UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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 0-9380
CAPITAL PROPERTIES, INC.
(Name of small business issuer in its charter)
Rhode Island 05-0386287
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Hospital Trust Plaza, Suite 920, Providence, Rhode Island 02903
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (401) 33l-0l00
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
Common Stock-$1.00 par value Boston Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months and (2) has
been subject to such filing ments for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form and no disclosure will be contained,
to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
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For the year ended December 31, 1996, the issuer's revenues totalled
$2,793,000.
As of March 3, 1997, the aggregate market value of the voting stock held by
non-affiliates of the issuer was $4,526,000. (For this purpose, all
directors of the issuer are considered affiliates.)
As of March 3, 1997, the issuer had 1,000,000 shares of Common Stock
outstanding.
Documents Incorporated by Reference - Portions of the proxy statement for the
1997 annual meeting of shareholders are incorporated by reference into Part III.
Portions of the annual report to shareholders of Capital Properties, Inc. for
the year ended December 31, 1996 are incorporated by reference into Parts I,
II, and III.
Exhibit Index - Page III-2.
Transitional Small Business Disclosure Format. Yes No X
<PAGE>
PART I
Item 1. - Description of the Business
Business Development
The Issuer was organized as a business corporation under the laws of Rhode
Island in 1983 as Providence and Worcester Company and is the successor by
merger in 1983 to a corporation also named Providence and Worcester Company
which was organized under the laws of Delaware in 1979. The Issuer's
corporate name was changed to Capital Properties, Inc. in 1984.
Business of Issuer
The Issuer conducts thru-put petroleum operations (see "Petroleum Storage
Facilities" in Item 2 below), owns certain properties in downtown Providence,
Rhode Island (see "Land Under Long-Term Leases," "Land Under Short-Term
Leases," and "Land Available for Leasing" in Item 2 below) and operates a
public parking garage and other downtown Providence properties as public
parking facilities (see "Parking Garage" in Item 2 below).
The Issuer owns all of the outstanding capital stock of Tri-State Displays,
Inc., (through which the Issuer leases land for boards along interstate and
primary highways for outdoor advertising purposes) and all of the outstanding
capital stock of Capital Terminal Company which was incorporated in 1996
(through which the Issuer operates its petroleum storage facilities).
References hereinafter to the "Issuer" are, unless the context indicates
otherwise, collectively to the Issuer and its wholly-owned subsidiaries and
its predecessors.
Miscellaneous
For information relating to the Issuer's dependence on one or a few major
customers, see Note 5 of Notes to Consolidated Financial Statements in the
Issuer's 1996 Annual Report to shareholders attached hereto as Exhibit 13
(hereinafter referred as the "1996 Annual Report"), which note is
incorporated herein by reference.
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During the last two years, no monies were expended by the Issuer and its
subsidiary on material research and development activities.
Compliance with federal, state and local provisions which have been enacted
or adopted regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not had a
material effect upon the capital expenditures, earnings or competitive
position of the Issuer.
On December 31, 1996, the Issuer employed a total of 5 persons.
Item 2. - Description of Property
Principal Facilities
The Issuer's principal executive offices occupy 2,300 square feet in premises
located in Providence, Rhode Island and held under a lease expiring in March
1998.
Investment Policies
The Issuer has no established policy for the purchase of additional developed
or undeveloped property. However, should suitable parcels become available in
the general area of the Issuer's current land holdings, the Issuer would
consider such an acquisition depending on current levels of cash and the
availability of financing. Any properties acquired would most likely be
leased primarily to developers under long-term leases. The Issuer
periodically invests its excess cash in United States government and
governmental agency obligations maturing in not more than one year.
Description of Real Estate and Operating Data
All of the properties described below (except the petroleum terminal
property) are shown on a map on page 5 of the Issuer's 1996 Annual Report,
which map is incorporated herein by reference.
All the properties described below are owned in fee by the Issuer. There
are no mortgages, liens or other encumbrances on such properties except for
Parcel 22.
In the opinion of management, all of the properties described below are
adequately covered by insurance. Insurance is also required of all tenants,
with the Issuer being named as an additional insured.
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Petroleum Storage Facilities - The Issuer holds title to approximately 8
acres of land fronting on the Seekonk River in East Providence, Rhode Island.
The property is used and operated primarily as a petroleum storage facilitiy
(the Facilities) with aggregate storage capacity of 342,000 barrels.
Although the Issuer has no present plan therefor, the property can be further
developed to contain several additional storage tanks.
Additionally, the Issuer has the perpetual right to use the Wilkesbarre Pier
in the Port of Providence and its deep-water berth for receiving petroleum
products by tanker, and the perpetual right to transport such products from
the Pier to its terminal property through pipelines owned by a third party.
The Issuer also has the right to use a barge dock in the Seekonk River owned
by a third party for the off-loading of petroleum products.
This property is the only independent petroleum storage facility with
deep-water access in the market area. All of the petroleum storage tanks
and buildings are owned by the Issuer.
On October 1, 1996, the Issuer took possession of the Facilities and is
currently in negotiations with several oil companies to enter into thru-put
arrangements under which the Issuer would receive, store and disburse product
(thru-put) for such companies.
The following schedule sets forth certain information on the federal tax
basis of that portion of the petroleum terminal property which is depreciated:
<TABLE>
<S> <C> <C>
Buildings Tanks
Federal Tax Basis (cost) $191,021 $2,246,787
Rate 2.5% to 5% 3.33% to 20%
Method S/L S/L
Life (Years) 20 to 40 5 to 33
</TABLE>
The 1996 real estate taxes, which were paid by the tenant, are $89,314 at a
$35.75 per Thousand Dollars of assessed valuation tax rate.
Parking Garage - The Issuer owns at 360-car parking garage adjacent to a rail.
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passenger station in downtown Providence, Rhode Island, together with the
underlying land (the Parking Garage). The Parking Garage is operated by the
Issuer under a management agreement with a firm experienced in parking
operations, which agreement is cancellable by either party on short notice.
The Issuer has no present plan for the future improvement of this property.
The Parking Garage is surrounded by parcels owned by the Issuer on which
there is surface parking. (See "Land Under Short-Term Leases" below for a
discussion of future development.) Several of these parcels are leased to
the firm mentioned above. Also, there is a parking garage under an apartment
building adjacent to the Parking Garage which, at this time, is available for
public parking. However, since the apartment building is fully occupied, its
garage is not a competitive factor. A 1,680-car parking garage, constructed in
connection with the Convention Center Project in downtown Providence, opened in
1992 but has not affected the operations of the Issuer's Parking Garage and
adjacent parking facilities.
The federal tax basis of the Parking Garage (exclusive of the underlying
land) is $2,500,000, which is being depreciated on the straight-line method
at the rate of 2.5% over a 40-year life.
The 1996 real estate taxes are $94,177 on the Parking Garage and $57,935 on
the underlying land using a $30.42 per Thousand Dollars of assessed valuation
tax rate. The real estate taxes on the underlying land were originally
$173,805; however, as a result of an appeal by the Issuer, the assessed
valuation was reduced, resulting in a $115,870 reduction in the 1996 taxes.
Land Under Long-Term Leases - The Issuer owns approximately 20.5 acres of
land within the Capital Center Project area of downtown Providence, including
1.9 acres of air rights over Amtrak's Northeast Corridor railroad tracks which
run through downtown Providence. (The land underlying the Parking Garage
described above is also included in this acreage.) See the map on page 5 of
the Issuer's 1996 Annual Report,which map is incorporated herein by reference.
At December 31, 1996, land leases for three separate land parcels within this
area have commenced with remaining terms of up to 96 years. These leases
have scheduled
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rent increases over their terms. For further information on the development
of these parcels by the tenants, reference is made to the President's Report
at pages 2 and 3 in the Issuer's 1996 Annual Report, which report is
incorporated herein by reference.
Land Under Short-Term Leases - Parcels 3E, 3W, 4E and 4W in the Capital
Center Project area and Parcels 21 and 22 immediately adjacent to this area
are leased to the same firm that operates the Parking Garage described above
for surface parking purposes. However, the Issuer continues to seek
developers for these parcels, and these leases can be terminated on short
notice should suitable development opportunities arise.
In connection with Parcel 4E, in 1989 the Issuer entered into a non-binding
letter of intent with a developer who proposes to construct an office
building. However, due to the current economic conditions in New England
and the difficulty in obtaining credit for commercial real estate development,
the developer has delayed the project.
The Issuer is the largest single landowner in the Capital Center Project area
but is nevertheless subject to some measure of competition from other
landowners.
Land Available for Lease - Parcel 6 in the Capital Center Project area,
which is available for lease, is operated by the Issuer for surface parking
under the same management agreement described above in "Parking Garage."
Item 3. Legal Proceedings
Petition for Assessment of Damages - For a discussion of the litigation
currently pending with the State of Rhode Island, reference is made to the
President's Report at page 3 in the 1996 Annual Report, which report is
incorporated herein by reference.
Arbitration Proceedings - For a discussion of the arbitration proceedings
currently pending between the Issuer and its former tenant of the Facilities,
reference is made to Note 7 of Notes to Consolidated Financial Statements in
the Issuer's 1996 Annual Report, which note is incorporated herein by
reference.
Item 4. Submission of Matters to a Vote to Security Holders
Not applicable.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
See page 24 of the Issuer's 1996 Annual Report, which page is incorporated
herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
See pages 6 through 10 of the Issuer's 1996 Annual Report, which pages are
incorporated herein by reference.
Item 7. Financial Statements
The following consolidated financial statements of the Issuer and its
subsidiaries, set forth at pages 11 through 21 of the Issuer's 1996 Annual
Report, are incorporated hereby reference:
Consolidated balance sheet-December 31, 1996
Consolidated statements of income and retained earnings -years ended December
31, 1996 and 1995
Consolidated statements of cash flows-years ended December 31, 1996 and 1995
Notes to consolidated financial statements-years ended December 31, 1996 and
1995
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons of the
Issuer.
For information with respect to the directors and control persons of the
Issuer, see Pages 2, 3 and 4 of the Issuer's definitive proxy statement for
the 1997 annual meeting of its shareholders, which pages are incorporated
herein by reference.
The following are the executive officers of the Issuer:
<TABLE>
<S> <C> <C> <C>
Date of First
Name Age Office Held Election to Office
Barbara J. Dreyer 58 President and Treasurer 1995
Edwin G. Torrance 65 Secretary 1995
</TABLE>
All officers hold their respective offices until their successors are duly
elected and qualified. Ms. Dreyer served as Secretary-Treasurer of the
Issuer from 1987 until her election to the office of President and Treasurer
in 1995.
