<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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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 0-21444
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AFG Investment Trust C
(Exact name of registrant as specified in its charter)
Delaware 04-3157232
- ----------------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad Street, Sixth Floor, Boston, MA 02110
- ----------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
------------------------------
Securities registered pursuant to Section 12(b) of the Act NONE
--------------------
Title of each class Name of each exchange on which registered
- --------------------------- ------------------------------------------------
- --------------------------- ------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
2,011,014 Class A Trust Beneficiary Interests
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XX No
---- ----
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. Not applicable. Securities are nonvoting for this purpose.
Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1999 (Part I and II)
<PAGE>
AFG Investment Trust C
FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the Trust's Securities and Related Security Holder
Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 7
PART III
Item 10. Directors and Executive Officers of the Trust 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 14-15
2
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PART I
Item 1. Business.
(a) General Development of Business
AFG Investment Trust C (the "Trust") was organized as a Delaware business
trust in accordance with the Delaware Business Trust Act (the "Act") on August
31, 1992 for the purpose of acquiring and leasing to third parties a diversified
portfolio of capital equipment. Participants' capital initially consisted of
contributions of $1,000 from the Managing Trustee, AFG ASIT Corporation, $1,000
from the Special Beneficiary, Equis Financial Group Limited Partnership
(formerly known as American Finance Group), a Massachusetts limited partnership
("EFG"), and $100 from the Initial Beneficiary, AFG Assignor Corporation, a
wholly-owned affiliate of EFG or the "Advisor". The Trust issued an aggregate of
2,011,014 Beneficiary Interests (hereinafter referred to as Class A Interests)
at a subscription price of $25.00 each ($50,275,350 in total) to 2,477 investors
through 9 serial closings commencing December 15, 1992 and ending September 2,
1993. On July 18, 1997, the Trust issued 3,024,740 Class B Interests at $5.00
each ($15,123,700 in total), of which (i) 3,019,220 interests are held by Equis
II Corporation, an affiliate of EFG, and (ii) 5,520 interests are held by 10
other Class A investors. The Trust repurchased 218,661 Class A Interests on
October 10, 1997 at a cost of $2,291,567 using proceeds from the issuance of
Class B Interests. On April 28, 1998, the Trust repurchased 5,200 additional
Class A Interests at a cost of $46,800. Accordingly, there are 1,787,153 Class A
Interests currently outstanding. The Class A and Class B Interest holders are
collectively referred to as the "Beneficiaries".
The Trust has one Managing Trustee, AFG ASIT Corporation, a Massachusetts
corporation, and one Special Beneficiary, Semele Group Inc. ("Semele"). Semele
purchased the Special Beneficiary Interests from EFG during the fourth quarter
of 1999. EFG continues to act as Advisor to the Trust and provides services in
connection with the acquisition and remarketing of the Trust's assets. The
Managing Trustee is responsible for the general management and business affairs
of the Trust. AFG ASIT Corporation is a wholly owned subsidiary of Equis II
Corporation and an affiliate of EFG. Class A Interests and Class B Interests
basically have identical voting rights and, therefore, Equis II Corporation has
control over the Trust on all matters on which the Beneficiaries may vote. Gary
D. Engle, has voting control of Equis II Corporation. The Managing Trustee and
the Special Beneficiary are not required to make any other capital contributions
except as may be required under the Second Amended and Restated Declaration of
Trust, as amended (the "Trust Agreement").
(b) Financial Information About Industry Segments
Historically, the Trust has been 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 Purchase Price of the leased equipment. Operating leases are those in
which the aggregate undiscounted, noncancellable rental payments are less than
the Purchase Price of the leased equipment. In connection with a Solicitation
Statement and consent of Beneficiaries in 1998, the Trust Agreement was modified
to permit the Trust to invest in assets other than equipment. During 1999, the
Trust made certain non-equipment investments that the Managing Trustee believes
have the potential to enhance the Trust's overall economic performance for the
benefit of all of the Beneficiaries. Industry segment data is not applicable.
(c) Narrative Description of Business
The Trust 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. Significant
operations commenced coincident with the Trust's initial purchase of equipment
and associated lease commitments on December 15, 1992. The acquisition of the
equipment and its associated leases is described in detail in Note 3 to the
financial statements included in Item 14 herein. Pursuant to the Trust
Agreement, the Trust is scheduled to be dissolved by December 31, 2004. The
Trust was a Nominal Defendant in a Class Action Lawsuit, the resolution of which
is described in Note 9 to the accompanying financial statements.
3
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The Trust has no employees; however, it entered into a Advisory Agreement
with EFG. EFG'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 Advisor is compensated for such services as described in the
Trust Agreement, Item 13 herein, and in Note 6 to the financial statements
included in Item 14, herein.
The Trust'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 Trust is subject to considerable
competition when equipment is re-leased or sold at the expiration of primary
lease terms. The Trust must compete with lease programs offered directly by
manufacturers and other equipment leasing companies, including business trusts
and limited partnerships organized and managed similarly to the Trust 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 Trust. Many competitors have greater financial resources and more experience
than the Trust, the Managing Trustee and the Advisor. In addition, default by a
lessee under a lease agreement may cause equipment to be returned to the Trust
at a time when the Managing Trustee or the Advisor is unable to arrange the sale
or re-lease of such equipment. This could result in the loss of a portion of
potential lease revenues and weaken the Trust's ability to repay related
indebtedness.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1999, 1998 and 1997 is
incorporated herein by reference to Note 2 to the financial statements in the
1999 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
The Trust Agreement originally provided for the reinvestment of Cash From
Sales or Refinancings in additional equipment until September 2, 1997, a period
of four years following the Final Closing. In connection with the Solicitation
Statement and consent of Beneficiaries in 1998, the Trust's reinvestment
provisions were reinstated until December 31, 2002 (see Note 6 to the financial
statements included in Item 14 herein) and the Trust was permitted to invest in
assets other than equipment. Upon the expiration of each primary lease term, the
Managing Trustee will determine whether to sell or re-lease the Trust's
equipment, depending on the economic advantages of each alternative. Over time,
the Trust will begin to liquidate its portfolio of equipment. Similarly, any
non-equipment investments will be liquidated as the Trust nears its scheduled
dissolution date.
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 Trust and several other
direct-participation equipment leasing programs sponsored or co-sponsored by AFG
(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
4
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acronym in connection with the Trust and the Other Investment Programs and to
continue managing all assets owned by the Trust 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
1999 Annual Report.
Item 3. Legal Proceedings.
Incorporated herein by reference to Note 9 to the financial statements in the
1999 Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
5
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PART II
Item 5. Market for the Trust's Securities and Related Security Holder Matters.
(a) Market Information
There is no public market for the resale of the Interests and it is not
anticipated that a public market for resale of the Interests will develop.
(b) Approximate Number of Security Holders
At December 31, 1999, there were 1,946 record holders (1,935 Class A
Interests and 11 Class B Interests) in the Trust.
(c) Dividend History and Restrictions
Historically, cash distributions have been declared and paid within 45 days
after the completion of each calendar month and described in a statement sent to
the Beneficiaries. Distributions prior to Class B Payout (defined below) were
allocated to the Class A and Class B Beneficiaries as follows: first, 100% to
the Class A Beneficiaries up to $0.41 per Class A Interest; second, 100% to the
Class B Beneficiaries up to $0.164 per Class B Interest, reduced by the Class B
Distribution Reduction Factor (defined below); third, 100% to the Class A
Beneficiaries up to an additional $0.215 per Class A Interest; and fourth, until
Class B Payout was attained, 80% to the Class B Beneficiaries and 20% to the
Class A Beneficiaries.
During the past year, the Managing Trustee evaluated and pursued a number of
potential new investments, several of which the Managing Trustee concluded had
market returns that it believed were less than adequate given the potential
risks. Most transactions have involved the equipment leasing, business finance
and real estate development industries. Although the Managing Trustee intends to
continue to evaluate additional new investments, it anticipates that the Trust
will be able to fund these new investments with cash on hand or from other
sources, such as the proceeds from future asset sales or refinancings and new
indebtedness. As a result, the Trust declared a special cash distribution to the
Trust Beneficiaries totaling $15,200,000 which was paid on January 19, 2000.
After the special distribution on January 19, 2000, the Trust adopted a new
distribution policy and suspended the payment of regular monthly cash
distributions. Looking forward, the Managing Trustee does not expect to
reinstate cash distributions until expiration of the Trust's reinvestment period
in December 2001; however, the Managing Trustee periodically will review and
consider other one-time distributions. In addition to maintaining sale proceeds
for reinvestment, the Managing Trustee expects that the Trust will retain cash
from operations to pay down debt and for the continued maintenance of the
Trust's assets. The Managing Trustee believes that this change in policy is in
the best interests of the Trust over the long term and will have the added
benefit of reducing the Trust's distribution expenses.
Class A Payout means the first time when the aggregate amount of all
distributions actually made to the Class A Beneficiaries equals $25 per Class A
Interest (minus all uninvested capital contributions returned to the Class A
Beneficiaries) plus a cumulative annual distribution of 10% compounded quarterly
and calculated beginning with the last day of the month of the Trust's initial
Class A Closing.
Class B Payout means the first time when the aggregate amount of all
distributions actually made to the Class B Beneficiaries equals $5 per Class B
Interest plus a cumulative annual return of 8% per annum compounded quarterly
with respect to capital contributions returned to them as a Class B Capital
Distribution and 10% per annum, compounded quarterly, with respect to the
balance of their capital contributions calculated beginning August 1, 1997, the
first day of the month following the Class B Closing. Class B Payout occurred on
January 19, 2000 in conjunction with the special cash distribution paid on that
date.
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As Class B Payout has been attained, all further distributions will be made
to the Class A Beneficiaries and the Class B Beneficiaries in amounts so that
each Class A Beneficiary receives, with respect to each Class A Interest, an
amount equal to 400%, divided by the difference between 100% and the Class B
Distribution Reduction Factor, of the amount so distributed with respect to each
Class B Interest. The Class B Distribution Reduction Factor means the percentage
determined as a fraction, the numerator of which is the aggregate amount of any
cash distributions paid to the Class B Beneficiaries as a return of their
original capital contributions (on a per Class B Subordinated Interest basis),
discounted at 8% per annum (commencing August 1, 1997, the first day of the
month following the Class B Closing) and the denominator of which is $5.00.
Distributions in 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Managing Special
Total Trustee Beneficiary Beneficiaries
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Total 1999 distributions
Class A Interests $ 8,838,796 $ 74,065 $ 611,038 $ 8,153,693
Class B Interests 12,185,755 121,858 1,005,324 11,058,573
----------- ----------- ---------- -----------
Total $21,024,551 $ 195,923 $1,616,362 $19,212,266
=========== =========== ========== ===========
Total 1998 distributions
Class A Interests $ 3,228,082 $ 32,280 $ 266,317 $ 2,929,485
Class B Interests 6,523,016 18,762 154,783 6,349,471
----------- ----------- ---------- -----------
Total $ 9,751,098 $ 51,042 $ 421,100 $ 9,278,956
=========== =========== ========== ===========
</TABLE>
Distributions payable were $15,200,000 and $399,296 at December 31, 1999 and
1998, respectively.
Item 6. Selected Financial Data.
Incorporated herein by reference to the section entitled "Selected Financial
Data" in the 1999 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
1999 Annual Report.
Item 8. Financial Statements and Supplementary Data.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1999 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
7
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PART III
Item 10. Directors and Executive Officers of the Trust.
(a-b) Identification of Directors and Executive Officers
The Trust has no Directors or Officers. As indicated in Item 1 of this
report, AFG ASIT Corporation is the Managing Trustee of the Trust. Under the
Trust Agreement, the Managing Trustee is solely responsible for the operation of
the Trust's properties and the Beneficiaries have no right to participate in the
control of such operations. The names, titles and ages of the Directors and
Executive Officers of the Managing Trustee as of March 15, 2000 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS
OF THE MANAGING TRUSTEE (See Item 13)
<TABLE>
<CAPTION>
Name Title Age Term
- ------------------------ -------------------------------- -------- ----
<S> <C> <C> <C>
Geoffrey A. MacDonald Chairman and a member of the Until a
Executive Committee of EFG successor
and President and a Director is duly
of the Managing Trustee 51 elected
and
Gary D. Engle President and Chief Executive Officer qualified
and a member of the Executive
Committee of EFG and a Director
of the Managing Trustee 51
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and
Clerk of the Managing Trustee 40
Michael J. Butterfield Senior Vice President, Finance and
Treasurer of EFG and Treasurer of
the Managing Trustee 40
James A. Coyne Executive Vice President, Capital
Markets of EFG and Senior Vice
President of the Managing Trustee 39
Sandra L. Simonsen Senior Vice President, Information
Systems of EFG 49
Gail D. Ofgant Senior Vice President, Lease
Operations of EFG 34
</TABLE>
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Directors or
Executive Officers.
8
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(e) Business Experience
Mr. MacDonald, age 51, is a co-founder, Chairman and a member of the
Executive Committee of EFG and President and a Director of the Managing Trustee.
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. Prior to co-founding 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 51, 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, and controls the general partner of Old North Capital Limited
Partnership ("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 B.S. degree from the University of Massachusetts
(Amherst).
Mr. Romano, age 40, 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. 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 39, 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. 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 B.S. 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 40, is Senior Vice President, Finance and Treasurer of
EFG and certain of its affiliates and is Treasurer of the Managing Trustee and
Semele. Mr. Butterfield joined EFG in June 1992, became Vice President, Finance
and Treasurer of EFG and certain of it's affiliates in April 1996 and in July
1998, was promoted to Senior Vice President, Finance and Treasurer of EFG and
certain of its affiliates. 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 49, joined EFG in February 1990 and was promoted to Senior
Vice President, Information Systems of EFG in April 1996. Prior to joining EFG,
Ms. Simonsen was Vice President, Information Systems with Investors Mortgage
Insurance Company, which she joined in 1973. Ms. Simonsen provided systems
consulting for a subsidiary of American International Group and authored a
software program published by IBM. Ms. Simonsen holds a B.A. degree from Wilson
College.
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Ms. Ofgant, age 34, 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 B.S. degree in
Finance from Providence College.
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
See Item 10 (a-b) above.
Item 11. Executive Compensation.
(a) Cash Compensation
Currently, the Trust has no employees. However, under the terms of the Trust
Agreement, the Trust is obligated to pay all costs of personnel employed full or
part-time by the Trust, including officers or employees of the Managing Trustee
or its Affiliates. There is no plan at the present time to make any officers or
employees of the Managing Trustee or its Affiliates employees of the Trust. The
Trust has not paid and does not propose to pay any options, warrants or rights
to the officers or employees of the Managing Trustee or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Trust has no employees, as discussed in Item 11(a), pursuant to
section 10.4(c) of the Trust Agreement, the Trust incurs a monthly charge for
personnel costs of EFG for persons engaged in providing administrative services
to the Trust. A description of the remuneration paid by the Trust to the
Managing Trustee and its Affiliates for such services is included in Item 13,
herein and in Note 6 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 Managing Trustee 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 trust, the Trust has no outstanding
securities possessing traditional voting rights. However, as provided in Section
11.2(a) of the Trust Agreement (subject to Section 11.2(b)), a majority interest
of the Beneficiaries have voting rights with respect to:
1. Amendment of the Trust Agreement;
2. Termination of the Trust;
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3. Removal of the Managing Trustee; and
4. Approval or disapproval of the sale of all, or substantially all, of
the assets of the Trust (except in the orderly liquidation of the Trust
upon its termination and dissolution).
As of March 1, 2000, the following person or group owns beneficially more
than 5% of the Trust's outstanding Beneficiary interests:
<TABLE>
<CAPTION>
Name and Amount Percent
Title Address of of Beneficial of
of Class Beneficial Owner Ownership Class
- ------------------------ ----------------------- ---------------- -------
<S> <C> <C> <C>
Interests Representing Equis II Corporation
Class B Beneficiary 88 Broad Street 3,019,220 Interests 99.82%
Boston, MA 02110
</TABLE>
No person or group is known by the Managing Trustee to own beneficially more
than 5% of the Trust's 1,787,153 outstanding Class A Interests as of March 1,
2000.
Equis II Corporation is controlled by EFG's President and Chief Executive
Officer, Gary D. Engle.
The ownership and organization of EFG is described in Item 1 of this report.
Item 13. Certain Relationships and Related Transactions.
The Managing Trustee of the Trust is AFG ASIT Corporation, an affiliate of
EFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Trust are paid by EFG on behalf of the
Trust and EFG is reimbursed at its actual cost for such expenditures. Fees and
other costs incurred during the years ended December 31, 1999, 1998 and 1997,
which were paid or accrued by the Trust to EFG or its Affiliates, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
Acquisition fees $ 75,281 $ -- $ 1,121,157
Equipment management fees 513,019 659,939 725,116
Offering costs -- -- 151,237
Administrative charges 192,348 90,744 84,834
Reimbursable operating expenses
due to third parties 650,915 702,535 656,425
---------- ---------- -----------
Total $1,431,563 $1,453,218 $ 2,738,769
========== ========== ===========
</TABLE>
EFG and its Affiliates were reimbursed for their out-of-pocket offering costs
incurred on behalf of the Trust in an amount equal to 1% of the gross proceeds
realized by the four trusts which sold Class B Interests pursuant to a
Registration Statement on Form S-1 in 1997. The amount of reimbursement made by
the Trust was prorated in proportion to the number of Beneficiary Interests sold
in the Trust.
As provided under the terms of the Trust Agreement, EFG is compensated for
its services to the Trust. Such services include all aspects of acquisition,
management and sale of equipment. For acquisition services, EFG was compensated
by an amount equal to .28% of Asset Base Price paid by the Trust for each asset
acquired for the Trust's initial asset portfolio. For acquisition services
during the initial reinvestment period, which expired on September 2, 1997, EFG
was compensated by an amount equal to 3% of Asset Base Price paid by the Trust.
In
11
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connection with a Solicitation Statement and consent of Beneficiaries in 1998,
the Trust's reinvestment provisions were reinstated through December 31, 2002
and the Trust was permitted to invest in assets other than equipment.
Acquisition fees paid to EFG in connection with such reinvestment assets are
equal to 1% of Asset Base Price paid by the Trust. For management services, EFG
is compensated by an amount equal to (i) 5% of gross operating lease rental
revenue and 2% of gross full payout lease rental revenue received by the Trust
with respect to assets acquired on or prior to March 31, 1998. For management
services earned in connection with assets acquired on or after April 1, 1998,
EFG is compensated by an amount equal to 2% of gross lease rental revenue
received by the Trust. Both of these fees are subject to certain limitations
defined in the Trust Agreement. For non-equipment investments other than cash,
the Managing Trustee receives an annualized management fee of 1%. Compensation
to EFG for services connected to the remarketing of equipment is calculated as
the lesser of (i) 3% of gross sale proceeds or (ii) one-half of reasonable
brokerage fees otherwise payable under arm's length circumstances. Payment of
the remarketing fee is subordinated to Payout and is subject to certain
limitations defined in the Trust Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
10.4(c) of the Trust Agreement, for persons employed by EFG who are engaged in
providing administrative services to the Trust. Reimbursable operating expenses
due to third parties represent costs paid by EFG on behalf of the Trust which
are reimbursed to EFG at actual cost.
All equipment was purchased from EFG or directly from external vendors. The
Trust's Purchase Price is determined by the method described in Note 2 to the
Trust's financial statements included in Item 14, herein.
All rents and proceeds from the sale of equipment are paid by the lessee
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 Trust.
At December 31, 1999, the Trust was owed $940,527 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in January 2000.
Old North Capital Limited Partnership ("ONC"), a Massachusetts limited
partnership formed in 1995 and an affiliate of EFG, owns 9,210 Class A Interests
or less than 1% of the total outstanding Class A Interests of the Trust. The
general partner of ONC is controlled by Gary D. Engle. In addition, the limited
partnership interests of ONC are owned by a subsidiary of Semele Group, Inc.
("Semele"). Gary D. Engle is Chairman and CEO of Semele.
On July 18, 1997, the Trust issued 3,024,740 Class B Interests at $5.00 per
interest, thereby generating $15,123,700 in aggregate Class B capital
contributions. Class A Beneficiaries purchased 5,520 Class B Interests,
generating $27,600 of such aggregate capital contributions, and the Special
Beneficiary, EFG, purchased 3,019,220 Class B Interests, generating $15,096,100
of such aggregate capital contributions. The Trust incurred offering costs in
the amount of $151,237 in connection with this offering.
Subsequently, EFG transferred its Class B Interests to a special-purpose
company, Equis II Corporation, a Delaware corporation. EFG also transferred its
ownership of AFG ASIT Corporation, the Managing Trustee of the Trust, to Equis
II Corporation. As a result, Equis II Corporation has voting control of the
Trust through its ownership of a majority of all of the Trust's outstanding
voting interests, as well as its ownership of AFG ASIT Corporation. Equis II
Corporation is controlled by EFG's President and Chief Executive Officer, Gary
D. Engle. Accordingly, control of the Managing Trustee did not change as a
result of the foregoing transactions. During the fourth quarter of 1999, Semele
Group Inc. purchased an 85% interest in Equis II Corporation; however, voting
control with respect to the Class B Interests owned by Equis II Corporation
remains vested in Mr. Engle.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Trust
None.
12
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(d) Transactions with Promoters
See Item 13(a) above.
13
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors...............................*
Statement of Financial Position
at December 31, 1999 and 1998................................*
Statement of Operations
for the years ended December 31, 1999, 1998 and 1997.........*
Statement of Changes in Participants' Capital
for the years ended December 31, 1999, 1998 and 1997.........*
Statement of Cash Flows
for the years ended December 31, 1999, 1998 and 1997.........*
Notes to the Financial Statements............................*
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K, as set
forth in Item 601 of Regulation S-K, are not applicable.
