<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
AMERICAN INCOME 7 LIMITED PARTNERSHIP
(NAME OF SUBJECT COMPANY)
ATLANTIC ACQUISITION LIMITED PARTNERSHIP
(BIDDER)
UNITS OF LIMITED PARTNERSHIP INTEREST
(TITLE OF CLASS OF SECURITIES)
NONE
(CUSIP NUMBER OF CLASS OF SECURITIES)
----------------
COPY TO:
GARY D. ENGLE, PRESIDENT THOMAS F. GLOSTER III, ESQ.
AAL, INC. PEABODY & BROWN
98 NORTH WASHINGTON STREET 101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02114 BOSTON, MASSACHUSETTS 02110
(617) 854-5800 (617) 345-1141
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF BIDDER)
CALCULATION OF FILING FEE
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TRANSACTION AMOUNT OF
VALUATION* FILING FEE
----------- ----------
<S> <C>
$564,255 $112.85
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
* For purposes of calculating the filing fee only. This amount assumes the
purchase of 32,133 units (the "Units") of limited partnership interest of
the subject company for $17.56 per Unit in cash.
[_]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, of the Form
or Schedule and date of its filing.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
D
<PAGE>
CUSIP No. None 14D-1
------
--------------------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Atlantic Acquisition Limited Partnership
I.R.S. I.D. No. 04-3281675
--------------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(a) [_]
(b) [_]
--------------------------------------------------------------------------------
3. SEC Use Only
--------------------------------------------------------------------------------
4. Source of Funds
WC; BK
--------------------------------------------------------------------------------
5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to Item
2(e) or 2(f)
[_]
--------------------------------------------------------------------------------
6. Citizenship or Place of Organization
Massachusetts
--------------------------------------------------------------------------------
7. Aggregate Amount Beneficially Owned by Each Reporting Person
None
--------------------------------------------------------------------------------
8. Check Box if the Aggregate Amount in Row 7 Excludes Certain Shares
[_]
--------------------------------------------------------------------------------
9. Percent of Class Represented by Amount in Row 7
N/A
--------------------------------------------------------------------------------
10. Type of Reporting Person
PN
--------------------------------------------------------------------------------
2
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is American Income 7 Limited
Partnership, a Massachusetts limited partnership (the "Partnership"), which
has its principal executive offices at 98 North Washington Street, Boston,
Massachusetts 02114.
(b) This Statement relates to the offer by Atlantic Acquisition Limited
Partnership, a Massachusetts limited partnership (the "Purchaser"), to
purchase up to 32,133 of the outstanding units (the "Units") of limited
partnership interest of the Partnership at $17.56 per Unit, net to the seller
in cash, without interest, upon the terms and subject to the conditions set
forth in the Offer to Purchase dated August 18, 1995 (the "Offer to
Purchase"), and in the related Letter of Transmittal, copies of which are
attached hereto as Exhibits (a)(1) and (a)(2), respectively. The number of
Units outstanding is set forth under "INTRODUCTION" of the Offer to Purchase
and is incorporated herein by reference.
(c) The information set forth under "THE TENDER OFFER--Section 7. Effects of
the Offer" of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) The information set forth under "INTRODUCTION," "THE TENDER OFFER--
Section 11. Certain Information Concerning the Purchaser" and Schedule 1 of
the Offer to Purchase is incorporated herein by reference.
(e)-(f) During the last five years, neither the Purchaser, AAL, Inc., the
general partner of the Purchaser nor, to the best of the Purchaser's
knowledge, any of the persons listed in Schedule 1 of the Offer to Purchase
(i) has been convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) or (ii) was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal
or state securities laws or finding any violation of such laws.
(g) The information set forth in Schedule 1 of the Offer to Purchase is
incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) The information set forth in "THE TENDER OFFER--Section 10. Conflicts of
Interest and Transactions with Affiliates and Related Parties" and "THE TENDER
OFFER--Section 13. Background of the Offer" of the Offer to Purchase is
incorporated herein by reference. In addition, the information set forth in
Note 4 to the financial statements of the Partnership included in the Form 10-
K of the Partnership for the fiscal year ended December 31, 1994 ("Note 4"), a
copy of which is attached hereto as Exhibit (g)(i), and in Note 5 to the
financial statements of the Partnership included in the Form 10-Q of the
Partnership for the six months ended June 30, 1995 ("Note 5"), a copy of which
is attached hereto as Exhibit (g)(ii), is incorporated herein by reference.
(b) The information set forth in "THE TENDER OFFER--Section 13. Background
of the Offer" of the Offer to Purchase is incorporated herein by reference. In
addition, the information set forth in Note 4 and Note 5 is incorporated
herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in "THE TENDER OFFER--Section 10.
Conflicts of Interest and Transactions with Affiliates and Related Parties"
and "THE TENDER OFFER--Section 12. Source of Funds" of the Offer to Purchase
is incorporated herein by reference.
(c) Not applicable.
3
<PAGE>
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(b) The information set forth in "THE TENDER OFFER--Section 8. Future
Plans" and "THE TENDER OFFER--Section 13. Background of the Offer" of the
Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
(d) The information set forth in "THE TENDER OFFER--Section 8. Future Plans"
of the Offer to Purchase is incorporated herein by reference.
(e)-(g) Not applicable.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) The information set forth in "INTRODUCTION" and "THE TENDER OFFER--
Section 11. Certain Information Concerning the Purchaser" of the Offer to
Purchase is incorporated herein by reference.
(b) None.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in "THE TENDER OFFER--Section 12. Source of Funds"
of the Offer to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
None.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
None.
ITEM 10. ADDITIONAL INFORMATION.
(a) None.
(b)-(d) The information set forth in "THE TENDER OFFER--Section 15. Certain
Legal Matters" of the Offer to Purchase is incorporated herein by reference.
(e) None.
(f) Reference is hereby made to the Offer to Purchase and the related Letter
of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and
(a)(2), respectively, and which are incorporated herein in their entirety by
reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase dated August 18, 1995.
(a)(2) Letter of Transmittal.
(a)(3) Form of Cover Letter dated August 18, 1995, from Atlantic
Acquisition Limited Partnership to Unitholders.
(b) Commitment Letter dated August 4, 1995, between SunAmerica Corporate
Finance and AAL, Inc.
4
<PAGE>
(c) None.
(d) None.
(e)-(f) Not applicable.
(g)(i) Note 4 to the Financial Statements of American Income 7 Limited
Partnership included in the Form 10-K of American Income 7 Limited
Partnership for the fiscal year ended December 31, 1994.
(g)(ii) Note 5 to the Financial Statements of American Income 7 Limited
Partnership included in the Form 10-Q of American Income 7 Limited
Partnership for the six months ended June 30, 1995.
5
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Dated: August 18, 1995
ATLANTIC ACQUISITION LIMITED
PARTNERSHIP
By: AAL, Inc., its general partner
By: /s/ Gary D. Engle
---------------------------------
Name: Gary D. Engle
Title: President
6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
(a)(1) Offer to Purchase dated August 18, 1995.
(a)(2) Letter of Transmittal.
(a)(3) Form of Cover Letter dated August 18, 1995, from
Atlantic Acquisition Limited Partnership to
Unitholders.
(b) Commitment Letter dated August 4, 1995, between
SunAmerica Corporate Finance and AAL, Inc.
(c) None.
(d) None.
(e)-(f) Not applicable.
(g)(i) Note 4 to the Financial Statements of American Income
7 Limited Partnership included in the Form 10-K of
American Income 7 Limited Partnership for the fiscal
year ended December 31, 1994.
(g)(ii) Note 5 to the Financial Statements of American Income
7 Limited Partnership included in the Form 10-Q of
American Income 7 Limited Partnership for the six
months ended June 30, 1995.
</TABLE>
<PAGE>
OFFER TO PURCHASE FOR CASH
UP TO 32,133 UNITS OF LIMITED PARTNERSHIP INTEREST
OF
AMERICAN INCOME 7 LIMITED PARTNERSHIP
AT
$17.56 NET PER UNIT
BY
ATLANTIC ACQUISITION LIMITED PARTNERSHIP
--------------------------------------------------------------------------------
THE OFFER, WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT
5:00 P.M., EASTERN TIME, ON SEPTEMBER 29, 1995, UNLESS EXTENDED.
--------------------------------------------------------------------------------
Atlantic Acquisition Limited Partnership, a newly-formed Massachusetts
limited partnership (the "Purchaser"), hereby offers to purchase up to 32,133
of the outstanding Units (the "Units") of limited partnership interest of
American Income 7 Limited Partnership, a Massachusetts limited partnership
(the "Partnership"), at a purchase price of $17.56 per Unit, net to the seller
in cash, without interest, upon the terms and subject to the conditions set
forth in this Offer to Purchase (the "Offer to Purchase") and in the related
Letter of Transmittal, as each may be supplemented or amended from time to
time (which together constitute the "Offer"). The Offer is made to Unitholders
of record as of August 10, 1995. The 32,133 Units sought pursuant to the Offer
represent approximately 45% of the Units outstanding as of August 10, 1995.
The Offer is not conditioned upon any minimum number of Units being
tendered. If more than 32,133 Units are validly tendered and not withdrawn,
the Purchaser will accept for purchase, on a pro rata basis, 32,133 Units,
subject to the terms and conditions herein.
In order for his tender to be valid, a Unitholder must tender either (i) all
Units owned by such Unitholder or (ii) a portion of his Units but not fewer
than the minimum investment amount of 10 Units (8 Units for IRAs or other
Qualified Plans).
The Purchaser expressly reserves the right, in its sole discretion, at any
time and from time to time, (i) to extend the period of time during which the
Offer is open and thereby delay acceptance for payment of, and the payment
for, any Units, (ii) to terminate the Offer and not accept for payment any
Units not theretofore accepted for payment or paid for, (iii) upon the
occurrence of any of the conditions specified in Section 14, to delay the
acceptance for payment of, or payment for, any Units not theretofore accepted
for payment or paid for, and (iv) to amend the Offer in any respect
(including, without limitation, by increasing or decreasing the consideration
offered, increasing or decreasing the number of Units being sought or both).
Notice of any such extension, termination or amendment will promptly be
disseminated to Unitholders in a manner reasonably designed to inform
Unitholders of such change in compliance with Rule 14d-4(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In the case
of an extension of the Offer, such extension will be followed by a press
release or public announcement which will be issued no later than 9:00 a.m.,
Eastern time, on the next business day after the scheduled Expiration Date, in
accordance with Rule 14e-1(d) under the Exchange Act.
----------------
The Information Agent for the Offer is:
D.F. King & Co., Inc.
----------------
The Depositary for the Offer is:
STATE STREET BANK AND TRUST COMPANY
----------------
August 18, 1995
D
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION............................................................ 1
THE TENDER OFFER........................................................ 4
Section 1. Terms of the Offer.......................................... 4
Section 2. Proration; Acceptance for Payment and Payment for Units..... 4
Section 3. Procedures for Tendering Units.............................. 5
Section 4. Withdrawal Rights........................................... 6
Section 5. Extension of Tender Period; Termination; Amendment.......... 6
Section 6. Certain Federal Income Tax Consequences..................... 7
Section 7. Effects of the Offer........................................ 9
Section 8. Future Plans................................................ 10
Section 9. Certain Information Concerning the Partnership.............. 10
Section 10. Conflicts of Interest and Transactions with Affiliates and
Related Parties............................................ 15
Section 11. Certain Information Concerning the Purchaser................ 16
Section 12. Source of Funds............................................. 16
Section 13. Background of the Offer..................................... 18
Section 14. Conditions of the Offer..................................... 20
Section 15. Certain Legal Matters....................................... 21
Section 16. Certain Fees and Expenses................................... 22
Section 17. Miscellaneous............................................... 22
Schedule 1--Information with respect to Persons Controlling the Purchaser
and the General Partner..................................... 23
Schedule 2--AFG Partnerships............................................. 24
</TABLE>
<PAGE>
To the Holders of Units of
Limited Partnership Interest
of American Income 7
Limited Partnership
INTRODUCTION
Atlantic Acquisition Limited Partnership, a newly-formed Massachusetts
limited partnership (the "Purchaser"), hereby offers to purchase up to 32,133
of the outstanding Units (the "Units") of limited partnership interest of
American Income 7 Limited Partnership, a Massachusetts limited partnership
(the "Partnership"), at a purchase price of $17.56 per Unit (the "Purchase
Price"), net to the seller in cash, without interest, upon the terms and
subject to the conditions set forth in this Offer to Purchase (the "Offer to
Purchase") and in the related Letter of Transmittal, as each may be
supplemented or amended from time to time (which together constitute the
"Offer"). Holders of Units ("Unitholders") who tender their Units will not be
obligated to pay any commissions or partnership transfer fees, which fees will
be borne by the Purchaser. The Purchaser will also pay all charges and
expenses of D.F. King & Company, Inc. (the "Information Agent") and State
Street Bank and Trust Company (the "Depositary") in connection with the Offer.
In order for his tender to be valid, a Unitholder must tender either (i) all
Units owned by such Unitholder or (ii) a portion of his Units but not fewer
than the minimum investment amount of 10 Units (8 Units for IRAs or other
Qualified Plans).
The Offer will provide Unitholders with an opportunity to liquidate their
investment without the usual transaction costs associated with market sales.
Unitholders may no longer wish to continue their investment in the Partnership
for a number of reasons, including:
. The absence of a formal trading market for Units, although there are some
limited resale mechanisms which may be available to Unitholders wishing
to sell their Units
. General disenchantment with long-term investments in limited partnerships
. The complexities and costs of preparing and filing personal federal,
state and local income tax returns resulting from an investment in the
Units, particularly for Unitholders with a small investment in the
Partnership
. For Unitholders which are IRAs or other qualified pension, profit-sharing
or stock bonus plans (collectively, "Qualified Plans"), the further
complexity and costs of preparing income tax returns, and the potential
tax liability, resulting from the generation by the Partnership of
"unrelated business taxable income"
. The lack of assurance that the Partnership will continue to generate
substantial cash distributions, given the credit risks associated with
Partnership lessees and the uncertain nature of the future operating
costs of the Partnership and of the amount of any sale or re-lease
proceeds from Partnership equipment
. The opportunity to transfer Units without the costs and commissions
normally associated with a transfer
. More immediate use for the cash tied up in an investment in the Units
The Partnership is expected to terminate no later than December 31, 1997.
The Offer is not conditioned upon any minimum number of Units being
tendered. If more than 32,133 Units are validly tendered and not withdrawn,
the Purchaser will accept for purchase on a pro rata basis 32,133 Units,
subject to the terms and conditions herein.
Unitholders desiring to tender all or a portion of their Units, as described
above, should complete and sign the related Letter of Transmittal enclosed
herewith and forward the Letter of Transmittal to the Depositary. Instructions
for completing the Letter of Transmittal are attached thereto and a
preaddressed envelope to the Depositary is enclosed.
The Purchaser's purpose in making the Offer is to acquire a substantial
equity interest in the Partnership for investment purposes and with the view
to making a profit. (See "THE TENDER OFFER--Section 13.
1
<PAGE>
Background of the Offer.") Although the number of Units being sought in the
Offer will not give the Purchaser absolute control of the Partnership, if the
Purchaser is successful in obtaining all or a substantial portion of the Units
it is tendering for, it will be positioned to exercise significant influence
over the outcome of any vote by the Unitholders.
The Partnership was organized as a Massachusetts limited partnership in
accordance with its partnership agreement (as amended from time to time, the
"Partnership Agreement") to acquire a diversified portfolio of capital
equipment subject to various full payout and operating leases. (See "THE
TENDER OFFER--Section 9. Certain Information Concerning the Partnership.") Its
general partner is AFG Leasing Associates II, a Massachusetts partnership (the
"General Partner").
