<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
For the fiscal year ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
------------------- ---------------------
Commission file number 0-18444
-----------------
Yager/Kuester Public Fund Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1560476
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12201 Steele Creek Road, P.O. Box 412080
Charlotte, North Carolina 28241
- ---------------------------------------------- ---------------------
(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (704) 588-4074
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ----------------
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
-----------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. Not
Applicable.
Documents Incorporated By Reference
Exhibits (4) and (10.1) of Part IV, required by Item 601 of Regulation
S-K, are incorporated by reference from the prospectus of the registrant, dated
December 1, 1987, Registration Number 33-07056-A (hereinafter "Prospectus").
This document contains 31 pages. The Exhibit Index is located on page
23.
1
<PAGE> 2
PART I
Item 1. Business. The registrant is a North Carolina limited
partnership formed in July 1986 (hereinafter referred to as the
"Partnership"). The Partnership engaged in a "blind pool offering," the
proceeds of which were used to purchase income-producing real property.
During the year ended December 31, 1988, the Partnership received the
minimum investment required to remove subscribers' funds from escrow. The
Partnership's offering terminated with a total subscription of $3,195,000
from investor limited partners. The net proceeds were used to purchase the
properties described in Item 2 below, to pay the expenses of the offering
and to fund the working capital account. The funds not required for those
purposes, totaling $84,273, were returned to investors.
The sole business of the Partnership is the operation of commercial
office buildings purchased with the proceeds of the public offering. (See
Item 2 below for a description of the properties.) During the year ended
December 31, 1996, the occupancy of the United Carolina Bank Building was
maintained at 96% and the EastPark Executive Center facilities were
maintained at 95% occupancy. The lease terms with the major tenants at such
properties are summarized below.
(i) EastPark Executive Center, Charlotte, NC - the General
Services Administrator ("GSA") has a lease term for a ten (10)
year period ending on October 31, 2004, at a rental rate of $14.15
per square foot. GSA may, at its election, terminate the lease
after eight (8) years. The GSA leased premises include
approximately 32,000 square feet. The Partnership incurred
leasehold improvements expense of approximately $1,092,000 for the
GSA space. Such improvements were completed in October 1996. The
GSA lease accounts for approximately 78% of the rental income
related to the EastPark Executive Center.
(ii) United Carolina Bank Building, Greenville, SC - Metropolitan
Life Insurance Company ("Metlife") is in the third year of a five
year lease renewal. The rental rate is $14.00 per square foot
during the first three years of the renewal term and escalates to
$14.25 per square foot during the last two years of the renewal
term. In lieu of granting an upfit allowance, Metlife was allowed
a rent concession of $6,250 per month for the first twelve (12)
months of the renewal term; the concession terminated July 31,
1995. Metlife and United Carolina Bank ("UCB"), account for 66%
and 26%, respectively, of the rental income related to the United
Carolina Bank Building. The UCB lease (which currently provides
for a $14.06 per square foot rental rate) will expire on July 31,
1999.
The General Partners entered into separate listing agreements for both
properties with a Charlotte-based commercial real estate broker at the
beginning of the third quarter of 1996. The Generals Partners believe the
focus of the partnership should be towards selling the two Partnership
properties separately now that the GSA upfit at the EastPark Executive
Center is complete. The EastPark Executive Center and UCB Building are
listed at $3,800,000 and $4,100,000 respectively.
The Partnership has no employees of its own; management of the
Partnership's property is performed by Kuester Properties, Inc., an
affiliate of FSK Limited Partnership. Administration of the Partnership is
performed by the General Partners. (See Items 10 and 13 below.)
Item 2. Properties. On June 23, 1989, the Partnership purchased the
EastPark Executive Center, an office complex comprised of two buildings
located in Charlotte, North Carolina with net leasable area of 45,300
square feet, for a purchase price of $3,155,138 of which $1,500,000 was
provided by a first mortgage loan bearing interest at 10.5% per annum and
having a term of 10 years. The lender, United of Omaha Life Insurance
Company ("United Omaha"), is not affiliated with the Partnership.
On November 30, 1989, the Partnership acquired the United Carolina Bank
Building, a three-story office building in Greenville, South Carolina with
net leasable area of 39,138 square feet, for a purchase price of $4,202,544
of which $3,110,000 was provided by a first mortgage loan from United
Omaha, bearing interest at 9.625% per annum and having a term of 7 years.
During the fourth quarter of 1996, this debt was refinanced with First
Union National Bank. (See item 7 below for a discussion of refinancing
matters.)
In connection with the office building purchases, $26,312 of
acquisition costs were capitalized.
No further purchases of real property are projected and no funds are
available for that purpose.
2
<PAGE> 3
Item 3. Legal Proceedings. The Partnership is not involved in any
legal proceedings and was not so involved during the year ended December
31, 1996.
Item 4. Submission of Matters to a Vote of Security Holders. Not
applicable.
PART II
Item 5. Market for the Partnership's Common Equity and Related
Stockholder Matters. There is no established public trading market for the
Partnership's securities. The Partnership has 535 limited partners. Cash
distributions made to the limited partners during the past years are set
out in the Statements of Cash Flow included in the Financial Statements
included in Part II, Item 8 of this Report.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
At or For
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Rental income 1,150,758 $1,172,935 $1,114,741 $ 1,067,859 $ 1,042,672
Net income (loss) 40,561 29,787 17,865 (15,330) (49,816)
Net income (loss)
per limited
partnership unit 6.30 4.63 2.77 (2.38) (7.74)
Summary of Financial
Position:
Total assets $7,864,107 $7,214,881 $6,951,442 $ 7,037,438 $ 7,107,578
Long-term debt, less
current maturities 4,059,909 1,288,754 4,220,469 4,330,390 4,363,603
Distribution per
limited partner-
ship unit -- -- -- -- --
Number of limited
partnership units 6,370 6,370 6,370 6,370 6,370
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
During the year ended December 31, 1996, the Partnership continued to
fund working capital requirements. The working capital deficiency decreased
from ($3,094,205) at December 31, 1995 to ($864,930) at December 31, 1996.
The increase in the working capital is primarily a result of the
refinancing of the loan on the United Carolina Bank, which is now shown as
a long-term liability. This loan was refinanced in the form of a line of
credit for $2,840,000 through First Union Bank of North Carolina. The line
of credit carries an interest rate at the 3-month LIBOR rate plus 1.75%
and is repayable in monthly payments of accrued interest only until
December 1, 1997 when all remaining principal and interest shall be due.
If the UCB building is not sold by this time, the loan can be renewed for
an additional year to expire on December 1, 1998.
3
<PAGE> 4
Although there was an overall decrease in current liabilities, there
was an increase in the $1,000,000 line-of-credit note payable by the
Partnership to First Union Bank of North Carolina for the EastPark
Executive Center GSA upfit, of which $942,483 and $219,783 was
outstanding at December 31, 1996 and 1995 respectively. The line of
credit is unsecured and is payable on demand.
The cumulative unpaid priority return to the unit holders increased
from $1,681,265 at December 31, 1995 to $1,924,049 at December 31, 1996.
