<PAGE> 1
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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, 1998 OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-9371
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 38-3304096
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 FRANK LLOYD WRIGHT DRIVE, LOBBY L, 4TH
FLOOR,
P.O. BOX 544, ANN ARBOR, MICHIGAN 48106-0544
(Address of principal executive offices) (Zip Code)
</TABLE>
Issuer's telephone number, including area code:
(734) 994-5505
<TABLE>
<S> <C>
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)
</TABLE>
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.
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, 1998 subscriptions for 30,000 units of limited partnership
interest (the "Units") had been accepted, representing an aggregate amount of
$30,000,000. 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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<PAGE> 2
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 upon formation
of the Partnership were Captec Franchise Capital Corporation IV ("Captec") and
Patrick L. Beach, an individual. In August, 1998, the general partnership
interest in the Partnership was acquired by Captec Net Lease Realty, Inc.
("Captec Net Lease"), an affiliate of Captec, for $2,912,000. Captec Net Lease,
Captec, and Mr. Beach are collectively referred to as the "General Partners."
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, 1998, the Partnership had accepted subscriptions for the
entire offering of 30,000 Units from 1,587 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 have not less than 75%, but not more than 90% of
total investments in Properties and up to 25%, but not less than 10% in
Equipment. The Partnership does not intend to have more than 25% of 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. 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").
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
As of December 31, 1998, the Partnership had a portfolio of 18 properties
located in 9 states, with a cost basis of $21.6 million and 24 equipment leases
with an original investment of $8.5 million. The Properties are leased to 10
operators of restaurant concepts such as Steak & Ale and Bennigan's and three
retail operators (Hollywood Video, Blockbuster Videos, and Jared Jewelers).
As of December 31, 1998, leases to S&A Restaurants Corporation and
Hollywood Entertainment Corp. represented 32.4% and 16.1% of the annualized rent
from the Properties, respectively. Equipment leases to Champps Americana, Inc.
represented 24.8% of the annualized rent from the Equipment. Any failure of
these leases could materially affect the Partnership's income.
All of the Properties in the Partnership are performing at December 31,
1998. In October of 1998, Boston Chicken Inc. and the majority of its
subsidiaries filed for Chapter 11 bankruptcy protection. The Partnership has one
lease to a Boston Chicken franchisee who did file bankruptcy. This lease was
assumed under the
<PAGE> 3
bankruptcy court with slightly modified terms. Annualized rent from this lease
was $101,000 at December 31, 1998.
The Properties include four properties presently under construction, for
which the Company had invested $2.9 million and had remaining commitments
totaling $2.6 million. The following is a summary description of the Property
and Equipment leases as of December 31, 1998.
<TABLE>
<CAPTION>
TOTAL ASSET
COST DATE OF
INCLUDING NEXT
DATE OF DATE OF ACQUISITION ASSET STATE MONTHLY RENT
LESSEE NAME CONCEPT NAME COMMENCE EXPIRATION FEES LOCATION RENT INCREASE
----------- ------------ -------- ---------- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES
Corral South Store #3, Inc.(1)...... Golden Corral 8/1/97 6/1/17 $ 577,500 FL $ 4,996 6/1/02
Finest Foodservice, LLC............. Boston Market 4/1/97 4/1/12 1,022,200 CO 8,435 4/1/02
Hollywood Entertainment Corp........ Hollywood Video 11/1/97 7/1/12 1,455,300 OH 12,702(2) 7/1/03
Blockbuster Entertainment Corp...... Blockbuster Video 9/1/97 8/1/07 1,170,000 GA 9,831 8/1/02
Kona Restaurant Group, Inc.......... Carino's 8/1/97 8/1/14 1,680,000 TX 14,667 8/1/00
Capital Foods, Inc.................. Arby's 12/1/98 12/1/18 819,000 OH 7,313 12/1/99
Hollywood Entertainment Corp........ Hollywood Video 10/1/98 11/1/12 1,454,880 OH 12,268(4) 10/1/02
S&A Restaurant Corporation.......... Steak & Ale 7/1/98 7/1/18 2,100,000 MI 17,084 7/1/02
S&A Restaurant Corporation.......... Steak & Ale 7/1/98 7/1/18 2,441,250 PA 19,860 7/1/02
S&A Restaurant Corporation.......... Bennigan's 7/1/98 7/1/18 1,627,500 VA 13,240 7/1/02
TEC Foods........................... Taco Bell 1/1/99 1/1/09 766,500 MI 6,235 1/1/02
TEC Foods........................... Taco Bell 1/1/99 1/1/19 766,500 MI 6,235 1/1/02
RTM Acquisition Company, Inc........ Arby's 9/1/98 9/1/18 840,000 MI 6,334 9/1/01
Romacorp, Inc....................... Tony Roma's 1/1/99 1/1/14 1,942,500 TX 15,417 1/1/02
Chi-Co, Inc. (5).................... Arby's TBD TBD 583,507 CO -- --
Taro Two of Bakersfield (5)......... Del Taco TBD TBD 1,226,584 CA -- --
Kona Restaurant Group, Inc. (5)..... Carino's TBD TBD 525,000 TX -- --
Sterling Jewelers, Inc. (5)......... Jared TBD TBD 600,195 TX -- --
-----------
--------
21,598,416
154,616
EQUIPMENT
J.M.C. Limited Partnership.......... Applebee's 3/1/97 3/1/04 422,100 UT 6,838
DenAmerica Corp..................... Black Eye Pea 4/15/97 4/15/04 367,500 TX 5,866
Shells Seafood Restaurants, Inc..... Shells Seafood 6/1/97 6/1/02 124,591 FL 2,648
Shells Seafood Restaurants, Inc..... Shells Seafood 6/1/97 6/1/02 98,133 FL 2,086
Champps Americana, Inc.............. Champps 4/1/98 4/1/03 896,229 IL 17,651
Champps Americana, Inc.............. Champps 7/1/98 7/1/03 1,089,914 MI 21,466
Corral South Store #4, Inc.......... Golden Corral 6/15/97 6/15/02 531,508 FL 10,934
Girardi-Riva Enterprises, Inc....... Arby's 2/1/98 2/1/05 252,269 WA 4,108
Girardi-Riva Enterprises, Inc....... Arby's 7/1/97 7/1/04 167,445 WA 2,727
Morgan's Restaurants of PA, Inc..... KFC 10/15/97 10/15/04 242,571 PA 3,766
Virginia CSC, LLC................... Burger King 11/1/97 11/1/04 296,443 VA 4,862
BBI Acquisition Co.................. Breck Brewery 8/1/97 8/1/04 830,550 CO 13,605
J-Four, Inc......................... KFC 2/1/98 2/1/03 292,691 NY, NH, MA 5,882
GC of Charlottesville............... Golden Corral 5/1/98 5/1/05 418,870 VA 6,439
Taco Two of Bakersfield............. Del Taco 1/1/99 1/1/06 319,528 CA 5,087
Circle Rest. Co., Inc............... Arby's 10/1/98 10/1/03 98,425 CO 2,015
RTM Georgia......................... TJ Cinnamons 4/1/98 4/1/03 236,250 9 sites 4,590
RTMSC, Inc.......................... TJ Cinnamons 4/1/98 4/1/03 210,000 8 sites 4,080
RTM, Inc............................ Arby's 10/1/98 10/1/03 73,446 AL 1,427
RTM, Inc............................ Arby's 10/1/98 10/1/03 74,327 GA 1,444
El Chico Restaurants, Inc........... El Chico 9/1/98 9/1/03 487,516 TX 9,797
El Chico Restaurants, Inc........... El Chico 9/1/98 9/1/03 436,688 TX 8,775
Cypress Rests. Inc.................. Denny's 9/1/98 9/1/05 367,500 TX 5,537
DJ Enterprises, Inc................. Taco Bell 10/1/98 7/1/01 180,600 FL 5,831
-----------
--------
8,515,094
157,461
-----------
--------
$30,113,510
$312,077
===========
========
<CAPTION>
ANNUAL
RATE OF
INCREASE
LESSEE NAME (3) SQ. FT.
----------- -------- -------
<S> <C> <C>
PROPERTIES
Corral South Store #3, Inc.(1)...... 1.55%
Finest Foodservice, LLC............. 1.93% 3,035
Hollywood Entertainment Corp........ 1.92% 7,488
Blockbuster Entertainment Corp...... 2.29% 6,500
Kona Restaurant Group, Inc.......... 1.64% 6,257
Capital Foods, Inc.................. 2.50% 2,950
Hollywood Entertainment Corp........ n/a 7,488
S&A Restaurant Corporation.......... 1.96% 7,724
S&A Restaurant Corporation.......... 1.96% 7,239
S&A Restaurant Corporation.......... 1.96% 5,210
TEC Foods........................... 0.66% 2,252
TEC Foods........................... 0.66% 2,269
RTM Acquisition Company, Inc........ 0.99% 5,909
Romacorp, Inc....................... 1.96% 6,385
Chi-Co, Inc. (5).................... -- 2,500
Taro Two of Bakersfield (5)......... -- 2,164
Kona Restaurant Group, Inc. (5)..... -- 6,335
Sterling Jewelers, Inc. (5)......... -- 5,800
EQUIPMENT
J.M.C. Limited Partnership..........
DenAmerica Corp.....................
Shells Seafood Restaurants, Inc.....
Shells Seafood Restaurants, Inc.....
Champps Americana, Inc..............
Champps Americana, Inc..............
Corral South Store #4, Inc..........
Girardi-Riva Enterprises, Inc.......
Girardi-Riva Enterprises, Inc.......
Morgan's Restaurants of PA, Inc.....
Virginia CSC, LLC...................
BBI Acquisition Co..................
J-Four, Inc.........................
GC of Charlottesville...............
Taco Two of Bakersfield.............
Circle Rest. Co., Inc...............
RTM Georgia.........................
RTMSC, Inc..........................
RTM, Inc............................
RTM, Inc............................
El Chico Restaurants, Inc...........
El Chico Restaurants, Inc...........
Cypress Rests. Inc..................
DJ Enterprises, Inc.................
</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.
(4) Rent Increase is based on CPI Increase.
(5) Property under construction.
2
<PAGE> 4
REAL ESTATE
General Real Estate Lease Provisions: All of the Properties are subject to
leases (collectively and singularly referred to as "Leases") which are triple
net leases whereby the Tenant is responsible for all expenses related to the
cost of operating the Properties including real estate taxes, insurance,
maintenance and repair costs.
The General Partners or their affiliates analyzed demographic, geographic
and market diversification data for the areas in which each of the properties
are located and reviewed the appraisals of the Properties and the analysis
regarding comparable properties contained therein. All of the purchase prices
were negotiated by General Partners or their affiliates, considering factors
such as the potential value of the site, the financial condition and business
and operating history of the tenants and demographic data for the areas in which
the Properties are located.
The lessees generally pay all expenses incident to the closing of these
transactions including, the Partnership's attorney's fees, title insurance
premiums, recording fees and expenses and transfer.
EQUIPMENT
General Equipment Lease Provisions: All of the Equipment leases are on the
Partnership's standard form of lease whereby the lessee is responsible for all
expenses related to the Equipment including taxes, insurance, maintenance and
repair costs. Prior to entering into the leases, an affiliate of the Managing
General Partner considered factors such as the financial condition and business
and operating history of the lessees and demographic data for the area in which
the Equipment is located. All of the Equipment was purchased with cash from
offering proceeds. The General Partners believe that the amount of insurance
carried by each lessee is adequate.
SUMMARY OF INVESTMENT OBJECTIVES AND POLICIES
The Partnership acquires income-producing Property and Equipment which is
leased primarily to operators of nationally franchised fast-food, family style
and dinner house restaurants as well as other franchised service-type businesses
such as automotive and specialty retail franchises. Properties are 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 history of the proposed lessee, the demographics of the area in which
the Property is located, the proposed purchase price and lease terms, geographic
and market diversification, and potential operating results. Similar analyses
are utilized in selecting Equipment. 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 making investments, the General Partners 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, the General Partners generally 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 ten and twenty
years.
3
<PAGE> 5
In selecting specific Equipment, the General Partners typically 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 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.
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
During 1998, the Partnership solicited the approval of the Limited Partners
for the sale of the general partnership interest held by Captec and Mr. Beach to
Captec Net Lease Realty, Inc., an Affiliate of the General Partners.
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."
