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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition period from to
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Commission file number 333-9371
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
(Exact name of registrant as specified in its charter)
Delaware 38-3304095
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
24 Frank Lloyd Wright Drive, Lobby L, 4th Floor,
P.O. Box 544, Ann Arbor, Michigan 48106-0544
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (734) 994-5505
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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.
[ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At December 31, 1997 subscriptions for 15,391.986 units of limited partnership
interest (the "Units") had been accepted, representing an aggregate amount of
$15,391,986. The aggregate sales price does not reflect market value and it
reflects only the price at which the Units were offered to the public.
Currently, there is no market for the Units and no market is expected to
develop.
DOCUMENTS INCORPORATED BY REFERENCE
A portion of the Prospectus of the Registrant dated December 23, 1996, as
supplemented and filed pursuant to Rule 424(b) under the Securities Act of 1933,
as amended, S.E.C. File No. 333-9371, and is incorporated by reference in Parts
I and III of this Annual Report on Form 10-K.
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TABLE OF CONTENTS
Page
----
PART I
Item 1. Business........................................................... 1
Item 2. Properties......................................................... 2
Item 3. Legal Proceedings..................................................12
Item 4. Submission of Matters to a Vote of Security Holders .............12
PART II
Item 5. Market for Registrant's Limited Partnership Interests
and Related Security Holder Matters................................13
Item 6. Selected Financial Data ...........................................14
Item 7. Management's Discussion and Analysis or Plan of Organization.......15
Item 8. Financial Statements and Supplementary Data .....................17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................17
PART III
Item 10. Directors, Executive Officers Promoters and Control Persons
of the Registrant..................................................18
Item 11. Executive Compensation.............................................19
Item 12. Security Ownership of Certain Beneficial Owners and Management.....19
Item 13. Certain Relationships and Related Transactions.....................19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K...........................................................21
SIGNATURES...................................................................22
INDEX TO EXHIBITS.........................................................E - i
INDEX TO FINANCIAL STATEMENTS.............................................F - i
i
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PART I
ITEM 1. BUSINESS.
Captec Franchise Capital Partners L.P. IV (the "Partnership") is a
Delaware limited partnership formed on July 23, 1996 for the purpose of
acquiring income-producing commercial real properties ("Properties") and
equipment ("Equipment") which will be leased primarily to operators of national
chain and nationally franchised fast-food, family style and dinner house
restaurants as well as other franchised or chain businesses pursuant to leases
requiring the lessee to pay all taxes, assessments, utilities, insurance,
maintenance, and repair costs associated with such Properties (a "Triple Net
Lease") or leases differing from Triple Net Leases only in that the Partnership
is responsible for the maintenance of the exterior walls and roof of the
Property (a "Double Net Lease"). The Partnership also intends to acquire
Properties that may be leased to prominent national and regional retail concerns
("Retail Concerns") pursuant to Triple Net Leases or Double Net Leases. The
general partners of the Partnership are Captec Franchise Capital Corporation IV
(the "Managing General Partner") and Patrick L. Beach, an individual
(collectively, the "General Partners") . The Managing General Partner is a
Michigan corporation which is a wholly-owned subsidiary of Captec Financial
Group, Inc. (the "Captec Group").
The Partnership commenced a public offering (the "Offering") of up to
30,000 units of limited partnership interest (the "Units") registered under the
Securities Act of 1933, as amended, by means of a Registration Statement on Form
S-11 which was declared effective by the Securities and Exchange Commission on
December 23, 1996. Capitalized terms not defined herein shall have the meaning
ascribed to them in the Partnership's Prospectus dated December 23, 1996.
Through December 31, 1997, the Partnership had accepted subscriptions for
15,391.986 Units and funds totaling $15,391,986 from 911 investors. The
principal investment objectives of the Partnership are: (i) preservation and
protection of capital; (ii) distribution of cash flow generated by the
Partnership's leases; (iii) capital appreciation of Partnership properties; (iv)
generation of increased income and protection against inflation through
escalation of base rents or participation in gross revenues of lessees of
Partnership properties; and (v) deferred taxation of Partnership cash
distributions for Limited Partners.
The Partnership expects to use not less than 75%, but not more than 90%
of Net Offering Proceeds to acquire Properties and up to 25%, but not less than
10% of Net Offering Proceeds to acquire Equipment. Of the 75% of Net Offering
Proceeds that the Partnership intends to use to acquire Properties, the
Partnership does not intend to use more than 25% of such proceeds to acquire
Properties to be leased to Retail Concerns. The Properties generally will be
leased on terms which provide for a base minimum annual rent with fixed
increases on specific dates or indexation of rent to indices such as the
Consumer Price Index and/or percentage rents. The Equipment will be leased only
pursuant to leases under which the present value of non-cancelable rental
payments payable during the initial term of the lease is at least sufficient to
permit a lessor to recover the purchase price of the equipment ("Full Payout
Leases").
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The Partnership competes with many other entities engaged in the purchase
of triple-net leased real estate and the purchase of equipment, some of which
have greater assets than the Partnership. In addition, the number of competing
entities and the amount of funds available for investment in these types of
properties or equipment suitable for investment by the Partnership may increase,
resulting in increased competition for such investments and possible increases
in the prices paid or less favorable lease terms on the Property or Equipment.
The Partnership also competes with many other entities engaged in real
estate and equipment investment activities in the disposition of Property and
Equipment. The ability to locate purchasers will depend primarily on the success
of the operating properties and the desirability of the location of the
operating properties.
The Partnership has no employees. The General Partners and their
affiliates, however, are permitted to perform services for the Partnership.
ITEM 2. DESCRIPTION OF PROPERTIES.
The following is a summary description of the Property and Equipment leases as
of December 31, 1997.
<TABLE>
<CAPTION>
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LEASE INFORMATION
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REAL ESTATE
Concept Lease Date of Date of
Lessee Name Name Industry Type Commence Expiration
----------- ---- -------- ---- -------- ----------
<S> <C> <C> <C> <C> <C>
Corral South Store #3, Inc. (1) Golden Corral Restaurant Triple-Net 8/1/97 6/1/17
Finest Foodservice, LLC Boston Market Restaurant Triple-Net 4/1/97 4/1/12
Hollywood Entertainment Corp. Hollywood Video Retail Triple-Net 11/1/97 7/1/12
Blockbuster Entertainment Corp. Blockbuster Video Retail Double-Net 9/1/97 8/1/07
Kona Restaurant Group, Inc. Carino's Restaurant Triple-Net 8/1/97 8/1/14
<CAPTION>
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ASSET INFORMATION RENTAL INFORMATION
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Total Asset Cost Asset Date of Annual
Including State Monthly Next Rent Rate of
Lessee Name Acquisition Fees Location Rent Increase Increase(3)
----------- ---------------- -------- ---- -------- -----------
<S> <C> <C> <C> <C> <C>
Corral South Store #3, Inc. (1) $ 572,000 FL $ 4,996 6/1/02 1.55%
Finest Foodservice, LLC 1,002,560 CO 8,435 4/1/02 1.93%
Hollywood Entertainment Corp. 1,441,440 OH 12,702 (2) 7/1/03 1.92%
Blockbuster Entertainment Corp. 1,158,857 GA 9,831 8/1/02 2.29%
Kona Restaurant Group, Inc. 1,664,000 TX 14,667 8/1/00 1.64%
$ 5,838,857 $ 50,631 1.88%
<CAPTION>
EQUIPMENT
Concept Lease Date of Date of
Lessee Name Name Industry Type Commence Expiration
----------- ---- -------- ---- -------- ----------
<S> <C> <C> <C> <C> <C>
J.M.C. Limited Partnership Applebee's Restaurant Triple-Net 3/1/97 3/1/04
DenAmerica Corp. Black Eye Pea Restaurant Triple-Net 4/15/97 4/15/04
Corral South Store #4, Inc. Golden Corral Restaurant Triple-Net 6/15/97 6/15/02
Girardi-Riva Enterprises, Inc. Arby's Restaurant Triple-Net 7/1/97 7/1/04
Shells Seafood Restaurants, Inc. Shells Seafood Restaurant Triple-Net 6/1/97 6/1/02
Shells Seafood Restaurants, Inc. Shells Seafood Restaurant Triple-Net 6/1/97 6/1/02
Morgan's Restaurants of PA, Inc. KFC Restaurant Triple-Net 10/15/97 10/15/04
Virginia QSC, LLC Burger King Restaurant Triple-Net 11/1/97 11/1/04
BBI Acquisition Co. Breck. Brewery Restaurant Triple-Net 8/1/97 8/1/04
<CAPTION>
Asset Monthly
Lessee Name Total Location Rent
----------- ----- -------- ----
<S> <C> <C> <C>
J.M.C. Limited Partnership $ 418,081 UT $ 6,838
DenAmerica Corp. 364,000 TX 5,866
Corral South Store #4, Inc. 526,446 FL 10,934
Girardi-Riva Enterprises, Inc. 165,849 WA 2,727
Shells Seafood Restaurants, Inc. 123,405 FL 2,648
Shells Seafood Restaurants, Inc. 97,198 FL 2,086
Morgan's Restaurants of PA, Inc. 240,261 PA 3,766
Virginia QSC, LLC 293,620 VA 4,862
BBI Acquisition Co. 822,640 CO 13,605
$3,051,501 $ 53,332
$8,890,359 $103,963
</TABLE>
(1) The property is owned jointly between CFCP LPIII and LPIV. LPIV owns
34.375% of the total assets.
(2) Rent Increase equals the lesser of CPI or 10%.
(3) Rate of increase calculated on a compounded annual basis.
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REAL ESTATE
Boston Market Restaurant, Rochester, Minnesota (Land and Building): On
March 10, 1997 the Partnership acquired the land and 3,035 square foot building
comprising a Boston Market restaurant located at 1201 S. Broadway, Rochester,
Minnesota (the "Minnesota Property"). The Minnesota Property was constructed for
its present use in November of 1995 and was fully operational at the time of the
purchase. The Minnesota Property was purchased from, and leased back to Finest
Foodservice L.L.C., a Delaware limited liability company ("Finest Foodservice").
Finest Foodservice operates casual dining restaurants under the primary trade
name of Boston Market. The Partnership purchased the Minnesota Property for a
purchase price of $964,000.
Finest Foodservice and the Partnership have entered into a lease (the
"Finest Foodservice Lease"), which is an absolute net lease, whereby Finest
Foodservice is responsible for all expenses related to the Minnesota Property,
including real estate taxes, insurance, maintenance and repair costs. The Finest
Foodservice Lease term expires on April 1, 2012 with five renewal options of
five years each. Annual rental in the five years is $101,220 and is increased by
ten percent every five years therafter. During the Finest Foodservice Lease
years 31-40, the annual rent will be determined by the fair market value at the
beginning of the 31st and 36th Finest Foodservice Lease years.
Beginning in the sixth lease year, and in addition to the annual rental
provided above, Finest Foodservice will pay percentage rent on an annual basis
equal to the difference between five percent of "gross sales" (as defined in the
Finest Foodservice Lease) during such lease year less the annual rental payable
for such lease year.
