PRER14A 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 _________________________________ Filed by the Registrant X Filed by a party other than the Registrant _________________________________ Check the appropriate box: X Preliminary Proxy Statement Definitive Proxy Statement Definitive Additional Materials Soliciting Material Pursuant to Rule 14a-12 Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) ___________________________________________ AFG INVESTMENT TRUST C (Name of Registrant as Specified in Its Charter) ___________________________________________ Payment of Filing Fee (Check the appropriate box): No fee required. Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: 1 (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: 1 Set forth the amount on which the filing fee is calculated and state how it was determined. X Fee paid previously with preliminary materials. Check box if any part of the fee is offset as provided by Exchange Act Rule 0-1l(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: February ___, 2003 [INSERT MAILING DATE] Dear Beneficiaries of AFG Investment Trust C: In December 2000, AFG Investment Trust C (the "Trust"), along with three other affiliated trusts, made a tender offer through a subsidiary of MILPI Holdings, LLC ("MILPI") for all of the outstanding shares of PLM International, Inc. ("PLM"), an equipment leasing and management company. The four trusts collectively hold all of the outstanding membership interests in MILPI. In February 2002, MILPI completed the acquisition of PLM. The Managing Trustee believes that its interest in PLM, held through MILPI, currently constitutes the Trust asset with the most income and growth potential. It also intends for the operation of PLM to be the Trust's primary future business. Your consent is being sought to proposals, listed below, that the Managing Trustee believes would increase the income and value of PLM and in turn your investment in the Trust. Your consent is also being sought to proposals that the Managing Trustee believes would be in the best interest of the Trust in order to enable the Trust to continue its ongoing business. As discussed below, other than investments related to the business of PLM, or additional investments to support assets the Trust already owns, the Trust does not anticipate acquiring other investments. Each proposal is described in the enclosed Consent Solicitation Statement. Please take the time to read and carefully consider these proposals. A form of consent is enclosed with this Consent Solicitation Statement and instructions on how to submit your consent are included herein. Consents must be received no later than February ___, 2003 [30 DAYS AFTER MAILING DATE] to be counted, unless the return date is extended (for up to 90 days) by the Managing Trustee in the event that a sufficient number of consents required for the adoption (or rejection) of the proposals has not been received by such date. In the event that the deadline is extended, the Managing Trustee will provide notice to Beneficiaries by means of a press release or a letter mailed to each Beneficiary. Your consent is being sought with respect to the following proposals, which the Managing Trustee believes will provide the best opportunity to maximize the value of the Trust's assets, including its interest in PLM: (1) To allow PLM, its parent, MILPI, and the subsidiaries and affiliates that they control, to continue to operate their ongoing business making investments after December 31, 2002, notwithstanding the end of the reinvestment period for the Trust. (2) To approve a transaction whereby a newly formed subsidiary of PLM, RMLP, Inc., will receive a contribution from Semele Group, Inc. of partnership interests in BMIF/BSLF II Rancho Malibu Limited Partnership, a partnership that owns and is developing approximately 270 acres of land in Malibu, California, in exchange for $5.5 million in cash, a $2.5 million promissory note and 182 shares (15.4%) of the common stock of RMLP, Inc. Your consent is also being sought with respect to the following proposals: (3) To amend Section 7.5 of the Trust Agreement to approve grants and exercises of rights of first refusal in connection with joint ventures between the Trust and its affiliates. (4) To approve the purchase by MILPI of the membership interests in MILPI held by AFG Investment Trust A and AFG Investment Trust B, which would give the Trust, together with AFG Investment Trust D, shared 100% ownership of MILPI. (5) To allow the Trust, in its operation of PLM, to enter into business arrangements with affiliates of the Trust in the ordinary course of business on terms no less favorable than those that they would receive if such arrangements were being entered into with independent third parties. THE MANAGING TRUSTEE BELIEVES THAT THE ADOPTION OF EACH OF THE PROPOSALS IS IN THE BEST INTEREST OF THE TRUST AND RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH OF THE PROPOSALS. PLEASE RETURN THE ENCLOSED CONSENT FORM PRIOR TO FEBRUARY ___, 2003 TO MAKE SURE THAT YOUR CONSENT IS COUNTED. Very truly yours, Gary D. Engle President AFG ASIT Corporation, as Managing Trustee SUMMARY TERM SHEET Set forth below is a brief summary of the proposals included in this Consent Solicitation Statement. This summary may not contain all of the information that is important to you. Therefore, to better understand the proposals and for a more complete description of their terms, in addition to this summary you should carefully read this Consent Solicitation Statement and the annexes attached to it in their entirety. PROPOSAL ONE (P. 1) - The Trust proposes to allow PLM International, Inc. ("PLM") and its parent, MILPI Holdings, LLC, ("MILPI") to continue to operate their ongoing business making investments after December 31, 2002, notwithstanding the end of the reinvestment period for the Trust. - The Managing Trustee believes that the timing restrictions on investments set forth in the Trust's Trust Agreement do not apply to PLM, as an indirect subsidiary of the Trust. Unlike the Trust, PLM is an infinite life corporation engaged in the ongoing business of purchasing, managing and leasing assets directly or through investment programs similar to the Trust. The primary source of incremental income to PLM is from making new investments and then selling them either to investment programs or other third parties. Accordingly, in order to resolve any question as to whether or not the Trust's restriction on reinvestment might be construed to apply to PLM or MILPI, the Managing Trustee recommends that Beneficiaries of the Trust consent to PLM continuing to make investments after December 31, 2002. PROPOSAL TWO (P. __) - The Trust proposes to engage in a transaction whereby a newly formed subsidiary of PLM International, Inc., RMLP, Inc., will receive a contribution from Semele Group, Inc. of partnership interests in BMIF/BSLF II Rancho Malibu Limited Partnership, a partnership that owns and is developing approximately 270 acres of land in Malibu, California. - In exchange for the contribution, RMLP will deliver to Semele $5.5 million in cash, a $2.5 million promissory note (bearing interest at the rate of 7% per annum) and 182 shares (15.4%) of the common stock of RMLP. - The Managing Trustee believes that the proposed investment in the Rancho Malibu partnership represents a sound investment that is expected to provide reasonable, risk-adjusted pre-tax and post-tax rates of return to the Trust. - The Trust's financial advisors have determined that the price to be paid by MILPI in connection with the purchase is fair to the Trust from a financial point of view. See "Proposal Two - Fairness Opinion." PROPOSAL THREE (P. __) - The Trust proposes to amend Section 7.5 of its Trust Agreement to approve grants and exercises of rights of first refusal in connection with joint ventures between the Trust and its affiliates. - Section 7.5 of the Trust Agreement initially provided that the Trust has the right of first refusal in the event of a proposed sale of an asset, or an interest therein, initiated by a joint venturer. However, when Section 7.5 was amended in June 1999, the provision was deleted. The Managing Trustee believes that the deletion of this right was inadvertent and that the right should be reinstated. PROPOSAL FOUR (P. __) - The Trust proposes to cause MILPI to purchase the membership interests in MILPI held by two related entities, AFG Investment Trust A and AFG Investment Trust B, which would give the Trust, together with AFG Investment Trust D, shared 100% ownership of MILPI. The Trust and Trust D currently intend to continue operating PLM through MILPI as an ongoing business until the Trusts are liquidated pursuant to the terms of their respective Trust Agreements. Although it is anticipated that the Trust and Trust D will sell their interests in MILPI at the time of such liquidations, the Trusts have no current intentions regarding the terms of any such sales or the parties to whom the interest will be sold. If the sale of the Trust's MILPI interest back to MILPI is not concluded for any reason the Managing Trustee would be authorized to determine, in its discretion, to sell Trust A's and Trust B's MILPI interest to another affiliate. - The staff of the SEC has informed two affiliates of Trust A and Trust B that it believes that they may be unregistered investment companies. Accordingly, while they have publicly stated that they do not believe they are unregistered investment companies, they are in the process of liquidating their remaining assets to avoid the burden and extra expense of continuing to pursue this issue with the staff of the SEC. - The proposed acquisition is to be accomplished pursuant to a Membership Interest Purchase Agreement at the initial price paid to purchase the interests, less any dividends paid, plus the reimbursement of acquisition fees paid by the Trust to the Managing Trustee pursuant to the Trust Agreement in connection with the purchase of its MILPI membership interests. - The Trust's financial advisors have determined that the price to be paid by MILPI in connection with the purchase is fair to the Trust from a financial point of view. See "Proposal Four - Fairness Opinion." PROPOSAL FIVE (P. __) - The Trust proposes, in its operation of PLM International, Inc., to enter into business arrangements with affiliates of the Trust in the ordinary course of business on terms no less favorable than those that they would receive if such arrangements were being entered into with independent third parties. - As stated elsewhere in this Consent Solicitation Statement, the Managing Trustee believes that its interest in PLM, held through MILPI, currently constitutes the Trust's asset with the most growth and income potential and that it intends to conduct as much of the Trust's future business as possible through PLM. In order to do so, the Trust believes it must be able to operate PLM as an ongoing business and enter into agreements, understandings and arrangements with affiliates of the Trust in the ordinary course of business, despite any conflicts that may arise under the Trust Agreement. AFG INVESTMENT TRUST C 200 NYALA FARMS WESTPORT, CONNECTICUT 06880 This Consent Solicitation Statement (this "Solicitation Statement") is being furnished to each holder (individually, a "Beneficiary," and, collectively, the "Beneficiaries") of Class A Beneficiary Interests ("Class A Interests") and Class B Subordinated Beneficiary Interests ("Class B Interests"; the Class A Interests and the Class B Interests, collectively, the "Interests") in AFG Investment Trust C, a Delaware business trust (the "Trust"), by the Managing Trustee of the Trust, AFG ASIT Corporation, a Massachusetts corporation (the "Managing Trustee"), in connection with the solicitation by the Trust of the consent of the Beneficiaries to the above stated proposals. This Solicitation Statement and the accompanying consent form are being mailed to Beneficiaries of record as of the close of business on February ___ 2003 [INSERT DATE 2-3 DAYS BEFORE MAILING DATE] (the "Record Date"). As of __________, 2002, there were 1,787,153 Class A Interests and 3,024,740 Class B Interests outstanding, of which 14,450 Class A Interests were held by the Managing Trustee or its affiliates, and 3,019,222 Class B Interests were held by the Managing Trustee or its affiliates. Pursuant to Section 11.2 of the Second Amended and Restated Declaration of Trust of the Trust, as amended (the "Trust Agreement"), Beneficiaries are entitled to cast one vote for each Class A Interest or Class B Interest they own. In general, a majority in interest of all of the Beneficiaries is required to take action on behalf of the Trust. However, in the case of a transaction that is deemed to be an "Interested Transaction" pursuant to the Trust Agreement, the Managing Trustee and its affiliates must vote their Class B Interests in accordance with the vote of a majority of the Class A Interests actually voted. In addition, the Managing Trustee and its affiliates may not vote their Class A Interests in connection with an Interested Transaction. The Managing Trustee and its affiliate, Equis II Corporation, have agreed to treat all of the proposals as if they are Interested Transactions. Accordingly, the Managing Trustee and Equis II Corporation will not vote the 14,450 Class A Interests they hold or control and will vote all of the 3,019,222 Class B Interests they hold in accordance with the vote of a majority of the Class A Interests actually voted. Each proposal will therefore be adopted or rejected based upon the majority of the Class A Interests actually voted by the Beneficiaries not affiliated with the Managing Trustee. For example, if a majority of the Class A Interests that vote are voted by the unaffiliated Beneficiaries to approve a proposal, all of the Class B Interests owned by the Managing Trustee and Equis II Corporation will also be voted to approve the proposal and it will be adopted. If a majority of the Class A Interests that vote are voted against a proposal, those Class B Interests will all be voted against the proposal and the proposal will be rejected. Under Delaware law, no dissenters' rights (i.e., rights of nonconsenting Beneficiaries to exchange their Interests in the Trust for payment of their fair value) are available to any Beneficiary of the Trust regardless of whether such Beneficiary has or has not consented to a given Proposal. The consent form enclosed with this Solicitation Statement, to be valid, must be signed by the record owner(s) of the Interests and returned to the Managing Trustee by February ___, 2003 (subject to extension for up to 90 days at the discretion of the Managing Trustee in the event that a sufficient number of consents required for the adoption - or rejection - of the proposals has not been received by such date). The Managing Trustee will provide notice to Beneficiaries of any extensions by means of a press release or a letter mailed i to each Beneficiary. You may return the consent form to the Managing Trustee by fax, mail or hand-delivery c/o The Altman Group, Inc., 60 East 42nd Street, Suite 405, New York, New York 10165, telephone: (800) 461-2657, facsimile: (212) 973-9818. A stamped envelope addressed to the Managing Trustee is enclosed for you to mail your consent form. To be valid, a consent form must be signed by the record owner(s) of the Interests represented thereby as listed in the records of the Trust on the Record Date and, if returned by fax, both sides of the consent form must be returned. Pursuant to Section 12.1 of the Trust Agreement, a written consent may not be withdrawn or voided once the consent form is received by the Managing Trustee. A properly executed consent form received by the Managing Trustee will be voted in accordance with the directions indicated on the form. If no direction is indicated as to a Proposal, a properly executed consent form received by the Managing Trustee will be voted in favor of that Proposal. However, brokers do not have discretionary authority to vote Interests held in street name. Therefore, the failure by beneficial owners of Interests held in street name to give voting instructions to brokers will result in broker non-votes. Broker non-votes, abstentions and the failure to consent will all be treated as non-votes. All questions as to the validity (including time of receipt) of all consent forms will be determined by the Managing Trustee, which determinations will be final and binding. Voting on the Proposals will be conducted only by written consent and no formal meeting of the Beneficiaries will be held. THE MANAGING TRUSTEE RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS. PLEASE VOTE BY MARKING AND SIGNING THE ACCOMPANYING CONSENT FORM AND RETURNING IT PROMPTLY IN THE ENCLOSED ENVELOPE SO THAT IT IS RECEIVED BY FEBRUARY ___, 2003. This Solicitation Statement has been prepared under the direction of the Managing Trustee on behalf of the Trust. The costs of preparing and mailing this Solicitation Statement and the enclosed consent form and soliciting consents will be paid by the Trust. In addition to soliciting the consent of Beneficiaries by mail, representatives of the Managing Trustee may, at the Trust's expense, solicit the consent of Beneficiaries by telephone, telegraph, in person or by other means. In addition, the Managing Trustee has retained The Altman Group to solicit consents. The fees of The Altman Group will be paid by the Trust and are estimated to be $_______. This Solicitation Statement is first being sent or given to Beneficiaries on or about February ___, 2003. THE MANAGING TRUSTEE RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS AND URGES YOU TO COMPLETE AND RETURN THE ENCLOSED CONSENT FORM IMMEDIATELY. IF YOU HAVE QUESTIONS RELATING TO THE PROPOSALS, PLEASE TELEPHONE THE ALTMAN GROUP AT (800) 461-2657. ii TABLE OF CONTENTS PAGE ---- PROPOSAL 1 - TO ALLOW PLM, ITS PARENT, MILPI, AND THE SUBSIDIARIES AND AFFILIATES THAT THEY CONTROL, TO CONTINUE TO OPERATE THEIR ONGOING BUSINESS MAKING INVESTMENTS AFTER DECEMBER 31, 2002, NOTWITHSTANDING THE END OF THE REINVESTMENT PERIOD FOR THE TRUST 1 PROPOSAL 2 - APPROVAL OF THE ACQUISITION OF PARTNERSHIP INTERESTS IN RANCHO MALIBU LIMITED PARTNERSHIP FROM SEMELE GROUP, INC. BY RMLP, INC., A SUBSIDIARY OF PLM 3 SUMMARY 3 RISK FACTORS 8 THE PARTIES 16 The Trust 16 Semele 16 Rancho Malibu 17 RMLP 17 C & D Joint Venture 17 THE TRANSACTION 18 Background to the Transaction 18 Description of the Rancho Malibu Project 18 Structure of the Transaction 19 Financing of the Transaction 20 Potential Partnering with California Developer 21 Reasons for the Transaction 21 Interests of Certain Persons in the Transaction 22 Imperial Capital Fairness Opinion 22 Regulatory Matters 24 Appraisal Rights 25 Selected Financial Data 25 THE CONTRIBUTION, ASSIGNMENT, ASSUMPTION AND ACKNOWLEDGMENT AGREEMENT 26 Conditions to Completion of the Transaction 26 Conduct of Business Pending the Consummation of the Transaction 27 Termination 28 iii Description of the Promissory Note 28 Description of the Common Stock of RMLP 29 PROPOSAL 3 - APPROVAL OF THE AMENDMENT TO SECTION 7.5 OF THE TRUST AGREEMENT TO APPROVE GRANTS AND EXERCISES OF RIGHTS OF FIRST REFUSAL IN JOINT VENTURES BETWEEN THE TRUST AND ITS AFFILIATES 31 The Amendment 31 Reason for the Amendment 31 PROPOSAL 4 - APPROVAL OF THE PURCHASE BY MILPI OF THE MEMBERSHIP INTERESTS IN MILPI HELD BY TRUST A AND TRUST B, WHICH WOULD GIVE THE TRUST, TOGETHER WITH TRUST D, SHARED 100% OWNERSHIP OF MILPI 32 Reason for the Sale 32 Terms of the Sale 32 Fairness Opinion 33 Selected Financial Data 36 FINANCIAL INFORMATION WITH RESPECT TO MILPI 37 Management's Discussion and Analysis of Financial Condition and Results of Operations for the Period February 7, 2001 through December 31, 2001 for MILPI 37 Consolidated Financial Statements for the period February 7, 2001 through December 31, 2001 for MILPI 44 Notes to Consolidated Financial Statement 50 Management's Discussion and Analysis of Financial Condition and Results of Operations for Periods Ended September 30, 2002 for MILPI 62 Unaudited Consolidated Financial Statements For Periods Ended September 30,2002 for MILPI 70 Notes to Condensed Consolidated Financial Statements (Unaudited) 75 PROPOSAL 5 - TO ALLOW THE TRUST, IN ITS OPERATION OF PLM, TO ENTER INTO BUSINESS ARRANGEMENTS WITH AFFILIATES IN THE ORDINARY COURSE OF BUSINESS ON TERMS NO LESS FAVORABLE THAN THOSE THAT THEY WOULD RECEIVE IF SUCH ARRANGEMENTS WERE BEING ENTERED INTO WITH INDEPENDENT THIRD PARTIES 82 UNAUDITED PRO FORMA FINANCIAL INFORMATION 83 Notes to Unaudited Pro Forma Financial Information 88 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 91 ADDITIONAL INFORMATION CONCERNING THE TRUST 92 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 92 iv Annex A Malibu Contribution Agreement A-1 Annex B Malibu Joint Venture Agreement B-1 Annex C Malibu Amended Partnership Agreement C-1 Annex D-1 Malibu Fairness Opinion D-1 Annex D-2 Malibu Real Estate Appraisal D-4 Annex E Text of Amendment E-1 Annex F MILPI Purchase Agreement F-1 Annex G MILPI Fairness Opinion G-1 v PROPOSAL 1 - TO ALLOW PLM, ITS PARENT, MILPI, AND THE SUBSIDIARIES AND AFFILIATES THAT THEY CONTROL, TO CONTINUE TO OPERATE THEIR ONGOING BUSINESS MAKING INVESTMENTS AFTER DECEMBER 31, 2002, NOTWITHSTANDING THE END OF THE REINVESTMENT PERIOD FOR THE TRUST MILPI is currently owned by all four of the AFG Investment Trusts. MILPI in turn owns PLM. As an indirect owner of PLM, the Trust receives potential income through acquisition fees and management fees earned by PLM, MILPI and their subsidiaries and affiliates. In addition to fee income, as the value of the PLM investment programs increase, so does the value of the Trust's membership interests in MILPI, thus creating value for the Trust. Under Section 4.2(b)(iv) of the Trust Agreement governing the Trust, the Trust may not reinvest in additional Assets (as defined in the Trust Agreement) past December 31, 2002. A similar provision is included in the Trust Agreement governing Trust D as well. The provision restricting reinvestment reflects the Trust's investment policy and finite life, its stated intention to liquidate its Assets within seven years and the requirement to dissolve on or before December 31, 2004. This proposal does not contemplate any reinvestment of the Trust's funds and does not extend the Trust's reinvestment period beyond the December 31, 2002 deadline. Nor does the proposal change the termination date for the Trust or permit the Trust's funds or other assets to be used to provide funds for PLM to use. However, the Managing Trustee believes that neither the timing restrictions on investments in the Trust Agreement nor the definition of Assets in the Trust Agreement apply to PLM, as an indirect subsidiary of the Trust. Unlike the Trust, PLM is an infinite life corporation engaged in the ongoing business of purchasing, managing and leasing assets directly or through investment programs similar to the Trust. Prior to its acquisition by MILPI, PLM operated as a public company with no restrictions on the reinvestment of its funds. MILPI's acquisition of PLM was predicated on PLM continuing to operate as it had in the past. Accordingly, notwithstanding the end of the reinvestment period for the Trust and Trust D, PLM will continue to make investments as part of its ongoing business. In order to resolve any question as to whether or not the Trust's restriction on reinvestment might be construed to apply to PLM, the Managing Trustee recommends that the Beneficiaries consent to PLM continuing to make investments after December 31, 2002. The primary source of potential income to PLM and its subsidiaries and affiliates is acquisition fees and management fees. PLM is currently entitled to receive such fees with respect to three PLM funds and on sales to third parties. PLM is also the general partner in the funds it manages, and therefore the value of its general partnership interest is maximized by having the PLM funds make investments that produce attractive returns. Pursuant to the terms of the Trust Agreement, EFG or the Managing Trustee would normally receive fees in the amount of 1% on equipment acquisitions carried out by the Trust, and a 2% annual management fee on such equipment. The Managing Trustee would normally receive fees in the amount of 1% on non-equipment acquisitions carried out by the Trust and a 1% annual management fee on such assets. However, EFG and the Managing Trustee have agreed to limit any acquisition fees related to PLM to the extent they are in excess of 1% or 50% of what PLM or its affiliates would otherwise be entitled to receive. To the extent the existing Trust and PLM agreements provide no fee to the Managing Trustee, no modification to the agreements is proposed. After December 31, 2002, the Trust does not anticipate making any direct investments itself except for those investments related to maintaining existing Trust assets. PLM and its subsidiaries and affiliates are expected to be the principal investment vehicles in the future. THE MANAGING TRUSTEE RECOMMENDS THAT BENEFICIARIES CONSENT TO THE APPROVAL OF PROPOSAL ONE. 2 PROPOSAL 2 - APPROVAL OF THE ACQUISITION OF PARTNERSHIP INTERESTS IN RANCHO MALIBU LIMITED PARTNERSHIP FROM SEMELE GROUP, INC. BY RMLP, INC., A SUBSIDIARY OF PLM SUMMARY This summary highlights some of the questions that you, as a Beneficiary, may have concerning the proposed acquisition for which your consent is sought. This summary may not contain all of the information that is important to you. Therefore, to better understand the proposed acquisition and for a more complete description of the terms of the proposed acquisition, in addition to this summary you should carefully read this entire proposal and the related annexes attached hereto. THE PARTIES AFG INVESTMENT TRUST C The Trust is a Delaware business trust formed in 1992 to acquire and lease to third parties a diversified portfolio of capital equipment. The Trust's primary assets currently consist of capital equipment, as well as ownership interests in EFG Kirkwood LLC, a resort business, Kettle Valley, LLC, a real estate development company, and PLM , a company that manages and owns an equity interest in a diversified portfolio of transportation and related equipment for various investment programs sponsored by PLM and for other third-party investors. The Managing Trustee of the Trust is AFG ASIT Corporation, which is a wholly-owned subsidiary of Equis II Corporation, a wholly-owned subsidiary of Semele Group, Inc. ("Semele"). The address of the Trust is 200 Nyala Farms, Westport, Connecticut 06880, telephone: (203) 341-0555. SEMELE Semele is a Delaware corporation that was organized in 1987 as Banyan Strategic Land Fund II to invest primarily in short-term, junior, pre-development and construction mortgage loans. Today, Semele is engaged in various real estate activities, including residential property development, and holds investments in other companies operating in niche financial markets, principally involving real estate and equipment leasing. Semele's common stock is quoted on the OTC Bulletin Board, commonly referred to as the "over the counter market," under the trading symbol VSLF.OB. Semele is the owner of Equis II Corporation, which in turn is the owner of the Managing Trustee of the Trust. Semele also owns BSLF II Rancho Malibu Corp. ("Rancho Malibu Corp."). BMIF/BSLF II Rancho Malibu Limited Partnership (the "Rancho Malibu partnership") is 73.95% owned by Rancho Malibu Corp., as a co-managing general partner, and 1.05% owned by Semele, as a limited partner. The address of the Semele is 200 Nyala Farms, Westport, Connecticut 06880, telephone: (203) 341-0555. RANCHO MALIBU The Rancho Malibu partnership is 73.95% owned by Rancho Malibu Corp., which is 100% owned by Semele. The Rancho Malibu partnership owns approximately 270 acres of land in Malibu, California (the "Rancho Malibu property"), which is being developed as a single-family luxury residential subdivision. The Rancho Malibu property was acquired by an affiliate of Semele by deed in lieu of foreclosure in December 1990. To date, the Rancho Malibu partnership has obtained regulatory permits, commenced construction of an off-site waterline and planned the development's infrastructure. The address of the Rancho Malibu partnership is c/o PLM International, Inc., 200 Nyala Farms, Westport, Connecticut 06880, telephone: (203) 341-0555. RMLP RMLP, Inc. ("RMLP") was formed for the purpose of engaging in the proposed Malibu transaction and currently has no operations. RMLP is 100% owned by PLM. PLM is owned by MILPI, and MILPI is in turn owned by the Trust and three other affiliated trusts. The address of RMLP is c/o PLM International, Inc., 200 Nyala Farms, Westport, Connecticut 06880, telephone: (203) 341-0555. THE TRANSACTION Pursuant to a Contribution Agreement (the "Agreement"), RMLP will receive a capital contribution from Semele of Semele's limited partnership interests and from Rancho Malibu Corp. of Rancho Malibu Corp.'s general partnership interests in the Rancho Malibu partnership, in exchange for consideration, as more fully described below and in the Agreement. The Agreement is attached hereto as Annex A. You should read the entire Agreement before making any decision with respect to Proposal Two, as it is the principal document governing the acquisition. REASONS FOR THE TRANSACTION (P. 16) The Managing Trustee believes that the proposed investment in the Rancho Malibu partnership represents a sound investment that is expected to provide reasonable, risk-adjusted pre-tax and post-tax rates of return to the Trust. STRUCTURE AND BACKGROUND OF THE TRANSACTION (PP. 13 AND 14) On March 1, 2002, the Trust and Trust D formed C & D IT LLC, a Delaware limited liability company, as a 50%/50% owned and managed joint venture (the "C & D Joint Venture"), for the purpose of making a conditional contribution of $2 million to the Rancho Malibu partnership in exchange for 25% of the interests in the Rancho Malibu partnership (the "C & D Joint Venture Contribution"). The Joint Venture Agreement between the Trust and Trust D that created the C & D Joint Venture is attached hereto as Annex B. You should read the entire Joint Venture Agreement before making any decision with respect to Proposal Two. The C & D Joint Venture was admitted to the Rancho Malibu partnership as a co-managing general partner pursuant to the terms of an Amendment to Limited Partnership Agreement dated March 12, 2002 (the "Amendment to the Partnership Agreement"). The Amendment to the Partnership Agreement is attached hereto as Annex C. You should read the entire Amendment to the Partnership Agreement before making any decision with respect to Proposal Two. The C & D Joint Venture Contribution was made in anticipation of, and subject to, the consummation of the transactions contemplated by the Agreement, and on the condition that Semele contribute to the Rancho Malibu partnership 100% of the membership interests it held in RM Financing LLC, a Delaware limited liability company, the sole asset of which is a Note dated December 31, 1990 having an original principal amount of $12,750,000, increased to $14,250,000, with a 15.3% interest rate, made by the Rancho Malibu partnership in favor of Semele (the Note has been held by a Semele affiliate since it received a deed in lieu of foreclosure on the property from the original owner). The C & D Joint Venture possesses the right to demand the return of the C & D Joint Venture Contribution from the Rancho Malibu partnership if the transactions contemplated by the Agreement have not been consummated within 90 days of the receipt by the Rancho Malibu partnership and Semele of notice from the C & D Joint Venture that the requisite consents of the Beneficiaries of the Trust and Trust D have, or have not, been received. This right of the C & D Joint Venture is secured by a pledge of 50% of the capital stock of Rancho Malibu Corp. and 50% of the interests in the Rancho Malibu partnership held by Semele and Rancho Malibu Corp. Currently, the Amendment to the Partnership Agreement provides that cash proceeds from the Rancho Malibu partnership will be paid as follows: - 80% to the C & D Joint Venture and 20% to Semele until the C & D Joint Venture has received an aggregate of $2 million plus a 6% cumulative compounded annual rate of return thereon; - Thereafter, 100% to Rancho Malibu Corp. until Rancho Malibu Corp. has received an aggregate of $9 million plus a 6% cumulative compounded annual rate of return thereon; and - Thereafter, 25% to the C & D Joint Venture and 75% to Rancho Malibu Corp. If the transactions contemplated by the Agreement are consummated, RMLP will be entitled, by virtue of the assignment of the interests in the Rancho Malibu partnership by Semele and Rancho Malibu Corp. to RMLP, to receive the distributions described above that would previously have been paid to Semele and Rancho Malibu Corp. RMLP will also succeed Rancho Malibu Corp. as a co-managing general partner of the Rancho Malibu partnership with the C & D Joint Venture. POTENTIAL PARTNERING WITH CALIFORNIA DEVELOPER (P. 15) It is anticipated that the Rancho Malibu partnership will seek an experienced California real estate developer and form a joint venture to further develop the property. Accordingly, the Rancho Malibu partnership is presently in discussions with potential developers, none of whom are affiliated with the Trust or PLM. It is possible that the Rancho Malibu partnership would enter into a joint venture arrangement with one of them prior to the deadline for submitting consent forms pursuant to this Solicitation Statement. Because such discussions are still in the preliminary stages, it is not yet clear what form a potential joint venture would take or what interest, financially or otherwise, C & D Joint Venture would have in the new entity. However, it is likely that the structure of any such joint venture would result in the developer receiving a preferential return prior to or simultaneously with any funds being distributed to C & D Joint Venture or RMLP. FINANCING OF THE TRANSACTION (P. 15) RMLP will receive a capital contribution from Semele of its limited partnership interests and of the general partnership interests of its wholly owned subsidiary, Rancho Malibu Corp., in the Rancho Malibu partnership, constituting a 75% interest in the partnership. In exchange for such contribution, RMLP will pay total consideration consisting of: - $5.5 million in cash (to be funded by PLM); - $2.5 million in the form of a promissory note (bearing interest at the rate of 7% per annum) in favor of Rancho Malibu Corp.; and - 182 shares of common stock of RMLP, constituting 15.4% of the outstanding shares of RMLP, valued at $1 million. For the terms and conditions of the financing, including the terms of the promissory note and the common stock, see "The Contribution, Assignment, Assumption and Acknowledgment Agreement - Description of the Promissory Note" and "- Description of the Common Stock of RMLP," respectively. INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION (P. 16) Semele presently owns 75% of the interests in the Rancho Malibu partnership, directly as a limited partner and indirectly as owner of its general partner. In addition, the Managing Trustee of the Trust is indirectly owned by Semele through its ownership of Equis II Corp. Gary D. Engle has a 40.3% interest in Semele and James A. Coyne has a 17.6% interest in Semele. Semele also owns 100% of Equis II Corporation, which owns 99.61% of the Class B Interests of the Trust. Together, Messrs. Engle and Coyne control a majority of interest in Semele and, through Equis II Corp. 99.61% of the Class B Interests. The interests of these two individuals could differ from the interests of the Trust's other Beneficiaries. IMPERIAL CAPITAL FAIRNESS OPINION (P. 16) In deciding whether to approve the proposed acquisition, you should consider, among other things, the opinion of PLM's financial advisor, Imperial Capital, LLC, dated as of April 29, 2002, to the effect that, as of such date and based upon and subject to the various considerations set forth in such opinion, the price to be paid for the acquisition of the partnership interests in Rancho Malibu is fair to RMLP (and therefore to PLM) from a financial point of view. This opinion is attached hereto as Annex D-1. The California real estate market can be volatile and the development of the Rancho Malibu property is subject to complex permitting, zoning and financial considerations, so you are encouraged to read Imperial Capital, LLC's opinion carefully in its entirety for a description of the assumptions made, matters considered and limitations on the review undertaken. This opinion is not a recommendation to Beneficiaries as to how they should vote with respect to the proposed acquisition. REGULATORY MATTERS (P. 19) The Trust does not believe that any material federal or state regulatory approvals, filings or notices are required to be filed in connection with the proposed transaction, other than such approvals, filings or notices required pursuant to federal and state securities laws. APPRAISAL RIGHTS (P. 19) Beneficiaries will not have any appraisal rights in connection with the proposed transaction. SELECTED FINANCIAL DATA (P. 19) See "Selected Financial Data." RISK FACTORS THERE ARE GENERAL RISKS ASSOCIATED WITH REAL ESTATE AND RELATED INVESTMENTS The Trust is subject to the risks associated with ownership, development and financing of real estate. The acquisition of the Rancho Malibu partnership will increase the Trust's exposure to real estate risk. These risks include, but are not limited to, liability for environmental hazards; changes in general or local economic conditions; changes in interest rates and the availability of construction and permanent mortgage financing which may render the development, sale or financing of a property difficult or unattractive and which may make debt service burdensome; changes in real estate, land use and zoning laws; changes in income taxes, real estate taxes (including increases due to development of the property) or federal or local economic controls; floods, earthquakes and other acts of nature; competition and possible over-building in the Malibu area or nearby communities; and other factors beyond the Trust's control. In addition, the illiquidity, in general, of real estate investments could impair the Trust's ability to respond promptly to changing circumstances. THERE ARE RISKS ASSOCIATED WITH THE DEVELOPMENT OF THE RANCHO MALIBU PROPERTY The Rancho Malibu property is not fully developed. Existing or future development activities of the Rancho Malibu partnership entail certain risks. These risks include the expenditure of funds on and devotion of management's time to certain aspects of the project which may not come to fruition; the risk that development costs of the project may exceed original estimates, possibly making the project uneconomical; the risk that the pads to be developed on the Rancho Malibu property will not sell as quickly as anticipated or at the prices anticipated; and the risk that permits and other governmental approvals required, or extensions of such permits and approvals, will not be obtained. In addition, the development of the Rancho Malibu property will require a significant investment of capital, beyond that which the Trust itself can provide. The Trust will be required to obtain funds for its capital expenditures through additional property-related joint ventures, cash flow from operations, property sales or financings. If the Trust and its joint venturers are unable to obtain such funds, it or they may have to defer or otherwise limit certain development activities. In addition, it likely will be necessary to secure any debt financing by offering the Rancho Malibu property as security. In the event of a default on any of such debt, the lender may foreclose on the Rancho Malibu property. The Managing Trustee presently believes that the development costs of the Rancho Malibu property will approximate $12 million, of which approximately $1 million has already been spent. However, because the partnership would probably begin receiving income from the sale of lots prior to the completion of the project, it is estimated that the capital need will be no more than approximately $10 million. Although it is currently anticipated that this capital will be provided by either a construction loan, joint venture equity, or both, it is not feasible at this time to determine the terms on which such capital would be provided or the sources thereof. THERE ARE RISKS ASSOCIATED WITH THE PRIOR HISTORY OF THE RANCHO MALIBU PROPERTY The Rancho Malibu property was initially acquired by Semele by deed in lieu of foreclosure. At the time of such acquisition, the property was valued at less than the aggregate amount of the indebtedness that the property secured. Additionally, Semele has in the past incurred and capitalized significant costs to acquire permits to develop the property, many of which costs resulted in an impairment taken to the project. There is therefore a risk that, depending upon the improvements needed to be made, the project may be subject to additional impairments in the future. Jones & Company did not consider the prior history of the Rancho Malibu property in preparing its appraisal. Imperial Capital considered the prior history of the Rancho Malibu property in preparing its fairness opinion only to the extent of reviewing Rancho Malibu's income tax return for the year ended December 31, 2001. THERE ARE RISKS ASSOCIATED WITH THE MANAGING TRUSTEE'S HISTORY OF ENGAGING IN TRANSACTIONS WITH AFFILIATES The principal risk of this proposal is that the Managing Trustee will not act in the best interest of investors and that the price paid by the Trust may not be appropriate. During the course of its management of the Trust, the Managing Trustee has from time to time engaged the Trust in transactions with affiliates. A risk of transactions with affiliates is that, despite good faith efforts to adhere to the conflicts of interest and related party transactions provisions of the governing instruments and to act in the best interest of investors, a manager, managing trustee, director, officer or general partner may pay or accept a price in an affiliated transaction that proves to be too high or too low, as the case may be, or a transaction may prove over time not to be as successful as originally anticipated. Several of these transactions have been the subject of claims asserted in the recently settled Rosenblum class action lawsuit described below that the Managing Trustee and/or its affiliates breached their fiduciary duties to the investors. The Trust's Declaration of Trust generally prohibits the Managing Trustee from entering into arrangements on behalf of the Trust with any affiliate except as specifically permitted by the Declaration of Trust. The Declaration of Trust specifically provides that the Trust may enter into a general partnership, joint venture, trust or other business arrangement, collectively defined as Joint Ventures, with affiliates of the Managing Trustee if certain conditions are met. In addition, certain investment programs sponsored by affiliates of the Managing Trustee have experienced defaults and bankruptcies by lessees, which have adversely affected, or may in the future adversely affect, the economic results of such investment programs. Several of the investment programs