Exhibit
Number
- -------
4 Second Amended and Restated Declaration of Trust.
10.1 Guarantee Agreement dated March 8, 2000 between AFG Investment Trust
A, AFG Investment Trust B, AFG Investment Trust C, and AFG
Investment Trust D (each a Guarantor) and Heller Affordable Housing
of Florida, Inc. (among others as Beneficiaries) is filed in the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1999 as Exhibit 10.1 and is included herein.
10.2 Guarantee Fee Agreement dated March 8, 2000 between AFG Investment
Trust A, AFG Investment Trust B, AFG Investment Trust C, and AFG
Investment Trust D (each a Guarantor) and Echelon Commercial LLC is
filed in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999 as Exhibit 10.2 and is included herein.
* Incorporated herein by reference to the appropriate portion of the 1999 Annual
Report to security holders for the year ended December 31, 1999 (see Part II).
14
<PAGE>
Exhibit
Number
- -------
10.3 Guarantors' Contribution Agreement dated March 8, 2000 by and among
AFG Investment Trust A, AFG Investment Trust B, AFG Investment Trust
C, and AFG Investment Trust D (each a Guarantor) is filed in the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1999 as Exhibit 10.3 and is included herein.
13 The 1999 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 Hyundai Electronics America, Inc. is filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1999 as Exhibit 99 (a) and is included herein.
99(b) Lease agreement with Scandinavian Airlines System was filed in the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1998 as Exhibit 99 (a) and is incorporated herein by reference.
(b) Reports on Form 8-K
None.
15
<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.
AFG Investment Trust C
By: AFG ASIT Corporation,
a Massachusetts corporation and the
Managing Trustee of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
------------------------------ ------------------------------
Geoffrey A. MacDonald Gary D. Engle
Chairman and a member of the President and Chief Executive
Executive Committee of EFG and Officer and a member of the
President and a Director of the Executive Committee of EFG and a
Managing Trustee Director of the Managing Trustee
(Principal Executive Officer)
Date: March 30, 2000 Date: March 30, 2000
----------------------------- ------------------------------
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 Treasurer of EFG and Treasurer
of the Managing Trustee of the Managing Trustee
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 30, 2000 Date: March 30, 2000
----------------------------- -----------------------------
16
<PAGE>
Exhibit 10.1
GUARANTEE
THIS GUARANTEE, dated as of March 8, 2000 (this "Guarantee") is
made, jointly and severally, by AFG Investment Trust A, AFG Investment Trust B,
AFG Investment Trust C and AFG Investment Trust D, each a Delaware business
trust (each, a "Guarantor" and together, the "Guarantors") in favor of the
Beneficiaries (as defined below).
WITNESSETH:
WHEREAS, Echelon Commercial LLC a Delaware limited liability company
(the "Master Lessee"), is a party to and has undertaken payment and performance
obligations under the Amended and Restated Master Lease Agreement ("Master
Lease"), dated as of March 7, 2000 between Heller Affordable Housing Florida,
Inc., a Florida corporation, HAHF Trust I, a Delaware business trust; and HAHF
Trust I, a Delaware business trust (collectively, the "Master Lessor") and
Master Lease;
WHEREAS, in order to induce the Beneficiaries to enter into the
Master Lease, the Guarantors are executing and delivering this Guarantee to
Master Lessor (collectively, along with its successors and permitted assigns,
the "Beneficiaries"):
NOW, THEREFORE, for value received, each Guarantor hereby agrees
with and for the benefit of the Beneficiaries as follows:
ARTICLE I
DEFINED TERMS
Unless the context shall otherwise require, capitalized terms used
herein but not otherwise defined herein shall have the meanings assigned thereto
in the Master Lease.
ARTICLE II
GUARANTEE AND INDEMNITIES
SECTION 2.01 Guarantee of Obligations Under Master Lease.
(a) The Guarantors irrevocably and unconditionally, jointly and
severally guarantee to each of the beneficiaries the due, complete and punctual
performance and observance of all payment obligations of the Master Lessee under
the Master Lease, and the due. complete and punctual performance of, and
compliance with, each and all other obligations. covenants and agreements of the
Master Leasee under the Master Lease (in each case, including any and all
indemnities and Liabilities for breach of covenant or warranty now or hereafter
incurred by the Master Leasee to any Beneficiary arising pursuant or with
respect to the Master Lease), in each case strictly in accordance with the terms
thereof (all such obligations and other covenants, indemnities and agreements
being referred to herein as the "Obligations"). The Guarantors agree to pay upon
demand any and all expenses (including reasonable attorneys' fees and
disbursements) that may be paid or incurred by any Beneficiary in enforcing any
rights with
<PAGE>
respect to, or collecting, any or all payments due pursuant to the terms of the
Master Lease and/or enforcing any rights with respect to, or collecting against,
the Guarantor under this Guarantee (whether pursuant to this Section 2.01(a) or
any other provision hereof).
(b) In the event that Master Lessee fails to pay, perform or observe
duly, completely and punctually any Obligation when and as the same shall be due
and payable, or required to be observed or performed, as the case may be, in
accordance with the terms of the Master Lease, the Guarantors shall forthwith
pay, perform and observe such Obligation or cause the same forthwith to be paid,
performed or observed, regardless of whether or not any Beneficiary or anyone on
behalf of any of them shall have instituted any suit, action or proceeding or
exhausted its remedies or taken any steps to enforce any rights against Master
Lessee or any other Person or entity to compel any such performance or
observance or to collect all or any port of such amount pursuant to the
provisions of the Master Lease or am law or in equity, or otherwise, and
regardless of any other condition or contingency.
SECTION 2.02 Unconditional Obligations. This Guarantee is a primary
obligation of each Guarantor independent of the obligations of the Master Lessee
under the Master Lease. and is an unconditional, absolute, present and
continuing obligation and guarantee of payment and performance (and not merely
of collection) and the validity and enforceability of this Guarantee shall be
absolute and unconditional irrespective of, and, shall not be impaired. affected
or in any way conditioned or contingent upon (a) the making of a demand, the
institution of suit or the taking of any other action to enforce performance or
observance by Master Lessee of the Obligations, (b) the validity, regularity or
enforceability of the Master Lease or any of the Obligations or any collateral
security, other guarantee, if any, or credit support therefor or right of offset
with respect thereto at any time or from time to time held by any Beneficiary,
(c) any defense, setoff or counterclaim (other than the defense of prior payment
or performance) that may at any time be available to or be asserted by Master
Lessee or any Guarantor against any beneficiary, (d) any attempt to collect from
Master Lessee or any other entity or to perfect or enforce any security or (e)
upon any other action, occurrence or circumstance whatsoever. The Guarantors
waive any requirement that any Beneficiary shall have instituted any suit,
action or proceeding or exhausted its remedies or taken any steps to enforce any
rights against Master Lessee or any other Person or entity to compel any such
performance or to collect all or any part of such amount pursuant to the
provisions of the Master Lease or at law or in equity, or otherwise, and
regardless of any other condition or contingency.
SECTION 2.03 Amendments, etc., With Respect to the Obligations. The
Guarantors shall remain obligated hereunder and this Guarantee shall remain in
full force and effect without any reservation of rights against the Guarantors
and without notice to or further assent by the Guarantors, notwithstanding that
(a) any demand for payment or performance or observance of any of the
Obligations made by any Beneficiary may be rescinded by such Beneficiary and any
of the other Obligations continue to be in effect; (b) the Obligations, or the
liability of any other Person upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by any Beneficiary; (c) the Master Lease, or any
collateral security document or other guarantee or document executed and
delivered in connection therewith or related thereto, may be amended, modified,
supplemented or terminated, in accordance with its terms, as the parties thereto
may deem advisable; (d) any
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<PAGE>
collateral security, guarantee or right to offset held by any Beneficiary for
the payment or performance or observance of the Obligations may be sold,
exchanged, waived, surrendered or released; or (e) any default with respect to
any ObIigation may be waived by any Beneficiary. No Beneficiary shall have any
obligation to protect, secure, perfect or insure any Lien at any time held by it
as security for the Obligations or for this Guarantee or any property subject
thereto. For purposes hereof, "demand" shall include the commencement and
continuance of any legal proceedings.
The Guarantors hereby ratify and confirm any such extension,
renewal, change, sale, release, waiver, surrender, exchange, modification,
amendment, impairment, substitution. settlement, adjustment or compromise and
agrees that the same shall be binding upon it, and hereby waive to the fullest
extent permitted by Applicable Law any and all defenses, counterclaims or
offsets which it might or could have by reason thereof, it being understood that
the Guarantors shall at all times be bound by this Guarantee and remain liable
hereunder.
SECTION 2.04 The Guarantors' Obligations Not Affected. The
Guarantors expressly agree that the duties and obligations of the Guarantors
under this Guarantee shall remain in full force and effect, without the
necessity of any reservation of rights against the Guarantors or notice to or
further assent by the Guarantors at any time and from time to time, in whole or
in part, and without regard to, and shall not be impaired, released, discharged,
terminated or affected by any of the following actions or the occurrence of any
of the following:
(a) any extension, modification, amendment or renewal of,
termination, addition or supplement to, or deletion from, any of the terms of or
indulgence with respect to, or substitutions for, or the taking of any action or
the giving of any consent with respect to, the Obligations or any part thereof
or the Master Lease or other agreement relating thereto at any time;
(b) any failure, refusal or omission to enforce any right, power or
remedy with respect to the Obligations or any part thereof or the Master Lease
or other agreement relating thereto;
(c) any waiver of any right, power or remedy or of any default with
respect to the Obligations or any part thereof or the Master Lease or other
agreement relating thereto or to provide for any insurance on the Property, or
to establish or maintain the priority or perfection of any interest in the
Property;
(d) any release, surrender, compromise. settlement, waiver,
subordination or modification, with or without consideration, of any collateral
security or other guarantees with respect to the Obligations or any part
thereof, or any other obligation of any Person with respect to the Obligations
or any part thereof;
(e) the lack of genuineness, unenforceability, impossibility of
performance or invalidity of the Obligations or any part thereof or the lack of
genuineness, unenforceability, impossibility of performance or invalidity of the
Master Lease or other agreement relating thereto or the power or authority or
lack of power or authority of the Master Lessee to execute
- 3 -
<PAGE>
and deliver the Master Lease or to perform any of its obligations thereunder or
the existence or continuance of the Master Lessee or any other Person as a legal
entity;
(f) any change in the ownership of the Master Lessee or the
insolvency, bankruptcy or any other change in the legal status of the Master
Lessee or any rejection, modification or release of the obligations of the
Master Lessee or those of any Person under the Master Lease as a result of any
bankruptcy, reorganization, insolvency or similar proceeding;
(g) the change in or the imposition of any Applicable Law or other
governmental act that does or might impair, delay or in any way affect the
validity, enforceability, or the payment when due, of the Obligations to the
extent not prohibited by Applicable Law or otherwise.
(h) the existence of any claim, counterclaim, setoff or other rights
that the Guarantors may have at any time against the Master Lessee or any other
Person in connection herewith or with an unrelated transaction;
(i) any merger or consolidation of the Master Lessee or any
Guarantor into or with any other Person, or any sale, release or transfer of any
or all of the assets of the Master Lessee or any Guarantor to any other Person;
(j) the rights, powers or privileges any Beneficiary may now or
hereafter have against any Person or collateral;
(k) any assignment of the Master Lease or subletting of the Property
or any part thereof or any transfer, sale or other disposition or any
destruction of the Property or any failure of title with respect to any interest
in the Property,
(l) the failure of any Guarantor to receive any benefit from or as a
result of its execution, delivery and performance of this Guarantee; or
(m) any other action, omission, occurrence or circumstance
whatsoever which may in any manner or to any extent constitute a legal or
equitable defense of any Guarantor or vary the risk, prejudice any rights of
subrogation, limit the recourse or effect a discharge of any Guarantor hereunder
as a matter of law or otherwise;
provided that the specific enumeration of the above-mentioned acts, failures or
omissions shall not be deemed to exclude any other acts, failures or omissions,
that are not specifically mentioned above, it being the purpose and intent of
this paragraph that the obligations of the Guarantors hereunder shall be
absolute and unconditional and shall not be discharged, impaired or varied
except by the payment, observance or performance to the appropriate Beneficiary
of the Master Lessee's obligations under the Master Lease, and then only to the
extent of such payments, observance or performance.
Without limitation any of the other teams or provisions hereof, in
order to hold the Guarantors liable hereunder, there shall be no obligation on
the part of any Beneficiary at any time to enforce or attempt to enforce any
right or remedy against the Master Lessee or any other Person or to resort, in
any manner or form, to any collateral, property or estates or any other
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<PAGE>
rights or remedies whatsoever. Without limiting the foregoing, it is understood
that repeated and successive demands may be made and recoveries may be had
hereunder but without duplication of payment as and when, from time to time, the
Master Lessee shall default under the terms of any of the Master Lease and that
notwithstanding the recovery hereunder for or in respect of any given default by
the Master Lessee wider the Master Lease, this Guarantee shall remain in full
force and effect and shall apply to each and every subsequent default. Each and
every default in any payment. observance or performance of any Obligation of the
Master Lessee under the Master Lease shall give rise to a separate claim and
cause of action hereunder, and separate claims or suits may be made and brought,
as the case may be, hereunder as each such default occurs.
SECTION 2.05 Waiver by the Guarantors. The Guarantors
unconditionally waive and release, to the fullest extent permitted by Applicable
Law, any and all (a) notice of the acceptance of this Guarantee by any
Beneficiary and of any change in the financial condition of the Master Lessee;
(b) notices of the creation. renewal, extension or accrual of any Obligation or
any of the matters referred to in Section 2.04 hereof or any notice of or proof
of reliance by any of the Beneficiaries upon this Guarantee or acceptance of
this Guarantee (the Obligations, and any of them, shall conclusively be deemed
to have been created, contracted, incurred, renewed, extended, amended or waived
in reliance upon this Guarantee and all dealings between the Master Lessee or
the Guarantors and each Beneficiary shall be conclusively presumed to have been
had or consummated in reliance upon this Guarantee); (c) notices which may be
required by statute, rule of law or otherwise, now or hereafter in effect, to
preserve intact any rights of any of the Beneficiaries against the Guarantors;
(d) the right to interpose all substantive and procedural defenses to the law of
guarantee, indemnification and suretyship, except the defenses of prior payment
or prior performance by the Master Lessee or the Guarantors of the Obligations;
(e) all rights, defenses and remedies accorded by Applicable Law to guarantors
or sureties, including any extension of time conferred by any law now or
hereafter in effect; (f) any right or claim of right to cause a marshaling of
the assets of the Master Lessee or to cause any Beneficiary to proceed against
the Master Lessee or any collateral held by any Beneficiary at any time or in
any particular order; (g) rights to the enforcement, assertion or exercise by
any of the Beneficiaries of any right, power, privilege or remedy conferred
herein or in the Master Lease or otherwise; (h) requirements of promptness or
diligence on the part of any of the Beneficiaries; (i) notices of the sale,
transfer or other disposition of any right, title to or interest in the Master
Lease; (j) demand of payment by any Beneficiary or any other Person from the
Master Lessee or any other Person indebted or in any manner liable on or for the
Obligations hereby guaranteed; (k) presentment for payment by any Beneficiary or
any other Person of the Obligations, protest thereof and notice of dishonor to
any party, or (l) other circumstances whatsoever (except the defenses of prior
payment or prior performance by the Master Lessee or the Guarantors of the
Obligations) which might otherwise constitute a legal or equitable discharge,
release or defense of a guarantor or surety, or which might otherwise limit
recourse against the Guarantors. No failure to exercise and no delay in
exercising, on the part of any Beneficiary, any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege preclude any other or further exercise
thereof, or the exercise of any other power, privilege or right. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies provided by law.
- 5 -
<PAGE>
SECTION 2.06 Payments. All payments hereunder shall be made in
compliance with Section 7.15.
SECTION 2.07 Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be. if at any time payment, in
whole or in part, of any of the Obligations is invalidated, voided, declared to
be fradulent or preferential, set aside, rescinded or must otherwise be repaid,
restored or returned to a trustee, receiver or any other Person by any
Beneficiary upon the bankruptcy, insolvency, reorganization, arrangement,
adjustment, composition, dissolution, liquidation, or the like, of the Master
Lessee or the Guarantors, or as a result of, the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to the
Master Lessee or the Guarantors or any substantial part of such Person's
respective property, or otherwise, all as though such payment had nor been made
notwithstanding any termination of this Guarantee or the Master Lease. The
liability of the Guarantors shall not he reduced or discharged, in whole or in
part, by any payment to any Beneficiary from any source that is thereafter
repaid, returned or refunded in whole or in part by reason of the assertion of a
claim of any kind relating thereto, including, but not limited to, any claim for
breach of contract, breach of warranty, preference, illegality, invalidity or
fraud asserted by any account debtor or by any other Person.
SECTION 2.08 Expenses. If the Guarantors fail to pay any amount
hereunder when due, the Guarantor shall pay interest, on demand, on such amount
at the Overdue Rate, to such Beneficiary entitled thereto. The Guarantors
further agree to pay to any Beneficiary any and all reasonable out-of-pocket
costs and expenses (including reasonable attorneys' fees and disbursements)
incurred by such Beneficiary in connection with enforcing its rights under the
Master Lease and/or this Guarantee.
SECTION 2.09 Limitation. The maximum liability under this Guarantee
will be the lesser of $34,500,000 or the Guaranteed Amount (as hereinafter
defined) (plus in either case, any interest on any amounts sought to be
recovered hereunder, and fees and expenses related to the enforcement of this
Guarantee as provided in Section 2.08 hereof).
ARTICLE III
COVENANTS
Each Guarantor hereby covenants, for the benefit of each
Beneficiary, as follows:
SECTlON 3.01 Information. Each Guarantor will deliver to the
Beneficiaries:
(a) promptly after the filing thereof, copies of all reports on
Forms 10-K, 10-Q and 8-K (or their equivalents), which such Guarantor shall have
filed with the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended;
(b) as soon as possible and in any event within ten (10) Business
Days after a Responsible Employee of such Guarantor obtains knowledge of the
occurrence of each Event of Default or each event that, with the giving of
notice or time elapse, or both, would constitute an Event of Default continuing
on the date of such statement, a statement of the authorized officer setting
forth details of such Event of Default or event and the action that the
Guarantor proposes
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<PAGE>
to take with respect thereto; provided that the Guarantor shall not be obligated
to give notice of any Event of Default which is remedied within ten (10)
Business Days after such Responsible Employee first obtains knowledge;
(c) promptly upon becoming aware thereof, written notice of the
commencement or existence of any proceeding against the Guarantor or any
Affiliate of the Guarantor by or before any court or governmental agency that
might, in the reasonable judgment of the Guarantor, result in a Material Adverse
Effect on the business, operations or financial conditions of the Guarantor or
the ability of the Guarantor to perform its obligations hereunder or under the
Master Lease;
(d) as soon as possible and in any event within ten (10) Business
Days after the occurrence of any violation or alleged violation of an
Environmental Law by Guarantor or Master Lessee, a statement of an authorized
officer setting forth the details of such violation and the action which the
Guarantor proposes to take with respect thereto; and
(e) from time to time such additional information regarding the
business, properties, condition or operations, financial or otherwise, of such
Guarantor as the Beneficiaries may reasonably request.
SECTION 3.02 Compliance with Laws. The Guarantors will comply in all
material respects with all applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities (including, without limitation,
Environmental Laws and ERISA and the rules and regulations thereunder).
SECTION 3.03 Further Assurances. Each Guarantor will promptly
execute and deliver to the Beneficiaries such further documents, instruments and
assurances and take such further action as the Beneficiaries from time to time
reasonably may request in order to carry out the intent and purpose of this
Guarantee and to establish and protect the rights and remedies created or
intended to be created in favor of the beneficiaries hereunder.
SECTION 3.04 Preservation of Existence, Etc. Each Guarantor will
preserve and maintain its existence and. all rights, privileges and franchises
necessary and desirable in the normal conduct of its business and the
performance of its obligations hereunder and under the Master Lease, provided
that a Guarantor may consolidate with or merge with or into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any Person, if either the Guarantor shall be the continuing Delaware
business trust (if other than the Guarantor) formed by such consolidation or
into which the Guarantor is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Guarantor substantially as an entirety
shall expressly assume, by an assumption agreement executed and delivered to the
Beneficiaries, the performance of the Guarantor's obligations hereunder and
under the Master Lease.
SECTION 3.05 Payment of Taxes. Each Guarantor shall promptly pay
when due all Taxes owing by the Guarantors where such failure could reasonably
be expected to have a Material Adverse Effect, except for such Taxes that are
being contested in good faith by appropriate proceedings and adequate reserves
shall have been set aside therefor.
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<PAGE>
SECTION 3.06 Books and Records. Each Guarantor shall maintain its
books and financial statements in accordance with GAAP, and permit the
Beneficiaries to make or cause to be made inspections and audits of any books,
records and papers of such Guarantor and in make extracts therefrom at all such
reasonable times and as often as any such Person may reasonably require.
SECTION 3.07 Employee Benefit Plans. Each Guarantor shall maintain
each Plan as to which it may have liability, in compliance with all Applicable
Laws.
SECTION 3.08 Payment of Dividends, Each Guarantor agrees not to pay
any dividends or make any other distribution on its capital interests during the
term of this Guarantee except with the consent of the Beneficiary; provided,
however, the Guarantors agree not to request the Beneficiary's consent to such
distributions more than once a fiscal quarter; provided, that, for all tax years
ending on or after December 31, 2001. the Guarantors, if required, may
distribute to its owners amounts solely to compensate such owners for U.S.
federal income tax liability generated by their ownership interest in any
Guarantor. Such amount in no event will exceed 39.5% of the taxable income
allocated to such owner.
