SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
UPTOWNER INNS, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and
0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid:_________________________________________________________
Form, Schedule or Registration Statement No.:___________________________________
Filing Party:___________________________________________________________________
Date Filed:_____________________________________________________________________
UPTOWNER INNS, INC.
741 5th AVENUE
HUNTINGTON, WEST VIRGINIA 25701
(304) 525-8162
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY __, 2004
As a shareholder of Uptowner Inns, Inc. ("Uptowner" or the "company"),
you are hereby given notice of and invited to attend in person or by proxy the
Special Meeting of Shareholders of Uptowner to be held at the offices of the
company at 1415 4th Avenue, Huntington, West Virginia, on February _____, 2004,
at _______ ________.m., local time, for the following purposes:
1. To approve and adopt a one for 10,000 reverse stock split that would
result in (a) shareholders receiving one share of new common stock,
$1.00 par value (the "New Common Stock") for each 10,000 shares of
common stock owned as of the effective date, and (b) shareholders
owning less than 10,000 shares of the company's common stock
receiving cash in lieu of any fractional share they would otherwise
be entitled to receive as a result of the reverse stock split at a
rate of $1.07 per share on a pre-split basis (the "Reverse Stock
Split").
2. To approve and adopt the following amendment to the Articles
of Incorporation (the "Articles of Incorporation") of Uptowner:
RESOLVED, that Article IV of the Articles of Incorporation of the
Corporation be amended to read, in its entirety, as follows:
IV. The amount of the total authorized capital of the Corporation
shall be Five Hundred Dollars ($500), which shall consist of Five
Hundred (500) shares of Common Stock, par value $1.00 per share.
3. To have the proxies vote in accordance with the recommendation of
management as to any other matters, which may properly come before
the Special Meeting or any adjournments thereof and which relate
only to matters not known by the company a reasonable time before
solicitation of this proxy.
The board of directors has fixed the close of business on January ,
2004, as the record date (the "Record Date") for determining shareholders
entitled to notice of and to vote at such meeting and any adjournment thereof.
Only shareholders at the close of business on the Record Date are entitled to
notice of and to vote at such meeting. For the reasons set forth in the Proxy
Statement, the board of directors unanimously recommends that you vote for
approval of the Reverse Stock Split. SHAREHOLDERS WHO DO NOT VOTE FOR THE
PROPOSAL, WHO DELIVER, BEFORE THE VOTE IS TAKEN, WRITTEN NOTICE OF THE
SHAREHOLDER'S INTENT TO DEMAND PAYMENT IF THE TRANSACTION IS CONSUMMATED, AND
WHO FOLLOW THE PROCEDURES SET FORTH ON APPENDIX I TO THE PROXY STATEMENT, WILL
HAVE APPRAISAL RIGHTS UNDER WEST VIRGINIA LAW.
You are cordially invited to attend the meeting. However, whether or
not you expect to attend the meeting, it is very important for your shares to be
represented at the meeting. We respectfully request that you date, execute and
mail promptly the enclosed proxy in the enclosed stamped envelope for which no
additional postage is required if mailed in the United States. A proxy may be
revoked by a shareholder by notifying the secretary of Uptowner in writing at
any time prior to its use, by executing and delivering a subsequently dated
proxy or by personally appearing at the Special Meeting and casting your vote,
each as specified in the enclosed Proxy Statement.
By Order of the Board of Directors
Carl E. Midkiff
President and Chief Executive Officer
Dated: January __, 2004
YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN PROMPTLY
THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED.
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UPTOWNER INNS, INC.
741 5th AVENUE
HUNTINGTON, WEST VIRGINIA 25701
(304) 525-8162
PROXY STATEMENT
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY __, 2004
To Our Shareholders:
This Proxy Statement is furnished to the shareholders of Uptowner Inns,
Inc. ("Uptowner" or the "company") for use at the Special Meeting of
Shareholders on February ___, 2004 (the "Special Meeting"), or at any
adjournment or adjournments thereof, for the purposes set forth in the
accompanying Notice of Special Meeting of Shareholders. The enclosed proxy is
solicited on behalf of the board of directors of Uptowner and can be revoked at
any time prior to the voting of the proxy (as provided herein). Unless a
contrary choice is indicated, all duly executed proxies received by Uptowner
will be voted as follows:
1. To approve and adopt a one for 10,000 reverse stock split that would
result in (a) shareholders receiving one share of new common stock,
$1.00 par value (the "New Common Stock") for each 10,000 shares of
common stock owned as of the effective date, and (b) shareholders
owning less than 10,000 shares of the company's common stock
receiving cash in lieu of any fractional share they would otherwise
be entitled to receive as a result of the reverse stock split at a
rate of $1.07 per share on a pre-split basis (the "Reverse Stock
Split").
2. To approve and adopt the following amendment to the Articles
of Incorporation (the "Articles of Incorporation") of Uptowner:
RESOLVED, that Article IV of the Articles of Incorporation of the
Corporation be amended to read, in its entirety, as follows:
IV. The amount of the total authorized capital of the Corporation
shall be Five Hundred Dollars ($500), which shall consist of Five
Hundred (500) shares of Common Stock, par value $1.00 per share.
3. The proxies will be voted in accordance with the recommendation of
management as to any other matters, which may properly come before
the Special Meeting or any adjournments thereof and which relate
only to matters not known by the company a reasonable time before
solicitation of this proxy.
The record date of shareholders entitled to vote at the Special Meeting
was taken at the close of business on January __, 2004 (the "Record Date"). The
approximate date on which this Proxy Statement and the enclosed proxy are first
being sent to shareholders is January __ , 2004. The mailing address of Uptowner
is 741 5th Avenue, Huntington, West Virginia 25701. Form 10-K for the fiscal
year ended June 30, 2003 as well as Form 10-Q for the quarter ended September
30, 2003, are enclosed with this Proxy Statement and are incorporated by
reference herein.
Shareholders who do not vote in favor of the proposal who deliver,
before the vote is taken, written notice of the shareholder's intent to demand
payment if the transaction is consummated and who comply with the provisions of
West Virginia Code Sections 31D-13-1302, et seq. will have appraisal rights with
respect to their shares. Those Code sections are attached as Appendix I to this
Proxy Statement.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement or related Schedule 13E-3,
and if given or made, such information or representation should not be relied
upon as having been authorized by Uptowner.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE TRANSACTION PROPOSED HEREIN OR
DETERMINED IF THIS PROXY STATEMENT IS TRUTHFUL OR COMPLETE. THE COMMISSION HAS
NOT PASSED UPON THE FAIRNESS OR MERITS OF THE TRANSACTIONS CONTEMPLATED HEREBY,
NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
By Order of the Board of Directors
Carl E. Midkiff
President and Chief Executive Officer
Dated: January __, 2004
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TABLE OF CONTENTS
PAGE
SUMMARY OF TERMS OF REVERSE STOCK SPLIT................................. 1
SPECIAL FACTORS......................................................... 2
Purpose and Reasons for the Reverse Stock Split.................... 2
Background......................................................... 5
Alternatives Considered by the Board of Directors.................. 7
Valuation.......................................................... 8
Approaches To Valuation............................................ 10
Reconciliation of Valuation Estimates.............................. 12
Fairness of the Reverse Stock Split Proposal....................... 12
Certain Effects of Reverse Stock Split Proposal on Uptowner's
Shareholders............................................................ 15
Certain Federal Income Tax Consequences............................ 21
GENERAL INFORMATION..................................................... 25
Voting Procedures and Revocability of Proxies...................... 25
Persons Making the Solicitation.................................... 26
PROPOSAL -- REVERSE STOCK SPLIT AND RELATED
AMENDMENT TO UPTOWNER'S ARTICLES OF INCORPORATION....................... 26
General............................................................ 26
Payment for Shares................................................. 27
Vote Required...................................................... 27
Source and Amount of Funds or Other Consideration; Expenses of
Transaction............................................................. 28
MANAGEMENT.............................................................. 28
Information with Respect to the Directors and Executive Officers... 28
Committees of the Board of Directors............................... 30
Report of Carl Midkiff Concerning the Audit........................ 30
Directors' Compensation............................................ 31
Board of Directors Report on Executive Compensation................ 31
Section 16(a) Beneficial Ownership Reporting Compliance............ 31
Executive Compensation and Other Information....................... 32
INFORMATION ABOUT UPTOWNER INNS, INC.................................... 32
General............................................................ 32
Property........................................................... 33
Security Ownership of Certain Beneficial Owners and Management..... 35
OTHER MATTERS........................................................... 36
FORWARD-LOOKING STATEMENTS.............................................. 37
AVAILABLE INFORMATION................................................... 37
DOCUMENTS INCORPORATED BY REFERENCE..................................... 37
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APPENDICES -
Appendix I - West Virginia Code, Article 13. Appraisal Rights, Sections
31D-13-1301 to - 03; Sections 31D-13-1320 to - 26; Sections
31D-13-1330 and - 1331.
Appendix II - Valuation of Uptowner Inns, Inc. as of June 30, 2003
Appendix III - Articles of Amendment to Articles of Incorporation of
Uptowner Inns, Inc.
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SUMMARY OF TERMS OF REVERSE STOCK SPLIT
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT
AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO BETTER
UNDERSTAND THE TERMS AND CONDITIONS OF THE REVERSE STOCK SPLIT, AS WELL AS THE
CONSEQUENT AMENDMENTS TO OUR ARTICLES OF INCORPORATION, YOU SHOULD CAREFULLY
READ THIS ENTIRE DOCUMENT, ITS ATTACHMENTS AND THE OTHER INFORMATION TO WHICH WE
REFER.
- The board of directors of Uptowner has unanimously approved, and
recommended that the shareholders approve, a 1-for-10,000 reverse
split of the Existing Common Stock. Each 10,000 shares of
Existing Common Stock outstanding immediately prior to the
completion of the Reverse Stock Split will be automatically
converted into one share of New Common Stock (see "Special
Factors--Background" on Page 2).
- No new certificates representing fractional shares of the New
Common Stock will be issued. Instead, each fractional share will
be purchased by Uptowner for a cash payment equal to $1.07 per
share on a pre-split basis. The $1.07 per share payment reflects
the proportionate value of $1,600,000. This valuation is based
upon the valuation conducted by Somerville & Company PLLC
attached hereto as Appendix II (See "Special Factors--Background"
on page 2; "Valuation" on Page 8; and "--Fairness of the Reverse
Stock Split Proposal" on page 12).
- As a result of the Reverse Stock Split, persons who hold fewer
than 10,000 shares of Existing Common Stock immediately prior to
the Reverse Stock Split will have their entire interest in the
New Common Stock purchased by Uptowner and will no longer be
holders of New Common Stock (see "Special Factors--Certain
Effects of Reverse Stock Split Proposal on Uptowner's
Shareholders" on page 15).
- The principal purpose of the Reverse Stock Split is to reduce the
number of shareholders of record of Uptowner's Common Stock to
fewer than 300, enabling Uptowner to terminate its status as a
reporting company under the Exchange Act, and thereby eliminate
the significant expenses associated with being a reporting
company (see "Special Factors--Purpose and Reasons for the
Reverse Stock Split" on page 2).
- The principal advantage of the Reverse Stock Split to Uptowner
and its affiliated shareholders is the direct and indirect
expense savings that are expected to be realized by termination
of Uptowner's reporting company status (see "Special
Factors--Purpose and Reasons for the Reverse Stock Split" on page
2).
- A principal advantage of the Reverse Stock Split to shareholders
who held fewer than 10,000 shares of Existing Common Stock is
that Uptowner will purchase their fractional shares of New Common
Stock thereby creating a liquidity event for Uptowner's
shareholders (see "Special Factors--Certain Effects of Reverse
Stock Split Proposal on Uptowner's Shareholders" on page 15).
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- The principal disadvantages of the Reverse Stock Split are that
most of Uptowner's shareholders will cease to be shareholders
following the Reverse Stock Split and will not receive certain
benefits of the Reverse Stock Split (see "Special Factors--
Certain Effects of Reverse Stock Split Proposal on Uptowner's
Shareholders" on page 15).
- Approval of the Reverse Stock Split and the amendment to the
Articles of Incorporation to effect the Reverse Stock Split will
require approval by holders of a majority of the outstanding
shares of Existing Common Stock (see "Proposal--Reverse Stock
Split and Related Amendments to Uptowner's Articles of
Incorporation--Vote Required" on page 23).
- Each shareholder whose fractional share is repurchased by
Uptowner will recognize gain or loss for federal income tax
purposes measured by the difference between the shareholder's
basis in the fractional share and the cash consideration received
for the fractional share. The gain or loss will be capital gain
or loss if the share was held as a capital asset (see "Special
Factors--Federal Income Tax Consequences" on page 20).
- Under the West Virginia Business Corporation Act, shareholders
have appraisal rights and the right to demand payment for their
shares upon complying with the requirements under the Act (see
"Special Factors--Certain Effects of Reverse Stock Split Proposal
on Uptowner's Shareholders Appraisal Rights" on page 16).
- Each of Uptowner's board of directors and affiliates (i.e., Carl
E. Midkiff, Hobart Adkins, Richard Monga, Charles D. Robinson,
Prestige Property, Inc., Violet Midkiff and the Violet Midkiff
Irrevocable Trust) has concluded that the Reverse Stock Split is
fair to Uptowner's shareholders, including the unaffiliated
shareholders of Uptowner from a financial point of view. This
conclusion was based on the valuation performed by Sommerville &
Company, P.L.L.C. and based upon the analysis of several factors
described in detail in the section of this Proxy Statement titled
"Special Factors--Fairness of the Reverse Stock Split Proposal"
(see "Special Factors--Fairness of the Reverse Stock Split
Proposal" on page 12).
SPECIAL FACTORS
PURPOSE AND REASONS FOR THE REVERSE STOCK SPLIT
Although Uptowner has over 1,500 shareholders, Uptowner is more similar to
a closely held company with a small shareholder base than a publicly held
company. For instance, Uptowner's revenues have historically been in the $3.1
million to $4.0 million range, and the company only has one operating asset
which consists of a Holiday Inn in Huntington, West Virginia. Further, over 50%
of Uptowner's outstanding common stock is held or controlled by Carl E. Midkiff.
For instance, Mr. Midkiff owns 261,974 of the company's 1,493,642 shares
directly and 544,281 shares indirectly. Of those shares representing indirect
beneficial ownership, 162,562 shares are owned by Carl Midkiff's mother, Violet
Midkiff, that, due to a power of attorney, are voted by Carl Midkiff. The same
is true of 100,985 shares owned by Violet Midkiff and Carl Midkiff's two minor
sons. Prestige Property, Inc., an entity owned by Carl Midkiff, owns 40,727
shares and the Violet Midkiff Irrevocable Trust owns 200,000 shares. Carl
Midkiff serves as the trustee of the trust.
By virtue of its nature of being a "small" company and operated as such,
Mr. Midkiff and the other three directors have found that compliance with the
various rules and regulations under the Securities and Exchange Act of 1934 (the
"Exchange Act") to be unduly costly in light of the size, structure and nature
of Uptowner's business and shareholder base. Accordingly, one reason for the
Reverse Stock Split is to relieve Uptowner of the costs and burdens of remaining
a public company and reduce the costs associated with servicing many small
shareholder accounts.
The board of directors believes that there are considerable costs and
burdens to Uptowner in remaining a public reporting company. To comply with its
obligations under the Exchange Act, Uptowner incurs direct and indirect costs
associated with compliance with the filing and reporting requirements imposed on
public companies. Examples of direct costs savings from termination of
registration of common shares include: lower printing and mailing costs; reduced
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reporting and disclosure requirements due to the company's private status; and
reduction in direct expenses such as word processing and preparing electronic
filings in the EDGAR format prescribed by the Securities and Exchange Commission
(the "SEC" or the "Commission"). Uptowner has determined that there will be a
reduction in audit and legal fees, and additional savings in directors' fees and
other personnel costs once Uptowner is no longer subject to the reporting
requirements of the Exchange Act. Uptowner also incurs indirect costs as a
result of executive time expended to prepare and review such Exchange Act
filings. Ceasing registration of the Common Stock is expected to reduce
substantially many of these out-of-pocket costs.
Uptowner also expects the Reverse Stock Split to reduce the cost of
servicing shareholder accounts. The costs of printing and mailing materials to
shareholders increases for each shareholder account, regardless of the number of
shares held by the shareholder. Many of Uptowner's shareholders hold a
relatively small number of shares, and the cost of servicing such accounts is
disproportionate to the size of the holdings. Based on its experience, Uptowner
believes that total annual savings of approximately $75,000 in previously
estimated costs of continuing as a public company may be realized by going
private. This amount, however, is just an estimate, and the actual savings to be
realized may be higher or lower than this estimate.
In addition, Uptowner's management wishes to reduce the liability
associated with being a public company under the federal securities laws on both
Uptowner and Uptowner's management. The Exchange Act imposes liability on a
company and its management for material misstatements and omissions in a
company's periodic reports and for failure to maintain appropriate procedures
and controls to ensure compliance with and full and fair disclosure in a public
company's reports filed with the SEC and those reports submitted to
shareholders. In addition to legal action that could be brought by federal and
state securities law enforcement agencies, plaintiffs' lawyers, in some
instances, could also bring legal actions against the company and its management
for violations of federal and state securities laws as well as breaches of
fiduciary duty. The company's management is unaware of any potential claims that
could be brought by third parties. Management wishes to reduce Uptowner's and
management's exposure to this type of potential liability. A going-private
transaction would alleviate this liability concern for Uptowner, management and
the affiliated shareholders.
The foregoing represents the reasons of Uptowner, Carl E. Midkiff, Hobart
A. Adkins, Richard Monga and Charles D. Robinson for undertaking the Reverse
Stock Split. Due to health reasons, Violet Midkiff has relied on Carl Midkiff's
advice in this regard and adopts these reasons for the transaction. Because Carl
Midkiff controls Prestige Property, Inc. and the Violet Midkiff Irrevocable
Trust, these entities adopt the foregoing reasons as well. These persons and
entities believe that this is the time to engage in the Reverse Stock Split
because the company, during the last year, engaged in the sale of certain real
estate owned by it and now has the financial resources to fund the purchase of
fractional shares resulting from the Reverse Stock Split. For the reasons set
forth under " -- Fairness of the Reverse Stock Split Proposal," Uptowner, Carl
E. Midkiff, Hobart A. Adkins, Richard Monga, Charles D. Robinson, Violet
Midkiff, Prestige Property, Inc. and the Violet Midkiff Irrevocable Trust
believe the reverse stock split is both procedurally and substantively fair to
Uptowner's unaffiliated shareholders.
If the Reverse Stock Split is approved and implemented, Uptowner
believes that the number of shareholders of record of Uptowner's common shares
will be fewer than 300 and will number eight. Uptowner intends to terminate the
registration of its New Common Stock under the Exchange Act pursuant to Section
12(g)(4) of the Exchange Act. Following the Reverse Stock Split, the decision by
Uptowner to terminate Exchange Act registration upon implementation of the
Reverse Stock Split does not require shareholder approval and will not be voted
on at the Special Meeting. Uptowner's duty to file periodic reports with the
SEC, such as quarterly and annual reports, will be suspended once Uptowner has
fewer than 300 shareholders of record and has filed the appropriate form with
the SEC. Uptowner plans to file, immediately after shareholder approval, the
form necessary to terminate its SEC reporting obligations. Upon making such
filing, Uptowner will become a private company, and there will be no opportunity
for a public market for Uptowner's securities to develop.
In consideration of the aforementioned reasons, Uptowner's board of
directors on October 17, 2003, approved, subject to approval by Uptowner's
shareholders, a proposal to effect the Reverse Stock Split and to approve the
amendment to Uptowner's Articles of Incorporation.
No unaffiliated representative has been retained to act solely on
behalf of unaffiliated shareholders for purposes of negotiating the terms of the
Reverse Stock Split. Additionally, the board made no specific provision to grant
unaffiliated shareholders access to Uptowner's corporate files, except as may be
required by the West Virginia Business Corporation Act, or to
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obtain counsel. Uptowner has obtained a valuation from the accounting firm of
Somerville & Company, P.L.L.C. ("Somerville"). Somerville provides non-auditing
services for Uptowner.
BACKGROUND
At a board of directors' meeting in July 2002, the board discussed the
cost of the company's compliance with the requirements of being an SEC reporting
company and the associated liabilities and addressed the issue of the
feasibility of terminating the company's reporting obligations under the
Exchange Act. At that meeting, the board authorized the company's chief
executive officer to engage the law firm, Jackson Kelly PLLC, to study the legal
ramifications of and to determine the best method for the company to terminate
its Exchange Act reporting obligations. Jackson Kelly PLLC advised Carl Midkiff
that the first step the company needed to take was to retain an independent
accounting firm to audit the company's books and records. The company had
dismissed its auditors effective June 17, 2002, due to differences of opinion as
to auditing fees. The prior auditor's reports for the fiscal year ended June 30,
2001, did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. Form 8-Ks were filed with the SEC reflecting this dismissal and the
engagement of the accounting firm Sullivan, Ware & Hall, PLLC, on July 29, 2002,
to serve as the company's independent auditors. Jackson Kelly PLLC then advised
the company that it needed to become current with its Exchange Act reports
before seeking to engage in a going private transaction. Due to the prior
auditor's resignation, the company had not filed any Exchange Act reports since
filing its 2001 Form 10-K on November 2, 2001. After filing its various late
Exchange Act reports and filing additional reports, in July 2003, Carl Midkiff
revisited the issue of going private with Jackson Kelly PLLC.
After reviewing the various methods of reducing the company's
shareholder base, Uptowner's management authorized Jackson Kelly PLLC to begin
preparing the documentation for a Reverse Stock Split. See "-- Alternatives
Considered By the Board of Directors." Pursuant to the advice of Jackson Kelly
PLLC, the company engaged Somerville to prepare a valuation of the company's
stock with a view to engaging in a reverse stock split to reduce the number of
the company's shareholders to below 300.
Upon completing a draft of the company's 13E-3 Transaction Statement
and Proxy Statement, Jackson Kelly PLLC advised the company's management to call
a special meeting of the company's board of directors to review these documents
and to review the valuation prepared by Somerville and the methodologies used to
arrive at that valuation. At a board of directors' meeting on October 17, 2003,
management discussed the draft of the company's 13E-3 Transaction Statement and
Proxy Statement as well as the evaluation. Management and the board reiterated
its view that Uptowner may expend substantial amounts to maintain its present
status as a public company while Uptowner and its shareholders are deriving few,
if any, benefits therefrom, since Uptowner's Common Stock is not actively
traded. The board considered the advantages and disadvantages of being a private
company.
At that meeting, Jackson Kelly PLLC discussed with the board a reverse
stock split as well as other options for taking Uptowner private. Additionally,
representatives of Somerville reviewed the valuation report and discussed the
various methodologies used. After discussion with legal counsel and Somerville,
the board determined that a Reverse Stock Split was feasible in Uptowner's
current situation.
The board discussed the fairness of the Reverse Stock Split to the
shareholders who will receive New Common Stock. See "Fairness of the Reverse
Stock Split Proposal" below. Because of the estimated cost savings associated
with no longer being a public company, the amount to be received by unaffiliated
shareholders, the lack of any past or likely future liquidity event and the
absence of an active trading market, the board concluded that a Reverse Stock
Split would be fair to unaffiliated shareholders. Uptowner has not solicited any
third party offers to merge or acquire Uptowner, nor did it authorize any member
of the board of directors or unaffiliated party to do so.
Management recommended that a ratio of 1-to-10,000 would reduce the
record shareholder population below 300 while allowing adequate margin for any
increase in the number of shareholders that might occur prior to the
effectiveness of a Reverse Stock Split (for example, as a result of holders with
shares in "street name" requesting that share certificates be issued in their
own name, or persons other than current shareholders purchasing shares). Also,
this ratio would eliminate the cost of servicing many small shareholder
accounts.
Uptowner and its board of directors are proposing the Reverse Stock
Split at this time because the cost of remaining a public company is
significant, especially in relation to the remaining net assets and status of
Uptowner. Additionally, the company currently has sufficient cash to pay
unaffiliated shareholders for their fractional shares.
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After the completion of the discussions, the Reverse Stock Split and
all corporate actions necessary in connection therewith were approved
unanimously by the board of directors, which directed that the Reverse Stock
Split be submitted for approval at a meeting of Uptowner's shareholders.
Failure to approve the Reverse Stock Split will continue Uptowner's
costs of being a public company with minimal corresponding benefit.
If the shareholders approve the Reverse Stock Split, Uptowner intends
to file an amendment to Uptowner's Articles of Incorporation with the Secretary
of State of the State of West Virginia in substantially the form attached hereto
as Appendix III. The Reverse Stock Split will become effective on the date the
amendment is filed with the Secretary of State of the State of West Virginia, or
such later date as is specified in the filing (the "Effective Date"). Uptowner
expects the amendment to become effective as soon as practicable following the
Special Meeting.