Item 10. Executive Compensation.
See page 3 of the Issuer's definitive proxy statement for the 1997 annual
meeting of its shareholders, which page is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
See pages 3 and 4 of the Issuer's definitive proxy statement for the 1997
annual meeting of its shareholders, which pages are incorporated herein by
reference.
Item 12. Certain Relationships and Related Transactions
See pages 3, 4 and 5 of the Issuer's definitive proxy statement for the 1997
annual meeting of its shareholders, which pages are incorporated herein by
reference.
Item 13. Exhibits And Reports on Form 8-K
(a) Index of Exhibits:
(3) (a) Articles of Incorporation (incorporated by reference
to Exhibit 3 to the Issuer's annual report on Form 10-K for
the year ended December 31, 1988).
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(b) By-laws, as amended (incorporated by reference to
Exhibit 3(b) to the Issuer's quarterly report on Form 10-QSB
for the quarter ended June 30, 1995).
(10) Material contracts:
(a) Note from Providence and Worcester Railroad Company to
Issuer dated January 1, 1988 (incorporated by reference to
Exhibit 10(a) to the Issuer's annual report on Form 10-KSB
for the year ended December 31, 1992) as modified by
Agreement dated August 16, 1995 (incorporated by reference
to Exhibit 10(a) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 1995).
(b) Lease between Whiteco Metrocom, Inc. and Issuer dated
June 25, 1985 (incorporated by reference to Exhibit 10(b)
to the Issuer's annual report on Form 10-KSB for the year
ended December 31,1992) as amended by agreement dated March
12, 1995 (incorporated by reference to Exhibit 10(c) to the
Issuer's quarterly report on Form 10-QSB for the quarter
ended June 30, 1995).
(c) Leases between Metropark, Ltd., and Issuer:
(i) Dated November 6, 1996; see page III-4.
(ii) Dated November 30, 1995 (incorporated by reference
to Exhibit 10(c) (i) to the Issuer's annual report
on Form 10-KSB for the year ended December 31, 1995).
(iii) Dated November 10, 1994 (incorporated by reference
to Exhibit 10(c) (iii) to the Issuer's annual
report on Form 10-KSB for the year ended December
31, 1994).
(13) Annual report to shareholders for the year ended December 31,
1996; see page III-5.
(21) Subsidiaries of the Issuer; see page III-6.
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(22) Plan of the Issuer's parcels in downtown Providence
(incorporated by reference to page 5 of the Issuer's annual
report to shareholders for the year ended December 31,
1996), filed as Exhibit 13 hereto.
(b) For the quarter ended December 31, 1996, no reports on Form 8-K
were filed.
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EXHIBIT (10) (c) (i)
L E A S E
THIS INDENTURE OF LEASE made as of the sixth day of
November, 1996, by and between CAPITAL PROPERTIES, INC., a Rhode
Island corporation (hereinafter referred to as "Landlord"), and
METROPARK, LTD., a Rhode Island corporation (hereinafter referred to as
"Tenant").
W I T N E S S E T H T H A T:
In consideration of the rents, covenants and agreements to be paid,
kept and performed by Tenant, as hereinafter provided, Landlord hereby
demises and leases to Tenant, and Tenant hereby hires and takes from
Landlord the real property known as Parcels 3E and 4E in the Capital
Center, in Providence, Rhode Island, as shown on a plan attached to this
Lease as Exhibit A (hereinafter called the "Premises").
TO HAVE AND TO HOLD the Premises, together with all rights,
privileges, easements and appurtenances thereunto belonging and attaching,
unto Tenant for a term of two years (hereinafter called the "Term")
commencing as of November 1, 1996, and ending on October 31, 1998.
This Lease is made upon the covenants and agreements herein set
forth on the part of the respective parties, all of which the parties
respectively agree to observe and comply with during the term hereof.
1. RENTAL.
During the period from November 1, 1996 to October 31, 1997,
Tenant shall pay to Landlord an annual rental of One Hundred Eight
Thousand ($108,000) Dollars payable in monthly installments of Nine
Thousand ($9,000) Dollars on the first day of each month. During the
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period from November 1, 1997 to October 31, 1998, Tenant shall pay to
Landlord an annual rental of One Hundred Eleven Thousand Six Hundred
($111,600) Dollars payable in monthly installments of Nine Thousand
Three Hundred ($9,300) Dollars on the first day of each month.
2. UTILITIES AND OTHER CHARGES.
Tenant will pay directly before the same become delinquent all
charges, duties, rates, license and permit fees and other amounts of every
description to which the Premises or any part thereof or any improvement
thereon erected or used by Tenant may, during the term hereof, be assessed
or become liable for electricity, refuse collection, telephone or any other
utillities or services or any connection or meters therefor, whether assessed
to or payable by Landlord or Tenant. Tenant will, within ten (10) days after
receipt of written demand by Landlord, furnish Landlord with receipts or
other evidence indicating that all such amounts have been paid. Provided,
however, that Tenant shall only be responsible for those charges and
assessments which are for the period of its occupancy of the Premises.
3. TAXES AND ASSESSMENTS.
Landlord will pay and keep current the real estate taxes
assessed against the premises.
4. COMPLIANCE WITH LAWS AND REGULATIONS.
Tenant will at all times during the term hereof keep the
Premises in good order and a strictly sanitary condition and observe and
perform all laws, ordinances, orders, rules and regulations now or hereafter
made by any governmental authority for the time being applicable to the
Premises or any improvement thereon or use thereof, and with the orders,
rules and regulations of the National Board of Fire Underwriters or similar
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organization so far as the same may relate to the use of the Premises, and
will indemnify Landlord against all actions, suits, damages and claims by
whomsoever brought or made by reason of the nonobservance or
nonperformance of such laws, ordinances, orders, rules and regulations, or
of this covenant. Nothing herein shall obligate the Tenant to construct any
additional improvements on the Premises.
5. INSPECTION.
Tenant will permit Landlord and its agents at all reasonable times
during the term hereof to enter the Premises and examine the state of repair
and condition thereof, and the use being made of the same. Landlord may
also enter upon the Premises to perform any repairs or maintenance which
Tenant has failed to perform hereunder, and to show the premises to
prospective purchasers, tenants and mortgagees. Further, Landlord shall
have the right to have test borings done on the premises, on weekends, but
done in such a manner as not to unreasonably interfere with the Tenant's
business thereon.
6. REPAIR AND MAINTENANCE.
Tenant will, at its own expense, from time to time and at all
times during the term hereof, well and substantially repair, maintain, amend
and keep the Premises, together with all fixtures and items of personal
property used or useful in connection therewith, with all necessary
reparations and amendments whatsoever in as good order and condition as
they now are or may be put in, reasonable wear and tear and damage by the
elements and such unavoidable casualty against which insurance is not
required hereunder excepted. Tenant will maintain the signs on the
Premises and fix all potholes that may develop. Tenant will have the
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benefit of all warranties pertaining thereto. Tenant will remove snow from
the Premises and keep the sidewalks clean and free from ice and snow.
7. USE.
Tenant shall use the Premises only for the operation of a
parking lot and other accessory uses relating to motor vehicles.
8. NOTICES RE PREMISES.
Landlord will forthwith furnish Tenant copies of any notices it
receives regarding the Premises from any third parties which notices relate
to the Tenant's use and occupancy of the Premises.
9. CANCELLATION OF LEASE.
Landlord and Tenant may cancel this Lease upon thirty (30)
days' notice to the other.
10. INSURANCE.
Tenant will, at its own cost and expense, effect and maintain
during the term hereof, a policy or policies of comprehensive general
liability insurance, or its equivalent, with minimum limits of not les than
$500,000 for injury to one or more persons in any one occurrence, and also
insurance in the sum of not less than $1,000,000 against claims for property
damage in any one accident, such policy or policies to name Landlord as
additional insured, to require the insurer to give landlord at least 10 days'
written notice of its intention to cancel, terminate or amend the insurance
policy or policies in any material respect, and to cover the entire Premises.
Tenant may insure premises as part of a blanket policy.
11. LANDLORD'S COSTS AND EXPENSES.
If Tenant shall fail to comply with any of its obligations
hereunder, landlord may, upon ten (10) days' prior written notice to Tenant
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(or without notice in case of emergency), take any such action as may be
reasonably required to cure any such default by Tenant. Tenant will pay to
Landlord, on demand, all costs and expenses, including reasonable
attorneys' fees, incurred by Landlord in collecting any delinquent rents, or
other charges payable by Tenant hereunder, or in connection with any
litigation commenced by or against Tenant (other than condemnation
proceedings) to which Landlord, without any fault on its part, shall be made
a party. All such amounts owing to Landlord shall constitute additional rent
hereunder.
12. INDEMNIFICATION OF LANDLORD.
12.1. Tenant shall indemnify and save harmless Landlord
(regardless of Tenant's covenant to insure) against and from any and all
claims by or on behalf of any person or persons, firm or firms, corporation
or corporations, arising from the use, occupancy, conduct or management of
the Premises, unless done by or contributed to Landlord, any of its agents,
contractors, servants, employees or licensees, and shall further indemnify
and save Landlord harmless against and from any and all claims arising
during the term hereof from any condition of the Premises, or arising from
any breach or default on the part of Tenant in the performance of any
covenant or agreement on the part of Tenant to be performed pursuant to the
terms of this Lease, or arising from any act of Tenant or any of its agents,
contractors, servants or employees to any person, firm or corporation
occurring during the term hereof in or about the Premises or upon or under
said areas, and from and against all costs, counsel fees, expenses or
liabilities incurred in or about any such claim or action or proceeding
brought thereon.
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12.2 Tenant shall pay and indemnify Landlord against all legal
costs and charges incurred in obtaining possession of the Premises after the
default of Tenant or upon expiration or earlier termination of the term
hereof, other than by reason of any default of Landlord, or in enforcing any
covenant or agreement of Tenant herein contained.
13. LIENS.
13.1 Tenant will not commit, suffer any act or neglect whereby
the Premises or any improvements thereon or the estate of Landlord therein
shall at any time during the term hereof become subject to any attachment,
judgment, lien, charge or encumbrance whatsoever, except as herein
expressly provided, and will indemnify and hold Landlord harmless from
and against all loss, costs and expenses, including reasonable attorneys'
fees, with respect thereto.
