<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission File Number 2-98025
SIGNATURE VII LTD. LIMITED PARTNERSHIP
(Exact name of small business issuer in its charter)
Indiana 35-1636684
------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 East 96th Street, Suite 450, Indianapolis, Indiana 46240
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (317) 581-1111
--------------
Securities registered pursuant to Section 12(b) of the Exchange Act: None
-----
Securities registered pursuant to Section 12(g) of the Exchange Act: None
-----
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form. No disclosure will be contained, to
the best of Registrant's knowledge, in any definitive proxy or information
statements incorporated by reference herein. [ x ]
Issuer's revenues for the most recent fiscal year $3,471,397
Aggregate Market Value of Units Held by Non-Affiliates: Unknown
(See Item 5)
Documents Incorporated By Reference: None
-----
Transitional Small Business Disclosure Format (check one):
Yes ; No X
----- ------
<PAGE>
PART I
------
Item 1. Business of Signature VII Ltd. Limited Partnership.
------ --------------------------------------------------
A. Organization.
-------------
Signature VII Ltd. Limited Partnership (hereinafter sometimes referred to
as either the "Partnership" or the "Registrant") was originally organized
pursuant to a Certificate and Agreement of Limited Partnership dated April 22,
1985, which was filed for record with the Marion County, Indiana, Recorder on
April 24, 1985, in accordance with the Indiana Uniform Limited Partnership Act
(I.C. Section 23-4-2-1 et seq.). 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.
Subsequent to its organization, the Partnership commenced an 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 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 the capital
contributions) to the Partnership.
B. The General Partner.
-------------------
The General Partner of the Partnership is Signature Inns, Inc. ("General
Partner"), an Indiana corporation, which was incorporated on March 31, 1978.
C. The General Partner's Affiliated Partnerships and Joint Ventures.
----------------------------------------------------------------
The General Partner, directly or through a wholly-owned subsidiary, is the
general partner of a total of 21 Indiana limited partnerships and joint venture
partnerships. The partnerships own an aggregate of 23 Signature Inn hotels
totaling 2,748 rooms. Each of those 23 operating hotels and one additional
eighty-one room hotel currently under construction are operated under
long-term management and franchise agreements with the General Partner, from
which the General Partner derives substantial fee revenue.
-1-
<PAGE>
D. The General Partner's Subsidiaries.
----------------------------------
The General Partner has four, wholly-owned subsidiary corporations.
Signature Securities Corporation ("SSC"), is an SEC/NASD registered "limited"
broker-dealer which previously was engaged in the offer and sale of direct
participation programs (e.g., limited partnership real estate offerings) of
partnerships affiliated with Signature Inns, Inc. SSC has marketed thirteen
limited partnership programs. However, SSC has not offered limited partnership
interests since 1989.
The Signature Franchise Corporation ("SFC") subsidiary was organized in
connection with the 1992 Debt Restructuring. SFC never engaged in any
business operations.
The P & N Corporation ("P & N") subsidiary was organized in late 1993 and
acts as the general partner of the Peoria/Normal Signature Limited
Partnership, which owns and operates the Normal and Peoria, Illinois,
Signature Inn hotel properties , the Knoxville Signature Limited Partnership
which owns and operates the Knoxville, Tennessee, Signature Inn hotel property
and Meridian Signature Limited Partnership which owns land and a hotel under
construction in Indianapolis, Indiana. Those properties are managed and
franchised under management and franchise agreements between the partnerships
and the General Partner.
The S.I.E. Corporation subsidiary was organized in December 1995 and acts
as general partner for Signature Northwestern Ltd. - I.
E. Location of Signature Inn Hotels.
--------------------------------
The General Partner's ownership interest in the following affiliated
hotel partnerships ranges between 5% and 50%, depending upon the capital
contributions made to the particular partnership and other factors relating to
the structuring of the partnership. All mortgage loans on partnership
properties are non-recourse to the General Partner.
-2-
<PAGE>
<TABLE>
<CAPTION>
GENERAL PARTNER'S AFFILIATED SIGNATURE INN HOTEL
PARTNERSHIPS AND JOINT VENTURES
Partnership Date Organized Location of Hotel(s)
- ----------- -------------- --------------------
<S> <C> <C>
Signature I Ltd. 01/16/81 Fort Wayne, IN
Signature II Ltd. 11/12/81 Indianapolis, IN
Signature III Ltd. 02/04/82 Lafayette, IN
Signature IV Ltd. 08/27/82 Muncie, IN
Signature V Ltd. 03/09/84 Cincinnati, OH
Signature Southport 04/23/84 Indianapolis, IN
Joint Venture
Signature Northwestern 12/31/84 Indianapolis, IN
Ltd. - I
Signature VI Ltd. 01/16/85 Indianapolis, IN
Signature VII Ltd. 04/24/85 Columbus, OH,
and Kokomo, IN
Signature VIII Ltd. 11/05/85 Evansville, IN
Signature IX Ltd. 07/01/86 Terre Haute, IN
Signature Elkhart Ltd. 07/02/86 Elkhart, IN
Signature X Ltd. 09/19/86 Florence, KY,
and Sharonville, OH
Signature XI Ltd. 09/26/86 Miamisburg
(i.e., Dayton), OH
Signature XII Ltd. 10/03/86 South Bend, IN
Signature XIV Ltd. 12/12/86 Louisville, KY
Signature XVII Ltd. 09/20/88 Indianapolis (North), IN
Signature XXI Ltd. 06/12/89 Bettendorf, IA
Peoria/Normal Signature 12/16/93 Normal, IL
Limited Partnership and Peoria, IL
Knoxville Signature 05/04/94 Knoxville, TN
Limited Partnership
Meridian Signature July 96 Carmel, IN
Limited Partnership Planned opening
</TABLE>
-3-
<PAGE>
F. The Signature Inn Hotel Concept.
-------------------------------
The Signature Inn concept has been continuously improved since 1981 and
has been favorably received by the traveling public. The Signature Inn
concept is predicated upon a simple principle of providing first-class service
to its hotel Guests on a consistent basis in all hotels. In order to
accomplish this type of service, Signature has developed a guest services
program entitled "Legendary Service," which involves the employment of
individuals who are goal and team oriented, possess a positive mental
attitude, a good work ethic, have a sincere desire to serve our Guests and
portray the clean-cut "Signature Look." Those employees are then trained
under the Legendary Service program to provide efficient, friendly and
courteous service. The Legendary Service program also requires that, in the
event a problem cannot be resolved to the satisfaction of a guest, the guest
will receive a money-back guarantee.
In addition to the Legendary Service provided by the employees to hotel
Guests, the Signature concept is also identified by the physical features and
specialized services offered to Guests. Signature Inn hotels have large,
spacious, well furnished and attractively decorated lobby-registration areas.
The guest rooms are attractively decorated and designed to have a high
aesthetic appeal and to provide convenience and comfort. Signature rooms
feature a queen or king-sized bed and a recliner chair. Special services and
amenities offered by Signature Inn hotels include:
<TABLE>
<S> <C>
Newspaper delivered to room HBO, cable and in-room movies Fax
Machines Meeting rooms
Large desk in all rooms Interview centers
Free local calls Guest storage facilities Free
Breakfast Express Business center facilities
Professional conference center No-Smoking rooms
Outdoor or indoor swimming pool Guest spa rooms
Guest voice mail
</TABLE>
Other than the professional conference center, meeting rooms, in-room movies
and long distance charges for fax machines, all items on the foregoing list
are furnished to the guest on a complimentary basis.