ALTERNATIVES CONSIDERED BY THE BOARD OF DIRECTORS
The board of directors considered alternative transactions to reduce
the number of shareholders but ultimately determined that the Reverse Stock
Split was the preferred method. The board of directors considered the following
alternative strategies:
ISSUER TENDER OFFER. The board of directors considered an issuer tender
offer to repurchase shares of Uptowner's outstanding Existing Common Stock. The
results of an issuer tender offer would be unpredictable, however, due to its
voluntary nature. The board was uncertain as to whether this alternative would
result in shares being tendered by a sufficient number of record holders so as
to permit Uptowner to reduce the number of shareholders below 300, to reduce its
administrative costs related to servicing shareholders who own a relatively
small number of shares and to terminate its SEC reporting requirements. The
board was also uncertain as to whether many holders of a small number of shares
would make the effort to tender their shares. In addition, the board considered
the cost of completing the tender offer, which could be significant in relation
to the value of the shares sought to be purchased.
PURCHASE OF SHARES IN THE OPEN MARKET. There is a limited trading
market for the Existing Common Stock with little liquidity; therefore, the board
of directors believes it would be highly unlikely that shares could be acquired
by Uptowner from a sufficient number of holders to accomplish the board's
objectives.
CONTINUING AS IS. Finally, the board of directors considered taking no
action to reduce the number of shareholders of Uptowner. However, due to
Uptowner's significant costs of compliance under the Exchange Act, especially in
relation to Uptowner's overall expenses, the board believes that taking no
action at this time is not in the best interests of Uptowner.
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Because Uptowner is an operating company that historically has operated
at a loss and it would be unlikely that a sale could generate a per share price
equal to or greater than $1.07, the board did not give serious consideration to
identifying a third party to acquire Uptowner's assets or stock in a merger or
similar transaction.
The board of directors has determined that the Reverse Stock Split is
the most expeditious and economical method of changing Uptowner's status from
that of a reporting company to that of a non-reporting company. Uptowner has not
sought, and has not received, any proposals for the merger or consolidation of
Uptowner, or for the sale or other transfer of all or any substantial portion of
Uptowner's assets, or for the securities of Uptowner that would enable the
holder thereof to exercise control of Uptowner. See "Special Factors --
Background."
VALUATION
Attached as Appendix II to this Proxy Statement is the valuation of the
company prepared by Somerville. Somerville is a full-service accounting firm
located in Huntington, West Virginia. The firm was founded in 1932 by Nathan
Goff Somerville as a sole proprietorship known as Somerville Audit Company with
the goal of building a practice across the Tri-State area of West Virginia,
Kentucky and Ohio. During the late 1940's, several partners joined the firm, and
in 1952 upon Mr. Somerville's death, the remaining partners formed the
partnership Somerville, which continues to exist today as a professional limited
liability company. Over the years the firm has had 17 partners, 15 of whom have
been with the firm their entire careers. The current members of the firm all
began as entry level staff with Somerville. Members of the firm are known
throughout professional and community organizations for their leadership and
active participation. Ten past and present partners/members have been presidents
of the West Virginia Society of Certified Public Accountants. The firm generates
fees primarily from work in the healthcare, banking, wholesale, retail,
manufacturing and non-profit areas as well as estate and financial planning,
business valuation and litigation support.
The firm's business valuation team is headed by a Certified Valuation
Analyst. Utilizing its knowledge of valuation theory/application, its expertise
in accounting, tax, finance and economics, they determine the value of tangible
and intangible assets held by businesses and individuals. The firm offers
services in the following areas:
- Litigation support and expert testimony;
- Buy/sell agreements;
- Mergers and acquisitions;
- Minority interests;
- Estate valuations;
- Gift valuations;
- Asset allocation.
Susan K. Richardson, CPA, CVA, performed the valuation on behalf of
Somerville. Ms. Richardson graduated from Marshall University in December 1982.
She is presently licensed to practice as a certified public accountant in West
Virginia and Kentucky. Her continuing education hours, an average of 79 hours
per year over the last five years, focus on tax, business valuation and
litigation support services.
During 1993, she formally completed the instructional and testing
requirements and obtained an additional certification by the National
Association of Certified Valuation Analysts ("NACVA"). Following the original
requirements to obtain the certification, the Association requires 12 hours of
continuing education annually to maintain certification as a valuation analyst.
STATEMENT OF QUALIFICATIONS
SUSAN K. RICHARDSON, CPA, CVA
Academic and Professional Credentials
Bachelor of Arts, Marshall University, 1982
Certified Public Accountant - 1983, Licensed to practice in West
Virginia and Kentucky
Certified Valuation Analyst, National Association of Certified
Valuation Analysts (NACVA), 1994
Position and Experience
Partner, Somerville & Company, CPAs
Manager/Partner in charge of the management consulting
services practice area since 1988
Professional Affiliations
National Association of Certified Valuation Analysts
National Association of Forensic Economists
Institute of Business Appraisers
American Institute of Certified Public Accountants
Member, Partnership Taxation Committee, 1994-1997
CPA Associates International, Inc.
Member, Federal Taxation Committee, 1994-1997 and 2000-2003
West Virginia Society of Certified Public Accountants
Director-at-Large, 1995-1998
Chairman, Careers in Accounting Project Group 2001-2004
Various other local and regional professional and community
organizations
Uptowner selected Somerville to conduct the valuation because that firm
is familiar with the company's business by virtue of the fact that it has served
as the company's internal accountants since the fall of 2000. Following is a
summary of the valuation report included in its entirety at Appendix II.
APPROACHES TO VALUATION
There are three main approaches to valuing small closely held
businesses. Under these approaches there are several different valuation
methods. The following is a discussion of each approach and certain methods
under these approaches.
INCOME APPROACH. The income approach gives primary consideration to an
investment's earnings. The theory being that an investment is worth the present
value of all reasonably expected future returns. This approach is most commonly
applied by using a capitalized current earnings method or a discounted future
earnings method.
The discounted future returns method under the income approach was not
selected. Any forecasted future earnings or cash flow would have been extremely
speculative in view of the company's operating history. Additionally, a
capitalized current earnings calculation does not consider the underlying asset
value currently in place where there is more than a minimal investment in
tangible assets. However, for the purpose of understanding the expected return
on investment, a willing buyer might realize the normalized unweighted after tax
earnings for the five years ended June 30, 2003 and were reviewed. Because this
calculation yielded a negative value, this method was not selected.
ASSET APPROACH. The asset approach values an investment based on the
current value of its assets and liabilities. In valuing businesses, this
approach is commonly used when the subject business is a holding company or if
the company has not established a positive earnings history.
Due to the significantly lower profitability (as compared to industry
statistics) of the operation historically, the asset approach was selected. The
asset approach does not consider historical or possible future earnings when
determining the value of a given business. After considering adjustments to fair
value (see detailed discussion later), the adjusted net asset approach yielded a
value of $1,750,000 for 100% of the subject company without any further
discounts for lack of marketability or minority position.
MARKET APPROACH. The market approach determines the value of an
investment by using information obtained from actual sales of similar
investments. This method is widely used in valuing real property and in certain
industries where comparable sales can be discovered. This method has limited
applicability in valuing a smaller business due to the lack of information
available from actual sales of similar small businesses. Transaction data from
The Institute of Business Appraisers and private business sales transaction
records as published by "Pratt's Stats" were reviewed. Because it is nearly
impossible to ascertain whether these other company transactions represent sales
of companies similar in nature to the subject company, this method was not
selected.
Further, it is also necessary to review prior transactions in the
company's own stock. Over the past 20 years, the following stock sales have
occurred:
Date Number of Shares Price Per Share
---- ---------------- ---------------
February 1984 264,158 $ 0.65
June 1992 28,102 0.65
September 1998 30,049 0.65
November 2001 36,060 0.65
November 2002 15,552 0.65
These sales account for nearly 24% of the total outstanding stock of Uptowner.
Additionally, there have been other miscellaneous sales over the last 30 years,
with prices in the $0.50 to $0.65 range.
Because of the volume of shares changing hands and the stability of the
price in view of the lack of profitability of the enterprise, consideration of
these sales should have an impact on the final determination of "fair value."
The value of the company computed at $0.65 per share is $972,606, without
further discounts for marketability or minority interest position.
HYBRID APPROACHES, RULES OF THUMB AND AGREEMENTS IN PLACE. Hybrid
approaches include excess earnings methods, which combine characteristics of
income approaches and asset approaches. The earnings in excess of a reasonable
rate of return are capitalized and added to the current value of the business'
assets. Rules of thumb are simple formulas developed for various industries. In
some cases, buy-sell agreements, retirement arrangements or other agreements may
be in place and bear consideration in the calculation of the value of a company.
A method of valuation we reviewed to estimate the fair market of
Uptowner are the widely recognized "capitalization of excess earnings - return
on assets" methods.
The capitalization of excess earnings - return on assets method is an
income and asset based approach to valuation where the adjusted net tangible and
intangible assets of the business entity are valued independently. These
component assets are comprised of the fair market value of the total assets of
the business less the total liabilities as of the date of the valuation. The
intangible assets are valued by capitalizing the excess earnings of the
business, where the excess earnings represent the earnings of the business in
excess of the earnings that provide a reasonable rate of return on the adjusted
net assets of the business.
The adjusted average net income after tax of $15,458 was reduced by the
average adjusted net assets of $1,571,840 multiplied by the risk-free rate of
4.8%. Because the average net income is negative, this method produces skewed
results. It does, however, give an indication of the impact that the negative
profitability has on the value of the business. Carrying this method through its
normal calculation using a capitalization rate of 25.6 produced a value of
$1,360,000 without any further discounts for lack of marketability or minority
interest rates.
RECONCILIATION OF VALUATION ESTIMATES
The estimate of the fair market value of 100% of the common stock of
Uptowner as of June 30, 2003 determined under the various methods as explained
above is as follows:
1. Adjusted Net Assets Method $1,750,000
2. Prior Sales of Company Stock 972,606
3. Capitalization of Excess Earnings-Reasonable Rate Method 1,360,000
The history of the company over the last five years has been erratic. It is well
established that while an asset-based method of valuation applies in the case of
corporations that are essentially holding companies, an earnings-based method is
appropriate for corporations that are active operating companies. Noting that
the fixed assets are the largest contributor to total asset value, we must also
take into consideration the corporation's status as an operating company.
Furthermore, it is necessary to look at prior arms-length transactions in the
company's stock. For these reasons, a value that takes into consideration both
underlying asset value as well as the profitability and the trading history of
the company is deemed appropriate.
Because the Capitalization of Excess Earnings is a skewed calculation
due to the negative earnings history, no weight was given to it although it
serves as a secondary checkpoint that the overall value of the company stock is,
in reality, something less than the book value of the assets. Recognizing that
although the net assets are a strong indicator of value, there would be
considerable costs incurred to convert this value to cash to the shareholders,
and it seems appropriate to reflect this situation in the final estimate of
value. Furthermore, prior transactions over a long period of years are also a
strong indicator of true value to the shareholders. It is the opinion of
Somerville that the prior transactions in the company stock reflect a
substantial marketability discount, and therefore should be accorded less weight
in the overall conclusion. Based on the instructions of management and its
counsel, this valuation is to be stated without discounts. Therefore, the
conclusion was reached by assigning an 80% weight to the net asset method and a
20% weight to the prior sales of stock and rounded to $1,600,000.
FAIRNESS OF THE REVERSE STOCK SPLIT PROPOSAL
SUBSTANTIVE FAIRNESS DECISION. The board of directors believes that the
Reverse Stock Split, taken as a whole, is substantively and procedurally fair to
and in the best interests of Uptowner and its unaffiliated shareholders.
Additionally, each of the following individuals who are affiliates of Uptowner
believe that the Reverse Stock Split, taken as a whole, is substantively and
procedurally fair to and in the best interests of Uptowner and its unaffiliated
shareholders: Carl E. Midkiff, Hobart A. Adkins, Charles D. Robinson, Richard
Monga, Prestige Property, Inc., Violet Midkiff and the Violet Midkiff
Irrevocable Trust (the "Affiliated Persons"). Please refer to "Special Factors
- -- Purpose and Reasons for the Reverse Stock Split" for a description of the
nature of each person's affiliation with the company. Mr. Adkins, Mr. Monga and
Mr. Robinson serve on the company's board with Mr. Midkiff. In determining the
fairness of the Reverse Stock Split, the board of directors and Carl Midkiff, in
his individual capacity, considered a number of factors prior to approval of the
proposed transaction. The other Affiliated Persons relied on the analysis of the
management of Uptowner and Carl Midkiff (in his individual capacity) and the
valuation of Somerville, and each of the Affiliated Persons expressly adopt the
conclusion and analyses of the company and Carl Midkiff and the conclusions and
analyses presented in the valuation of Somerville.
-6-
The board of directors and Carl Midkiff (in his individual capacity)
recognized the concerns of shareholders owning fewer than 10,000 shares of
Existing Common Stock. The Reverse Stock Split will allow such shareholders to
liquidate their holdings at a fair value, and without brokerage or other
transaction costs by receiving cash for their interest.
Affiliated shareholders receiving New Common Stock are expected to
benefit from the reduction of direct and indirect costs borne by Uptowner to
maintain its public company status. In addition, shareholders holding a number
of shares not evenly divisible by 10,000 will receive a cash payment for the
portion of their interest that would otherwise be represented by a fractional
share, without incurring brokerage or other transactions costs.
The board of directors of Uptowner by unanimous vote on October 17,
2003, with no member of the board of directors dissenting or abstaining from
such approval, adopted a resolution declaring the terms and conditions of the
Reverse Stock Split to be advisable, and directing that a proposed amendment to
the Articles of Incorporation of Uptowner effecting the Reverse Stock Split and
reducing Uptowner's authorized capital proportionately be submitted to
shareholders of Uptowner for consideration. The board and Carl Midkiff (in his
individual capacity) considered the following factors in reaching their
conclusion:
- The status of Uptowner as a small business.
- The limited trading market and liquidity of the Existing Common
Stock.
- The opportunity afforded, in the absence of a trading market, by
the Reverse Stock split for holders of even a small number of
shares to receive a cash payment for their interest without
brokerage costs.
- The board and Mr. Midkiff (in his individual capacity) believed
that the payment of $1.07 per pre-split share is fair in light of
(a) the valuation and the conclusions contained in the valuation
received from Somerville, attached to this Proxy Statement as
Appendix II, and (b) the prior transactions in the company's
stock as follows:
Date Number of Shares Price Per Share
---- ---------------- ---------------
February 1984 264,158 $0.65
June 1992 28,102 $0.65
September 1998 30,049 $0.65
November 2001 36,060 $0.65
November 2002 15,552 $0.65
The board and Mr. Midkiff (in his individual capacity) considered
the value of the company computed at $0.65 per share (the most
recent share price) is $972,606 without discounts for
marketability or minority interest position. The value of the
company at $1.07 per share is $1,600,000 without discounts for
marketability or minority interest position.
-7-
- The board's and Mr. Midkiff's knowledge of the financial
condition and prospects of Uptowner.
- The anticipated increased cost of compliance and potential legal
exposure with the additional requirements on public companies
under the Sarbanes-Oxley Act of 2002 and related SEC regulations.
- The fact that at the 1-for-10,000 ratio, the Reverse Stock Split
would not significantly impact control of Uptowner, and that
Uptowner expects that it would continue to have approximately
eight shareholders that would own approximately 100% of New
Common Stock following the Reverse Stock Split. Prior to the
Reverse Stock Split, these shareholders own or control 53.99% of
the company's common stock. Accordingly, the board of directors
did not view the Reverse Stock Split as significantly impacting
control of Uptowner.
In determining the substantive fairness of the Reverse Stock Split to
unaffiliated shareholders, the board of directors and Carl Midkiff (in his
individual capacity) relied almost exclusively upon the conclusions reached in
the valuation report of Somerville and expressly adopt the conclusions and
analyses contained therein which conclusions and analyses are summarized under
"Approaches to Valuation" and "Reconciliation of Valuation Estimates" and relied
upon the fact that shareholders have appraisal rights under West Virginia law.
The board and Mr. Midkiff also considered the foregoing factors, but the
conclusions contained in Somerville's valuation received practically all of the
weight in their fairness determination.
PROCEDURAL FAIRNESS DISCUSSION. The board of directors and each
Affiliated Person believes that the Reverse Stock Split is fair from a
procedural point of view because under the West Virginia Business Corporation
Act, shareholders are granted appraisal rights which, if a shareholder does not
vote in favor of the proposal and follows the appraisal procedures set forth in
West Virginia Code Sections 31D-12-1301 to 31D-13-1326, will have the right to
obtain fair value for his or her shares as determined through a judicial
proceeding. Accordingly, if a shareholder does not believe $1.07 per share
represents fair value, he or she may seek a court determination of fair value as
long as the appraisal procedures are followed under the West Virginia Business
Corporation Act. A court could find that the fair value of the shares is either
higher or lower than that being offered in the Reverse Stock Split. Due to the
foregoing appraisal rights, Uptowner and the Affiliated Persons believe that the
transaction is procedurally fair to unaffiliated shareholders even though the
proposal has not been conditioned upon the affirmative vote of a majority of the
unaffiliated shareholders and even though an unaffiliated representative has not
been retained to act solely on behalf of the unaffiliated security holders. All
members of the board of directors of Uptowner believe the transaction is
procedurally and substantively fair to the unaffiliated shareholders. Mr. Adkins
is an independent director of the company's board.
After evaluating the substantive and procedural fairness of the Reverse
Stock Split, the board concluded that the Reverse Stock Split is the most
expeditious, efficient, cost effective and fair method to convert Uptowner from
a reporting company to a privately held non-reporting company.
On October 17, 2003, the board of directors determined that the
purchase price of $1.07 per whole share of New Common Stock (reflects a
$1,600,000 pre-split valuation of Existing Common Stock) for fractional shares
of Uptowner's Existing Common Stock is fair from a financial point of view to
the holders of Existing Common Stock of Uptowner. This determination was
primarily based on the valuation.
Although no agreement (either express or implied) exists regarding the
voting of shares, Uptowner believes that each executive officer and director of
Uptowner will vote all shares of Existing Common Stock of Amendment they own or
control for the proposed Reverse Stock Split and related Articles to Uptowner's
Articles of Incorporation. These shares represent approximately 54.03% of the
voting power on the Record Date.
CERTAIN EFFECTS OF REVERSE STOCK SPLIT PROPOSAL ON UPTOWNER'S SHAREHOLDERS
RIGHTS, PREFERENCES AND LIMITATIONS. There are no differences between
the respective rights, preferences or limitations of the Existing Common Stock
and the New Common Stock. There will be no differences with respect to dividend,
voting, liquidation or other rights associated with Uptowner's Common Stock
before and after the Reverse Stock Split.
-8-
If the Reverse Stock Split is approved, the interests of holders of
Existing Common Stock will change. Each share of Existing Common Stock which
would upon completion of the Reverse Stock Split represent a fractional share of
New Common Stock will be automatically converted into the right to receive from
Uptowner, in lieu of fractional shares of New Common Stock, cash in the amount
of $1.07 for each share of Existing Common Stock on a pre-split basis.
If the Reverse Stock Split is effected, shareholders owning fewer than
10,000 shares of Existing Common Stock will no longer have any equity interest
in Uptowner and will not participate in future increases or decreases to
Uptowner's net assets in liquidation. Further, the shareholders who will
continue to have an equity interest in Uptowner after the Reverse Stock Split
will own a security the liquidity of which will be reduced.
The Reverse Stock Split will not have a different effect on shares of
Existing Common Stock held by affiliates as it will for non-affiliates. Both
affiliates and non-affiliates who own 10,000 shares or more will receive one
share for each 10,000 shares owned and will receive $1.07 on a pre-split basis
for fractional shares. Due to their share ownership, Carl Midkiff, Prestige
Property, Inc., Violet Midkiff and the Violet Midkiff Irrevocable Trust will
remain as shareholders after the Reverse Stock Split.
FINANCIAL IMPACT. Uptowner estimates that after the Reverse Stock Split
is effected, the number of shares of New Common Stock outstanding will be
approximately 81 shares in the hands of approximately eight shareholders of
record. The total number of fractional shares to be purchased (exclusive of an
undetermined number of fractional shares held in "street name") is estimated to
be approximately 683,642 at a cost of less than $731,497. The cost of the
Reverse Stock Split transaction will come from Uptowner's available cash and
other liquid assets.
APPRAISAL RIGHTS. Pursuant to West Virginia Code Section 31D-13-1302, a
company shareholder may have appraisal rights as to all or any part of the
shares of company common stock registered in that shareholder's name, provided
the shareholder does not vote in favor of the Reverse Stock Split and complies
with the procedures outlined in West Virginia Code Sections 31D-13-1303 through
and including Section 31D-13-1326.
Under West Virginia Code Section 31D-13-1321, a shareholder who wishes
to exercise appraisal rights must deliver to the company before any vote is
taken on the Reverse Stock Split, written notice of that shareholder's intent to
demand payment if the proposed Reverse Stock Split is consummated. Also, that
shareholder must not vote, or cause to or permit to be voted, any shares of that
shareholder's Common Stock in favor of the proposed Reverse Stock Split. A
shareholder who does not satisfy these requirements is not entitled to appraisal
rights.
If the proposed Reverse Stock Split becomes effective, the company must
deliver a written appraisal notice in the requisite form to all shareholders who
satisfied the foregoing requirements. That notice must be sent no earlier than
the date the Reverse Stock Split becomes effective and no later than 10 days
after the Effective Date. That form would require a shareholder asserting
appraisal rights to certify whether or not beneficial ownership of that
-9-
shareholder's shares for which appraisal rights are asserted was acquired before
the date of this Proxy Statement and that the shareholder did not vote for the
Reverse Stock Split.
This form will state where it must be returned and where certificates
for shares must be deposited and the date by which those certificates must be
deposited. The form will also indicate the company's estimate of the fair value
of the shares and that, if requested in writing, the company will provide, to
the shareholders so requesting, within 10 days after the date specified in which
the form must be returned, the number of shareholders who returned the forms by
the specified date and the total number of shares owned by them. The form will
also state the date by which the notice to withdraw from the appraisal process
must be received.
A shareholder who receives notice and who wishes to exercise appraisal
rights must certify on the form sent by the company whether beneficial ownership
of the shares was acquired before the required date set forth above. If a
shareholder fails to make this certification, the company may elect to treat the
shareholder's shares as after-acquired shares that were not entitled to
appraisal rights. A shareholder who does not execute and return the form and, in
the case of certificated shares, deposit the shareholder's share certificates
where required, each by the date set forth in the notice, is not entitled to
payment.
The company shall pay in cash to those shareholders who comply with the
requirements set forth in the West Virginia Code the amount the company
estimates to be the fair value of their shares, plus interest. Any payment must
be accompanied by financial statements of the company, a statement of the
company's estimate of the fair value of the shares and a statement that
shareholders who have perfected their appraisal rights have the right to demand
further payment and that if any shareholder does not make demand for further
payment within the time specified, that shareholder is deemed to have accepted
the payment in full of satisfaction of the company's obligations under the West
Virginia Code regarding appraisal rights.
The company may elect to withhold payment from any shareholder who did
not certify the beneficial ownership of all of the shareholder's shares as set
forth above. If the company elects to withhold to such payment, it must, within
30 days, notify all shareholders who are seeking appraisal and from whom the
company has elected to withhold payment along with the following information:
the company's financial statements; the company's estimate of fair value; that
such shareholder may accept the company's estimate of fair value, plus interest,
in full satisfaction of such shareholder's demands or demand appraisal under the
West Virginia Code; that those shareholders who wish to accept the offer must
notify the bank of their acceptance within 30 days; and that those shareholders
who do not satisfy the requirements for demanding appraisal under the provisions
of the West Virginia Code will be deemed to have accepted the company's offer.
A shareholder who is paid but who is dissatisfied with the amount of
the payment must notify the company in writing of that shareholder's estimate of
the fair value of the shares and demand payment of that estimate, plus interest,
unless any payment is already made. Any shareholder offered a payment by the
company and who is dissatisfied with that offer must reject that offer and
demand payment of the shareholder's stated estimate of the fair value of the
shares, plus interest. A shareholder who fails to notify the company in writing
of that
-10-
shareholder's demand to be paid within 30 days after receiving the company's
payment or offer of payment waives the right to demand payment and is entitled
only to the payment offered by the company. THE FOREGOING SUMMARY IN THIS
SECTION OF THE PROXY STATEMENT ENTITLED "APPRAISAL RIGHTS" DOES NOT PURPORT TO
BE A COMPLETE STATEMENT OF THE RIGHTS OF SHAREHOLDERS SEEKING APPRAISAL AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PROVISIONS OF WEST VIRGINIA CODE
SECTIONS 31D-13-1302 TO AND INCLUDING 31D-13-1326, THE FULL TEXT OF WHICH IS
ATTACHED AS APPENDIX II TO THIS PROXY STATEMENT.
TERMINATION OF REGISTRATION WITH SEC. The Existing Common Stock is
currently registered under the Exchange Act. Such registration may be
terminated, under SEC rules, upon application of Uptowner to the SEC if Uptowner
has fewer than 300 record holders of its Common Stock. Uptowner intends to make
an application for termination of registration of the New Common Stock
immediately after shareholder approval of the Reverse Stock Split. Termination
of the registration of the New Common Stock under the Exchange Act would
substantially reduce the information required to be furnished by Uptowner to its
shareholders and to the SEC and would make certain provisions of the Exchange
Act, such as the filing of annual and quarterly reports and Proxy Statements, no
longer applicable to Uptowner.