4
<PAGE> 6
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenue:
Rental income............................................. $ 1,243,403 $ 295,367
Finance income............................................ 548,342 201,314
------------ -----------
Total operating revenue................................ 1,791,745 496,681
------------ -----------
OPERATING COSTS AND EXPENSES:
Depreciation.............................................. 131,565 32,988
General and administrative................................ 80,536 31,296
------------ -----------
Total operating costs and expenses..................... 212,101 64,284
------------ -----------
Income from operations................................. 1,579,644 432,397
------------ -----------
OTHER INCOME (EXPENSE):
Interest income........................................... 254,673 92,048
Interest expense.......................................... (23,603) --
Other..................................................... 35 1,598
------------ -----------
Total other income..................................... 231,105 93,646
------------ -----------
Net income.................................................. 1,810,749 526,043
Net income allocable to general partners.................... 18,107 5,260
------------ -----------
Net income allocable to limited partners.................... $ 1,792,642 $ 520,783
============ ===========
Net income per limited partnership unit..................... $ 72.37 $ 74.10
============ ===========
Weighted average number of limited partnership units
outstanding............................................... 24,769 7,028
============ ===========
OTHER DATA:
Cash flows from operating activities........................ $ 1,710,034 $ 579,235
Cash flows from investing activities........................ $(20,428,353) $(8,677,520)
Cash flows from financing activities........................ $ 15,612,283 $13,106,479
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,890,347 $ 5,008,194
Investments in property under leases........................ $ 28,941,321 $ 8,644,533
Total assets................................................ $ 32,659,591 $13,731,578
Total liabilities........................................... $ 6,671,410 $ 179,058
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
5
<PAGE> 7
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.
The offering reached final funding in December 1998 with subscriptions for
the entire 30,000 Units. Net proceeds after offering expenses were approximately
$26.1 million.
In December, 1998, the Partnership entered into a $6.375 million term note,
the proceeds of which were used to acquire additional properties. The note has a
10 year term, is collateralized by certain properties subject to operating
leases, and bears an interest rate of 8.13% per annum. During 1998, the
Partnership acquired 13 properties at an aggregate cost of $15.8 million.
As of December 31, 1998, the Partnership had $21.6 million invested in 18
net leased real estate properties and $8.5 million invested in 24 equipment
packages.
The Partnership expects that only limited amounts of liquid assets will be
required for existing Properties since the form of lease which it uses for its
Properties and Equipment requires lessees to pay all taxes and assessments,
maintenance and repairs and insurance premiums, including casualty insurance.
The General Partners expect that the cash flow to be generated by the
Partnership's Properties and Equipment will provide adequate liquidity and
capital resources to pay operating expenses and provide distributions to Limited
Partners.
RESULTS OF OPERATIONS
Total revenue increased 261% to $1.8 million for the year ended December
31, 1998 as compared to $497,000 for 1997. Rental revenue increased 321% to $1.2
million for 1998 as compared to $295,000 for 1997. The increase in rental
revenue resulted principally from the acquisition of 13 properties and the
benefit of a full period of rental revenue from the 5 properties acquired and
leased in the preceding year. Finance income increased to $548,000 in 1998 as
compared to $201,000 in 1997 as a result of the acquisition of 15 equipment
packages in 1998 and the benefit of a full period of finance income from the 9
equipment packages acquired in the preceding year. Interest income of $255,000
was earned in 1998 as a result of investments in idle funds during the year.
Depreciation expense increased 299% to $132,000 for 1998 as compared to
$33,000 for 1997 due to the acquisition of net leased properties and the effect
of a full period of depreciation of properties acquired and leased in the
preceding year. The Partnership incurred general and administrative costs of
$81,000 in 1998 as compared to $31,000 in 1997.
As a result of the foregoing, the Partnership earned net income of
approximately $1.8 million in 1998. The Partnership is not subject to income
taxation as all of its income and expenses flow through to the Partners.
During the year ended December 31, 1998, the Partnership made distributions
to limited partners totaling $2.1 million.
YEAR 2000
The Year 2000 issue is a result of the way computer programs historically
manipulate date information based on a two-digit year ("98" instead of "1998").
The issue is that the "00" year designation can potentially cause
miscalculations or failures within the computer system if "00" is misinterpreted
as the year 1900 instead of the year 2000. These failures could potentially lead
to temporary disruption of operations and the inability to conduct normal
business activities.
6
<PAGE> 8
The Partnership predominantly uses standard application software supported
by third party vendors. Information has been obtained from key third-party
financial software vendors that comprise the core business applications
indicating the core software systems are currently Year 2000 compliant.
The General Partner is in the process of identifying key business partners,
such as financial institutions and lessees, to assess their status of Year 2000
readiness. Upon completion of the assessment process, a strategy on how to
address each partner will be developed based on the relative importance of each
relationship. Documentation regarding the state of readiness of business
partners will be compiled as the assessment progresses.
The General Partner's major software applications are currently Year 2000
compliant, and the core computing infrastructure including personal computers
and network server hardware and software are all compliant. Therefore, the
General Partner does not anticipate the total cost of Year 2000 compliance to
have a material adverse effect on the Partnership's business or results of
operations. The General Partner and the Partnership have incurred minimal costs
to date related to Year 2000 compliance.
The failure to identify and correct material Year 2000 problems adequately
could result in an interruption to or failure of certain normal business
activities or operations. These interruptions or failures could adversely affect
the Partnership's financial condition; however, the extent of the impact can not
presently be determined. The General Partner is dependent upon the Year 2000
readiness information provided by its vendors and external business partners,
and their ability to achieve Year 2000 compliance with their computer systems.
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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership does not have directors or officers.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no officers or directors
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the best knowledge of the Partnership, as of December 31, 1998 no person
known by the Partnership, beneficially owned more than 5% of the outstanding
Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998, the General Partner received Acquisition Fees from the
Partnership in an amount equal to $1,088,073, for services rendered in
connection with the selection, evaluation and acquisition of the Property, as
provided in the Partnership Agreement.
The General Partners believe that the Asset Management Agreement entered
into 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
1998, $22,934 was paid or incurred by the Partnership in Asset Management Fees.
7
<PAGE> 9
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 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 affiliates 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.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein or incorporated by
reference:
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ -------
<C> <S>
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)
4.1 Amended Agreement of Limited Partnership of Registrant.
10.1 Promissory Note dated December 17, 1998 between Registrant
and National Realty Funding L.C.
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.)
</TABLE>
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the fourth quarter ended
December 31, 1998.
8
<PAGE> 10
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 Net Lease Realty, Inc.,
Managing General Partner
By: /s/ W. ROSS MARTIN
------------------------------------
W. Ross Martin
Executive Vice President,
Chief Financial Officer
Date: March 31, 1999
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, 1999
By: /s/ W. ROSS MARTIN
--------------------------------------------------------
W. Ross Martin
Executive Vice President,
Chief Financial Officer
Date: March 31, 1999
9
<PAGE> 11
INDEX TO FINANCIAL STATEMENTS
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
Report of Independent Accountants........................... F(a)-10
Schedule III -- Properties and Accumulated Depreciation as
of December 31, 1998...................................... F(a)-11
</TABLE>
i
<PAGE> 12
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Captec Net Lease Realty, Inc.
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, 1998 and 1997 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, 1998 and 1997, 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/ PricewaterhouseCoopers LLP
March 10, 1999
F(a)-1
<PAGE> 13
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
BALANCE SHEET
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 1,902,158 $ 5,008,194
Restricted cash............................................. 988,189 --
Investment in property under leases:
Operating leases, net..................................... 21,433,864 5,805,870
Financing leases, net..................................... 7,507,457 2,838,663
Accounts receivable......................................... 130,234 3,487
Unbilled rent, net.......................................... 128,842 25,983
Due from related parties.................................... 175,617 49,381
Deferred financing costs.................................... 393,230 --
----------- -----------
Total assets........................................... $32,659,591 $13,731,578
=========== ===========
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses..................... $ 46,701 $ 49,375
Due to related parties.................................... 249,709 129,683
Notes Payable............................................. 6,375,000 --
----------- -----------
Total liabilities...................................... 6,671,410 179,058
----------- -----------
Partners' Capital:
Limited partners' capital accounts.......................... 25,964,614 13,547,060
General partners' capital accounts.......................... 23,567 5,460
----------- -----------
Total partners' capital................................ 25,988,181 13,552,520
----------- -----------
Total liabilities & partners' capital.................. $32,659,591 $13,731,578
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(a)-2
<PAGE> 14
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF OPERATIONS
for the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Operating revenue:
Rental income............................................. $1,243,403 $295,367
Finance income............................................ 548,342 201,314
---------- --------
Total operating revenue................................ 1,791,745 496,681
---------- --------
Operating costs and expenses:
Depreciation.............................................. 131,565 32,988
General and administrative................................ 80,536 31,296
---------- --------
Total operating costs and expenses..................... 212,101 64,284
---------- --------
Income from operations................................. 1,579,644 432,397
---------- --------
Other income (expense):
Interest income........................................... 254,673 92,048
Interest expense.......................................... (23,603) --
Other..................................................... 35 1,598
---------- --------
Total other income..................................... 231,105 93,646
---------- --------
Net income.................................................. 1,810,749 526,043
Net income allocable to general partner..................... 18,107 5,260
---------- --------
Net income allocable to limited partners.................... $1,792,642 $520,783
========== ========
Net income per limited partnership unit..................... $ 72.37 $ 74.10
========== ========
Weighted average number of limited partnership units
outstanding............................................... 24,769 7,028
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(a)-3
<PAGE> 15
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
LIMITED LIMITED GENERAL TOTAL
PARTNERS' PARTNERS' PARTNERS' PARTNERS'
UNITS ACCOUNTS ACCOUNTS CAPITAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
Issuance of 14,608 limited partnership units,
net............................................ 14,608 12,713,912 12,713,912
Distributions -- ($69.63 per unit)............... -- (2,089,000) -- (2,089,000)
Net income....................................... -- 1,792,642 18,107 1,810,749
------ ----------- ------- -----------
Balance, December 31, 1998....................... 30,000 $25,964,614 $23,567 $25,988,181
====== =========== ======= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(a)-4
<PAGE> 16
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
STATEMENT OF CASH FLOWS
for the year ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income................................................ $ 1,810,749 $ 526,043
Adjustments to net income:
Depreciation........................................... 131,565 32,987
Decrease in prepaid expenses........................... -- 339
Increase in unbilled rent.............................. (102,859) (25,983)
Increase in accounts receivable........................ (126,747) (3,487)
Increase (decrease) in accounts payable and accrued
expenses.............................................. (2,674) 49,336
------------ -----------
Net cash provided by operating activities................... 1,710,034 579,235
------------ -----------
Cash flows from investing activities:
Purchase and construction advances of real estate for
operating leases....................................... (15,759,559) (5,838,857)
Purchase of equipment for financing leases................ (5,473,417) (3,051,499)
Reduction of net investment in financing leases........... 804,623 212,836
------------ -----------
Net cash used in investing activities....................... (20,428,353) (8,677,520)
------------ -----------
Cash flows from financing activities:
(Increase) in due from related parties.................... (126,236) (49,381)
Increase in due to related parties........................ 120,026 129,683
Proceeds from issuance of notes payable................... 6,375,000 --
Issuance costs............................................ (393,230) --
Issuance of limited partnership units..................... 14,598,683 15,380,902
Offering costs............................................ (1,884,771) (1,995,825)
Distributions to limited partners......................... (2,089,000) (358,900)
Increase in restricted cash............................... (988,189) --
------------ -----------
Net cash provided by financing activities................... 15,612,283 13,106,479
------------ -----------
Net (decrease) increase in cash and cash equivalents........ (3,106,036) 5,008,194
Cash and cash equivalents, beginning of period.............. 5,008,194 --
------------ -----------
Cash and cash equivalents, end of period.................... $ 1,902,158 $ 5,008,194
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F(a)-5
<PAGE> 17
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 upon formation of the Partnership were Captec
Franchise Capital Corporation IV (the "Corporation"), a wholly owned subsidiary
of Captec Financial Group, Inc. ("Captec"), and Patrick L. Beach, the Chairman
of the Board of Directors, President and Chief Executive Officer of the
Corporation and Captec. In August, 1998, the general partnership interest of the
Partnership was acquired by Captec Net Lease Realty, Inc., an affiliate of
Captec.
The Partnership commenced a public offering of 30,000 limited partnership
interests ("Units"), priced at $1,000 per unit, on December 31, 1996. The
Partnership commenced operations on March 5, 1997. At December 31, 1998, the
Partnership had accepted subscriptions for all 30,000 Units.
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.
Following is a summary of the Partnership's significant accounting
policies:
A. CASH AND CASH EQUIVALENTS: The Partnership considers all highly
liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
B. RESTRICTED CASH: The Partnership is required to maintain a cash
balance in an escrow account until specific post closing requirements have
been satisfied related to the note payable.
C. 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.
D. 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).
E. 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.
F. NOTE PAYABLE: The fair value of fixed rate debt approximates the
book value.
G. 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.
H. 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.
I. ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported
F(a)-6
<PAGE> 18
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES -- CONTINUED:
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 99% to the limited partners and
1% to the General Partner, except that the General Partner's share is
subordinated to a 10% per annum cumulative, non-compounded preferred return to
the limited partners. Net sale or refinancing proceeds of the Partnership will
be allocated 90% to the limited partners 10% to the General Partner, except that
the General Partner's share will be subordinated to a 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.