Although each Signature Inn hotel offers high quality lodging
accommodations and services to the public, Signature Inn hotels do not offer
restaurant, bar or lounge facilities. As with many other economy/limited
service hotels, the General Partner eliminated what it considered to be the
lower profit margin departments of "food and beverage" and the unproductive
and costly, large public areas associated with full service hotels.
-4-
<PAGE>
However, the Signature Inn hotels are generally located adjacent to or near
quality restaurants for the convenience of their Guests. Because Signature
Inns do not have restaurants inside the hotels, Signature Inn hotels, like
other economy/limited service hotels, generally have a significantly lower
break-even threshold and are not as labor and management intensive as
All-Suite or Full Service hotels.
G. Hotel Industry Overview and Partnership Hotel Results.
-----------------------------------------------------
Signature Inn hotels operate in the "upper economy/limited service"
segment of the hotel industry. The following table illustrates average
occupancy and average daily room rates ("ADR") for the years indicated of the
Partnership hotels and the Signature Inn chain (23 hotels) compared to "upper
economy chains" and the industry:
<TABLE>
<CAPTION>
Occupancy ADR
--------- ---
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Columbus 64.7% 61.1% 59.6% $56.39 $53.59 $50.36
Kokomo 81.4% 69.3% 62.5% $55.30 $52.68 $49.35
Signature Inn
Chain 67.2% 67.9% 66.2% $55.81 $53.45 $50.48
Upper Economy
Chains* 64.4% 65.4% 64.4% $47.39 $46.08 $44.31
Hotel Industry* 65.5% 65.1% 63.1% $67.34 $63.64 $61.31
</TABLE>
*Source: Smith Travel Research.
---------------------
The General Partner believes an important indicator of hotel performance
within a segment of the industry is "revenue per available room" (REV PAR),
which combines both the occupancy and the average daily room rate achieved.
REV PAR for the years indicated for the Signature Inn chain and the "upper
economy chains" is as follows:
<TABLE>
<CAPTION>
REV PAR
-------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Signature Inn Chain $37.50 $36.29 $33.42
Upper Economy Chains $30.52 $28.87 $27.38
</TABLE>
The upper economy/limited service hotels have performed better than all
other segments in the industry during the past several years. It is
management's belief that the economy/limited service hotel segment will
continue to be the fastest growing segment in the U.S. hotel industry.
Accordingly, management believes that the Signature Inn chain of hotels are
competitively positioned within the domestic lodging industry.
-5-
<PAGE>
The hotel industry experienced declines in average occupancy rates for
several years prior to 1991 brought on by room supply growth exceeding room
demand, and annual average daily rate increases less than inflation due to
significant discounting of room rates. In 1992, the industry began to improve
with increasing average occupancy and larger average daily rate gains.
Through 1995, this favorable trend has continued. However, continuation of
this positive trend in the hotel industry is dependent in large part on demand
growth in relation to supply growth over the next several years. Room demand
growth continues to increase faster than supply growth, although recently the
supply growth appears to be accelerating.
H. Trademarks.
----------
The mark "Signature Inn" with related logo was registered by the General
Partner with the Indiana Secretary of State effective on October 8, 1980. In
addition, on October 4, 1982, the mark "Signature Inn" (with logo) was
registered on the principal register of the United States Patent and Trademark
Office. On September 18, 1984, the mark "Signature Inn", only, and the
stylized "S" logo, only, were registered on the principal register of the
United States Patent and Trademark Office. On February 14, 1990, the
declarations of five years use for each of the marks was accepted by the
United States Patent and Trademark Office. These registrations are now in
effect until a renewal date of September 18, 2004. Another mark, "We Help You
Get Down to Business," which is used by Signature Inns in its hotel
operations, was registered with the United States Patent and Trademark Office
on October 12, 1982. An additional mark, "Sincerely Yours," was registered in
1990 with the United States Patent and Trademark Office. The mark "Breakfast
Express" was registered with the U.S. Patent and Trademark Office on November
3, 1992. The Mark "There's Something Personal About a Signature" was
registered with the U.S. Patent and Trademark Office on April 30, 1991.
On June 1, 1989, Signature Inns, Inc. entered into an agreement with a
Canadian group which had owned the Canadian trademark registration of
"Signature Inn." Under the agreement, the Canadian registration of the mark
"Signature Inn" became the property of Signature Inns, Inc.
I. The General Partner's Corporate Account Sales and Marketing.
-----------------------------------------------------------
The General Partner systematically develops regional and national
accounts consisting of corporations and travel agency consortiums which
use one or more Signature Inn hotels in the chain on a regular basis.
Many of these publish their own corporate travel directories, stipulating
hotel locations which have been approved for lodging accommodations.
-6-
<PAGE>
Signature Inns appears in numerous corporate and travel consortium
directories, including the following: Maritz, Carlson/Wagonlite,
BTI Americas, ABC Corporate Services, Rosenbluth Travel, General Motors,
Ameritech, and Navistar. In addition, a National Sales Director and
Director of Hotel Sales work with and assist hotel employees responsible
for local sales efforts in Signature Inn markets. This corporate marketing
program gives Signature Inn hotels excellent visibility to business customers
who are likely to utilize Signature Inns on a systematic and chain-wide basis.
J. The General Partner's Centralized Reservation System.
----------------------------------------------------
Signature Inn hotels utilize Teleservice Resources, a subsidiary of AMR
Company based in Dallas/Fort Worth, Texas, to provide central reservation
services. The 800 number utilized by Signature as its central reservation
number allows the public in the United States and Canada to make toll-free
reservations by telephone, and travel agents can make electronic reservations
by using one of several electronic airline reservation systems.
K. The General Partner's Hotel Advertising.
---------------------------------------
The General Partner utilizes the services of Lord, Sullivan & Yoder, Inc.
Advertising of Columbus, Ohio, to provide full-service advertising for the
Signature Inn chain and to direct the chain's advertising program. Lord,
Sullivan & Yoder, Inc. assists in the formulation of the Signature Inn chain
and individual hotel advertising programs and budgets. The General Partner
also utilizes Montgomery Zukerman Davis, Inc., a full-service advertising firm
located in Indianapolis, Indiana, for public relations activities.
L. The General Partner's Employees.
-------------------------------
Including its five executive officers, the General Partner employs
twenty-five full-time employees at its corporate office. In addition, the
general and assistant general manager at each of the 23 operating Signature
Inns are employees of the General Partner. The General Partner also employs
approximately seventy-five full-time employees at three of the hotels managed
by the General Partner. The General Partner believes it has an excellent
relationship with its employees.
M. Seasonality.
-----------
Demand for hotel accommodations varies seasonally in the General
Partner's current market areas. Typically, demand for hotel accommodations
and, correspondingly, occupancy rates for each of the Signature Inn hotels
within the Signature chain will be higher during the period from March through
October and lower during the period from November through February.
-7-
<PAGE>
N. Competition.
-----------
The operation of hotels is an extremely competitive business. The General
Partner as a management General Partner and its affiliated hotel partnerships
as owners of hotels are each in competition with numerous management companies
and hotel chains in their respective areas of operation of varying quality and
size, including national and regional chains, and hotels which have available
to them greater name recognition and financial resources than the General
Partner. The General Partner believes its management possesses adequate
experience and that the Signature Inn concept is sufficiently recognized to
enable the chain to compete successfully against its competitors.
