<PAGE>
Schedule 13E-3
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act
of 1934 and Rule 13e-3 (Section 240.13e-3) thereunder)
[Amendment No._________________]
SIGNATURE VII LTD. LIMITED PARTNERSHIP
______________________________________
(Name of the Issuer)
SIGNATURE VII LTD. LIMITED PARTNERSHIP
______________________________________
(Name of the Person(s) Filing Statement)
UNITS OF LIMITED PARTNERSHIP INTERESTS
______________________________________
(Title of Class of Securities)
NONE
____________
(CUSIP Number of Class of Securities)
Thomas N. Eckerle, Esq., Suite 1800, One Indiana Square,
Indianapolis, Indiana 46240
(317) 634-9777
________________________________________________________
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and
Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [X ] The filing of solicitation materials or an information
statement subject to Regulation 14A.
b. [ ] The filing of a registration statement under the Securities
Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
<PAGE>
Calculation of Filing Fee
Transaction valuation* Amount of filing fee
$6,825,000 $1,365.00
[ ] Check box if any part of the fees is offset as provided by Rule 0-11(a)(20)
and identify the filing with which the offsetting fee was previously
paid. Identify the previous filing by registration statement number, or the
Form or Schedule and the Date of its filing.
Amount previously paid:_________________________________
Form or Registration No.:_______________________________
Filing Party:___________________________________________
Date Filed:_____________________________________________
________________________
*$6,825,000 is the total consideration to be received by the Limited
Partners under the transaction being proposed by the General Partner.
Preliminary Statement
The Rule 13e-3 transaction with respect to which this Rule 13e-3
Transaction Statement is filed involves a transaction subject to Regulation
14A. The information contained in the Solicitation and Information Statement
filed by Signature VII Ltd. Limited Partnership with the Securities and
Exchange Commission on July 17, 1996, pursuant to Regulation 14A is hereby
incorporated by reference into this Rule 13e-3 Transaction Statement and is
attached hereto as Exhibit A. A Cross-Reference Sheet showing the location of
information in the Solicitation and Information Statement required to be
included in response to items of this Rule 13e-3 Transaction Statement is
attached hereto as Exhibit C.
Item 1. Issuer and Class of Securities Subject to the Transaction.
(a) The issuer of the class of securities subject to the Rule 13e-3
transaction is Signature VII LTD. Limited Partnership, 250 E. 96th Street,
Suite 450 Indianapolis, Indiana 46240 (Telephone (317) 581-1111). Signature
VII LTD. Limited Partnership shall hereinafter be referred to as the "Issuer"
or the "Partnership".
(b) The exact title of the securities subject to the Rule 13e-3 transaction
is "Units of Limited Partnership Interests." The Limited Partnership Interest
are divided into Units representing an investment of $10,000. There are
currently 451 Units issued and outstanding being held by 393 holders of
record.
(c) The information required to be disclosed in this Item 1 is hereby
incorporated by reference to Section XVII, pages 32 and 33, of the Issuer's
Solicitation and Information Statement, which is attached hereto as Exhibit A.
(d) The information required to be disclosed in this Item 1 is hereby
incorporated by reference to Section XII, pages ___ and ___, of the Issuer's
Solicitation and Information Statement, which is attached hereto as Exhibit A.
(e) Not applicable.
(f) Not applicable.
<PAGE>
Item 2. Identity and Background.
The Issuer is the person filing this statement and is the issuer of the
Units of Limited Partnership Interests which are the subject of this Rule 13e-3
transaction. Signature Inns, Inc., an Indiana corporation (the "General
Partner") has its executive offices located at 250 E. 96th Street, Suite 450
Indianapolis, Indiana 46240. The information required by General Instruction C
of Schedule 13E-3 regarding the General Partner of the Issuer and each
executive officer and director of the General Partner is hereby incorporated
by reference to the Proxy Statement filed by the General Partner on April 12,
1996, a copy of which is attached hereto as Exhibit B. None of executive
officers or directors of the General Partner during the last 5 years has been
convicted in a criminal proceeding nor has any such person during the last 5
years been a party to a civil proceeding of a judicial or administrative body
of competent jurisdiction and as a result of such proceeding was or is subject
to a judgment, decree or final order enjoining further violations of, or
prohibiting activities subject to, federal or state securities laws or finding
any violation of such laws. All executive officers and directors of the
General Partner are citizens of the United States.
Item 3. Past Contracts, Transactions or Negotiations.
There are no contracts, negotiations or transactions requiring
disclosure pursuant to this item.
Item 4. Terms of the Transaction.
(a) The information required to be disclosed under this item is hereby
incorporated by reference to Section IV, pp. 9-16, of the Issuer's
Solicitation and Information Statement, which is attached hereto as Exhibit A.
(b) Not applicable.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a) The information required to be disclosed under this item is hereby
incorporated by reference to Section II, p. 7; Section IV, pp. 9-16; Section
V, pp. 16-17; and Section VI, pp. 17-18, of the Issuer's Solicitation and
Information Statement, which is attached hereto as Exhibit A.
(b) The information required to be disclosed under this item is hereby
incorporated by reference to Section II, pp. 2-7; and Section IV, pp. 9-16, of
the Issuer's Solicitation and Information Statement, which is attached hereto
as Exhibit A.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
<PAGE>
(f) The proposed Rule 13e-3 transaction will not cause the Units of Limited
Partnership to become eligible for termination of registration pursuant to
Section 12g-4 of the Securities Exchange Act of 1934. The Units were eligible
for such termination of registration upon the amendment of Rule 12g-4,
effective May 9, 1996. The Partnership filed Form 15 electing to terminate
the registration of the Units on July 17, 1996, and such termination shall
become effective 90 days after such filing.
(g) Not applicable.
Item 6. Source and Amounts of Funds or Other Consideration.
(a) The information required to be disclosed in this of item is hereby
incorporated by reference to Section II, pages ___ and ___, of the Issuer's
Solicitation and Information Statement, which is attached hereto as Exhibit A.
(b) The information required to be disclosed in this of item is hereby
incorporated by reference to Section II, pages ___ and ___, of the Issuer's
Solicitation and Information Statement, which is attached hereto as Exhibit A.
(c) Not applicable.
(d) Not applicable.
Item 7. Purposes, Alternatives, Reasons and Effects.
The information required to be disclosed in this Item is hereby
incorporated by reference to Section II, pp. 2-4; and Section X, pp. 23-25, of
the Issuer's Solicitation and Information Statement, which is attached hereto
as Exhibit A.
Item 8. Fairness of the Transaction.
(a) The Issuer reasonably believes that the proposed Rule 13e-3 transaction
is fair to the Limited Partners of the Issuer.
(b) The information required to be disclosed in this paragraph (b) of Item 8
is hereby incorporated by reference from Section II, pp. 5-6, of the Issuer's
Solicitation and Information Statement, which is attached hereto as Exhibit A.
(c) Under Section 1.13 and 14.01 of the Partnership Agreement of the Issuer,
the affirmative vote or written consent of Limited Partners then holding of
record more than 50% of the outstanding Units of the Partnership is required
to approve the proposed transaction.
(d) Upon approval of the Rule 13e-3 transaction by the limited partners of
the Issuer, the General Partner shall select and engage on behalf of the
Issuer independent legal counsel to represent the Issuer with respect to the
terms (other than price) of the Purchase Agreement and related documents and
the consummation of the transaction.
(e) Not applicable.
(f) Not applicable.
<PAGE>
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
The information required to be disclosed by this item is hereby
incorporated by reference to Section XV, pp. 29-30, and Exhibits C and D of
the Issuer's Solicitation and Information Statement, which is attached hereto
as Exhibit A.
Item 10. Interest in Securities of Issuer.
(a) No Units of Limited Partnership Interests are currently owned by the
General Partner, any pension, profit sharing or similar plan of the issuer or
the General Partner, or any affiliate of either, or any executive officer or
director of the General Partner.
(b) Not applicable.
Item 11. Contracts, Arrangements or Understandings with Respect to the
Issuer's Securities.
The information required to be disclosed by this item is hereby
incorporated by reference to Section XVI, pp. 31-32, of the Issuer's
Solicitation and Information Statement, which is attached hereto as Exhibit A.
Item 12. Present Intention and Recommendation of Certain Persons with
Regard to the Transaction.
(a) No executive officer, director or affiliate of the Issuer nor any
executive officer, director or affiliate of the General Partner is a holder of
any Unit of Limited Partnership Interest. Accordingly, there are no
statements of present intention with respect to the voting intentions of such
persons.
(b) To the knowledge of the Issuer each director of the General Partner has
voted in support of the proposed Rule 13e-3 transaction.
Item 13. Other Provisions of the Transaction.
(a) Under the Indiana Revised Uniform Limited Partnership Act no appraisal
or dissenters' rights are provided to Limited Partners. No such appraisal or
dissenters' rights are provided by the Amended Certificate and Agreement of
Limited Partnership of the Issuer and none are being accorded voluntarily by
the Issuer in connection with the Rule 13e-3 transaction.
(b) Not applicable.
(c) Not applicable.
<PAGE>
Item 14. Financial Information.
The information required to be disclosed by this item is hereby
incorporated by reference to Section VII, p. 19; Section XII, p. 28; Section
XIII, pp. 28-29; and Section XVIII, p. 33, and Exhibits A and B of the
Issuer's Solicitation and Information Statement, which is attached hereto as
Exhibit A.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) No officer or employee of Issuer has been or is proposed to be employed,
availed of or utilized by the Issuer or an affiliate in connection with this
Rule 13e-3 transaction. Information regarding the proposed Rule 13e-3
transaction required to be disclosed under this item is hereby incorporated
from Section IV, pp. 9-16, of Issuer's Solicitation and Information Statement,
which is attached hereto as Exhibit A.
(b) Consents may be solicited by directors, officers or employees of the
General Partner without additional compensation in connection with the Rule
13e-3 transaction.
Item 16. Additional Information.
Not applicable.
Item 17. Index to Exhibits
Exhibit A: Issuer's Solicitation and Information Statement dated
_______, 1996
Exhibit B: Signature Inns, Inc., Proxy Statement dated April 12, 1996
Exhibit C: Cross-Reference Sheet
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
_______________________________________
(Date)
_______________________________________
(Signature)
_______________________________________
(Name and Title)
[TEST]
<PAGE>
SIGNATURE INNS, INC.
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
_______________
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
May 21, 1996
_______________
INTRODUCTION
This Proxy Statement and the enclosed form of Proxy are being mailed to
shareholders (the "Shareholders") of Signature Inns, Inc. (the "Company") on or
about April 12, 1996, 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 21, 1996, 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 facsimile transmission 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, 1995,
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 2,
1996, will be entitled to vote at the annual meeting. On that date, there were
outstanding 7,784,327, shares of common stock of the Company. Each share of
common stock is entitled to one vote with respect to each 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, each
of the matters set forth in the Notice of Annual Meeting of Shareholders shall
be 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.
<PAGE>
Set forth in the following table are the beneficial holdings as of April
2, 1996, 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:
<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) 19.46 %
no par value
Mark D. Carney " 443,000 (3) 5.69 %
Bo L. Hagood " 425,915 (4) 5.47 %
David R. Miller " 299,500 (5) 3.85 %
Orus E. Weaver " 109,710 (6) 1.41 %
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
Executive Officers as 3,182,522 40.87%
a group (includes 10 persons)
<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 owns all shares in his name of record and has sole voting and
investment power over such shares.
<F5>
(5) Mr. Miller owns all shares in his name of record and has sole voting and
investment power over such shares.
<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.
<PAGE>
<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 25,000 shares in his name of record and has sole voting
and investment power over such shares and 35,000 shares jointly with his
wife with whom he shares voting and investment power over such shares.
</TABLE>
OPERATING MANAGEMENT'S EQUITY COMMITMENT,
AND MANAGEMENT'S PURCHASE OF COMMON SHARES IN APRIL 1994
As a condition of the 1993 Bank One refinancing, as described below,
"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.
In late 1993, the Company underwent a 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, 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 1993 Bank
One refinancing was to restore the Company's solvency.
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 Shares
Before Shares Purchased Price for the Held Following
Name Purchase at $.20 Per Share Shares Purchase
- ---- ----------- ------------------- ------------- ----------------
<S> <C> <C> <C> <C>
John D. Bontreger 498,400 1,017,000 $203,400 1,515,400
Mark D. Carney 3,000 440,000 88,000 443,000
Bo L. Hagood 150 425,750 85,150 425,900
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 was
represented by interest-bearing, recourse promissory notes which were executed
by Operating Management in favor of the Company and which recently were paid in
full.
Operating Management also was required to execute a Stock Escrow Agreement
and Stock Pledge Agreement, the terms of which have been satisfied fully.
Accordingly, Operating Management currently has complete beneficial ownership of
and voting rights with respect to the shares set forth on the foregoing table.
<PAGE>
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.
On August 18, 1994, the Board of Directors 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 of Directors with his term expiring in
1997. Stephen M. Huse was elected to fill the vacancy created by such increase.
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 1998
(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 1996 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.
The names, ages, principal occupations and tenures as director of each of
the nominees, are set forth below:
<PAGE>
<TABLE>
DIRECTORS STANDING FOR ELECTION
FOR A THREE YEAR TERM EXPIRING MAY 1999
<CAPTION>
Nominee and Principal
Occupation (Age) Office Held Elected as Director
--------------------- ----------- -------------------
<S> <C> <C>
John D. Bontreger, President, Chief 3/31/78
President, Chief Executive Officer
Executive Officer and and Chairman of
Chairman of the Board the Board
of Signature Inns, Inc.
(Age 47)
George A. Morton, Director 9/23/78
Agri businessman (Age 59)
Richard L Russell, Director 5/21/91
Executive Director,
Direct Regions National
Retail Hardware
Association (Age 60)
</TABLE>
<TABLE>
DIRECTORS CONTINUING IN OFFICE
<CAPTION>
Names and Principal
Occupations (Ages) Office Held Elected as Director Term Expires
- ------------------- ----------- ------------------- -------------
<S> <C> <C> <C>
Orus E. Weaver Director 9/23/78 5/16/98
Independent Life Insurance
Broker (Age 72)
Bo L. Hagood Vice President 11/17/93 5/16/98
Vice President Hotel Hotel Operations
Operations of Signature and Director
Inns, Inc. (Age 46)
David R. Miller Secretary and 9/23/78 5/16/98
Secretary and Executive Director
Director of Sales and
Marketing of Signature
Inns, Inc. (Age 54)
Mark D. Carney, Vice President 11/17/93 5/16/97
Vice President Finance Finance, CFO and
and Chief Financial Director
Officer of Signature
Inns, Inc. (Age 39)
<PAGE>
Stephen M. Huse, Director 8/18/94 5/16/97
Chief Executive Officer,
Huse Food Group, Inc.
(Age 53)
Richard E. Shank, Director 9/23/78 5/16/97
Real Estate Broker
with Dick Shank
Real Estate
(Age 63)
</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 four wholly owned subsidiaries, namely, Signature Securities
Corporation, Signature Franchise Corporation, P & N Corporation and S.I.E.
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, P & N Corporation and S.I.E. 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 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.
<PAGE>
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. The Audit Committee meets 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, 1995.
2. Compensation Committee. 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, bonus and
incentive 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 and management. 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 Stephen M. Huse. The Compensation Committee met twice
during the year ended December 31, 1995.
G. Number of Meetings.
------------------
During 1995, 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. Section 16(a)Reports.
--------------------
There were no required filings during 1995.
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, 47 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, 54 Secretary, Executive Director of Sales and
Marketing and Director
<PAGE>
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, 39 Vice President Finance, Chief Financial
Officer and Director
Mr. Carney has been employed by Signature Inns, Inc. since September 1992
as Vice-President Finance and Chief Financial Officer. Mr. Carney was
previously employed 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, 46 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, 35 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 KPMG Peat Marwick. He received
his CPA certification in 1985.
ORUS E. WEAVER, 72 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.
GEORGE A. MORTON, 59 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, 63 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.
