<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
-------------------------------------------------------
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 ___________________________
Commission file number 0-20031
---------------------------------------------------------
American Income Fund I-C , a Massachusetts Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3077437
- ------------------------------------------ -------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad Street, Sixth Floor, Boston, MA 02110
- ------------------------------------------ -------------------------------
(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:
796,161 Units Representing Limited Partnership Interest
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XX No
---- ----
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.
-1-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the Partnership's Securities and Related Security Holder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 7
PART III
Item 10. Directors and Executive Officers of the Partnership 8
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and Management 10
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 13-15
</TABLE>
-2-
<PAGE>
PART I
ITEM 1. BUSINESS.
(a) General Development of Business
AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership, (the
"Partnership") was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on March 1, 1991 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 General Partner (AFG Leasing VI Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On May 31, 1991, the
Partnership issued 803,454.56 units of limited partnership interest (the
"Units") to 909 investors. Included in the 803,454.56 units are 7,293.56 bonus
units. The Partnership has one General Partner, AFG Leasing VI Incorporated, a
Massachusetts corporation formed in 1990 and an affiliate of Equis Financial
Group Limited Partnership (formerly American Finance Group), a Massachusetts
limited partnership ("EFG" or the "Manager"). The General Partner is 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").
(b) Financial Information About Industry Segments
The Partnership is engaged in only one industry segment: the business of
acquiring capital equipment and leasing the equipment to creditworthy lessees on
a full payout or operating lease basis. Full payout leases are those in which
aggregate noncancellable rents equal or exceed the Purchase Price of the leased
equipment. Operating leases are those in which the aggregate noncancellable
rental payments are less than the Purchase Price of the leased equipment.
Industry segment data is not applicable.
(c) Narrative Description of Business
The Partnership was organized to acquire a diversified portfolio of capital
equipment subject to various full payout and operating leases and to lease the
equipment to third parties as income-producing investments. More specifically,
the Partnership's primary investment objectives are to acquire and lease
equipment which will:
1. Generate quarterly cash distributions;
2. Preserve and protect Partnership capital; and
3. Maintain substantial residual value for ultimate sale.
The Partnership has the additional objective of providing certain federal
income tax benefits.
The Closing Date of the Offering of Units of the Partnership was May 31,
1991. Significant operations commenced coincident with the Partnership's initial
purchase of equipment and the associated lease commitments on May 31, 1991. The
acquisition of the equipment and its associated leases is described in detail in
Note 3 to the financial statements included in Item 14, herein. The Partnership
is expected to terminate no later than December 31, 2002; however, the
Partnership is a Nominal Defendant in a Class Action Lawsuit. The outcome of the
Class Action Lawsuit could alter the nature of the Partnership's organization
and its future business operations. See Note 8 to the accompanying financial
statements.
The Partnership has no employees; however, it is managed pursuant to a
Management Agreement with EFG or one of its affiliates. The Manager's role,
among other things, is to (i) evaluate, select, negotiate, and consummate the
acquisition of equipment, (ii) manage the leasing, re-leasing, financing, and
refinancing of equipment, and (iii) arrange the resale of equipment. The Manager
is compensated for such services as described in the Restated Agreement, as
amended, Item 13 herein, and in Note 5 to the financial statements included in
Item 14, herein.
The Partnership's investment in equipment is, and will continue to be,
subject to various risks, including physical deterioration, technological
obsolescence and defaults by lessees. A principal business risk of owning and
leasing equipment is the possibility that aggregate lease revenues and equipment
sale proceeds will be
-3-
<PAGE>
insufficient to provide an acceptable rate of return on invested capital after
payment of all debt service costs and operating expenses. Consequently, the
success of the Partnership is largely dependent upon the ability of the General
Partner and its Affiliates to forecast technological advances, the ability of
the lessees to fulfill their lease obligations and the quality and marketability
of the equipment at the time of sale.
In addition, the leasing industry is very competitive. Although all funds
available for acquisitions have been invested in equipment, subject to
noncancellable lease agreements, the Partnership will encounter considerable
competition when equipment is re-leased or sold at the expiration of primary
lease terms. The Partnership will compete with lease programs offered directly
by manufacturers and other equipment leasing companies, including limited
partnerships and trusts organized and managed similarly to the Partnership, and
including other EFG-sponsored partnerships and trusts, which may seek to
re-lease or sell equipment within their own portfolios to the same customers as
the Partnership. Many competitors have greater financial resources and more
experience than the Partnership, the General Partner and the Manager.
Generally, the Partnership is prohibited from reinvesting the proceeds
generated by refinancing or selling equipment. Accordingly, it is anticipated
that the Partnership will begin to liquidate its portfolio of equipment at the
expiration of the initial lease terms and to distribute the net liquidation
proceeds. As an alternative to sale, the Partnership may enter re-lease
agreements when considered advantageous by the General Partner and the Manager.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1997, 1996 and 1995 is
incorporated herein by reference to Note 2 to the financial statements in the
1997 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
Default by a lessee under a lease may cause equipment to be returned to the
Partnership at a time when the General Partner or the Manager is unable to
arrange for the re-lease or sale of such equipment. This could result in the
loss of a material portion of anticipated revenues and significantly weaken the
Partnership's ability to repay related debt.
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Partnership and several other
Direct-Participation equipment leasing programs sponsored or co-sponsored by EFG
(the "Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President and Chief Executive Officer. Equis Corporation also owns
a controlling 1% general partner interest in EFG's 99% limited partner, GDE
Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were
established in December 1994 by Mr. Engle for the sole purpose of acquiring the
business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Partnership and the Other Investment Programs and to continue managing all
assets owned by the Partnership and the Other Investment Programs.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Not applicable.
-4-
<PAGE>
ITEM 2. PROPERTIES.
Incorporated herein by reference to Note 3 to the financial statements in
the 1997 Annual Report.
ITEM 3. LEGAL PROCEEDINGS.
Incorporated herein by reference to Note 8 to the financial statements in
the 1997 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
-5-
<PAGE>
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS.
(a) Market Information
There is no public market for the resale of the Units and it is not
anticipated that a public market for resale of the Units will develop.
(b) Approximate Number of Security Holders
At December 31, 1997, there were 862 record holders in the Partnership.
(c) Dividend History and Restrictions
Pursuant to Article VI of the Restated Agreement, as amended, the
Partnership's Distributable Cash From Operations and Distributable Cash From
Sales or Refinancings are determined and distributed to the Partners quarterly.
Each quarter's distribution may vary in amount. Distributions may be made to the
General Partner prior to the end of the fiscal quarter; however, the amount of
such distribution reflects only amounts to which the General Partner is entitled
at the time such distribution is made. Currently, there are no restrictions that
materially limit the Partnership's ability to distribute Distributable Cash From
Operations and Distributable Cash From Sales or Refinancings or that the
Partnership believes are likely to materially limit the future distribution of
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings. The Partnership expects to continue to distribute all
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings on a quarterly basis.
Distributions in 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
General Limited
Total Partner Partners
----------- ----------- -----------
<S> <C> <C> <C>
Total 1997 distributions $ 792,883 $ 39,644 $ 753,239
Total 1996 distributions 1,162,895 58,145 1,104,750
----------- ----------- -----------
Total $ 1,955,778 $ 97,789 $ 1,857,989
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Distributions payable were $158,577 and $211,436 at December 31, 1997 and
1996, respectively.
"Distributable Cash From Operations" means the net cash provided by the
Partnership's normal operations after general expenses and current liabilities
of the Partnership are paid, reduced by any reserves for working capital and
contingent liabilities to be funded from such cash, to the extent deemed
reasonable by the General Partner, and increased by any portion of such reserves
deemed by the General Partner not to be required for Partnership operations and
reduced by all accrued and unpaid Equipment Management Fees and, after Payout,
further reduced by all accrued and unpaid Subordinated Remarketing Fees.
Distributable Cash From Operations does not include any Distributable Cash From
Sales or Refinancings.
"Distributable Cash From Sales or Refinancings" means Cash From Sales or
Refinancings as reduced by (i)(a) amounts realized from any loss or destruction
of equipment which the General Partner determines shall be reinvested in similar
equipment for the remainder of the original lease term of the lost or destroyed
equipment, or in isolated instances, in other equipment, if the General Partner
determines that investment of such proceeds will significantly improve the
diversity of the Partnership's equipment portfolio, and subject in either case
to satisfaction of all existing indebtedness secured by such equipment to the
extent deemed necessary or appropriate by the General Partner, or (b) the
proceeds from the sale of an interest in equipment pursuant to any agreement
governing a joint venture which the General Partner determines will be invested
in additional equipment or interests in equipment and which ultimately are so
reinvested and (ii) any accrued and unpaid Equipment Management Fees and, after
Payout, any accrued and unpaid Subordinated Remarketing Fees.
-6-
<PAGE>
"Cash From Sales or Refinancings" means cash received by the Partnership
from sale or refinancing transactions, as reduced by (i)(a) all debts and
liabilities of the Partnership required to be paid as a result of sale or
refinancing transactions, whether or not then due and payable (including any
liabilities on an item of equipment sold which are not assumed by the buyer and
any remarketing fees required to be paid to persons not affiliated with the
General Partner, but not including any Subordinated Remarketing Fees whether or
not then due and payable) and (b) general expenses and current liabilities of
the Partnership (other than any portion of the Equipment Management Fee which is
required to be accrued and the Subordinated Remarketing Fee) and (c) any
reserves for working capital and contingent liabilities funded from such cash to
the extent deemed reasonable by the General Partner and (ii) increased by any
portion of such reserves deemed by the General Partner not to be required for
Partnership operations. In the event the Partnership accepts a note in
connection with any sale or refinancing transaction, all payments subsequently
received in cash by the Partnership with respect to such note shall be included
in Cash From Sales or Refinancings, regardless of the treatment of such payments
by the Partnership for tax or accounting purposes. If the Partnership receives
purchase money obligations in payment for equipment sold, which are secured by
liens on such equipment, the amount of such obligations shall not be included in
Cash From Sales or Refinancings until the obligations are fully satisfied.
Each distribution of Distributable Cash From Operations and Distributable
Cash From Sales or Refinancings of the Partnership shall be made 95% to the
Limited Partners and 5% to the General Partner.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Limited Partners of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Limited Partners' original capital contributions plus a cumulative annual
distribution of 11% (compounded quarterly and calculated beginning with the last
day of the month of the Partnership's Closing Date) on their aggregate
unreturned capital contributions. For purposes of this definition, capital
contributions shall be deemed to have been returned only to the extent that
distributions of cash to the Limited Partners exceed the amount required to
satisfy the cumulative annual distribution of 11% (compounded quarterly) on the
Limited Partners' aggregate unreturned capital contributions, such calculation
to be based on the aggregate unreturned capital contributions outstanding on the
first day of each fiscal quarter.
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings ("Distributions") are distributed within 30 days after the
completion of each quarter, beginning with the first full fiscal quarter
following the Partnership's Closing. Each Distribution is described in a
statement sent to the Limited Partners.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated herein by reference to the section entitled "Selected
Financial Data" in the 1997 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1997 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1997 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-7-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
(a-b) Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1 of
this report, AFG Leasing VI Incorporated is the sole General Partner of the
Partnership. Under the Restated Agreement, as amended, the General Partner is
solely responsible for the operation of the Partnership's properties and the
Limited Partners have no right to participate in the control of such operations.
The names, titles and ages of the Directors and Executive Officers of the
General Partner as of March 15, 1998 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF
THE GENERAL PARTNER (See Item 13)
<TABLE>
<CAPTION>
Name Title Age Term
- -------------------------------- --------------------------------------------- ----- -----------
<S> <C> <C> <C>
Geoffrey A. MacDonald Chairman and a member of the Until a
Executive Committee of EFG successor
and President and a Director is duly
of the General Partner 49 elected
and
qualified
Gary D. Engle President and Chief Executive
Officer and member of the
Executive Committee of EFG 49
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and
Clerk of the General Partner 38
James A. Coyne Executive Vice President of EFG 37
Michael J. Butterfield Vice President, Finance and Treasurer
of EFG and Treasurer of the
General Partner 38
James F. Livesey Vice President, Aircraft and Vessels
of EFG 48
Sandra L. Simonsen Senior Vice President, Information Systems
of EFG 47
Gail D. Ofgant Vice President, Lease Operations of EFG 32
</TABLE>
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners,
Directors or Executive Officers.