With respect to the executive officer and directors of Uptowner, upon
termination of registration of the New Common Stock under the Exchange Act, the
executive officers, directors and other affiliates would no longer be subject to
many of the reporting requirements and restrictions of the Exchange Act,
including the reporting and short-swing profit recapture provisions of Section
16 thereof, as well as many of the provisions of the Sarbanes-Oxley Act of 2002.
Upon termination of Exchange Act registration, Uptowner will continue to be
subject to the general anti-fraud provisions of federal and applicable state
securities laws.
BENEFITS. The Reverse Stock Split is expected to result in the
following benefits to Uptowner, its remaining shareholders, and those persons
who will cease to be shareholders of Uptowner upon completion of the Reverse
Stock Split:
- The termination of Uptowner's reporting obligations under the
Exchange Act will result in a reduction in Uptowner's previously
estimated costs. Uptowner expects to use any amounts saved as a
result of termination of Exchange Act registration to increase
the company's working capital. Uptowner expects to terminate its
reporting obligations under the Exchange Act immediately after
the Reverse Stock Split is approved by the Company's shareholder.
- The Reverse Stock Split affords shareholders owning fewer than
10,000 shares of Existing Common Stock the opportunity to realize
fair value for their shares. In the absence of the Reverse Stock
Split, even if a more active trading market developed for the
Existing Common Stock, such holders would nonetheless realize
less net value for their shares since the sale of their shares
would ordinarily involve disproportionately high brokerage
commissions.
- The percentage ownership of New Common Stock of the remaining
shareholders of Uptowner following the Reverse Stock Split will
increase due to the repurchase of fractional shares by Uptowner.
- Termination of Uptowner as a reporting company under the Exchange
Act will reduce the potential liabilities associated with being a
public company under federal and state securities laws.
The table below illustrates the effect of the Reverse Stock Split on
each Affiliated Shareholder's respective interest in Uptowner's net book value
and net earnings.
PRIOR TO TRANSACTION
6/30/03 Y-T-D 6/30/03
Interest in Interest in
Shares NBV Earnings
------ --- --------
Carl Midkiff 261,974 17.54% $ 307,273 $ (23,482)
Hobart Adkins 100 0.01% $ 175 $ (13)
David Robinson 702 0.05% $ 876 $ (67)
Richard Monga -- 0.00% $ -- $ --
Prestige Properties 40,727 2.73% $ 47,825 $ (3,655)
Violet Midkiff 263,547 17.64% $ 309,025 $ (23,616)
Violet Midkiff Irrevocable Trust 200,000 13.39% $ 234,571 $ (17,926)
---------- ---------- ---------- ----------
Subtotal 767,050 51.36% $ 899,745 $ (68,759)
All Other 726,592 48.64% $ 852,095 $ (65,116)
---------- ---------- ---------- ----------
Total Shares 1,493,642 100.00% $1,751,840 $ (133,875)
AFTER TRANSACTION
Proforma
6/30/03 Y-T-D 6/30/03
Interest in Interest in
Shares NBV * Earnings
------ ----- --------
Carl Midkiff 25 30.86% $ 314,877 $ (41,314)
Hobart Adkins -- 0.00% $ -- $ --
David Robinson -- 0.00% $ -- $ --
Richard Monga -- 0.00% $ -- $ --
Prestige Properties 4 4.94% $ 50,405 $ (6,613)
Violet Midkiff 26 32.10% $ 327,530 $ (42,974)
Violet Midkiff Irrevocable Trust 20 24.69% $ 251,923 $ (33,054)
---------- ---------- ---------- ----------
Subtotal 75 92.59% $ 944,735 $ (123,955)
All Other 6 7.41% $ 75,608 $ (9,920)
---------- ---------- ---------- ----------
Total Shares 81 100.00% $1,020,343 $ (133,875)
* Adjusted for transaction
-11-
DETRIMENTS. The Reverse Stock Split is expected to result in the
following detriments to Uptowner, its remaining shareholders, and those persons
who will cease to be shareholders of Uptowner upon completion of the Reverse
Stock Split:
- If the Reverse Stock Split is approved, it is estimated that
approximately 1,391 shareholders, owning in the aggregate
approximately 683,642 shares of Existing Common Stock, will cease
to be shareholders of Uptowner and will no longer hold an equity
interest in Uptowner. Such shareholders, therefore, will not
share in future increases in Uptowner's net assets or in future
dividends, if any, and will no longer have the right to vote on
any corporate matter. Such shareholders also will be deprived of
the ability to liquidate their shares of Existing Common Stock at
a time and for a price of their choosing (assuming a purchaser
for such shares could be found).
- Termination of registration of the shares of New Common Stock
under the Exchange Act will reduce substantially the information
required to be furnished by Uptowner to its shareholders and will
make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b) of the
Exchange Act, the requirement of furnishing a proxy or
information statement in connection with certain shareholder
meetings pursuant to Section 14(a) of the Exchange Act, and the
requirements of Rule 13e-3 promulgated by the SEC under the
Exchange Act with respect to "going private" transactions no
longer applicable to Uptowner and its executive officer and
directors. In addition, termination of such registration will
deprive "affiliates" of Uptowner of the ability to dispose of
such securities pursuant to Rule 144 promulgated under the
Securities Act.
- If the Reverse Stock Split is approved and, as contemplated, the
shares of New Common Stock are deregistered under the Exchange
Act, it is anticipated that a market for the New Common Stock
will not be available by market makers.
- Shareholders owning whole shares, rather than fractions of a
share, after the Reverse Stock Split will not be entitled to
receive any cash payment for their whole shares of New Common
Stock, but will receive cash only for their fractional share.
BENEFICIAL OWNERS OF COMPANY STOCK. The Reverse Stock Split will affect
shareholders holding Uptowner stock in street name through a nominee (such as a
bank or broker). Nominees may have different procedures, and shareholders
holding Uptowner stock in street name should contact their nominees to determine
how they are affected by the Reverse Stock Split.
DIRECTORS AND OFFICERS. The directors and officers of Uptowner
immediately prior to the Reverse Stock Split will remain the directors and
officers of Uptowner immediately following the effectiveness of the Reverse
Stock Split.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following section describes the material U.S. federal income tax
consequences of the Reverse Stock Split to holders of Existing Common Stock who
hold the Existing Common Stock as a capital asset within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the "Code"). The
following represents general information only and is based upon the Code, its
legislative history, existing and proposed regulations thereunder and published
rulings and decisions, all as currently in effect as of the date hereof, and all
of which are subject to change, possibly with retroactive effect. Tax
considerations under state, local and foreign laws are not addressed in this
proxy statement. All shareholders should consult with their own tax advisors as
to the tax consequences of the Reverse Stock Split in their particular
circumstances, including any Uptowner shareholders who hold their Existing
Common Stock other than as a capital asset and persons who acquired their
Existing Common Stock as compensation and including the applicability and effect
of the alternative minimum tax and any state, local or foreign and other tax
laws and of changes in those laws.
UPTOWNER. It is anticipated that no gain or loss will be recognized by
Uptowner as a result of the redemption of Existing Common Stock or the issuance
of New Common Stock pursuant to the Reverse Stock Split.
SHAREHOLDERS GENERALLY. A shareholder who receives cash in lieu of
fractional shares or through the exercise of appraisal rights will be treated
as if the cash were received in redemption of that shareholder's New Common
Stock subject to Section 302 of the Code. Under Section 302 of the Code, a
redemption of New Common Stock pursuant to the Reverse Stock Split or the
exercise of appraisal rights will, as a general rule, be treated as a sale or
exchange if the redemption (a) results in a "complete termination" of the
shareholder's interest in Uptowner, (b) is "substantially disproportionate" with
respect to the shareholder or (c) is "not essentially equivalent to a dividend"
with respect to the shareholder.
In determining whether any of these Section 302 tests is satisfied,
shareholders must take into account not only New Common Stock that they actually
own, but also any New Common Stock they are "deemed" to own under the
constructive ownership rules set forth in Section 318 of the Code. Pursuant to
these constructive ownership rules, a shareholder will be deemed to own stock
that is actually or constructively owned by certain members of his or her family
(spouse, children, grandchildren and parents) and other related parties
including, for example, certain entities in which such shareholder has a direct
or indirect interest (including partnerships, estates, trusts and corporations),
as well as shares of stock that such shareholder (or a related person) has the
right to acquire upon exercise of an option or conversion right. In addition, if
a shareholder lives in a community property state, the community property laws
of that state may have an effect on the constructive ownership rules. Section
302(c)(2) of the Code provides certain exceptions to the family attribution
rules for the purpose of determining a "complete termination." If a shareholder
intends to rely upon these exceptions, the shareholder must file a "waiver of
family attribution" statement with his tax return and must comply with certain
other requirements set forth in the Code and the Income Tax Regulations
promulgated thereunder (the "Regulations").
The redemption of a shareholder's shares of New Common Stock will result
in a "complete termination" of a shareholder's interest in Uptowner if either
(a) all New Common Stock actually and constructively owned by Uptowner is
redeemed or sold pursuant to the Reverse Stock Split or the exercise of
appraisal rights or (b) all of the New Common Stock actually owned by the
shareholder is redeemed or sold pursuant to the Reverse Stock Split or the
exercise of dissenter's rights and the shareholder is eligible to waive, and
does effectively waive in accordance with Section 302(c) of the Code,
attribution of all New Common Stock which otherwise would be considered to be
constructively owned by such shareholder. Such waiver of attribution applies
only to New Common Stock that would be attributed to a shareholder from members
of such shareholder's family.
The redemption of a shareholder's New Common Stock will be "substantially
disproportionate" with respect to such shareholder if the percentage of New
Common Stock actually and constructively owned by such shareholder immediately
following the Reverse Stock Split is less than 80% of the percentage of New
Common Stock actually and constructively owned by such shareholder immediately
prior to the Reverse Stock Split and is less than 50% of the total New Common
Stock outstanding after the Reverse Stock Split. Waiver of family attribution is
not available in applying the "substantially disproportionate" test.
Even if the redemption of a shareholder's New Common Stock fails to
satisfy the "complete termination" test and the "substantially disproportionate"
test described above, the redemption of a shareholder's New Common Stock may
nevertheless satisfy the "not essentially equivalent to a dividend" test if the
shareholder's redemption of New Common Stock pursuant to the Reverse Stock Split
results in a "meaningful reduction" in such shareholder's proportionate New
Common Stock interest in Uptowner. Whether the receipt of cash by a shareholder
will be considered "not essentially equivalent to a dividend" will depend upon
such shareholder's particular facts and circumstances. No general guidelines
indicating the facts and circumstances under which a redemption will be
considered to produce a meaningful reduction in proportionate interest have been
provided by the courts or issued by the Internal Revenue Service (the
"Service"). However, the Service has clearly stated its position that if no
reduction in percentage interest occurs, none of the Section 302 tests will be
satisfied. Waiver of family attribution is not available in the context of the
"not essentially equivalent to a dividend" test.
UNAFFILIATED SHAREHOLDERS.
Complete Redemption -- Any shareholder owning less than 10,000 shares of
Existing Common Stock will have all of their shares actually owned redeemed in
the Reverse Stock Split. Generally, under Section 302(b)(3) of the Code and
subject to the constructive ownership rules of Section 318 of the Code discussed
above, the deemed redemption of the New Common Stock should be treated as a
complete termination of the shareholder's interest in Uptowner. For any
shareholder whose interest in Uptowner is completely terminated pursuant to the
Reverse Stock Split, the deemed redemption of the New Common Stock should be
treated as a sale or exchange of property.
As a result, such Uptowner shareholder will generally recognize capital
gain or loss measured by the difference between the amount of cash received and
the holder's adjusted tax basis for the shares. This capital gain or loss will
generally be long-term capital gain or loss if, as of the date of the exchange,
the holding period for such shares is greater than one year. Long-term capital
gain of a non-corporate holder is generally subject to tax at a maximum federal
tax rate of 15%. The current maximum federal income tax rate on ordinary income
and short-term capital gains is 35%.
Shareholder Receiving Cash and Stock -- Any shareholder owning more than
10,000 shares of Existing Common Stock will receive 1 share of New Common Stock
for each 10,000 shares plus cash in lieu of any fractional shares which may be
issued to such shareholder. Such shareholder should not recognize any gain or
loss on the exchange of shares of Existing Common Stock for shares of New Common
Stock. See, Code Section 1036 and Rev. Rul. 77-19, 1977-1 C. B. 84.
In assessing whether the redemption of a shareholder's shares of New
Common Stock satisfies the "substantially disproportionate" test or the "not
essentially equivalent to a dividend" test described above, it should be
emphasized that the Reverse Stock Split will substantially reduce the number of
outstanding shares of New Common Stock. As a result, if a shareholder retains a
portion of its New Common Stock, the shareholder's percentage interest in New
Common Stock of Uptowner may not be reduced even if the shareholder receives
cash for a substantial portion of its Uptowner Common Stock. In such case, the
Service has clearly stated that if no reduction in percentage interest occurs,
none of the Section 302 tests will be satisfied. If a shareholder is able to
satisfy the Section 302 tests, the redemption will be treated as a sale or
exchange as described in the complete redemption above.
With respect to shares of New Common Stock treated as redeemed, if a
shareholder cannot satisfy any of the three tests described above and to the
extent Uptowner has sufficient current and/or accumulated earnings and profits,
such shareholder will be treated as having received a dividend which will be
includible in gross income (and treated as ordinary income) in an amount equal
to that portion of the cash received with respect to the deemed redemption of
the New Common Stock. In addition, the shareholder's basis in such New Common
Stock disposed of will not offset the amount of cash received, but instead will
be reallocated to shares of New Common Stock still held by such shareholder or,
although the matter is not free from doubt, if no shares are actually owned,
reallocated to those shares constructively owned, under certain circumstances.
Dividends of a non-corporate holder are generally subject to tax at a maximum
federal tax rate of 15%.
To the extent that a portion of the cash received with respect to the
deemed redemption of the shares of New Common Stock exceeds the current and/or
accumulated earnings and profits of Uptowner attributable to the retained and
(deemed) redeemed shares of New Common Stock, such excess will first be treated
as a non-taxable return of capital to the extent of the basis attributable to
such retained and (deemed) redeemed shares and then as a capital gain. Such
capital gain will be short-term or long-term depending on the holding period for
the retained shares. If a shareholder acquired shares of New Common Stock at
different times and/or at different prices, the application of the rules for
basis reduction, gain recognition and type of capital gain is unclear.
AFFILIATED SHAREHOLDERS. It is anticipated that the treatment of
affiliated shareholders will be substantially the same as outlined above
for Unaffiliated Shareholders.
REPORTING AND WITHHOLDING. Cash payments made pursuant to the reverse
stock split will be reported to the extent required by the Code to Uptowner
shareholders and the Internal Revenue Service. The payments will ordinarily not
be subject to withholding of federal income tax. However, backup withholding of
such tax at a rate of 31% may apply to certain shareholders by reason of the
events specified in section 3406 of the Code and related Treasury Regulations,
which include failure of an Uptowner shareholder to certify to Uptowner the
shareholder's taxpayer identification number or social security number. Uptowner
may require Uptowner shareholders to establish an exemption from backup
withholding or to make arrangements satisfactory to Uptowner with respect to
backup withholding. An Uptowner shareholder who does not provide Uptowner with
his or her taxpayer identification number may be subject to penalties imposed by
the IRS. Withholding may also apply to Uptowner shareholders who are otherwise
exempt from such withholding, such as a foreign person, if that person fails to
properly document its status as an exempt recipient.
GENERAL INFORMATION
VOTING PROCEDURES AND REVOCABILITY OF PROXIES
This Proxy Statement is being furnished in connection with the
solicitation by the board of directors of Uptowner, a West Virginia corporation,
of proxies to be voted at the Special Meeting of Shareholders of Uptowner to be
held at the offices of Uptowner, at 741 5th Avenue, Huntington, West Virginia
25701, on February ___________ , 2004, at ______.m., local time, and at any
postponement or adjournment thereof. The only shareholders entitled to vote at
the Special Meeting are the holders of record at the close of business on the
Record Date. On the Record Date there were 1,493,642 outstanding shares of
Existing Common Stock. Each outstanding share of Existing Common Stock is
entitled to one vote on each matter to come before the Special Meeting.
At the Special Meeting, the shareholders of Uptowner will vote (i) to
approve the amendment to Uptowner's Articles of Incorporation to effect the
proposed one-for-10,000 Reverse Stock Split, and (ii) to transact such other
business as may properly come before the Special Meeting, as set forth in the
preceding Notice of Special Meeting.
The holders of a majority of the outstanding shares of Existing Common
Stock present, in person or by proxy, and entitled to vote at the Special
Meeting will constitute a quorum for the transaction of business at the Special
Meeting. If a quorum should not be present, the Special Meeting may be adjourned
from time to time until a quorum is obtained. Abstentions and broker non-votes
are considered for purposes of determining the presence or absence of a quorum
for the transaction of business. Abstentions and broker non-votes will have the
effect of a vote against the Reverse Stock Split and the related amendment to
Uptowner's Articles of Incorporation. Shareholders are urged to sign the
accompanying form of proxy and return it promptly.
When a signed proxy card is returned with choices specified with
respect to voting matters, the shares represented are voted by proxies
designated on the proxy card in accordance with the shareholder's instructions.
If a signed proxy card is returned and the shareholder has
-13-
made no specifications with respect to voting matters, the shares will be voted
for the proposed Reverse Stock Split described in this Proxy Statement and, at
the discretion of the designated proxies, on any other matter that may properly
come before the Special Meeting or any adjournment. Uptowner does not know of
any business that will be presented for consideration at the Special Meeting
other than the Reverse Stock Split and related Amendment to Uptowner's Articles
of Incorporation. However, if any other business should come before the Special
Meeting, it is the intention of the designated proxies to vote on any such
business in accordance with the recommendation of management.
Any shareholder of Uptowner has the unconditional right to revoke his
or her proxy at any time prior to the voting thereof by (i) notifying the
Secretary of Uptowner in writing at Uptowner's principal executive office, (ii)
executing and delivering a subsequent proxy, or (iii) personally appearing at
the Special Meeting and casting a vote in person. However, no revocation shall
be effective unless and until notice of such revocation has been received by
Uptowner at or prior to the Special Meeting.
PERSONS MAKING THE SOLICITATION
The enclosed proxy is solicited on behalf of the board of directors of
Uptowner. The chief executive officer may participate in the solicitation but
will not receive any separate or additional compensation in connection
therewith. The cost of soliciting proxies in the accompanying form will be borne
by Uptowner. Proxies may also be solicited personally or by telephone by
directors and officers of Uptowner, without additional compensation therefor.
Upon request, Uptowner will reimburse brokers, dealers, banks and trustees or
their nominees, for reasonable expenses incurred by them in forwarding proxy
material to beneficial owners of shares of Existing Common Stock.
PROPOSAL--REVERSE STOCK SPLIT AND RELATED
AMENDMENT TO UPTOWNER'S ARTICLES OF INCORPORATION
GENERAL
The board of directors has unanimously adopted a resolution approving,
and recommending to shareholders for approval, an amendment to Uptowner's
Articles of Incorporation to effect the proposed one-for-10,000 Reverse Stock
Split. The form of amendment is attached hereto as Appendix III.
If the shareholders approve the Reverse Stock Split, Uptowner intends
to file the amendment to Uptowner's Articles of Incorporation with the Secretary
of State of West Virginia. The Reverse Stock Split will become effective on the
date the amendment is filed with the Secretary of State of West Virginia.
Uptowner expects the amendment to become effective as soon as practicable
following the Special Meeting.
Uptowner had 1,493,642 shares of Existing Common Stock outstanding as
of the Record Date. If the Reverse Stock Split is approved and implemented, each
share of Existing Common
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Stock will automatically be reclassified into one ten thousandth of a fully paid
and non-assessable share of New Common Stock without any further action on the
part of the shareholders. Assuming no change in the number of outstanding shares
from the Record Date if the Reverse Stock Split is approved, the currently
outstanding shares of Existing Common Stock will be converted into approximately
81 shares of New Common Stock.
PAYMENT FOR SHARES
Within 10 days after the Effective Date, Uptowner will mail to the
holders of fractional shares a notice of the filing of the Articles of Amendment
and a letter of transmittal containing instructions with respect to the
submission of shares of Existing Common Stock to Uptowner. No certificates or
scrip representing fractional shares of New Common Stock shall be issued in
connection with the Reverse Stock Split. Instead, shareholders holding a number
of shares of Existing Common Stock not evenly divisible by 10,000, and
shareholders holding fewer than 10,000 shares of Existing Common Stock, upon
surrender of their old certificates, will receive cash in lieu of fractional
shares of New Common Stock. The price payable by Uptowner for Existing Common
stock will be determined by multiplying the Existing Common Stock by $1.07.
Payment for fractional shares will be determined by multiplying the fraction of
New Common Stock by $1.07. Holders of shares will be entitled to receive, and
Uptowner will be obligated to make payment for, cash in lieu of shares only by
transmitting stock certificate(s) for shares of Existing Common Stock to
Uptowner, together with the properly executed and completed letter of
transmittal and such evidence of ownership of such shares as Uptowner may
require.
Any holder of record of fewer than 10,000 shares of Existing Common
Stock who desires to retain an equity interest in Uptowner after the Effective
Date may do so by purchasing, prior to the Effective Date, a sufficient number
of shares of Existing Common Stock such that the total number of shares held of
record in his name immediately prior to the Reverse Stock Split is equal to or
greater than 10,000. However, due to the limited trading market for Uptowner's
Existing Common Stock it is possible that a shareholder desiring to retain an
equity interest in Uptowner may not be able to purchase enough shares to retain
an equity interest in Uptowner at a fair price or at all.
VOTE REQUIRED
Approval of the Reverse Stock Split and amendment to the Articles of
Incorporation will require approval and amendment to the Articles of
Incorporation by a majority of the shares of Existing Common Stock that were
outstanding on the Record Date. Accordingly, the Reverse Stock Split will be
approved if at least 746,822 shares of Existing Common Stock are voted in favor
of the Reverse Stock Split. Affiliates of the company (primarily Carl Midkiff)
own or control 55.99% and it is expected that these shares will be voted in
favor of the Reverse Stock Split and the amendment to the Articles of
Incorporation although no agreements have been entered into in this regard.
-15-
SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION; EXPENSES OF TRANSACTION
The total amount of funds needed to cash out the fractional shares is
estimated to be $731,497. Uptowner estimates incurring the following costs and
expenses to structure and complete the Reverse Stock Split:
Filing fees $ 350
Legal expenses 35,000
Accounting expenses 15,000
Printing and mailing costs 10,000
Other miscellaneous costs 5,000
---------
Total $ 65,350
---------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE REVERSE STOCK SPLIT AND THE RELATED AMENDMENT TO UPTOWNER'S ARTICLES
OF INCORPORATION.
MANAGEMENT
INFORMATION WITH RESPECT TO THE DIRECTORS AND EXECUTIVE OFFICERS
For each member of the board of directors and Uptowner's executive
officers, there follows information given by each concerning his or her
principal occupation and business experience for the past five years, his or her
age and his or her length of service as a director of Uptowner. The address and
telephone for each person named in the table is in care of Uptowner Inns, Inc.,
741 5th Avenue, Huntington, West Virginia 25701, Telephone (304) 525-8162.
POSITION WITH TERM PRINCIPAL OCCUPATION FOR PAST
NAME AGE THE COMPANY EXPIRES FIVE YEARS
- ---------------- --- ----------------------- ------- -------------------------------
Hobart A. Adkins 47 Director Since 2001 2004 Owner of Quality Exhaust, Inc.;
Secretary of the Board President, 31st Street
Enterprises, Inc. (Business
includes auto repair and
exhaust repair)
Richard Monga 38 Director Since 2001 2004 General Manager of Uptowner
Inns, Inc. (1997-present);
Prior Experience: General
Manager, separate Holiday Inn
property
-16-
POSITION WITH TERM PRINCIPAL OCCUPATION FOR PAST
NAME AGE THE COMPANY EXPIRES FIVE YEARS
- ------------------ --- ---------------------- ------- -------------------------------
Carl E. Midkiff 52 Director Since 1997 2004 President, CEO and Chairman of
President, CEO, the Board of Uptowner Inns,
Chairman of the Board Inc.; Owner and Manager of
Hazmat Environmental
Contractors, Inc. (1995-2001);
Owner and Manager of Prestige
Properties, Inc. (2000-present)
(Owns and manages residential
rental properties)
Charles D. Robinson 48 Director Since 2001; 2004 Insurance Agent and Vice
Treasurer of the Board President of Insurance Systems,
Inc.
Other than Mr. Midkiff and Mr. Robinson, there are no other executive
officers of Uptowner.
During the past five years, none of the above named persons has been
convicted in a criminal proceeding or has been a party to any judicial or
administrative proceeding that resulted in a judgment, decree or final order
enjoining him from future violations of, or prohibiting activities subject to,
federal or state securities laws, or a finding of any violation of federal or
state securities laws. All of the above named persons are citizens of the United
States.
The board of directors met three times during the fiscal year ended
June 30, 2003.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors currently has no committees and the entire board
served in the capacity of the Compensation Committee and the Audit Committee.
