<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 0-20030
------------------------
AMERICAN INCOME FUND I-D, A MASSACHUSETTS LIMITED
PARTNERSHIP
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3122696
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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
------------------------
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
---------------------------------------- ---------------------------------
Securities registered pursuant to Section 12(g) of the Act:
829,521.30 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 /X/ 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.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1998 (Part I and II)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
PART I
Item 1. Business...................................................................................... 3
Item 2. Properties.................................................................................... 4
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................... 5
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............................... 13-14
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS.
(a) General Development of Business
AMERICAN INCOME FUND I-D, a Massachusetts Limited Partnership, (the
"Partnership") was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on May 30, 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 August 30, 1991 the
Partnership issued 829,521.30 units of limited partnership interest (the
"Units") to 1,234 investors. Included in the 829,521.30 units are 1,572.30 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 known as 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 undiscounted noncancellable rents equal or exceed the acquisition cost
of the leased equipment. Operating leases are those in which the aggregate
undiscounted noncancellable rental payments are less than the acquisition cost
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 were to acquire and lease
equipment that would:
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 August 30,
1991. Significant operations commenced coincident with the Partnership's initial
purchase of equipment and the associated lease commitments on August 30, 1991.
The acquisition of the equipment and its associated leases is described in Note
3 to the financial statements included in Item 14, herein. The Restated
Agreement, as amended, provides that the Partnership will terminate no later
than December 31, 2002. However, the Partnership is a Nominal Defendant in a
Class Action Lawsuit, the outcome of which could significantly 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
3
<PAGE>
such services as provided for in the Restated Agreement, as amended, described
in 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 insufficient to provide an acceptable rate of return on
invested capital after payment of all debt service costs and operating expenses.
In addition, the leasing industry is very competitive. The Partnership is
subject to considerable competition when equipment is re-leased or sold at the
expiration of primary lease terms. The Partnership must 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. In addition, 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 anticipated revenue.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1998, 1997 and 1996 is
incorporated herein by reference to Note 2 to the financial statements in the
1998 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
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, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Mr. Engle
established Equis Corporation and GDE LP in December 1994 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.
ITEM 2. PROPERTIES.
Incorporated herein by reference to Note 3 to the financial statements in
the 1998 Annual Report.
4
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
Incorporated herein by reference to Note 8 to the financial statements in
the 1998 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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, 1998, there were 1,179 record holders in the Partnership.
(c) Dividend History and Restrictions
Pursuant to Article VI of the Restated Agreement, as amended, the amount of
cash distributions to be declared and paid to the Partners is determined on a
quarterly basis. Each quarter's distribution may vary in amount and is made 95%
to the Limited Partners and 5% to the General Partner. Generally, cash
distributions are paid within 30 days after the completion of each calendar
quarter.
Distributions in 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
GENERAL LIMITED
TOTAL PARTNER PARTNERS
------------ --------- ------------
<S> <C> <C> <C>
Total 1998 distributions................................................... $ 654,886 $ 32,744 $ 622,142
Total 1997 distributions................................................... 818,606 40,930 777,676
------------ --------- ------------
Total................................................................ $ 1,473,492 $ 73,674 $ 1,399,818
------------ --------- ------------
------------ --------- ------------
</TABLE>
Distributions payable were $163,722 at both December 31, 1998 and 1997.
There are no formal restrictions under the Restated Agreement, as amended,
that materially limit the Partnership's ability to pay cash distributions,
except that the General Partner may suspend or limit cash distributions to
ensure that the Partnership maintains sufficient working capital reserves to
cover, among other things, operating costs and potential expenditures, such as
refurbishment costs to remarket equipment upon lease expiration. Liquidity is
especially important as the Partnership matures and sells equipment, because the
remaining equipment base consists of fewer revenue-producing assets that are
available to cover prospective cash disbursements. Insufficient liquidity could
inhibit the Partnership's ability to sustain its operations or maximize the
realization of proceeds from remarketing its remaining assets. In particular,
the Partnership must contemplate the potential liquidity risks associated with
its investment in commercial jet aircraft. The management and remarketing of
aircraft can involve, among other things, significant costs and lengthy
remarketing initiatives.
Although the Partnership's lessees are required to maintain the aircraft
during the period of lease contract, repair, maintenance, and/or refurbishment
costs at lease expiration can be substantial. For example, an aircraft that is
returned to the Partnership meeting minimum airworthiness standards, such as
flight hours or engine cycles, nonetheless may require heavy maintenance in
order to bring its engines, airframe and other hardware up to standards that
will permit its prospective use in commercial air transportation. Individually,
these repairs can cost in excess of $1 million and, collectively, they could
require the disbursement of several million dollars, depending upon the extent
of refurbishment. In
5
<PAGE>
addition, the Partnership's equipment portfolio includes an interest in three
Stage 2 aircraft having scheduled lease expiration dates of December 31, 1999.
These aircraft are prohibited from operating in the United States after December
31, 1999 unless they are retro-fitted with hush-kits to meet Stage 3 noise
regulations promulgated by the Federal Aviation Administration. The cost to
hush-kit an aircraft, such as the Partnership's Boeing 737s, can approach $2
million. Although the Partnership is not required to retro-fit its aircraft with
hush-kits, insufficient liquidity could jeopardize the re-marketing of these
aircraft and risk their disposal at a depressed value at a time when a better
economic return would be realized from refurbishing the aircraft and re-leasing
them to another user. Collectively, the aggregation of the Partnership's
potential liquidity needs related to aircraft and other working capital
requirements could be significant. Accordingly, the General Partner has
maintained significant cash reserves within the Partnership in order to minimize
the risk of a liquidity shortage, particularly in connection with the
Partnership's aircraft interests.
Finally, the Partnership is a Nominal Defendant in a Class Action Lawsuit
described in Note 8 to the accompanying financial statements. A preliminary
settlement agreement will allow the Partnership to invest in new equipment or
other activities, subject to certain limitations, effective March 22, 1999. To
the extent that the Partnership continues to own aircraft investments that could
require capital reserves, the General Partner does not anticipate that the
Partnership will invest in new assets, regardless of its authority to do so.
Until the Class Action Lawsuit is adjudicated, the General Partner does not
expect that the level of future quarterly cash distributions paid by the
Partnership will be increased above amounts paid in the fourth quarter of 1998.
In addition, the proposed settlement, if effected, will materially change the
future organizational structure and business interests of the Partnership, as
well as its cash distribution policies. See Note 8 to the accompanying financial
statements.
Cash distributions consist of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings.
"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.
"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
6
<PAGE>
whether or not then due and payable) and (b) general expenses and current
liabilities from 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.
"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.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated herein by reference to the section entitled "Selected Financial
Data" in the 1998 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
1998 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1998 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. The
Limited Partners have no right to participate in the control of the
Partnership's general operations, but they do have certain voting rights, as
described in Item 12 herein. The names, titles and ages of the Directors and
Executive Officers of the General Partner as of March 15, 1999 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 Executive Until a successor is
Committee of EFG and President and a Director duly elected and
of the General Partner 50 qualified
Gary D. Engle President and Chief Executive Officer and
member of the Executive Committee of EFG 50
Gary M. Romano Executive Vice President and Chief Operating
Officer of EFG and Clerk of the General
Partner 39
James A. Coyne Executive Vice President of EFG 38
Michael J. Butterfield Senior Vice President, Finance and Treasurer
of EFG and Treasurer of the General Partner 39
Sandra L. Simonsen Senior Vice President, Information Systems of
EFG 48
Gail D. Ofgant Senior Vice President, Lease Operations of
EFG 33
</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
Mr. MacDonald, age 50, 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 was also 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
8
<PAGE>
EFG's predecessors, Mr. MacDonald held various executive and management
positions in the leasing and pharmaceutical industries. Mr. MacDonald holds a
M.B.A. from Boston College and a B.A. degree from the University of
Massachusetts (Amherst).
Mr. Engle, age 50, is President and Chief Executive Officer of EFG and sole
shareholder and Director of its general partner, Equis Corporation and a member
of the Executive Committee of EFG and President of AFG Realty Corporation. Mr.
Engle joined EFG in 1990 as Executive Vice President and acquired control of EFG
and its subsidiaries in December 1994. Mr. Engle is Vice President and a
Director of certain of EFG's subsidiaries and affiliates, a limited partner in
AALP and ONC and controls the general partners of AALP and ONC. Mr. Engle is
also Chairman, Chief Executive Officer, and a member of 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 a MBA from Harvard University and a BS degree from the University
of Massachusetts (Amherst).
Mr. Romano, age 39, became Executive Vice President and Chief Operating
Officer of EFG, and Secretary of Equis Corporation in 1996 and is Secretary or
Clerk of several of EFG's subsidiaries and affiliates. Mr. Romano joined EFG in
November 1989, became Vice President and Controller in April 1993 and Chief
Financial Officer in April 1995. Mr. Romano assumed his current position in
April 1996. Mr. Romano is also Vice President and Chief Financial Officer of
Semele. Prior to joining EFG, Mr. Romano was Assistant Controller for a
privately held real estate development and mortgage origination company that he
joined in 1987. Previously, Mr. Romano was an Audit Manager at Ernst & Whinney
(now Ernst & Young LLP), where he was employed from 1982 to 1986. Mr. Romano is
a Certified Public Accountant and holds a B.S. degree from Boston College.
Mr. Coyne, age 38, is Executive Vice President, Capital Markets of EFG and
President, Chief Operating Officer and a member of the Board of Directors of
Semele. 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. From May 1993
through November 1994, he was employed by 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 39, is Senior Vice President, Finance and Treasurer of
EFG and certain of its affiliates and is Treasurer of the General Partner and
Semele. Mr. Butterfield joined EFG in June 1992, became Vice President, Finance
and Treasurer of EFG and certain of its affiliates in April 1996 and was
promoted to Senior Vice President, Finance and Treasurer of EFG and certain of
its affiliates in July 1998. 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
(UK) 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 CPA requirements in the United States. He holds a
Bachelor of Commerce degree from the University of Otago, Dunedin, New Zealand.
Ms. Simonsen, age 48, 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.
9
<PAGE>
Ms. Simonsen provided systems consulting for a subsidiary of American
International Group and authored a software program published by IBM. Ms.
Simonsen holds a BA degree from Wilson College.
Ms. Ofgant, age 33, is Senior Vice President, Lease Operations of EFG and
certain of its affiliates. Ms. Ofgant joined EFG in July 1989, was promoted to
Manager Lease Operations in April 1994, and became Vice President of Lease
Operations in April 1996. In July 1998, Ms. Ofgant was promoted to Senior Vice
President of Lease Operations. Prior to joining EFG, Ms. Ofgant was employed by
Security Pacific National Trust Company. Ms. Ofgant holds a BS 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 has
voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
10
<PAGE>
3. Removal of the General Partner; and
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).
No person or group is known by the General Partner to own beneficially more
than 5% of the Partnership's 829,521.30 outstanding Units as of March 1, 1999.
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,
1998, 1997 and 1996, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Equipment management fees.................................................... $ 124,824 $ 165,486 $ 154,069
Administrative charges....................................................... 66,480 62,544 39,024
Reimbursable operating expenses due to third parties......................... 410,833 149,048 164,555
---------- ---------- ----------
Total.................................................................. $ 602,137 $ 377,078 $ 357,648
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include acquisition and
management 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 5% of gross
operating lease rental revenues and 2% of gross full payout lease rental revenue
received by the Partnership. Both acquisition and management fees are 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 at actual cost.
All equipment was purchased from EFG, one of its affiliates or from
third-party sellers. The Partnership's acquisition cost was 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 $2,351,036 consisting of common stock in Semele valued at
$611,955, a note receivable from Semele of $898,405 and cash of $840,676. 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, 1998, the Partnership was owed $63,066 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in January
1999.
11
<PAGE>
Certain affiliates of the General Partner own Units in the Partnership as
follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
AFFILIATE UNITS OWNED OUTSTANDING UNITS
- ------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Atlantic Acquisition Limited Partnership 35,049 4.23%
Old North Capital Limited Partnership 1,511 0.18%
</TABLE>
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC") are both Massachusetts limited partnerships formed
in 1995 and affiliates of EFG. The general partners of AALP and ONC are
controlled by Gary D. Engle. In addition, the limited partnership interests of
ONC are owned by Semele Group, Inc. ("Semele"). Gary D. Engle is Chairman and
CEO of Semele.
During 1996, the Partnership received payment in full from EFG of a note and
accrued interest thereon which was beneficially assigned to the Partnership in
1994 by a former affiliate of AFG as partial consideration for the exchange of
certain intermodal cargo containers.
(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.
<TABLE>
<S> <C> <C> <C>
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors................................................. *
Statement of Financial Position at December 31, 1998 and 1997.................. *
Statement of Operations for the years ended December 31, 1998, 1997 and 1996... *
Statement of Changes in Partners' Capital for the years ended December 31,
1998, 1997 and 1996............................................................ *
Statement of Cash Flows for the years ended December 31, 1998, 1997 and 1996... *
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.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------------
<C> <S>
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 1998 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 Gearbulk Shipowning Ltd (formerly Kristian Gerhard Jebsen Skipsrederi A/S) was
filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 as Exhibit
28 (e) and is incorporated herein by reference.
99(b) 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(c) 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 (e) and is incorporated herein by reference.
</TABLE>
- ------------------------
* Incorporated herein by reference to the appropriate portion of the 1998
Annual Report to security holders for the year ended December 31, 1998 (see
Part II).
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------------
<C> <S>
99(d) 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(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 (g) 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 (h) and is incorporated herein by reference.
99(g) Lease agreement with Finnair OY, was filed in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 as Exhibit 99 (i) and is incorporated herein by reference.
99(h) Lease agreement with Finnair OY, was filed in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 as Exhibit 99 (j) and is incorporated herein by reference.
99(i) Lease agreement with Reno Air, Inc. was filed in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 as Exhibit 99 (k) and is incorporated herein by reference.
99(j) Lease agreement with Trans Ocean Container Corporation is filed in the Registrants Annual Report on
Form 10-K for the year ended December 31,1998 and is included herein.
</TABLE>
(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.
<TABLE>
<S> <C> <C>
AMERICAN INCOME FUND I-D,
a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated
-----------------------------------------
a Massachusetts corporation and the
General Partner of the Registrant.