(e) Business Experience
-8-
<PAGE>
Mr. MacDonald, age 49, is a co-founder, Chairman and a member of the
Executive Committee of EFG and President and a Director of the General Partner.
Mr. MacDonald served as a co-founder, Director and Senior Vice President of
EFG's predecessor corporation from 1980 to 1988. Mr. MacDonald is President of
American Finance Group Securities Corp. and a limited partner in Atlantic
Acquisition Limited Partnership ("AALP") and Old North Capital Limited
Partnership ("ONC"). Prior to co-founding EFG's predecessors, Mr. MacDonald held
various executive and management positions in the leasing and pharmaceutical
industries. Mr. MacDonald holds an M.B.A. from Boston College and a B.A. degree
from the University of Massachusetts (Amherst).
Mr. Engle, age 49, is President and Chief Executive Officer and a member
of the Executive Committee of EFG and President of AFG Realty Corporation. Mr.
Engle is Vice President and a Director of certain of EFG's affiliates. On
December 16, 1994, Mr. Engle acquired control of EFG, the General Partner and
each of EFG's subsidiaries. Mr. Engle controls the general partner of AALP and
is a limited partner in AALP. Mr. Engle is also a limited partner in ONC. In May
1997, Mr. Engle was elected to the Board of Directors of Semele Group, Inc.
("Semele"). From 1987 to 1990, Mr. Engle was a principal and co-founder of Cobb
Partners Development, Inc., a real estate and mortgage banking company. From
1980 to 1987, Mr. Engle was Senior Vice President and Chief Financial Officer of
Arvida Disney Company, a large scale community development company owned by Walt
Disney Company. Prior to 1980, Mr. Engle served in various management consulting
and institutional brokerage capacities. Mr. Engle has an M.B.A. from Harvard
University and a B.S. degree from the University of Massachusetts (Amherst).
Mr. Romano, age 38, is Executive Vice President and Chief Operating
Officer of EFG and certain of its affiliates and Clerk of the General Partner.
In November 1997, Mr. Romano was appointed Chief Financial Officer of Semele.
Mr. Romano joined EFG in November 1989 and was appointed Executive Vice
President and Chief Operating Officer in April 1996. Prior to joining EFG, Mr.
Romano was Assistant Controller for a privately-held real estate company which
he joined in 1987. Mr. Romano held audit staff and manager positions at Ernst &
Whinney (now Ernst & Young LLP) from 1982 to 1986. Mr. Romano is a C.P.A. and
holds a B.S. degree from Boston College.
Mr. Coyne, age 37, is Executive Vice President of EFG. Mr. Coyne joined
EFG in 1989, remained until May 1993, and rejoined EFG in November 1994. In
September 1997, Mr. Coyne was appointed Executive Vice President of EFG. Mr.
Coyne is a limited partner in AALP and ONC. In October 1997, Mr. Coyne was
elected President and Chief Operating Officer of Semele. From May 1993 through
November 1994, he was with the Raymond Company, a private investment firm, where
he was responsible for financing corporate and real estate acquisitions. From
1985 through 1989, Mr. Coyne was affiliated with a real estate investment
company and an equipment leasing company. Prior to 1985 he was with the
accounting firm of Ernst & Whinney (now Ernst & Young LLP). He has a BS in
Business Administration from John Carroll University, a Masters Degree in
Accounting from Case Western Reserve University and is a Certified Public
Accountant.
Mr. Butterfield, age 38, joined EFG in June 1992 and became Vice
President, Finance and Treasurer of EFG and certain of its affiliates in April
1996 and is Treasurer of the General Partner. In November 1997, Mr. Butterfield
was appointed Treasurer of Semele. Prior to joining EFG, Mr. Butterfield was an
Audit Manager with Ernst & Young LLP, which he joined in 1987. Mr. Butterfield
was employed in public accounting and industry positions in New Zealand and
London (U.K.) prior to coming to the United States in 1987. Mr. Butterfield
attained his Associate Chartered Accountant (A.C.A.) professional qualification
in New Zealand and has completed his C.P.A. requirements in the United States.
He holds a Bachelor of Commerce degree from the University of Otago, Dunedin,
New Zealand.
Mr. Livesey, age 48, is Vice President, Aircraft and Vessels, of EFG. Mr.
Livesey joined EFG in October, 1989, and was promoted to Vice President in
January 1992. Prior to joining EFG, Mr. Livesey held sales and marketing
positions with two privately-held equipment leasing firms. Mr. Livesey holds an
M.B.A. from Boston College and B.A. degree from Stonehill College.
Ms. Simonsen, age 47, joined EFG in February 1990 and was promoted to
Senior Vice President, Information Systems of EFG in April 1996. Prior to
joining EFG, Ms. Simonsen was Vice President, Information Systems with Investors
Mortgage Insurance Company which she joined in 1973. Ms. Simonsen provided
systems consulting for a subsidiary of American International Group and authored
a software program published by IBM. Ms. Simonsen holds a B.A. degree from
Wilson College.
-9-
<PAGE>
Ms. Ofgant, age 32, is Vice President, Lease Operations of EFG and certain
of its affiliates. Ms. Ofgant joined EFG in June 1989, and was promoted to
Manager, Lease Operations in April 1994. In April 1996, Ms. Ofgant was appointed
Vice President, Lease Operations. Prior to joining EFG, Ms. Ofgant was employed
by Security Pacific National Trust Company. Ms. Ofgant holds a B.S. degree in
Finance from Providence College.
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
See Item 10 (a-b) above.
ITEM 11. EXECUTIVE COMPENSATION.
(a) Cash Compensation
Currently, the Partnership has no employees. However, under the terms of
the Restated Agreement, as amended, the Partnership is obligated to pay all
costs of personnel employed full or part-time by the Partnership, including
officers or employees of the General Partner or its Affiliates. There is no plan
at the present time to make any officers or employees of the General Partner or
its Affiliates employees of the Partnership. The Partnership has not paid and
does not propose to pay any options, warrants or rights to the officers or
employees of the General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Partnership has no employees, as discussed in Item 11(a),
pursuant to Section 9.4(c) of the Restated Agreement, as amended, the
Partnership incurs a monthly charge for personnel costs of the Manager for
persons engaged in providing administrative services to the Partnership. A
description of the remuneration paid by the Partnership to the Manager for such
services is included in Item 13, herein and in Note 5 to the financial
statements included in Item 14, herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the General Partner
or its Affiliates which results or may result from their resignation, retirement
or any other termination.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
By virtue of its organization as a limited partnership, the Partnership has
outstanding no securities possessing traditional voting rights. However, as
provided in Section 10.2(a) of the Restated Agreement, as amended (subject to
Sections 10.2(b) and 10.3), a majority interest of the Limited Partners have
voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
3. Removal of the General Partner; and
-10-
<PAGE>
4. Approval or disapproval of the sale of all, or substantially all, of
the assets of the Partnership (except in the orderly liquidation of the
Partnership upon its termination and dissolution).
As of March 1, 1998, the following person or group owns beneficially more
than 5% of the Partnership's 803,454.56 outstanding Units:
<TABLE>
<CAPTION>
Name and Amount Percent
Title Address of of Beneficial of
of Class Beneficial Owner Ownership Class
- -------------------------------- ---------------------------------------- -------------------- -----------
<S> <C> <C> <C>
Units Representing Old North Capital Limited Partnership
Limited Partnership 88 Broad Street 124,851.23 Units 15.54
Interests Boston, MA 02110
</TABLE>
Messrs. Engle, MacDonald and Coyne have ownership interests in ONC. In
December 1996, EFG purchased a 49% limited partnership interest in ONC. See
Items 10 and 13 of this report.
The ownership and organization of EFG is described in Item 1 of this
report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The General Partner of the Partnership is AFG Leasing VI Incorporated, an
affiliate of EFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
1997, 1996 and 1995, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Equipment management fees $ 166,417 $ 140,227 $ 140,863
Administrative charges 63,870 40,295 21,000
Reimbursable operating expenses
due to third parties 136,800 151,051 117,568
----------- ----------- ----------
Total $ 367,087 $ 331,573 $ 279,431
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
In 1991, the Partnership acquired 900 intermodal cargo containers, at a
cost of $1,840,140, and leased such containers to ICCU Containers, S.p.A.
("ICCU"), an affiliate of Clou Investments (U.S.A.), Inc. ("CLOU"), which
formerly owned a minority interest in AFG Holdings Illinois Limited Partnership,
formerly a partner in AFG. The ability of ICCU to fulfill all of its obligations
under the lease contract deteriorated, in EFG's view, in 1994. As a result, EFG,
on the Partnership's behalf, negotiated with other parties to either assume the
lease obligations of ICCU or acquire the containers. As a result of these
negotiations, the Partnership transferred 740 containers, having a net book
value of $756,502, to a third party on November 30, 1994. The Partnership
received, as settlement from ICCU and the third party, consideration as follows:
(i) a contractual right to receive comparable containers with an estimated fair
market value of $852,207 and (ii) beneficial assignment of an existing EFG note
payable to CLOU which had a principal balance of $370,264 at the date of the
transaction. The note had an effective interest rate of 8% and a quarterly
amortization schedule which matured on December 31, 1996. All amounts due from
EFG pursuant to this note had been received at December 31, 1996 in accordance
with the original amortization schedule. A portion of the consideration received
was used to satisfy the Partnership's accounts receivable balance of $183,128
outstanding from ICCU at November 30, 1994.
An additional 158 containers, having a net book value of $161,523, were
pending settlement at December 31, 1994. On March 31, 1995, 82 of these
containers, having a net book value of $77,841 were transferred to the third
party and the Partnership received $92,551 as consideration for these
containers. The remaining 76 containers, having a net book value of $33,298,
represent less than 1% of the Partnership's equipment portfolio at December 31,
1996. The remaining two containers of the original equipment group were disposed
of in 1992 for stipulated payments as a result of casualty events.
-11-
<PAGE>
By April 1995, the Partnership had replaced 822 of the original containers
with comparable containers and leased such containers to a new lessee pursuant
to the rules for completing a like-kind exchange for income tax reporting
purposes. The carrying value of the new containers, $1,958,040, was reduced by
$282,842, representing the amount of gain deferred on the original containers,
and $14,710, the amount of gain deferred on the 82 containers settled during
1995. The Partnership obtained approximately $925,000 of long-term financing in
connection with the replacement containers.
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG is
compensated by an amount equal to 2.23% of Equipment Base Price paid by the
Partnership. For management services, EFG is compensated by an amount equal to
the lesser of (i) 5% of gross operating lease rental revenue and 2% of gross
full payout lease rental revenue received by the Partnership or (ii) fees which
the General Partner reasonably believes to be competitive for similar services
for similar equipment. Both of these fees are subject to certain limitations
defined in the Management Agreement. Compensation to EFG 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 EFG, pursuant to Section
9.4(c) of the Restated Agreement, as amended, for persons employed by EFG who
are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by EFG
on behalf of the Partnership which are reimbursed to EFG.
All equipment was purchased from EFG, one of its affiliates or from
third-party sellers. The Partnership's Purchase Price is determined by the
method described in Note 2 to the financial statements included in Item 14,
herein.
During 1997, the Partnership and certain affiliated investment programs
sponsored by EFG exchanged their ownership interests in certain vessels for
aggregate consideration of $11,565,375. The Partnership's share of such
consideration was $1,203,062 consisting of common stock in Semele valued at
$313,146, a note receivable from Semele of $459,729 and cash of $430,187. For
further discussion, see Note 4, "Investment Securities - Affiliate / Note
Receivable - Affiliate to the financial statements included in Item 14 herein
and Item 10.
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At December 31, 1997, the Partnership was owed $296,505 by EFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
January 1998.
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC"), both Massachusetts Limited Partnerships formed in
1995 and owned and controlled by certain principals of EFG, own 16,536 Units or
2.06% and 124,851.23 Units or 15.54% of the total outstanding units of the
Partnership, respectively. EFG owns a Class D interest in AALP and a 49% limited
partnership interest in ONC, both of which it acquired in December 1996.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
See Item 13(a) above.
