SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to ___________
Commission file number 0-9218
SUPER 8 MOTELS II, LTD.
(Exact name of registrant as specified in its charter)
California 94-2574309
(State or other jurisdiction of (I.R.S. Employer iden-
incorporation or organization) tification No.)
2030 J Street, Sacramento, California 95814
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 442-9183
Securities registered pursuant to Section 12 (b) of the Act: None
Securities
registered pursuant to Section 12 (g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
has been required to file such reports) and (2) has been subject to the filing
requirements for the past 90 days. Yes _x_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [x]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
Inapplicable.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1. BUSINESS
General Development of Business
Super 8 Motels II, Ltd. (the "Partnership") is a limited partnership which
was organized under the Uniform Limited Partnership Act of the State of
California on May 7, 1979. The Managing General Partner of the Partnership is
Grotewohl Management Services, Inc., a California corporation which is 50% owned
by Philip B. Grotewohl. The Associate General Partner of the Partnership is
Robert J. Dana. The Associate General Partner does not have general
responsibility in connection with the management of the business affairs of the
Partnership. The Managing General Partner and the Associate General Partner are
sometimes hereinafter referred to as the "General Partners."
Through two intrastate offerings of units of limited partnership interest
in the Partnership (the "Units"), the Partnership sold 7,000 Units at a price of
$1,000 per Unit.
The net proceeds of the two offerings were expended for the acquisition and
development of two properties located in Santa Rosa, California, and Ontario,
California. A fee interest was acquired in the Ontario property and a leasehold
interest was acquired in the Santa Rosa property. Motel operations commenced on
November 12, 1980 at the Santa Rosa property, and on May 29, 1981 at the Ontario
property. The Ontario property was sold on February 14, 1990.
There is hereby incorporated by reference herein the information regarding
the Partnership's motel property contained in Part I, Item 2 of this report
under the caption "Properties."
Narrative Description of Business
The Partnership's business is to operate its motel property and to engage
in any and all general business activities related or incidental thereto. The
Partnership's motel is operated pursuant to a franchise originally acquired from
Super 8 Motels, Inc. through Super 8 Management Corporation as a subfranchisor,
under the name "Super 8 Motel."
Super 8 Motels, Inc. is a South Dakota corporation which was organized in
1972. Its first franchised motel commenced operation in 1974 and, as of November
30, 1997, it had a total of 1,619 franchised motels having an aggregate in
excess of 98,000 guest rooms in operation. On April 30, 1993, Super 8 Motels,
Inc. became a wholly-owned subsidiary of Hospitality Franchise Systems, Inc.
("HFS"). In addition to Super 8 Motels, HFS is also the franchisor of
hospitality properties under the Howard Johnson, Ramada, Voyager Lodge, Knights
Inn, Winngate Inn, Travelodge and Days Inn tradenames.
Motels franchised by Super 8 Motels, Inc. are budget motels in that they
offer room rates near the lower end of the room rate scale in each area in which
they are located. Such lower rates are made possible by the elimination of
certain features present in many higher-priced facilities, such as meeting rooms
and large lobbies; by not operating restaurants or cocktail lounges in
connection with the motels; and by utilizing uniform construction methods
(adapted only slightly to fit specific locales) which have been developed by
Super 8 Motels, Inc. and a standardized design which facilitates maintenance and
minimizes overhead expense.
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<PAGE>
Super 8 Motels offer accommodations at the upper end, in terms of
facilities and prices, of the budget segment of the lodging industry. Generally,
Super 8 Motels offer larger rooms and higher quality furniture and furnishings
than motels franchised under the tradenames Motel 6, Regal 8 and E-Z 8. Rates in
the Super 8 Motels tend to exceed those offered by the chains mentioned above.
By terms of the franchise agreement with Super 8 Motels, Inc., the
Partnership pays monthly franchise fees equal to 4% of its gross room revenues
and contributes an additional 1% of its gross room revenues to a fund
administered by Super 8 Motels, Inc. to finance the national advertising
program. The Partnership has no equity or other interest in Super 8 Motels, Inc.
Brown & Grotewohl (the "Manager"), a California general partnership which
is an affiliate of the Managing General Partner, directs the operation of the
Partnership's motel. The Manager supervises and directs the Partnership's
employees having direct responsibility for the operation of the motel,
establishes room rates, and directs the promotional activities of the
Partnership's employees. It directs the purchase of replacement equipment and
supplies, maintenance activity and the engagement or selection of all vendors,
suppliers and independent contractors. The motel staff, under the supervision of
the Manager, is responsible for, among other things, performing all service,
administrative and bookkeeping duties in connection with the motel, including
all collections and all disbursements to be paid out of funds generated by such
operations or otherwise supplied by the Partnership.
The Partnership employs (on a part-time basis) one secretarial employee,
four Partnership and motel administrative employees, one marketing employee, and
five accounting employees at its Sacramento, California office. Included in the
above list is David P. Grotewohl, son of Philip Grotewohl, whom the Partnership
employs as Director of Operations and as an attorney. Mark Grotewohl, son of
Philip Grotewohl, is employed as Director of Marketing.
Santa Rosa, California
The motel located in Santa Rosa, California, which consists of 100 guest
rooms, commenced operations on November 12, 1980. The average occupancy rates
and average room rates for the period from October 1, 1994 to September 30,
1997, are as follows:
1994 - 1995 1995 - 1996 1996 - 1997
----------- ----------- -----------
Average Occupancy Rate 54% 53% 60%
Average Room Rate $42.33 $44.49 $45.65
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The following existing lodging facilities provide direct or indirect
competition to the Partnership's Santa Rosa motel:
APPROXIMATE
DISTANCE FROM
NUMBER OF PARTNERSHIP'S
FACILITY ROOMS MOTEL (IN MILES)
----------------------- --------- ----------------
Motel 6 100 Adjacent
Motel 6 119 0.5 miles
Los Robles Inn 90 0.5 miles
Sandman Motel 112 0.5 miles
Ramada Inn 50 0.5 miles
Holiday Inn Express 95 1.0 mile
Days Inn 160 1.5 miles
TraveLodge 60 2.0 miles
Best Western Garden Inn 100 3.0 miles
The Partnership employs (on a full-time or part-time basis) one manager,
seven desk clerks, nine laundry and housekeeping employees, and one maintenance
worker at the Santa Rosa motel.