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ GEOFFREY A. MACDONALD By: /s/ GARY D. ENGLE
---------------------------------------- ----------------------------------------
Geoffrey A. MacDonald Gary D. Engle
CHAIRMAN AND A MEMBER OF THE EXECUTIVE PRESIDENT AND CHIEF EXECUTIVE OFFICER AND
COMMITTEE OF EFG AND PRESIDENT AND A A MEMBER OF THE EXECUTIVE COMMITTEE OF
DIRECTOR OF THE GENERAL PARTNER EFG (PRINCIPAL EXECUTIVE OFFICER)
Date: March 30, 1999 Date: March 30, 1999
By: /s/ GARY M. ROMANO By: /s/ MICHAEL J. BUTTERFIELD
---------------------------------------- ----------------------------------------
Gary M. Romano Michael J. Butterfield
EXECUTIVE VICE PRESIDENT AND CHIEF SENIOR VICE PRESIDENT, FINANCE AND
OPERATING OFFICER OF EFG AND CLERK OF THE TREASURER OF EFG AND TREASURER OF THE
GENERAL PARTNER (PRINCIPAL FINANCIAL GENERAL PARTNER (PRINCIPAL ACCOUNTING
OFFICER) OFFICER)
Date: March 30, 1999 Date: March 30, 1999
</TABLE>
15
<PAGE>
AMERICAN INCOME FUND I
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
ANNUAL REPORT TO THE PARTNERS, DECEMBER 31, 1998
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
INDEX TO ANNUAL REPORT TO THE PARTNERS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SELECTED FINANCIAL DATA................................................................................... 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 3-9
FINANCIAL STATEMENTS:
Report of Independent Auditors............................................................................ 10
Statement of Financial Position at December 31, 1998 and 1997............................................. 11
Statement of Operations for the years ended December 31, 1998, 1997 and 1996.............................. 12
Statement of Changes in Partners' Capital for the years ended December 31, 1998, 1997 and 1996............ 13
Statement of Cash Flows for the years ended December 31, 1998, 1997 and 1996.............................. 14
Notes to the Financial Statements......................................................................... 15-27
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash Generated to Cost of Equipment Disposed..................... 28
Statement of Cash and Distributable Cash From Operations, Sales and Refinancings.......................... 29
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................................... 30
</TABLE>
<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, 1998:
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS 1998 1997 1996 1995 1994
- ------------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Lease revenue........................ $ 2,695,965 $ 4,364,091 $ 4,939,781 $ 5,241,427 $ 6,614,391
Net income (loss).................... $ 439,380 $ 1,143,233 $ 820,414 $ (750,100) $ (367,325)
Per Unit:
Net income (loss).................. $ 0.50 $ 1.31 $ 0.94 $ (0.86) $ (0.42)
Cash distributions................. $ 0.75 $ 0.94 $ 1.00 $ 1.25 $ 2.56
<CAPTION>
FINANCIAL POSITION
- -------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets......................... $ 13,946,980 $ 14,869,863 $ 17,364,360 $ 14,975,028 $ 17,974,840
Total long-term obligations.......... $ 4,192,148 $ 5,334,349 $ 7,780,603 $ 5,303,736 $ 6,225,806
Partners' capital.................... $ 9,200,096 $ 9,191,217 $ 9,090,975 $ 9,143,742 $ 10,985,318
</TABLE>
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1997 AND THE YEAR ENDED DECEMBER 31, 1997
COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Certain statements in this annual report of American Income Fund I-D, 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, the collection of all rents due under the Partnership's
lease agreements and the remarketing of the Partnership's equipment
YEAR 2000 ISSUE
The Year 2000 Issue generally refers to the capacity of computer programming
logic to correctly identify the calendar year. Many companies utilize computer
programs or hardware with date sensitive software or embedded chips that could
interpret dates ending in "00" as the year 1900 rather than the year 2000. In
certain cases, such errors could result in system failures or miscalculations
that disrupt the operations of the affected businesses. The Partnership uses
information systems provided by EFG and has no information systems of its own.
EFG has adopted a plan to address the Year 2000 Issue that consists of four
phases: assessment, remediation, testing, and implementation and has elected to
utilize principally internal resources to perform all phases. EFG completed
substantially all of its Year 2000 project by December 31, 1998 at an aggregate
cost of less than $50,000 and at a di minimus cost to the Partnership. Remaining
items are expected to be minor and be completed by March 31, 1999. All costs
incurred in connection with EFG's Year 2000 project have been expensed as
incurred.
EFG's primary information software was coded by IBM at the point of original
design to use a four digit field to identify calendar year. All of the
Partnership's lease billings, cash receipts and equipment remarketing processes
are performed using this proprietary software. In addition, EFG has gathered
information about the Year 2000 readiness of significant vendors and third party
servicers and continues to monitor developments in this area. All of EFG's
peripheral computer technologies, such as its network operating system and
third-party software applications, including payroll, depreciation processing,
and electronic banking, have been evaluated for potential programming changes
and have required only minor modifications to function properly with respect to
dates in the year 2000 and thereafter. EFG understands that each of its and the
Partnership's significant vendors and third-party servicers are in the process,
or have completed the process, of making their systems Year 2000 compliant.
Substantially all parties queried have indicated that their systems would be
Year 2000 compliant by the end of 1998.
Presently, EFG is not aware of any outside customer with a Year 2000 Issue
that would have a material effect on the Partnership's results of operations,
liquidity, or financial position. The Partnership's equipment leases were
structured as triple net leases, meaning that the lessees are responsible for,
among other things, (i) maintaining and servicing all equipment during the lease
term, (ii) ensuring that all equipment functions properly and is returned in
good condition, normal wear and tear excepted, and (iii) insuring the assets
against casualty and other events of loss. Non-compliance with lease terms on
the part of a lessee, including failure to address Year 2000 Issues, could
result in lost revenues and impairment of residual values of the Partnership's
equipment assets under a worst-case scenario.
EFG believes that its Year 2000 compliance plan will be effective in
resolving all material Year 2000 risks in a timely manner and that the Year 2000
Issue will not pose significant operational problems with respect to its
computer systems or result in a system failure or disruption of its or the
Partnership's
3
<PAGE>
business operations. However, EFG has no means of ensuring that all customers,
vendors and third-party servicers will conform ultimately to Year 2000
standards. The effect of this risk to the Partnership is not determinable.
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 of business. Presently, the Partnership is a
Nominal Defendant in a Class Action Lawsuit, the outcome of which could
significantly alter the nature of the Partnership's organization and its future
business operations. See Note 8 to the accompanying financial statements.
Pursuant to the Restated Agreement, as amended, the Partnership is scheduled to
be dissolved by December 31, 2002.
RESULTS OF OPERATIONS
For the year ended December 31, 1998, the Partnership recognized lease
revenue of $2,695,965 compared to $4,364,091 and $4,939,781 for the years ended
December 31, 1997 and 1996, respectively. The decrease in lease revenue from
1996 to 1998 reflects the effects of lease term expirations and the sale or
exchange of equipment, including the vessel exchange in 1997 discussed below. In
1997 and 1996, the Partnership had recognized lease revenue from the vessel of
$1,045,105 and $1,062,911, respectively. Partially offsetting the decrease from
1996 to 1997 was 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 (the "United Aircraft"), having
aggregate quarterly lease revenues of $257,420, 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 $395,394. 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 March 26, 1996, respectively (see further discussion
below). 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 enabled the Partnership to
further diversify its equipment portfolio at inception by participating in the
ownership of selected assets, thereby reducing the general levels of risk which
could have resulted 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, 1998 was $264,986 compared
to $134,242 and $127,420 for the years ended December 31, 1997 and 1996,
respectively. Interest income is typically generated from temporary investment
of rental receipts and equipment sale proceeds in short-term instruments.
Interest income in 1998 and 1997 included $89,841 and $17,719, respectively,
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 $54,300 on cash held in a
special-purpose escrow account in connection with the aircraft exchange
transactions. During 1996, the Partnership also earned interest income of
$18,511 on a note receivable from EFG resulting from a settlement with ICCU
Containers S.p.A. (see Note 5 to the financial statements herein).
4
<PAGE>
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, 1998, the Partnership sold equipment
having a net book value of $69,387 to existing lessees and third parties. These
sales resulted in a net gain, for financial statement purposes, of $151,019
compared to a net gain of $512,239 in 1997 on equipment having a net book value
of $306,741 and a net gain in 1996 of $459,596 on equipment having a net book
value of $278,348.
In 1997, the Partnership exchanged its interest in a vessel with an original
cost and net book value of $5,091,464 and $2,307,445, respectively. In
connection with this exchange, the Partnership realized proceeds of $1,568,119,
which resulted in a net loss, for financial statement purposes, of $739,326. 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 $782,917.
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 (NASDAQ SmallCap Market effective
January 5, 1999). 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 66.15%
beneficial ownership interest in Dove Arrow, one of the three Vessels, the
Partnership received $840,676 in cash, became the beneficial owner of 407,970
shares of Semele common stock (valued at $611,955 ($1.50 per share) at the time
of the exchange transaction) and received a beneficial interest in the Semele
Note of $898,405. 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.
Cash equal to the amount of the Semele Note was placed 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 agreed to
seek 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 the 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
5
<PAGE>
partnership. A dividend of $81,594 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.
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. Consequently, the amount of
future gains or losses reported in the financial statements may not be
indicative of the total residual value the Partnership achieved from leasing the
equipment.
Depreciation expense was $1,322,360, $2,284,020 and $3,703,293 for the years
ended December 31, 1998, 1997 and 1996, 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 purposes of this policy,
estimated residual values represent equipment values at the date of the 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 $386,021 or 14.3% of lease revenue in 1998, $466,915 or
10.7% of lease revenue in 1997 and $645,442 or 13.1% of lease revenue in 1996.
In the future, interest expense is expected to decline as the principal balance
of notes payable is reduced through the application of rent receipts to
outstanding debt.
Management fees were approximately 4.6%, 3.8% and 3.1% of lease revenue
during the years ended December 31, 1998, 1997 and 1996, 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.
Write-down of investment securities-affiliate was $362,072 for the year
ended December 31, 1998. The General Partner determined that the decline in
market value of the Semele common stock was other-than-temporary at December 31,
1998. As a result, the Partnership wrote down the cost of the Semele common
stock from $15 per share to $4.125 per share (the quoted price of Semele stock
on NASDAQ at December 31, 1998).
Operating expenses were $477,313, $211,592 and $203,579 for the years ended
December 31, 1998, 1997 and 1996, respectively. During the year ended December
31, 1998, the Partnership incurred or accrued approximately $315,900 for certain
legal and administrative expenses related to the Class Action Lawsuit described
in Note 8 to the financial statements. Other operating expenses consist
principally of administrative charges, professional service costs, such as audit
and other 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.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS
The Partnership by its nature is a limited life entity. As an equipment
leasing program, the Partnership's principal operating activities derive from
asset rental transactions. Accordingly, the Partnership's principal source of
cash from operations is provided by the collection of periodic rents. These cash
inflows are used to satisfy debt service obligations associated with leveraged
leases, and to pay management fees and operating costs. Operating activities
generated net cash inflows of $2,375,827, $3,771,967 and $4,586,028 in 1998,
1997 and 1996, 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.
Cash expended for equipment acquisitions and cash realized from asset
disposal transactions are reported under investing activities on the
accompanying Statement of Cash Flows. For the year ended December 31, 1998, the
Partnership realized net cash proceeds of $220,406, compared to $876,740 in 1997
and $737,944 in 1996. 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. In 1996, the
Partnership completed the replacement of the United Aircraft with the
acquisitions of a 14.39% ownership interest in the Finnair Aircraft and a 25.82%
ownership interest in the Reno Aircraft at a total cost to the Partnership of
$4,027,969 and $3,507,561, respectively. To acquire the ownership interest in
the Finnair Aircraft, the Partnership paid $1,346,709 in cash and obtained
financing of $2,681,260 from a third-party lender. To acquire the ownership
interest in the Reno Aircraft, the Partnership paid $599,494 in cash and
obtained financing of $2,908,067 from a third-party lender. The Partnership
utilized $1,882,960 (classified as Contractual Right for Equipment at December
31, 1995) which had been deposited into a special purpose escrow account through
a third-party exchange agent pending the completion of the aircraft exchange.
The balance of $63,243 was expended from the Partnership's cash reserves. The
remaining ownership interests of 85.61% and 74.18% of the Finnair Aircraft and
Reno Aircraft, respectively, are held by affiliated equipment leasing programs
sponsored by EFG. There were no equipment acquisitions during 1997 or 1998.
At December 31, 1998, the Partnership was due aggregate future minimum lease
payments of $5,227,938 from contractual lease agreements (see Note 2 to the
financial statements), a portion of which will be used to amortize the principal
balance of notes payable of $4,192,148 (see Note 6 to the financial statements).
At the expiration of the individual primary and renewal lease terms underlying
the Partnership's future minimum lease payments, the Partnership will sell the
equipment or enter re-lease or renewal agreements when considered advantageous
by the General Partner and EFG. Such future remarketing activities will result
in the realization of additional cash inflows in the form of equipment sale
proceeds or rents from renewals and re-leases, the timing and extent of which
cannot be predicted with certainty. This is because the timing and extent of
remarketing events often is dependent upon the needs and interests of the
existing lessees. Some lessees may choose to renew their lease contracts, while
others may elect to return the equipment. In the latter instances, the equipment
could be re-leased to another lessee or sold to a third party. Accordingly, as
the terms of the currently existing contractual lease agreements expire, the
cash flows of the Partnership will become less predictable. In addition, the
Partnership will need cash outflows to satisfy interest on indebtedness and to
pay management fees and operating expenses.
As a result of the vessel exchange transaction (see Results of Operations)
the Partnership became the beneficial owner of 407,970 shares of Semele common
stock valued at $611,955 ($1.50 per share) at the date of the transaction. This
investment was reduced by a dividend of $81,594 received in November 1997
representing a return of equity to the Partnership. The Partnership also
received a beneficial interest in the Semele Note of $898,405 in connection with
the exchange.
7
<PAGE>
On June 30, 1998, Semele effected a 1-for-300 reverse stock split followed
by a 30-for-1 forward stock split resulting in a reduction of the number of
shares of Semele common stock owned by the Partnership to 40,797 shares. 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. During the year ended December 31, 1998, the Partnership decreased
the carrying value of its investment in Semele common stock to $4.125 per share
(the quoted price of the Semele stock on NASDAQ at December 31, 1998) resulting
in an unrealized loss in 1998 of $137,687. In 1997, the Partnership recorded an
unrealized loss of $224,385 related to its Semele common stock. These losses
were reported as components of comprehensive income, included in partners'
capital. At December 31, 1998, the General Partner determined that the decline
in market value of the Semele common stock was other-than-temporary. As a
result, the Partnership wrote down the cost of the Semele common stock to $4.125
per share (the quoted price of the Semele stock on NASDAQ at December 31, 1998)
for a total realized loss of $362,072 in 1998.
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. The Partnership also has balloon payment
obligations at the expiration of the respective primary lease terms related to
the Finnair Aircraft and the Reno Aircraft of $1,367,145 and $823,037,
respectively.
There are no formal restrictions under the Restated Agreement, as amended,
that materially limit the Partnership's ability to pay cash distributions,
except that the General Partner may suspend or limit cash distributions to
ensure that the Partnership maintains sufficient working capital reserves to
cover, among other things, operating costs and potential expenditures, such as
refurbishment costs to remarket equipment upon lease expiration. Liquidity is
especially important as the Partnership matures and sells equipment, because the
remaining equipment base consists of fewer revenue-producing assets that are
available to cover prospective cash disbursements. Insufficient liquidity could
inhibit the Partnership's ability to sustain its operations or maximize the
realization of proceeds from remarketing its remaining assets. In particular,
the Partnership must contemplate the potential liquidity risks associated with
its investment in commercial jet aircraft. The management and remarketing of
aircraft can involve, among other things, significant costs and lengthy
remarketing initiatives.
Although the Partnership's lessees are required to maintain the aircraft
during the period of lease contract, repair, maintenance, and/or refurbishment
costs at lease expiration can be substantial. For example, an aircraft that is
returned to the Partnership meeting minimum airworthiness standards, such as
flight hours or engine cycles, nonetheless may require heavy maintenance in
order to bring its engines, airframe and other hardware up to standards that
will permit its prospective use in commercial air transportation. Individually,
these repairs can cost in excess of $1 million and, collectively, they could
require the disbursement of several million dollars, depending upon the extent
of refurbishment. In addition, the Partnership's equipment portfolio includes an
interest in three Stage 2 aircraft having scheduled lease expiration dates of
December 31, 1999. These aircraft are prohibited from operating in the United
States after December 31, 1999 unless they are retro-fitted with hush-kits to
meet Stage 3 noise regulations promulgated by the Federal Aviation
Administration. The cost to hush-kit an aircraft, such as the Partnership's
Boeing 737s, can approach $2 million. Although the Partnership is not required
to retro-fit its aircraft with hush-kits, insufficient liquidity could
jeopardize the re-marketing of these aircraft and risk their disposal at a
depressed value at a time when a better economic return would be realized
8
<PAGE>
from refurbishing the aircraft and re-leasing them to another user.
Collectively, the aggregation of the Partnership's potential liquidity needs
related to aircraft and other working capital requirements could be significant.
Accordingly, the General Partner has maintained significant cash reserves within
the Partnership in order to minimize the risk of a liquidity shortage,
particularly in connection with the Partnership's aircraft interests.
Finally, the Partnership is a Nominal Defendant in a Class Action Lawsuit
described in Note 8 to the accompanying financial statements. A preliminary
settlement agreement will allow the Partnership to invest in new equipment or
other activities, subject to certain limitations, effective March 22, 1999. To
the extent that the Partnership continues to own aircraft investments that could
require capital reserves, the General Partner does not anticipate that the
Partnership will invest in new assets, regardless of its authority to do so.
