-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QothKMV3jKac7lKlzEDPN+vpAeFt1NYGMZ30QYlJxoZy2nQY/5hmEiC6GgezFnF1 qTfion0ok4L+hW0qUkiu4w== 0001016843-01-000335.txt : 20010418 0001016843-01-000335.hdr.sgml : 20010418 ACCESSION NUMBER: 0001016843-01-000335 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AFG INVESTMENT TRUST B CENTRAL INDEX KEY: 0000879495 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 043157230 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21390 FILM NUMBER: 1604815 BUSINESS ADDRESS: STREET 1: 200 NYALA FARMS CITY: WESTPORT STATE: CT ZIP: 06880 BUSINESS PHONE: 6178545800 MAIL ADDRESS: STREET 1: 98 N WASHINGTON ST CITY: BOSTON STATE: MA ZIP: 02114 FORMER COMPANY: FORMER CONFORMED NAME: AFG SECURED INCOME TRUST I-B DATE OF NAME CHANGE: 19600201 10-K 1 0001.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 ------------------------------------------------------ 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 0-21390 ---------------------------------------------------------- AFG Investment Trust B - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 04-3157230 - ----------------------------------- ---------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 88 Broad St., 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: 665,494 Class A Trust Beneficiary Interests - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained herein, to the best of registrant's knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 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, 2000 (Part I and II) AFG Investment Trust B FORM 10-K TABLE OF CONTENTS
Page ---- PART I Item 1. Business 3 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II Item 5. Market for the Trust's Securities and Related Security Holder Matters 7 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 8. Financial Statements and Supplementary Data 8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 8 PART III Item 10. Directors and Executive Officers of the Trust 9 Item 11. Executive Compensation 11 Item 12. Security Ownership of Certain Beneficial Owners and Management 12 Item 13. Certain Relationships and Related Transactions 12 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 14-15
2 PART I Item 1. Business. - ------------------ (a) General Development of Business AFG Investment Trust B (the "Trust") was organized as a Delaware business trust in accordance with the Delaware Business Trust Act on May 28, 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" or the "Advisor") and $100 from the Initial Beneficiary, AFG Assignor Corporation, a wholly-owned affiliate of EFG. The Trust issued an aggregate of 665,494 Beneficiary Interests (hereinafter referred to as Class A Interests) at a subscription price of $25.00 each ($16,637,350 in total) to 803 investors on September 8, 1992. On July 18, 1997, the Trust issued 1,000,961 Class B Interests at $5.00 each ($5,004,805 in total), of which (i) 997,373 interests are held by Equis II Corporation, an affiliate of EFG, and a wholly owned subsidiary of Semele Group Inc. ("Semele"), and (ii) 3,588 interests are held by 5 other Class A investors. The Trust repurchased 82,837 Class A Interests on October 10, 1997 at a cost of $785,295 using proceeds from the issuance of Class B Interests. On December 1, 1997, the Trust repurchased 640 additional Class A Interests at a cost of $6,080. Accordingly, there are 582,017 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. 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 equipment 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. Except with respect to interested transactions, Class A Interests and Class B Interests have identical voting rights and, therefore, Equis II Corporation generally has control over the Trust on all matters on which the Beneficiaries may vote. With respect to interested transactions, holders of Class B Interests which are the Managing Trustee or any of its affiliates must vote their interests as a majority of the Class A Interests have been voted. Equis II Corporation is a wholly owned subsidiary of Semele. 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 The Trust is engaged in two industry segments: equipment leasing and real estate ownership, development and management. Historically, the Trust has acquired capital equipment and leased 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. With the consent of the Beneficiaries in 1998, the Trust Agreement was modified to permit the Trust to invest in assets other than equipment. During 1999 and 2000, the Trust has made real estate acquistions that the Managing Trustee believes have the potential to enhance the Trust's overall economic performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated herein by reference to the 2000 Annual Report. (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 September 8, 1992. Information concerning the acquisition of the equipment and its associated leases is included 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, 2003. 3 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 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. In addition, the Managing Trustee is compensated for services provided related to the Trust's non-equipment investment other than cash. See Item 13 herein, and in Note 5 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, credit quality 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. Another risk is that the credit quality of the lease may deteriorate after a lease is made. 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, many of which have greater resources, 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. 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. The Trust has an ownership interest in EFG Kirkwood LLC ("EFG Kirkwood"). EFG Kirkwood is a joint venture among the Trust, certain affiliated Trusts and Semele and is managed by AFG ASIT Corporation. EFG Kirkwood is a member in two joint ventures, Mountain Resort Holdings LLC ("Mountain Resort") and Mountain Springs Resort LLC ("Mountain Springs"). See Note 5 to the financial statements included in Item 14, herein. Mountain Resort, through four wholly owned subsidiaries, owns and operates the Kirkwood Mountain Resort, a ski resort located in northern California, a public utility that services the local community, and land that is held for residential and commercial development. Mountain Springs, through a wholly owned subsidiary, owns a controlling interest in the Purgatory Ski resort in Durango, Colorado. The risks generally associated with real estate include, without limitation, the existence of senior financing or other liens on the properties, general or local economic conditions, property values, the sale of properties, interest rates, real estate taxes, other operating expenses, the supply and demand for properties involved, zoning and environmental laws and regulations, and other governmental rules. The Trust's involvement in real estate development also introduces financials risks, including the potential need to borrow funds to develop the real estate projects. While the Trust's management presently does not foresee any unusual risks in this regard, it is possible that factors beyond the control of the Trust, its affiliates and joint venture partners, such as a tightening credit environment, could limit or reduce its ability to secure adequate credit facilities at a time when they might be needed in the future. Alternatively, the Trust could establish joint ventures with other parties to share participation in its development projects. Ski resorts are subject to a number of risks, including weather-related risks. The ski resort business is seasonal in nature and insufficient snow during the winter season can adversely effect the profitability of a given resort. Many operators of ski resorts have greater resources and experience in the industry than the Trust, its affiliates and its joint venture partners. The Investment Company Act of 1940 (the "Act") places restrictions on the capital structure and business activities of companies registered thereunder. The Trust has active business operations in the financial services industry, primarily equipment leasing, and in the real estate industry through its interest in EFG Kirkwood. The Trust does not intend to engage in investment activities in a manner or to an extent that would require the Trust to register as an investment company under the Act. However, it is possible that the Trust may unintentionally engage in an activity or activities that may be construed to fall within the scope of the Act. If the Trust was determined to be an investment company, its business would be adversely affected. The Managing Trustee is engaged in discussions with the staff of the Securities and Exchange Commission regarding whether or not the Trust may be an inadvertent investment company by virtue of its recent acquisition activities. If necessary, the Trust intends to avoid being deemed an investment company by disposing of or acquiring certain assets that it might not otherwise dispose of or acquire. 4 Revenue from major individual lessees which accounted for 10% or more of lease revenue during the years ended December 31, 2000, 1999 and 1998 is incorporated herein by reference to Note 2 to the financial statements, included in Item 14. Refer to Item 14(a)(3) for lease agreements filed with the Securities and Exchange Commission. The Trust Agreement originally provided for the reinvestment of Cash From Sales or Refinancings in additional equipment until September 8, 1996, a period of four years following Closing. In the 1998 amendment to the Trust Agreement, the Trust's reinvestment provisions were reinstated until December 31, 2001 (see Note 5 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 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. In December 2000, the Trust and three affiliated Trusts (collectively, the "Trusts") formed MILPI Holdings, LLC ("MILPI"), which formed MILPI Acquisition Corp. ("MILPI Acquisition"), a wholly owned subsidiary of MILPI. The Trusts collectively paid $1.2 million for their membership interest in MILPI and MILPI purchased the common stock of MILPI Acquisition for an aggregate purchase price of $1.2 million. MILPI Acquisition entered into a definitive agreement (the "Agreement") with PLM International, Inc. ("PLM"), an equipment leasing and asset management company, for the purpose of acquiring up to 100% of the outstanding common stock of PLM, for an approximate purchase price of up to $27 million. In connection with the acquisition, on December 29, 2000, MILPI Acquisition commenced a tender offer to purchase any and all of PLM's outstanding common stock. Pursuant to the cash tender offer, MILPI Acquisition acquired 83% of the PLM common stock in February 2001 for a total purchase price of approximately $21.7 million. Under the terms of the Agreement, with the approval of the holders of 50.1% of the outstanding common stock of PLM, MILPI Acquisition will merge into PLM, with PLM being the surviving entity. PLM filed a proxy statement with the Securities and Exchange Commission (the "SEC") on February 9, 2001 for a special meeting of its shareholders to vote on the merger proposal. Because MILPI Acquisition owns 83% of the PLM common stock, its vote alone would be sufficient to assure the approval of the merger proposal at the special meeting and MILPI has agreed to vote all of its shares in favor of the merger proposal. Once the merger is approved, the Trusts would then jointly own 100% of the outstanding common stock of PLM through their 100% interest in MILPI. However, completion of the SEC staff's review of the proxy statement for approval of the merger is dependent in part on the satisfactory resolution of the Trust's discussions with the staff regarding its possible status as an inadvertent investment company. If the merger is approved, the Trusts may be required to provide an additional $4.7 million to acquire the remaining 17% of PLM's outstanding common stock. The Trust has a 20% membership interest in MILPI and its share of the aggregate membership interests in MILPI at December 31, 2000 was $240,000. Equis II Corporation has voting control of the Trusts and owns the Managing Trustee of the Trusts. Semele owns Equis II Corporation. Mr. Engle and Mr. Coyne are officers and directors of, and own significant stock in, Semele. Mr. Engle and Mr. Coyne are officers and directors of MILPI Acquisition. (d) Financial Information About Foreign and Domestic Operations and Export Sales 5 Not applicable. Item 2. Properties. - -------------------- Incorporated herein by reference to Note 3 to the financial statements included in Item 14. Item 3. Legal Proceedings. - --------------------------- Incorporated herein by reference to Note 8 to the financial statements included in Item 14. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- None. 6 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, 2000, there were 690 record holders (686 of Class A Interest and 4 of Class B Interests) in the Trust. (c) Dividend History and Restrictions Historically, cash distributions had 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. After the amendment of the Trust Agreement in 1998, 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, in 1999, the Trust declared a special cash distribution to the Trust Beneficiaries totaling $5,300,000, which was paid in January 2000. After the special distribution in January 2000, the Trust adopted a new distribution policy and suspended the payment of regular monthly cash distributions. It is currently expected that, the Managing Trustee will not 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. 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 in January 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 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 7 distributions paid to the Class B Beneficiaries as a return of their original capital contributions (on a per Class B 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. In any given year, it is possible that Beneficiaries will be allocated taxable income in excess of distributed cash. This discrepancy between tax obligations and cash distributions may or may not continue in the future, and cash may or may not be available for distribution to the Beneficiaries adequate to cover any tax obligation. The Trust Agreement requires that sufficient distributions be made to enable the Beneficiaries to pay any state and federal income taxes arising from any sale or refinancing transactions, subject to certain limitations. No distributions were declared for the year ended December 31, 2000. Distributions declared in 1999 were as follows:
Managing Special Total Trustee Beneficiary Beneficiaries Total 1999 distributions: --------------- --------------- --------------- --------------- Class A Interests......... $ 2,983,360 $ 25,097 $ 207,039 $ 2,751,224 Class B Interests......... 4,145,410 41,452 341,998 3,761,960 --------------- --------------- --------------- --------------- Total............. $ 7,128,770 $ 66,549 $ 549,037 $ 6,513,184 =============== =============== =============== ===============
Distributions payable were $5,300,000 at December 31, 1999 and paid in January 2000. Item 6. Selected Financial Data. - --------------------------------- Incorporated herein by reference to the section entitled "Selected Financial Data" in the 2000 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 2000 Annual Report. Item 8. Financial Statements and Supplementary Data. - ----------------------------------------------------- Incorporated herein by reference to the financial statements and supplementary data included in the 2000 Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. - -------------------------------------------------------------------------------- None. 8 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, 2001 are as follows: DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGING TRUSTEE (See Item 13) - ----------------------------------------------------------------------