This increase resulted from no distributions being made to partners during
the year and the pro rata share due partners pursuant to the Limited
Partnership Agreement. Based on current and projected commercial real
estate market conditions, the General Partners believe that it is
reasonably unlikely that a sale of the Partnership properties would produce
net sale proceeds sufficient to pay the priority return. Furthermore, the
General Partners believe that it is reasonably unlikely that the
Partnership's operating income or any refinancing of Partnership debt would
generate sufficient funds to pay the priority return.
During the year ended December 31, 1996, the Partnership had net income
of $40,561 compared to the net income of $29,787 and $17,865 in 1995 and
1994, respectively. Rental income, operating expenses, and interest expense
for the years ended December 31, 1996 and 1995 resulted exclusively from
the operations of the Partnership's commercial real estate properties. The
EastPark Executive Center buildings, purchased June 23, 1989, were 95%
leased at December 31, 1995 and were 96% leased at December 31, 1996. The
United Carolina Bank Building, purchased November 30, 1989, was 100% leased
at December 31, 1995 and 96% in 1996. In March 1997, approximately 1,400
square feet was leased to United Health Care Incorporated. This lease will
expire on July 31, 1999. Occupancy at the United Carolina Bank Building is
now at 100%.
The Partnership entered into a Loan Extension and Modification
Agreement dated as of May 12, 1993 with Internet Services Corporation, a
North Carolina corporation (formerly International Network Services
Corporation) owned equally by three trusts, the beneficial interests of
which inure respectively to the benefit of the three children of Dexter
Yager, the sole General Partner of DRY Limited Partnership, which limited
partnership is one of the two general partners of the Partnership. Pursuant
to the Agreement, the Partnership agreed to pay Internet $91,275 over a
five-year period, with annual principal payments of $18,255 each, together
with interest at the rate equal to the prime rate of NationsBank of North
Carolina N.A., determined on an annual basis, plus two percent (2.0%).
See Item 13 (Certain Relationships and Related Transactions) for a
discussion regarding leasing commissions paid to Kuester Properties, Inc.,
a General Partner of the Partnership.
In the event that funds derived from operations are insufficient to
meet the Partnership's working capital needs, the General Partners have
agreed to fund the shortfall.
Results of Operations
Comparison of 1996 results with 1995.
Operating results increased slightly from an operating income of
$444,916 during the year ended December 31, 1995 to an operating income of
$449,277 for the comparable year 1996. Operating income expressed as a
percentage of rental income increased from 37.9% for the year ended
December 31, 1995 to 39.0% for the comparable year 1996. While the overall
occupancy rate for 1996 was comparable to 1995, rental income nevertheless
decreased by approximately $22,000. This decrease of rental income in 1996
can be attributed to the decrease in common area maintenance ("CAM")
reimbursements provided by the Metropolitan Life Insurance Company lease at
the UCB facility. Operating expenses were lower overall in 1996 by
approximately $26,000. Decreased professional fees accounted for a major
portion of such decrease. The remaining expense decrease can be attributed
to decreased contract labor and miscellaneous expenses. Nonoperating income
and expenses for the year ended December 31, 1996 decreased 1.5% from the
comparable year 1995.
4
<PAGE> 5
Comparison of 1995 results with 1994.
Operating results increased slightly from an operating income of
$438,454 during the year ended December 31, 1994 to an operating income of
$444,916 for the comparable year 1995. Operating income expressed as a
percentage of rental income decreased from 39.3% for the year ended
December 31, 1994 to 37.9% for the comparable year 1995. While the overall
occupancy rate for 1995 was comparable to 1994, rental income nevertheless
increased by approximately $58,000. This increase of rental income in 1995
can be attributed to having a full year of the increased rental rates that
were negotiated during the second half of 1994. Operating expenses were
higher overall in 1995 by approximately $51,000. Increased professional
fees, relating to the potential sale of the properties, comprised the
greatest increase in the expenses. The remaining expense increase can be
attributed to increased repairs, maintenance, depreciation and
amortization. Nonoperating income and expenses for the year ended December
31, 1995 decreased 1.3% from the comparable year 1994.
Item 8. Financial Statements and Supplementary Data. The financial
statements are attached hereto.
5
<PAGE> 6
[MCGLADREY & PULLEN LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Partners
Yager/Kuester Public Fund
Limited Partnership
Charlotte, North Carolina
We have audited the accompanying balance sheets of Yager/Kuester Public Fund
Limited Partnership as of December 31, 1996 and 1995, and the related statements
of operations, partners' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Yager/Kuester Public Fund
Limited Partnership as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Charlotte, North Carolina
February 5, 1997
6
<PAGE> 7
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
---------- ----------
<S> <C> <C>
Current Assets
Cash and cash equivalents (Note 2) $ 103,036 $ 139,930
Accounts receivable, tenants (Note 9) 91,224 37,565
Prepaid expenses 2,200 1,100
Securities available for sale (Notes 3 and 4) 190,380 135,050
---------- ----------
TOTAL CURRENT ASSETS 386,840 313,645
---------- ----------
Investments and Noncurrent Receivables
Properties on operating leases and properties held for lease, net
(Notes 5 and 6) 7,371,229 6,774,759
Accrued rent receivable 44,785 57,283
---------- ----------
7,416,014 6,832,042
---------- ----------
Other Assets
Deferred charges, net of accumulated amortization
1996 $11,282; 1995 $35,919 10,818 10,180
Deferred leasing commissions, net of accumulated amortization
1996 $31,476; 1995 $18,721 50,435 59,014
---------- ----------
61,253 69,194
---------- ----------
$7,864,107 $7,214,881
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities
Note payable, bank (Note 6) $ 942,483 $ 219,783
Current maturities of long-term debt (Note 6) 68,868 2,931,715
Accounts payable 109,107 128,472
Accrued expenses 131,312 127,880
---------- ----------
TOTAL CURRENT LIABILITIES 1,251,770 3,407,850
---------- ----------
Long-Term Debt, less current maturities (Note 6) 4,059,909 1,288,754
---------- ----------
Commitment and Contingency (Note 7)
Partners' Equity
General partners 2,199 1,795
Limited partners (Note 7) 2,545,393 2,505,236
Unrealized gain on investment securities (Note 4) 4,836 11,246
---------- ----------
2,552,428 2,518,277
---------- ----------
$7,864,107 $7,214,881
========== ==========
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 8
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Rental income (Notes 5 and 9) $ 1,150,758 $ 1,172,935 $ 1,114,741
----------- ----------- -----------
Operating expenses:
Contract labor 18,028 40,307 33,690
Depreciation and amortization 204,261 179,987 173,606
Repairs and maintenance 146,900 133,822 125,585
Management fees (Note 8) 47,172 50,981 50,471
Utilities 147,098 149,027 154,259
Professional fees 30,954 57,331 22,696
Property taxes 88,857 88,046 92,677
Miscellaneous 18,211 28,518 23,303
----------- ----------- -----------
701,481 728,019 676,287
----------- ----------- -----------
OPERATING INCOME 449,277 444,916 438,454
----------- ----------- -----------
Nonoperating income (expense):
Interest income 651 724 4,360
Interest expense (425,669) (422,066) (432,683)
Other 16,302 6,213 7,734
----------- ----------- -----------