REPORT OF CARL MIDKIFF CONCERNING THE AUDIT
Carl Midkiff oversees the company's financial reporting process. Mr.
Midkiff has the primary responsibility for the financial statements and the
reporting process, including the systems of internal controls. In fulfilling his
oversight responsibilities for fiscal 2003, Mr. Midkiff reviewed the audited
financial statements in the Form 10-K with the company's auditors including a
discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments and the clarity and
disclosures in the financial statements.
-17-
Mr. Midkiff reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, his judgments as to
the quality, not just the acceptability, of the company's accounting principles
and such other matters as are required to be discussed under generally accepted
auditing standards.
In reliance on the reviews and discussions referred to above, Mr.
Midkiff recommended to the board of directors (and the board has approved) that
the audited financial statements be included in the Form 10-K for the fiscal
year ended June 30, 2003, for filing with the SEC. Mr. Midkiff and the board
have also approved the selection of the company's independent auditors.
Based upon the review and discussions referred to above, the board of
directors recommended that the audited financial statements for the fiscal year
ended June 30, 2003, be included in the company's Annual Report on Form 10-K and
filed with the SEC.
September 15, 2003
Hobart A. Adkins
Richard Monga
Carl E. Midkiff
Charles D. Robinson
This report shall not be deemed to be incorporated by reference into
any filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, unless the company specifically incorporates
this report by reference. They will not otherwise be filed under such Acts.
AUDIT FEES AND ALL OTHER FEES. For the year ended June 30, 2003,
Uptowner paid Sullivan, Ware & Hall, PLLC $18,000 for audit fees and $9,662 for
all other fees. The board has considered that the provision of the non-audit
services noted above is compatible with maintaining Sullivan, Ware & Hall,
PLLC's independence.
In reliance on the reviews and discussions referred to above, the board
determined that the audited financial statements be included in the Annual
Report on Form 10-K for the fiscal year ended June 30, 2003 for filing with the
Securities and Exchange Commission. The board has selected Sullivan, Ware & Hall
PLLC as independent auditors of Uptowner for the fiscal year ended June 30,
2003.
DIRECTORS' COMPENSATION
Board members receive $500 for each board meeting of the Company they
attend. In the fiscal year ended June 30, 2003, the board of directors of the
Company received $300 each, in the aggregate, for all board of directors'
meeting attended.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
Mr. Midkiff's salary is determined annually by the board of directors
based on several objective and subjective factors. The board considers
industry-wide salary information for
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executives in the hotel industry which is compiled through surveys conducted by
recognized publications in the hotel industry. Members of the board of directors
also subjectively apply their own familiarity of the local market for business
executives to ensure Mr. Midkiff's annual salary is set at an appropriate level
considering the local business climate, Mr. Midkiff's expertise in the hotel
business, the cost to replace Mr. Midkiff with another executive with equivalent
experience and the success of the company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
company's directors and executive officers, and persons who own more than 10% of
the registered class of the company's equity securities, to make stock ownership
and transaction filings with the Securities and Exchange Commission and to
provide copies to the company. On , 2004, Carl Midkiff, Violet Midkiff,
Hobart Adkins, Charles Robinson, Prestige Property, Inc., MMS Limited
Partnership and The Violet Midkiff Irrevocable Trust filed a Form 3 and Carl
Midkiff, Charles Robinson, Prestige Property, Inc. and MMS Limited Partnership
filed a Form 4. Previously these individuals had made no filings as required by
Section 16 of the Exchange Act and their respective Form 3's represent the first
Section 16 report for each of these persons. Based solely on its records,
Uptowner believes that Carl Midkiff, Violet Midkiff, Hobart Adkins, Charles
Robinson, MMS Limited Partnership, Prestige Property, Inc. and The Violet
Midkiff Irrevocable Trust are delinquent on 18, approximately 50, one, two, two,
two and one report, respectively.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF COMPENSATION. The table below reflects information
concerning the annual compensation for services in all capacities to the
corporation for the fiscal years ended June 30, 2003, 2002 and 2001, of those
persons who were, as of June 30, 2002, (a) the chief executive officer, and (b)
the four other most highly compensated executive officers to the extent that
such persons total annual salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION (1)
------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION
--------------------------- ----------- ------ ----- ------------
Carl E. Midkiff, President 2003 $86,000 $52,348 $ 0
and Chief Executive Officer 2002 $45,923 $38,668 $ 0
2001 $38,912 $51,796 $ 0
(1) Does not include perquisites and other personal benefits, the amount of
which are not shown because the aggregate amount of such compensation
during the years presented did not exceed the lesser of $50,000 or 10% of
total salary and bonus reported for such executive officer. The company
provides Mr. Midkiff with the use of a vehicle.
The company does not maintain any form of stock option, stock
appreciation rights, or other long-term compensation plans. There are no
employment or change in control agreements.
-19-
INFORMATION ABOUT UPTOWNER INNS, INC.
GENERAL
Uptowner was incorporated in the State of West Virginia on July 1,
1961. Uptowner had operated a 137-room full service hotel, the Uptowner Inn,
built in 1962 by Uptowner and operated by Uptowner until January 2002. The
property was sold in July 2002. In late August 1998, Uptowner opened a 135-room
Holiday Inn Hotel & Suites facility adjacent to the Huntington Civic Arena. The
franchise agreement under which it operates generally requires standard fees for
advertising, reservation system, etc.
The hotel clientele are predominantly business travelers due to the
downtown location. The Holiday Inn Hotel & Suites occupancy for the year
averaged 79% with an average room rate of $80. This yielded a revenue for
available rooms of $20,736.
A wholly owned subsidiary of Uptowner, Motel and Restaurant Supply,
which was incorporated in the State of West Virginia on July 16, 1966, has had
no activity since 1981.
Neither Uptowner nor its subsidiary have experienced bankruptcy,
receivership or similar proceedings; has been involved in a reclassification,
merger or consolidation; has acquired or, except as hereinafter set forth,
disposed of any material amount of assets otherwise than in the ordinary course
of business; or has undertaken any material change in the mode of conducting its
business.
During fiscal 2003, Uptowner was engaged in substantially two lines of
businesses, to-wit, the operation of a hotel with dining facilities, and
residential/commercial rentals. The income of Uptowner from rentals did not
exceed ten percent of the consolidated revenue of Uptowner and its subsidiaries
for years ended June 30, 2002, 2001 and 2000. Consolidated revenue did not
exceed $50,000,000, during any of the last three fiscal years.
The hotel industry is highly competitive with Uptowner competing
against numerous national hotel franchises in Huntington, West Virginia. As the
company's operations are generally one business segment, its competition locally
includes Radisson Hotel, Ramada Inn, Comfort Inn, Red Roof Inn and Hampton Inn.
Seasonality directly affects this business as a result of people not
traveling or vacationing in large numbers in the late fall and winter because of
pool weather at these geographical locations.
At September 30, 2003, Uptowner and its subsidiaries employ
approximately 50 employees.
-20-
PROPERTY
Uptowner has no foreign operations.
A description of the properties Uptowner owns follows:
(a) Uptowner owned a 137-room, four-story motor hotel known
currently as the Uptowner Inn with a swimming pool and a lounge, located in
downtown Huntington, West Virginia, at 1415 4th Avenue. This property was owned
in fee by Uptowner. The motor hotel was subject to a mortgage in favor of the
City National Bank, Huntington, West Virginia, in the original amount of
$1,648,107, payable in monthly installments of $17,268 per month, including
interest at 9.42% until December 20, 2002, at which time the variable rate may
have changed. The original note of $2,000,000, along with two other promissory
notes, were refinanced with the above-mentioned note on December 20, 1999. This
property was sold on July 3, 2002 for $1,770,073.
(b) Uptowner owned in fee two lots used for the overflow parking,
across the street from its main motor hotel at 1432-34 4th Avenue, in
Huntington, West Virginia. These lots were put up for auction on September 12,
2002 along with the parcel of real estate and building listed at item (j).
(c) Uptowner owned in fee an undeveloped lot acquired for future
development or parking across an alley from its main motor hotel at 1400 5th
Avenue in Huntington, West Virginia. The lot was sold on July 3, 2002 with the
main motor hotel.
(d) Uptowner owned in fee two lots immediately west of its motor
hotel, 1401 4th Avenue, in Huntington, West Virginia, acquired for future
development and currently used for parking. This property was subject to a first
mortgage in favor of City National Bank in the original amount of $1,648,107.
These lots were sold on July 3, 2002 with the main motor hotel.
(e) Uptowner owned in fee and operated a 40-unit, two-story
apartment building within one city block of the motor hotel, at 1340 4th Avenue,
in Huntington, West Virginia. The apartment building was sold at auction on
September 12, 2002 for $361,000.
(f) Uptowner owned in fee a lot acquired and used for parking
across the street from its main motor hotel at 1420 4th Avenue, in Huntington,
West Virginia. This lot was sold at auction on September 12, 2002 along with the
three-story building listed at item (g).
(g) Uptowner owned in fee a lot improved by a three-story building
within one city block of the main motor hotel at 1416-18 4th Avenue, in
Huntington, West Virginia. This property was subject to a mortgage in favor of
Betty M. Dove, in the original amount of $76,000, 10% interest, maturing June
2002, the balance of which was $1,031 at June 30, 2002. This property is
utilized for the corporate offices and rental units. This three-story building
was sold at auction on September 3, 2002.
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(h) Uptowner owns in fee a vacant lot on the west side of
Huntington approximately three miles from the main motor hotel and at an exit
for Interstate 64. This purchase was finalized in October 1988 from an option
entered into in 1983. The property is currently used as a parking lot until it
is deemed beneficial to build and operate a motel in that location.
(i) Uptowner purchased a parcel of real estate with a residential
building in January 1990. This property was acquired for future development and
parking. This parcel of real estate was sold at auction on September 3, 2002
with item (g) listed above.
(j) Uptowner purchased a parcel of real estate with a building
housing residential and commercial tenants in July 1991. This property is across
the street from its main motor hotel and adjacent to other rental properties and
parking facilities. The property has been renovated and is now fully utilized as
rental property. The property is subject to a mortgage in favor of West Virginia
Housing Development Fund in the original amount of $500,000, 5.5% rate of
interest, maturing November 2018, the balance of which is $399,021 at June 30,
2002. The parcel of real estate, building and the two lots listed in item (b)
were sold at auction on September 12, 2002 for $752,000.
(k) Uptowner owns in fee a Holiday Inn Hotel & Suites, a 135-room
motor hotel located in downtown Huntington at 800 3rd Avenue. The hotel
officially opened for business August 28, 1998. The property is subject to a
mortgage in favor of the Ohio National Life Insurance Company in the original
amount of $6,800,000, 8.25% rate of interest and maturing February 2012. The
balance of the note was $6,743,270 as of June 30, 2002. The facility is being
marketed for convention and business travelers. It is adjacent to the Huntington
Civic Arena and is used as a major part of marketing for conventions and
meetings in the Tri-State area.
(l) Uptowner acquired assets from an entity that is controlled by
the company's president and shareholder, Carl Midkiff. The assets consist of
land, building and equipment located in Proctorville, Ohio, and the terms of the
transaction were no less favorable than a similar transaction would have been
with an unrelated third party. The assets acquired are currently being rented.
Liabilities were assumed of $272,935 and a promissory note issued for $91,565.
The balance of the liability assumed is $-0- at June 30, 2002 and the balance of
the promissory note is $-0- at June 30, 2002.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 15, 2003,
relating to the beneficial ownership of the common stock by (a) each person or
group known by the company to own beneficially more than 5% of the outstanding
common stock; (b) each of the company's directors; and (c) all directors and
executive officers of the company as a group. Ownership includes direct and
indirect (beneficial) ownership as defined by SEC rules.
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
---------------- ------------------------ ----------------
Hobart A. Adkins 100 Direct *
Carl E. Midkiff 261,974 Direct 53.99%
544,281 Indirect (2)
Violet Midkiff 63,547 Direct 31.00%
Charles D. Robinson 702 Direct *
All Directors and Executive Officers 807,057 Indirect 54.03%
As a Group
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 of the Securities Exchange
Act of 1934 under which, in general, a person is deemed to be the
beneficial owner of a security if he has or shares the power to dispose
of or direct the disposition of the security, or if he has the right to
acquire beneficial ownership of the security within 60 days.
(2) Consists of 162,562 shares owned by Violet Midkiff, Carl Midkiff's
mother which Carl Midkiff exercises voting power; 100,985 shares owned
by Violet Midkiff, Wade Midkiff and Lewis Midkiff as joint tenants with
right of survivorship (Wade Midkiff and Lewis Midkiff are the minor
sons of Carl Midkiff and Violet Midkiff is Carl Midkiff's mother);
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40,727 shares owned by Prestige Property, Inc., a corporation owned by
Carl Midkiff and his immediate family; 200,000 shares owned by the
Violet Midkiff Irrevocable Trust of which Carl Midkiff is the trustee;
10,000 shares owned by Lewis Midkiff of which Carl Midkiff acts as
custodian; 10,000 shares owned by Wade Midkiff of which Carl Midkiff
acts as custodian; 10,007 shares owned by the Wade Midkiff Irrevocable
Trust of which Carl Midkiff is the trustee; and 10,000 shares owned by
Elizabeth Midkiff who is Carl Midkiff's wife.
* Less than one percent.
OTHER MATTERS
The board of directors is not aware of any matter to be presented for
action at the meeting other than the matters set forth herein. Should any other
matter requiring a vote of shareholders arise, the proxies in the enclosed form
confer upon the person or persons entitled to vote the shares represented by
such proxies discretionary authority to vote the same in accordance with their
best judgment in the interest of Uptowner.
FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements. Additional
written or oral forward-looking statements may be made by us from time to time
in filings with the SEC or otherwise. The words "believe," "expect,"
"anticipate," "estimate," "project," and similar expressions identify
forward-looking statements, which speak only as of the date the statement was
made. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Further events
and actual results could differ materially than those set forth in, contemplated
by, or underlying the forward-looking statements. Statements in this Proxy
Statement describe factors that could contribute to or cause such differences.
We caution you not to place undo reliance on any forward-looking
statements made by, or on behalf of, Uptowner in this Proxy Statement or in any
of our filings with the SEC or otherwise. Additional information with respect to
factors that may cause the results to differ materially from those contemplated
by forward-looking statements is included in our current and subsequent filings
with the SEC. See "Available Information."
AVAILABLE INFORMATION
Uptowner is subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the SEC. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, DC 20549. Copies of such materials can also be obtained at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, N.W.,
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Judiciary Plaza, Washington, DC 20549. In addition, such reports, proxy
statements and other information are available from the SEC's Internet Website
at http://www.sec.gov.
DOCUMENTS INCORPORATED BY REFERENCE
Copies of Uptowner's Annual Report to Shareholders on Form 10-K for
fiscal year ended June 30, 2003 (File No. 0-1957) and quarterly report on Form
10-Q for the quarter ended September 30, 2003, are incorporated herein by
reference pursuant to the requirements of Schedule 13E-3 and Schedule 14A.
Copies of these reports are enclosed with this Proxy Statement. Copies of past
reports are available for review from the EDGAR filings obtained through the
SEC's Internet Website (http://www.sec.gov).
By order of the Board of Directors
Carl E. Midkiff
President and Chief Executive Officer
January _____, 2004
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APPENDIX I
ARTICLE 13.
APPRAISAL RIGHTS.
PART I. RIGHT TO APPRAISAL AND PAYMENT FOR SHARES.
SECTION 31D-13-1301. DEFINITIONS.
In this article:
(1) "Affiliate" means a person that directly or indirectly through
one or more intermediaries controls, is controlled by or is under common control
with another person or is a senior executive. For purposes of subdivision (4),
subsection (b), section one thousand three hundred two of this article, a person
is deemed to be an affiliate of its senior executives.
(2) "Beneficial shareholder" means a person who is the beneficial
owner of shares held in a voting trust or by a nominee on the beneficial owner's
behalf.
(3) "Corporation" means the issuer of the shares held by a
shareholder demanding appraisal and, for matters covered in sections one
thousand three hundred twenty-two, one thousand three hundred twenty-three, one
thousand three hundred twenty-four, one thousand three hundred twenty-five, one
thousand three hundred twenty-six, one thousand three hundred thirty and one
thousand three hundred thirty-one of this article, includes the surviving entity
in a merger.
(4) "Fair value" means the value of the corporation's shares
determined:
(A) Immediately before the effectuation of the corporate action to
which the shareholder objects;
(B) Using customary and current valuation concepts and techniques
generally employed for similar businesses in the context of the transaction
requiring appraisal; and
(C) Without discounting for lack of marketability or minority
status except, if appropriate, for amendments to the articles pursuant to
subdivision (5), subsection (a), section one thousand three hundred two of this
article.
(5) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the rate of interest on judgments
in this state on the effective date of the corporate action.
(6) "Preferred shares" means a class or series of shares whose
holders have preference over any other class or series with respect to
distributions.
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(7) "Record shareholder" means the person in whose name shares are
registered in the records of the corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with the
corporation.
(8) "Senior executive" means the chief executive officer, chief
operating officer, chief financial officer and anyone in charge of a principal
business unit or function.
(9) "Shareholder" means both a record shareholder and a beneficial
shareholder.
SECTION 31D-13-1302. RIGHT TO APPRAISAL.
(a) A shareholder is entitled to appraisal rights, and to obtain
payment of the fair value of that shareholder's shares, in the event of any of
the following corporate actions:
(1) Consummation of a merger to which the corporation is a party:
(A) If shareholder approval is required for the merger by section one thousand
one hundred four, article eleven of this chapter and the shareholder is entitled
to vote on the merger, except that appraisal rights may not be available to any
shareholder of the corporation with respect to shares of any class or series
that remain outstanding after consummation of the merger; or (B) if the
corporation is a subsidiary and the merger is governed by section one thousand
one hundred five, article eleven of this chapter;
(2) Consummation of a share exchange to which the corporation is a
party as the corporation whose shares will be acquired if the shareholder is
entitled to vote on the exchange, except that appraisal rights may not be
available to any shareholder of the corporation with respect to any class or
series of shares of the corporation that is not exchanged;
(3) Consummation of a disposition of assets pursuant to section
one thousand two hundred two, article twelve of this chapter if the shareholder
is entitled to vote on the disposition;
(4) An amendment of the articles of incorporation with respect to
a class or series of shares that reduces the number of shares of a class or
series owned by the shareholder to a fraction of a share if the corporation has
the obligation or right to repurchase the fractional share so created; or
(5) Any other amendment to the articles of incorporation, merger,
share exchange or disposition of assets to the extent provided by the articles
of incorporation, bylaws or a resolution of the board of directors.
(b) Notwithstanding subsection (a) of this section, the
availability of appraisal rights under subdivisions (1), (2), (3) and (4),
subsection (a) of this section are limited in accordance with the following
provisions:
(1) Appraisal rights may not be available for the holders of
shares of any class or series of shares which is:
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(A) Listed on the New York stock exchange or the American stock
exchange or designated as a national market system security on an interdealer
quotation system by the national association of securities dealers, inc.; or
(B) Not so listed or designated, but has at least two thousand
shareholders and the outstanding shares of a class or series has a market value
of at least twenty million dollars, exclusive of the value of the shares held by
its subsidiaries, senior executives, directors and beneficial shareholders
owning more than ten percent of the shares.
(2) The applicability of subdivision (1), subsection (b) of this
section is to be determined as of:
(A) The record date fixed to determine the shareholders entitled
to receive notice of, and to vote at, the meeting of shareholders to act upon
the corporate action requiring appraisal rights; or
(B) The day before the effective date of the corporate action if
there is no meeting of shareholders.
(3) Subdivision (1), subsection (b) of this section is not
applicable and appraisal rights are to be available pursuant to subsection (a)
of this section for the holders of any class or series of shares who are
required by the terms of the corporate action requiring appraisal rights to
accept for the shares anything other than cash or shares of any class or any
series of shares of any corporation, or any other proprietary interest of any
other entity, that satisfies the standards set forth in subdivision (1), section
(b) of this section at the time the corporate action becomes effective.
(4) Subdivision (1), subsection (b) of this section is not
applicable and appraisal rights are to be available pursuant to subsection (a)
of this section for the holders of any class or series of shares where any of
the shares or assets of the corporation are being acquired or converted, whether
by merger, share exchange or otherwise, pursuant to the corporate action by a
person, or by an affiliate of a person, who: (A) Is, or at any time in the
one-year period immediately preceding approval by the board of directors of the
corporate action requiring appraisal rights was, the beneficial owner of twenty
percent or more of the voting power of the corporation, excluding any shares
acquired pursuant to an offer for all shares having voting power if the offer
was made within one year prior to the corporate action requiring appraisal
rights for consideration of the same kind and of a value equal to or less than
that paid in connection with the corporate action; or (B) for purpose of voting
their shares of the corporation, each member of the group formed is deemed to
have acquired beneficial ownership, as of the date of the agreement, of all
voting shares of the corporation beneficially owned by any member of the group.
(c) Notwithstanding any other provision of section one thousand
three hundred two of this article, the articles of incorporation as originally
filed or any amendment to the articles of incorporation may limit or eliminate
appraisal rights for any class or series of preferred shares,
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but any limitation or elimination contained in an amendment to the articles of
incorporation that limits or eliminates appraisal rights for any of the shares
that are outstanding immediately prior to the effective date of the amendment or
that the corporation is or may be required to issue or sell pursuant to any
conversion, exchange or other right existing immediately before the effective
date of the amendment does not apply to any corporate action that becomes
effective within one year of that date if the action would otherwise afford
appraisal rights.
(d) A shareholder entitled to appraisal rights under this article
may not challenge a completed corporate action for which appraisal rights are
available unless the corporate action:
(1) Was not effectuated in accordance with the applicable
provisions of articles ten, eleven or twelve of this chapter or the
corporation's articles of incorporation, bylaws or board of directors'
resolution authorizing the corporate action; or
(2) Was procured as a result of fraud or material
misrepresentation.
SECTION 31D-13-1303. ASSERTION OF RIGHTS BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert appraisal rights as to fewer
than all the shares registered in the record shareholder's name but owned by a
beneficial shareholder only if the record shareholder objects with respect to
all shares of the class or series owned by the beneficial shareholder and
notifies the corporation in writing of the name and address of each beneficial
shareholder on whose behalf appraisal rights are being asserted. The rights of a
record shareholder who asserts appraisal rights for only part of the shares held
of record in the record shareholder's name under this subsection are to be
determined as if the shares as to which the record shareholder objects and the
record shareholder's other shares were registered in the names of different
record shareholders.
(b) A beneficial shareholder may assert appraisal rights as to
shares of any class or series held on behalf of the shareholder only if the
shareholder:
(1) Submits to the corporation the record shareholder's written
consent to the assertion of the rights no later than the date referred to in
paragraph (D), subdivision (2), subsection (b), section one thousand three
hundred twenty-two of this article; and
(2) Does so with respect to all shares of the class or series that
are beneficially owned by the beneficial shareholder.
PART II. PROCEDURE FOR EXERCISE OF APPRAISAL RIGHTS.
SECTION 31D-13-1320. NOTICE OF APPRAISAL RIGHTS.
(a) If proposed corporate action described in subsection (a),
section one thousand three hundred two of this article is to be submitted to a
vote at a shareholders' meeting, the
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meeting notice must state that the corporation has concluded that shareholders
are, are not or may be entitled to assert appraisal rights under this article.
If the corporation concludes that appraisal rights are or may be available, a
copy of this article must accompany the meeting notice sent to those record
shareholders entitled to exercise appraisal rights.
(b) In a merger pursuant to section one thousand one hundred five,
article eleven of this chapter, the parent corporation must notify in writing
all record shareholders of the subsidiary who are entitled to assert appraisal
rights that the corporate action became effective. The notice must be sent
within ten days after the corporate action became effective and include the
materials described in section one thousand three hundred twenty-two of this
article.
SECTION 31D-13-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action requiring appraisal rights under
section one thousand three hundred two of this article is submitted to a vote at
a shareholders' meeting, a shareholder who wishes to assert appraisal rights
with respect to any class or series of shares:
(1) Must deliver to the corporation before the vote is taken
written notice of the shareholder's intent to demand payment if the proposed
action is effectuated; and
(2) Must not vote, or cause or permit to be voted, any shares of
the class or series in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of
subsection (a) of this section is not entitled to payment under this article.
SECTION 31D-13-1322. APPRAISAL NOTICE AND FORM.
(a) If proposed corporate action requiring appraisal rights under
subsection (a), section one thousand three hundred two of this article becomes
effective, the corporation must deliver a written appraisal notice and form
required by subdivision (1), subsection (b) of this section to all shareholders
who satisfied the requirements of section one thousand three hundred twenty-one
of this article. In the case of a merger under section one thousand one hundred
five, article eleven of this chapter, the parent must deliver a written
appraisal notice and form to all record shareholders who may be entitled to
assert appraisal rights.
