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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SCHEDULE 14A
Information Required in Proxy Statement
Reg. Section 240.13a-101
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14A of the
Securities and Exchange Act of 1934
(Amendment No._)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[] Preliminary Proxy Statement
[] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[] Definitive Additional Materials
[] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
SIGNATURE X LTD. LIMITED PARTNERSHIP
(Name of Registrant as Specified In Its Charter)
_____________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(I)(1), 14a-6(I)(2)
or Item 22(a)(2) of Schedule 14A.
[] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(I)(3).
[] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
______________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
______________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________________________________________________
5) Total fee paid:
[X Fee paid previously with preliminary materials.
[] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the previous filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
__________________________________________________________
2) Form, Schedule or Registration statement No.:
__________________________________________________________
3) Filing Party:
__________________________________________________________
4) Date Filed:
__________________________________________________________
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TABLE OF CONTENTS
I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. Special Factors . . . . . . . . . . . . . . . . . . . . . . . . 2
III. Description of Partnership Business . . . . . . . . . . . . . . 11
IV. The Proposed Sale/Purchase Transaction Between the
Partnership, as Seller, and Signature Inns, Inc., as Buyer. . 13
V. Required Amendments to the Partnership Agreement. . . . . . . . 20
VI. Dissolution, Termination and Final Distributions. . . . . . . . 21
VII. Summary of Estimated Benefits from Sale
of Properties and Liquidation of Partnership. . . . . . . . . 23
VIII. Purpose and Procedures for Majority Vote by Limited Partners. . 24
IX. General Partner's Duties, Conflicts of Interest and
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . 24
X. Federal Income Tax Consequences . . . . . . . . . . . . . . . . 27
XI. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 29
XII. Book Value, Distributions and Income. . . . . . . . . . . . . . 31
XIII. Pro Forma Financial Information . . . . . . . . . . . . . . . . 31
XIV. Regulatory Requirements . . . . . . . . . . . . . . . . . . . . 31
XV. Appraisal Reports . . . . . . . . . . . . . . . . . . . . . . . 32
XVI. Material Contracts. . . . . . . . . . . . . . . . . . . . . . . 36
XVII. Marketability of Units of Limited Partnership Interests . . . . 37
XVIII. Amended Form 10-KSB Report; and Form 10-QSB Report
and June 30, 1996 Unaudited Financial Statements. . . . . . . 38
XIX. Amended Rule 13e-3 Transaction Statement. . . . . . . . . . . . . 38
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EXHIBITS
A Amended Form 10-KSB Report for 1995
B Form 10-QSB Quarterly Report for Quarter Ended March 31, 1996
C Summary Report of Complete Appraisal of Signature Inn
- Florence, Kentucky
D Summary Report of Complete Appraisal of Signature Inn
- Sharonville, Ohio
E Text of Consent Resolutions of Limited Partners
F Text of Amendments to Partnership Agreement
G Rule 13e-3 Transaction Statement (without exhibits)
H Financial Statements of June 30, 1996 (unaudited)
I Irrevocable Consent of Limited Partner
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SIGNATURE X LTD. LIMITED PARTNERSHIP
Signature Inn Florence, Kentucky
Signature Inn Sharonville, 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 26, 1996
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SIGNATURE X LTD. LIMITED PARTNERSHIP
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
Telephone (317) 581-1111
SOLICITATION AND INFORMATION STATEMENT
August 26, 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 X Ltd. Limited
Partnership (the "Partnership") on or about August 26, 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.
The General Partner has fixed the close of business on Friday,
August 23, 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 364 Units of Limited Partnership Interest which
were held by the Limited Partners of the Partnership. The Holders of a
"majority" must provide their written Consents to the proposed transactions in
order for them to be approved and effectuated. The General Partner of the
Partnership owns ten (10) Units of Limited Partnership Interest. For the
purpose of determining a "Majority Vote", the Units of Limited Partnership
held by the General Partner shall not be considered "outstanding" and shall
not be voted by the General Partner. Accordingly, the holders of 178 Units
must provide their written consent to the proposed transactions in order for
them to be approved.
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
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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 September 16, 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
Summary of the Proposals. In accordance with Sections 14.04 and 20.01 of
the Signature X Ltd. Limited Partnership 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 85% interest (equal to the 85% interest of the
Limited Partners in the Partnership) 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 15% interest (equal to the 15% interest of the General Partner in
the Partnership) in the Hotel Properties to the General Partner (the
"Proposals"). Currently, the Limited Partners own an 85% interest, and the
General Partner owns a 15% interest in the Partnership.
These transactions will result in a per Unit distribution to the Limited
Partners of approximately $2,000, which includes (a) 100% of the net proceeds
from the Sale of the undivided 85% interest in the Partnership's real estate
to the General Partner and (b) 85% of the net operating assets which will be
realized upon the winding-up of the Partnership. However, this number is an
estimate, and the which ultimately will be distributed to the Limited Partners
amount may be reduced or increased as a result of changes in closing
adjustments, prorations and credits and increases/decreases in cash balances,
pre-paid items, accounts receivable, trade accounts payable, mortgage balances
and other cash and expense items over which neither the General Partner nor
the Partnership will have any control. See Sections IV and VI of this
Statement.
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. Absent a liquidation of the Partnership through a
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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 has not considered any other alternative means to
accomplish the "cash out" of the Limited Partners' investments in the
Partnership other than the proposed Sale by the Partnership of its Hotel
Properties to the General Partner, as described herein. Another possible
alternative would be for the Partnership to sell its assets to an independent,
third-party for cash or securities. The General Partner has not actively
solicited the sale of the Partnership's assets to any other party because the
General Partner believes that a sale to a third-party would not likely obtain
any greater purchase price or other benefit for the Partnership and would be
potentially disruptive to the Partnership's business, since a sale to a
third-party would necessarily entail: (a) the complication and costs of
"re-flagging" (i.e. operating under a different name) the Hotel Properties;
(b) the uncertainty and expense of a lengthy due diligence period during which
the third-party buyer would satisfy itself as to such matters as title,
survey, environmental and labor; and (c) the possible involvement of a realtor
with the consequence that a real estate commission may be paid, thereby
reducing net cash proceeds to the Partnership.
The General Partner believes that occupancy trends in the hotel
industry and overall values of hotel properties have increased steadily over
the past few years. 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
generally increasing, and with supply of hotel rooms more closely in balance
with demand for those rooms, performances of many individual properties have
improved, making them more appealing to prospective purchasers, including the
General Partner.
Because of the General Partner's dual role in the transaction, the
proposed purchase of the Hotel Properties by the General Partner cannot be
considered arms-length. Also, the General Partner is subject to a number of
conflicts of interest in connection with the proposed transactions as
described in Section IX of this Statement. The purchase prices to be paid by
the General Partner for those properties are, however, supported by written
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 Agreements also is designed to
provide added assurance of the commercial reasonableness of the proposed
transactions 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 as the best interests of the Limited Partners.
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 system, and by replacing it with a simplified,
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unified company-owned hotel structure, the General Partner
expects to:
(1) Combine all 23 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 system 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,
rather than single hotel loans on individual properties, as
currently is the case;
(3) Be able to retain earnings from hotel operations to
fund future growth, rather than being required to pay
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 fiduciary
and other duties under the existing partnership, management
and franchise system, which include, among others, the duties
to operate all aspects of the Partnerships' businesses,
periodically provide reports to a total of approximately 1,857
limited partners, file tax returns and statements on behalf of
the partnerships, obtain insurance coverages on the partnerships'
properties, account for and distribute cash to the limited
partners, and hire, train and supervise the partnerships'
approximate 700 employees.
Accordingly, the General Partner believes that the proposed
transactions will provide substantial benefits to each
of its affiliated limited partnerships and their limited partners and to
the General Partner and its shareholders, as well.
Thus, the ultimate goal and effect 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 at 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 Partnership
resulting from the proposed transactions are 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
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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. Those factors include, among other things,
cyclical-overbuilding in the lodging industry, varying levels of demand for
rooms and related services, adverse affects of general and local economic
conditions, changes in local market conditions, over-supply or a reduction in
demand for hotel rooms, changes in travel patterns, changes in governmental
regulations that influence or determine wages, prices or construction costs,
changes in interest rates and the availability of credit and changes in real
estate taxes and other operating expenses. In addition, hotels are capital
intensive and, in order to remain competitive, facilities must be constantly
maintained, modernized and refurbished on an ongoing basis at substantial
costs. Hotel businesses are also subject to inflationary pressures,
seasonality of demand and energy and environmental factors relating to real
estate ownership generally. The operation of hotels is highly competitive,
and Signature Inn hotels compete with other hotels of varying quality and
size, including hotels which are a part of a national or regional chain and
which may have available to them greater financial resources than the General
Partners. Moreover, there can be no assurance that the values of hotel
properties (including the Partnership's Hotel Properties) will not decrease.
Source and Amounts of Funds or Other Consideration. The General Partner
intends to fund its proposed acquisition of the Partnership's Hotel
Properties and the hotel properties of 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 which will be
required to acquire the Hotel Properties owned by the Partnership will be
approximately $420,000, and approximately $4,450,000 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 and debt forgiveness by the General Partner. 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.
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
(b) Legal Fees 1,000
(c) Proxy Statement and
Schedule 13E-3 Filing Fees 1,332
(d) Printing, Mailing and
Other Solicitation Expenses 3,000
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Total: $15,332
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-------
</TABLE>
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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 VI 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 entire nine-member Board of Directors of the General
Partner (five of whom are outside, non-employee directors) 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 beliefs as to
fairness are based, the weight, if any, assigned to each factor by the
General Partner and whether the factor supports the General Partner's
belief as to fairness are as follows:
(1) Net Book Value of Hotel Properties. The
Partnership's cost basis for the property and equipment
which comprise its two Hotel Properties totaled $10,876,853,
as of June 30, 1996. After deducting accumulated depreciation
through that date, the depreciated, net book value of the
Partnership's two Hotel Properties totaled $7,685,274.
All items of property and equipment are recorded on the
Partnership's balance sheets at cost and include assets
leased under non-cancelable agreements and construction loan
interest and fees. Depreciation is determined on the
straight-line basis over the estimated useful lives of the
related assets. Because net book value of the Partnership's
Hotel Properties has little relationship to the current fair
market values of those properties, the net book value of the
Hotel Properties neither supports nor fails to support the
General Partner's belief as to fairness, and the General
Partner attaches no weight to that factor.
(2) Appraised Values of Hotel Properties. On
March 11, 1996, USRC Realty Consultants, Inc., a nationally
recognized, qualified and independent appraisal firm, issued
two separate reports which estimated the fair market values
on a going concern basis of the Partnership's Florence,
Kentucky Hotel Property at $3,800,000 and the fair market
value on a going concern basis of the Partnership's Sharonville,
Ohio Hotel Property at $3,300,000, for an aggregate appraised
value of $7,100,000. These 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 (which approaches are described in Section XV),
completely support the General Partner's belief as to fairness,
and they provide the most substantial weight and basis upon
which the General Partner is relying to ensure that fairness.
They 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.
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(3) Going Concern or Liquidation Values.B The USRC appraisal
reports described under subparagraph (2) above are based upon going
concern, rather than liquidation, values of the assets. As stated
in the appraisal reports, the appraiser's opinion is based upon "the
market value of the fee simple interest of the going concern" in the
Hotel Properties, as of February 28, 1996. Basing the value of the
Hotel Properties on a going concern basis, rather than the
liquidation basis, supports the General Partner's belief as to
fairness, although the weight assigned to this factor is subsumed
within the weight assigned to the appraisal reports, themselves.
(4) Current and Historical Market Prices. As a part of
its appraisal process, USRC reviewed the comparable selling
prices of a total of 63 sales of limited service hotels in the
Mid-Western, Middle-Atlantic, Southern and New England regions
of the United States. The data was verified by USRC through
sources deemed to be reliable, and using commonly accepted
appraisal methodology. USRC incorporated in its written
appraisals tables entitled "Summary of Improved Sale Comparables
- Select Nationwide Limited - Service Hotels," which listed
the names, locations, dates of sale, ages, sales prices, number
of rooms, sales price per room and occupancy, ADR and REVPAR
information for each of those 63 hotels. All of this information
was utilized by USRC in making its determination of value.
Nonetheless, as pointed out in the appraisal reports, USRC's
analysis made comparisons of the transactions primarily upon
economic lines, rather than on the lines of comparable sale
prices. In the opinion of the appraiser, a buyer's criteria
for the purchase of a hotel property is predicated primarily
on the property's income characteristics. The comparable sales
indicated a range of price per room which provided an indication
of value for the Partnership's Hotel Properties. This information,
together with other analyses, were used as a part of the appraiser's
Sales Comparison Approach. The appraiser placed less weight on
this approach due to the lack of recent truly comparable sales
in the market. However, the conclusions reached by the appraiser
via this approach supported the appraiser's conclusions as to value
based upon the Income Capitalization Approach.
(5) Independent Counsel. The planned engagement
by the General Partner on behalf of the Limited Partners of
the Partnership of an independent, qualified attorney to
represent the Limited Partners in connection with the execution
of the Asset Purchase Agreements by reviewing the commercial
reasonableness of the terms (other than assets purchased and price)
of that agreement is also intended by the General Partner to
provide additional assurance of the commercial reasonableness of
the transactions to the Partnership and its Limited Partners.
Although a draft of an Asset Purchase Agreement has been
prepared by counsel to the General Partner (the general terms
of which are described below), the independent counsel to the
Limited Partners will review that draft of Asset Purchase
Agreement in its entirety, prior to its execution by the
Partnership, and such independent counsel will have the
opportunity to negotiate on behalf of the Limited Partners
all terms of the purchase, except for the description of the
assets to be purchased and the purchase prices established
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therefore, both of which terms are a function of the
appraisal reports. It is not currently contemplated that
the independent counsel will prepare and issue a report to the
Limited Partners in relation to the commercial reasonableness
of the terms (other than assets purchased and price) of the
Asset Purchase Agreements.
(6) Industry Data. According to Smith Travel Research,
industry-wide 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 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 to
the General Partner at this time, and that these conditions provide
additional assurance of fairness.
(7) Competitive Bids. The General Partner has not
received any offer by any unaffiliated person during the
preceeding 18 months for (a) the merger or consolidation of
the Partnership into or with any such person, (b) the sale
or transfer of all or any substantial part of the Partnership's
Hotel Properties to such other person, or (c) the sale or
other transfer of all or any part of the Limited Partnership
interests of the Partnership to such other person.
The foregoing material factors supporting the General Partner's belief as
to fairness should not be considered separately, but rather as an overall
program. Current and historical sales prices of comparable properties were
considered by USRC in arriving at the appraised values. Net book value of the
Partnership's Hotel Properties had little significance to the determination of
those values. The appraiser determined that the Income Capitalization
Approach was the best indicator of value on a going concern basis, although
the other approaches described under Section XV of this Statement were
utilized by the appraiser to provide additional support for its conclusions as
to value.
The Purchase Price and Appraisal. The purchase price to be paid by the
General Partner for the 85% undivided fractional interest in the Hotel
Properties will be $6,035,000, which equals 85% of the $7,100,000, appraised
fair market value of the Hotel Properties, as supported by appraisals as of
February 28 and 29, 1996. The appraisals were 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. All
appraisal reports shall be made available for inspection and copying at the
principal executive offices of the General Partner at 250 E. 96th Street,
Suite 450 Indianapolis, Indiana 46240 during its regular business hours by
any interested Limited Partner or his representative who has been so
designated in writing. A copy of any such appraisal reports will be
transmitted by the General Partner to any interested Limited Partner or his
representative who has been so designated in writing upon written request and
at the expense of the requesting Limited Partner.
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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 1.25 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. For the purpose of these
transactions, the General Partner has agreed not to vote the Units of
limited partnership interest which it holds, if any.
The Partnership currently has 364 Units of limited partnership interest,
which are held by its Limited Partners, including 10 which are held by the
General Partner. Because the 10 Units held by the General Partner will not be
considered "outstanding" for the purpose of determining a "Majority Vote", the
holders of 178 Units must provide their written consent to the proposed
transactions in order for those transactions to be approved. The General
Partner shall not vote its 10 Units of Limited Partnership Interest.
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 15%
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.
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 its
proposed transactions with any of the other 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.
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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. If the Proposals are
approved and the transactions closed and consummated, you will receive
$2,000 per each Unit of Limited 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 Amended Form 10-KSB
Report and Form 10-QSB Report and June 30, 1996
Financial Statements which are attached to this Statement as Exhibits A, B
and H.
III. Description of Partnership Business
The Partnership was originally organized pursuant to a Certificate and
Agreement of Limited Partnership dated September 19, 1986, which was filed for
record with the Recorder's Office of Marion County, Indiana, (the "Recorder")
on September 19, 1986, in accordance with the Indiana Uniform Limited
Partnership Act ("ULPA") (I.C. Section 23-4-2-1 et seq.). On April 15, 1988,
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 April 15, 1988. On June 15, 1988, 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 June 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.
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-half Unit pursuant to a Registration Statement which
originally became effective on May 29, 1987. The offering was concluded in
October, 1988, and a total of 364 Units, aggregating $3,640,000, was sold in
the offering to 386 purchasers who became the limited partners of the
Partnership. Signature Inns, Inc., in its capacity as General Partner,
contributed $404,445 as its capital contribution to the Partnership. In
addition, to its capital contribution in its capacity as a General Partner,
Signature Inns, Inc. acquired 10 Units in the offering at the same price and
on the same terms as paid by all other investors in the offering.
The business of the Partnership currently consists exclusively of the
ownership and operation of two Signature Inn hotels located in Florence,
Kentucky, and Sharonville, Ohio (on the north side of the Cincinnati
metropolitan area) (the "Hotel Properties"). A listing of these hotels, the
number of rooms, location and opening dates is as follows:
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<TABLE>
<CAPTION>
Location of Hotel Number of Rooms Opening Date
----------------- --------------- ------------
<S> <C> <C>
I-75/71 & Turfway Road 125 07/14/87
Florence, Kentucky
I-75 & Sharon Road 130 09/08/87
Sharonville, Ohio
</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 in December, 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.
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 in July, 1999.
A mortgage loan of $2,730,000 at December 31, 1995, relating to
industrial revenue bonds issued by the City of Florence, Kentucky, is secured
by the Florence hotel and includes various principal amounts which bear
interest at an effective rate of 9.75% and mature serially to 2016. The bond
indenture requires the maintenance of a debt service fund of $225,000 before
distributions can be made to the partners. Withdrawals from the fund are
permitted for working capital and other operating needs.
A mortgage loan of $2,504,869 at December 31, 1995, is secured by the
Sharonville hotel and is payable in monthly installments of $23,503, including
interest at 10.0%. The interest rate and monthly installments are adjustable
at three-year intervals to 3.75% above the three-year U.S. Treasury Constant
Maturity rate, based on maturity in 2018. The interest rate is not to exceed
15% through maturity in 1998, or be less than 10%.
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The Partnership's note payable to the General Partner in the amount of
$2,577,361 is non-interest bearing and repayments are dependent
on future annual cash flows of the Partnership. The note matures in 2004 and
requires annual principal payments equal to 50% of defined available cash flow
but not in excess of $237,736. In connection with the Sale, a total of
approximately $1,297,833 will be paid to the General Partner in full
settlement and satisfaction of the Note, and the $1,279,228 remaining
balance will be forgiven.
Additional information concerning the Partnership's business is set forth
under Part I, Item 1, entitled "Business of Signature X Ltd. Limited
Partnership," of the Amended Form 10-KSB 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 29, 1996, had a combined
appraised value of $7,100,000. 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 85% 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 $6,035,000 (i.e. 85% of the
$7,100,000 appraised value), of which: (1) approximately $65,000 will be
deducted to defray 85% of the anticipated property tax prorations and closing
costs; (2) approximately $420,000 will be paid in cash at the time of
closing;(3) approximately $4,450,000 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; and, (4) approximately $1,100,000 will
be applied against the note payable to the General Partner.
The entire $420,000 of net cash proceeds of the Sale will be distributed
to the Limited Partners, as a group. The General Partner will receive a
portion of those proceeds for the 10 Units which it holds. As the second part
of the transaction, the General Partner will receive a liquidating
distribution of the remaining undivided 15% 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 $420,000 of net cash
proceeds of the Sale (i.e. 85% of the value of the Hotel Properties) for their
85% partnership interest in the Partnership and to distribute in-kind to the
General Partner the 15% Remaining Interest in the Hotel Properties in
liquidation of the General Partner's 15% 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.
