of the results of future operations or the results that would have occurred had
the merger been consummated at the beginning of the periods presented.
Signature common stockholders will receive one-half share of Jameson common
stock and $1.50 in cash for each share of Signature common stock. Signature
preferred stockholders will receive one share of Jameson Series S Preferred
Stock for each share of Signature Series A Preferred Stock. The information set
forth should be read in conjunction with the Unaudited Pro Forma Condensed
Financial Statements and the financial statements and notes thereto of Jameson
and Signature included herein.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------
<S> <C>
Net income per share--basic:
Jameson--historical............................... $0.36
Jameson--pro forma................................ $0.32
Signature--historical............................. $0.02
Signature--equivalent pro forma................... $0.16
Net income per share--diluted:
Jameson--historical............................... $0.35
Jameson--pro forma................................ $0.32
Signature--historical............................. $0.02
Signature--equivalent pro forma................... $0.16
Book value per share:
Jameson--historical(1)............................ $6.96
Jameson--pro forma(2)............................. $7.61
Signature--historical(3).......................... $7.20
Signature--equivalent pro forma................... $3.81
</TABLE>
- --------
(1) Calculated using total stockholders' equity of Jameson excluding an amount
equal to the liquidation preference of $25 per share of Jameson Series A
Preferred Stock outstanding which equals $30,000,000.
(2) Calculated using total stockholders' equity of Jameson (a) excluding an
amount equal to the liquidation preference of $25 per share of Jameson
Series A Preferred Stock outstanding which equals $30,000,000 and (b)
assuming conversion of the Jameson Series S Preferred Stock and payment of
the $3.125 per share in cash upon this conversion.
(3) Assumes conversion of Signature Series A Preferred Stock.
25
<PAGE>
FORWARD LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus, including documents incorporated by
reference, contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These include statements
about Jameson's and Signature's expansion plans, acquisition or leasing of
additional land parcels, construction of new hotels and expansion of existing
hotels, availability of debt financing and capital, payment of quarterly
dividends and other matters. These and other statements which are not
historical facts are hereby identified as "forward-looking statements" for
purpose of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended. These statements are based on certain assumptions and analyses made by
senior management of Jameson and Signature in light of their and the companies'
experience and perception of historical trends, current conditions, expected
further developments and other factors. Whether actual results and developments
will conform to managements' and the companies' expectations and predictions
is, however, subject to a number of risks and uncertainties. These include but
are not limited to:
. Jameson's ability to:
. integrate the Signature Inns into its ownership and administrative
structure;
. secure construction and permanent financing for future expansion 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 Jameson's various
criteria, including reasonable land prices and ground lease terms;
. contract for the construction of new hotels and expansions of
existing hotel properties in a manner which produces hotels
consistent with its present quality and standards at a reasonable
cost and without significant delay;
. provide ongoing renovation and refurbishment of its hotels sufficient
to maintain consistent quality throughout the chain; and
. manage its business in a cost-effective manner given the increase in
the number of hotels and the geographic area in which the hotels
operate.
. Jameson Hospitality's ability to manage the hotels profitably.
. General economic, market and business conditions, particularly those in
the lodging industry generally and in the geographic markets Jameson
Inns and Signature Inns are located.
. The business opportunities (or lack of opportunities) that may be
presented to and pursued by Jameson.
. Availability of qualified managers and employees necessary for Jameson's
planned growth, particularly in light of current low rates of
unemployment.
. Changes in laws or regulations.
. Jameson's continued qualification as a 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
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places throughout this Joint Proxy Statement/Prospectus and the documents
incorporated into it by reference. We caution you not to place undue reliance
on these forward-looking statements, which speak only as of the date of this
Joint Proxy Statement/Prospectus. Neither Jameson nor Signature undertakes any
obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date of this Joint
Proxy Statement/Prospectus or to reflect the occurrence of unanticipated
events.
WHERE YOU CAN FIND MORE INFORMATION
Jameson and Signature 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, both Jameson's and Signature's common and preferred stock is
traded on the Nasdaq National Market. You can read and copy any report, proxy,
statement or information we file at The Nasdaq Stock Market, 1725 K Street,
N.W., Washington, D.C. 10006-1506.
You can find additional information concerning Jameson and Signature at
their web sites at http://www.jamesoninns.com and http://www.signature-
inns.com.
Jameson has filed a Registration Statement on Form S-4 to register with the
SEC the shares of Jameson common stock and Series S Preferred Stock to be
issued to Signature stockholders in the merger. This Joint Proxy
Statement/Prospectus is a part of that Registration Statement and constitutes a
prospectus of Jameson in addition to being a proxy statement of Jameson and
Signature for the stockholder meetings. As allowed by SEC rules, this Joint
Proxy Statement/Prospectus does not contain all the information you can find in
the Registration Statement or the exhibits to the Registration Statement.
The SEC allows us to "incorporate by reference" information into this Joint
Proxy Statement/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
Joint Proxy Statement/Prospectus, except for any information superseded by
information in this Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about our companies and their finances.
Jameson SEC Filings
The documents listed below have been filed by Jameson under the Securities
Exchange Act of 1934 with the SEC (Commission File No. 0-23256) and are
incorporated by reference:
1. Jameson's Annual Report on Form 10-K for the year ended December 31,
1998;
2. Jameson's Current Reports on Form 8-K filed February 2, 1999, and March
9, 1999.
Jameson also incorporates by reference into this Joint Proxy
Statement/Prospectus additional documents that may be filed with the SEC from
the date of this Joint Proxy Statement/Prospectus to the date of the
stockholder meeting. These include periodic reports, such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements. You may request a copy of
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Jameson's SEC filings at no cost by writing or telephoning Jameson at the
following address and telephone number:
Steven A. Curlee, Secretary
8 Perimeter Center East--Suite 8050
Atlanta, Georgia 30346-1603
(770) 901-9020
Signature SEC Filings
The documents listed below have been filed by Signature under the Securities
Exchange Act of 1934 with the SEC (Commission File No. 0-9659) and are
incorporated by reference:
1. Signature's Annual Report on Form 10-KSB for the year ended December 31,
1998;
2. Signature's Current Reports on Form 8-K filed February 1, 1999, and
March 9, 1999.
Signature also incorporates by reference into this Joint Proxy
Statement/Prospectus additional documents that may be filed with the SEC from
the date of this Joint Proxy Statement/Prospectus to the date of the
stockholder meeting. These include periodic reports, such as Annual Reports on
Form 10-KSB, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements. You may request a copy of Signature's SEC filings at
no cost by writing or telephoning Signature at the following address and
telephone number:
Investor Relations Department
One Parkwood Crossing
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
(317) 581-1111
Jameson has supplied the information contained in this Joint Proxy
Statement/Prospectus relating to Jameson, and Signature has supplied the
information relating to Signature.
Any statement contained in a document incorporated, or deemed to be
incorporated, by reference herein or contained in this Joint Proxy
Statement/Prospectus shall be deemed to be modified or superseded for purposes
of this Joint Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is, or
is deemed to be, incorporated by reference herein 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 Joint Proxy
Statement/Prospectus.
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RISK FACTORS
In addition to the other information provided or incorporated by reference
in this Joint Proxy Statement/Prospectus, you should consider the following
factors carefully in evaluating whether to vote in favor of the proposals set
forth herein. You should also refer to "Forward Looking Statements" on page 26.
Risks of the Merger
Jameson and Signature anticipate the following risks if the merger of the
two is completed.
Benefits of combining Jameson and Signature may not be realized. Jameson and
Signature entered into the merger agreement with the expectation that the
merger will result in certain benefits, including, among other things:
. better access to capital markets of the larger combined company.
. operating efficiencies from the larger number of hotel properties.
. enhanced ability to compete with larger hotel chains.
Achieving these benefits will depend on, among other things, Jameson's
ability to successfully integrate the Signature Inns into its ownership and
management structure and Jameson Hospitality's ability to efficiently operate
the larger number of and more widely geographically dispersed hotel properties.
There can be no assurance that either will occur. As a result, there can be no
assurance that the combined company will realize any of the anticipated
benefits.
Common stock conversion ratio won't change despite potential change in
Jameson or Signature stock prices. In addition to a cash payment of $1.50 per
share, Signature common stockholders will receive one-half share of Jameson
common stock for each share of Signature common stock they hold at the time of
the merger. That exchange ratio is fixed and will not be changed even if the
values of Jameson common stock and/or Signature common stock increase or
decrease before the merger is completed. Therefore, because the market prices
of both Jameson and Signature common stock are subject to change, the value at
the time of the merger of the consideration to be received by holders of
Signature common stock may change from the value at the date of this Joint
Proxy Statement/Prospectus. Under the merger agreement, however, Signature has
the right to terminate the merger before it is completed if the average of the
closing sale price for Jameson common stock as reported on the Nasdaq National
Market for the period of ten consecutive trading days ending five business days
from the Signature special meeting is less than $7.00 per share. For historical
and current market prices of Jameson common stock, see "Summary."
There is no established trading market for Jameson Series S Preferred Stock
to be received in the merger. Holders of Signature Series A Preferred Stock
will receive one share of Jameson Series S Preferred Stock for each share of
Signature Series A Preferred Stock outstanding at the time of the merger.
Signature Series A Preferred Stock will continue to be listed on the Nasdaq
National Market until the effective time of the merger. Signature Series A
Preferred Stock began trading on the Nasdaq National Market in January 1997,
and its trading volume averaged only 130,000 shares per month during 1998.
Jameson has filed an application to have the shares of Jameson Series S
Preferred Stock listed for trading on the Nasdaq National Market immediately
upon effectiveness of the merger. Because no shares of Jameson Series S
Preferred Stock have yet been issued, there previously has been no public
market for such shares and there can be no assurance that an active trading
market will develop or be sustained after the merger.
Signature management has additional interests in the merger. In considering
the recommendation of the Signature Board of Directors, you should be aware
that five Signature executive officers, four of whom are also members of
Signature's Board of Directors, and the other four Signature directors will
have interests in the merger that are different from and in addition to the
interests of the Signature stockholders generally. These
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interests create potential conflicts of interest. Those interests include the
execution of new employment agreements with Jameson Hospitality, the issuance
of options for the purchase of Jameson common stock at an exercise price equal
to the closing sale price on the closing date of the merger, and the payment of
transaction related bonuses in the aggregate of $587,000. See "The Merger--
Interests of Persons Other than Stockholders in the Merger."
Risks of an Investment in Jameson
The following Risk Factors describe matters which may specifically affect an
investment in Jameson.
Jameson's rapid expansion creates financial and operating risks. Jameson's
growth strategy contemplates a rapid and continuous development of new Jameson
Inns, Signature Inns (if the merger is completed) and expansions of existing
properties. Jameson plans to borrow 100% of the related development and
expansion costs. The successful implementation of this strategy depends on
numerous factors, including those unique to Jameson and those generally
associated with overall hotel, real estate and general economic conditions.
Those factors specific to Jameson include its ability to:
. secure construction and permanent financing to finance such development
on terms and conditions favorable to Jameson;
. assess accurately the market demand for new Jameson Inns, Signature Inns
and expansions of existing properties;
. identify and purchase or lease new sites which meet its various
criteria, including reasonable land prices and ground lease terms;
. contract for the construction of new Jameson Inns, Signature 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 its business in a cost-effective manner given the increase in the
number and geographic dispersion of Jameson Inns and Signature Inns.
In addition, risk factors affecting Jameson profitability include Jameson
Hospitality's ability to manage both Jameson Inns and Signature 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
Jameson anticipates will result from development and expansions of Jameson
Inns. Under the master leases with Jameson Hospitality, which we refer to as
the Jameson Lease, room revenues include all gross room rentals from Jameson
and Signature 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 Jameson Inns and
Signature Inns (if the merger is completed) and the expansion of existing
properties. Similarly, we can give no assurance that the terms of financing
available to Jameson or the operating results of any new or expanded hotel
properties will not have a negative economic effect on Jameson and reduce the
amount of cash available for distribution as dividends.
Potential conflicts of interest exist between Jameson and its chief
executive officer and companies he owns. In addition to his positions with and
stock ownership interest in Jameson, 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 Jameson's hotel properties.
Mr. Kitchin is also the sole owner of Kitchin Investments, Inc., the entity
which pays and allocates all of Jameson's 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 between Jameson and these
other two companies in connection with Jameson's development of new and
expansion of existing hotel properties.
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These relationships create conflicts of interest in Jameson's dealings with
Jameson Hospitality under the Jameson Lease and the various construction
agreements, and with Kitchin Investments in its allocation and payment of
Jameson's 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 Jameson's overhead were not negotiated
on an arm's-length basis. Jameson believes, however, that the terms and
conditions of all of these agreements are fair to Jameson, and each was
approved by Jameson's independent directors.
Jameson expects that:
. Jameson Hospitality will lease and operate the Signature Inns, in
addition to the current Jameson Inns and all hotels developed by Jameson
in the foreseeable future,
. Jameson Hospitality will build most, if not all, future hotels and hotel
expansions by Jameson under the same form of construction agreement
previously used, and
. Kitchin Investments will continue to pay Jameson's salaries and other
administrative overhead, subject to reimbursement by Jameson under a
cost reimbursement agreement.
In an effort, however, to reduce conflicts of interest inherent in Mr.
Kitchin's relationships with the various entities, each transaction or
arrangement involving Jameson and Jameson Hospitality, or any affiliate of
either entity, must be approved by a majority of Jameson's independent
directors. Further, Jameson Hospitality has agreed that neither it nor any of
its affiliates will:
. operate or manage a hotel property, in which Jameson has not invested,
that is within a 20-mile radius of a Jameson-owned hotel, or
. own or have any interest in any hotel property in which Jameson or an
affiliate does not have an interest.
In addition, Mr. Kitchin's employment agreement with Jameson prohibits him
from owning, managing or operating, directly or indirectly, any non-Jameson
hotel property during the term of his employment or, subject to certain
conditions, any hotel property within a 20-mile radius of a Jameson-owned hotel
for two years following the end of his employment with Jameson.
Jameson depends exclusively on Jameson Hospitality for lease
revenues. Certain rules relating to the qualification of REITs prohibit Jameson
from operating its hotels. To comply with these rules, Jameson has leased its
hotels to Jameson Hospitality. As a result, Jameson depends 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 Jameson against
various claims, damages and losses and making payments of base rent.
Also, under the Jameson Lease, Jameson Hospitality controls the daily
operations of Jameson's hotel properties and Jameson has no ability to
participate in those decisions. Thus, even if Jameson Hospitality were managing
Jameson's hotels inefficiently or in a manner which failed to maximize the
amount of percentage rent Jameson receives, Jameson would be unable to require
a change in operating procedures. The Jameson Lease limits Jameson to seeking
redress only if Jameson Hospitality violates the lease terms, and then only to
the extent of the remedies set forth in the lease. Those remedies include
Jameson's ability to terminate the Jameson Lease upon certain limited events of
default, including Jameson Hospitality's failure to pay base rent.
Jameson will need additional debt financing on favorable terms to carry out
its expansion plans. Jameson intends to borrow 100% of the funds required to
finance the development of new Jameson Inns and new Signature Inns (if the
merger is completed) and the expansion of existing Jameson Inns. There is no
assurance that Jameson will be able to obtain such financing. In addition,
Jameson may borrow additional funds in the future and/or issue corporate debt
securities in public or private offerings and may need to
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maintain borrowing capacity to fulfill its commitment regarding funds required
to be available for payment of the costs of replacement and refurbishment of
furniture, fixtures and equipment of the Jameson Inns. There can be no
assurance that Jameson will be able to continue to meet its debt service
obligations. To the extent that it cannot, Jameson risks the loss of some or
all of its assets, including the Jameson Inns and Signature Inns (if the merger
is completed), to foreclosure.
Interest rate increases could increase Jameson's cost of current and future
debt. Under current loan agreements, at December 31, 1998, Jameson had
outstanding debt of approximately $53.7 million subject to adjustable interest
rates. Since that date, Jameson has entered into an agreement with a bank
providing for an additional $17 million of adjustable rate borrowings secured
by 14 additional Jameson Inns and other adjustable rate financing commitments
totaling $15.7 million. At December 31, 1998, Signature also had aggregate
indebtedness of approximately $69.7 million, of which $49.2 million was subject
to adjustable interest rates, which Jameson is expected to assume in connection
with the merger. Because of the current relative unavailability and high cost
of fixed interest rate long-term financing, it is anticipated that any future
borrowings by Jameson will be at interest rates which adjust with certain
indices. Therefore, Jameson's cost of financing will vary subject to events
beyond Jameson's 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 cause the terms on which borrowings are available to Jameson
to be unfavorable. In such circumstances, if Jameson were in need of capital to
repay indebtedness, it could be required to liquidate one or more investments
in its hotel properties at times which might not permit realization of the
maximum return on such investments.
Cross-collateralization of properties increases risk of loss. Jameson's
current loan agreements provide for cross-collateralization and cross-default
with respect to Jameson's debt, and future loan agreements will likely contain
similar provisions. The result of a cross-default provision is that a default
by Jameson in its payment or other obligations with respect to one loan or one
hotel property will result in a default with respect to all loans. The result
of cross-collateralization is that all Jameson hotel properties effectively
secure repayment of all of Jameson's loans and a default on one loan creates a
default with respect to other loans. In general, cross-collateralization and
cross-default provisions in Jameson's loans may place Jameson's assets at a
greater risk of foreclosure.
The foreclosure of a mortgage on a hotel property could have material
adverse tax effects on Jameson. In the event a mortgage lender were to
foreclose on a hotel property to enforce its lien in satisfaction of
non-recourse debt, Jameson 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,
Jameson would recognize a capital gain to the extent, if any, that the fair
market value of the property exceeded its basis. The debt discharge income
would be subject to the 95% distribution requirement described below in
"Federal Income Taxation of REITs and REIT Stockholders--Annual Distribution
Requirements" (page 131).
Debt repayment terms could affect Jameson's ability to make cash
distributions. If Jameson's debt service obligations continue to be based on
15- to 20-year amortizations, the portion of Jameson's cash flow necessary to
make principal payments on obligations to finance future Jameson Inns and, if
the merger is completed, Signature Inns may exceed the cost recovery
deductions, which are based on 39-year useful lives, available with respect to
such properties for federal income tax purposes. As a result, Jameson's cash
available for distribution to its stockholders may not be adequate to allow
distribution of 95% of Jameson's taxable income. Jameson might be forced to
borrow to fund such distribution. If Jameson were unable to obtain financing,
and as a result did not make the requisite distribution, Jameson's status as a
REIT would be jeopardized.
Jameson could become more highly leveraged. Jameson currently has a policy
of limiting its outstanding indebtedness to 65% of the aggregate appraised
value of its hotel properties. However, Jameson's organizational documents do
not limit the amount of indebtedness that Jameson may incur. Accordingly, the
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Board of Directors of Jameson could change the current policies and Jameson
could become more highly leveraged, resulting in an increased risk of default
on the obligations of Jameson and in an increase in debt service requirements.
Such an increase could adversely affect the financial condition and results of
operations of Jameson, Jameson's ability to make dividend distributions to its
stockholders which could, as a result, jeopardize Jameson's status as a REIT.
See "Federal Income Taxation of REITs and REIT Stockholders."
Lack of industry diversification increases economic risks. Jameson currently
invests only in Jameson Inns and, if the merger is completed, intends to
continue to limit its investments in the future to Jameson Inns and Signature
Inns. As a result, an investment in Jameson carries with it the risks of an
investment concentrated in a single industry and in a single, narrow segment of
that industry or two closely related segments if the merger is completed. This
concentration of Jameson's investments in narrow segments of a single industry
makes Jameson 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 Jameson Inns (and Signature Inns following the merger),
and, therefore, on lease revenues and cash available for distribution than if
Jameson's investments were more economically diverse.
The geographic concentration of Jameson Inns and Signature Inns increases
the risks from local and regional economic downturns and other events. All
currently operating Jameson Inns are located in the Southeast and 42% of
Jameson's rooms were located in Georgia at December 31, 1998. All Signature
Inns are in the Midwest and 52% of Signature's rooms were located in Indiana at
December 31, 1998. For the foreseeable future Jameson will continue to restrict
development of new Jameson Inns and Signature Inns to those two regions of the
country. This geographic concentration makes Jameson and Signature more
vulnerable to local and regional occurrences such as economic downturns,
seasonal factors and natural disasters. Any of these could adversely affect
Jameson's lease revenues and cash available for distribution whether or not the
merger occurs.
Jameson relies heavily on its current management. Although Jameson's
management team includes individuals with substantial experience in operating,
managing, developing and acquiring Jameson Inns and other hotel and real estate
properties, Jameson 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 Jameson's loan agreements provide for a
default upon a change of management. The occurrence of any event which would
cause Jameson to lose the services of Mr. Kitchin could have a material adverse
effect on Jameson. Jameson has purchased a $1.0 million key-man life insurance
policy on the life of Mr. Kitchin. There is no assurance, however, that Jameson
will continue to maintain such insurance policy in effect or that any proceeds
thereof would be sufficient to compensate Jameson for the loss of Mr. Kitchin's
services.
Increases in outstanding Jameson shares could dilute stockholders'
investments. Jameson maintains certain stock option and stock grant plans to
provide incentive compensation to its directors, officers and key employees and
to those of Jameson Hospitality (the "Stock Plans"). The availability for
resale of shares of Jameson common stock issued or issuable under the Stock
Plans may depress the market price of the Jameson 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 Jameson common stock, the resulting issuance of shares of Jameson common
stock will cause an immediate dilution of the interests of other stockholders
in Jameson.
Interest rates and limited trading volume may depress the price of Jameson
capital stock. One of the factors that may influence the price of the Jameson
capital stock in public trading markets will be the annual yield from
distributions by Jameson on the price paid for shares of Jameson common and
preferred stock as compared to yields on other financial instruments. Thus, an
increase in market interest rates may result in
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higher yields on other financial instruments, which could adversely affect the
market price of the Jameson common and preferred stock, including the shares of
common stock and Series S Preferred Stock to be issued in connection with the
merger. 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 Jameson common and preferred stock may be
adversely affected by Jameson's status as a REIT, thereby reducing the
liquidity of an investment in Jameson.
Jameson has certain antitakeover provisions that may reduce the likelihood
of its acquisition by another company. Certain provisions of Jameson's articles
of incorporation and bylaws may have the effect of discouraging a third party
from making an acquisition proposal for Jameson without the approval of the
Jameson Board of Directors and may thereby inhibit a change in control of
Jameson under circumstances that could give the holders of Jameson stock the
opportunity to realize a premium over the then prevailing market prices. For
example, the Board of Directors of Jameson 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 stockholders' ability to change
control of Jameson even if a change of control were in the stockholders'
interest. (The Signature articles and bylaws contain similar provisions. See
"Comparison of Rights of Stockholders of Jameson and Signature" (page 97).) In
addition, to comply with the various restrictions imposed on REITs, the Jameson
articles of incorporation contain a provision limiting the amount of voting
stock of Jameson which a stockholder or group of stockholders may own. Such
limit may have the effect of precluding an acquisition of control of Jameson
without the approval of the Jameson Board of Directors.
The Jameson articles of incorporation authorize the Jameson 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, the Jameson
Board of Directors is authorized, without stockholder 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 Jameson common stock. Issuance of preferred stock
could have the effect of delaying or preventing a change of control of Jameson
even if a change of control were in the stockholders' interest. To date, the
Jameson Board has approved the issuance of the Jameson Series A Preferred Stock
and the Series S Preferred Stock totaling 3,528,727 shares.
Changes in investment and financing policies may adversely affect financial
condition or results of operations of Jameson. The Jameson Board of Directors
determines the investment and financing policies of Jameson and its policies
with respect to certain other activities, including growth, debt
capitalization, distributions, operating policies and Jameson's qualification
as a REIT. Among other things, the Jameson Board of Directors could make
financing decisions which could result in the creation of interests in Jameson
and/or Jameson's hotel properties with priority over the interests of the
stockholders, and/or make equity investments in concerns with debt superior to
Jameson's equity interest. The Jameson Board of Directors has no present
intention to amend or revise these policies. However, except with respect to
Jameson's qualification as a REIT, the Board of Directors may do so at any time
without the approval of the stockholders. Any decision by the Jameson Board of
Directors to relinquish Jameson's status as a REIT is subject to the approval
of a majority of the voting stock of Jameson present at a meeting of Jameson's
stockholders. A change in these policies could adversely affect Jameson's
financial condition or results of operations.
Tax Risks
The merger may be a taxable transaction. Neither Signature nor Jameson
intends to obtain a ruling from federal, state, or local authorities as to the
tax consequences of the merger and instead will rely on an opinion of counsel
that the receipt of Jameson stock in exchange for Signature stock pursuant to
the merger is not taxable (the receipt of cash in the merger may be taxable
depending on each stockholder's basis). If the entire merger were to be treated
as taxable (including the stock exchange), a Signature stockholder generally
would recognize taxable gain or loss in the amount by which the aggregate
market value of the Jameson shares plus any cash received by such stockholder
in the merger, including any cash dividends paid on the Signature
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common stock prior to the merger, exceeds or is exceeded by such stockholder's
adjusted tax basis in the Signature stock surrendered in exchange therefor. In
addition, Signature, as a corporate entity, would incur tax as if it had sold
its assets to Jameson in a taxable sale and distributed the consideration
received in the merger to its stockholders in complete liquidation. See "The
Merger--Federal Income Tax Consequences--Federal Income Tax Consequences of the
Merger."
There are risks relating to Jameson's continued qualification and operation
as a REIT. Jameson intends 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 stockholders, so long
as it distributes at least 95 percent of its taxable income and satisfies
certain other technical and complex requirements. It is a condition to the
closing of the merger that Signature and Jameson receive an opinion from Conner
& Winters, A Professional Corporation, that commencing with its taxable year
beginning January 1, 1994, Jameson has operated in conformity with the
requirements for qualification as a REIT under the Internal Revenue Code, that
its proposed manner of operation will enable it to continue to meet the
requirements for qualification as a REIT and that the consummation of the
merger will not cause Jameson to cease to qualify as a REIT. The opinion will
be based upon certain representations made by Jameson 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 Jameson's qualification as a REIT in its current and future
taxable years depends upon its meeting the requirements of the Internal Revenue
Code in future periods, no assurance can be given that Jameson will continue to
qualify as a REIT. If, in any taxable year, Jameson were to fail to qualify as
a REIT for federal income tax purposes, it would not be allowed a deduction for
distributions to stockholders in computing taxable income and would be subject
to federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, Jameson 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 stockholders.
Failure to distribute Signature's accumulated earnings and profits may
adversely affect Jameson's REIT status. In general, the Internal Revenue Code
defines the excess of a corporation's revenue in excess of its deductions as
its accumulated earnings and profits. Because of ambiguities in the Internal
Revenue Code definition of earnings and profits and other tax positions
Signature may have taken in the past, it is not always possible to determine
the exact amount of a corporation's earnings and profits. To qualify as a REIT,
a corporation must have no accumulated earnings and profits from non-REIT years
at the close of each taxable year for which it expects to qualify as a REIT. As
of the date hereof, Signature's management and its independent auditors, KPMG
LLP, have not definitively determined whether, as of the date of the merger,
Signature may have accumulated earnings and profits. Currently, a review of its
historical tax results is being conducted to determine the amount, if any, of
any accumulated earnings and profits. Signature will distribute to its
stockholders before the effective time of the merger the estimated amount of
its accumulated earnings and profits, if any. If the estimate understates the
amount of Signature's accumulated earnings and profits and Jameson does not
distribute the additional Signature accumulated earnings and profits before the
end of Jameson's taxable year in which the merger takes place, Jameson will
lose its status as a REIT.
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THE JAMESON ANNUAL MEETING
Place; Time; Purposes
Jameson will hold its annual meeting of stockholders at 8 Perimeter Center
East, Suite 8050, Atlanta, GA 30346-1603 on May 7, 1999, at 10:00 a.m. local
time. At the Jameson annual meeting, holders of Jameson common stock will be
asked to vote on the following proposals:
1. Approval and adoption of the merger agreement and of the merger;
2. Election of one director for Class III for a three-year term;
3. Ratification of the appointment of Ernst & Young LLP as independent
auditors of Jameson for 1999; and
4. Transaction of any other business as may properly come before the
meeting or any adjournment of the meeting.
The Jameson Board of Directors has unanimously approved the merger agreement
and the merger, including the issuance of Jameson common stock and Series S
Preferred Stock, and recommends that you vote FOR approval and adoption of the
merger agreement and the merger. In addition, the Jameson Board of Directors
unanimously recommends that you vote FOR the other Jameson annual meeting
proposals which are discussed beginning on page 137 under "Other Jameson Annual
Meeting Proposals."
Record Date; Quorum; Vote Required
The Jameson Board of Directors has fixed the close of business on March 23,
1999, as the record date for determining the holders of Jameson common stock
entitled to notice of, and to vote at, the Jameson annual meeting (the "Jameson
Record Date"). Only holders of record of Jameson common stock at the close of
business on the Jameson Record Date will be entitled to notice of, and to vote
at, the Jameson annual meeting.
At the close of business on the Jameson Record Date, shares of Jameson
common stock were issued and outstanding and entitled to vote at the Jameson
annual meeting and were held by approximately 680 holders of record. Holders of
record of Jameson common stock are entitled to one vote per share on any matter
that may properly come before the Jameson annual meeting. There is no
cumulative voting for directors. Votes may be cast at the Jameson annual
meeting in person or by proxy. See "--Voting of Proxies."
Presence at the Jameson annual meeting, either in person or by proxy, of the
holders of a majority of the votes entitled to vote at the meeting is necessary
to constitute a quorum for the transaction of business. Votes withheld from the
nominee for director, abstentions and broker non-votes are counted for purposes
of determining whether a quorum is present. (Broker non-votes are shares held
by broker in street name that are not voted due to the absence of specific
instructions from the shares' beneficial owners.) If a quorum is not present at
the Jameson annual meeting, the meeting will be adjourned or postponed in order
to solicit additional proxies.
The merger and the merger agreement require the approval of a majority of
all votes cast on the matter. Directors are elected by a plurality of votes
cast. Each of the other proposals before the stockholders will be approved if
the number of votes cast at the Jameson annual meeting for the action exceeds
the number of votes cast opposing the action.
Based on Jameson's understanding of Georgia law, abstentions, broker non-
votes and withheld votes will not be considered "votes cast." As a result, they
will have not effect on the approval of the merger and merger agreement,
director election or the other proposals.
As of the close of business on the Jameson Record Date, Jameson's directors
and executive officers may be deemed to be the beneficial owners of
approximately 658,000 outstanding shares of Jameson common
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stock (excluding shares underlying stock options). This represents
approximately 6.6% of Jameson common stock outstanding on the Jameson Record
Date. It is expected that Jameson's directors and executive officers will vote
FOR (a) the merger and merger agreement, (b) the nominee for director and (c)
ratification of Ernst & Young LLP as Jameson's independent auditors for 1999.
Voting of Proxies
If the enclosed proxy card is properly executed and returned, the shares
represented by the proxy will be voted at the Jameson annual meeting. If a
stockholder indicates in his or her proxy a choice with respect to any matter
to be acted upon, that stockholder's shares will be voted in accordance with
such choice. If a stockholder does not indicate a choice, such shares will be
voted "FOR" (1) approval of the merger and the merger agreement (2) the
election of the named nominee for director and (3) ratification of the
appointment of the independent auditor.
Revocability of Proxies.
A Jameson stockholder giving a proxy may revoke it (1) by giving written
notice of revocation to the Secretary of Jameson at any time before it is
voted, (2) by executing another valid proxy bearing a later date and delivering
such proxy to the Secretary of Jameson prior to or at the Jameson annual
meeting, or (3) by attending the annual meeting and voting in person.
Attendance at the Jameson annual meeting will not by itself constitute
revocation of a proxy. All written notice of revocation or subsequent proxies
should be sent and delivered to Jameson Inns, Inc., 8 Perimeter Center East,
Suite 8050, Atlanta, Georgia 30346, Attention: Secretary, or hand delivered to
the Secretary of Jameson at or before the taking of the vote at the Jameson
annual meeting.
Solicitation of Proxies.
Jameson will bear the expenses of this proxy solicitation, including the
cost of preparing and mailing this Joint Proxy Statement/Prospectus and
accompanying proxy. Such expenses will also include the charges and expenses of
banks, brokerage firms, and other custodians, nominees or fiduciaries for
forwarding solicitation material regarding the annual meeting to beneficial
owners of Jameson common stock. Solicitation of proxies may be made by mail,
telephone, personal interviews or by other means by the Board of Directors or
employees of Jameson who will not be additionally compensated therefor, but who
may be reimbursed for their out-of-pocket expenses in connection therewith.
Jameson has retained Corporate Investor Communications, Inc. to assist in
the solicitation of proxies for its annual meeting and delivery of proxy
materials. The anticipated cost of this service is $5,000.
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THE SIGNATURE SPECIAL MEETING
Signature will hold a special meeting of stockholders at the Four Parkwood
Crossing, 500 E. 96th Street, First Floor Conference Room, Indianapolis,
Indiana 46240, on May 7, 1999, at 10:00 a.m. local time. At the Signature
special meeting, holders of Signature common stock and Series A Preferred Stock
will be asked to vote on a proposal to approve and adopt the merger agreement
and the merger.
The Signature Board of Directors has unanimously adopted and approved the
merger agreement and the merger, and recommends that you vote FOR approval of
the merger and the merger agreement.
Record Date
The Signature Board of Directors has fixed the close of business on
March 23, 1999, as the record date for the determination of the holders of
Signature common stock and Series A Preferred Stock entitled to receive notice
of, and to vote at, the Signature special meeting (the "Signature Record
Date"). Only holders of record of Signature common stock and Series A Preferred
Stock at the close of business on the Signature Record Date will be entitled to
notice of, and to vote at, the Signature special meeting.
At the close of business on the Signature Record Date, 2,105,703 shares of
Signature common stock held by 4,173 holders of record and 2,256,000 shares of
Series A Preferred Stock held by 93 holders of record were issued and
outstanding and entitled to vote at the Signature special meeting. Holders of
record of Signature common stock and Series A Preferred Stock are entitled to
one vote per share on the approval of the merger agreement and the merger.
Votes may be cast at the Signature special meeting in person or by proxy. See
"--Voting of Proxies."
Quorum
A majority of the actual number of shares outstanding of both Signature
common stock and Series A Preferred Stock must be represented in person or by
proxy at the Signature special meeting in order for a quorum to be present for
each class of stock.
Vote Required
The affirmative vote of the holders of a majority of the shares of Signature
common stock outstanding as of the Signature Record Date (i.e. a majority of
all the votes entitled to be cast) is required to approve the merger agreement
and the merger. Likewise, the affirmative vote of the holders of a majority of
the shares of Signature Series A Preferred Stock outstanding as of the
Signature Record Date (i.e. a majority of all the votes entitled to be cast) is
required to approve the merger agreement and the merger. See "Comparison of
Rights of Stockholders of Jameson and Signature--Mergers," and "Comparison of
Rights of Stockholders of Jameson and Signature--Summary Comparison of Jameson
Series S Preferred Stock and Signature Series A Preferred Stock." Each share of
Signature common stock and each share of Series A Preferred Stock is entitled
to one vote. Abstentions will be counted as present in determining whether a
quorum is present, but the failure to vote and abstentions will be counted as
votes against the merger in determining whether the affirmative vote of the
holders of a majority of the shares of common stock and Series A Preferred
Stock have been cast.
As of the close of business on the Signature Record Date, Signature's
directors, executive officers and their affiliates may be deemed to be the
beneficial owners of approximately 804,319 shares of Signature common stock, or
approximately 38.2% of the outstanding Signature common stock, and
approximately 100 shares of Series A Preferred Stock, or less than one percent
of the outstanding Series A Preferred Stock. The directors and executive
officers of Signature have agreed to vote their shares of Signature common
stock and Series A Preferred Stock FOR approval of the merger agreement and the
merger.
Voting of Proxies
If the enclosed proxy is properly executed and returned, the shares
represented by the proxy will be voted at the Signature special meeting. If a
stockholder indicated in his or her proxy a choice with respect to any
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matter to be acted upon, that stockholder's shares will be voted in accordance
with such choice. If no instructions are indicated, such proxies will be voted
FOR the approval and adoption of the merger agreement and the merger.
Signature proxy holders may, in their discretion, vote shares to adjourn the
Signature special meeting to solicit additional proxies in favor of approval of
the merger. However, proxies providing instructions to vote against the merger
will not be voted in favor of adjournment of the Signature special meeting in
order to solicit additional votes to approve the merger.
Revocability of Proxies
Any proxy given by a Signature stockholder may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (1) filing
with the Secretary of Signature, at or before the taking of the vote at the
Signature special meeting, a written notice of revocation bearing a later date
than the proxy, (2) executing a later-dated proxy relating to the same shares
and delivering it to the Secretary of Signature before the taking of the vote
at the Signature special meeting, or (3) attending the Signature special
meeting and voting in person, although attendance at the Signature special
meeting will not in and of itself constitute a revocation of a proxy. All
written notices of revocation or subsequent proxies should be sent and
delivered to Signature Inns, Inc., One Parkwood Crossing, 250 East 96th Street,
Suite 450, Indianapolis, Indiana 46240, Attention: Secretary; or hand delivered
to the Secretary of Signature at or before the taking of the vote at the
Signature special meeting.
Solicitation of Proxies
All expenses of solicitation of proxies from Signature stockholders will be
borne by Signature, including the cost of preparing and mailing this Joint
Proxy Statement/Prospectus. Signature will solicit proxies by mail, and each of
Signature's directors, officers and employees may also solicit proxies by
telephone, telegram, facsimile or personal interview. These persons will
receive no additional compensation for these services but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Brokers, nominees, fiduciaries and other custodians will be requested to
forward soliciting materials to beneficial owners of shares held of record by
such custodians, and Signature will reimburse such brokers, nominees,
fiduciaries and custodians for reasonable expenses incurred in connection
therewith.
Signature has retained D.F. King & Co., Inc. to assist in the solicitation
of proxies for its special meeting and delivery of proxy materials. The
anticipated cost of this service is approximately $15,000.
Holders of Signature common stock and Signature Series A Preferred Stock
should not send any certificates representing shares of Signature common stock
or Signature Series A Preferred Stock with the enclosed proxy card. If the
merger is consummated, a letter of transmittal will be mailed to each person
who is a holder of outstanding shares of Signature common stock and Signature
Series A Preferred Stock immediately prior to the consummation of the merger.
Signature stockholders should send certificates representing Signature common
stock and Signature Series A Preferred Stock to the exchange agent only after
they receive, and in accordance with the instructions contained in, the letter
of transmittal.
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THE MERGER
The following is a summary of the material terms and provisions of the
merger and the merger agreement. This discussion is qualified by the more
thorough discussion of the merger agreement in the section captioned "The
Merger Agreement" and by the merger agreement itself which is attached to this
Joint Proxy Statement/Prospectus as Appendix A and incorporated herein by
reference.
General
The merger agreement provides that Signature will be merged with and into
Jameson, with Jameson being the surviving company. It is expected that after
the merger, the Signature Inns will continue to be operated under that name as
a separate division of Jameson.
Merger Consideration. As a result of the merger, the holders of Signature
common stock will receive one-half share of Jameson common stock plus cash in
the amount of $1.50 for each share of Signature common stock owned. Part of the
cash payment may come in the form of a dividend declared and paid immediately
before the closing of the merger. See "--Distribution of Earnings and Profits."
If you are a holder of Signature common stock and own an odd number of shares,
you will also receive a cash payment in lieu of a fractional share equal to
one-half of the average of the per share closing prices for the Jameson common
stock on the Nasdaq National Market for the five consecutive trading days
ending on the last trading day of the calendar week before the calendar week in
which the merger is closed.
The holders of Signature Series A Preferred Stock will receive one share of
Jameson Series S Preferred Stock for each outstanding share of Signature Series
A Preferred Stock owned. The Jameson Series S Preferred Stock will have
substantially the same terms and conditions as are applicable to the Signature
Series A Preferred Stock, adjusted to reflect the conversion of Signature
common stock to Jameson common stock and cash in the merger. See "Description
of Jameson Capital Stock After the Merger--Jameson Series S Preferred Stock."
The aggregate value of the shares of Jameson common stock that Jameson will
issue to Signature common stockholders in the merger is approximately $8.5
million, based on the closing sale price of $8.06 per share of Jameson common
stock on March 22, 1999. The value of the shares of Jameson common stock to be
issued in connection with the merger is subject to market fluctuation. In
addition, each holder of Signature common stock will receive $1.50 per share in
connection with the merger or approximately $3.2 million in the aggregate.
The Jameson Series S Preferred Stock is not currently traded because there
are no shares currently outstanding. Because the terms of the Signature Series
A Preferred Stock are substantially similar to the Jameson Series S Preferred
Stock for which it will be exchanged, Jameson has based its estimate of the
value of the new Series S Preferred Stock on the $13.8125 per share closing
price of the Signature Series A Preferred Stock as reported by The Nasdaq Stock
Market for March 22, 1999. Using this per share price, the Company estimates
that the aggregate value of Jameson Series S Preferred Stock is approximately
$31.2 million.
Distribution of Earnings and Profits. Because of the tax treatment of income
realized by REITs, Jameson must not have any accumulated earnings and profits
(earnings and profits for federal income tax purposes are defined similarly,
but not exactly the same, as earnings for financial reporting purposes).
Signature has operated as a taxable corporation for federal income tax
purposes. As such, it is taxed on any income it realizes as a result of its
operations. The amount of any such income (with certain adjustments) which is
not then distributed to its stockholders or offset by future or prior losses is
referred to as accumulated earnings and profits.
KPMG LLP, the independent accountants for Signature, is reviewing the
historical results of Signature from an income tax perspective and the actions
Signature is expected to take prior to the closing of the merger to determine
if Signature will have any accumulated earnings and profits at the time of
closing. In an effort to
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further reduce any accumulated earnings and profits at the time of closing,
Signature will pay a dividend on the outstanding Signature Series A Preferred
Stock, equal to the accrued dividend for the period from April 1 through the
closing date. This dividend payment shall be the final dividend paid on the
Signature Series A Preferred Stock. Thereafter, the Jameson Series S Preferred
Stock shall begin to accrue the cumulative dividend as set forth in the
certificate of designation for the Series S Preferred Stock from the date
immediately following the closing of the merger. If it is determined that
Signature will have accumulated earnings and profits, Signature has agreed to
declare and pay a dividend to the holders of the outstanding Signature common
stock shortly before the merger. The aggregate amount of the dividend will be
equal to the accumulated earnings and profits that is anticipated Signature
would have at the time of the merger if the dividend were not paid. Since the
amount of the dividend will be based upon an estimate of the historical
accumulated earnings and profits of Signature (which, because of ambiguities in
the Internal Revenue Code, may be subject to various interpretations) together
with a projection of the tax effects of the actions expected to be taken by
Signature prior to the closing of the merger, there can be no assurance that
the dividend will eliminate all of the accumulated earnings and profits of
Signature.
Any accumulated earnings and profits may put at risk the status of Jameson
as a REIT. Jameson will have until the end of its taxable year in which the
merger takes place to make sure any earnings and profits of Signature have been
distributed. If Jameson's taxable year were to close and all of the Signature
earnings and profits had not been distributed, Jameson would not be eligible
for taxation as a REIT, i.e., it would not be allowed to deduct the dividends
it pays to its stockholders.
See "Federal Income Tax Consequences--Federal Income Tax Consequences of the
Merger" for a discussion of the general tax consequences to the holders of the
outstanding Signature common stock that will result from the declaration and
payment of this dividend.
Sale of Operating Assets. Jameson is prevented by the rules applicable to
REITs from operating its own properties. All of the Jameson Inns are leased to
and operated by Jameson Hospitality and we expect that the Signature Inns will
also be leased to and operated by Jameson Hospitality. To enable Jameson to
qualify as a REIT and Jameson Hospitality to operate the Signature Inns, the
merger agreement provides that, immediately prior to the merger, Signature will
sell to Jameson Hospitality substantially all of the assets of Signature used
in connection with the operations of the Signature Inns. Jameson Hospitality
will assume the liabilities, duties and responsibilities of Signature with
respect to these assets and the operations of the Signature Inns. Under the
terms of the form of assignment and assumption agreement which is attached as
an exhibit to the merger agreement, immediately prior to the closing of the
merger, Jameson Hospitality will make a cash payment of $250,000 as the
consideration for these assets and assume certain of the liabilities and
obligations of Signature. Substantially all of the employees of Signature will
become employees of Jameson Hospitality.
Background of the Merger
In January 1997, Signature completed a public offering of 2.26 million
shares of its Series A Preferred Stock which raised gross proceeds of $45
million. Following completion of that offering, management of Signature began
implementing Signature's growth strategy. It was then management's intent to
expand the Signature chain of hotels by developing additional Signature Inns
(through new construction and conversion of acquired hotels) both within its
established six state base of operations as well as outside such states.
Management believed that, utilizing capital from the proceeds of the offering,
as well as internal cash flow and external financing sources, Signature would
be able to construct or convert two or more Signature Inn hotels annually.
During the remainder of 1997, Signature completed the construction of an 81
room Signature Inn hotel in Carmel, Indiana, the conversion of a 124 room hotel
in Springfield, Illinois and the acquisition and conversion of a 120 room hotel
in Louisville, Kentucky. However, during 1998, Signature did not acquire any
additional hotel sites or convert or construct any new Signature Inn hotels,
and Signature currently has no hotels under development.
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Signature's curtailment of its growth expansion plans in late 1997 was
predicated upon a number of factors, including (a) continuing declines in its
chain wide occupancy rates during late 1997 and throughout 1998; (b) increased
competition and increased hotel construction in many of Signature's market
areas; (c) the desire to maintain an appropriate preferred stock dividend
coverage ratio on its Series A Preferred Stock; and (d) the beginning of what
appeared to be a downward industry-wide occupancy trend, generally, and in the
limited service market segment in the Midwest, specifically. In addition,
Signature's management concluded that its difficulty in accessing capital as a
result of its size and corporate structure would make it more difficult to
execute a regional brand growth strategy in the limited service market segment.
Signature's management also realized that the utilization in 1997 and 1998
of Signature's remaining net operating loss carryforwards would result in
limited earnings to be retained and reinvested in the business, after payment
of preferred stock dividends.
For these reasons, during the later half of 1997 and 1998, Signature's
management focused on improving the existing Signature product. Hospitality
centers and other new guest room amenities were added to Signature Inn hotels
throughout the chain. Signature redesigned the presentation of its "Breakfast
Express," enclosed outdoor swimming pools on a selective basis, and converted
one Signature Inn hotel to a "Signature Inn & Suites."
In addition, in order to achieve cost efficiencies, Signature implemented a
"pay by room" incentive program for its housekeepers, retrofitted hotel
commercial areas with energy efficient lighting and reduced laundry volume by
providing optional levels of housekeeping and linen services. Also, Signature's
management and Board of Directors began consideration of various other
strategic alternatives in order to provide Signature with greater access to
capital to fund a more aggressive and effective growth plan. See "--Signature's
Rationale for the Merger; Recommendation of the Signature Board of Directors"
for a description of those alternatives.
During July 1997, Jameson initially approached Signature regarding Jameson's
preliminary interest in combining the two hotel chains. Signature at this time
was evaluating various growth strategies and elected not to pursue a possible
alliance with Jameson. However, in connection with Signature's evaluation of
REITs, two Signature officers, John Bontreger, president and chief executive
officer, and Mark Carney, vice president finance and chief financial officer,
met in September 1997 in Atlanta, Georgia with Tom Kitchin and Craig Kitchen,
the chief executive officer and chief financial officer, respectively, of
Jameson. The purpose of the meeting was for Mr. Bontreger and Mr. Carney to
learn more about the REIT structure of Jameson in order for Signature to
evaluate adopting a REIT structure for itself. The possibility of a business
combination between Signature and Jameson was not discussed during this
meeting.
In November 1997, Signature executed an engagement letter with McDonald
Investments, Inc. (then known as McDonald & Company Securities, Inc.). Pursuant
to the terms of the engagement letter, McDonald Investments agreed to provide
general financial advisory services in connection with Signature's evaluation
of strategic alternatives. McDonald Investments prepared a list of over 25
hotel companies to profile and evaluate as potential candidates for a strategic
alliance with Signature. The list was refined to approximately 20 entities to
be approached by McDonald Investments on a preliminary basis. McDonald
Investments contacted each of these entities and, following the execution of
confidentiality agreements, distributed to each a confidential memorandum
regarding Signature. Although Jameson was among the parties originally
approached by McDonald Investments (and executed a confidentiality agreement),
Jameson indicated at that time that it was not interested in a competitive
bidding process in connection with a possible transaction with Signature.
Through March 1998, Signature met with representatives from certain entities
and received preliminary, non-binding letters of interest that described
possible transactions involving Signature. In April 1998, Signature engaged in
exclusive negotiations with a hotel owner and operator, and those negotiations
continued until September 1998, when the Signature Board of Directors, with the
advice of its counsel and financial advisor, determined that the proposed
transaction could not be accomplished for several reasons, including (a) the
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potential inability of the buyer to deliver the cash required for closing the
transactions and (b) inadequate dividend coverage ratios for preferred stock to
be issued in connection with the transaction.
At that time Signature directed McDonald Investments to approach other
entities that had expressed interest in a possible transaction. On October 27,
1998, executive officers from Jameson, including Messrs. Tom and Craig Kitchin,
and executive officers from Signature, including John Bontreger, Mark Carney
and Bo Hagood, vice president hotel operations, along with McDonald
Investments, met in Indianapolis to discuss a potential business combination of
the two companies. At this meeting, executive officers of Jameson and Signature
agreed to continue discussions regarding a possible business combination
between the two companies. Mr. Bontreger, Mr. Carney and Mr. Hagood
subsequently traveled to Jameson's headquarters in Atlanta, Georgia on December
9, 1998, to meet with Messrs. Tom and Craig Kitchin to discuss the potential
structure of a transaction that would involve the two companies. Soon
thereafter, Signature and Jameson decided to pursue the negotiation of a
business combination and the commencement of due diligence by the companies'
legal, operations and accounting personnel.
During the week of October 25, Jameson's executive officers engaged
Robinson-Humphrey to serve as its financial advisor in connection with its
evaluation of a possible acquisition of Signature. Also during that week,
representatives of Robinson-Humphrey contacted representatives of McDonald
Investments and began discussion of a business combination between Jameson and
Signature. From the week of October 25 through the week of December 13,
representatives of Robinson-Humphrey and Jameson discussed a possible business
combination between Jameson and Signature with representatives of McDonald
Investments. The financial advisors and Jameson discussed several items
generally including, among other matters, potential structures of a
transaction, consideration to be paid to Signature's stockholders by Jameson
and the roles of Signature's executive officers in a combined company.
On December 4, 1998, the Signature Board of Directors held a special meeting
to review and discuss (a) the general terms of a possible business combination
between Signature and Jameson and (b) other possible transactions and strategic
alternatives. At this meeting, management and Signature's financial advisor
McDonald Investments made oral presentations concerning the proposed
Signature/Jameson transaction, as well as another possible transaction which
involved, for the most part, a re-branding of the Signature properties with a
minor equity investment in Signature. In addition, Signature's legal counsel
advised Signature's Board of Directors with respect to standards of conduct
applicable to its members and their duties in connection with the proposed
transactions. The Signature Board of Directors determined to proceed with the
Signature/Jameson preliminary merger proposal and directed management to begin
the process of negotiating the terms of the definitive merger agreement.
On December 16, 1998, a meeting was held in Indianapolis among
representatives of Signature and Jameson. Present at that meeting were Mr.
Carney, Mr. Bontreger, Messrs. Tom and Craig Kitchin, and representatives from
Signature's and Jameson's legal, financial and accounting advisors. At this
meeting, the executive officers of Jameson and Signature agreed to begin
negotiating an acquisition of Signature by Jameson. Signature and Jameson
executed a new confidentiality agreement at that meeting. The confidentiality
agreement contained a covenant that during the period the parties were
negotiating a transaction, Signature would not solicit offers from other
companies. At the December 16 meeting, the companies and their respective legal
and financial advisors exchanged certain financial and operational information
and discussed alternative transaction structures.
From December 16 through January 27, the parties conducted due diligence
investigations of each other and negotiated the consideration to be paid by
Jameson in the merger, the roles of, and compensation to be paid to,
Signature's executive officers in the combined company and the structure of the
board of directors of the combined company. During this time the parties also
negotiated the details of the merger agreement and its exhibits, which include,
among other things, the terms of the proposed Jameson Series S Preferred Stock,
forms of employment agreements with the senior management of Signature,
exchange of outstanding options to purchase Signature common stock for options
to purchase Jameson common stock, an amendment to the
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Signature Stockholder Rights Plan which rendered the Rights inapplicable to the
proposed merger and a form of assignment and assumption agreement by which the
net assets used by Signature in operating the hotels would be sold to Jameson
Hospitality in order to allow Jameson to continue to comply with the REIT rules
following the merger. The companies and their respective advisors reviewed and
analyzed, among other things: (a) the operational, financial, structural and
tax considerations involved in a possible business combination; (b) board
representation; (c) employee and compensation matters; (d) the hotel brands and
their relative positions and prospects in the hotel industry; (e) the REIT
structure; and (f) the rights of the stockholders of each company to approve
the terms of a merger.
On January 21, 1999, the Signature Board of Directors held a special
telephonic meeting to review and discuss the status of the business combination
negotiations between Signature and Jameson. At this meeting, Signature's legal
counsel reported on the terms of the most recent draft of the merger agreement
and again reviewed and explained the standards of conduct and duties of the
Signature Board of Directors in connection with the proposed transaction. Also,
McDonald Investments made an oral presentation to the Signature Board of
Directors concerning various aspects of the proposed transaction.
On January 26, 1999, the Signature Board of Directors held a special meeting
to review and discuss the proposed transaction. At this meeting, McDonald
Investments made a presentation to the Signature Board of Directors regarding
its opinion of the fairness, from a financial point of view, of the transaction
to the Signature stockholders and rendered their opinion that the transaction
was fair, from a financial point of view, to the holders of Signature common
stock and Series A Preferred Stock. In addition, Signature's legal counsel
provided an analysis of the material terms of the merger agreement and reported
on the status of their continuing due diligence review of various aspects of
the business of Jameson. Representatives of KPMG LLP provided the Board of
Directors with an analysis of various tax and accounting matters relative to
the merger. Following these presentations by Signature's financial advisors,
legal counsel, and auditors, and after discussion among the directors, the
Signature Board of Directors voted unanimously to approve the merger agreement
and the merger and recommend the adoption of the merger agreement to
Signature's stockholders.
The Jameson Board of Directors met on January 27, 1999, to consider the
merger proposal. Representatives of Robinson-Humphrey made a presentation to
the Board of Directors of their analysis of the proposed transaction and
delivered that firm's fairness opinion. Counsel to Jameson presented a summary
of the material terms of the merger agreement and discussed certain matters to
which attention was being given in the due diligence review of Signature. After
hearing the presentations, posing questions to the legal and financial advisors
of Jameson and discussing the matter among the members, the Jameson Board of
Directors determined that the merger was in the best interests of Jameson and
its stockholders, approved the merger agreement and authorized its execution by
the Jameson officers and recommended that it be approved by the Jameson
stockholders. The merger agreement was signed by both companies on January 27,
1999 and a joint press release announcing the execution of a definitive
agreement was issued on January 28, 1999.
Jameson's Rationale for the Merger; Recommendation of the Jameson Board of
Directors.
The following are the principal reasons why Jameson and its Board of
Directors believe that the merger is in the best interests of Jameson and its
stockholders:
. The types of Signature properties and the nature of their operations are
similar in many respects with Jameson Inns. Signature Inns and Jameson
Inns are both limited service hotel chains catering primarily to the
business traveler, although at different price points. Jameson
management believes that these similarities will enable it to achieve
efficiencies of scale from the larger combined company.
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. The regions in which Jameson Inns and Signature Inns are located are
adjacent and the acquisition of Signature represents a logical
geographical extension of the current operating territory of Jameson.
Jameson Inns are located in the Southeast while Signature Inns are in
the Midwest.
. As is the case with Jameson Inns, Signature Inns are generally not
franchised from a third party. Jameson believes that this allows for
greater control and flexibility in maintaining the quality and
consistency of its facilities and the services provided to the customers
of its hotels.
. Jameson believes that the larger asset and capital base that will result
from the merger should provide for greater financial stability and
enhance its ability to compete with the larger chains and hotel brands.
. Jameson believes that the merger of the companies will result in an
increase in the funds from operations per share of Jameson common stock
after the merger.
. The management and staff of Signature will become part of Jameson
Hospitality and should complement the capabilities of Jameson
Hospitality to operate and manage the greater number of properties that
will be owned by the combined company.
For the reasons discussed above, the Jameson Board of Directors has
unanimously approved the merger and the merger agreement and recommends that
Jameson stockholders vote "FOR" approval of the merger and the merger
agreement.
Signature's Rationale for the Merger; Recommendation of the Signature Board of
Directors
Before and during the course of its consideration and approval of the merger
agreement between Signature and Jameson, the Signature Board of Directors
considered several other strategic alternatives. Among the alternatives
considered by the Signature Board of Directors were:
. formation of a REIT comprised of Signature's 25 company-owned hotel
properties each of which would be leased to a newly-formed, unaffiliated
entity;
. conversion of Signature's 25 company-owned hotels to another brand, with
the owner of that brand (1) acquiring an equity stake in Signature, (2)
granting to Signature favorable franchise terms and (3) providing
Signature with an enhanced nationwide reservation system, thereby
facilitating Signature's internal and external growth;
. implementation of an independent franchising/management marketing
program by Signature or the sale of Signature's franchising rights to a
third party in order to aggressively expand the chain;
. conversion of the Signature Inn hotels to "Signature Inn & Suites;"
and/or,
. selective acquisition of portfolios of a small number of hotels from
other hotel companies.
Although, in the opinion of Signature's Board of Directors, each of these
alternatives, either alone or in combination with others, could have achieved
positive results for Signature, each had significant risks and concerns, as
well. In the opinion of the Signature Board of Directors, implementation of any
or a combination of the other alternatives would not accomplish the same level
of benefits as could be achieved by Signature through the proposed merger with
Jameson.
Of the alternatives reviewed, Signature's Board of Directors believes a
merger with Jameson, in accordance with the terms and conditions of the merger
agreement, will afford Signature's stockholders, both common and preferred, the
best available opportunity to increase the value of their shares. Signature's
Board of Directors believes that the merger with Jameson will enhance
stockholder value by providing Signature stockholders with a substantial equity
stake in a combined entity having greater financial resources, an expanded
market area and access to both equity and debt financing at potentially lower
costs than is currently available to Signature. Secondly, the Signature Board
of Directors believes that the combined entity will able to
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take advantage of operational synergies and cost containment efficiencies
through the combination of several management functions, including purchasing,
human resources, legal and public reporting functions. Additionally, the merger
should allow for the development of an expanded and more effective rooms
reservations system and chainwide marketing program.
The Signature Board of Directors has considered the likely effects of the
merger on the market value of the capital stock held by Signature's common and
preferred stockholders. As a result of the increased number of shares of the
combined entity, it is anticipated that common stockholders will have greater
liquidity for their shares. Moreover, because of Jameson's status as a REIT,
Signature's common stockholders would begin receiving cash dividends on their
shares of Jameson common stock, a benefit which Signature's common stockholders
have not historically received. Additionally, for the preferred stockholders of
Signature, the merger is anticipated to provide a more financially secure
dividend coverage ratio.
The decision of the Signature Board of Directors to approve the merger
agreement and to recommend approval of the merger to the stockholders of
Signature was based upon the foregoing considerations as well as the factors
set forth below:
. The Signature Board of Directors believes that the present and
anticipated competitive environment of the hotel industry generally and
of the mid-priced segment of the midwest region particularly has
increased the need for Signature to be part of a larger company with
greater financial resources and larger and more geographically dispersed
pool of hotel properties.
. The Signature Board of Directors weighed the curtailment of Signature's
ability to execute its growth strategy.
. The Signature Board of Directors assessed the anticipated financial
performance, business operations, capital levels, asset quality and
competitive position of Signature and Jameson on a combined basis.
. The Signature Board of Directors anticipates that the merger will give
Signature improved access to capital, including the access to capital on
more favorable terms than are presently available to Signature.
. The Signature Board of Directors considered the terms of the merger
agreement, including (1) the financial terms, resulting in a significant
premium over the market price for the Signature common stock prevailing
prior to the public announcement of the proposed transaction; (2) the
expectation that the merger can be accomplished on a partially tax-free
basis to Signature stockholders; (3) the right of Signature's Board of
Directors to exercise its fiduciary duty and to engage in discussions
with other parties regarding alternative transactions; and (4) the
conditions of the parties to closing.
. The Signature Board of Directors considered the opinion of Signature's
financial advisor (attached hereto as Appendix D), delivered to the
Signature Board of Directors, to the effect that the consideration to be
received by the holders of Signature common stock and Series A Preferred
Stock pursuant to the merger is fair from a financial point of view.
. The compatibility of the similar business philosophies of Signature and
Jameson and the non-overlapping markets in which Signature and Jameson
currently operate were also factors in the Board of Directors' decision
and recommendation.
In reaching its decision to recommend the proposed transaction to the
Signature stockholders, the Signature Board of Directors also considered and
discussed certain possible detriments and risks in approving the proposed
transaction, such as the uncertainties relating to successfully integrating two
companies and retaining their respective bases of customers and employees. The
Signature Board of Directors also considered the effects of merging with a REIT
entity, including the loss of the ability to retain earnings for future growth
and the loss of the ability to participate in third party management or
independent franchising relationships. The Signature Board of Directors also
recognized that while the merger will increase Signature's market
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presence in the hotel industry by expanding its reach into new markets in the
southeastern United States, Signature stockholders who will receive Jameson
common and/or Series S Preferred Stock will thereafter be subject to additional
competitive pressures associated with those additional hotel markets. The
Signature Board of Directors determined that any potentially adverse
consequences, uncertainties or risks arising from the merger were substantially
outweighed by the benefits anticipated to be achieved through the merger.
We do not intend the discussion above to be exhaustive of the information
and factors considered and given weight by Signature's Board of Directors. In
reaching the determination to approve and recommend adoption of the merger
agreement, in view of the wide variety of factors considered in connection with
its evaluation thereof, the Board of Directors of Signature did not assign any
relative or specific weights to the foregoing or other factors. Individual
directors may have given different weights to the various factors. The terms of
the merger are the result of arms-length negotiations between representatives
of Signature and Jameson.
The Board of Directors of Signature believes that the terms of the merger
are fair to and in the best interests of Signature and its stockholders. The
Signature Board of Directors has unanimously adopted and approved the merger
agreement, and it recommends approval of the merger agreement and the merger by
all Signature stockholders. In addition, each member of the Signature Board of
Directors has agreed to vote his shares in favor of the merger.
Opinion of Jameson's Financial Advisor
Robinson-Humphrey was retained by Jameson to deliver its opinion as to the
fairness, from a financial point of view, of the consideration to be paid by
Jameson in the merger. On January 27, 1999, at a meeting of the Jameson Board
of Directors held to evaluate and adopt the merger agreement, Robinson-Humphrey
rendered an opinion to the Jameson Board of Directors that, as of the date of
such opinion and based upon and subject to certain matters stated therein, the
consideration to be paid by Jameson in the merger is fair, from a financial
point of view, to Jameson.
The full text of the opinion of Robinson-Humphrey which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached to this Joint Proxy Statement/Prospectus as Appendix C and is
incorporated herein by this reference. The description of the Robinsion-
Humphrey opinion set forth herein is qualified in its entirety by reference to
the full text of the Robinson-Humphrey opinion. Jameson stockholders are urged
to read the opinion in its entirety.
The opinion of Robinson-Humphrey is directed to the Jameson Board of
Directors and relates only to the fairness of the consideration to be paid by
Jameson in the merger from a financial point of view to Jameson, does not
address any other aspect of the merger and does not constitute a recommendation
to any stockholder as to how such stockholder should vote at the Jameson annual
meeting. The consideration to be paid by Jameson in the merger was determined
on the basis of negotiations between Jameson and Signature and was approved by
the Jameson Board of Directors.
In arriving at its opinion, Robinson-Humphrey reviewed a draft of the merger
agreement; publicly available information concerning Jameson and Signature
which Robinson-Humphrey believed to be relevant to its inquiry; financial and
operating information with respect to the business, operations and prospects of
Jameson and Signature furnished to Robinson-Humphrey by Jameson or Signature;
recent trading histories of Jameson's securities and of Signature's securities;
a comparison of the historical financial results and present financial
condition of each of Jameson and Signature with those of other companies which
Robinson-Humphrey deemed relevant; a comparison of the financial terms of the
merger with the financial terms of certain other transactions which Robinson-
Humphrey deemed relevant; and the pro forma effects of the merger on Jameson.
In addition, Robinson-Humphrey had discussions with the management and/or
employees of Jameson and Signature concerning their respective businesses,
operations, assets, present conditions and future prospects and undertook such
other studies, analyses and investigations as it deemed appropriate.
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In rendering its opinion, Robinson-Humphrey assumed and relied on the
accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by or for it, or publicly
available, and did not assume any responsibility for independently verifying
such information. Robinson-Humphrey did not undertake an independent evaluation
or appraisal of any of the assets or liabilities of Jameson or Signature and
was not furnished with any such evaluation or appraisal. In addition, Robinson-
Humphrey did not assume any obligation to conduct any physical inspection of
the properties or facilities of Jameson or Signature. With respect to the
financial forecast information furnished to or discussed with Robinson-Humphrey
by Jameson or Signature, Robinson-Humphrey assumed that it was reasonably
prepared and reflected the best currently available estimates and judgment of
Jameson's or Signature's management as to the expected future financial
performance of Jameson or Signature, as the case may be. Robinson-Humphrey also
assumed that the final form of the merger agreement would be substantially
similar to the last draft reviewed by it.
The Robinson-Humphrey opinion is necessarily based upon market, economic and
other conditions as they exist and can be evaluated on, and on the information
made available to Robinson-Humphrey as of the date of its opinion. Robinson-
Humphrey assumed that in the course of obtaining the necessary consents or
approvals (contractual or otherwise) for the merger, no restrictions, including
any divestiture requirements or amendments or modifications, would be imposed
that would have a material adverse effect on the contemplated benefits of the
merger. Robinson-Humphrey also assumed that the merger would not change the
status of Jameson after the merger as a real estate investment trust for
federal income tax purposes. Robinson-Humphrey did not express any opinion as
to what the value of the shares of Jameson common stock or Jameson Series S
Preferred Stock actually will be when issued pursuant to the merger or the
price at which the shares of Jameson common stock or Jameson Series S Preferred
Stock will trade subsequent to the merger.
At the meeting of the Jameson Board of Directors held on January 27, 1999,
Robinson-Humphrey presented certain financial analyses accompanied by written
materials in connection with the delivery of its fairness opinion. In preparing
its opinion, Robinson-Humphrey performed a variety of financial and comparative
analyses, including those described below. The summary of such analyses does
not purport to be a complete description of the analyses underlying Robinson-
Humphrey's opinion. The preparation of a fairness opinion is a complex analytic
process involving various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, Robinson-Humphrey believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and factors, without considering all analyses and factors, could
create a misleading or incomplete view of the processes underlying such
analyses and opinion. In its analyses, Robinson-Humphrey made numerous
assumptions with respect to Jameson, Signature, industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Jameson and Signature. The estimates contained
in such analyses and the valuation ranges resulting from any particular
analysis are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable
than those suggested by such analyses. In addition, analyses relating to the
value of businesses or securities do not purport to be appraisals or to reflect
the prices at which businesses or securities actually may be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty.
Robinson-Humphrey's opinion and analyses were only one of several factors
considered by the Jameson Board of Directors in its evaluation of the merger
and should not be viewed as determinative of the views of the Jameson Board of
Directors or management of Jameson with respect to the consideration to be paid
by Jameson in the merger or the proposed merger. The following is a summary of
the material financial and comparative analyses performed by Robinson-Humphrey
in arriving at the Robinson-Humphrey opinion.
Capitalization Rate Analysis for Comparable Companies. Using publicly
available information concerning historical and projected financial
performance, Robinson-Humphrey analyzed the implied capitalization rates for
the following selected publicly-traded REITs in the lodging industry: Equity
Inns Inc.; Felcor Lodging Trust Inc.; Humphrey Hospitality Trust, Inc.; LaSalle
Hotel Properties; Meristar Hospitality
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Corp.; RFS Hotel Investors Inc.; Sunstone Hotel Investors, Inc.; Winston Hotels
Inc. and the following publicly-traded lodging companies: Amerihost Properties
Inc.; Cavanaugh's Hospitality Inc.; John Q. Hannons Hotels, Inc.; Prime
Hospitality Corp.; Red Roof Inns Inc.; Sholodge Inc.; Suburban Lodges of
America Inc.; SunBurst Hospitality Corp.; and Supertel Hospitality Inc. Using
1998 earnings before interest, taxes, depreciation and amortization ("EBITDA")
and total firm value for each of the comparable companies, Robinson-Humphrey
calculated an average implied capitalization rate of 12.6% for the comparable
companies. The capitalization rate for Signature, based on 1998 EBITDA and the
total transaction value of the merger is 15.8%.
Comparable Company Analysis. Using publicly available information concerning
historical and projected financial performance, including published historical
financial information and earnings and funds from operations estimates reported
by First Call Corporation ("First Call") (which is a data service that monitors
and publishes compilations of earnings and funds from operations estimates by
selected research analysts regarding companies of interest to institutional
investors), Robinson-Humphrey analyzed, among other things, the market values
and trading multiples of Signature and the following selected publicly-traded
REITs in the lodging industry: Equity Inns Inc.; Felcor Lodging Trust Inc.;
Humphrey Hospitality Trust, Inc.; LaSalle Hotel Properties; Meristar
Hospitality Corp.; RFS Hotel Investors Inc.; Sunstone Hotel Investors, Inc.;
Winston Hotels Inc. and the following publicly-traded lodging companies:
Amerihost Properties Inc.; Cavanaugh's Hospitality Inc.; John Q. Hannons
Hotels, Inc.; Prime Hospitality Corp.; Red Roof Inns Inc.; Sholodge Inc.;
Suburban Lodges of America Inc.; SunBurst Hospitality Corp.; and Supertel
Hospitality Inc. (collectively, the "Selected Companies"). Robinson-Humphrey
compared, among other things, market values as a multiple of estimated calendar
1998 and 1999 funds from operations for REITs and net income for non REITs,
book value, 1998 revenue, 1998 EBITDA and 1998 earnings before interest and
taxes ("EBIT"). All multiples were based on closing stock prices as of January
26, 1999. Funds from operations and net income estimates for the Selected
Companies were based on First Call estimates, and estimates for Signature were
based on internal estimates by Signature's management. Based on mean market
multiples this analysis indicated an implied value per share of Signature
common stock of $9.62 compared to consideration to be paid by Jameson in the
merger of $5.94 per share (the value of .5 share of Jameson's common stock
based upon its closing price on January 26, 1999 plus $1.50). No company or
business used in the "Comparable Company Analysis" as a comparison is identical
to Jameson or Signature. Accordingly, an analysis of the results of the
foregoing is not entirely mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the Selected Companies or the business segment or
company to which they are being compared.
Comparable Transaction Analysis. Robinson-Humphrey reviewed the financial
terms, to the extent publicly available, of 26 proposed, pending or completed
merger and acquisition transactions since January 1997 involving companies in
the lodging industry (the "Selected Acquisition Transactions"). Robinson-
Humphrey calculated various financial multiples based on certain publicly
available information for each of the Selected Acquisition Transactions and
compared them to corresponding financial multiples and premiums over market
value for the merger, based on the consideration to be paid by Jameson. The
transactions reviewed (and the effective dates) were: Marriott International
Inc./ExecuStay (pending); PMC Commercial Trust/Supertel Hospitality Inc.
(terminated); Equity Inns Inc./RFS Hotel Investors Inc. (terminated);
Shareholders/Crestline Capital Corp. (December 1998); Amerihost Properties
Inc./Undisclosed Hotels (April 1998); FelCor Lodging Trust Inc./Bristol Hotel
Co. (July 1998); Service Inc./Impac Hotel Group (December 1998); CapStar Hotel
Company/American General Hospitality Corporation (August 1998); Servico
Inc./Town Center Hotel, Silver Springs (February 1998); Meditrust Acquisition
Co./La Quinta Inns Inc. (July 1998); Boykin Lodging Company/Red Lion Inns L.P.
(May 1998); Patriot American Hospitality/Interstate Hotels Co. (June 1998);
Whitehall Street Real Estate LP IX (investor group)/Chartwell Leisure Inc.
(March 1998); Starwood Hotels/ITT Corporation (February 1998); Promus Hotel
Corp./Doubletree Corp. (December 1997); Sunstone Hotel Investors/Kahler Realty
Corporation (October 1997); Prime Hospitality Corp./Homegate Hospitality, Inc.
(December 1997); Starwood Hotels/Westin Hotels (January 1998); CUC
International Inc./HFS Inc. (December 1997); St. Anthony Entertainment
Inc./North American Resorts Inc. (terminated); Patriot American
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Hospitality/Wyndham Hotel Corporation (January 1998); Equity Inns, Inc./ Growth
Hotel Partnership (June 1997); Marriott International, Inc./Renaissance Hotel
Group NV (March 1997); Hilton Hotels Corp./ITT Corp. (terminated); Extended
Stay America/Studio Plus Hotels, Inc. (April 1997); Bristol Hotel Company/Bass
PLC (Holiday Inn Worldwide) (April 1997).
Robinson-Humphrey compared, among other things, equity values as a multiple
of book value and net income and transaction firm value as a multiple of
revenues, EBITDA and EBIT. Based on mean multiples derived from the Selected
Acquisition Transactions, this analysis indicated an implied value per share of
Signature common stock of $18.56 compared to consideration to be paid by
Jameson in the merger of $5.94 per share (the value of .5 share of Jameson's
common stock based upon its closing price on January 26, 1999 plus $1.50). All
multiples for the Selected Acquisition Transactions were based on public
information available at the time of announcement of such transaction, without
taking into account differing market and other conditions during the period
during which the Selected Acquisition Transactions occurred. The implied value
of Signature, based upon the analysis of the Selected Acquisition Transactions,
compares favorably to the consideration to be paid by Jameson in the merger.
Pro Forma Merger Analysis. Robinson-Humphrey analyzed certain pro forma
effects resulting from the merger, including, among other things, the impact of
the mergers on the estimated funds from operations per share of Jameson common
stock in fiscal years 1998 and 1999 based on internal estimates of the
managements of Jameson and Signature. The results of the pro forma merger
analysis suggested that the merger could be accretive to funds from operations
per share of Jameson common stock without giving effect to any cost savings or
other potential synergies anticipated by the managements of Jameson and
Signature to result from the merger. The actual results achieved by the
combined entity may vary from projected results and the variations may be
material.
Real Estate Analysis. Robinson-Humphrey performed analyses on each of the
Signature hotels based upon 1998 and 1999 net operating income ("NOI")
estimates provided by Signature management. Net operating income consisted of
revenues minus operating expenses minus corporate overhead expenses. Using NOI
and assumed capitalization rates, implied values were determined for the
various Signature hotels. Implied values based upon 1998 NOI ranged from
approximately $157.8 million at an 11% capitalization rate to approximately
$108.5 million at a 16% capitalization rate. Implied values based upon 1999 NOI
ranged from approximately $189.1 million at an 11% capitalization rate to
$130.0 million at a 16% capitalization rate. Based upon total transaction
value, the implied capitalization rate for Signature's hotels is 15.8%.
Discounted Cash Flow Analysis. Robinson-Humphrey performed a discounted cash
flow analysis (i.e., an analysis of the present value of the projected levered
cash flows for the periods using the discount rates indicated) of Signature
based upon projections provided by Signature's management of its free cash flow
(earnings before interest and after taxes plus depreciation and amortization
expense minus capital expenditures) for the years 1999 through 2003, inclusive,
using discount rates ranging from 11% to 16% and terminal value multiples of
calendar year 2003 EBITDA ranging from 7.0x to 9.0x. Signature's management
provided projections for 1999, and Robinson-Humphrey estimated results for 2000
through 2003, inclusive, using an assumed revenue growth rate of 3% and
constant expense and profit margin percentages. Based upon these projections of
free cash flow, the range of present values per share of Signature common stock
was $7.75 to $14.55.
Other Factors and Comparative Analyses. In rendering its opinion, Robinson-
Humphrey considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of (a) the
historical and projected financial results of Jameson and Signature and (b) the
history of trading prices and volume of shares of Jameson common stock and
shares of Signature common stock and the relationship of movements of such
common stock and movements of the common stock of various other lodging
companies.
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Miscellaneous. The Jameson Board of Directors selected Robinson-Humphrey to
render a fairness opinion because Robinson-Humphrey is a nationally recognized
investment banking firm with substantial experience in transactions similar to
the merger and because it is familiar with Jameson and its business. Robinson-
Humphrey has from time to time rendered, and may in the future render,
investment banking, financial advisory and other services to Jameson for which
it has received, or will receive, customary compensation. Robinson-Humphrey is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, secondary distributions of listed and unlisted securities and
private placements.
Pursuant to a letter agreement dated December 22, 1998, Jameson has agreed
to pay Robinson-Humphrey a transaction fee equal to $750,000, $300,000 of which
was paid on February 8, 1999 and the remainder of which will be payable upon
consummation of the merger. The fees paid or payable to Robinson-Humphrey are
not contingent upon the contents of the opinion delivered. In addition, Jameson
has agreed to reimburse Robinson-Humphrey for its reasonable out-of-pocket
expenses, subject to certain limitations, and to indemnify Robinson-Humphrey
and certain related persons against certain liabilities arising out of or in
conjunction with its rendering of services under its engagement, including
certain liabilities under the federal securities laws.
In the ordinary course of its business, Robinson-Humphrey may actively trade
in the securities of Jameson and Signature for its own account and the accounts
of its customers and, accordingly, may at any time hold a long or short
position in such securities. Robinson-Humphrey has in the past provided other
investment banking services to Jameson unrelated to the merger, for which
services it has received compensation. Such investment banking services include
acting as a managing underwriter of two follow-on offerings of shares of
Jameson common stock.
Opinion of Signature's Financial Advisor
McDonald Investments was retained by Signature to act as its financial
advisor in connection with the merger. In connection with such engagement,
Signature requested that McDonald Investments evaluate the fairness, from a
financial point of view, of the consideration to be paid to the holders of the
issued and outstanding shares of Signature common stock and Signature Series A
Preferred Stock in connection with the merger of Signature with and into
Jameson.
As part of its investment banking business, McDonald Investments is
customarily engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, public offerings, private placements and
valuations for corporate and estate planning purposes. On January 26, 1999, at
a meeting of the Signature Board of Directors held to evaluate the merger,
McDonald Investments delivered an oral opinion (subsequently confirmed by
delivery of a written opinion dated January 26, 1999) to the Board of Directors
of Signature to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated therein, the merger consideration was
fair, from a financial point of view, to the Signature stockholders, both
common and preferred.
Under the terms of the merger agreement Signature stockholders will receive:
(a) $1.50 in cash and one-half share of Jameson common stock for each share of
Signature common stock owned at the effective time of the merger, and (b) one
share of Jameson Series S Preferred Stock for each share of Signature Series A
Preferred Stock owned at the effective time of the merger. The Series S
Preferred Stock will have a liquidation value of $20.00 per share, will be on
parity with the issued and outstanding shares of Jameson's Series A Preferred
Stock, and will have the right to convert each share of Jameson Series S
Preferred Stock into 1.0417 shares of Jameson common stock and $3.125 in cash.
In connection with rendering its opinion, McDonald Investments reviewed and
analyzed, among other things, the following:
. the merger agreement, including the transaction documents referred to
therein, the exhibits and schedules thereto;
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. certain publicly available information concerning Signature, including
Signature's Annual Reports on Form 10-KSB for each of 1996 and 1997 and
its Quarterly Reports on Form 10-QSB for the quarters ended March 31,
June 30, and September 30, 1998;
. certain publicly available information concerning Jameson, including
Jameson's Annual Reports on Form 10-K for each of 1996 and 1997 and its
Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30,
and September 30, 1998;
. certain other internal information, primarily financial in nature,
including projections, concerning the business and operations of
Signature and Jameson furnished to McDonald Investments by Signature and
Jameson for purposes of this analysis;
. certain publicly available information concerning the trading of, and
the trading market for, Signature common stock and preferred stock;
. certain publicly available information with respect to certain other
companies and the trading markets for certain of such other companies'
securities that McDonald Investments believes to be comparable to
Signature or to Jameson;
. certain publicly available information concerning the nature and terms
of certain other transactions that McDonald Investments considers
relevant to its inquiry. McDonald Investments also met with certain
officers and employees of Signature and Jameson to discuss the business
and prospects of Signature and Jameson, as well as other matters
McDonald Investments believed relevant to its inquiry.
In the review and analysis and in arriving at its opinion, McDonald
Investments assumed and relied upon the accuracy and completeness of all of the
financial and other information provided or publicly available and has assumed
and relied upon the representations and warranties of Signature and Jameson
contained in the Agreement. McDonald Investments was not engaged to, and did
not independently attempt to, verify any of such information. McDonald
Investments has also relied upon the managements of Signature and Jameson as to
the reasonableness and achievability of the financial and operating projections
(and the assumptions and bases therefor) provided and, with the consent of the
management of Signature and Jameson, McDonald Investments assumed that such
projections reflect the best currently available estimates and judgments of
such respective managements and that such projections and forecasts will be
realized in the amounts and in the time periods currently estimated by the
management of Signature and Jameson.