(b) The appraisal notice must be sent no earlier than the date the
corporate action became effective and no later than ten days after that date and
must:
(1) Supply a form that specifies the date of the first
announcement to shareholders of the principal terms of the proposed corporate
action and requires the shareholder asserting appraisal rights to certify: (A)
Whether or not beneficial ownership of those shares for which appraisal rights
are asserted was acquired before that date; and (B) that the shareholder did not
vote for the transaction;
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(2) State:
(A) Where the form must be sent and where certificates for
certificated shares must be deposited and the date by which those certificates
must be deposited, which date may not be earlier than the date for receiving the
required form under of this subdivision;
(B) A date by which the corporation must receive the form which
date may not be fewer than forty nor more than sixty days after the date the
appraisal notice and form required by subsection (a) of this section are sent
and state that the shareholder is deemed to have waived the right to demand
appraisal with respect to the shares unless the form is received by the
corporation by the specified date;
(C) The corporation's estimate of the fair value of the shares;
(D) That, if requested in writing, the corporation will provide,
to the shareholder so requesting, within ten days after the date specified in
paragraph (B) of this subdivision the number of shareholders who return the
forms by the specified date and the total number of shares owned by them; and
(E) The date by which the notice to withdraw under section one
thousand three hundred twenty-three of this article must be received, which date
must be within twenty days after the date specified in paragraph (B) of this
subdivision; and
(3) Be accompanied by a copy of this article.
SECTION 31D-13-1323. PERFECTION OF RIGHTS; RIGHT TO WITHDRAW.
(a) A shareholder who receives notice pursuant to section one
thousand three hundred twenty-two of this article and who wishes to exercise
appraisal rights must certify on the form sent by the corporation whether the
beneficial owner of the shares acquired beneficial ownership of the shares
before the date required to be set forth in the notice pursuant to subdivision
(1), subsection (b), section one thousand three hundred twenty-two of this
article. If a shareholder fails to make this certification, the corporation may
elect to treat the shareholder's shares as after-acquired shares under section
one thousand three hundred twenty-five of this article. In addition, a
shareholder who wishes to exercise appraisal rights must execute and return the
form and, in the case of certificated shares, deposit the shareholder's
certificates in accordance with the terms of the notice by the date referred to
in the notice pursuant to paragraph (B), subdivision (2), subsection (b),
section one thousand three hundred twenty-two of this article. Once a
shareholder deposits the shareholder's certificates or, in the case of
uncertified shares, returns the executed forms, that shareholder loses all
rights as a shareholder, unless the shareholder withdraws pursuant to subsection
(b) of this section.
(b) A shareholder who has complied with subsection (a) of this
section may decline to exercise appraisal rights and withdraw from the appraisal
process by so notifying the
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corporation in writing by the date set forth in the appraisal notice pursuant to
paragraph (E), subdivision (2), subsection (b), section one thousand three
hundred twenty-two of this article. A shareholder who fails to withdraw from the
appraisal process by that date may not withdraw without the corporation's
written consent.
(c) A shareholder who does not execute and return the form and, in
the case of certificated shares, deposit the shareholder's share certificates
where required, each by the date set forth in the notice described in subsection
(b), section one thousand three hundred twenty-two of this article, is not
entitled to payment under this article.
SECTION 31D-13-1324. PAYMENT.
(a) Except as provided in section one thousand three hundred
twenty-five of this article, within thirty days after the form required by
paragraph (B), subdivision (2), subsection (b), section one thousand three
hundred twenty-two of this article is due, the corporation shall pay in cash to
those shareholders who complied with subsection (a), section one thousand three
hundred twenty-three of this article the amount the corporation estimates to be
the fair value of their shares, plus interest.
(b) The payment to each shareholder pursuant to subsection (a) of
this article must be accompanied by:
(1) Financial statements of the corporation that issued the shares
to be appraised, consisting of a balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of
the shares, which estimate must equal or exceed the corporation's estimate given
pursuant to paragraph (C), subdivision (2), subsection (b), section one thousand
three hundred twenty-two of this article; and
(3) A statement that shareholders described in subsection (a) of
this section have the right to demand further payment under section one thousand
three hundred twenty-six of this article and that if any shareholder does not
make a demand for further payment within the time period specified, shareholder
is deemed to have accepted the payment in full satisfaction of the corporation's
obligations under this article.
SECTION 31D-13-1325. AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by
section one thousand three hundred twenty-four of this article from any
shareholder who did not certify that beneficial ownership of all of the
shareholder's shares for which appraisal rights are asserted was acquired
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before the date set forth in the appraisal notice sent pursuant to subdivision
(1), subsection (b), section one thousand three hundred twenty-two of this
article.
(b) If the corporation elected to withhold payment under
subsection (a) of this section, it must, within thirty days after the form
required by paragraph (B), subdivision (2), subsection (b), section one thousand
three hundred twenty-two of this article is due, notify all shareholders who are
described in subsection (a) of this section:
(1) Of the information required by subdivision (1), subsection
(b), section one thousand three hundred twenty-four of this article;
(2) Of the corporation's estimate of fair value pursuant to
subdivision (2), subsection (b), section one thousand three hundred twenty-four
of this article;
(3) That they may accept the corporation's estimate of fair value,
plus interest, in full satisfaction of their demands or demand appraisal under
section one thousand three hundred twenty-six of this article;
(4) That those shareholders who wish to accept the offer must
notify the corporation of their acceptance of the corporation's offer within
thirty days after receiving the offer; and
(5) That those shareholders who do not satisfy the requirements
for demanding appraisal under section one thousand three hundred twenty-six of
this article are deemed to have accepted the corporation's offer.
(c) Within ten days after receiving the shareholder's acceptance
pursuant to subsection (b) of this section, the corporation must pay in cash the
amount it offered under subdivision (2), subsection (b) of this section to each
shareholder who agreed to accept the corporation's offer in full satisfaction of
the shareholder's demand.
(d) Within forty days after sending the notice described in
subsection (b) of this section, the corporation must pay in cash the amount it
offered to pay under subdivision (2), subsection (b) of this section to each
shareholder described in subdivision (5), subsection (b) of this section.
SECTION 31D-13-1326. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.
(a) A shareholder paid pursuant to section one thousand three
hundred twenty-four of this article who is dissatisfied with the amount of the
payment must notify the corporation in writing of that shareholder's estimate of
the fair value of the shares and demand payment of that estimate plus interest
and less any payment due under section one thousand three hundred twenty-four of
this article. A shareholder offered payment under section one thousand three
hundred twenty-five of this article who is dissatisfied with that offer must
reject the offer and demand payment of the shareholder's stated estimate of the
fair value of the shares plus interest.
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(b) A shareholder who fails to notify the corporation in writing
of that shareholder's demand to be paid the shareholder's stated estimate of the
fair value plus interest under subsection (a) of this section within thirty days
after receiving the corporation's payment or offer of payment under sections one
thousand three hundred twenty-four or one thousand three hundred twenty-five of
this article, respectively, waives the right to demand payment under this
section and is entitled only to the payment made or offered pursuant to those
respective sections.
PART III. JUDICIAL APPRAISAL OF SHARES.
SECTION 31D-13-1330. COURT ACTION.
(a) If a shareholder makes demand for payment under section one
thousand three hundred twenty-six of this article which remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay in cash to each shareholder the amount the
shareholder demanded pursuant to section one thousand three hundred twenty-six
of this article plus interest.
(b) The corporation shall make all shareholders, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding as in an action against their shares, and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(c) The jurisdiction of the court in which the proceeding is
commenced is plenary and exclusive. The court may appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers have the powers described in the order appointment them,
or in any amendment to it. The shareholders demanding appraisal rights are
entitled to the same discovery rights as parties in other civil proceedings.
There is no right to a jury trial.
(d) Each shareholder made a party to the proceeding is entitled to
judgment: (1) For the amount, if any, by which the court finds the fair value of
the shareholder's shares, plus interest, exceeds the amount paid by the
corporation to the shareholder for the shares; or (2) for the fair value, plus
interest, of the shareholder's shares for which the corporation elected to
withhold payment under section one thousand three hundred twenty-five of this
article.
SECTION 31D-13-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under section
one thousand three hundred thirty of this article shall determine all costs of
the proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
shareholders demanding appraisal, in amounts the court finds equitable, to the
extent the
-9-
court finds the shareholders acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this article.
(b) The court in an appraisal proceeding may also assess the fees
and expenses of counsel and experts for the respective parties, in amounts the
court finds equitable.
(1) Against the corporation and in favor of any or all
shareholders demanding appraisal if the court finds the corporation did not
substantially comply with the requirements of sections one thousand three
hundred twenty, one thousand three hundred twenty-two, one thousand three
hundred twenty-four or one thousand three hundred twenty-five of this article;
or
(2) Against either the corporation or a shareholder demanding
appraisal, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously,
or not in good faith with respect to the rights provided by this article.
(c) If the court in an appraisal proceeding finds that the
services of counsel for any shareholder were of substantial benefit to other
shareholders similarly situated, and that the fees for those services should not
be assessed against the corporation, the court may award to counsel reasonable
fees to be paid out of the amounts awarded the shareholders who were benefited.
(d) To the extent the corporation fails to make a required payment
pursuant to sections one thousand three hundred twenty-four, one thousand three
hundred twenty-five or one thousand three hundred twenty-six of this article,
the shareholder may sue directly for the amount owed and, to the extent
successful, are to be entitled to recover from the corporation all costs and
expenses of the suit, including counsel fees.
C0769960
-10-
APPENDIX II
VALUATION
OF
UPTOWNER INNS, INC.
AS OF JUNE 30, 2003
SEPTEMBER 26, 2003
-1-
VALUATION
OF
UPTOWNER INNS, INC.
AS OF JUNE 30, 2003
- - - -
SEPTEMBER 26, 2003
- - - -
Mr. Carl Midkiff, President
Uptowner Inns, Inc.
741 Fifth Avenue
Huntington, WV 25701
Dear Carl:
We have prepared and enclosed, herewith, our valuation report of Uptowner Inns,
Inc. dated September 26, 2003. The purpose of the valuation is to render an
opinion as to the fair market value of the common stock of Uptowner Inns, Inc.
as of June 30, 2003.
The term "fair value" is defined in the West Virginia Code as follows:
" "Fair value" means the value of the corporation's shares
determined: Immediately before the effectuation of the corporate
action to which the shareholder objects; using customary and
current valuation concepts and techniques generally employed for
similar businesses in the conduct of the transaction requiring
appraisal; and without discounting for lack of marketability or
minority status..."
Our report is based on historical and prospective financial information provided
to us by management and other third parties. Had we audited or reviewed the
underlying data, matters may have come to our attention which would have
resulted in our using amounts different from those provided. Accordingly, we
take no responsibility for the underlying data presented in this report. Users
of this valuation report should be aware that business valuations are based on
future earnings potential that may or may not materialize. Therefore, the actual
results achieved during the projection period will vary from the projections
used in this valuation, and the variations may be material.
Based on our study and analytical review procedures, we have concluded that a
reasonable estimate of the fair value of one hundred percent (100%) of the
common stock of Uptowner Inns, Inc. as of June 30, 2003 is $1,600,000., or $1.07
per share based on 1,496,317 shares issued and outstanding net of treasury
stock. We have no present or contemplated financial interest in Uptowner Inns,
Inc. Our fees for this valuation are based upon our normal hourly billing rates
for this type of work, and are in no way contingent upon the results of our
findings. We have no responsibility to update this report for events and
circumstances occurring subsequent to the date of this report.
This report has been prepared for the specific purpose of setting a value for
Uptowner Inns, Inc.'s common stock, as of June 30, 2003, which will be used to
establish an exchange rate for a reverse stock split. This report is not to be
copied or made available to any persons without the express written consent of
Somerville & Company, P.L.L.C.
By /s/ Susan K. Richardson, CPA, CVA
Susan K. Richardson, CPA, CVA
September 26, 2003
-3-
TABLE OF CONTENTS
PAGE
----
I. INTRODUCTION
Purpose--------------------------------------------------------------- 6
Approach-------------------------------------------------------------- 6
Limiting Conditions--------------------------------------------------- 6
II. COMPANY BACKGROUND
General--------------------------------------------------------------- 7
Competition----------------------------------------------------------- 8
Management and Ownership---------------------------------------------- 8
III. ECONOMIC OUTLOOK
National-------------------------------------------------------------- 9 - 10
West Virginia--------------------------------------------------------- 11
IV. INDUSTRY OVERVIEW
General History of the Hospitality Industry--------------------------- 12
National Industry Outlook--------------------------------------------- 13 - 14
Local Outlook--------------------------------------------------------- 15
Management's Outlook-------------------------------------------------- 16 - 17
V. FINANCIAL REVIEW
Overview-------------------------------------------------------------- 18
Balance Sheet--------------------------------------------------------- 18
Income Statement------------------------------------------------------ 18
VI. COMPARATIVE ANALYSIS
Overview-------------------------------------------------------------- 19
Balance Sheet Comparison---------------------------------------------- 19
Income Statement Comparison------------------------------------------- 20
Comparative Analysis Summary------------------------------------------ 20
VII. NATURE OF THE SECURITY
Overview-------------------------------------------------------------- 21
Control--------------------------------------------------------------- 21
Marketability--------------------------------------------------------- 21
VIII. APPROACHES TO VALUATION
Income Approach------------------------------------------------------- 22
Asset Approach-------------------------------------------------------- 22
Market Approach------------------------------------------------------- 22 - 23
Hybrid Approaches, Rules of Thumb
and Agreements in Place--------------------------------------- 24
IX. METHODS OF VALUATION EXPLAINED
Overview-------------------------------------------------------------- 25
Normalizing Adjustments----------------------------------------------- 25
Adjustments to Net Assets--------------------------------------------- 25
Capitalization of Earnings-------------------------------------------- 25
Determination of Capitalization Rate---------------------------------- 25
Build-Up of Capitalization Rate--------------------------------------- 26
X. RECONCILIATION OF VALUATION ESTIMATES-------------------------------------- 27
APPENDICES
APPENDIX A VALUATION METHODS
APPENDIX B FINANCIAL STATEMENT SUMMARIES - ADJUSTED
APPENDIX C FINANCIAL STATEMENT ADJUSTMENTS
APPENDIX D FINANCIAL STATEMENT SUMMARIES - HISTORICAL
APPENDIX E COMPARATIVE RATIOS - RMA
APPENDIX F ILLUSTRATIVE GRAPH OF REVENUES AND SALARY EXPENSE
APPENDIX G SUMMARY APPRAISAL REPORT
APPENDIX H AUDITED FINANCIAL STATEMENTS
APPENDIX I VALUATION ANALYST'S QUALIFICATIONS
INTRODUCTION
Purpose:
Uptowner Inns, Inc. operates a hotel known as the Holiday Inn Hotel and
Suites. The Holiday Inn Hotel & Suites includes dining, lounge and banquet
facilities. The Company, located in Huntington, West Virginia, is organized as a
Corporation (type "C"), and has been in this business for approximately 40
years.
This report is to determine the fair market value (on a minority
interest basis) of the common stock of Uptowner Inns, Inc. as of June 30, 2003.
This report will be used to assist the Corporation with planning a reverse stock
split of one for 10,000, with a mandatory buyout of all those shareholders with
less than 10,000 shares and all odd lots of those who hold over 10,000 shares.
Approach:
Our approach has been to determine an estimate of the value, which
would provide a fair and reasonable return on investment to an investor or
owner, in view of the facts available to us at the time. Our opinion is based
on, among other things, our estimate of the risks facing the Company and return
on investment which would be required on alternative investments with similar
levels of risk.
Both internal and external factors influencing the value of the Company
were reviewed, analyzed and interpreted. Internal factors include the Company's
financial position, results of operations and the size and marketability of the
interest being valued. External factors include, among other things, the status
of the overall economy as well as the hospitality industry, specifically, and
the position of the Company relative to that industry.
This report has been prepared in accordance with standards established
by the National Association of Certified Valuation Analysts.
Limiting Conditions:
The estimate of value rendered in this report is based on information
provided in whole or in part by the owners and management of the Company and
also third parties. We have not audited or attempted to confirm this information
for accuracy or completeness. We have relied upon the representations of the
owner and management concerning the value and useful condition of all equipment
used in the business, real estate, investments and any other assets or
liabilities except as specifically stated to the contrary in this report. We
have not attempted to confirm whether or not all assets of the business are free
and clear of liens and encumbrances, or that the Company has good title to all
assets.
Somerville & Company, P.L.L.C. does not purport to be a guarantor of
value. Valuation of closely held companies is an imprecise science, with value
being a question of opinion and reasonable people can differ in their estimates
of value. Somerville & Company, P.L.L.C. has, however, performed conceptually
sound and commonly accepted methods of valuation in determining the estimate of
value included in this report.
The valuation estimate included in this report assumes that the
existing management of the Company will maintain the character and integrity of
the Company through any sale, reorganization or reduction of any
owners/managers' participation in the existing activities of the Company.
-6-
COMPANY BACKGROUND
General:
Uptowner Inns, Inc. currently operates one (1) hotel in Huntington,
West Virginia. The Corporation was incorporated on July 1, 1961. The Company is
structured as a corporation (type "C") and has been since its inception. The
original board of directors consisted of several prominent business leaders;
however, Robert P. Holley, the original president, was the only individual who
owned over 2% of the stock. Mr. Holley's ownership percentage was approximately
20%. Mr. Holley's background in sales set the stage for the creation of the
Uptowner Inns, Inc., and the offer to the community to purchase stock in this
new company. As a result of this move to sell Uptowner Inns, Inc. stock, the
Company ended up with over 1,000 shareholders, some with as few as five (5)
shares. It was the large number of shareholders that mandated the Company follow
SEC regulations.
Uptowner Inns, Inc. built their first two (2) hotels in the downtown
areas of Huntington and Parkersburg, West Virginia in the early 1960's. Uptowner
Inns, Inc. entered the hospitality business at the right time, as the industry
was getting ready to enter some very profitable and good years. These first two
(2) hotels were financially successful in the early years and dividends were
also paid out. With the success of the first two (2) hotels, Bob Holley began a
franchising program and sold two (2) franchises before realizing the Company did
not have the resources to promote or service these franchises.
In the late 1960's, Uptowner Inns, Inc. expanded to Augusta, Georgia
and St. Petersburg, Florida, purchasing two (2) hotels in the downtown areas.
The properties in Georgia and Florida started losing money at such a rapid rate,
the cash flow of the profitable hotels in West Virginia was soon depleted. In
1971 with the Company in danger of collapse, the board of directors dismissed
Bob Holley as President.
The next 15 years, between 1971 and 1985, were a time of survival with
little potential for growth. The board of directors hired Violet Midkiff as the
Company's President to replace Bob Holley, Uptowner Inns, Inc. held on to the
Georgia and Florida properties for several years, before selling them to cut
their losses. The sale of the two (2) properties came only after they drained
the Company of most of their resources. By 1985, the Huntington and Parkersburg
properties had physically deteriorated, resulting in decreased occupancies and
profits.
In the mid 1980's, Uptowner Inns, Inc. was on the brink of bankruptcy
with occupancy percentages falling below 30%. Violet Midkiff turned to her son,
Carl Midkiff, for help getting the property headed back in the right direction.
Mr. Midkiff established a plan to remodel the Huntington hotel and acquire a
Holiday Inn franchise. The franchise was enough to bring profitability back to
Uptowner Inns, Inc. during the early 1990's. Mr. Midkiff's ideas on growth soon
started receiving resistance from management, and he left Uptowner Inns, Inc. to
pursue other interests. The hotel soon went back to a survival state, doing well
to break even.
In 1995, Carl Midkiff once again became involved with Uptowner Inns,
Inc. He built a new hotel in Huntington at a different downtown location. The
new Holiday Inn Hotel and Suites property opened in September 1998 under the
management of Richard Monga. The new property achieved profitability in the
second full month of operation and has been profitable ever since.
In 2000, Violet Midkiff retired when diagnosed with Alzheimer's. Carl
Midkiff took over as President of Uptowner Inns, Inc. in 2000, and to date,
still holds the office of President. Mr. Midkiff sold the old property in July
2002.
-7-
COMPANY BACKGROUND
Competition
The Company has several major competitors, as follows:
- Radisson Hotel, Huntington, West Virginia
- Hampton Inn, Huntington, West Virginia
- Ramada Limited, Huntington, West Virginia
The Company also has approximately 5 to 10 other small sized
competitors.
The Company perceives that its major strengths are:
- excellent location of property
- capable management
- excellent product
The Company perceives that its major weaknesses are as follows:
- lack of capital
- due to the number of shareholders, Company is subject to
SEC filing regulations
Management and Ownership:
The majority shareholder of the Company is Carl E. Midkiff, who is
actively involved in its management as President and Chief Operating Officer.
Uptowner Inns, Inc. is organized as a corporation (type "C") and is
closely held among family members under the following stock ownership
percentages:
Shareholder Number of Shares Percent
----------- ---------------- -------
Carl E. Midkiff 271,974 Direct 17.17%
Violet Midkiff 162,262 Direct 10.25%
Various Family Members 418,238 Direct & Indirect 26.41%
Prestige Properties 40,727 Direct 2.57%
(Controlled by Carl Midkiff)
Treasury Stock 87,246 5.51%
All others 603,116 38.09%
Total shares outstanding 1,583,563 100.00%
-8-
ECONOMIC OUTLOOK
National
GENERAL ECONOMIC OVERVIEW
According to preliminary estimates released by the Department of
Commerce's Bureau of Economic Analysis, Real Gross Domestic Product ("GDP"), the
output of goods and services produced by labor and property located in the
United States, increased at an annualized rate of 1.9% during the first quarter
of 2003. While better than an expected 1.6% growth rate, many analysts believe
economic growth will come at a slow rate. The military action, in Iraq and the
aftermath of the war, have also caused a great deal of uncertainty for
businesses. Annualized growth in GDP for the fourth quarter of 2002 was revised
to 1.4%, higher than the preliminary estimated rate of 0.7%. First quarter GDP
reflected an increase in personal consumption expenditures, residential
structures, net exports of goods and services, and government spending. These
gains were partly offset by a decrease in nonresidential structures and change
in private inventories.
After leaving the federal funds target rate unchanged at 1.75% from
December 2001 through November 2002, the Federal Reserve (the "Fed") lowered the
rate in December 2002 to 1.25%. This was the first cut by the Fed after cutting
rates 11 times during 2001. The rate has been unchanged in 2003. The Fed is
closely monitoring economic growth, financial markets, and labor data for signs
of continued slow economic growth. The Fed, seeking to give another boost to the
economy and to keep the threat of deflation stabilized, cut interest rates to
1958 lows in late June 2003.
The Conference Board reported that the Composite Index of Leading
Economic Indicators ("LEI"), the government's primary forecasting gauge,
increased 1.0% in May 2003 to 111.6 after a decrease of 0.2% in March and an
increase of 0.1% in April. The index attempts to gauge economic activity six (6)
to nine (9) months in advance. Multiple consecutive moves in the same direction
are said to be indicative of the general direction of the economy. In May, eight
(8) of the ten (10) leading economic indicators increased. The positive
contributors to the leading index, from largest to smallest, were real money
supply, index of consumer expectations, stock prices, average weekly initial
claims for unemployment insurance (inverted), vendor performance, building
permits, average weekly manufacturing hours, and manufacturers' new orders for
consumer goods and materials. The negative contributors were manufacturers' new
orders, nondefense capital goods, and Interest rate spread 10 year Treasury
bonds less federal funds. In May, the Coincident Index gained 0.1% while the
Lagging Index fell 0.1%. In its data release, the Conference Board indicated
that "it is possible that the two (2) consecutive increases (April 2003 and May
2003) reflect the beginning of an upward trend, thereby ending the flat trend
that began in early 2002." The Fed's hope is that, "a long-awaited pick up in
growth - still not clearly evident in daily economic data but widely forecasted
- - soon will materialize, again with help from the Bush administration's latest
US $350-billion of tax cuts."
The Dow Jones Industrial Average finished the quarter 3.02% lower than
its fourth quarter 2002 close, while the S&P declined 3.6% for the quarter. The
NASDAQ increased 0.4% during the first quarter of 2003.
-9-
ECONOMIC OUTLOOK
National
HOTEL INDUSTRY
The travel and hospitality industry was hit with two (2) major blows
during the first quarter of 2003: the outbreak of war in Iraq and the SARS
epidemic from North Asia. The fourth quarter of 2002 suffered similar blows with
the September 11 anniversary scare, and the ongoing threat of war in Iraq.
SOURCE: "The National Economic Review" 1st Quarter 2003
Bureau of Economic Analysis June 2003
-10-
ECONOMIC OUTLOOK
West Virginia
GENERAL ECONOMIC OVERVIEW
West Virginia's Gross State Product (GSP), the value of outputs of
goods and services located in the state, averaged a growth rate of 3.8% during
the 90s while the US total GSP averaged 5.7% for the same time period. West
Virginia's GSP increased 2.5% during 2001 compared to a 3.5% increase
nationally. Recent projections by West Virginia University indicated that West
Virginia is expected to grow at a rate of 2.8% per year through calendar year
2007. These figures could change depending on how the national economy grows
between 2003 and 2007.
West Virginia's unemployment rate was 6.1% in December 2002, 5.4% in
January 2003, 6.0% in February 2003, 5.7% in March 2003, and 6.0% in April 2003.
The rate has been somewhat sporadic the last several months, but equaled that of
the national unemployment rate at the end of April 2003.