Name Title Age Term - ------------------------------- --------------------------------------------- ------- ----------- Geoffrey A. MacDonald Chairman of EFG and President Until a and a Director of the Managing Trustee 52 successor is duly Gary D. Engle President and Chief Executive elected Officer of EFG and a and Director of the Managing Trustee 52 qualified James A. Coyne Executive Vice President of EFG and Senior Vice President of the Managing Trustee 41 Michael J. Butterfield Executive Vice President and Chief Operating Officer of EFG and Treasurer of the Managing Trustee 41 Gail D. Ofgant Senior Vice President, Lease Operations of EFG and Senior Vice President of the Managing Trustee 35
(c) Identification of Certain Significant Persons None. (d) Family Relationship No family relationship exists among any of the foregoing Directors or Executive Officers. 9 (e) Business Experience Mr. MacDonald, age 52, is Chairman of EFG and has been President and a Director of the Managing Trustee since 1991. Mr. McDonald was a co-founder of EFG's predecessor, American Finance Group, which was established in 1980, and President of American Finance Group Securities Corporation. Prior to co-founding American Finance Group, Mr. MacDonald held various positions in the equipment leasing industry and the ethical pharmaceutical industry with Eli Lilly & Company. Mr. MacDonald holds an M.B.A. from Boston College and a B.A. degree from the University of Massachusetts (Amherst). Mr. Engle, age 52, is President and Chief Executive Officer of EFG, sole shareholder and Director of its general partner, Equis Corporation, and a Vice President and Director of several of EFG's subsidiaries and affiliates. Mr. Engle has been a Director of the Managing Trustee since 1991 and is President of AFG Realty Corporation. Mr. Engle is also Chairman and Chief Executive Officer of Semele Group Inc. ("Semele") and is President and a Director of Equis II Corporation. Mr. Engle controls the general partners of Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital Limited Partnership ("ONC"). Mr. Engle joined EFG in 1990 as an Executive Vice President and acquired control of EFG and its subsidiaries in December 1994. Mr. Engle co-founded Cobb Partners Development, Inc., a real estate and mortgage banking company, where he was a principal from 1987 to 1989. From 1980 to 1987, Mr. Engle was Senior Vice President and Chief Financial Officer of Arvida Disney Company, a large-scale community development organization owned by Walt Disney Company. Prior to 1980, Mr. Engle served in various management consulting and institutional brokerage capacities. Mr. Engle has an M.B.A. degree from Harvard University and a B.S. degree from the University of Massachusetts (Amherst). Mr. Coyne, age 41, is Executive Vice President of EFG, became Vice President of the Managing Trustee in 1997 and has been Senior Vice President of the Managing Trustee since 1998. Mr. Coyne is President and Chief Operating Officer of Semele and President, and is Executive Vice President /Capital Markets of Equis Corporation, the general partner of EFG. He is also a Director and President of Equis II Corporation. Mr. Coyne joined EFG in 1989 and remained with the company until May 1993 when he resigned to join the Raymond Company, a private investment firm, where he was responsible for financing corporate and real estate acquisitions. Mr. Coyne remained with the Raymond Company until November 1994 when he re-joined EFG. From 1985 to 1989, Mr. Coyne was employed by Ernst & Whinney (now known as Ernst & Young LLP). Mr. Coyne holds a Masters degree in accounting from Case Western Reserve University and a B.S. in Business Administration from John Carroll University and is a Certified Public Accountant. Mr. Butterfield, age 41, is Executive Vice President and Chief Operating Officer of EFG and has been Treasurer of the Managing Trustee since 1996. Mr. Butterfield also serves as Treasurer of various subsidiaries and affiliates of EFG. Mr. Butterfield is also Chief Financial Officer of Semele and Vice President, Finance. Mr. Butterfield joined EFG in June 1992 and became a Vice President in 1996 and Executive Vice President and Chief Operating Officer in 2000. Prior to joining EFG, Mr. Butterfield was an audit manager with Ernst & Young LLP, which he joined in 1987. Mr. Butterfield was also 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 C.P.A. requirements in the United States. Mr. Butterfield holds a Bachelor of Commerce degree from the University of Otago, Dunedin, New Zealand. Ms. Ofgant, age 35, is Senior Vice President, Lease Operations of EFG and became Vice President of the Managing Trustee in 1997. Ms. Ofgant is also Senior Vice President of certain of EFG's affiliates, including Senior Vice President of the Managing Trustee since 1998. Ms. Ofgant joined EFG in July 1989 and held various positions with the company before becoming Senior Vice President in 1998. From 1987 to 1989, Ms. Ofgant was employed by Security Pacific National Trust Company. Ms. Ofgant holds a B.S. degree from Providence College. 10 (f) Involvement in Certain Legal Proceedings None. (g) Promoters and Control Persons Not applicable. Item 11. Executive Compensation. - -------------------------------- (a) Cash Compensation Currently, the Trust has no employees. However, under the terms of the Trust Agreement, the Trust is obligated to pay all costs of personnel employed full or part-time by the Trust, including officers or employees of the Managing Trustee or its Affiliates. There is no plan at the present time to make any officers or employees of the Managing Trustee or its Affiliates employees of the Trust. The Trust has not paid and does not propose to pay any options, warrants or rights to the officers or employees of the Managing Trustee or its Affiliates. (b) Compensation Pursuant to Plans None. (c) Other Compensation Although the Trust has no employees, as discussed in Item 11(a), pursuant to section 10.4(c) of the Trust Agreement, the Trust incurs a monthly charge for personnel costs of EFG for persons engaged in providing administrative services to the Trust. A description of the remuneration paid by the Trust to the Managing Trustee and its Affiliates for such services is included in Item 13 of this report and in Note 5 to the financial statements included in Item 14 herein. (d) Stock Options and Stock Appreciation Rights. Not applicable. (e) Long-Term Incentive Plan Awards Table. Not applicable. (f) Defined Benefit or Actuarial Plan Disclosure. Not applicable. (g) Compensation of Directors None. (h) 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 outstanding no 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; 11 2. Termination of the Trust; 3. Removal of the Managing Trustee; and 4. Approval or disapproval of the sale of all, or substantially all, of the assets of the Trust (except in the orderly liquidation of the Trust upon its termination and dissolution). As of March 15, 2001, the following person or group owns beneficially more than 5% of the Trust's outstanding Beneficiary interests:
Name and Amount Percent Title Address of of Beneficial of of Class Beneficial Owner Ownership Class - --------------------------- ---------------------------- ----------------------- ------------- Class B Beneficiary Equis II Corporation Interests 88 Broad Street 997,373 Interests 99.64% Boston, MA 02110
Equis II Corporation is a wholly owned subsidiary of Semele. Gary D. Engle is Chairman and Chief Executive Officer of Semele, President and Chief Executive Officer of EFG and sole shareholder and Director of EFG's general partner. James A. Coyne, Executive Vice President of EFG, is Semele's President and Chief Operating Officer. Mr. Engle and Mr. Coyne are both members of the Board of Directors of, and own significant stock in, Semele. No person or group is known by the Managing Trustee to own beneficially more than 5% of the Trust's 582,017 outstanding Class A Interests as of March 15, 2001. 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, 2000, 1999 and 1998, which were paid or accrued by the Trust to EFG or its Affiliates, are as follows: 2000 1999 1998 ---------- ---------- ---------- Acquisition fees .................... $ 7,869 $ 14,450 $ -- Management fees ..................... 67,679 72,020 128,627 Administrative charges .............. 127,891 127,120 70,524 Reimbursable operating expenses due to third parties ............ 174,497 270,157 382,866 ---------- ---------- ---------- Total $ 377,936 $ 483,747 $ 582,017 ========== ========== ========== As provided under the terms of the Trust Agreement, EFG is compensated for its services to the Trust. Such services include all aspects of acquisition, management and sale of equipment. For acquisition services, EFG was compensated by an amount equal to .28% of Asset Base Price paid by the Trust for each asset acquired for the Trust's initial asset portfolio. For acquisition services during the initial reinvestment period, which expired on September 8, 1996, EFG was compensated by an amount equal to 3% of Asset Base Price paid by the Trust. In the 1998 Amendment to the Trust Agreement, the Trust's reinvestment provisions were reinstated through December 31, 2001 and the Trust was permitted to invest in assets other than equipment. Acquisition fees paid to EFG in connection with equipment reinvestment assets are equal to 1% of Asset Base Price paid by the Trust. For management services, EFG is compensated by an amount equal to (i) 5% of gross operating lease rental revenue and 2% of gross full payout lease rental revenue received by the Trust with respect to equipment acquired 12 on or prior to March 31, 1998. For management services earned in connection with equipment acquired on or after April 1, 1998, EFG is compensated by an amount equal to 2% of gross lease rental revenue received by the Trust. For non-equipment investments other than cash, the Managing Trustee receives an annualized management fee of 1% of of such assets under management. 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 this fee and the other fees described above are 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 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, 2000, the Trust was owed $113,837 by EFG for such funds and the interest thereon. These funds were remitted to the Trust in January 2001. Old North Capital Limited Partnership ("ONC"), a Massachusetts limited partnership formed in 1995 and an affiliate of EFG, owns 839 Class A Interests or less than 1% of the total outstanding Class A Interests of the Trust. The general partner of ONC is controlled by Gary D. Engle. In addition, the limited partnership interests of ONC are owned by Semele. Gary D. Engle is Chairman and CEO of Semele. In 1997, the Trust issued 1,000,961 Class B Interests at $5.00 per interest, thereby generating $5,004,805 in aggregate Class B capital contributions. Class A Beneficiaries purchased 3,588 Class B Interests, generating $17,940 of such aggregate capital contributions, and then Special Beneficiary, EFG, purchased 997,373 of such Class B Interests, generating $4,986,865 of such aggregate capital contributions. 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. See Item 1 (a) of this report regarding certain voting restrictions related to the Class B Interests. Equis II Corporation is owned by Semele. Gary D. Engle is Chairman and Chief Executive Officer of Semele. James A. Coyne is Semele's President and Chief Operating Officer. Mr. Engle and Mr. Coyne are both members of the Board of Directors of, and own significant stock in, Semele. (b) Certain Business Relationships None. (c) Indebtedness of Management to the Trust None. (d) Transactions with Promoters Not applicable. 13 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, 2000 and 1999.........................* Statement of Operations for the years ended December 31, 2000, 1999 and 1998..* Statement of Changes in Participants' Capital for the years ended December 31, 2000, 1999 and 1998..* Statement of Cash Flows for the years ended December 31, 2000, 1999 and 1998..* 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 ------- 2 Agreement and Plan of Merger, dated as of December 22, 2000, between MILPI Acquisition Corp. and PLM International, Inc. was filed in the Registrant's Form 8-K dated December 28, 2000 as Exhibit 2.1 and is incorporated by reference. 4 Second Amended and Restated Declaration of Trust was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 as Exhibit 4 and is incorporated herein by reference. 4.1 Amendment No. 2 to Second Amended and Restated Declaration of Trust is filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 and is included herein. 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) was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 as Exhibit 10.1 and is incorporated herein by reference. 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 was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 as Exhibit 10.2 and is incorporated herein by reference. * Incorporated herein by reference to the appropriate portion of the 2000 Annual Report to security holders for the year ended December 31, 2000 (see Part II). 14 Exhibit Number ------- 10.3 Guarantors' Contribution Agreement dated March 8, 2000 by and among AFG Investment Trust A, AFG Investment Trust B, AFG Investment Trust C, and AFG Investment Trust D (each a Guarantor) was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 as Exhibit 10.3 and is incorporated herein by reference. 10.4 Amended and Restated Guarantee Agreement dated December 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, 2000 and is included herein. 13 The 2000 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 Reno Air, Inc. was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 as Exhibit 99 (a) and is incorporated herein by reference. 99(b) Lease agreement with General Motors Corporation was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 as Exhibit 99 (a) and is incorporated herein by reference. 99(c) Lease agreement with Montgomery Ward and Company, Inc. was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 as Exhibit 99 (d) and is incorporated herein by reference. 99(d) Operating Agreement of MILPI Holdings, LLC dated as of December 13, 2000 by and among the persons identified on Schedule A thereto was filed in the Registrant's Amendment No. 1 as Schedule TO dated January 29, 2001 ("Schedule TO/A No. 1") as Exhibit (b)(1) and is incorporated herein by reference. 99(e) Subscription Agreement dated as of December 15, 2000 by and among MILPI Holdings, LLC and MILPI Acquisition Corp. was filed in the Registrant's Schedule TO/A No. 1 as Exhibit (b)(2) and is incorporated herein by reference. (b) Reports on Form 8-K Form 8-K dated December 22, 2000 for the definitive agreement entered into by MILPI Acquisition Corp., an indirect subsidiary of the registrant, to acquire PLM International, Inc. for an approximate cash purchase price of $27 million. Form 8-K dated December 22, 2000 to include the amended and restated voting and tender agreement entered into by MILPI Acquisition Corp., an indirect subsidiary of the registrant, to acquire PLM International, Inc. for an approximate cash purchase price of $27 million. Form 8-K dated February 7, 2001 for the consummation of the tender offer by MILPI Acquisition Corp., an indirect subsidiary of the registrant, of PLM International, Inc. 15 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 B 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 of EFG and President President and Chief Executive and a Director of the Managing Trustee Officer of EFG and a Director of the Managing Trustee (Principal Executive Officer) Date: April 17, 2001 Date: April 17, 2001 --------------------------------------- -------------------------------------- By: /s/ MICHAEL J. BUTTERFIELD ----------------------------------------- Michael J. Butterfield Executive Vice President and Chief Operating Officer of EFG and Treasurer of the Managing Trustee (Principal Financial and Accounting Officer) Date: April 17, 2001 ---------------------------------------