McDonald Investments was not engaged to assess the achievability of such
projections or the assumptions on which they were based and expressed no view
as to such projections or assumptions. In addition, McDonald Investments did
not conduct a physical inspection or appraisal of any of the assets, properties
or facilities of either Signature or Jameson nor was McDonald Investments
furnished with any such evaluation or appraisal. McDonald Investments also
assumed that the conditions to the merger as set forth in the Agreement would
be satisfied and that the merger would be completed on a timely basis in the
manner contemplated by the Agreement. McDonald Investments also assumed that
the merger will be treated as a tax-free reorganization to the extent of the
stock for stock exchange contemplated by the merger agreement.
It should be noted that McDonald Investments' opinion was based on economic
and market conditions, and other circumstances existing on and information made
available as of the date thereof and does not address any matter subsequent to
the date of the opinion.
The full text of the written opinion of McDonald Investments dated January
26, 1999, which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached hereto as Appendix D, and is
incorporated herein by reference. Holders of Signature common stock and
preferred stock are urged to read this opinion carefully in its entirety. The
opinion of McDonald Investments is directed to the Board of Directors of
Signature and relates only to the fairness of the merger consideration from a
financial point of view. The opinion, however, does not address any other
aspect of the merger or related transactions
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and does not constitute a recommendation to any stockholder as to how such
stockholder should vote at the Signature meeting. The summary of the opinion of
McDonald Investments set forth in this Joint Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.
In preparing its opinion, McDonald Investments performed a variety of
financial and comparative analyses, including those described below. The
summary of such analyses does not purport to be a complete description of the
analyses underlying McDonald Investments' opinion. The preparation of a
fairness opinion is a complex analytic process involving various determinations
as to the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Accordingly,
McDonald Investments believes that its analyses must be considered as a whole
and that selecting portions of its analyses and factors, without considering
all analyses and factors, could create a misleading or incomplete view of the
processes underlying such analyses and opinion. In its analyses, McDonald
Investments made numerous assumptions with respect to Signature, Jameson,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Signature
and Jameson. The estimates contained in such analyses and the valuation ranges
resulting from any particular analysis are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. McDonald Investments' opinion and analyses were only
one of many factors considered by the Signature Board of Directors in its
evaluation of the merger and should not be viewed as determinative of the views
of the Board of Directors or management of Signature with respect to the merger
consideration or the merger.
Comparable Public Company Analysis. Using publicly available information,
McDonald Investments analyzed, among other things, the market values and
trading multiples of Signature and the following 14 selected publicly traded
companies in the lodging industry and particularly those companies operating in
the limited service and mid-priced segments. Companies analyzed included:
Hudson Hotels Inc., RFS Hotel Investors, Winston Hotels Inc., Equity Inns Inc.,
Prime Hospitality, Red Roof Inns, ShoLodge Inc., Suburban Lodges, Sunburst
Hospitality, Supertel Hospitality Inc., Humphrey Hospitality Trust, Inc.,
Cavanaugh's Hospitality, John Q. Hammons Hotels, Inc., and Jameson (the
"Selected Companies").
McDonald Investments compared market values as multiples of, among other
things, actual calendar 1997 and estimated calendar 1998 and projected 1999 net
income, and adjusted market values (equity market value of common and preferred
stock, plus total debt and minority interest, less cash and cash equivalents)
as multiples of, among other things, 1998 trailing twelve months ("TTM") sales,
earnings before interest, taxes, depreciation and amortization ("EBITDA"), and
earnings before interest and taxes ("EBIT"). Net income projections for the
Selected Companies were based on estimates of selected investment banking
firms, and net income projections for Signature were based on internal
estimates of the management of Signature. All multiples were based on closing
stock prices as of January 19, 1999. Multiples for the Selected Companies
ranged from 2.1x to 10.4x TTM sales with a median of 3.3x; 6.4x to 17.4x TTM
EBITDA with a median of 9.5x; 8.6x to 33.8x TTM EBIT with a median of 16.1x;
0.5x to 1.5x the most recent balance sheet book value with a median of 1.0x; -
7.0x to 18.5x price to earnings for estimated 1998 with a median of 9.6x; and -
3.0x to 78.1x price to earnings for projected 1999, with a median of 9.2x.
Multiples for the Selected Companies (excluding outliers) ranged from 2.3x to
9.8x TTM sales; 7.5x to 13.9x TTM EBITDA; 10.5x to 28.5x TTM EBIT; 0.7x to 1.4x
the most recent balance sheet book value; 5.5x to 13.9x price to estimated
earnings for 1998; and 5.1x to 11.0x price to earnings for projected 1999.
Using the median financial data for the Selected Companies, after applying
an adjustment for Signature's illiquid stock trading characteristics and
smaller market capitalization, to the corresponding financial data for
Signature, the resulting median equity value approximated $8.02 per diluted
share, assuming an estimated 6,798,183 outstanding shares (2,105,703 shares of
Signature common stock and 2,256,000 shares of Signature preferred stock with
each share convertible into 2.08 shares of Signature common stock), as compared
to the
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equity value implied by the merger consideration of approximately $7.28 per
diluted share based on an assumed closing stock price of Jameson common stock
as of January 19, 1999 and an estimated valuation of the Series S Preferred
Stock of approximately $16.25 per share, as further described herein.
No company or business used in the "Selected Company Analysis" as a
comparison is identical to Signature or Jameson. Accordingly, an analysis of
the results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the Selected Companies or the business
segment or company to which they are being compared.
Discounted Cash Flow Analysis. McDonald Investments performed a discounted
cash flow analysis of the projected free cash flow (net income before preferred
dividends plus taxes, depreciation and amortization, and interest, less
estimated annual capital expenditures) of Signature for the fiscal years 1999
through 2003, based on internal estimates of the management of Signature.
The stand-alone discounted cash flow analysis of Signature was determined by
(1) adding (x) the present value of projected free cash flows over the five-
year period from 1999 to 2003 and (y) the present value of the estimated
terminal value of Signature in year 2003 and (2) subtracting the estimated
total debt of Signature as of December 31, 1998. The discounted cash flow
analysis was conducted by applying Signature's estimated weighted average cost
of capital ("WACC") to projected cash flows, which takes into consideration the
different components of financing, including debt, equity, and any hybrid
securities used to fund its financial requirements. In estimating Signature's
WACC, McDonald Investments performed analyses consistent with the Capital Asset
Pricing Model. McDonald Investments used Signature's equity Standard & Poors
implied beta value of .65 and its implied unlevered beta of .48. McDonald
Investments calculated Signature's cost of equity at approximately 31.5%, which
includes a market liquidity discount and risk premium estimated at 30.0%. Based
on Signature's historical borrowing rates, the after-tax cost of debt was
estimated at 5.4%. The WACC was then calculated as an average of the cost of
equity (weighted at 42.1%) and the cost of debt (weighted at Signature's debt
ratio of 57.9%). McDonald Investments then calculated Signature's WACC to be
16.40%.
Using this estimate of cost of capital, McDonald Investments calculated the
present value of free cash flows for each of the years ending December 31, 1999
through 2003 and the present value of the terminal value of Signature (the
calculated value of Signature at the end of the projection period). The
estimated equity value of Signature, using a discount rate of 16.40% and a
terminal exit multiple of 6.5x, results in an equity value of $7.23 per diluted
share. This estimate falls within the range of a sensitivity analysis performed
by McDonald Investments, using discount rates that ranged from 14.5% to 17.0%
and a terminal exit multiple ranging from 6.0x to 7.5x. The range of equity
values derived under the sensitivity analysis ranged from approximately $6.20
to $9.92 per diluted share. This compares to the equity value implied by the
merger consideration of approximately $7.28 per diluted share based on an
assumed closing stock price of Jameson common stock as of January 19, 1999 and
an estimated valuation of the Series S Preferred Stock of approximately $16.25
per share, as further described herein.
Inherent in a discounted cash flow analysis are the use of a number of
assumptions, including those relating to the reasonableness of management's
projection, and the subjective determination of an appropriate terminal value
and discount rate to apply to the projected cash flow of the entity value
examination. Variations in any of those assumptions could significantly alter
the results of such analyses.
Pro Forma Merger Analysis. McDonald Investments analyzed certain pro forma
effects resulting from the merger, including, among other things, the impact of
the merger on Jameson's projected earnings per share ("EPS") for the nine
months ended September 30, 1998, based on internal estimates of the managements
by Signature and Jameson. The results of the pro forma merger analysis
suggested that the merger could be accretive to Jameson's EPS in the fiscal
year analyzed. The actual results achieved by the combined company may vary
from projected results and the variations may be material.
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Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, McDonald Investments reviewed, among other things, the
implied transaction multiples paid or proposed to be paid in the following nine
selected transactions in the lodging industry, consisting of (acquiror/target):
Marriott International Inc./ExecuStay Corp., FelCor Suite Hotels Inc./Bristol
Hotel Co., Meditrust/La Quinta Inns Inc., Patriot American/Interstate Hotels
Co., Boykin Lodging Co./Red Lion Inns LP, Fairfield Communities/Vacation Break
USA Inc., Promus Hotel Corp./Doubletree Corp., Wyndham Hotel/Clubhouse Hotels
Inc., and Marriott International Inc./New World Group (collectively, the
"Selected Transactions"). McDonald Investments compared transaction values as
multiples of, among other things, latest TTM sales, TTM EBITDA and TTM EBIT.
The range of multiples for the Selected Transactions of latest TTM sales, TTM
EBITDA and TTM EBIT approximated 1.2x to 8.1x, 8.6x to 20.0x, and 9.0x to
23.1x, respectively. The Marriott International Inc./ExecuStay and the Wyndham
Hotel/Clubhouse Hotels transactions were deemed to be the most comparable to
the merger transaction. This determination was made based on factors including,
but not limited to, the size of the transaction, market orientation, market
conditions at the time of the merger and certain financial characteristics of
the targeted company. The transaction multiples for the Marriott International
Inc./ExecuStay and the Wyndham Hotel/Clubhouse Hotels transactions were
estimated at 1.2x to 4.0x TTM sales, 8.6x to 10.7x TTM EBITDA, and 10.2x to
16.6x TTM EBIT. McDonald Investments applied a range of multiples, estimated at
1.0x to 3.5x TTM sales, 7.5x to 10.0x TTM EBITDA, and 11.0x to 13.5x TTM EBIT,
respectively, to corresponding financial data for Signature. Using the mean
reference points for the range of multiples applied to the Signature financial
data, McDonald Investments computed an equity value reference range for
Signature of approximately $3.75 to $11.17 per diluted share, with a weighted
mean value of $8.57 per diluted share. This compares to the equity value
implied by the merger consideration of approximately $7.28 per diluted share
based on an assumed closing stock price of Jameson common stock on January 19,
1999 and an estimated valuation of the Series S Preferred Stock of
approximately $16.25 per share, as further described herein.
No transaction used in the "Selected Merger and Acquisition Transaction
Analysis" as a comparison is identical to the merger. Accordingly, an analysis
of the results of the foregoing is not entirely mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect the
acquisition or other values of the Selected Transactions or the business
segment or transaction to which they are being compared.
Common Stock Premium Analysis. McDonald Investments analyzed the implied
premium payable in the merger and the premiums paid in approximately 75
selected transactions in the Leisure and Entertainment Industry. The mean
premium paid in such transactions based on the closing stock price of the
acquired company one day, five days, and twenty days prior to public
announcement of the transaction was approximately 21.80%, 28.89%, and 39.17%,
respectively. Comparatively, the implied premium payable in the merger, based
on closing stock prices of Signature common stock and Jameson common stock as
of January 19, 1999, including the $1.50 in cash per share, was estimated at
90.2%.
Based on the closing stock price of Signature common stock on January 19,
1999, this analysis resulted in an equity value reference range for Signature
of approximately $3.79 to $3.88 per share, as compared to the equity value
implied by the merger consideration of approximately $6.06 per common share,
(one-half share of Jameson common stock at an assumed price of $9.125 per share
and $1.50 in cash).
Contribution Analysis. McDonald Investments reviewed certain financial
information for the year ended December 31, 1998, including total assets, total
property and equipment, net total book equity and total pre-tax income for
Signature and Jameson to evaluate their respective contributions to the
combined entity. McDonald Investments also evaluated projected pre-tax income
levels for Signature, Jameson and the combined entity for the years ended
December 31, 1999 and 2000, respectively. The contribution analysis showed,
among other things, that Signature as of December 31, 1998 would contribute an
estimated 44.2% of total assets, 41.7% of total property and equipment net and
33.4% of total book equity to the combined company. On a pre-tax income basis
and before consideration of any non-recurring losses for disposal of assets,
Signature's contribution to the combined entity was projected at 41.2% in 1998,
41.5% in 1999 and 35.3% in 2000.
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Preferred Stock Analysis. McDonald Investments analyzed the implied yields
on approximately 45 comparable preferred stock issues to determine the fair
market range for the Series S Preferred Stock to be issued and exchanged for
the Signature Series A convertible preferred stock. As of January 7, 1999,
current yields on the comparable issues analyzed ranged from 7.26% to 12.77%.
McDonald Investments also analyzed the current yields and characteristics on
five outstanding issues deemed to have varying degrees of similarity to
Signature. The preferred stock issues of the five outstanding preferred issues
included: G&L Realty 10.25% Series A and 9.80% Series B; Winston Hotels 9.25%
Series A; Jameson 9.25% Series A; Equity Inns 9.50% Series A. The current
yields for this select group of issuers ranged from 10.76% to 12.77% with a
median of 11.28%. Based on information provided by management of Signature and
Jameson and the yields of comparable issues and those of the select group,
McDonald Investments selected a range of 10.50% to 11.00% to estimate a fair
market value for the Series S Preferred Stock. Jameson, combined with Signature
as an issuer, is expected to provide improved credit enhancement underpinning
the Series S Preferred Stock due to Jameson's lower debt ratio, favorable tax
treatment as a REIT, and a more efficient operating structure among other
factors than Signature as a stand-alone entity.
McDonald Investments also used the Black-Scholes Option Pricing Model to
value the conversion option entitling each holder of the Series S Preferred
Stock the right to convert into Jameson common stock at a conversion ratio of
1.042 subject to certain adjustment from time to time as defined in the merger
agreement. Based on certain assumptions made and up to the first redemption
date of February 1, 2000, the conversion right was valued at approximately $.09
per share. Applying a discount rate range of 10.50% to 11.00% to the $1.70
Series S Preferred Stock dividend, including the $.09 results in an implied
equity valuation of $15.54 to $16.28 per share. The implied equity valuation of
$15.54 to $16.28 represents a premium ranging from 12.3% to 17.6% over the
closing price of the Signature preferred stock as of January 19, 1999.
McDonald Investments also analyzed Jameson's pro forma 1998 and the cash
flow projections for the years 1999 through 2003 for Jameson and Signature to
evaluate the level of aggregate cash flow available for payment of Jameson's
aggregate dividend obligations, including the Series S Preferred Stock. The
aggregate dividend coverage ratio for 1998 and 1999 is estimated at 2.7x and
3.4x, respectively, which compares favorably to Signature's current dividend
coverage of approximately 1.5x for 1998 and 1999, respectively after principal
repayments and allowance for capital expenditures.
Other Factors and Comparative Analyses. In rendering its opinion, McDonald
Investments considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of (1)
indications of interest received from third parties other than Jameson; (2)
historical and projected financial results of Signature and Jameson; (3) the
history of trading prices and volume for Signature common and preferred stock
and Jameson common and preferred stock; (4) selected published analysts'
reports on Signature and Jameson; and (5) the pro forma ownership of the
combined company.
Pursuant to the terms of McDonald Investments' engagement, Signature has
agreed to pay McDonald Investments for its services in connection with the
merger, an advisory fee equal to 1% of the transaction value, contingent upon
the consummation of the merger (less the nonrefundable fee of $150,000 set
forth below). Signature has also paid McDonald Investments a non-refundable fee
of $150,000 for its services in rendering this opinion and further agreed to
reimburse McDonald Investments for travel and other reasonable out-of-pocket
expenses incurred by McDonald Investments in performing its services, including
the reasonable fees and expenses of its legal counsel, and to indemnify
McDonald Investments and related persons against certain liabilities, including
liabilities under the federal securities laws, arising out of McDonald
Investments' engagement.
McDonald Investments has advised Signature that, in the ordinary course of
business, McDonald Investments and its affiliates may actively trade or hold
the securities of Signature and Jameson for their own account or for the
account of customers and, accordingly, may at any time hold a long or short
position in such securities. McDonald Investments has in the past provided
investment banking and financial advisory services
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to Signature unrelated to the merger, including serving as managing underwriter
for Signature's public offering of the Signature preferred stock, for which
services McDonald Investments has received compensation.
McDonald Investments is a nationally recognized investment banking firm and
was selected by Signature based on its experience, expertise and familiarity
with Signature and its business. McDonald Investments regularly engages in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
Interests of Persons Other than Stockholders in the Merger
In considering the respective recommendations of the Boards of Directors of
Jameson and Signature with respect to the merger, you should be aware that, as
described below, certain members of Signature's and Jameson's management may
have interests in the merger that are different from, or in addition to, the
interests of stockholders of Signature and Jameson, which may create potential
conflicts of interest. The Boards of Directors of Jameson and Signature were
aware of those interests and took such interests into account in evaluating and
approving the merger agreement and transactions contemplated thereby.
Bonuses. The Signature Board of Directors has granted bonuses to certain
Signature officers and directors totaling $587,000 to be paid at the closing of
the transaction as follows: $200,000 for John D. Bontreger; $100,000 for each
of Mark D. Carney and Bo L. Hagood; $87,000 for David R. Miller; $50,000
for Martin D. Brew; and $12,500 for each of George A. Morton, Richard L.
Russell, Stephen M. Huse and William S. Watson. Each of the five executive
officers has agreed, in connection with the merger, not to sell or otherwise
dispose of any shares of Jameson common stock or Series S Preferred Stock
received in the merger for a period of one year from the effective date of the
merger without the consent of Jameson.
Employment Agreements. Under the terms of the merger agreement, the
following Signature employees will enter into employment agreements with
Jameson Hospitality: (1) John D. Bontreger, (2) Mark D. Carney, (3) Bo L.
Hagood, (4) David R. Miller and (5) Martin D. Brew. Each employment agreement
provides that during the term of employment the employee will receive an annual
salary (equal to the current salary paid by Signature for such services) and
may participate in a bonus pool. Each employment agreement generally precludes
the employee from competing with Jameson and Jameson Hospitality for a
specified period of time in the geographic area where Jameson conducts its
business. Additionally, each employment agreement generally precludes the
employee from soliciting Jameson employees or commissioned agents for a
specified period of time. In accordance with the terms of each employment
agreement, the employee may not disclose any confidential or proprietary
information of Jameson for 12 months following the termination of employment.
Each employment agreement also provides that if the executive is terminated
without cause or his employment terminates at the end of the stated contract
term without being renewed by Jameson Hospitality, the executive will receive
termination payments equal to one and one-half year's compensation, in the case
of Mr. Bontreger, one year, in the case of Messrs. Carney and Hagood, or six
months, in the case of Messrs. Miller and Brew. These payments are to be made
by Jameson in installments over the applicable period of time following the
termination of employment and are subject to the executive's compliance with
his post-termination obligations under the agreement.
Consulting Agreement. Upon completion of the merger, John D. Bontreger will
have the right, for a one-year period, to terminate his employment agreement
with Jameson Hospitality (see preceding paragraph) and enter into a consulting
agreement with Jameson. Under the terms of the consulting agreement, Jameson
will pay Mr. Bontreger $250,000 per year until April 2002. The consulting
agreement generally precludes Mr. Bontreger from competing with Jameson for a
specified period of time in the geographic area where Jameson conducts its
business. However, Mr. Bontreger may open and operate a single hotel property
that is not located within 20 miles from any existing Signature Inn or Jameson
Inn. Similarly, the consulting agreement generally precludes Mr. Bontreger from
(a) soliciting Jameson employees or commissioned agents
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for a specified period of time, and (b) disclosing any confidential or
propriety information concerning Jameson for 12 months following the
termination of the consulting arrangement.
Stock Option Awards. In accordance with the terms of the merger agreement
and the terms of various stock incentive plans, all unexercised awards of
options for the purchase of Signature common stock will be canceled and
exchanged for options for the purchase of an equal number of shares of Jameson
common stock. The exercise price of the new options will be the market price of
Jameson common stock on the day the option is granted as reported by the Nasdaq
National Market. The current exercise prices of the outstanding Signature stock
options are generally higher than the current market price for Signature common
stock. The Jameson stock options will become exercisable in equal one third
increments on the anniversary date of the merger for the three years following
the merger.
Lease of Signature Inns to Jameson Hospitality. Because of the REIT
restrictions prohibiting operation of hotel properties, immediately after the
merger is effective, Jameson will lease the Signature Inns to Jameson
Hospitality under the terms of a master lease which will have substantially the
same terms as the master lease under which the Jameson Inns are currently
leased to Jameson Hospitality except for the definition of room revenues and
calculation of the amount of the rentals. See "The Companies--Jameson--The
Jameson Lease." Room revenues for the Signature Inns will be reduced by long
distance telephone expenses. The base rent will be $394.00 per room and the
percentage rent will be equal to 37% of the first $35.00 of average daily per
room rental revenues, plus 65% of the next $10.00 of average daily room
rentals, plus 70% of all additional average daily room rentals, less 100% of
base rent. The $35.00 amount will increase for the year 2000 and subsequent
years by a percentage equal to the increase in the consumer price index during
the preceding year.
To enable Jameson Hospitality to operate the Signature Inns under the master
lease, the merger agreement provides that immediately prior to the merger,
Signature will transfer its operating assets and liabilities to Jameson
Hospitality. As the consideration for these assets, Jameson Hospitality will
pay Signature $250,000 in cash and will assume certain of Signature's
liabilities related to operation of the Signature Inns. See "General--Sale of
Operating Assets."
Maintenance of Indemnification Obligations. Under the terms of the merger
agreement, Jameson agrees that all rights to indemnification and exculpation
from liabilities for acts or omissions occurring prior to the merger now
existing in favor of any current or former employees, agents, directors or
officers of Signature and its subsidiaries as provided in their respective
articles of incorporation or by-laws will continue in effect for a period of
not less than five years from the effective time of the merger and Jameson will
assume Signature's indemnification obligations.
Jameson has also agreed that the policies of director and officer liability
insurance maintained by Signature will be continued for a period of five years
from the effective time of the merger, although Jameson may substitute policies
of at least the same coverage containing terms and conditions which are no less
advantageous.
Federal Income Tax Consequences
Introduction. The following discussion is a general summary of the material
United States federal income tax consequences of the merger. This discussion is
based upon the Internal Revenue Code, regulations proposed or promulgated
thereunder, judicial precedent relating thereto, and current rulings and
administrative practice of the IRS in each case as in effect as of the date
hereof and all of which are subject to change at any time, possibly with
retroactive effect. It is assumed that shares of Signature common stock and
Signature Series A Preferred Stock are held as "capital assets" within the
meaning of Section 1221 of the Internal Revenue Code (i.e., property held for
investment) (unless noted otherwise, all Section references are to the Internal
Revenue Code). This discussion does not address all aspects of federal income
taxation that might be relevant to particular holders of Signature common stock
and Signature Series A Preferred Stock in light of their status or personal
investment circumstances; nor does it discuss the consequences to such holders
who are subject to special treatment under the federal income tax laws, such as
foreign persons, dealers in securities,
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regulated investment companies, life insurance companies, other financial
institutions, tax-exempt organizations, pass-through entities, taxpayers who
hold Signature common stock as part of a "straddle," "hedge" or "conversion
transaction" or who have a "functional currency" other than the United States
dollar. In addition, this discussion does not address the tax consequences to
holders of options issued under Signature's stock option plans or other persons
who have received their Signature common stock or Signature Series A Preferred
stock as compensation. Neither Jameson nor Signature has requested or will
receive a ruling from the IRS as to the tax consequences of the merger.
Holders of Signature common stock and Signature Series A Preferred Stock
should consult their tax advisors as to the particular tax consequences to them
of the merger, including the applicability and effect of federal, state, local,
foreign income and other tax laws.
The merger is intended to qualify as a reorganization under Section 368(a).
It is a condition to the obligation of Jameson and Signature to consummate the
merger that Jameson and Signature shall have received an opinion from Conner &
Winters stating that (a) Jameson is a REIT for federal income tax purposes,
(b) consummation of the transactions contemplated by the merger agreement will
not cause Jameson to cease to qualify as a REIT, (c) the merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) and each of Jameson and Signature will be a party to the
reorganization within the meaning of Section 368(b), and (d) Signature and the
Signature stockholders exchanging Signature common stock and Signature Series A
Preferred Stock will recognize no gain or loss for federal income tax purposes
as a result of the merger (except as to the dividends and cash consideration
received by Signature stockholders). In rendering such opinions, Conner &
Winters will rely on upon certain representations made by Jameson and Signature
as well as the letter from the independent accountant for Signature with regard
to Signature's estimated earnings and profits and the opinion of the general
counsel of Jameson. Set forth below is the substance of the opinion Conner &
Winters will render at the closing of the merger as to the material tax
consequences of the merger.
Federal Income Tax Consequences of the Merger. It is the opinion of Conner &
Winters that the merger will be treated as a "reorganization" within the
meaning of Section 368(a). Each of Jameson and Signature will be a party to
such reorganization within the meaning of Section 368(b). No gain or loss will
be recognized by Signature or Jameson as a result of the merger.
As discussed above in "--Distribution of Earnings and Profits," Signature
may declare and pay a dividend to the holders of the outstanding Signature
common stock immediately before the merger in order to eliminate accumulated
earnings and profits. A Signature stockholder who receives a distribution from
Signature in advance of the merger must treat that distribution as dividend
income to the extent of Signature's current and accumulated earnings and
profits. The amount of a Signature stockholder's distribution which is in
excess of Signature's current and accumulated earnings and profits will be
treated as a return of capital to the extent of such stockholder's tax basis in
his or her Signature stock, and as capital gain to the extent the distribution
exceeds such tax basis.
A Signature stockholder whose Signature common stock is converted into a
combination of Jameson common stock and cash (other than cash received in lieu
of a fractional share of Jameson common stock and other than cash received from
Signature as a distribution before the merger) will realize gain as a
consequence equal to the excess, if any, of the fair market value of the
Jameson common stock and cash received in the merger over such Signature
stockholder's tax basis in his or her Signature common stock. The stockholder
will recognize this realized gain, however, only in an amount that does not
exceed the amount of cash received in the merger. This recognized gain will be
taxable to the stockholder as capital gain provided that the stockholder's
receipt of cash results in a "meaningful reduction" in the percentage ownership
of Jameson common stock that such stockholder otherwise would have received
(taking into account both actual ownership and constructive ownership under the
constructive ownership rules of Section 318).
If the stockholder's percentage ownership of Jameson common stock
immediately after the merger is less than 80% of the percentage ownership that
the stockholder would have had if the cash had been paid in the form of Jameson
common stock, the reduction will be "meaningful" and the recognized gain will
be capital
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gain. It is anticipated that this safe harbor test for meaningful reduction
will be satisfied; however, the precise percentage reduction will depend on the
market price of the Jameson stock on the date of the merger. The application of
this test to a particular stockholder will also depend on that stockholder's
constructive and actual ownership of Jameson stock held or obtained
independently of the exchange of Signature common stock.
For a shareholder who holds only Signature common stock and no Jameson stock
before the merger, the safe harbor test should be met if the market price of
Jameson common stock immediately after the merger is less than $12.00 per
share, in which case the shareholder's recognized gain to the extent of cash
received will be capital gain. No loss realized by a Signature stockholder who
receives Jameson common stock and cash in the merger will be recognized.
Cash received in the merger by a Signature stockholder in lieu of a
fractional share of Jameson common stock will be treated under Section 302 as
having been received in exchange for such fractional share, and the Signature
stockholder generally will recognize capital gain or loss on such exchange
equal to the difference between the cash received and such Signature
stockholder's tax basis allocable to the fractional share of Jameson common
stock exchanged for cash.
In the merger, Signature stockholders will exchange their shares of
Signature Series A Preferred Stock for shares of Jameson Series S Preferred
Stock. Each share of Jameson Series S Preferred Stock is convertible into
Jameson common stock at a prescribed conversion ratio and a payment of $3.125
cash. This cash payment is received only if and when the Series S Preferred
Stock is converted. The tax treatment of this cash payment is uncertain. One
approach would be to treat the cash payment in an analogous manner to the cash
payment to the common stockholders, as a delayed receipt of "other property"
from the merger. Under that view, the Signature preferred stockholder would not
incur any tax at the time of the merger. When and if the cash payment is
received, the stockholder would realize gain equal to the excess of the fair
market value of the Jameson Series S Preferred Stock and cash received over
such stockholder's adjusted tax basis in his or her Signature Series A
Preferred Stock. The stockholder will recognize this realized gain, however,
only in an amount which does not exceed the amount of cash received upon
conversion of the Jameson Series S Preferred Stock. Whether this recognized
gain is ordinary income or capital gain will depend on application of the
"meaningful reduction" test described above at the time that the cash payment
is received.
On the other hand, the IRS may view the cash payment as an inherent feature
of the Jameson Series S Preferred Stock and not as "other property" from the
merger. Under this view (a) the Signature preferred stockholder would not incur
any tax at the time of the merger, (b) the cash payment would not be taxable
until it is actually paid, and (c) the character of the cash payment as capital
gain or ordinary income also will depend on application of the meaningful
reduction test.
For purposes of determining the period of time a Signature stockholder has
held the shares of Jameson common stock or Jameson Series S Preferred Stock
received pursuant to the merger, each Signature stockholder may include in his
or her holding period the period of time such stockholder held the shares of
Signature common stock or Signature Series A Preferred Stock which were
exchanged for shares of Jameson common stock or Jameson Series S Preferred
Stock. Each holder of Signature common stock will have an adjusted tax basis in
the shares of Jameson common stock received pursuant to the merger equal to, as
of the time the merger becomes effective, such stockholder's adjusted tax basis
in the shares of Signature common stock which were exchanged for such shares of
Jameson common stock, decreased by the amount of cash received by such
stockholder in the merger and increased by the amount of gain recognized by
such stockholder as a consequence of the merger. Each holder of shares of
Signature Series A Preferred stock will have an adjusted tax basis in the
shares of Jameson Series S Preferred stock received pursuant to the merger
equal to, as of the time the merger becomes effective, such stockholder's
adjusted tax basis in the shares of Signature Series A Preferred stock which
were exchanged for such shares of Jameson Series S Preferred stock.
Backup Withholding. Under the Internal Revenue Code, a holder of Signature
common stock or Signature Series A Preferred Stock may be subject, under
certain circumstances, to backup withholding at a
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31% rate unless such holder provides proof of an applicable exemption or a
correct taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholding rules. Any amounts withheld under the
backup withholding rules are not an additional tax and may be refunded or
credited against the holder's federal income tax liability, provided the
required information is furnished to the IRS.
Accounting Treatment
Jameson will account for the merger as a purchase for financial reporting
purposes.
No Appraisal Rights
Under applicable Georgia law, Jameson stockholders are not entitled to
dissenters' appraisal rights in connection with the merger.
Because shares of Signature's common stock and Series A Preferred Stock are
traded on the Nasdaq National Market, Signature stockholders will not be
entitled to exercise any appraisal or dissenters' rights with respect to the
proposed merger of Signature into Jameson, as those rights are defined under
Indiana law. As a result, neither common nor preferred stockholders of
Signature will be entitled to (a) dissent from and obtain payment of the value
of the common or Series A Preferred Stock held by the stockholder based upon
the statutory notice and demand procedures set forth in Indiana law or (b)
commence any judicial proceeding pursuant to Indiana law to establish the fair
value of shares, in the event the determination of fair value remains
unresolved following the notice and demand processes.
Restrictions on Resales by Affiliates
Shares of Jameson common stock and Series S Preferred Stock issued pursuant
to the merger will not be subject to any restrictions on transfer arising under
the Securities Act of 1933, as amended (the "Securities Act"), except for
shares issued to any Signature stockholder who may be deemed to be an
"affiliate" of Signature for purposes of Rule 145 under the Securities Act.
This Joint Proxy Statement/Prospectus does not cover resales of Jameson stock
received by any person who may be deemed to be such an affiliate.
Persons who may be deemed to be affiliates of Signature generally include
individuals or entities that control, are controlled by, or are under common
control with Signature, and generally include the executive officers and
directors of Signature. Affiliates may not sell their shares of Jameson stock
acquired in connection with the merger, except pursuant to an effective
registration under the Securities Act covering such shares or in compliance
with Rule 145 under the Securities Act (or Rule 144 under the Securities Act in
the case of persons who become affiliates of Jameson) or another applicable
exemption from the registration requirements of the Securities Act. In general,
Rule 145 under the Securities Act provides that, for one year following the
effective time of the merger, an affiliate (together with certain related
persons) would be entitled to sell shares of Jameson stock acquired in
connection with the merger only through unsolicited "broker transactions" or in
transactions directly with a "market maker," as such terms are defined in Rule
144 under the Securities Act. Additionally, the number of shares of Jameson
common stock or Jameson Series S Preferred Stock to be sold by an affiliate
(together with certain related persons and certain persons acting in concert)
within any three-month period for purposes of Rule 145 under the Securities Act
may not exceed the greater of 1% of the outstanding shares of that class of
Jameson stock or the average weekly trading volume of such shares during the
four calendar weeks preceding such sale. Rule 145 under the Securities Act will
remain available to affiliates if Jameson timely files reports under the
Exchange Act with the Securities and Exchange Commission (the "SEC"). One year
after the effective time of the merger, an affiliate will be able to sell such
shares of Jameson common stock or Series S Preferred Stock without being
subject to such manner of sale or volume limitations, provided that Jameson is
current with its Exchange Act informational filings and such affiliate is not
then an affiliate of Jameson. Two years after the effective time of the merger,
an affiliate will be able to sell such shares of Jameson common stock or Series
S Preferred Stock without any restrictions so long as such affiliate had not
been an affiliate of Jameson for at least three months prior to the date of
such sale.
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The merger agreement requires as a condition of the merger that Jameson will
have received written undertakings, in form and substance satisfactory to
Jameson, signed by each person who in the opinion of counsel for Jameson is an
affiliate, that such person will not offer or sell or otherwise distribute the
shares of Jameson common stock or Series S Preferred Stock to be received upon
consummation of the merger except in conformance with the requirements
described in the preceding paragraph. In addition, the five executive officers
of Signature are required to agree not to sell any of their shares of Jameson
common stock or Series S Preferred Stock received in connection with the merger
for a period of one year from the effective time of the merger without the
prior consent of Jameson.
Nasdaq National Market Listing of Common and Series S Preferred Stock
Jameson has filed a notice with the Nasdaq National Market adding the
Jameson common stock to be issued in the merger to its shares traded on the
Nasdaq National Market and has applied to list the Series S Preferred Stock for
trading on the Nasdaq National Market. If the merger is completed, the
Signature common stock and Series A Preferred Stock will cease to be listed on
the Nasdaq National Market. In addition, such securities will be deregistered
under the Exchange Act. Accordingly, Signature will no longer be required to
file reports pursuant to the Exchange Act.
Amendment to Rights Agreement
Signature entered into an amendment to its rights agreement on January 27,
1999, which provides that the execution of the merger agreement will not
constitute an event giving rise to the exercisability of the rights. If the
merger agreement should terminate without the merger being completed, the
rights will be reinstated. See "Comparison of Rights of Stockholders of Jameson
and Signature--Rights Plan."
Third Party Approvals
Each of Jameson and Signature is a party to a number of credit facilities,
indentures and other similar agreements. Completion of the merger may require
the consent of, or waiver from, the other parties to certain of such
agreements. Failure to obtain such consents may constitute a default resulting
in termination, cancellation or acceleration of these agreements. In the merger
agreement, Jameson and Signature agreed to take all reasonable steps and to use
their best efforts to obtain all approvals, authorizations, certificates,
franchises, licenses, consents and clearances from third parties necessary to
complete the merger. Jameson's and Signature's obtaining any such third-party
consent or approval is a condition of the merger.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the merger agreement.
This summary is not complete and is qualified in its entirety by reference to
the merger agreement, which is incorporated by reference in its entirety and
attached to this Joint Proxy Statement/Prospectus as Appendix A. We encourage
the stockholders of Jameson and Signature to read the entire merger agreement
for a description of the terms and conditions of the merger.
General
The merger agreement provides that, upon the satisfaction or waiver of the
designated conditions to the merger, Signature will be merged with and into
Jameson, the separate existence of Signature will cease, and Jameson will
continue as the surviving corporation succeeding to and assuming all rights and
obligations of Signature and Jameson in accordance with Georgia and Indiana
law.
If the conditions to the merger are satisfied or waived, articles of merger
will be filed with the Secretary of State of Indiana and the Secretary of State
of Georgia, at which time the merger will become effective.
In the merger, each share of Signature common stock outstanding at the
effective time will be converted into one-half of a share of Jameson common
stock plus the right to receive a cash payment of $1.50 per share, and each
share of Signature Series A Preferred Stock will be converted into a share of
Jameson Series S Preferred Stock. If you are a holder of an odd number of
shares of Signature common stock, in lieu of the fractional share of Jameson
common stock that you would otherwise be entitled to receive, you will receive
a cash payment equal to the fraction multiplied by the average of the per share
closing prices for the Jameson common stock on the Nasdaq National Market for
the five consecutive trading days ending on the last trading day of the
calendar week before the calendar week in which the merger is closed.
Representations and Warranties
The merger agreement contains customary representations and warranties of
Signature and Jameson (which are subject, in certain cases, to specified
exceptions) relating to, among other things:
. due organization; standing and similar corporate matters;
. the authorization of the merger agreement and its binding effect on the
respective parties;
. capital stock structure;
. absence of certain changes;
. SEC filings and the accuracy of information contained in public
documents filed with the SEC;
. absence of defaults under material contracts;
. filing of complete and correct tax returns and the payment of all
applicable taxes;
. trademarks, copyrights and other proprietary rights;
. title to assets;
. information regarding litigation in which the parties are involved;
. the amounts and adequacy of the insurance coverage maintained by the
parties;
. brokers' and financial advisors' fees and expenses;
. compliance with laws, including laws relating to environmental,
employment and disabled persons;
. the authorization of the capital stock to be issued in the merger; and
. the accuracy of information supplied for this proxy
statement/prospectus.
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Pre-Closing Restructuring of Signature
Primarily because of the tax rules regarding REITs, Signature is required by
the merger agreement to take certain actions prior to completion of the merger.
We expect these actions to take place immediately before the merger because
they might have an adverse effect on Signature if the merger were not
completed. Signature may be required to declare and pay a dividend to the
holders of Signature common stock immediately prior to the closing of the
merger in order to distribute any accumulated earnings and profits that
Signature's independent accountants estimate Signature otherwise would have at
the time of closing. See "The Merger-General-Distribution of Earnings and
Profits." Signature will also sell its operating assets to Jameson Hospitality
which will use those assets in connection with the operation of the Signature
Inns. See "The Merger-General-Sale of Operating Assets."
Other Pre-Closing Covenants and Agreements
Covenants Regarding the Conduct of Business Pending the Merger. Signature
has agreed that until completion of the merger it will conduct its business
only in the ordinary course and consistent with past practice and custom. In
this regard, Signature has agreed to use all reasonable efforts to preserve
intact its present business organization, reputation, customer relations,
assets, practices and policies. In addition, Signature has agreed that without
the prior consent of Jameson until completion of the merger, it will:
. not enter into any material contract or other commitment, make any
material changes in its management or key personnel, including the
hiring or termination of such persons or changes in their compensation,
create or change in any material manner any employee benefit plans,
amend or otherwise change the terms of any of its leases or other
material agreements, commitments or other rights or obligations, or
waive or relinquish any of its rights, claims or authority, or give any
material consents to action or inaction, under any of the agreements,
arrangements, commitments, leases or other bases of its rights or
obligations;
. not enter into any real property lease or, directly or indirectly,
terminate, modify, assign, release or waive any material right under any
existing real property lease or increase its obligations under real
property leases;
. not enter into any long-term (in excess of one year) material contract
or other commitment involving an expenditure, commitment or obligation
in excess of $50,000;
. not make or agree to make any new capital expenditure or expenditures
which, individually, is in excess of $50,000 or which, in the aggregate,
are in excess of $250,000 other than routine or scheduled refurbishment
expenses;
. not pay, discharge or satisfy any claims, liabilities or obligations
other than the payment, discharge or satisfaction, in the ordinary
course of business of liabilities reflected or reserved against in, or
contemplated by the most recent consolidated financial statements;
. not settle or compromise any material tax liability;
. not authorize, recommend, propose or announce an intention to do any of
the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing;
. not violate or breach to any material extent any contract to which it is
a party or by which any of its assets are or may be bound;
. not incur, guarantee or otherwise become liable for any indebtedness or
other liability except in the ordinary course of business;
. not pay, cancel or otherwise provide for a discharge in advance of a
scheduled payment date with respect to, any debt, obligation or other
liability, or waive, cancel or compromise any right to receive any
payment or other benefit under any debt, obligation or other liability
owing to Signature except in the ordinary course of business;
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. not delay or postpone the payment of any material account payable or
other debt, obligation or other liability;
. administer its employee benefit plans in accordance with the provisions
of the Internal Revenue Code, ERISA, and any other applicable law, and
not amend or terminate any employee benefit plan; or
. notify Jameson in writing of receipt of any notice of audit,
investigation or governmental administrative proceeding involving any
employee benefit plan or of any action or claim by any person under any
employee benefit plan other than ordinary and usual claims for benefits
by participants or beneficiaries.
Covenants Regarding the Structure or Organization of Signature or Related to
the Merger. In addition, Signature has agreed that pending the closing of the
merger, it will:
. not amend or propose to amend its articles of incorporation or bylaws;
. not (a) issue or commit to issue any capital stock or other equity
securities except pursuant to the exercise of outstanding options or
other rights which are outstanding on the date of the agreement and
disclosed in the merger agreement or in the schedules to the merger
agreement, (b) sell or pledge any such securities, or (c) split, combine
or reclassify any equity securities;
. not pay any dividend or other distribution in respect of its capital
stock or other equity securities or redeem, purchase or otherwise
acquire any shares of its capital stock or other equity securities other
than (a) regular dividends paid on the Signature Series A Preferred
Stock and (b) dividends paid on the Signature common stock as required
to eliminate any accumulated earnings and profits of Signature, as more
fully described under "The Merger-General-Distribution of Earnings and
Profits;"
. except in connection with the sale of the operating assets of Signature
to Jameson Hospitality as more fully described under "The Merger-
General-Sale of Operating Assets," not (a) dispose of or assign any of
its assets or properties or permit any of its assets and properties to
be subjected to any liens, easements, rights-of-way or other
encumbrances except for immaterial transactions effected in the ordinary
course of business, or (b) sell any material part of its operations or
business to any third party;
. not (a) merge, consolidate or otherwise combine or agree to merge,
consolidate or otherwise combine with any other person, (b) acquire all
or substantially all, or a material portion of all, the assets, capital
stock or other equity securities of any other person, or any business
division of any other person or (c) otherwise acquire control or
ownership of any other person; or
. take any action as determined by Jameson to be reasonably necessary to
preserve Jameson's status as a "real estate investment trust" so long as
such actions have no material adverse economic effect on Signature and
its stockholders in the event that the merger is not completed.
Covenants of Jameson Pending the Merger. Jameson has agreed that pending the
closing of the merger, it will:
. use its reasonable efforts to comply with all applicable state
securities laws;
. take all such reasonable actions as may be required or appropriate to
approve the articles of amendment of its amended and restated articles
of incorporation in order to create and authorize the issuance of the
Jameson Series S Preferred Stock;
. use its best efforts to have the shares of Jameson common stock and
Jameson Series S Preferred Stock listed on the Nasdaq National Market;
. for one year following the effective time of the merger, not take or
fail to take any action that would cause the merger not to constitute a
"reorganization" within the meaning of Sections 368 of the
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Internal Revenue Code, as more fully described under "The Merger--
Federal Income Tax Consequences."
No Solicitation of Transactions
Under the merger agreement, Signature has agreed that, except as may be
required by the merger agreement, neither it nor any officer, director or
employee of or any investment banker, attorney, accountant, agent or other
advisor or representative of Signature or any of its subsidiaries will:
. solicit, initiate, or encourage the submission of any merger,
consolidation, share exchange, business combination or other similar
transaction involving Signature or any of its significant
subsidiaries or any proposal or offer, other than a proposal or
offer by Jameson or an affiliate of Jameson:
. to acquire in any manner, directly or indirectly, an equity
interest in or any voting securities of, Signature or any of its
significant subsidiaries, or
. to acquire or lease in any manner, directly or indirectly, any
significant amount of property, business or other assets (a
"Takeover Proposal"),
. except to the extent discussed in the next paragraph, enter into any
agreement with respect to any Takeover Proposal, or
. participate in any discussions or negotiations regarding or furnish
to any person any information with respect to Signature's business,
properties or assets, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal.
However, the merger agreement provides that if prior to the Signature
stockholder meeting, Signature receives an unsolicited written Takeover
Proposal, which offer appears in the good faith determination of the Signature
board of directors, based on the advice of Signature's outside counsel and
financial advisors, to be a Superior Proposal (as defined below) and which
Signature's Board of Directors is legally obligated to consider by principles
of fiduciary duty to stockholders under applicable law, the foregoing
restrictions shall not apply.
The merger agreement further provides that neither the Signature Board of
Directors nor any committee thereof shall:
. withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Jameson, the approval or recommendation by the board of
directors of Signature of the merger or the merger agreement,
. approve or recommend, or propose to approve or recommend, any
Takeover Proposal, or
. take action to render the Signature stockholder rights inapplicable
to any Takeover Proposal.
The Signature Board of Directors may, however, to the extent required by the
fiduciary obligations thereof, as determined by the advice of its legal
counsel, approve or recommend (and, in connection therewith, withdraw or modify
its approval or recommendation of the merger agreement or the merger) a
Superior Proposal.
If, before the Signature stockholders approve the merger agreement,
Signature's Board of Directors determines in good faith, after it has received
a Superior Proposal and after it has received advice from such outside counsel
that the failure to do so would result in a reasonable possibility that
Signature's board of directors would breach its fiduciary duty under applicable
law, Signature must (a) notify Jameson in writing that it intends to accept a
Superior Proposal and enter into such a binding written agreement with respect
to the transaction contemplated thereby, and (b) attach the most current
version of such agreement or a full and complete summary of the terms thereof
to such notice. Jameson will have the opportunity, within five days of receipt
of Signature's written notice, to make an offer that the Signature Board of
Directors determines, in good faith after consultation with its financial
advisors and outside counsel, is at least as favorable, from a financial point
of view, to the stockholders of Signature as the Superior Proposal. Signature
agrees that it will not enter
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into a binding agreement referred to in clause (1) above until at least the
sixth day after it has provided the required notice to Jameson. Signature must
also notify Jameson promptly of its intention to enter into a written agreement
referred to in its notification changes at any time after giving such
notification.
For purposes of the merger agreement, "Superior Proposal" means a bona fide
written proposal made by a third party to acquire Signature pursuant to a
tender or exchange offer, a merger, a share exchange, a sale of all or
substantially all its assets or otherwise on terms which the board of directors
of Signature determines, based on the advice of its financial advisors and in
light of all relevant circumstances (including the apparent likelihood of such
third party being able to obtain any financing that it may require to complete
the proposed transaction), are financially superior to those provided for in
the merger agreement.
Signature must promptly (but in any event within one day) advise Jameson
orally and in writing of any Takeover Proposal or any inquiry regarding the
making of a Takeover Proposal, including any request for information, the
material terms and conditions of such request, Takeover Proposal or inquiry,
and the identity of the person or entity making such request, Takeover Proposal
or inquiry. Signature will, to the extent reasonably practicable, keep Jameson
fully informed of the status and details (including amendments or proposed
amendments) of any such request, Takeover Proposal or inquiry.
Signature Stock Options
The treatment in the merger of the outstanding employee options to purchase
shares of Signature common stock is described in "The Merger-Interests of
Persons Other than Stockholders in the Merger."
Maintenance of Indemnification Obligations
Under the terms of the merger agreement, Jameson agrees that all rights to
indemnification and exculpation from liabilities for acts or omissions
occurring prior to the merger now existing in favor of any current or former
employees, agents, directors or officers of Signature and its subsidiaries as
provided in their respective articles of incorporation or by-laws will continue
in effect for a period of not less than five years from the effective time of
the merger and Jameson will assume Signature's indemnification obligations.
Jameson has also agreed that the policies of director and officer liability
insurance maintained by Signature will be continued for a period of five years
from the effective time of the merger, although Jameson may substitute policies
of at least the same coverage containing terms and conditions which are no less
advantageous.
Fees and Expenses
All fees and expenses incurred in connection with the merger agreement and
the merger will be paid by the party incurring such expenses, whether or not
the merger is completed, except;
(a) if the merger is not completed, Jameson will pay one-half of the fees
of Signature's tax advisors incurred in connection with their
determination of the amount, if any, of the accumulated earnings and
profits that Signature is expected to have at the time of the merger;
(b) if the merger is not completed, Jameson will reimburse Signature for
certain financing expenses in the amount of $75,000 unless the
termination of the agreement is due to a breach by Signature; and
(c) as described under "--Termination--Break-up Fees."
Conditions to the Consummation of the Merger
Conditions to Each Party's Obligations. The following conditions must be
satisfied or waived in order for Jameson and Signature to be obligated to
complete the merger and the other transactions contemplated by the merger
agreement:
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. receipt of the various consents and approvals required from third
parties, consisting primarily of the consents and approvals required
from the lenders of Signature and Jameson in their respective loan
documents;
. approval of the merger agreement by the holders of a majority of the
outstanding shares of Signature common stock and a majority of the
outstanding shares of Signature Series A Preferred Stock, voting
separately as a class, and the holders of a majority of the outstanding
shares of Jameson common stock present and entitled to vote at the
Jameson stockholders meeting;
. approval for trading on the Nasdaq National Market of the shares of
Jameson common stock and Jameson Series S Preferred Stock to be issued
to the Signature stockholders as a result of the merger; and
. there shall not be any litigation or other proceedings commenced which
would restrain, prohibit or invalidate, or result in the payment of
substantial damages in respect of, the merger or any other transaction
contemplated by the merger agreement, or materially limit or prohibit
Jameson's ownership of the properties or other assets of Signature or
limit the operation of those properties and assets by Jameson.
Additional Conditions to Jameson's Obligations. The following conditions
among others must be satisfied or waived in order for Jameson to be obligated
to complete the merger and the other transactions contemplated by the merger
agreement:
. the representations and warranties of Signature in the merger agreement
shall be true and accurate at the time of the consummation of the
merger;
. Signature shall have performed its covenants, agreements and conditions;
. Signature shall have provided Jameson with customary officers'
certificates;
. Jameson Hospitality shall have entered into the employment agreements
with the five top members of Signature management, as more fully
described under "The Merger--Interest of Certain Persons Other than
Stockholders in the Merger";
. Jameson shall have received a legal opinion from counsel to Signature
regarding certain legal matters;
. certain affiliates of Signature shall agree in writing that they will
not sell any of the shares of Jameson capital stock acquired in the
merger for a period of one year following the merger without the prior
consent of Jameson;
. the rights issued to the holders of Signature common stock shall not
have become nonredeemable, exercisable, distributed or triggered
pursuant to the terms of the Signature Rights Agreement;
. the fairness opinion issued by Jameson's financial advisor, which is
more fully described under "The Merger--Opinion of Jameson's Financial
Advisor" shall not have been withdrawn;
. Jameson shall have received an opinion from Signature's independent
accountants regarding the absence of any accumulated earnings and
profits of Signature as, assuming the contemplated pre-merger
transactions take place as of the time of the merger;
. Jameson shall have received an opinion from its counsel, Conner &
Winters, A Professional Corporation, to the effect that consummation of
the merger and the other transactions contemplated by the merger
agreement will not cause Jameson to cease to qualify as a "real estate
investment trust" for federal income tax purposes, and that the merger
will be treated for federal income tax purposes as a reorganization
within the meaning of section 368(a) of the Internal Revenue Code; and
. there shall be no material adverse changes in the business, properties,
financial condition or results of operations of Signature or on the
ability of Signature to complete the merger.
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Additional Conditions to Signature's Obligations. The following conditions
among others must be satisfied or waived in order for Signature to be obligated
to complete merger and the other transactions contemplated by the merger
agreement:
. the representations and warranties of Jameson in the merger agreement
shall be true and accurate at the time of the consummation of the
merger;
. Jameson shall have performed its covenants, agreements and conditions;
. Jameson shall have provided Signature with customary officers'
certificates;
. Signature shall have received a legal opinion from Jameson's counsel
regarding certain legal matters;
. the fairness opinion issued by Signature's financial advisor which is
more fully described under "The Merger-Fairness Opinions" shall not have
been withdrawn;
. Signature shall have received an opinion from Conner & Winters, A
Professional Corporation, to the effect that (a) consummation of the
merger and the other transactions contemplated by the merger agreement
will not cause Jameson to cease to qualify as a REIT for federal income
tax purposes, (b) the merger will be treated for federal income Tax
purposes as a reorganization within the meaning of section 368(a) of the
Internal Revenue Code and (c) Signature and the Signature stockholders
will recognize no gain or loss for federal income tax purposes as a
result of completion of the merger except as to the cash consideration
received by Signature stockholders and except for any gain that
Signature may realize in connection with the sale of its operating
assets to Jameson Hospitality);
. the Jameson Board of Directors shall have taken all necessary corporate
action to provide for the issuance and reservation of such number of
shares of Jameson common stock and Jameson Series S Preferred Stock as
may be required to complete the merger; and
. there shall be no material adverse changes in Jameson's business,
properties, financial condition or results of operations of Jameson or
on Jameson's ability to complete the merger.
Termination
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after approval of the merger by the
stockholders of Signature and Jameson:
. by mutual written consent of Jameson and Signature;
. by either Jameson or Signature if the merger has not been completed on
or before July 31, 1999, other than due to the failure of the party
seeking to terminate to perform its obligations under the merger
agreement;
. by either Jameson or Signature, if any court of competent jurisdiction
or governmental entity shall have issued an order, decree or ruling or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the merger, and such order, decree, ruling or other action
shall have become final and nonappealable, provided that the party
seeking to terminate shall have used its best efforts to appeal such
order, decree, ruling or other action;
. by either Jameson or Signature, if any required approval of the
stockholders of Jameson or Signature shall not have been obtained;
. by Jameson if Signature's Board of Directors withdraws or adversely
modifies its approval or recommendation of the merger or approves or
recommends a Superior Proposal as discussed in this section under the
caption "--Other Pre-Closing Covenants and Agreements--No Solicitation
of Transactions";
. by the Signature Board of Directors if it authorizes Signature to enter
into a binding written agreement concerning a Superior Proposal, and
Jameson does not make, within five days of receipt of
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Signature's written notification of its intention to enter into a
binding agreement for a Superior Proposal, an offer that the Signature
Board of Directors determines, in good faith after consultation with its
financial advisors and outside counsel, is at least as favorable, from a
financial point of view, to the stockholders of Signature as the
Superior Proposal, and Signature, prior to such termination has paid to
Jameson in cash the break-up fee described below in this section under
the caption "--Termination";
. by Jameson, if Signature has failed to perform in any respect any of its
obligations required to be performed by it and:
. such failure continues for more than 30 days after notice; and
. the failure to so perform has not been caused by or results from a
breach of the agreement by Jameson,
except where such failure or failures would not in the aggregate have a
material adverse effect on the business, properties, financial
condition or results of operations of Signature or Jameson on the
ability of Signature or Jameson to complete the merger;
. by Signature, if Jameson has failed to perform in any respect any of its
obligations required to be performed by it under the merger agreement
and
. the failure continues for more than 30 days after notice; and
. the failure to so perform has not been caused by or resulted from a
breach of the merger agreement by Signature,
except where such failure or failures would not in the aggregate have a
material adverse effect on the business, properties, financial
condition or results of operations of Signature or on the ability of
Signature to complete the merger; or
. by Signature, if the average of the closing sales prices for Jameson
common stock as reported on The Nasdaq Stock Market for the period of
ten consecutive trading days ending five business days prior to the date
of the Signature stockholder meeting is less than $7.00 per share.
Effect of Termination. If the merger agreement is terminated in accordance
with the above provisions, the merger agreement will become void. In that case,
there will be no liability or obligation on the part of Jameson or Signature or
their officers or directors except for the obligations: (a) to pay the break-up
fee discussed below, if applicable, (b) to pay the fees and expenses discussed
in this section under the caption""The Merger Agreement--Fees and Expenses,"
(c) to pay their own financial advisors any amounts that may be due to them,
and (d) to fulfill the obligations of the parties under their confidentiality
agreement dated December 16, 1998, except to the extent that such termination
results from the willful breach by a party of any of its representations,
warranties or agreements in the merger agreement.
Break-up Fee. If the merger is not completed because either:
. the merger agreement is terminated either:
. by Jameson because the Signature Board of Directors withdraws or
adversely modifies its recommendation of the merger;
. by Jameson because of a material breach by Signature of its
obligations under the merger agreement; or
. by Signature in order to complete a Superior Proposal; or
. if the stockholders of Signature do not approve the merger agreement and
either:
. the Signature Board of Directors does not recommend approval of the
merger agreement or, prior to the Signature stockholder meeting,
changes its recommendation for approval; or
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. any third party (including any affiliate of Signature) commences any
tender or exchange offer for the shares of Signature common stock or
Signature preferred stock or solicitation of proxies voting against
approval of the merger agreement at any time prior to the date on
which the Signature stockholder meeting is scheduled and the
Signature Board of Directors fails to take a position recommending
that such offer not be accepted or that such proxies not be granted;
then Signature agrees to pay Jameson $2,000,000 in cash plus an amount equal to
all of the out-of pocket fees and expenses reasonably incurred by Jameson in
connection with this Agreement and the transactions contemplated hereby, not to
exceed $500,000 in the aggregate.
Stockholders' Agreement to Vote. Five executive officers and all other
directors of Signature have joined in the execution of the merger agreement for
the sole purpose of agreeing to vote their shares of Signature common stock and
Signature Series A Preferred Stock in favor of the merger agreement. The merger
agreement provides, however, that such individuals shall be free to vote their
shares in their sole discretion if the board of directors of Signature
terminates the merger agreement in order to accept a Superior Proposal (as
described above under "The Merger Agreement--No Solicitation of Transactions").
Each of these stockholders agrees that he will not transfer or pledge his
shares or grant a proxy or power of attorney with respect thereto which would
have the effect of not subjecting the shares owned by him at the date of the
merger agreement to continue to be subject to the commitment to vote for the
merger agreement.
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THE COMPANIES
Jameson
General. Jameson is a self-administered real estate investment trust
("REIT") headquartered in Atlanta, Georgia which develops and owns limited
service hotel properties ("Jameson Inns") operating in the southeastern United
States under the trademark "The Jameson Inn(R)." At December 31, 1998, Jameson
had a total of 114 Jameson Inns either in operation or under development,
including 81 Jameson Inns in operation (3,748 available rooms), 20 Jameson Inns
under construction and contracts to acquire 13 parcels of land on which
additional Jameson Inns are expected to be constructed during 1999. In
addition, at December 31, 1998, eight of the Jameson Inns in operation were
undergoing 20-room expansions. Upon completion of these projects, Jameson
expects to have 6,000 available rooms.
Jameson focuses on developing Jameson Inns in communities in the
southeastern United States which have a strong and growing industrial or
commercial base and a shortage of quality hotel rooms. Generally, Jameson Inns
are rooms-only facilities designed to appeal to price and quality conscious
business travelers, as well as family and leisure travelers. The typical
Jameson Inn developed through the end of 1998 is a two-story, Colonial-style
structure with exterior access to the guest rooms and constructed on a one- to
two-acre tract with an outdoor swimming pool, fitness center and parking area.
Jameson Inns feature amenities such as remote-controlled television with access
to cable programming, including HBO, free local calls, complimentary
continental breakfast and newspaper, king-sized or double beds, attractive
decor, quality furnishings and, in select rooms, whirlpool baths and small
refrigerators. In late 1998, Jameson designed and began building a new three-
story, interior corridor structure with 56 to 80 rooms, depending on the
location, and elevator access to each floor. The amenities in the new building
are comparable to those of the current Jameson Inns. Based on market demand,
certain Jameson Inns have been expanded one or more times since their initial
construction.
The lodging industry is generally divided into three broad categories based
on the type of services provided. The first of these categories, full service
hotels and resorts, offers their guests rooms, food and beverage services,
meeting rooms, room service and similar guest services, and, in some cases,
resort entertainment and activities. The second category is the limited service
hotel, which generally offers rooms-only facilities and amenities such as
swimming pools, continental breakfast and similar, limited services. The third
category is the all-suite hotel which offers guests more spacious
accommodations and usually kitchen facilities in the suite and common laundry
facilities. Each of these categories is generally subdivided into
classifications based on price and quality. The terminology generally used in
the hotel industry describes properties as luxury at the high end, economy in
the middle and budget at the low end of the scale. Prices for each of these
categories vary by region and locale. Jameson Inns typically fall within the
category of small, limited service, economy hotels.
The hotel industry is seasonal in nature. Occupancy rates are generally
higher in the second and third calendar quarters than in the first and fourth
quarters. This seasonality can be expected to cause quarterly fluctuations in
Jameson's revenues.
All Jameson Inns are leased to Jameson Hospitality and, prior to 1998, were
leased to Jameson Hospitality's predecessors, Jameson Operating Company,
Jameson Operating Company, LLC, and Jameson Operating Company, II, LLC,
successively. Jameson Operating Company was formed in 1993 to conduct the
operation of the Jameson Inns and entered into the Jameson Lease with Jameson
for that purpose. References to Jameson Hospitality throughout this Joint Proxy
Statement/Prospectus refer to either Jameson Hospitality or its predecessors,
as the context requires.
In order to reduce Jameson's state franchise tax liability, Jameson Inns
located in certain states are owned by subsidiaries of Jameson which conduct
business only in the respective states. Jameson owns 99.8% of each of these
subsidiaries and various companies wholly-owned by Jameson's chairman and chief
executive officer
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and his spouse, own the remaining 0.2% of the subsidiaries. Each such Jameson
subsidiary leases all of the Jameson Inns which it owns to Jameson Hospitality
under the terms of the Jameson Lease.
Jameson was formed in 1988 to develop, own and operate Jameson Inns and
elected to be taxed for federal income tax purposes as a REIT beginning January
1, 1994. In 1994 Jameson became a publicly held company upon consummation of an
initial public offering of its common stock. Jameson's executive offices are
located at 8 Perimeter Center East, Suite 8050, Atlanta, Georgia 30346-1603.
Jameson's telephone number is (770) 901-9020.
The Jameson Inns. The following table sets forth certain information about
the 81 operating Jameson Inns at December 31, 1998.
<TABLE>
<CAPTION>
Year Number 1998
Opened/ Of Room Nights
Location Expanded Rooms Available (1)
- -------- -------- ------ -------------
<S> <C> <C> <C>
ALABAMA:
Albertville...................................... 94 40 14,590
Alexander City................................... 94/95 60 21,900
Arab............................................. 95 40 14,600
Auburn........................................... 97 40 14,600
Decatur (3)...................................... 96 40 14,593
Eufaula.......................................... 96 40 14,586
Florence......................................... 96/96 65 23,725
Greenville....................................... 96 40 14,600
Jasper........................................... 97/98 58 15,516
Oxford........................................... 97 40 14,600
Ozark............................................ 95 40 14,539
Prattville (3)................................... 98 38 2,128
Scottsboro....................................... 98 40 3,720
Selma............................................ 92/95 60 21,571
Sylacauga........................................ 97 40 14,600
Trussville (3)................................... 98 40 9,120
Tuscaloosa (2)................................... 97 40 14,600
--- -------
Subtotal........................................ 761 243,588
--- -------
GEORGIA:
Albany........................................... 95/96 62 22,630
Americus......................................... 92/93/94 79 28,835
Bainbridge....................................... 94/95 60 21,900
Brunswick........................................ 95/96 60 21,902
Calhoun.......................................... 88/94 59 21,509
Carrollton....................................... 94/95 60 21,900
Commerce......................................... 96 40 14,600
Conyers (3)...................................... 96 39 14,238
Covington........................................ 90 40 13,870
Dalton (3)....................................... 98 39 3,901
Douglas.......................................... 95 40 14,602
Dublin (2)....................................... 97 40 14,602
Eastman.......................................... 89 41 14,964
Fitzgerald....................................... 94 40 14,600
Greensboro....................................... 90 41 14,655
Hartwell......................................... 92 40 14,600
Jesup............................................ 90/91 61 21,982
Kingsland........................................ 98 40 8,120
LaGrange......................................... 96/98 56 20,153
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Year Number 1998
Opened/ Of Room Nights
Location Expanded Rooms Available (1)
- -------- -------- ------ -------------
<S> <C> <C> <C>
Macon............................................ 97 40 14,600
Milledgeville.................................... 91 100 36,500
Oakwood.......................................... 97 40 14,355
Perry............................................ 98 40 13,660
Statesboro....................................... 89 39 14,229
Thomaston ....................................... 90/96 61 21,900
Thomasville (2).................................. 98 40 80
Valdosta......................................... 95/95 55 20,075
Warner Robins.................................... 97 59 21,355
Washington....................................... 90 41 14,965
Waycross......................................... 93/96 60 21,959
Waynesboro....................................... 96 40 14,598
Winder........................................... 88 40 14,600
---- -------
Subtotal........................................ 1592 546,439
---- -------
MISSISSIPPI:
Tupelo........................................... 98/98 60 4,480
---- -------
Subtotal........................................ 60 4,480
---- -------
NORTH CAROLINA:
Asheboro......................................... 97 40 14,600
Dunn (2)......................................... 98 40 14,280
Eden............................................. 98 39 7,527
Forest City...................................... 97/98 59 20,651
Garner........................................... 98 40 4,520
Greenville....................................... 98 40 6,760
Hickory (3)...................................... 98 39 3,549
Laurinburg....................................... 97 40 14,600
Lenoir........................................... 98 39 9,087
Roanoke Rapids................................... 98 39 6,825
Sanford.......................................... 97 40 14,600
Smithfield....................................... 98 40 11,080
Wilson........................................... 97 39 14,230
---- -------
Subtotal........................................ 534 142,309
---- -------
SOUTH CAROLINA:
Anderson......................................... 93/94 60 21,900
Cheraw (3)....................................... 95 40 14,600
Duncan........................................... 98 40 11,040
Easley........................................... 95 40 14,604
Gaffney.......................................... 95/97 58 21,160
Georgetown....................................... 96 40 14,600
Greenwood........................................ 95/96 64 23,122
Lancaster........................................ 95 40 14,576
Orangeburg....................................... 95 40 14,587
Seneca........................................... 96 40 14,606
Simpsonville..................................... 96 40 14,662
Spartanburg...................................... 98 40 13,837
Union............................................ 97 40 14,600
---- -------
Subtotal........................................ 582 207,894
---- -------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Year Number 1998
Opened/ Of Room Nights
Location Expanded Rooms Available (1)
- -------- -------- ------ -------------
<S> <C> <C> <C>
TENNESSEE:
Cleveland(3)..................................... 98 40 7,560
Clinton.......................................... 97 40 14,602
Decherd.......................................... 97 40 14,596
Johnson City..................................... 97 59 20,930
Tullahoma........................................ 97 40 14,600
----- ---------
Subtotal........................................ 219 72,288
----- ---------
Total............................................. 3,748 1,216,998
===== =========
</TABLE>
- --------
(1) As to Jameson Inns opened or expanded during 1998, room nights available
reflects all rooms available from the opening date of the Inn or its
expansion but does not include periods during which rooms may have been
unavailable due to repairs or renovations.
(2) Land is subject to a ground lease.
(3) A 20-room expansion of this Inn was under construction at December 31,
1998.
At December 31, 1998, 41 of Jameson's 81 operating Jameson Inns were pledged
to secure indebtedness under Jameson's $46.2 million credit facility. In
addition, 24 operating Jameson Inns were pledged to secure other mortgage
indebtedness and 10 of the 20 Jameson Inns under construction at December 31,
1998, were pledged to secure construction loans.
The Jameson Lease. Jameson has entered into the Jameson Lease with Jameson
Hospitality covering all of the completed and operating Jameson Inns.
Furthermore, new Jameson Inns, and Signature Inns if the merger is completed,
developed by Jameson during the term of the Jameson Lease will become subject
to the Jameson Lease upon completion of construction or, as the case may be, of
the merger. The following is a summary description of the material terms and
conditions of the Jameson Lease.
Term; Rent. The Jameson Lease term expires on December 31, 2007, subject to
earlier termination upon the occurrence of certain events. During the term of
the Jameson Lease, Jameson Hospitality is obligated to pay to Jameson base rent
calculated on the number of rooms in operation on the first day of the month
and, where required under the formula described below, percentage rent based on
room revenues. In general, percentage rent is calculated by multiplying average
daily per room rental revenues for all of the Jameson Inns under each master
lease comprising the lease by certain percentages. Under the Jameson Lease,
base rent is payable monthly and equals $264.00 per room per month multiplied
by the number of rooms available to rent at the beginning of the month.
Percentage rent is payable quarterly and equals the following:
39% of the first $22.18 of average daily per room rental revenues; plus
65% of all additional average daily per room rental revenues; less
100% of base rent paid for the same period.
Percentage rent is based on the total number of rooms available to rent
during the period, rather than the number of rooms available to rent at the
beginning of each month. The total base rent plus percentage rent payable by
Jameson Hospitality is limited to 47% of room revenues. For purposes of
calculating base rent and percentage rent, each master lease under which
Jameson or one of its subsidiaries is lessor is treated as a separate Jameson
Lease; that is, only the number of rooms and amount of room revenue
attributable to Jameson Inns under a particular master lease are considered
when determining the amount of base rent and percentage rent Jameson
Hospitality is obligated to pay under such Jameson Lease.
Effective January 1, 2000, the $22.18 amount referred to above will be
increased for 2000 based on the percentage increase in the Consumer Price Index
for all Urban Consumers published by the U.S. Department of
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Labor Bureau of Labor Statistics for the year ended December 31, 1999. Similar
adjustments will be made on each subsequent January 1 for the year then
beginning based on the changes the Consumer Price Index experienced over the
most recently completed calendar year.
Average daily per room rental revenues are determined by dividing room
revenues realized by Jameson Hospitality over any given period by the sum of
the number of rooms available for rent on each day during the period. Room
revenues as defined in the Jameson Lease include revenues from telephone
charges, vending machine payments and other miscellaneous revenues and exclude
all credits, rebates and refunds, sales taxes and other excise taxes. On or
before March 1 of each year, Jameson Hospitality is required to provide a
calculation of the percentage rent payable for the preceding year, together
with a report by the same independent accounting firm serving as auditors of
Jameson's financial statements, on the amount of room revenues and percentage
rent. Total rent, including both base rent and percentage rent, earned by
Jameson for the years ended December 31, 1996, 1997 and 1998 was $9.4 million,
$13.0 million and $18.2 million, respectively.
Operating Expenses. In addition to paying base rent and, if applicable,
percentage rent, the Jameson Lease requires Jameson Hospitality to pay workers'
compensation insurance premiums, and all costs and expenses incurred in the
operation of the Jameson Inns. Jameson is responsible for other types of
insurance, real and personal property taxes, the costs of replacing or
refurbishing furniture, fixtures and equipment, and the maintenance of
structural elements, roofs and underground utilities.
Jameson Hospitality. Jameson Operating Company, a predecessor of Jameson
Hospitality, was formed in 1993 to conduct the operation of the Jameson Inns
and entered into the Jameson Lease with Jameson for that purpose. Effective
September 12, 1997 and until December 28, 1997, Jameson Operating Company was
wholly owned by Thomas W. Kitchin, chairman and chief executive officer of
Jameson. On December 28, 1997, Jameson Operating Company II, LLC acquired all
of the assets, liabilities and operations of Jameson Operating Company and
succeeded Jameson Operating Company as lessee and operator of the Jameson Inns
under the Jameson Lease. Jameson Operating Company II, LLC was also wholly
owned by Thomas W. Kitchin and his spouse. Effective March 31, 1998, Jameson
Operating Company, II merged into Jameson Development Company, LLC which, on
May 7, 1998, changed its name to Jameson Hospitality, LLC. Jameson Hospitality
has a history of operating losses and a limited net worth.
Approval of Jameson Lease. Jameson's independent directors are members of
the Jameson Board of Directors who are not also officers or employees of
Jameson and who are not affiliated with Jameson Hospitality. The Jameson
independent directors determined that the Jameson Lease, as amended, is fair to
Jameson. The independent directors also consented to the purchase of Jameson
Hospitality by Thomas W. Kitchin and the transfer of the Jameson Lease to
Jameson Hospitality as required by the terms of the Jameson Lease.
Trademark. Jameson Hospitality is the owner of the registered trademark, The
Jameson Inn. The Jameson Lease requires Jameson Hospitality to operate the
Jameson Inns using the trademark and not to use the trademark (or license its
use to any other parties) for the operation of lodging facilities other than
the Jameson Inns if Jameson objects to such unrelated use. Jameson has an
option to purchase the trademark from Jameson Hospitality at the end of the
Jameson Lease or upon the earlier termination of the Jameson Lease with respect
to all Jameson hotel properties for $25,000.
Maintenance and Modifications. Under the Jameson Lease, Jameson is required
to maintain the underground utilities and the structural elements of the
improvements and the roof of each Jameson Inn. Jameson Hospitality is required,
at its expense, to maintain the Jameson Inns in good order and repair and to
make non-structural, foreseen and unforeseen, and ordinary and extraordinary
repairs which may be necessary and appropriate to keep the Jameson Inns in good
order and repair.
Jameson Hospitality, at its expense, may make non-capital and capital
additions, modifications or improvements to the Jameson Inns which do not
significantly alter the character or purposes, or significantly
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detract from the value or operating efficiencies, of the Jameson Inns.
Modifications or improvements estimated to cost in excess of $100,000 must be
done under the supervision of a qualified architect, engineer or contractor
satisfactory to Jameson and in accordance with plans and specifications
approved by Jameson. All alterations, replacements and improvements are subject
to all the terms and provisions of the Jameson Lease and become the property of
Jameson upon termination of the Jameson Lease. Through February 28, 1999,
Jameson Hospitality had not undertaken any significant capital or non-capital
alterations, replacements or improvements to the Jameson Inns.
Hotels in general, including the Jameson Inns, have an ongoing need for
renovation and refurbishment. Jameson seeks to control such costs through the
construction of new Jameson Inns rather than the purchase and renovation of
existing hotel properties. A significant number of Jameson Inns have been
constructed within the past two years and generally do not require any
renovation or refurbishment. Jameson Inns older than two years require periodic
replacement of furniture, fixtures and equipment and the Jameson Lease requires
that Jameson pay the costs of such refurbishment. Jameson has adopted a policy
of maintaining sufficient cash or available borrowings (collectively the
"Reserve") to fund expenditures for replacement and refurbishment of furniture,
fixtures and equipment for the Jameson 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.
Insurance and Property Taxes. The Jameson Lease provides that Jameson is
responsible for paying or reimbursing Jameson Hospitality for real and personal
property taxes as well as for all insurance coverage on the Jameson Inns except
workers' compensation coverage which is an obligation of Jameson Hospitality.
Indemnification. The Jameson Lease requires Jameson Hospitality to indemnify
Jameson and its affiliates from and against all liabilities, costs and expenses
(including reasonable attorneys' fees and expenses) incurred by, imposed upon
or asserted against Jameson or its affiliates, on account of, among other
things, (a) any accident or injury to person or property on or about the
Jameson Inns, (b) any misuse by Jameson Hospitality, or any of its agents, of
the leased property, (c) taxes and assessments in respect of the Jameson Inns
(other than real and personal property taxes and income taxes of Jameson on
income attributable to the Jameson Inns), or (d) any breach of the Jameson
Lease by Jameson Hospitality. The Jameson Lease does not, however, require
Jameson Hospitality to indemnify Jameson against Jameson's gross negligence or
willful misconduct. Jameson is required to indemnify Jameson Hospitality
against any environmental liabilities other than those caused by the acts or
negligent failures of Jameson Hospitality (for which Jameson Hospitality will
indemnify Jameson).
Assignment and Subleasing. Under the terms of the Jameson Lease, Jameson
Hospitality is not permitted to sublet all or any part of any of the Jameson
Inns or assign its interest under the Jameson Lease, other than to an affiliate
of Jameson Hospitality controlled by Mr. Kitchin, without the prior written
consent of Jameson. No assignment or subletting will release Jameson
Hospitality from any of its obligations under the Jameson Lease.
Events of Default. Events of default under the Jameson Lease include, among
others, the following:
(a) Jameson Hospitality's continuing failure to pay rent for a period of 10
days after receipt by Jameson Hospitality of written notice of nonpayment from
Jameson;
(b) except under certain circumstances, continued failure by Jameson
Hospitality to observe or perform any other term of the Jameson Lease for a
period of 30 days after Jameson Hospitality receives notice of the failure from
Jameson;
(c) Jameson Hospitality's bankruptcy, insolvency or similar event; and
(d) Jameson Hospitality's voluntary discontinuation of operations at an Inn
for more than five days, without the consent of Jameson, except as a result of
damage, destruction or condemnation.
If an event of default occurs and continues beyond any curative period,
Jameson has the option of terminating the Jameson Lease as to any individual
Jameson Inn (which would not affect the Jameson Lease as
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to the remainder of the Jameson Inns) or as to all of the Jameson Inns by
giving Jameson Hospitality 10 days written notice of the termination date.
Termination of Jameson Lease on Disposition of the Jameson Hotel Properties.
If Jameson enters into an agreement to sell or otherwise transfer a hotel
property, Jameson may terminate the Jameson Lease as to that property. However,
if the Jameson Lease is terminated as to hotels comprising at least 25% of the
total rooms of all of Jameson's hotel properties within a period of 12
consecutive months, Jameson Hospitality must be compensated for the loss of its
leasehold interest or offered substitute hotels. Most of the Jameson Inns have
been mortgaged to secure indebtedness of Jameson. In the event of a foreclosure
sale (or transfer in lieu of foreclosure) of any hotel property, the Jameson
Lease will terminate with respect to such hotel property.
Inventory. The Jameson Lease requires all inventory required in the
operation of the Jameson Inns to be acquired and replenished by Jameson
Hospitality. Inventory includes items such as cleaning supplies, linens, towels
and paper goods.
Lease Terms for Signature Inns. If the merger is completed, Jameson will
lease the Signature Inns to Jameson Hospitality under master leases with
substantially the same terms and conditions as the Jameson Lease, except for
the calculation of rental payments due. Base rent will be $394 per room and
percentage rent will equal 37% of the first $35.00 of average daily per room
rental revenues, plus 65% of the next $10.00 of average daily room rentals,
plus 70% of all additional average daily room rentals, less 100% of base rent.
Growth Plans for 1999. Jameson's objective is to enhance stockholder value
by increasing funds from operations and cash available for distribution by
developing additional Jameson Inns, and Signature Inns if the merger is
completed, expanding existing hotel properties and participating, through the
Jameson Lease, in increased room revenues generated through operation of its
hotel properties by Jameson Hospitality. For definitions and calculation of
funds from operations and cash available for distributions, see "--Jameson
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Development of New Hotels. Jameson believes that attractive opportunities
exist for the development of new Jameson Inns in certain markets in the
southeastern United States. Accordingly, Jameson intends to continue developing
new Jameson Inns in targeted communities. With operating Jameson Inns in
Alabama, Georgia, Mississippi, North Carolina, South Carolina and Tennessee,
Jameson plans to continue developing Jameson Inns in those states as well as in
Florida, Kentucky, Louisiana and Virginia. At December 31, 1998, Jameson had a
total of 33 Jameson Inns under development, including 20 Jameson Inns under
construction, and contracts to acquire 13 parcels of land on which additional
Jameson Inns are expected to be constructed during 1999. In addition, Jameson
currently has and will consider long-term ground leases for future Jameson Inn
locations. As of December 31, 1998, four of the operating Jameson Inns are
built on leased land, with terms up to 30 years. Twenty new Jameson Inns were
under construction at December 31, 1998; one had opened prior to February 28,
1999, and the remainder are expected to open in 1999.
Jameson believes that it has benefited significantly from its strategy of
developing new Jameson Inns rather than acquiring existing properties and
rehabilitating, refurbishing or re-flagging them because of the experience and
track record of Jameson and Jameson Hospitality in the development,
construction and operation of Jameson Inns. If the merger is completed, Jameson
will consider developing new Signature Inns according to its assessment of
market demand, cost and other relevant factors. In any such cases, Jameson
expects that Jameson Hospitality will act as general contractor. See "--Jameson
Hospitality as Contractor" below in this section.
In evaluating potential development sites, Jameson targets communities with
strong industrial bases sufficient to attract business travelers. These
communities typically have significant manufacturing facilities, state and
federal government installations, or colleges and universities. Jameson strives
to locate its hotels in proximity to family-style restaurants and targets
markets which offer local community events (e.g. annual
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festivals, fishing tournaments, collegiate football games and other athletic
events, graduation ceremonies, etc.) and/or tourist and recreational facilities
(e.g. lakes, golf courses, hunting areas, etc.) attracting groups and
individual discretionary and leisure travelers.
Expansion of Existing Hotel Properties. Jameson intends to continue to
expand existing Jameson Inns whenever market conditions warrant. To date, 22
Jameson Inns have undergone expansion and, at December 31, 1998, eight
additional Jameson Inns were undergoing 20-room expansions. As of February 28,
1999 seven of these expansions were completed. Since Jameson Inns built prior
to 1999 were initially constructed with the office and lobby, swimming pool and
fitness center on sites generally large enough for future expansions, the
incremental cost per room of expansions is lower than for new hotels.
