<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-18394
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American Income Partners IV-C Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3036127
- -------------------------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 N. Washington St., Fifth Floor, Boston, MA 02114
- -------------------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
------------------------------
Securities registered pursuant to Section 12(b) of the Act NONE
----------------------
Title of each class Name of each exchange on which registered
- --------------------------------- --------------------------------------------
- --------------------------------- --------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
1,270,622 Units Representing Limited Partnership Interest
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(Title of class)
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XX NO
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State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. Not applicable. Securities are nonvoting for
this purpose. Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1995 (Part I and II)
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- --------------------------------------------------------------------------
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors............................*
Statement of Financial Position
at December 31, 1995 and 1994.............................*
Statement of Operations
for the years ended December 31, 1995, 1994 and 1993......*
Statement of Changes in Partners' Capital
for the years ended December 31, 1995, 1994 and 1993......*
Statement of Cash Flows
for the years ended December 31, 1995, 1994 and 1993......*
Notes to the Financial Statements.........................*
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K, as
set forth in Item 601 of Regulation S-K, are not
applicable.
Exhibit
Number
---------
4 Amended and Restated Agreement and Certificate of Limited
Partnership included as Exhibit A to the Prospectus which
is included in Registration Statement on Form S-1
(No. 33-19513).
13 The 1995 Annual Report to security holders, a copy of which
is furnished for the information of the Securities and
Exchange Commission. Such Report, except for those portions
thereof which are incorporated herein by reference, is not
deemed "filed" with the Commission.
23 Consent of Independent Auditors.
99 (a) Lease agreement with Kristian Gerhard Jebsen Skipsrederi
A/S was filed in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990 as Exhibit
28(a) and is incorporated herein by reference.
* Incorporated herein by reference to the appropriate portion of the 1995
Annual Report to security holders for the year ended December 31, 1995.
(See Part II)
<PAGE>
99 (b) Lease agreement with Northwest Airlines, Inc. was filed in
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994 as Exhibit 99(b) and is
incorporated herein by reference.
99 (c) Lease agreement with The Kendall Company is filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and is included herein.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on behalf of the registrant and in the
capacity and on the date indicated.
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
By: AFG Leasing IV Incorporated,
a Massachusetts corporation and the
Managing General Partner of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
------------------------------ ------------------------------
Geoffrey A. MacDonald Gary D. Engle
Chief Executive Officer, President and Chief Operating
Chairman, and a member of the Officer and a member of the
Executive Committee of AFG and Executive Committee of AFG
President and a Director of the and a Director of the
Managing General Partner Managing General Partner
(Principal Executive Officer) (Principal Financial Officer)
Date: April 9, 1996 Date: April 9, 1996
------------------------ -----------------------
By: /s/ Gary M. Romano
--------------------------
Gary M. Romano
Vice President and Controller
of AFG and Clerk of the Managing General
Partner
(Principal Accounting Officer)
Date: April 9, 1996
------------------------
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT TO THE PARTNERS
Page
----
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-6
FINANCIAL STATEMENTS:
Report of Independent Auditors 7
Statement of Financial Position
at December 31, 1995 and 1994 8
Statement of Operations
for the years ended December 31, 1995, 1994 and 1993 9
Statement of Changes in Partners' Capital
for the years ended December 31, 1995, 1994 and 1993 10
Statement of Cash Flows
for the years ended December 31, 1995, 1994 and 1993 11
Notes to the Financial Statements 12-21
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 22
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 23
Schedule of Costs Reimbursed to the Managing
General Partner and its Affiliates as Required
by Section 10.4 of the Amended and Restated
Agreement and Certificate of Limited Partnership 24
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<PAGE>
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements.
For each of the five years in the period ended December 31, 1995:
<TABLE>
<CAPTION>
Summary of
Operations 1995 1994 1993 1992 1991
- ---------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 2,904,024 $ 4,358,141 $ 6,485,361 $ 7,205,600 $ 9,120,182
Net income (loss) before
extraordinary item $ 2,298,781 $ 1,944,052 $ (820,136) $ (772,481) $(1,246,983)
Extraordinary item -- -- 1,043,626 -- (451,736)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 2,298,781 $ 1,944,052 $ 223,490 $ (772,481) $(1,698,719)
Per Unit:
Net income (loss) before
extraordinary item $ 1.79 $ 1.51 $ (0.64) $ (0.60) $ (0.97)
Extraordinary item -- -- 0.81 -- (0.35)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 1.79 $ 1.51 $ 0.17 $ (0.60) $ (1.32)
Cash distributions $ 2.50 $ 2.25 $ 2.75 $ 3.50 $ 3.37
<CAPTION>
Financial
Position
- ----------------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 9,122,891 $10,525,937 $12,624,046 $20,617,148 $29,992,821
Total long-term obligations $ 387,188 $ 877,494 $ 1,877,173 $ 6,449,681 $10,179,103
Partners' capital $ 7,881,508 $ 8,791,368 $ 9,735,092 $13,041,106 $18,305,685
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1995 compared to the year
ended December 31, 1994 and the year ended December 31, 1994
compared to the year ended December 31, 1993
Overview
- --------
As an equipment leasing partnership, American Income Partners IV-C
Limited Partnership (the "Partnership") was organized to acquire a diversified
portfolio of capital equipment subject to lease agreements with third parties.
The Partnership was designed to progress through three principal phases:
acquisitions, operations, and liquidation. During the operations phase, a period
of approximately six years, all equipment in the Partnership's portfolio
progresses through various stages. Initially, all equipment generates rental
revenues under primary term lease agreements. During the life of the
Partnership, these agreements expire on an intermittent basis and equipment held
pursuant to the related leases are renewed, re-leased or sold, depending on
prevailing market conditions and the assessment of such conditions by American
Finance Group ("AFG") to obtain the most advantageous economic benefit. Over
time, a greater portion of the Partnership's original equipment portfolio
becomes available for remarketing and cash generated from operations and from
sales or refinancings begins to fluctuate. Ultimately, all equipment will be
sold and the Partnership will be dissolved. In accordance with the Partnership's
stated investment objectives and policies, the Managing General Partner is
considering the winding-up of the Partnership's operations, including the
liquidation of its entire portfolio. The Partnership's operations commenced in
1989.
Results of Operations
- ---------------------
For the year ended December 31, 1995, the Partnership recognized lease
revenue of $2,904,024 compared to $4,358,141 and $6,485,361 for the years ended
December 31, 1994 and 1993, respectively. The decrease in lease revenue between
1993 and 1995 was expected and resulted principally from primary lease term
expirations and the sale of equipment. The Partnership also earns interest
income from temporary investments of rental receipts and equipment sales
proceeds in short-term instruments.
The Partnership's equipment portfolio includes certain assets in which
the Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by AFG or an affiliated equipment leasing program
sponsored by AFG. Proportionate equipment ownership enables the Partnership to
further diversify its equipment portfolio by participating in the ownership of
selected assets, thereby reducing the general levels of risk which could result
from a concentration in any single equipment type, industry or lessee. The
Partnership and each affiliate individually report, in proportion to their
respective ownership interests, their respective shares of assets, liabilities,
revenues, and expenses associated with the equipment.
In 1995, the Partnership sold equipment having a net book value of
$297,491 to existing lessees and third parties. These sales resulted in a net
gain, for financial statement purposes, of $497,463 compared to a net gain in
1994 of $446,426 on equipment having a net book value of $565,506 and a net gain
in 1993 of $401,704 on equipment having a net book value of $793,942.
In March 1991, a lessee of the Partnership, Midway Airlines, Inc.
("Midway") filed for protection under Chapter 11 of the Bankruptcy Code. On
November 27, 1991, this proceeding was converted to a Chapter 7 liquidation. The
Partnership's portfolio originally included interests in three DC-9 aircraft
leased to Midway. In 1991, the Partnership forfeited its interest in one of
these aircraft to its lender in consideration of forgiveness of the related debt
and interest (See Note 7 to the financial statements herein). The Partnership
owned a 25% interest in the two remaining DC-9 aircraft (the "Aircraft"). The
Aircraft had an original cost of $3,673,329 to the Partnership. To finance the
purchase of the Aircraft, the Partnership borrowed $2,492,975 on a non-recourse
basis from a third-party lending institution. In 1991, the estimated fair market
value of the Partnership's interest in the Aircraft was determined to be less
than the outstanding balance of the related loan. Accordingly, in 1991, the
Partnership reduced the carrying value of its interests in the Aircraft to an
amount less than the outstanding loan balance (the
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reduction of the carrying value was $1,102,470 or $0.86 per limited partnership
unit). The third-party lender had agreed to forestall, until April 30, 1992, any
actions to force a cure of the defaulted note pending efforts by AFG to sell or
re-lease the Aircraft. Such efforts were unsuccessful and on May 26, 1992 the
lender declared a loan default and demanded full payment of all amounts owed
under the note agreement. On March 19, 1993, the Aircraft were transferred to a
designee of the lender in lieu of foreclosure. During the year ended December
31, 1993, the Partnership recorded a net gain on disposition of the Aircraft of
$102,531 ($0.08 per limited partnership unit), representing interest expense
incurred in 1992 and forgiven at date of disposition. For financial reporting
purposes, this gain was reported as a loss on equipment forfeiture of $941,095
and an extraordinary gain of $1,043,626. The extraordinary gain resulted from
the related indebtedness at the date of foreclosure being in excess of the fair
market value of the Partnership's interests in the Aircraft. At the time of
disposition, the Partnership's interests in the Aircraft had a fair market value
of approximately $1,150,000 and a net book value of $2,091,095. The amount of
indebtedness forgiven was $2,193,626, including accrued interest of $132,720. In
consideration of this transfer, the lender reimbursed to the Partnership the sum
of $34,257, representing amounts previously advanced by the Partnership to the
lender in its unsuccessful attempt to facilitate the remarketing of the
Aircraft. For financial statement purposes, this sum was reported as other
income on the statement of operations during the year ended December 31, 1993.
