SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
- --- 1934 (FEE REQUIRED)
For the fiscal period ended December 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-17526
EQUUS CAPITAL PARTNERS, L.P.
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(Exact name of registrant as specified in its charter)
DELAWARE 76-0264305
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2929 Allen Parkway, Suite 2500
HOUSTON, TEXAS 77019-2120
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (713) 529-0900
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERS' INTERESTS
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(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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information statement
incorporated by reference in Part III of this 10-K. [X]
As of December 31, 1999, 12,187 units ("Units") of limited partners' interests
in the Partnership were held by non-affiliates of the registrant. The net asset
value of a Unit at December 31, 1999 was $463.95. There is no established market
for such Units.
Documents incorporated by reference: None.
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TABLE OF CONTENTS
PART I PAGE
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Item 1. Business...................................................1
Item 2. Properties................................................10
Item 3. Legal Proceedings.........................................10
Item 4. Submission of Matters to a Vote of Security
Holders................................................10
PART II
Item 5. Market for the Registrant's Units
and Related Unitholder Matters.........................10
Item 6. Selected Financial Data...................................11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................12
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.14
Item 8. Financial Statements and Supplementary
Data...................................................16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................31
PART III
Item 10. Directors and Executive Officers of
the Registrant.........................................31
Item 11. Executive Compensation....................................35
Item 12. Security Ownership of Certain
Beneficial Owners and Management.......................37
Item 13. Certain Relationships and Related
Transactions...........................................38
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K................................39
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ITEM 1 BUSINESS.
Equus Capital Partners, L.P. (the "Partnership") is a limited partnership
organized under Delaware law on December 1, 1988, and elected to be a business
development company under the Investment Company Act of 1940 (the "Investment
Company Act"). The Partnership's total contributed capital was $12,435,691,
consisting of $12,307,375 for 12,310 Units from 1,428 limited partners, $125,316
from the Managing Partner and $3,000 from the Independent General Partners. The
investment objective of the Partnership is to achieve current income and capital
appreciation principally by making investments in "mezzanine" securities,
consisting primarily of subordinated debt or preferred stock combined with
equity participations in common stock or rights to acquire common stock, and
subsequently disposing of such investments. The Partnership Agreement provides
for termination of the Partnership on December 31, 1999, subject to the right of
the Independent General Partners to extend the term for up to four additional
years if they determine it is in the best interest of the Partnership. At a
meeting in November 1999, the Independent General Partners extended the
termination date for one year to December 31, 2000.
Equus Capital Corporation, a Delaware corporation (the "Managing
Partner"), is the managing general partner of the Partnership and is responsible
for approving the Partnership's investments, arranging additional financing for
companies in which the Partnership invests ("Portfolio Companies") and providing
management assistance to Portfolio Companies.
Two independent individuals (the "Independent General Partners") also
serve as general partners of the Partnership. The Independent General Partners
are responsible for providing overall guidance and supervision of the
Partnership, approving the Partnership's investments and performing various
duties imposed on disinterested directors of a business development company by
the Investment Company Act. Among other things, the Independent General Partners
supervise the management arrangements for the Partnership, the custody
arrangements with respect to portfolio securities, the selection of independent
accountants, fidelity bonding and any transactions with affiliates.
The Partnership has engaged Equus Capital Management Corporation, a
Delaware corporation (the "Management Company"), to provide certain management
and administrative services to the Partnership. Subject to the supervision of
the Independent General Partners, the Management Company performs, or arranges
for third parties to perform, the management, certain investment advisory and
other services necessary for the operation of the Partnership. The Management
Company identifies, evaluates, structures, monitors and arranges for the
disposition of the Partnership's investments, and provides managerial assistance
to the Portfolio Companies. The Management Company manages the Partnership's
cash and short-term, interest-bearing investments. The Management Company also
provides the Partnership, at the Management Company's expense, with the office
space, facilities, equipment and personnel (whose salaries and benefits are paid
by the Management Company) necessary to enable the Partnership to conduct its
business.
The Managing Partner and the Management Company are sometimes referred to
herein collectively as "Management."
The Partnership's office is located at 2929 Allen Parkway, Suite 2500,
Houston, Texas 77019-2120, and its telephone number is (713) 529-0900.
The Partnership has no employees.
GENERAL
The investment objective of the Partnership is to achieve current income
and capital appreciation principally by making investments in "mezzanine"
securities, consisting primarily of subordinated debt or
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preferred stock combined with equity participations in common stock or rights to
acquire common stock, and subsequently disposing of such investments. Such
investments are collectively referred to herein as "Enhanced Yield Investments."
The Partnership completed its initial investment program in 1993, and has made
and may only make follow-on investments in existing portfolio companies after
such date.
COINVESTMENTS
The Partnership has coinvested in certain Enhanced Yield Investments with
Equus II Incorporated, a Delaware corporation ("EQS"). The Partnership and
Management obtained an order from the Securities and Exchange Commission (the
"SEC") exempting the Partnership from certain prohibitions contained in the
Investment Company Act relating to coinvestments by the Partnership and EQS.
Under the terms of the order, Enhanced Yield Investments purchased by the
Partnership and EQS were required to meet certain guidelines or be approved in
advance by the Managing Partner and the Independent General Partners and were
required to satisfy certain conditions established by the SEC.
TEMPORARY INVESTMENTS
Pending investment in Enhanced Yield Investments or distribution to
partners, the Partnership invests its available funds in interest-bearing bank
accounts, money market mutual funds, U.S. Treasury securities and/or
certificates of deposit with maturities of less than one year (collectively,
"Temporary Investments"). Temporary Investments also include commercial paper
(rated or unrated) and other short-term securities. Temporary Investments
constituting cash, cash items, securities issued or guaranteed by the U.S.
Treasury or U.S. Government agencies and high quality debt securities
(commercial paper rated in the two highest rating categories by Moody's Investor
Services, Inc. or Standard & Poor's Corporation, or if not rated, issued by a
company having an outstanding debt issue so rated) with maturities of less than
one year at the time of investment will qualify for determining whether the
Partnership has 70% of its total assets invested in Managed Companies (as
hereafter defined) or in qualified Temporary Investments for purposes of the
business development company provisions of the Investment Company Act. See
"Regulation" below.
The Partnership's Enhanced Yield Investments generally are unrated
securities. Such securities would, however, if rated, typically be classified as
speculative securities that generally would be of the type rated BB/Ba to
CCC/Caa.
CURRENT PORTFOLIO COMPANIES
The following is a description of the Partnership's investments as of
December 31, 1999:
ARTEGRAFT, INC.
Artegraft, Inc. ("Artegraft"), Morristown, New Jersey, manufactures and
distributes a specialty surgical product line consisting of bovine vascular
prostheses used in hemodialysis and other healthcare procedures. At December 31,
1999, the Partnership's investment in Artegraft, valued at $850,200, with a cost
of $850,250, consisted of $147,700 in a 12% junior term promissory note,
$702,500 in a 7% demand promissory note, and warrants to buy up to 1,000 and
4,000 shares of common stock for $0.01 and $17.50 per share, respectively. The
Partnership's investment represents a 24% fully-diluted equity interest in
Artegraft. Tracy H. Cohen, a Vice President of the Managing Partner and
Management Company, serves as a director of Artegraft.
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DRYPERS CORPORATION (NASDAQ: DYPR)
Drypers Corporation ("Drypers"), Houston, Texas, manufactures and markets
disposable baby diapers and other consumer products under the trade name
Drypers(R) and under various store label brands. Drypers is believed to be the
third leading branded diaper manufacturer in the United States, and has
manufacturing facilities in Marion, Ohio; Vancouver, Washington; Buenos Aires,
Argentina; Guadalajara, Mexico; Sao Paulo, Brazil; Puerto Rico and Malaysia. The
December 31, 1999 closing price of Drypers' common stock on the NASDAQ National
Market was $2.4062 per share. At December 31, 1999, the Partnership's investment
in Drypers, valued at $528,864 with a cost of $1,314,413, consisted of 226,590
shares of common stock. The stock was valued at a discounted average price of
$2.334 per share due to restrictions on the Partnership's ability to sell such
stock. This discount results in an aggregate reduction in value from the market
price on such date of $16,357. The Partnership's investment represents an
approximate 1% fully-diluted equity interest in Drypers. Nolan Lehmann, the
President of the Managing Partner and Management Company, and Gary L. Forbes, a
Vice President of the Managing Partner and Management Company serve as directors
of Drypers.
MAXTECH HOLDINGS, INC.
MaxTech Holdings, Inc. ("MaxTech"), Dallas, Texas, provides environmental
and engineering consulting services and has approximately 45 offices throughout
the United States. At December 31, 1999, the Partnership's investment in
MaxTech, valued at $3,200,000 with a cost of $1,515,781, consisted of 59,875
shares of common stock and 2,200,000 shares of 10% cumulative convertible
preferred stock. The Partnership's investment represents an approximate 33%
fully-diluted equity interest in MaxTech. Mr. Forbes serves on the Board of
Directors of MaxTech.
PARACELSUS HEALTHCARE CORPORATION (NYSE: PLS)
Paracelsus Healthcare Corporation ("PLS"), Houston, Texas, owns or
operates, directly or through hospital partnerships, ten acute-care hospitals in
six states. The December 31, 1999 closing price of PLS's common stock on the New
York Stock Exchange was $0.4375 per share. At December 31, 1999, the
Partnership's investment in PLS, valued at $229,367 with a cost of $1,181,124,
consisted of 540,481 shares of common stock. The common stock of PLS was valued
at a discounted average price of $0.4249 per share due to restrictions on the
Partnership's ability to sell such stock. The discount results in an aggregate
reduction in value from the market price on such date of approximately $7,094.
The Partnership's investment in PLS represents less than 1% of the fully-diluted
equity interest in PLS. Mr. Lehmann serves on PLS's Board of Directors.
PREVIOUSLY OWNED PORTFOLIO COMPANIES
AUTOCORP, INC. ("AUTOCORP")
In 1991, the Partnership advanced $1,650,000 to AutoCorp in exchange for
$1,050,000 in subordinated 12.5% term notes and a $600,000, 12.5% subordinated
convertible promissory note. AutoCorp, doing business as Pettigrew-Smith Auto
Supply, was a retail distributor of auto parts and supplies in Houston, Texas.
During 1992, the Partnership was repaid its principal and interest on its
investment in AutoCorp.
CMC HOLDINGS, INC. ("CMC")
In November 1992, the Partnership made its initial investment in CMC
Holdings, Inc. which was formed to acquire Cliff's Restaurants, a chain of
upscale hamburger restaurants in Houston, Texas. Through December 31, 1995, the
Partnership had invested $2,488,000 in CMC. On December 22, 1995,
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the Partnership contributed $1,174,500 of its notes receivable from CMC to E-B
Holdings, Inc. The balance of its investment was written off in December 1995,
resulting in a realized capital loss of $1,313,500.
E-B HOLDINGS, INC.
E-B Holdings, Inc. ("E-B"), Houston, Texas, owned interests in two
restaurants in the Houston area. The Partnership's investment in E-B, with a
cost of $580,293, consisted of 12% promissory notes valued at $290,000. In
December 1999, the Partnership sold its investment for $290,000, net of
expenses, realizing a capital loss of $290,293.
GARDEN RIDGE CORPORATION (NASDAQ: GRDG)
Garden Ridge Corporation ("GRDG"), Houston, Texas, is a specialty retailer
of crafts and home decorative items. GRDG operates 33 megastores in 12 states
and is continuing its expansion into other areas of the United States. The
Partnership sold portions of its investment in 1995 and 1996, resulting in
capital gains of $1,768,176. In 1999, the Partnership sold its remaining shares,
resulting in capital gains of $653,472.