Accordingly, Jameson has been able to earn attractive returns on its investment
by expanding Jameson Inns in markets with strong room demand. Also, as compared
to the development of new Jameson Inns, expansion of existing Jameson Inns is a
relatively lower risk growth strategy since Jameson has an opportunity to
assess local room demand and market trends based on its direct experience in
developing and owning the existing hotel. If the merger is completed, Jameson
expects to employ substantially the same strategy regarding expansion of its
currently operating Jameson Inns. The sites for new, interior-corridor Jameson
Inns and all of the current Signature Inns are fully developed and these
properties cannot be expanded. In those markets, expansions will occur through
the acquisition of additional sites and the construction of new hotels.
Jameson Hospitality as Contractor. We anticipate that Jameson Hospitality
will act as general contractor for new Jameson Inns built by Jameson and
expansions of existing Jameson Inns and, if the merger is completed, Signature
Inns. Each construction contract for a new Jameson hotel or a group of hotels
provides for a turnkey price for all work performed under the contract subject
to reduction, however, if Jameson Hospitality's profits (as defined in the
construction contract) exceed 10%. The contract price excludes the cost of the
land and closing costs, but includes the costs of constructing and equipping
the Jameson hotels and related fitness centers, including interest charges
incurred by Jameson on the associated construction debt during construction and
working with Jameson Hospitality to staff the hotel prior to opening. Each such
construction contract is reviewed by an independent architectural firm and
subject to approval by a majority of Jameson's independent directors. The
average price charged by Jameson Hospitality for the 19 new Jameson Inns opened
during 1998 and the expansions opened in 1998 was approximately $37,000 per
room.
Internal Growth. Through percentage rent, Jameson participates in any
increases in room revenues generated through increases in occupancy rates and
average daily room rates ("ADR") of the Jameson Inns by Jameson Hospitality.
Total rent payable under the Jameson Lease, including base rent and percentage
rent, is limited, however, for each calendar year to 47% of Jameson
Hospitality's room revenues. See "--The Jameson Lease," above. Jameson
Hospitality practices aggressive market-sensitive pricing, increasing room
rates at particular Jameson Inns as market conditions in the specific
communities warrant. The Jameson Inns' site managers receive a significant
portion of their compensation based on achieving specified monthly room
revenues and annual expense controls. Jameson Hospitality promotes an
aggressive marketing program which focuses on local efforts directed to the
business community in each Jameson Inn's market.
Marketing. The marketing of the Jameson Inns is the responsibility of
Jameson Hospitality and focuses on local efforts directed to the business
community in the city or town where the particular Jameson Inn is located. In
1998 Jameson Hospitality hired six direct sales managers, each of whom conducts
and supervises direct sales for designated Jameson Inns. In addition, one of
the key responsibilities of a Jameson Inn's manager is to make sales calls on
local chambers of commerce, businesses, factories, government installations and
colleges and universities. The goal of the sales call is to familiarize local
business people with the Jameson Inn in their community and solicit their
recommendation of the Jameson Inn to business travelers visiting communities
where Jameson Inns are located, including both individual discretionary
travelers as well as groups attending family or community events. Jameson
Hospitality employs billboards and other similar types of advertising and has
an "800" number to facilitate reservations.
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In addition to billboard advertising which Jameson Hospitality has
traditionally utilized and will continue to utilize, Jameson Hospitality places
advertisements for the Jameson Inns in regional and special event publications
and in newspapers.
Employees. At December 31, 1998, Jameson employed 17 persons. Employees of
Jameson are also employees of Kitchin Investments and Jameson Hospitality.
Under a cost reimbursement agreement, Jameson reimburses Kitchin Investments
for the time that their shared employees spend on Jameson 's business. For the
year ended December 31, 1998, Jameson's reimbursement to Kitchin Investments
totaled approximately $200,000. None of Jameson's or Jameson Hospitality's
employees is represented by a union or labor organization, nor have Jameson's
or Jameson Hospitality's operations ever been interrupted by a work stoppage.
Jameson considers relations with its employees to be excellent.
Policies and Objectives with Respect to Certain Activities. The following is
a discussion of Jameson's investment objectives and policies, financing
policies and policies with respect to certain other activities. These policies
may be amended or revised from time to time at the sole discretion of the Board
of Directors of Jameson. No assurance can be given that Jameson's investment
objectives will be attained or that the value of Jameson will not decrease.
Investment Objectives and Policies. Jameson's investment objective is to
provide quarterly cash distributions and achieve long-term capital appreciation
through increases in cash flow and the value of Jameson. Jameson will seek to
accomplish these objectives through the ownership and leasing of the Jameson
Inns and, if the merger is completed, Signature Inns, to Jameson Hospitality,
selective development of additional Jameson hotels in the United States,
Jameson Hospitality's increases in the hotels' room revenues and, where deemed
appropriate, renovations and expansions of these properties. A key criterion
for new investments will be that they offer the opportunity for growth in funds
from operations and cash available for distribution. For definitions and
calculation of funds from operations and cash available from operations, see
"--Jameson Management's Discussion and Analysis of Financial Condition and
Results of Operations". Jameson anticipates that all of its activities will be
conducted directly, although Jameson Inns located in certain states are owned
by subsidiaries of Jameson and Jameson may participate with other entities in
property ownership, through joint ventures, partnerships or other types of co-
ownership. Jameson currently intends to invest only in Jameson Inns and
Signature Inns (if the merger is completed), although Jameson may also hold
temporary cash investments from time to time pending investment or distribution
to stockholders.
Jameson may purchase or lease properties for long-term investment, expand
and improve properties, or sell such properties, in whole or in part, when
circumstances warrant. Equity investments may be subject to existing mortgage
financing and other indebtedness which have priority over the equity interest
of Jameson.
While Jameson emphasizes equity real estate investments, it may, in its
discretion, invest in mortgages, stock of other REITs and other real estate
interests. Such mortgage investments may include participating or convertible
mortgages. However, Jameson has not invested previously in mortgages and stock
of other REITs, and does not presently intend to do so.
Dispositions. Jameson has no current intention to dispose of any of the
Jameson Inns, except the Jameson Inn at Milledgeville, Georgia, although it
reserves the right to do so if, based upon management's periodic review of
Jameson's portfolio, the Board of Directors of Jameson determines that such
action would be in the best interests of Jameson.
Financing. In January 1997, Jameson filed a shelf registration statement on
Form S-3 (the "1997 Registration Statement") with the SEC that provides for the
issuance of an aggregate of up to $100 million in Jameson common stock,
preferred stock and common stock warrants to be offered and sold from time to
time. On March 10, 1997, Jameson completed the sale of 2,300,000 newly issued
shares of Jameson common stock. Net proceeds of approximately $26 million were
used to repay certain existing mortgage indebtedness at that date. In February
1998, Jameson stockholders approved an amendment to the Jameson articles of
incorporation
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to increase the number of authorized shares of Jameson common stock from 20
million to 40 million shares and the authorized shares of preferred stock from
100,000 to 10 million shares. Later in 1998 Jameson sold, under the 1997
Registration Statement, 1,200,000 shares of Jameson preferred stock at an
offering price of $25 per share. Jameson used the approximately $28.5 million
in net proceeds from the offering to repay indebtedness and for general
corporate purposes. Jameson intends to use additional net proceeds, if any,
from any sale of securities under the 1997 Registration Statement for the
repayment of existing indebtedness, working capital and general corporate
purposes.
In the event that the Jameson Board of Directors determines to raise
additional equity capital, the Jameson Board of Directors has the authority,
without stockholder approval, to issue additional shares of Jameson common
stock or other capital stock of Jameson in any manner (and on such terms and
for such consideration) it deems appropriate, including in exchange for
property. Existing stockholders would have no preemptive right to purchase
shares issued in any offering, and any such offering might cause a dilution of
a stockholder's investment in Jameson.
It is anticipated that any additional borrowings will be made directly by
Jameson. Indebtedness incurred by Jameson may be in the form of bank
borrowings, secured and unsecured, and publicly and privately placed debt
instruments. Such indebtedness may be recourse to all or any part of the
property of Jameson or may be limited to the particular property to which the
indebtedness relates. The proceeds from any borrowings by Jameson may be used
for the payment of distributions, working capital, to refinance existing
indebtedness or to finance acquisitions, expansions or development of new
hotels.
At December 31, 1998, Jameson had outstanding an aggregate of approximately
$53.7 million of mortgage debt, including approximately $2.4 million in
construction debt. The construction debt provides for total borrowings of $16.6
million and is secured by mortgages on 10 Jameson Inns. Jameson has adopted a
policy of limiting its outstanding indebtedness to 65% of aggregate appraised
value of the Jameson Inns. The management of Jameson estimates that the
outstanding indebtedness at December 31, 1998, represented approximately 35% of
the aggregate appraised value of the Jameson Inns. Jameson's organizational
documents do not limit the amount or percentage of indebtedness that Jameson
may incur. Accordingly, the Jameson Board of Directors could change the current
policies of Jameson and Jameson could become more highly leveraged, resulting
in an increased risk of default on the obligations of Jameson and in an
increase in debt service requirements. Such an increase could adversely affect
the financial condition and results of operations of Jameson, Jameson's ability
to make dividend distributions to its stockholders and could, as a result,
jeopardize Jameson's status as a REIT.
Working Capital Reserves. Jameson's policy is to maintain working capital
reserves (and when not sufficient, access to borrowings) in amounts that the
Jameson Board of Directors determines to be adequate to meet normal
contingencies in connection with the operation of Jameson's business and
investments.
Policy Regarding Capital Expenditures. On July 1, 1995, Jameson adopted a
policy of maintaining cash or sufficient access to borrowings equal to 4% of
the Jameson Inns' aggregate room revenues since July 1, 1995, less amounts
actually spent from that date forward. Prior to this date, the obligation to
fund replacement and refurbishment of furniture, fixtures and equipment was
Jameson Hospitality's. For the period July 1, 1995, through December 31, 1998,
4% of room revenues equaled $3.69 million and Jameson expended $4.68 million on
such items in that same period. Jameson is reviewing this matter and may
consider changing its policy to increase this percentage.
Other Policies. Jameson intends to operate in a manner that will not subject
it to regulation under the Investment Company Act of 1940. Jameson does not
intend to (a) invest in the securities of other issuers for the purpose of
exercising control over such issuer, (b) underwrite securities of other issuers
or (c) actively trade in loans or other investments.
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Jameson may make investments other than as previously described, although it
does not currently intend to do so. Jameson has authority to repurchase or
otherwise reacquire Jameson common stock or any of its other securities and may
engage in such activities in the future. During the past four years Jameson has
not issued Jameson common stock or any other securities in exchange for
property, nor has it reacquired any of its common stock or any other
securities; however, Jameson has authority to engage in such activities and may
do so in the future. Prior to January 1, 1994, Jameson made loans to Jameson
officers in connection with Jameson's formation of partnerships to finance
development of new Jameson Inns. All such loans were repaid in full at the time
such partnerships were liquidated. Jameson may in the future make additional
loans to such persons and entities, including, without limitation, its
officers, and to joint ventures in which it participates. During the last four
years, except in connection with formation of partnerships which, prior to
their liquidation in early 1994 in conjunction with Jameson's initial public
offering, were formed by Jameson to finance the development of Jameson Inns,
Jameson has not engaged in trading, underwriting or agency distribution or sale
of securities of other issuers, and Jameson does not intend to do so in the
future. Jameson's policies with respect to such activities may be reviewed and
modified from time to time by the Board of Directors of Jameson without the
vote of the stockholders.
At all times, Jameson intends to make investments in such a manner as to be
consistent with the requirements of the Internal Revenue Code to qualify as a
REIT unless, because of circumstances or changes in the Code (or in the
Treasury Regulations), the Board of Directors of Jameson, with the consent of a
majority of Jameson's stockholders, determines to revoke Jameson's REIT
election.
Jameson may, under certain circumstances, purchase its shares of Jameson
common stock in the open market or otherwise. Jameson has not repurchased any
shares and the Board of Directors of Jameson has no present intention of
causing Jameson to repurchase any of the shares of Jameson common stock.
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Jameson Management's Discussion and Analysis of Financial Condition and
Results of Operations. You should read the following discussion in conjunction
with the historical and pro forma consolidated financial statements of Jameson
and Jameson Hospitality and the accompanying notes which are included on pages
F-2 through F-31 of this Joint Proxy Statement/Prospectus and the unaudited pro
forma condensed financial information contained in the Summary.
Jameson has grown from a hotel chain with four Jameson Inns, or 162 rooms,
at January 1, 1990, to 81 Jameson Inns, or 3,748 rooms, in operation at
December 31, 1998. From its inception in 1988 until December 31, 1993, Jameson
was engaged in the business of developing, owning and managing Jameson Inns. As
part of its development activities, Jameson engaged in development and
construction of new Jameson Inns. On December 31, 1993, Jameson reorganized by
divesting itself of the subsidiary corporations through which it conducted its
construction activities, securities brokerage activities and aviation
operations. In addition, Jameson transferred its outdoor advertising business
to Jameson Hospitality's predecessor, which is wholly owned by Jameson's
chairman and chief executive officer and his spouse. Jameson no longer manages
or operates the Jameson Inns upon their completion, but limits its primary
activities to developing and owning the properties. Effective January 1, 1994,
Jameson's primary source of revenue became lease payments by Jameson
Hospitality which leases and operates the Inns under the Jameson Lease.
The 1994 Jameson pro forma financial information has eliminated those
businesses in which Jameson has not been engaged in since it divested itself of
these businesses on December 31, 1993, so as to be comparable to the subsequent
years' historical financial information. Although room revenues are earned by
Jameson Hospitality, not Jameson, they are the basis upon which the percentage
rent paid to Jameson by Jameson Hospitality (under the Jameson Lease) is
determined and, accordingly, such revenues are discussed below. The term "Same
Inn Room Revenues" refers to revenues earned with respect to Jameson Inns which
were operating during all of both comparison periods and includes revenues
attributable to rooms added to existing Jameson Inns by virtue of expansion of
such Jameson Inns.
The Jameson Lease provides for the payment of base rent and percentage rent.
For the year ended December 31, 1998, combined base rent and percentage rent in
the aggregate amount of $18.2 million was earned by Jameson. The principal
determinant of percentage rent under the Jameson Lease is room revenues of the
Jameson Inns. Therefore, we believe that a review of the historical performance
of the operations of the 81 operating Jameson Inns, particularly with respect
to occupancy, ADR and REVPAR, is appropriate for understanding Jameson's lease
revenue (see "--Funds from Operations; Cash Available for Distribution," below,
for the calculation of ADR and REVPAR).
Results of Operations.
Comparison of the Year Ended December 31, 1998 to the Year Ended December
31, 1997. Jameson's lease revenue for 1998 increased 40.0% to $18.2 million as
compared to $13.0 million for 1997. The increase was due to an increase in
Jameson Hospitality's room revenues.
As a result of three factors, Jameson Hospitality's room revenues rose 41%,
from $27.6 million for 1997 to $38.8 million in 1998.
. The number of room nights available at Jameson Inns increased from
878,056 in 1997 to 1,216,998 in 1998, or 38.6%, due to the opening from
January 1997 through December 1998 of 38 new 38- to 59-room Jameson
Inns, and five 16- to 19-room expansions of existing Jameson Inns.
. Jameson Inns' occupancy rate decreased from 64.9% for 1997 to 61.7% for
1998. The decrease in overall occupancy of the Jameson Inns is
attributable primarily to (a) the expansion of several high occupancy
Jameson Inns which then experienced lower occupancy rates because of the
additional rooms available, (b) the opening of new Jameson Inns which
typically require several months of operations before realizing higher
occupancy rates and (c) additional competition in certain markets.
. ADR increased 7.1% from $47.25 in 1997 to $50.60 in 1998.
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Jameson Hospitality's Same Inn Room Revenues for 1998 versus 1997 grew to
$26.2 million from $25.1 million, or 4%. The growth is due to an increase in
ADR from $47.03 to $50.07 for these Jameson Inns and an increase in room nights
available (due to expansions of certain of these Jameson Inns) from 797,737 to
807,842 partially offset by a decrease in the occupancy rate from 65.4% to
63.4% for these Jameson Inns for 1997 compared to 1998. During 1998, Jameson's
lease revenue was affected by the limitation equal to 47% of room revenues for
the year.
Jameson's general and administrative expense includes overhead charges for
management, accounting and legal services for the corporate home office.
Jameson's general and administrative expense for 1998 was $592,000, as compared
to $445,000 for 1997, due to additional costs resulting from the increased size
of Jameson and more time spent by shared employees on Jameson's business
matters as compared to Jameson Hospitality's and other related entities'.
Jameson's property taxes and insurance expenses totaled $1.5 million in
1998, compared with $1.1 million for 1997. The increase is attributable to the
increase in the number of Jameson Inns and the expansion of existing Jameson
Inns.
Jameson's interest expense increased from $0.8 million in 1997 to $1.7
million in 1998 due to the increase in its average outstanding debt balance in
1998. As a result of the early extinguishment of debt in 1998 and 1997, Jameson
had losses of $133,951 and $689,542, respectively, comprised of the write-offs
of deferred finance costs and prepayment penalties, which are reflected as
extraordinary items.
Jameson's depreciation expense increased from $3.9 million in 1997 to $5.6
million in 1998, due to an increase in the number of operating Jameson Inns and
the expansion of existing Jameson Inns.
Jameson's loss on disposal of furniture and equipment increased from
$144,000 in 1997 to $508,000 in 1998 due to an increase in replacement of
furniture, fixtures and equipment before the end of its depreciable life.
In 1996, Jameson adopted Financial Accounting Standards Board Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations or held for sale when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. During
1998, Jameson recognized a $2,507,000 loss on impairment of real estate related
to one of the hotel properties, which is being actively marketed for sale. No
other impairment losses have been recognized.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996. Lease revenue for Jameson for 1997 increased 38% to $13.0 million as
compared to $9.4 million for 1996. The increase was due to an increase in
Jameson Hospitality's room revenues.
As a result of three factors, Jameson Hospitality's room revenues rose 38%,
from $20 million for 1996 to $27.6 million in 1997.
. The number of room nights available at Jameson Inns increased from
634,549 in 1996 to 878,056 in 1997, or 38%, due to the opening from
January 1996 through December 1997 of 30 new 40-room Jameson Inns, two
new 60-room Jameson Inns and seven 20- to 26-room expansions of existing
Jameson Inns.
. Jameson Inns' occupancy rate decreased from 66.9% for 1996 to 64.9% for
1997. The decrease in overall occupancy of the Jameson Inns is
attributable primarily to (a) the expansion of several high occupancy
Jameson Inns which then experienced lower occupancy rates because of the
additional rooms available, (b) the opening of new Jameson Inns which
typically require several months of operations before realizing higher
occupancy rates and (c) additional competition in certain markets.
. ADR increased 3% from $45.80 in 1996 to $47.25 in 1997.
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Jameson Hospitality's Same Inn Room Revenues for 1997 versus 1996 grew to
$18.4 million from $18.3 million, or 1%. The growth is due to an increase in
Jameson Hospitality's ADR from $45.62 to $46.60 for these Jameson Inns and an
increase in room nights available (due to expansions of certain of these
Jameson Inns) from 582,840 to 601,264 partially offset by a decrease in the
occupancy rate from 67.0% to 64.0% for these Jameson Inns for 1997 compared to
1996. During 1997, the Jameson's lease revenue was affected by the limitation
equal to 47% of room revenues for the year.
Jameson's general and administrative expense includes overhead charges for
management, accounting and legal services for the corporate home office.
Jameson's general and administrative expense for 1997 was $445,000, as compared
to $499,000 for 1996, due to less time spent by shared employees on Jameson's
business matters as compared to Jameson Hospitality's and other related
entities'.
Jameson's property taxes and insurance expenses totaled $1.1 million in
1997, compared with $733,000 for 1996. The increase is attributable to the
increase in the number of Jameson Inns and the expansion of existing Jameson
Inns.
Jameson's interest expense decreased from $1.4 million in 1996 to $.8
million in 1997 due to the repayment of indebtedness of approximately $25.6
million in March 1997 and $30.8 million in April 1996. Proceeds to pay down
debt were generated by the sale of 2.3 million and 3.3 million shares of
Jameson common stock in March 1997 and April 1996, respectively. As a result of
the early extinguishment of debt in 1997 and 1996, Jameson had losses of
$689,542 in 1997 and $989,376 in 1996, comprised of the write-offs of deferred
finance costs and prepayment penalties, which are reflected as extraordinary
items.
Jameson's depreciation expense increased from $2.7 million in 1996 to $3.9
million in 1997, due to an increase in the number of operating Jameson Inns and
the expansion of existing Jameson Inns.
Jameson's loss on disposal of furniture and equipment increased from $48,000
in 1996 to $144,000 in 1997 due to an increase in replacement of furniture,
fixtures and equipment before the end of its depreciable life.
Funds from Operations; Cash Available for Distribution. The following table
illustrates Jameson's calculation of funds from operations and cash available
for distribution on a historical basis for the years ended December 31, 1996,
1997 and 1998. In March 1995, NAREIT published a new interpretation of funds
from operations which Jameson retroactively adopted at that time.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1997 1998
------- ------- --------
(dollars in thousands)
<S> <C> <C> <C>
Net income available to common stockholders.... $ 3,051 $ 5,906 $ 3,485
Add:
Depreciation expense.......................... 2,670 3,898 5,636
Loss on disposals............................. 48 144 508
Extraordinary item............................ 989 689 134
Loss on impairment of real estate............. -- -- 2,507
------- ------- --------
Funds from operations, per March 1995 NAREIT
interpretation................................ 6,758 10,637 12,270
Add:
Loan fee amortization expense................. 93 80 114
Less:
Additions to reserve for furniture, fixtures
and equipment(1)............................. (778) (1,077) (1,551)
Required loan principal repayments............ (319) (78) (146)
------- ------- --------
Cash available for distribution................ $ 5,754 $ 9,562 $ 10,687
======= ======= ========
</TABLE>
- --------
(1) This amount equals 4% of the aggregate room revenues of the Jameson Inns
for the period.
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Liquidity and Capital Resources. Jameson expects to continue to develop
additional Jameson Inns, expand existing Jameson Inns and, if the merger is
completed, Signature Inns, as suitable opportunities arise. Jameson will not
undertake such investments, however, unless adequate sources of financing are
available. Since its election to be taxed as a REIT, Jameson has financed and
currently intends to continue financing the construction of new Jameson Inns
entirely with bank borrowings. Jameson believes it can continue to finance new
Jameson Inns and expansions and new Signature Inns, with these construction and
long-term mortgage loans. At December 31, 1998, Jameson had approximately $53.7
million in outstanding debt and had 16 operating Jameson Inns which were debt
free and could be used as collateral should Jameson need additional borrowing
capacity. After the January 1999 financing described below there are two
operating Jameson Inns which remain debt free.
Jameson has a $46.2 million line of credit (the "Line") convertible
beginning in 1998 to term notes. At December 31, 1998, Jameson had drawn down
$27.5 million under the Line with $18.7 million remaining available credit.
Loans made under the Line bear interest at rates initially ranging from 8.5% to
9.0%, which are adjustable annually to equal a major lender's prime rate as
published in the Wall Street Journal plus .25 or .5 percentage points. The
minimum annual interest rate payable under the Line is 7% and the maximum is
13%. The annual interest rates at December 31, 1998, ranged from 8.5% to 9.0%.
Loans made under the Line are secured by mortgages on 41 of the Jameson Inns.
Payments of interest are due monthly, and monthly payments of principal and
interest commence at various dates beginning in September 1998. Principal under
each term loan under the Line is amortized using a 15-year period and is
payable in full at various dates through 2007. Jameson uses the Line to finance
construction costs, if there is no construction loan in place, and certain
other operating needs including the payment of dividends and other operating
expenses.
In the past, Jameson has employed construction and long-term mortgage
financing to fund the balance of construction costs not funded under the Line.
For each new Jameson Inn to be built, Jameson generally obtains a construction
loan for approximately $1.1 to $2.35 million depending on the size of the
Jameson Inn to be built. After an 18-month interest-only period, each of the
construction loans converts to a long-term mortgage financing upon completion
of the Jameson Inn without any further action by Jameson, amortized over 15
years and payable in full seven years from its inception. The interest rate on
each of such loans is adjusted annually, to rates ranging from the prime rate
then prevailing to prime plus .5%. As of December 31, 1998, the construction
loans are secured by mortgages on 10 of the Jameson Inns under construction.
As of December 31, 1998, Jameson had a total of 20 Jameson Inns and eight
expansions under construction with total construction costs, excluding land and
closing costs, expected to total $59.8 million when the projects are complete.
For ten of these properties, Jameson had obtained construction loans in 1998
totaling $16.6 million. In 1999, Jameson obtained additional financing
commitments for six more of the 20 Jameson Inns under construction. This
includes $4.7 million in loans for three Jameson Inns which loans are scheduled
to close when the properties open and $7.2 million for three other Jameson Inns
under construction. In 1999, Jameson also has obtained financing commitments
aggregating for $3.8 million for six expansions under construction at December
31, 1998. Other construction costs will be borrowed under the Line if property-
specific financing is not obtained.
On January 14, 1999, Jameson entered into an agreement with a bank to
provide $17 million in new financing, which is secured by 14 operating Jameson
Inns which were previously debt free. This bank note bears interest at the
weekly average yield on United States Treasury securities adjusted to the
constant maturity of one year plus 3.75% per annum and is payable in monthly
installments of principal and interest of $147,000 until January 2019 when the
note matures. In addition, each month $15,000 must be deposited into a
replacement reserve escrow until such time as the reserve account has a balance
not less than $200,000. The proceeds of this financing will be used to repay
amounts outstanding under the Line.
Since Jameson presently intends to rely primarily on borrowings for
construction and permanent financing of new Jameson Inns and, if the merger is
completed, new Signature Inns and the expansion of existing properties, the
lack of sufficient financing on favorable terms and conditions could prevent or
significantly deter Jameson from constructing new hotels or expanding existing
hotels. The availability of such financing depends
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on a number of factors over which Jameson has no control, including general
economic conditions, the economic and competitive environments of the
communities in which Jameson's hotels are located and the level and stability
of long-term interest rates. Jameson also is considering possible additional
long-term debt or equity financing that would be available to fund its ongoing
development activities.
In January 1997, Jameson filed a shelf registration statement on Form S-3
(the "1997 Registration Statement") with the SEC that provides for the issuance
of an aggregate of up to $100 million in Jameson common stock, preferred stock
and common stock warrants to be offered and sold from time to time. On
March 10, 1997, Jameson completed the sale of 2,300,000 newly issued shares of
Jameson common stock. Net proceeds of approximately $26 million were used to
repay existing mortgage indebtedness. In 1998, Jameson stockholders approved
amendments to Jameson's articles of incorporation increasing the number of
authorized shares of Jameson common stock from 20 million to 40 million shares
and the authorized shares of Jameson preferred stock from 100,000 to 10 million
shares. In February 1998 Jameson sold 1,200,000 shares of Jameson Series A
Preferred Stock under the 1997 Registration Statement. Total net proceeds of
approximately $28.5 million were used to repay existing mortgage indebtedness.
Jameson intends to use future net proceeds, if any, from any additional sales
of securities under the 1997 Registration Statement for the repayment of
existing indebtedness, working capital and general corporate purposes.
As with most real estate investments, Jameson's investments in the Jameson
Inns are relatively illiquid and such illiquidity is further increased by the
location of many Jameson Inns in small communities. As a result, the ability of
Jameson to sell or otherwise dispose of any Jameson Inn to provide liquidity
will be very limited.
Jameson has four stock incentive plans in place. As of December 31, 1998,
730,287 shares of Jameson common stock were reserved for future grants and
options to purchase 848,114 shares of Jameson common stock were outstanding
(including 417,714 which were exercisable). In addition, as of December 31,
1998, 84,297 shares of Jameson common stock issued to certain key employees of
Jameson and Jameson Hospitality are restricted as to sale until fully vested in
2006, 2007 and 2008.
Year 2000. As the year 2000 approaches, a critical business issue has
emerged regarding how existing application software programs and operating
systems can accommodate this date value. Many existing application software
products in the marketplace were designed to accommodate only two-digit date
entries. Beginning in the year 2000, these systems and products will need to be
able to accept four-digit entries to distinguish years beginning with 2000 from
prior years. As a result, computer systems and software used by many companies
may need to be upgraded to comply with such "Year 2000" requirements. Jameson
has evaluated its financial software and building operating systems of the
Jameson Inns. Based on assessments to date, management believes that the
arrival of the year 2000 and the potential related computer problems will not
have a material adverse impact on Jameson. Jameson believes that its current
software and operating systems are year 2000 compliant. Based on current
information, costs of addressing and solving year 2000 problems are not
expected to have a material effect on Jameson's financial position or results
of operations. The ability of third parties with whom the Company transacts
business to address adequately their Year 2000 issues is outside of Jameson's
control. There can be no assurance that the failure of Jameson, or such third
parties, to address adequately their respective Year 2000 issues will not have
a material adverse effect on Jameson's future financial condition or results of
operations.
Jameson maintains contingency plans in its normal course of business
designed to be deployed in the event of various potential business
interruptions. These generally include manual workarounds and adjusting
staffing.
Inflation. Operators of hotels in general possess the ability to adjust room
rates quickly. Although Jameson Hospitality raised its room rates by
approximately 7% in 1996, 3% in 1997 and 7% in 1998, competitive pressures have
limited, and may in the future limit, Jameson Hospitality's ability to raise
rates in the face of inflation.
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Seasonality. Historical operations of Jameson Inns have been seasonal in
nature, reflecting higher occupancy rates in the second and third quarters.
This seasonality can be expected to cause fluctuations in the lease revenue
that Jameson receives from Jameson Hospitality.
Jameson Hospitality. Jameson Hospitality leases and operates all completed
Jameson Inns owned by Jameson under the terms of the Jameson Lease. See "--The
Jameson Lease," (page 75). We also expect that Jameson Hospitality will lease
and operate all Signature Inns if the merger is completed. The names and
certain other information concerning the executive officers of Jameson
Hospitality are set forth below. At December 31, 1998, Jameson Hospitality had
a total of 1,685 employees, including an administrative staff of 90 employees,
102 Inn managers and assistant managers and 1,493 other full- and part-time
employees engaged in day-to-day management and marketing of the Inns. Jameson
Hospitality and its predecessor companies have a history of operating losses
and a limited net worth. The audited financial statements of Jameson
Hospitality appear elsewhere in this Joint Proxy Statement/Prospectus and
should be referred to for additional financial information concerning Jameson
Hospitality. Although it has not done so to date, Jameson Hospitality may
engage in activities other than as lessee of the Jameson Inns, subject to
certain restrictions under the Jameson Lease.
The executive officers and key employees of Jameson Hospitality are the
following:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Thomas W. Kitchin.......... President and Chief Executive Officer
William D. Walker.......... Vice President--Development
Craig R. Kitchin........... Vice President--Finance, Treasurer,
Chief Financial Officer
Steven A. Curlee........... Vice President--Legal, General Counsel, Secretary
Gregory Winey.............. Director of Operations
</TABLE>
Set forth below is certain information concerning Jameson Hospitality's
executive officers, directors and key employees.
Thomas W. Kitchin is the founder and owner with his spouse of Jameson
Hospitality. He is also the founder and has been an officer and director of
Jameson since its incorporation in 1988. Prior to founding Jameson and the
predecessors of Jameson Hospitality, he spent 10 years in the oil and gas
industry and served as chief executive officer of an oil and gas company listed
on the American Stock Exchange. Mr. Kitchin serves as a director of the
Association of Publicly Traded Companies, an association that represents public
companies that trade on The Nasdaq Stock Market, New York Stock Exchange and
American Stock Exchange; director of the Georgia Hospitality and Travel
Association; director of the American Hotel & Motel Association; director of
the Georgia State University Cecil B. Day School of Hospitality Administration;
director of a private school; and director of the Northside Hospital Advisory
Board. In addition, he has served on the board of directors of several banks
and oil companies and numerous other civic, charitable and social service
agencies. Mr. Kitchin is the father of Craig R. Kitchin, president, chief
financial officer and treasurer of Jameson.
William D. Walker is vice president--development of Jameson as well as of
Jameson Hospitality. He has been an officer of Jameson since its inception in
1988 and served as a director from 1988 through October 29, 1993. He has been
an officer of Jameson Hospitality and its predecessors since their inception.
Prior to joining Jameson, he worked in various financial management positions
for twelve years. Mr. Walker received a B.B.A. degree in finance from Texas
Tech University in 1975.
Craig R. Kitchin has been an officer of Jameson Hospitality and its
predecessors since their inception. Also an officer of Jameson, he became chief
financial officer of Jameson in February 1994, vice president--finance in
November 1997, and president in November 1998. He joined Jameson as its
controller and treasurer on June 15, 1992, upon receiving his M.B.A. degree
from the University of Chicago with concentrations in
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accounting and finance. Before attending the University of Chicago, he was a
financial analyst with FMC Corporation in Santa Clara, California, from 1989 to
1990, where his primary responsibilities included budgeting and forecasting
overhead expenses. Mr. Kitchin graduated from Santa Clara University with a
B.S. degree in finance in 1989. Craig Kitchin is the son of Thomas W. Kitchin,
the chairman and chief executive officer of Jameson.
Steven A. Curlee has been an officer of Jameson Hospitality and its
predecessors since their inception. Also an officer of Jameson, he became
general counsel and secretary of Jameson on January 1, 1993 and vice
president--legal in November 1997. From April 1985 to July 1992, he was general
counsel of an oil and gas company listed on the American Stock Exchange. Prior
thereto, he was engaged in the private practice of law in Tulsa, Oklahoma for
five years. From 1976 to 1980, Mr. Curlee served on active duty in the U.S.
Navy as a Judge Advocate. He continues to serve in the Navy Reserves, having
attained the rank of Commander. Mr. Curlee received a B.A. degree in political
science and his J.D. from the University of Arkansas. He received a Master of
Law in Taxation degree from Georgetown University. Mr. Curlee is admitted to
practice law in Arkansas, the District of Columbia, Oklahoma, Texas and
Georgia.
Gregory Winey is director of operations of Jameson Hospitality. He joined
Jameson Hospitality in April 1998 as a regional manager supervising the
operations of 17 Jameson Inns. In October 1998 he became the director of
operations supervising the operations of all Jameson Inns. Before joining
Jameson Hospitality, he was with Promus Hotel Corporation from May 1991 to
December 1997 serving in several capacities in hotel operations, most recently
as a senior area manager overseeing the daily operations of 17 hotel
properties, including Hampton Inns, Hampton Inn & Suites and Home Suites
Hotels. Prior to that he was a food and beverage manager for a 300-room Days
Hotel in Charlotte, North Carolina for one year, and prior to that he was
employed for six years by Traveler's Management Corporation as an innkeeper and
rooms division manager of a 432-room convention hotel.
Signature
Signature owns and operates a total of 25 Signature Inns (2,978 available
rooms) and manages one additional Signature Inn (81 available rooms), all of
which are located in six midwestern states. Signature Inns are designed to
attract business and leisure travelers who seek room quality and comfort at
moderate room rates. A typical Signature Inn incorporates a large two-story
atrium, and a bright, well-appointed and richly decorated lobby and
registration area. Most Signature Inns contain approximately 120 spacious,
quiet and comfortably furnished guest rooms, averaging over 300 square feet per
room, swimming pools, exercise facilities and a complimentary breakfast for
their guests, as well as suite-like amenities including a microwave,
refrigerator, in-room coffee, iron and ironing board and hair dryer in all
guest rooms. However, unlike full-service hotels, Signature Inns do not provide
management-intensive facilities and services, such as restaurants or cocktail
lounges. Because approximately 65% of Signature Inn guests are business
travelers, Signature emphasizes services designed for the business traveler,
such as large, in-room desks, voice mail and business centers.
Management believes the hallmarks of the Signature chain are the
friendliness of Signature Inn staffs and the cleanliness of Signature Inn rooms
and related facilities. Signature's Legendary Service Program(R) is designed to
ensure the selection, training and continuous supervision of a capable, well-
groomed and highly motivated staff of hotel employees who, at all levels, will
exemplify the "whatever it takes" attitude toward serving the needs of
Signature Inn hotel guests. Signature's ongoing refurbishing efforts, guest
comment card evaluations and "mystery guest inspection" programs all combine to
promote a high-level of consistency and quality. The attractive architectural
design and landscaping of Signature Inns combine to enhance the experience of
Signature's hotel guests. Signature Inns qualify for the "Three Diamond"
American Automobile Association ("AAA") rating which is based upon the quality
of a hotel's facilities, services and amenities. This is the highest rating
afforded to limited service hotels.
Signature Inns are located near interstate highways, restaurants and
business and leisure travelers' destination points, such as business parks,
office buildings and local attractions. The Signature Inn chain of hotels is
classified in the mid-scale chain without food and beverage segment of the
hotel industry.
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The principal offices and place of business of Signature consist of
approximately 9,100 square feet of leased office space at One Parkwood
Crossing, 250 East 96th Street, Suite 450, Indianapolis, Indiana 46240.
Signature was incorporated under the laws of the State of Indiana on March 31,
1978.
The Signature Inns. Listed on the following table are the location, year
opened and number of rooms of each of Signature's 26 hotel properties.
<TABLE>
<CAPTION>
Year No. of
Property Location Opened Rooms
-------- -------- ------ ------
<C> <S> <C> <C>
Indiana:
Indianapolis North I-465 & Michigan Road.................. 1981 141
Fort Wayne I-69 & State Road 3.................... 1982 102
Castleton I-465 & Allison Road................... 1983 125
Lafayette I-65 & State Road 26................... 1983 121
Muncie McGaillard Road & Chadam Lane.......... 1984 101
Southport I-65 & Southport Road.................. 1985 101
Indianapolis East I-465 & East Washington Street......... 1985 101
Indianapolis West I-456 & West 38th Street............... 1985 101
Kokomo U.S. 31 & Alto Road.................... 1986 101
Evansville Green River Road & Vogel Road.......... 1986 125
Terre Haute I-70 & U.S. 41......................... 1987 150
Elkhart Indiana Toll Road & State Road 19...... 1987 125
South Bend Indiana Toll Road & U.S. 31............ 1987 123
Carmel(1) I-465 & U.S. 31........................ 1997 81
-----
1,598
Ohio:
Cincinnati (North) I-75 & Sharonville Road................ 1985 130
Cincinnati (Northeast) I-71 & Mason-Montgomery Road........... 1985 99
Columbus I-270 & Cleveland Road................. 1986 125
Dayton I-75 State Road, 725................... 1987 125
-----
479
Kentucky:
Florence Turfway Road & I-71.................... 1987 125
Louisville South I-65 & Fern Valley Road................ 1988 123
Louisville East(2) I-64 & Blankenbaker Road............... 1997 119
-----
367
Illinois:
Normal 101 South Veterans Parkway............. 1988 124
Peoria 4112 North Brandywine.................. 1988 124
Springfield I-55 & Stevenson Drive................. 1996 124
-----
372
Iowa:
Bettendorf I-74 & Spruce Hill Drive............... 1989 119
-----
Tennessee:
Knoxville I-75 & Cedar Bluff Road................ 1989 124
-----
TOTAL: 26 Signature Inns...................... 3,059
=====
</TABLE>
- --------
(1) Signature Inn-Carmel is the only hotel not wholly owned by Signature.
Signature serves as the general partner of Signature Meridian Limited
Partnership, the limited partnership that owns the Signature Inn-Carmel, and
Signature owns a 40% interest in the limited partnership. It is operated as a
franchise under a Signature Inn Individual Hotel License agreement, by which
the limited partnership pays Signature monthly franchise fees (i.e. royalties)
equal to 4% of the gross receipts of the hotel and contributes 3.5% of gross
receipts to an advertising and reservation fund administered by Signature to
fund chain-wide advertising programs and a toll-free centralized reservation
system. Additionally, the hotel is managed by Signature pursuant to a
management agreement between Signature and Signature Meridian Limited
Partnership.
(2) Operates as both a Best Western and a Signature Inn.
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<PAGE>
Subsidiaries. P & N Corporation ("P & N"), a wholly-owned subsidiary of
Signature, was organized in 1993 and acts as the sole general partner and forty
percent (40%) owner of the Signature Meridian Limited Partnership, which owns
and operates the Carmel, Indiana, Signature Inn hotel property. Prior to
December 1998, P & N also acted as the general partner of (a) the Peoria/Normal
Signature Limited Partnership ("Peoria/Normal LP"), which owned and operated
the Normal and Peoria, Illinois, Signature Inn hotel properties, and (b) the
Knoxville Signature Limited Partnership ("Knoxville LP"), which owned and
operated the Knoxville, Tennessee, Signature Inn hotel property. On December
23, 1998, the Normal and Peoria, Illinois, and Knoxville, Tennessee, Signature
Inn hotel properties were conveyed and transferred to Signature, as a part of
an effort to simplify Signature's organizational structure. Following the
transfer, the Peoria/Normal LP and Knoxville LP were dissolved.
Additionally, Signature is the sole owner of SIE Corporation, which owns and
operates the Indianapolis East Signature Inn hotel property, and SI Springfield
Corporation, which owns and operates the Springfield, Illinois, Signature Inn
hotel property. Both SIE Corporation and SI Springfield Corporation are
organized under the laws of the state of Indiana.
Reservations. Signature utilizes TeleServices Resources, Inc. to provide
central reservation services. The chain's toll-free number, 1-800-822-5252, can
be accessed across the continental United States, Canada and the Virgin
Islands. Signature believes its system is comparable to systems used by large
national hotel chains. The system is interfaced with the Global Distribution
System including electronic reservation systems such as Sabre, Apollo,
Worldspan, System One and Amadeus, which are used by travel agencies. This
electronic system connects the 26 Signature Inns to over 35,000 travel agencies
and over 250,000 travel agents in the United States and Canada and is also
accessible to travel agents in Central and South America and Europe.
Employees. Including its five executive officers, Signature employs 30 full-
time employees at its corporate office. In addition, Signature employs
approximately 500 full-time employees and 200 part-time employees at its hotel
properties. Signature believes it has a good relationship with its employees.
Seasonality. Demand for hotel accommodations varies seasonally in
Signature's current market areas. Typically, demand for hotel accommodations
and, correspondingly, occupancy rates for each of the Signature Inns will be
higher during the period from March through October and lower during the period
from November through February.
Competition. The operation of hotels is an extremely competitive business.
Signature Inns are in competition with numbers of hotel management companies
and hotel chains in their respective areas of operation of varying quality and
size, including national and regional chains, and companies which have
available to them greater name recognition and financial resources than
Signature.
Refurbishing. To meet competition in the industry and to maintain economic
values, continuing expenditures must be made for modernizing, refurbishing and
maintaining existing facilities prior to the expiration of their anticipated
useful lives. If such expenditures are not made, the value and profitability of
the property may be diminished. Signature establishes reserve funds in
connection with the operation of its hotels for refurbishing which are
generally based upon specified percentages of hotel revenues. Signature plans
to continue maintaining these reserve funds and making expenditures, as needed,
to maintain the value and profitability of its hotel properties.
Governmental Regulations. A number of states regulate the licensing of
hotels by requiring registration, disclosure statements and compliance with
specific standards of conduct. Signature believes that each Signature Inn has
the necessary permits and approvals to operate its respective business and
Signature intends to continue to obtain such permits and approvals for its new
facilities. In addition, Signature is subject to laws governing its
relationship with employees, including minimum wage requirements, overtime,
working conditions and
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<PAGE>
work permit requirements. Further increases in the minimum wage rate, employee
benefit costs or the costs associated with employees could affect Signature.
Trademarks. Signature is the owner of the registered trademarks, "Signature
Inn" (both with and without the related stylized "S" logo), "Signature Inn &
Suites," "Signature Suites," "We Help You Get Down to Business," "Sincerely
Yours," "Breakfast Express," and "There's Something Personal About a
Signature." On June 1, 1989, Signature entered into an agreement with a
Canadian group which had owned the Canadian trademark registration of
"Signature Inn." Under the agreement, the Canadian registration of the mark
"Signature Inn" became the property of Signature.
Each of these trademarks will be conveyed to Jameson Hospitality immediately
prior to the merger, subject to Jameson's right to purchase the trademarks for
a fixed amount.
Signature Management's Discussion and Analysis of Financial Condition and
Results of Operations. The consolidated financial statements include the
accounts of Signature and its wholly-owned subsidiaries. The equity method is
used for investments in hotel limited partnerships in which Signature is a
partner with 50% or less ownership and does not exercise legal, financial and
operations control.
During 1996 and through January 1997, Signature used the equity method for
its seventeen unconsolidated hotel limited partnerships, which owned a total of
twenty hotels. Additionally, the financial statements of three 50% owned hotel
affiliates, which each owned one hotel, were included in Signature's
consolidated financial statements.
In January 1997, Signature completed a public offering of 2,256,000 shares
of Series A Preferred Stock at $20 per share. Using a portion of the proceeds
of the offering, other sources of funds and the assumption of debt, Signature
acquired the 23 hotel properties previously owned by affiliated entities. The
acquisitions included the purchase of the limited partners' interests in the
unconsolidated hotel limited partnerships and also the purchase of the
remaining interests in the three 50% owned and consolidated hotel affiliates.
Two additional Signature-owned hotels which were acquired from non-
affiliates began operations in February 1997 (Louisville East) and July 1997
(Springfield). The Springfield hotel was acquired in August 1996 and operations
were closed from January 1997 to July 1997 to undergo the conversion to a
Signature Inn. The Signature Inn Carmel, owned by an unconsolidated limited
partnership, began operations in February 1997, and is the only hotel property
not wholly owned by Signature.
Merger Agreement. On January 27, 1999, Signature and Jameson entered into
the merger agreement pursuant to which Signature will merge with and into
Jameson. The holders of Signature common stock will receive one-half share of
Jameson common stock and a cash payment of $1.50 in exchange for each share of
Signature common stock owned. The amount of the cash payment will be reduced if
a dividend is declared and paid to the holders of the Signature common stock
prior to the consummation of the merger. Such a dividend distribution may be
required to distribute all accumulated earnings and profits, as defined under
federal tax law, of Signature prior to the merger to protect the REIT status of
Jameson. Holders of the outstanding shares of Signature Series A Preferred
Stock will receive one share of Jameson Series S Preferred Stock having
substantially the same terms as Signature Series A Preferred Stock, including
an annual preferred dividend right of $1.70 per share and a liquidation
preference of $20.00 per share, for each share of Signature Series A Preferred
Stock outstanding at the effective time of the merger. Upon conversion of each
share of the new Jameson Series S Preferred Stock (at any time in the future),
holders will be entitled to receive 1.04 shares of Jameson common stock and a
cash payment of $3.125.
The merger is subject to (a) approval by Signature's common and preferred
shareholders, each voting separately as a single class, (b) approval by the
Jameson common shareholders and (c) certain other conditions. It is currently
anticipated that the merger will be consummated in the second quarter of 1999.
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<PAGE>
Results of Operations.
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997.
Hotel Revenues. Revenues are principally derived from the rental of
guestrooms. Other hotel revenues consist of meeting room rentals, charges to
guests for long-distance telephone service and vending commissions. Hotel
revenues of $42,404,000 for 1998 represented a $2,466,000 increase compared to
1997. Hotel revenues increased primarily as a result of a full year of
operations in 1998 for Signature owned hotels compared to a partial year in
1997 because the acquisition of twenty previously unconsolidated Signature Inns
occurred on January 24, 1997, the acquisition of the Louisville East hotel
occurred in February 1997 and the opening of the Springfield hotel occurred in
July 1997.
Management and Franchise Fees. Revenue from management and franchise fees
were earned from the unconsolidated partnership owned hotels prior to the
acquisition by Signature in January 1997, plus the Signature Inn Carmel which
opened in February 1997. Fees decreased $114,000 for 1998 to $94,000 compared
to $208,000 in 1997 as a result of the absence of fees from acquired hotels
subsequent to January 24, 1997. This was offset partially by fee income
increases from the sole remaining affiliated limited partnership owned hotel
(Carmel) which began operations February 1997.
Direct Hotel Expenses. Direct hotel expenses include costs associated with
the operations of the hotels including: compensation and benefit costs, room
supplies, certain administrative costs, maintenance, marketing, utilities and
property taxes. Direct hotel expenses for 1998 increased $1,263,000 to
$23,777,000 compared to $22,514,000 for 1997, primarily as a result of a full
twelve months of operating results during 1998 from the hotels acquired and
opened during 1997. As a percent of hotel revenues, direct hotel expenses
decreased from 56.4% to 56.1%.
Depreciation, Amortization and Retirements. Depreciation, amortization and
retirements increased $1,034,000 to $4,752,000 for 1998 compared to $3,718,000
for 1997, resulting from the acquisitions of the affiliate hotels and
Louisville East, the opening of the Springfield hotel and additions to property
and equipment for refurbishing and other hotel improvements during 1998.
Corporate Expenses. Corporate expenses include the costs of general
management, office rent, professional fees and other administrative expenses.
Corporate expenses for 1998 were $2,745,000 which represented a $115,000
increase compared to 1997. This 4.4% increase is attributable to increased
professional fees and employee costs.
Merger Transaction Costs. In connection with the proposed Jameson merger,
and prior strategic alternative transactions which were not consummated,
Signature recorded in 1998 merger transaction costs of $224,000 ($161,000 after
taxes, or $.08 per common share) for direct and other merger-related costs.
Equity in Income of Hotel Limited Partnerships. Equity in income of hotel
limited partnerships represents Signature's share of the unconsolidated
partnerships' income or loss. The 1998 increase in income of $72,000 resulted
from the absence of Signature's pro rata share of the acquired hotels
subsequent to January 24, 1997, offset slightly by Signature's pro rata share
of earnings from the Carmel partnership.
Interest Income and Expense. Interest income for 1998 increased to $590,000
from $543,000 in 1997 as a result of increased cash balances maintained during
1998. The increase in interest expense for 1998 to $6,264,000 from $5,805,000
resulted from additional debt assumed by Signature during 1997 in connection
with the acquired hotels.
Other. Land sales resulted in the recognition of gains of $53,000 in 1998
and $353,000 for 1997.
Income Tax Expense. The effective income tax rate for 1998 of 28.2% is
higher than the income tax rate of 18.2% in 1997 because the reduction in the
deferred tax valuation allowance was lower in 1998 than 1997.
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<PAGE>
Year Ended December 31, 1997 Compared With Year Ended December 31, 1996.
Hotel Revenues. Hotel revenues of $39,938,000 for 1997 represented a
$34,434,000 increase compared to 1996. Hotel revenues increased as a result of
the acquisition of twenty previously unconsolidated Signature Inns on January
24, 1997, the acquisition of the Louisville East hotel in February 1997 and the
acquisition of the Springfield hotel in August 1996. The three previously
consolidated hotels experienced decreased revenues of $328,000 resulting from a
lower occupancy achieved during 1997, offset partially by increased average
daily room rates.
Management and Franchise Fees. These fees decreased $2,854,000 for 1997
compared to 1996 as a result of the absence of fee income earned subsequent to
January 24, 1997, offset by fee income from a new unconsolidated limited
partnership owned hotel (Carmel) which began operations February 1997.
Direct Hotel Expenses. Direct hotel expenses for 1997 increased $19,311,000
to $22,514,000 from $3,203,000 for 1996. Direct hotel expenses primarily
increased as a result of the acquisition of twenty previously unconsolidated
Signature Inns on January 24, 1997, the acquisition of the Louisville East
hotel in February 1997 and the acquisition of the Springfield hotel in August
1996. Direct hotel expenses from the three consolidated hotels increased
$183,000, with the remainder of the increase attributable to the acquired
hotels. As a percent of hotel revenues, direct hotel expenses decreased from
58.2% to 56.4%.
Depreciation, Amortization and Retirements. Depreciation, amortization and
retirements increased $3,148,000 for 1997 to $3,718,000 from $570,000 for 1996
resulting from the property and equipment and deferred cost increases
associated with the acquired hotels.
Corporate Expenses. Corporate expenses for 1997 were $2,630,000 which
represented a $319,000 increase compared to 1996. This 13.8% increase is
attributable to increased employee costs and general office related expenses
incurred during the ordinary course of business.
Equity in Income of Hotel Limited Partnerships. Equity in income of hotel
limited partnerships represents Signature's share of the unconsolidated
partnerships' income or loss. The 1996 equity in income of hotel limited
partnerships of $596,000 was attributable to the acquired hotels. The 1997
decrease in income of $645,000 to a loss of $49,000 was the result of the
absence of Signature's pro rata share of the acquired hotels subsequent to
January 24, 1997, offset slightly by Signature's pro rata share of earnings
from Carmel.
Interest Income and Expense. Interest income for 1997 increased to $543,000
from $207,000 in 1996 as a result of increased cash balances maintained during
1997 resulting mainly from the public offering of Series A Preferred Stock,
offset by the absence of $77,000 of interest earned from Signature's loan
participation agreements in three hotels during 1996. The increase in interest
expense for 1997 to $5,805,000 from $1,035,000 was the result of additional
debt assumed by Signature in connection with the acquired hotels.
Other. Land sales resulted in the recognition of a gain of $353,000 in 1997
compared to a loss of $27,000 in 1996. Also, in 1996 minority interest in
earnings of consolidated partnerships was $346,000.
Income Tax Expense. Signature's annual utilization of its net operating loss
carryforwards was limited due to the Series A Preferred Stock offering in
January 1997. Accordingly, the effective income tax rate for 1997 of 18.2% was
higher than the income tax rate of 11.5% in 1996.
Capital Resources and Liquidity. Historically, Signature has funded its
operations principally through cash flow from operations and borrowings under
certain credit facilities. At December 31, 1998, Signature had $10,047,000 of
cash and cash equivalents compared to $11,127,000 at December 31, 1997.
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<PAGE>
Net cash provided by operating activities increased to $8,643,000 in 1998
compared to $8,290,000 in 1997, an increase of $353,000. The increase was
primarily a net result of earnings, a reduction of income taxes receivable and
an increase in deferred income taxes.
Net cash used by investing activities decreased to $4,271,000 in 1998
compared to $37,670,000 in 1997. The primary element of change from 1997 was
the cash used in the 1997 acquisitions.
Net cash used by financing activities was $5,452,000 in 1998 compared to a
net cash provided of $38,512,000 in 1997. The change was primarily the result
of net proceeds from the issuance of the Series A Preferred Stock during 1997
of $41,200,000, offset partially by the payment of a full year of preferred
stock dividends in 1998.
The hotel mortgages are secured by hotels and land and bear interest at
rates ranging from 7.5% to 10.0% (8.75% and 8.90% weighted average interest
rates at December 31, 1998 and 1997, respectively) through maturity dates
ranging from 2000 to 2016. The annual scheduled principal payments during the
next five years are $1,811,000 in 1999, $7,810,000 in 2000, $6,212,000 in 2001,
$1,758,000 in 2002 and $1,919,000 in 2003.
Signature believes that the cash generated from operations, along with
additional borrowing capabilities and cash balances, will provide adequate
liquidity to meet its operating needs, debt service and preferred dividend
requirements over the next twelve months.
Signature may seek to obtain credit facilities or issue corporate debt or
equity securities in order to raise additional capital. Any debt incurred or
issued by Signature may be secured or unsecured, bear interest at fixed or
variable rates, and be subject to such other terms as the Board of Directors of
Signature considers appropriate.
Seasonality. Demand for hotel accommodations varies seasonally in the
Signature Inns hotels' market areas. Typically, the demand for hotel
accommodations and correspondingly, occupancy rates for the hotels, will be
higher during the period from March through October and lower during the period
from November through February.
Supply and Demand. In some years, construction of lodging facilities in the
United States resulted in an excess supply growth of available rooms compared
to the growth in demand, and the excess of supply growth had an adverse effect
on occupancy levels and room rates in the industry. The lodging industry may be
adversely affected in the future by (i) an excess in supply growth of available
rooms, (ii) national and regional economic conditions, (iii) changes in travel
patterns, (iv) taxes and government regulations which influence or determine
wages, prices, interest rates, construction procedures and costs, and (v) the
availability of credit.
Inflation. The rate of inflation as measured by changes in the average
consumer price index has not had a material effect on Signature's financial
condition or results of operations for the periods presented.
Year 2000. Signature has completed an assessment of its computer and other
operating systems to identify those which could be affected by the "Year 2000"
issue. The assessment included the review of corporate and hotel applications,
hardware, and software (information technology or "IT"), non-IT areas such as
microprocessors and embedded chips, and third parties, including providers of
supplies and services. Signature has established a time line for assuring
compliance and is monitoring progress toward that end. On going testing of
existing
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systems to determine compliance will be completed by the end of August 1999.
Systems that are determined to be non-compliant will be repaired or replaced
between May and September.
Signature relies on third party consultants and suppliers for a variety of
its corporate and hotel operations. The remediation phase includes modification
to, or replacement of, software, hardware or microprocessors and obtaining
assurances from third parties that they have addressed the Year 2000 issue.
Estimated total costs, excluding internal costs, to complete compliance are
$100,000 of which $50,000 or more is anticipated to be capitalized and $50,000
expensed. No material amounts have been expended as of December 31, 1998 for
year 2000 remediation. Signature does not track the internal costs incurred for
the Year 2000 project (principally the payroll and related costs for its
information systems group). The costs of the project have been and will
continue to be funded through operating cash flows.
Signature believes it has an effective program in place to resolve the year
2000 issue in a timely manner. Year 2000 risks include failure to obtain
successful testing of hardware/software, failed attempts to obtain vendor
compliance and failure on the part of suppliers and service providers.
Signature believes that under most reasonably likely worst case scenarios hotel
operations could be disrupted, a reduction in hotel occupancy due to lost
reservations, or Corporate financial functions could be impaired. Such an event
would cause certain processes to revert to manual systems and could have a
material adverse impact on Signature's operating results and financial
position. Contingency plans to address those risks have not been fully
developed, however Signature intends to finalize its contingency plan for those
risks by October 1999. Contingency plans will be implemented between October 1
and December 31 for systems that cannot be feasibly repaired or replaced.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
OF JAMESON AND SIGNATURE
The rights of Jameson stockholders are currently governed by the Georgia
Business Corporation Code (the "Georgia Code") and the articles of
incorporation and bylaws of Jameson (the "Jameson articles" and the "Jameson
bylaws," respectively). The rights of Signature stockholders are currently
governed by the Indiana Business Corporation Law (the "Indiana Law") and the
articles of incorporation and bylaws of Signature (the "Signature articles" and
the "Signature bylaws," respectively).
In accordance with the merger agreement, the owners of Signature common
stock will become owners of Jameson common stock, and the owners of Signature
Series A Preferred Stock will become owners of Jameson Series S Preferred
Stock. Upon consummation of the merger, the rights of Jameson and Signature
stockholders who become stockholders of Jameson in the merger will be governed
by the Georgia Code, the Jameson articles, as amended to create and designate
the rights and preferences of the James Series S Preferred Stock to be issued
to holders of Signature Series A Preferred Stock, and the Jameson bylaws. The
following are summaries of the material differences between the current rights
of Signature stockholders, and the rights of those stockholders as stockholders
of Jameson following the merger.
Although it is not practical to compare the Georgia Code, Jameson articles,
and Jameson bylaws with all their differences from the Indiana Law, Signature
articles, and Signature bylaws, the following is a summary of those
differences.
As to the holders of Signature Series A Preferred Stock, their rights will
to be governed primarily by the contractual rights established by the amendment
to the Amended and Restated Articles of Incorporation of Jameson, which will
designate the terms of the Jameson Series S Preferred Stock. (See Appendix B).
In preparing that amendment, efforts have been taken to replicate and restate,
as nearly as possible, each and every provision of the designations of the
rights and preferences of the Signature Series A Preferred Stock, as they
currently exist in Signature's articles, and to "mirror" those designations
within the text of the amendment to the Jameson articles. Accordingly, it is
the express intent and purpose of the amendment to the Jameson articles that
the terms of that amendment will simply duplicate and restate the terms of the
existing Signature Series A Preferred Stock and that the only material
variances between the terms of the existing Signature Series A Preferred Stock
and the terms of the Jameson Series S Preferred Stock will be (a) the inclusion
of provisions limiting the percentage of ownership of the Jameson Series S
Preferred Stock in order to insure that Jameson continues to comply with the
requirements necessary to maintain its REIT status and (b) the modification of
the conversion formula to reflect the terms of the merger agreement, as
required under the existing Signature Series A Preferred Stock designation. The
inclusion of these limiting ownership provisions will not, however, require any
current holder of the Signature Series A Preferred Stock to reduce his or her
current holdings following the merger.
Mergers
Generally, under the Georgia Code, unless the articles of incorporation, the
bylaws, or the board of directors require a greater vote or a vote by voting
groups, the approval by the affirmative vote of the holders of a majority of
the outstanding stock of a corporation entitled to vote on the matter is
required to approve a plan of merger. Neither the Jameson articles nor the
Jameson bylaws contain a provision expressly providing for a majority or
greater approval of a plan of merger. However, the Georgia Code provides that
no approval of a merger or share exchange is required from the stockholders of
the surviving corporation if its articles of incorporation will not differ from
those prior to the merger, the shares of capital stock of the corporation
outstanding immediately prior to the merger will be identical after the merger
or share exchange and the number and kind of shares outstanding immediately
after the merger or share exchange plus the number and kind of shares issued
pursuant to the merger or share exchange will not exceed the number and kind of
shares authorized by the corporation's articles of incorporation immediately
prior to the merger or share exchange.
Under the Indiana Law, unless the articles of incorporation, the bylaws, or
the board of directors require a greater vote or a vote by voting groups, the
approval by the affirmative vote of a majority of the holders of the
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outstanding stock of a corporation entitled to vote on the matter is required
to approve a plan of merger. Under the Signature articles and the Signature
bylaws, the affirmative vote of at least 80% of the voting power of the shares
of common stock is required to approve any business combination involving
Signature which is not approved by the Signature Board of Directors or which
does not result in a defined minimum valuation for Signature. Because
Signature's board has approved and recommended the proposed merger of Signature
into Jameson, the 80% supermajority voting requirement under Signature's
articles and bylaws does not apply to the proposed merger transaction.
In addition, under Signature's articles, any amendment, alteration or
repeal, whether by merger, consolidation or otherwise, of any of the provisions
of Signature's articles or bylaws which would adversely affect the preferences,
voting or other rights of the holders of the Signature Series A Preferred Stock
would require the affirmative vote or consent of the holders of two-thirds of
the shares of Signature Series A Preferred Stock outstanding at that time, with
that series voting or consenting separately as a class. However, because all of
the rights and preferences of the Signature Series A Preferred Stock are being
restated and duplicated in the designations of the rights and preferences of
the Jameson Series S Preferred Stock, and because the only material variances
between those series are (a) the inclusion of limits on the percentage
ownership of the Jameson Series S Preferred Stock and (b) the modification of
the conversion formula, the Board of Directors of Signature has determined that
the proposed merger should not affect adversely any of the preferences or
rights of the Signature Series A Preferred Stock, as they currently exist.
Accordingly, the affirmative vote of a majority as opposed to two-thirds, of
the shares of Signature Series A Preferred Stock is required to approve the
merger agreement.
Business Combination Laws
Georgia Fair Price Requirements for Business Combination Law
The Georgia Code sections 14-2-1111 and 14-2-1112, in general, prohibit a
business combination between a corporation and an interested stockholder within
five years of the time such stockholder became an interested stockholder,
unless:
. unanimously approved by the continuing directors;
. recommended by at least two-thirds of the continuing directors and
approved by a majority of the shares held by stockholders other than
interested stockholders; or
. the transaction meets specified fair pricing criteria and certain other
tests which are intended to assure that all stockholders receive a fair
price and equivalent consideration for their shares regardless of the
time the stockholders sell to the acquiring party.
The term "business combination" includes, among other transactions between
an interested stockholder or a corporation or any direct or indirect majority
owned subsidiary thereof, (a) a merger; (b) an exchange with an interested
stockholder or a corporation or any direct or indirect majority owned
subsidiary thereof; (c) a sale, lease, transfer or other disposition (including
as part of a dissolution) of assets having an aggregate book value equal to 10%
or more of the net assets of the corporation at the end of such fiscal quarter;
(d) the issuance or transfer by the corporation of the equity securities of the
corporation equal to 5% or more of the total market value of the outstanding
shares of the corporation; (e) adoption of any plan or proposal for liquidation
or dissolution of the corporation in which an interested stockholder or any
affiliate of an interested stockholder will receive anything other than cash;
(f) certain transactions that would increase the interested stockholder's
proportionate share ownership of the stock of any class or series of the
corporation or such subsidiary by 5% or more of the proportionate amount of
outstanding shares of any class or series of equity securities of the
corporation or such subsidiary. Under the Georgia Code, "continuing directors"
generally are directors who served prior to the time the interested stockholder
acquired 10% ownership and who are unaffiliated with the interested
stockholder. In general, and subject to certain exceptions, an "interested
stockholder" is any person who is the beneficial owner of 10% or more of the
outstanding voting stock of the corporation.
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The restrictions of the Georgia Code do not apply to corporations unless the
corporation amends its bylaws to make these sections apply to it. Because
Jameson did not amend the Jameson bylaws to include these restrictions, the
Georgia Code Fair Price Requirements for Business Combination Law is not
applicable to the merger.
Indiana's Business Combination Law
The Indiana Law prohibits a resident domestic corporation, which is defined
as a corporation with 100 or more stockholders which has a class of voting
shares registered with the Securities and Exchange Commission, from engaging in
a "business combination" with an "interested stockholder" for a period of five
years following the date the interested stockholder becomes an interested
stockholder, unless the business combination or the interested stockholders'
acquisition of shares is approved by the board of directors of the resident
domestic corporation before such stockholder became an interested stockholder.
After the expiration of five years from the date the stockholder becomes an
interested stockholder, the resident domestic corporation is still prohibited
from engaging in a business combination with the interested stockholder unless
the combination is approved by the affirmative vote of the holders of a
majority of the outstanding shares not beneficially owned by the interested
stockholder or the combination meets certain conditions regarding the amount
and kind of consideration set forth in the statute. A corporation which would
otherwise be subject to the business combination law may adopt an amendment to
its articles of incorporation or bylaws expressly electing not to be governed
by the business combination law's provisions.
The term "interested stockholder" includes any person or entity with 10% or
more of the voting power of the resident domestic corporation or any affiliate
of a resident domestic corporation that, in the preceding five years, owned 10%
or more of the voting power of the resident domestic corporation. The term
"business combination" is defined to include, when used in reference to any
resident domestic corporation and any interested stockholder of the resident
domestic corporation, the following: (a) a merger; (b) any sale, lease,
exchange, mortgage, pledge, transfer or disposition in one transaction or a
series of transactions of assets (1) having an aggregate market value equal to
10% or more of the aggregate market value of all of the resident domestic
corporation's assets, (2) having an aggregate market value equal to 10% or more
of the aggregate market value of all the resident domestic corporation's
outstanding shares, or (3) representing 10% or more of the earning power of the
resident domestic corporation; (c) the issuance or transfer of any shares of
the resident domestic corporation that have an aggregate market value equal to
5% or more of its outstanding shares; (d) the adoption of a plan or proposal
for the liquidation or dissolution of the resident domestic corporation; (e)
any reclassification of securities, recapitalization, merger or consolidation
or other transaction proposed by, or under an agreement with, the interested
stockholder; or (f) the receipt by the interested stockholder of the benefit of
any loans, advances, guarantees, pledges or other financial assistance from the
resident domestic corporation.
In addition to the business combination rules set forth in the statute,
Signature's articles of incorporation and bylaws contain further restrictions
on Signature's ability to engage in a business combination. Specifically, the
articles of incorporation and bylaws require the affirmative vote of the
holders of 80% of the voting power of the Signature common stock to engage in
the following business combinations:
. any merger or consolidation with an interested stockholder or affiliate;
. any sale, lease, exchange, mortgage, pledge, transfer or disposition of
assets having a fair market value of $1,000,000 or more to an interested
stockholder or affiliate;
. the issuance or transfer of securities having a fair market value of
$1,000,000 or more to an interested stockholder or affiliate;
. the adoption of any plan or proposal for liquidation or dissolution
proposed by or on behalf of an interested stockholder or affiliate; or
. any reclassification, recapitalization or other transaction which has
the effect of increasing the proportionate share of securities owned by
an interested stockholder or affiliate.
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Such 80% supermajority vote by the Signature stockholders is not required if
the business combination has been approved by a majority of unaffiliated
directors or the consideration to be received by the Signature stockholders
satisfies certain fairness criteria set forth in the articles of incorporation
and bylaws. Because Signature's Board of Directors unanimously has approved the
merger agreement and recommended the adoption and approval of the merger
agreement to Signature's shareholders, the 80% supermajority vote by the
Signature stockholders is not required in connection with the proposed merger
of Signature into Jameson.
Indiana Control Share Acquisition Law
The Indiana Control Share Acquisition Law provides that whenever an
acquiring person acquires shares of a public corporation that (if permitted to
vote) would give the acquirer, when added to its pre-acquisition holdings, more
than one-fifth, one-third or one-half of the voting power in the election of
directors of the corporation, the newly acquired "control shares" will not be
permitted to vote unless (a) voting power is approved by the disinterested
stockholders, which includes stockholders other than the acquirer, officers of
the corporation or employees who are also directors of the corporation, or (b)
the acquirer has negotiated a merger or share exchange with, or the acquisition
was approved in advance by the board of directors of, the corporation. A
corporation is subject to the provisions of the Control Share Acquisition Law
if it has 100 or more stockholders, its principal place of business is in
Indiana and either (i) more than 10% of its stockholders reside in Indiana,
(ii) more than 10% of its shares are owned by Indiana residents, or (iii)
10,000 stockholders reside in Indiana.
The term "control shares" is defined as shares which, when added to all
other shares owned by the acquiring stockholder or with respect to which the
acquiring stockholder has voting power, would entitle that stockholder to
exercise or direct the exercise of the voting power of the public corporation
in the election of directors within the following ranges: (a) one-fifth or more
but less than one-third of all voting power; (b) one-third or more but less
than a majority of all voting power; or (c) a majority or more of all voting
power. The acquisition of shares of a public corporation is not a control share
acquisition if the acquisition is consummated pursuant to a merger or plan of
share exchange if the issuing public corporation is a party to the agreement of
merger or plan of share exchange. Additionally, a corporation which would
otherwise be subject to the law may provide in its articles of incorporation or
bylaws that the law does not apply to control share acquisitions of shares of
the corporation.
Signature's articles of incorporation and bylaws do not expressly exempt
Signature from application of the control share acquisition law. However,
because Signature is a party to the agreement of merger and because Signature's
Board of Directors has determined by resolution adopted by a unanimous vote of
its members that the proposed merger does not constitute a control share
acquisition under the Indiana Law, the provisions of the Indiana Control Share
Acquisition Law do not apply to the proposed merger of Signature into Jameson.
Appraisal Rights
Under the Georgia Code, the stockholders of a Georgia corporation have the
right to dissent and receive payment of the fair value of their shares, except
as otherwise provided by the Georgia Code, in the event of the (a) consummation
of certain plans of merger; (b) consummation of certain plans of share
exchange; (c) certain sales or exchanges of all or substantially all of the
corporation's property; (d) amendments to the articles of incorporation that
materially and adversely affect their shares; (e) or any corporate action taken
pursuant to a stockholder vote to the extent provided by the Georgia Code, the
articles of incorporation, bylaws or a resolution of the board of directors
providing that voting or nonvoting stockholders are entitled to the right of
dissent for their shares. However, except as otherwise provided by the Georgia
Code, the articles of incorporation or a resolution of the board of directors,
stockholders do not have dissenters' rights in a merger if, their shares are:
. listed on a national securities exchange; or
. held of record by more than 2,000 stockholders.
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and, the consideration such stockholders receive for their shares consists
solely of:
. shares of the surviving corporation or another publicly held corporation
which at the effective time of the merger are either listed on a
national exchange or held of record by more than 2,000 stockholders; or
. scrip or cash payment in lieu of fractional shares.
Under the Indiana Law, a stockholder is entitled to dissent from, and obtain
payment of the fair value of the stockholder's shares in the event of: (a)
consummation of certain plans of merger, if stockholder approval is required or
the stockholders are entitled to vote on the merger; (b) consummation of
certain plans of share exchange; (c) consummation of certain sales or exchanges
of all, or substantially all, of the property of the corporation; (d) the
approval of a control share acquisition; and (e) any corporate action taken
pursuant to a stockholder vote to the extent the articles of incorporation,
bylaws or resolution of the board of directors provides for the right to
dissent and obtain payment for shares. This right to dissent and obtain payment
does not apply to holders of shares if the shares are:
. registered on a United States securities exchange registered under the
Exchange Act; or
. traded on the Nasdaq National Market or a similar market.
The Signature common stock and Series A Preferred Stock are listed on the
Nasdaq National Market. Consequently, the Signature stockholders do not have
dissenters' rights. A stockholder who is entitled to dissent and obtain payment
for his or her shares or who would have been entitled to dissent and obtain
payment for his or her shares but for the market exceptions listed above may
not challenge the corporate action giving rise to the dissenters rights.
Rights Plan
Jameson does not have a stockholder rights plan. By contrast, Signature has
entered into a Second Amended and Restated Rights Agreement, as amended ( the
"Rights Agreement"), with Harris Trust and Savings Bank as rights agent.
In accordance with the Rights Agreement, one stock purchase right (the
"Right") is issued with each share of Signature common stock issued. Each
Right, when it first becomes exercisable, entitles the holder to purchase from
Signature one hundredth of one share of Series One Preferred Stock at an
initial exercise price of $40 per one-hundredth of one share (the "Exercise
Price"), subject to adjustment.
Initially, the Rights will not be exercisable or transferable apart from the
shares of the Signature common stock with respect to which they are or have
been distributed, and will be evidenced only by the certificates representing
shares of Signature common stock. The Rights will become exercisable and
transferable apart from the Signature common stock on a date (the
"Exercisability Date") that is the earlier of (a) the close of business on the
tenth business day after the Stock Acquisition Date, defined as the first date
of a public announcement that a person or group of affiliated or associated
persons has become an Acquiring Person (as defined below); or (b) the close of
business on such date as a majority of Signature's Board of Directors shall
determine, which date may occur only following the commencement of a tender or
exchange offer that, if consummated, would result in a person or group becoming
an Acquiring Person. The Rights will be exercisable from the Exercisability
Date until the Expiration Date (which is the earlier of (a) the close of
business on the tenth anniversary of the record date under the Rights Agreement
(the "Final Expiration Date"), or (b) the time at which the Rights are redeemed
by Signature (the "Redemption Date") or immediately prior to the merger), at
which time they will expire.
With certain exceptions described in the Rights Agreement, a person or group
becomes an Acquiring Person when such person or group acquires or obtains the
rights to acquire beneficial ownership of 20% or more of the then outstanding
shares of the Signature common stock (other than as a result of a Permitted
Offer,
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as defined below), or 10% or more of such shares if the Signature Board of
Directors, after reasonable inquiry and investigation, declares the acquiring
person an Adverse Person under guidelines set forth in the Rights Agreement. A
"Permitted Offer" is a tender or exchange offer for all outstanding shares of
the Signature common stock upon terms that a majority of the members of the
Signature Board of Directors determines to be adequate and in the best
interests of Signature and its shareholders. The Signature Board of Directors
may declare any person to be an Adverse Person after it determines that (i)
such person, alone or together with its affiliates and associates, has become
the beneficial owner of 10% or more of Signature's common stock and (ii) after
reasonable inquiry and investigation, such person's ownership in Signature is
reasonably likely (x) to cause Signature to take action that would provide such
person with short-term gain to the detriment of the long-term interests of
Signature and its shareholders, or (y) to have a material adverse impact on the
business or prospects of Signature.
Prior to the Exercisability Date, the Rights will not be transferable apart
from the shares of the Signature common stock to which they are attached. As
soon as practicable after the Exercisability Date, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to each record
holder of shares of the common stock as of the close of business on the
Exercisability Date and, in certain circumstances, holders of certain shares
issued after the Exercisability Date.
Upon the occurrence of an Exercisability Date (a "Flip-In Event"), each
holder of a Right will thereafter have the right (the "Flip-In Right") to
receive, upon exercise, the number of shares of the common stock (or, in
certain circumstances, at the discretion of Signature's Board of Directors,
cash, property, other securities of Signature or other consideration) having a
market value immediately prior to the Flip-In Event equal to two times the then
current Exercise Price of the Right, provided that any Right that is (or, in
certain circumstances specified in the Rights Agreement, was) beneficially
owned by an Acquiring Person (or any of its affiliates or associates) will
become null and void upon the occurrence of the Flip-In Event. Cash will be
paid in lieu of issuing fractional shares of Series One Preferred Stock
pursuant to an exercise of the Rights.
If, at any time following a Stock Acquisition Date, either (a) Signature is
acquired in a merger or other business combination transaction, or (b)
Signature sells or otherwise transfers more than 50% of its aggregate assets,
cash flow, or earning power, each holder of a Right (except Rights previously
voided as described above) will thereafter have the right (the "Flip-Over
Right") to receive, upon exercise, shares of common stock of the Acquiring
Person having a value equal to two times the then current Exercise Price of the
Right. The Flip-Over Right shall be exercisable apart from, and regardless of
the exercise or surrender of, the Flip-In Right.
At any time prior to the earlier of (a) the close of business on the tenth
business day following the Stock Acquisition Date, or (b) the close of business
on the Final Expiration Date, and in certain other circumstances, the Signature
Board of Directors may redeem the Rights, in whole but not in part, at a
Redemption Price of $.001 per Right.
At any time after any person becomes an Acquiring Person, the Signature
Board of Directors may exchange the Rights (other than Rights owned by such
Acquiring Person which have become void), in whole or in part, at an exchange
ratio of one share of Signature common stock per right. Notwithstanding the
foregoing, the Signature Board of Directors shall not be empowered to effect
such exchange at any time after such Acquiring Person becomes the beneficial
owner of 50% or more of the shares of common stock then outstanding.
At any time prior to the Exercisability Date, the Signature Board of
Directors may amend any provision of the Rights Agreement in any manner.
Thereafter, the Signature Board of Directors may amend the Rights Agreement in
certain respects. Certain amendments (including changes to the Redemption
Price, Exercise Price, Expiration Date, or number of shares for which a Right
is exercisable), whether prior to the Exercisability Date or thereafter, are
permitted only upon approval by a majority of the Signature Board of Directors.
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In accordance with the plan of merger, Signature has executed an amendment
to the Rights Agreement exempting the following actions from triggering the
exercisability of Signature rights:
. the public announcement, public disclosure, execution and delivery or
amendment of the merger agreement;
. the performance of any part of Signature's obligations under the merger
agreement;
. the acquisition of beneficial ownership of Signature common stock by
Jameson pursuant to the merger; and
. the consummation of other transactions contemplated by the merger
agreement.
Amendments to Charter
Under the Georgia Code, unless the articles of incorporation or the board of
directors requires a greater vote, a proposed amendment to the articles of
incorporation requires an affirmative majority vote of the voting power of the
outstanding stock of each voting group entitled to vote on the amendment.
Similarly, the Jameson articles require the affirmative vote of at least a
majority of the total voting power of the outstanding voting stock to approve
any amendment to the articles of incorporation.
In addition, the Georgia Code provides that the approval of the holders of a
majority of the outstanding shares of any class of capital stock of a
corporation, voting separately as a class, is required under the Georgia Code
to approve a proposed amendment to a corporation's articles of incorporation,
whether or not entitled to vote on such amendment by the articles of
incorporation, (a) if the amendment would increase or decrease the aggregate
number of authorized shares of such class (unless the articles of incorporation
specifically authorize the change without stockholder approval), or (b) change
the classification, designation, rights, preferences, or limitations of the
shares of such class. For this purpose, if a proposed amendment would affect a
series of a class of shares in one or more of these ways, then only the shares
of the series so affected by the amendment would be entitled to vote as a
separate class on the amendment.
Under the Indiana Law, a corporation may amend its articles of incorporation
at any time to add or change a provision that is required or permitted to be in
the articles of incorporation or to delete a provision not required or
permitted to be in the articles of incorporation. The board of directors of a
corporation is permitted, unless the articles of incorporation provide
otherwise, to adopt certain amendments without stockholder action, including
amendments to extend the corporation's duration, delete the names and addresses
of initial directors or the initial registered agent, change the number of each
issued and unissued authorized share of an outstanding class into a greater or
lesser number of shares if the corporation has only shares of that class
outstanding, make certain changes to the corporate name, reduce the number of
authorized shares solely as a result of a cancellation of treasury shares, or
make any other change expressly permitted under the statute to be made without
stockholder action. For all other amendments to the articles of incorporation,
unless the corporation's articles of incorporation require a greater vote, the
approval of a proposed amendment to the articles of incorporation requires: (a)
the recommendation of the amendment to the stockholders by the board of
directors unless the board of directors determines that because of special
circumstances it should make no recommendation, (b) an affirmative majority
vote of any voting group with respect to which the amendment would create
dissenters' rights, and (c) the affirmative vote of a majority of the votes
cast at a meeting at which a quorum is present of each other voting group
entitled to vote on the amendment.
The holders of shares of a class are entitled to vote as a separate voting
group on a proposed amendment if the amendment would: (a) increase or decrease
the aggregate number of shares of the class, (b) exchange or reclassify any of
the shares of a class into another class, (c) exchange or reclassify any of the
shares of another class into the class, (d) change the designation, rights,
preferences, or limitations of any of the shares of the class, (e) change any
of the shares into a different number of shares of the same class, (f) create a
new class of shares, or increase the rights of an existing class of shares, to
give the class prior, superior or equal rights or preferences with respect to
distributions or dissolution than the class, (g) limit or deny an existing
preemptive
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right of any shares in the class, or (h) cancel or otherwise affect rights to
distributions or dividends that have accumulated but not yet been declared on
all or part of the shares of the class. For this purpose, if a proposed
amendment would affect a series of a class of shares in one or more of these
ways, then only the shares of the series so affected by the amendment would be
entitled to vote as a separate class on the amendment, and if the proposed
amendment affects two or more series of shares in the same or a substantially
similar way, all affected shares must vote together as a single voting group.