The Santa Rosa motel draws its business from a variety of sources,
including corporate travelers, vacationers and tourists, convention attendees
and sports teams. The Santa Rosa motel has no single customer the loss of which
would have a materially adverse effect on the motel's operations.
Item 2. PROPERTIES
On January 8, 1980, the Partnership acquired by long-term lease a parcel of
approximately three acres of unimproved land located at 2632 N. Cleveland
Avenue, Santa Rosa, California, adjacent to U.S. Highway 101. Effective May 1,
1981, the lease was amended to delete an area comprising approximately 32,600
square feet from the lease. A restaurant facility was subsequently built on this
deleted portion.
The term of the lease extends until August 31, 2015, with a possible
extension of the term for up to an additional 15 years through exercise by the
Partnership of three five-year renewal options. Base rental payments are subject
to adjustment at three-year intervals to reflect changes in the Consumer Price
Index. The base rent is $8,398 per month from September 1, 1997 through August
31, 2000. Such rent is net to the lessor of property taxes and assessments,
utilities and other expenses relating to the land.
In April 1980, construction of the Partnership's 100-room motel was
commenced on the site. The motel opened for operations immediately after
construction was completed on November 12, 1980.
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<PAGE>
Item 3. LEGAL PROCEEDINGS
On October 27, 1997 a complaint was filed in the United States District
Court, Eastern District of California by the registrant, Grotewohl Management
Services, Inc. (a general partner of the registrant) and four other limited
partnerships (together with the registrant, the "Partnerships") as to which
Grotewohl Management Services, Inc. serves as general partner (i.e., Super 8
Motels, Ltd., Super 8 Motels III, Ltd., Super 8 Economy Lodging IV, Ltd., and
Famous Host Lodging V, L.P.), as plaintiffs. The complaint names as defendants
Everest/Madison Investors, LLC, Everest Lodging Investors, LLC, Everest
Properties, LLC, Everest Partners, LLC, Everest Properties II, LLC, Everest
Properties, Inc., W. Robert Kohorst, David I. Lesser, The Blackacre Capital
Group, L.P., Blackacre Capital Management Corp., Jeffrey B. Citron, Ronald J.
Kravit, and Stephen B. Enquist. The factual basis underlying the plaintiffs'
causes of actions pertains to tender offers directed by certain of the
defendants to limited partners of the Partnerships, and to indications of
interest made by certain of the defendants in purchasing the property of the
Partnerships. The complaint requests the following relief: (i) a declaration
that each of the defendants has violated Sections 13(d), 14(d) and 14(e) of the
Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and
regulations promulgated by the Securities and Exchange Commission thereunder;
(ii) a declaration that certain of the defendants have violated Section 15(a) of
the Exchange Act and the rules and regulations thereunder; (iii) an order
permanently enjoining the defendants from (a) soliciting tenders of or accepting
for purchase securities of the Partnerships, (b) exercising any voting rights
attendant to the securities already acquired, (c) soliciting proxies, and (d)
violating Sections 13 or 14 of the Exchange Act or the rules and regulations
promulgated thereunder; (iv) an order enjoining certain of the defendants from
violating Section 15(a) of the Exchange Act and the rules and regulations
promulgated thereunder; (v) an order directing certain of the defendants to
offer to each person who sold securities to such defendants the right to rescind
such sale; and (vi) a declaration that the Partnerships need not provide to the
defendants a list of limited partners in the Partnerships or any other
information respecting the Partnerships which is not publicly available. The
plaintiffs have not yet received an answer of the defendants respecting the
complaint.
On October 28, 1997 a complaint was filed in the Superior Court of the
State of California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC, as plaintiffs, against Philip B. Grotewohl,
Grotewohl Management Services, Inc., Kenneth M. Sanders, Robert J. Dana, Borel
Associates, and BWC Incorporated, as defendants, and the Partnerships, as
nominal defendants. The factual basis underlying the causes of action pertains
to the receipt by the defendants of franchise fees and reimbursement of
expenses, the indications of interest made by the plaintiffs in purchasing the
properties of the nominal defendants, and the alleged refusal of the defendants
to provide information required by the terms of the Partnership's partnership
agreement and California law. The complaint requests the following relief: (i) a
declaration that the action is a proper derivative action; (ii) an order
requiring the defendants to discharge their fiduciary duties to the Partnerships
and to enjoin them from breaching their fiduciary duties; (iii) disgorgement of
certain profits; (iv) appointment of a receiver; and (v) an award for damages in
an amount to be determined. The defendants and nominal defendants have recently
been served and are formulating their response to the complaint.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
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<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Units are not freely transferable and no public market for the Units
has developed or is expected to develop.
Holders
As of December 1, 1997, a total of 1,014 investors ("Limited Partners")
held Units in the Partnership.
Distributions
Cash distributions are made on a quarterly basis from Cash Available for
Distribution, defined in the Partnership's Certificate and Agreement of Limited
Partnership (the "Partnership Agreement") as Cash Flow, less adequate cash
reserves for obligations of the Partnership for which there is no provision.
Cash Flow means cash funds provided from operations of the Partnership, without
deduction for depreciation, but after deducting cash funds used to pay or
provide for the payment of debt service, capital improvements and replacements
and the operating expenses of the Partnership's property.
In addition, the Partnership will promptly distribute net proceeds of the
sale and refinancing of its motel properties to the General Partners and the
Limited Partners of the Partnership (the "Limited Partners"), to the extent such
proceeds are not reinvested in the acquisition of additional properties.
The following distributions to the Limited Partners were made during the
last two fiscal years:
Total Amount
Date Distribution Per Unit
-------- ------------ --------
8-15-96 $21,000 $3.00
11-15-96 $21,000 $3.00
2-15-97 $35,000 $5.00
3-3-97 $280,000 $40.00
5-15-97 $35,000 $5.00
8-15-97 $52,500 $7.50
Item 6. SELECTED FINANCIAL DATA
Following are selected financial data of the Partnership for the fiscal
years ended September 30, 1997, 1996, 1995, 1994 and 1993.
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SUPER 8 MOTELS II, LTD.
