-----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, GkA9xW2Ya5eyzdUU7w1106nApqRnZBeAjQjfvecjkLC+l6R5XaL1KiXt95eeZfC7 WPFG0bCnGpqqdeLytayDCQ== 0000950168-01-000692.txt : 20010409 0000950168-01-000692.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950168-01-000692 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INCOME FUND I-B CENTRAL INDEX KEY: 0000868678 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 043106525 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-35148 FILM NUMBER: 1590198 BUSINESS ADDRESS: STREET 1: 98 N WASHINGTON STREET CITY: BOSTON STATE: MA ZIP: 02114 BUSINESS PHONE: 6178545800 MAIL ADDRESS: STREET 1: 98 N WASHINGTON STREET CITY: BOSTON STATE: MA ZIP: 02114 10-K 1 0001.txt 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 33-35148-02 ---------------------------------------------------------- AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-3106525 - --------------------------------------- ----------------------------------- (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: 286,711 UNITS REPRESENTING LIMITED PARTNERSHIP INTEREST - -------------------------------------------------------------------------------- (Title of class) - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- 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, 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. AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP FORM 10-K TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business 3 Item 2. Properties 5 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security Holders 5 PART II Item 5. Market for the Partnership's Securities and Related Security Holder Matters 6 Item 6. Selected Financial Data 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 8. Financial Statements and Supplementary Data 7 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 7 PART III Item 10. Directors and Executive Officers of the Partnership 8 Item 11. Executive Compensation 9 Item 12. Security Ownership of Certain Beneficial Owners and Management 10 Item 13. Certain Relationships and Related Transactions 10 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12-14
2 PART I ITEM 1. BUSINESS. (a) General Development of Business American Income Fund I-B, a Massachusetts Limited Partnership, (the "Partnership") was organized as a limited partnership under the Massachusetts Uniform Limited Partnership Act (the "Uniform Act") on December 31, 1990 for the purpose of acquiring and leasing to third parties a diversified portfolio of capital equipment. Partners' capital initially consisted of contributions of $1,000 from the General Partner (AFG Leasing VI Incorporated) and $100 from the Initial Limited Partner (AFG Assignor Corporation). On March 1, 1991, the Partnership issued 286,711 units of limited partnership interest (the "Units") to 453 investors. The Partnership has one General Partner, AFG Leasing VI Incorporated, a Massachusetts corporation formed in 1990 and an affiliate of Equis Financial Group Limited Partnership (formerly known as American Finance Group), a Massachusetts limited partnership ("EFG" or the "Manager"). The General Partner is not required to make any other capital contributions except as may be required under the Uniform Act and Section 6.1(b) of the Amended and Restated Agreement and Certificate of Limited Partnership (the "Restated Agreement, as amended"). (b) Financial Information About Industry Segments The Partnership is engaged in only one operating industry segment: financial services. Historically, the Partnership 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 acquisition cost of the leased equipment. Operating leases are those in which the aggregate undiscounted noncancellable rental payments are less than the acquisition cost of the leased equipment. Industry segment data is not applicable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" incorporated herein by reference to the 2000 Annual Report. In connection with a preliminary settlement agreement for a Class Action Lawsuit described in Note 7 to the financial statements, included in Item 14 herein, the court permitted the Partnership to invest in any new investment, including but not limited to new equipment or other business activities, subject to certain limitations. On March 8, 2000, the Partnership loaned $1,310,000 to a newly formed real estate company, Echelon Residential Holdings LLC ("Echelon Residential Holdings") to finance the acquisition of real estate assets by that company. Echelon Residential Holdings, through a wholly owned subsidiary ("Echelon Residential LLC"), used the loan proceeds, along with the loan proceeds from similar loans by ten affiliated partnerships representing $32 million in the aggregate, to acquire various real estate assets from Echelon International Corporation, an independent Florida-based real estate company. Echelon Residential Holding's interest in Echelon Residential LLC is pledged pursuant to a pledge agreement to the partnerships as collateral for the loans. (c) Narrative Description of Business The Partnership was organized to acquire a diversified portfolio of capital equipment subject to various full payout and operating leases and to lease the equipment to third parties as income-producing investments. More specifically, the Partnership's primary investment objectives were to acquire and lease equipment that would: 1. Generate quarterly cash distributions; 2. Preserve and protect Partnership capital; and 3. Maintain substantial residual value for ultimate sale. The Partnership has the additional objective of providing certain federal income tax benefits. The Closing Date of the offering of Units of the Partnership was March 1, 1991. Significant operations commenced coincident with the Partnership's initial purchase of equipment and the associated lease commitments on March 1, 1991. The acquisition of the equipment and its associated leases is described in Note 3 to the financial statements included in Item 14, herein. The Restated Agreement, as amended, provides that the Partnership will terminate no later than December 31, 2002. However, the Partnership is a Nominal Defendant in 3 a Class Action Lawsuit, the outcome of which could significantly alter the nature of the Partnership's organization and its future business operations. The General Partner does not expect that the Partnership will be dissolved until such time that the Class Action Lawsuit is settled or adjudicated. The Partnership has no employees; however, it is managed pursuant to a Management Agreement with EFG or one of its affiliates. The Manager's role, among other things, is to (i) evaluate, select, negotiate, and consummate the acquisition of equipment, (ii) manage the leasing, re-leasing, financing, and refinancing of equipment, and (iii) arrange the resale of equipment. The Manager is compensated for such services as provided for in the Restated Agreement, as amended, described in Item 13 herein, and in Note 5 to the financial statements included in Item 14, herein. The Partnership's investment in equipment is, and will continue to be, subject to various risks, including physical deterioration, technological obsolescence, 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 Partnership is subject to considerable competition when re-leasing or selling equipment at the expiration of its lease terms. The Partnership must compete with lease programs offered directly by manufacturers and other equipment leasing companies, many of which have greater resources, including limited partnerships and trusts organized and managed similarly to the Partnership and including other EFG sponsored partnerships and trusts, which may seek to re-lease or sell equipment within their own portfolios to the same customers as the Partnership. In addition, default by a lessee under a lease may cause equipment to be returned to the Partnership at a time when the General Partner or the Manager is unable to arrange for the re-lease or sale of such equipment. This could result in the loss of anticipated revenue. The loan made by the Partnership to Echelon Residential Holdings is, and will continue to be, subject to various risks, including the risk of default by Echelon Residential Holdings, which could require the Partnership to foreclose under the pledge agreement on its interests in Echelon Residential LLC. The ability of Echelon Residential Holdings to make loan payments and the amount the Partnership may realize after a default would be dependent upon the risks generally associated with the real estate lending business including, 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, rent control laws and other governmental rules. A default by Echelon Residential Holdings could have a material adverse effect on the future cash flow and operating results of the Partnership. The Restated Agreement, as amended, prohibits the Partnership from making loans to the General Partner or its affiliates. Since the acquisition of the several parcels of real estate from the owner had to occur prior to the admission of certain independent third parties as equity owners, Echelon Residential Holdings and its wholly owned subsidiary, Echelon Residential LLC, were formed in anticipation of their admission. The General Partner agreed to an officer of the Manager serving as the initial equity holder of Echelon Residential Holdings and as an unpaid manager. The officer made a $185,465 equity investment in Echelon Residential Holdings. His return on his equity investment is restricted to the same rate of return as the partnerships realize on their loans. There is a risk that the court may object to the general partner's action in structuring the loan in this way and may require the partnerships to restructure or divest the loan. The Investment Company Act of 1940 (the "Act") places restrictions on the capital structure and business activities of companies registered thereunder. The Partnership has active business operations in the financial services industry, including equipment leasing and the loan to Echelon Residential Holdings. The Partnership does not intend to engage in investment activities in a manner or to an extent that would require the Partnership to register as an investment company under the Act. However, it is possible that the Partnership may unintentionally engage in an activity or activities that may be construed to fall within the scope of the Act. If the Partnership were to be determined to be an investment company, its business would be adversely affected. If necessary, the Partnership intends to avoid being deemed an investment company by disposing of or acquiring certain assets that it might not otherwise dispose of or acquire. 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. 4 EFG is a Massachusetts limited partnership formerly known as American Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general partnership and succeeded American Finance Group, Inc., a Massachusetts corporation organized in 1980. EFG and its subsidiaries (collectively, the "Company") are engaged in various aspects of the equipment leasing business, including EFG's role as Manager or Advisor to the Partnership and several other direct-participation equipment leasing programs sponsored or co-sponsored by EFG (the "Other Investment Programs"). The Company arranges to broker or originate equipment leases, acts as remarketing agent and asset manager, and provides leasing support services, such as billing, collecting, and asset tracking. The general partner of EFG, with a 1% controlling interest, is Equis Corporation, a Massachusetts corporation owned and controlled entirely by Gary D. Engle, its President, Chief Executive Officer and sole Director. Equis Corporation also owns a controlling 1% general partner interest in EFG's 99% limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Mr. Engle established Equis Corporation and GDE LP in December 1994 for the sole purpose of acquiring the business of AFG. In January 1996, the Company sold certain assets of AFG relating primarily to the business of originating new leases, and the name "American Finance Group," and its acronym, to a third party. AFG changed its name to Equis Financial Group Limited Partnership after the sale was concluded. Pursuant to terms of the sale agreements, EFG specifically reserved the rights to continue using the name American Finance Group and its acronym in connection with the Partnership and the Other Investment Programs and to continue managing all assets owned by the Partnership and the Other Investment Programs. (d) Financial Information about Foreign and Domestic Operations and Export Sales Not applicable. ITEM 2. PROPERTIES. Incorporated herein by reference to Note 3 to the financial statements included in Item 14. ITEM 3. LEGAL PROCEEDINGS. Incorporated herein by reference to Note 7 to the financial statements included in Item 14. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 5 PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S SECURITIES AND RELATED SECURITY HOLDER MATTERS. (a) Market Information There is no public market for the resale of the Units and it is not anticipated that a public market for resale of the Units will develop. (b) Approximate Number of Security Holders At December 31, 2000, there were 445 record holders in the Partnership. (c) Dividend History and Restrictions Historically, the amount of cash distributions to be paid to the Partners had been determined on a quarterly basis. Each quarter's distribution may have varied in amount and was made 95% to the Limited Partners and 5% to the General Partner. Generally, cash distributions have been paid within 15 days after the completion of each calendar quarter. The Partnership is a Nominal Defendant in a Class Action Lawsuit described in Note 7 to the financial statements included in Item 14, herein. The proposed settlement to that lawsuit, if effected, will materially change the future organizational structure and business interests of the Partnership, as well as its cash distribution policies. In addition, commencing with the first quarter of 2000, the General Partner suspended the payment of quarterly cash distributions pending final resolution of the Class Action Lawsuit. Accordingly, future cash distributions are not expected to be paid until the Class Action Lawsuit is settled or adjudicated. In any given year, it is possible that Limited Partners 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 Limited Partners adequate to cover any tax obligation. Distributions declared in 2000 and 1999 were as follows: GENERAL LIMITED TOTAL PARTNER PARTNERS -------- -------- -------- Total 2000 distributions declared .... $ -- $ -- $ -- Total 1999 distributions declared .... 226,351 11,318 215,033 -------- -------- -------- Total .......... $226,351 $ 11,318 $215,033 ======== ======== ======== There are no formal restrictions under the Restated Agreement, as amended, that materially limit the Partnership's ability to pay cash distributions, except that the General Partner may suspend or limit cash distributions to ensure that the Partnership maintains sufficient working capital reserves to cover, among other things, operating costs and potential expenditures, such as refurbishment costs to remarket equipment upon lease expiration. In addition to the need for funds in connection with the Class Action Lawsuit, liquidity is especially important as the Partnership matures and sells equipment, because the remaining equipment base consists of fewer revenue-producing assets that are available to cover prospective cash disbursements. Insufficient liquidity could inhibit the Partnership's ability to sustain its operations or maximize the realization of proceeds from remarketing its remaining assets. Cash distributions consist of Distributable Cash From Operations and Distributable Cash From Sales or Refinancings. "Distributable Cash From Operations" means the net cash provided by the Partnership's normal operations after general expenses and current liabilities of the Partnership are paid, reduced by any reserves for working capital and contingent liabilities to be funded from such cash, to the extent deemed reasonable by the General Partner, and increased by any portion of such reserves deemed by the General Partner not to be required for Partnership operations and reduced by all accrued and unpaid Equipment Management Fees and, after Payout, 6 further reduced by all accrued and unpaid Subordinated Remarketing Fees. Distributable Cash From Operations does not include any Distributable Cash From Sales or Refinancings. "Distributable Cash From Sales or Refinancings" means Cash From Sales or Refinancings as reduced by (i)(a) amounts realized from any loss or destruction of equipment which the General Partner determines shall be reinvested in similar equipment for the remainder of the original lease term of the lost or destroyed equipment, or in isolated instances, in other equipment, if the General Partner determines that investment of such proceeds will significantly improve the diversity of the Partnership's equipment portfolio, and subject in either case to satisfaction of all existing indebtedness secured by such equipment to the extent deemed necessary or appropriate by the General Partner, or (b) the proceeds from the sale of an interest in equipment pursuant to any agreement governing a joint venture which the General Partner determines will be invested in additional equipment or interests in equipment and which ultimately are so reinvested and (ii) any accrued and unpaid Equipment Management Fees and, after Payout, any accrued and unpaid Subordinated Remarketing Fees. "Cash From Sales or Refinancings" means cash received by the Partnership from sale or refinancing transactions, as reduced by (i)(a) all debts and liabilities of the Partnership required to be paid as a result of sale or refinancing transactions, whether or not then due and payable (including any liabilities on an item of equipment sold which are not assumed by the buyer and any remarketing fees required to be paid to persons not affiliated with the General Partner, but not including any Subordinated Remarketing Fees whether or not then due and payable) and (b) general expenses and current liabilities of the Partnership (other than any portion of the Equipment Management Fee which is required to be accrued and the Subordinated Remarketing Fee) and (c) any reserves for working capital and contingent liabilities funded from such cash to the extent deemed reasonable by the General Partner and (ii) increased by any portion of such reserves deemed by the General Partner not to be required for Partnership operations. In the event the Partnership accepts a note in connection with any sale or refinancing transaction, all payments subsequently received in cash by the Partnership with respect to such note shall be included in Cash From Sales or Refinancings, regardless of the treatment of such payments by the Partnership for tax or accounting purposes. If the Partnership receives purchase money obligations in payment for equipment sold, which are secured by liens on such equipment, the amount of such obligations shall not be included in Cash From Sales or Refinancings until the obligations are fully satisfied. "Payout" is defined as the first time when the aggregate amount of all distributions to the Limited Partners of Distributable Cash From Operations and Distributable Cash From Sales or Refinancings equals the aggregate amount of the Limited Partners' original capital contributions plus a cumulative annual distribution of 11% (compounded quarterly and calculated beginning with the last day of the month of the Partnership's Closing Date) on their aggregate unreturned capital contributions. For purposes of this definition, capital contributions shall be deemed to have been returned only to the extent that distributions of cash to the Limited Partners exceed the amount required to satisfy the cumulative annual distribution of 11% (compounded quarterly) on the Limited Partners' aggregate unreturned capital contributions, such calculation to be based on the aggregate unreturned capital contributions outstanding on the first day of each fiscal quarter. ITEM 6. SELECTED FINANCIAL DATA. Incorporated herein by reference to the section entitled "Selected Financial Data" in the 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. 7 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP. (a-b) Identification of Directors and Executive Officers The Partnership has no Directors or Officers. As indicated in Item 1 of this report, AFG Leasing VI Incorporated is the sole General Partner of the Partnership. Under the Restated Agreement, as amended, the General Partner is solely responsible for the operation of the Partnership's properties. The Limited Partners have no right to participate in the control of the Partnership's general operations, but they do have certain voting rights, as described in Item 12 herein. The names, titles and ages of the Directors and Executive Officers of the General Partner as of March 15, 2001 are as follows: DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER (SEE ITEM 13)
NAME TITLE AGE TERM - ---------------------- --------------------------------------------- ------- --------- Geoffrey A. MacDonald Chairman of EFG Until a and President and a Director successor of the General Partner 52 is duly elected Gary D. Engle President and Chief Executive and Officer of EFG 52 qualified Michael J. Butterfield Executive Vice President and Chief Operating Officer of EFG and Treasurer of the General Partner 41 Gail D. Ofgant Senior Vice President, Lease Operations of EFG and Senior Vice President of the General Partner 35
(c) Identification of Certain Significant Persons None. (d) Family Relationship No family relationship exists among any of the foregoing Partners, Directors or Executive Officers. (e) Business Experience Mr. MacDonald, age 52, is Chairman of EFG and has been President of the General Partner since 1990 and a Director of the General Partner since 1990. Mr. McDonald was a co-founder of EFG's predecessor, American Finance Group, which was established in 1980. Mr. MacDonald is a member of the Board of Managers of Echelon Development Holdings LLC 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 is President of AFG Realty Corporation. Mr. Engle is also Chairman and Chief Executive Officer of Semele Group Inc. ("Semele") and a member of the Board of Managers of Echelon Development Holdings LLC. 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. 8 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. Butterfield, age 41, is Executive Vice President and Chief Operating Officer of EFG and has served as Vice President and Treasurer of the General Partner since 1996. Mr. Butterfield also serves as Vice President and Treasurer of subsidiaries and affiliates of EFG. Mr. Butterfield is also Chief Financial Officer of Semele and Vice President, Finance and Clerk of Equis/Echelon Management Corporation, the manager of Echelon Residential LLC. 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 has served as Senior Vice President of the General Partner since 1998. Ms. Ofgant also serves as Senior Vice President for certain EFG's affiliates, including the General Partner. Ms. Ofgant is Senior Vice President and Assistant Clerk of Equis/Echelon Management Corporation, the manager of Echelon Residential LLC. 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. (f) Involvement in Certain Legal Proceedings None. (g) Promoters and Control Persons Not applicable. ITEM 11. EXECUTIVE COMPENSATION. (a) Cash Compensation Currently, the Partnership has no employees. However, under the terms of the Restated Agreement, as amended, the Partnership is obligated to pay all costs of personnel employed full or part-time by the Partnership, including officers or employees of the General Partner or its Affiliates. There is no plan at the present time to make any officers or employees of the General Partner or its Affiliates employees of the Partnership. The Partnership has not paid and does not propose to pay any options, warrants or rights to the officers or employees of the General Partner or its Affiliates. (b) Compensation Pursuant to Plans None. (c) Other Compensation Although the Partnership has no employees, as discussed in Item 11(a), pursuant to Section 9.4(c) of the Restated Agreement, as amended, the Partnership incurs a monthly charge for personnel costs of the Manager for persons engaged in providing administrative services to the Partnership. A description of the remuneration paid by the Partnership to the Manager for such services is included in Item 13, herein and in Note 5 to the financial statements included in Item 14, herein. (d) Stock Options and Stock Appreciation Rights. Not applicable. 9 (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 General Partner or its Affiliates which results or may result from their resignation, retirement or any other termination. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. By virtue of its organization as a limited partnership, the Partnership has outstanding no securities possessing traditional voting rights. However, as provided in Section 10.2(a) of the Restated Agreement, as amended (subject to Sections 10.2(b) and 10.3), a majority interest of the Limited Partners has voting rights with respect to: 1. Amendment of the Restated Agreement; 2. Termination of the Partnership; 3. Removal of the General Partner; and 4. Approval or disapproval of the sale of all, or substantially all, of the assets of the Partnership (except in the orderly liquidation of the Partnership upon its termination and dissolution). No person or group is known by the General Partner to own beneficially more than 5% of the Partnership's 286,711 outstanding Units 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 General Partner of the Partnership is AFG Leasing VI Incorporated, an affiliate of EFG. (a) Transactions with Management and Others All operating expenses incurred by the Partnership are paid by EFG on behalf of the Partnership and EFG is reimbursed at its actual cost for such expenditures. Fees and other costs incurred during the years ended December 31, 2000, 1999 and 1998, which were paid or accrued by the Partnership to EFG or its Affiliates, are as follows: 2000 1999 1998 -------- -------- -------- Equipment management fees ............ $ 5,961 $ 10,590 $ 13,384 Administrative charges ............... 97,522 85,773 57,048 Reimbursable operating expenses due to third parties ................ 105,178 146,577 393,632 -------- -------- -------- Total............. $208,661 $242,940 $464,064 ======== ======== ======== 10 As provided under the terms of the Management Agreement, EFG is compensated for its services to the Partnership. Such services include acquisition and management of equipment. For acquisition services, EFG was compensated by an amount equal to 2.23% of Equipment Base Price paid by the Partnership. For management services, EFG is compensated by an amount equal to 5% of gross operating lease rental revenue and 2% of gross full payout lease rental revenue received by the Partnership. Both acquisition and management fees are subject to certain limitations defined in the Management Agreement. Administrative charges represent amounts owed to EFG, pursuant to Section 9.4(c) of the Restated Agreement, as amended, for persons employed by EFG who are engaged in providing administrative services to the Partnership. Reimbursable operating expenses due to third parties represent costs paid by EFG on behalf of the Partnership, which are reimbursed to EFG at actual cost. All equipment was purchased from EFG, one of its affiliates, including other equipment leasing programs sponsored by EFG, or from third-party sellers. The Partnership's acquisition cost was determined by the method described in Note 2 to the financial statements included in Item 14, herein. All rents and proceeds from the sale of equipment are paid directly EFG. EFG temporarily deposits collected funds in a separate interest-bearing escrow account prior to remittance to the Partnership. At December 31, 2000, the Partnership was owed $10,887 by EFG for such funds and the interest thereon. These funds were remitted to the Partnership in January 2001. Certain affiliates of the General Partner own Units in the Partnership as follows:
--------------------------------------------- ----------------------- ----------------------- NUMBER OF PERCENT OF TOTAL AFFILIATE UNITS OWNED OUTSTANDING UNITS --------------------------------------------- ----------------------- ----------------------- Atlantic Acquisition Limited Partnership 11,442 3.99% --------------------------------------------- ----------------------- ----------------------- Old North Capital Limited Partnership 990 0.35% --------------------------------------------- ----------------------- -----------------------
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital Limited Partnership ("ONC") are both Massachusetts limited partnerships formed in 1995. The general partners of AALP and ONC are controlled by Gary D. Engle. EFG owns limited partnership interests, representing substantially all of the economic benefit, in AALP and the limited partnership interests in ONC are owned by Semele. Gary D. Engle is Chairman and CEO of Semele and President and Chief Executive Officer of EFG and sole shareholder and Director of EFG's general partner. (b) Certain Business Relationships None. (c) Indebtedness of Management to the Partnership None. (d) Transactions with Promoters Not applicable. 11 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 Partners' 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. A list of exhibits filed or incorporated by reference is as follows: EXHIBIT NUMBER - ------ 2.1 Plaintiffs' and Defendants' Joint Motion to Modify Order Preliminarily Approving Settlement, Conditionally Certifying Settlement Class and Providing for Notice of, and Hearing on, the Proposed Settlement was filed in the Registrant's Annual Report on Form 10-K/A for the year ended December 31, 1998 as Exhibit 2.1 and is incorporated herein by reference. 2.2 Plaintiffs' and Defendants' Joint Memorandum in Support of Joint Motion to Modify Order Preliminarily Approving Settlement, Conditionally Certifying Settlement Class and Providing for Notice of, and Hearing on, the Proposed Settlement was filed in the Registrant's Annual Report on Form 10-K/A for the year ended December 31, 1998 as Exhibit 2.2 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). 12 EXHIBIT NUMBER - ------- 2.3 Order Preliminarily Approving Settlement, Conditionally Certifying Settlement Class and Providing for Notice of, and Hearing on, the Proposed Settlement (August 20, 1998) was filed in the Registrant's Annual Report on Form 10-K/A for the year ended December 31, 1998 as Exhibit 2.3 and is incorporated herein by reference. 2.4 Modified Order Preliminarily Approving Settlement, Conditionally Certifying Settlement Class and Providing for Notice of, and Hearing on, the Proposed Settlement (March 22, 1999) was filed in the Registrant's Annual Report on Form 10-K/A for the year ended December 31, 1998 as Exhibit 2.4 and is incorporated herein by reference. 2.5 Plaintiffs' and Defendants' Joint Memorandum in Support of Joint Motion to Further Modify Order Preliminarily Approving Settlement, Conditionally Certifying Settlement Class and Providing for Notice of, and Hearing on, the Proposed Settlement was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 as Exhibit 2.5 and is incorporated herein by reference. 2.6 Second Modified Order Preliminarily Approving Settlement, Conditionally Certifying Settlement Class and Providing for Notice of, and Hearing on, the Proposed Settlement (March 5, 2000) was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 as Exhibit 2.6 and is incorporated herein by reference. 2.7 Proposed Order Granting Joint Motion to Continue Final Approval Settlement Hearing (March 13, 2001) is filed in the Registrant's Annual Report for the year ended December 31, 2000 and is included herein. 4 Amended and Restated Agreement and Certificate of Limited Partnership included as Exhibit A to the Prospectus, which was included in Registration Statement on Form S-1 (No. 33-35148). 10.1 Promissory Note in the principal amount of $1,310,000 dated March 8, 2000 between the Registrant, as lender, and Echelon Residential Holdings LLC, as borrower, 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 Pledge Agreement dated March 8, 2000 between Echelon Residential Holdings LLC (Pledgor) and American Income Partners V-A Limited Partnership, as Agent for itself and the Registrant, 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. 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 Horizon Air Industries, Inc. was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 as Exhibit 28 (a) and is incorporated herein by reference. 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, 1995 as Exhibit 99 (d) and is incorporated herein by reference. 99(c) Lease agreement with Awin Leasing Company, Inc. was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 as Exhibit 99 (e) and is incorporated herein by reference. 13 EXHIBIT NUMBER - ------ 99(d) Lease agreement with Enseco Incorporated was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 as Exhibit 99 (e) and is incorporated herein by reference. 99(e) Lease agreement with Quanterra Incorporated was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999 as Exhibit 99 (e) and is incorporated herein by reference. 99(f) Lease agreement with Conwell Corporation is filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 and is included herein. 99(g) Lease agreement with Ford Motor Company is filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 and is included herein. (b) Reports on Form 8-K None. (c) Other Exhibits None. (d) Financial Statement Schedules: Consolidated Financial Statements for Echelon Residential Holdings LLC as of December 31, 2000 and for the Period March 8, 2000 (Date of Inception) through December 31, 2000 and Independent Auditors' Report. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on behalf of the registrant and in the capacity and on the date indicated. AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership By: AFG Leasing VI Incorporated, a Massachusetts corporation and the General Partner of the Registrant.
