<PAGE>
SIGNATURE INNS, INC.
250 East 96th Street, Suite 450
Indianapolis, IN 46240
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 16, 1995
TO THE SHAREHOLDERS OF
SIGNATURE INNS, INC.
Notice is hereby given that the annual meeting of the
shareholders of Signature Inns, Inc. (the "Company"), will be
held at the Ritz Charles, 12156 North Meridian Street, Carmel,
Indiana 46032, on Tuesday, May 16, 1995, at 2:00 p.m., Local Time
for the following purposes:
1. To elect three directors for three (3) year terms.
2. To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors for the Company for the year ending December
31, 1995.
3. To consider and transact such other business as may
properly come before the meeting, or any adjournments thereof.
The Board of Directors has fixed the close of business on
Tuesday, April 4, 1995, as the record date for the determination
of shareholders entitled to notice of and to vote at the annual
meeting and any adjournments thereof. Only shareholders of
record at the close of business on that date will be entitled to
vote. Holders of shares of the Company's common stock as of that
date are entitled to elect three directors and to vote upon all
other matters to be presented at the meeting.
A form of proxy, being solicited by management on behalf of
the Board of Directors, is enclosed.
All shareholders are cordially invited to attend the annual
meeting. The Board of Directors requests, however, that whether
or not you plan to attend the meeting, you sign your proxy and
mail it promptly in the enclosed postage guaranteed envelope. If
you do attend the meeting, you may, of course, vote your shares
even though you have sent in your proxy; or, if, at any time
prior to actual exercise, you desire to revoke your proxy, you
may do so.
By Order of the Board of Directors,
DAVID R. MILLER, Secretary
April 13, 1995
PLEASE MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD
PROMPTLY IN THE ENCLOSED POSTAGE GUARANTEED ENVELOPE
<PAGE>
SIGNATURE INNS, INC.
250 EAST 96TH STREET, SUITE 450
INDIANAPOLIS, INDIANA 46240
_____________________
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 16, 1995
_____________________
INTRODUCTION
This Proxy Statement and the enclosed form of Proxy are
being mailed to shareholders of Signature Inns, Inc. (the
"Company") on or about April 14, 1995, and are being furnished in
connection with management's solicitation of proxies to be used
at the annual meeting of shareholders to be held Tuesday, May 16,
1995, at the time and place and for the purposes of considering
and acting upon the matters specified in the Notice of Annual
Meeting of Shareholders accompanying and, by this reference,
constituting a part of this Proxy Statement.
Any shareholder who executes and returns a proxy may revoke
the same at any time prior to the voting thereof by filing a
written revocation with the Secretary of the Company, by
submitting another duly executed proxy with a later date or by
attending the meeting and requesting the return of his proxy from
the Secretary prior to the vote.
The entire cost of soliciting proxies will be borne by the
Company. In addition to the use of the mails, proxies may be
solicited by personal interview, telephone and telegram by
directors, officers and employees of the Company without extra
compensation. The Company will also reimburse brokerage houses,
custodians, nominees and fiduciaries for actual expenses incurred
in forwarding proxy material to beneficial owners.
The Annual Report to Shareholders for the year ended
December 31, 1994, accompanies this proxy statement.
VOTING SECURITIES AND SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT HOLDERS
Only shareholders of record at the close of business on
Tuesday, April 4, 1995, will be entitled to vote at the annual
meeting. On that date, there were outstanding 7,783,827 shares
of common stock of the Company. Each share of common stock is
entitled to one vote with respect to the election of three
directors and with respect to each other matter submitted to a
vote at the meeting. Assuming that a quorum (i.e., holders of a
majority of the total shares outstanding) is present at the
meeting in person or by proxy, directors will be elected and
other matters decided upon by an affirmative vote of the holders
of record of a majority of the Shares present or represented by
proxy at the meeting.
Set forth in the following table are the beneficial holdings
as of April 4, 1995, of the Company's common stock of each of the
current directors of the Company and nominees for director, which
group includes each person known to the Company who may be deemed
to own more than 5% of the Company's common stock and all
directors and officers as a group:
<PAGE>
<TABLE>
BENEFICIAL HOLDINGS OF DIRECTORS, NOMINEES,
AND NAMED EXECUTIVE OFFICERS
<CAPTION>
Amount & Nature
Name of Title of Beneficial Percent
Beneficial Owner Of Class Ownership (1) Of Class
________________ ________ _______________ ________
<S> <C> <C> <C>
John D. Bontreger Common Stock 1,515,400 (2) 19.40%
no par value
Mark D. Carney " 443,000 (3) 5.67%
Bo L. Hagood " 435,915 (4) 5.58%
David R. Miller " 309,500 (5) 3.96%
Orus E. Weaver " 109,710 (6) 1.40%
George A. Morton " 102,000 (7) 1.31%
Richard E. Shank " 99,997 (8) 1.28%
Richard L Russell " 60,000 (9) 0.77%
All directors, and 3,200,522 40.98%
Executive Officers as
a group (includes 10
persons)
<FN>
<F1>
(1) Information with respect to beneficial ownership is
based upon information supplied by each shareholder.
<F2>
(2) Mr. Bontreger owns all shares in his name of record and
has sole voting and investment power over such shares.
<F3>
(3) Mr. Carney owns all shares in his name of record and
has sole voting and investment power over such shares.
<F4>
(4) Mr. Hagood own all shares in his name of record and has
sole voting and investment power over such shares. Mr. Hagood's
beneficial ownership includes options granted to him on October
1, 1989, pursuant to the Company's Incentive Stock Option Plan,
to purchase 10,000 shares of the Company's Common Stock at a
purchase price of $3.25 per share, exercisable between October 1,
1992, and the termination of the options (not later than
September 30, 1995).
<F5>
(5) Mr. Miller holds all shares jointly with his wife, with
whom he shares voting and investment power over such shares. Mr.
Miller's beneficial ownership includes options granted to him on
October 1, 1989, pursuant to the Company's Incentive Stock Option
Plan to purchase 10,000 shares of the Company's Common Stock at
a purchase price of $3.25 per share, exercisable between October
1, 1992, and the termination of the options (not later than
September 30, 1995).
<PAGE>
<F6>
(6) Mr. Weaver holds 108,500 shares in his name of record
and has sole voting and investment power over such shares and
1,210 shares jointly with his wife with whom he shares voting and
investment power over such shares.
<F7>
(7) Mr. Morton holds 62,000 shares in his name of record
and has sole voting and investment power over such shares and
40,000 shares are owned by trusts of which his wife is the
trustee with investment power over such shares.
<F8>
(8) Mr. Shank holds all shares as a joint tenant with his
wife, with whom he shares voting and investment power over all
such shares.
<F9>
(9) Mr. Russell holds all shares as a joint tenant with his
wife, with whom he shares voting and investment power over all
such shares.
</FN>
</TABLE>
OPERATING MANAGEMENT'S EQUITY COMMITMENT,
AND MANAGEMENT'S PURCHASE OF COMMON SHARES IN APRIL 1994
In late 1993, the Company underwent a major debt
restructuring and refinancing, under the terms of which Bank One,
Indianapolis, N.A. ("Bank One") provided $2,500,000 of "senior"
debt financing, and Banc One Capital Partners II ("BOCP II")
provided an additional $1,800,000 of "subordinated" debt
financing (hereinafter referred to together as the "Bank One
Refinancing"), which funds were used (along with approximately
$1,700,000 of funds derived from a combination of proceeds from
the sale of two Company-owned hotels and from the Company's
general cash reserves) to pay off, at a discount, approximately
$20,000,000 of debt then owed to NBD Bank, N.A. The net effect
of the Bank One Refinancing was to restore the Company's
solvency.
As a condition of the 1993 Bank One Refinancing, "Operating
Management," consisting of Messrs. Bontreger, Hagood, Carney,
Miller, Martin D. Brew and Paul A. (Pat) Taylor (Executive
Director of Franchising and Real Estate), were required to make a
commitment to invest a minimum of $500,000 in equity capital in
the Company ("Management's Equity Commitment"). Management's
Equity Commitment was set forth in an Escrow Agreement dated
December 16, 1993, among the Company, BOCP II and Bank One.
Under the terms of that agreement, those officers severally
undertook and committed (subject to the Company's compliance with
applicable securities laws) to execute and deliver to the Company
subscription agreements for the purchase of the Company's shares
at a purchase price equal to the subscription price (namely, $
.20 per share) to be paid by public investors in a planned
"Rights Offering" to shareholders of the Company. To ensure that
Management's Equity Commitment would be satisfied, the Escrow
Agreement required the Management Holders to deposit with the
Escrow Agent the sum of $225,000.