Boston Chicken, Inc., a Delaware corporation (the "Option Holder"), has
an option to purchase and first right of refusal to purchase the Minnesota
Property. The Option Holder has the right to purchase the Minnesota Property on
the same terms and conditions as set forth in the offer or the Option Holder may
elect an alternate purchase price as follows: (a) during the first and second
lease years, an alternate purchase price equal to the total annual rental
payable for the lease year subsequent to the lease year in which the option is
exercised divided by 9.462%; (b) during the third lease year, an alternate
purchase price equal to the total annual rental for the third lease year divided
by 9.978%; (c) during the fourth lease year, an alternative purchase price equal
to the annual rental for the fourth lease year divided by 9.785%; and (d) during
the fifth lease year, an alternative purchase price equal to the annual rental
for the fifth lease year divided by 9.580%.
The Option Holder has the option to purchase the Minnesota Property at
the following times and option prices:
<TABLE>
<CAPTION>
PERIOD OPTION PRICE
<S> <C>
Lease Years 6-8 Annual rent payable
for the Lease Year subsequent
to the Lease Year in which the
option is exercised divided by
ten percent (10%)
Last ninety (90) days of the 15th Annual rent payable for the 16th Lease Year divided by
Lease Year ten percent (10%)
Last ninety (90) days of the 30th The lesser of (i) fair market value or (ii) the annual
Lease Year rent payable for the 31st Lease Year
</TABLE>
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<TABLE>
<S> <C>
divided by ten percent (10%)
Last ninety (90) days of the 40th The lesser of (i) fair market value or (ii) one hundred
Lease Year ten percent (110%) of the annual rent payable for the
40th Lease Year divided by ten percent (10%)
</TABLE>
The current annual rent per square foot for the Minnesota Property is
$33.35 per square foot. The depreciable basis of the Minnesota Property for
federal tax purposes is $614,000 and it will be depreciated using the straight
line method over 39 years, a rate of $15,744 per year. In addition, Finest
Foodservice has paid to the same affiliate a closing fee equal to $4,820 as
provided for in the Partnership Agreement.
The Finest Foodservice Lease contains a substitution option that provides
in the event that Finest Foodservice determines the Minnesota Property is
inadequate or unprofitable or is rendered unsuitable by condemnation or
casualty, Finest Foodservice, subject to the Partnership's approval, may
substitute another property of equal or greater current value having a Boston
Market restaurant located thereon. All obligations under the Finest Foodservice
Lease, including Annual Rental, percentage rent and taxes attributable to rent
and the Minnesota property, are unconditionally guaranteed by Boston Chicken,
Inc., a Delaware corporation.
Carino's Italian Kitchen, El Paso, Texas (Land and Building): On July 25,
1997 the Partnership acquired the land and 6,257 square foot building comprising
a Carino's Italian Kitchen restaurant located at 675 Sunland Park Drive, El
Paso, Texas (the "Carino's Property"). The Carino's Property was constructed for
its present use in 1995 and was fully operational at the time of the purchase.
The Carino's Property was purchased from and leased back to Kona Restaurant
Group, Inc., a Delaware corporation ("Kona Group"). Kona Group operates casual
dining restaurants under the primary trade names of Carino's Italian Kitchen and
Kona Ranch Steak House. The Partnership purchased a fee simple interest in the
Carino's Property for a purchase price of $1,600,000.
Kona Group and the Partnership have entered into a lease (the "Carino's
Lease"), which is an absolute net lease, whereby Kona Group is responsible for
all expenses related to the Carino's Property including real estate taxes,
insurance, maintenance and repair costs. The Carino's Lease term expires on July
31, 2014 with one renewal option of six years and one renewal option of seven
years. The rent in the first three years of the Carino's Lease is $176,000 per
year, or $14,667 per month. The annual rent will increase by five percent (5%)
on the August 1, 2000 and every three years thereafter.
Kona Group has an option to purchase the Carino's Property during the
sixty-first (61st) full month of the Carino's Lease. In the event that Kona
Group elects to exercise the option to purchase in the sixty-first full month of
the Carino's Lease, the option price is $1,940,400.
The current annual rent per square foot for the Carino's Property is
$28.13 per square foot. The depreciable basis of the Carino's Property for
federal tax purposes is $500,000 and it will be depreciated using the straight
line method over 39 years, a rate of $12,821 per year.
Golden Corral Restaurant, Lakeland, Florida (Land and Building): On July
25, 1997, the Partnership acquired an undivided 34.375% interest as a tenant in
common with Captec Franchise Capital Partners L.P. III, a Delaware limited
partnership and affiliate of the Managing General Partner ("Captec III"), in the
land and 8,825 square foot building located at 4532 South Florida Avenue,
Lakeland, Florida (the "Lakeland Property"). The Lakeland Property was
constructed for its present
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use in May of 1997 and leased to Corral South Store 3, Inc., a Florida
corporation ("Corral South 3"). Corral South 3 operates casual dining
restaurants under the primary trade name of Golden Corral Restaurants. Captec
III purchased the Lakeland Property for a total purchase price of $1,600,000 and
sold the 34.375% interest to the Partnership for $550,000.
Corral South 3 and Captec III have entered into a lease (the "Corral
South 3 Lease"), which is an absolute net lease, whereby Corral South 3 is
responsible for all expenses related to the Lakeland Property including real
estate taxes, insurance, maintenance and repair costs. The Corral South 3 Lease
term commenced on June 1, 1997 and expires fifteen years thereafter. The Corral
South 3 Lease has two renewal options of five years each. The initial annual
rent is $174,400, or $14,533 per month, and increases by 8% on the five-year
anniversary of the Corral South 3 Lease and every five years thereafter
(including any renewal options). The Partnership's pro-rata share of the initial
annual rent will be $59,950 or $4,996 per month. The total initial annual rent
per square foot on the Lakeland Property is $19.76. The depreciable basis of the
Lakeland Property for federal tax purposes is $1,080,000 and it will be
depreciated using the straight line method over 39 years, a rate of $27,692 per
year. The Partnership's pro-rata share of depreciation will be $9,519 per year.
The obligations under the Corral South 3 Lease are guaranteed for the
benefit of the Partnership by David C. Brown, an individual. David C. Brown is
the sole stockholder of Corral South 3. Corral South 3 has an option to purchase
the Lakeland Property commencing on the sixty-first month of the Corral South 3
Lease. In the event that Corral South 3 elects to exercise the option to
purchase, the option price shall be $1,833,520.
Blockbuster Video, Riverdale, Georgia (Land and Building): On August 8,
1997 the Partnership acquired the land and 6,500 square foot building comprising
a Blockbuster Video located at 8529 Georgia Highway 85, Riverdale, Georgia (the
"Blockbuster Property"). The Blockbuster Property was constructed for its
present use in 1995 and was fully operational at the time of the purchase. The
Blockbuster Property was purchased from Atlantis Properties, L.L.C., a Georgia
limited liability company ("Atlantis Properties"), for a purchase price of
$1,114,286.
The Partnership purchased the Blockbuster Property subject to a lease
dated April 4, 1997 (the "Blockbuster Lease") between Atlantis Properties and
Blockbuster Videos, Inc., a Texas corporation ("Blockbuster"), which is a net
lease, whereby Blockbuster is responsible for most expenses related to the
Blockbuster Property including real estate taxes, insurance, maintenance and
repair costs, except that the Partnership will be responsible for the repair and
maintenance of the structural systems including the roof, load-bearing walls and
floor slabs and exterior masonry walls and foundations. The Blockbuster Lease
term expires on June 30, 2007 with three renewal options of five years each. The
annual rental is payable according to the following schedule:
<TABLE>
<CAPTION>
PERIOD ANNUAL RENTAL
<S> <C> <C>
Lease Years 1-5 $117,975
Lease Years 6-10 $132,145
Lease Years 11-15 $145,360
Lease Years 16-20 $159,900
Lease Years 21-25 $175,890
</TABLE>
Viacom International, Inc., a Delaware corporation, unconditionally and
irrevocably guaranteed the full and complete performance of the Blockbuster
Lease.
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The current annual rent per square foot for the Blockbuster Property is
$18.15 per square foot. The depreciable basis of the Blockbuster Property for
federal tax purposes is $754,286 and it will be depreciated using the straight
line method over 39 years, a rate of $19,341 per year.
Hollywood Video, Hamilton, Ohio (Land and Building): On October 14, 1997,
the Partnership acquired the land and 7,488 square foot building comprising a
Hollywood Video located at 1491 Main Street, Hamilton, Ohio (the "Hollywood
Video Property"). The Hollywood Video Property was constructed for its present
use in 1997 and was fully operational at the time of the purchase. The Hollywood
Video Property was purchased from Blue Freedom Holdings, LLC, a Kentucky limited
liability company, and leased to Hollywood Entertainment Corporation, an Oregon
corporation ("Hollywood Entertainment"). The Partnership purchased a fee simple
interest in the Hollywood Video Property for a purchase price of $1,386,000
The Partnership purchased the property subject to a lease between Blue
Freedom Holdings, LLC and Hollywood Entertainment which commenced on July 24,
1997 (the "Hollywood Video Lease"). The Hollywood Video Lease is an absolute net
lease, whereby Hollywood Entertainment is responsible for all expenses related
to the Hollywood Video Property including real estate taxes, insurance,
maintenance and repair costs. The Hollywood Video Lease term expires on July 30,
2012 with three renewal options of five years each. The rent in the first
through fifth years of the Hollywood Video Lease is $152,418 per year, or
$12,701.50 per month. The annual rent will be adjusted on the first day of the
sixty-first month and every sixty months thereafter by the lesser of the
Percentage CPI Increase, as defined in the Hollywood Video Lease, or ten percent
(10%).
The current annual rent per square foot for the Hollywood Video Property
is $20.35 per square foot. The depreciable basis of the Hollywood Video Property
for federal tax purposes is $811,000 and it will be depreciated using the
straight line method over 39 years, a rate of $20,795 per year.
EQUIPMENT
Applebee's Neighborhood Grill & Bar Equipment, Midvale, Utah: On March
31, 1997, the Partnership acquired, effective as of February 20, 1997,
restaurant equipment (the "Applebee's Equipment") to be used in the operation of
an Applebee's Neighborhood Grill & Bar, located at 7045 South 1300 East,
Midvale, Utah for $402,000.00. The Applebee's Equipment was acquired from Captec
Financial Group, Inc. ("Captec"), an affiliate of the General Partners, which
purchased the Applebee's Equipment from various vendors for a total cost of
$402,000 and leased it to J.M.C. Limited Partnership, a Utah limited
partnership, DBA Applebees ( "JMC"). JMC and Captec entered into the
Partnership's standard form of lease dated March 1, 1997 (the "JMC Lease"). The
Partnership's standard form of equipment lease provides that the tenant is
responsible for all expenses related to such equipment, including taxes,
insurance, maintenance and repair costs. JMC owns and operates the Applebee's
Neighborhood Grill & Bar restaurant under a franchise agreement.
On March 31, 1997, Captec assigned the JMC Lease to the Partnership,
effective as of February 20, 1997. The lease term is 84 months and the annual
rent is $82,056 payable in monthly installments of $6,838. The annual rent
remains fixed for the entire JMC Lease term. The JMC Lease is guaranteed by John
B. Prince, an individual, and William Tell, Inc., a Utah corporation. At the end
of the JMC Lease term, upon at least 90 days prior irrevocable notice to the
Partnership, JMC may purchase the Equipment for the lesser of fair market value
or $40,200.