These advances were originally reported as operating expenses when incurred.
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 equipment being sold and its
marketability at the time of sale. 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 ultimate realization of residual value for any type of equipment is
dependent upon many factors, including AFG'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 values at
any given time. AFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset
is comprised of all primary lease term revenue generated from that asset,
together with its residual value. The latter 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 revenue.
Consequently, the amount of gain or loss reported in the financial statements is
not necessarily indicative of the total residual value the Partnership achieved
from leasing the equipment.
Depreciation and amortization expense was $930,054, $2,537,203 and
$6,060,412 for the years ended December 31, 1995, 1994 and 1993, respectively.
For financial reporting purposes, to the extent that an asset is held on primary
lease term, the Partnership depreciates the difference between (i) the cost of
the asset and (ii) the estimated residual value of the asset on a straight-line
basis over such term. For purposes of this policy, estimated residual values
represent estimates of equipment values at the date of primary lease expiration.
To the extent that equipment is held beyond its primary lease term, the
Partnership continues to depreciate the remaining net book value of the asset on
a straight-line basis over the asset's remaining economic life. (See Note 2 to
the financial statements herein.)
Interest expense was $44,687 or 1.5% of lease revenue in 1995, $104,607
or 2.4% of lease revenue in 1994 and $304,504 or 4.7% of lease revenue in 1993.
Interest expense in future periods will continue to decline in amount and as a
percentage of lease revenue as the principal balance of notes payable is reduced
through the application of rent receipts to outstanding debt.
Management fees were 5% of lease revenue in each of the three years
ended December 31, 1995, 1994 and 1993 and will not change as a percentage of
lease revenue in future periods.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. In certain cases, equipment storage or
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<PAGE>
repairs and maintenance costs may be incurred in connection with equipment being
remarketed. Collectively, operating expenses represented 3.7%, 1.9% and 2.1% of
lease revenue in 1995, 1994 and 1993, respectively. The increase in operating
expenses during 1995 was due principally to an increase in professional service
costs and insurance premium adjustments for aircraft owned by the Partnership.
The amount of future operating expenses cannot be predicted with certainty;
however, such expenses are usually higher during the acquisition and liquidation
phases of a partnership. Other fluctuations typically occur in relation to the
volume and timing of remarketing activities.
Liquidity and Capital Resources and Discussion of Cash Flows
- ------------------------------------------------------------
The Partnership by its nature is a limited life entity which was
established for specific purposes described in the preceding "Overview". As an
equipment leasing program, the Partnership's principal operating activities
derive from asset rental transactions. Accordingly, the Partnership's principal
source of cash from operations is provided by the collection of periodic rents.
These cash inflows are used to satisfy debt service obligations associated with
leveraged leases, and to pay management fees and operating costs. Operating
activities generated net cash inflows of $2,735,985, $4,219,711 and $5,712,781
in 1995, 1994 and 1993, respectively. Future renewal, re-lease and equipment
sale activities will continue to cause a gradual decline in the Partnership's
lease revenue and corresponding sources of operating cash. Overall, expenses
associated with rental activities, such as management fees, and net cash flow
from operating activities will decline as the Partnership experiences a higher
frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This
will occur principally through sale transactions whereby each asset will be sold
to the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection of
stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. The Partnership capitalized $2,829 of
refurbishment costs to upgrade certain equipment during 1993. During 1995, the
Partnership realized $794,954 in equipment sale proceeds compared to $1,011,932
and $1,195,646 in 1994 and 1993, respectively. Future inflows of cash from asset
disposals will vary in timing and amount and will be influenced by many factors
including, but not limited to, the frequency and timing of lease expirations,
the type of equipment being sold, its condition and age, and future market
conditions.
During 1994, the Partnership capitalized $664,500 of refurbishment costs
incurred to upgrade two cargo vessels leased by Gearbulk Shipowning Ltd.
("Gearbulk"), formerly Kristian Gerhard Jebsen Skipsrederi A/S, pursuant to the
terms of an extended and renegotiated contract with Gearbulk. Refurbishment
costs were financed with a third-party lender and shared between the Partnership
and other affiliated partnerships in proportion to their respective ownership
interests in the vessels.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal related to such indebtedness are
reported as a component of financing activities. Each note payable is recourse
only to the specific equipment financed and to the minimum rental payments
contracted to be received during the debt amortization period (which period
generally coincides with the lease rental term). As rental payments are
collected, a portion or all of the rental payment is used to repay the
associated indebtedness. In future years, the amount of cash used to repay debt
obligations will continue to decline as the principal balance of notes payable
is reduced through the collection and application of rents.
Cash distributions to the General Partners and Recognized Owners are
declared and generally paid within fifteen days following the end of each
calendar quarter. The payment of such distributions is presented as a component
of financing activities. For the year ended December 31, 1995, the Partnership
declared total cash distributions of Distributable Cash From Operations and
Distributable Cash From Sales and Refinancings of $3,208,641. In accordance with
the Amended and Restated Agreement and Certificate of Limited Partnership (the
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<PAGE>
"Restated Agreement, as amended"), the Recognized Owners were allocated 99% of
these distributions, or $3,176,555, and the General Partners were allocated 1%,
or $32,086. The fourth quarter 1995 cash distribution was paid on January 22,
1996.
Cash distributions paid to the Recognized Owners 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 conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation 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 individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The Partnership's future cash distributions will be adversely affected
by the bankruptcy of Midway. Although this bankruptcy had no immediate adverse
effect on the Partnership's cash flow, as the Partnership had fully leveraged
its ownership interest in the underlying aircraft, this event resulted in the
Partnership's loss of any future interest in the residual value of these
aircraft. This bankruptcy will have a material adverse effect on the ability of
the Partnership to achieve all of its originally intended economic benefits.
However, the final yield on capital will be dependent upon the collective
performance results of all of the Partnership's equipment leases.
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 Managing 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. In addition, the Partnership may be required to incur
asset refurbishment or upgrade costs in connection with future remarketing
activities. Accordingly, fluctuations in the level of quarterly cash
distributions will occur during the life of the Partnership.