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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
Agreements (the "Purchase Agreements"). However, the Purchase Agreements will
not be executed until the independent counsel retained on behalf of the
Limited Partners reviews the drafts of Purchase Agreements and negotiates with
the General Partner the final terms thereof. All terms of the Purchase
Agreements will be negotiable except for the description of the assets to be
purchased and the purchase prices to be paid. Upon execution, the Purchase
Agreements shall constitute legally binding obligations 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 Agreements 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 Agreements will be terminated and canceled, and the
proposed transactions will not occur.
The remainder of this Section IV to the Statement is devoted to an
explanation of some of the terms of the Purchase Agreements. The
description includes a brief discussion of the general terms of the Purchase
Agreements, 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
Agreements and, accordingly, does not describe all of the terms of
these Agreements. Upon request, Limited Partners may inspect the actual form
of the Purchase Agreements which will be executed by and between the
Partnership and the General Partner following receipt of the Limited Partners'
written consent and after review by the independent counsel representing the
Limited Partners. Inspection may be made at the corporate offices of the
General Partner at 250 East 96th Street, Suite 450, Indianapolis, Indiana
46240.
General Terms of the Purchase Agreements
Description of Property to be Sold. The Initial Interest to be purchased
by the General Partner will be equal to an undivided 85% 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 $6,035,000 (i.e. 85%
of the $7,100,000 appraised value). Of that amount: approximately $65,000
will be deducted to defray 85% of tax prorations and closing costs;
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<PAGE>
approximately $420,000 will be paid in cash at the time of closing,
approximately $4,450,000 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, and approximately
$1,100,000 will be applied against the Note payable to the General Partner.
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.
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.
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<PAGE>
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.
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.
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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 Limited Partners independent legal
counsel to represent the Limited Partners with respect to the
terms (other than assets to be purchased and price) of the Purchase
Agreements and related documents and the consummation of the transactions
contemplated therein.
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 transactions, 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, VII, VIII, IX, 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
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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.
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.
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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 85% 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.
V. Required Amendments to the Partnership Agreement
As noted above under the "Introduction" portion of Section IV of this
Statement, the General Partner intends to acquire 100% of the Partnership's
Hotel Properties in a two-part transaction. Part one will involve a sale of
the portion of the Hotel Properties to the General Partner which will be
equivalent to the Limited Partners' 85% interest in the Partnership. The
second part of the transaction will involve a liquidating distribution of the
remaining 15% portion of the Hotel Properties to the General Partner, in-kind.
The net result of this two-part method of sale will be to allocate to the
Limited Partners, as a group, 100% of the net cash proceeds of the sale (i.e.
85% of the value of the Hotel Properties) for their 85% partnership interest
in the Partnership and to distribute in-kind to the General Partner the 15%
remaining interest in the Hotel Properties in liquidation of the General
Partner's 15% interest in the Partnership. In order to facilitate the
sale of the Hotel Properties, 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 X 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
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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.
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
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<PAGE>
(5) Eighty-five percent (85%) of any remaining balance
shall be allocated to the Limited Partners based on their
percentage interest in the Partnership and fifteen percent
(15%) 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.
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 85% 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 15% of those items of cash.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
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.
<TABLE>
<CAPTION>
Table of Estimated Benefits
---------------------------
Pro forma
Purchase of Hotel Properties 12/31/95
- - - ---------------------------- ---------
<S> <C> <C>
Hotel Appraised Value
(real estate and personal property) $ 7,100,000
(Less) estimated costs for title insurance,
survey, appraisal, etc. (34,000)
Adjustments for Real Estate Taxes unpaid (42,084)
-----------
Adjusted Hotel Appraised Value 7,023,916
(Less) Mortgage Settlement or Assumption:
Principal Outstanding Balance (5,234,868)
Debt Service Reserve Balance 3,000
(Less) Note Payable to Signatures,
Inns, Inc. ("SII") (2,577,061)
Discount of Note Balance offered by SII 1,279,228
---------
Note payable net of discount (1,297,833)
---------
Net Proceeds from Real Estate Sale (note 1) 494,215
Limited Partners Share 85%
Limited Partners Share Amount $ 420,082
Number of Limited Partner Units 364
Amount per Limited Partner Unit $ 1,154
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.
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
Pro forma
Winding-up of Partnership 12/31/95
- - - ------------------------- ---------
<S> <C>
Add assets acquired by Buyer or liquidated:
Working capital cash balance $ 200,163
Prepaid Insurance 5,536
Account Receivables 47,288
Supplies 46,000
FF&E Cash Reserve 87,841
Tax Escrow Cash Account 50,307
(Less) liabilities assumed by Buyer or paid:
Trade Accounts Payable $ (24,349)
Guests Advance Deposits (742)
Accrued Payroll Expense (34,290)
Sales and Lodging Taxes (15,498)
Net Business Assets and Liabilities (note 2) $ 362,256
Limited Partners Share 85%
Limited Partners Share Amount $ 307,918
Number of Limited Partner Units 364
Amount per Limited Partner Unit $ 846
Note 2 - Does not include Limited Partner's Share of operating
income from January 1, 1996.
</TABLE>
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<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 1.25 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 364 Units of Limited Partnership
interest, which are held by its Limited Partners. Ten (10) Units of Limited
Partnership interest are held by the General Partner. For the purpose of
determining a "Majority Vote", the Units of Limited Partnership held by the
General Partner shall not be considered "outstanding" and shall not be voted
by the General Partner. Accordingly, the holders of 178 Units must provide
their written consent to the proposed transactions in order for them to be
approved.
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 X Ltd.
Limited Partnership," which accompanies this Statement. Please read those
instructions carefully.
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
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<PAGE>
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 Agreements
containing terms and provisions which are fair and reasonable to both parties.
Although the price for the Hotel Properties 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
independent appraisals conducted by a qualified appraiser which
has extensive experience in appraising hotel properties. The General Partner
believes that the appraisals reflect the fair market value of
the Hotel Properties.
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
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<PAGE>
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
Limited Partners in connection with the review of
the Purchase Agreements 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 Limited
Partners 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:
Failure to Satisfy Conditions Precedent. As explained in
Section IV of this Statement, the Purchase Agreements
contain 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 transactions may not occur.
Tax Effect. As more completely described in Section X of
this Statement, the subject transactions 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
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<PAGE>
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 transactions, 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/her 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.
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. The
actual tax consequences of the Proposals to any Limited Partner will depend on
that Partner's own tax circumstances. 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 tax-exempt entities or non-United
States persons not subject to U.S. Federal income tax on worldwide income,
this summary is inapplicable to such persons. This summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), 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
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<PAGE>
retroactively. Except as described in Possible Indiana Tax Withholding below,
this summary 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.
Sale of Interest in Hotel Property/Special Allocation. The sale of an
undivided interest in the Hotel Properties will be a taxable event to the
Partnership and Limited Partners. Each Limited Partner will be required to
take into account the share of income, gain or loss realized from that sale
which is allocable to such Partner's interest in the Partnership. By reason
of the proposed special allocation of Partnership income, all income, gain or
loss from the sale of the Hotel Properties will be allocated to the Limited
Partners in the aggregate. In determining the tax consequences of the
proposed sale, each Limited Partner will be required to take into account
separately his, her or its distributive share of the gains or losses realized
by the Partnership from transfers of property described in Section 1245 and
1231 of the Code (relating to certain depreciable and other property used in a
trade or business) and certain "tax benefit" income. Gain allocable to any
Section 1245 property and "tax benefit" income will be taxable as ordinary
income. The aggregate net gain or loss recognized by a Limited Partner on
dispositions of Section 1231 property in any taxable year will be taxable as
long-term capital gain or ordinary loss, respectively, except that any net
Section 1231 gain will be treated as ordinary income to the extent of net
losses from the sale or exchange of Section 1231 property in the previous five
years.
Receipt of Special and Liquidating Distributions. Upon receipt of the
final liquidating distribution, each Limited Partner will recognize capital
gain or loss from the dissolution of the Partnership in an amount equal to the
difference between the sum of all liquidating distributions received from the
Partnership, which will include the special distribution of proceeds from the
sale of Hotel Properties, and his, her or its basis in the interest in the
Partnership. Such gain or loss will be long-term capital gain or loss if the
interest in the Partnership is held by the Limited Partner for more than
twelve months. The entire amount of gain or loss recognized on the
dissolution of the Partnership must be taken into account by each Limited
Partner in the taxable year in which the final liquidating distribution is
received. It is expected that the Closing Date will occur in the same taxable
period in which all liquidating distributions will be made available to the
Limited Partners. If the taxable period in which the Closing Date occurs does
close before the final liquidating distribution becomes available, the Limited
Partners must account for the tax consequences from the sale of Hotel
Properties in the first such taxable period and for the tax consequences from
the dissolution of the Partnership in the latter taxable period.
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
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<PAGE>
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 for purposes of determining gain or loss on the dissolution of the
Partnership, such Partner will take into account his, her or its allocable
share of income, gain, loss and deduction of the Partnership, including gain
or loss on the sale of the Hotel Properties, for the year or years of the
Partnership which include the Closing Date and the date on which the final
liquidating distribution is made available to the Limited Partners. Any U.S.
Federal income tax consequences resulting from the partial satisfaction of the
Partnership's note payable to the General Partner will be allocated to or
otherwise borne by the General Partner only.
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) that Partner's
Initial Basis; (ii) the difference between gains and profits of the
Partnership allocated to that Partner over losses and deductions of the
Partnership allocated to such Partner; (iii) any Partnership"qualified
nonrecourse financing" (as defined under Section 465(b)(6) of the Code)
allocable to that Partner; and (iv) any gain recognized by that Partner on the
dissolution of the Partnership.
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.
Possible Indiana Tax Withholding. The General Partner will be required
to withhold Indiana gross income, adjusted gross income and net supplemental
income tax from gain, loss or income realized by the Partnership on the sale
of the Hotel Property located in Indiana or the conduct of Indiana-situs
operations which is allocable to Limited Partners not resident or qualified to
do business in Indiana, unless such Partner is resident in a jurisdiction for
which a full credit may be available.
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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.
<TABLE>
<CAPTION>
Schedule of Selected Five Year Financial Data
Concerning the Partnership's Operations
Hotels: Florence & Sharonville
---------------------------------------------
Statistics: 1991 1992 1993 1994 1995
- - - ---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of Rooms
- Florence 125 125 125 125 125
Number of Rooms
- Sharonville 130 130 130 130 130
Occupancy
- Florence 50.5% 57.3% 63.5% 66.2% 67.3%
Occupancy
- Sharonville 49.1% 57.8% 53.5% 56.8% 55.6%
Average Daily Rate
- Florence $ 48.86 $ 47.26 $ 46.87 $ 48.94 $ 51.74
Average Daily Rate
- Sharonville $ 48.42 $ 47.91 $ 50.43 $ 53.40 $ 54.59
Revpar
- Florence $ 24.67 $ 27.08 $ 29.76 $ 32.40 $ 34.82
Revpar
- Sharonville $ 23.77 $ 27.69 $ 26.98 $ 30.33 $ 30.35
Operating Results:
- - - -----------------
Hotel Revenue
- Florence $1,151,176 $1,258,840 $1,392,543 $1,522,097 $1,624,252
Hotel Revenue
- Sharonville $1,172,779 $1,339,666 $1,337,702 $1,489,641 $1,475,081
Net Income (Loss)
- Florence $ (354,183) $ (225,716) $ (156,692) $ (11,230) $ 81,830
Net Income (Loss)
- Sharonville $ (459,827) $ (354,226) $ (261,418) $ 25,943 $ 8,453
Total Assets:
- - - ------------
Florence $4,357,115 $4,219,069 $4,107,779 $4,000,785 $4,038,033
Sharonville $4,974,007 $4,685,879 $4,465,184 $4,425,408 $4,353,208
Total $9,331,122 $8,904,948 $8,572,963 $8,426,193 $8,391,241
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Long Term Debt Obligations:
- - - --------------------------
<S> <C> <C> <C> <C> <C>
Florence $2,535,000 $2,570,000 $2,605,000 $2,645,000 $2,685,000
Sharonville $3,055,104 $2,923,353 $2,779,142 $2,638,835 $2,512,742
Total $5,590,104 $5,493,353 $5,384,142 $5,283,835 $5,197,742
</TABLE>
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)
------------------------------------
Book Value: 1991 1992 1993 1994 1995
- - - ---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total (Florence
& Sharonville) $ 603,963 $ 24,021 $(393,530) $ 281,866 $ 372,149
Number of L.P. Units 364 364 364 364 364
Per Limited Partner Unit $ 1,410 $ 56 $ (919) $ 658 $ 869
Limited Partner Cash Distributions:
- - - ----------------------------------
Total (Florence
& Sharonville) $ 0 $ 0 $ 0 $ 0 $ 0
Number of L.P. Units 364 364 364 364 364
Per Limited Partner Unit $ 0 $ 0 $ 0 $ 0 $ 0
Cumulative Limited Partner Distributions $0.00
Per Unit, 1986 to 1995 As a percentage of 0.0%
Original Investment Per Unit
Income (Loss):
- - - -------------
Total Net Income (Loss)
(Florence & Sharonville) $(814,010) $(579,942) $(418,110) $14,713 $90,283
Number of L.P. Units 364 364 364 364 364
Income (Loss) Per
Limited Partner Unit $ (1,900) $ (1,354) $ (976) $ 35 $ 211
</TABLE>
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
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<PAGE>
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 Florence, Kentucky and Sharonville, 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.
A more detailed explanation of the appraisal process as described in the
Summary Appraisals is as follows:
The initial step was to inspect the subject,
general market area, and neighborhood. Market research
included the assembly of data from public records, real
estate specialists, governmental entities, real estate
publications, as well as owners/investors, management
and hotel managers at similar and comparable properties.
Information from the market area was collected and studied
in order to define the character, composition and the
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<PAGE>
propensity for change in the subject trade area. This
information was analyzed to determine the influences
which will impact the surrounding market area and the
value of the subject property.
After analyzing the macro-environment, research was
conducted relevant to the valuation process, including
gathering income, expense, capitalization rate, and
discount rate data; comparable improved sales; real
estate tax, zoning, and flood plain data and any other
information pertinent to the valuation of the subject
property. This information was reviewed, confirmed when
necessary, and analyzed through the approaches to value.
The competitive hotel market was analyzed. Management
of most of the competitive hotel properties were interviewed.
Improved sale comparables were all analyzed, and where
possible were confirmed with either the buyer, the seller
or a knowledgeable third party.
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.
The appraiser deemed the Income Capitalization Approach to be the most
applicable method to estimate the fair market value of the Partnership's Hotel
Properties. The Sales Comparison Approach was utilized to provide an
additional point of reference. Numerous hotel sales were analyzed, and the
analysis rendered a meaningful conclusion of value. Due to the age of the
Partnership's Hotel Properties, significant depreciation exists, which is
difficult and subjective to quantify. As a result, the "Cost Approach," which
estimates the cost to replace the improvements, was not completed. In
addition, the Cost Approach would not reflect the reasoning or approach taken
by an investor for a property of the age and type of the Partnership's
Properties. A discussion of the Income Capitalization and Sales Comparison
approaches is as follows:
Income Capitalization Approach. Under the Income Capitalization Approach
an appraiser analyzes a property's capacity to generate income (or other
monetary benefits) and converts this capacity into an indication of value.
The approach is suitable for properties that have obvious earning power and
investment appeal but is inappropriate for properties that have no readily
discernible income potential. Further, this approach is based on the premise
that the value of a property is represented by the present worth of
anticipated future benefits to be derived from ownership. There are two basic
techniques which can be used for analysis purposes: Direct Capitalization and
Discounted Cash Flow.
Direct Capitalization converts an estimate of a single year's income
expectancy or an annual average of several years' income expectancies into an
indication of value in one direct step. Direct Capitalization is especially
useful when analyzing a property that has achieved a stabilized level of
operations and occupancy.
Discounted Cash Flow analysis is a market reflective method of estimating
the present worth of anticipated income benefits. This analysis converts a
stream of expected income into a present value and is most appropriate when
valuing a property that has not yet reached stabilized occupancy.
-36-
<PAGE>
In valuing the Partnership's Hotel Properties, it was the opinion of the
appraiser that the direct capitalization valuation technique was most useful
in the analysis. The appraiser estimated cash flow for a typical stabilized
year. Their estimates were based upon results of the Partnership's Hotel
Properties' historical operations, the performance of comparable Signature Inn
facilities, industry standards and assumptions regarding the environment in
which the subject hotels operate.
On the basis of this approach, the appraiser estimated the market value
of the fee simple estate of the going concern of the Florence, Kentucky Hotel
Property to be $3,800,000 of the Sharonville, Ohio Hotel Property to be
$3,300,000, for an aggregate of $7,100,000.
Sales Comparison Approach. The Sales Comparison Approach is defined in
"The Dictionary of Real Estate Appraisal," Third Edition, (published by the
Appraisal Institute, 1993), as:
A set of procedures in which a value indication is
derived by comparing the property being appraised to similar
properties that have been sold recently, applying appropriate
units of comparison, and making adjustments to the sale prices
based on the elements of comparison.
This approach is based on the premise that the market value of a property
is directly related to the prices paid for similar properties which have
recently sold. Inherent in this approach is the principle of substitution,
which holds that when a property is replaceable, its price tends to be set at
the cost of acquiring an equally desirable substitute property, assuming that
no costly delay is encountered in making the substitution.
Under this approach, USRC collected information concerning a number of
transactions involving the sale of limited services hotels in the Mid-Western,
Mid-Atlantic, Southern and New England regions. The data was verified by USRC
through sources deemed reliable, using commonly accepted appraisal
methodology.
Two techniques were utilized in this valuation approach. First, a Linear
Regression Analysis was performed to demonstrate that the sale price is a
function of income. Next, Effective Rooms Revenue Multiplier was developed
which adjusts the sales prices of the comparables based on differences in room
revenue. The presentation of these techniques then led to the appraiser
determining an estimate of market value via the Sales Comparison Approach.
Using this approach, the appraiser estimated the fair market value of the
going concern of the fee simple estate in the Florence Hotel Property to be
$3,800,000 and the Sharonville Hotel Property to be $3,400,000, for an
aggregate of $7,200,000.
Reconciliation of Value. The two approaches, Income Capitalization
Approach and Sales Comparison Approach, represent alternative ways of viewing
market phenomena. A final estimate of value was by the appraiser as the
dominate tendency or most probable outcome from the range of possible
outcomes. In final analysis, the appraiser based its estimate of value on the
Income Capitalization Approach, since the Partnership's Hotel Properties
represent investments capable of attracting investor capital. The Sales
Comparison Approach was used to provide additional support for the appraiser's
conclusions.
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<PAGE>
Based upon their research and analysis, and using applicable, standard
appraisal techniques in conformity with the requirements of the Code of
Professional Ethics and the Standards of Professional Practice of the
Appraisal Institute, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 and 1994, and the Uniform Standards of Professional
Appraisal Practice (1995 Edition), USRC estimated the market value of the
fee simple estate of the going concern of the Florence, Kentucky Signature Inn
Hotel, as of February 28, 1996, at $3,800,000 and the similar value of the
Sharonville, Ohio Signature Inn Hotel, as of February 29, 1996, at
$3,300,000, for a combined appraised value of both hotels of $7,100,000. 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. All appraisal reports shall be made available for
inspection and copying at the principal executive offices of the General
Partner at 250 E. 96th Street, Suite 450 Indianapolis, Indiana 46240
during its regular business hours by any interested Limited Partner or his
representative who has been so designated in writing. A copy of any such
appraisal reports will be transmitted by the General Partner to any interested
Limited Partner or his representative who has been so designated in writing
upon written request and at the expense of the requesting Limited
Partner.
Experience and Qualifications of the Appraiser. USRC was organized in
1983. USRC operates regional offices in Atlanta, Georgia, Chicago, Illinois
and Florence, Kentucky. 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.
Selection of the Appraiser. The General Partner considered and reviewed
the credentials of three other nationally recognized firms, before selecting
USRC as the appraiser to conduct the appraisal on the Partnership's Hotel
Properties. The other three firms which had been considered by the General
Partner were Hospitality Valuation Services of Miami, Florida, and Cushman &
Wakefield, Inc. of New York, New York, as well as the Financial Advisory
Services Department of the accounting firm, Coopers & Lybrand LLP. The
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<PAGE>
General Partner made its decision to hire USRC over the other firms based upon
the criteria established by the Company, included years of experience,
national reputation, specialization in appraising hotel properties and
experience in appraising hotels in the Mid-West region of the United
States.
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.
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
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<PAGE>
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.