SECTION 3.09 Agreements with Affiliates. Each Guarantor agrees not
to amend, modify or terminate any of the agreements with its Affiliates set
forth on Schedule I attached hereto, or to enter into any agreement with any
Affiliate except as set forth on Exhibit A hereto, except to the extent such
amendment, modification, or termination or this Agreement does not (i) affect
the assets held by any Guarantor in an adverse manner, (ii) increase any fees
payable for any liability of any Guarantor, or (iii) create a new fee or
liability by any Guarantor to such Affiliate.
SECTION 3.10 Stipulated Value. The Guarantors may not acquire or
invest in additional assets unless (a) the Guarantors jointly hold not less than
$7,000,000 in cash and cash equivalents (as such terms are defined under GAAP),
and (b) the Stipulated Value (as defined below) as calculated immediately prior
to such asset acquisition or investment (after giving effect to such investment
or asset acquisition in the calculation) is equal to the lesser of $40 million
($40,000,000) or the Guaranteed Amount (as defined below).
(a) Stipulated Value means the sum of the net book values (defined
as determined by GAAP unless otherwise noted) of each individual Asset reduced
by its corresponding non-recourse debt ("NBV'), with no such NBV for an
individual asset being less than zero, included in each Category of Assets set
forth below multiplied by the Adjustment Percentage reduced by all Recourse
Indebtedness of the Guarantors.
Category of Assets Adjustment Percentage
------------------ ---------------------
(i) Unencumbered cash, cash
equivalents, and accounts receivable 100
front affiliates where cash is held by
such affiliate and remitted within 15
days
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<PAGE>
Category of Assets Adjustment Percentage
------------------ ---------------------
(ii) Present Value (at a discount rate
of 10%) of the difference between the
contractual rents payable on any
equipment lease and the contractual
non-recourse debt service
requirements in connection with
such equipment lease rents 90
(iii) The cost of any contract acquired to
manage equipment leasing assets, or
the cost of equity interests in
equipment leasing funds, less any
non-recourse debt incurred to
acquire such contract or equity
interest (without duplication) 82.5
(iv) The NBV (which NBV at the date
hereof is deemed to be $20,000,000)
of any residual interests on any
equipment currently under lease 75
(v) The NBV (which NBV at the date
hereof is deemed to be $2,700,000)
of any residual interests on any
equipment no longer under lease 50
(vi) The NBV of existing real estate
investments 40
(vii) The NBV of real estate investments
made after the date hereof 10
For purposes of the above:
(A) any investment or asset acquisitions alter the date hereof
will be valued at cost.
(B) any writedowns of asset value required by GAAP will also be
required for purposes of determining Stipulated Value.
(C) Upon the sale of any asset included in (iv) or (v) above, the
book value of a Category of Assets will be reduced by the
actual amount of sales
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<PAGE>
proceeds received for such asset multiplied by the Adjustment
Percentage for that Category of Assets.
Notwithstanding anything above to the contrary, the Guarantors may (i) invest up
to $2,500.000 into Equis Kirkwood LLC and (ii) invest up to $2,500,000 (net of
any non-recourse debt) pursuant to existing obligations under outstanding leases
or on improvements to existing equipment provided that such improvements are
incurred in connection with a sale or release of such equipment; provided that
upon consummation of such Investment, the Guarantors continue to hold not less
than $7,000,000 in cash and cash equivalents (as defined under GAAP).
(b) Guaranteed Amount means 125% of the total of Lease Balance plus
Recourse Debt less amounts held in the Cash Collateral Account
(c) Ten days prior to any asset acquisition or investment in excess
of $1,000,000 the Guarantors will deliver a certificate to Beneficiary, in a
form reasonably acceptable to it, evidencing compliance with this Section 3.10.
SECTION 3.11 Asset Acquisition Limitation. In no event will the
Guarantors acquire additional assets or make additional investments with an
aggregate purchase price in excess of $30,000,000 plus the amount by which
$34,500,000 exceeds the Guaranteed Amount For purposes of this section, if the
Guarantors make investments after the date hereof and later sell those
investments, the sale proceeds may be reinvested in addition to the limitation
set forth in the preceding sentence. The calculation of purchase price for
purposes of this Section shall include any indebtedness (whether with recourse
to any Guarantor or not) incurred to finance any portion of the purchase price
of any asset. No single asset may be acquired where the cash paid by the
Guarantor is greater than $5,000,000; however, an acquisition consisting of a
portfolio of individual assets, or an entity than owns individual assets, shall
be deemed to be an investment in each underlying asset rather than taken as a
whole. Notwithstanding any other restrictions in this agreement, any payments by
any Guarantor to Master Lessee shall not be deemed investments for purposes of
Sections 3.10 or 3.11 hereof
SECTION 3. Guarantees. In no event shall any Guarantor become liable
to any third party (including Affiliates) as guarantor, surety or any similar
arrangement (including any obligations to perform any obligations of such third
party under any contracts or agreements).
ARTICLE IV
RIGHTS OF THE PARTIES
SECTION 4.01 Concerning the Beneficiaries. The Guarantors
acknowledge that no Beneficiary shall have any obligation to perform any duty,
covenant or condition hereunder. The Guarantors further acknowledge and agree
that the rights of the beneficiaries in and to any payments hereunder in respect
of obligations assigned by the Master Lessee shall not be subject to any
defense, setoff, or recoupment or reduction of any kind for any reason (whether
asserted by counterclaim or otherwise) whatsoever. including, without
limitation, any other indebtedness or liability, howsoever and whenever
arising, of the Master Lessee to the
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<PAGE>
Guarantors or to any other Person or for any cause whatsoever, it being the
intent hereof that the Guarantors shall be unconditionally and absolutely
obligated to pay the Beneficiaries all amounts due hereunder for so long as the
Master Lease is in effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS
SECTION 5.01 Representations and Warranties of the Guarantors. Each
Guarantor hereby represents and warrants as of the date hereof as follows:
(a) Status. Each Guarantor (i) is a duly organized and validly
existing business trust in good standing under the laws of the State of Delaware
and (ii) has the power and authority to own its properties and to conduct the
business in which it is currently engaged.
(b) Power and Authority. The Guarantor has the power and authority
to execute, deliver and carry out the terms and provisions of this Guarantee and
has taken all necessary action to authorize the execution, delivery and
performance of this Guarantee and has duly executed and delivered this Guarantee
and, assuming the due authorization, execution and delivery thereof on the part
of each other party thereto, this Guarantee constitutes a legal, valid and
binding obligation enforceable against it in accordance with its terms, except
as the same may be limited by insolvency, bankruptcy, reorganization or other
laws relating to or affecting the enforcement of creditors' rights generally and
by equitable principles whether enforcement is sought by proceedings in equity
or at law and except as the same may be limited by certain circumstances under
law or court decisions in respect of provisions providing for indemnification
of a party with respect to liability where such indemnification is contrary to
public policy.
(c) No Legal Bar. Neither the execution, delivery and performance
by each Guarantor of this Guarantee nor compliance with the terms and provisions
hereof and thereof, nor the consummation by such Guarantor of the transactions
contemplated herein and therein (i) will result in a violation by such Guarantor
of any provision of any Applicable Law that would have a Material Adverse Effect
(x) the validity or enforceability of this Guarantee, or (y) the consolidated
financial position, business or consolidated results of operations of such
Guarantor or the ability of such Guarantor to perform its obligations under this
Guarantee, (ii) will conflict with or result in any breach which would
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets of
such Guarantor pursuant to the terms of any indenture, loan agreement or other
agreement for borrowed money to which the Guarantor is a party or by which it or
any of its property or assets is bound or to which it may be subject, or (iii)
will violate any provision of the declaration of trust or governing instrument
of such Guarantor.
(d) Litigation. There are no actions, suits or proceedings pending
or, to the knowledge of any Guarantor, threatened (i) that are reasonably likely
to have a Material Adverse Effect on the Property or on the ability of such
Guarantor to perform its obligations under the Guarantee or (ii) that question
the validity of the Guarantee or the rights or remedies of the Beneficiaries
with respect to rite Guarantor or the Property under the Master Lease.
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<PAGE>
(e) Governmental Approvals. No Governmental Action by any
Governmental Authority having jurisdiction over any Guarantor or the Property is
required to authorize or is required in connection with (i) the execution,
delivery and
performance by the Guarantor under the Guarantee, or (ii) the
legality, validity, binding effect or enforceability against the Guarantor under
the Guarantor.
(f) Investment Company Act, No Guarantor is an "investment company"
or a company "controlled" by an "investment company," within the meaning of the
Investment Company Act.
(g) Public Utility Holding Company Act. No Guarantor is a "holding
company" or a "subsidiary company", or an "affiliate" of a "holding company" or
of a "subsidiary company" of a "holding company", within the meaning of the
Public Utility Company Act of 1935, as amended.
(h) Financial Statements. The consolidated balance sheet of each
Guarantor as at December 31, 1998, and the related consolidated statements of
income and cash flows of each Guarantor for the fiscal year then ended,
accompanied by an opinion of Ernst & Young LLP, independent accountants, and the
consolidated balance sheet of such Guarantor as at September 30, 1999, and the
related consolidated statements of income and cash flows of the Guarantor for
the nine months then ended, duly certified by the chief financial officer of the
Guarantor, copies of which have been furnished to the Beneficiaries, fairly
present, subject, in the case of said balance sheet as at September 30, 1999,
and said statements of income and cash flows for the nine months then ended, to
year-end audit adjustments, the consolidated financial condition of the
Guarantor as at such dates and the consolidated results of the operations of the
Guarantor for the periods ended on such dates, all in accordance with GAAP
consistently applied. Since September 30, 1999, no event has occurred which
could have a Material Adverse Effect.
(i) Defaults. No Default or Event of Default or similar event has
occurred and is continuing hereunder or under any material bond, debenture, note
or other evidence of indebtedness or material mortgage, deed of trust, indenture
or loan agreement or other instrument to which any Guarantor is a party or is
subject to or bound.
(j) Tax Returns. Each Guarantor has filed or caused to be filed all
Federal, state, local and foreign tax returns required to have been filed by it
and has paid or caused to be paid all taxes shown to be due and payable on such
returns or on any assessments received by it, except taxes that are being
contested in good faith by appropriate proceedings and for which the Guarantor
shall have set aside on its books adequate reserves.
(k) No Material Misstatements. No information, report, financial
statement, exhibit or schedule furnished by or on behalf of any Guarantor to the
Beneficiaries in connection with the negotiation of this Guarantee or the Master
Lease or included therein or delivered pursuant thereto contained, contains or
will contain any misstatement of a material fact or omitted, omits or will omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were, are or will be made, not
misleading.
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<PAGE>
Notwithstanding the foregoing, any financial projections provided by any
Guarantor based upon assumptions believed to be reasonable at the time by the
management of such Guarantor and are not intended to be guarantees of future
results
(l) Investment. No Guarantor has made a cash investment in the
Master Lessee, its parent, or any related transaction, it being understood,
however, that the Guarantors may advance all or a portion of the security
deposit with respect to a related transaction, provided the security deposit is
returned to the Guarantors within 5 business days of the Commencement Date.
ARTICLE VI
GUARANTEE EVENTS OF DEFAULT
SECTION 6.01 Guarantee Events of Default. If any of the following
events ("Guarantee Events of Default") shall occur and be continuing:
(a) The Guarantor shall fail to make any payment of any amount when
due hereunder to any Beneficiary; or
(b) Any representation or warranty made by the Guarantor under or in
connection with Article V of this Guarantee shall prove to have been incorrect
in any material respect when made or deemed made and such materiality is
continuing; or
(c) The Guarantor shall fail to perform or observe any term,
covenant or agreement contained in Article III and such failure shall remain
unremedied for thirty (30) days after written notice thereof shall have been
given to the Guarantor by the Beneficiaries; provided, however, that if such
failure is capable of cure but cannot be cured by payment of money or cannot be
cured by diligent efforts within such thirty (30) day period but such diligent
efforts shall be properly commenced within the cure period and the Guarantor is
diligently pursuing, and shall continue to pursue diligently, remedy of such
failure, the cure period shall be extended for an additional period of time as
may be necessary to cure, not to exceed an additional forty-five (45) days or to
extend beyond the Expiration Date; or
(d) The Guarantor shall (i) admit in writing its inability to pay
its debts generally as they become due, (ii) file a petition under the United
States bankruptcy laws or any other applicable insolvency law or statute of the
United States of America or any State or Commonwealth thereof (iii) make a
general assignment for the benefit of its creditors, (iv) consent to the
appointment of a receiver of itself or the whole or any substantial part of its
property, (v) fail to cause the discharge of any custodian, trustee or receiver
appointed for the Guarantor or the whole or a substantial part of its property
within sixty (60) days after such appointment, or (vi) file a petition or answer
seeking or consenting to reorganization under the United States bankruptcy laws
or any other applicable insolvency law or statute of the United States of
America or any State or Commonwealth thereof; or
(e) Insolvency proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency law or statute of the United
States of America or any
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<PAGE>
State or Commonwealth thereof shall be filed against the Guarantor and not
dismissed within sixty (60) days from the date of its filing, or a court of
competent jurisdiction shall enter an order or decree appointing, without the
consent of the Guarantor, a receiver of the Guarantor or the whole or a
substantial part of any of its property and such order or decree shall not be
vacated or set aside within ninety (90) days from the date of the entry thereof;
or
(f) An event of default, as defined in any agreement, mortgage,
indenture or instrument under which there may be issued, or by which there may
be secured or evidenced, any indebtedness for borrowed money of the Guarantor in
a principal amount in excess of $5,000,000, whether such indebtedness now exists
or shall hereafter be created, shall happen and be continuing, if the effect of
such default is to accelerate the maturity of such indebtedness, unless the
Guarantor is diligently and in good faith contesting such default in appropriate
proceedings; provided, however, any default on the non-recourse debt shall not
constitute a default hereunder; or
(g) At any time the Guarantors shall hold less than Two Million
($2,000,000) in unencumbered cash and cash equivalents (as defined by GAAP), or
(h) At any time that the Guarantors shall have a combined book value
(as defined by GAAP) less than the lesser of $30,000,000 and the Guaranteed
Amount.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 No Waiver; Cumulative Remedies. The failure or delay of
any Beneficiary in exercising any right or remedy granted it hereunder shall not
operate as a waiver of such right or remedy or be construed to be a waiver of
any breach of any of the terms and conditions hereof or to be an acquiescence
therein. Each and every right, power and remedy herein specifically given to
each Beneficiary shall be cumulative and shall be in addition to every other
right, power and remedy herein specifically given or now or hereafter existing
at law, in equity or by statute and the exercise or the beginning of the
exercise of any right, power or remedy shall not be construed as a waiver of the
right to exercise at the same time or thereafter any other right, power or
remedy. A waiver by a Beneficiary of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy that such
Beneficiary or any other Beneficiary would otherwise have.
SECTION 7.02 Notices. All notices, demands, declarations, consents,
directions, approvals, instructions, requests and other communications required
or permitted by the terms hereof shall be in writing and delivered (i)
personally, (ii) by a nationally recognized overnight courier service, (iii) by
mail (by registered or certified mail, return receipt requested, postage
prepaid) or (iv) by facsimile (with confirmation of such transmission), in each
case directed to the address of such Person as indicated below:
If to the Guarantors:
AFG Investment Trust A,
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<PAGE>
AFG Investment Trust B,
AFG Investment Trust C, or
AFG Investment Trust D, as applicable
Equis Financial Group
88 Broad Street
Boston, MA 02110
Telephone No.: (617) 854-5800
Facsimile No.: (617) 695-0596
Attn: James A. Coyne
If to any Beneficiary:
Heller Affordable Housing of Florida, Inc.
c/o Heller EMX, Inc.
111 West 50th Street
New York, New York 10020
Attn: Senior Vice President
Telephone No.: (212) 408-0476
Facsimile No.: (212) 586-3017
Any such notice shall be effective upon receipt or refusal. From time to time
any party may designate a new address for purposes of notice hereunder by
written notice to each of the other parties hereto in accordance with this
Section 7.02.
SECTION 7.03 Amendments and Waivers; Successors and Assigns.
(a) Neither this Guarantee nor any of the terms hereof may be
terminated, amended, supplemented, waived or modified orally, but only by an
instrument in writing signed by the Guarantors and the Beneficiaries.
(b) This Guarantee shall be binding upon the Guarantors and their
successors and permitted assigns and shall inure to the benefit of the
Beneficiaries and their respective successors and assigns permitted under the
Master Lease.
(c) The Guarantors shall not assign any of their obligations
hereunder without the express prior written consent of the Beneficiary.
SECTION 7.04 Severability. Any provision of or obligation under this
Guarantee that is determined by competent authority to be prohibited and
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions or obligations hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render uneforceable
such provision or obligation in any other jurisdiction. To the extent permitted
by Applicable Law, the Guarantors hereby waive any provision of law that renders
any provision or obligation hereof prohibited or unenforceable in any respect.
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<PAGE>
SECTION 7.05 Termination. Subject to the provisions of Section 2.07
hereof, this Guarantee and the Guarantors' duties and obligations hereunder
shall remain in full force and effect and be binding in accordance with their
terms, until the earlier of (i) the date on which all Obligations and the
obligations of the Guarantors hereunder shall have been satisfied by payment and
performance in full, (ii) the date on which the Master Lease terminates, or
(iii) the date on which Full Collateralization occurs. If the Beneficiary
releases the Guarantor from any or all of the Guarantors' duties and obligations
hereunder owing to such Beneficiary. such release shall in no way effect the
remaining Guarantors duties and obligations to the Beneficiaries hereunder
SECTION 7.06 Entire Agreement. This Guarantee constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral between or among the Guarantors, and each Beneficiary with respect to
the subject matter hereof.
SECTION 7.07 Article Headings. The heading of the various Articles
and Sections of this Guarantee are for convenience of reference only and shall
not modify, define, expand or limit any of the terms or provisions hereof.
SECTION 7.08 Jurisdiction. Any suit, action or proceeding, whether
at law or in equity, including any declaratory judgment or similar suit or
action, instituted by or against the Guarantors arising out of or relating in
any way to this Guarantee may be brought and enforced in the Supreme Court of
the State of New York, New York County, or of the United States District Court
for the Southern District of New York and the Guarantors irrevocably consent and
submit to the jurisdiction of each such court in respect of any suit, action or
proceeding. The Guarantors further irrevocably consent to the service of process
in any such suit, action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, return receipt requested, to the
Guarantors or to agents at the address as set forth in Section 7.02 or as set
forth below, respectively. The foregoing shall not limit the right of the
Beneficiaries to serve process in any other manner permitted by law or to bring
any action or proceeding, or to obtain execution of any judgment, in any other
jurisdiction.
SECTION 7.09 Waiver of Venue. The Guarantors hereby irrevocably
waives any option or objection that they may now or hereafter have to the laying
of venue of any action or proceeding arising under or relating to this Guarantee
in any court located in the County of New York, State of New York, and hereby
further irrevocably waives any claim that a court located in the County of New
York is not a convenient forum for any such action or proceeding.
SECTION 7.10 Waiver of Jury Trial. THE GUARANTORS HEREBY WAIVE THEIR
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THE MASTER LEASE OR ANY TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE GUARANTORS
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE BENEFICIARIES TO
ENTER INTO A BUSINESS
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<PAGE>
RELATIONSHIP, THAT THE BENEFICIARIES HAVE ALREADY RELIED ON THE WAIVER IN
ENTERING INTO THE MASTER LEASE, AND THAT THE BENEFICIARIES WILL CONTINUE TO RELY
ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. THE GUARANTORS FURTHER WARRANT
AND REPRESENT THAT THEY HAVE REVIEWED THIS WAIVER WITH LEGAL COUNSEL, AND THAT
THEY KNOWINGLY AND VOLUNTARILY WAIVE JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTEE
OR THE MASTER LEASE. IN THE EVENT OF LITIGATION, THIS WAIVER MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
SECTION 7.11 Waiver of Immunity. The Guarantors hereby irrevocably
waive, to the fullest extent permitted by applicable United States federal and
state law, all immunity (whether on the basis of sovereignty or otherwise) from
jurisdiction, service of process, attachment (both before and after judgment)
and execution to which they might otherwise be entitled in any action or
proceeding relating in any way to this Guarantee in the courts specified in
Section 7.O8 and the Guarantors hereby waive any right they right otherwise have
to raise or claim or cause to be pleaded any such immunity at or in respect of
any such action or proceeding.
SECTION 7.12 GOVERNING LAW. THIS GUARANTEE SHALL IN ALL RESPECTS BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
(EXCLUDING ANY CONFLICT-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE
INTERNAL LAWS OF ANY OTHER JURISDICTION).
SECTION 7.13 Subordination. The Guarantors hereby acknowledge and
agree that any rights of the Guarantors hereunder, whether by way of
subrogation or otherwise, may not be enforced until all amounts due from the
Master Lessee under the Master Lease shall have been paid in full to the parties
entitled thereto. The Guarantors agree (a) not to take any action to hinder or
delay the exercise of any right or remedy granted to any Beneficiary under the
Master Lease or any law applicable thereto and (b) not to exercise or pursue any
other rights, remedies, powers, privileges or benefits of any kind hereunder
(whether available to Guarantors hereunder or at law or in equity) until such
time as all amounts due from the Master Lessee under the Master Lease have been
paid in full to the parties entitled thereto.
SECTION 7.14 Survival. All warranties, representations and covenants
made by the Guarantors herein or in any certificate or other instrument
delivered by it or on its behalf under this Guarantee shall be considered to
have been relied upon by the Beneficiaries and shall survive the execution and
delivery of this Guarantee, regardless of any investigation made by the
Beneficiaries on behalf of any of them. All statements in any such certificate
or other instrument shall constitute warranties and representations by the
Guarantors hereunder.
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<PAGE>
SECTION 7.15 Currency. All amounts payable hereunder shall be paid
in lawful currency of the United States of America.