INDEPENDENT GAS COMPANY HOLDINGS, INC.
Independent Gas Company Holdings, Inc. ("IGC"), Canute, Oklahoma, acquires
and manages established propane gas distributors, primarily serving rural Texas
and Oklahoma markets. The Partnership's investment in IGC, with an original cost
of $1,519,977, consisted of 16,267 shares of common stock, 1,281 shares of 9%
Series A preferred stock and 215 shares of Series C preferred stock. On
September 14, 1998, the Partnership sold its investment in IGC for $4,051,340,
realizing a capital gain of $2,531,363.
INDUSTRIAL EQUIPMENT RENTALS, INC.
Industrial Equipment Rentals, Inc. ("IER"), Houma, Louisiana, rents
industrial equipment from locations in Texas, Louisiana, Alabama and
Mississippi, primarily to refineries, petrochemical plants and oil and gas
operations along the Gulf Coast corridor. The Partnership's investment in IER,
with a cost of $808,300, consisted of 91,115 shares of common stock, 2,685
shares of 6% cumulative junior preferred stock and $538,889 in a 12%
subordinated debenture. On August 1, 1997, the Partnership sold its investment
in IER for $2,493,791 realizing a capital gain of $1,685,491. In addition,
during 1998, the Partnership received an additional $210,049 in proceeds from
the sale, which had been previously deposited into an escrow account, and
recognized the amount as a realized capital gain.
MEDIFIT OF AMERICA, INC.
Medifit of America, Inc. ("Medifit"), Teaneck, New Jersey, provided
comprehensive outpatient rehabilitation services from over 15 facilities in six
states. Medifit sold the majority of its assets. The Partnership's investment in
Medifit had a cost of $1,000,163, and consisted of 190,476 shares of Series D
preferred stock and warrants to buy 9,054 and 76,379 shares of common stock for
$3.75 and $0.01 per share, respectively. On December 21, 1997, the Partnership
sold its investment in Medifit for $10, realizing a capital loss of $1,000,153.
TENNIS CARDS, INC. ("TCI")
During August 1992, the Partnership advanced $150,000 to TCI in exchange
for a 10% subordinated promissory note. In addition, the Partnership received
warrants to buy up to 63 shares of
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common stock of TCI for $1,000 per share through August 24, 1997. Tennis Cards,
Inc. had an exclusive license to print and market trading cards featuring
selected professional tennis players. On December 29, 1993, the Partnership
foreclosed on certain assets of TCI and realized a net capital loss of $150,000.
ONGOING MANAGEMENT SUPPORT
Successful Enhanced Yield Investments typically require active monitoring
of, and significant participation in, major business decisions of Portfolio
Companies. In many cases, representatives of Management serve as members of the
board of directors of Portfolio Companies. Such management assistance is
required of a business development company and is intended to enable the
Partnership to provide guidance and management assistance with respect to such
matters as capital structure, budgets, profit goals, diversification strategy,
financing requirements, management additions or replacements and development of
a public market for the securities of the Portfolio Company. In connection with
their service as directors of Portfolio Companies, officers and directors of
Management may receive and retain directors' fees or reimbursement for expenses
incurred. When necessary, Management, on behalf of the Partnership, may also
assign staff professionals with financial or management expertise to assist
Portfolio Company management on specific problems.
FOLLOW-ON INVESTMENTS
Following its initial investment in a Portfolio Company, the Partnership
may be requested to make additional or follow-on investments ("Follow-on
Investments") in the Portfolio Company. Follow-on Investments may be made to
take advantage of warrants or other preferential rights granted to the
Partnership or otherwise to increase the Partnership's position in a successful
or promising Portfolio Company. The Partnership may also be called upon to
provide additional equity or mezzanine financing needed by a Portfolio Company
to fully implement its business plans, to develop a new line of business or to
recover from unexpected business problems. The Partnership may borrow an amount
up to 20% of its partners' capital to make Follow-on Investments in Portfolio
Companies. In addition, the Partnership may reinvest cash receipts and proceeds
from the disposition of Enhanced Yield Investments in Follow-on Investments.
DISPOSITION OF INVESTMENTS
The Managing Partner is responsible (subject to the supervision of the
Independent General Partners) for the decision and, together with the Management
Company, the actions to dispose of an Enhanced Yield Investment. In structuring
investments, the Partnership endeavors to reach appropriate agreements or
understandings with a prospective Portfolio Company with respect to the method
and timing of the disposition of the Partnership's investment and, if
appropriate, will seek to obtain registration rights at the expense of the
Portfolio Company. The Partnership bears the costs of disposing of an investment
to the extent not paid by the Portfolio Company.
Under certain circumstances the Partnership may distribute marketable
portfolio securities in kind to limited partners. Sales of such securities by
limited partners may be subject to legal or practical restrictions and may also
entail certain expenses.
VALUATION
The Managing Partner performs a valuation of the assets and portfolio
investments held by the Partnership on a quarterly basis, subject to the
approval of the Independent General Partners. Valuations of portfolio securities
are performed in accordance with generally accepted accounting principles and
the financial reporting policies of the SEC. The applicable methods prescribed
by such principles and policies are described below.
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The fair value of investments for which no market exists (including most
Enhanced Yield Investments) is determined on the basis of procedures established
in good faith by the Managing Partner and approved quarterly by the Independent
General Partners. As a general principle, the current fair value of an
investment being valued by the General Partners is the amount which the
Partnership might reasonably expect to receive for it upon its current sale.
There is a range of values that is reasonable for such investments at any
particular time. Generally, cost is the primary factor used to determine fair
value until significant developments affecting the Portfolio Company (such as
results of operations or changes in general market conditions) provide a basis
for use of an appraisal valuation.
Appraisal valuations are based upon such factors as the Portfolio
Company's earnings, cash flow and net worth, the market prices for similar
securities of comparable companies and an assessment of the company's future
financial prospects. In the case of unsuccessful operations, the appraisal may
be based upon liquidation value. Appraisal valuations are necessarily
subjective.
The Partnership may also use, when available, third-party transactions in
a Portfolio Company's securities as the basis of valuation (the "private market
method"). The private market method will be used only with respect to completed
transactions or firm offers made by sophisticated, independent investors.
Securities with legal, contractual or practical restrictions on transfer may be
valued at a discount from their value determined by the foregoing methods to
reflect such restrictions.
Partnership investments for which market quotations are readily available
and which are freely transferable will be valued as follows: (i) securities
traded on a securities exchange or the NASDAQ National Market System are valued
at the closing price on the date of valuation and (ii) securities traded in the
over-the-counter market are valued at the average of the closing bid and asked
prices on the date of valuation. For securities which are in a class of public
securities but are restricted from free trading (such as Rule 144 stock),
valuation will be set by discounting the closing sales or bid price to reflect
the estimated illiquidity caused by such restrictions. The fair values of debt
securities, which are generally held to maturity, are determined on the basis of
the terms of the debt securities and the financial condition of the issuer.
Certificates of deposit purchased by the Partnership generally will be valued at
their face value, plus interest accrued to the date of valuation.
The Independent General Partners review the valuation policies on a
quarterly basis to determine their appropriateness and may also hire independent
firms to review the Managing Partner's methodology of valuation or to conduct an
independent valuation.
PARTNERSHIP BORROWINGS - RISKS OF LEVERAGE
On February 16, 1994, the General Partners approved an investment policy
allowing the Partnership to borrow an amount up to 20% of its partners' capital
for Follow-on Investments. The Partnership is permitted under the Investment
Company Act to borrow funds if, immediately after the borrowing, it will have an
asset coverage (as defined in the Investment Company Act) of at least 200%. The
amount and nature of any Partnership borrowing will depend upon a number of
factors over which neither the Independent General Partners, the Management
Company, nor the Managing Partner has control, including general economic
conditions, conditions in the financial markets and the impact of the financing
on the tax treatment of the limited partners.
As a result of borrowing money, the Partnership may be exposed to the
risks of leverage, which may be considered a speculative investment technique.
The use of leverage, even on a short-term basis, could have the effect of
magnifying increases or decreases in the Partnership's net asset value. While
the "spread" between the current yield on the Partnership's investments and the
cost of any loan would augment the partners' return from the Partnership, if the
spread narrows (because of an increase in the cost
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of debt or insufficient income on the Partnership's investments), distributions
to the partners would be adversely affected. If the spread were reversed, the
Partnership might be unable to meet its obligations to its lenders, which might
then seek to cause the Partnership to liquidate some or all of its investments.
There can be no assurance that the Partnership would realize full value for its
investments or recoup all of its capital if its portfolio investments were
involuntarily liquidated.
The costs of borrowing money may exceed the income from the portfolio
securities purchased by the Partnership with the borrowed money. The Partnership
will suffer a decline in net asset value if the investment performance of the
additional securities purchased with borrowed money fails to cover their cost to
the Partnership (including any interest paid on the money borrowed). A decline
in net asset value could affect the ability of the Partnership to make
distributions to partners. If the asset coverage for debt securities issued by
the Partnership declines to less than 200 percent (as a result of market
fluctuations or otherwise), the Partnership may be required to sell a portion of
its investments when it may be disadvantageous to do so.
The Partnership has a line of credit in the amount of $250,000 with Bank
of America, N.A. at December 31, 1999. There was no balance outstanding on such
line at December 31, 1999. The Partnership did not borrow any funds in 1997 or
1998.
OPERATING EXPENSES
The Management Company, at its expense, provides the Partnership with
office space, facilities, equipment and personnel (whose salaries and benefits
are paid by the Management Company) necessary for the conduct of the
Partnership's business and pays all costs related to proposed acquisitions of
portfolio securities that are not completed, unless such proposed acquisitions
have been previously approved by the Independent General Partners.
The Partnership pays certain expenses relating to its operations,
including: the Management Fee; the Management Company Incentive Fee; and the
Fund Administration Fee (all as defined under "Management Agreement"); fees and
expenses of the Independent General Partners; finder's fees; direct costs of
proposed investments in Portfolio Companies, whether or not completed, if such
proposed investments have been approved for acquisition by the Independent
General Partners; fees of unaffiliated transfer agents, registrars and
disbursing agents; portfolio transaction expenses; interest, legal and
accounting expenses; costs of printing and mailing proxy materials and reports
to limited partners; custodian fees; taxes; litigation costs; costs of disposing
of investments including brokerage fees and commissions; and other extraordinary
or nonrecurring expenses properly payable by the Partnership.
CUSTODIAN
The Partnership acts as the custodian of its securities to the extent
permitted under the Investment Company Act and is subject to the restrictions
imposed on self-custodians by the Investment Company Act and the rules and
regulations thereunder. The Partnership has entered into an agreement with
Southwest Guaranty Trust Company, Houston, Texas, with respect to the
safekeeping of such securities. The principal business office of such trust
company is 2121 Sage Road, Suite 150, Houston, Texas 77056.
TRANSFER AND DISBURSING AGENT
The Management Company acts as the transfer agent and disbursing agent for
the Partnership. The Management Company is paid for such services on terms
approved by the Independent General Partners as being no less favorable to the
Partnership than those obtainable from unaffiliated parties.