The Signature articles of incorporation require a greater vote than that set
forth in the Indiana Law to amend certain provisions, including the provisions
regarding the number and qualifications of directors and the provisions
regarding business combinations. Specifically, the Signature articles of
incorporation require the affirmative vote of the holders of 80% or more of the
voting power of the shares of outstanding voting stock, voting together as a
single class, to amend, repeal or adopt provisions inconsistent with these
provisions. Additionally, the articles require an affirmative vote of the
holders of two-thirds of the shares of cumulative preferred stock to effect any
amendment, alteration or repeal of the articles of incorporation which affects
adversely the preferences or voting or other rights of the holders of
cumulative preferred stock. Finally, the Signature articles of incorporation
prohibit any amendment of the articles which is effected for the purpose of
avoiding or seeking to avoid the observance or performance of any terms to be
observed or performed under the Signature articles.
Amendments to Bylaws
Under the Georgia Code, a corporation's board of directors may amend or
repeal the corporation's bylaws or adopt new bylaws by a majority vote, unless:
. the articles of incorporation reserve this power exclusively to the
stockholders; or
. the stockholders in amending or repealing a bylaw provide expressly that
the board of directors may not amend or repeal such bylaw.
The Georgia Code provides that a corporation's stockholders may also amend
or repeal the corporation's bylaws by a majority vote of the stockholders,
unless the stockholders adopt a bylaw fixing a greater than majority voting
requirement.
The Jameson bylaws require that the Jameson bylaws be amended by either the
affirmative vote of a majority of all voting stock or by an affirmative vote of
a majority of Jameson's directors then holding office, unless the stockholders
prescribe that any such bylaw may not be amended or repealed by Jameson's board
of directors.
Under the Indiana Law, unless a corporation's articles of incorporation
provide otherwise, only a corporation's board of directors may amend or repeal
the corporation's bylaws. If expressly authorized by the articles of
incorporation, the stockholders may adopt or amend a bylaw that fixes a greater
quorum or voting requirement for stockholders, which bylaw may not be adopted,
amended or repealed by the board of directors unless the bylaw states
otherwise.
The Signature bylaws may be amended by the affirmative vote of a majority of
the board of directors, except the provisions in the Signature bylaws regarding
business combinations, which may only be amended by the affirmative vote of the
holders of 80% or more of the voting power of the shares of outstanding voting
stock, voting together as a single class.
No Preemptive Rights
Under the Georgia Code, a stockholder does not possess preemptive rights to
acquire the corporation's unissued shares unless such rights are specifically
granted in the articles of incorporation. The Jameson articles do not provide
for preemptive rights to stockholders to acquire any unissued or treasury
shares of Jameson.
Under the Indiana Law, stockholders of a corporation do not have a
preemptive right to acquire the corporation's unissued shares except to the
extent provided for in the articles of incorporation. The Signature
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<PAGE>
articles do not provide for preemptive rights to stockholders to acquire any
additional shares of capital stock of Signature.
Stockholder Action Without a Meeting
Under the Georgia Code, stockholder action may be taken without a meeting
upon the written consent of the holders of all outstanding shares entitled to
vote. The Georgia Code allows, if provided for in the articles of
incorporation, stockholder action without a meeting upon the written consent of
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize such action at a meeting at which all
shares entitled to vote thereon were present and voted. The Jameson articles
and the Jameson bylaws provide that any action which may be taken by the
stockholders at annual or special meetings of the stockholder may be taken by
written consent in lieu of meeting.
Under the Indiana Law, stockholder action may be taken without a meeting
upon the written consent of all the stockholders entitled to vote on the
action. The Signature bylaws provide that any action required to be taken at a
meeting of the common stockholders, or any action which may be taken at a
meeting by the common stockholders, may be taken, if, prior to such action, a
written consent, setting forth the action taken, is signed by all the common
stockholders entitled to vote with respect to the subject matter, and such
written consent is filed with the minutes of the proceedings of the common
stockholders.
Stockholder Proposals and Nomination Procedures
The Jameson bylaws require that in order for business to be properly brought
before annual meetings by a stockholder, the stockholder must give timely
written notice to the secretary of Jameson of such stockholder's intention.
Similarly, for a stockholder to properly nominate a director at a meeting of
the stockholders, the director must give timely written notice containing
information as specified by the board of directors to the secretary of Jameson
before the meeting. Timely notice of stockholder business or nominations to be
made at an annual meeting must be received by Jameson not less than 60 days nor
more than 90 days prior to the first anniversary of the previous year's annual
meeting. This requirement is separate and apart from and in addition to the
requirements that a stockholder must meet to have a stockholder proposal
included in Jameson's proxy statement under SEC Rule 14a-8.
Neither the Signature articles nor the Signature bylaws include a provision
which requires that advance notice be given to Signature of stockholders'
proposed business to be conducted at annual meetings or of nomination of an
individual for election to the Signature board of directors. However, in order
to cause Signature to include a proposal in a proxy statement prepared by
Signature regarding matters other than the election of directors, a stockholder
must comply with the requirements of SEC Rule 14a-8.
Right to Call Special Stockholder Meetings
The Georgia Code provides that a special meeting of stockholders may be
called by the board of directors or by such person or persons as may be
authorized by the articles of incorporation or by the bylaws. The Jameson
articles and the Jameson bylaws provide that, subject to the rights of any
preferred stockholders to elect additional directors, a special meeting of the
stockholders may be called at any time by:
. the chairman of the board of directors;
. a majority of the members of the board of directors;
. a committee of the board of directors whose powers and authority include
the power to call such a meeting; or
. stockholders of at least 25% of the voting stock entitled to vote on any
issue to be considered at a proposed special meeting.
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Under Indiana Law, special stockholder meetings of corporations with more
than fifty stockholders may be called by the board of directors or the person
or persons specifically authorized to do so by the articles of incorporation or
bylaws. If the articles of incorporation or bylaws permit the stockholders to
call a special meeting, the articles or bylaws may specify the number of votes
necessary to demand such special meeting or, if no number is specified, the
demand must be made by the holders of all of the votes entitled to be cast on
an issue.
The Signature bylaws provide that special meetings of the stockholders may
be called by the president or the board of directors. Additionally, the
president or the secretary will call a special meeting of the stockholders upon
receipt of written request, which states the purpose of the meeting, from one
or more stockholders of record holding at least 25% of all common stock and
entitled by the Signature articles to vote on the business proposed to be
transacted at the meeting.
Cumulative Voting
Under the Georgia Code and the Indiana Law, the articles of incorporation
may provide that in all elections of directors each stockholder is entitled to
cumulate such stockholder's votes. Neither the Jameson articles nor the
Signature articles provide for cumulative voting for the election of directors.
Size and Classification of Board of Directors
The Georgia Code permits the articles of incorporation or the bylaws of a
corporation to contain provisions governing the number and terms of directors.
The articles of incorporation or bylaws may contain provisions fixing the
number of directors or establishing available range for the size of the board
of directors. However, if the articles of incorporation or the bylaws establish
such variable range, the number may not be changed without stockholder
approval, or if the articles of incorporation or bylaws require by approval of
the board of directors. The Georgia Code permits the articles of incorporation
or a bylaw adopted by the stockholders to provide that directors be divided
into one, two or three classes, with the term of office of one class of
directors to expire each year. The Georgia Code also permits the articles of
incorporation to confer upon holders of any class or series of stock the right
to elect one or more directors to serve for such terms and have such voting
powers as are stated in the articles of incorporation.
The Jameson articles and the Jameson bylaws provide that subject to any
rights of holders of preferred stock to elect additional directors, the number
of directors of Jameson is to be fixed from time to time by:
. resolution adopted by the Jameson board of directors;
. the affirmative vote of at least a majority of the stockholders; or
. the Jameson bylaws.
The current number of Jameson directors is four. The Jameson articles and
the Jameson bylaws provide that the board of directors will be divided into
three classes of directors. Each class of directors contains one-third of the
directors with each class serving staggered three-year terms.
The Indiana Law permits the articles of incorporation or bylaws to prescribe
the number, qualifications and terms of directors. The articles or bylaws may
fix the number of directors or may establish a variable range for the size of
the board of directors by fixing a minimum and maximum number. If a variable
range is established, the number of directors may be fixed or changed from time
to time, within the range, by the board of directors. If the articles of
incorporation permit the division of shares into classes, the articles may also
authorize the election of all or a specified number of directors by the holders
of one or more authorized classes of shares.
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Unless the articles of incorporation provide otherwise, each director's term
expires at the next annual meeting following his or her election. However, the
articles of incorporation may authorize, and the bylaws may provide, for the
staggering of the terms of the directors by dividing the directors into two
groups, with each group containing one-half of the directors, or, if there are
more than two directors, three groups, with each group containing one-third of
the directors, with the term of one group of directors to expire each year.
Signature's articles of incorporation and bylaws provide that the number of
directors of Signature may be fixed from time to time by the board of
directors. The number of directors may not be fewer than two nor more than
nine. The current number of Signature directors is eight. The board of
directors is divided into three classes of directors, each of which contain
approximately one-third of the directors, with each class serving staggered
three-year terms.
Signature's articles also provide that if, and so often as, Signature shall
fail to declare and pay dividends on any series of its cumulative preferred
stock at any time outstanding, including the Signature Series A Preferred Stock
at the rate specified for such series for six dividend payment dates, the
holders of the cumulative preferred stock, voting separately as a class, shall
be entitled to elect two members of the Board of Directors of Signature, and
the holders of the common stock, voting separately as a class, shall then elect
the remaining directors. However, the holders of the cumulative preferred stock
are entitled to 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 and at which not less than one-third
of the total number of shares of cumulative preferred stock then outstanding
are present in person or by proxy. The special class voting rights of the
holders of the cumulative preferred stock shall remain vested until all accrued
and unpaid dividends on the cumulative preferred stock then outstanding shall
have been declared and paid, whereupon those holders shall be divested of their
special voting rights in respect to subsequent elections of directors. Further,
regardless of any classification of other directors, all directors elected by
the holders of the cumulative preferred stock shall be elected annually for
terms expiring at the next succeeding annual meeting of shareholders, and their
terms of office shall expire immediately upon the payment of all accrued and
unpaid dividends on the cumulative preferred stock.
Removal of Directors
Under the Georgia Code, unless the articles of incorporation provide
otherwise, directors serving on a classified board may only be removed by the
stockholders for cause. The Jameson articles and Jameson bylaws provide that,
subject to the right of the preferred stockholders to elect additional
directors, directors may be removed for cause upon the affirmative vote of the
stockholders of at least a majority of the voting stock. In addition, directors
may be removed without cause upon the affirmative vote of at least 75% of the
voting stock.
Under the Indiana Law, directors may be removed in any manner provided in
the articles of incorporation. Additionally, unless the articles of
incorporation provide otherwise, a director may be removed by the stockholders
or directors with or without cause. If a director is elected by a specific
voting group of stockholders, only that voting group may remove the director.
Stockholders, if they are otherwise authorized to do so, may only remove a
director at a meeting called for that specific purpose.
The Signature articles and the Signature bylaws provide that, subject to the
rights of the holders of outstanding preferred stock, any director, or the
entire Board of Directors, may only be removed for cause by the stockholders.
Specifically, stockholder removal of a director requires an affirmative vote of
the holders of at least 80% of the voting stock at a special meeting called for
that purpose. In addition, the Signature bylaws provide that a director may be
removed with or without cause by a majority vote of the Board of Directors.
In the event directors are elected by the holders of Signature's cumulative
preferred stock, those directors may not be removed except by a vote of the
holders of the cumulative preferred stock, voting separately as a class, and
then only for cause.
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Vacancies
Under the Georgia Code, unless otherwise provided in the articles of
incorporation or the bylaws, vacancies on the board of directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by:
. the stockholders;
. the board of directors; or
. the affirmative vote of the majority of the directors remaining in
office, if the directors remaining in office constitute less than a
quorum.
Additionally, a vacancy in a directorship elected by holders of a particular
class of shares shall be filled by the affirmative vote of the holders of
shares of such voting group or the remaining directors elected by holders of
the same class of shares. In the case of a classified board of directors, any
newly created directorships will be filled by directors appointed by the board
of directors until the next election of directors by the stockholders.
The Jameson articles and the Jameson bylaws provide that, subject to any
rights of preferred stockholders, and unless the board of directors otherwise
determines, any vacancies will be filled by the affirmative vote of a majority
of the remaining directors, though less than a quorum. Similarly, any vacancies
created by an increase by stockholder 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
Jameson voting stock.
Under the Indiana Law, unless otherwise provided in the articles of
incorporation, vacancies occurring on the board of directors, including
vacancies resulting from an increase in the number of directors, may be filled
by the board of directors or, if the directors remaining in office constitute
fewer than a quorum of the board, by the affirmative vote of a majority of all
the directors remaining in office. If the articles of incorporation permit
stockholders to fill vacancies occurring on the board of directors, only the
holders of shares of a specific voting group are entitled to fill a vacant
office previously held by a director elected by that voting group.
The Signature articles and bylaws provide that, except in the limited
circumstances involving the preferred stockholders, any vacancy in the board of
directors, including newly created directorships, will be filled at any regular
meeting or at any special meeting called for that purpose, by a majority of the
remaining directors. A vacancy resulting from an increase in the number of
directors must be filled by the action of a majority of the entire board of
directors. In the event holders of Signature's cumulative preferred stock elect
any directors, any vacancy of any such director by reason of death,
resignation, removal from office or otherwise, may be filled only by the
remaining director who was elected by the vote of the holders of the Signature
cumulative preferred stock.
Indemnification of Directors and Officers
Under the Georgia Code, a corporation may indemnify its directors and
officers made a party to any proceeding (except for stockholder derivative
suits or when a director or officer is adjudged liable for receiving an
improper personal benefit), if such director or officer acted in good faith,
for a purpose he or she reasonably believed to be in the best interests of the
corporation, or if not acting in his or her official capacity, not opposed to
the best interests of the corporation, and, in criminal proceedings, in
addition, had no reasonable cause to believe his or her conduct was unlawful.
In the case of stockholder derivative suits, the corporation may indemnify the
director or officer for reasonable expenses incurred in connection with the
proceeding if the officer or director acted in good faith for a purpose he or
she reasonably believed to be in or, in the case of a director or officer not
working in his or her official capacity, not opposed to the best interests of
the corporation. Additionally, any director or officer who has been successful
on the merits or otherwise in the defense of any proceeding will be entitled to
indemnification.
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The Georgia Code permits a corporation to advance expenses relating to the
defense of any proceeding to directors or officers contingent upon such
individual's:
. written affirmation of his or her good faith belief that his of her
conduct is not of the kind prohibited under the Georgia Code; and
. commitment to repay any advances unless it is determined ultimately that
such individuals are entitled to be indemnified.
The indemnification described under the Georgia Code is not exclusive of
other indemnification rights to which a director or officer may be entitled,
whether contained in the articles of incorporation or bylaws, or, when
authorized by such articles of incorporation or bylaws, (a) a resolution of
stockholders, (b) a resolution of directors or (c) an agreement providing for
indemnification.
The Jameson bylaws provide that each officer and director shall 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 or she is or was a director, officer,
employee or agent of Jameson or, at Jameson's request, of any other
organization. The Jameson 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 or her good faith belief that he or she has met the
applicable standard of conduct, and the officer's and director's written
agreement to repay any advances if it is determined that he or she is not
entitled to be indemnified.
Similarly, the Jameson bylaws permit Jameson to enter into agreements
providing each officer or director indemnification rights substantially similar
to those set forth in the Jameson 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 Jameson articles and the Jameson 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 stockholders to eliminate the rights it provides.
Any indemnification by Jameson pursuant to the provisions of the Jameson
articles and the Jameson bylaws described above will be paid out of the assets
of Jameson and will not be recoverable from the stockholders. 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. Jameson intends to purchase director and officer
liability insurance for the purpose of providing a source of funds to pay any
indemnification described above.
Under the Indiana Law, unless the articles of incorporation provide
otherwise, a corporation is required to indemnify a director or officer who is
wholly successful on the merits, or otherwise, in the defense of a proceeding
and where such indemnification is ordered by the court conducting the
proceeding. Additionally, a corporation may indemnify its directors and
officers made a party to a proceeding if, in the case of a civil proceeding,
the director or officer acted in good faith and reasonably believed that his or
her conduct was in the best interests of the corporation or, if not acting in
his or her official capacity, not opposed to the best interests of the
corporation. In criminal proceedings, a corporation may provide such indemnity
if the officer or director reasonably believes his or her conduct was lawful or
did not have reasonable cause to believe his or her conduct was unlawful.
The Indiana Law also permits a corporation to indemnify and advance expenses
relating to the defense of any proceeding to directors or officers if:
. the director or officer provides a written affirmation of his or her
good faith belief that his or her conduct meets the standard for
indemnification;
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. the director or officer provides a written affirmation that the advance
will be repaid if it is ultimately determined that his or her conduct
did not meet the standard for indemnification; and
. it is determined under the known facts that indemnification would not be
precluded.
The determination of whether a director or officer meets the standard of
conduct for indemnification may be made by: (a) an affirmative vote of the
majority of the remaining directors; (b) if a quorum of the remaining directors
cannot be obtained, by the affirmative vote of the majority of a committee of
two or more remaining directors; or (c) special legal counsel selected by the
board or its committee or, if a quorum cannot be obtained and a committee
cannot be designated, the affirmative vote of a majority of the full board.
The indemnification rights authorized under the Indiana Law are not
exclusive and do not preclude other rights to indemnification to which a
director or officer may be entitled under (a) the corporation's articles and
bylaws, (b) a resolution adopted by the board of directors or the stockholders,
or (c) any other authorization, whenever adopted, by the affirmative vote of
the majority of all voting shares then issued and authorized.
The Signature articles and bylaws provide that Signature will indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of Signature) by reason of the fact that he or she is or was a director,
officer, employee or agent of Signature, or is or was serving at Signature's
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of Signature, and, with
respect to any criminal action or proceedings, had no reasonable cause to
believe his or her conduct was unlawful, except that no indemnification shall
be made in relation to matters as to which he or she shall be adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in the
performance of his or her duty to Signature. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, will not, of itself, create a presumption
that the person did not act in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests of Signature,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
Any director, officer, employee or agent who has been wholly successful, on
the merits or otherwise, with respect to any claim, suit or proceeding of the
character described herein is entitled to indemnification as a matter of right.
Except as provided in the preceding sentence, any indemnification under the
Signature articles is at the discretion of Signature, but only if the Board of
Directors, acting by a quorum consisting of directors who are not parties to or
who have been wholly successful with respect to such claim, action, suit or
proceeding, finds that the director, officer, employee or agent has met the
required standards of conduct. The directors may request independent legal
counsel (who may be regular counsel of Signature) to deliver to them a written
opinion as to whether such director, officer, employee or agent has met such
standards.
The indemnification provided by the Signature articles and bylaws is not
intended to preclude indemnification rights to which directors, officers,
employees or agents may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors as a matter of law, or otherwise, both
as to action in his or her official capacity and as to action in another
capacity while holding such office. The indemnification extends to all former
directors, officers, employees or agents of Signature and inures to the benefit
of the heirs, executors and administrators of such a person.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Signature pursuant to the foregoing provisions, or otherwise, Signature has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Indiana Laws and is, therefore,
unenforceable.
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Limitation of Personal Liability of Directors
Under the Georgia Code, a corporation's articles of incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for the breach of
fiduciary duty of a director. However, no such provision can eliminate or limit
the liability of a director for:
. appropriation, in violation of his or her duties, of any business
opportunity to the corporation;
. acts or omissions that involved intentional misconduct or a knowing
violation of the law;
. violation of certain provisions of the Georgia Code;
. any transaction from which the director derived an improper personal
benefit; or
. any act or omission occurring prior to the adoption of such a provision
in the articles of incorporation.
The Jameson articles provide that no officer or director will be personally
liable to Jameson or its stockholders for monetary damage for any breach of his
duty of care of any other duty he or she 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 omission that involve
intentional misconduct or a knowing violation of law, for liability under the
Georgia Code for unlawful distributions to stockholders, and for a transaction
from which the director receives an improper personal benefit. The Jameson
articles also provide that if the Georgia Code is amended after adoption 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 Jameson's
stockholders (unless such amended provisions of the Georgia Code require
further action).
Under the Indiana Law, a director may not be held liable for any action
taken as a director, or any failure to take action, unless (a) the director has
breached or failed to perform the duties of the director's office, and (b) the
breach or failure to perform constitutes willful misconduct or recklessness. A
director is personally liable for a violation of these standards which results
in a distribution in violation of the statute or a corporation's articles of
incorporation in an amount equal to the amount of the distribution that exceeds
what would have been distributed without violating the statute or the articles
of incorporation, but is entitled to contribution from every director who
assented to the distribution and from each stockholder for the amount the
stockholder accepted.
Signature's articles and bylaws do not contain express provisions limiting
the personal liability of Signature's directors beyond the limitations
contained in the Indiana Law.
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Summary Comparison of Jameson Common Stock and Signature Common Stock
The following is a summary of certain selected terms of the Jameson common
stock and Signature common stock, which description is qualified by reference
to the more complete description of such terms contained elsewhere in this
Joint Proxy Statement/Prospectus and to the definitive terms of the Jameson
common stock and Signature common stock contained in the Jameson articles and
Signature articles, respectively.
<TABLE>
<CAPTION>
Signature Jameson
Common Stock Common Stock
------------------------------- -------------------------------
<S> <C> <C>
Dividends............... Under the Indiana Law, a Under the Georgia Code, a
corporation is permitted to pay corporation is permitted to pay
dividends or make other dividends or make other
distributions with respect to distributions on stock unless,
its stock unless, after giving after giving effect to the
effect to the dividend or other dividend or other distribution
distribution, either the (a) the corporation would be
corporation would not be able unable to pay its debts as they
to pay its debts as they become come due in the usual course of
due in the ususal course of business; or (b) the
business or the corporation's corporation's total assets
total assets would be less than would be less than the sum of
the sum of its total its total liabilities (unless
liabilities plus (unless the the articles of incorporation
articles of incorporation provide otherwise) plus the
permit otherwise) amount that would be needed to
the amount that would be satisfy any stockholder's
needed, if the corporation were superior preferential rights
to be dissolved at the time of upon dissolution if the
the dividend or other corporation were dissolved at
distribution, to satisfy the the time of dissolution.
preferential rights upon
dissolution of stockholders Under the REIT rules, Jameson
whose preferential rights are is required to distribute at
superior to those receiving the least 95% of its taxable income
dividend or other distribution. (see "Federal Income Taxation
of REITs and REIT Stockholders
Signature has never paid any -- Annual Distribution
cash dividends on its common Requirements").
stock. Payment of cash
dividends on its common stock
is restricted under a number of
the loan agreements and other
financing documents to which
Signature is subject.
Voting Rights........... Signature common stock is Jameson common stock is
entitled to one vote per share entitled to one vote per share
on all matters voted on by on all matters voted on by
stockholders, including stockholders, including
elections of directors, and the elections of directors and the
holders of such shares holders of such shares
exclusively possess all voting exclusively possess all voting
power, except as otherwise power, except as otherwise
required by law or provided in required by law or provided in
any resolution adopted by the any resolution adopted by the
board of directors with respect board of directors with respect
to any series of Signature to any series of Jameson
preferred stock establishing preferred stock establishing
the designations, preferences, the powers, designations,
conversion rights, cumulative, preferences and relative,
relative, participating, participating, option or other
optional or other special special rights of such series.
rights of such series.
</TABLE>
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<TABLE>
<CAPTION>
Signature Jameson
Common Stock Common Stock
------------------------------- -------------------------------
<S> <C> <C>
Liquidation............. Subject to any preferential Subject to any preferential
rights of any outstanding rights of any outstanding
series of preferred stock, upon series of preferred stock, upon
liquidation, the holders of liquidation, the holders of
Signature common stock will be Jameson common stock will be
entitled to receive a pro rata entitled to receive a pro rata
share of all net assets of share of all assets of Jameson
Signature available for available for distribution to
distribution to such holders. such holders.
Trading................. Signature common stock trades Jameson common stock trades on
on the Nasdaq National Market the Nasdaq National Market
under the symbol "SGNS". under the symbol "JAMS".
Restrictions on Ownership in Signature common In order for Jameson to comply
Ownership.............. stock is unrestricted except as with REIT rules, the Ownership
(a) limited by the Signature Limit described under
Rights Plan, and (b) otherwise "Description of Jameson Capital
provided by law. Stock after the Merger--
Restrictions on Ownership and
Transfer" has been imposed by
the Jameson articles.
Stockholder Rights Signature has a stockholder Jameson does not have a
Plan................... rights plan which is described stockholder rights plan.
above under "--Rights Plan."
</TABLE>
Summary Comparison of Jameson Series S Preferred Stock and Signature Series A
Preferred Stock
The terms of the Jameson Series S Preferred Stock are intended to restate
and duplicate as closely as possible the terms of the Signature Series A
Preferred Stock. Since the Jameson Series S Preferred Stock will be issued by
Jameson, which will be the surviving company in the merger, the combined assets
of what is now Signature and Jameson will be available to satisfy the
liquidation and dividend preferences of the Series S Preferred Stock. However,
Jameson currently has outstanding 1.2 million shares of its 9.25% Series A
Cumulative Preferred Stock (see "Description of Jameson Capital Stock after the
Merger--Jameson Series A Preferred Stock") which will be on a par with the
Series S Preferred Stock in connection with liquidation and dividend
preferences. The Jameson Series A Preferred Stock has a liquidation preference
of $25.00 per share and pays an annual dividend of $2.3125 per share in
quarterly payments. See "Description of Jameson Capital Stock after the
Merger--Jameson Series A Preferred Stock."
On matters on which the holders of shares of Jameson Series S Preferred
Stock have a vote, they will vote as a single class together with the holders
of the outstanding shares of Jameson Series A Preferred Stock and any series of
preferred stock that may be issued in the future on a parity with the Jameson
Series S Preferred Stock and Series A Preferred Stock.
The principal differences between the Signature Series A Preferred Stock and
the Jameson Series S Preferred Stock can be summarized as follows:
. Upon conversion, the holder of a share of Signature Series A Preferred
Stock would receive 2.0833 shares of Signature common stock while, after
the merger, that holder would receive 1.0417 shares of Jameson common
stock plus a cash payment of $3.125 upon conversion of each share of
Jameson Series S Preferred Stock; and
. Because of the rules applicable to REITs, the holders of the Jameson
Series S Preferred Stock will be subject to the ownership restrictions
described under "Description of Jameson Capital Stock after the Merger--
Restrictions on Ownership and Transfer." The holders of Signature Series
A Preferred Stock are not currently subject to any such restrictions.
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The first of these differences is mandated by the terms of the Signature
Series A Preferred Stock. The second is necessary to maintain Jameson's REIT
status. Neither is viewed by Signature as causing any adverse impact on the
preferences, voting or other rights of the holders of the Signature Series A
Preferred Stock.
The above summary of the rights of the Jameson and Signature stockholders
does not purport to be complete and is qualified in its entirety by reference
to the descriptions set forth in this Joint Proxy Statement/Prospectus and to
the documents incorporated by reference herein. See "Where You Can Find More
Information" on page 27.
DESCRIPTION OF JAMESON CAPITAL STOCK
AFTER THE MERGER
Authorized Capital
The authorized capital stock of Jameson consists of 40,000,000 shares of
Jameson common stock, par value $.10 per share, and 10,000,000 shares of
preferred stock, par value $1.00 per share which consists of (a) 1,272,727
shares of 9.25% Series A Cumulative Convertible Preferred Stock ("Jameson
Series A Preferred Stock") authorized, (b) 2,256,000 shares of $1.70 Cumulative
Convertible Preferred Stock, Series S ("Jameson Series S Preferred Stock") and
(c) 6,471,273 undesignated shares authorized. There were 9,910,896 shares of
Jameson common stock outstanding as of March 23, 1999, and 1,200,000 shares
outstanding of Jameson Series A Preferred Stock as of March 23, 1999. No shares
of Jameson Series S Preferred Stock are issued and outstanding as of the date
of this Joint Proxy Statement/Prospectus.
Common Stock
The holders of Jameson common stock are entitled to one vote per share on
all matters voted on by stockholders, including elections of directors. Jameson
common stockholders exclusively possess all voting power, except as otherwise
required by law or provided in any resolution adopted by the Jameson Board of
Directors with respect to any series of Jameson preferred stock establishing
the powers, designations, preferences and relative, participating, option or
other special rights of such series. See "--Jameson Series A Preferred Stock"
and "--Jameson Series S Preferred Stock." The Jameson articles of incorporation
do not provide for cumulative voting for directors.
Subject to any preferential rights of any outstanding series of Jameson
preferred stock, Jameson common stockholders are entitled to such distributions
as may be declared from time to time by the Jameson Board of Directors from
funds available for distributions. Upon liquidation, Jameson common
stockholders are entitled to receive pro rata all assets of Jameson available
for distribution to the stockholders, subject to any preferential rights of
Jameson preferred stockholders. All shares of Jameson common stock issued in
the merger will be fully paid and nonassessable and the holders of that stock
will not have preemptive rights to purchase additional shares.
Preferred Stock
The Jameson Board of Directors is authorized by Jameson's articles of
incorporation to designate and issue from time to time one or more classes or
series of preferred stock without stockholder approval. The Jameson Board of
Directors may affix and determine the relative rights, preferences and
privileges of each class or series of preferred stock so issued. Because the
Jameson 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 common stock.
Jameson Series A Preferred Stock
None of the terms of the Jameson Series A Preferred Stock or, subject to
limited exceptions, any of the debt agreements of Jameson contains any
provisions affording holders of the Jameson Series A Preferred Stock protection
in the event of a highly leveraged or other transaction that might adversely
affect holders of the Jameson Series A Preferred Stock.
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The following summary of the terms and provisions of the Series A Preferred
Stock does not purport to be complete and is qualified in its entirety by
reference to the pertinent sections of the Jameson articles and the amendment
thereto creating the Jameson Series A Preferred Stock (the "Series A
Designating Amendment"), each of which is available from Jameson.
Maturity. The Jameson Series A Preferred Stock has no stated maturity and
will not be subject to any sinking fund or mandatory redemption.
Rank. The Jameson Series A Preferred Stock will, with respect to dividend
rights and rights upon liquidation, dissolution or winding up of Jameson, rank
(a) senior to all classes or series of Jameson common stock and to all equity
securities ranking junior to the Jameson Series A Preferred Stock with respect
to dividend rights or rights upon liquidation, dissolution or winding up of
Jameson; (b) on a parity with all equity securities issued by Jameson the terms
of which specifically provide that such equity securities rank on a parity with
the Jameson Series A Preferred Stock with respect to dividend rights or rights
upon liquidation, dissolution or winding up of Jameson, including the Jameson
Series S Preferred Stock to be issued to the holders of Signature Series A
Preferred Stock, and (c) junior to all existing and future indebtedness of
Jameson. The term "equity securities" does not include convertible debt
securities, which will rank senior to the Jameson Series A Preferred Stock
prior to conversion.
Dividends. Holders of shares of the Jameson Series A Preferred Stock are
entitled to receive, when and as declared by the Jameson Board of Directors,
out of funds legally available for the payment of dividends, preferential
cumulative cash dividends at the rate of 9.25% per annum of the liquidation
preference per share (equivalent to a fixed annual amount of $2.3125 per
share).
Dividends on the Jameson Series A Preferred Stock are cumulative from the
date of original issue and are payable quarterly in arrears on or about 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 "Series A Dividend
Payment Date"). Dividends payable on the Jameson Series A Preferred Stock for
any partial dividend period will be computed on the basis of a 360-day year
consisting of 12 30-day months. Dividends will be payable to holders of record
as they appear in the stock records of Jameson at the close of business on the
applicable record date, which shall be the last business day of December,
March, June and September, respectively, or on such other date designated by
the Jameson Board of Directors for the payment of dividends that is not more
than 45 nor less than 20 days prior to the applicable Series A Dividend Payment
Date (each, a "Series A Dividend Record Date").
No dividends on shares of Jameson Series A Preferred Stock will be declared
by the Jameson Board of Directors or paid or set apart for payment by Jameson
if the terms and provisions of any agreement of Jameson, including any
agreement relating to its 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 will be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Jameson Series A Preferred
Stock will accrue whether or not Jameson 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 Jameson Series
A Preferred Stock will not bear interest and holders of the Jameson Series A
Preferred Stock will not be entitled to any distributions in excess of full
cumulative distributions described above.
If, for any taxable year, Jameson elects to designate as "capital gain
dividends" (as defined in section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (as determined for federal income tax purposes)
paid or made available for the year to holders of all classes of stock (the
"Total Dividends"), then the portion of the Capital Gains Amount that shall be
allocable to the holders of Jameson Series A Preferred Stock will be the amount
that the total dividends (as determined for federal income tax purposes) paid
or made available to the holders of the Jameson Series A Preferred Stock for
the year bears to the Total Dividends.
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Except as set forth in the next sentence, no dividends will be declared or
paid or set apart for payment on any capital stock of Jameson or any other
series of Jameson preferred stock ranking, as to dividends, on a parity with or
junior to the Jameson Series A Preferred Stock (other than a dividend in shares
of Jameson's common stock or in shares of any other class of stock ranking
junior to the Jameson Series A Preferred Stock as to dividends and upon
liquidation) for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Jameson Series A
Preferred Stock for all past dividend periods and the then current dividend
period. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the Jameson Series A Preferred Stock and the
shares of any other series of Jameson preferred stock ranking on a parity as to
dividends with the Jameson Series A Preferred Stock, all dividends declared
upon the Jameson Series A Preferred Stock will be declared pro rata so that the
amount of dividends declared per share of Jameson Series A Preferred Stock and
such other series of Jameson preferred stock will in all cases bear to each
other the same ratio that accrued dividends per share on the Jameson Series A
Preferred Stock and such other series of Jameson preferred stock (which will
not include any accrual in respect of unpaid dividends for prior dividend
periods if such preferred stock does not have a cumulative dividend) bear to
each other. Jameson Series S Preferred Stock and Jameson Series A Preferred
Stock rank on a parity as to receipt of dividends.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Jameson Series A Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for payment for all past dividend periods and
the then current dividend period: (a) no dividends (other than in shares of
common stock or other shares of capital stock ranking junior to the Jameson
Series A Preferred Stock as to dividends and upon liquidation) will be declared
or paid or set aside for payment, (b) no other distribution will be declared or
made upon the Jameson common stock or any other capital stock of Jameson
ranking junior to or on a parity with the Jameson Series A Preferred Stock as
to dividends or upon liquidation and (c) no shares of common stock, or any
other shares of capital stock of Jameson ranking junior to or on a parity with
the Jameson Series A Preferred Stock as to dividends or upon liquidation, will
be redeemed, purchased or otherwise acquired for any consideration (or any
moneys paid to or made available for a sinking fund for the redemption of any
such shares) by Jameson (except by conversion into or exchange for other
capital stock of Jameson ranking junior to the Jameson Series A Preferred Stock
as to dividends and upon liquidation or redemption for the purpose of
preserving Jameson's equitable method determined by Jameson. Jameson's ability
to redeem Jameson Series A Preferred Stock is subject to the limitations on
distributions in the Georgia Code.
Redemption. Unless full cumulative dividends on all shares of Jameson Series
A Preferred Stock will have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, no shares of
Jameson Series A Preferred Stock will be redeemed unless all outstanding shares
of Jameson Series A Preferred Stock are simultaneously redeemed. In addition,
Jameson will not purchase or otherwise acquire directly or indirectly any
shares of Jameson Series A Preferred Stock (except by exchange for capital
stock of Jameson ranking junior to the Jameson Series A Preferred Stock as to
dividends and upon liquidation). The foregoing will not, however, prevent the
redemption by Jameson of shares of stock in order to ensure that Jameson
continues to meet the requirements for qualification as a REIT, or the purchase
or acquisition of shares of Jameson Series A Preferred Stock pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Jameson Series A Preferred Stock. So long as no dividends are in
arrears, Jameson will be entitled at any time and from time to time to
repurchase shares of Jameson Series A Preferred Stock in open-market
transactions duly authorized by its Board of Directors and effected in
compliance with applicable laws.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week
for two successive weeks commencing not less than 30 nor more than 60 days
prior to the redemption date. A similar notice will be mailed by Jameson,
postage prepaid, not less than 30 nor more than 60 days prior to the redemption
date, addressed to the respective holders of record of the Jameson Series A
Preferred Stock to be redeemed at their respective addresses as they
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appear on the stock transfer records of Jameson. No failure to give such notice
or any defect therein or in the mailing thereof will affect the validity of the
proceedings for the redemption of any shares of Jameson Series A Preferred
Stock except as to the holder to whom notice was defective or not given. Each
notice will state: (a) the redemption date; (b) the redemption price; (c) the
number of shares of Jameson Series A Preferred Stock to be redeemed; (d) the
place or places where the Jameson Series A Preferred Stock is to be surrendered
for payment of the redemption price and (e) that dividends on the shares to be
redeemed will cease to accrue on such redemption date. If less than all of the
Jameson Series A Preferred Stock held by any holder is to be redeemed, the
notice mailed to such holder must also specify the number of shares of Jameson
Series A Preferred Stock held by such holder to be redeemed.
Immediately prior to any redemption of Jameson Series A Preferred Stock,
Jameson will pay, in cash, any accumulated and unpaid dividends through the
redemption date, unless a redemption date falls after a Series A Dividend
Record Date and prior to the corresponding Series A Dividend Payment Date, in
which case each holder of Jameson Series A Preferred Stock at the close of
business of such Series A Dividend Record Date will be entitled to the dividend
payable on such shares on the corresponding Series A Dividend Payment Date
notwithstanding the redemption of such shares before such Series A Dividend
Payment Date.
The Jameson Series A Preferred Stock has no stated maturity and will not be
subject to any sinking fund or mandatory redemption. However, in order to
ensure that Jameson continues to meet the requirements for qualification as a
REIT, Jameson Series A Preferred Stock acquired by a stockholder in excess of
the Ownership Limitation (as defined below) will automatically be transferred
to a trust and the stockholder will have the right to receive certain
compensation for such stock from Jameson.
Voting Rights. Holders of the Jameson Series A Preferred Stock will not have
any voting rights, except as set forth below or as otherwise from time to time
required by law.
Whenever dividends on any shares of Jameson Series A Preferred Stock are in
arrears for six or more quarters (whether consecutive or not) (a "Preferred
Dividend Default"), the holders of such shares of Jameson Series A Preferred
Stock (voting separately as a voting group with all other series of Jameson
preferred stock ranking on a parity with the Jameson Series A Preferred Stock
as to dividends or upon liquidation, including Jameson Series S Preferred
Stock, upon which like voting rights have been conferred and are exercisable
("Parity Preferred")) will be entitled to vote separately as a voting group for
the election of a total of two additional directors to serve on the Jameson
Board of Directors (the "Preferred Stock Directors"). In an election of the
Preferred Stock Directors, the holders of Jameson Series A Preferred Stock and
the holders of Parity Preferred will each be entitled to cast one vote per
share of such stock. The vote will be taken at a special meeting called by the
holders of record of at least 20% of the Jameson Series A Preferred Stock and
the holders of record of at least 20% of any series of Parity Preferred so in
arrears (unless such request is received less than 90 days before the date
fixed for the next annual meeting of stockholders). The holders of Jameson
Series A Preferred Stock will be entitled to vote at each subsequent annual
meeting until all dividends accumulated on such shares of Jameson Series A
Preferred Stock for the past dividend periods and the dividend for the then
current dividend period have been fully paid or declared and a sum sufficient
for the payment thereof set aside for payment. A quorum for any such meeting
will exist if at least a majority of the outstanding shares of Jameson Series A
Preferred Stock and shares of Parity Preferred upon which like voting rights
have been conferred and are exercisable are represented in person or by proxy
at such meeting. Such Preferred Stock directors will be elected upon the
affirmative vote of a plurality of the shares of Jameson Series A Preferred
Stock and such Parity Preferred present and voting in person or by proxy at a
duly called and held meeting at which a quorum is present. If and when all
accumulated dividends and the dividend for the then current dividend period on
the Jameson Series A Preferred Stock have been paid in full or set aside for
payment in full, the holders thereof will be divested of the foregoing voting
rights (subject to revesting in the event of each and every Preferred Dividend
Default). Furthermore, if all accumulated dividends and the dividend for the
then current dividend period have been paid in full or declared and set aside
for payment in full on all series of Parity Preferred upon which like voting
rights have been conferred and are exercisable, the term of office of each
Preferred Stock Director so elected will terminate. Any Preferred Stock
Director may be removed at any
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time with or without cause by, and may not be removed otherwise than by the
vote of, the holders of record of a majority of the outstanding shares of the
Jameson Series A Preferred Stock and such Parity Preferred upon which like
voting rights have been conferred and are exercisable). So long as a Preferred
Dividend Default continues, any vacancy in the office of a Preferred Stock
Director may be filled by written consent of the Preferred Stock Director
remaining in office, or if none remains in office, by a vote of the holders of
record of a majority of the outstanding shares of Jameson Series A Preferred
Stock and such Parity Preferred when they have the voting rights described
above (voting separately as a voting group with all series of Parity Preferred
upon which like voting rights have been conferred and are exercisable). The
Preferred Stock Directors will each be entitled to one vote per director on any
matter.
Under Georgia law, the Jameson Series A Preferred Stock will be entitled to
vote as a separate voting group on the adoption of any proposed amendment of
the Jameson articles that would: (a) change the aggregate number of authorized
shares of that class of stock; (b) effect an exchange or reclassification of
any shares of that class into shares of another class; (c) effect an exchange
(or create a right of exchange) or reclassification of any shares of another
class into shares of that class; (d) change the designation, rights,
preferences or limitations of any shares of that class; (e) change any shares
of that class into a different number of shares of the same class; (f) create a
new class of shares having rights or preferences with respect to distributions
or dissolution that are prior, superior or substantially equal to the shares of
the class; (g) increase the rights, preferences or number of authorized shares
of any class that, after giving effect to the amendment, would have rights or
preferences with respect to distributions or to dissolution that are prior,
superior, or substantially equal to the shares of that class; (h) limit or deny
an existing preemptive right of any shares of that class; (i) cancel or
otherwise affect rights to distributions or dividends that have accumulated but
not yet been declared on any shares of that class or (j) cancel, redeemed or
repurchase any shares of the class. The above mandatory voting rights apply
regardless of whether the change is favorable or unfavorable to the affected
series or class. Under the Georgia Code, the Jameson Series A Preferred Stock
will also have the right to vote on any dividend payable in shares of Jameson
Series A Preferred Stock to holders of shares of another class or series of
Jameson's stock.
Unless the Jameson articles, Jameson bylaws, or the Jameson Board of
Directors requires a higher vote, the vote required within each voting group
will be a majority of shares actually cast at a meeting at which a quorum is
present, except that if the proposed amendment creates dissenters' rights for
any voting group, the vote required within that voting group will be a majority
of the total votes in that voting group entitled to be cast on the amendment.
Under the Georgia Code, the Jameson Series A Preferred Stock will be
entitled to vote separately on a plan of merger if the plan of merger contains
a provisions that, if contained in a proposed amendment to the Jameson
articles, would require action on the proposed amendment. If shares of Jameson
Series A Preferred Stock are included in a proposed share exchange, holders of
Jameson Series A Preferred Stock will be entitled to vote as a separate voting
group. The right to vote separately as a group on a plan of merger does not
apply to a voting group if:
. the articles of incorporation of the surviving corporation will not
differ from the Jameson articles as then in effect;
. each stockholder of the surviving corporation whose shares were
outstanding immediately before the effective date of the merger will
hold the same number of shares, with identical designations,
preferences, limitation, and relative rights, immediately after the
merger; and
. the number and kind of shares outstanding immediately after the merger,
plus the number and kind of shares issuable as a result of the merger
and by the conversion of securities issued pursuant to the merger or the
exercise of rights and warranties issued pursuant to the merger, will
not exceed the total number and kind of shares of the surviving
corporation authorized by its articles of incorporation immediately
after the merger.
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Unless the Jameson articles, Jameson bylaws or the Jameson Board of
Directors requires a greater vote, the plan of merger or shares exchange must
be approved by each voting group entitled to vote separately on the plan by a
majority of all the votes entitled to be cast on the plan by the voting group.
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 shall
be effected, all outstanding shares of Series A Preferred Stock have been
redeemed or called for redemption upon proper notice and sufficient funds have
been deposited in trust to effect such redemption.
Accordingly, pursuant to the provisions summarized above, the holders of
Jameson Series A Preferred Stock will have no voting rights with respect to the
plan of merger discussed in this Joint Proxy Statement/Prospectus.
Conversion. The Jameson Series A Preferred Stock is not convertible into or
exchangeable for any other property or securities of Jameson.
Jameson Series S Preferred Stock
General. In accordance with the terms of the merger agreement, each share of
the Signature Series A Preferred Stock will be converted into one share of
Jameson Series S Preferred Stock. The terms, designations, preferences,
limitations, privileges and rights of the Jameson Series S Preferred Stock will
replicate and will be identical, in all material respects, to those of the
Signature Series A Preferred Stock. This description does not purport to be
complete and is qualified by reference to the amendment to the Jameson articles
creating the Jameson Series S Preferred Stock (the "Series S Designating
Amendment") which is set forth in Appendix B to this Joint Proxy
Statement/Prospectus.
None of the terms of the Series S Preferred Stock or, subject to limited
exceptions, any of the debt agreements of Jameson contains any provisions
affording holders of the Series S Preferred Stock protection in the event of a
highly leveraged or other transaction that might adversely affect holders of
the Series S Preferred Stock.
Jameson may not amend its 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 by Jameson with respect to the Series S
Preferred Stock.
Any share of Series S Preferred Stock which is (a) redeemed by Jameson, (b)
converted in accordance with the express terms noted below, or (c) otherwise
acquired by Jameson, will resume the status of authorized but unissued Jameson
preferred stock without designation.
Maturity. The Series S Preferred Stock has no stated maturity and will not
be subject to any sinking fund for the purchase or redemption of shares.
Rank. The Jameson Series S Preferred Stock will, with respect to dividend
rights and rights upon liquidation, dissolution or winding up of Jameson, rank
(a) senior to all classes or series of Jameson common stock and to all equity
securities ranking junior to the Jameson Series S Preferred Stock with respect
to dividend rights or rights upon liquidation, dissolution or winding up of
Jameson; (b) on a parity with all equity securities issued by Jameson the terms
of which specifically provide that such equity securities rank on a parity with
the Jameson Series S Preferred Stock with respect to dividend rights or rights
upon liquidation, dissolution or winding up of Jameson, including Jameson
Series A Preferred Stock; and (c) junior to all existing and future
indebtedness of Jameson. The term "equity securities" does not include
convertible debt securities, which will rank senior to the Jameson Series S
Preferred Stock prior to conversion.
Dividends. Holders of Jameson Series S Preferred Stock are entitled to
receive, when and as declared by the Jameson Board of Directors, out of the
assets of Jameson legally available for payment, an annual cash dividend of
$1.70 per share, payable in quarterly installments on January 20, April 20,
July 20, and October 20 of each year. For the quarter in which the merger is
completed, holders of Signature Series A Preferred Stock may receive a portion
of their quarterly dividend from Signature (corresponding to the part of the
quarter
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preceding the merger effective date) and the remainder of their quarterly
dividend from Jameson (corresponding to the part of the quarter following the
merger effective date). Regardless of the following paragraphs, dividends will
accrue whether or not Jameson 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 will not bear interest.
Unless and until (a) all accrued and unpaid dividends on all of the
outstanding Series S Preferred stock have been paid or funds have been set
apart for payment thereon through the current dividend period, and (b) there
are no arrearages with respect to the redemption of any Series S Preferred
Stock, Jameson may not (1) declare or pay any dividend or distribution, except
a dividend payable in Jameson common stock or other shares of Jameson ranking
junior to the Series S Preferred Stock, on any Jameson common stock or any
other Jameson stock junior to the Series S Preferred Stock, or (2) purchase,
redeem, retire, or otherwise acquire any Jameson stock junior to or on a parity
with the Series S Preferred Stock, except out of proceeds from the sale of
Jameson common stock or other shares of Jameson stock ranking junior to the
Series S Preferred Stock, or except by conversion into or exchange for other
capital stock of Jameson that ranks junior to the Series S Preferred Stock as
to dividends and upon liquidation or redemption for the purpose of preserving
Jameson's qualification as a REIT under the Code.
No dividend will 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 same period or periods shall have been paid or declared or set
apart for the Series S Preferred Stock then issued and outstanding.
No dividend on shares of Series S Preferred Stock will be declared by the
Jameson Board of Directors or paid or set apart for payment by Jameson if the
terms and provisions of any agreement of Jameson, including any agreement
relating to 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 will be restricted or prohibited by law.
Conversion. Each share of Series S Preferred Stock is 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 with respect to such
shares, into (a) the number of shares of Jameson common stock that results from
dividing $20.00 by the conversion price as described below, plus (b) the right
to receive a cash payment from Jameson of $3.125. The conversion price, as of
the date of original issuance, will be $19.20 per share of Jameson common
stock. Holders of shares of Series S Preferred Stock surrendered for either
conversion or redemption after the record date for a dividend payment and prior
to the next succeeding dividend payment date will be entitled to the dividend
falling due on that next succeeding dividend payment date regardless of any
such conversion or redemption.
The conversion price is subject to adjustments upon the occurrence of
certain events, including (a) dividends on the Jameson common stock payable in
capital stock and stock splits, combinations or reclassifications of the
Jameson common stock (including any such reclassification in connection with a
consolidation or merger in which Jameson is the surviving corporation)
occurring after the date of issuance of the Series S Preferred Stock, (b)
issuance to all holders of Jameson common stock (not available on an equivalent
basis to holders of the Series S Preferred Stock on conversion) of rights or
warrants to subscribe for or purchase shares of Jameson common stock at less
than the current market price, (c) certain distributions of evidences of
indebtedness or assets (including securities but excluding cash dividends or
distributions paid out of retained earnings or dividends payable in Jameson
common stock) or of subscription rights and warrants (excluding those referred
to in (b) above) to holders of Jameson common stock, and (d) the events
described in the paragraph below.
In the case of any consolidation of Jameson with, or merger of Jameson into,
any other entity, any merger of another entity into Jameson, other than a
merger which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Jameson common stock, or any sale or
transfer of all or
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substantially all of the assets of Jameson, each holder of a share of Series S
Preferred Stock then outstanding may thereafter convert such share only into
the kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Jameson common stock into which such shares of Series S Preferred Stock might
have been converted immediately prior to such consolidation, merger, sale or
transfer, assuming such holder of Jameson common stock (a) is not an entity
with which Jameson consolidated or into which Jameson merged or which merged
into Jameson or to which such sale or transfer was made, as the case may be, or
an affiliate of such an entity and (b) has not failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer.
In each case of an adjustment or readjustment of a conversion price,
Jameson, at its expense, will cause independent certified public accountants of
recognized standing selected by Jameson to compute the adjustment or
readjustment, and prepare a certificate showing such adjustment or readjustment
which will be mailed to each registered holder of Series S Preferred Stock, at
the holder's address as shown on Jameson's books. Jameson will at all times
reserve and keep available out of its authorized but unissued Jameson common
stock such number of shares of Jameson common stock as will be sufficient to
effect the conversion of all outstanding Series S Preferred Stock. Jameson 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 the Jameson
common stock upon conversion of the Series S Preferred Stock.
Mechanics of Conversion. Any holder of Series S Preferred Stock will be
entitled to convert such shares into Jameson common stock by surrendering the
certificate or certificates therefor, duly endorsed, at the office of Jameson
or of any transfer agent for the Series S Preferred Stock or Jameson common
stock on a date prior to the close of business on the day before the date fixed
for redemption of those shares of Series S Preferred Stock called for
redemption (the "Conversion Date"). Further, each holder of Series S Preferred
Stock will give prior written notice by mail, postage prepaid, to Jameson at
such office, that such holder elects to convert the same and shall state in
such notice the number of shares of Series S Preferred Stock being converted
and the name or names in which the certificate or certificates for Jameson
common stock are to be issued. Upon Jameson's receipt of notice of conversion
and the holder's surrender of the certificate or certificates on the Conversion
Date, Jameson will 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 Jameson common stock to
which such holder is entitled together with Jameson'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 Jameson common stock issuable upon such conversion will
be treated for all purposes as the record holder or holders of such Jameson
common stock on such date.
Redemption. Other than in the event that a stockholder acquires shares in
excess of the Ownership Limitation as described below under "--Restrictions on
Ownership and Transfer," all or any part of the Series S Preferred Stock will
only be redeemable by Jameson, at any time and from time to time on or after
February 1, 2000, at the option of the Jameson Board of Directors, at the
redemption prices set forth below, plus accrued and unpaid dividends.
<TABLE>
<CAPTION>
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>
Notice of any proposed redemption will be given by Jameson by mailing a copy
of such notice, at least 30 days, and not more than 60 days, prior to the date
fixed for redemption, to the holders of record of the Series S Preferred Stock
to be redeemed. In the case of the redemption of a part only of the Series S
Preferred
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<PAGE>
Stock outstanding, the shares to be redeemed will be selected by lot or pro
rata, as the Jameson Board of Directors may determine. No right of conversion
will be impaired, however, by the mailing of the notice described above.
The Jameson Board of Directors has full power and authority, subject to the
limitations noted herein and in the Series S Designating Amendment, to
prescribe the manner in which, and the terms and conditions upon which, the
shares of the Series S Preferred Stock are to be redeemed from time to time. On
or at any time before the redemption date set in the notice to stockholders,
Jameson will deposit in a trust funds necessary for such redemption with a
national bank or trust company, organized under the laws of the United States,
in good standing and designated in the notice of redemption. Upon the mailing
of the notice of redemption or the making of such deposit, whichever is later,
all shares subject to such redemption will be deemed to be no longer
outstanding for any purpose, and all rights with regards to such shares will
cease, except for the rights of such shares to receive the amount payable upon
redemption, without interest. However, no right of conversion will be impaired
by the mailing of the notice of redemption or the making of any such deposit.
Voting Rights. The holders of shares of Series S Preferred Stock will have
no voting rights, other than any voting rights to which they may be entitled
from time to time as required by law, unless dividends payable on the Series S
Preferred Stock are in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six dividend payment
dates. In such case, the holders of Series S Preferred Stock will have the
right, along with any other Parity Preferred upon which like voting rights have
been conferred, to cast one vote per share to elect two additional directors at
the next annual meeting of stockholders or any special meeting of stockholders
in lieu of the annual meeting and at each subsequent annual meeting until all
such dividends have been paid in full. The terms of any directors elected by
the holders of the Series S Preferred Stock will expire at the next succeeding
annual meeting. At any meeting at which the holders of shares of Series S
Preferred Stock and any Parity Preferred with similar voting rights are
entitled to elect directors, the holders of one-third of such shares, in person
or by proxy, will be sufficient to constitute a quorum, and the vote of holders
of a plurality of such shares will be sufficient to elect the two additional
directors.
The special class voting rights above will remain vested until all accrued
and unpaid dividends on the Series S Preferred Stock then outstanding are
declared and paid, after which the holders of such special class voting rights
will be divested of their special class voting rights with regards to
subsequent elections of directors. Upon divesting of the special class voting
rights of the holders Series S Preferred Stock, the terms of office of any
director elected by such holders will terminate immediately. The directors
elected by the Series S Preferred Stock and any Parity Preferred with similar
voting rights will be removable only by vote of the foregoing stockholders
voting separately as a combined class, with or without cause. In the event any
director's office created by the special class of voting rights of the Series S
Preferred Stock becomes vacant by reason of death, resignation or removal, the
remaining director elected by the holders of Series S Preferred Stock may elect
a successor for the unexpired term of such vacant director's office.
Liquidation Preference. Holders of Series S Preferred Stock are entitled to
a liquidation preference of (a) $20.00 per share plus (b) an amount equal to
all dividends accrued and unpaid thereon, whether or not declared, to the date
of payment of the amount due as a result of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of Jameson. The
liquidation preference will be paid in full before any amount is paid or
distributed among the holders of Jameson common stock or any other shares
ranking junior to the Series S Preferred Stock as to liquidation. Jameson
Series S Preferred Stock and Parity Preferred rank on a parity as to
liquidation preference. In the event that the net assets of Jameson legally
available are insufficient to permit payment upon all outstanding Series S
Preferred Stock and all Parity Preferred of the full preferential amount to
which they are entitled, then such assets will be distributed ratably in
proportion to the full preferential amount to which each such share is
entitled. After payment of the full preferential amounts, the holders of Series
S Preferred Stock will have no right or claim to any of the remaining assets of
Jameson. The merger or consolidation of Jameson with any other corporation, or
the sale, lease or conveyance of all or substantially all of the assets of
Jameson, will not be considered a dissolution, liquidation or winding up for
purposes of the Series S Preferred Stock liquidation preference.
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<PAGE>
Preemptive Rights. The holders of Series S Preferred Stock have no
preemptive rights with respect to any Jameson common stock or any other
securities of Jameson convertible into or carrying rights or options to
purchase any such shares.
Required Consent. The affirmative vote or consent of the holders of two-
thirds of the Series S Preferred and all other series of Parity Preferred
having similar consent rights, at the time outstanding, voting or consenting
separately as a class, in person or by proxy, will be necessary to (1) amend,
alter or repeal, whether by merger, consolidation or otherwise, any of the
provisions of the Jameson articles or bylaws which adversely affects the
preferences or voting or other rights of the holders of Series S Preferred
Stock, (2) authorize, create, or increase the authorized number of any shares,
or of any security convertible into shares, in either case ranking senior to
the Series S Preferred Stock, and (3) purchase or redeem less than all of the
Series S Preferred Stock and all other shares ranking on a parity with the
Series S Preferred Stock except in accordance with a stock purchase offer made
to all such holders of record, unless all dividends on the Series S Preferred
Stock outstanding for all previous quarters and for the dividend period ending
on the next dividend quarter shall have been declared and paid or provision is
made for such payments. Any amendment of the Jameson articles or bylaws that
(i) authorizes, creates or changes the authorized or outstanding number of
shares of Jameson Series S Preferred Stock, Parity Preferred or other shares
ranking junior to the Jameson Series S Preferred Stock, or (ii) changes the
number or classification of the members of the Jameson Board of Directors will
not require the two-thirds vote described above.
Restrictions on Ownership and Transfer.
For Jameson to continue to qualify as a REIT under the Internal Revenue
Code, not more than 50% in value of its outstanding stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the
Internal Revenue Code to also include certain entities) during the last half of
a taxable year, and such stock must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. In addition, certain percentages
of Jameson's gross income must be from particular activities. Because its Board
of Directors believes it is essential for Jameson to continue to qualify as a
REIT, the articles of incorporation restrict the ownership, acquisition and
transfer of shares of each class and each series of its outstanding capital
stock (the "Ownership Limitation").
The Ownership Limitation applies to the Jameson common stock, the Jameson
Series A Preferred Stock and the Jameson Series S Preferred Stock, each as a
separate class or series, and, for the Jameson common stock and Jameson A
Preferred Stock, provides that, subject to certain exceptions specified in the
articles of incorporation, 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 which is equal to 20.75% of the relevant outstanding
class or series of stock or the Related Party Limit (as defined below),
American Real Estate Company Ltd. cannot own directly or indirectly, more than
9% of the relevant outstanding class or series of stock and no other
stockholder may own, or similarly be deemed to own, more than 6.75% of the
relevant outstanding class or series of stock. For the Jameson Series S
Preferred Stock, the Ownership Limitation provides that no stockholder may own
more than 11.3% of the outstanding shares; provided, that the total shares of
all classes and series of Jameson capital stock owned by any person 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, the articles of incorporation include an additional ownership
restriction referred to as the "Related Party Limit." The Related Party Limit
provides that any stockholder 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 Limitation), in excess of a
9.9% interest or voting power in the capital stock, net assets or profits of an
entity from whom Jameson derives gross income cannot own more than 9.9% of the
relevant outstanding class or series of stock. Under this provision, Thomas W.
Kitchin, sole owner with his spouse of Jameson Hospitality, would be precluded
from owning or acquiring more than 9.9% of the relevant outstanding class or
series of stock.
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<PAGE>
The Jameson Board of Directors has the power to grant a waiver of the
Ownership Limitation or the Related Party Limit upon application by a
stockholder. As a condition of such waiver, the Board of Directors may require
opinions of counsel satisfactory to it and/or an undertaking from the applicant
with respect to preserving the REIT status of Jameson.
If shares in excess of the Ownership Limitation or Related Party Limit, or
shares which would cause Jameson to be beneficially owned by fewer than 100
persons, are issued or transferred to any person, such issuance or transfer
will be null and void and the intended transferee will acquire no rights to the
stock. Shares owned, or deemed to be owned, or transferred to a stockholder in
excess of the Ownership Limitation or Related Party Limit ("Excess Shares")
will be automatically transferred, pursuant to the articles of incorporation,
to Jameson as trustee of a trust for the exclusive benefit of the transferee or
transferees to whom the shares are ultimately transferred (without violating
the Ownership Limitation 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 stockholder vote or the determination of a quorum for such
vote and they will not be entitled to participate in any distributions made by
Jameson. The intended transferee-stockholder may, at any time the Excess Shares
are held by Jameson in trust, transfer the Excess Shares at a price not to
exceed the price paid by the intended transferee-stockholder 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, Jameson would have the right, for a period of 90 days (30 days in the
case of Jameson Series S Preferred Stock Excess Shares) during the time the
Excess Shares are held by Jameson in trust, to purchase all or any portion of
the Excess Shares from the intended transferee-stockholder at, in the case of
Jameson common stock or Jameson Series A Preferred Stock, the lesser of the
price paid for the class or series of stock by the intended transferee-
stockholder and the closing market price for shares of the relevant class or
series of stock on the date Jameson exercises its option to purchase. In the
case of Jameson Series S Preferred Stock, the purchase may be at the price paid
for the shares by the intended transferee-stockholder. The 90-day period (30-
day period in the case of Jameson Series S Preferred Stock Excess Shares) would
commence on the latter of the date of the violative transfer of ownership and
the date the intended transferee-stockholder gives notice of the transfer to
Jameson, or, if no notice is given, the date the Jameson Board of Directors
determines that a violative transfer of ownership has occurred.
The Ownership Limitation or Related Party 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 Limitation or Related Party Limit would
require an amendment to the Jameson articles. Amendments to the Jameson
articles require the affirmative vote of holders owning a majority of the
outstanding voting stock. In addition to preserving Jameson's status as a REIT,
the Ownership Limitation and Related Party Limit may have the effect of
precluding an acquisition of control of Jameson without the approval of its
Board of Directors.
All certificates representing shares of any class or series of Jameson's
capital stock will bear a legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of the
Internal Revenue Code, more than 5% of the relevant outstanding class or series
of stock must file an affidavit with Jameson containing the information
specified in the Jameson articles within 30 days after January 1 of each year.
In addition, each stockholder will upon demand be required to disclose to
Jameson 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.
Transfer and Dividend Paying Agent
First Union National Bank, N.A., will act as the transfer and dividend
payment agent for the Jameson common stock, the Jameson Series A Preferred
Stock and the Jameson Series S Preferred Stock.
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<PAGE>
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP
OF JAMESON
The following table sets forth certain information as of March 22, 1999,
regarding (a) ownership of Jameson common stock by all persons known by Jameson
to be beneficial owners of more than five percent of such stock, and (b)
ownership of Jameson common stock and Jameson Series A Preferred Stock, by (1)
each director and nominee for director of Jameson, (2) each of the executive
officers of Jameson named in the Summary Compensation Table under "Other Annual
Meeting Proposals of Jameson" (page 137), and (3) all executive officers and
directors of Jameson as a group. Unless otherwise noted, the persons named
below have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
Shares of
Series A
Shares of Preferred
Common Stock Stock
Name of Owner or Beneficially Percentage Beneficially Percentage
Identity of Group Owned(1) of Class Owned of Class
- ----------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Thomas W. Kitchin............ 673,129(2) 6.7% -- --
8 Perimeter Center East,
Suite 8050
Atlanta, Georgia 30346-1603
Robert D. Hisrich............ 35,900(3) * -- --
Michael E. Lawrence.......... 35,500(3) * -- --
Thomas J. O'Haren............ 67,415(3) * -- --
All directors and executive 945,295(4) 9.2% -- --
officers as a group (7 per-
sons).......................
</TABLE>
- --------
* Less than one percent (1%)
(1) The total number includes shares issued and outstanding as of March 22,
1999, plus shares which the owner shown above has the right to acquire
within 60 days after March 22, 1999. For purposes of calculating the
percent of the class outstanding held by each owner shown above with a
right to acquire additional shares, the total number of shares excludes the
shares which all other persons have the right to acquire within 60 days
after March 22, 1999, pursuant to the exercise of outstanding stock
options.
(2) Includes 46,938 shares owned by Kitchin Children's Trust, the beneficiaries
of which are members of the family of Mr. Kitchin and of which Mr. Kitchin
serves as trustee, 90,000 shares issuable upon the exercise of currently
vested stock options, 48,459 shares of restricted Common Stock and 30,000
shares owned jointly with Mr. Kitchin's spouse.
(3) Includes 35,000 shares issuable upon the exercise of currently vested stock
options.
(4) Includes 287,067 shares issuable upon the exercise of currently vested
stock options and 68,707 shares of restricted common stock.
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<PAGE>
FEDERAL INCOME TAXATION OF REITS
AND REIT STOCKHOLDERS
Jameson made an election to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code, commencing with its taxable year beginning
January 1, 1994. Jameson made such election at the time of the filing of its
federal income tax return for 1994. Jameson believes that commencing with such
taxable year, it was organized and has operated in such a manner as to qualify
for taxation as a REIT under the Internal Revenue Code. Jameson intends to
continue to operate in such a manner, but no assurance can be given that it has
qualified or will operate in a manner 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
describes generally the most significant provisions of the Internal Revenue
Code sections relating to the federal income tax treatment of a REIT and its
stockholders. This discussion is qualified in its entirety by applicable
Internal Revenue Code provisions, Treasury Regulations and administrative and
judicial interpretations thereof.
It is the opinion of Conner & Winters that, commencing with Jameson's
taxable year beginning January 1, 1994, Jameson was organized and has operated
in conformity with the requirements for qualification as a REIT, its proposed
method of operations will enable it to continue to meet the requirements for
qualification and taxation as a REIT under current Internal Revenue Code
provisions, and the merger of Signature with and into Jameson will not cause
Jameson to cease to qualify as a REIT. It must be emphasized that the opinion
of Conner & Winters is based on various assumptions and is conditioned upon
certain representations made by Jameson and Signature as to factual matters.
Unlike a tax ruling, an opinion of counsel is not binding upon the IRS and no
assurance can be given that the IRS will not challenge the status of Jameson as
a REIT for federal income tax purposes. Moreover, Jameson's qualification and
taxation as a REIT depends upon its ability to meet, through actual annual
operating results, distribution levels, stock ownership requirements and
various qualification requirements imposed under the Internal Revenue Code and
discussed below. No assurance can be given that the actual results of Jameson's
operations for any particular taxable year will satisfy such requirements. For
a discussion of the tax consequences of the failure to qualify as a REIT, see
"--Failure to Qualify" below.
Taxation of Jameson
A REIT, such as Jameson, generally is not subject to federal corporate
income tax on its net income that is currently distributed to its stockholders
because the REIT provisions of the Internal Revenue Code generally allow a REIT
to deduct dividends paid to its stockholders. This treatment substantially
eliminates the "double taxation" (at the corporate and stockholder levels) that
generally results from investment in a corporation. However, Jameson will be
subject to federal income or excise tax as follows. First, Jameson will be
taxed at regular corporate rates on its REIT taxable income, which is defined
generally as taxable income (subject to certain adjustments), including net
capital gains, less dividends to stockholders. Second, Jameson 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 stockholders.
Third, if Jameson has (i) net income from the sale or other disposition of
"foreclosure property" (generally, property acquired by reason of a default on
a loan or an indebtedness held by a REIT) which is held primarily for sale to
customers in the ordinary course of a trade of business or (ii) other
nonqualifying net income from foreclosure property, it will be subject to tax
at the highest corporate rate on such income. Fourth, if Jameson has 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), such income will be subject to a
100% tax. Fifth, if Jameson should fail to satisfy the 75% or 95% gross income
tests discussed below and has nonetheless maintained its qualification as a
REIT because certain other requirements have been met, it will be subject to a
100% tax on the net income attributable to the greater of the amount by which
Jameson fails the 75% or 95% gross income tests, multiplied by a fraction
intended to reflect Jameson's profitability. Sixth, generally, if Jameson
should fail to distribute to its stockholders during each calendar year an
amount equal to its required distribution, it will be
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<PAGE>
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 (a) 85% of its ordinary
income for such year, (b) 95% of its REIT capital gain net income for such year
and (c) the amount, if any, of the required distribution for the previous year
over the amount actually distributed for that year.
In addition, if during the 10-year period beginning on the first day of the
first taxable year for which Jameson qualified as a REIT (the "Recognition
Period"), Jameson recognizes gain on the disposition of any asset held by
Jameson as of the beginning of such Recognition Period, then, to the extent of
the excess of (a) the fair market value of such asset as of the beginning of
such Recognition Period over (b) Jameson's 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 of
Jameson, 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 Jameson acquires any asset from a C corporation in a transaction in
which Jameson's basis in the asset is determined by reference to the C
corporation's basis in the asset or any other property (such as the merger of
Signature into Jameson), and Jameson recognizes gain on the disposition of such
asset during the 10-year period beginning on the date on which such asset was
acquired by Jameson, then, to the extent of the Built-In Gain, such gain will
be subject to tax at the highest regular corporate rate. The amount of
Jameson's Built-In-Gain based on the appraisals obtained in connection with the
initial public offering of Jameson's stock ("IPO") is approximately $8.1
million and will discourage a disposition by Jameson of any Jameson Inn held at
the time of the IPO until after 2003. The estimated Built-In Gain to which
Jameson will succeed by reason of the merger with Signature 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; (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 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. Jameson
has represented that it has met since the closing of the IPO, and currently
does meet, all of such definitional requirements.
In the case of a REIT that is a partner in a partnership, the Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the
income of the partnership attributable to such share. In addition, the
character of the assets and gross income of the partnership will retain the
same character in the hands of the REIT for purposes of Section 856 of the
Internal Revenue Code, including satisfying the gross income tests and the
asset tests. Thus, Jameson's proportionate share of the assets, liabilities and
items of income of several limited liability companies in which Jameson owns an
interest (such limited liability companies are treated as partnerships for
federal income tax purposes) will be treated as assets, liabilities and items
of income of Jameson for purposes of applying the requirements described
herein.
Income Tests
In order for Jameson to maintain its qualification as a REIT, it must
satisfy two gross income tests annually. First, at least 75% of Jameson's gross
income (excluding gross income from prohibited transactions)
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<PAGE>
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 certain mortgage interest)
or "qualified temporary investment income" (generally, income attributable to
the temporary investment of new capital received by Jameson). Second, at least
95% of Jameson's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from the foregoing sources
or from dividends, interest and gain from the sale or disposition of stock or
securities.
Rents received by Jameson under the Jameson Lease 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 Jameson Lease 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 the voting power or total number of outstanding shares of a
corporate tenant, or 10% or more of the assets or net profits of a noncorporate
tenant (a "Related Party Tenant"). Jameson has represented and covenanted that
it has satisfied this requirement since its election to be taxed as a REIT and
will use its best efforts to continue to satisfy this requirement. Furthermore,
Jameson Hospitality is not and should not become a Related Party Tenant of
Jameson by reason of Jameson's adherence to certain restrictions in its bylaws
which void transactions in Jameson's stock which would result in violations of
this requirement. 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. Jameson
has represented that the resulting rental income attributable to personal
property since January 1, 1994, has been, and will continue to be less than 15%
(including rental income attributable to the personal property it will receive
from Signature); however, should the resulting rental income attributable to
personal property exceed 15% of all rental income, a portion of the personal
property may be sold by Jameson to Jameson Hospitality, with the lease payments
adjusted accordingly.
Finally, for rents received to qualify as "rents from real property," a 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. Jameson has represented that
it has not, does not and will not knowingly (a) 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); (b) rent any property to a Related Party Tenant; (c) lease
personal property in connection with the rental of the Inns which would cause
the rental income attributable to such personal property to exceed 15% of the
amount of total rental income; or (d) perform services considered to be
rendered for the occupants of the Inns other than through an independent
contractor.
Under the Jameson Lease, Jameson Hospitality has leased the land, buildings,
improvements, furnishings, and equipment comprising the Inns from Jameson for a
10-year term and pays Jameson rent. At the closing of the merger, Jameson
Hospitality will lease (and add to the Jameson Lease) the hotel properties to
be received from Signature. In order for such rent to constitute "rents from
real property," the Jameson Lease must be
respected as a true lease for federal income tax purposes and not treated as a
service contract, joint venture or some other type of arrangement. The
determination of whether the Jameson Lease is a true lease depends on an
analysis of all of the surrounding facts and circumstances.
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In addition, pursuant to Internal Revenue Code Section 7701(e), 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: (a) the service recipient is in
physical possession of the property, (b) the service recipient controls the
property, (c) 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), (d) the service provider does not bear any risk of substantially
diminished receipts or substantially increased expenditures if there is
nonperformance under the lease, (e) the service provider does not use the
property concurrently to provide significant services to entities unrelated to
the service recipient and (f) the contract price does not substantially exceed
the rental value of the property for the term of the lease.
Under the Jameson Lease, (a) Jameson Hospitality has the right to exclusive
possession, use and quiet enjoyment of the Inns during the term of the Jameson
Lease, (b) 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, (c) 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 Jameson Lease (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), (d)
Jameson Hospitality benefits from any savings in the costs of operating the
Inns during the term of the Jameson Lease, (e) in the event of damage or
destruction to an Inn, Jameson Hospitality is at economic risk because it will
be obligated to 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 Jameson Lease),
(f) Jameson Hospitality has indemnified Jameson against all liabilities imposed
on Jameson during the term of the Jameson Lease 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 (g) Jameson Hospitality
is obligated to pay substantial fixed rent for the term of the Jameson Lease.
In addition, Jameson has represented that the total amount of rent provided
under the Jameson Lease does not substantially exceed the fair rental value of
the Jameson Inns.
Pursuant to IRS Revenue Ruling 55-540, if one or more of the following
conditions are present, the Jameson Lease will instead be considered as a
conditional contract for purchase and sale of the Jameson Inns: (a) portions of
the periodic payments are made specifically applicable to an equity interest in
the property to be acquired by the lessee, (b) the lessee will acquire title
upon the payment of a stated amount of "rentals" under the contract which it is
required to make, (c) the total amount which the lessee 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, (d)
the agreed "rental" payments materially exceed the current fair rental value,
(e) 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 (f) some portion of the periodic
payments is specifically designated as interest or is otherwise readily
recognizable as the equivalent of interest.
Under the Jameson Lease, (a) no portion of the rent has been or will be
applied to any equity interest in the Jameson Inns to be acquired by Jameson
Hospitality, (b) Jameson Hospitality has not acquired and will not be acquiring
title to the Jameson Inns upon the payment of a stated amount of rent, (c) the
rent does not and will not materially exceed the current fair rental value of
the Jameson Inns (according to Jameson's representation), (d) the Jameson Inns
may not be acquired by Jameson Hospitality under a purchase option and (e) no
portion of the rent under the Jameson Lease has been or will be specifically
designated as interest or will be recognizable as the equivalent
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of interest. In rendering its opinion that Jameson will qualify for taxation as
a REIT, Conner & Winters has concluded that the Jameson Lease will be treated
as a true lease for federal income tax purposes. Such conclusion is based, in
part, on the following facts: (a) Jameson and Jameson Hospitality intend for
their relationship to be that of a lessor and lessee and such relationship is
documented by the Jameson Lease; (b) Jameson Hospitality will have the right to
exclusive possession and use and quiet enjoyment of the Jameson Inns during the
term of the Jameson Lease; (c) Jameson Hospitality will bear the cost of, and
be responsible for, day-to-day maintenance and repair of the Jameson Inns,
other than the cost of maintaining underground utilities and structural
repairs, and will dictate how the Inns are operated, maintained and improved;
(d) Jameson Hospitality will bear all of the costs and expenses of operating
the Jameson Inns (including the cost of any inventory used in their operation)
during the term of the Jameson Lease (other than real property taxes, and the
cost of replacement or refurbishment of furniture, fixtures and equipment, to
the extent such costs do not exceed the allowance of such costs provided under
the Jameson Lease); (e) Jameson Hospitality will benefit from any savings in
the costs of operating the Jameson Inns during the term of the Jameson Lease;
(f) Jameson Hospitality will indemnify Jameson against all liabilities imposed
on Jameson during the term of the Jameson Lease by reason of (A) injury to
persons or damage to property occurring at the Inns, or (B) Jameson
Hospitality's use, management, maintenance or repair of the Jameson Inns; (g)
Jameson Hospitality is obligated to pay substantial fixed rent for the period
of use of the Jameson Inns; and (h) Jameson Hospitality stands to incur
substantial losses (or reap substantial gains) depending on how successfully it
operates the Jameson Inns.
There are no controlling Treasury Regulations, published rulings, or
judicial decisions involving leases with terms substantially the same as the
Jameson Lease that discuss whether such a lease constitutes a true lease for
federal income tax purposes. Therefore, the foregoing conclusions with respect
to the relationship between Jameson and Jameson Hospitality are based upon all
of the facts and circumstances and upon rulings and judicial decisions
involving situations that are considered to be analogous. There can be no
assurance that the IRS will not successfully assert a contrary position. If the
Jameson Lease is 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 Jameson receives from Jameson Hospitality may not satisfy the
various requirements for qualification as "rents from real property." In that
case, Jameson 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.
If Jameson fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Internal Revenue Code.
These relief provisions generally will be available if (a) Jameson's failure to
meet such tests is due to reasonable cause and not due to willful neglect, (b)
Jameson attaches a schedule of the sources of its gross income to its return,
and (c) any incorrect information on such schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances Jameson 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 with respect to the excess net income.
Asset Tests
For Jameson to qualify as a REIT, at the close of each quarter of its
taxable year it must also satisfy three tests relating to the nature of its
assets. First, at least 75% of the value of Jameson's total assets must be
represented by "real estate assets" which means (a) real property (including
interests in real property and interests in mortgages on real property), (b)
shares in other REIT's and (c) 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 Jameson, and (d) cash, cash items (including
receivables) and government securities. Second, not more than 25% of Jameson's
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 Jameson may not exceed 5% of the value of
Jameson's total assets and Jameson may not own more than 10% of such issuer's
outstanding voting securities. Jameson's ownership of an interest in several
limited liability companies are treated for purposes of the asset tests as
ownership of a proportionate part of such
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limited liability companies' assets. Jameson's investment in the Jameson Inns
through its interests in such limited liability companies constitutes qualified
assets for purposes of the 75% asset test. As such, Jameson expects that more
than 75% of the value of its assets will be real estate assets. Jameson has
represented that it has satisfied these asset tests since December 31, 1993,
and has covenanted that it will use its best efforts to continue to satisfy
such tests in the future.
After meeting the assets tests at the close of any quarter, Jameson will not
lose its 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.
Jameson has represented that it maintains adequate records of the value of its
assets to ensure compliance with the asset test and intends to take such action
within 30 days after the close of any quarter as may be required to cure any
noncompliance. However, there can be no assurance that such action will always
be successful.
Annual Distribution Requirements
To qualify as a REIT, Jameson is required to distribute dividends (other
than capital gain dividends) to its stockholders in an amount at least equal to
(A) the sum of (1) 95% of its "REIT taxable income" (computed without regard to
the dividends paid deduction and any net capital gain) and (2) 95% of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of noncash income. In addition, if Jameson disposes of any asset
during the Recognition Period (or during the ten-year period beginning on the
effective date of the merger in the case of assets received from Signature),
Jameson 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 Jameson timely files its tax return for such
year and if paid on or before the first regular dividend payment after such
declaration. To the extent that Jameson does not distribute all of its net
capital gain or distributes at least 95%, but less than 100% of its "REIT
taxable income," as adjusted, it will be subject to tax on the undistributed
portion at regular corporate tax rates. Furthermore, if Jameson should fail to
distribute its required distribution during each calendar year, Jameson would
be subject to a 4% nondeductible excise tax on the excess of such required
distribution over the amounts actually distributed.
Jameson has represented that since January 1, 1994, it has made, and has
covenanted that it hereafter will make, timely distributions sufficient to
satisfy all annual distribution requirements. However, it is possible that,
from time to time, Jameson may experience timing differences between (a) the
actual receipt of income and actual payment of deductible expenses and (b) the
inclusion of that income and deduction of such expenses in arriving at its REIT
taxable income. In addition, in the event of the foreclosure of a Jameson Inn
by a mortgage lender, any debt discharge income would be subject to the annual
95% distribution requirement even though Jameson would receive no cash as a
consequence of a foreclosure. Therefore, Jameson could have less cash available
for distribution than would be necessary to meet its 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 or to avoid federal income tax
with respect to capital gain or the excise tax, it could be necessary for
Jameson to borrow funds.
Under certain circumstances in which an adjustment is made by the IRS that
affects the amount that should have been distributed for a prior taxable year,
Jameson may be able to rectify the failure to meet the distribution requirement
by paying "deficiency dividends" to stockholders in the later year, which may
be included in Jameson's deduction for dividends paid for the earlier year.
Thus, Jameson may be able to avoid being taxed on deficiency dividends.
