<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
-----------------------------------------------------
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 0-25648
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AFG Investment Trust D
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3157233
- -------------------------------- -------------------
(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:
2,089,030 Trust Class A 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 D
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the 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
</TABLE>
2
<PAGE>
PART I
Item 1. Business.
(a) General Development of Business
AFG Investment Trust D (the "Trust") was organized as a Delaware business
trust in accordance with the Delaware Business Trust 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. The Trust issued an aggregate of 2,089,030 Beneficiary Interests
(hereinafter referred to as Class A Interests) at a subscription price of $25.00
each ($52,225,750 in total) to 2,635 investors through 17 serial closings
commencing October 26, 1993 and ending February 6, 1995. On July 18, 1997, the
Trust issued 3,142,083 Class B Interests at $5.00 each ($15,710,415 in total),
of which (i) 3,140,683 interests are held by Equis II Corporation, an affiliate
of EFG, and (ii) 1,400 interests are held by 4 other Class A investors. The
Trust repurchased 153,275 Class A Interests on October 10, 1997 at a cost of
$1,606,322 using proceeds from the issuance of Class B Interests. On April 28,
1998, the Trust repurchased 1,000 additional Class A Interests at a cost of
$9,000. Accordingly, there are 1,934,755 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 October 26, 1993. 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, 2006. 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.
The Trust has no employees; however, it entered into an 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
3
<PAGE>
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 February 6, 1999, a period
of four years following the Final Closing. In connection with a Solicitation
Statement and consent of Beneficiaries in 1998, the Trust's reinvestment
provisions were extended through 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 Equipment Manager or Advisor to the Trust and several
other direct-participation equipment leasing programs sponsored or co-sponsored
by EFG (the "Other Investment Programs"). The Company arranges to broker or
originate equipment leases, acts as remarketing agent and asset manager, and
provides leasing support services, such as billing, collecting, and asset
tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Equis
Corporation and GDE LP were established in December 1994 by Mr. Engle for the
sole purpose of acquiring the business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
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
4
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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
<PAGE>
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 2,093 record holders (2,088 Class A
Interests and 5 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 $13,200,000 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.
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
6
<PAGE>
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 $ 7,904,866 $ 64,170 $ 529,400 $ 7,311,296
Class B Interests 11,380,345 113,803 938,880 10,327,662
--------------- --------------- --------------- ---------------
Total $ 19,285,211 $ 177,973 $ 1,468,280 $ 17,638,958
=============== =============== =============== ===============
Total 1998 distributions
Class A Interests $ 3,492,606 $ 34,926 $ 288,141 $ 3,169,539
Class B Interests 7,498,995 18,972 156,519 7,323,504
--------------- --------------- --------------- ---------------
Total $ 10,991,601 $ 53,898 $ 444,660 $ 10,493,043
=============== =============== =============== ===============
</TABLE>
Distributions payable were $13,200,000 and $417,939 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
<PAGE>
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.
9
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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 the Advisor 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;
3. Removal of the Managing Trustee; and
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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 3,140,683 Interests 99.96%
Boston, MA 02110
</TABLE>
No person or group is known by the Managing Trustee to own beneficially
more than 5% of the Trust's 1,934,755 outstanding Class A Interests as of March
1, 2000.
Equis II Corporation is controlled by EFG's President and Chief Financial
Officer, Gary D. Engle (see Item 10 and Item 13 of this report).
The ownership and organization of EFG is described in Item 1 of this
report.
Item 13. Certain Relationships and Related Transactions.
The 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 $ 74,774 $ 5,227 $ 871,096
Equipment management fees 1,074,800 886,096 895,643
Offering costs -- -- 157,104
Administrative charges 169,978 80,184 76,419
Reimbursable operating
expenses due to third parties 604,239 543,699 596,354
------------------ ------------------ ------------------
Total $ 1,923,791 $ 1,515,206 $ 2,596,616
================== ================== ==================
</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 reinvestment acquisitions
completed prior to February 7, 1999, EFG is 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, which were scheduled to expire on February 6, 1999, were extended
through December 31, 2002 and the Trust was permitted to invest in assets other
than equipment. Acquisition fees paid to EFG in connection with reinvestment
assets acquired after February 6, 1999 are equal to 1% of Asset Base Price paid
by the Trust. For management services, EFG is
11
<PAGE>
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 February 6, 1999. For management
services earned in connection with assets acquired on or after February 7, 1999,
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 $3,528,141 by EFG for such funds and
the interest thereon. These funds include $3,087,838 related to the sale of a
vessel in December 1999. These funds were remitted to the Trust in January 2000.
During 1998, the Trust purchased limited partnership units (the "Units")
in AFG International Limited Partnership (the "Partnership"), a real estate
limited partnership sponsored by EFG that owns two commercial buildings leased
to an investment grade educational institution. The Trust purchased 7.25 Units
at a cost of $100,000 per unit for an aggregate purchase price of $725,000. As a
result of the purchase of the Units, the Trust owns approximately 22.5% of the
Partnership. The Trust accounts for its investment in the Partnership under the
equity method of accounting. As such, the carrying value of the Trust's
investment in the Partnership is increased or decreased by an amount equal to
the Trust's share of the Partnership's income or losses, respectively, and
decreased for any distributions received from the Partnership. At December 31,
1999, this investment had a carrying balance of $668,813 and is reflected as
Investment - affiliate on the accompanying Statement of Financial Position.