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Black-Eyed Pea Equipment, Plano, Texas: On April 3, 1997, the Partnership
acquired restaurant equipment (the "Black-Eyed Pea Equipment") to be used in the
operation of a Black-Eyed Pea restaurant located at 1905 Preston Road, Plano,
Texas for $350,000. The Black-Eyed Pea Equipment was acquired from DenAmerica
Corp., which purchased the Black-Eyed Pea Equipment from various vendors for a
total cost of $350,000. The Partnership leased the Black-Eyed Pea Equipment to
DenAmerica Corporation, a Georgia corporation d/b/a Black-Eyed Pea
("DenAmerica"), by entering into a lease dated as of April 15, 1997 (the
"DenAmerica Lease") with DenAmerica on the Partnership's standard form of
equipment lease. DenAmerica operates and franchises restaurants under the
primary trade names of Denny's and Black-Eyed Pea.
The lease term is 84 months and the minimum annual rent is $70,392
payable in monthly installments of $5,866. The annual rent remains fixed for the
entire DenAmerica Lease term. At the end of the DenAmerica Lease term, upon at
least 90 days prior irrevocable notice to the Partnership, DenAmerica may
purchase the Black-Eyed Equipment for its fair market value at the date of the
exercise of the option. The Partnership consented to a sublease between
DenAmerica and Texas BEP., LP., a Texas limited partnership, on the same terms
and conditions as the DenAmerica Lease. DenAmerica remains the obligor under the
DenAmerica Lease.
Jacksonville Shells Seafood Equipment, Jacksonville, Florida: On May
27,1997, the Partnership acquired restaurant equipment to be used in the
operation of a Shells Seafood Restaurant, located at 9965 San Jose Blvd.,
Jacksonville, Florida (the "Jacksonville Shells Equipment"). The Jacksonville
Shells Equipment was purchased from various vendors for a total cost of
$118,658.30 and leased to Shells Seafood Restaurants, Inc., a Delaware
corporation ("Shells Seafood"). Shells Seafood owns and operates Shells Seafood
Restaurants.
The Partnership and Shells Seafood entered into the Partnership's
standard form of equipment lease commencing on June 1, 1997 (the "Jacksonville
Shells Seafood Lease"). The lease term is 60 months and the minimum annual rent
is $31,781 payable in monthly installments of $2,648. The annual rent remains
fixed for the entire Jacksonville Shells Seafood Lease term. At the end of the
Jacksonville Shells Seafood Lease term, upon at least 90 days prior irrevocable
notice to the Partnership, Shells Seafood may purchase the Jacksonville Shells
Equipment for $11,866.
Shells Seafood Equipment, Winter Haven, Florida: On May 27,1997, the
Partnership acquired restaurant equipment to be used in the operation of a
Shells Seafood Restaurant, located at 1551 3rd Street, SW, Winter Haven, Florida
(the "Winter Haven Shells Equipment"). The Winter Haven Shells Equipment was
purchased from various vendors for a total cost of $93,460 and leased to Shells
Seafood.
The Partnership and Shells Seafood entered into the Partnership's
standard form of equipment lease commencing on June 1, 1997 (the "Winter Haven
Shells Seafood Lease"). The lease term is 60 months and the minimum annual rent
is $25,032 payable in monthly installments of $2,086 on the 1st day of each
month. The annual rent remains fixed for the entire Winter Haven Shells Lease
term. At the end of the Winter Haven Shells Seafood Lease term, upon at least 90
days prior irrevocable notice to the Partnership, Shells Seafood may purchase
the Winter Haven Shells Equipment for $9,346.
Golden Corral Equipment, Temple Terrace, Florida: On June 4,1997, the
Partnership acquired restaurant equipment to be used in the operation of a
Golden Corral Restaurant located at 11801 56th Street North, Temple Terrace,
Florida (the "Golden Corral Equipment"). The Golden Corral Equipment was
purchased from various vendors for a total cost of $506,198 and leased to Corral
South Store 4,
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Inc. a Florida corporation dba Golden Corral Restaurant ("Corral South 4").
Corral South 4 owns and operates the Golden Corral Restaurant under a franchise
agreement.
The Partnership and Corral South 4 entered into the Partnership's
standard form of equipment lease commencing on June 15, 1997 (the "Corral South
4 Lease"). The lease term is 60 months and the annual rent is $131,207 payable
in monthly installments of $10,934 on the 15th day of each month. The annual
rent remains fixed for the entire Golden Corral Lease term. All obligations
under the Corral South 4 Lease are guaranteed by David C. Brown, an individual.
At the end of the Corral South 4 Lease term, upon at least 90 days prior
irrevocable notice to the Partnership, Corral South 4 may purchase the Golden
Corral Equipment for $1.00
Arby's Equipment Pasco, Washington: On June 25,1997, the Partnership
acquired restaurant equipment to be used in the operation of an Arby's
restaurant, located at 2411 West Court, Pasco, Washington (the "Arby's
Equipment"). The Arby's Equipment was acquired from various vendors for a total
cost of $159,470.62 and leased to Girardi-Riva Enterprises, Inc., an Arizona
corporation dba Arby's Restaurant ("Girardi-Riva"). Girardi-Riva owns and
operates the Arby's restaurant under a franchise agreement.
The Partnership and Girardi-Riva entered into the Partnership's standard
form of equipment lease (the "Girardi-Riva Lease") commencing July 1, 1997. The
lease term is 84 months and the minimum annual rent is $32,724 payable in
monthly installments of $2,727. The annual rent remains fixed for the entire
Girardi-Riva Lease term. All obligations under the Girardi-Riva Lease are
jointly and severally guaranteed by Richard Riva, Sharri Riva, Thomas Girardi
and Kathy Girardi. At the end of the Girardi-Riva Lease term, upon at least 90
days prior irrevocable notice to the Partnership, Girardi-Riva may purchase the
Arby's Equipment for $1.00.
Breckenridge Brewery & Pub Equipment, Breckinridge, Colorado: On July 9,
1997, the Partnership purchased restaurant equipment to be used in the operation
of an Breckenridge Brewery & Pub, located at 600 South Main, Breckenridge,
Colorado (the "Breckenridge Equipment") for $791,000. The Breckenridge Equipment
was acquired from, and leased back to BBI Acquisition Co., a Colorado
corporation dba Breckenridge Brewery & Pub ("BBI").
The Partnership and BBI entered into the Partnership's standard form of
equipment lease ("BBI Lease") commencing August 1, 1997. The lease term is 84
months and the minimum annual rent is $163,262 payable in monthly installments
of $13,605.20. The annual rent remains fixed for the entire BBI Lease term. All
obligations under the BBI Lease are unconditionally guaranteed by Breckenridge
Holding Company, a Colorado corporation. At the end of the BBI Lease term, upon
at least 90 days prior irrevocable notice to the Partnership, BBI may purchase
the Breckenridge Equipment for $1.00.
Burger King Equipment, Colonial Heights, Virginia: On July 25,1997, the
Partnership made an initial disbursement of $30,600 for restaurant equipment to
be used in the operation of a Burger King restaurant, located at 401 Southpark
Blvd., Colonial Heights, Virginia ("Burger King Equipment"). The final
disbursement was made on November 1, 1997. The Burger King Equipment was
acquired from various vendors for a total cost of $282,327 and leased to
Virginia QSC, LLC, a Delaware limited liability company dba Burger King
("Virginia QSC"). Virginia QSC owns and operates the Burger King restaurant
under a franchise agreement.
The Partnership and Virginia QSC entered into a Progress Payment
Agreement dated July 15, 1997, ("Agreement") whereby the Partnership provided
disbursements of down payments and interim payments to pay approved costs
associated with the purchase of the Burger King Equipment. Virginia
8
<PAGE> 11
QSC paid to the Partnership a daily progress rental payment for each day that
any down payment and/or interim payment remained outstanding. The daily progress
payment was equal to .00031944 times the total amount outstanding and was paid
from July 25, 1997 to October 22, 1997. By October 22, 1997, all of the Burger
King Equipment had been delivered, installed, and accepted by Virginia QSC.
The Partnership and Virginia QSC entered into the Partnership's standard
form of equipment lease (the "Virginia QSC Lease") dated July 15, 1997 and
amended October 22, 1997 and November 1, 1997. The base lease term is 84 months
and commenced on November 1, 1997. Under the terms of the Virginia QSC Lease,
the minimum annual rent is $58,340 and is payable in monthly installments of
$4,862. The annual rent remains fixed for the entire Virginia QSC Lease term.
All obligations under the Virginia QSC Lease are jointly and severally
unconditionally guaranteed by Justin Hathaway, Steven Porath and Alan Buford,
each of whom is a member of Virginia QSC. At the end of the Virginia QSC Lease
term, upon at least 90 days prior irrevocable notice to the Partnership,
Virginia QSC may purchase the Burger King Equipment for $1.00.
KFC Equipment, Greensburg, Pennsylvania: On October 15,1997, the
Partnership acquired restaurant equipment to be used in the operation of a KFC
restaurant, located at 975 E. Pittsburgh Street, Greensburg, Pennsylvania (the
"KFC Equipment"). The KFC Equipment was acquired from various vendors for a
total cost of $231,021 and leased to Morgan's Restaurants of Pennsylvania, Inc.,
a Pennsylvania corporation dba KFC Restaurant ("Morgan's"). Morgan's owns and
operates the KFC restaurant under a franchise agreement.
The Partnership and Morgan's entered into the Partnership's standard form
of equipment lease (the "Morgan's Lease") commencing on October 15, 1997. The
lease term is 84 months and the minimum annual rent is $45,188 payable in
monthly installments of $3,766. The annual rent remains fixed for the entire
Morgan's Lease term. All obligations under the Morgan's Lease are
unconditionally guaranteed by Morgan's Foods, Inc., an Ohio corporation and
parent company of Morgan's. At the end of the Morgan's Lease term, upon at least
90 days prior irrevocable notice to the Partnership, Morgan's may purchase the
KFC Equipment for $1.00.
Property and Equipment Acquisitions-General
With respect to each of the Properties, an affiliate of the Managing
General Partner (i) considered factors such as the potential value of the site,
the financial condition and business and operating history of the tenant, and
demographic data for the area in which the Property is located, (ii) analyzed
demographic, geographic and market diversification data for the area in which
each Property is located and reviewed an independent MAI appraisal of each
Property and the analysis regarding comparable properties contained therein, and
(iii) negotiated the purchase price.
The Partnership purchased each Property and Equipment package with cash
from Offering proceeds. It is anticipated that each such Property and Equipment
package will be leveraged as provided for in the Prospectus. However, the
Partnership presently does not have a financing commitment. With respect to each
of the Properties and the Equipment packages, the General Partners believe that
the amount of insurance carried by each lessee is adequate. With respect to all
Equipment leases, each provides that the lessee is responsible for all expenses
related to the Equipment including taxes, insurance, maintenance and repair
costs.
Properties will be selected for acquisition based on an examination and
evaluation by the General Partners or an Affiliate of the potential value of the
site, the financial condition and business
9
<PAGE> 12
history of the proposed lessee, the demographics of the area in which the
Property is located or to be located, the proposed purchase price and lease
terms, geographic and market diversification, and potential operating results.