-12-
<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, 1997 and 1996.................................*
Statement of Operations
for the years ended December 31, 1997, 1996 and 1995..........*
Statement of Changes in Partners' Capital
for the years ended December 31, 1997, 1996 and 1995..........*
Statement of Cash Flows
for the years ended December 31, 1997, 1996 and 1995..........*
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. 33-35148).
13 The 1997 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 National Steel Corporation was filed
in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 as Exhibit 28 (a) and is incorporated
herein by reference.
* Incorporated herein by reference to the appropriate portion of the 1997 Annual
Report to security holders for the year ended December 31, 1997 (see Part II).
-13-
<PAGE>
Exhibit
Number
-----------
99 (b) Lease agreement with United Air Lines, Inc. was filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 as Exhibit 28 (b) and is incorporated herein
by reference.
99 (c) Lease agreement with Gearbulk Shipowning Ltd. was filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 as Exhibit 99 (c) and is incorporated herein
by reference.
99 (d) Lease agreement with General Motors Corporation was filed
in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 as Exhibit 99 (d) and is incorporated
herein by reference.
99 (e) Lease agreement with Southwest Airlines, Inc. was filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 as Exhibit 99 (e) and is incorporated herein
by reference.
99 (f) Lease agreement with Southwest Airlines, Inc. was filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 as Exhibit 99 (f) and is incorporated herein
by reference.
99 (g) Lease agreement with Southwest Airlines, Inc. was filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 as Exhibit 99 (g) and is incorporated herein
by reference.
99 (h) Lease agreement with Finnair OY is filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and is included herein.
99 (i) Lease agreement with Finnair OY is filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and is included herein.
99 (j) Lease agreement with The Helen Mining Company is filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and is included herein.
(b) Reports on Form 8-K
None.
-14-
<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 FUND I-C, a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated,
a Massachusetts corporation and the
General Partner of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
----------------------------------- --------------------------------
Geoffrey A. MacDonald Gary D. Engle
Chairman and a member of the President and Chief Executive
Executive Committee of EFG and Officer and a member of the
President and a Director of the Executive Committee of EFG
General Partner (Principal Executive Officer)
Date: March 31, 1998 Date: March 31, 1998
---------------------------------- -------------------------------
By: /s/ Gary M. Romano By: /s/ Michael J. Butterfield
----------------------------------- --------------------------------
Gary M. Romano Michael J. Butterfield
Executive Vice President and Chief Vice President, Finance and
Operating Officer of EFG and Clerk Treasurer of EFG and Treasurer
of the General Partner of the General Partner
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 31, 1998 Date: March 31, 1998
---------------------------------- -------------------------------
-16-
<PAGE>
AMERICAN INCOME FUND I
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Annual Report to the Partners, December 31, 1997
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts 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 3-8
FINANCIAL STATEMENTS:
Report of Independent Auditors 9
Statement of Financial Position
at December 31, 1997 and 1996 10
Statement of Operations
for the years ended December 31, 1997, 1996 and 1995 11
Statement of Changes in Partners' Capital
for the years ended December 31, 1997, 1996 and 1995 12
Statement of Cash Flows
for the years ended December 31, 1997, 1996 and 1995 13
Notes to the Financial Statements 14-25
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 26
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 27
Schedule of Costs Reimbursed to the General
Partner and its Affiliates as Required by
Section 9.4 of the Amended and Restated
Agreement and Certificate of Limited Partnership 28
-1-
<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, 1997:
<TABLE>
<CAPTION>
Summary of
Operations 1997 1996 1995 1994 1993
- --------------------------- ------------------ ------------------ -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 4,068,381 $ 4,130,156 $ 4,648,578 $ 7,199,896 $ 6,525,598
Net income (loss) $ 1,574,944 $ 552,157 $ (779,251) $ (22,729) $ (186,064)
Per Unit:
Net income (loss) $ 1.86 $ 0.65 $ (0.92) $ (0.03) $ (0.22)
Cash distributions $ 0.94 $ 1.38 $ 2.00 $ 2.88 $ 3.00
Financial Position
- ---------------------------
Total assets $ 12,142,868 $ 13,848,889 $ 12,687,300 $ 16,390,469 $ 22,927,882
Total long-term obligations $ 4,401,753 $ 6,547,519 $ 4,574,713 $ 5,323,875 $ 9,589,147
Partners' capital $ 7,488,561 $ 6,821,321 $ 7,432,059 $ 9,902,794 $ 12,357,031
</TABLE>
-2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1997 compared to the year
ended December 31, 1996 and the year ended December 31, 1996
compared to the year ended December 31, 1995
Certain statements in this annual report of American Income Fund I-C, a
Massachusetts Limited Partnership (the "Partnership") that are not historical
fact constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to a variety of risks
and uncertainties. There are a number of important factors that could cause
actual results to differ materially from those expressed in any forward-looking
statements made herein. These factors include, but are not limited to, the
outcome of the Class Action Lawsuit described in Note 8 to the accompanying
financial statements, and the ability of Equis Financial Group Limited
Partnership (formerly American Finance Group), a Massachusetts limited
partnership ("EFG") to collect all rents due under the attendant lease
agreements and successfully remarket the Partnership's equipment upon the
expiration of such leases.
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. The computer
programs of EFG were designed and written using four digits to define the
applicable year. As a result, EFG does not anticipate system failure or
miscalculations causing disruptions of operations. Based on recent assessments,
EFG determined that minimal modification of software is required so that its
network operating system will function properly with respect to dates in the
year 2000 and thereafter. EFG believes that with these modifications to the
existing operating system, the Year 2000 Issue will not pose significant
operational problems for its computer systems. EFG will utilize internal
resources to upgrade software for Year 2000 modifications and anticipates
completing the Year 2000 project by December 31, 1998, which is prior to any
anticipated impact on its operating system. The total cost of the Year 2000
project is expected to be insignificant and have no effect on the results of
operations of the Partnership.
OVERVIEW
The Partnership was organized in 1991 as a direct-participation equipment
leasing program to acquire a diversified portfolio of capital equipment subject
to lease agreements with third parties. The value of the Partnership's equipment
portfolio decreases over time due to depreciation resulting from age and usage
of the equipment, as well as technological changes and other market factors. In
addition, the Partnership does not replace equipment as it is sold; therefore,
its aggregate investment value in equipment declines from asset disposals
occurring in the normal course. The Partnership's stated investment objectives
and policies contemplated that the Partnership would wind-up its operations
within approximately seven years of its inception. Presently, the Partnership is
a Nominal Defendant in a Class Action Lawsuit. The outcome of the Class Action
Lawsuit could alter the nature of the Partnership's organization and its future
business operations. See Note 8 to the accompanying financial statements.
RESULTS OF OPERATIONS
For the year ended December 31, 1997, the Partnership recognized lease
revenue of $4,068,381 compared to $4,130,156 and $4,648,578 for the years ended
December 31, 1996 and 1995, respectively. The decrease in lease revenue from
1995 to 1997 reflects the effects of primary lease term expirations and the sale
of equipment. Partially offsetting the decrease from 1996 to 1997 was the
receipt in 1997 of prepaid contractual rental obligations of $400,631 associated
with the exchange of the Partnership's interest in a vessel (see discussion
below) and the effects of an aircraft exchange which concluded in March 1996. As
a result of the aircraft exchange, the Partnership replaced its ownership
interest in a Boeing 747-SP aircraft leased to United Air Lines, Inc. (the
"United Aircraft"), having aggregate quarterly lease revenues of $213,302, with
interests in six other aircraft (three Boeing 737 aircraft leased by Southwest
Airlines, Inc., two McDonnell Douglas MD-82 aircraft leased by Finnair OY and
one McDonnell Douglas MD-87 aircraft leased by Reno Air, Inc.), having aggregate
quarterly lease revenues of $326,254. The Southwest Aircraft were exchanged into
the Partnership in 1995, while the Finnair Aircraft and the Reno Aircraft were
exchanged into the Partnership on March 25 and
-3-
<PAGE>
March 26, 1996, respectively. Accordingly, 1997 was the first year the
Partnership recognized a full year's revenue related to its interest in all six
of these aircraft.
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 an affiliated equipment leasing program
sponsored by EFG. 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.
Interest income for the year ended December 31, 1997 was $86,836 compared to
$98,806 and $51,136 for the years ended December 31, 1996 and 1995,
respectively. Interest income is typically generated from temporary investment
of rental receipts and equipment sale proceeds in short-term instruments.
Interest income in 1997 included $9,067 earned on a note receivable from Semele
Group, Inc. (formerly Banyan Strategic Land Fund II) ("Semele") (see Note 4 to
the financial statements herein). In 1996, the Partnership earned interest
income of $44,994 on cash held in a special-purpose escrow account in connection
with the aircraft exchange transactions. During 1996 and 1995, the Partnership
also earned interest income of $18,531 and $25,817, respectively, on a note
receivable from EFG resulting from the settlement with ICCU Containers, S.p.A.
(see Note 5 to the financial statements herein). All amounts due from EFG
pursuant to this note had been received at December 31, 1996. The amount of
future interest income is expected to fluctuate in relation to prevailing
interest rates, the collection of lease revenue, and the proceeds from equipment
sales.
During the year ended December 31, 1997, the Partnership sold equipment
having a net book value of $359,061 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $652,413
compared to a net gain in 1996 of $356,452 on equipment having a net book value
of $336,314 and a net gain in 1995 of $48,107 on equipment having a net book
value of $517,800.
In 1997, the Partnership also exchanged its interest in a vessel with an
original cost and net book value of $2,605,381 and $1,180,755, respectively. In
connection with this exchange, the Partnership realized proceeds of $802,431,
which resulted in a net loss, for financial statement purposes, of $378,324. In
addition, as this vessel was disposed of prior to the expiration of the related
lease term, the Partnership received prepayment of the remaining contracted rent
due under the vessel's lease agreement, as described above.
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by Gearbulk Shipowning Ltd
(formerly Kristian Gerhard Jebsen Skipsrederi A/S) (the "Lessee"), exchanged
their ownership interests in the Vessels for aggregate consideration of
$11,565,375, consisting of 1,987,000 newly issued shares (at $1.50 per share) of
common stock in Semele, a purchase money note of $8,219,500 (the "Note") and
cash of $365,375. Semele is a Delaware corporation organized on April 14, 1987
and has its common stock listed on NASDAQ. At the date of the exchange
transaction, the common stock of Semele had a net book value of approximately
$1.50 per share and closing market value of $1.00 per share. Semele has one
principal real estate asset consisting of an undeveloped 274 acre parcel of land
near Malibu, California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Semele and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Semele or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on May 6,
1997 and May 12, 1997. The Note was repaid with $3,800,000 of cash and delivery
of a $4,419,500 note from Semele (the "Semele Note").
As a result of the vessel exchange transaction and its original 33.85%
beneficial ownership interest in Dove Arrow, one of the three Vessels, the
Partnership received $430,187 in cash and became the beneficial owner of 208,764
shares of Semele common stock (valued at $313,146 ($1.50 per share) at the time
of the exchange transaction) and received a beneficial interest in the Semele
Note of $459,729. The Semele Note bears an
-4-
<PAGE>
annual interest rate of 10% and will be amortized over three years with
mandatory principal reductions, if and to the extent that net proceeds are
received by Semele from the sale or refinancing of Rancho Malibu.
Cash equal to the amount of the Semele Note was held in escrow for the
benefit of Semele in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Semele sought
consent ("Consent") from its shareholders to: (1) amend its certificate of
incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Semele's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Semele,
which services EFG will provide at cost. On October 21, 1997, such Consent was
obtained from Semele's shareholders. The Consent also allowed for (i) the
election of a new Board of Directors nominated by EFG for terms of up to three
years and an increase in size of the Board to as many as nine members, provided
a majority of the Board shall consist of members independent of Semele, EFG or
any affiliate; and (ii) an amendment extending Semele's life to perpetual and
changing its name from Banyan Strategic Land Fund II. Contemporaneously with the
Consent being obtained, Semele declared a $0.20 per share dividend to be paid on
all shares, including those beneficially owned by the Partnership. A dividend of
$41,752 was paid to the Partnership on November 17, 1997. This dividend
represented a return of equity to the Partnership, which proportionately reduced
the Partnership's investment in Semele.