O. Refurbishing.
------------
To meet competition in the industry and to maintain economic values,
continuing expenditures must be made for modernizing, refurbishing and
maintaining existing facilities prior to the expiration of their anticipated
useful lives. If such expenditures are not made, the value and profitability
of the property may be diminished. Each affiliated hotel limited partnership
establishes reserve funds in connection with the operation of its hotel for
refurbishing which are based upon specified percentages of hotel revenues.
P. Energy and Environmental Factors.
--------------------------------
Present and future regulations issued to meet federal or local
antipollution standards, limitations on or rationing of gasoline usage,
gasoline shortages, or other effects of any future energy crisis or shortage
of natural resources may affect adversely utilization of one or more of the
Signature Inn hotel properties by travelers or increase the cost of operating
such properties and thus adversely affect the General Partner's operations.
Further, environmental studies required to be performed by the General Partner
and its affiliated partnerships in connection with the acquisition of
properties in order to avoid potential liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Super Fund Amendments and Reauthorization Act of 1986, add to the costs
and risks of acquisition of real estate sites generally.
Q. Americans With Disabilities Act.
-------------------------------
The General Partner believes that all Signature Inn hotels within the
Signature Inn chain currently are in compliance with the Americans With
Disabilities Act and does not anticipate that future compliance with this
regulation will require substantial cash resources.
-8-
<PAGE>
R. Miscellaneous.
-------------
Neither the General Partner nor any of its affiliated limited
partnerships are dependent upon a single customer or a very few customers, the
loss of any one of which would not have a material adverse effect on the
General Partner. All raw materials utilized by the General Partner and its
affiliated limited partnerships in the construction or refurbishing of their
respective hotels are believed to be readily available at competitive prices.
The General Partner is not engaged in any material research or development
activities.
S. The Partnership's Hotels.
------------------------
The business of the Partnership consists exclusively of the ownership and
operation of two Signature Inn hotels located in Columbus, Ohio, and Kokomo,
Indiana. 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 with respect to each of the hotels. 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 hotels, and, in addition, contributes an additional
3.5% of gross receipts to advertising and reservation funds administered by
the General Partner to finance advertising programs and a reservation system.
The initial term of each of the franchise agreements is 10 years, and the
Partnership has an option to renew each of those agreements for an additional
term of 5 years. Under the terms of the franchise agreement, 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
various services in relation to that system.
-9-
<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 hotels
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 hotels. 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.
A non-recourse mortgage loan of $2,767,426 at December 31, 1995, is
secured by property and equipment of the Columbus Signature Inn and is payable
in monthly installments of $26,438, including interest at 10%. The interest
rate and monthly installments are adjustable at six-month intervals to 3.25%
above the six-month U.S. Treasury Bill rate, based on a maturity in 2016.
The interest rate is subject to a minimum of 10% and a maximum of 14.5%
through September 1996 and 15% to maturity in 2001.
In January 1995, mortgage loans of $1,972,977, secured by property and
equipment of the Kokomo Signature Inn, were paid in full with the proceeds of
a non-recourse mortgage loan of $2,350,000. The new mortgage loan is payable
in monthly installments of $23,431, including interest at 10.48%. At December
31, 1995, the mortgage loan balance was $2,250,007. The interest rate and
monthly installments are adjustable at two-year intervals to 3.75% above
the two-year U.S. Treasury Bill rate, based on a twenty-year amortization
to maturity in 2004. The interest rate is subject to a maximum of 14.48%.
Beginning in April 1996, an annual principal payment is required equal to
the lesser of defined cash flow or $25,000. A payment of $25,000 is due in
April 1996.
In the opinion of Partnership management, both hotel properties are
adequately insured.
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 from Chrysler Capital Corporation. The Warren, Michigan, Signature Inn
was sold under Michigan foreclosure procedures in January 1992. Because the
Warren hotel loan was "non-recourse," the foreclosure of the Warren hotel did
not affect, in any way, the Partnership's operations of its other two
properties, nor did such foreclosure affect the viability of the Partnership.
Moreover, the financial performance of the Partnership was enhanced by virtue
of the elimination of Warren's cash flow deficits, which had a continuing
adverse effect on the Partnership's operations.
-10-
<PAGE>
T. Reserves.
--------
Although the Partnership attempts to maintain adequate working capital
reserves, the Partnership's working capital reserves historically have been
marginally adequate. In the past, the General Partner has advanced funds to
the Partnership. The General Partner may be unable or unwilling to make
future advances to the Partnership.
U. Employees.
---------
As of December 31, 1995, the Partnership employed approximately 50
employees, approximately ten (10) of whom are employed on a part-time basis.
V. Summary of Partnership Agreement.
--------------------------------
The following is a brief summary of certain provisions of the Partnership
Agreement.
(1) Powers of the General Partner. Signature Inns, Inc. (the "General
Partner") has full, exclusive, and complete authority and discretion in the
management and control of the business of the Partnership. (Sections 9.01 and
9.02.) Limited Partners have no right or power to take part in the management
of, or to bind, the Partnership. (Section 14.01.)
(2) 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 (Section 14.03), 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.
(Section 6.03.) 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. (Section 14.03.)
Upon payment in full of the subscription price, Units acquired by Limited
Partners pursuant to the Partnership Agreement become fully paid and
nonassessable. (Section 6.06.) 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. (Section 6.03.)
-11-
<PAGE>
(3) Meetings and Voting Rights of the Limited Partners. Meetings of the
Limited Partners may be called at any time by the General Partner or by one or
more Limited Partners holding more than 25% of the Units. Limited Partners
can vote at any meeting and the Limited Partners can act without a meeting by
written consent, provided that written consents are delivered to the General
Partner. Limited Partners are entitled to one vote for each Unit held.
(Section 14.04.)
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 (Section 14.01.).
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.
(Section 14.02.) 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. (Section 17.01.)
(4) Reserves. The General Partner shall make an initial provision for
adequate reserves (by retention of proceeds from the sale of Units and Cash
Flow from operations) for working capital in an amount equal to approximately
5% of the "Project Cost" of each hotel and for replacements of furniture,
fixtures, and equipment in the amount set forth under Section 9.02(1).
(5) Books and Records. The General Partner is required to maintain at
the Partnership's principal office full and accurate records for the
Partnership, and all Limited Partners shall have the right to inspect and
examine such books and records at all reasonable times and upon reasonable
notice. (Section 13.01.) Annual audits of the Partnership's affairs will be
conducted by such firm of independent certified public accountants as may from
time to time be engaged by the Partnership. (Section 13.02.) (6)
Limited Transferability of Units. There are a number of restrictions on the
transferability of Units, including, among others, the following: Units may
not be subdivided after purchase; and investors transferring less than all of
their Units must transfer a number of Units such that, after the transfer,
both the transferor and the transferee shall own not less than one Unit. A
transfer fee in an amount sufficient to cover transfer costs will be
established by the General Partner, and payment thereof shall be a condition
to effectiveness of a transfer. All transfers of Units must be pursuant to
assignment documentation satisfactory in form and substance to the General
Partner. No Unit may be sold, assigned or exchanged if the sale of such Unit,
when added to the total of all other Units sold or exchanged within the period
of 12 consecutive months prior to the proposed date of sale or exchange,
would, in the opinion of counsel for the Partnership, result in the
termination of the Partnership under Section 708 of the Internal Revenue Code
(dealing with transfers of 50% or more of the outstanding interests of a
partnership) unless the Partnership and the transferring holder shall have
received a ruling by the Internal Revenue Service that the proposed sale or
exchange will not cause such termination. (Section 15.03.)