Other Terms and Conditions. For a more complete
description of the terms and conditions of the Partnership
Agreement please refer to the Partnership's Amended
Form 10-KSB Report 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 buy 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
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<PAGE>
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>
364 406
</TABLE>
XVIII. Amended Form 10-KSB Report;
and Form 10-QSB Report
and June 30, 1996 Unaudited Financial Statements
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 August 21, 1996, the Partnership filed its
Amended Form 10-KSB 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. Also, the
Partnership's June 30, 1996 unaudited financial statements are attached to the
Statement as Exhibit H.
XIX. Amended 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 (without exhibits) is attached to this
Statement as Exhibit G.
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<PAGE>
EXHIBIT INDEX
A Amended Form 10-KSB Report for 1995
B Form 10-QSB Quarterly Report for Quarter Ended March 31, 1996
C Summary Report of Complete Appraisal of Signature Inn
- Florence, Kentucky
D Summary Report of Complete Appraisal of Signature Inn
- Sharonville, Ohio
E Text of Consent Resolutions of Limited Partners
F Text of Amendments to Partnership Agreement
G Rule 13e-3 Transaction Statement (without exhibits)
H Financial Statements of June 30, 1996 (unaudited)
I Irrevocable Consent of Limited Partner
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<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 33-14003
SIGNATURE X LTD. LIMITED PARTNERSHIP
(Exact name of small business issuer in its charter)
Indiana 35-1687036
------- ----------
(State or other jurisdiction I.R.S. Employer Identification No.)
of 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 $3,117,727 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
----- -----
______________________________________________________________________________
______________________________________________________________________________
-1-
<PAGE>
PART I
------
Item 1. Business of Signature X Ltd. Limited Partnership.
------------------------------------------------
A. Organization.
------------
Signature X Ltd. Limited Partnership (hereinafter sometimes referred to
as the "Issuer," the "Partnership" or the "Registrant") was originally
organized pursuant to a Certificate and Agreement of Limited Partnership dated
September 19, 1986, which was filed for record with the Marion County,
Indiana, Recorder on September 19, 1986, in accordance with the Indiana
Uniform Limited Partnership Act (I.C. Section 23-4-2-1 et seq.) ("ULPA"). 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-half Unit
pursuant to a Registration Statement which originally became effective on May
29, 1987. The offering was concluded in October, 1988. A total of 364 Units,
aggregating $3,640,000, was sold in the offering to 386 purchasers who became
limited partners of the Partnership.
Signature Inns, Inc. (hereinafter sometimes referred to as the "General
Partner"), in its capacity as General Partner, contributed $404,445 as its
capital contribution to the Partnership. In addition to its capital
contribution in its capacity as a General Partner, Signature Inns, Inc.
acquired 10 Units in the offering at the same price and on the same terms as
paid by all other investors in the offering, which Units the General Partner
is required to hold indefinitely.
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.
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<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.
-3-
<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>
-4-
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:
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
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. 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>
Florence 67.3% 66.2% 63.5% $51.74 $48.94 $46.87
Sharonville 55.6% 56.8% 53.5% $54.59 $53.40 $50.43
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.
---------------------
-5-
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
The upper economy/limited service hotels have performed better than all
other segmentsin 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 thedomestic lodging industry. 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.
-6-
<PAGE>
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. 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.
-7-
<PAGE>
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.
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 Florence, Kentucky, and
Sharonville, Ohio. A listing of these hotels, location, the number of rooms,
and opening dates is as follows:
</TABLE>
<TABLE>
<CAPTION>
Location of Hotel Number of Rooms Opening Date
----------------- --------------- ------------
<S> <C> <C>
I-75/71 & Turfway Road 125 07/14/87
Florence, Kentucky
I-75 & Sharonville Road 130 09/08/87
Sharonville, Ohio
</TABLE>
Each of the foregoing properties is operated as a franchisee of the
General Partner. The Partnership has entered into a Signature Inn Individual
Hotel License Agreement with respect to each of the hotels. By the terms of
those agreements, the Partnership was to pay to Signature Inns, Inc. monthly
franchise fees (i.e., royalties) equal to 4% of the gross receipts of each of
the hotels and, in addition, contribute an additional 3.5% of gross receipts
to advertising and reservation funds administered by Signature Inns, Inc. to
finance advertising programs and a reservation system. The initial term of
each of the 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 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 various services in relation to that
system.
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
-9-
<PAGE>
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
and accounting services an amount equal to 5% of 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 mortgage loan of $2,730,000 at December 31, 1995, relating to
industrial revenue bonds issued by the City of Florence, Kentucky, is secured
by the Florence hotel and includes various principal amounts which bear
interest at an effective rate of 9.76% and mature serially to 2016. The bond
indenture requires the maintenance of a debt service fund of $225,000 before
distributions can be made to the partners. Withdrawals from the fund are
permitted for working capital and other operating needs.
A mortgage loan of $2,504,869 at December 31, 1995, is secured by the
Sharonville hotel and is payable in monthly installments of $23,502, including
interest at 10.0%. The interest rate and monthly installments are adjustable
at three-year intervals to 3.75% above the three-year U.S. Treasury Constant
Maturity rate, based on maturity in 2018. The interest rate is not to exceed
15% through maturity in 1998, or be less than 10%.
In 1994, the General Partner restructured the note payable to General
Partner, which had a balance of $3,038,045, and reduced the balance to
$2,377,361 resulting in an extraordinary gain from the restructuring of
$660,684. The restructured note is non-interest bearing and repayments are
dependent on future annual cash flows of the Partnership. The note matures in
2004 and requires annual principal payments equal to 50% of defined available
cash flow but not in excess of $237,736.
In the opinion of Partnership management, both hotel properties are
adequately insured.
Sharonville Office Building. In 1994, the Partnership demolished an
office building at a cost of $7,500, and the City of Sharonville added
additional parking on the former building site which is adjacent to the new
Sharonville Convention Center. The Partnership entered into a twenty-year
cost-sharing agreement with the City for the maintenance of this parking lot
which provides for annual payments to the Partnership of $2,400, increasing 4%
each year. The agreement allows the City to utilize the new parking area for
a period of twenty years. The Partnership has the right to terminate the
agreement at any time prior to the end of the twenty year period, with a
payment to the City of $6,000 for each of the remaining years of the contract.
-10-
<PAGE>
T. Reserves.
--------
Although the Partnership attempts to maintain adequate working capital
reserves, the Partnership's working capital reserves historically have been
inadequate. In the past, the General Partner periodically has advanced funds
to the Partnership. The General Partner may be unable or unwilling to make
future advances to the Partnership.
As a result of the Partnership's recurring losses from operations and
decreases in cash flows, the Partnership's audited financial statements
include Note 1 which states that failure to reach the anticipated increased
revenues could jeopardize the Partnership's ability to meet its obligations.
U. Employees.
---------
As of December 31, 1995, the Partnership employed approximately 50
employees, approximately ten (10) of whom were 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; and, (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
-12-
<PAGE>
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.)
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.
<TABLE>
<CAPTION>
General Limited General Limited
Partner % Partner % Partner % Partner %
Before Before After After Item
Reallocation Reallocation Reallocation Reallocation
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income, Gains, 25% 75% 50% 50% Losses,
Deduc-
tions and Credits
Cash Available 25% 75% 50% 50% for
Distribution
(From Operations)
Net Proceeds From 25% 75% 50% 50% Sales,
Financing
and Refinancing
of Properties
</TABLE>
-14-
<PAGE>
(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.
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
-15-
<PAGE>
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.
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:
-16-
<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.
-17-
<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.
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.
-18-
<PAGE>
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>
364 412
</TABLE>
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 - Sharonville (130
rooms) and Florence (125 rooms):
<TABLE>
<CAPTION>
Occupancy Average Daily Rate
--------- ------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Combined 61.4% 61.4% 58.4% $53.19 $51.21 $46.68
</TABLE>
Results of Operations
- - - ---------------------
1995 compared to 1994
-19-
<PAGE>
Room and other hotel revenues increased $90,276 or 3.0% over 1994, due
primarily to the increase in room revenues. The average occupancy of the two
hotels remained constant at 61.4% due to a demand in both of the hotel's
market areas. The average daily rate inceased $1.98, or 3.9% 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 $32.66,
or 3.9% over 1994. Interest income increased $5,634 over 1994 due to higher
yields on greater investable cash balances.
Hotel operations and payroll costs totaling $1,778,524 represented an increase
of $87,204 or 5.2% from 1994 due to the increase in maintenance costs and
general 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
$386,139, increased $11,801 or 3.2% from 1994.
Interest expense decreased $2,258 or .4% from 1994. This slight decrease is
due to the scheduled amortization reduction of the mortgage notes.
Depreciation and amortization of $304,398 represented a decrease of $70,595
compared to 1994. Depreciation expense decreased as certain depreciable
assets became fully depreciated during 1995 and 1994.
1994 compared to 1993
Room and other hotel revenues increased $281,468 or 10.3% over 1993, due
primarily to the increase in room revenues. The average occupancy increased
3.0 percentage points, or 5.1% due to some improvement in both of the hotel's
market areas. The average daily rate increased $4.53, or 9.7% due to
chain-wide policy rate changes. Revenue per available room (REVPAR) increased
to $31.44, or 15.3% over 1993. Interest income increased $7,236 over 1993 due
to higher yields on greater investable cash balances.
Hotel operations and payroll costs of $1,691,320 represented an increase of
$92,858 or 5.8% from 1993 due to the increase in the occupancy of the hotels
of 5.1% along with increased costs of operating the hotels associated with
inflation. Management and franchise fees, along with advertising and
reservation contributions, totaling $374,338, increased $35,521 or 10.5% from
1993.
Interest expense decreased $206,858 or 26.9% from 1993. The decrease is
attributable mainly to the restructuring of the general partner note effective
January 1, 1994. During 1993, no debt service payments were made on the note.
Effective January 1, 1994, the note was restructured to be non-interest
bearing, with annual principal payments equal to 50% of defined available cash
flow (but not in excess of $237,736) and a maturity in 2004. During 1993,
interest of $166,715 accrued on the note at the rate of prime plus 1%.
Depreciation and amortization of $374,993 represented a decrease of $48,747
compared to 1993. Depreciation expense decreased as certain depreciable
assets became fully depreciated during 1994 and 1993.
-20-
<PAGE>
Liquidity and Capital Resources
- - - -------------------------------
The offering of partnership units was completed during 1988. A total of
$3,640,000 was raised from limited partner capital contributions at $10,000
per unit and $404,445 was contributed by the general partner. During the year
ended December 31, 1995 and 1994, the Partnership's capital needs were met
primarily through operating cash flows. In addition, a $18,943 installment
loan secured by a vehicle was obtained in 1995. In the early years of the
Partnership, significant borrowings and cash advances were obtained from the
general partner.
At December 31, 1995, the Partnership had two variable rate mortgage loans
totaling approximately $5.3 million outstanding with maturities in 1998 and
2016. The $2,377,361 note payable due the general partner has a 2004
maturity. 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 $309,867 of cash and cash
equivalents, compared to $212,006 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 $87,841 compared to $90,524 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. The
mortgage securing the Florence property requires a debt service fund be
maintained of $225,000 prior to any partners distributions. No distributions
to partners have been made as the debt service fund level has not been
maintained due to the lack of operating cash flows.
Cash provided by operating activities from the two hotels was $430,753 in 1995
compared to $353,269 in 1994. This increase is due primarily to the increase
in the financial performance of the hotels for 1995.
During 1995, the Partnership used $203,263 in investing activities compared to
$126,007 in 1994. Additions to the furniture and equipment reserve fund were
$149,998 in 1995 (including an additional $25,000 contribution from operating
cash) compared to $118,875 in 1994. The remaining increase is due to capital
additions funded from operating cash flows in 1995.
Net cash used in financing activities was $129,629 in 1995 compared to
$120,290 in 1994. In 1995, the primary factors were proceeds of the new
mortgage loan, principal repayments of $89,507 and repayments of general
partner advances of $59,065.
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.
-21-
<PAGE>
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.
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
-22-
<PAGE>
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.
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
-23-
<PAGE>
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. The
General Partner owns 10 Units of limited partnership interest in the
Partnership. The General Partner'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.
-24-
<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 X LTD. LIMITED
PARTNERSHIP
By /s/
__________________________________________
John D. Bontreger, President,
Chairman of the Board and Chief
Executive Officer of Signature Inns, Inc.,
its General Partner
-25-
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
------- --------------------------------
<TABLE>
<CAPTION>
(a) EXHIBIT INDEX
-------------
Title of Exhibit Reference
- - - ---------------- ---------
<S> <C>
Plan of Acquisition,
Reorganization, etc. Not applicable
Partnership Agreement and Incorporated by reference to
Certificate S-1 Registration Statement
Instruments Defining Rights Incorporated by reference to
of Security Holders 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 X Ltd. Limited
Partnership Exhibit A
(b) No reports on Form 8-K were filed by the Registrant during the last
quarter of the period covered by this report.
-26-
</TABLE>
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1996 Commission File Number 33-14003
-------------- --------
SIGNATURE X LTD. LIMITED PARTNERSHIP
- - - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-1687036
- - - ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 East 96th Street, Suite 450, Indianapolis, Indiana 46240
- - - ------------------------------------------------------ -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (317) 581-1111
---------------
Check whether the Registrant (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
------------ ------------
<PAGE>
<TABLE>
SIGNATURE X LTD. LIMITED PARTNERSHIP
INDEX
<CAPTION>
Part I - FINANCIAL INFORMATION PAGE #
- - - ----------------------------- ------
<S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets 1
March 31, 1996 and December 31, 1995
Statements of Operations 2
Three months ended March 31, 1996 and 1995
Statement of Partners' Equity 3
Three months ended March 31, 1996
Statements of Cash Flows 4
Three months ended March 31, 1996 and 1995
Note to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II - OTHER INFORMATION 8
- - - ---------------------------
SIGNATURES 9
</TABLE>
<PAGE>
<TABLE>
SIGNATURE X LTD. LIMITED PARTNERSHIP
Balance Sheets
(Unaudited)
<CAPTION>
March 31, December 31,
1996 1995
ASSETS ---------- ------------
<S> <C> <C>
Current assets:
Cash and short-term cash investments $ 363,693 308,404
Investments held by trustee 1,537 1,463
---------- ----------
Cash and cash equivalents 365,230 309,867
Accounts receivable 56,806 47,290
Other current assets 79,786 74,028
---------- ----------
Total current assets 501,822 431,185
---------- ----------
Property and equipment:
Land 1,693,614 1,693,614
Land improvements 384,346 384,347
Buildings 6,846,695 6,846,694
Furniture and equipment 1,904,283 1,875,612
---------- ----------
10,828,938 10,800,267
Less accumulated depreciation 3,122,706 3,050,739
---------- ----------
Net property and equipment 7,706,232 7,749,528
Furniture and equipment reserves 86,037 87,841
Deferred costs, net of accumulated
amortization of $300,816 and $296,889 118,760 122,687
---------- ----------
$ 8,412,851 8,391,241
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of long-term debt 100,322 104,573
Accounts payable 42,857 25,090
Accrued payroll and related taxes 24,194 34,290
State and local taxes 68,805 57,582
Accrued interest 89,019 22,454
---------- ----------
Total current liabilities 325,197 243,989
Long-term debt, less current portion 5,187,723 5,197,742
Note payable to general partner 2,377,361 2,377,361
Advances from general partner 200,000 200,000
---------- ----------
Total liabilities 8,090,281 8,019,092
Partners' equity 322,570 372,149
---------- ----------
$ 8,412,851 8,391,241
========== ==========
</TABLE>
<PAGE>
<TABLE>
SIGNATURE X LTD. LIMITED PARTNERSHIP
Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenue:
Room revenue $ 694,211 577,029
Other hotel revenue 26,912 30,380
Interest 2,658 1,653
----------- -----------
723,781 609,062
Cost and expenses:
Hotel operations 262,577 233,406
Salaries and benefits 204,721 180,232
Management and franchise fees 64,815 54,198
Advertising and reservations 25,206 21,077
Interest 135,878 139,249
Depreciation and amortization 80,163 73,819
----------- -----------
773,360 701,981
----------- -----------
Net loss (49,579) (92,919)
General partner's interest (7,437) (13,938)
----------- -----------
Limited partner's interest $ (42,142) (78,981)
=========== ===========
Number of limited partner 364 364
units outstanding =========== ===========
Limited partners' interest per unit $ (116) (217)
=========== ===========
</TABLE>
<PAGE>
<TABLE>
SIGNATURE X LTD. LIMITED PARTNERSHIP
Statement of Partners' Equity
Three months ended March 31, 1996
(Unaudited)
<CAPTION>
General Limited
Partner Partners Total
---------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1995 $ 55,439 316,710 372,149
Net loss (7,437) (42,142) (49,579)
---------- ---------- ----------
Balance at March 31, 1996 $ 48,002 274,568 322,570
========== ========== ==========
Accumulated balances:
Capital contributions 404,445 3,640,000 4,044,445
Offering expenses - (455,000) (455,000)
Net loss (356,443) (2,910,432) (3,266,875)
---------- ---------- ----------
Balance at March 31, 1996 $ 48,002 274,568 322,570
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
SIGNATURE X LTD. LIMITED PARTNERSHIP
Statements of Cash Flows
Three months ended March 31, 1996 and 1995
(Unaudited)
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (49,579) (92,919)
Items which do not use (provide) cash:
Depreciation of property and equipment 76,236 69,892
Amortization of deferred costs 3,927 3,927
Accrued revenue and other expenses, net 70,185 -
Gain on disposal of property and equipment (134) 98,807
---------- ----------
Net cash provided by operating activities 100,635 79,707
---------- ----------
Cash flows from investing activities:
Additions to furniture and equipment
reserves, net (24,381) -
Proceeds from disposal of property and equipment 134 -
Other additions to property and equipment (6,755) (54,966)
---------- ----------
Net cash used in investing activities (31,002) (54,966)
---------- ----------
Cash flows from financing activities:
Payments on long-term debt (14,270) (12,616)
Advance from general partner - 20,000
---------- ----------
Net cash provided by financing
activities (14,270) 7,384
---------- ----------
Change in cash and cash equivalents 55,363 32,125
---------- ----------
Cash and cash equivalents at beginning
of period 309,867 212,006
---------- ----------
Cash and cash equivalents at end of period $ 365,230 244,131
========== ==========
Additional disclosures:
Interest paid $ 135,669 139,062
========== ==========
Additions to property and equipment
from furniture and equipment reserves $ 26,185 51,626
========== ==========
</TABLE>
<PAGE>
SIGNATURE X LTD. LIMITED PARTNERSHIP
NOTE TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, the financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the interim
period are not necessarily indicative of the results that may be expected for
the year ended December 31, 1996. For further information, refer to the
financial statements included in the Partnership's annual report on Form
10-KSB
for the year ended December 31, 1995.
<PAGE>
<TABLE>
SIGNATURE X LTD. LIMITED PARTNERSHIP
------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
- - - ---------------------
Certain operating and financial data for the quarter ended March 31, 1996 and
1995 is as follows:
<CAPTION>
Occupancy Average Daily Rate
---------------------- ----------------------
YTD YTD YTD YTD
Hotel 3/31/96 3/31/95 3/31/96 3/31/95
- - - ----- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Florence 63.5% 59.0% $50.17 $48.83
Chester Road 52.2% 40.8% $55.22 $53.48
</TABLE>
<TABLE>
<CAPTION>
QTD QTD
3/31/96 3/31/95 Change
-------- ------- -------
<S> <C> <C> <C>
Room & Other Hotel Revenues $721,123 $607,409 $113,714
Interest Income $2,658 $1,653 $1,005
Operating & Related Expenses $557,319 $488,913 $68,406
Interest Expense $135,878 $139,249 $(3,371)
Depreciation & Amortization $80,163 $73,819 $6,344
Net Loss $49,579 $92,919 $(43,340)
</TABLE>
Room and other hotel revenues of the two hotels increased for the three month
period ended March 31, 1996 compared to the same period in 1995 due to
increases in occupancy and average room rates.
Operating and related expenses of the hotels consist of the following costs
and expenses - hotel operations, salaries and benefits, management and
franchise fees and advertising and reservation contributions:
<PAGE>
Hotel operations and salaries and benefits represent all of the
operational and administrative costs of operating the hotels, including all
payroll, supply, utilities, maintenance and miscellaneous expenses. These
expenses increased primarily due to the increase in the number of rooms sold
during the first three months of 1996 compared to 1995.
Management and franchise fees increased due to the increase in room and
other hotel revenue for the same periods. These fees represent amounts paid
to Signature Inns, Inc., the general partner of the Partnership, for property
management, accounting services and franchise fees.