SECTION 7.16 Counterparts. This Guarantee may be executed
simultaneously in two or more counterparts each of which shall be deemed an
original, and it shall not be necessary in making proof of this Guarantee to
produce or account for more than one such counterpart.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused this Guarantee to be
executed as of the day and year first set forth above.
AFG INVESTMENT TRUST A
AFG INVESTMENT TRUST B
AFG INVESTMENT TRUST C
AFG INVESTMENT TRUST D
By: AFG ASIT CORPORATION
its Managing Trustee
By: /s/ [ILLEGIBLE]
-----------------------------
Its V.P.
<PAGE>
Exhibit 10.2
GUARANTY FEE AGREEMENT
This Agreement made and entered into as of the 8th day of March, 2000, by
and between Echelon Commercial LLC, a Delaware limited liability company (the
"Lessee") and each of AFG Investment Trust A, AFG Investment Trust B, AFG
Investment Trust C and AFG Investment Trust D, each a Delaware business trust
(each, a "Guarantor" and together, the "Guarantors").
WITNESSETH:
WHEREAS, the Lessee has entered into a Lease Agreement dated as of March
8, 2000 (the "Lease") between Heller Affordable Housing of Florida, Inc., a
Florida corporation, as lessor (the "Lessor"), and Lessee, as lessee;
WHEREAS, the Lessor has requested that the Guarantors enter into that
certain Guarantee (the "Guarantee") dated of even date with the Lease, whereby
the Guarantors have agreed to jointly and severally guaranty the obligations of
the Lessee under the Lease;
WHEREAS, the Guarantors are willing to enter into the Guarantee on the
terms and conditions set forth therein subject to the Lessee's execution and
delivery of this Agreement.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used but not defined herein shall have
the meanings ascribed to them in the Guarantee.
2. Guaranty Fee. In consideration of the execution and delivery of the
Guarantee, the Lessee hereby agrees to pay the Guarantors the following amounts
(the "Guarantee Fee"):
(i) the Lessee shall pay to the Guarantors on the date hereof a
nonrefundable upfront fee equal to $500,000, which fee shall constitute an
offset in such amount against the Quarterly Fee payable to the Guarantors as set
forth below;
(ii) the Lessee shall pay to the Guarantors on the Guaranty Payment
Date a fee (the "Quarterly Fee") in an amount equal to four percent (4%) per
annum multiplied by the average of the amounts deemed outstanding under Section
2.10 of the Guaranty during each calendar quarter, which amount shall accrue and
compound quarterly at a per annum rate equal to 7.5% until paid by the Lessee.
As used herein, the "Guaranty Payment Date" shall mean the Expiration Date (as
defined in the Lease), provided, however, that no payment shall be made
hereunder until such time as Echelon Development LLC, the parent of the Lessee
(the "Parent"), shall have satisfied its obligations under is operating
agreement to make all tax distributions to its members or the manager of the
Parent shall determine that it shall have properly set aside any such amount.
<PAGE>
3. Minimum Fee. The Lessee further agrees that, notwithstanding the
foregoing, the Guarantors shall be paid a minimum Guarantee Fee in an amount
equal to $1,000,000.
4. Allocation. The Lessee hereby agrees to allocate the Guaranty Fee
between and among the Guarantors in the following manner (unless and until all
of the Guarantors shall notify the Lessee to the contrary):
AFG Investment Trust A: 7.00%
AFG Investment Trust B: 11.58%
AFG Investment Trust C: 35.08%
AFG Investment Trust D: 46.34%
5. Amendments. This Agreement may be amended only by the written agreement
of an authorized representative of each of the parties hereto.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of The Commonwealth of Massachusetts, without
regard to its conflict of laws provisions, and shall inure to the benefit of and
be binding upon the successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first written above.
ECHELON COMMERCIAL LLC
By: Echelon Development LLC, Manager
By: Equis/Echelon Development
Management Corp.,
Manager
/s/ Michael J. Butterfield
-----------------------------------
Print: Michael J. Butterfield
Title: Vice President, Finance
AFG INVESTMENT TRUST A
AFG INVESTMENT TRUST B
AFG INVESTMENT TRUST C
AFG INVESTMENT TRUST D
By: AFG ASIT Corporation, their
Managing Trustee
/s/ Gail D. Ofgant
-----------------------------------
Print: Gail D. Ofgant
Title: Vice President
2
<PAGE>
Exhibit 10.3
GUARANTORS' CONTRIBUTION AGREEMENT
This Agreement is made as of March 8, 2000, by and among AFG Investment
Trust A, AFG Investment Trust B, AFG Investment Trust C and AFG Investment Trust
D, each a Delaware business trust (each, a "Guarantor" and together, the
"Guarantors").
RECITALS
WHEREAS, each of the Guarantors is a party to that certain Guarantee dated
as of March 8, 2000 (the "Guarantee") in favor of Heller Affordable Housing of
Florida, Inc., as lessor under that certain Lease Agreement dated as of March 8,
2000 with Echelon Commercial LLC, a Delaware limited liability company;
WHEREAS, each Guarantor is jointly and severally liable under the
Guarantee; and
WHEREAS, each Guarantor desires to limit its liability under the Guarantee
to an amount reflecting its relative net worth vis a vis the other Guarantors.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Contribution. The Guarantors agree that, as among themselves in their
capacity as guarantors, the ultimate responsibility for repayment of the
Obligations (as defined in the Guarantee) shall be apportioned among the
respective Guarantors pro rata in accordance with their respective net worth as
of December 31, 1999, which percentage allocation is set forth on Schedule A
hereto. In the event that any Guarantor, in its capacity as a guarantor, pays an
amount with respect to the Obligations in excess of its proportionate share as
set forth on such schedule, each other Guarantor shall make a contribution
payment to such Guarantor in an amount such that the aggregate amount paid by
each Guarantor reflects its proportionate share of the Obligations. In the event
of any default by any Guarantor under this Section 1, each other Guarantor will
bear its proportionate share of the defaulting Guarantors obligation under this
Section 1.
2. Miscellaneous. This Agreement may be amended only by the written
agreement of an authorized representative of each of the parties hereto. This
Agreement shall be governed by and construed in accordance with the internal
laws of The Commonwealth of Massachusetts, without regard to its conflict of
laws provisions, and shall inure to the benefit of and be binding upon the
successors and assigns of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to
be executed and delivered by its duly authorized officer as of the date first
above written.
AFG INVESTMENT TRUST A
AFG INVESTMENT TRUST B
AFG INVESTMENT TRUST C
AFG INVESTMENT TRUST D
By: AFG ASIT Corporation, their
Managing Trustee
/s/ Gail D. Ofgant
-----------------------------------
Print: Gail D. Ofgant
Title: Senior Vice President
2
<PAGE>
SCHEDULE A
Allocation
----------
AFG Investment Trust A 7.00%
AFG Investment Trust B 11.58%
AFG Investment Trust C 35.08%
AFG Investment Trust D 46.34%
3
<PAGE>
EXHIBIT 13
AFG INVESTMENT TRUST
AFG Investment Trust C
Annual Report to the Participants, December 31, 1999
<PAGE>
AFG Investment Trust C
INDEX TO ANNUAL REPORT TO THE PARTICIPANTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-7
FINANCIAL STATEMENTS:
Report of Independent Auditors 8
Statement of Financial Position
at December 31, 1999 and 1998 9
Statement of Operations
for the years ended December 31, 1999, 1998 and 1997 10
Statement of Changes in Participants' Capital
for the years ended December 31, 1999, 1998 and 1997 11
Statement of Cash Flows
for the years ended December 31, 1999, 1998 and 1997 12
Notes to the Financial Statements 13-23
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 24
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 25
Schedule of Costs Reimbursed to the Managing Trustee
and its Affiliates as Required by Section 10.4 of the
Second Amended and Restated Declaration of Trust 26
Schedule of Reimbursable Operating Expenses due to
Third Parties 27
Schedule of Equipment 28-29
</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, 1999:
<TABLE>
<CAPTION>
Summary of
Operations 1999 1998 1997 1996 1995
- --------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Lease revenue $10,286,635 $15,201,411 $ 16,912,628 $27,695,097 $21,605,260
Net income $ 5,802,601 $ 4,999,220 $ 877,213 $ 85,636 $ 2,916,460
Per Beneficiary Interest:
Net income (loss)
Class A Interests $ 1.13 $ 1.17 $ 0.49 $ 0.04 $ 1.32
Class B Interests $ 0.75 $ 0.39 $ (0.12) $ -- $ --
Cash distributions
Class A Interests $ 4.56 $ 1.64 $ 3.11 $ 1.39 $ 2.10
Class B Interests $ 3.66 $ 2.10 $ 0.30 $ -- $ --
Financial Position
- -------------------------
Total assets $71,090,942 $72,908,929 $ 82,036,778 $55,127,347 $68,469,022
Total long-term obligations $32,573,152 $35,072,883 $ 39,928,173 $19,084,751 $29,517,713
Participants' capital $21,158,711 $36,360,494 $ 41,159,172 $35,053,486 $38,039,216
</TABLE>
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1999 compared to the year
ended December 31, 1998 and the year ended December 31, 1998
compared to the year ended December 31, 1997
AFG Investment Trust C (the "Trust") commenced operations in 1992 and is
scheduled to be dissolved by December 31, 2004. The Trust was a Nominal
Defendant in a Class Action Lawsuit that was settled, with respect to the Trust
and certain affiliates, in 1999. See Note 9 to the accompanying financial
statements.
Certain statements in this annual report 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
collection of the Trust's contracted rents, the realization of residual proceeds
for the Trust's equipment, the performance of the Trust's non-equipment
investments, and future economic conditions.
Year 2000 Issue
The Trust uses information systems provided by EFG and has no information
systems of its own. EFG completed all Year 2000 readiness work prior to December
31, 1999 and did not experience any significant problems. Additionally, EFG is
not aware of any outside customer or vendor that experienced a Year 2000 issue
that would have a material effect on the Trust's results of operations,
liquidity, or financial position. However, EFG has no means of ensuring that all
customers, vendors and third-party servicers have conformed to Year 2000
standards. The effect of this risk to the Trust is not determinable.
Results of Operations
For the year ended December 31, 1999, the Trust recognized lease revenue of
$10,286,635 compared to $15,201,411 and $16,912,628 for the years ended December
31, 1998 and 1997, respectively. The decrease in lease revenue from 1997 to 1999
is due to lease term expirations and the sale of equipment. The decrease from
1997 to 1998 was partially offset by the acquisition of additional equipment in
1997 pursuant to the reinvestment provisions of the Trust Agreement. The level
of lease revenue to be recognized by the Trust in the future may be impacted by
future reinvestment; however, the extent of such impact cannot be determined at
this time.
The Trust's equipment portfolio includes certain assets in which the Trust
holds a proportionate ownership interest. In such cases, the remaining interests
are owned by EFG or an affiliated equipment leasing program sponsored by EFG.
Proportionate equipment ownership enables the Trust to further diversify its
equipment portfolio by participating in the ownership of selected assets,
thereby reducing the general levels of risk which could result from a
concentration in any single equipment type, industry or lessee. The Trust 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, 1999 was $1,217,855
compared to $1,096,363 and $988,610 for the years ended December 31, 1998 and
1997, respectively. Generally, interest income is generated from the temporary
investment of rental receipts and equipment sale proceeds in short-term
instruments. Interest income also includes interest earned on proceeds from the
issuance of the Trust's Class B Interests in 1997. Future interest income will
fluctuate as a result of changing interest rates, the collection of lease
revenue and the proceeds from equipment sales, among other factors. In addition,
the Trust distributed $15,200,000 in January 2000, that will result in a
reduction of cash available for investment in the future.
The Trust received $261,116 in 1999 as a breakage fee from a third-party
seller in connection with a transaction for new investments that was canceled by
the seller in the first quarter of 1999. This amount is reflected as Other
Income on the accompanying Statement of Operations for the year ended December
31, 1999.
3
<PAGE>
During the year ended December 31, 1999, the Trust sold equipment having a
net book value of $5,163,109 to existing lessees and third parties. These sales
resulted in a net gain, for financial statement purposes, of $3,687,692 compared
to a net gain of $2,855,732 in 1998 on equipment having a net book value of
$2,355,043.
During the year ended December 31, 1997, the Trust sold equipment having a
net book value of $1,059,341, to existing lessees and third parties. These sales
resulted in a net gain, for financial statement purposes, of $15,691. In
addition, during August 1997, the Trust and another EFG-sponsored investment
program exchanged certain locomotives for a proportionate interest in certain
replacement locomotives. The Trust's original locomotives had a cost and net
book value of $4,819,218 and $3,151,503, respectively, and had associated
indebtedness of $1,235,989 at the time of the exchange. The replacement
locomotives were recorded at their estimated fair value of $4,574,485 and the
Trust assumed associated debt of $3,120,127. The exchange resulted in the
recognition of a net loss, for financial statement purposes, of $461,156.
It cannot be determined whether future sales of equipment will result in a
net gain or net loss to the Trust, 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 Trust and to 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 Trust classifies such
residual rental payments as lease revenue. Consequently, the amount of gain or
loss reported in the financial statements is not necessarily indicative of the
total residual value the Trust achieved from leasing the equipment.
Depreciation and amortization expense was $5,815,665, $9,603,049 and
$13,217,482 for the years ended December 31, 1999, 1998 and 1997, respectively.
For financial reporting purposes, to the extent that an asset is held on primary
lease term, the Trust 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 Trust
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 $2,478,750 or 24.1% of lease revenue in 1999,
$3,098,019 or 20.4% of lease revenue in 1998 and $1,894,703 or 11.2% of lease
revenue in 1997. Interest expense increased from 1997 to 1998 due to additional
leveraging obtained to finance the acquisition of reinvestment equipment during
1997. Management fees were $513,019, $659,939 and $725,116 during the years
ended December 31, 1999, 1998 and 1997, 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. Management fees also include a 1%
management fee on non-equipment investments, excluding cash.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit, insurance and legal fees, as well as
printing, distribution and remarketing expenses. Operating expenses were
$843,263, $793,279 and $741,259 for the years ended December 31, 1999, 1998 and
1997, respectively. Operating expenses were higher in 1999 principally as a
result of legal fees incurred of approximately $198,000 related to the Trust's
investments in Kettle Valley and EFG/Kirkwood. Operating expenses in 1998
include approximately $280,000 of legal fees incurred or accrued in 1998 related
to the Class Action Lawsuit described in Note 9 to the financial statements.
Additionally, operating expenses increased from 1997 to 1998 due to professional
service costs incurred in connection a solicitation statement filed in 1998. The
amount of future operating expenses cannot be predicted with certainty; however,
such expenses are usually higher during the
4
<PAGE>
acquisition and liquidation phases of a trust. Other fluctuations typically
occur in relation to the volume and timing of remarketing activities.
Liquidity and Capital Resources and Discussion of Cash Flows
The Trust by its nature is a limited life entity. As an equipment leasing
program, the Trust's principal operating activities have been derived from asset
rental transactions. Accordingly, the Trust'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 $6,918,949 and $13,029,542 for the years ended December 31,
1999 and 1998, respectively. For the year ended December 31, 1997, operating
activities generated net cash inflows of $15,138,576, adjusted to reflect (i)
equipment sale proceeds of $2,265,436 received in connection with the sale of a
vessel and (ii) debt proceeds of $3,846,898 from leveraging certain rail
equipment, both of which amounts were due from EFG at December 31, 1996 and
reflected as cash inflows on the accompanying 1997 Statement of Cash Flows.
Future renewal, re-lease and equipment sale activities will cause a decline in
the Trust's primary-term lease revenue and corresponding sources of operating
cash. Expenses associated with rental activities, such as management fees, also
will decline as the Trust experiences a higher frequency of remarketing events.
The Trust's equipment is leased by a number of creditworthy,
investment-grade companies and, to date, the Trust has not experienced any
material collection problems and has not considered it necessary to provide an
allowance for doubtful accounts. Notwithstanding a positive collection history,
there is no assurance that all future contracted rents will be collected or that
the credit quality of the Trust's lessees will be maintained. Collection risk
could increase in the future, particularly as the Trust remarkets its equipment
and enters re-lease agreements with different lessees. The Managing Trustee will
continue to evaluate and monitor the Trust's experience in collecting accounts
receivable to determine whether a future allowance for doubtful accounts may
become appropriate.
Cash expended for asset acquisitions and cash realized from asset disposal
transactions are reported under investing activities on the accompanying
Statement of Cash Flows. During 1997, The Trust expended $38,887,683 to acquire
equipment pursuant to the reinvestment provisions of the Trust Agreement. Such
reinvestment included the acquisition of an interest in an aircraft leased to
Scandinavian Airlines System ("SAS Aircraft"). The reinvestment equipment was
financed through a combination of leveraging and sale proceeds available from
the sale of the Trust's interest in a Boeing 747-SP that was sold in 1996.
During 1999, the Trust expended $3,139,648 to acquire its investment in Kettle
Valley. In connection with the investment, the Trust was paid $1,524,803 for a
residual interest in the SAS Aircraft (see Note 4). Also during 1999, the Trust
expended $2,706,800 to acquire its investment in EFG/Kirkwood (see Note 5) and
$412,529 to purchase marketable securities. During 1999, 1998 and 1997, the
Trust realized net cash proceeds from asset disposals of $8,850,801, $5,210,775
and $1,075,032, respectively. Sale proceeds in 1999 include $4,997,297 related
to the Trust's 42.83% interest in a McDonnell Douglas MD-82 aircraft formerly
leased to Alaska Airlines, Inc. which was sold in January 1999. Future inflows
of cash from asset disposal transactions 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 addition, during August 1997, the Trust
and another EFG-sponsored investment program exchanged certain locomotives for a
proportionate interest in certain replacement locomotives (see Results of
Operations).
The Trust obtained long-term financing in connection with certain equipment
leases. The origination of such indebtedness and the subsequent repayments of
principal are reported as components of financing activities. During 1999, the
Trust leveraged $1,332,481 of its investment in Kettle Valley that will be
amortized over 34 months (see Note 4). Cash inflows of $31,951,256 in 1997
resulted from leveraging a portion of the Trust's equipment portfolio with
third-party lenders. Generally, 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 the
near-term, the amount of cash used to repay debt obligations may increase due to
the financing of other newly acquired assets. Thereafter, the amount of cash
used to repay debt obligations will decline. In addition, the Trust has balloon
payment obligations of $20,469,318, $2,717,790 and $282,421 at the expiration of
the lease terms related to the SAS Aircraft, certain rail equipment and an
aircraft leased to Reno Air, Inc., respectively.
5
<PAGE>
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, marketable
debt and equity securities classified as available-for-sale are required to be
carried at fair value. During the year ended December 31, 1999, the Trust
recorded an unrealized gain on available-for-sale securities of $20,167.
At December 31, 1999, the Trust was due aggregate future minimum lease
payments of $12,563,639 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 $32,573,152 (see Note 7 to the financial
statements). Additional cash inflows will be realized from future remarketing
activities, such as lease renewals and equipment sales, the timing and extent of
which cannot be predicted with certainty. This is because the timing and extent
of equipment sales is often 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 Trust matures and a greater level of its equipment assets becomes available
for remarketing, the cash flows of the Trust will become less predictable.
On July 18, 1997, the Trust issued 3,024,740 Class B Interests at $5.00 per
interest, thereby generating $15,123,700 in aggregate Class B capital
contributions. Class A Beneficiaries purchased 5,520 Class B Interests,
generating $27,600 of such aggregate capital contributions, and the then Special
Beneficiary, EFG, purchased 3,019,220 Class B Interests, generating $15,096,100
of such aggregate capital contributions. The Trust incurred offering costs in
the amount of $151,237 and professional service costs of $153,842 in connection
with this offering. Subsequently, EFG transferred its Class B Interests to a
special-purpose company, Equis II Corporation, a Delaware corporation. EFG also
transferred its ownership of AFG ASIT Corporation, the Managing Trustee of the
Trust, to Equis II Corporation. As a result, Equis II Corporation has voting
control of the Trust through its ownership of the majority of the Trust's
outstanding voting interests, as well as its ownership of AFG ASIT Corporation.
Control of the Managing Trustee did not change as a result of the foregoing
transactions, as Equis II Corporation was controlled by EFG's President and
Chief Executive Officer, Gary D. Engle. During the fourth quarter of 1999, an
affiliate of EFG, Semele Group Inc. acquired the Special Beneficiary Interests
from EFG and an economic interest in Equis II Corporation. Gary D. Engle is
President and CEO of Semele Group Inc. Mr. Engle continues to have voting
control with respect to the Class B Interests owned by Equis II Corporation.
As described in the Prospectus for the offering of the Class B Interests,
the Managing Trustee used a portion of the net cash proceeds realized from the
offering of the Class B Interests to pay a one-time special cash distribution of
approximately $1.47 per Class A Interest to the Class A Beneficiaries of the
Trust. The Managing Trustee declared and paid this special cash distribution,
aggregating $2,960,865, to the Class A Beneficiaries on August 15, 1997.
On August 7, 1997, the Trust commenced an offer to purchase up to 45% of
the outstanding Class A Beneficiary Interests of the Trust. On October 10, 1997,
the Trust used $2,291,567 of the net proceeds realized from the issuance of the
Class B Interests to purchase 218,661 of the Class A Interests tendered as a
result of the offer. On April 28, 1998, the Trust purchased 5,200 additional
Class A Interests at a cost of $46,800. On July 6, 1998, the Trust used
$4,646,862 of the Class B offering proceeds to pay a capital distribution to the
Class B Beneficiaries. In July 1999, the Trust distributed $1,513,639, including
legal fees of $81,360 paid to Plaintiffs' counsel, as a special cash
distribution in connection with the settlement of the Class Action Lawsuit
described in Note 9 to the financial statements ($0.80 per unit, net of legal
fees). In addition, the parent company of the Managing Trustee, Equis II
Corporation, agreed to commit $3,405,688 of its Class B Capital Contributions
(paid in connection with its purchase of Class B Interests in July 1997) to the
Trust for the Trust's investment purposes.