By: /s/ GEOFFREY A. MACDONALD By: /s/ GARY D. ENGLE ----------------------------------------- ---------------------------------------- Geoffrey A. MacDonald Gary D. Engle Chairman of EFG and President and Chief Executive President and Director Officer of EFG, the sole stockholder of the General Partner of the General Partner (Principal Executive Officer) Date: MARCH 31, 2001 Date: MARCH 31, 2001 --------------------------------------- -------------------------------------- By: /s/ MICHAEL J. BUTTERFIELD ----------------------------------------- Michael J. Butterfield Executive Vice President and Chief Operating Officer of EFG and Treasurer of the General Partner (Principal Financial and Accounting Officer) Date: MARCH 31, 2001 ---------------------------------------
15 SCHEDULE 14(d) ECHELON RESIDENTIAL HOLDINGS LLC CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2000 AND FOR THE PERIOD MARCH 8, 2000 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2000 AND INDEPENDENT AUDITORS' REPORT INDEPENDENT AUDITORS' REPORT To the Members of Echelon Residential Holdings LLC: We have audited the accompanying consolidated balance sheet of Echelon Residential Holdings LLC, a Delaware limited liability company ("the Company") as of December 31, 2000 and the related consolidated statement of operations, members' equity (deficiency) and cash flows for the period March 8, 2000 (date of inception) through December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2000, and the results of its operations and its cash flows for the period March 8, 2000 (date of inception) through December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Tampa, Florida March 23, 2001 ECHELON RESIDENTIAL HOLDINGS LLC CONSOLIDATED BALANCE SHEET DECEMBER 31, 2000 - ------------------------------------------------------------------------------- ASSETS REAL ESTATE - Net (Notes 1 and 2) $ 61,092,202 CASH AND CASH EQUIVALENTS (Note 1) 3,789,198 RESTRICTED CASH (Note 1) 8,703 RESTRICTED INVESTMENTS (Note 1) 2,155,160 ACCOUNTS RECEIVABLE - Affiliates (Note 7) 115,521 PREPAID EXPENSES AND OTHER LONG-TERM ASSETS 69,417 CORPORATE EQUIPMENT - Net of accumulated depreciation of $57,733 286,784 INVESTMENT IN UNCONSOLIDATED JOINT VENTURE (Note 3) 1,063,906 ------------ TOTAL ASSETS $ 68,580,891 ============ LIABILITIES AND MEMBERS' EQUITY LIABILITIES: Accounts payable $ 10,984 Contractor payable 1,752,830 Accounts payable - Affiliates (Note 7) 114,180 Accrued expenses 797,832 Retainage payable 1,125,865 Security deposits 8,625 Interest payable 4,385,805 Construction loans (Note 4) 26,837,740 Other long-term liabilities 109,411 Notes payable (Note 5) 35,039,890 ------------ Total liabilities 70,183,162 COMMITMENTS & CONTINGENCIES (Notes 4 and 9) MINORITY INTEREST (Note 6) 2,257,367 MEMBERS' EQUITY (DEFICIENCY) (Note 1) (3,859,638) ------------ TOTAL LIABILITIES AND MEMBERS' EQUITY $ 68,580,891 ============ See notes to consolidated financial statements - 2 - ECHELON RESIDENTIAL HOLDINGS LLC CONSOLIDATED STATEMENT OF OPERATIONS PERIOD MARCH 8, 2000 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2000 - -------------------------------------------------------------------------------- SALES AND REVENUES: Real estate operations: Rental revenues $ 230,834 Management fees 695,162 Developer fees 985,141 Sale of development property 3,104,532 Investment income 191,543 Other income 23,000 ------------ Total sales and revenues 5,230,212 ------------ EXPENSES: Rental and other operations 558,561 Cost of development property sold 3,317,880 Write-down of land held for development or sale 635,437 Depreciation expense 148,861 Interest expense on long-term debt - net of amounts capitalized of $606,990 4,460,345 General and administrative expenses 2,937,514 ------------ Total expenses 12,058,598 ------------ EQUITY IN LOSS OF UNCONSOLIDATED JOINT VENTURE (148,023) MINORITY INTEREST 270,383 ------------ NET LOSS $ (6,706,026) ============ See notes to consolidated financial statements. - 3 - ECHELON RESIDENTIAL HOLDINGS LLC CONSOLIDATED STATEMENT OF CASH FLOWS PERIOD MARCH 8, 2000 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2000 - -------------------------------------------------------------------------------- CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net loss $ (6,706,026) Adjustment to reconcile net loss to cash provided by (used in) operating activities: Depreciation 148,861 Loss on sale of development property 213,348 Minority interest (270,383) Equity in loss of unconsolidated joint venture 148,023 Write-down of land held for development or sale 635,437 Changes in working capital: Accounts payable, accrued expenses and other liabilities (4,343,190) Interest payable 4,385,805 Other working capital changes 311,588 ------------ Net cash used in operating activities (5,476,537) ------------ CASH FLOW PROVIDED BY (USED IN) INVESTING ACTIVITIES: Increase in restricted cash and restricted investments (2,163,863) Net proceeds from sale of development property 3,104,532 Payments related to construction in progress (29,601,108) ------------ Net cash used in investing activities (28,660,439) ------------ CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES: Issuance of notes payable 6,244,000 Repayment of notes payable (5,474,000) Proceeds from construction loans 26,585,765 Members' capital contributions 2,651,162 ------------ Net cash provided by financing activities 30,006,927 ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (4,130,049) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,919,247 ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,789,198 ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 681,530 ============
See notes to consolidated financial statements. - 4 - ECHELON RESIDENTIAL HOLDINGS LLC CONSOLIDATED STATEMENT OF MEMBERS' EQUITY (DEFICIENCY) PERIOD MARCH 8, 2000 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2000 - --------------------------------------------------------------------------------
INITIAL PARTICIPATING MEMBERS MEMBERS TOTAL ----------- ------------- ----------- BALANCE AT MARCH 8, 2000 $ 195,226 $ -- $ 195,226 Members' capital contributions -- 2,651,162 2,651,162 Net loss (5,600,020) (1,106,006) (6,706,026) ----------- ----------- ----------- BALANCE AT DECEMBER 31, 2000 $(5,404,794) $ 1,545,156 $(3,859,638) =========== =========== ===========
See notes to consolidated financial statements. - 5 - ECHELON RESIDENTIAL HOLDINGS LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PERIOD MARCH 8, 2000 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2000 - -------------------------------------------------------------------------------- 1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES BACKGROUND - On March 7, 2000, EIN Acquisition Corporation ("EIN Acquisition") closed on a Tender Offer ("Tender Offer") for all of the outstanding shares of Echelon International Corporation ("Echelon") for a cash price of $34.00 per share. Immediately after the close of the Tender Offer, EIN Acquisition merged into Echelon (the "Merger"), with Echelon being the surviving entity. In conjunction with the Tender Offer, Echelon had entered into various contracts to sell or convey various real estate assets and investments in two real estate joint ventures to third parties. Subsequent to the Merger on March 8, 2000, Echelon closed on existing contracts to sell or convey its real estate assets and investments in two real estate joint ventures. Specific real estate assets and investments in two real estate joint ventures were sold to Echelon Residential LLC ("Echelon Residential"), a wholly owned limited liability subsidiary of Echelon Residential Holdings LLC ("Echelon Residential Holdings" or the "Company"). Echelon Residential will own, manage, and develop or sell these purchased multi-family residential properties. The acquisition of the assets by Echelon Residential was accounted for as an asset purchase under Accounting Principles Board Opinion No. 16 ("APB No. 16"). In accordance with APB No. 16, Echelon Residential allocated the total purchase price to the assets acquired and liabilities assumed based on the estimated fair market values at the date of acquisition. Since the purchase price of the business was less than the fair market value of the net assets acquired, the credit excess was allocated on a pro-rata basis to the real estate, corporate equipment and the investment in an unconsolidated joint venture. There are no contingencies or other matters that could materially affect the allocation of the purchase cost. The results of operations of the acquired real estate assets and investments in two real estate joint ventures are included in the consolidated results of Echelon Residential Holdings from the acquisition date. The Company's summarized consolidated balance sheet, reflecting the above acquisition of assets, as of March 8, 2000 is as follows: ASSETS: Real estate $34,164,672 Cash and cash equivalents 7,919,247 Investment in unconsolidated joint venture 1,211,929 Other assets 832,417 ----------- Total assets $44,128,265 =========== LIABILITIES AND MEMBERS' EQUITY: Accounts payable and other liabilities $ 6,883,424 Construction loans 251,975 Notes payable 34,269,890 ----------- Total liabilities 41,405,289 Minority interest 2,527,750 Members' equity 195,226 ----------- Total liabilities and members' equity $44,128,265 =========== The Company's fiscal year end is December 31. - 6 - DESCRIPTION OF BUSINESS - Echelon Residential Holdings was formed on February 29, 2000, under the laws of the state of Delaware and operates in one industry segment: owning, leasing, developing, and managing real estate. There were no activities of Echelon Residential Holdings from February 29, 2000 through March 8, 2000. The Company is governed by its Amended and Restated Limited Liability Company Agreement ("the Agreement") dated June 23, 2000. At March 8, 2000, members' equity included capital contributions from the initial members of the Company, James A. Coyne and Charles E. Cobb, Jr. ("Initial Members"), who made collective capital contributions of $195,226. On June 23, 2000, the participating members, Darryl A. LeClair and Susan G. Johnson ("Participating Members") made capital contributions totaling $2,651,162. The collective Participating Members' capital contributions are comprised of Participating A Capital of $2,591,093, Participating B Capital of $45,052 and additional capital contributions of $15,017. Subsequent to the initial capital contributions above, the Agreement was executed and includes a provision whereby the members have no further obligation to contribute additional amounts of capital to the Company. If the Company requires additional funds, the Board of Managers is to notify the members. Each member has the right to contribute a pro rata share of such additional funds, based on the relative equity contributions made by each member. In addition, the liability of the members of the Company is limited to the members' total capital contributions. In accordance with the Agreement, the Participating Members earn a cumulative compounding annual return on their unreturned capital (as defined), at a per annum rate equal to 14% for Participating A capital and 15% for Participating B capital, commencing on June 23, 2000. Preferred returns will be paid to the Participating Members in accordance with the terms of the Agreement. Payout of preferred returns (if any) is contingent upon the cumulative performance of the Company. See Note 9 - COMMITMENTS AND CONTINGENCIES. Per the Agreement, the Company is to distribute its cash flow (if any) periodically, but not less frequently than quarterly. The losses and profits of the Company are generally allocated to the members as follows: a) losses are generally allocable 77.9% to members other than Participating Members and 22.1% to Participating Members, and b) profits are generally allocated the same way except for a priority income allocation to the Participating Members to cover priority cash distributions made on their Participating Capital. PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Echelon Residential Holdings, its wholly owned subsidiary and a 60% interest in a joint venture. All intercompany balances have been eliminated. Investments for which the Company has a 20% to 50% ownership interest are accounted for using the equity method. The Company has recorded a minority interest in the Company's consolidated financial statements to reflect the ownership of its partner in the joint venture. ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include the recoverability of real estate held for sale. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on hand, demand deposits, and short-term investments with original maturities of three months or less. - 7 - RESTRICTED CASH - Restricted cash represents security deposits at multi-family residential communities held in separate noninterest-bearing depository accounts. RESTRICTED INVESTMENTS - Restricted investments represent certificates of deposit with maturities greater than three months. These investments are held by financial institutions that require such deposits in support of standby letters of credit. REAL ESTATE - Real estate additions are recorded at cost. Interest and real estate taxes incurred during construction periods are capitalized and depreciated on the same basis as the related assets. Costs directly related to the acquisition, development or improvement of real estate, and certain indirect development costs have also been capitalized. Depreciation is calculated on a straight-line basis over the estimated lives of the assets as follows: ESTIMATED USEFUL LIVES Buildings 35 years Furniture, fixtures, and equipment 3-10 years IMPAIRMENT OF LONG-LIVED ASSETS - The carrying value of long-lived assets, including property and 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. REVENUE RECOGNITION - The Company recognizes revenue on the sale of real estate properties when title has passed to the buyer and all contingencies have been removed. Rental revenues, management fees and developer fees are recognized when earned. INCOME TAXES - Under the provisions of the Internal Revenue Code and applicable state laws, the Company is not directly subject to income taxes; the results of its operations are included in the tax returns of its members. NEW ACCOUNTING PRONOUNCEMENTS - SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, is effective for all fiscal years beginning after June 15, 2000. SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. Under SFAS No. 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company adopted SFAS No. 133 effective January 1, 2001. There was no impact on the Company's financial position, results of operations or liquidity resulting from the adoption of SFAS No. 133. Effective March 8, 2000 (date of inception), the Company adopted the provisions of Securities Exchange Commission Staff Accounting Bulletin 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 Company's financial statements. - 8 - RECLASSIFICATIONS - Certain amounts previously reported in the March 8, 2000 consolidated balance sheet have been reclassified to conform to the December 31, 2000 presentation. 2. REAL ESTATE - NET As of December 31, 2000, real estate consists of the following: Land and land improvements held for development or sale $ 15,676,581 ------------ Real estate under development: Land and land improvements 8,302,770 Construction in progress 14,694,874 ------------ 22,997,644 ------------ Income producing real estate: Land and land improvements 2,303,890 Buildings and improvements 19,720,463 Equipment and other 484,752 Accumulated depreciation (91,128) ------------ 22,417,977 ------------ $ 61,092,202 ============ For the period March 8, 2000 (date of inception) through December 31, 2000, the Company recorded a write-down of land held for development or sale of $635,437 in the consolidated statement of operations. Land held for development or sale was determined to have been impaired because the estimated cash flows are less than the carrying value of the two parcels of land. The estimated fair value of these two parcels of land was based on letters of intent from third-party purchasers, dated October 2000 and December 2000, to purchase the two parcels of land. As of December 31, 2000, the Company's land and land improvements held for development or sale includes five parcels of improved and unimproved land for the development of multi-family residential communities. The land is located in urban areas in Memphis, Tennessee; Dallas, Texas; Denver, Colorado and Colorado Springs, Colorado. As of December 31, 2000, real estate under development includes the following three multi-family residential communities:
CONSTRUCTION ACTUAL/ESTIMATED RENTABLE LAND COMMENCEMENT DATE FIRST UNITS PROJECT NAME LOCATION UNITS ACREAGE DATE AVAILABLE ------------ ----------- -------- ------- ------------ ---------------- ECHELON AT THE BALLPARK Memphis, TN 385 5 Q1 2000 Q1 2001 ECHELON AT LAKESIDE Plano, TX 181 12 Q3 1999 Q3 2000 ECHELON AT UPTOWN Orlando, FL 244 3 Q2 2001 Q2 2002
As discussed in Note 6, INVESTMENT IN CONSOLIDATED JOINT VENTURE PARTNERSHIP, ECHELON AT LAKESIDE commenced operations during the period March 8, 2000 (date of inception) through December 31, 2000 and portions of the project remained under construction as of December 31, 2000. As of December 31, 2000, real estate includes $606,990 of interest capitalized during the period March 8, 2000 (date of inception) through December 31, 2000. - 9 - 3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE In July 1999, Fannie Mae's American Communities Fund agreed to invest with a wholly owned subsidiary of Echelon in the development of ECHELON AT CHENEY PLACE, a 303-unit multi-family residential community currently under construction in downtown Orlando, Florida. Echelon's 20% interest in the joint venture was purchased by Echelon Residential, in conjunction with the real estate assets purchased as discussed in Note 1, SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES. The Company accounts for its investment in the joint venture under the equity method. Concurrent with the execution of the joint venture agreement with Fannie Mae's American Communities Fund, the joint venture executed an agreement with Wachovia Bank, N.A. for a $21,500,000 loan to fund the construction of ECHELON AT CHENEY PLACE. The loan is guaranteed by Echelon Residential. Construction of ECHELON AT CHENEY PLACE began in late July 1999 and construction continued on portions of the project through December 31, 2000. For the period March 8, 2000 (date of inception) through December 31, 2000, the Company recorded its share of losses for ECHELON AT CHENEY PLACE, from the initial operations of the project, as a reduction of the investment in unconsolidated joint venture. As of December 31, 2000, total capital expenditures and construction loan draws for the project were $24,834,193 and $18,408,921, respectively. Through December 31, 2000, the Company's capital contributions to the joint venture totaled $1,386,000. The total of net losses and purchase price adjustment allocated to the investment in unconsolidated joint venture is $322,094. 4. CONSTRUCTION LOANS As of December 31, 2000, the Company's construction loans outstanding are as follows: Bank of America $ 17,614,845 First Union National Bank of Florida 9,222,895 ------------ $ 26,837,740 ============ The Company has a $20,000,000 construction loan with Bank of America to fund the construction of ECHELON AT LAKESIDE. The loan is guaranteed by Echelon Residential. The interest rate is LIBOR plus 1.85% (8.4875% as of December 31, 2000), and the loan matures in September 2002. As of December 31, 2000, the Company has made $17,614,845 of construction draws on this loan. See further discussion of the development of ECHELON AT LAKESIDE included in Note 6, INVESTMENT IN CONSOLIDATED JOINT VENTURE PARTNERSHIP. Accrued interest on the Bank of America construction loan is $125,685 as of December 31, 2000. The Company has a $26,075,000 construction loan with First Union National Bank of Florida to fund the construction of ECHELON AT THE BALLPARK, a 385-unit multi-family residential community currently under construction in downtown Memphis, Tennessee. The loan is guaranteed by Echelon Residential. The interest rate is LIBOR plus 1.65% (8.2125% as of December 31, 2000) with monthly interest payments required through the term of the loan, which expires on June 2002. As of December 31, 2000, the Company has made construction draws of $9,222,895. Accrued interest on the First Union National Bank construction loan is $8,258 as of December 31, 2000. The Company's significant financial covenants include minimum net worth and liquidity requirements. As of December 31, 2000, the Company was in compliance with all financial covenants contained in its debt agreements. In the opinion of management, the carrying value of the Company's construction loans approximates their fair value based on management's estimates for similar issues, giving consideration to quality, - 10 - interest rates, maturity and other significant characteristics. Although management is not aware of any factors that would significantly affect the estimated fair value of the construction loans, the amounts have not been comprehensively revalued for purposes of these consolidated financial statements since December 31, 2000 and current estimates of fair value may differ significantly. See Note 10, SUBSEQUENT EVENT, for discussion of a construction loan executed for the construction of ECHELON AT UPTOWN, in February 2001. 5. NOTES PAYABLE As of December 31, 2000, notes payable outstanding are as follows: American Income Partners V-A Limited Partnership $ 2,160,000 American Income Partners V-B Limited Partnership 5,700,000 American Income Partners V-C Limited Partnership 2,390,000 American Income Partners V-D Limited Partnership 2,730,000 American Income Fund I-A, a Massachusetts Limited Partnership 1,650,000 American Income Fund I-B, a Massachusetts Limited Partnership 1,310,000 American Income Fund I-C, a Massachusetts Limited Partnership 2,780,000 American Income Fund I-D, a Massachusetts Limited Partnership 3,050,000 American Income Fund I-E, a Massachusetts Limited Partnership 4,790,000 AIRFUND International Limited Partnership 1,800,000 AIRFUND II International Limited Partnership 3,640,000 ----------- Subtotal 32,000,000 Series A Note 1,684,211 Series B Notes 585,679 Note payable - Echelon Development Holdings LLC 770,000 ----------- $35,039,890 ===========
On March 8, 2000, the Company executed $32,000,000 in notes payable with 11 partnerships. The Company contributed the proceeds from the notes payable to Echelon Residential to acquire various real estate assets from Echelon, as discussed in Note 1, SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES. These partnerships are managed by their general partners who have engaged Equis Financial Group ("EFG") as the partnerships' manager. Mr. James A. Coyne is Executive Vice President of EFG and is an equity investor in the Company. Mr. Coyne, in his individual capacity, is the only equity investor in the Company related to EFG. These notes payable have a term of 30 months, maturing on September 8, 2002, and an annual interest rate of 14% for the first 24 months and 18% for the final six months. No principal payments are required prior to the scheduled maturity. Interest accrues and compounds monthly and is payable at maturity. Accrued interest on these notes is $3,907,798 as of December 31, 2000. The Company has assigned and pledged a security interest in all of its rights, title, and interest in its membership interests in Echelon Residential to the 11 partnerships as collateral. On March 8, 2000, the Company executed a Series A Note with Cobb Partners Limited. The Series A Note has a term of 30 months, maturing on September 8, 2002, and an annual interest rate of 14% for the first 24 months and 18% for the final six months. No principal payments are required prior to the scheduled maturity. Accrued interest on the Series A Note is $205,674 as of December 31, 2000. Interest accrues and compounds monthly and is payable at maturity. The Company also executed - 11 - Series B Notes with several individuals, who are employees or investors of EFG. The Series B Notes have an annual interest rate of 15% and mature on June 30, 2004. No principal payments are required prior to the scheduled maturity. Interest accrues and compounds monthly and is payable at maturity. The Series B Notes are subordinated to the $32,000,000 notes payable and the Series A Note. Accrued interest on the Series B Notes is $76,920 as of December 31, 2000. On December 29, 2000, the Company executed a $770,000 note payable to Echelon Development Holdings LLC ("Echelon Development Holdings"). The note payable has a term of 24 months, maturing on December 29, 2002, and an annual interest rate of 10%. Interest accrues and compounds daily and is payable on December 31st of each year the note payable is outstanding. The Company repaid the note, plus interest of $6,751, on January 30, 2001. In the opinion of management, the carrying value of the Company's notes payable approximates the fair value based on management's estimates for similar issues, giving consideration to quality, interest rates, maturity and other significant characteristics. 6. INVESTMENT IN CONSOLIDATED JOINT VENTURE PARTNERSHIP In September 1999, a wholly owned subsidiary of Echelon entered into a joint venture agreement with Turner Heritage Investments, Ltd. ("Turner") for the development of ECHELON AT LAKESIDE, a 181-unit multi-family residential community currently under construction in Plano, Texas, which is near Dallas. Echelon's 60% interest in the joint venture was purchased by Echelon Residential, in conjunction with the transaction discussed in Note 1, SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES. Construction of ECHELON AT LAKESIDE began in October 1999 and continued on portions of the project through December 31, 2000. As of December 31, 2000, total capital expenditures for the project were $23,927,413. Through December 31, 2000, the Company's capital contributions totaled $2,592,000 and Turner contributed land valued at $2,592,000 to the joint venture. The Company's interest represents a controlling interest, and accordingly, for financial reporting purposes, the assets, liabilities, retained deficit, and current period results of operations of the joint venture for the period March 8, 2000 (date of inception) through December 31, 2000, are included in the Company's consolidated financial statements, and Turner's partnership interest in the joint venture has been recorded as a minority interest. See further discussion of debt financing for ECHELON AT LAKESIDE included in Note 4, CONSTRUCTION LOANS. 7. RELATED PARTY TRANSACTIONS In conjunction with the purchase of Echelon's interest in the joint venture formed for the development of ECHELON AT LAKESIDE, Echelon Residential also assumed the development agreement, an asset management agreement and a property management and leasing agreement with Lakeside Baywater Enterprises Limited Partnership, the joint venture partnership. In accordance with the development agreement, Echelon Residential has been engaged as the developer for ECHELON AT LAKESIDE and receives a development fee, payable in arrears, in monthly installments of $44,371. In accordance with the asset management agreement, Echelon Residential receives a monthly asset management fee, computed in arrears, equal to 1% of the ECHELON AT LAKESIDE monthly gross income. Under the terms of the property management and leasing agreement, Echelon Residential also receives a monthly management fee, computed in arrears, equal to 4% of the ECHELON AT LAKESIDE monthly gross income. - 12 - For the period March 8, 2000 (date of inception) through December 31, 2000, Echelon Residential recognized $388,212 in development, asset management, and property management revenues from ECHELON AT LAKESIDE. In conjunction with the purchase of Echelon's interest in the joint venture formed for the development of ECHELON AT CHENEY PLACE, Echelon Residential also assumed agreements which include the payment of a development fee, a property management and leasing agreement and an incentive management fee with Cheney Place LLC, the joint venture partnership. In accordance with these agreements, Echelon Residential has been engaged as the developer for ECHELON AT CHENEY PLACE and receives a monthly development fee equal to 5% of the hard construction costs incurred during the month. Echelon Residential is also the property manager and leasing agent for the property and will receive a monthly management fee, computed in arrears, equal to $7,500 per month for two months prior to the opening of the clubhouse. For the next nine months thereafter, Echelon Residential will receive the greater of a) 3% of the effective monthly gross income or b) 3% of the effective monthly gross income that would be collected if 75% of ECHELON AT CHENEY PLACE were occupied at rents equaling the average pro forma base rent. Thereafter, the monthly management fee will be calculated as 3% of the effective monthly gross income of ECHELON AT CHENEY PLACE. The incentive management fee is equal to 2% of ECHELON AT CHENEY PLACE'S effective gross income, as defined. For the period March 8, 2000 (date of inception) through December 31, 2000, Echelon Residential recognized $392,695 in development, property management and incentive management fee revenues from ECHELON AT CHENEY PLACE. Echelon Property Management LLC, a wholly owned subsidiary of Echelon Residential, has contracted to manage several operating multi-family residential communities currently leased by Echelon Commercial LLC ("Echelon Commercial"), a wholly owned limited liability subsidiary of Echelon Development LLC. Echelon Development LLC is a wholly owned limited liability subsidiary of Echelon Development Holdings LLC. Several of the equity investors in Echelon Residential Holdings are also equity investors in Echelon Development Holdings LLC. For the period March 8, 2000 (date of inception) through December 31, 2000, Echelon Residential recognized $587,908 in property management revenues from the management of multi-family properties leased by Echelon Commercial. As of December 31, 2000, the Company had accounts receivable balances of $51,880 due from Echelon Commercial LLC, $19,455 due from ECHELON AT CHENEY PLACE and $44,186 from other related parties. These amounts were repaid by the end of February 2001. 8. RETIREMENT PLAN Echelon Residential is the sponsor of the Echelon 401(k) Savings Plan ("Savings Plan") under Section 401(k) of the Internal Revenue Service Code (the "Code"), to which participants may contribute a percentage of their pay up to limits established by the Code. The Company may make discretionary contributions to the Savings Plan. The Company did not contribute to the Savings Plan during the period March 8, 2000 (date of inception) through December 31, 2000. As of January 1, 2001, the Company initiated an option in the Savings Plan to include a mandatory matching contribution from the Company. 9. COMMITMENTS AND CONTINGENCIES As of December 31, 2000, two multi-family residential communities were under construction and had remaining commitments of $12,985,656 with construction contractors. On December 29, 2000, the Company executed a $5,000,000 revolving promissory note with Echelon Development Holdings. The revolving promissory note has a term of 24 months, maturing on December 29, 2002, and an annual interest rate of 10%. Interest accrues and compounds daily and is - 13 - payable on December 31st of each year the note is outstanding. As of December 31, 2000, there were no amounts outstanding on the revolving promissory note. As discussed in Note 1, SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, the Company maintains preferred return accounts for the Participating Members. As of December 31, 2000, the preferred return balances for Participating A and B Capital were $198,597 and $3,709, respectively. These amounts have not been paid and therefore, have not been reflected as a reduction of Participating A and B Capital in the December 31, 2000 consolidated financial statements. The joint venture formed for the development of ECHELON AT LAKESIDE maintains preferred return accounts for the limited partners, Echelon LP, a wholly owned limited liability subsidiary of Echelon Residential, and Turner. The payment of any preferred returns to Echelon LP would be eliminated upon consolidation. As of December 31, 2000, the preferred return balance for Turner was $312,669. This amount has not been paid and therefore, has not been reflected as a reduction of member's equity in the December 31, 2000 consolidated financial statements. 10. SUBSEQUENT EVENT In February 2001, the Company closed on a $18,600,000 loan from SouthTrust Bank for the construction financing of ECHELON AT UPTOWN, a 244-unit multi-family residential community to be developed in downtown Orlando, Florida. The interest rate is LIBOR plus 1.75% with monthly interest payments required over the 36-month initial term of the loan. The loan is guaranteed by Echelon Residential and construction is expected to commence in the second quarter of 2001. 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the period March 8, 2000 (date of inception) through December 31, 2000:
PERIOD THREE MONTHS ENDED MARCH 8 - ---------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL ---------- ------------ ------------- ------------- ------------ Total revenues............ $ 147,078 $ 758,673 $ 659,867 $ 3,664,594 $ 5,230,212 Net loss.................. $(328,623) $(1,359,326) $(1,855,757) $(3,162,320) $(6,706,026)
****** - 14 - EXHIBIT INDEX 2000 Form 10-K
EXHIBIT PAGE - ------- ---- 2.7 Proposed Order Granting Joint Motion to Continue Final Approval 1- Settlement Hearing (March 13, 2001). 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(f) Lease agreement with Conwell Corporation 99(g) Lease agreement with Ford Motor Company