The Partnership contributes to a cooperative advertising and reservation
fund administered by the general partner. Contributions increased due to the
increase in room and other hotel revenue for the period.
Interest expense represents interest on hotel mortgage loans, general partner
advances and capitalized equipment lease obligations. During 1995, interest
expense decreased due to the scheduled amortization reduction of the notes.
LIQUIDITY AND CAPITAL RESOURCES
- - - -------------------------------
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.
<PAGE>
PART II - OTHER INFORMATION
- - - ---------------------------
Item 1. Legal Proceedings
See note below
Item 2. Changes in Securities
See note below
Item 3. Default upon Senior Securities
See note below
Item 4. Submission of matters to a Vote of Security Holders
See note below
Item 5. Other Information
See note below
Item 6. Exhibits and Reports on Form 8-K
See note below
NOTE: The response to each of the above items is not applicable or is
in the negative and does not require a response pursuant to the instructions.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNATURE INNS, INC., General Partner
of Signature VII Ltd. Limited
Partnership
Date May 14, 1996 By
------------ ---------------------------------------
John D. Bontreger, President and C.E.O.
Signature Inns, Inc.
Date May 14, 1996 By
------------ ---------------------------------------
Mark D. Carney, Vice President Finance
and C.F.O.
Signature Inns, Inc.
Date May 14, 1996 By
------------ ---------------------------------------
Martin D. Brew, Treasurer/Controller
Signature Inns, Inc.
<PAGE>
SUMMARY REPORT
OF A COMPLETE APPRAISAL
of the
Signature Inn - Florence
30 Cavalier Court
Florence, Kentucky
as of
February 28, 1996
FOR
Mr. Mark Carney
Vice President
Signature Inn X Limited
One Parkwood Crossing
250 East 96th Street
Suite 450
Indianapolis, Indiana 46240
<PAGE>
March 11, 1996
Mr. Mark Carney
Vice President
Signature Inn X Limited
One Parkwood Crossing
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
RE: Signature Inn - Turfway
Florence, KY
Dear Mr. Carney:
In accordance with the engagement letter dated February 16, 1996, we have
appraised the property referenced above. The purpose of this appraisal is to
estimate the market value of the going concern of the fee simple estate in the
subject, including the furniture, fixtures, and equipment component. The
effective date of the value estimate is February 28, 1996, and the appraisal
is based upon market conditions as observed on this same date.
Subject to all conditions and explanations contained in this report, it is our
opinion that the market value of the fee simple interest of the going concern
in the subject (including the contributory value of the existing furniture,
fixtures, and equipment), as of February 28, 1996, is:
THREE MILLION EIGHT HUNDRED THOUSAND DOLLARS
$3,800,000
Your attention is called to the Standard and Special Conditions and
Certification which follow. This complete appraisal is communicated in a
short, summary report format. A more descriptive summary report will follow.
This appraisal process and reporting format conforms to the guidelines
stipulated by the Appraisal Institute and the Uniform Standards of
Professional Appraisal Practice.
Respectfully submitted,
U S REALTY CONSULTANTS, INC.
_______________________________ _________________________________
James A. Powers, MAI, CRE Robert J. Feeley, MAI
President Vice President
Indiana General Appraiser No. CG69201473
_______________________________
Jeffrey H. Walker, CHSE
Director of Hospitality Development
<PAGE>
PROPERTY IDENTIFICATION
The subject consists of a 125-unit, limited-service Signature Inn hotel. The
property is located at 30 Cavalier Court, Florence, Boone County, Kentucky. A
legal description has been provided and is maintained in our
files.
PURPOSE AND FUNCTION OF THE APPRAISAL
The purpose of the appraisal is to estimate the as is market value of the
going concern of the fee simple estate in the subject, including furniture,
fixtures and equipment (FF&E), subject to the Uniform Standards of
Professional Appraisal Practice (USPAP), and Title XI (and amendments) of the
Financial Institution Reform Recovery and Enforcement Act of 1989 and 1994
(FIRREA). This report is to be used as an information tool to assist the
limited partners regarding the possible acquisition of the property by the
general partner.
LEGAL INTEREST APPRAISED
The legal interest appraised herein is the fee simple estate in the land and
improvements.
EFFECTIVE DATE OF VALUATION
The appraisal is based upon market conditions as of February 28, 1996, the
current date of our market research and property inspection.
DEFINITION OF VALUE
Market value is defined in the Uniform Standards of Professional Practice,
1995 Edition as follows:
"The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer and
seller each acting prudently and knowledgeably, and assuming the price is not
affected by undue stimulus. Implicit in this definition is the consummation
of a sale as of a specified date and the passing of title from seller to buyer
under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what
they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in United States dollars or in
terms of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales concessions granted
by anyone associated with the sale."
The definition of going-concern value is as follows:
The value created by a proven property operation; considered as a
separate entity to be valued with a specific business establishment.
<PAGE>
EXPOSURE TIME AND MARKETING PERIOD
Based upon our investigations, we believe that a marketing and exposure period
of less than 12 months is reasonably appropriate.
APPRAISAL DEVELOPMENT AND REPORTING PROCESS
The scope of this appraisal involves the systematic research and analysis
necessary to reach a value conclusion for the hotel. The initial step was to
inspect the subject, general market area, and neighborhood. Market research
included the assembly of data from public records, real estate specialists,
governmental entities, real estate publications, as well as owners/investors,
management and hotel managers at similar and comparable properties.
Information from the market area was collected and studied in order to define
the character, composition and the propensity for change in the subject trade
area. This information was analyzed to determine the influences which will
impact the surrounding market area and the value of the subject property.
After analyzing the macro-environment, research was conducted relevant to the
valuation process, including gathering income, expense, capitalization rate,
and discount rate data; comparable improved sales; real estate tax, zoning,
and flood plain data and any other information pertinent to the valuation of
the subject property. This information was reviewed, confirmed when
necessary, and analyzed through the approaches to value.
The competitive hotel market was analyzed. Management of most of the
competitive hotel properties were interviewed. Improved sale comparables were
all analyzed, and where possible were confirmed with either the buyer, the
seller or a knowledgeable third party.
Applicability of Approaches: The Income Capitalization Approach was deemed
the most applicable method to estimate market value for the subject. The
Sales Comparison Approach was utilized to provide an additional point of
reference. The Cost Approach has not been completed. Due to the age of the
subject, significant depreciation exists, which is difficult and subjective to
quantify. In addition, the Cost Approach does not reflect the reasoning or
approach taken by an investor for a property of this age and type.
HISTORY OF THE SUBJECT
According to public records, the subject is owned by Signature X Limited.
According to management, the property was constructed by the current owners in
1987. There have been no recorded transfers of the subject since opening.
Additionally, there are no current agreements for sale, options, or listings
of the subject as of the date of the appraisal.
COMPETENCY OF THE APPRAISERS
U S Realty Consultants, Inc. has performed numerous appraisals and reviews of
appraisals on income producing properties such as the subject. Competency has
been established in both the property type and geographical area of the
subject either through previous engagements or through current research of
germane market trends.
<PAGE>
REGIONAL ANALYSIS
Projections indicate that growth in Cincinnati population, household income,
and retail sales should continue. All of these factors and the solid economic
outlook for the area bode well for the prospects of long-term economic growth.
NEIGHBORHOOD ANALYSIS
The subject's surrounding land uses are generally complimentary to the
subject's use. The highly developed commercial office and retail market, as
well as the proximity to the highway, provide a strong level of infrastructure
to support the hotel.
SITE AND IMPROVEMENT ANALYSIS
The hotel site contains approximately 3.738 acres and is irregular in shape.
The site is near street grade level with Cavalier Court and has execellent
visibility to I-75 and easy access. The subject is located in a O2 (office)
and PD (planned development) district within Florence. The subject is
considered to be a legally conforming land use. According to flood map
community panel #2100-130-00 B, the site is located in Zone C, an area of
minimal flooding. The subject contains 125 guest rooms which are considered
to be in average condition.
COMPETITIVE LODGING MARKET ANALYSIS
Existing Competitive Supply: Based on our research, we have identified a
current competitive hotel supply with a total of 2,180 guest rooms in fourteen
lodging facilities (including the subject). The properties are considered
competitive due primarily to their location near the Turfway exit off I-75.
Historical Lodging Demand: Based on information compiled by Smith Travel
Research, and supported by our own interviews with management of the
competitive properties, we have estimated historical market occupancy levels
and average daily rates.
<TABLE>
<CAPTION>
Table 1
Historical Market Occupancy and ADR
______________________________________________________________________________
<S> <C> <C> <C>
Year 1993 1994 1995
Estimated Market Occupancy 70% 63% 64%
Estimated Market ADR $57.50 $53.00 $55.00
</TABLE>
Source: Smith Travel Research and local market interviews. Figures rounded
to nearest occupancy point and $.50. Some variances in hotels reporting to
STR may occur.
<PAGE>
COMPETITIVE POSITION OF SUBJECT PROPERTY
We have assessed the projected competitive position of the subject property as
it compares to the defined competitive lodging supply. Table 2 presents the
historical occupancy and ADR for the subject.
<TABLE>
<CAPTION>
Table 2
Historical Subject Occupancy and ADR
______________________________________________________________________________
<S> <C> <C> <C>
Year 1993 1994 1995
Subject Occupancy 63.5% 66.2% 67.3%
Subject ADR $46.63 $48.88 $51.63
Source: Signature Inns
Estimated Occupancy and Average Daily Rate: Based upon the condition of the
property, discussion with the property and competitive general managers, and
historical and projected occupancy and ADR market trends, we project the
subject will achieve a stabilized occupancy of 68% at an ADR of $53.00. The
occupancy reflects an increase in rooms occupied, based upon the historical
trand, and growing retail market and the existing room supply.
HIGHEST AND BEST USE
There is no alternative, economically feasible use that could justify removal
of the existing improvements at this time. Therefore, the highest and best
use of the subject, as improved, is the continued use as a limited service
hotel. The highest and best use, as vacant, is for development of an economy
limited-service hotel.
INCOME CAPITALIZATION APPROACH
Historical financial statements for years 1993 through 1995 were provided by
Signature Inns. During the period, the subject's overall financial
performance has improved. The income before reserves increased from $414,434
in 1993 to $485,805 in 1995. Top line revenue increased from $1,350,812 in
1993 to $1,585,279 in 1995. Departmental expenses demonstrated an increase as
a percentage of total revenue between 1993 and 1995 from 26.8% to 27.9%, while
undistributed expenses showed a decrease from 39.1% to 38.2%.
We have compared the operating performance of the subject to a 17-property
portfolio of Signature Inns, as well as industry standards from the Host
Report 1994, published by Arthur Anderson and Smith Travel Research, and
Trends Report 1994, published by PKF Consulting. We have utilized the
standards for mid-priced, limited-service properties.
Stabilized Operating Statement: A projected stabilized operating statement in
1996 dollars is presented on the following page. The estimated cash flow was
used to estimate the subject property's market value by direct capitalization.
Valuation Analysis: In developing a capitalization rate for income-producing
real estate, factors such as the quality and durability of the estimated
income stream were analyzed. We have analyzed current yields and
capitalization rates as tracked by the Korpacz Investor Survey, a widely
utilized barometer of investment parameters, as well as USRC's internal
investment survey. The Korpacz survey indicated a capitalization rate for
limited-service hotels in the range of 8% to 18% with an average of 12.53%.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
STABILIZED OPERATING STATEMENT
SIGNATURE INN - TURFWAY
1996 DOLLARS
<S> <C> <C> <C> <C>
OCCUPANCY/ADR 68% at $53.00
PER OCC.
AMOUNT RATIO AMT\RM ROOM
REVENUES:
ROOMS $1,644,000 95.2% $13,152 $52.99
TELEPHONE 40,333 2.3% 323 1.30
RENTALS & OTHER INCOME 42,000 2.4% 336 1.35
_________ ______ _______ ______
TOTAL REVENUE $1,726,333 100.0% $13,811 $55.64
DEPARTMENTAL EXPENSES: (1)
ROOMS $435,660 26.5% $3,485 $14.04
TELEPHONE 34,283 85.0% 274 1.11
_______ _____ _____ _____
TOTAL DEPARTMENTAL EXPENSES $469,943 27.2% $3,760 $15.15
TOTAL OPERATED INCOME $1,256,000 72.8% $10,048 $40.50
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL $218,750 12.7% $1,750 $7.05
MANAGEMENT FEE 69,053 4.0% 552 2.23
MARKETING 81,250 4.7% 650 2.62
FRANCHISE FEES 65,760 3.8% 526 2.12
PROPERTY OPERATION & MAINT. 118,750 6.9% 950 3.83
ENERGY 87,500 5.1% 700 2.82
_______ _____ _____ ____
TOTAL $641,063 37.1% $5,129 $20.66
INCOME BEFORE FIXED CHARGES $615,000 35.6% $4,919 $19.83
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES $40,000 2.3% $320 $1.29
BUILDING & CONTENTS INSURANCE 40,625 2.4% 325 1.31
TOTAL FIXED CHARGES $80,625 4.7% $645 $2.60
INCOME BEFORE RESERVE $534,000 30.9% $4,274 $17.23
RESERVE FOR REPLACEMENT $69,053 4.0% $552 $2.23
_______ ____ ______ _____
INCOME BEFORE OTHER DEDUCTIONS
(2) $465,000 26.9% $3,720 $15.01
</TABLE>
NOTES:
(1) Each departmental expense ratio is based on the department's
estimated revenue and does not add to the total departmental expense ratio.
(2) Income before other fixed charges such as interest, amortization,
depreciation, and income taxes.
Note: This statement is based upon a room inventory of: 125
<PAGE>
THIS STATEMENT SHOULD BE READ SUBJECT TO THE COMMENTS CONTAINED IN
THE ATTACHED REPORT
Based on the aforementioned analysis, we have estimated that a direct
capitalization rate of 12.25% is appropriate to convert the stabilized net
operating income into an indication of market value. The result of this
procedure, using the market-driven capitalization rate of 12.25% is presented
in the following calculation.
$465,000 net operating income / 12.25% capitalization rate = $3,795,918
or
$3,800,000 (rounded)
Based on the above analyses, we estimate that the market value of the fee
simple estate of the going concern of the subject property via the Income
Capitalization Approach (including the contributory value of the FF&E) as of
February 28, 1996 is:
Three Million Eight Hundred Thousand Dollars
$3,800,000
SALES COMPARISON APPROACH
Two techniques were utilized in this valuation approach. First, a Linear
Regression Analysis is presented to demonstrate that sale price is a function
of income. Next, an Effective Rooms Revenue Multiplier is developed, which
adjusts the sale prices of the comparables based on differences in rooms
revenue. A total of 63 hotel sales were utilized as comparable data. Based
upon a regression analysis of the data, regression formulas were developed.
Linear Regression Analysis: Based on this information, REVPAR is a
significant variable driving the value of hotels. Although differences in
physical characteristics exist, they only affect value to the extent that they
affect room rates and revenue. The regression formula for the subject
indicated a value of $4,700,000.
Net income per room is also a significant variable driving the value of
hotels. Although differences in physical characteristics exist, they only
affect value to the extent that they affect room rates, revenue, and expenses.
The regression formula for the subject indicated a value of $3,800,000.
Effective Rooms Revenue: The ERRM is a factor derived by dividing the sales
price of the comparable sale by the rooms revenue (number of guest rooms
available annually multiplied by the average daily room rate times the
occupancy factor). As with the above approach, room revenue projections for
the first stabilized year were utilized to reflect the buyer's anticipation of
rooms revenues at the time of purchase.
The mean of the comparable sales' ERRM is 2.68 while the they ranged between
1.10 and 4.15. To supplement this information, we have turned to USRC's
internal study that was performed in the Spring of 1995. This survey
indicated ERRMs ranging from 1 to 5, with an average of 2.7. The average of
this survey generally supports the average of the reported sales.
<PAGE>
The ERRM was applied to the rooms revenue estimate from the first stabilized
year of our analysis. Based on the foregoing analysis, and in consideration
of the historical and projected performance of the subject, we have estimated
an ERRM of 2.5 to be most appropriate for the subject. Applying this range to
the effective room revenue estimate during the first stabilized year yields
the following:
$1,644,000 rooms revenue X 2.5 ERRM = $4,110,000
Rounded to $4,100,000
Correlation of Sales Comparison Approach: An analysis of the correlation
coefficient (R squared, or a measure of reliability), indicated the greatest
correlation (.874) for the net income per room analysis. Accordingly, we have
relied most heavily on this analysis, with the ERRM as an additional point of
reference. It is our opinion that the market value of the going concern of
the fee simple estate, as indicated by the Sales Comparison Approach, in the
subject (including the contributory value of the furniture, fixtures, and
equipment), as of February 28, 1996, is:
Three Million Eight Hundred Thousand Dollars
$3,800,000
RECONCILIATION
Two of the traditional approaches to value -- Income Capitalization Approach
and the Sales Comparison Approach -- were used to estimate the market value of
the subject property. These two approaches represent alternative ways of
viewing market phenomena.
We have relied most heavily on the value estimate produced by the Income
Capitalization Approach. The Sales Comparison Approach provides additional
support for the conclusion. Subject to all conditions and explanations
contained in this report, it is our opinion that the market value of the fee
simple interest of the going concern in the 130-room subject (including the
contributory value of the existing furniture, fixtures, and equipment),
expressed in terms of financial arrangements equivalent to cash, as of
February 28, 1996, is:
THREE MILLION EIGHT HUNDRED THOUSAND DOLLARS
$3,800,000
The contributory value of the FF&E, based upon this analysis, included in the
estimated value of the property, is $437,500, or rounded to $440,000.
<PAGE>
CERTIFICATOIN
We certify to the best of our knowledge and belief
* The statements of fact contained in this report are true and correct.
* The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal, unbiased
professional analyses, opinions, and conclusions.
* We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with respect
to the parties involved.
* This appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
* Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount of
the value estimate, the attainment of a stipulated result, or the occurrence
of a subsequent event.
* Our analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice.
* We certify that, to the best of our knowledge and belief, the reported
analyses, opinions and conclusions were developed, and this report has been
prepared in conformity with the requirements of the Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the Appraisal
Institute.
* We certify that the use of this report is subject to the requirements of
the Appraisal Institute relating to review by its duly authorized
representatives.
* As of the date of this report, James A. Powers, MAI, and Robert J.
Feeley, MAI have completed the requirements of the continuing education
program of the Appraisal Institute
* Travis D. Ray has made a personal inspection of the property that is the
subject of this report. James A. Powers, Robert J. Feeley and Jeffrey H.
Walker have not inspected the property.
* No one other than the undersigned provided significant professional
assistance to the person(s) signing this report.
_________________________________ __________________________________
James A. Powers, MAI, CRE Robert J. Feeley, MAI
Kentucky General Appraiser #000935
_________________________________ __________________________________
Jeffrey H. Walker, CHSE Travis D. Ray
<PAGE>
COMPANY PROFILE
_____________________________________________________________________________
U S Realty Consultants, Inc. (Usrc) was originally formed in January of 1983
as a Columbus-based firm specializing in commercial real estate appraisal and
market analysis. With regional offices located in Atlanta, Georgia and
Chicago, Illinois, Usrc has now grown to be one of the premier real estate
appraisal and consulting practices in the United States.
As we continue our phenomenal growth, our professionals continue to be
involved in literally hundreds of assignments annually, involving millions of
dollars of real estate. Our practice now includes three major areas of
services to the real estate industry: Hospitality and Resort Industry
Services, Golf and Country Club Services, and Real Estate Appraisal Services.
* Hospitality and Resort Industry Services - Evolving from a diversified
background of hospitality and resort market analysts, appraisers, and
operational specialists, Usrc has established a hospitality and resort
consulting practice second to none. Our professionally-trained hoteliers,
resort, and golf course specialists, all having achieved outstanding academic
credentials, have over forty combined years of industry experience. However,
our constant involvement in the consulting and appraising of hotels, motels,
restaurants, resorts, and golf courses have enabled us to be current with, as
well as adaptive to, the ever-changing dynamics of the industry. As a result,
our professionals combine current and in-depth industry experience with strong
analytical and communication skills to yield practical and effective results
tailored to the specific engagement, thus providing our clients the best in
hospitality and resort consulting services.
* Real Estate Appraisal Services - Usrc is unique in that it was part of a
movement to pioneer the development of a national real estate appraisal
practice. We specialize in the valuation of real estate portfolios, which are
disbursed both geographically and by property type. Our valuation expertise
is in commercial real estate with emphasis on office, industrial, retail,
mixed-use, hotel, resort, golf course, other special-use, and multifamily
projects. These characteristics qualify us as one of the leading appraisal
organizations in the nation.
