Item 1. Business.
Carolina Investment Partners, Limited Partnership (the "Registrant") is a limited partnership organized in 1985 under the North Carolina Uniform Limited Partnership Act. The Registrant was formed for the purpose of investing in certain unimproved real properties located in Cary, North Carolina. The Registrant acquired these properties, commonly known as the Martin Parcel and the Wellington Parcel, in 1986. See "Properties." The Registrant has the option to develop the Martin Parcel for office and institutional uses or hold it for resale. Its only option for the Wellington Parcel is to hold it for resale. At this time the Registrant is not developing the Martin Parcel and is attempting to resell it. However, the Registrant will consider its options with respect to development of the Martin Parcel and may formulate a plan for development of the Martin Parcel. A portion of the Wellington Parcel has been sold.
Recent Developments
The Agreement with WCA as amended (See Item 2.
Item 2. Properties.
The Martin Parcel and the Wellington Parcel are located in the southern portion of Cary, North Carolina, a rapidly expanding community to the immediate southwest of Raleigh, North Carolina. Cary is part of a region in central North Carolina known as the Research Triangle area which includes Raleigh, Durham, Chapel Hill and the Research Triangle Park. Both properties are located near the residential single family subdivisions known as Ridgepath, Wellington Park, MacGregor Downs, Lochmere, Kildaire Farms, Wimbledon, and McDonald Woods. The map below shows the locations of the Registrant's properties in Cary.
[MAP]
The Martin Parcel contains approximately 25.1 acres of unimproved land which is divided into two tracts by the Cary Parkway. The tract lying to the west of the Cary Parkway contains 15.76 acres of land, while the tract lying to the east of the Cary Parkway contains 9.34 acres of land. The Martin Parcel is located immediately to the north of the Interchange.
The Wellington Parcel consisted of approximately 16.3 acres of land located approximately one-half mile south of the interchange and adjacent to the Cary Parkway and Tryon Road. The Wellington Parcel is part of a 216-acre planned unit development ("PUD") known as Wellington Park. On various dates in 1996, 1997 and 1998 a total of 13.5 acres of the Wellington Parcel were sold to Wellington Center Associates, LLC ("WCA"), successor to Churchill & Banks, Ltd. ("The Sold Property"). The remaining 2.8 acres (the "Remaining Outparcels"), were previously under contract for sale to WCA but, due to WCA's delays in closing, the contract was terminated by the Registrant on March 6, 1998 (see Item 1 "Business-Recent Developments"). Under the terms of the amended Agreement with WCA, WCA did preliminary site grading and other construction preparation activities to the Remaining Outparcels.
Wellington Parcel were sold to Wellington Center Associates, LLC ("WCA"), successor to Churchill & Banks, Ltd ("The Sold Property"). The remaining 2.8 acres (the "Remaining Outparcels"), were previously under contract for sale to WCA but, due to WCA's delays in closing, the contract has been cancelled (see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations"). Under the terms of the amended Agreement with WCA, WCA developed the Remaining Outparcels as it developed the portion it has purchased.
Construction of the residential portions of the Wellington Park PUD began in June of 1986. Five residential neighborhoods containing 250 lots have been developed and sold. The primary infrastructure and recreation facilities are complete. Additional residential units are under construction. A nursing home has been built on a parcel of the PUD.
The Wellington Parcel is bordered to the south by Tryon Road, to the east by Wellingborough Drive, to the north by Parkton Drive, and to the west by the Cary Parkway. Tryon Road has been widened to a 100 foot right-of-way fronting on the Wellington Parcel. The Cary Parkway was expanded to four lanes in 1992 and various extensions of the Cary Parkway have lead to an increase in traffic at the site.
The purchase contract between the original seller of the Wellington Parcel (the "Wellington Seller") and the Registrant includes a put option which permits the Registrant, at its option, to require the Wellington Seller to repurchase the Wellington Parcel for $225,000 per acre on or after July 18, 1989. The contract also provides that the Wellington Seller will share evenly with the Registrant in any profits resulting from the sale of the Wellington Parcel. However, this equity sharing arrangement was amended during 1990 to increase to more than 87.5% the percentage of profits to be retained by the Registrant if the Wellington Parcel is sold to a third party other than by exercise of the put option by the Registrant. If the put option is exercised, the Registrant will retain only 50% of the profit from sale of the Wellington Parcel. See Item 11 "Executive Compensation" for a more detailed discussion of the amount of appreciation paid to the Wellington Seller upon sale of The Sold Property.
Upon the sale of the Wellington Parcel or the Martin Parcel, the General Partner is entitled to a broker listing fee under some circumstances. See Item 11 "Executive Compensation." In addition to the broker listing fee, in the event the parcel is sold by a broker unaffiliated with the General Partner, the Registrant may pay the unaffiliated broker a 2.5% broker-reallowance fee.
Item 3.
Item 3. Legal Proceedings.
No material legal proceedings are pending against the Registrant or its properties.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote by the limited partners of the Registrant during the fourth quarter of 1997.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.