In September 1995, the Partnership transferred its 33.07% ownership interest
in the United Aircraft, pursuant to the rules of a like-kind exchange for income
tax reporting purposes. The Partnership received aggregate cash consideration of
$2,723,865 including $213,301 for rent accrued through the transfer date. A
portion of the consideration was used to satisfy the balance of outstanding debt
and interest of $414,925. The net cash consideration of $2,095,639 was deposited
into a special-purpose escrow account through a third-party exchange agent
pending the completion of the aircraft exchange. The Partnership's interest in
the United Aircraft had a net book value of $3,475,960 at the date of transfer
and resulted in a net loss for financial reporting purposes of $965,396.
In November 1995, the Partnership partially replaced the United Aircraft with
a 14.35% interest in the Southwest Aircraft, at an aggregate cost of $2,101,054.
To acquire the interests in the Southwest Aircraft, the Partnership obtained
financing of $1,567,878 from a third-party lender and utilized $533,176 of the
cash consideration received from the transfer of the United Aircraft. The
remaining ownership interest of 85.65% in the Southwest Aircraft is held by
affiliated equipment leasing programs sponsored by EFG.
Additionally, in March 1996, the Partnership completed the replacement of the
United Aircraft with the acquisitions of an 11.87% ownership interest in the
Finnair Aircraft and a 21.31% ownership interest in the Reno Aircraft at a total
cost to the Partnership of $3,322,913 and $2,894,892, respectively. To acquire
the ownership interest in the Finnair Aircraft, the Partnership paid $1,110,980
in cash and obtained financing of $2,211,933 from a third-party lender. To
acquire the ownership interest in the Reno Aircraft, the Partnership paid
$494,780 in cash and obtained financing of $2,400,112 from a third-party lender.
The remaining ownership interests of 88.13% and 78.69% of the Finnair Aircraft
and Reno Aircraft, respectively, are held by affiliated equipment leasing
programs sponsored by EFG.
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 EFG'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. EFG 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.
-5-
<PAGE>
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 $2,099,722, $3,163,960 and
$3,930,328 for the years ended December 31, 1997, 1996 and 1995, 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 at the date of
primary lease expiration on a straight-line basis over such term. For the
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.
Interest expense was $387,553 or 9.5% of lease revenue in 1997, $556,255 or
13.5% of lease revenue in 1996 and $377,734 or 8.1% of lease revenue in 1995.
The decrease in interest expense in 1997 compared to 1996 reflects the reduction
of the Partnership's indebtedness. The increase in interest expense in 1996
compared to 1995 was due primarily to interest incurred in connection with the
leveraging obtained to finance the aircraft exchange transactions, discussed
above. Interest expense in future years is expected 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 approximately 4.1% of lease revenue for the year ended
December 31, 1997, compared to 3.4% and 3% of lease revenue during the years
ended December 31, 1996 and 1995, respectively. Management fees are based on 5%
of gross lease revenue generated by operating leases and 2% of gross lease
revenue generated by full payout leases.
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
repairs and maintenance costs may be incurred in connection with equipment being
remarketed. Operating expenses represented 4.9%, 4.6% and 3% of lease revenue
during the years ended December 31, 1997, 1996 and 1995, respectively. The
increase in operating expenses from 1996 to 1997 is attributable principally to
an increase in administrative charges and professional service costs. The
increase in operating expenses from 1995 to 1996 was due principally to costs
incurred in connection with the aircraft like-kind exchange transactions,
discussed above. 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 $3,241,188, $3,646,728, and $4,129,166 for the
years ended 1997, 1996 and 1995 respectively. Future renewal, re-lease and
equipment sale activities will cause a 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 also continue to 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.
-6-
<PAGE>
Cash expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. During 1997, the Partnership realized net
proceeds of $1,041,030, compared to $692,766 and $565,907 in 1996 and 1995,
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. The Partnership expended
$43,297 in 1996 in cash in connection with the aircraft like-kind exchange
transactions referred to above. There were no equipment acquisitions in 1995 or
1997.
As a result of the vessel exchange transaction (see Results of Operations)
the Partnership became the beneficial owner of 208,764 shares of Semele common
stock valued at $313,146 ($1.50 per share). This investment was reduced by a
dividend of $41,752 received in November 1997 representing a return of equity to
the Partnership. The Partnership also received a beneficial interest in the
Semele Note of $459,729 in connection with the vessel exchange.
In accordance with the Financial Accounting Standard Board's Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities,
marketable equity securities classified as available-for-sale are required to be
carried at fair value. As such, the Partnership reduced the carrying value of
its investment in Semele common stock to $0.75 per share (the quoted price of
the Semele stock on NASDAQ at December 31, 1997) resulting in an unrealized loss
in 1997 of $114,821 which was reported as a separate component of partner's
capital. However, the General Partner believes that the underlying tangible
assets of Semele, particularly the Ranch Malibu property, can be sold or
developed on a tax free basis due to Semele's net operating loss carryforwards
and can provide an attractive economic return to the Partnership.
During 1995, the Partnership transferred its ownership interest in certain
trailers, previously leased to The Atchison Topeka and Santa Fe Railroad to a
third party for cash consideration of $89,000. The trailers had an aggregate net
book value of $49,693 at the date of transfer resulting in a net gain, for
financial statement purposes, of $39,307. A portion of the consideration was
used to satisfy outstanding debt of $3,596. The transaction was structured as a
like-kind exchange for income tax reporting purposes. In 1995, the Partnership
replaced these trailers with comparable trailers and leased such equipment to a
new lessee. The net carrying value of the new trailers, $329,323, was net of
$39,307, representing the amount of gain deferred on the original trailers. The
Partnership funded this transaction with $85,404 of the net cash consideration
received and a third-party installment note payable of $283,226.
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 addition, during 1997 the Partnership utilized a
portion of its available cash to repay certain of its debt obligations. In
future years, the amount of cash used to repay debt obligations is scheduled to
decline as the principal balance of notes payable is reduced through the
collection and application of rents. In addition, the Partnership has balloon
payment obligations at the expiration of the respective primary lease terms
related to the Finnair Aircraft and the Reno Aircraft of $1,127,840 and
$679,276, respectively.
Cash distributions to the General and Limited Partners 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, 1997, the Partnership declared total
cash distributions of Distributable Cash From Operations and Distributable Cash
From Sales and Refinancings of $792,883. In accordance with the Amended and
Restated Agreement and Certificate of Limited Partnership, the Limited Partners
were allocated 95% of these distributions, or $753,239, and the General Partner
was allocated 5%, or $39,644. The fourth quarter 1997 cash distribution was paid
on January 13, 1998.
Cash distributions paid to the Limited Partners consist of both a return of
and a return on 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
-7-
<PAGE>
asset at its disposal date. Future market conditions, technological changes, the
ability of EFG 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 future liquidity of the Partnership will be influenced by the foregoing,
as well as the outcome of the Class Action Lawsuit described in Note 8 to the
accompanying financial statements. The General Partner anticipates that cash
proceeds resulting from the collection of contractual rents and the outcome of
residual activities 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 are anticipated.
-8-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income Fund I-C,
a Massachusetts Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Fund I-C, a Massachusetts Limited Partnership as of December 31,
1997 and 1996, 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, 1997. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Income Fund I-C, a
Massachusetts Limited Partnership at December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
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.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1998
-9-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,519,940 $ 1,187,478
Rents receivable 246,877 469,090
Accounts receivable - affiliate 296,505 89,539
Note receivable - affiliate 459,729 --
Investment securities - affiliate 156,573 --
Equipment at cost, net of accumulated
depreciation of $8,365,735 and $13,677,519
at December 31, 1997 and 1996, respectively 8,463,244 12,102,782
------------------- -------------------
Total assets $ 12,142,868 $ 13,848,889
------------------- -------------------
------------------- -------------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 4,401,753 $ 6,547,519
Accrued interest 30,468 79,752
Accrued liabilities 9,200 22,750
Accrued liabilities - affiliate 28,925 33,067
Deferred rental income 25,384 133,044
Cash distributions payable to partners 158,577 211,436
------------------- -------------------
Total liabilities 4,654,307 7,027,568
------------------- -------------------
Partners' capital (deficit):
General Partner (508,111) (541,473)
Limited Partnership Interests
(803,454.56 Units; initial purchase
price of $25 each) 7,996,672 7,362,794
------------------- -------------------
Total partners' capital 7,488,561 6,821,321
------------------- -------------------
Total liabilities and partners' capital $ 12,142,868 $ 13,848,889
------------------- -------------------
------------------- -------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-10-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Lease revenue $ 4,068,381 $ 4,130,156 $ 4,648,578
Interest income 77,769 98,806 51,136
Interest income - affiliate 9,067 18,531 25,817
Gain on sale of equipment 652,413 356,452 48,107
Loss on exchange of equipment (378,324) -- (965,396)
------------ ------------ ------------
Total income 4,429,306 4,603,945 3,808,242
------------ ------------ ------------
Expenses:
Depreciation and amortization 2,099,722 3,163,960 3,930,328
Interest expense 387,553 556,255 377,734
Equipment management fees
- affiliate 166,417 140,227 140,863
Operating expenses - affiliate 200,670 191,346 138,568
------------ ------------ ------------
Total expenses 2,854,362 4,051,788 4,587,493
------------ ------------ ------------
Net income (loss) $ 1,574,944 $ 552,157 $ (779,251)
------------ ------------ ------------
------------ ------------ ------------
Net income (loss)
per limited partnership unit $ 1.86 $ 0.65 $ (0.92)
------------ ------------ ------------
------------ ------------ ------------
Cash distributions declared
per limited partnership unit $ 0.94 $ 1.38 $ 2.00
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-11-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL for the years
ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Limited Partners
Partner ----------------------------------
Amount Units Amount Total
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ (387,399) 803,454.56 $ 10,290,193 $ 9,902,794
Net loss - 1995 (38,963) -- (740,288) (779,251)
Cash distributions declared (84,574) -- (1,606,910) (1,691,484)
-------------- ------------- -------------- --------------
Balance at December 31, 1995 (510,936) 803,454.56 7,942,995 7,432,059
Net income - 1996 27,608 -- 524,549 552,157
Cash distributions declared (58,145) -- (1,104,750) (1,162,895)
-------------- ------------- -------------- --------------
Balance at December 31, 1996 (541,473) 803,454.56 7,362,794 6,821,321
Net income - 1997 78,747 -- 1,496,197 1,574,944
Unrealized loss on investment securities (5,741) -- (109,080) (114,821)
Cash distributions declared (39,644) -- (753,239) (792,883)
-------------- ------------- -------------- --------------
Balance at December 31, 1997 $ (508,111) 803,454.56 $ 7,996,672 $ 7,488,561
-------------- ------------- -------------- --------------
-------------- ------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
-12-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income (loss) $ 1,574,944 $ 552,157 $ (779,251)
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization 2,099,722 3,163,960 3,930,328
Gain on sale of equipment (652,413) (356,452) (48,107)
Loss on exchange of equipment 378,324 -- 965,396
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable 222,213 247,567 (83,479)
Accounts receivable - affiliate (206,966) (75,887) (26,934)
Note receivable - affiliate -- 210,144 160,120
Increase (decrease) in:
Accrued interest (49,284) 37,243 (30,951)
Accrued liabilities (13,550) (134,252) 44,560
Accrued liabilities - affiliate (4,142) 9,723 16,307
Deferred rental income (107,660) (7,475) (18,823)
---------------- ---------------- ----------------
Net cash from operating activities 3,241,188 3,646,728 4,129,166
---------------- ---------------- ----------------
Cash flows from (used in) investing activities:
Dividend received 41,752 -- --
Purchase of equipment -- (43,297) --
Proceeds from equipment sales 1,041,030 692,766 565,907
---------------- ---------------- ----------------
Net cash from investing activities 1,082,782 649,469 565,907
---------------- ---------------- ----------------
Cash flows used in financing activities:
Principal payments - notes payable (2,145,766) (2,639,239) (3,106,835)
Distributions paid (845,742) (1,268,613) (1,902,919)
---------------- ---------------- ----------------
Net cash used in financing activities (2,991,508) (3,907,852) (5,009,754)
---------------- ---------------- ----------------
Net increase (decrease) in cash
and cash equivalents 1,332,462 388,345 (314,681)
Cash and cash equivalents at beginning of year 1,187,478 799,133 1,113,814
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 2,519,940 $ 1,187,478 $ 799,133
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 436,837 $ 519,012 $ 408,685
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
See Note 4 to the financial statements regarding the reduction of the
Partnership's carrying value of its investment securities - affiliate.