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<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Partners of American Income Partners IV-C Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Partners IV-C Limited Partnership as of December 31, 1995 and
1994, and the related statements of operations, changes in partners' capital,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of American Income
Partners IV-C Limited Partnership at December 31, 1995 and 1994, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Additional Financial
Information identified in the Index to Annual Report to the Partners is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
March 12, 1996
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<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,063,872 $ 2,231,880
Rents receivable, net of allowance for
doubtful accounts of $35,000 272,111 327,947
Accounts receivable - affiliate 377,124 328,781
Equipment at cost, net of accumulated
depreciation of $14,056,730 and $18,624,411
at December 31, 1995 and 1994, respectively 6,409,784 7,637,329
------------ -----------
Total assets $ 9,122,891 $10,525,937
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 387,188 $ 877,494
Accrued interest 2,204 16,141
Accrued liabilities 20,000 15,500
Accrued liabilities - affiliate 18,360 8,835
Deferred rental income 11,471 14,439
Cash distributions payable to partners 802,160 802,160
------------ -----------
Total liabilities 1,241,383 1,734,569
------------ -----------
Partners' capital (deficit):
General Partners (200,479) (191,381)
Limited Partnership Interests
(1,270,622 Units; initial purchase
price of $25 each) 8,081,987 8,982,749
------------ -----------
Total partners' capital 7,881,508 8,791,368
------------ -----------
Total liabilities and partners' capital $ 9,122,891 $10,525,937
============ ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
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<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Lease revenue $ 2,904,024 $ 4,358,141 $ 6,485,361
Interest income 124,607 79,857 22,514
Other income -- -- 34,257
Gain (loss) on sale/forfeiture of equipment 497,463 446,426 (539,391)
----------- ----------- -----------
Total income 3,526,094 4,884,424 6,002,741
----------- ----------- -----------
Expenses:
Depreciation and amortization 930,054 2,537,203 6,060,412
Interest expense 44,687 104,607 304,504
Equipment management fees - affiliate 145,201 217,907 324,268
Operating expenses - affiliate 107,371 80,655 133,693
----------- ----------- -----------
Total expenses 1,227,313 2,940,372 6,822,877
----------- ----------- -----------
Net income (loss) before extraordinary item 2,298,781 1,944,052 (820,136)
Extraordinary item -- -- 1,043,626
----------- ----------- -----------
Net income $ 2,298,781 $ 1,944,052 $ 223,490
=========== =========== ===========
Net income (loss) before extraordinary item
per limited partnership unit $ 1.79 $ 1.51 $ (0.64)
Extraordinary item
per limited partnership unit -- -- 0.81
----------- ----------- -----------
Net income
per limited partnership unit $ 1.79 $ 1.51 $ 0.17
=========== =========== ===========
Cash distributions declared
per limited partnership unit $ 2.50 $ 2.25 $ 2.75
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
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<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
General
Partners Recognized Owners
---------------------------------
Amount Units Amount Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $ (148,884) $ 1,270,622 $13,189,990 $13,041,106
Net income - 1993 2,235 -- 221,255 223,490
Cash distributions declared (35,295) -- (3,494,209) (3,529,504)
----------- ----------- ----------- -----------
Balance at December 31, 1993 (181,944) 1,270,622 9,917,036 9,735,092
Net income - 1994 19,441 -- 1,924,611 1,944,052
Cash distributions declared (28,878) -- (2,858,898) (2,887,776)
----------- ----------- ----------- -----------
Balance at December 31, 1994 (191,381) 1,270,622 8,982,749 8,791,368
Net income - 1995 22,988 -- 2,275,793 2,298,781
Cash distributions declared (32,086) -- (3,176,555) (3,208,641)
----------- ----------- ----------- -----------
Balance at December 31, 1995 $ (200,479) 1,270,622 $ 8,081,987 $ 7,881,508
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
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<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 2,298,781 $ 1,944,052 $ 223,490
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 930,054 2,537,203 6,060,412
(Gain) loss on sale/forfeiture of equipment (497,463) (446,426) 539,391
Extraordinary item -- -- (1,043,626)
Changes in assets and liabilities:
Decrease (increase) in:
rents receivable 55,836 287,409 82,539
accounts receivable - affiliate (48,343) (28,037) (87,349)
Increase (decrease) in:
accrued interest (13,937) (34,563) (31,636)
accrued liabilities 4,500 950 (7,949)
accrued liabilities - affiliate 9,525 5,284 (18,255)
deferred rental income (2,968) (46,161) (4,236)
----------- ----------- -----------
Net cash from operating activities 2,735,985 4,219,711 5,712,781
----------- ----------- -----------
Cash flows from (used in) investing activities:
Purchase of equipment -- -- (2,829)
Proceeds from equipment sales 794,954 1,011,932 1,195,646
----------- ----------- -----------
Net cash from investing activities 794,954 1,011,932 1,192,817
----------- ----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable (490,306) (1,664,179) (2,511,602)
Distributions paid (3,208,641) (2,967,992) (3,449,288)
----------- ----------- -----------
Net cash used in financing activities (3,698,947) (4,632,171) (5,960,890)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (168,008) 599,472 944,708
Cash and cash equivalents at beginning of year 2,231,880 1,632,408 687,700
----------- ----------- -----------
Cash and cash equivalents at end of year $ 2,063,872 $ 2,231,880 $ 1,632,408
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 58,624 $ 139,170 $ 336,140
=========== =========== ===========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1994, the Partnership capitalized $664,500 of refurbishment costs
incurred to upgrade certain equipment, all of which was financed by a
third-party lender.
During 1993, the Partnership forfeited equipment with a fair market value
of $1,150,000 to its lender in consideration of forgiveness of the related
debt and interest of $2,193,626.
The accompanying notes are an integral part of
these financial statements.
-11-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
Notes to the Financial Statements
December 31, 1995
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
- ---------------------------------------------
The Partnership was organized as a limited partnership under the
Massachusetts Uniform Limited Partnership Act (the "Uniform Act") on December
29, 1988, for the purpose of acquiring and leasing to third parties a
diversified portfolio of capital equipment. Partners' capital initially
consisted of contributions of $1,000 from the Managing General Partner (AFG
Leasing IV Incorporated) and $100 from the Initial Limited Partner (AFG Assignor
Corporation). On March 30, 1989, the Partnership issued 1,270,622 units,
representing assignments of limited partnership interests (the "Units"), to
2,157 investors. Unitholders and Limited Partners (other than the Initial
Limited Partner) are collectively referred to as Recognized Owners. Subsequent
to the Partnership's Closing on March 30, 1989, the Partnership had three
General Partners: AFG Leasing IV Incorporated, a Massachusetts corporation,
Daniel J. Roggemann, and Geoffrey A. MacDonald (collectively, the "General
Partners"). Mr. Roggemann subsequently elected to withdraw as an Individual
General Partner. The common stock of the Managing General Partner is owned by
AF/AIP Programs Limited Partnership, of which American Finance Group ("AFG"), a
Massachusetts partnership, and a wholly-owned affiliate, are the 99% limited
partners and AFG Programs, Inc., a Massachusetts corporation wholly-owned by
Geoffrey A. MacDonald, is the 1% general partner. The General Partners, each of
whom is affiliated with AFG, are not required to make any other capital
contributions except as may be required under the Uniform Act and Section 6.1(b)
of the Amended and Restated Agreement and Certificate of Limited Partnership
(the "Restated Agreement, as amended").
AFG is a successor to the business of American Finance Group, Inc., a
Massachusetts corporation engaged since its inception in 1980 in various aspects
of the equipment leasing business. In 1990, certain members of AFG's management,
principally Geoffrey A. MacDonald, Chief Executive Officer and co-founder of
AFG, established AFG Holdings (Massachusetts) Limited Partnership ("Holdings
Massachusetts") to acquire ownership and control of AFG. Holdings Massachusetts
effected this event by acquiring all of the equity interests of AFG's two
partners, AFG Holdings Illinois Limited Partnership ("Holdings Illinois") and
AFG Corporation. Holdings Massachusetts incurred significant indebtedness to
finance this acquisition, a significant portion of which was scheduled to mature
in 1995.
On December 16, 1994, the senior lender to Holdings Massachusetts (the
"Senior Lender") assumed control of its security interests in Holdings Illinois
and AFG Corporation and sold all such interests to GDE Acquisitions Limited
Partnership, a Massachusetts limited partnership owned and controlled entirely
by Gary D. Engle, President and a member of the Executive Committee of AFG. As a
result of this transaction, GDE Acquisitions Limited Partnership acquired all of
the assets, rights and obligations of AFG from the Senior Lender and assumed
control of AFG. Geoffrey A. MacDonald remains as Chief Executive Officer of AFG
and member of its Executive Committee.
Significant operations commenced March 30, 1989 when the Partnership
made its initial equipment purchase. Pursuant to the Restated Agreement, as
amended, Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings will be allocated 99% to the Recognized Owners and 1% to the
General Partners until Payout and 85% to the Recognized Owners and 15% to the
General Partners after Payout. Payout will occur when the Recognized Owners have
received distributions equal to their original investment plus a cumulative
annual return of 10.75% (compounded quarterly) on undistributed invested
capital.
Under the terms of a management agreement between the Partnership and
AF/AIP Programs Limited Partnership and the terms of an identical management
agreement between AF/AIP Programs Limited Partnership and AFG (collectively the
"Management Agreement"), management services are provided by AFG to the
Partnership at fees which the Managing General Partner believes to be
competitive for similar services. (Also see Note 4.)
-12-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Statement of Cash Flows
- -----------------------
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in reverse
repurchase agreements with overnight maturities. Under the terms of the
agreements, title to the underlying securities passes to the Partnership. The
securities underlying the agreements are book entry securities. At December 31,
1995, the Partnership had $2,060,000 invested in reverse repurchase agreements
secured by U.S. Treasury Bills or interests in U.S. Government securities.
Revenue Recognition
- -------------------
Rents are payable to the Partnership monthly, quarterly or semi-annually
and no significant amounts are calculated on factors other than the passage of
time. The leases are accounted for as operating leases and are noncancellable.
Rents received prior to their due dates are deferred. Future minimum rents of
$5,823,945 are due as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
For the year ending December 31, 1996 $ 2,031,497
1997 1,719,337
1998 1,422,583
1999 650,528
-------------
Total $ 5,823,945
=============
</TABLE>
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1995, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Gearbulk Shipowning Ltd. (formerly Kristian
Gerhard Jebsen Skipsrederi A/S) $ 1,150,074 $ 1,165,274 $ 1,144,736
Northwest Airlines, Inc. $ 390,000 $ 485,500 --
The Kendall Company $ 353,738 -- --
</TABLE>
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Equipment on Lease
- ------------------
All equipment was acquired from AFG, one of its affiliates, including
other equipment leasing programs sponsored by AFG, or from third-party sellers.
Equipment cost represents asset base price plus acquisition fees and was
determined in accordance with the Restated Agreement, as amended, and certain
regulatory guidelines. Asset base price is affected by the relationship of the
seller to the Partnership as summarized herein. Where the
-13-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
seller of the equipment was AFG or an affiliate, asset base price was the lower
of (i) the actual price paid for the equipment by AFG or the affiliate plus all
actual costs accrued by AFG or the affiliate while carrying the equipment less
the amount of all rents earned by AFG or the affiliate prior to selling the
equipment or (ii) fair market value as determined by the Managing General
Partner in its best judgment, including all liens and encumbrances on the
equipment and other actual expenses. Where the seller of the equipment was a
third party who did not manufacture the equipment, asset base price was the
lower of (i) the price invoiced by the third party or (ii) fair market value as
determined by the Managing General Partner. Where the seller of the equipment
was a third party who also manufactured the equipment, asset base price was the
manufacturer's invoice price, which price was considered to be representative of
fair market value.