EX-2.7 2 0002.txt EXHIBIT 2.7 IN THE UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA CASE NO. 98-8030-CIV-HURLEY - ------------------------------ LEONARD ROSENBLUM, J/B INVESTMENT PARTNERS, SMALL AND REBECCA BARMACK, PARTNERS, BARBARA HALL, HENRY R. GRAHAM, ANNE R. GRAHAM, MARGO CORTELL, PATRICK M. RHODES, BERNICE M. HUELS, GARRETT N. VOIGHT, CLAIRE E. FULCHER, MARCELLA LEVY, RICHARD HODGSON, CITY PARTNERSHIPS, HELMAN PARSONS AND CLEVA PARSONS, on behalf of themselves and all others similarly situated and derivatively on behalf of the Nominal Defendants, Plaintiffs, vs. EQUIS FINANCIAL GROUP LIMITED PARTNERSHIP, a Massachusetts, Limited Partnership, EQUIS CORPORATION, a Massachusetts Corporation, GDE ACQUISITION LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AFG LEASING INCORPORATED, a Massachusetts Corporation, AFG LEASING IV INCORPORATED, a Massachusetts Corporation, AFG LEASING VI INCORPORATED, a Massachusetts Corporation, AFG AIRCRAFT MANAGEMENT CORPORATION, a Massachusetts Corporation, AFG ASIT CORPORATION, a Massachusetts Corporation, AF/AIP PROGRAMS LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, GARY D. ENGLE and GEOFFREY A. MACDONALD, Defendants, AIRFUND I INTERNATIONAL LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AIRFUND II INTERNATIONAL LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME 4 LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME 5 LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME 6 LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME 7 LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME 8 LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS III-A LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS III B LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS III-C LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS III-D LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS IV-A LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS IV-B-LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS IV-C LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS IV-D LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS V-A LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS V-B LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS V-C LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME PARTNERS V-D LIMITED PARTNERSHIP, a Massachusetts Limited Partnership, AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership, AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership, AFG INVESTMENT TRUST, a Delaware business trust, AFG INVESTMENT TRUST B, a Delaware business trust, AFG INVESTMENT TRUST C, a Delaware business trust, and AFG INVESTMENT TRUST D, a Delaware business trust, Nominal Defendants. - ------------------------------ PROPOSED ORDER GRANTING JOINT MOTION TO CONTINUE FINAL APPROVAL SETTLEMENT HEARING THIS CAUSE came before the Court upon the Parties' Joint Motion to Continue Final Approval Settlement Hearing and to Schedule Rule 16 Status Conference. The Court, having reviewed the Motion, conducted a hearing and being otherwise fully advised of the premises, does thereupon: ORDER AND ADJUDGE THAT: 1. By no later than May 15, 2001, the parties shall advise the Court (a) whether the United States Securities and Exchange Commission ("SEC") has completed its review of certain filings submitted thereto in connection with the proposed settlement of the captioned action, and (b) whether the parties request the Court to schedule a hearing for final approval of the proposed settlement or are withdrawing the proposed settlement from judicial consideration and resuming the litigation of plaintiffs' claims. 2. The parties are directed to use their best efforts to assist the SEC so that its regulatory review may be completed on or before May 15, 2001. 3. The Final Approval Settlement Hearing is continued and will be scheduled for a date in July 2001 that will be determined by the Court following its receipt of the request to schedule a hearing that is described in paragraph 1 above. 1 DONE AND ORDERED, in Chambers, at West Palm Beach County, Florida, this 12th day of March, 2001. /s/ DANIEL T.K. HURLEY --------------------------- United States District Judge Daniel T.K. Hurley Copies furnished. To All Parties Listed on Attached Service List 2 SERVICE LIST LOCAL COUNSEL FOR PLAINTIFFS: LEAD COUNSEL FOR PLAINTIFFS: LAW OFFICES OF ALLAN M. LERNER WECHSLER HARWOOD Allan M. Lerner, Esquire HALEBIAN & FEFFER LLP 2888 East Oakland Park Blvd Andrew D. Friedman, Esq. Ft. Lauderdale, FL 33306 488 Madison Avenue, 8th Floor (954) 563-8111 New York, NY 10022 (954) 563-8522 (212) 935-7400 (212) 753-3630 FAX ATTORNEYS FOR VARIOUS PLAINTIFFS: LASKY & RIFKIND, LTD. THOMAS A. HOADLEY, P.A. Leigh Lasky, Esq. Thomas A. Hoadley, Esq. 11 South LaSalle Street 310 Australian Avenue Chicago, IL 60603 Palm Beach, FL 33480 (312) 634-0057 (561) 792-9006 (312) 634-0059 FAX (561) 835-9527 FAX LAW OFFICES OF LIONEL Z. GLANCY GILMAN AND PASTOR, L.L.P. Lionel Z. Glancy, Esq. Peter A. Lagorio, Esq. 1801 Avenue of the Stars Stonehill Corporate Center Suite 30B 999 Broadway, Suite 500 Los Angeles, CA 90067 Saugus, MA 01906 (310) 201-9150 (781) 231-7850 (310) 201-9160 FAX GOODKIND LABATON RUDOFF HAROLD B. OBSTFELD, P.C. & SUCHAROW LLP Harold B. Obstfeld, Esq. 260 Madison Avenue Lynda J. Grant, Esq. New York, NY 10116 100 Park Avenue (212) 696-0057 New York, NY 10017 (212) 679-8998 FAX (212) 907-0700 (212) 818-0477 FAX LAW OFFICES OF JAMES V. BASHIAN James V. Bashian, Esq. 500 Fifth Avenue, Suite 2730 New York, NY 10110 (212) 921-4110 (212) 921-4249 FAX 3 ATTORNEYS FOR PLAINTIFFS J/B INVESTMENT PARTNERS AND SMALL AND REBECCA BARMACK PARTNERS: LAW OFFICES OF VINCENT T. GRESHAM Vincent T. Gresham, Esq. 6065 Roswell Road, Suite 1445 Atlanta, GA 30328 (770) 552-5270 (770) 552-5279 FAX HAWKINS & PARNELL Albert H. Parnell, Esq. 4000 Suntrust Plaza 202 Peachtree Street, N.W. Atlanta, GA 30308 (404) 614-7400 (404) 614-7500 FAX BENJAMIN S. SCHWARTZ, CHARTERED Benjamin S. Schwartz, Esq. 4600 Olympic Way Evergreen, CO 80439 (303) 670-5941 (303) 670-3871 FAX ATTORNEYS FOR DEFENDANTS: RICHMAD, GREER, WEIL, BRUMBAUGH, MIRABITO & CHRISTENSEN, P.A. Gerald F. Richman, Esq. One Clearlake Centre 250 Australian Avenue South Suite 1504 W. Palm Beach, FL 33401 (561) 803-3500 (561) 820-1608 FAX NIXON PEABODY LLP Deborah L. Thaxter, P.C. 101 Federal Street Boston, MA 02110-1832 (617) 345-1000 (617) 345-1300 4 EX-13 3 0003.txt EXHIBIT 13 AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership Annual Report to the Partners, December 31, 2000 Dear Investor: We are pleased to provide the 2000 Annual Report for American Income Fund I-B, a Massachusetts Limited Partnership, 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 AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership INDEX TO ANNUAL REPORT TO THE PARTNERS PAGE SELECTED FINANCIAL DATA............................................... 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 3-7 FINANCIAL STATEMENTS: Report of Independent Auditors........................................ 8 Statement of Financial Position at December 31, 2000 and 1999......................................... 9 Statement of Operations for the years ended December 31, 2000, 1999 and 1998.................. 10 Statement of Changes in Partners' Capital for the years ended December 31, 2000, 1999 and 1998.................. 11 Statement of Cash Flows for the years ended December 31, 2000, 1999 and 1998.................. 12 Notes to the Financial Statements..................................... 13-23 ADDITIONAL FINANCIAL INFORMATION: Schedule of Excess (Deficiency) of Total Cash Generated to Cost of Equipment Disposed............................... 24 Statement of Cash and Distributable Cash From Operations, Sales and Refinancing................................ 25 Schedule of Costs Reimbursed to the General Partner and its Affiliates as Required by Section 9.4 of the Amended and Restated Agreement and Certificate of Limited Partnership...................... 26 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 ....................... $ 186,799 $ 303,817 $ 352,921 $ 658,262 $ 779,404 Interest Income ..................... $ 62,529 $ 103,142 $ 82,442 $ 79,405 $ 83,113 Net (loss) income ................... $ (113,047) $ 103,359 $ (235,711) $ 238,231 $ 609,579 Per Unit: Net (loss) income .............. $ (0.37) $ 0.34 $ (0.78) $ 0.79 $ 2.02 Cash distributions declared .... $ -- $ 0.75 $ 0.75 $ 0.94 $ 1.38 FINANCIAL POSITION ------------------ Total assets ........................ $ 2,154,172 $ 2,325,286 $ 2,480,535 $ 2,782,171 $ 3,576,563 Total long-term obligations ......... $ -- $ -- $ -- $ 22,990 $ 726,096 Partners' capital ................... $ 1,958,959 $ 2,072,006 $ 2,194,998 $ 2,657,060 $ 2,701,770
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 American Income Fund I-B, a Massachusetts Limited Partnership (the "Partnership") that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to a variety of risks and uncertainties. There are a number of factors that could cause actual results to differ materially from those expressed in any forward-looking statements made herein. These factors include, but are not limited to, the outcome of the Class Action Lawsuit described in Note 7 to the accompanying financial statements, the remarketing of the Partnership's equipment, and the performance of the Partnership's non-equipment assets. OVERVIEW The Partnership was organized in 1990 as a direct-participation equipment leasing program to acquire a diversified portfolio of capital equipment subject to lease agreements with third parties. Presently, the Partnership is a Nominal Defendant in a Class Action Lawsuit, the outcome of which could significantly alter the nature of the Partnership's organization and its future business operations. See Note 7 to the accompanying financial statements. Pursuant to the Amended and Restated Agreement and Certificate of Limited Partnership (the "Restated Agreement, as amended"), the Partnership is scheduled to be dissolved by December 31, 2001. However, the General Partner does not expect that the Partnership will be dissolved until such time that the Class Action Lawsuit is settled or adjudicated. The Investment Company Act of 1940 (the "Act") places restrictions on the capital structure and business activities of companies registered thereunder. The Partnership has active business operations in the financial services industry, including equipment leasing and the loan to Echelon Residential Holdings LLC ("Echelon Residential Holdings"). The Partnership does not intend to engage in investment activities in a manner or to an extent that would require the Partnership to register as an investment company under the Act. However, it is possible that the Partnership may unintentionally engage in an activity or activities that may be construed to fall within the scope of the Act. If the Partnership were to be determined to be an investment company, its business would be adversely affected. If necessary, the Partnership intends to avoid being deemed an investment company by disposing of or acquiring certain assets that it might not otherwise dispose of or acquire. RESULTS OF OPERATIONS For the year ended December 31, 2000, the Partnership recognized lease revenue of $186,799, compared to $303,817 and $352,921 for the years ended December 31, 1999 and 1998, respectively. The decrease in lease revenue from both 1998 to 2000 resulted primarily from lease term expirations and the sale of equipment. In the future, lease revenue will continue to decline due to lease term expirations and equipment sales. The Partnership's equipment portfolio includes certain assets in which the Partnership holds a proportionate ownership interest. In such cases, the remaining interests are owned by an affiliated equipment leasing program sponsored by Equis Financial Group Limited Partnership ("EFG"). Proportionate equipment ownership enabled the Partnership to further diversify its equipment portfolio at inception by participating in the ownership of selected assets, thereby reducing the general levels of risk which could have resulted from a concentration in any single equipment type, industry or lessee. The Partnership and each affiliate individually report, in proportion to their respective ownership interests, their respective shares of assets, liabilities, revenues, and expenses associated with the equipment. Interest income for the year ended December 31, 2000 was $62,529 compared to $103,142 and $82,442 for the years ended December 31, 1999 and 1998, respectively. Interest income is generated principally from temporary investment of rental receipts and equipment sale proceeds in short-term investments. The amount of future interest income is expected to fluctuate as a result of changing interest rates and the amount of cash available for investment, among other factors. On March 8, 2000, the Partnership utilized $1,310,000 of available cash for a loan to Echelon Residential Holdings. The loan is presented in the accompanying financial statements in accordance with the guidance set forth in the Third Notice to Practitioners by the American Institute of Certified Public Accountants in February 1986 entitled "ADC 3 Arrangements", and therefore the Partnership does not recognize interest income related to this loan. (See further discussion included in Note 4 to the financial statements herein). During the year ended December 31, 2000, the Partnership sold equipment, with a net book value of $1,931, to existing lessees and third parties. The sales resulted in a net gain, for financial reporting purposes, of $33,599. In 1999, the Partnership sold equipment having a net book value of $35,179 to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes, of $38,412 compared to a net gain in 1998 of $6,520 on equipment having a net book value of $671,684. It cannot be determined whether future sales of equipment will result in a net gain or a net loss to the Partnership, as such transactions will be dependent upon the condition and type of equipment being sold and its marketability at the time of sale. In addition, the amount of gain or loss reported for financial statement purposes is partly a function of the amount of accumulated depreciation associated with the equipment being sold. The ultimate realization of residual value for any type of equipment is dependent upon many factors, including EFG's ability to sell and re-lease equipment. Changing market conditions, industry trends, technological advances, and many other events can converge to enhance or detract from asset values at any given time. EFG attempts to monitor these changes in order to identify opportunities which may be advantageous to the Partnership and which will maximize total cash returns for each asset. The total economic value realized for each asset is comprised of all primary lease term revenues generated from that asset, together with its residual value. The latter consists of cash proceeds realized upon the asset's sale in addition to all other cash receipts obtained from renting the asset on a re-lease, renewal or month-to-month basis. The Partnership classifies such residual rental payments as lease revenue. Consequently, the amount of gain or loss reported in the financial statements is not necessarily indicative of the total residual value the Partnership achieved from leasing the equipment. Depreciation expense was $87,879, $99,072, and $213,530 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 Partnership depreciates the difference between (i) the cost of the asset and (ii) the estimated residual value of the asset on a straight-line basis over such term. For purposes of this policy, estimated residual values represent estimates of equipment values at the date of primary lease expiration. To the extent that an asset is held beyond its primary lease term, the Partnership continues to depreciate the remaining net book value of the asset on a straight-line basis over the asset's remaining economic life. Management fees were $5,961, $10,590, and $13,384 for 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. Operating expenses were $202,700, $232,350, and $450,680 for the years ended December 31, 2000, 1999 and 1998, respectively. For the years ended December 31, 2000, 1999 and 1998, operating expenses included approximately $41,000, $50,000 and $262,000, respectively, related to the Class Action Lawsuit described in Note 7 to the financial statements. In addition, the Partnership incurred certain remarketing expenses in 1998 related to the sale of its interest in an aircraft. Other operating expenses consist principally of administrative charges, professional service costs, such as audit and legal fees, as well as printing, distribution and other remarketing expenses. In certain cases, equipment storage or repairs and maintenance costs may be incurred in connection with equipment being remarketed. For the year ended December 31, 2000, the Partnership's share of losses in Echelon Residential Holdings were $99,434. The loss is reflected on the Statement of Operations as "Partnership's share of unconsolidated real estate venture's loss." See further discussion below. 4 LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS The Partnership by its nature is a limited life entity. The Partnership's principal operating activities derive from asset rental transactions. Accordingly, the Partnership's principal source of cash from operations is provided by the collection of periodic rents. These cash inflows are used to pay management fees and operating costs and prior to 1999, were used to satisfy debt service obligations. Operating activities generated net cash inflows of $53,237, $180,054, and $187,610 in 2000, 1999 and 1998, respectively. Future renewal, re-lease and equipment sale activities will cause a decline in the Partnership's lease revenues and corresponding sources of operating cash. Overall, expenses associated with rental activities, such as management fees, and net cash flow from operating activities also will decline as the Partnership remarkets its equipment. 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. Cash realized from asset disposal transactions are reported under investing activities on the accompanying Statement of Cash Flows. For the year ended December 31, 2000, the Partnership realized $35,530 in equipment sale proceeds compared to $73,591 and $678,204 in 1999 and 1998, respectively. Future inflows of cash from asset disposals will vary in timing and amount and will be influenced by many factors including, but not limited to, the frequency and timing of lease expirations, the type of equipment being sold, its condition and age, and future market conditions. At December 31, 2000, the Partnership was due aggregate future minimum lease payments of $94,057 from contractual lease agreements (see Note 2 to the financial statements). At the expiration of the individual primary and renewal lease terms underlying the Partnership's future minimum lease payments, the Partnership will sell the equipment or enter re-lease or renewal agreements when considered advantageous by the General Partner and EFG. Such future remarketing activities will result in the realization of additional cash inflows in the form of equipment sale proceeds or rents from renewals and re-leases, the timing and extent of which cannot be predicted with certainty. This is because the timing and extent of remarketing events often is dependent upon the needs and interests of the existing lessees. Some lessees may choose to renew their lease contracts, while others may elect to return the equipment. In the latter instances, the equipment could be re-leased to another lessee or sold to a third party. In connection with a preliminary settlement agreement for a Class Action Lawsuit described in Note 7 to the financial statements, the court permitted the Partnership to invest in any new investment, including but not limited to new equipment or other business activities, subject to certain limitations. On March 8, 2000, the Partnership loaned $1,310,000 to a newly formed real estate company, Echelon Residential Holdings, to finance the acquisition of real estate assets by that company. Echelon Residential Holdings, through a wholly owned subsidiary ("Echelon Residential LLC"), used the loan proceeds, along with the loan proceeds from similar loans by ten affiliated partnerships representing $32 million in the aggregate, to acquire various real estate assets from Echelon International Corporation, an independent Florida-based real estate company. Echelon Residential Holding's interest in Echelon Residential LLC is pledged pursuant to a pledge agreement to the partnerships as collateral for the loans. The loan has a term of 30 months, maturing on September 8, 2002, and an annual interest rate of 14% for the first 24 months and 18% for the final six months. Interest accrues and compounds monthly and is payable at maturity. As discussed in Note 4 to the Partnership's financial statements, the loan is considered to be an investment in a real estate venture for accounting purposes. In accordance with the provisions of Statement of Position No. 78-9, "Accounting for Investments in Real Estate Ventures", the Partnership reports its share of income or loss of Echelon Residential Holdings under the equity method of accounting. The loan made by the Partnership to Echelon Residential Holdings is, and will continue to be, subject to various risks, including the risk of default by Echelon Residential Holdings, which could require the Partnership to foreclose under the pledge agreement on its interests in Echelon Residential LLC. The ability of Echelon Residential Holdings to make loan payments and the amount the Partnership may realize after a default would be dependent upon the risks generally associated with the real estate lending business including, 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, rent control laws and other governmental 5 rules. A default by Echelon Residential Holdings could have a material adverse effect on the future cash flow and operating results of the Partnership. The Restated Agreement, as amended, prohibits the Partnership from making loans to the General Partner or its affiliates. Since the acquisition of the several parcels of real estate from the owner had to occur prior to the admission of certain independent third parties as equity owners, Echelon Residential Holdings and its wholly owned subsidiary, Echelon Residential LLC, were formed in anticipation of their admission. The General Partner agreed to an officer of the Manager serving as the initial equity holder of Echelon Residential Holdings and as an unpaid manager. The officer made a $185,465 equity investment in Echelon Residential Holdings. His return on his equity investment is restricted to the same rate of return as the partnerships realize on their loans. There is a risk that the court may object to the general partner's action in structuring the loan in this way and may require the partnerships to restructure or divest the loan. There are no formal restrictions under the Restated Agreement, as amended, that materially limit the Partnership's ability to pay cash distributions, except that the General Partner may suspend or limit cash distributions to ensure that the Partnership maintains sufficient working capital reserves to cover, among other things, operating costs and potential expenditures, such as refurbishment costs to remarket equipment upon lease expiration. In addition to the need for funds in connection with the Class Action Lawsuit, liquidity is especially important as the Partnership matures and sells equipment, because the remaining equipment base consists of fewer revenue-producing assets that are available to cover prospective cash disbursements. Insufficient liquidity could inhibit the Partnership's ability to sustain its operations or maximize the realization of proceeds from remarketing its remaining assets. Cash distributions to the General and Limited Partners had been declared and generally paid within fifteen days following the end of each calendar quarter. The payment of such distributions is reported under financing activities on the accompanying Statement of Cash Flows. No cash distributions were declared for the year ended December 31, 2000, however, the fourth quarter 1999 cash distribution of $56,588 was paid in January 2000. In any given year, it is possible that Limited Partners 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 Limited Partners adequate to cover any tax obligation. Cash distributions paid to the Limited Partners consist of both a return of and a return on capital. Cash distributions do not represent and are not indicative of yield on investment. Actual yield on investment cannot be determined with any certainty until conclusion of the Partnership and will be dependent upon the collection of all future contracted rents, the generation of renewal and/or re-lease rents, the residual value realized for each asset at its disposal date and the performance of the Partnership's non-equipment assets. The Partnership's capital account balances for federal income tax and for financial reporting purposes are different primarily due to differing treatments of income and expense items for income tax purposes in comparison to financial reporting purposes (generally referred to as permanent or timing differences; see Note 6 to the financial statements). For instance, selling commissions and organization and offering costs pertaining to syndication of the Partnership's limited partnership units are not deductible for federal income tax purposes, but are recorded as a reduction of partners' capital for financial reporting purposes. Therefore, such differences are permanent differences between capital accounts for financial reporting and federal income tax purposes. Other differences between the bases of capital accounts for federal income tax and financial reporting purposes occur due to timing differences. Such items include the cumulative difference between income or loss for tax purposes and income tax and financial reporting purposes. The principal components of the cumulative difference between financial statement income or loss and tax income or loss result from different depreciation policies for book and tax purposes and different treatment for book and tax purposes related to the real estate venture. For financial reporting purposes, the General Partner has accumulated a capital deficit at December 31, 2000. This is the result of aggregate cash distributions to the General Partner being in excess of its capital contribution of $1,000 and its allocation of financial statement net income or loss. Ultimately, the existence of a capital deficit for the General Partner for financial reporting purposes is not indicative of any further capital obligations to the Partnership by the General Partner. The Restated Agreement, as amended, requires that upon the dissolution of the Partnership, the General Partner will be required to contribute to the Partnership an amount equal to any negative balance which may exist in the General Partner's tax capital account. At December 31, 2000, the General Partner had a positive tax capital account balance. 6 The outcome of the Class Action Lawsuit described in Note 7 to the accompanying financial statements will be the principal factor in determining the future of the Partnership's operations. The proposed settlement to that lawsuit, if effected, will materially change the future organizational structure and business interests of the Partnership, as well as its cash distribution policies. In addition, commencing with the first quarter of 2000, the General Partner suspended the payment of quarterly cash distributions pending final resolution of the Class Action Lawsuit. Accordingly, future cash distributions are not expected to be paid until the Class Action Lawsuit is settled or adjudicated. 7 REPORT OF INDEPENDENT AUDITORS To the Partners of American Income Fund I-B, a Massachusetts Limited Partnership: We have audited the accompanying statements of financial position of American Income Fund I-B, a Massachusetts Limited Partnership, as of December 31, 2000 and 1999, and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The consolidated financial statements of Echelon Residential Holdings LLC, (a limited liability company to which the Partnership has loaned $1,310,000), have been audited by other auditors whose report has been furnished to us; insofar as our opinion on the financial statements relates to data included for Echelon Residential Holdings LLC, it is based solely on their report. 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, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of American Income Fund I-B, a Massachusetts Limited Partnership 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 Partners is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ ERNST & YOUNG LLP Tampa, Florida March 30, 2001 8 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2000 AND 1999
2000 1999 ----------- ----------- ASSETS Cash and cash equivalents ............................ 808,801 $ 2,086,622 Rents receivable ..................................... 300 2,500 Accounts receivable - affiliate ...................... 10,887 22,736 Investment in real estate venture .................... 1,210,566 -- Equipment at cost, net of accumulated depreciation of $539,007 and $995,293 at December 31, 2000 and 1999, respectively ....... 123,618 213,428 ----------- ----------- Total assets ................................. $ 2,154,172 $ 2,325,286 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Accrued liabilities .................................. $ 180,888 $ 189,816 Accrued liabilities - affiliate ...................... 14,325 6,876 Cash distributions payable to partners ............... -- 56,588 ----------- ----------- Total liabilities ............................ 195,213 253,280 ----------- ----------- Partners' capital (deficit): General Partner ................................... (219,423) (213,771) Limited Partnership Interests (286,711 Units; initial purchase price of $25 each) 2,178,382 2,285,777 ----------- ----------- Total partners' capital ...................... 1,958,959 2,072,006 ----------- ----------- Total liabilities and partners' capital ...... $ 2,154,172 $ 2,325,286 =========== ===========
The accompanying notes are an integral part of these financial statements. 9 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 --------- --------- --------- Income: Lease revenue ....................... $ 186,799 $ 303,817 $ 352,921 Interest income ..................... 62,529 103,142 82,442 Gain on sale of equipment ........... 33,599 38,412 6,520 --------- --------- --------- Total income .................... 282,927 445,371 441,883 --------- --------- --------- Expenses: Depreciation ........................ 87,879 99,072 213,530 Equipment management fees ........... 5,961 10,590 13,384 Operating expenses - affiliate ...... 202,700 232,350 450,680 Partnership's share of unconsolidated real estate venture's loss ...... 99,434 -- -- --------- --------- --------- Total expenses .................. 395,974 342,012 677,594 --------- --------- --------- Net (loss) income ........................ $(113,047) $ 103,359 $(235,711) ========= ========= ========= Net (loss) income per limited partnership unit ........ $ (0.37) $ 0.34 $ (0.78) ========= ========= ========= Cash distributions declared per limited partnership unit ........ $ -- $ 0.75 $ 0.75 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 10 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