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 3% of the gross proceeds of the
offering (less any amounts paid directly by the Partnership). In addition, the
General Partner and/or its affiliates are paid a non-accountable expense
allowance by the Partnership in an amount equal to 2% of the gross proceeds of
the offering. The General Partner and/or its affiliates were reimbursed $752,350
and $710,310 during 1998 and 1997, respectively. 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 8% of the purchase
price of all Units placed by them directly. There were $1,156,562 and $1,223,946
of selling commissions incurred during 1998 and 1997, respectively. These costs
were treated as capital issuance costs and have been netted against the limited
partners' capital accounts.
Pursuant to the Partnership Agreement, acquisition fees of 4%, plus an
additional .00624% for each 1% of indebtedness incurred in acquiring properties
and equipment, of the aggregate purchase prices of properties and equipment (not
to exceed a total 5% acquisition fee) are incurred to the General Partner and
the General Partner's affiliates. The Partnership incurred $1,088,073 and
$341,936 in acquisition fees during 1998 and 1997, respectively.
The Partnership has entered into an asset management agreement with the
General Partner and its affiliates, whereby the General Partner and the General
Partner's affiliates provide various property and equipment management services
for the Partnership. A subordinated asset management fee is charged, in an
amount equal to 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 10% per annum on their adjusted invested capital. Management fees of
$22,934 and $6,297 were incurred during 1998 and 1997, respectively.
The Partnership Agreement provides for the General Partner to receive
liquidation fees limited to the lesser of 3% of the gross sales price or 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 10.5% per annum, cumulative
non-compounded preferred return on their adjusted invested capital plus
distributions of sale or refinancing proceeds equal to 100% of their original
contributions.
F(a)-7
<PAGE> 19
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of December 31, 1998 and 1997 is
comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land................................................. $ 8,116,644 $2,676,582
Building and improvements............................ 10,546,486 3,162,276
Construction draws................................... 2,935,286 --
----------- ----------
21,598,416 5,838,858
Less accumulated depreciation........................ (164,552) (32,988)
----------- ----------
Total......................................... $21,433,864 $5,805,870
=========== ==========
</TABLE>
All construction draws are subject to the terms of a standard lease
agreement with the Partnership, which fully obligates the tenant to the
long-term lease of all amounts advanced under construction draws. At December
31, 1998 the unfunded commitment on properties under construction was $2.6
million.
The following is a schedule of future minimum lease payments to be received
on the operating leases as of December 31, 1998.
<TABLE>
<S> <C>
1999........................................................ $ 1,855,583
2000........................................................ 1,861,446
2001........................................................ 1,887,650
2002........................................................ 1,939,929
2003........................................................ 1,959,726
Thereafter.................................................. 25,382,836
-----------
Total................................................ $34,887,170
===========
</TABLE>
5. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of December 31, 1998 and 1997 is
comprised of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Minimum lease payments to be received................ $ 9,002,591 $3,714,592
Estimated residual value............................. 232,697 81,372
----------- ----------
Gross investment in financing leases................. 9,235,288 3,795,964
Less unearned income................................. (1,727,831) (957,301)
----------- ----------
Net investment in financing leases................... $ 7,507,457 $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, 1998:
<TABLE>
<S> <C>
1999........................................................ $1,880,606
2000........................................................ 1,889,534
2001........................................................ 1,854,550
2002........................................................ 1,694,218
2003........................................................ 1,089,649
Thereafter.................................................. 594,034
----------
Total................................................ $9,002,591
==========
</TABLE>
F(a)-8
<PAGE> 20
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. NOTES PAYABLE:
In December, 1998, the Partnership entered into a $6.375 million term note,
the proceeds of which were used to acquire additional properties. The note has a
10 year term, is collateralized by certain properties subject to operating
leases, and bears an interest rate of 8.13% per annum. At December 31, 1998,
annual maturities on the note are as follows:
<TABLE>
<S> <C>
1999........................................................ $ --
2000........................................................ --
2001........................................................ 132,663
2002........................................................ 143,860
2003........................................................ 156,002
Thereafter.................................................. 5,942,475
----------
Total................................................ $6,375,000
==========
</TABLE>
Debt issuance costs of approximately $393,000 were incurred in connection
with the issuance of the note and will be amortized using the straight-line
method to interest expense over the term of the note.
7. SUBSEQUENT EVENT:
Based upon the results of operations for the three month period ended
December 31, 1998, the Partnership declared distributions of $812,500 to its
limited partners on January 15, 1999.
F(a)-9
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Captec Net Lease Realty, Inc.
Managing General Partner of
Captec Franchise Capital Partners L.P. IV:
In connection with our audit of the financial statements of Captec
Franchise Capital Partners L.P. IV as of December 31, 1998, which financial
statements are included in this Form 10-K, we have also audited the financial
statement schedule listed in the index to Financial Statements contained in this
Form 10-K.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material aspects, the information required to be included therein.
/s/ PricewaterhouseCoopers LLP
March 10, 1999
F(a)-10
<PAGE> 22
SCHEDULE III
PROPERTIES AND ACCUMULATED DEPRECIATION
As of December 31, 1998
<TABLE>
<CAPTION>
COST GROSS AMOUNT
CAPITALIZED AT WHICH
INITIAL SUBSEQUENT CARRIED AT
TYPE OF STATE COST TO TO CLOSE ACCUMULATED
CONCEPT PROPERTY LOCATION ENCUMBRANCES COMPANY ACQUISITION OF PERIOD DEPRECIATION
------- -------- -------- ------------ ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commenced Leases:
Golden Corral......... Restaurant FL -- 577,500 -- 577,500 15,283
Boston Market......... Restaurant MN -- 1,022,200 -- 1,022,200 27,942
Hollywood Video....... Retail OH 736,836 1,455,300 -- 1,455,300 24,600
Blockbuster Video..... Retail GA 590,078 1,170,000 -- 1,170,000 25,802
Italian Oven.......... Restaurant TX 883,177 1,680,000 -- 1,680,000 18,417
Arby's................ Restaurant OH -- 819,000 -- 819,000 917
Hollywood Video....... Retail OH 762,912 1,454,880 -- 1,454,880 6,614
Steak & Ale........... Restaurant MI 1,028,261 2,100,000 -- 2,100,000 12,823
Steak & Ale........... Restaurant PA 1,196,139 2,441,250 -- 2,441,250 11,793
Bennigan's............ Restaurant VA 796,226 1,627,500 -- 1,627,500 15,986
Taco Bell............. Restaurant MI -- 766,500 -- 766,500 --
Taco Bell............. Restaurant MI -- 766,500 -- 766,500 --
Arby's................ Restaurant MI 381,371 840,000 -- 840,000 4,375
Tony Roma's........... Restaurant TX -- 1,942,500 -- 1,942,500 --
--------- ---------- -- ---------- -------
Subtotal -- Commenced
Leases................ 6,375,000 18,663,130 -- 18,663,130 164,552
--------- ---------- -- ---------- -------
Construction Draws on
Leases:
Arby's................ Restaurant CO -- 583,507 -- 583,507 --
Del Taco.............. Restaurant CA -- 1,226,584 -- 1,226,584 --
Carino's.............. Restaurant TX -- 525,000 -- 525,000 --
Jared Jewelers........ Retail TX -- 600,195 -- 600,195 --
--------- ---------- -- ---------- -------
Subtotal -- Construction
Draws................. -- 2,935,286 -- 2,935,286 --
--------- ---------- -- ---------- -------
Total Properties....... 6,375,000 21,598,416 -- 21,598,416 164,552
========= ========== == ========== =======
<CAPTION>
DATE OF
ACQUISITION/ ACQUISITION/
CONCEPT CONSTRUCTION CONSTRUCTION DEPRECIATION
------- ------------ ------------ ------------
<S> <C> <C> <C>
Commenced Leases:
Golden Corral......... 1997 Acquisition 40 Years
Boston Market......... 1997 Acquisition 40 Years
Hollywood Video....... 1997 Acquisition 40 Years
Blockbuster Video..... 1997 Acquisition 40 Years
Italian Oven.......... 1997 Acquisition 40 Years
Arby's................ 1998 Construction 40 Years
Hollywood Video....... 1998 Acquisition 40 Years
Steak & Ale........... 1998 Acquisition 40 Years
Steak & Ale........... 1998 Acquisition 40 Years
Bennigan's............ 1998 Acquisition 40 Years
Taco Bell............. 1998 Acquisition 40 Years
Taco Bell............. 1998 Acquisition 40 Years
Arby's................ 1998 Acquisition 40 Years
Tony Roma's........... 1998 Acquisition 40 Years
Subtotal -- Commenced
Leases................
Construction Draws on
Leases:
Arby's................ 1998 Construction --
Del Taco.............. 1998 Construction --
Carino's.............. 1998 Construction --
Jared Jewelers........ 1998 Construction --
Subtotal -- Constructio
Draws.................
Total Properties.......
</TABLE>
- -------------------------
Notes:
The changes in total properties for the years ended December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance, beginning of year................................. $ 5,838,857 $ --
Acquisitions............................................... 15,759,559 5,838,857
Dispositions and other..................................... -- --
----------- ----------
Balance, end of year....................................... $21,598,416 $5,838,857
=========== ==========
</TABLE>
The changes in accumulated depreciation for the years ended December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance, beginning of year.................................. $ 32,987 $ --
Depreciation expense........................................ 131,565 32,987
Dispositions and other...................................... -- --
-------- -------
Balance, end of year........................................ $164,552 $32,987
======== =======
</TABLE>
F(a)-11
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
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EXHIBIT NO. DESCRIPTION
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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)
4.1 Amended Agreement of Limited Partnership of Registrant.
10.1 Promissory Note dated December 17, 1998 between Registrant
and National Realty Funding L.C.
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.)
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EXHIBIT 4.1
FIRST AMENDMENT TO
THE AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV,
A DELAWARE LIMITED PARTNERSHIP
This First Amendment (the "Amendment") to the limited partnership agreement
of Captec Franchise Capital Partners L.P. IV, a Delaware limited partnership,
(the "Partnership") is made as of the 1st day of January, 1998 by and between
Captec Net Lease Realty, Inc., a Delaware corporation, as the General Partner
(the "General Partner") and those Limited Partners identified in the books and
records of the Partnership as holding all the limited partnership interests in
the Partnership (individually referred to herein as a "Limited Partner" and
collectively referred to herein as the "Limited Partners".
WHEREAS, the Partnership has been and will continue to be the beneficiary
of certain services provided by Captec Net Lease Realty Advisors, Inc. (the
"Advisor") with respect to the Partnership's acquisition and financing of
Properties and Equipment, as defined in the limited partnership agreement;
WHEREAS, the parties desire to amend the limited partnership agreement to
provide that the Partnership shall pay an Acquisition Fee directly to the
Advisor as compensation for these services and to reduce on a dollar-for-dollar
basis fees payable to the General Partner; and
WHEREAS, the General Partner has determined that this amendment will not
increase the cost of such services to the Partnership or diminish or jeopardize
the rights of the Partnership to obtain such services, and, thus the General
Partner is permitted to amend the limited partnership agreement without the
consent or action of the Limited Partners.
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein, the parties hereto agree as follows:
Section 9.4 of the Partnership Agreement relating to Acquisition Fees and
Expenses shall be amended and restated in its entirety as follows:
9.4 Acquisition Fees and Expenses.
(a) As compensation for acquisition and financing services to be rendered
directly to the Partnership by Captec Net Lease Realty Advisors, Inc., a
Delaware corporation that is affiliated with the General Partner through
overlapping ownership and common corporate officers, (the "Advisor"), the
Partnership shall pay directly to the Advisor, Acquisition Fees equal to the
lesser of (1) 2.0% of Gross Proceeds plus an additional .0677% ("Debt Fee") 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) (2)3.0% of the aggregate Purchase Prices of
Properties and/or Equipment acquired by the Partnership, or (3) compensation
customarily charged in arms-length transactions by others rendering similar
services as an on-going activity in the same geographic location for property or
equipment comparable to the Property or Equipment to be purchased by the
Partnership. The Advisor shall pay all Acquisition Expenses from amounts
received as Acquisition Fees. Although the Debt Fee is included within the
definition of Acquisition Fees in calculating the 3.0% limitation, the Debt Fee
will be paid out of proceeds of indebtedness rather than from Gross Proceeds.
(b) The General Partner shall receive Acquisition and Financing
Supervision Fees equal to the lesser of (1) 2.0% of Gross Proceeds, but in no
event shall the Acquisition and Financing Supervision Fees exceed 2.0% of the
aggregate Purchase Prices of Properties and/or Equipment acquired by the
Partnership; or (2) compensation customarily charged in arms-length transactions
by others rendering similar services as an on-going activity in the same
geographic location for property or equipment comparable to the Property or
Equipment to be purchased by the Partnership.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
WITNESSES: CAPTEC NET LEASE REALTY, INC.