(a) The Registrant has no common stock. There is no established public trading market for the Units.
(b) The Registrant had 985 Limited Partners holding 5,900 Units as of March 24, 1998. The number of Limited Partners was determined by the Partnership's records
maintained by the General Partner. An affiliate of the General Partner owns 25 of these 5,900 units.
(c) Despite the termination of the contract by the Registrant, (see Item 1 "Business-Recent Developments") the Registrant is currently considering offers from WCA to purchase the Remaining Outparcels. These sales, if agreed upon and closed, will provide the Registrant with additional funds, of which the Registrant expects to retain approximately $100,000 for future operating needs, and distribute the remainder to the partners in accordance with the Partnership Agreement.
Until the Limited Partners have received distributions of cash from the Registrant of an aggregate amount equal to 100% of the Capital Contributions of the Limited Partners, plus an additional return equivalent to 10% per annum simple interest on their "Unreturned Capital Contributions", the Limited Partners will receive at least 99% of all distributions of cash, which will be distributed and allocated among them in the ratio which the number of Units owned by each of them bears to the total number of Units outstanding. Thereafter, the Registrant's distributions will be allocated 90% to the Limited Partners and 10% to the General Partner. "Unreturned Capital Contribution" means the Capital Contribution of a Limited Partner less any distributions of cash made by the Registrant to such Limited Partner.
Item 6.
Item 6. Selected Financial Data.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The Registrant's operations resulted in a net income of $571,132 during 1997, compared to net income of $1,336,215 during 1996 and a net loss of $2,297 in 1995. The primary differences between 1997 in comparison to 1996 and 1995 were:
1997 vs. 1996
o A gain of $541,269 in 1997 from the sale of approximately 2.0 acres of the Registrant's Wellington Parcel (see discussion below) compared to a gain of $1,382,081 in 1996 from the sale of the Main Site at Wellington (10.9 acres).
o Interest of $50,608 in 1997 received by the Registrant due to the deferral of the property closing from September, 1996. There was no similar income in 1996.
o Interest earnings in 1997 of $11,711 from certificates of deposit purchased with proceeds from property sales. In 1996 proceeds from the property sale were distributed within two months after the property closing; therefore, there were no certificates of deposit in 1996.
o $20,629 in non-refundable extension fees received by the Registrant in 1997 for extensions of the Closing Date on the Wellington Parcel contract compared to $11,300 in non-refundable deposits received in 1996 for extensions on the Wellington Parcel contract.
o Property taxes for 1997 are approximately $10,000 lower than 1996 due to the sale of property (see discussion below).
o Expenses in 1997 include a $3,300 adjustment in accounting fees for the 1996 audit and tax returns. These fees were higher due to additional audit and tax procedures required in relation to the 1996 land sale and distribution.
o Expenses in 1997 in comparison to 1996 increased approximately $5,400 for additional accounting and administrative services provided by related parties of the Registrant's General Partner. These additional services included (1) assistance with closing on the sales of property, (2) follow-up procedures performed when checks from the November, 1996 distribution were not received by some limited partners and had to be replaced, and (3) preparation of the Registrant's annual Form 10-K and financial statements.
1997 vs. 1995
o A gain of $541,269 in 1997, from the sale of approximately 2.0 acres of the Registrant's Wellington Parcel (see discussion below). There were no land sales in 1995.
o Interest of $50,608 in 1997 received by the Registrant due to the deferral of the property closing from September, 1996. There was no similar income in 1995.
o Interest earnings in 1997 of $11,711 from certificates of deposit purchased with proceeds from property sales. There were no property sales or certificates of deposit in 1995.
o $20,629 in non-refundable extension fees received by the Registrant in 1997 for extensions of the Closing Date on the Wellington Parcel contract. During 1995 the registrant received $2,000 in forfeited earnest money deposits.
o In 1995 the Registrant had timber removed from one of its properties resulting in income of $35,664. There were no timber sales in 1997.
o In 1997 property taxes were paid on lower acreage than 1995 due to the sales of property. However, these reductions were more than offset by increases in the property tax value of the Wellington property. Therefore, property taxes for 1997 are approximately $3,600 higher than 1995.
o Expenses in 1997 include a $3,300 adjustment in accounting fees for the 1996 audit and tax returns. These fees were higher due to additional audit and tax procedures required in relation to the 1996 land sale and distribution.
o Expenses in 1997 in comparison to 1995 increased approximately $8,600 for additional accounting and administrative services provided by related parties of the Registrant's General Partner. These additional services included (1) assistance with closing on the sales of property, (2) follow-up procedures performed when checks from the November, 1996 distribution were not received by some limited partners and had to be replaced, and (3) preparation of the Registrant's annual Form 10-K and financial statements.