13.2 If due to any act or neglect of Tenant, any mechanic's,
laborer's or materialmen's lien shall at any time be filed against the
premises or any part hereof, Tenant, within thirty (30) days after notice of
the filing thereof shall cause the same to be discharged of record by
payment, bonding or otherwise, and if Tenant shall fail to cause the same to
be discharged, then Landlord may, in addition to any other right or remedy,
cause the same to be discharged, either by paying the amount claimed to be
due, or by procuring the discharge of such lien by deposit or by bonding
proceedings, and all amounts so paid by landlord, together with all
reasonable costs and expenses incurred in connection therewith, and
together with interest thereon at the rate of ten percent (10%) per annum
from the respective dates of payment, shall be paid by Tenant to Landlord,
on demand, as additional rent hereunder.
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13.3 Nothing in this lease contained shall be deemed or
construed in any as constituting the consent or request of Landlord, express
or implied by inference or otherwise, to any contractor, subcontractor,
laborer, materialmen, architect or engineer for the performance of any labor
or the furnishing of any materials or services for or in connection with the
Premises or any part thereof. Notice is hereby given that Landlord shall not
be liable for any labor or materials or services furnished or to be furnished
to Tenant upon credit, and that no mechanic's or other lien for any such
labor, materials, or services shall attach to or affect the fee or
reversionary or other estate or interest of Landlord in the Premises of and
in this Lease.
14. DEFAULT.
14.1 In the event that during the term hereof any of the
following events shall occur (each of which shall be an "Event of Default");
(a) Tenant shall default in the payment of any installment
of the Rent for ten (10) days after the same shall become due, during which
ten-day period Tenant may cure the default;
(b) Tenant or any permitted assignee of Tenant shall (i)
apply for or consent to an appointment of a receiver, a trustee or liquidator
of it or of all or a substantial part of its assets; (ii) make a general
assignment for the benefit of creditors; (iii) be adjudicated a bankrupt or
insolvent; (iv) file a voluntary petition in bankruptcy or a petition or an
answer seeking reorganization or an arrangement with creditors to take
advantage of any insolvency law or an answer admitting the material
allegations of a petition filed against it in any bankruptcy, reorganization or
insolvency proceeding or corporate action shall be taken by it for the
purpose of effecting any of the foregoing;
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(c) An order, judgment or decree shall be entered, without
the application, approval or consent of Tenant or any permitted assignee of
Tenant by any court of competent jurisdiction, approving a petition seeking
reorganization of Tenant or such assignee or appointing a receiver, trust or
liquidator of Tenant or such assignee or of all or a substantial part of its
assets and such order, judgment or decree shall continue unstayed and in
effect for any period of sixty (60) consecutive days; or
(d) Any other default by Tenant in performing any of its
other obligations hereunder shall continue uncorrected for ten (10) days
after receipt of written notice thereof from Landlord, during which period
Tenant or such assignee may cure the default; then landlord may, by giving
written notice to Tenant, either (a) terminate this Lease, (b) re-enter the
Premises by summary proceedings or otherwise, expelling Tenant and
removing all of Tenant's property therefrom, and relet the Premises and
receive the rent therefrom, or (c) exercise any other remedies permitted by
law. Tenant shall also be liable for the reasonable cost of obtaining
possession of and reletting the Premises and of any repairs and alterations or
other payments necessary to prepare them for reletting. Any and all such
amounts shall be payable to Landlord upon demand. Notwithstanding
anything contained herein to the contrary, no termination of this Lease prior
to the last day of the term hereof, except as provided in Section 15 hereof,
shall relieve Tenant of its liability and obligations under this Lease, and
such liability and obligations shall survive any such termination.
14.2 In the event of any breach by Tenant of any of the
covenants, agreements, terms or conditions contained in this Lease,
Landlord shall be entitled to enjoin such breach or threatened breach and
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shall have the right to invoke any right and remedy allowed at law or in
equity, or by statute or otherwise, as though reentry, summary proceedings
and other remedies were not provided for in this Lease.
14.3 Each right and remedy of Landlord provided for in this
Lease shall be cumulative and shall be in addition to every other right or
remedy provided for in this Lease or now or hereafter existing, at law or in
equity, or by statute or otherwise, and the exercise or beginning of the
exercise by Landlord of any one or more of the rights or remedies provided
for in this Lease, or now or hereafter existing at law or in equity, or by
statute or otherwise, shall not preclude the simulatneous or later exercise by
Landlord of any or all other rights or remedies provided for in this Lease, or
now or hereafter existing at law or in equity, or by statute or otherwise.
15. EMINENT DOMAIN.
If the whole or any part of the demised premises shall be
condemned or acquired by eminent domain for any public or quasi-public
use or purpose, then the term of this Lease shall cease and terminate as of
the date of vesting of title in such proceeding and all rentals shall be paid
up to the date of the vacating of the premises by Tenant and Tenant shall have
no claim against Landlord nor the condemning authority for the value of
any unexpired term of this Lease.
In the event of any condemnation or taking as aforesaid,
whether whole or partial, Tenant shall not be entitled to any part of the
award paid for such condemnation and Landlord is to receive the full
amount of such award, Tenant hereby expressly waiving any right or claim
to any part thereof.
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16. CONDITION OF PREMISES.
Tenant represents that the Premises, the sidewalks and
structures adjoining the same, and any subsurface conditions thereof, and
the present uses and non-uses thereof, have been examined by Tenant, and
Tenant agrees that it will accept the same in the condition or state in which
they, or any of them, now are, without representation or warranty, express
or implied in fact or by law, by Landlord, and without recourse to Landlord
as to the nature, condition or usability thereof, or the use or uses to which
the Premises, or any part thereof, may be put.
17. INDEPENDENT COVENANTS-NO WAIVER.
17.1 Each and every of the covenants and agreements
contained in this Lease shall be for all purposes construed to be separate and
independent covenants and the waiver of the breach of any covenant
contained hereby by Landlord shall in no way or manner discharge or
relieve Tenant from Tenant's obligation to perform each and every of the
covenants contained herein.
17.2 If any term or provision of this Lease or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Lease, or the application of such term
or provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and shall be enforced to the fullest
extent permitted by law.
17.3 The failure of Landlord to insist in any one or more cases
upon the strict performance of any of the covenants of this Lease shall not
be construed as a waiver or a relinquishment for the future of such
10
<PAGE>
covenant. A receipt by Landlord of rent with knowledge of the breach of
any covenant hereof shall not be deemed a waiver of such breach, and no
waiver by landlord of any provision of this Lease shall be deemed to have
been made unless expressed in writing and signed by Landlord. All
remedies to which landlord may resort under the terms of this Lease or by
law provided shall be cumulative.
18. SUBORDINATION.
This Lease and the rights of Tenant hereunder are subject and
subordinate in all respects to all matters of record, including, without
limitation, deeds and all mortgages which may now or hereafter be placed
on or affect the Premises, or any part thereof, and/or Landlord's interest or
estate therein, and to each advance made and/or hereafter to be made under
any such mortgages, and to all renewals, modifications, consolidations,
replacements and extensions thereof, and all substitutions therefor;
provided, however, that before such subordination shall be effective,
Landlord shall cause the mortgagee, or other party in interest, as the case
may be, to deliver to Tenant an assent to this Lease, in proper form for
recording whereby such mortgagee or other party agrees that no foreclosure
of such mortgage or any action taken with respect thereto, by such
mortgagee or any other person claiming by or through or under such
mortgage (or other interest) shall disturb the possession of Tenant under this
Lease so long as Tenant is not in default hereunder, and that the validity and
continuance of this Lease will be so recognized. Simultaneously with the
delivery of such an agreement, Tenant agrees to execute and deliver an
instrument in proper form for recording, wherein Tenant agrees to and does
subordinate this Lease to the liens of the mortgagees and others as above-
11
<PAGE>
mentioned, and to all renewals, modifications, consolidations and
replacements and extensions of such mortgages thereunder, and to any
persons claiming by, through or under such mortgages or other such
interest.
19. QUEST ENJOYMENT.
Landlord covenants that Tenant, upon paying the rent and
performing the covenants hereof on the part of Tenant to be performed shall
and may peaceably and quietly have, hold and enjoy the Premises and all
related appurtenances, rights, privileges and easements throughout the term
hereof without any lawful hindrance by landlord and any person claiming
by, through or under it.
20. RETURN OF PREMISES.
At the expiration or other temination of the term hereof, Tenant
will remove from the Premises its property and that of all claiming under it
and will peaceably yield up to Landlord the Premises in as good condition
in all respects as the same were at the commencement of this Lease, except
for ordinary wear and tear, damage by the elements, by any exercise of the
right of eminent domain or by public or other authority, or damage which
Landlord is required herein to replace, restore or rebuild or damage for
which no insurance is required hereunder.
21. CONSTRUCTION.
The mention of the parties hereto by name or otherwise shall be
construed as including and referring to their respective successors and
assigns as well as to the parties themselves whenever such construction is
required or admitted by the provisions hereof; and all covenants,
agreements, conditions, rights, powers and privileges hereinbefore
12
<PAGE>
contained shall inure to the benefit of and be binding upon the successors
and assigns of such parties, unless otherwise provided.
22. PERMITS.
Tenant, at its cost, shall obtain any necessary permits for the
Premises from the City of Providence.
23. NOTICES.
Whenever notice shall be given under this Lease, the same
shall be in writing and shall be sent by certified or registered mail, return
receipt requested as follows:
To the Landlord: One Hospital Trust Plaza
Suite 920
Providence, Rhode Island 02903
To the Tenant: c/o Charles Meyers
56 Pine Street
Providence, Rhode Island 02903
To the Tenant's Alan T. Dworkin, Esq.
Attorney: 164 Airport Road
Warwick, Rhode Island 02889
or to such other address or addresses as each party may from time to time
designate by like notice to the other. Said notice shall be valid and times
begin to run hereunder upon receipt of the party to which said notice is
given.
IN WITNESS WHEREOF, the parties hereto have caused these
presents to be executed in duplicate as of the day and year first above
written.
CAPITAL PROPERTIES, INC. METROPARK, LTD.
By: /s/ Barbara J. Dreyer By: /s/ Charles Meyers
Barbara J. Dreyer, Treasurer Charles Meyers, President
13
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STATE OF RHODE ISLAND
COUNTY OF PROVIDENCE
In Providence, in said County on the 6th day of November, 1996,
before me personally appeared BARBARA J. DREYER, President of
CAPITAL PROPERTIES, INC., to me known and known by me to be the
person executing the foregoing instrument on behalf of said corporation,
and she acknowledged said instrument by her executed to be her free act
and deed and the free act and deed of said corporation.