Similar analysis will be utilized in selecting Equipment. In certain cases, the
Partnership may become a co-venturer or general partner in a joint venture or
general partnership which will own a Property or Equipment. (See discussion
below.) The Partnership may also acquire Property through the acquisition of
substantially all of the interests of an entity which in turn owns a Property.
The Partnership may participate in sale-leaseback transactions, but expects to
do so only with respect to Properties and then only when the Property has an
established track record. The Partnership anticipates that only fee interests in
real property will be acquired, although other interests (including acquisitions
of buildings, with the underlying land being subject to a long-term ground
lease) may be acquired if it is deemed to be advantageous to the Partnership. In
each such case, the Partnership's cost to purchase an interest in such Property
and/or Equipment would decrease and the total number of Properties and/or
Equipment which the Partnership would be able to acquire will increase.
In making investments, the General Partners will consider relevant
factors, including the condition and proposed use of the Property and/or
Equipment, income-producing capacity, the financial condition of the lessee, and
with respect to Properties, the prospects for long-term appreciation. In no
event will Property or Equipment be acquired unless a satisfactory lease
commitment has been obtained from a suitable lessee as further described below.
In selecting specific Properties and lessees, the General Partners
generally will require the following:
(i) Base annual rent will provide a specified minimum return on
the contract purchase price of the Property; the majority of
the leases will provide for fixed increases on specific dates
or indexation of rents to indices such as the Consumer Price
Index. Leases may also provide for percentage rents
calculated to provide rents equal to a percentage of the
lessee's gross sales if greater than the base rent; and
(ii) The initial lease will have a term of between seven and
twenty years.
In selecting specific Equipment, the General Partners typically will
require the following:
(i) Full Payout Leases providing for fixed rents structured to
return 100% of the cost of the Equipment plus yield a return
equivalent to market interest rates over the lease term; and
(ii) The leases are expected to have terms of five to seven years
with residual values of Equipment at the end of such terms
expected to be minimal (approximately 10% of original cost).
The terms and conditions of any lease entered into by the Partnership
with regard to a tenant may vary substantially from those described herein.
However, all of the leases will be Triple Net, which means that the lessee will
be required to pay all real estate and other taxes and assessments, utilities,
insurance and cost of maintenance and repairs, or Double Net leases, which
differs from a Triple Net Lease only in that the Partnership is responsible for
the maintenance of the exterior walls and roof of the Property.
10
<PAGE> 13
The Partnership may invest in partnerships or joint venture arrangements
with persons formed by the General Partners or any of their Affiliates if all of
the following conditions are met: (i) the two partnerships or entities have
substantially identical investment objectives; (ii) the Partnership will not
incur any duplicate property management or other fees; (iii) the compensation to
the General Partners and their Affiliates must be substantially identical in
both partnerships or entities; (iv) the Partnership must have a right of first
refusal to buy the interest of the other joint venture partner if said other
partner wishes to sell the property held by such joint venture; and (v) the
investment by each such joint venture partner must be on substantially the same
terms and conditions.
The Partnership may invest in partnerships or joint venture arrangements
with persons other than Affiliated partnerships only under the following
conditions: (a) there are no duplicate property management or other fees; (b)
the investment of each entity is on substantially the same terms and conditions;
(c) the Partnership obtains a controlling interest in the partnership or joint
venture; and (d) the Partnership must have a right of first refusal to buy if
its joint venture partner wishes to sell the Property or Equipment held in such
joint venture.
In no event will the Partnership reinvest Net Sale or Refinancing
Proceeds received commencing four years after the date on which the Partnership
terminates its Offering. It is expected that leases of certain Properties may
give the lessee the right to purchase the Property seven to ten years after the
date of the lease at the Property's fair market value as determined by an
independent appraisal at the time of sale. Additionally, certain leases may
grant the lessee an option to purchase a percentage interest in the Property at
a price based on the fair market value as determined by an independent appraisal
at the time the option is exercised. The determination of whether particular
Properties or Equipment should be sold or otherwise disposed of will be made
after consideration of relevant factors, including performance or projected
performance of the Property or Equipment and market conditions, with a view
toward achieving the principal investment objectives of the Partnership.
The Partnership's general policy will be to sell Properties and/or
Equipment on an all cash basis. However, under certain circumstances a purchase
money obligation secured by a lien on the Property or Equipment may be taken as
part payment and there are no limitations or restrictions on the Partnership
taking such purchase money obligations. The terms of payment to the Partnership
will be affected by custom in the area in which the Property or Equipment is
located and the then prevailing economic conditions. To the extent the
Partnership receives notes and other property in lieu of cash, such proceeds
(other than any interest payable thereon) will be excluded from Net Sale or
Refinancing Proceeds until and to the extent the notes or other property are
actually paid, sold, refinanced or otherwise disposed of and, therefore, the
distribution of the proceeds of a sale to the Limited Partners may be delayed
until such time. In some cases, the Partnership may receive payments (cash and
other property) in the year of sale in an amount less than the selling price,
with subsequent payments being spread over a number of years. It is possible
that such purchase money obligations would be structured to provide for a
"balloon" payment of the entire balance of principal at maturity.
The Partnership intends to acquire Properties and Equipment using
leverage, on a portfolio basis, of up to 35% of the sum of gross proceeds of the
Offering and the aggregate amount of Partnership indebtedness secured by
Partnership Assets (approximately 40% of the aggregate purchase prices of all
Properties and Equipment). Notwithstanding the foregoing, the Partnership may
incur indebtedness on single Properties or Equipment packages equal to up to 80%
of the purchase price thereof so long as aggregate portfolio indebtedness does
not exceed the above-referenced amount. Borrowings for acquisition or
improvement will cause tax-exempt investors to recognize unrelated business
taxable income, although they will be allowed to offset such income with
deductions related thereto.
11
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS.
The Partnership is not a party to any material legal proceeding nor, to
the best of its knowledge, are any such proceedings either pending or
threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
Partnership's most recent fiscal year covered by this report. However, the
Partnership intends to solicit the approval of the Limited Partners for the sale
of the general partnership interest held by the General Partners to Captec Net
Lease Realty, Inc., an Affiliate of the General Partners. The transfer of such
general partnership interests is subject to the approval of the majority of the
Limited Partners, and the Limited Partners will receive notice of and an
opportunity to approve any transfer of the general partnership interests.
12
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS.
The Units are not readily transferable. There is no public market for the
Units and it is not currently expected that any will develop. There are
restrictions upon the transferability of Units, including the requirement that
the General Partners consent to any transferee becoming a substituted Limited
Partner (which consent may be granted or withheld at the sole discretion of the
General Partners). In addition, restrictions on transfer may be imposed under
state securities laws.
The Revenue Act of 1987 contains provisions which may have an adverse
impact on investors in certain "publicly traded partnerships." If the
Partnership were to be classified as a "publicly traded partnership," income
attributable to the Units would be characterized as portfolio income and the
gross income attributable to Units acquired by tax-exempt entities would be
unrelated business income, with the result that the Units could be less
marketable. The General Partners will, if necessary, take appropriate steps to
ensure that the Partnership will not be deemed a "publicly traded partnership."
At December 31, 1997, the Partnership had 15,391.986 Units issued and
outstanding and 911 limited partners.
13
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended
December 31,
1997
-------------
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenue:
Rental income $ 295,367
Finance income 201,314
------------
Total operating revenue 496,681
------------
Operating costs and expenses:
Depreciation 32,988
General and administrative 31,296
------------
Total operating costs and expenses 64,284
------------
Income from operations 432,397
------------
Other income:
Interest income 92,048
Other 1,598
------------
Total other income 93,646
------------
Net income 526,043
Net income allocable to general partners 5,260
------------
Net income allocable to limited partners $ 520,783
============
Net income per limited partnership unit $ 74.10
============
Weighted average number of limited partnership
units outstanding 7,028
============
OTHER DATA:
Cash flows from operating activities $ 579,235
Cash flows from investing activities $ (8,677,520)
Cash flows from financing activities $ 13,106,479
<CAPTION>
December 31,
BALANCE SHEET DATA: 1997
------------
<S> <C>
Cash and cash equivalents $ 5,008,194
Investment in property under leases $ 8,644,533
Total assets $ 13,731,578
Total liabilities $ 179,058
Total partners' capital $ 13,552,520
</TABLE>
14
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF ORGANIZATION.
When used in this discussion, the words, "intends", "anticipates",
"expects", and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected. Such risks
and uncertainties include the following: (i) a tenant may default in making rent
payments, (ii) a fire or other casualty may interrupt the cash flow stream from
a property, (iii) the properties may not be able to be leased at the assumed
rental rates, (iv) unexpected expenses may be incurred in the ownership of the
properties, and (v) properties may not be able to be sold at the presently
anticipated prices and times.
As a result of these and other factors, the Partnership may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition and operating results. These forward-looking statements speak only as
of the date hereof. The Partnership undertakes no obligation to publicly release
the results of any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Liquidity and Capital Resources
The Partnership commenced the Offering of up to 30,000 Units registered
under the Securities Act of 1933, as amended, by means of a Registration
Statement filed on Form S-11 which was declared effective by the Securities and
Exchange Commission on December 23, 1996. The Partnership accepted subscriptions
for the Minimum Number of Units on March 5, 1997 and immediately commenced
operations.
As of December 31, 1997, the Partnership had accepted subscriptions for
15,392 Units and funds totaling $15,380,902. After payment of $1,995,825 in
offering expenses, net proceeds available for investment from sale of the units
totaled $13,385,077. The Partnership had purchased five Properties for a total
of $5,838,857 and nine Equipment packages for $3,051,499. At December 31, 1997,
the Partnership had approximately $4.5 million of uninvested capital and
approximately $5 million invested in interest bearing cash accounts.
As of December 31, 1997, the Partnership's investments were allocated
approximately 66% to Properties and 33% to Equipment. This allocation is
expected to change as additional Properties and Equipment are acquired. The
final asset mix allocation is expected to be at least 75% and not more than 90%
Properties and up to 25% but not less than 10% Equipment.
As of March 25, 1998, the Partnership had accepted subscriptions for
19,827.488 Units and funds totaling $19,827,488. The Partnership intends to
raise an additional $10,172,512 in capital from the sale of 10,172.512 Units.
The univested capital and the proceeds from the offering received during 1998,
will be utilized to acquire Properties and Equipment.
Once the proceeds from the offering have been invested, the Partnership
expects to obtain leverage of up to 35% of the sum of gross proceeds and the
aggregate amount of Partnership indebtedness secured by Partnership assets
(approximately 40% of the aggregate purchase prices of Partnership assets). Such
leverage, when incurred, will provide additional funds to be used by the
Partnership to purchase additional Properties and Equipment. Presently, the
Partnership does not have a financing commitment for this leverage.
15
<PAGE> 18
The Partnership has invested some of its funds in liquid assets until
such time as the funds can be invested in Property and Equipment. Once
substantially all of the Partnership's funds have been invested as intended, the
Partnership expects that only limited amounts of liquid assets will be required
since the form of lease which it intends to use for its Properties and Equipment
will require lessees to pay all taxes and assessments, maintenance and repairs
items (except, with respect to Double Net Properties, costs associated with the
maintenance and repairs of the exterior walls and roof of the Property) and
insurance premiums, including casualty insurance. The General Partners expect
that the cash flow generated by the Properties and Equipment will be adequate to
pay operating expenses and provide distributions to Limited Partners.