Item 6. Selected Financial Data
Years Ended September 30:
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Total Income $1,032,367 $889,283 $850,781 $827,562 $846,804
Motel Room Income $995,707 $856,246 $829,326 $808,505 $828,804
Net Income (Loss) $213,399 $101,430 $31,089 $(31,564) $(88,213)
Per Partnership Unit:
Cash distributions $60.50 $3.00 - - -
Net income (loss) $30.18 $14.35 $4.40 $(4.46) $(12.48)
Years Ended September 30:
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Total Assets $1,067,776 $1,268,224 $1,172,917 $1,122,106 $1,158,408
Long-Term Debt - - - - -
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<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity
The Managing General Partner believes that the Partnership's liquidity,
defined as its ability to generate sufficient amounts of cash to satisfy its
cash needs, is adequate. Current assets of $486,052 exceed current liabilities
of $108,806 by $ 377,246 as of September 30, 1997 as compared with $546,237 for
the same date in the previous fiscal year.
After the second quarter of the fiscal year ended September 30, 1992, the
Managing General Partner suspended the Limited Partners' quarterly distributions
to preserve cash, with the intention of resuming distributions to the extent
distributions could be sustained by the cash flow from the Santa Rosa motel
operations. In August 1996, the Managing General Partner authorized the
resumption of distributions at a modest $3 per Unit per quarter. The most recent
distribution was $7.50 per Unit per quarter.
The Managing General Partner has a reserve target equal to 5% of "Adjusted
Capital Contributions," or $174,716 (5% of $3,494,317). "Adjusted Capital
Contributions" is computed as the original amount raised ($7,000,000) less the
$259,154 returned to the Limited Partners in 1982 from the sale of excess
Ontario land, and less the $3,246,529 returned to the Limited Partners from the
1990 Ontario motel sale. The $377,246 excess of current assets over current
liabilities exceeds the reserve target. The Managing General Partner has decided
to maintain the higher operating reserve pending sustained improvement in the
Santa Rosa lodging market.
The Partnership's primary source of liquidity is its gross revenues from
operations. As noted below, the Partnership has a positive cash flow from motel
operations. In addition, the Partnership's equity in its Santa Rosa motel, which
is presently unencumbered, would provide a potential source of liquidity through
financing in the event the Partnership's liquidity were impaired. There can be
no assurance, however, that the Partnership could borrow against such equity on
favorable terms should additional liquidity be required.
Capital Resources
The Partnership owns and operates one motel property, a 100-room lodging
facility located on leased land in Santa Rosa, California.
The Partnership currently has no material commitments for capital
expenditures. Its motel property is in full operation, and no further property
acquisitions or extraordinary capital improvements are contemplated. Except as
described below, the Managing General Partner is aware of no material trends or
changes with respect to the mix or relative cost of the Partnership's capital
resources. Working capital is expected to be generated by revenues from
operations.
During the fiscal year covered by this report, the Partnership expended
$61,087 on renovations and replacements ($43,159 of which was capitalized).
Included in these amounts was $28,669 for guest room and corridor carpeting,
$8,024 for a replacement washing machine, $4,459 for six replacement room
air-conditioning units and $3,660 for furniture refurbishment.
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During the fiscal year ended September 30, 1996, the Partnership
capitalized $36,984 of the $57,971 spent on the refurbishment of its motel and
furnishings. Included in the capitalized items were $11,148 for a replacement
central office computer, $8,149 for a replacement washing machine, $6,817 for
new backflow devices required by the City of Santa Rosa under the EPA's
administration of the Clean Water Act, $6,088 for replacement room carpets,
$2,577 for a replacement clothes dryer and $2,205 for replacement television
sets. The non-capitalized renovations of $20,988 included expenditures for lamps
and light fixtures, drapes, air-conditioning units, mattresses, chairs, outside
building trim repairs and landscaping.
The Managing General Partner anticipates that approximately 3% of gross
room revenues will be spent on replacement and renovation during the fiscal year
ending September 30, 1998. The Managing General Partner intends that all of
these expenditure will be made from cash flow from operations or, if such cash
flow is insufficient, from the Partnership's cash reserves.
Results of Operations
Partnership's Combined Financial Results
During the fiscal year covered by this report as compared to the previous
fiscal year, the Partnership achieved a $143,084 (or 16.1%) increase in total
income. This increase was due primarily to a $139,461 (or 16.3%) increase in
guest room revenue. The increased room revenue is discussed under the Santa Rosa
Motel caption below.
During the fiscal year ended September 30, 1996 as compared to the previous
fiscal year, the Partnership achieved a $38,502 (or 4.5%) increase in total
income, due primarily to a $26,920 (or 3.2%) increase in guest room revenue. The
income increase is discussed under the Santa Rosa Motel caption below.
During the fiscal year covered by this report as compared to the previous
fiscal year, the Partnership experienced a $31,115 (or 3.9%) increase in total
expenses. This increase is related to increased property occupancy and is
discussed below in more detail.
During the fiscal year ended September 30, 1996 as compared to the previous
fiscal year, the Partnership achieved a $31,839 (or 3.9%) reduction in total
expenses, due primarily to the $25,548 (or 3.7%) reduction in motel operating
expenses. This decrease in motel operating expenses is discussed below.
Santa Rosa Motel
The following is a comparison of operating results of the Partnership's
Santa Rosa motel for the twelve-month periods ended September 30, 1995, 1996 and
1997:
Average Average
Occupancy Room
Twelve months ended: Rate Rate
-------------------- --------- -------
September 30, 1995 53.7% $42.33
September 30, 1996 52.6% $44.49
September 30, 1997 59.8% $45.65
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Total Total Expenditures Partnership
Twelve months ended: Revenues and Debt Service Cash Flow (1)
-------------------- ---------- ------------------ ------------
September 30, 1995 $850,781 $752,705 $98,076
September 30, 1996 $889,283 $733,042 $156,241
September 30, 1997 $1,032,367 $771,215 $261,152
(1) While Partnership Cash Flow as it is used here is not an amount found
in the financial statements, this amount is the best indicator of the annual
change in the amount, if any, available for distribution to the Limited
Partners. This calculation is reconciled to the financial statements in the
following table.