Depreciation
- ------------
The Partnership's depreciation policy is intended to allocate the cost
of equipment over the period during which it produces economic benefit. The
principal period of economic benefit is considered to correspond to each asset's
primary lease term, which term generally represents the period of greatest
revenue potential for each asset. Accordingly, to the extent that an asset is
held on primary lease term, the Partnership depreciates the difference between
(i) the cost of the asset and (ii) the estimated residual value of the asset on
a straight-line basis over such term. For purposes of this policy, estimated
residual values represent estimates of equipment values at the date of primary
lease expiration. To the extent that an asset is held beyond its primary lease
term, the Partnership continues to depreciate the remaining net book value of
the asset on a straight-line basis over the asset's remaining economic life.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including AFG'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 values at
any given time. AFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
Accrued Liabilities - Affiliate
- -------------------------------
Unpaid operating expenses paid by AFG on behalf of the Partnership are
reported as Accrued Liabilities Affiliate. (See Note 4.)
Allocation of Profits and Losses
- --------------------------------
For financial statement purposes, net income or loss is allocated to
each Partner according to their respective ownership percentages (99% to the
Recognized Owners and 1% to the General Partners). See Note 6 concerning
allocation of income or loss for income tax purposes.
Net Income and Cash Distributions Per Unit
- ------------------------------------------
Net income and cash distributions per unit are based on 1,270,622 Units
outstanding during each of the three years in the period ended December 31, 1995
and computed after allocation of the General Partners' 1% share of net income
and cash distributions.
Provision for Income Taxes
- --------------------------
No provision or benefit from income taxes is included in the
accompanying financial statements. The Partners are responsible for reporting
their proportionate shares of the Partnership's taxable income or loss and other
tax attributes on their tax returns.
-14-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
Impact of Recently issued Accounting Standards
- ----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Partnership will adopt Statement 121 in the first quarter of 1996 and, based on
current circumstances, does not believe the impact of adoption to be material to
the financial statements of the Partnership.
NOTE 3 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Partnership at
December 31, 1995. In the opinion of AFG, the acquisition cost of the equipment
did not exceed its fair market value.
<TABLE>
<CAPTION>
Lease
Term Equipment
Equipment Type (Months) at Cost Location
- --------------------------------------- ---------- ------------ -----------------------------
<S> <C> <C> <C>
Vessels 63-72 $ 8,479,038 Foreign
Aircraft 38-72 4,579,905 MN
Furniture & fixtures 12-96 2,125,632 IN/MA
Manufacturing 36-60 1,494,518 CA/IN/NY/OH/TX
Retail store fixtures 12-60 1,410,891 AL/AZ/CA/CT/DE/FL/GA/IA/IL/IN
KY/LA/MA/MD/MN/MO/NC/NJ/NV
NY/OH/OK/OR/PA/SC/TN/TX/VA
WV/Foreign
Materials handling 3-60 1,035,152 CA/GA/IL/IN/MA/NC/TX
Tractors and heavy duty trucks 1-72 745,092 FL/IL/MA/MD/MI/NC/NY/OH
Research and test 1-24 414,282 NY
Communications 31-60 97,130 TX
Photocopying 12-60 72,447 CA/MN/NY/OH/VA
Computers and peripherals 36-60 7,156 IN
General purpose plant/warehouse 12-60 4,728 NC
Medical 54-60 543 IN
-------------
Total equipment cost 20,466,514
Accumulated depreciation (14,056,730)
-------------
Equipment, net of accumulated depreciation $ 6,409,784
=============
</TABLE>
In 1994, the Partnership incurred and capitalized costs of $664,500 to
refurbish and improve two cargo vessels leased by Gearbulk Shipowning Ltd.
("Gearbulk"), formerly Kristian Gerhard Jebsen Skipsrederi A/S, pursuant to the
terms of an extended and renegotiated lease contract with Gearbulk.
Refurbishment costs were financed by a third-party lender and shared between the
Partnership and other affiliated partnerships in proportion to their respective
ownership interests in each vessel. The refurbishment costs will be depreciated
over 15 years.
-15-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by AFG or an
affiliated equipment leasing program sponsored by AFG. The Partnership and each
affiliate individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the equipment. Proportionate equipment ownership
enables the Partnership to further diversify its equipment portfolio by
participating in the ownership of selected assets, thereby reducing the general
levels of risk which could result from a concentration in any single equipment
type, industry or lessee. At December 31, 1995, the Partnership's equipment
portfolio included equipment having a proportionate original cost of
$13,664,688, representing approximately 67% of total equipment cost.
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of equipment
includes leveraged equipment having an original cost of approximately $665,000
and a net book value of approximately $544,000 at December 31, 1995. (See Note
5)
Generally, the costs associated with maintaining, insuring and operating
the Partnership's equipment are incurred by the respective lessees pursuant to
terms specified in their individual lease agreements with the Partnership.
As equipment is sold to third parties, or otherwise disposed of, the
Partnership recognizes a gain or loss equal to the difference between the net
book value of the equipment at the time of sale or disposition and the proceeds
realized upon sale or disposition. The ultimate realization of estimated
residual value in the equipment is dependent upon, among other things, AFG's
ability to maximize proceeds from selling or re-leasing the equipment upon
expiration of the primary lease terms. The summary above includes equipment held
for re-lease or sale with an original cost and net book value of approximately
$1,041,000 and $10,000, respectively, at December 31, 1995. The Managing General
Partner is actively seeking the sale or re-lease of all equipment not on lease.
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 the years ended December 31,
1995, 1994 and 1993, which were paid or accrued by the Partnership to AFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Equipment acquisition fees -- -- $ 128
Equipment management fees $ 145,201 $ 217,907 324,268
Administrative charges 21,000 12,000 14,955
Reimbursable operating expenses
due to third parties 86,371 68,655 118,738
---------- ---------- ----------
Total $ 252,572 $ 298,562 $ 458,089
========== ========== ==========
</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.
-16-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
For management services, AFG is compensated by an amount equal to the lesser of
(i) 5% of gross lease rental revenue earned by the Partnership or (ii) fees
which the Managing 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 10.4 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 purchased 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, Equipment on Lease.
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, 1995, the Partnership was owed $377,124 by AFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
January 1996.
On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"), a
newly formed Massachusetts limited partnership owned and controlled by certain
principals of AFG, commenced a voluntary cash Tender Offer (the "Offer") for up
to approximately 45% of the outstanding units of limited partner interest in
this Partnership and 20 affiliated partnerships sponsored and managed by AFG.
The Offer was subsequently amended and supplemented in order to provide
additional disclosure to unitholders; increase the offer price; reduce the
number of units sought to approximately 35% of the outstanding units; and extend
the expiration date of the Offer to October 20, 1995. Following commencement of
the Offer, certain legal actions were initiated by interested persons against
AALP, each of the general partners (4 in total) of the 21 affected programs, and
various other affiliates and related parties. One action, a class action brought
in the United States District Court for the District of Massachusetts (the
"Court") on behalf of the unitholders (Recognized Owners), sought to enjoin the
Offer and obtain unspecified monetary damages. A settlement of this litigation
was approved by the Court on November 15, 1995. A second class action, brought
in the Superior Court of the Commonwealth of Massachusetts (the "Superior
Court") seeking to enjoin the Offer, obtain unspecified monetary damages, and
intervene in the first class action, was dismissed by the Superior Court. The
Plaintiffs have filed an appeal in this matter. The Recognized Owners of the
Partnership tendered approximately 103,351 units or 8.13% of the total
outstanding units of the Partnership to AALP. The operations of the Partnership
are not expected to be adversely affected by these proceedings or settlements.
NOTE 5 - NOTES PAYABLE
- ----------------------
Notes payable at December 31, 1995 consisted of three installment notes
of $387,188 payable to banks and institutional lenders. The installment notes
are non-recourse, one with an interest rate of 9.7% and two that bear
fluctuating rates based on the London Inter-Bank Offered Rate ("LIBOR") plus
1.5%. At December 31, 1995, the applicable LIBOR rates were approximately 7.38%.
These notes are collateralized by the equipment and assignment of the related
lease payments and will be fully amortized by noncancellable rents.
-17-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
The annual maturities of the installment notes payable are as follows:
<TABLE>
<S> <C> <C>
For the year ending December 31, 1996 $ 166,125
1997 166,125
1998 54,938
----------
Total $ 387,188
==========
</TABLE>
NOTE 6 - INCOME TAXES
- ---------------------
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income
or loss to each class of partner according to their respective ownership
percentages (99% to the Recognized Owners and 1% to the General Partners). This
convention differs from the income or loss allocation requirements for income
tax and Dissolution Event purposes as delineated in the Restated Agreement, as
amended. For income tax purposes, the Partnership allocates net income or net
loss, in accordance with the provisions of such agreement. The Restated
Agreement, as amended, requires that upon dissolution of the Partnership, the
General Partners will be required to contribute to the Partnership an amount
equal to any negative balance which may exist in the General Partners' tax
capital account. At December 31, 1995, the General Partners had a positive tax
capital account balance.