<PAGE>
RICHARD L RUSSELL, 60 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, 53 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., and a member of the Advisory Board of Society National Bank,
Central Indiana District, Indianapolis, 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
opportunities that are 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 meaningful annual incentive opportunities for executives
to work toward and achieve the Company's profit and other targets
established in the Company's business plan; and
* To align the interest of executives with those of Shareholders by
providing substantial long-term incentive opportunities through
stock options and other forms of stock ownership.
The Company believes that executive compensation program should be reviewed
periodically to insure its support of the Company's financial performance and
its business plan. It also should be compared to practices of, and levels paid
by, other companies with whom we compete for business and human resources. Our
intent is not simply to copy the practices and levels of others, but rather to
continually strive to have a program that takes into account factors unique to
the Company and is distinguishably better in terms of its performance
relatedness from the perspective of both Company results and each individual's
contribution to those results.
The Company believes that executive compensation should be comprised of (1)
base compensation (2) annual (short-term) compensation (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.
The Company believes that annual incentive compensation should be utilized
to retain management, provide motivation, and move the Company in a positive
financial direction. Substantial incentive opportunities are provided to
executives based upon the level of achievement of targeted profit goals for the
company, and the level of individual responsibility and achievement.
<PAGE>
The Company believes that an integral part of the executive compensation
programs should be long term incentive. Through equity based compensation in
the form of Company stock the long-term interest of executives are aligned
with those of Shareholders. Because the Company believes that significant stock
ownership by management is catalyst in building Shareholder value, it will
continue to utilize stock options and review and possibly use other Shareholder
value related 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 1995 147,833 61,685
President & CEO 1994 141,901 77,768
1993 136,250 -
Mark D. Carney 1995 89,350 38,217
V.P. Finance & CFO 1994 85,782 47,003
1993 80,337 3,000
Bo Hagood 1995 89,350 38,217
V.P. Hotel Operations 1994 85,792 47,003
1993 82,212 7,787
David R. Miller 1995 75,911 24,124
Secretary, Executive 1994 72,795 28,487
Director of Sales 1993 69,808 3,330
and Marketing
<F1>
(1) Columns regarding long-term a nd 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.
</TABLE>
There have been no options granted to named executive officers since
October 1989. There are no unexercised options held at December 31, 1995, by
the executive officers named in the Summary Compensation Table.
<PAGE>
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 terms of the employment contracts began in December 1993 and the contracts
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 benefits,
including medical, life and disability insurance premiums. The current terms
of Messrs. Bontreger, Hagood and Carney's contracts expire in December 1996.
The current terms of Messrs. Miller, Brew and Taylor's contracts expire in May
1996. The contracts are renewable for subsequent terms: Mr. Bontreger's for
one and one-half years; Messrs. Hagood's and Carney's for one year; Messrs.
Miller's, Brew's and Taylor's for 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, Carney and
Miller would receive severance benefits equal to one time such compensation,
and Messrs. Brew and Taylor would each receive severance benefits equal to
one-half times 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, 1996:
(a) Each outside Board member shall be paid a retainer of $5,400 per
year, payable in quarterly installments of $1,350;
(b) In addition to the retainer, each Outside Director shall receive a
fee of $650 per Board meeting attended (other than telephonic
Board meetings which are covered by the retainer);
(c) Each Outside Director shall receive a fee of $650 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 e ach outside Board member shall be $325;
(d) In addition, Outside Directors shall also be reimbursed for
reasonable costs and expenses, including travel expenses, incurred
by them in connection with their attendance at any Board or
Committee meeting.
<PAGE>
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.
PROPOSAL TO AMEND ARTICLE V AND ARTICLE VI
OF THE ARTICLES OF INCORPORATION OF THE COMPANY
The Board of Directors has adopted and is submitting herewith for the
approval of the Shareholders an amendment to the Articles of Incorporation of
the Company (the "Amendment") which would (a) increase the number of
authorized shares of Common Stock from 20,000,000 to 50,000,000, and (b)
decrease the number of authorized shares of Preferred Stock from 20,000,000 to
5,000,000 while revising the rights and preferences of the Preferred Stock.
Each component of the Amendment is discussed below.
Increase in Authorized Common Stock. Currently, under Article V of the
Articles, the Company has authority to issue 20,000,000 shares of no-par value
common stock (the "Common Stock"). The Company's shares of Common Stock do
not have any preemptive rights, nor do these shares have any redemption or
similar rights. There is no provision in the Articles for cumulative voting.
Therefore, cumulative voting is not permitted, and each share of Common Stock,
which is the only voting stock of the Company, is entitled to one vote with
respect to all matters to come before the Shareholders.
As of the date of this Proxy Statement, there were 7,784,327 shares of
Common Stock outstanding, leaving 12,215,673 shares authorized but unissued.
Management and the Board of Directors anticipate a need to sell additional
shares in possible future private or registered public offerings and for other
legitimate corporate purposes. In addition, if approved, the Company's 1996
Equity Incentive Plan will authorize the Company to grant to selected
officers, employees, and directors awards of Restricted Stock Grants or Stock
Options to purchase up to an aggregate of 750,000 shares of Common Stock.
Accordingly, management and the Board of Directors are proposing to amend
Article V of the Articles of Incorporation of the Company to increase the
number of authorized shares of Common Stock from 20,000,000 to 50,000,000
shares.
The types of transactions in which the shares may be issued, the nature
and approximate amount of the consideration to be paid for the shares in
connection with those transactions and the purposes for which the
consideration will be used ultimately by the Company are not currently known
and will not be ascertainable unless and until the terms of an actual
transaction are formulated sometime in the future. It is impossible,
therefore, to predict at this time the general effect of the increase in
authorization of shares of Common Stock upon the rights of existing security
holders. It is possible that some future transactions in which the authorized
shares of Common Stock are actually issued could have a diluting impact upon
the value and/or voting power of the shares of Common Stock currently
outstanding.
<PAGE>
Although, the Indiana Business Corporation Law grants to the
shareholders the power to authorize new shares, generally, it is the Board of
Directors of the Company which has the authority to determine when, how many
and on what terms shares are to be issued. The Board of Directors, in its
discretion, determines the consideration (both nature and amount) for issuance
of shares. Accordingly, it may be anticipated that the Shareholders will not
be accorded an opportunity to vote on the particular transactions pursuant to
which the additional shares of common stock ultimately will be issued, sold,
or distributed. Other than as might be required under applicable state and
federal law, no vote of security holders will be solicited in connection with
any future issuance, sale or distribution of shares of Common Stock.
Assuming that the Amendment is approved and that the number of
authorized shares of the Company's Common Stock is increased from 20,000,000
to 50,000,000 shares, there will remain approximately 7,784,327 shares
outstanding, leaving 42,215,673 shares authorized but unissued.
The Company is not aware of any third party planning to acquire a
controlling interest in the Company's common shares. However, the proposed
amendment increasing the authorized number of shares of Common Stock from
20,000,000 to 50,000,000 will make available a large number of common shares
which could be issued in a defense against an unfriendly take-over attempt, if
management believes that to do so would be appropriate. The establishment of
such a defense is not, however, the primary purpose of the proposal to
increase the number of authorized shares of Common Stock.
Decrease in Authorized Preferred Stock and Revision of Rights and
Preferences of Preferred Stock. On June 16, 1993, the Articles of
Incorporation of the Company were amended and restated to provide, among other
matters, authority for the Company to issue up to 20,000,000 shares of
Preferred Stock. The terms of the Preferred Stock, set forth in Section 7 of
Article VI of the Articles, were established in connection with, and as a
condition of, the Restructuring Plan entered into at that time between the
Company and NBD Bank, N.A., formerly known as Indiana National Bank (the
"Bank"). The debt owed the Bank subsequently was repaid and refinanced and
the Restructuring Plan superseded. The special terms applicable to the
Preferred Stock are, therefore, no longer necessary or desirable.
Accordingly, the Board of Directors has unanimously adopted and submitted to
the Shareholders for approval an amendment to Article VI of the Articles to
decrease the number of authorized shares of Preferred Stock from 20,000,000 to
5,000,000, to eliminate all of the terms of the Preferred Stock relating to
the Restructuring Plan, and to grant to the Board of Directors the authority
to designate all rights and preferences of the Preferred Stock, as and when
issued.
The Board of Directors believes that the continued authorization of a
reduced number of shares of Preferred Stock is in the best interest of the
Company and its Shareholders and believes that it is advisable to have such
shares available in connection with possible future transactions, such as
financings, strategic alliances, mergers, acquisitions, possible funding of
new projects and other uses not presently determinable, and as may be deemed
feasible and in the best interest of the Company. In addition, the Board of
Directors believes that it is desirable that the Company have the flexibility
to issue shares of Preferred Stock without further Shareholder action, except
as otherwise provided by law.
If the Amendment is approved, the Preferred Stock will have such
designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof as are determined by the
Board of Directors. Thus, if the Amendment is approved, the Board of
Directors would be entitled to authorize the issuance of up to 5,000,000
shares of Preferred Stock in one or more series with such limitations and
restrictions as may be determined in the Board's sole discretion, without
further authorization by the Company's Shareholders. Shareholders will not
have preemptive rights to subscribe for shares of Preferred Stock.
<PAGE>
It is not possible to determine the actual effect of the Preferred Stock
on the rights of the Shareholders of the Company until the Board of Directors
determines the rights of the holders of a series of the Preferred Stock.
However, such effects might include (i) restrictions on the payments of
dividends to holders of the Common Stock; (ii) dilution of voting power to the
extent that the holders of shares of Preferred Stock are given voting rights;
(iii) dilution of the equity interests and voting power if the Preferred Stock
is convertible into Common Stock; and (iv) restrictions upon any distribution
of assets to the holders of the Common Stock upon liquidation or dissolution
and until the satisfaction of any liquidation preference granted to the
holders of Preferred Stock.
The Board of Directors is required by Indiana law to make any
determination to issue shares of Preferred Stock based upon its judgment as to
the best interests of the Shareholders and the Company. Although the Board
of Directors has no present intention of doing so, it could issue shares of
Preferred Stock (within the limits imposed by applicable law) that could,
depending on the terms of such series, make more difficult or discourage an
attempt to obtain control of the Company by means of a merger, tender offer,
proxy contest or other means. When in the judgment of the Board of Directors
such action would be in the best interests of the Shareholders and the
Company, the issuance of shares of Preferred Stock could be used to create
voting or other impediments or to discourage persons seeking to gain control
of the Company, for example, by the sale of Preferred Stock to purchasers
favorable to the Board of Directors. In addition, the Board of Directors
could authorize holders of a series of Preferred Stock to vote either
separately as a class or with the holders of Common Stock, on any merger, sale
or exchange of assets by the Company or any other extraordinary corporate
transaction. The existence of the authorized Preferred Stock could have the
effect of discouraging unsolicited takeover attempts. The issuance of new
Preferred Stock could also be used to dilute the stock ownership of a person
or entity seeking to obtain control of the Company should the Board of
Directors consider the action of such entity or person not in the best
interests of the Shareholders and the Company. Such issuance of Preferred
Stock could also have the effect of diluting the earnings per share and book
value per share of the Common Stock.
While the Company may consider effecting an equity offering of Preferred
Stock in the future for the purpose of raising additional working capital or
otherwise, the Company, as of the date hereof, has no agreements or
understandings with any third party to effect any such offering and no
assurances are given that any offering will in fact be effected.
Vote Required. Approval of the Amendment requires approval by the
holders of a majority of the shares of the Company's Common Stock present or
represented and entitled to vote at the annual meeting
If the Amendment is approved, Articles V and VI of the Articles of
Incorporation of the Company will read in their entirety as set forth in
Exhibit A hereto.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT.
PROPOSAL TO APPROVE
THE 1996 EQUITY INCENTIVE PLAN
General. The Board of Directors has adopted and is submitting to the
Shareholders for their approval a ten-year incentive plan entitled "Signature
Inns, Inc. 1996 Equity Incentive Plan" (the "Plan") for directors, officers and
employees of the Company and its subsidiaries. The Plan will not be put into
effect unless approved by the affirmative vote of the holders of a majority of
the shares of the Company's Common Stock present or represented and entitled
to vote at the annual meeting.
<PAGE>
The Board of Directors believes that the Company's earnings performance
and growth is dependent upon ensuring the best possible management. The Board
of Directors further believes that the Plan will encourage equity ownership in
the Company by key employees and in turn provide such individuals with further
incentive and motivation to perform in the best interests of the Company and
the Shareholders, and that the Plan will aid in attracting and retaining high
quality employees.
The Plan will be effective on the date the Plan is approved by the
Shareholders at the annual meeting. The principal features of the Plan are
summarized below. This summary is qualified by reference to the full text of
the Plan which is annexed as Exhibit B to this Proxy Statement. Awards
granted under the Plan may be in the form of Incentive Stock Options,
Non-qualified Stock Options (Incentive Stock Options and Non-qualified Stock
Options shall hereinafter be referred to as "Stock Options"), Restricted Stock
Grants, or any combination thereof within the limitations set forth in the
Plan. The Plan provides that, for purposes of making awards of Stock Options
and Restricted Stock Grants, the Plan will remain in effect for a term of 10
years from the date of its adoption by the Board of Directors, namely,
February 20, 1996 (the "Plan Term Commencement Date"). The Plan will continue
in effect thereafter (i.e., beyond 10 year term for making awards) until all
matters relating to the payment of awards and the administration of the Plan
have been fully settled.
The Plan is intended to supersede and replace the 1986 Signature Inns,
Inc. Incentive Stock Option Plan (the "1986 Plan"), which expires on March 26,
1996, and to govern any outstanding unexercised stock options granted under
the 1986 Plan. As of the date of this Proxy Statement, there are unexercised
options to purchase 8,500 shares of Common Stock under the 1986 Plan at an
exercise price of $1.125. All such unexercised options expire in July 1997.
Administration. The Plan, if approved by the Shareholders, will be
administered by the Compensation Committee, one of two standing committees
appointed by the Board of Directors. The Compensation Committee consists of
three Directors of the Company none of whom are employees of the Company or
its subsidiaries. The Compensation Committee and the Plan will be required
always to possess characteristics required to comply with Rule 16b-3
promulgated under the Securities Exchange Act of 1934. The current members of
the Compensation Committee are Messrs. Morton, Russell and Huse. The
Compensation Committee has sole authority to administer and interpret the
Plan. The Compensation Committee, within the terms of the Plan, selects
eligible officers and employees to participate in the Plan, recommends the
type, amount and duration of individual awards and may recommend acceleration
of payments and vesting of Plan awards. The Compensation Committee shall
recommend to the Board of Directors any of the foregoing matters and actions
in respect of awards. The Board of Directors shall only accept or reject such
recommendations, acting by affirmative vote of not less than a majority of the
actual number of directors of the Company who are not employees of the Company
or its subsidiaries (the "Outside Directors") serving as Directors at that
time. No awards may be granted other than those recommended by the
Compensation Committee.
Shares Available. The Plan provides that the aggregate number of shares
of the Company's Common Stock which may be awarded as either Stock Options or
Restricted Stock Grants may not exceed 750,000 Shares subject to adjustment in
certain circumstances (the "Available Shares"). At the discretion of the
Compensation Committee, the Company's Common Stock delivered under the Plan
may be authorized and unissued shares, treasury stock or shares purchased on
the open market. Shares underlying awards that are canceled, expired,
forfeited, or terminated again shall be available, in most circumstances, for
the grant of additional awards within the limits provided by the Plan. The
Company shall register the Available Share under the Securities Act of 1933
and any applicable state securities laws, and shall deliver a prospectus to
each Participant together with all other documents required by law.
<PAGE>
There are other additional limits on the number of Available Shares.
First, Available Shares cannot exceed 10% of the total outstanding shares of
Common Stock of the Company at any time during the term of the Plan. Second,
no more than 5% of the Available Shares may be awarded in the form of
Restricted Stock Grants.