West Virginia has extensive natural resources and is among the nation's
leaders when it comes to producing bituminous coal. Natural gas, stone, cement,
salt, and oil are also important elements of West Virginia's natural resources.
Major glass, chemical, and high-technology industries are among those utilizing
West Virginia's natural resources.
SOURCE: West Virginia Economic Summary June 2003
-11-
INDUSTRY OVERVIEW
GENERAL HISTORY OF THE HOSPITALITY INDUSTRY
At the beginning of the twentieth century, the hotel industry was made
up of small, independent operators. With the change in transportation and the
necessity of long-distance travel, national chains started to become popular and
became a good alternative to the independent operators. According to one
analyst, "Chains allow customers to interact with the same organization when
traveling across country, which reduces uncertainty and improves expectation of
good service from patronizing a hotel." In 1900, less than 1% of all hotels were
part of a chain hotel. By 1930, chains owned approximately 15%, and by 1980,
chains owned more than 50%. Hotel chains changed the complexity of the
hospitality industry, adding new opportunities for managers and those people who
specialized in a certain area. These new opportunities led the way for the
creation of management companies.
The next big change in the industry came in the 1980's with the
overbuilding of chain hotels all around the country. Most markets became heavily
saturated with an increased amount of room supply, with little or no growth in
room demand. By 1990, the chain owned properties fell to approximately 45%. By
the early 1990's, development of new properties was kept at a minimum, which
left management companies competing for fewer hotels and existing hotels. Hotel
owners then had more leverage to negotiate management fees. By the mid 1990s,
many chains merged and reorganized giving them a higher percentage of ownership.
By 2000, chains owned approximately 60% of all properties.
The recession that began in early 2001 once again slowed the
hospitality industry. Companies had to find a way to cut costs and increase
productivity as travel began to weaken. Those companies who have been able to
maintain their profit margins by cutting expenses are the properties that have
remained on top during the slow economic growth that has brought us to 2003.
Because these companies have found new ways to be profitable with less revenues,
these same properties will be the ones that flourish as the economy starts to
grow.
SOURCE: AFL-CIO Working For America Institute, "U.S. Hotels & Their Workers:
Room For Improvement" (C) 2003
-12-
INDUSTRY OVERVIEW
NATIONAL INDUSTRY OUTLOOK
After three (3) year of declining occupancy percentages, stability
appears to be returning to the hotel industry. Most forecasts for 2003 show the
decline in occupancy will end, but little, if any, growth is being projected. In
their Forecasts & Analyses for the Hospitality Industry, PricewaterHouseCoopers
states,
"In 2003, a strengthening corporate sector will stimulate a slight
rebound in lodging demand from the business segment, while further
increases from leisure demand are expected to moderate. PwC forecasts
that demand will recover to its last peak level (achieved in the fourth
quarter of 2000) by the third quarter. With supply growth at its
slowest since 1993, the demand increases will allow occupancy to
advance 0.7 percentage points to 60.0 percent in 2003. At this
occupancy level, price competition will still remain intense. (The last
time occupancies were lower than the prevailing occupancies in the
three-year period from 2001 to 2003 was during the period from 1969 to
1971.) The weakness in ADR (Average Daily Rate) is most evident in the
upper upscale segment and upscale segment where occupancies have fallen
between five and six occupancy points from 2000 to 2002.
PricewaterhouseCoopers expects the condition to persist at least
through 2003. Even with the expected sales and profit improvement in
2003, corporations will continue to control travel costs. Therefore PwC
forecasts only 0.9 percent gain in nominal ADR in 2003."
The midscale properties with food and beverage segments have suffered
more than any other segment, and is not forecasted to gain much ground in 2003.
Even though the midscale properties are projected to gain 0.2% in occupancy
percentages, the average daily rates will decrease due to the price competition
discussed in the PricewaterhouseCoopers forecast.
PricewaterhouseCoopers added to their forecast several scenarios that
involved the possibility of war in Iraq and the duration of that war. (All PwC
forecasts were completed prior to the war in Iraq.) PwC projected that occupancy
percentages would only increase to 59.6% in a brief war scenario.
Industry room supply increased 1.8% in 2002 while room demand only
increased by 0.8%. With the sluggish economy, the industry is fortunate that
more hotels were not constructed during 2002. Many operators and investors are
planning to start construction in 2003, with many properties ready to go online
during 2004 and 2005; the timeframe when the economy should be in a full growth
mode.
For now, as growth is going to continue to be slow, it appears that the
battle for market share is the way to go. This will continue to be a problem for
the midscale hotels with food and beverage facilities. As the upper scale
properties compete with each other, rates are expected to drop, pulling many
midscale customers to the lower end of the upper scale market, once again
leaving the midscale properties losing occupancy percentage points.
-13-
INDUSTRY OVERVIEW
NATIONAL INDUSTRY OUTLOOK (Cont'd)
One other concern that faces the hospitality industry is how safe do
travelers feel after the September 11, 2001 attacks, the war in Iraq, and the
continued uncertainty of terrorist attacks in the United States. A recent study,
done by PricewaterhouseCoopers shows a direct correlation between the rise in US
security alerts with occupancy percentage in the week following such change in
alert status. In most cases, occupancy percentages fell drastically after the
security alert had been raised, showing that travelers are still very much aware
of the dangers that still exist from possible terrorist attacks.
SOURCE PricewaterhouseCoopers Forecasts & Analyses for the Hospitality
Industry February 2003
Ernst & Young Lodging Forecast 2003 Edition
Smith Travel Research 2002 U.S. Lodging Industry Results
"The National Economic Review" 1st Quarter 2003
-14-
INDUSTRY OVERVIEW
LOCAL OUTLOOK
The hospitality industry in the Huntington area has always been a
little volatile due to new property construction, old properties closing down,
businesses leaving town, and the constant struggle to bring new business into
the state. Smith Travel Research compares the Holiday Inn Hotel and Suites with
five (5) other similar properties located in the Huntington and Charleston area,
and issues their findings through the STAR Report. The STAR Report provides
comparison information for this six (6) property competitive set, along with
comparisons to the entire West Virginia market, Southern West Virginia market,
upscale properties, and also the midscale chains.
The local market forecast is similar to the National outlook in the
sense that little growth is expected. In the short term, battling for market
share is going to be the main objective. During the twelve month period ending
April 30, 2003, the Holiday Inn Hotel and Suites had a 14.4% market share, and a
market penetration of 123.3%, a 2.5% increase over the same twelve (12) month
period ending April 30, 2002. This information is based on the six (6) hotels
within the Holiday Inn Hotel and Suites competitive market set, and compiled by
Smith Travel Research.
SOURCE Smith Travel Research STAR Summary Report April, 2003
-15-
MANAGEMENT'S OUTLOOK FOR YEAR 2003 AND BEYOND
Historically, the Holiday Inn has established itself as the premier
hotel for corporate business in the Huntington area.
The Pullman Square Project is going to be a multi use retail and
entertainment complex at the Southside of the Hotel, only 40 yards away.
1. Construction started in July 2003 and completion of the project is
projected in 2005.
2. As part of the project, the city of Huntington acquired 40% of the
Holiday Inn parking lot at a sales price of $1.
3. The foundation work for the project started in August 2003 and
construction and development will continue for a period of two (2) to
three (3) years.
As a result of the above development, the following financial impact
has been noticed by management.
1. August 2003 vs August 2002
The room revenue in August 2003 (income statement) was $22,304. lower
than room revenue for the same period, August 2002. This is an 8.3%
decline in room revenue from the previous year. In the area of food and
beverage, the decline was $1,297. or 19.1% from the previous year. The
total revenue in August 2003 declined by $25,036. or 8.9%. Net income
for the same period declined by $23,551. or 31.4%.
2. September 2003 vs. September 2002
The projected room revenue for September 2003 will be $14,600. lower
than September 2002, a decline of 6%. The overall decline in total
revenue is projected to be 7-8% lower than September 2002.
The following reasons are attributed to this declining trend.
1. The guest parking at the Holiday Inn Hotel and Suites has been reduced
to 103 parking spaces or by 42%. This has a severe impact on guests
choosing to stay at the hotel as it causes inconvenience. Prior to July
2003, parking at the hotel was a major competitive advantage, and this
advantage no longer exists.
2. With construction commencing in July 2003, noise from the construction
has become a serious issue of contention for our guests. The
construction site, which is only 40 yards from the hotel, starts at
7:00-7:15 A.M. and has become an irritating factor for our corporate
guests. The Corporate clientele is seeking a peaceful and harmonious
environment. When construction begins at 7:00 A.M., the guests are
irritated with the construction and do not want to continue their
loyalty to the hotel. We are experiencing a loss of at least eight-ten
(8-10) guests per week that voice their opinion but there are others
who just do not return to the hotel.
-16-
MANAGEMENT'S OUTLOOK FOR YEAR 2003 AND BEYOND
3. The construction will continue for at least two (2) years. In these two
(2) years, we will experience an occupancy decline of at least 10%. The
breakeven point for the hotel is 61% in occupancy points and over and
above 61% occupancy is considered profit. In the past, hotel occupancy
has averaged 72-74%. With an occupancy decline of at least 10%,
management hopes to hold the average occupancy levels at 60-63%. With
this projection, the profits will be eliminated and the hotel will
function at breakeven level or 1% or 2% higher. This decrease in the
hotel operating results will flow through directly to the corporate
financial statements reflecting far less than attractive results of
operations in the near future.
Synopsis
1. As is evident with August and September 2003 income statements, the
Holiday Inn Hotel & Suites is on its way to a declining occupancy and
our conservative projections is a 10% decline in occupancy.
2. The rate structure as yet has only experienced a 1% decline. If a
decline in occupancy continues and is greater than 10%, then management
will have to reduce its rates, in order to stop revenue from declining
at a quicker rate.
3. Management can forecast the decline in occupancy for the next two (2)
years from data available in August and September 2003, but to project
for 2004 and 2005 is almost impossible due to other extraneous factors
in the market.
4. To project the time frame to recapture lost market after three (3)
years is impossible. It is easier for a new hotel to capture new
business than it is for an older hotel to recapture lost market share.
-17-
FINANCIAL REVIEW
Overview
Our financial review of the Company included the review and analysis of
the Company's independently audited year-end balance sheets and income
statements for the period from June 30, 1999 through June 30, 2003. In our
opinion, the period covered [five (5) years] in our review and analysis, is
adequate to identify any existing financial and operational trends that would
affect our estimate of value.
For purposes of this valuation, we have summarized the data from the
past five (5) years' audited financial statements and reflected the appropriate
adjustments to restate the results of operations for fiscal years ending June
30, 2001, 2002 and 2003 due to the discontinuation of the long-term rental
segment during 2002 and 2003. Due to the lack of readily available detailed
information, as well as the dated quality of the information, the years ending
in 1999 and 2000 were not restated for this purpose. The resulting adjusted
figures were then compared to normal industry data of publicly held companies
and similar data of the Company for the last five years.
Included in Exhibits B & D are various summaries of financial data that
were generated in our financial review and analysis process. The following are
what we consider representative of the financial position and results of
operations of Uptowner Inns, Inc., as of the date of valuation and for the five
(5) year period analyzed.
Balance Sheet
Uptowner Inns, Inc., as of June 30, 2003, had a stable balance sheet as
evidenced by a constant debt to equity ratio through the year ended June 2003.
The current and quick ratios improved dramatically in 2002 when the Company
began disposing of the long-term rental segment of operations and now will
exceed industry comparisons. The Company's total asset turnover ratio, which
measures the efficiency with which the Company operates, has remained fairly
stable over the five (5) year period being analyzed although below industry
averages.
Income Statement
Hotel revenue has been steadily decreasing from a high of nearly $3.9
million in 2001 to approximately $3.1 million in the fiscal year ended 2003.
Current management projections are not optimistic with regard to an increase in
these revenues in the near future due to ongoing heavy construction on
neighboring properties. For at least the short run, one (1) to two (2) years,
management anticipates flat or slightly declining revenues and overall profits.
Salaries expense, the single largest component of operating expenses at
nearly 25%, has remained very stable over the five (5) years with a high of
25.32% and a low of 24.10% of sales in 2000 and 2001, respectively (Appendix F).
It should also be noted that the Company has significant net operating
loss carryovers, which will be available to shelter profits should they be
generated in the future.
-18-
COMPARATIVE ANALYSIS
Overview
In order to gain a better perspective as to the financial position and
results of operations of Uptowner Inns, Inc., it is necessary to compare the
Company's performance to the other companies in its industry. To accomplish this
purpose, we have selected information contained in the "Annual Statement
Studies" published by the Risk Management Association, formerly Robert Morris
Associates (RMA). Risk Management Association compiles and publishes financial
data on various industries including Restaurant/Lodging - Hotels and Motels.
Even though the data published by Risk Management Association is not totally
consistent with the data reported by Uptowner Inns, Inc., it is generally
accepted as being representative of the industries on which it reports and,
therefore, is a reasonable source of financial data for a comparative analysis
of Uptowner Inns, Inc.
Balance Sheet Comparison
In comparing various adjusted balance sheet items of Uptowner Inns,
Inc. to RMA's "Annual Statement Studies", several differences are evident. The
Company has a different asset mix than the companies that make up the median of
the RMA data. The Company carries a higher current asset to total asset
percentage and a slightly higher cash position. The Company's investment in net
fixed assets is in line with the industry at 80.28% of total assets compared to
the industry average of 80.50%.
The Company's capital structure varies from that which is common in the
industry. Total debt as a percent of assets is 80.17% compared to the industry
at 89%. Correspondingly, the Company carries a higher percentage of equity to
assets than the industry.
The Company's net worth as a percent of total assets steadily declined
from about 19.19% to 14.75% in 2002. This was followed by a big jump in 2003 to
19.83% of total assets following the disposition of a segment of the business
and settlement of pending legal claims related to the discontinuation of plans
to build a second hotel in the area. These ratios compare favorably to the
industry median of 11.0%. Although its interest coverage ratio continues to be
somewhat below industry statistics, its current and quick ratios are well above
2003 averages at 2.19 and 2.18, respectively, as compared to .70 and .50,
respectively, for the industry as a whole.
-19-
COMPARATIVE ANALYSIS
Income Statement Comparison
The Company's adjusted operating expenses as a percent of sales are at
a five (5) year low of 94.22% of sales in 2003. Over the most recent five (5)
years, the Company's adjusted before-tax return on assets and equity has
averaged (0.66%) and (3.78%), respectively, both of which are significantly
below levels currently reported by RMA. It should be noted that averages for the
past five (5) years are severely skewed by the operating loss recorded for
fiscal 2002. The adjusted pre-tax return on assets and equity reported for
fiscal 2003 were 0.54% and 3.18%, respectively.
Comparative Analysis Summary
In summary, the Company's asset mix and liability mix is somewhat
different than the industry median. The Company's operating performance has been
well below the industry over the most recent five years, but its financial
position and liquidity ratios have remained fairly stable or slightly improved
over the last several years. Thus, with management's attention directed toward
overcoming the past and coping with adverse circumstances related to the nearby
construction, the Company is striving for a brighter future.
-20-
NATURE OF THE SECURITY
Overview
Before estimates of value can be made, the nature of the security being
valued and the expected income of the subject security must be discussed. The
value of a security is influenced by many of its characteristics, including
control and marketability.
Control
The market value of publicly traded securities normally reflects the
minority interest being traded. The price of a successful tender offer seeking
control is usually higher than previous minority trades and reflects the value
of the premium for control. The intention of this report is to estimate the
value of a non-controlling interest in Uptowner Inns, Inc. However, the purpose
of this report is to determine the "fair value" at which the Corporation will
establish an exchange rate for a reverse stock split of the Company's common
stock. Chapter 31D-13-1301 of the West Virginia Code defines "fair value" as
follows:
" "Fair value" means the value of the corporation's shares
determined: Immediately before the effectuation of the corporate
action to which the shareholder objects; using customary and
current valuation concepts and techniques generally employed for
similar businesses in the conduct of the transaction requiring
appraisal; and without discounting for lack of marketability or
minority status..."
Therefore, no discount for minority ownership is included.
Marketability
The income value methods of valuation are based on comparisons with
current values of securities traded on national exchanges. There are, however,
certain marketability differences between Uptowner Inns, Inc. securities and
publicly traded securities. An owner of publicly traded securities can know at
all times the market value of his holding. He can sell that holding on virtually
a moment's notice and receive cash, net of brokerage fees, within several
working days.
Such is not the case with Uptowner Inns, Inc. Consequently, liquidating
a position in the Company could be a more costly and time-consuming process than
liquidating stock in publicly traded firms. A marketability discount would be
warranted. In this instance, due to the purpose for which this report is
prepared, no marketability discount is applied.
-21-
APPROACHES TO VALUATION
There are three (3) main approaches to valuing small closely held
businesses. Under these approaches there are several different valuation
methods. The following is a discussion of each approach and certain methods
under these approaches.
Income Approach
The income approach gives primary consideration to an investment's
earnings. The theory being that an investment is worth the present value of all
reasonably expected future returns. This approach is most commonly applied by
using a capitalized current earnings method or a discounted future earnings
method.
The discounted future returns method under the income approach was not
selected. Any forecasted future earnings or cash flow would have been extremely
speculative in view of the Company's operating history. Additionally, a
capitalized current earnings calculation does not consider the underlying asset
value currently in place where there is more than a minimal investment in
tangible assets. However, for the purpose of understanding the expected return
on investment, a willing buyer might realize the normalized unweighted after tax
earnings for the five (5) years ended June 30, 2003 were reviewed. Because this
calculation yielded a negative value, this method was not selected.
Asset Approach
The asset approach values an investment based on the current value of
its assets and liabilities. In valuing businesses, this approach is commonly
used when the subject business is a holding company or if the company has not
established a positive earnings history.
Due to the significantly lower profitability (as compared to industry
statistics) of the operation historically, the asset approach was selected. The
asset approach does not consider historical or possible future earnings when
determining the value of a given business. After considering adjustments to fair
value (see detailed discussion later), the adjusted net asset approach yielded a
value of $1,750,000. for 100% of the subject company without any further
discounts for lack of marketability or minority position.
Market Approach
The market approach determines the value of an investment by using
information obtained from actual sales of similar investments. This method is
widely used in valuing real property and in certain industries where comparable
sales can be discovered. This method has limited applicability in valuing a
smaller business due to the lack of information available from actual sales of
similar small businesses. Transaction data from The Institute of Business
Appraisers and private business sales transaction records as published by
"Pratt's Stats" were reviewed. Because it is nearly impossible to ascertain
whether these other company transactions represent sales of companies similar in
nature to the subject company, this method was not selected.
-22-
APPROACHES TO VALUATION
Further, it is also necessary to review prior transactions in the
Company's own stock. Over the past twenty (20) years, the following stock sales
have occurred:
Date Number of Shares Price per Share
---- ---------------- ---------------
February 1984 264,158 $0.65
June 1992 28,102 0.65
September 1998 30,049 0.65
November 2001 36,060 0.65
November 2002 15,552 0.65
These sales account for nearly 24% of the total outstanding stock of Uptowner
Inns, Inc. Additionally, there have been other miscellaneous sales over the last
30 years, with prices in the $0.50 to $0.65 range.
Because of the volume of shares changing hands and the stability of the
price in view of the lack of profitability of the enterprise, consideration of
these sales should have an impact on the final determination of "fair value".
The value of the Company computed at $0.65 per share is $972,606., without
further discounts for marketability or minority interest position.
-23-
APPROACHES TO VALUATION
Hybrid Approaches, Rules of Thumb and Agreements in Place
Hybrid approaches include excess earnings methods, which combine
characteristics of income approaches and asset approaches. The earnings in
excess of a reasonable rate of return are capitalized and added to the current
value of the business' assets. Rules of thumb are simple formulas developed for
various industries. In some cases, buy-sell agreements, retirement arrangements
or other agreements may be in place and bear consideration in the calculation of
the value of a company.
A method of valuation we reviewed to estimate the fair market of
Uptowner Inns, Inc. are the widely recognized "capitalization of excess earnings
- - return on assets" methods.
The capitalization of excess earnings - return on assets method is an
income and asset based approach to valuation where the adjusted net tangible and
intangible assets of the business entity are valued independently. These
component assets are comprised of the fair market value of the total assets of
the business less the total liabilities as of the date of the valuation. The
intangible assets are valued by capitalizing the excess earnings of the
business, where the excess earnings represent the earnings of the business in
excess of the earnings that provide a reasonable rate of return on the adjusted
net assets of the business.
The adjusted average net income after tax of ($15,458.) was reduced by
the average adjusted net assets of $1,571,840. multiplied by the risk free rate
of 4.8%. Because the average net income was negative, this method produces
skewed results. It does, however, give an indication of the impact that the
negative profitability has on the value of the business. Carrying this method
through its normal calculation using a capitalization rate of 25.6 produced a
value of $1,360,000. without any further discounts for lack of marketability or
minority interest status.
-24-
METHODS OF VALUATION EXPLAINED
Overview:
Our financial review of the Company included the review and analysis of
the Company's audited financial statements for the periods from June 30, 1999
through June 30, 2003. In our opinion, the period covered in our review and
analysis, five (5) years, is adequate to identify any existing financial and
operational trends that would affect our estimate of value. (See Appendix A for
detailed calculations of the valuation methods included in this presentation.)
Normalizing Adjustments
In June 2003, the Company sold four (4) of its rental properties. The
decision to sell these components was based on the desire of management to
discontinue the residential and commercial rental business and to focus the
efforts and resources of the Company on the hotel business. The results of
operations as well as the sale have been removed from the historical information
and the years ended 2001, 2002 and 2003 have been restated without including
these discontinued operations.
Adjustments to Net Assets:
In June 1996, an appraisal of the Holiday Inn property was conducted by
Robert Withers, MAI, RM. Although this appraisal was performed prior to the
construction phase, an expected value was given for the property at a stabilized
occupancy as of April 1, 1999. Mr. Withers concluded on a prospective market
value of $6,650,000. in full operation.
As of June 30, 2003, the net book value of the hotel property was
$6,217,300. Considering that the property is no longer new and the costs that
would be incurred in the process of disposing of the property would far exceed
any positive adjustment to book value, no adjustment was deemed necessary.
Capitalization of Earnings:
The capitalization of earnings method is an income-based approach to
valuation where the net cash flow or net earnings of the business entity are
valued. For purposes of this analysis, the most recent five (5) years average
earnings after tax were capitalized using a capitalization rate determined under
the "Build-up Method" as described below. Past earnings have been erratic and
the Company is not operating profitably.
Determination of Capitalization Rate:
To arrive at a capitalization rate, we constructed a "Build-up" model
utilizing the methodologies described by Shannon Pratt based on long-term
government bond rates as adjusted for equity risk and equity size premia (as
stated in Ibbotson Associates, "Stocks, Bonds, Bills and Inflation: 2003
Yearbook - Valuation Edition"). Additional adjustments were applied for industry
risk, specific company risk and estimated sustainable growth rate. The result
obtained was then compared to James H. Schildt's Risk Premium for Discounting
Projected Income Streams. With reference to both sources, a capitalization rate
of 25.6% for current year's net income was selected.
-25-
METHODS OF VALUATION EXPLAINED
BUILD-UP OF CAPITALIZATION RATE
Risk-free rate of return (20 year U. S. Treasury Bond) 4.8
Equity risk premium (SBBI Yearbook) 7.0
Small stock risk premium (SBBI Yearbook- Micro. Cap, Decile 10b) 9.16
Industry risk premium (SBBI Yearbook) (1.09)
Specific company risk premium 5.5
Discount rate for net cash flow 25.37
Increment to convert to net earnings capitalization rate 4.0
Less: Expected sustainable growth rate (3.0)
Capitalization rate for next year's earnings 26.37
Capitalization rate for current year's earnings [26.37/(1+g)] 25.60
-26-
RECONCILIATION OF VALUATION ESTIMATES
The estimate of the fair market value of 100% of the common stock of
Uptowner Inns, Inc. as of June 30, 2003 determined under the various methods as
explained above is as follows:
1. Adjusted Net Assets Method $1,750,000.
2. Prior Sales of Company Stock 972,606.
3. Capitalization of Excess Earnings - Reasonable Rate Method 1,360,000.
The history of the Company over the last five (5) years has been
erratic. It is well established that while an asset-based method of valuation
applies in the case of corporations that are essentially holding companies, an
earnings-based method is appropriate for corporations that are active operating
companies. Noting that the fixed assets are the largest contributor to total
asset value, we must also take into consideration the corporation's status as an
operating company. Furthermore, it is necessary to look at prior arms length
transactions in the Company's stock. For these reasons, a value that takes into
consideration both underlying asset value as well as the profitability and the
trading history of the company is deemed appropriate.
Based on analysis of the above methods, it is our opinion that the fair
market value of 100% of the common stock of Uptowner Inns, Inc., without
discounting, as of June 30, 2003 is:
ONE MILLION, SIX HUNDRED THOUSAND DOLLARS
$1,600,000.