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RISK FACTORS
An investment in Units of limited partnership interest in the Partnership
involves a number of risks due to the nature of the Partnership's investment
portfolio. Investments in mezzanine securities involve a high degree of business
and financial risk and can result in substantial losses. In the event that a
Portfolio Company cannot generate adequate cash flow to meet its debt service,
the Partnership's investment could be reduced or eliminated through foreclosure
on the Portfolio Company's assets or the Portfolio Company's reorganization or
bankruptcy. The Enhanced Yield Investments acquired by the Partnership may
require four to seven years to reach maturity and generally are illiquid. This
lack of liquidity may preclude or delay any disposition of such investments, or
reduce proceeds that might otherwise be realized from any such dispositions.
After its initial investment in a Portfolio Company, the Partnership may be
called upon from time to time to provide additional funds to such company. There
can be no assurance that the Partnership will have sufficient funds, or be
willing, to make such investments. The Partnership's inability or unwillingness
to make a Follow-on Investment could adversely affect an investment in a
Portfolio Company. The Partnership is a "non-diversified" company as defined in
the Investment Company Act. The Partnership is not limited in the proportion of
its assets that may be invested in securities of a single issuer, and,
accordingly, an investment in the Partnership may, under certain circumstances,
present greater risk to an investor than an investment in a diversified company.
Also see "Partnership Borrowings."
Valuation of Investments - Enhanced Yield Investments are carried at fair
value with the net change in unrealized appreciation or depreciation included in
the determination of partners' capital. Investments in companies whose
securities are publicly-traded are valued at their quoted market price, less a
discount to reflect the estimated effects of restrictions on the sale of such
securities, if applicable. Cost is used to approximate fair value until
significant developments affecting an Enhanced Yield Investment provide a basis
for use of an appraisal valuation. Thereafter, Enhanced Yield Investments are
carried at appraised values as determined quarterly by the Managing Partner,
subject to the approval of the Independent General Partners. The fair values of
debt securities, which are generally held to maturity, are determined on the
basis of the terms of the debt securities and the financial condition of the
issuer. Because of the inherent uncertainty of the valuation of Enhanced Yield
Investments which do not have readily ascertainable market values, the Managing
Partner's estimate of fair value may significantly differ from the fair value
that would have been used had a ready market existed for such investments. See
"Valuation".
REGULATION
The Partnership has elected to be treated as a business development
company under the Investment Company Act in order to provide for incentive
compensation to the Management Company and the Managing Partner based on the
capital appreciation of the Partnership's investments. The Partnership may not
withdraw its election to be treated as a business development company without
first obtaining the approval of a majority in interest of its limited partners.
The following brief description of the Investment Company Act is qualified
in its entirety by reference to the full text of the Investment Company Act and
the rules thereunder.
A business development company must be operated for the purpose of
investing in the securities of certain present and former "eligible portfolio
companies" or certain bankrupt or insolvent companies and must make available
significant managerial assistance to portfolio companies. An eligible portfolio
company generally is a company that (i) is organized under the laws of, and has
its principal place of business in, any state or states, (ii) is not an
investment company and (iii)(a) does not have a class of securities registered
on an exchange or included in the Federal Reserve Board's over-the-counter
margin list, (b) is actively controlled by the business development company
acting either alone or as part of a group acting together and an affiliate of
the business development company is a member of the portfolio
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company's board of directors or (c) meets such other criteria as may be
established by the SEC. Control is presumed to exist where the business
development company owns more than 25% of the outstanding voting securities of a
portfolio company.
"Making available significant managerial assistance" is defined under the
Investment Company Act to mean (i) any arrangement whereby a business
development company, through its directors, officers, employees or general
partners, offers to provide and, if accepted, does provide significant guidance
and counsel concerning the management, operations or business objectives or
policies of a portfolio company or (ii) the exercise of a controlling influence
over the management or policies of a portfolio company by the business
development company acting individually or as part of a group of which the
business development company is a member acting together which controls such
company. A business development company may satisfy the requirements of clause
(i) with respect to a portfolio company by purchasing securities of such a
company as part of a group of investors acting together if one person in such
group provides the type of assistance described in such clause. However, the
business development company will not satisfy the general requirement of making
available significant managerial assistance if it only provides such assistance
indirectly through an investor group. A business development company need only
extend significant managerial assistance with respect to portfolio companies
which are treated as Qualifying Assets (as defined below) for the purpose of
satisfying the 70% test discussed below.
The Investment Company Act prohibits or restricts the Partnership from
investing in certain types of companies, such as brokerage firms, insurance
companies, investment banking firms and investment companies. Moreover, the
Investment Company Act limits the type of assets that the Partnership may
acquire to "Qualifying Assets" and certain assets necessary for its operations
(such as office furniture, equipment and facilities) if, at the time of the
acquisition, less than 70% of the value of the Partnership's total assets
consists of qualifying assets. Qualifying Assets include (i) securities of
companies that were eligible portfolio companies at the time that the
Partnership acquired their securities; (ii) securities of companies that are
actively controlled by the Partnership; (iii) securities of bankrupt or
insolvent companies that are not otherwise eligible portfolio companies; (iv)
securities acquired as Follow-on Investments in companies that were eligible
portfolio companies at the time of the Partnership's initial acquisition of
their securities but are no longer eligible portfolio companies, provided that
the Partnership has maintained a substantial portion of its initial investment
in such companies; (v) securities received in exchange for or distributed on or
with respect to any of the foregoing; and (vi) cash items, government securities
and high-quality, short-term debt. The Investment Company Act also places
restrictions on the nature of the transactions in which, and the persons from
whom, securities can be purchased in order for such securities to be considered
Qualifying Assets. As a general matter, Qualifying Assets may only be purchased
from the issuer or an affiliate in a transaction not constituting a public
offering. The Partnership may not purchase any security on margin, except such
short-term credits as are necessary for the clearance of portfolio transactions,
or engage in short sales of securities.
The Partnership is permitted by the Investment Company Act, under
specified conditions, to issue multiple classes of senior debt and a single
class of limited partners' interests senior to the Units if its asset coverage,
as defined in the Investment Company Act, is at least 200% after the issuance of
the debt or the senior limited partners' interests. In addition, provision must
be made to prohibit any distribution to limited partners for the repurchase of
any Unit unless the asset coverage ratio is at least 200% at the time of the
distribution or repurchase.
Many of the transactions involving the Partnership and its affiliates (as
well as affiliates of such affiliates) require the prior approval of a majority
of the Independent General Partners and a majority of the Independent General
Partners having no financial interest in the transactions. However, certain
transactions involving closely affiliated persons of the Partnership, including
its General Partners and the Management Company, require the prior approval of
the SEC. In general (a) any person who owns, controls or holds with power to
vote more than 5% of the outstanding Units, (b) any director, executive
9
<PAGE>
officer or general partner of such person and (c) any person who directly or
indirectly controls, is controlled by or is under common control with such
person, must obtain the prior approval of a majority of the Independent General
Partners and, in some situations, the prior approval of the SEC, before engaging
in certain transactions involving the Partnership or any company controlled by
the Partnership. In accordance with the Investment Company Act, a majority of
the General Partners must be persons who are not "interested persons" as defined
in such act. Except for certain transactions which must be approved by the
Independent General Partners, the Investment Company Act generally does not
restrict transactions between the Partnership and its portfolio companies.
ITEM 2. PROPERTIES.
The Partnership does not have an interest in any physical properties.
ITEM 3. LEGAL PROCEEDINGS.
The Partnership is not involved in any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS.
There is no established public trading market for the Partnership's Units.
The Partnership had 1,341 limited partners at December 31, 1999. No cash
distributions were made in 1999, but the Independent General Partners authorized
a distribution of $50 per Unit, or $615,500, at a meeting on February 1, 2000,
to be paid on or before March 31, 2000. The Partnership made cash distributions
of $3,693,000 and $2,462,000 to limited partners during 1998 and 1997,
respectively. The amounts distributed to limited partners were $300 and $200 per
Unit in 1998 and 1997, respectively.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
Following is a summary of selected financial data of the Partnership for
the five years ended December 31, 1999.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment income ..................... $ 120,554 $ 62,301 $ 296,812 $ 172,416 $ 340,077
Net investment loss ................... $ (88,420) $ (191,167) $ (45,796) $ (198,486) $ (131,580)
Realized gain (loss) on sales
of enhanced yield investments, net .. $ 363,179 $ 2,741,412 $ 839 $ 1,041,510 $ (586,826)
Increase (decrease) in
unrealized appreciation
of enhanced yield investments, net .. $ (76,503) $ (2,457,625) $ 1,754,670 $ (3,607,120) $ 3,173,151
Net increase (decrease) in
partners' capital from
operations .......................... $ 198,256 $ 92,620 $ 1,709,713 $ (2,764,096) $ 2,454,745
Distributions to partners ............. $ -- $ 3,731,359 $ 2,487,572 $ 310,947 $ --
Total assets .......................... $ 5,850,232 $ 5,645,576 $ 9,280,649 $ 10,054,874 $ 13,572,950
Partners' capital, end of year ........ $ 5,793,432 $ 5,595,176 $ 9,233,915 $ 10,011,774 $ 13,086,817
Cost of enhanced yield
investments made during year ....... $ 702,500 $ -- $ 5,413 $ 100,236 $ 561,044
Net cash used by
operating activities ................ $ (141,049) $ (128,119) $ (29,230) $ (254,581) $ (222,266)
Per Unit of limited partners' interest:
Net investment loss ................... $ (7.11) $ (15.37) $ (3.68) $ (15.96) $ (10.58)
Realized gain (loss) on
sales of enhanced
yield investments, net ............. $ 29.20 $ 220.41 $ 0.07 $ 83.74 $ (47.18)
Increase (decrease) in
unrealized appreciation
of enhanced yield
investments, net ................... $ (6.15) $ (197.59) $ 141.07 $ (290.01) $ 255.12
Distributions to partners ............. $ -- $ 300.00 $ 200.00 $ 25.00 $ --
Partners' capital, end of year ........ $ 463.95 $ 448.01 $ 740.56 $ 803.10 $ 1,050.33
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's total contributed capital was $12,435,691, consisting of
$12,307,375 (net of $2,625 in selling commission discounts on sales to
affiliates) for 12,310 units of limited partners' interests ("Units") from 1,428
limited partners, $125,316 from the Managing Partner and $3,000 from the
Independent General Partners. Net proceeds to the Partnership, after payment of
selling commissions and wholesale marketing assistance fees of $1,228,375 and
payment of $615,500 as reimbursement of offering costs, were $10,591,816.
At December 31, 1999, the Partnership had $4,861,568 (at cost) invested in
Enhanced Yield Investments of four companies.
At December 31, 1999, the Partnership had $683,472 in cash and temporary
cash investments. In order to allow Follow-on Investments in Enhanced Yield
Investments when such opportunities arise, the Partnership may utilize proceeds
from existing Enhanced Yield Investments or may borrow on its $250,000 line of
credit at a bank. Management believes that temporary cash investments and
proceeds from existing Enhanced Yield Investments provide the Partnership with
the liquidity necessary to pay operating expenses of the Partnership as well as
make certain Follow-on Investments.
Net investment income and the proceeds from the sale of Enhanced Yield
Investments are distributed to the extent such amounts are not reserved for
payment of expenses and contingencies or used to make Follow-on Investments in
existing Enhanced Yield Investments.
RESULTS OF OPERATIONS
INVESTMENT LOSS AND EXPENSES
Net investment loss after all expenses amounted to $88,420, $191,167 and
$45,796 for the years ended December 31, 1999, 1998 and 1997, respectively.