Until the Class Action Lawsuit is adjudicated, the General Partner does not
expect that the level of future quarterly cash distributions paid by the
Partnership will be increased above amounts paid in the fourth quarter of 1998.
In addition, the proposed settlement, if effected, will materially change the
future organizational structure and business interests of the Partnership, as
well as its cash distribution policies. See Note 8 to the accompanying financial
statements.
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, 1998, the Partnership declared total
cash distributions of $654,886. In accordance with the Restated Agreement, as
amended, the Limited Partners were allocated 95% of these distributions, or
$622,142, and the General Partner was allocated 5%, or $32,744. The fourth
quarter 1998 cash distribution was paid on January 15, 1999.
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 asset at
its disposal date.
The Partnership's capital account balances for federal income tax and for
financial reporting purposes are different primarily due to differing treatments
of income and expense items for income tax purposes in comparison to financial
reporting purposes (generally referred to as permanent or timing differences;
see Note 7 to the financial statements). For instance, selling commissions and
organization and offering costs pertaining to syndication of the Partnership's
limited partnership units are not deductible for federal income tax purposes,
but are recorded as a reduction of partners' capital for financial reporting
purposes. Therefore, such differences are permanent differences between capital
accounts for financial reporting and federal income tax purposes. Other
differences between the bases of capital accounts for federal income tax and
financial reporting purposes occur due to timing differences. Such items consist
of the cumulative difference between income or loss for tax purposes and
financial statement income or loss, the difference between distributions
(declared vs. paid) for income tax and financial reporting purposes, and the
treatment of unrealized gains or losses on investment securities, if any, for
book and tax purposes. The principal component of the cumulative difference
between financial statement income or loss and tax income or loss results from
different depreciation policies for book and tax purposes.
For financial reporting purposes, the General Partner has accumulated a
capital deficit at December 31, 1998. This is the result of aggregate cash
distributions to the General Partner being in excess of its capital contribution
of $1,000 and its allocation of financial statement net income or loss.
Ultimately, the existence of a capital deficit for the General Partner for
financial reporting purposes is not indicative of any further capital
obligations to the Partnership by the General Partner. The Amended and Restated
Agreement and Certificate of Limited Partnership requires that upon the
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, 1998, the
General Partner had a positive tax capital account balance.
The future liquidity of the Partnership will be influenced by, among other
factors, prospective market conditions, technological changes, the ability of
EFG to manage and remarket the assets, and many other events and circumstances,
that could enhance or detract from individual asset yields and the collective
performance of the Partnership's equipment portfolio. However, the outcome of
the Class Action Lawsuit described in Note 8 to the accompanying financial
statements will be the principal factor in determining the future of the
Partnership's operations.
9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of American Income Fund I-D,
a Massachusetts Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Fund I-D, a Massachusetts Limited Partnership, as of December
31, 1998 and 1997, 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, 1998. 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-D, a
Massachusetts Limited Partnership at December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, 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, 1999
10
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................................... $ 3,837,781 $ 3,038,635
Rents receivable................................................................... 259,427 147,712
Accounts receivable--affiliate..................................................... 63,066 367,376
Note receivable--affiliate......................................................... 898,405 898,405
Investment securities--affiliate................................................... 168,288 305,975
Equipment at cost, net of accumulated depreciation of $8,780,173 and $8,800,492 at
December 31, 1998 and 1997, respectively......................................... 8,720,013 10,111,760
------------- -------------
Total assets................................................................... $ 13,946,980 $ 14,869,863
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Notes payable...................................................................... $ 4,192,148 $ 5,334,349
Accrued interest................................................................... 32,264 36,923
Accrued liabilities................................................................ 277,500 9,200
Accrued liabilities--affiliate..................................................... 16,565 27,939
Deferred rental income............................................................. 64,685 106,513
Cash distributions payable to partners............................................. 163,722 163,722
------------- -------------
Total liabilities.............................................................. 4,746,884 5,678,646
------------- -------------
Partners' capital (deficit):
General Partner.................................................................. (457,798) (458,243)
Limited Partnership Interests (829,521.30 Units; initial purchase price of $25
each).......................................................................... 9,657,894 9,649,460
------------- -------------
Total partners' capital........................................................ 9,200,096 9,191,217
------------- -------------
Total liabilities and partners' capital........................................ $ 13,946,980 $ 14,869,863
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of
These financial statements
11
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Lease revenue......................................................... $ 2,695,965 $ 4,364,091 $ 4,939,781
Interest income....................................................... 175,145 116,523 108,909
Interest income--affiliate............................................ 89,841 17,719 18,511
Gain on sale of equipment............................................. 151,019 512,239 459,596
Loss on exchange of equipment......................................... -- (739,326) --
------------ ------------ ------------
Total income........................................................ 3,111,970 4,271,246 5,526,797
------------ ------------ ------------
Expenses:
Depreciation.......................................................... 1,322,360 2,284,020 3,703,293
Interest expense...................................................... 386,021 466,915 645,442
Equipment management fees--affiliate.................................. 124,824 165,486 154,069
Write-down of investment securities--affiliate........................ 362,072 -- --
Operating expenses--affiliate......................................... 477,313 211,592 203,579
------------ ------------ ------------
Total expenses...................................................... 2,672,590 3,128,013 4,706,383
------------ ------------ ------------
Net income.............................................................. $ 439,380 $ 1,143,233 $ 820,414
------------ ------------ ------------
------------ ------------ ------------
Net income per limited partnership unit................................. $ 0.50 $ 1.31 $ 0.94
------------ ------------ ------------
------------ ------------ ------------
Cash distributions declared per limited partnership unit................ $ 0.75 $ 0.94 $ 1.00
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of
These financial statements
12
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
GENERAL LIMITED PARTNERS
PARTNER --------------------------
AMOUNT UNITS AMOUNT TOTAL
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995.............................. $ (460,618) 829,521.30 $ 9,604,360 $ 9,143,742
Net income--1996........................................ 41,021 -- 779,393 820,414
----------- ------------ ------------ ------------
Comprehensive income...................................... 41,021 -- 779,393 820,414
----------- ------------ ------------ ------------
Cash distributions declared............................... (43,659) -- (829,522) (873,181)
----------- ------------ ------------ ------------
Balance at December 31, 1996.............................. (463,256) 829,521.30 9,554,231 9,090,975
Net income--1997........................................ 57,162 -- 1,086,071 1,143,233
Unrealized loss on investment securities................ (11,219) -- (213,166) (224,385)
----------- ------------ ------------ ------------
Comprehensive income...................................... 45,943 -- 872,905 918,848
----------- ------------ ------------ ------------
Cash distributions declared............................... (40,930) -- (777,676) (818,606)
----------- ------------ ------------ ------------
Balance at December 31, 1997.............................. (458,243) 829,521.30 9,649,460 9,191,217
Net Income--1998........................................ 21,970 -- 417,410 439,380
Unrealized loss on investment securities................ (6,884) -- (130,803) (137,687)
Less: reclassification adjustment for write-down of
investment securities................................. 18,103 -- 343,969 362,072
----------- ------------ ------------ ------------
Comprehensive income...................................... 33,189 -- 630,576 663,765
----------- ------------ ------------ ------------
Cash distributions declared............................... (32,744) -- (622,142) (654,886)
----------- ------------ ------------ ------------
Balance at December 31, 1998.............................. $ (457,798) 829,521.30 $ 9,657,894 $ 9,200,096
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of
These financial statements
13
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income........................................................... $ 439,380 $ 1,143,233 $ 820,414
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation..................................................... 1,322,360 2,284,020 3,703,293
Gain on sale of equipment........................................ (151,019) (512,239) (459,596)
Write-down of investment securities--affiliate................... 362,072 -- --
Loss on exchange of equipment.................................... -- 739,326 --
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable................................................. (111,715) 432,459 211,998
Accounts receivable--affiliate................................... 304,310 (220,921) 80,204
Note receivable--affiliate....................................... -- -- 209,910
Increase (decrease) in:
Accrued interest................................................. (4,659) (63,264) 42,249
Accrued liabilities.............................................. 268,300 (13,550) (85,635)
Accrued liabilities--affiliate................................... (11,374) (6,205) 12,150
Deferred rental income........................................... (41,828) (10,892) 51,041
------------- ------------- -------------
Net cash from operating activities............................. 2,375,827 3,771,967 4,586,028
------------- ------------- -------------
Cash flows from (used in) investing activities:
Dividend received.................................................. -- 81,594 --
Purchase of equipment.............................................. -- -- (63,243)
Proceeds from equipment sales/exchanges............................ 220,406 876,740 737,944
------------- ------------- -------------
Net cash from investing activities............................. 220,406 958,334 674,701
------------- ------------- -------------
Cash flows used in financing activities:
Principal payments--notes payable.................................. (1,142,201) (2,446,254) (3,112,460)
Distributions paid................................................. (654,886) (873,180) (927,754)
------------- ------------- -------------
Net cash used in financing activities.......................... (1,797,087) (3,319,434) (4,040,214)
------------- ------------- -------------
Net increase in cash and cash equivalents............................ 799,146 1,410,867 1,220,515
Cash and cash equivalents at beginning of year....................... 3,038,635 1,627,768 407,253
------------- ------------- -------------
Cash and cash equivalents at end of year............................. $ 3,837,781 $ 3,038,635 $ 1,627,768
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............................... $ 390,680 $ 530,179 $ 603,193
------------- ------------- -------------
------------- ------------- -------------
</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 to the financial statements.
The accompanying notes are an integral part of
These financial statements
14
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 1-- ORGANIZATION AND PARTNERSHIP MATTERS
American Income Fund I-D, a Massachusetts Limited Partnership (the
"Partnership") was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on May 30, 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 August 30, 1991 the
Partnership issued 829,521.30 units of limited partnership interest (the
"Units") to 1,234 investors. Included in the 829,521.30 units were 1,572.30
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 known as 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 August 30, 1991 when the Partnership made
its initial equipment purchase. Pursuant to the Restated Agreement, as amended,
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings will be allocated 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 Equipment 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, Chief Executive Officer and sole Director. 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.
15
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
the display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Partnership's net income or partners'
capital. Statement 130 requires unrealized gains or losses on the Partnership's
available-for-sale securities, which prior to adoption were reported separately
in partners' capital to be included in comprehensive income (loss). At December
31, 1997, the cumulative amount of other comprehensive losses was $224,385.
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, 1998 the Partnership had $3,728,350 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
$5,227,938 are due as follows:
<TABLE>
<S> <C> <C>
For the year ending December 31, 1999 .............................. $2,021,374
2000 .............................. 1,194,680
2001 .............................. 921,969
2002 .............................. 844,977
Thereafter .............................. 244,938
----------
Total .............................. $5,227,938
----------
----------
</TABLE>
In December 1998, the Partnership and the other affiliated leasing programs
owning interests in two McDonnell Douglas MD-82 aircraft entered into lease
extension agreements with Finnair OY. The lease extensions, effective upon the
expiration of the existing primary lease terms on April 28, 1999, extended the
leases for nine months and two years, respectively. In aggregate, these lease
extensions will provide additional lease revenue of approximately $848,000 to
the Partnership.
16
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Finnair OY................................................................ $ 620,019 $ 620,026 $ --
Southwest Airlines........................................................ $ 500,832 $ 500,832 $ 500,832
Reno Air, Inc............................................................. $ 454,489 $ 444,213 $ --
General Motors Corporation................................................ $ 386,198 $ 496,120 $ 565,022
Trans Ocean Container Corporation......................................... $ 279,105 $ -- $ --
Gearbulk Shipowning Ltd................................................... $ -- $ 1,045,105 $ 1,062,911
</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 means the actual cost paid by the
Partnership to acquire the equipment, including acquisition fees. Where
equipment was acquired from EFG or an Affiliate, Equipment Cost reflects the
actual price paid for the equipment by EFG or the Affiliate plus all actual
costs incurred by EFG or the Affiliate while carrying the equipment, including
all liens and encumbrances, less the amount of all primary term rents earned by
EFG or the Affiliate prior to selling the equipment. Where the seller of the
equipment was a third party, Equipment Cost reflects the seller's invoice price.
DEPRECIATION
The Partnership's depreciation policy is intended to allocate the cost of
equipment over the period during which it produces economic benefit. The
principal period of economic benefit is considered to correspond to each asset's
primary lease term, which term generally represents the period of greatest
revenue potential for each asset. Accordingly, to the extent that an asset is
held on primary lease term, the Partnership depreciates the difference between
(i) the cost of the asset and (ii) the estimated residual value of the asset on
a straight-line basis over such term. For purposes of this policy, estimated
residual values represent estimates of equipment values at the date of primary
lease expiration. To the extent that an asset is held beyond its primary lease
term, the Partnership continues to depreciate the remaining net book value of
the asset on a straight-line basis over the asset's remaining economic life.
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.
To the extent that such adjustments have been recorded, they are reflected
separately on the accompanying Statement of Operations as Write-Down of
Equipment
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,
17
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
technological advances, and many other events can converge to enhance or detract
from asset values at any given time.
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.
Other-than-temporary declines in market value are recorded as write down of
investment in the Statement of Operations (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.
NET INCOME (LOSS) AND CASH DISTRIBUTIONS PER UNIT
Net income (loss) and cash distributions per Unit are based on 829,521.30
Units outstanding during each of the three years in the period ended December
31, 1998 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.
NOTE 3-- EQUIPMENT
The following is a summary of equipment owned by the Partnership at December
31, 1998. Remaining Lease Term (Months), as used below, represents the number of
months remaining from December 31, 1998 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
18
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
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.................................... 13-48 $ 10,081,685 NV/TX
Materials handling.......................... 0-12 3,131,373 CA/GA/IA/IL/IN/MI/MN/MO/
NC/NV/NY/OH/PA/SC
Trailers/intermodal containers.............. 48-54 2,043,102 CA/OK
Construction and mining..................... 0-7 1,700,163 IL/MI/NY/PA/WV
Retail store fixtures....................... 3 316,563 FL
Furniture and fixtures...................... 0 97,082 NY
Communications.............................. 0 67,899 AL/CA/FL/NC/OR/WA
Tractors and heavy duty trucks.............. 0 62,319 OR
-------------
Total equipment cost 17,500,186
Accumulated depreciation (8,780,173)
-------------
Equipment, net of accumulated depreciation $ 8,720,013
-------------
-------------
</TABLE>
In 1996, the Partnership completed the replacement of the United Aircraft
with the acquisitions of a 14.39% ownership interest in the Finnair Aircraft and
a 25.82% ownership interest in the Reno Aircraft at a total cost to the
Partnership of $4,027,969 and $3,507,561, respectively. To acquire the ownership
interest in the Finnair Aircraft, the Partnership paid $1,346,709 in cash and
obtained financing of $2,681,260 from a third-party lender. To acquire the
ownership interest in the Reno Aircraft, the Partnership paid $599,494 in cash
and obtained financing of $2,908,067 from a third-party lender. The Partnership
utilized $1,882,960 (classified as Contractual Right for Equipment at December
31, 1995) which had been deposited into a special purpose escrow account through
a third-party exchange agent pending the completion of the aircraft exchange.
The balance of $63,243 was expended from the Partnership's cash reserves. The
remaining ownership interests of 85.61% and 74.18% of the Finnair Aircraft and
Reno Aircraft, respectively, are held by affiliated equipment leasing programs
sponsored by EFG.
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
enabled the Partnership to further diversify its equipment portfolio at
inception by participating in the ownership of selected assets, thereby reducing
the general levels of risk which could have resulted from a concentration in any
single equipment type, industry or lessee. At December 31, 1998, the
Partnership's equipment portfolio included equipment having a proportionate
original cost of $12,466,195, representing approximately 71% 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
$10,082,000 and a net book value of approximately $7,595,000 at December 31,
1998 (see Note 6).