(408,716) (415,129) (420,589)
----------- ----------- -----------
NET INCOME 40,561 29,787 17,865
Deduct net income applicable to limited
partners (per limited partner unit) 1996 $6.30;
1995 $4.63; 1994 $2.77 40,157 29,489 17,685
----------- ----------- -----------
NET INCOME APPLICABLE TO
GENERAL PARTNERS (PER LIMITED
PARTNER UNIT) 1996 $.06; 1995
$.05; 1994 $.03 $ 404 $ 298 $ 180
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 9
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Net unrealized
Gain (Loss) on
Securities
General Limited Available
Partners Partners For Sale Total
---------- ----------- ----------- ----------
<S> <C> <C> <C>
Balance, December 31, 1993 $ 1,317 $ 2,458,062 $ --
2,459,379
Net income 180 17,685 -- 17,865
January 1, 1994 adoption of FASB
Statement No. 115 (Note 3) -- -- 1,811 1,811
Change in fair market value on
securities available for sale
(Note 4) -- -- (7,116) (7,116)
---------- ----------- ----------- ----------
Balance, December 31, 1994 1,497 2,475,747 (5,305) 2,471,939
Net income 298 29,489 -- 29,787
Change in fair market value on
securities available for sale
(Note 4) -- -- 16,551 16,551
---------- ----------- ----------- ----------
Balance, December 31, 1995 1,795 2,505,236 11,246 2,518,277
Net Income 404 40,157 -- 40,561
Change in fair market value on
securities available for sale
(Note 4) -- -- 6,410) (6,410)
---------- ----------- ----------- ----------
Balance, December 31, 1996 $ 2,199 $ 2,545,393 $ 4,836 $2,552,428
========== =========== =========== ==========
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 10
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 40,561 $ 29,787 $ 17,865
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 184,825 162,035 161,169
Amortization 19,436 17,952 12,437
Net realized (gains) losses on sale of securities
available for sale (3,118) 3,940 --
Changes in assets and liabilities:
Increase in accounts receivable, tenant
and accrued rent receivable (41,161) (23,206) (37,353)
Increase (decrease) in:
Accounts payable and accrued
expenses (15,933) 107,238 2,664
Other prepaids and accruals, net (1,100) (877) 1,691
----------- --------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 183,510 296,869 158,473
----------- --------- ---------
Cash Flows From Investing Activities
Purchase of securities available for sale (145,542) (193,803) (29,570)
Proceeds from sale of securities available for
sale 86,920 176,620 --
Purchase of investment property (781,295) (355,955) (34,989)
Disbursements for deferred leasing commissions (4,395) (1,569) (75,948)
Disbursements for deferred charges (7,100) -- --
----------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (851,412) (374,707) (140,507)
----------- --------- ---------
Cash Flows from Financing Activities
Proceeds from long-term borrowings 2,840,000 -- --
Principal payments on long-term borrowings (2,931,692) (109,921) (101,219)
Proceeds from note payable 722,700 219,783 --
----------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 631,008 109,862 (101,219)
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (36,894) 32,024 (83,253)
Cash and cash equivalents:
Beginning 139,930 107,906 191,159
----------- --------- ---------
Ending $ 103,036 $ 139,930 $ 107,906
=========== ========= =========
</TABLE>
10
<PAGE> 11
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash payment for interest, net of interest
capitalized $ 424,000 $423,197 $ 433,719
Supplemental Disclosures of Noncash Transactions:
Marketable equity securities transferred to
securities available for sale -- -- 80,990
Net unrealized gain (loss) on securities
available for sale (6,410) 16,551 (5,305)
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 12
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND ORGANIZATION, PARTNERSHIP AGREEMENT AND
SIGNIFICANT ACCOUNTING POLICIES
Nature of business and organization: The Partnership is a North Carolina limited
partnership formed in July 1986. The purpose of the Partnership is to acquire,
operate, hold for investment and sell property. Properties currently held are
located in Charlotte, North Carolina and Greenville, South Carolina.
The general partners of the Partnership are DRY Limited Partnership, a North
Carolina limited partnership in which Dexter R. Yager, Sr. is the general
partner and FSK Limited Partnership, a North Carolina limited partnership in
which Faison S. Kuester, Jr. is the general partner.
Partnership agreement: Under the terms of the partnership agreement, all taxable
income, tax losses and cash distributions from operations are to be allocated
99% to the limited partners and 1% to the general partners until the limited
partners receive a return of their initial capital contributions and a "Priority
Return". The Priority Return is a sum equal to 8% per annum cumulative, but not
compounded, (prorated for any partial year) of the adjusted capital
contributions of the limited partners, calculated from the last day of the
calendar quarter in which each limited partner is admitted to the Partnership to
the date of payment. Thereafter, taxable income, tax losses and cash
distributions from operations will be allocated 75% to the limited partners and
25% to the general partners.
Upon the sale or refinancing of any future partnership properties, the
partnership agreement specifies certain allocations of net proceeds and taxable
gain or loss from the transaction.
A summary of the Partnership's significant accounting policies follows:
Use of management's estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents: For purposes of reporting the statements of cash
flows, the Partnership includes all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt instruments
purchased with an original maturity of three months or less as cash and cash
equivalents on the accompanying balance sheets. At various times throughout the
year, the Partnership may have cash balances at financial institutions which
exceed federally-insured amounts.
Investments: Properties on operating leases and properties held for lease are
stated at the lower of cost less accumulated depreciation or fair market value.
Depreciation is computed by the straight-line method over 40 years for buildings
and over 15 years for building improvements.
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND ORGANIZATION, PARTNERSHIP AGREEMENT AND
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment in securities available for sale and accounting change: Statement No.
115 requires that management determine the appropriate classification of
securities at the date of adoption, and thereafter at the date individual
investment securities are acquired, and that the appropriateness of such
classification be reassessed at each balance sheet date. Since the Partnership
neither buys securities in anticipation of short-term fluctuations in market
prices or can commit to holding debt securities to their maturities, the
investment in debt and marketable equity securities have been classified as
available for sale in accordance with Statement No. 115. Available for sale
securities are stated at fair value, and unrealized holding gains and losses are
reported as a separate component of partners' equity. Realized gains and losses,
including losses from declines in value of specific securities determined by
management to be other-than-temporary, are included in income. Realized gains
and losses are determined on the basis of the specific securities sold.
Note 3 to the financial statements provides further information about the effect
of adopting Statement No. 115.
Deferred charges: Deferred charges are related to prepaid fees which are
amortized over the length of the related loans, 1 to 10 years, on a
straight-line basis.
Deferred leasing commissions: Deferred leasing commissions related to obtaining
specific leases are amortized using the straight-line method over the
noncancelable lease terms which range from three to seven years.
