-----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, D9EOT57G7ryI6fGTh++Kno9lL+G6v8pocjYd38+W4kFgryoRrje47pAxSO/J4Y+0 Pgow+ObxxQ9Kz+1XDGZ3UA== 0001047469-98-013121.txt : 19980401 0001047469-98-013121.hdr.sgml : 19980401 ACCESSION NUMBER: 0001047469-98-013121 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE 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: 98583317 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 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /XX/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 ------------------------------------------------------ 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 XX No ---- ---- State the aggregate market value of the voting stock held by nonaffiliates of the registrant. Not applicable. Securities are nonvoting for this purpose. Refer to Item 12 for further information. AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to security holders for the year ended December 31, 1997 (Part I and II) 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 10 Item 12. Security Ownership of Certain Beneficial Owners and Management 10 Item 13. Certain Relationships and Related Transactions 11 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 13-15
- 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 American Finance Group), a Massachusetts limited partnership ("EFG" or the "Manager"). The General Partner is not required to make any other capital contributions except as may be required under the Uniform Act and Section 6.1(b) of the Amended and Restated Agreement and Certificate of Limited Partnership (the "Restated Agreement, as amended"). (b) Financial Information About Industry Segments The Partnership is engaged in only one industry segment: the business of acquiring capital equipment and leasing the equipment to creditworthy lessees on a full payout or operating lease basis. Full payout leases are those in which aggregate noncancellable rents equal or exceed the Purchase Price of the leased equipment. Operating leases are those in which the aggregate noncancellable rental payments are less than the Purchase Price of the leased equipment. Industry segment data is not applicable. (c) Narrative Description of Business The Partnership was organized to acquire a diversified portfolio of capital equipment subject to various full payout and operating leases and to lease the equipment to third parties as income-producing investments. More specifically, the Partnership's primary investment objectives are to acquire and lease equipment which will: 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 detail in Note 3 to the financial statements included in Item 14, herein. The Partnership will terminate no later than December 31, 2002; however, the Partnership is a Nominal Defendant in a Class Action Lawsuit. The outcome of the Class Action Lawsuit could alter the nature of the Partnership's organization and its future business operations. See Note 7 to the accompanying financial statements. The Partnership has no employees; however, it is managed pursuant to a Management Agreement with EFG or one of its affiliates. The Manager's role, among other things, is to (i) evaluate, select, negotiate, and consummate the acquisition of equipment, (ii) manage the leasing, re-leasing, financing, and refinancing of equipment, and (iii) arrange the resale of equipment. The Manager is compensated for such services as described in the Restated Agreement, as amended, Item 13 herein, and in Note 4 to the financial statements included in Item 14, herein. The Partnership's investment in equipment is, and will continue to be, subject to various risks, including physical deterioration, technological obsolescence and defaults by lessees. A principal business risk of owning - 3 - and leasing equipment is the possibility that aggregate lease revenue 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. Consequently, the success of the Partnership is largely dependent upon the ability of the General Partner and its Affiliates to forecast technological advances, the ability of the lessees to fulfill their lease obligations and the quality and marketability of the equipment at the time of sale. In addition, the leasing industry is very competitive. Although all funds available for acquisitions have been invested in equipment, subject to noncancellable lease agreements, the Partnership will encounter considerable competition when equipment is re-leased or sold at the expiration of primary lease terms. The Partnership will compete with lease programs offered directly by manufacturers and other equipment leasing companies, including limited partnerships and trusts organized and managed similarly to the Partnership, and including other EFG-sponsored partnerships and trusts, which may seek to re-lease or sell equipment within their own portfolios to the same customers as the Partnership. Many competitors have greater financial resources and more experience than the Partnership, the General Partner and the Manager. Generally, the Partnership is prohibited from reinvesting the proceeds generated by refinancing or selling equipment. Accordingly, it is anticipated that the Partnership will begin to liquidate its portfolio of equipment at the expiration of the initial lease terms and to distribute the net liquidation proceeds. As an alternative to sale, the Partnership may enter re-lease agreements when considered advantageous by the General Partner and the Manager. Revenue from major individual lessees which accounted for 10% or more of lease revenue during the years ended December 31, 1997, 1996 and 1995 is incorporated herein by reference to Note 2 to the financial statements in the 1997 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the Securities and Exchange Commission. 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 a material portion of anticipated revenue and significantly weaken the Partnership's ability to repay related debt. 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 and Chief Executive Officer. 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. (d) Financial Information About Foreign and Domestic Operations and Export Sales Not applicable. - 4 - Item 2. Properties. Incorporated herein by reference to Note 3 to the financial statements in the 1997 Annual Report. Item 3. Legal Proceedings. Incorporated herein by reference to Note 7 to the financial statements in the 1997 Annual Report. 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, 1997, there were 439 record holders in the Partnership. (c) Dividend History and Restrictions Pursuant to Article VI of the Restated Agreement, as amended, the Partnership's Distributable Cash From Operations and Distributable Cash From Sales or Refinancings are determined and distributed to the Partners quarterly. Each quarter's distribution may vary in amount. Distributions may be made to the General Partner prior to the end of the fiscal quarter; however, the amount of such distribution reflects only amounts to which the General Partner is entitled at the time such distribution is made. Currently, there are no restrictions that materially limit the Partnership's ability to distribute Distributable Cash From Operations and Distributable Cash From Sales or Refinancings or that the Partnership believes are likely to materially limit the future distribution of Distributable Cash From Operations and Distributable Cash From Sales or Refinancings. The Partnership expects to continue to distribute all Distributable Cash From Operations and Distributable Cash From Sales or Refinancings on a quarterly basis. Distributions in 1997 and 1996 were as follows:
General Limited Total Partner Partners ----------- ---------- ------------ Total 1997 distributions $ 282,941 $ 14,147 $ 268,794 Total 1996 distributions 414,979 20,749 394,230 ----------- ---------- ------------ Total $ 697,920 $ 34,896 $ 663,024 ----------- ---------- ------------ ----------- ---------- ------------
Distributions payable were $56,588 and $75,451 at December 31, 1997 and 1996, respectively. "Distributable Cash From Operations" means the net cash provided by the Partnership's normal operations after general expenses and current liabilities of the Partnership are paid, reduced by any reserves for working capital and contingent liabilities to be funded from such cash, to the extent deemed reasonable by the General Partner, and increased by any portion of such reserves deemed by the General Partner not to be required for Partnership operations and reduced by all accrued and unpaid Equipment Management Fees and, after Payout, further reduced by all accrued and unpaid Subordinated Remarketing Fees. Distributable Cash From Operations does not include any Distributable Cash From Sales or Refinancings. "Distributable Cash From Sales or Refinancings" means Cash From Sales or Refinancings as reduced by (i)(a) amounts realized from any loss or destruction of equipment which the General Partner determines shall be reinvested in similar equipment for the remainder of the original lease term of the lost or destroyed equipment, or in isolated instances, in other equipment, if the General Partner determines that investment of such proceeds will significantly improve the diversity of the Partnership's equipment portfolio, and subject in either case to satisfaction of all existing indebtedness secured by such equipment to the extent deemed necessary or appropriate by the General Partner, or (b) the proceeds from the sale of an interest in equipment pursuant to any agreement governing a joint venture which the General Partner determines will be invested in additional - 6 - 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. Each distribution of Distributable Cash From Operations and Distributable Cash From Sales or Refinancings of the Partnership shall be made 95% to the Limited Partners and 5% to the General Partner. "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. Distributable Cash From Operations and Distributable Cash From Sales or Refinancings ("Distributions") are distributed within 30 days after the completion of each quarter, beginning with the first full fiscal quarter following the Partnership's Closing. Each Distribution is described in a statement sent to the Limited Partners. Item 6. Selected Financial Data. - --------------------------------- Incorporated herein by reference to the section entitled "Selected Financial Data" in the 1997 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 1997 Annual Report. Item 8. Financial Statements and Supplementary Data. - ----------------------------------------------------- Incorporated herein by reference to the financial statements and supplementary data included in the 1997 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 and the Limited Partners have no right to participate in the control of such operations. The names, titles and ages of the Directors and Executive Officers of the General Partner as of March 15, 1998 are as follows: DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER (See Item 13) - -----------------------------------
Name Title Age Term - ----------------------------- -------------------------------------------- ----- ------------ Geoffrey A. MacDonald Chairman and a member of the Until a Executive Committee of EFG successor and President and a Director is duly of the General Partner 49 elected and qualified Gary D. Engle President and Chief Executive Officer and member of the Executive Committee of EFG 49 Gary M. Romano Executive Vice President and Chief Operating Officer of EFG and Clerk of the General Partner 38 James A. Coyne Executive Vice President of EFG 37 Michael J. Butterfield Vice President, Finance and Treasurer of EFG and Treasurer of the General Partner 38 James F. Livesey Vice President, Aircraft and Vessels of EFG 48 Sandra L. Simonsen Senior Vice President, Information Systems of EFG 47 Gail D. Ofgant Vice President, Lease Operations of EFG 32
(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 - 8 - Mr. MacDonald, age 49, is a co-founder, Chairman and a member of the Executive Committee of EFG and President and a Director of the General Partner. Mr. MacDonald was also a co-founder, Director and Senior Vice President of EFG's predecessor corporation from 1980 to 1988. Mr. MacDonald is President of American Finance Group Securities Corp. and a limited partner in Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital Limited Partnership ("ONC"). Prior to co-founding EFG's predecessors, Mr. MacDonald held various executive and management positions in the leasing and pharmaceutical industries. Mr. MacDonald holds an M.B.A. from Boston College and a B.A. degree from the University of Massachusetts (Amherst). Mr. Engle, age 49, is President and Chief Executive Officer and a member of the Executive Committee of EFG and President of AFG Realty Corporation. Mr. Engle is Vice President and a Director of certain of EFG's affiliates. On December 16, 1994, Mr. Engle acquired control of EFG, the General Partner and each of EFG's subsidiaries. Mr. Engle controls the general partner of AALP and is a limited partner in AALP. Mr. Engle is also a limited partner in ONC. Mr. Engle is also Chairman, Chief Executive Officer and a member of the Board of Directors of Semele Group, Inc. ("Semele"). From 1987 to 1990, Mr. Engle was a principal and co-founder of Cobb Partners Development, Inc., a real estate and mortgage banking company. From 1980 to 1987, Mr. Engle was Senior Vice President and Chief Financial Officer of Arvida Disney Company, a large scale community development company owned by Walt Disney Company. Prior to 1980, Mr. Engle served in various management consulting and institutional brokerage capacities. Mr. Engle has an M.B.A. from Harvard University and a B.S. degree from the University of Massachusetts (Amherst). Mr. Romano, age 38, is Executive Vice President and Chief Operating Officer of EFG and certain of its affiliates and Clerk of the General Partner. Mr. Romano is Vice President and Chief Financial Officer of Semele. Mr. Romano joined EFG in November 1989 and was appointed Executive Vice President and Chief Operating Officer in April 1996. Prior to joining EFG, Mr. Romano was Assistant Controller for a privately-held real estate company which he joined in 1987. Mr. Romano held audit staff and manager positions at Ernst & Whinney (now Ernst & Young LLP) from 1982 to 1986. Mr. Romano is a C.P.A. and holds a B.S. degree from Boston College. Mr. Coyne, age 37, is Executive Vice President of EFG and President, Chief Operating Officer and a memeber of the Board of Directors of Semele. Mr. Coyne joined EFG in 1989, remained until May 1993, and rejoined EFG in November 1994. Mr. Coyne was appointed Executive Vice President of EFG in September 1997. Mr. Coyne is a limited partner in AALP and ONC. From May 1993 through November 1994, he was with the Raymond Company, a private investment firm, where he was responsible for financing corporate and real estate acquisitions. From 1985 through 1989, Mr. Coyne was affiliated with a real estate investment company and an equipment leasing company. Prior to 1985 he was with the accounting firm of Ernst & Whinney (now Ernst & Young LLP). He has a BS in Business Administration from John Carroll University, a Masters Degree in Accounting from Case Western Reserve University and is a Certified Public Accountant. Mr. Butterfield, age 38, joined EFG in June 1992 and became Vice President, Finance and Treasurer of EFG and certain of its affiliates in April 1996 and is Treasurer of the General Partner and Semele. Prior to joining EFG, Mr. Butterfield was an Audit Manager with Ernst & Young LLP, which he joined in 1987. Mr. Butterfield was employed in public accounting and industry positions in New Zealand and London (U.K.) 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. He holds a Bachelor of Commerce degree from the University of Otago, Dunedin, New Zealand. Mr. Livesey, age 48, is Vice President, Aircraft and Vessels, of EFG. Mr. Livesey joined EFG in October, 1989, and was promoted to Vice President in January 1992. Prior to joining EFG, Mr. Livesey held sales and marketing positions with two privately-held equipment leasing firms. Mr. Livesey holds an M.B.A. from Boston College and B.A. degree from Stonehill College. Ms. Simonsen, age 47, joined EFG in February 1990 and was promoted to Senior Vice President, Information Systems of EFG in April 1996. Prior to joining EFG, Ms. Simonsen was Vice President, Information Systems with Investors Mortgage Insurance Company which she joined in 1973. Ms. Simonsen provided systems consulting for a subsidiary of American International Group and authored a software program published by IBM. Ms. Simonsen holds a B.A. degree from Wilson College. Ms. Ofgant, age 32, is Vice President, Lease Operations of EFG and certain of its affiliates. Ms. Ofgant joined EFG in June 1989, and was promoted to Manager, Lease Operations in April 1994. In April 1996, Ms. -9- Ofgant was appointed Vice President, Lease Operations. Prior to joining EFG, Ms. Ofgant was employed by Security Pacific National Trust Company. Ms. Ofgant holds a B.S. degree in Finance from Providence College. (f) Involvement in Certain Legal Proceedings None. (g) Promoters and Control Persons See Item 10 (a-b) above. Item 11. Executive Compensation. - --------------------------------- (a) Cash Compensation Currently, the 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 4 to the financial statements included in Item 14, herein. (d) Compensation of Directors None. (e) Termination of Employment and Change of Control Arrangement There exists no remuneration plan or arrangement with the General Partner or its Affiliates which results or may result from their resignation, retirement or any other termination. Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------ By virtue of its organization as a limited partnership, the Partnership has outstanding no securities possessing traditional voting rights. However, as provided in Section 10.2(a) of the Restated Agreement, as amended (subject to Sections 10.2(b) and 10.3), a majority interest of the Limited Partners have voting rights with respect to: 1. Amendment of the Restated Agreement; 2. Termination of the Partnership; 3. Removal of the General Partner; and -10- 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 1, 1998. 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, 1997, 1996 and 1995, which were paid or accrued by the Partnership to EFG or its Affiliates, are as follows:
1997 1996 1995 ----------- ----------- ---------- Equipment management fees $ 28,733 $ 34,740 $ 59,401 Administrative charges 53,604 31,872 14,172 Reimbursable operating expenses due to third parties 61,100 46,947 53,192 ----------- ----------- ---------- Total $ 143,437 $ 113,559 $ 126,765 ----------- ----------- ---------- ----------- ----------- ----------
As provided under the terms of the Management Agreement, EFG is compensated for its services to the Partnership. Such services include all aspects of acquisition, management and sale of equipment. For acquisition services, EFG is compensated by an amount equal to 2.23% of Equipment Base Price paid by the Partnership. For management services, EFG is compensated by an amount equal to the lesser of (i) 5% of gross operating lease rental revenue and 2% of gross full payout lease rental revenue received by the Partnership or (ii) fees which the General Partner reasonably believes to be competitive for similar services for similar equipment. Both of these fees are subject to certain limitations defined in the Management Agreement. Compensation to EFG for services connected to the sale of equipment is calculated as the lesser of (i) 3% of gross sale proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under arm's length circumstances. Payment of the remarketing fee is subordinated to Payout and is subject to certain limitations defined in the 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. 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 to the financial statements included in Item 14, herein. All rents and proceeds from the sale of equipment are paid directly to either EFG or to a lender. EFG temporarily deposits collected funds in a separate interest-bearing escrow account prior to remittance to the Partnership. At December 31, 1997, the Partnership was owed $76,072 by EFG for such funds and the interest thereon. These funds were remitted to the Partnership in January 1998. Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital Limited Partnership ("ONC"), both Massachusetts limited partnerships formed in 1995 owned and controlled by certain principals of EFG, own 11,442 Units or 3.99% and 990 Units or 0.35% of the total outstanding units of the Partnership, respectively. EFG -11- owns a Class D interest in AALP and a 49% limited partnership interest in ONC, both of which it acquired in December 1996. (b) Certain Business Relationships None. (c) Indebtedness of Management to the Partnership None. (d) Transactions with Promoters See Item 13(a) above. -12- 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, 1997 and 1996..................................................................................* Statement of Operations for the years ended December 31, 1997, 1996 and 1995.........................................................................* Statement of Changes in Partners' Capital for the years ended December 31, 1997, 1996 and 1995......................................................* Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995.........................................................................* Notes to the Financial Statements.....................................................* (2) Financial Statement Schedules: None Required. (3) Exhibits: Except as set forth below, all Exhibits to Form 10-K, as set forth in Item 601 of Regulation S-K, are not applicable.
Exhibit Number ---------- 4 Amended and Restated Agreement and Certificate of Limited Partnership included as Exhibit A to the Prospectus which is included in Registration Statement on Form S-1 (No. 33-35148). 13 The 1997 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.
* Incorporated herein by reference to the appropriate portion of the 1997 Annual Report to security holders for the year ended December 31, 1997 (see Part II). -13-
Exhibit Number --------- 99 (b) Lease agreement with Fred Meyer, Inc. was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 as Exhibit 28 (b) and is incorporated herein by reference. 99 (c) Lease agreement with Cyclops Industries, Inc. was filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 as Exhibit 28 (c) and is incorporated herein by reference. 99 (d) 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 (e) Lease agreement with Awin Leasing Company, Inc. is filed in the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 and is included herein.
(b) Reports on Form 8-K None. -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 and a member of the President and Chief Executive Executive Committee of EFG and Officer and a memberof the President and a Director of the Executive Committee ofEFG General Partner (Principal ExecutiveOfficer) Date: March 31, 1998 Date: March 31, 1998 --------------------------------- ----------------------------- By: /s/ Gary M. Romano By: /s/ Michael J. Butterfield ----------------------------------- ------------------------------- Gary M. Romano Michael J. Butterfield Executive Vice President and Chief Vice President,Finance and Operating Officer of EFG and Clerk Treasurer of EFG and Treasurer of the General Partner of the General Partner (Principal Financial Officer) (Principal Accounting Officer) Date: March 31, 1998 Date: March 31, 1998 --------------------------------- -----------------------------
-15- EX-13 2 EXHIBIT 13 AMERICAN INCOME FUND I AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership Annual Report to the Partners, December 31, 1997 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..................... 3-6 FINANCIAL STATEMENTS: Report of Independent Auditors............................................................................ 7 Statement of Financial Position at December 31, 1997 and 1996............................................. 8 Statement of Operations for the years ended December 31, 1997, 1996 and 1995.............................. 9 Statement of Changes in Partners' Capital for the years ended December 31, 1997, 1996 and 1995............ 10 Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995.............................. 11 Notes to the Financial Statements......................................................................... 12-20 ADDITIONAL FINANCIAL INFORMATION: Schedule of Excess (Deficiency) of Total Cash Generated to Cost of Equipment Disposed..................... 20 Statement of Cash and Distributable Cash From Operations, Sales and Refinancings.......................... 21 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..................................... 22
1 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, 1997:
SUMMARY OF OPERATIONS 1997 1996 1995 1994 1993 - ------------------------- ------------ ------------ ------------ ------------ ------------ Lease revenue............ $ 658,262 $ 779,404 $ 1,645,094 $ 2,323,015 $ 2,288,065 Net income (loss)........ $ 238,231 $ 609,579 $ (16,951) $ 262,463 $ (344,029) Per Unit: Net income (loss)..... $ 0.79 $ 2.02 $ (0.06) $ 0.87 $ (1.14) Cash distributions.... $ 0.94 $ 1.38 $ 2.25 $ 3.00 $ 3.00 Financial Position Total assets............. $ 2,782,171 $ 3,576,563 $ 3,746,642 $ 4,648,253 $ 6,405,398 Total long-term obligations......... $ 22,990 $ 726,096 $ 1,022,276 $ 1,056,876 $ 2,201,531 Partners' capital........ $ 2,657,060 $ 2,701,770 $ 2,507,170 $ 3,203,173 $ 3,846,113
2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year ended December 31, 1997 compared to the year ended December 31, 1996 and the year ended December 31, 1996 compared to the year ended December 31, 1995 Certain statements in this annual report of American Income Fund I-B Limited Partnership (the "Partnership") that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to a variety of risks and uncertainties. There are a number of important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made herein. These factors include, but are not limited to, the outcome of the Class Action Lawsuit described in Note 7 to the accompanying financial statements, and the ability of Equis Financial Group Limited Partnership (formerly American Finance Group), a Massachusetts limited partnership ("EFG"), to collect all rents due under the attendant lease agreements and successfully remarket the Partntership's equipment upon the expiration of such leases. The Year 2000 Issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. EFG's computer programs were designed and written using four digits to define the applicable year. As a result, EFG does not anticipate system failure or miscalculations causing disruptions of operations. Based on recent assessments, EFG determined that minimal modification of software is required so that its network operating system will function properly with respect to dates in the year 2000 and thereafter. EFG believes that with these modifications to the existing operating system, the Year 2000 Issue will not pose significant operational problems for its computer systems. EFG will utilize internal resources to upgrade software for Year 2000 modifications and anticipates completing the Year 2000 project by December 31, 1998, which is prior to any anticipated impact on its operating system. The total cost of the Year 2000 project is expected to be insignificant and have no effect on the results of operations of the Partnership. 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. The value of the Partnership's equipment portfolio decreases over time due to depreciation resulting from age and usage of the equipment, as well as technological changes and other market factors. In addition, the Partnership does not replace equipment as it is sold; therefore, its aggregate investment value in equipment declines from asset disposals occurring in the normal course. The Partnership's stated investment objectives and policies contemplated that the Partnership would wind-up its operations within approximately seven years of its inception. Presently, the Partnership is a Nominal Defendant in a Class Action Lawsuit. The outcome of the Class Action Lawsuit could alter the nature of the Partnership's organization and its future business operations. See Note 7 to the accompanying financial statements. RESULTS OF OPERATIONS For the year ended December 31, 1997, the Partnership recognized lease revenue of $658,262, compared to $779,404 and $1,645,094 for the years ended December 31, 1996 and 1995, respectively. The decrease in lease revenue from 1995 to 1997 was expected and resulted principally from primary lease term expirations and the sale of equipment. The Partnership also earns interest income from temporary investments of rental receipts and equipment sales proceeds in short-term instruments. The Partnership's equipment portfolio includes certain assets in which the Partnership holds a proportionate ownership interest. In such cases, the remaining interests are owned by an affiliated equipment leasing program sponsored by EFG. Proportionate equipment ownership enables the Partnership to further diversify its equipment portfolio by participating in the ownership of selected assets, thereby reducing the general levels of risk which could result from a concentration in any single equipment type, industry or lessee. The Partnership and each 3 affiliate individually report, in proportion to their respective ownership interests, their respective shares of assets, liabilities, revenues, and expenses associated with the equipment. In 1997, the Partnership sold equipment having a net book value of $8,564 to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes, of $115,379 compared to a net gain in 1996 of $563,113 on equipment having a net book value of $99,407, and a net gain in 1995 of $431,228 on equipment having a net book value of $158,265. During July 1996, the Partnership transferred its ownership interest in certain trailers previously leased to The Atchison Topeka and Santa Fe Railroad ("ATSF"), to a third party for cash consideration of $85,957. The trailers had a net book value of $32,494 at the time of transfer, resulting in a net gain of $53,463 (See Note 3 to the financial statements). In September 1996, the Partnership replaced certain of these trailers with comparable trailers and leased such to a new lessee. The transaction was structured as a like-kind exchange for income tax reporting purposes. The net carrying value of the new trailers, $385,063, was net of $41,241, representing the proportionate amount of gain, for financial statement purposes, deferred on the original trailers. The Partnership funded this transaction with $66,307 of the cash consideration and long-term financing of $359,997. The unused consideration of $19,650 was recognized as proceeds from equipment sales and the remainder of the net gain on sale of $12,222 was recognized as Gain on Sale of Equipment on the Statement of Operations during 1996. Additionally, during 1995, the Partnership transferred its ownership interest in certain trailers, to a third party for cash consideration of $35,500. The trailers previously leased to ATSF, had an aggregate net book value of $19,391 resulting in a net gain of $16,109. The transaction was structured as a like-kind exchange for income tax reporting purposes. The Partnership replaced these trailers with comparable trailers and leased such equipment to a new lessee. The net carrying value of the new trailers, $137,146, was net of $16,109, representing the amount of gain for financial statement purposes deferred on the original trailers. The Partnership funded this transaction with the $35,500 of cash consideration and long-term financing of $117,755. It cannot be determined whether future sales of equipment will result in a net gain or a net loss to the Partnership, as such transactions will be dependent upon the condition and type of equipment being sold and its marketability at the time of sale. In addition, the amount of gain or loss reported for financial statement purposes is partly a function of the amount of accumulated depreciation associated with the equipment being sold. The ultimate realization of residual value for any type of equipment is dependent upon many factors, including EFG's ability to sell and re-lease equipment. Changing market conditions, industry trends, technological advances, and many other events can converge to enhance or detract from asset values at any given time. EFG attempts to monitor these changes in order to identify opportunities which may be advantageous to the Partnership and which will maximize total cash returns for each asset. The total economic value realized upon final disposition of each asset is comprised of all primary lease term 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 and amortization expense was $431,940, $642,750 and $1,386,180 for the years ended December 31, 1997, 1996 and 1995, 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. The Partnership recorded a write-down of the carrying value of its interests in two aircraft, representing an impairment, during the year ended December 31, 1995. The resulting charge, $500,000 ($1.66 per limited partnership unit) in 1995 was based on a comparison of the estimated net realizable value and corresponding carrying value for the Partnership's interests in the aircraft. Net realizable value was estimated based on (i) third- 4 party appraisals of the Partnership's aircraft and (ii) EFG's assessment of prevailing market conditions for similar aircraft. Interest expense was $39,438 or 6% of lease revenue in 1997, $71,964 of 9.2% of lease revenue in 1996 and $123,439 or 7.5% of lease revenue in 1995. Interest expense increased as a percentage of lease revenue in 1996 due to leveragings obtained in 1995 and 1996. Interest expense in the future will decline in amount and as a percentage of lease revenue as the principal balance of notes payable is reduced through the application of rent receipts to outstanding debt. Management fees were approximately 4.4%, 4.5% and 3.6% of lease revenue during the years ended December 31, 1997, 1996 and 1995, respectively. The increase in management fees as a percentage of lease revenue during 1996 compared to 1995 resulted from reclassifications of certain leases between operating and full-payout. 