However, Jameson will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
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Recordkeeping Requirements
Jameson must maintain certain records and request on an annual basis certain
information from its stockholders designed to disclose the actual ownership of
its outstanding shares. If Jameson failed to comply with these requirements for
any of its taxable years ended on or before December 31, 1997, its REIT status
would be in jeopardy. If Jameson failed to comply with these requirements for
its taxable year ending December 31, 1998, or fails to comply with these
requirements for subsequent years, it will be required to pay (on notice and
demand by the Secretary of the Treasury and in the same manner as a tax) a
penalty of $25,000. If a failure to comply were attributable to intentional
disregard of the aforementioned requirements, the amount of the penalty would
be increased to $50,000. Upon failure to comply with these requirements, the
Secretary of the Treasury may require Jameson to take such actions as it
determines appropriate to ascertain actual ownership of its outstanding shares.
If Jameson were to fail to take such actions, then Jameson would be required to
pay (on notice and demand by the Secretary of the Treasury and in the same
manner as a tax) an additional penalty equal to the penalty previously paid.
None of these penalties would be imposed if it were shown that the failure to
comply was due to reasonable cause and not to willful neglect. Jameson has
represented that it has in the past and has covenanted that it will in the
future comply with such requirements.
Failure to Qualify
If Jameson fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, Jameson will be subject to tax (including
any applicable corporate alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which
Jameson fails to qualify will not be deductible by Jameson nor will they be
required to be made by Jameson. In such event, to the extent of current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations, a corporate
distributee may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, Jameson will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. Whether Jameson would be entitled to
such statutory relief cannot be foreseen.
Taxation of U.S. Stockholders
As used herein, the term "U.S. Stockholder" means a holder of shares of
Jameson common stock or preferred stock that (for United States federal income
tax purposes) (a) is a citizen or resident of the United States, (b) is a
corporation, partnership, or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, (c) is an
estate the income of which is subject to United States federal income taxation
regardless of its source, or (d) is a trust if a United States court is able to
exercise primary supervision over the administration of the trust. For any
taxable year of which Jameson qualifies for a taxation as a REIT, amounts
distributed to taxable U.S. Stockholders will be taxed as set forth below.
Distributions Generally. Distributions to U.S. Stockholders, other than
capital gain dividends discussed below, will be taxable as ordinary income to
such holders up to the amount of Jameson's current or accumulated earnings and
profits. Such distributions generally are not eligible for the dividends
received deduction for corporations. To the extent that Jameson makes
distributions in excess of its current or accumulated earnings and profits,
such distributions will first be treated as a tax-free return of capital,
reducing the tax basis of the U.S. Stockholders' Jameson common stock or
preferred stock as the case may be and second as gain realized from the sale of
such stock. Dividends declared by Jameson in October, November or December of
any year payable to a U.S. Stockholder of record on a specified date in any
such month will be treated as paid by Jameson and received by the U.S.
Stockholder on December 31 of such year, provided that the dividend is actually
paid by Jameson during January of the following calendar year. U.S.
Stockholders may not include in their own income tax returns any tax losses of
Jameson.
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Jameson will be treated as having sufficient earnings and profits to treat
as a dividend any distribution by Jameson up to the greater of its current or
accumulated earnings and profits. As a result, U.S. Stockholders may be
required to treat certain distributions that would otherwise result in a tax-
free return of capital as taxable dividends. Moreover, any "deficiency
dividends" will be treated as an ordinary dividend or a capital gain dividend,
as the case may be, regardless of Jameson's earnings and profits.
Capital Gain Dividends. Dividends to U.S. Stockholders that are properly
designated by Jameson as capital gain dividends will be treated as gain from
the sale or exchange of a capital asset held for more than one year (to the
extent they do not exceed Jameson's actual net capital gain) without regard to
the period for which the U.S. Stockholder has held the Jameson stock. Corporate
U.S. Stockholders, however, may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends received deduction generally available to
corporations.
Individual U.S. Stockholders and U.S. Stockholders that are estates and
trust are subject to federal income tax on net capital gains at different tax
rates depending upon the nature of the gain and the holding period of the asset
disposed of. In Notice 97-64, the IRS has provided guidance for REITs to report
information necessary for U.S. Stockholders to compute the appropriate tax in
respect of capital gain dividends. In general, capital gain dividends will be
designated in a written notice to U.S. Stockholders as a 20% rate gain
distribution, an unrecaptured Section 1250 gain distribution or a 28% rate gain
distribution.
Although a REIT is taxed on its undistributed net capital gains, a REIT may
elect to include all or a portion of such undistributed net capital gains in
the income of its U.S. Stockholders. In such event, the U.S. Stockholders will
receive a credit or refund for the amount of tax paid by the REIT on such
undistributed net capital gains.
Passive Activity and Loss; Investment Interest Limitations. Distributions
from Jameson and gain from the disposition of shares of Jameson stock
ordinarily will not be treated as "passive activity income" for federal income
tax purposes, and therefore, U.S. Stockholders generally will not be able to
apply any "passive losses" against such income. Dividends from Jameson (to the
extent they do not constitute a return or capital) generally will be treated as
investment income for purposes of the investment interest limitation. Net
capital gain from the disposition of shares of Jameson stock and capital gain
dividends generally will be excluded from investment income unless the taxpayer
elects to have the gain taxed at ordinary rates.
Dispositions of Jameson Stock. A U.S. Stockholder will recognize gain or
loss on the sale or exchange of shares of Jameson stock to the extent of the
difference between the amount realized on such sale or exchange and the
holder's tax basis in such shares. Such gain or loss generally will constitute
long-term capital gain or loss if the U.S. Stockholder has held such shares for
more than one year and in case of an individual, will be taxed at a lower rate
in such instance. Losses incurred on the sale or exchange of shares of Jameson
stock held for six months or less (after applying certain holding period
rules), however, generally will be deemed long-term capital losses to the
extent of any long-term capital gain dividends received by the U.S. Stockholder
with respect to such shares.
Taxation of Tax-Exempt Stockholders
Distributions by Jameson to a U.S. stockholder 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 its 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 Jameson is 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
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value) holding in the aggregate more than 50% by value of the interests in the
REIT. Based on its annual effort to monitor ownership of its stock, Jameson
does not believe that it is a pension-held REIT.
Taxation of Non-U.S. Stockholders
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. SIGNATURE
STOCKHOLDERS WHO ARE NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS TO DETERMINE THE IMPACT OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS
WITH REGARD TO THE ACQUISITION OF SHARES OF JAMESON COMMON STOCK OR SERIES S
PREFERRED STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Stockholders that are not attributable to gain
from sales or exchanges by Jameson of United States real property interests and
not designated by Jameson as capital gains dividends will be treated as
ordinary income dividends to the extent their source is current or accumulated
earnings and profits of Jameson. 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. Stockholder's investment in Jameson stock is treated as
"effectively connected" with the Non-U.S. Stockholder's conduct of a United
States trade or business, the Non-U.S. Stockholder generally will be subject to
a tax at graduated rates, in the same manner as U.S. Stockholders are taxed
with respect to such distributions (and may also be subject to the 30% branch
profits tax in the case of a stockholder that is a foreign corporation).
Jameson expects 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. Stockholder unless
(a) a lower treaty rate applies and the required form evidencing eligibility
for that reduced rate is filed with Jameson or (b) the Non-U.S. Stockholder
files an IRS Form 4224 with Jameson claiming that the distribution is
"effectively connected" income. Distributions in excess of current and
accumulated earnings and profits of Jameson will not be taxable to a Non-U.S.
Stockholder to the extent that such distributions do not exceed the adjusted
basis of the Non-U.S. Stockholder'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.
Stockholder's shares, such distributions will give rise to tax liability if the
Non-U.S. Stockholder 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 current and accumulated earnings and profits,
the distribution will be subject to withholding at a 30% rate. Further, Jameson
will be required to withhold 10% of any distribution in excess of current and
accumulated earnings and profits. However, amounts withheld may be refundable
if it is subsequently determined that such distribution was in excess of
current and accumulated earnings and profits of Jameson and the amount withheld
exceeded the Non-U.S. Stockholder's U.S. tax liability.
For any year in which Jameson qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by Jameson of United States real
property interests will be taxed to a Non-U.S. Stockholder 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. Stockholder as if such gain were
"effectively connected" with a United States trade or business. Non-U.S.
Stockholders would thus be taxed at the normal capital gain rates applicable to
U.S. Stockholders (subject to any applicable alternative minimum tax).
Distributions subject to FIRPTA also may be subject to a 30% branch profits tax
in the case of a foreign corporate stockholder not entitled to treaty
exemption. Jameson is required by Treasury Regulations to withhold 35% of any
distribution to a Non-U.S. Stockholder that could be designated by Jameson as a
capital gains dividend. This amount is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability.
Unless the shares of Jameson stock constitute a "United States real property
interest" within the meaning of FIRPTA or are "effectively connected" with a
U.S. trade or business, a sale of such shares by a Non-U.S. Stockholder
generally will not be subject to United States taxation. The shares of Jameson
stock will not
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constitute a United States real property interest if Jameson is a "domestically
controlled REIT," which is 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. Jameson believes that it is
and will continue to be a "domestically controlled REIT" and therefore that
sales of the Shares by Non-U.S. Stockholders should not be subject to U.S.
taxation. Notwithstanding the foregoing, capital gain not subject to FIRPTA
will be taxable to a Non-U.S. Stockholder if the Non-U.S. Stockholder is a
"nonresident alien individual" who 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 such individual's capital gains.
Information Reporting Requirements and Backup Withholding Tax
Jameson will report to its U.S. Stockholders and the IRS the amount of
distributions paid during each calendar year and the amount of tax withheld, if
any. Under certain circumstances, U.S. Stockholders may be subject to backup
withholding at a rate of 31% with respect to distributions paid. Backup
withholding will apply only if the stockholder (a) fails to furnish its
taxpayer identification number ("TIN") (which, for an individual, would be such
individual's Social Security Number), (b) furnishes an incorrect TIN, (c) is
notified by the IRS that it has failed to properly report payments of interest
and dividends, or (d) under certain circumstances, fails to certify, under
penalty of perjury, that it has furnished a correct TIN and has not been
notified by the IRS that it is subject to backup withholding for failure to
report interest and dividend payments. Backup withholding will not apply with
respect to payments made to certain exempt recipients, such as corporations and
tax-exempt organizations. U.S. Stockholders should consult their own tax
advisors regarding their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption. Backup withholding is not an
additional tax. Rather, the amount of any backup withholding with respect to a
payment to a U.S. Stockholder will be allowed as a credit against such U.S.
Stockholder's United States federal income tax liability and may entitle such
U.S. Stockholder to a refund, provided that the required information is
furnished to the IRS.
Additional issues may arise pertaining to information reporting and backup
withholding with respect to Non-U.S. Stockholders. Non-U.S. Stockholders should
consult their tax advisor with respect to any such information reporting and
backup withholding requirements.
Federal Income Tax Proposals
On February 1, 1999, the Clinton Administration announced its proposals for
the fiscal year 2000 budget. These proposals contain certain provisions that,
if enacted, would significantly modify the REIT-related provisions of the
Internal Revenue Code. A summary of the significant provisions is as follows:
Permit Taxable REIT Subsidiaries and Prohibit Preferred Stock
Subsidiaries. A REIT would be permitted to have taxable subsidiaries through
which the REIT could conduct activities such as providing "noncustomary"
services to REIT tenants, providing third party management services, providing
third party development services and engaging in dealer land sales. Many REITS
have set up preferred stock or non-voting common stock subsidiaries to conduct
such activities. This proposal would prohibit preferred stock or non-voting
common stock subsidiaries. The value of all taxable REIT subsidiaries would be
limited to 15% of the REIT's total assets, and the value of all qualified
independent contractor subsidiaries would be limited to 5% of the value to the
REIT's total assets.
Prohibit Closely Held REITs. REITs would be subject to an additional
requirement for REIT qualification which would prohibit certain closely held
structures. No entity or person would be permitted to own stock of a REIT
possessing 50% or more of the total combined voting power of all classes of
voting stock or 50% or more of the total value of all shares of all classes of
stock.
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Recognition of Built-in Gain Upon Mergers of C Corporations into REITs. This
proposal would require immediate recognition of built-in gain of any C
corporation with a value of $5 million or more which converts to REIT status.
Other Tax Consequences
Jameson and its stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of Jameson and
its stockholders may not conform to the federal income tax consequences
discussed above. CONSEQUENTLY JAMESON AND SIGNATURE STOCKHOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS ON
OWNERSHIP OF JAMESON STOCK.
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OTHER ANNUAL MEETING PROPOSALS OF JAMESON
Election of Director
Jameson's articles of incorporation state that the Jameson Board of
Directors must have at least two but not more than 15 directors, as determined
from time to time by resolution of the Board of Directors. The number of
directors is currently fixed at four. The Jameson Board of Directors is divided
into three classes. The terms of the classes are staggered so that, except for
directors appointed to fill vacancies created by an increase in the number of
directors, only one class is elected at the annual meeting of stockholders each
year for a three-year term. The term of the Class III directors, currently
consisting of Mr. Thomas W. Kitchin, will expire at the Jameson annual meeting.
The accompanying proxy solicits your vote for one Class III director. The term
of the Class III director elected at the 1999 annual meeting will expire at the
annual meeting of stockholders to be held in 2002.
The Jameson Board of Directors has nominated Mr. Thomas W. Kitchin for re-
election as a Class III director. The persons named as proxies in the
accompanying proxy, who have been designated by the Board of Directors, intend
to vote, unless otherwise instructed in such proxy, for the election of Mr.
Kitchin. If Mr. Kitchin becomes unable for any reason to stand for election as
a director of Jameson, it is intended that the persons named in such proxy will
vote for the election of such other person as the Board of Directors may
recommend. Jameson knows of no reason why Mr. Kitchin will be unavailable or
unable to serve.
The Jameson Board of Directors recommends a vote "FOR" Mr. Kitchin for
director.
Nominee for Director
Thomas W. Kitchin, 57, is chief executive officer, a director and chairman
of the Jameson Board of Directors. He has been an officer and director of
Jameson since its incorporation in 1988. Prior to founding Jameson, he spent 10
years in the oil and gas industry and served as chief executive officer of an
oil and gas company listed on the American Stock Exchange. Mr. Kitchin serves
as a director of the Association of Publicly Traded Companies, an association
that represents public companies that trade on The Nasdaq Stock Market, New
York Stock Exchange and American Stock Exchange; director of the Georgia
Hospitality and Travel Association; director of the American Hotel & Motel
Association; director of the Georgia State University Cecil B. Day School of
Hospitality Administration; director of a private school and director of the
Northside Hospital Advisory Board. In addition, he has served on the board of
directors of several banks and oil companies and numerous other civic,
charitable and social service agencies. Mr. Kitchin is the father of Craig R.
Kitchin, president, chief financial officer and treasurer of Jameson.
Directors Continuing in Office
Class I
(Term Expires 2000)
Robert D. Hisrich, Ph.D., 55, became a director in October 1993. Dr. Hisrich
has held the A. Malachi Mixon III Chair in Entrepreneurial Studies and has been
a professor at the Weatherford School of Management, Case Western Reserve
University, Cleveland, Ohio, since September 1993. From 1985 until his
appointment at Case Western Reserve University, Dr. Hisrich held the Bovaird
Chair of Entrepreneurial Studies and Private Enterprise and was a Professor of
marketing and a Director of the Enterprise Development Center at The University
of Tulsa, Tulsa, Oklahoma. In the spring of 1992, Dr. Hisrich was a Visiting
Professor of Entrepreneurship Studies at the University of Limerick, Limerick,
Ireland, and from 1990 through 1991, he was a Fulbright Professor and holder of
the Alexander Hamilton Chair in Entrepreneurship at the Foundation for Small
Enterprise Economic Development, Budapest, Hungary. In the spring of 1989, Dr.
Hisrich was a Fulbright Professor at the International Management Center,
Budapest, Hungary. In addition, since 1974 Dr. Hisrich has been Director of H &
B Associates, a marketing and management consulting firm. He has also held a
number of other academic positions and is widely published in the areas of
marketing, management and
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entrepreneurship. Dr. Hisrich has a B.A. degree in English and science from
DePaul University, an M.B.A. degree in marketing from the University of
Cincinnati and a Ph.D. degree in business administration from the University of
Cincinnati.
Thomas J. O'Haren, 64, became a director in June 1997. Mr. O'Haren has been
employed for the past 27 years in sales and marketing for Cigna Financial
Advisors, Inc., a company engaged in the insurance business. Mr. O'Haren serves
that company both as a regional vice president and as a consultant. He is
active in the insurance industry, including serving as an adjunct professor of
leadership at The American College, the degree-granting college of the
insurance industry, as a member of The American College Leadership Institute
and as chairman of the board of trustees of the GAMA Foundation, a research
foundation for the insurance industry. Mr. O'Haren has a B.S. degree in finance
from Pennsylvania State University, received his Chartered Life Underwriter
designation in 1966 and his designation as a Chartered Financial Consultant in
1983.
Class II
(Term to Expire 2001)
Michael E. Lawrence, 53, became a director in April 1994. Since March 1994,
he has been a director of Sea Pines Associates, Inc., a publicly held
corporation with approximately $35 million in annual revenues which owns and
operates real estate and recreational properties on Hilton Head Island, South
Carolina. Mr. Lawrence is president of Sea Pines Company, a subsidiary of Sea
Pines Associates, Inc., where he has served as the chief financial officer
since February 1990. Since that date he has also been vice president and chief
financial officer of Sea Pines Real Estate Company, a subsidiary of Sea Pines
Associates, Inc. Prior to joining Sea Pines Associates, Inc., Mr. Lawrence was
a management consultant with Ernst & Young from 1969 through 1989 and was a
partner in that firm from 1982 through 1989. Mr. Lawrence is a certified public
accountant with a B.S. degree from Washington & Lee University and an M.B.A.
degree from Emory University.
Compensation of Directors
Each director other than Mr. Kitchin receives from Jameson an annual fee of
$10,000, $500 for each Board or Board committee meeting attended and
reimbursement of expenses incurred in attending Board or committee meetings.
Payment of the annual fee is not contingent upon attendance at Board or
committee meetings.
Under the Jameson Inns, Inc. Director Stock Option Plan (the "Director
Plan"), each director of Jameson who is not otherwise an employee of Jameson or
any of its subsidiaries or affiliates is granted an option to purchase
("Director Option") 25,000 shares of Jameson common stock upon his initial
election as a director. Dr. Hisrich and Mr. Lawrence, who were elected or
appointed as directors prior to the adoption of the Director Plan, each
received a Director Option to purchase 25,000 shares of common stock upon the
adoption of the Director Plan in exchange for their surrender and the
cancellation of stock options previously granted to each of them under the 1993
Jameson Stock Incentive Plan. Director Options vest immediately at the time of
grant and have a per share exercise price equal to the fair market value of a
share of Jameson common stock at the close of business on the last business day
preceding the day of grant. The Director Options granted to Dr. Hisrich and Mr.
Lawrence in 1995 have an exercise price of $7.25 per share. Mr. O'Haren
received a Director Option to purchase 25,000 shares of common stock on June
20, 1997, at an exercise price of $11.375.
Under the Jameson Inns, Inc. 1997 Director Stock Option Plan (the "1997
Director Plan"), each director of Jameson who is serving as a director on the
first business day following the Jameson annual stockholder and at such annual
meeting was considered as a director of Jameson who was continuing in office or
was reelected as a director and is not otherwise an employee of Jameson or any
of its subsidiaries or affiliates is granted an option to purchase ("Annual
Director Option") 5,000 shares of Jameson common stock as of the first business
day following the Jameson annual meeting. Dr. Hisrich, Mr. Lawrence and Mr.
O'Haren, who were elected or appointed as directors prior to the adoption of
the 1997 Director Plan, each received an Annual Director Option to purchase
5,000 shares of common stock upon the adoption of the 1997 Director Plan. The
Annual Director Options vest immediately at the time of grant and have a per
share exercise price equal to the fair market value
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of a share of Jameson common stock at the close of business on the last
business day preceding the day of grant. The Annual Director Options granted to
Dr. Hisrich, Mr. Lawrence and Mr. O'Haren on November 19, 1997, have an
exercise price of $11.625 per share. On June 29, 1998, each of these directors
received an Annual Director Option to purchase 5,000 shares of Jameson common
stock at an exercise price of $10.00 per share.
Meetings and Committees of the Board of Directors
During 1998, the Jameson Board of Directors held four meetings. In addition,
the Board of Directors took action 10 times during 1998 by unanimous written
consent. During 1998, no director attended fewer than 75 percent of the
aggregate of: (1) the total number of meetings of the Board of Directors held
while he was a director, or (2) the total number of meetings held by all
committees of the Board of Directors on which he served. Jameson has a standing
audit committee and a compensation committee of the Board of Directors.
The audit committee is composed of Dr. Hisrich and Mr. Lawrence. The audit
committee, which met one time in 1998, annually considers the qualifications of
the independent auditor of Jameson and makes recommendations to the Board of
Directors on the engagement of the independent auditor. The audit committee
also reviews (a) any transactions between Jameson and its officers, directors
and principal stockholders, (b) the plans for and results of audits of Jameson,
and (c) the results of any internal audits, compliance with any of Jameson's
written policies and procedures and the adequacy of Jameson's system of
internal accounting controls.
In 1998, the compensation committee was composed of Dr. Hisrich, Mr.
Lawrence and Mr. O'Haren. During 1998, the compensation committee met one time.
The compensation committee administers the Jameson 1993 Stock Incentive Plan
and the Jameson 1996 Stock Incentive Plan and also reviews the determinations
by Kitchin Investments under the cost reimbursement agreement (see "Certain
Transactions--Cost Reimbursement Agreement," below) as to the percentage of
time each executive officer of Jameson devoted to Jameson's business during the
relevant period.
Jameson does not have a standing nominating committee. Jameson's bylaws
provide that nominations of candidates for election as directors of Jameson may
be made by or at the direction of the Board of Directors or by any stockholder
entitled to vote at the meeting at which directors are to be elected if the
stockholder complies with the advance notice procedures set forth in the
bylaws. These procedures require any stockholder who intends to make a
nomination for director to deliver notice of the nomination to the Secretary of
Jameson not later than March 8, 2000. The notice must contain all information
specified by the Board of Directors. If the chairman of the meeting determines
that a person is not nominated in accordance with the nomination procedure,
that nomination will be disregarded.
Ratification of Appointment of Independent Auditor
Upon the recommendation of the Jameson audit committee, the Jameson Board of
Directors has appointed Ernst & Young LLP as independent auditors of Jameson
for the fiscal year ending December 31, 1999. Ernst & Young LLP have been
independent auditors of Jameson since Jameson's inception in 1988. A proposal
will be presented at the Annual Meeting asking the stockholders to ratify the
appointment of Ernst & Young LLP as Jameson's independent auditor. If the
stockholders do not ratify the appointment of Ernst & Young LLP, the Board of
Directors will reconsider the appointment.
This proposal will be approved if the number of votes cast for the proposal
at the annual meeting exceeds the number of votes cast against the proposal.
The Board of Directors recommends a vote "FOR" the ratification of Ernst &
Young LLP as independent auditors for 1999.
A representative of Ernst & Young LLP is expected to be present at the
Jameson annual meeting and therefore is expected to be available to respond to
appropriate questions. If a representative of Ernst & Young
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LLP is present at the meeting, he or she will be given the opportunity to make
a statement, if he or she desires to do so, and respond to appropriate
questions.
Executive Officers
The executive officers of Jameson are:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Thomas W. Kitchin....... Chief Executive Officer, Director, Chairman of the Board of Directors
Craig R. Kitchin........ President, Chief Financial Officer, Treasurer
William D. Walker....... Vice President--Development
Steven A. Curlee........ Vice President--Legal, General Counsel, Secretary
</TABLE>
Set forth below is certain information concerning Jameson's executive
officers except for Mr. Thomas W. Kitchin. Information concerning Mr. Kitchin
is set forth above under the heading "--Election of Director--Nominee for
Director."
Craig R. Kitchin, 31, became chief financial officer of Jameson in February
1994, vice president--finance in September 1997, and president in November
1998. He joined Jameson as its controller and treasurer on June 15, 1992, upon
receiving his M.B.A degree from the University of Chicago with concentrations
in accounting and finance. Before attending the University of Chicago, he was a
financial analyst with FMC Corporation in Santa Clara, California, from 1989 to
1990, where his primary responsibilities included budgeting and forecasting
overhead expenses. Mr. Kitchin graduated from Santa Clara University with a
degree in finance in 1989. Craig Kitchin is the son of Thomas W. Kitchin, the
chairman and chief executive officer of Jameson.
William D. Walker, 45, has been an officer of Jameson since its inception in
1988 and served as a director from 1988 through October 29, 1993. Before
joining Jameson, he worked in various financial management positions for twelve
years. Mr. Walker received a B.B.A. degree in finance from Texas Tech
University in 1975.
Steven A. Curlee, 47, became general counsel and secretary of Jameson in
January 1993 and vice president-legal in September 1997. From April 1985 to
July 1992, he was general counsel for a public oil and gas company in Tulsa,
Oklahoma primarily involved in the formation of large public limited
partnerships for the acquisition of producing oil and gas properties for
investors. Prior thereto, he was engaged in the private practice of law in
Tulsa, Oklahoma for five years. From 1976 to 1980, Mr. Curlee served on active
duty in the U.S. Navy as a Judge Advocate. He continues to serve in the Navy
Reserves, having attained the rank of commander. Mr. Curlee received a B.A.
degree in political science and his J.D. from the University of Arkansas. He
received a Masters of Law in Taxation degree from Georgetown University. Mr.
Curlee is admitted to practice law in Arkansas, the District of Columbia,
Oklahoma, Texas and Georgia.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires Jameson's directors, executive
officers and persons who own more than ten percent of Jameson's equity
securities to file reports concerning their ownership of such securities. To
Jameson's knowledge, based solely on review of the Forms 3, 4 and 5 furnished
to Jameson and certain representations made to Jameson, during and for fiscal
1998, all Section 16(a) filing requirements applicable to its officers and
directors were complied with, except that: the grants on June 29, 1998, to each
of Michael E. Lawrence, Robert D. Hisrich and Thomas J. O'Haren of options to
purchase 5,000 shares of Jameson common stock were reported on Form 5s filed on
March 26, 1999; the purchase of 3,000 shares of Jameson common stock by Craig
R. Kitchin on June 30, 1998 was reported on Form 4 filed on July 13, 1998; and
the purchases by Thomas J. O'Haren through the reinvestment of dividends of 417
shares of Jameson common stock on February 25, 1998, 457 shares on June 3, 1998
and 534 shares on August 31, 1998, 597 shares on November 24, 1998, and by open
market purchase of 10,000 shares of Jameson common stock on December 30, 1998,
were reported on Form 5 filed March 26, 1999.
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Executive Compensation
The following table sets forth certain information with respect to the
compensation of Thomas W. Kitchin, Jameson's chief executive officer, for
services in all capacities to Jameson during the fiscal years ended December
31, 1996, 1997 and 1998. No other executive officer of Jameson had an annual
salary and bonus in excess of $100,000 during any such year. No information is
given as to any person for any fiscal year during which such person was not an
executive officer of Jameson.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term Compensation
Compensation Awards
------------ -----------------------------------
Restricted Securities Underlying
Salary Stock Awards Options
Name and Principal Position Year ($)(1) ($) (#)
- --------------------------- ----- ------- ------------ ---------------------
<S> <C> <C> <C> <C>
Thomas W. Kitchin,............. 1998 25,113 100,000(2) --
Chairman and Chief Executive 1997 80,145 -- 75,000(3)
Officer 1996 62,598 367,969(4) --
</TABLE>
- --------
(1) Mr. Kitchin holds positions with Jameson Hospitality and Kitchin
Investments as well as with Jameson. He receives his compensation from
Kitchen Investments. The amount set forth in the table represents an
allocation to Jameson by Kitchin Investments of Mr. Kitchin's total
compensation based on records of actual time spent by Mr. Kitchin related
to Jameson and the other companies. Compensation of Mr. Kitchin which is
allocated to other entities is not reported in the table. See "--Certain
Transactions--Cost Reimbursement Agreement."
(2) Represents the closing price of the Jameson common stock on the Nasdaq
National Market on the date of grant for 10,959 shares of restricted
Jameson common stock granted under the Jameson 1996 Stock Incentive Plan.
Such shares vest 10 years after the date of grant, assuming continuous
employment with Jameson through the date of vesting.
(3) Consists of options to purchase 75,000 shares of common stock at $11.625
per share granted under the Jameson 1993 Stock Incentive Plan. Options vest
annually in equal increments over the five year period following the date
of grant.
(4) Represents the closing price of the Jameson common stock on the Nasdaq
National Market on the date of grant for 37,500 shares of restricted
Jameson common stock granted under the Jameson 1996 Stock Incentive Plan.
Such shares vest ten years after the date of grant, assuming continuous
employment with Jameson through the date of vesting.
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Option Exercises in Last Fiscal Year; Aggregate Fiscal Year-End Values of
Options. The named executive officer did not exercise any options during 1998.
The following table sets forth the values as of December 31, 1998, of all
options held by the named executive officer during 1998.
<TABLE>
<CAPTION>
Value of
Unexercised in-the-money
Number of Unexercised Options at Fiscal Year-
Options at Fiscal Year-End End
------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas W. Kitchin... 90,000 60,000 $126,563 --
</TABLE>
Employment Agreement
In connection with consummation in early 1994 of Jameson's initial public
offering of 2,600,000 shares of common stock, Jameson entered into an
employment agreement with Thomas W. Kitchin as chief executive officer and
president of Jameson. Under the agreement, the Board of Directors sets the
maximum amount of annual salary for which Jameson reimburses Kitchin
Investments under the Cost Reimbursement Agreement between Jameson and Kitchin
Investments based on the amount of time Mr. Kitchin devotes to Jameson's
business. See "--Certain Transactions--Cost Reimbursement Agreement."
Subject to certain penalties for early termination set forth below, the
employment agreement can be terminated by Mr. Kitchin upon giving 60 days'
notice. Jameson may terminate the agreement at any time. If Jameson terminates
Mr. Kitchin's employment without cause, however, and elects to continue the
non-compete provisions of the agreement described below, Jameson must pay Mr.
Kitchin an amount equal to 300% of his annual compensation by Jameson in equal
monthly installments over the 24-month term of the non-compete provisions.
Pursuant to such provisions, Mr. Kitchin is prohibited from owning, operating
or managing, directly or indirectly, any hotel property during the term of his
employment, or, for two years following such employment, any hotel property
within a 20-mile radius of any hotel property owned by Jameson.
Report on Executive Compensation
The compensation committee met once during 1998. At that meeting the
compensation committee approved the recommendations of Thomas W. Kitchin
regarding restricted stock grants to executive officers and other key employees
under the Jameson 1996 Stock Incentive Plan (the "1996 Plan") and authorized
Mr. Kitchin to make discretionary awards to the stock plan committee of the
1996 Plan. All other decisions regarding the compensation of executive officers
were in practice made by Mr. Kitchin, Jameson's chief executive officer,
chairman of the board and a director. Compensation for Mr. Kitchin was based on
the provisions of his employment agreement which is discussed above.
This report is made by Dr. Robert D. Hisrich, Michael E. Lawrence and Thomas
J. O'Haren constituting the Jameson compensation committee during 1998.
Insider Participation in Compensation Decisions
As noted above under "--Report on Executive Compensation," Thomas W.
Kitchin, Jameson's chief executive officer, chairman of the board and a
director, made recommendations to the directors constituting the Jameson
compensation committee regarding restricted stock grants to executives and
other key employees under the 1996 Plan. All other decisions regarding the
compensation of executive officers was determined in practice during 1998 by
Mr. Kitchin.
Stockholder Return Performance Graph
Jameson common stock was first registered under the Securities Exchange Act
of 1934 and was listed for trading on the Nasdaq National Market on January 27,
1994. The following graph compares the percentage change in the cumulative
total stockholder return on Jameson common stock during the period which
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commenced January 27, 1994, and ended December 31, 1998, with the cumulative
total return on The Nasdaq Stock Market--U.S. Index and the Standard & Poors
Hotel-Motel Index.
Comparison of 59 Month Cumulative Total Return* Among Jameson Inns, Inc., The
Nasdaq Stock Market (U.S.) Index and the S&P Lodging Hotels Index
* $100 invested on January 27, 1994, in Jameson common stock or on December
31,1993, in the applicable index--including reinvestment of dividends.
The above performance graph shall not be deemed incorporated by reference by
any general statement incorporating by reference this Joint Proxy
Statement/Prospectus into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that Jameson specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
Certain Transactions
The Jameson Lease. All of the operating Jameson Inns are leased, and future
Jameson Inns are expected to be leased, to Jameson Hospitality, pursuant to the
Jameson Lease from the various Jameson entities that hold legal title to the
Jameson Inns. Thomas W. Kitchin, chief executive officer and chairman of
Jameson, and his spouse are the sole owners of Jameson Hospitality. Jameson
Hospitality became the lessee under the Jameson Lease on March 31, 1998,
pursuant to a merger of Jameson Operating Company and certain other entities
with and into Jameson Hospitality.
The Jameson Lease, which terminates December 31, 2007, provides for payment
of base rent and, if required under the formula set forth under the Jameson
Lease, percentage rent. Under the Jameson Lease, Jameson is required to pay
real and personal property taxes, general liability and casualty insurance
premiums, the cost of maintaining structural elements, including underground
utilities and the cost of refurbishment of the
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Jameson Inns, including replacement and repair of furniture, fixtures and
equipment used in connection with the operation of the Jameson Inns. Jameson
Hospitality is required to pay liability insurance premiums, utility costs and
all other costs and expenses incurred in the operation of the Jameson Inns. In
1998, base rent charged to Jameson Hospitality by Jameson totaled $10.5 million
and percentage rent totaled $7.7 million.
Turnkey Construction Contracts. All new Jameson Inns and expansions of
existing Jameson Inns were constructed by Jameson Hospitality or by its
predecessor Jameson Construction Company. It is anticipated that Jameson
Hospitality will act as general contractor for new Jameson Inns and Signature
Inns built by Jameson as well as expansions of existing properties. All new
construction and expansions are constructed by Jameson Hospitality on a basis
pursuant to construction agreements with Jameson. Jameson Hospitality also
performs all of the construction work for renovations of existing properties
and constructed fitness centers for Jameson Inns constructed prior to their
becoming a standard feature of new Jameson Inns. Jameson paid Jameson
Hospitality an aggregate of approximately $41.1 million for construction of new
Jameson Inns, expansions and renovations during the year ended December 31,
1998. Under the construction agreements, if the contract price for a new Inn or
group of Jameson Inns or a Jameson Inn expansion exceeds Jameson Hospitality's
costs plus 10%, Jameson Hospitality is required to refund the excess amount to
Jameson. The contract price as well as the other terms of each construction
agreement submitted by Jameson Hospitality are subject to approval by Jameson's
independent directors.
Cost Reimbursement Agreement. The officers and employees of Jameson are also
employees of Kitchin Investments, a corporation owned 100% by Thomas W.
Kitchin. Rather than duplicate payroll functions, Jameson entered into the cost
reimbursement agreement with Kitchin Investments providing that Jameson will
reimburse Kitchin Investments, on an actual cost basis, for the employee
compensation and overhead costs attributable to Jameson. The officers and
employees of Jameson receive their salaries, hourly wages and fringe benefits
entirely from Kitchin Investments, which also pays Jameson's office overhead
and other general and administrative costs. Under the cost reimbursement
agreement, Jameson determines for each officer and employee the amount Jameson
would pay in salary and benefits if such person devoted 100% of his or her time
to Jameson business. Kitchin Investments then determines, subject to review by
Jameson, the actual percentage of the person's time devoted to Jameson's
business and applies that percentage to Jameson--established compensation
amount. The resulting amount is the amount Jameson reimburses Kitchin
Investments with respect to the officer's or employee's compensation. Office
overhead and other general and administrative costs are also allocated to and
borne by Jameson based primarily on the amount of time spent by these officers
and employees on Jameson business. In 1998, such allocations of salary, office
overhead and other general and administrative costs to Jameson totaled
approximately $200,000.
Purchase of Outdoor Advertising Assets. On November 3, 1998, the Board of
Directors approved the proposed acquisition by Jameson of the outdoor
advertising assets and operations of Jameson Hospitality. These assets consist
of approximately 100 road side billboards on which advertising for Jameson's
hotel properties and, in certain instances, other services or products for
third parties is placed. These assets and operations were previously owned and
conducted by Jameson Outdoor Advertising, LLC, which is one of the entities
that merged into Jameson Hospitality on March 31, 1998. It is anticipated that
these billboards will be leased back to Jameson Hospitality and will continue
to be used for the same type of advertising. Jameson Hospitality is wholly-
owned by Thomas W. Kitchin, chief executive officer of Jameson, and his wife.
The consideration payable to Jameson Hospitality will consist of (a) 72,727
newly issued shares of Jameson Series A Preferred Stock, (b) $400,000 in cash,
and (c) the assumption of indebtedness of approximately $735,000 which is
secured by mortgages on the billboards and the revenues generated therefrom. It
is currently anticipated that this transaction will close in April of 1999. The
amount and nature of the consideration was negotiated by Thomas W. Kitchin and
the other members of the Board of Directors of Jameson with the advice and
assistance of an independent investment banking firm engaged by the Jameson
Board of Directors. Such firm also rendered its opinion to Jameson's Board of
Directors that, based on its review of the proposed transaction and the
assumptions stated in the opinion, the proposed consideration is fair, from a
financial point of view, to the stockholders of Jameson. It is anticipated that
Jameson Hospitality will distribute the shares of the Jameson Series A
Preferred Stock it receives to Mr. & Mrs. Kitchin.
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OTHER MATTERS
Jameson knows of no matters to be presented at the Jameson annual meeting,
other than those included in the notice to Jameson stockholders. If any other
matter requiring a vote of stockholders arises at the meeting, including a
question of adjourning the meeting, the persons named in stockholders' proxies
will vote on those matters according to their best judgment in what they
consider the best interests of Jameson. The enclosed proxies confer
discretionary authority on the named individuals to take action regarding any
additional matters which come before the annual meeting.
Signature knows of no matters to be presented at the Signature special
meeting, other than those included in the notice to Signature stockholders. If
any other matter requiring a vote of stockholders arises at the meeting,
including a question of adjourning the meeting, the persons named in
stockholders' proxies will vote on those matters according to their best
judgment in what they consider the best interests of Signature. The enclosed
proxies confer discretionary authority on the named individuals to take action
regarding any additional matters which come before the special meeting.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Jameson's consolidated
financial statements and schedule and Jameson Hospitality's consolidated
financial statements at December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, as set forth in their reports.
Jameson and Jameson Hospitality have included their financial statements and
schedule in the Joint Proxy Statement/Prospectus and elsewhere in the
registration statement 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
and 1997, and for each of the years in the three-year period ended December 31,
1998, have been included in the Joint Proxy Statement/Prospectus in reliance
upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
LEGAL
The legality of the shares of Jameson common stock and Series S Preferred
Stock to be issued in connection with the merger will be passed upon by Conner
& Winters, A Professional Corporation, Tulsa, Oklahoma. Conner & Winters will
rely on the opinion of Steven A. Curlee, general counsel of Jameson, with
respect to all matters involving Georgia law. The description of federal income
tax consequences under the captions "The Merger--Federal Income Tax
Consequences" and "Federal Income Taxation of REITs and REIT Stockholders" is
based upon the opinion of Conner & Winters.
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS
Stockholder proposals submitted pursuant to Rule 14a-8 for inclusion in
Jameson's proxy materials for the 2000 Jameson annual meeting of stockholders
must be received by Jameson no later than January 31, 2000. The date by which
Jameson must receive notice of any person a stockholder intends to nominate as
a director or any business proposal a stockholder intends to submit at the 2000
Jameson annual meeting of stockholders is March 8, 2000 (but it may not be
received prior to February 6, 2000).
145
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
I. Jameson Audited Financial Statements
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets as of December 31, 1998, and 1997........... F-3
Consolidated Statement of Operations for each of the three years ended
December 31, 1998, 1997 and 1996....................................... F-4
Consolidated Statements of Stockholders' Equity for each of the three
years ended December 31, 1998, 1997 and 1996........................... F-5
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1998, 1997 and 1996....................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
II. Jameson Hospitality Audited Financial Statements
Report of Independent Auditors.......................................... F-18
Consolidated Balance Sheets as of December 31, 1998, and 1997........... F-19
Consolidated Statement of Operations for each of the three years ended
December 31, 1998, 1997 and 1996....................................... F-20
Consolidated Statements of Members Capital for each of the three years
ended December 31, 1998, 1997 and 1996................................. F-21
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1998, 1997 and 1996....................................... F-22
Notes to Consolidated Financial Statements.............................. F-24
III. Signature Audited Financial Statements
Independent Auditors' Report............................................ F-32
Consolidated Balance Sheets as of December 31, 1998, and 1997........... F-33
Consolidated Statements of Operations for each of the three years ended
December 31, 1998, 1997 and 1996....................................... F-34
Consolidated Statements of Shareholders' Equity for each of the three
years ended December 31, 1998, 1997 and 1996........................... F-35
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1998, 1997 and 1996....................................... F-36
Notes to Consolidated Financial Statements.............................. F-37
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
Jameson Inns, Inc.
We have audited the accompanying consolidated balance sheets of Jameson
Inns, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Jameson Inns, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
February 12, 1999
F-2
<PAGE>
JAMESON INNS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Assets
Property and equipment.............................. $168,880,042 $117,515,375
Less accumulated depreciation....................... (16,754,843) (12,584,189)
------------ ------------
152,125,199 104,931,186
Cash................................................ 500,377 338,581
Lease revenue receivable............................ 2,289,753 1,457,672
Deferred finance costs, net......................... 1,110,336 781,472
Other assets........................................ 303,497 96,785
------------ ------------
$156,329,162 $107,605,696
============ ============
Liabilities and stockholders' equity
Mortgage notes payable.............................. $ 53,697,435 $ 29,624,889
Accounts payable and accrued expenses............... 199,730 213,411
Accounts payable to affiliates...................... 2,087,106 2,185,884
Accrued interest payable............................ 350,436 164,757
Accrued property taxes.............................. 432,168 255,874
Preferred stock dividends payable................... 693,750 --
------------ ------------
57,460,625 32,444,815
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized
9.25% Series A Cumulative Preferred Stock, $1 par
value, liquidation preference $25 per share,
1,200,000 shares (0 in 1997) issued and
outstanding..................................... 1,200,000 --
Common stock, $.10 par value, 40,000,000 shares
authorized,
9,895,810 shares (9,774,075 in 1997) issued and
outstanding...................................... 989,581 977,408
Additional paid-in capital........................ 97,705,947 75,210,464
Retained deficit.................................. (1,026,991) (1,026,991)
------------ ------------
Total stockholders' equity.......................... 98,868,537 75,160,881
------------ ------------
$156,329,162 $107,605,696
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
JAMESON INNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Lease revenue.............................. $18,229,748 $12,966,185 $9,376,101
Expenses:
Property tax expense..................... 1,041,687 683,902 461,516
Insurance expense........................ 481,932 422,890 271,835
Depreciation............................. 5,636,079 3,898,091 2,669,574
General and administrative expenses...... 592,041 444,908 499,006
Loss on disposal of furniture and
equipment............................... 507,718 143,544 47,849
Loss on impairment of real estate........ 2,507,000 -- --
----------- ----------- ----------
Total expenses............................. 10,766,457 5,593,335 3,949,780
----------- ----------- ----------
Income from operations..................... 7,463,291 7,372,850 5,426,321
Interest expense, net of capitalized
amounts................................... 1,656,240 777,718 1,385,512
----------- ----------- ----------
Income before extraordinary loss........... 5,807,051 6,595,132 4,040,809
Extraordinary loss--early extinguishment of
debt...................................... 133,951 689,542 989,376
----------- ----------- ----------
Net income................................. 5,673,100 5,905,590 3,051,433
Less preferred stock dividends............. 2,188,050 -- --
----------- ----------- ----------
Net income attributable to common
stockholders.............................. $ 3,485,050 $ 5,905,590 $3,051,433
=========== =========== ==========
Per common share:
Income before extraordinary loss:
Basic.................................... $ .37 $ .72 $ .65
Diluted.................................. $ .36 $ .70 $ .63
Net income:
Basic.................................... $ .36 $ .64 $ .49
Diluted.................................. $ .35 $ .63 $ .48
</TABLE>
See accompanying notes.
F-4
<PAGE>
JAMESON INNS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Common Contributed Retained Stockholders'
Stock Stock Capital Deficit Equity
---------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... $ -- $385,795 $22,395,546 $(1,026,991) $21,754,350
Issuance of common
stock, net of
offering expense..... -- 339,703 30,787,970 -- 31,127,673
Exercise of stock
options.............. -- 3,770 288,109 -- 291,879
Vesting of stock
options.............. -- -- 63,542 -- 63,542
Vesting of restricted
stock grant.......... -- 6,479 28,852 -- 35,331
Common stock dividends
($0.86 per share).... -- -- (2,509,817) (3,051,433) (5,561,250)
Net income............ -- -- -- 3,051,433 3,051,433
---------- -------- ----------- ----------- -----------
Balance at December 31,
1996................... -- 735,747 51,054,202 (1,026,991) 50,762,958
Issuance of common
stock, net of
offering expense..... -- 234,549 25,887,675 -- 26,122,224
Exercise of stock
options.............. -- 6,981 413,417 -- 420,398
Vesting of stock
options.............. -- -- 37,424 -- 37,424
Vesting of restricted
stock grant.......... -- 131 70,652 -- 70,783
Common stock dividends
($0.90 per share).... -- -- (2,252,906) (5,905,590) (8,158,496)
Net income............ -- -- -- 5,905,590 5,905,590
---------- -------- ----------- ----------- -----------
Balance at December 31,
1997................... -- 977,408 75,210,464 (1,026,991) 75,160,881
Issuance of preferred
and common stock, net
of offering expense.. 1,200,000 4,253 27,839,002 -- 29,043,255
Exercise of stock
options.............. -- 5,930 353,089 -- 359,019
Vesting of stock
options.............. -- -- -- -- --
Vesting of restricted
stock grant.......... -- 1,990 60,442 -- 62,432
Common stock dividends
($0.94 per share).... -- -- (3,784,845) (5,457,255) (9,242,100)
Preferred stock
dividends
($1.82 per share).... -- -- (1,972,205) (215,845) (2,188,050)
Net income............ -- -- -- 5,673,100 5,673,100
---------- -------- ----------- ----------- -----------
Balance at December 31,
1998................... $1,200,000 $989,581 $97,705,947 $(1,026,991) $98,868,537
========== ======== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
JAMESON INNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities
Net income.......................... $ 5,673,100 $ 5,905,590 $ 3,051,433
Adjustments to reconcile net income
to cash provided by operating
activities:
Extraordinary loss................ 133,951 596,526 989,376
Depreciation and amortization..... 5,750,186 3,977,605 2,762,660
Loss on disposal of furniture and
equipment........................ 507,718 143,544 47,849
Stock-based compensation expense.. 62,432 108,207 98,873
Loss on impairment of real
estate........................... 2,507,000 -- --
Changes in assets and liabilities
increasing (decreasing) cash:
Lease revenue receivable........ (832,081) (773,048) (188,770)
Other assets.................... (206,712) 186,794 (202,130)
Accounts payable and accrued
expenses....................... (13,681) 193,290 (45,828)
Accounts payable to affiliates.. (98,778) 1,552,424 64,799
Accrued interest payable........ 185,679 44,214 (30,639)
Accrued property taxes and other
accrued liabilities............ 176,294 125,205 78,857
------------ ------------ ------------
Net cash provided by operating
activities......................... 13,845,108 12,060,351 6,626,480
Investing Activities
Additions to property and
equipment.......................... (55,844,810) (37,362,186) (23,548,156)
------------ ------------ ------------
Net cash used in investing
activities......................... (55,844,810) (37,362,186) (23,548,156)
Financing Activities
Common stock dividends paid......... (9,242,100) (8,158,496) (5,561,250)
Preferred stock dividends paid...... (1,494,300) -- --
Proceeds from issuance of preferred
and common stock, net of offering
expense............................ 29,043,255 26,122,224 31,127,673
Proceeds from exercise of stock
options............................ 359,019 420,398 291,879
Proceeds from mortgage notes
payable............................ 53,936,020 33,919,713 27,466,333
Payment of deferred finance costs... (576,922) (260,306) (1,066,270)
Payments on mortgage notes payable.. (29,863,474) (26,612,029) (35,363,031)
------------ ------------ ------------
Net cash provided by financing
activities......................... 42,161,498 25,431,504 16,895,334
Net increase (decrease) in cash..... 161,796 129,669 (26,342)
Cash at beginning of year........... 338,581 208,912 235,254
------------ ------------ ------------
Cash at end of year................. $ 500,377 $ 338,581 $ 208,912
============ ============ ============
Supplemental Information
Interest paid, net of interest
capitalized........................ $ 2,252,778 $ 733,504 $ 1,416,151
============ ============ ============
State income and franchise taxes
paid............................... $ 17,353 $ 16,752 $ 3,772
============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
JAMESON INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Basis of Financial Statements
Jameson Inns, Inc. ("the Company") develops and owns limited service hotel
properties (the "Inns") operating under the trademark "The Jameson Inn(R)." The
Company focuses on developing Inns in communities in the southeastern United
States which have a strong and growing industrial or commercial base.
At December 31, 1998, there were 81 Inns in operation in six Southeastern
states with a total of 3,748 rooms and an additional 33 Inns under development,
including 20 under construction in these same six states as well as two new
states, and contracts to acquire 13 additional parcels of land on which
additional Inns are expected to be constructed in 1999. At December 31, 1998,
20-room expansions of eight existing Inns were also being constructed.
Intercompany transactions among the entities included in the consolidated
financial statements have been eliminated. As of December 31, 1998, the Company
had one wholly-owned and two 99.8%-owned qualified real estate investment trust
subsidiaries. Various companies wholly-owned by the Company's Chairman and CEO
and his spouse own the remaining 0.2% of these two subsidiaries.
The Company's principal business includes arranging construction and
permanent financing, land acquisition, ownership of the Inns, capital
improvements to the Inns, and acquisition and replacement of furniture,
fixtures and equipment for the Inns.
The Company has several business relationships with Jameson Hospitality, LLC
("JH") including contracts to construct the new Inns (see Note 8) and the lease
to operate the Inns (see Note 3). JH is the successor to Jameson Development
Company, LLC and Jameson Operating Company II, LLC which previously held the
contracts and the lease, respectively. JH is wholly-owned by Thomas W. Kitchin,
chairman and chief executive officer of the Company, and his wife.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Accounting Policies
Property and Equipment
Costs incurred to acquire and open new Inn locations or to renovate existing
Inns are capitalized as property costs and amortized over their depreciable
life. The Company also capitalizes construction period interest costs and real
estate taxes. Interest costs of $1,125,935, $637,290 and $526,130 were
capitalized in 1998, 1997 and 1996, respectively.
Property and equipment used in Inn operations is depreciated using the
straight-line method generally over 31.5 to 39 years (buildings), 15 years
(land improvements) and five years (furniture, fixtures and equipment).
F-7
<PAGE>
JAMESON INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Land and improvements.......................... $ 34,671,144 $ 21,525,941
Buildings...................................... 98,322,232 75,117,503
Furniture, fixtures and equipment.............. 18,849,944 14,018,665
Construction in process........................ 17,036,722 6,853,266
------------ ------------
168,880,042 117,515,375
Accumulated depreciation....................... (16,754,843) (12,584,189)
------------ ------------
$152,125,199 $104,931,186
============ ============
</TABLE>
In 1996, the Company adopted Financial Accounting Standards Board Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations or held for sale when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. During
1998, the Company recognized a $2,507,000 loss on impairment of real estate
related to one of the hotel properties, which is being actively marketed for
sale. No other impairment losses have been recognized.
Deferred Finance Costs
Deferred finance costs represent fees and other expenses incurred to obtain
long-term debt financing on the Inn facilities and are amortized to expense
over the terms of the loans, beginning with the opening of the Inn.
Amortization of deferred finance costs is included in interest expense on the
consolidated statement of operations. Accumulated amortization totaled $180,910
and $88,708 as of December 31, 1998 and 1997, respectively.
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), and has operated as such since January
1, 1994. As a result, the Company is not subject to federal income taxes to the
extent that it distributes annually at least 95% of its taxable income to its
shareholders and satisfies certain other requirements defined in the Code.
The Company uses the liability method of accounting for income taxes, which
amounts have not been material since the REIT election.
Stock-Based Compensation
The Company uses the intrinsic value method for valuing its awards of stock
options, restricted stock and other stock awards and recording the related
compensation expense, if any. This compensation expense is included in general
and administrative expense which is allocated as part of the cost reimbursement
agreement described in Note 8.
See Note 5 for pro forma disclosures using the fair value method as
described in Financial Accounting Standards Board Statement No. 123, Accounting
for Stock-Based Compensation ("FAS 123").
Earnings Per Share
Net income attributable to common stock is reduced by all preferred stock
dividends declared through the end of the period.
F-8
<PAGE>
JAMESON INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Basic earnings per share is calculated using weighted average shares
outstanding less issued and outstanding but unvested restricted shares of
Common Stock.
Diluted earnings per share is calculated using weighted average shares
outstanding plus the dilutive effect of outstanding shares of Preferred Stock,
outstanding restricted shares of Common Stock and outstanding stock options,
using the treasury stock method and the average stock price during the period.
Recently Issued Accounting Standards
During the fourth quarter of 1998, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
131, Disclosures About Segments of an Enterprise and Related Information
("Statement No. 131"). Statement No. 131 establishes standards for the way that
public business enterprises report information regarding reportable operating
segments. The adoption of Statement No. 131 did not affect the results of
operations or financial position of the Company.
The Company develops and owns limited service hotel Inns in the southeastern
United States which are all leased to JH (see Note 3). The Company separately
evaluates the performance of each of its Inns. However, because each of the
Inns have similar economic characteristics, facilities and services, the Inns
have been aggregated into a single dominant segment.
The Company evaluates performance and allocates resources primarily based on
estimated return on investment. Return on investment represents income divided
by average cost of the real estate asset. All other segment measurements are
disclosed in the Company's consolidated financial statements.
3. The Lease
The Company has entered into a master lease, whereby all of the operating
Inns are leased to JH. Therefore, all of the lease revenue and related
receivables are derived from this lease.
The Lease, which expires December 31, 2007, provides for payment of Base
Rent plus Percentage Rent. Base Rent, which is payable monthly, equals $264.00
per month for each rentable room in the Inns at the beginning of the relevant
month. Percentage Rent, which is payable quarterly, is calculated as a
percentage in excess of Base Rent of the total amount of room rental and other
miscellaneous revenues realized by JH over the relevant period. The percentage
is 39% of such revenues up to $21.62 per day per room in 1998 over the period,
plus 65% of all additional average daily room rental revenues, provided,
however, that total rent for any calendar year is not to exceed 47% of total
room rental revenues for that year. The $21.62 per room amount used in
calculating Percentage Rent is subject to adjustment each year end based on
changes in the Consumer Price Index and as of January 1, 1999 was $22.18.
Base rent totaled $10,501,920, $7,532,712, and $5,469,288 in 1998, 1997 and
1996, respectively, and assuming the same number of rooms in operation as at
December 31, 1998, would total $11,873,664 per year until the Lease expires.
The Lease requires the Company to pay real and personal property taxes,
casualty and liability insurance premiums and the cost of maintaining
structural elements, including underground utilities and the cost of replacing
or refurbishing the furniture, fixtures and equipment in the Inns. The Company
intends to maintain cash reserves or sufficient access to borrowings equal to
4% of room revenues of JH, less amounts expended to date, to fund the Company's
future capital expenditures for such replacements and refurbishments. JH is
required to pay workers compensation insurance premiums, utility costs and all
other costs and expenses incurred in the operations of the Inns.
F-9
<PAGE>
JAMESON INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Mortgage Notes Payable
As of December 31, long-term debt consists of:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Notes payable on Inns:
Terms of seven years, due in monthly installments
of principal and interest with any remaining
unpaid balances payable in full on the
individual note's maturity date. Maturity dates
range from 2003 to 2005. Interest rates are
adjusted to a specified spread above the prime
rate, and ranged from 8.125% to 9.0% at December
31, 1998. Secured by mortgages on 24 of the
Inns............................................ $23,843,114 $15,557,415
Line of credit:
$46.2 million line of credit ("the Line")
convertible beginning in 1998 to term notes due
at various dates through 2007. At December 31,
1998, the Company had $18.7 million available to
borrow. The Line bears interest at initial
annual rates ranging from 8.5% to 9.0%, which is
adjusted annually to the prime rate plus .25% or
.5%, with a floor of 7% and a cap of 13% (8.5%
to 9.0% at December 31, 1998). Payments of
interest are due monthly, and monthly payments
of principal and interest commence at various
dates beginning September 1998. Principal under
each term loan under the Line is being amortized
using a 15-year period and is payable in full at
various dates from 2003 to 2007. Secured by
mortgages on 41 of the Inns..................... 27,463,179 11,286,332
Construction obligations:
$16.6 million, including pending draws on
construction loans. As of December 31, 1998,
$14.2 million was available for borrowing. The
construction loans have terms of seven years and
are due in monthly installments of interest only
for 18 months and principal and interest using a
15-year amortization schedule thereafter until
the individual note's maturity date. The notes'
interest rates are adjusted annually to a
specified rate above the prime rate. Interest
rates at December 31, 1998 ranged from 7.875% to
8.875%. Secured by 10 Inns under construction... 2,391,142 2,781,142
----------- -----------
$53,697,435 $29,624,889
=========== ===========
</TABLE>
At December 31, 1998 and 1997, approximately $119.0 and $80.4 million,
respectively, of the Company's net book value of property and equipment
collateralized the mortgage notes payable. At December 31, 1998 and 1997, the
carrying value of the long-term debt approximated its fair value.
F-10
<PAGE>
JAMESON INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the scheduled aggregate principal payments
for the five years subsequent to December 31, 1998:
<TABLE>
<S> <C>
1999........................................................... $ 1,050,496
2000........................................................... 3,023,316
2001........................................................... 3,320,081
2002........................................................... 3,518,474
2003........................................................... 3,642,867
Thereafter..................................................... 39,142,201
-----------
$53,697,435
===========
</TABLE>
The Company used proceeds of its preferred stock offering in 1998 and
common stock offerings in 1997 and 1996 to early extinguish debt in those
years. As a result of the early extinguishment of certain debt in 1998, 1997,
and 1996, the Company had extraordinary losses of $133,951, $689,542 and
$989,376, respectively, comprised of the write-off of unamortized deferred
finance costs and prepayment penalties.
5. Stockholders' Equity
Preferred Stock
On March 18, 1998, the Company completed the sale of 1,200,000 newly issued
shares of 9.25% Series A Cumulative Preferred Stock (the "Series A Preferred
Stock") at $25 per share before underwriting discounts and expenses. Net
proceeds of approximately $28.5 million were used to repay certain existing
mortgage indebtedness at that date.
Dividends on the Series A Preferred Stock are cumulative from the date of
original issue and are payable quarterly in arrears on or about the 20th day
of January, April, July and October to shareholders of record on the last
business day of December, March, June and September at the fixed rate of 9.25%
per annum of the liquidation preference of $25 per share (equivalent to a
fixed annual rate of $2.3125 per share).
Holders of Series A Preferred Stock generally will have no voting rights
except as required by law. In addition, certain changes to the terms of the
Series A Preferred Stock that would be materially adverse to the rights of
holders of the Series A Preferred Stock cannot be made without the affirmative
vote of holders of at least a majority of the outstanding Series A Preferred
Stock.
The Series A Preferred Stock is not convertible into or exchangeable for
any other property or securities.
Upon the occurrence of a Change of Control Event, as defined, at any time
prior to March 18, 2003, the Company may redeem all of the outstanding Series
A Preferred Stock at a purchase price ranging from $25.05 to $26.05 per share
(depending on the date of the redemption), plus accrued and unpaid dividends
(if any) to the date of redemption. Except in certain circumstances relating
to preservation of the Company's status as a REIT and in connection with a
change of control of the Company, the Series A Preferred Stock is not
redeemable prior to March 18, 2003. On and after such date, the Series A
Preferred stock will be redeemable for cash at the option of the Company, in
whole or in part, at a redemption price of $25 per share, plus dividends
accrued and unpaid to the redemption date (whether or not declared) without
interest.
F-11
<PAGE>
JAMESON INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Options
The Company adopted the 1993 Stock Incentive Plan ("1993 Plan") and
originally reserved 320,000 shares of common stock to provide incentives to
attract and retain officers, key employees and directors of both the Company
and JH. The Company's 1993 Stock Incentive Plan provides for a number of
shares equal to 10% of the Company's outstanding common shares to be available
to provide incentives to retain key personnel at both the Company and JH. In
1996, the Jameson 1996 Stock Incentive Plan ("1996 Plan") was adopted and
500,000 shares were reserved for issuance. As of December 31, 1998 the Company
had a total of 1,337,698 shares reserved for future issuance, including
510,287 shares available for future option grants under the 1993 and 1996
Plans.
The Company's Director Stock Option Plan ("1995 Director Plan") initially
reserved 150,000 shares of Common Stock to attract and retain qualified
independent directors. This plan provides that, upon election to the Board of
Directors, each director will receive options to purchase 25,000 shares of
common stock at the then current market price; such options are fully vested
upon issuance. In addition, the Company adopted the 1997 Director Stock Option
Plan ("1997 Director Plan") in November 1997. The 1997 Director Plan initially
reserved 200,000 shares of Common Stock and provides that at time of the
Company's approval of the plan and subsequently upon each annual shareholders
meeting, each independent director will also be granted an option to purchase
5,000 shares at the then current market price with all shares becoming fully
vested upon issuance. As of December 31, 1998, a total of 325,000 options are
reserved for future issuance under the 1995 Director Plan and the 1997
Director Plan, including 220,000 options available to be granted at December
31, 1998.
A summary of the stock option activity in the 1993, 1996, 1995 Director and
1997 Director Plans follows:
<TABLE>
<CAPTION>
Weighted
Number Range of Average
of Exercise Price Exercise Price
Shares Per Share Per Share
------- ----------------- --------------
<S> <C> <C> <C>
Options outstanding, January 1,
1996............................ 459,540 $ 6.65 - $ 8.75 $ 7.17
Granted in 1996................ 27,500 $10.875 $10.875
Exercised in 1996.............. (37,697) $ 6.65 - $ 7.25 $ 7.08
Forfeited in 1996.............. (21,500) $ 6.65 - $ 8.75 $ 8.27
-------
Options outstanding December 31,
1996............................ 427,843 $ 6.65 - $10.875 $ 7.36
Granted in 1997................ 497,000 $11.375 - $11.75 $11.63
Exercised in 1997.............. (86,992) $ 6.65 - $10.875 $ 7.11
Forfeited in 1997.............. (30,000) $ 7.25 - $11.75 $11.28
-------
Options outstanding December 31,
1997............................ 807,851 $ 6.65 - $11.75 $ 9.87
Granted in 1998................ 175,000 $ 9.125 - $11.375 $10.63
Exercised in 1998.............. (50,737) $ 6.65 - $10.875 $ 7.07
Forfeited in 1998.............. (84,000) $10.00 - $11.75 $11.39
-------
Options outstanding December 31,
1998............................ 848,114 $ 6.65 - $11.75 $10.04
=======
Options exercisable
December 31, 1996.............. 282,844 $ 6.65 - $ 8.125 $ 7.25
=======
December 31, 1997.............. 365,855 $ 6.65 - $11.62 $ 7.78
=======
December 31, 1998.............. 417,714 $ 6.65 - $11.75 $ 8.71
=======
</TABLE>
F-12
<PAGE>
JAMESON INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average exercise price of the 848,114 options outstanding at
December 31, 1998 was $10.04. The weighted average exercise price of options
exercisable at December 31, 1998 was $8.71. The average contractual life
remaining on options outstanding at December 31, 1998 was 7.93 years.
As presented in the table above, the Company had a total of 848,114 options
outstanding at December 31, 1998. A portion of these options 251,781 have
exercise prices of $6.65 to $7.25, a weighted average exercise price of $7.12
and an average remaining contractual life of 5.66 years. All of the options
outstanding in this group were exercisable with a weighted average price per
share of $7.12. At December 31, 1998, the Company also had 596,333 options
outstanding with an exercise price of $8.125 to $11.75, a weighted average
exercise price of $11.28 and an average remaining contractual life of 8.89
years. Of this outstanding amount, 165,933 options were exercisable with a
weighted average price per share of $11.13.
Restricted Stock
In 1998, 1997 and 1996, the Company awarded 20,821, 1,400 and 65,270 shares,
respectively of Common Stock to certain officers and employees of the Company
and JH, under the provisions of the 1996 Plan. The shares vest ten years after
date of grant, assuming the individual is continuously employed by one of the
two companies at that date. Holders are entitled to all dividends prior to
forfeiture or full vesting. As of December 31, 1998, 84,297 restricted shares
of common stock remain outstanding; the balance were forfeited and returned to
the Company.
Compensation expense resulting from the stock award is calculated as the
fair value of the restricted shares at the date of grant based on the market
price at date of grant; and is being recorded over the ten-year vesting period
using the straight line method, net of forfeitures. The expense recorded was
$62,432 in 1998, $62,389 in 1997 and $35,331 in 1996.
Pro Forma Effects of Stock-based Compensation
Pro forma information regarding net income and earnings per share is
required by FAS 123, which also requires that the information be determined as
if the Company has accounted for its stock options and restricted stock granted
subsequent to December 31, 1994, using the fair value method prescribed by that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions for
1998, 1997 and 1996; risk-free interest rates of 4.10% to 6.69%; a dividend
yield of 8%; a volatility factor of the expected market price of the Company's
Common Stock of .196, .197 or .208, respectively; and an expected life of the
option of 3 to 10 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options and shares which have no vesting restrictions
and are fully transferable. In addition, valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options and restricted stock have characteristics
significantly different from those of traded options or unrestricted shares,
and because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options and restricted stock.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Pro forma net income (in 000's)...................... $3,419 $5,882 $3,049
Pro forma earnings per share--basic.................. $ .35 $ .64 $ .49
Pro forma earnings per share--diluted................ $ .34 $ .62 $ .48
</TABLE>
F-13
<PAGE>
JAMESON INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Dividend Reinvestment Plan
In April 1995, the Company registered 200,000 shares of common stock for
purchase under the Dividend Reinvestment and Stock Purchase Plan. The plan
allows existing shareholders to reinvest their dividends in additional shares
purchased at a 5% discount from the average market price of the shares. The
plan also allows existing shareholders to make additional cash purchases of
common stock of up to $5,000 per calendar quarter. These additional cash
purchases from the Company are not sold at a discount from the market price.
During 1998, 1997 and 1996, 41,726, 45,483 and 21,331 shares, respectively,
were purchased either through dividend reinvestments or additional cash
purchases.
Warrants
As a part of its initial public offering, the Company issued and had
warrants outstanding to purchase up to 260,000 shares of Common Stock at an
exercise price of $14.85 per share; the warrants are exercisable in whole or in
part from date of grant until January 26, 1999. The warrants expired in 1999
with no exercises.
6. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Income from continuing operations... $ 5,807,051 $6,595,132 $4,040,809
Extraordinary loss.................. (133,951) (689,542) (989,376)
----------- ---------- ----------
Net income.......................... 5,673,100 5,905,590 3,051,433
Preferred stock dividends........... (2,188,050) -- --
----------- ---------- ----------
Numerator for basic earnings per
share--income available to common
stockholders....................... $ 3,485,050 $5,905,590 $3,051,433
=========== ========== ==========
Denominator:
Weighted average shares
outstanding........................ 9,836,624 9,285,670 6,239,407
Less: Unvested restricted shares.... (64,734) (63,661) (61,505)
----------- ---------- ----------
Denominator for basic earnings per
share................................ 9,771,889 9,222,009 6,177,902
Plus: Effect of dilutive securities
Employee and director stock
options............................ 95,497 146,511 129,876
Unvested restricted shares.......... 61,509 44,999 57,979
----------- ---------- ----------
Total dilutive potential common
shares............................... 157,006 191,510 187,855
----------- ---------- ----------
Denominator for diluted earnings per
share-adjusted weighted average
shares and assumed conversions....... 9,928,895 9,413,519 6,365,757
=========== ========== ==========
Basic Earnings Per Common Share:
Income before extraordinary loss...... $ 0.37 $ 0.72 $ 0.65
Extraordinary loss.................... (.01) (.08) (.16)
----------- ---------- ----------
Net income per common share........... $ 0.36 $ 0.64 $ 0.49
=========== ========== ==========
Diluted Earnings Per Common Share:
Income before extraordinary loss...... $ 0.36 $ 0.70 $ 0.63
Extraordinary loss.................... (0.01) (.07) (.15)
----------- ---------- ----------
Net income............................ $ 0.35 $ 0.63 $ 0.48
=========== ========== ==========
</TABLE>
F-14
<PAGE>
JAMESON INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Options to purchase 503,833 and 27,500 shares of Common Stock during 1998,
1997 and 1996, respectively, warrants to purchase 260,000 shares of Common
Stock during 1998, 1997 and 1996 and stock appreciation rights to acquire
150,000 shares of Common Stock during 1996 were all outstanding but were not
included in the computation of diluted earnings per share because the
securities' exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.
7. Income Taxes
The Company recorded no provision for federal income taxes in 1998, 1997 or
1996 due to its REIT status. State tax expense, which is not material, is
included in general and administrative expenses. At December 31, 1998, the
Company had net operating loss carryforwards of approximately $1.2 million
available for federal income tax purposes, which begin to expire in 2005. As a
result of the REIT election and change in ownership resulting from the IPO,
future utilization of the net operating loss carryforwards by the Company, may
be limited.
The Company declared and paid dividends on its Common Stock of $.94, $.90
and $.86 per share in 1998, 1997 and 1996, respectively. Of these dividends,
$.72, $.73 and $.56 per share represents ordinary income and $.22, $.17 and
$.30 per share represents return of capital in 1998, 1997 and 1996,
respectively.
8. Additional Related Party Transactions
The Company shares employees and office space with Kitchin Investments,
Inc., which is wholly owned by Thomas W. Kitchin, the Company's chairman and
chief executive officer. Under the cost reimbursement agreement, Kitchin
Investments, Inc. charged the Company approximately $200,000, $220,000 and
$194,000 for its allocation of salary, office overhead, and other general and
administrative costs in 1998, 1997 and 1996, respectively. Accounts payable to
affiliates at December 31, 1998 and 1997 includes $118,861 and $54,251,
respectively, due to this related party.
JH identifies sites and constructs the Inns for the Company. The Company
paid JH and its predecessor companies a total of $41,055,000, $29,628,000 and
$18,932,000 for construction of new Inns, Inn expansions, fitness centers or
renovations during the years ended December 31, 1998, 1997 and 1996,
respectively.
9. Other Commitments and Contingencies
As of December 31, 1998, the Company had executed or expected to execute
construction contracts with JH, for new Inns or expansions totaling $59.8
million, of which $42.8 million had not been expended.
The Company leases its headquarters' office space in Atlanta, Georgia, and
land underlying certain of its Inns which are built or under construction. The
leases require future minimum payments as follows:
<TABLE>
<S> <C>
1999............................................................ $ 282,638
2000............................................................ 295,765
2001............................................................ 309,251
2002............................................................ 319,236
2003............................................................ 120,612
Thereafter...................................................... 3,210,502
----------
$4,538,003
==========
</TABLE>
F-15
<PAGE>
JAMESON INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The rent expense under the office lease is paid by Kitchin Investments, Inc.
and is allocated under the cost reimbursement agreement described in Note 8. An
insignificant amount of allocated rent expense is included in general and
administrative expense in the Company's statement of operations.
The Company is a defendant or plaintiff in various legal actions which have
arisen in the normal course of business. In the opinion of management, the
ultimate resolution of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
10. Subsequent Events
On January 14, 1999, the Company entered into an agreement with a bank to
provide $17 million in financing, which will be secured by 14 Inns with a net
book value of approximately $17,800,000 at December 31, 1998. The note bears
interest at the weekly average yield on United States Treasury securities
adjusted to the constant maturity of one year plus 3.75% per annum and is
payable in monthly installments of principal and interest of $147,000 until
January 2019 when the note matures. In addition, each month $15,000 must be
deposited into a replacement reserve account until such time as the reserve
account has a balance not less than $200,000.
11. Pending Events
On January 27, 1999, the Company announced plans to merge with Signature
Inns, Inc. ("Signature"). Signature owns and operates 25 hotels and manages one
additional hotel, all of which are located in the midwestern United States. The
Company and Signature have executed a merger agreement, currently pending
stockholder approval. Prior to the merger, JH will acquire certain of the
assets and assume certain liabilities related to the operation of the Inns such
that Signature will be able to merge with a REIT without disqualifying the
REIT's future tax status. Upon completion of the merger, the common
stockholders of Signature will receive half a share of the Company's common
stock plus $1.50 in cash for each share of Signature common stock. The amount
of cash payment will be reduced if a dividend is declared and paid to the
holders of Signature common stock prior to the consummation of the merger. The
holders of the outstanding shares of the Signature $1.70 Cumulative Convertible
Preferred Stock, Series A, would receive the equivalent number of shares of a
newly created $1.70 Cumulative Convertible Preferred Stock, Series S ("Series S
Preferred Stock"), of the Company which, upon conversion at the election of the
holder thereof, the holder would receive 1.04 shares of the Company's common
stock, plus a cash payment of $3.125 for each share of Series S Preferred Stock
converted. This transaction will be accounted for using the purchase method of
accounting.
On November 3, 1998, the Board of Directors approved the proposed
acquisition by the Company of the outdoor advertising assets of JH. These
assets consist of approximately 100 road side billboards on which advertising
for the Company's hotel properties and, in certain instances, other services or
products for third parties is placed. It is anticipated that these billboards
will be leased back to JH and will continue to be used for the same type of
advertising. The consideration payable to JH will consist of (i) 72,727 newly
issued shares of the Company's Series A Preferred Stock, (ii) $400,000 in cash,
and (iii) the assumption of indebtedness of approximately $735,000 which is
secured by mortgages on the billboards and the revenues generated therefrom. It
is currently anticipated that this transaction will close in April of 1999 and
that JH will distribute the shares of the Series A Preferred Stock it receives
to Thomas W. Kitchin and his wife.
F-16
<PAGE>
JAMESON INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 Quarters
--------------------------------------------
First Second Third Fourth
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Lease revenue..................... $3,852,678 $4,742,604 $5,032,808 $4,601,658
Income before extraordinary loss.. 1,465,414 66,341 2,606,566 1,668,730
Net income........................ 1,437,378 (11,673) 2,578,665 1,668,730
Earnings per common share:
Income before extraordinary
loss:
Basic......................... .14 (.06) .20 .10
Diluted....................... .14 (.06) .19 .10
Net income:
Basic......................... .14 (.07) .19 .10
Diluted....................... .13 (.07) .19 .10
<CAPTION>
1997 Quarters
--------------------------------------------
First Second Third Fourth
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Lease revenue..................... $2,735,543 $3,242,524 $3,554,015 $3,434,103
Income before extraordinary loss.. 1,210,869 1,889,061 2,012,263 1,482,939
Net income........................ 521,327 1,889,061 2,012,263 1,482,939
Earnings per common share:
Income before extraordinary
loss:
Basic......................... 0.15 0.20 0.21 0.15
Diluted....................... 0.15 0.19 0.20 0.15
Net income:
Basic......................... 0.07 0.20 0.21 0.15
Diluted....................... 0.06 0.19 0.20 0.15
</TABLE>
Quarterly earnings per share do not sum to the annual earnings per share
amounts due to the effects of the timing of stock issuances and fluctuations in
average price during the period.
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Members
Jameson Hospitality, LLC
We have audited the accompanying consolidated balance sheets of Jameson
Hospitality, LLC as of December 31, 1998 and 1997, and the related consolidated
statements of operations, members' capital and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Jameson Hospitality, LLC at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
February 19, 1999, except as to Note 11
as to which the date is March 15, 1999
F-18
<PAGE>
JAMESON HOSPITALITY, LLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash................................................... $1,077,579 $2,318,486
Marketable securities.................................. 199,529 --
Accounts receivable.................................... 853,720 573,146
Accounts receivable from affiliates.................... 2,755,513 2,720,052
Predevelopment costs................................... 457,213 149,360
Costs and estimated earnings in excess of billings on
contracts in progress................................. -- 98,169
Prepaid advertising.................................... -- 145,766
Prepaid expenses and other assets...................... 357,975 136,980
Inventory.............................................. 625,989 478,789
---------- ----------
6,327,518 6,620,748
Property and equipment, net.............................. 2,992,093 1,934,695
Leasehold improvements, net.............................. 34,867 71,277
Intangibles, net......................................... 22,268 22,500
---------- ----------
$9,376,746 $8,649,220
========== ==========
Liabilities and members' capital
Current liabilities:
Subcontractors payable, including retainage of
$1,104,960 and $574,365 at December 31, 1998 and 1997,
respectively.......................................... $3,106,166 $2,566,230
Accounts payable....................................... 1,089,067 846,187
Lease expense payable.................................. 2,289,753 1,457,671
Notes payable, current portion......................... 650,804 113,096
Accrued interest....................................... 22,323 35,020
Other accrued liabilities.............................. 484,924 390,809
---------- ----------
7,643,037 5,409,013
Notes payable, long-term portion......................... 1,664,382 1,310,267
---------- ----------
Total liabilities........................................ 9,307,419 6,719,280
Members' capital......................................... 69,327 1,929,940
---------- ----------
$9,376,746 $8,649,220
========== ==========
</TABLE>
See accompanying notes.
F-19
<PAGE>
JAMESON HOSPITALITY, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Room revenues........................... $37,982,374 $26,937,065 $19,449,805
Telephone revenues...................... 757,105 604,467 462,871
Other inn-related sales................. 47,220 46,096 37,375
Contract revenues....................... 40,990,447 31,201,627 6,850,839
Billboard rentals....................... 91,076 84,467 42,962
Flight revenues......................... 6,458 -- --
----------- ----------- -----------
79,874,680 58,873,722 26,843,852
Expenses:
Lease expense........................... 18,229,748 12,966,185 9,376,101
Cost of contract revenues............... 35,518,450 27,514,582 6,846,378
Room expenses........................... 8,888,441 5,832,763 4,075,203
Utilities............................... 3,346,327 2,283,090 1,777,198
General and administrative.............. 3,886,264 2,700,432 1,707,354
Inn manager salaries.................... 2,510,644 1,865,181 1,247,514
Maintenance............................. 1,366,510 840,093 616,167
Advertising............................. 2,195,759 576,516 326,570
Insurance............................... 199,302 123,004 145,063
Management fee to affiliate............. 2,655,334 1,856,370 641,437
Prospective site expense................ 614,448 4,193 --
Interest, net of amounts capitalized.... 166,416 87,830 65,399
Depreciation and amortization........... 456,213 260,375 162,783
----------- ----------- -----------
Total expenses........................ 80,033,856 56,910,614 26,987,167
----------- ----------- -----------
Net (loss) income......................... $ (159,176) $ 1,963,108 $ (143,315)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-20
<PAGE>
JAMESON HOSPITALITY, LLC
CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
<TABLE>
<CAPTION>
Members' Comprehensive
Capital Income (Loss)
----------- -------------
<S> <C> <C>
Balance at January 1, 1996........................... $ 183,731
Capital contributions--cash........................ 205,000
Capital contributions--non-cash.................... 292,801
Distributions...................................... (100,000)
Net loss........................................... (143,315)
-----------
Balance at December 31, 1996......................... 438,217
Capital contributions.............................. 198,615
Distributions...................................... (670,000)
Net income......................................... 1,963,108
-----------
Balance at December 31, 1997......................... 1,929,940
Capital contributions.............................. 600,000
Distributions...................................... (2,234,718)
Net loss........................................... (159,176) $(159,176)
Unrealized loss on marketable securities........... (66,719) (66,719)
---------
Comprehensive loss................................. $(225,895)
----------- =========
Balance at December 31, 1998......................... $ 69,327
===========
</TABLE>
See accompanying notes.
F-21
<PAGE>
JAMESON HOSPITALITY, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Operating activities
Net (loss) income........................ $ (159,176) $ 1,963,108 $(143,315)
Adjustments to reconcile net (loss)
income to cash provided by operating
activities:
Depreciation and amortization.......... 456,213 260,375 162,783
Bad debt expense....................... 72,409 46,124 10,440
Gain on sale of property and
equipment............................. -- (96) --
Changes in assets and liabilities
increasing (decreasing) cash:
Accounts receivable.................. (352,983) (168,469) (138,091)
Accounts receivable from affiliates.. (35,461) (2,661,298) (41,714)
Predevelopment costs................. (307,853) (64,331) --
Costs and estimated earnings in
excess of billings on contracts in
progress............................ 98,169 (98,169) (85,029)
Prepaid advertising.................. 145,766 (145,766) --
Prepaid expenses and other assets.... (221,311) (77,692) (15,089)
Inventory............................ (147,200) (145,941) --
Subcontractors payable............... (130,238) 2,813,020 423,385
Accounts payable..................... 913,054 (87,697) (5,641)
Lease expense payable................ 832,082 773,046 188,770
Accrued interest..................... (12,697) 33,493 863
Other accrued liabilities............ 94,115 154,536 46,376
----------- ----------- ---------
Net cash provided by operating
activities.............................. 1,244,889 2,594,243 403,738
Investing activities
Proceeds from sale of property and
equipment............................... -- 24,500 --
Purchase of property and equipment....... (1,476,655) (878,532) (487,164)
Marketable securities.................... (266,248) -- --
----------- ----------- ---------
Net cash used in investing activities.... $(1,742,903) $ (854,032) $(487,164)
</TABLE>
F-22
<PAGE>
JAMESON HOSPITALITY, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1998 1997 1996
----------- ---------- ---------
<S> <C> <C> <C>
Financing activities
Contributions from members................ 600,000 198,615 205,000
Distributions to members.................. (2,234,718) (670,000) (100,000)
Proceeds from notes payable............... 1,104,415 842,615 537,467
Payments on notes payable................. (212,590) (114,377) (357,206)
----------- ---------- ---------
Net cash (used in) provided by financing
activities............................... (742,893) 256,853 285,261
Net (decrease) increase in cash........... (1,240,907) 1,997,064 201,835
Cash at beginning of year................. 2,318,486 321,422 119,587
----------- ---------- ---------
Cash at end of year....................... $ 1,077,579 $2,318,486 $ 321,422
=========== ========== =========
Supplemental cash flow information
Interest paid during the year............. $ 1,326,782 $ 692,811 $ 125,702
=========== ========== =========
Non-cash activity
Unrealized loss on marketable securities.. $ 66,719 $ -- $ --
=========== ========== =========
</TABLE>
See accompanying notes.