Immediately prior to the Company's planned "Rights Offering"
to its shareholders on April 7, 1994, Operating Management
performed its commitment and purchased the number of shares at
the aggregate purchase prices shown on the table below:
<PAGE>
<TABLE>
PRIVATE PLACEMENT SHARES PURCHASED
IN APRIL 1994 BY OPERATING MANAGEMENT
PURSUANT TO MANAGEMENT'S EQUITY COMMITMENT
<CAPTION>
Number of
Shares Held Number of Aggregate Number of
Before Shares Purchased Price for Shares Held
Name Purchase at $.20 Per Share the Shares Following Purchase
____ ___________ _________________ __________ __________________
<S> <C> <C> <C> <C>
John D. Bontreger 498,400 1,017,000 $203,400 1,515,400
Bo L. Hagood 150 425,750 85,150 425,900
Mark D. Carney 3,000 440,000 88,000 443,000
David R. Miller 8,250 291,250 58,250 299,500
Paul A. Taylor 100 250,500 50,100 250,600
Martin D. Brew 0 125,000 25,000 125,000
_______ _________ ________ _________
Total 509,900 2,549,500 $509,900 3,059,400
======= ========= ======== =========
</TABLE>
Operating Management was required to pay in cash at the time
of its purchases a total of $231,400. The $278,500 balance of
the subscriptions is represented by recourse promissory notes
which were executed by Operating Management in favor of the
Company. The term of the notes is three years and the final
maturity date of the notes is April 7, 1997. The notes bear
interest at 6.0% per annum (a rate equal to the prime rate of
Bank One, Indianapolis, N.A. on the date the notes were
executed), which interest shall be payable with each principal
installment. The principal amount of the notes is due in three
installments, with 25% of the principal coming due on each of the
first and second anniversaries of the notes and with the
remaining unpaid principal balances (i.e., 50%) becoming due on
the third anniversary of the notes. The following table
discloses the cash payments made and the initial note balances
owed by Operating Management in connection with its purchase of
shares:
<TABLE>
OPERATING MANAGEMENT'S SCHEDULE OF PROMISSORY
NOTE PAYMENTS FOR SHARES PURCHASED IN APRIL 1994
<CAPTION>
Initial Principal
Cash Payments at Balances of
Name Time of Subscription Promissory Notes
____ ____________________ ________________
<S> <C> <C>
John D. Bontreger $117,400 86,000
Bo L. Hagood 6,000 79,150
Mark D. Carney 56,000 32,000
David R. Miller 25,000 33,250
Paul A. Taylor 20,000 30,100
Martin D. Brew 7,000 18,000
________ _______
Total $231,400 278,500
======== =======
</TABLE>
Operating Management also was required to execute a Stock
Escrow Agreement, under the terms of which Operating Management
was required to deposit with the escrow agent all certificates
<PAGE>evidencing shares issued by the Company in connection with
Management's Equity Commitment ("Shares") to be held by the
escrow agent under the terms of the Stock Escrow Agreement. The
Stock Escrow Agreement shall terminate on the earlier of (a)
three years from the date of that agreement (i.e., December 16,
1996) or (b) the date on which all obligations and liabilities of
the Company to BOCP II are paid in full. During the term of the
Stock Escrow Agreement, Operating Management shall retain and
exercise all voting rights with respect to the Shares and receive
all cash and other dividends which are properly declared and paid
by the Company with respect to the Shares. The Stock Escrow
Agreement also provides that, upon release of any of Operating
Managements' stock certificates, those certificates shall be
pledged to the Company to secure the payment by members of
Operating Management of any obligations owing by them to the
Company under the promissory notes executed in connection with
their purchase of Shares.
ELECTION OF DIRECTORS
Under the Company's Code of By-Laws, as amended, the
Company's Board of Directors is divided into three separate
classes of directors whose terms expire at different times, but
with no term extending beyond three years. The By-Laws require
that the number of directors shall not be less than two nor more
than nine.
The Board of Directors amended the Code of By-Laws to reduce
the number of directors from nine directors to eight directors,
effective with the 1994 Annual Meeting of Shareholders. On
August 18, 1994, the Board of Directors again amended the
Company's Code of By-Laws to increase the number of directors
from eight to nine with the ninth director being placed in the
First Class with its term expiring in 1997. Stephen M. Huse was
elected to fill the vacancy. In connection with that amendment,
the Board classes of directors are now organized as follows:
<TABLE>
<CAPTION>
Class of Name of Terms
Directors Directors Expire
_________ _________ ______
<S> <C> <C>
First Class Mark D. Carney 1997
(Three Directors) Stephen M. Huse
Richard E. Shank
Second Class Bo L. Hagood 1995
(Three Directors) David R. Miller
Orus E. Weaver
Third Class John D. Bontreger 1996
(Three Directors) George A. Morton
Richard L Russell
</TABLE>
If any of the nominees elected as directors at the 1995
Annual Shareholders' Meeting shall be unable to serve, the
proxies will be voted to fill any vacancy so arising in
accordance with the discretionary authority of the person named
in the proxies. Management has no reason to believe that any
nominee will be unable to serve.
<PAGE>
The names, ages, principal occupations and tenures as
director of each of the nominees, are set forth below:
<TABLE>
DIRECTORS STANDING FOR ELECTION
FOR A THREE YEAR TERM EXPIRING MAY 1988
<CAPTION>
Nominee and Principal
Occupation (Age) Office Held Elected as Director
________________ ___________ ___________________
<S> <C> <C>
Orus E. Weaver Director 09/23/78
Independent Life
Insurance
Broker (Age 71)
Bo L. Hagood Vice President 11/17/93
Vice President Hotel Hotel Operations
Operations of Signature and Director
Inns, Inc. (Age 45)
David R. Miller Secretary and 09/23/78
Secretary and Executive Director
Director of Sales &
Marketing of Signature
Inns, Inc. (Age 53)
</TABLE>
<TABLE>
DIRECTORS CONTINUING IN OFFICE
<CAPTION>
Names and Principal
Occupations (Ages) Office Held Elected as Director Term Expires
__________________ ___________ ___________________ ____________
<S> <C> <C> <C>
John D. Bontreger, President, Chief 03/31/78 05/18/96
President, Chief Executive Officer
Executive Officer and and Chairman of
Chairman of the Board the Board
of Signature Inns, Inc.
(Age 46)
George A. Morton, Agri Director 09/23/78 05/18/96
businessman (Age 58)
Richard L Russell, Director 05/21/91 05/16/96
Executive Director,
Direct Regions National
Retail Hardware
Association (Age 59)
Mark D. Carney, Vice President 11/17/93 05/16/97
Vice President Finance Finance, CFO and
and Chief Financial Director
Officer of Signature
Inns, Inc. (Age 38)
<PAGE>
DIRECTORS CONTINUING IN OFFICE
(Continued)
Names and Principal
Occupations (Ages) Office Held Elected as Director Term Expires
__________________ ___________ ___________________ ____________
Stephen M. Huse, Director 08/18/94 05/16/97
Chief Executive Officer,
Huse Food Group, Inc.
(Age 52)
Richard E. Shank, Director 09/23/79 05/16/97
Real Estate Broker
with Dick Shank
Real Estate
(Age 62)
</TABLE>
INFORMATION CONCERNING THE
BOARD OF DIRECTORS AND MANAGEMENT
A. Nominees, Directors and Offices.
_______________________________
The foregoing lists of nominees and other directors
constitute a complete listing of all the directors of the
Company. The officers of the Company are John D. Bontreger,
President and Chief Executive Officer, David R. Miller, Secretary
and Executive Director of Sales and Marketing, Mark D. Carney,
Vice President Finance and Chief Financial Officer, Bo L. Hagood,
Vice President Hotel Operations and Martin D. Brew, Treasurer
and Controller. Each member of the Board of Directors of the
Company is also a member of the Board of Directors of the
Company's three wholly owned subsidiaries, namely, Signature
Securities Corporation, Signature Franchise Corporation and P & N
Corporation. David R. Miller is the President and Secretary and
Martin D. Brew is the Treasurer of Signature Securities
Corporation. Messrs. Bontreger, Miller and Brew are the
President, Secretary and Treasurer, respectively, of Signature
Franchise Corporation and P & N Corporation.
B. Family Relationships.
____________________
No family relationship exists between any director or
nominee for director and any other director or nominee for
director or any executive officer of the Company.
C. Other Directorships.
___________________
Except for Mr. Huse, no director or nominee for director
holds any directorship in any company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act
of 1934, or which is subject to the requirements of Section 15(d)
of that Act or which is a company registered as an investment
company under the Investment Company Act of 1940.
D. Certain Proceedings.
___________________
No officer, director or nominee for director, no affiliate
thereof and no associate thereof was a party to any proceeding or
the subject of any order, judgment or decree during the past five
years which would be material to an evaluation of the ability or
integrity or such nominee, nor has any such person been a party
<PAGE>to any proceeding adverse to the Company or its subsidiaries or
affiliates, or has had any material interest adverse to the
Company or its subsidiary or affiliates.
E. Control Persons.
_______________
Mr. Bontreger is a "control person" of the Company as
defined under regulations promulgated by the Securities and
Exchange Commission.