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 consist principally of administrative charges, professional service costs, such as audit and legal fees, as well as printing, distribution and remarketing expenses. In certain cases, equipment storage or repairs and maintenance costs may be incurred in connection with equipment being remarketed. The increase in operating expenses from 1995 to 1997 was due primarily to an increase in administrative charges. The amount of future operating expenses cannot be predicted with certainty; however, such expenses are usually higher during the acquisition and liquidation phases of a partnership. Other fluctuations typically occur in relation to the volume and timing of remarketing activities. LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS The Partnership by its nature is a limited life entity which was established for specific purposes described in the preceding "Overview". As an equipment leasing program, the Partnership's principal operating activities derive from asset rental transactions. Accordingly, the Partnership's principal source of cash from operations is provided by the collection of periodic rents. These cash inflows are used to satisfy debt service obligations associated with leveraged leases, and continue to be used to pay management fees and operating costs. Operating activities generated net cash inflows of $460,812, $1,526,591 and $958,185 in 1997, 1996 and 1995, 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 will also decline as the Partnership experiences a higher frequency of remarketing events. Ultimately, the Partnership will dispose of all assets under lease. This will occur principally through sale transactions whereby each asset will be sold to the existing lessee or to a third-party. Generally, this will occur upon expiration of each asset's primary or renewal/re-lease term. In certain instances, casualty or early termination events may result in the disposal of an asset. Such circumstances are infrequent and usually result in the collection of stipulated cash settlements pursuant to terms and conditions contained in the underlying lease agreements. Cash expended for asset acquisitions and cash realized from asset disposal transactions are reported under investing activities on the accompanying Statement of Cash Flows. During 1997, the Partnership expended $75,957 to upgrade certain research and test equipment. There were no equipment acquisitions during 1996 and 1995. For the year ended December 31, 1997, the Partnership realized $123,943 in equipment sale proceeds compared to $682,170 and $589,493 in 1996 and 1995, 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. The Partnership obtained long-term financing in connection with certain equipment leases. The origination of such indebtedness and the subsequent repayments of principal are reported as components of financing activities. Cash inflows of $737,116 during the year ended December 31, 1995 resulted from leveraging a portion of the Partnership's equipment portfolio with third-party lenders. Each note payable is recourse only to the 5 specific equipment financed and to the minimum rental payments contracted to be received during the debt amortization period (which period generally coincides with the lease rental term). As rental payments are collected, a portion or all of the rental payment is used to repay the associated indebtedness. In addition, during 1997 the Partnership utilized a portion of its available cash to repay certain of its debt obligations. The Partnership's indebtedness is expected to be fully amortized by the collection and application of rents during the year ended December 31, 1998. Cash distributions to the General and Limited Partners are declared and generally paid within fifteen days following the end of each calendar quarter. The payment of such distributions is presented as a component of financing activities. For the year ended December 31, 1997, the Partnership declared total cash distributions of Distributable Cash From Operations and Distributable Cash From Sales and Refinancings of $282,941. In accordance with the Amended and Restated Agreement and Certificate of Limited Partnership, the Limited Partners were allocated 95% of these distributions, or $268,794 and the General Partner was allocated 5%, or $14,147. The fourth quarter 1997 cash distribution was paid on January 13, 1998. Cash distributions paid to the Limited Partners consist of both a return of and a return on capital. Cash distributions do not represent and are not indicative of yield on investment. Actual yield on investment cannot be determined with any certainty until conclusion of the Partnership and will be dependent upon the collection of all future contracted rents, the generation of renewal and/or re-lease rents, and the residual value realized for each asset at its disposal date. Future market conditions, technological changes, the ability of EFG to manage and remarket the assets, and many other events and circumstances, could enhance or detract from individual asset yields and the collective performance of the Partnership's equipment portfolio. The future liquidity of the Partnership will be influenced by the foregoing, as well as the outcome of the Class Action Lawsuit described in Note 7 to the accompanying financial statements. The General Partner anticipates that cash proceeds resulting from the collection of contractual rents and the outcome of residual activities will satisfy the Partnership's future expense obligations. However, the amount of cash available for distribution in future periods will fluctuate. Equipment lease expirations and asset disposals will cause the Partnership's net cash from operating activities to diminish over time; and equipment sale proceeds will vary in amount and period of realization. In addition, the Partnership may be required to incur asset refurbishment or upgrade costs in connection with future remarketing activities. Accordingly, fluctuations in the level of future quarterly cash distributions are anticipated. 6 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, 1997 and 1996, 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, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Income Fund I-B, a Massachusetts Limited Partnership at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Additional Financial Information identified in the Index to Annual Report to the Partners is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. ERNST & YOUNG LLP Boston, Massachusetts March 10, 1998 7 AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership STATEMENT OF FINANCIAL POSITION December 31, 1997 and 1996
1997 1996 --------------- -------------- ASSETS Cash and cash equivalents.............................. $1,442,855 $1,938,967 Rents receivable....................................... 30,351 1,509 Accounts receivable -- affiliate....................... 76,072 38,647 Equipment at cost, net of accumulated depreciation of $3,333,813 and $3,460,675 at December 31, 1997 and 1996, respectively........ 1,232,893 1,597,440 --------------- -------------- Total assets..................................... $2,782,171 $3,576,563 --------------- -------------- --------------- -------------- LIABILITIES AND PARTNERS' CAPITAL Notes payable.......................................... $22,990 $726,096 Accrued interest....................................... 195 3,883 Accrued liabilities.................................... 9,200 22,750 Accrued liabilities -- affiliate....................... 15,272 20,448 Deferred rental income................................. 20,866 26,165 Cash distributions payable to partners................. 56,588 75,451 --------------- -------------- Total liabilities................................ 125,111 874,793 --------------- -------------- Partners' capital (deficit): General Partner.................................... (184,517) (182,282) Limited Partnership Interests (286,711 Units; initial purchase price of $25 each)................................. 2,841,577 2,884,052 --------------- -------------- Total partners' capital.......................... 2,657,060 2,701,770 --------------- -------------- Total liabilities and partners' capital.......... $2,782,171 $3,576,563 --------------- -------------- --------------- --------------
The accompanying notes are an integral part of these financial statements. 8 AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ---------- ---------- ---------- Income: Lease revenue............................................................. $ 658,262 $ 779,404 $1,645,094 Interest income........................................................... 79,405 83,113 43,111 Gain on sale of equipment................................................. 115,379 575,335 431,228 ---------- ---------- ---------- Total income............................................................ 853,046 1,437,852 2,119,433 ---------- ---------- ---------- Expenses: Depreciation and amortization............................................. 431,940 642,750 1,386,180 Write-down of equipment................................................... -- -- 500,000 Interest expense.......................................................... 39,438 71,964 123,439 Equipment management fees-affiliate....................................... 28,733 34,740 59,401 Operating expenses-affiliate.............................................. 114,704 78,819 67,364 ---------- ---------- ---------- Total expenses.......................................................... 614,815 828,273 2,136,384 ---------- ---------- ---------- Net income (loss)........................................................... $ 238,231 $ 609,579 $ (16,951) ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) per limited partnership unit.............................. $ 0.79 $ 2.02 $ (0.06) ---------- ---------- ---------- ---------- ---------- ---------- Cash distributions declared per limited partnership unit.................... $ 0.94 $ 1.38 $ 2.25 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements. 9 AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
GENERAL LIMITED PARTNERS PARTNER ----------------------- AMOUNT UNITS AMOUNT TOTAL ----------- --------- ------------ ------------ Balance at December 31, 1994.................................. $ (157,211) 286,711 $ 3,360,384 $ 3,203,173 Net loss--1995................................................ (848) -- (16,103) (16,951) Cash distributions declared................................... (33,953) -- (645,099) (679,052) ----------- --------- ------------ ------------ Balance at December 31, 1995.................................. (192,012) 286,711 2,699,182 2,507,170 Net income--1996.............................................. 30,479 -- 579,100 609,579 Cash distributions declared................................... (20,749) -- (394,230) (414,979) ----------- --------- ------------ ------------ Balance at December 31, 1996.................................. (182,282) 286,711 2,884,052 2,701,770 Net income--1997.............................................. 11,912 -- 226,319 238,231 Cash distributions declared................................... (14,147) -- (268,794) (282,941) ----------- --------- ------------ ------------ Balance at December 31, 1997.................................. $ (184,517) 286,711 $ 2,841,577 $ 2,657,060 ----------- --------- ------------ ------------ ----------- --------- ------------ ------------
The accompanying notes are an integral part of these financial statements. 10 AMERICAN INCOME FUND I-B, a Massachusetts Limited Partnership STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ------------- ------------- ------------ Cash flows from (used in) operating activities: Net income (loss)..................................................... $ 238,231 $ 609,579 $ (16,951) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization..................................... 431,940 642,750 1,386,180 Write-down of equipment........................................... -- -- 500,000 Gain on sale of equipment......................................... (115,379) (575,335) (431,228) Changes in assets and liabilities: Decrease (increase) in: Rents receivable.................................................. (28,842) 331,314 105,551 Accounts receivable--affiliate.................................... (37,425) 549,057 (527,535) Increase (decrease) in: Accrued interest.................................................. (3,688) (24,437) (22,644) Accrued liabilities............................................... (13,550) (45,860) 13,118 Accrued liabilities--affiliate.................................... (5,176) 13,358 (23,042) Deferred rental income............................................ (5,299) 26,165 (25,264) ------------- ------------- ------------ Net cash from operating activities.............................. 460,812 1,526,591 958,185 ------------- ------------- ------------ Cash flows from (used in) investing activities Purchase of equipment............................................... (75,957) -- -- Proceeds from equipment sales....................................... 123,943 682,170 589,493 ------------- ------------- ------------ Net cash from investing activities.............................. 47,986 682,170 589,493 ------------- ------------- ------------ Cash flows from (used in) financing activities: Proceeds--notes payable............................................. -- -- 737,116 Principal payments--notes payable................................... (703,106) (656,177) (889,469) Distributions paid.................................................. (301,804) (452,704) (792,228) ------------- ------------- ------------ Net cash used in financing activities........................... (1,004,910) (1,108,881) (944,581) ------------- ------------- ------------ Net increase (decrease) in cash and cash equivalents.................. (496,112) 1,099,880 603,097 Cash and cash equivalents at beginning of year........................ 1,938,967 839,087 235,990 ------------- ------------- ------------ Cash and cash equivalents at end of year.............................. $ 1,442,855 $ 1,938,967 $ 839,087 ------------- ------------- ------------ ------------- ------------- ------------ Supplemental disclosure of cash flow information: Cash paid during the year for interest.............................. $ 43,126 $ 96,401 $ 146,083 ------------- ------------- ------------ ------------- ------------- ------------ Supplemental disclosure of non-cash investing and financing activities: See Note 3 to the financial statements.