GENERAL LIMITED PARTNERS PARTNER --------------------------- AMOUNT UNITS AMOUNT TOTAL ----------- ----------- ----------- ----------- Balance at December 31, 1997 .. $ (184,517) 286,711 $ 2,841,577 $ 2,657,060 Net loss - 1998 ........... (11,786) -- (223,925) (235,711) Cash distributions declared (11,318) -- (215,033) (226,351) ----------- ----------- ----------- ----------- Balance at December 31, 1998 .. (207,621) 286,711 2,402,619 2,194,998 Net income - 1999 ......... 5,168 -- 98,191 103,359 Cash distributions declared (11,318) -- (215,033) (226,351) ----------- ----------- ----------- ----------- Balance at December 31, 1999 .. (213,771) 286,711 2,285,777 2,072,006 Net loss - 2000 ........... (5,652) -- (107,395) (113,047) ----------- ----------- ----------- ----------- Balance at December 31, 2000 .. $ (219,423) 286,711 $ 2,178,382 $ 1,958,959 =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 11 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 ----------- ----------- ----------- Cash flows provided by (used in) operating activities: Net (loss) income .................................... $ (113,047) $ 103,359 $ (235,711) Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation ................................ 87,879 99,072 213,530 Gain on sale of equipment ................... (33,599) (38,412) (6,520) Partnership's share of unconsolidated real estate venture's loss .............. 99,434 -- -- Changes in assets and liabilities: Decrease (increase) in: Rents receivable ............................ 2,200 29,520 (1,669) Accounts receivable - affiliate ............. 11,849 18,772 34,564 Increase (decrease) in: Accrued interest ............................ -- -- (195) Accrued liabilities ......................... (8,928) (32,684) 213,300 Accrued liabilities - affiliate ............. 7,449 427 (8,823) Deferred rental income ...................... -- -- (20,866) ----------- ----------- ----------- Net cash provided by operating activities . 53,237 180,054 187,610 ----------- ----------- ----------- Cash flows provided by (used in) investing activities: Proceeds from equipment sales ................... 35,530 73,591 678,204 Investment in real estate venture ............... (1,310,000) -- -- ----------- ----------- ----------- Net cash (used in) provided by investing activities .................. (1,274,470) 73,591 678,204 ----------- ----------- ----------- Cash flows used in financing activities: Principal payments - notes payable .............. -- -- (22,990) Distributions paid .............................. (56,588) (226,351) (226,351) ----------- ----------- ----------- Net cash used in financing activities ..... (56,588) (226,351) (249,341) ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents . (1,277,821) 27,294 616,473 Cash and cash equivalents at beginning of year ....... 2,086,622 2,059,328 1,442,855 ----------- ----------- ----------- Cash and cash equivalents at end of year ............. $ 808,801 $ 2,086,622 $ 2,059,328 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid during the year for interest .......... $ -- $ -- $ 195 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 12 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2000 NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS American Income Fund I-B, a Massachusetts Limited Partnership (the "Partnership") was organized as a limited partnership under the Massachusetts Uniform Limited Partnership Act (the "Uniform Act") on December 31, 1990, for the purpose of acquiring and leasing to third parties a diversified portfolio of capital equipment. Partners' capital initially consisted of contributions of $1,000 from the General Partner (AFG Leasing VI Incorporated) and $100 from the Initial Limited Partner (AFG Assignor Corporation). On March 1, 1991, the Partnership issued 286,711 units of limited partnership interest (the "Units") to 453 investors. The Partnership's General Partner, AFG Leasing VI Incorporated, is a Massachusetts corporation formed in 1990 and an affiliate of Equis Financial Group Limited Partnership (formerly known as American Finance Group), a Massachusetts limited partnership ("EFG"). The General Partner is not required to make any other capital contributions except as may be required under the Uniform Act and Section 6.1(b) of the Amended and Restated Agreement and Certificate of Limited Partnership ("Restated Agreement, as amended"). Significant operations commenced March 1, 1991 when the Partnership made its initial equipment purchase. Pursuant to the Restated Agreement, as amended, Distributable Cash From Operations and Distributable Cash From Sales or Refinancings will be allocated 95% to the Limited Partners and 5% to the General Partner. Under the terms of a Management Agreement between the Partnership and EFG, management services are provided by EFG to the Partnership at fees which the General Partner believes to be competitive for similar services (see Note 5). EFG is a Massachusetts limited partnership formerly known as American Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general partnership and succeeded American Finance Group, Inc., a Massachusetts corporation organized in 1980. EFG and its subsidiaries (collectively, the "Company") are engaged in various aspects of the equipment leasing business, including EFG's role as Manager or Advisor to the Partnership and several other direct-participation equipment leasing programs sponsored or co-sponsored by EFG (the "Other Investment Programs"). The Company arranges to broker or originate equipment leases, acts as remarketing agent and asset manager, and provides leasing support services, such as billing, collecting, and asset tracking. The general partner of EFG, with a 1% controlling interest, is Equis Corporation, a Massachusetts corporation owned and controlled entirely by Gary D. Engle, its President, Chief Executive Officer and sole Director. Equis Corporation also owns a controlling 1% general partner interest in EFG's 99% limited partner, GDE Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were established in December 1994 by Mr. Engle for the sole purpose of acquiring the business of AFG. In January 1996, the Company sold certain assets of AFG relating primarily to the business of originating new leases, and the name "American Finance Group", and its acronym, to a third-party. AFG changed its name to Equis Financial Group Limited Partnership after the sale was concluded. Pursuant to terms of the sale agreements, EFG specifically reserved the rights to continue using the name American Finance Group and its acronym in connection with the Partnership and the Other Investment Programs and to continue managing all assets owned by the Partnership and the Other Investment Programs. 13 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH The Partnership considers liquid investment instruments purchased with a maturity of three months or less to be cash equivalents. From time to time, the Partnership invests excess cash with large institutional banks in federal agency discount notes and repurchase agreements with overnight maturities. Under the terms of the agreements, title to the underlying securities passes to the Partnership. The securities underlying the agreements are book entry securities. At December 31, 2000, the Partnership had $690,619 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. REVENUE RECOGNITION Effective January 1, 2000, the Partnership 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 Partnership's financial statements. Rents are payable to the Partnership monthly or quarterly 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 Partnership may enter renewal or re-lease agreements which expire beyond the Partnership's anticipated dissolution date. This circumstance is not expected to prevent the orderly wind-up of the Partnership's business activities as the General Partner and EFG would seek to sell the then-remaining equipment assets either to the lessee or to a third party, taking into consideration the amount of future noncancellable rental payments associated with the attendant lease agreements. See also Note 7 regarding the Class Action Lawsuit. Future minimum rents of $94,057 are due as follows: For the year ending December 31, 2001.................... $ 73,438 2002.................... 20,619 -------- Total $ 94,057 ======== 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 ------- ------- ------- Awin Leasing Company, Inc. ...... $91,451 $91,622 $91,622 General Motors Corporation ...... $34,477 $90,417 $94,977 Ford Motor Company .............. $27,611 $ -- $ -- Conwell Corporation ............. $21,173 $ -- $ -- Enseco Incorporated ............. $ -- $37,062 $38,616 Quanterra, Inc. ................. $ -- $31,506 $ -- Horizon Air Industries, Inc. .... $ -- $ -- $44,050 14 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. EQUIPMENT ON LEASE All equipment was acquired from EFG, one of its Affiliates or from third-party sellers. Equipment Cost means the actual cost paid by the Partnership to acquire the equipment, including acquisition fees. Where equipment was acquired from EFG or an Affiliate, Equipment Cost reflects the actual price paid for the equipment by EFG or the Affiliate plus all actual costs incurred by EFG or the Affiliate while carrying the equipment, including all liens and encumbrances, less the amount of all primary term rents earned by EFG or the Affiliate prior to selling the equipment. Where the seller of the equipment was a third party, Equipment Cost reflects the seller's invoice price. DEPRECIATION The Partnership's depreciation policy is intended to allocate the cost of equipment over the period during which it produces economic benefit. The principal period of economic benefit is considered to correspond to each asset's primary lease term, which term generally represents the period of greatest revenue potential for each asset. Accordingly, to the extent that an asset is held on primary lease term, the Partnership depreciates the difference between (i) the cost of the asset and (ii) the estimated residual value of the asset on a straight-line basis over such term. For purposes of this policy, estimated residual values represent estimates of equipment values at the date of primary lease expiration. To the extent that an asset is held beyond its primary lease term, the Partnership continues to depreciate the remaining net book value of the asset on a straight-line basis over the asset's remaining economic life. Periodically, the General Partner evaluates the net carrying value of equipment to determine whether it exceeds estimated net realizable value. Adjustments to reduce the net carrying value of equipment are recorded in those instances where estimated net realizable value is considered to be less than net carrying value. 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. REAL ESTATE LOAN The Partnership accounts for the loan to a real estate company using the guidance set forth in the Third Notice to Practitioners by the American Institute of Certified Public Accountants ("AICPA") in February 1986 entitled "ADC Arrangements" (the "Third Notice"). The Partnership has evaluated this loan and has determined that real estate accounting is appropriate. This determination affects the Partnership's balance sheet classification of the loan and the recognition of revenues derived therefrom. The Third Notice was issued to address those real estate acquisition, development and construction arrangements where a lender has virtually the same risk and potential rewards as those of owners or joint ventures. Emerging Issues Task Force ("EITF") 86-21, "Application of the AICPA Notice to Practitioners regarding Acquisition, Development and Construction Arrangements to Acquisition of an Operating Property" expanded the applicability of the Third Notice to entities other than financial institutions. Based on the applicability of the Third Notice, EITF 86-21 and consideration of the economic substance of the transaction, the loan is considered to be an investment in a real estate venture for accounting purposes. In accordance with the provisions of Statement of Position No. 78-9, "Accounting for Investments in Real Estate Ventures", the Partnership reports its share of income or loss of the real estate company under the equity method of accounting. 15 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) IMPAIRMENT OF LONG-LIVED ASSETS The carrying value of long-lived assets, including equipment and the real estate loan, will be reviewed for impairment whenever events or changes in circumstances indicate that the recorded value cannot be recovered from undiscounted future case flows. ACCRUED LIABILITIES - AFFILIATE Unpaid operating expenses and fees paid by EFG on behalf of the Partnership and accrued but unpaid administrative charges and management fees are reported as Accrued Liabilities - Affiliate (see Note 5). CONTINGENCIES It is the Partnership's policy to recognize a liability for goods and services during the period when the goods or services are received. To the extent that the Partnership has a contingent liability, meaning generally a liability the payment of which is subject to the outcome of a future event, the Partnership 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. The Partnership is a Nominal Defendant in a Class Action Lawsuit. In 1998, a settlement proposal to resolve that litigation was negotiated and remains pending (See Note 7). The Partnership's estimated exposure for costs anticipated to be incurred in pursuing the settlement proposal is approximately $353,000 consisting principally of legal fees and other professional service costs. These costs are expected to be incurred regardless of whether the proposed settlement ultimately is effected and, therefore, the Partnership expensed approximately $262,000 of these costs in 1998 following the Court's approval of the settlement plan. The cost estimate is subject to change and is monitored by the General Partner based upon the progress of the settlement proposal and other pertinent information. As a result, the Partnership expensed additional amounts of approximately $41,000 and $50,000 for such costs during 2000 and 1999, respectively. ALLOCATION OF PROFITS AND LOSSES For financial statement purposes, net income or loss is allocated to each Partner according to their respective ownership percentages (95% to the Limited Partners and 5% to the General Partner). See Note 6 for allocation of income or loss for income tax purposes. NET INCOME (LOSS) AND CASH DISTRIBUTIONS PER UNIT Net income (loss) and cash distributions per Unit are based on 286,711 Units outstanding during each of the three years in the period ended December 31, 2000 and computed after allocation of the General Partner's 5% share of net income (loss) and cash distributions. PROVISION FOR INCOME TAXES No provision or benefit from income taxes is included in the accompanying financial statements. The Partners are responsible for reporting their proportionate shares of the Partnership's taxable income or loss and other tax attributes on their tax returns. NOTE 3 - EQUIPMENT The following is a summary of equipment owned by the Partnership at December 31, 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. 16 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
REMAINING LEASE TERM EQUIPMENT EQUIPMENT TYPE (MONTHS) AT COST LOCATION - ------------------------------------------------------ --------------- ----------------- ----------------- Trailers/intermodal containers........................ 0-24 $ 536,143 GA/MI/OK Materials handling.................................... 0 126,482 GA/MI/OH/UT ----------------- Total equipment cost............................. 662,625 Accumulated depreciation......................... 539,007 ----------------- Equipment, net of accumulated depreciation....... $ 123,618 =================
In certain cases, the cost of the Partnership's equipment represents a proportionate ownership interest. The remaining interests are owned by EFG or an affiliated equipment leasing program sponsored by EFG. The Partnership and each affiliate individually report, in proportion to their respective ownership interests their respective shares of assets, liabilities, revenues, and expenses associated with the equipment. Proportionate equipment ownership enabled the Partnership to further diversify its equipment portfolio at inception by participating in the ownership of selected assets, thereby reducing the general levels of risk which could have resulted from a concentration in any single equipment type, industry or lessee. At December 31, 2000, the Partnership's equipment portfolio included equipment having a proportionate original cost of $144,366, representing approximately 22% of total equipment cost. Generally, the costs associated with maintaining, insuring and operating the Partnership's equipment are incurred by the respective lessees pursuant to terms specified in their individual lease agreements with the Partnership. As equipment is sold to third parties, or otherwise disposed of, the Partnership recognizes a gain or loss equal to the difference between the net book value of the equipment at the time of sale or disposition and the proceeds realized upon sale or disposition. The ultimate realization of estimated residual value in the equipment is dependent upon, among other things, EFG's ability to maximize proceeds from selling or re-leasing the equipment upon the expiration of the primary lease terms. At December 31, 2000, all of the Partnership's equipment was subject to contracted leases or being leased on a month-to-month basis. NOTE 4 - INVESTMENT IN REAL ESTATE VENTURE On March 8, 2000, the Partnership and 10 affiliated partnerships (the "Exchange Partnerships") collectively loaned $32 million to Echelon Residential Holdings LLC ("Echelon Residential Holdings"), a newly formed real estate company. Echelon Residential Holdings is owned by several investors, including James A. Coyne, Executive Vice President of EFG. In addition, certain affiliates of the General Partner made loans to Echelon Residential Holdings in their individual capacities. The Partnership's loan is $1,310,000. Echelon Residential Holdings, through a wholly-owned subsidiary (Echelon Residential LLC), used the loan proceeds to acquire various real estate assets from Echelon International Corporation, a Florida-based real estate company. The loan has a term of 30 months, maturing on September 8, 2002, and an annual interest rate of 14% for the first 24 months and 18% for the final six months. Interest accrues and compounds monthly and is payable at maturity. In connection with the transaction, Echelon Residential Holdings has pledged a security interest in all of its right, title and interest in and to its membership interests in Echelon Residential LLC to the Exchange Partnerships as collateral. The loan is presented in accordance with the guidance for ADC Arrangements as described in Note 2, Real Estate Loans, in the Partnership's financial statements as of and for the year December 31, 2000. The loan is accounted for as an investment in real estate venture and is presented net of the Partnership's share of losses in Echelon Residential Holdings. For the period ended December 31, 2000, the Partnership's share of losses in Echelon Residential Holdings was $99,434 and is reflected on the Statement of Operations as "Partnership's share of unconsolidated real estate venture's loss." 17 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) The summarized financial information for Echelon Residential Holdings as of December 31, 2000 and for the period March 8, 2000 (commencement of operations) through December 31, 2000 is as follows: Total assets........................................ $ 68,580,891 Total liabilities................................... $ 70,183,162 Minority interest................................... $ 2,257,367 Total deficit ...................................... $ (3,859,638) Total revenues...................................... $ 5,230,212 Total expenses, minority interest and equity in loss of unconsolidated joint venture ........... $ 11,936,238 Net loss............................................ $ (6,706,026) NOTE 5 - RELATED PARTY TRANSACTIONS All operating expenses incurred by the Partnership are paid by EFG on behalf of the Partnership and EFG is reimbursed at its actual cost for such expenditures. Fees and other costs incurred during the years ended December 31, 2000, 1999 and 1998, which were paid or accrued by the Partnership to EFG or its Affiliates, are as follows: 2000 1999 1998 -------- -------- -------- Equipment management fees .......... $ 5,961 $ 10,590 $ 13,384 Administrative charges ............. 97,522 85,773 57,048 Reimbursable operating expenses due to third parties ............ 105,178 146,577 393,632 -------- -------- -------- Total $208,661 $242,940 $464,064 ======== ======== ======== As provided under the terms of the Management Agreement, EFG is compensated for its services to the Partnership. Such services include acquisition and management of equipment. For acquisition services, EFG was compensated by an amount equal to 2.23% of Equipment Base Price paid by the Partnership. For management services, EFG is compensated by an amount equal to 5% of gross operating lease rental revenues and 2% of gross full payout lease rental revenues received by the Partnership. Both acquisition and management fees are subject to certain limitations defined in the Management Agreement. Administrative charges represent amounts owed to EFG, pursuant to Section 9.4(c) of the Restated Agreement, as amended, for persons employed by EFG who are engaged in providing administrative services to the Partnership. Reimbursable operating expenses due to third parties represent costs paid by EFG on behalf of the Partnership which are reimbursed to EFG at actual cost. All equipment was purchased from EFG, one of its affiliates, including other equipment leasing programs sponsored by EFG, or from third-party sellers. The Partnership's Purchase Price is determined by the method described in Note 2, Equipment on Lease. All rents and proceeds from the sale of equipment are paid directly to EFG. EFG temporarily deposits collected funds in a separate interest-bearing escrow account prior to remittance to the Partnership. At December 31, 2000, the Partnership was owed $10,887 by EFG for such funds and the interest thereon. These funds were remitted to the Partnership in January 2001. 18 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Certain affiliates of the General Partner own Units in the Partnership as follows:
---------------------------------------- ----------------- ----------------------- NUMBER OF PERCENT OF TOTAL AFFILIATE UNITS OWNED OUTSTANDING UNITS ---------------------------------------- ----------------- ----------------------- Atlantic Acquisition Limited Partnership 11,442 3.99% ---------------------------------------- ----------------- ----------------------- Old North Capital Limited Partnership 990 0.35% --------------------------------------- ------------------ -----------------------
Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital Limited Partnership ("ONC") are both Massachusetts limited partnerships formed in 1995. The general partners of AALP and ONC are controlled by Gary D. Engle. EFG owns limited partnership interests, representing substantially all of the economic benefit, of AALP and the limited partnership interests of ONC are owned by Semele. Gary D. Engle is Chairman and Chief Executive Officer of Semele and President and Chief Executive Officer of EFG and sole shareholder and Director of EFG's general partner. NOTE 6 - INCOME TAXES The Partnership is not a taxable entity for federal income tax purposes. Accordingly, no provision for income taxes has been recorded in the accounts of the Partnership. For financial statement purposes, the Partnership allocates net income or loss to each class of partner according to their respective ownership percentages (95% to the Limited Partners and 5% to the General Partner). This convention differs from the income or loss allocation requirements for income tax and Dissolution Event purposes as delineated in the Restated Agreement, as amended. For income tax purposes, the Partnership allocates net income or net loss in accordance with the provisions of such agreement. The Restated Agreement, as amended, requires that upon dissolution of the Partnership, the General Partner will be required to contribute to the Partnership an amount equal to any negative balance which may exist in the General Partner's tax capital account. At December 31, 2000, the General Partner had a positive tax capital account balance. The following is a reconciliation between net income or loss reported for financial statement and federal income tax reporting purposes for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 --------- --------- --------- Net (loss) income ............................... $(113,047) $ 103,359 $(235,711) Financial statement depreciation in excess of (less than) tax depreciation 39,779 39,569 (11,073) Deferred rental income ..................... -- -- (20,866) Interest income - real estate venture ...... 159,975 -- -- Partnership's share of unconsolidated real estate venture's loss ............. 99,434 -- -- Other ...................................... 1,624 39,693 649,684 --------- --------- --------- Net income for federal income tax reporting purposes ......................... $ 187,765 $ 182,621 $ 382,034 ========= ========= =========
The principal component of "Other" consists of the difference between the tax and financial statement gain or loss on equipment disposals. 19 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) The following is a reconciliation between partners' capital reported for financial statement and federal income tax reporting purposes for the years ended December 31, 2000 and 1999:
2000 1999 ----------- ----------- Partners' capital ......................................... $ 1,958,959 $ 2,072,006 Add back selling commissions and organization and offering costs ................................ 801,375 801,375 Cumulative difference between federal income tax and financial statement (loss) income ................ 171,468 (129,344) ----------- ----------- Partners' capital for federal income tax reporting purposes $ 2,931,802 $ 2,744,037 =========== ===========
Cumulative difference between federal income tax and financial statement (loss) income represent timing differences. NOTE 7 - LEGAL PROCEEDINGS In January 1998, certain plaintiffs (the "Plaintiffs") filed a class and derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the United States District Court for the Southern District of Florida (the "Court") on behalf of a proposed class of investors in 28 equipment leasing programs sponsored by EFG, including the Partnership (collectively, the "Nominal Defendants"), against EFG and a number of its affiliates, including the General Partner, as defendants (collectively, the "Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had filed an earlier derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the Superior Court of the Commonwealth of Massachusetts on behalf of the Nominal Defendants against the Defendants. Both actions are referred to herein collectively as the "Class Action Lawsuit". The Plaintiffs have asserted, among other things, claims against the Defendants on behalf of the Nominal Defendants for violations of the Securities Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary duty, and violations of the partnership or trust agreements that govern each of the Nominal Defendants. The Defendants have denied, and continue to deny, that any of them have committed or threatened to commit any violations of law or breached any fiduciary duties to the Plaintiffs or the Nominal Defendants. On July 16, 1998, counsel for the Defendants and the Plaintiffs executed a Stipulation of Settlement setting forth terms pursuant to which a settlement of the Class Action Lawsuit is intended to be achieved and which, among other things, is expected to reduce the burdens and expenses attendant to continuing litigation. The Stipulation of Settlement was preliminarily approved by the Court on August 20, 1998 when the Court issued its "Order Preliminarily Approving Settlement, Conditionally Certifying Settlement Class and Providing for Notice of, and Hearing on, the Proposed Settlement" (the "August 20 Order"). On March 12, 1999, counsel for the Plaintiffs and the Defendants entered into an amended stipulation of settlement (the "Amended Stipulation") which was filed with the Court on March 12, 1999. The Amended Stipulation was preliminarily approved by the Court by its "Modified Order Preliminarily Approving Settlement, Conditionally Certifying Settlement Class and Providing For Notice of, and Hearing On, the Proposed Settlement" dated March 22, 1999 (the "March 22 Order"). The Amended Stipulation, among other things, divided the Class Action Lawsuit into two separate sub-classes that could be settled individually. On May 26, 1999, the Court issued an Order and Final Judgment approving settlement of one of the sub-classes. Settlement of the second sub-class, involving the Partnership and 10 affiliated partnerships (collectively referred to as the "Exchange Partnerships"), remains pending due, in part, to the complexity of the proposed settlement pertaining to this class. In February 2000, counsel for the Plaintiffs and the Defendants entered into a second amended stipulation of settlement (the "Second Amended Stipulation") which modified certain of the settlement terms contained in the Amended Stipulation. The Second Amended Stipulation was preliminarily approved by the Court by its "Second Modified Order Preliminarily Approving Settlement, Conditionally Certifying Settlement Class and Providing For Notice of, and Hearing On, the Proposed Settlement" dated March 6, 2000 (the "March 2000 Order"). Prior to issuing a final order approving the settlement of the second sub-class involving the Partnership, the Court will hold 20 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) a fairness hearing that will be open to all interested parties and permit any party to object to the settlement. The investors of the Partnership and all other plaintiff sub-class members will receive a Notice of Settlement and other information pertinent to the settlement of their claims that will be mailed to them in advance of the fairness hearing. The settlement of the second sub-class is premised on the consolidation of the Exchange Partnerships' net assets (the "Consolidation"), subject to certain conditions, into a single successor company ("Newco"). Under the proposed Consolidation, the partners of the Exchange Partnerships would receive both common stock in Newco and a cash distribution; and thereupon the Exchange Partnerships would be dissolved. In addition, EFG would contribute certain management contracts, operations personnel, and business opportunities to Newco and cancel its current management contracts with all of the Exchange Partnerships. Newco would operate principally as a finance company and would use its best efforts to list its shares on the NASDAQ National Market or another national exchange or market as soon after the Consolidation as Newco deems that market conditions and its business operations are suitable for listing its shares and Newco has satisfied all necessary regulatory and listing requirements. The potential benefits and risks of the Consolidation will be presented in a Solicitation Statement that will be mailed to all of the partners of the Exchange Partnerships as soon as the associated regulatory review process is completed and at least 60 days prior to the fairness hearing. A preliminary Solicitation Statement was filed with the Securities and Exchange Commission on August 24, 1998 and remains pending. Class members will be notified of the actual fairness hearing date when it is confirmed. One of the principal objectives of the Consolidation is to create a company that would have the potential to generate more value for the benefit of existing limited partners than other alternatives, including continuing the Partnership's customary business operations until all of its assets are disposed in the ordinary course of business. To facilitate the realization of this objective, the Amended Stipulation provided, among other things, that commencing March 22, 1999, the Exchange Partnerships could collectively invest up to 40% of the total aggregate net asset values of all of the Exchange Partnerships in any investment, including additional equipment and other business activities that the general partners of the Exchange Partnerships and EFG reasonably believed to be consistent with the anticipated business interests and objectives of Newco, subject to certain limitations. The Second Amended Stipulation, among other things, quantified the 40% limitation using a whole dollar amount of $32 million in the aggregate. On March 8, 2000, the Exchange Partnerships collectively made a $32 million loan as permitted by the Second Amended Stipulation approved by the Court. The Partnership's portion of the aggregate loan is $1,310,000. The loan consists of a term loan to Echelon Residential Holdings, a newly-formed real estate company that is owned by several independent investors and, in his individual capacity, James A. Coyne, Executive Vice President of EFG. In addition, certain affiliates of the General Partner made loans to Echelon Residential Holdings in their individual capacities. Echelon Residential Holdings, through a wholly-owned subsidiary (Echelon Residential LLC), used the loan proceeds, along with the loan proceeds from similar loans by 10 affiliated partnerships representing $32 million in the aggregate, to acquire various real estate assets from Echelon International Corporation, an independent Florida-based real estate company. The loan has a term of 30 months maturing on September 8, 2002 and bears interest at the annual rate of 14% for the first 24 months and 18% for the final six months of the term. Interest accrues and compounds monthly but is not payable until maturity. Echelon Residential Holdings has pledged its membership interests in Echelon Residential LLC to the Exchange Partnerships as collateral for the loan. In the absence of the Court's authorization to enter into new investment activities, the Partnership's Restated Agreement, as amended, would not permit such activities without the approval of limited partners owning a majority of the Partnership's outstanding Units. Consistent with the Amended Stipulation, the Second Amended Stipulation provides terms for unwinding any new investment transactions in the event that the Consolidation is not effected or the Partnership objects to its participation in the Consolidation. The Second Amended Stipulation, as well as the Amended Stipulation and the original Stipulation of Settlement, prescribe certain conditions necessary to effect a final settlement, including providing the partners of 21 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) the Exchange Partnerships with the opportunity to object to the participation of their partnership in the Consolidation. Assuming the proposed settlement is effected according to present terms, the Partnership's share of legal fees and expenses related to the Class Action Lawsuit and the Consolidation is estimated to be approximately $353,000, of which approximately $41,000, $50,000 and $262,000 were expensed by the Partnership in 2000, 1999 and 1998, respectively. While the Court's August 20 Order enjoined certain class members, including all of the partners of the Partnership, from transferring, selling, assigning, giving, pledging, hypothecating, or otherwise disposing of any Units pending the Court's final determination of whether the settlement should be approved, the March 22 Order permitted the partners to transfer Units to family members or as a result of the divorce, disability or death of the partner. No other transfers are permitted pending the Court's final determination of whether the settlement should be approved. The provision of the August 20 Order which enjoined the General Partners of the Exchange Partnerships from, among other things, recording any transfers not in accordance with the Court's order remains effective. There can be no assurance that settlement of the sub-class involving the Exchange Partnerships will receive final Court approval and be effected. There also can be no assurance that all or any of the Exchange Partnerships will participate in the Consolidation because if limited partners owning more than one-third of the outstanding Units of a partnership object to the Consolidation, then that partnership will be excluded from the Consolidation. Notwithstanding the extent of delays experienced thus far in achieving a final settlement of the Class Action Lawsuit with respect to the Exchange Partnerships, the General Partner and its affiliates, in consultation with counsel, continue to feel that there is a reasonable basis to believe that a final settlement of the sub-class involving the Exchange Partnerships ultimately will be achieved. However, in the absence of a final settlement approved by the Court, the Defendants intend to defend vigorously against the claims asserted in the Class Action Lawsuit. Neither the General Partner nor its affiliates can predict with any degree of certainty the cost of continuing litigation to the Partnership or the ultimate outcome. 22 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 8 - 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 Total lease revenue .......... 81,082 44,731 29,972 31,014 186,799 Net income (loss) ............ 36,059 (3,076) (83,405) (62,625) (113,047) Net income (loss) per limited partnership unit ... 0.12 (0.01) (0.28) (0.20) (0.37) 1999 Total lease revenue .......... 73,393 80,743 74,004 75,677 303,817 Net income ................... 23,211 19,200 50,243 10,705 103,359 Net income per limited partnership unit ... 0.08 0.06 0.17 0.03 0.34
23 ADDITIONAL FINANCIAL INFORMATION AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST OF EQUIPMENT DISPOSED FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 The Partnership classifies all rents from leasing equipment as lease revenue. Upon expiration of the primary lease terms, equipment may be sold, rented on a month-to-month basis or re-leased for a defined period under a new or extended lease agreement. The proceeds generated from selling or re-leasing the equipment, in addition to any month-to-month revenue, represent the total residual value realized for each item of equipment. Therefore, the financial statement gain or loss, which reflects the difference between the net book value of the equipment at the time of sale or disposition and the proceeds realized upon sale or disposition may not reflect the aggregate residual proceeds realized by the Partnership for such equipment. The following is a summary of cash excess associated with equipment dispositions occurring in the years ended December 31, 2000, 1999 and 1998.