Old North Capital Limited Partnership ("ONC"), a Massachusetts limited
partnership formed in 1995 and an affiliate of EFG, owns 44,084 Class A
Interests or 2.28% 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 3,142,083 Class B Interests at $5.00
per interest, thereby generating $15,710,415 in aggregate Class B capital
contributions. Class A Beneficiaries purchased 1,400 Class B Interests,
generating $7,000 of such aggregate capital contributions, and the Special
Beneficiary, EFG, purchased 3,140,683 of such Class B Interests, generating
$15,703,415 of such aggregate capital contributions. The Trust incurred offering
costs in the amount of $157,104 and professional service costs of $159,066 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. 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.
12
<PAGE>
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Trust
None.
(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.
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.
* 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
----------
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 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.
99(b) Lease agreement with KGJS/Gearbulk Holding Limited was
filed in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998 as Exhibit 99 (b)
and is incorporated herein by reference.
99(c) Lease agreement with Emery Worldwide was filed in the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 as Exhibit 99 (f) and is
incorporated herein by reference.
99(d) Lease agreement with Chantel Shipping Corporation was
filed in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996 as Exhibit 99 (g)
and is incorporated herein by reference.
(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 D
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
---------------------------- -----------------------------
17
<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
- 2 -
<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
- 4 -
<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
- 6 -
<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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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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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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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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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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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 D
Annual Report to the Participants, December 31, 1999
<PAGE>
AFG Investment Trust D
INDEX TO ANNUAL REPORT TO THE PARTICIPANTS
Page
----
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 13-22
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 23
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 24
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 25
Schedule of Reimbursable Operating Expenses due to
Third Parties 26
Schedule of Equipment 27-29
<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 $ 20,894,408 $ 18,701,765 $ 19,427,577 $ 27,093,125 $ 17,068,315
Net income $ 5,277,987 $ 3,875,037 $ 2,017,457 $ 630,535 $ 3,629,331
Per Beneficiary Interest:
Net income
Class A Interests $ 1.07 $ 0.99 $ 0.68 $ 0.27 $ 1.59
Class B Interests $ 0.60 $ 0.29 $ -- $ -- $ --
Cash distributions
Class A Interests $ 3.78 $ 1.64 $ 3.11 $ 1.39 $ 2.10
Class B Interests $ 3.29 $ 2.33 $ 0.30 $ -- $ --
Financial Position
- -----------------------------
Total assets $ 69,336,372 $ 78,517,976 $ 93,302,725 $ 75,192,549 $ 87,519,870
Total long-term obligations $ 25,790,190 $ 35,030,985 $ 43,102,250 $ 32,827,977 $ 42,655,805
Participants' capital $ 27,950,594 $ 41,937,651 $ 49,063,215 $ 40,884,836 $ 43,444,819
</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 D (the "Trust") commenced operations in 1992 and is
scheduled to be dissolved by December 31, 2006. 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 $20,894,408 compared to $18,701,765 and $19,427,577 for the years ended
December 31, 1998 and 1997, respectively. Lease revenue for the year ended
December 31, 1999 includes the receipt of $6,354,183 of lease termination rents
received in connection with the sale of a vessel (see discussion below). The
decrease in lease revenue from 1997 to 1998 was attributable principally to
lease term expirations and the sale of equipment, including the Trust's sale of
its interest in certain railroad equipment in 1997 (see discussions below). 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 in 1999 was $662,508, compared to $779,649 and $725,303 in
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 $13,200,000 in January 2000, that
will result in a reduction of cash available for investment in the future.
3
<PAGE>
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.
During the year ended December 31, 1999, the Trust sold equipment having a
net book value of $8,676,173 to existing lessees and third parties. These sales
resulted in a net loss, for financial statement purposes, of $4,444,557 compared
to a net loss of $412,404 in 1998 on equipment having a net book value of
$1,820,166. The 1999 equipment sales included the sale of a vessel with an
original cost and net book value of $13,875,360 and $7,256,443, respectively,
which the Trust sold to the existing lessee in December 1999. In connection with
this sale, the Trust realized sale proceeds of $1,277,143, which resulted in a
net loss, for financial statement purposes, of $5,979,300. The vessel was sold
prior to the expiration of the related lease term. The Trust also realized lease
termination rents equal to $6,354,183 relating to this vessel.
During the year ended December 31, 1997, the Trust sold equipment having a
net book value of $6,431,659 to existing lessees and third parties resulting in
a net loss, for financial statement purposes, of $1,038,989. These equipment
sales included certain railroad equipment with an original cost and net book
value of $6,513,773 and $5,488,323, respectively, which the Trust sold to a
third party in September 1997. In connection with this sale, the Trust realized
sale proceeds of $2,000,000 and the purchaser assumed related debt and interest
of $2,624,639 and $13,998, respectively, which resulted in a net loss, for
financial statement purposes, of $849,685. This equipment was sold prior to the
expiration of the related lease term.
It cannot be determined whether future sales of equipment will result in a
net gain or a 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 which will maximize
total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The 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 $7,399,744, $10,234,690 and
$12,486,537 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 $2,846,727 or 13.6% of lease revenue in 1999,
$3,449,304 or 18.4% of lease revenue in 1998 and $3,041,481 or 15.7% of lease
revenue in 1997. The increase in interest expense from 1997 to 1998 is the
result of indebtedness obtained in connection with reinvestment equipment.
Interest expense in the near-term may increase due to the financing of any newly
acquired assets. Management fees were $1,074,800, $886,096 and $895,643 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.