Reconciliation of Partnership Cash Flow (included in the chart above) to
Net Income as shown on the Statements of Operations (in the financial
statements) is as follows:
1995 1996 1997
-------- -------- --------
Partnership Cash Flow $98,076 $156,241 $261,152
Additions to Fixed Assets 28,974 36,964 43,159
Depreciation and Amortization (97,047) (91,815) (90,581)
Other Items 1,086 40 (331)
-------- -------- --------
Net Income $31,089 $101,430 $213,399
======== ======== ========
During the fiscal year covered by this report as compared to the previous
fiscal year, the Partnership's Santa Rosa motel achieved an increase in its
guest room revenue through increases in both its average room rate and its
occupancy rate. The occupancy rate increased from 52.6% during the previous
fiscal year to 59.8% for the fiscal year covered by this report. The average
room rate increased from $44.49 to $45.65. These two increases resulted in the
16% increase in guest room revenue. The Santa Rosa motel achieved its largest
increased revenue from the leisure-market segment with the next largest increase
from the corporate segment.
During the fiscal year ended September 30, 1996 as compared to the previous
fiscal year, the Partnership's Santa Rosa motel achieved an increase in its
guest room revenue through an increase in its average daily room rate. This
increase in revenue was partially offset by a decrease in overall room demand.
This result was achieved by selling more rooms to the higher-priced leisure
market segment and fewer rooms to the corporate, government, group and
discount-market segments.
During the fiscal year covered by this report as compared to the previous
fiscal year, the Partnership's Santa Rosa motel experienced a $38,173 or 5.2%
increase in total expenditures which is due primarily to the 13.7% increase in
occupancy. The increased expenditures included $14,411 in room attendent wages,
$6,973 in increased franchise royalties and advertising costs and $7,250 in
appraisal costs.
During the fiscal year ended September 30, 1996 as compared to the previous
fiscal year, the Partnership's Santa Rosa motel achieved a 2.6% reduction in
total expenditures and debt service while the average occupancy declined 2.0%.
The Partnership's Santa Rosa motel achieved a reduction of $20,880 in
expenditures for renovations and additions to fixed assets and $5,241 in front
desk wages and salaries, which were partially offset by a $7,264 increase in
utility costs.
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Future Trends
The Managing General Partner believes that the adverse conditions in the
Santa Rosa lodging market somewhat eased in the last year, although such
conditions may continue to have a negative impact on the Partnership's
profitability in the near term. Although there can be no assurance in this
regard, analysis of economic growth trends and planned hotel and motel
construction leads the Managing General Partner to believe that the Santa Rosa
economy will eventually absorb the existing supply of motel rooms.
The Managing General Partner expects the Partnership's occupancy
percentages (and thus revenues and profitability) to benefit from continued
economic growth in the local and California economies. The Managing General
Partner anticipates lower occupancy rates and perhaps lower room rates in the
event of an economic downturn. The Managing General Partner believes that
competitive conditions in the Santa Rosa market are such as to restrict the
Partnership's ability, in the short run, to increase its room rates to
compensate for inflation.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Inapplicable
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<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes to Financial Statements attached hereto
at pages F-1 through F-13.
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<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8
FINANCIAL STATEMENTS
SUPER 8 MOTELS II, LTD.
SACRAMENTO, CALIFORNIA
SEPTEMBER 30, 1997
F-1
<PAGE>
Item 8: Financial Statements
SUPER 8 MOTELS II, LTD.
INDEX OF FINANCIAL STATEMENTS
Pages
-----
Financial Statements:
Report of Certified Public Accountants F-3
Balance Sheets, September 30, 1997 and 1996 F-4
Statements of Operations for the years ended F-5
September 30, 1997, 1996 and 1995
Statements of Partners' Equity for the years ended F-6
September 30, 1997, 1996 and 1995
Statements of Cash Flows for the years ended F-7 to
September 30, 1997, 1996 and 1995 F-8
Notes to Financial Statements F-9 to
F-12
Note: All schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto.
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Super 8 Motels II, Ltd.
We have audited the accompanying balance sheets of Super 8 Motels II, Ltd., a
California limited partnership, as of September 30, 1997 and 1996 and the
related statements of operations, partners' equity and cash flows for each of
the three years in the period ended September 30, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly , in
all material respects, the financial position of Super 8 Motels II, Ltd. as of
September 30, 1997 and 1996 and the results of its operations and its cash flows
for each of the three years in the period ended September 30, 1997, in
conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
San Mateo, California
F-3
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
BALANCE SHEETS
September 30, 1997 and 1996
ASSETS
1997 1996
---------- ----------
Current Assets:
Cash and temporary investments (Notes 1 and 3) $459,098 $614,405
Accounts receivable 17,937 9,323
Prepaid expenses 9,017 21,662
---------- ----------
Total Current Assets 486,052 645,390
---------- ----------
Property and Equipment (Notes 2 and 7):
Capital improvements 34,947 34,947
Building 1,845,878 1,845,878
Furniture and equipment 524,159 497,661
---------- ----------
2,404,984 2,378,486
Accumulated depreciation and amortization (1,834,078) (1,759,327)
---------- ----------
Property and Equipment, Net 570,906 619,159
---------- ----------
Other Assets (Note 2):
Deposit of federal income tax 10,818 3,675
---------- ----------
Total Assets $1,067,776 $1,268,224
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 105,071 $ 97,413
Due to related parties (Note 4) 3,735 1,740
---------- ----------
Total Liabilities 108,806 99,153
---------- ----------
Contingent Liabilities and Lease Commitment
(Notes 4 and 5) - -
Partners' Equity:
General Partners 49,493 47,359
Limited Partners 909,477 1,121,712
---------- ----------
Total Partners' Equity 958,970 1,169,071
---------- ----------
Total Liabilities and Partners' Equity $1,067,776 $1,268,224
========== ==========
The accompanying notes are an integral part of these financial statements
F-4
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SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
Years Ended September 30:
---------------------------------
1997 1996 1995
--------- --------- ---------
Income:
Motel room $995,707 $856,246 $829,326
Telephone and vending 14,913 14,721 10,260
Interest 16,818 17,236 10,068