2000 1999 1998 ---------- ---------- ---------- Rents earned prior to disposal of equipment, net of interest charges .... $ 846,486 $1,056,983 $2,119,870 Sale proceeds realized upon disposition of equipment .......................... 35,530 73,591 678,204 ---------- ---------- ---------- Total cash generated from rents and equipment sale proceeds ........... 882,016 1,130,574 2,798,074 Original acquisition cost of equipment disposed .............................. 546,096 651,241 2,706,744 ---------- ---------- ---------- Excess of total cash generated to cost of equipment disposed ................. $ 335,920 $ 479,333 $ 91,330 ========== ========== ==========
24 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS, SALES AND REFINANCINGS FOR THE YEAR ENDED DECEMBER 31, 2000
SALES AND OPERATIONS REFINANCINGS TOTAL ----------- ----------- ----------- Net (loss) income ............................. $ (146,646) $ 33,599 $ (113,047) Add: Depreciation ............................. 87,879 -- 87,879 Management fees .......................... 5,961 -- 5,961 Book value of disposed equipment ......... -- 1,931 1,931 Partnership's share of unconsolidated real estate venture's loss ............... 99,434 -- 99,434 ----------- ----------- ----------- Cash from operations, sales and refinancings ............................. 46,628 35,530 82,158 Less: Management fees .......................... (5,961) -- (5,961) ----------- ----------- ----------- Distributable cash from operations, sales and refinancings ................... 40,667 35,530 76,197 Other sources and uses of cash: Cash and cash equivalents at beginning of year ..................... 1,787,529 299,093 2,086,622 Net change in receivables and accruals ................................. 12,570 -- 12,570 Investment in real estate venture ........ (1,031,965) (278,035) (1,310,000) Less: Cash distributions paid .................. -- (56,588) (56,588) ----------- ----------- ----------- Cash and cash equivalents at end of year ...... $ 808,801 $ -- $ 808,801 =========== =========== ===========
25 AMERICAN INCOME FUND I-B, A MASSACHUSETTS LIMITED PARTNERSHIP SCHEDULE OF COSTS REIMBURSED TO THE GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED BY SECTION 9.4 OF THE AMENDED AND RESTATED AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP FOR THE YEAR ENDED DECEMBER 31, 2000 For the year ended December 31, 2000, the Partnership reimbursed the General Partner and its Affiliates for the following costs: Operating expenses $ 204,179 EX-23 4 0004.txt EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of American Income Fund I-B, a Massachusetts Limited Partnership, of our report dated March 30, 2001, on the financial statements of American Income Fund I-B, included in the 2000 Annual Report to the Partners of American Income Fund I-B, a Massachusetts Limited Partnership. /s/ ERNST & YOUNG LLP Tampa, Florida March 30, 2001 EX-99.F 5 0005.txt EXHIBIT 99.F MASTER LEASE AGREEMENT This MASTER LEASE AGREEMENT, dated as of the 21st day of November, 1995 ("Lease Agreement"), is made at Boston, Massachusetts by and between FFE LEASING TRUST NO. 95-01 ("Lessor"), a Massachusetts trust with its principal place of business at 98 N. WASHINGTON ST., BOSTON, MA 02114, and Conwell Corporation ("Lessee"), a Delaware corporation with its principal place of business at 1145 Empire Central, Dallas, Texas 75265. IN CONSIDERATION OF the mutual promises and covenants contained herein, Lessor and Lessee hereby agree as follows: 1. Property Leased. At the request of Lessee and subject to the terms and conditions of this Lease Agreement, Lessor shall lease to Lessee and Lessee shall lease from Lessor such personal property ("Equipment") as may be mutually agreed upon by Lessor and Lessee. The Equipment shall be selected by or ordered at the request of Lessee, identified in one or more equipment schedules substantially in the form of Exhibit A attached hereto ("Equipment Schedule") and accepted by Lessee in one or more certificates of acceptance ("Certificate of Acceptance") in the form of Exhibit B attached hereto. Each Equipment Schedule executed by Lessor and Lessee and each Certificated of Acceptance executed by Lessee shall constitute a part of this Lease Agreement. 2. Certain Definitions. 2.1 The "Acquisition Cost" shall mean the total cost of the Equipment paid by Lessor as set forth in the applicable Equipment Schedule. 2.2 The "Commencement Date" shall mean the later of the following dates: (i) the date on which the Equipment identified in the applicable Equipment Schedule is accepted and placed in service by Lessee under this Lease Agreement or (ii) the date the Lessor pays the Acquisition Cost to the Vendor(s) of the Equipment, provided, however, that Lessee shall bear the risk of loss of the Equipment and shall indemnify and hold Lessor harmless in the manner as set forth in Section 9 below prior to the Commencement Date. Each Commencement Date shall be evidenced by the Certificate of Acceptances applicable to such Equipment Schedule. 2.3 The "Rent Start Date" shall mean the Commencement Date. 2.4 The "Monthly Rent" shall mean the amount set forth in the applicable Equipment Schedule as Monthly Rent for the Equipment identified on such Equipment Schedule. 2.5 The "Daily Rent" shall mean one-thirtieth (1/30) of the Monthly Rent. 2.6 The words "herein," "hereof," and "hereunder" shall refer to this Lease agreement as a whole and not to any particular section. All other capitalized terms defined in this Lease Agreement shall have the meanings assigned thereto. 3. Initial Term of Lease; Payment of Rent. 3.1 The term of lease for the Equipment ("Initial Term") shall begin on the Commencement Date set forth in the applicable Certificate of Acceptance and shall continue during and until the expiration of the number of full calendar months set forth in the applicable Equipment Schedule, measured from the Rent Start Date, subject, however, to the provisions of Section 12.1 below. The Initial Term may not be canceled or terminated except as set forth in Section 10.2 below. 3.2 At the expiration of the Initial Term, Lessor and Lessee may extend the lease of the Equipment for any period not less than one year as they may agree upon in writing ("Extended Term") at the then fair market rental value of the Equipment, as determined in good faith by Lessor. 3.3 Aggregate Daily Rent shall be due and payable by Lessee on the Rent Start Date in an amount equal to the Daily Rent multiplied by the actual number of days elapsed from, and including, the Commencement Date to, but excluding, the Rent Start Date. The Monthly Rent shall be due and payable on the Rent Start Date and, thereafter on the first day of each month of the Initial Term or any Extended Term. All Daily Rents and Monthly Rents shall be paid to Lessor at its office in P.O. BOX 360178, PITTSBURGH, PA 15251-6178. 4. Acceptance of Equipment; Exclusion of Warranties. 4.1 Lessee shall signify its acceptance of the Equipment identified in the applicable Equipment Schedule by promptly executing and delivering to Lessor a Certificate of Acceptance. Lessee acknowledges that its execution and delivery of the Certificate of Acceptance shall conclusively establish, as between Lessor and Lessee, that the Equipment has been inspected by Lessee, is in good repair and working order, is of the design, manufacture and capacity selected by Lessee, and is accepted by Lessee under this Lease Agreement. 4.2 In the event the Equipment is ordered by Lessor from a manufacturer or supplier at the request of Lessee, Lessor shall not be required to pay the Acquisition Cost for such Equipment unless and until the applicable Certificate of Acceptance has been received by Lessor. Lessee hereby agrees to indemnify, defend and hold Lessor harmless from any liability to any manufacturer or supplier arising from the failure of Lessee to lease any Equipment which is ordered by Lessor at the request of Lessee or for which Lessor has assumed Lessee's obligation to purchase. 4.3 Lessor leases the Equipment to Lessee and Lessee leases the Equipment from Lessor, "AS IS" and "WITH ALL FAULTS." Lessee hereby acknowledges that (i) Lessor is not a manufacturer, supplier or dealer of such Equipment nor an agent thereof; and (ii) LESSOR HAS NOT MADE, DOES NOT MAKE, AND HEREBY DISCLAIMS ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT INCLUDING, BUT NOT LIMITED TO, ITS DESIGN, CAPACITY, CONDITION, MERCHANTABILITY, OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE. Lessee further acknowledges that Lessor is not responsible for any repairs, maintenance, service, latent or other defects in the Equipment or in the operation thereof, or for compliance of -2- any Equipment with requirements of any laws, ordinances, governmental rules or regulations including, but not limited to, laws with respect to environmental matters, patent, trademark, copyright or trade secret infringement, or for any direct or consequential damages arising out of the use of or inability to use the Equipment. 4.4 Provided no Event of Default, as defined in Section 15 below, has occurred and is continuing, Lessor agrees to cooperate with Lessee, at the sole cost and expense of Lessee, in making any claim against a manufacturer or supplier of the Equipment arising from a defect in such Equipment. At the request of Lessee, Lessor shall assign to Lessee all warranties on the Equipment available from any manufacturer or supplier to the full extent permitted by the terms of such warranties and by applicable law. 5. Ownership; Inspection; Maintenance and Use. 5.1 The Equipment shall at all times be the sole and exclusive property of Lessor. Any Equipment subject to titling and registration laws shall be titled and registered by Lessee on behalf of and in the name of Lessor at the sole cost and expense of Lessee. Lessee shall cooperate with and provide Lessor with any information or documents necessary for titling and registration of the Equipment. Upon the request of Lessor, Lessee shall execute any documents or instruments which may be necessary or appropriate to confirm, to record or give notice of the ownership of the Equipment by Lessor including, but not limited to, financing statements under the Uniform Commercial Code. Lessee, at the request of Lessor, shall affix to the Equipment, in a conspicuous place, any label, plaque or other insignia supplied by Lessor designating the ownership of the Equipment by Lessor. 5.2 The Equipment shall be located at the address specified in the applicable Equipment Schedule and shall not be removed therefrom, without the prior written consent of Lessor. Lessor, its agents or employees shall have the right to enter the premises of Lessee, upon reasonable notice and during normal business hours, for the purpose of inspecting the Equipment. 5.3 Lessee shall pay all costs, expenses, fees and charges whatsoever incurred in connection with the use and operation of the Equipment. Lessee shall, at all times and at its own expense, keep the Equipment in good repair and working order, reasonable wear and tear excepted. Any maintenance contract required by a manufacturer or supplier for the care and upkeep of the Equipment shall be entered into by Lessee at its sole cost and expense. Lessee shall permit the use and operation of the Equipment only by personnel authorized by Lessee and shall comply with all laws, ordinances or governmental rules and regulations relating to the use and operation of the Equipment. 6. Alterations and Modifications. Leasee may make, or cause to be made on its behalf, any improvement, modification or addition to the Equipment with the prior written consent of Lessor, provided, however, that such improvement, modification or addition is readily removable without causing damage to or impairment of the functional effectiveness of the Equipment. To the extent that such improvement, modification or addition is not so removable, it shall immediately become the property of Lessor and thereupon shall be considered Equipment for all purposes of this Lease Agreement. -3- 7. Quiet Enjoyment; No Defense, Set-Off or Counterclaims. 7.1 Provided no Event of Default, as defined in Section 15 below, has occurred and is continuing, Lessee shall have the quiet enjoyment and use of the Equipment in the ordinary course of its business during the Initial Term or any Extended Term without interruption by Lessor or any person or entity claiming through or under Lessor. 7.2 Lessee acknowledges and agrees that ANY DAMAGE TO OR LOSS, DESTRUCTION, OR UNFITNESS OF, OR DEFECT IN THE EQUIPMENT, OR THE INABILITY OF LESSEE TO USE THE EQUIPMENT FOR ANY REASON WHATSOEVER, SHALL NOT (i) GIVE RISE TO ANY DEFENSE, COUNTERCLAIM, OR RIGHT OF SET-OFF AGAINST LESSOR, OR (ii) PERMIT ANY ABATEMENT OR RECOUPMENT OF, OR REDUCTION IN DAILY OR MONTHLY RENT, OR (iii) RELIEVE LESSEE OF THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS LEASE AGREEMENT INCLUDING, BUT NOT LIMITED TO, ITS OBLIGATION TO PAY THE FULL AMOUNT OF DAILY RENT AND MONTHLY RENT, WHICH OBLIGATIONS ARE ABSOLUTE AND UNCONDITIONAL, unless and until this Lease Agreement is terminated with respect to such Equipment in accordance with the provisions of Section 10.2 below. Any claim that Lessee may have which arises from a defect in or deficiency of the Equipment shall be brought solely against the manufacturer or supplier of the Equipment and Lessee shall, notwithstanding any such claim, continue to pay Lessor all amounts due and to become due under this Lease Agreement. 8. Adverse Claims and Interests. 8.1 Except for any liens, claims, mortgages, pledges, encumbrances or security interests created by Lessor, Lessee shall keep the Equipment, at all times, free and clear from all liens, claims, mortgages, pledges, encumbrances and security interests and from all levies, seizures and attachments. Without limitation of the covenants and obligations of Lessee set forth in the preceding sentence Lessee shall immediately notify Lessor in writing of the imposition of any prohibited lien, claim, levy or attachment on or seizure of the Equipment at which time Lessee shall provide Lessor with all relevant information in connection therewith. 8.2 Lessee agrees that the Equipment shall be and at all times shall remain personal property. Accordingly, Lessee shall take such steps as may be necessary to prevent any person from acquiring, having or retaining any rights in or to the Equipment by reason of its being affixed or attached to real property. 9. Indemnities; Payment of Taxes. 9.1 Lessee hereby agrees to indemnify, defend and hold harmless Lessor, its agents, employees, successors and assigns from and against any and all claims, actions, suits, proceedings, costs, expenses, damages and liabilities whatsoever arising out of or in connection with the manufacture, ordering, selection, specifications, availability, delivery, titling, registration, rejection, installation, possession, maintenance, ownership, use, leasing, operation or return of the Equipment including, but not limited to, any claim or demand based upon any STRICT OR ABSOLUTE LIABILITY IN TORT and upon any infringement or alleged -4- infringement of any patent, trademark, trade secret, license, copyright or otherwise. All costs and expenses incurred by Lessor in connection with any of the foregoing including, but not limited to, reasonable legal fees, shall be paid by Lessee on demand. 9.2 Lessee hereby agrees to indemnify, defend and hold Lessor harmless against all Federal, state and local taxes, assessments, licenses, withholdings, levies, imposts, duties, assessments, excise taxes, registration fees and other governmental fees and charges whatsoever, which are imposed, assessed or levied on or with respect to the Equipment or its use or related in any way to this Lease Agreement ("Tax Assessments"), except for taxes on or measured by the net income of Lessor determined substantially in the same manner as under the Internal Revenue Code of 1986, as amended. Lessee shall file all returns, reports or other such documents required in connection with the Tax Assessments and shall provide Lessor with copies thereof. If, under local law or custom, Lessee is not authorized to make the filings required by a taxing authority, Lessee shall notify Lessor in writing and Lessor shall thereupon file such returns, reports or documents. Without limiting any of the foregoing, Lessee shall indemnify, defend and hold Lessor harmless from all penalties, fines, interest payments, claims and expenses including, but not limited to, reasonable legal fees, arising from any failure of Lessee to comply with the requirements of this Section 9.2. 9.3 The obligations and indemnities of Lessee under this Section 9 for events occurring or arising during the Initial Term or any Extended Term shall continue in full force and effect, notwithstanding the expiration or other termination of this Lease Agreement. 10. Risk of Loss; Loss of Equipment. 10.1 Lessee hereby assumes and shall bear the entire risk of loss for theft, damage, seizure, condemnation, destruction or other injury whatsoever to the Equipment from any and every cause whatsoever. Such risk of loss shall be deemed to have been assumed by Lessee from and after such risk passes from the manufacturer or supplier by agreement or pursuant to applicable law. 10.2 In the event of any loss, seizure, condemnation or destruction of the Equipment or damage to the Equipment which cannot be repaired by Lessee, Lessee shall immediately notify Lessor in writing. Within thirty (30) days of such notice, during which time Lessee shall continue to pay Monthly Rent, Lessee shall, at the option of Lessor, either (i) replace the Equipment with equipment of the same type and manufacture and in good repair, condition and working order, and transfer title to such equipment to Lessor free and clear of all liens, claims and encumbrances, whereupon such equipment shall be deemed Equipment for all purposes of this Lease Agreement, or (ii) terminate this Lease Agreement with respect to such Equipment by paying to Lessor the stipulated loss value ("Stipulated Loss Value") as defined in Exhibit A, which is attached to each Equipment Schedule, for the date, appearing on such Exhibit, which next follows the date on which the Equipment is lost, seized, condemned, destroyed or damaged ("Stipulated Loss Payment Date"). Upon payment of the Stipulated Loss Value and any Monthly Rent or other sums due and owing by Lessee to Lessor, the Lease Agreement shall terminate with respect to such Equipment and all right, title and interest of Lessor in and to the Equipment shall vest in Lessee. Any insurance proceeds or awards relating to the loss, seizure, condemnation or destruction of or damage to the Equipment, -5- which are paid directly to Lessor, shall either be credited or paid over by Lessor to Lessee up to the amount of any Stipulated Loss Value, either payable or paid by Lessee. Any insurance or condemnation proceeds received by Lessor shall be credited to the obligation of Lessee under this Section 10.2 and the remainder of such proceeds, if any, shall be paid to Lessee by Lessor in full compensation for the loss of the leasehold interest in the Equipment by Lessee. 10.3 Upon any replacement of or payment for the Equipment as provided in Section 10.2 above, this Lease Agreement shall terminate only with respect to the Equipment so replaced or paid for, and Lessor shall transfer to Lessee title only to such Equipment "AS IS," "WITH ALL FAULTS," and WITH NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE. Lessee shall pay any sales or use taxes due on such transfer. 11. Insurance. 11.1 Lessee shall keep the Equipment insured against all risks of loss or damage from every cause whatsoever occurring during the Initial Term, or any Extended Term for an amount not less than the higher of the full replacement value of the Equipment or the aggregate of unpaid Daily Rent and Monthly Rent for the balance of the Initial Term, or the Extended Term. Lessee shall also carry public liability insurance, both personal injury and property damage, covering the Equipment and Lessee shall be liable for any deductible portions of all required insurance. 11.2 All insurance required under this Section 11 shall name Lessor as additional insured and loss payee. Such insurance shall also be with such insurers and shall be in such forms and amounts as are satisfactory to Lessor. All applicable policies shall provide that no act, omission or breach of warranty by Lessee shall give rise to any defense against payment of the insurance proceeds to Lessor. Lessee shall pay the premiums for such insurance and, at the request of Lessor, deliver to Lessor evidence satisfactory to Lessor of such insurance coverage. In any event, Lessee shall provide Lessor with endorsements upon the policies issued by the insurers which evidence the existence of insurance coverage required by this Section 11 and by which the insurers agree to give Lessor written notice at least twenty (20) days prior to the effective date of any expiration, modification, reduction, termination or cancellation of any such policies. 11.3 The proceeds of insurance required under this Section 11 and payable as a result of loss or damage to the Equipment shall be applied as set forth in Section 10.2 above. Upon the occurrence of an Event of Default as defined in Section 15 below, Lessee hereby irrevocably appoints Lessor as its attorney-in-fact, which power shall be deemed coupled with an interest, to make claim for, receive payment of, execute and endorse all documents, checks or drafts received in payment for loss or damage under any insurance policies required by this Section 11. 11.4 Notwithstanding anything herein, Lessor shall not be under any duty to examine any evidence of insurance furnished hereunder, or to ascertain the existence of any -6- policy or coverage, or to advise Lessee of any failure to comply with the provisions of this Section 11. 12. Surrender to Lessor. 12.1 Immediately upon the expiration of the Initial Term or any Extended Term, Lessee shall surrender the Equipment to Lessor; provided, however that Lessee has given 90 days prior written notice of its intent to surrender the Equipment. The term of lease shall be automatically extended for successive monthly periods ("Extended Term") until terminated by Lessee in accordance with such notice. No notice of termination by Lessee shall be effective earlier than the last day of the Initial Term, any Extended Term under Section 3.2 above, or any Extended Term under this Section 12.1, nor shall any such notice be required in the event of a termination of this Lease Agreement by Lessor upon the occurrence of an Event of Default. All Equipment surrendered to Lessor shall be in good repair and working order, reasonable wear and tear expected, by delivering the Equipment to any location as may be designated by Lessor within 100 miles of a major terminal operated by Lessee in any of the following cities: Dallas, Texas; Chicago, Illinois; New York, New York; Atlanta, Georgia; Los Angeles, California; or Denver, Colorado. All costs of removal and delivery of such Equipment to the place designated by Lessor shall be borne by Lessee. 12.2 Without limiting the obligations of Lessee under either Section 5.3 and 12.1, Lessee shall, at its expense, do the following: 12.2.1 Lessee shall ensure that all Equipment and Equipment operations conform to all applicable local, state, and federal laws, health and safety guidelines. Upon return, the Equipment will be complete and operational with all components as originally supplied and will have passed U.S. Department of Transportation ("DOT") or appropriate regulatory agency requirements for operation. If applicable, an inspection sticker or certificate will be furnished to Lessor verifying compliance with any regulatory requirements. Lessee shall satisfy all legal and regulatory conditions necessary for Lessor to sell or lease the Equipment to a third party. Lessee will keep all licenses and operating certificate required for operation of the Equipment current during the Initial Term or any Extended Term of this Lease Agreement. Lessee will at all times use the Equipment in compliance with all applicable laws and regulations of any governmental, local and regulatory agency. 12.2.2 Lessee shall provide safe, secure storage for the Equipment for sixty (60) days after expiration or earlier termination of the Lease Agreement (by acceleration or otherwise) at not more than eight (8) locations selected by Lessor. 12.2.3 Lessee shall take such action as may be required so that, upon return, each unit of Equipment shall meet all of its manufacturer's specifications for performance under full rated loads and all of the following conditions: (i) TIRES: All tires shall be of the same type (original size) and manufacturer (i.e. matched) and have a minimum of fifty percent (50%) remaining tread on original or recapped casings without flat or bald spots, dry rot, exposed cord or cuts in sidewall; - 7 - (ii) GENERAL CONDITION: Upon return, there shall be no structural or mechanical damage. The Equipment must be air, wind and water tight. Floors, interior linings, scuffboards, exterior panels, roofs, and doors are to be secure and free of holes, rips, tears, or any other material damage. Doors, including hinges, hardware and seals, will be complete and operate as originally intended by the manufacturer. Interior linings and floors will be repaired in a manner that maintains the original geometric profile of the structure and resulting air flow pattern. All rust or corrosion must be treated in a manner consistent with standard industry practices. The equipment must be able to pass a FHWA inspection. All patches shall be permanent and sealed properly. (Tape patches shall not be deemed acceptable. Existing self sealing pop rivets are acceptable, except that drive rivet patches shall not be acceptable.) All Equipment must have a good overall appearance and no material damage. The Equipment shall be structurally sound, in good appearance, clean, free of rust and corrosion with no missing or damaged parts. There may not be any broken or cracked exterior surfaces, inside linings, seals, doors, latches, or floors. Upon return, all commercial logos, advertising, graffiti, insignia and lettering shall be removed in a workmanlike manner so as not to damage the Equipment. The surfaces shall be repainted in such a way that the area blends in with the remainder of the unit. Manufacturer's identity plates and markings shall not be removed. With respect to each unit of Equipment, the total cost of necessary repairs for damages or other related costs necessary to place the Equipment in such condition as to be in complete compliance with this Lease Agreement may not exceed $500. All units shall be cleaned and cosmetically acceptable with all Lessee installed decals and markings properly removed. Fuel tanks must be at least twenty-five percent (25%) full; (iii) DOCUMENTS AND RECORDS: Written records of scheduled and other maintenance and repair work done shall be kept, dated, and signed by the appropriate authority. A service history or log will be maintained during the Initial Term and any Extended Term of the Lease Agreement and a copy provided to Lessor upon request during the Initial Term and any Extended Term of the Lease Agreement, or at the expiration or other termination (by acceleration or otherwise) of the Lease Agreement. All maintenance records, maintenance record jackets, repair jackets, repair orders, license plates, registration certificates and all other similar documents, in their entirety, must be returned to Lessor; (iv) BRAKES: Brake drums and linings shall not be cracked and shall not exceed manufacturers' recommended wear limits. Brake linings shall have fifty percent (50%) remaining wear; (v) MAINTENANCE: Lessee shall strictly follow the manufacturer's recommended maintenance and service schedule, as required to validate any warranty, at Lessee's sole cost and expense. Any maintenance or repair work shall comply with the guidelines and procedures as specified by the manufacturers of the Equipment or each component of the Equipment. Lessee -8- will use only original manufacturer's approved replacement parts and components in the performance of any maintenance and repair of the Equipment. Lessee will at all times maintain the Equipment in good operational condition and appearance, and shall not discriminate such maintenance between owned or leased equipment; and (vi) REFRIGERATION UNITS: With respect to all refrigeration units, upon return, each shall be mechanically sound and in good operating order and capable of satisfactorily passing any test for refrigeration or cooling loss as recommended by the manufacturer and performed by an authorized factory representative, at Lessee's sole cost and expense. Refrigeration unit specifications must be in compliance with DOT. The refrigeration units must have at least 50% time-wear remaining before the next overhaul or replacement as recommended by Reefer Manufacturer's and published in standard maintenance manuals; (vii) REFRIGERANTS: Lessee shall use only non-CFC refrigerants in the refrigeration units. In the event that Lessee wishes to convert the operating refrigerant to an alternative refrigerant, the Lessee will obtain the prior approval of the Lessor. Any such modifications will be done in accordance with the Reefer Manufacturer's suggested procedures. All such modifications will be completed at Lessee's expense. These modifications will become the property of Lessor; (viii) USE: Lessee guarantees that the Equipment will not be or have been loaded beyond the rated capacity as certified by the manufacturer at any time during the Initial Term or any Extended Term of the Lease Agreement. Lessee will not discriminate in the use of the Equipment from any other similar equipment in its fleet; (ix) ALTERATIONS: Lessee will not modify the Equipment without the prior written approval of Lessor, in any event, Lessee will not make any modifications or alterations that would impair the Equipment's use, value marketability or manufacturer's warranty and recommendations. Lessee will not make any alterations, to the Equipment that would damage or restrict the use of the Equipment from its initial use and design and that cannot be removed without damage to the unit. Changes, modifications or additions to the Equipment mandated by Federal or state authorities will be completed by the Lessee and become property of the Lessor; and (x) REGULATORY STANDARDS: Without limiting any of the foregoing, Lessee shall insure that, upon surrender to Lessor, all coolants and other materials contained in any unit of Equipment comply with all then current standards and/or regulations promulgated by the Environmental Protection Agency, or any successor agency, or other governmental or quasi-governmental agency having jurisdiction over the Equipment, and such compliance with standards and regulations is necessary in order for such units of Equipment to be marketable for the purposes such units were intended. -9- 12.2.4 Prior to any surrender of the Equipment, an in depth physical inspection will be conducted by a manufacturer's service representative(s) (Great Dane, Utility and Trailmobile, collectively the "Trailer Manufacturers" and Thermo King for the trailers having Thermo King refrigeration units and Carrier for those units having Carrier refrigeration units, collectively the "Reefer Manufacturers") on behalf of Lessor, and paid for by Lessee. Any part, component or function found not to be within the manufacturer's tolerances and operational specifications will be replaced or brought with in those tolerances and specifications to the satisfaction of Lessor. 13. Financial Statements. Lessee shall annually, within ninety (90) days after the close of the fiscal year for Lessee, furnish, or cause to be furnished, to Lessor financial statements of Frozen Foods Express Industries, Inc., the quarantor of the obligations of Lessee hereunder (the "Guarantor"), including a balance sheet as of the close of such year and statements of income and retained earnings for such year, prepared in accordance with generally accepted accounting principles, consistently applied from year to year, and certified by independent public accountants for Guarantor. If requested by Lessor, Guarantor shall also provide quarterly financial statements of Guarantor, similarly prepared for each of the first three quarters of each fiscal year, certified (subject to normal year-end audit adjustments) by the chief financial officer of Guarantor and furnished to Lessor within sixty (60) days following the end of the quarter, and such other financial information as may be reasonably requested by Lessor. 14. Delayed Payment Charge. Lessee shall pay to Lessor interest upon the amount of any Daily Rent, Monthly Rent or other sums not paid by Lessee when due and owing under this Lease Agreement, from the due date thereof until paid, at the rate of one and one half (1-1/2 ) percent per month, but if such rate violates applicable law, then the maximum rate of interest allowed by such law. 15. Default. 