The general partner of the Purchaser is AAL, Inc., a newly-formed
Massachusetts corporation ("AAL, Inc."). The sole directors, officers and
stockholders of AAL, Inc. are Gary D. Engle and James A. Coyne. Mr. Engle
controls American Finance Group ("AFG"), which is the sponsor of the
Partnership. Messrs. Engle and Coyne and Geoffrey A. MacDonald are the initial
limited partners of the Purchaser. AFG controls, and Mr. MacDonald has an
interest in, the General Partner. (See Schedule 1 to this Offer to Purchase.)
As discussed herein, the Purchaser is related to AFG and parties related to
AFG and, accordingly, the Partnership and the General Partner have certain
conflicts of interest with respect to the Offer. The Partnership has indicated
in its statement on Schedule 14D-9 filed with the Securities and Exchange
Commission (the "Commission") that, because of such conflicts, it makes no
recommendation and is remaining neutral as to whether a Unitholder should
accept the Offer. (See "THE TENDER OFFER--Section 13. Background of the
Offer"; and "Section 10. Conflicts of Interest and Transactions with
Affiliates and Related Parties.")
The financial statements of the Purchaser and AAL, Inc. are not included
herein inasmuch as it is the view of the Purchaser that such financial
statements are not material to a Unitholder's decision whether to sell or
retain his Units because the Offer is for cash. Further, the Purchaser and
AAL, Inc. are both newly formed. AAL, Inc. will be nominally capitalized. The
only significant assets of the Purchaser (other than the Tendered Units (as
hereinafter defined)) will be the capital contributions of its limited
partners which will be made from time to time in order to enable the Purchaser
to acquire the Tendered Units and to satisfy the equity requirements for the
Loan (as hereinafter defined). (See "THE TENDER OFFER--Section 12. Source of
Funds.")
Unitholders who desire liquidity may wish to consider the Offer. However,
each Unitholder must make his own decision based upon such Unitholder's
particular circumstances, including the Unitholder's own financial needs,
other investment opportunities and tax position. Each Unitholder should
consult with his own advisors in evaluating the financial, tax, legal and
other implications of accepting the Offer.
Under the terms of the Partnership Agreement, Unitholders are permitted to
assign their Units and the General Partner has indicated that it will consent
to any transfer made pursuant to the Offer and to the substitution of the
Purchaser as a limited partner in place of the transferring Unitholders.
The Purchaser has made its own independent analysis in establishing the
Purchase Price. No independent person has been retained to evaluate or render
any opinion with respect to the fairness of the Purchase Price. Accordingly,
Unitholders are urged to consider carefully all of the information contained
herein before accepting the Offer. (See "THE TENDER OFFER--Section 13.
Background of the Offer.")
According to information supplied by the Partnership, there are 71,406 Units
issued and outstanding held of record by 1,142 Unitholders as of December 31,
1994. As of the date of the Offer, the Purchaser does not own any Units.
However, AFG owns 1,790 Units, constituting approximately 2.5% of the Units
outstanding. All of the Units so owned will be tendered to the Purchaser.
The General Partner has made a cash distribution on July 15, 1995 to
Unitholders of record as of June 30, 1995 in the amount of $5.00 per Unit. Any
future distributions from the Partnership with respect to tendered
2
<PAGE>
Units accepted for payment by the Purchaser will be made to the Purchaser or,
to the extent such distributions are made to the tendering Unitholders, will
reduce the Purchase Price for such Units.
Certain information contained in this Offer to Purchase which relates to the
Partnership, or represents statements made by the General Partner, has been
derived from information provided to the Purchaser by the General Partner or
from the Partnership's 1994 Annual Report on Form 10-K and its Quarterly
Reports on Form 10-Q for the first two quarters of 1995. See "The TENDER
OFFER--Certain Information Concerning the Partnership."
UNITHOLDERS ARE URGED TO READ THIS OFFER TO PURCHASE AND THE ACCOMPANYING
LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR UNITS.
3
<PAGE>
THE TENDER OFFER
SECTION 1. TERMS OF THE OFFER. Upon the terms of the Offer, the Purchaser
will pay for Units validly tendered on or prior to the Expiration Date and not
withdrawn in accordance with Section 4 of this Offer to Purchase. The term
"Expiration Date" shall mean 5:00 p.m., Eastern time, on September 29, 1995,
unless and until the Purchaser shall have extended the period of time for
which the Offer is open. In the event the Offer is extended, the term
"Expiration Date" shall mean the latest time and date on which the Offer, as
extended by the Purchaser, shall expire.
The Offer is conditioned on satisfaction of certain conditions. See Section
14, which sets forth in full the conditions of the Offer. The Purchaser
reserves the right (but shall not be obligated), in its sole discretion, to
waive any or all of such conditions. If, on or prior to the Expiration Date,
any or all of such conditions have not been satisfied or waived, the Purchaser
reserves the right, by giving written notice thereof to the Depositary, to (i)
decline to purchase any of the Units tendered, terminate the Offer and return
all tendered Units to tendering Unitholders, (ii) waive all the unsatisfied
conditions and, subject to complying with applicable rules and regulations of
the Commission, purchase all Units validly tendered, (iii) extend the Offer
and, subject to the right of Unitholders to withdraw Units until the
Expiration Date, retain the Units that have been tendered during the period or
periods for which the Offer is extended, or (iv) amend the Offer.
If, prior to the Expiration Date, the Purchaser shall increase the
consideration offered to Unitholders pursuant to the Offer then, as required
by Exchange Act rules, such increased consideration shall be paid for all
Units accepted for payment pursuant to the Offer, whether or not such Units
were tendered prior to such increase.
This Offer to Purchase and the related Letter of Transmittal are being
mailed by the Purchaser to Unitholders or beneficial owners of Units (in the
case of Qualified Plans) of record as of August 10, 1995.
SECTION 2. PRORATION; ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS. If the
number of Units validly tendered on or prior to the Expiration Date and not
withdrawn is 32,133 or less, the Purchaser will accept for payment, subject to
the terms and conditions of the Offer, all Units so tendered.
If the number of Units validly tendered on or prior to the Expiration Date
and not withdrawn exceeds 32,133, the Purchaser will accept for payment,
subject to the terms and conditions of the Offer, Units so tendered on a pro
rata basis (with such adjustments to avoid purchase of fractional Units). In
the event that proration is required, because of the difficulty of immediately
determining the precise number of Units to be accepted, the Purchaser does not
expect to announce the final results of prorations until at least ten business
days following the Expiration Date. The Purchaser will not pay for any Units
tendered until after the final proration factor has been determined.
Notwithstanding any such delay in payment, no interest will be paid on the
Purchase Price.
The Purchaser will pay for Units validly tendered and not withdrawn in
accordance with Section 4 as promptly as practicable following the Expiration
Date. In all cases, payment for Units purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) and any other
documents required by the Letter of Transmittal. (See "Section 3. Procedures
for Tendering Units.") Under no circumstances will interest be paid on the
Purchase Price by reason of any delay in making such payment.
If any tendered Units are not purchased for any reason, the Letter of
Transmittal with respect to such Units will be destroyed by the Depositary. If
for any reason acceptance for payment of, or payment for, any Units tendered
pursuant to the Offer is delayed or the Purchaser is unable to accept for
payment, purchase or pay for Units tendered pursuant to the Offer, then,
without prejudice to the Purchaser's rights under Section 14, the Purchaser
may retain tendered Units and such Units may not be withdrawn except to the
extent that the tendering Unitholders are entitled to withdrawal rights as
described in Section 4; provided, however, that the Purchaser is required,
pursuant to Rule 14e-1(c) under the Exchange Act, to pay Unitholders the
Purchase Price in respect of Units tendered or return such Units promptly
after termination or withdrawal of the Offer.
4
<PAGE>
SECTION 3. PROCEDURES FOR TENDERING UNITS.
Valid Tender. To tender Units validly, a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter
of Transmittal must be received by the Depositary on or prior to the
Expiration Date at the address or by means of facsimile transmission at the
number set forth on the back cover of this Offer to Purchase. In order for his
tender to be valid, a Unitholder must tender either (i) all Units owned by
such Unitholder or (ii) a portion of his Units but not fewer than the minimum
investment amount of 10 Units (8 Units for IRAs or other Qualified Plans).
ALTHOUGH THE PURCHASER HAS INCLUDED A PREADDRESSED ENVELOPE TO THE
DEPOSITARY WITH THIS OFFER FOR THE CONVENIENCE OF THE UNITHOLDERS, THE METHOD
OF DELIVERY OF THE LETTER OF TRANSMITTAL IS AT THE OPTION AND SOLE RISK OF THE
TENDERING UNITHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL, WITH
RETURN RECEIPT REQUESTED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Requirements. If the Letter of Transmittal is signed by the
registered holder of the Units and payment is to be made directly to that
holder, then no notarization or signature guarantee is required on the Letter
of Transmittal. Similarly, if the Units are tendered for the account of a
member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc. or a commercial bank, savings
bank, credit union, savings and loan association or trust company having an
office, branch or agency in the United States (each, an "Eligible
Institution"), no notarization or signature guarantee is required on the
Letter of Transmittal. However, in all other cases, all signatures on the
Letter of Transmittal must either be notarized or guaranteed by an Eligible
Institution.
In order for a tendering Unitholder to participate in the Offer, Units must
be validly tendered and not withdrawn on or prior to the Expiration Date,
which is 5:00 p.m., Eastern time, on September 29, 1995.
Other Requirements. By executing a Letter of Transmittal, a tendering
Unitholder irrevocably (i) appoints the Purchaser as such Unitholder's agent,
in the manner set forth in the Letter of Transmittal, with full power of
substitution, to the full extent of such Unitholder's rights with respect to
the Units tendered by such Unitholder and accepted for payment by the
Purchaser and (ii) assigns to the Purchaser all future distributions from the
Partnership with respect to such Units to the extent such distributions are
not paid to the tendering Unitholder. (To the extent such distributions are
paid to the tendering Unitholder, the Purchase Price for such Units will be
automatically reduced by a like amount.) Such appointment and assignment will
be effective when, and only to the extent that, the Purchaser accepts such
Units for payment. Upon such acceptance for payment, all prior proxies,
assignments and consents given by such Unitholder with respect to such Units
will, without further action, be revoked, and no subsequent proxies,
assignments or consents may be given (and if given will not be effective). The
designees of the Purchaser will, as to such Units, be empowered to exercise
all voting and other rights of such Unitholder as they in their sole
discretion may deem proper at any meeting of Unitholders, by written consent
or otherwise.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tender of Units pursuant to the procedures described above will be determined
by the Purchaser, in its sole discretion, which determination shall be final
and binding. The Purchaser reserves the absolute right to reject any or all
tenders if not in proper form or if the acceptance of, or payment for, the
Units tendered may, in the opinion of the Purchaser's counsel, be unlawful or
in violation of the Partnership Agreement. The Purchaser also reserves the
right to waive any defect or irregularity in any tender with respect to any
particular Units of any particular Unitholder, and the Purchaser's
interpretation of the terms and conditions of the Offer (including the Letter
of Transmittal and the Instructions thereto) will be final and binding.
Neither the Purchaser, the Information Agent, the Depositary nor any other
person will be under any duty to give notification of any defects or
irregularities in the tender of any Units or will incur any liability for
failure to give any such notification.
5
<PAGE>
A tender of Units pursuant to the procedures described above will constitute
a binding agreement between the tendering Unitholder and the Purchaser on the
terms set forth in the Offer.
SECTION 4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section
4, all tenders of Units pursuant to the Offer are irrevocable, provided that
Units tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date and, unless already accepted for payment as provided in this
Offer to Purchase, may also be withdrawn at any time after October 17, 1995.
For withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Depositary at the address or
facsimile number set forth on the back cover of this Offer to Purchase. Any
such notice of withdrawal must specify the name of the person who tendered the
Units to be withdrawn and the number of Units to be withdrawn and must be
signed by the person(s) who signed the Letter of Transmittal in the same
manner as the Letter of Transmittal was signed.
If purchase of, or payment for, Units is delayed for any reason or if the
Purchaser is unable to purchase or pay for Units for any reason, then, without
prejudice to the Purchaser's rights under the Offer, tendered Units may be
retained by the Depositary on behalf of the Purchaser and may not be withdrawn
except to the extent that tendering Unitholders are entitled to withdrawal
rights as set forth in this Section 4; provided, however, that the Purchaser
is required, pursuant to Rule 14e-1(c) under the Exchange Act, to pay
Unitholders the Purchase Price in respect of Units tendered or return such
Units promptly after termination or withdrawal of the Offer.
Any Units properly withdrawn will be deemed not to be validly tendered for
purposes of the Offer. Withdrawn Units may be re-tendered, however, by
following the procedures described in Section 3 at any time prior to the
Expiration Date.
SECTION 5. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT. The Purchaser
expressly reserves the right, in its sole discretion, at any time and from
time to time, (i) to extend the period of time during which the Offer is open
and thereby delay acceptance for payment of, and the payment for, any Units,
(ii) to terminate the Offer and not accept for payment any Units not already
accepted for payment or paid for, (iii) upon the occurrence of any of the
conditions specified in Section 14, to delay the acceptance for payment of, or
payment for, any Units not already accepted for payment or paid for, and (iv)
to amend the Offer in any respect (including, without limitation, by
increasing or decreasing the consideration offered, increasing or decreasing
the number of Units being sought, or both). Notice of any such extension,
termination or amendment will promptly be disseminated to Unitholders in a
manner reasonably designed to inform Unitholders of such change in compliance
with Rule 14d-4(c) under the Exchange Act. In the case of an extension of the
Offer, such extension will be followed by a press release or public
announcement which will be issued no later than 9:00 a.m., Eastern time, on
the next business day after the scheduled Expiration Date, in accordance with
Rule 14e-1(d) under the Exchange Act.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Units) is delayed in its payment for Units
or is unable to pay for Units pursuant to the Offer for any reason, then,
without prejudice to the Purchaser's rights under the Offer, the Purchaser may
retain tendered Units and such Units may not be withdrawn except to the extent
tendering Unitholders are entitled to withdrawal rights as described in
Section 4; provided, however, that the Purchaser is required, pursuant to Rule
14e-1(c) under the Exchange Act, to pay Unitholders the Purchase Price in
respect of Units tendered or return such Units promptly after termination or
withdrawal of the Offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Purchaser will extend the Offer and disseminate additional tender offer
materials to the extent required by Rules 14d-4(c) and 14d-6(d) under the
Exchange Act. The minimum period during which an offer must remain open
following a material change in the terms of the offer or information
concerning the offer will depend upon the facts and circumstances, including
the relative materiality of the change in the terms or information. In the
Commission's view, an offer should remain open for a minimum
6
<PAGE>
of five business days from the date the material change is first published,
sent or given to securityholders, and if material changes are made with
respect to information that approaches the significance of price or the
percentage of securities sought, a minimum of ten business days may be
required to allow for adequate dissemination to securityholders and for
investor response. As used in this Offer to Purchase, "business day" means any
day other than Saturday, Sunday or a federal holiday, and consists of the time
period from 12:01 a.m. through 12:00 midnight, Eastern time.
SECTION 6. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following summary is
a general discussion of certain federal income tax consequences of a sale of
Units pursuant to the Offer. This summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), applicable Treasury regulations
thereunder, administrative rulings, practice and procedures and judicial
authority as of the date of the Offer. All of the foregoing are subject to
change, and any such change could affect the continuing accuracy of this
summary. This summary does not discuss all aspects of federal income taxation
that may be relevant to a particular Unitholder in light of such Unitholder's
specific circumstances or to certain types of Unitholders subject to special
treatment under the federal income tax laws (for example, foreign persons,
dealers in securities, banks, insurance companies and tax-exempt
organizations), nor does it discuss any aspect of state, local, foreign or
other tax laws. Sales of Units pursuant to the Offer will be taxable
transactions for federal income tax purposes and may also be taxable
transactions under applicable state, local, foreign and other tax laws. EACH
UNITHOLDER SHOULD CONSULT HIS OR ITS TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO SUCH UNITHOLDER OF SELLING UNITS PURSUANT TO THE OFFER.