The accompanying notes are an integral part of these financial statements. 11 AMERICAN INCOME FUND I-B A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 1997 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 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 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 and Chief Executive Officer. 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. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 12 AMERICAN INCOME FUND I-B A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF CASH FLOWS The Partnership considers liquid investment instruments purchased with a maturity of three months or less to be cash equivalents. From time to time, the Partnership invests excess cash with large institutional banks in federal agency discount notes and reverse repurchase agreements with overnight maturities. Under the terms of the agreements, title to the underlying securities passes to the Partnership. The securities underlying the agreements are book entry securities. At December 31, 1997, the Partnership had $1,339,965 invested in federal agency discount notes and in reverse repurchase agreements secured by U.S. Treasury Bills or interests in U.S. Government securities. REVENUE RECOGNITION Rents are payable to the Partnership monthly 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. Future minimum rents of $584,854 are due as follows: For the year ending December 31, 1998 $ 187,007 1999.............................................................................. 185,182 2000.............................................................................. 116,936 2001.............................................................................. 74,445 2002.............................................................................. 21,284 --------- Total............................................................................. $ 584,854 --------- ---------
Revenue from major individual lessees which accounted for 10% or more of lease revenue during the years ended December 31, 1997, 1996 and 1995 is as follows:
1997 1996 1995 ---------- ---------- ---------- Horizon Air Industries, Inc.................................................. $ 278,208 $ 278,206 $ 278,208 General Motors Corporation................................................... $ 110,455 $ 175,380 $ 181,185 Awin Leasing Company, Inc.................................................... $ 91,622 $ -- $ -- Fred Meyer, Inc.............................................................. $ -- $ 149,291 $ 358,298 Cyclops Industries, Inc...................................................... $ -- $ -- $ 301,202
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, including other equipment leasing programs sponsored by EFG, or from third-party sellers. Equipment cost represents asset base price plus acquisition fees and was determined in accordance with the Restated Agreement, as amended, and certain regulatory guidelines. Asset base price is affected by the relationship of the seller to the Partnership as summarized herein. Where the seller of the equipment was EFG or an affiliate, asset base price was the lower of (i) the actual price paid for the equipment by EFG or the affiliate plus all actual costs accrued by EFG or the affiliate while carrying the equipment less the amount of all rents earned by EFG or the affiliate prior to selling the equipment or (ii) fair market value as 13 AMERICAN INCOME FUND I-B A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) determined by the General Partner in its best judgment, including all liens and encumbrances on the equipment and other actual expenses. Where the seller of the equipment was a third party who did not manufacture the equipment, asset base price was the lower of (i) the price invoiced by the third party or (ii) fair market value as determined by the General Partner. Where the seller of the equipment was a third party who also manufactured the equipment, asset base price was the manufacturer's invoice price, which price was considered to be representative of fair market value. DEPRECIATION AND AMORTIZATION 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. Such adjustments are reflected separately on the accompanying Statement of Operations as Write-Down of Equipment. The ultimate realization of residual value for any type of equipment is dependent upon many factors, including EFG's ability to sell and re-lease equipment. Changing market conditions, industry trends, technological advances, and many other events can converge to enhance or detract from asset values at any given time. Organization costs were amortized using the straight-line method over a period of five years. ACCRUED LIABILITIES--AFFILIATE Unpaid 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 4). 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, 1997 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. 14 AMERICAN INCOME FUND I-B A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 3--EQUIPMENT The following is a summary of equipment owned by the Partnership at December 31, 1997. Remaining Lease Term (Months), as used below, represents the number of months remaining from December 31, 1997 under contracted lease terms and is presented as a range when more than one lease agreement is contained in the stated equipment category. A Remaining Lease Term equal to zero reflects equipment either held for sale or re-lease or being leased on a month-to-month basis. In the opinion of EFG, the acquisition cost of the equipment did not exceed its fair market value.
REMAINING LEASE TERM EQUIPMENT EQUIPMENT TYPE (MONTHS) AT COST LOCATION - ----------------------------------------------------- ------------- ------------- ------------------------------- Aircraft............................................. 2 $ 2,641,262 OR Materials handling................................... 0-29 688,078 CA/GA/MI/NV/OH/TX/UT Trailers/intermodal containers....................... 0-60 620,259 GA/MI/OK Research and test.................................... 0-25 508,837 CA/CO Communications....................................... 0 68,604 CO/FL/ID/WA Construction and mining.............................. 3 39,666 IL ------------- Total equipment cost................................................ 4,566,706 Accumulated depreciation............................................ (3,333,813) ------------- Equipment, net of accumulated depreciation.......................... $ 1,232,893 ------------- -------------
During 1996, the Partnership transferred its ownership interest in certain trailers previously leased to The Atchison Topeka and Santa Fe Railroad ("ATSF") to a third party for cash consideration of $85,957. The trailers had a net book value of $32,494 at the time of transfer, resulting in a net gain of $53,463. The Partnership replaced certain of these trailers with comparable trailers and leased such to a new lessee. The transaction was structured as a like-kind exchange for income tax reporting purposes. The net carrying value of the new trailers, $385,063, was net of $41,241, representing the proportionate amount of gain, for financial statement purposes, deferred on the original trailers. The Partnership funded this transaction with $66,307 of the cash consideration and long-term financing of $359,997. The unused consideration of $19,650 was recognized as proceeds from equipment sales and the remainder of the net gain on sale of $12,222 was recognized as Gain on Sale of Equipment on the Statement of Operations during 1996. During 1995, the Partnership transferred its ownership interest in certain trailers, to a third party for cash consideration of $35,500. The trailers, previously leased to ATSF, had an aggregate net book value of $19,391 resulting in a net gain of $16,109. The transaction was structured as a like-kind exchange for income tax reporting purposes. The Partnership replaced these trailers with comparable trailers and leased such equipment to a new lessee. The net carrying value of the new trailers, $137,146, was net of $16,109, representing the amount of gain, for financial statement purposes, deferred on the original trailers. The Partnership funded this transaction with the $35,500 of cash consideration and long-term financing of $117,755. 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 15 AMERICAN INCOME FUND I-B A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 3--EQUIPMENT (CONTINUED) equipment ownership enables the Partnership to further diversify its equipment portfolio by participating in the ownership of selected assets, thereby reducing the general levels of risk which could result from a concentration in any single equipment type, industry or lessee. At December 31, 1997, the Partnership's equipment portfolio included equipment having a proportionate original cost of $2,792,790, representing approximately 61% of total equipment cost. Certain of the equipment and related lease payment streams were used to secure term loans with third-party lenders. The preceding summary of equipment includes leveraged equipment having an original cost of approximately $2,641,000 and a net book value of approximately $773,000 at December 31, 1997 (see Note 5). 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, 1997, the Partnership was not holding any equipment not subject to a lease and no equipment was held for sale or re-lease. The summary above includes equipment being leased on a month-to-month basis. The Partnership recorded a write-down of the carrying value of its interests in two aircraft, representing an impairment, during the year ended December 31, 1995. The resulting charge, $500,000 ($1.66 per limited partnership unit) in 1995 was based on a comparison of the estimated net realizable value and corresponding carrying value for the Partnership's interest in the aircraft. NOTE 4--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, 1997, 1996 and 1995, which were paid or accrued by the Partnership to EFG or its Affiliates, are as follows:
1997 1996 1995 ---------- ---------- ---------- Equipment management fees.................................................... $ 28,733 $ 34,740 $ 59,401 Administrative charges....................................................... 53,604 31,872 14,172 Reimbursable operating expenses due to third parties......................... 61,100 46,947 53,192 ---------- ---------- ---------- Total.................................................................... $ 143,437 $ 113,559 $ 126,765 ---------- ---------- ---------- ---------- ---------- ----------
As provided under the terms of the Management Agreement, EFG is compensated for its services to the Partnership. Such services include all aspects of acquisition, management and sale of equipment. For acquisition services, EFG is compensated by an amount equal to 2.23% of Equipment Base Price paid by the Partnership. For management services, EFG is compensated by an amount equal to the lesser of (i) 5% f gross operating lease rental revenues and 2% of gross full payout lease rental revenues received by the Partnership or (ii) fees which the General Partner reasonably believes to be competitive for similar services for similar equipment. Both of these fees are subject to certain limitations defined in the Management Agreement. Compensation to EFG for services connected to the sale of equipment is calculated as the lesser of (i) 3% of gross sale proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under arm's length 16 AMERICAN INCOME FUND I-B A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 4--RELATED PARTY TRANSACTIONS (CONTINUED) circumstances. Payment of the remarketing fee is subordinated to Payout and is 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. 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. All rents and proceeds from the sale of equipment are paid directly to either EFG or to a lender. EFG temporarily deposits collected funds in a separate interest-bearing escrow account prior to remittance to the Partnership. At December 31, 1997, the Partnership was owed $76,072 by EFG for such funds and the interest thereon. Atlantic Acquisition Limited Partnership ("AALP") and Old North Capital Limited Partnership ("ONC"), both Massachusetts limited partnerships formed in 1995 owned and controlled by certain principals of EFG, own 11,442 Units or 3.99% and 990 Units or 0.35% of the total outstanding units of the Partnership, respectively. EFG owns a Class D interest in AALP and a 49% limited partnership interest in ONC, both of which it acquired in December 1996. NOTE 5--NOTES PAYABLE Notes payable at December 31, 1997 consisted of two installment notes of $22,990 payable to an institutional lender. The installment notes are non-recourse, both with interest rates of 10.12%. The installment notes are collateralized by the equipment and assignment of the related lease payments and will be fully amortized by non-cancellable rents in the year ending December 31, 1998. In 1997, the Partnership also utilized a portion of its available cash to repay certain of its debt obligations. The carrying value of notes payable approximates fair value at December 31, 1997. 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, 1997, 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, 1997, 1996 and 1995: 17 AMERICAN INCOME FUND I-B A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 6--INCOME TAXES (CONTINUED)