Or
ONE DOLLAR AND SEVEN CENTS PER SHARE
$1.07 PER SHARE
-27-
APPENDIX A
VALUATION METHODS
UPTOWNER INNS, INC. AND SUBSIDIARY
BUSINESS VALUATION
ADJUSTED NET ASSETS METHOD VALUATION SUMMARY
VALUATION SUMMARY (ALL VALUES CALCULATED AND ROUNDED IN DOLLARS)
Value of Business: $ 1,751,840
+
Valuation Adjustment (+/-): 0
Total Value of Business: 1,751,840
/
Shares Outstanding: 1,496,317
Per Share Value: 1.170768
+
Discount/Premium %: 0.00 %
Adjusted Per Share Value: 1.170768
X
1,496,317.00
Number of Shares Being Valued: $ 1,751,840
Value of Shares Being
Valued: SAY $ 1,750,000
UPTOWNER INNS, INC. AND SUBSIDIARY
BUSINESS VALUATION
ADJUSTED NET ASSETS - SUB SCHEDULE
Beginning Adjustment Adjusted
------------ ------------ ------------
Assets
Current Assets
Cash 1,161,986.00 0.00 1,161,986.00
Accounts Receivable 127,648.00 0.00 127,648.00
Inventory 4,483.00 0.00 4,483.00
Other Current Assets
Notes Receivable 41,794.00 0.00 41,794.00
Prepaid Expenses 43,030.00 0.00 43,030.00
Deferred Tax Asset 0.00 0.00 0.00
PP&E Held for Sale 0.00 0.00 0.00
------------ ------------ ------------
Total Other Current Assets 84,824.00 0.00 84,824.00
------------ ------------ ------------
Total Current Assets 1,378,941.00 0.00 1,378,941.00
Fixed Assets
Property, Plant & Equipment 6,272,401.00 0.00 6,272,401.00
Land 820,553.00 0.00 820,553.00
Other Fixed Assets 0.00 0.00 0.00
------------ ------------ ------------
Total Fixed Assets 7,092,954.00 0.00 7,092,954.00
Other Assets
Deposits 239,456.00 0.00 239,456.00
Other
Nonmarketable Securities 14,144.00 0.00 14,144.00
Deferred Tax Asset 110,140.00 0.00 110,140.00
------------ ------------ ------------
Total Other 124,284.00 0.00 124,284.00
------------ ------------ ------------
Total Other Assets 363,740.00 0.00 363,740.00
---------- ---- ----------
Total Assets 8,835,635.00 0.00 8,835,635.00
============ ============ ============
Liabilities & Equity
Current Liabilities
Notes Payable (Short Term) 0.00 0.00 0.00
Accounts Payable 163,427.00 0.00 163,427.00
Accrued Liabilities 120,958.00 0.00 120,958.00
Other Current Liabilities
Accrued Taxes 192,571.00 0.00 192,571.00
Current Portion LTD 153,290.00 0.00 153,290.00
------------ ------------ ------------
Total Other Current Liabilities 345,861.00 0.00 345,861.00
------------ ------------ ------------
Total Current Liabilities 630,246.00 0.00 630,246.00
Beginning Adjustment Adjusted
------------ ------------ ------------
Long-Term Liabilities
Notes Payable 6,453,549.00 0.00 6,453,549.00
Other Long-Term Liabilities 0.00 0.00 0.00
------------ ------------ ------------
Total Long-Term Liabilities 6,453,549.00 0.00 6,453,549.00
Total Liabilities 7,083,795.00 0.00 7,083,795.00
Stockholders Equity
Common Stock 791,782.00 0.00 791,782.00
Paid-In Capital 1,032,290.00 0.00 1,032,290.00
Retained Earnings -32,744.00 0.00 -32,744.00
Other Equity -39,488.00 0.00 -39,488.00
------------ ------------ ------------
Total Stockholders Equity 1,751,840.00 0.00 1,751,840.00
------------ ------------ ------------
Total Liabilities & Equity 8,835,635.00 0.00 8,835,635.00
============ ============ ============
UPTOWNER INNS, INC. AND SUBSIDIARY
BUSINESS VALUATION
EXCESS EARNINGS - REASONABLE RATE METHOD VALUATION SUMMARY
Projected Earnings Amount: -15,457.80
Adjusted Net Assets: 1,751,840
Adjustment to Net Assets: 0
Total Adjusted Net Assets: 1,751,840
Reasonable Rate of Return: 4.80 %
Reasonable Rate of Return on Assets: 84,088
Excess Earnings Over Reasonable Rate: -99,546.12
Capitalization Rate: 25.60 %
Intangible Value: -388,852
Adjusted Net Assets: 1,751,840
Adjustment to Net Assets: 0
VALUATION SUMMARY (ALL VALUES CALCULATED AND ROUNDED IN DOLLARS)
Value of Business: $ 1,362,988
+
Valuation Adjustment (+/-): 0
Total Value of Business: 1,362,988
/
Shares Outstanding: 1,496,317
Per Share Value: 0.910895
+
Discount/Premium %: 0.00 %
Adjusted Per Share Value: 0.910895
X
1,496,317.00
Number of Shares Being Valued: $ 1,362,988
Value of Shares Being
Valued: SAY $ 1,360,000
UPTOWNER INNS, INC. AND SUBSIDIARY
BUSINESS VALUATION
SCHEDULE OF UNWEIGHTED AVERAGE PROJECTED EARNINGS
EXCESS EARNINGS - REASONABLE RATE
Type of Earnings: Net Income
Year Amount
---- ------
1999 113,029.00
2000 -97,216.00
2001 17,669.00
2002 -142,694.00
2003 31,923.00
----------
Unweighted Average Projected Earnings: -15,457.80
APPENDIX B
FINANCIAL STATEMENT SUMMARIES - ADJUSTED
UPTOWNER INNS, INC. AND SUBSIDIARY
ADJUSTED BALANCE SHEET SUMMARY
For Year Ended June:
(in $'s) 1999 2000 2001 2002 2003
Assets
Current Assets
Cash 322,663 348,064 186,912 803,660 1,161,986
Accounts Receivable 86,647 59,971 72,830 57,421 127,648
Inventory 11,197 11,966 7,715 6,145 4,483
Other Current Assets
Notes Receivable 83,271 47,899 0 5,446 41,794
Prepaid Expenses 65,309 65,093 48,392 61,173 43,030
Deferred Tax Asset 0 0 0 132,098 0
PP&E Held for Sale 0 0 327,811 1,770,073 0
Total Other Current Assets 148,580 112,992 376,203 1,968,790 84,824
Total Current Assets 569,087 532,993 643,660 2,836,016 1,378,941
Fixed Assets
Property, Plant, & Equipment 9,294,700 8,876,128 8,595,173 6,862,094 6,272,401
Land 1,480,612 1,480,612 1,519,252 1,202,786 820,553
Total Fixed Assets 10,775,312 10,356,740 10,114,425 8,064,880 7,092,954
Other Assets
Deposits 117,896 169,407 141,837 188,142 239,456
Other
Nonmarketable Securities 0 0 0 40,035 14,144
Deferred Tax Asset 0 0 0 0 110,140
Total Other 0 0 0 40,035 124,284
Total Other Assets 117,896 169,407 141,837 228,177 363,740
Total Assets 11,462,295 11,059,140 10,899,922 11,129,073 8,835,635
Liabilities & Equity
Current Liabilities
Accounts Payable 591,840 358,242 232,588 181,386 163,427
Accrued Liabilities 179,605 175,045 200,484 182,485 120,958
Other Current Liabilities
Accrued Taxes 312,513 437,520 313,480 327,869 192,571
Current Portion - LTD 1,265,006 1,109,220 1,400,385 253,430 153,290
Total Other Current Liabilities 1,577,519 1,546,740 1,713,865 581,299 345,861
Total Current Liabilities 2,348,964 2,080,027 2,146,937 945,170 630,246
Long-Term Liabilities
Notes Payable 6,913,472 6,876,470 6,636,076 8,542,621 6,453,549
Total Long-Term Liabilities 6,913,472 6,876,470 6,636,076 8,542,621 6,453,549
Total Liabilities 9,262,436 8,956,497 8,783,013 9,487,791 7,083,795
Stockholders Equity
Common Stock 791,782 791,782 791,782 791,782 791,782
Paid-In Capital 1,032,290 1,032,290 1,032,290 1,032,290 1,032,290
Retained Earnings 375,787 278,571 292,837 -172,681 -32,744
Other Equity 0 0 0 -10,109 -39,488
Total Stockholders Equity 2,199,859 2,102,643 2,116,909 1,641,282 1,751,840
Total Liabilities & Equity 11,462,295 11,059,140 10,899,922 11,129,073 8,835,635
UPTOWNER INNS, INC. AND SUBSIDIARY
ADJUSTED BALANCE SHEET AS A PERCENT OF ASSETS
For Year Ended June:
(in %'s) 1999 2000 2001 2002 2003
Assets
Current Assets
Cash 2.81 3.15 1.71 7.22 13.15
Accounts Receivable 0.76 0.54 0.67 0.52 1.44
Inventory 0.10 0.11 0.07 0.06 0.05
Other Current Assets
Notes Receivable 0.73 0.43 0.00 0.05 0.47
Prepaid Expenses 0.57 0.59 0.44 0.55 0.49
Deferred Tax Asset 0.00 0.00 0.00 1.19 0.00
PP&E Held for Sale 0.00 0.00 3.01 15.90 0.00
Total Other Current Assets 1.30 1.02 3.45 17.69 0.96
Total Current Assets 4.96 4.82 5.91 25.48 15.61
Fixed Assets
Property, Plant, & Equipment 81.09 80.26 78.86 61.66 70.99
Land 12.92 13.39 13.94 10.81 9.29
Total Fixed Assets 94.01 93.65 92.79 72.47 80.28
Other Assets
Deposits 1.03 1.53 1.30 1.69 2.71
Other
Nonmarketable Securities 0.00 0.00 0.00 0.36 0.16
Deferred Tax Asset 0.00 0.00 0.00 0.00 1.25
Total Other 0.00 0.00 0.00 0.36 1.41
Total Other Assets 1.03 1.53 1.30 2.05 4.12
Total Assets 100.00 100.00 100.00 100.00 100.00
Liabilities & Equity
Current Liabilities
Accounts Payable 5.16 3.24 2.13 1.63 1.85
Accrued Liabilities 1.57 1.58 1.84 1.64 1.37
Other Current Liabilities
Accrued Taxes 2.73 3.96 2.88 2.95 2.18
Current Portion - LTD 11.04 10.03 12.85 2.28 1.73
Total Other Current Liabilities 13.76 13.99 15.72 5.22 3.91
Total Current Liabilities 20.49 18.81 19.70 8.49 7.13
Long-Term Liabilities
Notes Payable 60.31 62.18 60.88 76.76 73.04
Total Long-Term Liabilities 60.31 62.18 60.88 76.76 73.04
Total Liabilities 80.81 80.99 80.58 85.25 80.17
Stockholders Equity
Common Stock 6.91 7.16 7.26 7.11 8.96
Paid-In Capital 9.01 9.33 9.47 9.28 11.68
Retained Earnings 3.28 2.52 2.69 -1.55 -0.37
Other Equity 0.00 0.00 0.00 -0.09 -0.45
Total Stockholders Equity 19.19 19.01 19.42 14.75 19.83
Total Liabilities & Equity 100.00 100.00 100.00 100.00 100.00
UPTOWNER INNS, INC. AND SUBSIDIARY
ADJUSTED INCOME STATEMENT SUMMARY
For Year Ended June:
(in $'s) 1999 2000 2001 2002 2003 Average
Sales
Net Sales $
Hotel Revenue 3,122,081 3,791,881 3,898,650 3,303,959 3,119,102 3,447,135
Rental Revenue 235,270 221,608 425 7,402 29,690 98,879
Total Net Sales 3,357,351 4,013,489 3,899,075 3,311,361 3,148,792 3,546,014
Cost Of Goods Sold 220,034 233,351 195,016 160,319 128,153 187,375
Gross Profit 3,137,317 3,780,138 3,704,059 3,151,042 3,020,639 3,358,639
Operating Expenses
Other Salaries & Wages 841,724 1,016,332 939,612 822,036 770,769 878,095
Insurance 63,321 66,342 61,892 68,073 53,762 62,678
Selling Expenses 181,349 236,758 276,172 228,713 246,446 233,888
Depreciation & Amort. 396,964 428,358 419,951 450,379 322,121 403,555
Interest Expense 677,000 700,828 648,789 582,682 462,138 614,287
Other Operating Expenses
Other Departmental Exp. 227,548 313,566 333,549 268,357 229,321 274,468
G & A Expenses 233,684 341,713 318,612 373,910 396,266 332,837
Utilities Expense 205,282 231,631 224,468 227,148 136,038 204,913
Repair & Maintenance 73,821 122,343 92,164 72,683 88,327 89,868
Taxes & Licenses 367,595 419,483 371,181 332,428 261,570 350,451
Total Other Operating Expenses 1,107,930 1,428,736 1,339,974 1,274,526 1,111,522 1,252,537
Total Operating Expenses 3,268,288 3,877,354 3,686,390 3,426,409 2,966,758 3,445,040
Income From Operations -130,971 -97,216 17,669 -275,367 53,881 -86,401
Other Income/Expense
Gain/Loss on Sale 244,000 0 0 575 0 48,915
Total Other Income/Expense 244,000 0 0 575 0 48,915
Earnings Before Tax 113,029 -97,216 17,669 -274,792 53,881 -37,486
Income Tax Expense 0 0 0 -132,098 21,958 -22,028
Net Income/Loss $ 113,029 -97,216 17,669 -142,694 31,923 -15,458
UPTOWNER INNS, INC. AND SUBSIDIARY
ADJUSTED INCOME STATEMENT AS A PERCENT OF SALES
For Year Ended June:
(in %'s) 1999 2000 2001 2002 2003 Average
Sales
Net Sales
Hotel Revenue 92.99 94.48 99.99 99.78 99.06 97.26
Rental Revenue 7.01 5.52 0.01 0.22 0.94 2.74
Total Net Sales 100.00 100.00 100.00 100.00 100.00 100.00
Cost Of Goods Sold 6.55 5.81 5.00 4.84 4.07 5.26
Gross Profit 93.45 94.19 95.00 95.16 95.93 94.74
Operating Expenses
Other Salaries & Wages 25.07 25.32 24.10 24.82 24.48 24.76
Insurance 1.89 1.65 1.59 2.06 1.71 1.78
Selling Expenses 5.40 5.90 7.08 6.91 7.83 6.62
Depreciation & Amort. 11.82 10.67 10.77 13.60 10.23 11.42
Interest Expense 20.16 17.46 16.64 17.60 14.68 17.31
Other Operating Expenses
Other Departmental Exp. 6.78 7.81 8.55 8.10 7.28 7.71
G & A Expenses 6.96 8.51 8.17 11.29 12.58 9.50
Utilities Expense 6.11 5.77 5.76 6.86 4.32 5.76
Repair & Maintenance 2.20 3.05 2.36 2.19 2.81 2.52
Taxes & Licenses 10.95 10.45 9.52 10.04 8.31 9.85
Total Other Operating Expenses 33.00 35.60 34.37 38.49 35.30 35.35
Total Operating Expenses 97.35 96.61 94.55 103.47 94.22 97.24
Income From Operations -3.90 -2.42 0.45 -8.32 1.71 -2.49
Other Income/Expense
Gain/Loss on Sale 7.27 0.00 0.00 0.02 0.00 1.46
Total Other Income/Expense 7.27 0.00 0.00 0.02 0.00 1.46
Earnings Before Tax 3.37 -2.42 0.45 -8.30 1.71 -1.04
Income Tax Expense 0.00 0.00 0.00 -3.99 0.70 -0.66
Net Income/Loss 3.37 -2.42 0.45 -4.31 1.01 -0.38
UPTOWNER INNS, INC. AND SUBSIDIARY
ADJUSTED INCOME STATEMENT GROWTH RATES
In (%'s) 2000 2001 2002 2003 Average
Sales
Net Sales
Hotel Revenue 21.45 2.82 -15.25 -5.60 0.86
Rental Revenue -5.81 -99.81 1,641.65 301.11 459.28
Cost Of Goods Sold 6.05 -16.43 -17.79 -20.06 -12.06
Gross Profit 20.49 -2.01 -14.93 -4.14 -0.15
Operating Expenses
Other Salaries & Wages 20.74 -7.55 -12.51 -6.24 -1.39
Insurance 4.77 -6.71 9.99 -21.02 -3.24
Selling Expenses 30.55 16.65 -17.18 7.75 9.44
Depreciation & Amort. 7.91 -1.96 7.25 -28.48 -3.82
Interest Expense 3.52 -7.43 -10.19 -20.69 -8.70
Other Operating Expenses
Other Departmental Exp. 37.80 6.37 -19.54 -14.55 2.52
G & A Expenses 46.23 -6.76 17.36 5.98 15.70
Utilities Expense 12.84 -3.09 1.19 -40.11 -7.29
Repair & Maintenance 65.73 -24.67 -21.14 21.52 10.36
Taxes & Licenses 14.12 -11.51 -10.44 -21.32 -7.29
Total Operating Expenses 18.64 -4.93 -7.05 -13.41 -1.69
Income From Operations 25.77 118.17 -1,658.48 119.57 -348.74
Other Income/Expense
Gain/Loss on Sale -100.00 N/A N/A -100.00 -50.00
Earnings Before Tax -186.01 118.17 -1,655.22 119.61 -400.86
Income Tax Expense N/A N/A N/A 116.62 29.15
Net Income -186.01 118.17 -907.60 122.37 -213.26
UPTOWNER INNS, INC. AND SUBSIDIARY
ADJUSTED RATIO ANALYSIS
For Year Ended June: 1999 2000 2001 2002 2003 Average
GROWTH
Sales Growth N/A 19.54 -2.85 -15.07 -4.91 -0.82
Operating Earnings Growth (% N/A 25.77 118.17 -1,658.48 119.57 -348.74
Net Earnings Growth (%) N/A -186.01 118.17 -907.60 122.37 -213.26
COST CONTROL
Cost Of Sales/Sales (%) 6.55 5.81 5.00 4.84 4.07 5.26
Gross Margin(%) 93.45 94.19 95.00 95.16 95.93 94.74
Operating Expenses/Sales (%) 97.35 96.61 94.55 103.47 94.22 97.24
Operating Margin (%) -3.90 -2.42 0.45 -8.32 1.71 -2.49
Interest Expense/Sales (%) 20.16 17.46 16.64 17.60 14.68 17.31
TURNOVER
Receivable Turnover (X) N/A 54.75 58.72 50.85 34.03 49.59
Inventory Turnover (X) N/A 20.15 19.82 23.13 24.12 21.80
Sales/Net Fixed Assets (X) N/A 0.38 0.38 0.36 0.42 0.39
Sales/Total Assets (X) N/A 0.36 0.36 0.30 0.32 0.33
BEFORE-TAX PROFITABILITY
Return On Sales (%) 3.37 -2.42 0.45 -8.30 1.71 -1.04
Return On Assets (%) N/A -0.86 0.16 -2.49 0.54 -0.66
Return On Equity (%) N/A -4.52 0.84 -14.62 3.18 -3.78
AFTER-TAX PROFITABILITY
Return On Sales (%) 3.37 -2.42 0.45 -4.31 1.01 -0.38
Return On Assets (%) N/A -0.86 0.16 -1.30 0.32 -0.42
Return On Equity (%) N/A -4.52 0.84 -7.59 1.88 -2.35
RISK
Total Debt/Assets (%) 80.81 80.99 80.58 85.25 80.17 81.56
Long Term Debt/Equity (%) 314.27 327.04 313.48 520.48 368.39 368.73
Total Debt/Equity (%) 421.05 425.96 414.90 578.07 404.36 448.87
Current Ratio (X) 0.24 0.26 0.30 3.00 2.19 1.20
Quick Ratio (X) 0.24 0.25 0.30 2.99 2.18 1.19
Interest Coverage (X) 1.17 0.86 1.03 0.53 1.12 0.94
APPENDIX C
NORMALIZING ADJUSTMENTS
UPTOWNER INNS, INC. AND SUBSIDIARY
ADJUSTMENT REGISTER
FOR YEAR ENDED JUNE, 2003
(In $'s)
DESCRIPTION DEBIT CREDIT
--------------------------- ------- ------
Adjustment: 1
Income for Discontinued Operations 273,812
Retained Earnings 108,014
Impairment Loss 165,798
TO REMOVE NON-OPERATING AND NON-RECURRING ITEMS OF INCOME AND EXPENSE.
UPTOWNER INNS, INC. AND SUBSIDIARY
ADJUSTMENT REGISTER
FOR YEAR ENDED JUNE, 2002
(In $'s)
DESCRIPTION DEBIT CREDIT
--------------------------- ------- ------
Adjustment: 1
Rental Revenue 222,308
Impairment Loss 336,075
Insurance 10,144
Income for Discontinued Operations 13,251
Utilities Expense 14,400
Repair & Maintenance 15,814
G & A Expenses 22,723
Taxes & Licenses 25,766
Depreciation & Amort. 48,437
Interest Expense 71,773
Impairment Loss 336,075
TO RESTATE 2001 AND 2002 FOR OPERATIONS DISCONTINUED DURING 2003.
Adjustment: 2
Income for Discontinued Operations 13,251
Retained Earnings 322,824
Impairment Loss 336,075
TO REMOVE NON-OPERATING AND NON-RECURRING ITEMS OF INCOME AND EXPENSE.
UPTOWNER INNS, INC. AND SUBSIDIARY
ADJUSTMENT REGISTER
FOR YEAR ENDED JUNE, 2001
(In $'s)
DESCRIPTION DEBIT CREDIT
--------------------------- ------- ------
Adjustment: 1
Rental Revenue 216,071
Income for Discontinued Operations 3,403
Insurance 8,331
Repair & Maintenance 11,461
Utilities Expense 19,884
G & A Expenses 21,477
Taxes & Licenses 26,248
Depreciation & Amort. 48,158
Interest Expense 83,915
TO RESTATE 2001 AND 2002 FOR OPERATIONS DISCONTINUED DURING 2003.
Adjustment: 2
Retained Earnings 3,403
Income for Discontinued Operations 3,403
TO REMOVE NON-OPERATING AND NON-RECURRING ITEMS OF INCOME AND EXPENSE.
APPENDIX D
FINANCIAL STATEMENT SUMMARIES - HISTORICAL
The summarized historical financial information presented following is included
solely to assist in the development of the value conclusion presented in this
report, and it should not be used to obtain credit or for any other purpose.
Because of the limited purpose of this presentation, it may be incomplete and
contain departures from generally accepted accounting principles. The presented
information has been summarized from financial statements compiled by us.