Interest income from temporary cash investments was $8,631, $18,127 and $22,062
for the years ended December 31, 1999, 1998 and 1997, respectively. The higher
amounts in 1998 and 1997 as compared to 1999 were due to the higher average
balance of temporary cash investments resulting from proceeds received by the
Partnership in 1998 and 1997 from the sale of Enhanced Yield Investments. The
Partnership earned $111,923, $44,174 and $274,750 in income from Enhanced Yield
Investments during the years ended December 31, 1999, 1998 and 1997,
respectively. The higher balance in 1997 as compared to 1999 and 1998 was
primarily due to one Portfolio Company which paid dividends of $161,132 on
preferred stock held by the Partnership in 1997 but did not declare or pay
dividends in 1999 or 1998, and interest income of $37,722 that the Partnership
had earned in 1997 from an Enhanced Yield Investment which was sold in 1998. The
increase in 1999 as compared to 1998 was primarily due to income associated with
$702,500 invested in a promissory note during 1999.
The Management Company receives a management fee equal to 2.5% of the
Available Capital, as defined. Such fee amounted to $83,677, $108,210 and
$177,669 for the years ended December 31, 1999, 1998 and 1997, respectively. The
steady decrease in management fees is due to the decrease in Available Capital
for each respective year. The Management Company is also allocated an incentive
fee equal to 10% of the Partnership's cumulative distributions from Enhanced
Yield Investments (excluding returns of capital) over the life of the
Partnership, subject to payment of a priority return to the limited partners.
The cumulative accrued priority return amounted to $3,651,398 and $3,003,962 at
December 31, 1999 and 1998, respectively. Based on current valuations of
Enhanced Yield Investments, the Management Company would not receive any
incentive fee upon the sale of the Partnership's investments. Management fees
and other expenses incurred directly by the Partnership are paid with funds
provided from operations.
12
<PAGE>
REALIZED GAIN OR LOSS ON ENHANCED YIELD INVESTMENTS
During 1999, the Partnership realized a net capital gain of $363,179. In
December 1999, the Partnership realized a capital gain of $653,472 from the sale
of 57,376 shares of Garden Ridge Corporation ("GRDG") common stock for $659,847.
In addition, the Partnership sold its investment in E-B Holdings, Inc. for
$290,000, realizing a capital loss of $290,293.
During 1998, the Partnership realized a net capital gain of $2,741,412. On
September 14, 1998, the Partnership sold its investment in Independent Gas
Company Holdings, Inc. for $4,051,340, realizing a capital gain of $2,531,363.
In addition, the Partnership realized a capital gain in 1998 due to the receipt
of additional compensation of $210,049 related to the 1997 sale of the Enhanced
Yield Investment in Industrial Equipment Rentals, Inc.
During 1997, the Partnership realized a net capital gain of $839. On
August 1, 1997, the Partnership sold its investment in Industrial Equipment
Rentals, Inc. for $2,493,791 realizing a capital gain of $1,685,491. On December
21, 1997, the Partnership sold its investment in Medifit of America, Inc. for
$10 realizing a capital loss of $1,000,153. In December 1997, the Partnership
realized a capital loss of $684,500 from the write off of its investment in
common stock of E-B Holdings, Inc.
UNREALIZED GAINS ON ENHANCED YIELD INVESTMENTS
Unrealized appreciation of Enhanced Yield Investments decreased by $76,503
during the year ended December 31, 1999. Such decrease resulted from the
increase of $1,000,000 in the estimated fair value of Enhanced Yield Investments
of one company, the decrease in the estimated fair value of Enhanced Yield
Investments of three companies of $718,479 and the transfer of $358,024 from net
unrealized appreciation to net realized gains from the sale of two Enhanced
Yield Investments.
Unrealized appreciation of Enhanced Yield Investments decreased by
$2,457,625 during the year ended December 31, 1998. Such decrease resulted from
the decrease in the estimated fair value of Enhanced Yield Investments of four
companies and the transfer of $479,553 from net unrealized appreciation to net
realized gain from the sale of one Enhanced Yield Investment.
Unrealized appreciation of Enhanced Yield Investments increased by
$1,754,670 during the year ended December 31, 1997. Such net increase resulted
from the increase of $796,824 in the estimated fair value of Enhanced Yield
Investments of two companies, the decrease of $52,727 in the estimated fair
value of Enhanced Yield Investments of one company and the transfer of
$1,010,573 from net unrealized depreciation to net realized loss from the sale
of Enhanced Yield investments in three companies.
DISTRIBUTIONS
No cash distributions were made by the Partnership during the year ended
December 31, 1999, but the Independent General Partners authorized a
distribution of $50 per Unit, or $615,500, at a meeting on February 1, 2000, to
be paid on or before March 31, 2000. During 1998 and 1997, the Partnership made
cash distributions of $3,731,359 and $2,487,572, respectively. The limited
partners' share of such distributions amounted to $300 and $200 per Unit during
1998 and 1997, respectively. Cumulative cash distributions to limited partners
from inception to December 31, 1999 were $7,336,047, or $600.53 per weighted
average number of Units outstanding.
13
<PAGE>
ENHANCED YIELD INVESTMENTS
The Partnership has made no new investments during 1999 and 1998. During
1999, the Partnership made a Follow-on Investment of $702,500 in an Enhanced
Yield Investment of one Portfolio, which included $390,000 converted from an
account receivable. In addition, during 1999, the Fund received an additional
202,232 shares of Paracelsus Healthcare Corporation ("PLS") common stock
pursuant to a price adjustment from the merger of Champion Healthcare
Corporation, a former portfolio company, with PLS in 1996.
During 1997, the Partnership exercised its warrants to buy 2,246 shares of
common stock of Drypers Corporation for $5,413.
Of the companies in which the Partnership held investments at December 31,
1999, only Drypers Corporation and Paracelsus Healthcare Corporation are
publicly held. The others each have a small number of shareholders and do not
generally make financial information available to the public. However, each
company's operations and financial information are reviewed by the General
Partners to determine the proper valuation of the Partnership's investment.
YEAR 2000
Many computer software systems could not properly process date-related
information from and after January 1, 2000. Should any of the computer systems
employed by the Management Company, any of the Partnership's other major service
providers, or companies in which the Partnership has an investment, fail to
process this type of information properly, that could have a negative impact on
the Partnership's operations and the services provided to the Partnership's
limited partners.
In order to address the Year 2000 issue, the Management Company
identified its computer systems to be replaced and modified for Year 2000
compliance with installation completed by year end. In addition, the Partnership
completed its inquiry of its major service providers as well as its Portfolio
Companies to determine if they were in the process of reviewing their systems
with the same goals. As of December 31, 1999, the Partnership had received
assurances from all of its major service providers and its Portfolio Companies
regarding Year 2000 compliance. However, although the Partnership had received
assurances, there could be no guarantee that Year 2000 problems originating from
these third parties, whose systems affect the Partnership, would not occur. The
Partnership did not incur any expenses related to Year 2000 issues.
As of February 22, 2000, the Partnership has not experienced and does not
anticipate any significant problems related to the Year 2000 issue. The
Partnership's revenue and spending patterns were not affected by any issues
related to the Year 2000 problem. Based on information available at this time,
the Partnership cannot be certain that Year 2000 problems originating internally
or from its major service providers or Portfolio Companies will not occur. The
Partnership will develop a plan to address problems related to Year 2000 if
problems are identified.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Partnership is subject to financial market risks, including changes in
interest rates with respect to its investments in debt securities, as well as
changes in marketable equity security prices. The Partnership does not use
derivative financial instruments to mitigate any of these risks. The return on
the Partnership's investments is generally not affected by foreign currency
fluctuations.
The Partnership's investment in portfolio securities consists of some
fixed rate debt securities.
14
<PAGE>
Since the debt securities are generally priced at a fixed rate, changes in
interest rates do not directly impact interest income. In addition, changes in
market interest rates are not typically a significant factor in the
Partnership's determination of fair values of these debt securities. The
Partnership's debt securities are generally held to maturity and their fair
values are determined on the basis of the terms of the debt security and the
financial condition of the issuer.
A portion of the Partnership's investment portfolio consists of debt and
equity investments in private companies. The Partnership would anticipate no
impact on these investments from modest changes in public market equity prices.
However, should significant changes in market equity prices occur, there could
be a longer-term effect on valuations of private companies, which could affect
the carrying value and the amount and timing of gains realized on these
investments. A portion of the Partnership's investment portfolio also consists
of common stocks in publicly traded companies. These investments are directly
exposed to equity price risk, in that a hypothetical ten percent change in these
equity prices would result in a similar percentage change in the fair value of
these securities.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Public Accountants
To the Independent General Partners of
Equus Capital Partners, L.P.:
We have audited the accompanying statements of assets, liabilities and
partners' capital of Equus Capital Partners, L.P. (a Delaware limited
partnership), including the schedules of enhanced yield investments, as of
December 31, 1999 and 1998, and the related statements of operations, changes in
partners' capital and cash flows for each of the three years in the period ended
December 31, 1999, and the selected per unit data and ratios for each of the
five years in the period ended December 31, 1999. These financial statements and
selected per unit data and ratios are the responsibility of Equus Capital
Corporation (the "Managing Partner"). Our responsibility is to express an
opinion on these financial statements, schedules of enhanced yield investments
and selected per unit data and ratios 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 and selected per
unit data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and selected per unit data and ratios. Our procedures
included physical inspection or confirmation of securities owned as of December
31, 1999 and 1998. 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.
As discussed in Note 3, the financial statements include enhanced yield
investments valued at $4,808,431 (83% of partners' capital) and $4,871,402 (87%
of partners' capital) as of December 31, 1999 and 1998, respectively, whose
values have been estimated by the Managing Partner and approved by the
Independent General Partners in the absence of readily ascertainable market
values. We have reviewed the procedures used by the Managing Partner in arriving
at its estimate of value of such investments and have inspected the underlying
documentation, and, in the circumstances, we believe the procedures are
reasonable and the documentation is appropriate. However, because of the
inherent uncertainty of valuation, the Managing Partner's estimate of values may
differ significantly from the values that would have been used had a ready
market existed for the investments and the differences could be material.