/s/ Gloria P. Hopkins
Notary Public
STATE OF RHODE ISLAND
COUNTY OF PROVIDENCE
In Providence, in said County on the 6th day of November, 1996,
before me personally appeared CHARLES MEYERS, President of
METROPARK, LTD., to me known and known by me to be the person
executing the foregoing instrument on behalf of said corporation, and he
acknowledged said instrument by him executed to be his free act and deed
and the free act and deed of said corporation.
/s/ Gloria P. Hopkins
Notary Public
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<PAGE>
GUARANTEE
In consideration of the execution of the foregoing lease by the
Landlord, the undersigned (jointly and severally, if more than one)
guarantees that the Tenant will pay all rent thereunder and will perform all
other terms, conditions or agreements on its part to be performed or
fulfilled, and agrees that the foregoing lease may be amended from time to
time by the parties thereto without notice to the undersigned. The
undersigned consents that extensions of time of payment or any other
indulgences may be granted to the Tenant without notice to and without
releasing or affecting in any way the liability of the undersigned and the
undersigned waives demand and notice of default. This guarantee is in
addition to any other security which the Landlord may have for the
performance of the Tenant's obligations and the Landlord may have the
recourse to this guarantee without first pursuing the Landlord's remedies
against such other security, if any. The Landlord may release, in whole or
in part, any other security without releasing or affecting in any way the
liability of the undersigned. In addition, the undersigned will pay to the
Landlord all costs and expenses (including attorneys' fees) incurred in
connection with the enforcement of this guarantee.
Executed this 6th day of November, 1996.
/s/ Charles Meyers
Charles Meyers
15
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EXHIBIT (13)
1996 ANNUAL REPORT TO SHAREHOLDERS
BRIEF DESCRIPTION OT
THE COMPANY'S BUSINESS
The Company's business consists of the leasing of certain of its real
estate interests in downtown Providence, Rhode Island and the operation
of other downtown Providence properties as public parking facilities.
Through its wholly-owned subsidiary, Tri-State Displays, Inc., the
Company leases outdoor advertising locations along interstate and primary
highways in Rhode Island and Massachusetts for outdoor advertising purposes.
Through its wholly-owned subsidiary, Capital Terminal Company, the Company
operates its petroleum storage facilities in East Providence, Rhode Island.
<PAGE>
PRESIDENT'S REPORT
In the accompanying financial statements for the calendar year 1996, the
Company is reporting income before taxes of $557,000.
The Company's common stock is listed on the Boston Stock Exchange under the
symbol "CPI" and is also traded over-the-counter.
During 1996, the Company paid a dividend of $.55 per share on the Company's
outstanding stock. The Company has been classified as a personal holding
company (PHC) for federal income tax purposes due to the present composition
of its stock ownership and revenues. A PHC is subject to an additional tax
on amounts classified as undistributed PHC income. This classification did
not affect the Company's federal income tax liability for 1996 because the
Company made sufficient dividend distributions to shareholders.
DOWNTOWN PROVIDENCE REAL ESTATE
The Company owns approximately 20.5 acres of land within the Capital Center
Project area (Capital Center) of downtown Providence, including 1.9 acres of
air rights over Amtrak's Northeast Corridor (Boston to New York City)
railroad tracks. These properties, shown on the plan which appears on page 5
of this Report, are Parcels 2, 3S, 3W, 3E, 4W, 4E, 5, 6, 7A, 8 and 9. The
Company also owns a 15,000 square foot parcel (Parcel 22) and a 3,000 square
foot parcel (Parcel 21) which are located outside of, but immediately
adjacent to, Capital Center.
The Company has entered into long-term land leases (approximately 100 years)
on three of its parcels with private developers. On Parcel 3S, CFG
Associates, L.P. (CFG) completed the construction of an office building in
1990. The general partner in CFG is a subsidiary of Citizens Financial
Group, Inc. whose commercial banking affiliate is the building's principal
tenant. Citizens Financial Group, Inc. is, in turn, an affiliate of Royal
Bank of Scotland.
On Parcel 8, Gateway Eight Limited Partnership (Gateway Eight) completed the
construction of an office building which is fully occupied by First Data
Corporation. Gateway Eight is an affiliate of Congress Group Ventures, Inc.
of Cambridge, Massachusetts.
On Parcel 5, Parcel Five Limited Partnership (Parcel Five L.P.) completed the
construction of an apartment building containing approximately 225 units.
Parcel Five L.P. is affiliated with a Harvard University endowment fund.
The Company owns a below-grade parking garage located on Parcel 7A, which
garage is adjacent to the Amtrak rail passenger station. This garage and
Parcel 6 are being operated by the Company for public parking purposes under
a management agreement with a firm experienced in parking operations.
Parcels 3E, 4E, 3W, 4W, 21 and 22 have been leased to the same firm for
surface parking purposes under leases which can be terminated on short
notice should suitable development opportunities arise.
The Company, in 1989, entered into a non-binding letter of intent with One
Park Row East Corporation (One Park Row), an affiliate of First Quebec
Corporation of Montreal, Canada, for the proposed construction of an office
building containing approximately 95,000 gross square feet on Parcel 4E.
The plans for this development have already been approved by the Capital
Center Commission, and all permits necessary to commence construction have
been obtained. However, construction will not commence until such time as
One Park Row has identified tenants to occupy a significant portion of the
building. When such tenants have been identified, the letter of intent will
be supplanted by a formal land lease yet to be fully negotiated.
2
<PAGE>
Providence Place Mall, a regional shopping mall containing 1.2 million square
feet of retail space and a 4,000 car garage, is proposed to be built on a
13.2 acre site to the west of the Company's properties in Capital Center
(marked "H" on the plan). The developer, Providence Place Group, has
announced that the groundbreaking will take place on March 24, 1997.
According to the developer, anchor stores include Nordstrom, Filene's and
Lord & Taylor. The proposed Mall will be connected to the remainder of the
Capital Center area via the riverwalks along the Woonasquatucket River.
RIVER RELOCATION AND RELATED CONDEMNATION
When a River Relocation Project in the Capital Center area was first proposed,
the Company, concerned primarily that the relocation plan would delay the
availability of its properties for development purposes, opposed the
relocation and, in 1985, brought suit for damages against the State and the
City. In January 1987, the Company entered into a Settlement Agreement
with the State which resulted in a dismissal of that lawsuit.
In order to accommodate the relocation of the rivers, the State condemned a
portion of the Company's property in November 1987. The State and City had
previously agreed to share all land condemnation costs. As part of the
Settlement Agreement, in 1989 the State deeded to the Company a 72,000 square
foot parcel of land in Capital Center (Parcel 9). As payment for Parcel 9,
the Company was required to return to the State an amount equal to the
State's share of the condemnation award, but the Company was entitled to
retain the balance of such award. In April 1988, the Company filed a
petition in the Rhode Island Superior Court for an increased condemnation
award alleging that the award paid in 1987 ($2,600,000) was inadequate. In
January 1992, the Superior Court awarded the Company an additional
condemnation award of $401,000 plus interest from the date of condemnation.
The Company had asserted in the Superior Court that it was entitled to an
additional condemnation award in excess of $6,000,000 plus interest, and
accordingly, in February 1992, the Company appealed the decision of the
Superior Court to the Rhode Island Supreme Court. In January 1994, the
Supreme Court overturned the Superior Court decision and returned the matter
to the Superior Court for a retrial of the case. The case was retried in
1995 and on March 5, 1997, the Superior Court issued a decision awarding the
Company an additional $6,100,000 plus interest. The Company expects the
judgment to be entered in mid-March 1997, and the State will have twenty
days thereafter to file an appeal to the Supreme Court. Should an appeal be
filed, management is unable to predict when the matter will be heard. Under
the Settlement Agreement, the Company may be required to return to the State
a portion of any additional award as and when finally determined.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
In 1988, in accordance with a plan of distribution, the Company transferred
the ownership of Providence and Worcester Railroad Company (Railroad) to the
Company's shareholders. As part of the plan, the Company received a
promissory note in the amount of $9,377,000 payable over a period of twenty
years with interest at 12% per year, prepayable at any time without penalty.
Such prepayments reduced the required monthly payments without changing the
term of the note.
During 1995, Railroad informed the Company that it had secured a commitment
from a bank which would enable it to borrow funds in an amount sufficient to
prepay the entire balance of its note at an interest rate below 10%. The
Company and Railroad negotiated an agreement reducing the interest rate to
10% upon Railroad's prepayment of $1,800,000 on its note, the proceeds of
which were used by the Company to prepay in full its note payable to a bank
in the amount of $1,755,000.
The agreement further provided that the first $200,000 of any future
prepayments would reduce the required monthly payments over the remaining
term of the note.
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<PAGE>
Thereafter, 50% of any additional prepayments will reduce the required monthly
payments, and the balance will be applied to reduce the note in inverse order
of maturity of the remaining principal payments. During 1996, Railroad made
a voluntary prepayment of $200,000, which prepayment (together with the
interest rate adjustment) results in a current monthly payment of principal
and interest over the remaining twelve-year term in the amount of $53,000.
During 1995, the Company also entered into an agreement with Railroad
releasing a portion of the collateral securing the note in exchange for the
right to require Railroad to convey the Wilkesbarre Pier (the Pier) in East
Providence, Rhode Island for the sum of $1 to a purchaser of the Company's
petroleum storage facilities (the Facilities), should the Company sell the
Facilities. The Pier is used by the Company or its tenant for the berthing
of vessels which off-load petroleum products which are transported by
pipeline to the Facilities.
OTHER OPERATIONS
In 1991, the Company's Facilities were leased to Coastal Oil New England, Inc.
(Coastal), an affiliate of Coastal Corporation, under a five-year lease which
terminated September 30, 1996. The Company, through a newly-formed wholly-
owned subsidiary, Capital Terminal Company, commenced the operation of the
Facilities. The Company anticipates moving product through the Facilities in
March 1997.