Also, see Notes 3 and 5 to the financial statements.
The accompanying notes are an integral part of these
financial statements.
-13-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
December 31, 1997
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
American Income Fund I-C, a Massachusetts Limited Partnership (the
"Partnership") was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on March 1, 1991, 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 General Partner (AFG Leasing VI Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On May 31, 1991, the
Partnership issued 803,454.56 units of limited partnership interests (the
"Units") to 909 investors. Included in the 803,454.56 units were 7,293.56 bonus
units. The Partnership's General Partner, AFG Leasing VI Incorporated, is a
Massachusetts corporation formed in 1990 and an affiliate of Equis Financial
Group Limited Partnership (formerly American Finance Group), a Massachusetts
limited partnership ("EFG"). The General Partner is 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").
Significant operations commenced on May 31, 1991 when the Partnership made
its initial equipment acquisition. Pursuant to the Restated Agreement, as
amended, Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings will be allocated 95% to the Limited Partners and 5% to the General
Partner.
Under the terms of a Management Agreement between the Partnership and EFG,
management services are provided by EFG to the Partnership at fees which the
General Partner believes to be competitive for similar services (see Note 5).
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Partnership and several other
Direct-Participation equipment leasing programs sponsored or co-sponsored by EFG
(the "Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President and Chief Executive Officer. Equis Corporation also owns
a controlling 1% general partner interest in EFG's 99% limited partner, GDE
Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were
established in December 1994 by Mr. Engle for the sole purpose of acquiring the
business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Partnership and the Other Investment Programs and to continue managing all
assets owned by the Partnership and the Other Investment Programs.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-14-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 federal agency
discount notes and 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, 1997, the Partnership had $2,416,897 invested in
federal agency discount notes and 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
$5,779,390 are due as follows:
<TABLE>
<S> <C>
For the year ending December 31, 1998 $ 1,884,325
1999 1,328,721
2000 796,569
2001 762,129
2002 762,129
Thereafter 245,517
------------
Total $ 5,779,390
------------
------------
</TABLE>
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1997, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gearbulk Shipowning Ltd. $ 534,796 $ 543,909 $ 542,655
Finnair OY $ 511,496 $ -- $ --
The Helen Mining Company $ 430,000 $ -- $ --
Southwest Airlines, Inc. $ 413,280 $ 413,280 $ --
General Motors Corporation $ -- $ 516,616 $ --
United Air Lines, Inc. $ -- $ -- $ 632,629
National Steel Corporation $ -- $ -- $ 488,580
</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 EFG, one of its Affiliates or from
third-party sellers. Equipment cost represents asset base price plus acquisition
fees and was determined in accordance with the Restated
-15-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
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 seller of the equipment was EFG or an affiliate, asset base
price was the lower of (i) the actual price paid for the equipment by EFG or the
affiliate plus all actual costs accrued by EFG or the affiliate while carrying
the equipment less the amount of all rents earned by EFG or the Affiliate prior
to selling the equipment or (ii) fair market value as determined by the 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 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 AND AMORTIZATION
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.
Periodically, the General Partner evaluates the net carrying value of equipment
to determine whether it exceeds estimated net realizable value. Adjustments to
reduce the net carrying value of equipment are recorded in those instances where
estimated net realizable value is considered to be less than net carrying value.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG'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.
Organization costs were amortized using the straight-line method over a
period of five years.
INVESTMENT SECURITIES - AFFILIATE
The Partnership's investment in Semele Group, Inc. is considered to be
available-for-sale and as such is carried at fair value with unrealized gains
and losses reported as a separate component of Partner's Capital (see Note 4).
ACCRUED LIABILITIES - AFFILIATE
Unpaid operating expenses paid by EFG on behalf of the Partnership and
accrued but unpaid administrative charges and management fees are reported as
Accrued Liabilities - Affiliate (see Note 5).
ALLOCATION OF PROFITS AND LOSSES
For financial statement purposes, net income or loss is allocated to each
Partner according to their respective ownership percentages (95% to the Limited
Partners and 5% to the General Partner). See Note 7 for allocation of income or
loss for income tax purposes.
-16-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
NET INCOME (LOSS) AND CASH DISTRIBUTIONS PER UNIT
Net income (loss) and cash distributions per Unit are based on 803,454.56
Units outstanding during each of the three years in the period ended December
31, 1997 and computed after allocation of the General Partner's 5% share of net
income (loss) 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. This
statement establishes standards for reporting comprehensive income and its
components and requires this disclosure be added as a new section in a financial
statement. This statement is effective for fiscal years beginning after December
31, 1997. The Partnership will adopt the new disclosures required by SFAS No.
130 in 1998.
NOTE 3 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at
December 31, 1997. Remaining Lease Term (Months), as used below, represents the
number of months remaining from December 31, 1997 under contracted lease terms
and is presented as a range when more than one lease agreement is contained in
the stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
<TABLE>
<CAPTION>
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost Location
- ------------------------------------ --------------- ------------------- -----------------------------------
<S> <C> <C> <C>
Aircraft 19-60 $ 8,318,862 NV/TX/Foreign
Materials handling 0-21 3,890,639 CA/CO/FL/GA/IA/IL/MI/MN/MO/NY
OH/OR/PA/TX/Foreign
</TABLE>
-17-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
<TABLE>
<S> <C> <C> <C>
Trailers/intermodal containers 60-66 1,982,184 CA/OK
Tractors and heavy duty trucks 0-3 1,210,962 CA/IL/IN/MI/OR
Retail store fixtures 15 517,488 FL
Construction and mining 0-6 426,263 IL
Motor vehicles 0-6 252,622 MI/WI
Research and test 0 116,406 CO
Communications 0 51,469 TX
Manufacturing 0 35,218 MI
Computers and peripherals 0 26,866 NY
-----------------
Total equipment cost 16,828,979
Accumulated depreciation (8,365,735)
-----------------
Equipment, net of accumulated depreciation $ 8,463,244
-----------------
-----------------
</TABLE>
In September 1995, the Partnership transferred its 33.07% ownership
interest in an aircraft leased to United Air Lines, Inc. (the "United
Aircraft"), pursuant to the rules of a like-kind exchange for income tax
reporting purposes. In November 1995, the Partnership partially replaced the
United Aircraft with a 14.35% interest in three aircraft lease to Southwest
Airlines, Inc. (the "Southwest Aircraft"), at an aggregate cost of $2,101,054.
To acquire the interests in the Southwest Aircraft, the Partnership obtained
financing of $1,567,878 from a third-party lender and utilized $533,176 of the
cash consideration received from the transfer of the United Aircraft. The
remaining ownership interest of 85.65% in the Southwest Aircraft is held by
affiliated equipment leasing programs sponsored by EFG.
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with the acquisitions of an 11.87% ownership interest in two
aircraft leased to Finnair OY (the "Finnair Aircraft") and a 21.31% ownership
interest in an aircraft leased to Reno Air, Inc. (the "Reno Aircraft") at a
total cost of $3,322,913 and $2,894,892, respectively. To acquire the ownership
interest in the Finnair Aircraft, the Partnership paid $1,110,980 in cash and
obtained financing of $2,211,933 from a third-party lender. To acquire the
ownership interest in the Reno Aircraft, the Partnership paid $494,780 in cash
and obtained financing of $2,400,112 from a third-party lender. The remaining
ownership interests of 88.13% and 78.69% in the Finnair Aircraft and Reno
Aircraft, respectively, are held by affiliated equipment leasing programs
sponsored by EFG.
During 1995, the Partnership transferred its ownership interest in certain
trailers, previously leased to The Atchison Topeka and Santa Fe Railroad to a
third party for cash consideration of $89,000. The trailers had an aggregate net
book value of $49,693 at the date of transfer resulting in a net gain, for
financial statement purposes, of $39,307. A portion of the consideration was
used to satisfy outstanding debt of $3,596. The transaction was structured as a
like-kind exchange for income tax reporting purposes. In 1995, the Partnership
replaced these trailers with comparable trailers and leased such equipment to a
new lessee. The net carrying value of the new trailers, $329,323, was net of
$39,307, representing the amount of gain deferred on the original trailers. The
Partnership funded this transaction with $85,404 of the net cash consideration
received and a third-party installment note payable of $283,226.
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by EFG or an
affiliated equipment leasing program sponsored by EFG. 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, 1997, the Partnership's equipment
portfolio
-18-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
included equipment having a proportionate original cost of $10,818,531,
representing approximately 64% 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 $8,319,000
and a net book value of approximately $6,975,000 at December 31, 1997 (see Note
6).
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, EFG's
ability to maximize proceeds from selling or re-leasing the equipment upon the
expiration of the primary lease terms. The summary above includes equipment held
for sale or re-lease with a cost and net book value of approximately $78,000 and
$2,000, respectively. The General Partner is actively seeking the sale or
re-lease of all such equipment. In addition, the summary above also includes
equipment being leased on a month-to-month basis.
NOTE 4 - INVESTMENT SECURITIES - AFFILIATE / NOTE RECEIVABLE - AFFILIATE
On April 30, 1997, the vessel partnerships, in which the Partnership and
certain affiliated investment programs are limited partners and through which
the Partnership and the affiliated investment programs shared economic interests
in three cargo vessels (the "Vessels") leased by Gearbulk Shipowning Ltd
(formerly Kristian Gerhard Jebsen Skipsrederi A/S) (the "Lessee"), exchanged
their ownership interests in the Vessels for aggregate consideration of
$11,565,375, consisting of 1,987,000 newly issued shares (at $1.50 per share) of
common stock in Semele Group, Inc. ("Semele") (formerly Banyan Strategic Land
Fund II), a purchase money note of $8,219,500 (the "Note") and cash of $365,375.
Semele is a Delaware corporation organized on April 14, 1987 and has its common
stock listed on NASDAQ. At the date of the exchange transaction, the common
stock of Semele had a net book value of approximately $1.50 per share and
closing market value of $1.00 per share. Semele has one principal real estate
asset consisting of an undeveloped 274 acre parcel of land near Malibu,
California ("Rancho Malibu").
The exchange was organized through an intermediary company (Equis Exchange
LLC, 99% owned by Semele and 1% owned by EFG), which was established for the
sole purpose of facilitating the exchange. There were no fees paid to EFG by
Equis Exchange LLC or Semele or by any other party that otherwise would not have
been paid to EFG had the Partnership sold its beneficial interest in the Vessels
directly to the Lessee. The Lessee prepaid all of its remaining contracted
rental obligations and purchased the Vessels in two closings occurring on May 6,
1997 and May 12, 1997. The Note was repaid with $3,800,000 of cash and delivery
of a $4,419,500 note from Semele (the "Semele Note").
As a result of the exchange transaction and its original 33.85% beneficial
ownership interest in Dove Arrow, one of the three Vessels, the Partnership
received $430,187 in cash and became the beneficial owner of 208,764 shares of
Semele common stock (valued at $313,146 ($1.50 per share) at the time of the
exchange transaction) and received a beneficial interest in the Semele Note of
$459,729. The Semele Note bears an annual interest rate of 10% and will be
amortized over three years with mandatory principal reductions, if and to the
extent that net proceeds are received by Semele from the sale or refinancing of
Rancho Malibu. The Partnership's interest in the vessel had an original cost and
net book value of $2,605,381 and $1,180,755, respectively. The proceeds
-19-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
realized by the Partnership of $802,431 resulted in a net loss, for financial
statement purposes, of $378,324. In addition, as this vessel was disposed of
prior to the expiration of the related lease term, the Partnership received a
prepayment of the remaining contracted rent due under the vessel's lease
agreement of $400,631.