4
<PAGE>
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as printing,
distribution and remarketing expenses. Operating expenses were $774,217,
$623,883 and $672,773 during 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 $238,000 related to the Trust's investments
in Kettle Valley and EFG/Kirkwood. Operating expenses in 1998 include
approximately $290,000 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 in 1997 and 1998 include 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 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 $17,013,649 for the year ended December 31, 1999, adjusted
for sale proceeds of $1,277,143 and early termination rents of $1,810,695
received in connection with the sale of a vessel. The balance of the early
termination rents received in connection with the sale of the vessel,
$4,543,488, was paid to the lender to service remaining debt and interest.
Operating activities generated net cash inflows of $17,885,461 during the year
ended December 31, 1998. Such cash inflows reflect cash previously held in
escrow of $3,017,318. For the year ended December 31, 1997, operating activities
generated net cash inflows of $12,983,604, adjusted to reflect (i) equipment
sale proceeds of $1,618,169 received in connection with the sale of a vessel and
(ii) debt proceeds of $1,980,073 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. The Trust expended $179,510 and $30,271,673 to acquire
equipment during the years ended December 31, 1998 and 1997, respectively. All
of the equipment acquisitions were purchased pursuant to the reinvestment
provisions of the Trust Agreement. Acquisitions during the year ended December
31, 1997 include the Trusts 49.4% proportionate ownership interest in a Boeing
767-300 ER aircraft leased to Scandinavian Airlines System (the "SAS Aircraft").
The SAS Aircraft was purchased in August 1997 using cash of $5,124,103 and
indebtedness of $25,042,248. During 1999, the Trust expended $3,064,700 to
acquire its investment in Kettle Valley. In connection with the investment, the
Trust was paid $1,488,403 for a residual interest in the SAS Aircraft (see Note
4). Also during 1999, the Trust expended $2,030,100 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 $4,231,616, $1,407,762 and $2,754,033, respectively. Sale proceeds in 1997
include $2,000,000 from the rail transaction noted previously. 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, the
5
<PAGE>
Trust's investment in an affiliated limited partnership is reported under
investing activities during the years ended December 31, 1999 and 1998 (see Note
6 to the accompanying financial statements).
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 $1,300,672 of its investment in Kettle Valley
that will be amortized over 34 months (see Note 4). Cash inflows of $25,042,248
in 1997 resulted from leveraging a portion of the Trust's interest in the SAS
Aircraft discussed above. 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. The increase
in cash used to repay debt during 1999 resulted from the repayment of $4,324,968
of principal in connection with the sale of the vessel discussed above. Future
debt obligations may increase due to the financing of other newly acquired
assets. Over time, the amount of cash used to repay debt obligations will
decline. However, the Trust has balloon payment obligations of $19,980,682,
$1,400,074 and $282,421 at the expiration of the lease terms related to the SAS
Aircraft, certain rail equipment and an MD-87 jet aircraft leased by Reno Air
Inc., respectively.
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 $10,559,908 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 $25,790,190 (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 3,142,083 Class B Interests at $5.00
per interest, thereby generating $15,710,415 in aggregate Class B capital
contributions. Class A Beneficiaries purchased 1,400 Class B Interests,
generating $7,000 of such aggregate capital contributions, and the then Special
Beneficiary, EFG, purchased 3,140,683 Class B Interests, generating $15,703,415
of such aggregate capital contributions. The Trust incurred offering costs in
the amount of $157,104 and professional service costs of $159,066 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 $3,075,818, 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 $1,606,322 of the net proceeds realized from the issuance of the
Class B Interests to purchase 153,275 of the Class A Interests tendered as a
result of the offer. On April 28, 1998, the Trust purchased 1,000 additional
Class A Interests at a cost of $9,000. On July
6
<PAGE>
6, 1998, the Trust used $5,601,790 of the Class B offering proceeds to pay a
capital distribution to the Class B Beneficiaries. In July 1999, the Trust
distributed $1,572,405, including legal fees of $84,520 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 ($0.77 per
unit, net of legal fees). In addition, the parent company of the Managing
Trustee, Equis II Corporation, agreed to commit $3,537,910 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 to the
Trust Beneficiaries totaling $13,200,000 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 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
$19,285,211, including the special distribution described above. Of the total
distributions, the Beneficiaries were allocated $17,638,958 ($7,311,296 to Class
A Beneficiaries and $10,327,662 to Class B Beneficiaries); the Special
Beneficiary was allocated $1,468,280, and the Managing Trustee was allocated
$177,973.
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 $309,285. No such requirement exists with respect to the
Special Beneficiary.