Tri-State Displays, Inc., another wholly-owned subsidiary, owns or controls
22 locations along interstate and primary highways in Rhode Island and
Massachusetts which are leased to Whiteco Metrocom (a division of Whiteco
Industries, Inc., of Merrillville, Indiana) for commercial advertising
purposes. These locations contain a total of 41 billboard faces, all of the
which are the large painted bulletins normally seen along interstate and
primary highways. The Company has additional locations along interstate
and primary highways in Rhode Island, Massachusetts and Connecticut, and, in
cooperation with outdoor advertising companies, is attempting to obtain
public permits to use some of these additional locations for outdoor
advertising purposes.
* * *
Because of relocating, Gayl W. Doster is not standing for reelection as a
director of the Company in April of this year. Although Mr. Doster only
served as a director of the Company one year, his broad business experience
and incisive thinking greatly assisted management in its decision-making. We
thank him for his valued contributions.
Sincerely,
/s/ Barbara J. Dreyer
Barbara J. Dreyer
President
March 7, 1997
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MAP IN ANNUAL REPORT
The map in the Annual Report to Shareholders is a plan of a portion of
downtown Providence, Rhode Island, which indicates those parcels owned by
the Issuer in that area known as "Capital Center" and immediately adjacent
thereto. A legend contains the Parcel Number, the Parcel Size and the
Development on the Parcels as follows:
<TABLE>
<S> <C> <C>
Parcel No. Square Feet
CAPITAL PARCEL SIZE DEVELOPMENT ON PARCELS
CENTER
2 92,000
3S 48,000 13 Story Office Building
235,000 gross square feet
3W 35,000
3E 24,000
4W 46,000
4E 22,000
5 54,000 8 Story Luxury Apartment Building -
454,000 gross square feet
6 386,000 (Land, 303,000; Air Rights, 83,000)
7A 76,000 360 Car Public Parking Garage
8 36,000 4 Story Office Building - 114,000 gross
square feet
9 72,000
OUTSIDE
CAPITAL
CENTER
21 3,000
22 15,000
</TABLE>
(See President's Report, pages 2 and 3, for discussion of the development on
the parcels.)
5
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CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial condition:
In 1988, in accordance with a plan of distribution, the Company transferred
the ownership of Providence and Worcester Railroad Company (Railroad) to the
Company's shareholders. The Company and Railroad have a common controlling
shareholder. As part of the plan, the Company received a promissory note in
the amount of $9,377,000 payable over a period of twenty years with interest
at 12% per year, prepayable at any time without penalty. Such prepayments
reduced the required monthly payments without changing the term of the note.
During 1995, Railroad informed the Company that it had secured a commitment
from a bank which would enable it to borrow funds in an amount sufficient to
prepay the entire balance of its note at an interest rate below 10%. The
Company and Railroad negotiated an agreement reducing the interest rate to
10% upon Railroad's prepayment of $1,800,000 on its note, the proceeds of
which were used by the Company to prepay in full its note payable to a bank
in the amount of $1,755,000.
The agreement further provided that the first $200,000 of any future
prepayments would reduce the required monthly payments over the remaining
term of the note. Thereafter, 50% of any additional prepayments will reduce
the required monthly payments, and the balance will be applied to reduce the
note in inverse order of maturity of the remaining principal payments.
During 1996, Railroad made a voluntary prepayment of $200,000, which
prepayment (together with the interest rate adjustment) results in a current
monthly payment of principal and interest over the remaining twelve-
year term in the amount of $53,000.
During 1995, the Company also entered into an agreement with Railroad
releasing a portion of the collateral securing the note in exchange for the
right to require Railroad to convey the Wilkesbarre Pier (the Pier) in East
Providence, Rhode Island for the sum of $1 to a purchaser of the Company's
petroleum storage facilities (the Facilities), should the Company sell the
Facilities. The Pier is used by the Company or its tenant for the berthing
of vessels which off-load petroleum products which are transported by pipeline
to the Facilities.
The note is now secured by a first mortgage on a significant portion of
Railroad's operating right-of-way in Massachusetts, exclusive of the track
structure (which includes rails, ties, fasteners and ballast). Due to the
active railroad use of the collateral, the Company may not have immediate
access thereto in the event of non-payment by Railroad. Based upon an
independent appraisal, it is the opinion of management that the collateral is
of sufficient value to satisfy the obligation of Railroad in the event of a
default.
The Company intends to hold the note to maturity.
In addition to the note from Railroad, the Company's principal assets
consist of land, a public parking garage, the Facilities and outdoor
advertising sites. A significant portion of the land consists of
approximately 20.5 acres, including 1.9 acres of air rights, in downtown
Providence, Rhode Island, held for development. As of December 31, 1996, the
Company had entered into three long-term land leases covering approximately
3.2 acres of land. The tenants of each parcel have constructed buildings
which are substantially occupied. The Company is engaged in discussions
concerning the possible development of other parcels but is unable to
predict when leases on additional parcels will commence. However, the
Company will continue to use the available parcels for
6
<PAGE>
public surface parking. The Company anticipates that future development of
the remaining properties will consist primarily of long-term ground leases
under which the significant portion of future rental income will not be
earned until the buildings are completed by the tenants and occupied.
Certain of the Company's land leases provide for scheduled rent increases
over their terms which extend to the year 2091. In accordance with the
provisions of Statement of Financial Accounting Standards No. 13 (Accounting
for Leases) and certain of its interpretations, the Company recognizes the
rental income on the straight-line basis over the term of each lease; however
, the Company does not report as income that portion of such straight-line
rentals which management is unable to conclude is realizable (collectible)
due to the length of the lease terms and other related uncertainties. At
December 31, 1996, the cumulative amount not reported as income is $9,422,000.
The Company's Facilities had been leased under a 5-year agreement which
terminated September 30, 1996, under which the tenant paid an annual rental
of $183,000 plus reimbursement of property taxes (approximately $90,000
annually).
In 1994, a leak was discovered in a 25,000 barrel storage tank at the
Facilities which allowed the escape of a small amount of fuel oil. The tank
was emptied and all required notices were made to the appropriate
environmental agency (the agency). To date, monitoring wells have shown no
ground water contamination, and the leak has been contained in the soil under
the tank. The Company's engineering consultants (the consultants) are
working with the agency to determine the extent of remediation. The
consultants have proposed several acceptable options and have determined a
range of estimated costs (including professional fees) to be $27,000 (for
the capping of the contaminated area) to $383,000 (for the complete removal
of the contaminated soil and its off-site disposal). The agency has advised
the Company that it will accept the capping of the contaminated area as an
appropriate remediation measure, subject to the placement of a notice on the
Company's deed describing the location of the contaminated area.
During 1995, the former tenant informed the Company of the erosion of a slope
and damage to a retaining wall which caused the washing away of several tons
of soil. The consultants have proposed several options and have determined a
range of estimated costs (including professional fees) to be $15,000 (to
repair the eroded channel) to $136,000 (to include the replacement of the
retaining wall).
In 1995, the Company provided for the estimated costs to remediate the
contaminated soil and repair the erosion situation by reporting a liability
and a corresponding receivable from the former tenant for $42,000. In 1996,
the Company paid $15,000 to repair a portion of the erosion situation, which
amount reduced the reported liability to $27,000. At December 31, 1996, the
Company is reporting on the accompanying consolidated balance sheet the
aforementioned liability of $27,000 in accrued expenses, other, and a $42,000
receivable from the former tenant which is included in other receivables.
Management is of the opinion that the terms of the lease not only make the
former tenant solely responsible for the payment of all costs to remediate
the contaminated soil and to repair the erosion of the slope and retaining
wall, but also required the former tenant to return the Facilities at the
termination of the lease in a condition substantially the same as when the
former tenant took possession. After the former tenant vacated the Facilities
and emptied the tanks, the Company inspected the Facilities and determined
that one of the tanks had a structural failure. The Company repaired the
tank at a cost of $65,000, which amount is included in expenses applicable
to rental income on the accompanying consolidated statement of income and
retained earnings for 1996.
Since 1985, the Company has been a party to an agreement covering the
operation and maintenance of the Pier, which Pier is owned by Railroad. In
1991, the agreement was amended by the parties then subject to the agreement
who were the Company, Railroad and two major oil companies. The agreement
provides that the parties will share the cost
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<PAGE>
of operating and maintaining the Pier, which costs are allocated annually
among the parties based on their relative usage of the Pier as measured by
vessel berthing hours. Since 1991, Railroad has notified the parties of the
need for several significant repair and maintenance projects to the Pier and
has attempted to obtain agreement among the parties to proceed with such
repairs. In 1996, Railroad notified the parties that the estimated cost of
the repair and maintenance projects totalled approximately $1,100,000 and
requested the parties to consent to its undertaking such projects. All of
the parties except one have consented. All of the Companys responsibilities
and obligations under this agreement were assumed by the former tenant in
accordance with the terms of its lease. Although the former tenant has paid
for certain on-going operating costs, it does not agree that it is
responsible for any portion of the costs of the repair and maintenance
projects. The Company is unable to determine what its share of the costs will
be as well as when reimbursement will be due Railroad.
Because the former tenant does not agree that it is responsible for any of
the aforementioned costs, the Company has initiated arbitration proceedings
before the American Arbitration Association in accordance with the lease
provisions. In connection with the arbitration proceedings, the former
tenant has again denied responsibility and has set forth counterclaims
asserting that it is entitled to recover $96,000 plus interest from the
Company for operating expenses. The Company denies any liability in
connection with the counterclaims. The arbitration proceedings will
decide the responsibilities of the parties, which decision is final. The
Company expects that the proceedings will commence in the second quarter of
1997 and that a decision will be rendered shortly thereafter. The
arbitration could find that the Company is financially responsible for some
or all of the disputed costs.
On October 1, 1996, the Company took possession of the Facilities and is
currently in negotiations with several oil companies to enter into thru-put
arrangements under which the Company would receive, store and disburse
product (thru-put) for such companies. However, there is no assurance when
and if such arrangements can be completed. In the absence of such
arrangements, the annual cash outlay to maintain the Facilities is
approximately $240,000. Pending the completion of thru-put arrangements, the
Company anticipates purchasing petroleum products which it will store at the
Facilities and resell.
The Company manages its exposure to future contamination, cleanup or similar
costs associated with the Facilities through its adherence to established
procedures for operations and equipment maintenance. In addition, the
Company maintains what it believes to be adequate levels of insurance.
In management's opinion, the Company will continue to be able to generate
adequate amounts of cash to meet substantially all of its expenditures.