The Registrant, Churchill & Banks, Ltd. ("Churchill & Banks") (predecessor to WCA), and ADA Corporation of North Carolina ("ADA"), which is affiliated with the General Partner, executed an agreement (the "Agreement") for Churchill & Banks to purchase certain tracts of real property owned by the Registrant (the Wellington Parcel) and ADA. The Agreement was amended on various dates in 1995 and 1996, and in September 1997. In addition to other matters, the amendments to the Agreement provided for 10.96 acres (the "Main Site"), of which 10.91 acres were owned by the Registrant, to close in September 1996 and closing on the remaining 6.21 acres, consisting of four outparcels (the "Outparcels"), of which 5.40 acres is owned by the Registrant, to occur by March 10, 1997, with an additional 6 month extension possible on the Outparcels. The September 1997 amendment extended closing on the Remaining Outparcels to January 30, 1998. The purchase price for the land is $5.25 per net square foot, which yields a sales price to the Registrant and ADA of $3,927,750.
On May 5, 1997, August 26, 1997, and November 17, 1997 the Registrant sold .82 acres, .79 acres, and .39 acres, respectively, of the Wellington Parcel to WCA under the terms of the amended Agreement for gross sales prices of $250,917, $243,359 and $255,429, respectively, or an aggregate of $691,977. The Registrant's net sale proceeds with respect to these sales were as follows:
May 5, 1997 August 26, 1997 November 17, 1997 Sale Sale Sale
Gross sales price $250,917 $243,359 $255,429 Commissions and broker re- allowance fee (18,819) (18,252) (19,157) Deed stamps (502) (487) (511) --------- --------- --------- Net sales proceeds $231,596 $224,620 $235,761 ========= ========= =========
Additionally, the Registrant received interest of $11,054, $16,958, and $22,596, respectively, from WCA at the closings under the terms of the Agreement.
Under the terms of the contract through which the Registrant purchased the Wellington Parcel none of the profit from these sales was due to the Wellington Seller (see Item 2. "Properties"). The Registrant's Partnership Agreement calls for the General Partner to be
allocated, at a minimum, 1% of any gain from the sale of property. To the extent the General Partner is allocated gain, it also receives a distribution. Accordingly, the General Partner's share of the 1997 gain is $5,413 (net sales proceeds of $691,977 less the Registrant's basis in the property sold, $150,708, equals a gain of $541,269; 1% of which is $5,413).
The Registrant's proceeds from the 1997 sales have been invested in certificates of deposit and a money market account.
As of March 24, 1998, the Registrant has $1,230,796 in cash and short-term investments, which is sufficient to meet its needs during the next year. The Registrant expects to retain approximately $300,000 of its current funds for future operating needs and distribute the remainder to the partners in April or May 1998 in accordance with the Partnership Agreement.
The Registrant maintains its excess funds in certificates of deposit and a money market account at Triangle Bank. The General Partner believes these certificates and the account are an appropriate investment of the Registrant's funds. Until its properties are sold, placed into development and/or refinanced, the Registrant anticipates deficits from operations and administrative expenses.
Cautionary Statement Identifying Important Factors That Could Cause the Registrant's Actual Results to Differ From Those Projected in Forward Looking Statements.
In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, readers of this document, and any document incorporated by reference herein, are
advised that this document and documents incorporated by reference into this document contain both statements of historical facts and forward looking statements. Forward looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those indicated by the forward looking statements. Examples of forward looking statements include, but are not limited to (i) projections of revenues, income or loss, earnings or loss per share, capital expenditures, dividends, capital structure and other financial items, (ii) statements of the plans and objectives of the Registrant or its management, including the introduction of new products, or estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities, (iii) statements of future economic performance, and (iv) statements of assumptions underlying other statements and statements about the Registrant or its business.
This document and any documents incorporated by reference herein also identify important factors which could cause actual results to differ materially from those indicated by the forward looking statements. These risks and uncertainties include uncertainties about whether real estate sales under contract will close, the ability of the Registrant to sell its other real estate assets, the price of real estate sales, environmental and similar liabilities, future operating expenses and the adequacy of capital resources to meet future operating expenses, which are described herein and/or in documents incorporated by reference herein.
The cautionary statements made pursuant to the Private Securities Litigation Reform Act of 1995 above and elsewhere by the Registrant should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Registrant prior to the effective date of such Act. Forward looking statements are beyond the ability of the Registrant to control and in many cases the Registrant cannot predict what factors would cause actual results to differ materially from those indicated by the forward looking statements.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Registrant's financial statements are included elsewhere herein. See "List of Financial Statements."
Item 9.
Item 9. Changes in and Disagreements with Accountant on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The Registrant has no directors or executive officers. The Registrant is managed, and its investment decisions are made, by the general partners of the General Partner. The General Partner is Walsmith Associates Two, a North Carolina general partnership. Except as expressly provided in the Partnership Agreement, the General Partner has the power to do any and all things necessary or incident to the conduct of the Registrant's business. The general partners of the General Partner are:
To the knowledge of the Registrant, no person is the beneficial owner of more than 590 units, 10% of the outstanding Units.