The following is a reconciliation between net income reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net income $ 2,298,781 $ 1,944,052 $ 223,490
Financial statement depreciation in
excess of (less than) tax depreciation (509,631) 333,863 2,637,407
Prepaid rental income (2,968) (46,161) (4,236)
Other 118,435 438,625 1,689,314
----------- ----------- -----------
Net income for federal income
tax reporting purposes $ 1,904,617 $ 2,670,379 $ 4,545,975
=========== =========== ===========
</TABLE>
The principal component of "Other" consists of the difference between
the tax gain on equipment disposals and the financial statement gain on
equipment disposals.
-18-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Partners' capital $ 7,881,508 $ 8,791,368
Add back selling commissions and
organization and offering costs 3,726,183 3,726,183
Financial statement distributions in
excess of tax distributions 8,022 8,022
Cumulative difference between federal income
tax and financial statement income (loss) (459,912) (65,748)
----------- -----------
Partners' capital for federal income tax
reporting purposes $11,155,801 $12,459,825
=========== ===========
</TABLE>
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
NOTE 7 - LEGAL PROCEEDINGS
- --------------------------
In March 1991, a lessee of the Partnership, Midway Airlines, Inc.
("Midway"), filed for protection under Chapter 11 of the Bankruptcy Code. On
November 27, 1991, this proceeding was converted to a Chapter 7 liquidation. The
equipment consisted of an interest in three DC-9 aircraft (the "Equipment")
having an original cost of $5,467,515 to the Partnership. To finance the
purchase of the Equipment, the Partnership had borrowed $3,396,895 on a non-
recourse basis from two third-party lending institutions. On December 30, 1991,
one of the lenders, with an interest in only one of the three DC-9 aircraft,
sold this one aircraft at a public sale and applied all sale proceeds against
its outstanding loan balance. In 1991, the Partnership recorded an aggregate
loss on its interest in this aircraft of $893,670 or $0.70 per limited
partnership unit. For financial reporting purposes, this loss was reported as a
loss on equipment forfeiture of $441,934 and an extraordinary loss of $451,736.
The extraordinary loss resulted from the fair market value of the Partnership's
interest in this aircraft being in excess of the related indebtedness at the
date of foreclosure. At the time of disposition, the Partnership's interest in
this aircraft had a fair market value of approximately $1,100,000 and a net book
value of $1,541,934. The amount of indebtedness forgiven was $648,264, including
accrued interest of $30,339.
The Partnership owned a 25% interest in the two remaining DC-9 aircraft.
In 1991, the estimated fair market value of the Partnership's interests in the
remaining two aircraft was determined to be less than the outstanding balance of
the related loan. Accordingly, in 1991, the Partnership reduced the carrying
value of its interests in the aircraft to an amount less than the outstanding
loan balance (the reduction of the carrying value was $1,102,470 or $0.86 per
limited partnership unit). The second third-party lender had agreed to
forestall, until April 30, 1992, any actions to force a cure of the defaulted
note pending efforts by AFG to sell or re-lease the two aircraft. Such efforts
were unsuccessful and on May 26, 1992 the lender declared a loan default and
demanded full payment of all amounts owed under the note agreement. On March 19,
1993, the remaining two aircraft were transferred to a designee of the lender in
lieu of foreclosure. In 1993, the Partnership recorded a net gain on disposition
of its interests in these aircraft of $102,531 ($0.08 per limited partnership
unit), representing interest
-19-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
expense incurred in 1992 and forgiven at date of disposition. For financial
reporting purposes, this gain was reported as a loss on equipment forfeiture of
$941,095 and an extraordinary gain of $1,043,626. The extraordinary gain
resulted from the related indebtedness at the date of foreclosure being in
excess of the fair market value of the Partnership's interests in the remaining
two aircraft. At the time of disposition, the Partnership's interests in the
remaining two aircraft had a fair market value of approximately $1,150,000 and a
net book value of $2,091,095. The amount of indebtedness forgiven was
$2,193,626, including accrued interest of $132,720. In consideration of this
transfer, the lender reimbursed to the Partnership the sum of $34,257,
representing amounts previously advanced by the Partnership to the lender in its
unsuccessful attempt to facilitate the remarketing of these aircraft. For
financial statement purposes, this sum was reported as other income on the
statement of operations during 1993. These advances were originally reported as
operating expenses when incurred.
As the Partnership will be unable to realize any future residual value
for the aircraft previously leased to Midway and as these assets represented
approximately 11% of the Partnership's original equipment portfolio, it is
expected that cumulative future cash distributions will be significantly lower
than was anticipated at the inception of the Partnership. Accordingly, this
bankruptcy will have a material adverse effect on the ability of the Partnership
to achieve all of its originally intended economic benefits.
On September 7, 1993, Rose's Stores, Inc. (the "Debtor"), a lessee of
the Partnership, filed for protection under Chapter 11 of the Bankruptcy Code.
AFG, on behalf of the Partnership and various other AFG-sponsored investment
programs, filed a proof of claim in this case, which claim was amended and
restated. In August 1994, the Bankruptcy Court approved a Motion to Reject
Certain Executory Equipment Leases filed by the Debtor relating to approximately
$295,000 of equipment owned by this Partnership. The Partnership sold all such
equipment during 1994 and recognized a net gain of $344 for financial statement
purposes. During 1995, the Partnership sold an additional $1,392 of equipment
previously leased to the Debtor and recognized a net gain of $213 for financial
statement purposes. At December 31, 1995, the Partnership owned other equipment,
having an original cost of $605,747, which was leased to the Debtor. This
equipment represents approximately 3% of the Partnership's aggregate equipment
portfolio and is fully depreciated for financial statement purposes. All of this
equipment is being leased pursuant to renewal rental schedules executed by the
Debtor; however, a sale with respect to such equipment is currently pending.
The Debtor's First Amended Joint Plan of Reorganization (the "Plan of
Reorganization") was adopted on December 14, 1994. On June 8, 1995 and August
18, 1995, AFG, on behalf of the Partnership and various other AFG-sponsored
investment programs, was issued 24,319 of the Debtor's common stock pursuant to
the Plan of Reorganization. The common stock, which had a market value of $2.38
per share (for 17,023 of the shares) and $2.56 per share (for 7,296 of the
shares) at the respective settlement dates, was issued in full satisfaction of
the outstanding unsecured claims of the affected investment programs. The
Partnership's proportionate interest in this settlement is 8.03% or
approximately 1,954 shares. This bankruptcy did not have a material adverse
effect on the financial position of the Partnership.
NOTE 8 - SUBSEQUENT EVENT
- -------------------------
On January 1, 1995, AFG entered into a series of agreements with PLM
International, Inc., a Delaware corporation headquartered in San Francisco,
California ("PLM"), whereby PLM would: (i) purchase, in a multi-step
transaction, certain of AFG's assets and (ii) provide accounting, asset
management and investor services to AFG and certain of AFG's affiliates,
including the Partnership and all other equipment leasing programs managed by
AFG (the "Investment Programs").
-20-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
Notes to the Financial Statements
(Continued)
On January 3, 1996, AFG and PLM executed an amendment to the 1995
agreements whereby PLM purchased: (i) AFG's lease origination business and
associated contracts, (ii) the rights to the name "American Finance Group" and
associated logo, and (iii) certain furniture, fixtures and computer software.
PLM hired AFG's marketing force and certain other support personnel effective
January 1, 1996 in connection with the transaction and relinquished its
responsibilities under the 1995 agreements to provide accounting, asset
management and investor services to AFG, its affiliates and the Investment
Programs after December 31, 1995. Accordingly, AFG and its affiliates retain
ownership and control and all authority and rights with respect to each of the
general partners or managing trustees of the Investment Programs; and AFG, as
Manager, will continue to provide accounting, asset management and investor
services to the Partnership.
Pursuant to the 1996 amendment to the 1995 agreements, AFG and certain
of its affiliates agreed not to compete with the lease origination business sold
to PLM for a period of five years. AFG reserved the right to satisfy all
equipment needs of the Partnership and all other Investment Programs and
reserved certain other rights not material to the Partnership. AFG also agreed
to change its name, except where it is used in connection with the Investment
Programs. AFG's management considers the amendment to the 1995 agreements to be
in the best interest of AFG and the Partnership.
-21-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1995, 1994 and 1993
The Partnership classifies all rents from leasing equipment as lease
revenue. Upon expiration of the primary lease terms, equipment may be sold,
rented on a month-to-month basis or re-leased for a defined period under a new
or extended lease agreement. The proceeds generated from selling or re-leasing
the equipment, in addition to any month-to-month revenue, represent the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition may not reflect the aggregate residual proceeds
realized by the Partnership for such equipment.
The following is a summary of cash excess or deficiency associated with
equipment dispositions occurring in the years ended December 31, 1995, 1994 and
1993.
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Rents earned prior to disposal of equipment,
net of interest charges $ 6,114,155 $ 6,318,199 $ 4,363,842
Sale proceeds, including forgiveness of debt,
realized upon disposition of equipment 794,954 1,011,932 3,389,272
----------- ----------- ------------
Total cash generated from rents and equipment
sale proceeds 6,909,109 7,330,131 7,753,114
Original acquisition cost of equipment disposed 5,795,226 5,752,592 7,896,719
----------- ----------- ------------
Excess (deficiency) of total cash generated to
cost of equipment disposed $ 1,113,883 $ 1,577,539 $ (143,605)
=========== =========== ============
</TABLE>
The deficiency of total cash generated to cost of equipment disposed in
1993 resulted principally from the forfeiture of aircraft formerly on lease to
Midway. The cost of equipment disposed in 1993 included $1,102,470 representing
the 1991 provision for pending foreclosure associated with two of the Midway
aircraft.