During the past year, the Managing Trustee has evaluated and pursued a
number of potential new investments, several of which the Managing Trustee
concluded had market returns that it believed were less than adequate given the
potential risks. Most transactions have involved the equipment leasing, business
finance and real estate development industries. Although the Managing Trustee
intends to continue to evaluate additional new investments, it anticipates that
the Trust will be able to fund these new investments with cash on hand or other
sources, such as the proceeds from future asset sales or refinancings and new
indebtedness. As a result, the Trust declared a special cash distribution
totaling $15,200,000 which was paid on January 19, 2000.
After the special distribution on January 19, 2000, the Trust will adopt a
new distribution policy and suspend the payment of regular monthly cash
distributions. Looking forward, the Managing Trustee presently does not
6
<PAGE>
expect to reinstate cash distributions until expiration of the Trust's
reinvestment period in December 2002; however, the Managing Trustee periodically
will review and consider other one-time distributions. In addition to
maintaining sale proceeds for reinvestment, the Managing Trustee expects that
the Trust will retain cash from operations to pay down debt and for the
continued maintenance of the Trust's assets. The Managing Trustee believes that
this change in policy is in the best interests of the Trust over the long term
and will have the added benefit of reducing the Trust's distribution expenses.
Historically, cash distributions to the Managing Trustee, the Special
Beneficiary and the Beneficiaries have been declared and generally paid within
45 days following the end of each calendar month. The payment of such
distributions is presented as a component of financing activities. For the year
ended December 31, 1999, the Trust declared total cash distributions of
$21,024,551, including the special distributions described above. Of the total
distributions, the Beneficiaries were allocated $19,212,266 ($8,153,693 to Class
A Beneficiaries and $11,058,573 to Class B Beneficiaries); the Special
Beneficiary was allocated $1,616,362, and the Managing Trustee was allocated
$195,923.
Cash distributions paid to the Participants 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 Trust and will be dependent upon the
collection of all future contracted rents, the generation of renewal and/or
re-lease rents, the residual value realized for each asset at its disposal date,
and the performance of the Trust's non-equipment investments. Future market
conditions, technological changes, the ability of EFG to manage and remarket the
assets, and many other events and circumstances, could enhance or detract from
individual asset yields and the collective performance of the Trust's asset
portfolio.
In the future, the nature of the Trust's operations and principal cash
flows gradually will shift from rental receipts to equipment sale proceeds as
the Trust matures and change as a result of potential new investments not
consisting of equipment acquisitions. As this occurs, the Trust's cash flows
resulting from equipment investments may become more volatile in that certain of
the Trust's equipment leases will be renewed and certain of its assets will be
sold. In some cases, the Trust may be required to expend funds to refurbish or
otherwise improve the equipment being remarketed in order to make it more
desirable to a potential lessee or purchaser. The Trust's Advisor, EFG, and the
Managing Trustee will attempt to monitor and manage these events in order to
maximize the residual value of the Trust's equipment and will consider these
factors, in addition to new investment activities, the collection of contractual
rents, the retirement of scheduled indebtedness, and the Trust's future working
capital requirements, in establishing the amount and timing of future cash
distributions.
In accordance with the Trust Agreement, upon the dissolution of the Trust,
the Managing Trustee will be required to contribute to the Trust an amount equal
to any negative balance which may exist in the Managing Trustee's tax capital
account. At December 31, 1999, the Managing Trustee had a negative tax capital
account balance of $61,593. No such requirement exists with respect to the
Special Beneficiary.
7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Participants of AFG Investment Trust C:
We have audited the accompanying statements of financial position of AFG
Investment Trust C as of December 31, 1999 and 1998, and the related statements
of operations, changes in participants' capital, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 AFG Investment Trust C at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
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 Participants 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 30, 2000
8
<PAGE>
AFG Investment Trust C
STATEMENT OF FINANCIAL POSITION
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 22,923,967 $ 17,025,123
Restricted cash -- 4,919,327
Marketable securities 434,176 --
Rents receivable 214,690 341,111
Accounts receivable - affiliate 940,527 678,673
Interest receivable 14,722 --
Loan receivable - Kettle Valley 77,059 --
Investment in Kettle Valley 4,472,129 --
Investment in EFG/Kirkwood 2,706,800 --
Other assets 340,951 --
Equipment at cost, net of accumulated depreciation
of $22,674,903 and $42,241,976 at December 31, 1999
1998, respectively 38,965,921 49,944,695
------------ ------------
Total assets $ 71,090,942 $ 72,908,929
============ ============
LIABILITIES AND PARTICIPANTS' CAPITAL
Notes payable $ 32,573,152 $ 35,072,883
Accrued interest 171,784 229,115
Accrued liabilities 96,804 311,500
Accrued liabilities - affiliate 48,503 54,202
Deferred rental income 317,185 481,439
Other liabilities 1,524,803 --
Cash distributions payable to participants 15,200,000 399,296
------------ ------------
Total liabilities 49,932,231 36,548,435
------------ ------------
Participants' capital (deficit):
Managing Trustee (20,275) 12,631
Special Beneficiary (167,270) 104,209
Class A Beneficiary Interests (1,787,153 Interests;
initial purchase price of $25 each) 23,898,406 30,022,170
Class B Beneficiary Interests (3,024,740 Interests;
initial purchase price of $5 each) (213,783) 8,559,851
Treasury Interests (223,861 Class A Interests at Cost) (2,338,367) (2,338,367)
------------ ------------
Total participants' capital 21,158,711 36,360,494
------------ ------------
Total liabilities and participants' capital $ 71,090,942 $ 72,908,929
============ ============
</TABLE>
The accompanying notes are an integral part of
these financial statements
9
<PAGE>
AFG Investment Trust C
STATEMENT OF OPERATIONS
for the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Income:
Lease revenue $10,286,635 $15,201,411 $ 16,912,628
Interest income 1,217,855 1,096,363 988,610
Other income 261,116 -- --
Gain (loss) on sale/exchange
of equipment 3,687,692 2,855,732 (445,465)
----------- ----------- ------------
Total income 15,453,298 19,153,506 17,455,773
----------- ----------- ------------
Expenses:
Depreciation and amortization 5,815,665 9,603,049 13,217,482
Interest expense 2,478,750 3,098,019 1,894,703
Equipment management fees - affiliates 513,019 659,939 725,116
Operating expenses - affiliate 843,263 793,279 741,259
----------- ----------- ------------
Total expenses 9,650,697 14,154,286 16,578,560
----------- ----------- ------------
Net income $ 5,802,601 $ 4,999,220 $ 877,213
=========== =========== ============
Net income (loss)
per Class A Beneficiary Interest $ 1.13 $ 1.17 $ 0.49
=========== =========== ============
per Class B Beneficiary Interest $ 0.75 $ 0.39 $ (0.12)
=========== =========== ============
Cash distributions declared
per Class A Beneficiary Interest $ 4.56 $ 1.64 $ 3.11
=========== =========== ============
per Class B Beneficiary Interest $ 3.66 $ 2.10 $ 0.30
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of
these financial statements
10
<PAGE>
AFG Investment Trust C
STATEMENT OF CHANGES IN PARTICIPANTS' CAPITAL
for the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Managing Special Class A Beneficiaries
Trustee Beneficiary --------------------------
Amount Amount Interests Amount
--------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $(103,527) $ (861,348) 2,011,014 $ 36,018,361
Class B capital contribution -- -- -- --
Less: Offering costs -- -- -- --
Net income (loss) - 1997 24,768 231,108 -- 975,946
Cash distributions declared (44,915) (370,554) -- (6,135,517)
Acquisition of treasury interests, at cost -- -- (218,661) --
--------- ----------- ---------- ------------
Balance at December 31, 1997 (123,674) (1,000,794) 1,792,353 30,858,790
Net income - 1998 187,347 1,526,103 -- 2,092,865
Cash distributions declared (51,042) (421,100) -- (2,929,485)
Acquisition of treasury interests, at cost -- -- (5,200) --
--------- ----------- ---------- ------------
Balance at December 31, 1998 12,631 104,209 1,787,153 30,022,170
Net income - 1999 162,815 1,343,220 -- 2,015,010
Unrealized gain on marketable
securities 202 1,663 -- 14,919
--------- ----------- ---------- ------------
Comprehensive income 163,017 1,344,883 -- 2,029,929
--------- ----------- ---------- ------------
Cash distributions declared (195,923) (1,616,362) -- (8,153,693)
--------- ----------- ---------- ------------
Balance at December 31, 1999 $ (20,275) $ (167,270) 1,787,153 $ 23,898,406
========= =========== ========== ============
<CAPTION>
Class B Beneficiaries
------------------------ Treasury
Interests Amount Interests Total
--------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 -- $ -- -- $ 35,053,486
Class B capital contribution 3,024,740 15,123,700 -- 15,123,700
Less: Offering costs -- (151,237) -- (151,237)
Net income (loss) - 1997 -- (354,609) -- 877,213
Cash distributions declared -- (901,437) -- (7,452,423)
Acquisition of treasury interests, at cost -- -- (2,291,567) (2,291,567)
--------- ------------ ----------- ------------
Balance at December 31, 1997 3,024,740 13,716,417 (2,291,567) 41,159,172
Net income - 1998 -- 1,192,905 -- 4,999,220
Cash distributions declared -- (6,349,471) -- (9,751,098)
Acquisition of treasury interests, at cost -- -- (46,800) (46,800)
--------- ------------ ----------- ------------
Balance at December 31, 1998 3,024,740 8,559,851 (2,338,367) 36,360,494
Net income - 1999 -- 2,281,556 -- 5,802,601
Unrealized gain on marketable
securities -- 3,383 -- 20,167
--------- ------------ ----------- ------------
Comprehensive income -- 2,284,939 -- 5,822,768
--------- ------------ ----------- ------------
Cash distributions declared -- (11,058,573) -- (21,024,551)
--------- ------------ ----------- ------------
Balance at December 31, 1999 3,024,740 $ (213,783) $(2,338,367) $ 21,158,711
========= ============ =========== ============
</TABLE>
The accompanying notes are an integral part of
these financial statements
11
<PAGE>
AFG Investment Trust C
STATEMENT OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income $ 5,802,601 $ 4,999,220 $ 877,213
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 5,815,665 9,603,049 13,217,482
Accretion of bond discount (1,480) -- --
(Gain) loss on sale/exchange of equipment (3,687,692) (2,855,732) 445,465
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable 126,421 478,625 1,319,636
Accounts receivable - affiliate (261,854) 225,753 5,580,111
Interest receivable (14,722) -- --
Loan receivable - Kettle Valley (77,059) -- --
Other assets (340,951) -- --
Increase (decrease) in:
Accrued interest (57,331) (11,319) 51,451
Accrued liabilities (214,696) 299,950 (12,435)
Accrued liabilities - affiliate (5,699) (64,501) (145,420)
Deferred rental income (164,254) 354,497 (82,593)
------------ ------------ ------------
Net cash from operating activities 6,918,949 13,029,542 21,250,910
------------ ------------ ------------
Cash flows from (used in) investing activities:
Investment in Kettle Valley (3,139,648) -- --
Investment in EFG/Kirkwood (2,706,800) -- --
Purchase of marketable securities (412,529) -- --
Other liabilities 1,524,803 -- --
Purchase of equipment -- -- (38,887,683)
Proceeds from equipment sales 8,850,801 5,210,775 1,075,032
------------ ------------ ------------
Net cash from (used in) investing activities 4,116,627 5,210,775 (37,812,651)
------------ ------------ ------------
Cash flows from (used in) financing activities:
Proceeds from Class B capital contributions -- -- 15,123,700
Payment of offering costs -- -- (151,237)
Purchase of treasury interests -- (46,800) (2,291,567)
Restricted cash 4,919,327 4,646,862 (9,566,189)
Proceeds from notes payable -- -- 31,951,256
Principal payments - notes payable (3,832,212) (4,855,290) (12,991,972)
Distributions paid (6,223,847) (9,803,606) (7,303,103)
------------ ------------ ------------
Net cash from (used in) financing activities (5,136,732) (10,058,834) 14,770,888
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 5,898,844 8,181,483 (1,790,853)
Cash and cash equivalents at beginning of year 17,025,123 8,843,640 10,634,493
------------ ------------ ------------
Cash and cash equivalents at end of year $ 22,923,967 $ 17,025,123 $ 8,843,640
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 2,536,081 $ 3,109,338 $ 1,843,252
============ ============ ============
Supplemental disclosure of non-cash activity:
See Notes 3 and 4 to the financial statements.
</TABLE>
The accompanying notes are an integral part of
these financial statements
12
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND TRUST MATTERS
AFG Investment Trust C (the "Trust") was organized as a Delaware business
trust in accordance with the Delaware Business Trust Act (the "Act") on August
31, 1992 for the purpose of acquiring and leasing to third parties a diversified
portfolio of capital equipment. Participants' capital initially consisted of
contributions of $1,000 from the Managing Trustee, AFG ASIT Corporation, $1,000
from the Special Beneficiary, Equis Financial Group Limited Partnership
(formerly known as American Finance Group), a Massachusetts limited partnership
("EFG"), and $100 from the Initial Beneficiary, AFG Assignor Corporation, a
wholly-owned affiliate of EFG or the "Advisor". The Trust issued an aggregate of
2,011,014 Beneficiary Interests (hereinafter referred to as Class A Interests)
at a subscription price of $25.00 each ($50,275,350 in total) to 2,477 investors
through 9 serial closings commencing December 15, 1992 and ending September 2,
1993. On July 18, 1997, the Trust issued 3,024,740 Class B Interests at $5.00
each ($15,123,700 in total), of which (i) 3,019,220 interests are held by Equis
II Corporation, an affiliate of EFG, and (ii) 5,520 interests are held by 10
other Class A investors. The Trust repurchased 218,661 Class A Interests on
October 10, 1997 using proceeds from the issuance of Class B Interests. On April
28, 1998, the Trust repurchased 5,200 additional Class A Interests. Accordingly,
there are 1,787,153 Class A Interests currently outstanding. The Class A and
Class B Interest holders are collectively referred to as the "Beneficiaries".
The Trust has one Managing Trustee, AFG ASIT Corporation, a Massachusetts
corporation, and one Special Beneficiary, Semele Group Inc. ("Semele"). Semele
purchased the Special Beneficiary Interests from EFG during the fourth quarter
of 1999. EFG continues to act as Advisor to the Trust and provides services in
connection with the acquisition and remarketing of the Trust's assets. The
Managing Trustee is responsible for the general management and business affairs
of the Trust. AFG ASIT Corporation is a wholly owned subsidiary of Equis II
Corporation and an affiliate of EFG. Class A Interests and Class B Interests
basically have identical voting rights. Gary D. Engle, has voting control of the
Class B Interests owned by Equis II Corporation. The Managing Trustee and the
Special Beneficiary are not required to make any other capital contributions
except as may be required under the Second Amended and Restated Declaration of
Trust, as amended (the "Trust Agreement").
Significant operations commenced coincident with the Trusts initial
purchase of equipment and the associated lease commitments on December 15, 1992.
Pursuant to the Trust Agreement, each distribution of Distributable Cash From
Operations and Distributable Cash From Sales or Refinancings of the Trust is
made 90.75% to the Beneficiaries, 8.25% to the Special Beneficiary and 1% to the
Managing Trustee.
Under the terms of a Management Agreement between the Trust and EFG,
management services are provided by EFG to the Trust at fees which the Managing
Trustee believes to be competitive for similar services (see Note 6).
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 Trust and several other
direct-participation equipment leasing programs sponsored or co-sponsored by AFG
(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.
13
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
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
Trust and the Other Investment Programs and to continue managing all assets
owned by the Trust and the Other Investment Programs.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents and Marketable Securities
The Trust considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. Marketable securities consist of
equity securities and debt securities that are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with unrealized gains
and losses reported as a separate component of participants' capital. The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and accretion are included
in interest income on the accompanying Statement of Operations.
The Trust recorded an unrealized gain on available-for-sale securities of
$20,167 during the year ended December 31, 1999 that is included as a separate
component of participants' capital. At December 31, 1999, total debt securities
had an amortized cost of $285,480 and a fair value of $289,000 and total equity
securities had a cost of $128,529 and a fair value of $145,176. During the
year ended December 31, 1999, total comprehensive income amounted to
$5,822,768.
Revenue Recognition
Rents are payable to the Trust 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. In certain instances, the Trust
may enter primary-term, renewal or re-lease agreements which expire beyond the
Trust's anticipated dissolution date. This circumstance is not expected to
prevent the orderly wind-up of the Trust's business activities as the Managing
Trustee and the Advisor would seek to sell the then remaining equipment assets
either to the lessee or to a third party, taking into consideration the amount
of future noncancellable rental payments associated with the attendant lease
agreements. Future minimum rents of $12,563,639 are due as follows:
<TABLE>
<S> <C> <C>
For the year ending December 31, 2000 $ 6,895,151
2001 2,182,342
2002 1,978,315
2003 1,361,022
Thereafter 146,809
-------------
Total $ 12,563,639
=============
</TABLE>
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ -----------
<S> <C> <C> <C>
Scandinavian Airlines System $ 3,630,432 $ 4,153,770 $ --
Hyundai Electronics America, Inc. $ 1,146,949 $ -- $ --
</TABLE>
14
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
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 Trust 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 and Amortization
The Trust'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 Trust 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 Trust 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 Managing Trustee evaluates the net carrying value of equipment
to determine whether it exceeds estimated net realizable value. For purposes of
this comparison, "net carrying value" represents, at a given date, the net book
value (equipment cost less accumulated depreciation for financial reporting
purposes) of the Trust's equipment and "net realizable value" represents, at the
same date, the aggregate undiscounted cash flows resulting from future
contracted lease payments plus the estimated residual value of the Trust's
equipment. The Managing Trustee evaluates significant equipment assets, such as
aircraft, individually. All other assets are evaluated collectively by equipment
type unless the Managing Trustee learns of specific circumstances, such as a
lessee default, technological obsolescence, or other market developments, which
could affect the net realizable value of particular assets. 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 are 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, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time.
Organization costs were amortized using the straight-line method over a
period of five years.
Accrued Liabilities - Affiliate
Unpaid fees and operating expenses paid by EFG on behalf of the Trust and
accrued but unpaid administrative charges and management fees are reported as
Accrued Liabilities - Affiliate (see Note 6).
15
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
Allocation of Net Income or Loss
Net income is allocated quarterly first, to eliminate any Participant's
negative capital account balance and second, 1% to the Managing Trustee, 8.25%
to the Special Beneficiary and 90.75% collectively to the Class A and Class B
Beneficiaries. The latter is allocated proportionately between the Class A and
Class B Beneficiaries based upon the ratio of cash distributions declared and
allocated to the Class A and Class B Beneficiaries during the period (excluding
$1,432,279 Class A special cash distributions paid in 1999 and $4,646,862 Class
B capital distributions paid in 1998). Net losses are allocated quarterly first,
to eliminate any positive capital account balance of the Managing Trustee, the
Special Beneficiary and the Class B Beneficiaries; second, to eliminate any
positive capital account balances of the Class A Beneficiaries; and third, any
remainder to the Managing Trustee. Prior to adoption of the current Trust
Agreement on July 15, 1997, the Trust allocated net income or loss to the
Participants for financial reporting purposes according to their respective
beneficial interests in the Trust (1% to the Managing Trustee, 8.25% to the
Special Beneficiary, and 90.75% to the Class A Beneficiaries).
The allocation of net income or loss pursuant to the Trust Agreement
differs from the foregoing and is based upon government rules and regulations
for federal income tax reporting purposes and assumes, for each income tax
reporting period, the liquidation of all of the Trust's assets and the
subsequent distribution of all available cash to the Participants. For income
tax purposes, the Trust adjusts its allocations of income and loss to the
Participants so as to cause their tax capital account balances at the end of the
reporting period to be equal to the amount that would be distributed to them at
such date in the event of a liquidation and dissolution of the Trust. This
methodology does not consider the costs attendant to liquidation or whether the
Trust intends to have future business operations. If the Trust made similar
assumptions and allocations for financial reporting purposes and the Trust was
liquidated at December 31, 1999 for an amount equal to its net carrying value
for financial reporting purposes, the capital accounts of the Managing Trustee,
Special Beneficiary, Class A Beneficiaries, and Class B Beneficiaries would have
reflected ending balances of $211,587, $1,745,594, $15,127,040, and $4,074,490,
respectively. See Note 8 for additional information concerning the allocation of
net income or loss for income tax reporting purposes.
Net Income and Cash Distributions Per Beneficiary Interest
Net income and cash distributions per Class A Interest in 1999 are based on
1,787,153 Class A Interests outstanding. Net income and cash distributions per
Class A Interest in 1998 are based on 1,792,353 Class A Interests outstanding
during the period January 1, 1998 through April 27, 1998 and 1,787,153 Class A
Interests outstanding during the period April 28, 1998 through December 31,
1998. Net income and cash distributions per Class A Interest in 1997 are based
on 2,011,014 Class A Interests outstanding during the period January 1, 1997
through October 9, 1997 and 1,792,353 Class A Interests outstanding during the
period October 10, 1997 through December 31, 1997. Net income and cash
distributions per Class B Beneficiary Interest are based on 3,024,740 Class B
Interests outstanding during the years ended December 31, 1999 and 1998 and the
period July 18, 1997 through December 31, 1997. For each of the aforementioned
periods, net income and cash distributions per Beneficiary Interest are computed
after allocation of the Managing Trustee's and Special Beneficiary's shares of
net income and cash distributions.
Provision for Income Taxes
No provision or benefit from income taxes is included in the accompanying
financial statements. The Participants are responsible for reporting their
proportionate shares of the Trust's taxable income or loss and other tax
attributes on their tax returns.