Eligibility. Only full-time officers and employees of the Company and
its subsidiaries will be eligible to receive the award of both Stock Options
and Restricted Stock Grants under the Plan. Outside Directors are eligible
only to receive awards of Restricted Stock Grants. Awards of Restricted Stock
Grants to Outside Directors will be on an automatic, non-discretionary basis,
upon the occasion of each election or re-election of each Outside Director, as
explained under "Restricted Stock" below. Because it is within the discretion
of the Compensation Committee to determine and recommend to the Board of
Directors which officers and employees receive awards and the amount and type
of the award received, it is not possible at the present time to determine the
number of individuals to whom awards will be made under the Plan, or the
amount of the awards. The executive officers of the Company named in the
table under the caption "Executive Compensation" herein are among the officers
who would be eligible to receive awards under the Plan.
Stock Options. Stock Options granted under the Plan may be Incentive
Stock Options or Non-qualified Stock Options. Subject to the terms and
provisions of the Plan, options may be granted to officers or employees at any
time and from time to time as shall be recommended by the Compensation
Committee and approved by the Board of Directors as described under
"Administration" above. The Compensation Committee shall have discretion in
recommending to the Board the number of shares subject to options granted to
each Participant. Each option grant shall be evidenced by an option agreement
which shall specify the option price, the duration of the option, the number
of shares to which the option pertains, the percentage of the option that
becomes exercisable on specified dates in the future, and such other
provisions as the Compensation Committee shall determine.
The option price at which the Participant can exercise each Stock Option
(the "Exercise Price") shall be recommended by the Compensation Committee and
approved by the Board of Directors as described under "Administration" above,
provided that the Exercise Price shall not be less than the Fair Market Value
(as such term is defined in the Plan) per share of the Company's Common Stock
at the time of the grant. No Stock Option may be granted after ten years
following the Plan Term Commencement Date. All Stock Options granted under
the Plan shall expire no later than ten years from the date of the grant,
subject to the limitations set forth in the Plan. Any option may be exercised
by payment to the Company of cash or by surrender of shares of the Company's
Common Stock already owned by the grantee, or a combination of cash and such
shares. Options will be evidenced by a stock option agreement in a form
approved by the Compensation Committee, which may contain additional
limitations, term and conditions, in addition to the restrictions set forth in
the Plan, which the Compensation Committee otherwise deems desirable.
Stock Options awarded to Employees under the Plan shall be exercisable
at such times and be subject to such restrictions and conditions as the
Committee shall in each instance approve, which need not be the same for each
award or for each Employee. However, each Non-qualified Stock Option shall
become exercisable in respect of 331/3 percent of the Shares subject to the
Stock Option on the first, second and third anniversary of grant.
Notwithstanding any other provision of the Plan, in no event may any Stock
Option awarded under this Plan to an Employee subject to the restrictions of
Section 16 of the Exchange Act become exercisable prior to six months
following the date of its award, or following the date upon which this Plan is
approved by stockholders, whichever is later.
<PAGE>
The Plan places limitations on the exercise of options following
termination of employment or in the event of death, disability or retirement
or termination associated with a Change in Control (as defined in the Plan) of
the Company. At the discretion of the Compensation Committee the agreement
evidencing the option award may contain additional limitations upon the
exercise of options, or may provide certain limited rights to exercise such
options. Stock options are nontransferable except by will or in accordance
with the applicable laws of descent and distribution. The granting of an
option does not accord the Participant the rights of a Shareholder, and such
rights accrue only after the exercise of an option and the registration of
shares of Common Stock in the Participant's name.
Restricted Stock. The Plan provides for the award of shares of Common
Stock of the Company which are subject to certain restrictions provided in the
Plan or otherwise determined by the Compensation Committee ("Restricted
Stock"). Restricted Stock Grants pursuant to the Plan will be represented by
Common Stock certificates registered in the names of the Participants who
receive such awards. Upon the award of a Restricted Stock Grant, the
Participant is entitled to vote the Restricted Stock and to exercise other
rights as a Shareholder of the Company, including the right to receive all
dividends and other distributions paid or made with respect to the Restricted
Stock. However, the Participant may not sell, transfer, pledge, exchange,
hypothecate or otherwise dispose of the Restricted Stock during the
restriction period designated by the Compensation Committee except by will or
as may be determined by the Compensation Committee. Non-compliance with any
of the restrictions will result in a forfeiture of the Restricted Stock. When
the conditions of the Restricted Stock award established by the Compensation
Committee are satisfied, the Company will deliver at the end of the
restriction period stock certificates representing the shares of Common Stock
which are no longer subject to any restrictions, except those restrictions
required by applicable securities laws. The awards of Restricted Stock to
Outside Directors shall be non-discretionary and shall be automatically
granted upon the election or re-election of an Outside Director. Upon the
stockholder approval of the Plan, the Compensation Committee shall grant to
each Director that number of shares, rounded to the nearest whole number,
equal to 500 multiplied by a fraction the numerator of which is the number of
years remaining in such Director's present term, rounded to the nearest
complete year, and the denominator of which is 3 (the "Initial Grants").
Additionally, each Outside Director will receive non-discretionary awards of
500 shares of Restricted Stock upon the occasion of each election or re-election
of such Outside Director. The restriction period for Restricted
Stock awarded to an Outside Director shall extend to the expiration of such
Outside Director's remaining term of office, in the case of an Initial Grant,
or to the expiration of such Outside Director's full three-year term, in the
case of an award upon the election or re-election of such Outside Director.
Federal Income Tax Treatment. The following is a brief summary of the
Federal income tax rules currently applicable to participation in the Plan.
The summary is not exhaustive and does not cover any state or local tax
consequences of participation in the Plan. Participants will be advised to
consult their own tax advisors with respect to the consequences of their
participation in the Plan.
Income is not recognized by a Participant on receipt of an option. Upon
the exercise of a Non-qualified Stock Option, the Participant will recognize
ordinary income in an amount equal to the excess of the fair market value of
the shares of Common Stock on the date of the exercise over the exercise price
paid by the Participant. The Participant's tax basis in those shares will be
the exercise price paid plus the amount of recognized ordinary income, and the
Participant's holding period will commence on the date the shares are
transferred. Special rules apply in the event all or a portion of the
exercise price is paid in the form of shares of Common Stock of the Company.
Other special rules may also apply to a Participant who is subject to Section
16 of the Exchange Act.
<PAGE>
The exercise of an Incentive Stock Option by payment of cash will
generally have no immediate tax consequences to the Participant (except to the
extent it is an adjustment in computing alternative minimum taxable income).
A Participant who disposes of shares of Common Stock acquired pursuant to the
exercise of an Incentive Stock Option after a certain holding period will
generally realize long-term capital gain or loss equal to the difference
between the amount realized upon the sale and the purchase price of the shares
(i.e., the exercise price paid by the Participant). However, a Participant
who disposes of shares acquired pursuant to exercise of an Incentive Stock
Option prior to the expiration of such holding period will recognize ordinary
income equal to the excess of the fair market value of the shares of Common
Stock on the date of exercise (or the proceeds of the disposition, if less)
over the exercise price. Special rules apply in the event all or a portion of
the exercise price is paid in the form of shares of Common Stock of the
Company.
With respect to Restricted Stock, the Participant will have ordinary
income equal to the fair market value of the Restricted Stock on the date
those shares are no longer subject to forfeiture, unless the Participant
elects within 30 days of initial receipt of the Restricted Stock to include as
ordinary income the fair market value of the shares on the date of issuance.
Generally, to the extent a Participant recognizes ordinary income as
described above, the Company (or the subsidiary of the Company for which the
Participant performs services) will be entitled to a corresponding deduction,
provided that, among other things (i) the amount deductible (I) is an
ordinary, necessary and reasonable business expense; (II) is not an excess
parachute payment within the meaning of Section 280G of the Code; and (III) is
not disallowed by the $1.0 million limitation on certain highly compensated
executive compensation pursuant to Section 162(m) of the Code; and (ii) any
applicable reporting obligations are satisfied.
Amendment and Termination. The Compensation Committee may amend, alter,
or discontinue the Plan, but no amendment, alteration or discontinuation shall
be made more than every six months or which would (i) impair an Award without
the consent of the Participant, except such an amendment made to cause the
Plan to qualify for the exemption provided by Rule 16b-3 or (ii) disqualify
the Plan from the exemption provided by Rule 16b-3. In addition, no such
amendment shall be made without the approval of the Company's Shareholders to
the extent such approval is required by law, agreement or the rules of any
exchange upon which the Common Stock is listed or quoted.
The Compensation Committee may amend the terms of any Award therefore
granted, prospectively or retroactively, but no such amendment shall impair
the rights of the Participant without his consent except such an amendment
made to cause the Plan or Award to qualify for the exemption provided by Rule
16b-3. The Compensation Committee may also substitute new Options for
previously granted Options, including previously granted Stock Options having
higher option prices.
Subject to the above provisions, the Compensation Committee shall have
the authority to amend the Plan to take into account changes in law and tax
and accounting rules, as well as other factors necessary to administer the
Plan in accordance with the intentions of the Company in establishing the Plan
and to grant Awards which qualify for beneficial treatment under such rules
without Shareholder approval.
The table designated "New Plan Benefits" required under Item 10 of
Schedule 14A of the regulations promulgated under the Securities Exchange Act
of 1934 is omitted because the benefits or amounts to be disclosed in such
table are not presently determinable.
Vote Required. Approval of the Plan requires approval by the holders of
the majority of the shares of the Company's Common Stock present or
represented and entitled to vote at the annual meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 1996
EQUITY INCENTIVE PLAN.
CONFIRMATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
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 conduct an audit of
the financial statements of the Company for the fiscal year ending December
31, 1996, 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.
Vote Required. Confirmation of appointment of the Independent Public
Accountants requires approval by the holders of the majority of the shares of
the Company's Common Stock present or represented and entitled to vote at the
annual meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE CONFIRMATION OF THE
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS.
NO DISSENTERS' RIGHTS
There are no rights of appraisal or similar rights of dissenters with
respect to any matter to be acted upon at the annual meeting.
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, 1995, is set forth in full in the Company's
1995 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 1996 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 20, 1997
annual meeting must be received no later than December 12, 1996.
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.
<PAGE>
ANNUAL REPORT
The 1995 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 l2, 1996
<PAGE>
SIGNATURE INNS, INC.
250 East 96th Street, Suite 450
Indianapolis, IN 46240
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1996
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 21, 1996, at
2:00 p.m., Local Time for the following purposes:
1. To consider and vote upon the election of three directors for three
(3) year terms;
2. To consider and vote upon a proposal to amend Article V and Article
VI of the Company's Articles of Incorporation (the "Articles") to
increase the number of authorized shares of its common stock (the
"Common Stock") from 20,000,000 to 50,000,000 shares, to decrease the
authorized shares of Preferred Stock from 20,000,000 to 5,000,000, and to
revise the rights and preferences of the Preferred Stock;
3. To consider and vote upon a proposal to approve the 1996 Equity
Incentive Plan;
4. To consider and vote upon the ratification of the appointment of KPMG
Peat Marwick LLP as independent auditors for the Company for the
year ending December 31, 1996; and
5. 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
2, 1996, 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 vote upon all 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.
Whether or not you plan to attend the meeting, the Board of Directors requests
that 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. Approval
of each of the matters set forth above requires the affirmative vote of a
majority of outstanding shares present or represented and entitled to vote
thereon.
By Order of the Board of Directors,
DAVID R. MILLER, Secretary
April 12, 1996
PLEASE MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD
PROMPTLY IN THE ENCLOSED POSTAGE GUARANTEED ENVELOPE
<PAGE>
SIGNATURE VII LTD. LIMITED PARTNERSHIP
Signature Inn Kokomo, Indiana
Signature Inn Columbus, Ohio
________________________________________
SOLICITATION
AND
INFORMATION STATEMENT
REGARDING
PROPOSED SALE OF PARTNERSHIP ASSETS
AND OTHER MATTERS
________________________________________
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
________________________________________
August _____, 1996
<PAGE>
TABLE OF CONTENTS
I. Introduction
II. Special Factors and Summary of Material Features of Proposed
Transactions
III. Description of the Partnership Business
IV. The Proposed Sale/Purchase Transaction Between the Partnership, as
Seller, and Signature Inns, Inc., as Buyer
V. Required Amendments to the Partnership Agreement
VI. Dissolution, Termination and Final Distributions
VII. Summary of Estimated Benefits from Sale of Property and Liquidation of
Partnership
VIII. Purpose and Procedure for Majority Vote by Limited Partners
IX. General Partner's Duties, Conflicts of Interest and Risk Factors
X. Federal Income Tax Consequences
XI. Selected Financial Data
XII. Book Value, Distributions and Income
XIII. Pro Forum Financial Information
XIV. Regulatory Requirements
XV. Appraisal Reports
XVI. Material Contracts
XVII. Marketability of Units of Limited Partnership Interests
XVIII. Form 10-KSB and 10-QSB Reports
XIX. Rule 13e-3 Transaction Statement
<PAGE>
EXHIBITS
A Form 10-KSB Annual Report for 1995
B Form 10-QSB Quarterly Report for Quarter Ended March 31, 1996
C Summary Report of Complete Appraisal of Signature Inn - Kokomo, Indiana
D Summary Report of Complete Appraisal of Signature Inn - Columbus, Ohio
E Text of Consent Resolutions of Limited Partners
F Text of Amendments to Partnership Agreement
G Rule 13e-3 Transaction Statement
<PAGE>
SIGNATURE VII LTD. LIMITED PARTNERSHIP
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
Telephone (317) 581-1111
__________
SOLICITATION AND INFORMATION STATEMENT
August ____, 1996
__________
I. Introduction
This Solicitation and Information Statement (the "Statement") and the
enclosed form of Irrevocable Consent (the "Consent") are being mailed to
limited partners (the "Limited Partners") of Signature VII Ltd. Limited
Partnership (the "Partnership") on or about August __, 1996, which date is
more than 20 days before the "Deadline" for the return of the Consents, as
established below. This Statement is being furnished in connection with the
General Partner's solicitation of Consents in connection with the General
Partner's proposals described below. A Limited Partner who executes and
returns a Consent may not revoke, modify or renounce the consent at any time
before February 28, 1997, which is the expiration date of the Consents.
The entire cost of soliciting Consents will be borne by the Partnership.
In addition to the use of the mails, Consents may be solicited by personal
interview, telephone and facsimile transmission by directors, officers and
employees of Signature Inns, Inc., the General Partner of the Partnership,
without extra compensation. The Partnership also will furnish, upon request,
a sufficient number of copies of this Statement to brokers, dealers, banks,
voting trustees, custodians and nominees, if any, for delivery to the
beneficiaries of units of limited partnership interest (the "Units"), and the
Partnership will undertake to reimburse such persons for their actual and
reasonable expenses incurred by such persons in forwarding consent material to
beneficial owners of the Units.
<PAGE>
The General Partner has fixed the close of business on __________,
August ____, 1996, as the record date for the determination of Unit Holders
entitled to receive this Statement and to give or withhold the Consent which
accompanies this Statement. Only Unit Holders of record at the close of
business on that date will be entitled to give or withhold a Consent. As of
the record date, there were 451 Units of Limited Partnership Interest which
were held by the Limited Partners of the Partnership. The Holders of a
"majority" (i.e., 226 Units) must provide their written Consents to the
proposed transactions in order for them to be approved and effectuated. The
General Partner of the Partnership does not own any Units of Limited
Partnership Interest.
You are urged to read all sections of this Statement carefully. You are
also urged to discuss the General Partner's proposals, as well as the
information set forth in this Statement, with your tax consultant and with
your other professional advisors. Following your review of this Statement and
your discussions with your professional advisors, you are urged to sign the
enclosed Irrevocable Consent of Limited Partner (yellow consent form) and
return it to the General Partner in the enclosed, self-addressed, stamped
yellow envelope so that it is received no later than August ____, 1996
(the "Deadline"). In its discretion, the General Partner may extend the
Deadline.
The General Partner believes that the proposed transactions are fair to
the Limited Partners, and that they represent an excellent opportunity for the
Limited Partners of the Partnership to liquidate their investments in the
Partnership at an appropriate time and at an acceptable price, for the
reasons stated herein (particularly Section II hereof) and in the cover
letter which accompanies this Statement.