1997 1996 1995 ---------- ---------- ---------- NET INCOME (LOSS)............................................................. $ 238,231 $ 609,579 $ (16,951) FINANCIAL STATEMENT DEPRECIATION IN EXCESS OF TAX DEPRECIATION.............. 34,752 61,886 591,644 WRITE-DOWN EQUIPMENT........................................................ -- -- 500,000 DEFERRED RENTAL INCOME...................................................... (5,299) 26,165 (25,264) OTHER....................................................................... (9,136) 123,033 (272,800) ---------- ---------- ---------- NET INCOME FOR FEDERAL INCOME TAX REPORTING PURPOSES.......................... $ 258,548 $ 820,663 $ 776,629 ---------- ---------- ---------- ---------- ---------- ----------
The principal component of "Other" consists of the difference between the tax gain on equipment disposals and the financial statement gain (loss) on disposals. The following is a reconciliation between partners' capital reported for financial statement and federal income tax reporting purposes for the years ended December 31, 1997 and 1996:
1997 1996 ------------ ------------ Partners' capital..................................................................... $ 2,657,060 $ 2,701,770 Add back selling commissions and organization and offering costs.................... 801,375 801,375 Financial statement distributions in excess of tax distributions.................... 2,829 3,773 Cumulative difference between federal income tax and financial statement income (loss)............................................................................ (826,351) (846,668) ------------ ------------ Partners' capital for federal income tax reporting purposes........................... $ 2,634,913 $ 2,660,250 ------------ ------------ ------------ ------------
Financial statement distributions in excess of tax distributions and cumulative difference between federal income tax and financial statement income (loss) represent timing differences. NOTE 7--LEGAL PROCEEDINGS On or about January 15, 1998, certain plaintiffs (the "Plaintiffs") filed a class and derivative action, captioned Leonard Rosenblum, et al. v. Equis Financial Group Limited Partnership, et al., in the United States District Court for the Southern District of Florida (the "Court") on behalf of a proposed class of investors in 28 equipment leasing programs sponsored by EFG, including the 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. 18 AMERICAN INCOME FUND I-B A MASSACHUSETTS LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTE 7--LEGAL PROCEEDINGS (CONTINUED) On March 9, 1998, counsel for the Defendants and the Plaintiffs entered into a Memorandum of Understanding setting forth the 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 Memorandum of Understanding represents a preliminary step towards a comprehensive Stipulation of Settlement between the parties that must be presented to and approved by the Court as a condition precedent to effecting a settlement. The Memorandum of Understanding (i) prescribes a number of conditions necessary to achieving a settlement, including providing the partners (or beneficiaries, as applicable) of the Nominal Defendants with the opportunity to vote on any settlement and (ii) contemplates various changes that, if effected, would alter the future operations of the Nominal Defendants. With respect to the Partnership and 10 affiliated partnerships (hereafter referred to as the "Exchange Partnerships"), the Memorandum of Understanding provides for the restructuring of their respective business operations into a single successor company whose securities would be listed and traded on a national stock exchange. The partners of the Exchange Partnerships would receive both common stock in the new company and a cash distribution in exchange for their existing partnership interests. Such a transaction would, among other things, allow for the consolidation of the Partnership's operating expenses with other similarly-organized equipment leasing programs. To the extent that the parties agree upon a Stipulation of Settlement that is approved by the Court, the complete terms thereof will be communicated to all of the partners (or beneficiaries) of the Nominal Defendants to enable them to vote thereon. There can be no assurance that the parties will agree upon a Stipulation of Settlement, or that it will be approved by the Court, or that the outcome of the voting by the partners (or beneficiaries) of the Nominal Defendants, including the Partnership, will result in a settlement finally being effected or in the Partnership being included in any such settlement. The General Partner and its affiliates, in consultation with counsel, concur that there is a reasonable basis to believe that a Stipulation of Settlement will be agreed upon by the parties and approved by the Court. In the absence of a Stipulation of Settlement approved by the Court, the Defendants intend to defend vigorously against the claims asserted in the Class Action Lawsuit. The General Partner and its affiliates cannot predict with any degree of certainty the ultimate outcome of such litigation. On July 27, 1995, EFG, on behalf of the Partnership and other EFG-sponsored investment programs, filed an action in the Commonwealth of Massachusetts Superior Court Department of the Trial Court in and for the County of Suffolk, for damages and declaratory relief against a lessee of the Partnership, National Steel Corporation ("National Steel"), under a certain Master Lease Agreement ("MLA") for the lease of certain equipment. EFG is seeking the reimbursement by National Steel of certain sales and/or use taxes paid to the State of Illinois and other remedies provided by the MLA. On August 30, 1995, National Steel filed a Notice of Removal which removed the case to the United States District Court, District of Massachusetts. On September 7, 1995, National Steel filed its Answer to EFG's Complaint along with Affirmative Defenses and Counterclaims, seeking declaratory relief and alleging breach of contract, implied covenant of good faith and fair dealing and specific performance. EFG filed its Answer to these counterclaims on September 29, 1995. Though the parties have been discussing settlement with respect to this matter for some time, to date, the negotiations have been unsuccessful. Notwithstanding these discussions, EFG recently filed an Amended and Supplemental Complaint alleging further default under the MLA and the matter remains pending before the Court. 19 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, 1997, 1996 AND 1995 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, 1997, 1996 and 1995.
1997 1996 1995 ---------- ------------ ------------ Rents earned prior to disposal of equipment, net of interest charges...... $ 531,173 $ 3,329,290 $ 1,597,784 Sale proceeds realized upon disposition of equipment...................... 123,943 682,170 589,493 ---------- ------------ ------------ Total cash generated from rents and equipment sale proceeds............... 655,116 4,011,460 2,187,277 Original acquisition cost of equipment disposed........................... 567,366 3,411,228 2,023,401 ---------- ------------ ------------ Excess of total cash generated to cost of equipment disposed.............. $ 87,750 $ 600,232 $ 163,876 ---------- ------------ ------------ ---------- ------------ ------------
20 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, 1997
SALES AND OPERATIONS REFINANCINGS TOTAL ----------- ----------- ------------ Net income....................................... $ 122,852 $ 115,379 $ 238,231 Add: Depreciation................................... 431,940 -- 431,940 Management fees................................ 28,733 -- 28,733 Book value of disposed equipment.................................... -- 8,564 8,564 Less: Principal reduction of notes payable...................................... (703,106) -- (703,106) ---------- -------- --------- Cash from operations, sales and refinancings.................................. (119,581) 123,943 4,362 Less: Management fees................................ (28,733) -- (28,733) --------- -------- --------- Distributable cash from operations, sales and refinancings................................. (148,314) 123,943 (24,371) Other sources and uses of cash: Cash at beginning of year...................... 1,938,967 -- 1,938,967 Purchase of equipment.......................... (75,957) (75,957) Net change in receivables and accruals..................................... (93,980) -- (93,980) Less: Cash distributions paid........................ (177,861) (123,943) (301,804) ---------- -------- --------- Cash at end of year.............................. $1,442,855 -- $1,442,855 ---------- -------- --------- ---------- -------- ---------
21 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 December 31, 1997 For the year ended December 31, 1997, the Partnership reimbursed the General Partner and its Affiliates for the following costs: Operating expenses........................................................ $ 119,281
22 EX-23 3 EXHIBIT 23 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 10, 1998, included in the 1997 Annual Report to the Partners of American Income Fund I-B. ERNST & YOUNG LLP Boston, Massachusetts March 10, 1998 EX-99.(E) 4 EXHIBIT 99(E) [CONFORMED COPY #2 STAMP] I HEREBY CERTIFY THAT THIS IS A TRUE, COMPLETE AND CORRECT COPY OF THE DOCUMENT. /s/ [Illegible] ----------------------- 95.03.31 Rev. 1/94 MASTER LEASE AGREEMENT FOR EQUIPMENT This Agreement, dated March 31, 1995, is between SLC FINANCIAL CORPORATION, having its principal place of business at 6560 North Scottsdale Road, Suite J205, Scottsdale, Arizona 85253 (together with any permitted assignee of any Item of Equipment, ("Lessor") and AWIN LEASING COMPANY, INC., having its principal place of business at 7201 East Camelback Road, Suite 375, Scottsdale, Arizona 85251 ("Lessee"). Section 1. DEFINITIONS. "Equipment Schedule" means the one Equipment Schedule, numbered 01, which is attached to this Master Lease Agreement, and any Equipment Schedules subsequently attached to this Master Lease Agreement with the mutual consent of Lessor and Lessee, and includes all attachments to any such Equipment Schedule. "Items of Equipment" means and includes all of the items of equipment described on any single Equipment Schedule. "Equipment" means and includes the aggregate of all Items of Equipment on all of the Equipment Schedules attached to this Master Lease Agreement. "Lease" means any individual Lease of any Items of Equipment which is created pursuant to the terms of this Master Lease Agreement and the particular Equipment Schedule pertaining to such Items of Equipment. The terms "Overdue Rate", "Interim Rent Date", "First Basic Rent Date", "Last Basic Rent Date", "Expiration Date" and "Casualty Value", when used with respect to the leasing of any Items of Equipment, shall have the meanings set forth in the relevant Equipment Schedule or Certificate of Acceptance attached to the Equipment Schedule for such Items of Equipment. Section 2. AGREEMENT FOR LEASE OF EQUIPMENT. Subject to, and upon all of the terms and conditions contained in this Master Lease Agreement and in the Equipment Schedules attached hereto, Lessor hereby agrees to lease to Lessee and Lessee hereby agrees to lease from Lessor all of the Equipment which is delivered to and accepted by Lessee in the manner described in Section 4 below. Each Equipment Schedule, with the attached Certificate of Acceptance and all other attachments thereto, when fully-executed by Lessor and Lessee as provided therein, shall constitute a separate Lease of the Items of Equipment described on such Equipment Schedule. The terms and provisions of this Master Lease Agreement shall be incorporated by reference in each Equipment Schedule, and such terms and provisions are intended to govern and be applied to the rights and obligations of Lessor and Lessee regarding each of the Items of Equipment and the Lease pertaining thereto. Section 3. ACCEPTANCE OF EQUIPMENT. Immediately upon delivery to Lessee of any Items of Equipment, Lessee shall inspect such Items of Equipment and, unless Lessee gives Lessor prompt written notice of any defect in, or other proper objection to, such Items of Equipment, Lessee shall, promptly upon completion of such inspection (which inspection may include any reasonable period of time necessary to determine the functionality and fitness of such Items of Equipment) and the installation of such Items of Equipment, execute and deliver to Lessor the Certificate of Acceptance attached to the Equipment Schedule for such Items of Equipment. Lessee's execution of such Certificate of Acceptance shall constitute (a) Lessee's unconditional acceptance of such Items of Equipment for lease from Lessor on the Date of Acceptance specified in such Certificate of Acceptance and (b) Lessee's acknowledgment and certification that such Items of Equipment have been delivered to and inspected by Lessee, have been installed to Lessee's satisfaction, are in good working order, repair, and condition, and have been accepted for maintenance by the manufacturer. Section 4. TERM OF LEASE. The Lease term for any Items of Equipment shall commence on the date of execution by Lessee of the Certificate of Acceptance for such Items of Equipment, provided that each of the conditions precedent set forth in Section 3 hereof has been fulfilled to Lessor's satisfaction by that date, and shall continue until the Expiration Date as specified in the Certificate of Acceptance ("Initial Term"). All terms and conditions of this 1 [CONFORMED COPY #2 STAMP] 95.03.31 Rev. 1/94 Agreement shall remain in full force and effect during any successive period. Lessee shall provide written notice to Lessor thirty (30) days prior to the Expiration Date as to whether, at the Expiration Date of the initial term, Lessee