EXHIBIT A
LE BEAU CHEVAL TB PARTNERS, LLC
COMPANY DISCLOSURE DOCUMENT
(see note below)
Note The following document highlights certain facts about and risks associated with Thoroughbred ownership and involvement in a limited liability company, as well as your dealings with Le Beau Cheval TB Partners, LLC. Each member will acknowledge that he or she has read and understands the information contained in this document and in the Subscription Agreement. 2
RISK OF RACING AND PARTNERSHIPS
Horse Industry
Horse racing is highly speculative and involves a high degree of risk and the results of this activity cannot be forecasted accurately. No assurance can be given that your purchase price will be recovered or that any profit will be realized; nor can any assurance be given that purse earnings will be obtained or, even if obtained, that they can be obtained in profitable quantities.
Horses are live animals prone to injury, illness, and various ailments. The horse will be trained by a professional trainer for racing and entered into racing subject to health and ability. Even without ill health, some horses perform better than others.
The Manager
The Manager, Le Beau Cheval TB Partners, LLC (“Le Beau”) participates as the manager for other horses owned by limited liability companies (each an “LLC” or the “Company”). The Manager may enter other racehorses that are competitive with the horse owned by the LLC in which you are a member and is not restricted in the conduct of any such activities.
Le Beau is subject to substantial financial risks, including those customarily associated with the horse racing industry which could adversely affect its ability to act on or perform its contractual obligations. The Manager is under no obligation to provide any financial assistance to the LLC.
The Manager’s lending institution has a lien on any interest in the LLC owned by Le Beau. Such lien does not extend to any interest owned by a member.
The Limited Liability Company
Members’ purchase price includes an amount estimated by Le Beau sufficient to cover the operating expenses for the initial period of the LLC (generally through December 31 of the year in which the Racehorse was purchased) unless specifically specified and a reasonable markup over Le Beau’s acquisition cost. Operating costs will be the responsibility of the members after the initial period.
The use of revenues to satisfy operating costs, if any, for the Horse may delay cash distributions, if any, to members. After the initial period, members may be required to make additional contributions if operating costs are in excess of earnings and other revenues.
There is no public market maintained for an investment in the LLC. Individuals should be prepared to maintain their ownership indefinitely and cannot expect to be able to liquidate their investment readily even in case of an emergency.
LLC cash will be deposited and held in the main operating account of Le Beau.
Income Tax
The Manager has not obtained, and does not intend to request a ruling from the Internal Revenue Service concerning any tax aspects of the LLC. The prospective owner is urged to consult with their own tax and legal advisors to satisfy themselves as to the income and other tax consequences of their participation in the LLC. 3
MANAGER AND TEAM*
Le Beau shall serve as manager for the LLC. As manager, Le Beau shall be solely responsible for the management of the Company’s business. For a specific description of the manager’s rights and limitations, see Sections 2.2-2.4 of the Company’s operating agreement.
* The role of the Manager, its rights, duties, limitations and obligations, as well as the mechanism for its selection and replacement, among other items, is set forth in greater detail in the Company’s operating agreement. All owners have been or will be furnished a copy of the Company’s operating agreement prior to becoming a member of the Company. The information set forth immediately above is merely a brief summary and is subject in all respects to the provisions contained in the Company’s operating agreement. You are urged to read the Company’s operating agreement in its entirety.
Management Team
CRAIG MINTEN, Manager
Craig has been involved in the Thoroughbred industry for more than 15 years, is the founder and Manager of Le Beau Cheval TB Partners, LLC. He gained hands-on experience working with Thoroughbreds as a teenager and began breeding, racing and developing Thoroughbreds in 2005 while building state of the art Thoroughbred farms.
Minten, as Manager, is responsible for the overall management of the LLC and the horse which it owns.
[History of Thoroughbred experience.]
MANAGEMENT OF LLC CAPITAL **
Initial Capital Contribution
The initial capital contribution in the syndication covers the owner’s interest in the horse and all training, care and maintenance costs through the end of the horse’s two-year old season.
The initial capital contribution does not cover expenses incurred in racing the horse (see “Race Expenses” below).