16
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
NOTE 3 - EQUIPMENT
The following is a summary of equipment owned by the Trust at December 31,
1999. Remaining Lease Term (Months), as used below, represents the number of
months remaining from December 31, 1999 under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A Remaining Lease Term equal to zero reflects
equipment either held for sale or re-lease or being leased on a month-to-month
basis. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
<TABLE>
<CAPTION>
Remaining
Lease Term Equipment
Equipment Type (Months) at Cost Location
- ----------------------------- ---------- ----------- ----------------------------------------
<S> <C> <C> <C>
Aircraft 36 $ 32,134,911 NV/Foreign
Locomotives 6-51 9,179,509 IL/NE
Manufacturing 0-44 9,053,648 CA/MI
Materials handling 0-38 5,349,420 AR/FL/GA/IL/IN/IA/KY/MA/MI/
OH/OR/PA/SC/WI/WV/Foreign
Construction and mining 0-12 2,216,969 NV/VA/Foreign
Computers and peripherals 0-11 1,833,079 FL/IN/MI/OH/VA/WI
Research and test 0-15 1,667,223 CA/FL/IL/MI/MO/NC/NJ/NY/OH/PA/
TN/TX/UT
Furniture and fixtures 0 203,261 NJ
Photocopying 0 2,804 CT
-----------------
Total equipment cost 61,640,824
Accumulated depreciation (22,674,903)
-----------------
Equipment, net of accumulated depreciation $ 38,965,921
=================
</TABLE>
During August 1997, the Trust and another EFG sponsored investment program
exchanged certain locomotives for a proportionate interest in certain other
locomotives. The Trust's original locomotives had a cost and a net book value of
$4,819,218 and $3,151,503, respectively, and had associated indebtedness of
$1,235,989 at the time of the exchange. The replacement locomotives were
recorded at their estimated fair value of $4,574,485 and the Trust assumed
associated debt of $3,120,127. The exchange resulted in the recognition of a net
loss, for financial statement purposes, of $461,156.
In certain cases, the cost of the Trust's equipment represents a
proportionate ownership interest. The remaining interests are owned by EFG or an
affiliated equipment leasing program sponsored by EFG. The Trust and each
affiliate individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the equipment. Proportionate equipment ownership
enables the Trust to further diversify its equipment portfolio by participating
in the ownership of selected assets, thereby reducing the general levels of risk
which could result from a concentration in any single equipment type, industry
or lessee. At December 31, 1999, the Trust's equipment portfolio included
equipment having a proportionate original cost of $43,289,771, representing
approximately 70% 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
$49,968,000 and a net book value of approximately $38,326,000 at December 31,
1999 (see Note 7).
17
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
Generally, the costs associated with maintaining, insuring and operating
the Trust's equipment are incurred by the respective lessees pursuant to terms
specified in their individual lease agreements with the Trust.
As equipment is sold to third parties, or otherwise disposed of, the Trust
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 will be 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 sale or re-lease with an original cost of approximately $1,661,000 at
December 31, 1999. The Managing Trustee is actively seeking the sale or re-lease
of all equipment not on lease. In addition, the summary above includes equipment
being leased on a month-to-month basis.
NOTE 4 - INVESTMENT IN KETTLE VALLEY
On March 1, 1999, the Trust and an affiliated trust (collectively, the
"Buyers") formed EFG/Kettle Development LLC, a Delaware limited liability
company, for the purpose of acquiring a 49.9% indirect ownership interest (the
"Interest") in a real estate development in Kelowna, British Columbia called
Kettle Valley. EFG/Kettle Development LLC, upon receiving the Buyers' equity
investment, purchased the Interest from a special purpose company ("SPC") whose
subsidiaries own a 99.9% limited partnership interest in Kettle Valley
Development Limited Partnership ("KVD LP"). The SPC and its subsidiaries were
established by the seller, in part, for income tax purposes and have no business
interests other than the development of Kettle Valley. KVD LP is a Canadian
Partnership that owns the property, consisting of approximately 280 acres of
land. The project, which is in the early stages of being marketed to homebuyers,
is zoned for 1,000 residential units in addition to commercial space. The seller
is an unaffiliated third-party company and has retained the remaining 50.1%
ownership interest in the SPC. A newly organized Canadian affiliate of EFG
replaced the original general partner of KVD LP on March 1, 1999.
The Trust's ownership share in EFG/Kettle Development LLC is 50.604% and
had a cost of $4,427,850, which was funded with cash of $3,095,369 and a
non-recourse note for $1,332,481. The note bears interest at an annualized
rate of 7.5% and will be fully amortized over 34 months commencing April 1,
1999. The note is secured only by the Trust's stock interests in the SPC.
Investment in Kettle Valley at December 31, 1999 represents the actual cost
paid by the Trust plus a 1% acquisition fee. The Trust's investment is
accounted for on the equity method. Its cost basis in this investment was
approximately $658,000 greater than its equity interest in the underlying net
assets at December 31, 1999. The unaudited summarized balance sheet of KVD LP
at December 31, 1999 reflected total assets of approximately $17,593,000,
total liabilities of approximately $1,910,000 and net equity of approximately
$15,683,000.
In addition, the seller purchased a residual sharing interest in a Boeing
767-300 owned by the Buyers and leased to Scandinavian Airlines System
("SAS"). The seller paid $3,013,206 to the Buyers ($1,524,803, or 50.604% to
the Trust) for the residual interest, which is subordinate to certain
preferred payments to be made to the Buyers in connection with the aircraft.
Payment of the residual interest is due only to the extent that the Trust
receives net residual proceeds from the aircraft. The residual interest is
non-recourse to the Buyers and is reflected as Other Liabilities on the
accompanying Statement of Financial Position at December 31, 1999.
NOTE 5 - INVESTMENT IN EFG/KIRKWOOD
On May 1, 1999, the Trust and three affiliated trusts (collectively the
"Trusts") and another affiliate formed EFG/Kirkwood Capital LLC ("EFG/Kirkwood")
for the purpose of making an investment in Kirkwood Associates Inc. ("KAI").
EFG/Kirkwood's investment consists of a common stock interest in KAI of
approximately 16% as well as preferred stock and convertible debt. The Trusts
purchased Class A Interests in EFG/Kirkwood and the other affiliate purchased
Class B Interests in EFG/Kirkwood. Generally, the Class A Interest holders are
entitled to certain preferred returns prior to distribution payments to the
Class B Interest holder. KAI owns a ski resort, a local public utility, and land
which is held for development. The resort is located in Kirkwood, California and
is approximately 30 miles from South Lake Tahoe, Nevada. Subsequent to making
its investment in KAI,
18
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
EFG/Kirkwood made a 50% investment in Mountain Springs Resorts LLC, an entity
formed for the purpose of acquiring an ownership interest in a Colorado ski
resort that remains pending. The Trust's ownership interest in EFG/Kirkwood had
a cost of $2,706,800, including a 1% acquisition fee ($26,800) paid to EFG.
The Trust's investment in EFG/Kirkwood is accounted for on the equity method.
NOTE 6 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Trust are paid by EFG on behalf of
the Trust and EFG is reimbursed at its actual cost for such expenditures. Fees
and other costs incurred during the years ended December 31, 1999, 1998 and
1997, which were paid or accrued by the Trust to EFG or its Affiliates, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Acquisition fees $ 75,281 $ -- $ 1,121,157
Equipment management fees 513,019 659,939 725,116
Offering costs -- -- 151,237
Administrative charges 192,348 90,744 84,834
Reimbursable operating expenses
due to third parties 650,915 702,535 656,425
------------------ ------------------ ------------------
Total $ 1,431,563 $ 1,453,218 $ 2,738,769
================== ================== ==================
</TABLE>
EFG and its Affiliates were reimbursed for their out-of-pocket offering
costs incurred on behalf of the Trust in an amount equal to 1% of the gross
proceeds realized by the four trusts which sold Class B Interests pursuant to a
Registration Statement on Form S-1 in 1997. The amount of reimbursement made by
the Trust was prorated in proportion to the number of Beneficiary Interests sold
in the Trust.
As provided under the terms of the Trust Agreement, EFG is compensated for
its services to the Trust. Such services include all aspects of acquisition,
management and sale of equipment. For acquisition services, EFG was compensated
by an amount equal to .28% of Asset Base Price paid by the Trust for each asset
acquired for the Trust's initial asset portfolio. For acquisition services
during the initial reinvestment period, which expired on September 2, 1997, EFG
was compensated by an amount equal to 3% of Asset Base Price paid by the Trust.
In connection with a Solicitation Statement and consent of Beneficiaries in
1998, the Trust's reinvestment provisions were reinstated through December 31,
2002 and the Trust was permitted to invest in assets other than equipment.
Acquisition fees paid to EFG in connection with such reinvestment assets are
equal to 1% of Asset Base Price paid by the Trust. For management services, EFG
is compensated by an amount equal to (i) 5% of gross operating lease rental
revenue and 2% of gross full payout lease rental revenue received by the Trust
with respect to assets acquired on or prior to March 31, 1998. For management
services earned in connection with assets acquired on or after April 1, 1998,
EFG is compensated by an amount equal to 2% of gross lease rental revenue
received by the Trust. Both of these fees are subject to certain limitations
defined in the Trust Agreement. For non-equipment investments other than cash,
the Managing Trustee receives an annualized management fee of 1%. Compensation
to EFG for services connected to the remarketing of equipment is calculated as
the lesser of (i) 3% of gross sale proceeds or (ii) one-half of reasonable
brokerage fees otherwise payable under arm's length circumstances. Payment of
the remarketing fee is subordinated to Payout and is subject to certain
limitations defined in the Trust Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
10.4(c) of the Trust Agreement, for persons employed by EFG who are engaged in
providing administrative services to the Trust. Reimbursable operating expenses
due to third parties represent costs paid by EFG on behalf of the Trust which
are reimbursed to EFG at actual cost.
19
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
All equipment was purchased from EFG, one of its Affiliates or directly
from third-party sellers. The Trust'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 by the lessee
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 Trust.
At December 31, 1999, the Trust was owed $940,527 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in January 2000.
Old North Capital Limited Partnership ("ONC"), a Massachusetts limited
partnership formed in 1995 and an affiliate of EFG, owns 9,210 Class A Interests
or less than 1% of the total outstanding Class A Interests of the Trust. The
general partner of ONC is controlled by Gary D. Engle. In addition, the limited
partnership interests of ONC are owned by a subsidiary of Semele Group, Inc.
("Semele"). Gary D. Engle is Chairman and CEO of Semele.
NOTE 7 - NOTES PAYABLE
Notes payable at December 31, 1999 consisted of installment notes of
$32,573,152 payable to banks and institutional lenders. The notes bear interest
rates ranging between 6.76% and 7.93%, except for two notes which bear a
fluctuating interest rate based on LIBOR plus a margin. All of the installment
notes are non-recourse and are collateralized by the equipment and assignment of
the related lease payments, except for one note which is collateralized by
certain stock interests (see Note 4). Generally, the installment notes will be
fully amortized by noncancellable rents. However, the Trust has balloon payment
obligations of $20,469,318, $2,717,790 and $282,421 at the expiration of lease
terms related to an aircraft leased to Scandinavian Airlines System, certain
rail equipment and its interest in an aircraft leased to Reno Air, Inc.,
respectively. The carrying amount of notes payable approximates fair value at
December 31, 1999.
The annual maturities of notes payable are as follows:
<TABLE>
<S> <C> <C>
For the year ending December 31, 2000 $ 26,854,515
2001 2,279,768
2002 1,715,814
2003 1,578,686
Thereafter 144,369
--------------
Total $ 32,573,152
==============
</TABLE>
NOTE 8 - INCOME TAXES
The Trust is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Trust.
For financial statement purposes, the Trust allocates net income quarterly
first, to eliminate any Participant's negative capital account balance and
second, 1% to the Managing Trustee, 8.25% to the Special Beneficiary and 90.75%
collectively to the Class A and Class B Beneficiaries. The latter is allocated
proportionately between the Class A and Class B Beneficiaries based upon the
ratio of cash distributions declared and allocated to the Class A and Class B
Beneficiaries during the period (excluding $1,432,279 Class A special cash
distributions paid in 1999 and $4,646,862 Class B capital distributions paid in
1998). Net losses are allocated quarterly first, to eliminate any positive
capital account balance of the Managing Trustee, the Special Beneficiary and the
Class B Beneficiaries; second, to eliminate any positive capital account
balances of the Class A Beneficiaries; and third, any remainder to
20
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
the Managing Trustee. This convention differs from the income or loss allocation
requirements for income tax and Dissolution Event purposes as delineated in the
Trust Agreement. For income tax purposes, the Trust allocates net income or net
loss in accordance with the provisions of such agreement. Pursuant to the Trust
Agreement, upon dissolution of the Trust, the Managing Trustee will be required
to contribute to the Trust an amount equal to any negative balance which may
exist in the Managing Trustee's tax capital account. At December 31, 1999, the
Managing Trustee had a negative tax capital account balance of $61,593.
The following is a reconciliation between net income reported for financial
statement and federal income tax reporting purposes for the years ended December
31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net income $ 5,802,601 $ 4,999,220 $ 877,213
Financial statement depreciation in excess
of (less than) tax depreciation (3,482,896) (5,652,952) (1,722,944)
Tax gain (loss) in excess of
book gain (loss) (23,049) 139,615 1,015,849
Deferred rental income (164,254) 354,497 (82,593)
Other 62,400 (46,700) (37,114)
------------------ ------------------ ------------------
Net income (loss) for federal income tax
reporting purposes $ 2,194,802 $ (206,320) $ 50,411
================== ================== ==================
</TABLE>
The following is a reconciliation between participants' capital reported
for financial statement and federal income tax reporting purposes for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Participants' capital $ 21,158,711 $ 36,360,494
Unrealized gain on marketable securities (20,167) --
Add back selling commissions and organization
and offering costs 4,922,397 4,922,397
Financial statement distributions in excess of
tax distributions 15,464,445 16,957
Deduct deferred step-down of capital basis (689,869) (689,869)
Cumulative difference between federal income tax
and financial statement income (loss) (17,467,743) (13,859,944)
------------------ ------------------
Participants' capital for federal income tax reporting purposes $ 23,367,774 $ 26,750,035
================== ==================
</TABLE>
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
21
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
NOTE 9 - LEGAL PROCEEDINGS
On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed a
class and derivative action, captioned Leonard Rosenblum, et al. v. Equis
Financial Group Limited Partnership, et al., in the United States District Court
for the Southern District of Florida (the "Court") on behalf of a proposed class
of investors in 28 equipment leasing programs sponsored by EFG, including the
Trust (collectively, the "Nominal Defendants"), against EFG and a number of its
affiliates, including the Managing Trustee, 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 Class Action Lawsuit was divided into two sub-classes on
March 22, 1999.
On May 26, 1999, the Court issued its Order and Final Judgment approving
settlement of the Class Action Lawsuit with respect to claims asserted by the
Plaintiffs on behalf of the sub-class that includes the Trust. Claims involving
the second sub-class, not including the Trust, remain pending. As a result of
the settlement, the Trust declared a special cash distribution of $1,513,639,
including legal fees for Plaintiffs' counsel of $81,360, that was paid in July
1999 ($0.80 per unit, net of legal fees). In addition, the parent company of the
Managing Trustee, Equis II Corporation, agreed to commit $3,405,688 of its Class
B Capital Contributions (paid in connection with its purchase of Class B
Interests in July 1997) to the Trust for the Trust's investment purposes. In the
absence of this commitment, Equis II Corporation would have been entitled to
receive a Class B Capital Distribution for this amount pursuant to the Trust
Agreement, as amended. The Trust's share of legal fees and expenses related to
the Class Action Lawsuit, including the fees for Plaintiff's counsel referenced
above, was estimated to be approximately $280,000, all of which was accrued and
expensed by the Trust in 1998.
In addition to the foregoing, the Trust 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 was resolved during the year ended December 31, 1999:
Action Involving National Steel Corporation
EFG, on behalf of the Trust 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 Trust, National Steel Corporation ("National Steel"). The
Complaint sought 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. On May 11, 1999, the
parties executed a comprehensive settlement agreement to resolve all outstanding
issues, including reimbursement to the Trust for the disputed sales tax items
referenced above. This matter did not have a material effect on the Trust's
financial position or results of operations.
22
<PAGE>
AFG Investment Trust C
Notes to the Financial Statements
(Continued)
NOTE 10 - SUBSEQUENT EVENT
On January 19, 2000, the Trust distributed $15,200,000 as a special cash
distribution to the Trust Beneficiaries. Of the total distributions, the
Beneficiaries were allocated $13,794,000 ($4,038,007 to Class A Beneficiaries
and $9,755,993 to Class B Beneficiaries); the Special Beneficiary was allocated
$1,254,000, and the Managing Trustee was allocated $152,000.
On March 8, 2000, the Trust and three affiliated trusts entered into a
guarantee agreement whereby the trusts, jointly and severally, have
guaranteed the payment obligations under a master lease agreement between
Echelon Commercial LLC, a newly-formed Delaware company that is controlled by
Gary D. Engle, President and Chief Executive Officer of EFG, as lessee, and
Heller Affordable Housing of Florida, Inc., and two other entities, as lessor
("Heller"). The lease payments of Echelon Commercial LLC to Heller are
supported by lease payments to Echelon Commercial LLC from various
sub-lessees who are parties to commercial and residential lease agreements
under the master lease agreement. The guarantee of lease payments by the
Trust and the three affiliated trusts is capped at a maximum of $34,500,000,
excluding expenses that could result in the event that Echelon Commercial LLC
experiences a default under the terms of the master lease agreement. An
agreement among the four trusts provides that the Trust is responsible for
35.08% of the guaranteed amount, or $12,102,600. In consideration for its
guarantee, the Trust received an upfront cash fee equal to $175,400 and will
receive an annualized fee equal to 4% per annum of the average guarantee
amount outstanding during each quarterly period. Accrued but unpaid fees will
accrue and compound interest quarterly at an annualized interest rate of 7.5%
until paid. The Trust will receive minimum aggregate fees for its guarantee
of not less than $350,800, excluding interest.
23
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AFG Investment Trust C
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1999, 1998 and 1997
The Trust 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 Trust for such equipment.