* Golf and Country Club Services - Usrc has recently developed a
burgeoning practice devoted to golf-related and recreational facilities. The
services offered under this practice include valuation and consultation for
private country clubs, daily-fee golf courses, surrounding residential
development, and resort destinations.
The rapid expansion of Usrc's experience and capabilities closely parallels
the growth and ever-changing requirements of the clients we serve. The Firm's
emphasis on programs of professional learning ensure that industry
requirements are being met by our people. Clients become the beneficiaries of
this continually expanding knowledge. Many Usrc individuals also serve on
senior committees of national and state professional societies and
associations, enabling them to stay current with developing trends in the
profession and to participate in framing new rules and standards.
Usrc's clients benefit from the advantage of working with a local firm, yet
have access to the experience and much of the resources of a national firm.
With 20 professional staff members -five holding the coveted designation,
Member of the Appraisal Institute (MAI) -and five specifically trained in the
analysis of hotels, restaurants, resorts, and golf courses - and growing, we
are determined to provide the "quality client service" that our customers
expect.
<PAGE>
U S Realty Consultants, Inc., with over 55 combined years of real estate
valuation experience, serves many of the nation's most prominent pension
funds, investment managers and advisors, life insurance companies, financial
institutions, and governmental agencies providing quality appraisal and
litigation support services in relation to their real estate needs.
Some of the more significant marketplaces in which Usrc holds experience and
important local market knowledge include:
<TABLE>
<S> <C> <C>
Albuquerque Fort Worth Portland, OR
Aspen Houston Providence
Atlanta Indianapolis Raleigh
Austin Kansas City Sacramento
Birmingham Los Angeles San Diego
Boston Louisville San Francisco
Charlotte Minneapolis San Jose
Chicago Milwaukee Seattle
Cincinnati Nashville St. Louis
Cleveland New Orleans Tampa
Colorado Springs Oakland Toledo
Columbus Orlando Toronto, Ontario
Dallas Philadelphia Washington, D.C.
Dayton Phoenix West Palm Beach
Denver Pittsburgh Wilmington
Des Moines Portland, ME Caribbean
Detroit
</TABLE>
<PAGE>
SELECT LIST OF
INSTITUTIONAL REAL ESTATE
APPRAISAL CLIENTS
_____________________________________________________________________________
Governmental Agencies
_____________________
Resolution Trust Corporation
Department of Justice
Federal Deposit Insurance Corporation
Pension Funds
_____________
California Public Employees' Retirement System
Police and Fireman's Disability and
Pension Fund of Ohio
Public Employees' Retirement
Association of Colorado
School Employees Retirement System of Ohio
State Teachers' Retirement System of Ohio
V.I.B. (Dutch Pension Fund)
Investment Managers/Advisors
____________________________
Alex. Brown Kleinwort Benson Realty Advisors
AMB Institutional Realty Advisors
Balcor Management Services
Financial Security Assurance, Inc.
Greystone Realty Advisors
Goldman, Sachs and Company
Holiday Corporation
Jacques and Kurdziel (represent Dutch Pension Fund)
J.P. Morgan Investment Management, Inc.
Karsten Realty Advisors
LandG Realty Advisors
Meyer Asset Management, Inc.
MIG Realty Advisors, Inc.
Paine Webber
Schroder Real Estate Associates
SBC Asset Management, Inc.
WF Advisors, Inc.
The Yarmouth Group, Inc.
Law Firms
_________
Baker and Hostetler
Benesch, Friedlander, Coplan and Aronoff
Bricker and Eckler
Climaco, Climaco, Seminatore,
Lefkowitz and Garofoli Co.
Connelly, Soutar and Jackson
Frost and Jacobs
Holt, Ney, Zatcoff and Wasserman
Isaac, Brant, Ledman and Becker
McNamee, Hosea, Jernigan and Scott
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C.
Rendigs, Fry, Kiely and Dennis
Smith and Hale
Squire, Sanders and Dempsey
Teaford, Rich, Coffman and Wheeler
Testa, Hurwitz and Thibeault
Wesp and Osterkamp
<PAGE>
Financial Institutions
______________________
Bank of America
Bank of Boston
Bank of Nova Scotia
Bank One Trust
Bank Texas
Chemical Bank
Citicorp Real Estate
Continental Bank
Diamond Savings and Loan Association
Fifth Third Bank
First Interstate Bank
First National Bank of Chicago
First Republic Bank of Dallas
First Wisconsin National Bank
Fleet National Bank
Gill Savings Association
Great Atlantic Savings Bank
Huntington National Bank
INB Mortgage Corporation
Michigan National Bank
Mitsubishi Bank
National City Bank
NationsBank
Savings of America
Security Pacific
Star Bank
Wachovia Bank and Trust Company
Wells Fargo Real Estate Group
Life Insurance Companies
________________________
Lincoln National Life
Metropolitan Life Insurance
Minnesota Mutual Life Insurance Company
Mutual Benefits Life
New York Life Insurance Company
The Principal Financial Group
Travelers Realty Investment Company
<PAGE>
PROFESSIONAL
STAFF
QUALIFICATIONS
______________________________________________________________________________
JAMES A.POWERS, MAI, CRE
PRESIDENT
James Powers is the founder and President of U S Realty Consultants, Inc.,
overseeing the company from its inception in 1983. Mr. Powers in now actively
involved in the valuation of all income-producing property types, including
multi-property portfolio appraisal. In addition, he is called upon to provide
expert witness testimony in courts throughout the country. Mr. Powers is a
specialist in the securitization of real estate through Real Estate Investment
Trusts.
Mr. Powers received his MAI designation from the Appraisal Institute in 1974,
and is a Certified General Appraiser in the State of Ohio.
Education
_________
Bachelor of Science (Major: Engineering), United States
Military Academy, West Point, New York, 1960
Instructor, Lecturer, Real Estate Appraisal
and Investment Topic
Chairman, Education Committee, Columbus Board of
Realtors, 1971 - 1972
Professional Affiliations
_________________________
Member, Counselors of Real Estate
Appraisal Institute
Director, Ohio Chapter 1988
Society of Real Estate Appraisers:
Past President, Columbus Chapter 1978 - 1979
American Society of Appraisers:
Past President, Columbus Chapter 1974 - 1975
National Association Review Appraisers
National Association of Real Estate Boards
Ohio Association of Real Estate Boards
Columbus Board of Realtors
Real Estate Securities and Syndications Institute
National Association Corporate Real Estate Executives
Past Chairman, St. Ann's Hospital Board of Trustees,
during the Concept and Implementation Phase of the
Hospital's relocation and redevelopment.
<PAGE>
ROBERT J. FEELEY, MAI
VICE PRESIDENT
Robert J. Feeley, MAI is Vice President of U S Realty Consultants, Inc.. He
joined the firm in January, 1984 shortly after the firm's inception in 1983.
Mr. Feeley's experience includes appraisal and portfolio analysis of
investment-grade real estate, valuation of participating debt instruments,
appraisal services for asset valuation and loan underwriting of FSLIC- and
FDIC-insured institutions, and third-party appraisal reviews.
Mr. Feeley has extensive experience in the appraisal of both CBD and suburban
office buildings, apartments, office/warehouse, hotel, retail centers ranging
from neighborhood centers to regional malls, marinas and mixed-use properties.
He has been a member of the Appraisal Institute since 1993.
Education
_________
Bachelor of Science, The Ohio State University, 1979
Master of Business Administration with emphasis in real estate, The Ohio State
University, 1983
Various Seminars and Programs sponsored by:
The Appraisal Institute
The Society of Real Estate Appraisers
Delegate to the 1988 and 1989 Young Advisory Council of the Society of Real
Estate Appraisers
Professional Affiliations
_________________________
Appraisal Institute
State Certification
___________________
Mr. Feeley holds certification as a General Real Estate Appraiser in the
following states:
State of Indiana, July 1992
State of Kentucky, June 1993
State of Ohio, July 1991
<PAGE>
JEFFREY H. WALKER, CHSE
DIRECTOR
HOSPITALITY
DEVELOPMENT
Jeffrey Walker joined the firm in 1992, serving as Director of Hospitality
Development. Mr. Walker's previous experience includes various hotel and
restaurant positions. Most recently he served as Director of Sales and
Marketing with Hyatt Hotels Corporation, where he received the "Hyatt Director
of Sales of the Year" award in 1991.
Mr. Walker is now involved in consulting work for lenders, owners, developers
and operators. His areas of specialization include hotel marketing
consulting, operational review, market study and analysis, yield management,
and advertising and public relations support for hotels.
Education
_________
Bachelor of Science, James Madison University, 1985
Completed credit requirements for the following AI courses:
1A1 Real Estate Appraisal Principles
Various Seminars and Programs sponsored by:
The Appraisal Institute
The Ohio Hotel and Motel Association
The Ohio Restaurant Association
Professional Affiliations
_________________________
Ohio Hotel and Motel Association, Allied Board of
Directors
Columbus Hotel and Motel Association, member
Hotel Sales and Marketing Association, International,
member
Greater Washington (D.C.) Society of Association
Executives, 1988-92
<PAGE>
TRAVIS RAY, ASSOCIATE
Travis Ray currently serves as an associate with the firm. He joined USRC in
the Summer of 1994 after receiving his Bachelor of Science degree from the
School of Hotel Administration at Cornell University. His concentration was
in Real Estate and Development. Although Mr. Ray's emphasis is in hospitality
related properties, he has been actively involved in the valuation and
evaluation of other income-producing property types. Among the other property
types he has been involved with include regional malls, nursing homes,
offices, and apartments.
Education
________
Bachelor of Science (Major: Hotel Administration), Cornell University, 1994
PROFESSIONAL AFFILIATIONS
_________________________
Columbus Hotel/Motel Association
Cornell Society of Hotelmen
<PAGE>
STANDARD CONDITIONS
The following Standard Conditions apply to real estate appraisals by U S
Realty Consultants, Inc. Appraisals are performed and written reports are
prepared by, or under the supervision of members of the Appraisal Institute in
accordance with the Institute's Standards of Professional Practice and Code of
Professional Ethics.
No opinion is rendered as to property title, which is assumed to be good and
marketable. Unless otherwise stated, no consideration is given to liens or
encumbrances against the property. Sketches, maps, photos, or other graphic
aids included in appraisal reports are intended to assist the reader in ready
identification and visualization of the property and are not intended for
technical purposes.
Appraisal reports may contain prospective financial information, estimates, or
opinions to represent the appraisers' view of reasonable expectations at a
particular point in time, but such information, estimates, or opinions are not
offered as predictions or as assurances that a particular level of income or
profit will be achieved, that events will occur, or that a particular price
will be offered or accepted. Actual results achieved during the period
covered by our prospective financial analyses will vary from those described
in our report, and the variations may be material.
It is assumed that legal engineering, or other professional advice, as may be
required, has been or will be obtained from professional sources and that the
appraisal report will not be used for guidance in legal or technical matters
such as, but not limited to, the existence of encroachments or easements or
other discrepancies affecting the legal description of the property. It is
assumed that there are no concealed or dubious conditions of the subsoil or
subsurface waters including water table and flood plain, unless otherwise
noted. We further assume no regulations of any government entity control or
restrict the use of the property unless specifically referred to in the
report. It is assumed that the property will not operate in violation of any
applicable government regulations, codes, ordinances, or statutes.
In the absence of competent technical advice to the contrary, it is assumed
that the property being appraised is not adversely affected by concealed or
unapparent hazards such as, but not limited to, asbestos, hazardous or
contaminated substances, toxic waste, or radioactivity.
The report and the final estimate of value and prospective financial analyses
included in it are intended for the information of the person or persons to
whom they are addressed, solely for the purposes stated, and should not be
relied upon for any other purpose. Permission will be granted only upon
meeting certain conditions.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; but no responsibility, whether
legal or otherwise, is assumed for its accuracy, and it cannot be guaranteed
as being certain. No single item of information was completely relied upon to
the exclusion of other information.
<PAGE>
Appraisal assignments are accepted with the understanding that there is no
obligation to furnish services after completion of the original assignment.
If the need for subsequent services related to an appraisal assignment (for
example, testimony, updates, conferences, reprint or copy services) is
contemplated, special arrangements acceptable to U S Realty Consultants, Inc.
must be made in advance.
No significant change is assumed in the supply and demand patterns indicated
in the report. The appraisal assumes market conditions as observed as of the
current date of our market research stated in the letter of transmittal.
These market conditions are believed to be correct; however, the appraisers
assume no liability should market conditions materially change because of
unusual or unforeseen circumstances.
The valuation applies only to the property described and for the purpose so
stated and should not be used for any other purpose. Any allocation of total
price between land and the improvements as shown is invalidated if used
separately or in conjunction with any other report.
Neither the report nor any portions thereof (especially any conclusions as to
value, the identity of the appraisers or U S Realty Consultants, Inc, or any
reference to the Appraisal Institute or the MAI designation) shall be
disseminated to the public through public relations media, news media, sales
media or any other public means of communication without the prior written
consent and approval of the appraisers and U S Realty Consultants, Inc.
The date of the valuation to which the value estimate conclusions apply is set
forth in the letter of transmittal and within the body of the report. The
values are based on the purchasing power of the United States dollar as of
that date.
It should be specifically noted by any prospective mortgagee that the
appraisal assumes that the property will be competently managed, leased, and
maintained. by financially sound owners over the expected period of ownership.
This appraisal engagement does not entail an evaluation of management's or
owner's effectiveness, nor are we responsible for future marketing efforts and
other management or ownership actions upon which actual results will depend.
The Americans with Disabilities Act (ADA") became effective January 26, 1992.
We will not be responsible for conducting a specific compliance survey and
analysis of this property to determine whether or not it is in conformity with
the various detailed requirements of the ADA. It is possible that a
compliance survey of the property, together with a detailed analysis of the
requirements of the ADA, could reveal that the property is not in compliance
with one or more of the requirements of the Act. If so, this fact could have
a negative effect upon the value of the property. Since we will have no
direct evidence relating to this issue, we will not be considering possible
noncompliance with the requirements of ADA in estimating the value of the
property.
It is strongly recommended that the reader should rely upon only authorized
copies of this report. Authorized copies are printed on recycled grey paper
and contain original U S Realty Consultants, Inc. letterhead. Our letterhead
is printed with grey ink on an evenly shaded grey background. All original
signatures are in blue ink. Any copy that does not have the above is
unauthorized and may have been altered. If the reader is uncertain as to the
authenticity of this report, please contact U S Realty Consultants, Inc. at
(614) 221-9494.
<PAGE>
SPECIAL CONDITIONS
It is assumed that qualified professional hospitality management with
demonstrated expertise in management of hotels operating in the market will
operate the subject. It is assumed that adequate funds will be available for
upkeep and repair of the facility.
It is assumed that the subject will continue to operate as a Signature Inn or
similar chain affiliation with access to a reservation system. We have
assumed that competent and efficient management of the hotel will be in place.
We have assumed that a strong marketing effort will be put forth by the
management of the motel.
Historical revenues and expenses of the subject have been provided by
Signature Inns. We have used these unaudited financial statements in
developing our bases for the prospective financial analysis contained in the
Income Capitalization Approach. We based our analysis on 1993 through 1995
year end financial statements. All financial information provided to us is
assumed to be accurate, and we bear no responsibility for inaccuracies that
may exist.
We have not been provided with a detailed environmental assessment of the
subject. During our inspection, there were no visible signs of contamination
at the property that would indicate possible environmental hazards.
U S Realty Consultants, Inc. has no expertise in evaluation of environmental
hazards, and therefore expresses no independent opinion as to the existence
thereof. If environmental hazards, such as asbestos or other forms of
contamination of the ground or improvements are subsequently found to exist,
the negative impact on the estimate of market value for the property could be
substantial.
<PAGE>
SUMMARY REPORT
OF A COMPLETE APPRAISAL
of the
Signature Inn - North
11385 Chester Road
Cincinnati, Ohio
as of
February 29, 1996
FOR
Mr. Mark Carney
Vice President
Signature Inn X Limited
One Parkwood Crossing
250 East 96th Street
Suite 450
Indianapolis, Indiana 46240
<PAGE>
March 11, 1996
Mr. Mark Carney
Vice President
Signature Inn X Limited
One Parkwood Crossing
250 East 96th Street, Suite 450
Indianapolis, Indiana 46240
RE: Signature Inn - North
Cincinnati, Ohio
Dear Mr. Carney:
In accordance with the engagement letter dated February 16, 1996, we have
appraised the property referenced above. The purpose of this appraisal is to
estimate the market value of the going concern of the fee simple estate in the
subject, including the furniture, fixtures, and equipment component. The
effective date of the value estimate is February 29, 1996, and the appraisal
is based upon market conditions as observed on this same date.
Subject to all conditions and explanations contained in this report, it is our
opinion that the market value of the fee simple interest of the going concern
in the subject (including the contributory value of the existing furniture,
fixtures, and equipment), as of February 29, 1996, is:
THREE MILLION THREE HUNDRED THOUSAND DOLLARS
$3,300,000
Your attention is called to the Standard and Special Conditions and
Certification which follow. This complete appraisal is communicated in a
short, summary report format. A more descriptive summary report will follow.
This appraisal process and reporting format conforms to the guidelines
stipulated by the Appraisal Institute and the Uniform Standards of
Professional Appraisal Practice.
Respectfully submitted,
U S REALTY CONSULTANTS, INC.
_______________________________ _______________________________
James A. Powers, MAI, CRE Jeffrey H. Walker, CHSE
President Director of Hospitality Development
Ohio General Appraiser #381516
<PAGE>
PROPERTY IDENTIFICATION
The subject consists of a 130-unit, limited-service Signature Inn hotel. The
property is located at 11385 Chester Road, Cincinnati, Hamilton County, Ohio.
A legal description has been provided and is maintained in our files.
PURPOSE AND FUNCTION OF THE APPRAISAL
The purpose of the appraisal is to estimate the as is market value of the
going concern of the fee simple estate in the subject, including furniture,
fixtures and equipment (FF&E), subject to the Uniform Standards of
Professional Appraisal Practice (USPAP), and Title XI (and amendments) of the
Financial Institution Reform Recovery and Enforcement Act of 1989 and 1994
(FIRREA). This report is to be used as an information tool to assist the
limited partners regarding the possible acquisition of the property by the
general partner.
LEGAL INTEREST APPRAISED
The legal interest appraised herein is the fee simple estate in the land and
improvements.
EFFECTIVE DATE OF VALUATION
The appraisal is based upon market conditions as of February 29, 1996, the
current date of our market research and property inspection.
DEFINITION OF VALUE
Market value is defined in the Uniform Standards of Professional Practice,
1995 Edition as follows:
"The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer and
seller each acting prudently and knowledgeably, and assuming the price is not
affected by undue stimulus. Implicit in this definition is the consummation
of a sale as of a specified date and the passing of title from seller to buyer
under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what
they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in United States dollars or in
terms of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales concessions granted
by anyone associated with the sale."
The definition of going-concern value is as follows:
The value created by a proven property operation; considered as a
separate entity to be valued with a specific business establishment.
EXPOSURE TIME AND MARKETING PERIOD
Based upon our investigations, we believe that a marketing and exposure period
of less than 12 months is reasonably appropriate.
<PAGE>
APPRAISAL DEVELOPMENT AND REPORTING PROCESS
The scope of this appraisal involves the systematic research and analysis
necessary to reach a value conclusion for the hotel. The initial step was to
inspect the subject, general market area, and neighborhood. Market research
included the assembly of data from public records, real estate specialists,
governmental entities, real estate publications, as well as owners/investors,
management and hotel managers at similar and comparable properties.
Information from the market area was collected and studied in order to define
the character, composition and the propensity for change in the subject trade
area. This information was analyzed to determine the influences which will
impact the surrounding market area and the value of the subject property.
After analyzing the macro-environment, research was conducted relevant to the
valuation process, including gathering income, expense, capitalization rate,
and discount rate data; comparable improved sales; real estate tax, zoning,
and flood plain data and any other information pertinent to the valuation of
the subject property. This information was reviewed, confirmed when
necessary, and analyzed through the approaches to value.
The competitive hotel market was analyzed. Management of most of the
competitive hotel properties were interviewed. Improved sale comparables were
all analyzed, and where possible were confirmed with either the buyer, the
seller or a knowledgeable third party.