15.1 The occurrence of any of the following events shall constitute an event of default ("Event of Default") under this Lease Agreement. (a) Lessee fails to pay any Daily Rent or any Monthly Rent when due and such failure to pay continues for ten (10) consecutive days; or (b) Lessee fails to pay any other sum required hereunder, and such failure continues for a period of ten (10) days following written notice from Lessor; or (c) Lessee fails to maintain the insurance as required by Section 11 above and such failure continues to ten (10) days after written notice from Lessor; or (d) Lessee or Guarantor violates or fails to perform any other term, covenant or condition of this Lease Agreement or any other document, agreement or instrument executed pursuant hereto or in connection herewith, which failure is not cured within thirty (30) days after written notice from Lessor; or -10- (e) Lessee or Guarantor ceases to exist or terminates its independent operations by reason of any discontinuance, dissolution, liquidation, merger, sale of substantially all of its assets, or otherwise ceases doing business as a going concern; or (f) Lessee or Guarantor (i) applies for or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar official for itself or for all or a substantial part of its property, (ii) is generally not paying its debts as such debts become due, (iii) makes a general assignment for the benefit or its creditors, (iv) commences a voluntary case under the United States Bankruptcy Code, as now or hereafter in effect, seeking liquidation, reorganization or other relief with respect to itself or its debts, (v) files a petition seeking to take advantage of any other law providing for the relief of debtors, (vi) takes any action under the laws of its jurisdiction of incorporation or organization similar to any of the foregoing, or (vii) takes any corporate action for the purpose of effecting any of the foregoing; or (g) A proceeding or case is commenced, without the application or consent of Lessee or Guarantor, in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding up of Lessee or Guarantor or composition or readjustment of the debts of Lessee or Guarantor, (ii) the appointment of a trustee, receiver, custodian, liquidator or similar official for Lessee or Guarantor or for all or any substantial part of its assets, or (iii) similar relief with respect to Lessee or Guarantor under any law providing for the relief of debtors; or an order for relief is entered with respect to Lessee or Guarantor in an involuntary case under the United States Bankruptcy Code, as now or hereafter in effect, or an action under the laws of the jurisdiction of incorporation or organization of Lessee or Guarantor, similar to any of the foregoing, is taken with respect to Lessee or Guarantor without its application or consent; or (h) Lessee or Guarantor makes any representation or warranty herein or in any statement or certificate at any time given in writing pursuant to or in connection with this Lease Agreement which is false or misleading in any material respect; or (i) Lessee or Guarantor defaults under any promissory note, credit agreement, loan agreement, conditional sales contract, guaranty, lease, indenture, bond, debenture or other material obligation whatsoever, and a party thereto or a holder thereof is entitled to accelerate the obligations of Lessee or Guarantor thereunder; or Lessee or Guarantor defaults in meeting any of its trade, tax or other current obligations as they mature, unless such obligations are being contested diligently and in good faith; or (j) Any party to any guaranty, letter of credit, subordination or credit agreement or other undertaking, given for the benefit of Lessor and obtained in connection with this Lease Agreement, breaches, fails to continue, contests, or purports to terminate or to disclaim such guaranty, letter of credit, subordination or credit agreement or other undertaking; or such guaranty, letter of credit, subordination agreement or other undertaking becomes unenforceable; or a guarantor of this Lease Agreement shall die, cease to exist or terminate its independent operations. - 11 - 15.2 No waiver by Lessor of any Event of Default shall constitute a waiver of any other Event of Default or of the same Event of Default at any other time. 16. Remedies. 16.1 Upon the occurrence of an Event of Default and while such Event of Default is continuing, Lessor, at its sole option, upon its declaration, and to the extent not inconsistent with applicable law, may exercise any one or more of the following remedies: (a) Lessor may terminate this Lease Agreement whereupon all rights of Lessee to the quiet enjoyment and use of the Equipment shall cease; (b) Whether or not this Lease Agreement is terminated, Lessor may cause Lessee, at the sole cost and expense of Lessee, to return any or all of the Equipment promptly to the possession of Lessor in good repair and working order, reasonable wear and tear excepted. Lessor, at its sole option and through its employees, agents or contractors, may peaceably enter upon the premises where the Equipment is located and take immediate possession of and remove the Equipment, all without liability to Lessor, its employees, agents or contractors for such entry. LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO NOTICE AND/OR HEARING PRIOR TO THE REPOSSESSION OR REPLEVIN OF THE EQUIPMENT BY LESSOR, ITS EMPLOYEES, AGENTS OR CONTRACTORS; (c) Lessor may proceed by court action to enforce performance by Lessee of this Lease Agreement or pursue any other remedy Lessor may have hereunder, at law, in equity or under any applicable statute, and recover such other actual damages as may be incurred by Lessor; (d) Lessor may recover from Lessee damages, not as a penalty but as liquidation for all purposes and without limitation of any other amounts due from Lessee under this Lease Agreement, in an amount equal to the sum of (i) any unpaid Daily Rents and/or Monthly Rents due and payable for periods prior to the repossession of the Equipment by Lessor plus any interest due thereon pursuant to Section 14 above (ii) the present value of all future Monthly Rents required to be paid over the remaining Initial Term or any Extended Term after repossession of the Equipment by Lessor, determined by discounting such future Monthly Rents to the date of payment by Lessee at a rate of five (5) percent per annum, and (iii) all costs and expenses incurred in searching for, taking, removing, storing, repairing, restoring, refurbishing and leasing or selling such Equipment; or (e) Lessor may sell, lease or otherwise dispose of any or all of the Equipment, whether or not in the possession of Lessor, at public or private sale and with or without notice to Lessee, which notice is hereby expressly waived by Lessee, to the extent permitted by and not inconsistent with applicable law. Lessor shall then apply against the obligations of Lessee hereunder the net proceeds of such sale, lease or other disposition, after deducting therefrom (i) the present value of the residual value of the Equipment at the expiration of the Initial Term, which is anticipated by Lessor and - 12 - Lessee to be not less than the Stipulated Loss Value for the last Stipulated Loss Payment Date set forth on Exhibit A to the applicable Equipment Schedule, such present value to be determined by discounting the residual value to the date of sale, lease or other disposition at a rate of five (5) percent per annum, and (ii) all costs incurred by Lessor in connection with such sale, lease or other disposition including, but not limited to, costs of transportation, repossession, storage, refurbishing, advertising or other fees. Lessee shall remain liable for any deficiency, and any excess of such proceeds over the total obligations owed by Lessee shall be retained by Lessor. If any notice of such sale, lease or other disposition of the Equipment is required by applicable law, ten (10) days written notice to Lessee shall be deemed reasonable. 16.2 No failure on the part of Lessor to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof. No single or partial exercise of any right or remedy hereunder shall preclude any other or further exercise thereof or the exercise of any other right or remedy. Each right and remedy provided hereunder is cumulative and not exclusive of any other right or remedy including, without limitation, any right or remedy available to Lessor at law, by statute or in equity. 16.3 Lessee shall pay all costs and expenses including, but not limited to, reasonable legal fees incurred by Lessor arising out of or in connection with any Event of Default under this Lease Agreement. Lessee shall also be liable for any amounts due and payable to Lessor under any other provision of this Lease Agreement including, but not limited to, amounts due and payable under Section 17 below. 17. Tax Indemnification 17.1 This Lease Agreement has been entered into by Lessor and Lessee under the assumption that Lessor or its affiliated group ("Affiliated Group"), as defined in Section 1504 of the Internal Revenue Code of 1986, as amended, (the "Code") will be treated as the owner Of the Equipment and will be entitled to such deductions and other benefits that are provided by the Code including, without limitation, deductions for the recovery of the Acquisition Cost of the Equipment, over the recovery period ("Recovery Period") set forth on the applicable Equipment Schedule, using the Accelerated Cost Recovery System as provided by Section 168 of the Code ("ACRS Deductions"). 17.2 Lessee represents, covenants and warrants the following: (a) Neither Lessee, nor any affiliate of Lessee, nor any other party (i) has claimed or will claim any ACRS Deductions, or any other deductions in the nature of cost recovery or depreciation with respect to the Equipment, or (ii) has made or will make any election under the Code regarding the method or the period for cost recovery or deductions for personal property which will be binding upon Lessor and which will adversely affect the assumptions set forth in Section 17.1 above with respect to the Equipment or (iii) shall, at any time, take any action or file any returns or other documents inconsistent with the assumptions set forth in Section 17.1 above. - 13 - (b) In the event the Equipment has been sold to Lessor by Lessee and leased back from Lessor by Lessee, such Equipment does not constitute property placed in service in a churning transaction within the meaning of Section 168(f)(5) of the Code. (c) The Equipment has not been manufactured or produced in any foreign country which is subject to an Executive Order of the President of the United States that would deny the availability of ACRS Deductions to Lessor. (d) The Acquisition Cost of the Equipment does not exceed the fair market value of the Equipment. (e) When delivered and accepted under the Lease Agreement, the Equipment will not require any improvements, modifications, or additions (other than ancillary or incidental items of removable equipment) in order to be rendered complete for its intended use by Lessee. (f) At the time the Equipment is accepted under the Lease Agreement, Lessee and, if applicable, any member of its Affiliated Group shall have been fully reimbursed for any portion of the Acquisition Cost of the Equipment which it may have furnished; furthermore, on the applicable Commencement Date and during the Initial Term, neither Lessee nor any member of its Affiliated Group shall have any investment in the Equipment. (g) The Equipment will be placed in service on the applicable Commencement Date and will be used in a trade or business or will be held for the production of income within the meaning of Section 167 of the Code. (h) From the applicable Commencement Date and during the Initial Term, the Equipment will constitute and will be treated as (i) "recovery property" within the meaning of Section 168 of the Code, and (ii) property with the Recovery Period set forth in the applicable Equipment Schedule determined in accordance with Section 168(c) of the Code. (i) From the applicable Commencement Date and during the Initial Term, the Equipment will not constitute, or be treated as, (I) "tax exempt use property" within the meaning of Section 168(h) of the Code which would cause Lessor to fail to realize, lose, or suffer diminution, deferral, or recapture of any of the ACRS Deductions described in Section 17.1 above, or (ii) "limited use property" within the meaning of Rev. Proc. 76-30, 1976C. B. 647. (j) During the Initial Term, the Equipment will not be used "predominantly outside the United States" within the meaning of Section 168(g)(4) of the Code. (k) During the Initial Term, Lessor shall not be required to include in its gross income for Federal income tax purposes any amount derived from the cost of any alteration, addition, improvement, modification, replacement, or substitution of the - 14 - Equipment or from any refund or credit from the manufacturer or supplier of the Equipment. 17.3 A tax loss ("Tax Loss") shall be deemed to have occurred under this Section 17 if Lessor or its Affiliated Group, for Federal income tax purposes, shall not be entitled to, shall not be allowed, shall suffer recapture of or shall lose any of the ACRS Deductions, as a result of: (a) Lessee's breach of, or its failure to comply with, any representation, covenant, or warranty set forth in Section 17.2 above, or the inaccuracy of any such representation; (b) the occurrence of an Event of Default as defined in Section 15 of the Lease Agreement; (c) the replacement, substitution, loss, seizure, condemnation, destruction or governmental requisitioning of the Equipment; or (d) any act (whether or not permitted or required under this Lease Agreement) or any omission of Lessee, any affiliate of Lessee, any sublessee or assignee of Lessee, or any entity, other than Lessor, having possession, control or use of the Equipment (whether or not such possession, control or use may be authorized or unauthorized). 17.4 If a Tax Loss occurs, then Lessee shall pay to Lessor, upon demand, a sum to be computed by Lessor in the following manner. Such sum, after deduction of all Federal, state and local income taxes payable by Lessor as a result of the receipt of such sum, shall be sufficient to restore Lessor or its Affiliated Group to substantially the same position, on an aftertax basis, as it would have been in but for the loss of such ACRS Deductions. In making its computation, Lessor or its Affiliated Group shall consider, but shall not be limited to, the following factors: (i) the amounts and timing of any net loss of tax benefits resulting from any such lack of entitlement to or loss, recapture, or disallowance of ACRS Deductions but offset by any tax benefits derived from any depreciation or other capital recovery deductions or exclusions from income allowed to Lessor or its Affiliated Group with respect to the same Equipment; (ii) penalties, interest or other charges imposed; (iii) difference in tax years involved; and (iv) the time value of money at a reasonable rate determined, in good faith, by Lessor. For purposes of computation only, the amount of indemnification payments hereunder shall be calculated on the assumption that Lessor and its Affiliated Group have or will have, in all tax years involved, sufficient taxable income and tax liability to realize all tax benefits and incur all losses of tax benefits at the highest marginal Federal corporate income tax rate in each year. Upon request, Lessor shall provide Lessee with the methods of computation used in determining any sum that may be due and payable by Lessee under this Section 17. 17.5 The representations, obligations and indemnities of Lessee under this Section 17 shall continue in full force and effect, notwithstanding the expiration or other termination of this Lease Agreement. 18. Assignment; Sublease. - 15 - 18.1 Lessor may sell, assign or otherwise transfer all or any part of its right, title and interest in and to the Equipment and/or this Lease Agreement to a third-party assignee, subject to the terms and conditions of this Lease Agreement including, but not limited to, the right to the quiet enjoyment of the Equipment by Lessee as set forth in Section 7.1 above. Such assignee shall assume all of the rights and obligations of Lessor under this Lease Agreement and shall relieve Lessor therefrom. Thereafter, all references to Lessor herein shall mean such assignee. Notwithstanding any such sale, assignment or transfer, the obligations hereunder shall remain absolute and unconditional as set forth in Section 7.2 above. 18.2 Lessor may also pledge, mortgage or grant a security interest in the Equipment and assign this Lease Agreement as collateral. Each such pledgee, mortgagee, lienholder or assignee shall have any and all rights as may be assigned by Lessor but none of the obligations of Lessor hereunder. Any pledge, mortgage or grant of security interest in the Equipment or assignment of this Lease Agreement shall be subject to the terms and conditions hereof including, but not limited to, the right to the quiet enjoyment of the Equipment by Lessee as set forth in Section 7.1 above. Lessee, by reason of such pledge, mortgage, grant of security interest or collateral assignment, shall not be relieved of any of its obligations hereunder which shall remain absolute and unconditional as set forth in Section 7.2 above. Upon the written request of Lessor, Lessee shall acknowledge such obligations to the pledgee, mortgagee, lienholder or assignee. 18.3 LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, SUBLEASE, CONVEY OR PLEDGE ANY OF ITS INTEREST IN THIS LEASE AGREEMENT OR ANY OF THE EQUIPMENT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. Any such sale, transfer, assignment, sublease, conveyance or pledge, whether by operation of law or otherwise, without the prior written consent of Lessor, shall be void. 19. Optional Performance by Lessor. If an Event of Default, as defined in Section 15 above, occurs and is continuing, Lessor in its sole discretion may pay or perform such obligation in whole or in part, without thereby becoming obligated to pay or to perform the same on any other occasion or to pay any other obligation of Lessee. Any payment or performance by Lessor shall not be deemed to cure any Event of Default hereunder. Upon such payment or performance by Lessor, Lessee shall pay forthwith to Lessor the amount of such payment or an amount equal to all costs and expenses of such performance, as well as any delayed payment charges on such amounts as set forth in Section 14 above. 20. Compliance and Approvals. Lessee warrants and agrees that this Lease Agreement and the performance by Lessee of all its obligations hereunder have been duly authorized, do not and will not conflict with any provision of the charter or bylaws of Lessee or of any agreement, indenture, lease or other instrument to which Lessee is a party or by which Lessee or any of its property is or may be bound. Lessee warrants and agrees that this Lease Agreement does not and will not require any governmental authorization, approval, license or consent except those which have been duly obtained and will remain in effect during the entire Initial Term and any Extended Term. 21. Miscellaneous. - 16 - 21.1 The section headings are inserted herein for convenience of reference and are not part of and shall not affect the meaning or interpretation of this Lease Agreement. 21.2 Any provision of this Lease Agreement which is unenforceable in whole or in part in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such unenforceability without invalidating any remaining part or other provision hereof and shall not be affected in any manner by reason of such enforceability in any other jurisdiction. The validity and interpretation of this Lease Agreement and the rights and obligations of the parties hereto shall be governed in all respects by the laws of The Commonwealth of Massachusetts without giving effect to the conflicts of laws provisions thereof. 21.3 This Lease Agreement, including all Equipment Schedules and Certificates of Acceptance, constitutes the entire agreement between Lessor and Lessee. Lessor and Lessee agree that this Lease Agreement shall not be amended, altered or changed except by a written agreement signed by the parties hereto. LESSSEE ACKNOWLEDGES THAT THERE HAVE BEEN NO REPRESENTATIONS, EXPRESS OR IMPLIED, BY LESSOR OTHER THAN AS SET FORTH HEREIN AND LESSEE EXPRESSLY CONFIRMS THAT IT HAS NOT RELIED UPON ANY REPRESENTATIONS BY LESSOR, EXCEPT THOSE SET FORTH HEREIN, AS A BASIS FOR ENTERING INTO THIS LEASE AGREEMENT. 21.4 Any notice required to be given by Lessee or Lessor hereunder shall be deemed adequately given if sent by registered or certified mail, return receipt requested, to the other party at their respective addresses stated herein or at such other place as either party may designate in writing to the other. 21.5 Lessee agrees to execute and deliver such additional documents and to perform such further acts as may be reasonably requested by Lessor in order to carry out and effectuate the purposes of this Lease Agreement. Upon the written request of Lessor, Lessee further agrees to execute any instrument necessary for filing or recording this Lease Agreement or to confirm the ownership of the Equipment by Lessor. Lessor is hereby authorized to insert in any Equipment Schedule the serial numbers of the Equipment and other identifying marks or similar information and to sign, on behalf of Lessee, any Uniform Commercial Code financing statements. 21.6 This Lease Agreement cannot be canceled or terminated except as expressly provided herein. 21.7 Whenever the context of this Lease Agreement requires, the singular includes the plural and the plural includes the singular. Whenever the word Lessor is used herein, it includes all assignees and successors in interest of Lessor. If more than one Lessee are named in this Lease Agreement, the liability of each shall be joint and several. 21.8 All agreements, indemnities, representations and warranties of Lessee made herein and all rights and remedies of Lessor shall survive the expiration or other termination of this Lease Agreement, whether or not expressly provided herein. - 17 - 21.9 Any waiver of any power, right, remedy or privilege of Lessor hereunder shall not be effective unless in writing signed by Lessor. 21.10 This Lease Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, Lessor and Lessee, each by its duly authorized officer or agent, have duly executed and delivered this Lease Agreement, which is intended to take effect as a sealed instrument, as of the day and year first written above. Conwell Corporation By: /s/ {ILLEGIBLE} ------------------- Title: Controller ----------- Accepted at Boston, Massachusetts FFE LEASING TRUST NO. 95-01 By: /s/ GAIL OFGANT - ---------------------------- Gail Ofgant Manager TRUSTEE By: ----------------- TRUSTEE - 18 - EXHIBIT A TO SECTION 10.2 OF MASTER LEASE AGREEMENT With reference to Section 10.2 of the Master Lease Agreement as applicable to the Equipment set forth on Equipment Schedule No. 002, Lessor and Lessee agree that the Stipulated Loss Value shall mean the product obtained by multiplying the Acquisition Cost of the Equipment terminated pursuant to Section 10.2 by the appropriate percentage for the Stipulated Loss Payment Date. STIPULATED LOSS STIPULATED LOSS PAYMENT DATE PERCENTAGE PAYMENT DATE PERCENTAGE ------------ ---------- ------------ ---------- 1-1-96 104.64 7-1-99 76.16 2-1-96 104.13 8-1-99 75.36 3-1-96 103.60 9-1-99 74.56 4-1-96 103.04 10-1-99 73.74 5-1-96 102.49 11-1-99 72.93 6-1-96 101.93 12-1-99 72.10 7-1-96 101.37 1-1-00 71.26 8-1-96 100.79 2-1-00 70.43 9-1-96 100.21 3-1-00 69.59 10-1-96 99.81 4-1-00 68.73 11-1-96 99.01 5-1-00 67.89 12-1-96 98.40 6-1-00 67.03 1-1-97 97.76 7-1-00 66.17 2-1-97 97.15 8-1-00 65.30 3-1-97 96.52 9-1-00 64.43 4-1-97 95.87 10-1-00 63.55 5-1-97 95.22 11-1-00 62.66 6-1-97 94.56 12-1-00 61.79 7-1-97 93.89 1-1-01 60.90 8-1-97 93.22 2-1-01 60.01 9-1-97 92.55 3-1-01 59.11 10-1-97 91.86 4-1-01 58.21 11-1-97 91.17 5-1-01 57.30 12-1-97 90.48 6-1-01 58.39 1-1-98 89.77 7-1-01 55.46 2-1-98 89.06 8-1-01 54.55 3-1-98 88.35 9-1-01 53.62 4-1-98 87.83 10-1-01 52.70 5-1-98 86.90 11-1-01 51.77 6-1-98 86.17 12-1-01 50.84 7-1-98 85.43 1-1-02 49.90 8-1-98 84.69 2-1-02 46.96 9-1-98 83.93 3-1-02 48.01 10-1-98 83.18 4-1-02 47.07 11-1-98 82.42 5-1-02 48.12 12-1-98 81.66 6-1-02 45.16 1-1-99 80.90 7-1-02 44.19 2-1-99 80.12 8-1-02 43.25 3-1-99 79.35 9-1-02 42.29 4-1-99 78.56 10-1-02 41.35 5-1-99 77.77 11-1-02 40.41 6-1-99 76.96 12-1-02 39.45 Thereafter 39.50 FEE LEASING TRUST NO. 95-01 CONWELL CORPORATION BY: /s/ GAIL OFGANT BY: /s/ {ILLEGIBLE} - ------------------------ ------------------- Gail Ofgant TITLE: Manager TITLE: Controller - -------------- ----------------- BY: --------------------- TITLE: ------------------ EXHIBIT A EQUIPMENT SCHEDULE NO. 002 This Equipment Schedule No. 002 is hereby made a part of the MASTER LEASE AGREEMENT dated as of Novemer 21, 1995 between FFE LEASING TRUST NO. 95-01, as Lessor, and Conwell Corporation, as Lessee. 1. EQUIPMENT DESCRIPTION (including quantity, model/feature, identification and/or serial number): See Attached Exhibit 1 2. ACQUISITION COST: $1,249,505.28 ------------- 3. LEASE TERM: 84 months --------- 4. MONTHLY RENT $14,431.79 in advance/in arrears ----------------- 5. RECOVERY PERIOD: 5 years ----------------- 6. INSTALLATION SITE: 203 Hal Muldrow -------------------------------------------- Address Norman Cleveland OK 73069 -------------------------------------------- City County State Zip Code LESSOR: LESSEE: FFE LEASING TRUST NO. 95-01 Conwell Corporation By: /s/ GAIL OFGANT By: /s/ {ILLEGIBLE} - ------------------- ------------------- Gail Ofgant Title: TRUSTEE Title: CONTROLLER ------------- By: ---------------- Title: TRUSTEE ------------ EXHIBIT 1 4 1996 Great Dane Super Seal 48' x 102.31" x 13'6" Swing doors, slide tandem, Bridgestone 295/75R22.5 R194 FFE tires, Carrier unit, Lift pads and decals. Equip # Vin # Carrier Ultra Unit 11654 1GRAA9622TWO21602 EAF90311372 11656 1GRAA9626TWO21604 EAE90311375 11659 1GRAA9621TWO21067 EAE90311371 11679 1GRAA9627TWO21627 FAF90315009 21 1996 Great Dane Super Seal 48' x 102.31" x 13'6" Swing doors, slide tandem, Bridgestone 295/75R22.5 R194 FFE tires, Carrier unit, Lift pads and decals. Equip # Vin # Carrier Ultra Unit 11653 1GRAA9620TWO21601 EAE90311367 11655 1GRAA9624TWO21603 EAF90311370 11657 1GRAA9628TWO21605 EAE90311369 11658 1GRAA962XTWO21606 EAE90311374 11660 1GRAA9623TWO21608 EAE90315405 11661 1GRAA9625TWO21609 FAE90315007 11662 1GRAA9621TWO21610 EAF90315003 11663 1GRAA9623TWO21611 EAF90315005 11664 1GRAA9625TWO21612 EAE90315008 11666 1GRAA9629TWO21614 FAF90315002 11667 1GRAA9620TWO21615 EAF90315013 11668 1GRAA9622TWO21616 FAF90315006 11669 1GRAA9624TWO21617 FAF90315402 11670 1GRAA9626TWO21618 FAF90311366 11671 1GRAA9628TWO21619 FAF90315011 11672 1GRAA9624TWO21620 FAF90315396 11673 1GRAA9626TWO21621 FAF90315403 11674 1GRAA9628TWO21622 FAF90315397 11675 1GRAA962XTWO21623 FAF90315404 11681 1GRAA9620TWO21629 EAF90315004 11680 1GRAA9629TWO21628 EAE90311373 7 1996 Great Dane Super Seal 48' x 102.31" x 13'6" Swing doors, slide tandem, Bridgestone 295/75R22.5 R194 FFE tires, Carrier unit, Lift pads and decals. Equip # Vin # Carrier Ultra Unit 11665 1GRAA9627TWO21613 EAE90315010 11676 1GRAA9621TWO21624 EAE90315407 11677 1GRAA9623TWO21625 FAE90315014 11678 1GRAA9625TWO21626 EAE90315012 11682 1GRAA9627TWO21630 EAE90315138 11683 1GRAA9629TWO21631 EAF90315481 11684 1GRAA9620TWO21632 EAF90315398 EXHIBIT B CERTIFICATE OF ACCEPTANCE To: FFE LEASING TRUST NO. 95-01 Pursuant to the MASTER LEASE AGREEMENT dated as of November 21, 1995, (the "Lease Agreement") between FFE LEASING TRUST NO. 95-01 (the "Lessor") and the undersigned (the "Lessee"), the equipment described on Equipment Schedule No. 002 (the "Equipment") has been delivered to the location set forth in such Equipment Schedule, has been tested and inspected by Lessee, and has been found to be in good repair and working order. The Equipment has been accepted and placed in service by Lessee for all purposes under the Lease Agreement on December 19, 1995 (the "Commencement Date"). Lessee represents, warrants and covenants that: (a) as of the Commencement Date, all representations set forth in Section 18 of the Lease Agreement apply to the Equipment accepted hereunder; (b) in the event of a sale and leaseback of the Equipment, neither Lessee nor any member of its Affiliated Group as defined in the Lease Agreement has made or will make any election under the Internal Revenue Code of 1986, as amended (the "Code") affecting the depreciation of the Equipment or of any class of property which would apply to the Equipment after the sale of the Equipment to Lessor by Lessee; (c) in the event of a sale and leaseback of the Equipment, the Equipment will not constitute property placed in service in a churning transaction within the meaning of Section 168(f)(5) of the Code; (d) neither Lessee nor any member of its Affiliated Group filing a consolidated Federal income tax return will take any deduction for recovery of the cost of the Equipment; (e) the Equipment has been placed in service under the Lease Agreement on the Commencement Date; and (f) neither Lessee nor any member of its Affiliated Group has any investment in the cost of the Equipment. The execution of this Certificate of Acceptance by Lessee shall not be construed, in any way, to release or to waive the obligations of any manufacturer or supplier for any warranties with respect to the Equipment. This Certificate of Acceptance applicable to Equipment Schedule No. 002 shall constitute a part of the Lease Agreement. IN WITNESS WHEREOF Lessee, by its duly authorized officer or agent, has executed and delivered this Certificate of Acceptance which is intended to take effect as a sealed instrument. Conwell Corporation By: /s/ {ILLEGIBLE} ------------------- Title: Controller ----------------- 12/15/95 9:42:39 PAGE 1 LLR40D-01 AMERICAN FINANCE GROUP Schedule A - Rental Schedule Economics LESSEE: CONWELL CORPORATION LESSOR: AMERICAN FINANCE GROUP RENTAL SCHEDULE: 002 LEASE TERM (months): 84 PRIMARY START DATE: 1/01/1996 LEASE EXPIRATION DATE: 12/31/2002 PAYMENT FREQUENCY: MONTHLY ADVANCE/ARREARS: ADVANCE LEASE RATE: .011550000 PER DIEM LEASE RATE: .000385000 PERIODIC RENT: $14,431.68 NUMBER OF PAYMENTS: 84 TOTAL INTERIM RENT: $6,734.72 PAYMENT COMMENCEMENT DATE: 1/01/1996 TOTAL EQUIPMENT COST: $1,249,505.28 DOCUMENTATION FEE: _____________ _________________ LESSEE INITIALS _________________ LESSOR INITIALS
12/15/95 9:42:42 PAGE 1 LLR41D-01 AMERICAN FINANCE GROUP Schedule B Equipment Description LESSEE: CONWELL CORPORATION RENTAL SCHEDULE ANDACCEPTANCE CERTIFICATE NUMBER: 002 LESSOR: AMERICAN FINANCE GROUP Equipment Acceptance Cost Serial Number Year Manufacturer Model Type Date - --------------------------------------------------------------------------------------------------------------------------------- 39,047.04 1GRAA9620TWO21601 1996 GREAT DANE & CARRIER REFER # 1367 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9622TWO21602 1996 GREAT DANE & CARRIER REFER # 1372 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9624TWO21603 1996 GREAT DANE & CARRIER REFER # 1370 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9626TWO21604 1996 GREAT DANE & CARRIER REFER # 1375 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9628TWO21605 1996 GREAT DANE & CARRIER REFER # 1369 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA962XTWO21606 1996 GREAT DANE & CARRIER REFER # 1374 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9621TWO21607 1996 GREAT DANE & CARRIER REFER # 1371 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9623TWO21608 1996 GREAT DANE & CARRIER REFER # 5405 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9625TWO21609 1996 GREAT DANE & CARRIER REFER # 5007 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9621TWO21610 1996 GREAT DANE & CARRIER REFER # 5003 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9623TWO21611 1996 GREAT DANE & CARRIER REFER # 5005 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9625TWO21612 1996 GREAT DANE & CARRIER REFER # 5008 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9627TWO21613 1996 GREAT DANE & CARRIER REFER # 5010 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9629TWO21614 1996 GREAT DANE & CARRIER REFER # 5002 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9620TWO21615 1996 GREAT DANE & CARRIER REFER # 5013 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9622TWO21616 1996 GREAT DANE & CARRIER REFER # 5006 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9624TWO21617 1996 GREAT DANE & CARRIER REFER # 5402 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9626TWO21618 1996 GREAT DANE & CARRIER REFER # 1366 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9628TWO21619 1996 GREAT DANE & CARRIER REFER # 5011 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9624TWO21620 1996 GREAT DANE & CARRIER REFER # 5396 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9626TWO21621 1996 GREAT DANE & CARRIER REFER # 5403 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9628TWO21622 1996 GREAT DANE & CARRIER REFER # 5397 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA962XTWO21623 1996 GREAT DANE & CARRIER REFER # 5404 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9621TWO1624 1996 GREAT DANE & CARRIER REFER # 5407 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9623TWO21625 1996 GREAT DANE & CARRIER REFER # 5014 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9625TWO21626 1996 GREAT DANE & CARRIER REFER # 5012 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9627TWO21627 1996 GREAT DANE & CARRIER REFER # 0000 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9629TWO21628 1996 GREAT DANE & CARRIER REFER # 1373 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9620TWO21629 1996 GREAT DANE & CARRIER REFER # 5009 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9627TWO21630 1996 GREAT DANE & CARRIER REFER # 3138 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9629TWO21631 1996 GREAT DANE & CARRIER REFER # 5401 1996 SUPER SEAL REEFER TR 12/18/1995 39,047.04 1GRAA9622TWO21632 1996 GREAT DANE & CARRIER REFER # 5398 1996 SUPER SEAL REEFER TR 12/18/1995 - ---------------- 1,249,505.28 Total for Location 203 HAL MULDROW NORMAN OK 73069 - ---------------- - ---------------- 1,249,505.28 Total Equipment Cost
LLR49D-01 AMERICAN FINANCE GROUP Vertex Messages and Procedures LESSEE: CONWELL CORPORATION RENTAL SCHEDULE AND ACCEPTANCE CERTIFICATE NUMBER: 002 LESSOR: AMERICAN FINANCE GROUP Invoice Equipment Required Location Type Category Procedures - ------------------------------------------------------------------------------------------------------------------------------------ OK 20 PREPAYMENT EXEMPTION REQUIRES EXCISE TAX BE PAID AT REGISTRATION. OBTAIN PROOF OF PAYMENT, CODE ASSE REFUNDABLE EXEMPTION MANUFACTURER EXEMPTIONS GRANTED, HOWEVER, LESSEE MUST PAY TAXES ON PURCHASE PRI URCHASE PRICE, CODE ASSETS `3' AND INSTRUCT LESSEE TO FILE FOR REFUND Asset#/Exempt Reason Code 133060 133061 133062 133063 133064 133065 133070 133071 133072 133073 133074 133075 133080 133081 133082 133083 133084 133085 133090 133091 ** END OF REPORT **