In 1995 and 1996, the Company paid dividends of $.30 and $.55 per share,
respectively, on the Company's outstanding common stock. The Company expects
to be in a position to continue dividend payments on a semi-annual basis;
however, the declaration of any dividend and the amount thereof will depend
on the Company's future earnings, financial condition and other relevant
factors.
In connection with the River Relocation Project, in 1987 the State of Rhode
Island condemned a portion of the Company's property and paid an award of
$2,600,000. As part of an agreement to purchase another parcel of land from
the State, the Company was required to return to the State a portion of the
condemnation award ($1,600,000).
In April 1988, the Company filed a petition in the Rhode Island Superior
Court for an increased condemnation award alleging that the award paid in
1987 was inadequate. In January 1992, the Superior Court awarded the Company
an additional condemnation award of $401,000 plus interest from the date of
the condemnation. The interest is calculated by using a published Treasury
bill rate which compounds annually and,
8
<PAGE>
through December 31, 1996, totals approximately 66% of any additional award.
The Company had asserted in the Superior Court that it was entitled to an
additional condemnation award in excess of $6,000,000 plus interest, and
accordingly, in February 1992, the Company appealed the decision of the
Superior Court to the Rhode Island Supreme Court. In January 1994, the
Supreme Court overturned the Superior Court decision and returned the matter
to the Superior Court for a retrial of the case. The case was retried in
1995, and on March 5, 1997, the Superior Court issued a decision awarding
the Company an additional $6,100,000 plus interest. The Company expects
the judgment to be entered in mid-March 1997, and the State will have twenty
days thereafter to file an appeal to the Supreme Court. Should an appeal be
filed, management is unable to predict when the matter will be heard. Under
the aforementioned agreement, the Company may be required to return to the
State a portion of any additional award as and when finally determined.
The Company has incurred professional fees in connection with the case which
totalled $32,000 and $154,000 in 1996 and 1995, respectively, which are
included in general and administrative expenses on the accompanying
consolidated statements of income and retained earnings.
During 1995, the Company received notice of an increase in the assessed
valuation of several of its parcels in Providence, Rhode Island. The
increase in the assessment was not the result of a city-wide revaluation,
pertained to 1995 and subsequent years and resulted in an annual increase in
property taxes of $265,000. The Company has filed appeals for 1995 and 1996
but was required to make property tax payments as due pending the outcome of
the appeals. During 1996, the City reduced the assessed valuation on one of
the parcels, resulting in an abatement of property taxes of $107,000 for 1995
and a reduction in the tax of $115,000 for 1996. The Company is unable to
determine if the remaining appeals will result in an abatement of the
property taxes for 1995 and 1996 and the lowering of property taxes for 1997
and thereafter.
Under an agreement with the State of Rhode Island entered into in 1990, the
Company will owe the State $158,000 sixty days after the completion by the
State of a construction contract for certain public improvements affecting
one of the Company's parcels. The Company anticipates that such payment will
be reimbursable by the developer of such parcel. Accordingly, the Company
has not provided for such obligation on the accompanying consolidated
financial statements. The agreement is secured by a mortgage on one of the
Company's parcels. The agreement further provides that, should the amount
not be paid when it is due, interest will accrue from the due date at the
prime rate plus 1%.
For the two years ended December 31, 1996, the Company has been classified
as a personal holding company (PHC) for federal income tax purposes due to
the present composition of its stock ownership and revenues. A PHC is
subject to an additional tax of 39.6% on amounts classified as undistributed
PHC income. This classification did not affect the Company's federal income
tax liability in 1995 or 1996 because the Company made sufficient dividend
distributions to shareholders.
Future cash outlays for income taxes will be a more significant portion of
total tax expense and presently exceeds total tax expense for financial
reporting purposes. This results principally from the recognition of rental
income on a contractual basis for tax reporting purposes and additional
depreciation claimed for financial reporting purposes.
Certain portions of this Annual Report to Shareholders, and particularly the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Notes to Consolidated Financial Statements, contain
forward-looking statements which represent the Company's expectations or
beliefs concerning future events. The Company cautions that these statements
are further qualified by important factors that could cause actual results
to differ materially from those in the forward-looking statements, including,
without limitation, the following: the ability of the Company to
9
<PAGE>
generate adequate amounts of cash; the ability of the Company to enter into
thru-put arrangements in connection with the Facilities; changes in economic
conditions that may affect either the current or future development on the
Company's parcels; the resolution of the arbitration proceeding; the final
outcome of the condemnation litigation; and exposure to future contamination,
cleanup or similar costs associated with the operation of the Facilities.
Results of operations:
The Company's total income for 1996 decreased 8% over the 1995 level.
The decrease in rental income and expenses applicable to rental income
resulted from the termination of the lease of the Facilities on September
30, 1996.
For 1996, income applicable to garage and surface parking remained
approximately at the 1995 level. Expenses applicable to garage and surface
parking decreased 7% over the 1995 level principally due to a decrease in
property taxes resulting from a reduction in the assessed valuation of the
land under the parking garage. This reduction in the assessed valuation also
resulted in the Company's reporting income of $107,000 from the abatement of
a portion of its 1995 taxes on said parcel.
Also included in total income for 1995 is $75,000 resulting from the sale of
properties and equipment, principally the Company's only billboard which was
sold to its tenant.
The decrease in interest income on the note receivable from Railroad results
from prepayments in 1996 and 1995 totalling $200,000 and $1,855,000,
respectively, and the reduction in 1995 of the interest rate on the note from
12% to 10%.
General and administrative expenses decreased 46% from the 1995 level
principally due to a decrease in payroll and related costs resulting from a
reduced number of employees and a decrease in professional fees in connection
with the condemnation case.
The Company had a note payable outstanding to a bank, which was fully prepaid
in August 1995.
10
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Properties and equipment (net of accumulated
depreciation) $ 9,027,000
Cash and cash equivalents 948,000
Temporary cash investments 203,000
Note receivable, Providence and Worcester Railroad
Company 4,212,000
Other receivables 317,000
Accrued rental income of $9,792,000 less amount for which
realization is not assured of $9,422,000 370,000
Prepaid and other 131,000
$ 15,208,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses:
Property taxes $ 489,000
Other 104,000
Income taxes payable 128,000
Deferred income taxes 1,360,000
2,081,000
Commitments and contingencies (Notes 5, 7 and 8)
Shareholders' equity:
Common stock, $1 par; authorized, issued and
and outstanding 1,000,000 shares 1,000,000
Capital in excess of par 10,828,000
Retained earnings 1,299,000
13,127,000
$ 15,208,000
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<S> <C> <C>
1996 1995
Income:
Rentals $1,703,000 $1,759,000
Garage and surface parking 493,000 483,000
Petroleum storage facilities 4,000
Interest:
Providence and Worcester Railroad Company 437,000 668,000
Other 49,000 35,000
Property tax abatement 107,000
Gain on sale of properties and equipment 75,000
2,793,000 3,020,000
Expenses:
Expenses applicable to:
Rental income 742,000 805,000
Garage and surface parking 740,000 797,000
Petroleum storage facilities 140,000
General and administrative 614,000 1,133,000
Interest 124,000
2,236,000 2,859,000
Income before income taxes 557,000 161,000
Income tax expense (benefit):
Current 295,000 188,000
Deferred (70,000) (105,000)
225,000 83,000
Net income 332,000 78,000
Retained earnings, beginning 1,517,000 1,739,000
Dividends on common stock
(1996, $.55; 1995, $.30) (550,000) (300,000)
Retained earnings, ending $ 1,299,000 $ 1,517,000
Earnings per common share $.33 $.08
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<S> <C> <C>
1996 1995
Cash flows from operating activities:
Net income $ 332,000 $ 78,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 362,000 364,000
Gain on sale of properties and equipment (75,000)
Accrued rental income (91,000) (128,000)
Deferred income taxes (70,000) (105,000)
Changes in assets and liabilities:
Increase in:
Other receivables (103,000)
Prepaid and other (26,000)
Accounts payable and accrued expenses 99,000
Income taxes payable 128,000
Decrease in:
Other receivables 38,000
Prepaid and other 63,000
Accounts payable and accrued expenses (76,000)
Income taxes payable (78,000)
Net cash provided by operating activities 545,000 167,000
Cash flows from investing activities:
Purchase of:
Properties and equipment (13,000) (10,000)
Temporary cash investments (403,000)
Proceeds from:
Collection of note receivable, Providence and
Worcester Railroad Company 402,000 2,068,000
Sale of properties and equipment 138,000
Maturities of temporary cash investments 200,000
Net cash provided by investing activities 186,000 2,196,000
Cash flows from financing activities, payment of:
Note payable, bank (2,053,000)
Dividends (550,000) (300,000)
Cash used in financing activities (550,000) (2,353,000)
Increase in cash and cash equivalents 181,000 10,000
Cash and cash equivalents, beginning 767,000 757,000
Cash and cash equivalents, ending $ 948,000 $ 767,000
Supplemental disclosures, cash paid for:
Interest $ -0- $ 119,000
Income taxes $ 130,000 $ 345,000
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. Basis of presentation and summary of significant accounting policies:
Basis of presentation and principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Tri-State Displays, Inc.
(TSD) and Capital Terminal Company (CTC), which was incorporated in June
1996 to hold the assets and operate the Company's petroleum storage
facilities (the Facilities) commencing October 1, 1996. All significant
intercompany accounts and transactions between the Company and its
subsidiaries have been eliminated in consolidation.
Description of business:
The Company operates in one business segment as a lessor of properties, an
operator of adjacent public parking facilities principally in the
Providence, Rhode Island area, and, effective October 1, 1996, an operator
of a thru-put petroleum storage facility in East Providence, Rhode Island.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements. Estimates also affect the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and cash equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash
equivalents, which consist of short-term uninsured repurchase agreements
which the Company routinely purchases, totalled $841,000 at December 31,
1996.
Temporary cash investments:
The Company periodically invests its excess cash in United States government
and governmental agency obligations maturing in not more than one year.
Properties and equipment:
Properties and equipment are stated at cost. Depreciation is being
provided by the straight-line method over the estimated useful lives of
the respective assets.
Effective January 1, 1997, the Company has adopted Statement of Financial
Accounting Standards No. 121 (Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of) which requires that
property and equipment held and used by the Company be reviewed for
impairment whenever events or changes in circumstances indicate that the
net book value of the asset may not be recoverable. An impairment loss
will be recognized if the sum of the expected future cash flows
(undiscounted and before interest) from the use of the asset is less than
the net book value of the asset. Generally, the amount of the impairment
loss is measured as the difference between the net book value of the asset
and the estimated fair value of the related assets.