In our opinion, the financial statements and selected per unit data and
ratios referred to above present fairly, in all material respects, the financial
position of Equus Capital Partners, L.P. as of December 31, 1999 and 1998, and
the results of its operations, changes in its partners' capital and its cash
flows for each of the three years in the period ended December 31, 1999, and the
selected per unit data and ratios for each of the five years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
February 15, 2000
16
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Enhanced yield investments, at fair value
(cost of $4,861,568 and $4,848,036, respectively) .... $4,808,431 $4,871,402
Temporary cash investments, at cost which
approximates fair value .............................. 679,253 336,672
Cash ...................................................... 4,219 2,936
Accounts receivable ....................................... 315,036 434,566
Accrued interest receivable ............................... 43,293 --
---------- ----------
Total assets .................................... $5,850,232 $5,645,576
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable ..................................... $ 56,800 $ 50,400
---------- ----------
Total liabilities ............................... 56,800 50,400
---------- ----------
Commitments and contingencies
Partners' capital:
Managing partner ..................................... 80,484 78,501
Independent general partners ......................... 1,778 1,722
Limited partners (12,310 Units issued and outstanding) 5,711,170 5,514,953
---------- ----------
Total partners' capital ......................... 5,793,432 5,595,176
---------- ----------
Total liabilities and partners' capital ......... $5,850,232 $5,645,576
========== ==========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
17
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Investment income:
Income from enhanced yield investments ...... $ 111,923 $ 44,174 $ 274,750
Interest from temporary cash investments .... 8,631 18,127 22,062
----------- ----------- -----------
Total investment income ................. 120,554 62,301 296,812
----------- ----------- -----------
Expenses:
Management fee .............................. 83,677 108,210 177,669
Independent general partners' fees .......... 44,293 59,750 59,690
Professional fees ........................... 43,885 41,716 56,130
Mailing and printing expenses ............... 16,908 23,332 28,404
Interest expense ............................ 96 -- --
Administrative fees ......................... 20,115 20,460 20,715
----------- ----------- -----------
Total expenses ......................... 208,974 253,468 342,608
----------- ----------- -----------
Net investment loss .............................. (88,420) (191,167) (45,796)
----------- ----------- -----------
Realized gain on sales of enhanced
yield investments, net: ....................... 363,179 2,741,412 839
----------- ----------- -----------
Unrealized appreciation (depreciation) of enhanced
yield investments, net:
End of year ................................... (53,137) 23,366 2,480,991
Beginning of year ............................. 23,366 2,480,991 726,321
----------- ----------- -----------
Increase (decrease) in unrealized
appreciation, net .......................... (76,503) (2,457,625) 1,754,670
----------- ----------- -----------
Net increase in partners'
capital from operations .................... $ 198,256 $ 92,620 $ 1,709,713
=========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
18
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
INDEPENDENT
MANAGING GENERAL LIMITED
TOTAL PARTNER PARTNERS PARTNERS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Partners' capital,
December 31, 1996 ............... $ 10,011,774 $ 122,667 $ 2,952 $ 9,886,155
------------ ------------ ------------ ------------
Investment activities:
Investment income ................ 296,812 2,968 84 293,760
Expenses ......................... 342,608 3,426 97 339,085
------------ ------------ ------------ ------------
Net investment loss ........... (45,796) (458) (13) (45,325)
Realized gain on sales of enhanced
yield investment, net ............ 839 8 -- 831
Increase in unrealized appreciation
of enhanced yield investments, net 1,754,670 17,547 498 1,736,625
Distribution to partners .............. (2,487,572) (24,876) (696) (2,462,000)
------------ ------------ ------------ ------------
Net decrease in partners' capital ..... (777,859) (7,779) (211) (769,869)
------------ ------------ ------------ ------------
Partners' capital,
December 31, 1997 ................ $ 9,233,915 $ 114,888 $ 2,741 $ 9,116,286
============ ============ ============ ============
</TABLE>
The accompanying notes are an
integral part of these financial statements.
19
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
<TABLE>
<CAPTION>
INDEPENDENT
MANAGING GENERAL LIMITED
TOTAL PARTNER PARTNERS PARTNERS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Partners' capital,
December 31, 1997 ................ $ 9,233,915 $ 114,888 $ 2,741 $ 9,116,286
----------- ----------- ----------- -----------
Investment activities:
Investment income ................ 62,301 623 18 61,660
Expenses ......................... 253,468 2,535 71 250,862
----------- ----------- ----------- -----------
Net investment loss ........... (191,167) (1,912) (53) (189,202)
Realized gain on sales of enhanced
yield investments, net ........... 2,741,412 27,414 778 2,713,220
Decrease in unrealized appreciation
of enhanced yield investments, net (2,457,625) (24,575) (699) (2,432,351)
Distribution to partners .............. (3,731,359) (37,314) (1,045) (3,693,000)
----------- ----------- ----------- -----------
Net decrease in partners' capital ..... (3,638,739) (36,387) (1,019) (3,601,333)
----------- ----------- ----------- -----------
Partners' capital,
December 31, 1998 ............... $ 5,595,176 $ 78,501 $ 1,722 $ 5,514,953
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
20
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
<TABLE>
<CAPTION>
INDEPENDENT
MANAGING GENERAL LIMITED
TOTAL PARTNER PARTNERS PARTNERS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Partners' capital,
December 31, 1998 ................ $ 5,595,176 $ 78,501 $ 1,722 $ 5,514,953
----------- ----------- ----------- -----------
Investment activities:
Investment income ................ 120,554 1,206 34 119,314
Expenses ......................... 208,974 2,090 59 206,825
----------- ----------- ----------- -----------
Net investment loss ........... (88,420) (884) (25) (87,511)
Realized gain on sales of enhanced
yield investments, net ........... 363,179 3,632 103 359,444
Decrease in unrealized appreciation
of enhanced yield investments, net (76,503) (765) (22) (75,716)
----------- ----------- ----------- -----------
Net increase in partners' capital ..... 198,256 1,983 56 196,217
----------- ----------- ----------- -----------
Partners' capital,
December 31, 1999 ............... $ 5,793,432 $ 80,484 $ 1,778 $ 5,711,170
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
21
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received ...................... $ 71,525 $ 121,683 $ 309,744
Cash paid to management company,
general partners, bank and suppliers (212,574) (249,802) (338,974)
----------- ----------- -----------
Net cash used by operating activities (141,049) (128,119) (29,230)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of enhanced yield investments . (312,500) -- (5,413)
Sale of enhanced yield investments ..... 704,413 4,249,920 1,921,816
Repayment of enhanced yield investments 93,000 94,721 603,868
Advance to portfolio company ........... -- (390,000) --
----------- ----------- -----------
Net cash provided by investing
activities ....................... 484,913 3,954,641 2,520,271
----------- ----------- -----------
Cash flows from financing activities:
Advances on note payable from bank ..... 20,000 -- --
Repayments on note payable to bank ..... (20,000) -- --
Distributions to partners .............. -- (3,731,359) (2,487,572)
----------- ----------- -----------
Net cash used by financing
activities ....................... -- (3,731,359) (2,487,572)
----------- ----------- -----------
Net increase in cash and
cash equivalents ....................... 343,864 95,163 3,469
Cash and cash equivalents at
beginning of year ...................... 339,608 244,445 240,976
----------- ----------- -----------
Cash and cash equivalents at end
of year ................................ $ 683,472 $ 339,608 $ 244,445
=========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
22
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of increase in partners'
capital from operations to net cash used
by operating activities:
Increase in partners' capital
from operations ......................... $ 198,256 $ 92,620 $ 1,709,713
Adjustments to reconcile increase in partners'
capital from operations to net
cash used by operating activities:
Realized gain on sales of enhanced
yield investments, net ............... (363,179) (2,741,412) (839)
(Increase) decrease in unrealized
appreciation of enhanced yield
investments, net ..................... 76,503 2,457,625 (1,754,670)
Increase in accounts receivable ......... (5,736) -- --
(Increase) decrease in accrued
interest receivable .................. (43,293) 59,382 12,932
Increase (decrease) in accounts payable . (3,600) 3,666 3,634
----------- ----------- -----------
Net cash used by operating activities ........ $ (141,049) $ (128,119) $ (29,230)
=========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
23
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
FOR THE FIVE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Selected per unit data:
Investment income .................. $ 9.69 $ 5.01 $ 23.86 $ 13.86 $ 27.34
Expenses ........................... 16.80 20.38 27.54 29.82 37.92
--------- --------- --------- --------- ---------
Net investment loss ................ (7.11) (15.37) (3.68) (15.96) (10.58)
Realized gain (loss) on sales of
enhanced yield investments, net 29.20 220.41 0.07 83.74 (47.18)
Increase (decrease) in unrealized
appreciation of enhanced
yield investments, net ........ (6.15) (197.59) 141.07 (290.01) 255.12
--------- --------- --------- --------- ---------
Net increase (decrease) in partners'
capital from operations ....... 15.94 7.45 137.46 (222.23) 197.36
Distributions to partners .......... -- (300.00) (200.00) (25.00) --
--------- --------- --------- --------- ---------
Net increase (decrease) in
partners' capital ............. 15.94 (292.55) (62.54) (247.23) 197.36
Partners' capital, beginning of year 448.01 740.56 803.10 1,050.33 852.97
--------- --------- --------- --------- ---------
Partners' capital, end of year ..... $ 463.95 $ 448.01 $ 740.56 $ 803.10 $1,050.33
========= ========= ========= ========= =========
SELECTED RATIOS:
Ratio of expenses to average
partners' capital ............. 3.68% 3.43% 3.57% 3.22% 3.98%
Ratio of net investment loss to
average partners' capital ..... (1.56)% (2.59)% (0.48)% (1.72)% (1.11)%
Ratio of total increase (decrease)
in partners' capital from
operations to average
partners' capital ............. 3.50% 1.25% 17.81% (23.98)% 20.74%
</TABLE>
The accompanying notes are an
integral part of these financial statements.
24
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
DATE OF
PORTFOLIO COMPANY INITIAL INVESTMENT COST FAIR VALUE
- ----------------- ------------------ ---------- ----------
<S> <C> <C> <C>
Artegraft, Inc. January 1993
- 12% junior term promissory note $ 147,700 $ 147,700
- 7% demand promissory note 702,500 702,500
- Warrant to buy up to 1,000 shares of
common stock at $.01 per share
through December 31, 2002 10 -
- Warrant to buy up to 4,000 shares
of common stock at $17.50 per share
through December 31, 2002 40 -
Drypers Corporation (NASDAQ - DYPR) July 1991
- 226,590 shares of common stock 1,314,413 528,864
MaxTech Holdings, Inc. March 1991
- 59,875 shares of common stock 15,781 340,000
- 2,200,000 shares of 10% cumula-
tive convertible preferred stock 1,500,000 2,860,000
Paracelsus Healthcare Corporation (NYSE - PLS) April 1991
- 540,481 shares of common stock 1,181,124 229,367
---------- -----------
Total $4,861,568 $ 4,808,431
========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
25
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
DECEMBER 31, 1999
(Continued)
Substantially all of the Partnership's Enhanced Yield Investments are
restricted from public sale without prior registration under the Securities Act
of 1933. The Partnership negotiates certain aspects of the method and timing of
the disposition of the Partnership's Enhanced Yield Investments in each
Portfolio Company, including registration rights and related costs. In
connection with the investment in MaxTech Holdings, Inc. rights have been
obtained to demand the registration of such securities under the Securities Act
of 1933, providing certain conditions are met. The Partnership does not expect
to incur significant costs, including costs of any such registration, in
connection with the future disposition of its portfolio securities.
As defined in the Investment Company Act of 1940, the Partnership is
considered to have a controlling interest in Drypers Corporation and MaxTech
Holdings, Inc. The fair value of the Partnership's investments in Drypers
Corporation and Paracelsus Healthcare Corporation include discounts from the
closing market price of $16,357 and $7,094 to reflect the estimated effects of
restrictions on the sale of such securities at December 31, 1999. Such discounts
total $23,451 or $1.89 per unit. For the years ended December 31, 1999 and
December 31, 1998, there was no income earned on the Enhanced Yield Investments
of companies in which the Partnership has a controlling interest. Income was
earned in the amount of $221,233 for the year ended December 31, 1997 on
Enhanced Yield Investments of companies in which the Partnership has a
controlling interest.
As defined in the Investment Company Act of 1940, all of the Partnership's
investments are in eligible Enhanced Yield Investments. The Partnership provides
significant managerial assistance to all of the Portfolio Companies in which it
has invested.
The accompanying notes are an
integral part of these financial statements.