/s/ Gary A. Bruder By: /s/ W. Ross Martin
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Its: EXECUTIVE VICE PRESIDENT
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AND CHIEF FINANCIAL OFFICER
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EXHIBIT 10.1
PROMISSORY NOTE
LOAN TERMS TABLE
LENDER: National Realty Funding L.C., a Missouri limited liability company,
its successors and assigns
LOAN NO.: 5454
LENDER'S ADDRESS: 911 Main Street, Suite #1400, Kansas City, Missouri 64105
LENDER'S FACSIMILE NO.: (816) 221-8848
BORROWER: Captec Franchise Capital Partners L.P. IV, a Delaware limited
partnership
BORROWER'S ADDRESS: 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O. Box
544, Ann Arbor, Michigan 48106-0544
BORROWER'S FACSIMILE NO.: (734) 994-1376
BORROWER'S TAX IDENTIFICATION NUMBER: 38-3304095
PROPERTY: Each real property and the improvements thereon located as described
on Schedule A attached hereto and incorporated herein by reference
(collectively referred to as the "PROPERTIES" or individually as a "PROPERTY")
NOTE DATE: December 17, 1998
ORIGINAL PRINCIPAL AMOUNT: $6,375,000.00
MATURITY DATE: January 1, 2009
INTEREST RATE: 8.13 percent (8.13%) per annum
INITIAL INTEREST PAYMENT PER DIEM: $1,439.69
MONTHLY PAYMENT: $53,839.98
MONTHLY INTEREST ONLY PAYMENT DATE: February 1, 1999 and on the first day of
each successive month thereafter to and including January 1, 2001
MONTHLY PAYMENT DATE: February 1, 2001 and on the first day of each successive
month thereafter
FINANCIAL STATEMENT REPORTING DEPOSIT: $265.63
DEFEASANCE LOCK-OUT PERIOD: The period of time commencing on the Note Date and
expiring on the date (the "DEFEASANCE LOCK-OUT EXPIRATION DATE") which is two
(2) years and fifteen (15) days after the "startup day" within the meaning of
Section 860G(a)(9) of the Internal Revenue Code of 1986, as amended (together
with any successor statute and the related Treasury Department Regulations
including temporary regulations, the "CODE") of any "real estate mortgage
investment conduit" within the meaning of Section 860D of the Code ("REMIC")
that holds this Note
PREPAYMENT CONSIDERATION: During the Defeasance Lock-Out Period, the greater
of: (a) 5% of the Outstanding Principal Balance (hereinafter defined) of the
Note which is being prepaid, or (b) the Yield Maintenance Amount (hereinafter
defined)
1. LOAN AMOUNT AND RATE. FOR VALUE RECEIVED, Borrower promises to pay to
the order of Lender, the Original Principal Amount (or so much thereof as is
outstanding from time to time, which is referred to herein as the "OUTSTANDING
PRINCIPAL BALANCE"), with interest on the unpaid Outstanding Principal Balance
from the date of disbursement of the Loan (as hereinafter defined) proceeds of
this Promissory Note ("NOTE") at the Interest Rate. Interest shall be
calculated on the basis of a three hundred sixty (360) day year composed of
twelve (12) months of thirty (30) days each except that interest due and
payable for a period less than a full
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month shall be calculated by multiplying the actual number of days elapsed in
such period by a daily rate based on a 360 day year. The loan evidenced by this
Note will sometimes hereinafter be called the "LOAN". The above Loan Terms
Table (hereinafter referred to as the "TABLE") is a part of the Note and all
terms used in this Note that are defined in the Table shall have the meanings
set forth therein.
2. PRINCIPAL AND INTEREST PAYMENTS. Payments of principal and interest
shall be made as follows:
(a) An interest payment on the date of disbursement in an amount
calculated by multiplying the Initial Interest Payment Per Diem by the number
of days from (and including) the date of the disbursement of the Loan proceeds
through the last day of the calendar month in which the disbursement was made;
and
(b) Interest only at the Interest Rate shall be payable in arrears
on the Outstanding Principal Balance on the Monthly Interest Only Payment Date
through and including January 1, 2001; and
(c) A Monthly Payment on each Monthly Payment Date until the
Maturity Date, each of such payments to be applied: (i) to the payment of
interest computed at the Interest Rate; and (ii) the balance applied toward the
reduction of the principal balance of the Loan; and
(d) If not sooner paid, the balance of the principal amount of the
Loan, all unpaid interest thereon, and all other amounts owed to Lender
pursuant to this Note or any other Loan Document (as hereinafter defined) or
otherwise in connection with the Loan or the security for the Loan shall be due
and payable on the Maturity Date.
3. SECURITY FOR THE NOTE. This Note is secured by first deeds of trust,
mortgages, or deeds to secure debt (which are herein collectively referred to
as the "SECURITY INSTRUMENTS" or individually as a "SECURITY INSTRUMENT")
encumbering each Property. This Note, the Security Instruments, and all other
documents and instruments evidencing and/or securing this Note whether now or
hereafter executed by Borrower or others in connection with or related to the
Loan, including any assignments of leases and rents, other assignments,
security agreements, financing statements, guaranties, indemnity agreements
(including environmental indemnity agreements), letters of credit, or
completion/repair, debt service, tenant finish/leasing commissions, earn-out or
other escrow/holdback or similar agreements or arrangements, together with all
amendments, modifications, substitutions or replacements thereof, are sometimes
herein collectively referred to as the "LOAN DOCUMENTS" or individually as a
"LOAN DOCUMENT". All amounts that are now or in the future become due and
payable under this Note, the Security Instruments, or any other Loan Document,
including any Prepayment Consideration (as hereinafter defined) and all
applicable expenses, costs, charges, and fees will be referred to herein as the
"DEBT." The remedies of Lender as provided in this Note, any other Loan
Document, or under applicable law shall be cumulative and concurrent, may be
pursued singularly, successively, or together at the sole discretion of Lender,
and may be exercised as often as an occasion shall occur. The failure to
exercise any right or remedy shall not be
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construed as a waiver or release of the right or remedy respecting the same or
any subsequent default.
4. FINANCIAL STATEMENT REPORTING DEPOSIT; REBATE OF DEPOSIT. In
addition to and concurrently with each interest only payment and with each
Monthly Payment, Borrower shall also pay to Lender a constant monthly amount
equal to the Financial Statement Reporting Deposit. On the first day of the
fourteenth (14th) month following the date of the initial disbursement of funds
under this Note (the "DISBURSEMENT DATE"), and on an annual basis thereafter
during the term of this Note, Lender shall remit to Borrower a portion of the
Financial Statement Reporting Deposit then held by Lender in an amount equal to
the aggregate amount of the Financial Statement Reporting Deposit actually
received by Lender during the twelve (12) month period ending upon the
immediately prior annual anniversary of the Disbursement Date (the "ANNUAL
COMPLIANCE PERIOD") provided that no Event of Default (as hereinafter defined),
including any failure by Borrower to strictly comply with the financial
reporting requirements set forth in the Security Instruments, is currently
existing or has occurred in the Annual Compliance Period.
5. PAYMENTS. All amounts payable hereunder shall be payable in lawful
money of the United States of America to Lender at Lender's Address or such
other place as the holder hereof may designate in writing. Each payment made
hereunder shall be made in immediately available funds and must state the
Borrower's Loan Number. If any payment of principal or interest on this Note is
due on a day other than a Business Day (as hereinafter defined), such payment
shall be made on the next succeeding Business Day, and such extension of time
shall be included in computing interest in connection with such payment. Any
payment on this Note received after 2:00 o'clock p.m. (CST or other applicable
current time in Kansas City, Missouri) shall be deemed to have been made on the
next succeeding Business Day. All amounts due under this Note shall be payable
without set off, counterclaim, or any other deduction whatsoever. All payments
from Borrower to Lender following the occurrence and during the continuance of
an Event of Default shall be applied in such order and manner as Lender elects
in its sole discretion in reduction of costs, expenses, charges, disbursements
and fees payable by Borrower hereunder or under any other Loan Document, in
reduction of interest due on unpaid principal, or in reduction of principal.
Lender may, without notice to Borrower or any other person, accept one or more
partial payments of any sums due or past due hereunder from time to time while
an uncured Event of Default exists hereunder, after Lender accelerates the
indebtedness evidenced hereby, and/or after Lender commences enforcement of its
remedies under any Loan Document or applicable law, without thereby waiving any
Event of Default, rescinding any acceleration, or waiving, delaying, or
forebearing in the pursuit of any remedies under the Loan Documents. Lender may
endorse and deposit any check or other instrument tendered in connection with
such a partial payment without thereby giving effect to or being bound by any
language purporting to make acceptance of such instrument an accord and
satisfaction of the indebtedness evidenced hereby. As used herein, the term
"BUSINESS DAY" shall mean a day upon which commercial banks are not authorized
or required by law to close in Kansas City, Missouri.
6. LATE CHARGE. If any sum payable under this Note or any other Loan
Document is not received by Lender by close of business on the fifth (5th) day
after the date on which it was
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due, Borrower shall pay to Lender an amount (the "LATE CHARGE") equal to the
lesser of (a) five percent (5%) of the full amount of such sum or (b) the
maximum amount permitted by applicable law in order to help defray the expenses
incurred by Lender in handling and processing such delinquent payment and to
compensate Lender for the loss of the use of such delinquent payment. Any such
Late Charge shall be secured by the Security Instruments and other Loan
Documents. The collection of any Late Charge shall be in addition to, and shall
not constitute a waiver of or limitation of, a default or Event of Default
hereunder or a waiver of or limitation of any other rights or remedies that
Lender may be entitled to under any Loan Document or applicable law.
7. DEFAULT RATE. Upon the occurrence and during the continuance of an
Event of Default (including the failure of Borrower to make full payment on the
Maturity Date), Lender shall be entitled to receive and Borrower shall pay
interest on the Outstanding Principal Balance at the rate of four percent (4%)
per annum above the Interest Rate ("DEFAULT RATE") but in no event greater than
the maximum rate permitted by applicable law. Interest shall accrue and be
payable at the Default Rate from the occurrence of an Event of Default until all
Events of Default have been fully cured. Such accrued interest, if not paid on
demand, shall be added to the Outstanding Principal Balance, and interest shall
accrue on such accrued interest at the Default Rate until fully paid. Such
accrued interest shall be secured by the Security Instruments and other Loan
Documents. Borrower agrees that Lender's right to collect interest at the
Default Rate is given for the purpose of compensating Lender at reasonable
amounts for Lender's added costs and expenses that occur as a result of
Borrower's default and that are difficult to predict in amount, such as
increased general overhead, concentration of management resources on problem
loans, and increased cost of funds. Lender and Borrower agree that Lender's
collection of interest at the Default Rate is not a fine or penalty, but is
intended to be and shall be deemed to be reasonable compensation to Lender for
increased costs and expenses that Lender will incur if there occurs an Event of
Default hereunder. Collection of interest at the Default Rate shall not be
construed as an agreement or privilege to extend the Maturity Date or to limit
or impair any rights and remedies of Lender under any Loan Documents. If
judgment is entered on this Note, interest shall continue to accrue
post-judgment at the greater of (a) the Default Rate or (b) the applicable
statutory judgment rate.
8. COLLECTION EXPENSES. Borrower shall pay on demand, in addition to the
principal and interest due, all reasonable expenses of protecting the security
for this Note and all expenses of enforcement and collection, including costs
for title insurance searches and endorsements, retention of collection agents,
court costs and litigation expenses in connection with any proceedings of any
nature, including appellate and bankruptcy proceedings, and all reasonable
attorneys' fees and expenses, whether incurred as part of or separately from
any formal legal proceedings.
9. PREPAYMENT; DEFEASANCE.
(a) PREPAYMENT.
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(i) RESTRICTIONS. Voluntary prepayment of this Note is prohibited except
during the last ninety (90) days of the term when prepayment may be made in
whole, but not in part, without payment of any premium or penalty, on any
Monthly Payment Date. However, if (a) the tenant of any Property (each a
"TENANT") shall validly exercise its purchase option to acquire such Property in
accordance with the terms of its lease (each a "PURCHASE OPTION") at any time
prior to the Defeasance Lock-out Expiration Date, (b) Borrower complies in all
respects with the applicable provisions of this Section 9(a), and (c) as of the
Prepayment Date (as hereinafter defined), no Event of Default exists and no
event exists that, with the passage of time, giving of notice, or modification
or termination of the automatic stay of Section 362 of the Bankruptcy Code, may
become an Event of Default ("DEFAULT"), Borrower shall be permitted and is
hereby obligated to prepay the Loan in part but not in whole. Each such
prepayment shall be deemed a "PURCHASE OPTION PREPAYMENT", and the entire amount
payable by Tenant under such lease to exercise its Purchase Option (the
"PURCHASE PRICE") shall be paid directly to Lender for application by Lender as
hereinafter provided. Notwithstanding anything to the contrary contained herein,
Borrower shall use best efforts to cause such Purchase Option Prepayments to
occur during the first twenty (20) calendar days of any month during the term of
this Note.