EX-99.G 6 0006.txt EXHIBIT 99.G FIRST AMENDMENT TO LEASE ORDER TERMS AND CONDITIONS This FIRST AMENDMENT, dated as of June 28, 1988, between Ford Motor Company ("Lessee".) and American Finance Group ("Lessor") amends Lease Order Terms and Conditions dated as of April 5, 1988, between Lessee and Lessor (the "Lease Order"), as follows. 1. Section 6 of the Lease Order Terms and Conditions is hereby amended and restated to read in its entirety as follows: "6. ACCEPTANCE Lessee shall accept the equipment if the Equipment has operated efficiently for the period indicated in this Lease Order as the "Acceptance Period" in conformance with both technical specifications therefor and any proposal submitted to Lessee by Lessor. Lessee's acceptance shall be evidenced by its execution and delivery to Lessor of the "Certificate of Acceptance" in the form attached as Exhibit A. Lessee represents and warrants that Lessor is entitled to rely without independent verification or investigation on each such Certificate of Acceptance bearing a signature purporting to be that of a representative of Lessee as a true and genuine signature of a duly authorized agent of Lessee, valid and blinding against Lessee for purposes of acceptance hereunder. Rental shall begin to accrue as of the first day of "the acceptance period (the "Rental Start Date") at the Daily Acceptance Period Rent per unit of Equipment accepted shown on the Lease Order (such Daily Acceptance Period Rent being calculated as the per diem amount, per unit accepted, of the Monthly Rent based on a thirty-day month). Rental at the Monthly Rent shown on the Lease Order shall accrue and be payable in advance commencing as of the first day of calendar quarter following the month in which the last unit of Equipment under a Lease Order has been accepted. (Lease Rate Factors shown on the Lease Order are the multiple which, applied to the per Unit or aggregate Equipment Cost (as the case may be), produce the acceptance Period Rent per Unit or the Monthly Rent, respectively.)" 2. This First Amendment shall apply to all equipment leased pursuant to Lease Orders for which the Rental Start Date is on or after May 5, 1988. IN WITNESS WHEREOF the parties hereto have caused this First amendment to be executed and delivered by their duly authorized representatives as of the date first above written. AMERICAN FINANCE GROUP By: /s/ [ILLEGIBLE] -------------------------------- Title: Assistant General Counsel and Assistant Secretary FORD MOTOR COMPANY By: /s/ J.L. SCICLUNA -------------------------------- Title: Director Facilities & Tools Purchasing Office AMENDMENT TO LEASE ORDER TERMS AND CONDITIONS BETWEEN FORD MOTOR COMPANY, LESSEE, AND AMERICAN FINANCE GROUP, INC., LESSOR The Agreement between Ford Motor Company, as lessee ("Lessee"), and American Finance Group, Inc., as lessor ("Lessor") effective April 5, 1988 which established the Lease Order Terms and Conditions for certain personal property, is hereby amended as follows: The following is added to Paragraph 13: (d) Lessor acknowledges and agrees that Lessee shall have no responsibility to deal with any investors ("Investors") in any trust, limited partnership or other entity sponsored and managed by Lessor or its affiliates ("Investment Program") to which Lessor may assign its rights pursuant to subsection 13 (a) above, in connection with the Leases or the Equipment. Upon referral by Lessee to Lessor, Lessor shall promptly and diligently investigate and handle any inquiries or claims or provide other information as requested by any such Investors. For so long as no Event of Default has occurred and is continuing under the Leases, Lessor indemnifies Lessee and holds Lessee harmless from and against any costs, claims, losses or liabilities incurred or suffered by Lessee to the extent resulting from Lessor's assignment of a Lease to an Investment Program. The amendment is retroactive to April 5, 1988. FORD MOTOR COMPANY AMERICAN FINANCE GROUP By: /s/ R.R. CRONAN By: /s/ [ILLEGIBLE] --------------------------- -------------------------- Title: Buyer Manager Title: Manager Date: 11/19/90 Date: 1/14/91 SECOND AMENDMENT TO LEASE ORDER TERMS AND CONDITIONS This SECOND AMENDMENT, dated as of May 19, 1989, between Ford Motor Company ("Lessee") and American Finance Group ("Lessor") amends Lease Order Terms and Conditions dated as of April 5, 1988, between Lessee and Lessor (as successor in interest to American Finance Group, Inc.) (The "Lease Order Terms and Conditions"), as follows: 1. Section 6 of the Lease Order Terms and Conditions is hereby amended and restated to read in its entirety as follows: "6. ACCEPTANCE Lessee shall accept the Equipment if the Equipment has operated efficiently for the period indicated in this Lease Order as the "Acceptance Period" in conformance with both technical specifications therefor and any proposal submitted to Lessee by Lessor. Lessee's acceptance shall be evidenced by its execution and delivery to Lessor of the "Acceptance Certificate" in the form attached as Exhibit A. Lessee represents and warrants that Lessor is entitled to rely without independent verification or investigation on each such Acceptance Certificate bearing a signature purporting to be that of a representative of Lessee as a true and genuine signature of a duly authorized agent of Lessee, valid and binding against Lessee for purposes of acceptance hereunder and for purposes of enforcement of the Lease. Rentals shall begin to accrue as of the first day of the acceptance period (the "Rental Start Date") at the Daily Acceptance Period Rent per unit of Equipment accepted shown on the Lease Order (such Daily Acceptance Period Rent being calculated as the per diem amount, per unit accepted, of the Monthly Rent based on a thirty-day month). Rental at the Monthly Rent shown on the Lease Order shall accrue and be payable in advance commencing as of the first day of the month following the month in which the last unit of Equipment under a Lease Order has been accepted. (Lease Rate Factors shown on the Lease Order are the multiple which, applied to the per Unit or aggregate Equipment Cost (as the case may be), produce the Acceptance Period Rent per Unit or the Monthly Rent, respectively.)" 2. For all purposes under the Lease Order Terms and Conditions and Lease Orders, "Basic Rent" and "Monthly Rent" shall be synonymous. 3. This Second Amendment shall apply to all equipment leased pursuant to Lease Order for which the Rental Start Date is on or after May 19, 1989. As amended hereby, the Lease Order Terms and Conditions are hereby approved, confirmed and ratified and are in full force and effect. IN WITNESS WHEREOF the parties hereto have caused this Second Amendment to be executed and delivered by their duly authorized representatives as of the date first above written. FORD MOTOR COMPANY AMERICAN FINANCE GROUP By: /s/ R.R. CRONAN By: /s/ [ILLEGIBLE] --------------------------- -------------------------- Title: Buyer Title: ATTACHMENT A TO LEASE/PURCHASE ORDER NO. _________________ Lessor: AMERICAN FINANCE GROUP, INC. Address: Exchange Place Boston, Massachusetts 02109 Lessee: FORD MOTOR COMPANY The American Road Dearborn, MI 48121 LEASE ORDER TERMS AND CONDITIONS 1. LEASE; ENTIRE AGREEMENT This Attachment, dated as of April 5, 1988, sets forth the terms and conditions governing the lease of certain items of personal property (the "Equipment") described on the face of the Lease Order to which this document is attached. This attachment, such lease/purchase order and any other attachments thereto shall constitute the "Lease Order" as such term is used herein and the entire agreement between the parties thereto; provided, however, that the printed terms and conditions (if any) on the reverse side of such lease/purchase Order shall have no force and effect. In the event of a conflict between the typewritten terms and conditions on the face of the Lease Order and the terms and conditions set forth herein, the typewritten terms and conditions on the face of the Lease Order shall govern. 2. TERM; RENTAL PAYMENTS (a) The term of the Lease Order is set forth on the face of this Lease Order and shall commence on the Rental Start Date as defined herein. (b) Lessee shall make rental payments to Lessor for lease of the Equipment in the amounts and on the dates specified in this Lease Order. All rental or other payments by Lessee to Lessor shall be made Lessor at the address set forth in this Lease Order or at such other address as Lessor may hereafter direct in writing. 3. NET LEASE; LESSEE'S INDEMNITY; NO WARRANTIES BY LESSOR. Rent is net of, and Lessee agrees to pay, and will indemnify and hold Lessor and any assignee of Lessor harmless from and against, all costs (including, without limitation, maintenance, repair and insurance costs), claims (but excluding third-party suits based solely on a claim of product liability or strict liability in tort), losses or liabilities relating to the Equipment or its use that are incurred by or asserted against Lessee, any permitted sublessee of Lessee, Lessor or any assignee of Lessor and arise out of matters occurring prior to the return of the Equipment (1) unless Lessor's intentional misconduct or negligence is the direct and proximate cause of the foregoing, and (ii) other than liens and security interests created by Lessor and (iii) other than taxes, fees, charges and assessments described in section 5(b) hereof. The Lease Order is for purposes of providing lease financing only. Lessor is not a dealer, supplier, manufacturer or vendor of the Equipment, and Lessee is solely responsible for the selection of the Equipment, the manufacturer and vendor thereof in accordance with Lessee's specifications and for the inspection, acceptance, use and maintenance of the Equipment. Lessee agrees that it shall not initiate or participate, by joinder or otherwise, in a claim or counterclaim against Lessor or product liability or strict liability in tort and will object by appropriate proceeding to the inclusion of Lessor as a defendant in any proceeding based upon such a claim. The Lease Order is a triple net lease. Lessee's obligations are not subject to defense, counterclaim, set-off, abatement or recoupment, and Lessee waives all rights to terminate or surrender the Lease Order, for any reason, including, without limitation, defect in the Equipment or nonperformance by Lessor, PROVIDED, HOWEVER, that Lessee specifically retains the right to seek recourse against Lessor by way of separate action either at law or in equity in the event of nonperformance by Lessor under the Lease Order. LESSOR HEREBY DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Lessor will assign to Lessee all manufacturer or vendor warranties and will cooperate with Lessee in asserting any claims under such warranties. 4. USE, MAINTENANCE AND REPAIRS The Equipment is to be used exclusively by Lessee in the conduct of its business, only for the purposes for which it was designed. The equipment is not to be removed from the location specified on the Lease Order except upon prior written notice to Lessor, and in no event may the Equipment be moved to a location outside the continental United States without the prior written consent of Lessor, which consent shall not be unreasonably withheld. Lessee will effect all maintenance and repairs necessary to keep the Equipment in good and efficient operating condition and appearance, reasonable wear and tear excepted. All maintenance and repairs will be made in accordance with the manufacturer's recommendations and by authorized representatives of the manufacturer or by persons of equal skill and knowledge whose work will not adversely affect any applicable manufacturer's or vendor's warranty. 5. COMPLIANCE WITH LAWS; TAXES (a) Lessee shall comply with and conform to all laws and regulations relating to the possession, use and maintenance of the Equipment, and shall save Lessor harmless against actual or asserted violations thereof. (b) Lessee agrees to prepare and file all required returns or reports and to pay all sales, gross receipts, personal property and other taxes, fees, interest, fines or penalties imposed by any governmental authority relating in any way to the Equipment, except taxes measured by the net worth, net or gross income or profit of Lessor, including the Michigan Single Business Tax, which shall be solely the responsibility of Lessor. Notwithstanding the foregoing, Lessor will report and pay all use taxes and Lessee will pay to Lessor, on each Basic Rent Payment Date, as additional rent, an amount equal to the Basic Rent Payment Date, as additional rent, an amount equal to the use taxes attributable to that payment of Basic Rent. If any item of Equipment is located in a taxing jurisdiction that does not allow Lessee to report and pay personal property taxes directly, Lessee will prepare an appropriate tax return to be delivered, together with funds equal to the taxes Lessee claims are due on such return, to -2- Lessor not less than ten (10) days prior to the date such taxes, are due. The state and local retail sales and use tax status of the Equipment shall be indicated on the face of this Lease Order. 6. ACCEPTANCE Lessee shall accept the Equipment if the Equipment has operated efficiently for the period indicated in this Lease Order as the "Acceptance Period" in conformance with both technical specifications therefor and any proposal submitted to lessee by Lessor. Lessee's acceptance shall be evidenced by its execution and delivery to Lessor of the "Certificate of Acceptance" in the form attached as Exhibit A. Lessee represents and warrants that Lessor is entitled to rely without independent verification or investigation on each such Certificate of Acceptance bearing a signature purporting to be that of a representative of Lessee as a true and genuine signature of a duly authorized agent of Lessee, valid and binding against Lessee for purposes of acceptance hereunder. Rental shall begin to accrue as of the first day of the acceptance period (the "Rental Start Date") at the Daily Acceptance Period Rent per unit of Equipment accepted shown on the Lease Order (such Daily Acceptance Period Rate being calculated as the per diem amount, per unit accepted, of the Monthly Rent based on a thirty-day month). Rental at the Monthly Rent shown on the Lease Order shall accrue and be payable in advance commencing as of the first day of month following the month in which the last unit of Equipment under a Lease Order has been accepted. (Lease Rate Factors shown on the Lease Order are the multiple which, applied to the per Unit or aggregate Equipment Cost (as the case may be), produce the Acceptance Period Rent per Unit or the Monthly Rent, respectively.) 7. LICENSE Lessor grants to Lessee a nonexclusive, nontransferable license to use the software products, including related documentation, provided with the Equipment solely for Lessee's own use on or with the Equipment. Lessee will not sell, transfer, disclose, or otherwise make available such software products or copies thereof to third parties; provided, however, that the software products may be disclosed on a need-to-know basis to Lessee's employees or independent contractors using the Equipment. No title or ownership of the software products or any portion thereof is transferred to Lessee. The license granted herein shall terminate upon termination of this Lease Order, and Lessee agrees, upon termination, to return or destroy the software products and all portions or copies thereof. 8. TRANSPORTATION EXPENSES (a) Unless otherwise indicated in this Lease Order, all Equipment transportation, rigging and drayage charges shall be paid by Lessee. Lessee shall furnish such labor as may be necessary for packing and unpacking Equipment when in the possession of Lessee. (b) All shipments of Equipment shall be made by a method specified by Lessee. 9. RISK OF LOSS Lessee will bear all risk of loss with respect to the Equipment during the Lease Term and until the Equipment is returned to Lessor. Lessee will -3- notify Lessor promptly in writing if any item of Equipment is lost, stolen, requisitioned by a governmental authority or damaged beyond repair (each a "Casualty"), describing the Casualty in reasonable detail, and will promptly file a claim under appropriate policies of insurance. Lessee may, with the prior written consent of Lessor, replace the Equipment suffering a Casualty with similar items of at least equal value and utility. If Lessee does not replace the Equipment, Lessee will pay to Lessor on the next Payment Date following the Casualty, in addition to Basic Rent and other sums due on that date, an amount equal to the Order, solely as it relates to the Equipment suffering the Casualty, will terminate and ownership of the Equipment suffering the Casualty, including all claims for insurance proceeds or condemnation awards, will pass to Lessee upon receipt of such payment by Lessor. 10. INSURANCE Lessee agrees, directly or through an agent, to maintain policies of insurance on the Equipment in amounts, against risks and on terms and conditions applicable to other equipment owned or leased by Lessee and similar to the Equipment. Such insurance will at a minimum include (1) physical damage and theft insurance in an amount at least equal to the Casualty Value set forth on the Lease Order for such Equipment and (ii) comprehensive liability insurance in the amount of at least $5,000,000 per occurrence, in each case with deductibles not in excess of $100,000. All policies (A) are to be maintained with insurers acceptable to Lessor; (B) are to name Lessor and its assignees as loss payees with respect to physical damage and theft and as additional insureds with respect to liability, as their interests may appear; and (C) are to provide that they may not be altered or cancelled except upon thirty days prior written notice to Lessor and each of Lessor's assignees named as additional insured and loss payee. Lessee agrees to deliver to Lessor such certificates of insurance as Lessor may, from time to time, request. Lessor may hold any insurance proceeds as security for Lessee's performance of its obligations with respect to the Equipment on behalf of which the proceeds were paid and the payment of all rent and other sums then due and unpaid under the Lease Order and will pay such proceeds over to Lessee only upon receipt of satisfactory evidence thereof. Lessor accepts Lessee's current practices of self-insurance in satisfaction of the requirements set forth above. 11. QUIET POSSESSION AND USE (a) Title to the Equipment shall remain in Lessor, and Lessee shall keep the Equipment free and clear of any and all liens, charges and encumbrances of any party claiming by or through Lessee. (b) Lessor covenants and warrants to and with Lessee that Lessor is the lawful owner of the Equipment, free from all encumbrances, and that subject to Lessee performing the conditions hereof, Lessee shall peaceably and quietly hold, possess and use the Equipment during the term of this Lease Order. Lessor shall indemnify and hold harmless Lessee and will protect and defend, at its sole expense, the rights of Lessee described in this Paragraph against any claims against or encumbrances on the Equipment asserted by or through Lessor. -4- 12. LESSEE'S RIGHT TO SUBLEASE AND ASSIGN Provided that Lessee is not in default hereunder, Lessee shall have the following rights to sublease the Equipment or assign this Lease Order for the remainder of the applicable lease term; provided, however, that Lessee shall remain responsible for all provisions and obligations of this Lease Order: (a) Lessee may sublease the Equipment to a Ford Affiliated Company upon reasonable prior notice to Lessor (a "Ford Affiliated Company" is any subsidiary or affiliate of Lessee 51% of the voting stock or assets of which are indirectly or directly owned or controlled by Lessee); or (b) Lessee may sublease the Equipment or assign this Lease Order to any other party upon 30 days prior written notice to Lessor and provided that Lessor consents in writing to such sublessee or assignee and all terms and conditions of such sublease or assignment, such consent not to be unreasonably withheld. 13. ASSIGNMENT BY LESSOR (a) Lessor may at any time and from time to time transfer, assign or grant a security interest in its rights under this Lease Order, the Equipment and/or the rental payments and other sums at any time due and to become due, or at any time owing or payable, by Lessee to Lessor under any of the provisions of this Lease Order, provided that Lessor gives Lessee 30 days prior written notice of any proposed transfer, assignment or grant an assignment to a trust, limited partnership or other entity sponsored and managed by Lessor or its affiliates. Any such assignment may be either absolute or as collateral security for indebtedness of Lessor. There shall be only one absolute assignee and one collateral assignee at any one time. It shall be reasonable for Lessee to withhold its approval if the proposed transfer, assignment or grant of a security interest would in any way affect any then existing loan commitments or lines of credit of Lessee or any member of Lessee's "Affiliated Group" with such assignee or with any corporation that is a member of an "Affiliated Group" of which such assignee is also a member. The term "Affiliated Group" shall have the meaning set forth in Section 1504(a) of the Internal Revenue Code. (b) No such assignee shall be obligated to perform any duty, covenant or condition required to be performed by Lessor under any of the terms and conditions hereof; provided, however, that such assignee shall be obligated to comply with this Paragraph in the event such assignee proposes to further transfer, assign or grant a security interest in its rights under this Lease Order. Notwithstanding any such assignment, each and every covenant, agreement, representation and warranty of Lessor shall survive any such assignment and shall be and remain the sole liability of Lessor and of every person, firm or corporation succeeding (by merger, consolidation, purchase of assets or otherwise) to all or substantially all business assets or goodwill of Lessor. Without limiting the foregoing, Lessee acknowledges and agrees that from and after the receipt by Lessee of -5- written notice of an assignment from Lessor (i) if so directed, all rental and other payments which are the subject matter of the assignment shall be paid to the assignee thereof at the place of payment designated in such notice, (ii) if such assignment was made for collateral purposes, the rights of any such assignee in and to the rental and other payments by Lessee under any provisions of this Lease Order shall be absolute and unconditional and shall not be subject to any abatement whatsoever, or to any defense, set-off, counterclaim or recoupment whatsoever by reason of any damage to or loss or destruction of the Equipment, or any defect in or failure of title of Lessor to the Equipment, or any interruption from whatsoever cause (other than from any wrongful act of such assignee) in the use, operation or possession of the Equipment or any indebtedness or liability howsoever and whenever arising of Lessor to Lessee or to any other person, firm, corporation or governmental agency or taxing authority, or any misconduct or negligence of Lessor, and (iii) theassistance shall have the sole right to exercise all rights, privileges, consents and remedies (either in its own name or in the name of Lessor for the use and benefit of the assignee) which are permitted or provided to be exercised by lessor. Lessee shall confirm the above to such assignee in writing in such form as such assignee may reasonably require. Lessee does not hereby waive any claim which it may have against Lessor, any assignee or any other party. (c) It is further understood and agreed that if a security interest in the Equipment is granted to an assignee of the rental payments as additional security for indebtedness of Lessor, the security agreement covering the Equipment shall expressly provide that the right, title and interest of the secured party thereunder is subject to the right and interest of Lessee in and to the Equipment pursuant to this Lease Order. 14. ALTERATIONS AND ATTACHMENTS Lessee may make or have made on its behalf alterations in and additions or attachments to the Equipment which are necessary or desirable for the maintenance or improvement or the equipment, all at Lessee's sole cost and expense, provided that no such alteration, addition or attachment reduces the value or impairs the capabilities or efficiency of the Equipment or violates the provisions of Revenue Procedure 79-48 or any successor rule, regulation or Revenue Procedure. Lessor shall, at Lessee's sole expense, execute and deliver from time to time such instruments, including but not limited to orders for new equipment, components or modifications, and do such other matters and things as may be necessary or appropriate to Lessee's rights under this Paragraph 14. Any part, attachment, appurtenance or accessory constituting a physical part of the Equipment which cannot be readily removed without impairing the value or utility of the Equipment and shall be deemed to be an accession to the Equipment and shall from that time be deemed part of the Equipment, with title thereto vesting in Lessor. Such alterations, additions or attachments shall not modify the term of the lease of the Equipment with respect to which such alterations, additions or attachments are made unless agreed to by Lessor and Lessee. If Lessee shall affix the Equipment to any real property, the Equipment shall remain personalty and shall not become part of the realty. -6- 15. RECORDATION Lessee, upon demand in writing from Lessor, shall assist Lessor to cause the Lease Order, all attachments and exhibits hereto and any and all additional instruments or statements which shall be executed pursuant to the terms hereof, so far as permitted by applicable law or regulations, to be kept, filed, and recorded and to be re-executed, refiled, and re-recorded at all times in the appropriate office and in such other places, whether within or without the United States, as Lessor may reasonably request to perfect and preserve its rights hereunder. 16. INSPECTION; REPORTS Lessor may from time to time, upon reasonable notice and during Lessee's normal business hours, inspect the Equipment and Lessee's records with respect thereto and discuss Lessee's financial condition with knowledgeable representatives of Lessee. Lessee will, if requested, provide a report on the condition of the Equipment, a record of its maintenance and repair, a summary of all items suffering a Casualty, a certificate of no default or such other information or evidence of compliance with Lessee's obligations under the Lease Order as Lessor may reasonably request. 17. LATE PAYMENT CHARGES; LESSOR'S RIGHT TO PERFORM FOR LESSEE A Late Payment Charge equal to the lesser of the late payment charge assessed against Lessor in connection with the financing of its purchase of the Equipment or 2% per annum above the prime or base lending rate of The First National Bank of Boston, as announced from time to time, will accrue on any sum not paid when due for each day not paid, provided that Lessor has furnished Lessee with an invoice therefor thirty (30) days prior to the due date thereof and given ten business days' written notice of such nonpayment. If Lessee fails to duly and promptly pay or perform any of its obligations hereunder, Lessor may itself pay or perform such obligations for the account of Lessee without thereby waiving any default and Lessee will pay to Lessor, on demand and in addition to Basic Rent, an amount equal to all sums so paid or expenses so incurred, plus a Late Payment Charge accruing from the date such sums were paid or expenses incurred by Lessor. 18. LESSEE'S OPTIONS UPON LEASE EXPIRATION Lessee has the option at the expiration of the Lease Term, exercisable with respect to all, but not less than all, items of Equipment leased pursuant to Lease Orders having the same Expiration Date, (i) to return the Equipment to Lessor, (ii) to renew the Lease Order at fair rental value for a Renewal Term the length of which shall be determined by agreement of Lessee and Lessor or (iii) to purchase the Equipment for cash at its then fair market value. Lessee agrees to provide Lessor written notice of its decision to return or purchase the Equipment or renew the Lease order not less than 90 days prior to the Expiration Date. If Lessee fails to give Lessor 90 days' written notice, the Lease Term may, at Lessor's option, be extended and continue until 90 days from the date Lessor receives written notice of Lessee's decision to return or purchase the Equipment or renew the Lease Order. Fair market value, fair rental value and useful life will be determined by agreement of Lessor and Lessee, or if the parties cannot agree, by an independent equipment -7- appraiser of nationally recognized standing selected by mutual agreement of and paid equally by Lessor and Lessee. At the expiration of the Lease Term or any extension or renewal thereof. Lessee will, at its expense, assemble, pack, and crate the Equipment, all in accordance with manufacturer's recommendations, if any, and deliver it by common carrier, freight and insurance prepaid, to a place to be designated by Lessor within the continental United States. All packaging will include related maintenance logs, operating manuals, and other related materials and will be clearly marked so as to identify the contents thereof. The Equipment will be returned in good and efficient operating condition and appearance, reasonable wear and tear excepted, and eligible for manufacturer's maintenance. If available, free of all Lessee's markings and free of all liens and encumbrances other than those created by Lessor or arising out of claims against Lessor and not related to the lease of the Equipment to Lessee. Lessor may, but is not required to, inspect the Equipment prior to its return. If, upon inspection, Lessor determines that the condition of any item of Equipment does not conform to the minimum requirements set forth on Exhibit B hereto, Lessor will promptly notify Lessee of such determination, specifying the repairs or refurbishments needed to place the Equipment in the minimum acceptable condition. Lessor may, at its option, either require Lessee to effect such repairs or itself effect such repairs. Lessor may re-inspect the Equipment and require further repairs as often as necessary until the Equipment is placed in acceptable condition. In either case, all costs will be paid by Lessee. The Lease Order shall continue in full force and effect and Lessee shall continue to pay Basic Rent through and including the date on which the Equipment is accepted for return by Lessor. 19. LESSEE'S REPRESENTATIONS AND WARRANTIES Lessee represents, warrants and certifies as of the date of execution and delivery of each Lease Order as follows: (a) Lessee is duly organized, validly existing and in good standing under the laws of the state of its incorporation, with full power to enter into and to pay and perform its obligations under the Lease Order, and is duly qualified and in good standing in all other jurisdictions where its failure to so qualify would adversely affect the conduct of its business or the performance of its obligations under or the enforceability of the Lease Order; (b) The Lease Order and all related documents (including, without limitation, the Certificate of acceptance) have been duly authorized, executed and delivered by Lessee, are enforceable against Lessee in accordance with their terms and do not and will not contravene any provisions of or constitute a default under Lessee's organizational documents or its By Laws, any agreement to which it is a party or by which it or its property is bound, or any law regulation or order of any governmental authority; (c) Lessor's right, title and interest in and to the Lease Order, the Equipment and the rentals therefrom will not be affected or impaired by the terms of any agreement or instrument by which Lessee or its property is bound; (d) No approval of, or filing with, any governmental authority or other person is required in connection with Lessee's entering into or the payment or performance of its obligations under the Lease Order; -8- (e) There are no suits or proceedings pending or threatened before any court or governmental agency against or affecting Lessee which, if decided adversely to Lessee, would materially adversely affect Lessee's business or financial condition or its ability to perform any of its obligations under the Lease Order or this Master Lease Agreement as incorporated therein by reference; and (f) There has been no material adverse change to Lessee's financial condition since the date of its most recent audited financial statement. 