26
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
SCHEDULE OF ENHANCED YIELD INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
DATE OF
PORTFOLIO COMPANY INITIAL INVESTMENT COST FAIR VALUE
- ----------------- ------------------ ----------- -------------
<S> <C> <C> <C>
Artegraft, Inc. January 1993
- 12% junior term promissory note $ 250,000 $ 250,000
- Warrant to buy up to 1,000 shares of
common stock at $.01 per share
through December 31, 2002 10 63,325
- Warrant to buy up to 4,000 shares
of common stock at $17.50 per share
through December 31, 2002 40 186,675
Drypers Corporation (NASDAQ - DYPR) July 1991
- 226,590 shares of common stock 1,314,413 713,887
E-B Holdings, Inc. December 1995
- 12% promissory notes 580,293 440,293
Garden Ridge Corporation (NASDAQ - GRDG) July 1992
- 57,376 shares of common stock 6,375 504,399
MaxTech Holdings, Inc. March 1991
- 59,875 shares of common stock 15,781 -
- 2,200,000 shares of 10% cumula-
tive convertible preferred stock 1,500,000 2,200,000
Paracelsus Healthcare Corporation (NYSE - PLS) April 1991
- 338,249 shares of common stock 1,181,124 512,823
----------- -------------
Total $ 4,848,036 $ 4,871,402
=========== =============
</TABLE>
The accompanying notes are an
integral part of these financial statements.
27
<PAGE>
EQUUS CAPITAL PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) ORGANIZATION AND BUSINESS PURPOSE
Equus Capital Partners, L.P. (the "Partnership"), a Delaware limited
partnership, completed the sale of 12,310 units of limited partners' interest
("Units") to 1,428 limited partners as of December 31, 1990. Each Unit required
a capital contribution to the Partnership of $1,000 less applicable selling
commission discounts and may not be sold, transferred or assigned without the
consent of Equus Capital Corporation, a Delaware corporation (the "Managing
Partner"), which consent may not be unreasonably withheld.
The Partnership seeks to achieve current income and capital appreciation
principally by making investments in "mezzanine" securities, consisting
primarily of subordinated debt or preferred stock combined with equity
participations in common stock or rights to acquire common stock, and
subsequently disposing of such investments ("Enhanced Yield Investments"). The
Partnership has elected to be treated as a business development company under
the Investment Company Act of 1940, as amended. The Partnership was scheduled to
terminate by December 31, 1999, subject to the right of the Independent General
Partners (as defined below) to extend the term for up to four additional years
if they determine that such extension is in the best interest of the
Partnership. At a meeting in November 1999, the Independent General Partners
extended the termination date to December 31, 2000.
(2) MANAGEMENT
The Partnership currently has three general partners, consisting of the
Managing Partner and two independent, individual general partners (the
"Independent General Partners"). There were originally three Independent General
Partners, but one died in 1999 and has not been replaced. As compensation for
services rendered to the Partnership, each Independent General Partner receives
an annual fee of $13,500, which was reduced from $15,000 effective April 1,
1997, and a fee of $1,500 for each meeting of the Independent General Partners
attended and reimbursement of all out-of-pocket expenses relating to attendance
at such meetings. Pursuant to the Partnership agreement, the Managing Partner
has made a general partner's capital contribution to the Partnership of
$125,316, or approximately one percent of the Partnership's contributed capital,
and each Independent General Partner has made a capital contribution of $1,000.
The Partnership has entered into a management agreement with Equus Capital
Management Corporation, a Delaware corporation (the "Management Company").
Pursuant to such agreement, the Management Company performs certain management
and administrative services necessary for the operation of the Partnership. The
Management Company receives a management fee at an annual rate equal to 2.5% of
the available capital and is payable quarterly in arrears. In addition, the
Management Company will receive an incentive fee equal to 10% of the
Partnership's cumulative distributions from Enhanced Yield Investments
(excluding returns of capital) over the life of the Partnership, subject to
payment of a priority return to the limited partners. Payment of the incentive
fees is subject to the payment of $3,651,398 and $3,003,962 in cumulative
accrued priority returns owed to limited partners at December 31, 1999 and 1998,
respectively (See Note 4). The Management Company also receives compensation for
providing certain administrative services to the Partnership on terms determined
by the Independent General Partners as being no less favorable to the
Partnership than those obtainable from competent unaffiliated parties. Certain
officers of the Management Company serve as directors of Portfolio Companies,
and receive and retain fees in consideration for such service. The Management
Company also
28
<PAGE>
has management agreements with the Managing Partner and Equus II Incorporated
("EQS"), a Delaware corporation, and with Equus Equity Appreciation Fund L.P.
("EEAF"), a Delaware limited partnership.
The Managing Partner is a wholly-owned subsidiary of the Management
Company, which in turn is controlled by a privately owned corporation. The
Managing Partner is also the managing general partner of EEAF.
(3) SIGNIFICANT ACCOUNTING POLICIES
Valuation of Investments - Enhanced Yield Investments are carried at fair
value with the net change in unrealized appreciation or depreciation included in
the determination of partners' capital. Investments in companies whose
securities are publicly-traded are valued at their quoted market price, less a
discount to reflect the estimated effects of restrictions on the sale of such
securities, if applicable. Cost is used to approximate fair value of other
investments until significant developments affecting an Enhanced Yield
Investment provide a basis for use of an appraisal valuation. Thereafter,
Enhanced Yield Investments are carried at appraised values as determined
quarterly by the Managing Partner, subject to the approval of the Independent
General Partners. The fair values of debt securities, which are generally held
to maturity, are determined on the basis of the terms of the debt securities and
the financial condition of the issuer. Because of the inherent uncertainty of
the valuation of Enhanced Yield Investments which do not have readily
ascertainable market values, the Managing Partner's estimate of fair value may
significantly differ from the fair value that would have been used had a ready
market existed for such investments. Appraised values do not reflect brokers'
fees, other normal selling costs or management incentive fees which might become
payable on disposition of such investments. (See Note 2).
Investment Transactions - Investment transactions are recorded on the
accrual method. Realized gains and losses on investments sold are computed on a
specific identification basis.
Income Taxes - No provision for income taxes has been made since all
income and losses are allocable to the partners for inclusion in their
respective tax returns.
Cash Flows - For purposes of the Statements of Cash Flows, the Partnership
considers all highly liquid temporary cash investments purchased with an
original maturity of three months or less to be cash equivalents.
(4) ALLOCATIONS AND DISTRIBUTIONS
The Partnership's cumulative net distributions from Enhanced Yield
Investments in excess of returns of capital will be shared in proportion to the
partners' capital contributions until the limited partners have received a
priority return, and thereafter are designed so that such distributions
generally will ultimately be shared 80% by the general and limited partners in
proportion to their capital contributions, 10% by the Managing Partner as an
incentive distribution and 10% by the Management Company as an incentive fee.
The priority return of $3,651,398 and $3,003,962 at December 31, 1999 and 1998,
respectively, is equal to the cumulative, non-compounded return on the average
daily amount of the gross capital contributions represented by Enhanced Yield
Investments ranging from 10 to 12% per annum, depending on the date of the
original contribution, less amounts previously distributed related to such
return. For financial reporting purposes, net unrealized appreciation or
depreciation is allocated to the partners' capital accounts as if it were
realized.
Income from any source other than Enhanced Yield Investments is generally
allocated to the partners in proportion to the partners' capital contributions.
Indirect expenses of the Partnership are allocated between Enhanced Yield
Investments and Temporary Cash Investments on a pro-rata basis based on the
average assets from each type of investment.
29
<PAGE>
Subject to certain provisions in the Partnership agreement, net investment
income and gains and losses on investments are generally allocated between the
general partners and the limited partners on the same basis as cash
distributions.
(5) TEMPORARY CASH INVESTMENTS
Temporary cash investments, which represent the short-term utilization of
cash prior to investment in Enhanced Yield Investments, distributions to the
partners or payment of expenses, consisted of money market accounts earning
interest from a range of 4.09% to 5.25%, at December 31, 1999.
(6) ENHANCED YIELD INVESTMENTS
The Partnership made a Follow-On Investment of $702,500 in an Enhanced
Yield Investment of one Portfolio Company during the year ended December 31,
1999, which included $390,000 converted from an accounts receivable. The
Partnership made no new investments during the year. In addition, the
Partnership realized net capital gains of $363,179 from the sale of investments
in two Portfolio Companies during 1999. Also, during 1999, the Fund received an
additional 202,232 shares of Paracelsus Healthcare Corporation ("PLS") common
stock pursuant to a price adjustment from the Champion/PLS Healthcare merger.
The Partnership made no new or Follow-on Investments in Enhanced Yield
Investments during the year ended December 31, 1998. However, the Partnership
realized capital gains of $2,741,412 from the sale of Enhanced Yield Investments
of one Portfolio Company and from additional proceeds received in 1998 related
to the 1997 sale of the Enhanced Yield Investment in one Portfolio Company.
The Partnership made a Follow-on Investment of $5,413 in Enhanced Yield
Investments of one Portfolio Company during the year ended December 31, 1997. In
addition, the Partnership realized net capital gains of $839 from the sale of
Enhanced Yield Investments of three Portfolio Companies during 1997.
(7) ACCOUNTS RECEIVABLE
The balance in accounts receivable at December 31, 1999 was $315,036,
including $300,000 related to the sale of E-B Holdings, Inc. which was received
in January 2000.
The balance in accounts receivable at December 31, 1998 includes $44,566
in escrow payments related to the sale of the Partnership's investment in
Industrial Equipment Rentals, Inc., which was received in January 1999. The
balance in accounts receivable at December 31, 1998 also includes a $390,000
cash advance to Artegraft, Inc., which was converted to a portfolio investment
in 1999.
(8) NOTE PAYABLE TO BANK
The Partnership has a $250,000 line of credit promissory note with Bank of
America, N.A., with interest payable at prime, that expires on March 21, 2000.
The Partnership had no outstanding balance at December 31, 1999.
30
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Partnership has no directors or officers. On December 31, 1999, the
Partnership was managed by the Managing Partner and two Independent General
Partners.
Certain information regarding the Independent General Partners is set
forth below:
John M. Ivancevich, age 60, has been an Independent General Partner of the
Partnership since 1989. He has been Executive Vice President for Academic
Affairs and Provost at the University of Houston since July 1995 and was Dean of
the College of Business Administration at the University of Houston from 1988 to
July 1995. Dean Ivancevich has held the Hugh Roy and Lillie Cranz Cullen
Distinguished Professorship of Management since 1979. Between 1974 and 1988,
Dean Ivancevich held various positions in the College of Business
Administration, including Chairman of the Department of Organizational Behavior
and Management and Associate Dean for Research.
Williston B. Symonds, age 67, has been an Independent General Partner of
the Partnership since 1989. He has been an independent consultant since 1981
with temporary affiliations with companies in the energy and telecommunications
industries. From 1983 to 1985 he was with Advanced Telecommunications
Corporation, a provider of alternate long distance telephone services and
consulting engineering, as a director, Vice President-Finance, Secretary and
Treasurer and from 1984 as President and Treasurer. He is also a certified
public accountant.
Salvatore E. Manzo had been an Independent General Partner of the
Partnership since 1989 until the time of his death in March 1999. The two
remaining Independent General Partners and the Managing Partner elected not to
replace Mr. Manzo since the Partnership is not making new investments.
The Independent General Partners make up the audit committee and do not
have separate nominating or compensation committees, but act on such matters as
a committee of the whole. The business address of Messrs. Ivancevich and Symonds
is 2929 Allen Parkway, Suite 2500, Houston, Texas 77019.