sponsored by EFG or its predecessors, including the Trust, have experienced financial losses and write-downs in the carrying value of assets. There can be no assurance that future circumstances will not require further write-downs to the carrying value or losses with respect to the Trust's aircraft, investments in real estate development or to any of its other assets. The following is a description of the Rosenblum class action, certain transactions with affiliates entered into by the Trust and affiliated investment programs, certain other non-equipment transactions entered into by the Trust and affiliated investment programs that have not proved to be as successful as originally anticipated, and the de-listing of Semele, an affiliate of the Managing Trustee. ALLEGED BREACHES OF FIDUCIARY DUTY IN THE ROSENBLUM CLASS ACTION In January 1998, certain plaintiffs filed a class and derivative action, known as 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 "Class Action") on behalf of the investors in 28 equipment leasing programs, including the Trust, against EFG and a number of its affiliates, including the Managing Trustee, as defendants. Plaintiffs alleged, among other things, that the defendants breached their fiduciary duties to the partnerships and their investors. The Managing Trustee and its affiliates denied that any of them have committed any violations of law or breached any fiduciary duties to the plaintiffs or the nominal defendants and believe the allegations to be without merit. The defendants' and plaintiffs' counsel subsequently negotiated settlements of the claims on behalf of the investors in the 28 programs including the Trust, and the Court issued its Order and Final Judgment, approving the final settlement and dismissing the Class Action in June 2002. LOANS BY PARTNERSHIPS TO AFFILIATE IN CONNECTION WITH A PRELIMINARY SETTLEMENT AGREEMENT IN THE ROSENBLUM CLASS ACTION AS POSSIBLE VIOLATIONS OF THE PARTNERSHIP AGREEMENTS In connection with a preliminary settlement agreement for the claims asserted in the Class Action on behalf of 11 limited partnerships, the Court permitted the partnerships to invest in any new investment, including, but not limited to, new equipment or other business activities, subject to certain limitations. The partnerships loaned $32 million to a newly formed real estate company, Echelon Residential Holdings, that used the loan proceeds to acquire various real estate assets from an unrelated real estate company. The partnerships subsequently wrote down the net carrying value of the loans and related accrued interest to $29.2 million and ceased accruing interest. The partnership agreements prohibit the partnerships from making loans to their general partners or their affiliates. A former officer of the general partner employed by EFG agreed to serve as the initial equity holder of Echelon Residential Holdings and as an unpaid manager of Echelon Residential Holdings. He made a $185,465 equity investment in Echelon Residential Holdings. His return on his equity investment is restricted to the same rate of return as the partnerships realize on their loans. If the former officer were deemed to be an affiliate of the partnerships, the loans could appear to have been made in violation of the prohibition in the partnership agreements against loans to affiliates. Although the partnerships were repaid their $32 million principal amount plus 7.5% interest by the defendants pursuant to the terms of the settlement, the loans could not have been repaid if the source of repayment had depended upon the real estate investment made with the loan proceeds. THE EFFECT OF BELOW MARKET CASH TENDER OFFERS ON CERTAIN INVESTORS In 1995, an affiliate of the Managing Trustee made a cash tender offer for a portion of the units held by investors in each of 21 equipment leasing limited partnerships. In 1997, the Trust and three affiliated trusts made a cash offer to redeem a portion of the beneficial interests held by investors in the four trusts. Neither offer was conditioned on any minimum number of units being tendered, and investors were free to accept or reject the offers, which offered them cash for their investment. The purchase prices offered to investors for units in all but one of the partnerships and in one of the four trusts were below the reported bid and asked prices in the secondary market for units prior to the commencement of the offers and were below the then-current liquidation values of the units, which was disclosed to investors in the tender offer documents. However, certain investors may have tendered their units without recognizing that the tender offer prices were for less than the liquidation value of the assets. THE MANAGING TRUSTEE CAUSED THE TRUSTS TO GUARANTEE AN AFFILIATE'S OBLIGATIONS In March 2000, the Trust and three affiliated trusts entered into a guarantee pursuant to which the trusts guaranteed an affiliate's obligations as master lessee under a master lease agreement with Heller Affordable Housing Florida, Inc., HAHF Trust I and HAHF Trust II , as master lessors. The maximum exposure under the guarantee initially was $34,500,000, which maximum exposure amount was reduced to $7,000,000 by December 2000. During the year 2001, the obligations of the trusts under the guarantee terminated by its terms. The trusts were paid aggregate fees of approximately $1,140,000 for providing the guarantee. While this guarantee has terminated, there is a risk that these types of transactions may involve a conflict of interest under the Trust Agreement. EXTENSION OF MATURITY DATE OF EXISTING LOAN AS POSSIBLE VIOLATION OF PROHIBITION AGAINST LOANS TO AFFILIATES In 1997, five partnerships and Trust A sold their beneficial interests in three cargo vessels to Semele in exchange for an aggregate of $3,800,000 cash, 198,700 shares of Semele common stock and beneficial interest in a note from Semele (the "Semele Note") of $4,419,500. At the time of the sale, Semele was a public company unaffiliated with the general partners and Managing Trustee. Subsequently, Semele became affiliated with them. The Semele Note bears an annual interest rate of 10% and was originally scheduled to mature in April 2001. The maturity date was subsequently extended to April 2003. The extension of the maturity date could be deemed to be a new loan in violation of the prohibition against loans to affiliates. The extension of maturity relieved Semele (whose common stock was recently delisted) of the responsibility to pay or refinance the Semele Note at its original maturity date. If Semele had borrowed funds to repay the Semele Note at its original maturity date the interest rate might have been greater than 10%. INVESTMENTS IN NON-EQUIPMENT TRANSACTIONS In an effort to boost the returns to the investors over that expected from its equipment leasing portfolio and to better diversify its assets base, the Trust, three affiliated trusts and Semele formed joint ventures to acquire PLM (an equipment leasing and management company), and interests in the Kirkwood Mountain Resort in northern California and the Purgatory Ski Resort near Durango, Colorado (both of which own undeveloped real estate) and in a real estate development project in British Columbia known as Kettle Valley. To date, the real estate and ski resort joint ventures have incurred losses, some of which may be attributable to the real estate development cycle, some to the decline in the economy, and, in the case of the ski resorts only, a shortage of snow last year. The Trust may not be able to recoup its losses prior to the Trust's requirement to dissolve on or before December 31, 2004. PLM has experienced a decline in revenues and net income in the first three quarters of 2002, in part, because of management's decision not to make new investments due to declining asset values, particularly of used aircraft and railroad rolling stock. PLM. In December 2000, the Trust and three affiliated trusts formed MILPI. The Trusts collectively paid $1.2 million for their membership interests in MILPI, and MILPI purchased all of the common stock of MILPI Acquisition Corp. for an aggregate purchase price of $1.2 million. MILPI Acquisition entered into an agreement with PLM for the purpose of acquiring up to 100% of the outstanding common stock of PLM for an approximate purchase price of up to $27 million. In connection with the acquisition, on December 29, 2000, MILPI Acquisition commenced a tender offer to purchase any and all of PLM's outstanding common stock. Pursuant to the cash tender offer, MILPI Acquisition acquired 83% of PLM's outstanding common stock in February 2001 for a total purchase price of approximately $21.8 million. Under the terms of the agreement, with the approval of the holders of 50.1% of the outstanding common stock of PLM, MILPI Acquisition would merge into PLM, with PLM being the surviving entity. After a special meeting of the PLM stockholders, the merger was consummated on February 6, 2002. Because Trusts A and B have determined to liquidate their assets, the Trust and Trust D provided the funds necessary to acquire the remaining 17% of PLM's outstanding common stock. As a result of the merger, the Trust and Trusts A, B and D collectively own 100% of the outstanding common stock of PLM through their ownership of MILPI. PLM's revenues of $3,854,000 for the nine months ended September 30, 2002 declined from its revenues of $6,793,000 for the period February 7, 2001 through September 30, 2001. PLM's net income declined to $1,464,000 from $2,637,000 during the same periods. SKI RESORTS. The Trust, three affiliated trusts and Semele in May 1999 formed a joint venture, EFG Kirkwood LLC, that in turn acquired interests in a joint venture, with independent third parties, that owns Kirkwood Mountain Resort in northern California and a controlling interest in Purgatory Ski Resort near Durango, Colorado. The Managing Trustee is the manager of EFG Kirkwood. To date, EFG Kirkwood has incurred losses aggregating $3,323,063. In March 1999, the Trust, an affiliated trust and Semele formed EFG/Kettle Development LLC that in turn acquired an indirect ownership interest, with an independent third party, in a residential and commercial real estate development project in British Columbia, Canada. The developer of the project is Kettle Valley Development Limited Partnership. The general partner of Kettle Valley Development Limited Partnership is a subsidiary of Semele. To date, EFG/Kettle Development LLC has incurred losses aggregating $1,104,671. SEMELE DELISTING On August 7, 2001, The Nasdaq Stock Market, Inc. informed Semele, an affiliate of the Managing Trustee, that its common stock would no longer be listed on The Nasdaq SmallCap Market because Semele no longer met the net tangible assets/market capitalization/net income requirement for continued inclusion. Semele's fall in net income below the $500,000 minimum requirement was a result of Semele's acquisition of Equis II Corporation, an affiliate, in 2000 and the related effect of that acquisition on Semele's balance sheet at December 31, 2000. THE TRUST COULD INCUR SIGNIFICANT COSTS AND EXPENSES RELATED TO ENVIRONMENTAL PROBLEMS The Rancho Malibu property is subject to various federal, state, and local laws and regulations relating to environmental matters. Accordingly, although the Managing Trustee is not aware of any material environmental issues relating to the Rancho Malibu property, if the Trust acquires partnership interests in the Rancho Malibu partnership, the Trust may be at risk because the Rancho Malibu partnership could be exposed to liability primarily as an owner of real property, and as such, could be responsible for the clean-up or other remediation of hazardous or toxic substances located on the property. Contamination for which the Rancho Malibu partnership, and indirectly the Trust, could be liable may even include liability for historic contamination that could be imposed in certain circumstances without regard to whether the Rancho Malibu partnership or the Trust knew of, or was responsible for, the presence of such contamination or hazardous or toxic substances. The presence of or failure to properly clean up or remediate hazardous or toxic substances could impair the Rancho Malibu partnership's and the Trust's ability to sell or borrow against the property. These laws and regulations also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances at another location for the costs of removal or remediation of these hazardous substances at a disposal or treatment facility. Further, these laws often impose liability regardless of whether the entity arranging for the disposal ever owned or operated the disposal facility. Other environmental laws and regulations impose liability on owners or operators of property for injuries relating to the release of asbestos-containing materials into the air. If it was determined that there were any hazardous or toxic substances on the Rancho Malibu property, as an owner of the property and as a potential arranger for hazardous substance disposal, the Trust could be liable for removal or remediation costs, governmental penalties, property damage, personal injuries and related expenses. Payment of these costs and expenses could impair the Trust's financial condition and materially harm its business. In addition, environmental laws and regulations can change rapidly and the Rancho Malibu property could become subject to more stringent environmental laws and regulations in the future. If the proposed acquisition is approved and the Trust becomes an indirect owner of the Rancho Malibu property, compliance with more stringent environmental laws and regulations could have a material adverse effect on the Trust's business, financial condition or results of operations. THE TRUST COULD BE REQUIRED TO MAKE SIGNIFICANT EXPENDITURES TO COMPLY WITH REAL ESTATE REGULATIONS The Rancho Malibu property is subject to various other federal, state and local regulatory requirements such as zoning laws, local building codes and other similar regulations. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. The Trust believes that the Rancho Malibu property is currently in substantial compliance with all applicable regulatory requirements, although if there are changes in these laws, the Rancho Malibu partnership may be required to make expenditures to comply with changes in these laws. No material expenditures are contemplated at this time in order to comply with any such laws or regulations; however, there can be no assurance that these requirements will not be changed or that new requirements will not be imposed that would require significant unanticipated expenditures. Such additional expenditures could have an adverse effect on the business, financial condition and results of operations of the Trust if the Trust were required to fund all or a portion of the additional expenditures required on behalf of the Rancho Malibu partnership. THE RANCHO MALIBU PARTNERSHIP MAY NOT BE ABLE TO INSURE AGAINST ALL LOSSES The Rancho Malibu partnership will carry insurance on the Rancho Malibu property in the form of comprehensive general liability, fire, flood and extended coverage loss insurance with policy specifications, limits and deductibles customarily carried for similar properties. There are, however, certain types of risks (generally of a catastrophic nature such as from wars or environmental contamination) that are either uninsurable or not economically insurable. The Rancho Malibu partnership intends to carry insurance for earthquake risks if Proposal Two is approved, subject to certain policy limits and deductibles. However, there can be no assurance that, if an earthquake were to occur on the Rancho Malibu property, which is located in a historically earthquake-prone area, the recoverable amount of insurance proceeds would be sufficient to fully cover reconstruction costs and other losses suffered. Should an uninsured or underinsured loss occur, the Trust could lose its investment in, and anticipated income and cash flows from, the Rancho Malibu property, even though the Rancho Malibu partnership would continue to be obligated to repay any recourse mortgage indebtedness on the Rancho Malibu property. Additionally, although the Rancho Malibu partnership intends to obtain an owner's title insurance policy with respect to the property if Proposal Two is approved, the amount of coverage under such policy may be less than the full value of such property. If a loss occurs resulting from a title defect with respect to the property where there is no title insurance or the loss is in excess of insured limits, the Trust could lose all or part of its investment in, and anticipated income and cash flows from, the Rancho Malibu property. THE TRUST'S MANAGERS AND AFFILIATES MAY HAVE INTERESTS IN THE PROPOSED MALIBU TRANSACTION THAT ARE DIFFERENT FROM OR IN ADDITION TO THE INTERESTS OF OTHER BENEFICIARIES In considering the recommendation of the Managing Trustee with respect to the Malibu transaction and deciding whether or not to approve Proposal Two, Beneficiaries should be aware that the Managing Trustee and its affiliates may have interests in the Malibu transaction that are different from or in addition to those of other Beneficiaries. As owners, collectively, of approximately 57.9% interest in Semele, Gary D. Engle and James A. Coyne have a significant interest in the development of the Rancho Malibu property and the sale of the Rancho Malibu partnership interests to the Trust. In addition, Semele indirectly owns approximately 28% of the Trust and Trust D. If third party investors, such as the Trusts and other possible investors, do not participate in the future development of the Rancho Malibu property, the Rancho Malibu partnership may not have the available cash, or access to funds to complete the development of the Rancho Malibu property. In addition, the Rancho Malibu partnership has certain built-in losses (where the tax basis of its assets exceeds the value of the assets) that will be recognized when the individual lots are sold. The proposed transactions are expected to permit PLM to use the tax losses to offset its income. If, however, a third party, such as RMLP, does not purchase the partnership interests, the Rancho Malibu partnership will be unable to avail itself of certain tax benefits associated with its current net operating loss. See "Proposal Two - Selected Financial Data." PLM MAY NOT BE ABLE TO RECOGNIZE THE TAX BENEFITS IT EXPECTS FROM THE TRANSACTION The Managing Trustee believes that the investment provides reasonable pre-tax and post-tax risk-adjusted returns. However, if tax benefits are not realized because certain net operating losses are not allowed, it would reduce the overall after-tax return to PLM. THERE ARE RISKS ASSOCIATED WITH JOINT VENTURES If the Malibu proposal is approved, the Trust, through its investment in PLM, would own its interest in the Rancho Malibu property through a joint venture, with Trust D, that will own RMLP. In addition, the Rancho Malibu partnership is negotiating to enter into a joint venture with an unaffiliated California real estate developer to help develop the Rancho Malibu property. Because of the expertise the developer likely would bring to the project, it is likely that the developer would receive a preferential return prior to or simultaneously with any funds being distributed to the Rancho Malibu partnership. Joint ventures involve certain risks, including: - the possibility that a co-venturer may at any time have economic or business interests or goals that are inconsistent with those of the Trust or take actions contrary to the instructions or requests of the Trust or contrary to the Trust's policies or objectives with respect to its real estate investments; - the risk that the Trust's co-venturers could experience financial difficulties or seek the protection of bankruptcy, insolvency or other similar laws, which could result in additional financial demands on the Trust to maintain and operate the Rancho Malibu property or repay the co-venturers' share of property debt guaranteed by the Trust or for which the Trust is jointly and severally liable, and in delays, expenses and other problems associated with obtaining a court approval of joint venture decisions; - the need to obtain co-venturers' consent with respect to certain major decisions, including the decision to distribute cash, obtain financing or sell a property; and - the fiduciary duties owed by co-venturers to one another may conflict with those owed to the Beneficiaries. The Trust does not have sole control of certain major decisions relating to the Rancho Malibu property, including decisions relating to the development of the property and the sale of lots developed on the property, refinancing and timing and amount of distributions of cash from the Rancho Malibu property to the Trust. In addition, the sale or transfer of interests in the joint venture may be subject to rights of first refusal or first offer and buy-sell or similar arrangements. Such rights may be triggered at a time when the Trust may not desire to sell but may be forced to do so because it does not have the cash to purchase the other parties' interests. Such rights may also inhibit the ability of the Trust to sell its interest in the Rancho Malibu property or the joint venture within the time frame or otherwise on the basis desired by the Trust. In addition, because it is likely that the developer would receive a preferential return prior to or simultaneously with any funds being distributed to the Rancho Malibu partnership, there is a risk that the Trust may not receive any actual return from the investment prior to its scheduled termination on December 31, 2003. In such event, the investment may be inappropriate for the Trust because the Trust could be forced to rely upon a sale to an affiliate in order to exit its investment. However, in the event all or any portion of the development costs are funded out of a construction loan, the Managing Trustee currently anticipates that the construction loan would allow for payments to the equity participants, including PLM, prior to retiring such debt. The Managing Trustee also expects to be able to make use of anticipated tax benefits from built-in losses discussed above at the time each individual lot is sold, which is likely to be prior to the partnership's realizing any cash flow from the investment. Furthermore, the Managing Trustee believes that the transaction will enhance the value of the Trust's interest in MILPI, because the Rancho Malibu investment may reduce the deferred tax liability of PLM, prior to the time that the Trust is required to dissolve. THE PARTIES THE TRUST The Trust is a Delaware business trust formed on August 31, 1992, to acquire and lease to third parties a diversified portfolio of capital equipment. The Managing Trustee of the Trust and of three other Delaware business trusts (collectively, the "AFG Investment Trusts" or the "Trusts") is AFG ASIT Corporation, a Massachusetts corporation that was organized on August 13, 1991. AFG ASIT Corporation is a wholly owned subsidiary of Equis II Corporation and an affiliate of Equis Financial Group, Limited Partnership, a Massachusetts limited partnership ("EFG" or the "Advisor"). Equis II Corporation is a wholly owned subsidiary of Semele Group Inc. The principal executive office of the Trust is at 200 Nyala Farms, Westport, Connecticut 06880. The principal executive office of the Managing Trustee and EFG is at 88 Broad Street, Boston, Massachusetts 02110. EFG serves as advisor to the Trust pursuant to a separate agreement. As Advisor, EFG provides various services to the Trust, including selection of the Trust's equipment assets for acquisition by the Trust and management of equipment assets, for which it receives compensation as provided in the Trust Agreement. Semele is Special Beneficiary of the Trust, holding an 8.25% carried interest in the Trust. As such, it participates in Trust distributions, but does not have the right to vote. As of __________, 2002, there were 1,787,153 Class A Interests outstanding, which were held by 1,945 investors. As of __________, 2002, there were 3,024,740 Class B Interests outstanding, of which (i) 3,019,222 were held by Equis II Corporation, and (ii) 5,518 were held by nine other investors. The Trust's primary assets currently consist of capital equipment, as well as ownership interests in EFG Kirkwood LLC, a resort business, Kettle Valley, LLC, a real estate development company, and PLM, a company which manages a diversified portfolio of transportation and related equipment for various investment programs sponsored by PLM and for other third-party investors. SEMELE Semele is a Delaware corporation that was organized in 1987 as Banyan Strategic Land Fund II to invest primarily in short-term, junior, pre-development and construction mortgage loans. Today, Semele is engaged in various real estate activities, including residential property development, and holds investments in other companies operating in niche financial markets, principally involving real estate and equipment leasing. Semele's common stock is quoted on the over the counter market under the trading symbol VSLF.OB. Semele is the owner of Equis II Corporation, which in turn is the owner of the Managing Trustee of the Trust. Semele also owns Rancho Malibu Corp. The Rancho Malibu partnership is 73.95% owned by Rancho Malibu Corp., as a co-managing general partner, and 1.05% owned by Semele, as a limited partner. The address of the Semele is 200 Nyala Farms, Westport, Connecticut 06880, telephone: (203) 341-0555. RANCHO MALIBU The Rancho Malibu partnership is 73.95% owned by Rancho Malibu Corp., as a co-managing general partner, and 1.05% owned by Semele, as a limited partner. Rancho Malibu Corp., is 100% owned by Semele. The remaining 25% interest in the Rancho Malibu partnership is owned by the C & D Joint Venture. The Rancho Malibu partnership owns approximately 270 acres of land in Malibu, California, that is being developed as a single-family luxury residential subdivision. Semele acquired the Rancho Malibu property by deed in lieu of foreclosure through an affiliated entity in December 1990. RMLP RMLP is 100% owned by PLM. MILPI in turn owns 100% of PLM. The Trust and other affiliated trusts jointly own all of the membership interests in MILPI. RMLP was formed for the purpose of engaging in the Malibu transaction and it currently has no operations. C & D JOINT VENTURE On March 1, 2002 the Trust and Trust D formed the C & D Joint Venture as a 50%/50% owned and managed joint venture for the purpose of making the C & D Joint Venture Contribution. The C & D Joint Venture was admitted to the Rancho Malibu partnership as a co-managing general partner with a 25% equity interest pursuant to the terms of the Amendment to the Partnership Agreement. THE TRANSACTION BACKGROUND TO THE TRANSACTION In December 2000, the Trust, along with Trust A, Trust B and Trust D, made a tender offer through a subsidiary of MILPI for all of the outstanding shares of PLM. In February 2002, MILPI completed the acquisition of PLM. The four trusts collectively hold all of the outstanding membership interests in MILPI. Accordingly, the four trusts indirectly hold all of the outstanding shares of PLM. However, pursuant to separate consent solicitation statements, Trust A and Trust B are seeking the consent of their beneficiaries to transfer their respective interests in MILPI back to MILPI and the Trust and Trust D are seeking the consent of their respective beneficiaries to approve the purchase of such interests by MILPI. If the transfer of the membership interests back to MILPI is approved by each of the four trusts, and the transfer is consummated, the Trust and Trust D will hold directly all of the membership interests in MIPLI and indirectly all of the outstanding shares of PLM. Each of the four trusts are managed by AFG ASIT Corporation, the Managing Trustee, which is a wholly-owned subsidiary of Equis II Corporation. Equis II Corporation is a wholly-owned subsidiary of Semele. Semele also owns 1.05% of the Rancho Malibu partnership, and 100% of Rancho Malibu Corp., which owns 73.95% of the Rancho Malibu partnership and is its co-managing general partner. Accordingly, the officers and directors of Semele as well as affiliates of the Managing Trustee have interests in both the Rancho Malibu partnership and in the Trust. In particular, Gary D. Engle is President and Director of the Managing Trustee and Chairman and Chief Executive Officer of Semele and has a 40.3% interest in Semele. James A. Coyne is President and Chief Operating Officer of Semele and has a 17.6% interest in Semele. Semele also owns 100% of Equis II Corporation, which owns 99.61% of the Class B Interests of the Trust. The Board of Directors of Semele formed a special committee, consisting of its three independent directors, for the purpose of considering the sale of its limited partnership interests, and the general partnership interests of its wholly owned subsidiary, Rancho Malibu Corp., in the Rancho Malibu partnership. This special committee retained separate counsel to advise it with respect to the proposed transaction and to negotiate the terms of the Amendment to the Partnership Agreement whereby the C & D Joint Venture was admitted into the Rancho Malibu partnership and to negotiate the terms of the Contribution Agreement. The Trust was informed on May 28, 2002 that the special committee had approved the proposed transaction pursuant to the terms of the Contribution Agreement, subject to a review of certain background information. DESCRIPTION OF THE RANCHO MALIBU PROJECT The Rancho Malibu partnership owns approximately 270 acres of land in Malibu, California, which is being developed as the Estates at Rancho Malibu. The Estates at Rancho Malibu will likely consist of 46 custom lot pads in a single-family luxury residential subdivision. The individual lots will likely range from a minimum of 9,000 square feet to a maximum of 18,900 square feet, with an average of 13,242 square feet of area per lot. The average retail value per pad is estimated at approximately $715,000. The Estates at Rancho Malibu is located in the Encinial Canyon community of Malibu, California, in an unincorporated area just north of the Malibu city boundary. This area lies in the West Los Angeles area of Los Angeles County. The project site is located east of Encinial Canyon Road approximately three miles north of Pacific Coast Highway. The Rancho Malibu property was acquired by an affiliate of Semele in 1992. To date, the Rancho Malibu partnership has secured development permits and performed market studies, retail lot pricing analysis and economic analysis in order to prepare its plan of development for the Estates and the infrastructure. Securing development permits from the many regulatory bodies has been a very cumbersome and complicated task that has taken more than ten years. Initial grading has begun on the property. The Estates at Rancho Malibu will be the first ocean view single-family development in Malibu in several years. This is an important factor in the Managing Trustee's belief that this is a unique and attractive project. The development plan for the 46 single-family pads for Rancho Malibu includes the construction of complete infrastructure within the site (including roads, curbs, drainage, utilities, etc.), an on-site private sewage system, entry features and drought tolerant landscaping features. Activities to date include the construction of off-site water lines, off-site road work at the project entrance, wildlife survey, complete sewer plan design, development of a marketing program and the completion of legal and engineering work. The project has received permits from the Army Corp. of Engineers, the California Department of Fish and Game, the California Coastal Commission, the California Regional Water Quality Control Board, the Liberty Canyon Wild Life Corridor Riparian Restoration Project and the Mountains Recreation and Conservation Authority. Construction of the infrastructure to bring water to the site started in June 2001 and is 90% complete. Construction to grade the lots is scheduled to begin in the second quarter of 2002. Infrastructure development is scheduled to be completed in December of 2002, with a majority of the lots ready for sale at that time. To generate liquidity for the Rancho Malibu partnership, the development plan allows for a minimum of 15 lots (32.6% of the lots) to be pre-sold prior to completion of the project at a 15% discount. The partnership has been in discussions with builders regarding pre-sales and, although there has been preliminary interest, there have been no sales to date. In addition, the partnership is discussing a potential joint venture with an experienced California home builder. In connection with serving as the local manager of the Estates at Rancho Malibu and running the development of the project, an unaffiliated individual may be offered the opportunity to purchase some of the lots at a discount from the estimated retail value of the lots. STRUCTURE OF THE TRANSACTION On March 1, 2002, the Trust and Trust D formed the C & D Joint Venture as a 50%/50% owned and managed joint venture for the purpose of making the C & D Joint Venture Contribution. The Joint Venture Agreement between the Trust and Trust D that created the C & D Joint Venture is attached hereto as Annex B. You should read the entire Joint Venture Agreement before making any decision with respect to Proposal Two. The C & D Joint Venture was admitted to the Rancho Malibu partnership as a co-managing general partner pursuant to the terms of the Amendment to Partnership Agreement. The Amendment to the Partnership Agreement is attached hereto as Annex C. You should read the entire Amendment to the Partnership Agreement before making any decision with respect to Proposal Two. The C & D Joint Venture Contribution was made in anticipation of, and subject to, the consummation of the transactions contemplated by the Agreement, and on the condition that Semele contribute to the Rancho Malibu partnership 100% of the membership interests it held in RM Financing LLC, a Delaware limited liability company, the sole asset of which is a Note dated December 31, 1990, having an original principal amount of $12,750,000, increased to $14,250,000, with a 15.3% interest rate, made by the Rancho Malibu partnership in favor of Semele (the Note had been held by Semele's affiliate when it took a deed in lieu of foreclosure on the property from the original owner). The C & D Joint Venture possesses the right to demand the return of the C & D Joint Venture Contribution from the Rancho Malibu partnership if the transactions contemplated by the Agreement have not been consummated within 90 days of the receipt by the Rancho Malibu partnership of notice from the C & D Joint Venture that the requisite consent of the Beneficiaries of the Trust and Trust D have, or have not, been received. This right of the C & D Joint Venture is secured by a pledge of 50% of the capital stock of Rancho Malibu Corp. and 50% of the interests in the Rancho Malibu partnership held by Semele and Rancho Malibu Corp. Currently, the Amendment to the Partnership Agreement provides that cash proceeds from the sale and/or development of the Rancho Malibu property will be distributed as follows: - 80% to the C & D Joint Venture and 20% to Semele until the C & D Joint Venture has received an aggregate of $2 million plus a 6% cumulative compounded annual rate of return thereon; - Thereafter, 100% to Rancho Malibu Corp. until Rancho Malibu Corp. has received an aggregate of $9 million plus a 6% cumulative compounded annual rate of return thereon; and - Thereafter, 25% to the C & D Joint Venture and 75% to Rancho Malibu Corp. If the transactions contemplated by the Agreement are consummated, RMLP will be entitled, by virtue of the assignment of the interests in the Rancho Malibu partnership by Semele and Rancho Malibu Corp. to RMLP, to receive the distributions described above that would previously have been paid to Semele and Rancho Malibu Corp. RMLP will also succeed Rancho Malibu Corp. as a co-managing general partner of the Rancho Malibu partnership with the C & D Joint Venture. FINANCING OF THE TRANSACTION RMLP will receive a capital contribution from Semele of its limited partnership interests and of the general partnership interests of its wholly owned subsidiary, Rancho Malibu Corp., in the Rancho Malibu partnership, constituting a 75% interest in the partnership. In exchange for such contribution, RMLP will pay total consideration consisting of: - $5.5 million in cash (to be funded by PLM); - $2.5 million in the form of a promissory note (bearing interest at the rate of 7% per annum) in favor of Rancho Malibu Corp.; and - 182 shares of common stock of RMLP constituting 15.4% of the outstanding shares of RMLP, valued at $1 million. For the terms of the financing, including the terms of the promissory note and the common stock, see "The Contribution, Assignment, Assumption and Acknowledgment Agreement - Description of the Promissory Note" and "- Description of the Common Stock of RMLP," respectively. POTENTIAL PARTNERING WITH CALIFORNIA DEVELOPER It is anticipated that the Rancho Malibu partnership will enter into a joint venture with an experienced California real estate developer. The Rancho Malibu partnership is presently in discussions with potential developers, none of whom are affiliated with the Trust or PLM, and it is possible that the Rancho Malibu partnership will enter into a joint venture arrangement with one of them prior to the deadline for submitting consent forms pursuant to this Solicitation Statement. Because such discussions are still in the preliminary stages, it is not yet clear what form a potential joint venture would take. However, it is likely that the Rancho Malibu partnership would contribute the Rancho Malibu property and the developer would contribute a combination of cash and a guarantee of the Rancho Malibu property construction loan. In addition, because of the expertise the developer likely would bring to the project, it is likely that the developer would receive a preferential return prior to or simultaneously with any funds being distributed to the Rancho Malibu partnership. However, the Managing Trustee believes that the participation of an experienced real estate developer will enhance the potential for the success of the project and could result in a larger overall return on the Rancho Malibu property. REASONS FOR THE TRANSACTION In reaching its decision to admit the Trust to the Rancho Malibu partnership and enter into negotiations with respect to the Agreement, the Managing Trustee independently considered the terms of the Agreement and the transactions contemplated thereby. Based upon this review, among other things, the Managing Trustee determined to seek the approval of the Beneficiaries to the proposed transaction. The Managing Trustee believes that the development and sale of the lots at the Estates at Rancho Malibu represents a sound investment, with significant barriers to local competitive real estate pressures, that is expected to provide an attractive risk-adjusted rate of return to the Trust. The Southern California housing market generally is in a period of growth in terms of increasing home price sales. The Rancho Malibu site provides ocean view lots and a Malibu address, yet resides just outside the Malibu city limits. In addition to a favorable rate of return on its investment, the Managing Trustee also believes that the Trust, through PLM, which generates taxable income, could benefit from certain tax losses through its partnership interests. The Rancho Malibu property has built-in losses (where the tax basis of the property exceeds its value) resulting from its tax basis of approximately $30,772,000. This basis will result in substantial tax losses as the lots are sold because the basis will be offset against the selling price of the lots. The contemplated transactions are structured so that the basis of the property will be preserved and will allow PLM to offset these tax losses against income or its other sources of income or from the property. The foregoing assessment of the expected benefits of the contemplated transaction are based upon the Managing Trustee's expectations concerning future results; however, the Managing Trustee can make no assurance that, if the transaction is consummated, any of the results, benefits or returns described herein can or will be achieved. See "Risk Factors" and "Special Note Regarding Forward-Looking Statements." INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION The Rancho Malibu partnership is indirectly majority owned by Semele. In addition, the Managing Trustee of the Trust is indirectly owned by Semele. Gary D. Engle has a 40.3% interest in Semele and James A. Coyne has a 17.6% interest in Semele. Semele also owns 100% of Equis II Corporation, which owns 99.61% of the Class B Interests of the Trust. Together, Messrs. Engle and Coyne control a majority of interest in Semele and of the Class B interests. The interests of these two individuals could differ from the interests of the Trust's other Beneficiaries. See "Risk Factors - The Trust's Managers and Affiliates may have Interests in the Proposed Malibu Transaction that are Different from or in Addition to the Interests of Other Beneficiaries." IMPERIAL CAPITAL FAIRNESS OPINION Imperial Capital, LLC ("Imperial Capital") was engaged by the board of directors of PLM to provide a fairness opinion in connection with Proposal Two. The opinion, which Imperial Capital delivered to PLM on April 29, 2002, stated that, as of such date and based upon and subject to certain matters stated therein, the aggregate consideration to be contributed by RMLP in exchange for 75% of the partnership interests in the Rancho Malibu partnership is fair to RMLP from a financial point of view. A copy of the opinion, which sets forth the assumptions made, matters considered and scope and limitations of the review undertaken and the procedures followed by Imperial Capital, is attached hereto as Annex D-1 and is incorporated by reference into this Solicitation Statement. You are urged to read the Imperial Capital opinion carefully and in its entirety for assumptions made, matters considered and limits of the review by Imperial Capital. Beneficiaries should note that the opinion expressed by Imperial Capital was prepared at the request and for the information of the Board of Directors of PLM and does not constitute a recommendation to any Beneficiary as how to vote with respect to Proposal Two. The Imperial Capital opinion does not address the business decision or the relative merits of the decision of the Board of Directors of PLM. No limitations were placed on Imperial Capital with respect to the investigation made, the procedures followed or the factors considered in preparing and rendering its opinion. In preparing its opinion, Imperial Capital relied solely upon the Limited Appraisal, Restricted Report, dated March 1, 2002, prepared by Jones & Company, a professional real estate appraisal firm with experience in California, with the consent of Jones & Company. The appraisal, a copy of which is attached to the Imperial Capital fairness opinion in Annex D-2, established an $11 million value for the Rancho Malibu property on an "as is - where is" basis. In preparing its appraisal, Jones & Company (a) made comparisons with three recent bulk land sales for upper-end projects in Los Angeles County, and (b) considered the value of a sell-off of the individual lots once they are developed. Jones & Company was paid a fee of $7,500 for preparing the appraisal. In connection with rendering its opinion, Imperial Capital among other things: - assumed that the Rancho Malibu partnership would have no assets or liabilities, at the time of the contemplated transactions, other than the Rancho Malibu property; - assumed a liquidation of the Rancho Malibu property on the date of the opinion, and a payout of the proceeds pursuant to the Amendment to the Partnership Agreement, as a condition precedent to the contemplated transactions (and assumed that any liquidation costs or accrued interest at the time of the contemplated transactions would be offset by potential tax benefits); - analyzed certain historical business and financial information related to the Rancho Malibu partnership, including the most recent tax return for the year ended December 31, 2001, which was provided by Equis II Corporation; - reviewed certain information relating to the business, earnings, taxes and cash flow of the Rancho Malibu partnership, furnished to Imperial Capital by Equis II Corporation; - reviewed certain business and financial information relating to the Rancho Malibu partnership that Imperial Capital deemed relevant; - conducted discussions with members of senior management of PLM, Semele and Equis II Corporation concerning the matters described above, as well as the prospects and strategic objectives of the Rancho Malibu partnership; and - conducted such other financial studies, analyses and investigations and took into account such other matters as Imperial Capital deemed necessary, including its assessment of general economic, market and monetary conditions. In preparing its opinion and with PLM's consent, Imperial Capital relied on the accuracy and completeness of the foregoing financial and other information and did not assume responsibility for independent verification of such information or conduct an independent valuation or appraisal of any assets of PLM, RMLP or the Rancho Malibu partnership. With respect to the information provided, Imperial Capital assumed, with PLM's consent, that such information was reasonably prepared on bases reflecting the best currently available estimates and judgments of PLM and Equis II Corporation. Imperial Capital also relied upon assurances of senior management of PLM, Semele and Equis II Corporation that they were unaware of any facts that would make the information or financial forecasts provided to Imperial Capital incomplete or misleading. Imperial Capital assumed no responsibility for, and expressed no view as to, the assumptions on which the information was based. LIQUIDATION ANALYSIS. In arriving at its opinion, Imperial Capital conducted a liquidation analysis as of the date of the opinion. The liquidation analysis was used to estimate the proceeds that would be assumed to be received in a liquidation of the Rancho Malibu property. This analysis indicated that the approximately $9 million of proceeds that would be payable upon liquidation to RMLP (after the C & D Joint Venture was repaid its initial $2 million capital contribution) would be sufficient to repay the $2.5 million note (which at the time of the contemplated transactions would not have accrued any interest) as well as to return the full amount of the cash portion of the consideration initially contributed by RMLP. Because Imperial Capital undertook only one form of analysis, it is possible that its conclusions may be less reliable than if it had conducted several methods of analysis and compared or averaged the results. However, Imperial Capital believes that a liquidation analysis is the appropriate and preferred method of analysis because a liquidation of the Rancho Malibu property, and a payout of the proceeds pursuant to the Amendment to the Partnership Agreement, is a condition precedent to the contemplated transactions. The summary of the Imperial Capital opinion set forth above does not purport to be a complete description of the data and analyses presented or considered by Imperial Capital. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant quantitative methods of financial analyses and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. Accordingly, Imperial Capital's analysis must be considered as a whole and considering any portion of Imperial Capital's analysis and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying the Imperial Capital opinion. In the ordinary course of business and in accordance with applicable state and federal securities laws, Imperial Capital may make a market in securities of Semele, the Trusts or their affiliates and may trade the securities of Semele, the Trusts or their affiliates for its own account and for the account of customers and, accordingly, may at any time hold long or short positions in such securities. In addition, Imperial Capital previously acted as financial advisor to PLM and certain of its affiliates in connection with the acquisition of PLM by a subsidiary of MILPI. Imperial Capital rendered its opinion to PLM's board of directors on December 21, 2000 and was paid a fee of $175,000, plus expenses for such opinion. Imperial Capital also has been paid a fee of $37,500 in connection with Proposal Four, discussed below. As of the date of the opinion, Imperial Capital and its affiliates owned approximately 4% of the common stock of Semele, based on the number of shares publicly reported by Semele to be outstanding. Imperial Capital was paid a fee of $37,500 for its fairness opinion rendered to PLM in connection with this Proposal Two, and was paid $772,398 for other services rendered to PLM during the prior two years. PLM also agreed to indemnify Imperial Capital, its affiliates and each of their respective directors, officers and employees and each other person, if any, controlling Imperial Capital or any of its affiliates against certain liabilities. Imperial Capital is engaged, among other things, in the valuation of businesses and their securities in connection with mergers and acquisitions, divestitures, leveraged buyouts, private placements and other situations. PLM retained Imperial Capital to provide the fairness opinion because of Imperial Capital's expertise, reputation and familiarity with PLM and with assets similar to those being acquired by PLM. REGULATORY MATTERS The Trust does not believe that any material federal or state regulatory approvals, filings or notices are required to be filed in connection with the proposed acquisition, other than such approvals, filings or notices required pursuant to federal and state securities laws. If any such additional filings or consents are required, such filings or consents could delay or prevent the closing of the Malibu transaction. APPRAISAL RIGHTS Delaware law does not grant beneficiaries of business trusts who dissent from approval of a transaction, such as the proposed Malibu transaction, the right to demand an appraisal for their interests. Accordingly, Beneficiaries who object to Proposal Two and the proposed Malibu transaction do not have a right to demand payment for their Interests. SELECTED FINANCIAL DATA For the nine months ended September 30, 2002 and each of the five years in the period ended December 31, 2001:
September 30, September 30, Summary of Operations 2002 2001 2001 2000 1999 1998 ------------------------------- --------------- --------------- ------------ ----------- ----------- ----------- Lease revenue $ 4,186,474 $ 4,941,320 $ 6,519,899 $ 7,733,941 $10,286,635 $15,201,411 Total income $ 4,014,524 $ 5,289,869 $ 6,985,008 $10,785,068 $15,453,298 $19,153,506 Net income (loss) $ (1,082,681) $ (206,461) $(5,599,193) $ 2,050,016 $ 5,802,601 $ 4,999,220 Per Beneficiary Interest: Net income (loss) Class A Interests $ (0.62) $ 0.14 $ (2.84) $ 0.66 $ 1.13 $ 1.17 Class B Interests $ - $ (0.11) $ (0.10) $ 0.18 $ 0.75 $ 0.39 Cash distributions declared Class A Interests $ - $ - $ - $ - $ 4.56 $ 1.64 Class B Interests $ - $ - $ - $ - $ 3.66 $ 2.10 Financial Position ------------------------------- Total assets $ 38,512,194 $ 49,316,029 $42,170,719 $51,641,436 $71,090,942 $72,908,929 Total long-term obligations $ 19,263,085 $ 23,332,484 $22,382,964 $26,220,794 $32,573,152 $35,072,883 Participants' capital $ 16,506,686 $ 23,718,444 $17,589,367 $23,188,560 $21,158,711 $36,360,494 Summary of Operations 1997 ------------------------------- ------------ Lease revenue $16,912,628 Total income $17,455,773 Net income (loss) $ 877,213 Per Beneficiary Interest: Net income (loss) Class A Interests $ 0.49 Class B Interests $ (0.12) Cash distributions declared Class A Interests $ 3.11 Class B Interests $ 0.30 Financial Position ------------------------------- Total assets $82,036,778 Total long-term obligations $39,928,173 Participants' capital $41,159,172
The Rancho Malibu property is under development and all costs associated with the property are being capitalized. As such, this transaction is not expected to have any short-term impact on the financial statements of the Trust. Accordingly, no pro forma adjustments related to Proposal Two have been recorded in the accompanying pro forma financial statements. However, in the event all or a portion of the investment in the Rancho Malibu property, or its subsequently capitalized costs, are not recoverable, this could have a negative impact on the Trust's financial statements. THE CONTRIBUTION, ASSIGNMENT, ASSUMPTION AND ACKNOWLEDGMENT AGREEMENT The following description summarizes the material provisions of the Contribution, Assignment, Assumption and Acknowledgment Agreement, by and among RMLP, the Rancho Malibu partnership, Rancho Malibu Corp. and Semele (the "Agreement"), whereby RMLP will receive a capital contribution from Semele of its limited partnership interests and of the general partnership interests of its wholly owned subsidiary Rancho Malibu Corp., in the Rancho Malibu partnership. You should carefully read the entire Agreement, which is attached hereto as Annex A, before making any decision with respect to Proposal One. CONDITIONS TO COMPLETION OF THE TRANSACTION Pursuant to the terms of the Agreement, each party's obligation to effect the transaction is subject to the satisfaction or waiver of various conditions, including the following: - no consent of any governmental authority or any other person or entity shall be required to be made or obtained by the Rancho Malibu partnership or by Semele or Rancho Malibu Corp. in connection with the Agreement, except where the failure to obtain any such consents would not prevent Semele or Rancho Malibu Corp. from performing its obligations under the Agreement; - there shall be no suit, action or other proceeding pending or threatened and no court with appropriate jurisdiction shall have issued an order or injunction which would restrain, enjoin or prohibit the transaction or which would compel RMLP to dispose of or discontinue the business or a portion of the business of the Rancho Malibu partnership; - Semele and Rancho Malibu Corp. shall have obtained all necessary approvals to authorize the transactions contemplated by the Agreement; - the Beneficiaries of the Trust and of Trust D shall have approved the transaction; - the assets of the Rancho Malibu partnership shall have been appraised by an independent appraiser and the appraised value of the assets shall be acceptable to RMLP; - the representations and warranties of Semele and RMLP set forth in the Agreement shall be true and correct in all material respects as though made on and as of the closing date of the transaction; - Semele and RMLP shall each have performed and complied with all agreements and conditions required to be performed or complied with by it prior to the closing date, in all material respects; - each of Semele and RMLP shall have furnished the other party with a certificate dated as of the closing date certifying the fulfillment of certain conditions; - there shall be no material adverse change in the business or results of operations or condition of the Rancho Malibu partnership; and - the business of the Rancho Malibu partnership shall have been conducted in the ordinary course and shall have complied in all material respects with the course of conduct described in the Agreement and RMLP shall have been furnished with a certificate of Semele, dated as of the closing date, certifying as such. The Managing Trustee can provide no assurance that all of the conditions precedent to the transaction have or will be satisfied or waived by the party permitted to do so. The Managing Trustee cannot at this point determine whether it would resolicit consents in the event that it decides to waive any of the items listed above. This decision would depend upon the facts and circumstances leading to the decision to complete the Malibu transaction and whether the Managing Trustee believes there has been a material change in the terms of the transaction and its effect on the Trust and its Beneficiaries. CONDUCT OF BUSINESS PENDING THE CONSUMMATION OF THE TRANSACTION Until the closing of the transaction, except as contemplated by the Agreement, each of Semele and Rancho Malibu Corp. has agreed that it will: - use its best efforts to preserve the business of the Rancho Malibu partnership; - maintain or cause to be maintained satisfactory relationships with suppliers, customers and others having business relationships with the Rancho Malibu partnership which are material to the success of its business; - conduct or enter into business of and transactions by the Rancho Malibu partnership only in the usual and ordinary course; and - allow representatives of RMLP access to the personnel, offices, properties, books and records of the partnership and furnish RMLP with such financial and operating data as RMLP shall reasonably request. Semele has further agreed that it will not cause or permit the Rancho Malibu partnership, except in the ordinary course of business, to: - mortgage, pledge or subject to lien, charge or other encumbrance any assets, or enter into any agreement resulting in the imposition of any such mortgage, lien or charge; - sell or purchase, assign or transfer any intangible property; - suffer any casualty losses, whether insured or uninsured, and whether or not in the control of Semele or the Rancho Malibu partnership or Rancho Malibu Corp., in excess of $5,000 in the aggregate, or waive any rights of any material value, individually or in the aggregate, unless such loss or waiver is reflected in the balance sheets; - incur any indebtedness for money borrowed or any noncurrent indebtedness for the purchase price of any fixed or capital asset; - make (i) any change in properties and assets or in liabilities, (ii) any commitment for any capital expenditure, or (iii) any sale, lease or other disposition of any capital asset; - make any change in the partnership agreement of the Rancho Malibu partnership; - issue any new percentage interest to a third party or grant or issue any option or warrant for the purchase of any new percentage interest to a third party, or make any commitment relating thereto; - make any distribution or payment to Semele; - amend, make or enter into any agreement with any employee, agent or consultant; - amend any material contract, lease or agreement listed; or - voluntarily incur any material obligation or liability, absolute or contingent, except in the ordinary course of business or pursuant to existing contracts and agreements described in the Agreement or in the schedules delivered pursuant hereto. - The Agreement contains customary representations and warranties by Semele and Rancho Malibu Corp. TERMINATION The Agreement may be terminated at any time prior to the date of closing: - by either Semele or Rancho Malibu Corp. or RMLP, if any party or government agency institutes any proceeding to enjoin or prevent consummation of the transactions contemplated by the Agreement or seeks any material damages that may result from the consummation of the transactions under the Agreement; - by either Semele or Rancho Malibu Corp. or RMLP, if a material default is made by the other party with respect to the performance of any of the covenants or agreements or any of the representations and warranties made by such party in the Agreement, which default has not been cured within 15 days after the delivery of a notice of default specifying such breach; - by Semele or Rancho Malibu Corp., if all of the conditions set forth in the Agreement have not been satisfied or waived by Semele prior to the date of closing; - by RMLP, if all of the conditions set forth in the Agreement have not been satisfied or waived by RMLP prior to the date of closing; and - by RMLP, if a material adverse effect has occurred. DESCRIPTION OF THE PROMISSORY NOTE As part of the consideration to be paid to Semele pursuant to the Agreement, RMLP will issue to Rancho Malibu Corp. an unsecured promissory note (the "Note"). The Note will be for the principal amount of $2.5 million or such lesser amount as is outstanding pursuant to the terms of the Note. The Note will bear interest at the rate of 7% per annum, calculated on the basis of a year with 360 days. The entire principal amount of, and accrued interest on, the Note will be due and payable on December 31, 2006, subject to extension upon the mutual agreement of Rancho Malibu Corp. and RMLP. The Note may be prepaid at any time, without premium or penalty, at the option of RMLP in principal increments of $100,000. Additionally, RMLP is obligated to make annual prepayments on the Note to the extent of any Excess Cash Flow (as defined in the Note). RMLP may make payments of principal of, and accrued interest on, the Note either in cash or, if prior to the second anniversary of the Note, by delivering clear title to a subdivided portion of the real property owned by the Rancho Malibu partnership, in which case the value of such prepayment will be determined by the total appraised fair market value of such real property, determined by a nationally recognized real estate appraiser mutually agreeable to RMLP, the C & D Joint Venture and Semele. In the event RMLP desires to make any such prepayment in-kind, the Rancho Malibu partnership, pursuant to the terms of its amended Partnership Agreement, will distribute the real property to RMLP or, at the direction of RMLP, to the payee under the Note and at the same time will make an appropriate increase in the ownership interests held by the C & D Joint Venture in order to reflect the return on capital paid to RMLP. Upon the occurrence of an Event of Default (as defined in the Note), Rancho Malibu Corp. may declare the entire unpaid balance of the principal amount of, and accrued interest on, the Note immediately due and payable. In such event, RMLP will be obligated to pay all of Rancho Malibu Corp.'s costs and expenses, including reasonable attorneys' fees, incurred in enforcing or collecting any of the obligations of RMLP under the Note. During the continuation of an Event of Default, all such amounts, plus the entire unpaid balance of the principal amount of, and accrued interest on, the Note, will bear interest at the rate of 8.5% per annum. The Note is governed by Delaware law and does not place any restrictions on RMLP's ability to incur additional indebtedness. DESCRIPTION OF THE COMMON STOCK OF RMLP The following summary of the common stock of RMLP is subject in all respects to applicable Delaware law, RMLP's certificate of incorporation and RMLP's by-laws. See "Where You Can Find More Information." RMLP's authorized capital stock consists of 3,000 shares of common stock, par value $.01 per share. As of the Record Date, 1,000 shares of RMLP common stock were outstanding and held by PLM. If Proposal One is adopted and the Malibu transaction is consummated, pursuant to the Agreement, Semele will receive 182 shares of RMLP common stock, representing 15.4% of the then outstanding shares. Holders of RMLP's common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Holders of RMLP's common stock are not entitled to cumulative voting rights with respect to the election of directors and, as a consequence, minority shareholders will not be able to elect directors on the basis of their votes alone. Subject to preferences that may be applicable to any shares of preferred stock issued in the future, holders of common stock are entitled to receive ratably such dividends as may be declared from time to time by RMLP's board of directors out of funds legally available for payment. In the event of a liquidation, dissolution or winding up of RMLP, holders of RMLP's common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding preferred stock. Holders of common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to RMLP's common stock. All shares of RMLP's common stock to be outstanding upon completion of the Malibu transaction will be fully paid and non-assessable. THE MANAGING TRUSTEE RECOMMENDS THAT BENEFICIARIES CONSENT TO THE APPROVAL OF PROPOSAL TWO. PROPOSAL 3 - APPROVAL OF THE AMENDMENT TO SECTION 7.5 OF THE TRUST AGREEMENT TO APPROVE GRANTS AND EXERCISES OF RIGHTS OF FIRST REFUSAL IN JOINT VENTURES BETWEEN THE TRUST AND ITS AFFILIATES THE AMENDMENT As currently in effect, Section 7.5 of the Trust Agreement does not provide the Trust with a right of first refusal in the event of a sale of an asset by a joint venturer. It is proposed that Section 7.5 be amended to provide the Trust with such a right of first refusal. REASON FOR THE AMENDMENT Section 7.5 of the Trust Agreement initially provided that the Trust has the right of first refusal in the event of a proposed sale of an asset, or an interest therein, initiated by a joint venturer. However, when Section 7.5 was amended in June 1999, the provision was deleted. The Managing Trustee believes that the deletion of this right was inadvertent and that the right should be reinstated. The Trust distributed a Consent Solicitation Statement on May 5, 1998 to its Beneficiaries to ask them to vote on, among other items, an amendment to Section 7.5 governing joint ventures between the Trust and the Managing Trustee or its affiliates. As the Consent Solicitation Statement stated, the purpose of amending Section 7.5 was to permit the Trust to enter into joint ventures with affiliated joint venturers that have different investment objectives than the Trust. Prior to the amendment, Section 7.5 required that the Trust have identical investment objectives with its affiliated joint venturers, which the Managing Trustee believed limited the opportunity of the Trust to co-invest with affiliates of the Managing Trustee. The Consent Solicitation Statement did not address, however, the deletion of the right of first refusal. The Managing Trustee believes that, because the stated purpose of the amendment to Section 7.5 was to remove unnecessary limits on the Trust's right to enter into joint ventures, it is unlikely that the intention of the amendment was to remove the right of first refusal, thereby further limiting the Trust. Apart from potentially acquiring the MILPI interests from Trusts A and B, the Trust has no current intention to purchase an interest of a joint venturer during the remainder of 2002. Therefore, the amendment is not likely to benefit the Trust's beneficiaries because the Trust does not have the authority to reinvest in additional assets after December 31, 2002. However, in order to be better prepared for any unforeseen events, the Managing Trustee believes that it would be helpful to reinstate the provision because there are benefits to be derived by the Trust by allowing a right of first refusal in connection with joint ventures. For instance, the Trust may be engaged in businesses that use the type of assets being disposed of, such that the asset would be of value to the Trust even if it was no longer of value to the joint venture. By allowing the Trust a right of first refusal to purchase such assets, the Trust would have greater control of its assets and therefore better protection of the value of the assets. Before voting on this proposal, Beneficiaries are urged to read the full text of the proposed amendment to Section 7.5, which is included in Annex E, attached hereto. THE MANAGING TRUSTEE RECOMMENDS THAT BENEFICIARIES CONSENT TO THE APPROVAL OF PROPOSAL THREE. PROPOSAL 4 - APPROVAL OF THE PURCHASE BY MILPI OF THE MEMBERSHIP INTERESTS IN MILPI HELD BY TRUST A AND TRUST B, WHICH WOULD GIVE THE TRUST, TOGETHER WITH TRUST D, SHARED 100% OWNERSHIP OF MILPI REASON FOR THE SALE The Managing Trustee believes that it would be in the best interest of the Trust for MILPI to purchase the membership interests in MILPI back from Trust A and Trust B. In December 2000, the Trust entered into a joint venture with Trust A, Trust B and Trust D whereby each of the trusts purchased membership interests in MILPI. A subsidiary of MILPI subsequently entered into an agreement to acquire PLM, and in order to obtain the approval of its stockholders, PLM filed a proxy statement with the Securities and Exchange Commission (the "SEC"). In connection with the review of PLM's preliminary proxy materials, the staff of the SEC informed Trust A and Trust B that the staff believed that the two trusts may be unregistered investment companies within the meaning of the Investment Company Act of 1940. Although Trust A and Trust B have publicly stated that they do not believe they are unregistered investment companies, based upon the advice of counsel, the two trusts are in the process of liquidating their remaining assets to avoid the burden and extra expense of continuing to pursue this issue with the staff of the SEC. Accordingly, Trust A and Trust B have approved the sale of their membership interests in MILPI. Currently, the Trust has a 37.5% interest in MILPI. The Managing Trustee's strategy is to maximize the value of the Trusts' interests in PLM through the management of PLM's equipment leasing business and the simplification of PLM's balance sheet. The Managing Trustee believes that this will allow the Trust and Trust D to more readily and more profitably dispose of their assets, including PLM, prior to the time that each of the Trusts is required to dissolve. Upon completion of the proposed purchase, the Trust and Trust D each will own a 50% interest in MILPI. The Managing Trustee believes that the Trust and Trust D will each have greater liquidity in their investments if they have a 50% interest in MILPI rather than their current minority interests. As stated above, Trust A and Trust B have approved the sale of their membership interests in MILPI. If MILPI does not purchase these interests from Trust A and Trust B, the two Trusts could then sell their MILPI interests to a third party. The third party would be a joint venturer in MILPI and would have a minority interest in management decisions, with the Trust and Trust D having a combined majority interest. Although pursuant to the terms of MILPI's Operating Agreement, a third party purchaser would only have a minority interest and the Trust and Trust D could withhold their consent to the sale of MILPI interests to any given third party, there could be no assurance that any third party that purchased the interests would have similar management objectives as the Trust. TERMS OF THE SALE The membership interests in MILPI of Trust A and Trust B would be bought back by MILPI, pursuant to a Membership Interest Purchase Agreement, at the price paid to purchase such interests, less any dividends paid, plus the reimbursement of acquisition fees paid by the Trust to the Managing Trustee pursuant to the Trust Agreement in connection with the purchase of its MILPI membership interests, aggregating approximately $5.9 million. The Managing Trustee has agreed to waive all fees that would otherwise be due to it by the Trust under the terms of the Trust Agreement in connection with a sale of Trust assets. A copy of the Membership Interest Purchase Agreement is attached hereto as Annex F. As noted below, the Trust's financial advisors have determined that the proceeds to be paid in connection with the sale is fair to the Beneficiaries from a financial point of view. See "Proposal Four - Fairness Opinion." The aggregate purchase price to be paid by MILPI was set by the Managing Trustee, rather than being the result of arm's length negotiations as to the underlying value of the assets. In setting the purchase price, the Managing Trustee took into account, on the one hand, the expectation by Trust A and Trust B that they would recognize a return on their investment of capital and, on the other hand, the expectation by the Trust and Trust D that the purchase price would reflect a decline in the value of the underlying equipment assets, including aircraft, since MILPI's acquisition of PLM, primarily as a result of generally unfavorable economic conditions occurring since the acquisition. In order to reconcile these two positions, the Managing Trustee proposes that the Trust sell its membership interests in MILPI back to MILPI at the original purchase price, plus the reimbursement of the membership fees paid to the Managing Trustee of the Trust in connection with the purchase of the interests pursuant to the Trust Agreement, less distributions or dividends. There is a risk that PLM may have declined significantly in value from the time it was acquired by MILPI as a result of a decline in the value of the assets held by PLM. If this were the case, then the aggregate purchase price to be paid by the Trust and Trust D, indirectly through MILPI, may be too high. However, during the time PLM was held by MILPI, PLM has been able to monetize many of PLM's non-core assets. PLM was also successful during this time in settling its outstanding class action litigation, resolving a significant management issue and reducing the potentially high cost of its litigation. These factors, when combined, cause the Managing Trustee to believe that the aggregate purchase price to be paid by MILPI is fair to the Trust and Trust D. In addition, the Managing Trustee obtained a fairness opinion from Imperial Capital, which is summarized in the following section. FAIRNESS OPINION Imperial Capital was engaged by the Trust and Trust D to provide a fairness opinion in connection with Proposal Four. The opinion, which Imperial Capital delivered to the Trust and Trust D on April 10, 2002, stated that, as of such date and based upon and subject to certain matters stated therein, the aggregate consideration to be paid by MILPI in connection with the repurchase of the interests in MILPI held by Trust A and Trust B is fair to the Trust and Trust D from a financial point of view. A copy of the opinion, which sets forth the assumptions made, matters considered and scope and limitations of the review undertaken and the procedures followed by Imperial Capital, is attached hereto as Annex G and is incorporated by reference into this Solicitation Statement. You are urged to read the Imperial Capital opinion carefully and in its entirety for assumptions made, matters considered and limits of the review by Imperial Capital. Beneficiaries should note that the opinion expressed by Imperial Capital was prepared at the request and for the information of the Trust and Trust D and does not constitute a recommendation to any Beneficiary as how to vote with respect to Proposal Four. Further, the opinion relies on only two analyses, bids taken on PLM two years ago which do not reflect the possible decline in value since then, and a discounted cash flow analysis of projected earnings which exceed the actual 2002 earnings by approximately 32%. The Imperial Capital opinion does not address the business decision or the relative merits of the decision of the Trust and Trust D. No limitations were placed on Imperial Capital with respect to the investigation made, the procedures followed or the factors considered in preparing and rendering its opinion. Because the only asset of MILPI is its 100% ownership in PLM, Imperial Capital performed its analysis on the operations and projections of PLM and attributed no positive or negative value to MILPI. In connection with rendering its opinion, Imperial Capital among other things: - analyzed certain historical business and financial information relating to PLM, including a draft of PLM's annual financial statements for the year ended December 31, 2001 and balance sheet for March 31, 2002 which were provided by PLM; - reviewed certain information, including financial forecasts, relating to the business, earnings, taxes and cash flow, furnished to Imperial Capital by PLM; - reviewed certain publicly available business and financial information relating to PLM that Imperial Capital deemed relevant; - conducted discussions with members of senior management of PLM concerning the matters described above, as well as the prospects and strategic objectives of PLM and expected cost and corporate overhead savings as PLM investment vehicles continue to liquidate; - reviewed public information with respect to certain other companies with financial profiles that Imperial Capital deemed to be relevant; - reviewed the historical market prices and trading activity for PLM's common stock through the date of PLM's merger with MILPI Acquisition Corp.; - reviewed the results of the sale process in which PLM was sold to MILPI Acquisition Corp., and - conducted such other financial studies, analyses and investigations and took into account such other matters as Imperial Capital deemed necessary, including its assessment of general economic, market and monetary conditions. In preparing its opinion and with the consent of the Trust and Trust D, Imperial Capital relied on the accuracy and completeness of the foregoing financial and other information and did not assume responsibility for independent verification of such information or conduct an independent valuation or appraisal of any of MILPI's or PLM's assets, nor was Imperial Capital furnished with any such appraisals. With respect to the financial forecasts, Imperial Capital assumed, with the consent of the Trust and Trust D, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of MILPI and PLM as to the future financial performance of PLM. Imperial Capital also relied upon assurances of senior management of PLM that they were unaware of any facts that would make the information or financial forecasts provided to Imperial Capital incomplete or misleading. Imperial Capital assumed no responsibility for, and expressed no view as to, such forecasts or the assumptions on which they were based. The Imperial Capital opinion was based upon economic, monetary and market conditions existing on the date of the opinion. Imperial Capital expressed no opinion, nor should one be implied, as to the current fair market value of the Interests. The following two paragraphs summarize the analyses performed by Imperial Capital in arriving at its opinion: - MARKET APPROACH ANALYSIS. The market approach is a valuation technique in which fair market value is estimated based on market prices in actual transactions and on asking prices for currently available assets. Normally, Imperial Capital would review publicly traded companies and comparable transactions with these companies, but due to PLM's unique business structure and small number of equity holders and the fact that PLM is currently being managed in order to liquidate its various investment vehicles, Imperial Capital did not believe that this technique was applicable. Instead, Imperial Capital reviewed (i) PLM's trading history, which showed that from February 18, 2001 through February 8, 2002, PLM's stock traded between $2.80 and $3.44 per share, and (ii) the competitive auction process by which PLM was sold to MILPI Acquisition Corp., whereby PLM received bids ranging from $2.07 to $3.60 per share. Based upon the number of shares of PLM that were outstanding during the relevant periods, these amounts translate into a value of between $3.9 million and $6.8 million for the 25% of MILPI that the Interests represent, or an enterprise value of between $15.6 million and $27.2 million. - DISCOUNTED CASH FLOW ANALYSIS. The fundamental premise of the discounted cash flow approach is to estimate the available cash flows a prudent investor would expect a company to generate over its remaining life. To determine this amount, Imperial Capital used cash flow projections from PLM's 2002 budget and PLM's liquidation analysis for the nine months ending December 31, 2002 and the fiscal years ended December 31, 2003 through 2007. In applying this approach, Imperial Capital estimated an appropriate discount rate to be between 20% and 25% based on a number of factors, including that significant assets have been monetized since the acquisition of PLM, management of PLM used conservative estimates of its future cash flows, a class action lawsuit filed against PLM has been settled, and effects on the credit quality underlying PLM's assets as a result of events since September 11, 2001. Imperial Capital also assumed that, because PLM is in a liquidation mode, it would not have any residual or terminal value. Based on this analysis, Imperial Capital determined PLM's total enterprise value to be approximately $24.6 to $26.2 million and its equity value to be approximately $24.2 to $25.9 million. Therefore, because the Interests represent 25% ownership of MILPI, they would have an estimated value ranging between $6.4 and $6.8 million. This valuation compares with the aggregate purchase price of approximately $5.9 million to be paid to Trust A and Trust B (reflecting an enterprise value of approximately $23.7 million), which purchase price reflects the payment of dividends and acquisition fees by PLM subsequent to MILPI's acquisition of PLM aggregating approximately $0.6 million to Trust A and Trust B. The summary of the Imperial Capital opinion set forth above does not purport to be a complete description of the data and analyses presented or considered by Imperial Capital. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant quantitative methods of financial analyses and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. Accordingly, Imperial Capital's analysis must be considered as a whole and considering any portion of Imperial Capital's analysis and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying the Imperial Capital opinion. In the ordinary course of business and in accordance with applicable state and federal securities laws, Imperial Capital may make a market in securities of Semele, the Trust and Trusts A, B and D and may trade the securities of such entities for its own account and for the account of customers and, accordingly, may at any time hold long or short positions in such securities. In addition, Imperial Capital previously acted as financial advisor to PLM and certain of its affiliates in connection with the acquisition of PLM by a subsidiary of MILPI. Imperial Capital rendered its opinion to PLM's board of directors on December 21, 2000 and was paid a success fee of $175,000, plus expenses for such opinion. Imperial Capital also has been paid a fee of $37,500 in connection with Proposal Two, discussed above. As of the date of the opinion, Imperial Capital and its affiliates owned approximately 4% of the common stock of Semele, based on the number of shares publicly reported by Semele to be outstanding. Imperial Capital has been paid a fee of $37,500 for its fairness opinion rendered to the Trust and Trust D. The Trust and Trust D also agreed to indemnify Imperial Capital, its affiliates and each of their respective directors, officers and employees and each other person, if any, controlling Imperial Capital or any of its affiliates against certain liabilities. Imperial Capital is engaged, among other things, in the valuation of businesses and their securities in connection with mergers and acquisitions, divestitures, leveraged buyouts, private placements and other situations. The Trust and Trust D retained Imperial Capital to provide the fairness opinion because of Imperial Capital's expertise, reputation and familiarity with MILPI and with securities similar to those being acquired by MILPI. SELECTED FINANCIAL DATA For the nine months ended September 30, 2002 and each of the five years in the period ended December 31, 2001, and for the pro forma information for the nine months ended September 30, 2002 and the year ended December 31, 2001:
. . . . . . . . . Pro Forma . Pro Forma . . . September30, September 30, . December 31, September 30, . Summary of Operations 2002 2002 (1) 2001 2001 (1) 2001 2000 ------------------------------- ------------ --------------- ------------ -------------- --------------- ----------- Lease revenue $ 4,186,474 $ 4,186,474 $ 6,519,899 $ 6,519,899 $ 4,941,320 $ 7,733,941 Total income $ 4,014,524 $ 4,014,524 $ 6,985,008 $ 6,985,008 $ 5,289,869 $10,785,068 Net income (loss) $(1,082,681) $ (887,178) $(5,599,193) $ (5,164,952) $ (206,461) $ 2,050,016 Per Beneficiary Interest: Net income (loss) Class A Interests $ (0.62) $ (0.56) $ (2.84) $ (2.60) $ 0.14 $ 0.66 Class B Interests $ - $ 0.01 $ (0.10) $ (0.10) $ (0.11) $ 0.18 Cash distributions declared Class A Interests $ - $ - $ - $ - $ - $ - Class B Interests $ - $ - $ - $ - $ - $ - Financial Position ------------------------------- Total assets $38,512,194 $ 39,166,870 $42,170,719 - $ 49,316,029 $51,641,436 Total long-term obligations $19,263,085 $ 19,263,085 $22,382,964 - $ 23,332,484 $26,220,794 Participants' capital $16,506,686 $ 17,161,362 $17,589,367 - $ 23,718,444 $23,188,560 . . . . . . . . . . . . Summary of Operations 1999 1998 1997 ------------------------------- ----------- ----------- ------------ Lease revenue $10,286,635 $15,201,411 $16,912,628 Total income $15,453,298 $19,153,506 $17,455,773 Net income (loss) $ 5,802,601 $ 4,999,220 $ 877,213 Per Beneficiary Interest: Net income (loss) Class A Interests $ 1.13 $ 1.17 $ 0.49 Class B Interests $ 0.75 $ 0.39 $ (0.12) Cash distributions declared Class A Interests $ 4.56 $ 1.64 $ 3.11 Class B Interests $ 3.66 $ 2.10 $ 0.30 Financial Position ------------------------------- Total assets $71,090,942 $72,908,929 $82,036,778 Total long-term obligations $32,573,152 $35,072,883 $39,928,173 Participants' capital $21,158,711 $36,360,494 $41,159,172