16 Exhibit Page - ------- ---- 4.1 Amendment No. 2 to Second Amended and Restated Declaration of Trust. 10.3 Amended and Restated Guarantee Agreement dated December 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). 13 The 2000 Annual Report. 23 Consent of Independent Auditors. EX-4.1 2 0002.txt AMENDMENT NO. 2 to SECOND AMENDED AND RESTATED DECLARATION OF TRUST THE SECOND AMENDED AND RESTATED DECLARATION OF TRUST OF AFG INVESTMENT TRUST D made and agreed to by the Trustees and the Beneficiaries as of July 15, 1997 (the "Trust Agreement"), which was amended by Amendment No. 1 as of June 15, 1998 ("Amendment No. 1") is hereby amended as of June 25, 1999, by amending and restating Amendment No. 1 in its entirety as follows: RECITAL On June 15, 1998, a Majority in Interest of the Beneficiaries consented to certain amendments to the Trust Agreement, which are described in the Solicitation Statement and are included in this Amendment No. 2. 1. Section 1.2 is hereby deleted and the following substituted in lieu thereof: The Trust shall maintain an office at 88 Broad Street, Boston, Massachusetts 02110, and may have such other offices or places of business as the Managing Trustee may from time to time determine as necessary or expedient. 2. The purposes of the Trust are as set forth in Section 1.4, as supplemented and modified by the Solicitation Statement. 3. The following terms are hereby added to ARTICLE II in replacement of the corresponding terms in such Article: "Assets" means, collectively, any personal property, including equipment, other personal property and Securities of any type and description, whether or not related to such personal property, and any interest of the Trust therein, whether directly or indirectly through a nominee, Joint Venture or otherwise. "Asset Management" means personnel and services necessary to the activities of the Trust relating to its Assets including but not limited to leasing and re-leasing of Assets, collecting revenues, paying operating expenses, determining that the Assets are used in accordance with all operative contractual arrangements, providing clerical and bookkeeping services necessary to the operation of Assets and management of any Securities. 4. The following terms are hereby added to ARTICLE II in their proper alphabetical position: "Class Action Lawsuit" means the class and derivative action brought on June 24, 1997, by Leonard Rosenblum, J/B Investment Partners, Small and Barbara Barmack, Partners, and Barbara Hall against EFG and a number of its Affiliates, together with any related class and derivative actions. "Securities" means securities of any type of description which are acquired by the Trust. "Solicitation Statement" means the Solicitation Statement of the Trust dated May 6, 1998, as amended or supplemented from time to time, pursuant to which the Consent of the Beneficiaries was obtained, among other things, to modify the investment objectives and policies of the Trust. 5. Section 4.2(b)(iv) is hereby deleted and the following inserted in lieu thereof: (iv) For a period continuing through May 29, 1996, and for an additional period commencing as of June 15, 1998 and continuing through December 31, 2001, to reinvest Cash from Sales and Refinancings in additional Assets; provided, however, that the Lease of any Asset so acquired shall have a term which shall expire not later than eleven years after Final Closing, or, if such term is scheduled to expire more than eleven years after Final Closing, that such asset will be sold within such period; and provided, further, that sufficient Distributions are made during the relevant period of Trust operations to enable the Beneficiaries to pay any state and federal income taxes arising from the Sale or Refinancing transaction (assuming the Beneficiaries are in a combined federal and state marginal tax bracket of 33% or the rate effective at the time of the Sale or Refinancing transaction); 6. Clause (vii) of Section 4.5 is hereby deleted. 7. The second sentence of Section 5.1(b) is hereby deleted and the following inserted in lieu thereof: For rendering services in connection with the acquisition of additional Assets by the Trust through the reinvestment of Cash From Sales or Refinancings, the Trust shall pay to the Advisor Acquisition Fees and Acquisition Expenses equal to the lesser of (A) 3% of the Asset Base Price paid by the Trust for each Asset acquired (1% of the Asset Base Price of each Asset acquired from June 15, 1998 through December 31, 2001), or (B) a fee, which in conjunction with all other fees paid by or on behalf of the Trust to all Persons in connection with the acquisition of an Asset, the Managing Trustee believes to be competitive with that charged by non-Affiliated Persons for rendering comparable services. 8. The first sentence of Section 5.1(c) is hereby deleted and the following inserted in lieu thereof: (c) For Asset Management, the Trust shall pay an Asset Management Fee to either the Advisor or the Managing Trustee, as hereafter provided, payable monthly, equal to the lesser of (A) the fees which the Managing Trustee reasonably believes to be competitive for similar services for similar assets or (B) either (i) to the Advisor, 5% of gross lease rental revenues of the Trust from Operating Leases and 2% of gross lease rental revenues of the Trust from Full Payout Leases for the month for which such payment is being made with respect to any Assets acquired by the Trust on or prior to March 31, 1998, or (ii) to the Advisor, 2% of gross monthly lease rentals with respect to leases of Assets acquired on or after April 1, 1998, or (iii) to the Managing Trustees, 1/12th of 1% of the fair market value (or, if unattainable, the cost) of any Securities or other Assets (other than equipment). 9. Section 7.1 is hereby deleted and the following inserted in lieu thereof: The Managing Trustee shall use its best efforts to cause the Trust to follow the investment objectives and policies set forth in the Class A Prospectus, as modified by the Solicitation Statement. The Managing Trustee may not make substantial or material modifications in such investment objectives without Majority Consent. All funds held by the Trust which are not invested in Assets (including subscription payments upon their release to D-2 the Trust) may be invested by the Trust in Permitted Investments. The Trust shall not redeem or repurchase Interests except to the extent that such Interests are forfeited in order to (a) prevent the assets of the Trust from being deemed plan assets or (b) prevent Foreign Beneficiaries from remaining Trust Beneficiaries under certain circumstances provided herein or (c) as permitted by Section 9.6. The Managing Trustee shall use its best efforts and in particular shall only acquire Securities in such a manner to ensure that the Trust shall not be deemed an investment company, as such term is defined in the Investment Company Act of 1940. 10. The second and third paragraphs of Section 7.5 are hereby deleted and the following inserted in lieu thereof: The Trust may enter into Joint Ventures with Affiliates of the Managing Trustee or EFG or programs sponsored by the Managing Trustee or its Affiliates (including Joint Ventures organized after the Closing) (collectively, "Affiliated Venturers") but only if (i) no such Joint Venture shall be entered into by the Trust which involves the payment of duplicative equipment management or other fees or which would have the effect of circumventing any of the restrictions on and prohibitions of transactions involving conflicts of interest contained in this Agreement and (ii) the compensation to the Managing Trustee and its Affiliates with respect to such Joint Ventures shall be substantially identical to the compensation described in this Agreement. Further, no lender to a Joint Venturer may have a security or other interest in this Trust's interest in the Joint Venture except to the extent of funds loaned directly to or for the benefit of the Trust. The Trust may cease to be a party to a Joint Venture by sale of its interest to another Joint Venturer or to a third party purchaser. The Trust may also enter into a Joint Venture with one or more unaffiliated Persons and one or more Affiliated Ventures provided that (i) the Trust and its Affiliated Venturers acquire collectively a controlling interest (as such term is described above) in such Joint Venture, (ii) the conditions set forth in clauses (i) and (ii) in the paragraph immediately above are satisfied and (iii) the Joint Venture Agreement or related documents grant to the Trust and its Affiliated Venturers the joint right to make basic management decisions concerning the leasing, financing, refinancing, sale or other disposition of the Assets. Notwithstanding anything contained in this Section 7.5 to the contrary, the Trust may enter into Joint Ventures only (i) where such investments will further the investment objectives of the Trust, (ii) where such Joint Ventures do not involve the payment to the Managing Trustee, the Advisor and any Affiliate of the foregoing, equipment management or other fees that would not permitted under this Agreement, (iii) where the Managing Trustee believes that it is in the best interest of the Trust to do so and (iv) where the Managing Trustee believes that the Trust's participation is on terms and conditions which are fair to the Trust and the Beneficiaries, taking into account the participation of the Affiliated Venturers, and will allow the Trust to better obtain its investment objectives. 11. Section 8.1(d) is hereby deleted and the following inserted in lieu thereof: (d) Promptly after the Class B Closing the Trust will make the Special Class A Distribution to the Class A Beneficiaries. Promptly after settlement of the Class Action Lawsuit, the Trust will make the Second Special Class A Distribution in the amount of $413,247 from the Class B Offering proceeds pro rata to the Class A Beneficiaries of record as of September 1, 1997, or their successors and assigns. D-3 12. Clause First in the second paragraph of Section 8.2(a) regarding Losses is hereby deleted and the following inserted in lieu thereof: First, to the extent that the Managing Trustee, the Special Beneficiary or any Class B Beneficiary has a positive balance in his Capital Account, to such Person(s) until such Capital Account balance(s) are decreased to zero, and if Losses are insufficient to reduce all such Capital Accounts to zero, then pro rata according to the positive balances in each Capital Account; and 13. The following sentence is hereby added at the end of Section 8.1(e): In the event that a final settlement of the Class Action Lawsuit has been attained on or prior to July 17, 1999, then $929,806 of any remaining Class B Proceeds will be retained by the Trust and invested in additional Assets. 14. The following sentence is hereby added at the end of Section 11.2(a): Notwithstanding the foregoing, however, effective as of June 25, 1999, Class B Beneficiaries which are the Managing Trustee or any of its Affiliates will be required to vote their Class B Interests in accordance with the vote of a Majority in Interest of the Class A Beneficiaries with respect to all Interested Transactions. As used herein the term "Interested Transactions" means transactions where Beneficiary Consent under this Agreement is required concerning the compensation of the Managing Trustee or any of its Affiliates, the extension of the term of the Trust, or regarding any transaction between the Trust and the Managing Trustee or its Affiliates; provided, however, that the foregoing voting restrictions shall not relate to any votes concerning the withdrawal or removal of the Managing Trustee, which votes are not subject to such voting restrictions. 15. The last sentence of Section 11.2(b) is hereby deleted and the following inserted in lieu thereof: The Managing Trustee and its Affiliates shall be entitled to vote with respect to any Interests which they own; provided that except as provided in Section 11.2(a) hereof the Managing Trustee and its Affiliates may not vote their Interests with respect to the compensation or the withdrawal or removal of the Managing Trustee pursuant to this Agreement or regarding any transaction between the Trust and the Managing Trustee or its Affiliates. Except as specifically amended hereby, the Trust Agreement remains in full force and effect. D-4 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment No. 2 as of June 25, 1999. MANAGING TRUSTEE: CLASS A AND B BENEFICIARIES AFG ASIT Corporation By: AFG ASIT Corporation, as Attorney-in-Fact for each such Person pursuant to Article XIII of the Trust Agreement By: /s/ James A. Coyne By: /s/ James A. Coyne ---------------------------- ----------------------------- James A. Coyne, James A. Coyne, Senior Vice President Senior Vice President SPECIAL BENEFICIARY: Equis Financial Group Limited Partnership By: Equis Corporation, general partner By: /s/ Gary D. Engle ----------------------------- Gary D. Engle, President EX-10.4 3 0003.txt AMENDED AND RESTATED GUARANTEE THIS AMENDED AND RESTATED GUARANTEE, dated as of December __, 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) and amends, restates and supersedes in its entirety the original Guarantee dated March 7, 2000 between the parties hereto (the "Original Guarantee"). 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 of Florida, Inc., a Florida corporation, HAHF Trust I, a Delaware business trust, and HAHF Trust II, a Delaware business trust (collectively, the "Master Lessor") and Master Lessee; WHEREAS, in order to induce the Beneficiaries to enter into the Master Lease, the Guarantors executed and delivered the Original Guarantee to Master Lessor (collectively, along with its successors and permitted assigns, the "Beneficiaries"); WHEREAS, the Beneficiaries and the Guarantor have agreed that it is in their mutual interest to make certain modifications to the Original Guarantee as set forth herein; 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 Lessee 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 Lessee 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 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 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 2.02 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 -2- 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 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 Obligation 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, -3- 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 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, however, 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 limiting any of the other terms or provisions hereof, in order to hold the Guarantors liable hereunder, there shall be no obligation on the part of any Beneficiary at any -4- 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 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 under 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- 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 fraudulent 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 not been made notwithstanding any termination of this Guarantee or the Master Lease. The liability of the Guarantors shall not be 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 $7,000,000 or the Guaranteed Amount (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). As used herein, "Guaranteed Amount" means 125% of the total of Lease Balance plus Recourse Debt less amounts held in the Cash Collateral Account. ARTICLE III COVENANTS Each Guarantor hereby covenants, for the benefit of each Beneficiary, as follows: SECTION 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 -6- 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 to take with respect thereto; provided, however, 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 -7- 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. 