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Rents earned prior to disposal of
equipment, net of interest charges $ 30,130,592 $ 20,592,192 $ 5,772,819
Sale proceeds realized upon
disposition/exchange of equipment 8,850,801 5,210,775 2,959,170
------------------ ------------------ ------------------
Total cash generated from rents
and equipment sale proceeds 38,981,393 25,802,967 8,731,989
Original acquisition cost of equipment
disposed 30,545,847 20,351,725 5,755,478
------------------ ------------------ ------------------
Excess of total cash generated to cost
of equipment disposed $ 8,435,546 $ 5,451,242 $ 2,976,511
================== ================== ==================
</TABLE>
24
<PAGE>
AFG Investment Trust C
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1999
<TABLE>
<CAPTION>
Sales and
Operations Refinancings Total
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net income $ 2,114,909 $ 3,687,692 $ 5,802,601
Add:
Depreciation 5,815,665 -- 5,815,665
Accretion of bond discount (1,480) -- (1,480)
Management fees 513,019 -- 513,019
Book value of disposed equipment -- 5,163,109 5,163,109
Less:
Principal reduction of notes payable (3,832,212) -- (3,832,212)
------------------ ------------------ ------------------
Cash from operations, sales
and refinancings 4,609,901 8,850,801 13,460,702
Less:
Management fees (513,019) -- (513,019)
------------------ ------------------ ------------------
Distributable cash from operations,
sales and refinancings 4,096,882 8,850,801 12,947,683
Other sources and uses of cash:
Cash at beginning of year 7,041,250 9,983,873 17,025,123
Restricted cash 4,919,327 -- 4,919,327
Investment in Kettle Valley (3,139,648) -- (3,139,648)
Investment in EFG/Kirkwood (2,706,800) -- (2,706,800)
Purchase of marketable securities (412,529) -- (412,529)
Other liabilities 1,524,803 -- 1,524,803
Net change in receivables and
Accruals (1,010,145) -- (1,010,145)
Less:
Cash distributions paid (6,223,847) -- (6,223,847)
------------------ ------------------ ------------------
Cash at end of year $ 4,089,293 $ 18,834,674 $ 22,923,967
================== ================== ==================
</TABLE>
25
<PAGE>
AFG Investment Trust C
SCHEDULE OF COSTS REIMBURSED TO THE
MANAGING TRUSTEE AND ITS AFFILIATES AS
REQUIRED BY SECTION 10.4 OF THE SECOND AMENDED
AND RESTATED DECLARATION OF TRUST
December 31, 1999
For the year ended December 31, 1999, the Trust reimbursed the Managing
Trustee and its Affiliates for the following costs:
Operating expenses $ 1,075,906
26
<PAGE>
AFG Investment Trust C
SCHEDULE OF REIMBURSABLE OPERATING EXPENSES
DUE TO THIRD PARTIES
December 31, 1999
Operating expenses for the year ended December 31, 1999 consisted of the
following:
Legal $ 386,636
Aircraft Maintenance 151,836
Accounting and Tax 67,828
Selling & Remarketing 66,036
Investor Services 44,141
Office 31,940
Insurance 22,552
Bank Charges 22,264
Third Party Service Contracts 19,253
Travel & Entertainment 12,772
Printing & Document Services 12,592
Other 5,800
------------
843,650
Recovery of aircraft maintenance costs
incurred in 1999 and prior years (192,735)
------------
Total $ 650,915
============
27
<PAGE>
AFG Investment Trust C
SCHEDULE OF EQUIPMENT
December 31, 1999
<TABLE>
<CAPTION>
LEASE
EXPIRATION NET BOOK
LESSEE RENTAL SCHEDULE DATE COST VALUE DEBT
- -------------------------------------- ------------------- -------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Advanced Micro Devices, Inc. 006-RN2 12/31/00 $ 1,274,733
A.O. Smith Corporation A-17RN1 09/30/00 49,452 $ 2,144
American Telephone & Telegraph Co AL-307302RN1 50,002
American Telephone & Telegraph Co K7005195 203,257
Chrysler Corporation A-1 15,325 1,708
Chrysler Corporation A-1B 4,530 951
Chrysler Corporation A-1C 1,457 306
Chrysler Corporation A-3 522,115 60,138
Chrysler Corporation A-3B 62,186 13,864
Chrysler Corporation A-3C 29,132 6,115
Chrysler Corporation B-2 332,337 38,279
Chrysler Corporation B-2B 113,950 25,405
Chrysler Corporation B-2C 32,335 6,787
Chrysler Corporation E-11 01/31/02 196,487 114,396 $ 73,449
Chrysler Corporation G-2 02/28/02 858,310 452,956 330,204
Cray Research, Inc. 1 1,610,872
Ford Motor Company B108418-2RN1 33,900
Ford Motor Company B300609-2RN2 173,483
Ford Motor Company B300631-2RN3 68,220 3,438
Ford Motor Company 106970 12,493 627
Ford Motor Company 142403-2RN2 73,632 3,736
GE Aircraft Engines 3RN2 11/30/00 51,390
General Electric Company 2RN1 03/31/01 971,258
General Electric Company 4 1,339
General Electric Company 5 335
General Motors Corporation H-6 75,771 17,108
GATX Logistics, Inc. E-1 148,148
General Motors Corporation C-1 124,214
General Motors Corporation C-2 28,782 287
General Motors Corporation C-4 815,215 102,199
General Motors Corporation C-5 1,317,467
</TABLE>
28
<PAGE>
AFG Investment Trust C
SCHEDULE OF EQUIPMENT
December 31, 1999
<TABLE>
<CAPTION>
LEASE
EXPIRATION NET BOOK
LESSEE RENTAL SCHEDULE DATE COST VALUE DEBT
- -------------------------------------- ------------------- -------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
General Motors Corporation B-16RN1 $ 46,957
Getchell Gold Corporation A-10 12/31/00 219,162 $ 65,059
Hyundai Electronics America, Inc. 1AO 08/31/03 6,513,220 3,980,301 $ 3,638,914
North American Refractories Co. A-1 473,132
Owens-Corning Fiberglass Corp. A-35 16,507 3,546
Owens-Corning Fiberglass Corp. A-38 453
Tenneco Packaging B-75RN1 07/31/00 30,500
Tenneco Packaging B-76RN1 04/30/00 16,887
Tenneco Packaging B-77 03/31/00 47,991 1,694
Tenneco Packaging B-81 06/30/00 13,089 924
Tenneco Packaging B-83 10,562 286
Reno Air, Inc. N753RA 01/14/03 1,239,741 1,017,113 656,454
Scandinavian Airlines System LN-RCGRN1 12/29/00 30,895,170 27,241,820 21,454,657
Southern New England Telephone A-13 2,804
Tarmac Mid-Atlantic, Inc. A-2 474,065
Tarmac Mid-Atlantic, Inc. A-2RN1 06/30/00 899,875
Tarmac Mid-Atlantic, Inc. A-3 130,163
Tarmac Mid-Atlantic, Inc. A-4 61,151 2,651
Tarmac Florida, Inc. A-2 65,683 1,780
Tarmac Florida, Inc. A-7 144,623 6,270
Temple-Inland Forest Product Group A-1RN1 12/31/00 144,841 51,711
TTX Company 02 / 01 / 80RN1 07/14/00 4,604,995 1,561,704 2,993,169
Union Pacific Railroad Company 11011991 03/31/04 4,574,486 3,452,569 2,153,570
USX Corporation A-4 503
Walker Manufacturing Company A-14RN1 38,746
Walker Manufacturing Company A-15 250,539
Walker Manufacturing Company A-16 50,551 4,383
Western Bulk Carriers A-2 07/31/00 493,702 194,059 154,617
Western Bulk Carriers A-3 07/31/00 591,861 310,727 160,901
Western Bulk Carriers A-4 02/28/03 336,738 218,880
------------- ------------- ------------
Total $ 61,640,824 $38,965,921 $31,615,935
============= ============ ============
</TABLE>
29
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of AFG Investment Trust C of our report dated March 30, 2000, included in
the 1999 Annual Report to the Participants of AFG Investment Trust C.
ERNST & YOUNG LLP
Boston, Massachusetts
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 22,923,967
<SECURITIES> 434,176
<RECEIVABLES> 1,246,998
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,528,082
<PP&E> 61,640,824
<DEPRECIATION> (22,674,903)
<TOTAL-ASSETS> 71,090,942
<CURRENT-LIABILITIES> 15,834,276
<BONDS> 32,573,152
0
0
<COMMON> 0
<OTHER-SE> 21,158,711
<TOTAL-LIABILITY-AND-EQUITY> 71,090,942
<SALES> 0
<TOTAL-REVENUES> 15,453,298
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,171,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,478,750
<INCOME-PRETAX> 5,802,601
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,802,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,802,601
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
MASTER EQUIPMENT LEASE AGREEMENT
SCHEDULE (GROUP I)
================================================================================
LESSEE: HYUNDAI ELECTRONICS AMERICA, INC.
- --------------------------------------------------------------------------------
Street Address: 3101 North First Street
- --------------------------------------------------------------------------------
City/State/Zip: San Jose, California 95134
================================================================================
================================================================================
LESSOR: AT&T COMMERCIAL FINANCE CORPORATION
- --------------------------------------------------------------------------------
Address: 44 Whippany Road
Morristown, NJ 07962
- --------------------------------------------------------------------------------
Lease
Number:
================================================================================
SCHEDULE NO. IAO WHICH INCORPORATES BY REFERENCE MASTER EQUIPMENT LEASE
AGREEMENT DATED JANUARY 17, 1997 BETWEEN LESSOR AND LESSEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SELLER:
- -----------------------------------------------------------------------------------------------------------------------
Equipment Model/ Serial Total Purchase Rental
Qty. Mfr. Type Feature Description Number Price Payment
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
See Attached Exhibit A 5 Year MACRS $5,765,367.68 $88,150.74
See Attached Exhibit A 7 Year MACRS $467,378.28 $7,428.37
- -----------------------------------------------------------------------------------------------------------------------
TOTAL PURCHASE PRICE $6,232,745.96 $95,579.11
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
Initial Term: The Lease Term for each leased item commences on the
Commencement Date and continues for sixty (60) months after the First Rental
Payment Due Date.
Equipment Location:
2001 Fortune Drive
San Jose, CA 95131
Special Terms: YES___ (See Special Terms attached) NO X
---
END OF
TERM
OPTIONS: See Attached Section 1 below.
THE TERMS AND CONDITIONS OF THE END OF TERM OPTIONS AND OTHER IMPORTANT
PROVISIONS ARE SET FORTH IN THIS SCHEDULE.
- --------------------------------------------------------------------------------
Interim Rental Payment: $3,204.23 per day from and including the Commencement
Date up to, but excluding, the First Rental Payment Due Date, payable monthly in
advance
Advance Rent:
Rental Payment: $95,579.11
First Rental Payment Due Date: September 1, 1997
Subsequent Rental Payment Due Date: The same day of each month as the First
Rental Payment Due Date.
- --------------------------------------------------------------------------------
THIS SCHEDULE SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF THE MASTER
EQUIPMENT LEASE AGREEMENT REFERENCED BY THE LEASE NUMBER SPECIFIED ABOVE
(AGREEMENT) BY AND BETWEEN LESSEE, AS LESSEE, AND LESSOR OR AT&T CAPITAL
CORPORATION OR ANY AFFILIATE OR SUBSIDIARY THEREOF, AS LESSOR AND THE TERMS AND
CONDITIONS SET FORTH HEREIN. IN THE EVENT OF A CONFLICT BETWEEN THE TERMS OF
THIS SCHEDULE AND THOSE IN THE AGREEMENT, THE TERMS OF THIS SCHEDULE SHALL
GOVERN. PURSUANT TO SUCH TERMS AND CONDITIONS (WHICH LESSEE ACKNOWLEDGES THAT IT
HAS READ AND UNDERSTANDS), LESSEE AGREES TO LEASE FROM LESSOR (AS SPECIFIED
BELOW AND LESSOR AGREES TO LEASE TO LESSEE THE ABOVE REFERENCED EQUIPMENT. IT IS
FURTHER UNDERSTOOD AND AGREED THAT THE TERMS AND CONDITIONS OF THIS SCHEDULE MAY
BE DIFFERENT FROM THE TERMS AND CONDITIONS OF PRIOR SCHEDULES. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES
CONFERRED UPON A LESSEE BY ARTICLE 2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER
CONFERRED BY STATUTE OR OTHERWISE THAT MAY LIMIT OR MODIFY THE LESSOR'S RIGHTS
AS DESCRIBED IN THE AGREEMENT, THIS SCHEDULE OR ANY OTHER FUNDAMENTAL AGREEMENT
(AS DEFINED IN THE AGREEMENT).
================================================================================
THIS SCHEDULE, THE MASTER EQUIPMENT LEASE AGREEMENT REFERENCED BY THE LEASE
NUMBER SPECIFIED ABOVE (AGREEMENT) AND ALL OTHER FUNDAMENTAL AGREEMENTS (AS
DEFINED IN THE AGREEMENT) EXECUTED BY BOTH LESSOR AND LESSEE CONSTITUTE THE
ENTIRE AGREEMENT BETWEEN LESSOR AND LESSEE RELATING TO THE LEASING OF THE ABOVE
REFERENCED EQUIPMENT AND SUPERSEDE ALL PRIOR AGREEMENTS RELATING THERETO,
WHETHER WRITTEN OR ORAL, AND MAY NOT BE AMENDED OR MODIFIED EXCEPT IN WRITING
SIGNED BY THE PARTIES HERETO.
HYUNDAI ELECTRONICS AMERICA, INC. AT&T COMMERCIAL FINANCE CORPORATION
Lessee Lessor
By: /s/ S.K. Kang By: /s/ John R. Clark
---------------------------------- --------------------------------
(Lessee Authorized Signature) (Lessor Authorized Signature)
John R. Clark
Corporate Counsel and
S.K. Kang / Treasurer Assistant Secretary
- -------------------------------------- --------------------------------
(Type/Print Name and Title) (Type/Print Name and Title)
Date: June 18, 1997 Date: 6/18/97
-------------------------------- --------------------------
I Hereby Certify That This is a
True, Correct and Complete
Copy of This Document.
By: /s/ Anne G. Valk
-------------------------
<PAGE>
Capitalized terms used in this Schedule that are not otherwise defined
herein shall have the meanings ascribed to them in the Master Equipment Lease
Agreement ("Agreement") identified on the first page of this Schedule. The terms
and conditions of this Schedule shall prevail over any conflicting or
inconsistent terms and conditions in the Agreement and/or any amendments thereto
entered into prior to the execution of this Schedule.
1. END OF TERM OPTIONS.
Notwithstanding anything to the contrary in Section 18 of the Agreement, Lessee
shall have only the following options at the expiration of the Initial Term of
this Schedule: (i) unless Lessor notifies Lessee to the contrary at least one
hundred and eighty (180) days prior to the expiration of the Initial Term,
Lessee shall renew this Schedule as to all (but not less than all) of the
Equipment for an additional twelve (12) month Term at the same monthly Rental
Payment; or (ii) if Lessor does not require Lessee to renew this Schedule for
the twelve (12) month Term provided in (i), Lessee must elect either Option A,
Option B, or Option C below at the end of the applicable Term of this Schedule.
OPTION A - FAIR MARKET VALUE PURCHASE OPTION.
(a) If Option A has been selected, no Event of Default exists, no
event has occurred and is continuing which with notice or the lapse of time, or
both, would constitute an Event of Default, and Lessee delivers to Lessor an
irrevocable written election notice at least one hundred twenty (120) days prior
to the expiration of the applicable Term, Lessee may purchase all (but not less
than all) of the Equipment at the end of the applicable Term at Fair Market
Value (as defined below).
(b) If Lessee elects to purchase the Equipment, it shall pay Lessor the
Fair Market Value amount at the expiration of the applicable Term, and Lessee
shall make all other payments required hereunder during the remaining Term of
this Schedule.
(c) Fair Market Value for the Equipment shall be determined by
agreement of Lessor and Lessee, or, at Lessee's sole expense, by an independent
appraiser selected by Lessor. Fair Market Value means the total price that would
be paid for the Equipment in an arm's length transaction between an informed and
willing buyer (other than a used equipment dealer) under no compulsion to buy
and an informed and willing seller under no compulsion to sell. In determining
Fair Market Value, the costs of removing the Equipment from the Equipment
Location and moving it to a new location shall not be deducted from its value.
(D) If Lessee elects to purchase the Equipment, and has completely
fulfilled the terms and conditions of the Agreement and this Section 1-Option A,
then on the last day of the applicable Term: (i) this Schedule shall terminate
and, except as provided in Section 25 of the Agreement, Lessee shall be relieved
of all obligations under this Schedule; and (ii) Lessee shall be entitled to
Lessor's interest in the Equipment "AS IS, WHERE IS," and without any warranty,
express or implied from Lessor, other than the absence of any liens by, through
or under Lessor.
OPTION B - FAIR RENTAL VALUE RENEWAL OPTION.
(a) If Option B has been selected, no Event of Default exists, no event
has occurred and is continuing which with notice or the lapse of time, or both,
would constitute an Event of Default, and Lessee delivers to Lessor an
irrevocable written election notice at least one hundred twenty (120) days prior
to the expiration of the applicable Term, Lessee may renew this Schedule as to
all (but not less than all) of the Equipment for a Renewal Term of not less than
twelve (12) months at the Fair Rental Value (as defined below); provided,
however, that the foregoing renewal option may not be exercised if Lessor
determines, in its sole discretion, that there has been a material adverse
change in Lessee's business or financial condition since the Commencement Date.
If Lessee elects to renew this Schedule, Lessee and Lessor shall enter into a
supplement to this Schedule to confirm the applicable Fair Rental Value amount
and the length of the applicable Renewal Term (which shall be a minimum of
twelve (12) months)).
(b) Fair Rental Value for the Equipment shall be determined by agreement
of Lessor and Lessee, or, at Lessee's sole expense, by an independent appraiser
selected by Lessor. Fair Rental Value means the periodic amount which would be
payable for the Equipment in an arm's length transaction between an informed and
willing Lessee and an informed and willing Lessor, neither under compulsion to
lease. In determining Fair Rental Value, the costs of removing the Equipment
from the Equipment Location and moving it to a new location shall not be
deducted from its value.
(c) If Lessee elects to renew this Schedule, Lessee and Lessor shall
enter into a supplement to this Schedule to confirm the applicable Fair Rental
Value amount and the length of the applicable Renewal Term.
<PAGE>
OPTION C - RETURN OPTION.
(a) If Lessee decides not to purchase the Equipment pursuant to Option
A or renew this Schedule pursuant to Option B at the end of the applicable Term,
it shall provide Lessor with irrevocable written notice thereof at least one
hundred twenty (120) days prior to the expiration of the applicable Term and
return all (but not less than all) of the Equipment to Lessor in accordance with
Section 18 of the Agreement.
(b) Should Lessee fail to: (i) provide Lessor with the one hundred
twenty (120) day notice required above; (ii) pay Lessor the Fair Market Value
amount specified above; or (iii) return the Equipment to Lessor in accordance
with Section 18 of the Agreement, the applicable Term shall be extended for
successive one hundred twenty (120) day periods until Lessee returns the
Equipment to Lessor in accordance with Section 18 of the Agreement, or Lessor
terminates this Schedule by ten (10) days' written notice to Lessee. In the
event this Schedule is extended pursuant to the preceding sentence, Lessee shall
continue to pay Lessor the periodic Rental Payments in effect prior to the
expiration of the applicable Term, and all other provisions of the Agreement and
this Schedule shall continue to apply.
2. STIPULATED LOSS VALUE.
For purposes of this Schedule, the Stipulated Loss Value of the
Equipment shall be determined by multiplying the applicable Stipulated Loss
Value Percentage (as specified in the SLV Table that is incorporated herein by
reference by the listing thereon of the Lease Number and Schedule Number
specified on the front of this Schedule) as of the due date of the last Rental
Payment due immediately prior to the date of the Loss or the Event of Default,
as applicable, by the Total Purchase Price set forth on the first page of this
Schedule.
3. TAX INDEMNITY.
(a) Lessor intends to take accelerated cost recovery deductions
("Recovery Deductions") under Sections 167(a) and 168(b)(l) of the Internal
Revenue Code of 1986, as amended ("Code"), and accelerated depreciation
deductions under applicable state law ("Depreciation Deductions"). Accordingly,
Lessee makes the following representations, warranties and covenants: (i) at the
time Lessee accepts the Equipment pursuant to Section 3 of the Agreement, the
Equipment will have been "placed in service" within the meaning of Sections 167
and 168 of the Code; (ii) the Total Purchase Price set forth on the first page
of this Schedule shall qualify for Recovery Deductions and Depreciation
Deductions (with the exception of any items that are excluded by specific
language on the first page of this Schedule and any increase in the Total
Purchase Price that is attributable to any accrued interest under a Financing
Agreement); (iii) neither Lessee, any of its affiliates, nor any of its
successors, sublessees or assigns was, is, or will become a tax-exempt entity
described in Section 168(h)(2) of the Code at any time during the Term of this
Schedule or the five (5) years preceding the Commencement Date; and (iv) at no
time during the Term of this Schedule will Lessee (or any of its successors,
sublessees or assigns) take any action or fail to take any action (whether or
not such act or omission is otherwise required by the Agreement) that results in
a loss, reduction, deferral, recapture or other unavailability to Lessor of any
part of the Recovery Deductions or Depreciation Deductions. If, because of a
breach of this Section 3(a), Recovery Deductions or Depreciation Deductions are
lost, reduced, deferred, recaptured or otherwise made unavailable to Lessor (a
"Tax Loss"), Lessee shall, upon demand by Lessor, promptly pay damages to
Lessor. The amount of such damages shall be the amount necessary to provide
Lessor with a Net Economic Return (as defined in Section 3(b) below) equal to
the net Economic Return that Lessor would have realized if it had not suffered a
Tax Loss. A loss or damage to the Equipment will constitute a breach of this
Section 3(a) if it does not result in the payment of the Lessor's Return
described in Section 12 of the Agreement.
(b) Any damages required by Section 3(a) above shall be in the amount
necessary to provide Lessor a net after-tax yield, net after-tax cash flow and
net after-tax book earnings ("Net Economic Return") equal to the net Economic
Return Lessor would have realized with respect to the transaction contemplated
by this Schedule if a Tax Loss had not occurred, assuming Lessee would fulfill
all of its obligations hereunder, and shall be based upon the same assumptions
and pricing analysis used by Lessor in determining the amount of the periodic
Rental Payment then in effect. Without limiting the generality of the foregoing,
it shall be irrefutably presumed that all income of Lessor for any year is
subject to tax at the highest then applicable federal income tax rate generally
applicable to corporations, and that Lessor has sufficient taxable income to
offset all deductions arising hereunder.
(c) With respect to any damages or adjustments calculated by Lessor as
set forth above ("Calculation Amount"), at the request and expense of Lessee,
Lessor shall submit the assumptions and calculations underlying any
<PAGE>
such Calculation Amount to Lessor's independent certified public accountants for
verification of the maintenance of Lessor's Net Economic Return. Such
accountants' determination that the Calculation Amount does or does not maintain
Lessor's Net Economic Return (and, in the case of the latter, such accountants'
determination of the adjusted amount that would so maintain such Net Economic
Return), shall be binding upon Lessor and Lessee. Lessee agrees that any
information provided to such accountants by Lessor constitutes private,
proprietary and confidential property of Lessor, and that no person other than
Lessor and such accountants shall be entitled to access thereto.
4. SECURITY INTEREST.
Lessor and Lessee intend the transaction described in this Schedule to
be a true lease, and Lessee hereby authorized Lessor to file a financing
statement to give public notice of Lessor's ownership of the Equipment. If such
transaction is deemed by a court of competent jurisdiction to be a lease
intended for security, Lessee grants Lessor and its assigns a purchase money
security interest in the Equipment and in all attachments, accessories,
additions, substitutions, products, replacements, rentals and proceeds
(including insurance proceeds) therefrom as well as a security interest in any
other Equipment financed pursuant to the Agreement or any other agreement
between Lessor and Lessee (collectively, "Collateral"). Lessee shall execute and
timely deliver to Lessor financing statements or any other documents Lessor
deems necessary to perfect or protect Lessor's security interest in the
Collateral. Lessor or Lessor's agent may file as a financing statement any lease
document (or copy thereof, where permitted by law) Lessor deems necessary to
perfect or protect Lessor's security interest in the Collateral. If Lessee fails
to execute any such document, Lessor or Lessor's agent is hereby authorized to
file any of the foregoing signed only by Lessor or Lessor's agent.
There shall be three (3) signed Counterparts of this Schedule. To the
extent that this Schedule constitutes chattel paper (as that term is defined in
the UCC), a security interest may only be created in, and perfected by
possession of, one Counterpart marked "Original"; all other Counterparts shall
be duplicates.
5. SOFTWARE; SOFTWARE TRANSFER FEES; RECERTIFICATION FEES.
Lessee and Lessor acknowledge that the Equipment on a Schedule may
include certain software ("Software") in which Lessor and Lessee have no
ownership or other proprietary rights. Where required by the Software owner or
manufacturer, Lessee shall enter into a license or other agreement for the use
of the Software. Any Software agreement shall be separate and distinct from the
Agreement and any Schedule, and Lessor shall not have any rights or obligations
thereunder unless otherwise agreed. In the event the Rent on a Schedule includes
an amount attributable to the financing by Lessor of Lessee's fee for use of the
Software, Lessee agrees that such amounts shall be deemed Rent hereunder. Lessee
shall be responsible for payment of, and shall indemnify Lessor against, any
software license or transfer fees and any recertification or similar fees or
charges imposed by the supplier of the Equipment or any third-party upon Lessor
or Lessor's subsequent end-user of any item of Equipment following the return of
any such item of Equipment to Lessor.