Other 4,929 1,080 1,127
--------- --------- ---------
Total Income 1,032,367 889,283 850,781
--------- --------- ---------
Expenses:
Motel operations (exclusive of depreciation
shown separately below) (Notes 4 and 6) 684,677 662,519 688,067
General and administrative (exclusive of
depreciation shown separately below) (Note 4) 43,710 33,519 34,578
Depreciation and amortization (Note 2) 90,581 91,815 97,047
--------- --------- ---------
Total Expenses 818,968 787,853 819,692
--------- --------- ---------
Net Income $213,399 $101,430 $31,089
========= ========= =========
Net Income Allocable to General Partners $2,134 $1,014 $311
======= ======= =======
Net Income Allocable to Limited Partners $211,265 $100,416 $30,778
======== ======== =======
Net Income Per Partnership Unit (Note 1) $30.18 $14.35 $4.40
======= ======= =======
Distributions to Limited Partners
Per Partnership Unit (Note 1) $60.50 $3.00 $ -
======= ======= =======
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY
Years Ended September 30:
---------------------------------
1997 1996 1995
--------- --------- ---------
General Partners:
Balance, beginning of year $ 47,359 $ 46,345 $ 46,034
Net income 2,134 1,014 311
--------- --------- ---------
Balance, End of Year 49,493 47,359 46,345
--------- --------- ---------
Limited Partners:
Balance, beginning of year 1,121,712 1,042,296 1,011,518
Net income 211,265 100,416 30,778
Distributions to limited partners (423,500) (21,000) -
--------- --------- ---------
Balance, End of Year 909,477 1,121,712 1,042,296
--------- --------- ---------
Total Partners' Equity $958,970 $1,169,071 $1,088,641
========= ========= =========
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended September 30:
---------------------------------
1997 1996 1995
--------- --------- ---------
Cash Flows From Operating Activities:
Received from motel operations $1,007,202 $880,407 $840,465
Expended for motel operations and
general and administrative expenses (712,901) (679,215) (704,198)
Interest received 16,551 17,338 8,172
--------- --------- ---------
Net Cash Provided by
Operating Activities 310,852 218,530 144,439
--------- --------- ---------
Cash Flows From Investing Activities:
Purchases of property and equipment (43,159) (36,984) (28,974)
Proceeds from sale of equipment 500 20 -
--------- --------- ---------
Net Cash Used by
Investing Activities (42,659) (36,964) (28,974)
--------- --------- ---------
Cash Flows From Financing Activities:
Distributions paid to limited partners (423,500) (21,000) -
--------- --------- ---------
Net Cash Used by Financing Activities (423,500) (21,000) -
--------- --------- ---------
Net Increase (Decrease) in Cash and
Temporary Investments (155,307) 160,566 115,465
Cash and Temporary Investments:
Beginning of year 614,405 453,839 338,374
--------- --------- ---------
End of Year $459,098 $614,405 $453,839
========= ========= =========
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS (Continued)
Years Ended September 30:
---------------------------------
1997 1996 1995
--------- --------- ---------
Reconciliation of Net Income (Loss) to Net Cash
Provided by Operating Activities:
Net income (loss) $213,399 $101,430 $ 31,089
--------- --------- ---------
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 90,581 91,815 97,047
Loss (gain) on sale of property 331 (20) -
(Increase) decrease in accounts receivable (8,614) 8,462 (2,144)
(Increase) decrease in prepaid expenses 12,645 5,641 (1,276)
Increase in other assets (7,143) (3,675) -
Increase in accounts payable and accrued
liabilities 7,658 14,936 19,599
Increase (decrease) in due to
related parties 1,995 (59) 124
--------- --------- ---------
Total Adjustments 97,453 117,100 113,350
--------- --------- ---------
Net Cash Provided by
Operating Activities: $310,852 $218,530 $144,439
========= ========= =========
The accompanying notes are an integral part of these financial statements
F-8
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Super 8 Motels II, Ltd., is a limited partnership organized under California law
on May 7, 1979, to acquire and operate motel properties in Santa Rosa and
Ontario, California. The Santa Rosa Motel was opened in November, 1980, and
the Ontario Motel was opened in May, 1981. The Ontario Motel property was sold
in February, 1990. The Partnership grants credit to customers, substantially all
of which are local businesses in Santa Rosa.
The Managing General Partner of the Partnership is Grotewohl Management
Services, Inc., the sole shareholder and officer of which is Philip B.
Grotewohl. The Associate General Partner of the Partnership is Robert J. Dana.
The net income or net loss of the Partnership is allocated 1% to the General
Partners and 99% to the Limited Partners. Net income and distributions per
partnership unit are based upon 7,000 units outstanding. All partnership units
are owned by the Limited Partners.
The Partnership agreement requires that the Partnership maintain reserves for
normal repairs, replacements, working capital and contingencies in an amount of
at least 5% of adjusted capital contributions ($174,716 at September 30, 1997).
As of September 30, 1997, the Partnership had a combined balance in cash and
temporary investments of $459,098.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Items of Partnership income are passed through to the individual partners for
income tax purposes, along with any income tax credits. Therefore, no federal or
California income taxes are provided for in the financial statements of the
Partnership. Since the Partnership has a fiscal year-end other than the majority
of the partners, the Partnership is required annually to make a payment to the
Internal Revenue Service based on the prior year's income.
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the following estimated useful lives and methods:
Description Methods Useful Lives
----------------------- ---------------------- ------------
Capital improvements 200% declining balance 7-20 years
and straight-line
Buildings 150% declining balance 10-25 years
and straight-line
Furniture and equipment 200% declining balance 5-7 years
and straight-line
Costs incurred in connection with maintenance and repair are charged to expense.
Major renewals and betterments that materially prolong the life of assets are
capitalized.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
F-9
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3 - CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments as of September 30, 1997 and 1996 consist of the
following:
1997 1996
-------- --------
Cash in bank, non-interest bearing $ 22,173 $ 35,070
Money market accounts 336,925 479,335
Certificates of deposit 100,000 100,000
-------- --------
Total Cash and Temporary Investments $459,098 $614,405
======== ========
Temporary investments are recorded at cost, which approximates market value. The
Partnership considers temporary investments with original maturities of six
months or less to be cash equivalents for purposes of the statement of cash
flows.