Results of Operations.
The Partnership commenced operation in March of 1997, therefore, there
is no comparative information provided below for the prior year. Furthermore,
the information provided below should be read with the understanding that 1997
does not reflect a full twelve month period. In addition, the Partnership is in
the process of raising funds through the Offering and does not have all the
capital invested.
For the year ended December 31, 1997, the Partnership earned revenues
totaling approximately $590,000. Revenues for the year ended December 31, 1997,
were comprised of approximately $295,000 of rental income from operating leases,
$201,000 of financing income from financing leases and $94,000 of other income
which includes approximately $92,000 interest earned on the Partnership's bank
accounts.
For the year ended December 31, 1997, the Partnership incurred expenses
totaling approximately $64,000. Expenses for the year ended December 31, 1997,
were comprised of approximately $32,000 of depreciation on buildings leased
under operating leases and $32,000 of general and administrative expenses.
For the year ended December 31, 1997, the Partnership earned net income
of approximately $526,000. The Partnership is not subject to income taxation as
all of its income and expenses flow through to the Partners. The Partnership's
net assets and liabilities as reported in its financial statements exceeds tax
basis by $273,000, as of December 31, 1997.
During the year ended December 31, 1997, the Partnership made
distributions to limited partners totaling $358,900. Approximately $92,000 is
interest from the Partnership's bank accounts and the remaining $266,900 is cash
flow form operations.
The Partnership anticipates increased income in 1998 as a result of the
anticipated purchase of additional Properties and Equipment. In addition, the
Partnership expects as well, a proportionate increase in expenses due to the
effects of the purchase of additional Properties subject to triple or double net
leases and the resulting additional depreciation expense therefrom, and the
corresponding increase in general and administrative expense related to the
growth of the investment in such assets.
16
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Financial Statements on Page F-i of this Form 10-K for
Financial Statements and Financial Statement Schedules, where applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
17
<PAGE> 20
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OF THE REGISTRANT.
The Partnership does not have directors or officers. The General Partners
of the Partnership are Captec Franchise Capital Corporation IV, a Michigan
corporation, as Managing General Partner, and Patrick L. Beach, an individual.
Captec Franchise Capital Corporation IV is a wholly-owned subsidiary of the
Captec Group.
The following is a list of the executive officers and directors of the
Managing General Partner as of December 31, 1997:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Patrick L. Beach 41 Chairman of the Board of Directors,
President and Chief Executive Officer
W. Ross Martin 37 Director, Senior Vice President,
Treasurer and Chief Financial Officer
</TABLE>
Patrick L. Beach has served as Chairman of the Board of Directors,
President and Chief Executive Officer of the Managing General Partner since
1996. Mr. Beach is also the Chairman of the Board of Directors, President and
Chief Executive Officer of the Captec Group, Captec Franchise Capital
Corporation II ("Captec II"). and Captec Franchise Capital Corporation III
("Captec III"). Captec II and Captec III are Michigan corporations which serve
as the Managing General Partner of Captec Franchise Capital Partners L.P. II and
Captec Franchise Capital Partners L.P. III, respectively, both of which are
limited partnerships with investment objectives similar to the Partnership. From
1977 until 1980 he was employed by the HydraMatic Division of General Motors
Corp., where he served in various manufacturing related positions. From March
1980 until February 1981 he served as Production Manager for Quick Industries,
Inc. of Jackson, Michigan with responsibility for purchasing and production
management for five plastics manufacturing plants in five states. In February
1981, Mr. Beach resigned from his previous position to found the Captec Group.
He is responsible for the day to day management of the Captec Group and its
Affiliates. From 1986 to 1990, Mr. Beach also served as Chairman of Wendy's of
San Diego, Inc., a 27-unit franchisee of Wendy's International. In 1990, Mr.
Beach sold his interest in Wendy's of San Diego, Inc. and resigned as Chairman
of the Board. Approximately twenty-two months thereafter, Wendy's of San Diego,
Inc. filed for protection under Chapter 11 of the Bankruptcy Code. From 1989 to
1991 Mr. Beach served as Chairman and President of Illiana Printing, Inc., the
master franchisor for American Speedy Printing Centers, Inc. in the states of
Illinois and Indiana.
W. Ross Martin has served as a Director, Sr. Vice President, Treasurer
and Chief Financial Officer of the Managing General Partner since 1996. Mr.
Martin also serves as Director, Vice President, Treasurer and Chief Financial
Officer of Captec II and Captec III and as Director, Senior Vice
18
<PAGE> 21
President and Chief Financial Officer of the Captec Group. Mr. Martin is also a
Certified Public Accountant. From 1982 until 1985, he was employed by Deloitte
Haskins & Sells, most recently as senior consultant in that firm's Emerging
Business Services practice. Mr. Martin joined the Captec Group in 1985 as
Controller, was promoted to Vice President-Finance in 1986 and to Senior Vice
President and Chief Financial Officer in 1994. He is responsible for the
treasury, corporate finance and strategic planning duties of the Captec Group as
well as overseeing the Accounting and Credit Departments.
ITEM 11. EXECUTIVE COMPENSATION.
The Partnership has no officers or directors. Furthermore, the
Partnership is not required to pay the officers and directors of the General
Partners any current nor any proposed compensation in such capacities. However,
the Partnership is required to pay certain fees, make distributions and allocate
a share of the profits or losses of the Partnership to the General Partners as
described under the caption "Compensation Table" on pages 35 through 42 of the
Partnership's Prospectus, which description is incorporated herein by reference.
See "Item 13. Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
To the best knowledge of the Partnership, as of December 31, 1997 no
person known by the Partnership, beneficially owned more than 5% of the
outstanding Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1997, Captec Financial Group, Inc., the parent of the Managing
General Partner and of which Mr. Patrick Beach is a director, officer and
majority shareholder and affiliates of Captec Financial Group, Inc. (the "Captec
Group") received Acquisition Fees from the Partnership in an amount equal to
$341,936, and expects to receive an additional fee of $102,000 from the
Partnership after leveraging the Partnership's assets as provided for in the
Prospectus, for services rendered in connection with the selection, evaluation
and acquisition of the Property, as provided in the Partnership Agreement. In
addition, the Captec Group also received commitment fees paid by the tenants and
lessees during 1997 totaling $85,000. Commitment fees are paid by third parties
and are generally 1%-2% of the purchase price of the assets. All of the expenses
incident to the closing of the transactions including, without limit, the
Partnership's attorney's fees, title insurance premiums, recording fees and
expenses and transfer taxes are paid from amounts received as Acquisition Fees
or by the lessee.
The General Partners believe that the Asset Management Agreement entered
into between the Partnership and the Captec Group is on terms no less favorable
to the Partnership than those customary for similar services by independent
firms in the relevant geographic area. The property management agreement
provides for termination by a majority vote of the Limited Partners, without
penalty, upon 60 days prior written notice. During 1997, $6,297 was paid or
incurred by the Partnership in Asset Management Fees.
In connection with the Offering and throughout all stages of the
Partnership's operations, the General Partners and their affiliates will receive
compensation as described more fully in the "Compensation Table" on pages 35
through 42 of the Partnership's Prospectus. All of the General Partners' fees
with the exception of Acquisition Fees will be subordinated to receipt by the
Limited Partners of preferential distributions. Acquisition Fees will be payable
whether or not funds are
19
<PAGE> 22
available for distribution to the Limited Partners. The General Partners may,
under certain circumstances, benefit from the continued holding of Partnership
Properties and/or Equipment, while investors may be better served by a sale or
other disposition of such Properties and/or Equipment. Furthermore, the receipt
of certain fees and reimbursements is dependent upon the ability of the General
Partners to timely invest net offering proceeds. Therefore, the interest of the
General Partners in receiving such fees may conflict with the interest of the
Limited Partners. The General Partners and their affiliates believe that their
actions and decisions will be made in a manner consistent with their fiduciary
duty to the Partnership.
The agreements and arrangements, including those relating to
compensation, between the Partnership and the General Partners or any of their
affiliates have not and will not be the result of arm's-length negotiations
although the General Partners believe that such agreements and arrangements will
approximate those which would be arrived at through arm's-length negotiations.
While the Partnership will make no loans to the General Partners or their
affiliates, the Partnership may borrow money from the General Partners or their
affiliates but only on such terms as to interest rate, security, fees and other
charges at least as favorable to the Partnership as are charged by unaffiliated
lending institutions in the same locality on comparable loans for the same
purpose. The General Partners and their affiliate's are not prohibited from
providing services to, and otherwise dealing or doing business with, persons
(for example, franchisees), who may deal with the Partnership, although there
are no present arrangements with respect thereto. However, the Partnership
Agreement prohibits receipt of rebates or participation in any reciprocal
business arrangements which would have the effect of circumventing any of the
provisions of the Partnership Agreement.
The General Partners may cause the Partnership to acquire an interest in
property and/or equipment through a joint venture or general partnership with an
entity affiliated with the General Partners. In such instance, the General
Partners or their affiliates will have a fiduciary duty to both the Partnership
and the other entity which participates in the joint venture. This may result in
an impasse in decision-making since generally no one of the affiliated joint
venturers would have full control over the joint venture. In addition, there is
a potential risk that while one joint venturer may have the right to purchase
the other joint venturer's interest in the event of a proposed sale, it may not
have the resources to do so. In order to minimize the likelihood of a conflict
between those fiduciary duties, the Partnership Agreement provides guidelines
for investments in such joint ventures in various respects.
20
<PAGE> 23
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herein or incorporated by
reference:
Number Exhibit
4 Agreement of Limited Partnership of Registrant
(Incorporated by reference from Exhibit B of the final
Prospectus dated December 23, 1996, as supplemented and
filed with the Securities and Exchange Commission,
S.E.C. File No. 333-9371)
27 Financial Data Schedule
99.1 Pages 35-42 of the final Prospectus dated December 23,
1997 as supplemented. (Incorporated by reference from
the final Prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) promulgated
under the Securities Act of 1933, as amended. S.E.C.
File No. 333-9371.)
(b) Reports on Form 8-K:
The Partnership filed one report on Form 8-K during the quarter ended
December 31, 1997. (Incorporated by reference from Registrant's SEC File No.
333-9371, filed October 16, 1997).
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report to security holders covering the Partnership's last
fiscal year and no proxy statement, form of proxy or other proxy soliciting
material with respect to any annual or other meeting of security holders has
been nor will be sent to security holders.