-22-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1995
<TABLE>
<CAPTION>
Sales and
Operations Refinancings Total
------------ ------------ ------------
<S> <C> <C> <C>
Net income $ 1,801,318 $ 497,463 $ 2,298,781
Add back:
Depreciation 930,054 -- 930,054
Management fees 145,201 -- 145,201
Book value of disposed equipment -- 297,491 297,491
Less:
Principal reduction of notes payable (490,306) -- (490,306)
------------ ------------ ------------
Cash from operations, sales
and refinancings 2,386,267 794,954 3,181,221
Less:
Management fees (145,201) -- (145,201)
------------ ------------ ------------
Distributable cash from operations, sales
and refinancings 2,241,066 794,954 3,036,020
Other sources and uses of cash:
Cash at beginning of year 2,231,880 -- 2,231,880
Net change in receivables and accruals 4,613 -- 4,613
Less:
Cash distributions paid (2,413,687) (794,954) (3,208,641)
------------ ------------ ------------
Cash at end of year $ 2,063,872 $ -- $ 2,063,872
============ ============ ============
</TABLE>
-23-
<PAGE>
AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP
SCHEDULE OF COSTS REIMBURSED TO THE
MANAGING GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 10.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1995
For the year ended December 31, 1995, the Partnership reimbursed the
General Partner and its Affiliates for the following costs:
Operating expenses $ 91,697
-24-
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of American Income Partners IV-C Limited Partnership of our report
dated March 12, 1996, included in the 1995 Annual Report to the Partners of
American Income Partners IV-C Limited Partnership.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
March 12, 1996
-15-
<PAGE>
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT NO. 8903MAG366, dated as of March 30, 1989 between
American Finance Group, a Massachusetts general partnership having a principal
place of business and address for purposes of notice hereunder at Exchange
Place, Boston, Massachusetts 02109, Attention: Manager, Lease Financing Group,
as Lessor, and The Kendall Company, a Delaware corporation having a principal
place of business and address for purposes of notice hereunder at One Federal
Street, Boston, MA 02110 Attention: Vice President, Finance.
1. MASTER LEASE.
------------
This Master Lease Agreement sets forth the terms and conditions that govern
the lease by Lessor to Lessee of items of Equipment specified on Rental
Schedules executed and delivered by the parties from time to time. Each Rental
Schedule incorporates by reference this Master Lease Agreement and specifies
the Lease Term, the amount of Basic Rent, the Payment Dates on which Basic Rent
is due, and such other information and provisions as Lessor and Lessee may
agree. Each Rental Schedule constitutes a separate and independent lease.
2. LEASE TERM. LESSEE'S RIGHT TO QUIET ENJOYMENT.
---------------------------------------------
Each Rental Schedule is for a non-cancellable Lease Term commencing on the
date of acceptance of the Equipment for lease and ending on the Expiration Date
specified on such Rental Schedule. Lessee cannot, for any reason, terminate the
Rental Schedule or suspend payment or performance of any of its obligations
thereunder. Subject to there being no Event of Default under the Rental
Schedule, Lessee will have quiet possession and use of the Equipment throughout
the Lease Term, and Lessor shall defend and protect such quiet possession and
use against all persons claiming by, through or under Lessor.
3. BASIC RENT. NET LEASE. LESSEE'S INDEMNITY. NO WARRANTIES BY LESSOR.
------------------------------------------------------------------
Basic Rent is payable in the amount specified on the Rental Schedule. All
payments of Basic Rent shall be made to Lessor in good funds on the Payment
Dates specified in the Rental Schedule. If payment is to be made by check, the
Lessee will mail the check at least four (4) days before the Payment Date.
Lessor will exercise its best efforts to invoice Lessee thirty (30) days prior
to each Payment Date. Failure to provide timely invoices will not relieve
Lessee of its obligation to pay Basic Rent on the Payment Date. Basic Rent is
net of, and Lessee agrees to pay, and will indemnify and hold Lessor and any
assignee of Lessor harmless from and against, all costs (including, without
limitation, maintenance, repair and insurance costs), claims (including claims
of product liability or strict liability in tort), losses or liabilities
relating to the Equipment or its use that are incurred by or asserted against
Lessee, any permitted sublessee of Lessee, Lessor or any assignee of Lessor and
arise out of matters occurring prior to the return of the Equipment to the
extent not caused or contributed to by the negligence or willful misconduct of
Lessor or its assignee. Lessee agrees to defend all claims through counsel
acceptable to Lessor. The Rental Schedule is a triple net lease. Lessee's
obligations are not subject to defense, set-off, abatement or recoupment, and
Lessee waives all rights to terminate or surrender the Rental Schedule, for any
reason, including, without limitation, defect in the Equipment or nonperformance
by Lessor, provided, however, that Lessee specifically retains the right to seek
-------- -------
recourse against Lessor by way of separate action either at law or in equity in
the
<PAGE>
event of nonperformance by Lessor under the Rental Schedule. LESSOR HEREBY
DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, IMPLIED WARRANTIES OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR
PURPOSE. Lessor will assign to Lessee all manufacturer or vendor warranties and
will cooperate with Lessee in asserting any claims under such warranties.
Lessee acknowledges that this Rental Schedule has been entered into on the
basis that Lessor shall be entitled for federal and state income tax purposes
(i) to claim the deductions for depreciation on the total original cost of the
Equipment pursuant to the Accelerated Cost Recovery System under Section 168 of
the Internal Revenue Code of 1986, as amended ("Code") or for state income
tax purposes, any other depreciation deduction method that is permitted by
certain state law; and (ii) to claim under Section 163 of the Code a tax
deduction for the full amount of any interest paid by Lessor or accrued under
Lessor's method of tax accounting on any indebtedness secured by the Equipment
(hereinafter referred to collectively as the "Tax Benefits"). Lessee agrees to
fully indemnify Lessor for any loss, disallowance, unavailability or recapture
of the Tax Benefits as a result of any of the following acts or omissions by
Lessee, any sublessee, or any other person authorized by the Lessee to use or
maintain the Equipment:
(a) Any untrue or misleading statement contained in this Rental Schedule
or in the Master Lease Agreement or any other document furnished hereunder with
respect to the Equipment, the Lease, the Lessee or any sublessee;
(b) Any relocation of the Equipment to a place outside the United States;
(c) Any attempt by Lessee to sublease the Equipment to a tax exempt entity
or other conversion of the Equipment to "tax-exempt use property" within the
meaning of Section 168(h) of the Code; or
(d) Any conversion of the Equipment to personal use or other use of the
Equipment that would cause it to cease to qualify as "section 38 property"
within the meaning of Section 48(a) of the Code.
If Lessor shall lose, shall not have the right to claim, or if there shall
be disallowed or recaptured, all or any portion of such Tax Benefits as a result
of the foregoing enumerated acts or omissions, Lessee shall pay to Lessor as
additional rent (a) an amount equal to the value, determined at the highest
marginal tax rate on a present value basis discounted at the Lessor's then
current cost of funds, of the Tax Benefits so disallowed or made unavailable
plus (b) all interest, penalties, or additions to tax resulting from such loss,
disallowance, unavailability or recapture of any of the foregoing, plus (c) all
taxes required to be paid by the Lessor, its successors, assigns, or affiliates
under any federal, state and local law upon receipt of any of the
indemnifications set forth in this Section.
4. USE AND LOCATION OF EQUIPMENT. MAINTENANCE AND REPAIRS. NO LIENS.
----------------------------------------------------------------
NO ASSIGNMENT BY LESSEE. LESSEE'S RIGHT TO SUBLEASE.
---------------------------------------------------
The Equipment is to be used exclusively by Lessee in the conduct of its
business, only for the purposes for which it was designed and in compliance with
- 2 -
<PAGE>
all applicable laws, rules and regulations. Lessee will obtain and maintain all
necessary licenses, permits and approvals. The Equipment is not to be removed
from the location specified on the Rental Schedule except upon prior written
notice to Lessor, and in no event may the Equipment be moved to a location
outside the continental United States. Lessee will effect all maintenance and
repairs necessary to keep the Equipment in good and efficient operating
condition and appearance, reasonable wear and tear excepted. All maintenance and
repairs will be made in accordance with the manufacturer's recommendations and
by authorized representatives of the manufacturer or by persons of equal skill
and knowledge whose work will not adversely affect any applicable manufacturer's
or vendor's warranty. Lessee will keep the Equipment and its interest therein
free and clear of all liens and encumbrances other than those created by Lessor
or arising out of claims against Lessor and not related to the lease of the
Equipment to Lessee. The Rental Schedule may not be assigned by Lessee. Lessee
may sublease the Equipment only upon prior written notice to Lessor, in which
notice Lessee represents and warrants to Lessor that such sublease is for a term
not longer than the related Lease Term, is not made to a tax-exempt entity or
governmental agency, is specifically made subject to the prior rights of Lessor
and its assignees under the Rental Schedule, does not create any obligation on
the part of Lessor in favor of such sublessee and does not relieve Lessee of any
of its obligations under the Rental Schedule including, without limitation,
Lessee's obligations with respect to (a) the payment of Basic Rent and other
sums due or to become due, (b) use and maintenance of the Equipment and (c)
provisions for the return of the Equipment at the expiration of the Lease Term.