II. Special Factors and Summary of Material Features of Proposed Transactions
Summary of the Proposals. In accordance with Sections 14.04 and 20.01
of the Signature VII Ltd. Limited Partnership Second Amended Certificate and
Agreement of Limited Partnership, as amended, (the "Partnership Agreement"),
the General Partner of the Partnership is soliciting from the Limited Partners
their written Consents to certain proposals of the General Partner.
Specifically, the General Partner is proposing: (a) the sale by the
Partnership to the General Partner of an undivided 75% interest (equal to the
75% interest of the Limited Partners) in the real estate, improvements,
furnishings, furniture, fixtures and other tangible and intangible personal
property which comprise the Partnership's two Hotel Properties, as described
in Section IV of this Statement (the "Sale"), and the distribution of 100% of
the net proceeds of the Sale to the Limited Partners; (b) the adoption of
certain Amendments to Articles VII and VIII of the Partnership Agreement, as
described in Section V of this Statement, which amendments are necessary to
accomplish the proposed transactions; and, (c) the dissolution, termination,
liquidation and winding-up of the Partnership, as described in Section VI of
this Statement and, in connection therewith, the distribution in kind of the
remaining 25% interest (equal to the 25% interest of the General Partner) in
the Hotel Properties to the General Partner (the "Proposals").
<PAGE>
Purposes, Alternatives, Reasons and Effects of the Proposed
Transactions. The investment by the Limited Partners in the Partnership
always has been and will continue to be illiquid. Currently, there is no
ready market for the resale of Units of limited partnership interest, and it
is not likely that a market for the Units ever will develop. Further, there
are a number of restrictions on transferability of Units contained in the
Partnership Agreement. Accordingly, absent a liquidation of the Partnership
through a sale of all or substantially all of the Partnership's properties,
Limited Partners' investment in the Partnership will remain illiquid.
Accordingly, one of the primary purposes of the proposed transaction is to
afford the Limited Partners the opportunity to "cash out" their investments in
the Partnership through the sale by the Partnership of its assets to the
General Partner and the liquidation and winding-up of the Partnership.
The General Partner believes that trends in the hotel industry and
values of hotel properties are approaching cyclical highs. Accordingly, it is
the General Partner's belief that this may be an opportune time for the Limited
Partners to liquidate their investments in the Partnership at an optimum
price. With hotel prices increasing, and with supply of hotel rooms more
closely in balance with demand for those rooms, performances of individual
properties such as the Hotel Properties operated by the Partnership have
improved, making them more appealing to prospective purchasers, including the
General Partner.
Moreover, although the proposed purchase of the Hotel Properties by the
General Partner cannot be considered arms-length, the purchase prices to be
paid by the General Partner for those properties are supported by written and
well-documented appraisals by a nationally recognized, qualified and
independent appraisal firm. Further, the engagement by the General Partner on
behalf of the Partnership of an independent, qualified legal counsel to
represent the Partnership in reviewing the Asset Purchase Agreement also is
designed to provide added assurance of the overall fairness of the proposed
transaction to the Partnership and its Limited Partners. Finally, the
fiduciary duty of the General Partner, as described in Section IX of this
Statement, requires the General Partner to exercise the utmost good faith
and fairness in its dealings with the Partnership.
The General Partner believes that the proposed transactions serve its
own best interests, as well. Currently, the hotels which comprise the
Signature Inn System are owned by a total of 21 legally distinct and separate
entities, each of which is bound to the General Partner through an elaborate
plan of partnership, management and franchise contracts and relationships. By
eliminating this complicated and cumbersome set-up, and by replacing it with a
simplified, unified company-owned hotel structure, the General Partner hopes
to:
(1) Combine all 24 existing Signature Inn hotels into a single
portfolio of hotels, the combined revenues of which will afford much greater
income stability and income predictability than the current set-up of
essentially "one-op" (i.e., single hotel) operating entities;
(2) Achieve through this combination a greatly enhanced ability to
obtain pools of financing from hotel lenders for new hotels and for
refinancings of existing hotels through cross-collateralized mortgages, rather
than single hotel loans on individual properties, as currently is the case;
<PAGE>
(3) Be able to retain earnings from hotel operations to fund future
growth, rather than being required to pay out all cash available for
distribution to Partners under the current Partnership Agreements; and,
(4) Increase value for its shareholders by reducing substantially the
legal risks, liabilities and obligations which attend the General Partner's
exercise of its duties under the existing partnership, management and
franchise system.
Accordingly, the General Partner believes that the proposed transaction
will provide substantial benefits both to the affiliated limited partnerships
and their limited partners and to the General Partner and its shareholders.
Thus, the ultimate goal and affect of the proposed transactions between
the General Partner and its affiliated limited partnerships, including the
Partnership, is to: (a) allow all limited partners to liquidate their
investments in the affiliated partnerships based upon values of the various
hotel properties which equal or, in some cases, exceed, the fair market value
of those properties as established by an independent, qualified appraiser; (b)
place the fee simple ownership and complete operations of all of the existing
Signature Inn hotels within the General Partner, thereby eliminating,
entirely, the current system of affiliated partnerships, management contracts
and franchise relationships, with a view to enhancing the value and prospects
of the General Partner; and, (c) accomplishing the goals of (a) and (b) in a
manner which is least disruptive to the current business, operations, value
and prospects of the affiliated partnerships and the General Partner. The
specific federal tax consequences to the General Partner and the Partnership
resulting from the proposed transactions is described under Section X of this
Statement.
The primary detriment to the Limited Partners which will result from the
consummation of the proposed transactions, as pointed out in Section IX of
this Statement, is that the Limited Partners will no longer share in any
future income, distributions and credits or any other benefits to be generated
by the future operations of the Partnership's Hotel Properties. Also, the
Limited Partners will not share in any future increases, if any, in the values
of the Hotel Properties. However, the Partnership's ability to produce future
income, distributions and credits and other benefits to the Limited Partners
is subject to the same competitive factors and vagaries of the market place as
were described in the prospectus pursuant to which the Units were sold to the
Limited Partners. Moreover, there can no assurance that the values of hotel
properties (including the Partnership's Hotel Properties) will not decrease
rather than continue to rise.
Source and Amounts of Funds or Other Consideration. The General Partner
intends to fund its proposed acquisition of the hotel properties from its
other affiliated limited partnership entities through an equity
offering/placement and through the assumption by the General Partner of the
current first mortgage indebtedness on those properties. The total equity
funds required to acquire the Hotel Properties owned by the Partnership will
be approximately $3,000,000, and approximately $5,000,000 of mortgage
indebtedness will be assumed by the General Partner. The balance of the
purchase price represents the amount of the value of the General Partner's
interest in the Partnership. The General Partner's ability to obtain both
equity and debt financing of the acquisitions are conditions precedent to the
General Partner's obligation to acquire the properties. As a result, if the
General Partner is unable to obtain equity financing and debt assumptions
sufficient to allow it to acquire the hotel properties, the proposals will be
withdrawn and the proposed acquisitions terminated.
<PAGE>
The Partnership will incur certain expenses in connection with the
proposed transactions. An itemized list of those expenses is as follows:
<TABLE>
<CAPTION>
<S> <C>
(a) Appraisal Fees $10,000.00
(b) Legal Fees 1,000.00
(c) Proxy Statement and Schedule 13E-3 Filing Fees 1,490.00
(d) Printing, Mailing and Other Solicitation Expenses 3,000.00
Total: $15,490.00
</TABLE>
In addition to the foregoing direct costs and expenses to the Partnership
resulting from the proposed transactions, the Partnership will incur the
adjustments, prorations and charges described under Sections V and VII of this
Statement in connection with the closing of the Sale and the winding-up and
liquidation of the Partnership.
Fairness of the Transaction. The General Partner reasonably believes
that the proposed transactions are fair to the Limited Partners of the
Partnership. The Board of Directors of the General Partner voted unanimously
in favor of approving the proposed transactions from the standpoint both of
the General Partner and the Partnership.
The material factors upon which the General Partner's belief is based
and the weight, if any, assigned to each factor by the General Partner are as
follows:
(1) The appraisals of the Partnership's Hotel Properties by an
independent, qualified appraiser, which analyzed all appropriate data and
which estimated the fair market value of the Hotel Properties based upon the
Income Capitalization Approach and the Sales Comparison Approach, are intended
by the General Partner to constitute the primary assurance to the Limited
Partners that the prices proposed by the General Partner to be paid for the
Partnership's Hotel Properties represent the true, fair market values of those
properties. See Section XV for a complete discussion of the USRC appraisal
reports, summaries of which are also attached to this Statement as Exhibits C
and D.
(2) The planned engagement by the General Partner on behalf of the
Partnership of an independent, qualified attorney to represent the Partnership
in connection with the execution of the Asset Purchase Agreement by reviewing
the commercial reasonableness of the terms (other than price) of that
agreement is also intended by the General Partner to provide additional
assurance of the fairness of the transactions to the Partnership and its
Limited Partners.
<PAGE>
(3) According to reliable industry sources, hotel occupancy rates,
average daily room rates, revenue per available room, gross operating profit
and net income levels, as well as the market value of hotel properties, have
been increasing substantially during the past several years. As a result, the
General Partner believes that the economic and market conditions in the hotel
industry favor the sale of the Partnership's properties at this time.
The Purchase Price and Appraisal. The purchase price to be paid by the
General Partner for the 75% undivided fractional interest in the Hotel
Properties will be $6,825,000, which equals 75% of the $9,100,000, appraised
fair market value of the Hotel Properties, as supported by appraisals as of
February 28, 1996. The appraisal was performed by USRC Realty Consultants,
Inc. of Columbus, Ohio, an independent, experienced and qualified real estate
and hotel appraiser. A description of the experience, qualifications and
independence of the appraiser and a Summary of the Complete Appraisal Reports,
as well as other information, is set forth in Section XV and in Exhibits C and
D of this Statement. Upon written request, Limited Partners may inspect the
Complete Appraisal Report at the corporate offices of the General Partner at
250 East 96th Street, Suite 450, Indianapolis, IN 46240.
Limited Partner Consents. Under Article XIV of the Partnership
Agreement, the Limited Partners are granted the exclusive right by "Majority
Vote" and without concurrence of the General Partner to, among other things,
approve or disapprove the Sale of the Partnership's Hotel Properties. Under
Section 1.13 of the Partnership Agreement, the term "Majority Vote" is defined
as the "affirmative vote or written consent of Limited Partners then owning of
record more than 50% of the outstanding Units of the Partnership."
Accordingly, whether or not the General Partner favors or opposes a proposed
sale of the Partnership's Hotel Properties is not determinative, since the
General Partner's concurrence is not required. Units of limited partnership
interest held by the General Partner (if any) cannot be voted by the General
Partner for or against the proposed sale.
The Partnership currently has 451 Units of limited partnership interest,
which are held by its Limited Partners. This means that the holders of 226
Units must provide their written consent to the proposed transactions in order
for those transactions to be approved. No Units of limited partnership
interest are held by the General Partner.
Amendments to Partnership Agreement. In connection with the approval of
the Sale of the Partnership's Hotel Properties to the General Partner, it will
be necessary to amend certain subparagraphs of Articles VII and VIII of the
Partnership Agreement in order to allow the allocation of 100% of the income
and the distribution of 100% of the cash proceeds of the Sale to the Limited
Partners, as a group, and the distribution in kind of the remaining 25%
undivided interest in the Hotel Properties to the General Partner.
Accordingly, at the conclusion of the transactions, the Limited Partners will
receive 100% of the cash proceeds of the Sale, and the General Partner will
receive 100% of the Hotel Properties. The Sale is being structured in this
two-step manner in order to provide certain tax advantages to the General
Partner, but without prejudice to the tax considerations of the Limited
Partners. As with the Sale transaction, the written consent of the holders of
a majority of Units is necessary to approve the amendments to the Partnership
Agreement. Copies of the proposed amendments to the Partnership Agreement
and copies of the consent resolutions adopting those amendments are attached
as Exhibits E and F to this Statement.
<PAGE>
Dissolution of Partnership. Assuming that the conditions to closing set
forth in the Asset Purchase Agreement are satisfied and that the Sale
transaction is completed, the Partnership will be dissolved in accordance with
Section 18.01(e) of the Partnership Agreement and liquidated in accordance
with Article XIX of the Partnership Agreement. However, the General Partner,
in its discretion, may elect not to close the Sale transaction in the event
that: (a) the General Partner is unable to obtain required financing with
which to complete the Sale; (b) the General Partner is unable to obtain the
consents of the mortgage lenders to the assumption by the General Partner of
the mortgage indebtedness on the Partnership's Hotel Properties; (c) the
holders of a majority of the Units of limited partnership interest in the
Partnership fail to approve the transactions by timely supplying their written
Consents; or, (d) the General Partner is unable to complete any or all of its
other proposed transactions with other related, affiliated partnerships. In
any such event, the Asset Purchase Agreements will be canceled, and the
Partnership will continue to own and operate the Hotel Properties as it has
done in the past.
General Partner Duties and Conflicts. The duties of the General
Partner, as well as certain conflicts of interest between the General Partner
and the Partnership, in connection with the Proposals as well as certain risk
factors, are described in Section IX of this Statement.
Cash Payments and Tax Consequences. You, as a Limited Partner of the
Partnership, already have received your usual check for your share of the Cash
Available for Distribution generated from the Partnership's operations for the
year ending December 31, 1995. In addition, if the Proposals are approved and
the transactions closed and consummated, you will receive your allocable share
of the Cash Available for Distribution from January 1, 1996, through the date
of closing, as well as your share of various cash reserves and escrow accounts
which will be liquidated in connection with the dissolution of the
Partnership. The overall economic benefits of the proposed transactions to
the General and Limited Partners are described later in Section VII under the
heading "Summary of Estimated Benefits from Sale of Property and Liquidation
of Partnership". Also, the federal tax consequences of the proposed
transactions are generally described later in Section X. Finally, certain
historical financial information is set forth in the Forms 10-KSB and 10-QSB
reports which are attached to this Statement as Exhibits A and B.
III. Description of Partnership Business
The Partnership was originally organized pursuant to a Certificate and
Agreement of Limited Partnership dated April 22, 1985, which was filed for
record with the Recorder's Office of Marion County, Indiana, (the "Recorder")
on April 24, 1985, in accordance with the Indiana Uniform Limited Partnership
Act ("ULPA") (I.C. Section 23-4-2-1 et seq.). On September 19, 1985, an Amended
Certificate and Agreement of Limited Partnership was executed by and between
the General Partner and the Limited Partners, which was filed for record with
the Recorder on September 28, 1985. On August 13, 1986 a Second Amended
Certificate and Agreement of Limited Partnership was executed by and between
the General Partner and the Limited Partners, which was filed for record with
the Recorder on August 13, 1986. A third amendment was executed between the
parties on April 15, 1988 and filed for record with the Recorder on April 15,
1988. On July 1, 1988, the Partnership filed a Certificate of Limited
Partnership under the Revised Uniform Limited Partnership Act ("INRULPA"),
thereby electing to be governed under the provisions of INRULPA. As a result,
effective on July 1, 1988, the Partnership became a partnership governed by
INRULPA rather than by the ULPA.
<PAGE>
Subsequent to its organization, the Partnership commenced a Securities
and Exchange Commission ("SEC") registered, public offering of Units of
limited partnership interest (the "Units") at $10,000 per Unit, with a minimum
subscription of one Unit pursuant to a Registration Statement which originally
became effective on July 11, 1985. The Rule 415, "shelf-registered" offering
was concluded on June 30, 1986, and a total of 451 Units, aggregating
$4,510,000, was sold in the offering to 396 purchasers who became the limited
partners of the Partnership. In addition to the capital contributions of the
Limited Partners, Signature Inns, Inc., the General Partner of the
Partnership, contributed $1,503,333 (i.e. 25% of total capital contributions)
to the Partnership.