6. FINANCING OF ADDITIONS.
If Lessee intends to finance any addition or technical modification to
the Equipment, Lessee shall, in writing, provide Lessor with the terms under
which it hopes to obtain the financing. If Lessor does not, within 20 days after
receiving Lessee's request, offer to finance the addition upon the terms
requested by Lessee, Lessee may obtain offers from third parties and shall
notify Lessor of the details of any third party financing offer Lessee would
like to accept (Third Party Offer). If Lessor has not made a financing offer
to Lessee on terms substantially similar to the Third Party Offer within 10 days
of receiving Lessee's notice. Lessee may accept the Third Party Offer unless:
(a) the aggregate cost to Lessee of obtaining financing from the Third Party
Offer is greater than the aggregate cost under Lessor's financing offer; (b)the
Third Party Offer would create a security interest in, or a lien on, the
Equipment; or (c) the addition is not otherwise permitted under this Agreement.
7. RENTAL PAYMENT.
The monthly Rental Payment (other than the Interim Rental Payments)
shall be determined by multiplying the Total Purchase Price by .015226 for 5
Year MACRS Equipment and .01583 for 7 Year MACRS Equipment (the "Lease Rate
Factors"); provided, however, that the Lease Rate Factors may be adjusted upward
by Lessor five (5) business days prior to the First Rental Payment Due Date to
reflect any increase in the average life treasury note yields. In the event
Lessor elects to adjust the Lease Rate Factors, the following formula will be
utilized:
For every basis point increase in the treasury yield above 6.03%, an
increase of .0000049 will be added to the Lease Rate Factors.
<PAGE>
Should an adjustment to the Lease Rate Factors be made which increases the
Rental Payment, Lessee and Lessor will immediately execute an amendment to this
Schedule setting forth the new Rental Payment, which Rental Payment will remain
in effect throughout the Initial Term of this Schedule.
<PAGE>
Exhibit A to Equipment Schedule IA-O
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ITEM NO. PROCESS MACRS SUPPLIER MODEL NO. DESCRIPTION QUANTITY
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mechanical/D2T
Texture 1600-
Auto Serface
1800 Texture Finisher &
1 Texture 5 Exclusive Design Co. Machine Wet/Dry HandIer 4
- --------------------------------------------------------------------------------------------------------
718L Wet Dry
lA 5 Exclusive Design Co. Handler 4
- --------------------------------------------------------------------------------------------------------
Laser
Texture
2 System 5 IBM LTT-5000 Lazer Texture 1
- --------------------------------------------------------------------------------------------------------
Post DXT Disk Cleaning
3 Wash 5 Oliver Design MDC 2000 System 1
- --------------------------------------------------------------------------------------------------------
Post
Texture Modular Disc
4 Wash 5 Oliver Design MDC 2000 Cleaning System 1
- --------------------------------------------------------------------------------------------------------
12 Chamber
5 Sputter S Intevac, Inc. MDP 2508 Sputter System 1
- --------------------------------------------------------------------------------------------------------
Sputter System
5A 5 Intevac, Inc. Parts 1
- --------------------------------------------------------------------------------------------------------
Gravity Flo Disk
6 Lube 5 San Jose Technology 7G495 Luber 2
- --------------------------------------------------------------------------------------------------------
Burnish & Tape Burnish
7 Buff 5 Exclusive Design Co. 800F 800HDF 2
- --------------------------------------------------------------------------------------------------------
7A 5 Exclusive Design Co. 703 Auto Handler 2
- --------------------------------------------------------------------------------------------------------
Bake Oven/450
8 Bake 5 Despatch Insustries LCC1 87NV-2 hr Batch 1
- --------------------------------------------------------------------------------------------------------
Ultrasonic vapor
9 5 Branson Ultransonic Corp BSD/PFC 12165 degreaser 1
- --------------------------------------------------------------------------------------------------------
Mini Gravity Flo
10 Re-Lube 5 San Jose Technology 7G495 Disk Luber 1
- --------------------------------------------------------------------------------------------------------
Manual Disk
10A 5 San Jose Technology Rack 4
- --------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------
ITEM NO. SERIAL NUMBER COST/UNIT EXTENDED COST PO NO.
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
96113456; 96123631; 961409/
1 96113513; 96123542 $ 100,000.00 $ 400,000.00 HEAMOOOD9-1
- -------------------------------------------------------------------------------
961409/
lA NA $ 20,000.00 $ 80,000.00 HEAMOOOO9-1
- -------------------------------------------------------------------------------
2 LIT100 $ 635,000.00 $ 635,000.00 HEAMOO155
- ------------------------------------------------------------------------------
60904/
3 521 $ 312,755.63 $ 312,755.63 HEAMOO147
- ------------------------------------------------------------------------------
60610/
4 513 $ 478,400.00 $ 478,400.00 HEAMOOOO8
- ------------------------------------------------------------------------------
1126/
5 298 $2,037,557.00 $2,037,557.00 HEAMODOOl
- ------------------------------------------------------------------------------
1126/
5A NA $ 5,739.30 $ 5,739.30 HEAMOOOO1
- ------------------------------------------------------------------------------
3501/
6 SJT-159, SJT 161 $ 132,718.00 $ 265,436.00 HEAMOOO1 1
- ------------------------------------------------------------------------------
961409/
7 960738088, 96073089 $ 85,000.00 $ 170,000.00 HEAMOOOO9-1
- ------------------------------------------------------------------------------
961409/
7A NA $ 20,000.00 $ 40,000.00 HEAMOOOO9-1
- ------------------------------------------------------------------------------
40079601/
8 158325 $ 10,168.00 $ 10,168.00 HEAMOOOI24
- ------------------------------------------------------------------------------
917/
9 1-9555-97 $ 32,589.75 $ 32,589.75 HEAMOOO76-01
- ------------------------------------------------------------------------------
10 SJT-161 $ 23,765.00 $ 23,765.00 HEAMOOO75
- ------------------------------------------------------------------------------
10A NA $ 785.00 $ 3,140.00 HEAMOOO75
- ------------------------------------------------------------------------------
</TABLE>
Lessee Initial /s/ SKK
----------
Lessor Initial /s/ JRC
---------
<PAGE>
Exhibit A to Equipment Schedule IA-O
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
ITEM NO. PROCESS MACRS SUPPLIER MODEL NO. DESCRIPTION QUANTITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
11 Cert 5 Phase Metrics MG25OA Robot 1
- ----------------------------------------------------------------------------------------------------
Glide/Certify -
1lA 5 Phase Metrics MG25OA Work Cells 10
- ----------------------------------------------------------------------------------------------------
11B 5 Phase Metrics 24
- ----------------------------------------------------------------------------------------------------
Slurry Del w/I/O
12 5 Exclusive Design Co. Flush & Parts 2
- ----------------------------------------------------------------------------------------------------
12A 5 Exclusive Design Co. Slurrey Del Parts 1
- ----------------------------------------------------------------------------------------------------
Slurry Del w/I/O
12B 5 Exclusive Design Co. Flush 2
- ----------------------------------------------------------------------------------------------------
Load & Unload
13 5 Unmanned Solution System 1
- ----------------------------------------------------------------------------------------------------
HGA Holder for
14 5 Phase Metrics Type 2 1
- ----------------------------------------------------------------------------------------------------
HGA Holder for
14A 5 Phase Metrics FHT Type 10 1
- ----------------------------------------------------------------------------------------------------
Water
15 5 Lepel Recirculator 1
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
16 7 Renishaw A/8012/1344 Raman System 1
- ----------------------------------------------------------------------------------------------------
17 7 QC Optics D-7000 Diskan 7000 1
- ----------------------------------------------------------------------------------------------------
18 7 Nicolet FTIR FTIR 1
- ----------------------------------------------------------------------------------------------------
19 7 Nicolet Parts For FTIR FTIR 1
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------
ITEM NO. SERIAL NUMBER COST/UNIT EXTENDED COST PO NO.
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 84104515 $ 162,923.00 $ 162,923.00 HEAMOO137
- ----------------------------------------------------------------------------
MG537, MG538,
MG539, MG540,
MG54', MG542,
MG544. MG545,
1lA MG546, MG 547 $ 101,750.00 $ 1,017,500.00 HEAMOO137
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
11B NA $ 26.00 $ 624.00 HEAMOO491
- ----------------------------------------------------------------------------
12 NA $ 6,000.00 $ 12,000.00 HEAMOO233
- ----------------------------------------------------------------------------
12A NA $ 2,060.00 $ 2,060.00 HEAMOO233
- ----------------------------------------------------------------------------
12B NA $ 5,330.00 $ 10,660.00 HEAMOO233
- ----------------------------------------------------------------------------
13 NA $ 44,000.00 $ 44,000.00 HEAMOOO91
- ----------------------------------------------------------------------------
14 NA $ 4,250.00 $ 4,250.00 HEAMOO137
- ----------------------------------------------------------------------------
14A NA $ 2,750.00 $ 2,750.00 HEAMOO137
- ----------------------------------------------------------------------------
15 NA $ 14,050.00 $ 14,050.00 HEAMOO121
-------------
- ----------------------------------------------------------------------------
$ 5,765,367.68
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
16 RMMO52V-8 $ 149,580.00 $ 149,560.00 HEAMO133
- ----------------------------------------------------------------------------
17 724 $ 203,960.25 $ 203,960.25 HEAOOO61
- ----------------------------------------------------------------------------
18 ADL9600391 $ 101,413.67 $ 101,413.67 HEAMOO65
- ----------------------------------------------------------------------------
19 $ 12,424.36 $ 12,424.36 HEAMOO77
-------------
- ----------------------------------------------------------------------------
$ 467,378.28
- ----------------------------------------------------------------------------
</TABLE>
Lessee Initial /s/ SKK
----------
Lessor Initial /s/ JRC
----------
<PAGE>
[AT&T LOGO] AT&T
Capital Corporation (Applies to 5 Year MACRS Equipment)
MASTER EQUIPMENT LEASE AGREEMENT
STIPULATED LOSS VALUES
================================================================================
LESSEE: HYUNDAI ELECTRONICS AMERICA, INC.
- --------------------------------------------------------------------------------
Street Address: 3101 North First Street
- --------------------------------------------------------------------------------
City/State/Zip: San Jose, CA 95134
================================================================================
================================================================================
LESSOR: AT&T COMMERCIAL FINANCE CORPORATION
- --------------------------------------------------------------------------------
Address: 44 Whippany Road
Morristown, NJ 07962
- --------------------------------------------------------------------------------
Lease Schedule
Number: Number: IA0
================================================================================
The Stipulated Loss Value of the Equipment on the above referenced Master
Equipment Lease Agreement Schedule shall be determined by multiplying the
applicable Stipulated Loss Value Percentage (stated below) as of the due date of
the last Rental Payment due immediately prior to the date of the Loss or the
Event of Default, as applicable, by the Total Purchase Price.
<TABLE>
<CAPTION>
Stipulated Loss Stipulated Loss Rental Stipulated Loss
Rental Period Value Percentage Rental Period Value Percentage Period Value Percentage
------------- ---------------- ------------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
1 104.89 31 74.23 61 36.31
2 104.03 32 73.08 62 34.94
3 103.14 33 71.92 63 33.55
4 102.24 34 70.74 64 32.16
5 101.33 35 69.57 65 30.76
6 100.41 36 68.38 66 29.36
7 99.48 37 67.19 67 27.96
8 98.54 38 65.99 68 26.56
9 97.58 39 64.79 69 25.15
10 96.62 40 63.57 70 23.74
11 95.65 41 62.35 71 22.33
12 94.66 42 61.12 72 20.91
13 93.67 43 59.88 After Mos. 72 21.00
14 92.66 44 58.63
15 91.64 45 57.38
16 90.62 46 56.12
17 89.58 47 54.85
18 88.54 48 53.58
19 87.49 49 52.29
20 86.43 50 51.00
21 85.37 51 49.70
22 84.29 52 48.39
23 83.21 53 47.08
24 82.11 54 45.75
25 81.01 55 44.43
26 79.90 56 43.09
27 78.78 57 41.75
28 77.66 58 40.40
29 76.52 59 39.05
30 75.38 60 37.68
</TABLE>
/s/ SKK /s/ JRC
--------------- -------------
Lessee Initials Lessor Initials
<PAGE>
[AT&T LOGO] AT&T
Capital Corporation (Applies to 7 Year MACRS Equipment)
MASTER EQUIPMENT LEASE AGREEMENT
STIPULATED LOSS VALUES
================================================================================
LESSEE: HYUNDAI ELECTRONICS AMERICA, INC.
- --------------------------------------------------------------------------------
Street Address: 3101 North First Street
- --------------------------------------------------------------------------------
City/State/Zip: San Jose, CA 95134
================================================================================
================================================================================
LESSOR: AT&T COMMERCIAL FINANCE CORPORATION
- --------------------------------------------------------------------------------
Address: 44 Whippany Road
Morristown, NJ 07962
- --------------------------------------------------------------------------------
Lease Schedule
Number: Number: IA0
================================================================================
The Stipulated Loss Value of the Equipment on the above referenced Master
Equipment Lease Agreement Schedule shall be determined by multiplying the
applicable Stipulated Loss Value Percentage (stated below) as of the due date of
the last Rental Payment due immediately prior to the date of the Loss or the
Event of Default, as applicable, by the Total Purchase Price.
<TABLE>
<CAPTION>
Stipulated Loss Stipulated Loss Rental Stipulated Loss
Rental Period Value Percentage Rental Period Value Percentage Period Value Percentage
------------- ---------------- ------------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
1 104.83 31 74.57 61 36.62
2 103.97 32 73.43 62 35.23
3 103.09 33 72.27 63 33.83
4 102.20 34 71.11 64 32.42
5 101.30 35 69.94 65 31.00
6 100.39 36 68.76 66 29.57
7 99.47 37 67.57 67 28.14
8 98.54 38 66.38 68 26.71
9 97.60 39 65.17 69 25.27
10 96.65 40 63.96 70 23.81
11 95.69 41 62.73 71 22.36
12 94.72 42 61.50 72 20.90
13 93.75 43 60.27 After Mos.72 21.00
14 92.76 44 59.02
15 91.76 45 57.77
16 90.75 46 56.51
17 89.73 47 55.24
18 88.71 48 53.97
19 87.67 49 52.68
20 86.63 50 51.39
21 85.58 51 50.09
22 84.52 52 48.78
23 83.45 53 47.46
24 82.37 54 46.13
25 81.28 55 44.80
26 80.19 56 43.46
27 79.08 57 42.11
28 77.97 58 40.75
29 76.84 59 39.38
30 75.71 60 38.01
</TABLE>
/s/ SKK /s/ JRC
--------------- -------------
Lessee Initials Lessor Initials
<PAGE>
[AT&T LOGO] AT&T
Capital Corporation
MASTER EQUIPMENT LEASE AGREEMENT
COMMENCEMENT CERTIFICATE
================================================================================
LESSEE: HYUNDAI ELECTRONICS AMERICA, INC.
- --------------------------------------------------------------------------------
Street Address: 3101 North First Street
- --------------------------------------------------------------------------------
City/State/Zip: San Jose, CA 95134
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LESSOR: AT&T COMMERCIAL FINANCE CORPORATION
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Address: 44 Whippany Road
Morristown, NJ 07962
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Lease
Number:
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SCHEDULE NO. IA0 WHICH INCORPORATES BY REFERENCE MASTER EQUIPMENT LEASE
AGREEMENT DATED JANUARY 17, 1997 BETWEEN LESSOR AND LESSEE
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Capitalized terms used herein which are not otherwise defined herein shall
have the meanings ascribed to them in the Master Equipment Lease Agreement
between the parties hereto (the Agreement), identified above.
In accordance with the terms and provisions of the Agreement and the
Schedule identified by the Schedule Number specified above, the Lessee hereby
certifies and states that: (a) all Equipment listed in the above referenced
Schedule, as amended through the date hereof (Equipment), has been delivered and
fully installed; (b) Lessee has inspected the Equipment, and all testing as it
deems necessary has been performed by Lessee, the manufacturer or Seller; (c)
Lessee accepts the Equipment for all purposes of the Agreement, the Purchase
Documents and all related documents; (d) on the date hereof, the Equipment has
become for the first time operational and available to be placed in service for
its specifically assigned function; (e) any insurance policies required by
Section 7 of the Agreement have been obtained and are in full force and effect;
and (f) the Equipment is located at the Equipment Location specified in the
Schedule (and such location is also set forth below).
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Address for Billing (if different from above):
Equipment Location: 2001 Fortune Drive, San Jose, CA 95131
COMMENCEMENT DATE:
June 18, 1997
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Lessee
BY: /s/ S.K. Kang
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(Lessee Authorized Signature) I Hereby Certify That This is a
True, Correct and Complete
Copy of This Document.
S.K. Kang / Treasurer
- ----------------------------- By: /s/ Anne G. Valk
(Type/Print Name and Title) -------------------------
<PAGE>
AMENDMENT NO. 1
TO EQUIPMENT SCHEDULE NO. IA0 DATED JUNE 18, 1997
UNDER MASTER LEASE DATED JANUARY 17, 1997
BETWEEN
AT&T COMMERCIAL FINANCE CORPORATION (Lessor)
AND
HYUNDAI ELECTRONICS AMERICA. INC (Lessee)
Lessor and Lessee hereby agree to amend Equipment Schedule No. IAO as follows:
1. The first paragraph of Section 1 "END OF TERM OPTIONS" is deleted in its
entirety and replaced with the following:
Notwithstanding anything to thc contrary in Section 18 of the Agreement,
Lessee shall have only the following options at the expiration of the
Initial Term of this Schedule: (i) unless Lessor and Tokyo Leasing
(U.S.A.), Inc. (or its assignee) (the "Lender") notifies Lessee, in
writing, to the contrary at least one hundred and eighty (180) days prior
to the expiration of the Initial Term, this Schedule shall automatically
be renewed for an additional twelve (12) month Term at the same monthly
Rental Payment as to all (but not less than all) of the Equipment; or (ii)
if Lessor and Lender do not require this Schedule to automatically renew
for the twelve (12) month Term provided in (i), Lessee must elect either
Option A, Option B, or Option C below at the end of the applicable Term of
this Schedule. Options A, B, and C will remain applicable at the end of
the twelve (12) month automatic renewal shou1d this Schedule be extended.
All other terms and conditions of Equipment Schedule No. IAO shall remain the
same
Effective: August 28, 1997
AT&T COMMERCIAL FINANCE CORPORATION HYUNDAI ELECTRONICS AMERICA, INC.
BY: /s/ John R. Clark BY: /s/ S.K. Kang
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NAME: John R. Clark NAME: S.K. Kang
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TITLE: Corporate Counsel and TITLE: Treasurer
Assistant Secretary
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DATE: 9-2-97 DATE: 8/29/97
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<PAGE>
AMENDMENT NO. 2
TO EQUIPMENT SCHEDULE NO. IA0 DATED JUNE 18, 1997
UNDER MASTER LEASE DATED JANUARY 17, 1997
BETWEEN
AFG INVESTMENT TRUST C
AND
MMC TECHNOLOGY, INC.
WHEREAS, AFG Investment Trust C ("Lessor") as Assignee of Newcourt
Commercial Finance Corporation (f/k/a AT&T Commercial Finance Corporation) and
MMC Technology, Inc. ("Lessee") as Assignee of Hyundai Electronics America, Inc.
are parties to the above-referenced Equipment Schedule (the "Agreement"); and
WHEREAS, Lessor and Lessee wish to amend certain terms of the Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Lessor and Lessee hereby agree to
amend the Agreement as follows:
Section 8 "TAXES" is hereby amended to provide that on Lessor's behalf and as
Lessor's agent, Lessee will file and pay all personal property Taxes imposed
during the Term after the effective date of this Amendment directly to the
applicable taxing authority. Lessee's filing shall be in a manner that
identifies Lessor's Equipment, ownership, and that the Lessee is filing as agent
for the Lessor. Lessee will provide Lessor with a yearly written report
detailing the amount of such personal property Taxes paid, the date and identity
of the taxing authority to which such payments were made, and proof of such
payment. In addition to any indemnity obligation of Lessee hereunder, Lessee
further agrees to indemnify, defend and hold Lessor harmless from and against
any penalty, interest, costs or fees (including, without limitation,
late-filing, non-filing and/or incorrect filing fees or charges) which may be
imposed upon Lessor or the Equipment.
All other terms and conditions of Equipment Schedule No. IAO shall remain the
same.
Effective: January 1, 1999
AFG INVESTMENT TRUST C MMC TECHNOLOGY, INC.
By: AFG ASIT Corporation
Its: Managing Trust
BY: /s/ Gail D. Ofgant BY: /s/ N. Pignati
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NAME: Gail D. Ofgant NAME: N. Pignati
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TITLE: Sr. Vice President TITLE: President
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DATE: DATE: 6-9-99
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<PAGE>
TO: Fred Wallace
FROM: Sandra M. Capo
DATE: April 26, 1999
RE: Hyundai Plate-1, TS-2, 1A0 and 1A5 Property Tax
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Please confirm by signing this memo below that the attached indemnification
letter from Newcourt Commercial Finance Corporation is acceptable for MMC
Technology, as assigned by Hyundai, to file and pay directly all property tax
expenses for the above Rental Schedules.
Once an fully executed copy of this letter is completed I will give you a copy.
If you have any questions, please do not hesitate to see me. Thanks.
/s/ Frederick T. Wallace
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Frederick T. Wallace
Director of Tax