____________________ (1) The Trust's unaudited pro forma financial statements for the nine months ended September 30, 2002 and the year ended December 31, 2001 have been prepared as if the purchase by MILPI of the membership interests in MILPI held by Trust A and Trust B had occurred on January 1, 2001. See "Unaudited Pro Forma Financial Information." THE MANAGING TRUSTEE RECOMMENDS THAT BENEFICIARIES CONSENT TO THE APPROVAL OF PROPOSAL FOUR. FINANCIAL INFORMATION WITH RESPECT TO MILPI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE PERIOD FEBRUARY 7, 2001 THROUGH DECEMBER 31, 2001 FOR MILPI MILPI was formed on December 12, 2000, under the laws of the State of Delaware and is governed by its Operating Agreement, dated December 13, 2000. MILPI had no activities from December 12, 2000 through February 7, 2001. MILPI was created by four separate trusts (Trust A, Trust B, the Trust and Trust D) for the sole purpose of acquiring PLM and its subsidiaries. PLM is an equipment management company and operates in one business segment, the leasing of transportation equipment and the creation of equipment-leasing solutions for domestic and international customers. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires MILPI to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, MILPI reviews these estimates including those related to asset lives and depreciation methods, impairment of long-lived assets, allowance for doubtful accounts, reserves related to legally mandated equipment repairs and contingencies and litigation. These estimates are based on MILPI's historical experience and on various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. MILPI believes, however, that the estimates, including those for the above-listed items, are reasonable and that actual results will not vary significantly from the estimated amounts. MILPI believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of MILPI's financial statements: Asset Lives and Depreciation Methods. The primary business of the managed ---------------------------------------- programs involves the purchase and subsequent lease of long-lived transportation and related equipment. MILPI has chosen asset lives that it believes correspond to the economic life of the related asset. MILPI has chosen a deprecation method that it believes matches the benefit to the managed programs from the asset with the associated costs. These judgments have been made based on MILPI's expertise in each equipment segment that the managed programs operate. If the asset life and depreciation method chosen does not reduce the book value of the asset to at least the potential future cash flows from the asset to the managed programs, the managed programs would be required to record a loss on revaluation. Likewise, if the net book value of the asset was reduced by an amount greater than the economic value has deteriorated, the managed programs may record a gain on sale upon final disposition of the asset. In either instance, this would impact the amount of MILPI's equity income in managed programs reported on its consolidated statement of operations. Impairment of Long-lived Assets. On a regular basis, MILPI reviews the carrying ------------------------------- value of the managed programs' equipment and investments in unconsolidated special purpose entities to determine if the carrying value of the assets may not be recoverable due to current economic conditions. This requires MILPI to make estimates related to future cash flows from each asset as well as the determination if the deterioration is temporary or permanent. If these estimates or the related assumptions change in the future, the managed programs may be required to record an impairment charge. This would impact the amount of MILPI's equity income in managed programs reported on its consolidated statement of operations. Allowance for Doubtful Accounts. MILPI maintains allowances for doubtful ---------------------------------- accounts and other receivables for estimated losses resulting from the inability of the customer to make the customer payments. These estimates are primarily based on the amount of time that has lapsed since the related payments were due as well as specific knowledge related to the ability of the lessees to make the required payments. If the financial condition of MILPI's lessees were to deteriorate, additional allowances could be required that would reduce income. Conversely, if the financial condition of the lessees were to improve or if legal remedies to collect past due amounts were successful, the allowance for doubtful accounts may need to be reduced and income would be increased. In addition, the managed programs maintain similar allowances for their receivables. If the financial condition of the companies with payments due to the managed programs were to change, this would impact the amount of the management fee revenue earned by MILPI. Reserves for Repairs. The managed programs accrue for legally required repairs --------------------- to equipment such as dry docking for marine vessels and engine overhauls to aircraft engines over the period prior to the required repairs. The amount that is reserved is based on MILPI's expertise in each equipment segment, the past history of such costs for that specific piece of equipment and discussions with independent, third party equipment brokers. If the amount reserved for is not adequate to cover the cost of such repairs or if the repairs must be performed earlier than MILPI estimated, the managed programs would incur additional repair and maintenance or equipment operating expenses. This would impact the amount of MILPI's equity interest in affiliates reported on its consolidated statement of operations. Contingencies and Litigation. MILPI is subject to legal proceedings involving ------------------------------ ordinary and routine claims related to its business. The ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements. Estimates for losses from litigation are disclosed if considered possible and accrued if considered probable after consultation with counsel. If estimates of potential losses increase or the related facts and circumstances change in the future, MILPI may be required to record additional litigation expense. In addition, the managed programs are also subject to legal proceedings. If estimates of losses for the programs change in the future, this would impact MILPI's equity interest in affiliates reported on its consolidated statement of operations. Goodwill. MILPI has goodwill which represents the excess of the aggregate -------- purchase price paid for PLM over the fair market value of its identifiable assets. In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), MILPI regularly reviews the recoverability of this asset which requires the use of estimates. If actual facts and circumstances change in the future, MILPI may be required to record an impairment. Income Taxes. MILPI accounts for income taxes in accordance with the ------------- provisions of Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). This requires MILPI to make estimates as to the temporary differences between the tax basis of assets and liabilities and the carrying values for financial statement purposes. Estimates include assessing the realizability of deferred income tax assets. Management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those differences become deductible. MANAGEMENT OF INVESTMENT PROGRAMS PLM syndicated investment programs from which it earns various fees and equity interests. Professional Lease Management Income Fund I, LLC("Fund I") was structured as a limited liability company with a no front-end fee structure. The previously syndicated limited partnership programs allow MILPI to receive fees for the acquisition and initial leasing of the equipment. The Fund I program does not provide for acquisition and lease negotiation fees. PLM invested the equity raised through syndication for these programs in transportation equipment and related assets, which it manages on behalf of the investors. The equipment management activities for these types of programs generate equipment management fees for MILPI over the life of a program. The limited partnership agreements entitle MILPI to receive a 1% or 5% interest in the cash distributions and earnings of a partnership, subject to certain allocation provisions. The Fund I agreement entitles MILPI to a 15% interest in the cash distributions and 1% of earnings of the program, subject to certain allocation provisions per the operating agreement. MILPI's interest in the earnings and distributions of Fund I will increase to 25% after the investors have received distributions equal to their original invested capital. MILPI is not syndicating new investment programs nor does it expect to in the future. As a result, revenues earned from managed programs, which include management fees, partnership interests and other fees, and acquisition and lease negotiation fees will be reduced in the future as the older programs liquidate and the managed equipment portfolio is reduced. In accordance with certain limited partnerships' agreements, four limited partnerships have entered their liquidation phases and MILPI has commenced an orderly liquidation of the partnerships' assets. One of the limited partnerships, PLM Equipment Growth Fund III is expected to be liquidated by the end of 2003. Three of the limited partnerships, PLM Equipment Growth Fund, PLM Equipment Growth Fund II and PLM Equipment Growth Fund IV will terminate on December 31, 2006 unless terminated earlier upon the sale of all equipment or by certain other events. MILPI will occasionally own transportation equipment prior to sale to affiliated programs. During this period, MILPI earns lease revenue and may incur interest expense. DISCUSSION OF MILPI'S OPERATING RESULTS FOR THE PERIOD FROM FEBRUARY 7, 2001 THROUGH DECEMBER 31, 2001 The following analysis reviews the operating results of MILPI: Revenues. --------
For the Period From February 7, 2001 through December 31, 2001 (in thousands of dollars) -------------------------- Operating lease income $ 472 Management fees 5,217 Partnership interests and other fees 1,716 Acquisition and lease negotiation fees 2,032 Loss on disposition of assets (91) Other 1,030 -------------------------- Total revenues $ 10,376 ==========================
Operating Lease Income: Operating lease income consists of rental revenues generated from assets held for operating leases and assets held for sale that are on lease. Assets held for operating leases include commercial and industrial equipment. Operating lease income is expected to decline in the future as MILPI's commercial and industrial equipment portfolio is sold and not replaced. Management Fees: Management fees are, for the most part, based on the gross revenues generated by equipment under management. Management fees were $5.2 million for the period from February 7, 2001 through December 31, 2001. Management fees from the older programs are decreasing and are expected to continue to decrease as the programs liquidate their equipment portfolios. Partnership Interests and Other Fees: PLM Financial Services Inc. ("FSI") is the General Partner or manager of nine investment programs. Distributions of the programs are allocated as follows: 99% to the limited partners and 1% to the General Partner in PLM Equipment Growth Fund (EGF) I and PLM Passive Income Investors 1988-II; 95% to the limited partners and 5% to the General Partner in EGFs II, III, IV, V, VI, and PLM Equipment Growth & Income Fund VII; and 85% to the members and 15% to the manager in Fund I. PLM's interest in the cash distributions of Fund I will increase to 25% after the investors have received distributions equal to their invested capital. Net income is allocated to the General Partner subject to certain allocation provisions. Most of the investment program agreements contain provisions for special allocations of the programs' gross income. MILPI records as revenues its equity interest in the earnings of MILPI's managed programs. MILPI's income from the managed programs was $1.7 million for the period from February 7, 2001 through December 31, 2001. Acquisition and Lease Negotiation Fees: Concurrent with the final settlement of the Koch and Romei matters in the third quarter of 2001 (see Note 7 to MILPI's audited consolidated financial statements), MILPI recognized income of $1.8 million consisting of acquisition and lease negotiation fees. These fees were earned on equipment purchased in prior periods for investment programs that had reached the maximum allowable fees that could be taken. With the settlement of these lawsuits, the amount of fees that could be earned from these investment programs was increased and the previously deferred fees were taken into income. During the period from February 7, 2001 through December 31, 2001, MILPI, on behalf of the managed programs, purchased transportation equipment for $7.0 million, and $0.4 million in acquisition and lease negotiation fees were earned on these purchases. Other Revenue: Other revenue consists primarily of revenue earned from data processing fees charged to the managed programs. Costs and Expenses. --------------------
For the Period From February 7, 2001 through December 31, 2001 (in thousands of dollars) -------------------------- Operations support $ 800 Impairment of investment in managed programs 511 Depreciation and amortization 1,255 General and administrative 3,290 -------------------------- Total costs and expenses $ 5,856 ==========================
Operations Support: Operations support expense includes salary and office-related expenses for operational activities. Impairment of Investment in Managed Programs: In accordance with the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("SFAS No. 121"), MILPI reviews the carrying value of its investments whenever circumstances indicate that the carrying value may not be recoverable. If projected undiscounted future cash flows are lower than the carrying value of its equity interest in affiliates, an impairment would be recorded. During the period from February 7, 2001 through December 31, 2001, MILPI recorded an impairment of $0.5 million on its equity interest in affiliates due to a change in market conditions, primarily in the airline industry, after the events of September 11, 2001. Depreciation and Amortization: Depreciation and amortization includes depreciation of assets held for lease and amortization of goodwill associated with the acquisition of PLM. Amortization of goodwill and depreciation of fixed assets was approximately $0.8 million and $0.5 million, respectively. Depreciation is expected to continue to decline in the future as MILPI's commercial and industrial equipment portfolio is sold and not replaced. On January 1, 2002, MILPI adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). The standard requires the discontinuance of goodwill and other intangible asset amortization. As a result, MILPI's amortization expense is expected to decrease in the future due to the new accounting pronouncement. General and Administrative: General and administrative expenses consist of salary, office rent, insurance, professional fees and other costs associated with administrative functions. Other Income and Expenses. ----------------------------
For the Period From February 7, 2001 through December 31, 2001 (in thousands of dollars) -------------------------- Interest expense $ (6) Interest Income $ 384 Other income, net $ 89
Interest Income: Interest income is earned on MILPI's cash and cash equivalents balance during the year. Cash equivalents are invested in instruments with a maturity date of 90 days or less. Provision For Income Taxes. For the period from February 7, 2001 through ----------------------------- December 31, 2001, the provision for income taxes was $1.6 million, representing an effective rate of 32%. The 32% rate is lower than the expected combined federal and state effective rate of 38% as a result of income recognized at the MILPI level which is not subject to taxation. MILPI is treated as a partnership for tax purposes. Therefore, income it earns is not taxed at the entity level. Minority Interest Expense. Minority interest expense is the portion of PLM's --------------------------- operating results attributable to shares of its stock owned by investors other than MILPI. MILPI's minority interest consists of approximately 17% of the stock outstanding owned by unrelated investors that was not acquired in the February 7, 2001 acquisition. Minority interest was $0.4 million for the period from February 7, 2001 through December 31, 2001. MILPI acquired the remaining 17% outstanding shares of PLM on February 6, 2002. Once the acquisition was completed, MILPI no longer recorded minority expense. Liquidity and Capital Resources. Cash requirements in 2001 were satisfied ---------------------------------- through cash flow from investing activities. During the period from February 7, 2001 through December 31, 2001, accounts receivable decreased $1.2 million. This decrease was primarily caused by the collection of the lease receivables from assets held for sale that were outstanding at February 7, 2001. During the period from February 7, 2001 through December 31, 2001, receivables from affiliates decreased $0.4 million resulting from lower management fees earned from the affiliated programs. During the period from February 7, 2001 through December 31, 2001, equity interest in affiliates decreased $0.4 million. The decrease was attributable to a $0.5 million write-down of the equity investments to fair value and a $1.6 million of cash distributions offset by $1.7 million in equity income earned from the programs. As of February 7, 2001, MILPI had $10.3 million in marine containers that were reported as assets held for sale. During the period from February 7, 2001 through December 31, 2001, MILPI sold these marine containers to affiliated programs at cost, which approximated their fair market value. As of December 31, 2001, MILPI had no assets held for sale. During the period from February 7, 2001 through December 31, 2001, restricted cash decreased $1.7 million. MILPI's agreement to purchase PLM required $1.7 million in cash to be placed into an escrow account. Concurrent with the conclusion of the tender offer in February 2001, the $1.7 million in restricted cash held in an escrow account was released to MILPI. During the period from February 7, 2001 through December 31, 2001, other assets decreased $0.6 million. Approximately $0.4 million of the decrease was attributable to the sale and depreciation of assets held for lease. Approximately $0.2 million of the decrease was attributable to a reduction in prepaid insurance and prepaid rent. During the period from February 7, 2001 through December 31, 2001, accounts payable and accrued expenses decreased $10.5 million. The decrease was attributable to $2.4 million of costs accrued on February 7, 2001 in conjunction with the purchase of PLM that were paid during the year. Such costs included severance, moving and other miscellaneous transactions fees. Additionally, $4.7 million of the decrease was the result of a reduction in the current federal and state income tax payable due to tax payments made during the period. Accounts payable and other accrued liabilities decreased by $3.4 million due to the payment of deferred compensation, profit sharing and bonuses during the period. Warehouse Credit Facility: In April 2001, PLM entered into a $15.0 million warehouse facility, (which is shared by PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII, and Fund I) which allows PLM to purchase equipment prior to its designation to a specific program. Borrowings under this facility by the other eligible borrowers reduced the amount available to be borrowed by PLM. Individual borrowings may be outstanding for no more than 270 days, with all advances due no later than April 12, 2002. Interest accrues at either the prime rate or adjusted LIBOR plus 2.00%, at the borrower's option, and is set at the time of an advance of funds. This facility was amended in December 2001 to lower the amount available to be borrowed to $10.0 million. This facility expires in July 2002. As of December 31, 2001, PLM had no borrowings outstanding under this facility and there were no borrowings outstanding under this facility by any other eligible borrower. Management believes that, through debt financing and cash flows from operations, MILPI will have sufficient liquidity and capital resources to meet its projected future operating needs over the next twelve months. FORWARD-LOOKING INFORMATION Except for historical information contained herein, the discussion in this document contains forward-looking statements that contain risks and uncertainties, such as statements of MILPI's plans, objectives, expectations, and intentions. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this discussion. MILPI's actual results could differ materially from those discussed here. CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FEBRUARY 7, 2001 THROUGH DECEMBER 31, 2001 FOR MILPI INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Description Page ------------------------------------------------------------------------------ ---- Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . 45 Consolidated Balance Sheet as of December 31, 2001 . . . . . . . . . . . . . . 46 Consolidated Statement of Operations for the period February 7, 2001 (Date of Inception) through December 31, 2001. . . . . . . . . . . . . . . . 47 Consolidated Statement of Shareholders' Equity for the period February 7, 2001 (Date of Inception) through December 31, 2001. . . . . . . . . . . . . . . . 48 Consolidated Statement of Cash Flows for the period February 7, 2001 (Date of Inception) through December 31, 2001. . . . . . . . . . . . . . . . 49 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 50
INDEPENDENT AUDITORS' REPORT The Board of Directors and Members MILPI Holdings, LLC: We have audited the accompanying consolidated balance sheet of MILPI Holdings, LLC, a Delaware limited liability company, and subsidiary (the "Company") as of December 31, 2001 and the related statements of operations, shareholders' equity and cash flows for the period February 7, 2001 (date of inception) through December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2001, and the results of its operations and its cash flows for the period February 7, 2001 (date of inception) through December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Certified Public Accountants Tampa, Florida March 12, 2002 (January 24, 2003 as to Note 15) MILPI HOLDINGS, LLC AND SUBSIDIARY CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2001 (in thousands of dollars, except share amounts)
ASSETS Cash and cash equivalents $14,037 Receivables, net of allowance for doubtful accounts of $45 39 Receivables from affiliates 951 Equity interest in affiliates 20,948 Restricted cash and cash equivalents 75 Other assets, net 2,759 Goodwill, net of accumulated amortization of $765 4,590 ------- Total assets $43,399 ======= LIABILITIES Payables and other liabilities $ 5,702 Deferred income taxes 9,751 ------- Total liabilities 15,453 ------- Minority interest 3,029 ------- Commitments and contingencies SHAREHOLDERS' EQUITY Common stock ($0.01 par value, 20 shares authorized and outstanding) - Paid-in capital, in excess of par 21,970 Retained earnings 2,947 ------- Total shareholders' equity 24,917 ------- Total liabilities, minority interest and shareholders' equity . $43,399 =======
See accompanying notes to these consolidated financial statements. MILPI HOLDINGS, LLC AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS FOR THE PERIOD FEBRUARY 7, 2001 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2001 (in thousands of dollars)
REVENUES Operating lease income $ 472 Management fees 5,217 Partnership interests and other fees 1,716 Acquisition and lease negotiation fees 2,032 Loss on disposition of assets, net (91) Other 1,030 ------ Total revenues 10,376 ------ EXPENSES Operations support 800 Impairment of investment in managed programs 511 Depreciation and amortization 1,255 General and administrative 3,290 ------ Total costs and expenses 5,856 ------ Operating income 4,520 Interest expense (6) Interest income 384 Other income, net 89 ------ Income before income taxes and minority interest 4,987 Provision for income taxes 1,611 Minority interest 429 ------ Net income $ 2,947 ====== Net income per weighted-average common share Outstanding $ 147 ======
See accompanying notes to these consolidated financial statements. MILPI HOLDINGS, LLC AND SUBSIDIARY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE PERIOD FEBRUARY 7, 2001 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2001 (in thousands of dollars, except shares)
Common Additional Retained Shares Stock Paid in Capital Earnings Total ------ ------ ----------------- --------- -------- Balance at February 7, 2001 20 $ - $ 21,776 $ - $21,776 Capital contribution - - 194 - 194 Net income - - - 2,947 2,947 ------ ------ ----------------- --------- -------- Balance at December 31, 2001 20 $ - $ 21,970 $ 2,947 $24,917 ====== ======= ================ ========= =======
See accompanying notes to these consolidated financial statements. MILPI HOLDINGS, LLC AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD FEBRUARY 7, 2001 (DATE OF INCEPTION) THROUGH DECEMBER 31, 2001 (in thousands of dollars)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 2,947 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . 1,255 Compensation expense related to variable stock options. 315 Loss on disposition of assets, net. . . . . . . . . . . 91 Partnership interests and other fees. . . . . . . . . . (1,716) Impairment of investment in managed programs. . . . . . 511 Increase in deferred income taxes . . . . . . . . . . . 867 Minority interest . . . . . . . . . . . . . . . . . . . 429 Changes in assets and liabilities: Decrease in payables and other liabilities. . . . . . . (9,484) Decrease in receivables and receivables from affiliates 1,576 Increase in other assets. . . . . . . . . . . . . . . . (176) -------- Net cash used in operating activities . . . . . . . . (3,385) -------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES Cash distribution from managed programs . . . . . . . . . 1,591 Loans made to affiliates. . . . . . . . . . . . . . . . . (5,500) Repayment of loans made to affiliates . . . . . . . . . . 5,500 Purchase of property, plant and equipment . . . . . . . . (71) Proceeds of sale of equipment for lease . . . . . . . . . 313 Proceeds from the sale of assets held for sale. . . . . . 10,250 Decrease in restricted cash . . . . . . . . . . . . . . . 1,673 -------- Net cash provided by investing activities . . . . . . 13,756 -------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES Capital contribution. . . . . . . . . . . . . . . . . . . 194 Redemption of stock options . . . . . . . . . . . . . . . (919) -------- Net cash used in financing activities . . . . . . . . (725) -------- Net increase in cash and cash equivalents . . . . . . . . 9,646 Cash and cash equivalents at beginning of period. . . . . 4,391 -------- Cash and cash equivalents at end of period. . . . . . . . $14,037 ======== SUPPLEMENTAL INFORMATION Cash paid during the period for interest. . . . . . . . . $ 6 ======== Cash paid during the period for income taxes. . . . . . . $ 6,216 ========
See accompanying notes to these consolidated financial statements. MILPI HOlDINGS, LLC AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES BACKGROUND MILPI Holdings, LLC and subsidiary ("MILPI") was formed on December 12, 2000, under the laws of the State of Delaware and is governed by its Operating Agreement, dated December 13, 2000. There were no activities of MILPI from December 12, 2000 through February 7, 2001. MILPI was created by four separate trusts (AFG Investment Trust A, AFG Investment Trust B, AFG Investment Trust C and AFG Investment Trust D, collectively the "Trusts") for the purpose of acquiring PLM International Inc. and subsidiaries ("PLM"). PLM is an equipment management company and operates in one business segment, the leasing of transportation equipment and the creation of equipment-leasing solutions for domestic and international customers. On February 7, 2001 ("Date of Inception"), MILPI Acquisition Corp. ("MAC"), a wholly-owned subsidiary of MILPI, closed on a Tender Offer ("Tender Offer") to purchase all of the outstanding shares of PLM for a cash price of approximately $21.8 million, resulting in goodwill of approximately $5.8 million. The $21.8 million of cash used in the Tender Offer was contributed by the Trusts and represents their initial capital contribution. MAC acquired 83% of the common shares outstanding of PLM through the Tender Offer. On February 6, 2002, MAC completed its acquisition of PLM through the acquisition of the remaining 17% of the outstanding PLM common shares and by effecting a merger of MAC into PLM, under Delaware law, with PLM as the surviving entity. Concurrent with the completion of the merger, PLM ceased to be publicly traded. PLM's shareholders approved the merger pursuant to a special shareholders' meeting. The acquisition of the stock of PLM was accounted for using the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16 ("APB No. 16"). In accordance with APB No. 16, MILPI allocated the total purchase price to the assets acquired and liabilities assumed based on the estimated fair market values at the date of acquisition. There are no contingencies or other matters that could materially affect the allocation of the purchase cost. MILPI's consolidated balance sheet, reflecting the above business combination, as of February 7, 2001 was as follows (in thousands of dollars):
ASSETS Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 4,391 Restricted cash and cash equivalents . . . . . . . . . . . . . . . . 1,748 Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,222 Receivables from affiliates. . . . . . . . . . . . . . . . . . . . . 1,344 Equity interest in affiliates. . . . . . . . . . . . . . . . . . . . 21,334 Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . 10,250 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,406 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,840 ------- Total assets $49,535 ======= LIABILITIES Payables and other liabilities . . . . . . . . . . . . . . . . . . . $16,275 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . 8,884 ------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 25,159 Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . 2,600 SHAREHOLDERS' EQUITY Common stock ($0.01 par value, 20 shares authorized and outstanding) - Paid-in capital, in excess of par. . . . . . . . . . . . . . . . . . 21,776 ------- Total liabilities, minority interest and shareholders' equity. . . $49,535 =======
MILPI's fiscal year end is December 31. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of MILPI Holdings, LLC and its majority-owned subsidiary. In addition, investments for which MILPI has less than a 50% ownership interest are accounted for using the equity method. All significant intercompany balances and transactions among the consolidated group have been eliminated. MILPI has recorded a minority interest in MILPI's consolidated balance sheet as of December 31, 2001 to reflect the ownership of PLM's common shares that were not tendered as of that date. ESTIMATES These consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVESTMENT IN AND MANAGEMENT OF EQUIPMENT GROWTH FUNDS, OTHER LIMITED PARTNERSHIPS, PRIVATE PLACEMENT PROGRAMS AND LIMITED LIABILITY COMPANY MILPI earns revenues in connection with the management of limited partnerships and other managed programs. Equipment acquisition and lease negotiation fees are earned through the purchase and initial lease of equipment, and are recognized as revenue when MILPI completes all of the services required to earn the fees, typically when binding commitment agreements are signed. Management fees are earned for managing the equipment portfolios and administering investor programs as provided for in various agreements, and are recognized as revenue over time as they are earned. As compensation for organizing a partnership investment program, MILPI was granted an interest (between 1% and 5%) in the earnings and cash distributions of the program, in which PLM Financial Services, Inc. ("FSI"), a wholly owned subsidiary of PLM, is the General Partner. MILPI recognizes as partnership interests its equity interest in the earnings of the partnerships, after adjusting such earnings to reflect the effect of special allocations of the programs' gross income allowed under the respective partnership agreements. From May 1995 through May 1996, Professional Lease Management Income Fund I, LLC ("Fund I"), a limited liability company with a no front-end fee structure, was offered as an investor program. FSI serves as the manager for the program. No compensation was paid to PLM for the organization and syndication of interests, the acquisition of equipment, the negotiation of leases for equipment, or the placement of debt. PLM funded the costs of organization, syndication, and offering through the use of operating cash and has capitalized these costs as its investment in Fund I. PLM has an equity interest of 15% for its contribution to the program. In return for its investment, PLM is entitled to a 15% interest in the cash distributions and earnings of Fund I, subject to certain allocation provisions. PLM's interest in the cash distributions and earnings of Fund I will increase to 25% after the investors have received distributions equal to their invested capital. PLM is entitled to monthly fees for equipment management services and reimbursement for providing certain administrative services. MILPI is entitled to reimbursement from the investment programs for providing certain administrative services at the lesser of cost or market rates. In accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," ("SFAS No. 121") MILPI reviews the carrying value of its investments whenever circumstances indicate that the carrying values may not be recoverable. If projected undiscounted future cash flows are lower than the carrying value of its equity interest in affiliates, a loss on revaluation is recorded. The loss recorded is equal to the difference between the carrying amount and the fair value of the asset. The fair value of the asset is determined based on a valuation model which includes expected future cash flows of the investment. During the period February 7, 2001 through December 31, 2001, MILPI recorded an impairment of $511,000 on its equity interest in affiliates due to a change in market conditions, primarily in the airline industry, after the events of September 11, 2001. OPERATING LEASE INCOME Operating lease income consists of rental revenues generated from assets held for operating leases and assets held for sale that are on lease. RESTRICTED CASH AND CASH EQUIVALENTS MILPI considers highly liquid investments readily convertible into known amounts of cash with original maturities of 90 days or less as cash equivalents. Restricted cash consists of bank accounts and short-term investments that are primarily subject to withdrawal restrictions per loan and other legally binding agreements. GOODWILL Goodwill of approximately $5.8 million was originally recorded in conjunction with the acquisition of 83% of the common stock of PLM. This goodwill included approximately $2.0 million of total costs estimated for severance of PLM employees and relocation costs in accordance with management's formal plan to involuntarily terminate employees, which plan was developed in conjunction with the acquisition. During the fourth quarter of 2001, the estimates for severance and relocation costs were reduced by $0.5 million based on actual costs incurred related to these activities and, therefore, total goodwill was reduced by $0.5 million. Goodwill is amortized using the straight-line method over the estimated life of PLM, which is 7 years. In accordance with SFAS No. 121, MILPI reviews the carrying value of its goodwill whenever circumstances indicate that the carrying value may not be recoverable. If projected undiscounted future cash flows are lower than the carrying value of its goodwill, a loss is recorded. The loss recorded is equal to the difference between the carrying amount and the fair value of the asset. The fair value of the asset is determined based on a valuation model which includes future cash flows of MILPI. There was no impairment of goodwill recorded in 2001. INCOME TAXES MILPI is a partnership for tax purposes and as such is not taxed on its operations. MAC and PLM are C corporations, which recognize income tax expense using the asset and liability method. Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred income taxes arise primarily because of differences in the timing of reporting equipment depreciation, equity income in managed programs, and certain accruals for financial statement and income tax reporting purposes. NEW ACCOUNTING PRONOUNCEMENTS On June 29, 2001, SFAS No. 141, "Business Combinations" ("SFAS No. 141"), was approved by the FASB. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Goodwill and certain intangible assets with indefinite lives will remain on the balance sheet and not be amortized. MILPI implemented SFAS No. 141 on July 1, 2001. The adoption of SFAS No. 141 did not have an impact on the results of operations or financial position of MILPI. On June 29, 2001, SFAS No. 142, "Goodwill and other Intangible Assets" ("SFAS No. 142"),was approved by the FASB. SFAS No. 142 changes the accounting for goodwill and other intangible assets determined to have an indefinite useful life from an amortization method to an impairment-only approach. Amortization of applicable intangible assets will cease upon adoption of this statement. MILPI is required to implement SFAS No. 142 on January 1, 2002 and has not yet determined the impact, if any, this statement will have on its financial position or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which replaces SFAS No. 121. SFAS No. 144 provides updated guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets, expands the scope of a discontinued operation to include a component of an entity, and eliminates the current exemption to consolidation when control over a subsidiary is likely to be temporary. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. MILPI will apply the new rules on accounting for the impairment or disposal of long-lived assets beginning in the first quarter of 2002, and they are not anticipated to have an impact on the MILPI's earnings or financial position. NOTE 2 - ASSETS HELD FOR SALE As of February 7, 2001, MILPI had $10.3 million in marine containers classified as assets held for sale, which were acquired in the PLM acquisition. During 2001, MILPI sold these marine containers to affiliated programs at cost, which approximated their fair market value. As of December 31, 2001, MILPI had no assets held for sale. NOTE 3 - EQUITY INTEREST IN AFFILIATES FSI is the General Partner or manager of nine investment programs. Distributions of the programs are allocated as follows: 99% to the limited partners and 1% to the General Partner in PLM Equipment Growth Fund (EGF) I and PLM Passive Income Investors 1988-II; 95% to the limited partners and 5% to the General Partner in EGFs II, III, IV, V, VI, and PLM Equipment Growth & Income Fund VII (EGF VII); and 85% to the members and 15% to the manager in Fund I. PLM's interest in the cash distributions of Fund I will increase to 25% after the investors have received distributions equal to their invested capital. Net income is allocated to the General Partner subject to certain allocation provisions. FSI also receives a management fee on a per car basis at a fixed rate each month, plus an incentive management fee equal to 15% of "Net Earnings" over $750 per car per quarter from Covered Hopper Program 1979-1. Most of the investment program agreements contain provisions for special allocations of the programs' gross income. While none of the partners or members, including the General Partner and manager, are liable for program borrowings, and while the General Partner or manager maintains insurance against liability for bodily injury, death, and property damage for which an investment program may be liable, the General Partner or manager may be contingently liable for nondebt claims against the program that exceed asset values. The summarized combined financial data for FSI's affiliates, in which FSI is the General Partner or manager, as of and for the period February 7, 2001 (date of inception) through December 31, 2001 is as follows (in thousands of dollars):
Total assets. . . $229,358 Total liabilities $ 67,579 Partners' equity. $161,779 Total revenues. . $ 91,085 Total expenses. . $ 70,688 Net income. . . . $ 20,397
NOTE 4 - OTHER ASSETS, NET Other assets, net, consists of the following as of December 31, 2001 (in thousands of dollars):
Cash surrender value of officers' life insurance policies $2,343 Commercial and industrial equipment, net 178 Prepaid expenses, deposits and other 153 Furniture, fixtures, and equipment 85 ------ Total other assets, net $2,759 ======
NOTE 5 - WAREHOUSE CREDIT FACILITY In April 2001, PLM entered into a $15.0 million warehouse facility, which is shared with PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII, and Fund I, that allows PLM to purchase equipment prior to its designation to a specific program. Borrowings under this facility by the other eligible borrowers reduce the amount available to be borrowed by PLM. All borrowings under this facility are guaranteed by PLM. This facility provides for financing up to 100% of the cost of the asset. Interest accrues at prime or LIBOR plus 200 basis points, at the option of PLM. Borrowings under this facility may be outstanding up to 270 days. This facility was amended in December 2001 to lower the amount available to be borrowed to $10.0 million. This facility expires in April 2002. All borrowings must be repaid upon the expiration of this facility. PLM believes it will be able to extend the facility with similar terms upon the facility's expiration. As of December 31, 2001, PLM had no borrowings outstanding under this facility and there were no borrowings outstanding under this facility by any other eligible borrower. NOTE 6 - INCOME TAXES The provision for income taxes attributable to income from operations consists of the following (in thousands of dollars):
Federal State Total -------- ------ ------ Current $ 551 $ 193 $ 744 Deferred 705 162 867 -------- ------ ------ Total $ 1,256 $ 355 $1,611 ======== ====== ======
Amounts for the current year are based upon estimates and assumptions as of the date of this report and could vary significantly from amounts shown on the tax returns ultimately filed. The difference between the effective rate and the expected federal statutory rate is reconciled below:
Federal statutory tax expense rate 34% State income tax rate 5 Income reportable at the partnership level (7) --- Effective tax expense rate 32% ===
There are no net operating loss carryforwards for federal income tax purposes or alternative minimum tax credit carryforwards as of December 31, 2001. The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities as of December 31 are presented below (in thousands of dollars):
Deferred tax assets from continuing operations: Partnership Organization and Syndication costs $ 8,300 Federal benefit of state taxes 735 Other 329 -------- Total gross deferred tax assets 9,364 Less valuation allowance (8,594) -------- Net deferred tax assets 770 -------- Deferred tax liabilities: Partnership interests 10,520 Other 1 -------- Total deferred tax liabilities 10,521 -------- Total net deferred tax liabilities 9,751 ========