The business of the Partnership currently consists exclusively of the
ownership and operation of two Signature Inn hotels located in Columbus, Ohio,
and Kokomo, Indiana (the "Hotel Properties"). A listing of these hotels, the
number of rooms, location and opening dates is as follows:
<TABLE>
<CAPTION>
Location of Hotel Number of Rooms Opening Date
_________________ _______________ ____________
<S> <C> <C>
I-270 & Cleveland Rd. 125 02/27/86
Columbus, Ohio
U.S. Hwy. 31 & Alto Rd. 102 04/04/86
Kokomo, Indiana
</TABLE>
Each of the foregoing properties is operated as a franchisee of the
General Partner. The Partnership has entered into a standard Signature Inn
Individual Hotel License Agreement (the "Franchise Agreement") with the
General Partner with respect to each of the Hotel Properties. By the terms of
those Franchise Agreements, the Partnership pays to the General Partner
monthly franchise fees (i.e., royalties) equal to 4% of the gross receipts of
each of the Partnership's two hotels, and, in addition, contributes an
additional 3.5% of gross receipts to advertising and reservation funds
administered by the General Partner to fund cooperative advertising programs
and a reservation system. The terms of each of the Franchise Agreements is 10
years, with each expiring on February, 2003. The Partnership has an option to
renew each of those agreements for an additional term of 5 years. Under the
franchise agreements, the Partnership is authorized to use the name "Signature
Inn," as well as other trademarks and logos associated with the Signature
system, and the General Partner provides a multitude of services in relation
to that system.
<PAGE>
Each of the Partnership's hotels is managed by the General Partner
pursuant to a Management Agreement entered into between the Partnership and
the General Partner. Under the Management Agreements, the General Partner
establishes policies for the Partnership's employees having direct
responsibility for the hotel's operation. In addition, the General Partner
establishes room rates, directs the promotional activity of the Partnership's
employees, supervises the purchase and replacement of equipment and supplies,
supervises maintenance activities and selects vendors, suppliers and
independent contractors. In addition, the General Partner performs all
bookkeeping and administrative duties in connection with each of the Hotel
Properties and administers payments and reports to the Limited Partners. The
Partnership is required to pay to the General Partner, as compensation for its
management services, an amount equal to 5% of the gross receipts per month for
each of the Hotel Properties. This compensation is in addition to the cost of
compensating the Partnership's own employees and the costs of goods and
services acquired by the Partnership from independent contractors. However,
the management fee covers all of the General Partner's overhead for which
there is no separate charge. The terms of the management agreements both
expire on February, 1998.
The Partnership's Columbus, Ohio Signature Inn Hotel is subject to a
first mortgage, non-recourse lien in the principal amount of $2,767,426 (at
December 31, 1995), which is payable in monthly installments of $26,438, based
upon a 30 year amortization and with a substantial balloon payment due at
maturity. The Partnership's Kokomo, Indiana Signature Inn Hotel is subject to
a first mortgage, non-recourse lien in the principal amount of $2,350,000 (at
December 31, 1995), which is payable in monthly installments of $23,431, based
upon a 20 year amortization and with a substantial balloon payment due at
maturity. The Columbus Ohio mortgage loan matures on August 20, 2001, and the
Kokomo mortgage loan matures on February 1, 2005.
The Partnership previously owned and operated a 125-room Signature Inn
Hotel in Warren, Michigan, which had been financed by a non-recourse mortgage
loan. The Warren Signature Inn Hotel was sold under Michigan foreclosure
procedures in January, 1992. Because the Warren Signature Inn Hotel loan was
"non-recourse," the foreclosure did not affect any of the Partnership's
operations of its other two Hotel Properties.
Additional information concerning the Partnership's business is set
forth under Part I, Item 1, entitled "Business of Signature VII Ltd. Limited
Partnership," of the Form 10-KSB Annual Report, which is attached to this
statement as Exhibit A.
IV. The Proposed Sale/Purchase Transaction Between
the Partnership, as Seller, and Signature Inns, Inc., as Buyer
Introduction. The General Partner intends to acquire 100% of the
Partnership's Hotel Properties, which, as of February 28, 1996, had a combined
appraised value of $9,100,000. However, the acquisition will be accomplished
in two parts. Part one will involve a sale of a portion of the Hotel
Properties to the General Partner, and the second part will involve a
liquidating distribution of the remaining portion of the Hotel Properties to
the General Partner.
First, the Partnership will sell and the General Partner will purchase
an undivided 75% interest (the "Initial Interest") in all of the real estate,
improvements, fixtures, furnishings, furniture, equipment and all other
tangible and intangible personal property which comprise the Partnership's
Hotel Properties (the "Sale"). For the Initial Interest, the General Partner
will pay to the Partnership a purchase price of $6,825,000 (i.e. 75% of the
$9,100,000 appraised value), of which: (1) approximately $110,600 will be
deducted to defray 75% of the anticipated property tax prorations and closing
costs; (2) approximately $2,951,000 will be paid in cash at the time of
closing; and, (3) approximately $3,763,400 will be paid through the assumption
by the General Partner of a portion of the mortgage indebtedness owed by the
Partnership as of the date of closing.
<PAGE>
The entire net cash proceeds of the Sale will be distributed to the
Limited Partners, as a group, and the General Partner will not share in any of
those proceeds. Instead, and as the second part of the transaction, the
General Partner will receive a liquidating distribution of the remaining
undivided 25% interest (the "Remaining Interest") in the Hotel Properties at
the time of the dissolution of the Partnership (the "Distribution In-kind").
The net result of the Sale and the Distribution In-kind will be to
allocate to the Limited Partners, as a group, 100% of the net cash proceeds of
the Sale (i.e. 75% of the value of the Hotel Properties) for their 75%
partnership interest in the Partnership and to distribute in-kind to the
General Partner the 25% Remaining Interest in the Hotel Properties in
liquidation of the General Partner's 25% interest in the Partnership.
The transaction is being structured in this manner in order to provide
certain tax advantages to the General Partner. The Limited Partners will not
be prejudiced by this two part structure, however, since they will receive the
same share of cash and the same tax consequences as they would have received
had the entire transaction been structured as an outright purchase by the
General Partner of 100% of the Partnership's Hotel Properties.
Assuming that Limited Partners holding the required number of Units
consent to these transactions, the Partnership, as seller, and the General
Partner, as buyer, will immediately enter into a written Asset Purchase
Agreement (the "Purchase Agreement"). The Purchase Agreement shall constitute
a legally binding obligation of both the Partnership to sell and the General
Partner to purchase the Initial Interest in the Hotel Properties. However,
the General Partner's obligations under the Purchase Agreement shall be
conditioned upon the satisfaction of several conditions precedent to closing,
which are described below. Each of these conditions must be satisfied or, in
the discretion of the General Partner, waived on or before February 28, 1997.
If those conditions are not satisfied or waived on or before that date,
the Purchase Agreement will be terminated and canceled, and the proposed
transactions will not occur.
This Section IV to the Statement is devoted to an explanation of some of
the terms of the Purchase Agreement. The description includes a brief
discussion of the general terms of the Purchase Agreement, the adjustments,
prorations and credits which will be made in connection with the Sale, the
conditions precedent to closing, the closing procedures and the distribution
of net sale proceeds to the Limited Partners. However, this is a summary only
of some of the terms of the Purchase Agreement and, accordingly, does not
describe all of the terms of that Agreement. Upon request, Limited Partners
may inspect the actual form of the Purchase Agreement which will be executed
by and between the Partnership and the General Partner following receipt of
the Limited Partners' written consent. Inspection may be made at the
corporate offices of the General Partner at 250 East 96th Street, Suite 450,
Indianapolis, Indiana 46240.
<PAGE>
General Terms of the Purchase Agreement
Description of Property to be Sold. The Initial Interest to be
purchased by the General Partner will be equal to an undivided 75% interest in
all of the real and personal property comprising the Hotel Properties,
consisting of: (1) real estate; (2) all improvements constructed on the real
estate; (3) all furniture, furnishings, fixtures, equipment and other tangible
personal property owned by the Partnership and located on or used in
connection with the operation or maintenance of the Hotel Properties; (4) all
of the Partnership's interests in all equipment leases and contracts relating
to the ownership, maintenance, use or operation of the Hotel Properties; (5)
all of the Partnership's interests in room rental and other lease agreements
(if any); and (6) all of the Partnership's rights, title and interest in and
to all intangible personal property used in connection with the Hotel
Properties, including all books and records, plans and specifications,
drawings, reports, rights, guarantees, licenses, permits and warranties.
Purchase Price and Payment. For the Initial Interest, the General
Partner will pay to the Partnership a Purchase Price of $6,825,000 (i.e. 75%
of the $9,100,000 appraised value). Of that amount: (1) approximately
$110,600 will be deducted to defray 75% of tax prorations and closing costs;
approximately $2,951,000 will be paid in cash at the time of closing, and
approximately $3,763,400 will be paid through the assumption by the General
Partner of a portion of certain mortgage indebtedness owed by the Partnership
to its mortgage lenders as of the date of closing. The Purchase Price will be
subject to certain adjustments, prorations and credits, as described below.
A $2,500 earnest money deposit (the "Earnest Money") will be required to be
paid by the General Partner at the time of the signing of the Purchase
Agreement. In the event the Purchase Agreement expires or is terminated by
the General Partner, the Earnest Money will be paid to the Partnership in
consideration for its agreement to allow the General Partner until February
28, 1997, in which to satisfy the conditions precedent to Closing.
Date of Closing. The Closing of the Sale shall take place on or before
February 28, 1997. It can be expected that Closing of the Sale, the
distributions of cash and the Remainder Interest and dissolution of the
Partnership will occur simultaneously.
Real Estate Commissions. Payment of commissions to a real estate broker
in the range of from 3% to 5% of the purchase price for a property is normal
and customary in commercial real estate transactions. Because the General
Partner is the buyer, however, no real estate commission, finders fee or
similar compensation will be paid by the Partnership or the General Partner to
any person in connection with the Sale. Therefore, the net proceeds to be
realized by the Partnership will be greater than they would have been
in a brokered sale.
<PAGE>
Title Insurance, Survey and Environmental Matters. The Partnership will
be required to furnish to the General Partner, at the Partnership's expense, a
commitment (the "Title Commitment") to issue an owner's policy of title
insurance insuring fee simple title to the Hotel Properties in the name of the
General Partner upon delivery of a limited warranty deed from the Partnership
to the General Partner. The Title Commitment shall set forth the state of
title to the real estate together with all exceptions or conditions to such
title, including, but not limited to, all easements, restrictions, rights-of-
way, covenants, reservations and all other encumbrances affecting the real
estate which would appear in an owner's policy of title insurance issued
pursuant to the Title Commitment. The Title Commitment will contain the
commitment of the title Company to insure such title in the General Partner
for the full amount of the appraised value of the Hotel Properties, and will
contain the further agreement of the title company to insure access from the
real estate to a dedicated public right-of-way which is contiguous to the
boundary of the real estate, a 3.0 zoning endorsement certifying that the real
estate is zoned under the zoning ordinance of the zoning jurisdiction in which
the real estate is located to permit the use of the real property as a hotel.
The Partnership shall also be required to furnish the General Partner,
at the Partnership's expense, a boundary survey of the real estate prepared by
a surveyor or engineer who is licensed by the appropriate governmental
authorities of the state in which the real estate is located and who is
acceptable to the General Partner. The Survey shall be prepared in accordance
with Minimum Standard Detail Requirements for Land Title Surveys jointly
established and adopted by ALTA and ACSM in 1992, and shall certify that the
real estate is not located within a Special Flood Hazard Area. The Survey
shall be certified to the Partnership, the General Partner, and such other
parties as the General Partner may request.
It is customary in real estate transactions such as the Sale for an
environmental survey to be provided to the purchaser. Because the General
Partner was involved in the original purchase of the real estate and the
construction of the Hotel and has managed the Hotel Properties continuously
since then, no environmental survey is being required by the General Partner
in connection with the Sale. The waiver by the General Partner of an
environmental survey is a benefit to the Partnership and the Limited Partners.
Covenants, Representations and Warranties. The Purchase Agreement will
require the General Partner and the Partnership, at all times between the
signing of the Purchase Agreement and Closing: (1) not to enter into any new
undertakings or agreements relating to the management, financing or
maintenance of the Hotel Properties, other than in the ordinary course of
business; (2) to continue to operate and maintain the Hotel Properties in the
same manner that the Partnership has operated and maintained the Hotel
Properties during its ownership, and to continue complying with all provisions
of the service contracts and other agreements to which they are parties, and
to continue compliance with all applicable laws, ordinances, rules and
regulations to which the Partnership or the Hotel Properties is subject; (3)
to maintain all insurance on the Hotel Properties; (4) not to remove any
personal property from the Hotel Properties unless such personal property is
replaced with property of like kind and like value; (5) not to enter into any
agreement granting to any other party the right to purchase the Hotel
Properties or to alienate, lien, encumber or otherwise transfer any portion of
the Hotel Properties or any interest therein.
<PAGE>
The Partnership and the General Partner will make the following
representations and warranties to each other in the Purchase Agreement: (1)
that they are duly organized and validly existing under the laws of Indiana;
(2) that they have the power and authority to enter into the Purchase
Agreement and that all necessary action has been taken to authorize their
respective executions and performance of the Purchase Agreement and the
consummation of the transactions contemplated therein; (3) that the
Partnership owns good, marketable and indefeasible fee simple title to the
Hotel Properties free and clear of all liens, encumbrances, security interests
and other defects in title other than permitted exceptions; and (4) that the
Partnership owns good and marketable title to the personal property free and
clear of all liens, encumbrances security interests and other defects in title
other than permitted exceptions.
The General Partner will not assume any indebtedness, obligations,
commitments or liabilities of the Partnership relating to the Hotel Properties
imposed under any law relating to the environment, health or safety, and
arising out of any act, event or condition occurring or existing prior to the
Closing. Although customary in transactions such as the Sale, the Partnership
will not be required to make any representations or warranties regarding
environmental matters. The waiver by the General Partner of any requirement
that the Partnership make environmental warranties and representations is a
benefit to the Partnership.
Agreement Regarding Employees. The Partnership will take all action as
is necessary to terminate the employment of all Partnership employees as of
the Closing Date. The General Partner will take all action as is necessary to
employ all Partnership employees as of the Closing Date in the positions and
with the compensation and benefits equivalent to those employees' employment
with the Partnership. The General Manager and Assistant General Manager
currently already are employees of the General Partner.
Closing Costs. The Partnership and the General Partner each shall be
responsible for their respective costs and expenses (including attorneys fees)
incurred in connection with the execution of the Purchase Agreement and the
closing of the transactions contemplated therein.
Default and Remedies. If the General Partner fails to perform any of
its obligations under the Purchase Agreement, or fails to keep or observe any
other covenant, agreement or obligation to be kept or observed by the General
Partner under the Purchase Agreement and does not cure such failure prior to
Closing, then the Partnership shall have the right to terminate the Purchase
Agreement in which event the Earnest Money shall be paid to the Partnership
and the Partnership may pursue any and all other rights available at law or in
equity. If the Partnership fails to perform any of its obligations under the
Purchase Agreement, or the Partnership fails to keep or perform any other
covenant, agreement or obligation to be kept or performed by the Partnership
under the Purchase Agreement and does not cure such failure prior to the
Closing then the General Partner may terminate the Purchase Agreement or the
General Partner may enforce specific performance of the Purchase Agreement.
If the Purchase Agreement is terminated for cause by the General Partner, the
Earnest Money shall be immediately returned to the General Partner.
Separate Legal Representation. Upon approval of the Proposals by the
Limited Partners of the Partnership, the General Partner shall select and
engage on behalf of the Partnership independent legal counsel to represent the
Partnership with respect to the terms (other than price) of the Purchase
Agreements and related documents and the consummation of the transactions
contemplated therein.
<PAGE>
Conditions Precedent to Closing. The obligation of the General Partner
to consummate the Sale will be, at the General Partner's option, subject to
the occurrence of the following events prior to February 28, 1997:
Financing Condition. The General Partner shall have obtained
financing in amounts and subject to terms satisfactory to the General Partner
in its sole discretion, including, but not limited to, the satisfactory
completion of a public offering of the General Partner's common stock.