A taxable Unitholder will recognize gain or loss on a sale of Units pursuant
to the Offer equal to the difference between (i) the Unitholder's "amount
realized" on the sale and (ii) the Unitholder's adjusted tax basis in the
Units sold. The amount of a Unitholder's adjusted tax basis in such Units will
vary depending upon such Unitholder's particular circumstances. The "amount
realized" with respect to a Unit will be a sum equal to the amount of cash
received by the Unitholder for the Unit pursuant to the Offer plus the amount
of Partnership liabilities allocable to the Unit (as determined under Code
Section 752) of which the Unitholder is relieved.
As a general rule, the gain or loss recognized by a Unitholder on a sale of
a Unit pursuant to the Offer should be treated as a capital gain or loss if
the Unit were held by the Unitholder as a capital asset. However, if any
portion of the amount realized by a Unitholder is attributable to "unrealized
receivables" or "substantially appreciated inventory" as defined in Code
Section 751, then a portion of the Unitholder's gain or loss will be ordinary
rather than capital. The term "unrealized receivables" includes all
Partnership assets subject to recapture of cost recovery deductions determined
as if a selling Unitholder's proportionate share of all of the Partnership's
assets had been sold at that time. Because the ordinary gain or loss from a
Unitholder's share of unrealized receivables and substantially appreciated
inventory is computed separately from his gain or loss attributable to other
Partnership assets, a Unitholder could have ordinary income and capital loss
(which can be used only to a limited extent to offset the ordinary income) on
the sale of his Units. Based on the results of Partnership operations through
March 31, 1995, it is estimated that a Unitholder who tenders Units that were
acquired by such Unitholder at the time of the Partnership's original offering
of Units will recognize ordinary income of $15.20 per Unit and a capital loss
of $29.31 per Unit for Federal income tax purposes.
Capital losses are deductible only to the extent of capital gains, except
that non-corporate taxpayers may deduct up to $3,000 of capital losses in
excess of the amount of their capital gains against ordinary income. Excess
capital losses generally may be carried forward to succeeding years (a
corporation's carryforward period is five years and a non-corporate taxpayer
can carry forward such losses indefinitely); in addition, corporations are
allowed to carry back excess capital losses to the three preceding taxable
years. If a Unitholder recognizes both ordinary income and capital loss as a
result of the sale of Units, the limitations on the deductibility of capital
losses will restrict his or her ability to offset such ordinary income with
such capital loss. Long-term capital gains (gains from capital assets held
more than one year) of individuals and other non-corporate taxpayers are taxed
at a maximum marginal federal income tax rate of 28%, whereas the maximum
marginal federal income tax rate for ordinary income of such persons is 39.6%.
7
<PAGE>
Under Code Section 469, a non-corporate taxpayer or personal service
corporation can deduct passive activity losses in any year only to the extent
of such person's passive activity income for such year and closely held
corporations may not offset such losses against so-called "portfolio" income.
The Partnership constitutes a passive activity with respect to all
Unitholders. Consequently, a loss recognized by a Unitholder upon a sale of a
Unit pursuant to the Offer can be utilized to offset (subject to other
applicable limitations, e.g. the limitation on the deduction of capital losses
to not more than $3,000 of ordinary income, discussed above) a Unitholder's
allocable share of passive income from the Partnership for that year. Gain
recognized by a Unitholder upon such sale can be offset by such Unitholder's
passive activity losses (if any) from the Partnership (subject to other
applicable limitations, e.g. the limitations on the deduction of capital
losses discussed above). If a Unitholder disposes of all of his Units pursuant
to the Offer, such Unitholder generally will be able to deduct his passive
activity losses (if any) from the Partnership that could not previously be
deducted due to the passive loss restrictions. However, such suspended losses
must be used first by each Unitholder against his or her gain from the sale of
Units and his or her share of income or gain of the Partnership for the
taxable year as well as income or gain from any other passive activities. Any
excess suspended losses may be used to offset non-passive income, ordinary or
capital (subject to the other applicable limitations, e.g. the limitations on
capital losses discussed above).
The estimated ordinary income of $15.20 and capital loss of $29.31 per Unit
is based on the results of Partnership operations through March 31, 1995 as
stated in the Partnership's 1994 federal tax return and the financial
information provided by the Partnership to the Securities and Exchange
Commission for the quarter ended March 31, 1995. This estimated income and
loss is calculated as if the sale of Units occurred on March 31, 1995 and it
does not take into account Partnership operations and cash distributions
declared after March 31, both of which will affect the actual amount and
character (as capital gain or ordinary income) of the gain and/or loss
realized as a result of a sale of Units. Consequently, the actual amount of
gain and/or loss realized by a Unitholder as a result of a sale of Units may
differ substantially from the $15.20 of ordinary income and $29.31 of capital
loss estimated. In addition, this estimate includes the assumptions that all
Unitholders acquired their Units at the time of the Partnership's original
offering of Units, that all Unitholders were admitted to the Partnership on
the same date, that the selling and syndication costs incurred by the
Partnership can be included in the basis of the Partnership interests of the
Unitholders and that the fair market value of any individual piece of
equipment does not exceed its original cost unless the total purchase price
allocated to all the equipment exceeds the aggregate cost of the equipment.
The estimate does not consider any tax attributes, such as passive losses or
losses suspended due to basis or at risk limitations and it does not include
alternative minimum tax or unrelated business income tax implications.
Gain realized by a foreign person on a sale of Units pursuant to the Offer
will be subject to federal income tax at the graduated rates applicable to
United States citizens or corporations under the regular tax or alternative
minimum tax. The treatment of gain as ordinary income or capital gain and the
application of Section 751 of the Code is the same for foreign Unitholders as
for United States Unitholders.
The income earned by a Qualified Plan or tax-exempt organization is
generally exempt from taxation. If, however, a Qualified Plan or tax-exempt
organization earns "unrelated business taxable income" ("UBTI"), this income
is subject to tax at trust or corporate income tax rates to the extent it
exceeds $1,000 during any fiscal year. The Internal Revenue Service (the
"Service") may assert that gain realized by a Unitholder that is a Qualified
Plan or tax-exempt organization on a sale of Units constitutes UBTI to the
extent of such Unitholder's allocable share of "unrealized receivables"
(including depreciation recapture) for purposes of Section 751 of the Code,
discussed above. In addition, all or a portion of any gain recognized on the
sale of Units will constitute UBTI if the Units constitute debt-financed
property, defined as property which is subject to indebtedness incurred
directly or indirectly in connection with the acquisition or improvement of
the property ("acquisition indebtedness"). Units will constitute debt-financed
property as a result of any indebtedness incurred in connection with their
acquisition. In addition, the Service may assert that Units constitute debt-
financed property as a result of a Unitholder's allocable share of acquisition
indebtedness of the Partnership. Any gain recognized by Qualified Plans or
tax-exempt organizations as a result of a sale of Units can be offset by such
Unitholder's
8
<PAGE>
passive activity losses (if any) from the Partnership (subject to other
applicable limitations, e.g. the limitations on the deduction of capital
losses, discussed above). QUALIFIED PLANS AND TAX-EXEMPT ORGANIZATIONS ARE
URGED TO CONSULT WITH THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES
OF SELLING UNITS PURSUANT TO THE OFFER.
SECTION 7. EFFECTS OF THE OFFER.
Limitations on Resales. Under the Partnership Agreement, no Unit may be
assigned or otherwise transferred to any person if, in the opinion of
Partnership counsel, such transfer will result in the termination under the
Code of the Partnership's taxable year (which termination may occur when more
than 50% of the Units are transferred in a twelve-month period) or its status
as a Partnership unless the express written consent of the General Partner is
obtained. Accordingly, sales of Units on the secondary market during the
twelve-month period following completion of the Offer may be limited. The
Partnership will not process any request for a transfer of Units during such
twelve-month period which the General Partner believes may cause a tax
termination. In determining the number of Units for which the Offer to
Purchase is made (representing approximately 45% of the outstanding Units if
32,133 Units are tendered), the Purchaser took this restriction into account
so as to permit transfers of up to 5% of the outstanding Units to occur
without violating this restriction (but subject to various limitations on
transfer contained in the Partnership Agreement).
The Units are registered under Section 12(g) of the Exchange Act, which
means, among other things, that the Partnership is required to file periodic
reports with the Commission and to comply with the Commission's proxy rules.
The Purchaser does not expect or intend that consummation of the Offer will
result in the Units becoming eligible for termination of registration under
Section 12(g) of the Exchange Act. If the Units were to be held of record by
fewer than 300 persons, the Partnership could terminate the registration of
the Units under the Exchange Act. Because the Units are widely held and the
Purchaser will only acquire up to 45% of the Units outstanding, however, the
Purchaser expects that the Units will continue to be held of record by
substantially more than 300 persons.
Effect on Trading Market and Price Range of Units. There is no established
public trading market for the Units. The Units are not listed on any
securities exchange and are not quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). Therefore, a
reduction in the number of Unitholders should not materially further restrict
the Unitholders' ability to find purchasers for their Units.
Secondary sales activity for the Units have been limited and sporadic. Based
upon the Purchaser's review of trade publications which track secondary sales
of public equipment leasing limited partnership interests, from July 1, 1993
through September 30, 1993, 500 Units were sold for $42.00 per Unit; and from
October 1, 1994 through March 31, 1995, 542 Units were sold at between $50.00
and $30.00. From April 1, 1995 through June 30, 1995 80 Units were sold at
$43.50 per Unit. No other sales information was obtained.
In determining Purchase Price, the Purchaser did not take into consideration
the prices of such secondary sales as it believes that the secondary market
for limited partnership interests is inefficient, the number of units with
reported sale prices is very limited, and that such prices may only be
available for transactions involving a small number of Units. Further,
depending upon when Units were sold, the prices may not take into
consideration distributions which had been made since such sale date.
Control of all Unitholder Voting Decisions by Purchaser; Effect of Related
Party Relationship with General Partner. The Purchaser will have the right to
vote each Unit purchased. As a result, the Purchaser could be in a position to
influence significantly all voting decisions with respect to the Partnership.
This could (i) prevent non-tendering Unitholders from taking action they
desire but that the Purchaser opposes and (ii) enable the Purchaser to take
action desired by the Purchaser but opposed by non-tendering Unitholders.
Under the Partnership Agreement, Unitholders holding a majority of the Units
are entitled to take action with respect to a variety of matters. When voting
on such matters, the Purchaser will vote the Units acquired pursuant to the
Offer in its interest, which, because of its business relationship with the
General Partner, will also likely be in the
9
<PAGE>
interest of the General Partner. However, the Purchaser agrees, for the
benefit of non-tendering Unitholders, that it will vote its Units in
proportion to the votes cast by other Unitholders on matters put to a vote of
Unitholders which propose to increase the fees and other compensation payable
by the Partnership to the General Partner and any of its affiliates. Except
for the foregoing, no other limitations are imposed on the Purchaser's right
to vote each Unit purchased.
The Units are registered under the Exchange Act, which requires, among other
things, that the Partnership furnish certain information to its Unitholders
and to the Commission and comply with the Commission's proxy rules in
connection with meetings of, and solicitation of consents from, Unitholders.
Purchase of Units pursuant to the Offer will not result in the Units becoming
eligible for deregistration under the Exchange Act.
SECTION 8. FUTURE PLANS. The Purchaser is acquiring the Units pursuant to
the Offer for investment purposes and with the view to making a profit.
Subject to the limitation on transfers discussed in Section 7, the Purchaser
may acquire additional Units following the completion of the Offer. Any such
acquisition may be made through private purchases, through one or more future
tender offers or by any other means deemed advisable. Any such acquisition may
be at a price higher or lower than the price to be paid for the Units
purchased pursuant to the Offer. Neither the Purchaser nor the General Partner
has any present plans or intentions with respect to a liquidation, sale of
assets or refinancing of the Partnership's equipment and other assets except
in the ordinary course of business and in order to effectuate the investment
objectives of the Partnership. (See "Section 9. Certain Information Concerning
the Partnership.") However, the General Partner will continue to review any
opportunities such as sale, re-lease or refinancing of the Partnership's
equipment and will seek to maximize returns to investors in the Units in
accordance with the investment objectives of the Partnership. (See "Section
10. Conflicts of Interest and Transactions with Affiliates and Related
Parties" for certain information concerning the General Partner's potential
conflict of interest with respect to a sale, re-lease or refinancing of the
Partnership's equipment.)
SECTION 9. CERTAIN INFORMATION CONCERNING THE PARTNERSHIP.
General Information. The Partnership was organized as a limited partnership
under the Massachusetts Uniform Limited Partnership Act on September 29, 1986
for the purpose of acquiring and leasing to third parties a diversified
portfolio of capital equipment. On December 30, 1986, the Partnership issued
71,406 Units. Its sole General Partner is AFG Leasing Associates II, a
Massachusetts general partnership formed in 1986 ("AFG Leasing"). The general
partners of AFG Leasing are AFG Leasing Incorporated, AFG and Geoffrey A.
MacDonald. The principal executive office of the Partnership is at 98 North
Washington Street, Boston, Massachusetts 02114.
The Partnership was organized to acquire a diversified portfolio of capital
equipment subject to various full payout and operating leases and to lease the
equipment to third parties as income-producing investments. Currently, the
Partnership's sole business is the leasing of that capital equipment. The
Partnership is expected to terminate no later than December 31, 1997.
The primary investment objectives of the Partnership originally were to: (i)
generate substantial quarterly cash distributions; and (ii) maintain high
residual value for ultimate sale. The Partnership had the additional objective
of providing certain federal income tax benefits. The General Partner will
continue to operate the Partnership in order to attain such investment
objectives (to the extent still applicable) but, as noted in the Prospectus of
the Partnership pursuant to which the Units were offered and sold, there is no
assurance that any of these investment objectives will ultimately be attained.
Generally, under the Partnership Agreement, the Partnership is prohibited
from reinvesting the proceeds generated by refinancing or selling equipment.
Accordingly, the Partnership has begun to liquidate its portfolio of equipment
and distribute the net liquidation proceeds. As an alternative to a sale, the
Partnership may enter re-lease agreements when considered advantageous by the
General Partner and AFG.
10
<PAGE>
Financial Information. Set forth below is certain selected financial
information relating to the Partnership which has been excerpted or derived
from the financial statements contained in the Partnership's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 (the "1994 Form 10-K")
and its Quarterly Report on Form 10-Q for the six months ended June 30, 1995
(the "June 1995 Form 10-Q") filed by the Partnership with the Commission. The
financial information is qualified in its entirety by reference to such
reports, including the financial statements and related notes contained
therein. Such reports and other documents may be examined at and copies may be
obtained from the offices of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549, and 73 Tremont Street, Boston, Massachusetts 02108.
SELECTED FINANCIAL DATA
The following data should be read in conjunction with the financial
statements contained in the 1994 Form 10-K.