Subsequent Contributions
The Manager shall evaluate the need for further capital on a periodic basis, generally quarterly. If necessary, additional contributions will be made one quarter in advance and are based on historical maintenance costs and the current status of the horse (in training or out of training and location).
Members generally receive an invoice for their pro rata portion of any amounts due about six weeks into the quarter for which the call is made.
Distributions
All capital contributions and race earnings will be credited to the LLC account. The Manager, at its discretion, may make a distribution from the account. Distributions are typically made when there are 4
excess funds in the account after projecting the next quarter’s expenses. The Manager will notify the members by e-mail of any plans to distribute earnings from the LLC account.
Dissolution
The LLC will dissolve upon the occurrence any of the conditions as set forth in section 9.1 of the Company’s operating agreement. In our experience as a Manager, the most common of these events are (a) the sale of the horse, (b) retirement of the horse or (c) passing of the horse. The dissolution process usually takes about 45-60 days from any of the above noted events (members shall be notified if it is expected to take longer). The net balance in the account after the satisfaction of all outstanding obligations to vendors, if any, is distributed to the member, as more fully described in section 9.2 of the Company’s operating agreement. The members shall also receive a full accounting for the LLC at the time of the final distribution.
** The information set forth immediately above is merely a brief summary and is subject in all respects to the provisions contained in the Company’s operating agreement. You are urged to read the Company’s operating agreement in its entirety.
ACCOUNTING AND TAXES
Limited Liability Company Accounting
The Manager shall prepare an accounting summary with detailed activity for the LLC on a quarterly basis. Our best effort is made to post the summary to the client side of our website (feel free to request regular mail or e-mail) within six weeks after the close of the quarter. Invoices supporting actual expenditures are available upon request.
Taxes
The Manager, through an external accountant, prepares and files the LLC’s Federal and state tax returns. The fee for preparation for the LLC is generally between $1,000 and $1,400. Our best effort is made to e- mail (feel free to request regular mail) a schedule k-1 to each member by the end of February (each partnership has a calendar tax year).
MANAGER’S COMPENSATION
Initial Purchase of Horse – Le Beau shall initially purchase for itself the horse purchased by the Company. Le Beau shall at its sole discretion and upon agreement by the Company, sell the horse it has purchased to the Company at a reasonable mark-up over its cost.
Management
For managing the Company, the Manager shall receive such amounts (per Racehorse, not per Member) as are set forth in the Company’s operating agreement, which in general are as follows: 5
$300 per month
Percentage of purse earnings:
o 5% of the gross purse earnings until the lifetime earnings exceed the original syndication
price.
o 10% of the gross purse earnings once the lifetime earnings exceed the original syndication price.
Commission on Sale
The Manager will receive a percentage of the proceeds from the sale (or partial sale) of each horse (for each horse if more than one, the “Sale Proceeds”) to be determined in accordance with the following table:
Percentage of Sale Proceeds payable to Manager
If the Sale Proceeds are:
Greater than or equal to 100% of the Total Cost but less than 200% of the Total Cost
Greater than or equal to 200% of the Total Cost but less than 300% of the Total Cost
Greater than or equal to 300% of the Total Cost
(the “Sale Commission”): 5
10
15
For the purpose of the above table, “Total Cost” means (i) the initial purchase price and all subsequent capital contributed to the Company (increased for any pending obligations of the Company at the time of sale) less (ii) all capital distributed for that same time period.
In the event that paying the Manager the Sale Commission it would otherwise be entitled to would result in an aggregate distribution to Members which would be less than the Total Cost, then, notwithstanding anything contained in this Agreement, the Manager shall not be entitled to such Sale Commission.
Stallion syndication
If the horse is syndicated at the end of its racing career, the Manager shall receive four (4) shares of a customary 40-share syndicate which shall equal ten percent (10%) ownership in the horse. 6
FINANCES OF RACING
Training, Care and Maintenance
The average costs for maintaining a horse in training (costs may vary significantly from horse to horse):
Trainer – $90 – $100 per day
Veterinarian – $900 per month Blacksmith – $150 per month Transportation – $1,500 per year
Mortality insurance – annual premium 4-5% of auction value
On average, a horse managed by Le Beau will cost about $55,000 per year to maintain. Please feel to request a sample accounting statement from Le Beau.