F. Committees of the Board.
_______________________
1. Audit Committee. In December, 1992, the Board of
Directors established an Audit Committee to meet as deemed
necessary (a) to recommend to the Board of Directors the
retention, from time to time, of independent auditing firms to be
engaged by the Company, subject to shareholder ratification, (b)
to coordinate the annual audit of the Company between management
and the auditing firm, (c) to meet with the auditors at least two
times during the year, including one meeting before the audit is
commenced and one meeting following the completion of the audit
and to meet at such other times as the Board of Directors, in its
discretion, directs or as the Committee, itself, determines.
Committee members serve one year terms from one annual
shareholders' meeting to the next. Current members of the Audit
Committee are Richard E. Shank, Chairman, and Orus E. Weaver.
The Audit Committee met twice during the year ended December 31,
1994.
2. Compensation Committee. In December, 1992, the
Company's previous "Compensation and Finance Committee" was
reconstituted and renamed the "Compensation Committee." The
Compensation Committee was reconstituted as such with the same
members serving until the next annual meeting of shareholders.
The members of the Compensation Committee serve from year to year
from one annual meeting of shareholders to the next. The
purposes and functions of the Compensation Committee are to (a)
develop and recommend to the Board of Directors for approval a
compensation plan for the president/chief executive officer and
all other individuals within the Company who are designated as
"senior management," (b) review benefit and bonus plans and other
corporate perquisites on an annual basis, (c) review and
recommend to the Board suggested changes in compensation to be
paid to outside members of the Board, and (d) review expense
reimbursement policies of the Company as they pertain to
directors, management and other employees. The Compensation
Committee meets as determined necessary by the Board or by the
Committee. Current members of the Compensation Committee are
George A. Morton, Chairman, Richard E. Russell, and John D.
Bontreger. The Compensation Committee met twice during the year
ended December 31, 1994.
G. Number of Meetings.
__________________
During 1994, the Board of Directors of the Company held a
total of six regular scheduled and special meetings. All
directors listed above attended at least 75% of those meetings.
H. Certain Reports Not Timely Filed.
________________________________
A report required by Section 16(a) of the Securities
Exchange Act of 1934 during the fiscal year ended December 31,
1994, was inadvertently not filed on a timely basis for Messrs.
Morton, Shank, Russell, Weaver, and Brew. These reports were
subsequently filed.
<PAGE>
I. Officers/Directors Business Background.
______________________________________
A brief description of the business background and
experience of each officer and director is as follows:
JOHN D. BONTREGER, 46 President, Chief Executive Officer
and Chairman of the Board
Mr. Bontreger has served as President, Chief Executive
Officer and Chairman of the Board of Signature Inns, Inc. since
the Company's inception on March 31, 1978.
DAVID R. MILLER, 53 Secretary, Executive Director of
Sales and Marketing and Director
Mr. Miller has been employed by Signature Inns, Inc. since
August 1978 and has served as the Secretary (and Treasurer until
May 1986) of the Company since September, 1978. Since June 1984,
he has been President of Signature Securities Corporation. Since
1990, Mr. Miller has been the Executive Director of Marketing
responsible for hotel room sales programs and the central
reservation system.
MARK D. CARNEY, 38 Vice President Finance, Chief
Financial Officer and Director
Mr. Carney joined Signature Inns, Inc. in September 1992.
Mr. Carney has 13 years experience with the public accounting
firm KPMG Peat Marwick in its real estate, hospitality and
financial institution practices. He received his CPA
certification in 1982.
BO HAGOOD, 45 Vice President Hotel Operations and
Director
Mr. Hagood has been employed by Signature Inns, Inc. since
December 1980 starting as General Manager. In January 1984, he
was promoted to Director of Hotel Operations and then to Vice
President Hotel Operations in 1987. Mr. Hagood has been in the
hospitality industry for over 20 years. Prior to Signature
Inns, Mr. Hagood managed several hotels for national chains.
MARTIN D. BREW, 34 Treasurer and Controller
Mr. Brew has been employed by Signature Inns, Inc. since
April 1986. In December 1987, Mr. Brew assumed the position of
Controller and additionally, in April 1992, he began serving as
Treasurer. Prior to his employment with Signature Inns, Mr. Brew
worked four years with the public accounting firm KPMG Peat
Marwick. He received his CPA certification in 1985.
ORUS E. WEAVER, 71 Director
Mr. Weaver has been an independent life insurance broker
since 1981 and previously assisted in the sale of securities of
Signature Inns, Inc. in various capacities. Mr. Weaver has been
a member of the National Association of Life Underwriters for
almost twenty years.
<PAGE>
GEORGE A. MORTON, 58 Director
Mr. Morton has been part owner of Morton Farms, Inc. since
1962, and serves as Vice President and Secretary of that company.
From April 1987 to January 1989, Mr. Morton served as Deputy
Commissioner of Agriculture for the State of Indiana. He served
as the Indiana Director of Farmers Home Administration from 1989
to 1993.
RICHARD E. SHANK, 62 Director
Mr. Shank has been self-employed in the real estate business
since 1961. Mr. Shank was an elected representative in the
Indiana General Assembly for 21 years, and was a State Senator
from 1976 to 1987. He served as Executive Director of the
Indiana Professional Licensing Agency during 1988.
RICHARD L RUSSELL, 59 Director
Mr. Russell has been the Executive Director, Direct Regions
of the National Retail Hardware Association, and has been
involved in the hardware industry for nearly thirty years. He
has also served as President or director of several community and
civic organizations.
STEPHEN M. HUSE, 52 Director
Mr. Huse has been President and Chief Executive Officer,
Huse Food Group, Inc., in Bloomington, Indiana, since 1986. Mr.
Huse is also a director of Marsh Supermarkets, Inc., Society
National Bank, Central Indiana District, Indianapolis, Indiana,
and Griner Engineering, Inc., Bloomington, Indiana.
EXECUTIVE COMPENSATION
Executive Compensation Philosophy
_________________________________
The Company believes that the primary objectives of the
Company's executive compensation policies should be:
* To attract and retain talented executives by providing
compensation that is, overall, competitive with the compensation
provided to executives at companies of comparable size and
position, while maintaining compensation within levels that are
consistent with the Company's business plan, financial objectives
and operating performances;
* To provide appropriate incentives and rewards for
executives to work toward and achieve the Company's annual cash
flow budgetary targets established in the Company's business
plan; and
* To align the interest of executives with those of
shareholders by providing long term incentive compensation
through stock options and other forms of stock ownership.
The Company believes that executive compensation policies
should be reviewed annually when the financial results of the
Company's prior fiscal year become available. The policies are
reviewed in light of their consistency with the Company's
financial performance, its business plan, as well as the
<PAGE>compensation policies of companies similar in size and complexity
in the geographic area in which the Company operates. Factors
unique to the Company are also taken into consideration.
Additionally, in establishing and reviewing executive
compensation, the performance of the individual executive is
considered.
The Company believes the compensation of the executive
officers should be comprised of (1) base compensation, (2) annual
incentive compensation, and (3) long term compensation. The
Company believes that base compensation is currently set at
levels competitive with executives with similar responsibilities
at other companies similar in size and complexity.
In order to continue to attract and retain talented
executives, the Company must adhere to competitive compensation
policies and programs, including annual incentive compensation
linked to operating performance. During the past two years,
incentive compensation has been utilized to retain management,
provide motivation, and move the Company in a positive financial
direction. Bonuses have been awarded to executives based upon
the level of achievement of targeted cash flow of the Company,
other specific objectives, and the level of individual
responsibility and achievement.
The Company believes that an integral part of the executive
compensation policies should be long term incentive through
equity based compensation which encourages and creates ownership
of the Company stock by its executives, thereby aligning
executives' long term interests with those of shareholders.
While the Company has not granted stock options to executives
under its stock option plan during the past several years, the
Company believes that significant stock ownership by management
is a major incentive in building shareholder value. Therefore,
the Company will continue to review and utilize stock options and
other vehicles to provide long term incentive compensation.
The Company believes that the above philosophy furthers the
interests of the shareholders since a significant part of
executive compensation is based upon obtaining results that
increase the value of the Company and are beneficial to all
shareholders.
<TABLE>
Summary Compensation Table(1)
_____________________________
<CAPTION>
Name and Year
Principal Ended Annual Compensation
Position December 31 Salary ($) Bonus ($)
________ ___________ __________ _________
<S> <C> <C> <C>
John D. Bontreger 1994 141,901 77,768
President & CEO 1993 136,250 -
1992 130,000 -
Mark D. Carney 1994 85,782 47,003
V.P. Finance & CFO 1993 80,337 3,000
1992 18,750(2) -
Bo Hagood 1994 85,792 47,003
V.P. Hotel Operations 1993 82,212 7,787
1992 75,000 15,451
<PAGE>
Summary Compensation Table(1)
_____________________________
(Continued)
Name and Year
Principal Ended Annual Compensation
Position December 31 Salary ($) Bonus ($)
________ ___________ __________ _________
David R. Miller 1994 72,795 28,487
Secretary, Executive 1993 69,808 3,330
Director of Sales 1992 65,000 7,150
and Marketing
<FN>
<F1>
(1) Columns regarding long-term and all other compensation
have been omitted pursuant to the instructions to Reg. Section
228.402(a), because there has been no compensation awarded to,
earned by, or paid to any of the named executives required to be
reported in those columns in any fiscal year covered by this
Table.