F-23
<PAGE>
JAMESON HOSPITALITY, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Business and Basis of Financial Statements
Jameson Development Company, LLC was formed on March 22, 1996 and then
changed its name to Jameson Hospitality, LLC (the "Company") on May 7, 1998.
Effective March 31, 1998, three related companies merged into Jameson
Development Company, LLC: Jameson Operating Company, LLC, Jameson Outdoor
Advertising Company II, LLC and Jameson Aviation Company, LLC. Since these
three companies were all wholly-owned by Thomas W. Kitchin and his spouse, the
merger was accounted for similar to a pooling of interests.
Jameson Inns, Inc. (the "REIT") is a real estate investment trust which owns
the Jameson Inns properties (the "Inns"). Thomas W. Kitchin is the Chairman and
CEO of Jameson Inns, Inc. and of the Company.
Kitchin Investments, Inc. is wholly-owned by Thomas W. Kitchin and employs
all of the individuals who provide services to both the Company and the REIT.
This company also provides the general office overhead support for these other
companies.
At December 31, 1998 the Company had one 99.9%-owned subsidiary.
Intercompany transactions among the entities and the divisions included in the
consolidated financial statements have been eliminated. The Company and its
divisions perform the following activities:
-- The Jameson Operating division leases the Inns from the REIT (see Note
3) and operates the Inns in all respects including staffing,
advertising, housekeeping, and routine maintenance. At the present time,
the Company is the exclusive lessee of Jameson Inns. At December 31,
1998 and 1997, the Company leased 81 Inns (3,748 rooms) and 62 Inns
(2,924 rooms), respectively, all located in southeastern states.
-- The Jameson Development division develops Inns and Inn expansions for
Jameson Inns, Inc., including identification of suitable Inn locations,
Inn design and configuration, land preparation, construction,
acquisition of initial furniture, fixtures and equipment, and pre-
marketing of properties prior to opening. At the present time, the
Company is the exclusive developer/contractor for Jameson Inns, Inc.
-- The Jameson Outdoor Advertising division identifies locations, designs,
constructs and manages billboards, primarily for its own use in
operating and controlling advertising for hotel properties using the
trademark "The Jameson Inn." See Note 9.
The members have no liability for any debt, obligations, or liabilities of
the Company (beyond his or her respective contributions) or for the acts of
omission of any other member, agent or employee of the Company, except as
provided for by section 14-11-408 of the Georgia Securities Act of 1973, as
amended.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-24
<PAGE>
JAMESON HOSPITALITY, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Marketable Securities
The Company considers all of its marketable securities as available for sale
and hence records them at fair value with changes in unrealized gains or losses
being recorded directly to members' capital. Fair value is based on the closing
price of the securities on the last day of trading in the year.
Contracts
Billings and costs applicable to construction contracts are recognized on
the percentage-of-completion method, measured by the percentage of cost
incurred to date compared to estimated total cost for each contract. Revisions
to estimated contract profits or losses are made in the year in which
circumstances requiring such revisions become known. Any anticipated losses on
construction contracts are charged to operations as soon as such losses can be
estimated.
Predevelopment Costs
The Company capitalizes direct costs related to specific future Inn sites
when they are deemed probable and until either the REIT purchases the land and
actual construction begins when the amounts are transferred to construction
costs, or until the site is no longer deemed probable at which time the costs
are expensed. Amounts expensed are reflected as "Prospective Site Expense" in
the accompanying statements of operations.
Inventory
Inventory, consisting of room linens and towels, is stated at the lower of
cost (first-in, first-out method) or market. Replacements of inventory are
expensed.
Property and Equipment
Property and equipment is stated at cost. Billboards include direct
construction costs and the Company capitalizes interest, property taxes and
indirect costs such as salaries relating directly to the construction of
billboards. Interest capitalized during 1998 totaled $3,437. There was no
interest capitalized in 1997 or 1996. Leasehold improvements relate to
improvements made to the Inns prior to July 1, 1995 when this responsibility
was transferred to the REIT.
Depreciation is calculated using the straight-line method over 39 years for
the building, using the straight-line method for the billboards with a half
year convention in year of acquisition over the estimated useful life of the
asset, 10 years, using the MACRS method over five years for transportation
equipment, and using the MACRS method over three to seven years for furniture,
fixtures and equipment. Leasehold improvements are being amortized using the
straight-line method over their estimated useful lives ranging from three to
ten years, not to exceed the remaining term of the lease (see Note 3).
The Company follows FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
There were no impairment losses recorded in 1998, 1997 or 1996.
Intangibles
Intangibles consist of the registered trademark, "The Jameson Inn." The
lease described in Note 3 requires the Company to operate the Inns using the
trademark and not to use the trademark (or license its use to
F-25
<PAGE>
JAMESON HOSPITALITY, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
any other parties) for the operation of lodging facilities other than the Inns
unless the REIT does not object to such unrelated use. The REIT has an option
to purchase the trademark from the Company at the end of the lease term (or
upon the earlier termination of the lease with respect to all of the Inns) for
$25,000. The trademark is being amortized over 40 years. Accumulated
amortization totaled $3,125 and $2,500 as of December 31, 1998 and 1997,
respectively.
Income Taxes
Jameson Hospitality, LLC has elected to be treated as a partnership for
federal and state income tax purposes. Accordingly, the members are to report
their proportionate share of the Company's taxable income or loss in their
respective tax returns; therefore, no provision for income taxes has been
included in the accompanying financial statements.
Advertising
During 1998 and 1997, the Company contracted with an advertising agency for
the production and broadcast or printing of various radio, newspaper and
television ads for the Inns. The Company expenses advertising upon first
showing. As of December 31, 1997, approximately $146,000 of costs had been
incurred related to the production of ads that began to be broadcast or printed
in January 1998. These costs had been capitalized and included in the
accompanying balance sheet at December 31, 1997.
Comprehensive Income
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or members' equity.
Statement 130 requires unrealized gains or losses on the Company's available-
for-sale securities to be included in other comprehensive income. Prior to
1998, the Company had no components of comprehensive income.
3. Leases
In January 1994, the Company entered into a master lease (the "Lease") with
the REIT whereby all of the operating Inns are leased to the Company under the
Lease and future Inns constructed by the REIT during the term of the Lease will
be added to the lease upon completion of each such Inn's construction.
The Lease expires December 31, 2007 and provides for payment of Base Rent
plus Percentage Rent. Base Rent, which is payable monthly, equals $264 per
month for each rentable room in the Inns at the beginning of the relevant
month. Percentage Rent, which is payable quarterly, is calculated as a
percentage in excess of Base Rent of the total amount of room rental and other
miscellaneous revenues ("Room Revenues") realized by the Company over the
relevant period.
The percentage is 39% of such revenues up to $21.62 per day per room over
the period, 65% of all additional average daily room rental revenues, provided,
however, that total rent for any calendar year is limited to 47% of total room
rental revenues for that year. The $21.62 per room amount used in calculating
Percentage Rent is subject to adjustment each year end, based on changes in the
Consumer Price Index, and as of January 1, 1999 was $22.18.
Base Rent totaled $10,501,920, $7,532,712 and $5,469,288 in 1998, 1997 and
1996, respectively, and assuming the same number of rooms in operation as of
December 31, 1998, would total $11,873,664 per year until the Lease expires.
F-26
<PAGE>
JAMESON HOSPITALITY, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Lease requires the REIT to pay real and personal property taxes,
casualty and liability insurance premiums and the cost of maintaining
structural elements, including underground utilities and effective July 1,
1995, the cost of replacing or refurbishing the furniture, fixtures and
equipment in the Inns. Prior to July 1, 1995, the Company was responsible for
the cost of replacing or refurbishing furniture, fixtures and equipment and
hence recorded these costs as leasehold improvements. The Company is required
to pay workers compensation insurance premiums, utility costs and all other
costs and expenses incurred in the operation of the Inns.
Under the Lease, the REIT is required to maintain the structural elements of
each Inn. The Company is required, at its expense, to maintain the Inns
(exclusive of furniture, fixtures and equipment) in good order and repair and
to make nonstructural, foreseen and unforeseen, and ordinary and extraordinary
repairs which may be necessary and appropriate and do not significantly alter
the character or purpose, or significantly detract from the value or operating
efficiencies of the Inns. All alterations, replacements and improvements are
subject to all the terms and provisions of the Lease and become the property of
the REIT upon termination of the Lease.
The Company has agreed that neither it nor any of its affiliates will (i)
operate or manage a hotel property in which the REIT has not invested that is
within a 20-mile radius of an Inn, or (ii) own or have any interest in any
hotel property in which the REIT or an affiliate does not have an interest.
4. Property and Equipment
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land............................................... $ 100,000 $ 100,000
Building........................................... 105,706 105,706
Billboards, including under construction........... 1,699,908 1,513,719
Transportation equipment........................... 1,809,560 573,825
Furniture, fixtures and equipment.................. 94,586 39,855
---------- ----------
3,809,760 2,333,105
Accumulated depreciation........................... (817,667) (398,410)
---------- ----------
$2,992,093 $1,934,695
========== ==========
</TABLE>
5. Contracts
Contracts consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Costs incurred on contracts........... $35,518,450 $27,514,582 $6,846,378
Estimated earnings.................... 5,471,997 3,687,045 4,461
----------- ----------- ----------
Contract revenues earned.............. 40,990,447 31,201,627 6,850,839
Less: Billings........................ 40,990,447 31,103,458 6,850,839
----------- ----------- ----------
Costs and estimated earnings in excess
of billings on contracts in
progress............................. $ -- $ 98,169 $ --
=========== =========== ==========
</TABLE>
The Company records income on construction contracts on the percentage-of-
completion basis. Revisions to estimated contract profits are made in the year
in which circumstances requiring such revisions become known. The effect of
changes in the estimates of contract gross margins decreased net income for the
year
F-27
<PAGE>
JAMESON HOSPITALITY, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ended December 31, 1998 by approximately $155,000 and increased net income for
the year ended December 31, 1997 by approximately $16,000.
6. Notes Payable
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Notes payable to a bank with a term of five years.
Due in monthly installments of principal of $8,525
plus interest with remaining unpaid balances and
accrued interest payable in June 2003. Interest
accrues at a floating interest rate of prime rate
minus .5% (7.25% at December 31, 1998). The notes
are personally guaranteed by the president of the
Company............................................. $ 963,325 $ --
$535,843 term note payable to a financial
institution, maturing July 2017. Due in monthly
installments of principal and interest of $4,650
until July 1999 and then $4,995 until maturity when
the remaining unpaid balances are payable in full.
The interest rate at December 31, 1998 was 8.5% and
increases to 9.5% in August 1999 for the remainder
of the note's term. The note is personally
guaranteed by the president of the Company.......... 469,454 525,115
$600,000 line of credit renewing each July until the
bank discontinues the line. Interest accrues at
prime plus 2% (9.75% at December 31, 1998) and is
due quarterly. Available borrowings of $171,658 at
December 31, 1998................................... 428,342 343,702
$300,000 term note payable maturing December 2002.
Due in monthly installments of $6,409 of principal
and interest with remaining unpaid balances payable
in full on note's maturity date. Interest accrues at
10.5% per annum..................................... 248,804 297,169
$170,000 term note, maturing July 2012. Interest
accrues at an initial annual rate of 8.39% and is
adjusted annually to equal the weekly average yield
on U.S. Treasury securities, adjusted to a constant
maturity of five years, plus 2%. Payments of
interest are due monthly and principal payments of
$11,333 are due annually beginning July 1, 1998. The
note is personally guaranteed by the president of
the Company......................................... 159,856 170,000
Notes payable to banks with terms of five years. Due
in monthly installments of principal and interest
with remaining unpaid balances payable in full on
the individual note's maturity dates, which range
through 2000. The four notes have fixed interest
rates (rates ranging from 8.75% to 11.0% at December
31, 1998)........................................... 45,405 87,377
---------- ----------
Total................................................ 2,315,186 1,423,363
Less current portion............................... 650,804 113,096
---------- ----------
$1,664,382 $1,310,267
========== ==========
</TABLE>
At December 31, 1998 and 1997, approximately $2,316,000 and $1,358,000,
respectively, of the Company's net book value of property and equipment
collateralized the various notes payable. In addition, certain notes payable
and line of credit are secured by the assignment of billboard rental income.
F-28
<PAGE>
JAMESON HOSPITALITY, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the scheduled aggregate principal payments
for the notes payable for the five years subsequent to December 31, 1998 and
thereafter:
<TABLE>
<S> <C>
1999............................................................ $ 650,804
2000............................................................ 196,216
2001............................................................ 198,309
2002............................................................ 206,452
2003............................................................ 588,909
Thereafter...................................................... 474,496
----------
$2,315,186
==========
</TABLE>
7. Related Party Transactions
The Company shares office space and management with Kitchin Investments,
Inc. and the REIT. The Company has a Cost Reimbursement Agreement with Kitchin
Investments, Inc. whereby the Company agrees to pay for its share of the use of
office space, office equipment, telephones, file and storage space and other
reasonable and necessary office equipment and facilities and personnel costs.
The Cost Reimbursement Agreement expires on December 31, 1999. Kitchin
Investments, Inc. charged the Company $2,655,334, $1,856,370 and $641,437 in
1998, 1997 and 1996, respectively, pursuant to the Cost Reimbursement Agreement
and such amounts are reflected as management fees in the accompanying
statements of operations.
The Company's construction contracts with the REIT are generally fixed price
and limit the Company's profit on each contract to 10% after considering costs
of construction and certain other amounts. The Company does not believe that
there were amounts in excess of such limitations at December 31, 1998 or 1997.
Although the REIT is the legal borrower of construction loans or related
debt, the Company is responsible for interest due on such financing during the
construction period as a part of its contract. Construction period interest
incurred during 1998, 1997, and 1996 which is included in cost of revenues
earned, totaled approximately $1,125,935, $637,290, $168,957, respectively.
Interest paid includes amounts paid on behalf of the REIT.
8. Commitments and Contingencies
The Company leases land for each billboard location for terms of five or ten
years. These leases expire at various dates but generally include 5-year
automatic renewal periods; the leases provide for future minimum payments by
the Company as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999.......................................................... $ 90,312
2000.......................................................... 82,745
2001.......................................................... 78,628
2002.......................................................... 71,612
2003.......................................................... 59,362
Thereafter.................................................... 169,623
--------
$552,282
========
</TABLE>
F-29
<PAGE>
JAMESON HOSPITALITY, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Portions of certain billboards are leased to third party entities under
operating leases with terms of 1 to 2 years, renewable annually. The rent will
increase each year on the anniversary of the lease commencement date in an
amount equal to increases, if any, in the Consumer Price Index. As of December
31, 1998, future minimum rental income due under noncancellable operating
leases is as follows:
<TABLE>
<S> <C>
Year ending December 31,
1999........................................................... $49,507
2000........................................................... 7,530
Thereafter..................................................... --
-------
$57,037
=======
</TABLE>
From time to time, the Company becomes party to various claims and legal
actions arising during the ordinary course of business. Management, after
reviewing with legal counsel all actions and proceedings, believes that
aggregate losses, if any, would not have a material adverse effect on the
Company's financial position or results of operations.
9. Pending Events
On November 3, 1998, the Board of Directors of the REIT approved the
proposed acquisition by the REIT of the outdoor advertising assets of the
Company. These assets consist of approximately 100 road side billboards on
which advertising for the REIT's hotel properties and, in certain instances,
other services or products for third parties is placed. It is anticipated that
the REIT will lease these billboards back to the Company and use them for the
same type of advertising. The consideration payable to the Company will consist
of (i) 72,727 newly issued shares of the REIT's Series A Preferred Stock, (ii)
$400,000 in cash, and (iii) the assumption of indebtedness of approximately
$735,000 which is secured by mortgages on the billboards and the revenues
generated therefrom. It is currently anticipated that this transaction will
close in April 1999 and that the Company will distribute the shares of the
Series A Preferred Stock it receives to Thomas W. Kitchin and his wife.
On January 27, 1999, the REIT announced plans to merge with Signature Inns,
Inc. As a part of this transaction, the Company will acquire all of the assets
and assume the liabilities related to operation of the Signature Inn hotel
properties, for total cash consideration of $250,000. It is anticipated that
the Signature Inn employees will become employees of the Company and that the
Company will lease and operate these hotels from the REIT after the merger.
10. Year 2000 (Unaudited)
As the year 2000 approaches, a critical business issue has emerged regarding
how existing application software programs and operating systems can
accommodate this date value. Many existing application software products in the
marketplace were designed to accommodate only two-digit date entries. Beginning
in the year 2000, these systems and products will need to be able to accept
four-digit entries to distinguish years beginning with 2000 from prior years.
As a result, computer systems and software used by many companies may need to
be upgraded to comply with such "Year 2000" requirements. The Company has
evaluated its financial software and building operating systems of the Jameson
Inns. Based on assessments to date, management believes that the arrival of the
year 2000 and the potential related computer problems will not have a material
adverse impact on the Company. The Company believes that its current software
and operating systems are year 2000 compliant. Based on current information,
costs of addressing and solving Year 2000 problems are not expected to have a
material effect on the Company's financial position or results of operations.
The ability of third parties with whom the Company transacts business to
address adequately their Year 2000 issues is
F-30
<PAGE>
JAMESON HOSPITALITY, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
outside of the Company's control. There can be no assurance that the failure of
the Company, or such third parties, to address adequately their respective Year
2000 issues will not have a material adverse effect on the Company's future
financial condition or results of operations.
The Company maintains contingency plans in its normal course of business
designed to be deployed in the event of various potential business
interruptions. These generally include manual workarounds and adjusting
staffing.
11. Subsequent Events
On March 15, 1999, the Company received a $150,000 capital contribution from
its members.
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Signature Inns, Inc.
We have audited the accompanying 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. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan, and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Signature
Inns, Inc. as of December 31, 1998 and 1997 and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1998 in conformity with generally accepted accounting principles.
KPMG LLP
Indianapolis, Indiana
February 18, 1999
F-32
<PAGE>
SIGNATURE INNS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 10,046,626 $ 11,126,602
Restricted cash.................................. 758,127 529,212
Accounts receivable.............................. 1,014,550 702,891
Income taxes receivable.......................... 353,539 517,553
Other current assets............................. 716,306 373,141
------------ ------------
Total current assets........................... 12,889,148 13,249,399
Property and equipment, net........................ 108,825,365 108,670,976
Furniture and equipment cash reserves.............. 668,822 1,395,557
Hotel limited partnership investment............... 813,200 833,107
Deferred costs and other assets, net............... 813,522 678,599
------------ ------------
$124,010,057 $124,827,638
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................ $ 1,810,533 $ 1,606,390
Accounts payable................................. 587,798 743,086
Accrued property taxes........................... 1,510,191 1,526,653
Accrued payroll.................................. 910,490 808,944
Other current liabilities........................ 473,655 583,525
Preferred stock dividends payable................ 958,800 958,800
------------ ------------
Total current liabilities...................... 6,251,467 6,227,398
Deferred income taxes.............................. 886,000 --
Long-term debt, less current portion............... 67,839,397 69,611,507
------------ ------------
Total liabilities.............................. 74,976,864 75,838,905
------------ ------------
Shareholders' equity:
Cumulative convertible preferred stock (no par
value; 5,000,000 shares authorized; 2,256,000
shares issued).................................. 40,776,126 40,776,126
Common stock (no par value; 25,000,000 shares
authorized; 2,105,703 and 2,105,203 shares
issued and outstanding)......................... 10,016,363 10,013,800
Accumulated deficit.............................. (1,759,296) (1,801,193)
------------ ------------
Total shareholders' equity..................... 49,033,193 48,988,733
------------ ------------
$124,010,057 $124,827,638
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
SIGNATURE INNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Revenues.................................
Guestroom revenues..................... $40,658,614 $38,287,318 $5,241,230
Other hotel revenues................... 1,745,294 1,650,611 262,656
Management and franchise fees.......... 94,224 208,166 3,061,958
----------- ----------- ----------
Total revenues....................... 42,498,132 40,146,095 8,565,844
----------- ----------- ----------
Operating costs and expenses:
Direct hotel expenses.................. 23,776,591 22,513,790 3,203,180
Depreciation, amortization and
retirements........................... 4,751,746 3,718,483 570,454
Corporate expenses..................... 2,745,162 2,629,930 2,311,326
Merger transaction costs............... 224,267 -- --
----------- ----------- ----------
Total operating costs and expenses... 31,497,766 28,862,203 6,084,960
----------- ----------- ----------
Operating income..................... 11,000,366 11,283,892 2,480,884
Other income (expense):
Equity in income of hotel limited
partnerships.......................... 23,021 (49,065) 596,190
Interest income........................ 589,897 542,613 206,835
Interest expense....................... (6,263,797) (5,804,796) (1,035,340)
Other.................................. 52,610 352,564 (372,450)
----------- ----------- ----------
Income before income tax expense..... 5,402,097 6,325,208 1,876,119
Income tax expense....................... 1,525,000 1,150,000 216,893
----------- ----------- ----------
Net income........................... 3,877,097 5,175,208 1,659,226
Preferred stock dividends................ 3,835,200 3,620,880 --
----------- ----------- ----------
Net income applicable to common
stock............................... $ 41,897 $ 1,554,328 $1,659,226
=========== =========== ==========
Basic and diluted earnings per common
share............................... $ 0.02 $ 0.74 $ 0.79
=========== =========== ==========
Weighted average common shares
outstanding............................. 2,105,513 2,103,993 2,104,167
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
SIGNATURE INNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------- --------------------- Accumulated
Shares Amount Shares Amount Deficit Total
--------- ----------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 2,103,872 $ 9,805,973 -- $ -- (5,014,747) 4,791,226
Net income............ -- -- -- -- 1,659,226 1,659,226
Collection of notes
receivable........... -- 208,875 -- -- -- 208,875
Common shares issued.. 541 2,666 -- -- -- 2,666
--------- ----------- --------- ----------- ---------- ----------
Balance at December 31,
1996................... 2,104,413 10,017,514 -- -- (3,355,521) 6,661,993
Net income............ -- -- -- -- 5,175,208 5,175,208
Fractional shares
redeemed............. (2,005) (16,267) -- -- -- (16,267)
Restricted stock
grant................ 500 3,000 -- -- -- 3,000
Exercise of stock
options.............. 2,295 9,553 -- -- -- 9,553
Preferred shares
issued, net.......... -- -- 2,256,000 40,776,126 -- 40,776,126
Preferred stock
dividends ($1.60 per
share)............... -- -- -- -- (3,620,880) (3,620,880)
--------- ----------- --------- ----------- ---------- ----------
Balance at December 31,
1997................... 2,105,203 10,013,800 2,256,000 40,776,126 (1,801,193) 48,988,733
Net income............ -- -- -- -- 3,877,097 3,877,097
Restricted stock
grant................ 500 2,563 -- -- -- 2,563
Preferred stock cash
dividends ($1.70 per
share)............... -- -- -- -- (3,835,200) (3,835,200)
--------- ----------- --------- ----------- ---------- ----------
Balance at December 31,
1998................... 2,105,703 $10,016,363 2,256,000 $40,776,126 (1,759,296) 49,033,193
========= =========== ========= =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
SIGNATURE INNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 3,877,097 $ 5,175,208 $ 1,659,226
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation of property and
equipment......................... 4,682,814 3,669,251 538,274
Amortization of deferred costs..... 67,099 46,805 32,180
Equity in income of hotel limited
partnerships, net of distributions
received of $776,883 in 1997 and
$783,761 in 1996.................. (23,021) 825,948 187,571
(Gain) loss on sale of land........ (52,610) (352,564) 26,938
Change in restricted cash.......... (228,915) (244,920) (4,349)
Change in income taxes receivable.. 164,014 (517,553) --
Deferred income taxes.............. 886,000 -- --
Other partners' equity in income... -- -- 345,512
Change in accrued revenue and
expenses, net..................... (729,530) (312,116) 84,863
----------- ------------ -----------
Net cash provided by operating
activities...................... 8,642,948 8,290,059 2,870,215
----------- ------------ -----------
Cash flows from investing activities:
Property and equipment additions..... (4,320,401) (4,165,978) (496,202)
Proceeds from sale of land........... 147,624 521,701 210,018
Net change in loans to hotel limited
partnership......................... 40,800 (238,831) 90,000
Deferred costs and other assets...... (139,240) (124,908) (527,543)
Non-operating distributions from
hotel limited partnerships.......... -- 791,481 --
Acquisition of hotels from affiliated
entities............................ -- (31,819,484) --
Acquisition and conversion costs of
other operating hotels.............. -- (2,633,898) (1,788,304)
----------- ------------ -----------
Net cash used by investing
activities...................... (4,271,217) (37,669,917) (2,512,031)
----------- ------------ -----------
Cash flows from financing activities:
Proceeds of long-term debt........... 6,150,000 38,523,906 479,159
Repayments of long-term debt......... (7,675,181) (35,302,356) (2,171,882)
Repayments of revolving line of
credit.............................. -- (2,750,000) 1,650,000
Loan financing costs................. (91,326) (491,044) (45,687)
Proceeds from issuance of preferred
stock, net.......................... -- 41,199,997 --
Preferred stock offering costs....... -- -- (423,871)
Cash dividends on preferred stock.... (3,835,200) (2,662,080) --
Issuance of common stock............. -- 9,553 208,875
Fractional common shares redeemed.... -- (16,267) --
Distributions to other partners...... -- -- (78,325)
----------- ------------ -----------
Net cash provided (used) by
financing activities............ (5,451,707) 38,511,709 (381,731)
----------- ------------ -----------
Net change in cash and cash
equivalents........................... (1,079,976) 9,131,851 (23,547)
Cash and cash equivalents at beginning
of year............................... 11,126,602 1,994,751 2,018,298
----------- ------------ -----------
Cash and cash equivalents at end of
year.................................. $10,046,626 $ 11,126,602 $ 1,994,751
=========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
SIGNATURE INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Business
The Company owns and operates 25 Signature Inn hotels at December 31, 1998
located in six Midwestern states and manages one additional Signature Inn
hotel owned by a non-consolidated affiliate partnership.
Basis of Presentation
In January 1997, the Company completed a public offering of 2,256,000
shares of cumulative convertible preferred stock at $20 per share. Using a
portion of the proceeds of the offering, other sources of funds and the
assumption of debt, the Company acquired in a purchase transaction 20 hotel
properties previously owned by affiliated entities and the remaining 50%
ownership interest in three other hotel properties which had previously been
consolidated. The aggregate purchase price was $84.1 million, including the
assumption or replacement of $52.2 million of affiliate hotel debt, excluding
the Company's existing equity interests which were recorded at their
historical cost basis.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. The results of the acquired hotel
properties are included from the date of acquisition. The effects of all
significant intercompany accounts and transactions have been eliminated in
consolidation. The equity method is used for investments in hotel limited
partnerships in which the Company has 50% or less ownership and does not
exercise legal, financial and operational control.
Certain reclassifications of prior year amounts have been made to conform
with current year presentations.
Revenues
Guestroom and other hotel revenues are recognized on a daily basis as
services are provided. Management and franchise fees are based on a percentage
of revenues of the hotels owned by hotel limited partnerships and are
recognized as hotel revenues are earned.
Earnings Per Share
Earnings per share are computed by dividing net income applicable to common
stock by the weighted average shares of common stock outstanding. The Company
has no dilutive securities.
Cash Equivalents
Cash equivalents represent highly liquid short-term investments with
initial maturities of three months or less.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation is provided on the straight-line basis over the estimated useful
lives of 40 years for buildings, 15 to 20 years for land improvements and 3 to
10 years for furniture and equipment. Leasehold improvements are amortized on
the straight-line basis over the term of the related lease. Land held for sale
is carried at the lower of cost or estimated fair value less selling costs.
Deferred Costs
Fees and other costs incurred in obtaining long-term financing are
amortized on the straight-line basis over the term of the related loan.
Unamortized loan costs are charged to expense upon the early payment of the
related financing. Costs related to the issuance of capital stock are charged
to the related proceeds. Accumulated amortization of deferred costs amounted
to $676,000 and $609,000 at December 31, 1998 and 1997, respectively.
F-37
<PAGE>
SIGNATURE INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities, measured using enacted tax
rates expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Stock Based Compensation
In 1996, the Company adopted FAS 123 "Accounting for Stock Based
Compensation," which prescribes accounting and reporting standards for all
stock-based compensation plans. FAS 123 allows companies to continue using
existing methods for recognizing the expense of these plans and requires pro
forma disclosures in the financial statements of earnings per share using the
fair value method prescribed in the statement.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Impairment
Investments in real estate and partnerships are evaluated periodically to
assess whether any impairment indications are present, including recurring
operating losses and significant adverse changes in legal factors or business
climate that affect the recovery of recorded value. If any real estate or
partnership investments are considered impaired, a loss is provided to reduce
the carrying value to its estimated fair value.
Fair Value of Financial Instruments
The carrying amount of long-term debt approximates its fair value because
the interest rates currently approximate market. A reasonable estimate of the
fair value of the receivables from hotel limited partnerships (note 3) is not
practicable without incurring excessive costs because there is no market for a
comparable instrument. The carrying amounts of all other financial instruments
approximate fair value because of the short-term maturity of these items.
(2) Property and Equipment
Property and equipment representing Company-owned hotels, corporate office
equipment and land held for sale or development are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Land.............................................. $ 14,507,055 $ 14,514,555
Buildings......................................... 88,424,029 87,806,490
Leasehold and land improvements................... 1,807,447 1,593,955
Furniture and equipment........................... 18,259,654 14,269,631
Land held for sale or development................. 709,933 698,450
------------ ------------
123,708,117 118,873,081
Accumulated depreciation.......................... 14,882,752 10,202,105
------------ ------------
$108,825,365 $108,670,976
============ ============
</TABLE>
F-38
<PAGE>
SIGNATURE INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) Hotel Limited Partnerships
Summary financial information for the hotel limited partnerships reported on
the equity method is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Hotel properties.................. $ 3,809,631 $ 3,894,265 $ 67,833,883
Net current assets................ (226,290) (271,864) 890,576
Deferred costs.................... 98,850 125,670 832,720
Long-term debt.................... (2,252,373) (2,375,806) (56,760,169)
----------- ------------ ------------
Net assets...................... 1,429,818 1,372,265 12,797,010
Less:
Equity of other partners........ 860,018 823,358 10,503,698
Income not recognized........... -- -- 195,503
----------- ------------ ------------
Equity in limited
partnerships................. 569,800 548,947 2,097,809
Receivables from limited
partnerships, net................ 243,400 284,200 3,441,648
----------- ------------ ------------
Hotel limited partnership
investments.................. $ 813,200 $ 883,107 $ 5,539,457
=========== ============ ============
Revenues.......................... 1,567,188 3,022,384 34,346,009
Operating costs and expenses...... (1,509,635) (3,314,000) (31,479,752)
Nonrecurring items................ -- 20,177,670 (2,890,000)
----------- ------------ ------------
Net income (loss)............... 57,553 19,886,054 (23,743)
Less other partners' share........ (34,532) (19,935,119) (619,933)
----------- ------------ ------------
Equity in income (loss)....... $ 23,021 $ (49,065) $ 596,190
=========== ============ ============
</TABLE>
As of December 31, 1998 and 1997, the receivables from hotel limited
partnership carried an interest rate of 10.5%. Interest income on receivables
from limited partnerships was $26,700, $18,393 and $142,640 in 1998, 1997 and
1996, respectively.
The nonrecurring items in 1997 represent the net gains from the sale of the
partnerships' hotels to the Company, which gains were allocated to the limited
partners. The nonrecurring items in 1996 represent write-downs of the hotel
properties of certain partnerships.
(4) Long-Term Debt
Long-term debt at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Hotel mortgages.................................... $69,649,930 $71,165,741
Other.............................................. -- 52,156
----------- -----------
69,649,930 71,217,897
Less current portion............................... 1,810,533 1,606,390
----------- -----------
Long-term portion.................................. $67,839,397 $69,611,507
=========== ===========
</TABLE>
The hotel mortgages are secured by hotels and land and bear interest at
rates ranging from 7.5% to 10.0% (8.75% and 8.90% weighted average interest
rates at December 31, 1998 and 1997, respectively) through maturity dates
ranging from 2000 to 2016.
F-39
<PAGE>
SIGNATURE INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The line of credit of $2,750,000 was paid off in full in January 1997 upon
completion of the preferred stock offering and not renewed.
The aggregate annual scheduled principal payments during the next five
years are: $1,811,000 in 1999, $7,810,000 in 2000, $6,212,000 in 2001,
$1,758,000 in 2002 and $1,919,000 in 2003.
Interest paid amounted to $6,260,000, $5,723,000 and $1,040,000 in 1998,
1997 and 1996, respectively.
(5) Income Taxes
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ---------
<S> <C> <C> <C>
Current................................ $ 639,000 $ 1,150,000 $ 216,893
Deferred............................... 1,168,000 1,329,000 500,000
Valuation allowance decrease........... (282,000) (1,329,000) (500,000)
---------- ----------- ---------
Total income expense............... $1,525,000 $ 1,150,000 $ 216,893
========== =========== =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31 are as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Land held for sale or development................. $ 315,000 $ 315,000
Net operating loss carry forwards................. 218,000 947,000
Other............................................. 6,000 6,000
---------- ----------
Gross deferred tax assets....................... 539,000 1,268,000
Less valuation allowances....................... -- (282,000)
---------- ----------
Net deferred tax assets......................... 539,000 986,000
---------- ----------
Deferred Tax Liabilities:
Deferred costs.................................... 41,000 --
Hotel properties, primarily depreciation.......... 1,384,000 986,000
---------- ----------
Deferred tax liabilities........................ 1,425,000 986,000
---------- ----------
Net deferred tax liability.................... $ 886,000 $ --
========== ==========
</TABLE>
The following reconciles income tax expense at the federal statutory tax
rate to the effective rate:
<TABLE>
<CAPTION>
1998 1997 1996
---- ----- -----
<S> <C> <C> <C>
Income taxes at the federal statutory rate............ 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit............... 2.7 6.0 4.3
Decreases in valuation allowance, principally arising
from the utilization of net operating loss
carryforwards........................................ (4.0) (21.8) (26.7)
Reduction for overaccrual of prior year tax expense... (4.5) -- --
---- ----- -----
Effective income tax rate............................. 28.2% 18.2% 11.6%
==== ===== =====
</TABLE>
F-40
<PAGE>
SIGNATURE INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income taxes paid amounted to $1,349,000, $1,618,000 and $145,500 in 1998,
1997 and 1996, respectively. At December 31, 1998, the net operating loss
carryforwards for income taxes, which expire in 2007, are approximately
$640,000.
(6) Shareholders' Equity and Employee Stock Plans
In January 1997, the Board of Directors authorized a 1-for-3.7 reverse
common stock split, decreasing the number of outstanding shares from 7,786,327
to 2,104,413. All share and per share amounts have been retroactively restated
to reflect the reverse stock split. Shareholders subsequently voted to amend
the articles of incorporation and increase the authorized common stock to
25,000,000.
Preferred Stock
The holders of the outstanding Series A cumulative preferred stock ("Series
A Preferred Stock") are entitled to cumulative dividends in the annual amount
of $1.70 per share, when declared by the Board of Directors. The aggregate
cumulative unpaid dividends on preferred stock of $958,000, or $.425 per share,
were declared and accrued as of December 31, 1998 and paid in January 1999 and
the same amount was declared and accrued retroactively as of December 31, 1997
and paid in January 1998. Holders have the right to convert their shares of
Series A Preferred Stock into shares of common stock, at any time, at the ratio
of 2.08 shares of common stock for each share of preferred stock. The preferred
stock is not entitled to vote, unless the Company is in default in the payment
of full dividends for six dividend quarters. The Company can redeem the
preferred stock after January 31, 2000, at the following redemption prices:
<TABLE>
<CAPTION>
Redemption
Period Price
------ ----------
<S> <C>
February 1, 2000 to January 31, 2001............................ $20.97
February 1, 2001 to January 31, 2002............................ $20.72
February 1, 2002 to January 31, 2003............................ $20.49
February 1, 2003 to January 31, 2004............................ $20.24
February 1, 2004 and thereafter................................. $20.00
</TABLE>
Stockholder Rights Plan
The Company has a Stockholder Rights Plan under which a dividend of one
preferred stock purchase right ("Right") was distributed for each outstanding
share of the Company's common stock to shareholders of record on March 18,
1997. Each Right entitles the holder to buy one-hundredth of one share of non-
cumulative preferred stock at an exercise price of $40 per hundredth of a
share. The Rights become exercisable ten days after a person or group acquires
beneficial ownership of 20% or more of the Company's common stock. The Rights
are nonvoting and expire on March 18, 2007, unless exercised or previously
redeemed by the Company at $.001 each. If the Company is involved in a merger
or certain other business combinations not approved by the Board of Directors,
each Right entitles its holder, other than the acquiring person or group, to
purchase common stock of either the Company or the acquirer having a value of
twice the exercise price of the Right.
Equity Incentive Plan
Awards may be granted to directors, officers and employees of the Company
under the 1996 Equity Incentive Plan in the form of incentive stock options,
non-qualified stock options, or restricted stock grants until February 2006. No
more than 750,000 shares of common stock may be awarded as either stock options
or restricted stock grants, subject to adjustment in certain circumstances (the
"Available Shares"). Available Shares cannot exceed 10% of the total
outstanding shares of common stock and no more than 5% of the Available Shares
may be awarded in the form of restricted stock grants. Outside Directors are
eligible only for
F-41
<PAGE>
SIGNATURE INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
awards of restricted stock grants. The exercise price of the stock options
shall not be less than the fair market value of the Company's common stock at
the time of the grant. Each stock option becomes exercisable in installments on
the first, second and third anniversary of the grant and expire 10 years from
the date of the grant.
A summary of common shares and prices of stock options granted and forfeited
under the 1996 Equity Incentive Plan is as follows:
<TABLE>
<CAPTION>
Price Shares
----- -------
<S> <C> <C>
Granted in 1997............................................. $8.00 91,500
Forfeited in 1997........................................... $8.00 (2,500)
-------
Outstanding at December 31, 1997............................ $8.00 89,000
Forfeited in 1998........................................... $8.00 (13,000)
-------
Outstanding at December 31, 1998............................ 76,000
=======
</TABLE>
During 1997, options for 2,295 shares granted under the 1986 Incentive Stock
Option Plan were exercised at $4.16 per share.
Stock Based Compensation
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of the grant, no compensation expense is
recognized.
Pro forma information is required as if the Company had accounted for its
employee stock options under the fair value method of FAS 123. The fair value
of these granted options was estimated using a Black-Scholes option pricing
model with the following assumptions for 1997: a risk-free interest rate of
5.75%; no dividend yield; a volatility factor of the expected market price of
the Company's common stock of .39; and a weighted-average expected life of the
options for nine years. Had compensation cost for the Company's stock option
grants been determined based on the fair market value consistent with the
method of FAS 123, the Company's net income would have been reduced by $33,000
and $55,000 or $.02 and $.03 per common share for 1998 and 1997, respectively.
(7) Segment Reporting
The Company owns and operates 25 limited service hotels in six Midwestern
states. The Company assesses and measures operating results on an individual
property basis for each of its hotels, based on operating income. Since all of
the Company's hotels exhibit highly similar economic characteristics, cater to
the same market segments, and offer similar degrees of risk and opportunities
for growth, the hotels have been aggregated and reported as one operating
segment.
F-42
<PAGE>
SIGNATURE INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The significant accounting policies of the segments are the same as those
described in note 1. There are no significant inter-segment transactions. The
revenues, hotel operating income, reconciliation of hotel operating income to
income before income tax expense, and total assets for each of the reportable
segments are summarized in the following table.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1998 1997 1996
--------- -------- -------
(in thousands)
<S> <C> <C> <C>
Hotel Operating Income
Total hotel revenue........................ $ 42,404 $ 39,938 $ 5,504
Direct hotel expenses...................... 23,777 22,514 3,203
--------- -------- -------
Hotel Operating Income................... 18,627 17,424 2,301
Non-Property Income (Expenses)
Management and franchise fees.............. 94 208 3,062
Equity in income of hotel limited
partnerships............................... 23 (49) 596
Corporate expenses......................... (2,745) (2,630) (2,311)
Interest expense........................... (6,264) (5,805) (1,035)
Depreciation, amortization and
retirements................................ (4,752) (3,718) (570)
Other, net................................. 419 895 (167)
--------- -------- -------
Income before income tax expense......... $ 5,402 $ 6,325 $ 1,876
========= ======== =======
<CAPTION>
As of December 31,
-------------------
1998 1997
--------- --------
<S> <C> <C>
Total Assets
Hotel properties........................... $ 111,507 $111,026
Non-segment assets......................... 12,503 13,802
--------- --------
$ 124,010 $124,828
========= ========
</TABLE>
(8) Merger Agreement
On January 27, 1999, Signature Inns, Inc. and Jameson Inns, Inc. entered
into an agreement and plan of merger pursuant to which the Company will merge
with and into Jameson Inns, Inc. The holders of Company common stock (the
"Company Common Stock") will receive one-half share of Jameson common stock
(the "Jameson Common Stock") and a cash payment of up to $1.50 in exchange for
each share of Company Common Stock owned. The amount of the cash payment will
be reduced from $1.50 if a dividend is declared and paid to the holders of the
Company Common Stock prior to the consummation of the merger. Such a dividend
distribution may be required to distribute all accumulated earnings and
profits, as defined under federal tax law, of the Company prior to the merger
to protect the REIT status of Jameson. Holders of the outstanding shares of the
Series A Preferred Stock will receive an equal number of shares of a new Series
of Jameson cumulative convertible preferred stock (the "Jameson Series S
Preferred Stock") having substantially the same terms as the Series A Preferred
Stock, including an annual preferred dividend right of $1.70 per share and a
liquidation preference of $20.00 per share. Upon conversion of each share of
the new Jameson Series S Preferred Stock (at any time in the future), holders
will be entitled to receive 1.04 shares of Jameson Common Stock and a cash
payment of $3.125.
The Merger is subject to approval by the holders of the Company's common
stock and Series A Preferred Stock, each voting separately as a single class,
approval by the Jameson common shareholders and certain other conditions.
F-43
<PAGE>
SIGNATURE INNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the merger and prior strategic alternative transactions
that were not consummated, the Company recorded in the fourth quarter a charge
to operating expenses of $224,000 ($161,000 after taxes, or $.08 per common
share) for direct and other related costs associated with the merger and other
transactions. These transaction costs consisted primarily of fees for
investment bankers, attorneys, accountants and other related charges.
F-44
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
between
JAMESON INNS, INC.
and
SIGNATURE INNS, INC.
Dated as of January 27, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I
<TABLE>
<C> <S> <C>
THE MERGER............................................................. A-1
1.01. The Merger...................................................... A-1
1.02. Effective Time of the Merger.................................... A-1
1.03. Articles of Incorporation, By-laws, Directors and Officers...... A-1
1.04. Conversion of Shares............................................ A-2
1.05. Employee Stock Options.......................................... A-2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SIGNATURE............................ A-3
2.01. Organization; Good Standing; Power, Etc......................... A-3
2.02. Authorization of Agreement, Etc................................. A-3
2.03. Capitalization.................................................. A-5
2.04. Absence of Certain Changes or Events............................ A-6
2.05. Signature SEC Reports........................................... A-7
2.06. Defaults........................................................ A-7
2.07. Tax Matters..................................................... A-7
2.08. Trademarks, Copyrights, Etc..................................... A-8
Title to Properties: Absence of Liens and Encumbrances: Leases,
2.09. etc............................................................. A-9
2.10. Employee Benefit Plans.......................................... A-9
2.11. Litigation...................................................... A-12
2.12. Insurance....................................................... A-12
2.13. Brokers and Finders............................................. A-13
2.14. Compliance with Laws............................................ A-13
2.15. Information Supplied............................................ A-14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF JAMESON.............................. A-14
3.01. Organization, Good Standing, Power, Etc......................... A-14
3.02. Authorization of Agreement. Etc................................. A-14
3.03. Tax Matters..................................................... A-16
3.04. Capitalization.................................................. A-16
Issuance of Jameson Common Stock and Jameson Series S Preferred
3.05. Stock........................................................... A-17
3.06. No Material Adverse Change...................................... A-17
3.07. Brokers and Finders............................................. A-17
3.08. Jameson SEC Reports............................................. A-17
3.09. Litigation...................................................... A-17
3.10. Compliance with Laws............................................ A-18
3.11. Information Supplied............................................ A-19
ARTICLE IV
COVENANTS OF SIGNATURE................................................. A-19
4.01. Approvals....................................................... A-19
4.02. Investigation by Jameson........................................ A-19
4.03. No Solicitation................................................. A-19
4.04. Conduct of Business............................................. A-22
4.05. No Charter Amendments........................................... A-23
4.06. No Issuance or Disposition of Securities........................ A-23
4.07. No Dividends.................................................... A-23
4.08. No Disposal of Property......................................... A-23
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
4.09. No Acquisitions................................................. A-23
4.10. No Breach or Default............................................ A-24
4.11. No Indebtedness................................................. A-24
4.12. Payment of Liabilities.......................................... A-24
4.13. Employee Matters................................................ A-24
4.14. Stockholders Meeting............................................ A-25
4.15. Notice and Cure................................................. A-25
4.16. Cooperation of Management Pending Merger........................ A-25
4.17. Furnish Information for Jameson Statements...................... A-25
4.18. Affiliates Undertakings......................................... A-25
4.19. Filings; Other Actions.......................................... A-26
4.20. Comfort Letter.................................................. A-26
4.21. REIT-Related Transactions....................................... A-26
4.22 Signature Property Restructuring................................ A-26
ARTICLE V
COVENANTS OF JAMESON................................................... A-27
5.01. Approvals....................................................... A-27
5.02. Investigation by Signature...................................... A-27
5.03. Conduct of Business............................................. A-27
5.04. Stockholders' Meeting........................................... A-27
5.05. Blue Sky Permits................................................ A-27
5.06. Registration Statement.......................................... A-27
Issuance of Jameson Common Stock and Jameson Series S Preferred
5.07. Stock........................................................... A-28
5.08. Notice and Cure................................................. A-28
5.09. Nasdaq National Market Listing.................................. A-28
5.10. Tax Covenants................................................... A-28
5.11. No Breach or Default............................................ A-28
5.12. Notice and Cure................................................. A-28
5.13. Cooperation of Management Pending Merger........................ A-28
5.14. Furnish Information for Signature Proxy Statements.............. A-29
5.15. Comfort Letters................................................. A-29
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF JAMESON AND SIGNATURE........... A-29
6.01. Consents and Approvals.......................................... A-29
6.02. Registration Statement.......................................... A-29
6.03. Stockholder Approval............................................ A-29
6.04. Nasdaq National Market Listings................................. A-29
6.05. Certain Actions, etc............................................ A-29
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF JAMESON......................... A-29
7.01. Accuracy of Representations and Warranties...................... A-30
7.02. Performance of Covenants, Agreements and Conditions............. A-30
7.03. Officers' Certificate, Etc...................................... A-30
7.04. Employment Agreements........................................... A-30
7.05. Opinion of Signature Counsel.................................... A-30
7.06. Undertakings by Signature Affiliates............................ A-32
7.07. Rights Agreement................................................ A-32
7.08. Opinions of Professionals....................................... A-32
7.09. Auditors' letters............................................... A-33
7.10. Resignations.................................................... A-33
</TABLE>
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<TABLE>
<C> <S> <C>
7.11. Fairness Opinion................................................. A-33
7.12. No Material Adverse Change....................................... A-33
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SIGNATURE......................... A-33
8.01. Accuracy of Representations and Warranties....................... A-33
8.02. Performance of Covenants, Agreements and Conditions.............. A-34
8.03. Officers' Certificates Etc....................................... A-34
8.04. Opinion of Counsel for Jameson................................... A-34
8.05. Authorization of Jameson Stock................................... A-36
8.06. Fairness Opinion................................................. A-36
8.07. Tax Opinion...................................................... A-36
8.08. No Material Adverse Change....................................... A-36
8.09. Auditors' Letters................................................ A-36
ARTICLE IX
TERMINATION, AMENDMENTS AND WAIVER....................................... A-37
9.01. Termination...................................................... A-37
9.02. Effect of Termination............................................ A-38
9.03. Amendment........................................................ A-38
9.04. Waiver........................................................... A-38
ARTICLE X
OTHER AGREEMENTS; NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.......... A-38
10.01. Confidentiality.................................................. A-38
10.02. Public Announcements............................................. A-38
10.03. Indemnification.................................................. A-38
10.04. Additional Agreements............................................ A-39
10.05. Break-up Fee..................................................... A-39
10.06. Available Remedies............................................... A-39
10.07. Nonsurvival of Representations and Warranties.................... A-39
ARTICLE XI
MISCELLANEOUS............................................................ A-39
11.01. Closing.......................................................... A-39
11.02. Expenses......................................................... A-39
11.03. Notices.......................................................... A-40
11.04. Entire Agreement................................................. A-40
11.05. Binding Effect: Benefits......................................... A-40
11.06. Assignment....................................................... A-41
11.07. Applicable Law................................................... A-41
11.08. Article and Section Headings..................................... A-41
11.09. Construction..................................................... A-41
11.10 Severability..................................................... A-41
11.11. Incorporation of Exhibits and Schedules.......................... A-41
11.12. Counterparts..................................................... A-41
</TABLE>
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<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Exhibits
<TABLE>
<C> <S>
Exhibit A Agreement of Merger.
Form of Certificate of Designation for Jameson Series S
Exhibit A-1 Preferred Stock.
Exhibit B Amendment of Signature Rights Agreement.
Exhibit C Form of Employment Agreements.
Assignment and Assumption Agreement--Signature Operating
Exhibit D Assets and Liabilities.
Schedules
Schedule 1.05 Options to purchase Common Stock of Signature.
Schedule 2.01 Subsidiaries of Signature.
Schedule 2.02(c) Consents.
Schedule 2.04 Changes since the September 30, 1998.
Schedule 2.07 Signature Tax Matters.
Schedule 2.08 Intellectual Property Rights.
Schedule 2.09 Real Property.
Schedule 2.10 Employee Benefit Plans.
Schedule 2.11 Signature Litigation.
Schedule 2.12 Insurance.
Schedule 2.14 Compliance with Laws.
Schedule 3.03 Jameson Tax Matters.
Schedule 3.09 Jameson Litigation.
Schedule 3.10 Jameson Compliance with Laws.
</TABLE>
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<PAGE>
DEFINITIONS
Capitalized terms used herein shall have the meanings ascribed to them in
the sections set forth below.
Affiliate: as defined in Section 2.10(a).
Agreement: as defined in the first sentence of this document.
Average Price: as defined in Section 1.04.
Closing: as defined in Section 1.01.
Code: as defined in Section 2.10.
Commission: as defined in Section 2.05.
Dissolved Partnerships: as defined in Section 2.02(h).
Earnings and Profits: as defined in Section 7.08(a).
Effective Time of the Merger: as defined in Section 1.02.
Employee Pension Benefit Plans: as defined in Section 2.10.
Employee Welfare Benefit Plans: as defined in Section 2.10.
Encumbrance: as defined in Section 2.09.
Environmental Laws: as defined in Section 2.14.
ERISA: as defined in Section 2.10.
Georgia Law: as defined in Section 1.01.
Governmental Entity: as defined in Section 2.02.
Indiana Law: as defined in Section 1.01.
IRS: as defined in Section 2.10(c).
Intellectual Property: as defined in Section 2.08.
Jameson Common Stock: as defined in Section 3.04.
Jameson SEC Reports: as defined in Section 3.08.
Jameson Series A Preferred Stock: as defined in Section 3.04.
Jameson Series S Preferred Stock: as defined in Section 3.05.
Jameson Stockholder Meeting: as defined in Section 5.04.
Knowledge: as defined in Section 11.09.
Legal Requirements: as defined in Section 2.14.
Material Adverse Effect: as defined in Section 2.02.
Merger: as defined in the recitals.
Merger Agreement: as defined in Section 1.01.
PBGC: as defined in Section 4.13(c).
Person: as defined in Section 2.02.
Property Restriction: as defined in Section 2.10.
Proxy Statement: as defined in Section 2.15.
Registration Statement: as defined in Section 2.15.
REIT: as defined in Section 3.03.
Rights: as defined in Section 2.03.
Rights Agreement: as defined in Section 2.03.
1933 Act: as defined in Section 2.02.
1934 Act: as defined in Section 2.02.
Significant Subsidiary: as defined in Section 4.03.
Subsidiary: as defined in Section 2.01.
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Superior Proposal: as defined in Section 4.03. Put in a definition of
Subsidiary.
Surviving Corporation: as defined in Section 1.01.
Signature Common Stock: as defined in Section 2.03.
Signature Partnerships: as defined in Section 2.02.
Signature Preferred Stock: as defined in Section 2.03.
Signature Properties: as defined in Section 2.09.
Signature SEC Reports: as defined in Section 2.05.
Signature Series One Preferred Stock: as defined in Section 2.03.
Signature Stockholder Meeting: as defined in Section 4.14.
Takeover Proposal: as defined in Section 4.03.
Tax Returns: as defined in Section 2.07.
Tax: as defined in Section 2.07.
Worker Safety Laws: as defined in Section 2.14.
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<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is dated as of January 27, 1999 (this
"Agreement"), by and among Jameson Inns, Inc. a Georgia corporation
("Jameson"), and Signature Inns, Inc., an Indiana corporation ("Signature").
WHEREAS, the Boards of Directors of Jameson and Signature deem it advisable
and in the best interests of their respective corporations that Signature be
merged with and into Jameson; and
WHEREAS, the Boards of Directors of Jameson and Signature, by resolutions
duly adopted, have approved this Agreement providing for the merger of
Signature with and into Jameson (the "Merger"), with Jameson surviving such
Merger, and the respective Boards of Directors of Jameson and Signature have
recommended the Merger Agreement for approval by their respective stockholders
in accordance with the terms of this Agreement, Georgia and Indiana Law and the
Nasdaq Stock Market; and
WHEREAS, Jameson and Signature desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated by this Agreement and to prescribe various conditions precedent to
such transactions;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements herein set forth, the
parties to this Agreement have agreed, and hereby agree subject to the terms
and conditions hereinafter set forth, as follows:
ARTICLE I
THE MERGER
1.01. The Merger.
(a) At the Effective Time of the Merger, in accordance with the
provisions of the Georgia Business Corporation Code and other applicable
Georgia law ("Georgia Law"), the Indiana Business Corporation Law and other
applicable Indiana law ("Indiana Law"), and the terms of this Agreement,
Signature shall be merged with and into Jameson, with Jameson surviving the
merger ("Surviving Corporation"), all as more fully provided for in the
form of Agreement of Merger, which is attached hereto as Exhibit A and
incorporated herein by reference (the "Merger Agreement").
(b) The consummation of the transactions contemplated by Section 1.01(a)
hereof and by this Agreement is herein called the "Closing."
1.02. Effective Time of the Merger. The Merger shall not become effective
until, and, subject to the terms and conditions of this Agreement, shall become
effective when, appropriate Articles of Merger shall have been filed, in
accordance with the requirements of Georgia Law and Indiana Law, in the offices
of the Secretary of State of the State of Georgia and the offices of the
Secretary of State of Indiana. The date and time when the Merger shall become
effective as aforesaid is herein referred to as the "Effective Time of the
Merger."
1.03. Articles of Incorporation, By-laws, Directors and Officers.
(a) The Amended and Restated Articles of Incorporation of Jameson as in
effect immediately prior to the Effective Time of the Merger shall be the
Amended and Restated Articles of Incorporation of the Surviving Corporation
from and after the Effective Time of the Merger until amended in accordance
with Georgia Law.
(b) The By-laws of Jameson, as in effect immediately prior to the
Effective Time of the Merger, shall be the By-laws of the Surviving
Corporation from and after the Effective Time of the Merger until
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amended in accordance with Georgia Law and the Restated Articles of
Incorporation and the By-laws of the Surviving Corporation.
(c) The officers of Jameson in office immediately prior to the Effective
Time of the Merger shall be the officers of the Surviving Corporation from
and after the Effective Time of the Merger, each to hold office in
accordance with the Restated Articles of Incorporation and By-laws of the
Surviving Corporation.
(d) The directors of Jameson in office immediately prior to the
Effective Time of the Merger shall be the directors of the Surviving
Corporation from and after the Effective Time of the Merger, and each shall
hold such office until his successor shall have been elected or qualified
or as otherwise provided in the By-laws or Restated Articles of
Incorporation of the Surviving Corporation.
1.04. Conversion of Shares. At the Effective Time of the Merger:
(a) Each share of Signature Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into one-half of one fully paid and nonassessable share of
Jameson Common Stock and the right to receive cash in the amount of $1.50
less the amount of the per share extraordinary dividend paid for the
purpose of distributing any current and anticipated undistributed Earnings
and Profits of Signature as contemplated by Section 4.21. No fractional
shares of Jameson Common Stock shall be issued. Any holder of Signature
Common Stock who, at the Effective Time of the Merger, otherwise becomes
entitled to receive a fractional share of Jameson Common Stock shall, in
lieu thereof, be entitled to receive cash equal to such fraction multiplied
by the average of the per share closing prices for the Jameson Common Stock
(the "Average Price") on the Nasdaq National Market for the five (5)
consecutive trading days ending on the last trading day of the calendar
week preceding the calendar week of the Effective Time of the Merger.
(b) Each share of Signature Preferred Stock shall, by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into one share of Jameson Series S Preferred Stock which shall
have the rights, preferences and terms set forth in the Designation of
Preferences, Rights, Privileges and Restrictions of $1.70 Series S
Cumulative Preferred Stock set forth in the Articles of Amendment of the
Jameson Articles of Incorporation to be filed with the Secretary of State
of Georgia and attached hereto as Exhibit A-1.
(c) Each share of Signature Common Stock held in the treasury of
Signature immediately prior to the Effective Time of the Merger shall be
canceled, without any payment or other distribution in respect thereof.
(d) At the Effective Time of the Merger, each outstanding certificate
which theretofore represented shares of the Signature Common Stock (and
associated Rights) shall be deemed for all purposes to evidence ownership
of and to represent that number of shares of Jameson Common Stock and the
right to receive the cash payment into which the shares of the Signature
Common Stock represented thereby shall have been converted and all Rights
associated with such shares of Signature Common Stock shall be thereby
canceled and shall cease to exist. Also, at the Effective Time of the
Merger, each outstanding certificate which theretofore represented shares
of the Signature Preferred Stock shall be deemed for all purposes to
evidence ownership of and to represent that number of shares of Jameson
Preferred Stock into which the shares of the Signature Preferred Stock
represented thereby shall have been converted.
1.05. Employee Stock Options. At the Effective Time of the Merger, the
outstanding options to purchase shares of the Common Stock of Signature
reflected on Schedule 1.05 hereto which are then unexercised will be canceled.
Each of the Signature employees who held canceled options to purchase shares of
Signature Common Stock shall be granted options under the Jameson 1993 Stock
Incentive Plan providing for the purchase of that number of shares of Jameson
Common Stock (the "Jameson Replacement Options") equal to the number of shares
of Signature Common Stock covered by the canceled options. The exercise price
of the Jameson Replacement Options will be equal to the closing sales price for
Jameson Common Stock as reported on the
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Nasdaq National Market on the Effective Date of the Merger. Such options shall
become exercisable with respect to one-third of the shares covered thereby on
each of the first three anniversary dates of the Effective Date of the Merger.
Subject to the foregoing, the exercise, termination and other provisions of the
Jameson Replacement Options shall be as comparable to the provisions of the
canceled options prior to the Effective Time of the Merger (and without regard
to any acceleration of the vesting of the options due to the Merger) as
practicable in light of the terms, provisions and requirements of the Jameson
1993 Stock Incentive Plan and the rules and regulations of the Code.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SIGNATURE
Signature hereby represents and warrants to Jameson as follows:
2.01. Organization; Good Standing; Power, Etc. Signature is a corporation
duly incorporated and validly existing under the laws of the State of Indiana
and has all requisite power and authority to own, operate and lease its
properties and assets and to carry on its business as now being conducted.
Signature has no Subsidiaries, as defined below, other than those listed on
Schedule 2.01 hereto. Each Signature Subsidiary is a corporation duly organized
and validly existing under the laws of the State of Indiana and has all
requisite power and authority to own, operate and lease its properties and
assets and to carry on its business as now being conducted. Signature and each
Signature Subsidiary, as hereafter defined, is duly qualified to do business
and is in good standing as a foreign corporation or other entity in each other
jurisdiction in which the ownership, operation or leasing of its properties or
assets or the nature of its business requires such qualification except where
the failure so to qualify would not have a Material Averse Effect on the
business, financial condition or properties of Signature and its Subsidiaries
taken as a whole. As used in this Agreement, the term "Subsidiary" shall mean
any corporation 50% or more of the outstanding voting power of which, or any
partnership, joint venture, limited liability company, limited partnership or
other entity 50% or more of the total equity interest of which, is directly or
indirectly owned by another entity.
2.02. Authorization of Agreement, Etc.
(a) Signature has all requisite corporate power and authority to enter
into and perform all of its obligations under this Agreement. The execution
and delivery of this Agreement by Signature and the consummation by
Signature of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Signature, subject only,
with respect to the Merger, to the approval of holders of a majority of the
outstanding shares of Signature Common Stock entitled to vote and the
holders of a majority of the outstanding shares of Signature Preferred
Stock entitled to vote, voting separately as a class. This Agreement has
been duly executed and delivered by Signature and constitutes the legal,
valid and binding obligation of Signature, enforceable against Signature in
accordance with its terms except as enforceability may be subject to (i)
any applicable bankruptcy, insolvency, reorganization or other law relating
to or affecting creditors' rights generally and (ii) general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(b) Assuming the approval of the holders of at least a majority of the
outstanding shares of Signature Common Stock and the holders of at least a
majority of the outstanding shares of Signature Preferred Stock, voting
separately as a class, is obtained, neither the execution and delivery of
this Agreement by Signature nor the consummation of the transactions
contemplated hereby to be performed by Signature will (i) violate or
conflict with any provision of the Articles of Incorporation, as amended,
or Bylaws, as currently in effect, of Signature or (ii) violate or conflict
with any provision of any law, rule, regulation, order, permit,
certificate, writ, judgment, injunction, decree, determination, award or
other decision of any foreign, federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality ("Governmental Entity"), other regulatory or self-
regulatory body or association or arbitrator binding upon Signature or any
of its properties, except where such violations or conflicts would
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not in the aggregate have a Material Adverse Effect on the business,
properties, financial condition or results of operations of Signature or on
the ability of Signature to consummate the transactions contemplated
hereby, and except for violations that will be cured, waived or terminated
prior to the Effective Time of the Merger. The term "Material Adverse
Effect," with respect to any entity, shall mean a material adverse effect
on or change in the financial condition, assets or results of operations of
such entity and its subsidiaries (including any subsidiary partnership)
taken as a whole (without regard, however, to changes in conditions
generally applicable to the hotel industry or general economic conditions
globally, in the United States or in the geographical regions thereof in
which such entity conducts business, and any changes in the financial
condition or results of operations or assets of such entity and its
subsidiaries, taken as a whole, that are caused primarily or substantially
by such changes or events or as a result of the announcement of this
Agreement and the transactions contemplated hereby, including the payment
of any costs, expenses, fees or similar charges incurred by such entity's
contemplation, negotiation, execution or consummation of this Agreement or
the transactions contemplated hereby). The term "entity" shall mean and
include a company, a partnership, a limited partnership, a joint venture, a
limited liability company, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby to be performed by
Signature will result in a breach of or constitute a default (or with
notice or lapse of time or both result in a breach of or constitute a
default) under, or give rise to a right of termination, cancellation,
acceleration or repurchase of any obligation or a right of first refusal
with respect to any material property or asset or a loss of a material
benefit or the imposition of a material penalty under, any of the terms,
conditions or provisions of (i) any mortgage, indenture, loan or credit
agreement or any other agreement or instrument evidencing indebtedness for
money borrowed to which Signature or any Signature Subsidiary is a party or
by which it or any of its properties is bound or affected, or pursuant to
which Signature or any Signature Subsidiary has guaranteed the indebtedness
or preferred stock of any natural person, firm, partnership, association,
corporation, limited liability company, company, trust, entity, public body
or government, or entity ("Person"), or (ii) any lease, license, tariff,
contract or other agreement or instrument to which Signature is a party or
by which it or any of its properties is bound or affected, except for any
such breaches, defaults, rights, losses or penalties that do not have a
Material Adverse Effect on the business, properties, financial condition or
results of operations of Signature or such Signature Subsidiary or on the
ability of Signature to consummate the transactions contemplated hereby, or
with respect to which the consents, waivers or releases listed on Schedule
2.02(c) attached hereto will be obtained prior to the Effective Time of the
Merger.
(d) Neither the execution and delivery by Signature of this Agreement
nor the consummation of the transactions contemplated hereby to be
performed by Signature will result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest
or other charge or encumbrance of any nature upon or with respect to any of
the properties or other assets now or hereafter owned by Signature or any
Signature Subsidiary, except where such would not in the aggregate have a
Material Adverse Effect on the business, properties, financial condition or
results of operations of Signature or any Signature Subsidiary or on the
ability of Signature to consummate the transactions contemplated hereby.
(e) No consent, approval, order, certificate or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to Signature in connection with the execution
and delivery of this Agreement by Signature or the consummation by
Signature of the transactions contemplated hereby, other than (i) in
connection or compliance with any applicable provisions of Georgia Law,
Indiana Law, the Securities Act of 1933, as amended ("1933 Act"), the
Securities Exchange Act of 1934, as amended ("1934 Act"), and any
applicable state securities laws or regulations, and (ii) such filings or
registrations that, if not made, and such authorizations, consents or
approvals, that, if not received, would not in the aggregate have a
Material Adverse Effect on the business, properties, financial condition or
results of operations of Signature or any Signature Subsidiary or on the
ability of Signature to consummate the transactions contemplated hereby.
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(f) Signature and each Signature Subsidiary has made or obtained each
registration, filing, submission, license, permit, certificate,
determination or governmental approval necessary to enable it to carry on
its business, except for those which the failure to have does not have a
Material Adverse Effect on the business, properties, financial condition or
results of operations of Signature or such Signature Subsidiary. All such
registrations, filings and submissions with any Governmental Entity
relating to the operations of Signature or any Signature Subsidiary were in
material compliance with applicable law when filed, and no material
deficiencies have been asserted by any such authority with respect to such
registrations, filing or submissions.
(g) SM Limited Partnership (the "Signature Partnership") is a limited
partnership duly organized, validly existing and in good standing under the
laws of the State of Indiana and is duly qualified to do business and is in
good standing in each jurisdiction in which the nature of its business
activities or its ownership or leasing of property makes such qualification
necessary, except where the failure to qualify would not or could not
reasonably be expected to have a Material Adverse Effect on such Signature
Partnership. The Signature Partnership has full power and authority to own
or lease and to operate and use its properties and to carry on its business
as now conducted. True and correct copies of the partnership agreement of
the Signature Partnership, as amended to date, has been delivered to
Jameson. The general partner of the Signature Partnership is P&N
Corporation and the sole limited partner of the Signature Partnership is
GPI Hotel Properties, L.P.
(h) Each of the limited partnerships listed on Schedule 2.02 (h) hereto
(the "Dissolved Signature Partnerships") was a limited partnership duly
organized under Indiana law and prior to the date hereof has been dissolved
in accordance with Indiana Law and the requirements of the agreement of
limited partnership applicable thereto. Prior to or in connection with the
liquidation and dissolution of each Dissolved Signature Partnership, good
and marketable title to the hotel property or properties owned and operated
thereby were sold or otherwise transferred to Signature or the Signature
Subsidiary indicated on Schedule 2.02 (h) free of liens, charges,
mortgages, encumbrances, security interests or other adverse claims except
those that were expressly specified in the title insurance policies
covering such properties, copies of which have been provided to Jameson.
The transfers of such properties and the dissolution of the Dissolved
Signature Partnerships were effected in material compliance with all
requirements of Indiana Law, the terms of the respective agreements and
certificates of limited partnership, and the terms of any loan agreements,
mortgages, deeds of trust, security agreements, management agreements,
leases, franchise agreements or other documents applicable thereto. Without
limiting the generality of the foregoing, it is represented that all
required notices were given, all required consents, waivers or approvals of
partners, lenders, Government Entities and other third Persons required in
connection therewith were obtained, true, accurate and complete final
accountings were prepared and provided to each partner of each Dissolved
Signature Partnership and no claims have been asserted against Signature,
the general partner of any Dissolved Signature Partnership or any other
Subsidiary or Affiliate of Signature with respect to either the transfers
of the properties to Signature or its Subsidiaries or the dissolution of
the Dissolved Signature Partnerships and the distribution of the
partnership assets to the partners thereof in connection therewith, and
Signature is not aware of any facts or circumstances which could reasonably
be a basis for any such claim. None of the limited partners or other
investors in the Dissolved Partnerships has any dissenters' appraisal
rights or other claims or rights regarding either the act of liquidating
and dissolving the Dissolved Partnerships or the value, fairness, propriety
or legality of the transfers of the hotel properties or other acts involved
in the liquidation and dissolution of the Dissolved Partnerships.
2.03. Capitalization.
(a) The authorized capital stock of Signature consists of 5,000,000
shares of preferred stock, no par value and 25,000,000 shares of common
stock, no par value ("Signature Common Stock"). As of the date of this
Agreement, 2,105,703 shares of Signature Common Stock (including the
corresponding number of Rights (as defined below) to purchase Signature
Series One Preferred Stock (as defined below) pursuant to the Rights
Agreement (as defined below)) and 2,256,000 shares of Signature $1.70
Cumulative
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Convertible Preferred Stock, Series A ("Signature Preferred Stock") are
issued and outstanding. The only outstanding options, warrants, or other
rights to purchase shares of Signature Common Stock are the employee stock
options covering a total of 80,168 shares of Signature Common Stock
referred to in Section 1.05 above and which are listed in Schedule 1.05
thereto. All shares of capital stock of Signature have been duly
authorized, validly issued, fully paid and nonassessable, and are not
subject to, or issued in violation of, any preemptive rights. Except as set
forth above, there are no shares of capital stock of Signature authorized
or outstanding, and there are no subscriptions, options to purchase shares
of the capital stock of Signature, conversion or exchange rights, warrants,
preemptive rights or other agreements, claims or commitments of any nature
whatsoever (whether firm or conditional) obligating Signature to issue,
transfer, deliver or sell, or cause to be issued, transferred, delivered or
sold, additional shares of the capital stock or other securities or
interests of Signature or obligating Signature to grant, extend or enter
into any such agreement or commitment.
(b) Signature has approved the Amendment of the Rights Agreement as set
forth on Exhibit B. The term "Rights" means a stock purchase right
entitling the holder thereof the right to purchase one hundredth of one
share of Signature Non-cumulative Preferred Stock, Series One, without par
value ("Signature Series One Preferred Stock") at an initial exercise price
of $40 per one-hundredth of one share, subject to adjustment. The "Rights
Agreement" is the agreement that provides said stock purchase rights to the
holders of Signature Common Stock. The Company has executed the Amendment
to the Rights Agreement and has taken all other action, if any, necessary
(so long as this Agreement has not been terminated) to (i) render the
Rights inapplicable to the Merger and the other transactions contemplated
by this Agreement and (ii) ensure that (y) neither Jameson nor any of its
affiliates is an Acquiring Person (as defined in the Rights Agreement) and
(z) a Stock Acquisition Date or an Exercisability Date (as defined in the
Rights Agreement) does not occur by reason of the announcement or
consummation of the Merger or the consummation of any of the other
transactions contemplated by this Agreement. Upon consummation of the
Merger, the Rights will be canceled and shall cease to exist and none of
the Persons who owned Signature Common Stock, Signature Preferred Stock or
any associated Rights will have any rights, claims or interests thereunder
or with respect thereto.
2.04. Absence of Certain Changes or Events. Except as has occurred in the
ordinary course of business consistent with prior practices and custom or as
disclosed in Schedule 2.04, since September 30, 1998, neither Signature nor any
Signature Subsidiary has (i) borrowed, or agreed to borrow, funds, (ii)
incurred or become subject to, or agreed to incur or become subject to, any
material obligation or liability, contingent or otherwise, except current
liabilities incurred, and obligations under contracts entered into, in the
ordinary course of its business, (iii) discharged or satisfied any material
lien, charge or encumbrance or paid any material obligation or liability,
contingent or otherwise, other than current liabilities shown in the Interim
Balance Sheet, current liabilities incurred since September 30, 1998 in the
ordinary course of its business and prepayments of obligations in accordance
with normal and customary past practices, (iv) declared, set aside or paid any
dividend or other distribution (whether in cash, stock or property) in respect
of its capital stock, except for the cumulative dividends which accrued and
became payable under the terms of the Signature Preferred Stock, (v) mortgaged,
pledged or subjected to lien, charge or other encumbrance, or agreed so to do,
any of the assets material to the operation of its business, tangible or
intangible, (vi) sold, assigned, transferred, conveyed, leased or otherwise
disposed of or agreed to sell, assign, transfer, convey, lease or otherwise
dispose of any of its assets or properties, (vii) canceled or compromised any
debt or claim, except for immaterial adjustments made in the ordinary course of
business, or waived or released any rights, regardless of whether in the
ordinary course of business, which, in the aggregate, are material, (viii)
entered into any material transaction, contract or commitment, (ix) declared,
set aside, or made any payment to its executives, board members, employees or
any other person either in contemplation of this Agreement or otherwise in the
form of a bonus or other form of incentive or other nonrecurring compensation,
(x) increased, or agreed to increase, the monthly rate of compensation payable
or to become payable by it to any of its officers, directors or other key
management employees over the rate being paid to them or accrued for at
September 30, 1998, (xi) increased, or agreed to
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increase, the rate of compensation payable or to become payable by it to any of
its employees (other than officers, directors and other key management
employees) over the rate being paid to them or accrued for at September 30,
1998, or other than in accordance with its established procedures for annual or
other periodic reviews and increments, (xii) made or permitted, or agreed to
make or permit, any amendment or termination of any material contract,
mortgage, lease, license, agreement or other instrument to which it is a party
or by which any of its properties or assets are bound, (xiii) made, or agreed
to make, any accrual or arrangement for or payment of bonuses or special
compensation in excess of $25,000 of any kind to any employee (or $100,000 in
the aggregate for all employees), (xiv) directly or indirectly paid, or agreed
to pay, any severance or termination pay to any employee in excess of $10,000
(or $50,000 in the aggregate for all employees) which was not accrued for at
September 30, 1998, (xv) made, or agreed to make, any changes in its accounting
methods or practices, (xvi) made capital expenditures which, in the aggregate,
exceed $100,000, or, entered into any commitment therefor, or (xvii)
experienced any material adverse change in its financial condition, assets,
liabilities, earnings or business.
2.05. Signature SEC Reports. Signature has delivered or made available to
Jameson (i) each registration statement, report on Form 8-K, proxy statement or
information statement prepared by it since January 1, 1996, (ii) Annual Reports
on Form 10-KSB for the years ended December 31, 1997, December 31, 1996, and
December 31, 1995 and (iii) the Company's Quarterly Reports on Form 10-QSB for
the quarterly periods ended March 31, June 30, and September 30, of 1996, 1997
and 1998, each in the form (including exhibits) filed with the Securities and
Exchange Commission ("Commission") (collectively, the "Signature SEC Reports").
As of their respective dates, the Signature SEC Reports did 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 made therein, in light
of the circumstances in which they were made, not misleading. Each of the
balance sheets included in or incorporated by reference into the Signature SEC
Reports (including the related notes and schedules) fairly presents the
financial position of Signature as of its date and each of the statements of
income, of stockholders' equity and of cash flows included in or incorporated
by reference into the Signature SEC Reports (including the related notes and
schedules) fairly presents the results of operations, stockholders' equity and
cash flows, as the case may be, of Signature for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material to Signature in amount or effect), in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved except as noted therein. Other
than the Signature SEC Reports, Signature has not filed any other definitive
reports or statements with the Commission since January 1, 1996.
2.06. Defaults. There exists no event of default by Signature or any
Signature Subsidiary under the terms of its Articles of Incorporation, as
amended, or Bylaws, as amended. In addition, there exists no event of default
or breach by Signature or any Signature Subsidiary, to the Knowledge of
Signature, or SEC by any other party which has occurred under the terms of any
contract, agreement, document, lease, commitment, mortgage, loan, note,
license, franchise, permit, authorization, concession, order, law, rule or
regulation, which violation could reasonably be expected to have a Material
Adverse Effect on Signature or any such Subsidiary or its properties or
operations, and no event has occurred that is, or which with notice or lapse of
time or both would constitute, such a default or breach.
2.07. Tax Matters.
(a) Except as provided in Schedule 2.07, (a) all (i) returns and reports
("Tax Returns") of or with respect to any Tax which is required to be filed
on or before the Closing Date by or with respect to Signature or the
business operations of Signature have been or will be duly and timely
filed, (ii) items of income, gain, loss, deduction and credit or other
items required to be included in each such Tax Return have been or will be
so included and all information provided in each such Tax Return is true,
correct and complete, (iii) Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or will be
timely paid in full, and (iv) withholding Tax requirements imposed on or
with respect to Signature have been or will be satisfied in full in all
respects. In addition, no penalty, interest or other charge is or will
become due with respect to the late filing of any such Tax Return or late
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payment of any such Tax. For purposes of this Agreement, the term "Tax"
(and, with correlative meaning, "Taxes" and "Taxable") shall mean any
federal, state, local or foreign income, gross receipts, property, sales,
use, license, excise, franchise, employment, payroll, withholding,
alternative or add-on minimum, ad valorem, value added, occupancy,
hospitality, transfer or excise Tax, or any other Tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, imposed by any Governmental Entity.
Signature's Tax Returns have included all of the corporate Signature
Subsidiaries on a consolidated basis.
(b) To the extent related to federal or state income taxes, all Tax
Returns of or with respect to Signature have been examined by the
applicable Governmental Entity, or the applicable statute of limitations
has expired, for all periods up to and including the periods set forth in
Schedule 2.07.
(c) There is no claim against Signature for any Taxes, and no
assessment, deficiency or adjustment has been asserted or proposed with
respect to any Tax Return of or with respect to Signature.
(d) Except as set forth in Schedule 2.07, there is not in force any
extension of time with respect to the due date for the filing of any Tax
Return of or with respect to Signature or any waiver or agreement for any
extension of time for the assessment or payment of any Tax of or with
respect to Signature.
(e) The total amounts set up as a reserve for current and prior tax
liabilities, excluding any amounts recorded as deferred tax liabilities, in
the Interim Balance Sheet are sufficient to cover the payment of all Taxes,
whether or not assessed or disputed, which are, or are hereafter found to
be, or to have been, due by or with respect to Signature and its business
and properties up to and through taxable periods ending on or before the
Closing Date.
(f) Signature is not a party to any Tax allocation or sharing agreement
and no payments are due or will become due by Signature pursuant to any
such agreement or arrangement.
(g) Except as set forth in Schedule 2.07, none of the property of
Signature is held in an arrangement that could be classified as a
partnership for Tax purposes.
(h) The final Tax Returns for all of the Dissolved Signature
Partnerships have been filed with the appropriate Governmental Entities and
all reports and notices required to be provided to the partners thereof
have been so provided. There have been no claims, notices or other
correspondence or communication received from any Governmental Entity
regarding audits, assessments, or other actions that might be taken in
respect of such Tax Returns or the information and data contained therein.
(i) As of December 31, 1998, Signature has (and at the Effective Time of
the Merger it will have) no consolidated deferred intercompany income or
gains as defined under Internal Revenue Code Section 1502 and Regulations
Section 1.1502-13 ( "Deferred Intercompany Gains").
2.08. Trademarks, Copyrights, Etc.
(a) Signature and its Subsidiaries own or have the right to use all
patents, patent rights, trademarks, trade names, service marks, trade
secrets, copyrights and other proprietary intellectual property rights
("Intellectual Property"), as set forth in Schedule 2.08, as are necessary
in connection with the business of Signature and its Subsidiaries, taken as
a whole, except where the failure to have such Intellectual Property,
individually or in the aggregate, has not had, and would not reasonably be
expected to have, a Material Adverse Effect on Signature.
(b) There have not been asserted against Signature any claims that any
product, activity, name, mark, design or operation of Signature infringes
upon or involves, or had resulted in the infringement of, any proprietary
right of any other person, corporation or other entity; and no proceedings
have been instituted, are pending or are threatened which challenge the
rights of Signature with respect thereto, in each case, which would have a
Material Adverse Effect on the business, properties, financial condition or
results of operations of Signature.