20. DEFAULT (a) If, during the continuance of this Lease Order, one or more of the following events ("Events of Default") shall occur: (i) Lessee shall fail to make any part of the rental payments provided in Section 2 hereof within ten days after receipt of written notice of nonpayment; (ii) Lessee shall make or permit any unauthorized assignment or transfer of this Lease Order or possession of the Equipment to any third party. (iii) Lessee shall fail to observe or perform any other material covenant, condition and agreement of Lessee contained herein and such failure shall continue for 30 days after written notice thereof from Lessor to Lessee. If such Event of Default is of such a nature that it cannot reasonably be cured within 30 days, then Lessee shall not be deemed in default during any period of time that it takes Lessee to cure such Event of Default, provided that Lessee notifies Lessor in writing that efforts to cure such defaults have been commenced and Lessee is diligently pursuing such cure in good faith; (iv) Lessee shall have entered against it by a court of competent jurisdiction a decree or order for relief in respect of the Lessee in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafterin effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Lessee or for any substantial part of its property, or ordering the winding up or liquidation of its affairs and such decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or (v) Lessee shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law nor or hereafter in effect, or consent or the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official of the Lessee) or for any substantial part of its property, or make any general assignment for the benefit of creditors, or fail generally to pay its debts as they become due, or take any corporate action in furtherance of any of the foregoing. -9- (b) Upon the occurrence of an Event of Default, Lessor may, without notice to Lessee, declare the applicable Lease Order in default and may exercise any of the following remedies: I. at Lessor's option, and in its sole discretion either: (i) Declare all Basic Rent and other sums due or to become due under the Lease Order immediately due and payable, and sue to enforce the payment thereof; or (ii) receive from Lessee (and sue to enforce the payment thereof), as liquidated damages for loss of the bargain and not as a penalty, and in addition to all accrued and unpaid Basic Rent and other sums due under the Lease Order, an amount equal to the greater of (A) the Casualty Value set forth on the Lease Order calculated after the last payment of Basic Rent actually received by Lessor or (B) the fair market value of the Equipment as of the date of default determined by an appraiser selected by Lessor, plus, in either case, interest thereon at the Late Payment Charge rate from the date of default until the date of payment, and, after receipt in good funds of the sums described above, Lessor will, if it has not already done so, terminate the Lease Order and, at its option, either pay over to Lessee all of its right, title and interest in and to the Equipment, as is, where is and with all faults, without recourse and without warranty; and II. without regard to whether Lessor has elected either option in subsection I. above, Lessor may (i) proceed by appropriate court action either at law or in equity to enforce performance by Lessee of the covenants and terms of the Lease Order and to recover damages for the breach thereof; and (ii) terminate the Lease Order by written notice to Lessee, whereupon all right of Lessee to use the Equipment will immediately cease and Lessee will forthwith return the Equipment to Lessor in accordance with the provisions hereof; and (iii) repossess the Equipment and without notice to Lessee, dispose of it by private or public, cash or credit sale or by lease to a different lessee, in all events free and clear of any rights of Lessee, and for this purpose Lessee hereby grants to Lessor and its agents the right to enter upon the premises where the Equipment is located and to remove the Equipment therefrom and Lessee agrees not to interfere with the peaceful repossession of the Equipment; and (iv) recover from Lessee all costs and expenses arising out of Lessee's default, including, without limitation, expenses of repossession, storage, appraisal, repair, reconditioning and disposition of the Equipment and reasonable attorneys' fees and expenses. -10- (c) The remedies provided for in this Lease Order shall not be deemed exclusive, but shall be cumulative, and shall be in addition to all other remedies existing at law or in equity. The failure or delay of either party in exercising any rights granted it hereunder upon any occurrence of any of the contingencies set forth herein shall not constitute a waiver of any such right upon the continuation or recurrence of any of such contingencies or similar contingencies and any single or partial exercise of any particular right shall not exhaust the same or constitute a waiver or any other right provided herein. 21. NOTICE; GOVERNING LAW All notices required hereunder shall be effective upon receipt in writing delivered by hand or by other receipt-acknowledged method of delivery at the address first above written. This Lease Order shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. AMERICAN FINANCE GROUP, INC. FORD MOTOR COMPANY By: /s/ [ILLEGIBLE] By: /s/ J. L. SEIDLUNA ---------------------------- ---------------------------- Title: Vice President Title: Director, Facilities and Tools Purchasing Office -11- EXHIBIT A To Lease Order Terms and Conditions Between American Finance Group, Inc., Lessor, and Ford Motor Company, Lessee, dated April ___, 1988. ACCEPTANCE CERTIFICATE The undersigned Ford Motor Company ("Lessee"), by its duly authorized representative whose signature appears below, hereby represents, warrants and certifies (a) that the Equipment described on the Internal Combustion Truck Pre-Delivery/Delivery Report has been delivered to and inspected and found satisfactory by Lessee and is accepted for lease by Lessee under Lease Order No. _______, and the Lease Order Terms and Conditions dated April ___, 1988 as incorporated therein by reference, as of the Acceptance Date set forth below; (b) all items of Equipment are new and unused as of the Acceptance Date, except as otherwise specified, and (c) the representations and warranties of Leases set forth in the Lease Order Terms and Conditions are true and correct as of the date hereof. ACCEPTANCE DATE: _____________________ FORD MOTOR COMPANY By: /s/ ------------------------------ Authorized Signer Accepted and Agreed To: AMERICAN FINANCE GROUP, INC. By: /s/ ---------------------------- Authorized Signer [ATTACH INTERNAL COMBUSTION TRUCK PRE-DELIVERY/DELIVERY REPORT] EXHIBIT B To Lease Order Terms and Conditions Between American Finance Group, Inc., Lessor, and Ford Motor Company, Lessee, dated April ___, 1988. CONDITION OF EQUIPMENT AT EXPIRATION OF LEASE TERM: 1. When loaded to its rated capacity, each Unit shall: (a) Start under its own power and idle without water or fuel leaks and without oil leaks in excess of one drip per minute. (b) Move through its normal speed ranges in both forward and reverse, in normal operating manner. (c) Steer normally right and left in both forward and reverse. (d) Be able to stop with its service brakes within a safe distance, in both forward and reverse. (e) Lift, lower, and tilt normally with and without a load a minimum of three (3) times. Oil leakage must not be such that there is more than one drip per minute. Carriage, lift chains and channel assembly shall be in working condition, normal wear and tear expected. (f) Electric trucks, if purchased with batteries, must be returned with batteries that are capable of sustaining a charge that will permit use of the equipment for an eight (8) hour shift. (g) All motors shall operate without arcing and/or sparking. 2. Each Unit's attachment(s), if any, shall perform all of its required functions, and each Unit's horn, parking brakes, and lights shall be operational. 3. Each Unit shall have tires with at least thirty-five percent (35%) remaining tread, and without flat spots. Chunking shall be permitted, but there shall be no chunks larger than a half dollar in size. 4. Each Unit shall be complete with all parts and pieces. [LOGO OMITTED] AMERICAN FINANCE GROUP May 9, 1989 Mr. Robert Cronan Buyer - Plant Equipment and Sales Section Facilities and Tools Purchasing FORD MOTOR COMPANY The American Road FMCC Bldg., Room 2421 Dearborn, MI 48121-1705 Re: Lease Order terms and Conditions dated as of April 5, 1988 between Ford Motor Company, as lessee ("Ford") and American Finance Group, as lessor ("APG") Dear Bob: An oversight has come to out attention in connection with the referenced Lease Order Terms and Conditions, which we intend to correct by this letter if it is acceptable to you. Section 9 of the Lease Order Terms and Conditions, which apply to all Lease/Purchase Orders, provides procedures to follow in the event that any item of equipment is destroyed, lost or requisitioned by the government. It states that Ford may either replace the destroyed item of equipment or, at Ford's option, pay AFG an agreed-upon amount as the casualty value of the destroyed equipment. That agreed-upon amount, or "Casualty Value." was to be spelled out in each Lease/Purchase Order. We understand that, to meet its equipment needs, Ford is likely to replace any destroyed equipment rather than do without. However, it has been our oversight that in using your form of Lease/Purchase Order we have not been furnishing the Casualty values for each item of equipment subject to the orders. Attached please find two schedules, Casualty Value Schedule A (for three-year leases) and Casualty Value Schedule B (for five-year leases). These schedules provide a declining percentage value, based on original equipment cost, of equipment over the course of a three or five year lease. For the sake of simplicity, we suggest that these Casualty Value Schedules be incorporated by amendment into all existing Lease/Purchase Orders and apply automatically to all future Lease/Purchase Orders unless we specifically agree otherwise. Nothing in this letter is intended to impair Ford's ability to replace destroyed equipment as provided in the Lease Order Terms and Conditions rather than to pay the Casualty Value based on the attached formulas. [LOGO OMITTED] Robert Cronan May 9, 1989 Please let me know at your earliest convenience if the attached values and the proposal set out in this letter are acceptable to you. If the values and this letter are acceptable, please sign the enclosed counterpart of this letter and return it to Eileen Waters' attention as soon as possible. Thanks for your help in resolving this issue. Best regards, /s/ DAVID W. PARR -------------------------------- David W. Parr Associate General Counsel and Vice President Accepted and Agreed to: FORD MOTOR COMPANY By: /s/ R. R. CRONAN ---------------------------- Title: R.R. Cronan, Buyer 0478F Encs. FORD MOTOR COMPANY CASUALTY VALUES (Stated as Percentage of Equipment Cost) AFTER PRIMARY TERM CASUALTY PAYMENT NO. VALUE ----------- ----- Prior to 1 112.00 1 110.98 2 109.94 3 108.89 4 107.83 5 106.75 6 105.66 7 104.55 8 103.43 9 102.29 10 101.14 11 99.97 12 98.78 13 97.58 14 96.37 15 95.13 16 93.88 17 92.62 18 91.33 19 90.03 20 88.71 21 87.38 22 86.02 23 84.65 24 83.26 25 81.85 26 80.42 27 78.97 28 77.51 29 76.02 30 74.51 31 72.99 32 71.44 33 69.87 34 68.28 35 66.67 36 65.00 FORD MOTOR COMPANY CASUALTY VALUES (Stated as Percentage of Equipment Cost) AFTER AFTER PRIMARY PRIMARY TERM CASUALTY TERM CASUALTY PAYMENT NO. VALUE PAYMENT NO. VALUE ----------- ----- ----------- ----- Prior to 1 112.00 1 111.34 31 86.32 2 110.66 32 85.29 3 109.98 33 84.25 4 109.28 34 83.19 5 108.58 35 82.12 6 107.86 36 81.03 7 107.14 37 79.93 8 106.41 38 78.82 9 105.66 39 77.68 10 104.90 40 76.54 11 104.14 41 75.37 12 103.36 42 74.19 13 102.57 43 73.00 14 101.77 44 71.78 15 100.96 45 70.55 16 100.14 46 69.31 17 99.31 47 68.04 18 98.46 48 66.76 19 97.60 49 65.46 20 96.73 50 64.15 21 95.85 51 62.81 22 94.96 52 61.46 23 94.05 53 60.09 24 93.13 54 58.70 25 92.20 55 57.29 26 91.25 56 55.86 27 90.29 57 54.41 28 89.32 58 52.94 29 88.33 59 51.46 30 87.33 60 50.00 [FORD LOGO] Purchase Order Original-
---------------------------------------------------------------------- Buyer agrees to purchase and receive - THESE ITEMS MUST APPEAR ON ALL SHIPPING AND BILLING DOCUMENTS Ship to: ---------------------------------------------------------------------- FORD CCD CONNERSVILLE VISTEON CC05A Blanket Order No. Purchase order number or release authorization 4747 WESTERN AVENUE when blanket order number is entered CONNERSVILLE, IN 47331 G92 P000 549862 ---------------------------------------------------------------------- ATTN: S. BLANTON-WISE Title Transfer Point (F.O.B.) Date Of Order Origin: Carrier Seller's Plant 03/06/00 ---------------------------------------------------------------------- Transportation Terms Delivery Date PREPAY AND SUMMARY BILL 01/01/00 ---------------------------------------------------------------------- Payment Terms NET 10 DAYS ---------------------------------------------------------------------- Routing Funds SELLER'S DELIVERY U.S. DOLLAR - ---------------------------------------------------------------------------------------------------------------------- 000216000612 01-02 Taxes See Buyer's Standard Terms and Invoice To: EQUIS FINANCIAL GROUP J0V9U Conditions. Permit No. DO NOT INVOICE ERS CODE 4 SEE 88 BROAD STREET 382417960-001-7 INSTRUCTIONS BELOW BOSTON, MA 02110 (Seller) will sell and deliver the supplies and services specified herein in accordance with Buyer's standard terms and conditions (Form No. FGT25, rev 4/97) which have been provided separately. Additional copies are available from Buyer. - ---------------------------------------------------------------------------------------------------------------------- ====================================================================================================================== LINE NO. ITEM NUMBER QUANTITY* U/M* UNIT PRICE ====================================================================================================================== 001 PLANT PART # - MISC 001259 24 MONTHS 3,345.00000 RENEW LEASE ON 28 LIFT TRUCKS FOR 24 MONTHS FROM JANUARY 2000 THRU DECEMBER 2001 DO NOT INVOICE OR SEND PRICE ADVICE FORD'S PAYMENT OBLIGATION IS AS SPECIFIED ON THE PURCHASE ORDER. IF PRICE SHOWN ON THIS DOCUMENT IS NOT CORRECT, CONTACT BUYER SHOWN ON THIS ORDER BEFORE SHIPMENT. IF PAYMENT IS NOT RECEIVED OR PAYMENT REFLECTS INCORRECT QUANTITY, CONTACT REQUESTER SHOWN ON THIS ORDER. IF ORDER SPECIFIES PREPAID AND SUMMARY FREIGHT, INVOICE FREIGHT TO: P.O. BOX 6015, DEARBORN, MI 48121 DIRECT VALUATED RECEIPT SETTLEMENT (ERS) OR PAYMENT INQUIRIES TO (734) 525-7800. ******************************************************************************** ***ATTENTION SUPPLIER: YOU MUST FOLLOW ALL CAUSES ON THIS QUOTE BEFORE YOU RETURN THIS REQUEST FOR QUOTE (RFQ) INCLUDING: PROVIDE THE PROPER UNIT PRICE FOR EACH LINE ITEM ON THE FORD RFQ. 2) PROVIDE A GRAND TOTAL LINE AFTER THE LAST LINE ITEM. 3) SIGN THE FORD RFQ FORM AND INCLUDE DELIVERY TIMES AND TERMS 4) IF YOU CAN'T MAKE THE RFQ DUE DATE CALL THE ENGINEER TO REQUEST AN EXTENSION AND TELL THE ENGINEER TO INFORM THE BUYER OF THE NEW DATE. ORIGINAL RENEWAL R/S RENEWED AS RENT -------------------- ---------- -------- A524844-RN4 A549862-RN5 $ 330.00 B524844-RN4 B549862-RN5 $ 130.00 C524844-RN4 C549862-RN5 $ 155.00 D524844-RN4 D549862-RN5 $ 420.00 E524844-RN4 E549862-RN5 $2310.00 -------- $3345.00 REQUESTOR: S. BLANTON-WISE- 3178277453 BUYER: RAYMOND LARK (4648) - (313) 337-1444 REQUISITION NO.: RQ00033R14
PAGE 1 OF 2 LINE ITEM TOTAL = 1
[FORD LOGO] Purchase Order Original- --------------------------------------------------------------------- -THESE ITEMS MUST APPEAR ON ALL SHIPPING AND BILLING DOCUMENTS --------------------------------------------------------------------- Blanket Order Number Purchase Order Number or Release Authorization when Blanket Order Number is entered G92 P000 549862 ---------------------------------------------------------------------
- -------------------------------------------------------------------------------- 5) IF YOU FAX THE QUOTE, DO NOT SEND A CONFIRMING COPY IN THE MAIL. CONTACT INFORMATION IS: RAY LARK PHONE: 313-33-71444, 5500 AUTO CLUB DRIVE, FAX: 313-32-37316 SUITE 3E416, DEARBORN, MI 48126 TOTAL $ 80,280.00 PAGE 2 OF 2 LINE ITEM TOTAL = 1 VIA TELECOPY (765)827-7662 October 19, 1999 Ms. Shirley Blanton-Wise Ford CCD Electronics & Refrigeration 4747 Western Avenue Connersville, IN 47331 RE: CLARK FORKLIFTS, (THE "EQUIPMENT") LEASED PURSUANT TO PURCHASE ORDER G92 PO98 524844 (THE "PURCHASE ORDER") TO LEASE ORDER TERMS AND CONDITIONS DATED APRIL 5, 1988. Dear Shirley: Equis Financial Group is pleased to offer the following Twelve Month extension rates for the equipment leased pursuant to the above referenced Purchase Order. I have also provided you with the current month-to-month rates.
- --------------------------------------------------------------------------------------------- Serial No. Unit No. 6 Mos. Rate 12 Mos. Rate 24 Mos. Rate Purchase - --------------------------------------------------------------------------------------------- CY685-0083-7413 689 210.00 185.00 155.00C 4,750.00 - --------------------------------------------------------------------------------------------- AE685-0110-6985 687 230.00 195.00 165.00A 4,500.00 - --------------------------------------------------------------------------------------------- AE685-0111-6985 688 230.00 195.00 165.00A 4,500.00 - --------------------------------------------------------------------------------------------- DE685-0105-6985 682 200.00 170.00 140.00D 4,000.00 - --------------------------------------------------------------------------------------------- DE685-0107-6985 684 200.00 170.00 140.00D 4,000.00 - --------------------------------------------------------------------------------------------- DE685-0108-6985 685 200.00 170.00 140.00D 4,000.00 - --------------------------------------------------------------------------------------------- BE357-0144-7255 633 185.00 160.00 130.00B 3,800.00 - --------------------------------------------------------------------------------------------- EE357-0121-7255 610 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0122-7255 611 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0123-7255 612 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0124-7255 613 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0125-7255 614 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0126-7255 615 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0127-7255 616 145.00 125.00 110.00 3.225.00 - --------------------------------------------------------------------------------------------- EE357-0128-7255 617 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0129-7255 618 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0130-7255 619 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0131-7255 620 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0113-7255 602 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0114-7255 603 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0115-7255 604 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0116-7255 605 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0117-7255 606 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0133-7255 622 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0134-7255 623 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0137-7255 626 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0138-7255 627 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- EE357-0139-7255 628 145.00 125.00 110.00 3,225.00 - --------------------------------------------------------------------------------------------- TOTAL $4,500.00 $3,870.00 $3,345.00 $97,275.00 - ---------------------------------------------------------------------------------------------
Page Two October 19, 1999 The above referenced extension rates shall begin as of January 1, 2000 and shall expire either 6, 12, or 24 months from that date. The purchase options shall be effective as of January 1, 2000. These rates are only effective for their respective terms either 6, 12 or 24 months. Please remember, Ford Motor Company has the option to return these trucks upon 90 days prior written notice in accordance with the Lease Order Terms and Conditions dated as of April 5, 1988. This lease shall continue at the current monthly rate until such time as written notice is received by Equis Financial Group as to your decision to renew, purchase or return this Equipment. Please review the above-stated options and contact me regarding your decision at (617) 854-5863. Sincerely, /s/ DEBBIE SIMPSON - ------------------------ Debbie Simpson Manager/Syndication CONFIRMATION REPORT - MEMORY SEND Time: October 19, 1999 16:15 Fax number: Name: Job : 634 Date : Oct-19 16:14 To : 17658277662 Doc. pages : 03 Start time : Oct-19 16:14 End time : Oct-19 16:15 Pages sent : 03 Job: 634 *** SEND SUCCESSFUL *** FAX EQUIS FINANCIAL GROUP 88 Broad Street Boston, MA 02110 Date: 10/19/99 Number of pages including cover sheet: 3 To: Ford Motor Company From: Ms. Shirley Blanton-Wise Debbie Simpson - -------------------------------------- -------------------------------- - -------------------------------------- -------------------------------- - -------------------------------------- -------------------------------- - -------------------------------------- -------------------------------- Phone: 765-827-7453 Phone: 617-854-5863[ILLEGIBLE] Fax Phone: 765-827-7667 Fax Phone: 617-895-0596 CC. ================================================================================ [ ] Urgent [ ] For your review [ ] Reply ASAP [ ] Please comment Following please find a listing of trucks on lease to the Connersville Plant. Please let me know what option you would like to accept. I appreciate your time and assistance. Thank you. - -------------------------------------------------------------------------------- FORD LOGO Request for Quotation Original Date: 02/15/00 Quote No. G92 549862 RETURN QUOTE BY: 02/24/00 12:17 AM - -------------------------------------------------------------------------------- PLEASE QUOTE FIRM PRICE AND DELIVERY DATE FOR THE GOODS AND SERVICES DESCRIBED BELOW AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS WHICH HAVE BEEN PROVIDED SEPARATELY. ADDITIONAL COPIES OF THE TERMS AND CONDITIONS ARE AVAILABLE FROM THE BUYER. - -------------------------------------------------------------------------------- MAIL OR DELIVER QUOTE TO: 00071-000162 01-02 EQUIS FINANCIAL GROUP J0V9U ATTN: RAYMOND LARK (4648) AB6RA EQUIS FINANCIAL GROUP VISTEON AUTOMOTIVE SYS FO 88 BROAD STREET 5500 AUTO CLUB DRIVE BOSTON, MA 02110 BLDG CORPORATE DEARBORN, MI 48126 SHIP TO: ATTN: S. BLANTON-WISE CC05A DELIVERY DATE: 01/01/00 FORD CCD CONNERSVILLE VIS NOTE: IF A LINE ITEM DELIVERY 4747 WESTERN AVENUE SCHEDULE APPEARS BELOW, IT CONNERSVILLE, IN 47331 SUPERCEDES THE DELIVERY DATE ABOVE - -------------------------------------------------------------------------------- LINE NO.* ITEM NUMBER* QUANTITY* U/M* UNIT PRICE - -------------------------------------------------------------------------------- 001 PLANT PART # - MISC 001259 24 MONTHS $3,345.00 R000033R14 RENEW LEASE ON 28 LIFT TRUCKS FOR 24 MONTHS FROM JANUARY 2000 THRU DECEMBER ******************************************************************************** **ATTENTION SUPPLIER: YOU MUST RETURN THIS REQUEST FOR QUOTE (RFQ) INCLUDING: 1) PROVIDE THE PROPER UNIT PRICE FOR EACH LINE ITEM ON THE FORD RFQ. 2) PROVIDE A GRAND TOTAL LINE AFTER THE LAST LINE ITEM. 3) SIGN THE FORD RFQ FORM AND INCLUDE DELIVERY TIMES AND TERMS 4) IF YOU CAN'T MAKE THE RFQ DUE DATE CALL THE ENGINEER TO REQUEST AN GRAND TOTAL: $80,280.00 REQUESTOR: S. BLANTON-WISE - (317) 827-7453 BUYER: RAYMOND LARK (4648) - - -------------------------------------------------------------------------------- QUOTATIONS MUST BE PER UNIT OF MEASURE AND SUBMITTED ON THIS FORM BY THE DATE INDICATED - -------------------------------------------------------------------------------- SHIPPING POINT TRANSPORTATION TERMS PAYMENT TERMS F.O.B. DELIVERY DATE 1-1-2000 - -------------------------------------------------------------------------------- VENDOR SIGNED DATE EQUIS FINANCIAL GROUP /s/ DEBRA SIMPSON 2-22-00 - -------------------------------------------------------------------------------- PAGE 1 OF 2 LINE ITEM TOTAL = 1 FORD LOGO Request for Quotation Original Date: 02/15/00 Quote No. G92 549862 RETURN QUOTE BY: 02/24/00 12:17 AM 5) EXTENSION AND TELL THE ENGINEER TO INFORM THE BUYER OF THE NEW DATE* IF YOU FAX THE QUOTE, DO NOT SEND A CONFIRMING COPY IN THE MAIL* MY CONTACT INFORMATION IS: RAY LARK PHONE: 313-33-71444 5500 AUTO CLUB DRIVE FAX: 313-32-37316 SUITE 3E416 DEARBORN, MI 48126 ***************************** ***************************** HE FOLLOWING ADDRESS INDICATES THE LOCATION TO WHICH FORD WILL SEND YOUR PAYMENT IF YOU ARE AWARDED THIS CONTRACT. IF THE ADDRESS IS NOT CORRECT, PLEASE NOTIFY THE BUYER AS SOON AS POSSIBLE. EQUIS FINANCIAL GROUP JOV9U P.O. BOX 360178 PITTSBURGH, PA 15251-617 SHIP TO LOCATION: FORD CCD CONNERSVILLE VIS CC05A 4747 WESTERN AVENUE CONNERSVILLE, IN 47331 REQUESTED DELIVERY: 01/01/00 PAGE 2 OF 2 LINE ITEM TOTAL = 1 1051 Ford Purchase Order Extension Rental Schedule: C524844-RN4 New Rental Schedule: C549862-RN5 Extension Period: 1-1-2000-12-31-2001 (24 MOS) 1. Input on AS-400: [X] 2. Update Ford Unit #: [X] 3. Update Ford Misc #: [X] 4. Update Equity Owner: [X] 5. Permanent Debt: -- (only if owned by PW) 6. Stop bill form: [X] TO MAY 4-28-00 7. Canceled Note & Security: -- 8. Activation Report: [X] TO MAY 5-1-00 VIA FAX & IN-BOX 9. Original Title: -- 10. Fax, PO, Schedule A & B: -- (only if owned by PW) 11. Prep for Scanning: ------ Extension Approval: /s/ ------ Comments: ---------------------------------------------------------------------- ---------------------------------------------------------------------- ----------------------------------------------------------------------
[FORD LOGO] Purchase Order Original- ---------------------------------------------------------------- - THESE ITEMS MUST APPEAR ON ALL SHIPPING AND BILLING DOCUMENTS ---------------------------------------------------------------- Blanket Order Number Purchase order number of Release Authorization when Blanket Order Number is entered B74 P000 879093 ---------------------------------------------------------------- Buyer agrees to purchase and receive Title Transfer Point (F.O.B.) Date of Order Ship to: DESTINATION 03/27/00 EQUIS FINANCIAL GROUP J0V9U ---------------------------------------------------------------- 88 BROAD STREET Transportation Terms Delivery Date BOSTON, MA 02110 PREPAID BUT CHARGED TO CUSTOMER 03/16/00 ATTN: DEBBIE SIMPSON 1051 ---------------------------------------------------------------- Payment Terms NET 15TH & 30TH PROX ---------------------------------------------------------------- Routing Funds SELLER'S DELIVERY U.S. DOLLARS - ------------------------------------------------------------------------------------------------------------------ 000183000574 01-02 [ILLEGIBLE] Taxes Invoice To: FD220 EQUIS FINANCIAL GROUP J0V9U See Buyer's Standard Terms FORD MOTOR CO 88 BROAD STREET and Conditions. CENTRAL ACCOUNTING SERVICES BOSTON, MA 02110 Permit No. P.O. BOX 6202 DEARBORN MI 48121 (Seller) will sell and deliver the supplies and services specified herein in accordance with Buyer's standard terms and conditions (Form No. FGT25, rev 4/97) which have been provided separately. Additional copies are available from Buyer. - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ LINE NO. ITEM NUMBER QUANTITY* U/M* UNIT PRICE - ------------------------------------------------------------------------------------------------------------------ 001 PLANT PART # - MISC 002896 1 LOT 10,720.0000C - ------------------------------------------------------------------------------------------------------------------ UNIT # SERIAL # $/MO FROM/TO PLANT 137B Y685-0008-7413 $335.00 9/1/98-12/31/99 CHICAGO ASSEMBLY 399974-8RN 136B Y685-0009-7413 $335.00 9/1/98-12/31/99 CHICAGO ASSEMBLY 399974-8RN TOTAL $ $10,720.00
RENEWED AS: - ---------- 399974-8RN7 REQUESTOR: TUNG DO - 3138457908 BUYER: SUE STRAYER (4646) - (313) 390-1874 REQUISITION NO.: RQ00076R47 PAGE 1 OF 1 LINE ITEM TOTAL = 1 1051 Ford Purchase Order Extension Rental Schedule: 399974-8RN6 ----------- New Rental Schedule: 399974-8RN7 ----------- Extension Period: 9-1-98-12-31-99 (16 MONTHS) --------------------------- 1. Input on AS-400: |X| ------------------ 2. Update Ford Unit #: |X| ------------------ 3. Update Ford Misc #: |X| ------------------ 4. Update Equity Owner: |X| ------------------ 5. Permanent Debt: -- (only if owned by PW) ------------------ 6. Stop bill form: |X| TO MAY 4-24-00 ------------------ 7. Canceled Note & Security: ------------------ 8. Activation Report: |X| TO MAY 4-24-00 ------------------ 9. Original Title: -- ------------------ 10. Fax, PO, Schedule A & B: -- (only if owned by PW) ------------------ 11. Prep for Scanning: ------------------ Extension Approval: /s/ GDD ------------------ Comments: ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- [LOGO] EQUIS ------------------------------------------------------------------------- FINANCIAL GROUP December 16, 1999 Mr. Tung Do Ford Motor Company 17101 Rotunda Drive Dearborn, MI 48121 Dear Tung: Following please find extension pricing to make the monthly rental payments for this lease current as of December 31, 1999 as per out telephone conversation last week. Please issue a purchase order as follows: PURCHASE ORDER: B74 P097 863174 EXPIRATION DATE: AUGUST 30, 1998 PLANT: CHICAGO ASSEMBLY PLANT MANUFACTURER: CLARK C5004580 MODEL: C500YS80 SERIAL NO/UNIT NO.: Y685-0008-7413(137B), Y685-0009-7413(136B) EXTENSION PERIOD: SEPTEMBER 1, 1998- DECEMBER 31, 1999 EXTENSION PAYMENT: $670.00 PER MONTH, 16 MONTHS = $10,720.00 PLEASE USE SUPPLIER CODE: J0V9U Please call should you have any questions. Thank you for your time and assistance. Sincerely, /s/ DEBBIE SIMPSON - ------------------ Debbie Simpson Account Manager 88 Broad Street, Boston Massachusetts 02110 617-854-5800, FAX 617-695-0596 BOSTON STAMFORD
[FORD LOGO] Purchase Order Original- ---------------------------------------------------------------- - THESE ITEMS MUST APPEAR ON ALL SHIPPING AND BILLING DOCUMENTS ---------------------------------------------------------------- Blanket Order Number Purchase order number of Release Authorization when Blanket Order Number is entered B74 P000 880965 ---------------------------------------------------------------- Buyer agrees to purchase and receive Title Transfer Point (F.O.B.) Date of Order Ship to: DESTINATION 08/18/00 EQUIS FINANCIAL GROUP J0V9U ---------------------------------------------------------------- 88 BROAD STREET Transportation Terms Delivery Date BOSTON, MA 02110 PREPAID BUT CHARGED TO CUSTOMER 07/18/00 ATTN: DEBBIE SIMPSON ---------------------------------------------------------------- Payment Terms NET 15TH & 30TH PROX ---------------------------------------------------------------- Routing Funds SELLER'S DELIVERY U.S. DOLLARS - ------------------------------------------------------------------------------------------------------------------ 000216000612 01-02 Taxes Invoice To: EQUIS FINANCIAL GROUP J0V9U See Buyer's Standard Terms DO NOT INVOICE 88 BROAD STREET and Conditions. ERS CODE 1 BOSTON, MA 02110 Permit No. SEE INSTRUCTIONS BELOW (Seller) will sell and deliver the supplies and services specified herein in accordance with Buyer's standard terms and conditions (Form No. FGT25, rev 4/97) which have been provided separately. Additional copies are available from Buyer. - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ LINE NO. ITEM NUMBER QUANTITY* U/M* UNIT PRICE - ------------------------------------------------------------------------------------------------------------------ 001 PLANT PART # - MISC 007805 1 LOT 50,400.00000 - ------------------------------------------------------------------------------------------------------------------ PLANT UNIT# SERIAL# SUPPLIER EXPDATE MTHLY AM MTS AMOUNT ================================================================================================================== OHIO ASSM 1139 507235 YA 06/30/00 $330.00 6 $1980.00 A861536 OHIO ASSM 1137 507245 YA 06/30/00 $330.00 6 $1980.00 A861536 WALTON HILLS 007 B1459 AU 06/30/00 $1250.00 8 $10000.00 B300609 WALTON HILLS 008 B1460 AU 06/30/00 $1250.00 8 $10000.00 B300609 ST. THOMAS 177B E68500047743 CL 06/30/00 $310.00 5 $1550.00 227336-9 ST. THOMAS 171A E68500127743 CL 06/30/00 $310.00 5 $1550.00 227336-9 ST. THOMAS 176A E68500057745 CL 06/30/00 $310.00 5 $1550.00 227336-9 ST. THOMAS 160B E68500147745 CL 06/30/00 $310.00 5 $1550.00 227336-9 ST. THOMAS 189A 505403 YA 06/30/00 $305.00 6 $1830.00 215452-0 ST. THOMAS 190A 505404 YA 06/30/00 $305.00 6 $1830.00 215452-0 MAUMEE F115 D004V05209M HY 06/30/00 $575.00 6 $3450.00 300549-1 CHICAGO ASSM 137B Y68500087413 CL 06/30/00 $335.00 6 $2010.00 399974-8 CHICAGO ASSM 136B Y68500097413 CL 06/30/00 $335.00 6 $2010.00 399974-8 WOODHAVEN J570 501529B SH 06/30/00 $385.00 6 $2310.00 300427-9 WOODHAVEN J500 501530B SH 06/30/00 $385.00 6 $2310.00 300427-9 WOODHAVEN J574 501531B SH 06/30/00 $385.00 6 $2310.00 300427-9 WAYNE ASSM 538 06004983 RA 04/30/00 $545.00 4 $2180.00 B108418-2 ============================================ $50,400.00
10-3-00 LM Ford A/P - did a check get issued? REQUESTOR: CANDACE SOLOMON - 3133223250 BUYER: SUE STRAYER (4646) - (313) 390-1874 REQUISITION NO.: RQ00033R19 10/19/00 CP CK 00547871 PAGE 1 OF 2 LINE ITEM TOTAL = 1
[FORD LOGO] Purchase Order Original- ---------------------------------------------------------------- - THESE ITEMS MUST APPEAR ON ALL SHIPPING AND BILLING DOCUMENTS ---------------------------------------------------------------- Blanket Order Number Purchase order number of Release Authorization when Blanket Order Number is entered B74 P000 880965 ---------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------ DO NOT INVOICE OR SEND PRICE ADVICE FORD'S PAYMENT OBLIGATION IS AS SPECIFIED IN THE PURCHASE ORDER. IF PRICE SHOWN ON THIS DOCUMENT IS NOT CORRECT CONTACT BUYER SHOWN ON THIS ORDER BEFORE SHIPMENT. IF PAYMENT IS NOT RECEIVED OR PAYMENT REFLECTS INCORRECT QUANTITY, CONTACT REQUESTER SHOWN ON THIS ORDER. IF ORDER SPECIFIES PREPAID AND SUMMARY FREIGHT, INVOICE FREIGHT TO P.O. BOX 6015, DEARBORN, MI 48121 DIRECT EVALUATED RECEIPT SETTLEMENT (ERS) OR PAYMENT INQUIRIES TO (734) 525-7800. PER MASTER LEASE AGREEMENT WITH EQUIS; ADVANCED MANUFACTURING ENGINEERING TRACKS AND MANAGES ALL FORKLIFT LEASING. DOCUMENTATION ON FILE IN THEIR OFFICE. SUE STRAYER 8/18/00 TOTAL $ 50,400.00
PAGE 2 OF 2 LINE ITEM TOTAL = 1 June 30, 2000 via electronic mail; CMOVALSO@FORD.COM Mr. Chuck Movalson Ford Motor Company 17101 Rotunda Drive Dearborn, MI 48121 Dear Chuck: The following trucks will be returned by Ford Motor Company in the very near future. Please issue a purchase order to cover the outstanding rent. Please issue a purchase order as follows: Previous Purchase Order: B 74 PO00 879093 Expiration Date: December 31, 1999 Plant: Chicago Assembly Plant Manufacturer: Clark Model: C500YS80 Serial No./Unit No.: Y685-0008-7413(137B), Y685-0009-7413(136B) Extension Period: January 1, 2000 - June 30, 2000 Extension Payment: $670.00 per month, 6 months = $4,020.00 ($335.00 per truck, per month) PLEASE USE SUPPLIER CODE: JOV9U Please call should you have any questions. Thank you for your time and assistance. Sincerely, /s/ DEBBIE SIMPSON - ------------------ Debbie Simpson Account Manager -----END PRIVACY-ENHANCED MESSAGE-----