21
<PAGE> 24
INDEX TO FINANCIAL STATEMENTS
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV PAGE
REPORT OF INDEPENDENT ACCOUNTANTS F(a) - 1
FINANCIAL STATEMENTS:
Balance Sheet F(a) - 2
Statement of Operations F(a) - 3
Statement of Changes in Partners' Capital F(a) - 4
Statement of Cash Flows F(a) - 5
Notes to Financial Statements F(a) - 6
CAPTEC FRANCHISE CAPITAL CORPORATION IV PAGE
REPORT OF INDEPENDENT ACCOUNTANTS F(b) - 1
FINANCIAL STATEMENTS:
Balance Sheet F(b) - 2
Statement of Operations F(b) - 3
Statement of Changes in Stockholder's Equity F(b) - 4
Statement of Cash Flows F(b) - 5
Notes to Financial Statements F(b) - 6
i
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Captec Franchise Capital Corporation IV
Managing General Partner of
Captec Franchise Capital Partners L.P. IV:
We have audited the accompanying balance sheet of Captec Franchise Capital
Partners L.P. IV as of December 31, 1997 and 1996 and the related statements of
operations, changes in partners' capital, and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting financial statement amounts and disclosures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Captec Franchise Capital
Partners L.P. IV as of December 31, 1997 and 1996, and the results of its
operations, changes in partners' capital and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand
Detroit, Michigan
March 14, 1998
F(a) - 1
<PAGE> 26
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
BALANCE SHEET
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,008,194 $ -
Investment in property under leases:
Operating leases, net 5,805,870 -
Financing leases, net 2,838,663 -
Prepaid expenses - 339
Accounts receivable 3,487 -
Unbilled rent 25,983 -
Due from related parties 49,381 -
---------------- -----------
Total assets $ 13,731,578 $ 339
================ ===========
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 49,375 $ -
Due to related parties 129,683 -
Overdraft - 39
---------------- -----------
Total liabilities 179,058 39
---------------- -----------
Partners' Capital:
Limited partners' capital accounts - 100
General partners' capital accounts - 200
---------------- -----------
Total partners' capital - 300
---------------- -----------
Total liabilities & partners' capital $ 179,058 $ 339
================ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(a) - 2
<PAGE> 27
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF OPERATIONS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Operating revenue:
Rental income $ 295,367 $ -
Finance income 201,314 -
------------ ------------
Total operating revenue 496,681 -
------------ ------------
Operating costs and expenses:
Depreciation 32,988 -
General and administrative 31,296 -
------------ ------------
Total operating costs and expenses 64,284 -
------------ ------------
Income from operations 432,397 -
------------ ------------
Other income:
Interest income 92,048 -
Other 1,598 -
------------ ------------
Total other income 93,646 -
------------ ------------
Net income 526,043 -
Net income allocable to general partners 5,260 -
------------ ------------
Net income allocable to limited partners $ 520,783 $ -
============ ============
Net income per limited partnership unit $ 74.10 $ -
============ ============
Weighted average number of limited partnership
units outstanding 7,028 -
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(a) - 3
<PAGE> 28
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Limited Limited General Total
Partners' Partners' Partners' Partners'
Units Accounts Accounts Capital
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Balance July 30, 1996 - $ 100 $ 200 $ 300
Net income - - - -
----------- -------------- ----------- --------------
Balance, December 31, 1996 - 100 200 300
Issuance of 15,392 limited partnership
units, net 15,392 13,385,077 13,385,077
Distributions - ($23.32 per unit) - (358,900) - (358,900)
Net income - 520,783 5,260 526,043
----------- -------------- ----------- --------------
Balance, December 31, 1997 15,392 $ 13,547,060 $ 5,460 $ 13,552,520
=========== ============== =========== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(a) - 4
<PAGE> 29
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CASH FLOWS
for the year ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 526,043 $ -
Adjustments to net income:
Depreciation 32,987 -
Decrease (increase) in prepaids 339 (339)
Increase in unbilled rent (25,983) -
Increase in accounts receivable (3,487) -
Increase in accounts payable 49,336 39
---------------- ---------------
Net cash provided by operating activities 579,235 (300)
---------------- ---------------
Cash flows from investing activities:
Purchase of real estate for operating leases (5,838,857) -
Purchase of equipment for financing leases (3,051,499) -
Reduction of net investment in financing leases 212,836 -
---------------- ---------------
Net cash used in investing activities (8,677,520) -
---------------- ---------------
Cash flows from financing activities:
(Increase) in due from related parties (49,381) -
Increase in due to related parties 129,683 -
Issuance of limited partnership units 15,380,902 -
Offering costs (1,995,825) -
Distributions to limited partners (358,900) -
---------------- ---------------
Net cash provided by financing activities 13,106,479 -
---------------- ---------------
Net (decrease) increase in cash and cash equivalents 5,008,194 (300)
Cash and cash equivalents, beginning of period - 300
---------------- ---------------
Cash and cash equivalents, end of period $ 5,008,194 $ -
================ ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(a) - 5
<PAGE> 30
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:
Captec Franchise Capital Partners L.P. IV (the "Partnership"), a Delaware
limited partnership, was organized on July 23, 1996 for the purpose of
acquiring income-producing commercial real properties and equipment leased
on a "triple net" or "double net" basis, primarily to operators of national
and regional chain franchised fast food and family style restaurants, as
well as other national and regional retail chains.
The general partners of the Partnership are Captec Franchise Capital
Corporation IV (the "Corporation"), a wholly owned subsidiary of Captec
Financial Group, Inc. ("Captec"), and Patrick L. Beach, an individual,
hereinafter collectively referred to as the Sponsor. Patrick L. Beach is
also the Chairman of the Board of Directors, President and Chief Executive
Officer of the Corporation and Captec. The General Partners have each
contributed $100 in cash to the Partnership as a capital contribution.
The Partnership commenced a public offering of limited partnership
interests ("Units") on December 31, 1996. A minimum of 2,000 Units and a
maximum of 30,000 Units, priced at $1,000 per Unit, were offered on a "best
efforts, part or none" basis. The Partnership broke impound on March 5,
1997, at which time funds totaling $2,015,500 were released from escrow and
the Partnership immediately commenced operations. At December 31, 1997,
the Partnership had accepted subscriptions for 15,392 Units, and funds
totaling $15,380,902.
The initial Limited Partner of the Partnership was Patrick L. Beach. As of
December 31, 1996, Mr. Beach had contributed $100 to the capital of the
Partnership and had received 0.1 Unit. During 1997, upon admission to the
Partnership of other Limited Partners, the initial Limited Partner may
withdraw from the Partnership, and his 0.1 Unit shall be redeemed for $100.
Allocation of profits, losses and cash distributions from operations
and cash distributions from sale or refinancing are made pursuant to the
terms of the Partnership Agreement. Profits and losses from operations are
allocated among the limited partners based upon the number of Units owned.
In no event will the General Partners be allocated less than one percent of
profits and losses in any year.
Following is a summary of the Partnership's significant accounting
policies:
A. CASH EQUIVALENTS: The Partnership considers all highly liquid
investments purchased with an original maturity of three months or
less to be cash equivalents.
F(a) - 6
<PAGE> 31
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES, CONTINUED:
B. RENTAL INCOME FROM OPERATING LEASES: The Partnership's operating
leases have scheduled rent increases which occur at various dates
throughout the lease terms. The Partnership recognizes the total
rent, as stipulated by the lease agreement, as income on a
straight-line basis over the term of each lease. To the extent rental
income on the straight-line basis exceeds rents billable per the lease
agreement, an amount is recorded as unbilled rent.
C. LAND AND BUILDING SUBJECT TO OPERATING LEASES: Land and
buildings subject to operating leases are stated at cost less
accumulated depreciation. Buildings are depreciated on the
straight-line method over their estimated useful lives (40 years).
D. NET INVESTMENT IN FINANCING LEASES: Leases classified as
financing leases are stated as the sum of the minimum lease payments
plus the unguaranteed residual value accruing to the benefit of the
lessor, less unearned income. Unearned income is amortized to income
over the lease term so as to produce a constant periodic rate of
return on the net investment in the lease.
E. NET INCOME PER LIMITED PARTNERSHIP INTEREST: Net income per
limited partnership interest is calculated using the weighted average
number of limited partnership units outstanding during the period and
the limited partners' allocable share of the net income.
F. INCOME TAXES: No provision for income taxes is included in the
accompanying financial statements, as the Partnership's results of
operations are passed through to the partners for inclusion in their
respective income tax returns.
G. ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. DISTRIBUTIONS:
Cash flows of the Partnership are allocated ninety-nine percent (99%) to the
limited partners and one percent (1%) to the Sponsor, except that the
Sponsor's share is subordinated to a ten percent (10%) per annum
cumulative, non-compounded preferred return to the limited partners. Net
sale or refinancing proceeds of the Partnership will be allocated ninety
percent (90%) to the limited partners and ten percent (10%) to the Sponsor,
except that the Sponsor's share will be subordinated to a ten and one-half
percent (10.5%) per annum cumulative, non-compounded return on their
Adjusted Investment plus return of the original contributions to the limited
partners.
Distributions of cash flow from operations are paid quarterly in arrears.
F(a) - 7
<PAGE> 32
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS AND AGREEMENTS:
Organization and offering expenses, excluding selling commissions, are paid
initially by the General Partners and/or their affiliates and are
reimbursed by the Partnership in an amount equal to up to three percent (3%)
of the gross proceeds of the offering (less any amounts paid directly by the
Partnership). In addition, the Sponsor and/or its affiliates are paid a
non-accountable expense allowance by the Partnership in an amount equal to
two percent (2%) of the gross proceeds of the offering. The Sponsor and/or
its affiliates were reimbursed $710,310 during the twelve month period ended
December 31, 1997. These costs were treated as capital issuance costs and
have been netted against the limited partners' capital accounts.
The Partnership paid to Participating Dealers, including affiliates of the
general partners, selling commissions in an amount equal to eight percent
(8%) of the purchase price of all Units placed by them directly. An
additional one percent (1%) of the purchase price was paid to Participating
Dealers on all Units placed by them until the minimum number of Units were
sold (2,015.5). The additional one percent (1%) was paid out of the
non-accountable expense allowance. There were $1,223,946 of selling
commissions paid or incurred during the twelve month period ended December
31, 1997. These costs were treated as capital issuance costs and have been
netted against the limited partners' capital accounts. The Sponsor has also
guaranteed payment of organization and offering expenses which exceed 13%,
including selling commissions, of the gross proceeds of the offering.
An acquisition fee is charged, not to exceed the lesser of: (i) four
percent (4%) of gross proceeds plus an additional .0677% for each 1%
of indebtedness incurred in acquiring properties and/or equipment but in no
event will acquisition fees exceed five percent (5%) of the aggregate
purchase prices of properties and equipment; or (ii) compensation
customarily charged in arm's length transactions by others rendering similar
services. The Partnership paid the Sponsor $341,936 in acquisition fees
during the twelve month period ended December 31, 1997, and expects to pay
an additional $68,351 once the Partnership has obtained the maximum
leverage. Of this amount $117,365 was capitalized into net investment in
financing leases and $224,571 was capitalized into land and building subject
to operating leases.
The Partnership has entered into an asset management agreement with the
Sponsor and its affiliates, whereby the Sponsor provides various property
and equipment management services for the Partnership.
A subordinated asset management fee is charged, in an amount equal to one
percent (1%) of the gross rental revenues derived from the properties and
equipment. Payment of the asset management fee is subordinated to receipt
by the limited partners of annual distributions equal to a cumulative,
non-compounded return of ten percent (10%) per annum on their Adjusted
Investment. There was $6,297 paid or incurred to the General Partners
during the twelve month period ended December 31, 1997.
F(a) - 8
<PAGE> 33
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS AND AGREEMENTS, CONTINUED:
An equipment liquidation fee limited to the lesser of three percent (3%) of
the sales price or customary fees for similar services will be paid in
conjunction with asset liquidation services. There were no equipment
liquidations during the twelve month period ended December 31, 1997.