intends to (i) return the Items of Equipment to the Lessor, (ii) extend the Lease in conformity with the terms and conditions set forth on the Equipment Schedule pertaining to the Items of Equipment or (iii) purchase the Items of Equipment for the price and on the terms and conditions set forth in the Equipment Schedule. If Lessee is not in default at the time, upon tender at the Expiration Date (as it may be extended in accordance with this Section 4) of payment of the purchase price stipulated in the relevant Equipment Schedule for any Item of Equipment, Lessee shall be entitled to possession and ownership of such Item of Equipment, all obligations of Lessee to pay Rent on such Item of Equipment shall cease, all limitations on the use or disposition by Lessee of such Item of Equipment shall cease and Lessee shall be released from all and every other obligation, limitation or responsibility pertaining to such Item of Equipment hereunder. In addition, any security interest claimed by Lessor or its assignee in such Item of Equipment shall be null and void and Lessor or its assignee shall promptly take all actions to evidence such purchase by Lessee, including without limitation, filing any termination statements to evidence complete release of any security interest in such Items of Equipment and preparing and executing any bill of sale to evidence such transfer. The previous sentence of this section shall apply with equal force to any Item of Equipment which is transferred to Lessee pursuant to the terms of Section 14(c) hereof. Section 5. RENTAL CHARGES. Lessee shall pay to Lessor as rent for any Items of Equipment during the Lease term therefor the following amounts (collectively, the "Rent"): (a) On the Interim Rent Date, an amount ("Interim Rent") equal to the total monthly Basic Rent, divided by thirty (30) days, and then multiplied by the number of days from and including the date of Lessee's execution of the Certificate of Acceptance to and including the day immediately preceding the First Basic Rent Date; (b) As Basic Rent, commencing on the First Basic Rent Date, and on each Basic Rent Date thereafter to and including the Last Basic Rent Date, an amount equal to the Basic Rent as stipulated on the appropriate Equipment Schedule; (c) As Supplemental Rent, on or before the date required by the terms hereof (or upon Lessor's demand if no such date is specified herein), any other amount which Lessee is obligated to pay hereunder with respect to such Items of Equipment including indemnity payments and payments of Casualty Value. (d) To the extent permitted by applicable law, Lessee shall pay to Lessor a late charge (computed on the basis of a 360-day year) at the Overdue Rate on any payment of Basic Rent or Supplemental Rent for any Items of Equipment which is not paid when due (with a fifteen (15) day grace period). Such late charge shall accrue at the Overdue Rate from the applicable due date until said Rent payment is made in full. Section 6. NET LEASE. Each Lease created hereunder for any Items of Equipment shall be a net lease and Lessee acknowledges that Lessee's obligations thereunder, including, without limitation, its obligation to pay all Rent, shall be absolute and unconditional and, except as provided in Section 14 hereof, Lessee shall not be entitled to any abatement, reduction, defense, counterclaim, set-off, or recoupment, including, without limitation, abatements, deductions or set-offs due or alleged to be due by reason of any past, present or future claim of Lessee under any Lease, or any other agreement, contract or undertaking, against Lessor, any assignee of Lessor, or any vendor or manufacturer of the Equipment. Provided, however, that nothing herein shall limit Lessee's right to pursue any claims that it may have against Lessor or any other party in any appropriate manner. Except as otherwise expressly provided herein, such Leases shall not terminate, nor the obligations of Lessee or Lessor thereunder be otherwise affected, for any reason whatsoever, including, without limitation, any defect in the Equipment or any part or Items thereof or Lessor's title thereto or any damage to or destruction or loss of or interference with the possession or use of any Items of Equipment from any cause whatsoever (except for losses caused by Lessor); any liens, encumbrances or rights of others with respect to all or any part of the Equipment; the invalidity or unenforceability or lack of due authorization of this Agreement or any Lease; any insolvency of or any bankruptcy, reorganization or similar proceeding against Lessee or Lessor; or for any other cause similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding, it being the intention of the parties hereto that all Rent and other amounts payable by Lessee hereunder shall continue to be payable in all events in the manner and the times herein provided, unless the obligation to pay the same shall be terminated pursuant to the express provisions of this Agreement. To the extent permitted by applicable law, 2 [CONFORMED COPY #2 STAMP] 95.03.31 Rev. 1/94 Lessee hereby waives any and all rights which it may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to cancel, quit or surrender this Agreement, any Lease or any of the Equipment except in accordance with the express provisions hereof. Section 7. OWNERSHIP OF EQUIPMENT. The Equipment shall at all times (prior to the exercise by Lessee of any purchase option pertaining to any Item of Equipment as set forth herein and except as otherwise set forth in Section 14(c) hereof) remain the property of Lessor and any Items of Equipment may be removed by Lessor at any time after termination of the Lease with respect thereto (unless purchased by Lessee in accordance with the terms hereof and except as otherwise set forth in Section 14(c) hereof). Lessee shall, at its own expense, protect and defend Lessor's title in the Equipment and any Items thereof against all claims and liens of Lessee's creditors or any other person or entity whatsoever and shall at all times keep all Items of Equipment free and clear of all claims, liens and encumbrances except those resulting from the agreements or acts of Lessor. Section 8. POSSESSION. (a) Lessor warrants to Lessee that Lessee shall be entitled, as against all persons claiming by, through or under Lessor, to possess each of the Items of Equipment (and ultimately to purchase each Item of Equipment on the terms and at the price set forth in the relevant Equipment Schedule, free and clear of any liens or encumbrances not created by Lessee and to receive good and marketable title thereto), subject to the terms of the individual Lease for such Items of Equipment, which shall include the terms of this Agreement, so long as Lessee is not in default hereunder and under such Lease. (b) Unless Lessee exercises its purchase option, upon the expiration or earlier termination of each such Lease, Lessee, at its sole cost and expense, shall return the Items of Equipment leased thereunder to Lessor at Scottsdale, Arizona, or such other location in the United States as Lessor and Lessee may mutually agree and in as good condition and operating order as when delivered to Lessee, reasonable wear and tear excepted, subject to the terms of this Agreement. Section 9. TERMINATION OF LEASE; END OF TERM LIABILITY. This Lease will terminate at the end of the Expiration Date of the Initial Term or such later date as determined in accordance with the provisions of Section 4 hereof (the "End of the Lease Term") unless terminated earlier in accordance with the terms of this Agreement. Lessee hereby agrees to return the Equipment at Scottsdale, Arizona or such other location in the United States as Lessor and Lessee may mutually agree, at the End of the Lease Term or at Lessor's request upon default by Lessee hereunder (unless Lessee has purchased such Equipment in accordance with the terms hereof and except as otherwise set forth in Section 14(c) hereof). Section 10. MAINTENANCE. (a) Lessee at all times shall keep, repair, maintain and preserve the Equipment in good order and operating condition. Lessee covenants that the Equipment will be used and operated at all times materially in accordance with manufacturer instructions and in compliance in all material respects with any restriction contained in manufacturer warranties regarding the Equipment, and as otherwise may be required to enforce warranty claims against the manufacturer. (b) All maintenance and service charges related to the Equipment shall be borne by Lessee. Section 11. LOCATION AND USE OF EQUIPMENT. (a) During the term of each Lease for Items of Equipment, such Items shall be located at the address indicated in the relevant Certificate of Acceptance, or such other location as may be approved by the Lessor from time to time (which consent shall not be unreasonably withheld). Items of Equipment may be removed from such address only with the prior written consent of Lessor and any assignee of Lessor and provided that prior to such removal Lessee has executed and filed such Uniform Commercial Code financing statements and such other filings in any new locations as are necessary to preserve the right, title and interest of Lessor and any assignee of Lessor in such Items of Equipment. 3 [CONFORMED COPY #2 STAMP] 95.03.31 Rev. 1/94 (b) Lessee covenants and warrants that during the period that any Equipment is leased to Lessee hereunder, such Equipment will be used and operated at all times in compliance, in all material respects, with the laws of the jurisdiction(s) in which it is located, and in compliance, in all material respects, with all actions, rules, regulations and orders of any commission, board or other legislative, administrative, or judicial body or officer having power to regulate or supervise the use or operation of the Equipment. Section 12. INSURANCE. During the period that any Equipment is leased to Lessee hereunder, Lessee will, at all times and at its sole expense, carry and maintain, or cause to be carried and maintained: (a) insurance for loss of or damage to the Equipment caused by fire, lightning, tornado and windstorms, explosion, smoke and smudge, aircraft and motor vehicle damage, strikes, riots and civil commotion, burglary and theft, vandalism and malicious mischief, and other casualty events customarily insured against with respect to similar equipment, in an amount not less than the Casualty Value of the Equipment, and (b) public liability insurance covering the Equipment, in such amounts to be not less than two million dollars ($2,000,000) and against such risks as is customary with respect to similar equipment. Such policies will provide that the same may not be invalidated against Lessor or any assignee of Lessor by reason of any violation of a condition or breach of warranty of the policies or the application therefor by Lessee, that the policies may be cancelled or materially altered or reduced in coverage by the insurer only after thirty (30) days prior written notice to Lessor and any assignee of Lessor, and that the insurer will give written notice to Lessor and any assignee of Lessor in the event of nonpayment of premium by Lessee when due. Upon the execution of this Agreement and thereafter not less than thirty (30) days prior to the expiration dates of any such policies theretofore furnished under this Section, copies of the policies of insurance required by this Section shall be delivered by Lessee to Lessor and any assignee of Lessor. Such policies may be blanket policies covering other equipment not subject to the Leases created hereunder and under the Equipment Schedules, provided that any such blanket policy or certificate of insurance issued with respect thereto shall specifically describe the Equipment as being included therein and covered thereby to the full extent of the coverages and amounts required hereunder. If Lessee shall fail to cause the insurance required under this Section to be carried and maintained, Lessor or any assignee of Lessor may provide such insurance and Lessee shall reimburse Lessor or any such assignee of Lessor as the case may be, upon demand, for the reasonable cost thereof as Supplemental Rent hereunder. Lessor and any assignee of Lessor will be named as the sole loss payees, as their interest may appear, on all policies referred to in clause (a) above, so that the insurance proceeds payable under such policies will be payable and paid solely to Lessor and to any assignee of Lessor, as their interests may appear. Lessor and any assignee of Lessor will be named as additional insureds on all policies referred to in clause (b) above. Section 13. RISK OF LOSS, EVENT OF LOSS. (a) Lessee hereby assumes and shall bear the entire risk of loss or damage including, but not limited to, destruction, theft, or governmental taking of any Items of Equipment or any part or component thereof ("Event of Loss"), however caused or occasioned, whether partial or complete and whether or not covered by insurance. No such loss or damage shall relieve Lessee of any of its obligations under this Lease including, without limitation, the obligation to pay Rent. Lessee shall immediately notify Lessor of any Event of Loss involving the Equipment or any Items or part thereof. (b) If an Event of Loss occurs with respect to any Items of Equipment, Lessee, at the option and direction of Lessor, shall: (i) repair or restore the Items of Equipment to good repair, condition and working order; or (ii) replace the Items of Equipment with substantially identical equipment in good repair, condition and working order, title to which shall be transferred to Lessor free and clear of all liens, claims