Cash equal to the amount of the Semele Note was held in escrow for the
benefit of Semele in a segregated account pending the outcome of certain
shareholder proposals. Specifically, as part of the exchange, Semele sought
consent ("Consent") from its shareholders to: (1) amend its certificate of
incorporation and by-laws; (2) make additional amendments to restrict the
acquisition of its common stock in a way to protect Semele's net operating loss
carry-forwards, and (3) engage EFG to provide administrative services to Semele,
which services EFG will provide at cost. On October 21, 1997, such Consent was
obtained from Semele's shareholders. The Consent also allowed for (i) the
election of a new Board of Directors nominated by EFG for terms of up to three
years and an increase in size of the Board to as many as nine members, provided
a majority of the Board shall consist of members independent of Semele, EFG or
any affiliate; and (ii) an amendment extending Semele's life to perpetual and
changing its name from Banyan Strategic Land Fund II. Contemporaneously with the
Consent being obtained, Semele declared a $0.20 per share dividend to be paid on
all shares, including those beneficially owned by the Partnership. A dividend of
$41,752 was paid to the Partnership on November 17, 1997. This dividend
represented a return of equity to the Partnership, which proportionately reduced
the Partnership's investment in Semele. In May 1997, Gary D. Engle, President
and Chief Executive Officer of EFG, was elected to the Board of Directors of
Semele and in October 1997, James A. Coyne, Executive Vice President of EFG was
elected Semele's President and Chief Operating Officer.
In accordance with the Financial Accounting Standard Board's Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities,
marketable equity securities classified as available-for-sale are required to be
carried at fair value. As such, the Partnership reduced the carrying value of
its investment in Semele common stock to $0.75 per share (the quoted price of
the Semele stock on NASDAQ at December 31, 1997) resulting in an unrealized loss
in 1997 of $114,821 which was reported as a separate component of partner's
capital.
NOTE 5 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
1997, 1996 and 1995, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Equipment management fees $ 166,417 $ 140,227 $ 140,863
Administrative charges 63,870 40,295 21,000
Reimbursable operating
expenses due to third parties 136,800 151,051 117,568
------------ ------------ ------------
Total $ 367,087 $ 331,573 $ 279,431
============ ============ ============
</TABLE>
In 1991, the Partnership acquired 900 intermodal cargo containers, at a
cost of $1,840,140, and leased such containers to ICCU Containers, S.p.A.
("ICCU"), an affiliate of Clou Investments (U.S.A.), Inc. ("CLOU"), which
formerly owned a minority interest in AFG Holdings Illinois Limited Partnership,
formerly a partner in AFG. The ability of ICCU to fulfill all of its obligations
under the lease contract deteriorated, in EFG's view, in 1994. As a result, EFG,
on the Partnership's behalf, negotiated with other parties to either assume the
lease obligations of ICCU or acquire the containers. As a result of these
negotiations, the Partnership transferred 740 containers, having a net book
value of $756,502, to a third party on November 30, 1994. The Partnership
received, as
-20-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
settlement from ICCU and the third party, consideration as follows: (i) a
contractual right to receive comparable containers with an estimated fair market
value of $852,207 and (ii) beneficial assignment of an existing EFG note payable
to CLOU which had a principal balance of $370,264 at the date of the
transaction. The note had an effective interest rate of 8% and a quarterly
amortization schedule which matured on December 31, 1996. All amounts due from
EFG pursuant to this note had been received at December 31, 1996 in accordance
with the original amortization schedule. A portion of the consideration received
was used to satisfy the Partnership's accounts receivable balance of $183,128
outstanding from ICCU at November 30, 1994.
An additional 158 containers, having a net book value of $161,523, were
pending settlement at December 31, 1994. On March 31, 1995, 82 of these
containers, having a net book value of $77,841 were transferred to the third
party and the Partnership received $92,551 as consideration for these
containers. The remaining 76 containers, having a net book value of $33,298,
represent less than 1% of the Partnership's equipment portfolio at December 31,
1996. The remaining two containers of the original equipment group were disposed
of in 1992 for stipulated payments as a result of casualty events.
By April 1995, the Partnership had replaced 822 of the original containers
with comparable containers and leased such containers to a new lessee pursuant
to the rules for completing a like-kind exchange for income tax reporting
purposes. The carrying value of the new containers, $1,958,040, was reduced by
$282,842, representing the amount of gain deferred on the original containers,
and $14,710, the amount of gain deferred on the 82 containers settled during
1995. The Partnership obtained approximately $925,000 of long-term financing in
connection with the replacement containers.
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG is
compensated by an amount equal to 2.23% of Equipment Base Price paid by the
Partnership. For management services, EFG is compensated by an amount equal to
the lesser of (i) 5% of gross operating lease rental revenue and 2% of gross
full payout lease rental revenue received by the Partnership or (ii) fees which
the General Partner reasonably believes to be competitive for similar services
for similar equipment. Both of these fees are subject to certain limitations
defined in the Management Agreement. Compensation to EFG 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 EFG, pursuant to Section
9.4(c) of the Restated Agreement, as amended, for persons employed by EFG who
are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by EFG
on behalf of the Partnership which are reimbursed to EFG.
All equipment was purchased from EFG, one of its Affiliates or from
third-party sellers. The Partnership's Purchase Price is determined by the
method described in Note 2.
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At December 31, 1997, the Partnership was owed $296,505 by EFG for such funds
and the interest thereon. These funds were remitted to the Partnership in
January 1998.
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC"), both Massachusetts Limited Partnerships formed in
1995 and owned and controlled by certain principals of EFG, own 16,536 Units or
2.06% and 124,851.23 Units or 15.54% of the total outstanding units of the
Partnership,
-21-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
respectively. EFG owns a Class D interest in AALP and a 49% limited partnership
interest in ONC, both of which it acquired in December 1996.
NOTE 6 - NOTES PAYABLE
Notes payable at December 31, 1997 consisted of installment notes of
$4,401,753 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 8.65% and 8.89%, except one note which bears
a fluctuating interest rate based on LIBOR (5.72% at December 31, 1997) plus a
margin. All of the installment notes are non-recourse and are collateralized by
the equipment and assignment of the related lease payments. Generally, the
installment notes will be fully amortized by noncancellable rents. However, the
Partnership has balloon payment obligations at the expiration of the respective
primary lease terms related to the Finnair Aircraft and the Reno Aircraft of
$1,127,840 and $679,276, respectively. The carrying value of notes payable
approximates fair value at December 31, 1997.
The annual maturities of the installment notes payable are as follows:
<TABLE>
<S> <C>
For the year ending December 31, 1998 $ 988,247
1999 1,862,993
2000 284,916
2001 308,121
2002 957,476
-----------
Total $ 4,401,753
-----------
-----------
</TABLE>
NOTE 7 - 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 (95% to the Limited Partners and 5% to the General Partner). 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 Partner will be required to contribute to the Partnership an amount
equal to any negative balance which may exist in the General Partner's tax
capital account. At December 31, 1997, the General Partner had a positive tax
capital account balance.
The following is a reconciliation between net income (loss) reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net income (loss) $ 1,574,944 $ 552,157 $ (779,251)
Financial statement depreciation in excess
of (less than) tax depreciation (244,130) (67,047) 850,430
Deferred rental income (107,660) (7,475) (18,823)
Other (445,123) 404,699 1,367,074
------------------ ------------------ ------------------
</TABLE>
-22-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
<TABLE>
<S> <C> <C> <C>
Net income for federal income tax
reporting purposes $ 778,031 $ 882,334 $ 1,419,430
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
The principal component of "Other" consists of the difference between the
tax gain on equipment disposals and the financial statement gain (loss) on
disposals.
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
Partners' capital $ 7,488,561 $ 6,821,321
Unrealized loss on investment securities 114,821 --
Add back selling commissions and organization
and offering costs 2,234,203 2,234,203
Financial statement distributions in excess of tax distributions 7,929 10,572
Cumulative difference between federal income tax
and financial statement income (loss) (1,354,255) (557,342)
------------------ ------------------
Partners' capital for federal income tax reporting purposes $ 8,491,259 $ 8,508,754
------------------ ------------------
------------------ ------------------
</TABLE>
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
-23-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
NOTE 8 - LEGAL PROCEEDINGS
On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed
a class and derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS
FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the United States District Court
for the Southern District of Florida (the "Court") on behalf of a proposed class
of investors in 28 equipment leasing programs sponsored by EFG, including the
Partnership (collectively, the "Nominal Defendants"), against EFG and a number
of its affiliates, including the General Partner, as defendants (collectively,
the "Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had
filed an earlier derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS
FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the Superior Court of the
Commonwealth of Massachusetts on behalf of the Nominal Defendants against the
Defendants. Both actions are referred to herein collectively as the "Class
Action Lawsuit."
The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the Securities
Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary
duty, and violations of the partnership or trust agreements that govern each of
the Nominal Defendants. The Defendants have denied, and continue to deny, that
any of them have committed or threatened to commit any violations of law or
breached any fiduciary duties to the Plaintiffs or the Nominal Defendants.
On March 9, 1998, counsel for the Defendants and the Plaintiffs entered
into a Memorandum of Understanding setting forth the terms pursuant to which a
settlement of the Class Action Lawsuit is intended to be achieved and which,
among other things, is expected to reduce the burdens and expenses attendant to
continuing litigation. The Memorandum of Understanding represents a preliminary
step towards a comprehensive Stipulation of Settlement between the parties that
must be presented to and approved by the Court as a condition precedent to
effecting a settlement. The Memorandum of Understanding (i) prescribes a number
of conditions necessary to achieving a settlement, including providing the
partners (or beneficiaries, as applicable) of the Nominal Defendants with the
opportunity to vote on any settlement and (ii) contemplates various changes
that, if effected, would alter the future operations of the Nominal Defendants.
With respect to the Partnership and 10 affiliated partnerships (hereafter
referred to as the "Exchange Partnerships"), the Memorandum of Understanding
provides for the restructuring of their respective business operations into a
single successor company whose securities would be listed and traded on a
national stock exchange. The partners of the Exchange Partnerships would receive
both common stock in the new company and a cash distribution in exchange for
their existing partnership interests. Such a transaction would, among other
things, allow for the consolidation of the Partnership's operating expenses with
other similarly-organized equipment leasing programs. To the extent that the
parties agree upon a Stipulation of Settlement that is approved by the Court,
the complete terms thereof will be communicated to all of the partners (or
beneficiaries) of the Nominal Defendants to enable them to vote thereon.
There can be no assurance that the parties will agree upon a Stipulation
of Settlement, or that it will be approved by the Court, or that the outcome of
the voting by the partners (or beneficiaries) of the Nominal Defendants,
including the Partnership, will result in a settlement finally being effected or
in the Partnership being included in any such settlement. The General Partner
and its affiliates, in consultation with counsel, concur that there is a
reasonable basis to believe that a Stipulation of Settlement will be agreed upon
by the parties and approved by the Court. In the absence of a Stipulation of
Settlement approved by the Court, the Defendants intend to defend vigorously
against the claims asserted in the Class Action Lawsuit. The General Partner and
its affiliates cannot predict with any degree of certainty the ultimate outcome
of such litigation.
On July 27, 1995, EFG, on behalf of the Partnership and other EFG-sponsored
investment programs, filed an action in the Commonwealth of Massachusetts
Superior Court Department of the Trial Court in and for the County of Suffolk,
for damages and declaratory relief against a lessee of the Partnership, National
Steel Corporation ("National Steel"), under a certain Master Lease Agreement
("MLA") for the lease of certain equipment. EFG is seeking the reimbursement by
National Steel of certain sales and/or use taxes paid to the
-24-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
State of Illinois and other remedies provided by the MLA. On August 30, 1995,
National Steel filed a Notice of Removal which removed the case to the United
States District Court, District of Massachusetts. On September 7, 1995, National
Steel filed its Answer to EFG's Complaint along with Affirmative Defenses and
Counterclaims, seeking declaratory relief and alleging breach of contract,
implied covenant of good faith and fair dealing and specific performance. EFG
filed its Answer to these counterclaims on September 29, 1995. Though the
parties have been discussing settlement with respect to this matter for some
time, to date, the negotiations have been unsuccessful. Notwithstanding these
discussions, EFG recently filed an Amended and Supplemental Complaint alleging
further default under the MLA and EFG recently filed a motion for Summary
Judgment on all claims and counterclaims. The Court held a hearing on EFG's
motion in December 1997 and the matter remains pending before the Court. The
Partnership has not experienced any material losses as a result of this action.