FILING OF REPORTS OF UNIT OWNERSHIP
Under the federal securities laws, the Partnership's general partners and
any persons holding more than ten percent of the Partnership's Units are
required to report their ownership of the Partnership's Units and any changes in
that ownership to the Partnership and the SEC. Specific due dates for these
reports have been established by regulation and the Partnership is required to
report any failure to file by these dates in 1996. All of these filings were
satisfied by the Partnership's general partners and ten percent holders,
pursuant to Section 16(2) of the Securities Exchange Act of 1934.
As of February 22, 2000, the Partnership believes that all of the
Partnership's general partners and ten percent holders are current in their
filings. In making these statements, the Partnership has relied on the transfer
records of the Partnership and copies of reports that they have filed with the
SEC.
MANAGING PARTNER
The Managing Partner is a corporation organized under the laws of the
State of Delaware in
31
<PAGE>
September 1983. The Managing Partner was organized to serve as managing general
partner of Equus Investments I, L.P., Equus Investments II, L.P., the
Partnership and similar partnerships which may be formed. The Managing Partner,
subject to the supervision of the Independent General Partners, has exclusive
power and authority to manage and control the Partnership. The Managing Partner
is a registered investment adviser under the Investment Advisers Act of 1940
("the Investment Advisers Act").
The following is a list of the directors and officers of the Managing
Partner:
NAME AGE POSITION
---- --- --------
Sam P. Douglass 67 Chairman of the Board and
Chief Executive Officer
Nolan Lehmann 55 President and Director
Randall B. Hale 37 Vice President and Director
Paula T. Douglass 48 Director
S. Preston Douglass, Jr. 38 Director
Patrick M. Cahill 39 Vice President and Treasurer
Tracy H. Cohen 33 Vice President and Secretary
Gary L. Forbes 56 Vice President
Sam P. Douglass has been Chairman of the Board of the Managing Partner
since its formation in September 1983 and became Chief Executive Officer in
December 1989. Mr. Douglass is also Chairman of the Board and Chief Executive
Officer of the Management Company and Equus II Incorporated. Since December
1978, he has served as Chairman and Chief Executive Officer of Equus Corporation
International, a privately-owned corporation engaged in a variety of investment
activities. Mr. Douglass is a director of Advanced Technical Products, Inc.
Nolan Lehmann has been the President of the Managing Partner since May
1990 and a director since December 1989. From its formation in September 1983 to
May 1990 he was Executive Vice President. Mr. Lehmann is also President and a
director of the Management Company and Equus II Incorporated. He is a director
of Allied Waste Industries, Inc., Drypers Corporation and Paracelsus Healthcare
Corporation. Mr. Lehmann is a certified public accountant.
Randall B. Hale, has been a Vice President of the Managing Partner, Equus
II Incorporated and the Management Company since November 1992. He was elected a
director of the Managing Partner and Management Company in February 1996. From
June 1985 to October 1992, he was employed by Arthur Andersen LLP. Mr. Hale is a
certified public accountant.
Paula T. Douglass, has been a director of the Management Company since
July 1993. She was elected director of the Managing Partner in February 1996.
From September 1989 to September 1990 she was employed as an attorney by
Fulbright & Jaworski. Since December 1978, she has been a director of Equus
Corporation International. She is a licensed attorney. Since February 1998, Ms.
Douglass has been Chairman and Chief Executive Officer of Cinema Film Systems.
Inc.
S. Preston Douglass, Jr., has been a director of the Management Company
since July 1993. He was elected director of the Managing Partner in February
1996. He is a partner at Wallace, Machann, Jackson, Williams and Douglass where
he has been employed since January 1989. He was a prosecutor in the 216th
Judicial District in Kerrville, Texas from December 1987 to December 1988. He is
a licensed attorney.
Patrick M. Cahill, has been Treasurer and a Vice President of the Managing
Partner since March 1996 and Controller of the Managing Partner since May 1987.
He has been Vice President of Equus II
32
<PAGE>
Incorporated since May 1994 and the Treasurer of Equus II Incorporated since
March 1996. He has also been a Vice President of the Managing Company since
April 1999 and Controller of the Management Company since May 1987. From June
1982 to May 1987, he was employed by Ernst & Young. Mr. Cahill is a certified
public accountant.
Tracy H. Cohen was elected a Vice President of the Managing Partner in
April 1995 and is the Manager of the Investor Relations Department for the
Management Company, where she has been employed since April 1995. She has been a
Vice President of Equus II Incorporated since May 1995. From September 1990 to
April 1995, she was employed by Arthur Andersen LLP. Ms. Cohen is a certified
public accountant.
Gary L. Forbes was a director of the Managing Partner from January 1992 to
November 1995 and has been a Vice President of the Managing Partner and the
Management Company since November 1991. He was a director of the Management
Company from July 1993 to November 1995. He has been a Vice President of Equus
II Incorporated since December 1991. He is also a director of Advanced Technical
Products, Inc., Consolidated Graphics, Inc., Drypers Corporation and NCI
Building Systems, Inc. Mr. Forbes is a certified public accountant.
There is no family relationship between any Independent General Partner
and any director or officer of the Managing Partner. Paula T. Douglass is the
wife of Sam P. Douglass, and S. Preston Douglass, Jr. is the son of Sam P.
Douglass.
The business address of Messrs. Douglass, Lehmann, Hale, Cahill, Forbes
and Ms. Douglass and Cohen is 2929 Allen Parkway, Suite 2500, Houston, Texas
77019. The business address of Mr. S. Preston Douglass, Jr. is 820 Main Street,
Suite 100, Kerrville, Texas 78028.
The Managing Partner has contributed $125,316 to the Partnership,
representing approximately 1% of total capital contributions to the Partnership.
The Managing Partner is a wholly-owned subsidiary of the Management
Company. As a result of its stock ownership in the Management Company, Equus
Corporation International has 80% voting control of the Management Company.
Equus Corporation International has its principal offices at 2929 Allen Parkway,
Suite 2500, Houston, Texas 77019.
MANAGEMENT COMPANY
The Management Company was organized as a Delaware corporation in 1983 and
maintains its offices at 2929 Allen Parkway, Suite 2500, Houston, Texas 77019.
The Management Company's sole activity is to provide management, administrative
and investment advisory services for the Partnership, Equus II Incorporated and
Equus Equity Appreciation Fund, L.P. The Management Company is a registered
investment adviser under the Investment Advisers Act.
The directors and officers of the Management Company are Sam P. Douglass,
Chairman of the Board and Chief Executive Officer, Nolan Lehmann, President and
a director, Randall B. Hale, Vice President, Secretary and director, Paula T.
Douglass, director, S. Preston Douglass, Jr., director, and Gary L. Forbes, Vice
President. See "Managing Partner" above for information concerning Messrs. Sam
P. Douglass, Lehmann, Hale, S. Preston Douglass, Jr., Forbes and Ms. Douglass.
As a result of its stock ownership in the Management Company, Equus
Corporation International has 80% voting control of the Management Company.
Equus Corporation International is a privately owned corporation engaged in a
variety of investment activities. The business address of Equus Corporation
International is 2929 Allen Parkway, Suite 2500, Houston, Texas 77019.
33
<PAGE>
THE MANAGEMENT AGREEMENT
The Management Agreement provides that the Management Company receive as
compensation for its services a management fee (the "Management Fee") at an
annual rate of 2.5% of Available Capital of the Partnership, paid quarterly in
arrears. "Available Capital" is the amount of net offering proceeds from the
sale of Units reduced by capital distributed to the holders of the Units and
realized losses from the Partnership's investments. The Management Fee is
payable quarterly in arrears. Management fees of $83,677, $108,210 and $177,669
were paid during the years ended December 31, 1999, 1998 and 1997, respectively.
The Management Agreement also provides that the Management Company will be
paid as the Management Company Incentive Fee an amount equal to 10% of the
excess of distributions from Enhanced Yield Investments over distributions from
Enhanced Yield Investments representing returns of capital over the life of the
Partnership, subject to payment of the priority return to the Limited Partners.
The cumulative amount of the Management Company Incentive Fee will be determined
as of the end of each fiscal quarter and upon termination of the Partnership.
If, at the end of any such period or upon termination, net payments previously
made to the Management Company exceed 10% of the Partnership's cumulative
distributions, including the priority return, from Enhanced Yield Investments
less unrealized capital depreciation, the Management Company will be required to
repay all or a portion of the Management Company Incentive Fee previously
received. At December 31, 1999, payment of incentive fees is subject to the
payment of $3,651,398 in cumulative accrued priority returns owed to limited
partners.
The Investment Advisers Act restricts the aggregate amount of the
Management Company Incentive Fee and distributions with respect to the Managing
Partner's incentive distribution to 20% of the Partnership's net realized
capital gains less unrealized capital depreciation. This restriction does not
apply, however, to the Partnership's ordinary interest and dividend income.
The Management Agreement provides for indemnification by the Partnership
of the Management Company and its officers and directors, to the fullest extent
allowed by law, against any threatened, pending or completed action to the
extent that the activities giving rise to such action were performed in good
faith either on behalf of the Partnership or in furtherance of the interests of
the Partnership and in a manner reasonably believed by the indemnified person to
be within the scope of the authority conferred by the Management Agreement or by
law, so long as such person was not guilty of bad faith, negligence, misconduct
or any breach of fiduciary duty owed to the Partnership. Indemnification is
limited by Section 17(d) of the Investment Company Act.
The Management Agreement was approved by the Independent General Partners
and was submitted to the first annual meeting of Limited Partners for their
approval. Unless earlier terminated, the Management Agreement will remain in
effect from year to year if approved by (i) a majority of the General Partners
or a majority in interest of Limited Partners and (ii) a majority of the
Independent General Partners. The Management Agreement is not assignable and may
be terminated without penalty on 60 days' written notice at the option of either
party or by a vote of a majority in interest of Limited Partners.
As compensation for the specified administrative services to be rendered
by the Management Company, the Management Company is paid a fee (the "Fund
Administration Fee") of $15 per Limited Partner account per year and is
reimbursed for certain out-of-pocket expenses relating to such services. Such
terms and conditions must be approved by the Independent General Partners,
however, as being not less favorable to the Partnership than those obtainable
from competent unaffiliated third parties. The amount of compensation payable to
the Management Company is reviewed annually by the Independent General Partners
and, subject to the limitation contained in the previous sentence, may be
increased or
34
<PAGE>
decreased by the Independent General Partners to provide for such compensation
as the Independent General Partners may in good faith deem reasonable.
Administration fees were $20,115, $20,460 and $20,715 for the years ended
December 31, 1999, 1998 and 1997, respectively.
The Management Company is a registered investment adviser under the
Investment Advisers Act.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth all cash compensation paid to the
Independent General Partners during or with respect to 1999 for services
rendered in all capacities to the Partnership.
NUMBER OF CAPACITIES IN CASH
PERSONS IN GROUP WHICH SERVED COMPENSATION
---------------- ------------------- ------------
3 Independent General $43,875
Partners
Each Independent General Partner receives from the Partnership an annual
fee of $13,500, a fee of $1,500 for each meeting of the Independent General
Partners attended and reimbursement for all out-of-pocket expenses relating to
attendance at such meetings. Independent General Partners do not receive any
additional compensation from the Partnership or its Portfolio Companies for any
additional services rendered.
The Partnership has no directors, executive officers or employees and
therefore paid no other compensation during 1999.
DISTRIBUTIONS AND ALLOCATIONS OF PROFITS AND LOSSES
DISTRIBUTIONS
Subject to the Priority Return, the Partnership's cumulative net
distributions from Enhanced Yield Investments in excess of returns of capital
generally are to be shared 80% by the Limited Partners and the General Partners
in proportion to their Capital Contributions, 10% by the Managing Partner as an
incentive distribution and 10% by the Management Company as an incentive fee.