7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Participants of AFG Investment Trust D:
We have audited the accompanying statements of financial position of AFG
Investment Trust D 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 D 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 D
STATEMENT OF FINANCIAL POSITION
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ----------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 11,335,028 $ 9,100,016
Restricted cash -- 5,110,315
Marketable securities 434,176 --
Rents receivable 1,790,533 2,322,608
Accounts receivable - affiliate 3,528,141 448,039
Interest receivable 14,722 --
Loan receivable - Kettle Valley 75,220 --
Investment - affiliate 668,813 699,626
Investment - Kettle Valley 4,365,372 --
Investment - EFG/Kirkwood 2,030,100 --
Other assets 332,812 --
Equipment at cost, net of accumulated depreciation
of $24,612,634 and $45,307,297 at December 31, 1999
and 1998, respectively 44,761,455 60,837,372
----------------- -----------------
Total assets $ 69,336,372 $ 78,517,976
================= =================
LIABILITIES AND PARTICIPANTS' CAPITAL
- -------------------------------------
Notes payable $ 25,790,190 $ 35,030,985
Accrued interest 129,587 332,001
Accrued liabilities 86,370 321,500
Accrued liabilities - affiliate 384,990 69,248
Deferred rental income 306,238 408,652
Other liabilities 1,488,403 --
Cash distributions payable to participants 13,200,000 417,939
----------------- -----------------
Total liabilities 41,385,778 36,580,325
----------------- -----------------
Participants' capital (deficit):
Managing Trustee (23,853) 12,140
Special Beneficiary (196,792) 100,157
Class A Beneficiary Interests (1,934,755;
initial purchase price of $25 each) 30,012,322 35,230,782
Class B Beneficiary Interests (3,142,083 Interests;
initial purchase price of $5 each) (225,761) 8,209,894
Treasury Interests (154,275 Class A interests at Cost) (1,615,322) (1,615,322)
----------------- -----------------
Total participants' capital 27,950,594 41,937,651
----------------- -----------------
Total liabilities and participants' capital $ 69,336,372 $ 78,517,976
================= =================
</TABLE>
The accompanying notes are an integral part of
these financial statements.
9
<PAGE>
AFG Investment Trust D
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 $ 20,894,408 $ 18,701,765 $ 19,427,577
Interest income 662,508 779,649 725,303
Other income 261,116 -- --
Loss on sale of equipment (4,444,557) (412,404) (1,038,989)
------------------ ------------------ ------------------
Total income 17,373,475 19,069,010 19,113,891
------------------ ------------------ ------------------
Expenses:
Depreciation and amortization 7,399,744 10,234,690 12,486,537
Interest expense 2,846,727 3,449,304 3,041,481
Equipment management fees
- affiliates 1,074,800 886,096 895,643
Operating expenses - affiliate 774,217 623,883 672,773
------------------ ------------------ ------------------
Total expenses 12,095,488 15,193,973 17,096,434
------------------ ------------------ ------------------
Net income $ 5,277,987 $ 3,875,037 $ 2,017,457
================== ================== ==================
Net income
per Class A Beneficiary Interest $ 1.07 $ 0.99 $ 0.68
================== ================== ==================
per Class B Beneficiary Interest $ 0.60 $ 0.29 $ --
================== ================== ==================
Cash distributions declared
per Class A Beneficiary Interest $ 3.78 $ 1.64 $ 3.11
================== ================== ==================
per Class B Beneficiary Interest $ 3.29 $ 2.33 $ 0.30
================== ================== ==================
</TABLE>
The accompanying notes are an integral part of
these financial statements.
10
<PAGE>
AFG Investment Trust D
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 $ (62,865) $ (525,884) 2,089,030 $ 41,473,585
Class B capital contribution -- -- -- --
Less: Offering costs -- -- -- --
Net income - 1997 64,415 535,171 -- 1,417,871
Cash distributions declared (47,103) (388,595) -- (6,413,961)
Acquisition of treasury interests, at cost -- -- (153,275) --
------------- ------------- ------------- ---------------
Balance at December 31, 1997 (45,553) (379,308) 1,935,755 36,477,495
Net income - 1998 111,591 924,125 -- 1,922,826
Cash distributions declared (53,898) (444,660) -- (3,169,539)
Acquisition of treasury interests, at cost -- -- (1,000) --
------------- ------------- ------------- ---------------
Balance at December 31, 1998 12,140 100,157 1,934,755 35,230,782
Net income - 1999 141,778 1,169,668 -- 2,077,033
Unrealized gain on marketable
securities 202 1,663 -- 15,803
------------- ------------- ------------- ---------------
Comprehensive income 141,980 1,171,331 -- 2,092,836
Cash distributions declared (177,973) (1,468,280) -- (7,311,296)
------------- ------------- ------------- ---------------
Balance at December 31, 1999 $ (23,853) $ (196,792) 1,934,755 $ 30,012,322
============= ============= ============= ===============
<CAPTION>
Class B Beneficiaries
------------------------------- Treasury
Interests Amount Interests Total
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 -- $ -- $ -- $ 40,884,836
Class B capital contribution 3,142,083 15,710,415 -- 15,710,415
Less: Offering costs -- (157,104) -- (157,104)
Net income - 1997 -- -- -- 2,017,457
Cash distributions declared -- (936,408) -- (7,786,067)
Acquisition of treasury interests, at cost -- -- (1,606,322) (1,606,322)
-------------- --------------- -------------- ---------------
Balance at December 31, 1997 3,142,083 14,616,903 (1,606,322) 49,063,215
Net income - 1998 -- 916,495 -- 3,875,037
Cash distributions declared -- (7,323,504) -- (10,991,601)
Acquisition of treasury interests, at cost -- -- (9,000) (9,000)
-------------- --------------- -------------- ---------------
Balance at December 31, 1998 3,142,083 8,209,894 (1,615,322) 41,937,651
Net income - 1999 -- 1,889,508 -- 5,277,987
Unrealized gain on marketable
securities -- 2,499 -- 20,167
-------------- --------------- -------------- ---------------