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 to 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. 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 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. -8- (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 (A) the validity or enforceability of this Guarantee, or (B) 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 the Guarantor or the Property under the Master Lease. (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 -9- 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. 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 five (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, -10- 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 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. 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 -11- 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 (a) personally; (b) by a nationally recognized overnight courier service; (c) by mail (by registered or certified mail, return receipt requested, postage prepaid); or (d) 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, 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. -12- (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 unenforceable 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. 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 (a) the date on which all Obligations and the obligations of the Guarantors hereunder shall have been satisfied by payment and performance in full; (b) the date on which the Master Lease terminates; or (c) 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 headings 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. -13- 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 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 7.08 and the Guarantors hereby waive any right they might 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 -14- 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. SECTION 7.15 Currency. All amounts payable hereunder shall be paid in lawful currency of the United States of America. -15- 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] -16- 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:______________________ Its: ACKNOWLEDGED AND AGREED: HELLER AFFORDABLE HOUSING OF FLORIDA, INC. a Florida corporation By: ________________________________ Name: Title: HAHF TRUST I a Delaware business trust By: _________________________________ Name: Title: HAHF TRUST II a Delaware business trust By: _________________________________ Name: Title: -17- EX-13 4 0004.txt AFG INVESTMENT TRUST AFG Investment Trust B Annual Report to the Participants, December 31, 2000 Dear Investor: We are pleased to provide the Annual Report for AFG Investment Trust B, which contains important information concerning the recent operating results and current financial position of your investment program. Please refer to the index on the following page for a listing of information contained in this report. If you have any questions about your investment program or, if you would like a copy of Form 10-K for this program, please contact our Investor Services Representatives at 1-800-247-3863. Very truly yours, /s/ GEOFFREY A. MACDONALD - ------------------------------- Geoffrey A. MacDonald Chairman and Co-founder AFG Investment Trust B INDEX TO ANNUAL REPORT TO THE PARTICIPANTS Page ---- SELECTED FINANCIAL DATA................................................ 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................... 3-9 FINANCIAL STATEMENTS: Report of Independent Auditors......................................... 10 Statement of Financial Position at December 31, 2000 and 1999.......................................... 11 Statement of Operations for the years ended December 31, 2000, 1999 and 1998 .................. 12 Statement of Changes in Participants' Capital for the years ended December 31, 2000, 1999 and 1998................... 13 Statement of Cash Flows for the years ended December 31, 2000, 1999 and 1998................... 14 Notes to the Financial Statements...................................... 15-25 ADDITIONAL FINANCIAL INFORMATION: Schedule of Excess (Deficiency) of Total Cash Generated to Cost of Equipment Disposed................................ 27 Statement of Cash and Distributable Cash From Operations, Sales and Refinancings..................................... 28 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 ............................. 29 Schedule of Reimburseable Operating Expenses Due to Third Parties...... 30 Schedule of Equipment.................................................. 31 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, 2000:
Summary of Operations 2000 1999 1998 1997 1996 - --------------------------- -------------- -------------- -------------- -------------- -------------- Lease revenue.................. $ 1,036,919 $ 1,325,194 $ 2,646,205 $ 5,400,331 $ 5,809,086 Net income..................... $ 853,973 $ 1,470,149 $ 993,932 $ 1,174,206 $ 807,840 Per Beneficiary Interest: Net income Class A Interests..... $ 0.34 $ 0.98 $ 1.04 $ 1.05 $ 1.10 Class B Interests..... $ 0.38 $ 0.57 $ 0.23 $ 0.05 $ -- Cash distributions Class A Interests..... $ -- $ 4.73 $ 1.64 $ 3.11 $ 1.42 Class B Interests..... $ -- $ 3.76 $ 2.06 $ 0.30 $ -- Financial Position - --------------------------- Total assets................... $ 8,581,605 $ 13,052,016 $ 14,037,315 $ 17,214,157 $ 16,631,159 Total long-term obligations.... $ 553,729 $ 656,454 $ 818,841 $ 2,038,628 $ 4,352,811 Participants' capital.......... $ 7,831,013 $ 6,982,082 $ 12,635,661 $ 14,816,135 $ 11,925,600
2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year ended December 31, 2000 compared to the year ended December 31, 1999 and the year ended December 31, 1999 compared to the year ended December 31, 1998 Certain statements in this annual report of AFG Investment Trust B (the "Trust") 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 assets, and future economic conditions. Overview - -------- The Trust was organized in 1992 for the purpose of acquiring and leasing to third parties a diversified portfolio of capital equipment. In 1998, the Trust Agreement was modified to permit the Trust to invest in assets other than equipment. During 2000 and 1999, the Trust made certain non-equipment acquisitions. Pursuant to the Trust Agreement, the Trust is scheduled to be dissolved by December 31, 2003. The Investment Company Act of 1940 (the "Act") places restrictions on the capital structure and business activities of companies registered thereunder. The Trust has active business operations in the financial services industry, primarily equipment leasing, and in the real estate industry through its interest in EFG Kirkwood. The Trust does not intend to engage in investment activities in a manner or to an extent that would require the Trust to register as an investment company under the Act. However, it is possible that the Trust may unintentionally engage in an activity or other activities that may be construed to fall within the scope of the Act. If the Trust was determined to be an investment company, its business would be adversely affected. The Managing Trustee is engaged in discussions with the staff of the Securities and Exchange Commission regarding whether or not the Trust may be an inadvertent investment company by virtue of its recent acquisition activities. If necessary, the Trust intends to avoid being deemed an investment company by disposing of or acquiring certain asset that it might not otherwise dispose of or acquire. Segment Reporting - ----------------- The Trust has two principal operating segments: 1) Equipment Leasing and 2) Real Estate Ownership, Development & Management. The Equipment Leasing segment includes the management of the Trust's equipment lease portfolio. The Real Estate segment includes the ownership, management and development of commercial properties, recreational properties, condominiums, interval ownership units, townhomes, single family homes and land sales through its ownership interests in real estate. The Trust's reportable segments offer different products or services and are managed separately because each requires different operating strategies and management expertise. There are no material intersegment sales or transfers. Segment information for the years ended December 31, 2000, 1999 and 1998 is summarized below. The accounting policies of the segments are the same as those described in Note 2 of the accompanying financial statements. See Note 2 of the accompanying financial statements for individual lessees, which accounted for more than 10% of the Trust's revenues during the years ended December 31, 2000, 1999 and 1998. 3 Years ended December 31, -------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Total Income: Equipment Leasing ................. $1,562,804 $2,634,958 $3,719,953 Real Estate ....................... -- -- -- ---------- ---------- ---------- Total .......................... $1,562,804 $2,634,958 $3,719,953 Operating Expenses, Management Fee and Other Expenses: Equipment Leasing ................. $ 403,284 $ 462,077 $ 582,017 Real Estate ....................... 112,393 7,220 -- ---------- ---------- ---------- Total .......................... $ 515,677 $ 469,297 $ 582,017 Interest Expense: Equipment Leasing ................. $ 57,223 $ 50,389 $ 75,843 Real Estate ....................... -- -- -- ---------- ---------- ---------- Total .......................... $ 57,223 $ 50,389 $ 75,843 Depreciation Expense: Equipment Leasing ................. $ 135,931 $ 645,123 $2,068,161 Real Estate ....................... -- -- -- ---------- ---------- ---------- Total .......................... $ 135,931 $ 645,123 $2,068,161 Net Income ........................... $ 853,973 $1,470,149 $ 993,932 Results of Operations - --------------------- Equipment Leasing - ----------------- For the year ended December 31, 2000, the Trust recognized lease revenue of $1,036,919 compared to $1,325,194 and $2,646,205 for the years ended December 31, 1999 and 1998, respectively. The decrease in lease revenue resulted from lease term expirations and the sale of equipment. 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. Future lease term expirations and equipment sales will result in a reduction in lease revenue recognized. 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 Equis Financial Group Limited Partnership, a Massachusetts limited partnership ("EFG") or an affiliated equipment leasing program sponsored by EFG. Proportionate equipment ownership enables the Trust to further diversify its equipment portfolio by participating in the ownership of selected assets, thereby reducing the general levels of risk which could result from a concentration in any single equipment type, industry or lessee. The Trust and each affiliate individually report, in proportion to their respective ownership interests, their respective shares of assets, liabilities, revenues, and expenses associated with the equipment. Interest income for the year ended December 31, 2000 was $363,963 compared to $540,106 and $387,410 for the years ended December 31, 1999 and 1998, respectively. Generally, interest income is generated from the temporary investment of rental receipts and equipment sale proceeds in short-term instruments. The amount of 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 $5,300,000 in January 2000, which resulted in a reduction of cash available for investment. See Note 12 - Subsequent Event, to the accompanying financial statements regarding reinvestment in 2001. On March 8, 2000, the Trust and three affiliated trusts entered into a guaranty agreement whereby the trusts, jointly and severally, guaranteed the payment obligations under a master lease agreement between Echelon Commercial LLC, as lessee, and Heller Affordable Housing of Florida, Inc., and two other entities, as lessor ("Heller"), (See Note 9 in the accompanying financial statements.) In consideration for its guarantee, the Trust will receive an annualized fee equal to 4% 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. During the year ended December 31, 2000, the Trust received an upfront cash fee of $57,900 and 4 recognized a total of $99,493 in income related to this guaranty fee. The guaranty fee is reflected as Other Income on the accompanying Statement of Operations for the year ended December 31, 2000. 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, 2000, the Trust sold investment securities having a book value of $105,128, resulting in a gain, for financial reporting purposes of $17,524. During the year December 31, 2000, the Trust sold equipment having a net book value of $91,451 to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes of $44,905. During the year ended December 31, 1999, the Trust sold equipment having a net book value of $4,237,791 to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes, of $508,542 compared to a net gain of $686,338 in 1998 on equipment having a net book value of $942,188. 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 expense was $135,931, $645,123, and $2,068,161 for the years ended December 31, 2000, 1999 and 1998, 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 $57,223, $50,389 and $75,843 for the year ended December 31, 2000, 1999 and 1998, respectively. Interest expense will decrease in the future as the principal balance of notes payable is reduced through the application of rent receipts to outstanding debt. Management fees related to equipment leasing were $50,386, $64,800 and $128,627 during the years ended December 31, 2000, 1999 and 1998, 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, subject to certain limitations (see Note 5 to the accompanying financial statements). Operating expenses were $302,388, $397,277, and $453,390 during the years ended December 31, 2000, 1999 and 1998, respectively. Operating expenses consist principally of administrative charges, professional service costs, such as audit and legal fees, as well as printing, distribution and remarketing expenses. During 1998, the Trust expensed approximately $103,000 for certain legal expenses related to the Class Action Lawsuit described in Note 8 to the accompanying financial statements. 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. In addition, the Trust wrote-down other investments of $50,510 during the year ended December 31, 2000. 5 Real Estate - ----------- Management fees for non-equipment assets were $17,293 and $7,220 for the years ended December 31, 2000 and 1999, respectively. There were no non-equipment management fees paid by the Trust in the year ended December 31, 1998. The management fees on non-equipment assets, excluding cash, were based on 1% of such assets under management. For the year ended December 31, 2000, the Trust recorded a loss of $95,100 from its interest in EFG Kirkwood. This loss represents the Trust's share of the losses of EFG Kirkwood recorded under the equity method of accounting. See Note 4 to the accompanying financial statements. Liquidity and Capital Resources and Discussion of Cash Flows - ------------------------------------------------------------ The Trust by its nature is a limited life entity. 