5. LOSS, DAMAGE OR DESTRUCTION OF EQUIPMENT.
----------------------------------------
Lessee will bear all risk of loss with respect to the Equipment during the
Lease Term and until the Equipment is returned to Lessor. Lessee will notify
Lessor promptly in writing if any item of Equipment is lost, stolen,
requisitioned by a governmental authority or damaged beyond repair (each a
"Casualty"), describing the Casualty in reasonable detail, and will promptly
file a claim under appropriate policies of insurance. Lessee may, with the prior
written consent of Lessor, replace the Equipment suffering a Casualty with
similar items of at least equal value and utility. If Lessee does not replace
the Equipment, Lessee will pay to Lessor on the next Payment Date following the
Casualty, in addition to Basic Rent and other sums due on that date, an amount
equal to the greater of the Casualty Value specified on the Rental Schedule or
the fair market value of such Equipment. The Rental Schedule, solely as it
relates to the Equipment suffering the Casualty, will terminate and ownership of
the Equipment suffering the Casualty, including all claims for insurance
proceeds or condemnation awards, will pass to Lessee upon receipt of such
payment by Lessor. The fair market value of the Equipment will be determined by
agreement of Lessee and Lessor, or, if the parties cannot agree, by an
independent equipment appraiser of nationally recognized standing, selected by
Lessee among a list of three such appraisers recommended by Lessor. The cost of
appraisal will be shared equally by Lessee and Lessor.
6. TAXES AND FEES.
--------------
Lessee agrees to prepare and file all required returns or reports and to
pay all sales, gross receipts, personal property and other taxes (including
highway use
- 3 -
<PAGE>
and vehicle excise taxes, where applicable), fees, interest, fines or penalties
imposed by any governmental authority relating in any way to the Equipment,
including any documentary, stamp or recordation taxes assessed in connection
with the financing of Lessor's purchase of the Equipment and excepting only
taxes imposed upon the net income of Lessor. Notwithstanding the foregoing,
Lessor will report and pay all use taxes and Lessee will pay to Lessor, on each
Basic Rent Payment Date, as additional rent, an amount equal to the use taxes
attributable to that payment of Basic Rent. If any item of Equipment is located
in a taxing jurisdiction that does not allow Lessee to report and pay personal
property taxes directly, Lessee will prepare an appropriate tax return to be
delivered, together with funds equal to the taxes Lessee claims are due on such
return, to Lessor not less than ten (10) days prior to the date such taxes are
due.
7. INSURANCE.
---------
Lessee agrees to maintain policies of insurance on the Equipment in
amounts, against risks and on terms and conditions applicable to other equipment
owned or leased by Lessee and similar to the Equipment. Such insurance will at
a minimum include (i) physical damage and theft insurance in an amount at least
equal to the greater of the Casualty Value set forth on the Rental Schedule or
the fair market value of the Equipment and (ii) comprehensive liability
insurance in the amount of at least $2,500,000 per occurrence, in each case with
deductibles not in excess of $100,000. All policies (A) are to be maintained
with insurers acceptable to Lessor; (B) are to name Lessor and its assignees as
loss payees with respect to physical damage and theft and as additional insureds
with respect to liability, as their interests may appear; and (C) are to provide
that they may not be altered or cancelled except upon thirty days prior written
notice to Lessor and each of Lessor's assignees named as additional insured and
loss payee. Lessee agrees to deliver to Lessor such certificates of insurance as
Lessor may, from time to time, request. Lessor may hold any physical damage and
theft insurance proceeds as security for Lessee's performance of its obligations
with respect to the Equipment on behalf of which the proceeds were paid and the
payment of all Basic Rent and other sums then due and unpaid under the Rental
Schedule and will pay such proceeds over to Lessee only upon receipt of
satisfactory evidence thereof or apply such proceeds directly toward
satisfaction of such obligations.
8. FINANCIAL STATEMENTS. INSPECTION. REPORTS.
-----------------------------------------
Lessee will provide to Lessor, when available, copies of Lessee's annual
audited balance sheet, profit and loss statement and statement of changes in
financial condition, and, if generally available to Lessee's Lenders, quarterly
unaudited balance sheet and profit and loss statement, all prepared in
accordance with generally accepted accounting principles, consistently applied.
If Lessee's obligations are guaranteed by any other party, then Lessee will also
provide similar financial information with respect to the Guarantor. Lessor may
from time to time, upon reasonable notice and during Lessee's normal business
hours, inspect the Equipment and Lessee's records with respect thereto and
discuss Lessee's financial condition with knowledgeable representatives of
Lessee. Lessor will not disclose or use to its advantage proprietary information
acquired orally, in writing or in observation in the course of any such
inspection. Lessee will, if requested, provide a report on the condition of the
Equipment, a record of its maintenance and
- 4 -
<PAGE>
repair, a summary of all items suffering a Casualty, a certificate of no default
or such other information or evidence of compliance with Lessee's obligations
under the Rental Schedule as Lessor may reasonably request.
9. AGREEMENT FOR LEASE ONLY. IDENTIFICATION MARKS. FINANCING STATEMENTS.
-----------------------------------------------------------------------
FURTHER ASSURANCES.
------------------
Each Rental Schedule is intended to be a true lease and not a lease in the
nature of a security agreement. Lessee will affix to the Equipment all notices
of Lessor's ownership of the Equipment furnished by Lessor. Lessee will
promptly execute and deliver and Lessor may file Uniform Commercial Code
financing statements or other similar documents notifying the public of Lessor's
ownership of the Equipment. Lessee agrees to promptly execute and deliver to
Lessor such commercially reasonable documents or other assurances, and to take
such further action, including obtaining landlord and mortgagee waivers, as
Lessor may from time to time reasonably request in order to establish and
protect the rights and remedies created by the Rental Schedule.
10. LATE PAYMENT CHARGES. LESSOR'S RIGHT TO PERFORM FOR LESSEE.
-----------------------------------------------------------
A Late Payment Charge equal to (A) the greater of 2% per annum above the
debt rate charged to Lessor in connection with the financing of its purchase of
the Equipment or 2% per annum above the prime or base lending rate of The First
National Bank of Boston, as announced from time to time, or (B) if less, the
highest rate not prohibited by law, will accrue on any sum not paid when due for
each day not paid. If Lessee fails to duly and promptly pay or perform any of
its obligations hereunder, Lessor may itself pay or perform such obligations for
the account of Lessee without thereby waiving any default and Lessee will pay to
Lessor, on demand and in addition to Basic Rent, an amount equal to all sums so
paid or expenses so incurred, plus a Late Payment Charge accruing from the date
such sums were paid or expenses incurred by Lessor.
11. LESSEE'S OPTIONS UPON LEASE EXPIRATION.
--------------------------------------
Lessee has the option at the expiration of the Lease Term, exerciseable
with respect to all, but not less than all, items of Equipment leased pursuant
to Rental Schedules having the same Expiration Date, (i) to return the Equipment
to Lessor, (ii) to renew the Rental Schedule at fair rental value for a Renewal
Term the length of which shall be determined by agreement of Lessee and Lessor
or (iii) to purchase the Equipment for cash at its then fair market value.
Lessee agrees to provide Lessor written notice of its decision to purchase the
Equipment or renew the Rental Schedule not less than 90 days prior to the
Expiration Date. If Lessee fails to give Lessor 90 days written notice, the
Lease Term may, if requested by Lessee and at Lessor's option, be extended and
continue until 90 days from the date Lessor receives written notice of Lessee's
decision to purchase the Equipment or renew the Rental Schedule. Fair market
value, fair rental value and useful life will be determined by agreement of
Lessor and Lessee, or if the parties cannot agree, by an independent equipment
appraiser selected by Lessee among a list of three such appraisers recommended
by Lessor. The cost of an appraisal will be shared equally by Lessor and
Lessee. At the expiration of the Lease Term or any extension or renewal thereof,
Lessee will, at its expense, assemble, pack, and crate the
- 5 -
<PAGE>
Equipment, all in accordance with manufacturer's recommendations, if any, and
deliver it by common carrier, freight and insurance prepaid, to a place to be
designated by Lessor within a 500 mile radius of the then-location of the
Equipment. All packaging will include related maintenance logs, operating
manuals, and other related materials and will be clearly marked so as to
identify the contents thereof. The Equipment will be returned in good and
efficient operating condition and appearance, reasonable wear and tear excepted,
and eligible for manufacturer's maintenance, if available, free of all Lessee's
markings and free of all liens and encumbrances other than those created by
Lessor or arising out of claims against Lessor and not related to the lease of
the Equipment to Lessee. Lessor may, but is not required to, inspect the
Equipment prior to its return. If, upon inspection, Lessor determines that the
condition of any item of Equipment does not conform to the minimum requirements,
Lessor will promptly notify Lessee of such determination, specifying the repairs
or refurbishments needed to place the Equipment in the minimum acceptable
condition. Lessor may, at its option, either require Lessee to effect such
repairs or itself promptly effect such repairs. Lessor may re-inspect the
Equipment and require further repairs as often as necessary until the Equipment
is placed in acceptable condition. In either case, all costs will be paid by
Lessee. The Rental Schedule shall continue in full force and effect and Lessee
shall continue to pay Basic Rent through and including the date on which the
Equipment is accepted for return by Lessor. Lessor's determination regarding
Equipment condition must be reasonable and made in good faith, and Lessee shall
be entitled to refute Lessor's adverse determination by a report of a qualified
independent equipment inspector. Lessor may elect to obtain another report of a
qualified independent equipment inspector and, if Lessee's and Lessor's
inspectors cannot agree on Lessee's compliance with the return conditions set
forth in this Section, then the two inspectors shall select a third, whose
determination shall be binding.