Lender and Other Consents. The Partnership shall have received
consents of all third parties necessary to consummate the Proposals and the
transaction, including, but not limited to consents from mortgage lenders.
Limited Partnership Approval by Majority Vote. The Sale shall
have received the consent of the holders of a majority of the Units of limited
partnership interests in the Partnership in accordance with the Partnership
Agreement and applicable law.
Closings of Other Transactions With Related, Affiliated
Partnerships. The General Partner shall have obtained the approval of the
limited partners holding a majority of units of limited partnership interests
of Signature I, II, III, IV, V, VI, VIII, IX, X, XI, XII, XIV, XVII, XXI,
Northwestern, Southport, Elkhart, Normal/Peoria and Knoxville, Ltd. Limited
Partnerships to the sale of the respective hotel properties owned by those
partnerships to the General Partner in accordance with asset purchase
agreements similar to the Purchase Agreements, and the General Partner shall
have satisfied or waived all conditions to closing of each of those asset
purchase agreements, subject to the General Partner's right, in its
discretion, to waive this condition with respect to the acquisition of one or
more of the other affiliated partnership properties.
Adjustments, Prorations and Credits. Set forth below are certain items
to be adjusted, prorated or credited between the Partnership and the General
Partner at Closing. All credits to the General Partner from the Closing
adjustments and prorations described herein shall reduce the cash payable at
Closing, and all credits to the Partnership from the Closing adjustments and
prorations described herein shall increase the cash payable at Closing.
For purposes of this discussion, it is assumed that the Sale and the
Distribution In-kind will occur on the same day.
Taxes and Assessments. All real estate and personal property taxes
assessed against the Hotel Properties for years prior to the year of the
Closing and all penalties and interest thereon shall be paid by the
Partnership. All real estate and personal property taxes assessed against the
Hotel Properties for the year of the Closing shall be prorated between the
Partnership and the General Partner as of the Closing Date on the basis of the
exact number of days each will own the Hotel Properties.
Utilities. Water, electricity, sewer , gas, cable television, telephone
and other utility charges shall be prorated based, to the extent practicable,
on final meter readings and final invoices, and on the basis of the actual
number of days of the month which shall have elapsed as of the Closing Date.
The Partnership shall be responsible for all such charges for the periods
prior to the Closing Date. The General Partnership shall be responsible for
such charges for the period on and after the Closing Date.
<PAGE>
Accounts Payable. Accounts payable accrued prior to the Closing Date
shall be the responsibility of the Partnership. The General Partner shall be
responsible for all accounts payable accruing on and after the Closing Date.
Guest Advance Deposits. The liability for all unearned guest advance
deposits (if any) on the books of the Partnership on the Closing Date shall be
assumed by the General Partner and shall be credited against payment of the
Purchase Price.
Accrued Payroll and Employee Expenses. To the extent practicable, all
accrued but unpaid employee salaries and benefits and all accrued but unpaid
payroll, F.I.C.A., employee benefit and other employee-related taxes
("Employees Costs") due and payable for the period prior to the Closing Date
shall be paid by the Partnership in full at or prior to Closing without
proration or contribution from the General Partner. The General Partner shall
assume and receive credit against payment of the Purchase Price for all
accrued Employees Costs prior to Closing which are not paid on or before
Closing. The General Partner shall be responsible for all Employee Costs
accruing on and after Closing.
Sales/Lodging Taxes. All sales and/or lodging taxes applicable to guest
room rental charges or public room rental charges accruing prior to the
Closing Date shall be the responsibility of the Partnership. The General
Partner shall be responsible for such taxes accruing on or after the Closing
Date.
Prepaid Insurance. Any amounts of prepaid insurance on the books of the
Partnership as of the Closing Date representing payments for insurance
coverage for any period subsequent to the Closing Date shall be credited to
the Partnership and paid at Closing.
Accounts Receivable. All accounts receivable accruing prior to the
Closing Date shall remain the sole property of the Partnership, and the
General Partner shall have no rights, title or interest in such accounts
receivable.
Closing Procedures. If the Proposals are approved, Closing of the Sale
shall take place as follows:
Closing shall occur on a date specified by the General Partner not
earlier than five (5) days following satisfaction of all conditions to closing
in the Purchase Agreements.
The Closing shall occur in the offices of Johnson Smith Pence
Densborn Wright & Heath, Indianapolis, Indiana, or at such other location as
may be selected by the General Partner.
Distributions to Limited Partners of Net Sale Proceeds: Procedures and
Timetables. On or within five business days after the Closing Date, the
Partnership shall make cash distributions to the Limited Partners in an amount
equal to 100% of the net proceeds of Sale which represents 75% of the
appraised value of the Hotel Properties. See Section VI below for a
description of distributions to Limited Partners in connection with the
dissolution and termination of the Partnership.
<PAGE>
V. Required Amendments to the Partnership Agreement
In order to facilitate the sale of the Hotel Property, the following
revisions, deletions and additions to the Partnership Agreement have been
determined to be necessary. The complete text of the revisions, deletions and
additions appear in the Second Amendment to Second Amended Certificate and
Agreement of Limited Partnership of Signature VII Ltd. Limited Partnership
(the "Amendment") which is attached to this Statement as Exhibit F and
incorporated herein and by this reference made a part hereof:
Amendment to Section 7.06 of the Partnership Agreement. Section 7.06
contains provisions concerning the allocation of gain or loss on the sale of
partnership property. The Amendment adds new language which provides that in
the case of a sale of an undivided fractional interest in the partnership
property by the Partnership to the General Partner which undivided fractional
interest is equal to the aggregate units of limited partnership interests in
the Partnership owned by all Limited Partners (as a group), the gain or loss
on the sale of such undivided fractional interest shall be allocated entirely
to the Limited Partners (as a group), provided that: (a) the Limited Partners
(as a group) receive all distributable cash sale proceeds resulting from that
sale; and, (b) the General Partner receives the distribution of the remaining
undivided fractional interest in the partnership property as a distribution in
kind in connection with the dissolution and termination of the Partnership in
accordance with Article XVIII of the Partnership Agreement.
Amendments to Section 8.02 of the Partnership Agreement. Section 8.02
contains provisions concerning the distribution of net proceeds of sales,
financings and refinancings of Partnership properties. The Amendment adds new
language which provides that in the event of any sale of an undivided
fractional interest in the Partnership properties to the General Partner which
undivided fractional interest is equal to the aggregate units of limited
partnership interests in the Partnership owned by all Limited Partners (as a
group), all net proceeds of such sale shall be allocated and distributed to
the Limited Partners (as a group), and the General Partner shall not receive
any allocation or distribution of any such cash. Rather, the General Partner
shall receive instead a distribution in-kind of the remaining undivided
fractional interest in the Partnership's property represented by the General
Partner's interest in the Partnership in connection with the dissolution and
termination of the Partnership. The purpose of these revisions is to ensure
that, in the event of a sale of an undivided fractional interest in the
Partnership property to the General Partner, the Limited Partners will receive
100% of all distributable cash from the Net Sale Proceeds, and the General
Partner will receive the remaining undivided fractional interest in the
Partnership property.
VI. Dissolution, Termination and Final Distributions
Dissolution/Termination of Partnership. Pursuant to Section 18.01(e) of
the Partnership Agreement and the consents of the holders of a majority of
Units, the Partnership will be dissolved and terminated upon the sale of the
Hotel Properties. Following Closing, the General Partner will cause to be
filed with the Secretary of State of Indiana a Certificate of Cancellation of
Indiana Limited Partnership to effectuate such dissolution. This Certificate
will effectively terminate the legal existence of the Partnership.
<PAGE>
Under Section 19.01 of the Partnership Agreement, upon the dissolution
and final termination of the Partnership, the General Partner must take
account of the Partnership's assets and liabilities and must conduct the
liquidation of such assets as promptly as is consistent with obtaining the
fair market thereof. Any proceeds received from the liquidation of the assets
are required to be applied in the following order:
(1) To the payment of all debts and liabilities of the Partnership to
creditors in the order of priority provided by law and to the expenses of
liquidation;
(2) To the establishment of any reserves deemed necessary for any
contingent liabilities or obligations of the Partnership;
(3) To the repayment of any loans or advances that may have been made
by any Partner to the Partnership;
(4) To the Limited Partners in an amount equal to the excess, if any,
of their capital contributions over prior distributions to them from all
sources; and
(5) Seventy-five percent (75%) of any remaining balance shall be
allocated to the Limited Partners based on their percentage interest in the
Partnership and twenty-five percent (25%) to the General Partner, except that
the General Partner shall not receive any part of any balance of cash
remaining from the Net Sale Proceeds.
Pursuant to Section 19.03 of the Partnership Agreement, each Limited
Partner will be furnished with a Liquidation Statement describing the
disposition of the assets and liabilities of the Partnership and reporting any
other information with respect to the liquidation of the Partnership.
Finally, Limited Partners shall be provided with a notice that the Partnership
has been dissolved and that a Certificate of Cancellation of the Partnership
has been filed in accordance with applicable law.
Termination of Contracts. The Partnership's obligations under the
Management Agreements between the General Partner and the Partnership, and the
Partnership's obligations under the Franchise Agreements between the
Partnership and the General Partner shall be canceled and terminated without
cost or penalty to the Partnership upon the dissolution of the Partnership.
Thus, the Partnership will have no further duties, obligations or
responsibilities with respect to either the Management Agreements or the
Franchise Agreements.
<PAGE>
Final Cash Distributions to Limited and General Partners. As described
above, the Limited Partners of the Partnership will receive 100% of the net
cash proceeds of the Sale on or within five business days of Closing. Upon
the final wind-up of the Partnership, the Limited Partners will receive their
allocable share of 75% of all other remaining cash, including (a) accounts
receivable collections, (b) the net balance at Closing of the FF&E cash
reserve, (c) the net cash balance at Closing of the Tax Escrow Account, (d)
all cash generated from the operations of the Partnership up to the date of
Closing, and (e) interest on such amounts, which amounts will be reduced by
any and all liabilities of the Partnership which are not assumed by the
General Partner in connection with the Sale, and which were not credited
against the General Partner's payment of the Purchase Price. The General
Partner will receive the remaining 25% of those items of cash, as reduced.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
VII. Summary of Estimated Benefits from Sale
of Properties and Liquidation of Partnership
The following table includes pro forma financial information as if the
Sale and the other proposed transactions occurred on December 31, 1995 and
illustrates the disposition of proceeds of Sale, including payment of the
Partnership's liabilities and the completion of distributions to the Limited
Partners.
<CAPTION>
______________________________________________________________________________
Table of Estimated Benefits
______________________________________________________________________________
<S> <C>
Pro forma
Purchase of Hotel Properties 12/31/95
Hotel Sales Prices (real estate and personal property) 9,100,000
(Less) estimated costs for title insurance, survey,
appraisal, etc. (34,000)
Adjustments for Real Estate Taxes unpaid (113,463)
Adjusted Hotel Sales Price 8,952,537
(Less) Mortgage Principal Balance Outstanding (5,017,422)
Net Proceeds from Real Estate Sale (note 1) 3,935,115
Limited Partners Share 75%
Limited Partners Share Amount $2,951,336
Number of Limited Partner Units 451
Amount per Limited Partner Unit $ 6,544
Note 1: The General Partner's share of Net Proceeds from Real Estate Sale
shall be distributed in the form of a deed of the "Remaining
Interest" in the Hotel Properties.
Pro forma
Winding-up of Partnership 12/31/95
Add assets acquired by Buyer or liquidated:
Working capital cash balance 200,000
Prepaid Insurance 3,304
Account Receivables 39,587
Supplies 46,000
FF&E Cash Reserve 88,775
Tax Escrow Cash Account 36,276
(Less) liabilities assumed by Buyer or paid:
Trade Accounts Payable (59,585)
Guests Advance Deposits (809)
Accrued Payroll Expense (35,346)
Sales and Lodging Taxes (24,029)
Net Business Assets and Liabilities (note 2) 294,173
Limited Partners Share 75%
Limited Partners Share Amount $220,630
Number of Limited Partner Units 451
Amount per Limited Partner Unit $ 489
Note 2 - Does not include Limited Partner's Share of operating income since
January 1, 1996.
</TABLE>
<PAGE>
VIII. Purpose and Procedures for Majority Vote by Limited Partners
Requirements Under Applicable Securities Laws. Under applicable state
securities laws, regulations and policies pursuant to which the Units of
limited partnership interests were sold to the Limited Partners, the General
Partner was required to include in the Partnership Agreement certain
"democracy" voting rights for the Limited Partners. Pursuant to those
"democracy" rights, the Limited Partners are required to be given the right to
determine by majority vote of limited partnership interests, among other
matters, whether or not to (1) amend the partnership agreement, (2) approve or
disapprove the sale of all or substantially all of the assets of the
partnership, and (3) dissolve the partnership. All of these determinations
are authorized to be done by the Limited Partners, only, and without
concurrence of the General Partner. Moreover, the General Partner may be
prohibited by certain regulations/policies from exercising any vote or consent
with respect to any Unit of limited partnership interest owned by the General
Partner regarding any matter submitted to the vote of the Limited Partners.
Requirements Under Article XIV of the Partnership Agreement. Article
XIV of the Partnership Agreement grants to the Limited Partners, as a group,
the sole right, by a "Majority Vote" of units of limited partnership interest,
and without the concurrence of the General Partner, to among other matters:
(a) amend the Partnership Agreement; (b) dissolve the Partnership; and (c)
approve or disapprove the sale or exchange of all or substantially all of the
properties of the Partnership. Under Section 1.13 of the Partnership
Agreement, the term "Majority Vote" is defined as the "affirmative vote or
written consent of Limited Partners then holding of record more than 50% of
the outstanding Units of the Partnership". Accordingly, under Article XIV of
the Partnership Agreement, the Limited Partners are granted the exclusive
right to approve or disapprove the transactions proposed by the General
Partner. The Partnership currently has 451 Units of Limited Partnership
interest, which are held by its Limited Partners. This means that the holders
of 226 Units must provide their written consent to the proposed transactions
in order for them to be approved. No Units of Limited Partnership interest
are held by the General Partner.
Voting Procedures and Instructions. The procedures and instructions for
voting on (i.e. consenting to) the proposed transactions are set forth on both
sides of the "Irrevocable Consent of Limited Partner of Signature VII Ltd.
Limited Partnership," which accompanies this Statement. Please read those
instructions carefully.
<PAGE>
IX. General Partner's Duties, Conflicts of Interest and Risk Factors
General Partner's Fiduciary and Other Duties to the Partnership and Its
Limited Partners. A General Partner in an Indiana limited partnership has a
fiduciary duty to exercise the utmost good faith, fairness and loyalty with
respect to limited partners under both statutory and common law. This standard
requires the General Partner to determine the best interests of the
partnership and its limited partners and to conduct the business and affairs
of the limited partnership accordingly. The fiduciary duty of a General
Partner to a limited partnership and its limited partners is one of the
highest duties recognized by law.
In addition to the above-described general duties which obligate a
General Partner as a matter of law, the Partnership Agreement requires the
General Partner to perform other particular duties. These duties include,
among others, the overall management, conduct and operation of the Partnership
in all matters respecting the Partnership, its business and its property,
subject to certain restrictions enumerated in the Partnership Agreement.
However, provision has been made in the Partnership Agreement to the effect
that the General Partner shall have no liability to the Partnership for any
loss arising out of any act or omission by the General Partner, provided that
the General Partner determined in good faith that its conduct was in the best
interest of the Partnership and, provided, further that its conduct did not
constitute fraud, gross negligence or intentional misconduct.
The fiduciary duty of a General Partner to a limited partnership and its
partners also includes the duty to disclose to the limited partners all
significant and material information regarding the partnership and its
affairs. Additionally, General Partners must exercise reasonable care in
furnishing such information to the limited partners. With respect to a sale
of the partnership assets, the General Partner of a syndicated partnership
must obtain the limited partners' consent, and the General Partner bears the
burden of complete disclosure of material facts relevant to the limited
partners' decision whether or not to consent to such a transaction.