14
<PAGE>
The adoption of FAS No. 121 had no effect on the accompanying consolidated
financial statements for 1996.
Income taxes:
The Company and its subsidiaries file a consolidated Federal income tax
return.
Income taxes are provided based on earnings reported for financial
statement purposes. The provision for income taxes differs from the
amounts currently payable because of temporary differences in the
recognition of certain income and expense items for financial reporting
and tax reporting purposes.
Rental income:
The Company's properties leased to others are under operating leases. The
Company reports rental income when earned under the operating method.
Certain of the Company's land leases provide for scheduled rent increases
over their remaining terms (27 to 96 years). In accordance with the
provisions of Statement of Financial Accounting Standards No. 13
(Accounting for Leases) and certain of its interpretations, the Company is
recognizing the rental income on the straight-line basis over the terms of
the leases; however, the Company does not report as income that portion of
such straight-line rentals which management is unable to conclude is
realizable (collectible) due to the length of the lease terms and other
related uncertainties.
2. Properties and equipment:
<TABLE>
<S> <C>
Properties on lease or held for lease, land
and land improvements $ 4,014,000
Petroleum storage facilities:
Land 1,825,000
Buildings and structures 325,000
Tanks and equipment 4,163,000
6,313,000
Other:
Land and land improvements 492,000
Buildings, principally parking garage 2,537,000
Equipment 96,000
3,125,000
13,452,000
Less accumulated depreciation:
Petroleum storage facilities 3,775,000
Other 650,000
4,425,000
$ 9,027,000
</TABLE>
3. Note receivable, Providence and Worcester Railroad Company:
In 1988, in accordance with a plan of distribution, the Company
transferred the ownership of Providence and Worcester Railroad Company
(Railroad) to the Company's
15
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
3. Note receivable, Providence and Worcester Railroad Company (continued):
shareholders. The Company and Railroad have a common controlling
shareholder. As part of the plan, the Company received a promissory
note in the amount of $9,377,000 payable over a period of twenty years
with interest at 12% per year, prepayable at any time without penalty.
Such prepayments reduced the required monthly payments without changing
the term of the note.
During 1995, Railroad informed the Company that it had secured a commitment
from a bank which would enable it to borrow funds in an amount sufficient
to prepay the entire balance of its note at an interest rate below 10%.
The Company and Railroad negotiated an agreement reducing the interest
rate to 10% upon Railroad's prepayment of $1,800,000 on its note, the
proceeds of which were used by the Company to prepay in full its note
payable to a bank in the amount of $1,755,000.
The agreement further provided that the first $200,000 of any future
prepayments would reduce the required monthly payments over the remaining
term of the note. Thereafter, 50% of any additional prepayments will
reduce the required monthly payments, and the balance will be applied to
reduce the note in inverse order of maturity of the remaining principal
payments. During 1996, Railroad made a voluntary prepayment of $200,000,
which prepayment (together with the interest rate adjustment) results in
a current monthly payment of principal and interest over the remaining
twelve-year term in the amount of $53,000.
During 1995, the Company also entered into an agreement with Railroad
releasing a portion of the collateral securing the note in exchange for
the right to require Railroad to convey the Wilkesbarre Pier (the Pier)
in East Providence, Rhode Island for the sum of $1 to a purchaser of the
Facilities, should the Company sell the Facilities. The Pier is used
by the Company or its tenant for the berthing of vessels which off-load
petroleum products which are transported by pipeline to the Facilities.
The note is now secured by a first mortgage on a significant portion of
Railroad's operating right-of-way in Massachusetts, exclusive of the track
structure (which includes rails, ties, fasteners and ballast). Due to the
active railroad use of the collateral, the Company may not have immediate
access thereto in the event of non-payment by Railroad. Based upon an
independent appraisal, it is the opinion of management that the collateral
is of sufficient value to satisfy the obligation of Railroad in the event
of a default.
The Company intends to hold the note to maturity.
4. Other receivables:
<TABLE>
<S> <C>
Rentals, principally tenant property
tax reimbursements (see Note 5) $ 134,000
Property tax abatement (see Note 9) 93,000
Former tenant of petroleum storage
facilities (see Note 7) 55,000
Interest, Providence and Worcester
Railroad Company 35,000
$317,000
</TABLE>
16
<PAGE>
5. Description of leasing arrangements:
At December 31, 1996, the Company had entered into land leases for
three separate land parcels with remaining terms of up to 96 years. The
Company also leases various parcels of land principally for outdoor
advertising and surface parking for remaining terms of up to 27 years.
For those leases with scheduled rent increases, the cumulative excess of
straight-line over contractual rentals (considering scheduled rent
increases over the initial 30 to 102-year terms of the leases) amounted to
$9,792,000 through December 31, 1996. Management has been able to
conclude that a portion of the excess of straight-line over contractual
rentals ($370,000 at December 31, 1996) is realizable when payable over the
terms of the leases.
Several leases provide that the tenants reimburse the Company for property
taxes, which amounts are excluded from rental income and expenses
applicable to rental income on the accompanying consolidated statements of
income and retained earnings. These reimbursements were as follows:
<TABLE>
<S> <C> <C>
1996 1995
Petroleum storage facilities $ 90,000 $ 90,000
Other 260,000 236,000
$350,000 $326,000
</TABLE>
Minimum future contractual rental payments to be received from
noncancellable leases as of December 31, 1996 are:
<TABLE>
<S> <C>
Year ending December 31,
1997 $ 1,139,000
1998 1,218,000
1999 1,273,000
2000 1,360,000
2001 1,380,000
2002 to 2092 168,992,000
$175,362,000
</TABLE>
Rental income from major tenants as a percentage of the Company's total
rental income is as follows:
<TABLE>
<S> <C> <C>
Tenant 1996 1995
A 28.4% 27.2%
B 18.5 18.1
C 17.8 17.3
D 16.8 16.3
</TABLE>
In the event of tenant default, the Company has the right to reclaim its
leased assets together with any improvements thereon.
17
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
6. Income taxes:
A reconciliation of the income tax provision as computed by applying the
United States income tax rate (34%) to income before income taxes is as
follows:
<TABLE>
<S> <C> <C>
1996 1995
Computed "expected" tax expense $189,000 $ 55,000
Increase (decrease) in taxes
resulting from:
State income tax, net of
Federal income tax benefit 37,000 22,000
Other (1,000) 6,000
$225,000 $ 83,000
</TABLE>
Deferred income taxes are recorded based upon differences between
financial statement and tax bases of assets and liabilities. The tax
effects of temporary differences which give rise to deferred tax assets
and liabilities at December 31, 1996 were as follows:
<TABLE>
<S> <C>
Gross deferred tax liabilities:
Property having a financial statement
basis in excess of its tax basis $1,380,000
Excess of straight-line over
contractual rental income 148,000
Other 6,000
1,534,000
Gross deferred tax assets, principally
professional fees in connection with
condemnation case (174,000)
$1,360,000
</TABLE>
7. Petroleum storage facilities:
Since October 1, 1991, the Company's Facilities had been leased under a
5-year agreement under which the tenant paid an annual rental of $183,000
plus reimbursement of property taxes (approximately $90,000 annually),
which lease terminated September 30, 1996.
In 1994, a leak was discovered in a 25,000 barrel storage tank at the
Facilities which allowed the escape of a small amount of fuel oil. The
tank was emptied and all required notices were made to the appropriate
environmental agency (the agency). To date, monitoring wells have shown
no ground water contamination, and the leak has been contained in the soil
under the tank. The Company's engineering consultants (the consultants)
are working with the agency to determine the extent of remediation. The
consultants have proposed several acceptable options and have determined a
range of estimated costs (including professional fees) to be $27,000 (for
the capping of the contaminated area) to $383,000 (for the complete
removal of the contaminated soil and its off-site disposal). The agency
has advised the Company that it will accept the capping of the
contaminated area as an appropriate remediation measure, subject to the
placement of a notice on the Company's deed describing the location of the
contaminated area.
During 1995, the former tenant informed the Company of the erosion of a
slope and damage to a retaining wall which caused the washing away of
several tons of soil. The
18
<PAGE>
consultants have proposed several options and have determined a range of
estimated costs (including professional fees) to be $15,000 (to repair the
eroded channel) to $136,000 (to include the replacement of the retaining
wall).
In 1995, the Company provided for the estimated costs to remediate the
contaminated soil and repair the erosion situation by reporting a
liability and a corresponding receivable from the former tenant for
$42,000. In 1996, the Company paid $15,000 to repair a portion of the
erosion situation, which amount reduced the reported liability to $27,000.
At December 31, 1996, the Company is reporting on the accompanying
consolidated balance sheet the aforementioned liability of $27,000 in
accrued expenses, other, and a $42,000 receivable from the former tenant
which is included in other receivables.
Management is of the opinion that the terms of the lease not only make the
former tenant solely responsible for the payment of all costs to remediate
the contaminated soil and to repair the erosion of the slope and retaining
wall, but also required the former tenant to return the Facilities at the
termination of the lease in a condition substantially the same as when the
former tenant took possession. After the former tenant vacated the
Facilities and emptied the tanks, the Company inspected the Facilities and
determined that one of the tanks had a structural failure. The Company
repaired the tank at a cost of $65,000, which amount is included in
expenses applicable to rental income on the accompanying consolidated
statement of income and retained earnings for 1996.
Since 1985, the Company has been a party to an agreement covering the
operation and maintenance of the Pier, which Pier is owned by Railroad.
In 1991, the agreement was amended by the parties then subject to the
agreement who were the Company, Railroad and two major oil companies. The
agreement provides that the parties will share the cost of operating and
maintaining the Pier, which costs are allocated annually among the parties
based on their relative usage of the Pier as measured by vessel berthing
hours. Since 1991, Railroad has notified the parties of the need for
several significant repair and maintenance projects to the Pier and has
attempted to obtain agreement among the parties to proceed with such
repairs. In 1996, Railroad notified the parties that the estimated cost
of the repair and maintenance projects totalled approximately $1,100,000
and requested the parties to consent to its undertaking such projects.
All of the parties except one have consented. All of the Company's
responsibilities and obligations under this agreement were assumed by the
former tenant in accordance with the terms of its lease. Although the
former tenant has paid for certain on-going operating costs, it does not
agree that it is responsible for any portion of the costs of the repair
and maintenance projects. The Company is unable to determine what its
share of the costs will be as well as when reimbursement will be due
Railroad.