For each of the five years in the period ended December 31, 1994:
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Lease revenue.......... $ 4,546,492 $ 4,145,115 $2,895,344 $2,015,753 $2,012,246
Net income (loss)...... $ 114,892 $ 116,333 $ (641,514) $ 946,162 $ 878,577
Per Unit:
Net income (loss)..... $ 1.59 $ 1.61 $ (8.89) $ 13.12 $ 12.18
Cash Distributions.... $ 25.20 $ 30.10 $ 27.50 $ 15.00 $ 16.25
FINANCIAL POSITION
Total assets........... $16,160,950 $12,405,949 $8,049,801 $7,116,973 $5,737,177
Total long-term
obligations........... $ 5,929,099 $ 4,175,079 $2,704,816 $2,101,899 $ 850,256
Partners' capital...... $ 9,454,535 $ 7,399,837 $4,774,823 $4,639,078 $4,345,587
</TABLE>
11
<PAGE>
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1994 AND JUNE 30, 1995
(UNAUDITED)
The following statement of financial position was taken from the June 1995
Form 10-Q.
<TABLE>
<CAPTION>
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................... $ 992,497 $ 760,273
Rents receivable, net of allowance for
doubtful accounts of $10,000................ 16,128 15,244
Accounts receivable--affiliate............... 92,548 90,678
Equipment at cost, net of accumulated
depreciation of $10,404,626 and $10,258,271
at December 31, 1994 and June 30, 1995,
respectively................................ 4,636,004 4,171,548(a)
---------- ----------
Total assets............................. $5,737,177 $5,037,743
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable................................ $ 850,256 $ 626,468
Accrued interest............................. 2,107 1,280
Accrued liabilities.......................... 15,500 15,000
Accrued liabilities--affiliate............... 4,526 998
Deferred rental income....................... 158,564 159,097
Cash distributions payable to partners....... $ 360,637 $ 360,637
---------- ----------
Total liabilities........................ $1,391,590 $1,163,480
---------- ----------
Partners' capital (deficit):
General Partner............................ (113,227) (117,940)
Limited Partnership Interests (71,406;
initial purchase price of $250 each)...... 4,458,814 3,992,203
---------- ----------
Total partners' capital.................. $4,345,587 $3,874,263
---------- ----------
Total liabilities and partners' capital.. $5,737,177 $5,037,743
========== ==========
</TABLE>
--------
(a) See breakdown below.
The following is a summary of equipment owned by the Partnership at June 30,
1995.
<TABLE>
<CAPTION>
EQUIPMENT TYPE ORIGINAL COST
-------------- -------------
<S> <C>
Aircraft.................................................... $ 8,179,070
Flight Simulators........................................... 4,290,414
Retail store fixtures....................................... 809,857
Manufacturing............................................... 598,850
Motor vehicles.............................................. 312,696
Communications.............................................. 83,873
Tractors and heavy duty trucks.............................. 63,401
Computer peripherals........................................ 54,612
Material handling........................................... 27,443
Medical..................................................... 9,603
------------
Total equipment cost...................................... $ 14,429,819
Accumulated depreciation.................................. (10,258,271)
------------
Equipment, net of accumulated depreciation................ $ 4,171,548
============
</TABLE>
12
<PAGE>
Since inception, the Partnership has made quarterly distributions to
Unitholders. The following schedule shows the amounts of such distributions on
a per Unit basis and assuming a Unitholder purchased 40 Units at $250 per Unit
for a total cost of $10,000.
<TABLE>
<CAPTION>
PER UNIT PER $10,000 INVESTMENT (40 UNITS)
------------------------- ------------------------------------
QUARTER CUMULATIVE CUMULATIVE
ENDED DISTRIBUTION DISTRIBUTION DISTRIBUTION DISTRIBUTION
------- ------------ ------------ ----------------- ----------------
<S> <C> <C> <C> <C>
31-Mar-87...... 6.6250 6.6250 265.00 265.00
30-Jun-87...... 6.6000 13.2250 264.00 529.00
30-Sep-87...... 6.5250 19.7500 261.00 790.00
31-Dec-87...... 6.6000 26.3500 264.00 1,054.00
31-Mar-88...... 8.0250 34.3750 321.00 1,375.00
30-Jun-88...... 8.0250 42.4000 321.00 1,696.00
30-Sep-88...... 12.8500 55.2500 514.00 2,210.00
31-Dec-88...... 7.9500 63.2000 318.00 2,528.00
31-Mar-89...... 6.9000 70.1000 276.00 2,804.00
30-Jun-89...... 6.3000 76.4000 252.00 3,056.00
30-Sep-89...... 6.3000 82.7000 252.00 3,308.00
31-Dec-89...... 6.3000 89.0000 252.00 3,560.00
31-Mar-90...... 6.3000 95.3000 252.00 3,812.00
30-Jun-90...... 6.3000 101.6000 252.00 4,064.00
30-Sep-90...... 6.3000 107.9000 252.00 4,316.00
31-Dec-90...... 6.3000 114.2000 252.00 4,568.00
31-Mar-91...... 6.3000 120.5000 252.00 4,820.00
30-Jun-91...... 6.3000 126.8000 252.00 5,072.00
30-Sep-91...... 10.0000 136.8000 400.00 5,472.00
31-Dec-91...... 7.5000 144.3000 300.00 5,772.00
31-Mar-92...... 7.5000 151.8000 300.00 6,072.00
30-Jun-92...... 7.5000 159.3000 300.00 6,372.00
30-Sep-92...... 6.2500 165.5500 250.00 6,622.00
31-Dec-92...... 6.2500 171.8000 250.00 6,872.00
31-Mar-93...... 5.6250 177.4250 225.00 7,097.00
30-Jun-93...... 3.1250 180.5500 125.00 7,222.00
30-Sep-93...... 3.1250 183.6750 125.00 7,347.00
31-Dec-93...... 3.1250 186.8000 125.00 7,472.00
31-Mar-94...... 3.1250 189.9250 125.00 7,597.00
30-Jun-94...... 3.1250 193.0500 125.00 7,722.00
30-Sep-94...... 5.0000 198.0500 200.00 7,922.00
31-Dec-94...... 5.0000 203.0500 200.00 8,122.00
31-Mar-95...... 5.0000 208.0500 200.00 8,322.00
30-Jun-95*..... 5.0000 213.0500 200.00 8,522.00
--------- ---------
TOTAL.......... $213.0500 $8,522.00
========= =========
</TABLE>
--------
* This distribution has been made to all Unitholders of record as of June 30,
1995 and will not affect the Purchase Price for the Units. All subsequent
distributions with respect to Units purchased by the Purchaser will be made
directly to it by the Partnership or to the extent made to the tendering
Unitholders deducted from the Purchase Price.
Cash distributions paid to Unitholders consist of both a return of and a
return on capital. To the extent that cash distributions consist of cash from
sales or refinancings, substantially all of such cash distributions should be
viewed as a return of capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until termination of the Partnership and will
13
<PAGE>
be dependent upon the collection of future contracted rents, the amount of
renewal and/or re-lease rents and the residual value realized for each asset
at its disposal date. Future market conditions, technological changes, the
ability of AFG to manage and remarket the assets and many other events and
circumstances could enhance or detract from the individual asset yields and
the collective performance of the Partnership's equipment.
As noted in the 1994 Form 10-K, the Partnership recognized lease revenue of
$2,012,246 for the year ended December 31, 1994, compared to $2,015,753 and
$2,895,344 for the years ended December 31, 1993 and 1992, respectively. The
decrease in lease revenue between 1992 and 1994 was expected and resulted
principally from primary term lease expirations and the sale of equipment.
In 1994, the Partnership sold equipment having a net book value of $261,628
to existing lessees and third parties. The sales resulted in a net gain, for
financial statement purposes, of $59,429 compared to a net gain of $434,985 in
1993 on equipment having a net book value of $96,455 and a net loss in 1992 of
$473,138 on equipment having a net book value of $1,163,324.
In 1992, the Partnership changed its estimates of end-of-lease residual
values to reflect anticipated deterioration in market values for the
Partnership's equipment over the remainder of their primary lease terms. This
change in estimate increased depreciation expense and reduced net income by
$648,372 ($8.99 per limited partnership interest) in 1992.
Management fees were 5% of lease revenue in each of the years ended December
31, 1994, 1993 and 1992 and will not change as a percentage of lease revenue
in future years.
Operating expenses represented approximately 3.4%, 4% and 2.5% of lease
revenue in 1994, 1993 and 1992, respectively. The increase in operating
expenses in 1994 was due primarily to a rise in professional service cost. The
level of future operating expenses can not be predicted with certainty;
however, such expenses are usually higher during acquisition and liquidation
phases of a partnership. Other fluctuations typically occur in relation to the
volume and timing of remarketing activities.
The Partnership obtained long term financing in connection with certain
equipment leases in 1993. The Partnership generated cash from such financing
during that year in the amount of $338,650. No leveraging of equipment
occurred in 1994 or 1992.
It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of the equipment being sold and its
marketability at the time of sale. The ultimate realization of residual value
for any type of equipment is dependent on many factors, including the
Partnership's ability to sell and re-lease equipment. Changing market
conditions, industry trends, technological advances and many other events can
converge to enhance or detract from asset value at any given time. In
addition, the amount of gain or loss reported for financial statement purposes
is partly a function of the amount of accumulated depreciation associated with
the equipment being sold.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenues generated from that asset,
together with its residual value. The later consists of cash proceeds realized
upon the asset's sale in addition to all other cash receipts obtained from
renting the asset on a re-lease, renewal or month-to-month basis. The
Partnership classifies such residual rental payments as lease revenues.
Consequently, the amount of gain or loss reported on the financial statements
is not necessarily indicative of total residual value that the Partnership
received from the equipment. (For a discussion of the residual value of the
Partnership's equipment, see "Section 13. Background of the Offer.")
The relatively low inflation rates in 1994, 1993 and 1992 and the economic
recession may have caused some re-lease and sale proceeds to be lower than
that which may have been achieved in a stronger economic environment. The
economic recession also may have had an adverse effect on the ability of some
lessees to fulfill all of their financial obligations on the leases.
14
<PAGE>
As noted in the June 1995 Form 10-Q (which is unaudited), the Partnership
owned equipment, net of accumulated depreciation, having a carrying value of
$4,171,548 on June 30, 1995. It is the opinion of AFG that the carrying value
of the Partnership's equipment does not exceed its fair market value (although
the Partnership has not obtained current appraisals to support this opinion).
For the six months ended June 30, 1995, the Partnership recognized lease
revenues of $800,083 compared to $1,127,812 for the same period in 1994. The
decrease in lease revenues from 1994 to 1995 was expected and resulted
principally from lease term expiration and the sale of equipment. For the six
months ended June 30, 1995 the Partnership sold equipment which had been fully
depreciated to existing lessees and third parties. These sales resulted in net
gain, for financial statement purposes, of $11,020 compared to a net gain of
$42,763 on equipment sales having a net book value of $261,627 for the same
period in 1994.
Operating expenses represented 5.4% and 2.9% of lease revenues for the six
months ended June 30, 1995 and 1994, respectively. The increase in operating
expenses from 1994 to 1995 was due primarily to an increase in professional
service costs.
The future liquidity of the Partnership will be influenced by the foregoing
and will be greatly dependent upon the collection of contractual rents and the
outcome of residual activities. The General Partner anticipates that cash
proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset disposals
will cause the Partnership's net cash from operating activities to diminish
over time; and equipment sale proceeds will vary in amount and period of
realization. Accordingly, fluctuations in the level of quarterly cash
distributions will occur during the life of the Partnership.
SECTION 10. CONFLICTS OF INTEREST AND TRANSACTIONS WITH AFFILIATES AND
RELATED PARTIES. The General Partner, the Purchaser and affiliates and other
related parties have conflicts of interest with respect to the Offer as set
forth below.
Conflicts of Interest With Respect to the Offer. The General Partner has a
conflict of interest with respect to the Offer, including as a result of its
affiliation with the Purchaser. Geoffrey A. MacDonald has an interest in the
General Partner and is a limited partner of the Purchaser. Gary D. Engle
controls AFG and the Purchaser. AFG controls the General Partner. (See also
"Section 13. Background of the Offer.")
Voting by the Purchaser. As a result of the Offer, the Purchaser could be in
a position to influence significantly all Partnership decisions on which
Unitholders may vote. However, the Purchaser agrees, for the benefit of non-
tendering Unitholders, that it will vote its Units in proportion to the votes
cast by other Unitholders on matters put to a vote of Unitholders which
propose to increase the fees and other compensation payable by the Partnership
to the General Partner and any of its affiliates. (See "Section 7. Effects of
the Offer.")
Repayment of Tender Offer Loan. A Loan will be obtained by the Purchaser in
connection with the Offer. (See "Section 12. Source of Funds.") The amount of
the Loan and, consequently, the ability of the Purchaser to repay such amount
is dependent upon the number of Units tendered, which number is not currently
ascertainable. The Purchaser plans to service the Loan with cash distributions
attributable to the Units it acquires ("Tender Cash Flow"). A primary possible
source of Tender Cash Flow is proceeds of any sale or refinancing of the
Partnership's equipment. Consequently, the General Partner may have a conflict
of interest in determining whether and when to sell and/or refinance the
Partnership's equipment. Any such conflict, however, may be mitigated by the
fact that (i) proceeds from the sale or refinancing of equipment owned by
other AFG-sponsored Partnerships may be available to the Purchaser (see
"Section 12. Source of Funds"), (ii) other possible loan repayment sources
exist, including voluntary loans and capital contributions from the
Purchaser's partners, and (iii) the Purchaser may be able to refinance all or
a portion of the Loan.
Transactions with Affiliates. The General Partner of the Partnership, which
is a related party of the Purchaser, owns a 1% interest (with certain
exceptions not expected to apply) in the Partnership of distributable
15
<PAGE>
cash from operations and from sales or refinancings. Further, subject to
certain limitations contained in the Partnership Agreement, the Partnership
will reimburse the General Partner and its affiliates for certain expenses
incurred by them in connection with Partnership operations and will pay
certain fees pursuant to the terms of the Partnership Agreement. For
information as to the amounts paid to the General Partner and its affiliates
during the last three fiscal years and the six months ended June 30, 1995, see
Note 4 to the Financial Statements of the Partnership in the 1994 Form 10-K
and Note 5 to the Financial Statements of the Partnership in the June 1995
Form 10-Q.
SECTION 11. CERTAIN INFORMATION CONCERNING THE PURCHASER. The Purchaser was
organized for the purpose of acquiring the Units. The principal executive
office of the Purchaser is at 98 North Washington Street, Boston,
Massachusetts 02114. AAL, Inc. was organized for the purpose of acting as the
general partner of the Purchaser.
For certain information concerning the stockholders, directors and executive
officers of AAL, Inc., see Schedule 1 to this Offer to Purchase.
Except as otherwise set forth herein, (i) neither the Purchaser, AAL, Inc.,
to the best of Purchaser's knowledge, the persons listed on Schedule 1 nor any
affiliate of the foregoing beneficially owns or has a right to acquire any
Units, (ii) neither the Purchaser, AAL, Inc., to the best of Purchaser's
knowledge, the persons listed on Schedule 1 nor any affiliate of the foregoing
or director, executive officer or subsidiary of AAL, Inc. has effected any
transaction in the Units, (iii) neither the Purchaser, AAL, Inc., to the best
of Purchaser's knowledge, any of the persons listed on Schedule 1, nor any
director or executive officer of AAL, Inc. has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning the transfer or
voting thereof, joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss or the giving or withholding of
proxies, (iv) there have been no transactions or business relationships which
would be required to be disclosed under the rules and regulations of the
Commission between any of the Purchaser, AAL, Inc. or, to the best of
Purchaser's knowledge, the persons listed on Schedule 1, on the one hand, and
the Partnership or its affiliates, on the other hand, and (v) there have been
no contracts, negotiations or transactions between the Purchaser, AAL, Inc.
or, to the best of Purchaser's knowledge, the persons listed on Schedule 1, on
the one hand, and the Partnership or its affiliates, on the other hand,
concerning a merger, consolidation or acquisition, tender offer or other
acquisition of securities, an election of directors or a sale or other
transfer of a material amount of assets.