-25-
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
-26-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1997, 1996 and 1995
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 associated with equipment
dispositions occurring in the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
Rents earned prior to disposal of
equipment, net of interest charges $ 6,304,322 $ 2,585,344 $ 1,926,993
Sale proceeds realized upon disposition
of equipment 1,041,030 692,766 565,907
------------------ ------------------ ------------------
Total cash generated from rents
and equipment sale proceeds 7,345,352 3,278,110 2,492,900
Original acquisition cost of equipment
disposed 6,190,551 3,249,160 2,199,677
------------------ ------------------ ------------------
Excess of total cash generated to cost
of equipment disposed $ 1,154,801 $ 28,950 $ 293,223
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
-27-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1997
<TABLE>
<CAPTION>
Sales and
Operations Refinancings Total
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net income $ 922,531 $ 652,413 $ 1,574,944
Add:
Depreciation 2,099,722 -- 2,099,722
Management fees 166,417 -- 166,417
Book value of disposed equipment -- 359,061 359,061
Loss on exchange 378,324 -- 378,324
Proceeds on exchange -- 29,556 29,556
Less:
Principal reduction of notes payable (2,145,766) -- (2,145,766)
------------------ ------------------ ------------------
Cash from operations, sales and
refinancings 1,421,228 1,041,030 2,462,258
Less:
Management fees (166,417) -- (166,417)
------------------ ------------------ ------------------
Distributable cash from operations,
sales and refinancings 1,254,811 1,041,030 2,295,841
Other sources and uses of cash:
Cash at beginning of year 1,187,478 -- 1,187,478
Net change in receivables and
accruals (159,389) -- (159,389)
Dividend received 41,752 -- 41,752
Less:
Cash distributions paid -- (845,742) (845,742)
------------------ ------------------ ------------------
Cash at end of year $ 2,324,652 $ 195,288 $ 2,519,940
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
-28-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
SCHEDULE OF COSTS REIMBURSED TO THE
GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 9.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1997
For the year ended December 31, 1997, the Partnership reimbursed the
General Partner and its Affiliates for the following costs:
Operating expenses $ 202,792
-29-
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of American Income Fund I-C, a Massachusetts Limited Partnership of our
report dated March 10, 1998, included in the 1997 Annual Report to the Partners
of American Income Fund I-C.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1998
<PAGE>
EX-99(j)
First Amendment to Master Lease Agreement
FIRST AMENDMENT
TO
MASTER LEASE AGREEMENT
NO. 9106PAG429
This FIRST AMENDMENT dated as of January 17, 1994, between The Helen
Mining Company ("Lessee") and American Finance Group, a Massachusetts general
partnership ("Lessor"), amends Master Lease Agreement No. 9106PAG429 (the
"Master Lease") dated as of June 25, 1991.
WHEREAS, Lessee and Lessor agree that further clarification of certain
provisions of the Master Lease is necessary.
NOW THEREFORE, in consideration of the premises and for good and valuable
consideration, the receipt and adequacy of which is confirmed by each of the
parties hereto, the Master Lease is hereby amended as follows.
1. The following new provision is added to the Master Lease as Section
11A.
"11A SPECIAL MAINTENANCE AND RETURN CONDITIONS
In furtherance, and not in limitation of, the use, maintenance and
return conditions for the Equipment set forth in Section 11 of the Master
Lease, Lessee hereby agrees to return the Equipment to Lessor in
accordance with all of the terms and conditions of the Master Lease and in
compliance with the following special return conditions:
RETURN OF EQUIPMENT
1. The Equipment will be capable of being immediately assembled and
operated by a third party lessee without further inspection, repair,
replacement, alterations or improvements needed.
2. The Equipment shall comply in all respects with all applicable laws
and rules and provisions of all applicable regulatory agencies
having jurisdiction over the use and/or maintenance of the
Equipment.
3. All parts in a state of disrepair will have been replaced with new
or equivalent Original Equipment Manufacturer or comparable parts
and to otherwise comply with the provisions of each Rental
Schedule.
4. All modifications and/or alterations made to the Equipment will be
subject to prior approval of Lessor and such modifications or
alterations must not decrease the value or marketability of the
Equipment. The Equipment will be complete and operational with all
components equal to or better than those originally supplied.
5. The Equipment, if idled, shall be stored in accordance with the
<PAGE>
manufacturers' recommendations. If the Equipment is placed on idle
status by Sublessee, immediate notification to Lessor is required.
6. All markings not associated with the original manufacturer shall be
removed from the Equipment.
7. Upon request of Lessor, Lessee shall provide free storage of the
Equipment or for any parts or components thereof for a period not to
exceed one hundred and twenty (120) days after the expiration of the
Lease Term. During the storage period, Lessee is required to comply
with all provisions of the applicable Rental Schedule, except the
obligation to make monthly Basic Rent payments.
8. The Equipment shall be thoroughly cleaned consistent with the
original condition of delivery. All applicable manufacturer-provided
catalogs and required maintenance/operating logs shall be provided
to Lessor upon expiration of the Lease Term.
INSPECTION PRIOR TO RETURN OF EQUIPMENT
Lessor or its agent is authorized to enter upon Lessee's property,
for the purpose of Equipment inspection to determine the degree of
compliance with aforementioned conditions described herein. All inspection
costs shall be at Lessee's expense. If any item of the Equipment is
returned in any condition other than as specified herein, Lessee shall
immediately advance payment for all repairs and other costs needed to
place the Equipment in the required return condition."
2. As hereby amended, the Master Lease is ratified and confirmed and remains in
full force and effect.
IN WITNESS WHEREOF the parties hereto have caused this First Amendment to Master
Lease Agreement No. 9106PAG429 to be executed and delivered by their duly
authorized representatives as of the date first above written.
AMERICAN FINANCE GROUP THE HELEN MINING COMPANY
(Lessor) (Lessee)
By: /s/ [Illegible] By: /s/ [Illegible]
-------------------------- ----------------------------
Title: Manager Title: Vice Pres.
------------------------ --------------------------
<PAGE>
2931i
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT NO. 9106PAG429 ("Master Lease"), dated as of June
25, 1991 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: Vice
President, Lease Financing Group, as Lessor, and THE HELEN MINING COMPANY, a
Delaware corporation having a principal place of business and address for
purposes of notice hereunder at RD #2, Box 2110, Homer City, Pennsylvania 15748
Attention: President, as Lessee.
1. MASTER LEASE.
This Master Lease sets forth the terms and conditions that govern the
lease by Lessor to Lessee of items of Equipment specified on rental schedules
and acceptance certificates ("Rental Schedules") executed and delivered by the
parties from time to time. Each Rental Schedule incorporates by reference this
Master Lease and specifies the Lease Term, the amount of Basic Rent, the Payment
Dates on which Basic Rent is due (as such terms are defined therein), 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, unless the lease is extended in accordance
with the terms of this Master Lease. Lessee cannot, except as expressly set
forth in this Master Lease, terminate the Rental Schedule or suspend payment or
performance of any of its obligations thereunder. Provided no Event of Default
has occured and is continuing 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 or before the
Payment Dates specified in the Rental Schedule. Lessor will excercise it best
efforts to invoice Lessee thirty (30) days prior to each Payment Date, but
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, strict
liability in tort, patent infringement and the like), 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. Each Rental
Schedule is an irrevocable, absolute, net lease, and Lessee's obligations are
not subject to defense, counterclaim, set-off, abatement or recoupment, and
Lessee waives all rights to terminate or surrender the Rental Schedule, for any
reason except as expressly set forth in
<PAGE>
this Master Lease, including, without limitation, defect in the Equipment or
non-performance 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 event of breach or non-performance 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 for the Lease
Term and any renewals thereof any assignable manufacturer or vendor warranties
with respect to the Equipment and will cooperate with Lessee, at Lessee's
expense, in asserting any claims under such warranties.
Lessee acknowledges that each Rental Schedule shall be 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
applicable 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"). If Lessor shall
lose or shall not have the right to claim, or if there shall be disallowed or
recaptured, any or all of such Tax Benefits as a result of any act, omission,
misrepresentation or failure to act by Lessee, any sublessee, or any other
person authorized by the Lessee to use or maintain the Equipment, Lessee shall
pay to Lessor as additional rent (a) an amount equal to the actual disallowed
Tax Benefits 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 by paid by the Lessor or its assigns
under any federal, state and local law upon receipt of any of the foregoing
indemnities.
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 substantial
compliance with all applicable laws, rules and regulations, manufacturers' or
vendors' warranties and applicable policies of insurance. Lessee will obtain and
maintain all necessary licenses, permits and approvals. The Equipment may be
removed from the location specified on the Rental Schedule to a location within
the contiguous United States only upon thirty (30) days' prior written notice to
Lessor. In no event may the Equipment be moved to a location outside the 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
<PAGE>
sublease is for a term not longer than the Lease Term, is not made to a
tax-exempt entity or govermental 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, which consent shall not be unreasonably withheld or
delayed, replace the Equipment suffering a Casualty with similar equipment of at
least equal value and utility, assuming the replaced Equipment was in the
condition of maintenance and repair required under this Master Lease, and Lessor
will convey title to the replaced Equipment to Lessee, as is, where is and with
all faults, free of liens and encumbrances created by Lessor. 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 Casualty Value thereof specified on the Rental
Schedule. 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.
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 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. If Lessee is eligible for a tax exemption
or abatement for sales, use or other taxes that would otherwise apply under this
Section, Lessee shall furnish Lessor an appropriate tax exemption or abatement
certificate and other reasonable evidence thereof not later than the date of
execution of the Commencement Date of the Rental Schedule.
<PAGE>
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 $5,000,000 per occurrence, in each case with
deductibles not in excess of $500,000. All policies (A) are to be maintained
with insurers reasonably 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 the insurance carrier will endeavor to provide
thirty days prior written notice to Lessor and each of Lessor's assignees named
as additional insured and loss payee in the event of alteration or cancellation.
Lessee agrees to deliver to Lessor such certificates of insurance as Lessor may,
from time to time, reasonably request. Lessor may hold any 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.
8. FINANCIAL STATEMENTS. INSPECTION. REPORTS.
Lessee will provide to Lessor copies of Lessee's annual balance sheet,
profit and loss statement and statement of cash flow, 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. Lessee will, if requested, provide a
report on the condition of the Equipment, a record of its maintenance and
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; each Rental Schedule is intended to be a
"finance lease" as that term is defined in Article 2A of the Uniform Commercial
Code. 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 further 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.
<PAGE>
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, if there is no such financing outstanding, 2% per annum above
the prime lending rate of The First National Bank of Boston, as announced from
time to time) or (B) 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 not less than all items of Equipment leased pursuant to a Rental
Schedule, (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 return or purchase the Equipment or renew the Rental
Schedule not less than 120 days prior to the Expiration Date. If Lessee fails to
give Lessor 120 days written notice, the Lease Term may, at Lessor's option, be
extended and continue until 120 days from the date Lessor receives written
notice of Lessee's decision to purchase or return the Equipment or renew the
Rental Schedule. If Lessee elects to purchase the Equipment, Lessor shall convey
title to the Equipment (together with manufacturer or vendor warranties, if any)
free of liens and encumbrances created by Lessor, as is, where is and with all
faults. Fair market value and fair rental value shall mean an amount which would
obtain in an arm's-length transaction between an informed and willing buyer-user
or lessee (other than a dealer) and an informed and willing seller or lessor
under no compulsion to sell or lease (assuming for this purpose that the
Equipment shall have been maintained in accordance with this Master Lease and
disregarding costs of removal from the location of current use) and will be
determined by agreement of Lessor and Lessee, or if the parties cannot agree, by
an independent equipment appraiser of nationally recognized standing,
experienced in evaluating equipment of the same type as the Equipment, mutually
acceptable to both Lessee and 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,
unless Lessee has elected to purchase the Equipment, Lessee will, at its
expense, assemble, pack, and crate the 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 one
thousand (1,000) miles of its then current location. 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 (hereinafter, together with any
specific return conditions set forth in the Rental Schedule, the "Minimum Return
Conditions"). Lessor may, but is not required to, inspect the Equipment prior
<PAGE>
to its return. If, upon inspection, Lessor determines that the Equipment does
not conform to the Minimum Return Conditions, Lessor will promptly notify Lessee
of such determination, specifying the repairs or refurbishments needed to place
the Equipment in the Minimum Return Condition. Lessor may, at its option, either
require Lessee to effect such repairs or itself effect such repairs. Lessor may
re-inspect the Equipment and require further repairs as often as necessary until
the Equipment is placed in the Minimum Return Conditions. 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 as conforming with
the Minimum Return Conditions.