-12-
<PAGE>
An Assignee of Units shall not become a substituted Limited Partner in
place of his/her assignor unless there is compliance with, among others, the
following additional conditions: (i) the written consent of the General
Partner to such substitution shall have been obtained, which consent in the
General Partner's absolute discretion may be withheld and (ii) the Assignee
shall have expressly agreed to become a party to the Partnership Agreement.
(Section 15.04.)
(7) Assignability of General Partner's Interest. With the consent of
the General Partner and Limited Partners holding more than 50% of the Units,
the General Partner may designate a successor or additional General Partners,
in each case with such participation in such General Partner's interest as
such General Partner and such successor or additional General Partners may
agree upon, provided that the interests of the Limited Partners are not
affected thereby.
A General Partner may withdraw from the Partnership at any time upon 60
days prior written notice to the Limited Partners and any other General
Partner or may transfer his interest to an entity controlling, controlled by,
or under common control with it; provided, however, that in either such event,
if it is determined that the Partnership business is to be continued rather
than dissolved and liquidated upon the happening thereof, the withdrawal or
transfer shall be effective only after receipt by the
Partnership of an opinion of legal counsel to the effect that such withdrawal
or transfer will not cause the Partnership to be classified as an association
taxable as a corporation rather than as a partnership for federal income tax
purposes. (Section 15.01.)
(8) Dissolution and Termination. The Partnership is to continue until
April 22, 2035, but may be dissolved earlier as provided in the Partnership
Agreement or by law. (Article V.) The Partnership Agreement provides that
the withdrawal, bankruptcy, insolvency, death, or removal by the Limited
Partners of the General Partner will dissolve the Partnership unless the
General Partner, or, if there is no remaining General Partner, the Limited
Partners, by a majority vote in interest, elect to continue the business of
the Partnership. (Section 18.01.) The Limited Partners also can dissolve the
Partnership by a vote of a majority in interest without removing the General
Partner. (Section 18.01.) In the event the Partnership is dissolved, the
assets of the Partnership shall be liquidated as promptly as is consistent
with obtaining the fair market value thereof; the proceeds therefrom, together
with assets distributed in kind, shall be distributed first to creditors to
satisfy debts and liabilities of the Partnership other than loans or advances
made by Partners to the Partnership, then to the establishment of reserves
deemed reasonably necessary to satisfy contingent or unforeseen liabilities or
obligations of the Partnership or of the General Partner arising out of or in
connection with the Partnership, then to the repayment of loans or advances
made by any of the Partners to the Partnership, with the balance, if any, to
be distributed among the Partners as provided in the Partnership Agreement
(Section 19.01. and "Distribution Policies") and upon completion of the
foregoing the Partnership shall be terminated.
-13-
<PAGE>
(9) Distribution Policies.
(a) Time of Distributions and Allocation Among Limited Partners.
The Partnership makes annual distributions of all Cash Available for
Distribution, if any. Net proceeds of sale of Partnership Properties (and of
refinancing thereof, where the proceeds of such refinancing are not to be
reinvested in the acquisition of additional Properties) will be distributed as
soon as possible following their receipt.
The record date for determining the Limited Partners entitled to
participate in a distribution shall be the last day of the calendar month
preceding the date of distributions.
Each distribution will be allocated to the Limited Partners in the
ratio which the number of Units owned by each of them bears to the total
number of Units outstanding, subject to adjustment with respect to Units
issued by the Partnership during the fiscal year.
(b) Allocations and Distributions to the General Partner and
Limited Partners.
Allocation of Income and Loss and Distributions of Cash. The
following table sets forth (1) the allocation of Partnership income, gains,
losses, deductions, and credits between the General Partner and the Limited
Partners (as a group) and (2) the
entitlements of the General Partner and the Limited Partners (as a group) to
cash distributions. The information set forth with respect to each category,
both before and after "Reallocation Date."
With respect to distributions of Cash Available for Distribution
under Section 8.01 of the Agreement, "Reallocation Date" refers to the date on
which the Limited Partners have received an amount equal to 150% of their
Capital Contributions as a result of the distribution to them of Cash
Available for Distribution under Section 8.01 of the Agreement. With respect
to distribution of Net Proceeds under Section 8.02, "Reallocation Date" refers
to the date on which the Limited Partners have received an amount equal to
100% of their Capital Contributions as a result of the distribution to them of
Net Proceeds under Section 8.02 of the Agreement.
-14-
<PAGE>
<TABLE>
<CAPTION>
General Limited General Limited
Partner % Partner % Partner % Partner %
Before Before Before Before
Item Reallocation Reallocation Reallocation Reallocation
- ---- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Income, 25% 75% 50% 50%
Losses,
Deductions
and Credits
Cash 25% 75% 50% 50%
Available for
Distribution
(From
Operations)
Net Proceeds 25% 75% 50% 50%
from
Sales,
Financing and
Refinancing
of Properties
</TABLE>
(c) Allocation of Net Income and Net Losses Among the Limited Partners.
Net income and net loss shall be allocated among the Limited Partners in
proportion to the number of Units owned by each of them as of the last day of
the year, subject to adjustment with respect to Units issued by the
Partnership or transferred by Partners during the year.
(10) Reports to Limited Partners.
Within 75 days after the end of the fiscal year (December 31) of the
Partnership, the General Partner will deliver to each Limited Partner such
information as is necessary for the preparation by each Limited Partner of
his/her federal income tax return and state income or other tax returns
with regard to jurisdictions in which properties are located.
-15-
<PAGE>
Within 90 days after the end of each Partnership fiscal year, the General
Partner will deliver to each Limited Partner an annual report which will
include audited financial statements of the Partnership prepared in accordance
with generally accepted accounting principles. Such financial statements will
include a profit and loss statement, a balance sheet, a statement of cash
flows, and a statement of changes in Partners' capital. The annual report for
each year will report on the Partnership's activities for that year, set forth
the compensation paid to the General Partner and its Affiliates with a
statement of the services performed in consideration therefor, and contain
such other information as is deemed reasonably necessary by the General
Partner to advise the Limited Partners of the affairs of the Partnership.
Each Limited Partner will be furnished within 60 days after the end of
the first six-month period of each Partnership year, an unaudited semi-annual
financial report for that period including a profit and loss statement, a
balance sheet, and a statement of cash flows. The foregoing reports for any
period in which fees are paid to the General Partner or its Affiliates for
services shall set forth the fees paid and the services rendered.
W. The General Partner's Past Financial Difficulties, Restructurings,
Refinancings and Capital Appreciation Fee.
-----------------------------------------------------------------
In October, 1989, the General Partner's primary development lender and
lead bank on its line of credit refused to renew on normal terms the General
Partner's line of credit, which had previously been routinely renewed on an
annual basis. In March 1990, the bank refused to further renew the line of
credit at all. The Bank's refusal to renew the line of credit caused the
General Partner to terminate two on-going public offerings of affiliated
limited partnership interests and prevented the General Partner from
structuring and syndicating any such offerings after 1989. As a result, nine
hotels in their "start-up" phase were not adequately financed and their
operation caused the General Partner to exhaust substantially all of its cash
resources and historically adequate working capital reserves. In order to
protect the General Partner's assets from threatened action by the lenders,
and to provide sufficient time to structure alternative financing
arrangements, the General Partner initiated a Chapter 11 bankruptcy proceeding
in April, 1990. As the debtor-in-possession, the General Partner continued in
possession and control of its nine hotel properties and other assets.