In transactions between a limited partnership and its General Partner,
the actions of the General Partner are subject to even greater scrutiny
because the terms of the transaction are not the result of arms's length
negotiations, and the General Partner is in a position to control all terms of
the transaction. Such terms must be the result of the exercise of the General
Partner's judgment in a manner consistent with its fiduciary responsibility to
the limited partners and the partnership.
The General Partner has endeavored in all respects to structure a
commercially reasonable sale pursuant to a Purchase Agreement containing terms
and provisions which are fair and reasonable to both parties. Although the
price for the Hotel has not been determined from an arm's length bargaining
process, as described in Section IV. of this Statement, the price offered by
the General Partner is the result of an independent appraisal conducted by a
qualified appraiser which has extensive experience in appraising hotel
properties. The General Partner believes that the appraisal reflects the
fair market value of the Hotel Properties.
<PAGE>
Conflicts of Interest. The General Partner is subject to various
conflicts of interest arising out of its relationships with the Partnership
and its Limited Partners. Because the Partnership originally was organized by
the General Partner and because the Partnership has continuously been operated
by the General Partner since then, these conflicts cannot be resolved through
arms-length negotiations but must be resolved, if at all, through the exercise
by the General Partner of its judgment consistent with its fiduciary
responsibilities to the Partnership and its Limited Partners and the
investment objectives and policies of the Partnership. These conflicts
include, but are not limited to, the following:
Transactional Conflicts. The General Partner is the proposed
purchaser of the Partnership's Hotel Properties. As such, the General Partner
is naturally desirous of obtaining the lowest possible price and the most
favorable terms to it in connection with the transaction. As the proposed
seller, the Partnership is naturally desirous of obtaining the highest
possible price and the most favorable terms to it in connection with the
transaction. However, by virtue of its dual position as the General Partner
of the Partnership and as the purchaser in the transaction, the General
Partner is in the position of exercising complete control over all of the
terms of the Sale, both for itself as buyer and for the Partnership as seller.
Therefore, there exists the potential for the General Partner to fashion the
terms of the transaction in ways which are more favorable to it as the buyer
than to the Partnership as the seller. The General Partner has endeavored to
minimize these conflicts by engaging a qualified, independent appraiser to
appraise the fair market value of the Hotel Properties on behalf of the
Partnership in order to provide a more independent basis for determining the
purchase price for the Hotel Properties to be paid by the General Partner. In
addition, the General Partner has attempted to further reduce the conflicts by
planning to engage the services of an independent counsel to review the
Purchase Agreement, prior to its execution by the parties, to determine the
general commercial reasonableness and fairness (other than price) of the terms
of that Agreement. However, these efforts cannot eliminate totally the
conflicts which exist.
Choice of Legal Representative. Because of its position as
manager of the Partnership, the General Partner will have complete control
over the selection of the legal counsel to represent the Partnership in
connection with the review of the Purchase Agreement to determine commercial
reasonableness and fairness of its terms. However, the General Partner
believes that it will be able to retain an independent, qualified legal
counsel to represent the Partnership in these matters.
Choice of Appraiser. In its capacity as manager of the
Partnership, the General Partner had total control over the selection of US
Realty Consultants, Inc., as the appraiser of the Hotel Properties. However,
the General Partner believes that USRC is a qualified, independent appraiser
possessing extensive experience in appraising hotel properties and that USRC's
appraisal is an accurate estimation of the fair market value of the Hotel
Properties.
Risk and Other Factors. In addition to the factors set forth elsewhere
in this Statement, limited partners should specifically consider the following
risk factors before signing the Consent accompanying this Statement:
<PAGE>
Failure to Satisfy Conditions Precedent. As explained in Section
IV of this Statement, the Purchase Agreement contains certain conditions
precedent which must be satisfied before closing. Among others, these
conditions include the requirement that the General Partner be able to acquire
any or all of the properties owned by other affiliates of the General Partner.
If any condition precedent to those proposed acquisitions is not satisfied,
the closing and consummation of the subject transaction may not occur.
Tax Effects. As more completely described in Section X of this
Statement, the subject transaction will result in certain federal income tax
effects with respect to the Limited Partners. These effects include, among
others, the treatment of the distribution of the sale proceeds of the Hotel
Properties to the Limited Partners as a fully taxable transaction. Although
highly unlikely, the federal income tax liability could exceed the amount of
cash received by the Limited Partner upon dissolution. Limited partners
should carefully review Section X of this Statement and consult their tax
advisors where appropriate.
Release of Rights to Future Revenues. Although the General
Partner believes that current trends in the hotel industry are such that now
is a favorable time for Limited Partners to cash out their investments, there
can be no assurance that values of hotel properties (including the
Partnership's Hotel Properties) will not continue to rise. Limited Partners
should be aware that, by consenting to the subject transaction, they are
releasing and terminating any and all rights they may have to share in any
future income, distributions and credits to be generated by the Partnership's
Hotel Properties.
Partners in More Than One Partnership. As described earlier in
this Statement, the General Partner is proposing to acquire each of the hotel
properties owned by all of its affiliated limited partnerships, including the
Hotel Properties owned by this Partnership. The successful acquisition by the
General Partner of each of those hotel properties is a condition precedent to
the closing of the purchase of the Hotel Properties of this Partnership and
the other transactions as described in this Statement. Therefore, a limited
partner who is a partner in both this Partnership and one or more of the other
partnerships may be faced with a dilemma in deciding whether to provide his
consent to each of the proposed transactions.
For example, a partner of the Partnership may wish to consent to
the sale by this Partnership of its Hotel Properties to the General Partner,
but may wish to withhold his consent to the proposed sale by another
partnership of its hotel properties to the General Partner. The withholding
of such a limited partner's consent in connection with another proposed
transaction between the General Partner and another partnership, however, may
adversely effect the consummation of the proposed sale by this Partnership of
its Hotel Properties, since closing of the transaction with this Partnership
is conditional upon the General Partner's ability to consummate each of the
other proposed transactions.
<PAGE>
X. Federal Income Tax Consequences
The following is a summary of the principal U.S. Federal income
tax consequences resulting from the transactions described in the General
Partner's Proposals. This summary does not purport to consider all the
possible U.S. Federal income tax consequences of those transactions and is not
intended to reflect the individual tax position of any Limited Partner. This
summary deals with interests in the Partnership held as capital assets.
Because the General Partner is unaware of the existence of Limited Partners
who are non-United States persons not subject to U.S. Federal income tax on
their worldwide income, this summary is inapplicable to such persons. This
summary is based upon the U.S. Federal tax laws and regulations as now in
effect and as currently interpreted and does not take into account possible
changes in such laws or interpretations, any of which may be applied
retroactively. It does not include any description of the tax laws of any
state, local or foreign governments possibly applicable to the transactions
contemplated by the Proposals. Limited Partners should consult their own tax
advisors concerning the application of U.S. Federal tax laws to their
particular situations as well as any consequences to them under the laws of
any other taxing jurisdiction.
Tax Treatment of Transactions Comprising the Proposal. The acquisition
by the General Partner of an undivided interest in the Hotel Property for cash
and assumption of debt, the allocation of gain or loss attributable to that
acquisition exclusively to the Limited Partners, the distribution of
acquisition proceeds exclusively to the Limited Partners and the dissolution
of the Partnership will likely be treated for U.S. Federal income tax purposes
as, inter alia, a taxable sale of interests in the Partnership by the Limited
Partners to the General Partner. In the event those transactions are
respected for Federal U.S. income tax purposes, the following would be the
material differences in tax effect when compared to that resulting from a sale
of an interest in the Partnership: (i) section 1231 gain on the sale of Hotel
Property by the Partnership may be recharacterized from capital gain to
ordinary income in the hands of a Limited Partner who previously reported
ordinary losses from net section 1231 losses; and (ii) the Partnership might
be required to withhold Indiana tax from distributions in respect of Hotel
Property located in Indiana that are made to Limited Partners who are not
Indiana residents.
Gain or Loss on Sale. Gain or loss realized from a sale of interests in
the Partnership will be the difference between the gross amount realized and
the Limited Partner's tax basis in such interest. The "gross amount realized"
will equal the amount of cash received in the proposed distributions plus the
amount of any Partnership liabilities allocable to such interest. Under
certain unlikely circumstances, the amount of gain recognized by a Limited
Partner or even the federal income tax liability resulting therefrom could
exceed the amount of cash that Limited Partner received pursuant to the
proposed transactions. Except as described below, any gain recognized upon a
sale or other taxable disposition of interests of the Partnership will be
treated as gain attributable to the sale or disposition of a capital asset.
Any amount realized upon the sale of an interest in the Partnership
attributable to the selling Limited Partner's share of "unrealized
receivables" of the Partnership (as defined in Section 751 of the Code) will
be treated as proceeds from the sale of property other than capital assets.
Unrealized receivables include, to the extent not previously included in
Partnership income, any rights to payment for services rendered or to be
rendered, and amounts that would be subject to recapture as ordinary income if
the Partnership had sold the Hotel Property and its other assets at fair
market value.
<PAGE>
Basis of Units. In general, each Limited Partner had an initial tax
basis in his interest in the Partnership ("Initial Basis") equal to the cash
or other property he transferred to acquire that interest. A Limited
Partner's Initial Basis in his interest in the Partnership generally is
increased by (i) such Limited Partner's share of Partnership taxable and
tax-exempt income and (ii) increases in such Limited Partner's allocable share
of liabilities of the Partnership. Generally, such Partner's basis in his
interest in the Partnership is decreased (but not below zero) by (A) such
Partner's share of Partnership distributions, (B) decreases in such partner's
allocable share of liabilities of the Partnership, (C) such Partner's share of
losses of the Partnership and (D) such partner's share of nondeductible
expenditures of the Partnership that are not chargeable to his capital
account. In calculating a Limited Partner's basis in his interest in the
Partnership, an accounting will be made of that Partner's allocable share of
income, gain, loss and deduction of the Partnership for the year of the
Partnership which includes the date of Closing, determined through the date of
Closing, not previously distributed to such Limited Partner.
Suspended Losses. Certain taxpayers, including individuals and
"closely-held C corporations," are prohibited from deducting in any taxable
year otherwise allowable losses from a particular business or activity,
including losses allocable to an investment in the Partnership, in excess of
the aggregate amount such taxpayers are "at risk" with respect to such
business or activity as of the end of such year. Losses of the Partnership
not deductible by a Limited Partner in the year they are initially sustained
because of the "at risk" limitation may be deductible in succeeding tax
periods, again subject to the "at risk" and other limitation provisions. In
general, a Limited Partner will be considered "at risk" in respect of his
interest in the Partnership to the extent of the sum of (i) the Initial Basis;
(ii) the difference between profits of the Partnership previously allocated to
that Partner over losses of the Partnership previously allocated to such
Partner and (iii) gain recognized by a Limited Partner on the transfer of the
interest in the Partnership through the proposed transactions.
Separate and apart from the "at risk" rules described above, Section 469
of the Code generally prohibits certain taxpayers, including individuals,
estates, trusts and personal service corporations, from deducting in any
taxable year otherwise allowable losses from "passive" activities in excess of
income and gains from the same or other "passive" activities in such year.
(In addition, certain "closely-held C corporations" will be subject to the
passive activity loss limitation rule except that losses from "passive"
activities may offset net "active" income, but not "portfolio" income.) For
this purpose, "passive" income does not include interest, dividends, annuities
and royalties not derived in the ordinary course of a trade or business and
gain or loss derived from the disposition of property producing such income or
held for investment ("portfolio" income). A Limited Partner's determination
of income which passive losses may currently offset must exclude such
"portfolio" income. Disallowed losses carry forward and are treated as
"passive" losses in subsequent years to the extent of the taxpayer's net
"passive" income in such year. Disallowed "passive" losses will be deductible
by a Limited Partner upon the completion of the transactions described in the
General Partner's proposals, offsetting, in the following order, income or
gain realized in respect of the Partnership, other net "passive" income, and
any "portfolio" and "active" income.
<PAGE>
Possible Withholding of Portion of Proceeds. The General Partner will
withhold ten percent (10%) of the "gross" amount realized by any Limited
Partner from the proposed transactions unless such Limited Partner provides
written proof, in a form and in accordance with instructions satisfactory to
the General Partner, that such Limited Partner is a U.S. citizen, U.S.
resident or otherwise subject to U.S. Federal income tax on income derived
from worldwide sources.
XI. Selected Financial Data
The following table sets forth certain historical financial data
relating to the Partnership's operating revenues, income (loss) from
continuing operations, total assets and long term obligations for the five
year period from 1991 through 1995. Income (loss) from continuing operations
per Unit, as well as other per Unit information, is set forth in Section XII.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
<CAPTION>
Schedule of Selected Five Year Financial Data
Concerning the Partnership's Operations
Hotels: Columbus & Kokomo
<S> <C> <C> <C> <C> <C>
Statistics: 1991 1992 1993 1994 1995
____ ____ ____ ____ ____
Number of Rooms
- Columbus 125 125 125 125 125
Number of Rooms
- Kokomo 101 101 101 101 101
Occupancy - Columbus 57.7% 64.9% 59.6% 61.1% 64.7%
Occupancy - Kokomo 69.6% 59.3% 62.5% 69.3% 81.4%
Average Daily Rate
- Columbus $47.82 $49.04 $50.36 $53.59 $56.39
Average Daily Rate
- Kokomo $47.43 $48.33 $49.35 $52.68 $55.30
Revpar - Columbus $27.59 $31.83 $30.01 $32.74 $36.48
Revpar - Kokomo $33.01 $28.66 $30.84 $36.51 $45.01
Operating Results: 1991 1992 1993 1994 1995
____ ____ ____ ____ ____
Hotel Revenue
- Columbus $1,301,625 $1,498,624 $1,426,101 $1,543,094 $1,711,463
Hotel Revenue
- Kokomo $1,263,522 $1,104,016 $1,202,794 $1,411,220 $1,731,534
Net Income (Loss)
- Columbus ($102,199) $58,328 $34,916 $89,571 $129,691
Net Income (Loss)
- Kokomo ($42,534) $77,875 $8,700 $183,024 $351,500
Total Assets: 1991 1992 1993 1994 1995
____ ____ ____ ____ ____
Columbus $3,641,723 $3,658,726 $3,558,954 $3,526,840 $3,399,381
Kokomo $2,884,641 $2,731,026 $2,667,774 $2,770,873 $3,403,113
Total: $6,526,364 $6,389,752 $6,226,728 $6,297,713 $6,802,494
Long Term
Debt Obligations: 1991 1992 1993 1994 1995
____ ____ ____ ____ ____
Columbus $2,952,584 $2,864,778 $2,819,395 $2,768,552 $2,725,003
Kokomo $2,156,109 $2,066,651 $1,986,930 $1,938,405 $2,176,214
Total: $5,108,693 $4,931,429 $4,806,325 $4,706,957 $4,901,217
</TABLE>
<PAGE>
XII. Book Value, Distributions and Income
The following table sets forth certain information concerning the
Partnership's book value per Unit, cash distributions declared and paid per
Unit and income (loss) per Unit from continuing operations for the five year
period from 1991 through 1995:
<TABLE>
<CAPTION>
Schedule of Per Unit Book Value, Cash Distributions and Income (Loss)
_____________________________________________________________________
<S> <C> <C> <C> <C> <C>
Book Value: 1991 1992 1993 1994 1995
____ ____ ____ ____ ____
Total
(Columbus & Kokomo) $976,996 $1,145,590 $1,094,797 $1,295,833 $1,548,656
Number of L.P. Units 451 451 451 451 451
Per Limited Partner
Unit $1,624 $1,905 $1,820 $2,155 $2,575
Limited Partner
Cash Distributions: 1991 1992 1993 1994 1995
Total
(Columbus & Kokomo) $0 $70,807 $53,724 $171,276 $412,361
Number of L.P. Units 451 451 451 451 451
Per Limited Partner Unit $0 $157 $119 $380 $914
Cumulative Limited Partner Distributions Per Unit, 1986 to 1995 $2,469
As a percentage of Original Investment Per Unit 24.7%
Income (Loss): 1991 1992 1993 1994 1995
____ ____ ____ ____ ____
Total Net Income
(Columbus
& Kokomo) $(144,733) $136,203 $43,616 $272,595 $481,191
Number of L.P. Units 451 451 451 451 451
Income (Loss) Per
Limited Partner
Unit $(241) $227 $72 $453 $800
</TABLE>
<PAGE>
XIII. Pro Forma Financial Information
The Summary of Estimated Benefits from Sale of Property and Liquidation
of Partnership, which is included in Section VII of this Statement, sets forth
certain pro forma financial information concerning the Sale and the other
proposed transactions, as if the Sale and the other transactions had occurred
on December 31, 1995, the end of the Partnership's last fiscal year. The
purpose of that pro forma financial information is to provide the Limited
Partners with information concerning the impact of the proposed transactions
by showing how the transactions might have effected historical financial
statements, had the transactions been consummated at an earlier time.