19
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
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 fully
depreciated equipment held for re-lease or sale with an original cost of
approximately $500,700. The General Partner is actively seeking the sale or
re-lease of all equipment not on lease. 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 (NASDAQ SmallCap Market effective January 5, 1999). 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 66.15% beneficial
ownership interest in Dove Arrow, one of the three Vessels, the Partnership
received $840,676 in cash, became the beneficial owner of 407,970 shares of
Semele common stock (valued at $611,955 ($1.50 per share) at the time of the
exchange transaction) and received a beneficial interest in the Semele Note of
$898,405. 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 recognized interest income of $89,841 and $17,719
related to the Semele Note during 1998 and 1997, respectively. The Partnership's
interest in the vessel had an original cost and net book value of $5,091,464 and
$2,307,445, respectively. The proceeds realized by the Partnership of $1,568,119
resulted in a net loss, for financial statement purposes, of $739,326. In
addition, as this vessel was disposed of prior
20
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
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 $782,917.
Cash equal to the amount of the Semele Note was placed 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 agreed to
seek 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 the 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 $81,594 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. Subsequent to
the exchange transaction, Gary D. Engle, President and Chief Executive Officer
of EFG, was elected to the Board of Directors and appointed Chief Executive
Officer of Semele and James A. Coyne, Executive Vice President of EFG was
appointed Semele's President and Chief Operating Officer, and was elected to the
Board of Directors.
On June 30, 1998, Semele effected a 1-for-300 reverse stock split followed
by a 30-for-1 forward stock split resulting in a reduction of the number of
shares of Semele common stock owned by the Partnership to 40,797 shares. 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. During the year ended December 31, 1998, the Partnership decreased
the carrying value of its investment in Semele common stock to $4.125 per share
(the quoted price of the Semele stock on NASDAQ at December 31, 1998) resulting
in an unrealized loss in 1998 of $137,687. In 1997, the Partnership recorded an
unrealized loss of $224,385 related to its Semele common stock. These losses
were reported as components of comprehensive income, included in partners'
capital. At December 31, 1998, the General Partner determined that the decline
in market value of the Semele common stock was other-than-temporary. As a
result, the Partnership wrote down the cost of the Semele common stock to $4.125
per share (the quoted price of Semele stock on NASDAQ at December 31, 1998) for
a total realized loss of $362,072 in 1998.
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
21
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
ended December 31, 1998, 1997 and 1996, which were paid or accrued by the
Partnership to EFG or its Affiliates, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Equipment management fees.................................................... $ 124,824 $ 165,486 $ 154,069
Administrative charges....................................................... 66,480 62,544 39,024
Reimbursable operating expenses due to third parties......................... 410,833 149,048 164,555
---------- ---------- ----------
Total.................................................................... $ 602,137 $ 377,078 $ 357,648
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include acquisition and
management 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 5% of gross
operating lease rental revenues and 2% of gross full payout lease rental revenue
received by the Partnership. Both acquisition and management fees are 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 at actual cost.
During 1996, the Partnership received payment in full from EFG of a note and
accrued interest thereon which was beneficially assigned to the Partnership in
1994 by a former affiliate of AFG as partial consideration for the exchange of
certain intermodal cargo containers.
All equipment was acquired from EFG, one of its Affiliates or third-party
sellers. The Partnership's Purchase Price is determined by the method described
in Note 2, Equipment on Lease.
All rents and proceeds from the sale of equipment are paid directly to
either 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, 1998, the Partnership was owed $63,066 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in January
1999.
Certain affiliates of the General Partner own Units in the Partnership as
follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
AFFILIATE UNITS OWNED OUTSTANDING UNITS
- --------------------------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Atlantic Acquisition Limited Partnership......................................... 35,049 4.23%
Old North Capital Limited Partnership............................................ 1,511 0.18%
</TABLE>
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital
Limited Partnership ("ONC") are both Massachusetts limited partnerships formed
in 1995 and affiliates of EFG. The general partners of AALP and ONC are
controlled by Gary D. Engle. In addition, the limited partnership interests of
ONC are owned by Semele Group, Inc. ("Semele"). Gary D. Engle is Chairman and
CEO of Semele.
22
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6-- NOTES PAYABLE
Notes payable at December 31, 1998 consisted of installment notes of
$4,192,148 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 8.65% and 8.89%, except for one note which
bears a fluctuating interest rate based on LIBOR (5.54% at December 31, 1998)
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 $1,367,145 and $823,037, respectively. The carrying
amount of notes payable approximates fair value at December 31, 1998.
The annual maturities of the installment notes payable are as follows:
<TABLE>
<S> <C> <C>
For the year ending December 31, 1999 .............................. $2,296,020
2000 .............................. 345,214
2001 .............................. 373,331
2002 .............................. 354,546
2003 .............................. 823,037
----------
Total .............................. $4,192,148
----------
----------
</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, 1998, the General Partner had a positive tax
capital account balance.
The following is a reconciliation between net income or loss reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------- ------------
<S> <C> <C> <C>
Net income.............................................................. $ 439,380 $ 1,143,233 $ 820,414
Financial statement depreciation in Excess of (less than) tax
depreciation........................................................ (824,769) (2,025,107) 187,262
Deferred rental income................................................ (41,828) (10,892) 51,041
Other................................................................. 404,621 (891,689) 88,232
----------- ------------- ------------
Net income (loss) for federal income tax Reporting purposes............. $ (22,596) $ (1,784,455) $ 1,146,949
----------- ------------- ------------
----------- ------------- ------------
</TABLE>
23
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
The principal component of "Other" consists of the difference between the
tax gain or loss on equipment disposals and the financial statement gain or 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, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Partners' capital................................................................... $ 9,200,096 $ 9,191,217
Unrealized loss on investment securities.......................................... -- 224,385
Add back selling commissions and organization and offering costs.................. 2,323,619 2,323,619
Financial statement distributions in excess of tax distributions.................. 9,376 8,186
Cumulative difference between federal income tax and financial statement income
(loss).......................................................................... (3,519,099) (3,057,123)
------------- -------------
Partners' capital for federal income tax reporting purposes......................... $ 8,013,992 $ 8,690,284
------------- -------------
------------- -------------
</TABLE>
Unrealized loss on investment securities, financial statement distributions
in excess of tax distributions and cumulative difference between federal income
tax and financial statement income (loss) represent timing differences.
NOTE 8-- LEGAL PROCEEDINGS
In January 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 July 16, 1998, counsel for the Defendants and the Plaintiffs executed a
Stipulation of Settlement setting forth 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 Stipulation of Settlement was based upon and superseded a
Memorandum of Understanding between the parties dated March 9, 1998 which
outlined the terms of a possible settlement. The Stipulation of Settlement was
filed with the Court on July 23, 1998 and was preliminarily approved by the
24
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
Court on August 20, 1998 when the Court issued its "Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
for Notice of, and Hearing on, the Proposed Settlement" (the "August 20 Order").
Prior to issuing a final order, the Court will hold a fairness hearing that will
be open to all interested parties and permit any party to object to the
settlement. The investors of the Partnership and all other plaintiff class
members in the Class Action Lawsuit will receive a Notice of Settlement and
other information pertinent to the settlement of their claims that will be
mailed to them in advance of the fairness hearing. Since first executing the
Stipulation of Settlement, the Court has scheduled two fairness hearings, the
first on December 11, 1998 and the second on March 19, 1999, each of which was
postponed because of delays in finalizing certain information materials that are
subject to regulatory review prior to being distributed to investors.
On March 15, 1999, counsel for the Plaintiffs and the Defendants entered
into an amended stipulation of settlement (the "Amended Stipulation") which was
filed with the Court on March 15, 1999. The Amended Stipulation was
preliminarily approved by the Court by its "Modified Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
For Notice of, and Hearing On, the Proposed Settlement" dated March 22, 1999
(the "March 22 Order"). The Amended Stipulation, among other things, divides the
Class Action Lawsuit into two separate sub-classes that can be settled
individually. This revision is expected to expedite the settlement of one
sub-class by the middle of 1999. However, the second sub-class, involving the
Partnership and 10 affiliated partnerships (collectively referred to as the
"Exchange Partnerships"), is expected to remain pending for a longer period due,
in part, to the complexity of the proposed settlement pertaining to this class.
Specifically, the settlement of the second sub-class is premised on the
consolidation of the Exchange Partnerships' net assets (the "Consolidation"),
subject to certain conditions, into a single successor company ("Newco"). Under
the proposed Consolidation, the partners of the Exchange Partnerships would
receive both common stock in Newco and a cash distribution; and thereupon the
Exchange Partnerships would be dissolved. In addition, EFG would contribute
certain management contracts, operations personnel, and business opportunities
to Newco and cancel its current management contracts with all of the Exchange
Partnerships. Newco would operate as a finance company specializing in the
acquisition, financing and servicing of equipment leases for its own account and
for the account of others on a contract basis. Newco also would use its best
efforts to list its shares on the Nasdaq National Market or another national
exchange or market as soon after the Consolidation as Newco deems that market
conditions and its business operations are suitable for listing its shares and
Newco has satisfied all necessary regulatory and listing requirements. The
potential benefits and risks of the Consolidation will be presented in a
Solicitation Statement that will be mailed to all of the partners of the
Exchange Partnerships as soon as the associated regulatory review process is
completed and at least 60 days prior to the fairness hearing. A preliminary
Solicitation Statement was filed with the Securities and Exchange Commission on
August 24, 1998 and remains pending. Class members will be notified of the
actual fairness hearing date when it is confirmed.
One of the principal objectives of the Consolidation is to create a company
that would have the potential to generate more value for the benefit of existing
limited partners than other alternatives, including continuing the Partnership's
customary business operations until all of its assets are disposed in the
ordinary course of business. To facilitate the realization of this objective,
the Amended Stipulation provides, among other things, that commencing March 22,
1999, the Exchange Partnerships may collectively invest up to 40% of the total
aggregate net asset values of all of the Exchange Partnerships in any
25
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
investment, including additional equipment and other business activities that
the general partners of the Exchange Partnerships and EFG reasonably believe to
be consistent with the anticipated business interests and objectives of Newco,
subject to certain limitations, including that the Exchange Partnerships retain
sufficient cash balances to pay their respective shares of the cash distribution
referenced above in connection with the proposed Consolidation.
In the absence of the Court's authorization to enter into such activities,
the Partnership's Restated Agreement, as amended, would not permit new
investment activities without the approval of limited partners owning a majority
of the Partnership's outstanding Units. Accordingly, to the extent that the
Partnership invests in new equipment, the Manager (being EFG) will (i) defer,
until the earlier of the effective date of the Consolidation or December 31,
1999, any acquisition fees resulting therefrom and (ii) limit its management
fees on all such assets to 2% of rental income. In the event that the
Consolidation is consummated, all such acquisition and management fees will be
paid to Newco. To the extent that the Partnership invests in other business
activities not consisting of equipment acquisitions, the Manager will forego any
acquisition fees and management fees related to such investments. In the event
that the Partnership has acquired new investments, but the Partnership does not
participate in the Consolidation, Newco will acquire such new investments for an
amount equal to the Partnership's net equity investment plus an annualized
return thereon of 7.5%. Finally, in the event that the Partnership has acquired
new investments and the Consolidation is not effected, the General Partner will
use its best efforts to divest all such new investments in an orderly and timely
fashion and the Manager will cancel or return to the Partnership any acquisition
or management fees resulting from such new investments.
The Amended Stipulation and previous Stipulation of Settlement prescribe
certain conditions necessary to effecting final settlements, including providing
the partners of the Exchange Partnerships with the opportunity to object to the
participation of their partnership in the Consolidation. Assuming the proposed
settlement is effected according to present terms, the Partnership's share of
legal fees and expenses related to the Class Action Lawsuit is estimated to be
approximately $95,800, all of which was accrued and expensed by the Partnership
in 1998. In addition, the Partnership's share of fees and expenses related to
the proposed Consolidation is estimated to be approximately $220,100, all of
which was accrued and expensed by the Partnership in 1998.
While the Court's August 20 Order enjoined certain class members, including
all of the partners of the Partnership, from transferring, selling, assigning,
giving, pledging, hypothecating, or otherwise disposing of any Units pending the
Court's final determination of whether the settlement should be approved, the
March 22 Order permits the partners to transfer Units to family members or as a
result of the divorce, disability or death of the partner. No other transfers
are permitted pending the Court's final determination of whether the settlement
should be approved. The provision of the August 20 Order which enjoined the
General Partners of the Exchange Partnerships from, among other things,
recording any transfers not in accordance with the Court's order remains
effective.
There can be no assurance that settlement of either sub-class of the Class
Action Lawsuit will receive final Court approval and be effected. There also can
be no assurance that all or any of the Exchange Partnerships will participate in
the Consolidation because if limited partners owning more than one-third of the
outstanding Units of a partnership object to the Consolidation, then that
partnership will be excluded from the Consolidation. The General Partner and its
affiliates, in consultation with counsel, concur that there is a reasonable
basis to believe that final settlements of each sub-class will be achieved.
However, in the absence of final settlements approved by the Court, the
Defendants intend to defend
26
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(CONTINUED)
vigorously against the claims asserted in the Class Action Lawsuit. Neither the
General Partner nor its affiliates can predict with any degree of certainty the
cost of continuing litigation to the Partnership or the ultimate outcome.
In addition to the foregoing, the Partnership is a party to other lawsuits
that have arisen out of the conduct of its business, principally involving
disputes or disagreements with lessees over lease terms and conditions. The
following action had not been finally adjudicated at December 31, 1998:
ACTION INVOLVING NATIONAL STEEL CORPORATION
EFG, on behalf of the Partnership and certain affiliated investment programs
(collectively, the "Plaintiffs"), filed an action in the Commonwealth of
Massachusetts Superior Court, Department of the Trial Court in and for the
County of Suffolk on July 27, 1995, for damages and declaratory relief against a
lessee of the Partnership, National Steel Corporation ("National Steel"). The
Complaint seeks reimbursement from National Steel of certain sales and/or use
taxes paid to the State of Illinois in connection with equipment leased by
National Steel from the Plaintiffs and other remedies provided under the Master
Lease Agreement ("MLA"). On August 30, 1995, National Steel filed a Notice of
Removal, which removed the case to United States District Court, District of
Massachusetts. On September 7, 1995, National Steel filed its Answer to the
Plaintiff's Complaint along with Affirmative Defenses and Counterclaims and
sought declaratory relief, alleging breach of contract, implied covenant of good
faith and fair dealing, and specific performance. The Plaintiffs filed an Answer
to National Steel's Counterclaims on September 29, 1995. The parties discussed
settlement with respect to this matter for some time; however, the negotiations
were unsuccessful. The Plaintiffs filed an Amended and Supplemental Complaint
alleging further default under the MLA and filed a motion for Summary Judgment
on all claims and Counterclaims. The Court held a hearing on the Plaintiff's
motion in December 1997 and later entered a decision dismissing certain of
National Steel's Counterclaims, finding in favor of the Plaintiffs on certain
issues and in favor of National Steel on other issues. In March 1999, the
Plaintiffs obtained payment for certain of the disputed items and have resumed
settlement discussions to resolve remaining issues. The General Partner does not
believe that the resolution of the remaining claims will have a material adverse
effect on the Partnership's financial position or results of operations.
27
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Rents earned prior to disposal of equipment, net of interest charges.... $ 1,546,749 $ 4,706,156 $ 2,589,302
Sale proceeds realized upon disposition of equipment.................... 220,406 876,740 737,944
------------ ------------ ------------
Total cash generated from rents and equipment sale proceeds............. 1,767,155 5,582,896 3,327,246
Original acquisition cost of equipment disposed......................... 1,412,066 4,942,148 3,176,293
------------ ------------ ------------
Excess of total cash generated to cost of equipment disposed............ $ 355,089 $ 640,748 $ 150,953
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
28
<PAGE>
AMERICAN INCOME FUND I-D,
A MASSACHUSETTS LIMITED PARTNERSHIP
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SALES AND
OPERATIONS REFINANCINGS TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
Net income............................................................ $ 288,361 $ 151,019 $ 439,380
Add:
Depreciation........................................................ 1,322,360 -- 1,322,360
Management fees..................................................... 124,824 -- 124,824
Write-down of investment securities--affiliate...................... 362,072 -- 362,072
Book value of disposed equipment.................................... -- 69,387 69,387
Less:
Principal reduction of notes payable................................ (1,142,201) -- (1,142,201)
------------- ------------ -------------
Cash from operations, sales and refinancing......................... 955,416 220,406 1,175,822
Less:
Management fees..................................................... (124,824) -- (124,824)
------------- ------------ -------------
Distributable cash from operations, sales and refinancing........... 830,592 220,406 1,050,998
Other sources and uses of cash:
Cash at beginning of year........................................... 2,980,875 57,760 3,038,635
Net change in receivables and accruals.............................. 403,034 -- 403,034
Less:
Cash distributions paid............................................. (376,720) (278,166) (654,886)
------------- ------------ -------------
Cash at end of year................................................... $ 3,837,781 $ -- $ 3,837,781
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
29
<PAGE>
AMERICAN INCOME FUND I-D,
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
For the year ended December 31, 1998, the Partnership reimbursed the General
Partner and its Affiliates for the following costs:
<TABLE>
<S> <C>
Operating expenses................................................ $ 215,024
</TABLE>
30
<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-D, a Massachusetts Limited Partnership, of our
report dated March 10, 1999 included in the 1998 Annual Report to the Partners
of American Income Fund I-D, a Massachusetts Limited Partnership.
ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 1999
<PAGE>
EXHIBIT 99.3
THIS IS COUNTERPART NO. TWO (DUPLICATE) OF TWO COUNTERPARTS. TO THE EXTENT THIS
AGREEMENT CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM
COMMERCIAL CODE IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST
HEREIN MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART
OTHER THAN COUNTERPART NO. ONE.
MARINE SHIPPING CONTAINER
VARIABLE LEASE
(COMBINED CONTAINER SET IV)
THIS MARINE SHIPPING CONTAINER VARIABLE LEASE (the "AGREEMENT") made as of
the 17th day of April, 1995 by and between TRANS OCEAN CONTAINER CORPORATION, a
Delaware corporation, whose head office is located at 851 Traeger Avenue, San
Bruno, CA 94066 (hereinafter called the "Lessee") and Investors Asset Holding
Corp., a Massachusetts corporation, not in its individual capacity but solely as
Trustee of the "AFG/ICCU Trust," having a principal place of business c/o
American Finance Group, Exchange Place, Boston, MA 02109 (hereinafter called the
"Lessor").
W I T N E S S E T H:
WHEREAS, the Lessor has agreed to purchase from the Lessee approximately
2500 TEU's (as defined below) of maritime shipping containers, including dry
cargo, open top, and collapsible flat rack containers, which containers shall be
more fully described in Bills of Sale issued pursuant to that certain Purchase
and Sale Agreement of even date herewith (the "Purchase and Sale Agreement")
between the parties (said containers are hereafter called the "Containers");
WHEREAS, the Lessee is engaged in the business of leasing and operating
containers; and
WHEREAS, the Lessor desires to lease the Containers to the Lessee and the
Lessee is willing to lease the Containers from the Lessor, all on the terms and
conditions set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. Lessor-Lessee Relationship
(a) The Lessor hereby leases the Containers to the Lessee, and the Lessee
hereby leases the Containers from the Lessor, in accordance with the terms and
conditions set forth below.
(b) In order to further evidence the relationship of lessor
1
<PAGE>
(1) the Lessor has and shall retain exclusive legal and beneficial
ownership of the Containers, and the Lessee shall not have any right, title or
interest in the Containers, except as provided in this Agreement;
(2) in the conduct of its business, the Lessee will not hold itself
out as an owner of the Containers or take any action that would be inconsistent
with the ownership of the Containers by the Lessor or that would otherwise be
inconsistent with, or outside the scope of, the lease created under this
Agreement; and
(3) Lessor and Lessee agree to treat the transactions provided for
in this Agreement as a lease of the Containers by the Lessor to the Lessee for
United States federal income tax purposes and to take positions consistent with
such treatment in filing the respective United States federal income tax
returns, if any, required to be filed thereby.
(c) The Lessee and the Lessor expressly recognize and acknowledge that
this Agreement does not create a partnership, joint venture or other entity
among or between the Lessor, the Lessee, and/or any other person, and is
intended only to set forth the terms and conditions of the lessor/lessee
relationship between the Lessor and the Lessee with respect to the matters
specifically contained herein.
(d) The Lessee acknowledges and agrees that:
(i) LESSOR IS NOT A MANUFACTURER OF THE CONTAINERS OR A MERCHANT OR
DEALER IN PROPERTY OF SUCH KIND;
(ii) ON OR BEFORE THE PURCHASE DATE OF EACH CONTAINER, THE LESSEE
WILL HAVE ACCEPTED THE CONTAINER INTO ITS FLEET OF MANAGED, OWNED AND LEASED
INTERMODAL MARINE CONTAINERS; AND
(iii) LESSOR HAS NOT MADE, AND DOES NOT HEREBY MAKE, ANY
REPRESENTATION, WARRANTY, OR COVENANT, EXPRESS OR IMPLIED, WITH RESPECT TO THE
MERCHANTABILITY, CONDITION, QUALITY, DURABILITY, DESIGN, OPERATION, FITNESS FOR
USE, OR SUITABILITY OF THE CONTAINERS OR ANY COMPONENT THEREOF IN ANY RESPECT
WHATSOEVER OR IN CONNECTION WITH OR FOR THE PURPOSES AND USES OF THE LESSEE, AND
THE LESSOR HAS NOT MADE AND DOES NOT HEREBY MAKE ANY OTHER REPRESENTATIONS,
WARRANTIES, OR COVENANTS OF ANY KIND AND CHARACTER, EXPRESS OR IMPLIED WITH
RESPECT THERETO, AND SHALL NOT BE LIABLE FOR ANY ACTUAL, INCIDENTAL,
CONSEQUENTIAL, OR OTHER DAMAGES OF OR TO ANY PERSON WHATSOEVER, WITH RESPECT
THERETO, AND THE LESSEE IS LEASING THE CONTAINERS "AS IS AND WITH ALL FAULTS."
(e) Lessee represents, warrants and certifies to the Lessor as of the date
of execution and delivery of this Agreement:
(i) Lessee is duly organized, validly existing and in
2
<PAGE>
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 this Agreement, and
is duly qualified and in good standing in all other jurisdictions in the United
States in which the nature of its business or the ownership of its properties,
or both, make such qualification necessary and where failure to so qualify would
materially adversely affect its financial condition or the conduct of its
business or the performance of its obligations under or the enforceability of
this Agreement.
(ii) This Agreement and all related documents have been duly
authorized, executed and delivered by Lessee, are valid, legal and binding
obligations of 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;
(iii) Lessor's right, title and interest in and to this Agreement
and the Containers and the rentals therefrom will vest in Lessor on the Purchase
Date for such Containers and will not be affected or impaired by the terms of
any agreement or instrument by which Lessee or its property is bound except for
Lessee's rights under this Agreement and the rights of the sublessees under the
applicable subleases of such Containers;
(iv) 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, this Agreement except for the
filing of UCC-l financing statements as contemplated by Section 4 of the
Purchase and Sale Agreement;
(v) there are no suits or proceedings pending or, to the knowledge
of Lessee, threatened, before any court or governmental agency against 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 this Agreement;
(vi) there has been no material adverse change to the Lessee's
financial condition or results from its operations since the date of its most
recent audited financial statements delivered to Lessor; and
(vii) the address stated in the preamble to this Agreement as
Lessee's head office is the principal place of business and chief executive
office of Lessee; and Lessee does not conduct business under a trade, assumed or
fictitious name except as follows: Trans Ocean, Trans Ocean Leasing, and TOL.
3
<PAGE>
2. The Lessee's Duties
In consideration of the right to use and operate the Containers as lessee
pursuant to this Agreement, the Lessee agrees that it will, during the term
hereof, perform the following duties, using a level or standard of care no less
than the Lessee would use with respect to containers it owns, leases or operates
for others:
(a) accept delivery of the Containers;
(b) place such marks upon the Containers, register the Containers in
accordance with such tariffs as required for their operation in marine shipping
service, paint the Containers any appropriate color, and place on the Containers
such markings or legends as the Lessee deems required or appropriate;
(c) take all reasonable and customary steps as may be required to provide
for the sublease of the Containers under short, medium and long term leases on
such terms and conditions as it may deem satisfactory, in its sole discretion
(except as otherwise specifically provided for in this Agreement);
(d) pay to the Lessor the Fixed Rent or the Variable Rent (as defined in
Section 6(c)(6)), as the case may be, on the last day of each calendar quarter
immediately following the calendar quarter for which such Fixed Rent or Variable
Rent is payable;
(e) pay all Operating Expenses (as defined below) and file all applicable
tax returns and other reports with respect to ad valorem, gross receipts and
property taxes attributable to the Set Containers (as defined below);
(f) on behalf of Lessor, sell or otherwise dispose of Containers that
become subject to Casualty Occurrences or Ordinary Disposal Occurrences, as
described in Section 4(b) below (for this purpose, a Casualty Occurrence shall
include a "Casualty Occurrence" (as defined below) that occurs prior to the
Purchase Date but that becomes known to Lessee after the Purchase Date);
(g) perform all administrative and related functions necessary for the
operation and subleasing of the Containers, including but not limited to:
(i) maintaining and servicing (or causing the sublessees to maintain
and service) the Containers in a condition that meets the then current general
interchange standards of the International Institute of Container Lessors, Guide
for Container Equipment Inspection, and in such condition as may be required by
any applicable law or the rules or regulations of any governmental body having
jurisdiction over the Containers and as maybe necessary or appropriate to make
the Containers suitable for rental in international commerce;
4
<PAGE>
(ii) supervising all maintenance and repair of each Container,
whether performed by the Lessee, an employee of a depot operator, or other third
party, to ensure such maintenance satisfies the highest of the following
standards:
(A) any standard required or set forth for the Containers or
equipment of a similar class under any applicable industry convention or
governmental law or regulation;
(B) any standard set by any insurance policy under which the
Containers shall from time to time be insured; and
(C) good commercial practice;
(iii) performing periodic inspections and surveys of the Containers
in the possession of depot operators to ensure maintenance of the Containers in
a seaworthy and safe operating condition;
(iv) maintaining records with respect to the rental of the
Containers, locations of the Containers when off-hire, repair and maintenance
history and repair and maintenance activity; and
(v) monitoring the location of the Containers while off-lease.
In performing such administrative and related functions hereunder, the
Lessee shall not knowingly discriminate against or in favor of the Containers
in seeking subleases; and
(h) defend, indemnify and hold the Lessor and any party or parties from
whom Lessor obtained financing for the Containers (the "Lenders") harmless from
and against any claims asserted against them arising out of the possession or
operation of the Containers (including, but not limited to, injury to persons or
loss of or damage to lading or other property), provided that the costs of such
defense, indemnification and holding harmless shall be an Operating Expense for
purposes of Section 6 (excluding, however, those costs or expenses that result
from the gross negligence or willful misconduct of the Lessee).
3. Covenant of Quiet Enjoyment
The Lessor shall not disturb the Lessee's quiet enjoyment of the
Containers provided Lessor is not entitled to terminate this Agreement pursuant
to Section 4(c).
4. Duration
(a) Initial Term; Extension Options. Except as provided below, the term of
this Agreement as to each of the Containers shall
5
<PAGE>
commence on the date such Container is included in the Container Set (as defined
below) as determined under Section 6(b)(4), and shall remain in full force and
effect until June 30, 2003 (the "Stated Term"), provided that the Lessor is
hereby granted an option to extend the Stated Term of this Agreement on the same
terms and conditions for up to four one-year renewal periods. The Lessor must
provide written notice to Lessee of its election to exercise this renewal option
not less than ninety (90) days prior to the expiration of the Stated Term of
this Agreement or each subsequent renewal period.
(b) Termination due to a Casualty Occurrence or an Ordinary Disposal
Occurrence. Notwithstanding Section 4(a), this Agreement shall terminate as to
any Container upon the total loss or destruction of that Container (a "Casualty
Occurrence") or upon an Ordinary Disposal Occurrence (as defined below) (an
"Ordinary Disposal Occurrence"), unless within ninety (90) days after the Lessee
receives notice of the Casualty Occurrence or within ninety (90) days after the
Ordinary Disposal Occurrence, the Lessee shall, in accordance with Section 9(b)
below, replace that Container with one of like size, type, age, and condition
and shall notify the Lessor of the replacement. The replacement container shall
be deemed to be a "Container" for all purposes of this Agreement from and after
the date of the Casualty Occurrence or the Ordinary Disposal Occurrence, as
applicable. Unless Lessee replaces a Container subject to a Casualty Occurrence
or an Ordinary Disposal Occurrence in accordance with Section 9(b) below,
Lessee will sell, lease or otherwise dispose of such Container, and will
distribute the net proceeds from such sale, lease or other disposition, in
accordance with said section.
For purposes hereof, an "Ordinary Disposal Occurrence" means the
determination by Lessee to dispose of a Container in the ordinary course of
business for one or both of the following reasons: (i) the Container is no
longer marketable, for example, due to technological obsolescence; or (ii) the
Container has suffered such damage that it is not economic to repair and
re-lease the Container as described in the remainder of this section. When a
Container is returned to the Lessee in damaged condition, the Lessee compares
the net cash value of repairing that Container to the net proceeds that would be
received if that Container were instead sold. If the net cash value is less than
the net proceeds, the Lessee will dispose of the Container as an Ordinary
Disposal Occurrence. The net cash value is obtained by subtracting the cost of
restoring that Container to a leasable condition from the estimated present
value of the future cash streams from leasing that Container over its remaining
useful life.
(c) Termination by the Lessor. Notwithstanding Section 4(a), but subject
to Section 4(d), the Lessor may terminate this Agreement as to any Container by
written notice effective upon delivery of the notice to Lessee (except that this
Agreement shall
6
<PAGE>
automatically terminate without notice in the event of the occurrence under
Section 4(c)(5) below), which notice may be given only in the event that:
(1) the Lessee shall fail to pay to the Lessor the Fixed Rent or the
Variable Rent required by Section 2(d) and such failure shall continue for a
period of ten (10) days after notice thereof by the Lessor to the Lessee;
(2) the Lessee shall assign or transfer any of its rights hereunder
without the prior written consent of the Lessor;
(3) the Lessee shall default in the performance or observance of any
other covenant, condition, agreement, or duty to be performed or observed by the
Lessee under this Agreement and such default shall continue unremedied for a
period of thirty (30) days after notice thereof by the Lessor to the Lessee;
(4) any representation or warranty made by the Lessee in Section
1(e) hereof, Section 5 of the Purchase and Sale Agreement, or in any Bill of
Sale (as defined in the Purchase and Sale Agreement) shall prove to have been
false in any material respect at the time made;
(5) the Lessee shall have (i) ceased doing business as a going
concern, (ii) made an assignment for the benefit of creditors, admitted in
writing its inability to pay its debts as they mature or generally failed to pay
its debts as they become due, (iii) initiated any voluntary bankruptcy or
insolvency proceeding, (iv) failed 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, or (v) requested or consented to the
appointment of a trustee or receiver with respect to itself or for a substantial
part of its property; or
(6) the Lessee shall make two (2) or more Variable Rent payments in
amounts that, together with all other Variable Rent payments theretofore made,
fail to aggregate a cumulative annual return to the Lessor of fourteen percent
(14%) or more of the aggregate Container Cost of the Containers then under
lease hereunder.
The events described in Sections 4(c)(l), (2), (3), (4) and (5) above are
hereinafter collectively referred to as "Events of Default."
(d) Containers Subject to Sublease. Notwithstanding Sections 4(a) or 4(c),
if a Container is subject to sublease at a time when this Agreement would
otherwise terminate as to the Container, this Agreement shall remain in full
force and effect as to the Container until the last day of the calendar quarter
in which the Container comes off the sublease unless (x) such termination was as
a
7
<PAGE>
consequence of the Event of Default specified in Section 4(c) (5), or (y) such
termination was as a consequence of any other Event of Default and Lessor gives
the notice described in Section 5(c)(A); provided that, unless termination as to
the Container was pursuant to Section 4(c), the Lessee shall be entitled to
continue this Agreement as to a Container after the last day of the calendar
quarter in which the Container comes off the sublease if in its reasonable
judgment it is economically feasible to restore the Container to a leasable
condition and to re-lease the Container to an end-user, in which case this
Agreement shall continue as to that Container until the last day of the calendar
quarter in which the Container comes off a sublease or the last day of the
calendar quarter in which the Lessee determines that it is not economically
feasible to restore the Container to a leasable condition and to re-lease the
Container to an end-user. Notwithstanding the foregoing, unless Lessor exercises
its renewal option pursuant to Section 4(a), the Lessee shall not be entitled
pursuant to the foregoing proviso to continue this Agreement as to any Container
after the last day of the calendar quarter in which the Container comes off the
sublease without the prior written consent of the Lessor.