The Partnership Agreement provides for the Sponsor to receive a real estate
liquidation fee limited to the lesser of three percent (3%) of the gross
sales price or fifty percent (50%) of the customary real estate commissions
in the event of a real estate liquidation. This fee is payable only after
the limited partners have received distributions equal to a cumulative,
non-compounded return of ten and one-half percent (10.5%) per annum,
cumulative non-compounded preferred return on their Adjusted Investment
capital plus distributions of sale or refinancing proceeds equal to 100% of
their original contributions. There were no real estate liquidations during
the twelve month period ended December 31, 1997.
The Partnership has agreed to indemnify the Sponsor and their affiliates
against certain costs paid in settlement of claims which might be sustained
by them in connection with the Partnership. Such indemnification is limited
to the assets of the Partnership and not the limited partners.
4. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of December 31, 1997 is comprised
of the following:
<TABLE>
<S> <C>
Land $2,676,582
Building and improvements 3,162,276
----------
5,838,858
Less accumulated depreciation (32,988)
----------
Total $5,805,870
==========
</TABLE>
The following is a schedule of future minimum lease payments to be received
on the operating leases as of December 31, 1997.
<TABLE>
<S> <C>
1998 $ 607,570
1999 607,570
2000 611,235
2001 616,366
2002 632,662
Thereafter 6,180,051
----------
Total $9,255,454
==========
</TABLE>
F(a) - 9
<PAGE> 34
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS
5. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of December 31, 1997 is comprised
of the following:
<TABLE>
<S> <C>
Minimum lease payments to be received $3,714,592
Estimated residual value 81,372
----------
Gross investment in financing leases 3,795,964
Less unearned income (957,301)
----------
Net investment in financing leases $2,838,663
==========
</TABLE>
The following is a schedule of future minimum lease payments to be received
on the financing leases as of December 31, 1997:
<TABLE>
<S> <C>
1998 $ 640,331
1999 639,982
2000 639,982
2001 639,982
2002 514,635
Thereafter 639,680
----------
Total $3,714,592
==========
</TABLE>
6. SUBSEQUENT EVENT:
Based upon the results of operations for the three month period ended
December 31, 1997, the Partnership will distribute $350,000, of which
$284,706 was distributed to its limited partners on January 15, 1998 and the
remaining $65,294 will be distributed to those limited partners who elected
to receive distributions on a monthly basis on February 13, 1998 and March
13, 1998.
F(a) - 10
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Captec Franchise Capital Corporation IV:
We have audited the accompanying balance sheet of Captec Franchise Capital
Corporation IV as of December 31, 1997 and 1996, and the related statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting financial statement amounts and disclosures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Captec Franchise Capital
Corporation IV as of December 31, 1997 and 1996, and the results of its
operations, changes in stockholders' equity and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand
Detroit, Michigan
March 14, 1998
F(b) - 1
<PAGE> 36
CAPTEC FRANCHISE CAPITAL CORPORATION IV
BALANCE SHEET
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- ------------
<S> <C> <C>
ASSETS
Cash $ 1,748 $ 1,407
Investment in partnership 2,730 100
Reimbursable organizational & offering expenses, net 15,594 29,048
Receivable from affiliate 19,766 1,697
Other assets 15,005 16,038
-------------- ------------
Total assets $ 54,843 $ 48,290
============== ============
LIABILITIES & STOCKHOLDERS' EQUITY
Total liabilities:
Accounts payable $ 51,213 $ 37,022
Payable to affiliates - 10,268
Income tax payable 894 -
-------------- ------------
Total liabilities 52,107 47,290
-------------- ------------
Stockholders' equity:
Common stock, no par value; 60,000 shares authorized,
1,000 shares issued and outstanding - -
Paid-in capital 1,000 1,000
Retained earnings - -
-------------- ------------
Total stockholders' equity 1,000 1,000
-------------- ------------
Total liabilities & stockholders' equity $ 53,107 $ 48,290
============== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(b) - 2
<PAGE> 37
CAPTEC FRANCHISE CAPITAL CORPORATION IV
STATEMENT OF OPERATIONS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Investment income from partnership $ 2,630 $ -
------------ ------------
Net income before taxes 2,630 -
Income tax provision 894 -
------------ ------------
Net income $ 1,736 $ -
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(b) - 3
<PAGE> 38
CAPTEC FRANCHISE CAPITAL CORPORATION IV
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $ - $ 1,000 $ - $ 1,000
Net Income - - - -
------------- ------------ ------------ ------------
Balance, December 31, 1996 - 1,000 - 1,000
Net income - - 1,736 1,736
------------- ------------ ------------ ------------
Balance, December 31, 1997 $ - $ 1,000 $ 1,736 $ 2,736
============= ============ ============ ============
</TABLE>
F(b) - 4
<PAGE> 39
CAPTEC FRANCHISE CAPITAL CORPORATION IV
STATEMENT OF CASH FLOWS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,736 $ -
Adjustments to net income:
Undistributed income from partnership (2,630) (100)
Increase in income tax payable 894 -
Decrease (increase) in other assets 1,033 (16,038)
Increase in accounts payable 14,191 37,022
------------ ------------
Net cash provided by operating activities 15,224 20,884
------------ ------------
Cash flows from financing activities:
Issuance of common stock - 1,000
Decrease in reimbursable offering expense and payable to affiliate, net (14,883) (20,477)
------------ ------------
Net cash provided by financing activities (14,883) (19,477)
------------ ------------
Net increase (decrease) in cash 341 1,407
Cash, beginning of year 1,407 -
------------ ------------
Cash, end of period $ 1,748 $ 1,407
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(b) - 5
<PAGE> 40
CAPTEC FRANCHISE CAPITAL CORPORATION IV
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Captec Franchise Capital Corporation IV (the "Corporation") is a Michigan
corporation organized on July 22, 1996. The Corporation was formed for the
purpose of serving as the managing general partner of Captec Franchise
Capital Partners L.P. IV (the "Partnership"), a Delaware limited
partnership.
The Corporation is a wholly owned subsidiary of Captec Financial Group,
Inc. ("Captec"). Captec has paid $1,000 in cash to the Corporation for the
purchase of 1,000 shares of common stock of the Corporation. As a general
partner of the Partnership, the Corporation has contributed $100 to the
capital of the Partnership. Patrick L. Beach is also a general partner of
the Partnership and is the Chairman of the Board of Directors, President
and Chief Executive Officer of the Corporation and Captec. Each general
partner has a 0.5 percent share in the Partnership's net income or loss.
The Partnership undertook a public offering of limited partnership
interests ("Units") in 1997. A minimum of 2,000 Units and a maximum of
30,000 Units, priced at $1,000 per Unit, will be offered on a "best
efforts, part or none" basis. As of December 31, 1997, the Partnership had
accepted subscriptions for 15,380.902 Units and funds totaling $15,380,902.
Affiliates of the Corporation are expected to provide various services to
the Partnership and will be paid certain fees for such services as
specified in the Partnership Agreement.
Following is a summary of the Corporation's significant accounting
principles:
A. INCOME TAXES: The Corporation reports its income for federal
income tax purposes in the consolidated tax return of Captec. Income
taxes are allocated by Captec to the Corporation on the separate
return basis. The Corporation's income tax expense reflected in the
statement of operations and that computed by applying the statutory
federal income tax rate are approximately equal. Deferred income
taxes, for financial reporting purposes, are not material.
B. ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
C. RECLASSIFICATIONS: Certain 1996 financial statement amounts have
been reclassified to conform to the 1997 presentation.
F(b) - 6
<PAGE> 41
CAPTEC FRANCHISE CAPITAL CORPORATION IV
NOTES TO FINANCIAL STATEMENTS
2. OPERATIONS:
The Corporation's only source of revenue in 1997 and 1996 was from its
investment in the Partnership. See the accompanying financial statements
of the Partnership.
3. RELATED PARTY TRANSACTIONS:
Organization and offering expenses related to the offering of Units are
prepaid by the Corporation and reimbursed by the Partnership in an amount
equal to up to three percent (3%) of the gross proceeds of the offering
(less any amounts paid directly by the Partnership). The Corporation is
also reimbursed by the Partnership for a non-accountable expense allowance
in an amount equal to two percent (2%) of the gross proceeds of the
offering. During 1997 the Corporation was reimbursed indirectly through
payments made in the amount of $500,699 by LP IV to Captec on behalf of the
Corporation.
The Corporation receives advances from Captec in order to have sufficient
funds for the prepayment of organization and offering and non-accountable
expenses made on behalf of the Partnership. As the Corporation receives
reimbursements of such prepaid expenses, the advances to Captec are
repaid.
F(b) - 7
<PAGE> 42
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of
1934, as amended, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
By: Captec Franchise Capital Corporation IV,
Managing General Partner
By: /s/ Patrick L. Beach
------------------------------
Patrick L. Beach
Chairman of the Board of Directors,
President and Chief Executive Officer
Date: March 31, 1998
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ Patrick L. Beach
------------------------------
Patrick L. Beach
Chairman of the Board of Directors,
President and Chief Executive Officer
Date: March 31, 1998
By: /s/ W. Ross Martin
------------------------------
W. Ross Martin
Director, Sr. Vice President,
Treasurer and Chief Financial Officer
Date: March 31, 1998
22
<PAGE> 43
INDEX TO EXHIBITS
Exhibit 27
Financial Data Schedule
Exhibit 99.1
Pages 35-42 of the final Prospectus E-1
E-i
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,008,194
<SECURITIES> 0
<RECEIVABLES> 78,851
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,087,045
<PP&E> 8,677,521
<DEPRECIATION> (32,988)
<TOTAL-ASSETS> 13,731,578
<CURRENT-LIABILITIES> 179,058
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,552,520
<TOTAL-LIABILITY-AND-EQUITY> 13,731,578
<SALES> 496,681
<TOTAL-REVENUES> 590,327
<CGS> 0
<TOTAL-COSTS> 64,284
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 526,043
<INCOME-TAX> 0
<INCOME-CONTINUING> 526,043
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 526,043
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
COMPENSATION TABLE
The agreements and arrangements as to compensation and sharing of profits,
losses and distributions among the General Partners, their Affiliates and the
Partnership were not determined by arm's-length negotiations, although the
General Partners believe that such agreements and arrangements approximate
those which would be arrived at through arm's-length negotiations. See
"Conflicts of Interest." The following table discloses all compensation which
may be received from the Partnership, directly or indirectly, by the General
Partners and their Affiliates.
<TABLE>
<CAPTION>
ESTIMATED
MINIMUM AND
TYPE OF MAXIMUM DOLLAR
COMPENSATION COMPENSATION AMOUNT
------------ ------------ ------
<S> <C> <C>
Offering Stage
- --------------
Non-Accountable Expense An amount equal to 2% Actual amount depends on
Allowance (payable to the of Gross Proceeds. number of Units sold.
General Partners and/or Minimum: $40,000
their Affiliates) (assuming sale of
Minimum Number of
Units); Maximum:
$600,000 (assuming sale
of Maximum Number of
Units).
Other Organization and An amount equal to up to3% of Actual amount depends on
Offering Expenses Gross Proceeds, as reimbursement number of Units sold.