Wellington Park Associates, a North Carolina general partnership, is required to repurchase the Wellington parcel if the Registrant exercises its put option (See "Properties"). The three general partners of the General Partner of the Registrant, are all general partners of Wellington Park Associates. Accordingly, a conflict of interest exists between the general partners of the General Partner and the Registrant with respect to the put option. For that reason, the put option may only be exercised with the prior approval of the limited partners of the Registrant who own at least seventy-five (75%) percent of the outstanding Units of the Registrant.
Item 11.
Item 11. Executive Compensation.
The Agreement of Limited Partnership of the Registrant (the "Partnership Agreement") governs the amount of compensation payable to Walsmith Associates, Two, the General Partner of the Registrant.
Each year any portion of the properties of the Registrant remain undeveloped, the Registrant pays the General Partner an annual $3,000 management fee. This fee was paid to the General Partner by the Registrant during 1997.
If any portion of the Registrant's properties are developed by the Registrant, the Registrant will pay the General Partner a 3% development fee based upon he cost of improvements, net of land. No amounts were paid to the General Partner as a development fee during the year ended December 31, 1997.
The Registrant may also pay personnel engaged by or on its behalf to coordinate or supervise development, construction and operational activities, including partners and employees of its General Partner. During the year ended December 31, 1997, the Registrant paid affiliates of the General Partner $11,247 for record keeping, securities law filings and other administrative services.
The Partnership Agreement calls for the General Partner to be allocated a minimum of 1% of the gain from the sale of property. The General Partner receives cash to the extent it is allocated income. The General Partner has been allocated $5,712 of net income for 1997 and, when a distribution is made, will receive this amount. (See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations.")
Upon the sale of the Martin Parcel and the Wellington Parcel, the General Partner will be paid a broker listing fee of up to five (5%) percent of the sales price if the sale is to a party unaffiliated with the General Partner. If the property is sold by a broker unaffiliated with the General Partner, the Registrant may also pay the unaffiliated broker a two and one-half (2 1/2%) percent broker-reallowance fee. The Registrant paid broker listing fees of $18,743 (2 1/2 % of $749,705) to the General Partner during the year ended December 31, 1997. Additionally, broker listing fees of $14,994 (2% of $749,705) were paid to an affiliate of the General Partner during the year ended December 31, 1997.
No other amounts were paid for services during the year ended December 31, 1997 to the General Partner or any of its partners or employees.
If the Registrant operates developed projects, the General Partner will receive standard leasing commissions and standard property management fees. No amounts were paid during the year ended December 31, 1997.
The General Partner receives cash to the extent it is allocated income. Pursuant to the Partnership Agreement, the General Partner is allocated 1% of each material item of Partnership income, gain, loss, deduction, or credit. Otherwise all distributions are to the limited partners until such time as these distributions equal their original capital contributions plus an additional return of 10% per annum simple interest on their outstanding capital contribution (original contributions as reduced by any prior distributions). Thereafter, Partnership distributions will be allocated 10% to the General Partner and 90% to the limited partners.
Under the terms of a put option as amended on February 1, 1990, the Registrant is required to pay to Wellington Park Associates (the "Wellington Seller"), an affiliate of the General Partner, a portion of the appreciation on any sale of the Wellington Parcel, including a sale pursuant to the Registrant's exercise of the put option. The Wellington Seller will receive fifty (50%) percent of the appreciation (which is the amount by which the gross sales price exceeds $1,223,175, the original cost to the Registrant of the Wellington Parcel) if the put option is exercised. Upon sale of the Wellington Parcel to an unaffiliated third party other than by exercise of the put option, the amount payable to the Wellington Seller will equal fifty (50%) percent of the appreciation reduced by the sum of the following: (a) for each year from March 6, 1990 to the sale date (with partial years prorated according to the number of days prior to closing of such sale), ten (10%) percent of the amount by which (i) the gross proceeds from sale of the Wellington Parcel, exceed (ii) fifty (50%) percent of the appreciation (the "Interest Factor"); plus (b) seventy-five (75%) percent of the amount the Wellington Seller will receive upon sale of the Wellington Parcel remaining after subtracting the Interest Factor.
The Interest Factor could result in reduction of the amount to be received by the Wellington Seller to zero, but cannot result in the Wellington Seller owing any payment to the Registrant. In relation to the Wellington Parcel sales in 1997, the Interest Factor exceeded the Wellington Seller's share of appreciation. Therefore, the Registrant did not pay any amounts to the Wellington Seller during the year ended December 31, 1997.
Information about comparative five-year return on investment in the Registrant compared to market indexes has not been included herein because there is no public market in Units of the Registrant. The limited partnership agreement of the Registrant places substantial restrictions on transfer of Units of the Registrant. Accordingly, the Registrant believes comparisons to indexes of publicly traded securities would not be meaningful disclosure for investors.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) As of March 24, 1998, no person was known by the Registrant to beneficially own more than 5% of the Units. The table set forth below indicates the ownership of units by certain general partners of the General Partner as of March 24, 1998:
* Indicates less than 1%. (1) Held in trust for Mr. Smith's children. Mr. Smith serves as trustee of the trust.