(e) Termination by the Lessee. Notwithstanding Section 4(d), the Lessee
may terminate this Agreement as to any Container of a particular size and type
at the end of the Stated Term thereof and at any time thereafter, upon the
election of the Lessee, at the Lessee's sole and absolute discretion, if
Variable Rent specifically allocable to the Set Containers of that size and
type, calculated in a manner analogous to Section 6(c), for the most recent
calendar quarter that can be reasonably calculated by the Lessee, is less than
fourteen percent (14%) of the aggregate Container Cost of Containers of that
size and type then under lease hereunder multiplied by a fraction the numerator
of which is the number of days in that quarter and the denominator of which is
365.
(f) Treatment of Non-Terminated Containers. Notwithstanding the
foregoing, the termination of this Agreement with respect to any individual
Container shall not relieve the Lessee from performing its obligations hereunder
as to any Containers not subject to such termination.
5. Termination.
(a) Settlement of the Variable Rent. Upon any termination of this
Agreement as to any Container, the Lessee shall make a complete and final
settlement of the Fixed Rent and the Variable Rent for the Container as
determined in Section 6 no later than the last day of the calendar quarter
following the calendar quarter in which termination of this Agreement occurs as
to the Container.
(b) Remarketing of the Containers. Upon termination of this Agreement as
to any Container, other than as a consequence of one
8
<PAGE>
of the events specified in Section 4(b) or 4(c), the Lessor hereby authorizes
the Lessee to remarket the Containers on behalf of the Lessor, and the Lessee
shall, pursuant to such authorization:
(1) sell, lease or otherwise dispose of the Container, at the sole
and absolute discretion of the Lessee; provided that if the Lessee elects to
acquire the Container from the Lessor, the price to be paid for the Container
will be negotiated in an arm's length transaction and if the parties are unable
to agree on a price, Lessee will not be entitled to acquire the Container from
the Lessor. Lessee shall use its best efforts to maximize the net proceeds
received on account of any sale, lease or other disposition of a Container
pursuant to this Section 5(b) using a level or standard of care no less than the
Lessee would use with respect to containers it owns, leases or operates for
others. The net proceeds of the sale, lease or other disposition shall be
allocated between the Lessee and the Lessor as follows:
(A) the Lessor shall first receive an amount equal to the
lesser of (i) the amount of the net proceeds, or (ii) the value of the Container
pursuant to Exhibit A hereto; and
(B) any net proceeds remaining after the allocation to the
Lessor in subpart (A) shall be paid 50% to the Lessor and 5O% to the Lessee as
incentive compensation for handling the sale, lease or other disposition; and
(2) make payment of any share of the net proceeds to be paid the
Lessor pursuant to Section 5(b)(1) coincident with the final Variable Rent
payment for the Container, but in any event, not later than the last day of the
calendar quarter following the calendar quarter in which termination of this
Agreement occurs as to the Container.
For purposes of this Agreement, "net proceeds" means all proceeds
received by the Lessee as a result of the sale, lease or other disposition of a
Container (including without limitation damage recoveries and insurance
proceeds), less all costs of the sale, lease or other disposition (including
without limitation the cost of repairing and/or rehabilitating the Container to
prepare it for sale, sales commissions paid to vendors, and repositioning
costs).
If pursuant to this Section 5(b) the Lessee fails to sell, lease or
otherwise dispose of a Container on or prior to the last day of the calendar
quarter following the calendar quarter in which termination of this Agreement
occurs as to that Container, the Lessee shall, from and after such day, no
longer be entitled to sell, lease or otherwise dispose of that Container
pursuant to this Section 5(b) and the Lessee shall thereupon return that
Container to the Lessor's possession and control "AS IS, WHERE IS." The Lessor
shall thereupon retake possession and control of that
9
<PAGE>
Container and shall thereafter sell, lease or otherwise dispose of that
Container free from any right or interest of the Lessee but subject to the
matters set forth in the next succeeding paragraph.
On or before the last day of each calendar quarter, commencing with
the calendar quarter in which Lessee returns a Container to the Lessor's
possession and control pursuant to the preceding paragraph, provided no Event of
Default has occurred and is continuing since the commencement of the remarketing
period contained in this Section 5(b), the Lessor and the Lessee shall make a
complete and final settlement of the net proceeds received with respect to any
Container during such quarter. The net proceeds of the sale, lease or other
disposition shall be allocated between the Lessee and the Lessor as follows:
(A) the Lessor shall first receive an amount equal to the
lesser of (i) the amount of the net proceeds, or (ii) the value of the Container
pursuant to Exhibit A hereto; and
(B) any net proceeds remaining after the allocation to the
Lessor in subpart (A) shall be paid 50% to the Lessor and 50% to the Lessee.
(c) Return of the Containers (Event of Default).
(A) Upon termination of this Agreement as a consequence of an Event
of Default, the Lessor may, upon written notice to Lessee (except that no notice
is required with respect to the Event of Default specified in Section 4(c)(5)),
pursuant to the security interest granted under Section 10 below, direct any or
all sublessees of on-lease Containers to make payment directly to the Lessor and
to return the Containers to Lessor at the termination of the subleases and
otherwise exercise all rights and remedies of a secured creditor under the
Uniform Commercial Code in effect in the applicable jurisdiction.
(B) In the alternative, upon termination of this Agreement as a
consequence of an Event of Default (other than the Event of Default specified in
Section 4(c)(5)), if Lessor does not give the notice described in Section
5(c)(A), this Agreement will continue as to any Container subject to sublease at
the time when this Agreement would otherwise terminate as to that Container
until the last day of the calendar quarter in which the Container comes off the
sublease.
(C) In addition, upon termination of this Agreement as a consequence
of an Event of Default, the Lessee shall effect an orderly transition of any
Container that is off-lease at the time of termination, and of any Container
that is redelivered to Lessee by a sublessee (if this Agreement continues
pursuant to Section 5(c)(B)) to the Lessor for its own use or as lessor to a
container operator, all in accordance with the Lessor's directions. In the
10
<PAGE>
event that the Lessor chooses to continue operation of any such Container for
its own use or as lessor to a container operator, the Lessee shall redeliver
possession of such Container to the Lessor in sound operating condition, normal
wear and tear excepted, and arrange for the transport of such Container to any
of the depot location(s) described on Schedule I attached hereto (or such other
depot locations as may be mutually acceptable to Lessor and Lessee) (any
location described on said Schedule I or as so agreed by Lessor and Lessee being
hereinafter referred to as a "Schedule I Location"), it being understood that
the costs, if any, of transport of such Container to a Schedule I Location shall
be at the expense of the Lessee. Notwithstanding the foregoing, Lessee may
redeliver replacement containers of like size, type, age and condition if the
original Containers were re-delivered by Lessee's sublessees to non-Schedule I
Locations. The Lessee shall not arrange for the transport of more than 400 TEU's
of Containers (or replacement containers) to any of the following Schedule I
Locations: Bremen, Milan, Leghorn, Genoa, Marseille, Chicago or New Orleans,
except as agreed by the Lessor.
(d) Return of the Containers (Performance). Upon termination of this
Agreement as a consequence of the event specified in Section 4(c)(6), this
Agreement will continue as to any Container subject to sublease at the time when
this Agreement would otherwise terminate as to that Container until the last day
of the calendar quarter in which the Container comes off the sublease. The
Lessee shall thereupon effect an orderly transition of such Container, and of
any Container that is off-lease at the time of termination of this Agreement, to
the Lessor for its own use or as lessor to a container operator, all in
accordance with the Lessor's directions. In the event that the Lessor chooses to
continue operation of any such Container for its own use or as lessor to a
container operator, the Lessee shall redeliver possession of such Container to
the Lessor "AS IS, WHERE IS."
6. Fixed Rent; Variable Rent
(a) Payment. During the term of this Agreement, the Lessee shall pay to
the Lessor at a place designated by the Lessor in United States Dollars (1) the
Fixed Rent; and (2) the Variable Rent payment based on the Lessee's use of the
Containers. Because of the difficulty and complexity for the Lessee to account
for the use of each Container separately, the Lessor agrees that the Variable
Rent shall be based on the average use of a set of similar containers (the
"Container Set") and shall be calculated in accordance with the provisions of
this Section. All rentals and any other amounts to be remitted to the Lessor
under this Agreement shall be paid by wire transfer of funds in accordance with
payment instructions confirmed by the Lessor. All remittances due the Lessor
under this Agreement shall be paid without notice or demand, and without
abatement, set-off or deduction of any amounts whatsoever except as specifically
set forth in this Agreement. All
11
<PAGE>
remittances that become past due will bear interest at a floating rate per annum
equal to the lesser of (i) the "prime" rate of NatWest Bank N.A. as announced
from time to time at its head office in New York, New York, plus two percent
(2%) per annum (with each change in such prime rate to cause an equal and
corresponding change in the rate of interest payable hereunder) or (ii) the
highest rate allowed by California law, from the due date until paid.
(b) General.
(1) Container Set. The Container Set shall be denominated "Combined
Container Set IV" and shall consist of the Containers and such other containers
as are designated by the Lessee as included in the Container Set. The containers
in the Container Set (including the Containers) shall be referred to as "Set
Containers."
(2) Set Container Requirements. Each Set Container must satisfy the
following criteria:
(A) each Set Container must be a standard dry cargo or
special container (other than a refrigerated or tank container) or other
container-related equipment of similar classification and type;
(B) each Set Container must either be (i) owned by the Lessee
or an affiliate of the Lessee or a partnership of which the Lessee is a general
partner; (ii) leased by the Lessee from third parties, such as the Lessor; or
(iii) managed by the Lessee for the account of third parties; and
(C) each Set Container must either be acquired by the Lessee
or an affiliate of the Lessee or a partnership of which the Lessee is a general
partner or committed to the Container Set between January 1, 1992 and December
31, 1994.
(3) Notification to Lessor. The Lessee shall, after all the Set
Containers to be included in the Container Set have been identified, provide the
Lessor with a summary description, in writing, of the Set Containers included in
the Container Set.
(4) Inclusion in the Container Set. A Container shall be considered
to be included in the Container Set on the date that payment for such Container
is received in accordance with the Purchase and Sale Agreement (the "Purchase
Date").
(5) Container Cost. The Container Cost of each Container shall equal
US $2,350 per TEU or as otherwise mutually agreed to by the parties.
(6) Exchange Rate. If the Container Cost is not paid in
12
<PAGE>
United States dollars, the amount in such dollars shall be calculated based on
the exchange rate prevailing on the date of payment.
(7) TEUs. Each Set Container shall equal the following number of
twenty (20) foot equivalent units ("TEUs"):
(i) Each twenty (20)-foot dry cargo container shall
equal one (l) TEU;
(ii) Each forty (40)-foot dry cargo container shall equal
one and one-half (1.50) TEUs;
(iii) Each twenty (20)-foot open top container shall equal
one and fifty-four hundredths (1.54) TEUs;
(iv) Each forty (40)-foot open top container shall equal two
and forty-eight hundredths (2.48) TEUs;
(v) Each forty (40)-foot collapsible end flat rack container
shall equal two and seventy-six hundredths (2.76) TEUs; and
(vi) Each forty (40)-foot jumbo high cube container shall
equal one and sixty-eight hundredths (l.68) TEUs.
(c) Fixed Rent; Determination of Variable Rent.
(1) Adjusted Gross Revenues of the Container Set. Adjusted gross
revenues of the Container Set ("Adjusted Gross Revenues of the Container Set")
for any particular calendar quarter shall equal (x) the Gross Revenues of the
Container Set for that quarter less (y) the Operating Expenses of the Container
Set for that quarter.
(i) Gross revenues of the Container Set ("Gross Revenues")
for any particular quarter shall equal all revenues of the Lessee relating to
the Container Set accrued during that quarter from leasing or subleasing all Set
Containers, including but not limited to ancillary and all other related
charges, such as pickup and drop off charges, special handling fees, and late
payment fees, less uncollectible accounts receivable with respect to the Set
Containers for the same quarter, as recorded on the books of account of the
Lessee in accordance with generally accepted accounting principles.
(ii) Operating expenses of the Container Set ("Operating
Expenses") for any particular quarter shall equal all operating costs and
expenses incurred in connection with the operation and leasing of the Set
Containers during that quarter, including but not limited to, costs and expenses
related to the following: maintaining, repairing, or refurbishing the Set
13
<PAGE>
Containers; inspection, handling and storage; transporting the Set Containers
other than to the point of origin of the initial leases or subleases; legal fees
incurred in enforcing lease obligations; insurance; third-party claims arising
out of the possession or operation of the Set Containers (including, but not
limited to, injury to persons and loss of or damage to lading or other
property), including legal fees incurred in defending against such third-party
claims; charges, assessments or levies of any kind against the Set Containers;
and ad valorem, gross receipts and property taxes attributable to the Set
Containers. Notwithstanding the foregoing, the Operating Expenses shall not
include: (w) those costs and expenses that would be considered costs or expenses
associated with ownership of containers (as opposed to those associated with
operation and maintenance of containers), such as costs and expenses incurred by
the Lessee or Lessor in connection with the purchase and sale of the Set
Containers; (x) any taxes incurred by the Lessor in respect of the Lessor's
acquisition of the Containers or any income, capital or franchise taxes imposed
on the Lessor which are based on or measured by its net income, gross receipts
(other than gross receipts attributable to the Set Containers), or net worth
(all of which taxes shall be paid by the Lessor individually); (y) any income,
capital or franchise taxes imposed on the Lessee which are based on or measured
by its net income, gross receipts (other than gross receipts attributable to the
Set Containers), or net worth (all of which taxes shall be paid by the Lessee
individually); or (z) costs and expenses incurred by the Lessee in connection
with the leasing, management, and administration of the Set Containers as would
generally be considered to be a part of the Lessee's own marketing, general and
administrative expenses, including but not limited to, salaries, travel and
entertainment expenses of the Lessee's personnel; rent; and bookkeeping and
accounting charges.
(2) Container Set TEU-Days. For all Set Containers in the Container
Set for any particular calendar quarter, the number of Container Set TEU-days
("Container Set TEU-Days") shall equal the sum of the Monthly Container Set
TEU-Days for each of the months of that quarter. The Monthly Container Set
TEU-Days for any particular month shall equal (x) the number of TEU's of Set
Containers on the first day of the month and the number of TEU's of Set
Containers on the last day of the month, divided by two; multiplied by (y) the
number of days in that month.
(3) Container Set Daily Adjusted Gross Revenues. The "Container Set
Daily Adjusted Gross Revenues" for any particular calendar quarter shall equal
the Adjusted Gross Revenues of the Container Set for that quarter divided by the
number of Container Set TEU-Days for the same quarter.
(4) Lessor Container TEU-Days. For all Containers in the Container
Set for any particular calendar quarter, the number of Lessor Container TEU-days
("Lessor Container TEU-Days") shall equal
14
<PAGE>
the sum of the Individual Container TEU-Days for each Container for that
quarter. The Individual Container TEU-Days for any particular Container, for any
particular quarter shall equal (x) the applicable TEU factor for a Container of
that size and type (as set forth in Section 6(b)(7) above) multiplied by (y) the
actual number of days during the quarter that the Container was included in the
Container Set; provided that, if in any quarter a Container is subject to a
Casualty Occurrence or an Ordinary Disposal Occurrence (and the Lessee does not
replace that Container pursuant to Section 9(b)), that Container shall be deemed
to be removed from the Container Set at the midpoint of that quarter.