Comprehensive income -- 1,892,007 -- 5,298,154
Cash distributions declared -- (10,327,662) -- (19,285,211)
-------------- --------------- -------------- ---------------
Balance at December 31, 1999 3,142,083 $ (225,761) $ (1,615,322) $ 27,950,594
============== =============== ============== ===============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
11
<PAGE>
AFG Investment Trust D
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 $ 5,277,987 $ 3,875,037 $ 2,017,457
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 7,399,744 10,234,690 12,486,537
Accretion of bond discount (1,480) -- --
Loss on sale of equipment 4,444,557 412,404 1,038,989
Changes in assets and liabilities:
Decrease (increase) in:
Cash held in escrow -- 3,017,318 (3,017,318)
Rents receivable 532,075 (188,735) 1,213,433
Accounts receivable - affiliate (3,080,102) 60,170 3,337,446
Interest receivable (14,722) -- --
Loan receivable - Kettle Valley (75,220) -- --
Other assets (332,812) -- --
Increase (decrease) in:
Accrued interest (202,414) (160,619) (220,569)
Accrued liabilities (235,130) 309,950 (11,700)
Accrued liabilities - affiliate 315,742 (44,075) (100,924)
Deferred rental income (102,414) 369,321 (161,505)
---------------- ---------------- ----------------
Net cash from operating activities 13,925,811 17,885,461 16,581,846
---------------- ---------------- ----------------
Cash flows from (used in) investing activities:
Purchase of marketable securities (412,529) -- --
Purchase of equipment -- (179,510) (30,271,673)
Proceeds from equipment sales 4,231,616 1,407,762 2,754,033
Investment - affiliate 30,813 (699,626) --
Investment - Kettle Valley (3,064,700) -- --
Investment - EFG/Kirkwood (2,030,100) -- --
Other liabilities 1,488,403 -- --
---------------- ---------------- ----------------
Net cash from (used in) investing activities 243,503 528,626 (27,517,640)
---------------- ---------------- ----------------
Cash flows from (used in) financing activities:
Proceeds from capital contributions -- -- 15,710,415
Payment of organization and offering costs -- -- (157,104)
Restricted cash 5,110,315 5,601,790 (10,712,105)
Purchase of treasury interests -- (9,000) (1,606,322)
Proceeds from notes payable -- -- 25,042,248
Principal payments - notes payable (10,541,467) (8,071,265) (12,143,336)
Distributions paid (6,503,150) (11,054,098) (7,619,847)
---------------- ---------------- ----------------
Net cash from (used in) financing activities (11,934,302) (13,532,573) 8,513,949
---------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents 2,235,012 4,881,514 (2,421,845)
Cash and cash equivalents at beginning of year 9,100,016 4,218,502 6,640,347
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 11,335,028 $ 9,100,016 $ 4,218,502
================ ================ ================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 3,049,141 $ 3,609,923 $ 3,262,050
================ ================ ================
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
See Note 4 to the financial statements.
During 1997, the Trust sold equipment to third parties which assumed
related debt and interest of $2,624,639 and $13,998, respectively.
The accompanying notes are an integral part of
these financial statements.
12
<PAGE>
AFG Investment Trust D
Notes to the Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND TRUST MATTERS
AFG Investment Trust D (the "Trust") was organized as a Delaware business
trust in accordance with the Delaware Business Trust 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. The Trust issued an aggregate of 2,089,030 Beneficiary Interests
(hereinafter referred to as Class A Interests) at a subscription price of $25.00
each ($52,225,750 in total) to 2,635 investors through 17 serial closings
commencing October 26, 1993 and ending February 6, 1995. On July 18, 1997, the
Trust issued 3,142,083 Class B Interests at $5.00 each ($15,710,415 in total),
of which (i) 3,140,683 interests are held by Equis II Corporation, an affiliate
of EFG, and (ii) 1,400 interests are held by 4 other Class A investors. The
Trust repurchased 153,275 Class A Interests on October 10, 1997 using proceeds
from the issuance of Class B Interests. On April 28, 1998, the Trust repurchased
1,000 additional Class A Interests. Accordingly, there are 1,934,755 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 Trust's initial
purchase of equipment and the associated lease commitments on October 26, 1993.
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 the 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 Equipment Manager or Advisor to the Trust and several
other direct-participation equipment leasing programs sponsored or co-sponsored
by EFG (the "Other Investment Programs"). The Company arranges to broker or
originate equipment leases, acts as remarketing agent and asset manager, and
provides leasing support services, such as billing, collecting, and asset
tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President, Chief Executive Officer and sole Director. Equis
Corporation also owns a controlling 1% general partner interest in EFG's 99%
limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Equis
Corporation and GDE LP were established in December 1994 by Mr. Engle for the
sole purpose of acquiring the business of AFG.
13
<PAGE>
AFG Investment Trust D
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
$5,298,154.
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 $10,559,908 are due as follows:
For the year ending December 31, 2000 $ 7,501,715
2001 1,713,287
2002 1,342,730
2003 2,176
--------------
Total $ 10,559,908
=============
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 $ 3,543,768 $ 4,054,613 $ --
Emery Worldwide $ 2,409,224 $ 2,409,224 $ 2,409,224
KGJS/Gearbulk Holding Limited $ 8,664,792 $ 2,297,772 $ --
Chantel Shipping Corporation $ -- $ -- $ 2,310,614
</TABLE>
14
<PAGE>
AFG Investment Trust D
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. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Trust and which will maximize
total cash returns for each asset.