-16-
<PAGE>
In March 1991, a Court order and judgment were entered confirming the
General Partner's Plan of Reorganization ("Confirmed Plan"). The General
Partner made the required payments under the Confirmed Plan throughout the
balance of 1991. During the latter part of 1991, occupancy and average daily
room rate levels for the nine General Partner-owned hotels, as a group, were
substantially lower than the levels which had been projected as a basis of the
General Partner's Confirmed Plan. As a result, the General Partner's
operating results were significantly adversely affected. The cash flow from
the General Partner's operations, together with the cash balances on hand at
the confirmation of the Confirmed Plan, were not sufficient to allow the
General Partner to continue to service its indebtedness under the terms of the
Confirmed Plan. In January 1992, the General Partner suspended debt service
payments to four banks, resulting in material defaults under the Confirmed
Plan.
During 1992 and 1993, the General Partner transferred ownership of a
total of six General Partner-owned hotels to construction mortgage lenders in
lieu of foreclosure and in full release and discharge of the mortgage
indebtedness owing by the General Partner on those hotels. In addition, three
previously affiliate-owned hotels were also reconveyed to the respective
mortgage lenders. As a result, during those two years, the number of
Signature Inn hotels operating in the Signature Inn chain decreased from 32
hotels to 23 hotels.
In December 1992, the General Partner and its lead bank entered into a
comprehensive Restructure Agreement, pursuant to which indebtedness owing by
the General Partner in the aggregate principal amount of $35,242,000 was
significantly modified and restructured and warrants for preferred stock were
issued to the bank (the "Restructuring"). In November 1993, the General
Partner entered into an Addendum to Restructure Agreement (the "Addendum").
Under the terms of the Addendum, the General Partner's primary bank granted to
the General Partner the right and option, exercisable not later than December
31, 1993, to pay $6,000,000 in cash in full settlement, satisfaction, release
and discharge of all indebtedness and other obligations owing by the General
Partner under the Restructure Agreement, including the warrant obligations
under the Restructuring. As a condition to the option, the General Partner
was required to convey to a to-be-formed affiliated limited partnership (the
"Partnership") the General Partner's Normal and Peoria hotels, thereby
eliminating the mortgage indebtedness owing on those hotels.
In December 1993, the General Partner, with Banc One Capital Corporation
of Columbus, Ohio ("BOCC"), acting as financial advisor, completed the
settlement, satisfaction, release and discharge of all obligations under the
Restructuring (the"Refinancing"). The necessary funds required by the
Refinancing were provided by the following sources:
-17-
<PAGE>
(a) Bank One, Indianapolis, N.A. ("Bank One") provided a "senior"
credit facility in the principal amount of $2,500,000, with an initial
maturity date of December 31, 1995, renewable annually thereafter on May 31 of
each year for a two-year term.
(b) Banc One Capital Partners II Limited Partnership ("BOCP II")
provided a variable rate subordinated loan in the principal amount of
$1,800,000, with a final maturity date of December 16, 1998 ("the
"Subordinated Loan").
(c) The General Partner provided approximately $1,200,000, which
represented the amount which the General Partner, as seller, realized upon the
sale of its Normal and Peoria Hotel Properties to Peoria/Normal Signature
Limited Partnership.
(d) The General Partner also provided approximately $1,000,000 from
its general, unrestricted corporate cash balances.
The gain to the General Partner from debt extinguishment in connection
with the Refinancing eliminated entirely the General Partner's shareholders'
deficit and restored a positive shareholders' equity.
In connection with the Subordinated Loan, the General Partner agreed to
pay to BOCP II a "Capital Appreciation Fee" equal to 25% of the value of the
General Partner, measured according to three alternative calculations, not
earlier than 36 months nor later than 72 months after December 16, 1993. In
August, 1995, the General Partner entered into a Repayment Agreement with BOCP
II pursuant to which (a) the unpaid principal balance of the Subordinated Loan
was repaid in full, together with all accrued interest thereon, and (b) the
General Partner paid, and BOCP II accepted, a payment of $900,000 in full
satisfaction of the General Partner's Capital Appreciation Fee obligation,
subject to adjustment to the original terms of the Capital Appreciation Fee in
the event of a Private Sale of the General Partner, as defined in the original
fee agreement, on or before December 16, 1996.
In connection with the BOCP II subordinated debt financing, BOCP II
required the General Partner's officers to commit to invest at least $500,000
in the General Partner's Common Stock. In order to facilitate such
investment, allow the other shareholders an opportunity to avoid possible
dilution of their interests in the General Partner and to raise additional
equity for the General Partner, the General Partner filed a Registration
Statement with the Securities and Exchange Commission on April 12, 1994,
pursuant to which the General Partner's existing shareholders were issued
non-transferrable rights to purchase an additional five (5) shares of the
General Partner's Common Stock for each one (1) share currently held at a
purchase price of twenty cents ($.20) per share. In addition to the
investment by Management, a total of 1,808,520 shares of Common Stock were
issued, for an aggregate purchase price of $361,704, pursuant to the rights
offering.
-18-
<PAGE>
X. Certain Affiliated Partnerships' Operating Losses.
-------------------------------------------------
A number of the General Partner's affiliated partnerships have
experienced financial difficulties in varying degrees, in most cases
principally resulting from operating losses and cash flow deficits experienced
by certain hotels owned by such partnerships.
Signature XVI Ltd., the owner of a Signature Inn hotel in Lexington,
Kentucky, filed a voluntary petition under Chapter 11 of the Bankruptcy Code
on September 26, 1991. Because Signature XVI Ltd. was not able to secure
replacement financing, the mortgage lender on the Lexington property obtained
title to the Lexington hotel in July, 1992. The Signature XVI Ltd.
partnership was thereafter terminated and dissolved.
Signature XXI Ltd., which owned Signature Inn hotels in Bettendorf, Iowa,
and Auburn Hills, Michigan, filed a voluntary petition under Chapter 11 of the
Bankruptcy Code on July 26, 1991. A foreclosure and sale of the Auburn Hills
property took place in February 1992, with the mortgage holder taking title to
the Auburn Hills property. The Signature XXI Ltd. Plan of Reorganization was
confirmed by the Bankruptcy Court on November 2, 1992 and provided for the
continuation of the Partnership and its operation of the Bettendorf hotel.
The Bettendorf mortgage loan was restructured, retroactive to January 1, 1992,
into three non-recourse replacement notes maturing December, 1995, with an
option to extend the maturity to December, 1997.
Defaults have also existed with respect to hotel financings involving
Signature XI Ltd.'s Dayton, Ohio, hotel project and Signature XVII Ltd.'s
Indianapolis, Indiana, hotel project. The defaults with respect to those
hotels were cured under restructured financing arrangements with the
Partnership's lenders completed in 1994.
Item 2. Description of Properties. A description of the location and
general character of the Partnership's hotels and related facilities and other
property is set forth under Item 1.
Item 3. Legal Proceedings. With the exception of the prior Chapter 11
bankruptcy proceedings of Signature Inns, Inc. and the prior Chapter 11
bankruptcy proceedings of Signature XVI Ltd. and Signature XXI Ltd.,
affiliates of the Registrant, described earlier, all of which matters have
been resolved, neither the Registrant nor any of its subsidiaries nor any of
its affiliates, is or was a party to, nor is their property the subject of,
any material pending legal, administrative, judicial, or similar proceeding.