(b) As a limited partnership, the Registrant has no officers and directors, although Alton L. Smith, III, a general partner of the General Partner, serves the Registrant in the role of its principal financial "officer". The General Partner has contributed $1,000 to the Registrant's capital account; however, this contribution is not treated as the equivalent of a Unit of limited partnership interest. The General Partner's contribution constitutes less than 1% of the total capital contributed to the Registrant. Messrs. Walston, Smith and Smith are general partners of the General Partner. Alton L. Smith III beneficially owns 25 units through a trust, for which he serves as trustee. Neither Mr. Walston nor Mr. C. Stephen Smith beneficially owns any units of the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions.
See Item 11 "Executive Compensation."
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) List of Financial Statements: See "List of Financial Statements."
(2) List of Financial Statement Schedules: All schedules are omitted as they are not applicable or the required information is shown in the financial statements or the notes thereto.
(3) Exhibit Index. All exhibits are incorporated by reference.
(b) No Current Report on Form 8-K was filed during the quarter ended December 31, 1997.
(c) The following exhibits have been filed by the Registrant with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (File Number 0-15571) and are incorporated herein by reference:
Exhibit No. 3.1 Amended Agreement of Limited Partnership of the Registrant (incorporated by reference to Exhibit 4.1 to the Registrant's Annual Report filed on Form 10-K for the year ended December 31, 1986).
Exhibit No. 10.1 Purchase Agreement between Registrant and Walsmith Associates regarding the Martin Parcel (incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report filed on Form 10-K for the year ended December 31, 1986).
Exhibit No. 10.2 Offer to Purchase and Contract for the
Sale and Purchase of Real Estate, dated as of January 24, 1986, between Wellington Park Associates and the Registrant (incorporated by reference to Exhibit 6A to the Registrant's Quarterly Report filed on Form 10-Q for the period ended June 30, 1989).
Exhibit No. 10.3 Agreement between the North Carolina Department of Transportation and Walsmith Associates (incorporated by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1986).
Exhibit No. 10.4 Assignment and Assumption Agreement between the Registrant and Walsmith Associates (incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1986).
Exhibit No. 10.5 Amendment to Offer to Purchase and Contract for the Sale and Purchase of Real Estate, dated as of February 1, 1990, between Wellington Park Associates and the Registrant (incorporated by reference to Exhibit 10.6 to the Registrant's Annual Report filed on Form 10-K for the period ended December 31, 1989).
Exhibit No. 10.6 Agreement for the Purchase and Sale of Real Estate, dated as of April 20, 1995, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit C to the Registrant's Current Report filed on Form 8-K, dated April 20, 1995 ).
Exhibit No. 10.7 First Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of August 9, 1995, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit C to the Registrant's Current Report filed on Form 8-K, dated August 9, 1995).
Exhibit No. 10.8 Second Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of April 19, 1996, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit 28.5 to the Registrant's Quarterly Report filed on Form 10-Q for the period ended March 31, 1996).
Exhibit No. 10.9 Third Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of September 10, 1996, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report filed on Form 8-K, dated September 25, 1996).
Exhibit No. 10.10 Fourth Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of September __, 1996, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report filed on Form 8-K, dated September 25, 1996).
Exhibit No. 10.11 Fifth Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of September 27, 1996, between Wellington Center Associates, LLC, ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report filed on Form 8-K, dated September 25, 1996).
Exhibit No. 10.12 Sixth Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of September 12, 1997, between Wellington Center Associates, LLC, ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit 10.12 to the Registrant's Quarterly Report filed on Form 10-Q for the period ended September 30, 1997).
Exhibit No. 27 Financial Data Schedule
(d) All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements attached hereto or notes thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March _____, 1998.
CAROLINA INVESTMENT PARTNERS
By: WALSMITH ASSOCIATES TWO, General Partner
By: /s/ Alton L. Smith, III --------------------------- Alton L. Smith, III General Partner and Principal Financial Officer
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 Capacity Date - --------- -------- ----
/s/Donald F. Walston General Partner of Walsmith March 30, 1998 - ------------------------- Associates Two, general partner of the Registrant
/s/Alton, L. Smith, III - ------------------------- General Partner of Walsmith March 30, 1998 Associates Two, general partner of the Registrant
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
No annual report or proxy statement has been or will be sent to the Limited Partners of the Registrant.