(ii) NOTICE. Borrower shall give written notice to Lender specifying the
date on which a Purchase Option Prepayment shall be made (the "PREPAYMENT
DATE"). Borrower shall cause Lender to receive this notice not more than sixty
(60) days and not less than (30) days prior to the Prepayment Date. If the
Purchase Option is exercised, the amount of the Purchase Option Prepayment
shall be due and payable on the Prepayment Date, unless (a) an event shall occur
outside of Borrower's control that prevents the Purchase Option Prepayment, or
(b) Borrower has elected not to consummate the transaction which would result in
the Purchase Option Prepayment. If such an event shall occur, the Note, Security
Instruments and Loan Documents shall continue in full force and effect as if the
notice of prepayment had not been given.
(iii) PREPAYMENT CONSIDERATION. The entire Purchase Price shall be used to
make the Purchase Option Prepayment and pay the Prepayment Consideration
attributable thereto. Borrower acknowledges that the amount to be allocated as
between the Prepayment Consideration and the Purchase Option Prepayment cannot
be determined until on or about the Prepayment Date. Lender shall determine in
its sole discretion the amount of the Purchase Option Prepayment to be applied
to the Outstanding Principal Balance and the amount to be applied to the
Prepayment Consideration, which shall be computed in accordance with the Table
and Section 9(a)(iv) hereof. Borrower acknowledges that the Prepayment
Consideration is a bargained for consideration and not a penalty, and Borrower
recognizes that Lender will incur substantial additional costs and expenses in
the event of a Purchase Option Prepayment and that the Prepayment Consideration
compensates Lender for such costs and expenses and the loss of Lender's
investment opportunity for the principal amount being prepaid during the period
from the Prepayment Date until the Maturity Date. Borrower agrees that Lander
shall not, as a condition to receiving any Prepayment Consideration, be
obligated to actually reinvest the amount prepaid in any treasury obligation or
in any other manner whatsoever.
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(iv) YIELD MAINTENANCE AMOUNT. The "YIELD MAINTENANCE AMOUNT" (as the term
is used in the Table and elsewhere in this Note) shall mean the excess of: (A)
the present value, as of the Prepayment Date, of each of the then remaining
scheduled payments of principal and interest payable under this Note from the
Prepayment Date through the Maturity Date (including any balloon payment)
determined by: (1) subtracting from each then remaining scheduled payment of
principal and interest the amount of principal and interest that is still
scheduled to be paid on the due date thereof following the Purchase Option
Prepayment; and (2) discounting such payments (using simple discounting) at the
Discount Rate (hereinafter defined); over (B) the amount of principal being
prepaid. The term "DISCOUNT RATE" shall mean the rate that, when compounded
monthly, is equivalent to the Treasury Rate (hereinafter defined) when
compounded semi-annually. The term "TREASURY RATE" shall mean the yield
calculated by the linear interpolation of the yields, as reported in Federal
Reserve Statistical Release H.15-Selected Interest Rates under the heading U.S.
Government Securities/Treasury Constant Maturities for the week ending prior to
the Prepayment Date, of U.S. Treasury constant maturities with maturity dates
(one longer and one shorter) most nearly approximating the Maturity Date. (If
Release H.15 is no longer published, Lender shall select a comparable
publication to determine the Treasury Rate.)
(v) Borrower shall provider to Lender on or before the Prepayment Date:
(a) an opinion satisfactory to Lender in its sole discretion of a
qualified valuation expert satisfactory to Lender in its sole discretion,
stating, among other things but without substantive qualification, that
(1) the loan-to-value ratio of the Loan and all of the collateral for the
Loan under the Loan Documents will not in such expert's opinion change
significantly as a result of the Purchase Option Prepayment and partial
release and any other transactions that occur pursuant to the provisions of
this Section 9(a); and (2) immediately after the occurrence of such
transaction the fair market value of the collateral that secures the Loan
will be at least equal to eighty percent (80%) of the amount of the Loan;
and
(b) an opinion of counsel for Borrower satisfactory to Lender in its
sole discretion, delivered to Lender by counsel satisfactory to Lender in
its sole discretion, stating, among other things but without substantive
qualification, that (1) neither the Purchase Option Prepayment nor any
other transaction that occurs pursuant to the provisions of this Section
9(a) has caused or will cause the Loan (including for this purpose the
Loan Documents) to cease to be a "qualified mortgage" within the meaning
of Section 860G of the Code, either under the provisions of Treasury
Regulation Sections 1.860G-2(a)8) or 1.860G-2(b) (as such regulations may
be amended or superseded from time to time) or under any other provision
of the Code or otherwise, and (2) each of any REMIC or any other entity
that holds this Note will not cease to be qualified as a REMIC or as such
other type of entity as a result of the Purchase Option Prepayment and/or
any other transaction that occurs pursuant to the provisions of this
Section 9(a).
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(vi) Borrower shall pay all costs and expenses including reasonable
attorneys' fees incurred by Lender or its servicers or other agent(s) in
connection with any Purchase Option Prepayment and related transactions,
including review of the foregoing opinions and any court costs and
litigation expenses incurred in connection with any attempted revocation or
nullification of the exercise of any Purchase Option by a Tenant.
(vii) It shall be an event of default under this Note (a "PURCHASE
OPTION PREPAYMENT DEFAULT") if (a) Borrower fails to strictly comply with
all of the requirements of the preceding clauses (i) through (vi) of this
Section 9(a) on or before the Prepayment Date, (b) the disposition of a
Property pursuant to the exercise of any Purchase Option is consummated
(whether in accordance with the terms of the lease, by order of any court
or otherwise), and (c) Lender receives or is required to receive the
Purchase Price. If a Purchase Option Prepayment Default shall occur, Lender
may declare the entire Debt, including the principal balance of the Loan
(deducting therefrom the amount of the Purchase Price actually received by
Lender, which shall be applied to the Outstanding Principal Balance), all
accrued interest, and all costs, expenses, charges and fees payable under
any Loan Document, together with any applicable Default Prepayment
Consideration (which shall be calculated on the entire Outstanding
Principal Balance without deduction for the amount of the Purchase Price),
immediately due and payable.
(b) DEFEASANCE.
(i) FULL DEFEASANCE. Provided that as of the Release Date (as
hereinafter defined) the Debt has not been accelerated, no Default or Event
of Default exists, Borrower may cause the release of the Properties from
the liens of the Security Instruments and the other Loan Documents (a "FULL
DEFEASANCE") on any Monthly Payment Date following the Defeasance Lock-out
Expiration Date upon Borrower's satisfaction of the following conditions:
(A) Borrower shall provide Lender not less than thirty (30) days
prior written notice specifying a Monthly Payment Date (such Date, or
any extended date upon which Borrower and Lender may mutually agree is
referred to herein as the "RELEASE DATE") on which the Full Defeasance
transaction is to be consummated;
(B) On the Release Date Borrower shall pay in full all accrued
and unpaid interest and all other sums due under this Note and under
the other Loan Documents up to the Release Date, including all costs
and expenses including attorneys' fees incurred by Lender or its
servicers or other agent(s) or to or on behalf of any rating agencies
in connection with such release and related transactions (including
the review of the proposed Defeasance Collateral and the preparation
of the Defeasance Security Agreement (as hereinafter defined) and
related documentation) together with a defeasance processing fee in an
amount equal to one-half of one percent (0.5%) of the then Outstanding
Principal Balance but in no event less than (A) $10,000 or greater
than (B) $20,000; and
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(C) Borrower shall deliver the following, all of which must be
satisfactory to Lender in its sole discretion, at or prior to the release of
the Properties and substitution of the Defeasance Collateral:
(1) Direct, non-callable and non-redeemable securities
evidencing an obligation to pay principal and interest in a full and timely
manner that are direct obligations of the United States of America for the
payment of which its full faith and credit is pledged ("GOVERNMENT
SECURITIES") in amounts sufficient to pay all scheduled principal and
interest payments required under this Note (the "DEFEASANCE COLLATERAL"),
which securities provide for payments prior, but as close as possible, to
the Business Day prior to each successive Monthly Payment Date occurring
after the Release Date, with each such payment being equal to or greater
than the amount of the corresponding Monthly Payment required to be made
hereunder for the balance of the term hereof plus the amount required to be
paid on the Maturity Date (the "SCHEDULED DEFEASANCE PAYMENTS"), each of
which shall be duly endorsed by the holder thereof as directed by Lender or
accompanied by a written instrument of transfer in form and substance
satisfactory to Lender in its sole discretion (including such instruments
as may be required by the depository institution or other entity holding
such securities or the issuer thereof, as the case may be, to effectuate
book-entry transfers and pledges through the book-entry facilities of such
institution) in order to perfect upon the delivery of the Defeasance
Security Agreement (as hereinafter defined) a valid, first priority lien
and security interest therein in favor of Lender in conformity with all
applicable state and federal laws governing granting of such security
interest;
(2) any and all agreements, certificates, opinions, documents or
instruments required by Lender in its sole discretion in connection with
the Full Defeasance including (a) a pledge and security agreement, in form
and substance satisfactory to Lender in its sole discretion, creating a
first priority security interest in favor of Lender in the Defeasance
Collateral (the "DEFEASANCE SECURITY AGREEMENT"), and (b) any and all
agreements, certificates, opinions, documents, or instruments required by
Lender in its sole discretion that affect or relate in any way to the
maintenance by any REMIC that holds this Note of its qualification and
status for tax purposes as a REMIC (collectively "REMIC QUALIFICATION
DOCUMENTS");
(3) a certificate of Borrower certifying that (a) all of the
requirements set forth in this Section 9(b) have been satisfied, (b) the
transactions that are being carried out pursuant to this Section 9(b)
(including specifically the release of the lien of the Security Instrument)
are being effected to facilitate the disposition of the Property or any
other customary commercial transaction and not as part of an arrangement to
collateralize a REMIC offering with obligations that are not real estate
mortgages, and (c) the amounts of the Defeasance Collateral comply with all
the requirements of this Section including the requirement that
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the Defeasance Collateral shall generate monthly amounts equal to or
greater than the Scheduled Defeasance Payments;
(4) an opinion of counsel for Borrower satisfactory to Lender in its
sole discretion, delivered to Lender by counsel satisfactory to Lender in
its sole discretion, stating, among other things but without substantive
qualification, that (a) Lender has a valid, duly perfected, first priority
security interest in the Defeasance Collateral and that the Defeasance
Security Agreement is enforceable against Borrower in accordance with its
terms, (b) neither the Full Defeasance nor any other transaction that
occurs pursuant to the provisions of this Section 9(b) has caused or will
cause the Loan (including for this purpose the Loan Documents) to cease to
be a "qualified mortgage" within the meaning of Section 860G of the Code,
either under the provisions of Treasury Regulation Sections 1.860G-2(a)(8)
or 1.860G-2(b) (as such regulations may be amended or superseded from time
to time) or under any other provision of the Code or otherwise, and (c)
each of any REMIC or any other entity that holds this Note will not cease
to be qualified as a REMIC or as such other type of entity as a result of
the Full Defeasance and/or any other transaction that occurs pursuant to
the provisions of this Section 9(b);
(5) a certificate and opinion delivered by an independent certified
public accounting firm acceptable to Lender in its sole discretion (a)
certifying that the amounts of the Defeasance Collateral comply with all
the requirements of this Section including the requirement that the
Defeasance Collateral shall generate monthly amounts equal to or greater
than the Scheduled Defeasance Payments; (b) setting forth the change in
the yield of the Loan that results from the Full Defeasance and any other
transactions that occur pursuant to the provisions of this Section 9(b),
including supporting computations which shall be made in a manner that is
consistent with the provisions of Treasury Regulation Sections
1.1001-3(e)(1) and (2), and (c) opining that such change has not
constituted or caused and will not constitute or cause a significant
modification of the Loan (including for this purpose the Loan Documents)
under such provisions of the regulations;
(6) written confirmation from the rating agencies that have rated
any of the securities issued by any REMIC that holds this Note to the
effect that the Full Defeasance will not result in a downgrading,
withdrawal or qualification of the respective ratings in effect
immediately prior to such Full Defeasance for any rated securities then
outstanding, and if required by any rating agency or Lender, a
non-consolidation opinion with respect to the Defeasance Obligor (as
hereinafter defined) in form and substance satisfactory to Lender and such
rating agency; and
(7) Borrower shall (unless otherwise agreed to in writing by Lender
in its sole discretion), at Borrower's sole expense, assign all of its
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<PAGE> 10
obligations under this Note, together with the Defeasance Collateral, to a
successor entity ("DEFEASANCE OBLIGOR") designated by Borrower and approved
by Lender in its sole discretion that is a single purpose, bankruptcy
remote entity as determined by Lender in its sole discretion. The
Defeasance Obligor shall execute an assumption agreement pursuant to which
it shall assume Borrower's obligations under this Note, the Loan Documents,
and the Defeasance Security Agreement. As conditions to such assignment and
assumption, Borrower shall (a) deliver to Lender an opinion of counsel
satisfactory to Lender in its sole discretion, delivered to Lender by
counsel satisfactory to Lender in its sole discretion, stating, among other
things, that such assumption agreement has been duly authorized and is
enforceable against Borrower and the Defeasance Obligor in accordance with
its terms, that the Note, the Defeasance Security Agreement and the other
Loan Documents, as so assumed, have been duly authorized and are
enforceable against the Defeasance Obligor in accordance with their
respective terms, and that the delivery of the Defeasance Collateral to the
Defeasance Obligor does not constitute a fraudulent transfer, preferential
payment, or other voidable transfer under applicable bankruptcy law,
subject only to such reasonable and customary conditions, limitations,
exceptions and assumptions as are reasonably satisfactory to Lender, and
(b) pay all costs and expenses including attorneys' fees incurred by Lender
or its servicer or other agent(s) in connection with such assignment and
assumption (including the review of the proposed transferee and the
preparation of the assumption agreement and related documentation). Upon
such assumption, Borrower shall be relieved of its obligations under this
Note, the Defeasance Security Agreement and the other Loan Documents, other
than those obligations which are specifically intended to survive the
payment of this Note and the termination, satisfaction or assignment of
this Note, the Defeasance Security Agreement or the other Loan Documents or
the exercise of Lender's rights and remedies under any of such documents
and instruments.