Revenue recognition: Rental revenue is recognized evenly over the term of the
lease. In connection with negotiating and obtaining leases, the Partnership's
management may at times grant concessions, such as free rent for a specific
number of months during the lease. These costs are amortized over the life of
the lease.
Disclosures about the fair value of financial instruments: Financial Accounting
Standards Board Statement No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. Statement 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
At December 31, 1996 and 1995 the carrying values of the Partnership's financial
instruments, including accounts receivable which are due on demand and the
mortgage payable which bears interest at market rates, approximate their fair
values.
Income taxes: Under current income tax laws, income or loss of the Partnership
is included in the income tax returns of the partners. Accordingly, the
Partnership will make no provision for federal or state income taxes.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. WORKING CAPITAL RESERVE
Per the Partnership Agreement, a minimum cash and cash equivalents reserve of
$94,500 must be maintained to fund any expenditures that the cash flow generated
from properties on operating leases is insufficient to meet. At December 31,
1996 and 1995, the Partnership exceeded the minimum requirement by $8,536 and
$45,430, respectively.
NOTE 3. ACCOUNTING CHANGE
As discussed in Note 1, the Partnership adopted FASB Statement No. 115 as of
January 1, 1994. There was no effect to net income in 1994 for adopting
Statement No. 115. The January 1, 1994 balance of partners' equity was increased
by $1,811 to recognize the net unrealized holding gain on securities at that
date.
NOTE 4. SECURITIES AVAILABLE FOR SALE
The following is a summary of the Partnership's securities available for sale as
of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ------- --------- --------
1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
Common stock $107,500 $ 4,775 $ -- $112,275
Corporate bonds and notes 57,615 261 (432) 57,444
Government securities 20,429 232 -- 20,661
-------- ------- --------- --------
$185,544 $ 5,268 $ (432) $190,380
======== ======= ========= ========
<CAPTION>
1995
---------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
Common stock $108,800 $11,100 $ -- $119,900
Mutual fund 15,004 146 -- 15,150
-------- ------- --------- --------
$123,804 $11,246 $ -- $135,050
======== ======= ========= ========
</TABLE>
As of December 31, 1996, the Partnership did not have trading or held to
maturity securities.
A summary of investment earnings included in nonoperating income (expense)
in the accompanying Statements of Operations for the years ended December 31,
1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ----
<S> <C> <C> <C>
Realized gains on sale of securities available for sale $ 3,162 $ 1,805 $--
Realized losses on sale of securities available for sale (44) (5,745) --
------- ------- ----
$ 3,118 $(3,940) $--
======= ======= ====
</TABLE>
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. SECURITIES AVAILABLE FOR SALE (CONTINUED)
The amortized cost and fair values of securities available for sale as of
December 31, 1996 by contractual maturity are shown below. The "other
securities" have no contractual maturity.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
-------- --------
<S> <C> <C>
Due after one year through five years $ 18,404 $ 17,975
Due after five years through ten years 39,211 39,469
Other securities 127,929 132,936
-------- --------
$185,544 $190,380
======== ========
</TABLE>
Proceeds from sales of securities available for sale during the years ended
December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- ------
<S> <C> <C> <C>
Proceeds from sales of securities available for sale $86,920 $176,620 $ --
======= ======== ======
</TABLE>
Dividend income included in nonoperating income (expense) in the accompanying
Statements of Operations totaled $6,980, $7,778 and $4,821 for the years ended
December 31, 1996, 1995 and 1994, respectively.
The changes in the net unrealized gain (loss) on securities available for sale
during the years ended December 31, 1996 and 1995 were $(6,410) and $16,551,
respectively, which have been included in the separate component of partners'
equity.
NOTE 5. PROPERTIES ON OPERATING LEASES AND PROPERTIES HELD FOR LEASE
The Partnership leases office facilities under various lease agreements. The
following schedule provides an analysis of the Partnership's investment in
properties held for lease by major classes as of December 31, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land $1,168,953 $1,168,953
Building 6,188,729 6,188,729
Building improvements 1,257,567 476,272
---------- ----------
8,615,249 7,833,954
---------- ----------
Less accumulated depreciation 1,244,020 1,059,195
---------- ----------
$7,371,229 $6,774,759
========== ==========
</TABLE>
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. PROPERTIES ON OPERATING LEASES AND PROPERTIES HELD FOR LEASE (CONTINUED)
The following is a schedule by years of all minimum future rentals on
noncancelable operating leases as of December 31, 1996:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
- ------------- -----------
<C> <C>
1997 $ 1,116,075
1998 1,008,014
1999 779,710
2000 494,728
2001 461,766
Thereafter 375,695
-----------
$ 4,235,988
===========
</TABLE>
The Partnership properties are currently contracted with a real estate broker.
It is the intention of the General Partners to market and sell the properties.
The new sales proceeds will be used to return partners' equity.
NOTE 6. NOTE PAYABLE, BANK, LONG-TERM DEBT AND PLEDGED ASSETS
The Partnership has a $1,000,000 line-of-credit with an outstanding balance of
$942,483 and $219,783 at December 31, 1996 and 1995, respectively. The
line-of-credit allows borrowings and repayments to be made on a daily basis.
Outstanding balances on the line-of-credit bear interest at a variable rate tied
to the bank's prime rate (prime rate was 8.25% at December 31, 1996). The
line-of-credit is unsecured and is payable on demand.
Long-term debt and pledged assets consists of the following at December 31,
1996:
<TABLE>
<S> <C>
Note payable to United of Omaha, due in monthly installments of $14,976,
including interest at 10.5%, through June 1999, with $1,115,064 due in
July 1999, collateralized by mortgage on land and building $ 1,252,267
Note payable to First Union National Bank of North Carolina, interest only at
the 3-month LIBOR plus 1.75% due monthly, through November 1998, balance due
December 1998, unsecured and guaranteed by a general partner (A) 2,840,000
Note payable to Internet Services Corporation, related through common ownership,
due in five annual principal installments of $18,255, plus interest at the prime
rate (8.25% at December 31, 1996) of NationsBank of North Carolina, N.A., plus
2%, unsecured, due January 1998 36,510
-----------
4,128,777
Less current maturities 68,868
-----------
$ 4,059,909
===========
</TABLE>
(A) The note payable to First Union National Bank of North Carolina matures on
December 1, 1997. The Partnership has acquired a commitment letter which
allows the Partnership to extend the repayment of the note to December 1,
1998. Should the commitment letter be exercised, the Bank will require that
the note be secured by a deed of trust on the respective property. The debt
is accordingly classified as long-term debt for financial reporting
purposes.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. NOTE PAYABLE, BANK, LONG-TERM DEBT AND PLEDGED ASSETS (CONTINUED)
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
- ------------ ----------
<C> <C>
1997 $ 68,868
1998 2,914,445
1999 1,145,464
----------
$4,128,777
==========
</TABLE>
Interest expense to Internet Services Corporation, for the years ended December
31, 1996, 1995 and 1994 was $3,834, $5,476, and $5,842, respectively.