<F2>
(2) Partial year.
</FN>
</TABLE>
There have been no options granted to named executive
officers since October 1989. The following table sets forth
information regarding the unexercised options held at December
31, 1994, by the executive officers named in the Summary
Compensation Table. Mr. Hagood and Mr. Miller were the only
executive officers identified in the Summary Compensation Table
with Unexercised Options at December 31, 1994.
<TABLE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
_________________________________
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options (#); Exercisable/ In-the-Money Options ($)
Name Unexercisable Exercisable/Unexercisable
____ _________________________ _________________________
<S> <C> <C>
Bo Hagood 10,000 Exercisable/ -0-
V.P. Hotel Operations -0- Unexercisable
David R. Miller 10,000 Exercisable/ -0-
Secretary, Executive -0- Unexercisable
Director of Sales
and Marketing
</TABLE>
Employment Contracts
____________________
The Company has employment contracts with John D. Bontreger,
Bo L. Hagood, Mark D. Carney, David R. Miller, Martin D. Brew and
Paul A. Taylor. The employment contracts were entered into in
December 1993 and provide for base salaries of the
officers/employees, plus bonuses, as determined annually by the
Company's Board of Directors. In addition, the employment
contracts provide for the payment of other customary fringe
benefits, including medical, life and disability insurance
premiums. Mr. Bontreger's contract expires in December 1996.
The current terms of Messrs. Hagood and Carney's contracts expire
<PAGE>in December 1995. The current term of Mr. Miller's contract
expires in May 1995. The current terms of Messrs. Brew and
Taylor's contracts expire in December 1995. Messrs. Bontreger,
Carney, and Hagood's contracts are renewable for additional terms
equal to one-half the length of the initial terms. Messrs.
Miller, Brew, and Taylor's contracts are renewable for one
additional term of one year and subsequent terms of six months.
The contracts are not terminable by the Company except upon "just
cause" as defined in the contracts.
In the event the Company terminates an officer/employee's
employment without "just cause," or in the event an
officer/employee resigns "with just cause" (i.e., where the
Company materially breaches the agreement), the officer/employee
is entitled to receive from the Company lump sum severance
payments equal to a multiple of yearly "regular compensation," as
defined in the contracts. In such events, Mr. Bontreger would
receive severance benefits equal to three times his "regular
compensation," Messrs. Hagood and Carney would receive severance
benefits equal to two times such compensation, Mr. Miller would
receive severance benefits equal to one and one-half times such
compensation, and Messrs. Brew and Taylor would each receive
severance benefits equal to one time such compensation.
In the event of the termination of an employment contract by
the Company "for just cause" or a resignation by an
officer/employee "without just cause" the severance benefits
would not be payable. In addition, in the event the Company
terminates an employment contract for "just cause" or the
officer/employee resigns "without just cause," the
officer/employee must abide by certain restrictive, non-compete
provisions for the same period as the then current term of the
contract.
COMPENSATION OF DIRECTORS
The following fees and expense reimbursement arrangements
are effective for each member of the Board of Directors and the
two Committees of the Board who is not an employee of the Company
(an "Outside Director") for all meetings held on and after
January 1, 1995:
(a) Each outside Board member shall be paid a retainer of
$5,000 per year, payable in quarterly installments of $1,250;
(b) In addition to the retainer, each Outside Director
shall receive a fee of $600 per Board meeting attended (other
than telephonic Board meetings which are covered by the
retainer);
(c) Each Outside Director shall receive a fee of $600 for
each Committee meeting which such Board member attends, unless
such Committee meeting is held "in conjunction with" a Board
meeting, in which event, the fee for each outside Board member
shall be $300;
(d) In addition, Outside Directors shall also be reimbursed
for reasonable costs and expenses, including travel and hotel
bills, incurred by them in connection with their attendance at
any Board or Committee meeting.
In addition to the foregoing, directors are holders of Signature
VIP cards, which entitle them and their immediate families to
complimentary room accommodations at any Signature Inn hotel.
OTHER INFORMATION
Except for the promissory notes executed and delivered to
the Company by members of Operating Management in connection with
their purchase of shares in 1994, as described above, no loans
have ever been made by the Company or its subsidiaries to any
officer or director of the Company.
<PAGE>
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has proposed and recommends to the
shareholders confirmation of the appointment of the firm of KPMG
Peat Marwick LLP ("KPMG"), certified public accountants, as
independent auditors to make an audit of the financial statements
of the Company for the fiscal year ending December 31, 1995, and
to provide such other accounting services as may be considered
necessary by the officers of the Company. KPMG has been the
Company's auditor since 1984. Representatives of KPMG will be
present at the meeting and shall have the opportunity to make a
statement if they desire to do so, and respond to appropriate
questions.
The affirmative vote of the holders of a majority of the
Company's common stock present at the meeting and entitled to
vote thereon is required to approve the appointment of the
independent auditors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition
and Results of Operations as of December 31, 1994, is set forth
in full in the Company's 1994 Annual Report to Shareholders which
accompanies this Proxy Statement, and is incorporated herein by
reference.
PROPOSALS OF SHAREHOLDERS
Certain regulations of the Securities and Exchange
Commission require that, in the event an eligible shareholder of
the Company timely notifies the Company of his intention to
present a proper proposal for action at a forthcoming
shareholders' meeting, the Company include the proposal in its
proxy statement, identify it in its form of proxy and provide the
shareholders an opportunity to vote in respect to the proposal.
Any proposal which a shareholder intends to present at the
Company's 1995 Annual Shareholders' Meeting must be received by
the Company for inclusion in its proxy statement and form of
proxy relating to that meeting not less than 120 days in advance
of the release of such proxy statement and form of proxy. The
Company's proxy statement and form of proxy are typically mailed
to the shareholders on or about April 14, and accordingly,
proposals with respect to the May 14, 1996 annual meeting must be
received no later than December 14, 1995.
OTHER BUSINESS
Management knows of no business which will be presented for
consideration other than the matters described in the Notice of
Annual Meeting of Shareholders, but if other matters are
presented, it is the intention of the persons designated as
proxies to vote in accordance with their judgment on such
matters.
ANNUAL REPORT
The 1994 Annual Report of the Company, including audited
financial statements is hereby incorporated in its entirety
herein by reference and is being mailed with this Proxy
Statement.
April 13, 1995
<PAGE>
INDEX TO EXHIBIT
Annual Report to Shareholders . . . . . . . . . . . . Exhibit 99
<PAGE>
APPENDIX: FORM OF PROXY
SIGNATURE INNS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 16, 1995
THIS PROXY IS SOLICITED BY THE COMPANY'S MANAGEMENT
ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JOHN D. BONTREGER, or any other
corporate executive officer, the proxy for the undersigned, with
full power of substitution, to represent the undersigned and to
vote all shares of common stock of SIGNATURE INNS, INC. (the
"Company") held in the name of the undersigned at the close of
business on April 4, 1995, at the annual meeting of the
shareholders of the Company, to be held at the Ritz Charles,
12156 North Meridian Street, Carmel, Indiana, and any
adjournments thereof, with all the powers the undersigned would
have if personally present as follows:
1. To elect three directors to serve for terms of three years
each:
Nominees: Orus E. Weaver, Bo L. Hagood, David R. Miller
/_/ Vote for all nominees listed above
/_/ Vote withheld for all nominees listed above
/_/ Vote for all nominees listed above except
_________________________________________
2. To ratify the selection of KMPG Peat Marwick LLP as
independent auditors of the Company for the 1995 fiscal year:
/_/ FOR /_/ AGAINST /_/ ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon
such other matters (none known at the time of solicitation of
this proxy) as may properly come before the Annual Meeting or any
adjournment or postponement thereof.
WHERE A CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY
WHEN PROPERLY EXECUTED WILL BE VOTED OR NOT VOTED AS SPECIFIED.
IF NO CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES LISTED IN
PROPOSAL NO. 1 AS DIRECTORS OF THE COMPANY AND "FOR" PROPOSAL
NO. 2. IF ANY OTHER MATTERS ARE PROPERLY BROUGHT BEFORE THE
ANNUAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF OR IF A
NOMINEE FOR ELECTION AS A DIRECTOR NAMED IN THE PROXY STATEMENT
IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED IN THE DISCRETION OF THE
PROXIES ON SUCH MATTERS OR FOR SUCH SUBSTITUTE NOMINEE(S) AS THE
DIRECTORS MAY RECOMMEND.
(FOLD HERE)
The undersigned hereby acknowledges receipt of the Notice of the
Annual Meeting of Shareholders, the Proxy Statement furnished
therewith, and the Annual Report of the Company for the fiscal
year ended December 31, 1994. Any proxy heretofore given to vote
the shares of Common Stock which the undersigned is entitled to
vote at the Annual Meeting of Shareholders is hereby revoked.