UPTOWNER INNS, INC. AND SUBSIDIARY
HISTORICAL BALANCE SHEET SUMMARY
For Year Ended June:
(in $'s) 1999 2000 2001 2002 2003
Assets
Current Assets
Cash 322,663 348,064 186,912 803,660 1,161,986
Accounts Receivable 86,647 59,971 72,830 57,421 127,648
Inventory 11,197 11,966 7,715 6,145 4,483
Other Current Assets
Notes Receivable 83,271 47,899 0 5,446 41,794
Prepaid Expenses 65,309 65,093 48,392 61,173 43,030
Deferred Tax Asset 0 0 0 132,098 0
PP&E Held for Sale 0 0 327,811 1,770,073 0
Total Other Current Assets 148,580 112,992 376,203 1,968,790 84,824
Total Current Assets 569,087 532,993 643,660 2,836,016 1,378,941
Fixed Assets
Property, Plant, & Equipment 9,294,700 8,876,128 8,595,173 6,862,094 6,272,401
Land 1,480,612 1,480,612 1,519,252 1,202,786 820,553
Total Fixed Assets 10,775,312 10,356,740 10,114,425 8,064,880 7,092,954
Other Assets
Deposits 117,896 169,407 141,837 188,142 239,456
Other
Nonmarketable Securities 0 0 0 40,035 14,144
Deferred Tax Asset 0 0 0 0 110,140
Total Other 0 0 0 40,035 124,284
Total Other Assets 117,896 169,407 141,837 228,177 363,740
Total Assets 11,462,295 11,059,140 10,899,922 11,129,073 8,835,635
Liabilities & Equity
Current Liabilities
Accounts Payable 591,840 358,242 232,588 181,386 163,427
Accrued Liabilities 179,605 175,045 200,484 182,485 120,958
Other Current Liabilities
Accrued Taxes 312,513 437,520 313,480 327,869 192,571
Current Portion - LTD 1,265,006 1,109,220 1,400,385 253,430 153,290
Total Other Current Liabilities 1,577,519 1,546,740 1,713,865 581,299 345,861
Total Current Liabilities 2,348,964 2,080,027 2,146,937 945,170 630,246
Long-Term Liabilities
Notes Payable 6,913,472 6,876,470 6,636,076 8,542,621 6,453,549
Total Long-Term Liabilities 6,913,472 6,876,470 6,636,076 8,542,621 6,453,549
Total Liabilities 9,262,436 8,956,497 8,783,013 9,487,791 7,083,795
Stockholders Equity
Common Stock 791,782 791,782 791,782 791,782 791,782
Paid-In Capital 1,032,290 1,032,290 1,032,290 1,032,290 1,032,290
Retained Earnings 375,787 278,571 292,837 -172,681 -32,744
Other Equity 0 0 0 -10,109 -39,488
Total Stockholders Equity 2,199,859 2,102,643 2,116,909 1,641,282 1,751,840
Total Liabilities & Equity 11,462,295 11,059,140 10,899,922 11,129,073 8,835,635
UPTOWNER INNS, INC. AND SUBSIDIARY
HISTORICAL BALANCE SHEET AS A PERCENT OF ASSETS
For Year Ended June:
(in %'s) 1999 2000 2001 2002 2003
Assets
Current Assets
Cash 2.81 3.15 1.71 7.22 13.15
Accounts Receivable 0.76 0.54 0.67 0.52 1.44
Inventory 0.10 0.11 0.07 0.06 0.05
Other Current Assets
Notes Receivable 0.73 0.43 0.00 0.05 0.47
Prepaid Expenses 0.57 0.59 0.44 0.55 0.49
Deferred Tax Asset 0.00 0.00 0.00 1.19 0.00
PP&E Held for Sale 0.00 0.00 3.01 15.90 0.00
Total Other Current Assets 1.30 1.02 3.45 17.69 0.96
Total Current Assets 4.96 4.82 5.91 25.48 15.61
Fixed Assets
Property, Plant, & Equipment 81.09 80.26 78.86 61.66 70.99
Land 12.92 13.39 13.94 10.81 9.29
Total Fixed Assets 94.01 93.65 92.79 72.47 80.28
Other Assets
Deposits 1.03 1.53 1.30 1.69 2.71
Other
Nonmarketable Securities 0.00 0.00 0.00 0.36 0.16
Deferred Tax Asset 0.00 0.00 0.00 0.00 1.25
Total Other 0.00 0.00 0.00 0.36 1.41
Total Other Assets 1.03 1.53 1.30 2.05 4.12
Total Assets 100.00 100.00 100.00 100.00 100.00
Liabilities & Equity
Current Liabilities
Accounts Payable 5.16 3.24 2.13 1.63 1.85
Accrued Liabilities 1.57 1.58 1.84 1.64 1.37
Other Current Liabilities
Accrued Taxes 2.73 3.96 2.88 2.95 2.18
Current Portion - LTD 11.04 10.03 12.85 2.28 1.73
Total Other Current Liabilities 13.76 13.99 15.72 5.22 3.91
Total Current Liabilities 20.49 18.81 19.70 8.49 7.13
Long-Term Liabilities
Notes Payable 60.31 62.18 60.88 76.76 73.04
Total Long-Term Liabilities 60.31 62.18 60.88 76.76 73.04
Total Liabilities 80.81 80.99 80.58 85.25 80.17
Stockholders Equity
Common Stock 6.91 7.16 7.26 7.11 8.96
Paid-In Capital 9.01 9.33 9.47 9.28 11.68
Retained Earnings 3.28 2.52 2.69 -1.55 -0.37
Other Equity 0.00 0.00 0.00 -0.09 -0.45
Total Stockholders Equity 19.19 19.01 19.42 14.75 19.83
Total Liabilities & Equity 100.00 100.00 100.00 100.00 100.00
UPTOWNER INNS, INC. AND SUBSIDIARY
HISTORICAL INCOME STATEMENT SUMMARY
For Year Ended June:
(in $'s) 1999 2000 2001 2002 2003 Average
Sales
Net Sales
Hotel Revenue $ 3,122,081 3,791,881 3,898,650 3,303,959 3,119,102 3,447,135
Rental Revenue 235,270 221,608 216,496 229,710 29,690 186,555
Total Net Sales 3,357,351 4,013,489 4,115,146 3,533,669 3,148,792 3,633,690
Cost Of Goods Sold 220,034 233,351 195,016 160,319 128,153 187,375
Gross Profit 3,137,317 3,780,138 3,920,130 3,373,350 3,020,639 3,446,315
Operating Expenses
Other Salaries & Wages 841,724 1,016,332 939,612 822,036 770,769 878,095
Insurance 63,321 66,342 70,223 78,217 53,762 66,373
Selling Expenses 181,349 236,758 276,172 228,713 246,446 233,888
Depreciation & Amort. 396,964 428,358 468,109 498,816 322,121 422,874
Interest Expense 677,000 700,828 732,704 654,455 462,138 645,425
Other Operating Expenses
Other Departmental Exp. 227,548 313,566 333,549 268,357 229,321 274,468
G & A Expenses 233,684 341,713 340,089 396,633 396,266 341,677
Utilities Expense 205,282 231,631 244,352 241,548 136,038 211,770
Repair & Maintenance 73,821 122,343 103,625 88,497 88,327 95,323
Taxes & Licenses 367,595 419,483 397,429 358,194 261,570 360,854
Impairment Loss 0 0 0 0 165,798 33,160
Total Other Operating Expenses 1,107,930 1,428,736 1,419,044 1,353,229 1,277,320 1,317,252
Total Operating Expenses 3,268,288 3,877,354 3,905,864 3,635,466 3,132,556 3,563,907
Income From Operations -130,971 -97,216 14,266 -262,116 -111,917 -117,592
Other Income/Expense
Gain/Loss on Sale 244,000 0 0 575 0 48,915
Income for Discontinued 0 0 0 0 273,812 54,762
Operations
Impairment Loss 0 0 0 -336,075 0 -67,215
Total Other Income/Expense 244,000 0 0 -335,500 273,812 36,462
Earnings Before Tax 113,029 -97,216 14,266 -597,616 161,895 -81,130
Income Tax Expense 0 0 0 -132,098 21,958 -22,028
Net Income/Loss $ 113,029 -97,216 14,266 -465,518 139,937 -59,102
UPTOWNER INNS, INC. AND SUBSIDIARY
HISTORICAL INCOME STATEMENT AS A PERCENT OF SALES
For Year Ended June:
(in %'s) 1999 2000 2001 2002 2003 Average
Sales
Net Sales
Hotel Revenue 92.99 94.48 94.74 93.50 99.06 94.95
Rental Revenue 7.01 5.52 5.26 6.50 0.94 5.05
Total Net Sales 100.00 100.00 100.00 100.00 100.00 100.00
Cost Of Goods Sold 6.55 5.81 4.74 4.54 4.07 5.14
Gross Profit 93.45 94.19 95.26 95.46 95.93 94.86
Operating Expenses
Other Salaries & Wages 25.07 25.32 22.83 23.26 24.48 24.19
Insurance 1.89 1.65 1.71 2.21 1.71 1.83
Selling Expenses 5.40 5.90 6.71 6.47 7.83 6.46
Depreciation & Amort. 11.82 10.67 11.38 14.12 10.23 11.64
Interest Expense 20.16 17.46 17.81 18.52 14.68 17.73
Other Operating Expenses
Other Departmental Exp. 6.78 7.81 8.11 7.59 7.28 7.51
G & A Expenses 6.96 8.51 8.26 11.22 12.58 9.51
Utilities Expense 6.11 5.77 5.94 6.84 4.32 5.80
Repair & Maintenance 2.20 3.05 2.52 2.50 2.81 2.61
Taxes & Licenses 10.95 10.45 9.66 10.14 8.31 9.90
Impairment Loss 0.00 0.00 0.00 0.00 5.27 1.05
Total Other Operating Expenses 33.00 35.60 34.48 38.30 40.57 36.39
Total Operating Expenses 97.35 96.61 94.91 102.88 99.48 98.25
Income From Operations -3.90 -2.42 0.35 -7.42 -3.55 -3.39
Other Income/Expense
Gain/Loss on Sale 7.27 0.00 0.00 0.02 0.00 1.46
Income for Discontinued 0.00 0.00 0.00 0.00 8.70 1.74
Operations
Impairment Loss 0.00 0.00 0.00 -9.51 0.00 -1.90
Total Other Income/Expense 7.27 0.00 0.00 -9.49 8.70 1.29
Earnings Before Tax 3.37 -2.42 0.35 -16.91 5.14 -2.10
Income Tax Expense 0.00 0.00 0.00 -3.74 0.70 -0.61
Net Income/Loss 3.37 -2.42 0.35 -13.17 4.44 -1.49
UPTOWNER INNS, INC. AND SUBSIDIARY
HISTORICAL INCOME STATEMENT GROWTH RATES
In (%'s) 2000 2001 2002 2003 Average
Sales
Net Sales
Hotel Revenue 21.45 2.82 -15.25 -5.60 0.86
Rental Revenue -5.81 -2.31 6.10 -87.08 -22.27
Cost Of Goods Sold 6.05 -16.43 -17.79 -20.06 -12.06
Gross Profit 20.49 3.70 -13.95 -10.46 -0.05
Operating Expenses
Other Salaries & Wages 20.74 -7.55 -12.51 -6.24 -1.39
Insurance 4.77 5.85 11.38 -31.27 -2.32
Selling Expenses 30.55 16.65 -17.18 7.75 9.44
Depreciation & Amort. 7.91 9.28 6.56 -35.42 -2.92
Interest Expense 3.52 4.55 -10.68 -29.39 -8.00
Other Operating Expenses
Other Departmental Exp. 37.80 6.37 -19.54 -14.55 2.52
G & A Expenses 46.23 -0.48 16.63 -0.09 15.57
Utilities Expense 12.84 5.49 -1.15 -43.68 -6.63
Repair & Maintenance 65.73 -15.30 -14.60 -0.19 8.91
Taxes & Licenses 14.12 -5.26 -9.87 -26.98 -7.00
Impairment Loss N/A N/A N/A N/A N/A
Total Operating Expenses 18.64 0.74 -6.92 -13.83 -0.35
Income From Operations 25.77 114.67 -1,937.35 57.30 -434.90
Other Income/Expense
Gain/Loss on Sale -100.00 N/A N/A -100.00 -50.00
Income for Discontinued Operations N/A N/A N/A N/A N/A
Impairment Loss N/A N/A N/A 100.00 25.00
Earnings Before Tax -186.01 114.67 -4,289.09 127.09 -1,058.33
Income Tax Expense N/A N/A N/A 116.62 29.15
Net Income -186.01 114.67 -3,363.13 130.06 -826.10
UPTOWNER INNS, INC. AND SUBSIDIARY
HISTORICAL RATIO ANALYSIS
For Year Ended June:
1999 2000 2001 2002 2003 Average
GROWTH
Sales Growth N/A 19.54 2.53 -14.13 -10.89 -0.74
Operating Earnings Growth (% N/A 25.77 114.67 -1,937.35 57.30 -434.90
Net Earnings Growth (%) N/A -186.01 114.67 -3,363.13 130.06 -826.10
COST CONTROL
Cost Of Sales/Sales (%) 6.55 5.81 4.74 4.54 4.07 5.14
Gross Margin(%) 93.45 94.19 95.26 95.46 95.93 94.86
Operating Expenses/Sales (%) 97.35 96.61 94.91 102.88 99.48 98.25
Operating Margin (%) -3.90 -2.42 0.35 -7.42 -3.55 -3.39
Interest Expense/Sales (%) 20.16 17.46 17.81 18.52 14.68 17.73
TURNOVER
Receivable Turnover (X) N/A 54.75 61.97 54.26 34.03 51.25
Inventory Turnover (X) N/A 20.15 19.82 23.13 24.12 21.80
Sales/Net Fixed Assets (X) N/A 0.38 0.40 0.39 0.42 0.40
Sales/Total Assets (X) N/A 0.36 0.37 0.32 0.32 0.34
BEFORE-TAX PROFITABILITY
Return On Sales (%) 3.37 -2.42 0.35 -16.91 5.14 -2.10
Return On Assets (%) N/A -0.86 0.13 -5.43 1.62 -1.13
Return On Equity (%) N/A -4.52 0.68 -31.80 9.54 -6.53
AFTER-TAX PROFITABILITY
Return On Sales (%) 3.37 -2.42 0.35 -13.17 4.44 -1.49
Return On Assets (%) N/A -0.86 0.13 -4.23 1.40 -0.89
Return On Equity (%) N/A -4.52 0.68 -24.77 8.25 -5.09
RISK
Total Debt/Assets (%) 80.81 80.99 80.58 85.25 80.17 81.56
Long Term Debt/Equity (%) 314.27 327.04 313.48 520.48 368.39 368.73
Total Debt/Equity (%) 421.05 425.96 414.90 578.07 404.36 448.87
Current Ratio (X) 0.24 0.26 0.30 3.00 2.19 1.20
Quick Ratio (X) 0.24 0.25 0.30 2.99 2.18 1.19
Interest Coverage (X) 1.17 0.86 1.02 0.09 1.35 0.90
APPENDIX E
COMPARATIVE RATIOS - RMA
UPTOWNER INNS, INC. AND SUBSIDIARY
HISTORICAL COMPARATIVE ANALYSIS
FOR YEAR ENDED JUNE 2003
Client Industry Difference Initial Indicator
GENERAL
Number of Companies 1.00 557.00
Total Assets ($000's) 8,835.64 4,566.00 4,269.64
BALANCE SHEET ITEMS
Current Assets as a % of Assets 15.61 9.60 6.01 Positive
Cash as a % of Assets 13.15 5.60 7.55 Positive
Accounts Receivable as a % of Assets 1.44 1.80 -0.36 Negative
Inventory as a % of Assets 0.05 0.80 -0.75 Negative
Fixed Assets as a % of Assets 80.28 80.50 -0.22 Negative
Current Liabilities as a % of Assets 7.13 14.60 -7.47 Positive
Long-Term Debt as a % of Assets 73.04 70.50 2.54 Negative
Total Debt as a % of Assets 80.17 89.00 -8.83 Positive
Net Worth as a % of Assets 19.83 11.00 8.83 Positive
INCOME STATEMENT ITEMS
Annual Sales ($000's) 3,148.79 2,876.00 272.79
Gross Profit as a % of Sales 95.93 0.00 95.93 Positive
Operating Expense as a % of Sales 99.48 83.20 16.28 Negative
Operating Profit as a % of Sales -3.55 16.80 -20.35 Negative
Income Before Tax as a % of Sales 5.14 3.60 1.54 Positive
TURNOVER RATIOS
Accounts Receivable (X) 34.03 64.10 -30.07 Negative
Inventory (X) 24.12 0.00 24.12 Positive
Fixed Asset (X) 0.42 0.60 -0.18 Negative
Total Asset (X) 0.32 0.50 -0.18 Negative
PROFITABILITY
Pre-Tax Return on Assets (%) 1.62 1.60 0.02 Positive
Pre-Tax Return on Equity (%) 9.54 13.20 -3.66 Negative
RISK
Current Ratio (X) 2.19 0.70 1.49 Positive
Quick Ratio (X) 2.18 0.50 1.68 Positive
Interest Coverage Ratio (X) 1.35 1.40 -0.05 Negative
Total Debt/Equity (X) 4.04 9.00 -4.96 Positive
APPENDIX F
ILLUSTRATIVE GRAPH OF REVENUES AND SALARY EXPENSE
[GRAPHIC DEPICTING CHART OF THREE (3) YEARS (2001, 2002 & 2003)
HOTEL REVENUES & SALARIES]
APPENDIX G
SUMMARY APPRAISAL REPORT
APPRAISAL REPORT
APPRAISAL OF
THE PROPOSED
HOLIDAY INN HOTEL & SUITES
THIRD AVENUE & EIGHTH STREET
HUNTINGTON, WEST VIRGINIA
PREPARED FOR
UPTOWNER INNS, INC. AND/OR ITS ASSIGNS
REPORT DATE: JULY 30, 1996
FINAL INSPECTION DATE: JULY 17, 1996
"AS IS" VALUATION DATE: JULY 17, 1996
"AT COMPLETION" VALUATION DATE: APRIL 1, 1997
"AT STABILIZED OCCUPANCY" VALUATION DATE: APRIL 1, 1999
PREPARED BY
ROBERT K. WITHERS, MAI, RM
WITHERS & CO.
APPRAISERS ~ REALTORS
414 ELEVENTH STREET
HUNTINGTON, WEST VIRGINIA 25701
(304) 529-2659
Copyright (C) 1996 by Withers & Co.
All rights reserved.
[LETTERHEAD FOR WITHERS & CO., APPRAISERS ~ REALTORS]
414 Eleventh Street Robert K. Withers, MAI, RM
Huntington, WV 25701
Tel 304-529-2659
Fax 304-529-1421
July 30, 1996
Uptowner Inn, Inc. and/or its assigns
c/o Mr. Carl E. Midkiff
1415 Fourth Avenue
Huntington, WV 25701
RE: Holiday Inn Hotel & Suites (Proposed)
Third Avenue & Eighth Street
Huntington, W. Va.
Dear Mr. Midkiff:
In response to your request, I have inspected and appraised the
above-referenced property, which is a proposed 135-room Holiday Inn to be built
on a 2.5-acre corner site across Eighth Street from the Huntington Civic Center.
The purpose of the appraisal is to estimate the current market value, the
prospective market value of the property on April 1, 1997, when construction is
projected to be completed, and the prospective market value on April 1, 1999,
when stabilized occupancy is projected to occur.
From the examination and study made, I have formed the opinion subject to
the Statement of Assumptions and Limiting Conditions and to the Certificate of
Appraisal within the appraisal report, that:
1. On the valuation date, July 17, 1996, the CURRENT MARKET VALUE "AS IS"
WAS ONE MILLION ONE HUNDRED THOUSAND DOLLARS ($1,100,000) and consisted of the
site only.
2. On the valuation date, April 1, 1997, THE PROSPECTIVE MARKET VALUE "AT
COMPLETION" WOULD BE:
FIVE MILLION FIVE-HUNDRED FORTY-FIVE THOUSAND DOLLARS
($5,545,000),
Mr. Carl E. Midkiff
July 30, 1996
Page 2
allocated as follows:
Site $1,100,000
Improvements 4,445,000
----------
Total real estate $5,545,000
3. On the valuation date of April 1, 1999, THE PROSPECTIVE MARKET VALUE
"AT STABILIZED OCCUPANCY" would be:
SIX MILLION SIX-HUNDRED FIFTY THOUSAND DOLLARS
(6,650,000),
allocated as follows:
Site $1,100,000
Improvements 5,550,000
----------
Total real estate $6,650,000
The enclosed report, which I have prepared for your review, describes the
property and the valuation process as well. It was prepared in compliance with
the Uniform Standards of Professional Appraisal Practice (USPAP) and is a
Self-Contained Appraisal Report as specified under Standards Rule 2-2(a) of the
USPAP. Also, it is a Complete Appraisal as defined therein in that it was
performed without invoking the USPAP's Departure Provision (deleting one or more
approaches to value without proper justification). I believe I meet the
Competency Provision of the USPAP as within the last five years, for example, I
have appraised in excess of 10 motel properties.
Mr. Carl E. Midkiff
July 30, 1996
Page 3
Thank you for the opportunity to be of service and please call if you have
any questions.
Respectfully submitted,
By /s/ Robert K. Withers, MAI, RM
Robert K. Withers, MAI, RM
State Certified General
Real Estate Appraiser
Certificate No. 040
RKW/tam
Enclosures
APPENDIX H
AUDITED FINANCIAL STATMENTS
[The information required under Appendix H is incorporated by reference to the
previous Uptowner Inns, Inc. SEC filings of Form 10K]
APPENDIX I
VALUATION ANALYST'S QUALIFICATIONS
APPENDIX I
STATEMENT OF QUALIFICATIONS
SUSAN K. RICHARDSON, CPA, CVA
Academic and Professional Credentials
Bachelor of Arts, Marshall University, 1982
Certified Public Accountant - 1983, Licensed to practice in West Virginia
and Kentucky
Certified Valuation Analyst, National Association of Certified Valuation
Analysts (NACVA), 1994
Position and Experience
Partner, Somerville & Company, CPAs
Manager/Partner in charge of the management consulting services practice
area since 1988
Professional Affiliations
National Association of Certified Valuation Analysts
National Association of Forensic Economists
Institute of Business Appraisers
American Institute of Certified Public Accountants
Member, Partnership Taxation Committee, 1994-1997
CPA Associates International, Inc.
Member, Federal Taxation Committee,1994-1997 and 2000-2003
West Virginia Society of Certified Public Accountants
Director-at-Large, 1995-1998
Chairman, Careers in Accounting Project Group 2001-2004
Various other local and regional professional and community organizations
APPENDIX III
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
UPTOWNER INNS, INC.
Pursuant to the provisions of Section 1005, Article 10, Chapter 31D of
the Code of West Virginia, the undersigned Corporation adopts the following
Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the Corporation is Uptowner Inns, Inc.
SECOND: The following amendment of the Articles of Incorporation was
adopted by the shareholders of the Corporation on _________ ___, 2004, in the
manner prescribed by Section 1003, Article 10, Chapter 31D:
RESOLVED, that Article IV of the Articles of Incorporation of
the Corporation be amended to read, in its entirety, as follows:
IV. The amount of the total authorized capital of the
Corporation shall be Five Hundred Dollars ($500), which shall consist
of Five Hundred (500) shares of Common Stock, par value $1.00 per
share.
THIRD: The amendment of the Articles of Incorporation was adopted to
implement a reverse stock split of 1-for-10,000 shares of the common stock of
the Corporation. Upon the filing of these Articles of Amendment, each share of
existing common stock will automatically be reclassified into one ten thousandth
of a fully paid and non-assessable share of the new common stock without any
further action on the part of the shareholders. No certificates or scrip
representing fractional shares of the new common stock shall be issued in
connection with the reverse stock split. Within ten days
-1-
of the filing of these Articles of Amendment, the Corporation will mail to the
shareholders holding fewer than 10,000 shares of common stock or holding a
number of shares not evenly divisible by 10,000, a notice of the filing of the
Articles of Amendment and a letter of transmittal containing instructions with
respect to submission of shares of common stock to the Corporation. Upon
surrender of their old certificates, such shareholders will receive $1.07 per
share on a pre-split basis.
FOURTH: The amendment of the Articles of Incorporation was adopted on
__________ ___, 2004.
FIFTH: The amendment was duly approved by the shareholders in the
manner required by Section 1003, Article 10, Chapter 31D. The number of shares
of the Corporation outstanding at the time of such adoption was __________, and
the number of shares entitled to vote thereon was __________. The number of
shares voted for such amendment was ______, and the number of shares that voted
against such amendment was ________.
DATED: _____________ ______, 200___.
UPTOWNER INNS, INC.,
By:______________________________
Carl Midkiff
Its President
and
______________________________
Hobart Adkins
Its Secretary
-2-
STATE OF WEST VIRGINIA,
COUNTY OF CABELL, to-wit:
Taken, subscribed and sworn to before the undersigned authority by
____________________, as President of UPTOWNER INNS, INC., this ___ day of
_____________, 200___.
My commission expires __________________________________.
_______________________________
NOTARY PUBLIC
STATE OF WEST VIRGINIA,
COUNTY OF CABELL, to-wit:
Taken, subscribed and sworn to before the undersigned authority by
____________________, as Secretary of UPTOWNER INNS, INC., this ___ day of
_____________, 200___.
My commission expires __________________________________.
_______________________________
NOTARY PUBLIC
Articles of Amendment Prepared By:
Christina T. Brumley, Esq.
JACKSON KELLY PLLC
1600 Laidley Tower
P. O. Box 553
Charleston, West Virginia 25322
-3-
UPTOWNER INNS, INC.
741 5th AVENUE
HUNTINGTON, WEST VIRGINIA 25701
(304) 525-8162
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF SHAREHOLDERS,
FEBRUARY ___, 2004
Carl Midkiff and David Robinson, or either one of them, with full power
to act alone and with full power of substitution, are hereby authorized to
represent and to vote stock of the undersigned in Uptowner Inns, Inc., at the
Special Meeting of Shareholders to be held February __, 2004.
Unless otherwise specified on this proxy, the shares represented by
this proxy will be voted "FOR" the propositions listed on the reverse side and
described more fully in the proxy statement of Uptowner Inns, Inc., distributed
in connection with this Special Meeting. If any other business is presented at
said meeting, this proxy shall be voted in accordance with recommendations of
the board of directors.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
UPTOWNER INNS, INC.
PLEASE MARK VOTE IN BOX IN THE FOLLOWING MANNER
USING DARK INK ONLY.
The board of directors recommends a vote "FOR" the listed propositions.
1. To approve and adopt a one for 10,000 reverse stock split that would result
in (a) shareholders receiving one share of new common stock, $1.00 par
value (the "New Common Stock") for each 10,000 shares of common stock owned
as of the effective date, and (b) shareholders owning less than 10,000
shares of the company's common stock receiving cash in lieu of any
fractional share they would otherwise be entitled to receive as a result of
the reverse stock split at a rate of $1.07 per share on a pre-split basis
(the "Reverse Stock Split").
2. To approve and adopt the following amendment to the Articles of
Incorporation (the "Articles of Incorporation") of Uptowner:
RESOLVED, that Article IV of the Articles of Incorporation of the
Corporation be amended to read, in its entirety, as follows:
IV. The amount of the total authorized capital of the Corporation
shall be Five Hundred Dollars ($500), which shall consist of Five
Hundred (500) shares of Common Stock, par value $1.00 per share.
For [ ] Against [ ] Abstain [ ]
3. To have the proxies vote in accordance with the recommendation of
management as to any other matters, which may properly come before the
Special Meeting or any adjournments thereof and which relate only to
matters not known by the company a reasonable time before solicitation of
this proxy.
For [ ] Against [ ] Abstain [ ]
Dated: _______________________, 2004
____________________________________
____________________________________
Signature(s)
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title. If more than
one trustee, all should sign.
C0810690