SECTION 12. SOURCE OF FUNDS. The Purchaser expects that approximately
$601,684 would be required to purchase 32,133 Units, if tendered, and to pay
related fees and expenses. The Purchaser will obtain not less than $56,554 of
such funds from capital contributions from its partners. The remainder of such
funds are expected to be obtained from a term loan (the "Loan") to be provided
by SunAmerica Life Insurance Company or an affiliate thereof (the "Lender")
concurrently with the consummation of the Offer pursuant to the terms of a
commitment letter dated August 4, 1995 (the "Commitment Letter") between the
Lender and the Purchaser.
The Loan will be made to the Purchaser in order to enable the Purchaser to
consummate the Offer as well as to tender for units of or representing limited
partnership interests of up to 20 other AFG-sponsored Partnerships (together
with the Partnership, the "AFG Partnerships") subject to funding limitations
for each Partnership. Schedule 2 hereto sets forth the identity of each AFG
Partnership. (The Lender has agreed to provide funds of approximately
$28,000,000 in connection with all of the AFG Partnerships.) The Purchaser
commenced such other tender offers concurrently with the commencement of the
Offer (the Offer and such other tender offers are collectively referred to
herein as the "Tender Offers"). The units of or representing limited
partnership interests of the AFG Partnerships (including the Partnership)
which are purchased by the Purchaser pursuant to the Tender Offers are
collectively referred to herein as the "Tendered Units."
The proceeds of the Loan will be used by the Purchaser solely to fund the
acquisition of the Tendered Units and to pay related fees and expenses up to
$600,000 (excluding, however, the commitment fees hereinafter described, which
are funded through proceeds of the Loan).
16
<PAGE>
There will be a separate drawdown of Loan proceeds for each closing of a
Tender Offer. Each drawdown shall be in the minimum amount of $1,000,000 and
no drawdown shall be made later than 180 days after the commencement of the
Tender Offer for any AFG Partnership. The portion of the Loan with respect to
such Tender Offer will mature four years from the date of such drawdown.
The Loan will bear total interest at the rate of 15% per annum ("Total
Interest") consisting of Current Interest and Deferred Interest (as such terms
are hereinafter defined). The Loan will bear interest currently ("Current
Interest") at a fixed rate equal to 250 basis points (the "Spread") over the
U.S. Treasury security having a maturity closest to the weighted average life
of each drawdown, determined at the time of such drawdown. Further, deferred
interest ("Deferred Interest") shall be payable in an amount equal to 50% of
Excess Cash Flow (as hereinafter defined); provided, however, that the Total
Interest shall be limited to a yield with an effective rate of 15% taking into
account any and all prepayments of principal. "Excess Cash Flow" means all
cash of the Purchaser after all third party expenses incurred by the Purchaser
have been paid and excluding contributed capital.
Each drawdown of the Loan will be payable in 16 consecutive quarterly
installments on the 16th day of the first month of each calendar quarter,
commencing on the 16th day of the first month of the first calendar quarter
immediately following such drawdown. Installments of principal will be paid
based on a four year mortgage-style amortization schedule, and the remaining
principal balance, if any, of such drawdown will be payable on the 16th
quarterly payment date in its entirety.
The Purchaser shall have the right to prepay after one year, without penalty
or premium, any and all amounts outstanding under the Loan. Further, the
Purchaser will be required to prepay the outstanding principal amount of the
Loan each quarter in an amount equal to the Distributable Cash Amount (as
hereinafter defined) for the immediately preceding calendar quarter.
"Distributable Cash Amount" means all cash received by the Purchaser from all
sources, less Current Interest payments, scheduled principal payments and any
third party payments by the Purchaser. (See "Section 10. Conflicts of Interest
and Transactions With Affiliates and Related Parties" for a discussion of
certain conflicts of interest which will be created as a result of the
Purchaser's obligation to prepay the Loan with the proceeds of the sale or
refinancing of the Partnership's property.)
Until repayment in full of all outstanding principal together with Total
Interest, all distributions from AFG Partnerships received by the Purchaser
will be deposited into a collection account maintained by the Lender from
which all scheduled principal amounts together with accrued Current Interest
and Deferred Interest, when and as due, will be deducted. The Purchaser will
have the right to draft upon the collection account for any and all third
party expenses incurred by the Purchaser, other monies in excess of amounts
required to be paid to the Lender and any monies not pledged to the Lender.
As security for the Loan, the Lender shall receive a first priority security
interest in the Tendered Units, the stock of AAL, Inc. and the interests of
the general and limited partners in the Purchaser, the collection account and
any other assets of the Purchaser.
There will be various conditions precedent to the closing of each drawdown
under the Loan, including that the Tender Offer documentation shall be in full
force and effect; that all conditions precedent under the Tender Offer
materials to the consummation of the Tender Offers shall have been satisfied,
including that all necessary governmental approval and other third party
approval shall have been obtained; and that the Purchaser shall have received
cash proceeds aggregating 10% of the aggregate Purchase Price of the tendered
Units representing equity contributions from its partners and shall have
utilized such proceeds in a manner satisfactory to the Lender. Accordingly,
there is no assurance that any drawdowns of the Loan will actually occur.
The Purchaser anticipates that the loan agreement governing the Loan will
contain certain customary affirmative and negative covenants, representations
and warranties, defaults and other terms and conditions.
17
<PAGE>
The Purchaser will pay a commitment fee (the "Drawdown Fee") to the Lender
equal to 5% of the amount of each drawdown. The Purchaser will also pay a
commitment fee of $100,000 to the Lender at the end of the drawdown period but
only in the event that the aggregate amount of the drawdowns has not by such
date equaled or exceeded $10,000,000; provided, however, that in the event
that there are no drawdowns under the Loan, the commitment fee shall be
limited to $75,000. Further, the Purchaser will pay the reasonable and
ordinary fees and expenses of Lender's counsel, together with any and all
other out-of-pocket costs and expenses of any third party in connection with
the transaction.
If the Lender desires to obtain a rating on the Loan and the Purchaser is
able to provide credit enhancement for the Loan, such that the Loan receives
an investment grade rating from a third party rating agency, the Purchaser
will not be required to pay the Drawdown Fee but the Spread will increase to
300 basis points unless the Loan documentation fails to close by September 30,
1995, in which case the Drawdown Fee will be due and the Spread will return to
250 basis points.
If the Lender elects to obtain, and receives, an investment grade rating
from an outside credit agency with respect to the Loan, without any third
party credit enhancement, Total Interest will be reduced to 12.5%. In such
event the Purchaser remains obligated to pay the Drawdown Fee and to pay the
costs and expenses incurred in connection with obtaining the rating in an
amount up to $50,000.
If the Tender Offers are successful, and the maximum number of Tendered
Units sought are acquired, then repayment of the Loan will be dependent upon
the ability of the AFG Partnerships to generate sufficient Tender Cash Flow.
(See "Section 10. Conflicts of Interest and Transactions with Affiliates and
Related Parties" for a discussion of certain conflicts of interest which will
be created as a result of the Purchaser consummating the Loan.) The Purchaser
anticipates that, over the course of the Loan, the allocable share of cash
distributions to be received by it on account of its investment in the
Tendered Units will be sufficient to retire the principal balance of the Loans
and to pay Total Interest.
SECTION 13. BACKGROUND OF THE OFFER. As described in the Introduction to
this Offer to Purchase, the Purchaser is a related party of AFG, the sponsor
of the Partnership, and has been made aware of some disenchantment on the part
of certain investors as to their continued investment in the Units. Such
disenchantment generally appears to stem from increasingly complex tax
reporting requirements, the long-term and illiquid nature of the investment
and an inability to value the Units. Often, these investors request that the
General Partner or an affiliate either purchase or arrange for the purchase of
their Units. There is no formal secondary market for the Units. Although there
are informal secondary markets for private sales of limited partner interests,
such secondary markets for limited partnership interests are limited and
inefficient and sales in such markets are sporadic. (See "Section 7. Effects
of the Offer.")
The Purchaser has determined that it will be able to raise the capital
necessary to provide liquidity for Unitholders wishing to sell their Units
pursuant to the Offer.
Establishment of Purchase Price. The Purchaser will not purchase the
Partnership's underlying assets and does not believe that the underlying asset
value, while an important factor, is definitive in determining the Purchase
Price. In establishing the Purchase Price, the Purchaser took into
consideration a number of factors including: (i) the lack of liquidity of an
investment in the Partnership; (ii) the nature of the collateral that could be
offered to a lender; (iii) the fact that the Partnership has obtained
financing for a portion of its equipment from various lenders and those
lenders have a priority claim on such equipment; (iv) the credit quality of
the Partnership's lessees; and (v) certain financial information, primarily
the net present value of the cash distributions to Unitholders that are
expected to result from the collection of the Partnership's contractual rents
in the future, plus working capital (the "Net Finance Value" or "NFV"). (See
"Section 9. Certain Information Concerning the Partnership.")
In determining NFV, the Purchaser calculated the future contractual rents
(factoring in a 1.50% default rate) payable with respect to all assets owned
by the Partnership and then subtracted estimated future administrative
18
<PAGE>
costs, management fees, debt service on the Partnership's outstanding
indebtedness and the General Partner's 1% share of cash distributions of the
Partnership to arrive at its estimate of distributable cash flow
("Distributable Cash Flow" or "DCF"). The present value of DCF was then
calculated by applying a 15% discount rate to the individual quarterly
estimates of DCF. NFV is the sum of the present value of DCF plus the
Partnership's net working capital. Net working capital was determined by
subtracting the July 15, 1995 distribution to Unitholders from the June 30,
1995 cash balance. The Purchaser believes a 15% discount rate is appropriate
as it believes it approximates the Purchaser's estimated effective cost of
borrowing. (Any residual value from the Partnership's equipment was not taken
into account for purposes of determining NFV but, as hereinafter discussed,
was considered by the Purchaser in its determination of the Purchase Price.)
Following are the figures used to determine the Partnership's NFV:
<TABLE>
<S> <C>
1. Gross contractual future rents $1,778,038
2. Less default rate factor of 1.5% (26,671)
3. Less contractual debt service (623,651)*
4. Less contractual management fees (88,907)
5. Less estimated administrative costs (191,807)
----------
Distributable Cash Flow ("DCF") $ 847,002
==========
6. Present value of DCF $ 711,115
7. Add net working capital 399,636*
8. Less General Partner distributions (11,108)
----------
9. Net Finance Value ("NFV") $1,099,643
==========
10. Net Finance Value per Unit $15.40
======
</TABLE>
--------
* The Purchaser also took into consideration a principal payment on the
Partnership's debt in the amount of $519,000 which is due on August 31,
1995.
In establishing the Purchase Price, the Purchaser took into account costs
associated with its acquisition of the Units, estimated to be approximately
$37,429, or $1.16 per Unit, assuming the maximum number of Units are actually
acquired and the Purchaser pays the Drawdown Fee to the Lender. To the extent
that fewer than the maximum number of Units are purchased, the Purchaser's
cost per Unit will be increased. The Purchase Price also takes into account
the annual operating expenses of the Purchaser and the Purchaser's intention
to realize a profit.
The Purchaser considered residual value in setting its Purchase Price but
did not obtain an appraisal of the potential underlying value of the
Partnership's equipment. The Purchaser has, however, supplied the Lender with
a schedule of the assets and AFG's historical track record with respect to
residual realization. Residual realization includes both re-lease and sale
proceeds. Because most leases provide the lessee with an option to either re-
lease, purchase or return to the Partnership the leased equipment, it is
difficult to predict the timing of recognition of sale proceeds.
Notwithstanding such difficulty, the Purchaser has assumed for purposes of its
determination of the Purchase Price that the present value (using a 15%
discount rate) of the residual value of the Partnership's equipment ("ERV")
may be valued at $4,282,347 or approximately $59.97 per Unit. In arriving at
this estimate, the Purchaser assumed all assets would be sold at the end of
their current leases. Because residual values are very difficult to predict
and are highly dependent on the condition of the equipment and the market for
that particular type of equipment at the particular point in time that it is
to be sold, and because the realization of residual values will occur in the
later stages of the Partnership's life, the ERV takes in consideration a 10%
discount (the "Discount") from the gross estimated value that the Purchaser
believes may be assigned to the Partnership equipment, based in part on AFG's
historical experience in remarketing similar assets. The Purchaser believes
the Lender assumed a Discount in excess of 10% in its analysis of the
Partnership's future cash flow.
19
<PAGE>
Neither the General Partner nor the Purchaser has any present plans or
intentions with respect to the sale of the Partnership property or assets or
the liquidation of the Partnership other than in the ordinary course of
business and to achieve the investment objectives of the Partnership.
By taking into consideration all of the above factors, the Purchaser
determined the Purchase Price to be $17.56 per Unit. The Purchase Price
represents the price at which the Purchaser is willing to purchase Units and
is an amount which the Purchaser expects will enable it to realize a profit.
NO INDEPENDENT PERSON HAS BEEN RETAINED TO EVALUATE OR RENDER ANY OPINION WITH
RESPECT TO THE FAIRNESS OF THE PURCHASE PRICE AND NO REPRESENTATION IS MADE BY
THE PURCHASER OR ANY AFFILIATE OF THE PURCHASER AS TO SUCH FAIRNESS. THE
PURCHASER DID NOT ATTEMPT TO OBTAIN CURRENT INDEPENDENT VALUATIONS OR
APPRAISALS OF THE EQUIPMENT AND OTHER ASSETS OWNED BY THE PARTNERSHIP. OTHER
MEASURES OF THE VALUE OF THE UNITS MAY BE RELEVANT TO UNITHOLDERS AND
UNITHOLDERS SHOULD DETERMINE FOR THEMSELVES WHETHER THE METHOD EMPLOYED BY THE
PURCHASER, AND THE UNDERLYING ASSUMPTIONS, ARE REASONABLE. UNITHOLDERS ARE
URGED TO CONSIDER CAREFULLY ALL OF THE INFORMATION CONTAINED HEREIN AND
CONSULT WITH THEIR OWN ADVISORS, TAX, FINANCIAL OR OTHERWISE, IN EVALUATING
THE TERMS OF THE OFFER BEFORE DECIDING WHETHER TO TENDER UNITS.
Partnership Makes No Recommendation. The Partnership has indicated in its
Statement on Schedule 14D-9 filed with the Commission that it makes no
recommendation and is remaining neutral as to whether Unitholders should
tender their Units pursuant to the Offer because the General Partner of the
Partnership is subject to an inherent conflict of interest resulting from
relationships among the General Partner, the Purchaser and AFG.