Date ________________________, 1995
The signature(s) must agree with the name(s) on your stock
certificate.
_______________________________________
Print Name of Shareholder
_______________________________________
Signature
_______________________________________
Print Shareholder Name if held jointly
_______________________________________
Signature if held jointly
Please fill in, sign, and return this proxy in the enclosed
envelope. When Signing as Attorney, Executor, Administrator,
Trustee or Guardian, please give full title as such. If signer
is a corporation, please sign the full corporate name by
authorized officer. Joint owners should sign individually.
<PAGE>
<TABLE>
SIGNATURE INN LOCATIONS
<CAPTION>
INDIANA OHIO KENTUCKY
<S> <C> <C>
Elkhart Cincinnati North Louisville
Evansville Cincinnati Northeast Florence (Turfway)
Fort Wayne Columbus
Indianapolis Castleton Dayton IOWA
Indianapolis East
Indianapolis North Davenport/Bettendorf
Indianapolis South ILLINOIS
Indianapolis West TENNESSEE
Kokomo Bloomington/Normal
Lafayette Peoria Knoxville
Muncie
South Bend
Terre Haute
</TABLE>
For reservations at any Signature Inn call toll free 1-800-
822-5252.
OUR VISION/MISSION
"Our Vision is to be the Midwest leader in providing the highest
quality of hotels and hotel services in the moderately priced
segment of our industry. We will earn this leadership
recognition by building on our founding corporate culture which
promotes strong support to our employees and "Legendary Service"
to our Guests. Our focus and commitment will be 100%
satisfaction of both our Guests and our employees by identifying
and meeting their needs.
Our success will be measured by the achievement of targeted
financial rewards to our owners and partners as well as the
positive mark we make on the lives of our Guests and employees.
The Company's future success and growth is integrally tied to our
employee's success and growth; therefore, we must attract, hire
and retain individuals of the highest quality in order to
accomplish our Mission."
OUR CREED
"We are dedicated to providing opportunities for individuals to
develop their God-given abilities to their fullest potential for
the purpose of enhancing the success and quality of life for
themselves, our Company, our Guests and all mankind."
<PAGE>
CORPORATE PROFILE
Signature Inns, Inc. was incorporated on March 31, 1978. The
first Signature Inn hotel opened in March 1981 in Indianapolis,
Indiana. There are 23 Signature Inn hotels in operation in six
Midwestern states as of December 31, 1994. The Company was
founded and built on such success principles as goal setting,
positive mental attitude, team spirit and a strong work ethic.
Currently, all Signature Inn hotels are owned by company-
sponsored limited partnerships or joint ventures and are operated
by the Company under long-term franchise and management
agreements.
The Signature Inn chain, with its concentration of hotels in
Indiana and the Midwest, has gained national recognition as a
leader for its quality of service and amenities (Consumer Reports
July 1994 issue). Signature Inn hotels provide first-class
accommodations at a moderate rate, specializing in the unique
needs of all types of travelers. Spacious rooms offer our Guests
the comfort of home and the convenience of the office. While the
hotels provide services and amenities for all types of travelers,
special emphasis has been placed on meeting the needs of the
business commercial travelers through special business amenities.
With the guidance of a solid corporate philosophy and culture,
the Signature Inn chain has established a pattern of excellence
in friendliness, cleanliness and prompt, efficient service. We
are committed to providing not just good service to our Guests
but "Legendary Service." Our Guest Service Program entitled
"Legendary Service" involves high quality employees, training
with a focus on Guest service, attention to an efficient sales
effort and motivation of employees to give our Guests legendary,
friendly service every time.
<TABLE>
FINANCIAL SUMMARY
<CAPTION>
- - ------------------------------------------------------------------------------------------
1994 1993 1992
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 6,864,006 11,795,815 15,814,397
Income (loss) before
extraordinary gain $ 1,610,773 (549,036) (7,809,386)
Net income (loss) $ 2,106,055 20,765,376 (700,502)
Earnings (loss) per share $ 0.33 6.06 (0.20)
Weighted average number
of shares outstanding 6,464,188 3,425,807 3,425,807
Total assets $14,093,967 17,414,715 36,700,872
Total debt obligations $10,314,376 16,188,909 53,751,670
Total liabilities $10,989,782 16,917,488 56,969,021
Shareholders' equity
(deficiency) $ 3,104,185 497,277 (20,268,149)
Shareholders' equity
per share $ 0.40 0.15 --
- - ------------------------------------------------------------------------------------------
Chainwide revenue $37,788,915 36,926,178 42,610,527
</TABLE>
<PAGE>
TO OUR SHAREHOLDERS
During 1994, the Company continued to achieve success measured in
financial results and hotel operating performance highlighted as
follows:
* Net income of $2,106,000 resulting in earnings of $.33
per share
* Income before extraordinary gain of $1,611,000 compared
with a loss of $549,000 in 1993
* The sale of the Knoxville hotel to an affiliated limited
partnership eliminated $4,900,000 of debt and reduced total
corporate debt obligations to $3,589,000 from $9,386,000 at
December 31, 1993
* Chainwide average occupancies were 67.9% and average
daily rates were $53.45 compared to 66.2% and $50.48 in 1993,
respectively
* The Signature Inn hotel chain received national
recognition by being named one of the top ranked hotel chains (in
moderate price segment) in both the Consumer Reports magazine
(July 1994 issue) and Business Travel News magazine (February 21,
1995 issue).
These accomplishments were a result of continued focus on
improving hotel operations and the completion of hotel financing
transactions which strengthened the financial position of the
Company. With the sale of the Knoxville hotel, all twenty-three
Signature Inn hotels are now owned by affiliated limited
partnerships or joint ventures and are operated by the Company
under long-term franchise and management agreements. The primary
sources of revenue for the Company are franchise and management
fees and earnings from the Company's general partner equity
interest in each of the affiliated entities. The underlying
strength of the Company is its ability to generate income from
hotels to which it provides franchise and management services
with essentially all hotel mortgage obligations being non-
recourse.
In May 1994, the rights offering to shareholders of record as of
April 4, 1994, was concluded and 1,808,520 shares of common stock
were issued. Net proceeds of $269,503 were received by the
Company along with $231,400 and recourse promissory notes of
$278,500 through the sale of common stock to management.
The hotel industry experienced continued improvement with an
average occupancy of 65.1% compared to 63.1% during 1993. This
marks the third consecutive year for industry wide occupancy
increases, and industry wide occupancies are expected to continue
to improve during 1995. With the room demand growth rate
increasing faster than the supply of new rooms, the majority of
Signature Inn hotel markets are seeing new hotel rooms either
planned or under construction with openings scheduled during 1995
and 1996. While our Company's financial structure is strong
enough to withstand the increased competition from new hotel
rooms, our hotel occupancies in some of our markets will be
negatively impacted.
In our highly competitive hotel industry, successful sales and
marketing programs are essential. We continue to aggressively
improve our chainwide sales and marketing efforts. New
strategies for 1995 include improved signage to increase the
visibility and name recognition by the traveling public, NCAA
basketball radio advertisements (13 colleges and universities, 96
stations) and increased exposure through the efforts of new sales
and marketing initiatives. In addition, to complement the
efforts of our outside advertising agency based in Columbus,
Ohio, the Company recently retained a leading Indianapolis firm
to handle its public relations to increase public awareness of
our chain throughout the Midwest.
The Company plans to continue to focus its efforts on maximizing
hotel revenues and profitability of its existing hotels. In
addition, the Company will seek growth opportunities in Midwest
cities for new development or hotel acquisitions. The Company is
currently exploring the feasibility and merits of several hotel
projects. While we continue to face challenges in this highly
competitive industry, we are confident that 1995 will be another
successful year for the Company.