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 $1,112,007, $1,576,475, and $3,304,397 in 2000, 1999 and 1998, respectively. Future renewal, re-lease and equipment sale activities will continue to cause a decline in the Trust's lease revenue and corresponding sources of operating cash. Expenses associated with rental activities, such as management fees, will also decline as the Trust experiences a higher frequency of remarketing events. The amount of future interest income is expected to fluctuate as a result of changing interest rates and the level of cash available for investment, among other factors. At lease inception, the Trust's equipment was 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 lease will be maintained. The credit quality of an individual lease may deteriorate after the lease is entered into. Collection risk could increase in the future, particularly as the Trust remarkets its equipment and enters re-lease agreements with different lessees. The Managing Trustee will continue to evaluate and monitor the Trust's experience in collecting accounts receivable to determine whether a future allowance for doubtful accounts may become appropriate. Cash expended for asset acquisitions and cash realized from asset disposal transactions are reported under investing activities on the accompanying Statement of Cash Flows. During 2000 and 1999, the Trust expended $643,676 and $1,353,400, respectively, to acquire its ownership interest in EFG Kirkwood (see Note 4 to the accompanying financial statements herein). In addition in 2000, the Trust expended $151,098 to acquire certain investments and $240,000 for an ownership interest in a limited liability company formed to facilitate an asset acquisition which occurred in February 2001, as described in Note 11 to the accompanying financial statements. In 1999, the Trust expended $103,132 to purchase investment securities. The Trust may acquire additional assets prior to the expiration of its reinvestment period in December 2001. During 2000, 1999 and 1998, the Trust realized net cash proceeds from equipment disposals of $136,356, $4,746,333, and $1,628,526, respectively. Sales proceeds in 1999 include $4,619,262 related to the Trust's interest in a McDonnell Douglas MD-82 aircraft, which was sold in January 1999. The Trust also realized proceeds from the disposition of investment securities of $122,652 during the year ended December 31, 2000. Future inflows of cash from asset disposals will vary in timing and amount and will be influenced by many factors including, but not limited to, the frequency and timing of lease expirations, the type of equipment being sold, its condition and age, and future market conditions. At December 31, 2000, the Trust was due aggregate future minimum lease payments of $331,927 from contractual lease agreements (see Note 2 to the accompanying financial statements), a portion of which will be used to amortize the principal balance of notes payable of $553,729 (see Note 6 to the accompanying 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. 6 The Trust has an ownership interest in EFG Kirkwood. EFG Kirkwood is a joint venture among the Trust, certain affiliated Trusts and Semele Group Inc. ("Semele") and is managed by AFG ASIT Corporation. EFG Kirkwood is a member in two joint ventures, Mountain Resort Holdings LLC ("Mountain Resort") and Mountain Springs Resort LLC ("Mountain Springs"). See Note 4 to the accompanying financial statements. Mountain Resort, through four wholly owned subsidiaries, owns and operates the Kirkwood Mountain Resort, a ski resort located in northern California, a public utility that services the local community, and land that is held for residential and commercial development. Mountain Springs, through a wholly owned subsidiary, owns a controlling interest in the Purgatory Ski resort in Durango, Colorado. The risks generally associated with real estate include, without limitation, the existence of senior financing or other liens on the properties, general or local economic conditions, property values, the sale of properties, interest rates, real estate taxes, other operating expenses, the supply and demand for properties involved, zoning and environmental laws and regulations, and other governmental rules. The Trust's involvement in real estate development also introduces financials risks, including the potential need to borrow funds to develop the real estate projects. While the Trust's management presently does not foresee any unusual risks in this regard, it is possible that factors beyond the control of the Trust, its affiliates and joint venture partners, such as a tightening credit environment, could limit or reduce its ability to secure adequate credit facilities at a time when they might be needed in the future. Alternatively, the Trust could establish joint ventures with other parties to share participation in its development projects. Ski resorts are subject to a number of risks, including weather-related risks. The ski resort business is seasonal in nature and insufficient snow during the winter season can adversely effect the profitability of a given resort. Many operators of ski resorts have greater resources and experience in the industry than the Trust, its affiliates and its joint venture partners. In accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, investment 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 $5,042. This gain was recorded as a component of comprehensive income included in the Statement of Changes in Participant's Capital. These available-for-sale securities were sold in 2000 resulting in a realized gain of $17,524. The Trust obtained long-term financing in connection with certain equipment leases. The repayments of principal related to such indebtedness are reported as a component of financing activities in the accompanying Statement of Cash Flows. At December 31, 2000, the Trust had only one debt obligation outstanding pertaining to its ownership interest in an aircraft leased to Reno Air, Inc. The Note is recourse only to the Trust's interest in the aircraft and to the minimum rental payments to be received during the debt amortization period. That note will be partially amortized by the remaining contracted lease payments. Upon expiration of the lease agreement in 2003, the Trust will have a balloon payment obligation of $282,421 to retire this indebtedness. (See Notes 3 and 6 to the financial statements herein.) On July 18, 1997, the Trust issued 1,000,961 Class B Interests at $5.00 per interest, thereby generating $5,004,805 in aggregate Class B capital contributions. Class A Beneficiaries purchased 3,588 Class B Interests, generating $17,940 of such aggregate capital contributions, and EFG, as Special Beneficiary, purchased 997,373 Class B Interests, generating $4,986,865 of such aggregate capital contributions. The Trust incurred offering costs in the amount of $50,048 and professional service costs of $62,170 in connection with the offering. Subsequently, EFG transferred its Class B Interests to a special-purpose company, Equis II Corporation. EFG also transferred its ownership of AFG ASIT Corporation, the Managing Trustee of the Trust, to Equis II Corporation. In December 1999, an affiliate of the Trust, Semele, purchased 85% of the common stock of Equis II Corporation, subject to certain voting restrictions with respect to the Class B Interests of the Trust owned by Equis II Corporation. In May 2000, Semele acquired the remaining 15% of the common stock of Equis II Corporation and, in November 2000, the voting restrictions with respect to the Class B Interests were terminated. As a result, Semele has voting control over the Trust. The former majority stockholders of Equis II Corporation, Gary D. Engle and James A. Coyne, are both members of the Board of Directors of, and collectively own a majority of the stock in, Semele. Mr. Engle is Semele's Chairman and Chief Executive Officer and Mr. Coyne is Semele's President and Chief Operating Officer. 7 The proceeds from the Class B offering were intended to be used principally to repurchase a portion of the Trust's Class A Beneficiary Interests and to pay a one-time special cash distribution of $979,449 ($1.47 per Class A Interest) to the Trust's Class A Beneficiaries. That distribution was paid on August 15, 1997. The remainder of the offering proceeds was classified as restricted cash pending its use for the repurchase of Class A Interests or its return to the Class B Interest holders. 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 $785,295 of the net proceeds realized from the issuance of the Class B Interests to purchase 82,837 of the Class A Interests tendered as a result of the offer. On December 1, 1997, the Trust purchased 640 additional Class A Interests at a cost of $6,080. On July 6, 1998, the Trust used $1,500,539 of the Class B offering proceeds to pay a capital distribution to the Class B Beneficiaries. In July 1999, in connection with the settlement of the Class Action Lawsuit described in Note 8 to the accompanying financial statements, the Trust distributed $500,709, including legal fees of $26,913 paid to Plaintiffs' counsel, as a special cash distribution ($0.81 per unit, net of legal fees). In addition, Equis II Corporation agreed to commit $1,126,595 of the Class B Capital Contributions (the remaining balance of the restricted cash) to the Trust for the Trust's investment purposes. The Managing Trustee has evaluated and pursued a number of potential new investments, several of which the Managing Trustee concluded had market returns that it believed were less than adequate given the potential risks. Most transactions have involved the equipment leasing, business finance and real estate development industries. Although the Managing Trustee intends to continue to evaluate additional new investments, it anticipates that the Trust will be able to fund these new investments with cash on hand or other sources, such as the proceeds from future asset sales or refinancings and new indebtedness. As a result, the Trust declared a special cash distribution totaling $5,300,000, which was paid in January 2000. After the special distribution in January 2000, the Trust adopted a new distribution policy and suspended the payment of regular monthly cash distributions. The Managing Trustee presently 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. See Note 12 to the accompanying financial statements for details concerning the acquisition of assets in February 2001. The Managing Trustee believes that this change in policy is in the best interests of the Trust over the long term. Historically, cash distributions to the Managing Trustee, the Special Beneficiary and the Beneficiaries had 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 on the Statement of Cash Flows. No cash distributions were declared for the year ended December 31, 2000. In any given year, it is possible that Beneficiaries will be allocated taxable income in excess of distributed cash. This discrepancy between tax obligations and cash distributions may or may not continue in the future, and cash may or may not be available for distribution to the Beneficiaries adequate to cover any tax obligation. The Trust Agreement requires that sufficient distributions be made to enable the Beneficiaries to pay any state and federal income taxes arising from any sale or refinancing transactions, subject to certain limitations. 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 assets. Future market conditions, technological changes, the ability of EFG to manage and remarket the equipment, and many other events and circumstances, could enhance or detract from individual yields and the collective performance of the Trust's equipment portfolio. The ability of the Managing Trustee and its affiliates to develop and profitably manage its real estate assets will impact the Trust's overall performance. In the future, the nature of the Trust's operations and principal cash flows will continue to shift from rental receipts to equipment sale proceeds. 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, 8 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, 2000, the Managing Trustee had a positive tax capital account balance. No such requirement exists with respect to the Special Beneficiary. 9 REPORT OF INDEPENDENT AUDITORS ------------------------------ To the Participants of AFG Investment Trust B: We have audited the accompanying statements of financial position of AFG Investment Trust B as of December 31, 2000 and 1999, 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, 2000. 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 B at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, 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. /s/ ERNST & YOUNG LLP Tampa, Florida March 30, 2001 10 AFG Investment Trust B STATEMENT OF FINANCIAL POSITION December 31, 2000 and 1999
2000 1999 ------------ ------------ ASSETS Cash and cash equivalents ................................ $ 5,126,793 $ 10,193,277 Rents receivable ......................................... 621 635 Accounts receivable - affiliate .......................... 113,837 112,228 Guarantee fee receivable ................................. 41,593 -- Interest receivable ...................................... 2,948 3,681 Interest in EFG Kirkwood ................................. 1,901,976 1,353,400 Investment securities .................................... -- 108,544 Investments - other ...................................... 100,588 -- Other assets ............................................. 240,380 -- Equipment at cost, net of accumulated depreciation of $5,817,286 and $6,686,836 at December 31, 2000 and 1999, respectively ................................ 1,052,869 1,280,251 ------------ ------------ Total assets ..................................... $ 8,581,605 $ 13,052,016 ============ ============ LIABILITIES AND PARTICIPANTS' CAPITAL Notes payable ............................................ $ 553,729 $ 656,454 Accrued interest ......................................... 1,836 2,386 Accrued liabilities ...................................... 168,432 53,608 Accrued liabilities - affiliate .......................... 20,040 15,436 Deferred rental income ................................... 6,555 42,050 Cash distributions payable to participants ............... -- 5,300,000 ------------ ------------ Total liabilities ................................ 750,592 6,069,934 ------------ ------------ Participants' capital (deficit): Managing Trustee .................................... 3,048 (26,988) Special Beneficiary ................................. 25,134 (222,647) Class A Beneficiary Interests (582,017 Interests; initial purchase price of $25 each) ............... 8,530,029 8,336,812 Class B Beneficiary Interests (1,000,961 Interests; Initial purchase price of $5 each) ................ 62,828 (313,720) Treasury Interests (83,477 Class A Interests at Cost) (791,375) (791,375) ------------ ------------ Total participants' capital ...................... 7,831,013 6,982,082 ------------ ------------ Total liabilities and participants' capital ...... $ 8,581,605 $ 13,052,016 ============ ============