NOTE 4 - RELATED PARTY TRANSACTIONS
Franchise Fees
Super 8 Motels, Inc., now a wholly-owned subsidiary of Hospitality Franchise
Systems, Inc., is franchisor of all Super 8 Motels. The Partnership pays to the
franchisor monthly fees equal to 4% of the gross room revenues of the motel and
contributes an additional 1% of its gross room revenues to an advertising fund
administered by the franchisor. In return the franchisor provides the right to
use the name "Super 8," a national institutional advertising program, an advance
room reservation system, and inspection services. These costs ($49,785 in 1997,
$42,812 in 1996 and $41,466 in 1995) are included in motel operations expense in
the accompanying statements of operations. The Partnership operates its motel
property as a franchisee of Super 8 Motels, Inc. through a sub-franchise
agreement with Brown & Grotewohl, a California general partnership, of which
Grotewohl Management Services, Inc., (see Note 1) is a 50% owner. Under the
sub-franchise agreement, Brown & Grotewohl earned 40% of the above franchise
fees, which amounted to $19,914, $17,125 and $16,587 in 1997, 1996 and 1995,
respectively.
Property Management Fees
The General Partners or their affiliates handle the management of the motel
property of the Partnership. The fee for this service is 5% of the gross
revenues from Partnership operations, as defined in the Partnership agreement,
not including income from the sale, exchange or refinancing of such properties.
This fee is payable only out of the cash available for distribution of the
Partnership, defined as the total cash receipts from Partnership operations
during a given period of time less cash used during the same period to pay debt
service, capital improvements and replacements, operating expenses and reserves.
It is subordinated to prior receipt by the Limited Partners of a cumulative 10%
per annum pre-tax return on their adjusted capital contributions for each year
of the Partnership's existence. At September 30, 1997 the Limited Partners had
not received the 10% cumulative return, and as no property management fees are
payable, they are not reflected in these financial statements. Management
believes it is not likely that these fees will become payable in the future.
F-10
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
Subordinated Partnership Management Fees During the Partnership's operational
stage, the General Partners are to receive 9% of cash available for distribution
for Partnership management services, along with an additional 1% of cash
available for distribution on account of their interest in the income and
losses, subordinated, however, to receipt by the Limited Partners of a
cumulative 10% per annum pre-tax return on their adjusted capital contributions
and to payment of the property management fees referred to above. Since the
Limited Partners had not received the 10% cumulative return and the property
management fees had not been paid, no partnership management fees are presently
payable and therefore are not reflected in these financial statements.
Management expects these fees will never be paid. This fee is payable only from
cash funds provided from operations of the Partnership, and may not be paid from
the proceeds of sale or refinancing.
Subordinated Incentive Distributions
Under the terms of the Partnership agreement, the net proceeds of the sale of
any of the Partnership's motel properties and of any financing or refinancing of
any of the Partnership's motel properties, to the extent that such proceeds are
not to be reinvested in the acquisition of additional properties, shall promptly
be distributed to the General Partners and Limited Partners. Until the Limited
Partners have received distributions from all sources equal to their capital
contributions plus a cumulative 10% per annum pre-tax return on their adjusted
capital contributions, all of such proceeds shall be distributed to the Limited
Partners. Thereafter, 15% of the remainder of such proceeds shall be distributed
to the General Partners as cash incentive distributions and the balance shall be
distributed to the Limited Partners.
Administrative Expenses Shared by the Partnership and its Affiliates There are
certain administrative expenses allocated between the Partnership and affiliated
Super 8 partnerships. These expenses, which are allocated based on usage, are
telephone, data processing, rent of the administrative office, and
administrative salaries. The administrative expenses allocated to the
Partnership were approximately $112,000 in 1997, $113,000 in 1996 and $110,000
in 1995 and are included in motel operations expenses and general and
administrative expenses in the accompanying statements of operations. Included
in administrative salaries are allocated amounts paid to two employees who are
related to Philip B. Grotewohl, the sole shareholder of Grotewohl Management
Services, Inc., a General Partner of the Partnership.
NOTE 5 - LEASE COMMITMENT
The Partnership has a long-term operating lease commitment on approximately
three acres of land in Santa Rosa, California, the site of the Santa Rosa motel.
The term of the lease runs through August 31, 2015, with an option to extend the
lease for three consecutive periods of five years each. The base monthly rent is
subject to adjustment at three year intervals to reflect changes in the Consumer
Price Index. The Partnership will pay all property taxes, assessments and
utilities. Rent expenses for the fiscal years ending September 30, 1997, 1996
and 1995 were $102,033, $101,354 and $101,679, respectively.
F-11
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 5 - LEASE COMMITMENT (Continued)
The future lease commitment at September 30, 1997, using the minimum monthly
amounts, is as follows:
Years Ending
September 30: Amount
------------- ----------
1998 $100,778
1999 100,778
2000 100,778
2001 100,778
2002 100,778
2003-2007 503,888
2008-2012 503,888
2013-2015 293,935
----------
Total $1,805,601
==========
NOTE 6 - MOTEL OPERATING EXPENSES
The following table summarizes the major components of motel operating expenses
for the years ended September 30, 1997, 1996 and 1995.
1997 1996 1995
-------- -------- --------
Salaries and related costs $211,215 $189,103 $191,794
Rent 94,025 93,395 94,016
Franchise and advertising fees 49,785 42,812 41,466
Utilities 71,893 74,632 73,824
Allocated costs, mainly indirect salaries 90,713 92,355 89,327
Repairs and minor renovations 17,928 20,987 33,863
Other operating expenses 149,118 149,235 163,777
-------- -------- --------
Total Motel Operating Expenses $684,677 $662,519 $688,067
======== ======== ========
NOTE 7 - PROPERTY AND EQUIPMENT
The following is a summary of the accumulated depreciation and amortization of
property and equipment:
1997 1996
---------- ----------
Capital improvements $ 34,947 $ 34,075
Building 1,353,486 1,292,582
Furniture and equipment 445,645 432,670
---------- ----------
Accumulated depreciation and amortization $1,834,078 $1,759,327
========== ==========
F-12
<PAGE>
SUPER 8 MOTELS II, LTD.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 8 - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash accounts in six commercial banks located in
California. Accounts at each bank are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000 per bank. A summary of the total
insured and uninsured cash balances (not reduced by outstanding checks) as of
September 30, 1997 follows:
Total cash in all California banks $469,982
Portion insured by FDIC (329,181)
--------
Uninsured cash balances $140,801
========
NOTE 9 - SUBSEQUENT EVENTS
On October 27, 1997 a complaint was filed in the United States District Court by
Grotewohl Management Services, Inc. (a general partner of the Partnership)
naming as defendants Everest/Madison Investors, LLC, Everest Lodging Investors,
LLC, Everest Properties II, LLC, Everest Properties, Inc., W. Robert Kohorst,
David I. Lesser, The Blackacre Capital Group, L.P., Blackacre Capital Management
Corp., Jeffrey B. Citron, Ronald J. Kravit, and Stephen B. Enquist. The
complaint pertains to tender offers directed by certain of the defendants to
limited partners of the Partnerships, and to indications of interest made by
certain of the defendants in purchasing the property of the Partnership. The
complaint alleges that the defendant violated certain provisions of the Security
and Exchange Act of 1934 and seeks injunctive and declaritive relief.