Sincerely,
John D. Bontreger
President and Chairman
of the Board
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
- - ------------------------------------------------------------------------------------------
Years ended December 31 1994 1993 1992
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Hotel revenues $3,842,149 9,226,870 13,163,580
Management and franchise fees 3,021,857 2,568,945 2,650,817
---------- ---------- ----------
6,864,006 11,795,815 15,814,397
---------- ---------- ----------
Costs and expenses:
Hotel costs and expenses 2,033,395 5,472,837 7,949,522
Hotel depreciation and amortization 389,255 1,348,993 2,246,608
General and administrative expenses 2,141,792 2,382,219 2,571,804
Corporate depreciation and amortization 121,614 124,940 91,587
(Gain) loss on disposition of hotels and
land (note 3) (148,171) (272,710) 1,935,703
Valuation allowances (notes 2 and 3) -- 155,000 2,315,000
---------- ---------- ----------
4,537,885 9,211,279 17,110,224
---------- ---------- ----------
Operating income (loss) 2,326,121 2,584,536 (1,295,827)
---------- ---------- ----------
Other income (deductions):
Equity in income of hotel limited
partnerships, net (note 2) 727,398 208,744 35,395
Interest income (note 2) 190,717 94,666 254,326
Interest expense - hotels (note 4) (834,626) (2,567,210) (6,099,743)
Interest expense - corporate (note 4) (440,376) (888,615) (1,057,392)
Capital appreciation fee (note 4) (289,010) -- --
Other (69,451) 18,843 353,855
---------- ---------- ----------
(715,348) (3,133,572) (6,513,559)
---------- ---------- ----------
Income (loss) before extraordinary gain 1,610,773 (549,036) (7,809,386)
Extraordinary gain from debt
extinguishment (note 4) 495,282 21,314,412 7,108,884
---------- ---------- ----------
Net income (loss) $2,106,055 20,765,376 (700,502)
========== ========== ==========
Per common share:
Income (loss) before extraordinary gain $ 0.25 (0.16) (2.28)
Extraordinary gain 0.08 6.22 2.08
---------- ---------- ----------
Net income (loss) $ 0.33 6.06 (0.20)
========== ========== ==========
Weighted average number of common
shares outstanding 6,464,188 3,425,807 3,425,807
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
- - ------------------------------------------------------------------------------------------
December 31 1994 1993
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents:
Corporate $ 1,153,753 685,661
Consolidated hotels 881,760 534,285
----------- ----------
2,035,513 1,219,946
Other current assets 491,886 558,453
----------- ----------
Total current assets 2,527,399 1,778,399
----------- ----------
Hotel limited partnerships (note 2):
Equity investments 1,377,930 1,084,715
Receivables, net 3,429,712 2,892,426
----------- ----------
4,807,642 3,977,141
----------- ----------
Property and equipment, net (notes 3 and 4):
Consolidated hotels 5,327,740 5,522,738
Land held for sale 913,739 1,119,226
Corporate 301,726 352,305
Company-owned hotel -- 4,400,879
----------- ----------
6,543,205 11,395,148
----------- ----------
Deferred costs and other assets, net of accumulated
amortization of $452,990 and $583,351 215,721 264,027
----------- ----------
$14,093,967 17,414,715
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 4):
Consolidated hotels 3,128,478 78,347
Corporate -- 24,675
Other current liabilities 527,037 703,046
----------- ----------
Total current liabilities 3,655,515 806,068
----------- ----------
Long-term debt, less current portion (note 4):
Consolidated hotels 3,596,888 6,724,398
Corporate 3,589,010 9,361,489
----------- ----------
7,185,898 16,085,887
----------- ----------
Other partners' equity 148,369 25,533
----------- ----------
Total liabilities 10,989,782 16,917,488
----------- ----------
Shareholders' equity (note 6):
Common stock, no par value.
Authorized 20,000,000 shares. 9,736,348 9,235,445
Accumulated deficit (6,632,163) (8,738,218)
----------- ----------
Total shareholders' equity 3,104,185 497,227
----------- ----------
$14,093,967 17,414,715
=========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Common Stock Accumulated
----------------------
Shares Amount Deficit Total
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1991 3,425,807 $9,235,445 (28,803,092) (19,567,647)
Net loss (700,502) (700,502)
--------- ---------- ----------- -----------
Balance at December 31, 1992 3,425,807 9,235,445 (29,503,594) (20,268,149)
Net income 20,765,376 20,765,376
--------- ---------- ----------- -----------
Balance at December 31, 1993 3,425,807 9,235,445 (8,738,218) 497,227
Net income 2,106,055 2,106,055
Common shares issued (note 6) 4,358,020 779,403 779,403
Notes receivable (note 6) (278,500) (278,500)
--------- ---------- ----------- -----------
Balance at December 31, 1994 7,783,827 $9,736,348 (6,632,163) 3,104,185
========= ========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
- - ------------------------------------------------------------------------------------------
Years ended December 31 1994 1993 1992
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $2,106,055 20,765,376 (700,502)
Items which do not use (provide) cash:
Depreciation of property and equipment 452,959 1,308,871 2,069,590
Amortization of deferred costs 57,910 165,062 268,605
Gain from debt extinguishment (495,282) (21,314,412) (7,108,884)
(Gain) loss on disposition of hotels
and land (148,171) (272,710) 1,588,809
Valuation allowances -- 155,000 2,315,000
Equity in income of hotel limited
partnerships, net (727,398) (208,744) (395)
Other partners' equity in income 130,336 35,744 2,152
Capital appreciation fee accrual 289,010 -- --
Accrued interest payable (20,392) 751,309 1,591,744
Other current items (79,974) 725,150 457,716
Other non-current items (33,620) (20,473) (187,806)
---------- ----------- ----------
Net cash provided by operating activities 1,531,433 2,090,173 296,029
---------- ----------- ----------
Cash flows from investing activities:
Proceeds from sales of hotels and land 4,643,452 -- 1,696,040
Property and equipment additions (126,369) (484,363) (284,733)
Distributions received from hotel limited
partnerships 456,489 450,557 352,306
Loans to hotel limited partnerships (526,600) (19,700) --
Repayment of hotel limited partnership
advances, net 50,000 (77,000) 195,000
Deferred costs and other assets (50,934) (112,637) --
---------- ----------- ----------
Net cash provided (used) by investing
activities 4,446,038 (243,143) 1,958,613
---------- ----------- ----------
Cash flows from financing activities:
Repayments of long-term debt (5,662,807) (6,801,014) (2,347,320)
Proceeds from issuance of common stock 500,903 -- --
Proceeds of long-term debt -- 4,300,000 --
---------- ----------- ----------
Net cash used by financing activities (5,161,904) (2,501,014) (2,347,320)
---------- ----------- ----------
Change in cash and cash equivalents 815,567 (653,984) (92,678)
Cash and cash equivalents at beginning of year 1,219,946 1,873,930 1,966,608
---------- ----------- ----------
Cash and cash equivalents at end of year $2,035,513 1,219,946 1,873,930
========== =========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF ACCOUNTING POLICIES
BUSINESS
The Company developed and currently manages a chain of twenty-
three Signature Inn hotels as of December 31, 1994. Two hotels
are owned by consolidated affiliates and twenty-one other hotels
are owned by limited partnerships in which the Company is the
sole general partner. The partnership agreements provide for
distributions of available cash to the Company based on its
ownership interest.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries, Signature Securities
Corporation and P&N Corporation, and two 50% owned consolidated
hotel affiliates (Signature Inn South and Elkhart) in which the
Company exercises legal, financial and operational control. The
effects of all significant intercompany accounts and transactions
have been eliminated in consolidation. The equity method is used
for investments in hotel limited partnerships in which the
Company is a partner with 50% or less ownership and the Company
does not exercise legal, financial and operational control.
Certain reclassifications of prior year amounts have been made to
conform with the current year presentations.
REVENUES
Management and franchise fees are based on a percentage of
revenues or house profits of the hotels owned by hotel limited
partnerships and are recognized as hotel revenues and profits are
earned.
Development fees for hotels owned by hotel limited partnerships
and developed by the Company were received prior to 1989. To the
extent the Company has an equity interest, that portion of the
development fee was deferred and is recognized over the estimated
useful life of the related partnership property.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average
number of shares outstanding each year.
CASH EQUIVALENTS
Cash equivalents represent highly liquid short-term investments
with initial maturities of three months or less, stated at cost
which approximates market.
INVESTMENTS IN PARTNERSHIPS
Investments in partnerships are recorded at the Company's initial
investment, increased or decreased by the Company's share of the
partnership's income or loss, less distributions received. The
investments and advances are adjusted when management concludes
that the carrying value cannot be recovered based upon the
estimated returns and the anticipated holding period of specific
investments.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and includes assets
leased under noncancellable agreements and interest incurred
during construction. Depreciation is provided on the straight-
line basis over the estimated useful lives of the related assets.
Land held for sale is carried at the lower of cost or estimated
net realizable value.
DEFERRED COSTS
Fees and other costs incurred in obtaining long-term financing
are amortized on the straight-line basis over the life of the
related loan.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
<PAGE>
(2) HOTEL LIMITED PARTNERSHIPS
Summary financial information as of December 31, 1994 and 1993
and for the years then ended for the hotel limited partnerships
reported on the equity method is as follows:
- - -----------------------------------------------------------------
1994 1993
- - -----------------------------------------------------------------
Hotel properties $72,891,402 70,378,113
Net current assets 2,240,875 3,093,072
Deferred costs 1,149,763 1,123,360
Long-term debt (63,055,671) (62,747,042)
----------- -----------
Net assets 13,226,369 11,847,503
Less:
Equity of other partners 11,280,163 10,132,937
Income not recognized 568,276 629,851
----------- -----------
Investments in hotel
limited partnerships $ 1,377,930 1,084,715
=========== ===========
Revenues 33,899,680 26,916,722
Operating expenses (31,153,735) (26,260,994)
Extraordinary gains 683,020 --
----------- -----------
Net income 3,428,965 655,728
Less other partners' share 2,701,567 446,984
----------- -----------
Equity in income $ 727,398 208,744
=========== ===========
As of December 31, 1994 and 1993, net receivables from hotel
limited partnerships, classified as long-term investments,
included $506,051 and $515,065, respectively, of interest-bearing
advances at the prime rate plus 1.0% (9.5% and 7.0% at December
31, 1994 and 1993). The Company also has a $2,377,361 note
receivable from a partnership which is non-interest bearing,
dependent on future cash flows of the partnership for repayments
and matures in 2004. In 1993, the Company established a reserve
of $362,000 and a valuation allowance of $70,000 based on
estimated recoverability of advances due from two partnerships.