(5) Lessor Adjusted Gross Revenues. The "Lessor Adjusted Gross
Revenues" for any particular calendar quarter shall equal the Container Set
Daily Adjusted Gross Revenues for that quarter multiplied by the number of
Lessor Container TEU-Days for the same quarter.
(6) Fixed Rent and Variable Rent.
(i) Lessee shall pay Lessor "Fixed Rent" with respect to the
Containers included in the Container Set for the period commencing on the
Purchase Date therefor and ending on March 31, 1996 (the "Fixed Rent Period").
Fixed Rent for any particular calendar quarter shall equal the product obtained
by multiplying (x) the number of Lessor Container TEU-Days for that quarter,
divided by the number of days in that quarter, by (y) $98.81.
(ii) Lessee shall pay Lessor "Variable Rent" with respect to
the Containers included in the Container Set for the period commencing on April
1, 1996 and ending on the day this Agreement terminates in accordance with
Section 4 above (the "Variable Rent Period"). Subject to subparts (iii) and (iv)
below, the Variable Rent for any particular calendar quarter shall equal
seventy-five percent (75.0%) of the Lessor Adjusted Gross Revenues for that
quarter.
(iii) If the Variable Rent otherwise payable pursuant to
subpart (ii) for any calendar quarter during the first year of the Variable Rent
Period is less than the product obtained by multiplying (x) the number of Lessor
Container TEU-Days for that quarter, divided by the number of days in that
quarter, by (y) $98.81 (the "first Year Threshold Amount"), the Variable Rent
for that quarter shall be increased by an amount equal to the lesser of: (x)
fifteen percent (15%) times the Lessor Adjusted Gross Revenues for that quarter;
or (y) the amount by which the First Year Threshold Amount exceeds the Variable
Rent otherwise payable pursuant to subpart (ii) for that quarter without the
adjustment provided by this subpart (iii). If the Variable Rent otherwise
payable pursuant to subpart (ii) for any calendar quarter during the second year
of the Variable Rent Period is less than the product obtained by multiplying (x)
the number of Lessor Container
15
<PAGE>
TEU-Days for that, quarter, divided by the number of days in that quarter, by
(y) $91.69 (the "Second Year Threshold Amount"), the Variable Rent payable with
respect to such Container shall be increased by an amount equal to the lesser
of: (x) fifteen percent (15%) times the Lessor Adjusted Gross Revenues for that
quarter; or (y) the amount by which the Second Year Threshold Amount exceeds the
Variable Rent otherwise payable pursuant to subpart (ii) for that quarter
without the adjustment provided by this subpart (iii). The amount by which
Variable Rent is increased pursuant to this subpart (iii) shall hereinafter be
referred to as "Additional Variable Rent."
(iv) Commencing with the third year of the Variable Rent
Period, the Variable Rent otherwise payable pursuant to subpart (ii) for any
calendar quarter shall be decreased by an amount equal to the lesser of: (x)
one-twelfth of the aggregate Additional Variable Rent; or (y) the amount by
which the Variable Rent otherwise payable pursuant to subpart (ii) for that
quarter without the adjustment provided by this subpart (iv) exceeds the product
obtained by multiplying (A) the number of Lessor Container TEU-Days for that
quarter, divided by the number of days in that quarter, by (B) $80.
Notwithstanding the foregoing, the aggregate deductions from Variable Rent made
pursuant to this subpart (iv) shall in no event exceed the aggregate Additional
Variable Rent.
(7) Carry-Forward of Operating Deficit. If Variable Rent for any
particular calendar quarter is less than zero, the amount by which Variable Rent
is less than zero (the "Operating Deficit") shall be carried forward and offset
against and to the extent of Lessor's positive Variable Rent in subsequent
calendar quarters, without interest, until the Operating Deficit is fully
offset; provided that, no offset pursuant to this Section shall be made for any
quarter for which Additional Variable Rent is payable. In no event shall the
Lessor be obligated to make any direct payment to the Lessee to reimburse the
Lessee for any Operating Deficit.
7. Withholding Taxes; Arthur Andersen Review; Reports.
(a) Withholding Taxes.
(i) If at any time during the term of this Agreement, the Lessee is
required by law to make any deduction or withholding on account of any tax,
assessment or other governmental charge, which is currently in force or may in
the future come into force as a result of the action of any tax authority, with
respect to the Containers, the Fixed Rent, the Variable Rent, or any other
amount payable by the Lessee to the Lessor hereunder, other than any taxes
imposed on the Lessee which are based on or measured by its net income, gross
receipts (other than gross receipts attributable to the Set Containers), or net
worth, the Lessee shall, thereupon be
16
<PAGE>
entitled to deduct or withhold, or to offset against the Fixed Rent, the
Variable Rent, or any other amount otherwise payable by the Lessee to the Lessor
hereunder, the amount of such tax, assessment or other governmental charge
(together with interest, additions to tax, penalties or other liabilities
related thereto), irrespective of whether such tax, assessment or other
governmental charge is imposed with respect to the then current or a previous
taxable period, and any amount so deducted, withheld, or offset by the Lessee
and paid by the Lessee to the applicable taxing authority pursuant to and in
accordance with the deduction or withholding requirement shall be deemed to have
been paid by the Lessee to Lessor in satisfaction of the requirements of this
Agreement
(ii) The Lessee agrees to execute and deliver all such documents and
instruments, and to take all such action, as the Lessor shall reasonably request
to minimize amounts to be deducted or withheld pursuant to the tax deduction or
withholding requirement or to obtain an exemption from the deduction or
withholding requirement and to effect any necessary compliance therewith.
(iii) If the Lessor is organized under the laws of a jurisdiction
outside the United States, then, on or prior to the date it becomes entitled to
the receipt of any payment hereunder and from time to time thereafter if
requested in writing by the Lessee, the Lessor shall, if and for so long as the
Lessor is lawfully able to do so, provide the Lessee with (i) an accurate,
complete and duly executed Internal Revenue Service Form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
certifying that the Lessor is entitled to benefits under an income tax treaty to
which the United States is a party that reduces the rate of withholding tax on
payments under this Agreement or certifying that the income receivable pursuant
to this Agreement is effectively connected with the conduct of a trade or
business in the United States; or (ii) in the event that, by virtue of a change
in law or regulations, such forms are no longer valid, such other evidence of
the Lessor's exemption from withholding (if and for so long as the Lessor is
legally able to provide such evidence) as is reasonably requested by the Lessee.
(iv) If the Lessee makes any deduction or pays any withholding tax
pursuant to this Section, the Lessee shall promptly give the Lessor written
evidence of payment of such tax.
(b) Arthur Andersen Review. Arthur Andersen & Company or such other
independent public accounting firm as may be satisfactory to the Lessor will
review the calculations of the Adjusted Gross Revenues of the Container Set for
each calendar quarter during the Variable Rent Period in the course of
performing the annual audit of the Lessee's financial statements and will
confirm by a written report to the Lessor to accompany the Variable Rent payment
to be paid on or about June 30th of each year during the Variable Rent
17
<PAGE>
Period that the calculations made by the Lessee during the preceding year were
made in accordance with this Agreement. The Lessee will bear the cost of the
review. Any adjustments in the Variable Rent resulting from the review shall be
reflected in the payment that accompanies the written report.
(c) Reports, Inspection.
(i) Concurrently with payment of the Variable Rent for each calendar
quarter, Lessee shall provide to Lessor a report substantially in the form of
Schedule II hereto showing the calculation of the Lessor Adjusted Gross Revenues
for that quarter.
(ii) During the term of this Agreement and for a period of one year
following termination of this Agreement for any reason whatsoever, for the
purpose of verifying the amount of Variable Rent due under this Agreement for
any one or more calendar quarters, Lessor shall have the right on five business
days notice, at Lessor's expense, to examine during the Lessee's. normal
business hours the business records relating to the Containers.
8. Utilization and Other Matters.
(a) The Lessee agrees to use the Containers in accordance with the
standards accepted in the container leasing industry. The Lessor retains the
right to have the Containers inspected at any time, so long as any inspection
does not interfere with normal utilization of the Containers.
(b) The Lessee agrees not to grant or suffer to exist a lien of any kind
on the Containers, or to permit any sublessee to grant or suffer to exist a lien
of any kind on the Containers, except for the following liens or encumbrances
("Permitted Liens"):
(i) liens or encumbrances that result from acts or omissions of the
Lessor;
(ii) liens or charges for current taxes, assessments or other
governmental charges which are either not yet due or are being contested in good
faith and by appropriate proceedings so long, as such proceedings do not involve
any danger of the sale, forfeiture or loss of any Container or any interest
therein;
(iii) materialmen's, mechanics', workmen's, repairmen's, employees'
and other like liens arising in the ordinary course of business which are either
inchoate and relate to an obligation which is not yet due or which are being
contested in good faith and by appropriate proceedings so long as such
proceedings do not involve any danger of the sale, forfeiture or loss of any
Container or any interest therein; and
(iv) the rights of the sublessees of the Containers under
18
<PAGE>
their respective subleases with the Lessee.
Lessor may enter into a financing arrangement with one or more Lenders;
provided that such Lenders acknowledge in writing that they take subject to this
Agreement.
(c) The Lessee will not permit any sublessee to sell or otherwise transfer
title to any Container to any third party.
(d) The Lessee agrees to give the Lessor, within one hundred and eighty
(180) days of the end of each calendar year, an inventory of the Containers as
of year end. This inventory will specify the name of the lessee of each
Container then on lease.
9. Insurance; Total Loss or Destruction.
(a) The Lessee agrees during the term of this Agreement to insure the
Containers against all risks of physical loss and to maintain comprehensive
general liability insurance covering the Containers against bodily injury or
property damage, in each case subject to normal terms and conditions of a
comprehensive insurance policy, the cost of which insurance shall be an
Operating Expense of the Container Set for purposes of Section 6. The Lessee
will provide the Lessor with a Certificate of Insurance evidencing the insurance
for all Containers covered by this Agreement and naming Lessor and Lenders as an
additional insured and loss payee as their interests may appear. If the Lessee,
through its own negligence, does not maintain the insurance in effect, any loss
or expense due to the failure to maintain the insurance in effect shall be the
responsibility of the Lessee and, notwithstanding the provisions of Section 6,
shall not be an Operating Expense of the Container Set for purposes of Section
6.
(b) (i) In the case of a Casualty Occurrence or an Ordinary Disposal
Occurrence as to a Container, the Lessee agrees to replace the Container within
ninety (90) days after Lessee receives notice of the Casualty Occurrence or
within ninety (90) days after the Ordinary Disposal Occurrence with one of like
size, type, age, and condition and to deliver to the Lessor with respect thereto
concurrently with the replacement of such Container a Certificate of Replacement
in the form of Exhibit B attached hereto, a Bill of Sale in substantially the
form attached to the Purchase and Sale Agreement, and an amendment to the
Uniform Commercial Code financing statements originally filed with respect to
this transaction.
(ii) In the alternative, until the last day of the calendar quarter
following the calendar quarter in which there occurs a Casualty Occurrence or an
Ordinary Disposal Occurrence, Lessee may, on behalf of the Lessor, and Lessor
hereby authorizes Lessee to, sell, lease or otherwise dispose of a Container
subject to a Casualty Occurrence or an Ordinary Disposal Occurrence, at the
19
<PAGE>
sole and absolute discretion of the Lessee; provided that, if (x) a Container is
subject to a Casualty Occurrence or an Ordinary Disposal Occurrence during the
period commencing on the Purchase Date and ending on June 30, 1999; and (y) the
total number of Containers included in the Container Set on the Purchase Date
and theretofore sold, leased or otherwise disposed of pursuant to this Section
(calculated on a TEU basis as of the last day of the most recent calendar
quarter during such period) exceeds five percent (5%) of the total number of
Containers (calculated on a TEU basis as of the Purchase Date), Lessee shall
replace such Container in accordance. with the preceding Section and shall not
be entitled to sell, lease or otherwise dispose of such Container pursuant to
this Section. The net proceeds of the sale, lease or other disposition shall be
allocated between the Lessor and the Lessee as follows:
(1) the Lessor shall first receive an amount equal to the
lesser of:
(A) the amount of the net proceeds; or
(B) the value of the Container according to Exhibit A
attached hereto; and
(2) any net proceeds remaining after the allocation to the
Lessor in subpart (1) shall be paid 50% to the Lessor and 50% to the Lessee as
incentive compensation for handling the sale, lease or other disposition.
(iii) The cost of the replacement or the payment shall not be an
Operating Expense of the Container Set for purposes of Section 6.
(iv) If the Lessee elects to replace the Container, it shall be
entitled to retain the net proceeds of the Casualty Occurrence or Ordinary
Disposal Occurrence for its own account, and the Lessor shall transfer all of
its right, title and interest in and to the original Container to the Lessee.
Lessor agrees to execute or to cause to be executed all necessary documents,
including a bill of sale and a Uniform Commercial Code release, to evidence such
transfer to Lessee.
(v) If the Lessee elects to pay the Lessor the amount described in
Section 9(b) (ii) above, the Lessor shall be entitled to Fixed Rent or Variable
Rent on account of the Container subject to the Casualty Occurrence or Ordinary
Disposal Occurrence in accordance with Section 6 and shall be entitled to
receive such amount on or prior to the last day of the calendar quarter
following the calendar quarter in which termination of this Agreement occurs as
to such Container.
10. Security Interest. To secure the prompt and full payment and
performance of any and all of Lessee's obligations hereunder,
20
<PAGE>
Lessee hereby assigns, transfers, sets over, and grants to Lessor a security
interest in all of Lessee's right, title and interest in and to any and all
present or future subleases, leases, chattel paper, agreements for use, or other
similar agreements relating to the Containers, all accounts, rents, payments and
other rights to receive moneys relating thereto, all other general intangibles
thereunder, all books and records and other documents relating thereto, and all
proceeds of the foregoing (in each case to the extent the same relates to the
Containers) (collectively, the "Collateral"). Upon the occurrence and during the
continuance of an Event of Default (provided that the Lessor shall have
delivered to the Lessee written notice of termination of this Agreement
pursuant to Section 4(c) and the written notice described in Section 5 (c) (A),
except that no notices are required with respect to the Event of Default
specified in Section 4(c) (5)), Lessee agrees that Lessor shall have the right
from and after the effective date of termination to receive and collect all
rent and other sums payable to or receivable by Lessee under any such subleases,
and the right to make all waivers and agreements, to give all notices, consents
and releases and to do any and all other things whatsoever which the Lessee is
or may become entitled to do under any sublease (in each case to the extent such
sublease relates to the Containers).
Anything herein to the contrary notwithstanding, nothing contained
in this Section 10 may be interpreted as permitting the Lessor or any Lender,
and no right or remedy may be exercised by the Lessor or any Lender, which would
result in the derogation of any covenant of quiet enjoyment made to any
sublessee under any sublease of a Container.
11. Sale or Transfer by Lessor. The Lessor may at any time sell or
transfer any Container or any interest therein subject to this Agreement,
provided that:
(a) the party to whom the Container is sold or transferred
acknowledges in writing that the sale or transfer is subject to this Agreement;
(b) the Lessor shall not be entitled to offer or sell any Container
or any interest therein or assign or transfer this Agreement or any interest
therein to any resident, domiciliary or citizen of the United States unless the
offer, sale, assignment or transfer is made in compliance with all applicable
United States and state securities laws; and
(c) the Lessor shall not be entitled to sell or transfer any
Container or any interest therein during the term of this Agreement to any
person engaged in the business of operating and leasing ocean-going marine
shipping containers to end-users, or any affiliates thereof (other than PLM
International, Inc. and its affiliates).
21
<PAGE>
With respect to paragraph (b) above, the Lessor agrees that it will not
authorize discussions concerning the sale or transfer of any Container or any
interest therein, or the assignment or transfer of this Agreement or any
interest therein, within the United States. If an agency or court of the United
States or any State thereof makes a legitimate request for information to
evidence compliance with the matters stated in this Section 11, the Lessor
shall, upon notice from the Lessee that such request has been made, disclose
such information or the evidence verifying such information so as to comply with
such request.