SECTION 14. CONDITIONS OF THE OFFER. Notwithstanding any other term of the
Offer, the Purchaser shall not be required to accept for payment or to pay for
any Units tendered if all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by,
any court, administrative agency or commission or other governmental authority
or instrumentality, domestic or foreign, necessary for the consummation of the
transactions contemplated by the Offer shall not have been filed, occurred or
been obtained. Furthermore, notwithstanding any other term of the Offer, the
Purchaser shall not be required to accept for payment or pay for any Units not
theretofore accepted for payment or paid for and may terminate or amend the
Offer as to such Units if, at any time on or after the date of the Offer and
before the acceptance of such Units for payment or the payment therefor, any
of the following conditions exists:
(a) a preliminary or permanent injunction or other order of any federal
or state court, government or governmental authority or agency shall have
been issued and shall remain in effect which (i) makes illegal, delays or
otherwise directly or indirectly restrains or prohibits the making of the
Offer or the acceptance for payment of or payment for any Units by the
Purchaser, (ii) imposes or confirms limitations on the ability of the
Purchaser effectively to exercise full rights of ownership of any Units,
including, without limitation, the right to vote any Units acquired by the
Purchaser pursuant to the Offer or otherwise on all matters properly
presented to the Partnership's Unitholders, (iii) requires divestiture by
the Purchaser of any Units, (iv) causes any material diminution of the
benefits to be derived by the Purchaser as a result of the transactions
contemplated by the Offer, or (v) might materially adversely affect the
business, properties, assets, liabilities, financial condition, operations,
results of operations or prospects of the Purchaser or the Partnership;
(b) there shall be any action taken, or any statute, rule, regulation or
order proposed, enacted, enforced, promulgated, issued or deemed applicable
to the Offer by any federal or state court, government or governmental
authority or agency, which might, directly or indirectly, result in any of
the consequences referred to in clauses (i) through (v) of paragraph (a)
above;
(c) any change or development shall have occurred or been threatened
since the date hereof, in the business, properties, assets, liabilities,
financial condition, operations, results of operations or prospects of
20
<PAGE>
the Partnership, which, in the sole judgment of the Purchaser, is or may be
materially adverse to the Partnership, including without limitation any
adverse developments with respect to any lease of Partnership equipment, or
the Purchaser shall have become aware of any fact that, in the sole
judgment of the Purchaser, does or may have a material adverse effect on
the value of the Units;
(d) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or in the over-the-counter market in the United States, (ii) a declaration
of a banking moratorium or any suspension of payments in respect of banks
in the United States; (iii) any limitation by any governmental authority
on, or other event which might affect, the extension of credit by lending
institutions or result in any imposition of currency controls in the United
States, (iv) a commencement of a war or armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (v) a material change in United States or other currency exchange
rates or a suspension of a limitation on the markets thereof, or (vi) in
the case of any of the foregoing existing at the time of the commencement
of the Offer, a material acceleration or worsening thereof;
(e) a tender or exchange offer for some or all of the Units is made by
another person;
(f) it shall have been publicly disclosed or the Purchaser shall have
otherwise learned that (i) more than ten percent of the outstanding Units
have been or are proposed to be acquired by another person (including a
"group" within the meaning of Section 13(d)(3) of the Exchange Act), or
(ii) any person or group that prior to such date had filed a Statement with
the Commission pursuant to Section 13(d) or (g) of the Exchange Act has
increased or proposes to increase the number of Units beneficially owned by
such person or group as disclosed in such Statement by two percent or more
of the outstanding Units; or
(g) the related drawdown on the Loan shall not have been consummated on
terms and conditions (including interest sale acceptable to the Purchaser).
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser regardless of the circumstances giving rise to
such conditions or may be waived by the Purchaser in whole or in part at any
time and from time to time in its sole discretion. Any determination by the
Purchaser concerning the events described above will be final and binding upon
all parties.
SECTION 15. CERTAIN LEGAL MATTERS.
General. Except as set forth in this Section 15, the Purchaser is not aware
of any filings, approvals or other actions by any domestic or foreign
governmental or administrative agency that would be required prior to the
acquisition of Units by the Purchaser pursuant to the Offer. Should any such
approval or other action be required, it is the Purchaser's present intention
that such additional approval or action would be sought. While there is no
present intent to delay the purchase of Units tendered pursuant to the Offer
pending receipt of any such additional approval or the taking of any such
action, there can be no assurance that any such additional approval or action,
if needed, would be obtained without substantial conditions or that adverse
consequences might not result to the Partnership's business, or that certain
parts of the Partnership's business might not have to be disposed of or held
separate or other substantial conditions complied with in order to obtain such
approval or action, any of which could cause the Purchaser to elect to
terminate the Offer without purchasing Units thereunder. The Purchaser's
obligation to purchase and pay for Units is subject to certain conditions,
including conditions relating to the legal matters discussed in this Section
15.
Antitrust. The Purchaser does not believe that the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, is applicable to the
acquisition of Units contemplated by the Offer.
Margin Requirements. The Units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, such regulations are not applicable to the Offer.
State Takeover Laws. Certain states, including the Commonwealth of
Massachusetts where the Partnership has been organized, have adopted so-called
"anti-takeover laws and regulations" which purport, to varying degrees, to
apply to attempts to acquire securities of entities which are organized in
such states or which have
21
<PAGE>
assets, security holders, principal executive offices or a principal place of
business therein. The Purchaser believes that the Massachusetts anti-takeover
laws do not apply to the Offer. If any state anti-takeover statute is
applicable to the Offer, the Purchaser might be unable to accept for payment
or purchase Units tendered pursuant to the Offer or be delayed in continuing
or consummating the Offer. In such case, the Purchaser may not be obligated to
accept for purchase or pay for any Units tendered.
SECTION 16. CERTAIN FEES AND EXPENSES. Except as set forth in this Section
16, the Purchaser will not pay any fees or commissions to any broker, dealer
or other person for soliciting tenders of Units pursuant to the Offer. The
Purchaser has retained D.F. King & Co., Inc. to act as Information Agent and
State Street Bank and Trust Company to act as Depositary. The Purchaser will
pay the Information Agent and the Depositary reasonable and customary
compensation for their services in connection with the Offer, plus
reimbursement for reasonable out-of-pocket expenses, and will indemnify the
Information Agent against certain liabilities and expenses in connection
therewith, including liabilities under the federal securities laws. Further,
the Purchaser reserves the right to retain a broker/dealer registered to do
business in various states to the extent that the Purchaser determines that
utilization of such broker/dealer would be appropriate in connection with the
Offer. In the event that any broker/dealer is so retained, the Purchaser will
pay all of its fees and expenses. The Purchaser will also pay all costs and
expenses of printing and mailing the Offer.
SECTION 17. MISCELLANEOUS. The Purchaser is not aware of any jurisdiction in
which the making of the Offer is not in compliance with applicable law. If the
Purchaser becomes aware of any jurisdiction in which the making of the Offer
would not be in compliance with applicable law, the Purchaser will make a good
faith effort to comply with any such law. If, after such good faith effort,
the Purchaser cannot comply with any such law, the Offer will not be made to
(nor will tenders be accepted from or on behalf of) the holders of Units
residing in such jurisdiction.
No person has been authorized to give any information or to make any
representation on behalf of the Purchaser not contained herein or in the
Letter of Transmittal and, if given or made, such information or
representation must not be relied upon as having been authorized.
The Purchaser has filed with the Commission a Schedule 14D-1, pursuant to
Rule 14d-3 under the Exchange Act, furnishing certain additional information
with respect to the Offer, and may file amendments thereto. The Schedule 14D-1
and any amendments thereto, including exhibits, may be inspected and copies
may be obtained at the same places and in the same manner as set forth in
Section 9 hereof (except that they will not be available at the regional
offices of the Commission).
ATLANTIC ACQUISITION LIMITED
PARTNERSHIP
August 18, 1995
22
<PAGE>
SCHEDULE 1
INFORMATION WITH RESPECT TO PERSONS CONTROLLING
THE PURCHASER AND THE GENERAL PARTNER
Each person listed below is a citizen of the United States and has a
business address at 98 North Washington Street, Boston, Massachusetts 02114.
GEOFFREY A. MACDONALD
Mr. MacDonald, age 47, is a member of the Executive Committee of AFG, and
has been its Chairman and Chief Executive Officer since 1988. Mr. MacDonald
is a co-founder of AFG and served as Director and Senior Vice President of
AFG's predecessor corporation from 1980 to 1988.
GARY D. ENGLE
Mr. Engle, age 47, is President and a director of, and controls, AAL, Inc.,
the general partner of the Purchaser. He is a member of the Executive
Committee, President and Chief Operating Officer of AFG, which he joined in
1989. He also controls AFG. From 1987 to 1990, Mr. Engle was a principal
and co-founder of Cobb Partners Development, Inc., a real estate and
mortgage banking company located in Miami, Florida.
JAMES A. COYNE
Mr. Coyne, age 35, is Treasurer and Clerk and a director of AAL, Inc., the
general partner of the Purchaser. He is also a Senior Vice President of
AFG, which he rejoined in November 1994. He originally joined AFG in 1989
and remained until 1993. During his absence, he was with the Raymond
Company, a private investment firm specializing in real estate and
agricultural investment located in Boston, Massachusetts.
23
<PAGE>
SCHEDULE 2
AFG PARTNERSHIPS
American Income 4 Limited Partnership
American Income 5 Limited Partnership
American Income 6 Limited Partnership
American Income 7 Limited Partnership
American Income 8 Limited Partnership
American Income Partners III-A Limited Partnership
American Income Partners III-B Limited Partnership
American Income Partners III-C Limited Partnership
American Income Partners III-D Limited Partnership
American Income Partners IV-A Limited Partnership
American Income Partners IV-B Limited Partnership
American Income Partners IV-C Limited Partnership
American Income Partners IV-D Limited Partnership
American Income Partners V-A Limited Partnership
American Income Partners V-B Limited Partnership
American Income Partners V-C Limited Partnership
American Income Partners V-D Limited Partnership
American Income Fund I-B, a Massachusetts Limited Partnership
American Income Fund I-C, a Massachusetts Limited Partnership
American Income Fund I-D, a Massachusetts Limited Partnership
American Income Fund I-E, a Massachusetts Limited Partnership
24
<PAGE>
Facsimile copies of the Letters of Transmittal, properly completed and duly
executed will be accepted. The Letter of Transmittal and any other required
documents should be sent or delivered by each Unitholder or his broker,
dealer, commercial bank, trust company or other nominee to the Depositary at
his address set forth below:
The Depositary for this Offer is:
STATE STREET BANK AND TRUST COMPANY
By First Class Mail: By Overnight Courier: By Hand:
Corporate Reorganization c/o Boston Financial Corporate Reorganization
P.O. Box 9061 Data Services 225 Franklin Street
Boston, MA 02205-8686 Corporate Reorganization Concourse Level
Two Heritage Drive Boston, MA 02110
North Quincy, MA 02171 or
Corporate Reorganization
By Facsimile: 61 Broadway
Concourse Level
(617) 774-4519 New York, NY 10006
Confirm Facsimile by Telephone:
(617) 774-4511
Questions and requests for assistance may be directed to D.F. King & Co.,
Inc. at the address and telephone number listed below. Additional copies of
this Offer to Purchase, the Letter of Transmittal and other tender offer
materials may be obtained from D.F. King & Co., Inc. as set forth below and
will be furnished promptly at the Purchaser's expense.
D.F. King & Co., Inc.
77 WATER STREET
NEW YORK, NEW YORK 10005
1-800-848-3051
<PAGE>
AMERICAN INCOME 7 LIMITED PARTNERSHIP
LETTER OF TRANSMITTAL
THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL EXPIRE AT 5:00 P.M.,
EASTERN TIME, ON SEPTEMBER 29, 1995 (THE "EXPIRATION DATE") UNLESS EXTENDED.
To Depositary:
STATE STREET BANK AND TRUST COMPANY
By First Class Mail: By Overnight Courier: By Hand:
Corporate Reorganization c/o Boston Financial Corporate Reorganization
P.O. Box 9061 Data Services 225 Franklin Street
Boston, MA 02205-8686 Corporate Reorganization Concourse Level
Two Heritage Drive Boston, MA 02110
North Quincy, MA 02171 or
Corporate Reorganization
By Facsimile: 61 Broadway
Concourse Level New
(617) 774-4519 York, NY 10006
Confirm Facsimile by Telephone:
(617) 774-4511
To participate in the Offer, a duly executed copy of this Letter of
Transmittal (or facsimile hereof) must be received by the Depositary on or
prior to the Expiration Date. Delivery of this Letter of Transmittal or any
other required documents to an address or facsimile number other than as set
forth above does not constitute valid delivery. The method of delivery of all
documents is at the election and risk of the tendering Unitholder. If the
method of delivery is by First Class Mail, please use the pre-addressed,
postage-paid envelope provided.
This Letter of Transmittal is to be completed by Unitholders of record as of
August 10, 1995, of American Income 7 Limited Partnership, a Massachusetts
limited partnership (the "Partnership"), pursuant to the procedures set forth
in the Offer to Purchase (as defined below).
PLEASE CAREFULLY READ THE ACCOMPANYING INSTRUCTIONS
Ladies and Gentlemen:
The undersigned hereby tenders to Atlantic Acquisition Limited Partnership,
a Massachusetts limited partnership (the "Purchaser"), the following-described
Units at $17.56 per Unit, net to the seller in cash, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated August 18,
1995 (the "Offer to Purchase"), and this Letter of Transmittal (which together
constitute the "Offer"). Receipt of the Offer to Purchase is hereby
acknowledged.
--------------------------------------------------------------------------------
NUMBER OF UNITS TENDERED
-------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) NUMBER
(PLEASE FILL IN, IF BLANK) OF UNITS
TENDERED(1)
-------------------------------------------------------------------------------
(i) All [_]
(Please check
box if all
Units
tendered)
OR
(ii) Number
Tendered: ____
--------------------------------------------------------------------------------
-------
(1) In order for the tender to be valid, a Unitholder must tender either (i)
all Units owned by such Unitholder OR (ii) a portion of the Units but not
fewer than 10 Units (8 Units for IRAs or other Qualified Plans) (the
"Minimum Investment Amount"). If a Unitholder does not indicate the number
of Units tendered, the Purchaser will assume that such Unitholder has
tendered all Units owned of record by him. If a Unitholder who tenders
only a portion of his Units indicates a number of Units tendered that is
less than the Minimum Investment Amount, the Purchaser will assume that
such Unitholder has tendered the Minimum Investment Amount.
D
<PAGE>
Subject to and effective upon acceptance for payment of any of the Units
tendered hereby, the undersigned hereby sells, assigns and transfers to, or
upon the order of, the Purchaser all right, title and interest in and to such
Units tendered hereby. The undersigned hereby irrevocably (i) constitutes and
appoints the Purchaser as the true and lawful agent and attorney-in-fact of
the undersigned with respect to such Units, with full power of substitution
(such power of attorney being deemed to be an irrevocable power coupled with
an interest), to deliver such Units and transfer ownership of such Units on
the books of the Partnership, together with all accompanying evidences of
transfer and authenticity, to or upon the order of the Purchaser and, upon
payment of the purchase price in respect of such Units by the Purchaser, to
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Units and (ii) assigns to the Purchaser all future distributions from
the Partnership with respect to such Units for periods ending after June 30,
1995, to the extent such distributions are not paid to the undersigned (the
undersigned recognizes that future distributions with respect to such Units
for periods ending after June 30, 1995, that are paid to the undersigned will
automatically reduce the purchase price for such Units by a like amount), all
in accordance with the terms of the Offer. Subject to and effective upon
acceptance for payment of any Units tendered hereby, the undersigned hereby
requests that the Purchaser be admitted to the Partnership as a substitute
limited partner under the terms of the Partnership Agreement of the
Partnership. Upon the purchase of Units pursuant to the Offer, all prior
proxies, assignments and consents given by the undersigned with respect to
such Units will be revoked and no subsequent proxies, assignments or consents
may be given (and if given will not be deemed effective).
The undersigned recognizes that, if more than 32,133 Units are validly
tendered prior to or on the Expiration Date and not properly withdrawn, the
Purchaser will, upon the terms of the Offer, accept for payment from among
those Units tendered prior to or on the Expiration Date 32,133 Units on a pro
rata basis, with adjustments to avoid purchases of certain fractional Units,
based upon the number of Units validly tendered prior to the Expiration Date
and not withdrawn. The undersigned further recognizes that if no more than
32,133 Units are validly tendered prior to the Expiration Date and not
withdrawn, the Purchaser will, upon the terms of the Offer, accept for payment
all such Units.