The Registrant and certain of its affiliated limited partnerships are
involved, from time to time, in routine litigation incidental to their
businesses. There are no proceedings to which any director, officer, nominee
or affiliate of the Registrant or its subsidiaries or affiliates is a party
adverse to the Registrant or its subsidiaries or affiliates or has a material
adverse interest to the Registrant or its subsidiaries or affiliates.
-19-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders. No matter
was submitted to a vote of the security holders of the Registrant during the
fourth quarter of the fiscal year covered by this Form 10-KSB Report.
PART II
-------
Item 5. Market for the Registrant's Equity and Related Equity Holder
Matters. The Registrant'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 Registrant's 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 Registrant 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>
-20-
<PAGE>
ITEM 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain combined operating data for the years ended December 31, 1995, 1994
and 1993 is as follows for the two Partnership owned hotels - Columbus (125
rooms) and Kokomo (101 rooms):
<TABLE>
<CAPTION>
Occupancy Average Daily Rate
--------- ------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Combined 72.2% 64.8% 60.9% $55.90 $53.18 $49.91
</TABLE>
Results of Operations
- ---------------------
1995 compared to 1994
Room and other hotel revenues increased $488,329 or 16.5% over 1994, due
primarily to the increase in room revenues. The average occupancy increased
7.4 percentage points, or 11.4% due primarily to the increased performance of
the Kokomo hotel. Hotel guests have favorably accepted the enclosure of the
Kokomo pool and related improvements made in early 1995. The average daily
rate increased $2.72, or 5.1% due to chain-wide rate policy changes. Revenue
per available room (REVPAR), which is the combination of occupancy and the
average daily rate, increased to $40.36, or 17.1% over 1994. Interest income
increased $13,908 over 1994 due to higher yields on greater investable cash
balances.
Hotel operations and payroll costs totaling $1,760,604 represented an increase
of $200,778 or 12.9% from 1994 due to the increase in the occupancy of the
hotels of 11.4% along with increased costs of operating the hotels associated
with inflation. Management and franchise fees, along with advertising and
reservation contributions, are calculated as a percentage of revenues, as
defined, and accordingly, fluctuate directly with hotel revenues. These
costs, totaling $428,258, increased $60,956 or 16.6% from 1994.
Interest expense decreased $3,620 or .7% from 1994. This slight decrease is
due to the scheduled amortization reduction of the notes, offset slightly by
interest expense on additional borrowings on the Kokomo hotel during early
1995 to facilitate improvements. Additionally, the mortgage loan on the
Kokomo hotel was refinanced in January 1995 at a lower interest rate than the
retired indebtedness.
-21-
<PAGE>
Depreciation and amortization of $283,613 represented an increase of $30,437
over 1994. Depreciation expenses increased due to substantial improvements
added in late 1994 and early 1995.
1994 compared to 1993
Room and other hotel revenues increased $325,524 or 12.4% over 1993, due
primarily to the increase in room revenues. The average occupancy increased
3.9 percentage points, or 6.4% due primarily to the increased performance of
the Kokomo hotel in an improving local economic market. The average daily
rate increased $3.27, or 6.6% due to chain-wide policy rate changes. Revenue
per available room (REVPAR) increased to $34.46, or 13.4% over 1993. Interest
income increased $6,374 over 1993 due to higher yields on greater investable
cash balances.
Hotel operations and payroll costs of $1,559,826 represented an increase of
$87,852 or 6.0% from 1993 due to the increase in the occupancy of the hotels
of 6.4% along with increased costs of operating the hotels associated with
inflation. Management and franchise fees, along with advertising and
reservation contributions, totaling $367,302, increased $41,096 or 12.6% from
1993.
Interest expense decreased $12,998 or 2.5% from 1993. This slight decrease is
due to the scheduled amortization reduction of the notes.
Depreciation and amortization of $253,176 represented a decrease of $13,031
over 1993. Depreciation expense decreased as certain depreciable assets
became fully depreciated during 1994 and 1993.
Liquidity and Capital Resources
- -------------------------------
The offering of partnership units was completed during 1986. A total of
$4,510,000 was raised from limited partner capital contributions at $10,000
per unit and $1,503,333 was contributed by the general partner. During the
year ended December 31, 1995, the Partnership's capital needs were met
primarily through operating cash flows and the refinancing of the Kokomo hotel
mortgage in January 1995. During the year ended December 31, 1994, capital
needs were met through operating cash flows.
At December 31, 1995, the Partnership had two variable rate mortgage loans
totaling approximately $5.0 million outstanding with maturities in 2001 and
2004. At maturity, the Partnership plans to obtain extensions or replacement
first mortgage financing to retire the outstanding indebtedness. At December
31, 1995, the Partnership had $853,930 of cash and cash equivalents, compared
to $533,943 at December 31, 1994. In addition, the Partnership set aside 4%
of monthly revenues, as defined, for future refurbishing needs of the hotels.
At December 31, 1995, the reserve funds amounted to $88,775 compared to
$131,419 at December 31, 1994. It is expected that future refurbishing needs
of the Partnership will be funded through the furniture and equipment
reserves, and operating cash flows as necessary.
-22-
<PAGE>
Cash provided by operating activities from the two hotels was $847,392 in 1995
compared to $578,904 in 1994. This increase is due primarily to the increase
in the financial performance of the hotels for 1995.
During 1995, the Partnership used $465,510 in investing activities compared to
$124,541 in 1994. Additions to the furniture and equipment reserve fund were
$162,738 in 1995 (including an additional $25,000 contribution from operating
cash) compared to $119,725 in 1994. The remaining increase is due to the
enclosure of the swimming pool and other substantial renovations at the Kokomo
hotel during early 1995.
Net cash used in financing activities was $61,895 in 1995 compared to $207,962
in 1994. In 1995, the primary factors were proceeds of the new mortgage loan,
principal repayments and financing costs, a net of $166,473, and distributions
to partners of $228,368.
The general partner believes that cash generated from the operation of the two
hotels, along with existing cash balances, will provide adequate liquidity for
the Partnership to meet its operating needs during the next twelve months.
Seasonality
- -----------
Demand for hotel accommodations varies seasonally in the two hotels' market
areas. Typically, demand for hotel accommodations and correspondingly,
occupancy rates for the hotels will be higher during the period from March
through October and lower during the period from November through February.
Inflation
- ---------
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the
Partnership's financial condition or results of operations for the periods
presented.
Item 7. Financial Statements. The balance sheets of the Registrant as
of December 31, 1995 and 1994, and the related statements of operations,
partners' equity and statement of cash flows for the years ended December 31,
1995 and 1994, together with the independent auditors' report thereon, which
statements meet the requirements of Regulation S-B, are attached as an exhibit
to this report.
-23-
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. None.
PART III
--------
Item 9. Directors, Executive Officers, Promoters and Control Persons.
The names, ages, positions and backgrounds of each officer, director, promoter
and control persons of Signature Inns, Inc., the General Partner of the
Partnership are 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 General Partner's inception
on March 31, 1978.
DAVID R. MILLER, 54 Secretary, Executive Director of
Sales and Marketing and Director
Mr. Miller has been employed by Signature Inns, Inc. since August 1978
and has served as the Secretary (and Treasurer until May 1986) of the General
Partner 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.
-24-
<PAGE>
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.
-25-
<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.
Item 10. Executive Compensation. Not applicable. For a description and
listing of all fees and reimbursements paid by the Partnership to its General
Partner, see Note (3) of Notes to the Financial Statements of the Partnership.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Neither Signature Inns, Inc. nor any of its officers or directors, nor any of
its affiliates own any Units of limited partnership interest in the
Partnership. Signature Inns, Inc.'s general partnership interest in the
Partnership is described under Item 1.