Applicability of Approaches: The Income Capitalization Approach was deemed
the most applicable method to estimate market value for the subject. The
Sales Comparison Approach was utilized to provide an additional point of
reference. The Cost Approach has not been completed. Due to the age of the
subject, significant depreciation exists, which is difficult and subjective to
quantify. In addition, the Cost Approach does not reflect the reasoning or
approach taken by an investor for a property of this age and type.
HISTORY OF THE SUBJECT
According to public records, the subject is owned by Signature X Limited.
According to management, the property was constructed by the current owners in
1987. There have been no recorded transfers of the subject since opening.
Additionally, there are no current agreements for sale, options, or listings
of the subject as of the date of the appraisal.
COMPETENCY OF THE APPRAISERS
U S Realty Consultants, Inc. has performed numerous appraisals and reviews of
appraisals on income producing properties such as the subject. Competency has
been established in both the property type and geographical area of the
subject either through previous engagements or through current research of
germane market trends.
REGIONAL ANALYSIS
Projections indicate that growth in Cincinnati population, household income,
and retail sales should continue. All of these factors and the solid economic
outlook for the area bode well for the prospects of long-term economic growth.
<PAGE>
NEIGHBORHOOD ANALYSIS
The subject's surrounding land uses are generally complimentary to the
subject's use. The highly developed commercial market, as well as the
proximity to the highway, provide a strong level of infrastructure to support
the hotel.
SITE AND IMPROVEMENT ANALYSIS
The hotel site contains approximately 3.223 acres and is somewhat flag shaped.
The site is near street grade level with Chester Road and has limited
visibility to I-75 but easy access. The subject is located in a GB District
(General Business) within Sharonville. The subject is considered to be a
legally conforming land use. According to flood map community panel
#390-236-0001 C, the site is located in a Zone C, an area of minimal
flooding. The subject contains 130 guest rooms which are considered to be in
average condition.
COMPETITIVE LODGING MARKET ANALYSIS
Existing Competitive Supply: Based on our research, we have identified a
current competitive hotel supply with a total of 2,457 guest rooms in fourteen
lodging facilities (including the subject). The properties are considered
competitive due primarily to their location near the Sharon Road exit of I-75.
Historical Lodging Demand: Based on information compiled by Smith Travel
Research, and supported by our own interviews with management of the
competitive properties, we have estimated historical market occupancy levels
and average daily rates.
<TABLE>
<CAPTION>
Table 1
Historical Market Occupancy and ADR
______________________________________________________________________________
<S> <C> <C> <C>
Year 1993 1994 1995
Estimated Market Occupancy 60% 65% 65%
Estimated Market ADR $57.00 $53.00 $56.50
</TABLE>
Source: Smith Travel Research and local market interviews. Figures rounded
to nearest occupancy point and $.50. Some variances in hotels reporting to
STR may occur.
<PAGE>
COMPETITIVE POSITION OF SUBJECT PROPERTY
We have assessed the projected competitive position of the subject property as
it compares to the defined competitive lodging supply. Table 2 presents the
historical occupancy and ADR for the subject.
<TABLE>
<CAPTION>
Table 2
Historical Subject Occupancy and ADR
______________________________________________________________________________
<S> <C> <C> <C>
Year 1993 1994 1995
Subject Occupancy 53.5% 56.8% 55.6%
Subject ADR $50.19 $53.13 $54.18
</TABLE>
Source: Signature Inns
Estimated Occupancy and Average Daily Rate: Based upon the condition of the
property, discussion with the property and competitive general managers, and
historical and projected occupancy and ADR market trends, we project the
subject will achieve a stabilized occupancy of 56% at an ADR of $55.00. The
occupancy reflects a slight increase in rooms occupied, based upon the
historical occupancies, the conversion of the Howard Johnson to a Comfort Inn
and the Ramada Inn to a Woodfield Suites, opening of the new Extended Stay
America, and construction on I-71 south of the I-275.
HIGHEST AND BEST USE
There is no alternative, economically feasible use that could justify removal
of the existing improvements at this time. Therefore, the highest and best
use of the subject, as improved, is the continued use as a limited service
hotel. The highest and best use, as vacant, is for development of an economy
limited-service hotel.
INCOME CAPITALIZATION APPROACH
Historical financial statements for years 1993 through 1995 were provided by
Signature Inns. During the period, the subject's overall financial
performance has improved. The income before reserves has varied from $378,183
in 1993 to $503,866 in 1994 and $421,231 in 1995. Top line revenue increased
from $1,274,079 in 1993 to $1,429,504 in 1995, which is slightly below the
1994 level of $1,431,960. Departmental expenses demonstrated an increase as a
percentage of total revenue between 1993 and 1995 from 27% to 28.4%, while
undistributed expenses showed a decrease from 38.8% to 37.8%.
We have compared the operating performance of the subject to a 17-property
portfolio of Signature Inns, as well as industry standards from the Host
Report 1994, published by Arthur Anderson and Smith Travel Research, and
Trends Report 1994, published by PKF Consulting. We have utilized the
standards for mid-priced, limited-service properties.
Stabilized Operating Statement: A projected stabilized operating statement in
1996 dollars is presented on the following page. The estimated cash flow was
used to estimate the subject property's market value by direct capitalization.
Valuation Analysis: In developing a capitalization rate for income-producing
real estate, factors such as the quality and durability of the estimated
income stream were analyzed. We have analyzed current yields and
capitalization rates as tracked by the Korpacz Investor Survey, a widely
utilized barometer of investment parameters, as well as USRC's internal
investment survey. The Korpacz survey indicated a capitalization rate for
limited-service hotels in the range of 8% to 18% with an average of 12.53%.
<PAGE>
<TABLE>
<CAPTION>
STABILIZED OPERATING STATEMENT
SIGNATURE INN - CINCINNATI NORTH
1996 DOLLARS
<S> <C> <C> <C> <C>
OCCUPANCY/ADR 56% at $55.00
PER OCC.
AMOUNT RATIO AMT\RM ROOM
REVENUES:
ROOMS $1,461,000 95.3% $11,238 $54.98
TELEPHONE 34,544 2.3% 266 1.30
RENTALS & OTHER INCOME 38,000 2.5% 292 1.43
_________ _____ ______ _____
TOTAL REVENUE $1,533,544 100.0% $11,796 $57.71
DEPARTMENTAL EXPENSES: (1)
ROOMS $387,165 26.5% $2,978 $14.57
TELEPHONE 29,362 85.0% 226 1.11
_______ _____ _____ _____
TOTAL DEPARTMENTAL EXPENSES $416,527 27.2% $3,204 $15.68
TOTAL OPERATED INCOME $1,117,000 72.8% $8,592 $42.04
UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL $188,500 12.3% $1,450 $7.09
MANAGEMENT FEE 61,342 4.0% 472 2.31
MARKETING 78,000 5.1% 600 2.94
FRANCHISE FEES 58,440 3.8% 450 2.20
PROPERTY OPERATION & MAINT. 91,000 5.9% 700 3.42
ENERGY 78,000 5.1% 600 2.94
_______ _____ _____ ____
TOTAL $555,282 36.2% $4,271 $20.90
INCOME BEFORE FIXED CHARGES $562,000 36.6% $4,321 $21.14
FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES $52,000 3.4% $400 $1.96
BUILDING & CONTENTS INSURANCE 39,000 2.5% 300 1.47
TOTAL FIXED CHARGES $91,000 5.9% $700 $3.42
INCOME BEFORE RESERVE $471,000 30.7% $3,621 $17.72
RESERVE FOR REPLACEMENT $61,342 4.0% $472 $2.31
_______ _____ _____ _____
INCOME BEFORE
OTHER DEDUCTIONS (2) $410,000 26.7% $3,154 $15.41
</TABLE>
<PAGE>
NOTES:
(1) Each departmental expense ratio is based on the department's
estimated revenue and does not add to the total departmental expense ratio.
(2) Income before other fixed charges such as interest, amortization,
depreciation, and income taxes.
Note: This statement is based upon a room inventory of: 130
THIS STATEMENT SHOULD BE READ SUBJECT TO THE COMMENTS CONTAINED IN
THE ATTACHED REPORT
Based on the aforementioned analysis, we have estimated that a direct
capitalization rate of 12.25% is appropriate to convert the stabilized net
operating income into an indication of market value. The result of this
procedure, using the market-driven capitalization rate of 12.25% is presented
in the following calculation.
$410,000 net operating income / 12.25% capitalization rate = $3,346,939
or
$3,300,000 (rounded)
Based on the above analyses, we estimate that the market value of the fee
simple estate of the going concern of the subject property via the Income
Capitalization Approach (including the contributory value of the FF&E) as of
February 29, 1996 is:
Three Million Three Hundred Thousand Dollars
$3,300,000
SALES COMPARISON APPROACH
Two techniques were utilized in this valuation approach. First, a Linear
Regression Analysis is presented to demonstrate that sale price is a function
of income. Next, an Effective Rooms Revenue Multiplier is developed, which
adjusts the sale prices of the comparables based on differences in rooms
revenue. A total of 63 hotel sales were utilized as comparable data. Based
upon a regression analysis of the data, regression formulas were developed.
Linear Regression Analysis: Based on this information, REVPAR is a
significant variable driving the value of hotels. Although differences in
physical characteristics exist, they only affect value to the extent that they
affect room rates and revenue. The regression formula for the subject
indicates a value of $4,000,000.
Net income per room is also a significant variable driving the value of
hotels. Although differences in physical characteristics exist, they only
affect value to the extent that they affect room rates, revenue, and expenses.
The regression formula for the subject indicates a value of $3,400,000.
Effective Rooms Revenue: The ERRM is a factor derived by dividing the sales
price of the comparable sale by the rooms revenue (number of guest rooms
available annually multiplied by the average daily room rate times the
occupancy factor). As with the above approach, room revenue projections for
the first full year after purchase were utilized to reflect the buyer's
anticipation of rooms revenues at the time of purchase.
The mean of the comparable sales' ERRM is 2.68 while the they ranged between
1.10 and 4.15. To supplement this information, we have turned to USRC's
internal study that was performed in the Spring of 1995. This survey
indicated ERRMs ranging from 1 to 5, with an average of 2.7. The average of
this survey generally supports the average of the reported sales.
<PAGE>
The ERRM was applied to the rooms revenue estimate from the stabilized year of
our analysis. Based on the foregoing analysis, and in consideration of the
historical and projected performance of the subject, we have estimated an ERRM
of 2.5 to be most appropriate for the subject. Applying this range to the
effective room revenue estimate during the first year after the date of
valuation yields the following:
$1,461,000 rooms revenue X 2.5 ERRM = $3,652,500
Rounded to $3,700,000
Correlation of Sales Comparison Approach: An analysis of the correlation
coefficient (R squared, or a measure of reliability), indicated the greatest
correlation (.874) for the net income per room analysis. Accordingly, we have
relied most heavily on this analysis, with the ERRM as an additional point of
reference. It is our opinion that the market value of the going concern of
the fee simple estate, as indicated by the Sales Comparison Approach, in the
subject (including the contributory value of the furniture, fixtures, and
equipment), as of February 29, 1996, is:
Three Million Four Hundred Thousand Dollars
$3,400,000
RECONCILIATION
Two of the traditional approaches to value -- Income Capitalization Approach
and the Sales Comparison Approach -- were used to estimate the market value of
the subject property. These two approaches represent alternative ways of
viewing market phenomena.
We have relied most heavily on the value estimate produced by the Income
Capitalization Approach. The Sales Comparison Approach provides additional
support for the conclusion. Subject to all conditions and explanations
contained in this report, it is our opinion that the market value of the fee
simple interest of the going concern in the 130-room subject (including the
contributory value of the existing furniture, fixtures, and equipment),
expressed in terms of financial arrangements equivalent to cash, as of
February 29, 1996, is:
THREE MILLION THREE HUNDRED THOUSAND DOLLARS
$3,300,000
The contributory value of the FF&E, based upon this analysis, included in the
estimated value of the property, is $455,000, or rounded to $460,000.
CERTIFICATOIN
We certify to the best of our knowledge and belief
* The statements of fact contained in this report are true and correct.
* The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal, unbiased
professional analyses, opinions, and conclusions.
<PAGE>
* We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with respect
to the parties involved.
* This appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan.
* Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount of
the value estimate, the attainment of a stipulated result, or the occurrence
of a subsequent event.
* Our analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice.
* We certify that, to the best of our knowledge and belief, the reported
analyses, opinions and conclusions were developed, and this report has been
prepared in conformity with the requirements of the Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the Appraisal
Institute.
* We certify that the use of this report is subject to the requirements of
the Appraisal Institute relating to review by its duly authorized
representatives.
* As of the date of this report, James A. Powers, MAI, has completed the
requirements of the continuing education program of the Appraisal Institute
* Travis D. Ray has made a personal inspection of the property that is the
subject of this report. James A. Powers and Jeffrey H. Walker have not
inspected the property.
* No one other than the undersigned provided significant professional
assistance to the person(s) signing this report.
_________________________________ ________________________________
James A. Powers, MAI, CRE Jeffrey H. Walker, CHSE
Ohio General Appraiser #381516
________________________________
Travis D. Ray
<PAGE>
COMPANY PROFILE
______________________________________________________________________________
U S Realty Consultants, Inc. (Usrc) was originally formed in January of 1983
as a Columbus-based firm specializing in commercial real estate appraisal and
market analysis. With regional offices located in Atlanta, Georgia and
Chicago, Illinois, Usrc has now grown to be one of the premier real estate
appraisal and consulting practices in the United States.
As we continue our phenomenal growth, our professionals continue to be
involved in literally hundreds of assignments annually, involving millions of
dollars of real estate. Our practice now includes three major areas of
services to the real estate industry: Hospitality and Resort Industry
Services, Golf and Country Club Services, and Real Estate Appraisal Services.
* Hospitality and Resort Industry Services - Evolving from a diversified
background of hospitality and resort market analysts, appraisers, and
operational specialists, Usrc has established a hospitality and resort
consulting practice second to none. Our professionally-trained hoteliers,
resort, and golf course specialists, all having achieved outstanding academic
credentials, have over forty combined years of industry experience. However,
our constant involvement in the consulting and appraising of hotels, motels,
restaurants, resorts, and golf courses have enabled us to be current with, as
well as adaptive to, the ever-changing dynamics of the industry. As a result,
our professionals combine current and in-depth industry experience with strong
analytical and communication skills to yield practical and effective results
tailored to the specific engagement, thus providing our clients the best in
hospitality and resort consulting services.
* Real Estate Appraisal Services - Usrc is unique in that it was part of a
movement to pioneer the development of a national real estate appraisal
practice. We specialize in the valuation of real estate portfolios, which are
disbursed both geographically and by property type. Our valuation expertise
is in commercial real estate with emphasis on office, industrial, retail,
mixed-use, hotel, resort, golf course, other special-use, and multifamily
projects. These characteristics qualify us as one of the leading appraisal
organizations in the nation.
* Golf and Country Club Services - Usrc has recently developed a
burgeoning practice devoted to golf-related and recreational facilities. The
services offered under this practice include valuation and consultation for
private country clubs, daily-fee golf courses, surrounding residential
development, and resort destinations.
The rapid expansion of Usrc's experience and capabilities closely parallels
the growth and ever-changing requirements of the clients we serve. The Firm's
emphasis on programs of professional learning ensure that industry
requirements are being met by our people. Clients become the beneficiaries of
this continually expanding knowledge. Many Usrc individuals also serve on
senior committees of national and state professional societies and
associations, enabling them to stay current with developing trends in the
profession and to participate in framing new rules and standards.
<PAGE>
Usrc's clients benefit from the advantage of working with a local firm, yet
have access to the experience and much of the resources of a national firm.
With 20 professional staff members -five holding the coveted designation,
Member of the Appraisal Institute (MAI) -and five specifically trained in the
analysis of hotels, restaurants, resorts, and golf courses - and growing, we
are determined to provide the "quality client service" that our customers
expect.
U S Realty Consultants, Inc., with over 55 combined years of real estate
valuation experience, serves many of the nation's most prominent pension
funds, investment managers and advisors, life insurance companies, financial
institutions, and governmental agencies providing quality appraisal and
litigation support services in relation to their real estate needs.
Some of the more significant marketplaces in which Usrc holds experience and
important local market knowledge include:
<TABLE>
<S> <C> <C>
Albuquerque Fort Worth Portland, OR
Aspen Houston Providence
Atlanta Indianapolis Raleigh
Austin Kansas City Sacramento
Birmingham Los Angeles San Diego
Boston Louisville San Francisco
Charlotte Minneapolis San Jose
Chicago Milwaukee Seattle
Cincinnati Nashville St. Louis
Cleveland New Orleans Tampa
Colorado Springs Oakland Toledo
Columbus Orlando Toronto, Ontario
Dallas Philadelphia Washington, D.C.
Dayton Phoenix West Palm Beach
Denver Pittsburgh Wilmington
Des Moines Portland, ME Caribbean
Detroit
</TABLE>
<PAGE>
SELECT LIST OF
INSTITUTIONAL REAL ESTATE
APPRAISAL CLIENTS
_____________________________________________________________________________
Governmental Agencies
_____________________
Resolution Trust Corporation
Department of Justice
Federal Deposit Insurance Corporation
Pension Funds
_____________
California Public Employees' Retirement System
Police and Fireman's Disability and
Pension Fund of Ohio
Public Employees' Retirement
Association of Colorado
School Employees Retirement System of Ohio
State Teachers' Retirement System of Ohio
V.I.B. (Dutch Pension Fund)
Investment Managers/Advisors
____________________________
Alex. Brown Kleinwort Benson Realty Advisors
AMB Institutional Realty Advisors
Balcor Management Services
Financial Security Assurance, Inc.
Greystone Realty Advisors
Goldman, Sachs and Company
Holiday Corporation
Jacques and Kurdziel (represent Dutch Pension Fund)
J.P. Morgan Investment Management, Inc.
Karsten Realty Advisors
LandG Realty Advisors
Meyer Asset Management, Inc.
MIG Realty Advisors, Inc.
Paine Webber
Schroder Real Estate Associates
SBC Asset Management, Inc.
WF Advisors, Inc.
The Yarmouth Group, Inc.
Law Firms
_________
Baker and Hostetler
Benesch, Friedlander, Coplan and Aronoff
Bricker and Eckler
Climaco, Climaco, Seminatore,
Lefkowitz and Garofoli Co.
Connelly, Soutar and Jackson
Frost and Jacobs
Holt, Ney, Zatcoff and Wasserman
Isaac, Brant, Ledman and Becker
McNamee, Hosea, Jernigan and Scott
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C.
Rendigs, Fry, Kiely and Dennis
Smith and Hale
Squire, Sanders and Dempsey
Teaford, Rich, Coffman and Wheeler
Testa, Hurwitz and Thibeault
Wesp and Osterkamp
<PAGE>
Financial Institutions
______________________
Bank of America
Bank of Boston
Bank of Nova Scotia
Bank One Trust
Bank Texas
Chemical Bank
Citicorp Real Estate
Continental Bank
Diamond Savings and Loan Association
Fifth Third Bank
First Interstate Bank
First National Bank of Chicago
First Republic Bank of Dallas
First Wisconsin National Bank
Fleet National Bank
Gill Savings Association
Great Atlantic Savings Bank
Huntington National Bank
INB Mortgage Corporation
Michigan National Bank
Mitsubishi Bank
National City Bank
NationsBank
Savings of America
Security Pacific
Star Bank
Wachovia Bank and Trust Company
Wells Fargo Real Estate Group
Life Insurance Companies
________________________
Lincoln National Life
Metropolitan Life Insurance
Minnesota Mutual Life Insurance Company
Mutual Benefits Life
New York Life Insurance Company
The Principal Financial Group
Travelers Realty Investment Company
<PAGE>
PROFESSIONAL
STAFF
QUALIFICATIONS
______________________________________________________________________________
JAMES A.POWERS, MAI, CRE
PRESIDENT
James Powers is the founder and President of U S Realty Consultants, Inc.,
overseeing the company from its inception in 1983. Mr. Powers in now actively
involved in the valuation of all income-producing property types, including
multi-property portfolio appraisal. In addition, he is called upon to provide
expert witness testimony in courts throughout the country. Mr. Powers is a
specialist in the securitization of real estate through Real Estate Investment
Trusts.
Mr. Powers received his MAI designation from the Appraisal Institute in 1974,
and is a Certified General Appraiser in the State of Ohio.