The undersigned hereby represents and warrants that the undersigned owns the
Units tendered hereby within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended, and has full power and authority to validly
tender, sell, assign and transfer the Units tendered hereby, and that when any
such Units are accepted for payment by the Purchaser, the Purchaser will
acquire good, marketable and unencumbered title thereto, free and clear of all
liens, restrictions, charges, encumbrances, conditional sales agreements or
other obligations relating to the sale or transfer thereof, and such Units
will not be subject to any adverse claim. Upon request, the undersigned will
execute and deliver any additional documents deemed by the Purchaser to be
necessary or desirable to complete the assignment, transfer and purchase of
Units tendered hereby.
The undersigned understands that a tender of Units to the Purchaser will
constitute a binding agreement between the undersigned and the Purchaser upon
the terms and subject to the conditions of the Offer. The undersigned
recognizes that in certain circumstances set forth in the Offer to Purchase,
the Purchaser may not be required to accept for payment any of the Units
tendered hereby. In such event, the undersigned understands that any Letter of
Transmittal for Units not accepted for payment will be destroyed by the
Depositary. All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and any obligations of the
undersigned shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Except as stated in the Offer to
Purchase, this tender is irrevocable.
THERE ARE NO CERTIFICATES TO BE INCLUDED
WITH THIS LETTER OF TRANSMITTAL
<PAGE>
The Unitholder hereby tenders Units pursuant to the terms of the Offer. The
Unitholder hereby certifies, under penalties of perjury, that the information
and representations provided herein, including in Box A of this Letter of
Transmittal, which has been duly completed by the Unitholder, are true,
complete and correct as of the date hereof.
---------------------------------------------------------
OWNERS SIGN HERE TO TENDER
(ATTACH ADDITIONAL SHEETS, IF NECESSARY)
If this Letter of Transmittal is not signed exactly
as a name(s) appear(s) above, or if this Letter of
Transmittal is signed by a general partner,
corporate officer or other person acting in a
fiduciary or representative capacity, please
complete BOX B. (See Instruction 1)
SIGN------ X ___________________________________________________ -----SIGN
HERE------ X ___________________________________________________ -----HERE
Taxpayer Identification Number:
_____________________________________________________
Date: _____________________ , 1995
Bus. Tel.: ( )_____________________________________
---------------------------------------------------------
<PAGE>
BOX A
--------------------------------------------------------------------------------
PART I--Please provide the Social Security Number
TIN of the Unitholder or Employer
submitting that Letter of Identification Number:
SUBSTITUTE Transmittal in the box at
FORM W-9 right or, if applicable, ----------------------
DEPARTMENT OF write "Applied For" in such
THE TREASURY box. Individual, Sole
INTERNAL Proprietor Corporation
REVENUE Please check the Partnership
SERVICE appropriate box describing
the Unitholder: ----------------------
(SEE Other
INSTRUCTION 3) -------------------------------------------------------
PART II--Certification--The Unitholder submitting
(ATTACH this Letter of Transmittal hereby certifies the
ADDITIONAL following:
COPIES FOR (1) The TIN shown in Part 1 above is the correct TIN
JOINT of the Unitholder who is submitting this Letter of
UNITHOLDERS) Transmittal. If the box in Part 1 states the words
"Applied For," a TIN has not been issued to the
Unitholder, and either (a) the Unitholder has mailed
or delivered an application to receive a TIN to the
appropriate IRS Center or Social Security Adminis-
tration Office, or (b) the Unitholder intends to
PAYER'S REQUEST mail or deliver an application in the near future.
FOR TAXPAYER The Unitholder understands that if such Unitholder
IDENTIFICATION does not provide a TIN to the Purchaser within sixty
NUMBER ("TIN") (60) days, 31% of all reportable payments made to
the Unitholder thereafter will be withheld until a
TIN is provided to the Purchaser; and
(2) Unless this box [_] is checked, such Unitholder
is not subject to backup withholding either because
such Unitholder has not been notified by the IRS
that such Unitholder is subject to backup withhold-
ing as a result of a failure to report all interest
or dividends, or because the IRS has notified such
Unitholder that such Unitholder is no longer subject
to backup withholding.
(Note: You must place an "X" in the box in (2) above
if you have been notified by the IRS that you are
currently subject to backup withholding because of
underreporting of interest or dividends on your tax
return.)
--------------------------------------------------------------------------------
BOX B
--------------------------------------------------------------------------------
NON-CONFORMING SIGNATURES AND FIDUCIARIES SIGN HERE
(SEE INSTRUCTION 1)
(ATTACH ADDITIONAL COPIES FOR JOINT UNITHOLDERS)
The undersigned, if signing this Letter of Transmittal on behalf of the
Unitholder, hereby declares that he, she or it has the authority to sign
this document on behalf of such Unitholder.
Fiduciary: X _______________________
Printed Name: ______________________ Address: ___________________________
Title: _____________________________ ____________________________________
Bus. Tel.: ( )____________________
NOTARIZATION OF SIGNATURE
(IF REQUIRED. SEE INSTRUCTION 1)
State of )
)
County of )
On this ___ day of ______, 1995, before me came personally ________________
______________________ to me known to be the person who executed the
foregoing Letter of Transmittal.
____________________________________
Notary Public
OR
GUARANTEE OF SIGNATURE
(IF REQUIRED. SEE INSTRUCTION 1)
Name of Firm: ______________________________________________________________
--------------------------------------------------------------------------------
<PAGE>
AMERICAN INCOME 7 LIMITED PARTNERSHIP
LETTER OF TRANSMITTAL INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. TENDER, SIGNATURE REQUIREMENTS; DELIVERY. After carefully reading and
duly completing this Letter of Transmittal, to tender Units a Unitholder must
sign in the signature block on the front of this Letter of Transmittal. If
this Letter of Transmittal is signed by the registered Unitholder(s) of the
Units as printed on the front of this Letter of Transmittal without any change
whatsoever, no notarization or signature guarantee on this Letter of
Transmittal is required. Similarly, if Units are tendered for the account of a
member firm of a registered national security exchange, a member firm of the
National Association of Securities Dealers, Inc. or a commercial bank, savings
bank, credit union, savings and loan association or trust company having an
office, branch or agency in the United States (each, an "Eligible
Institution"), no notarization or signature guarantee is required on this
Letter of Transmittal. In all other cases, signatures on this Letter of
Transmittal must either be notarized or guaranteed by an Eligible Institution,
by completing the Notarization or Guarantee of Signature set forth in BOX B of
this Letter of Transmittal. If any tendered Units are registered in the names
of two or more joint holders, all such holders must sign this Letter of
Transmittal. If this Letter of Transmittal is signed by trustees,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing and must submit proper evidence satisfactory to the
Purchaser of their authority to so act. For Units to be validly tendered, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), together with any required notarizations or signature guarantees in
BOX B and any other documents required by this Letter of Transmittal must be
received by the Depositary prior to or on the Expiration Date at its address
or to its facsimile number set forth herein. No alternative, conditional or
contingent tenders will be accepted. All tendering Unitholders by execution of
this Letter of Transmittal waive any right to receive any notice of the
acceptance of their tender.
2. TRANSFER TAXES. The Purchaser will pay or cause to be paid all transfer
taxes, if any, payable on the transfer to it of Units pursuant to the Offer.
3. SUBSTITUTE FORM W-9. In order to avoid 31% federal income tax backup
withholding on the payment of the purchase price for Units purchased, the
tendering Unitholder must provide to the Purchaser the Unitholder's correct
Taxpayer Identification Number ("TIN") and certify, under penalties of
perjury, that such Unitholder is not subject to such backup withholding by
completing the Substitute Form W-9 set forth in BOX A of this Letter of
Transmittal. If a correct TIN is not provided, penalties may be imposed by the
Internal Revenue Service ("IRS") in addition to the Unitholder being subject
to backup withholding. Certain Unitholders (including, among others, all
corporations) are not subject to backup withholding. Backup withholding is not
an additional tax. If withholding results in an overpayment of taxes, a refund
may be obtained from the IRS.
The TIN that must be provided on the Substitute Form W-9 is that of the
registered Unitholder(s) indicated on the front of this Letter of Transmittal.
Write the words "Applied For" in the box in Part I of the Substitute Form W-9
if the tendering Unitholder has applied for but has not been issued a TIN or
intends to apply for a TIN in the near future. If the words "Applied For" are
written in the box in Part I of the Substitute Form W-9 and the Purchaser is
not provided with the Unitholder's TIN within 60 days, the Purchaser will
withhold 31% of all payments of the purchase price for the Units until such
TIN is provided to the Purchaser.
4. ADDITIONAL COPIES OF OFFER TO PURCHASE AND LETTER OF
TRANSMITTAL. Requests for assistance or additional copies of the Offer to
Purchase and this Letter of Transmittal may be obtained from the Information
Agent at the address or telephone number set forth below:
The Information Agent is:
D.F. King & Co., Inc.
77 WATER STREET
NEW YORK, NY 10005
1-800-848-3051
IMPORTANT: IN ORDER TO PARTICIPATE IN THE OFFER, THIS LETTER OF TRANSMITTAL
(OR FACSIMILE HEREOF) MUST BE RECEIVED BY THE DEPOSITARY ON OR
PRIOR TO THE EXPIRATION DATE.
<PAGE>
ATLANTIC ACQUISITION LIMITED PARTNERSHIP
98 North Washington Street
Boston, Massachusetts 02114
August 18, 1995
Dear Unitholder:
As described in the enclosed Offer to Purchase, Atlantic Acquisition Limited
Partnership is offering to purchase Units you own of limited partnership
interest of American Income 7 Limited Partnership, a Massachusetts limited
partnership (the "Partnership"), at a purchase price of $17.56 per Unit. The
Offer is for up to 32,133 Units, or approximately 45% of the outstanding Units
of the Partnership. If more than 32,133 Units are tendered pursuant to the
Offer, 32,133 Units will be accepted for purchase on a pro rata basis.
The Offer will provide you with an opportunity to liquidate your investment
in the Partnership without the usual transaction costs associated with market
sales. In this regard, you may no longer wish to continue your investment in
the Partnership for a number of reasons, including:
. The absence of a formal trading market for Units (although there are some
limited resale mechanisms which may be available to you if you wish to
sell your Units)
. General disenchantment with long-term investments in limited partnerships
. The complexities and costs of preparing and filing your personal federal,
state and local income tax returns resulting from your investment in the
Units, particularly if you have a small investment in the Partnership
. For Units held by IRAs or other qualified pension, profit-sharing or
stock bonus plans, the further complexity and costs of preparing income
tax returns, and the potential tax liability, resulting from the
generation by the Partnership of "unrelated business taxable income"
. The lack of assurance that the Partnership will continue to generate
substantial cash distributions, given the credit risks associated with
Partnership lessees and the uncertain nature of the future operating
costs of the Partnership and of the amount of any sale or re-lease
proceeds from Partnership equipment
. The opportunity to transfer Units without the costs and commissions
normally associated with a transfer
. More immediate use for the cash tied up in an investment in the Units
We suggest that you review the enclosed Offer to Purchase with your personal
financial and tax advisor. After carefully reading the enclosed Offer, if you
elect to tender all or a portion of your Units, deliver (using the enclosed
pre-addressed, postage-paid envelope if delivery is by First Class Mail) or
telecopy a duly completed and executed copy of the enclosed Letter of
Transmittal, and any documents required by the Letter of Transmittal, to the
Depositary, State Street Bank and Trust Company, as shown on the reverse side
of this letter.
ATLANTIC ACQUISITION
LIMITED PARTNERSHIP
IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE INFORMATION AGENT, D.F. KING &
CO., INC., AT 1-800-848-3051.
D
<PAGE>
Depositary:
STATE STREET BANK AND TRUST COMPANY
By First Class Mail: By Overnight Courier: By Hand:
Corporate Reorganization c/o Boston Financial Corporate Reorganization
P.O. Box 9061 Data Services 225 Franklin Street
Boston, MA 02205-8686 Corporate Reorganization Concourse Level
Two Heritage Drive Boston, MA 02110
North Quincy, MA 02171 or
Corporate Reorganization
61 Broadway
By Facsimile: Concourse Level
New York, NY 10006
(617) 774-4519
Confirm Facsimile by Telephone:
(617) 774-4511
<PAGE>
August 4, 1995
Mr. Gary D. Engle
AAL, Inc.
98 North Washington Street
Boston, MA 02114
Dear Gary:
We are pleased to extend a secured term loan facility in connection with the
acquisition of up to 45% of the limited partnership units (the "LP Units") of
certain of the partnerships set forth on Exhibit A hereto (individually, a
"Program," and, collectively, the "Programs") by means of offers to purchase
(the "Tender Offers") initiated by Atlantic Acquisition Limited Partnership, a
Massachusetts limited partnership, such term loan facility to be structured
according to, and to be subject to the satisfaction of, the following terms
and conditions:
<TABLE>
<C> <S>
BORROWER: Atlantic Acquisition Limited Partnership, a special purpose
Massachusetts limited partnership ("AALP").
LENDER: SunAmerica Life Insurance Company or an affiliate thereof (the
"Lender").
TYPE OF FACILITY: A multi-draw term loan (the "Term Loan") facility carrying
Total Interest (as defined below) of 15%.
COMMITMENT AMOUNT: Up to the Maximum Amount (as defined in Schedule A hereto);
however, in no event shall drawdowns exceed an amount equal to
the aggregate Advance Amount for each LP Unit purchased
pursuant to the Tender Offer (individually, a "Purchased Unit"
and, collectively, the "Purchased Units") and the aggregate
Advance Amount for each Program, as each are set forth on
Schedule A hereto, together with the out-of-pocket costs and
expenses of the Borrower related to the transactions
contemplated hereby (subject to the limitations set forth
below).
COMMITMENT FEE: Subject to the provisions of the paragraph below entitled
"Third Party Credit Enhancement", the Borrower shall pay to
the Lender at the time of each drawdown a commitment fee (the
"Drawdown Fee") equal to five percent (5%) of the amount of
each drawdown. A commitment fee of $100,000 shall also be
payable to the Lender at the end of the drawdown period, but
only to the extent that the aggregate amount of the drawdowns
have not by such date equalled or exceeded $10,000,000;
provided, however, that in the event that there are no
drawdowns under this credit facility, the Commitment Fee shall
be limited to $75,000.
PURPOSE AND USE OF The proceeds of the loan will be used by the Borrower solely
PROCEEDS: to fund the acquisition of the LP Units in the Programs
pursuant to the Tender Offers and to pay related fees and
expenses, provided, however, that proceeds of the loan shall
not be used to pay fees and expenses in an amount greater than
$600,000 except that the foregoing limitation shall not apply
to the Commitment Fee which in all events shall be funded
through proceeds of the loans. The maximum number of LP Units
for each Program which may be purchased by AALP shall be 45%
of the outstanding LP Units.
MATURITY DATE: Four (4) years from closing of each drawdown.
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C>
CURRENT INTEREST: Subject to the provisions of the paragraph below entitled
"Third Party Credit Enhancement", a fixed rate equal to 250
basis points (the "Spread") over the U.S. Treasury security
having a maturity closest to the weighted average life of each
drawdown, determined at the time of each drawdown.
DEFERRED INTEREST: An amount payable out of Excess Cash Flow, after the principal
outstanding under the Term Loan together with all accrued and
unpaid Current Interest has been paid to the Lender, equal to
50% of Excess Cash Flow, provided, however, that Total
Interest payable with respect to the Term Loan shall be
limited to yield an internal rate of return of 15% (taking
into account any and all prepayments of principal) (the
"Deferred Interest Cap").
"Excess Cash Flow" shall mean cash of the Borrower from all
sources after Operating Expenses of the Borrower and excluding
an amount equal to contributed capital.
"Operating Expenses" shall mean all third party expenses
incurred by AALP and AAL, Inc. (the "GP").
"Total Interest" shall mean Current Interest plus Deferred
Interest.