NOTE 7. PRIORITY RETURN
The cumulative unpaid priority return to the limited partners is $1,924,049 and
$1,681,265 at December 31, 1996 and 1995, respectively. There were no cash
distributions to the limited partners for the priority return for the years
ended December 31, 1996, 1995 and 1994. Based on current and projected real
estate market conditions, the General Partners believe that it is reasonably
unlikely that a sale of the Partnership properties would produce sufficient net
sales proceeds to pay the priority return.
17
<PAGE> 18
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 8. MANAGEMENT AND ADMINISTRATIVE EXPENSES
Management expenses paid to a General Partner and to Internet Services
Corporation in connection with day-to-day operations of the Partnership amounted
to $47,172, $50,981, and $50,471 for the years ended December 31, 1996, 1995 and
1994, respectively.
NOTE 9. MAJOR TENANTS
Rental income for the years ended December 31, 1996, 1995 and 1994,
respectively, included approximate rentals from the following major tenants each
of which accounted for 10% or more of the total rental income of the Partnership
for those years:
<TABLE>
<CAPTION>
Approximate Amount of Rental Income
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Tenant A 455,000 $451,000 $347,000
Tenant B 353,000 306,000 310,000
Tenant C 117,000 138,000 132,000
</TABLE>
Accounts receivable from each of the major tenants identified above were as
follows at December 31, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
------- -------
<S> <C> <C>
Tenant A $37,884 $37,565
Tenant B -- --
Tenant C -- --
</TABLE>
18
<PAGE> 19
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure. Not applicable.
PART III
Item 10. Directors and Executive Officers of the Partnership. The
Partnership has no executive officers and directors. The General Partners
of the partnership are DRY Limited Partnership, the sole General Partner of
which is Dexter R. Yager, Sr., and FSK Limited Partnership, the sole
General Partner of which is Faison S. Kuester, Jr.
Following is a brief discussion of the background and experience of
Messrs. Kuester and Yager.
Faison S. Kuester, Jr., 51, graduated from the University of North
Carolina at Chapel Hill with a Bachelor of Arts Degree in History in 1967.
He is a resident of Charlotte, North Carolina. After three years service in
the United States Army as a Lieutenant, Mr. Kuester joined Independence
Development Corporation in 1972 serving as a director of leasing and
management for a period of three years. In 1974, Mr. Kuester formed his own
company, Kuester Realty and Management, in order to lease and manage
commercial properties in Charlotte, North Carolina and surrounding
communities. In addition to leasing and managing various commercial
properties, Kuester Realty had developed two medical clinics in the
Charlotte area. In 1980, Kuester Properties, Inc. ("KPI") was formed to
specialize in on-site management of apartment communities in the
southeastern United States. The following year Cauble and Kuester Company,
Inc. was organized to lease and manage commercial properties in the
metropolitan Atlanta area. This partnership brought together Cauble and
Company, experienced mortgage lenders and leasing agents in the Atlanta
market, and Kuester Realty and Management. Finally, in 1983, Kuester
Development Corporation was formed to allow the Kuester companies to engage
in selective real estate development projects in the southeastern United
States.
Through Kuester Development Corporation, a wholly-owned subsidiary of
KPI, Mr. Kuester has been directly involved with the development of several
commercial real estate properties in North and South Carolina and Georgia.
These include the First United National Bank Building in Wilmington, North
Carolina, two retail office showroom projects, two medical office buildings
and residential condominiums in Charlotte, North Carolina, an office
building in Savannah, Georgia, and an office building in Greenville, South
Carolina. Kuester Development Corporation also has developed over 700
apartment units throughout Charlotte, North Carolina since 1983. KPI is
active in the management of these units as well as managing other clients'
multifamily developments.
In 1989, Mr. Kuester, Jr. established Kuester Hospitality Corporation
for the purpose of acquiring and managing health care facilities. In 1995,
he established Kuester HealthCare Services, Inc. ("KHCS") to offer various
health care services, including development and brokerage of health care
facilities.
KPI serves as property manager of the Partnership property.
Dexter R. Yager, Sr., 57, is the President and founder of D&B Yager
Enterprises, Inc., Mr. Yager's Amway distributorship business. Through D&B
Yager Enterprises, Inc., Mr. Yager has been an independent distributor for
Amway Corporation for over 30 years during which time he has achieved the
status of Crown Ambassador, which is the highest level attainable as an
Amway distributor. The Amway Corporation is one of the largest
manufacturers of home care products in the world. He is also a former
member and past president of the Amway Distributor Association Board of
Directors. Mr. Yager has many other family-owned businesses and is
responsible for the development of several businesses, including the
following: Yager Personal Development, Inc., which handles Mr. Yager's
services as a speaker at Amway events, Yager Construction Company, Inc.,
which is a general building contractor; and Dexter and Birdie Yager Family
Limited Partnership, which owns various real estate investments and manages
real estate for the Yager family.
Mr. Yager has significant experience in real estate investment for his
own account. Mr. Yager personally, and through partnerships in which he and
his wife own a majority interest, has made investments in raw land, office
buildings, a shopping center, and other commercial and residential real
estate having a market value in excess of $10,000,000. He has made
substantial additional real estate investments through partnerships in
which he does not own a majority interest.
Item 11. Executive Compensation. The Partnership does not employ any
executive officers or directors and no compensation is paid to any person
for performing services typically provided by such an officer or director.
Dexter R. Yager,
19
<PAGE> 20
Sr. and Faison S. Kuester have policymaking functions with regard to
Partnership operations. See Item 10 for the relationship of such persons to
the Partnership. See Item 13 for a description of payments made to Kuester
Properties, Inc. for property management services and to Internet Services
Corporation, Inc. for bookkeeping and accounting services.
Item 12. Security Ownership of Certain Beneficial Owners and
Management. The General Partners initially contributed a total of $2,500 to
the capital of the Partnership, consisting of a $1,600 contribution from
DRY Limited Partnership and $900 from FSK Limited Partnership. The General
Partners own a 1% interest in all items of Partnership income, gain, loss,
deductions or credits including 1% of net cash from operations. The General
Partners also own a residual 25% interest in net cash from a sale or
refinancing of the Partnership Property, subordinated to the receipt by the
Limited Partners of the return of their capital contributions and their
priority return and to the payment of any subordinated real estate
commissions due to affiliates of the General Partners.
The General Partners do not own any Limited Partnership interest in
the Partnership.
Item 13. Certain Relationships and Related Transactions. During the
fiscal year ended December 31, 1996, Kuester Properties, Inc. received
management fees of $46,517 for management of the Partnership property.
Internet Services Corporation, Inc. received $7,327 for providing
accounting/bookkeeping services. See Item 7 for a description of a loan to
the Partnership by Internet Services Corporation, a corporation owned
equally by three trusts, the beneficial interests of which inure to the
benefit of three children of Dexter R. Yager, Sr., the sole General Partner
of DRY Limited Partnership, which limited partnership is one of the two
general partners of the Partnership. Janitorial services for the EastPark
Executive Center are provided by Marquis Cleaning Services, which is
operated and owned by Dexter R. Yager's nephew.