Management has reviewed all established interpretations of items reflected in its consolidated tax returns and believes that these interpretations require valuation allowances as described in SFAS No. 109, "Accounting for Income Taxes." The valuation allowance contained in the 2001 deferred tax account includes items that may result in future capital losses. See discussion in Note 7 relative to an Internal Revenue Service audit. NOTE 7 - COMMITMENTS AND CONTINGENCIES LITIGATION Two class action lawsuits which were filed against PLM and various of its wholly owned subsidiaries in January 1997 in the United States District Court for the Southern District of Alabama, Southern Division (the "court"), Civil Action No. 97-0177-BH-C (the "Koch action"), and June 1997 in the San Francisco Superior Court, San Francisco, California, Case No. 987062 (the "Romei action"), were fully resolved during the fourth quarter 2001. The named plaintiffs were individuals who invested in PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V (Fund V), PLM Equipment Growth Fund VI, and PLM Equipment Growth & Income Fund VII (the "Partnerships"), each a California limited partnership for which FSI acts as the General Partner. The complaints asserted causes of action against all defendants for fraud and deceit, suppression, negligent misrepresentation, negligent and intentional breaches of fiduciary duty, unjust enrichment, conversion, conspiracy, unfair and deceptive practices and violations of state securities law. Plaintiffs alleged that each defendant owed plaintiffs and the class certain duties due to their status as fiduciaries, financial advisors, agents, and control persons. Based on these duties, plaintiffs asserted liability against defendants for improper sales and marketing practices, mismanagement of the Partnerships, and concealing such mismanagement from investors in the Partnerships. Plaintiffs sought unspecified compensatory damages, as well as punitive damages. In February 1999, the parties to the Koch and Romei actions agreed to monetary and equitable settlements of the lawsuits, with no admission of liability by any defendant, and filed a Stipulation of Settlement with the court. The court preliminarily approved the settlement in August 2000, and information regarding the settlement was sent to class members in September 2000. A final fairness hearing was held on November 29, 2000, and on April 25, 2001, the federal magistrate judge assigned to the case entered a Report and Recommendation recommending final approval of the monetary and equitable settlements to the federal district court judge. On July 24, 2001, the federal district court judge adopted the Report and Recommendation, and entered a final judgment approving the settlements. No appeal has been filed and the time for filing an appeal has run. The monetary settlement provides for a settlement and release of all claims against defendants in exchange for payment for the benefit of the class of up to $6.6 million, consisting of $0.3 million deposited by PLM and the remainder funded by an insurance policy. The final settlement amount of $4.9 million (of which PLM's share was approximately $0.3 million) was paid out in the fourth quarter of 2001 and was determined based upon the number of claims filed by class members, the amount of attorneys' fees awarded by the court to plaintiffs' attorneys, and the amount of the administrative costs incurred in connection with the settlement. The equitable settlement provides, among other things, for: (a) the extension (until January 1, 2007) of the date by which FSI must complete liquidation of the Partnerships' equipment, except for Fund IV, (b) the extension (until December 31, 2004) of the period during which FSI can reinvest the Funds' funds in additional equipment, except for Fund IV, (c) an increase of up to 20% in the amount of front-end fees (including acquisition and lease negotiation fees) that FSI is entitled to earn in excess of the compensatory limitations set forth in the North American Securities Administrator's Association's Statement of Policy; except for Fund IV, (d) a one-time purchase by each of Funds V, VI and VII of up to 10% of that partnership's outstanding units for 80% of net asset value per unit at September 30, 2000; and (e) the deferral of a portion of the management fees paid to an affiliate of FSI until, if ever, certain performance thresholds have been met by the Funds. The equitable settlement also provides for payment of additional attorneys' fees to the plaintiffs' attorneys from Fund funds in the event, if ever, that certain performance thresholds have been met by the Funds. Following a vote of limited partners resulting in less than 50% of the limited partners of each of Funds V, VI and VII voting against such amendments and after final approval of the settlement, each of such Fund's limited partnership agreement was amended to reflect these changes. During the fourth quarter of 2001, the respective Funds repurchased limited partnership units from those equitable class members who submitted timely requests for repurchase. PLM is involved as plaintiff or defendant in various other legal actions incidental to its business. Management does not believe that any of these actions will be material to the financial condition or results of operations of MILPI. LEASE AGREEMENTS PLM and its subsidiaries have entered into operating leases for office space. PLM's total net rent expense was $0.4 million in 2001. The portion of rent expense related to its principal office, net of sublease income of $0.4 million was $0.3 million in 2001. The remaining rent expense was related to other office space and rental yard operations. Annual lease commitments for all of PLM's locations total $0.3 million in 2002 and 2003, $0.2 million in 2004 and $0.1 million in 2005. CORPORATE GUARANTEE As of December 31, 2001, PLM had guaranteed certain obligations up to $0.4 million of a Canadian railcar repair facility, in which PLM has a 10% ownership interest. EMPLOYMENT AGREEMENTS PLM entered into employment agreements with five individuals that require PLM to pay severance to these individuals up to two years of their base salaries and benefits if their employment is terminated after a change in control as defined in the employment agreement. As of December 31, 2001, the total future contingent liability for these payments was $0.2 million. WAREHOUSE CREDIT FACILITY See Note 5 for discussion of PLM's credit warehouse facility. INTERNAL REVENUE SERVICE AUDIT In March 2001, the Internal Revenue Service notified PLM that it would conduct an audit of certain Forms 1042, "Annual Withholding Tax Return for U.S. Source Income of Foreign Persons". The audit relates to payments to unrelated foreign entities made by two partnerships in which PLM formerly held interests as the 100% direct and indirect owner. One partnership's audit relates to Forms 1042 for the years 1997, 1998 and 1999, while the other partnership's audit relates to Forms 1042 for the years 1998 and 1999. The audits remain pending, with the Internal Revenue Service presently reviewing documents and information provided to it by PLM. The Internal Revenue Service has not proposed any adjustments to the Forms 1042, and management believes that the withholding tax returns will be accepted as filed. If the withholding tax returns are not accepted as filed by the Internal Revenue Service, the recipient foreign entities are legally obligated to indemnify PLM for any losses. If the withholding tax returns are not accepted as filed by the Internal Revenue Service, and the recipient foreign entities do not honor the indemnification, MILPI's financial condition, results of operations, and liquidity would be materially impacted. OTHER PLM has life insurance policies on certain current and former employees, which had a $2.3 million cash surrender value as of December 31, 2001 and are included in other assets. NOTE 8 - PROFIT SHARING, 401(K) PLAN AND STOCK OPTION PLANS The PLM Profit Sharing and 401(k) Plan (the "Plan") provides for deferred compensation as described in Section 401(k) of the Internal Revenue Code. The Plan is a contributory plan available to essentially all full-time employees of PLM in the United States. In 2001, PLM employees who participated in the Plan could elect to defer and contribute to the trust established under the Plan up to 9% of pretax salary or wages up to $10,500. PLM matched up to a maximum of $4,000 of PLM employees' 401(k) contributions in 2001 to vest in four equal installments over a four-year period. MILPI's total 401(k) contributions, net of forfeitures, were $0.1 million for 2001. Profit-sharing contributions are allocated equally among the number of eligible Plan participants. There were no profit-sharing contributions accrued in 2001. PLM had two nonqualified stock option plans that reserved up to 780,000 shares of PLM's common stock for key employees and directors. Under these plans, the price of the shares issued under an option must be at least 85% of the fair market value of the PLM common stock at the date of grant. Vesting of the options granted under these plans occurred in three equal installments of 33.3% per year, initiating from the date of the grant. Prior to the completion of the Tender Offer by MAC, PLM's Board of Directors voted to immediately vest all options outstanding under these plans. As of December 31, 2001, grants could no longer be made under either the employee or directors' plan. In May 1998, PLM's Board of Directors adopted the 1998 Management Stock Compensation Plan, which reserved 800,000 shares (in addition to the 780,000 shares above) of PLM's common stock for issuance to certain management and key employees of PLM upon the exercise of stock options. The completion of the Tender Offer by MAC in February 2001 was deemed a change in control in accordance with the terms of the 1998 Management Stock Compensation Plan and all options that had been granted immediately vested. In February 2000, PLM's Board of Directors adopted the 2000 Management Stock Compensation Plan, which reserved 70,000 shares with respect to which options may be granted under the 2000 Directors' Plan. In February 2000, each non-employee director of PLM was granted an option to purchase 8,000 shares of common stock under this Plan. Prior to completion of the Tender Offer by MAC, PLM's Board of Directors voted to immediately vest all options outstanding under this plan. Concurrent with the completion of the Tender Offer by MAC in February 2001, PLM redeemed all vested options currently outstanding. PLM paid the difference between the grant price of the option and $3.46 (the amount offered for PLM shares in the Tender Offer). The total cash paid to redeem all outstanding options was $0.9 million. As of December 31, 2001, the 1998 Management Stock Compensation Plan and the 2000 Management Stock Compensation Plan continued to be in effect. There were no options outstanding under either of these plans at December 31, 2001. NOTE 9 - TRANSACTIONS WITH AFFILIATES In addition to various fees payable to PLM or its subsidiaries, the affiliated programs reimburse PLM for certain expenses, as allowed in the program agreements. Reimbursed expenses totaling $1.8 million in 2001 have been recorded as reductions of operations support or general and administrative expenses. Outstanding amounts are paid under normal business terms. As of December 31, 2001, MILPI had receivables from affiliates of $1.0 million, which represented unpaid management fees. NOTE 10 - RISK MANAGEMENT Financial instruments that potentially subject MILPI to concentrations of credit risk consist principally of temporary cash investments and receivables from affiliated entities. MILPI places its temporary cash investments with financial institutions and other creditworthy issuers and limits the amount of credit exposure to any one party. MILPI's involvement with the management of the receivables from affiliated entities limits the credit exposure from affiliated entities. In 2001, Fund 1, PLM Equipment Growth Fund VI and PLM Equipment Growth and Income Fund VII, accounted for 26% of total revenues. No other customer accounted for over 10% of revenue in 2001. As of December 31, 2001, management believes MILPI had no other significant concentrations of credit risk that could have a material adverse effect on MILPI's business, financial condition, or results of operations. NOTE 11 - GEOGRAPHIC INFORMATION All of MILPI's revenues for the period from February 7, 2001 (date of inception) through December 31, 2001 were recognized from entities domiciled in the United States and all of MILPI's long-lived assets are located in the United States. NOTE 12 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of amounts reported in the consolidated financial statements has been determined by using available market information and appropriate valuation methodologies. The carrying value of all current assets and current liabilities approximates fair value because of their short-term nature. NOTE 13 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations of MILPI for the period February 7, 2001 (date of inception) through December 31, 2001(in thousands of dollars):
March 31, June 30, September 30, December 31, Total ---------- --------- -------------- ------------- ------- Revenue $ 2,077 $ 2,434 $ 3,586 $ 2,279 $10,376 Net income $ 776 $ 568 $ 1,293 $ 310 $ 2,947 Net income per weighted-average common share outstanding: $ 39 $ 28 $ 65 $ 16 $ 147
In the third quarter of 2001, PLM earned acquisition and lease negotiation fees of $1.8 million, which resulted in after-tax net income of $1.1 million. NOTE 14 - SUBSEQUENT EVENTS On February 6, 2002, MILPI completed its acquisition of PLM through the acquisition of the remaining 17% of the outstanding PLM common shares and by effecting a merger of MAC into PLM. The merger was completed when MILPI obtained approval of the merger from PLM's shareholders pursuant to a special shareholders' meeting. The remaining interest was purchased for approximately $4.4 million and resulted in approximately $3.8 million in goodwill. Concurrent with the completion of the merger, PLM ceased to be publicly traded. On February 11, 2002, MILPI entered into separate promissory notes with AFG Investment Trusts C and D, both shareholders in MILPI, loaning those entities an aggregate of $1.3 million. The loans are unsecured and have a term of 364 days. Interest accrues at LIBOR plus 200 basis points. On March 12, 2002, MILPI declared and paid a cash dividend of approximately $2.7 million to its shareholders, the Trusts. NOTE 15 - SFAS NO. 142 TRANSITIONAL DISCLOSURE The Company adopted SFAS No. 142 on January 1, 2002. As a result, the discontinuance of goodwill and other intangible asset amortization was effective upon adoption of SFAS No.142. SFAS No. 142 also includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill, and the identification of reporting units for purposes of assessing potential future impairments of goodwill. The amount of the impairment is the difference between the carrying amount and the fair value of the asset. Fair value of the asset is calculated using several valuation models which utilize the expected future cash flows of the Company. SFAS No. 142 requires the Company to complete a transitional goodwill impairment test within six months from January 1, 2002, the date of adoption. The Company completed the goodwill impairment analysis performed as of January 1, 2002, during the quarter ended June 30, 2002. There was no impact on the Company's financial statements as a result of this analysis. The amortization expense and net income for the period from February 7, 2001 through December 31, 2001 is summarized as follows (in thousands of dollars):
For the Period From February 7, 2001 Through December 31, 2001 ------------------ Reported net income: $ 2,947 Add back: goodwill amortization 765 ------------------ Adjusted net income $ 3,712 ================== Basic and fully diluted earnings per share: Reported net income $ 147 Add back: Goodwill amortization 38 ------------------ Adjusted net income $ 186 ==================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR PERIODS ENDED SEPTEMBER 30, 2002 FOR MILPI MILPI was formed on December 12, 2000, under the laws of the State of Delaware and is governed by its Operating Agreement, dated December 13, 2000. MILPI had no activities from December 12, 2000 through February 7, 2001. MILPI was created by four separate trusts (Trust A, Trust B, the Trust and Trust D) for the sole purpose of acquiring PLM. PLM is an equipment management company and operates in one business segment, the leasing of transportation equipment and the creation of equipment-leasing solutions for domestic and international customers. On February 6, 2002, MILPI, completed its acquisition of PLM by purchasing the remaining 17% of the outstanding PLM common stock and by effecting a merger of MAC into PLM, with PLM as the surviving entity. The merger was completed when approval of the merger was obtained from PLM's shareholders pursuant to a special shareholder's meeting. Concurrent with the completion of the merger, PLM ceased to be publicly traded. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires MILPI to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, MILPI reviews these estimates including those related to asset lives and depreciation methods, impairment of long-lived assets, allowance for doubtful accounts, reserves related to legally mandated equipment repairs and contingencies and litigation. These estimates are based on MILPI's historical experience and on various other assumptions believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. MILPI believes, however, that the estimates, including those for the above-listed items, are reasonable and that actual results will not vary significantly from the estimated amounts. MILPI believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of MILPI's financial statements: Asset lives and depreciation methods: The primary business of the managed programs involves the purchase and subsequent lease of long-lived transportation and related equipment. MILPI has chosen asset lives that it believes correspond to the economic life of the related asset. MILPI has chosen a deprecation method that it believes matches the benefit to the managed programs from the asset with the associated costs. These judgments have been made based on MILPI's expertise in each equipment segment that the managed programs operate. If the asset life and depreciation method chosen does not reduce the book value of the asset to at least the potential future cash flows from the asset to the managed programs, the managed programs would be required to record a loss on revaluation. Likewise, if the net book value of the asset was reduced by an amount greater than the economic value has deteriorated, the managed programs may record a gain on sale upon final disposition of the asset. In either instance, this would impact the amount of MILPI's equity income in managed programs reported on its consolidated statement of operations. Impairment of Long-lived Assets. On a regular basis, MILPI reviews the carrying -------------------------------- value of the managed programs' equipment and investments in unconsolidated special purpose entities to determine if the carrying value of the assets may not be recoverable due to current economic conditions. This requires MILPI to make estimates related to future cash flows from each asset as well as the determination if the deterioration is temporary or permanent. If these estimates or the related assumptions change in the future, the managed programs may be required to record an impairment charge. This would impact the amount of MILPI's equity income in managed programs reported on its consolidated statement of operations. Allowance for Doubtful Accounts. MILPI maintains allowances for doubtful ---------------------------------- accounts and other receivables for estimated losses resulting from the inability of the customer to make the customer payments. These estimates are primarily based on the amount of time that has lapsed since the related payments were due as well as specific knowledge related to the ability of the lessees to make the required payments. If the financial condition of MILPI's lessees were to deteriorate, additional allowances could be required that would reduce income. Conversely, if the financial condition of the lessees were to improve or if legal remedies to collect past due amounts were successful, the allowance for doubtful accounts may need to be reduced and income would be increased. In addition, the managed programs maintain similar allowances for their receivables. If the financial condition of the companies with payments due to the managed programs were to change, this would impact the amount of the management fee revenue earned by MILPI. Reserves for Repairs. The managed programs accrue for legally required repairs --------------------- to equipment such as dry docking for marine vessels and engine overhauls to aircraft engines over the period prior to the required repairs. The amount that is reserved is based on MILPI's expertise in each equipment segment, the past history of such costs for that specific piece of equipment and discussions with independent, third party equipment brokers. If the amount reserved for is not adequate to cover the cost of such repairs or if the repairs must be performed earlier than MILPI estimated, the managed programs would incur additional repair and maintenance or equipment operating expenses. This would impact the amount of MILPI's equity interest in affiliates reported on its consolidated statement of operations. Contingencies and Litigation. MILPI is subject to legal proceedings involving ------------------------------ ordinary and routine claims related to its business. The ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates in recording liabilities for potential litigation settlements. Estimates for losses from litigation are disclosed if considered possible and accrued if considered probable after consultation with counsel. If estimates of potential losses increase or the related facts and circumstances change in the future, MILPI may be required to record additional litigation expense. In addition, the managed programs are also subject to legal proceedings. If estimates of losses for the programs change in the future, this would impact MILPI's equity interest in affiliates reported on its consolidated income statement of operations. Goodwill. MILPI has goodwill which represents the excess of the aggregate -------- purchase price paid for PLM over the fair market value of its identifiable assets. In accordance with SFAS No. 142, MILPI regularly reviews the recoverability of this asset which requires the use of estimates. If actual facts and circumstances change in the future, MILPI may be required to record an impairment. Income Taxes. MILPI accounts for income taxes in accordance with the provisions ------------ of SFAS No. 109. This requires MILPI to make estimates as to the temporary differences between the tax basis of assets and liabilities and the carrying values for financial statement purposes. Estimates include assessing the realizability of deferred income tax assets. Management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those differences become deductible. MANAGEMENT OF INVESTMENT PROGRAMS PLM syndicated investment programs from which it earns various fees and equity interests. Fund I was structured as a limited liability company with a no front-end fee structure. The previously syndicated limited partnership programs allow MILPI to receive fees for the acquisition and initial leasing of the equipment. The Fund I program does not provide for acquisition and lease negotiation fees. PLM invested the equity raised through syndication for these programs in transportation equipment and related assets, which it manages on behalf of the investors. The equipment management activities for these types of programs generate equipment management fees for MILPI over the life of a program. The limited partnership agreements entitle MILPI to receive a 1% or 5% interest in the cash distributions and earnings of a partnership, subject to certain allocation provisions. The Fund I agreement entitles MILPI to a 15% interest in the cash distributions and 1% of earnings of the program, subject to certain allocation provisions per the operating agreement. MILPI's interest in the earnings and distributions of Fund I will increase to 25% after the investors have received distributions equal to their original invested capital. MILPI is not syndicating new investment programs nor does it expect to in the future. As a result, revenues earned from managed programs, which include management fees, equity interests and other fees, and acquisition and lease negotiation fees will be reduced in the future as the older programs liquidate and the managed equipment portfolio is reduced. In accordance with certain limited partnerships' agreements, four limited partnerships have entered their liquidation phases and MILPI has commenced an orderly liquidation of the partnerships' assets. One of the limited partnerships, PLM Equipment Growth Fund III is expected to be liquidated by the end of 2003. Three of the limited partnerships, PLM Equipment Growth Fund, PLM Equipment Growth Fund II and PLM Equipment Growth Fund IV will terminate on December 31, 2006 unless terminated earlier upon the sale of all equipment or by certain other events. MILPI will occasionally own transportation equipment prior to sale to affiliated programs. During this period, MILPI earns lease revenue and may incur interest expense. DISCUSSION OF MILPI'S OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND THE PERIOD FROM FEBRUARY 7, 2001 THROUGH SEPTEMBER 30, 2001
REVENUES (in thousands of dollars): For the Period For the Nine From For the Three Months Ended Months Ended February 7, 2001 through September 30, September 30, September 30, 2002 2001 2002 2001 --------- --------- ------------ ------------- Management fees $ 972 $ 1,375 $ 3,404 $ 3,605 Operating lease (loss) income (8) 65 77 444 Acquisition and lease negotiation fees - 1,846 - 2,032 Gain on disposition of assets - 22 2 104 Other 47 182 371 608 --------- --------- ------------ ------------- Total revenues $ 1,011 $ 3,490 $ 3,854 $ 6,793 ========= ======== ============ =============
The following analysis reviews the operating results of MILPI: Management Fees: Management fees are primarily based on the gross revenues generated by equipment under management. Management fees decreased by $0.4 million for the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Management fees also decreased by $0.2 million for the nine months ended September 30, 2001 compared to the period from February 7, 2001 through September 30, 2001. The decrease in management fee revenue is attributable to the reduction in size of the managed equipment portfolio. Operating Lease Income: Operating lease income consists of rental revenues generated from assets held for operating leases and assets held for sale that are on lease. Assets held for operating leases include commercial and industrial equipment. Operating lease income decreased by $0.4 million for the nine months ended September 30, 2002 as compared to the period from February 7, 2001 through September 30, 2001. A decrease of $0.1 million is attributable to lease revenue earned on assets held for sale during 2001. No similar revenue was earned in 2002. The remaining decrease is attributable to the sale of commercial and industrial equipment. Operating lease income is expected to decline in the future as MILPI's commercial and industrial equipment portfolio is sold and not replaced. Acquisition and Lease Negotiation Fees: Acquisition and lease negotiation fees were $0 for the three and nine months ended September 30, 2002 compared to $1.8 million and $2.0 million for the three months ended September 30, 2001 and the period from February 7, 2001 through September 30, 2001, respectively. The decrease was attributable to approximately $1.8 million of fees recognized in the third quarter of 2001 associated with the settlement of the Koch and Romei settlement. These fees were earned on equipment purchased in prior periods for investment programs that had reached the maximum allowable fees that could be taken. With the settlement of these lawsuits, the amount of fees that could be earned from these investment programs was increased and the previously deferred fees were taken into income. The remaining decrease is due to the fact that no equipment was purchased during 2002. Costs and Expenses. (in thousands of dollars): --------------------
For the Period From For the Nine February 7, 2001 For the Three Months Ended Months Ended through September 30, September 30, September 30, 2002 2001 2002 2001 --------------------------- -------------- -------------------- ------------------- Depreciation and amortization $ 1 $ 313 $ 100 $ 971 General and administrative 587 1,111 1,854 3,043 --------------------------- -------------- -------------------- ------------------- Total expenses $ 588 $ 1,424 $ 1,954 $ 4,014 =========================== ============== ==================== ===================
Depreciation and Amortization: Depreciation and amortization includes depreciation of assets held for lease and amortization of goodwill associated with the acquisition of PLM. Amortization expense decreased by $0.6 million for the nine months ended September 30, 2002 compared to the period from February 7, 2001 through September 30, 2001. In addition, amortization expense decreased $0.2 million for the three months ended September 30, 2002 compared to the three months ended September 30, 2001. The decrease is attributable to MILPI's adoption of SFAS. No. 142 on January 1, 2002. SFAS No. 142 required the discontinuance of goodwill and other intangible asset amortization. The remaining decrease is attributable to a decrease in depreciation expense associated with the sale of MILPI's commercial and industrial equipment. Depreciation and amortization is expected to continue to decline in the future as MILPI's commercial and industrial equipment portfolio is sold and not replaced. General and Administrative: General and administrative expenses consist of salary, office rent, insurance, professional fees and other costs. General and administrative expenses decreased by $0.5 million for the three months ended September 30, 2002 compared to the three months ended September 30, 2001. General and administrative expenses also decreased by $1.2 million for the nine months ended September 30, 2002 compared to the period from February 7, 2001 through September 30, 2001. The decrease for both periods is attributable to the relocation and consolidation of corporate service function including staffing reductions and lower rent on office space. Equity (Loss) Income in Managed Programs. FSI is the General Partner or ------------------------------------------- manager of nine investment programs. Distributions of the programs are allocated as follows: 99% to the limited partners and 1% to the General Partner in PLM Equipment Growth Fund (EGF) I and PLM Passive Income Investors 1988-II; 95% to the limited partners and 5% to the General Partner in EGFs II, III, IV, V, VI, and PLM Equipment Growth & Income Fund VII; and 85% to the members and 15% to the manager in Fund I. PLM's interest in the cash distributions of Fund I will increase to 25% after the investors have received distributions equal to their invested capital. Net income is allocated to the General Partner subject to certain allocation provisions. Most of the investment program agreements contain provisions for special allocations of the programs' gross income. MILPI records as revenues its equity interest in the earnings of MILPI's affiliated programs. Equity income in managed programs decreased by $0.2 million for the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Equity income in managed programs decreased by $1.1 million for the nine months ended September 30, 2002 compared to the period from February 7, 2001 through September 30, 2001. The decrease in equity interest in managed programs is attributable to significant amount of assets sold in the managed programs in 2001 which resulted in a gain. Asset sales were not as significant in 2002. Provision for Income Taxes. MILPI's tax provision was $0.9 million for the -------------------------- nine months ended September 30, 2002 and $1.4 million for the period from February 7, 2001 through September 30, 2001 resulting in an effective tax rate of 38% and 32%, respectively. The change in the effective tax rate of 6% was attributable to income recognized by MILPI in 2001 that was not subject to taxation. Because MILPI is treated as a partnership for tax purposes, income it earns is not subject to taxation at the entity level. As such, the overall effective rate for the Company was reduced to 32% in 2001. Minority Interest Expense. Minority interest expense is the portion of --------------------------- PLM's operating results attributable to shares of its stock owned by investors other than MILPI. Minority interest decreased by $0.2 million for the three months ended September 30, 2002 compared to the same period in 2001. Minority interest decreased by $0.3 million for the nine months ended September 30, 2002 compared to the period from February 7, 2001 through September 30, 2001. The decrease in minority interest is attributable to MILPI's purchase of the remaining 17% minority interest in the first quarter of 2002. Liquidity and Capital Resources. Cash requirements in 2002 were satisfied -------------------------------- through cash flow from operations and capital contributions from MILPI's shareholders. In 2001, the cash requirements were primarily satisfied by the proceeds from the sale of assets held for sale of $10.3 million. During the nine months ended September 30, 2002, accounts receivable increased by $0.2 million. This increase was primarily caused by miscellaneous advances and refunds that were reimbursed in the fourth quarter of 2002. Such receivables include tax refunds and advances to affiliates. During the nine months ended September 30, 2002, notes receivable from affiliates increased by $1.3 million. During this period, MILPI loaned $1.3 million to two of the trusts that own MILPI. In December 2002, the notes plus accrued interest were prepaid in full. Receivables from affiliates decreased by $0.4 million for the nine months ended September 30, 2002 resulting from lower management fees earned from the affiliated programs. The decrease in management fee revenue is attributable to the reduction in size of the managed equipment portfolio. During the nine months ended September 30, 2002, equity interest in affiliates decreased $0.5 million. The decrease was attributable to $1.2 million in cash distributions from the managed programs partially offset by $0.3 million of equity income in managed programs recognized and $0.4 million increase in the investment balance associated with the acquisition of the outstanding interest in PLM. Assets held for sale increased by $4.8 million for the nine months ended September 30, 2002. MILPI has arranged for the lease or purchase of a total of 1,050 pressurized tank railcars by (i) partnerships and managed programs in which FSI serves as the general partner or manager and holds an ownership interest ("Program Affiliates") or (ii) partnerships or managed programs in which FSI provides management services but does not hold an ownership interest ("Non-Program Affiliates"). These railcars will be delivered over the next three years. A leasing company affiliated with the manufacturer will acquire approximately 70% of the railcars and lease them to a Non-Program Affiliate. The remaining 30% will either be purchased by other third parties to be managed by MILPI or by the Program Affiliates. MILPI will manage the leased and purchased railcars. MILPI will not be liable for these railcars. MILPI estimates that the total value of purchased railcars will not exceed $26.0 million with one third of the railcars being purchased in each of 2002, 2003 and 2004. As of September 30, 2002, MILPI had purchased $4.8 million of these railcars. MILPI expects to sell these railcars to affiliated entities in the first quarter of 2003. During the nine months ended September 30, 2002, other assets increased by $0.2 million. The increase is due to a $0.3 million increase in the cash surrender value of MILPI's insurance policies. This increase was partially offset by a decrease of $0.1 million in commercial and industrial equipment. Deferred income taxes increased $2.7 million for the nine months ended September 30, 2002. The increase in deferred income taxes is attributable to $2.0 million associated with the final acquisition of PLM and recognition of the deferred tax liability after effecting the merger of MAC into PLM. The remaining increase resulted from changes in temporary differences for the nine month period and by applying the enacted statutory tax rates applicable to future years to these differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred income taxes arise primarily because of differences in the timing of reporting equipment depreciation, equity income in managed programs, and certain accruals for financial statement and income tax reporting purposes. Commitments and Contingencies. Commitments and contingencies as of ------------------------------- September 30, 2002 are as follows (in thousands of dollars):
Less than 1-3 4-5 After 5 Current Obligations Total 1 year Years Years Years ------------------------------- ---------- ------- ------- -------- ------ Commitment to purchase railcars $ 21,200 $ 7,067 $14,133 $ - $ - Line of credit - - - - - ---------- ------- ------- -------- ------ $21,200 $ 7,067 $ 14,133 $ - $ - ========== ======= ======== ======= ======
Commitment to Purchase Railcars: MILPI has arranged for the lease or purchase of a total of 1,050 pressurized tank railcars by Program Affiliates or Non-Program Affiliates. These railcars will be delivered over the next three years. A leasing company affiliated with the manufacturer will acquire approximately 70% of the railcars and lease them to a Non-Program Affiliate. The remaining 30% will either be purchased by other third parties to be managed by MILPI or by the Program Affiliates. MILPI will manage the leased and purchased railcars. MILPI will not be liable for these railcars. MILPI estimates that the total value of purchased railcars will not exceed $26.0 million with one third of the railcars being purchased in each of 2002, 2003 and 2004. As of September 30, 2002, MILPI had purchased $4.8 million of these railcars. MILPI expects to sell these railcars to affiliated entities in the first quarter of 2003. Warehouse Credit Facility: MILPI has a $10.0 million warehouse facility which is shared with PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII, and Fund I, that allows MILPI to purchase equipment prior to its designation to a specific program. Borrowings under this facility by the other eligible borrowers reduce the amount available to be borrowed by MILPI. All borrowings under this facility are guaranteed by PLM. This facility provides for financing up to 100% of the cost of the asset. Interest accrues at prime or LIBOR plus 200 basis points, at the option of PLM. Borrowings under this facility may be outstanding up to 270 days. In July 2002, PLM reached an agreement with the lenders of the $10.0 million warehouse facility to extend the expiration date to June 30, 2003. All borrowings must be repaid upon the expiration of this facility. As of September 30, 2002, PLM had no borrowings outstanding under this facility and there were no borrowings outstanding under this facility by any other eligible borrower. FORWARD-LOOKING INFORMATION Except for historical information contained herein, the discussion in this document contains forward-looking statements that contain risks and uncertainties, such as statements of MILPI's plans, objectives, expectations, and intentions. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this discussion. MILPI's actual results could differ materially from those discussed here. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR PERIODS ENDED SEPTEMBER 30, 2002 FOR MILPI INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Description Page --------------------------------------------------------------------------- ---- Unaudited Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001. . . . . . . . . . . . . . . . . . . . . . . . 71 Unaudited Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2002 and for the three months ended September 30, 2001 and for the period from February 7, 2001 through September 30, 2001 72 Unaudited Condensed Consolidated Statements of Shareholders' Equity for the nine months Ended September 30, 2002. . . . . . . . . . . . . . . . . . . 73 Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and for the period from February 7, 2001 through September 30, 2001. . . . . . . . . . . . . . . . . . . . . . . . 74 Notes to Unaudited Condensed Consolidated Financial Statements. . . . . . . 75
MILPI HOLDINGS, LLC AND SUBSIDIARY UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands of dollars, except share amounts)
September 30, December 31, 2002 2001 -------------- ------------- ASSETS Cash and cash equivalents $ 7,422 $ 14,037 Receivables, net of allowance for doubtful accounts of $132 at September 30, 2002 and $45 at December 31, 2001 226 39 Notes receivable from affiliates 1,345 - Receivables from affiliates 587 951 Equity interest in affiliates 20,464 20,948 Restricted cash and cash equivalents 75 75 Assets held for sale 4,830 - Goodwill, net of accumulated amortization of $765 as of September 30, 2002 and December 31, 2001 8,369 4,590 Other assets, net 2,912 2,759 -------------- ------------- Total assets $ 46,230 $ 43,399 ============== ============= LIABILITIES Payables and other liabilities $ 5,741 $ 5,702 Deferred income taxes 12,411 9,751 -------------- ------------- Total liabilities 18,152 15,453 -------------- ------------- MINORITY INTERESTS - 3,029 -------------- ------------- Commitments and contingencies SHAREHOLDERS' EQUITY Common stock ($0.01 par value, 20 shares authorized and outstanding) - - Paid-in capital, in excess of par 23,667 21,970 Retained earnings 4,411 2,947 -------------- ------------- Total stockholders' equity 28,078 24,917 -------------- ------------- Total liabilities, minority interests and stockholders' equity $ 46,230 $ 43,399 ============== =============
See accompanying notes to these unaudited condensed consolidated financial statements. MILPI HOLDINGS, LLC AND SUBSIDIARY UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands of dollars)
For the Period For the Nine From February 7, For the Three Months Ended Months Ended 2001 through September 30, September 30, September 30, 2002 2001 2002 2001 --------------- -------------- ------------------ ---------------- REVENUES Management fees $ 972 $ 1,375 $ 3,404 $3,605 Operating lease (loss) income (8) 65 77 444 Acquisition and lease negotiation fees - 1,846 - 2,032 Gain on disposition of assets - 22 2 104 Other 47 182 371 608 --------------- -------------- ------------------ ---------------- Total revenues 1,011 3,490 3,854 6,793 --------------- -------------- ------------------ ---------------- EXPENSES Depreciation and amortization 1 313 100 971 General and administrative 587 1,111 1,854 3,043 --------------- -------------- ------------------ ---------------- Total expenses 588 1,424 1,954 4,014 --------------- -------------- ------------------ ---------------- Operating income 423 2,066 1,900 2,779 Equity (loss) income in managed programs (115) 96 246 1,304 Interest income, net 85 100 242 304 Other (expense) income, net (3) (1) 52 (62) --------------- -------------- ------------------ ---------------- Income before taxes and minority interest 390 2,261 2,440 4,325 Provision for income taxes 286 724 936 1,384 Minority interest - 244 40 304 --------------- -------------- ------------------ ---------------- Net income $ 104 $ 1,293 $ 1,464 $2,637 ============== ============== ================= =============== Net income per weighted-average common share outstanding $ 5 $ 65 $ 73 $ 132 ============== ============== ================= ===============