The accompanying notes are an integral part of these financial statements. 11 AFG Investment Trust B STATEMENT OF OPERATIONS For the years ended December 31, 2000, 1999 and 1998 2000 1999 1998 ---------- ---------- ---------- Income: Lease revenue ........................ $1,036,919 $1,325,194 $2,646,205 Interest income ...................... 363,963 540,106 387,410 Other income ......................... 99,493 261,116 -- Gain on sale of investment securities. 17,524 -- -- Gain on sale of equipment ............ 44,905 508,542 686,338 ---------- ---------- ---------- Total income ..................... 1,562,804 2,634,958 3,719,953 ---------- ---------- ---------- Expenses: Depreciation ......................... 135,931 645,123 2,068,161 Interest expense ..................... 57,223 50,389 75,843 Management fees - affiliates ......... 67,679 72,020 128,627 Loss from interest in EFG Kirkwood ... 95,100 -- -- Operating expenses - affiliate ....... 302,388 397,277 453,390 Write-down of other investment ....... 50,510 -- -- ---------- ---------- ---------- Total expenses ................... 708,831 1,164,809 2,726,021 ---------- ---------- ---------- Net income ................................ $ 853,973 $1,470,149 $ 993,932 ========== ========== ========== Net income per Class A Beneficiary Interest ..... $ 0.34 $ 0.98 $ 1.04 ========== ========== ========== per Class B Beneficiary Interest ..... $ 0.38 $ 0.57 $ 0.23 ========== ========== ========== Cash distributions declared per Class A Beneficiary Interest ..... $ -- $ 4.73 $ 1.64 ========== ========== ========== per Class B Beneficiary Interest ..... $ -- $ 3.76 $ 2.06 ========== ========== ========== The accompanying notes are an integral part of these financial statements. 12 AFG Investment Trust B STATEMENT OF CHANGES IN PARTICIPANTS' CAPITAL For the years ended December 31, 2000, 1999 and 1998
Managing Special Class A Beneficiaries Trustee Beneficiary --------------------------- Amount Amount Interests Amount ------------ ------------ ------------ ------------ Balance at December 31, 1997... $ 3,535 $ 29,162 582,017 $ 10,864,150 Net income - 1998 ............. 16,856 139,065 -- 603,689 Cash distributions declared ... (16,739) (138,094) -- (953,343) ------------ ------------ ------------ ------------ Balance at December 31, 1998 3,652 30,133 582,017 10,514,496 Net income - 1999 ............. 35,859 295,841 -- 569,851 Unrealized gain on investment securities ............... 50 416 -- 3,689 ------------ ------------ ------------ ------------ Comprehensive income .......... 35,909 296,257 -- 573,540 ------------ ------------ ------------ ------------ Cash distributions declared ... (66,549) (549,037) -- (2,751,224) ------------ ------------ ------------ ------------ Balance at December 31, 1999... (26,988) (222,647) 582,017 8,336,812 Less: Reclassification adjustment for unrealized gain on investment securities................... 50 (416) -- (3,689) ------------ ------------ ------------ ------------ Net income - 2000 ............. 29,958 246,903 -- 200,670 Comprehensive Income........... 29,908 246,487 -- 196,981 ------------ ------------ ------------ ------------ Balance at December 31, 2000... $ 2,920 $ 23,840 582,017 $ 8,533,793 ============ ============ ============ ============
Class B Beneficiaries --------------------------- Treasury Interests Amount Interests Total ------------ ------------ ------------ ------------ Balance at December 31, 1997 .. 1,000,961 $ 4,710,663 (791,375) $ 14,816,135 Net income - 1998 ............. -- 234,322 -- 993,932 Cash distributions declared ... -- (2,066,230) -- (3,174,406) ------------ ------------ ------------ ------------ Balance at December 31, 1998... 1,000,961 2,878,755 (791,375) 12,635,661 Net income - 1999 ............. -- 568,598 -- 1,470,149 Unrealized gain on investment securities ............... -- 887 -- 5,042 ------------ ------------ ------------ ------------ Comprehensive income .......... -- 569,485 -- 1,475,191 ------------ ------------ ------------ ------------ Cash distributions declared ... -- (3,761,960) -- (7,128,770) ------------ ------------ ------------ ------------ Balance at December 31, 1999 1,000,961 (313,720) (791,375) 6,982,082 Less: Reclassification adjustment for unrealized gain on investment securities................... -- (887) -- (5,042) ------------ ------------ ------------ ------------ Net income - 2000 ............. -- 376,442 -- 853,973 Comprehensive Income........... -- 375,555 -- 848,931 ------------ ------------ ------------ ------------ Balance at December 31, 2000... $ 1,000,961 $ 61,835 (791,375) $ 7,831,013 ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. 13 AFG Investment Trust B STATEMENT OF CASH FLOWS For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998 ------------ ------------ ------------ Cash flows provided by operating activities: Net income ........................................... $ 853,973 $ 1,470,149 $ 993,932 Adjustments to reconcile net income to net cash from operating activities: Depreciation .................................... 135,931 645,123 2,068,161 Accretion of bond discount ...................... (1,626) (370) -- Gain on sale of equipment ....................... (44,905) (508,542) (686,338) Gain on sale of investment securities ........... (17,524) -- -- Loss from interest in EFG Kirkwood .............. 95,100 -- -- Write-down of other investment 50,510 -- -- Changes in assets and liabilities: Decrease (increase) in: Rents receivable ............................ 14 234,139 440,855 Accounts receivable - affiliate ............. (1,609) (9,691) 247,472 Guarantee fee receivable .................... (41,593) -- -- Interest receivable ......................... 733 (3,681) -- Other assets ................................ (380) -- -- Increase (decrease) in: Accrued interest ............................ (550) (210) (24,799) Accrued liabilities ......................... 114,824 (79,892) 121,950 Accrued liabilities - affiliate ............. 4,604 (592) (33,569) Deferred rental income ...................... (35,495) 27,992 (21,217) Other liabilities ........................... -- (197,950) 197,950 ------------ ------------ ------------ Net cash provided by operating activities . 1,112,007 1,576,475 3,304,397 ------------ ------------ ------------ Cash flows (used in) provided by investing activities: Purchase of investment securities ............... -- (103,132) -- Proceeds from sale of investment securities ..... 122,652 -- -- Other assets .................................... (240,000) -- -- Investments - other ............................. (151,098) -- -- Interest in EFG Kirkwood ........................ (643,676) (1,353,400) -- Proceeds from equipment sales ................... 136,356 4,746,333 1,628,526 ------------ ------------ ------------ Net cash (used in) provided by investing activities ............................ (775,766) 3,289,801 1,628,526 ------------ ------------ ------------ Cash flows provided by (used in) financing activities: Restricted cash ................................. -- 1,627,304 1,494,459 Principal payments - notes payable .............. (102,725) (162,387) (1,219,787) Distributions paid .............................. (5,300,000) (2,047,451) (3,191,302) ------------ ------------ ------------ Net cash used in financing activities ..... (5,402,725) (582,534) (2,916,630) ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents . (5,066,484) 4,283,742 2,016,293 Cash and cash equivalents at beginning of year ....... 10,193,277 5,909,535 3,893,242 ------------ ------------ ------------ Cash and cash equivalents at end of year ............. $ 5,126,793 $ 10,193,277 $ 5,909,535 ============ ============ ============ Supplemental disclosure of cash flow information: Cash paid during the year for interest .......... $ 57,773 $ 50,599 $ 100,642 ============ ============ ============
14 AFG Investment Trust B Notes to the Financial Statements December 31, 2000 NOTE 1 - ORGANIZATION AND TRUST MATTERS - --------------------------------------- AFG Investment Trust B (the "Trust") was organized as a Delaware business trust in accordance with the Delaware Business Trust Act on May 28, 1992 for the purpose of acquiring and leasing to third parties a diversified portfolio of capital equipment. Participants' (collectively, the Managing Trustee, Special Beneficiary, Class A Beneficiaries and Class B Beneficiaries) 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" or the "Advisor") and $100 from the Initial Beneficiary, AFG Assignor Corporation, a wholly owned affiliate of EFG. The Trust issued an aggregate of 665,494 Beneficiary Interests (hereinafter referred to as Class A Interests) at a subscription price of $25.00 each ($16,637,350 in total) to 803 investors on September 8, 1992. On July 18, 1997, the Trust issued 1,000,961 Class B Interests at $5.00 each ($5,004,805 in total), of which (i) 997,373 interests are held by Equis II Corporation, an affiliate of EFG, and (ii) 3,588 interests are held by 5 other Class A investors. The Trust repurchased 82,837 Class A Interests on October 10, 1997 using proceeds from the issuance of Class B Interests. On December 1, 1997, the Trust repurchased 640 additional Class A Interests. Accordingly, there are 582,017 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. Equis II Corporation, which is also the owner of 997,373 Class B interests, is a wholly owned subsidiary of Semele. Except with respect to interested transactions, Class A Interests and Class B Interests have identical voting rights and, therefore, Equis II Corporation generally has control over the Trust on all matters on which the Beneficiaries may vote. With respect to interested transactions, holders of Class B Interests which are the Managing Trustee or any of its affiliates must vote their interests as a majority of the Class A Interests have been voted. Equis II Corporation is a wholly owned subsidiary of Semele. 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 September 8, 1992 when the Trust made its initial equipment purchase. 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 Advisory Agreement between the Trust and EFG, management services are provided by EFG to the Trust for fees, which the Managing Trustee believes to be competitive for similar services. In addition, the Managing Trustee receives a fee for services provided related to the Trust's non-equipment assets, other than cash. (See Note 5.) EFG is a Massachusetts limited partnership formerly known as American Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general partnership and succeeded American Finance Group, Inc., a Massachusetts corporation organized in 1980. EFG and its subsidiaries (collectively, the "Company") are engaged in various aspects of the equipment leasing business, including EFG's role as Equipment Manager or Advisor to the 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. 15 AFG Investment Trust B 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 Investment Securities - ------------------------------------------ The Trust considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. From time to time, the Trust invests excess cash with large institutional banks in federal agency discount notes and repurchase agreements with overnight maturities. Under the terms of the agreements, title to the underlying agreements are book entry securities. At December 31, 2000, the Trust had $5,008,358 invested in federal agency discount notes, repurchase agreements secured by U.S. Treasury Bills or interests in U.S. Government securities, or other highly liquid overnight investments. Investment 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. Revenue Recognition - ------------------- Effective January 1, 2000, the Trust adopted the provisions of Securities Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101 provides guidance for the recognition, presentation and disclosure of revenue in financial statements. The adoption of SAB No. 101 had no impact on the Trust's financial statements. 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 non-cancelable rental payments associated with the attendant lease agreements. Future minimum rents of $331,927 are due as follows: For the year ending December 31, 2001........... $ 169,447 2002........... 162,480 ------------- Total........... $ 331,927 ============= Revenue from major individual lessees, which accounted for 10% or more of lease revenue during the years ended December 31, 2000, 1999 and 1998 is as follows: 2000 1999 1998 ---------- ---------- ---------- Montgomery Ward and Company, Inc. ... $ 378,684 $ 378,684 $ 576,457 General Motors Corporation ........... $ 235,354 $ 276,429 $ 281,204 Reno Air, Inc. ....................... $ 159,904 $ 153,980 $ -- 16 AFG Investment Trust B Notes to the Financial Statements (Continued) The leases with Montgomery Ward & Company Inc. expired on December 31, 2000 and the equipment was sold in 2001. 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. 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. Impairment of Long-Lived Assets - ------------------------------- The carrying value of long-lived assets, including equipment, will be reviewed for impairment whenever events or changes in circumstances indicate that the recorded value cannot be recovered from undiscounted future cash flows. 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 5). 17 AFG Investment Trust B Notes to the Financial Statements (Continued) Contingencies - ------------- The Trust's policy is to recognize a liability for goods and services during the period when the goods or services are received. To the extent that the Trust has a contingent liability, meaning generally a liability the payment of which is subject to the outcome of a future event, the Trust recognizes a liability in accordance with Statement of Financial Accounting Standards No. 5 "Accounting for Contingencies" ("SFAS No. 5"). SFAS No. 5 requires the recognition of contingent liabilities when the amount of liability can be reasonably estimated and the liability is probable. 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 $473,796 Class A special cash distributions paid in 1999 and $1,500,539 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. The allocation of net income or loss pursuant to the Trust Agreement for income tax purposes 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 that 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. Accumulated Other Comprehensive Income - -------------------------------------- Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", effective in 1998, requires the disclosure of comprehensive income (loss) to reflect changes in participants' capital that result from transactions and economic events from non-owner sources. Accumulated other comprehensive income (loss) for the years ended December 31, 2000, 1999 and 1998 represents the Trust's unrealized gains (losses) on investment securities: 2000 1999 ---------- ---------- Beginning balance ........................... $ 5,042 $ -- Adjustments related to unrealized gain on investment securities .................... (5,042) 5,042 ---------- ---------- Ending balance .............................. $ -- $ 5,042 ========== ========== Net Income and Cash Distributions Per Beneficiary Interest - ---------------------------------------------------------- Net income and cash distributions per Class A Beneficiary Interest are based on 582,017 Class A Interests outstanding during the years ended December 31, 2000, 1999, and 1998, respectively. Net income and cash distributions per Class B Interest are based on 1,000,961 Class B Interests outstanding during the years ended December 31, 2000, 1999 and 1998. 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. 18 AFG Investment Trust B Notes to the Financial Statements (Continued) 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 separated tax returns. NOTE 3 - EQUIPMENT - ------------------ The following is a summary of equipment owned by the Trust at December 31, 2000. Remaining Lease Term (Months), as used below, represents the number of months remaining from December 31, 2000 under contracted lease terms and is presented as a range when more than one lease agreement is contained in the stated equipment category. A Remaining Lease Term equal to zero reflects equipment either held for sale or re-lease or being leased on a month-to-month basis. In the opinion of EFG, the acquisition cost of the equipment did not exceed its fair market value.