Education
_________
Bachelor of Science (Major: Engineering), United States
Military Academy, West Point, New York, 1960
Instructor, Lecturer, Real Estate Appraisal
and Investment Topic
Chairman, Education Committee, Columbus Board of
Realtors, 1971 - 1972
Professional Affiliations
_________________________
Member, Counselors of Real Estate
Appraisal Institute
Director, Ohio Chapter 1988
Society of Real Estate Appraisers:
Past President, Columbus Chapter 1978 - 1979
American Society of Appraisers:
Past President, Columbus Chapter 1974 - 1975
National Association Review Appraisers
National Association of Real Estate Boards
Ohio Association of Real Estate Boards
Columbus Board of Realtors
Real Estate Securities and Syndications Institute
National Association Corporate Real Estate Executives
Past Chairman, St. Ann's Hospital Board of Trustees,
during the Concept and Implementation Phase of the
Hospital's relocation and redevelopment.
<PAGE>
ROBERT J. FEELEY, MAI
VICE PRESIDENT
Robert J. Feeley, MAI is Vice President of U S Realty Consultants, Inc.. He
joined the firm in January, 1984 shortly after the firm's inception in 1983.
Mr. Feeley's experience includes appraisal and portfolio analysis of
investment-grade real estate, valuation of participating debt instruments,
appraisal services for asset valuation and loan underwriting of FSLIC- and
FDIC-insured institutions, and third-party appraisal reviews.
Mr. Feeley has extensive experience in the appraisal of both CBD and suburban
office buildings, apartments, office/warehouse, hotel, retail centers ranging
from neighborhood centers to regional malls, marinas and mixed-use properties.
He has been a member of the Appraisal Institute since 1993.
Education
_________
Bachelor of Science, The Ohio State University, 1979
Master of Business Administration with emphasis in real estate, The Ohio State
University, 1983
Various Seminars and Programs sponsored by:
The Appraisal Institute
The Society of Real Estate Appraisers
Delegate to the 1988 and 1989 Young Advisory Council of the Society of Real
Estate Appraisers
Professional Affiliations
_________________________
Appraisal Institute
State Certification
___________________
Mr. Feeley holds certification as a General Real Estate Appraiser in the
following states:
State of Indiana, July 1992
State of Kentucky, June 1993
State of Ohio, July 1991
<PAGE>
JEFFREY H. WALKER, CHSE
DIRECTOR
HOSPITALITY
DEVELOPMENT
Jeffrey Walker joined the firm in 1992, serving as Director of Hospitality
Development. Mr. Walker's previous experience includes various hotel and
restaurant positions. Most recently he served as Director of Sales and
Marketing with Hyatt Hotels Corporation, where he received the "Hyatt Director
of Sales of the Year" award in 1991.
Mr. Walker is now involved in consulting work for lenders, owners, developers
and operators. His areas of specialization include hotel marketing
consulting, operational review, market study and analysis, yield management,
and advertising and public relations support for hotels.
Education
_________
Bachelor of Science, James Madison University, 1985
Completed credit requirements for the following AI courses:
1A1 Real Estate Appraisal Principles
Various Seminars and Programs sponsored by:
The Appraisal Institute
The Ohio Hotel and Motel Association
The Ohio Restaurant Association
Professional Affiliations
_________________________
Ohio Hotel and Motel Association, Allied Board of
Directors
Columbus Hotel and Motel Association, member
Hotel Sales and Marketing Association, International,
member
Greater Washington (D.C.) Society of Association
Executives, 1988-92
<PAGE>
TRAVIS RAY, ASSOCIATE
Travis Ray currently serves as an associate with the firm. He joined USRC in
the Summer of 1994 after receiving his Bachelor of Science degree from the
School of Hotel Administration at Cornell University. His concentration was
in Real Estate and Development. Although Mr. Ray's emphasis is in hospitality
related properties, he has been actively involved in the valuation of other
income-producing property types. Among the other property types he has been
involved with include regional malls, nursing homes, offices, and apartments.
Education
________
Bachelor of Science (Major: Hotel Administration), Cornell University, 1994
PROFESSIONAL AFFILIATIONS
_________________________
Columbus Hotel/Motel Association
Cornell Society of Hotelmen
<PAGE>
STANDARD CONDITIONS
The following Standard Conditions apply to real estate appraisals by U S
Realty Consultants, Inc. Appraisals are performed and written reports are
prepared by, or under the supervision of members of the Appraisal Institute in
accordance with the Institute's Standards of Professional Practice and Code of
Professional Ethics.
No opinion is rendered as to property title, which is assumed to be good and
marketable. Unless otherwise stated, no consideration is given to liens or
encumbrances against the property. Sketches, maps, photos, or other graphic
aids included in appraisal reports are intended to assist the reader in ready
identification and visualization of the property and are not intended for
technical purposes.
Appraisal reports may contain prospective financial information, estimates, or
opinions to represent the appraisers' view of reasonable expectations at a
particular point in time, but such information, estimates, or opinions are not
offered as predictions or as assurances that a particular level of income or
profit will be achieved, that events will occur, or that a particular price
will be offered or accepted. Actual results achieved during the period
covered by our prospective financial analyses will vary from those described
in our report, and the variations may be material.
It is assumed that legal engineering, or other professional advice, as may be
required, has been or will be obtained from professional sources and that the
appraisal report will not be used for guidance in legal or technical matters
such as, but not limited to, the existence of encroachments or easements or
other discrepancies affecting the legal description of the property. It is
assumed that there are no concealed or dubious conditions of the subsoil or
subsurface waters including water table and flood plain, unless otherwise
noted. We further assume no regulations of any government entity control or
restrict the use of the property unless specifically referred to in the
report. It is assumed that the property will not operate in violation of any
applicable government regulations, codes, ordinances, or statutes.
In the absence of competent technical advice to the contrary, it is assumed
that the property being appraised is not adversely affected by concealed or
unapparent hazards such as, but not limited to, asbestos, hazardous or
contaminated substances, toxic waste, or radioactivity.
The report and the final estimate of value and prospective financial analyses
included in it are intended for the information of the person or persons to
whom they are addressed, solely for the purposes stated, and should not be
relied upon for any other purpose. Permission will be granted only upon
meeting certain conditions.
Information furnished by others is presumed to be reliable, and where so
specified in the report, has been verified; but no responsibility, whether
legal or otherwise, is assumed for its accuracy, and it cannot be guaranteed
as being certain. No single item of information was completely relied upon to
the exclusion of other information.
<PAGE>
Appraisal assignments are accepted with the understanding that there is no
obligation to furnish services after completion of the original assignment.
If the need for subsequent services related to an appraisal assignment (for
example, testimony, updates, conferences, reprint or copy services) is
contemplated, special arrangements acceptable to U S Realty Consultants, Inc.
must be made in advance.
No significant change is assumed in the supply and demand patterns indicated
in the report. The appraisal assumes market conditions as observed as of the
current date of our market research stated in the letter of transmittal.
These market conditions are believed to be correct; however, the appraisers
assume no liability should market conditions materially change because of
unusual or unforeseen circumstances.
The valuation applies only to the property described and for the purpose so
stated and should not be used for any other purpose. Any allocation of total
price between land and the improvements as shown is invalidated if used
separately or in conjunction with any other report.
Neither the report nor any portions thereof (especially any conclusions as to
value, the identity of the appraisers or U S Realty Consultants, Inc, or any
reference to the Appraisal Institute or the MAI designation) shall be
disseminated to the public through public relations media, news media, sales
media or any other public means of communication without the prior written
consent and approval of the appraisers and U S Realty Consultants, Inc.
The date of the valuation to which the value estimate conclusions apply is set
forth in the letter of transmittal and within the body of the report. The
values are based on the purchasing power of the United States dollar as of
that date.
It should be specifically noted by any prospective mortgagee that the
appraisal assumes that the property will be competently managed, leased, and
maintained. by financially sound owners over the expected period of ownership.
This appraisal engagement does not entail an evaluation of management's or
owner's effectiveness, nor are we responsible for future marketing efforts and
other management or ownership actions upon which actual results will depend.
The Americans with Disabilities Act (ADA") became effective January 26, 1992.
We will not be responsible for conducting a specific compliance survey and
analysis of this property to determine whether or not it is in conformity with
the various detailed requirements of the ADA. It is possible that a
compliance survey of the property, together with a detailed analysis of the
requirements of the ADA, could reveal that the property is not in compliance
with one or more of the requirements of the Act. If so, this fact could have
a negative effect upon the value of the property. Since we will have no
direct evidence relating to this issue, we will not be considering possible
noncompliance with the requirements of ADA in estimating the value of the
property.
It is strongly recommended that the reader should rely upon only authorized
copies of this report. Authorized copies are printed on recycled grey paper
and contain original U S Realty Consultants, Inc. letterhead. Our letterhead
is printed with grey ink on an evenly shaded grey background. All original
signatures are in blue ink. Any copy that does not have the above is
unauthorized and may have been altered. If the reader is uncertain as to the
authenticity of this report, please contact U S Realty Consultants, Inc. at
(614) 221-9494.
<PAGE>
SPECIAL CONDITIONS
It is assumed that qualified professional hospitality management with
demonstrated expertise in management of hotels operating in the market will
operate the subject. It is assumed that adequate funds will be available for
upkeep and repair of the facility.
It is assumed that the subject will continue to operate as a Signature Inn or
similar chain affiliation with access to a reservation system. We have
assumed that competent and efficient management of the hotel will be in place.
We have assumed that a strong marketing effort will be put forth by the
management of the motel.
Historical revenues and expenses of the subject have been provided by
Signature Inns. We have used these unaudited financial statements in
developing our bases for the prospective financial analysis contained in the
Income Capitalization Approach. We based our analysis on 1993 through 1995
year end financial statements. All financial information provided to us is
assumed to be accurate, and we bear no responsibility for inaccuracies that
may exist.
We have not been provided with a detailed environmental assessment of the
subject. During our inspection, there were no visible signs of contamination
at the property that would indicate possible environmental hazards.
U S Realty Consultants, Inc. has no expertise in evaluation of environmental
hazards, and therefore expresses no independent opinion as to the existence
thereof. If environmental hazards, such as asbestos or other forms of
contamination of the ground or improvements are subsequently found to exist,
the negative impact on the estimate of market value for the property could be
substantial.
<PAGE>
EXHIBIT E
---------
CONSENT RESOLUTIONS OF LIMITED PARTNERS
Having received the requisite number of Irrevocable Consents from the
Limited Partners of the Signature X Ltd. Limited Partnership (the
"Partnership") pursuant to the Solicitation and Information Statement
(the "Statement") to which this Exhibit is attached, incorporated and made a
part thereof, the following consent resolutions hereby are accepted and agreed
to by SIGNATURE INNS, INC. ("SII") in its capacity as attorney-in-fact for and
on behalf of the Limited Partners of the Partnership pursuant to the Power of
Attorney set forth under Section 17.01 of the Amended Certificate and
Agreement of Limited Partnership dated June 15, 1988, as amended (the
"Partnership Agreement"):
1. Under Section 14.01 of the Partnership Agreement, the Limited
Partners, by a Majority Vote, have a right to approve or disapprove the sale
or exchange of all or substantially all of the Hotel Properties.
SII has proposed to purchase the Hotel Properties. A detailed
description of the Sale and the effects thereof is set forth in Section IV. of
the Statement. Accordingly, the Limited Partners hereby resolve as follows:
RESOLVED, that the Partnership be, and it hereby is, authorized to
sell, transfer and convey an undivided eighty-five percent (85%) interest
in the real estate, fixtures, improvements and tangible personal property
which comprise the Partnership's hotel facility located at I-75 and
Sharonville Road, Sharonville, Ohio, and the Partnership's hotel facility
located at I-75/71 and Turfway Road, Florence, Kentucky, as more fully
described in Section IV. of the Statement, to SII in exchange for a
purchase price of Six Million Thirty-Five Thousand and 00/100 Dollars
($6,035,000.00), which purchase price shall include the assumption of
indebtedness secured by the Hotel Properties, and pursuant to the terms
of the Asset Acquisition Agreements substantially in the
form described in Section IV. of the Statement, and that the cash
proceeds of such sale be distributed to the Limited Partners in
accordance with Section 8.02 of the Partnership Agreement, as amended by
these Resolutions.
FURTHER RESOLVED, that SII and its officers and directors be and
hereby are authorized and directed to take all action necessary or
desirable to effectuate and consummate the Sale, including, without
implied limitation, executing and delivering the Asset Acquisition
Agreements and executing, delivering and, where appropriate, recording
all contracts, deeds, vendor's affidavits, closing statements, bills of
sale and all other necessary or desirable documents
in connection with the Sale and to facilitate and to effectuate the
intents and purposes of these Resolutions.
Exhibit E to Solicitation and Information Statement
Page 1
<PAGE>
2. Under Section 14.01 of the Partnership Agreement, the Limited
Partners, by a Majority Vote, have a right to amend the Partnership Agreement.
The terms of the Sale require that certain amendments be made to the
Partnership Agreement. A detailed description of these amendments and the
purposes for which they will be made is set forth in Section V. of the
Statement. Accordingly, the Limited Partners hereby resolve as follows:
RESOLVED, that Section 7.06 of the Partnership Agreement be and
hereby is amended as provided in that certain Amendment to Amended
Certificate and Agreement of Limited Partnership of Signature X Ltd.
Limited Partnership (the "Amendment") by adding new language which
provides that in the case of a sale of an undivided fractional interest
in the Partnership's Properties by the Partnership
to SII, 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) SII receives the distribution of the remaining undivided
fractional interest in the Partnership's Properties as a distribution
in kind in connection with the dissolution and termination of the
Partnership in accordance with Article XVIII of the Partnership
Agreement.
FURTHER RESOLVED, that Section 8.02 of the Partnership Agreement be
and hereby is amended as provided in the Amendment by adding new language
which provides that in the event of any sale of an undivided fractional
interest in the Partnership's Properties by the Partnership to SII 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
SII shall not receive any allocation or distribution of any such cash but
shall receive a distribution in kind of the remaining undivided
fractional interest in the Partnership's Properties represented by
SII's interest in the Partnership in connection with the
dissolution and termination of the Partnership in accordance with Article
XVIII of the Partnership Agreement.
3. Under Section 14.01 of the Partnership Agreement, the Limited
Partners, by a Majority Vote, have a right to dissolve the Partnership. Upon
the consummation of the Sale of the Hotel Properties to SII, the
Partnership will dissolve, terminate and make final distributions to its
Limited
Exhibit E to Solicitation and Information Statement
Page 2
<PAGE>
Partners. A detailed description of the process by which the dissolution will
take place is set forth in Section VI. of the Statement. Accordingly, the
Limited Partners hereby resolve as follows:
RESOLVED, that the Partnership shall be dissolved and terminated
pursuant to Indiana Code Section 23-16-9-1(a)(2) and Section 18.01(e) of
the Partnership Agreement upon the disposition of all of the assets of
the Partnership.
FURTHER RESOLVED, that SII, as the General Partner of the
Partnership, shall, upon such disposition, wind up the affairs of the
Partnership in accordance with Indiana Code Section 23-16-9-3 and shall
follow the requirements of Article XIX of the Partnership Agreement
concerning dissolution, termination and liquidation of the Partnership,
including the payment of debts and liabilities of the Partnership in the
order of priority provided by law (Indiana Code Section 23-16-9-4).
FURTHER RESOLVED, that in accordance with Section 19.03 of Article
XIX of the Partnership Agreement, each of the Limited Partners of the
Partnership shall be furnished with a Liquidation Statement which
describes the disposition of the assets and liabilities of the
Partnership and otherwise reports to them with respect to the liquidation
of the Partnership. In addition, the 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 or will be
filed/recorded in accordance with applicable law.
FURTHER RESOLVED, that the officers of SII be and hereby are
authorized and directed to execute and file/record any and all documents
necessary or desirable in connection with the dissolution, termination or
liquidation of the Partnership, including, without implied limitation,
the Certificate of Cancellation of the Partnership. The officers of SII
shall also be authorized and directed to execute and file/record
documents on behalf of the Limited Partners of the Partnership pursuant
to the authority provided under the Power of Attorney set forth under
Section 17.01 of the Partnership Agreement, including, without implied
limitation, the authority under Section 17.01(c) to execute documents
which may be required to effect the dissolution and termination of the
Partnership.
4. Capitalized terms used herein but not specifically defined herein
each have the meanings ascribed to those terms in the Statement.
Exhibit E to Solicitation and Information Statement
Page 3
<PAGE>
IN WITNESS WHEREOF, the undersigned hereby executes these Consent
Resolutions of Limited Partners as of the ___ day of _______________, 1996.
LIMITED PARTNERS:
By: SIGNATURE INNS, INC.,
Attorney-In-Fact
By:_________________________________
A Duly Authorized Officer
ATTEST:
By:_______________________________
A Duly Authorized Officer
Exhibit E to Solicitation and Information Statement
Page 4
<PAGE>
EXHIBIT F
---------
AMENDMENT
TO
AMENDED CERTIFICATE AND
AGREEMENT OF LIMITED PARTNERSHIP
OF
SIGNATURE X LTD. LIMITED PARTNERSHIP
THIS AMENDMENT is made and entered into effective this ___day of
__________, 1996, by and between SIGNATURE INNS, INC., an Indiana Corporation
whose address is 250 East 96th Street, Suite 450, Indianapolis, Indiana 46240,
in its capacity as General Partner of Signature X Ltd. Limited Partnership
(the "Partnership"), and SIGNATURE INNS, INC., in its capacity as
attorney-in-fact for and on behalf of the Limited Partners of the Partnership
pursuant to the Power of Attorney set forth under Section 17.01 of the Amended
Certificate and Agreement of Limited Partnership dated June 15, 1988, and
recorded with the Marion County Recorder's Office on June 15, 1988, as Doc.
No. 880084374, as amended on April 15, 1988, by documents recorded with the
Marion County Recorder's Office on April 15, 1988, as Doc. No. 880034298, and
by the filing of a Certificate of Limited Partnership under the Indiana
Revised Uniform Limited Partnership Act (the "Act") on July 1, 1988
(hereinafter collectively referred to as the "Amended Certificate and
Agreement").
Preliminary Statement
---------------------
In order to facilitate and effectuate the sale of the Partnership's real
estate, improvements, furniture, furnishings, equipment and tangible personal
property which comprise the Partnership's hotel facility located at I-75 and
Sharonville Road, Sharonville, Ohio, and the Partnership's hotel facility
located at I-75/71 and Turfway Road, Florence, Kentucky, to Signature Inns,
Inc., the General Partner of the Partnership, the following revisions,
deletions and additions to the Partnership's Amended Certificate and Agreement
have been determined to be necessary.
NOW, THEREFORE, in consideration of the foregoing, and after a favorable
Majority Vote by the Limited Partners in support of all of the following
amendments, the Amended Certificate and Agreement of the Partnership shall be
and hereby is further amended as follows:
Amendments
----------
1. Section 7.06 of the Amended Certificate and Agreement shall be and
hereby is amended by deleting that Section in its entirety and by inserting
the following revised Section 7.06 in lieu thereof:
Exhibit F to Solicitation and Information Statement
Page 1
<PAGE>
Section 7.06. Gain or Loss on Sale of Partnership Property. The gain
or loss on sale of Partnership Property will be allocated among the
Partners so that the capital accounts of the Partners as determined
under Section 6.07 will equal the sale proceeds distributable to the
Partners as determined under Section 8.02 and Section 8.03. In the
case of a sale of an undivided fractional interest in 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 in Partnership Property shall be
allocated entirely to the Limited Partners (as a group); provided
that (a) the Limited Partners (as a group) shall receive all
distributable cash proceeds resulting from the sale of such
undivided fractional interest, and (b) the General Partner shall
receive 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 hereof.
2. Subparagraph (b)(i) of Section 8.02 of the Amended Certificate and
Agreement shall be and hereby is amended by deleting that Section in its
entirety and by inserting the following revised Subparagraph (b)(i) of Section
8.02 in lieu thereof:
(i) Subject to the provisions of Subparagraph (b)(ii) hereof,
the Sale or Refinancing Proceeds shall be allocated eighty-five
percent (85%) to the Limited Partners based upon their percentage
interest in the Partnership during the fiscal year and fifteen
percent (15%) to the General Partner.
3. Subparagraph (b)(ii) of Section 8.02 of the Amended Certificate
and Agreement shall be and hereby is amended by deleting that Section in its
entirety and by inserting the following revised subparagraph (b)(ii) of
Section 8.02 in lieu thereof:
(ii) notwithstanding any other provision of this
Section 8.02, in the event of any sale of an undivided
fractional interest in 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), all net
proceeds of the sale of such undivided fractional interest 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 a
distribution in kind of the remaining undivided fractional interest
in the Partnership Property equal to the General Partner's interest
in the Partnership which distribution will occur in connection with
the dissolution and termination of the Partnership in accordance
with Article XVIII hereof.