(D) Upon compliance with the requirements of this Section, Lender
shall release the Properties from the liens of the Security Instruments and the
other Loan Documents, and the Defeasance Collateral shall constitute collateral
which shall secure this Note and all other obligations under the Loan Documents.
Lender will, at Borrower's expense, execute and deliver any agreements
reasonably requested by Borrower to release the liens of the Security
Instruments from the Properties. Borrower, pursuant to the Defeasance Security
Agreement, shall authorize and direct that the payments received from Defeasance
Collateral be made directly to Lender and applied to satisfy the obligations of
Borrower under this Note.
(E) Upon the release of the Properties in accordance with this
Section 9(b), Borrower shall have no further right to prepay this Note. Borrower
shall pay any revenue, documentary stamp or intangible taxes or any other tax or
charge due in connection with the transfer of this Note or otherwise required to
accomplish the agreements of this Section.
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<PAGE> 11
(F) If any notice of Full Defeasance is given pursuant to Section
9(b)(i)(A), Borrower shall be required to defease the Loan on the Release
Date (unless such notice is revoked by Borrower prior to the Release Date
in which event Borrower shall immediately reimburse Lender for any and all
reasonable costs and expenses incurred by Lender in connection with
Borrower's giving of such notice and revocation).
(G) At Borrower's request, Lender may agree in its sole discretion
that Lender or its servicer or other agent, acting on Borrower's behalf as
Borrower's agent and attorney-in-fact, shall purchase the Defeasance
Collateral that Borrower is required to deliver to Lender pursuant to
Section 9(b)(i)(C)(1). If such an agreement is made then Borrower shall
deposit with Lender or Lender's servicer or other agent, as directed by
Lender or Lender's agent(s), on or prior to the Release Date a sum of money
sufficient to purchase the Defeasance Collateral. By making such deposit
Borrower shall thereby appoint Lender or Lender's servicer or other agent
as Borrower's agent and attorney-in-fact, with full power of substitution,
for the purpose of purchasing the Defeasance Collateral with the funds so
provided and delivering the Defeasance Collateral to Lender pursuant to
Section 9(b)(i)(C)(1).
(H) Notwithstanding any release of the Security Instrument or any Full
Defeasance hereunder, the Defeasance Obligor shall, and hereby agrees to
be, bound by and obligated under Sections 3.1 (Payment of Debt), 7.2
(Further Acts Etc.), 7.4(a) (Estoppel Certificates), 11.2 (Application of
Proceeds), 11.7 (Other Rights Etc.) and 14.2 (Marshalling and Other
Matters) and Article 13 (Indemnification) of the Security Instrument;
provided, however, that all references therein to "Property" or "Personal
Property" shall be deemed to refer only to the Defeasance Collateral
delivered to Lender.
(ii) PARTIAL DEFEASANCE. If any Tenant shall have validly exercised its
Purchase Option to acquire a Property after the Defeasance Lock-out Expiration
Date, Borrower may cause the release of such Property from the lien of the
security Instrument encumbering such Property and the other Loan Documents and
substitute collateral as provided herein (a "PARTIAL DEFEASANCE") on any
Monthly Payment Date following the Defeasance Lock-Out Expiration Date provided
that, as of the Release Date, the Debt has not been accelerated, no Default or
Event of Default exists, and upon satisfaction of the following conditions:
(A) Immediately available funds shall have been wired to Lender's
servicing agent or other designee (the "SERVICER") or, if there is no
Servicer, Lender or Lender's designee (Servicer, Lender, or Lender's
designee being herein sometimes referred to for this purpose as the
"DEFEASANCE AGENT") in an amount (the "PROCEEDS") equal to the greater of
(1) the Purchase Price of such Property, net of closing costs, or (2) the
net present value as determined by the Defeasance Agent in its sole
discretion, using the weighted average yield of the Government Securities
purchased pursuant to Section 9(b)(ii))B) as the discount rate to compute
such value, of the partial defeasance principal amount set forth on
Schedule B attached hereto attributable to the Property that is the
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<PAGE> 12
subject of the Purchase Option (the "PARTIAL DEFEASANCE PRINCIPAL AMOUNT")
together with interest thereon at the Interest Rate from the Release Date to
the Maturity Date;
(B) Borrower hereby appoints Defeasance Agent as Borrower's agent and
attorney-in-fact to utilize all Proceeds (or as much of the Proceeds as is
possible) to purchase Government Securities, which securities provide for
payments ("PARTIAL SCHEDULED DEFEASANCE PAYMENTS") that replicate as closely as
possible (ie. are made in the same proportions as) the scheduled payments due
under this Note for the balance of the term hereof including the amount
(adjusted to reflect any Purchase Option Prepayments received by Lender prior
to the Defeasance Lock-Out Expiration Date) required to be paid on the
Maturity Date, all as determined by the Defeasance Agent in its sole discretion
(all such Government Securities are hereinafter referred to as the "PARTIAL
DEFEASANCE COLLATERAL"). If the Defeasance Agent determines in its sole
discretion that all Proceeds cannot be used to purchase Partial Defeasance
Collateral, then such excess Proceeds shall be delivered to Borrower. Each
Government Security included in the Partial Defeasance Collateral shall be duly
endorsed by the holder thereof as directed by Lender or accompanied by a
written instrument of transfer in form and substance satisfactory to Lender in
its sole discretion (including such instruments as may be required by the
depository institution or other entity holding such securities or the issuer
thereof, as the case may be, to effectuate book-entry transfers and pledges
through the book-entry facilities of such institution) in order to perfect upon
the delivery of the Defeasance Security Agreement a valid, first priority lien
and security interest therein in favor of Lender in conformity with all
applicable state and federal laws governing granting of such security interest.
(C) Borrower shall have provided Lender with not less than thirty (30)
days prior written notice specifying the Release Date on which the Partial
Defeasance transaction is to be consummated;
(D) On the Release Date, Borrower shall have paid in full all accrued and
unpaid interest and all other sums due under this Note and under the other Loan
Documents up to the Release Date, including all costs and expenses including
reasonable attorneys' fees incurred by Lender or the Defeasance Agent or to or
on behalf of any rating agencies in connection with such release and related
transactions (including the review of the proposed Partial Defeasance
Collateral and the preparation of the Defeasance Security Agreement and related
documentation) together with a defeasance processing fee in an amount equal to
one-half of one percent (0.5%) of the portion of the Outstanding Principal
Balance being defeased, but in no event less than (A) $10,000 or greater than
(B) $20,000; and
(E) Defeasance Agent shall have obtained, as Borrower's agent and on
Borrower's behalf at Borrower's sole cost and expense, the following, all of
which must be satisfactory to Lender in its sole discretion, at or prior to the
release of any Property and substitution of the Partial Defeasance Collateral:
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<PAGE> 13
(1) any and all agreements, certificates, opinions or documents
required by Lender in its sole discretion in connection with the Partial
Defeasance including a Defeasance Security Agreement and any REMIC
Qualification Documents;
(2) a certificate certifying that (a) all of the requirements set
forth in this Section 9(b)(ii) have been satisfied, (b) the transactions
that are being carried out pursuant to this Section 9(b)(ii) (including
specifically the release of the lien of any Security Instrument) are being
effected to facilitate the disposition of one or more of the Properties or
any other customary commercial transaction and not as part of an
arrangement to collateralize a REMIC offering with obligations that are
not real estate mortgages, and (c) the amounts of the Partial Defeasance
Collateral comply with all the requirements of this section including, the
requirement that the Partial Defeasance Collateral shall generate monthly
amounts equal to or greater than the Partial Scheduled Defeasance Payments
required to be paid under this Note through the Maturity Date;
(3) an opinion of counsel for Borrower satisfactory to Lender in its
sole discretion, delivered to Lender by counsel satisfactory to Lender in
its sole discretion, stating, among other things but without substantive
qualification, that (a) Lender has a valid, duly perfected, first priority
security interest in the Partial Defeasance Collateral and that the
Defeasance Security Agreement is enforceable against Borrower in accordance
with its terms, (b) neither the Partial Defeasance nor any other
transaction that occurs pursuant to the provisions of this Section 9(b)(ii)
has caused or will cause the Loan (including for this purpose the Loan
Documents) to cease to be a "qualified mortgage" within the meaning of
Section 860G of the Code, either under the provisions of Treasury
Regulation Sections 1.860G-2(a)(8) or 1.860G-2(b) (as such regulations may
be amended or superseded from time to time) or under any other provision of
the Code or otherwise, and (c) each of any REMIC or any other entity that
holds this Note will not cease to be qualified as a REMIC or as such other
type of entity as a result of the Partial Defeasance and/or any other
transaction that occurs pursuant to the provisions of this Section
9(b)(ii);
(4) a certificate and opinion delivered by an independent certified
public accounting firm acceptable to Lender in its sole discretion (a)
certifying that the amounts of the Partial Defeasance Collateral comply
with all the requirements of this Section including the requirement that
the Partial Defeasance Collateral shall generate monthly amounts equal to
or greater than the Partial Scheduled Defeasance Payments; and (b) setting
forth the change in the yield of the Loan that results from any Partial
Defeasance and any other transactions that occur pursuant to the
provisions of this Section 9(b)(ii), including supporting computations
which shall be made in a manner that is consistent with the provisions of
Treasury Regulation Sections 1.1001-3(e)(1) and (2), and opining that such
change has not constituted or caused and will not constitute or cause a
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<PAGE> 14
significant modification of the Loan (including for this purpose the Loan
Documents) under such provisions of the regulations;
(5) written confirmation from the rating agencies that have rated any
of the securities issued by any REMIC that holds this Note to the effect
that no Partial Defeasance will result in a downgrading, withdrawal or
qualification of the respective ratings in effect immediately prior to such
Partial Defeasance for any rated securities then outstanding, and if
required by any rating agency or Lender, a non-consolidation opinion with
respect to the Defeasance Obligor in form and substance satisfactory to
Lender and such rating agency; and
(6) Defeasance Agent, as Borrower's agent and attorney-in-fact, shall
cause Borrower, at Borrower's sole expense, to assign an undivided interest
in the Note equal to the percentage obtained by dividing the Partial
Defeasance Principal Amount by the original principal amount of the Loan
(the "PARTIAL DEFEASANCE PORTION") together with the Partial Defeasance
Collateral, to the Defeasance Obligor. The Defeasance Obligor shall execute
an assumption agreement pursuant to which it shall assume Borrower's
obligations under this Note with respect to the Partial Defeasance Portion
and the Defeasance Security Agreement. As conditions to such assignment and
assumption, Defeasance Agent shall obtain for Lender, at Borrower's sole
expense and on Borrower's behalf, an opinion of counsel satisfactory to
Lender in its sole discretion delivered by counsel satisfactory to Lender
in its sole discretion stating, among other things, that such assumption
agreement has been duly authorized and is enforceable against Borrower and
the Defeasance Obligor in accordance with its terms, that the Note and the
Defeasance Security Agreement, as so assumed, have been duly authorized and
are enforceable against the Defeasance Obligor in accordance with their
respective terms, and that the delivery of the Partial Defeasance
Collateral to the Defeasance Obligor does not constitute a fraudulent
transfer, preferential payment, or other voidable transfer under applicable
bankruptcy law, subject only to such reasonable and customary conditions,
limitations, exceptions and assumptions as are reasonably satisfactory to
Lender. Borrower shall be solely responsible for paying all reasonable
costs and expenses including attorneys' fees incurred by Lender or
Defeasance Agent or other agent(s) in connection with such assignment and
assumption (including the review of the proposed transferee and the
preparation of the assumption agreement and related documentation).