See accompanying notes to these unaudited condensed consolidated financial statements. MILPI HOLDINGS, LLC AND SUBSIDIARY UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (in thousands of dollars, except shares)
Common Additional Retained Shares Stock Paid in Capital Earnings Total ------ ------- ---------------- --------- ------- Balance at December 31, 2001 20 $ - $ 21,970 $ 2,947 $24,917 Capital contribution - - 4,363 - 4,363 Dividends paid - - (2,666) - (2,666) Net income - - - 1,464 1,464 ------ ------- ---------------- --------- ------- Balance at September 30, 2002 20 $ - $ 23,667 $ 4,411 $28,078 ====== ======= ================ ========= =======
See accompanying notes to these unaudited condensed consolidated financial statements. MILPI HOLDINGS, LLC AND SUBSIDIARY UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars)
For the Period from For the Nine February 7, Months Ended 2001 through September 30, September 30, 2002 2001 -------------- --------------------- CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES Net income $ 1,464 $ 2 ,637 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization expense 100 971 Compensation expense related to variable stock options - 315 Gain on disposition of assets (2) (104) Equity income in managed programs (246) (1,304) Minority interest 40 304 Deferred income taxes 196 57 Changes in assets and liabilities: -- -- Receivables and receivables from affiliates 177 1,523 Other assets, net (307) 146 Payables and other liabilities (408) (8,616) -------------- --------------------- Net cash provided by (used in) operating activities 1,014 (4,071) -------------- --------------------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES Cash distributions from managed programs 1,156 1,365 Loans made to affiliates (1,345) (5,500) Repayment of loans made to affiliates - 5,500 Purchase of property, plant and equipment (11) (71) Proceeds of sale of equipment for lease 67 258 Proceeds from the sale of assets held for sale - 10,250 Purchase of the assets held for sale (4,830) - Purchase of PLM International, Inc. common stock (4,363) - Decrease in restricted cash - 1,748 -------------- --------------------- Net cash (used in) provided by investing activities (9,326) 13,550 -------------- --------------------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES Capital contribution 4,363 - Dividends paid (2,666) - Redemption of stock options - (919) -------------- --------------------- Net cash provided by (used in) in financing activities 1,697 (919) -------------- --------------------- Net (decrease) increase in cash and cash equivalents (6,615) 8,560 Cash and cash equivalents at beginning of period 14,037 4,391 -------------- --------------------- Cash and cash equivalents at end of period $ 7,422 $ 12,951 ============== ==================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for taxes $ 252 $ 6,175 ============== ====================
See accompanying notes to unaudited condensed consolidated financial statements. MILPI HOLDINGS LLC AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES BACKGROUND MILPI Holdings, LLC and subsidiary ("MILPI") was formed on December 12, 2000, under the laws of the state of Delaware and is governed by its Operating Agreement, dated December 13, 2000. MILPI had no activities from December 12, 2000 through February 7, 2001. MILPI was created by four separate trusts (AFG Investment Trust A, AFG Investment Trust B, AFG Investment Trust C and AFG Investment Trust D, collectively the "Trusts") for the purpose of acquiring the entire interest in PLM International, Inc. and subsidiaries ("PLM"). PLM is an equipment management company and operates in one business segment, the leasing of transportation equipment and the creation of equipment-leasing solutions for domestic and international customers. On February 7, 2001, MILPI Acquisition Corp. ("MAC"), a wholly-owned subsidiary of MILPI, closed on its tender offer to purchase any and all of PLM's outstanding common stock for a purchase price of $3.46 per share. The purchase price was determined based on competitive bids and a valuation model using the expected future cash flows of MILPI. MILPI also hired an investment banking firm to issue a fairness opinion on the purchase price. Pursuant to the cash tender offer, the Trusts through MAC acquired approximately 83% of PLM's common stock in February 2001 for a total purchase price of $21.8 million and contributed the shares to MILPI. The assets of PLM included cash and cash equivalents of approximately $4.4 million. The acquisition resulted in goodwill of approximately $5.4 million. On February 6, 2002, the AFG Investment Trusts through MAC, completed its acquisition of PLM by purchasing the remaining 17% of the outstanding PLM common stock and by effecting a merger of MAC into PLM, with PLM as the surviving entity. The merger was completed when MAC obtained approval of the merger from PLM's shareholders pursuant to a special shareholder's meeting. The remaining interest was purchased for $4.4 million at the $3.46 per common share price established in the tender offer, resulting in additional goodwill of approximately $3.8 million. No goodwill is expected to be deducted for tax purposes. Concurrent with the completion of the merger, PLM ceased to be publicly traded. The results of operations of PLM since the respective acquisition dates have been included in the consolidated financial statements. The acquisition of the stock of PLM was accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" ("SFAS No. 141"). In accordance with SFAS No. 141, MILPI allocates the total purchase price to the assets acquired and liabilities assumed based on the respective fair market values at the date of acquisition. The unaudited pro forma condensed consolidated statement of operations for the three and nine months ended September 30, 2002 and the three months ended September 30, 2001 and the period from February 7, 2001 through September 30, 2001 are as follows (in thousands of dollars):
For the period from For the three For the three For the nine February 7, 2001 months ended months ended months ended Through September 30, 2002 September 30, 2001 September 30, 2001 September 30, 2001 ------------------- ------------------- ------------------- -------------------- Total revenues $ 1,011 $ 3,490 $ 3,854 $ 6,793 Net income $ 104 $ 1,537 $ 1,504 $ 2,941 Per share information: Net income $ 5 $ 77 $ 75 $ 147
These amounts include PLM's actual results for the nine months ended September 30, 2002 and 2001 adjusted for various purchase accounting adjustments, including elimination of minority interest. The amounts are based upon certain assumptions and estimates, and do not reflect any benefit from economies which might be achieved from combined operations. The pro forma results do not necessarily represent results which would have occurred if the acquisition had taken place on the basis assumed above, nor are they indicative of the results of future combined operations. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include the accounts of MILPI Holdings, LLC and its wholly-owned subsidiary. In addition, investments for which MILPI has less than a 50% ownership interest are accounted for using the equity method. All significant intercompany balances and transactions among the consolidated group have been eliminated. MILPI has recorded a minority interest in MILPI's condensed consolidated balance sheet as of December 31, 2001 to reflect PLM's common shares not owned by MILPI as of that date. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary to present fairly the financial position, results of operations and the statement of changes in shareholders' equity and statements of cash flows have been made and are reflected. Certain amounts previously reported have been reclassified to conform to the September 30, 2002 financial statement presentation. These reclassifications did not have any effect on total assets, total liabilities, shareholders' equity, or net income (loss). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the accompanying condensed financial statements. For further information, reference should be made to the financial statements and notes thereto included in the audited financial statement for the year ended December 31, 2001. ESTIMATES These condensed consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVESTMENT IN AND MANAGEMENT OF EQUIPMENT GROWTH FUNDS, OTHER LIMITED PARTNERSHIPS, PRIVATE PLACEMENT PROGRAMS AND LIMITED LIABILITY COMPANY MILPI earns revenues in connection with the management of limited partnerships and other managed programs. Equipment acquisition and lease negotiation fees are earned through the purchase and initial lease of equipment, and are recognized as revenue when MILPI completes all of the services required to earn the fees, typically when binding commitment agreements are signed. Management fees are earned for managing the equipment portfolios and administering investor programs as provided for in various agreements, and are recognized as revenue over time as they are earned. As compensation for organizing a partnership investment program, MILPI was granted an interest (between 1% and 5%) in the earnings and cash distributions of the program, in which PLM Financial Services, Inc. ("FSI"), a wholly owned subsidiary of PLM, is the General Partner. MILPI recognizes as partnership interests its equity interest in the earnings of the partnerships, after adjusting such earnings to reflect the effect of special allocations of the programs' gross income allowed under the respective partnership agreements. From May 1995 through May 1996, Professional Lease Management Income Fund I, LLC ("Fund I"), a limited liability company with a no front-end fee structure, was offered as an investor program. FSI serves as the manager for the program. No compensation was paid to PLM for the organization and syndication of interests, the acquisition of equipment, the negotiation of leases for equipment, or the placement of debt. PLM funded the costs of organization, syndication, and offering through the use of operating cash and has capitalized these costs as its investment in Fund I. PLM has an equity interest of 15% for its contribution to the program. In return for its investment, PLM is entitled to a 15% interest in the cash distributions and earnings of Fund I, subject to certain allocation provisions. PLM's interest in the cash distributions and earnings of Fund I will increase to 25% after the investors have received distributions equal to their invested capital. MILPI is entitled to reimbursement from the investment programs for providing certain administrative services at the lesser of cost or market rates. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), MILPI evaluates long-lived assets for impairment whenever events or circumstances indicate that the carrying values of such assets may not be recoverable. Losses for impairment are recognized when the undiscounted cash flows estimated to be realized from a long-lived asset are determined to be less than the carrying value of the asset and the carrying amount of long-lived assets exceed its fair value. The determination of net realizable value for a given investment requires several considerations, including but not limited to, income expected to be earned from the asset, estimated sales proceeds, and holding costs excluding interest. No impairment was recorded for the nine months ended September, 30, 2002 and for the period from February 7, 2001 through September 30, 2001. GOODWILL Goodwill is calculated as the excess of the aggregate purchase price over the fair market value of identifiable net assets acquired in accordance with SFAS No. 141. MILPI allocates the total purchase price to the assets acquired and liabilities assumed based on the respective fair market values at the date of acquisition. MILPI adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS. No. 142") on January 1, 2002. As a result, the discontinuance of goodwill and other intangible asset amortization was effective upon adoption of SFAS No. 142. SFAS No. 142 also includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill, and the identification of reporting units for purposes of assessing potential future impairments of goodwill. The amount of the impairment is the difference between the carrying amount and the fair value of the asset. Fair value of the asset is calculated using several valuation models which utilize the expected future cash flows of MILPI. SFAS No. 142 requires MILPI to complete a transitional goodwill impairment test within six months from January 1, 2002, the date of adoption. MILPI completed the goodwill impairment analysis performed as of January 1, 2002, during the quarter ended June 30, 2002. There was no impact on MILPI's financial statements as a result of this analysis. Goodwill of approximately $5.4 million was recorded in conjunction with the acquisition of 83% of the common stock of PLM. This goodwill included approximately $2.0 million of total costs estimated for severance of PLM employees and relocation costs in accordance with management's formal plan to involuntarily terminate employees, which plan was developed in conjunction with the acquisition. MILPI recorded goodwill of approximately $3.8 million in conjunction with the acquisition of the remaining 17% of the outstanding common stock of PLM in February 2002. This goodwill included approximately $0.4 million of costs estimated for severance of PLM employees and relocation costs in accordance with management's formal plan to involuntarily terminate employees, which plan was developed in conjunction with the acquisition. MILPI adopted SFAS No. 142 on January 1, 2002. The amortization expense and net income for the nine months ended 2002 and 2001 are summarized as follows (in thousands of dollars):
For the Period From For the Three For the Nine February 7, Months Ending Months Ended 2001 Through September 30, September 30, September 30, 2002 2001 2002 2001 ----- ------ ------------- ------------ Reported net income $ 104 $1,293 $1,464 $2,637 Add back: goodwill amortization - 209 - 765 ----- ------ ------ ------------ Adjusted net income $ 104 $1,502 $1,464 $3,402 ===== ====== ====== =========== Basic and fully diluted earnings per share: Reported net income $ 5 $ 65 $ 73 $ 132 Add back: goodwill amortization - 10 - 38 ----- ------ ------ ------------ Adjusted net income $ 5 $ 75 $ 73 170 ===== ====== ====== ===========
The changes in the carrying amount of goodwill for the nine months ended September 30, 2002 are as follows (in thousands of dollars): Balance as of December 31, 2001 $4,590 Add: Goodwill acquired during the year 3,779 ------ Balance at September 30, 2002 $8,369 ====== NOTE 2 - ASSETS HELD FOR SALE With the acquisition of PLM, MILPI acquired $10.3 million in marine containers that were classified as assets held for sale. MILPI sold the marine containers to affiliated programs at cost, which approximated fair value in the first quarter of 2001. MILPI has arranged for the lease or purchase of a total of 1,050 pressurized tank railcars by (i) partnerships and managed programs in which FSI serves as the general partner or manager and holds an ownership interest ("Program Affiliates") or (ii) managed programs in which FSI provides management services but does not hold an ownership interest ("Non-Program Affiliates"). These railcars will be delivered over the next three years. A leasing company affiliated with the manufacturer will acquire approximately 70% of the railcars and lease them to a Non-Program Affiliate. The remaining 30% will either be purchased by other third parties to be managed by MILPI or by the Program Affiliates. MILPI will manage the leased and purchased railcars. MILPI will not be liable for these railcars. MILPI estimates that the total value of purchased railcars will not exceed $26.0 million with one third of the railcars being purchased in each of 2002, 2003 and 2004. As of September 30, 2002, MILPI had purchased $4.8 million of these railcars. MILPI expects to sell these railcars to affiliated entities in the first quarter of 2003. NOTE 3 - EQUITY INTEREST IN AFFILIATES FSI is the General Partner or manager of nine investment programs. Distributions of the programs are allocated as follows: 99% to the limited partners and 1% to the General Partner in PLM Equipment Growth Fund (EGF) I and PLM Passive Income Investors 1988-II; 95% to the limited partners and 5% to the General Partner in EGFs II, III, IV, V, VI, and PLM Equipment Growth & Income Fund VII (EGF VII); and 85% to the members and 15% to the manager in Fund I. PLM's interest in the cash distributions of Fund I will increase to 25% after the investors have received distributions equal to their invested capital. Net income is allocated to the General Partner subject to certain allocation provisions. Most of the investment program agreements contain provisions for special allocations of the programs' gross income. While none of the partners or members, including the General Partner and manager, are liable for program borrowings, and while the General Partner or manager maintains insurance against liability for bodily injury, death, and property damage for which an investment program may be liable, the General Partner or manager may be contingently liable for nondebt claims against the program that exceed asset values. NOTE 4 - MINORITY INTEREST Minority interest is related to the portion of PLM's stock not owned by MILPI. The decrease in minority interest is attributable to MILPI's purchase of the remaining 17% minority interest in the first quarter of 2002. Because all of the remaining minority interest shares were purchased in the first quarter of 2002, minority interest has been eliminated. NOTE 5 - WAREHOUSE CREDIT FACILITY In July 2002, MILPI reached an agreement with the lenders of the $10.0 million warehouse facility to extend the expiration date of the facility to June 30, 2003. The warehouse facility is shared by MILPI, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, PLM Equipment Growth and Income Fund VII and Fund I. The facility provides for financing up to 100% of the cost of equipment. Outstanding borrowings by one borrower reduce the amount available to each of the other borrowers under the facility. Individual borrowings may be outstanding for no more than 270 days, with all advances due no later than June 30, 2003. Interest accrues either at the prime rate or LIBOR plus 2.0% at the borrower's option and is set at the time of an advance of funds. All borrowings are guaranteed by PLM. As of September 30, 2002, there were no outstanding borrowings on this facility by any of the eligible borrowers. NOTE 6 - NOTES RECEIVABLE FROM AFFILIATES On February 11, 2002, MILPI loaned $1.3 million to two of the trusts that own MILPI. The notes bear interest at LIBOR plus 200 basis points and mature on January 6, 2003. The interest rate charged on the loan is consistent with third party rates. As of September 30, 2002, the notes had a principal and accrued interest balance which totaled $1.3 million. Subsequent to September 30, 2002, the balance of the notes were paid in full plus all outstanding accrued interest (See Note 9). NOTE 7 - TRANSACTIONS WITH AFFILIATES In addition to various fees payable to MILPI or its subsidiaries, the affiliated programs reimburse MILPI for certain expenses, as allowed in the program agreements. Reimbursed expenses totaled $1.1 million and $2.5 million for the nine months ended September 30, 2002 and 2001, respectively. Outstanding amounts are paid under normal business terms. As of September 30, 2002, MILPI had receivables from affiliates of approximately $0.6 million, which represented unpaid management fees. NOTE 8 - COMMITMENTS AND CONTINGENCIES In March 2001, the Internal Revenue Service notified PLM that it would conduct an audit of certain Forms 1042, "Annual Withholding Tax Return for U.S. Source Income of Foreign Persons." The audit related to payments to unrelated foreign entities made by two partnerships in which PLM formerly held interests as the 100% direct and indirect owner. One partnership's audit related to Forms 1042 for the years 1997, 1998 and 1999, while the other partnership's audit related to Forms 1042 for the years 1998 and 1999. In September 2002, the Internal Revenue Service notified PLM that they have completed their examination of the related tax returns and that they have assessed no changes to the reported taxes. NOTE 9 - SUBSEQUENT EVENTS In the fourth quarter of 2002, MILPI purchased railcars totaling $1.4 million. In the first quarter of 2003, MILPI sold its entire portfolio of railcars to a managed program for its cost of $6.2 million, which approximated fair market value. On December 19, 2002, MILPI declared and paid a cash dividend of $1.9 million to its shareholders. On December 19, 2002, the notes receivable from affiliates were repaid in full plus all outstanding accrued interest. PROPOSAL 5 - TO ALLOW THE TRUST, IN ITS OPERATION OF PLM, TO ENTER INTO BUSINESS ARRANGEMENTS WITH AFFILIATES IN THE ORDINARY COURSE OF BUSINESS ON TERMS NO LESS FAVORABLE THAN THOSE THAT THEY WOULD RECEIVE IF SUCH ARRANGEMENTS WERE BEING ENTERED INTO WITH INDEPENDENT THIRD PARTIES As stated elsewhere in this Solicitation Statement, the Managing Trustee believes that its interest in PLM, held through MILPI, currently constitutes the Trust's asset with the most growth and income potential and that it intends to conduct as much of the Trust's future business as possible through PLM. In order to do so, the Trust must be able to operate PLM as an ongoing business and enter into agreements, understandings and arrangements with affiliates of the Trust in the ordinary course of business, despite any conflicts that may arise under the Trust Agreement. Such arrangements, understandings and agreements could include, among other things, ordinary business operations such as the payment of rent, leasing of office space and office equipment, providing management services and paying of salaries. For instance, an affiliate of the Trust may lease office space and office equipment and may be willing to share such office space with or sublet such equipment to PLM. Or, the Trust may employ an individual to perform services for the Trust such that similar services could be provided for PLM and the individual's salary could be paid pro rata by the Trust and PLM. Or an affiliate of the Trust may provide advisory, acquisition, liquidation, negotiation and asset management or similar services to the Trust, PLM or their affiliates for fees. Although the foregoing only provides examples of the types of arrangements that could benefit the Trust and its affiliates, the Managing Trustee believes that these types of arrangements, which PLM would normally be allowed to enter into with unaffiliated third parties, could provide cost savings and synergies that would be in the best interest of the Trust. Any such arrangements or agreements would be entered into as if they were arms' length transactions, on terms no less favorable than what PLM would receive if they were entering into arrangements with third parties for goods or services of a similar quality. Various provisions of the Trust Agreement could prohibit such transactions, arrangements or agreements between the Trust, the Managing Trustee and their affiliates. For instance, Section 5.3 of the Trust Agreement prohibits the Trust from participating in any reciprocal business arrangements with an affiliate which could have the effect of circumventing any of the provisions of the Trust Agreement. Although the Managing Trustee does not believe that arrangements such as those described above would have the effect of circumventing the provisions of the Trust Agreement, the Managing Trustee nonetheless seeks the consent of the Beneficiaries to enter into such arrangements, notwithstanding any provision of the Trust Agreement that would prohibit it from doing so. THE MANAGING TRUSTEE RECOMMENDS THAT BENEFICIARIES CONSENT TO THE APPROVAL OF PROPOSAL FIVE. UNAUDITED PRO FORMA FINANCIAL INFORMATION The audited financial statements of the Trust as of and for the year ended December 31, 2001 and the Trust's unaudited financial statements for the nine months ended September 30, 2002 have previously been filed with the Securities and Exchange Commission on Form 10-K/A and Form 10-Q, respectively. The unaudited pro forma financial information presented are based on the estimates and information set forth herein and have been prepared utilizing the audited financial statements and notes thereto appearing in the Trust's Form 10-K/A as of and for the year ended December 31, 2001 and the Trust's unaudited financial statements and notes thereto appearing in the Trust's Form 10-Q as of and for the nine months ended September 30, 2002. The unaudited pro forma financial information should be read in conjunction with the historical audited and unaudited financial statements of the Trust, including the related notes thereto. In December 2000, the Trust, along with Trust A, Trust B and Trust D, made a tender offer through a subsidiary of MILPI for all of the outstanding common stock of PLM, an equipment leasing and management company. The four trusts collectively hold all of the outstanding membership interests in MILPI. Pursuant to the cash tender offer, MILPI acquired approximately 83% of PLM's outstanding common stock in February 2001. In February 2002, MILPI completed the acquisition of PLM by acquiring the remaining 17% of PLM's common stock. The Trust and Trust D provided MILPI with the funds to acquire the remaining 17% of PLM's common stock resulting in the Trust's membership interests in MILPI increasing from 34% to 37.5%. Coincident with the stock acquisition, MILPI's wholly owned subsidiary merged into PLM. The following unaudited pro forma financial information of the Trust are presented to give effect to the purchase by MILPI of the membership interests in MILPI held by Trust A and Trust B, as described in Proposal Four. This transaction would result in the Trust and Trust D having equally shared 100% ownership in MILPI. As such, the pro forma analysis was prepared assuming the Trust and Trust D would equally share income for the periods presented. As the acquisition of the 17% of PLM's common stock occurred in February 2002 and is reflected in the Trust's unaudited financial statements as of and for the nine months ended September 30, 2002, no pro forma adjustments have been recorded in the accompanying pro forma financial statements related to the February 2002 stock acquisition. In addition, Proposal Two of this Solicitation Statement seeks approval of a transaction whereby a newly formed subsidiary of PLM, RMLP, will receive a contribution from Semele of partnership interests in the Rancho Malibu partnership, a partnership that owns and is developing approximately 270 acres of land in Malibu, California, in exchange for $5.5 million in cash (to be funded by PLM), a $2.5 million promissory note (bearing interest at the rate of 7% per annum) and 182 shares (15.4%) of the common stock of RMLP. The Rancho Malibu property is under development and all costs associated with the property are being capitalized. As such, this transaction is not expected to have any short-term impact on the financial statements of the Trust. Accordingly, no pro forma adjustments have been recorded in the accompanying pro forma financial statements related to Proposal Two. However, in the event all or a portion of the investment in the Rancho Malibu property, or its subsequently capitalized costs, are not recoverable, this could have a negative impact on the Trust's financial statements. As required by Rule 11-02 of Regulation S-X, the Trust's unaudited pro forma statements of operations for the nine months ended September 30, 2002 and the year ended December 31, 2001 have been prepared as if the purchase by MILPI of the membership interests in MILPI held by Trust A and Trust B had occurred on January 1, 2001. The Trust's unaudited pro forma statement of financial position as of September 30, 2002 has been prepared as if the purchase had occurred on September 30, 2002. The accompanying financial statements are unaudited and are not necessarily indicative of the results that would have occurred if the transaction had occurred on January 1, 2001, or any particular date thereafter, nor do they purport to represent the financial position or results of operations that may be achieved by the Trust in future periods. AFG INVESTMENT TRUST C PRO FORMA STATEMENT OF FINANCIAL CONDITION SEPTEMBER 30, 2002 (UNAUDITED)
HISTORICAL AT . PRO FORMA AT SEPTEMBER 30, PRO FORMA SEPTEMBER 30, 2002 ADJUSTMENTS 2002 --------------- ------------ --------------- ASSETS Cash and cash equivalents $ 857,210 - $ 857,210 Rents receivable 47,849 - 47,849 Accounts receivable - affiliate 109,637 - 109,637 Loan receivable - EFG/Kettle Development LLC 145,224 - 145,224 Interest in EFG/Kettle Development LLC 3,781,524 - 3,781,524 Interest in EFG Kirkwood LLC 2,957,331 - 2,957,331 Interest in MILPI Holdings, LLC 10,502,187 654,676 A 11,156,863 Interest in C & D IT LLC 1,000,000 - 1,000,000 Investments - other 262,787 - 262,787 Other assets, net of accumulated amortization of $82,317 and $47,039 at September 30, 2002 and December 31, 2001, respectively 410,923 - 410,923 Equipment at cost, net of accumulated depreciation of 27,316,476 and $27,813,022 at September 30, 2002 and December 31, 2001, respectively 18,437,522 - 18,437,522 --------------- ------------ --------------- Total assets $ 38,512,194 $ 654,676 $ 39,166,870 =============== ============ =============== Notes payable 19,263,085 - 19,263,085 Note payable- affiliate 719,760 - 719,760 Accrued interest 133,111 - 133,111 Accrued interest - affiliate 19,972 - 19,972 Accrued liabilities 231,158 - 231,158 Accrued liabilities - affiliates 31,905 31,905 Deferred rental income 8,062 - 8,062 Other liabilities 1,598,455 - 1,598,455 --------------- ------------ --------------- Total liabilities 22,005,508 - 22,005,508 --------------- ------------ --------------- Participants' capital (deficit): Managing Trustee (25,231) 31,978 A 6,747 Special Beneficiary - 54,011 A 54,011 Class A Beneficiary Interests (1,787,153 interests; initial purchase price of $25 each) 18,870,284 429,003 A 19,299,287 Class B Beneficiary Interests (3,024,740 interests; initial purchase price of $5 each) - 139,684 A 139,684 Treasury Interests (223,861 Class A interests at cost) (2,338,367) - (2,338,367) --------------- ------------ --------------- Total participants' capital 16,506,686 654,676 17,161,362 --------------- ------------ --------------- Total liabilities and participants' capital $ 38,512,194 $ 654,676 $ 39,166,870 =============== ============ ===============
See accompanying notes AFG INVESTMENT TRUST C PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
Historical . Pro forma For the Nine . For the Nine Months Ended Pro forma Months Ended September 30, 2002 Adjustments September 30, 2002 -------------------- ------------ -------------------- INCOME Lease revenue $ 4,186,474 $ $ 4,186,474 Interest income 10,272 - 10,272 Gain on sale of equipment 106,439 - 106,439 Loss on sale of equipment (288,661) - (288,661) -------------------- ------------ -------------------- Total income 4,014,524 - 4,014,524 -------------------- ------------ -------------------- EXPENSES Depreciation and amortization 2,455,004 - 2,455,004 Write-down of equipment 483,648 - 483,648 Interest expense 1,453,268 - 1,453,268 Interest expense - affiliate 19,972 - 19,972 Management fees - affiliates 321,209 - 321,209 Operating expenses 511,648 - 511,648 Operating expenses - affiliate 232,317 - 232,317 -------------------- ------------ -------------------- Total expenses $ 5,477,066 - $ 5,477,066 -------------------- ------------ -------------------- EQUITY INTERESTS Equity in net loss of EFG/Kettle Development LLC (135,247) - (135,247) Equity in net loss of EFG Kirkwood LLC (45,404) - (45,404) Equity in net loss of MILPI Holdings, LLC 560,512 195,503 B 756,015 -------------------- ------------ -------------------- Total income (loss) from equity interests 379,861 195,503 575,364 -------------------- ------------ -------------------- Net income loss $ (1,082,681) $ 195,503 $ (887,178) ==================== ============ ==================== Net income loss per Class A Beneficiary Interest $ (0.62) - $ (0.56) per Class B Beneficiary Interest - - 0.01
See accompanying notes AFG INVESTMENT TRUST C PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 (UNAUDITED)
HISTORICAL . PRO FORMA FOR THE . FOR THE YEAR ENDED PRO FORMA YEAR ENDED DECEMBER 31, 2001 ADJUSTMENTS DECEMBER 31, 2001 ------------------- ------------ ------------------- INCOME Lease revenue $ 6,519,899 $ - $ 6,519,899 Interest income 157,725 - 157,725 Gain on sale of equipment 124,658 - 124,658 Other income 182,726 - 182,726 ------------------- ------------ ------------------- Total income 6,985,008 - 6,985,008 ------------------- ------------ ------------------- EXPENSES Depreciation and amortization 3,933,784 - 3,933,784 Write-down of equipment 5,578,975 - 5,578,975 Interest expense 2,055,063 - 2,055,063 Management fees - affiliates 433,247 - 433,247 Operating expenses - affiliate 1,143,620 - 1,143,620 ------------------- ------------ ------------------- Total expenses 13,144,689 - 13,144,689 ------------------- ------------ ------------------- EQUITY INTERESTS Equity in net loss of EFG/Kettle Development LLC (332,692) - (332,692) Equity in net loss of EFG Kirkwood LLC (91,100) - (91,100) Equity in net income of MILPI Holdings, LLC 984,280 434,241 B 1,418,521 ------------------- ------------ ------------------- Total income from equity interests 560,488 434,241 994,729 ------------------- ------------ ------------------- Net income (loss) $ (5,599,193) $ 434,241 $ (5,164,952) =================== ============ =================== Net income (loss) per Class A Beneficiary Interest $ (2.84) - $ (2.60) per Class B Beneficiary Interest $ (0.10) - $ (0.10) See accompanying notes
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited pro forma financial information of the Trust are presented to give effect to the purchase by MILPI of the membership interests in MILPI held by Trust A and Trust B, as described in Proposal Four. This transaction would result in the Trust and Trust D having equally shared 100% ownership in MILPI. As described below, MILPI acquired all of PLM's common stock by acquiring approximately 83% and 17% of the common stock in February 2001 and February 2002, respectively. As the acquisition of the 17% of the common stock of PLM occurred in February 2002 and is reflected in the Trust's unaudited financial statements as of and for the nine months ended September 30, 2002, no pro forma adjustments have been recorded in the accompanying pro forma financial statements related to the February 2002 acquisition. In addition, Proposal Two of this Solicitation Statement seeks approval of a transaction whereby a newly formed subsidiary of PLM, RMLP, will receive a contribution from Semele of partnership interests in the Rancho Malibu partnership, a partnership that owns and is developing approximately 270 acres of land in Malibu, California, in exchange for $5.5 million in cash (to be funded by PLM), a $2.5 million promissory note (bearing interest at the rate of 7% per annum) and 182 shares (15.4%) of the common stock of RMLP. The Rancho Malibu property is under development and all costs associated with the property are being capitalized. As such, this transaction is not expected to have any short-term impact on the financial statements of the Trust. Accordingly, no pro forma adjustments have been recorded in the accompanying pro forma financial statements related to Proposal Two. However, in the event all or a portion of the investment in the Rancho Malibu property, or its subsequently capitalized costs, are not recoverable, this could have a negative impact on the Trust's financial statements. As required by Rule 11-02 of Regulation S-X, the Trust's unaudited pro forma statements of operations for the nine months ended September 30, 2002 and the year ended December 31, 2001 have been prepared as if the purchase by MILPI of the membership interests in MILPI held by Trust A and Trust B had occurred on January 1, 2001. The Trust's unaudited pro forma statement of financial position as of September 30, 2002 has been prepared as if the purchase had occurred on September 30, 2002. The accompanying financial statements are unaudited and are not necessarily indicative of the results that would have occurred if the transaction had occurred on January 1, 2001, or any particular date thereafter, nor do they purport to represent the financial position or results of operations that may be achieved by the Trust in future periods. NOTE 2 - PRO FORMA ADJUSTMENTS The pro forma adjustments outlined below relate solely to the purchase by MILPI of the membership interests in MILPI held by Trust A and Trust B. In December 2000, the Trust, along with Trust A, Trust B and Trust D, made a tender offer through a subsidiary of MILPI for all of the outstanding common stock of PLM, an equipment leasing and management company. The trusts collectively hold all of the outstanding membership interests in MILPI. Pursuant to the cash tender offer, MILPI acquired approximately 83% of PLM's outstanding common stock in February 2001. In February 2002, MILPI completed the acquisition of PLM by acquiring the remaining 17% of PLM's common stock. The Trust and Trust D provided MILPI with the funds to acquire the remaining 17% of PLM's common stock resulting in the Trust's membership interests in MILPI increasing from 34% to 37.5%. Coincident with the stock acquisition, MILPI's wholly owned subsidiary merged into PLM. The Trust accounts for its membership interests in MILPI using the equity method of accounting. Under the equity method of accounting, the Trust's interests are (i) increased (decreased) to reflect the Trust's share of income (loss) of MILPI, and (ii) decreased to reflect any dividends the Trust received from MILPI. The excess of the Trust's cost to acquire its membership interests in MILPI and the fair market value of the net identifiable assets purchased is considered to be goodwill and, through December 31, 2001, was amortized over the estimated economic life of seven years from the date of acquisition, based on the estimated economic lives of PLM's assets. The Trust is not a taxable entity and therefore pro forma income tax adjustments are not applicable. (A) Adjustment to record the impact to the Trust's interest in MILPI of the purchase by the Trust and Trust D, pursuant to the Membership Interest Purchase Agreement. At the date of the purchase, the Trust will recognize an increase in its interest in MILPI equal to the Trust's portion of the excess of the share of the net assets of MILPI acquired from Trust A and Trust B and the purchase price paid by MILPI to Trust A and Trust B for their membership interests. The increase to the Trust's interest in MILPI is determined as follows:
Aggregate share of net assets of MILPI acquired by MILPI $ 7,240,930 Aggregate Purchase Price paid by MILPI 5,931,578 (i) ---------------- Aggregate increase in Trusts C and D's interests in MILPI 1,309,352 The Trust's ownership interest in MILPI 50% ---------------- The Trust's share of increase in interest in MILPI 654,676
(i) Defined in the Membership Interest Purchase Agreement between MILPI and Trust A and Trust B as the original purchase price of the membership interests, plus the reimbursement of membership fees paid to the Managing Trustee in connection with the purchase and management of the membership interests, less dividends or distributions received from the membership interests. The Purchase was at a price in excess of fair value of the underlying assets and therefore include an element of goodwill. However, consistent with SFAS No. 142, there is no pro forma adjustment for amortization expense recorded related to that goodwill because the Purchase was after the transition date of July 1, 2001 when goodwill resulting from acquisitions are no longer amortized. The allocation of the Trust's share of the increase in MILPI was calculated in accordance with the Second Amended and Restated Declaration of Trust, as amended. (B) Adjustment to increase the Trust's share of the net income of MILPI recorded under the equity method of accounting, as discussed above. The proposed transaction would increase the Trust's ownership interest in MILPI from 37.5% to 50%. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of the Trust's Interests, as of ______, 2002, by each person known by the Trust to be the beneficial owner of more than 5% of any class of its outstanding Interests.
. NUMBER OF . . . PERCENTAGE OF NAME AND ADDRESS OF BENEFICIAL CLASS A PERCENT OF CLASS A NUMBER OF CLASS PERCENT OF CLASS B SPECIAL BENEFICIARY OWNER (1) INTERESTS INTEREST OWNED B INTERESTS INTEREST OWNED INTEREST OWNED ------------------------------- --------- Equis II Corporation (2). . . . 5,240 * 3,019,222 99.8% - Semele Group, Inc. (3). . . . . 14,450 * 3,019,222 99.8% 100% Gary D. Engle (4) . . . . . . . 14,450 * 3,019,222 99.8% - James A. Coyne (5). . . . . . . 14,450 * 3,019,222 99.8% -
___________________ * Represents less than 1% of the outstanding Interests. (1) The business address of each Beneficiary listed above is c/o Equis Financial Group, L.P., 200 Nyala Farms, Westport, Connecticut 06880. (2) Equis II Corporation, a wholly-owned subsidiary of Semele, owns 5,240 Class A Interests and 3,019,222 Class B Interests. (3) Semele owns 100% of Equis II Corporation and, as such, has shared investment power with respect to the Class B Interests owned by Equis II Corporation. Old North Capital Limited Partnership, a controlled affiliate of Semele, owns 9,210 Class A Interests. (4) Mr. Engle has a 40.3% ownership interest in Semele. Mr. Engle, together with Mr. Coyne, controls a majority of the interest in Semele and Equis II Corporation. (5) Mr. Coyne has a 17.6% ownership interest in Semele. Mr. Coyne, together with Mr. Engle, controls a majority of the interest in Semele and Equis II Corporation. ADDITIONAL INFORMATION CONCERNING THE TRUST The Class A Interests are registered under the Securities Act of 1933 and as a result the Trust files annual and quarterly reports and other information with the SEC. You may read and copy any reports and other information that the Trust files with the SEC at the following SEC locations: Public Reference Room 450 Fifth Street, N.W. Washington, D.C. 20549 Copies of such materials may be obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC also maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of such Web site is http://www.sec.gov. The SEC allows the Trust to "incorporate by reference" information into this Solicitation Statement. This means that the Trust can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be a part of this Solicitation Statement, except for any information that is superseded by information that is included directly in this Solicitation Statement. This Solicitation Statement incorporates by reference the documents listed below that the Trust has previously filed with the SEC. Copies of each of such documents are being delivered to Beneficiaries along with this Consent Solicitation Statement.