Exhibit F to Solicitation and Information Statement
Page 2
<PAGE>
4. All terms used in this Amendment shall have the same meanings as
provided in the Partnership Agreement. Except as specifically amended above,
the Amended Certificate and Agreement of The Partnership shall remain in full
force and effect.
IN WITNESS WHEREOF, the undersigned hereby executes this Amendment to the
Amended Certificate and Agreement as of the date indicated above.
GENERAL PARTNER:
SIGNATURE INNS, INC.
By:_________________________________
A Duly Authorized Officer
ATTEST:
By:_______________________________
A Duly Authorized Officer
State of Indiana )
) SS:
County of Marion )
SUBSCRIBED AND SWORN to before me, a Notary Public in and for said County
and State this _______ day of ____________. 1996.
_________________________________
Notary Public
_________________________________
(Printed Signature)
My Commission Expires: My County of Residence:
_____________________ _____________________
Exhibit F to Solicitation and Information Statement
Page 3
<PAGE>
LIMITED PARTNERS:
By: SIGNATURE INNS, INC.,
Attorney-In-Fact
By:_________________________________
A Duly Authorized Officer
ATTEST:
By:_______________________________
A Duly Authorized Officer
State of Indiana )
) SS:
County of Marion )
SUBSCRIBED AND SWORN to before me, a Notary Public in and for said County
and State this _______ day of ____________. 1996.
_________________________________
Notary Public
_________________________________
(Printed Signature)
My Commission Expires: My County of Residence:
_____________________ _____________________
Exhibit F to Solicitation and Information Statement
Page 4
<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 X LTD. LIMITED PARTNERSHIP
------------------------------------------------------------
(Name of the Issuer)
SIGNATURE X 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]
Calculation of Filing Fee
Transaction valuation* Amount of filing fee
$6,035,000 $1,207.00
[ ] 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:______________________________________________________
*$6,035,000 is the total consideration to be received by the Limited Partners
under the transaction being proposed by the General Partner.
<PAGE>
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 X Ltd. Limited Partnership with the Securities and Exchange
Commission on July 19, 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 X LTD. Limited Partnership, 250 E. 96th Street, Suite
450 Indianapolis, Indiana 46240 (Telephone (317) 581-1111). Signature X LTD.
Limited Partnership shall hereinafter be referred to as the "Issuer" or the
"Partnership".
Information regarding the organization structure of the Issuer is
hereby incorporated by reference to Section III, "Description of Partnership
Business," pages 10 and 11 of the Issuer's Solicitation and Information
Statement.
The General partner of the Issuer is Signature Inns, Inc., an Indiana
corporation (the "General Partner"). The General Partner was incorporated
under the laws of the State of Indiana on March 31, 1978, and operates under
management and franchise agreements, 23 Signature Inn hotels located in six
midwestern states. The General Partner has five, 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 subsidiary was organized in 1992, and
has never engaged in any business operations.
-1-
<PAGE>
The P & N Corporation 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.
The Signature Inn Springfield Corporation subsidiary was organized in
1996, and has not yet engaged in any business activity.
In addition, set forth below is a chart of the organizational structure
of the General Partner and its subsidiaries and affiliates.
(At this point in the text is an organization chart showing
Signature Inns, Inc., its five wholly-owned subsidiaries, its
fifteen affiliated limited partnerships and its six affiliated
joint venture partnerships. A footnote to the display of
partnerships states: The General Partner's ownership interest in
these partnerships ranges between 5% and 50%,
depending upon the capital contributions made and other factors
relating to the structuring of 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 364 Units issued and outstanding being held by
406 holders of record.
(c) The information required to be disclosed in this Item 1 is hereby
incorporated by reference to Section XVII, "Marketability of Units of
Limited Partnership Interest," page 38, of the
Issuer's Solicitation and Information Statement, which is attached hereto as
Exhibit 1.
-2-
<PAGE>
(d) The information required to be disclosed in this Item 1 is hereby
incorporated by reference to Section XII, "Book Value, Distributions and
Income," page 31 of the Issuer's Solicitation and
Information Statement, which is attached hereto as Exhibit 1.
(e) Not applicable.
(f) Not applicable.
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 this item
for each executive officer and director of the General Partner is set forth
below:
Name: John D. Bontreger
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: President, Chief Executive Officer
and Chairman of the Board of Signature Inns,
Inc., since the Company's inception on
March 31, 1978.
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.
Name: David R. Miller
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Secretary, Executive Director of Sales and
Marketing and Director
Mr. Miller has been employed by Signature Inns, Inc. since August 1978
and has served as the Secretary (and Treasurer until May 1986) of the Company
since September, 1978. Since June 1984, he has been President of Signature
Securities Corporation. Since 1990, Mr. Miller has been the Executive
Director of Marketing responsible for hotel room sales programs and the
central reservation system.
-3-
<PAGE>
Name: Mark D. Carney
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: 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.
Name: Bo Hagood
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: 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.
Name: Martin D. Brew
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: 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.
Name: Orus E. Weaver
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Independent life insurance broker
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.
-4-
<PAGE>
Name: George A. Morton
Address: 2545 E. State Road 47
Lebanon, IN 46052
Present Employment: Vice President and Treasurer of Morton Farms,
Inc.
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.
Name: Richard E. Shank
Address: 250 E. 96th St.
Suite 450
Indianapolis, IN 46240
Present Employment: Self-Employed real estate agent.
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.
Name: Richard L. Russell
Address: National Retail Hardware Association
5822 W. 74th St.
Indianapolis, IN 46278
Present Employment: Executive Director, Direct Regions of the
National Retail Hardware Association.
Mr. Russell has been the Executive Director, Direct Regions of the
National Retail Hardware Association for almost thirty years. He has also
served as President or director of several community and civic organizations.
Name: Stephen M. Huse
Address: Huse Food Group, Inc.
2620 N. Walnut St.
PO Box 98
Bloomington, IN 47402
Present Employment: President and Chief Executive Officer, Huse
Food Group, Inc.
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.
-5-
<PAGE>
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, "The Proposed Sale/Purchase
Transaction Between the Partnership, as Seller, and Signature Inns, Inc., as
Buyer," pages 13-19, and Section V, "Required Amendments to the Partnership
Agreement," pages 20 and 21, of the Issuer's Solicitation and Information
Statement, which is attached hereto as Exhibit 1.
(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, "Special Factors" pages 2-6;
Section IV, "The Proposed Sale/Purchase Transaction Between the
Partnership, as Seller, and Signature Inns, Inc., as Buyer," pages 13-19;
Section V, "Required Amendments to the Partnership Agreement," pages 20 and
21; and Section VI, "Dissolution, Termination and Final Distributions,"
pages 20 and 21, of the Issuer's Solicitation and Information Statement,
which is attached hereto as Exhibit 1.
(b) The information required to be disclosed under this item is hereby
incorporated by reference to Section II, "Special Factors, Summary of
Proposals," page 2; and Section IV, "The Proposed Sale/Purchase
Transaction Between the Partnership, as Seller, and Signature Inns, Inc., as
Buyer," pages 13-19, of the Issuer's Solicitation and Information
Statement, which is attached hereto as Exhibit 1.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
-6-
<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 item is hereby
incorporated by reference to Section II, "Special Factors; Source and
Amount of Funds and Other Consideration," pages 5 and 6, of the
Issuer's Solicitation and Information Statement, which is attached hereto as
Exhibit 1.
(b) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors; Source and
Amount of Funds and Other Consideration," page 6, of the Issuer's
Solicitation and Information Statement, which is attached hereto as Exhibit 1.
(c) Not applicable.
(d) Not applicable.
Item 7. Purposes, Alternatives, Reasons and Effects.
(a) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors: Purposes,
Alternatives, Reasons and Effects of the Proposed Transactions," pages 3-5 of
the Issuer's Solicitation and Information Statement, which is attached hereto
as Exhibit 1.
(b) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors: Purposes,
Alternatives, Reasons and Effects of the Proposed Transactions," page 3, of
the Issuer's Solicitation and Information Statement, which is attached hereto
as Exhibit 1.
(c) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors: Purposes,
Alternatives, Reasons and Effects of the Proposed Transactions," pages 3-4, of
the Issuer's Solicitation and Information Statement, which is attached hereto
as Exhibit 1.
(d) The information required to be disclosed in this item is hereby
incorporated by reference to Section II, "Special Factors: Purposes,
Alternatives, Reasons and Effects of the Proposed Transactions," pages 4 and
5, and Section X, "Federal Income Tax Consequences," pages 27-29, of the
Issuer's Solicitation and Information Statement, which is attached hereto as
Exhibit 1.
-7-
<PAGE>
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, "Special Factors;
Fairness of the Transaction," pages 6-9, of the Issuer's Solicitation and
Information Statement, which is attached hereto as Exhibit 1.
(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.
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, "Appraisal Reports," pages
32-36, and Exhibits 2 and 3 attached hereto.
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.
-8-
<PAGE>
Item 11. Contracts, Arrangements or Understandings with Respect to the
Issuer's Securities.
There are no contracts, arrangements, understandings or
relationships in connection with the Rule 13e-3 transaction between the
Partnership and any person with respect to the Units of Limited Partnership
Interest other than the General Partner's Undertaking With Respect to the
Units of Limited Partnership Interest Which It Holds, attached hereto as
Exhibit 7, in which the General Partner undertakes to abstain from voting the
Units of Limited Partnership Interest which it holds in connection with the
proposed transaction.
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.
Item 14. Financial Information.
(a) (1) The information required to be disclosed in this item
is hereby incorporated by reference to the Issuer's Form 10-KSB/A (Exhibit A
thereto) attached hereto as Exhibit 4.
(a) (2) The information required to be disclosed in this item is hereby
incorporated by reference to the Issuer's Financial Statements for the six
months ended June 30, 1996, attached hereto as Exhibit 5.
(a) (3) The Issuer's ratio of earnings to fixed charges for the two most
recent fiscal years and the six months ended June 30, 1996 are as follows:
-9-
<PAGE>
Six Months Ended June 30, 1996: 1.3X
Fiscal Year Ended December 31, 1995: 1.2X
Fiscal Year Ended December 31, 1994: 1.0X
(a) (4) The information required to be disclosed in this item is hereby
incorporated by reference to the Issuer's Form 10-KSB/A (page 4 of Exhibit A
thereto) attached hereto as Exhibit 4, and page 2 of the Issuer's Financial
Statements for the six months ended June 30, 1996, attached hereto as Exhibit
5.
(b) Certain pro forma financial information is set forth and described in
Section VII, "Summary of Estimated Benefits from Sale of Properties and
Liquidation of Partnerships," page 23, and Section XII, "Pro Forma Financial
Information," page 31 of the Issuer's Solicitation and Information Statement,
which is attached hereto as Exhibit 1, and such information is hereby
incorporated herein by this reference thereto.
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.
(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.
-10-
<PAGE>
Item 17. Index to Exhibits
Exhibit 1: Issuer's Solicitation and Information Statement dated
_______, 1996
Exhibit 2: Appraisal Report for Florence, Kentucky
Exhibit 3: Appraisal Report for Sharonville, Ohio
Exhibit 4: Signature X Ltd. Limited Partnership, Form 10-KSB/A for
the fiscal year ended December 31, 1995
Exhibit 5: Signature X Ltd. Limited Partnership, Financial Statements
for the six months ended June 30, 1996
Exhibit 6: Cross-Reference Sheet
Exhibit 7: General Partner's Undertaking With Respect to the Units
of Limited Partnership Interest Which It Holds
-11-
<PAGE>
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)
s/:
------------------------------------
(Signature)
Mark D. Carney, Vice President Finance and
Chief Financial Officer
------------------------------------------
(Name and Title)
-12-
<PAGE>
EXHIBIT 5
---------
<TABLE>
<CAPTION>
SIGNATURE X LTD. LIMITED PARTNERSHIP
Balance Sheets
(Unaudited)
June 30, December 31
1996 1995
-------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and short-term cash
investments $341,488 308,404
Investments held by trustee 22,110 1,463
------- -------
Cash and cash equivalents 363,598 309,867
Accounts receivable 78,143 47,290
Other current assets 85,196 74,028
------- -------
Total current assets 526,937 431,185
------- -------
Property and equipment:
Land 1,693,614 1,693,614
Land improvements 384,347 384,347
Buildings ,846,694 6,846,694
Furniture and equipment 1,952,198 1,875,612
--------- ----------
10,876,853 10,800,267
Less accumulated depreciation 3,191,579 3,050,739
---------- ----------
Net property and equipment 7,685,274 7,749,528
Furniture and equipment reserves 74,493 87,841
Deferred costs, net of accumulated amortization
of $304,743 and $296,889 124,673 122,687
---------- ---------
$8,411,377 8,391,241
---------- ---------
---------- ---------
LIABILITIES AND PARTNERS EQUITY
Current liabilities:
Current portion of long-term debt 101,946 104,573
Accounts payable 71,160 25,090
Accrued payroll and related taxes 41,713 34,290
State and local taxes 78,364 57,582
Accrued interest 20,977 22,454
------- -------
Total current liabilities 314,160 243,989
Long-term debt, less current portion 5,171,421 5,197,742
Note payable to general partner 2,377,361 2,377,361
Advances from general partner 80,000 200,000
--------- ---------
Total liabilities 7,942,942 8,019,092
Partner's equity:
General partner (15% interest) 69,882 55,439
Limited partners (85% interest, 364 units 398,553 316,710
-------- --------
authorized and outstanding) 468,435 372,149
-------- ---------
$8,411,377 8,391,241
--------- ----------
--------- ----------
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE X LTD. LIMITED PARTNERSHIP
Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
-------------------- ------------------
<S> <C> <C> <C> <C>
Revenue:
Room revenue $927,958 808,694 1,622,169 1,385,723
Other hotel revenue 25,476 22,200 52,388 52,580
Interest 3,051 2,233 5,709 3,886
-------- -------- ---------- ---------
956,485 833,127 1,680,266 1,442,189
-------- -------- ---------- ---------
Cost and expenses:
Hotel operations 244,270 219,280 506,847 452,686
Salaries and benefits 232,849 191,369 437,570 371,601
Management and franchise
fees 85,402 74,504 150,217 128,702
Advertising and
reservations 33,212 28,974 58,418 50,051
Interest 135,383 139,991 271,261 279,240
Depreciation and
amortization 80,163 73,818 160,326 147,637
Gain on disposal of
equipment (659) - (659) -
------- ------- ------- -------
810,620 727,936 1,583,98 1,429,917
------- ------- ------- --------
Net income 145,865 105,191 96,286 12,272
General Partner
(15% interest) 21,880 15,779 14,443 1,841
------- ------- ------- -------
Limited partners
(85% interest) $123,985 89,412 81,843 10,431
------- ------- ------- -------
------- ------- ------- -------
Limited partner's interest
per unit $ 341 246 225 29
-------- ------- ------- -------
-------- ------- ------- -------
Average number of limited partner
units outstanding 364 364 364 364
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE X LTD. LIMITED PARTNERSHIP
Statement of Partner's Equity
Six months ended June 30, 1996
(Unaudited)
General Limited
Partner Partners Total
------- -------- -------
<S> <C> <C> <C>
Balance at December 31, 1995 $ 55,439 316,710 372,149
Net income 14,443 81,843 96,286
------- ------- -------
Balance at June 30, 1996 $ 69,882 398,553 468,435
------- ------- -------
------- ------- -------
Accumulated balances:
Capital contributions 404,445 3,640,000 4,044,445
Offering expenses - (455,000) (455,000)
Net loss (334,563) (2,786,447) (3,121,010)
--------- --------- ---------
Balance at June 30, 1996 69,882 398,553 468,435
--------- --------- ---------
--------- --------- ---------
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE X LTD. LIMITED PARTNERSHIP
Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30
1996 1995
-----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $96,286 12,272
Items which do not use (provide) cash:
Depreciation of property and equipment 152,471 139,782
Amortization of deferred costs 7,854 7,855
Gain on disposal of equipment (659) -
Accrued revenue and other expenses, net 30,777 59,617
------- -------
Net cash provided by operating activities 286,729 219,526
------- -------
Cash from investing activities:
Additions to furniture and
equipment reserves (60,338) (75,577)
Other additions to property and equipment (14,531) (25,730)
Proceeds from sale of property and equipment 659 -
Additions to deferred costs (9,840) -
------- -------
Net cash used in investing activities (84,050) (101,307)
------ -------
Cash flows from financing activities:
Payments on long-term debt (28,948) (24,409)
Repayments of general partner advances (120,000) -
-------- -------
Net cash used in financing activities (148,948) (4,409)
------- -------
Change in cash and cash equivalents 53,731 113,810
Cash and cash equivalents at beginning of period 309,867 212,006
-------- --------
Cash and cash equivalents at end of period $363,598 325,816
------- -------
------- -------
Additional disclosures:
Interest paid $271,445 278,804
-------- -------
-------- -------
Additions to property and equipment from
furniture and equipment reserves $73,686 117,735
-------- -------
-------- --------
</TABLE>
-4-
<PAGE>
IRREVOCABLE CONSENT OF LIMITED PARTNER OF
-----------------------------------------
SIGNATURE X LTD. LIMITED PARTNERSHIP
------------------------------------
In accordance with Section 14.04(b) of the Amended Certificate and
Agreement of Limited Partnership dated June 15, 1988, as amended (the
"Partnership Agreement"), the undersigned, a Limited Partner(s) of Signature X
Ltd. Limited Partnership (the "Partnership") HEREBY IRREVOCABLY CONSENT(S) to
each of the following transactions, amendments, events and other
matters which shall be deemed to be a unitary transaction (See Instruction
No. 1):
X The Sale/Purchase Transaction Between the Partnership, as Seller,
and Signature Inns, Inc. ("SII"), as Buyer, as more fully described
in Section IV of the Solicitation and Information Statement
Regarding Proposed Sale of Partnership Assets and Other Matters
(the "Statement"), and as set forth in the form of Consent
Resolutions of Limited Partners which is attached to the Statement
as Exhibit E and incorporated herein and by this reference made a
part hereof;
X The Amendments to the Partnership Agreement in the form of the
Amendments attached hereto as Exhibit F, which Amendments are
incorporated herein and by this reference made a part of hereof.
The Amendments are more fully described in Section V of the
Statement, and they are referred to in the form of Consent
Resolutions of Limited Partners attached to this Statement as
Exhibit E, which Resolutions also are incorporated herein and by
this reference made a part hereof;
X The Dissolution, Termination, Liquidation and Winding-Up of the
Partnership, as more fully described in Section VI of the Statement
and as set forth in the form of Consent Resolutions of Limited
Partners which is attached to the Statement as Exhibit E and
incorporated herein and by this reference made a part hereof; and,
X All other matters described in the form of Consent Resolutions of
Limited Partners attached to the Statement as Exhibit E and
incorporated herein and by this reference made a part hereof.
Limited Partner(s) Must Sign Below
Date_______________________ _________________________________________
Signature of Limited Partner
Date_______________________ _________________________________________
Signature of Limited Partner
NOTE: Each individual owner of a Unit must sign above. If the owner is a
corporation, partnership or other entity, a representative must sign, and the
names of the entity and representative must be printed in the following
blanks: Name of Entity _____________________ Name of Representative
________________________.
PLEASE PLACE THIS CONSENT IN THE ENCLOSED POSTAGE PAID YELLOW ENVELOPE AND
MAIL IT SO THAT IT IS RECEIVED NO LATER THAN SEPTEMBER 16, 1996.
See opposite side of this page for important additional instructions.
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<PAGE>
Additional Instructions:
1. All of the X subparagraphs are considered to be a single, unitary
transaction. By signing this Consent, you are consenting to all
transactions listed in the foregoing X subparagraphs of this Consent.
You are not permitted to pick and choose among them. You must consent
to all or none.
2. By signing this Consent, you are authorizing SII, as general partner, to
rely on your consent as a valid, binding, irrevocable consent until
February 28, 1997 and to proceed with and close the transactions listed
in the foregoing X subparagraphs above on or before that date. You agree
that you will not at any time before February 28, 1997, attempt to
revoke, modify or renounce this Consent in any way.
3. By placing your signature on this Consent, you shall be deemed to have
given your consent for all purposes, and any mark, strike, alteration,
addition, deletion or other revision to this Consent made by you will be
ignored as being of no legal effect.
4. By signing this Consent you are acknowledging receipt of the Statement.
5. This Consent must be returned to the General Partner by September 16,
1996 (the "Deadline"). The General Partner may, in its discretion,
extend the Deadline.
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