12. Assignment or Transfer by Lessee. No assignment hereof by Lessee or
transfer of any of the rights of Lessee hereunder shall be valid or effective as
against the Lessor unless in conformity with the prior written consent of the
Lessor (which consent shall not be unreasonably withheld).
13. Governing Law. This Agreement is to be interpreted and enforced in
accordance with the laws of the State of California.
14. Securities Laws Representation. For the purpose of the United States
and state securities laws, Lessor represents and warrants to the Lessee that the
following are true and correct on the date the Lessor executes this Agreement:
(a) The Lessor has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of an
investment in containers and of protecting its own interests in connection with
such investment.
(b) The Lessor is entering into this Agreement and acquiring the
Containers or an interest therein for its own account and not with a view to or
for sale in connection with any distribution of a security.
Lessor acknowledges that this transaction has not been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities law. Therefore, if this transaction is deemed a security under
federal or state securities laws, an interest in this Agreement or in the
Containers may not be resold unless it is registered under the Act and all
applicable state securities laws or an exemption from such registration is
available.
15. Amendment.
No modification or amendment of this Agreement shall be valid unless in
writing and executed by the parties hereto.
16. Integration.
This Agreement represents the entire agreement and understand-
22
<PAGE>
ing between the parties hereto and supersedes all prior or contemporaneous
agreements, whether written or oral, with respect to the subject matter hereof.
17. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
18. Title and Headings; Sections.
Title and headings of the sections and subsections of this Agreement are
for convenience of reference only and do not form a part of this Agreement and
shall not in any way affect the interpretation thereof. References to sections
and subsections without further attribution mean sections and subsections of
this Agreement.
19. Successors and Assigns.
The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective permitted successors and assigns of each
party hereto.
20. Further Assurances.
The parties hereto agree to execute and deliver, or cause to be executed
and delivered, such further instruments or documents and take such further
action as may be reasonably required effectively to carry out the transactions
contemplated herein.
21. Waiver of Jury Trial.
LESSEE AND LESSOR EACH IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION OR PROCEEDING UPON,
ARISING OUT OF, OR RELATED TO THIS AGREEMENT.
22. Chattel Paper.
Only one counterpart of this Agreement shall be marked "Counterpart No.
One" ("Counterpart No. One"), and all other counterparts hereof shall be marked
as, and shall be duplicates. To the extent this Agreement constitutes chattel
paper (as such term is defined in the Uniform Commercial Code in effect in any
applicable jurisdiction), no security interest herein may be created through the
transfer or possession of any counterpart other than Counterpart No. One.
23
<PAGE>
23. Effectiveness.
This Agreement shall be effective, only when it has been executed and
delivered by each of the parties hereto.
EXECUTED as of the 17th day of April, 1995.
TRANS OCEAN CONTAINER CORPORATION,
the Lessee
851 Traeger Avenue
San Bruno, CA. 94066
Telecopy No. (415) 873-6764
By: /s/ [ILLEGIBLE]
------------------------------------
Its: TREASURER
-----------------------------------
INVESTORS ASSET HOLDING CORP., not in its
individual capacity but solely as Trustee
of the "AFG/ICCU Trust," the Lessor
Exchange Place
Boston, MA 02109
Telecopy No. (617) 523-1410
By:
------------------------------------
Its:
-----------------------------------
24
<PAGE>
23. Effectiveness.
This Agreement shall be effective, only when it has been executed and
delivered by each of the parties hereto.
EXECUTED as of the 17th day of April, 1995.
TRANS OCEAN CONTAINER CORPORATION,
the Lessee
851 Traeger Avenue
San Bruno, CA. 94066
Telecopy No. (415) 873-6764
By:
------------------------------------
Its:
-----------------------------------
INVESTORS ASSET HOLDING CORP., not in its
individual capacity but solely as Trustee
of the "AFG/ICCU Trust," the Lessor
Exchange Place
Boston, MA 02109
Telecopy No. (617) 523-1410
By: /s/ [ILLEGIBLE]
------------------------------------
Its: Vice-President
-----------------------------------
24
<PAGE>
EXHIBIT A
VALUE IN THE EVENT OF A CASUALTY OCCURRENCE
OR AN ORDINARY DISPOSAL OCCURRENCE
(As % of Container Cost)
After After
Quarter* Value Quarter* Value
-------- ----- -------- -----
0 103.75% 31 64.77%
1 103.00% 32 62.76%
2 102.23% 33 60.68%
3 101.43% 34 58.53%
4 100.61% 35 56.31%
5 99.76% 36 54.02%
6 98.89% 37 51.66%
7 97.98% 38 49.22%
8 97.05% 39 46.70%
9 96.08% 40 44.10%
10 95.08% 41 41.41%
11 94.05% 42 38.64%
12 92.99% 43 35.77%
13 91.90% 44 32.82%
14 90.76% 45 29.77%
15 89.59% 46 26.61%
16 88.39% 47 23.36%
17 87.14% 48 20.00%
18 85.85% 49 18.61%
19 84.52% 50 17.18%
20 83.15% 51 15.70%
21 81.73% 52 14.17%
22 80.27% 53 12.59%
23 78.76% 54 10.96%
24 77.20% 55 9.28%
25 75.59% 56 7.54%
26 73.93% 57 5.74%
27 72.21% 58 3.89%
28 70.44% 59 1.98%
29 68.61% 60 0.00%
30 66.72%
- ----------
* Quarters begin to be counted as of the beginning of the first calendar quarter
after the calendar quarter in which the Container is included in the Container
Set.
26
<PAGE>
EXHIBIT B
SAMPLE
Certificate of Replacement Number ______
A. Description of the Container(s)
Trans Ocean Container Corporation (the "Lessee") certifies that the
Container(s) listed below in Column 1 (the "Affected Container(s)") that
heretofore were subject to the Marine Shipping Container Variable Lease dated as
of April _____, 1995 (the "Agreement") with Investors Asset Holding Corp., a
Massachusetts corporation, not in its individual capacity but solely as Trustee
of the "AFG/ICCU Trust" (the "Lessor") have been subject to a Casualty
Occurrence or an Ordinary Disposal Occurrence (as such terms are defined in the
Agreement). Therefore, in accordance with Section 9(b) of the Agreement, the
Lessee elects to provide replacement container(s) therefor and certifies that:
(i) the container(s) listed below in Column 2 (the "Replacement Container (s)")
are of like size, type, age and condition as the Affected Container(s), and (ii)
effective on the date indicated below, the Replacement Container(s) shall, for
purposes of the Agreement, replace the Affected Container(s), and (iii) the
Replacement Container(s) are, as of such date, "Containers" for purposes of the
Agreement.
COLUMN 1 COLUMN 2
-------- --------
1. Designation of Containers 1. Designation of Containers
2. Type: 2. Type:
3. Quantity: 3. Quantity:
4. Container 4. Container
Numbers: Numbers:
B. Date Replacement Container(s)
Are Effective Under The Agreement:
C. Lease of the Replacement Containers(s)
The Lessee shall lease the above-designated Replacement Container(s) in
accordance with the terms and conditions of the Agreement.
D. Restriction on Transfer of the Replacement Container(s)
The Lessor may not sell or transfer the above designated Replacement
Container(s) or any interest therein except in accordance with the Agreement.
TRANS OCEAN CONTAINER CORPORATION
By:
-------------------------------
Title:
----------------------------
27
<PAGE>
SCHEDULE I
Specified Depot Locations
for Redelivery of the Containers
Pusan New York
Hong Kong London
Kaohsiung Le Havre
Kobe Antwerp
Nagoya Rotterdam
Yokohama Bremen
Seattle Hamburg
San Francisco/Oakland Marseille
Los Angeles/Long Beach Genoa
Houston Leghorn
New Orleans Milan
Chicago
28
<PAGE>
SCHEDULE II
TRANS OCEAN LTD
CALCULATION OF DAILY ADJUSTED GROSS REVENUE
COMBINED CONTAINER SET IV
? QUARTER 199?
I. CONTAINER SET RESULTS
<TABLE>
<CAPTION>
DRY CARGO DRY CARGO HIGH CUBE OPEN TOP OPEN TOP COLLAPSIBLE
20' 40' DRY 40' 20' 40' FLAT 40' TOTAL
--------- --------- --------- -------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
GROSS REVENUE $5 $5 $5 $5 $5 $5 $30
BAD DEBT WRITE-OFFS ($1) ($1) ($1) ($1) ($1) ($1) ($6)
--------- --------- --------- -------- -------- ----------- -----
TOTAL GROSS REVENUE $4 $4 $4 $4 $4 $4 $24
REPAIR AND MAINTENANCE EXPENSE $1 $1 $1 $1 $1 $1 $6
OTHER OPERATING EXPENSES $1 $1 $1 $1 $1 $1 $6
--------- --------- --------- -------- -------- ----------- -----
TOTAL EXPENSES $2 $2 $2 $2 $2 $2 $12
--------- --------- --------- -------- -------- ----------- -----
ADJUSTED GROSS REVENUE $2 $2 $2 $2 $2 $2 $12
========= ========= ========= ======== ======== =========== =====
</TABLE>
II. CONTAINER SET TEU DAYS
BEGINNING ENDING AVERAGE DAYS IN CONTAINER SET
MONTH TEUS TEUS TEUS MONTH TEU DAYS
- ---------- --------- ------ ------- ------- -------------
Month 1 6.00 6.00 6.00 31 186.00
Month 2 6.00 6.00 6.00 30 180.00
Month 3 6.00 6.00 6.00 31 186.00
-------------
TOTAL CONTAINER SET TEU DAYS 552.00
=============
III. DAILY ADJUSTED GROSS REVENUE PER TEU
<TABLE>
<CAPTION>
DRY CARGO DRY CARGO HIGH CUBE OPEN TOP OPEN TOP COLLAPSIBLE
20' 40' DRY 40' 20' 40' FLAT 40' TOTAL
--------- --------- --------- -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
AVERAGE # OF CONTAINER TEU DAYS 92.00 138.00 154.56 92.00 33.44 42.00 552.00
GROSS REVENUE $0.05 $0.04 $0.03 $0.05 $0.15 $0.12 $0.05
BAD DEBT WRITE-OFFS ($0.01) ($0.01) ($0.01) ($0.01) ($0.03) ($0.02) ($0.01)
--------- --------- --------- -------- -------- ----------- ------
TOTAL GROSS REVENUE $0.04 $0.03 $0.03 $0.04 $0.12 $0.10 $0.04
REPAIR AND MAINTENANCE EXPENSE $0.01 $0.01 $0.01 $0.01 $0.03 $0.02 $0.01
OTHER OPERATING EXPENSES $0.01 $0.01 $0.01 $0.01 $0.03 $0.02 $0.01
--------- --------- --------- -------- -------- ----------- ------
TOTAL EXPENSES $0.02 $0.01 $0.01 $0.02 $0.06 $0.05 $0.02
--------- --------- --------- -------- -------- ----------- ------
ADJUSTED GROSS REVENUE $0.02 $0.01 $0.01 $0.02 $0.06 $0.05 $0.02
========= ========= ========= ======== ======== =========== ======
</TABLE>
<PAGE>
TRANS OCEAN LTD
CALCULATION OF LESSOR'S VARIABLE RENT
COMBINED CONTAINER SET IV
? QUARTER 199?
LESSOR: ?
I. LESSOR'S CONTAINER TEU DAYS
40' HIGH
40' DRY CUBE
CARGO DRY CARGO TOTAL
------- --------- ------
NUMBER OF CONTAINER DAYS
IN THE CONTAINER SET: 92 92
TEU FACTOR: 1.50 1.68
------- ---------
LESSOR'S CONTAINER TEU DAYS: 138.00 154.56 292.56
------- --------- ======
II LESSOR'S ADJUSTED GROSS REVENUE
DAILY ADJUSTED GROSS REVENUE PER TEU: $0.02
LESSOR'S CONTAINER TEU DAYS: 292.56
--------
LESSOR'S ADJUSTED GROSS REVENUE $5.85
--------
VARIABLE RENT PERCENTAGE: 75.00%
--------
VARIABLE RENT DUE TO LESSOR: $4.39
========
<PAGE>
CONTAINER TEU DAYS CALCULATION
? QUARTER 199?
LESSOR
TOTAL
UNIT TOTAL
CONTAINER ACTIVITY NUMBER DAYS IN TEU TEU
TYPE DATE OF UNITS QUARTER FACTOR DAYS
- ------------ -------- -------- ------- ------ -------
C40 Month 1 1 92 1.50 138.00
-------- ------- -------
1 92 138.00
J40 Month 1 1 92 1.68 154.56
-------- ------- -------
1 92 154.56
<PAGE>
LLR00D LOAN AMORTIZATION SCHEDULE 9/29/97 10:34:50 PAGE 1
EQUITY OWNER: 8801 AFG TRUST 88-1
PERCENT OWNED: 100.000000%
LESSEE: AMOCO RENTAL SCHEDULE: B-O-9
LENDER NAME: KANSALLIS FINANCE LTD LOAN CODE: KFNL052
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
PAYMENT PMT BALANCE TOTAL INTEREST PRINCIPAL BALANCE
DATE # BEFORE PMT PAYMENT PAYMENT PAYMENT AFTER PMT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2/01/1989 1 119,033.61 9,808.71 3,228.79 6,579.92 112,453.69
8/01/1989 2 112,453.69 9,808.71 5,903.82 3,904.89 108,548.80
2/01/1990 3 108,548.80 9,808.71 5,698.81 4,109.90 104,438.90
8/01/1990 4 104,438.90 9,808.71 5,483.04 4,325.67 100,113.23
2/01/1991 5 100,113.23 9,808.71 5,255.94 4,552.77 95,560.46
8/01/1991 6 95,560.46 9,808.71 5,016.92 4,791.79 90,768.67
2/01/1992 7 90,768.67 9,808.71 4,765.36 5,043.35 85,725.32
8/01/1992 8 85,725.32 9,808.71 4,500.58 5,308.13 80,417.19
2/01/1993 9 80,417.19 9,808.71 4,221.90 5,586.81 74,830.38
8/01/1993 10 74,830.38 9,808.71 3,928.60 5,880.11 68,950.27
2/01/1994 11 68,950.27 9,808.71 3,619.89 6,188.82 62,761.45
8/01/1994 12 62,761.45 9,808.71 3,294.98 6,513.73 56,247.72
8/01/1994 56,247.72 17,975.55 .00 17,975.55 38,272.17
2/01/1995 13 38,272.17 6,674.24 2,009.29 4,664.95 33,607.22
8/01/1995 14 33,607.22 6,674.24 1,764.38 4,909.86 28,697.36
2/01/1996 15 28,697.36 6,674.24 1,506.61 5,167.63 23,529.73
8/01/1996 16 23,529.73 6,674.24 1,235.31 5,438.93 18,090.80
2/01/1997 17 18,090.80 6,674.24 949.77 5,724.47 12,366.33
8/01/1997 18 12,366.33 6,674.24 649.23 6,025.01 6,341.32
8/02/1997 6,341.32 6,341.32 .00 6,341.32 .00
2/01/1998 19 .00 .00 .00 .00 .00
182,066.83 63,033.22 119,033.61
</TABLE>
YEARLY RATE OF RETURN: 10.50000%
** END OF REPORT **
<PAGE>
Exhibit A - Value in the Event of a Casualty Occurrence or an Ordinary Disposal
Occurrence
Exhibit B - Certificate of Replacement
Schedule I - Specified Depot Locations
Schedule II - Form of Report re: Lessor Adjusted Gross Revenues
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,837,781
<SECURITIES> 168,288
<RECEIVABLES> 1,220,898
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,226,967
<PP&E> 17,500,186
<DEPRECIATION> 8,780,173
<TOTAL-ASSETS> 13,946,980
<CURRENT-LIABILITIES> 554,736
<BONDS> 4,192,148
0
0
<COMMON> 0
<OTHER-SE> 9,200,096
<TOTAL-LIABILITY-AND-EQUITY> 13,946,980
<SALES> 0
<TOTAL-REVENUES> 3,111,970
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,286,569
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 386,021
<INCOME-PRETAX> 439,380
<INCOME-TAX> 0
<INCOME-CONTINUING> 439,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 439,380
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