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 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 enforceablility of the Rental
Schedule;
(b) the Rental Schedule, this Master Lease and all related documents have been
duly authorized, executed and delivered by Lessee, are enforceable against
Lessee in accordance with their terms and do not and will not contravene
any provisions of or constitute a default under Lessee's organizational
documents or its By Laws, 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;
(c) Lessor's right, title and interest in and to the Rental Schedule, this
Master Lease 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 as incorporated therein by reference;
(e) there are no suits or proceedings pending or 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 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.
<PAGE>
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 ten days;
(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 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 as incorporated therein by reference or in
any document or certificate furnished in connection herewith shall at any
time prove to have been 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 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, Lessor may declare
immediately due and payable, and receive from Lessee and sue to enforce
the payment thereof, as liquidated damages for loss of the bargain and not
as a penalty, in addition to all accrued and unpaid Basic Rent and other
sums then due under the Rental Schedule, either:
(a) all Basic Rent and other sums due or to become due under the Rental
Schedule, discounted to present value at an annual rate of 6% as of the
date of Lessor's receipt thereof; or
<PAGE>
(b) 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, at its option, either pay over to Lessee, as, when and
if received, any net proceeds (after all costs and expenses) from any
disposition of the Equipment, or 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. without regard to whether Lessor has elected either option in subsection I
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 (including the Lessee's obligation to pay Basic Rent, provided
Lessor has not received the full liquidated damages elected under
subsection I above) and to recover damages for the breach thereof; and
(b) terminate the Rental Schedule by written notice to Lessee, whereupon,
unless Lessor has elected to convey title to the Equipment to Lessee in
accordance with subsection I above, 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) unless Lessor has elected to convey title to the Equipment to Lessee
in accordance with subsection I above, repossess the Equipment and dispose
of it by private or public, cash or credit sale or by lease to a different
lessee, in all events free and 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
(d) recover from Lessee all costs and expenses arising out of Lessee's
default, including, without limitation, expenses of repossession, storage,
appraisal, repair, reconditioning and disposition of the Equipment and
reasonable attorneys' fees and expenses.
Lessor's remedies are, except as indicated herein, cumulative and not exclusive,
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 as incorporated therein by reference,
in each case subject and subordinate to Lessee's rights thereunder, without
notice to or consent by Lessee. No such assignment shall relieve Lessor of its
obligations hereunder unless Lessee is notified thereof to the contrary. Lessee
acknowledges that Lessor may assign the Rental Schedule to a
<PAGE>
Lender in connection with the financing of Lessor's purchase or the Equipment
and Lessee agrees, in the event of such assignment, to execute and deliver an
acknowledgment letter confirming 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 any defense, counterclaim, 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 it 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. ARBITRATION.
In the event that any dispute arises under this Master Lease or the Rental
Schedule, including, without limitation, any claim of default or breach of a
covenant or representation hereunder, either party in the case of a dispute, or
the claiming party in the case of a claim of default or breach, shall submit the
matter for arbitration in Pittsburgh, Pennsylvania, by and pursuant to the rules
of the American Arbitration Association ("AAA"). The arbitrator who hears the
case will be selected by AAA and AAA shall be advised that the parties have
agreed in advance that any matter submitted to AAA for resolution shall be heard
in a reasonably expeditious manner. The powers of the arbitrator shall expressly
include both the right to issue injunctive orders and to order the payment of
money damages. The resolution of the matter by arbitration shall be binding upon
the parties and judgment upon the award of the arbitrator may be entered in any
court of competent jurisdiction. Costs of arbitration and legal fees shall be
awarded to a prevailing party; provided, however, that the arbitrator shall have
the power to make a different allocation of costs and legal fees whenever it is
fair or reasonable to do so as determined by the arbitrator. Notwithstanding
anything contained herein to the contrary, this Section shall not be binding
upon any lender.
16. MERGERS, CONSOLIDATIONS, LEVERAGED BUY-OUTS INVOLVING LESSEE.
Lessee acknowledges and agrees that Lessor has entered into this Master
Lease and each Rental Schedule on the basis of Lessee's creditworthiness. In the
event that Lessee, without Lessor's prior written consent, which consent shall
not be unreasonably withheld or delayed, (i) is a party to a merger or
consolidation, (ii) sells or transfers, singly or in a series of related
transactions, all or substantially all of its assets other than its rights and
obligations under the Rental Schedule, or (iii) purchases, singly or in a series
of related transactions, a substantial portion of its stock, and Lessee's
creditworthiness suffers a material decline as a result of any of the foregoing
transactions, then Lessor may, in its reasonable discretion, demand in writing
that Lessee purchase all of the Equipment subject to the Rental Schedule on the
next Rent Payment Date for an amount equal to the applicable Casualty Value of
the Equipment and, upon receipt by Lessor in good funds of an amount equal to
such Casualty Value and all other sums due and payable under the Rental Schedule
through the date of such receipt (provided that no Event of Default has occurred
and is continuing under the Rental Schedule), Lessor shall deliver to Lessee a
bill of sale conveying title to the Equipment free and clear of any liens and
encumbrances created by Lessor but otherwise on an as-is, where-is basis, with
all faults. For purposes of the foregoing sentence, a "material decline" in
Lessee's creditworthiness shall mean a downgrading of the public debt rating
assigned to Lessee by Moody's Investors
<PAGE>
Services, Inc., Standard & Poors Corporation or another reputable rating agency
acceptable to Lessor or, if Lessee has no such credit rating, a material decline
in Lessee's creditworthiness objectively and reasonably determined by Lessor.
17. MISCELLANEOUS.
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 or to the Guarantor at 255 Elm Street, P.O. Box 989,
Oil City, Pennsylvania 16301. THIS MASTER LEASE AND THE RENTAL SCHEDULE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS. This Master Lease and the Rental Schedule may be executed in
multiple counterparts all of which together shall constitute one and the same
instrument. Any provision of this Master Lease or the Rental Schedule that is
unenforceable in any jurisdiction shall, as to such jurisdiction only, be
ineffective to the extent of such unenforceability without invalidating or
diminishing Lessor's rights under the remaining provisions hereof. No term or
provision of this Master Lease or the Rental Schedule may be amended, altered,
modified, rescinded or waived orally, but only by an instrument in writing
signed by a duly authorized officer of the party against which enforcement of
such amendment, alteration, modification, rescission or waiver is sought. This
Master Lease, the Rental Schedule, and each instrument, document, agreement and
certificate furnished in connection therewith collectively consititute the
complete and exclusive statement of the terms of the agreement between Lessor
and Lessee with respect to the acquisition and leasing of the Equipment, and
cancel and supercede any and all oral or written prior understandings with
respect thereto.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Master Lease to be
executed and delivered by their duly authorized representatives as of the date
first above written.
AMERICAN FINANCE GROUP THE HELEN MINING COMPANY
By: [Illegible] By: /s/ David E. Lung
------------------------ ---------------------------------
David E. Lung
Title: Vice President Title: Vice President
------------------------ ------------------------------
<PAGE>
EXHIBIT A
RENTAL SCHEDULE
AND
ACCEPTANCE CERTIFICATE
NO._______
This RENTAL SCHEDULE AND ACCEPTANCE CERTIFICATE, dated as
of_____________________, between American Finance Group, ("Lessor") and The
Helen Mining Company ("Lessee") incorporates by reference the terms and
conditions of Master Lease Agreement No. 9106PAG429 dated as of June 25, 1991
(the "Master Lease"). Lessor hereby leases to Lessee and Lessee hereby leases
from Lessor the following described items of Equipment for the Lease Term and at
the Basic Rent payable on the Payment Dates hereinafter set forth, on the terms
and conditions set forth in the Master Lease.
1. EQUIPMENT
<TABLE>
<CAPTION>
Description
(Manufacturer,
Item Type, Model and Equipment Acceptance
No. Serial Number) Cost Location Date
- --- -------------- --------- -------- ----------
<S> <C>
TOTAL EQUIPMENT COST: $_____________
</TABLE>
Lessee Billing Location: ___________________
___________________
___________________
2. LEASE TERM
The Lease Term is for an Interim Term commencing on the date of acceptance
of the Equipment for lease, as set forth above, and continuing through and
including ________________________ and for a Primary Term of _____ months,
commencing on _________ and continuing through and including the Expiration Date
of ______________________.
3. BASIC RENT. PAYMENT DATES.
Interim Term Basic Rent in the amount of $________________ is due and
payable in full on the first day of the Primary Term. Basic Rent for the first
_____ months of the Primary Term is due and payable in ______ payments of
$__________________ each commencing on ________________ and continuing
________________________ thereafter, through and including ________________.
Basic Rent for the final _____ months of the Primary Term is due and payable in
_____ payments of $_____________ each commencing on ________________ and
continuing through and including ______________ . Lessee shall also pay to
Lessor $_________ as reimbursement for fees owed by Lessor relating to Uniform
Commercial Code Financing Statements to be filed in connection with the
acquistion of the Equipment. Such fees shall be due and payable on
_______________________.
Per Diem Lease Rate:________________Periodic Lease Rate:_______________.
<PAGE>
RENTAL SCHEDULE
AND
ACCEPTANCE CERTIFICATE
NO._______
PAGE TWO
4. SPECIAL MAINTENANCE AND RETURN CONDITIONS.
**TO BE INSERTED DEPENDING UPON EQUIPMENT TYPE**
5. ACCEPTANCE CERTIFICATE
Lessee hereby represents, warrants and certifies (a) that the Equipment
described herein has been delivered to and inspected and found satisfactory by
Lessee and is accepted for Lease by Lessee under this Rental Schedule and the
Master Lease as incorporated herein by reference, as of the Acceptance Date set
forth above; (b) all items of Equipment are new and unused as of the Acceptance
Date, except as otherwise specified above, and (c) the representations and
warranties of Lessee set forth in the Master Lease are true and correct as of
the date hereof.
6. ENTIRE AGREEMENT. MODIFICATION AND WAIVERS. EXECUTION IN COUNTERPARTS.
This Rental Schedule and the Master Lease constitute the entire agreement
between Lessee and Lessor with respect to the leasing of the Equipment. To the
extent any of the terms and conditions set forth in this Rental Schedule
conflict with or are inconsistent with the Master Lease, this Rental Schedule
shall govern and control. No amendment, modification or waiver of this Rental
Schedule or the Master Lease will be effective unless evidenced by a writing
signed by the party to be charged. This Rental Schedule may be executed in
counterparts, all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF the parties hereto have caused this Rental Schedule and
Acceptance Certificate to be executed and delivered by their duly authorized
representatives as of the date first above written.
AMERICAN FINANCE GROUP THE HELEN MINING COMPANY
Lessor Lessee
By By
---------------------------- -----------------------------------
David E. Lung
Title Title Vice President
------------------------ --------------------------------
COUNTERPART NO. ____ OF 3 SERIALLY NUMBERED MANUALLY EXECUTED
COUNTERPARTS. TO THE EXTENT IF ANY THAT THIS DOCUMENT CONSTITUTES CHATTEL
PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST MAY BE
CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN
COUNTERPART NO. 1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,519,940
<SECURITIES> 156,573
<RECEIVABLES> 1,003,111
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,679,624
<PP&E> 16,828,979
<DEPRECIATION> 8,365,735
<TOTAL-ASSETS> 12,142,868
<CURRENT-LIABILITIES> 252,554
<BONDS> 4,401,753
0
0
<COMMON> 0
<OTHER-SE> 7,488,561
<TOTAL-LIABILITY-AND-EQUITY> 12,142,868
<SALES> 0
<TOTAL-REVENUES> 4,429,306
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,466,809
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 387,553
<INCOME-PRETAX> 1,574,944
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,574,944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,574,944
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