On October 28, 1997 a complaint was filed in the Superior Court of the State of
California, Sacramento County by Everest Lodging Investors, LLC and
Everest/Madison Investors, LLC as plaintiffs against Philip B. Grotewohl,
Grotewohl Management Services, Inc., Kenneth M. Sanders, Robert J. Dana, Borel
Associates, and BWC Incorporated, as defendants, and the Partnership, along with
four other partnerships of which have common general partners, as nominal
defendants. The complaint pertains to the receipt by the defendants of franchise
fees and reimbursement of expenses, the indications of interest made by the
plaintiffs in purchasing the properties of the nominal defendants, and the
alleged refusal of the defendants to provide information required by the terms
of the Partnership's partnership agreement and California law. The complaint
requests the follow relief: a declaration that the action is a proper derivative
action; an order requiring the defendants to discharge their fiduciary duties to
the Partnerships and to enjoin them from breaching their fiduciary duties;
return of certain profits; appointment of a receiver; and an award for damages
in an amount to be determined. The defendants and nominal defendants have
recently been served and are formulating their response to the complaint.
F-13
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The original general partners of the Partnership were Dennis A. Brown,
Philip B. Grotewohl and Robert J. Dana. Upon Mr. Brown's death on February 25,
1988, Mr. Grotewohl and Mr. Dana elected to continue the Partnership. During
March 1988, Mr. Grotewohl appointed Grotewohl Management Services, Inc., a
California corporation 50% of which is owned by Mr. Grotewohl, his successor as
Managing General Partner of the Partnership. Mr. Dana continues to be a General
Partner of the Partnership.
The Managing General Partner was organized in 1981 to serve as a general
partner of limited partnerships to be formed for the purpose of investing in
Super 8 Motels.
Mr. Grotewohl, age 79, was an attorney-at-law and was engaged in the
private practice of law in San Mateo County, California, between 1967 and 1978.
Since 1978, Mr. Grotewohl's principal occupation has been as a promoter and
general partner of Super 8 Motel limited partnerships.
Mr. Dana, age 69, was a registered representative of Brown, Brosche
Securities, Inc. between 1982 and 1988. Between 1976 and 1982 he served as a
registered representative of several stock and investment brokers. Mr. Dana has
also served as marketing consultant for various real estate limited partnership
and other direct participation investment programs.
See Item 3, "Legal Proceedings."
Item 11. EXECUTIVE COMPENSATION
The following discussion contains certain information regarding aggregate
direct or indirect compensation paid by the Partnership during the fiscal year
ended September 30, 1997 or payable to the General Partners and the Estate of
Dennis A Brown as a group. Although Mr. Brown ceased to be a general partner of
the Partnership upon his death, his estate shares in certain compensation
otherwise payable to the General Partners and their affiliates.
Property Management Fees
The Manager is managing and will manage the Partnership's motel pursuant to
an agreement between the Partnership and Super 8 Management Corporation, a
corporation which was wholly-owned by Dennis A. Brown and Philip B. Grotewohl.
In March 1988 the management contract between the Partnership and Super 8
Management Corporation was assigned to the Manager, which is a California
general partnership between the Estate of Dennis A Brown and the Managing
General Partner. The fee for this service is 5% of the gross proceeds from the
operations of the motel. This fee is payable only out of the operational cash
flow of the Partnership, and is subordinated to the prior receipt by the Limited
Partners of a cumulative 10% per annum return on their Adjusted Capital
Contributions. This compensation is in addition to the cost of goods and
services acquired for the Partnership from independent contractors.
-13-
<PAGE>
As a result of the sale of the Ontario motel in February 1990, the General
Partners waived their claim to accrued management fees as the receipt thereof
became extremely remote. No property management fees have been accrued since the
Ontario motel sale due to the unlikelihood that they would ever be paid to the
General Partners. Before the General Partners can receive any property
management fees, the Limited Partners must receive preferential distributions of
$3,317,783 to meet the subordination requirement calculated through September
30,1997, plus $349,432 per each year thereafter.
Franchise Fees and Advertising Fees
Super 8 Motels, Inc. is the franchisor of all Super 8 Motels. The
Partnership operates its motel as a franchisee of Super 8 Motels, Inc., through
sub-franchises obtained from Super 8 Management Corporation. The original
sub-franchise agreement between Super 8 Motels, Inc. and Super 8 Management
Corporation was transferred to the Manager in March 1988. The Partnership, as
franchisee, pays to the franchisor monthly franchise fees equal to 4% of its
gross room revenue and contributes 1% of its gross room revenue to an
advertising fund administered by the franchisor to finance institutional
advertising. The Manager is entitled to one-half of the franchise fees.
The total of franchise fees accrued during the fiscal year covered by this
report was $39,828 (of which $19,914 accrued to the Manager). All of the above
sums have been paid.
General Partners' Interest in Cash Available for Distribution
At quarterly intervals, the total amount of the Partnership's Cash
Available for Distribution is determined at the discretion of the Managing
General Partner. (See Item 5 above.) Distributions therefrom are made as
follows: (1) 90% of such distributions is paid to the Limited Partners; (2) 9%
thereof is paid to the General Partners as Partnership management fees; and (3)
1% thereof is paid to the General Partners in accordance with their interest in
the income and losses of the Partnership.
Notwithstanding the foregoing, however, distributions of Cash Available for
Distribution to the General Partners are deferred and paid only after payment to
the Limited Partners of distributions of Cash Available for Distribution in an
amount equal to 10% per annum cumulative on their Adjusted Capital
Contributions. During the fiscal year covered by this report, no amounts were
deferred for the General Partners' share of distributions of Cash Available for
Distribution. A total of $719,202 has been deferred since commencement of the
Partnership. As discussed in the section captioned "Property Management Fees"
above, the payment of these fees is unlikely due to the large preferential
distribution unpaid to the Limited Partners.