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 D
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
$1,487,885 Class A special cash distributions paid in 1999 and $5,601,790 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 $279,506, $2,305,924, $20,422,800, and $4,942,364,
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 1,934,755 Class A Interests outstanding. Net income and cash distributions
per Class A Interest in 1998 are based on 1,935,755 Class A Interests
outstanding during the period January 1, 1998 through April 27, 1998 and
1,934,755 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 2,089,030 Class A Interests outstanding during the period
January 1, 1997 through October 9, 1997 and 1,935,755 Class A Interests
outstanding during the period October 10, 1997 through December 31, 1997. Net
income and cash distributions per Class B Interest are based on 3,142,083 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.
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
16
<PAGE>
AFG Investment Trust D
Notes to the Financial Statements
(Continued)
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 0-36 $ 45,014,136 NV/OH/Foreign
Locomotives 6 10,684,643 IL/NE
Materials handling 0-41 4,589,249 AR/CA/CO/GA/IN/IL/IA/MI/MN/MS/
NC/NJ/NY/OH/OR/TN/WI/WV
Construction and mining 0-30 3,518,352 FL/IL/NC/NV/PA/VA/Foreign
Manufacturing 0 3,154,694 CA/NJ
Miscellaneous 11 1,692,068 NC
Research and test 3 338,749 WI
Computers and peripherals 0-7 175,870 CO/GA/IN/KY/MN/OH/PA/TX/WI
Tractors and heavy duty trucks 0 149,585 NJ
Motor vehicles 0 38,499 MI
Retail store fixtures 0 11,712 TX
Communications 0 6,532 CA
-----------------
Total equipment cost 69,374,089
Accumulated depreciation (24,612,634)
-----------------
Equipment, net of accumulated depreciation $ 44,761,455
=================
</TABLE>
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 $35,027,855, representing
approximately 50% 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
$50,980,000 and a net book value of approximately $39,033,000 at December 31,
1999 (see Note 7).
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. At December 31, 1999, the cost and net book value of
equipment held for sale or re-lease was approximately $392,000 and $3,000,
respectively. The Managing Trustee is actively seeking the sale or re-lease of
all equipment not on lease. In addition, the summary above also includes
equipment being leased on a month-to-month basis.
17
<PAGE>
AFG Investment Trust D
Notes to the Financial Statements
(Continued)
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 49.396%
and had a cost of $4,322,150, which was funded with cash of $3,021,478 and a
non-recourse note for $1,300,672. 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 $642,000 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 ($1,488,403, or 49.396% 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, 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 $2,030,100, including a 1% acquisition fee ($20,100)
paid to EFG. The Trust's investment in EFG/Kirkwood is accounted for under
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:
18
<PAGE>
AFG Investment Trust D
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Acquisition fees $ 74,774 $ 5,227 $ 871,096
Equipment management fees 1,074,800 886,096 895,643
Offering costs -- -- 157,104
Administrative charges 169,978 80,184 76,419
Reimbursable operating
Expenses due to third parties 604,239 543,699 596,354
------------------ ------------------ ------------------
Total $ 1,923,791 $ 1,515,206 $ 2,596,616
================== ================== ==================
</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 reinvestment acquisitions
completed prior to February 7, 1999, 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, which were scheduled to expire on February 6, 1999, were extended
through December 31, 2002 and the Trust was permitted to invest in assets other
than equipment. Acquisition fees paid to EFG in connection with reinvestment
assets acquired after February 6, 1999 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 February 6, 1999. For management services earned in connection with assets
acquired on or after February 7, 1999, 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, 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 $3,528,141 by EFG for such funds and
the interest thereon, including $3,087,838 related to the sale of a vessel in
December 1999. These funds were remitted to the Trust in January 2000.
During 1998, the Trust purchased limited partnership units (the "Units")
in AFG International Limited Partnership (the "Partnership"), a real estate
limited partnership sponsored by EFG that owns two commercial buildings leased
to an investment grade educational institution. The Trust purchased 7.25 Units
at a cost of $100,000 per unit for an aggregate purchase price of $725,000. As a
result of the purchase of the Units, the Trust
19
<PAGE>
AFG Investment Trust D
Notes to the Financial Statements
(Continued)
owns approximately 22.5% of the Partnership. The Trust accounts for its
investment in the Partnership under the equity method of accounting. As such,
the carrying value of the Trust's investment in the Partnership is increased or
decreased by an amount equal to the Trust's share of the Partnership's income or
losses, respectively, and decreased for any distributions received from the
Partnership. At December 31, 1999, this investment had a carrying balance of
$668,813 and is reflected as Investment - affiliate on the accompanying
Statement of Financial Position.
Old North Capital Limited Partnership ("ONC"), a Massachusetts limited
partnership formed in 1995 and an affiliate of EFG, owns 44,084 Class A
Interests or 2.28% 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
$25,790,190 payable to banks and institutional lenders. The notes bear interest
rates ranging between 6.92% and 13.75%, 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 $19,980,682, $1,400,074 and $282,421 at the expiration of the
lease terms related to an aircraft leased to Scandinavian Airlines System,
certain rail equipment and an MD-87 jet aircraft leased to Reno Air, Inc.,
respectively. The carrying amount of notes payable approximates fair value at
December 31, 1999.
The annual maturities of the installment notes payable are as follows:
For the year ending December 31, 2000 $ 24,749,466
2001 632,662
2002 125,641
2003 282,421
------------------
Total $ 25,790,190
==================
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 $1,487,885 Class A special cash
distributions paid in 1999 and $5,601,790 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. 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 $309,285.