and encumbrances whatsoever; or (iii) pay Lessor in cash the Casualty Value for such Items of Equipment as set forth in the relevant Equipment Schedule. (c) If Lessor has directed Lessee to repair, restore or replace any Item of Equipment pursuant to clause (i) or (ii) above and if Lessee is not in default hereunder, then Lessor shall pay to Lessee any insurance proceeds received by it in connection with the Event of Loss affecting such Item of Equipment. In the event of an election by Lessor pursuant to clause (iii) above, and upon payment by Lessee of the Casualty Value and any accrued and unpaid Rent and all other amounts due under the Lease for such Items of Equipment, Lessee's obligation to pay Rent with respect to such Items of Equipment shall terminate, and Lessee shall become entitled 4 [CONFORMED COPY #2 STAMP] 95.03.31 Rev. 1/94 to possession and ownership of such Items of Equipment, or parts or components thereof, AS-IS, WHERE-IS without any warranty by Lessor, express or implied, and all insurance proceeds from such Event of Loss shall be paid to Lessee. Section 14. ENFORCEMENT OF WARRANTY. (a) Upon receipt of written request from Lessee, so long as Lessee shall not be in default under the relevant Lease or Equipment in question, Lessor shall take all reasonable action requested by Lessee to enforce any manufacturer's warranty, express or implied, issued on or applicable to any Items of Equipment, which is enforceable only by Lessor in its own name, provided, however, that Lessor shall not be obligated to resort to litigation to enforce any such warranty unless Lessee shall pay all reasonable expenses in connection therewith. Provided, Lessor's obligation under this paragraph (a) after the term of any relevant Lease shall have expired shall be subject to reimbursement of its actual expenses incurred thereby by Lessee, which shall be payable within thirty (30) days. (b) Similarly, if any such warranty for any Items of Equipment shall be enforceable by Lessee in its own name, Lessee hereby agrees, upon receipt of written request from Lessor and so long as this Agreement and the relevant Leases for Items of Equipment shall remain in force, to take all reasonable action requested by Lessor to enforce any such warranty, provided, however, that Lessee shall not be obligated to resort to litigation to enforce any such warranty unless Lessor shall pay all reasonable expenses in connection therewith. (c) Lessor hereby assigns to Lessee any warranty rights which Lessor may have against the manufacturer with respect to any Items of Equipment, to the extent such warranty rights are assignable. With respect to such warranty rights as are not assignable, Lessor hereby appoints Lessee as its agent and attorney-in-fact for the purpose of enforcing such warranty rights at Lessee's expense for so long as no Event of Default hereunder shall have occurred and be continuing. (d) In the event that either Lessor or Lessee resorts to litigation to enforce any warranty ("Litigating Party"), it is agreed that the Litigating Party shall have the right to take such action as it deems appropriate to settle, compromise or otherwise dispose of any claim under any such warranty, provided that the non-Litigating Party shall not be bound by any rulings, judgments, decisions, agreements, compromises and settlements made or handed down with respect thereto or entered into by the Litigating Party unless the non-Litigating Party shall have agreed in writing to be bound thereby. Section 15. DISCLAIMER OF WARRANTIES. Lessor leases the Equipment to Lessee AS-IS, WHERE-IS, in whatever condition it may be, without any agreement, warranty or representation, express or implied as to any matter whatsoever respecting the Equipment except as expressly set forth herein or in the Schedules hereto. Without limiting the generality of the foregoing, Lessor expressly disclaims any implied warranty of merchantability, fitness or adequacy for any particular purpose or use, quality, productiveness or capacity. Section 16. INDEMNIFICATION. (a) Lessor shall not be liable to Lessee for, and Lessee shall indemnify and hold Lessor and any assignee of Lessor, including, but not limited to, any security assignee, under any Lease (each such party referred to as an "indemnified party") harmless on an after-tax basis from and against any obligation, liability (including liability for negligence), claim, demand, action, suit, judgment, cost, loss, damage or expense (including litigation expense and attorneys' fees) of any kind or nature imposed on, incurred by or asserted against Lessor, caused, directly or indirectly, by or relating to (i) the inadequacy of any Items of Equipment for its or their intended purpose, (ii) any deficiency or defect (patent or latent) in any Items of Equipment, (iii) the use, operation or performance by Lessee of any Items of Equipment, (iv) any interruption or loss of service, use or performance of any Items of Equipment, (v) any patent, trademark, or copyright infringement relating to use by Lessee of any Items of Equipment, or (vi) any loss of business or other consequential damage whether or not resulting from any of the foregoing. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LESSOR SHALL NOT BE LIABLE FOR INJURIES TO PERSONS OR DAMAGE TO THE EQUIPMENT OR ANY OTHER PROPERTY UNDER ANY THEORY OF STRICT LIABILITY, AND LESSEE SHALL INDEMNIFY AND SAVE LESSOR AND EACH OTHER INDEMNIFIED PARTY HARMLESS ON AN AFTER-TAX BASIS FROM ANY SUCH LIABILITY AND ALL COSTS AND EXPENSES IN DEFENDING THE SAME. All of Lessor's rights under this Section shall survive the termination of the Leases created 5 [CONFORMED COPY #2 STAMP] 95.03.31 Rev. 1/94 hereunder, for a period of one (1) year. Lessee shall not be required to indemnify Lessor for claims in connection with any Items of Equipment arising from events which occur after such Items of Equipment have been redelivered to Lessor. (b) Lessee shall pay, indemnify and hold Lessor and each other indemnified party harmless on an after-tax basis from and against all taxes, fees and other charges, however designated, which are levied or imposed by any governmental authority upon any Items of Equipment or upon the sale, purchase, ownership, lease, use, possession or disposition thereof or upon Rent payable under the Lease therefor, including but not limited to sales and use taxes, personal property taxes, privilege and excise taxes, franchise taxes, ad valorem and value added taxes, leasing taxes, stamp taxes, gross receipts and gross income taxes and license and registration fees, excluding however, taxes levied against Lessor upon or measured by Lessor's net income, net worth or capital stock. To the extent permitted by applicable law, Lessee shall prepare (in such manner as will show Lessor's ownership of the Items of Equipment) and timely file all tax returns required by law in connection with taxes payable or indemnified by Lessee hereunder. With respect to any such tax return required to be filed by Lessor, Lessee shall notify Lessor of such requirement and furnish Lessor with all forms and information necessary for the preparation and timely filing of such return. Section 17. MODIFICATION OF EQUIPMENT. (a) If subsequent to the commencement of the relevant Lease, Lessee desires to: (i) make, or cause to be made, modifications or alterations to the physical condition of any Items of Equipment then subject to the Lease ("Modifications"); or (ii) add additional features or model changes ("Additional Features") to any Items of Equipment then under the Lease, which Additional Features are integral to the current functions of any of such Items of Equipment; or (iii) add Additional Features, whether or not integral to the current functions of any Items of Equipment, the installation or use of which would require any Modifications to any Items of Equipment, then Lessee shall give Lessor an opportunity to obtain any such Modifications, or Additional Features described in clauses (ii) and (iii) above, at Lessor's expense and to lease such Modifications or Additional Features to Lessee upon terms and conditions mutually agreeable to Lessor and Lessee (it being understood that the additional monthly rental payments which shall be paid by Lessee to Lessor for such Modifications or Additional Features must be sufficient to cover Lessor's related monthly debt payments, if any, incurred to finance the acquisition of such Modifications or Additional Features, that any such Modifications or Additional Features obtained by Lessor shall be deemed to be part of the Items of Equipment leased under the relevant Lease, and that Lessee shall be responsible for all related transportation and installation charges and maintenance charges for such Modifications or Additional Features. In the event that Lessor does not wish to obtain such Modifications or Additional Features, or Lessor and Lessee are unable to agree on leasing terms and conditions related to such Modifications or Additional Features, then Lessee, with the prior written consent of Lessor, which consent may not be unreasonably withheld, may purchase and install any such Modifications or Additional Features at Lessee's own expense with no additional Rent due Lessor for such Modifications or Additional Features. (b) Lessee may, at its own expense, and without the prior consent of Lessor, add Additional Features which enhance the capabilities of any existing Items of Equipment, but which are not integral to the current functions of such Items of Equipment and whose installation or use involves no Modifications, provided that such Additional Features do not interfere with the normal operation or maintenance of any Items of Equipment. Anything to the contrary in this clause (b) notwithstanding, any Additional Features described in this clause (b) which could not be removed or detached from the applicable Items of Equipment following installation, or whose installation or use would prevent the Items of Equipment from being restored to the condition in which such Items of Equipment are to be returned to Lessor as specified in Section 9(b) hereof ("Return Condition"), may not be added by Lessee to the Items of Equipment without the prior written consent of Lessor. Lessee agrees to give Lessor written notice of the addition of any such Additional Features within 30 days after installation thereof. Section 18. TRANSPORTATION EXPENSES. All transportation and installation expenses incurred in connection with the delivery of the Equipment to Lessee shall be paid by Lessee. Transportation expenses incurred in connection with redelivery of the Equipment to Lessor shall be paid by Lessee. 6 [CONFORMED COPY #2 STAMP] 95.03.31 Rev. 1/94 Section 19. EVENTS OF DEFAULT AND LESSOR'S REMEDIES. (a) Any of the following events shall constitute an Event of Default under any Lease created hereunder: (i) Lessee shall fail to pay any Basic Rent or other amount due under any such Lease within fifteen (15) days after written demand from Lessor is received by Lessee; (ii) Lessee shall attempt to remove, sell, transfer, encumber, part with possession of, assign or sublet (except as expressly permitted by the provisions hereof) the Items of Equipment leased under such Lease or any part thereof; (iii) any representation or warranty made by Lessee in this Agreement or in any document or certificate furnished to Lessor in connection herewith, shall prove to have been incorrect in any material respect when made; (iv) Lessee shall fail to perform or observe any other of its covenants or obligations under the Lease for a continuous period of thirty (30) days after receipt by Lessee of written notice thereof from Lessor; (v) Lessee shall cease doing business as a going concern; (vi) a petition shall be filed by or against Lessee under the Federal Bankruptcy Act or any amendment thereto (including a petition for reorganization or arrangement), and, if filed against Lessee, such petition shall not have been discharged within sixty (60) days after such filing; (vii) a receiver shall be appointed for Lessee or its property; or (viii) Lessee shall commit an act of bankruptcy, become insolvent, make an assignment for the benefit of creditors, or offer a composition generally of its indebtedness. (b) Upon the occurrence of any Event of Default under such Lease, as specified in subsection (a) of this Section 20, and at any time thereafter so long as the same shall be continuing, Lessor or any assignee of Lessor with respect to such Lease, at its sole option, may (i) declare immediately due and payable by Lessee, as liquidated damages for loss of a bargain and not as a penalty, an amount equal to the sum of (A) all unpaid Rent due under such Lease up to the date of payment by Lessee under this clause (i), and (B) the Casualty Value of the Items of Equipment leased under such Lease as of the Basic Rent Date immediately preceding the date on which Lessor or its assignee declares an Event of Default to exist; (ii) terminate the Lease, without prejudice to any other remedies of Lessor hereunder; (iii) whether or not the Lease has been terminated pursuant to subsection (ii) above, take possession of the Items of Equipment subject to such Lease during Lessee's normal business hours, without demand or notice, wherever the Items of Equipment may be located, without court order or other process of law (Lessee hereby waiving any right it may have to notice and hearing before repossession). Lessee hereby waives any and all damages occasioned by such entry or taking of possession. Any taking of possession pursuant to this subsection (b) (iii) shall not in itself constitute termination of the Lease and