Current Returns. All cash dividends, interest and other income received by
the Partnership in excess of expenses of operation and reserves for expenses and
Follow-on Investments are to be distributed to the Partners at least annually as
follows:
(a) From Enhanced Yield Investments,
first, 99% to the Limited Partners and the Independent General
Partners, as a class, and 1% to the Managing Partner, until the
Limited Partners, as a class, have received from cumulative
distributions from Enhanced Yield Investments made by the Partnership
(other than as a return of capital), an amount equal to the sum of (i)
an aggregate return (cumulative but not compounded) ranging from 12%
to 10% per annum (depending on when the Limited Partner made his
Capital Contribution) on the average daily amount of Gross Capital
Contributions represented by Enhanced Yield Investments (the "Priority
Return"), and (ii) any outstanding Compensatory Payment (as defined
below),
second, 79% to the Limited Partners and the Independent General
Partners, as a class, and
35
<PAGE>
21% to the Managing Partner until the Managing Partner has received
from all distributions with respect to Enhanced Yield Investments made
by the Partnership (other than as a return of capital), an amount
equal to 11% of all such distributions (10 percentage points being an
incentive distribution, the "MGP Incentive Distribution"), except that
if there are any outstanding Deferred Distribution Amounts (defined
below), such distribution will, to the extent permitted by the
Partnership Agreement, first be made solely to the Managing Partner
until such amount is distributed to it, and
third, thereafter, 89% to the Limited Partners and the Independent
General Partners, as a class, and 11% to the Managing Partner (10
percentage points being an MGP Incentive Distribution).
(b) From Temporary Investments, 99% to the Limited Partners and the
Independent General Partners, as a class, and 1% to the Managing
Partner.
The Priority Return is 12% for Capital Contributions made prior to June
30, 1989, 11% for Capital Contributions made between July 1 and September 30,
1989 and 10% for Capital Contributions made thereafter.
Capital Transactions. All proceeds from the disposition of Enhanced Yield
Investments and Temporary Investments, including distributions of returns of
capital from investments ("Capital Transactions"), that are not utilized or
reserved for Follow-on Investments or used to pay, or reserved for the payment
of, outstanding obligations or expenses of the Partnership (including the
Management Company Incentive Fee), will be distributed as soon as practicable
after such Capital Transactions as follows:
(a) From Enhanced Yield Investments,
first, 99% to the Limited Partners and the Independent General
Partners, as a class, and 1% to the Managing Partner, until the
Limited Partners, as a class, have received from cumulative
distributions from Enhanced Yield Investments, an amount equal to the
sum of (i) the Priority Return and (ii) any outstanding Compensatory
Payment,
second, to the Managing Partner, the Independent General Partners and
the Limited Partners, as a class, in proportion to their respective
"Net Capital Contributions" (Capital Contributions net of selling
commissions and organizational, offering and marketing expenses) until
the Limited Partners, as a class, have received from cumulative
distributions from Enhanced Yield Investments (a) the portion of their
Net Capital Contributions represented by Enhanced Yield Investments
then or theretofore liquidated and not reinvested plus (b) an amount
equal to the sum of (i) the Priority Return and (ii) any outstanding
Compensatory Payment, except that if there are any outstanding
Deferred Distribution Amounts, such distribution will, to the extent
permitted by the Partnership Agreement, first be made solely to the
Managing Partner until such amount is distributed to it,
third, 79% to the Limited Partners and the Independent General
Partners, as a class, and 21% to the Managing Partner, until the
Managing Partner has received from all distributions made with respect
to Enhanced Yield Investments, 11% of all such distributions (10
percentage points being an MGP Incentive Distribution), other than as
a return of capital, and
fourth, thereafter 89% to the Limited Partners and the Independent
General Partners, as a class, and 11% to the Managing Partner (10
percentage points being an MGP Incentive Distribution).
36
<PAGE>
(b) From Temporary Investments,
first, to the Managing Partner, the Independent General Partners and
the Limited Partners, as a class, in proportion to their respective
Net Capital Contributions until the Limited Partners, as a class, have
received from cumulative distributions other than distributions from
Enhanced Yield Investments the portion of their Net Capital
Contributions represented by Temporary Investments then or theretofore
liquidated and not reinvested, and
second, 99% to the Limited Partners and the Independent General
Partners, as a class, and 1% to the Managing Partner.
For purposes of the distribution described above, "Gross Capital
Contributions represented by Enhanced Yield Investments" is the total cost of
Enhanced Yield Investments grossed up for the related selling commissions,
marketing and sales expenses and organization and offering expenses, without
regard to selling discounts or waivers of selling commissions or wholesale
marketing assistance fees.
The Managing Partner will make certain payments to the Partnership
("Compensatory Payments") in an amount equal to the cumulative amount by which
cumulative net proceeds received from the disposition of Enhanced Yield
Investments are less than the cost of such investments, but only to the extent
of cumulative MGP Incentive Distributions previously received by the Managing
Partner.
In addition, to the extent that making any distributions from the proceeds
of any Capital Transaction would result in the Managing Partner receiving
cumulative distributions relating to the disposition of Capital Transactions in
excess of 11% (10% as an MGP Incentive Distribution and 1% based on contributed
capital) of the cumulative capital gains realized (net of realized capital
losses and unrealized net capital depreciation), such distributions will instead
be deferred (the "Deferred Distribution Amount").
Distributions to Limited Partners are allocated among such Limited
Partners in proportion to the respective number of Units held by such Limited
Partners and based on the Priority Return they are entitled to receive.
As soon as possible after the Partnership's termination, the Managing
Partner, or a liquidating trustee, will liquidate the Partnership and the
Partners will receive a liquidating distribution of the remaining assets based
upon their allocable share thereof.
ALLOCATIONS
Profits and Losses for tax purposes are determined and allocated as of the
end of each calendar quarter. Profits and Losses are allocated first to reflect
such cash distributions made or scheduled to be made (other than as to
distributions of capital), and thereafter in a manner designed to reflect cash
distributions projected to be made.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
To the best knowledge of the Partnership, no person beneficially owns more
than five percent of the Units of limited partners' interests in the
Partnership. The Partnership has no other class of security currently
outstanding. No Independent General Partner of the Partnership owns any Units of
limited partners' interests in the Partnership.
Set forth below is information as of December 31, 1999, with respect to
the ownership of Units by
37
<PAGE>
the directors and officers of the Managing Partner.
UNITS
NAME BENEFICIALLY OWNED PERCENTAGE
- ---- ------------------ ----------
Patrick M. Cahill
(Vice President and
Treasurer) 38 (1) .31%
Tracy H. Cohen
(Vice President and
Secretary) 38 (1) .31%
Sam P. Douglass
(Chairman and
Director) 5 .04%
Gary L. Forbes
(Vice President) 58 (1) .47%
Randall B. Hale
(Vice President and
Director) 43 (1) .35%
Nolan Lehmann
(President and
Director) 69 (1) .56%
All directors and officers
of the Managing Partner
as a group (eight persons) 99 .80%
(1) includes 38 units owned by GRN Partners of which Ms. Cohen and Messrs.
Cahill, Forbes, Hale, and Lehmann are general partners.
There exists no arrangement known to the Partnership, the operation of
which may at a subsequent date result in a change of control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made in Items 10 and 11 to the information set forth under
the captions "The Management Agreement" and "The Management Company" and to the
information set forth under the captions "Managing Partner" and "Distributions
and Allocation of Profits and Losses" for information concerning certain
relationships and transactions between the Managing Partner and the Management
Company.
38
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS PAGE
-------------------- ----
Report of Independent Public Accountants 16
Statements of Assets, Liabilities and Partners'
Capital at December 31, 1999 and 1998 17
Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 18
Statements of Changes in Partners' Capital
for the years ended December 31, 1999, 1998
and 1997 19
Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 22
Selected Per Unit Data and Ratios for the
five years ended December 31, 1999 24
Schedules of Enhanced Yield Investments
at December 31, 1999 and 1998 25
Notes to Financial Statements 28
All other information required in the financial statement schedules has
been incorporated in the financial statements or notes thereto or has been
omitted since the information is not applicable, not present or not present in
amounts sufficient to require submission of the schedule.
(a)(3) Exhibits
3. Articles of Incorporation and By-laws.
(a) Certificate of Limited Partnership of the Partnership dated November
30, 1988. [Incorporated by reference to Form N-3 Exhibit 1.1 to
Registration Statement, File No. 33-25985].
(b) Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of October 6, 1989. [Incorporated by reference
to Exhibit 3(e) to the Partnership's Annual Report on Form 10-K,
filed March 30, 1990.]
4. Instruments defining the rights of security holders, including debentures
(a) Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of October 6, 1989. [Incorporated by reference
to Exhibit 3(e) to the Partnership's Annual Report on Form 10-K,
filed March 30, 1990]
(b) Form of Subscription Agreement [Incorporated by reference to Form
N-2, Exhibit B to Prospectus, File No 33-25958].
39
<PAGE>
10. Material Contracts
(a) Management Agreement between the Partnership and Equus Capital
Management Corporation dated October 6, 1989. [Incorporated by
reference to Exhibit 10(a) to the Partnership's Annual Report on
Form 10-K filed March 30, 1990.]
(b) Service Agreement between the Partnership and Equus Capital
Management Corporation dated October 6, 1989. [Incorporated by
reference to Exhibit 10(b) to the Partnership's Annual Report on
Form 10-K filed March 30, 1990.]
(c) Safekeeping Agreement between the Partnership and Southwest Guaranty
Trust Company dated January 2, 1991. [Incorporated by reference to
Exhibit 10(d) to the Partnership's Annual Report on Form 10-K filed
March 21, 1991.]
(d) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Partnership during the
period for which this report is filed.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed by the
undersigned, thereunto duly authorized.
EQUUS CAPITAL PARTNERS, L.P.
By: Equus Capital Corporation,
Managing Partner
By: /s/ NOLAN LEHMANN
Nolan Lehmann, President
Date: February 22, 2000
40
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
EQUUS CAPITAL CORPORATION
Managing General Partner
By: /s/ NOLAN LEHMANN February 22, 2000
Nolan Lehmann President
/s/ JOHN M. INVANCEVICH February 22, 2000
John M. Ivancevich Independent
General Partner
/s/ WILLISTON B. SYMONDS February 22, 2000
Williston B. Symonds Independent
General Partner
/s/ NOLAN LEHMANN February 22, 2000
Nolan Lehmann President and Director
of the Managing Partner
(principal Financial and
Accounting Officer of
the Managing Partner)
/s/ SAM P. DOUGLASS February 22, 2000
Sam P. Douglass Chairman of the Board and
Chief Executive Officer
of the Managing Partner
/s/ RANDALL B. HALE February 22, 2000
Randall B. Hale Director of the Managing
Partner
/s/ PAULA T. DOUGLASS February 22, 2000
Paula T. Douglass Director of the Managing
Partner
/s/ S. PRESTON DOUGLASS, JR. February 22, 2000
S. Preston Douglass, Jr. Director of the Managing
Partner
41
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<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 5,540,821
<INVESTMENTS-AT-VALUE> 5,487,684
<RECEIVABLES> 358,329
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<REALIZED-GAINS-CURRENT> 363,179
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<NET-CHANGE-FROM-OPS> 198,256
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<NET-CHANGE-IN-ASSETS> 198,256
<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NII> (7.11)
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