The General Partners believe that the terms for the above mentioned
services are as favorable as those the Partnership might have obtained from
unaffiliated parties.
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form
8-K.
(a)(1) The following financial statements of the Partnership are
included in Part II, Item 8 hereof.
(i) Independent Auditor's Report
(ii) Balance Sheets as of December 31, 1996 and 1995
(iii) Statements of Operations for years ended December 31,
1996, 1995 and 1994
(iv) Statements of Partners' Equity for years ended
December 31, 1996, 1995 and 1994
(v) Statements of Cash Flows for years ended December 31,
1996, 1995 and 1994
(vi) Notes to Financial Statements
(a)(2) All schedules have been omitted because they are inapplicable,
not required, or the information is included elsewhere in the
financial statements or notes thereto.
(a)(3) Exhibits:
(4) Instrument defining rights of securities holders - set forth
in the Limited Partnership Agreement which is contained in
the Prospectus incorporated herein by reference.
(10.1) Limited Partnership Agreement - contained in Prospectus
incorporated herein by reference.
(10.2) Exclusive Leasing and Management Agreement dated October
1, 1994 (EastPark Executive Center).
(10.3) Exclusive Leasing and Management Agreement dated October
1, 1994 (United Carolina Bank Building).
(10.4) Listing Agreement of Property for Sale - United Carolina
Bank Building.
20
<PAGE> 21
(10.5) Listing Agreement of Property for Sale - EastPark
Executive Center.
(10.6) Promissory Note with First Union Bank of North Carolina
dated November 27, 1996 for the United Carolina Bank
Building.
(23) Consent of Independent Auditor
(27) Financial Data Schedule.
(b) Reports on Form 8-K: None.
(c) Exhibits: The exhibits listed in Item 14(a)(3) above and not
incorporated herein by reference are filed with this Form 10-K.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
By: FSK Limited Partnership
March 27, 1997 By: /s/ Faison S. Kuester, Jr.
----------------------------
Faison S. Kuester, Jr.
General Partner
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 27, 1997 by the following persons on
behalf of the Partnership and in the capacities and on the dates indicated.
/s/ Jerry R. Haynes /s/ Faison S. Kuester
- -------------------------------------- -----------------------------------
(Principal Accounting Officer) Faison S. Kuester, Jr., General
Partner of FSK Limited Partnership,
General Partner of the Partnership
Date March 27, 1997 Date March 27, 1997
---------------------------------- ---------------
/s/ Dexter R. Yager, Sr.
-----------------------------------
Dexter R. Yager, Sr., General
Partner of DRY Limited Partnership,
General Partner of the Partnership
Date March 27, 1997
--------------
22
<PAGE> 23
EXHIBIT INDEX
The following documents are included in this Form 10-K as an Exhibit:
<TABLE>
<CAPTION>
Designation
Number Under
Exhibit Item 601 of Page
Number Regulation S-K Exhibit Description Number
- ------ -------------- ------------------- ------
<S> <C> <C> <C>
1* (4) Limited Partnership Agreement
2* (10.1) Limited Partnership Agreement
3** (10.2) Exclusive Leasing and Management Agreement
dated October 1, 1994 - (EastPark Executive Center)
4** (10.3) Exclusive Leasing and Management Agreement
dated October 1, 1994 - (United Carolina Bank
building)
5*** (10.4) Listing Agreement of Property for Sale - United
Carolina Bank Building
6*** (10.5) Listing Agreement of Property for Sale - EastPark
Executive Center.
7 (10.6) Promissory Note with First Union Bank of North 24
Carolina dated November 27, 1996
8 (23) Consent of Independent Auditor 30
9 (27) Financial Data Schedule 31
</TABLE>
- ----------
* Incorporated by reference to Exhibit A of the Partnership's Prospectus
dated December 1, 1987, Registration Number 33-07056-A.
** Incorporated by reference to Exhibit 3 and 4 of the Partnership's Form 10-K
for year ended December 31, 1995.
*** Incorporated by reference to Exhibit 3 and 4 of the Partnership's Form 10-Q
for the quarter ended June 30, 1996.
23
<PAGE> 1
EXHIBIT 10.6
[FIRST UNION LOGO]
PROMISSORY NOTE
$2,840,000.00 November 27, 1996
Yager/Kuester Public Fund Limited Partnership
c/o Alison L. Hawk
Internet Services Corporation
12201 Steele Creek Road
Charlotte, North Carolina 28273-3731
(Individually and collectively "Borrower")
First Union National Bank of North Carolina
301 South Tryon Street
Charlotte, North Carolina 28202
(Hereinafter referred to as the "Bank")
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of Two Million Eight Hundred Forty Thousand and No/100 Dollars
($2,840,000.00) or such sum as may be advanced from time to time with interest
on the unpaid principal balance at the rate and on the terms provided in this
Promissory Note (including all renewals, extensions or modifications hereof,
this "Note").
INTEREST RATE DEFINITIONS.
LIBOR RATE. 3-month LIBOR Rate plus 1.75% (175 basis points) ("LIBOR-Based
Rate"). "LIBOR" is the rate (rounded to the next higher 1/100 of 1%) for U.S.
dollar deposits of that many months maturity as reported on Telerate page 3750
as of 11:00 a.m., London time, on the second London business day before the
relevant Interest Period begins (or if not so reported, then as determined by
Bank from another recognized source of interbank quotation), adjusted for
reserves by dividing that rate by 1.00 minus the LIBOR Reserve. "LIBOR Reserve"
is the maximum percentage reserve requirement (rounded to the next higher 1/100
of 1% and expressed as a decimal) in effect for any day during the Interest
Period under the Federal Reserve Board's Regulation D for Eurocurrency
Liabilities as defined therein.
PRIME RATE. The rate of Bank's Prime Rate as that rate may change from time to
time with changes to occur on the date Bank's Prime Rate changes ("Prime-Based
Rate"). Bank's Prime Rate shall be that rate announced by Bank from time to time
as its prime rate and is one of several interest rate bases used by Bank. Bank
lends at rates both above and below Bank's Prime Rate, and Borrower acknowledges
that Bank's Prime Rte is not represented or intended to be the lowest or most
favorable rate of interest offered by Bank.
INTEREST RATE TO BE APPLIED. INTEREST RATE. Subject to the provisions hereof,
the unpaid principal balance of this Note shall bear interest from the date
hereof at the LIBOR-Based Rate, as determined by Bank prior to the commencement
of each consecutive interest period of 3 months; (each an "Interest Period")
during the term of the Note ("Interest Rate"). Upon determination by Bank of the
Interest Rate for any Interest Period, such Interest Rate shall remain in
effect, subject to the provisions hereof, for the entire Interest Period until
redetermined as provided above for the next successive Interest Period.
DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the Prime-Based Rate plus 3%
("Default Rate") except if the Note is governed by the laws of the State
24
<PAGE> 2
of North Carolina and the original principal amount is less than or equal to
$300,000.00. The Default Rate shall also apply from acceleration until the
Obligations or any judgment thereon is paid in full.