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2.09. Title to Properties: Absence of Liens and Encumbrances: Leases,
etc. Signature and its Subsidiaries own, and have good, valid and marketable
title to, the assets purported to be owned by them and which are material to
the conduct of the business of Signature and for such purpose each hotel
property owned by Signature or its Affiliates (a "Signature Property") shall be
deemed to be material. Except as set forth in Schedule 2.09 hereto, such assets
are owned by Signature free and clear of any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership ("Encumbrance"), except for (i) any lien for
current taxes not yet due and payable and (ii) liens that have arisen in the
ordinary course of business and that do not materially detract from the value
of the assets subject thereto or materially impair the use or operation of such
assets or the business, operations or affairs of of Signature or any of its
Subsidiaries. The material items of equipment and tangible assets owned by or
leased to Signature and its Subsidiaries are adequate for the uses to which
they are being put and are in good condition and repair (ordinary wear and tear
excepted). Except as set forth in Schedule 2.09 hereto, all of the real
property owned or leased by Signature and its Subsidiaries was disclosed in
Signature's annual report on Form 10-KSB for the year ended December 31, 1997,
which was filed with the SEC. Valid policies of title insurance have been
issued insuring Signature's or any of its Subsidiaries' title to the Signature
Properties owned in fee in amounts at least equal to the purchase price or
construction cost thereof (whichever is applicable), subject only to the
matters set forth therein or disclosed above, and such policies are, at the
date hereof, in full force and effect and there are no pending claims against
any such policy. Any material certificate, permit or license from any
governmental authority having jurisdiction over any Signature Property and any
agreement, easement or other right which is necessary to permit the material
lawful use and operation of the buildings and improvements on any of the
Signature Properties or which is necessary to permit the lawful use and
operation in all material respects of all driveways, roads and other means of
egress and ingress, which Signature has rights to, to and from any of the
Signature Properties which are currently occupied and are material to the
operation of the property has been obtained and is in full force and effect.
Signature is not in receipt of any written notice of any violation of any
material federal, state or municipal law, ordinance, order, regulation or
requirement affecting any portion of any of the Signature Properties issued by
any governmental authority other than such violations which would not
reasonably be expected to have a Material Adverse Effect on Signature or any of
its Subsidiaries. To the Knowledge of Signature, (A) there are no material
structural defects relating to Signature Properties, (B) there are no Signature
Properties whose building systems are not in working order in any material
respect (except for normal maintenance and operating systems failures which in
any event are the subject of adequate pending repair procedures), (C) there is
no physical damage to any Signature Property in excess of $50,000 for which
there is no insurance in effect covering the cost of the restoration as of the
date hereof, or (D) no current renovation or restoration to any Signature
Property is underway or for which contracts have been entered into the cost of
which exceeds $50,000, except in each case, as set forth in Schedule 2.09.
Neither Signature nor any of its Subsidiaries has received any written notice
to the effect that (x) any condemnations or material rezoning proceedings are
pending or threatened with respect to any of the Signature Properties where the
fair market value of the object of such proceedings exceeds $100,000 or (y) any
zoning, building or similar law, code, ordinance or regulation is or will be
violated in any material respect by Signature or its Subsidiaries by the
continued maintenance, operation, or use of any buildings or other improvements
on any of the Signature Properties as currently maintained, used or operated by
Signature or its Subsidiaries which is not insured over and where the remedying
of such violations would materially and adversely affect the relevant Signature
Property. All work to be performed, payments to be made and actions to be taken
by Signature or any of its Subsidiaries prior to the date hereof pursuant to
any agreement entered into with a governmental body or authority in connection
with a site approval, zoning reclassification or other similar action relating
to the Signature Properties has been performed, paid or taken, as the case may
be, in all material respects, and Signature is not aware of any planned or
proposed work, payments or actions that may be required after the date hereof
pursuant to such agreements.
2.10. Employee Benefit Plans.
(a) Employee Welfare Benefit Plans. Schedule 2.10 lists each and every
"employee welfare benefit plan" (as defined in Section 3(1) of Employee
Retirement Income Security Act ("ERISA")) maintained
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at any time since January 1, 1990 by Signature or any corporation or other
trade or business aggregated with Signature for treatment as a single
employer under Section 414(t) of the Internal Revenue Code of 1986, as
amended ("Code") or Section 3(40)(B), 4001(a)(14) or 4001(b) of ERISA),
either currently or at any time since January 1, 1990 with Signature
(hereafter "Affiliate"), or to which Signature or any affiliate
contributes, is required to contribute or has contributed, including any
such type of plan established, maintained or contributed to under the laws
of any foreign country (such plans being hereinafter collectively referred
to as the "Employee Welfare Benefit Plans") for employees or former
employees of Signature, and Signature has prior to the date of this
Agreement delivered to Jameson true and complete copies of each and every
Employee Welfare Benefit Plan together with all documents or instruments
establishing or constituting any related trust or other funding instrument.
(b) Employee Pension Benefit Plans.
(i) Schedule 2.10 lists each and every "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) maintained at any time
since January 1, 1990 by Signature or any Affiliate, or to which
Signature or any Affiliate contributes, is required to contribute or
has contributed, including any multiemployer pension plans (as defined
in either Section 3(37) or Section 4001(a) (3) of ERISA) and including
any such type of plan established, maintained or contributed to under
the laws of any foreign country (such employee benefit plans being
hereinafter collectively referred to as the "Employee Pension Benefit
Plans") for employees or former employees of Signature, and Signature
has prior to the date of this Agreement delivered to Jameson true and
complete copies of each and every such Employee Pension Benefit Plan
together with such copies of all documents or instruments establishing
or constituting any related trust or other funding instruments.
(ii) Concerning each Employee Pension Benefit Plan that is in whole
or in part an "individual account plan" (as defined in Section 3(34) of
ERISA), there is set forth in Schedule 2.10, (A) the amount of any
Signature unpaid liability for contributions due with respect to each
such Employee Pension Benefit Plan for periods up to the date hereof
and (B) the amount of any contribution expected to be accrued or paid
with respect to such Employee Pension Benefit Plan for the current plan
year; with respect to any such Employee Pension Benefit Plan, no such
plan has been terminated or partially terminated and no assets of any
such plan have been used or employed in a manner so as to subject them
to an excise Tax imposed under Section 4980 of the Code; and each such
Employee Pension Benefit Plan permits termination thereof.
(iii) From and after July 1, 1974, neither Signature nor any
Affiliate (including entities that were, but are no longer, Affiliates)
has contributed to, been required to contribute to or maintained any
Employee Pension Benefit Plan subject to Title IV of ERISA.
(c) ERISA, Code and Other Laws Compliance. Signature has established and
maintained all Employee Pension Benefit Plans and Employee Welfare Benefit
Plans and any related trust agreements or any other documents relating to
the administration or funding of such plans in all material respects in
compliance with the provisions of ERISA, the Code, and any other applicable
laws; and favorable determinations as to the qualification under the Code
of each of the Employee Pension Benefit Plans (and each amendment thereto)
have been made by the Internal Revenue Service ("IRS"), except as to
amendments with respect to legislation enacted after the Tax Reform Act of
1986 and other recent changes in applicable statutes and regulations or as
set forth on Schedule 2.10 hereof. Each voluntary employees' beneficiary
association (or so-called "VEBA Trust") maintained by Signature or any
Affiliate is intended to satisfy the requirements of Section 501(c) (9) of
the Code and satisfies such provisions in all material respects. Each
Employee Pension Benefit Plan is intended to satisfy the requirements of
Section 401(a) and 501(a) of the Code and satisfies such provisions in all
material respects. No benefits provided or to be provided under an Employee
Welfare Benefit Plan will result in the imposition of excise Taxes under
Section 4976 of the Code. No Employee Welfare Benefit Plan has or will have
been deemed unrelated business income under Section 512(a)(3) of the Code.
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(d) Administration of Plans. Except as set forth in Schedule 2.10, the
administration of all Employee Pension Benefit Plans and all Employee
Welfare Benefit Plans and any trusts relating to such plans has been
consistent with and in compliance in all material respects with applicable
requirements of the Code, ERISA and any other applicable law, including,
without limitation, compliance on a timely basis with all requirements for
reporting and disclosure concerning each Employee Welfare Benefit Plan and
Employee Pension Benefit Plan, and all notices and coverages required under
Parts 6 and 7 of Title I of ERISA. None of the exceptions set forth in
Schedule 2.10 will adversely affect the deductibility of the contributions
made by Signature for Tax purposes.
(e) Prohibited Transactions and Fiduciary Matters. To the Knowledge of
Signature, neither Signature, any Affiliate nor any plan fiduciary of any
Employee Pension Benefit Plan or Employee Welfare Benefit Plan has (i)
since January 1, 1990, engaged in any transaction or acted or failed to act
in a manner which violates Section 404 or 406 of ERISA nor engaged in any
"prohibited transaction" (as defined in Section 4975(c) (1) of the Code or
Section 406 of ERISA) for which there exists neither a statutory nor
regulatory exemption and which results in material liability, or (ii) acted
or failed to act in any manner which violates Section 404 of ERISA and
results in material liability to Signature, any Affiliate or any such plan.
(f) Other Employee Benefit Arrangements. Signature has delivered to
Jameson copies of each and every other personnel policy, stock option plan,
nonqualified deferred compensation plan, collective bargaining agreement,
bonus, incentive award, fringe benefit, disability or sick pay, vacation
pay, severance pay, consulting agreement or any other employee benefit
plan, agreement, arrangement or understanding which Signature or any
Affiliate maintains or has maintained at any time since January 1, 1990, or
to which Signature or any Affiliate contributes, is required to contribute
or has contributed and which is not required under Section 3.12 (a) or (b)
above to be listed in Schedule 2.10 (including with respect to any plans
that are unwritten, a written description of eligibility, participation,
benefits, funding arrangements, assets and any other matters which relate
to the obligations of Signature).
(g) Other Plan Documents: Reports. True and complete copies of each
plan, agreement, arrangement or understanding referred to in Section
2.10(f), the most recent determination letter issued by the IRS with
respect to each Employee Pension Benefit Plan, annual reports on Form 5500
required to be filed with any governmental agency for each Employee Welfare
Benefit Plan and each Employee Pension Benefit Plan for the six most recent
plan years for which such filings are due prior to the date of this
Agreement have been delivered by Signature to Jameson.
(h) Validity of Plans. All Employee Welfare Benefit Plans, Employee
Pension Benefit Plans, related trust agreements and any other related
documents, and all plans, agreements, arrangements and understandings
referred to in Section 2.10(f) are legally valid and binding and in full
force and effect and Signature is not in default under any of the
provisions of any such plans or arrangements.
(i) Claims and Litigation. (i) Signature has no Knowledge of any
threatened or pending claims, suits or other proceedings by any of
Signature's or its Affiliates' employees, former employees, plan
participants, beneficiaries or spouses of any of the above involving any
employee benefit plan described in Section 2.10 or any rights or benefits
under any employee benefit plan described in Section 2.10 other than
ordinary and usual claims for benefits by participants or beneficiaries,
(ii) to Signature's Knowledge, neither Signature nor any of its Affiliates
nor any of their directors, officers, employees or any other "fiduciary,"
as such term is defined in Section 3(21) of ERISA, has any liability for an
act or for a failure to act in connection with either the administration or
investment of assets of such plans or the transactions contemplated by this
Agreement, and (iii) there is no pending or, to Signature's Knowledge,
threatened audit, legal action or proceeding or investigation against or
involving any employee benefit plan described in Section 2.11 and Signature
has no Knowledge of facts or circumstances which could reasonably
constitute the basis for any such audit, legal action, proceeding or
investigation.
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(j) No Union Contracts. Neither Signature nor any Affiliate is now nor
has it ever been a party to any agreement with, and no employees are or
have been represented by, any union or collective bargaining unit.
(k) Certain Severance Arrangements. Signature is not a party to or
obligated under any agreement, plan, contract or other arrangement pursuant
to which Signature or any Affiliate or Jameson is or might be required to
make payments that would not be deductible or capitalizable for federal
income Tax purposes by reason of the application of Section 280G of the
Code.
(l) Certain Liabilities. The aggregate amount of liabilities of
Signature in connection with any written or oral plans, contracts,
agreements or other arrangements described in this Section 2.10 is set
forth on Schedule 2.10, and Schedule 2.10 sets forth the calculation of
such aggregate liability including a statement of the specific liabilities
of Signature and its Affiliates with respect to each of such plans,
contracts, agreements or other arrangements.
(m) Plans May Be Terminated. Each and every employee benefit plan,
practice, arrangement or understanding and each and every Signature
personnel or payroll practice described in this Section 2.10 may be
terminated by Jameson in its sole discretion at any time after the
Effective Time of the Merger without any liability to any of Jameson,
Signature or its Affiliates to any person, entity or government agency for
any conduct or practice of Signature which occurred prior to the Effective
Time of the Merger except for liabilities to and the rights of employees
thereunder accrued prior to the Effective Time of the Merger.
2.11. Litigation. Except as described in the Signature SEC Reports or set
forth on Schedule 2.11,
(a) there is no claim, action, suit, proceeding, arbitration,
investigation or inquiry before any Governmental Entity, other regulatory
or self-regulatory body or association or arbitrator, now pending or, to
the Knowledge of Signature, threatened against, relating to or affecting
Signature or any Signature Subsidiary or its assets, properties or business
which questions the validity of this Agreement or affects the transactions
contemplated herein; nor is there any basis for any such claim, action,
suit, proceeding, arbitration, investigation or inquiry; and
(b) neither Signature nor any of its officers, directors or employees
has been permanently or temporarily enjoined or prohibited by order,
judgment or decree of any Governmental Entity, other regulatory or self-
regulatory body or association, or arbitrator from engaging in or
continuing any conduct or practice in connection with the business engaged
in by Signature; and
(c) there is not in existence any order, judgment or decree of any
Governmental Entity, other regulatory or self-regulatory body or
association or arbitrator enjoining or prohibiting Signature from taking,
or requiring Signature to take, any action of any kind or to which
Signature or any of its business, or any of the properties or assets
material to the operations of such business, are subject or bound; and
(d) Signature is not in default in any respect under any order, writ,
injunction or decree of any Governmental Entity, other regulatory or self-
regulatory body or association or arbitrator.
2.12. Insurance. The insurance coverage maintained by Signature at the date
of this Agreement is in the judgment of Signature adequate in scope and amount
in view of the properties owned and operations carried on by it. Signature has
complied in all material respects with the provisions of all such policies.
Schedule 2.12 lists each of the insurance policies issued to Signature or any
Signature Subsidiary providing coverage for Signature, its Subsidiaries or any
of their respective directors, officers, employees, agents or other
representatives, for property damage, liability, workers' compensation,
employers' liability, casualty, auto, executive or key man life, officer and
director liability, fiduciary liability, business interruption, and any other
coverage deemed by Signature to be material to its operations, assets or
personnel. Such Schedule 2.12 sets forth the coverage of each of such policies
and the limits of such coverage.
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2.13. Brokers and Finders. No person other than McDonald & Company has
acted on behalf of Signature in connection with any negotiations relative to
this Agreement and the transactions contemplated hereby, and such negotiations
have been carried on by it without the intervention of any other person acting
on behalf of Signature in such a manner as to give rise to any valid claim for
a brokerage commission, finder's fee or other like payment against Jameson or
Signature.
2.14. Compliance with Laws. Except as described in the Signature SEC
Reports or Schedule 2.14 hereto;
(a) Signature is in compliance in all material respects with all orders,
judgments, writs, injunctions, determinations, awards, decrees, laws,
statutes, rules or regulations ("Legal Requirements") applicable to any of
its properties or assets and/or the ownership, operation and use thereof,
and Signature has not received notice of any noncompliance or alleged
noncompliance with any Legal Requirement relating or applicable to any of
its properties or assets or to the operation of its business, the existence
or enforcement of which would have a Material Adverse Effect on Jameson's
ability to operate them on the same basis as currently conducted and
operated or which would require the payment of material refunds, fines,
penalties or restitution in respect of matters occurring prior to the
Effective Time of the Merger, including, without limitation, any Legal
Requirement relating to (i) wages, hours, hiring, non-discrimination,
promotion, retirement, benefits, pensions or working conditions, (ii) air,
water, noise, odor or solid or liquid waste (including the generation,
treatment, storage, disposal or transportation thereof), (iii) health and
safety, (iv) zoning, (v) the production, processing, advertising, sales or
warranty of products or services of its business or (vi) trade or antitrust
regulations.
(b) Without limiting the generality of the foregoing, except as
otherwise set forth in Schedule 2.14 hereto, (i) the properties, assets and
operations of Signature and its Subsidiaries are in compliance in all
material respects with all applicable federal, state, local, regional and
foreign laws, rules and regulations, orders, decrees, common law,
judgments, permits and licenses relating to public and worker health and
safety (collectively, "Worker Safety Laws") and the protection, regulation
and clean-up of the indoor and outdoor environment and activities or
conditions related thereto, including, without limitation, those relating
to the generation, handling, disposal, transportation or release of
hazardous or toxic materials, substances, wastes, pollutants and
contaminants including, without limitation, asbestos, petroleum, radon and
polychlorinated biphenyls (collectively,"Environmental Laws"), except for
any violation that, individually or in the aggregate, has not had, or would
not reasonably be expected to have, a Material Adverse Effect on Signature;
and (ii) with respect to such properties, assets and operations, including
any previously owned, leased or operated properties, assets or operations,
as of the date hereof and at the Effective Time, there are no past, present
or, to the Knowledge of Signature, reasonably anticipated future events,
conditions, circumstances, activities, practices, incidents, actions or
plans of Signature or any of its Subsidiaries that may interfere with or
prevent compliance or continued compliance with applicable Worker Safety
Laws and Environmental Laws, other than any such interference or prevention
that, individually or in the aggregate, has not had, or would not
reasonably be expected to have, a Material Adverse Effect on Signature.
(c) (i) Signature and its Subsidiaries have not caused or permitted any
property, asset, operation, including any previously owned property, asset
or operation, to use generate, manufacture, refine, transport, treat,
store, handle, dispose, transfer or process hazardous or toxic materials,
substances, wastes, pollutants or contaminants, except in material
compliance with all Environmental Laws and Worker Safety Laws, other than
any such activity that, individually or in the aggregate, has not had, and
would not reasonably be expected to have, a Material Adverse Effect on
Signature or any Signature Subsidiary; (ii) Signature and its Subsidiaries
have not reported to any Governmental Entity any material violation of an
Environmental Law or any release, discharge or emission of any hazardous or
toxic materials, substances, wastes, pollutants or contaminants, other than
any such violation, release, discharge or emission that, individually or in
the aggregate, has not had, and would not reasonably be expected to have, a
Material Adverse Effect on Signature, and (iii) as of the date hereof and
at the Effective Time of the Merger, Signature has no Knowledge of any
pending, threatened or reasonably anticipated claims or liabilities
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under CERCLA, 42 U.S.C. sec. 9601 et seq., RCRA, 42 U.S.C. sec.6901 et
seq., or equivalent state law provisions and no Knowledge that any current
or former property, asset or operation is identified or currently proposed
for the National Priorities List at 40 CFR sec. 300, Appendix B, or the
CERCLIS or equivalent state lists or hazardous substances release sites.
(d) All sales by Signature of securities of Signature were at all
relevant times duly registered under or effected in a manner which was
exempt from the registration requirements of the 1933 Act and all
applicable state securities or blue sky laws.
(e) All sales by any of the Dissolved Signature Partnerships and the
Signature Partnership of limited partnership interests and any other
securities of such Partnerships were at all relevant times duly registered
under or effected in a manner which was exempt from the registration
requirements of the 1933 Act and all applicable state securities or blue
sky laws.
2.15. Information Supplied. None of the information supplied or to be
supplied by the Signature for inclusion or incorporation by reference in (a)
the registration statement on Form S-4 to be filed with the SEC by Jameson in
connection with the Merger (such registration statement, together with any
amendments or supplements thereto, the "Registration Statement") and (b) the
Proxy Statement (as defined below) to be filed with the SEC by Signature and
Jameson (such proxy statement, together with any amendments or supplements
thereto, the "Proxy Statement") will, at the time their filing with the SEC, or
at any time of their amending or supplementation, or at the time they become
effective under the Securities Act or at the time the Proxy Statement is mailed
to the Signature stockholders and the Jameson stockholders, as the case may be,
contain any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF JAMESON
Jameson hereby represents and warrants to Signature as follows:
3.01. Organization, Good Standing, Power, Etc. Jameson and each Jameson
Subsidiary is a corporation or other entity duly organized, validly existing
and in good standing under the laws of its state of incorporation or
organization and has all requisite power and authority and all licenses,
permits, certificates, determinations, authorizations and franchises to own,
operate and lease its respective properties and assets and to carry on its
respective businesses as now being conducted. Jameson and each Jameson
Subsidiary, is duly qualified to do business and is in good standing as a
foreign corporation or other entity in each other jurisdiction in which the
ownership, operation or leasing of its properties or assets or the nature of
its business require such qualification, except where the failure so to qualify
would not have a Material Adverse Effect on the business, financial condition
or properties of Jameson and the Jameson Subsidiaries taken as a whole. Jameson
has furnished to Signature true, correct and complete copies of its Articles of
Incorporation and By-laws, in each case as amended and supplemented to the date
hereof.
3.02. Authorization of Agreement. Etc.
(a) Jameson has all requisite corporate power and authority to enter
into and perform all of its obligations under this Agreement. The execution
and delivery of this Agreement by Jameson and the consummation by Jameson
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Jameson, subject only, with
respect to the Merger, to the approval of holders of a simple majority of
the issued and outstanding shares of the Jameson Common Stock present and
entitled to vote Jameson Stockholder Meeting. This Agreement has been duly
executed and delivered by Jameson and constitutes the legal, valid and
binding obligation of Jameson, enforceable against Jameson in accordance
with its terms except as enforceability may be subject to (i) any
applicable
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bankruptcy, insolvency, reorganization or other law relating to or
affecting creditors' rights generally and (ii) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(b) Neither the execution and delivery of this Agreement by Jameson,
nor, assuming the approval of holders of at least a majority of the issued
and outstanding shares of Jameson Common Stock, the consummation of the
transactions contemplated hereby to be performed by Jameson, will (i)
violate or conflict with any provision of the Articles of Incorporation, as
amended, or By-laws, as currently in effect, of Jameson or (ii) violate or
conflict with any provision of any law, rule, regulation, order, permit,
certificate, writ, judgment, injunction, decree, determination, award or
other decision of any Governmental Entity, other regulatory or self-
regulatory body or association or arbitrator binding upon Jameson or any
Jameson Subsidiary or any of their respective properties, except where such
violations or conflicts would not in the aggregate have a Material Adverse
Effect on the business, financial condition or properties of Jameson or any
Jameson Subsidiary taken as a whole or on the ability of Jameson to
consummate the transactions contemplated hereby and except for violations
that will be cured, waived or terminated prior to the Effective Time of the
Merger.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby to be performed by
Jameson will result in a breach of or constitute a default (or with notice
or lapse of time or both result in a breach of or constitute a default)
under, or give rise to a right of termination, cancellation, acceleration
or repurchase of any obligation or a right of first refusal with respect to
any material property or asset or a loss of a material benefit or the
imposition of a material penalty under, any of the terms, conditions or
provisions of (i) any mortgage, indenture, loan or credit agreement or any
other agreement or instrument evidencing indebtedness for money borrowed to
which Jameson is a party or by which it or any of its respective properties
is bound or affected, or pursuant to which Jameson has guaranteed the
indebtedness or preferred stock of any person or entity or (ii) any lease,
license, tariff, contract or other agreement or instrument to which Jameson
is a party or by which it or any of its properties is bound or affected,
except for any such breaches, defaults, rights, losses or penalties that in
the aggregate do not have any Material Adverse Effect on the business,
financial condition, or properties of Jameson or any Jameson Subsidiary or
on the ability of Jameson to consummate the transactions contemplated
hereby or for which Jameson will have obtained required consents, waivers
or releases prior to the Effective Time of the Merger.
(d) Neither the execution and delivery by Jameson of this Agreement nor
the consummation of the transactions contemplated hereby to be performed by
Jameson will result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature upon or with respect to any of the properties now
owned by Jameson or any Jameson Subsidiary, except where such would not in
the aggregate have a Material Adverse Effect on the business, financial
condition, or properties of Jameson or any Subsidiary or on the ability of
Jameson to consummate the transactions contemplated hereby.
(e) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Jameson or any Jameson Subsidiary in connection with the
execution and delivery of this Agreement by Jameson or the consummation by
Jameson of the transactions contemplated hereby, other than (i) in
connection or compliance with any applicable provisions of Georgia Law,
Indiana Law, the 1933 Act and the 1934 Act and any applicable state
securities laws or regulations, and (ii) such filings or registrations
which, if not made, and such authorizations, consents or approvals which,
if not received, would not have any Material Adverse Effect on the
business, financial condition, or properties of Jameson or any Jameson
subsidiary or on the ability of Jameson to consummate the transactions
contemplated hereby.
(f) Jameson and each Jameson Subsidiary has made or obtained each
registration, filing, submission, license, permit, certificate,
determination or governmental approval necessary to enable it to carry on
its business, except for those which the failure to have does not have a
Material Adverse Effect on the
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business, properties, financial condition or results of operations of
Jameson and its Subsidiaries, taken as a whole. All such registrations,
filings and submissions with any Governmental Entity relating to the
operations of Jameson or any Jameson Subsidiary were in material compliance
with applicable law when filed, and no material deficiencies have been
asserted by any such authority with respect to such registrations, filing
or submissions.
3.03. Tax Matters. Except as provided in Schedule 3.03,
(a) all (i) Tax Returns of or with respect to any Tax which is required
to be filed on or before the Closing Date by or with respect to Jameson or
the business operations of Jameson have been or will be duly and timely
filed, (ii) items of income, gain, loss, deduction and credit or other
items required to be included in each such Tax Return have been or will be
so included and all information provided in each such Tax Return is true,
correct and complete, (iii) Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or will be
timely paid in full, and (iv) withholding Tax requirements imposed on or
with respect to Jameson have been or will be satisfied in full in all
respects. In addition, no penalty, interest or other charge is or will
become due with respect to the late filing of any such Tax Return or late
payment of any such Tax. Jameson's Tax Returns have included all of the
Jameson Subsidiaries on a consolidated basis.
(b) There is no claim against Jameson for any Taxes, and no assessment,
deficiency or adjustment has been asserted or proposed with respect to any
Tax Return of or with respect to Jameson.
(c) Except as set forth in Schedule 3.03 there is not in force any
extension of time with respect to the due date for the filing of any Tax
Return of or with respect to Jameson or any waiver or agreement for any
extension of time for the assessment or payment of any Tax of or with
respect to Jameson.
(d) Jameson is not a party to any Tax allocation or sharing agreement
and no payments are due or will become due by Jameson pursuant to any such
agreement or arrangement.
(e) Jameson is organized in conformity with the requirements for
qualification as a real estate investment trust ("REIT") under Sections 856
through 860 of the Code, has duly elected to be taxed as a REIT commencing
with the taxable year ending December 31, 1994, and such election has not
been terminated or revoked.
(f) Jameson is operated in such a manner that it continues to qualify as
a REIT and is taxed as a REIT.
(g) Each Jameson Subsidiary constitutes a "qualified REIT subsidiary"
within the meaning of Section 856(i) of the Code.
(h) Jameson has not received any net income from prohibited transactions
within the meaning of Section 852(b)(6)(B) of the Code.
3.04. Capitalization. The authorized capital stock of Jameson consists of
40,000,000 shares of common stock, par value $.10 per share ("Jameson Common
Stock"), and 10,000,000 shares of preferred stock, par value $1.00 per share.
On the date of this Agreement, there were 9,857,731 shares of Jameson Common
Stock and 1,200,000 shares of its 9.25% Series A Cumulative Preferred Stock
("Jameson Series A Preferred Stock") issued and outstanding. All the
outstanding shares of Jameson Common Stock and Jameson Series A Preferred Stock
have been duly authorized and validly issued and are fully paid and
nonassessable, and are not subject to, or issued in violation of, any
preemptive rights. Except for (i) outstanding employee and director stock
options (which at the date of this Agreement covered 848,114 shares of Jameson
Common Stock), (ii) 72,727 shares of Jameson Series A Preferred Stock to be
issued to Thomas K. Kitchin and Judith Kitchin in connection with the
acquisition by Jameson of the outdoor advertising assets of Jameson
Hospitalility LLC, and (iii) rights under the Jameson dividend reinvestment
plan, there are no shares of capital stock of Jameson authorized or
outstanding, and there are no subscriptions, options to purchase shares of the
capital stock of Jameson, conversion or exchange rights, warrants, preemptive
rights or other agreements, claims or commitments of any
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nature whatsoever (whether firm or conditional) obligating Jameson to issue,
transfer, deliver or sell, or cause to be issued, transferred, delivered or
sold, additional shares of the capital stock or other securities or interests
of Jameson or obligating Jameson to grant, extend or enter into any such
agreement or commitment.
3.05. Issuance of Jameson Common Stock and Jameson Series S Preferred
Stock. As and when required by the terms of this Agreement and the Merger
Agreement and subject to the terms and conditions hereof, Jameson shall issue
and deliver the shares of Jameson Common Stock and Jameson $1.70 Cumulative
Convertible Preferred Stock; Series S (the "Jameson Series S Preferred Stock")
to be issued and delivered in accordance with this Agreement and the Merger
Agreement. Such shares have been duly authorized and, when issued in accordance
with this Agreement and the Merger Agreement, will be validly issued, fully
paid and nonassessable.
3.06. No Material Adverse Change. Since September 30, 1998, there has been
no material adverse change in the business, properties, financial condition or
results of operations of Jameson and the consolidated Jameson Subsidiaries
taken as a whole.
3.07. Brokers and Finders. No person other than Robinson-Humphrey Company,
L.L.C. has acted on behalf of Jameson or any Jameson subsidiary in connection
with any negotiations relative to this Agreement and the transactions
contemplated hereby, and such negotiations have been carried on by such parties
without intervention of any person acting on behalf of either Jameson or any
Jameson subsidiary, in such a manner as to give rise to any valid claim for a
brokerage commission, finder's fee or any other like payment against Jameson,
any Jameson Subsidiary, or the stockholders of Jameson.
3.08. Jameson SEC Reports. Jameson has delivered to Signature (i) each
registration statement, report on Form 8-K, proxy statement or information
statement prepared by it since January 1, 1996, (ii) Jameson's Annual Reports
on Form 10-K for the years ended December 31, 1997, 1996, and 1995 and (iii)
the Company's Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, June 30, and September 30, 1996, 1997 and 1998, each in the form
(including exhibits) filed with the Commission (collectively, the "Jameson SEC
Reports"). As of their respective dates, the Jameson SEC Reports did 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 made
therein, in light of the circumstances in which they were made, not misleading.
Each of the consolidated balance sheets included in or incorporated by
reference into the Jameson SEC Reports (including the related notes and
schedules) fairly presents the consolidated financial position of Jameson and
its subsidiaries as of its date and each of the consolidated statements of
income, of stockholders' equity and of cash flows included in or incorporated
by reference into the Jameson SEC Reports (including any related notes and
schedules) fairly presents the results of operations, stockholders' equity and
cash flows, of Jameson and its subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material to Jameson and its subsidiaries taken as
a whole in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved, except as may be noted therein. Other than the Jameson SEC Reports,
Jameson has not filed any other definitive reports or statements with the SEC
since January 1, 1996.
3.09. Litigation. Except as described in the Jameson SEC Reports or Schedule
3.09,
(a) there is no claim, action, suit, proceeding, arbitration,
investigation or inquiry before any Governmental Entity, other regulatory
or self-regulatory body or association or arbitrator, now pending or, to
the Knowledge of Jameson, threatened against, relating to or affecting
Jameson or any Jameson Subsidiary or its assets, properties or business
which questions the validity of this Agreement or affects the transactions
contemplated herein; nor is there any basis for any such claim, action,
suit, proceeding, arbitration, investigation or inquiry; and
(b) neither Jameson nor any of its officers, directors or employees has
been permanently or temporarily enjoined or prohibited by order, judgment
or decree of any Governmental Entity, other
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regulatory or self-regulatory body or association, or arbitrator from
engaging in or continuing any conduct or practice in connection with the
business engaged in by Jameson; and
(c) there is not in existence any order, judgment or decree of any
Governmental Entity, other regulatory or self-regulatory body or
association or arbitrator enjoining or prohibiting Jameson from taking, or
requiring Jameson to take, any action of any kind or to which Jameson or
any of its business, or any of the properties or assets material to the
operations of such business, are subject or bound; and
(d) Jameson is not in default in any respect under any order, writ,
injunction or decree of any Governmental Entity, other regulatory or self-
regulatory body or association or arbitrator.
3.10. Compliance with Laws. Except as described in the Jameson SEC Reports
or Schedule 3.10 hereto;
(a) Jameson is in compliance in all material respects with Legal
Requirements applicable to any of its properties or assets and/or the
ownership, operation and use thereof, and Jameson has not received notice
of any noncompliance or alleged noncompliance with any Legal Requirement
relating or applicable to any of its properties or assets or to the
operation of its business, the existence or enforcement of which would have
a Material Adverse Effect on Jameson's ability to operate them on the same
basis as currently conducted and operated or which would require the
payment of refunds, fines, penalties or restitution in respect of matters
occurring prior to the Effective Time of the Merger, including, without
limitation, any Legal Requirement relating to (i) wages, hours, hiring,
non-discrimination, promotion, retirement, benefits, pensions or working
conditions, (ii) air, water, noise, odor or solid or liquid waste
(including the generation, treatment, storage, disposal or transportation
thereof), (iii) health and safety, (iv) zoning, (v) the production,
processing, advertising, sales or warranty of products or services of its
business or (vi) trade or antitrust regulations.
(b) Without limiting the generality of the foregoing, except as
otherwise set forth in Schedule 3.10 hereto, (i) the properties, assets and
operations of Jameson and its Subsidiaries are in compliance with all
applicable Worker Safety Laws and Environmental Laws, except for any
violation that, individually or in the aggregate, has not had, or would not
reasonably be expected to have, a Material Adverse Effect on Jameson; and
(ii) with respect to such properties, assets and operations, including any
previously owned, leased or operated properties, assets or operations, as
of the date hereof and at the Effective Time, there are no past, present
or, to the Knowledge of Jameson, reasonably anticipated future events,
conditions, circumstances, activities, practices, incidents, actions or
plans of Jameson or any of its Subsidiaries that may interfere with or
prevent compliance or continued compliance with applicable Worker Safety
Laws and Environmental Laws, other than any such interference or prevention
that, individually or in the aggregate, has not had, or would not
reasonably be expected to have, a Material Adverse Effect on Jameson.
(c) (i) Jameson and its Subsidiaries have not caused or permitted any
property, asset, operation, including any previously owned property, asset
or operation, to use generate, manufacture, refine, transport, treat,
store, handle, dispose, transfer or process hazardous or toxic materials,
substances, wastes, pollutants or contaminants, except in material
compliance with all Environmental Laws and Worker Safety Laws, other than
any such activity that, individually or in the aggregate, has not had, and
would not reasonably be expected to have, a Material Adverse Effect on
Jameson or any Jameson Subsidiary; (ii) Jameson and its Subsidiaries have
not reported to any Governmental Entity any material violation of an
Environmental Law or any release, discharge or emission of any hazardous or
toxic materials, substances, wastes, pollutants or contaminants, other than
any such violation, release, discharge or emission that, individually or in
the aggregate, has not had, and would not reasonably be expected to have, a
Material Adverse Effect on Jameson, and (iii) as of the date hereof and at
the Effective Time of the Merger, Jameson has no Knowledge of any pending,
threatened or anticipated claims or liabilities under CERCLA, 42 U.S.C.
sec. 9601 et seq., RCRA, 42 U.S.C. sec. 6901 et seq., or equivalent state
law provisions and no Knowledge that any current or former property, asset
or operation is identified or currently proposed for the National
Priorities List at 40 CFR sec. 300, Appendix B, or the CERCLIS or
equivalent state lists or hazardous substances release sites.
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3.11. Information Supplied. None of the information supplied or to be
supplied by the Jameson for inclusion or incorporation by reference in (a) the
Registration Statement and (b) the Proxy Statement will, at the time their
filing with the SEC, or at any time of their amending or supplementation, or at
the time they become effective under the Securities Act or at the time the
Proxy Statement is mailed to the Jameson stockholders and the Signature
stockholders, as the case may be, contain any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading.
ARTICLE IV
COVENANTS OF SIGNATURE
Signature covenants and agrees with Jameson that, at all times prior to the
Effective Time of the Merger, Signature at its expense will comply with all
covenants and provisions of this Article IV, except to the extent Jameson may
otherwise consent in writing or to the extent otherwise expressly required or
permitted by this Agreement.
4.01. Approvals. Signature will (i) take all reasonable steps and use all
reasonable efforts necessary or desirable to recommend the granting of and to
obtain, as promptly as practicable, all approvals, authorizations,
certificates, franchises, licenses, consents and clearances of Governmental
Entities and of third parties, required of Signature to consummate the
transactions contemplated hereby, (ii) provide such other information and
communications to such Governmental Entities as Jameson or such authorities may
reasonably request, and (iii) cooperate with Jameson in obtaining, as promptly
as practicable, all approvals, authorizations, certificates, franchises,
licenses, consents and clearances of Governmental Entities required of Jameson
to consummate the transactions contemplated hereby.
4.02. Investigation by Jameson. Signature will provide Jameson, its counsel,
accountants, actuaries and other representatives with reasonable access, upon
prior notice and during normal business hours, to all facilities, officers,
directors, employees, agents, accountants, actuaries, assets, properties, books
and records of Signature, and will furnish Jameson and such other persons
during such period with all such other information and data concerning the
business, operations and affairs of Signature or the transactions contemplated
hereby as Jameson or any of such other persons reasonably may request.
4.03. No Solicitation.
(a) Except as may be required pursuant to this Agreement, Signature
shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize or permit any officer, director or employee of or any investment
banker, attorney, accountant, agent or other advisor or representative of
Signature or any of its Subsidiaries to, (i) solicit, initiate, or
encourage the submission of, any Takeover Proposal, (ii) except to the
extent permitted by paragraph (b), enter into any agreement with respect to
any Takeover Proposal or (iii) participate in any discussions or
negotiations regarding or furnish to any person any information with
respect to Signature's business, properties or assets, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover
Proposal; provided, however, that if prior to the Signature Stockholder
Meeting (as defined in Section 4.14), Signature shall have received an
unsolicited written Takeover Proposal, which offer appears in the good
faith determination of the Signature Board of Directors, based on the
advice of Signature's outside counsel and financial advisors, to be a
"Superior Proposal" (as defined below) and which Signature's Board of
Directors is legally obligated to consider by principles of fiduciary duty
to stockholders under applicable law, the foregoing restrictions shall not
apply to such proposal. For all purposes of this Agreement, "Takeover
Proposal" means any proposal, other than a proposal by Jameson or an
affiliate of Jameson, for a merger, consolidation, share exchange, business
combination or other similar transaction involving Signature or any of its
Significant Subsidiaries or any proposal or offer (including, without
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limitation, any proposal or offer to stockholders of Signature), other than
a proposal or offer by Jameson or an affiliate of Jameson (i) to acquire in
any manner, directly or indirectly, an equity interest in or any voting
securities of, Signature or any of its Significant Subsidiaries or (ii) to
acquire or lease in any manner, directly or indirectly, any property,
business or other assets that, individually or in the aggregate, would
satisfy any of the tests for a "significant subsidiary" within the meaning
of Rule 1-02 of Regulation S-X of the SEC. Signature immediately shall
cease and cause to be terminated all existing discussions or negotiations
with any persons conducted heretofore with respect to, or that could
reasonably be expected to lead to, any Takeover Proposal. As used herein, a
"Significant Subsidiary" means any Subsidiary that would constitute a
"significant subsidiary" within the meaning of Rule 1-02 of Regulation S-X
of the SEC.
(b) Neither the Board of Directors of Signature nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or modify, in
a manner adverse to Jameson, the approval or recommendation by the Board of
Directors of Signature or any such committee of this Agreement, any of the
transactions contemplated by this Agreement, or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Takeover Proposal, or
(iii) take action to render the Rights inapplicable to any Takeover
Proposal. Notwithstanding the foregoing, the Board of Directors of
Signature, to the extent required by the fiduciary obligations thereof, as
determined by the advice of Henderson, Daily, Withrow & DeVoe or Bass,
Berry & Sims, PLC, or other legal counsel to Signature reasonably
acceptable to Jameson, may approve or recommend (and, in connection
therewith, withdraw or modify its approval or recommendation of this
Agreement or the Merger) a Superior Proposal. If, prior to the approval of
this Agreement and the transactions contemplated hereby by the stockholders
of Signature, Signature's Board of Directors determines in good faith,
after it has received a Superior Proposal (as defined below) and after it
has received advice from such outside counsel that the failure to do so
would result in a reasonable possibility that Signature's Board of
Directors would breach its fiduciary duty under applicable law, Signature
shall (i) notify Jameson in writing that it intends to accept a Superior
Proposal and enter into such a binding, written agreement with respect to
the transaction contemplated thereby, and (ii) attach the most current
version of such agreement or a full and complete summary of the terms
thereof to such notice. Jameson shall have the opportunity, within five
calendar days of receipt of Signature's written notice, to make an offer
that the Board of Directors of Signature determines, in good faith after
consultation with its financial advisors and outside counsel, is at least
as favorable, from a financial point of view, to the stockholders of
Signature as the Superior Proposal. Signature agrees that it will not enter
into a binding agreement referred to in clause (i) above until at least the
sixth calendar day after it has provided the notice to Jameson required
thereby and to notify Jameson promptly if its intention to enter into a
written agreement referred to in its notification shall change at any time
after giving such notification. For all purposes of this Agreement,
"Superior Proposal" means a bona fide written proposal made by a third
party to acquire Signature pursuant to a tender or exchange offer, a
merger, a share exchange, a sale of all or substantially all its assets or
otherwise on terms which, the Board of Directors of Signature determines,
based on the advice of McDonald & Company and in light of all relevant
circumstances (including the apparent likelihood of such third party being
able to obtain any financing that it may require to consummate the proposed
transaction), are financially superior to those provided for in the Merger.
If, to the extent permitted by this Section 4.3(b), the Board of Directors
of Signature approves or recommends a Superior Proposal, Signature may take
appropriate action to render the Rights inapplicable to such Superior
Proposal.
(c) Each of John D. Bontreger, Mark D. Carney, Bo L. Hagood, David R.
Miller, Stephen M. Huse, George A. Morton, Richard L. Russell and William
S. Watson, by such individual's execution of this Agreement, agrees, solely
in his capacity as a stockholder of Signature, to vote all of the shares of
capital stock of Signature owned by such individual at the date of this
Agreement that have the power to vote in favor of the Merger; provided,
however, that such individuals shall be free to vote their shares in their
sole discretion if the Board of Directors of Signature terminates this
Agreement in accordance with Section 9.01(f) hereof. Each of such
stockholders represents, covenants and agrees for the benefit of Jameson
that,
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until the earlier of the Effective Time of the Merger or the termination of
this Agreement pursuant to Article IX hereof and subject to the foregoing
provisions, he:
(1) has the power, authority and legal capacity to execute and
deliver this Agreement (only as applicable to this Section 4.03(c)) and
perform his obligations under this Agreement;
(2) is the sole beneficial owner of at least that number of shares
of Signature Common Stock and/or Signature Preferred Stock indicated as
owned by him in the Signature Proxy Statement used in connection with
the solicitation of proxies for the Signature Annual Meeting of
Stockholders held in 1998 and has the full and exclusive authority to
enter into this Agreement and to vote his shares as contemplated
hereby;
(3) will not sell, transfer, pledge, hypothecate, encumber, assign,
tender or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to the sale, transfer,
pledge, hypothecation, encumbrance, assignment, tender or other
disposition of any of the Signature Common Stock or Signature Preferred
Stock owned by him;
(4) will not, other than as expressly contemplated by this
Agreement, grant any powers of attorney or proxies or consents in
respect of any of the Signature Common Stock or Signature Preferred
Stock owned by him, deposit any of the Signature Common Stock or
Signature Preferred Stock owned by him into a voting trust, enter into
a voting agreement with respect to any of the Signature Common Stock or
Signature Preferred Stock owned by him or otherwise restrict his
ability to freely exercise all voting rights with respect to any of the
Signature Common Stock or Signature Preferred Stock owned by him;
(5) will not (i) cause Signature to take any action or (ii) consent
to Signature taking any action prohibited by the Agreement;
(6) will use his reasonable efforts to take, or cause to be taken,
all action, and do, or cause to be done, all things necessary or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement; and
(7) acknowledges that his agreement and commitment contained in this
Section 4.03(c) are an integral part of the transactions contemplated
by this Agreement, that damages may be an inadequate remedy for any
breach by it of the provisions of this Agreement and that the
obligations of the parties hereunder shall be specifically enforceable.
(d) Signature shall promptly (but in any event within one day) advise
Jameson orally and in writing of any Takeover Proposal or any inquiry
regarding the making of a Takeover Proposal, including any request for
information, the material terms and conditions of such request, Takeover
Proposal or inquiry, and the identity of the Person making such request,
Takeover Proposal or inquiry. Signature will, to the extent reasonably
practicable, keep Jameson fully informed of the status and details
(including amendments or proposed amendments) of any such request, Takeover
Proposal or inquiry.
(e) Except to the extent reasonably required in connection with
Signature's obligations under this Agreement, during the period from the
date of this Agreement through the Effective Time of the Merger, Signature
shall not terminate, amend, modify or waive any provision of any
confidentiality or standstill or similar agreement to which Signature or
any of its Subsidiaries is a party (other than any involving Jameson)
unless, in the written opinion of counsel to Signature, failure to take
such action would violate the fiduciary obligations of the Board of
Directors of Signature, under applicable law. During such period, Signature
agrees to enforce, to the fullest extent permitted under applicable law,
the provisions of any such agreements, including, but not limited to,
obtaining injunctions to prevent any breaches of such agreements and to
enforce specifically the terms and provisions thereof in any court of the
United States or any state thereof having jurisdiction.
(f) Nothing contained in this Section 4.03 shall prohibit Signature from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2 promulgated under the 1934 Act or from making any
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disclosure to Signature's stockholders which, in the good faith judgment of
the Board of Directors of Signature based on the written opinion of outside
counsel, is required under applicable law.
4.04. Conduct of Business. Signature will conduct its business only in the
ordinary course and consistent with past practice and custom. Without limiting
the generality of the foregoing:
(a) Signature will use all reasonable efforts to (i) preserve intact
Signature's present business organization, reputation and customer
relations, (ii) preserve its relationships with customers, suppliers,
licensors, lessors and others having business dealings with it to the end
that its goodwill and ongoing business shall not be impaired to any
material extent at the Effective Time of the Merger, (iii) keep available
the services of Signature's present officers, employees, agents,
consultants and other similar representatives, (iv) maintain all licenses,
qualifications and authorizations of Signature to do business in each
jurisdiction in which it is so licensed, qualified or authorized, (v)
maintain all assets and properties of Signature in good working order and
condition, ordinary wear and tear excepted and (vi) continue all current
marketing activities relating to the business, operations or affairs of
Signature.
(b) Signature will cause the books and records of Signature to be
maintained in the usual manner and consistent with past practice and custom
and will not permit a material change in any operational, financial
reporting or accounting practice or policy of Signature or in any
assumption underlying such a practice or policy, or in any method of
calculating any bad debt, contingency or other reserve for financial
reporting purposes or for other accounting purposes.
(c) Signature will (i) prepare properly and file duly, validly and
timely all reports and all Tax Returns required to be filed with any
governmental or regulatory authorities with respect to the business,
operations or affairs of such corporation, and (ii) pay duly and fully all
Taxes indicated by such Tax Returns or otherwise levied or assessed upon
such corporation or any of its assets and properties, and withhold or
collect and pay to the proper Taxing authorities or hold in separate bank
accounts for such payment all Taxes that such corporation is required to so
withhold or collect and pay, unless such Taxes are being contested in good
faith and, if appropriate, reasonable reserves therefor have been
established and reflected in the books and records of such corporation and
in accordance with generally accepted accounting principles consistently
applied.
(d) Signature will use all reasonable efforts to maintain in full force
and effect until the Effective Time of the Merger substantially the same
levels of coverage as the insurance afforded under the contracts in force
as of the date of this Agreement.
(e) Signature will comply, in all material respects, with all Legal
Requirements applicable to its business, operations or affairs.
(f) Except in the ordinary course of business consistent with past
practice and custom, Signature will not, without the prior written consent
of Jameson, (i) enter into or execute any contract, agreement, lease,
indenture, note or other commitment; (ii) hire, terminate, promote,
transfer, change the salary or other form of compensation of, grant any
leave of absence to or change any policies of Signature or employment
arrangements or agreements Signature may have with respect to any officers,
directors or employees of Signature whose compensation from Signature in
the last preceding year (12 months) exceeded $50,000 or increase the annual
level of compensation of any other officer, director or employee of
Signature; (iii) not create or establish any employee plans, policies or
programs, except as required by law; (iv) amend, cancel, modify, alter or
otherwise change the terms of any of its leases or other material
agreements, arrangements, commitments, or other rights or obligations to
which it may be entitled or subject; or (v) waive or relinquish any of its
rights, claims or authority, or give any material consents to action or
inaction, under any of the agreements, arrangements, commitments, leases or
other bases of its rights or obligations.
Notwithstanding anything herein to the contrary, without the prior written
consent of Jameson or except as otherwise required hereby, Signature will not
(i) enter into any real property lease or, directly or indirectly,
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terminate, modify, assign, release, relinquish or waive any material right of
Signature under any existing real property lease or increase its obligations
under real property leases, (ii) enter into any long-term (in excess of one
year) material contract or other commitment involving an expenditure,
commitment or obligation of Signature in excess of $50,000, (iii) make or agree
to make any new capital expenditure or expenditures which, individually, is in
excess of $50,000 or which, in the aggregate, are in excess of $250,000 other
than refurbishment expenses contemplated by Schedule 2.04; (iv) pay, discharge
or satisfy any claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business (a) consistent with past
practice, of liabilities reflected or reserved against in, or contemplated by
the most recent consolidated financial statements (or the notes thereto) of
Signature included in the Signature SEC Documents, or (b) incurred in the
ordinary course of business consistent with past practice; (v) settle or
compromise any material federal, state, local or foreign Tax liability; or (vi)
authorize, recommend, propose or announce an intention to do any of the
foregoing, or enter into any contract, agreement, commitment or arrangement to
do any of the foregoing.
4.05. No Charter Amendments. Signature will not amend or propose to amend
its Articles of Incorporation, as amended, Bylaws or other charter or
organizational documents or take any action with respect to any such amendment.
4.06. No Issuance or Disposition of Securities. Signature will not (i)
authorize or issue any shares of such corporation's capital stock or other
equity securities or enter into any contract granting any option, warrant or
right calling for the authorization or issuance of any such shares or other
equity securities except pursuant to the exercise of options, warrants or other
rights which are outstanding on the date of the Agreement and disclosed herein
or the Schedules hereto, (ii) create or issue any securities directly or
indirectly convertible into or exchangeable for any such shares or other equity
securities, (iii) create or issue any options, warrants or rights to purchase
any such convertible securities, (iv) pledge, assign, transfer or otherwise
dispose of or encumber any shares of, or any options, warrants or rights to
purchase any shares of, any equity securities of Signature, or (v) split,
combine or reclassify any equity securities of Signature.
4.07. No Dividends. Signature will not declare, set aside or pay any
dividend or other distribution in respect of its capital stock or other equity
securities, or directly or indirectly redeem, purchase or otherwise acquire any
shares of Signature's capital stock or other equity securities, or any interest
in or right to acquire any such shares or other equity securities (other than
(i) dividends declared and paid on the Signature Preferred Stock in the
ordinary course of business and customary with past practice, and dividends and
other distributions by direct or indirect wholly owned Subsidiaries, and (ii)
extraordinary dividends declared and paid such that, in the opinion of
Signature's independent accountants, the distribution is necessary to eliminate
all current and anticipated earnings and profits of Signature prior to the
Effective Time of the Merger so that Jameson may continue to qualify as a real
estate investment trust under the Code from and after the Effective Time of the
Merger).
4.08. No Disposal of Property. Except as expressly provided in this
Agreement and in a manner consistent with Section 4.03 hereof, Signature will
not (i) dispose of or assign any of its assets or properties or permit any of
its assets and properties to be subjected to any liens, easements, rights-of-
way or other encumbrances except to the extent any such disposition or any such
lien, easement, right-of-way or other encumbrance is made or incurred in the
ordinary course of the business consistent with past practice and custom and is
not material to the business, operations or assets of Signature or any of its
Subsidiaries, or (ii) sell any material part of its operations or business to
any third party.
4.09. No Acquisitions. Signature will not (i) merge, consolidate or
otherwise combine or agree to merge, consolidate or otherwise combine with any
other person, (ii) acquire all or substantially all, or a material portion of
all, the assets, capital stock or other equity securities of any other person,
or any business division of any other person or (iii) otherwise acquire control
or ownership of any other person.
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4.10. No Breach or Default. Signature will not violate, breach or default,
or take or fail to take any action that (with or without notice or lapse of
time or both) would constitute a violation, breach or default under, any term
or provision of any contract to which Signature is a party or by which any of
its assets are or may be bound and as to which such violation, breach or
default, individually or in the aggregate, has or reasonably may be expected to
have a Material Adverse Effect on the validity or enforceability against
Signature of this Agreement or on the business, properties, financial condition
or results of operations of Signature.
4.11. No Indebtedness. Except in the ordinary course of business consistent
with past practice and custom, Signature will not create, incur, assume,
guarantee or otherwise become liable for (i) any debt, obligation or other
liability for money borrowed, or (ii) any other debt, obligation or other
liability. Signature will not cancel, pay, agree to cancel or pay, or otherwise
provide for a complete or partial discharge in advance of a scheduled payment
date with respect to, any debt, obligation or other liability, or waive, cancel
or compromise any right to receive any direct or indirect payment or other
benefit under any debt, obligation or other liability owing to such
corporation, except in the ordinary course of business consistent with past
practice and custom.
4.12. Payment of Liabilities. Signature will not delay or postpone beyond
normal past practice and custom the payment of any material account payable or
other debt, obligation or other liability.
4.13. Employee Matters.
(a) Continued Administration. Between the date of this Agreement and the
Effective Time of the Merger, Signature agrees to employ its reasonable
efforts to administer each and every employee benefit plan described in
Section 2.10 in all material respects, or cause them to be so administered,
in accordance with the provisions of the Code, ERISA, and any other
applicable law.
(b) No Changes to Plans: Funding. Except as specifically provided in
this Agreement, between the date of this Agreement and the Effective Time
of the Merger, Signature agrees not to amend or terminate, partially or
completely, any employee benefit plan described in Section 2.10 without the
prior written consent of Jameson.
(c) Claims or Litigation. Signature agrees to notify Jameson in writing
of receipt of any notice of audit, investigation or administrative
proceeding by the IRS, Department of Labor, Pension Benefit Guaranty
Corporation ("PBGC") or other Governmental Entity, involving any employee
benefit plan described in Section 2.10, or of any action or claim by any
person under any employee benefit plan described in Section 2.10 other than
ordinary and usual claims for benefits by participants or beneficiaries,
and promptly furnish to Jameson a copy of any such written notice.
(d) Other Employee Benefit Plans or Arrangements. Signature agrees that
the coverage of any employee of Signature who remains an employee of
Signature from and after the Effective Time of the Merger under any
Employee Welfare Benefit Plan or any other employee benefit plan described
in Section 2.10 may be terminated or continued for the benefit of such
employees on or after the Effective Time of the Merger at the sole
discretion of Jameson. No such employee of Signature shall be entitled to
benefits under any such employee benefit plan from and after the Effective
Time of the Merger except to the extent that either (i) such benefits are
expressly provided under the terms of said plan such as the continuation of
benefits or payment of earned but unpaid benefits in the event of
termination of coverage or (ii) Jameson and/or Signature elects to continue
coverage from and after the Effective Time of the Merger under a particular
plan.
(e) Employee Benefit Plans. Prior to the Closing, Signature shall cause
each of the plans listed on Schedule 2.10, if and to the extent that
Jameson and Signature have mutually agreed, to be terminated (i) in a
manner such that Signature has no further obligation with respect thereto,
(ii) except as otherwise mtually agreed, at no cost to Signature except for
benefits earned but unpaid prior to the termination and
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(iii) without any payments made thereunder subject to the golden parachute
provisions of Section 280G or Section 4999 of the Code.
4.14. Stockholders Meeting. Signature will promptly duly call a meeting of
all of the holders of Signature Common Stock and Signature Preferred Stock (the
"Signature Stockholder Meeting") entitled to vote on the Merger Agreement to be
held as soon as practicable following the effectiveness under the 1933 Act of
the Registration Statement, as hereinafter defined, but in any event not more
than forty days after such effectiveness, for the purpose of voting upon and
approving the Merger Agreement and the transactions contemplated thereby.
Signature will, through its Board of Directors, recommend to its stockholders
approval of such matters and shall not withdraw such recommendation, except to
the extent that the Board of Directors of Signature shall have withdrawn or
modified its approval or recommendation of this Agreement of the Merger as
permitted by Section 4.03(b). Without limiting the generality of the foregoing,
Signature agrees that its obligations pursuant to the first sentence of this
Section 4.14 shall not be affected by the commencement, public proposal, public
disclosure or communication to Signature of any Takeover Proposal. Signature
and Jameson shall coordinate and cooperate with respect to the timing of such
meeting.
4.15. Notice and Cure. Signature will notify Jameson promptly in writing of,
and contemporaneously will provide Jameson with true, complete and correct
copies of any and all information or documents relating to, and will use all
reasonable efforts to cure before the Effective Time of the Merger, any event,
transaction or circumstance occurring after the date of this Agreement that
results in or will result in any covenant or agreement of Signature under this
Agreement to be breached, or that renders or will render untrue any
representation or warranty of Signature contained in this Agreement as if the
same were made on or as of the date of such event, transaction or circumstance.
Signature also will use all reasonable efforts to cure, at the earliest
practicable date and before the Effective Time of the Merger, any violation or
breach of any representation, warranty, covenant or agreement made by Signature
in this Agreement, whether occurring or arising before or after the date of
this Agreement.
4.16. Cooperation of Management Pending Merger. Signature covenants and
agrees that between the date hereof and the Effective Time of the Merger,
Signature's management will cooperate with Jameson and endeavor to help persons
designated by Jameson to become familiar with Signature's business, its
operations, properties, business prospects, needs, employees and any other
matters pertaining to Signature's business and operations and to begin
implementation of the transitional plan to be developed by Jameson and
Signature.
4.17. Furnish Information for Jameson Statements. Signature will furnish
Jameson all the information concerning Signature required for inclusion in the
Registration Statement, in applications required under the Blue Sky laws of
various states, and in listing applications to be filed with the Nasdaq Stock
Market respecting the shares of Jameson Common Stock and Jameson Series S
Preferred Stock to be delivered pursuant to this Agreement, or in any statement
or application made by Jameson to any governmental body in connection with the
transactions contemplated in this Agreement. Signature will promptly notify
Jameson in writing upon the occurrence of any material event which warrants the
preparation and filing of any amendment of or supplement to any such
registration statement, application or statement.
4.18. Affiliates Undertakings. Signature shall use its best efforts to
obtain written undertakings, in form and substance satisfactory to Jameson,
signed by each person who in the opinion of counsel for Jameson is at the
Effective Time of the Merger, or was at the time of the Signature Stockholder
Meeting, an "affiliate" of Signature within the meaning of Rule 145 of the
Commission under the 1933 Act, to the effect that such person will not offer or
sell or otherwise distribute the shares of Jameson Common Stock to be received
by him or her upon consummation of the Merger, provided that such undertaking
shall not extend to such shares as may be sold (i) in the manner and to the
extent permitted by paragraph (d) of said Rule 145, as it may be amended form
time to time, (ii) pursuant to an offering which has been registered under the
1933 Act and any applicable state securities laws, or (iii) in a manner which
is exempt from the registration requirements of the 1933 Act and any applicable
state securities laws. In addition, each of the persons named in Section 7.04
will agree to not sell any of the shares of Jameson Common Stock or Jameson
Series S Preferred Stock received by him in
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connection with the consummation of the Merger for a period of one year from
the Effective Time of the Merger without the prior consent of Jameson.
4.19. Filings; Other Actions. Signature and Jameson shall promptly prepare
and file with the SEC the Proxy Statement and Signature will cooperate with
Jameson in the preparation and filing with the SEC the Registration Statement,
in which the Proxy Statement will be included as a prospectus. Signature shall
furnish all information concerning Signature and the holders of Signature
Common Stock and Signature Preferred Stock as may be reasonably requested in
connection with the actions of Jameson required to be taken under any
applicable state securities laws in connection with the issuance of the Jameson
Common stock and Jameson Series S Preferred Stock in the Merger, including
information relating to the number of shares of Jameson Common Stock and
Jameson Series S Preferred Stock required to be registered.
4.20. Comfort Letter. Signature shall use all reasonable efforts to cause to
be delivered to Jameson "comfort" letters of KPMG Peat Marwick, Signature's
independent public accountants, as contemplated by Section 7.09 of this
Agreement.
4.21. REIT-Related Transactions. Signature shall take such further action
and engage in such further transactions as determined by Jameson, based on the
advice of its attorneys and/or independent accountants, to be reasonably
necessary to preserve Jameson's status as a "real estate investment trust"
under the Code, so long as such actions have no material adverse economic
effect on Signature and its stockholders in the event that the Merger is not
consummated (for these purposes, the tax consequences to any Signature
stockholders resulting from a dividend or distribution by Signature to them
shall not be considered a material economic effect on them). Without limiting
the generality or breadth of the foregoing, it is agreed that not later than
immediately prior to the Effective Time of the Merger, (i) each Signature
Subsidiary will be liquidated and dissolved; (ii) Signature will enter into
that certain Assignment and Assumption Agreement substantially in the form of
Exhibit D hereto with Jameson Hospitality, LLC whereby not later than
immediately prior to the Effective Date of the Merger, Signature will sell,
assign and transfer to Jameson Hospitality, LLC those operating assets and
operations more specifically described in Exhibit E hereto and all of
Signature's rights and interests in and to the trade name or trademark
"Signature Inns"; and (iii) prior to the Effective Time of the Merger,
Signature will declare and pay an extraordinary dividend to the holders of the
outstanding Signature Common Stock in an aggregate amount not less than the
amount of the undistributed Earnings and Profits, if any, that the independent
accountants of Signature estimate that Signature would have at the Effective
Time of the Merger if such dividend were not declared and paid, it being
understood and agreed that the amount of any such dividend per share of
Signature Common Stock will reduce the amount of the cash payment per share due
to the holders of the Signature Common Stock by virtue of the consummation of
the Merger as provided in Section 1.04(a) hereof. In addition, Signature and
the Signature Partnership will enter into amendments of the management and
franchise agreements between such parties which will result in the cancellation
and termination of those agreements in conjunction with the consummation of the
Merger and will provide for the execution of a lease with Jameson Hospitality
LLC covering the Signature Property owned by the Signature Partnership
immediately following the Effective Time of the Merger. Also in connection with
the execution of the lease between the Signature Partnership and Jameson
Hospitality, LLC, the dissolution of the general partner of the Signature
Partnership and the substitution of Signature as the general partner in
connection therewith and the amendments of the said management and franchise
agreements Signature will use its best efforts to obtain any limited partner
approval of such actions that may be required under the terms of the
certificate or agreement of limited partnership and Indiana Law.
4.22 Signature Property Restructuring. At the request of Jameson, shortly
before the Effective Time of the Merger, Signature will create one or more
limited liability companies and/or limited partnerships, as Jameson may
specify, which, at such time will be wholly owned by Signature, and transfer
the Signature Properties thereto.
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ARTICLE V
COVENANTS OF JAMESON
Jameson covenants and agrees with Signature that, at all times prior to the
Effective Time of the Merger, Jameson at its expense will comply with all
covenants and provisions of this Article V, except to the extent Signature may
otherwise consent in writing or to the extent otherwise expressly required or
permitted by this Agreement.
5.01. Approvals. Jameson will (i) take all reasonable steps and use all
reasonable efforts necessary or desirable to recommend the granting of and to
obtain, as promptly as practicable, all approvals, authorizations and
clearances of Governmental Entities and of third parties, required of Jameson
to consummate the transactions contemplated hereby, (ii) provide such other
information and communications to such Governmental Entities as Signature or
such authorities may reasonably request, and (iii) cooperate with Signature in
obtaining, as promptly as practicable, all approvals, authorizations and
clearances of Governmental Entities required of Signature to consummate the
transactions contemplated hereby.
5.02. Investigation by Signature. Jameson will provide Signature, its
counsel, accountants, actuaries and other representatives with reasonable
access, upon prior notice and during normal business hours, to all facilities,
officers, directors, employees, agents, accountants, actuaries, assets,
properties, books and records of Jameson, and will furnish Signature and such
other persons during such period with all such other information and data
concerning the business, operations and affairs of Jameson for the transactions
contemplated hereby as Signature or any of such other persons reasonably may
request.
5.03. Conduct of Business. Jameson agrees that during the period from the
date of this Agreement to the Effective Time of the Merger, except as expressly
contemplated by this Agreement or to the extent that Signature may otherwise
consent in writing, Jameson will not engage in any activity or suffer any
event, which, if engaged in or suffered prior to the date of this Agreement,
would have resulted in a misrepresentation under Article III.
5.04. Stockholders' Meeting. Jameson will promptly call a meeting of all of
the holders of Jameson Common Stock of Jameson (the "Jameson Stockholder
Meeting") entitled to vote on the Merger Agreement to be held as soon as
practicable following the effectiveness under the 1933 Act of the Registration
Statement, as hereinafter defined, but in any event not more than forty days
after such effectiveness, for the purpose of voting upon and approving the
Merger Agreement and the transactions contemplated thereby and hereby. Jameson
will, through its Board of Directors, recommend to its stockholders approval of
such matters. Signature and Jameson shall coordinate and cooperate with respect
to the timing of such meeting.
5.05. Blue Sky Permits. Jameson will use its reasonable efforts to obtain
all necessary Blue Sky permits and approvals required to carry out the
transactions contemplated by this Agreement; provided, however, that
notwithstanding anything herein to the contrary, Jameson shall not be required
to qualify to do business as a foreign corporation in any jurisdiction in which
it is not otherwise required to be so qualified.
5.06. Registration Statement. Jameson will file with the Commission the
Registration Statement with respect to the shares of Jameson Common Stock and
Jameson Series S Preferred Stock to be issued pursuant to this Agreement,
provided that it shall have received from Signature all information with
respect to Signature required to be included therein, and will use its best
efforts to effect the registration of such shares under the 1933 Act. If at any
time after the effectiveness of the Registration Statement and before the
Effective Time of the Merger, an event occurs which, in the opinion of counsel
to Jameson, necessitates the resolicitation of proxies for the Jameson
Stockholder Meeting or the Signature Stockholder Meeting, Jameson will promptly
prepare and file a post-effective amendment to the Registration Statement as
necessary to effect such resolicitation.
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5.07. Issuance of Jameson Common Stock and Jameson Series S Preferred
Stock. Prior to the Effective Time of the Merger, Jameson will take all such
reasonable actions as may be required or appropriate to approve the Articles of
Amendment of its Articles of Incorporation in the form of Exhibit A-1 hereto,
thereby creating, designating and authorizing the issuance of the Jameson
Series S Preferred Stock to be issued in connection with the consummation of
the Merger. Jameson will issue as of the Effective Time of the Merger the
shares of Jameson Common Stock and Jameson Series S Preferred Stock required to
be paid and delivered to the stockholders of Signature upon conversion of the
Signature Common Stock and Signature Preferred Stock pursuant to the terms of
the Merger Agreement.
5.08. Notice and Cure. Jameson will notify Signature promptly in writing of,
and contemporaneously will provide Signature with true, complete and correct
copies of any and all information or documents relating to, and will use all
reasonable efforts to cure prior to the Effective Time of the Merger, any
event, transaction or circumstance occurring after the date of this Agreement
that results in or will result in any covenant or agreement of Jameson under
this Agreement to be breached, or that renders or will render untrue any
representation or warranty of Jameson contained in this Agreement as if the
same were made on or as of the date of such event, transaction or circumstance.
Jameson also will use all reasonable efforts to cure, at the earliest
practicable date and before the Effective Time of the Merger, any violation or
breach of any representation, warranty, covenant or agreement made by it in
this Agreement, whether occurring or arising before or after the date of this
Agreement.
5.09. Nasdaq National Market Listing. Jameson will use its best efforts to
have the shares of Jameson Common Stock and Jameson Series S Preferred Stock to
be issued in connection with the transactions contemplated by this Agreement
duly listed, subject to official notice of issuance, on the Nasdaq National
Market.
5.10. Tax Covenants. For one year following the Effective Time of the
Merger, Jameson will not take or fail to take, nor will it permit the Surviving
Corporation to take or fail to take, any action that would cause the Merger not
to constitute a "reorganization" within the meaning of Sections 368 of the
Code.
5.11. No Breach or Default. Jameson will not violate, breach or default, or
take or fail to take any action that (with or without notice or lapse of time
or both) would constitute a violation, breach or default under, any term or
provision of any contract to which Jameson is a party or by which any of its
assets are or may be bound and as to which such violation, breach or default,
individually or in the aggregate, has or reasonably may be expected to have a
Material Adverse Effect on the validity or enforceability against Jameson of
this Agreement or on the business, properties, financial condition or results
of operations of Jameson and its Subsidiaries taken as a whole.
5.12. Notice and Cure. Jameson will notify Signature promptly in writing of,
and contemporaneously will provide Signature with true, complete and correct
copies of any and all information or documents relating to, and will use all
reasonable efforts to cure before the Effective Time of the Merger, any event,
transaction or circumstance that results in or will result in any covenant or
agreement of Jameson under this Agreement to be breached, or that renders or
will render untrue any representation or warranty of Jameson contained in this
Agreement as if the same were made on or as of the date of such event,
transaction or circumstance. Jameson will use all reasonable efforts to cure,
at the earliest practicable date and prior to the Effective Time of the Merger,
any violation or breach of any representation, warranty, covenant or agreement
made by Jameson in this Agreement, whether occurring or arising before or after
the date of this Agreement.
5.13. Cooperation of Management Pending Merger. Jameson covenants and agrees
that between the date hereof and the Effective Time of the Merger, Jameson's
management will cooperate with Signature and endeavor to help persons
designated by Signature to become familiar with Jameson's business, its
operations, properties, business prospects, needs, employees and any other
matters pertaining to Jameson's business and operations and to begin
implementation of the transitional plan to be developed by Jameson and
Signature.
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5.14. Furnish Information for Signature Proxy Statements. Jameson will
furnish Signature all the information concerning Jameson required for inclusion
in the Signature Proxy Statement to be prepared and delivered to the Signature
stockholders in connection with the Signature Stockholders Meeting, or in any
statement or application made by Signature to any Governmental Entity in
connection with the transactions contemplated in this Agreement.
5.15. Comfort Letters. Jameson shall use all reasonable efforts to cause to
be delivered to Signature "comfort" letters of Ernst & Young, LLP, Jameson's
independent public accountants, as contemplated by Section 8.09 of this
Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF JAMESON AND SIGNATURE
Notwithstanding any other provision of this Agreement, the obligation of
each of Jameson and Signature to consummate the transactions contemplated
hereby shall be subject to the fulfillment, prior to or at the Effective Time
of the Merger, of each of the following conditions precedent, any one of which
may be waived by such entity:
6.01. Consents and Approvals. All approvals of, and consents by, all
Governmental Entities and other persons, and all permits by and all filings
with and submissions to all such Governmental Entities and other persons as may
be required for the consummation of the transactions contemplated by this
Agreement, shall have been obtained or made and reasonably satisfactory
evidence thereof shall have been received.
6.02. Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the 1933 Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purposes shall have been
initiated or, to the Knowledge of Jameson or Signature, threatened by the SEC.
All necessary state securities or blue sky authorizations shall have been
received.
6.03. Stockholder Approval. At or prior to the Effective Time of the Merger,
the Merger Agreement shall have been duly approved by the requisite vote of
holders of the Signature Common Stock, Signature Preferred Stock and Jameson
Common Stock in accordance with applicable law and the Restated Articles of
Incorporation, as amended, and Bylaws of Signature and Jameson, respectively.
6.04. Nasdaq National Market Listings. The shares of Jameson Common Stock
and the Jameson Series S Preferred Stock issuable in the Merger shall have been
approved for listing on the Nasdaq National Market.
6.05. Certain Actions, etc. There shall not have been instituted and be
continuing or threatened against Jameson and Signature or any of their
respective directors or officers any action, suit or proceeding by or before
any Governmental Entity that would (i) restrain, prohibit or invalidate, or
result in the payment of substantial damages in respect of, the Merger or any
other transaction contemplated by this Agreement, (ii) impose or confirm
material limitations on the ability of Jameson effectively to exercise full
rights of ownership of the shares of capital stock of Signature or (iii)
prohibit Jameson's or Signature's ownership or operation of all or a material
portion of Jameson's or Signature's business, properties or assets, or compel
Jameson to dispose of or hold separate all or a material portion of Jameson's
or Signature's business, properties or assets.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF JAMESON
Notwithstanding any other provision of this Agreement, the obligation of
Jameson to consummate the transactions contemplated hereby shall be subject to
the fulfillment, prior to or at the Effective Time of the
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Merger, of each of the following conditions precedent, any one of which may be
waived by Jameson:
7.01. Accuracy of Representations and Warranties. The representations and
warranties of Signature set forth in Article II shall be true and correct in
all material respects as of the date of this Agreement and as of the Effective
Time of the Merger with the same effect as though such representations and
warranties had been made at and as of the Effective Time of the Merger except
for such changes with respect thereto which are contemplated by this Agreement
or the passage of time.
7.02. Performance of Covenants, Agreements and Conditions. Signature shall
have duly performed, complied with and satisfied in all material respects all
covenants, agreements and conditions required by this Agreement to be
performed, complied with or satisfied by it at or prior to the Effective Time
of the Merger.
7.03. Officers' Certificate, Etc. Jameson shall have received (i) a
certificate, dated the date of the Effective Time of the Merger and signed by
the President and the Treasurer of Signature, to the effect set forth in
Sections 7.01, 7.02 and 7.12 and (ii) such other certificates, instruments and
documents as shall be reasonably requested by Jameson for the purpose of
verifying the accuracy of such representations and warranties and the
performance and satisfaction of such covenants and conditions.
7.04. Employment Agreements. Jameson Hospitality LLC shall have entered into
employment agreements in the forms of Exhibit C to this Agreement with the
following officers and key employees of Signature: John D. Bontreger. Mark D.
Carney, Bo L. Hagood, David R. Miller and Martin D. Brew.
7.05. Opinion of Signature Counsel. Jameson shall have received an opinion,
dated the date of the Effective Time of the Merger, of Henderson, Daily,
Withrow & Devoe, counsel for Signature, in form and substance satisfactory to
Jameson, to the effect that:
(a) Signature is a corporation duly organized and validly existing under
Indiana Law and has all requisite corporate power and authority to own,
operate and lease its properties and assets and to carry on its business as
now being conducted;
(b) Signature is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction set forth in Schedule 2.01 to
this Agreement;
(c) Each of the Signature Subsidiaries has been dissolved and liquidated
in accordance with Indiana Law, its articles of incorporation and bylaws
and Signature has obtained all material consents, waivers, approvals and
authority as may be reasonable required or necessary in connection
therewith;
(d) The Signature Partnership is a limited partnership validly existing
and in good standing under the laws of the State of Indiana and is duly
qualified to do business and is in good standing in each jurisdiction in
which the nature of its business activities or its ownership or leasing of
property makes such qualification necessary and in which the failure to
qualify would not or could not reasonably be expected to have a Material
Adverse Effect. The Signature Partnership has full power and authority to
own or lease and to operate and use its properties and to carry on its
business as now conducted;
(e) Signature has the requisite corporate power and authority to enter
into and perform its obligations under this Agreement; the execution and
delivery of this Agreement by Signature and the consummation by Signature
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Signature; this Agreement has
been duly executed and delivered by Signature and constitutes the legal,
valid and binding obligation of Signature, enforceable against Signature in
accordance with its terms except as enforceability may be subject to (i)
any applicable bankruptcy, insolvency, reorganization or other law relating
to or affecting creditors' rights and (ii) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law);
(f) Neither the execution and delivery of this Agreement by Signature,
nor the consummation of the transactions contemplated hereby to be
preformed by Signature, will (i) violate or conflict with any provision of
the Articles of Incorporation, as amended, or Bylaws, as currently in
effect, of Signature or
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any Signature Subsidiary, or (ii) violate or conflict with any provision of
any Indiana or federal law, rule or regulation, or of any order, permit,
certificate, writ, judgment, injunction, decree, determination, award or
other decision known to such counsel of any Governmental Entity, other
regulatory or self-regulatory body or association or arbitrator binding
upon Signature or any of its Subsidiaries or any of the properties of
Signature or any Signature Subsidiary, except where such violations or
conflicts would not individually or in the aggregate have a Material
Adverse Effect on the business, financial condition or properties of
Signature or any Signature Subsidiary or on the ability of Signature to
consummate the transactions contemplated hereby;
(g) To such counsel's knowledge, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
to be performed by Signature will result in a breach of or constitute a
default (or with notice or lapse of time or both result in a breach of or
constitute a default) under, or give rise to a right of termination,
cancellation, acceleration or repurchase of any obligation or a right of
first refusal with respect to any material property or asset or a loss of a
material benefit or the imposition of a material penalty under, any of the
terms, conditions or provisions of (i) any mortgage, indenture, loan or
credit agreement or any other agreement or instrument evidencing
indebtedness for money borrowed to which Signature or any Signature
Subsidiary is a party or by which Signature or any Signature Subsidiary or
the properties of Signature or any Signature Subsidiary is bound or
affected, or pursuant to which Signature or any Signature Subsidiary has
guaranteed the indebtedness or preferred stock of any person or entity, or
(ii) any lease, contract or other agreement or instrument to which
Signature or any Signature Subsidiary is a party or by which Signature or
any Signature Subsidiary or any of the properties of Signature or any
Signature Subsidiary is bound or affected, except in the case of each of
clauses (i) and (ii) above, for any such breaches, defaults, rights, losses
or penalties that in the aggregate would not have any Material Adverse
Effect on the business, financial condition or properties of Signature or
any Signature Subsidiary or on the ability of Signature to consummate the
transactions contemplated hereby;
(h) Each Dissolved Signature Partnership has been liquidated and
dissolved in compliance with the requirements of its certificate or
agreement of limited partnership and Indiana Law and neither Signature nor
any of its Subsidiaries has assumed, either contractually or by operation
of law, any liabilities, obligations or duties of the Dissolved Signature
Partnership or any of the partners thereof except for any responsibility or
liability it may have solely by reason of its position as the general
partner of the Dissolved Signature Partnership. Such counsel has no
knowledge of any outstanding indebtedness, claims, liabilities or
obligations of any Dissolved Signature Partnership to which Signature or
any Signature Subsidiary may be subject and which has not been disclosed in
this Agreement or in any of the Schedules to this Agreement;
(i) To such counsel's knowledge, except as contemplated in this
Agreement, neither the execution and delivery by Signature of this
Agreement nor the consummation of the transactions contemplated hereby to
be performed by Signature will result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest
or other charge or encumbrance of any nature upon or with respect to any of
the properties now owned by Signature or any Signature Subsidiary, except
where such would not in the aggregate have a Material Adverse Effect on the
business, financial condition or properties of Signature or any Signature
Subsidiary or on the ability of Signature to consummate the transactions
contemplated hereby;
(j) No consent, approval, order, certificate or authorization of, or
registration, declaration or filing with, any federal or Indiana
Governmental Entity is required by or with respect to Signature or any
Signature Subsidiary in connection with the execution and delivery of this
Agreement by Signature or the consummation by Signature of the transactions
contemplated hereby, other than in connection or compliance with any
applicable provisions of Indiana Law, Georgia Law and applicable state and
Federal securities laws;
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(k) The authorized capital stock of Signature consists of 25,000,000
shares of Signature Common Stock and 5,000,000 shares of Signature
Preferred Stock; to the knowledge of such counsel, there are no options to
purchase any shares of capital stock of Signature outstanding other than
the employee stock options described in Schedule 1.05 hereto; and all
shares of capital stock of Signature are duly authorized, validly issued,
fully paid and nonassessable, and are not subject to or issued in violation
of, any preemptive rights;
(l) All such shares of Signature Common Stock (and the associated
Rights), when converted into the right to receive shares of Jameson Common
Stock and cash pursuant to the terms of the Merger Agreement, shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist and each holder of a certificate representing any such
shares (and the associated Rights) shall cease to have any rights with
respect thereto other than the right to receive the shares of Jameson
Common Stock and cash payment described in Section 1.04(a) hereof. By
virtue of the Amendment to the Rights Agreement and at the Effective Time
of the Merger, the Rights shall be canceled and shall cease to exist by
reason of the Merger and the holders of the Signature Common Stock shall
have no rights with respect thereto upon consummation of the Merger;
(m) Such matters relating to the formation of one or more limited
liability companies or limited partnerships to hold title to the properties
in certain of the states pursuant to Section 4.22 and the effectiveness of
the transfer of title to such properties thereto as Jameson may reasonably
request.
In addition, such counsel shall state that no facts have come to such
counsel's attention which lead such counsel to believe that either the
Registration Statement or the Proxy Statement, or any amendment or supplement
thereto (other than the financial statements and other financial and
statistical information contained therein as well as expertized portions
thereof, as to which such counsel need not comment), both as of their
respective issue or effective dates and as of the Effective Time of the Merger,
contained an untrue statement of a material fact with respect to Signature or
omitted to state a material fact with respect to Signature required to be
stated therein or necessary to make the statements therein with respect to
Signature not misleading.
In rendering the above opinions, such counsel may rely on such local or
other counsel to which Jameson has reasonably agreed with respect to matters
particularly within the expertise of such counsel and/or not normally opined on
by outside counsel.