20
<PAGE>
AFG Investment Trust D
Notes to the Financial Statements
(Continued)
The following is a reconciliation between net income (loss) reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net income $ 5,277,987 $ 3,875,037 $ 2,017,457
Tax depreciation in excess of
financial statement depreciation (3,007,887) (5,594,998) (4,292,255)
Tax gain (loss) in excess of
book gain (loss) (3,391,348) 608,670 2,507,051
Deferred rental income (102,414) 369,321 (161,505)
Other 151,042 (59,552) (28,038)
------------------ ------------------ ------------------
Net income (loss) for federal income
tax reporting purposes $ (1,072,620) $ (801,522) $ 42,710
================== ================== ==================
</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 $ 27,950,594 $ 41,937,651
Unrealized gain on marketable securities (20,167) --
Add back selling commissions and organization
and offering costs 5,113,551 5,113,551
Financial statement distributions in excess of
tax distribution 13,326,498 --
Deferred step-down of capital basis (366,869) (366,869)
Cumulative difference between federal income tax
and financial statement income (loss) (26,295,700) (19,945,093)
------------------ ------------------
Participants' capital for federal income tax reporting
purposes $ 19,707,907 $ 26,739,240
================== ==================
</TABLE>
Cumulative difference between federal income tax and financial statement
income (loss) represent timing differences.
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
21
<PAGE>
AFG Investment Trust D
Notes to the Financial Statements
(Continued)
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 $1,572,405,
including legal fees for Plaintiffs' counsel of $84,520, that was paid in July
1999 ($0.77 per unit, net of legal fees). In addition, the parent company of the
Managing Trustee, Equis II Corporation, agreed to commit $3,537,910 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 $290,000, all of which was accrued and
expensed by the Trust in 1998.
NOTE 10 - SUBSEQUENT EVENTS
Special Cash Distribution
On January 19, 2000, the Trust distributed $13,200,000 as a special cash
distribution to the Trust Beneficiaries. Of the total distributions, the
Beneficiaries were allocated $11,979,000 ($2,918,373 to Class A Beneficiaries
and $9,060,627 to Class B Beneficiaries); the Special Beneficiary was allocated
$1,089,000, and the Managing Trustee was allocated $132,000.
Leveraging of Emery Worldwide Lease Renewal
On February 3, 2000, the Trust obtained financing of $6,091,738 in
connection with a lease renewal with Emery Worldwide ("Emery"). The Trust
entered into a 30-month renewal agreement with Emery at a semi-annual rent
payment of $566,084, beginning January 2, 2000. Emery has the option to extend
the lease agreement for an additional 30 months at the expiration of the lease
term on July 1, 2002. The financing includes a balloon payment of $4,600,000 due
on July 1, 2002 if Emery decides not extend the lease agreement. If the lease
agreement is extended, the balloon payment will be postponed until the
termination of the 30-month extension period at which time the balloon payment
will be $2,750,000.
Echelon
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
46.34% of the guaranteed amount, or $15,987,300. In consideration for its
guarantee, the Trust received an upfront cash fee equal to $231,700 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 $463,400, excluding interest.
22
<PAGE>
AFG Investment Trust D
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 revenues, 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 $ 38,159,634 $ 4,633,505 $ 4,798,925
Sale proceeds, including assumption of debt and interest,
realized upon disposition of equipment 4,231,616 1,407,762 5,392,670
--------------- --------------- ---------------
Total cash generated from rents and equipment
sale proceeds 42,391,250 6,041,267 10,191,595
Original acquisition cost of equipment disposed 36,770,580 5,558,107 9,199,335
--------------- --------------- ---------------
Excess of total cash generated to cost of equipment
disposed $ 5,620,670 $ 483,160 $ 992,260
=============== =============== ===============
</TABLE>
23
<PAGE>
AFG Investment Trust D
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 (loss) $ 9,722,544 $ (4,444,557) $ 5,277,987
Add:
Depreciation 7,399,744 -- 7,399,744
Accretion of bond discount (1,480) -- (1,480)
Management fees 1,074,800 -- 1,074,800
Book value of disposed equipment -- 8,676,173 8,676,173
Less:
Principal reduction of notes payable (10,541,467) -- (10,541,467)
------------------ ------------------ ------------------
Cash from operations, sales
and refinancings 7,654,141 4,231,616 11,885,757
Less:
Management fees (1,074,800) -- (1,074,800)
------------------ ------------------ ------------------
Distributable cash from operations,
sales and refinancings 6,579,341 4,231,616 10,810,957
Other sources and uses of cash:
Cash at beginning of year 7,664,645 1,435,371 9,100,016
Restricted cash 5,110,315 -- 5,110,315
Investment - affiliate 30,813 -- 30,813