Item 12. Certain Relationships and Related Transactions. There was no
transaction during the Registrant's last fiscal year of a kind described in
Item 404 of Regulation S-B to which the Registrant was a party or in which the
persons described in Item 404 had a direct or indirect material interest, nor
did any relationship of a kind described in Item 404 exists during the
Registrant's last fiscal year. No loans were made by the Registrant to its
General Partner or any officer, director or affiliate of its General Partner.
-26-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SIGNATURE VII LTD. LIMITED
PARTNERSHIP
By /s/
-------------------------------------
John D. Bontreger, President,
Chairman of the Board and Chief
Executive Officer of Signature
Inns, Inc., its General Partner
-27-
<PAGE>
<TABLE>
<CAPTION>
Item 13. Exhibits and Reports on Form 8-K.
--------------------------------
(a) EXHIBIT INDEX
-------------
<S> <C>
Title of Exhibit Reference
Plan of Acquisition,
Reorganization, etc. Not applicable
Partnership Agreement and
Certificate Incorporated by reference
to S-1 Registration
Statement
Instruments Defining Rights
of Security Holders Incorporated by reference
to S-1 Registration
Statement
Voting Trust Agreement Not applicable
Material Contracts Incorporated by reference
to Registrant's 1993 Form
10-KSB
Statement Regarding Computation
of Earnings Per Share Not applicable
Annual or Quarterly Reports,
Form 10-QSB Not applicable
Letter on Change in Certifying
Accounting Not applicable
Letter on Change in Accounting
Principals Not applicable
Subsidiaries of the Registrant Not applicable
Published Report Regarding
Matters Submitted to Vote Not applicable
Power of Attorney Not applicable
1995 Annual Report of
Signature VII Ltd.
Limited Partnership Exhibit A
</TABLE>
(b) No reports on Form 8-K were filed by the Registrant during the last
quarter of the period covered by this report.
-28-
<PAGE>
EXHIBIT A
---------
SIGNATURE VII LTD. LIMITED PARTNERSHIP
1995 FORM 10-KSB ANNUAL REPORT
Index to Financial Statements
Submitted in Response to Requirements of
Items 7 and 13 of Form 10-KSB
Page
----
Independent Auditors' Report on Financial Statements 2
Balance Sheets--December 31, 1995 and 1994 3
Statements of Operations--Years ended December 31,
1995 and 1994 4
Statements of Partners' Equity (Deficit)--Years ended
December 31, 1995 and 1994 5
Statements of Cash Flows--
Years ended December 31, 1995 and 1994 6
Notes to Financial Statements--
December 31, 1995 and 1994 7-9
-1-
<PAGE>
SIGNATURE VII LTD.
LIMITED PARTNERSHIP
Annual Report
-------------
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Partners Signature VII Ltd. Limited Partnership:
We have audited the accompanying balance sheets of Signature VII Ltd.
Limited Partnership as of December 31, 1995 and 1994, and the related
statements of operations, partners' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Signature VII Ltd.
Limited Partnership as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Indianapolis, Indiana
February 9, 1996
-2-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE VII LTD. LIMITED PARTNERSHIP
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 853,930 533,943
Accounts receivable 39,587 26,785
Other current assets 72,014 75,134
------- -------
Total current assets 965,531 635,862
------- -------
Property and equipment:
Land 792,528 792,528
Land improvements 449,003 443,417
Buildings 5,563,526 5,331,705
Furniture and equipment 1,821,149 1,681,363
--------- ---------
8,626,206 8,249,013
Less accumulated depreciation 2,962,922 2,779,148
--------- ---------
Net property and equipment 5,663,284 5,469,865
Furniture and equipment reserve 88,775 131,419
Deferred costs, net of accumulated
amortization of $120,715
and $342,816 84,904 60,567
-------- --------
$ 6,802,494 6,297,713
----------- ---------
----------- ---------
Liabilities and Partners' Equity
Current liabilities:
Current portion of long-term debt
(note 2) 119,389 98,674
Accounts payable 60,394 35,428
Accrued payroll and related taxes 35,346 30,594
State and local taxes 137,492 125,653
Accrued interest - 4,574
-------- --------
Total current liabilities 352,621 294,923
Long-term debt, less current portion
(note 2) 4,901,217 4,706,957
--------- ---------
Total liabilities 5,253,838 5,001,880
--------- ---------
Partners' equity:
General Partner (25% equity interest) 505,867 442,661
Limited Partner (75% equity interest;
451 units authorized and outstanding) 1,042,789 853,172
1,548,656 1,295,833
--------- ---------
$ 6,802,494 6,297,713
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE VII LTD. LIMITED PARTNERSHIP
Statements of Operations
Years ended December 31, 1995 and 1994
1995 1994
---- ----
<S> <C> <C>
Revenue:
Room revenue 3,314,071 2,834,948
Other hotel revenue 128,507 119,301
Interest 28,819 14,911
--------- ---------
3,471,397 2,969,160
--------- ---------
Costs and expenses:
Hotel operations 976,671 872,087
Salaries and benefits 783,933 687,739
Management and franchise fees
(note 3) 308,346 264,458
Advertising and reservations
(note 3) 119,912 102,844
Interest (note 2) 512,641 516,261
Depreciation and amortization 283,613 253,176
Loss on disposal of equipment 5,090 -
-------- -------
2,990,206 2,696,565
--------- ---------
Net income 481,191 272,595
General partner's interest (25% interest) 120,298 68,149
-------- --------
Limited partners' interest (75% interes $ 360,893 204,446
--------- --------
--------- --------
Limited partners' interest per unit $ 800 453
--------- -------
--------- -------
Number of limited partner
units outstanding 451 451
--------- -------
--------- -------
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE VII LTD. LIMITED PARTNERSHIP
Statements of Partners' Equity
Years ended December 31, 1995 and 1994
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Balance at December 31, 1993 $ 392,402 702,395 1,094,797
Net income 68,149 204,446 272,595
Cash distributions (17,890) (53,669) (71,559)
---------- -------- ----------
Balance at December 31, 1994 442,661 853,172 1,295,833
Net income 120,298 360,893 481,191
Cash distributions (57,092) (171,276) (228,368)
--------- --------- ----------
Balance at December 31, 1995 $ 505,867 1,042,789 1,548,656
---------- --------- ---------
---------- --------- ---------
Accumulated balances:
Capital contributions 1,503,333 4,510,000 6,013,333
Offering expenses - (474,671) (474,671)
Cash distributions (233,587) (700,908) (934,495)
Net loss (763,879) (2,291,632) (3,055,511)
---------- ----------- -----------
Balance at December 31, 1995 $ 505,867 1,042,789 1,548,656
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE VII LTD. LIMITED PARTNERSHIP
Statements of Cash Flows
Years ended December 31, 1995 and 1994
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 481,191 272,595
Items which do not use cash:
Depreciation of property and equipment 272,116 240,211
Amortization of deferred costs 11,497 12,965
Loss on disposal of equipment 5,090 2,369
Write-off of deferred costs 12,668 -
Accrued revenue and other expenses, net 64,830 50,764
-------- -------
Net cash provided
by operating activities 847,392 578,904
-------- -------
Cash flows from investing activities:
Additions to furniture and
equipment reserve (162,738) (119,725)
Proceeds from disposal of equipment 1,185 -
Other additions to property and equipment (303,957) (4,816)
------- -------
Net cash used in investing activities (465,510) (124,541)
------- -------
Cash flows from financing activities:
Scheduled payments on long-term debt (106,357) (124,903)
Retirement of long-term debt (1,972,977) -
Proceeds from long-term debt 2,294,309 -
Deferred financing costs (48,502) (11,500)
Distributions to partners (228,368) (71,559)
------- -------
Net cash used in financing activities (61,895) (207,962)
------- -------
Increase in cash and cash equivalents 319,987 246,401
Cash and cash equivalents at
beginning of year 533,943 287,542
-------- -------
Cash and cash equivalents at end of year $ 853,930 533,943
-------- -------
-------- -------
Additional disclosures:
Interest paid $ 517,215 516,261
Additions to property ------- -------
and equipment from ------- -------
furniture and equipment reserve $ 167,853 46,387
------- -------
------- -------
</TABLE>
See accompanying notes to financial statements.