Company SEC Filings Period ------------------------------- -------------------------------- Annual Report on Form 10-K/A Year ended December 30, 2001 Quarterly Report on Form 10-Q/A Quarter ended March 31, 2002 Quarterly Report on Form 10-Q/A Quarter ended June 30, 2002 Quarterly Report on Form 10-Q Quarter ended September 30, 2002
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Solicitation Statement contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business strategies of the Trust. Statements in this Solicitation Statement that are not historical facts are hereby identified as "forward-looking statements" for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. Such forward-looking statements, including, without limitation, those relating to the future business prospects, revenues and income, wherever they occur in this document, are necessarily estimates reflecting the best judgment of the Managing Trustee and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Such forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in this Solicitation Statement. Words such as "estimate," "project," "plan," "intend," "expect," "believe," "anticipate," and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this Solicitation Statement and the other documents incorporated by reference, including, but not limited to, the Trust's Annual Report on Form 10-K/A for the year ended December 31, 2001. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Solicitation Statement. The Trust does not undertake any obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Solicitation Statement or to reflect the occurrence of unanticipated events. ANNEX A CONTRIBUTION, ASSIGNMENT, ASSUMPTION AND ACKNOWLEDGMENT AGREEMENT BY AND AMONG RMLP INC., BMIF/BSLF II RANCHO MALIBU LIMITED PARTNERSHIP, BSLF II RANCHO MALIBU CORP., C&D IT LLC, AND SEMELE GROUP INC. DATED AS OF _________ __, 2002 A-1 Annex A - Percentage Interests Exhibit A - Property Description Exhibit B - Promissory Note Schedules --------- 4.5 Joint Ventures 4.6(a) Limited Partnership's Agreements of Indebtedness 4.6(b) Additional Liabilities of the Limited Partnership 4.6(c) Court or Governmental Judgments or Orders 4.7 Non-Compliance with Laws and/or Permits 4.8(a) Non-Compliance with Environmental laws 4.8(b) Non-Compliance with Permit Requirements 4.8(c) Environmental Citations 4.8(d) Hazardous Activity 4.8(e) Hazardous Materials 4.8(f) Violations of Environmental Law 4.9 Extraordinary Business Activities since February 6, 2002 4.11(b) Title Exceptions 4.11(d) Ownership by Affiliates 4.12 Pending Litigation 4.13(a) Material Contracts Extending Beyond February 6, 2002 4.13(b) Outstanding Guaranty Obligations of the Limited Partnership 4.13(d) Limited Partnership's Contractual Parties which are Non-Compliant or in Default 4.14(a) Insurance Policies 4.16(c) Bank Accounts and Powers of Attorney 4.17 Project Budget CONTRIBUTION, ASSIGNMENT, ASSUMPTION AND ACKNOWLEDGMENT AGREEMENT This Contribution, Assignment, Assumption and Acknowledgment Agreement dated __________ ___, 2002 is by and among RMLP Inc., a Delaware corporation ("RMLP"), BMIF/BSLF II Rancho Malibu Limited Partnership, an Illinois limited --- partnership (the "Limited Partnership"), BSLF II Rancho Malibu Corp., an -------------------- Illinois corporation ("BSLF"), C&D IT LLC, a Delaware limited liability company ("C&D LLC"), and Semele Group Inc., a Delaware corporation ("Semele"). -------- ------ RECITALS WHEREAS, the Limited Partnership owns approximately 270 acres of undeveloped land located in Los Angeles County, California, as more particularly described on Exhibit A attached hereto and incorporated herein by reference (the --------- "Malibu Property"); ---------------- WHEREAS, Semele owns one hundred percent (100%) of the capital stock of BSLF, the General Partner of the Limited Partnership; WHEREAS, Semele owns, directly or indirectly, seventy-five percent (75%) of the undivided Percentage Interests (as such term is defined in the Partnership Agreement) of the Limited Partnership, comprised of the 73.95% BSLF Percentage Interest and the 1.05% Semele Percentage Interest; WHEREAS, the other 25% of the undivided Percentage Interests of the Limited Partnership are owned by C&D LLC whose sole members are AFG Investment Trust C and AFG Investment Trust D; WHEREAS, RMLP desires to contribute the Contribution Consideration to BSLF, and BSLF and Semele desire to assign and deliver in exchange and in consideration therefor to RMLP, upon the terms and conditions set forth herein, the Semele Percentage Interest and the BSLF Percentage Interest; and WHEREAS, RMLP desires to accept such assignment and delivery of all benefits, right, title and interest in and to the Semele Percentage Interest and the BSLF Percentage Interest and assume all of the duties and obligations thereunder of Semele and BSLF, respectively. WHEREAS, the parties hereto intend that the contribution of the Contribution Consideration in exchange and in consideration for the Semele Percentage Interest and the BSLF Percentage Interest contemplated hereby together shall constitute a tax-free exchange governed by the provisions of Section 351 of the Code. NOW THEREFORE, in consideration of the mutual agreements, covenants and provisions herein contained, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties agree as follows: ARTICLE ONE DEFINITIONS As used herein, the following capitalized terms shall have the following meanings: 1.1 "AFFILIATE" of a Person means a Person who controls, is controlled by, --------- or is under common control with such Person. For purposes of this definition, "control" means the ability to control the management or policies of a Person, ------- whether through the ownership of voting securities, by contract or otherwise. 1.2 "AGREEMENT" means this Contribution, Assignment, Assumption and --------- Acknowledgment Agreement. 1.3 "BSLF" means BSLF II Rancho Malibu Corp., an Illinois corporation. ---- 1.4 "BSLF PERCENTAGE INTEREST" means the 73.95% Percentage Interest owned by ------------------------ BSLF. 1.5 "CERCLA" means the Comprehensive Environmental Response, Compensation ------ and Liability Act of 1980, as amended (42 U.S.C. 9601 et seq.). -- --- 1.6 "CLAIMS NOTICE" means a notice to be given by RMLP to Semele of any -------------- Indemnity Claim which describes the Indemnity Claim in reasonable detail, indicates the amount (estimated, if necessary) of the Loss that has been or may be suffered by RMLP and, in the case of any claim, action or proceeding brought by a third party, includes a copy of any claim, process or legal pleadings with respect thereto. 1.7 "CLEAN WATER ACT" means the Federal Water Pollution Control Act, as ----------------- amended (33 U.S.C. 1251 et seq.) -- --- 1.8 "CLOSING" means the consummation of the contribution of the Contribution ------- Consideration by RMLP to BSLF and the contribution of the Semele Percentage Interest and the BSLF Percentage Interest from Semele and BSLF to RMLP pursuant to this Agreement. 1.9 "CLOSING DATE" means ____________, 2002, or such other date as may be ------------- mutually agreed upon by RMLP and Semele and BSLF. 1.10 "CODE" means the Internal Revenue Code of 1986, as amended. ---- 1.11 "COMMON STOCK" means 182 shares of the RMLP Common Stock, $.01 par ------------- value per share, to be issued to BSLF as a portion of the Contribution Consideration hereunder, and representing approximately fifteen and four-tenths percent (15.4%) of the issued and outstanding capital stock of RMLP. 1.12 "CONTRIBUTION CONSIDERATION" means an amount equal to Five Million Five -------------------------- Hundred Thousand Dollars (US$5,500,000) payable in immediately available funds, plus the Promissory Note, plus the Common Stock. ---- ---- 1.13 "ENVIRONMENTAL CITATIONS" means any written notice, communication, ------------------------ inquiry, warning, citation, summons, directive, injunction, order or claim, concerning the ownership, maintenance, operation or occupancy of the Malibu Property or any portion thereof by the Limited Partnership or any other person, which relates to Hazardous Activity, Hazardous Materials or violation of any Environmental Law in connection with the Malibu Property or any portion thereof, or any leachate or contamination or materials emanating therefrom. 1.14 "ENVIRONMENTAL LAWS" means all applicable foreign, federal, state, ------------------- regional, county and local administrative, regulatory and judicial laws, rules, statutes, codes, ordinances, regulations, binding interpretations, binding policies, licenses, permits, approvals, plans, authorizations, directives, rulings, injunctions, decrees, orders, judgments, common law and any similar items in effect on the date of this Agreement and through the Closing Date relating to the protection of human health, safety, or the environment (including ambient air, surface water, ground water, land surface or subsurface strata); including, without limitation, the following laws, as amended: (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. 9601 et seq.) ("CERCLA"); (b) the Hazardous Materials -- --- ------ Transportation Control Act of 1970 (49 U.S.C. 1802 et seq.); (c) the Resource -- --- Conservation and Recovery Act of 1976, as amended (42 U.S.C. 6901 et seq.); -- --- (d) the Clean Water Act; (e) the Safe Drinking Water Act (42 U.S.C. 300h et -- seq.); (f) the Clean Air Act (42 U.S.C. 1857 et seq.); (g) the Solid Waste - -- --- Disposal Act (42 U.S.C. 6901 et seq.); (h) the Toxic Substances Control Act - -- --- (15 U.S.C. 2601 et seq.); (i) the Emergency Planning and Community -- --- Right-to-Know Act of 1986 (42 U.S.C. 11001 et seq.); (j) the Federal -- --- Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136 et seq.); (k) the -- --- Radon Gas and Indoor Air Quality Research Act (42 U.S.C. 7401 et seq.); (l) -- --- the National Environmental Policy Act of 1975 (42 U.S.C. 4321); (m) the Rivers and Harbors Act of 1899 (33 U.S.C. 401 et seq.); (n) the Oil Pollution Act of -- --- 1990 (33 U.S.C. 3321 et seq.); (o) the Porter-Cologne Water Quality Control -- --- Act (Cal. Wat. Code 13020 et seq.); (p) the Safe Drinking Water and Toxic -- --- Enforcement Act of 1986 (Cal. Health & Saf. Code 25300 et seq.); (q) the -- --- Hazardous Substance Account Act (Cal. Health & Saf. Code 25300 et seq.); (r) -- --- the Hazardous Waste Control Act (Cal. Health & Saf. Code 25100 et seq.); (s) -- --- Section 2782.6(d) of the California Civil Code and Chapter 11 of Title 22 of the California Code of Regulations; and (t) any and all laws, rules, codes, ordinances, regulations, binding interpretations, binding policies, licenses, permits, approvals, plans, authorizations, directives, rulings, injunctions, decrees, orders and judgments relating to hazardous wastes, hazardous substances, toxic substances, pollution, water safety, polychlorinated biphenyls, petroleum (its derivatives, by-products, or constituents) the protection of human health, safety, or the environment. 1.15 "HAZARDOUS ACTIVITY" means the generation, transportation, deposit, ------------------- disposal (including, without limitation, arrangement for placement in any landfill, temporary or permanent holding area, impoundment, sump or dump), dumping, escaping, placing, dispersal, release, discharge, spill, emission, injection, leak, leaching, migration of Hazardous Materials in, on, under, about or from any specified property or any part thereof into the indoor or outdoor environment including, without limitation, the ambient air, surface water, groundwater or surface or subsurface strata and any other act or thing, business or operation, that materially increases the danger, or risk of danger, or poses an unreasonable risk of harm to persons or property, on or off any specified property, or which may materially adversely impact the value of such specified property. 1.16 "HAZARDOUS MATERIAL" means any solid, liquid or gaseous material, alone ------------------ or in combination, mixture or solution, which is defined, listed or identified as "hazardous" (including "hazardous substances" and "hazardous wastes"), "toxic", a "pollutant" or a "contaminant" pursuant to any Environmental Law including, without limitation, asbestos, urea formaldehyde, polychlorinated biphenyls (PCB's), radon, fuel oil, petroleum (including its derivatives, by-products or other constituents) and any other dangerous, explosive, corrosive, flammable, infectious, radioactive, carcinogenic or mutagenic material which is prohibited, limited, controlled or regulated under any Environmental Law, or which poses a threat or nuisance to the safety or health of any person on any specified property or any property geologically or hydrologically adjacent to, or surrounding, such specified property or the environment, or the presence of which could constitute a trespass by the Limited Partnership. 1.17 "IMPROVEMENTS" means the improvements to the Malibu Property as are ------------ described in the Plans and Specifications including, without limitation, forty-six (46) single-family finished lots, together with roads, sewers, utilities and other on-site and off-site improvements, including those improvements required to be constructed by the Project Requirements. 1.18 "INDEMNITY CLAIM" means any claim of a RMLP Indemnified Party resulting --------------- from (a) any breach of Semele's Representations and Warranties; or (b) the non-fulfillment of any of Semele's covenants, agreements or undertakings contained in this Agreement or in any agreement or document to be delivered pursuant to this Agreement. 1.19 "KNOWLEDGE" or "TO THE KNOWLEDGE" of any person, or words of similar --------- ----------------- import, mean the actual knowledge of such person. With respect to Semele and BSLF, "knowledge" shall mean the actual knowledge of James A. Coyne. 1.20 "LIMITED PARTNERSHIP" means BMIF/BSLF II Rancho Malibu Limited -------------------- Partnership, an Illinois limited partnership. 1.21 "LOSSES" means any and all loss, cost, damage (including without ------ limitation consequential damages) or expense arising or resulting from any Indemnity Claim, including but not limited to reasonable costs and expenses, including fees and disbursements of counsel, accountants and other experts, incident to any and all actions, suits, demands, assessments and judgments related to any claim made hereunder, but excluding (i) amounts to the extent reserved or accrued for by the Limited Partnership, and (ii) amounts for which any RMLP Indemnified Party has recovered proceeds under any insurance policy or third party guaranty, indemnity or other obligation. 1.22 "MALIBU PROPERTY" means approximately 270 acres of undeveloped land ---------------- located in Los Angeles County, California, as more particularly described on Exhibit A hereto. ------- 1.23 "MATERIAL ADVERSE EFFECT" means a material adverse effect (a) on the ------------------------- business, assets or financial condition of the Limited Partnership or (b) on the ability of the Limited Partnership to carry on its business as it is presently being conducted, including without limitation the development of the Project. 1.24 "PARTNERSHIP AGREEMENT" means the Partnership Agreement of the Limited ---------------------- Partnership, as amended and as in effect on the date hereof. 1.25 "PERCENTAGE INTEREST" with respect to a Person means the Percentage -------------------- Interest of the Limited Partnership, as such term is further defined in the Partnership Agreement, owned by such Person set forth opposite such Person's name in the column entitled "Percentage Interest" on Annex A to this Agreement. 1.26 "PERMITS" means all governmental or other licenses, permits ------- certificates, approvals, authorizations and orders material to the ability of - the Limited Partnership to carry on its business as it is presently being conducted, including without limitation those necessary to construct, subdivide, occupy, operate, market and sell the Property (and any portion or subdivision thereof) in accordance with all Project Requirements. 1.27 "PERSON" means any individual, partnership, firm, corporation, ------ association, trust, unincorporated organization or other entity. 1.28 "PLANS AND SPECIFICATIONS" means those certain Plans and Specifications ------------------------ prepared for the Project. 1.29 "PROJECT" means (i) the subdivision of the Property into forty-six (46) ------- single-family lots, three (3) open space lots, one (1) sewage treatment lot, and one (1) road lot; and (ii) the construction of the Improvements, all in accordance with the Project Requirements. 1.30 "PROJECT BUDGET" means the line item budget made available to RMLP --------------- pursuant to Section 4.17 hereof. 1.31 "PROJECT REQUIREMENTS" means all applicable federal, state, local and --------------------- other laws, regulations, codes, orders, ordinances, policies, rules, regulations, reports, standards, statutes, and agreements that apply or pertain to the Project, including without limitation those relating to fire, safety, land use, health, labor, environmental protection, seismic design, conservation, parking, zoning and building, and all restrictive covenants (if any) and other title encumbrances, affecting all or any part of the Property or the Improvements constructed thereon. 1.32 "PROMISSORY NOTE" means the promissory note of even date herewith in ---------------- the original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000) made by RMLP in favor of BSLF, in substantially the form of Exhibit ------- B hereto. 1.33 "PROPERTY" means the Malibu Property and all related permits, -------- engineering work product, Improvements and assets and entitlements required to develop the Project in accordance with the Project Requirements, all as owned by the Limited Partnership as of the date hereof. 1.34 "RMLP" means RMLP Inc., a Delaware corporation. ---- 1.35 "RMLP INDEMNIFIED PARTIES" means RMLP and its Affiliates, directors, -------------------------- officers, employees and agents of each. 1.36 "SEMELE" means Semele Group Inc., a Delaware corporation. ------ 1.37 "SEMELE PERCENTAGE INTEREST" means the 1.05% Percentage Interest owned --------------------------- by Semele. ARTICLE TWO CONTRIBUTION, ASSIGNMENT, ASSUMPTION AND ACKNOWLEDGMENT 2.1 CONTRIBUTION AND ASSIGNMENT OF SEMELE PERCENTAGE INTEREST AND BSLF PERCENTAGE INTEREST. Subject to the terms and conditions herein contained, including the conditions set forth in Article 7 hereof, Semele and BSLF each agree to convey, contribute, transfer, assign and deliver to RMLP, and RMLP agrees to accept such assignments of, and acquire from, Semele and BSLF, respectively, on the Closing Date, the Semele Percentage Interest and the BSLF Percentage Interest, free and clear of any security interest, pledge mortgage, lien, charge, encumbrance, option, adverse claim or restrictions of any kind (other than as set forth in the Partnership Agreement). 2.2 CONTRIBUTION CONSIDERATION. On the Closing, as consideration for the conveyance, contribution, transfer, assignment and delivery of the Semele Percentage Interest and the BSLF Percentage Interest by Semele and BSLF, RMLP agrees to make deliver and pay the Contribution Consideration to BSLF. 2.3 ASSUMPTION OF SEMELE OBLIGATIONS. On the Closing, RMLP, as additional consideration for the conveyance, contribution, transfer, assignment and delivery of the Semele Percentage Interest and the BSLF Percentage Interest by Semele and BSLF, respectively, shall assume all duties and obligations of Semele and BSLF relating to (i) the Semele Percentage Interest and the BSLF Percentage Interest and under the Partnership Agreement and (ii) BSLF's role as the co-managing general partner of the Limited Partnership to be evidenced by an amendment to the Partnership Agreement dated as of the Closing Date. 2.4 ACKNOWLEDGMENT OF CONTRIBUTION. The Limited Partnership and C&D LLC hereby acknowledge the terms of this Agreement and further acknowledge (a) the assignment by (i) BSLF of the BSLF Percentage Interest and (ii) Semele of the Semele Percentage Interest, and (b) the acceptance of such assignments and assumption of all the duties and obligations by RMLP relating to the BSLF Percentage Interest and the Semele Percentage Interest in, to and under the Partnership Agreement, including the assumption of BSLF's role and obligations as co-managing general partner of the Partnership. ARTICLE THREE THE CLOSING 3.1 TIME AND PLACE OF CLOSING. Unless this Agreement is earlier terminated as hereinafter provided, the Closing shall be held at the offices of Nixon Peabody LLP in Boston, Massachusetts at 10:00 A.M. on the Closing Date or at such other place and at such other time as may be mutually agreed upon by RMLP and Semele and BSLF. 3.2 ACTIONS TO BE TAKEN. The following actions shall be taken at or prior to the Closing: (a) (i) Semele shall deliver or cause to be delivered to RMLP assignments of limited partnership interests, in form acceptable to RMLP and its counsel, assigning the Semele Percentage Interest and the BSLF Percentage Interest to RMLP, and (ii) BSLF shall deliver its resignation as co-managing general partner and RMLP, Semele and BSLF shall execute an Amended and Restated Partnership Agreement and shall take all other necessary actions to, inter alia, designate and appoint RMLP and C&D LLC as co-managing general partners of the Partnership and to permit RMLP at any time prior to the second anniversary of the Promissory Note to cause the Limited Partnership to distribute and deliver title to subdivided lots comprised of portions of the Property upon RMLP's election to voluntarily prepay the Promissory Note with portions of the Property as provided therein. (b) The cash amount of the Contribution Consideration shall be paid by RMLP by wire transfer as directed by BSLF, and RMLP shall deliver to BSLF the Promissory Note and a stock certificate representing the Common Stock. (c) Semele and BSLF shall cause to be delivered to RMLP such certificates of an officer of Semele, an officer of BSLF and the Limited Partnership's general partner, together with such other documents or schedules as may be requested by RMLP or its counsel, evidencing satisfaction of the terms and conditions specified in this Agreement, including without limitation, that the representations and warranties of Semele and BSLF contained in Article Four hereof are true, correct and complete in all material respects as of the Closing as if Semele and BSLF had jointly and severally made such representations and warranties on the Closing Date. (d) RMLP shall deliver to Semele and BSLF a certificate executed by an officer of RMLP together with such other documents or schedules as may be requested by Semele and BSLF or their counsel evidencing satisfaction of the terms and conditions specified in the Agreement, including without limitation that the representations and warranties of RMLP contained in Article Five hereof are true, correct and complete in all material respects as of the Closing as if RMLP had made such representations and warranties on the Closing Date. 3.3 TAX REPORTING. The parties hereto agree to notify one another of any communication from or with the Internal Revenue Service or any other taxing authority that relates in any way to the characterization of the transactions governed by this Agreement. Each of the parties hereto will file with its federal income tax return for the taxable year in which the Closing occurs (which tax return shall be timely filed) the information required by Treas. Reg. Section 1.351-3 and to provide one another upon request with a statement to the effect that such party has complied with this requirement for filing. The parties hereto also will maintain such permanent records as are required by Treas. Reg. Section 1.351-3(c). ARTICLE FOUR REPRESENTATIONS AND WARRANTIES OF SEMELE AND BSLF Semele and BSLF jointly and severally hereby represent and warrant to RMLP that the representations and warranties are true and correct as of the date of this Agreement and will be true and correct on the Closing Date (as updated by the delivery of updated Schedules on or prior to the Closing Date) as if made on that date. RMLP expressly acknowledges and agrees that the Schedules attached to this Agreement are an integral part of this Agreement and that any disclosure made on one such Schedule shall be deemed a disclosure on all such schedules. 4.1 TITLE TO SEMELE PERCENTAGE INTEREST AND BSLF PERCENTAGE INTEREST. Semele and BSLF have good, valid and marketable title to the Semele Percentage Interest and the BSLF Percentage Interest, respectively, free and clear of any security interest, pledge, mortgage, lien, charge, encumbrance, option, adverse claim or other restrictions of any kind (other than as set forth in the Partnership Agreement). Semele and BSLF have full right, power and authority to convey, contribute, transfer, assign and deliver the Semele Percentage Interest and BSLF Percentage Interest to RMLP, and upon the delivery at Closing of the deliveries and payments specified in Section 3.2, Semele and BSLF will have transferred to RMLP valid and full legal title to the Semele Percentage Interest and BSLF Percentage Interest free and clear of any liens, encumbrances, equities and adverse claims of any kind or nature. 4.2 NECESSARY AUTHORIZATION OR APPROVALS. Semele and BSLF have full power, authority and right to execute and deliver, or cause to be executed and delivered, this Agreement and the other agreements and instruments to be executed and delivered by Semele, the Limited Partnership or BSLF pursuant hereto and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Semele, BSLF and the Limited Partnership and constitutes the legal, valid and binding obligation of each of them enforceable in accordance with its terms. 4.3 ORGANIZATION, POWERS, OWNERSHIP AND ASSETS OF THE LIMITED PARTNERSHIP. The Limited Partnership is a limited partnership duly organized and validly existing under the laws of the State of Illinois and has the power to carry on its business, as such business is now being conducted, and to own, lease or operate the properties and assets it now owns, leases or operates. Except as set forth on Schedule 4.3, there are no existing options, warrants, contracts, ------------ calls, commitments, demands or other agreements of any character to which the Limited Partnership, Semele or BSLF is a party which could require the purchase or sale of any Percentage Interest, including without limitation the Semele Percentage Interest and the BSLF Percentage Interest. The Property constitutes all of the material assets of the Limited Partnership. 4.4 ORGANIZATION, POWERS, OWNERSHIP AND ASSETS OF BSLF. BSLF is a corporation duly organized, validly existing and in corporate good standing under the laws of the State of Illinois and has the power to carry on its business, as such business is now being conducted, and to own, lease or operate the properties and assets it now owns, leases or operates. BSLF's Percentage Interest in the Limited Partnership constitutes all of the material assets of BSLF. 4.5 QUALIFICATION OR LICENSING TO CARRY ON BUSINESS; SUBSIDIARIES. The Limited Partnership has not failed to qualify to do business in any jurisdiction where such qualification is required and where the failure to be so qualified would or would reasonably be likely to have a Material Adverse Effect. The Limited Partnership has not, nor has it ever had, any subsidiaries whatsoever. Additionally, except as set forth in Schedule 4.5, to the knowledge of Semele or ------------ BSLF, the Limited Partnership has never entered into any joint ventures. 4.6 LIABILITIES. (a) Schedule 4.6(a) lists all agreements, notes, instruments or other ---------------- documents relating to (i) indebtedness owed by or to the Limited Partnership and (ii) money borrowed or loaned by or to the Limited Partnership in satisfaction of obligations of or to the Limited Partnership, including but not limited to all mortgages, loan, credit, surety, guarantee, and lease-purchase arrangements or other financing agreements to which the Limited Partnership is a party; and (iii) all conditional sales contracts, chattel mortgages and other security agreements or arrangements with respect to personal property used or owned by the Limited Partnership, copies of which have been delivered or made available to RMLP. (b) Except as set forth in Schedule 4.6(b), since February 6, 2002, the only --------------- additional liabilities which have been incurred by the Limited Partnership are of such a nature as are comparable to those normally incurred in the ordinary course of business during a comparable period of operations. (c) Except as set forth in Schedule 4.6(c), the Limited Partnership is not a --------------- party to or subject to, and no property or asset of the Limited Partnership is subject to, any judgment, order, decree, stipulation or consent of or with any court, governmental body or agency which does or may have a Material Adverse Effect. 4.7 COMPLIANCE WITH LAW AND PERMITS. Except as set forth in Schedule 4.7, ------------ (a) the business of the Limited Partnership has been at all times prior to the date hereof, and is currently being operated, in compliance with all applicable governmental and regulatory laws, rules, regulations and ordinances, the non-compliance with which would or is reasonably likely to have a Material Adverse Effect, (b) the development of the Project is in compliance with all Project Requirements in all material respects; (c) all Permits (as hereinafter defined, including without limitation, all Permits required to construct and complete the Project) have been obtained and are in full force and effect, except those which the failure to obtain would not result in a Material Adverse Effect; and (d) no claim has been made in writing (or to the knowledge of Semele or BSLF) by any governmental or regulatory authority, to the effect that the business conducted by the Limited Partnership fails to comply with any law, rule, regulation or ordinance, or Project Requirements, or that a Permit is necessary with respect thereto (without such Permit having been obtained promptly after receipt of notice of any such claim). 4.8 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule 4.8(a), the location, construction, --------------- ownership, occupancy, maintenance, operation and use of the Malibu Property is in compliance with all Environmental Laws, the non-compliance with which would or is reasonably likely to have a Material Adverse Effect. (b) Except as set forth in Schedule 4.8(b), all Permits with respect to the --------------- use of the Malibu Property which are required pursuant to Environmental Laws have been obtained and the same are in full force and effect (other than any Permit where the failure to obtain such Permit or its lapse would not have a Material Adverse Effect) and there has been no change in any fact or circumstance reported or assumed in any application for or grant thereof that would or is reasonably likely to have a Material Adverse Effect on the validity of any such Permit or the renewal or transfer thereof. (c) Except as set forth in Schedule 4.8(c), (i) none of Semele, BSLF or the --------------- Limited Partnership have received (nor has Knowledge of) any Environmental Citations and (ii) to the knowledge of Semele or BSLF, no Environmental Citation is pending or, to the knowledge of Semele or BSLF, threatened under any Environmental Law concerning the past or present ownership, maintenance, operation or occupancy of the Malibu Property, or any portion thereof or concerning the Limited Partnership or which relates to Hazardous Activity or Hazardous Materials. Except as set forth in Schedule 4.8(c), neither Semele nor --------------- BSLF has been advised in writing by any governmental agency or any previous owner that any previous owner or any past operator, user or occupant of the Malibu Property has received any Environmental Citations. (d) Except as set forth in Schedule 4.8(d), the Limited Partnership has not --------------- permitted, conducted, nor is Semele, BSLF or the Limited Partnership aware of any Hazardous Activity conducted with respect to the Malibu Property in violation of, or creating any liability under, any Environmental Law the non-compliance with which or liability under would or is reasonably likely to have a Material Adverse Effect. (e) Except as set forth in Schedule 4.8(e), to the knowledge of Semele or --------------- BSLF, there are no Hazardous Materials present in the surface water, groundwater or soil (either surface or subsurface) at the Malibu Property or at any geologically or hydrologically connected property including, without limitation, any Hazardous Materials contained in barrels, above or underground storage tanks, landfills, land disposals, land treatment units, waste piles, containment buildings, dumps, solid waste management units, equipment (movable or fixed) or other containers, either temporary or permanent, and deposited or located in or on land, water, sumps, or any other part of the Malibu Property or such connected property, or incorporated into any structure thereon, in violation of, or creating any liability under, any Environmental Law the non-compliance with which or liability under would or could have a Material Adverse Effect. (f) Except as set forth in Schedule 4.8(f), the Limited Partnership has not --------------- been accused, or found liable under any Environmental Law and, to the knowledge of Semele or BSLF, the Limited Partnership is not now under investigation in respect thereof and neither the Malibu Property nor any other site or facility (as defined under CERCLA) of the Limited Partnership is listed or proposed for listing on the National Priorities List or is listed on the Comprehensive Environmental Response, Compensation, Liability Information System List or any comparable list maintained by any foreign, federal, state, regional, county or local authority. Except as set forth in Schedule 4.8(f) there are no ---------------- proceedings pending, or to the knowledge of Semele or BSLF, threatened, under any Environmental Law against or affecting the Limited Partnership or the Malibu Property in any court or before any governmental authority or arbitration board or tribunal which, if adversely determined, would or could have a Material Adverse Effect. The Limited Partnership is not in default with respect to any order of any court or governmental authority or arbitration board or tribunal relating to Environmental Laws. 4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since February 6, 2002, the business of the Limited Partnership has been conducted in the ordinary course and, except as set forth in Schedule 4.9, the Limited Partnership has not taken ------------ or suffered any action or entered into any material transaction, including but not limited to the following, except in the ordinary course of business or as contemplated by this Agreement and the transactions contemplated herein: (a) mortgaging, pledging or subjecting to lien, charge or other encumbrance any assets, or entering into any agreement resulting in the imposition of any such mortgage, lien or charge; (b) selling or purchasing, assigning or transferring any intangible property; (c) suffering any casualty losses, whether insured or uninsured, and whether or not in the control of Semele, BSLF or the Limited Partnership, in excess of $5,000 in the aggregate, or waiving any rights of any material value, individually or in the aggregate; (d) incurring any indebtedness for money borrowed or any noncurrent indebtedness for the purchase price of any fixed or capital asset; (e) other than contemplated in the Plans and Specifications, making (i) any change in properties and assets or in liabilities, (ii) any commitment for any capital expenditure, or (iii) any sale, lease or other disposition of any capital asset; (f) making any change in the Partnership Agreement; (g) (i) issuing any new Percentage Interest to a third party or (ii) granting or issuing any option or warrant for the purchase of any new Percentage Interest to a third party, or made any commitment relating thereto; (h) making any distribution or payment to Semele or BSLF; (i) amending, making or entering into any agreement with any employee, agent or consultant; (j) amending any material contract, lease or agreement listed; (k) voluntarily incurring any material obligation or liability, absolute or contingent, except pursuant to existing contracts and agreements described in this Agreement or in the schedules delivered pursuant hereto. (l) Since February 6, 2002, there has been no material adverse change in the results of operations, revenues, manner of conducting business, condition (financial or otherwise) or any material adverse change in any material asset (including, without limitation, accounts receivable) of the Limited Partnership since such date, and no event has occurred which has resulted, or which is reasonably likely to result, in a Material Adverse Effect. Neither Semele nor BSLF is aware of any event, circumstance or condition which could reasonably be expected to result in any such Material Adverse Effect. 4.10 TAX RETURNS AND LIABILITIES. The Partnership is taxed as a partnership and, as such, is a flow-through entity for tax purposes. 4.11 TITLE TO AND USE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES, ETC. (a) Except for the Malibu Property, the Limited Partnership has not owned and it does not currently own any fee interest in any real property, and the Limited Partnership, has not agreed to purchase or may be obligated to purchase any interest in any real property. There are no outstanding contracts of sale, options to purchase, rights or first refusal or rights of first offer with respect to all or any portion of the Malibu Property. (b) Except as disclosed in Schedule 4.11(b), the Limited Partnership has ---------------- good and marketable title to all of the properties and assets, real and personal, it purports to own which form a part of the business of the Limited Partnership (other than such properties and assets as shall have been sold or otherwise disposed of in the ordinary course of business) free and clear of any agreement or understanding with respect to the use or possession thereof or any rights thereto and of all liens (including, without limitation, statutory liens arising by reason of labor or materials furnished or claimed to have been furnished to the Limited Partnership or any predecessor in interest), mortgages, pledges, encumbrances, security interests, conditional sales agreements or charges of any kind or character except (i) encumbrances solely with respect to personal property incurred in the ordinary course of business which are minor in amount and do not materially impair the value or use in accordance with past practices of the assets affected thereby, or (ii) liens and encumbrances on the Property reflected in that certain ALTA Loan Policy of Title Insurance dated February 21, 2001 issued to Seller by Lawyers Title Insurance Company as Policy No. 5104950-M; and (iii) liens for current taxes and assessments not yet due and payable. (c) The Limited Partnership has the right to use all real and personal properties presently utilized in the business of the Limited Partnership that are not owned by the Limited Partnership, and it is not in material default with respect to any lease material to such business and there exists no event, occurrence, condition or act which, with the giving of notice or the lapse of time, or both, would become a default under any such lease; except where such condition would not or would not be reasonably likely to have a Material Adverse Effect. (d) To the knowledge of Semele or BSLF, except as disclosed in Schedule -------- 4.11(d), no property utilized by the Limited Partnership in its respective --- business which is not owned by the Limited Partnership is owned by any officer, - director or shareholder of Semele or any Affiliate of Semele (or any relative or spouse of any officer, director or shareholder or any relative of such spouse or any corporation, partnership, trust or other entity in which any officer, director or shareholder or any such relative or spouse has any beneficial interest). (e) To the knowledge of Semele or BSLF, neither the whole nor any portion of the Malibu Property nor any interest therein has been condemned, requisitioned or otherwise taken by any public authority and no such condemnation, requisition or taking has been threatened in writing or is contemplated. 4.12 LITIGATION AND CLAIMS. Except as set forth in Schedule 4.12, the ------------- Limited Partnership is not a party to, nor is any property or asset owned by the Limited Partnership the subject of, any suit, action, or administrative, arbitration or other proceeding (including, without limitation, proceedings concerning labor disputes or grievances or union recognition or concerning condemnation, eminent domain or the like) or government investigation or proceeding that is currently pending or which has been pending within the three (3) year period prior to the Closing Date and none of the foregoing has been threatened in writing against any of Semele, the Limited Partnership, BSLF, or the assets or properties of the Limited Partnership. 4.13 CONTRACTS AND CONTRACTUAL COMPLIANCE. (a) Schedule 4.13(a) lists a description of each written or oral contract or ---------------- agreement which will involve from and after February 6, 2002 a present commitment for the receipt or expenditure by the Limited Partnership under any of the foregoing, of monies or value equivalent to $50,000 or more during any fiscal year, including a list of all outstanding purchase and sale orders and commitments for personal property and services (but excluding purchase and sale orders or commitments for personal property or services entered into in the ordinary course of business since February 6, 2002) of the Limited Partnership. Complete and correct copies of such agreements have been made available to RMLP. Except as set forth on Schedule 4.13(a), the Limited Partnership is not in default in any material respect (and the Limited Partnership has not been notified to such effect) with respect to any obligation to be performed under any contract, lease, guaranty, indenture, loan agreement, document or other agreement or arrangement (including, without limitation, those listed or described on Schedule 4.13(a)) to which the Limited Partnership or any assets of ---------------- the Limited Partnership are subject, except where such default or defaults, individually or in the aggregate, would not have a Material Adverse Effect. (b) Except as set forth on Schedule 4.13(b), the Limited Partnership has not ---------------- guaranteed the indebtedness or obligations of any other Person, and no other Person whose obligations have been so guaranteed as disclosed on such Schedule is in default of the obligations so guaranteed, and neither Semele nor BSLF is aware of any event which, with the passage of time, the giving of notice, or both, would constitute such a default. (c) Except as set forth on Schedule 4.13(c), neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will constitute a default under any contract (including, without limitation, those listed or described on Schedules 4.13(a) and (b)) involving ------------------------- the Limited Partnership or impose any penalty upon the Limited Partnership in the performance of such contract, or accelerate the performance thereof, or result in the creation of any lien, charge or encumbrance upon any of the properties or assets of the Limited Partnership make any contract to which the Limited Partnership is a party subject to termination or cancellation, except where the imposition of such penalty, the acceleration of such performance or the creation of such lien, charge or encumbrance would not and would not be reasonably expected to create a Material Adverse Effect. (d) Except as set forth on Schedule 4.13(d), all parties with which the ---------------- Limited Partnership has contractual arrangements are, to the knowledge of Semele or BSLF, in substantial compliance therewith and are not in default (and to the knowledge of Semele or BSLF no event has occurred which, with the passage of time, the giving of notice, or both, would constitute a default) thereunder, except where such default or defaults, individually or in the aggregate, would not have a Material Adverse Effect. 4.14 INSURANCE. (a) Schedule 4.14(a) lists a summary description (including the name of the ----------------- insurer, the policy number, period of coverage, and the amount of coverage) of the coverage under all insurance policies pertaining to the operations or business of the Limited Partnership which are currently in effect, and which have been in effect within the last five years, together with the amount of the current annual premiums under such policies and copies of any written notice of possible cancellation of, or premium increases with respect to, such insurance policies. Complete and correct copies of such policies have been made available to RMLP. (b) All policies of insurance reflected on Schedule 4.14(a) are on the date ---------------- hereof and to the knowledge of Semele or BSLF will be on the Closing Date valid and enforceable in accordance with their terms and in full force and effect, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); all premiums due thereon as of the date hereof have been paid in full and all premiums which will be due thereon as of the Closing Date will have been paid as of such date. None of the insurance policies have provisions for retrospective or contingent premium charges or any waiver of premium provisions; and there are no minimum premium insurance policies or administrative service contracts for medical benefits. The Limited Partnership has not received any written notice or other written communication from any issuer of any of its insurance policies canceling or materially amending any of such policies, materially increasing any deductibles or retained amounts thereunder, or materially increasing the annual or other premiums payable thereunder, and no written threat of such cancellation, amendment or increase of deductibles, retainages or premiums has been received. 4.15 GOVERNMENT CONTRACTS. To the knowledge of Semele and BSLF, there have not been, within the past ten (10) years, and are not presently, any contracts or subcontracts to which the Limited Partnership is a party with the United States Government or any department, agency or instrumentality thereof. 4.16 ADDITIONAL INFORMATION SUPPLIED. Semele and BSLF have delivered or made available, to the extent available, to, or caused the Limited Partnership to deliver or make available, to the extent available, to, RMLP the following documents and schedules of information relating to the Limited Partnership and the business conducted by the Limited Partnership, each of which, to the knowledge of Semele and BSLF, is true, correct and complete. (A) PARTNERSHIP AGREEMENT. A copy of the Partnership Agreement, as amended to date, of the Limited Partnership, certified as true, correct and complete by an officer of the General Partner of the Limited Partnership. (B) MINUTES. Minutes of all meetings of, or other evidence of action taken by, the partners of the Limited Partnership since January 1, 1996. (C) BANK ACCOUNTS AND POWERS OF ATTORNEY, ETC. Schedule 4.16(c) lists the ---------------- name and address of each bank, together with the name and number of each account, in which the Limited Partnership has an account or safe-deposit box, the names of all persons authorized to draw thereon or to have access thereto, and the names of any persons holding powers of attorney with respect to the business of the Limited Partnership and a summary of the terms thereof. 4.17 PROJECT BUDGET. The most recent line item budget for the Project (the "Project Budget") has been made available to RMLP. To the Knowledge of Semele --------------- or BSLF, the Project Budget contains reasonable estimates by the Limited Partnership of the costs for each of the items identified therein which have yet to be completed. 4.18 ACCURACY OF INFORMATION. To the knowledge of Semele or BSLF, neither this Agreement nor any certificate, document or information furnished by Semele, BSLF or the Limited Partnership under this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. ARTICLE FIVE REPRESENTATIONS AND WARRANTIES OF RMLP RMLP represents and warrants to Semele and BSLF that the representations and warranties set forth herein are true and correct as of the date of this Agreement and will be true and correct on the Closing Date as if made on that date. RMLP further represents and warrants that to its knowledge neither this Article Five nor any information required to furnished to Semele pursuant to this Agreement by RMLP, in a certificate or otherwise, contains or will contain as of the Closing Date any untrue statement of a material fact or fails or will fail to state any material fact necessary to make the statements contained therein not misleading. 5.1 ORGANIZATION OF RMLP. RMLP is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has the full corporate power and authority to carry on its business as now being conducted. 5.2 NECESSARY AUTHORIZATION AND APPROVAL. RMLP has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby, including without limitation the authority to deliver the Promissory Note and a stock certificate representing the Common Stock to Semele in accordance with the terms hereof. This Agreement has been duly executed and delivered by RMLP and constitutes the legal, valid and binding obligation of RMLP enforceable in accordance with its terms. Other than required corporate action and filings, neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated hereby is prohibited by, or requires RMLP to obtain any consent, authorization, approval or registration under, any law, rule or regulation, other than as contemplated hereby, or any judgment, order, writ, injunction or decree, which is binding on RMLP or the terms of any contract to which RMLP or any of its Affiliates is a party. 5.3 CAPITALIZATION OF RMLP; REGISTRATION RIGHTS. The authorized capital stock of RMLP as of the Closing Date is 3,000 shares of Common Stock, $.01 par value per share ("RMLP Common Stock"). As of the date hereof, there are one ------------------ thousand (1,000) shares of RMLP Common Stock issued and outstanding in the name of PLM International Inc. There are no other outstanding rights, options, warrants, conversion rights or other agreements, orally or in writing, for the purchase or acquisition from RMLP of any of its capital stock. RMLP is not a party or subject to any agreement or understanding between any persons or entities which affects or relates to the voting or giving of written consents with respect to securities or by any director of RMLP. RMLP has not granted or agreed to grant any rights relating to registration of its capital stock under the Securities Act of 1933, as amended, or applicable state securities laws. 5.4 QUALIFICATION OR LICENSING TO CARRY ON BUSINESS. RMLP has not failed to qualify to do business in any jurisdiction where such qualification is required and where the failure to be so qualified would or would reasonably be likely to have a Material Adverse Effect. 5.5 LITIGATION AND CLAIMS. RMLP is not a party to, nor is any property or asset owned by RMLP the subject of, any suit, action, or administrative, arbitration or other proceeding (including without limitation, proceedings concerning labor disputes or grievances or union recognition or concerning condemnation, eminent domain or the like) or government investigation or proceeding that is currently pending or which has been pending within the three (3) year period prior to the Closing Date and none of the foregoing has been threatened in writing against RMLP or the assets or properties of RMLP. 5.6 LIABILITIES. Schedule 5.6 lists all agreements, notes, instruments or other documents relating to indebtedness owed by RMLP, other than the Promissory Note. ARTICLE SIX AGREEMENTS OF SEMELE, BSLF AND RMLP Semele, BSLF and RMLP agree that from and after the date of this Agreement to and until the Closing Date, and thereafter to the extent provided below, they shall take, and Semele and BSLF shall cause the Limited Partnership to take, the following actions: 6.1 CONSENTS; PRESERVATION OF BUSINESS. Semele and BSLF agree to use their best efforts to (a) obtain the necessary consents, authorizations or approvals of any governmental or other third party to the transactions contemplated hereby; and (b) preserve the business of the Limited Partnership intact and maintain or cause to be maintained satisfactory relationships with suppliers, customers and others having business relationships with the Limited Partnership which are material to the success of its business. 6.2 COURSE OF CONDUCT. Semele and BSLF agree that the business of, and all transactions by, the Limited Partnership will be conducted or entered into only in the usual and ordinary course and that neither Semele nor BSLF shall cause or permit the Limited Partnership to engage in any of the activities listed in Section 4.9(a) through (l) hereof, except as may be first approved by RMLP (which approval shall not be unreasonably withheld and shall be promptly confirmed in writing) or as is otherwise permitted or contemplated by this Agreement. 