In conjunction with sale of the three Company-owned hotels to
affiliated limited partnerships in 1993 and 1994, the Company
participates in partnership mortgage loans totalling $546,300 at
December 31, 1994 which bear interest at 12% and mature in 1999.
Interest income on receivables from limited partnerships was
$114,506 in 1994, $39,868 in 1993 and $191,231 in 1992.
(3) PROPERTY AND EQUIPMENT
Property and equipment representing hotels, corporate office
equipment and land held for sale are summarized as follows:
- - -----------------------------------------------------------------
1994 1993
- - -----------------------------------------------------------------
Land $ 710,500 1,347,646
Leasehold and land improvements 451,559 653,703
Buildings 5,200,170 8,721,442
Furniture and equipment 2,459,770 3,231,814
Land held for sale 913,739 1,119,226
---------- ----------
9,735,738 15,073,831
Accumulated depreciation 3,192,533 3,678,683
---------- ----------
$6,543,205 11,395,148
========== ==========
During 1994, the Company sold a hotel to an affiliated limited
partnership for $4.3 million, and a $13,000 gain was recorded.
In 1994, the Company sold a tract of land adjacent to a Signature
Inn hotel to a restaurant operator. Net proceeds of $333,000
were received, and a gain of $132,000 was recognized.
During 1993, the Company deeded three hotels to lenders and sold
two additional hotels to an affiliated limited partnership. The
combined net carrying value of the five hotels was $17.0 million
at the time of disposition, and a net gain of $273,000 was
recorded.
During 1992, three Company-owned hotels having a net carrying
value of $13.6 million were deeded to lenders. A loss on
disposition of $1.9 million was recorded to reflect the lower
value of the hotels at the date of transfer. An additional
valuation allowance of $2,050,000 was provided in 1992 on three
Company-owned hotels based on estimated values. The Company
estimated the value of the hotels based upon recent appraisals
and on firm purchase contracts.
Valuation allowances of $85,000 and $50,000 were provided in 1993
and 1992 to reduce the carrying value of land held for sale to
estimated net realizable value.
<PAGE>
(4) LONG-TERM DEBT
- - -----------------------------------------------------------------
1994 1993
- - -----------------------------------------------------------------
Corporate:
Line of credit $ 1,500,000 2,500,000
Variable rate note 1,800,000 1,800,000
Capital appreciation fee 289,010 --
Hotel loan -- 4,891,187
Land loan -- 194,977
----------- ----------
3,589,010 9,386,164
Consolidated hotels 6,725,366 6,802,745
----------- ----------
10,314,376 16,188,909
Less current portion:
Corporate -- 24,675
Consolidated hotels 3,128,478 78,347
----------- ----------
$ 7,185,898 16,085,887
=========== ==========
The $2.5 million revolving line of credit bears interest at prime
plus 1.25% (9.75% and 7.25% at December 31, 1994 and 1993),
interest is payable quarterly, matures on May 31, 1996, and is
secured by substantially all assets of the Company.
The unsecured variable rate senior subordinated note bears
interest at 8.72% above the 30-day "AA" commercial paper rate
(14.79% and 12.0% at December 31, 1994 and 1993), payable
quarterly. Quarterly principal payments of $150,000 are required
beginning March 31, 1996 with the final payment due upon maturity
of the note on December 16, 1998. The note may not be prepaid
prior to December 31, 1996.
The variable rate note agreement requires a capital appreciation
fee equal to 25% of the value of the Company, as defined, at a
specific time in the future. The lender may receive the fee upon
the occurrence of the earliest of several "trigger events"
including the payment in full of the note or the private sale of
the Company. The lender may exercise its right to receive the
fee no sooner than December 16, 1996 and no later than December
16, 1999. The accrued fee at December 31, 1994 represents the
present value of the estimated amount due the lender based on a
current estimate of the Company's value and a December 1996
payment date.
Upon the sale of a Company-owned hotel in May 1994 to a limited
partnership, a $4.9 million hotel loan and related hotel
obligations were extinguished at a discount resulting in an
extraordinary gain of $223,000. Additionally, a tract of land
sold in November 1994 resulted in the extinguishment of the land
loan notes at a discount, and an extraordinary gain of $217,000
was recorded.
In October 1993, the Company reached an agreement for a
negotiated discounted payoff of all obligations due to its
previous primary lender. In December 1993, the note payable to
the primary lender of $9.6 million and other obligations of $1.1
million were extinguished for a $6.0 million cash payment, and
the $4.4 million loan guarantee claim was cancelled, resulting in
an extraordinary gain of $8.2 million after certain related
expenses. Concurrently, two Company-owned hotels were sold to an
affiliated limited partnership. The related hotel loans of $9.7
million and other obligations of $572,000 were extinguished
resulting in an extraordinary gain of $3.2 million, with the
limited partnership assuming $7.0 million of hotel loans.
During 1993, ownership of three Company-owned hotels was
relinquished resulting in the extinguishment of approximately
$18.4 million of loans and related hotel obligations of $497,000
resulting in an extraordinary gain of $9.8 million. During 1992,
loans of $17.5 million and related hotel obligations of $1.2
million were extinguished by deeding three hotels to the lenders
resulting in an extraordinary gain of $7.1 million.
The consolidated hotel affiliates' mortgage loans are non-
recourse to the Company, bear interest at 9.5% and 9.8%, and
mature in September 1995 and 2016. The Company anticipates
refinancing the hotel affiliate loan maturing in September 1995.
The aggregate annual scheduled principal payments of long-term
debt during the next five years are: $3,128,478 in 1995
(including the $3,063,222 maturing hotel loan), $1,859,680 in
1996 (including the outstanding line of credit), $676,218 in
1997, $670,000 in 1998 and $675,000 in 1999.
Interest paid amounted to $1,304,222, $2,715,513 and $4,781,470
in 1994, 1993, and 1992, respectively. Accrued interest of
$2,099,538 was added to the loan obligations in May 1993 under an
agreement with the primary lender.
<PAGE>
(5) INCOME TAXES
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
at December 31 are as follows:
- - -----------------------------------------------------------------
1994 1993
- - -----------------------------------------------------------------
Deferred Tax Assets:
Valuation allowances:
Hotels and land $2,172,000 2,910,000
Partnership advances 419,000 930,000
Net operating loss carryforward 2,432,700 2,596,000
Other 717,700 941,000
---------- ----------
Gross deferred tax assets 5,741,400 7,377,000
Less valuation allowance (1,771,300) (2,672,000)
---------- ----------
Net deferred tax assets $3,970,100 4,705,000
========== ==========
Deferred Tax Liabilities:
Depreciation 51,200 1,064,000
Hotel limited partnerships 3,918,900 3,641,000
---------- ----------
Deferred tax liabilities $3,970,100 4,705,000
========== ==========
At December 31, 1994, the tax net operating loss carryforwards,
which expire in 2007, are approximately $7.2 million.
(6) SHAREHOLDERS' EQUITY
On April 7, 1994, a private placement of 2,549,500 shares of
common stock at $.20 per share was completed with the operating
management of the Company. Cash proceeds of $231,400 along with
$278,500 of recourse promissory notes were received by the
Company. The notes bear interest at 6.0% and are collateralized
by the stock issued. Interest and principal installments are due
annually in April 1995, 1996 and 1997.
On May 12, 1994, a rights offering to existing shareholders was
concluded. Net cash proceeds of $269,503 were received and
1,808,520 shares of common stock were issued at $.20 per share.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
HOTEL OPERATIONS
Hotel operations of two hotels owned by consolidated affiliates
(South and Elkhart) are included in the statement of operations
for 1994, 1993 and 1992. The operating results of the Company-
owned Knoxville hotel and two other Company-owned hotels (Peoria
and Normal) are reflected through May 1994, and December 1993,
respectively, the date these hotels were sold to affiliated
partnerships. The operating results of three additional Company-
owned hotels are reflected through the second quarter of 1993,
the date these hotels were deeded to lenders.