Remaining Lease Term Equipment Equipment Type (Months) at Cost Location - ------------------------------------------------------ --------------- ----------------- ------------------------ Communications........................................ 0 $ 2,703,590 AL/AR/AZ/CA/CO/FL/ GA/IA/ID/IL/IN/KS/KY/ LA/MD/MI/MN/MO/MT/ NC/ND/NE/NH/NM/NV/ NY/OH/OK/OR/PA/SC/ TN/TX/VA/VT/WA/WI/ WV/WY Materials handling.................................... 0-24 1,557,557 AR/CA/GA/IA/IL/IN/MI/ NC/NY/PA/TX/WV Aircraft.............................................. 24 1,239,741 NV Computer and peripherals.............................. 0-7 1,051,435 NY/OH/MI Construction and mining............................... 0 219,162 NV Trailers/intermodal containers........................ 2 56,976 VA Manufacturing......................................... 0 41,694 IL ----------------- Total equipment cost............................... 6,870,155 Accumulated depreciation........................... 5,817,286 ----------------- Equipment, net of accumulated depreciation......... $ 1,052,869 =================
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, 2000, the Trust's equipment portfolio included equipment having a proportionate original cost of $5,245,162, representing approximately 76% 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 $1,240,000 and a net book value of approximately $959,000 at December 31, 2000. (See Note 6.) 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 19 AFG Investment Trust B Notes to the Financial Statements (Continued) dependent upon, among other things, EFG's ability to maximize proceeds from selling or re-leasing the equipment upon the expiration of the primary lease terms. The summary above includes fully depreciated equipment held for sale or re-lease with an original cost of approximately $885,000 at December 31, 2000. The Managing Trustee is actively seeking the sale or re-lease of all equipment not on lease. In addition, the summary above includes equipment being leased on a month-to-month basis. NOTE 4 - INTEREST IN EFG KIRKWOOD - --------------------------------- On May 1, 1999, the Trust and three affiliated trusts (collectively the "Trusts") and Semele formed a joint venture, EFG Kirkwood LLC ("EFG Kirkwood"), for the purpose of acquiring preferred and common stock interests in Kirkwood Associates Inc. ("KAI"). The Trusts purchased Class A membership interests in EFG Kirkwood and Semele purchased Class B membership 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. The Trusts collectively own 100% of the Class A membership interests in EFG Kirkwood and Semele owns 100% of the Class B membership interests. The Trusts' interests in EFG Kirkwood constitute 50% of the voting securities of that entity under the operating agreement for the LLC, which gives equal voting rights to Class A and Class B membership interests. The Managing Trustee is the manager of EFG Kirkwood. On April 30, 2000, KAI's ownership interests in certain assets and substantially all of its liabilities were transferred to Mountain Resort Holdings LLC ("Mountain Resort"). On May 1, 2000, EFG Kirkwood exchanged its interest in KAI's common and preferred stock for corresponding pro-rata membership interests in Mountain Resort. EFG Kirkwood holds approximately 37.9% of the membership interests in Mountain Resort. Mountain Resort, through four wholly owned subsidiaries, owns and operates the Kirkwood Mountain Resort, a ski resort located in northern California, a public utility that services the local community, and land that is held for residential and commercial development. The Trust holds a 18.6% membership interest in EFG Kirkwood and correspondingly holds 20% of EFG Kirkwood's Class A voting rights. Subsequent to making its ownership interest in Mountain Resort, EFG Kirkwood acquired 50% of the membership interests in Mountain Springs Resorts LLC ("Mountain Springs"). Mountain Springs, through a wholly owned subsidiary, owns 80% of the common stock and 100% of the Class B Preferred stock in an entity that owns the Purgatory Ski resort in Durango, Colorado. The Trust's ownership interest in EFG Kirkwood had an original cost of $1,997,076; including a 1% acquisition fee ($19,773) paid to EFG. The Trust's ownership interest in EFG Kirkwood is accounted for on the equity method and the Trust recorded a loss of $95,100 for the year ended December 31, 2000 representing its pro-rata share of the losses of EFG Kirkwood. Through its 18.6% interest in EFG Kirkwood, the Trust indirectly owns interests in two ski resort operating companies, DSC/Purgatory LLC and Mountain Resort. EFG Kirkwood owns a 40% interest in DSC/Purgatory LLC and a 37.9% interest in Mountain Resort and accounts for its interests using the equity method of accounting. As the ski resort operating companies effectively comprise the entire financial position and operating results of EFG Kirkwood, the following summarized financial information is presented on the combined ski resort operating companies: (In thousands) (Unaudited) December 31, ------------------------ 2000 1999 ---------- ---------- Assets (primarily real estate and plant) $ 77,168 $ 64,043 Liabilities (primarily borrowings) ..... 43,134 48,207 ---------- ---------- Members' equity ........................ $ 34,034 $ 15,836 ========== ========== 20 AFG Investment Trust B Notes to the Financial Statements (Continued) (In thousands) (Unaudited) Year Ended December 31, ------------------------ 2000 1999 ---------- ---------- Revenues ............................... $ 42,827 $ 33,538 Operating Costs ........................ 25,586 23,570 Other Costs ............................ 18,474 12,273 ---------- ---------- Net Loss ............................... $ (1,233) $ (2,305) ========== ========== NOTE 5 - 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, 2000, 1999 and 1998, which were paid or accrued by the Trust to EFG or its Affiliates, are as follows: 2000 1999 1998 ---------- ---------- ---------- Acquisition fees .................... $ 7,869 $ 14,450 $ -- Management fees ..................... 67,679 72,020 128,627 Administrative charges .............. 127,891 127,120 70,524 Reimbursable operating expenses due to third parties ........... 174,497 270,157 382,866 ---------- ---------- ---------- Total $ 377,936 $ 483,747 $ 582,017 ========== ========== ========== As provided under the terms of the Trust Agreement, EFG is compensated for its services to the Trust. Such services include all aspects of acquisition, management and sale of equipment. For acquisition services, EFG was compensated by an amount equal to .28% of Asset Base Price paid by the Trust for each asset acquired for the Trust's initial asset portfolio. For acquisition services during the initial reinvestment period, which expired on September 8, 1996, EFG was compensated by an amount equal to 3% of Asset Base Price paid by the Trust. In connection with a Solicitation Statement and consent of Beneficiaries in 1998, the Trust's reinvestment provisions were reinstated through December 31, 2001 and the Trust was permitted to invest in assets other than equipment. Acquisition fees paid to EFG in connection with such equipment reinvestment assets are equal to 1% of Asset Base Price paid by the Trust. For management services, EFG is compensated by an amount equal to (i) 5% of gross operating lease rental revenue and 2% of gross full payout lease rental revenue received by the Trust with respect to equipment acquired on or prior to March 31, 1998. For management services earned in connection with equipment acquired on or after April 1, 1998, EFG is compensated by an amount equal to 2% of gross lease rental revenue received by the Trust. For non-equipment assets other than cash, the Managing Trustee receives an annualized management fee of 1% of such assets under management. 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 this fee and the other fees described above are 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 from third-party sellers. The Trust's Purchase Price is determined by the method described in Note 2, Equipment on Lease. 21 AFG Investment Trust B Notes to the Financial Statements (Continued) All rents and proceeds from the sale of equipment are paid directly to either EFG or to a lender. EFG temporarily deposits collected funds in a separate interest-bearing escrow account prior to remittance to the Trust. At December 31, 2000, the Trust was owed $113,837 by EFG for such funds and the interest thereon. These funds were remitted to the Trust in January 2001. Old North Capital Limited Partnership ("ONC"), a Massachusetts limited partnership formed in 1995 and an affiliate of EFG, owns 839 Class A Interests or less than 1% of the total outstanding Class A Interests of the Trust. The general partner of ONC is controlled by Gary D. Engle. In addition, the limited partnership interests of ONC are owned by Semele. Gary D. Engle is Chairman and Chief Executive Officer of Semele. NOTE 6 - NOTES PAYABLE - ---------------------- Notes payable at December 31, 2000 consisted of an installment note of $553,729 payable to an institutional lender. The note bears a fluctuating interest rate based on LIBOR (approximately 6.7% at December 31, 2000) plus a margin. The installment note is non-recourse and is collateralized by the Trust's interest in an aircraft leased to Reno Air, Inc. and the assignment of the related lease payments. The Trust has a balloon payment obligation of $282,421 at the expiration of the related lease term. The annual maturities of the notes payable are as follows: For the year ended December 31, 2001........... $ 123,018 2002........... 148,290 2003........... 282,421 ------------- Total........... $ 553,729 ============= Management believes that the carrying amount of the note payable approximates fair value at December 31, 2000 based on its experience and understanding of the market for instruments with similar terms. NOTE 7 - 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 $473,796 Class A special cash distributions paid in 1999 and $1,500,539 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, 2000, the Managing Trustee had a positive tax capital account balance. The following is a reconciliation between net income reported for financial statement and federal income tax reporting purposes for the years ended December 31, 2000, 1999 and 1998: 22 AFG Investment Trust B Notes to the Financial Statements (Continued)
2000 1999 1998 ----------- ----------- ----------- Net income ............................... $ 853,973 $ 1,470,149 $ 993,932 Financial statement depreciation (less than) in excess of tax depreciation (161,727) 132,483 395,240 Tax gain in excess of book gain on sale 91,452 2,979,533 196,147 Deferred rental income ................ (35,495) 27,992 (21,217) Other ................................. 55,874 13,000 (13,000) ----------- ----------- ----------- Net income for federal income tax reporting purposes .................. $ 804,077 $ 4,623,157 $ 1,551,102 =========== =========== ===========
The following is a reconciliation between participants' capital reported for financial statement and federal income tax reporting purposes for the years ended December 31, 2000 and 1999:
2000 1999 ------------ ------------ Participants' capital ............................... $ 7,831,013 $ 6,982,082 Unrealized gain on investment securities ....... -- (5,042) Add back selling commissions and organization and offering costs ......................... 1,625,692 1,625,692 Financial statement distributions in excess of tax distributions .......................... -- 5,422,878 Deduct deferred step-down of capital basis ..... (68,201) (68,201) Cumulative difference between federal income tax and financial statement income (loss) ...... (1,394,613) (1,344,717) ------------ ------------ Participants' capital for federal income tax reporting purposes ............................. $ 7,993,891 $ 12,612,692 ============ ============