However, because the Partnership will be liquidated and dissolved, assuming
the transactions are effectuated, no pro forma financial information is being
supplied with respect to the future prospects of the Partnership as would
ordinarily be required under Article 11 of Regulation SX.
XIV. Regulatory Requirements
The Partnership is required to comply with the rules and regulations
promulgated under the federal and state securities laws administered by the
Indiana Secretary of State, other state regulatory agencies and the United
States Securities and Exchange Commission ("SEC") in connection with the
solicitation of Consents with respect to, and the consummation of, the
transactions proposed herein by the General Partner. The Partnership must
also comply with the substantive and procedural requirements of the
Partnership Agreement. Please refer to Section XVI of this Statement for a
description of the terms and conditions of the Partnership Agreement. The
Partnership believes that it is, and will continue to be, in full compliance
with all the requirements of federal and state securities laws and the
Partnership Agreement.
Other than the requirements of federal and state securities laws and the
Partnership Agreement, there are no federal or state regulatory requirements
which must be complied with or with respect to which approval must be obtained
in connection with the transactions proposed herein by the General Partner.
XV. Appraisal Reports
US Realty Consultants, Inc. Appraisal Reports. On February 16, 1996 the
general partner on behalf of the partnership engaged the services of US Realty
Consultants, Inc. ("USRC") to perform appraisals of the Partnership's two
Hotel Properties located in Kokomo, Indiana and Columbus, Ohio and to estimate
the fair market value (on a going concern basis) of the fee simple estate in
those properties, including the furniture, fixtures and equipment components
thereof. The scope of the appraisals involved the systematic research and
analysis necessary for USRC to reach value conclusions for the Hotel
Properties. In connection with their analysis, USRC inspected both Hotel
Properties, conducted market research in regard to similar and comparable
hotel properties, assembled data from the general market area for the Hotel
Properties and studied the competitive hotel markets for the Hotel Properties.
In addition, USRC gathered and analyzed data in regard to income, expense,
capitalization rate, discount rate, comparable improved sales and real estate
tax, zoning and flood plane data relating to the Hotel Properties.
In order to estimate the market value of the Hotel Properties, USRC
utilized the Income Capitalization and the Sales Comparison approaches to
commercial real estate valuations. Based upon their research and analysis,
USRC estimated the market value of the fee simple estate of the going concern
of the Kokomo, Indiana Signature Inn Hotel, as of February 28, 1996, at
$4,800,000 and the similar value of the Columbus, Ohio Signature Inn Hotel at
$4,300,000, for a combined appraised value of both hotels of $9,100,000. USRC
issued Summary Reports of Complete Appraisals on both Hotel Properties dated
March 11, 1996, copies of which are attached to this statement as Exhibits C
and D. In addition, USRC has issued more descriptive summary reports, which
are available for review by any limited partner at the corporate offices of
the general partner of the partnership, Signature Inns, Inc., 250 E. 96th
Street, Suite 450 Indianapolis, Indiana 46240.
<PAGE>
Experience and Qualifications of the Appraiser. USRC was organized in
1983. USRC operates regional offices in Atlanta, Georgia, Chicago, Illinois
and Columbus, Ohio. USRC specializes in providing commercial real estate
appraisal and consulting services in four major areas of the real estate
industry: Health Care Services Facilities, Hospitality & Resort Industry
Services, Golf and Country Club Services and Real Estate Appraisal Services.
Through its Hospitality & Resort Industry Services Group, USRC has
extensive experience in providing appraisal services for the hotel industry.
USRC employs professionally-trained hoteliers with outstanding academic
credentials and over forty combined years of industry experience. USRC has
participated in over 500 hotel and resort-related engagements since 1991 and
has knowledge and experience in all product segment types of the hotel
industry including limited-service to full-service, hard-budget to luxury
resort, commercial to convention and extended-stay to all-suite.
Many of USRC's hotel appraisal assignments have been national in scope
and have included national brand name affiliations such as Best Western, Days,
Embassy Suites, Fairfield Inn, Hampton Inn, Hilton, Holiday Inn, Howard
Johnson, Knights Inn, LaQuinta, Quality, Radisson, Ramada, Red Roof, Sheraton
and Westin. USRC has been a major participant in the development of
analytical software programs designed specifically for hospitality and resort
consulting and appraising purposes. As further evidence of USRC's expertise
in providing appraisal services in the hotel industry, USRC publishes a
seasonal pamphlet titled Hospitality Perspectives which provides information
with respect to trends in the hotel industry including regional reports on
average daily rates and occupancy.
Independence of the Appraiser. Prior to its engagement by the General
Partner on behalf of the Partnership, USRC had only minor prior business
relationship with the General Partner or any of its other affiliated entities.
However, the General Partner, on behalf of certain other of its affiliated
Limited Partnerships, has engaged USRC to conduct appraisals on behalf of
those entities, as well. Nonetheless, the General Partner does not believe
that the engagement of USRC by other affiliated partnerships for purposes of
appraising their respective properties interferes with the independence of
USRC in conducting the appraisal of the Partnership's Hotel Properties. In
order to document USRC's independence, the General Partner has obtained from
USRC a completed due diligence questionnaire which supports the independence
of the appraiser.
Cost of Appraisal. The Partnership has a paid the $10,000 cost of the
appraisals.
<PAGE>
XVI. Material Contracts
A. Past and Present Material Contracts.
The Franchise Agreements. The Partnership has entered into a standard
Signature Inn Individual Hotel License Agreement with the General Partner with
respect to each of the Hotel Properties. Those agreements are more fully
described in Section III of this Statement.
The Management Agreements. The Partnership has also entered into a
Management Agreement with the General Partner with respect to each of the
Hotel Properties. Those agreements are more fully described in Section III of
this Statement.
The Partnership Agreement. The Partnership Agreement sets forth the
terms and conditions pursuant to which the affairs of the Partnership are
governed and the relative rights and duties of the General Partner and the
Limited Partners. The discussion which follows refers only to the Partnership
Agreement, that is, the Second Amended Certificate and Agreement of Limited
Partnership dated August 13, 1986, as amended, and not to any preceding
certificates or agreements. Please refer to Section III of this Statement for
a discussion of prior certificates and agreements.
Powers of the General Partner. The General Partner has full,
exclusive, and complete authority and discretion in the management and control
of the business of the Partnership. Limited Partners have no right or power
to take part in the management of, or to bind, the Partnership.
Liabilities of the Limited Partners. The Partnership Agreement
provides that no Limited Partner shall be liable for any debts or obligations
of the Partnership in excess of the amount of his/her Capital Contribution
which has not been previously returned to him/her, except that, under
applicable law, the Limited Partners may be required to return (with interest)
amounts distributed to them as a return of their Capital Contributions if the
Partnership is unable to pay creditors who extended credit to the Partnership
prior to the date of any such return of capital. In addition, all
undistributed Cash Available for Distribution and proceeds of the sale or
financing of Partnership Properties which would otherwise be distributed to
the Partners are available, along with all Partnership assets, to creditors to
satisfy the debts and obligations of the Partnership until actually
distributed. Upon payment in full of the subscription price, Units acquired
by Limited Partners pursuant to the Partnership Agreement become fully paid
and nonassessable. No Limited Partner has the right to withdraw all or any
portion of his Capital Contribution until the full and complete winding up and
liquidation of the business of the Partnership, except as otherwise provided
by law.
Voting Rights of the Limited Partners. Limited Partners may, with
the affirmative vote of those holding more than 50% of the Units, take action
on the following matters: (a) the approval or disapproval of the sale or
exchange of all or substantially all of the Partnership's properties; (b)
dissolution of the Partnership; (c) removal of a General Partner or any
successor General Partner; (d) election of new General Partner upon the
removal, retirement, bankruptcy, insolvency or death of a General Partner or
any successor General Partner; (e) amendment of the Partnership Agreement.
The right of the Limited Partners to amend the Partnership Agreement, however,
is limited with respect to amendments affecting limited liability of the
Limited Partners and the rights and interests of the General Partner.
Amendments receiving the requisite vote will be executed by the General
Partner on behalf of all Limited Partners acting pursuant to the power of
attorney contained in the Partnership Agreement.
<PAGE>
Other Terms and Conditions. For a more complete description of
the terms and conditions of the Partnership Agreement please refer to the
Partnership's Form 10-KSB for 1995 attached hereto as Exhibit A.
B. Proposed Material Contracts
The General Partner is proposing that the General Partner and the
Partnership enter into an Asset Purchase Agreement which shall constitute a
legally binding obligation of both the Partnership to sell and the General
Partner to but the Initial Interest in the Hotel Properties. A description of
the terms and conditions of the Asset Purchase Agreement is set forth in
Section IV of this Statement.
XVII. Marketability of Units of Limited Partnership Interests
The Partnership's common equity consists of Units of limited partnership
interest in the Partnership. There is only one class of Units, and all Units
have the same rights and the same interests in income, loss, distributions and
capital of the Partnership. Each Unit represents a total required capital
contribution of $10,000. Units are not subject to assessment for additional
contributions. Holders of the Units possess certain limited voting rights
(with respect to those matters which are submitted to a vote of the Limited
Partners) and rights to certain distributions. Such voting and distribution
rights will be based upon the number of Units owned by each Limited Partner.
The Partnership Agreement contains a number of restrictions on the
transferability of the Units. The General Partner does not have the right and
is not obligated to redeem or repurchase the Units, and the Partnership
Agreement prohibits the holders of the Units from withdrawing their respective
capital contributions.
The Units are not listed on any securities exchange and are not subject
to any quotations under the "NASDAQ" system. The Units are not actively
traded in any established public trading market. Units are expected to be
transferable, if at all, only in privately negotiated transactions.
Accordingly, the Partnership is unable to furnish any information with respect
to ranges of high and low bid quotations for the Units during the past two
years.
The following table sets forth the number of Units outstanding and the
approximate number of holders or record of the Units as of the date of this
report:
<TABLE>
<CAPTION>
Number of Number of
Outstanding Units Holders of Record
_________________ _________________
<S> <C>
451 393
</TABLE>
<PAGE>
XVIII. FORM 10-KSB AND 10-QSB REPORTS
Until recently, the Partnership was required to file annual, quarterly
and current reports with the Securities and Exchange Commission ("SEC"),
pursuant to the requirements of Section 12(g) of the Securities Exchange Act
of 1934 (the "Act"). As a result, however, of a recent amendment to Rule 12g-1
promulgated by the SEC under the Act, the Partnership became eligible for an
exemption from the registration and reporting requirements under Section
12(g), provided that the Partnership file a Form 15 Certification and Notice
of Termination of Registration under Section 12(g) of the Act ("Form 15").
The Partnership filed its Form 15 on July 17, 1996, and, under Rule 12g-4,
termination of the Partnership's registration of its Units of Limited
Partnership Interest shall take effect 90 days thereafter (i.e., October 15,
1996).
On or about March 31, 1996, the Partnership filed its Form 10-KSB Annual
Report with the SEC for the year ended December 31, 1995. A copy of that
report is attached to this Statement as Exhibit A. Also, on May 15, 1996, the
Partnership filed its Form 10-QSB Quarterly Report with the SEC for the
quarter ended March 31, 1996. A copy of that report is attached to this
Statement as Exhibit B.
XIX. RULE 13e-3 TRANSACTION STATEMENT
Rule 13e-3 promulgated by the SEC under the Act requires the Partnership
to file a Schedule 13E-3 with the SEC in connection with this Statement. A
copy of the Schedule 13E-3 is attached to this Statement as Exhibit G.
EXHIBIT INDEX
A Form 10-KSB Annual Report for 1995
B Form 10-QSB Quarterly Report for Quarter Ended March 31, 1996
C Summary Report of Complete Appraisal of Signature Inn - Kokomo, Indiana
D Summary Report of Complete Appraisal of Signature Inn - Columbus, Ohio
E Text of Consent Resolutions of Limited Partners
F Text of Amendments to Partnership Agreement
G Rule 13e-3 Transaction Statement
<PAGE>
<TABLE>
Exhibit C
Schedule 13E-3
Cross-Reference Sheet
<CAPTION>
<S> <C>
Solicitation and Information
Schedule 13E-3 Item: Statement Location:
___________________ __________________
Item 1.
(a) Not applicable
(b) Not applicable
(c) Section XVII, pp. 32-33
(d) Not applicable
(e) Not applicable
(f) Not applicable
Item 2. Not applicable
Item 3. Not applicable
Item 4.
(a) Section IV, pp. 9-16
(b) Not applicable
Item 5.
(a) Section II, p. 7
Section IV, pp. 9-16
Section V, pp. 16-17
Section VI, pp. 17-18
(b) Section II, pp. 2-7
Section IV, pp. 9-16
(c) Not applicable
(d) Not applicable
(e) Not applicable
(f) Not applicable
(g) Not applicable
Item 6.
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Not applicable
Item 7.
(a) Section II, pp. 2-4
(b) Not applicable
(c) Section II, pp. 2-4
(d) Section II, pp. 2-4
Section X, pp. 23-25
<PAGE>
Item 8.
(a) Not applicable
(b) Section II, pp. 5-6
(c) Not applicable
(d) Not applicable
(e) Not applicable
(f) Not applicable
Item 9.
(a) Section XV, pp. 29-30
(b) Section XV, pp. 29-30
(c) Section XV, pp. 29-30
Item 10.
(a) Not applicable
(b) Not applicable
Item 11. Section XVI, pp. 31-32
Item 12.
(a) Not applicable
(b) Not applicable
Item 13.
(a) Not applicable
(b) Not applicable
(c) Not applicable
Item 14.
(a) Section XII, p. 28
Section XVIII, p. 33
(b) Section VII, p. 19
Section XIII, pp. 28-29
Item 15.
(a) Section IV, pp. 9-16
(b) Not applicable
Item 16. Not applicable
Item 17. Not applicable
</TABLE>
<PAGE>
July 17, 1996
Securities and Exchange Commission
Division of Corporate Finance
Washington, DC 20549
Re: Signature VII Ltd. Limited Partnership; File No. 2-98025
Rule 13e-3 Transaction Statement
Gentlemen:
Pursuant to Regulation 13e-3, we are transmitting herewith for
electronic filing with the Commission the Rule 13e-3 Transaction Statement
(the "Statement") intended to be used by Signature VII Ltd. Limited
Partnership (the "Partnership") for the solicitation of consents from limited
partners of the Partnership in connection with a proposal by Signature Inns,
Inc., the general partner of the Partnership, to purchase an undivided 75%
interest in the Partnership's hotel properties, to dissolve and liquidate the
Partnership, and certain other matters. The Statement has been prepared in
accordance with Regulation 13e-3 and Schedule 13E-3. The filing fee of
$1,365.00 was deposited to the Commission's lock box account with Mellon Bank
on July 16, 1996.
The Partnership is also filing electronically on this date, as a
separate EDGAR submission, a Solicitation and Information Statement prepared
in accordance with Regulation 14a-5 and Schedule 14A.
The Partnership intends to distribute the Statement, the Solicitation
and Information Statement and all the exhibits thereto, to its limited
partners on or about August 7, 1996.
The Commission is requested to contact the undersigned in accordance
with the information contained in the EDGAR submission header with any
comments or other communications concerning this filing.
Very truly yours,
Thomas N. Eckerle
TNE/CMF/mlh
Attachments