INDEMNIFICATION AND ADDITIONAL COSTS.
INDEMNIFICATION. Borrower indemnifies Bank against Bank's loss or expense in
employing deposits as a consequence (a) of Borrower's failure to make any
payment when due under this Note or (b) any payment, prepayment or conversion of
any loan on a date other than the last day of the Interest Period ("indemnified
Loss or Expense").
ADDITIONAL COSTS. If, at any time, a new, or a revision in any existing law or
interpretation or administration (including reversals) thereof by any government
authority, central bank or comparable agency imposes, increases or modifies any
reserve or similar requirement against assets, deposits or credit extended by
Bank, or subjects Bank to any tax, duty or other charge (except tax on Bank's
net income), and any of the foregoing increase the cost to Bank of maintaining
its commitment or reduce the amount of any sum received or receivables by Bank
under this Note, within 15 days after demand by Bank, Borrower agrees to pay
Bank such additional amounts as will compensate Bank for such increased costs or
reductions ("Additional Costs").
MATCH FUNDING. The amount of such (a) Indemnified Loss or Expense or (b)
Additional Costs outlined above shall be determined, in Bank's sole discretion,
based upon the assumption that Bank funded 100% that portion of the loan to
which the LIBOR-Based Rate or CD-Based Rate applies respectively in the
applicable London interbank or domestic certificate of deposit market.
UNAVAILABILITY OF INTEREST RATE. If, at any time, (a) Bank shall determine that,
by reasons of circumstances affecting foreign exchange and interbank markets
generally, LIBOR or CD deposits in the applicable amounts are not being offered
to Bank; or (b) a new, or a revision in any existing law or interpretation or
administration (including reversals) thereof by any government authority,
central bank or comparable agency shall make it unlawful or impossible for Bank
to honor its obligations under this Note, (i) Bank's obligation to make,
maintain or convert into a LIBOR-Based Rate shall be suspended; and (ii) the
applicable LIBOR-Based Rate shall immediately be converted to the Prime-Based
Rate for the remainder of the Interest Period.
INTEREST COMPUTATION. (ACTUAL/360). Interest shall be computed on the basis of a
360-day year for the actual number of days in the interest period ("Actual/360
Computation"). The Actual/360 Computation determines the annual effective
interest yield by taking the stated (nominal) interest rate for a year's period
and then dividing said rate by 360 to determine the daily periodic rate to be
applied for each day in the interest period. Application of the Actual/360
Computation produces an annualized effective interest rate exceeding that of the
nominal rate.
REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly
payments of accrued interest only commending on January 1, 1997, and on the same
day of each month thereafter until fully paid. In any event, all principal and
accrued interest shall be due and payable on December 1, 1997.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for application
toward payment of the Obligations shall be applied to accrued interest and then
to principal. If a Default occurs, monies may be applied to the Obligations in
any manner or order deemed appropriate by Bank.
25
<PAGE> 3
If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and
other Loan Documents refers to all documents executed in connection with the
loan evidenced by this Note and may include, without limitation, a commitment
letter that survives closing, a loan agreement, this Note, guaranty agreements,
security agreements, security instruments, financing statements, mortgage
instruments, letters of credit and any renewals or modifications, but however,
does not include swap agreements as defined in 11 U.S.C. Sec. 101 whenever
executed.
The term "Obligations" used in this Note refers to any and all indebtedness and
other obligations under this Note, all other obligations as defined in the
respective Loan Documents, and all obligations under any swap agreements as
defined in 11 U.S.C. Sec. 101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 4% of each payment past due for 15 or more days.
Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank's right to collect such late charge or to collect
a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office of Bank first shown above is located, the
late charge laws of the state where the real property is located shall apply to
this Note, or if permitted under the law of that state, 5% of each payment past
due for 10 or more days.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals', attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit, in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall by deemed reduced to, and shall be, such
maximum lawful interest, and (i) the amount which would be excessive interest
shall be deemed applied to the reduction of the principal balance of this Note
and not to the payment of interest, and (ii) if the loan evidenced by this Note
has been or is thereby paid in full, the excess shall be returned to the party
paying same, such application to the principal balance of this Note or the
refunding of excess to be a complete settlement and acquittance thereof.
BORROWER'S ACCOUNTS. Except as prohibited by law, Borrower grants Bank a
security interest in all of Borrower's accounts with Bank and any of its
affiliates.
DEFAULT. If any of the following occurs, a default ("Default") under this Note
shall exist: NONPAYMENT; NONPERFORMANCE. The failure of timely payment or
performance of the Obligations under this Note or any other Loan Documents.
FALSE WARRANTY. A warranty or representation made in the Loan Documents or
furnished Bank in connection with the loan evidenced by this Note proves
materially false, or if of a continuing nature, becomes materially false. CROSS
DEFAULT. At Bank's option, any default in payment or performance of any
obligation under any other loans,
26
<PAGE> 4
contracts or agreements of Borrower, any Subsidiary of Affiliate of Borrower,
any general partner of or the holder(s) of the majority ownership interests of
Borrower with Bank or its affiliates ("Affiliate" shall have the meaning as
defined in 11 U.S.C. Sec.101, except that the term "debtor" therein shall be
substituted by the term "Borrower" herein; "Subsidiary" shall mean any
corporation of which more than 50% of the issued and outstanding voting stock is
owned directly or indirectly by Borrower). CESSATION; BANKRUPTCY. The death of,
appointment of guardian for, dissolution of, termination of existence of, loss
of good standing status by, appointment of a receiver for, assignment for the
benefit of creditors of, or commencement of any bankruptcy or insolvency
proceeding by or against the Borrower, its Subsidiaries or Affiliates, if any,
or any general partner of or the holder(s) of the majority ownership interests
of Borrower, or any party to the Loan Documents. MATERIAL CAPITAL STRUCTURE OR
BUSINESS ALTERATION. Without prior written consent of Bank, (i) a material
alteration in the kind or type of Borrower's business or that of its
Subsidiaries or Affiliates, if any; (ii) the acquisition of substantially all of
Borrower's, any Subsidiary's, any Affiliate's, or guarantor's business or
assets, or a material portion (10% or more) of such business or assets if such a
sale is outside Borrower's, any Subsidiary's, any Affiliate's or any
guarantor's, ordinary course of business, or more than 50% of its outstanding
stock or voting power in a single transaction or a series of transactions; (iii)
the acquisition of substantially all of the business or assets or more than 50%
of the outstanding stock or voting power of any other entity; or (iv) should any
Borrower, Subsidiary, Affiliate, or guarantor enter into any merger or
consolidation.
REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan
Documents, Bank may at any time thereafter, take the following actions: BANK
LIEN AND SET-OFF. Exercise its right of set-off or to foreclose its security
interest or lien against any account of any nature or maturity of Borrower with
Bank without notice. ACCELERATION UPON DEFAULT. Accelerate the maturity of this
Note and all other Obligations, and all of the Obligations shall be immediately
due and payable. CUMULATIVE. Exercise any rights and remedies as provided under
the Note and other Loan Documents, or as provided by law or equity.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 90 days
after the close of each fiscal year, audited financial statements reflecting its
operations during such fiscal year, including, without limitation, a balance
sheet, income statement, cash flow analysis, profit and loss statement and
statement of cash flows, with supporting schedules; all on a consolidated and
consolidating basis and in reasonable detail, prepared in conformity with
generally accepted accounting principles, applied on a basis consistent with
that of the preceding year. All such statements shall be examined by an
independent certified public accountant acceptable to Bank. The opinion of such
independent certified public accountant shall not be acceptable to Bank if
qualified due to any limitations in scope imposed by Borrower or its
Subsidiaries, if any. Any other qualification of the opinion by the accountant
shall render the acceptability of the financial statements subject to Bank's
approval.
ANNUAL FINANCIAL STATEMENTS. Internet Services Corporation, Yager Enterprises,
Inc. and Yager Personal Development, Inc. shall deliver to Bank, within 90 days
after the close of each fiscal year, unaudited management-prepared financial
statements reflecting its operations during such fiscal year, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules; all on a consolidated and consolidating basis
and in reasonable detail, prepared in conformity with generally accepted
accounting principles, applied on a basis consistent with that of the preceding
year. If unaudited statements are required, such statements shall be certified
as to their correctness by a principal financial officer of Internet Services
Corporation, Yager Enterprises, Inc. and Yager Personal Development, Inc.
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and
other Loan Documents shall be valid unless in writing and signed by an officer
of Bank. No waiver by Bank of any Default shall operate as a waiver of any other
Default or the same Default on a future
27
<PAGE> 5
occasion. Neither the failure not any delay on the part of Bank in exercising
any right, power, or remedy under this Note and other Loan Documents shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy.
Each Borrower or any person liable under this Note waives presentment, protest,
notice of dishonor, demand for payment, notice of intention to accelerate
maturity, notice of acceleration of maturity, notice of sale and all other
notices of any kind. Further, each agrees that Bank may extend, modify or renew
this Note or make a novation of the loan evidenced by this Note for any period
and grant any releases, compromises or indulgences with respect to any
collateral securing this Note, or with respect to any Borrower or any person
liable under this Note or other Loan Documents, all without notice to or consent
of any Borrower or any person who may be liable under this Note or other Loan
Documents and without affecting the liability of Borrower or any person who may
be liable under this Note or other Loan Documents.
MISCELLANEOUS PROVISIONS. ASSIGNMENT. This Note and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Note and other Loan Documents are freely assignable, in whole
or in part, by Bank. Borrower shall not assign its rights and interest hereunder
without the prior written consent of Bank, and any attempt by Borrower to assign
without Bank's prior written consent is null and void. Any assignment shall not
release Borrower from the Obligations. APPLICABLE LAW; CONFLICT BETWEEN
DOCUMENTS. This Note and other Loan Documents shall be governed by and construed
under the laws of the state where Bank first shown above is located without
regard to that state's conflict of laws principles. If the terms of this Note
should conflict with the terms of the loan agreement or any commitment letter
that survives closing, the terms of this Note shall control. JURISDICTION.
Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state
in which the office Bank first shown above is located. SEVERABILITY. If any
provision of this Note or of the other Loan Documents shall be prohibited or
invalid under applicable law, such provision shall be ineffective but only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Note or other such
document. NOTICES. Any notices to Borrower shall be sufficiently given, if in
writing and mailed or delivered to the Borrower's address shown above or such
other address as provided hereunder, and to Bank, if in writing and mailed or
delivered to Bank's office address shown above or such other address as Bank may
specify in writing from time to time. In the event that Borrower changes
Borrower's address at any time prior to the date the Obligations are paid in
full, Borrower agrees to promptly give written notice of said change of address
by registered or certified mail, return receipt requested, all charges prepaid.
PLURAL; CAPTIONS. All references in the Loan Documents to Borrower, guarantor,
person, document or other nouns of reference mean both the singular and plural
form, as the case may be, and the term "person" shall mean any individual,
person or entity. The captions contained in the Loan Documents are inserted for
convenience only and shall not affect the meaning or interpretation of the Loan
Documents. BINDING CONTRACT. Borrower by execution of and Bank by acceptance of
this Note agree that each party is bound to all terms and provisions of this
Note. ADVANCES. Bank in its sole discretion may make other advances and
readvances under this Note pursuant hereto. POSTING OF PAYMENTS. All payments
received during normal banking hours after 2:00 p.m. local time at the office of
Bank first shown above shall be deemed received at the opening of the next
banking day. JOINT AND SEVERAL OBLIGATIONS. Each Borrower is jointly and
severally obligated under this Note. FEES AND TAXES. Borrower shall promptly pay
all documentary, intangible recordation and/or similar taxes on this transaction
whether assessed at closing or arising from time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Note and other Loan Documents
("Disputes") between or among parties to this Note shall be
28
<PAGE> 6
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from Loan Documents executed in the
future, or claims arising out of or connected with the transaction reflected by
this Note.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in the city in which the office of Bank first stated above is
located. The expedited procedures set forth in Rule 51 et seq. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000.00. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal, of the state where
the hearing will be conducted or if such person is not available to serve, the
single arbitrator may be a licensed attorney. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to swap
agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Borrower agree to preserve, without diminution,
certain remedies that any party hereto may employ or exercise freely,
independently or in connection with an arbitration proceeding or after an
arbitration action is brought. Bank and Borrower shall have the right to proceed
in any court of proper jurisdiction or by self-help to exercise or prosecute the
following remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security be exercising a power of sale granted
under Loan Documents or under applicable law or by judicial foreclosure and
sale, including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right or
claim to punitive or exemplary damages they have now or which may arise in the
future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
IN WITNESS WHEREOF, Borrower, on the day and year first written above, has
caused this Note to be executed under seal.
Yager/Kuester Public Fund Limited Partnership
Taxpayer Identification Number: 56-1560476
DRY Limited Partnership, General Partner
By: /S/ Dexter R. Yager, Sr. (SEAL)
------------------------------------------
Dexter R. Yager, Sr., General Partner
29
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITOR
We hereby consent to the incorporation by reference in the December 1, 1987
Prospectus (Registration No. 33-07056-A) of our report, dated February 5, 1997,
on the financial statements of Yager/Kuester Public Fund Limited Partnership,
which appears on page 6 of this annual report on Form 10-K for the year ended
December 31, 1996 and to the reference to our Firm under the caption "Experts"
in such Prospectus.
/s/ McGladrey & Pullen, LLP
Charlotte, North Carolina
March 31, 1997
30
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 103,036
<SECURITIES> 190,380
<RECEIVABLES> 91,224
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 386,840
<PP&E> 8,615,249
<DEPRECIATION> 1,244,020
<TOTAL-ASSETS> 7,864,107
<CURRENT-LIABILITIES> 1,251,770
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,864,107
<SALES> 0
<TOTAL-REVENUES> 1,167,711
<CGS> 0
<TOTAL-COSTS> 701,481
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 425,669
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,561
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