Operating expenses shall be billed to the LLC at cost with the following exceptions:
Mortality Insurance -Le Beau maintains a mortality insurance policy with Equus Standardbred Station. All horses purchased by Le Beau at public auction are insured for mortality at the auction value. The coverage amount may be subsequently adjusted up or down (and in some cases dropped) based on the Manager’s sole discretion. Investors may purchase additional mortality insurance outside of the Company.
The premium paid by Le Beau historically has ranged from 4.2% to 5%. Le Beau bills the premium at actual costs to the partnership after the two-year old season (starting January 1 of the horse’s three year old season). Le Beau is eligible for a no-claims bonus or commission at the end of the policy based on the number of casualties that occurred during the applicable period. If a bonus is received on the overall policy, the pro-rata premium is not refunded to the members of the Company.
Veterinarian – Certain veterinarians grant Le Beau discounts for timely payment or for volume of service. The discounts range from 1.5% to 10%. If Le Beau receives a discount, it is not credited to the Company.
Each Member shall be billed one quarter in advance for their pro rata share of all costs incurred in the care and training of horse.
In the case of the horse running in a stakes race held away from the current stabling location, the Manager shall receive one coach class airfare and hotel accommodations paid for by the Company’s operating account. 7
Purse Earnings
Purse earnings are paid out based on position of finish. The industry standard for payouts (may vary in different race jurisdictions):
1st 60%
2nd 20%
3rd 10%
4th 6%
5th 4%
Race Expenses
Race expenses are either deducted from the purse account at the race track or billed to Le Beau by the vendor. Industry standard race expenses (percentages and takeouts may vary by trainer and race jurisdiction):
Trainer’s percentage – 10% Stable hand bonus – 3% Jockey fee:
o 10% for a win
o 5% second or third
o set fee of $60 – $100 for out of the money
Le Beau Cheval TB Partners, LLC’s percentage – (see Summary of management terms) Lasix fee – $20
Pony to post – $20 – $25
Photos/DVDs – winning races State and local taxes
Miscellaneous (each is not greater than 1%):
o Backstretch pension
o Backstretch insurance
o Jockey’s insurance
o Jockey Club
o Horseman’s Association
o [Horse retraining/retirement] Fund
The net earnings typically range from 65% to 80% of actual race winnings.
If the horse is pointed towards a stake race, there may be additional fees:
Nomination
Starters fee Entry fee 8
Accommodations
The Manager makes every attempt to provide each investor with two seats for the days that the Company’s horse runs. In some cases, seats allocated to the Manager are limited in number (big event days). If the Manager is unable to obtain enough seats for all members, the tickets are distributed based total ownership in the Company. For some Stakes Races, it is unlikely that the Manager will be able to accommodate an investor at the 2.5% level.
Please note, if the Manager is charged by the host for the ticket allotment, then such cost will be passed on (billed) to the investor.
Privacy Policy
Le Beau collects non-public information from potential members’ that is provided to us by you.
Le Beau does not sell, rent or share non-public information provided by potential members, current or former clients with other people or non-affiliated companies except under the following circumstances:
In response to subpoenas, court orders, or legal process, or to establish or exercise our legal rights or defend against legal claims; and
When we believe it is necessary to share information in order to investigate, prevent, or take action regarding illegal activities, suspected fraud, situations involving potential threats to the physical safety of any person, or as otherwise required by law.
Corporate Pledge
At Le Beau Cheval TB Partners, LLC, we recognize the importance of honesty, credibility and integrity to your success in the horse racing business. We are committed to upholding the highest ethical standards in all of our business relationships.
We pledge to our clients:
To treat you with respect in all dealings
To be honest and open in all communications
To disclose all material information, both good and bad, in a timely manner
To be responsive to your requests
To manage your investment(s) with same degree of care we use when managing our own
We also pledge to treat the horses in our programs with the best training regimens available, to never knowingly put them at risk and to provide them with the best veterinary care possible when it is necessary.
We recognize that living up to the letter and spirit of our pledge may be challenging at times. Situations do arise where there is not agreement on what constitutes an honest, ethical and/or correct business practice. In dealing with these matters, we will always be mindful of our pledge to our members and will be happy to candidly explain our reasons for the course we choose and the actions we take.