-14-
<PAGE>
General Partners' Interest in Net Proceeds of Sales and Financing of
Partnership Properties
Net proceeds of the sale of the Partnership's motel property and of any
financing or refinancing thereof (to the extent that the proceeds of any such
financing or refinancing are not to be reinvested in the acquisition of
additional properties) will be promptly distributed. Such distributions will be
paid as follows: (1) until the Limited Partners have received distributions from
all sources equal to 100% of their capital contributions plus 10% per annum
cumulative on their Adjusted Capital Contributions, all of such proceeds will be
distributed to the Limited Partners; (2) thereafter, 15% of the balance of such
proceeds will be distributed to the General Partners as cash incentive
distributions and the remaining 85% thereof will be distributed to the Limited
Partners. No distributions have been paid to or accrued for the benefit of the
General Partners.
Allocation of Compensation
Compensation to the General Partners and their affiliates is allocated as
follows:
(1) Mr. Dana receives annual amounts from the General Partners'
compensation from the Partnership so that his cumulative additional compensation
from year to year is equal to the greater of 25% of the General Partners'
cumulative share of Cash Available for Distribution and sale or refinancing
proceeds or 25% of the cumulative property management fees received by the
General Partners (reduced by all Partnership-related business expenses of the
General Partners).
(2) All compensation to the General Partners which is not allocated to Mr.
Dana is divided equally between Mr. Grotewohl and the Estate of Dennis A. Brown.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
TITLE AMOUNT AND NATURE OF
OF OF BENEFICIAL PERCENT
CLASS NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
----- ------------------------------ -------------------- --------
Units Everest Lodging Investor, LLC 261 Units 3.73%
Units Everest Madison Investors, LLC 343 Units 4.97%
---------
TOTAL 604 Units 8.63%
=========
No person is known by the Partnership to be the beneficial owner of more
than 5% of the Units.
Security Ownership of Management
The General Partners do not beneficially own any Units.
-15-
<PAGE>
Changes in Control
With the consent of all other General Partners and Limited Partners holding
more than 50% of the Units, a General Partner may designate a successor or
additional general partner, in each case with such participation in such General
Partner's interest as such General Partner and successor or additional general
partner may agree upon, provided that the interests of the Limited Partners are
not affected thereby.
A General Partner may withdraw from the Partnership at any time upon 60
days' prior written notice to the Limited Partners and any other General
Partners, or may transfer his interest to an entity controlled by him; provided,
however, that in either such event, if it is determined that the Partnership
business is to be continued rather than dissolved and liquidated upon the
happening thereof, the withdrawal or transfer will be effective only after
receipt by the Partnership of an opinion of counsel to the effect that such
withdrawal or transfer will not cause the Partnership to be classified as an
association taxable as a corporation rather than as a partnership for federal
income tax purposes.
The Limited Partners shall take no part in the management of the
Partnership's business; however, a majority in interest of the Limited Partners,
without the concurrence of the General Partners, shall have the right to amend
the Partnership Agreement, dissolve the Partnership, remove a General Partner or
any successor general partner, elect a new general partner or general partners
upon the removal, retirement, death, insanity, insolvency or bankruptcy of a
General Partner, and approve or disapprove the sale, exchange or pledge in a
single transaction of all or substantially all of the properties acquired by the
Partnership.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Administrative Expenses Shared by the Partnership and its Affiliates
There are certain administrative expenses allocated between the Partnership
and affiliated Super 8 partnerships. These expenses, which are allocated based
on usage, are telephone, data processing, rent of administrative offices and
administrative salaries. The administrative expenses allocated to the
Partnership were approximately $112,000 in fiscal year ended September 30, 1997
and are included in general and administrative expenses and motel and restaurant
operations expenses in the Partnership's financial statements. Included in
administrative salaries are allocated amounts paid to two employees who are
related to Philip B Grotewohl, a 50% shareholder of the Managing General
Partner.
-16-
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this report
1. Financial Statements Included in Part II of this Report
Report of Independent Certified Public Accountants
Balance Sheets, September 30, 1997 and 1996
Statements of Operations for the Years Ended September 30,
1997, 1996 and 1995 Statements of Partners' Equity for the
Years Ended September 30, 1997, 1996 and 1995 Statements of
Cash Flows for the Years Ended September 30, 1997, 1996 and
1995 Notes to Financial Statements
2. Financial Statement Schedules Included in Part IV of the Report
None
3. Exhibits
3. and 4. The Partnership Agreement is incorporated herein
as an exhibit from the annual report on Form 10-K for the
fiscal year ended September 30, 1984 (File No. 0-9218).
10.1 Ground lease pertaining to the Partnership's Santa Rosa,
California property filed as Exhibit 10.1 to the annual report
on Form 10-K for the fiscal year ended September 30, 1982 (File
No. 0-9218) is hereby incorporated herein as an exhibit.
(b) Reports on Form 8-K
A current report on form 8-K dated November 13, 1997 was filed reporting an
"Other Event" under Item 5. No financial statements were included therein.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
(Registrant) SUPER 8 MOTELS II, LTD.
By (Signature and Title) /s/ Philip B. Grotewohl
------------------------
Philip B. Grotewohl,
Chairman of Grotewohl Management
Services, Inc.,
Managing General Partner
Date December 22, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By (Signature and Title) /s/ Philip B. Grotewohl
------------------------
Philip B. Grotewohl,
Chief executive officer,
chief financial officer,
chief accounting officer and sole
director of Grotewohl Management
Services, Inc., Managing General
Partner
Date December 22, 1997
-18-
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 459,098
<SECURITIES> 0
<RECEIVABLES> 17,937
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 486,052
<PP&E> 2,404,984
<DEPRECIATION> 1,834,078
<TOTAL-ASSETS> 1,067,776
<CURRENT-LIABILITIES> 108,806
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 958,970
<TOTAL-LIABILITY-AND-EQUITY> 1,067,776
<SALES> 1,010,620
<TOTAL-REVENUES> 1,032,367
<CGS> 684,677
<TOTAL-COSTS> 684,677
<OTHER-EXPENSES> 134,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 213,399
<INCOME-TAX> 0
<INCOME-CONTINUING> 213,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 213,399
<EPS-PRIMARY> 30.18
<EPS-DILUTED> 30.18
</TABLE>