12. LESSEE'S REPRESENTATIONS AND WARRANTIES.
---------------------------------------
Lessee represents, warrants and certifies as of the date of execution and
delivery of each Rental Schedule as follows:
(a) Lessee is duly organized, validly existing and in good standing under the
laws of the state of its incorporation, with full power to enter into and to pay
and perform its obligations under the Rental Schedule and this Master Lease
Agreement as incorporated therein by reference, and is duly qualified and in
good standing in all other jurisdictions where its failure to so qualify would
adversely affect the conduct of its business or the performance of its
obligations under or the enforceability of the Rental Schedule;
(b) the Rental Schedule, this Master Lease Agreement and all related documents
have been duly authorized, executed and delivered by Lessee, are
enforceable against Lessee in accordance with their terms except as such
enforcement may be limited by laws of general application affecting
creditors' rights and do not and will not contravene any provisions of or
constitute a default under Lessee's organizational documents or its By Laws
or constitute a material default under any agreement to which it is a party
or by which it or its property is bound, or any law, regulation or order of
any governmental authority;
- 6 -
<PAGE>
(c) Lessor's right, title and interest in and to the Rental Schedule, this
Master Lease Agreement and the Equipment and the rentals therefrom will not
be affected or impaired by the terms of any agreement or instrument by
which Lessee or its property is bound;
(d) no approval of, or filing with, any governmental authority or other person
is required in connection with Lessee's entering into or the payment or
performance of its obligations under the Rental Schedule or this Master
Lease Agreement as incorporated therein by reference;
(e) there are no suits or proceedings pending or, to the best of Lessee's
knowledge after due inquiry, threatened before any court or governmental
agency against or affecting Lessee which, if decided adversely to Lessee,
would materially adversely affect Lessee's business or financial condition
or its ability to perform any of its obligations under the Rental Schedule
or this Master Lease Agreement as incorporated therein by reference; and
(f) there has been no material adverse change to Lessee's financial condition
since the date of its most recent financial statement.
13. EVENTS OF DEFAULT, LESSOR'S REMEDIES ON DEFAULT.
-----------------------------------------------
Each of the following events constitutes an Event of Default:
(a) default in the payment of any amount when due under the Rental Schedule
continuing for a period of five business days after Lessee's receipt of
written notice of such non-payment;
(b) default in the observance or performance of any other covenant,
condition or agreement to be observed or performed by Lessee under the
Rental Schedule and this Master Lease Agreement as incorporated therein by
reference, continuing for more than 30 days after written notice thereof,
unless Lessee shall be diligently proceeding to cure such default and such
default does not subject the Equipment to forfeiture, in which event,
Lessee shall have 60 days from the date of notice in which to cure such
default;
(c) any representation or warranty made by Lessee herein or in the Rental
Schedule or this Master Lease Agreement as incorporated therein by
reference or in any document or certificate furnished in connection
herewith shall at any time prove to have been materially incorrect when
made;
(d) any attempt by Lessee, without Lessor's prior written consent, to
assign the Rental Schedule, to make any unauthorized sublease of the
Equipment or to transfer possession of the Equipment;
(e) Lessee or, if Lessee's obligations are guaranteed by any other party,
any Guarantor (A) ceases doing business as a going concern; (B) makes an
assignment for the benefit of creditors, admits in writing its inability to
pay its debts as they mature or generally fails to pay its debts as they
become due; (C) initiates any voluntary bankruptcy or insolvency
proceeding; (D) fails to
- 7 -
<PAGE>
obtain the discharge of any bankruptcy or insolvency proceeding initiated
against it by others within 60 days of the date such proceedings were
initiated; (E) requests or consents to the appointment of a trustee or
receiver; or (F) a trustee or receiver is appointed for Lessee or any
Guarantor or for a substantial part of Lessee's or any Guarantor's
property; or
(f) Lessee shall not return the Equipment or shall not return the Equipment
in the required condition at the expiration of the Rental Schedule or any
extension or renewal thereof.
Upon the occurrence of an Event of Default, Lessor may, without notice to
Lessee, declare the applicable Rental Schedule in default and may exercise any
of the following remedies:
I. at Lessor's option, and in its sole discretion either:
(a) declare all Basic Rent and other sums due or to become due under the
Rental Schedule immediately due and payable, and sue to enforce the payment
thereof; or
(b) receive from Lessee (and sue to enforce the payment thereof), as
liquidated damages for loss of the bargain and not as a penalty, and in
addition to all accrued and unpaid Basic Rent and other sums due under the
Rental Schedule, an amount equal to the greater of (A) the Casualty Value
set forth on the Rental Schedule calculated after the last payment of Basic
Rent actually received by Lessor or (B) the fair market value of the
Equipment as of the date of default determined by an appraiser selected by
Lessor;
plus, in either case, interest thereon at the Late Payment Charge rate from
the date of default until the date of payment, and, after receipt in good
funds of the sums described above, Lessor will, if it has not already done
so, terminate the Rental Schedule and convey to Lessee all of its right,
title and interest in and to the Equipment, as is, where is and with all
faults, without recourse and without warranty; and
II. In the event that Lessor has not been paid in full the stipulated damages
elected above, Lessor may
(a) proceed by appropriate court action either at law or in equity to
enforce performance by Lessee of the covenants and terms of the Rental
Schedule or to recover the stipulated damages elected pursuant to
subsection I, above; and
(b) terminate the Rental Schedule by written notice to Lessee, whereupon
all right of Lessee to use the Equipment will immediately cease and Lessee
will forthwith return the Equipment to Lessor in accordance with the
provisions hereof; and
(c) repossess the Equipment (unless the Equipment has been returned to
Lessor promptly in accordance with subsection II(b) above) and, without
notice to Lessee, dispose of it in a reasonable commercial manner by
private or public, cash or credit sale or by lease to a different lessee,
in all events free and
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<PAGE>
clear of any rights of Lessee (and for this purpose Lessee hereby grants to
Lessor and its agents the right to enter upon the premises where the
Equipment is located and to remove the Equipment therefrom and Lessee
agrees not to interfere with the peaceful repossesion of the Equipment) and
pay over to Lessee, as, when and if received, proceeds from the disposition
of the Equipment, net of the costs and expenses described below in
paragraph (d), to the extent that Lessee has paid Lessor stipulated
damages; and
(d) recover from Lessee all costs and expenses arising out of Lessee's
default, including, without limitation, reasonable expenses of
repossession, storage, appraisal, repair, reconditioning and disposition of
the Equipment and reasonable attorneys' fees and expenses.
Lessor's remedies are cumulative and not exclusive except as stated herein,
and are in addition to all remedies at law or in equity. No failure by Lessor
to declare a default shall constitute a waiver of such default or restrict
Lessor's ability to declare a default at a later date.
14. ASSIGNMENT BY LESSOR.
--------------------
Lessor may at any time and from time to time sell, transfer or grant
liens on the Equipment, and assign, as collateral security or otherwise, its
rights in the Rental Schedule and this Master Lease Agreement as incorporated
therein by reference, in each case subject and subordinate to Lessee's rights
thereunder, without notice to or consent by Lessee. Lessee acknowledges that
Lessor may assign the Rental Schedule to a Lender in connection with the
financing of its purchase of the Equipment and agrees, in the event of such
assignment, to execute and deliver a Rent Assignment Letter acknowledging that
the Lender has (and may exercise either in its own name or in the name of
Lessor) all of the rights, privileges and remedies, but none of the
obligations, of Lessor under the Rental Schedule; waiving for the benefit of
the Lender (but not Lessor) any defense, set-off, abatement, reduction or
recoupment that Lessee may have against Lessor; and agreeing to make all
payments of Basic Rent and other sums due under the Rental Schedule to the
Lender or as the Lender may direct. Lessee also agrees to deliver opinions of
counsel, insurance certificates and such other documents as Lessor may
reasonably request for the benefit of the Lender in connection with the
collateral assignment of the Rental Schedule.
15. NOTICE. GOVERNING LAW. EXECUTION IN COUNTERPARTS.
------------------------------------------------
All notices required hereunder shall be effective upon receipt in writing
delivered by hand or by other receipt-acknowledged method of delivery at the
address first above written. This Master Lease Agreement and the Rental
Schedule shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts. This Master Lease Agreement and the Rental
Schedule may be executed in multiple counterparts all of which together shall
constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Master Lease
Agreement to be executed and delivered by their duly authorized representatives
as of the date first above written.
AMERICAN FINANCE GROUP THE KENDALL COMPANY
By: [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE]
------------------------- -------------------------
Title: Vice President Title: Treasurer
---------------------- ----------------------
Date: March 30, 1989 Date: March 30, 1989
----------------------- -----------------------
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