ANNUAL REPORT ON FORM 10-K
ITEMS 8 AND 14(a)(1)
FINANCIAL STATEMENTS
LIST OF FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
CAROLINA INVESTMENT PARTNERS, LIMITED PARTNERSHIP
RALEIGH, NORTH CAROLINA
Form 10-K--Items, 8, 14(a)(1) and (2) and (d)
CAROLINA INVESTMENT PARTNERS, LIMITED PARTNERSHIP
December 31, 1997
LIST OF FINANCIAL STATEMENTS
The following financial statements of Carolina Investment Partners, Limited Partnership are included in Item 8:
Independent Auditors Report
Balance Sheets--December 31, 1997 and 1996
Statements of Operations--Years Ended December 31, 1997, 1996 and 1995
Statements of Changes in Partners' Equity--Years Ended December 31, 1997, 1996, and 1995
Statements of Cash Flows--Years Ended December 31, 1997, 1996, and 1995
Notes to Financial Statements
Schedules to the financial statements for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are inapplicable or the required information is included in the financial statements or the notes thereto.
[LOGO] LYNCH & HOWARD, P.A. CERTIFIED PUBLIC ACCOUNTANTS AICPA SEC Practice Section Raleigh, North Carolina AICPA Private Companies Practice Section ================================================================================
INDEPENDENT AUDITOR'S REPORT
To the Partners Carolina Investment Partners Limited Partnership Raleigh, North Carolina
We have audited the accompanying balance sheets of Carolina Investment Partners Limited Partnership as of December 31, 1997 and December 31, 1996, and the related statements of operations, changes in partners' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Carolina Investment Partners Limited Partnership as of December 31, 1997 and December 31, 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Lynch & Howard, P.A.
February 10, 1998
Exhibit A
CAROLINA INVESTMENT PARTNERS LIMITED PARTNERSHIP Raleigh, North Carolina BALANCE SHEETS
ASSETS
December 31 ------------------------ 1997 1996 ---------- ---------- ASSETS: Cash $ 7,553 $ 194,254 Short-term investments 995,315 11,270 Land held for investment (Note 5) 3,850,572 4,001,280 Accounts receivable - related party 4,692 0 ---------- ----------
$4,858,132 $4,206,804 ========== ==========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES: Accounts payable - trade $ 29,755 $ 13,898 Accounts payable - related party 72,283 7,944 ---------- ----------
Total Liabilities $ 102,038 $ 21,842 ---------- ----------
PARTNERS' EQUITY: General Partner's equity $ 5,711 $ 0 Limited partners' equity; 5,900 units authorized, issued and outstanding 4,750,383 4,184,962 ---------- ----------
Total Partners' Equity $4,756,094 $4,184,962 ---------- ----------
$4,858,132 $4,206,804 ========== ==========
The Notes to Financial Statements are an integral part of this statement.
Exhibit B
CAROLINA INVESTMENT PARTNERS LIMITED PARTNERSHIP Raleigh, North Carolina STATEMENTS OF OPERATIONS
The Notes to Financial Statements are an integral part of this statement.
Exhibit C
CAROLINA INVESTMENT PARTNERS LIMITED PARTNERSHIP Raleigh, North Carolina STATEMENTS OF CHANGES IN PARTNERS' EQUITY
The Notes to Financial Statements are an integral part of this statement.
Exhibit D
CAROLINA INVESTMENT PARTNERS LIMITED PARTNERSHIP Raleigh, North Carolina STATEMENTS OF CASH FLOWS
Exhibit D
CAROLINA INVESTMENT PARTNERS LIMITED PARTNERSHIP Raleigh, North Carolina STATEMENTS OF CASH FLOWS
The Notes to Financial Statements are an integral part of this statement.
.1
CAROLINA INVESTMENT PARTNERS LIMITED PARTNERSHIP Raleigh, North Carolina NOTES TO FINANCIAL STATEMENTS December 31, 1997
(1) ORGANIZATION AND NATURE OF OPERATIONS
Carolina Investment Partners Limited Partnership (the "Partnership") was organized in 1985 to invest in real property which it will sell or lease undeveloped or develop into office or commercial projects. Walsmith Associates Two, a North Carolina General Partnership, is the general partner ("General Partner"). The Partnership has invested in two parcels of real estate located in Cary, North Carolina.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Cash Flows
For the purposes of reporting cash flows, the Partnership considers cash equivalents to be cash on hand, cash in banks, and all highly liquid debt instruments with a maturity of less than three months.
Land Held for Investment
Land held for investment is stated at contract cost plus highway interchange construction costs and capitalized appraisal, survey, and closing costs and adjusted for impairments as required by Financial Accounting Standards Board Statement No. 121. Management compares the cost of land held to sales of similar property to determine the potential for impairment. There are no material differences between the book and federal tax cost basis of the property.
Income Taxes
No provision has been made for income taxes since income or loss is includable in the partners' returns as they report to tax authorities in their respective capacities as partners.
Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CAROLINA INVESTMENT PARTNERS LIMITED PARTNERSHIP Raleigh, North Carolina NOTES TO FINANCIAL STATEMENTS December 31, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Concentrations of Credit Risk
The Partnership maintains cash deposits in banks in excess of the federally insured amounts.
Allocation of Net Income or Net Loss
Pursuant to the Partnership Agreement, the General Partner is allocated 1% of each material item of Partnership income, gain, loss, deduction or credit. The limited partners receive 99% of each material item of Partnership income, gain, loss, deduction or credit until their original capital contributions plus interest have been distributed (see Cash Distribution Policy below). Thereafter, the net income is allocated 10% to the General Partner and 90% to the limited partners.