(reimbursable to the for actual Organization and Minimum: $60,000
General Partners and/or Offering Expenses paid by the (assuming sale of
their Affiliates) General Partners and their Minimum Number of
Affiliates (excluding selling Units); Maximum: $900,000
commissions and the Non- (assuming sale of Maximum
Accountable Expense Allowance, Number of Units).
but including up to 0.5% of Gross
Proceeds as reimbursement for
accountable bona fide due
diligence expenses of
Participating Dealers and
their registered representatives)
in an amount equal to up to 3%
of Gross Proceeds less amounts
paid by the Partnership.
</TABLE>
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<PAGE> 2
<TABLE>
<S> <C> <C>
Selling Commissions An amount equal to 8% per Actual amount depends
- ------------------- Unit, subject to reduction on number of Units sold:
for volume discounts. In Minimum: $180,000
addition, an additional 1% (assuming sale of
selling commission will be Minimum Number of
paid until the Minimum Units); Maximum:
Number of Units is sold. $2,420,000 (assuming
Such additional 1% selling sale of Maximum
commission will be paid by Number of Units).
the General Partners out of
the Non-Accountable
Expense Allowance. In no
event will selling
commissions, the Non-
Accountable Expense
Allowance, and
Organizational and
Offering Expenses exceed
in the aggregate, 13% of
Gross Proceeds.
Acquisition Stage:
- ------------------
Acquisition Fees and An amount equal to the Actual amount depends on
Expenses (payable to the lesser of: (I) 4.00% of number of Units sold,
General Partners or an Gross Proceeds plus an indebtedness incurred and
Affiliate) additional .0677% for each Acquisition Expenses.
1% of indebtedness Minimum: $80,000
incurred in acquiring (assuming sale of
Properties and/or Minimum Number of
Equipment (such additional Units); Maximum:
.0677% fee to be paid out $1,200,000 (assuming sale
of the proceeds from such of Maximum Number of
indebtedness, and such Units) (in each case not
indebtedness to be limited including the additional
to an amount equal to 35% .0677% fee paid from
of the sum of Gross loan proceeds and before
Proceeds and the aggregate reduction for payment of
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
amount of Partnership Acquisition Expenses).
indebtedness secured by
Partnership Assets), but in
no event will Acquisition
Fees exceed 5% of the
aggregate Purchase Prices
of Properties and
Equipment; or (ii)
compensation customarily
charged in arm's-length
transactions by others
rendering similar services
as an on-going activity in
the same geographical
location and for comparable
property and/or equipment.
The general Partners have
agreed to pay all
Acquisition Expenses out of
amounts received by them
as payment for Acquisition
Fees. The Partnership will
commit not less than 83%
of Gross Proceeds to
Investments in Assets. The
Partnership will also pay the
Debt Fee (.0677% for each
1% of indebtedness
(calculated as the aggregate
amount of Partnership
indebtedness secured by
Partnership Assets as a
percentage of the aggregate
Purchase Prices of such
Assets)) to the General
Partners or their Affiliates,
but such fee shall be paid
out of the proceeds received
from such indebtedness (as
opposed to out of Gross
proceeds). However, the
Acquisition Fees (which
include the Debt Fee) may
not exceed 5% of the
aggregate Purchase Prices
of Properties and/or
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
Equipment and the Acquisition
Fees payable to the General
Partners or their Affiliates
will be reduced if and to the
extent required to comply with
the foregoing requirement.
Lessees will generally be
required to pay Affiliates of
the General Partners for
certain costs incurred in
connection with lease
transactions, including commitment
fees and construction fees
which typically approximate
1% to2% of the transaction
amount. Although such
costs are not paid by the
Partnership, they will be
included in the limitations
on Front-End Fees.
Operational Stage:
- ------------------
Subordinated Asset Subordinated asset Actual amount depends on
Management Fee (payable management fee for results of operations and
to General Partners or an managing Properties and therefore, cannot be
Affiliate) Equipment subject to "triple determined at the present
net" and "double net" leases time.
not to exceed the lesser of:
(i) fees which are
competitive for similar
services in the geographical
location where the
Properties and/or
Equipment are located; or
(ii) 1% of the gross rental
revenues derived from
Partnership Properties
and/or Equipment.
Payment of such fees shall
be subordinated to receipt
by the Limited Partners of
their 10% Current Preferred
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C>
Return. In the event of a
default under a Triple Net
Lease or Double Net Lease
which required the
partnership to assume
operations of a Property
and/or Equipment, such
operation will be managed
by an Affiliate of the
General Partners. In such
event, provided the Affiliate
is responsible for providing
leasing services for such
Property or Equipment, the
Affiliate would be entitled
to an unsubordinated
management fee equal to
3% of gross revenues
generated by the Property
and/or Equipment plus
reimbursement for on-site
expenses.
Interest in Profits, Losses The Limited Partners will Actual amount depends on
and Cash Flow (payable to receive 99% and the results of operations and,
the General Partners) General Partners will therefore, cannot be
receive 1% of Cash Flow; determined at the present
provided, however, that the time.(1)
General Partners' 1% of
Cash Flow shall be
subordinated to receipt by
the Limited Partners of their
10% Current Preferred
Return. Profits and losses
from operations are
allocated in accordance
with the ratio of
distributions of Cash Flow
attributable to such year,
although in no event will
the General Partners be
allocated less than 1% of
profits and losses in any
year.
Reimbursable Expenses Certain expenses incurred Actual amounts cannot be
(payable to the General by the General Partners and determined at the present
Partners and their their Affiliates will be time.(2)(3)
Affiliates) reimbursed by the
Partnership.
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C> <C>
Liquidation Stage:
- ------------------
Interest in Net Sale or Limited Partners will Actual amounts to be
Refinancing Proceeds receive 90% and the received depend upon the
(payable to General General Partners will sale price of Partnership
Partners) receive 10% of the Net Sale Properties and Equipment
or Refinancing Proceeds; and therefore, cannot be
provided, however, that the determined at the present
General Partners' 10% of time.(1)
Net Sale or Refinancing
Proceeds shall be
subordinated to receipt by
the Limited Partners of
aggregate distributions from
all sources equal to the sum
of the 10.5% Performance
Preferred Return and 100%
of their Original
Contributions.
Real Estate Liquidation The lesser of: (I) 3% of Actual amounts to be
Fees (payable to an the sale price of the received depend upon the
Affiliate) Property; or (ii) 50% of sale price of Partnership
the real estate commission Properties and, therefore,
customarily charged for cannot be determined at the
similar services in the present time.
locale of the Property
being sold, provided
however that payment of
said Liquidation Fee shall
be subordinated to receipt
by the Limited Partners of
aggregate distributions
from all sources equal to
the sum of the 10.5%
Performance Preferred
Return and 100% of their
Original Contributions.
Equipment Liquidation Fees for the resale of Actual amounts depend on
Fee (payable to an Equipment equal to the sale price of Partnership
Affiliate) lesser of (I) 3% of the sale Equipment and, therefore,
price of Equipment; or (ii) cannot be determined at the
Fees customarily charged present time.
for similar services in the
locale of the Equipment
being sold.
</TABLE>
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<PAGE> 7
- ---------------------
(1) The Current Preferred Return is defined as aggregate
distributions of Cash Flow equal to a cumulative, non-compounded 10% per annum
return on Limited Partners' Adjusted Investment. The Performance Preferred
Return is defined as aggregate distributions of Cash Flow and Net Sale or
Refinancing Proceeds equal to a cumulative, non-compounded 10.5% per annum
return on the Limited Partners' Adjusted Investment.
(2) (a) The General Partners also will receive reimbursement
for: (I) the actual cost to the General Partners or their Affiliates of goods
and materials used for and by the Partnership if obtained from unaffiliated
parties; and (ii) "Administrative Services" (as hereinafter defined) necessary
for the prudent operation of the partnership. The amounts charged to the
Partnership for services performed pursuant to clause (ii) above will not exceed
the lesser of: (i) the actual cost of such services; or (2) 90% of the amount
which the Partnership would be required to pay to unaffiliated parties for
comparable services. The Partnership's annual report to the Limited Partners,
will include an itemized breakdown of the services performed and the amount
reimbursed to the General Partners or their Affiliates pursuant to clause (ii)
above, which information shall be verified by the independent public accountants
retained by the Partnership. "Administrative Services" include services such as
typing, record keeping, preparation and dissemination of Partnership reports,
preparation and maintenance of records regarding Limited Partners, preparation
and dissemination of responses to investor inquiries and other communications
with investors and any other record keeping required for Partnership purposes.
However, in no event shall the General Partners be entitled to collect any fees
not requested within one year of the date they were earned.
(b) In extraordinary circumstances, the General Partners and
their Affiliates may provide other goods and services to the Partnership if all
of the following criteria are met: (i) the goods or services must be necessary
to the prudent operation of the Partnership and provision therefore must be set
forth in a written contract which may only be modified in any material respect
by the vote of a majority in interest of Limited Partners and shall be
terminable upon 60 days notice; (ii) the compensation, price or fee must be
equal to the lesser of (A) 90% of the compensation, price or fee the Partnership
would be required to pay to unaffiliated parties who are rendering comparable
services or selling or leasing compensation, price, or fee charged by the
General Partners or their Affiliates for rendering comparable services or
selling or leasing comparable goods on a competitive terms; or (iii) if at least
95% of gross revenues attributable to the business of rendering such services or
selling or leasing such goods are derived from persons other than Affiliates,
the compensation, price or fee charged by an unaffiliated person who is
rendering comparable services or selling or leasing
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<PAGE> 8
comparable goods on competitive terms in the same geographic location. In
addition, any such payment will be subject to the further limitation described
in paragraph (c) below. Extraordinary circumstances shall be presumed only when
in the good faith belief of the General Partners there is an emergency situation
requiring immediate action by the General Partners or their Affiliates and the
goods or services are not immediately available from unaffiliated parties.
Services which may be performed in such extraordinary circumstances include
emergency maintenance of Partnership assets, janitorial and other related
services due to strikes or lock-outs, emergency tenant evictions and repair
services which require immediate action. Notwithstanding the foregoing, the
General Partners and their Affiliates also may be reimbursed for actual expenses
incurred when extraordinary on site action is required.
(c) No reimbursement will be permitted to the General
Partners or their Affiliates for items such as rent, depreciation, utilities,
capital equipment and other administrative items; and the salaries, fringe
benefits, travel expenses and other administrative items allocated to any
controlling persons of the General Partners, their Affiliates or any other
supervisory personnel. Permitted reimbursements include salaries and related
salary expenses for personnel, other than controlling persons, which could be
performed directly for the Partnership by unaffiliated parties such as legal,
accounting, transfer agent, data processing and duplication. Controlling
persons, for purposes of this section, include, but are not limited to, persons,
irrespective of their title who perform functions for the General Partners
similar to those of: (1) chairman or member of the board of directors; (2)
president; (3) executive vice president; or (4) those entities or individuals
holding 5% or more of the stock of the Managing General Partner or (5) a person
having the power to direct or cause the direction of the Managing General
Partner, whether through ownership of voting securities, by contract or
otherwise. The General Partners believe that the employees of the General
Partners, their Affiliates and controlling persons who will perform services for
the Partnership for which reimbursement is allowed pursuant to clause (b)(iii)
above, have the experience and educational background, in their respective
fields of expertise, appropriate for the performance of such services.
(3) The General Partners will not be compensated by the Partnership
for services other than those which have been disclosed in this Compensation
Table. In addition, the General Partners shall not be entitled to collect any
fees or reimbursements not requested within one year of the date they were
earned.
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