(F) Upon compliance with the requirements of this Section 9(b)(ii), Lender
shall release the Property involved in the Partial Defeasance from the lien of
the Security Instrument encumbering such Property, and the Partial Defeasance
Collateral shall constitute a portion of the collateral securing this Note.
Lender will, at Borrower's expense, execute and deliver any agreements
reasonably requested by Borrower or Defeasance Agent to release the lien of the
Security Instrument from such Property. Borrower, pursuant to the Defeasance
Security Agreement, shall authorize and direct that the payments received from
the Partial Defeasance Collateral be made directly to Lender
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<PAGE> 15
and applied to partially satisfy the obligations of Borrower under this Note.
Upon determination of the Partial Scheduled Defeasance Payments, the portion of
the Monthly Payment payable from sources other than Partial Defeasance
Collateral shall be adjusted by subtracting the monthly Partial Scheduled
Defeasance Payment from the amount of the Monthly Payment, and Borrower shall
thereafter be required on each Monthly Payment to pay on each Monthly Payment
Date such portion of the Monthly Payment from sources of funds other than the
Partial Defeasance Collateral.
(G) Borrower shall pay any revenue, documentary stamp or intangible taxes
or any other tax or charge due in connection with the transfer of the Partial
Defeasance Interest in this Note or otherwise required to accomplish the
agreements of this Section.
(H) If any notice of Partial Defeasance is given pursuant to Section
9(b)(ii)(C), Defeasance Agent shall be required to defease all or any portion
of the Loan on a Release Date (unless such notice is revoked by Borrower prior
to such Release Date in which event Borrower shall immediately reimburse Lender
and Defeasance Agent for any and all reasonable costs and expenses incurred by
Lender or Defeasance Agent in connection with Borrower's giving of such notice
and revocation).
(I) Borrower hereby irrevocably appoints Defeasance Agent as Borrower's
agent and attorney-in-fact, which appointment is coupled with an interest and
with full power of substitution, for the purpose of purchasing the Defeasance
Collateral with the Proceeds and delivering the Partial Defeasance Collateral
to Lender pursuant to Sections 9(b)(ii)(A) and (B). Borrower hereby ratifies
and confirms and all acts done or omitted to be done by Defeasance Agent under
the authority of such power of attorney.
(J) Notwithstanding any release of any Security Instrument or any Partial
Defeasance hereunder, the Defeasance Obligor shall, and hereby agrees to be,
bound by and obligated under Sections 3.1 (Payment of Debt), 7.2 (Further Acts
Etc.), 7.4(a) (Estoppel Certificates), 11.2 (Application of Proceeds), 11.7
(Other Rights Etc.) and 14.2 (Marshalling and Other Matters) and Article 13
(Indemnification) of the Security Instruments; provided, however (a) all
references therein to "Property" or "Personal Property" shall be deemed to refer
only to the Partial Defeasance Collateral delivered to Lender, and (b) the
Defeasance Obligor shall be only obligated to pay a portion of the Debt equal to
the Partial Defeasance Portion.
(K) It shall be an event of default under this Note (a "PARTIAL DEFEASANCE
DEFAULT") if (a) Borrower fails to strictly comply with all of the requirements
of the preceding clauses (A) through (J) of this Section 9(b)(ii) on or before
the Release Date, (b) the disposition of a Property pursuant to the exercise of
any Purchase Option is consummated (whether in accordance with the terms of the
lease, by order of any court, or otherwise), and (c) Lender receives or is
required to receive the Purchase Price. If a Partial Defeasance Default shall
occur, Lender may declare the entire Debt, including the principal balance of
the Loan (deducting therefrom the amount of the Purchase Price actually received
by Lender, which shall be applied to the Outstanding Principal
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<PAGE> 16
Balance), all accrued interest, and all costs, expenses, charges and
fees payable under any Loan Document, together with any applicable
Default Prepayment Consideration (which shall be calculated on the
entire Outstanding Principal Balance without deduction for the amount
of the Purchase Price), immediately due and payable.
(c) DEFAULT PREPAYMENT. If a Default Prepayment (as hereinafter
defined) occurs, such Default Prepayment shall be deemed to be a voluntary
prepayment under this Note and in such case the applicable Default
Prepayment Consideration (as hereinafter defined) shall be due and payable
to Lender in connection with such Default Prepayment. The Default
Prepayment Consideration shall be secured by all security and collateral
for the Loan and shall be added to the Outstanding Principal Balance for
all purposes including accrual of interest, judgment on the Note,
foreclosure (whether through power of sale, judicial proceeding, or
otherwise), redemption, and bankruptcy (including pursuant to Section 506
of the United States Bankruptcy Code). The term "DEFAULT PREPAYMENT" shall
mean a prepayment of the principal amount of this Note made after
occurrence of a Default or Event of Default under any circumstances
including a prepayment in connection with reinstatement of any Security
Instrument provided by statute under foreclosure proceedings or exercise of
power of sale, any statutory right of redemption exercised by Borrower or
any other party having a statutory right to redeem or prevent foreclosure
or power of sale, any sale in foreclosure or under exercise of a power of
sale or otherwise (including pursuant to a credit bid made by Lender in
connection with such sale), or any other collection action by Lender.
Classification and treatment of Lender's claim pursuant to a plan of
reorganization in bankruptcy shall also be deemed to be a Default
Prepayment hereunder. The "DEFAULT PREPAYMENT CONSIDERATION" (as the term
is used in this Note) shall mean the present value, as of the date of the
occurrence of the Default, of the remaining scheduled payments of principal
and interest from the date of the occurrence of the Default through the
Maturity Date (including any balloon payment), which shall be determined by
discounting such payments (using simple discounting) at the Discount Rate
less the amount of principal being prepaid.
10. MAXIMUM RATE PERMITTED BY LAW. All agreements in this Note and all
other Loan Documents are expressly limited so that in no contingency or
event whatsoever, whether by reason of acceleration of maturity of the
indebtedness evidenced hereby or otherwise, shall the amount agreed to be
paid hereunder for the use, forbearance, or detention of money exceed the
highest lawful rate permitted under applicable usury laws. If, from any
circumstance whatsoever, fulfillment of any provision of this Note or any
other Loan Document at the time performance of such provision shall be due
shall involve exceeding any usury limit prescribed by law that a court of
competent jurisdiction may deem applicable hereto, then, ipso facto, the
obligations to be fulfilled shall be reduced to allow compliance with such
limit, and if, from any circumstance whatsoever, Lender shall ever receive
as interest an amount that would exceed the highest lawful rate, the
receipt of such excess shall be deemed a mistake and shall be canceled
automatically or, if theretofore paid, such excess shall be credited
against the principal amount of the indebtedness evidenced hereby to which
the same may lawfully be credited, and any portion of such excess not
capable of being so credited shall be refunded immediately to Borrower.
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<PAGE> 17
11. EVENTS OF DEFAULT; ACCELERATION OF AMOUNT DUE. Lender may in its sole
discretion, without notice to Borrower, declare the entire Debt, including the
principal balance of the Loan, all accrued interest, and all costs, expenses,
charges and fees payable under any Loan Document, together with any applicable
Default Prepayment Consideration, immediately due and payable, and Lender shall
have all remedies available to it at law or equity for collection of the
amounts due, if any of the following (the "EVENTS OF DEFAULT") occurs and
continues beyond any applicable cure period:
(a) Borrower fails to make full and punctual payment of any amount
payable on a monthly basis hereunder, under any Security Instrument, or under
any other Loan Document, which failure is not cured on or before the fifth
(5th) day after the date of written notice from Lender to Borrower of such
failure;
(b) Borrower fails to make full payment of the Debt when due,
whether on the Maturity Date, upon acceleration or prepayment, or otherwise,
following the expiration of any applicable grace period provided in the
Security Instrument or any other Loan Document;
(c) Borrower fails to make full and punctual payment of any Late
Charges, costs and expenses due hereunder, or any other sum of money required
to be paid hereunder (other than any payment described in subclauses (a) and
(b) immediately above) or under the Security Instruments or any other Loan
Document which failure is not cured on or before the twentieth (20th) day after
Lender's written notice to Borrower that such payment is required; or
(d) a Prepayment Purchase Option Default or a Partial Defeasance
Default shall occur; or
(e) an Event of Default occurs under any Security Instrument or any
other Loan Document.
12. TIME OF ESSENCE. Time is of the essence with regard to each provision
contained in this Note.
13. TRANSFER AND ASSIGNMENT. This Note may be freely transferred and
assigned by Lender. Borrower's right to transfer its rights and obligations
with respect to the Debt, and to be released from liability under this Note,
shall be governed by the Security Instruments.
14. AUTHORITY OF PERSONS EXECUTING NOTE. Borrower warrants and represents
that the persons or officers who are executing this Note and the other Loan
Documents on behalf of Borrower have full right, power and authority to do so,
and that this Note and the other Loan Documents constitute valid and binding
documents, enforceable against Borrower in accordance with their terms, and
that no other person, entity, or party is required to sign, approve, or consent
to, this Note.
15. SEVERABILITY. The terms of this Note are severable, and should any
provision be declared by a court of competent jurisdiction to be invalid or
unenforceable, the remaining
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<PAGE> 18
provisions shall, at the option of Lender, remain in full force and effect and
shall in no way be impaired.
16. BORROWER'S WAIVERS. Borrower and all others liable hereon hereby
waive presentation for payment, demand, notice of dishonor, protest, and notice
of protest, notice of intent to accelerate, and notice of acceleration, stay of
execution and all other suretyship defenses to payment generally. No release of
any security held for the payment of this Note, or extension of any time periods
for any payments due hereunder, or release of collateral that may be granted by
Lender from time to time, and no alteration, amendment or waiver of any
provision of this Note or of any of the other Loan Documents, shall modify,
waive, extend, change, discharge, terminate or affect the liability of Borrower
and any others that may at any time be liable for the payment of this Note or
the performance of any covenants contained in any of the Loan Documents.
17. GOVERNING LAW. This Note has been delivered to and accepted by Lender
in the State of Missouri, and shall be governed and construed generally
according to the laws of the State of Missouri without regard to the conflict of
law provisions thereof ("GOVERNING STATE").
18. JURISDICTION AND VENUE. BORROWER HEREBY CONSENTS TO PERSONAL
JURISDICTION IN THE GOVERNING STATE AND IN EACH JURISDICTION IN WHICH ANY
PROPERTY IS LOCATED (EACH A "SITUS STATE"). VENUE OF ANY ACTION BROUGHT TO
ENFORCE THIS NOTE OR ANY OTHER LOAN DOCUMENT OR ANY ACTION RELATING TO THE LOAN
OR THE DEBT OR THE RELATIONSHIPS CREATED BY OR UNDER THE LOAN DOCUMENTS
("ACTION") SHALL, AT THE ELECTION OF LENDER, BE IN (AND IF ANY ACTION IS
ORIGINALLY BROUGHT IN ANOTHER VENUE, THE ACTION SHALL AT THE ELECTION OF LENDER
BE TRANSFERRED TO) EITHER A STATE OR FEDERAL COURT OF APPROPRIATE JURISDICTION
LOCATED IN THE GOVERNING STATE OR IN EACH SITUS STATE. BORROWER HEREBY CONSENTS
AND SUBMITS TO THE PERSONAL JURISDICTION OF THE STATE COURTS OF THE GOVERNING
STATE AND EACH SITUS STATE AND OF FEDERAL COURTS LOCATED IN THE GOVERNING STATE
AND EACH SITUS STATE IN CONNECTION WITH ANY ACTION AND HEREBY WAIVES ANY AND ALL
PERSONAL RIGHTS UNDER THE LAWS OF ANY OTHER STATE TO OBJECT TO JURISDICTION
WITHIN SUCH STATE FOR PURPOSES OF ANY ACTION. Borrower hereby waives and agrees
not to assert, as a defense to any Action or a motion to transfer venue of any
Action, (i) any claim that it is not subject to such jurisdiction, (ii) any
claim that any Action may not be brought against it or is not maintainable in
those courts or that this Note or any of the other Loan Documents may not be
enforced in or by those courts, or that it is exempt or immune from execution,
(iii) that the Action is brought in an inconvenient forum, or (iv) that the
venue for the Action is in any way improper.
19. NOTICES. Any notice required or permitted to be given hereunder must
be in writing and given (a) by depositing same in the United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested; (b) by delivering the same in person to
such party; (c) by transmitting a facsimile copy to the correct facsimile phone
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<PAGE> 19
number of the intended recipient (with a second copy sent by registered or
certified regular mail); or (d) by depositing the same into the custody of a
nationally recognized overnight delivery service addressed to the party to be
notified. In the event of mailing, notices shall be deemed effective three (3)
days after posting; in the event of overnight delivery, notices shall be deemed
effective on the next Business Day following deposit with the delivery service;
in the event of personal service or facsimile transmissions, notices shall be
deemed effective when delivered. For purposes of notice, the addresses of the
parties shall be as set forth in the Table. From time to time either party may
designate another address than the address set forth for all purposes of this
Note by giving the other party no less than ten (10) days' advance notice of
such change of address in accordance with the notice provisions hereof.