shall not, in any event, relieve Lessee of its obligations under the Lease. Lessee shall reimburse Lessor for all reasonable expenses (including attorneys' fees) incurred by Lessor in enforcing its rights under this Section 20. Any unpaid Rent and any unpaid Casualty Value payable as liquidated damages pursuant to clause (i) of this subsection 20(b) shall bear interest at the Overdue Rate until paid in full. Upon taking possession of any Items of Equipment, Lessor may, at its sole option and without notice to Lessee, lease the repossessed Items of Equipment to any unaffiliated third party on such terms and conditions as Lessor may determine, or sell such Items of Equipment at public auction or at private sale, free and clear of any rights of Lessee and without any duty to account to Lessee with respect to such sale or lease, except to the extent specified in this subsection 20(b). In the event that Lessor leases or sells any repossessed Items of Equipment, the Net Proceeds of such lease or sale (as defined below) shall first be credited to any amounts due and owing by Lessee under clause (i) above, and second, shall be used to reimburse Lessee for any payment already made by Lessee on account of amounts owed under clause (i) above. Any surplus shall be retained by Lessor. Lessee shall remain liable for any deficiency resulting from an excess of amounts due and owing by Lessee over Net Proceeds. As used in this subsection 20(b), "Net Proceeds" shall mean the proceeds actually received by Lessor from a sale of the repossessed Items of Equipment, or the gross proceeds of a new loan actually received plus any rents received prior to the new loan being funded, less all reasonable costs and expenses (including attorneys' fees and disbursements) incurred by Lessor as a result of Lessee's default and Lessor's exercise of its remedies with respect thereto. No right or remedy conferred upon or reserved to Lessor hereunder shall be exclusive of any other right or remedy, and each shall be cumulative and in addition to all other remedies available at law or in equity. The failure of Lessor to exercise the rights granted hereunder upon the occurrence of any Event of Default shall not constitute a waiver of any further or subsequent Event of Default. Section 20. ASSIGNMENTS. Lessor may, at any time and from time to time, without notice to, or the consent of, Lessee: (1) assign, sell or transfer, in whole or in part, Lessor's rights under any Leases created hereunder with respect to any Items 7 [CONFORMED COPY #2 STAMP] 95.03.31 Rev. 1/94 of Equipment, and any or all of Lessor's rights thereunder, including, without limitation, the right to receive any or all Rent payable under such Leases, (ii) sell, transfer or assign legal title to and ownership of the Equipment or any Items thereof to any person or entity, and (iii) mortgage or grant a security interest in any such Lease or in the Equipment or any Items thereof, to any person or entity; provided, however, that any such assignment, sale, transfer, mortgage or grant of security interest shall be subject to Lessee's rights under any such Leases so long as no Event of Default has occurred and is continuing thereunder. The terms of any such assignment of any Lease, except as security, shall be such as to permit Lessee to deal exclusively with SLC Financial Corporation as agent for such assignee in matters relating to the performance and administration of the Lease. Subsequent to any such assignment by Lessor, Lessor shall give Lessee written notice of such assignment, identifying therein the name and address of the assignee. Any such assignee of Lessor shall have all of the right, title and interest of Lessor as relates solely to the Items of Equipment and Lease or Leases assigned, sold or transferred to such assignee, and any assignee, other than an assignee for security only, shall become for all purposes of this Agreement and the relevant Lease, beginning on the date of such assignment, the Lessor of such Items of Equipment. Lessee hereby consents to such assignments, and agrees to acknowledge in writing any such assignment within five (5) days after receipt of written notice thereof from Lessor, and in the case of any such assignment, to take steps to confirm the status of any such assignee hereunder and under the relevant Lease, including, without limitation, providing to such assignee, at Lessee's sole cost and expense, any document (including Uniform Commercial Code financing statements or continuation statements) reasonably requested by such assignee to evidence or protect such assignee's title or other interest in the relevant Items of Equipment. As it relates to any assignment by Lessor to a Successor Lessor, any Successor Lessor must expressly agree to be bound by the terms hereof and of the relevant Lease, including without limitation, any right on the part of Lessee to purchase the relevant Items of Equipment under the terms of the applicable Equipment Schedule. So long as Lessor's rights hereunder are assigned to any assignee, Lessee may not assert against any such assignee any defense, counterclaim, recoupment, or set-off Lessee may have against Lessor. Lessee agrees that it will not seek to cancel or terminate this Agreement or any of the Leases created hereunder (except as expressly permitted herein) or otherwise avoid its obligations hereunder or thereunder as against such assignee, and further agrees that it will pay to such assignee all Rent due under such Leases and assigned to such assignee, without regard to any such defense, counterclaim, recoupment, or set-off. However, nothing herein shall be construed to prevent Lessee from exercising against Lessor any claim for damages or injunctive relief which Lessee may have against Lessor. Section 21. LESSEE'S WARRANTIES. (a) Lessee hereby warrants and represents to Lessor, its successors and assigns as follows: (i) Lessee is a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona, and is qualified to do business in, and is in good standing in, each state or other jurisdiction in which the nature of its business makes such qualification necessary (including each state or other jurisdiction in which the Equipment or any part thereof will be located); (ii) Lessee has the corporate power and authority to execute and perform its obligations under this Agreement, the Equipment Schedules and the Leases created thereunder and any related documents and certificates and to lease the Equipment under the Leases, and Lessee's execution and performance of this Agreement, the Equipment Schedules and the Leases created thereunder have been duly authorized by all necessary corporate action; (iii) the leasing of the Equipment from Lessor, the execution and delivery of this Agreement, the Equipment Schedules and any other related instruments, documents and agreements, and the compliance by Lessee with the terms thereof do not conflict with and will not result in a violation or breach of Lessee's Certificate of Incorporation (or equivalent document), or its Bylaws, or any indenture, contract or agreement by which Lessee is bound, or with any statute, judgment, decree, rule or regulation binding upon Lessee; (iv) no consent or approval of any trustee or holder of any indebtedness or obligation of Lessee, and no consent or approval of any governmental authority, is necessary (or, if required, has been obtained) for Lessee's execution or performance of this Agreement, the Equipment Schedules and the Leases created thereunder; (v) this Agreement, and the Equipment Schedules, when executed by the duly authorized officer or officers of Lessee, will constitute legal, valid and binding obligations of Lessee, enforceable against Lessee in accordance with their terms, subject to enforcement limitations imposed by rules of equity or by bankruptcy or similar laws; (vi) no mortgage, deed of trust, or other lien which now covers or affects, or which may hereinafter cover or affect, any property or interest therein of Lessee, now attaches or hereafter will attach to the Equipment or any Items of Equipment, or in any manner 9 [CONFORMED COPY #2 STAMP] 95.03.31 Rev. 1/94 affects or will affect adversely Lessor's right, title and interest therein; (vii) there is no litigation or other proceeding now pending or, to the best of Lessee's knowledge threatened, against or affecting Lessee, in any court or before any regulatory commission, board or other administrative governmental agency which would directly or indirectly adversely affect or impair the title of Lessor to the Equipment, or which, if decided adversely to Lessee, would materially adversely affect the business operations or financial condition of Lessee; (viii) all balance sheets, statements of profit and loss and other financial data that have been delivered to Lessor with respect to Lessee (i) are complete and correct in all material respects, (ii) accurately present the financial condition of Lessee on the dates for which, and the results of its operations for the periods for which, the same have been furnished, and (iii) have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods covered thereby, since the January 1995 financial statements delivered to Lessor by Lessee, there has been no change in the condition of Lessee, financial or otherwise, since the date of the most recent financial statements delivered to Lessor with respect to Lessee other than changes in the ordinary course of business, none of which changes, either separately or in aggregate, has been materially adverse. Section 22. LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to make any payment required to be made by it hereunder or fails to perform or comply with any of its agreements contained herein, Lessor may itself, after notice to Lessee, make any such payment or perform or comply with any such agreement, and the amount of any such payment and the amount of the reasonable expenses of Lessor incurred in connection with such payment or the performance of or compliance with such agreement, as the case may be, together with interest thereon at the Overdue Rate, if not paid by Lessee to Lessor on demand, shall be deemed Supplemental Rent due Lessor hereunder; provided, however that no such payment, performance or compliance by Lessor shall be deemed to cure any Event of Default hereunder until such amounts are paid to Lessor by Lessee. Section 23. FURTHER ASSURANCES. Lessee will promptly and duly execute and deliver to Lessor, and any assignee of Lessor, such other documents, and do such further acts, including, without limitation, such amendments to this Agreement or any Lease created hereunder as may be reasonably required by Lessor or by any assignee of Lessor from time to time in order to carry out more effectively the intent and purposes of this Agreement and any Lease created hereunder. Section 24. NOTICES. All notices provided for or required under the terms and provisions hereof shall be in writing, and any such notice shall be deemed given when personally delivered or when deposited in the United States mails, with proper postage prepaid, for first class certified mail, return receipt requested, addressed (i) if to Lessor or Lessee, at their respective addresses as set forth herein or at such other address as either of them shall, from time to time, designate in writing to the other, and (ii) if to any assignee of Lessor, to the address of such assignee as such assignee shall designate in writing to Lessor and Lessee. Section 25. SEVERABILITY OF PROVISIONS. In the event any one or more of the provisions contained herein shall for any reason be held to be invalid or unenforceable in any respect, such invalidity or unenforceability shall not affect any other provision hereof, but this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. Section 26. BENEFIT. This Agreement shall be binding upon and shall inure to the benefit of the parties, and their respective heirs, legal representative, successors and assigns. 9 [CONFORMED COPY #2 STAMP] 95.03.31 Rev. 1/94 Section 27. HEADINGS. The paragraph headings hereof have been inserted for convenience of reference only and shall not affect the meaning or interpretation of any of the provisions of this Agreement. Section 28. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona. Section 29. AMENDMENTS. This Agreement, the Equipment Schedules, and each related instrument, document, agreement and certificate, collectively constitute the entire agreement between Lessor and Lessee with respect to the leasing of the Equipment and may be amended or modified only by a writing signed by the parties hereto or their respective successors and assigns. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed the day and year first above written. LESSOR: SLC FINANCIAL CORPORATION LESSEE AWIN LEASING COMPANY, INC. BY: /s/ [Illegible] BY: /s/ [Illegible] ------------------------- ------------------------- TITLE: Pres. TITLE: Vice President ----------------------- ------------------------ DATE: 4/20/95 DATE: April 3, 1995 ------------------------ ------------------------- This is Counterpart No. 3 of 3 serially numbered, manually executed counterparts. To the extent that this document constitutes chattel paper under the Uniform Commercial Code, no security interest in this document may be created through the transfer and possession of any counterpart other than Counterpart No. 1. 10 EX-27 5 EXHIBIT 27
5 12-MOS DEC-31-1996 JAN-01-1997 DEC-31-1997 1,442,855 0 106,423 0 0 1,549,278 4,566,706 3,333,813 2,782,171 102,121 22,990 0 0 0 2,657,060 2,782,171 0 853,046 0 0 575,377 0 39,438 238,231 0 238,231 0 0 0 238,321 0 0
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