DRAWDOWNS: Each drawdown shall be in a minimum amount of $1,000,000 and
no drawdown shall be made later than 180 days after the tender
date, which date shall not be later than September 15, 1995.
CURRENT INTEREST Payments of Current Interest on the principal amount
PAYMENTS: outstanding under the Term Loan will be payable quarterly in
arrears on the 16th day of the first month of each calendar
quarter, commencing on the 16th day of the first month of the
first calendar quarter immediately following the first
drawdown of the Term Loan, in each case based upon the number
of days elapsed over a 360 day period.
SCHEDULED PRINCIPAL Each drawdown of the Term Loan will be payable in sixteen (16)
PAYMENTS: consecutive quarterly installments on the 16th day of the
first month of each calendar quarter, commencing on the 16th
day of the first month of the first calendar quarter
immediately following such drawdown. Installments of principal
shall be paid based upon a four year mortgage-style
amortization schedule, and the remaining principal balance, if
any, of such drawdown shall be payable on the 16th quarterly
payment date in its entirety.
MANDATORY A mandatory prepayment of principal outstanding on the Term
PREPAYMENTS: Loan shall be made on the 16th day of the first month of each
calendar quarter in an amount equal to the Distributable Cash
Amount (as defined below) for the immediately preceding
calendar quarter. No penalty or premium shall apply to such
prepayments.
Mandatory prepayments of the Term Loan described in the
preceding paragraph shall be applied pro rata to the remaining
scheduled installments of principal with respect to each
drawdown of the Term Loan and, as to each such drawdown, to
the remaining scheduled installments of principal thereof in
the order of maturity.
"Distributable Cash Amount" shall mean cash received from all
sources less Current Interest payments, scheduled principal
payments and Operating Expenses.
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C>
PERMISSIVE The Borrower shall have the right to prepay at any time after
PREPAYMENTS: one year from a drawdown date, without penalty or premium, any
and all amounts outstanding under the Term Loan in respect of
the respective drawdown.
COLLECTION ACCOUNT: Until repayment in full of all outstanding principal together
with Total Interest, all distributions from Programs received
by AALP shall be deposited into a Collection Account
maintained by the Lender from which all scheduled principal
amounts together with accrued Current Interest and Deferred
Interest, when and as due, shall be deducted. AALP shall have
the right to draft upon the Collection Account for any and all
Operating Expenses, other monies in excess of amounts required
to be paid to Lender and any monies not pledged to Lender.
COLLATERAL: Lender shall have a first priority perfected security interest
in:
1. The Purchased Units;
2. The stock of the GP;
3. The GP's interest and the limited partners' interests in
AALP;
4. The Collection Account, provided, however, that at all
times after that date on which the Term Loan, together with
all accrued and unpaid Current Interest, has been repaid in
full, Lender shall have a security interest in only 50% of
the Excess Cash Flow and the balance thereof shall be
released from the foregoing lien and, to the extent retained
by Lender, shall remain free of such lien; and
5. All other assets of the Borrower.
RECOURSE: The obligations under the Term Loan will be fully recourse to
the Borrower and to the GP.
CERTAIN CONDITIONS Customary and usual for transactions of this type including
PRECEDENT: but not
limited to:
1. The Tender Offer documentation (collectively, the "Tender
Offer Materials") shall be in full force and effect and
shall have been provided to the Lender;
2. All conditions under the Tender Offer Materials precedent
to the consummation of the Tender Offers with respect to the
LP Units then being acquired shall have been satisfied and
AALP shall have received all necessary governmental,
regulatory and other third party approvals;
3. AALP shall have received cash proceeds aggregating 10% of
the aggregate purchase price of the Purchased Units
representing equity contributions from its partners and
shall have utilized such proceeds in the manner set forth on
Schedule A hereto to purchase the LP Units and to pay any
related fees and expenses as contemplated above under "Use
of Proceeds" not funded through drawdowns.
4. Each of the Programs and each of the general partners
thereof shall be in legal existence and in good standing in
each of the jurisdictions of their organization;
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C>
5. Each of the documents relating to the structure and
operation of AALP shall be satisfactory in form and
substance to the Lender; and
6. The Lender shall have received evidence satisfactory to it
that AALP and the GP are special purpose entities formed for
the sole purpose of effecting the Tender Offers and the
transactions described herein.
7. The Lender shall have received evidence (including legal
opinions and certified copies of applicable partnership and
corporate documents) satisfactory in form and substance to
the Lender that the documents to be furnished to the Lender
in connection with this financing have been duly authorized,
executed and delivered by all necessary parties and
constitute the legal, valid and binding obligations of the
parties thereto, enforceable in accordance with their terms.
8. The Lender's credit committee shall have approved the
transactions contemplated hereby on or before that date
which shall be five (5) days after the date of execution
hereof by the Lender and the Borrower.
REPRESENTATIONS AND Customary and usual for transactions of this type including
WARRANTIES: but not
limited to:
1. Due organization, valid existence, good standing and
authority and qualification to do business of each of the
parties;
2. Due authorization, execution and delivery of all loan
documents executed by the applicable parties;
3. No conflicts with laws, regulations or orders of
governmental authorities applicable to the parties or their
respective assets;
4. No governmental approvals, filings or registrations are
required other than those previously obtained or made; and
5. The Borrower has good, unencumbered title to each item of
Collateral being pledged by it as security for the Term Loan
and the Lender's security interest therein being a first
priority perfected security interest.
COVENANTS: Customary and usual for transactions of this type; including
but not
limited to:
1. Maintenance of existence, business operations and
compliance with laws by AALP;
2. Payment of taxes and other impositions (including insurance
premiums) by AALP;
3. Notice of pending or threatened litigation or other
proceedings with respect to AALP or a Program;
4. Notice of pending defaults under the loan documents;
5. Financial reporting requirements;
6. No liens on assets of AALP other than liens in favor of the
Lender and other exceptions to be negotiated; and
7. No transfers of Collateral.
</TABLE>
B-4
<PAGE>
<TABLE>
<S> <C>
EVENTS OF DEFAULT: Customary and usual for transactions of this type; including
but not
limited to:
1. Failure to pay principal when due, Current Interest within
ten (10) days of due date, Deferred Interest within thirty
(30) days of due date or any other amount due under the loan
documents within thirty (30) days of notice by the Lender;
2. Failure to make required deposits into the Collection
Account;
3. Failure to pay taxes or other impositions;
4. Any representation or warranty in the loan documents having
been untrue in any material respect as of the date made or
deemed made;
5. Bankruptcy or insolvency of AALP or the GP;
6. Direct or indirect change in control of AALP or the GP;
7. Dissolution or other termination of AALP or the GP;
8. Breach of other covenants in the loan documents, with cure
periods after notice to be negotiated; and
9. Failure of any security for the Term Loan.
RATING: AALP agrees to cooperate with the Lender in the event that the
Lender elects to obtain a rating on AALP's obligation (the
"Obligation"). In such event, the Borrower agrees to pay all
out of pocket costs and expenses of the Lender and any other
third party in connection with same subject to a cap on such
costs and expenses of $50,000. The Lender agrees that in the
event that the Lender elects to obtain such a rating on the
Obligation and Sun America, Inc. shall not be required to
provide any credit enhancement in order for the Lender to
obtain an investment grade rating on the Obligation, the
Deferred Interest Cap shall be reduced to 12.5%.
THIRD PARTY CREDIT In the event that the Borrower shall, in its sole discretion,
ENHANCEMENT: obtain from any third party (excluding any affiliate of the
Lender) a credit enhancement sufficient to obtain an
investment grade rating on the Obligation, (i) the Borrower
shall not be obligated to pay to the Lender with respect to
each drawdown the Drawdown Fee, and (ii) the Spread shall be
increased to 300 basis points; provided, however that (A)
notwithstanding the foregoing, if the Borrower and the Lender
shall fail to close the facility described herein on or before
September 30, 1995, for any reason within the reasonable
control of the Borrower, then the foregoing shall be of no
force or effect, and (B) in all events except as set forth
above in the paragraph entitled "Rating", the Deferred
Interest Cap shall remain 15%.
EXPENSES: The reasonable and ordinary fees and expenses of Lender's
counsel incurred in connection with the preparation,
negotiation and execution of the documentation for the Term
Loan, together with any and all other out-of-pocket costs and
expenses of any other third party in connection with the
transaction, will be for the account of AALP and will be
payable regardless of whether the closing occurs. The fees of
Lender's counsel shall not exceed $50,000.
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C>
DOCUMENTATION: The definitive documentation for the Term Loan and the related
documents shall be satisfactory in form and substance to
Lender and its counsel and shall contain such additional
terms, conditions, indemnifications, representations,
warranties, covenants and events of default that, in Lender's
opinion, are appropriate for this transaction. A legal opinion
in form and substance satisfactory to the Lender and its
counsel shall be required from Borrower's counsel.
LIQUIDATED DAMAGES: The parties hereto agree that in the event the Borrower
unilaterally terminates this commitment after the execution
hereof and before the facility closes (i) in bad faith, the
Borrower shall pay to the Lender as liquidated damages and not
as a penalty an amount equal to $250,000, or (ii) for any
other reason other than due to documentation which in the
reasonable judgment of the Borrower does not accurately
evidence the terms of this commitment, the Borrower shall pay
to the Lender as liquidated damages and not as a penalty an
amount equal to $75,000; plus in each case any costs and
expenses as set forth in the paragraph entitled "Expenses"
above. The Lender agrees that in either event it shall have no
further recourse against the Borrower, the GP or any other
partner in the Borrower.
GOVERNING LAW: The Commonwealth of Massachusetts
</TABLE>
This commitment letter shall be construed in accordance with the internal
laws of The Commonwealth of Massachusetts and may be amended only in writing
with the consent of all the parties hereto.
If these terms are acceptable, please indicate your acceptance by signing
below and returning one executed copy of this letter to the undersigned. This
letter shall expire if not accepted by August 8, 1995. If accepted, this
letter shall expire if the definitive documentation has not been executed on
or before September 30, 1995.
Sincerely,
SUN AMERICA CORPORATE FINANCE
By: /s/ Tom Denkler
---------------------------------
Title: Vice President
AGREED TO AND ACCEPTED:
AAL, INC.
By: /s/ James A. Coyne
-------------------
Title: Treasurer
Date: August 7, 1995
B-6
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
OFFER NUMBER OF ESTIMATED MAXIMUM MAXIMUM
PRICE UNITS PURCHASE LOAN LOAN
PROGRAM PER UNIT TENDERED FOR PRICE PER UNIT AMOUNT
------- -------- ------------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
American Income 4 Limited
Partnership............. 16.00 36,000 576,000 14.18 510,480
American Income 5 Limited
Partnership............. 17.00 32,083 545,411 15.23 488,624
American Income 6 Limited
Partnership............. 18.50 27,234 503,829 16.65 453,446
American Income 7 Limited
Partnership............. 17.56 32,133 564,255 15.80 507,701
American Income 8 Limited
Partnership............. 19.13 33,683 644,356 17.22 580,021
American Income Partners
III-A Limited
Partnership............. 1.30 454,056 590,273 1.13 513,083
American Income Partners
III-B Limited
Partnership............. 1.50 507,299 760,949 1.35 684,854
American Income Partners
III-C Limited
Partnership............. 1.85 348,359 644,464 1.67 581,760
American Income Partners
III-D Limited
Partnership............. 1.50 233,967 350,951 1.34 313,516
American Income Partners
IV-A Limited
Partnership............. 2.60 422,820 1,099,332 2.33 985,171
American Income Partners
IV-B Limited
Partnership............. 3.00 393,271 1,179,813 2.56 1,006,774
American Income Partners
IV-C Limited
Partnership............. 5.00 571,780 2,858,900 4.51 2,578,728
American Income Partners
IV-D Limited
Partnership............. 6.03 488,673 2,946,698 5.75 2,809,870
American Income Partners
V-A Limited Partnership. 5.25 621,297 3,261,809 4.73 2,938,735
American Income Partners
V-B Limited Partnership. 4.50 696,569 3,134,561 3.75 2,612,134
American Income Partners
V-C Limited Partnership. 4.22 418,699 1,766,910 3.80 1,591,056
American Income Partners
V-D Limited Partnership. 3.49 216,102 754,196 3.14 678,560
American Income Fund I-B,
a Massachusetts Limited
Partnership............. 4.00 129,020 516,080 2.54 327,711
American Income Fund I-C,
a Massachusetts Limited
Partnership............. 5.00 361,555 1,807,775 4.46 1,612,535
American Income Fund I-D,
a Massachusetts Limited
Partnership............. 5.00 373,285 1,866,425 4.41 1,646,187
American Income Fund I-E,
a Massachusetts Limited
Partnership............. 7.10 397,723 2,823,833 6.39 2,541,450
---------- -----------
29,196,819 25,962,395
Fees and Expenses...... 600,000
Loan Commitment Fees... 1,328,120
-----------
Total Commitment Amount.. $27,890,515
===========
</TABLE>
B-7
<PAGE>
AMERICAN INCOME 7 LIMITED PARTNERSHIP
FORM 10-K--DECEMBER 31, 1994
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4--RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by AFG on behalf
of the Partnership and AFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the three years in
the period ended December 31, 1994, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Equipment management fees........................ $100,612 $100,788 $144,767
Administrative charges........................... 12,000 14,955 12,000
Reimbursable operating expenses due to third par-
ties............................................ 57,350 66,309 59,240
-------- -------- --------
Total........................................ $169,962 $182,052 $216,007
-------- -------- --------
</TABLE>
As provided under the terms of the Management Agreement, AFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, AFG
is compensated by an amount equal to 4.75% of Equipment Base Price paid by the
Partnership. For management services, AFG is compensated by an amount equal to
the lesser of (i) 5% of gross lease rental revenues earned by the Partnership
or (ii) fees which the General Partner reasonably believes to be competitive
for similar services for similar equipment. Both of these fees are subject to
certain limitations defined in the Management Agreement. Compensation to AFG
for services connected to the sale of equipment is calculated as the lesser of
(i) 3% of gross sale proceeds or (ii) one-half of reasonable brokerage fees
otherwise payable under arm's length circumstances. Payment of the remarketing
fee is subordinated to Payout and is subject to certain limitations defined in
the Management Agreement.
Administrative charges represent amounts owed to AFG, pursuant to Section
9.4 of the Restated Agreement, as amended, for persons employed by AFG who are
engaged in providing administrative services to the Partnership. Reimbursable
operating expenses due to third parties represent costs paid by AFG on behalf
of the Partnership which are reimbursed to AFG.
All equipment was acquired from AFG, one of its affiliates, including other
equipment leasing programs sponsored by AFG, or from third-party sellers. The
Partnership's Purchase Price was determined by the method described in Note 2.
All rents and proceeds from the sale of equipment are paid directly to
either AFG or to a lender. AFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the
Partnership. At December 31, 1994, the Partnership was owed $92,548 by AFG for
such funds and the interest thereon. These funds were remitted to the
Partnership in January 1995.
<PAGE>
AMERICAN INCOME 7 LIMITED PARTNERSHIP
FORM 10-Q--JUNE 30, 1995
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5--RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by AFG on behalf
of the Partnership and AFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the six month
periods ended June 30, 1995 and 1994, which were paid or accrued by the
Partnership to AFG or its Affiliates, are as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Equipment management fees.................................... $40,004 $56,391
Administrative charges....................................... 7,878 6,000
Reimbursable operating expenses due to third parties......... 35,102 26,651
------- -------
Total.................................................... $82,984 $89,042
------- -------
</TABLE>
All rents and proceeds from the sale of equipment are paid directly to
either AFG or to a lender. AFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the
Partnership. At June 30, 1995, the Partnership was owed $90,678 by AFG for
such funds and the interest thereon. These funds were remitted to the
Partnership in July 1995.