Net loss is allocated 10% to the General Partner and 90% to the limited partners. The Partnership Agreement provides that no partner's capital account balance shall be less than zero. Thus, no loss from operations was allocated to the General Partner for the years ended December 31, 1996 or 1995. For purposes of the allocation, net income or net loss is the amount recognized by the Partnership for federal income tax purposes, excluding gains or losses from the disposition of land. For the years ended December 31, 1997, 1996 and 1995 there were no material differences between net income (loss) as reported for financial statement and federal income tax purposes.
Cash Distribution Policy
The General Partner receives cash to the extent it is allocated income. Otherwise, all distributions are to the limited partners until such time as these distributions equal 100% of their original capital contributions plus an additional return of 10% per annum simple interest on their outstanding capital contribution (original contributions as reduced by any prior distributions). Thereafter, Partnership distributions will be allocated 10% to the General Partner and 90% to the limited partners.
Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform with the 1997 presentation. Such reclassifications had no effect on net income or partners' equity as previously reported.
CAROLINA INVESTMENT PARTNERS LIMITED PARTNERSHIP Raleigh, North Carolina NOTES TO FINANCIAL STATEMENTS December 31, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Short-Term Investments
Short-term investments consisted of certificates of deposit and money market funds.
(3) RELATED PARTY TRANSACTIONS
The Partnership Agreement allows the General Partner to receive a broker listing fee of 5% of the sales price for all properties sold by the Partnership to unaffiliated buyers. An affiliate of the General Partner received a broker listing fee of $14,994 in 1997 and $47,760 in 1996 and the General Partner received a broker listing fee of $18,743 in 1997 and $59,700 in 1996 (See Note 6).
The Partnership Agreement allows the Partnership to pay the General Partner a $3,000 annual management fee while the properties are in an undeveloped state. In addition, affiliates of the General Partner performed Partnership accounting, SEC reporting, administrative services and engineering consulting totaling $11,247, $5,821 and $2,671 during 1997, 1996 and 1995, respectively. Amounts payable to related parties at December 31, 1997 and 1996 were $72,283 and $ 7,944, respectively.
(4) NOTE PAYABLE - RELATED PARTY
On February 2, 1995 the General Partner made a loan to the Partnership of $55,000. The purpose of this loan was to fund the current operating expenses of the Partnership. The note was payable upon the sale of Partnership properties or other sources of funds that become available but was to be paid in full no later than June 1, 1996. As of June 1, 1996 the Partnership had not closed on the pending land sale; therefore, the General Partner made another loan to the Partnership of $16,064, the balance of the first loan. This loan was paid off on September 30, 1996 (See Note 6). Both notes accrued interest at prime plus one percent and the interest was payable quarterly. Interest expense for the years ended December 31, 1997, 1996 and 1995 was $0, $1,127 and $1,805, respectively.
CAROLINA INVESTMENT PARTNERS LIMITED PARTNERSHIP Raleigh, North Carolina NOTES TO FINANCIAL STATEMENTS December 31, 1997
(5) LAND HELD FOR INVESTMENT AND RELATED COMMITMENTS
Martin Parcel
In June 1986, the Partnership purchased for approximately $3,080,200 an undeveloped 26.7 acre parcel of land in Cary, North Carolina, known as the Martin Parcel, from an affiliate of the General Partner.
Wellington Parcel
In July 1986, the Partnership purchased for $1,223,175 an undeveloped 16.3 acre parcel of land in Cary, North Carolina, known as the Wellington Parcel, from an affiliate of the General Partner. The purchase contract provides that the Partnership will share evenly with the affiliate in any profits resulting from the sale of the Wellington Parcel. The Partnership may, at its option, require the affiliate to repurchase the Wellington Parcel for $225,000 per acre (the "Put Option"). A 75% vote of the limited partners is required for this Put Option to be exercised.
At a meeting of the limited partners held in March 1990, fewer than 75% of the partners voted to exercise the Put Option discussed above. A new agreement was entered into called the Put Option Agreement Amendment. Under the terms of the Put Option Agreement Amendment, the Partnership will retain a greater percentage of the property appreciation upon sale of the Wellington Parcel to an unaffiliated third party than would be retained if the Put Option were exercised. If the limited partners elect to exercise the Put Option at a later date, the Put Option Agreement Amendment will be void.
The Partnership sold approximately 2.0 and 10.9 acres of the Wellington Parcel during 1997 and 1996, respectively (See Note 6).
The remaining 3.4 acres of the Wellington Parcel were under contract to close on or before January 30, 1998, in conjunction with sale of the above 12.9 acres. As of February 10, 1998 the properties had not closed.