Because the former tenant does not agree that it is responsible for any of
the aforementioned costs, the Company has initiated arbitration
proceedings before the American Arbitration Association in accordance with
the lease provisions. In connection with the arbitration proceedings, the
former tenant has again denied responsibility and has set forth
counterclaims asserting that it is entitled to recover $96,000 plus
interest from the Company for operating expenses. The Company denies any
liability in connection with the counterclaims. The arbitration
proceedings will decide the responsibilities of the parties, which
decision is final. The Company expects that the proceedings will commence
in the second quarter of 1997 and that a decision will be rendered shortly
thereafter. The arbitration could find that the Company is financially
responsible for some or all of the disputed costs.
19
<PAGE>
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
7. Petroleum storage facilities (continued):
On October 1, 1996, the Company took possession of the Facilities and is
currently in negotiations with several oil companies to enter into
thru-put arrangements under which the Company would receive, store and
disburse product (thru-put) for such companies.
8. Commitments and contingencies:
Under an agreement with the State of Rhode Island entered into in 1990, the
Company will owe the State $158,000 sixty days after the completion by the
State of a construction contract for certain public improvements affecting
one of the Company's parcels. The Company anticipates that such payment
will be reimbursable by the developer of such parcel. Accordingly, the
Company has not provided for such obligation on the accompanying
consolidated financial statements. The agreement is secured by a mortgage
on one of the Company's parcels. The agreement further provides that,
should the amount not be paid when it is due, interest will accrue from
the due date at the prime rate plus 1%.
The Company leases certain properties under noncancellable leases which
expire at various dates to 2005. In most cases, management expects that
in the normal course of business, leases that expire will be renewed or
replaced by other leases. Rent expense amounted to $93,000 and $99,000 in
1996 and 1995, respectively. Future minimum lease payments under
noncancellable leases at December 31, 1996 are as follows: 1997, $96,000;
1998, $49,000; 1999, $40,000; 2000, $26,000; 2001, $17,000; and thereafter,
$55,000.
9. Property tax abatement:
During 1995, the Company received notice of an increase in the assessed
valuation of several of its parcels in Providence, Rhode Island. The
increase in the assessment was not the result of a city-wide revaluation,
pertained to 1995 and subsequent years and resulted in an annual increase
in property taxes of $265,000. The Company has filed appeals for 1995 and
1996 but was required to make property tax payments as due pending the
outcome of the appeals. During 1996, the City reduced the assessed
valuation on one of the parcels, resulting in an abatement of property
taxes of $107,000 for 1995 and a reduction in the tax of $115,000 for 1996.
The Company is unable to determine if the remaining appeals will result in
an abatement of the property taxes for 1995 and 1996 and the lowering of
property taxes for 1997 and thereafter.
10.Transactions with related parties:
A trust for the benefit of the controlling shareholder is the holder of
rights with respect to the use of the Pier and two petroleum pipelines
located in East Providence, Rhode Island. Since February 1983, the
Company and the tenant of its Facilities have had the right to utilize the
pipelines for the transportation of petroleum products, in consideration
for which the Company and its tenant are obligated to pay the trust a fee
based upon the number of barrels of product transported through the
pipelines. The fee is subject to adjustment as of October 1 of each year
to reflect changes in the Consumer Price Index.
20
<PAGE>
Under the terms of the 1991 lease of the Facilities (see Note 7), the former
tenant paid a significant portion of the amount due to the trust for the
usage of the pipelines. The Company's share of the pipeline usage fee
amounted to $30,000 for both 1996 and 1995, which amounts are included in
expenses applicable to rental income on the accompanying consolidated
statements of income and retained earnings.
The Company has the option to purchase the rights of the trust at any time
during the twelve-month period following September 30, 1997, at a price
equal to twice the payments due for the twelve-month period ending
September 30, 1997, but not less than $50,000. Based upon usage to date,
the price would be $50,000. The Company can assign its rights to purchase
to a third party. Should the Company not purchase the rights of the trust,
the Company's responsibility will continue indefinitely under the present
arrangement.
11.Pending litigation and subsequent event:
In connection with the River Relocation Project, in 1987 the State of
Rhode Island condemned a portion of the Company's property and paid an award
of $2,600,000. As part of an agreement to purchase another parcel of land
from the State, the Company was required to return to the State a portion
of the condemnation award ($1,600,000).
In April 1988, the Company filed a petition in the Rhode Island Superior
Court for an increased condemnation award alleging that the award paid in
1987 was inadequate. In January 1992, the Superior Court awarded the
Company an additional condemnation award of $401,000 plus interest from
the date of the condemnation. The interest is calculated by using a
published Treasury bill rate which compounds annually and, through
December 31, 1996, totals approximately 66% of any additional award. The
Company had asserted in the Superior Court that it was entitled to an
additional condemnation award in excess of $6,000,000 plus interest, and
accordingly, in February 1992, the Company appealed the decision of the
Superior Court to the Rhode Island Supreme Court. In January 1994, the
Supreme Court overturned the Superior Court decision and returned the
matter to the Superior Court for a retrial of the case. The case was
retried in 1995, and on March 5, 1997, the Superior Court issued a decision
awarding the Company an additional $6,100,000 plus interest. The Company
expects the judgment to be entered in mid-March 1997, and the State will
have twenty days thereafter to file an appeal to the Supreme Court.
Should an appeal be filed, management is unable to predict when the matter
will be heard. Under the aforementioned agreement, the Company may be
required to return to the State a portion of any additional award as and
when finally determined.
The Company has incurred professional fees in connection with the case
which totalled $32,000 and $154,000 in 1996 and 1995, respectively, which
are included in general and administrative expenses on the accompanying
consolidated statements of income and retained earnings.
12.Fair value of financial instruments:
The carrying amounts of the Company's financial instruments approximate
their fair values due to the short maturities of cash and cash equivalents,
temporary cash investments, other receivables and accounts payable and
accrued expenses and the recently revised terms of the note receivable,
Providence and Worcester Railroad Company.
21
<PAGE>
Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
Certified Public Accountants/Business Consultants
INDEPENDENT AUDITORS' REPORT
Board of Directors
Capital Properties, Inc.
Providence, Rhode Island
We have audited the accompanying consolidated balance sheet of Capital
Properties, Inc. and subsidiaries as of December 31, 1996, and the related
consolidated statements of income and retained earnings and cash flows for
the years ended December 31, 1996 and 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Capital Properties, Inc.
and subsidiaries as of December 31, 1996, and the results of their operations
and their cash flows for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
/s/ Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
March 7, 1997
10 Weybosset Street-Providence, Rhode Island 02903-Tel (401)421-4800-
1-800-927-LGCD - Fax (401) 421-0643
22
<PAGE>
DIRECTORS AND OFFICERS
OF CAPITAL PROPERTIES, INC.
<TABLE>
<S> <C>
Robert H. Eder, Director Chairman of Providence and
Chairman Worcester Railroad Company
Barbara J. Dreyer, Director, President and Treasurer of Capital
President and Treasurer Properties, Inc.
Edwin G. Torrance, Secretary Attorney, Hinckley, Allen & Snyder
Providence, Rhode Island
Stephen J. Carlotti, Assistant Attorney, Hinckley, Allen & Snyder
Secretary Providence, Rhode Island
Gayl W. Doster, Director President of Sigma Corporation
Indianapolis, Indiana
Harold J. Harris, Director President of Wm. H. Harris, Inc.
(Retailer)
Providence, Rhode Island
Henry S. Woodbridge, Jr., Director Consultant
Pomfret, Connecticut
TRANSFER AGENT INDEPENDENT AUDITORS
Fleet National Bank Lefkowitz, Garfinkel, Champi &
Stock Transfer Department DeRienzo P. C.
Post Office Box 1440 10 Weybosset Street
Hartford, Connecticut 06101 Providence, Rhode Island 02903
</TABLE>
23
<PAGE>
MARKET FOR THE COMPANY'S COMMON STOCK
AND
RELATED SECURITY HOLDER MATTERS
The Company's common stock is traded on the Boston Stock Exchange, symbol
"CPI." The following table shows the high and low trading prices for the
Company's common stock during the quarterly periods indicated, as obtained
from the Boston Stock Exchange, together with dividends paid per share during
such periods.
<TABLE>
<CAPTION>
Trading Prices Dividends
<S> <C> <C> <C>
High Low Paid
1996
1st Quarter 9 8 1/8 -0-
2nd Quarter 8 3/4 8 1/4 .15
3rd Quarter 8 3/8 8 1/8 -0-
4th Quarter 9 8 1/4 .40
1995
1st Quarter 7 1/2 6 3/4 -0-
2nd Quarter 9 1/4 8 .10
3rd Quarter 9 1/4 8 1/8 -0-
4th Quarter 9 8 1/8 .20
</TABLE>
At March 3, 1997 there were 491 holders of record of the Company's common
stock.
24
EXHIBIT 21
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE ISSUER
(AS OF MARCH 3, 1997)
<TABLE>
<S> <C>
Subsidiary State of Incorporation
Tri-State Displays, Inc. Rhode Island
Capital Terminal Company Rhode Island
</TABLE>
III-6
<PAGE>
SIGNATURES
In accordance with Section 13 or15(d) of the Exchange Act, the Issuer caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITAL PROPERTIES, INC.
By /s/ Barbara J. Dreyer
Barbara J. Dreyer
President and Treasurer
Dated: March 24, 1997
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Issuer and in the capacities and on the
dates indicated.
<TABLE>
<S> <C> <C>
Signature
/s/ Barbara J. Dreyer
Barbara J. Dreyer President, Treasurer March 21, 1997
and Director (Principal
Executive Officer,
Principal Financial
Officer and Principal
Accounting Officer
/s/ Robert H. Eder
Robert H. Eder Director March 24, 1997
/s/ Harold J. Harris
Harold J. Harris Director March 21, 1997
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 948000
<SECURITIES> 0
<RECEIVABLES> 4,529,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13452000
<DEPRECIATION> 4425000
<TOTAL-ASSETS> 15208000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1000000
<OTHER-SE> 10828000
<TOTAL-LIABILITY-AND-EQUITY> 15208000
<SALES> 0
<TOTAL-REVENUES> 2793000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2236000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 557000
<INCOME-TAX> 225000
<INCOME-CONTINUING> 332000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 332000
<EPS-PRIMARY> .33
<EPS-DILUTED> 0
</TABLE>