Financial statement distributions in excess of tax distributions and cumulative difference between federal income tax and financial statement income (loss) represent temporary differences. NOTE 8 - LEGAL PROCEEDINGS - -------------------------- On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed a class and derivative action, captioned Leonard Rosenblum, et al. v. Equis Financial Group Limited Partnership, et al., in the United States District Court for the Southern District of Florida (the "Court") on behalf of a proposed class of investors in 28 equipment leasing programs sponsored by EFG, including the Trust (collectively, the "Nominal Defendants"), against EFG and a number of its affiliates, including the Managing Trustee, as defendants (collectively, the "Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had filed an earlier derivative action, captioned Leonard Rosenblum, et al. v. Equis Financial Group Limited Partnership, et al., in the Superior Court of the Commonwealth of Massachusetts on behalf of the Nominal Defendants against the Defendants. Both actions are referred to herein collectively as the "Class Action Lawsuit." The Class Action Lawsuit was divided into two sub-classes on March 22, 1999. On May 26, 1999, the Court issued its Order and Final Judgment approving settlement of the Class Action Lawsuit with respect to claims asserted by the Plaintiffs on behalf of the sub-class that includes the Trust. Claims involving the second sub-class, not including the Trust, remain pending. As a result of the settlement, the Trust declared a special cash distribution of $500,709, including legal fees for Plaintiffs' counsel of $26,913, that was paid in July 1999 ($0.81 per unit, net of legal fees). In addition, the parent company of the Managing Trustee, Equis II Corporation, agreed to commit $1,126,595 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 $88,000, all of which was expensed by the Trust in 1998. 23 AFG Investment Trust B Notes to the Financial Statements (Continued) NOTE 9 - GUARANTY AGREEMENT - --------------------------- On March 8, 2000, the Trust and three affiliated trusts (collectively, the "Trusts") entered into a guaranty 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 Trusts was 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. As a result of principal reductions on the average guarantee amount, an amended and restated agreement was entered into in December 2000, that reduced the guaranteed amount among the Trusts. At December 31, 2000, the Trust is responsible for 11.58% of the current guaranteed amount of $7,000,000, or $810,600. In consideration for its guarantee, the Trust will receive an annualized fee equal to 4% 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 $115,800, excluding interest. During the year ended December 31, 2000, the Trust received an upfront cash fee of $57,900 and recognized a total of $99,493 in income related to this guaranty fee. The guaranty fee is reflected as Other Income on the accompanying Statement of Operations for the year ended December 31, 2000. 24 AFG Investment Trust B Notes to the Financial Statements (Continued) NOTE 10 - QUARTERLY RESULTS OF OPERATIONS (Unaudited) - ----------------------------------------------------- The following is a summary of the quarterly results of operations for the years ended December 31, 2000 and 1999:
Three Months Ended ------------------------------------------------------------------- March 31, June 30, September 30, December 31, Total ----------- ----------- ----------- ----------- ----------- 2000 ---- Lease revenue ......... $ 278,630 $ 284,778 $ 238,160 $ 235,351 $ 1,036,919 Net income ............ $ 331,564 $ 281,240 $ 226,115 $ 15,054 $ 853,973 Net income per Beneficiary Interest: Class A Interests $ -- $ 0.06 $ 0.27 $ 0.01 $ 0.34 Class B Interests $ 0.18 $ 0.14 $ 0.05 $ 0.01 $ 0.38 - --------------------------------------------------------------------------------------------- 1999 ---- Lease revenue ......... $ 323,741 $ 346,650 $ 306,090 $ 348,713 $ 1,325,194 Net income ............ $ 236,859 $ 485,888 $ 235,222 $ 512,180 $ 1,470,149 Net income per Beneficiary Interest: Class A Interests $ 0.24 $ 0.49 $ 0.25 $ -- $ 0.98 Class B Interests $ 0.07 $ 0.14 $ 0.07 $ 0.29 $ 0.57
Net income for the three months ended December 31, 2000 reflects increased operating expenses primarily legal fees, losses from EFG Kirkwood and the write-down of an investment. NOTE 12 - SUBSEQUENT EVENT - -------------------------- In December 2000, the Trust and three affiliated Trusts (collectively, the "Trusts") formed MILPI Holdings, LLC ("MILPI"), which formed MILPI Acquisition Corp. ("MILPI Acquisition"), a wholly owned subsidiary of MILPI. The Trusts collectively paid $1.2 million for their membership interest in MILPI and MILPI purchased the common stock of MILPI Acquisition for an aggregate purchase price of $1.2 million. MILPI Acquisition entered into a definitive agreement (the "Agreement") with PLM International, Inc. ("PLM"), an equipment leasing and asset management company, for the purpose of acquiring up to 100% of the outstanding common stock of PLM, for an approximate purchase price of up to $27 million. In connection with the acquisition, on December 29, 2000, MILPI Acquisition commenced a tender offer to purchase any and all of PLM's outstanding common stock. Pursuant to the cash tender offer, MILPI Acquisition acquired 83% of the PLM common stock in February 2001 for a total purchase price of approximately $21.7 million. Under the terms of the Agreement, with the approval of the holders of 50.1% of the outstanding common stock of PLM, MILPI Acquisition will merge into PLM, with PLM being the surviving entity. PLM filed a proxy statement with the Securities and Exchange Commission (the "SEC") on February 9, 2001 for a special meeting of its shareholders to vote on the merger proposal. Because MILPI Acquisition owns 83% of the PLM common stock, its vote alone would be sufficient to assure the approval of the merger proposal at the special meeting and MILPI has agreed to vote all of its shares in favor of the merger proposal. Once the merger is approved, the Trusts would then jointly own 100% of the outstanding common stock of PLM through their 100% interest in MILPI. However, completion of the SEC staff's review of the proxy statement for approval of the merger is dependent in part on the satisfactory resolution of the Trust's discussions with the staff regarding its possible status as an inadvertent investment company. If the merger is approved, the Trusts may be required to provide an additional $4.7 million to acquire the remaining 17% of PLM's outstanding common stock. The Trust has a 20% membership interest in MILPI and its share of the aggregate membership interests in MILPI at December 31, 2000 was $240,000. Equis II Corporation has voting control of the Trusts and owns the Managing Trustee of the Trusts. Semele owns Equis II Corporation. Mr. Engle and Mr. Coyne are officers and directors of, and own significant stock in, Semele. Mr. Engle and Mr. Coyne are officers and directors of MILPI Acquisition. 25 ADDITIONAL FINANCIAL INFORMATION AFG Investment Trust B SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST OF EQUIPMENT DISPOSED For the years ended December 31, 2000, 1999 and 1998 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, 2000, 1999 and 1998.
2000 1999 1998 ----------- ----------- ----------- Rents earned prior to disposal of equipment, net of interest charges .... $ 1,272,857 $ 6,729,842 $ 7,495,292 Sale proceeds realized upon disposition of equipment .............. 136,356 4,746,333 1,628,526 ----------- ----------- ----------- Total cash generated from rents and equipment sale proceeds ........... 1,409,213 11,476,175 9,123,818 Original acquisition cost of equipment disposed .............................. 1,096,932 8,909,602 7,092,845 ----------- ----------- ----------- Excess of total cash generated to cost of equipment disposed ................. $ 312,281 $ 2,566,573 $ 2,030,973 =========== =========== ===========
27 AFG Investment Trust B STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS, SALES AND REFINANCINGS For the year ended December 31, 2000
Sales and Operations Refinancings Total ------------ ------------ ------------ Net income ................................ $ 809,068 $ 44,905 $ 853,973 Add: Depreciation ......................... 135,931 -- 135,931 Accretion of bond discount ........... (1,626) -- (1,626) Management fees ...................... 67,679 -- 67,679 Gain on sale of investment securities (17,524) -- (17,524) Loss from interest in EFG Kirkwood ... 95,100 -- 95,100 Write-down of other investments....... 50,510 -- 50,510 Book value of disposed equipment ..... -- 91,451 91,451 Less: Principal reduction of notes payable . (102,725) (102,725) ------------ ------------ ------------ Cash from operations, sales and refinancings ......................... 1,036,413 136,356 1,172,769 Less: Management fees ...................... (67,679) -- (67,679) ------------ ------------ ------------ Distributable cash from operations, sales and refinancings ............... 968,734 136,356 1,105,090 Other sources and uses of cash: Cash and cash equivalents at beginning of year ........... 1,887,751 8,305,526 10,193,277 Proceeds from sale of investment securities ..................... 122,652 -- 122,652 Interest in EFG Kirkwood ............. -- (643,676) (643,676) Investments - other .................. -- (151,098) (151,098) Other assets ......................... -- (240,000) (240,000) Net change in receivables and accruals 40,548 -- 40,548 Less: Cash distributions paid .............. -- (5,300,000) (5,300,000) ------------ ------------ ------------ Cash and cash equivalents at end of year .. $ 3,019,685 $ 2,107,108 $ 5,126,793 ============ ============ ============
28 AFG Investment Trust B 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 For the Year Ended December 31, 2000 For the year ended December 31, 2000, the Trust reimbursed the Managing Trustee and its Affiliates for the following costs: Operating expenses $ 233,470 29 AFG Investment Trust B SCHEDULE OF REIMBURSEABLE OPERATING EXPENSES DUE TO THIRD PARTIES For the Year Ended December 31, 2000 Operating expenses for the year ended December 31, 2000 consisted of the following: Legal.............................................. 73,325 Accounting and Tax................................. 58,600 Investor Services.................................. 12,044 Office............................................. 9,359 Selling & Remarketing.............................. 7,795 Printing & Document Services....................... 3,243 Bank Charges....................................... 3,000 Travel & Entertainment............................. 1,733 Third Party Service Contracts...................... 1,173 Insurance.......................................... 1,276 Other.............................................. 2,949 -------------- Total... $ 174,497 ============== 30 AFG Investment Trust B SCHEDULE OF EQUIPMENT As of December 31, 2000
LEASE EXPIRATION NET BOOK LESSEE RENTAL SCHEDULE DATE COST VALUE DEBT - ---------------------------------- ------------------- ------------ ----------- ----------- ----------- Amoco Corporation A-O-20 $ 20,748 -- -- International Paper A-24-122 19,891 -- -- International Paper B-24-64 12,879 598 -- International Paper B-71-84 202,056 57,730 -- GATX Logistics, Inc. E-2 41,694 -- -- GATX Logistics, Inc. E-3 68,861 -- -- General Motors Corporation A-26RN1 379,135 -- -- General Motors Corporation A-28 181,719 -- -- General Motors Corporation A-28RN1 410,497 -- -- General Motors Corporation A-34 25,695 -- -- Getchell Gold Corporation A-10 219,161 27,319 -- Maytag Corporation A-13 29,382 2,554 -- Montgomery Ward & Co., Inc. 1ARN1 863,922 -- -- Montgomery Ward & Co., Inc. 1BRN1 1,753,271 -- -- Montgomery Ward & Co., Inc. 1CRN1 28,837 -- -- Montgomery Ward & Co., Inc. 1DRN1 57,557 -- -- Owens-Corning Fiberglass Corp. A-42 572 -- -- Reno Air, Inc. N753RA 01/14/03 1,239,741 959,036 553,729 Temple-Inland Forest Product Group A-1RN1 21,486 5,632 -- USS/Kobe Steel Company A-1 122,886 -- -- USS/Kobe Steel Company A-2 44,254 -- -- Walker Manufacturing Company A-9RN1 02/28/01 56,975 -- -- Xerox Corporation BB-57RN3 01/31/01 110,738 -- -- Xerox Corporation BB-60RN4 07/31/01 24,592 -- -- Xerox Corporation BB-61RN3 10/31/11 25,487 -- -- Xerox Corporation BB-68RN2 10/31/01 23,499 -- -- Warehouse -- 884,620 -- -- ----------- ----------- ----------- Total $ 6,870,155 $ 1,052,869 $ 553,729 =========== =========== ===========
31 EX-23 5 0005.txt Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of AFG Investment Trust B of our report dated March 30, 2001, on the financial statements of AFG Investment Trust B, included in the 2000 Annual Report to the Participants of AFG Investment Trust B. /s/ ERNST & YOUNG LLP Tampa, Florida April 17, 2001 -----END PRIVACY-ENHANCED MESSAGE-----