20. AVOIDANCE OF DEBT PAYMENTS. To the extent that any payment to
Lender and/or any payment or proceeds of any collateral received by Lender in
reduction of the Debt is subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, to Borrower
(or Borrower's successor) as a debtor in possession, or to a receiver or any
other party under any bankruptcy law, state or federal law, common law or
equitable cause, then the portion of the Debt intended to have been satisfied
by such payment or proceeds shall remain due and payable hereunder, be
evidenced by this Note, and shall continue in full force and effect as if such
payment or proceeds had never been received by Lender whether or not this Note
has been marked "paid" or otherwise cancelled or satisfied and/or has been
delivered to Borrower, and in such event Borrower shall be immediately
obligated to return the original Note to Lender and any marking of "paid" or
other similar shall be of no force and effect.
21. NONRECOURSE. Lender shall not be entitled to recover any deficiency
judgement against Borrower or any general partner or limited partner of
Borrower on this Note, provided, however, the foregoing shall not be
interpreted to: (a) impair or affect the right of Lender to enforce any of its
rights or remedies (other than any right to a deficiency judgement) provided
for in any of the Loan Documents or under applicable law in full accordance
with the terms thereof including but not limited to the right of Lender to name
Borrower or any general partner of Borrower as a party defendant in any action
or suit for specific performance, foreclosure, or sale (or similar remedy)
under the Security Instrument, or any other Loan Document; (b) impair or affect
the validity or enforceability or any guaranty, indemnity agreement (including
but not limited to any environmental indemnity agreement), letter of credit, or
other similar third party agreement or undertaking made in connection with this
Note, the Security Instrument, or any other Loan Document; (c) impair or affect
Lender's right to offset any and all amounts outstanding under any of the Loan
Documents against any claim or amount that may be asserted against Lender by
Borrower or any partners, members, shareholders, or other owners of legal or
beneficial interests in Borrower; (d) affect the validity or enforceability of
or impair the right of Lender to bring suit and obtain specific performance or
personal, recourse judgement to enforce the liability of Borrower or any other
person or entity to the extent of, and Borrower hereby agrees to be personally
liable for, any loss, damage, cost, expense, liability, or claim incurred by or
made against Lender (including all attorneys' fees and expenses and other
collection and litigation expenses) arising out of or in connection with any of
the following:
19
<PAGE> 20
(i) Borrower or any affiliate, agent, or employee of Borrower
misappropriates any rents or other Property income or collateral proceeds
including but not limited to insurance or condemnation proceeds or awards;
(ii) Borrower or any affiliate, agent, or employee of Borrower fails to
apply or pay over any tenant security deposits or other refundable deposits in
accordance with the terms of the applicable lease or other agreement or the
Security Instrument or any other Loan Document;
(iii) Borrower or any affiliate, agent, or employee of Borrower receives
rents or other payments from tenants more than one month in advance and fails
to apply them in accordance with the Loan Documents;
(iv) following the occurrence and during the continuance of an Event of
Default, Borrower or any affiliate, agent, or employee of Borrower (including
Borrower in its capacity as a debtor or debtor in possession in a bankruptcy
proceeding) fails either to apply rents or other Property income, whether
collected before or after such Event of Default, to the ordinary, customary,
and necessary expenses of operating the Property or, upon demand, to deliver
such rents or other Property income to Lender;
(v) waste is committed on the Property during a period while Borrower or
any affiliate, agent, or employee of Borrower is in possession thereof ("waste"
meaning the diminution in the Property's value resulting from Borrower's
negligent or willful failure to manage, maintain, repair and otherwise operate
the Property in a commercially reasonable manner);
(vi) any damage to the Property or the Lender is caused as a result of
the intentional misconduct or gross negligence of Borrower or any affiliate,
agent, or employee of Borrower;
(vii) any Property is removed in violation of the terms of the Loan
Documents;
(viii) Borrower fails, in accordance with the terms of the Loan
Documents, to maintain insurance or to pay taxes, assessments, or other liens
or claims that could create liens affecting the Property (unless Lender is
escrowing funds therefor and fails to make such payments or has taken possession
of the Property following an Event of Default, has received all rents from the
Property applicable to the period for which such insurance, taxes or other
items are due, and thereafter fails to make such payments);
(ix) there is any fraud or material misrepresentation by Borrower or any
of its affiliates, any guarantor, any indemnitor or any agent, employee, or
other person with actual or apparent authority to make statements or
representations on behalf of Borrower, any affiliate of Borrower, or any
guarantor or indemnitor ("apparent authority" meaning such authority as the
principal knowingly or negligently permits the agent to assume, or which he
holds the agent out as possessing); or
20
<PAGE> 21
(x) Borrower fails, following the occurrence and during the
continuance of an Event of Default, to deliver to Lender on demand all
security deposits, books and records relating to the Property and in the
possession or control of Borrower or any affiliate, agent, or employee of
Borrower.
Nothing herein shall be deemed to constitute a waiver by Lender of any right
Lender may have under Sections 506(a), 506(b), 1111(b) or any other provision
of the United States Bankruptcy Code to file a claim for the full amount of the
Debt (as defined in the Security Instrument) or to require that all collateral
shall continue to secure all of the Debt.
22. MISCELLANEOUS. Neither this Note nor any of the terms hereof may be
terminated, amended, supplemented, waived or modified orally, but only by an
instrument in writing executed by the party against which enforcement of the
termination, amendment, supplement, waiver or modification is sought. If
Borrower consists of more than one person or entity, then the obligations and
liabilities of each person or entity shall be joint and several. As used in
this Note, (i) the terms "include", "including" and similar terms shall be
construed as if followed by the phrase "without being limited to," (ii) words
of masculine, feminine, or neuter gender shall mean and include the correlative
words of the other genders, and words importing the singular number shall mean
and include the plural number, and vice versa, (iii) all captions to the
Sections hereof are used for convenience and reference only and in no way
define, limit or describe the scope or intent of, or in any way affect, this
Note, (iv) no inference in favor of, or against, Lender or Borrower shall be
drawn from the fact that such party has drafted any portion hereof or any other
Loan Document, and (v) the words "Lender" and "Borrower" shall include their
respective successors, assigns, heirs, personal representatives, executors and
administrators. In the event of a conflict between or among the terms,
covenants, conditions or provisions of the Loan Documents, the term(s),
covenant(s), condition(s) and/or provision(s) that Lender may elect to enforce
from time to time so as to enlarge the interest of Lender in its security,
afford Lender the maximum financial benefits or security for the Debt, and/or
provide Lender the maximum assurance of payment of the Debt in full shall
control. BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS BEEN PROVIDED WITH
SUFFICIENT AND NECESSARY TIME AND OPPORTUNITY TO REVIEW THE TERMS OF THIS NOTE,
THE SECURITY INSTRUMENT, AND EACH OF THE LOAN DOCUMENTS, WITH ANY AND ALL
COUNSEL IT DEEMS APPROPRIATE, AND THAT NO INFERENCE IN FAVOR OF, OR AGAINST,
LENDER OR BORROWER SHALL BE DRAWN FROM THE FACT THAT EITHER SUCH PARTY HAS
DRAFTED ANY PORTION HEREOF, OR THE SECURITY INSTRUMENT, OR ANY OF THE LOAN
DOCUMENTS.
23. WAIVER OF COUNTERCLAIM AND JURY TRIAL. BORROWER HEREBY KNOWINGLY
WAIVES THE RIGHT TO ASSERT ANY COUNTERCLAIM, OTHER THAN A COMPULSORY
COUNTERCLAIM, IN ANY ACTION OR PROCEEDING BROUGHT AGAINST BORROWER BY LENDER OR
ITS AGENTS. ADDITIONALLY, BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED ON THE LOAN OR ARISING OUT OF, UNDER, OR IN CONNECTION
WITH THE LOAN, THIS NOTE, THE SECURITY INSTRUMENT, OR ANY
21
<PAGE> 22
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT
(WHETHER VERBAL OR WRITTEN), OR ACTION OF BORROWER OR LENDER. THIS PROVISION IS
A MATERIAL INDUCEMENT FOR LENDER'S MAKING OF THE LOAN.
Intending to be fully bound, Borrower has executed this Note effective as
of the day and year first above written.
BORROWER: CAPTEC FRANCHISE CAPITAL PARTNERS
L.P. IV, a Delaware limited partnership
By: CAPTEC NET LEASE REALTY, INC., a
Delaware corporation, its General Partner
By: W. Ross Martin
-------------------------------
Name: W. Ross Martin
-----------------------------
Title: CFO
----------------------------
22
<PAGE> 23
Pay to the order of National Realty Finance L.C., a Missouri limited
liability company, without recourse.
NATIONAL REALTY FUNDING L.C., a
Missouri limited liability company
By: ______________________________
Print Name: ______________________
Print Title: _____________________
Pay to the order of __________________________, without recourse.
NATIONAL REALTY FINANCE L.C., a
Missouri limited liability company
By: ______________________________
Print Name: ______________________
Print Title: _____________________
23
<PAGE> 24
STATE OF MICHIGAN )
)ss.
COUNTY OF WASHTENAW)
On this 17th day of December, 1998, before me, David A. Eby, Jr., a Notary
Public in and for said state, personally appeared W. Ross Martin, CFO of Captec
Net Lease Realty, Inc., a Delaware corporation, as general partner of Captec
Franchise Capital Partners L.P. IV, a Delaware limited partnership, and that
the within instrument was signed and sealed in behalf of said limited
partnership by authority of its partners, and acknowledged said instrument to
be the free act and deed of said limited partnership company for the purposes
therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, the day and year last above written.
David A. Eby, Jr.
_____________________________________________
Notary Public in and for Said County and State
______________________________________________
(Type, print or stamp the Notary's name below
his or her signature.)
My Commission Expires:
______________________ David A. Eby, Jr.
Notary Public Wayne County, MI
My Commission Expires Mar. 3, 2000
Acting in Washtenaw County, MI
24
<PAGE> 25
SCHEDULE A
Location of Real Property Collateral
1. Real property located at 1479 Main Street, Hamilton, Ohio, in Butler
County, Ohio, which is also currently commonly known as Hollywood Video.
2. Real property located at 6123 Colerain Ave., Cincinnati, Ohio, in Hamilton
County, Ohio, which is also currently commonly known as Hollywood Video.
3. Real property located at 675 Sunland Park Drive, El Paso, Texas, in El Paso
County, Texas, which is also currently commonly known as Carino's Italian
Kitchen.
4. Real property located at 27590 Orchard Lake Rd., Farmington Hills,
Michigan, in Oakland County, Michigan, which is also currently commonly known
as Steak & Ale.
5. Real property located at 8529 GA Highway 85, Riverdale, Georgia, in Clayton
County, Georgia, which is also currently commonly known as Blockbuster Video.
6. Real property located at 2224 U.S. 1 Roosevelt Boulevard, Trevose,
Pennsylvania, in Bucks County, Pennsylvania, which is also currently commonly
known as Steak & Ale.
7. Real property located at 5741 E. Virginia Beach Boulevard, Norfolk City,
Virginia, which is also currently commonly known as Bennigan's.
8. Real property located at 18767 Northline Rd., Southgate, Michigan, in Wayne
County, Michigan, which is also currently commonly known as Arby's.
25
<PAGE> 26
SCHEDULE B
CAPTEC IV
<TABLE>
<CAPTION>
Allocated Loan Partial Defeasance
Name/Address Amount Principal Amount(1)
- ------------ -------------- -------------------
<S> <C> <C>
Carino's Italian Kitchen $883,176.42 $1,103,970.53
675 Sunland Park Drive
El Paso, Texas
Steak & Ale $1,028,261.00 $1,285,326.25
27590 Orchard Lake Rd.
Farmington Hills, Michigan
Steak & Ale $1,196,789.00 $1,495,986.25
2224 U.S. 1 Roosevelt Boulevard
Trevose, Pennsylvania
Bennigan's $796,226.00 $995,282.50
5741 E. Virginia Beach Boulevard
Norfolk City, Virginia
</TABLE>
______________________________
(1)125% of Allocated Loan Amount
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,890,347
<SECURITIES> 0
<RECEIVABLES> 434,693
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,325,040
<PP&E> 29,105,873
<DEPRECIATION> (164,552)
<TOTAL-ASSETS> 32,659,591
<CURRENT-LIABILITIES> 296,410
<BONDS> 6,375,000
0
0
<COMMON> 0
<OTHER-SE> 25,988,181
<TOTAL-LIABILITY-AND-EQUITY> 32,659,591
<SALES> 1,791,745
<TOTAL-REVENUES> 2,046,453
<CGS> 0
<TOTAL-COSTS> 212,101
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,603
<INCOME-PRETAX> 1,810,749
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,810,749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,810,749
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