Investment - Kettle Valley (3,064,700) -- (3,064,700)
Investment - EFG/Kirkwood (2,030,100) -- (2,030,100)
Purchase of marketable securities (412,529) -- (412,529)
Other liabilities 1,488,403 -- 1,488,403
Net change in receivables and
accruals (3,194,997) -- (3,194,997)
Less:
Cash distributions paid (6,503,150) -- (6,503,150)
------------------ ------------------ ------------------
Cash at end of year $ 5,668,041 $ 5,666,987 $ 11,335,028
================== ================== ==================
</TABLE>
24
<PAGE>
AFG Investment Trust D
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 $ 1,004,754
25
<PAGE>
AFG Investment Trust D
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 $ 301,036
Accounting and Tax 81,128
Investor Services 54,763
Insurance 39,450
Selling & Remarketing 29,456
Office 28,340
Bank Charges 23,445
Third Party Service Contracts 17,816
Travel & Entertainment 10,801
Printing & Document Services 7,800
Aircraft Maintenance 6,334
Other 3,870
-----------------
Total $ 604,239
=================
26
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
<PAGE>
AFG Investment Trust D
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. 008-RN1 $ 1,249,392
Alliant Techsystems A-1 298,492
Alliant Techsystems A-3 879,414
Alliant Techsystems A-4 727,397
A.O. Smith Corporation A-20RN1 9/30/01 103,307 $ 18,723
Chrysler Corporation B-4 463,151 57,613
Chrysler Corporation B-4B 113,752 26,837
Chrysler Corporation B-4C 30,005 6,749
Chrysler Corporation B-6 593,084 75,910
Chrysler Corporation B-6B 148,512 35,968
Chrysler Corporation B-6C 29,525 6,798
Chrysler Corporation B-7 433,629 55,501
Chrysler Corporation B-7B 175,600 42,542
Chrysler Corporation B-7C 30,021 6,912
Chrysler Corporation B-8-4A 5/31/00 3,798 1,756
Chrysler Corporation B-8B 158,052 39,318
Chrysler Corporation B-8C 47,266 10,882
Chrysler Corporation G-3 9/30/02 61,449 47,828
Cooper Tire & Rubber Company A-3 10/31/00 37,738 10,228
Cooper Tire & Rubber Company A-4 10/31/00 19,462 5,275
Corning Lab Services, Inc. A-12 3/31/00 341,688 17,374 $ 24,189
Emery Worldwide N961R-RN1 7/1/02 13,608,044 9,826,731 1,033,969
International Paper B-45-71 33,320 3,876
International Paper B-50-63 171,275 28,431
International Paper B-50-67 125,936 18,178
International Paper B-51-73 12/31/99 45,906 5,924
International Paper B-56-70 52,851 6,148
International Paper C-45-6 3/31/02 33,242 11,656
International Paper C-65-5 12/31/01 245,125 73,538
International Paper C-65-6 6/30/02 179,567 67,338
GE Appliances, A Division of GE A-2 15,666
</TABLE>
27
<PAGE>
AFG Investment Trust D
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 H-10 9/30/00 $ 42,821 $ 11,112
General Motors Corporation H-7 6,461 759
General Motors Corporation I-1 98,031 14,835
General Motors Corporation C-16 4/30/00 74,529 13,719
General Motors Corporation C-7 715,630 89,714
General Motors Corporation C-8 581,358 31,150
H E Butt Grocery Company A-23 11,712
Maytag Corporation A-14 6/30/00 18,494 4,108
Maytag Corporation A-3 69,513 6,820
Mobil Oil Corporation C-1ARN1 104,739 15,703
Mobil Oil Corporation C-1RN2 44,847 6,724
Missouri Pacific Railroad Company 4/15/84 7/14/00 8,312,336 4,571,277
National Steel Corporation A-104 110,484 12,823
National Steel Corporation A-96 120,380 8,626
National Steel Corporation A-97 38,499
National Steel Corporation A-99A 87,877 2,741
Owens-Corning Fiberglass Corp. A-103 2/29/00 87,748 47,384
Owens-Corning Fiberglass Corp. A-104 7/31/00 45,781 29,300
Owens-Corning Fiberglass Corp. A-50 6/30/00 20,912 7,078
Owens-Corning Fiberglass Corp. A-56 29,317 7,840
Owens-Corning Fiberglass Corp. A-59 0 $ 50,034
Owens-Corning Fiberglass Corp. A-65 23,466
Owens-Corning Fiberglass Corp. A-7 5/31/01 20,051 4,485
Quanterra, Inc. AA-1 110
Reno Air, Inc. N753RA 1/14/03 1,239,741 1,017,113 656,454
Scandinavian Airlines System LN-RCGRN1 1/29/01 30,166,351 26,591,513 20,942,499
Tama Paperboard A-1 5/31/03 28,010 19,974
Tarmac Mid-Atlantic, Inc. A-6 452,148 6,459
Tarmac Florida, Inc. A-10RN1 12/31/00 231,312
Teledyne Wah Chang B-1 8/31/00 21,263 5,261
Teledyne Wah Chang B-2 8/31/00 29,640 7,334
</TABLE>
28
<PAGE>
AFG Investment Trust D
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>
Teledyne Wah Chang B-3 8/31/00 49,566 12,264
Temple-Inland Forest Product Group A-1RN1 12/31/00 $ 144,841 $ 51,711
TTX Company 02 / 01 / 80RN1 7/14/00 2,372,307 804,507 $ 1,541,935
USX Corporation A-3 130
Western Bulk Carriers A-1RN1 12/31/00 1,559,699 465,204 267,574
Weyerhaeuser Company 91-C-99396 11/30/00 1,692,068 310,212 339,169
Getchell Gold Corporation A-10 12/31/00 225,107 66,228
Xerox Corporation BB-78 34,612 8,620
Seven-Up / RC Bottling Company A-1 6,532 823
------------ ------------- ----------------
TOTAL $ 69,374,089 $ 44,761,455 $ 24,855,823
============ ============= ================
</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 D of our report dated March 30, 2000, included in
the 1999 Annual Report to the Participants of AFG Investment Trust D.
ERNST & YOUNG LLP
Boston, Massachusetts
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
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