CAROLINA INVESTMENT PARTNERS LIMITED PARTNERSHIP Raleigh, North Carolina NOTES TO FINANCIAL STATEMENTS December 31, 1997
(6) GAIN ON SALE OF LAND
Year 1997
During 1997 the Partnership sold approximately 2 acres of the Wellington Parcel to an unrelated party. The total sales price for the property, a portion of which was owned by an affiliate of the General Partner, was $930,284. This sales price was allocated among the Partnership and the affiliate based upon acreage sold by each, with $749,705 to the Partnership and $180,579 to the affiliate. The Partnership's proceeds were as follows:
The Partnership agreement calls for the General Partner to be allocated a minimum of 1% of any gain from the sale of property. To the extent the General Partner is allocated gain, it also receives a distribution. Accordingly, the General Partner's share of the gain is $5,413 (net sale proceeds of $691,977 less the Registrant's basis in the property sold of $150,707 equals a gain of $541,270; 1% of this amount is $5,413).
CAROLINA INVESTMENT PARTNERS LIMITED PARTNERSHIP Raleigh, North Carolina NOTES TO FINANCIAL STATEMENTS December 31, 1997
(6) GAIN ON SALE OF LAND - Continued
Year 1996
In September 1996 the Partnership sold approximately 10.9 acres of the Wellington Parcel to a third party. The total sales price for the property, a portion of which was owned by an affiliate of the General Partner, was $2,400,000. This sales price was allocated among the Partnership and the affiliate based upon acreage sold by each, with $2,388,000 to the Partnership and $12,000 to the affiliate. The Partnership's proceeds were utilized as follows:
Gross sales price $ 2,388,000 Commissions (71,640) Commissions - related party (107,460) Deed stamps and attorney fees (5,916) -----------
Net sales proceeds $ 2,202,984
Wellington Parcel property taxes (16,511) Repayment of note payable and accrued interest to General Partner (16,819) Funds reserved for future operating needs (199,833) -----------
Funds distributed to partners $ 1,969,821 ===========
The Partnership Agreement calls for the General Partner to be allocated a minimum of 1% of any gain from the sale of property. To the extent the General Partner is allocated gain, it also receives a distribution. Accordingly, the General Partner's share of the gain is $13,821 (net sales proceeds of $2,202,984 less the Registrant's basis in the property sold of $820,903 equals a gain of $1,382,081; 1% of this amount is $13,821).
On November 4, 1996 the Registrant distributed a total of $1,969,821, with $1,956,000 going to the limited partners ($331.53 per unit) and $13,821 to the General Partner.
INDEX TO EXHIBITS
Exhibit No. Description ----------- ----------- 3.1 Amended Agreement of Limited Partnership of the Registrant (incorporated by reference to Exhibit 4.1 to the Registrant's Annual Report filed on Form 10-K for the year ended December 31, 1986).
10.1 Purchase Agreement between Registrant and Walsmith Associates regarding the Martin Parcel (incorporated by reference to Exhibit 10.1to the Registrant's Annual Report filed on Form 10-K for the year ended December 31, 1986).
10.2 Offer to Purchase and Contract for the Sale and Purchase of Real Estate, dated as of January 24, 1986, between Wellington Park Associates and the Registrant (incorporated by reference to Exhibit 6A to the Registrant's Quarterly Report filed on Form 10-Q for the period ended June 30, 1989).
10.3 Agreement between the North Carolina Department of Transportation and Walsmith Associates (incorporated by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1986).
10.4 Assignment and Assumption Agreement between the Registrant and Walsmith Associates (incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1986).
10.5 Amendment to Offer to Purchase and Contract for the Sale and Purchase of Real Estate, dated as of February 1, 1990, between Wellington Park Associates and the Registrant (incorporated by reference to Exhibit 10.6 to the Registrant's Annual Report filed on Form 10-K for the period ended December 31, 1989).
10.6 Agreement for the Purchase and
Sale of Real Estate, dated as of April 20, 1995, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit C to the Registrant's Current Report filed on Form 8-K, dated April 20, 1995 ).
10.7 First Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of August 9, 1995, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit C to the Registrant's Current Report filed on Form 8-K, dated August 9, 1995).
10.8 Second Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of April 19, 1997, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit 28.5 to the Registrant's Quarterly Report filed on Form 10-Q for the period ended March 31, 1997).
10.9 Third Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of September 10, 1997, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report filed on Form 8-K, dated September 25, 1997).
10.10 Fourth Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of September __, 1997, between Churchill & Banks, Ltd., ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report filed on Form 8-K, dated September 25, 1997).
10.11 Fifth Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of September 27, 1997, between Wellington Center Associates, LLC, ADA Corporation of North Carolina, and the
Registrant (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report filed on Form 8-K, dated September 25, 1997).
10.12 Sixth Amendment to the Agreement for the Purchase and Sale of Real Estate, dated as of September 12, 1997, between Wellington Center Associates, LLC, ADA Corporation of North Carolina, and the Registrant (incorporated by reference to Exhibit 10.12 to the Registrant's Quarterly Report filed on Form 10-Q for the period ended September 30, 1997).
27 Financial Data Schedule