Hotel revenues of $3,842,149 for the year ended December 31, 1994
represented a $5,384,721 decrease compared to 1993. Hotel
revenues from the two hotels owned by consolidated affiliates
increased $339,633 for the year and the offsetting decrease
resulted from the disposition of the Company-owned Knoxville
hotel in May 1994 and the five Company-owned hotels in 1993. The
increased revenues of the two hotels owned by consolidated
affiliates resulted from a 5.5% increase in occupancy and a 5.2%
increase in average room rates for the year. Hotel revenues of
$9,226,870 for 1993 represented a $3,936,710 decrease compared to
1992. Hotel revenues of $4,530,172 from the three hotels
operated for a full year in 1993 (Knoxville, South and Elkhart)
increased $418,033 in 1993 compared to 1992 and the offsetting
decrease of $4,354,743 results from the disposition of the five
Company-owned hotels in 1993. The increased revenues of the
three hotels resulted from a 6.1% increase in occupancy and a
3.7% increase in average room rates during 1993.
Hotel costs and expenses of $2,033,395 for the year ended
December 31, 1994 represented a $3,439,442 decrease compared to
1993. Hotel costs and expenses from the two hotels owned by
consolidated affiliates increased $119,016 for the year, due
primarily to the increase in the number of rooms sold, and the
offsetting decrease resulted from the disposition of the Company-
owned Knoxville hotel in May 1994 and the five Company-owned
hotels in 1993. Hotel costs and expenses of $5,472,837 for 1993
represented a $2,476,685 decrease from 1992. Hotel costs and
expenses of $2,454,830 from the three hotels operated for a full
year in 1993 represented an increase of $133,592 for 1993
compared to 1992, and the offsetting decrease of $2,610,277,
resulted from the disposition of the five Company-owned hotels in
1993.
Hotel depreciation and amortization expense decreased $959,738
for the year ended December 31, 1994 compared to 1993 due
primarily to the hotel dispositions in 1993 and in May 1994.
Hotel depreciation and amortization includes $288,555, $320,558
and $298,968 for 1994, 1993 and 1992, respectively, relating to
the two hotels owned by consolidated affiliates.
CORPORATE OPERATIONS
Management and franchise fees increased $425,912 for the year
ended December 31, 1994 compared to 1993. The Company began
recognizing management and franchise fees under agreements with
two hotels sold to an affiliated partnership in December 1993 and
with another hotel sold to an affiliated partnership in May 1994.
Management and franchise fees from these three hotels amounted to
$346,291 in 1994. The remaining increase in fee income is due to
increased revenues at the other hotels. Chainwide occupancy and
average daily rate for 1994 increased 1.7 percentage points and
$2.97, respectively. The hotel industry experienced continued
improvement with an average 1994 occupancy of 65.1% compared to
63.1% during 1993. This marks the third consecutive year for
industry wide occupancy increases, and industry wide occupancies
are expected to continue to improve during 1995. With the room
demand growth rate increasing faster than the supply of new
rooms, the majority of Signature Inn hotel markets are seeing new
hotel rooms either planned or under construction. While the
Company's financial structure is strong enough to withstand the
increased competition from new hotel rooms, hotel occupancies at
certain hotels may be negatively impacted. Management and
franchise fees decreased $81,872 for the year ended December 31,
1993 compared to 1992. Fee income earned from affiliated limited
partnerships decreased $163,193 due to fewer partnership hotels
being managed and franchised in 1993, offset partially by
increased revenues at the remaining hotels. Chainwide occupancy
and average daily rate for 1993 increased 1.1 percentage points
and $1.53, respectively. Beginning in 1993, the Company ceased
recording fee income from one hotel due to a fee subordination
feature with the Partnership's lender.
Through late 1994, the Company earned fees from managing
Signature Inn hotels owned by non-affiliates, primarily lenders
that had taken possession of a Signature Inn hotel as part of the
Company or affiliated partnerships' financial restructurings
during 1992 and 1993. Fees earned from non-affiliates under
short-term agreements amounted to $63,549, $197,175 and $115,854
in 1994, 1993 and 1992, respectively. As of December 31, 1994,
all Signature Inn hotels are owned by affiliated limited
partnerships and are managed by the Company.
General and administrative expenses for the year ended December
31, 1994 were $2,141,792 which represented a $240,427 decrease
compared to 1993. The decrease is attributable to reduced labor
and legal costs. General and administrative expenses for the
year ended December 31, 1993 decreased $189,585 from 1992. The
decrease is attributable to lower office rental cost resulting
from relocation of the corporate office in October 1992, and
reduced legal and consulting costs.
<PAGE>
OTHER INCOME (DEDUCTIONS)
Equity in income of hotel limited partnerships represents the
Company's share of the partnerships' income or loss. The
increase of $518,654 for the year ended December 31, 1994 is
attributable to increased profitability of the partnership owned
hotels in 1994 from increased occupancy and room rates, one time
gains totalling $117,913 recognized by the Company (based upon
its ownership share) upon a debt restructuring of a partnership,
and increased ownership percentages in two hotels. The increase
for the year ended December 31, 1993 is due to increased
profitability of the partnership owned hotels compared to the
prior year from increased occupancy and room rates.
Interest income for the year ended December 31, 1994 increased
$96,051 compared to 1993. The increase was a result of higher
investable cash balances earning a higher yield, $12,488 of
interest income recognized from the notes due from the Operating
Management of the Company, and interest income earned from the
Company's loan participation agreements in connection with the
three hotels sold to affiliated limited partnerships in late 1993
and May 1994. Interest income for the year ended December 31,
1993 decreased $159,660 compared to 1992 due to lower investable
cash and a lower yield earned on cash invested. Interest income
includes $47,524, $50,754 and $191,231 of earnings on advances to
affiliated hotel partnerships for the years ended December 31,
1994, 1993 and 1992, respectively.
Interest expense for the year ended December 31, 1994 represents
a $2,180,823 decrease compared to 1993. Interest ceased to
accrue on hotel loans upon the deeding of three hotels to lenders
in mid 1993, the sale of two hotels in late 1993 and the sale of
the Knoxville hotel in May 1994. Additionally, the refinancing
of the corporate debt obligations in December 1993 resulted in a
substantial reduction of the outstanding interest bearing
indebtedness of the Company. Interest expense for the year ended
December 31, 1993 of $3,455,825 represents a $3,791,310 decrease
compared to 1992. Interest ceased to accrue on hotel loans upon
the deeding of three hotels to lenders in 1992, upon the deeding
of three additional hotels to the lenders and the sale of two
hotels in 1993. Additionally, under an agreement reached with
the primary lender and approved in May 1993, effective December
1992, interest ceased to accrue on hotel loans and a loan
guarantee claim. Also, the interest rate on the note payable to
primary lender was reduced to 9% from 11% effective December
1992.
A capital appreciation fee equal to 25% of the value of the
Company, as defined, is required to be paid to the variable rate
note lender no sooner than December 16, 1996. During 1994,
$289,010 of related expense was accrued representing the present
value of the estimated amount due the lender based on a current
estimate of the Company's value and a payment date in December
1996.
GAIN ON DISPOSITION OF HOTELS AND LAND, AND EXTINGUISHMENT OF
DEBT
In May 1994, the Company sold the Knoxville hotel to an
affiliated limited partnership resulting in the extinguishment of
approximately $4.9 million of hotel debt and other obligations.
The difference between the debt extinguished and the selling
price of the hotel of $223,000 is reflected as extraordinary gain
on extinguishment of debt in 1994. The excess of the net book
value of the hotel and the sales price of $13,000 is reflected as
gain on disposition of hotel in 1994. In November 1994, proceeds
of $333,000 were received and a gain of $132,000 recognized upon
the sale of a tract of land.
During 1993, the Company relinquished ownership of five Company-
owned hotels resulting in the extinguishment of approximately
$28.1 million of hotel debt obligations and related other
obligations. The difference between the total debt extinguished
and the estimated value of the five hotels at the date of
conveyance is reflected as an extraordinary gain on
extinguishment of debt. The excess of the estimated value
(based upon appraisals and on firm purchase contracts) of the
five hotels and the net book value of $272,710 is reflected as
gain on disposition of hotels. The discount of the primary
lender's debt obligations in excess of the $6.0 million payoff
achieved in December 1993 is recorded as gain from debt
extinguishment.
In 1992, ownership of three Company-owned hotels was relinquished
resulting in the extinguishment of $18.7 million of debt
obligations. The difference between the debt extinguished and
the estimated value of the hotels is reflected as an
extraordinary gain on extinguishment of debt, and the excess of
the net book value of the hotels and the estimated value of $1.9
million is reflected as loss on disposition.
CAPITAL RESOURCES AND LIQUIDITY
The Company believes that the cash generated from management and
franchising activities and hotel limited partnership investments,
along with additional borrowing capabilities and its cash balance
will provide adequate liquidity to meet its operating needs and
the payment requirements of its corporate obligations over the
next twelve months.
The capital appreciation fee agreement with the Company's
unsecured lender requires a fee at a date no earlier than
December 1996 or upon the sale of the Company. The payment
amount will be based upon a future valuation of the Company. The
Company believes the financial resources of the Company will be
adequate to fund the payment.
At December 31, 1994, a $3.1 million non-recourse hotel mortgage
loan of a consolidated hotel affiliate is reflected as a current
liability in the consolidated financial statements as it matures
in September 1995. The Company anticipates refinancing this
mortgage loan before its maturity.