-6-
<PAGE>
SIGNATURE VII LTD. LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995 and 1994
(1) Organization and Significant Accounting Policies
Organization
------------
Signature VII Ltd. Limited Partnership (the Partnership) was organized
on April 24, 1985 to operate as a franchisee of Signature Inns, Inc. The
Partnership completed construction and began operating Signature Inn hotels in
Columbus, Ohio in March 1986; Kokomo, Indiana in April 1986; and Warren,
Michigan in December 1986. In July 1992, the Warren property was deeded to
the secured lender in satisfaction of the mortgage obligation.
Signature Inns, Inc., the general partner, is responsible for the
overall management and operation of the Partnership and presently receives 25%
of partner distributions which is to increase to 50% at the time the limited
partners receive cumulative distributions equal to 150% of their original
capital contributions.
Property and Equipment
----------------------
Property and equipment are recorded at cost and include assets leased
under noncancelable agreements and construction loan interest and fees.
Depreciation is provided on the straight-line basis over the estimated useful
lives of the related assets as follows: forty (40) years for buildings,
fifteen (15) to twenty (20) years for land improvements, and three (3) to ten
(10) years for furniture and equipment.
Deferred Costs
--------------
Fees and other costs incurred in financing the hotels are amortized on
the straight-line basis over the life of the respective mortgages. Loan fees
of $48,502 in 1995 and $11,500 in 1994 were paid related to the financing
completed in 1995, and unamortized loan fees of $12,668 relating to the
retired loan were written off in 1995.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents represent cash on deposit with banks and
highly liquid short-term cash investments with original maturities of three
months or less.
Furniture and Equipment Reserve
-------------------------------
Cash reserves for refurbishings, replacements and major repair
contingencies are established at amounts equal to 4% of gross receipts, as
defined. Related expenditures are disbursed from this account. In 1995, an
additional deposit of $25,000 was made to the reserve account.
Income Taxes
------------
As a partnership, the allocated share of taxable income or loss is
includable in the income tax returns of the partners; accordingly, income
taxes are not reflected in the Partnership's financial statements.
-7-
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
Financial Instruments
---------------------
The carrying amounts of the long-term debt approximates the fair value
because the interest rates change with market interest rates. The carrying
amounts of all other financial instruments approximate fair value because of
the short-term maturity of these items.
(2) Financing
Signature Inn Columbus
----------------------
A non-recourse mortgage loan of $2,767,426 at December 31, 1995 is
secured by property and equipment and is payable in monthly installments of
$26,438, including interest at 10%. The interest rate and monthly
installments are adjustable at six-month intervals to 3.25% above the
six-month U.S. Treasury Bill rate, based on a maturity in 2016. The interest
rate is subject to a minimum of 10% and a maximum of 14.5% through September
1996 and 15% to maturity in 2001.
Signature Inn Kokomo
--------------------
In January 1995, mortgage loans of $1,972,977 were paid in full with the
proceeds of a non-recourse mortgage loan of $2,350,000. The new mortgage loan
is secured by property and equipment and is payable in monthly installments of
$23,431, including interest at 10.48%. At December 31, 1995, the mortgage
loan balance is $2,250,007. The interest rate and monthly installments are
adjustable at two-year intervals to 3.75% above the two-year U.S. Treasury
rate, based on a twenty-year amortization to maturity in 2004. The interest
rate is subject to a maximum of 14.48%. Beginning in April 1996, an annual
principal payment is required equal to the lesser of defined cash flow or
$25,000. A payment of $25,000 is due in April 1996.
General
-------
Capitalized lease obligations of $3,173 at December 31, 1995 are due in
monthly installments, including imputed interest at rates ranging from 15.80%
to 15.92%, through maturity in 1996. Furniture and equipment includes
$226,291 of leased assets, and related accumulated depreciation amounted to
$223,583 and $210,463 at December 31, 1995 and 1994, respectively.
The aggregate maturities of long-term debt, including capitalized lease
obligations, for each of the next five years (based on current interest rates
and assuming annual cash flow payments of $25,000) range from $119,389 to
$172,233.
(3) Signature Inns, Inc.
The general partner receives 9% of defined gross revenue for hotel
management and franchise fees and $7,000 for annual partnership accounting and
related services. The Partnership contributes 3.5% of defined gross revenue
to a cooperative advertising and reservation fund administered by the general
partner.
-8-
(4) Combining Financial Information
A summary of the Partnership's combining operating information for 1995
and balance sheet information as of December 31, 1995 is as follows:
Combining Operating Information
<TABLE>
<CAPTION>
Combined Kokomo Columbus
-------- ------ --------
<S> <C> <C> <C>
Revenue $ 3,471,397 1,749,508 1,721,889
Operating and
related expenses 2,193,952 1,036,583 1,157,369
Interest 512,641 232,508 280,133
Depreciation and
amortization 283,613 128,917 154,696
-------- -------- ---------
2,990,206 1,398,008 1,592,198
--------- --------- ---------
Net income $ 481,191 351,500 129,691
--------- --------- --------
--------- --------- --------
Combining Balance Sheet Information
Current assets $ 965,531 691,813 273,718
Property and equipment 5,663,284 2,613,445 3,049,839
Furniture and
equipment reserve 88,775 43,353 45,422
Deferred costs 84,904 54,502 30,402
-------- --------- ---------
$ 6,802,494 3,403,113 3,399,381
--------- --------- ---------
--------- --------- ---------
Current liabilities 352,621 191,313 161,308
Long-term debt 4,901,217 2,176,214 2,725,003
5,253,838 2,367,527 2,886,311
Partners' equity 1,548,656 1,035,586 513,070
--------- --------- ---------
$ 6,802,494 3,403,113 3,399,381
--------- --------- ---------
--------- --------- ---------
</TABLE>
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Statement and Consolidated Statement of Operations of
Signature VII Ltd. Limited Partnership as of and for the fiscal year ended
December 31, 1995, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 853,930
<SECURITIES> 0
<RECEIVABLES> 39,587
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 965,531
<PP&E> 8,626,206
<DEPRECIATION> 2,962,922
<TOTAL-ASSETS> 6,802,494
<CURRENT-LIABILITIES> 352,621
<BONDS> 4,901,217
0
0
<COMMON> 1,548,656
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,802,494
<SALES> 0
<TOTAL-REVENUES> 3,471,397
<CGS> 0
<TOTAL-COSTS> 2,477,565
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 512,641
<INCOME-PRETAX> 481,191
<INCOME-TAX> 0
<INCOME-CONTINUING> 481,191
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 481,191
<EPS-PRIMARY> 800
<EPS-DILUTED> 800
</TABLE>