7.06. Undertakings by Signature Affiliates. Jameson shall have received
written undertakings, in form and substance satisfactory to Jameson, signed by
each person who in the opinion of counsel for Jameson is at the Effective Time
of the Merger, or was at the time of the Signature Stockholder Meeting, an
"affiliate" of Signature within the meaning of Rule 145 of the Commission under
the 1933 Act, to the effect that such person will not offer or sell or
otherwise distribute the shares of Jameson Common Stock or Jameson Series S
Preferred Stock to be received by him upon consummation of the Merger, provided
that such undertaking shall not extend to such shares as may be sold (i) in the
manner and to the extent permitted by paragraph (d) of said Rule 145, as it may
be amended from time to time, (ii) pursuant to an offering which has been
registered under the 1933 Act and any applicable state securities laws, or
(iii) in a manner which is exempt from the registration requirements of the
1933 Act and any applicable state securities laws. In addition, each of the
persons named in Section 7.04 will have agreed to not sell any of the shares of
Jameson Common Stock or Jameson Series S Preferred Stock received by him in
connection with the consummation of the Merger for a period of one year from
the Effective Time of the Merger without the prior consent of Jameson.
7.07. Rights Agreement. The Rights shall not have become nonredeemable,
exercisable, distributed or triggered pursuant to the terms of the Rights
Agreement.
7.08. Opinions of Professionals.
(a) Jameson will have received an opinion from the independent
accountants of Signature, in form and substance reasonably satisfactory to
Jameson and its counsel, to the effect that at the Closing Date
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Signature does not then have any undistributed earnings and profits as
defined under Internal Revenue Code Section 312 and the Regulations
thereunder ("Earnings and Profits").
(b) On the Closing Date, the opinion of Conner & Winters, A Professional
Corporation, counsel to Jameson, shall have been delivered to Jameson in
form and substance reasonably satisfactory to Jameson stating (i) that
Jameson is a "real estate investment trust" for federal income Tax
purposes, (ii) that consummation of the transactions contemplated by this
Agreement will not cause Jameson to cease to qualify as a "real estate
investment trust" for federal income Tax purposes, and (iii) that the
Merger will be treated for federal income Tax purposes as a reorganization
within the meaning of section 368(a) of the Code, and that each of Jameson
and Signature will be a party to that reorganization within the meaning of
section 368(b) of the Code. In rendering such opinion, such counsel shall
be entitled to rely upon the opinion rendered pursuant to paragraph (a)
above as well as certificates of officers of Signature and Jameson as to
such factual matters as such counsel may reasonably request.
7.09. Auditors' letters. Jameson shall have received from KPMG Peat Marwick
a letter dated the effective date of the Registration Statement and a letter
dated the Effective Time of the Merger, each such letter to be in form and
substance satisfactory to Jameson and to the effect that:
(a) in their opinion, the financial statements of Signature examined by
them and included in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the 1933
Act and the published rules and regulations thereunder; and
(b) based upon limited procedures described in such letter, certain data
and information appearing in said Registration Statement and specified in
said letter has been obtained from the accounting records of Signature is
in agreement with such records or computations made therefrom.
7.10. Resignations. If requested, Jameson shall have received the
resignations of each officer and director of each of the Signature
Subsidiaries.
7.11. Fairness Opinion. Jameson shall have received a letter from The
Robinson-Humphrey Company, L.L.C. for inclusion in the Registration Statement
in form and substance satisfactory to Signature to the effect that in the
opinion of The Robinson-Humphrey Company, L.L.C., the terms of the Merger
contemplated by this Agreement are fair to the stockholders of Jameson from a
financial point of view.
7.12. No Material Adverse Change. Since the date of this Agreement, there
shall have been no event or occurrence which has had or reasonably could be
expected to have a Material Adverse Effect on the business, properties,
financial condition or results of operations of Signature or on the ability of
Signature to consummate the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SIGNATURE
Notwithstanding any other provision of this Agreement, the obligations of
Signature to consummate the transactions contemplated hereunder (other than the
obligations of Signature set forth in Section 10.05) shall be subject to the
fulfillment, prior to or at the Effective Time of the Merger, of each of the
following conditions precedent, any one of which may be waived by Signature.
8.01. Accuracy of Representations and Warranties. The representations and
warranties of Jameson set forth in Article III shall be true and correct in all
material respects as of the date of this Agreement and as of the Effective Time
of the Merger with the same effect as though such representations and
warranties had been made at and as of the Effective Time of the Merger except
for such changes with respect thereto which are contemplated by this Agreement
or the passage of time.
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8.02. Performance of Covenants, Agreements and Conditions. Jameson shall
have duly performed, complied with and satisfied all covenants, agreements and
conditions required by this Agreement to be performed, complied with or
satisfied by them, at or prior to the Effective Time of the Merger.
8.03. Officers' Certificates Etc. Signature shall have received (i)
certificates, dated the date of the Effective Time of the Merger and signed by
the President or any Vice President of Jameson, to the effect set forth in
Sections 8.01, 8.02 and 8.08, insofar as such Sections relate to Jameson and
(ii) such other certificates, instruments and documents as shall be reasonably
requested by Signature for the purpose of verifying the accuracy of such
representations and warranties and the performance and satisfaction of such
covenants and conditions.
8.04. Opinion of Counsel for Jameson. Signature shall have received an
opinion, dated the date of the Effective Time of the Merger, of Conner &
Winters, A Professional Corporation, counsel for Jameson, in form and substance
satisfactory to Signature, to the effect that:
(a) Jameson is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and Jameson
has all requisite corporate power and authority to own, operate and lease
its respective properties and assets and to carry on its respective
businesses as now being conducted;
(b) Jameson and each Jameson Subsidiary is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction
specified in such opinion;
(c) Jameson has the requisite corporate power and authority to enter
into and perform its obligations under this Agreement; the execution and
delivery of this Agreement by Jameson and the consummation by Jameson of
the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Jameson; this agreement has been
duly executed and delivered by Jameson and constitutes the legal, valid and
binding obligation of Jameson, enforceable against Jameson in accordance
with its terms except as enforceability may be subject to (i) any
applicable bankruptcy, insolvency, reorganization or other law relating to
or affecting creditors' rights and (ii) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law);
(d) Neither the execution and delivery of this Agreement by Jameson, nor
the consummation of the transactions contemplated hereby to be performed by
Jameson, will (i) violate or conflict with any provision of the Articles of
Incorporation, as amended, or By-laws, as currently in effect, of Jameson
or (ii) violate or conflict with any provision of any law, rule,
regulation, order, permit, certificate, writ, judgment, injunction, decree,
determination, award or other decision of any Governmental Entity, other
regulatory or self-regulatory body or association or arbitrator binding
upon Jameson or any Jameson Subsidiary or any of their respective
properties, except where such violations or conflicts would not in the
aggregate have a Material Adverse Effect on the business, financial
condition or properties of Jameson and its Subsidiaries taken as a whole or
on the ability of Jameson to consummate the transactions contemplated
hereby;
(e) To the knowledge of counsel, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
to be performed by Jameson will result in a breach of or constitute a
default (or with notice or lapse of time or both result in a breach of or
constitute a default) under, or give rise to a right of termination,
cancellation, acceleration or repurchase of any obligation or a right of
first refusal with respect to any material property or asset or a loss of a
material benefit or the imposition of a material penalty under, any of the
terms, conditions or provisions of (i) any mortgage, indenture, loan or
credit agreement or any other agreement or instrument evidencing
indebtedness for money borrowed to which Jameson is a party or by which it
or any of its respective properties is bound or affected, or pursuant to
which Jameson has guaranteed the indebtedness or preferred stock of any
person or entity or (ii) any lease, license, tariff, contract or other
agreement or instrument to which Jameson is a party or by which it or any
of its properties is bound or affected, except in the case of each of
clauses (i) and (ii) above, for any such breaches, defaults, rights, losses
or penalties that in the
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aggregate do not have any Material Adverse Effect on the business,
financial condition, or properties of Jameson and its subsidiaries taken as
a whole or on the ability of Jameson to consummate the transactions
contemplated hereby;
(f) To the knowledge of counsel, except as contemplated in this
Agreement, neither the execution and delivery of Jameson of this Agreement
nor the consummation of the transactions contemplated hereby to be
performed by Jameson will result in, or require, the creation or imposition
of any mortgage, deed of trust, pledge, lien, security interest or other
charge or encumbrance of any nature upon or with respect to any of the
properties now or hereafter owned by Jameson or its Subsidiaries, except
where such would not in the aggregate have a Material Adverse Effect on the
business, financial condition, or properties of Jameson or any Jameson
Subsidiary or on the ability of Jameson to consummate the transactions
contemplated hereby;
(g) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to Jameson or any of its subsidiaries in connection with the
execution and delivery of this Agreement by Jameson or the consummation by
Jameson of the transactions contemplated hereby, other than in connection
or compliance with any applicable provisions of Georgia Law, Indiana Law or
applicable state and Federal securities laws.
(h) The authorized capital stock of Jameson consists of 40,000,000
shares of Jameson Common Stock and 10,000,000 shares of preferred stock,
par value $1.00 per share. On the date of this Agreement, there were
9,857,731 shares of Jameson Common Stock and 1,200,000 shares of Jameson
Series A Preferred Stock issued and outstanding. All the outstanding shares
of Jameson Common Stock and Jameson Series A Preferred Stock have been duly
authorized and validly issued and are fully paid and nonassessable. To the
knowledge of such counsel, there are no options to purchase any shares of
capital stock of Jameson except as set forth in Section 3.04 of this
Agreement. The shares of Jameson Series S Preferred Stock have been validly
designated and authorized by the filing of the Articles of Amendment
substantially in the form of Exhibit A-1 to this Agreement. The shares of
Jameson Common Stock and Jameson Series S Preferred Stock to be issued
pursuant to this Agreement have been duly authorized and, when issued in
accordance with the provisions hereof, will be validly issued, fully paid
and nonassessable; and the Jameson stockholders have no preemptive rights
to acquire such shares.
(i) The Registration Statement has become effective under the 1933 Act
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 pending or
contemplated under the 1933 Act; and the resale of the shares of Jameson
Common Stock and Jameson Series S Preferred Stock issued pursuant to this
Agreement and the Merger Agreement will not require registration under the
1933 Act except as such registration may be required by law, if any, with
respect to certain distributions by those "affiliates" of Signature who
deliver the undertakings to Jameson contemplated by Section 7.06 herein.
(j) The issuance of the shares of Jameson Common Stock and Jameson
Series S Preferred Stock in connection with the transactions contemplated
by this Agreement has been registered or is subject to applicable
exemptions from the registration requirements under the state securities or
Blue Sky laws of the various states in which the stockholders of Signature
reside.
In addition, such counsel shall state that no facts have come to such
counsel's attention which lead such counsel to believe that either the
Registration Statement or the Proxy Statement or any amendment or
supplement thereto (other than the financial statements and other financial
and statistical information contained therein as well as expertized
portions thereof, as to which such counsel need not comment), both as of
their respective issue or effective dates and as of the Effective Time of
the Merger, contained an untrue statement of a material fact with respect
to Jameson and the Jameson Subsidiaries or omitted to state a material fact
with respect to Jameson and the Jameson Subsidiaries required to be stated
therein or necessary to make the statements therein with respect to Jameson
and the Jameson Subsidiaries not misleading.
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In rendering the above opinions, such counsel may rely upon such local
or other counsel to which Signature has reasonably agreed with respect to
matters particularly within the expertise of such counsel and/or not
normally opined on by outside counsel. It is agreed that such counsel may
rely on the opinion of Steven A. Curlee, Esq. regarding matters of Georgia
Law.
8.05. Authorization of Jameson Stock. The Board of Directors of Jameson
shall have taken all necessary corporate action to provide for the issuance and
reservation of such number of shares of Jameson Common Stock and Jameson Series
S Preferred Stock as may be required to carry out the terms of this Agreement.
8.06. Fairness Opinion. Signature shall have received a letter from McDonald
Investments, Inc. no earlier than three business days prior to the effective
date of the Registration Statement for inclusion in the Registration Statement
in form and substance satisfactory to Signature to the effect that in the
opinion of McDonald Investments, Inc., the consideration to be received in the
Merger by the holders of the Signature Common Stock and Signature Preferred
Stock contemplated by this Agreement is fair to the stockholders of Signature
from a financial point of view.
8.07. Tax Opinion. Signature shall have received a written opinion of Conner
& Winters, A Professional Corporation, to the effect that (i) Jameson is a
"real estate investment trust" for federal income Tax purposes, (ii)
consummation of the transactions contemplated by this Agreement will not cause
Jameson to cease to qualify as a "real estate investment trust" for federal
income Tax purposes, and (iii) the Merger will be treated for federal income
Tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, and that each of Jameson and Signature will be a party to that
reorganization within the meaning of Section 368(b) of the Code, and (iv) that
Signature and the Signature stockholders exchanging Signature Common Stock and
Preferred Stock will recognize no gain or loss for federal income tax purposes
as a result of the consummation of the Merger (except as to the cash
consideration received by Signature stockholders and except for any gain that
Signature may realize in connection with the sale of its operating assets to
Hospitality, LLC as contemplated by Section 4.21). In connection with the Tax
opinion, such counsel shall be entitled to assume the accuracy of the
representations and warranties of Signature and Jameson and shall be entitled
to make such other factual assumptions as are reasonable or customary in
similar Tax opinions. In rendering such opinion, such counsel shall be entitled
to rely upon the opinion rendered pursuant to Section 7.08(a) above.
8.08. No Material Adverse Change. Since the date of this Agreement, there
shall have been no event or occurrence which has had or reasonably could be
expected to have a Material Adverse Effect on the business, properties,
financial condition or results of operations of Jameson or on the ability of
Jameson to consummate the transactions contemplated hereby.
8.09. Auditors' Letters. Signature shall have received from Ernst & Young,
LLP, a letter dated the effective date of the Registration Statement and a
letter dated the Effective Time of the Merger, each such letter to be in form
and substance satisfactory to Signature and to the effect that:
(a) in their opinion, the financial statements of Jameson examined by
them and included in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the 1933
Act and the published rules and regulations thereunder; and
(b) based upon limited procedures described in such letter, certain data
and information appearing in said Registration Statement and specified in
said letter has been obtained from the accounting records of Jameson is in
agreement with such records or computations made therefrom.
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ARTICLE IX
TERMINATION, AMENDMENTS AND WAIVER
9.01. Termination. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval by the
stockholders of Jameson and Signature:
(a) by mutual written consent of Jameson and Signature; or
(b) by either Jameson or Signature if the Merger shall not have been
consummated on or before July 31, 1999 (other than due to the failure of
the party seeking to terminate this Agreement to perform its obligations
under this Agreement required to be performed at or prior to the Effective
Time); or
(c) by either Jameson or Signature, if any United States federal or
state court of competent jurisdiction or other governmental entity shall
have issued a final order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger and
such order, decree, ruling or other action shall have become final and
nonappealable, provided that the party seeking to terminate shall have used
its best efforts to appeal such order, decree, ruling or other action; or
(d) by either Jameson or Signature, if any required approval of the
stockholders of Jameson or Signature that is a condition to the obligations
of Jameson or Signature under Section 6.03 shall not have been obtained by
reason of the failure to obtain the required vote upon a vote held at a
duly held meeting of stockholders or at any adjournment thereof; or
(e) by Jameson if the Board of Directors of Signature shall or shall
resolve to (i) not recommend, or withdraw its approval or recommendation
of, the Merger, this Agreement or any of the transactions contemplated
hereby, (ii) modify such approval or recommendation in a manner adverse to
Jameson or (iii) approve or recommend a Superior Proposal pursuant to
Section 4.03(b); or
(f) by the Board of Directors of Signature if (i) to the extent
permitted by Section 4.03(b), the Board of Directors of Signature
authorizes Signature to enter into a binding written agreement concerning a
transaction that constitutes a Superior Proposal and Signature provides
notification to Jameson in accordance with Section 4.03(b), and (ii)
Jameson does not make, within five calendar days of receipt of Signature's
written notification of its intention to enter into a binding agreement for
a Superior Proposal, an offer that the Board of Directors of Signature
determines, in good faith after consultation with its financial advisors
and outside counsel, is at least as favorable, from a financial point of
view, to the stockholders of Signature as the Superior Proposal, and (iii)
Signature, prior to such termination has paid to Jameson in cash the full
amounts required to be paid by Section 10.05; or
(g) by Jameson, if Signature has failed to perform in any respect any of
its obligations required to be performed by it under this Agreement and
such failure continues for more than 30 days after notice unless failure to
so perform has been caused by or results from a breach of this Agreement by
Jameson, except where such failure or failures would not in the aggregate
have a Material Adverse Effect on the business, properties, financial
condition or results of operations of Signature or Jameson on the ability
of Signature or Jameson to consummate the transactions contemplated hereby;
or
(h) by Signature, if Jameson shall have failed to perform in any respect
any of its obligations required to be performed by it under this Agreement
and such failure continues for more than 30 days after notice unless
failure to so perform has been caused by or results from a breach of this
Agreement by Signature, except where such failure or failures would not in
the aggregate have a Material Adverse Effect on the business, properties,
financial condition or results of operations of Signature or on the ability
of Signature to consummate the transactions contemplated hereby; or
(i) by Signature, if the average of the closing sales prices for Jameson
Common Stock as reported on the Nasdaq National Market for the period of
ten consecutive trading days ending five business days prior to the date of
the Signature Stockholder Meeting is less than $7.00 per share.
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9.02. Effect of Termination. If either Jameson or Signature terminates this
Agreement as provided in the foregoing Section, this Agreement will forthwith
become void, and there will be no liability or obligation on the part of
Jameson or Signature or their officers or directors except as set forth in
Sections 10.05 and 11.02 (relating to noncompletion expenses and fees), 2.13
and 3.07 (relating to brokers or finders), and 10.01 (relating to
confidentiality), and except to the extent that such termination results from
the willful breach by a party of any of its representations, warranties or
agreements in this Agreement.
9.03. Amendment. This Agreement may be amended by the parties hereto, by
action taken (in the case of Signature or Jameson) by their respective Boards
of Directors at any time before or after approval hereof by the stockholders of
Signature and Jameson. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
9.04. Waiver. Any term or provision of this Agreement may be waived in
writing at any time by Jameson, if it is entitled to the benefits thereof, or
by Signature, if it is entitled to the benefits thereof.
ARTICLE X
OTHER AGREEMENTS; NONSURVIVAL
OF REPRESENTATIONS AND WARRANTIES
10.01. Confidentiality. The parties agree that the commitments, covenants,
terms and obligations under Sections 1 through 5 and Section 9 of that certain
Mutual Confidential Disclosure Agreement dated as of December 16, 1998 shall
continue in full force and effect; provided, however, that nothing in the last
paragraph of Section 2 thereof shall affect, limit or restrict the
representations and warranties of the parties under Articles II and III hereof.
10.02. Public Announcements. None of the parties hereto will make any public
announcement without prior approval of the other, except as may otherwise be
required by law.
10.03. Indemnification.
(a) Jameson agrees that all rights to indemnification and exculpation
from liabilities for acts or omissions occurring prior to the Effective
Time of the Merger now existing in favor of any current or former
employees, agents, directors or officers of Signature and its Subsidiaries
as provided in their respective Articles of Incorporation or By-laws (or
comparable organizational documents) and any indemnification agreements of
Signature disclosed in a schedule hereto shall survive the Merger and shall
continue in full force and effect in accordance with their terms for a
period of not less than five years from the Effective Time of the Merger
and the obligations of Signature in connection therewith shall be assumed
by Jameson; provided that in the event any claim or claims are asserted or
made within such five year period, all rights to indemnification in respect
of any such claim shall continue until final disposition of such claim.
(b) Jameson agrees that from and after the Effective Time of the Merger,
Jameson shall cause the policies or director and officer liability
insurance maintained by Signature on the date hereof to be maintained in
effect for the period of time directors and officers are entitled to
indemnification under Section 10.03(a) above; provided that Jameson may
substitute therefor policies of at least the same coverage containing terms
and conditions which are no less advantageous to the Indemnified Parties,
provided that such substitution shall not result in any gaps or lapses in
coverage with respect to matters occurring prior to the Effective Time of
the Merger.
(c) In the event Jameson merges or is acquired in a transaction in which
it is not the surviving corporation, or if Jameson sells substantially all
of its assets, Jameson will use its reasonable efforts to cause proper
provision to be made in such transaction so that Jameson's successor or
acquiror will assume the obligations set forth in Section 10.03(a) above.
The parties agree that Signature's directors and officers are the third
party beneficiaries of, and entitled to enforce, the provisions of this
Section 10.03.
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(d) The provisions of this Section 10.03 are intended to be for the
benefit of, and shall be enforceable by, each person who is or has been a
director or officer of Signature or a Subsidiary of Signature, and such
director's or officer's heirs and personal representatives and shall be
binding on all successors and assigns of Jameson.
10.04. Additional Agreements. Subject to this Agreement, each of the parties
agrees to use its best efforts to take, or cause to be taken, all action and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, subject to the appropriate
approval of stockholders of Signature or Jameson required so to approve. If at
any time after the Effective Time of the Merger any further action is necessary
or desirable to carry out the purposes of this Agreement, the proper officers
and directors of each corporation that is a party to this Agreement will take
all such necessary action.
10.05. Break-up Fee. If
(a) this Agreement is terminated pursuant to Section 9.01(e), (g) or (f)
without the Closing having occurred, or
(b) the stockholders of Signature do not approve the Merger Agreement
and either (i) the Signature Board of Directors does not recommend approval
of the Merger Agreement or at any time prior to the Signature Stockholder
Meeting changes its recommendation for approval, or (ii) any tender or
exchange offer for the shares of Signature Common Stock or Signature
Preferred Stock or solicitation of proxies voting against approval of the
Merger Agreement is commenced by any third party (including any affiliate
of Signature) at any time prior to the date on which the Signature
Stockholder Meeting is scheduled and the Signature Board of Directors fails
to take a position recommending that such offer not be accepted or that
such proxies not be granted,
then Signature agrees to pay Jameson $2,000,000 in cash plus an amount equal to
all of the out-of pocket fees and expenses reasonably incurred by Jameson in
connection with this Agreement and the transactions contemplated hereby, not to
exceed $500,000 in the aggregate.
10.06. Available Remedies. Each party expressly agrees that, consistent with
its intention and agreement to be bound by the terms of this Agreement and to
consummate the transactions contemplated hereby, subject only to the
performance or satisfaction of conditions precedent, the remedy of specific
performance shall be available to a non-breaching and non-defaulting party to
enforce performance of this Agreement by a breaching or defaulting party,
including, without limitation, to require the consummation of the Closing
pursuant to Section 1.01.
10.07. Nonsurvival of Representations and Warranties. The representations
and warranties of the parties hereto contained in Articles II and III shall
expire at the Closing and be of no further force or effect.
ARTICLE XI
MISCELLANEOUS
11.01. Closing. Subject to the terms and conditions hereof, the closing of
the transactions contemplated hereby shall take place at the offices of
Henderson, Daily, Withrow & Devoe, 2600 One Indiana Square, Indianapolis,
Indiana 46204-2071 at 10:00 am., Eastern Time, on the day after the meeting of
the stockholders of Signature referred to in Section 4.14 or at such other
place and time as the parties hereto shall agree.
11.02. Expenses. Except as otherwise provided herein, each of Jameson and
Signature will pay its own costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, including the fees and
expenses of its counsel, irrespective of when incurred and regardless of
whether the Merger is consummated; provided, however, that in the event that
this Agreement is terminated without the
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Merger being consummated pursuant to any subparagraph of Section 9.01 other
than Subparagraph 9.01(f) or 9.01(g), Jameson shall reimburse Signature for
one-half of the fees and expenses paid or payable to the independent
accountants of Signature for the analysis and review undertaken by that firm to
determine the Earnings and Profits of Signature for purposes of Sections 4.21.
11.03. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered personally or sent
by telex, facsimile transmission, a nationally recognized overnight delivery
service or registered or certified mail (return receipt requested), postage
prepaid, to the parties to this Agreement at the following addresses or at such
other address for a party as shall be specified by like notice:
If to Jameson:Jameson Inns, Inc.
8 Perimeter Center East, Suite 8050
Atlanta, Georgia 30346-1603
Fax No.: (770) 901-9203
Attention: Thomas W. Kitchin
with a copy to:Conner & Winters, A Professional Corporation
3700 First Place Tower
15 East 5th Street
Tulsa, Oklahoma 74103
Fax No.: (918) 586-8548
Attention: Lynnwood R. Moore, Jr.
If to Signature:Signature Inns, Inc.
One Parkwood Crossing
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
Fax No.: (317) 574-7397
Attention: John D Bontreger
with a copy to:Henderson, Daily, Withrow & Devoe
2600 One Indiana Square
Indianapolis, Indiana 46204-2071
Fax No.: (317) 639-0191
Attention: Thomas N. Eckerle
and to:Bass, Berry & Sims, PLC
2700 First American Center
Nashville, Tennessee 37238-2700
Fax No.: (615) 742-2709
Attention: Howard H. Lamar, III
All such notices and communications shall be deemed to have been received on
the date of delivery or on the third business day after the mailing thereof.
11.04. Entire Agreement. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements and undertakings, written and oral.
11.05. Binding Effect: Benefits. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors and permitted assigns. Except for parties referred to in Section
10.03, nothing expressed or implied in this Agreement is intended to or shall
be construed to give any person other than the parties to this Agreement or
their respective successors or permitted assigns any legal or
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<PAGE>
equitable right, remedy or claim under or in respect of this Agreement, it
being the intention of the parties to this Agreement that this Agreement shall
be for the sole and exclusive benefit of such parties or such successors or
assigns and for the benefit of no other person.
11.06. Assignment. Neither this Agreement nor any right, remedy, obligation
or liability arising hereunder or by reason hereof shall be assignable by any
party to this Agreement without the prior written consent of the other parties.
11.07. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia applicable to contracts made
and to be performed within that State.
11.08. Article and Section Headings. The article, section and other headings
contained in this Agreement are for reference purposes only and shall not
affect the meaning or interpretation of this Agreement.
11.09. Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any federal, state,
local, or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. As used in Articles
II and III, "Knowledge" shall mean and a Person will be deemed to have
"Knowledge" of a particular fact or other matter if such Person is actually
aware of such fact or other matter or has been presented information or
evidence which lead a reasonable and prudent individual to determine the
existence of such fact or other matter without the necessity of conducting a
further comprehensive investigation concerning the existence of such fact or
other matter. A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director, executive officer,
partner, executor or trustee of, or partner in, such Person (or in any similar
capacity) has, or at any time had, Knowledge of such fact or other matter.
11.10 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad or excessive as to be unenforceable, such provision
shall be interpreted (or deemed to be revised) to be only so broad, or to
provide for the maximum amount, as in enforceable.
11.11. Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
11.12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be a single agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused this Agreement
to be duly executed as of the date first written above.
Jameson Inns, Inc.
By /s/ Thomas W. Kitchin________________
Thomas W. Kitchin, Chief Executive
Officer
Signature Inns, Inc.
By /s/ John D. Bontreger________________
John D. Bontreger, President and
Chief Executive Officer
The undersigned are executing this Agreement solely for the purpose of
agreeing to and confirming irrevocably the provisions of Section 4.03(c) of
this Agreement provided, however, that none of the undersigned makes any
agreement or understanding by executing below in his capacity as such director
or officer, rather such person signs this Agreement solely in his capacity as
the beneficial owner and registered owner of Signature Common Stock or
Signature Preferred Stock, and nothing herein shall limit or affect any actions
taken by any of the undersigned in his capacity as an officer or director of
Signature, including, without limitation, any action taken in such person's
capacity as a director or officer of Signature consistent with the provisions
of Section 4.03(a) or (b) of the Agreement.
/s/ John D. Bontreger
------------------------------------
John D. Bontreger
/s/ Mark D. Carney
------------------------------------
Mark D. Carney
/s/ Bo L. Hagood
------------------------------------
Bo L. Hagood
/s/ David R. Miller
------------------------------------
David R. Miller
/s/ Stephen M. Huse
------------------------------------
Stephen M. Huse
/s/ George A. Morton
------------------------------------
George A. Morton
/s/ Richard L. Russell
------------------------------------
Richard L. Russell
/s/ William S. Watson
------------------------------------
William S. Watson
A-42
<PAGE>
EXHIBIT A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (the "Merger Agreement") is made as of ,
1999, by and among Jameson Inns, Inc., a Georgia corporation ("Jameson"), and
Signature Inns, Inc., an Indiana corporation ("Signature").
WHEREAS, the parties hereto have entered into an Agreement and Plan of
Merger (the "Agreement") containing various representations, warranties,
covenants, and conditions relating to, among other things, the merger of
Signature with and into Jameson (the "Merger");
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:
ARTICLE I
1.01 Constituent Corporations and Surviving Corporation. Jameson and
Signature shall be the constituent corporations to the Merger (the "Constituent
Corporations"). At the Effective Time of the Merger (as hereinafter defined),
Signature shall be merged with and into Jameson, with Jameson being the
surviving corporation of the Merger (the "Surviving Corporation"). The
identity, existence, rights, privileges, powers, franchises, properties and
assets of Jameson shall continue unaffected and unimpaired by the Merger. At
the Effective Time of the Merger, the identity and separate existence of
Signature shall cease and all of the rights, privileges, powers, franchises,
properties and assets of Signature shall be vested in Jameson in accordance
with the provisions of the Georgia Business Corporation Code and the Indiana
Business Corporation Law. The name of the Surviving Corporation shall continue
to be .
1.02 Effective Time. The date and time when the Merger becomes effective are
herein referred to as the "Effective Time of the Merger." The Effective Time of
the Merger shall be immediately upon the filing, in accordance with the
provisions of the Georgia Business Corporation Code and the Indiana Business
Corporation Law, of appropriate Articles of Merger with the Secretary of State
of Georgia and the Secretary of State of Indiana.
ARTICLE II
2.01 Articles of Incorporation. The Restated Articles of Incorporation of
Jameson, as in effect immediately prior to the Effective Time of the Merger,
and as amended by the Amendment to the Amended and Restated Articles of
Incorporation of Jameson attached hereto as Exhibit A, shall thereafter
continue in full force and effect as the Restated Articles of Incorporation of
the Surviving Corporation.
2.02 Bylaws. The Bylaws of Jameson, as in effect immediately prior to the
Effective Time of the Merger, shall be the Bylaws of the Surviving Corporation,
until amended or repealed.
2.03 Officers and Directors. The officers of Jameson at the Effective Time
of the Merger shall be the officers of the Surviving Corporation, each to hold
office in accordance with the Restated Articles of Incorporation and Bylaws of
the Surviving Corporation. The directors of Jameson at the Effective Time of
the Merger shall be the directors of the Surviving Corporation, until their
successors have been duly elected and qualified in accordance with the Restated
Articles of Incorporation and Bylaws of the Surviving Corporation.
ARTICLE III
3.01 Conversion of Shares. At the Effective Time of the Merger:
(a) Each share of Signature common stock, without par value (the
"Signature Common Stock"), issued and outstanding immediately prior to the
Effective Time of the Merger shall, by virtue of the
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Merger and without any action on the part of the holder thereof, be
converted into one-half of one fully paid and nonassessable share of common
stock, par value $.10 per share, of Jameson ("Jameson Common Stock") and
the right to receive cash in the amount of [$1.50 less the amount any pre-
closing extraordinary dividends declared and paid to eliminate Signature
earnings and profits]. No fractional shares of Jameson Common Stock shall
be issued. Any holder of Signature Common Stock who, at the Effective Time
of the Merger, otherwise becomes entitled to receive a fractional share of
Jameson Common Stock shall, in lieu thereof, be entitled to receive cash
equal to such fraction multiplied by the average of the per share closing
prices for the Jameson Common Stock (the "Average Price") on the Nasdaq
National Market for the five (5) consecutive trading days ending on the
last trading day of the calendar week preceding the calendar week of the
Effective Time of the Merger.
(b) Each share of Signature $1.70 Cumulative Convertible Preferred
Stock, Series A, without par value ("Signature Preferred Stock"), shall, by
virtue of the Merger and without any action on the part of the holder
thereof, be converted into one share of Jameson $1.70 Cumulative
Convertible Preferred Stock, Series S, par value $ per share, ("Jameson
Series S Preferred Stock) which shall have the rights, preferences and
terms set forth in that certain Designation of Preferences, Rights,
Privileges and Restrictions of the Jameson Series S Preferred Stock
included in the Articles of Incorporation of Jameson, as amended by the
Articles of Amendment filed with the Secretary of State of Georgia on April
, 1999.
(c) Each share of Signature Common Stock held in the treasury of
Signature immediately prior to the Effective Time of the Merger shall be
canceled, without any payment or other distribution in respect thereof.
(d) At the Effective Time of the Merger, each outstanding certificate
which theretofore represented shares of the Signature Common Stock shall be
deemed for all purposes to evidence ownership of and to represent that
number of shares of Jameson Common Stock and the right to receive the cash
payment into which the shares of the Signature Common Stock represented
thereby shall have been converted. Also, at the Effective Time of the
Merger, each outstanding certificate which theretofore represented shares
of the Signature Preferred Stock shall be deemed for all purposes to
evidence ownership of and to represent that number of shares of Jameson
Preferred Stock into which the shares of the Signature Preferred Stock
represented thereby shall have been converted.
(e) The shares of Jameson Common Stock and cash into which the shares of
Signature Common Stock are converted at the Effective Time of the Merger
and the shares of Jameson Preferred Stock into which the shares of
Signature Preferred Stock are converted at the Effective Time of the Merger
are herein sometimes referred to collectively as the "Merger
Consideration."
3.02 Delivery of Merger Consideration.
(a) As soon as practicable after the Effective Time of the Merger, the
Surviving Corporation shall cause to be mailed to each person who was, at
such time, a record holder (a "Record Holder") of Signature Common Stock or
Signature Preferred Stock a form of letter of transmittal and instructions
for use in effecting the surrender of the certificates which, immediately
prior to the Effective Time of the Merger, represented shares of Signature
Common Stock or Signature Preferred Stock in exchange for the Merger
Consideration. Upon surrender of such certificates, together with such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto, and such other documents as may be requested, Jameson
shall promptly cause to be paid to the persons entitled thereto the Merger
Consideration on the basis set forth in Section 3.01(a) and (b). No
interest will be paid or will accrue on any amount payable upon the
surrender of any such certificate. Until surrendered in accordance with the
provisions of this Section 3.02(a), each certificate which immediately
prior to the Effective Time of the Merger represented issued and
outstanding shares of Signature Common Stock or Signature Preferred Stock
shall following the Effective Time represent for all purposes solely the
right to receive that portion of the Merger Consideration attributable to
such shares.
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<PAGE>
(b) After the Effective Time of the Merger, there shall be no transfers
on the stock transfer books of the Surviving Corporation of the shares of
Signature Common Stock or Signature Preferred Stock which were outstanding
immediately prior to the Effective Time of the Merger.
3.03 Adjustments. If, between the date of this Merger Agreement and the
Effective Time of the Merger, the outstanding shares of Jameson Common Stock
shall have been changed into a different number of shares or a different class
by reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or a stock dividend thereon shall be
declared with a record date prior to the Effective Time of the Merger, the
number of shares or class of Jameson Common Stock to be issued and delivered in
the Merger in exchange for each outstanding share of Signature Common Stock as
provided in this Merger Agreement shall be appropriately adjusted.
ARTICLE IV
4.01 Counterparts. This Merger Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one agreement.
4.02 Governing Law. This Merger Agreement shall be governed in all respects,
including, but not limited to, validity, interpretation, effect and
performance, by the internal laws of the State of Georgia without regard to the
principles of conflicts of law thereof.
4.03 Section Headings. The section headings contained in this Merger
Agreement have been inserted for convenience of reference only and shall not
affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the undersigned parties have executed this Merger
Agreement, as of the date first herein written.
-------------------------------------
ATTEST:
By __________________________________
Title:
- -------------------------------------
Secretary
-------------------------------------
ATTEST:
By __________________________________
Title:
- -------------------------------------
Secretary
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<PAGE>
APPENDIX B
ARTICLES OF AMENDMENT
OF
JAMESON INNS, INC.
In accordance with Section 14-2-602 of the Georgia Business Corporation Code
(O.C.G.A. (S) 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:
(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,
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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 January 16, 1999 and the initial Dividend
Payment Date shall be April 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 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
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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>
(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.
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(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 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
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<PAGE>
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.
(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 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
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 Corporations's receipt of notice of conversion and the holder's
surrender of the certificate or certificates on the Conversion Date, the
Corporation shall promptly issue and deliver at such office to such holder
of Series 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 an adjustment in the conversion rate 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 rate will be required to be made in any case until cumulative
adjustments amount to one percent or more of the conversion price. The
Corporation reserves the right to
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<PAGE>
make such changes in the conversion rate in addition to those required in
the foregoing provisions as the Corporation in its discretion shall
determine to be advisable in order that certain stock-related distributions
hereafter made by the Corporation to its shareholders shall not be taxable.
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 rate in addition to those
required in the foregoing provisions as the Corporation in its discretion
shall determine to be advisable in order that certain stock-related
distributions hereafter made by the Corporation to its shareholders shall
not be taxable.
(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.
(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
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<PAGE>
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.
(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.
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(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.
(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 , 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 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 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.
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<PAGE>
(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.
(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
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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 (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
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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 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 Cumulative Convertible Preferred Stock, Series S
("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 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.
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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 Section 7(e) of a Transfer in violation of
Section 7(b), the Corporation will provide notice to the Purported
Beneficial Transferee within five business day 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 Section 8(e) hereof.
(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
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(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.
(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;
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(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 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 , 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 day of ,
1999.
JAMESON INNS, INC.
By: ____________________________________
Steven A. Curlee, Secretary and
Vice President--Legal
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APPENDIX C
THE ROBINSON-HUMPHREY COMPANY, INC.
January 27, 1999
Board of Directors
Jameson Inns, Inc.
8 Perimeter Center, Suite 8050
Atlanta, Georgia 30346
Members of the Board:
We understand that Jameson Inns, Inc. ("Jameson" or the "Company") entered
into an Agreement and Plan of Merger (the "Agreement") with Signature Inns,
Inc. ("Signature"), dated January 27, 1999, pursuant to which Signature will be
merged with and into Jameson, with Jameson as the surviving corporation.
Pursuant to the terms of the Agreement, each share of outstanding common stock
of Signature will be exchanged for .5 shares of Jameson common stock and $1.50
in cash. In addition, each share of outstanding Signature convertible preferred
stock will be converted into a share of a newly issued class of Jameson
preferred stock. The terms and conditions pertaining to the merger of Signature
into Jameson (the "Merger") are more fully described in the Agreement dated
January 27, 1999.
We have been requested by the Company to render our opinion with respect to
the fairness, from a financial point of view, to the Company of the
consideration to be paid by the Company in the Merger.
In arriving at our opinion, we reviewed and analyzed: (1) a draft of the
Agreement, (2) publicly available information concerning the Company and
Signature which we believe to be relevant to our inquiry, (3) financial and
operating information with respect to the business, operations and prospects of
the Company and Signature furnished to us by the Company or Signature, (4) a
trading history of the Company's common stock and of Signature's common stock
and preferred stock from January 1, 1997 to the present, (5) a comparison of
the historical financial results and present financial condition of each of the
Company and Signature with those of other companies which we deemed relevant,
(6) a comparison of the financial terms of the Merger with the financial terms
of certain other recent transactions which we deemed relevant, (7) the
financial performance of the assets owned or controlled by Signature and (8)
certain potential pro forma effects of the Merger on the Company. In addition,
we have had discussions with the management and/or employees of the Company and
Signature concerning their respective businesses, operations, assets, present
conditions and future prospects and undertook such other studies, analyses and
investigations as we deemed appropriate.
In arriving our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information. We
have not undertaken an independent evaluation or appraisal of any of the assets
or liabilities of Jameson or Signature or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of Jameson or
Signature. With respect to the financial forecast information furnished to or
discussed with us by Jameson or Signature, we have assumed that it has
reasonably prepared and reflects the best currently available estimates and
judgment of Jameson's or Signature's management as to the expected future
financial performance of Jameson or Signature, as the case may be. We have also
assumed that the final form of the Agreement will be substantially similar to
the last draft thereof reviewed by us.
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Board of Directors
Jameson Inns, Inc.
January 27, 1999
Page 2
- ----------------
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary consents or approvals (contractual or otherwise) for the Merger, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger. We have also assumed that the Merger will
not change the status of Jameson after the Merger as a real estate investment
trust for federal income tax purposes.
We are acting as financial advisor to Jameson in connection with the Merger
and will receive a fee from Jameson for our services, a significant portion of
which is contingent upon the consummation of the Merger. In addition, Jameson
has agreed to indemnify us for certain liabilities arising out of our
engagement. We have, in the past, provided financial advisory services to
Jameson and may continue to do so and have received, and may receive, fees for
the rendering of such services. In addition, in the ordinary course of our
business, we may actively trade the securities of Jameson or Signature, for our
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of Jameson.
Our opinion does not address the merits of the underlying decision by Jameson
to engage in the Merger and does not constitute a recommendation to any
shareholder of Jameson as to how such shareholder should vote on the proposed
merger.
We are not expressing any opinion herein as to the prices at which the shares
of Jameson common stock or preferred stock or Signature common stock or
preferred stock will trade following the announcement or consummation of the
Merger.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the consideration to be paid by Jameson in the Merger is
fair from a financial point of view to Jameson.
Very truly yours,
/s/ THE ROBINSON-HUMPHREY COMPANY, LLC
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APPENDIX D
McDONALD INVESTMENTS INC.
January 26, 1999
PERSONAL AND CONFIDENTIAL
Board of Directors
Signature Inns, Inc.
One Parkwood Crossing
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the issued and outstanding shares of Common Stock, par
value (the "Common Stock") and the issued and outstanding shares of $1.70
Cumulative Convertible Preferred Stock, Series A (the "Preferred Stock"), of
Signature Inns, Inc. (the "Company") in connection with the proposed merger
(the "Merger") of the Company with and into Jameson Inns, Inc. ("Jameson") with
Jameson surviving the Merger pursuant to the Agreement and Plan of Merger dated
as of January 27, 1999 (the "Agreement") between the Company and Jameson.
You have informed us that, pursuant to the Agreement, at the effective time
of the Merger: (i) the Company will be merged with and into Jameson, (ii) each
share of Common Stock issued and outstanding prior to the Merger will be
converted into the right to receive $1.50 in cash and one-half (0.5) of one
fully paid and non-assessable share of common stock of Jameson, and (iii) each
share of Preferred Stock issued and outstanding prior to the Merger will be
exchanged for one share of Jameson $1.70 Cumulative Convertible Preferred
Stock, Series S (the "Jameson Series S Preferred Stock"). The consideration
described in clauses (ii) and (iii) of the immediately preceding sentence are
hereinafter collectively referred to as the "Merger Consideration."
You have also advised us that the Jameson Series S Preferred Stock will have
a liquidation value of $20.00 per share, and that each holder of the Jameson
Series S Preferred Stock will have the right to receive cumulative preferential
cash dividends at an annual rate of $1.70 per share, that such shares shall
have the rights, preferences and terms as set forth in Exhibit A to the
Agreement. Furthermore, the shares of Jameson Series S Preferred Stock will be
on a parity with the issued and outstanding shares of Jameson's 9.25% Series A
Cumulative Preferred Stock as to dividends and upon liquidation. Each holder of
Jameson Series S Preferred Stock will also have the right to convert each share
of Jameson Series S Preferred Stock into 1.04 shares of Jameson Common Stock
(subject to adjustment) and $3.12 in cash.
McDonald Investments Inc., as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
In connection with rendering this opinion, we have reviewed and analyzed,
among other things, the following: (i) the Agreement, including the transaction
documents referred to therein, the exhibits and schedules thereto; (ii) certain
publicly available information concerning the Company, including the Company's
Annual Reports on Form 10-KSB for each of the 1996 and 1997 year period ended
December 31, 1997 and its Quarterly Reports on Form 10-QSB for the quarters
ended March 31, June 30, and September 30, 1998; (iii) certain publicly
available information concerning Jameson, including Jameson's Annual Reports on
Form 10-K for each of the 1996 and 1997 year period ended December 31, 1997 and
its Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30,
and September 30, 1998; (iv) certain other internal information, primarily
financial in nature, including projections, concerning the business and
operations of the
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Company and Jameson furnished to us by the Company and Jameson for purposes of
our analysis; (v) certain publicly available information concerning the trading
of, and the trading market for, the Company's Common Stock and Preferred Stock;
(vi) certain publicly available information with respect to certain other
companies that we believe to be comparable to the Company or to Jameson and the
trading markets for certain of such other companies' securities; and (vii)
certain publicly available information concerning the nature and terms of
certain other transactions that we consider relevant to our inquiry. We have
also met with certain officers and employees of the Company and Jameson to
discuss the business and prospects of the Company and Jameson, as well as other
matters we believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided us or publicly available and have assumed and relied upon
the representations and warranties of the Company and Jameson contained in the
Agreement. We have not been engaged to, and have not independently attempted
to, verify any of such information. We have also relied upon the managements of
the Company and Jameson as to the reasonableness and achievability of the
financial and operating projections (and the assumptions and bases therefor)
provided to us and, with your consent, we have assumed that such projections
reflect the best currently available estimates and judgments of such respective
managements and that such projections and forecasts will be realized in the
amounts and in the time periods currently estimated by the management of the
Company and Jameson. We have not been engaged to assess the achievability of
such projections or the assumptions on which they were based and express no
view as to such projections or assumptions. In addition, we have not conducted
a physical inspection or appraisal of any of the assets, properties or
facilities of either the Company or Jameson nor have we been furnished with any
such evaluation or appraisal. We have also assumed that the conditions to the
Merger as set forth in the Agreement would be satisfied and that the Merger
would be consummated on a timely basis in the manner contemplated by the
Agreement. We have also assumed that the merger will be treated as a tax-free
reorganization.
It should be noted that this opinion is based on economic and market
conditions and other circumstances existing on, and information made available
as of, the date hereof and does not address any matters subsequent to such
date. In addition, our opinion is, in any event, limited to the fairness, as of
the date hereof, from a financial point of view, of the Merger Consideration
and does not address the Company's underlying business decision to effect the
Merger or any other terms of the Merger.
We have acted as financial advisor to the Company in connection with the
Merger and will receive from the Company a fee for our services, substantially
all of which is contingent upon the consummation of the Merger, as well as the
Company's agreement to indemnify us under certain circumstances. We will
receive a fee for rendering this opinion.
In the ordinary course of our business, we may actively trade securities of
both the Company and Jameson for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this opinion is directed to the Board of Directors and
senior management of the Company and may not be disclosed, summarized,
excerpted from or otherwise publicly referred to without our prior written
consent. Our opinion does not constitute a recommendation to any stockholder of
the Company as to how such stockholder should vote at the stockholders' meeting
held in connection with the Merger.
Based upon and subject to the foregoing and such other matters as we
consider relevant, it is our opinion that as of the date hereof, the Merger
Consideration is fair, from a financial point of view, to the holders of the
Common Stock and the Preferred Stock.
Very truly yours,
/s/ McDonald Investments Inc.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
As permitted by the Georgia Code, the Jameson articles eliminate personal
liability of its directors to Jameson or its stockholders for monetary damages
for breach of duty of care or other duty as a director, except for: (i) any
appropriation, in violation of his or her duties, of any business opportunity
to Jameson; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) liability under the
Georgia Code; or (iv) any transaction from which the director derived an
improper personal benefit.
As allowed by the Georgia Code, both the Jameson articles and the Jameson
bylaws provide for indemnification of a director, officer, employee or agent of
Jameson or is or was serving at the request of Jameson as a director, officer,
employee or agent of Jameson against all expenses (including attorneys' fees,
judgments, fines or other amounts paid in settlement) actually and reasonably
incurred by him or her in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of Jameson, in which any
such person was or is a party or is threatened to be made a party, if such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of such Registrant, and, with
respect to criminal action or proceeding, if such person had no reasonable
cause to believe his or her conduct was unlawful.
In the face of an action or suit by or in the right of a Registrant, such a
person may be indemnified only for expenses (including attorneys' fees) and may
not be indemnified in respect of any claim, issue or matter as to which he or
she has not been adjudged liable for negligence or misconduct in the
performance of his or her duty to the Registrant, unless and only to the extent
the court in which such action or suit was brought determines that such person
is fairly and reasonably entitled to indemnity for such expenses as such court
may deem proper in each case indemnification of an officer or director shall be
made only upon specific authorization of a majority of disinterested directors,
by written opinion of independent legal counsel or by the stockholders, unless
the officer, or director has been successful on the merits or otherwise in the
defense of any such action or suit, in which case he or she shall be
indemnified without such authorization.
The Jameson bylaws require such Registrant to pay the expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding in advance of the final disposition of such action,
suit or proceeding upon receipt by such Registrant of an undertaking by or on
behalf of such director or officer to repay such amount if it is ultimately
determined that he or she is not entitled to indemnification and permit such
Registrant to advance such person to other employees and agents of such
Registrant upon such terms and conditions as are specified by the Registrant's
board of directors. The advancement of expense, as well as indemnification,
pursuant to the Jameson articles and bylaws is not exclusive of any other
rights which those seeking indemnification or advancement of expenses from such
Registrant may have.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors and officers of Jameson
pursuant to the foregoing provisions or otherwise, Jameson 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.
Individual indemnification agreements have been entered into with Jameson
with each of its officers and directors. The indemnification agreements provide
for indemnification of liabilities arising from their services as an officer or
director of Jameson.
The Jameson bylaws permit the Registrant to purchase and maintain insurance
on behalf of any director, officer, employee or agent of such Registrant
against liability assert against him or her arising out of such capacity or
status, whether or not such Registrant would have the power to indemnify him or
her against such liability under the provisions of the Jameson bylaws. Jameson
has purchased and maintains director and officer liability insurance.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedule.
(a) The following exhibits are filed as part of this Registration Statement
or incorporated herein by reference:
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2.1 Agreement and Plan of Merger, dated as of January 27, 1999, between
Jameson Inns, Inc. and Signature Inns, Inc. attached as Appendix A to
the Joint Proxy Statement/Prospectus filed as part of this Registration
Statement.
2.2 Agreement of Merger between Jameson Inns, Inc. and Signature Inns, Inc.
attached as Exhibit A to Appendix A to the Joint Proxy
Statement/Prospectus filed as a part of this Registration Statement.
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
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.
3.4 Articles of Amendment to the Articles of Incorporation of the Registrant
setting forth, among other things, the Designation of the Preferences,
Rights, Privileges and Restrictions of the 9.25% Series A Cumulative
Preferred Stock incorporated by reference to Exhibit 2 to the
Registrant's Registration Statement on Form 8-A filed March 13, 1998
(File No. 23256).
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.*
3.6 Form of Articles of Amendment to the Articles of Incorporation of the
Registrant setting forth the Designation of Preferences, Rights,
Privileges and Restrictions of Series S Preferred Stock of the
Registrant attached as Appendix B to the Joint Proxy
Statement/Prospectus filed as part of this Registration Statement.
3.7 Bylaws of the Registrant incorporated by reference to Exhibit 3.2.1 to
the Registration Statement on Form S-11, File No. 33-71160.
3.8 Amendment No. 1 to Registrant's Bylaws incorporated by reference to
Exhibit 3.2.2 to the Registration Statement on Form S-11, File No. 33-
71160.
3.9 Amendment No. 2 to Registrant's Bylaws incorporated by reference to
Exhibit 3.8 to the Annual Report filed 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 Registration Statement on Form S-11, File No. 33-
71160.
4.2 Specimen Certificate of 9.25% Series A Cumulative Preferred Stock
incorporated by reference to Exhibit 1 to the Registrant's Registration
Statement on Form 8-A filed March 13, 1998 (File No. 23256).
4.3 Specimen Certificate of Series S Preferred Stock.
5.1 Opinion of Conner & Winters as to legality of securities being
registered.*
8.1 Form of Opinion of Conner & Winters as to certain tax matters.
10.1 Master Lease Agreement incorporated by reference to Exhibit 10.1 to the
Registrant's 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 incorporated by reference to Exhibit 10.3 to
the Annual Report filed on Form 10-K for the year ended December 31,
1996.
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II-2
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10.4 Amendment No. 3 to Master Lease Agreement between Jameson Inns, Inc. and
Jameson Operating Company 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 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.*
10.7 Schedule of documents substantially similar to Exhibit 10.1.*
10.8 Schedule of documents substantially similar to Exhibit 10.6.*
10.9 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.
10.10 Form of Construction Contract between Jameson Inns, Inc. and Jameson
Construction Company (predecessor of Jameson Hospitality) 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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, 1996.
10.18 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.
10.19 Employment Agreement between Jameson Inns, Inc. and Thomas W. Kitchin
incorporated by reference to Exhibit 10.24 to the Registration Statement
on Form S-11, File No. 33-71160.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
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II-3
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10.26 Construction Loan Agreement, Indenture, Security Agreement and
Promissory Note dated July 15, 1993 for $1,000,000 loan from Empire
Financial Services, Inc. to Jameson Inns, Inc. (formerly Jameson
Company) for construction of Jameson Inn in Carrollton, Georgia
incorporated by reference to Exhibit 10.39 to the Registration Statement
on Form S-11, File No. 33-71160.
10.27 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.
10.28 Deed to Secure Debt, Security Agreement, Assignment of Operating Lease,
Assignment of Fees and Income, Promissory Note for $1.6 million loan
from Empire Financial Services, Inc. to Jameson Inns, Inc. secured by
Inn at Jesup, Georgia incorporated by reference to Exhibit 10.24 to the
Annual Report filed on Form 10-K for the year ended December 31, 1995.
10.29 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.
10.30 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 filed on Form 10-Q for the quarter ended March 31, 1996.
10.31 Form of Master Lease Agreement between Jameson Inns, Inc. and Jameson
Hospitality, LLC relating to the Signature Inns.*
10.32 Form of Employment Agreements between Jameson Hospitality, LLC and each
of Mark D. Carney, Bo L. Hagood, David R. Miller and Martin D. Brew.*
10.33 Form of Employment Agreement between Jameson Hospitality and John D.
Bontreger.*
10.34 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.*
12.1 Ratios of Earnings to Combined Fixed Charges and Preferred Stock.
21.1 List of subsidiaries of Jameson Inns, Inc.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of Conner & Winters, A Professional Corporation (included in
Exhibit 5.1)
24.1 Power of Attorney (included on signature page).
99.1 Form of Proxy of Jameson.
99.2 Form of Proxy of Signature.
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- --------
* previously filed
(b) The following financial statement schedules are filed as part of this
Registration Statement pursuant to Item 21(b) of this Form:
99.3 Schedule III--Real Estate and Accumulated Depreciation.*
99.4 Report of Independent Auditors on Schedule III.*
--------
* previously filed
(c) The opinion of The Robinson-Humphrey Company, LLC is included as
Appendix C to the Joint Proxy Statement/Prospectus included in this
Registration Statement. The opinion of McDonald Investments Inc. is included as
Appendix D to the Joint Proxy Statement/Prospectus included in this
Registration Statement.
II-4
<PAGE>
Item 22. Undertakings.
(a) The 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, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most
recent post-effective amendment hereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in this 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 Securities Exchange 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;
(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 the undertakings set forth in paragraphs
(1)(i) and (1)(ii) above do not apply if the Registration Statement
is on Form S-3, Form S-8 or Form F-3; and the information required
to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to
Section 13 or 15(d) of the Securities Act of 1934, as amended (the
"Exchange Act") that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining liability under the Securities
Act, 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 hat time shall be deemed to
be the initial bona fide offering thereof; and
(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.
(b) 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 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated 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 that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c); the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
II-5
<PAGE>
(d) The undersigned Registrant undertakes that every prospectus: (i) that
is filed pursuant to paragraph (i) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and issued in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes 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.
(e) 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
Act 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
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Atlanta, Georgia, on March 26, 1999.
Jameson Inns, Inc.
(Registrant)
By: /s/ Thomas W. Kitchin
--------------------------------
Thomas W. Kitchin,
Chief Executive Officer, Director,
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
Signature Title Date
Chief Executive Officer, Director, Chairman
/s/ Thomas W. Kitchin of the Board of Directors
- ------------------------------- March 26, 1999
Thomas W. Kitchin
/s/ Craig R. Kitchin President, Chief Financial Officer, Treasurer
- -------------------------------- (Principal Accounting and
Craig R. Kitchin Financial Officer) March 26, 1999
* Robert D. Hisrich Director March 26, 1999
- -------------------------------
Robert D. Hisrich
* Michael E. Lawrence Director March 26, 1999
- -------------------------------
Michael E. Lawrence
* Thomas J. O'Haren Director March 26, 1999
- -------------------------------
Thomas J. O'Haren
/s/ Thomas W. Kitchin
*By:
---------------------------
Thomas W. Kitchin
Attorney in Fact
II-7
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EXHIBIT INDEX
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2.1 Agreement and Plan of Merger, dated as of January 27, 1999, between
Jameson Inns, Inc. and Signature Inns, Inc. attached as Appendix A to
the Joint Proxy Statement/Prospectus filed as part of this Registration
Statement.
2.2 Agreement of Merger between Jameson Inns, Inc. and Signature Inns, Inc.
attached as Exhibit A to Appendix A to the Joint Proxy
Statement/Prospectus filed as a part of this Registration Statement.
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
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.
3.4 Articles of Amendment to the Articles of Incorporation of the Registrant
setting forth, among other things, the Designation of the Preferences,
Rights, Privileges and Restrictions of the 9.25% Series A Cumulative
Preferred Stock incorporated by reference to Exhibit 2 to the
Registrant's Registration Statement on Form 8-A filed March 13, 1998
(File No. 23256).
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.*
3.6 Form of Articles of Amendment to the Articles of Incorporation of the
Registrant setting forth the Designation of Preferences, Rights,
Privileges and Restrictions of Series S Preferred Stock of the
Registrant attached as Appendix B to the Joint Proxy
Statement/Prospectus filed as part of this Registration Statement.
3.7 Bylaws of the Registrant incorporated by reference to Exhibit 3.2.1 to
the Registration Statement on Form S-11, File No. 33-71160.
3.8 Amendment No. 1 to Registrant's Bylaws incorporated by reference to
Exhibit 3.2.2 to the Registration Statement on Form S-11, File No. 33-
71160.
3.9 Amendment No. 2 to Registrant's Bylaws incorporated by reference to
Exhibit 3.8 to the Annual Report filed 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 Registration Statement on Form S-11, File No. 33-
71160.
4.2 Specimen Certificate of 9.25% Series A Cumulative Preferred Stock
incorporated by reference to Exhibit 1 to the Registrant's Registration
Statement on Form 8-A filed March 13, 1998 (File No. 23256).
4.3 Specimen Certificate of Series S Preferred Stock.
5.1 Opinion of Conner & Winters as to legality of securities being
registered.*
8.1 Form of Opinion of Conner & Winters as to certain tax matters.
10.1 Master Lease Agreement incorporated by reference to Exhibit 10.1 to the
Registrant's 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 incorporated by reference to Exhibit 10.3 to
the Annual Report filed on Form 10-K for the year ended December 31,
1996.
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10.4 Amendment No. 3 to Master Lease Agreement between Jameson Inns, Inc. and
Jameson Operating Company 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 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.*
10.7 Schedule of documents substantially similar to Exhibit 10.1.*
10.8 Schedule of documents substantially similar to Exhibit 10.6.*
10.9 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.
10.10 Form of Construction Contract between Jameson Inns, Inc. and Jameson
Construction Company (predecessor of Jameson Hospitality, LLC) for
construction of Inns incorporated by reference to Exhibit 10.7 to the
Annual Report filed on Form 10-K for the year ended December 31, 1995.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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, 1996.
10.18 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.
10.19 Employment Agreement between Jameson Inns, Inc. and Thomas W. Kitchin
incorporated by reference to Exhibit 10.24 to the Registration Statement
on Form S-11, File No. 33-71160.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
</TABLE>
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10.26 Construction Loan Agreement, Indenture, Security Agreement and
Promissory Note dated July 15, 1993 for $1,000,000 loan from Empire
Financial Services, Inc. to Jameson Inns, Inc. (formerly Jameson
Company) for construction of Jameson Inn in Carrollton, Georgia
incorporated by reference to Exhibit 10.39 to the Registration Statement
on Form S-11, File No. 33-71160.
10.27 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.
10.28 Deed to Secure Debt, Security Agreement, Assignment of Operating Lease,
Assignment of Fees and Income, Promissory Note for $1.6 million loan
from Empire Financial Services, Inc. to Jameson Inns, Inc. secured by
Inn at Jesup, Georgia incorporated by reference to Exhibit 10.24 to the
Annual Report filed on Form 10-K for the year ended December 31, 1995.
10.29 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.
10.30 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 filed on Form 10-Q for the quarter ended March 31, 1996.
10.31 Form of Master Lease Agreement between Jameson Inns, Inc. and Jameson
Hospitality, LLC relating to the Signature Inns.*
10.32 Form of Employment Agreements between Jameson Hospitality, LLC and each
of Mark D. Carney, Bo L. Hagood, David R. Miller and Martin D. Brew.*
10.33 Form of Employment Agreement between Jameson Hospitality and John D.
Bontreger.*
10.34 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.*
12.1 Ratios of Earnings to Combined Fixed Charges and Preferred Stock.
21.1 List of subsidiaries of Jameson Inns, Inc.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of Conner & Winters, A Professional Corporation (included in
Exhibits 5.1 and 8.1)
24.1 Power of Attorney (included on signature page).
99.1 Form of Proxy of Jameson.
99.2 Form of Proxy of Signature.
99.3 Schedule III--Real Estate and Accumulated Depreciation.*
99.4 Report of Independent Auditors on Schedule III.*
</TABLE>
- --------
* previously filed
3
<PAGE>
Exhibit 4.3
$1.70 Series S Cumulative $1.70 Series S Cumulative
Convertible Preferred Stock Convertible Preferred Stock
Number Shares
JAMSS- JAMESON INNS, INC
Incorporated under the laws of See Reverse For
The State of Georgia Certain Definitions
This certifies that
Is the Owner of
Fully paid and non-assessable shares of $1.70 Series S Cumulative
Convertible Preferred Stock of the Par Value of $1.00 per share of Jameson Inns,
Inc. transferable on the books of the Corporation in person or by attorney duly
authorized in writing upon surrender of this certificate properly endorsed.
This certificate and the shares represented hereby are issued and shall be held
subject to all of the provisions of the Corporation's Articles of Incorporation
and any amendments thereof, copies of which are on file with the Transfer Agent,
to all of the provisions of which the holder hereof by acceptance of this
certificate assents.
This certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated: By:
Secretary JAMESON INNS, INC. Chairman
Corporate Seal
Georgia 1993
<PAGE>
JAMESON INNS, INC.
Jameson Inns, Inc. (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 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."
________________________________________________________________________________
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
Ten Com - as tenants in common Unif Gift Min Act - Custodian
Ten Ent - as tenants by the entireties ---- -------
Jt Ten - as joint tenants with right of (Cust) (Minor)
<PAGE>
survivorship and not as under Uniform Gifts to
tenants in common Minors Act_________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ____________________, hereby sell, assign and transfer
unto
Please Insert Social Security or other
Identifying Number of Assignee
__________________________________________________________________________
__________________________________________________________________________
Please Print or typewrite Name and Address of Assignee
__________________________________________________________________________
of the $1.70 Series S Cumulative Convertible Preferred Stock represented by the
within Certificate, and do hereby irrevocably constitute and appoint
_____________________, Attorney, to transfer the said shares on the books of the
within named savings bank with full power of substitution.
Dated ______________
X _________________________________
X _________________________________
Notice: The signature(s) to this assignment must
correspond with the name(s) as written upon the face of
this certificate, in every particular, without
alteration or enlargement or any change whatsoever.
Signature(s) Guarantee: __________________________________________
The signature(s) should be guaranteed by an
eligible guarantor institution, (banks,
stockbrokers, savings and loan associations and
credit unions with membership in an approved
signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
Keep this certificate in a safe place. If it is lost, stolen or destroyed, the
Corporation may require a bond or indemnity as a condition to the issuance of a
replacement certificate.
<PAGE>
Exhibit 8.1
[LETTERHEAD OF CONNER & WINTERS APPEARS HERE]
April __, 1999
Board of Directors
Jameson Inns, Inc.
8 Perimeter Center East, Suite 8050
Atlanta, GA 30346-1603
Board of Directors
Signature Inns, Inc.
One Parkwood Crossing
250 East 96/th/ Street, Suite 450
Indianapolis, IN 46240
Re: Federal Income Tax Consequences of the Merger of
Signature Inns, Inc. with and into Jameson Inns, Inc.
-----------------------------------------------------
Gentlemen:
We have acted as counsel to Jameson Inns, Inc., a Georgia corporation (the
"Jameson"), in connection with the merger (the "Merger") of Signature Inns,
Inc., an Indiana corporation ("Signature"), with and into Jameson pursuant to
the Agreement and Plan of Merger (the "Merger Agreement") dated as of January
27, 1999, by and between Jameson and Signature. We are rendering this opinion
to you pursuant to Sections 7.08(b) and 8.07 of the Merger Agreement.
All terms used herein without definition shall have the respective meanings
specified in the Merger Agreement and the Registration Statement (the
"Registration Statement") filed by Jameson on March 10, 1999, with the
Securities and Exchange Commission relating to the securities that will be
issued by Jameson pursuant to the Merger Agreement and, unless otherwise
indicated, all section references herein are to the Internal Revenue Code of
1986, as amended (the "Code").
<PAGE>
April __, 1999
Page 2
INFORMATION RELIED UPON
-----------------------
In rendering the opinion expressed herein, we have examined such documents
as we have deemed appropriate, including the Merger Agreement and the
Registration Statement. In our examination of documents, we have assumed that
all documents submitted to us as photocopies or telecopies faithfully reproduce
the originals thereof, that such originals are authentic, that all such
documents have been or will be duly executed to the extent required, that all
signatures are genuine, and that all statements set forth in such documents are
accurate. We have also obtained and relied upon written certificates of
officers of Signature and Jameson who have personal knowledge of facts and
circumstances relating to the Merger as well as to the operations, assets and
liabilities of Signature and Jameson to verify certain relevant facts that have
been represented to us or that we have assumed in rendering this opinion.
Further, we have obtained and relied upon (i) a letter from the independent
accountants of Signature to the effect that, as of the date hereof, Signature
does not have any undistributed earnings and profits as defined under Section
312 and the Treasury Regulations thereunder, and (ii) an opinion of the general
counsel of Jameson to the effect that the Merger qualifies as a merger of
corporations under the Georgia Business Corporation Code. Copies of such
certificates and opinions are attached as Exhibits to this opinion. Based upon
the attached certificates, we have assumed that the following statements (as
well as other statements made in such certificates, but not recited herein) are
true on the date hereof and will be true at the Effective Time:
1. The Merger will be consummated solely in compliance with the material
terms and conditions of the Merger Agreement and none of the material terms and
conditions thereof have been or will be waived or modified.
2. For each holder of Signature common stock, the total of the cash and
the fair market value of the Jameson common stock for which such holder's
Signature common stock will be exchanged in the Merger will be approximately
equal to the fair market value of such holder's Signature common stock, and for
each holder of Signature Series A Preferred Stock, the fair market value of the
Jameson Series S Preferred Stock for which such holder's Signature Series A
Preferred Stock will be exchanged in the Merger will be approximately equal to
the fair market value of such holder's Signature Series A Preferred Stock.
3. Neither Jameson nor any party related to Jameson (within the
relationships described at United States Treasury Regulation section 1.368-
1(e)(3)) has any plan or intention to purchase, redeem or otherwise reacquire
any of the Jameson common stock or Jameson Series S Preferred Stock for which
Signature common stock and Signature Series A Preferred Stock will be exchanged
pursuant to the Merger.
4. The liabilities of Signature assumed by Jameson and the liabilities to
which the transferred assets of Signature are subject were incurred by Signature
in the ordinary course of its business.
<PAGE>
April __, 1999
Page 3
5. Following the Merger, Jameson will continue the historic business of
Signature or use a significant portion of Signature's business assets in a
business.
6. Signature, Jameson and the stockholders of Signature will pay their
respective expenses, if any, incurred in connection with the Merger.
7. There is no intercorporate indebtedness existing between Jameson and
Signature that was issued, acquired, or will be settled at a discount.
8. Neither Jameson nor Signature is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv).
9. Neither Jameson nor Signature is under the jurisdiction of a court in
a Title 11 or similar case within the meaning of Section 368(a)(3)(A).
10. At the Effective Time of the Merger, the fair market value of the
assets of Signature will exceed the sum of its liabilities plus the amount of
liabilities, if any, to which specific assets of Signature are subject.
11. Pursuant to the Merger, shares of Signature common stock will be
converted into a number of shares of Jameson common stock (excluding cash
consideration received in the Merger) having a value as of the Effective Time of
the Merger exceeding fifty percent of the aggregate value of all of the shares
of Signature common stock outstanding prior to the Merger, including for such
purpose all shares of Signature common stock redeemed within the two years
immediately preceding the Merger, and shares of Signature Series A Preferred
Stock will be exchanged for a number of shares of Jameson Series S Preferred
Stock having a value as of the Effective Time of the Merger exceeding fifty
percent of the aggregate value of all of the shares of Signature Series A
Preferred Stock outstanding prior to the Merger, including for such purpose all
shares of Signature Series A Preferred Stock redeemed within the two years
immediately preceding the Merger.
12. Jameson has no plan or intention to sell or otherwise dispose of any
of its assets or of any of the assets acquired from Signature, except for
dispositions made in the ordinary course of business or transfers of assets to a
corporation controlled by Jameson.
13. The payment of cash in lieu of fractional shares of Jameson common
stock represents a mere mechanical rounding off to avoid the expense and
inconvenience to Jameson of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration that will
be paid to holders of Signature common stock instead of issuing fractional
shares of Jameson common stock will not exceed one percent of the total
consideration that will be issued in the Merger. The fractional share interests
of each holder of Signature common stock will be aggregated and no such holder
will receive cash in respect of such fractional share interests in an amount
equal to or greater than the value of one full share of Jameson common stock.
<PAGE>
April __, 1999
Page 4
14. None of the compensation to be received by any stockholder-employee of
Signature from Jameson or Signature at or prior to the Effective Time of the
Merger (other than consideration received in the Merger) will be separate
consideration for, or allocable to, any of their Signature common stock or
Signature Series A Preferred Stock; none of the shares of Jameson common stock
or Jameson Series S Preferred Stock received in the Merger by any stockholder-
employee of Signature will be separate consideration for, or allocable to, any
employment agreement or arrangement; and the compensation paid to each
stockholder-employee of Signature by Signature at or prior to the Effective Time
of the Merger, or by Jameson at or after the Effective Time of the Merger was
and will be for services actually rendered.
We have also assumed that all of the shares of Signature common stock and
Signature Series A Preferred Stock outstanding immediately before the Effective
Time of the Merger are held by the Signature stockholders as capital assets.
OPINION
-------
Based upon the foregoing, it is our opinion that, for federal income tax
purposes:
1. The Merger will be treated as a "reorganization" within the meaning of
Section 368(a).
2. Each of Signature and Jameson will be a party to such reorganization
within the meaning of Section 368(b).
3. No gain or loss will be recognized by Signature or Jameson as a result
of the Merger.
4. No gain or loss will be recognized by a Signature stockholder as a
result of the Merger with respect to the shares of Signature Series A Preferred
Stock exchanged solely for shares of Jameson Series S Preferred Stock.
5. A Signature stockholder whose Signature common stock is exchanged for
a combination of Jameson common stock and cash (other than cash received in lieu
of a fractional share of Jameson common stock) will realize gain equal to the
excess, if any, of the fair market value of the Jameson common stock and cash
received over the stockholder's tax basis in his or her Signature common stock.
The stockholder will recognize this realized gain, however, only in an amount
that does not exceed the amount of cash received. It is likely that this
recognized gain will be taxable to the stockholder as capital gain, although it
is possible that this recognized gain will be taxable as dividend income if the
stockholder's exchange for Jameson common stock and cash does not result in a
"meaningful reduction" in the percentage ownership of Jameson common stock that
such stockholder otherwise would have received (taking into account both actual
ownership and constructive ownership under the constructive ownership rules of
Section 318). No loss realized by an Signature stockholder who receives
Signature common stock and cash in the Merger will be
<PAGE>
April __, 1999
Page 5
recognized.
7. Cash received in the Merger by a Signature stockholder in lieu of a
fractional share of Jameson common stock will be treated under Section 302 as
having been received in exchange for such fractional share, and the Signature
stockholder generally will recognize capital gain or loss in such exchange equal
to the difference between the cash received and the Signature stockholder's tax
basis allocable to the fractional share of Jameson common stock exchanged for
cash.
8. For purposes of determining the period of time a Signature stockholder
has held the shares of Jameson common stock received pursuant to the Merger,
each Signature stockholder may include in his or her holding period the period
of time such stockholder held the shares of Signature common stock which were
exchanged for such shares of Jameson common stock.
9. For purposes of determining the period of time a Signature stockholder
has held the shares of Jameson Series S Preferred Stock received pursuant to the
Merger, each Signature stockholder may include in his or her holding period the
period of time such stockholder held the shares of Signature Series A Preferred
Stock which were exchanged for such shares of Jameson Series S Preferred Stock.
10. For purposes of determining the amount of gain or loss realized on a
disposition of the shares of Jameson common stock received pursuant to the
Merger, each Signature stockholder's tax basis in such shares of Jameson common
stock will equal, as of the Effective Time of the Merger, such stockholder's tax
basis in the shares of Signature common stock which were exchanged for such
shares of Jameson common stock decreased by the amount of cash received by such
stockholder in the Merger and increased by the amount of gain recognized by such
stockholder as a consequence of the Merger.
11. For purposes of determining the amount of gain or loss realized on a
disposition of the shares of Jameson Series S Preferred Stock received pursuant
to the Merger, each Signature stockholder's tax basis in such shares of Jameson
Series S Preferred Stock will equal, as of the Effective Time of the Merger,
such stockholder's tax basis in the shares of Signature Series A Preferred Stock
which were exchanged for such shares of Jameson Series S Preferred Stock.
12. Jameson has met the requirements for qualification and taxation as a
"real estate investment trust" during its taxable years ended 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 Code, assuming no change in applicable
underlying law.
13. The consummation of the transactions contemplated in the Merger
Agreement will not cause Jameson to cease to qualify as a "real estate
investment trust" for federal income tax purposes.
<PAGE>
April __, 1999
Page 6
14. The discussions in the Registration Statement under the captions "RISK
FACTORS - Tax Risks," "THE MERGER - Federal Income Tax Consequences," and
"FEDERAL INCOME TAXATION OF REITS AND REIT STOCKHOLDERS" are accurate and
complete in all material respects.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws, existing judicial decisions,
administrative regulations and published rulings and procedures as of April
____, 1999. We call your attention to the fact that the opinion set forth in
this letter is an expression of professional judgment and not a guarantee of a
result. Our opinion is not binding upon the Internal Revenue Service or the
courts, and the Internal Revenue Service is not precluded from successfully
asserting a contrary position. Only an advance ruling from the Internal Revenue
Service will give a taxpayer assurance as to the tax consequences of a
transaction such as the Merger. Furthermore, no assurance can be given that
future legislative, judicial or administrative changes, on either a prospective
or retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to advise you of
any new developments in the application or interpretation of the federal income
tax laws subsequent to April ____, 1999.
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 Merger Agreement. We consent to the use of our
opinion in the Joint Proxy Statement/Prospectus of Jameson Inns, Inc., that is
made a part of the Registration Statement.
Sincerely,
CONNER & WINTERS,
A Professional Corporation
<PAGE>
Exhibit 12.1
Jameson Inns, Inc.
Calculation of Ratios of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
<TABLE>
<CAPTION>
December 31, Pro Forma
--------------------------------------------------------------------- ---------------------------
1994 1995 1996 1997 1998 1994 1998
--------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated income before
extraordinary items...... $1,311,157 $1,791,268 $4,040,809 $6,595,132 $5,807,051 $1,424,000 $ 9,656,676
Interest.................... 305,130 1,503,373 1,292,427 698,203 1,542,133 187,000 7,805,930
Amortization................ 34,312 87,151 93,085 79,515 114,107 -- 114,107
---------------------------------------------------------------------- -------------------------
Earnings............... $1,650,599 $3,381,792 $5,426,321 $7,372,850 $7,463,291 $1,611,000 $17,576,713
---------------------------------------------------------------------- -------------------------
Interest.................... $ 305,130 $1,503,373 $1,292,427 $ 698,203 $1,542,133 $ 187,000 $ 7,805,930
Amortization................ 34,312 87,151 93,005 79,515 114,107 -- 114,107
Preferred stock dividends... -- 489,949 -- -- 2,188,058 -- 6,023,250
Interest capitalized during
the period................. 182,569 381,508 526,130 637,290 1,125,935 183,000 1,125,935
---------------------------------------------------------------------- -------------------------
Fixed charges.......... $ 522,011 $2,461,981 $1,911,642 $1,415,000 $4,970,225 $ 370,000 $ 15,069,222
---------------------------------------------------------------------- -------------------------
Ratio of earnings to fixed
charges and preferred
stock dividends.......... 3.16 1.37 2.86 5.21 1.50 4.35 1.17
---------------------------------------------------------------------- -------------------------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use 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 financial statements of Jameson Hospitality, LLC, except as
to Note 11 as to which the date is March 15, 1999, included in the Joint Proxy
Statement/Prospectus of Jameson Inns, Inc. that is made a part of Amendment
No. 1 to the Registration Statement (Form S-4 No. 333-74149) and Prospectus of
Jameson Inns, Inc. for the registration of 3,403,000 shares of its common stock
and 2,256,000 shares of its $1.70 Series S Cumulative Convertible Preferred
Stock.
ERNST & YOUNG LLP
Atlanta, Georgia
March 25, 1999
<PAGE>
EXHIBIT 23.2
The Board of Directors
Signature Inns, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Joint Proxy Statement/Prospectus.
KPMG LLP
Indianapolis, Indiana
March 24, 1999
<PAGE>
EXHIBIT 99.1
PROXY
JAMESON INNS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas W. Kitchin and Craig R. Kitchin, or
either of them, with full power of substitution, as Proxies of the undersigned,
with all powers that undersigned would possess if personally present to cast
all votes that the undersigned would be entitled to vote at the Annual Meeting
of Stockholders of Jameson Inns, Inc. (the "Company") to be held at 8 Perimeter
Center East - Suite 8050 Atlanta, Georgia 30346 on May 7, 1999, at 10:00 a.m.,
local time, and at any and all adjournments or postponements thereof, as
indicated below:
1. For a proposal to approve and adopt the Agreement and Plan of Merger, dated
as of January 27, 1999, between Jameson Inns, Inc. and Signature Inns, Inc.,
and the related Agreement of Merger and the transactions which the merger
agreement contemplates;
[_] FOR [_] AGAINST [_] ABSTAIN
2. Election of Directors.
a. [_] FOR all the following nominee (except as marked to the contrary below)
for term expiring in 2002: Thomas W. Kitchin
b. [_] WITHHOLD AUTHORITY to vote for the nominee above.
(continued and to be signed on the reverse side)
(Continued from other side)
3. Proposal to ratify the appointment of Ernst & Young LLP as the Company's
independent auditor for 1999.
[_] FOR [_] AGAINST [_] ABSTAIN
This Proxy will be voted as directed herein by the undersigned stockholder.
If no specifications are made, this Proxy will be voted FOR the proposal to
approve and adopt the merger agreement, FOR the nominee for director and FOR
the proposal to ratify Ernst & Young LLP as the Company's independent auditors
for 1999. If any other business should properly be brought before the meeting,
the persons named as proxies will vote on such business in accordance with
their best judgement.
PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES.
Dated: , 1999
-----------------
---------------------------------
Signature(s)
---------------------------------
Signature(s)
IMPORTANT: Please date this Proxy and sign exactly as your name appears to the
left. If shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give title as
such. If a corporation, please sign in full corporation, please sign in full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
<PAGE>
EXHIBIT 99.2
SIGNATURE INNS, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
The undersigned, revoking all prior Proxies, hereby appoints John D.
Bontreger and Mark D. Carney, or each or either of them, Proxies for the
undersigned, with full power of substitution, to vote all shares of Signature
common stock or Series A convertible preferred stock which the undersigned is
entitled to vote at the Special Meeting of Stockholders of Signature Inns, Inc.
to be held at Four Parkwood Crossing, 500 E. 96th Street, First Floor
Conference Room, Indianapolis, Indiana 46240 on May 7, 1999, at 10:00 a.m.,
local time, or at any adjournment or postponement thereof, upon such business
as may properly come before the meeting or any adjournment or postponement
thereof including, without limiting such general authorization, the following
proposal described in the accompanying Joint Proxy Statement:
1. [_] FOR [_] AGAINST [_] ABSTAIN
Approval of the Agreement and Plan of Merger pursuant to which Signature Inns,
Inc. will be merged with and into Jameson Inns, Inc., with Jameson Inns, Inc.
continuing as the surviving corporation.
2. To transact such other business as may properly come before the Special
Meeting.
Abstentions will be counted for purposes of determining whether a quorum is
present. With respect to the votes represented in No. 1 above, abstentions will
have the effect of a vote against this matter.
(continued and to be signed on the reverse side)
(Continued from other side)
UNLESS OTHERWISE SPECIFIED ON THE REVERSE SIDE, THIS PROXY WILL BE VOTED FOR
PROPOSAL NUMBER 1. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned agrees that said
proxies may vote in accordance
with their discretion with
respect to any other matters
which may properly come before
the meeting. The undersigned
instructs such proxies to vote
as directed on the reverse side.
This proxy should be dated,
signed by the stockholder
exactly as printed at the left,
and returned promptly in the
enclosed envelope. Persons
signing in a fiduciary capacity
should so indicate.
Dated: ,
-----------------------------
---------------------------------
(Signature)
---------------------------------
(Signature)