6.3 ACCESS TO MANAGEMENT, PROPERTIES AND RECORDS. Semele and BSLF shall afford or cause the Limited Partnership to afford the officers, attorneys, accountants and other authorized representatives of RMLP free and full access upon reasonable notice and during normal business hours to all senior management personnel, offices, properties, books and records of the Limited Partnership so that RMLP may have full opportunity to make such investigation as it shall desire to make of the Limited Partnership (provided that such access is not unreasonably disruptive to the normal business operations of the Limited Partnership), and RMLP shall be permitted to make abstracts from, or copies of, all such books and records. The investigation contemplated hereunder shall include but not be limited to environmental inspection and testing of soil, water and air conditions on the Malibu Property. Semele and BSLF shall cause the Limited Partnership to furnish to RMLP such financial and operating data and other information as to the Limited Partnership's assets and business as RMLP shall reasonably request. In connection therewith, RMLP shall have the right to contact and hold discussions with the Limited Partnership's suppliers and customers and the landlord of any leased premises; provided, however, that RMLP -------- ------- shall not contact any of such parties without first notifying the Limited Partnership and receiving the consent of the Limited Partnership in the first sentence of this Section 6.3, which consent shall not be unreasonably withheld or delayed, and provided further that such individual(s) shall be permitted to participate in any such discussions. RMLP shall cooperate with the Limited Partnership in structuring such contacts so as to provide minimal disruption to the Limited Partnership's relationships and business. ARTICLE SEVEN CONDITIONS OF CLOSING 7.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF RMLP HEREUNDER. The obligations of RMLP under this Agreement to deliver the Contribution Consideration in exchange for the Semele Percentage Interest and the BSLF Percentage Interest and to consummate the other transactions contemplated hereunder are subject to the fulfillment, prior to or at the Closing, of each of the following conditions, except to the extent that RMLP may waive any one or more thereof: (a) Semele's and BSLF's Representations and Warranties (as updated by the delivery of updated schedules on or prior to the Closing) shall be true, correct and complete in all material respects on and as of the Closing Date with the same effect as if said representations and warranties had been made on and as of the Closing Date and shall have been certified as such as provided in Section 3.2(c) hereof; Semele and BSLF shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by either of them prior to or at the Closing in each case, in all material respects; since February 6, 2002, there shall have been no material adverse change in the business or results of operations or condition (financial or otherwise) of the Limited Partnership that would have a Material Adverse Effect; and RMLP shall have been furnished with a certificate of each of Semele and BSLF, dated the Closing Date, certifying in such detail as RMLP may reasonably request, to the fulfillment of the foregoing conditions. (b) Except as may otherwise have been approved by RMLP in writing or as otherwise disclosed to RMLP, since February 6, 2002, the business of the Limited Partnership shall have been conducted only in the ordinary course and, without limiting the generality of the foregoing, shall have complied in all material respects with the course of conduct described in Section 6.2 hereof, and RMLP shall have been furnished with a certificate of each of Semele and BSLF, dated the Closing Date, certifying, in such detail as RMLP may reasonably request, to the fulfillment of the foregoing conditions. In this regard, Semele and BSLF shall have caused the Limited Partnership to deliver schedules supplementary to the schedules delivered pursuant to Article Four hereof, which supplementary schedules shall be dated the Closing Date and shall show the changes, if any, to the schedules delivered on or prior to the date of execution of this Agreement, and indicate the authority for each such change, if such change would otherwise be in violation of the course of conduct described in Section 6.2 hereof. (c) No consent of any governmental authority, or any other person or entity, shall be required to be made or obtained by the Limited Partnership or by Semele or BSLF in connection with the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby, except where the failure to obtain any such consents would not, individually or in the aggregate prevent Semele or BSLF from performing its obligations under this Agreement. (d) On the Closing Date: (i) there shall be no injunction, restraining order or order of any nature issued by any court of competent jurisdiction which: (x) directs that this Agreement or any material transaction contemplated hereby shall not be consummated as herein provided, (y) compels or would compel RMLP to dispose of or discontinue the business or a portion of the business of the Limited Partnership as a result of the consummation of any of the transactions contemplated hereby, or (z) imposes a fine, awards damages or imposes or awards any other monetary or non-monetary penalty or relief against RMLP or the Limited Partnership based on the transactions hereby contemplated; and (ii) there shall be no suit, action or other proceeding by any person pending before any court or governmental agency, or threatened in writing to be filed or initiated, which, in the reasonable judgment of RMLP, may result in the restraint or prohibition of the consummation of any transaction contemplated hereby or the obtaining of an amount from RMLP or the Limited Partnership in payment of damages from or other relief against any of the parties hereto or against any director or officer of RMLP or any of its Affiliates, in connection with the consummation of any transaction contemplated hereby. (e) PLM International Inc., the corporate parent of RMLP, shall have obtained all necessary approvals to authorize the transactions contemplated by this Agreement. (f) The assets of the Limited Partnership shall have been appraised by an independent appraiser and the appraised value of the assets shall be acceptable to RMLP in its sole discretion. (g) All proceedings, corporate or otherwise, to be taken by Semele or the Limited Partnership in connection with the transactions contemplated by this Agreement, and all documents incident thereto, shall be reasonably satisfactory in form and substance to RMLP, and Semele and BSLF shall have made available, or caused the Limited Partnership to make available, to counsel for RMLP all records and documents relating to the business and affairs of the Limited Partnership which such counsel may reasonably request in connection with its review as aforesaid. 7.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SEMELE HEREUNDER. All obligations of Semele and BSLF under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions, except to the extent that Semele may waive any one or more thereof: (a) The representations and warranties of RMLP contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same effect as if said representations and warranties had been made on and as of the Closing Date and shall have been certified as such as provided in Section 3.2(c) hereof; RMLP shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing; and Semele and BSLF shall have been furnished with certificates of an officer of RMLP dated the Closing Date, certifying in such detail as Semele and BSLF may reasonably request, to the fulfillment of the foregoing conditions. (b) RMLP shall have delivered the Contribution Consideration in accordance with Section 3.2(a) above. (c) All proceedings, corporate or otherwise, to be taken by RMLP in connection with the transactions contemplated by this Agreement, and all documents incident thereto, shall be reasonably satisfactory in form and substance to Semele and BSLF. (d) On the Closing Date: (i) there shall be no injunction, restraining order or order of any nature issued by any court of competent jurisdiction which directs that this Agreement or any material transaction contemplated hereby shall not be consummated as herein provided, or imposes a fine, awards damages or imposes or awards any other monetary or non-monetary penalty or relief against Semele or BSLF based on the transactions hereby contemplated; and (ii) there shall be no suit, action or other proceeding by any person pending before any court or governmental agency, or threatened to be filed or initiated, which, in the judgment of Semele or BSLF, may result in the restraint or prohibition of the consummation of any transaction contemplated hereby or the obtaining from Semele or BSLF of an amount in payment of damages from or other relief against any of the parties hereto or against any director or officer of Semele or BSLF, or any of their respective Affiliates, in connection with the consummation of any transaction contemplated hereby; and (e) Semele and BSLF shall have obtained all necessary approvals to authorize the transactions contemplated by this Agreement. ARTICLE EIGHT SURVIVAL OF SEMELE'S AND BSLF'S REPRESENTATIONS, WARRANTIES AND COVENANTS 8.1 REPRESENTATIONS AND WARRANTIES. (a) Semele's and BSLF's Representations and Warranties shall be deemed to be material to RMLP and to have been relied upon by it notwithstanding any investigation heretofore or hereafter made or omitted by it. The representations and warranties of Semele and BSLF contained in Sections 4.1, 4.2, 4.3 and 4.4 shall continue indefinitely or until the expiration of any applicable statute of limitations, and the representations and warranties of Semele and BSLF contained in Section 4.5 through the balance of the Sections in Article Four shall continue in full force and effect for a period of eighteen (18) months following the Closing Date, at which time they shall terminate except (i) as to claims which are asserted by third parties prior to such date and notice of which shall have been given by RMLP to Semele and BSLF prior to such date; and (ii) the representations and warranties set forth in Sections 4.8 and 4.11 which shall continue in full force and effect until the fifth anniversary of the Closing Date. (b) Notwithstanding the foregoing, (i) any cause of action based on fraud may be brought at any time until the expiration of the relevant statute of limitations, and (ii) any representation or warranty in respect of which indemnity may be sought shall survive the time at which it would otherwise terminate if written notice of the incorrectness or breach reciting the alleged cause of such incorrectness or breach and the Loss occasioned by such incorrectness or breach with reasonable particularity shall have been given to the party against whom such indemnity may be sought prior to such time. 8.2 SURVIVAL OF COVENANTS. All covenants made in this Agreement which by their terms are to be performed after the Closing shall survive the Closing until they are performed. ARTICLE NINE INDEMNIFICATION 9.1 GENERAL INDEMNIFICATION BY SEMELE AND BSLF. Semele and BSLF shall jointly and severally indemnify and hold the RMLP Indemnified Parties harmless against all Losses related to any breach of the representations and warranties contained in Sections 4.1, 4.2, 4.3, 4.4, 4.8 and 4.11. 9.2 SPECIFIC PROVISIONS RELATING TO INDEMNIFICATION. (a) Neither Semele nor BSLF shall have any obligation to indemnify RMLP for any voluntary assessment or remedial actions related to environmental matters for properties or operations that are the subject of this Agreement; and Semele and BSLF shall have no obligation to indemnify RMLP for any action related to environmental matters for such properties or operations that are the result of voluntary (as compared to required) actions by RMLP with respect to environmental matters, including notifications reports, examinations inspections, studies, testing or inquiries by RMLP; provided, however, that with -------- ------- the sole exception of the foregoing, Semele and BSLF shall indemnify and hold the RMLP Indemnified Parties harmless against any and all Losses arising out of any environmental liability relating in any way to the Malibu Property which was known to Semele or the Limited Partnership, or which was being investigated by a governmental authority, on or before the Closing Date, including without limitation any such environmental liability or potential liability described on the Schedules hereto, notwithstanding its inclusion thereon; and (b) All amounts to be paid to a RMLP Indemnified Party pursuant to a claim for indemnification under this Agreement shall be reduced directly by the amount of insurance proceeds paid to such RMLP Indemnified Party in connection with the circumstances giving rise to the indemnification. All such determinations shall be computed after giving effect to the present value of any tax benefit arising in favor of the RMLP Indemnified Party. 9.3 DELIVERY OF CLAIMS NOTICE. Promptly after any RMLP Indemnified Party becomes aware of Indemnity Claims such RMLP Indemnified Party shall deliver to Semele and BSLF, in the manner specified in this Agreement, a Claims Notice. 9.4 OPPORTUNITY TO DEFEND. (a) The RMLP Indemnified Parties shall give Semele and BSLF prompt written notice of claims, assertions, events or proceedings by or in respect of a third party, as to which it may request indemnification hereunder as soon as is practicable and in any event within thirty (30) days of the time that the RMLP Indemnified Parties learns of such claims, assertions, events or proceedings; provided, however, that the failure to so notify Semele and BSLF shall not ------ ------- affect rights to indemnification hereunder except to the extent that Semele and --- BSLF are actually prejudiced by such failure. Semele and BSLF shall have the right to direct, through counsel of their own choosing, the defense or settlement of any such claim or proceeding at their own expense. If Semele and BSLF elect to assume the defense of any such claim or proceeding, Semele and BSLF shall provide the RMLP Indemnified Parties with prompt notice of such assumption and the RMLP Indemnified Parties may participate in such defense, but in such case the expenses of the RMLP Indemnified Parties shall be paid by the RMLP Indemnified Parties. The RMLP Indemnified Parties shall provide Semele and BSLF with reasonable access to their records and personnel relating to any such claim, assertion, event or proceeding during normal business hours and shall otherwise cooperate with Semele in the defense or settlement thereof, and Semele and BSLF shall reimburse the RMLP Indemnified Parties for all of their reasonable out-of-pocket expenses in connection therewith. If Semele and BSLF elect to direct the defense of any such claim or proceeding, the RMLP Indemnified Parties shall not pay, or permit to be paid, any part of any claim or demand arising from such asserted liability, unless Semele and BSLF consent in writing to such payment or unless Semele and BSLF, subject to the Section 9.4(c) hereof, withdraw from the defense of such asserted liability, or unless a final judgment from which no appeal may be taken by or on behalf of Semele and BSLF is entered against any RMLP Indemnified Party for such liability. If any RMLP Indemnified Party assumes the defense of any such claim or proceeding pursuant to this Section 9.4 and proposes to settle such claim or proceeding prior to final judgment thereon or to forego appeal with respect thereto, then such RMLP Indemnified Party shall give Semele and BSLF written notice thereof, and Semele and BSLF shall have the right to participate in the settlement or assume or reassume the defense of such claim or proceeding on appeal. (b) Notwithstanding the foregoing, neither Semele nor BSLF shall be entitled to assume control or defense of a claim or proceeding (unless otherwise agreed to in writing by RMLP) and shall pay the reasonable fees and expenses of counsel retained by the RMLP Indemnified Parties if (i) the claim or proceeding relates to or arises in connection with any criminal or quasi-criminal proceeding, action, indictment, allegation or investigation; (ii) RMLP reasonably believes an adverse determination with respect to the claim or proceeding would be materially detrimental to or materially injure RMLP's reputation or the future business prospects of the Limited Partnership; (iii) the claim or proceeding seeks an injunction or equitable relief against any RMLP Indemnified Party or, the Limited Partnership; (iv) RMLP has been advised by counsel that a reasonable likelihood exists of a conflict of interest between the RMLP Indemnified Parties and the Limited Partnership on the one hand and Semele on the other as to the claim or proceeding in question (but not due to the fact that indemnification may be required hereunder); or (v) upon written request by RMLP if Semele and BSLF have failed or are failing to vigorously prosecute or defend the claim or proceeding. The RMLP Indemnified Parties shall cooperate with all reasonable requests made by Semele and BSLF relating to the compromise of, or defense against, such claim or proceeding and shall make available to Semele and BSLF any books, records, other documents or personnel within its control that are necessary or appropriate for such defense. (c) If Semele and BSLF elect to assume control of such claim or proceeding, it shall conduct such claim or proceeding in a manner reasonably satisfactory and effective to protect the RMLP Indemnified Parties fully; no compromise or settlement shall be agreed or made without RMLP's written consent which shall not be unreasonably withheld or delayed. In any case, the RMLP Indemnified Parties shall have the right to employ their own counsel and such counsel may participate in such action, but the fees and expenses of such counsel shall be at the expense of the RMLP Indemnified Parties unless RMLP shall have reasonably concluded that any of the provisions of Section 9.4(b) above are applicable. If a firm written offer is made to settle any claim against a RMLP Indemnified Party and Semele and BSLF propose to accept such settlement and RMLP refuses to consent to such settlement, then (i) Semele and BSLF shall be excused from, and RMLP shall be solely responsible for all further defense of such claim, demand, action or proceeding; (ii) the maximum liability of Semele and BSLF shall be the amount of the proposed settlement if the amount thereafter recovered from RMLP is greater than the amount of the proposed settlement, and (iii) RMLP shall pay all attorneys' fees, costs and expenses incurred after the rejection by RMLP of Semele's and BSLF's offer to settle. (d) If Semele and BSLF do not elect to assume the claim or proceeding in a manner reasonably satisfactory to protect the RMLP Indemnified Parties fully, the RMLP Indemnified Parties may engage independent counsel selected by RMLP to assume the defense and may contest, pay, settle or compromise any such claim on such terms and conditions as RMLP may determine. The fees and disbursements of such counsel shall constitute amounts for which indemnification shall be made hereunder. 9.5 TIME PERIOD FOR ASSERTING INDEMNIFICATION. A claim for indemnification pursuant to this Article must be asserted by delivery of a Claims Notice within the following periods: (a) With respect to claims based on a breach of any representation or warranty of Semele or BSLF contained herein, within the survival period for the specific representation or warranty as determined pursuant to Article 8. (b) With respect to claims based upon the nonfulfillment of any covenant or failure to perform any undertaking contained in this Agreement, on or prior to the later of (i) two (2) years after the latest date on which fulfillment of the covenant is required hereunder or (ii) the expiration of such longer period, if any, as may be specified in this Agreement with respect to any covenant or undertaking. (c) With respect to any other claims, within two (2) years following the Closing Date. ARTICLE TEN TERMINATION OF AGREEMENT PRIOR TO CLOSING DATE 10.1 TERMINATION BY EITHER SEMELE AND BSLF OR RMLP. This Agreement may be terminated by Semele and BSLF or RMLP if any party or government agency shall institute any proceeding seeking to enjoin or prevent consummation of the transactions contemplated hereby or seeking any material amount of damages as a result thereof. 10.2 TERMINATION BY SEMELE. This Agreement may be terminated by Semele and BSLF if: (a) a material default shall be made by (i) RMLP with respect to the due and timely performance of any of the covenants and agreements contained herein which is applicable to it, or (ii) RMLP with respect to due compliance with any of the representations and warranties made by it herein, and such default shall not have been cured within fifteen (15) days after delivery of notice specifying particularly such default; provided, however, that if such default shall have -------- ------- been cured, but such fifteen-day period shall not have expired, on or prior to the Closing Date, the Closing Date shall be extended accordingly; or (b) all of the conditions set forth in Section 7.2 of this Agreement shall not have been satisfied on or before the Closing Date or waived by Semele and BSLF on or before such date. 10.3 TERMINATION BY RMLP. This Agreement may be terminated by RMLP if: (a) a material default shall be made by Semele or BSLF with respect to the due and timely performance of any of its covenants and agreements contained herein, or with respect to due compliance with any of Semele's and BSLF's Representations and Warranties contained herein, and such default shall not have been cured within fifteen (15) days after delivery of notice specifying particularly such default; provided, however, that if such default shall have -------- ------- been cured, but such fifteen-day period shall not have expired, on or prior to the Closing Date, the Closing Date shall be extended accordingly; (b) all of the conditions set forth in Section 7.1 of this Agreement shall not have been satisfied by the Closing Date in all material respects, or waived by RMLP on or before such date; or (c) a Material Adverse Effect has occurred. 10.4 EFFECT OF TERMINATION. Upon any termination of this Agreement pursuant to this Article Ten, none of Semele, BSLF or RMLP shall have any liability one to the other; provided, however, that the foregoing shall not relieve any -------- ------- party of liability for any breach of its obligations hereunder. Notwithstanding the foregoing provisions of this Article Ten, no party hereto shall be entitled to exercise any right to terminate and abandon this Agreement if such party has willfully and intentionally defaulted under any provision of this Agreement or willfully and intentionally taken any action which resulted in the nonfulfillment of any condition to Closing hereunder unless such default shall have been cured and shall not be continuing at the time of the exercise of such right. ARTICLE ELEVEN MISCELLANEOUS 11.1 AMENDMENT OR WAIVER. Any party to this Agreement may waive or modify in writing any term or provision hereof existing for its benefit at any time. No such waiver, and no amendment of this Agreement, shall be effective unless contained in an instrument in writing signed by the party against whom such waiver or amendment is sought to be enforced. 11.2 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the law of the [STATE OF DELAWARE] without regard to choice of law principles which would require the application of the law of any other jurisdiction. 11.3 FURTHER ASSURANCES. The parties agree that after the Closing Date, upon the request of the other party, they will from time to time execute and deliver all such instruments and documents of further assurances as shall be necessary to effectuate the transactions contemplated in this Agreement. 11.4 FINDERS. (a) Semele and BSLF represent and warrant that neither they nor the Limited Partnership nor anyone acting on their behalf or on behalf of the Limited Partnership has made any commitment or done any other act which might result in the imposition of any liability on RMLP, the Limited Partnership for any brokerage, finder's or similar fee or commission in connection with the transactions contemplated by this Agreement. (b) RMLP represents and warrants that neither it nor anyone acting on its behalf has made any commitment or done any other act which might result in the imposition of any liability on Semele or BSLF for any brokerage, finder's or similar fee or commission in connection with the transactions contemplated by this Agreement. 11.5 NOTICES. Any and all notices and other communications hereunder shall be in writing addressed to the parties at the addresses specified below or such other addresses as either party may direct by notice given in accordance with this section, and shall be delivered in one of the following manners: (i) by personal delivery, in which case notice shall be deemed to have been duly given when delivered; (ii) by certified mail, return receipt requested, with postage prepaid, in which case notice shall be deemed to have been duly given on the date indicated on the return receipt; (iii) by reputable delivery service (including by way of example and not limitation FedEx, UPS and DHL) which makes a record of the date and time of delivery, in which case notice shall be deemed to have been duly given on the date indicated on the delivery service's record of delivery; or (iv) by fax transmission during regular business hours to the fax numbers given below, with confirmation of good receipt and confirmed by letter to the addresses set forth below, in which case notice shall be deemed to have been duly given on the date indicated in the confirmation of fax transmission: If to RMLP, to: RMLP Inc. 200 Nyala Farms Westport, CT 06880 Attention: Fax: 203-341-9988 With copies to: Nixon Peabody LLP 101 Federal Street Boston, MA 02110 Fax: 617-345-1300 Attention: Alexander J. Jordan, Jr., Esq. If to Semele, BSLF or the Limited Partnership, to: Semele Group, Inc. 200 Nyala Farms Westport, CT 06880 Attention: Fax: 203-341-9988 With copies to: Shefsky & Froelich Ltd. 444 North Michigan Avenue Chicago, IL 60611 Attention: Fax: 312-527-5921 11.6 NON-APPLICATION OF WITHHOLDING UNDER TREASURY REGULATION 1.1445-2. Semele and BSLF hereby certify under penalties of perjury, and verifies as true, that: (i) neither Semele nor BSLF is a nonresident alien, foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Code and Income Tax Regulations) for purposes of U.S. income taxation; (ii) Semele's and BSLF's U.S. taxpayer identification number (social security number or employer identification number) is shown on Annex A; ------- and (iii) Semele's and BSLF's business address is set forth in Section 11.5 hereof. Semele and BSLF understands that this certification may be disclosed to the Internal Revenue Service by RMLP and that any false statement could be punished by fine, imprisonment, or both. 11.7 ARTICLE, SECTION AND PARAGRAPH HEADINGS. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.8 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.9 SUCCESSORS AND ASSIGNS. The respective rights and obligations of the parties hereto shall not be assignable without the prior written consent of the other parties, except that RMLP may assign its rights and obligations hereunder to any wholly-owned Affiliate of RMLP. This Agreement shall be binding upon and inure to the benefit of the heirs, distributees, successors and assigns of the parties hereto. Nothing herein contained is intended to confer upon any person, other than the parties hereto and their respective permitted successors, assigns and nominees, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 11.10 EXPENSES. Except as otherwise expressly provided herein, Semele, BSLF and RMLP will pay all of their own expenses (including attorneys' and accountants' fees) in connection with the negotiation of this Agreement, the performance of their respective obligations hereunder and the consummation of the transactions contemplated by this Agreement (whether consummated or not). 11.11 ENTIRE AGREEMENT. This Agreement, including the Exhibits and Annexes hereto and the Schedules referred to herein, constitutes the entire agreement between the parties hereto and supersedes all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, with respect to the subject matter hereof. None of the parties hereto shall be bound by or charged with any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings not specifically set forth in this Agreement and the Schedules, Exhibits and Annexes or in the schedules, documents and instruments to be delivered on or before the Closing Date pursuant to this Agreement. The parties hereto further acknowledge and agree that, in entering into this Agreement and in delivering the schedules, documents and instruments to be delivered on or before the Closing Date they have not in any way relied, and will not in any way rely, upon any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings, express or implied, not specifically set forth in this Agreement or in such schedules, documents or instruments. [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY.] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. RMLP INC. BMIF/BSLF II RANCHO MALIBU LIMITED PARTNERSHIP By: By: BSLF II RANCHO MALIBU CORP., its General Partner Print Name: By: Its: Print Name: Its: SEMELE GROUP INC. BSLF II RANCHO MALIBU CORP. By: _________________________________ By: ________________________________ Print Name: __________________________ Print Name: _________________________ Its: _________________________________ Its: ________________________________ ANNEX A PERCENTAGE INTERESTS NAME, ADDRESS AND TAXPAYER IDENTIFICATION NUMBER ------------------------------------------------------ PERCENTAGE INTEREST -------------------- BSLF II Rancho Malibu Corp. 73.95% ------ Semele Group Inc. 200 Nyala Farms Westport, CT 06880 1.05% ----- C&D IT LLC 25.00% ------ ANNEX B C & D IT LLC OPERATING AND JOINT VENTURE AGREEMENT ------------------------------------- This Operating and Joint Venture Agreement (this "Agreement") of C & D IT LLC (the "Company") is made as of March 1, 2002, by and between the persons identified as the Members on Schedule A attached hereto (such persons and their ---------- respective successors in office or in interest being hereinafter referred to individually as a "Member" or collectively as the "Members"). WHEREAS, the Managing Trustee of AFG Investment Trust C and AFG Investment Trust D has determined that a joint investment by the trusts through a joint venture entity in BMIF/BSLF II Rancho Malibu Limited Partnership would be in the best interest of the respective trusts; WHEREAS, the Members of the Company desire that PLM International, Incorporated, a jointly-owned, indirect subsidiary of the Members, through a to-be-organized subsidiary (the "Acquisition Sub") enter into a contribution agreement with Semele Group, Inc. ("Semele") and the Acquisition Sub, BSLF II Rancho Malibu Corp. ("BSLF") by which the Acquisition Sub will contribute consideration to Semele in exchange for all of Semele's limited partnership interest in BMIF/BSLF II Rancho Malibu Limited Partnership ("RM Limited Partnership") and all of the capital stock of BSLF, the general Partner of RM Limited Partnership (the "RMLP Closing"); WHEREAS, the Members of the Company will obtain the approval of their respective beneficiaries to said contribution through the solicitation of consents and such solicitations will take several months to accomplish and may not be successful; WHEREAS, Semele will not defer taking other action with respect to its interests in RM Limited Partnership without a $2 million financial commitment from the Members during the period of time before the Members receive the consents of their respective beneficiaries; WHEREAS, the Members have determined to contribute $1 million each to the Company; WHEREAS, the Members have directed the Company to contribute $2 million to RM Limited Partnership in exchange for a general partnership interest in RM Limited Partnership that (a) gives the Company rights as a co-managing general partner, and (b) is subject to a "claw back" right that requires the refund of said $2 million contribution in the event that (i) said consents of the Members' beneficiaries are not obtained by the deadline for such consents, or (ii) the RMLP Closing has not occurred within 45 days after the date the forms of consents must be received by the Members, which claw back right shall be secured by the pledge of a security interest by Semele of all of its capital stock in BSLF, its limited partnership interest in RM Limited Partnership and all of the assets of RM Limited Partnership; B-1 WHEREAS, the Company was formed as a limited liability company under the Delaware Limited Liability Company Act (as amended from time to time, the "Act") pursuant to the Certificate of Formation of the Company dated March 1, 2002 (the "Certificate of Formation"); WHEREAS, the Members desire to engage in a joint venture which will act as a co-managing general partner of RM Limited Partnership; WHEREAS, the Members will actively manage the joint venture and will act as the initial Managers of the Company (each Member in its capacity as Manager referred to herein as a "Manager" and, collectively, the "Managers"), although the Members intend to reserve the right in the future to appoint Managers who are not Members; and WHEREAS, the Members wish to set out fully their respective rights, obligations and duties regarding the Company, its assets and liabilities and the joint venture; NOW, THEREFORE, in consideration of the mutual covenants expressed herein, the parties hereby agree as follows: ARTICLE I Organization and Powers 1.1. Organization. The Company has been formed by the filing of its ------------ Certificate of Formation (as amended from time to time, the "Certificate" or the "Certificate of Formation") with the Delaware Secretary of State pursuant to the Act. The Certificate of Formation may be restated by the Managers as provided in the Act or amended by the Managers to change the address of the office of the Company in Delaware and the name and address of its resident agent in Delaware or to make corrections required by the Act. Other additions to or amendments of the Certificate of Formation shall be authorized by the Members as provided in Section 10.4. 1.2. Purposes and Powers. The Company shall have authority to engage in any ------------------- lawful business, trade, purpose or activity permitted by the Act, and it shall possess and may exercise all of the powers and privileges granted by the Act and any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business, purposes or activities of the Company, including without limitation the following powers: (a) to conduct its business and operations in any state, territory or possession of the United States or in any foreign country or jurisdiction; (b) to purchase, receive, take, lease or otherwise acquire, own, hold, improve, maintain, use or otherwise deal in and with, sell, convey, lease, exchange, transfer or otherwise dispose of, mortgage, pledge, encumber or create a security interest in all or any of its real or personal property, or any interest therein, wherever situated; (c) to borrow or lend money or obtain or extend credit and other financial accommodations, to invest and reinvest its funds in any type of security or obligation of or interest in any public, private or governmental entity, and to give and receive interests in real and personal property as security for the payment of funds so borrowed, loaned or invested; (d) to make contracts, including contracts of insurance, incur liabilities and give guaranties, whether or not such guaranties are in furtherance of the business and purposes of the Company, including without limitation guaranties of obligations of other persons who are interested in the Company or in whom the Company has an interest; (e) to appoint one or more Managers of the Company, to employ officers, employees, agents and other persons, to fix the compensation and define the duties and obligations of such personnel, to establish and carry out retirement, incentive and benefit plans for such personnel and to indemnify such personnel to the extent permitted by this Agreement and the Act; (f) to make donations irrespective of benefit to the Company for the public welfare or for community, charitable, religious, educational, scientific, civic or similar purposes; (g) to institute, prosecute and defend any legal action or arbitration proceeding involving the Company, and to pay, adjust, compromise, settle or refer to arbitration any claim by or against the Company or any of its assets; and (h) to be a partner in one or more partnerships or a member or manager in one or more limited liability companies. Notwithstanding the foregoing, however, the Company shall not have the authority to engage in any business, trade, purpose or activity or exercise any power or privilege that (i) exceeds the authority, rights, privileges or powers conferred to any Member in such Member's charter documents, or (ii) contravenes or conflicts with the charter documents of any Member. 1.3. Principal Place of Business. The principal office and place of ------------------------------ business of the Company shall initially be 200 Nyala Farms, Westport, CT 06880. The Members may change the principal office or place of business of the Company at any time and may cause the Company to establish other offices or places of business. 1.4. Fiscal Year. The fiscal year of the Company shall end on December 31 ------------ in each year. 1.5. Qualification in Other Jurisdictions. The Managers shall cause the --------------------------------------- Company to be qualified or registered under applicable laws of any jurisdiction in which the Company transacts business and shall be authorized to execute, deliver and file any certificates and documents necessary to effect such qualification or registration, including without limitation the appointment of agents for service of process in such jurisdictions. ARTICLE II Members 2.1. Members. The initial Members of the Company and their addresses shall ------- be listed on Schedule A and such Schedule shall be amended from time to time by ---------- the Managers to reflect the withdrawal of Members or the admission of new or additional Members pursuant to this Agreement. Schedule A shall set forth the ---------- percentage interest which each Member holds in the profits and losses of the Company (the "Membership Interests"). The Members shall constitute a single class or group of Members of the Company for all purposes of the Act, unless otherwise expressly provided herein. The Managers shall notify the Members of changes in Schedule A, which shall constitute the record list of the Members for ---------- all purposes of this Agreement. 2.2. Admission of New Members. Additional persons may be admitted to the --------------------------- Company as Members and may participate in the profits, losses, distributions, allocations and capital contributions of the Company upon such terms as are established by the Managers, which may include the establishment of classes or groups of one or more Members having different relative rights, powers and duties, or the right to vote as a separate class or group on specified matters, by amendment of this Agreement under Section 10.4. Existing Members shall have no preemptive or similar right to subscribe to the purchase of new membership interests in the Company. 2.3. Meetings of Members. --------------------- (a) Meetings of Members may be called for any proper purpose at any time by the Managers or by any Member. The Managers or the Members calling the meeting shall determine the date, time and place of each meeting of Members, and written notice thereof shall be given by the Managers to each Member not less than seven (7) days nor more than sixty (60) days prior to the date of the meeting. Notice shall be sent to Members of record on the date when the meeting is called. The business of each meeting of Members shall be limited to the purposes described in the notice. A written waiver of notice, executed before or after a meeting by a Member or its authorized attorney and delivered to the Managers, shall be deemed equivalent to notice of the meeting. (b) All Members must be present for the transaction of any business at a meeting of Members. Members may attend a meeting in person or by proxy. Members may also participate in a meeting by means of conference telephone or similar communications equipment that permits all Members present to hear each other. If less than all of the Members are present, the meeting may be adjourned by the chairman to a later date, time and place, and the meeting may be held as adjourned without further notice. When an adjourned meeting is reconvened, any business may be transacted that might have been transacted at the original meeting. (c) A chairman selected by the Managers shall preside at all meetings of the Members unless the Members elect a Member to act as a chairman of the meeting. The chairman shall determine the order of business and the procedures to be followed at each meeting of Members. 2.4. Action Without a Meeting. There is no requirement that the Members --------------------------- hold a meeting in order to take action on any matter. Any action required or permitted to be taken by the Members may be taken without a meeting if one or more written consents to such action shall be signed by Members holding all of the Membership Interests in the Company. Such written consents shall be delivered to the Managers at the principal office of the Company and unless otherwise specified shall be effective on the date when the first consent is so delivered. The Managers shall give prompt notice to all Members who did not consent to any action taken by written consent of Members without a meeting. 2.5. Voting Rights. All actions, approvals and consents to be taken or -------------- given by the Members under the Act, this Agreement or otherwise shall require the affirmative vote or written consent of all Members. 2.6. Limitation of Liability of Members. Except as otherwise provided in ------------------------------------- the Act, no Member of the Company shall be obligated personally for any debt, obligation or liability of the Company or of any other Member, whether arising in contract, tort or otherwise, solely by reason of being a Member of the Company. Except as otherwise provided in the Act, by law or expressly in this Agreement, no Member shall have any fiduciary or other duty to another Member with respect to the business and affairs of the Company, and no Member shall be liable to the Company or any other Member for acting in good faith reliance upon the provisions of this Agreement. Subject to Section 7.2, no Member shall have any responsibility to restore any negative balance in its Capital Account (as defined in Section 6.1) or to contribute to or in respect of the liabilities or obligations of the Company or return distributions made by the Company except as required by the Act or other applicable law; provided, however, that Members are -------- ------- responsible for their failure to make required Contributions under Section 6.2. The failure of the Company to observe any formalities or requirements relating to the exercise of its powers or the management of its business or affairs under this Agreement or the Act shall not be grounds for making its Members or Managers responsible for the liabilities of the Company. 2.7. Authority. Unless specifically authorized by the Managers, no Member --------- that is not a Manager shall be an agent of the Company or have any right, power or authority to act for or to bind the Company or to undertake or assume any obligation or responsibility of the Company or of any other Member. 2.8. No Right to Withdraw; No Appraisal Rights. No Member shall have any -------------------------------------------- right to resign or withdraw from the Company without the consent of the other Members or to receive any distribution or the repayment of its capital contribution except as provided in Section 7.2 and Article IX upon dissolution and liquidation of the Company. No Member shall have any right to have the fair value of its Membership Interest in the Company appraised and paid out upon the resignation or withdrawal of such Member or any other circumstances. 2.9. Rights to Information. Members shall have the right to receive from ----------------------- the Managers upon request a copy of the Certificate and of this Agreement, as amended from time to time, and such other information regarding the Company as is required by the Act, subject to reasonable conditions and standards established by the Managers, as permitted by the Act, which may include without limitation withholding or restricting the use of confidential information. ARTICLE III Management ---------- 3.1. Managers. The Members shall be the initial Managers of the Company -------- hereunder. The names and addresses of the Managers shall be listed on Schedule -------- A which shall be amended from time to time by the Managers to reflect the resignation or removal of Managers or the appointment of new or additional Managers pursuant to this Agreement. 3.2. Qualification. Each Manager shall actively devote such time to the ------------- business and affairs of the Company as is reasonably necessary for the performance of such Manager's duties, but shall not be required to devote exclusive efforts to the performance of such duties and may delegate its responsibilities as provided in Section 3.3. A Manager need not be a Member. 3.3. Powers and Duties of the Managers. The business and affairs of the ------------------------------------- Company shall be managed under the direction of the Managers, who shall have and may exercise on behalf of the Company all of its rights, powers, duties and responsibilities under Section 1.2 or as provided by law, including without limitation the right and authority: (a) to manage the business and affairs of the Company and for this purpose to employ, retain or appoint any officers, employees, consultants, agents, brokers, professionals or other persons in any capacity for such compensation and on such terms as the Managers deem necessary or desirable and to delegate to such persons such of their duties and responsibilities as the Managers shall determine; (b) to enter into, execute, deliver, acknowledge, make, modify, supplement or amend any documents or instruments in the name of the Company; (c) to borrow money or otherwise obtain credit and other financial accommodations on behalf of the Company on a secured or unsecured basis as provided in Section 1.2(c), and to perform or cause to be performed all of the Company's obligations in respect of its indebtedness and any mortgage, lien or security interest securing such indebtedness; and (d) to make elections and prepare and file returns regarding any federal, state or local tax obligations of the Company. Unless otherwise provided in this Agreement, any action taken by a Manager, and the signature of a Manager on any agreement, contract, instrument or other document on behalf of the Company, shall be sufficient to bind the Company and shall conclusively evidence the authority of that Manager and the Company with respect thereto. 3.4. Tax Matters Partner. The Members shall serve as the "Tax Matters --------------------- Partners" of the Company for purposes of Section 6231(a)(7) of the Internal Revenue Code of 1986, as amended (the "Code"), with power to manage and represent the Company in any administrative proceeding of the Internal Revenue Service. 3.5. Reliance by Third Parties. Any person dealing with the Company, the ---------------------------- Managers or any Member may rely upon a certificate signed by any Manager as to (i) the identity of any Manager or Member; (ii) any factual matters relevant to the affairs of the Company; (iii) the persons who are authorized to execute and deliver any document on behalf of the Company; or (iv) any action taken or omitted to be taken by the Company, the Managers or any Member. 3.6. Resignation and Removal. Any Manager may resign upon at least sixty ------------------------- (60) days' notice to the Members and the other Managers (unless notice is waived by them). Any Manager may be removed at any time with or without cause by the Members. 3.7. Meetings and Action of Managers. Unless otherwise determined by the ---------------------------------- Members or Managers, all action to be taken by the Managers shall be taken by majority vote or written consent of a majority of the Managers then in office. There is no requirement that the Managers hold a meeting in order to take action on any matter. Meetings of the Managers may be called by any Manager. If action is to be taken at a meeting of the Managers, notice of the time, date and place of the meeting shall be given to each Manager by an officer or the Manager calling the meeting by personal delivery, telephone or fax sent to the business or home address of each Manager at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to each Manager at either such address at least seventy-two (72) hours in advance of the meeting; however, no notice need be given to a Manager who waives notice before or after the meeting, or who attends the meeting without protesting at or before its commencement the inadequacy of notice to him or her. Managers may also attend a meeting in person or by proxy, and they may also participate in a meeting by means of conference telephone or similar communications equipment that permits all Managers present to hear each other. A chairman selected by the Managers shall preside at all meetings of the Managers. The chairman shall determine the order of business and the procedures to be followed at each meeting of the Managers. 3.8. Compensation. Each Manager may receive such compensation for his ------------ services and benefits as may be approved from time to time by the Members. In addition, the Managers shall be entitled to reimbursement for out-of-pocket expenses incurred by them in connection with the performance of their duties for the Company. 3.9. Limitation of Liability of Manager. No Manager shall be obligated -------------------------------------- personally for any debt, obligation or liability of the Company or of any Member, whether arising in contract, tort or otherwise, solely by reason of being or acting as Manager of the Company. No Manager shall be personally liable to the Company or to its Members for breach of any fiduciary or other duty that does not involve (i) a breach of the duty of loyalty to the Company or its Members, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iii) a transaction from which the Manager derived an improper personal benefit. ARTICLE IV Indemnification --------------- 4.1. Definitions. For purposes of this Article IV: ----------- (a) "Manager" includes (i) a person serving as a Manager of the Company or in a similar executive capacity appointed by the Managers and exercising rights and duties delegated by the Managers, (ii) a person serving at the request of the Company as a director, Manager, officer, employee or other agent of another organization, and (iii) any person who formerly served in any of the foregoing capacities; (b) "expenses" means all expenses, including attorneys' fees and disbursements, actually and reasonably incurred in defense of a proceeding or in seeking indemnification under this Article, and except for proceedings by or in the right of the Company or alleging that a Manager received an improper personal benefit, any judgments, awards, fines, penalties and reasonable amounts paid in settlement of a proceeding; and (c) "proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and any claim which could be the subject of a proceeding. 4.2. Right to Indemnification. Except as limited by law and subject to the ------------------------- provisions of this Article, the Company shall indemnify each of its Managers against all expenses incurred by them in connection with any proceeding in which a Manager is involved as a result of serving in such capacity, except that no indemnification shall be provided for a Manager regarding any matter as to which it shall be finally determined that such Manager did not act in good faith and in the reasonable belief that its action was in the best interests of the Company. Subject to the foregoing limitations, such indemnification may be provided by the Company with respect to a proceeding in which it is claimed that a Manager received an improper personal benefit by reason of its position, regardless of whether the claim arises out of the Manager's service in such capacity, except for matters as to which it is finally determined that an improper personal benefit was received by the Manager. 4.3. Award of Indemnification. The determination of whether the Company is ------------------------- authorized to indemnify a Manager hereunder and any award of indemnification shall be made in each instance (a) by a majority of the Managers who are not parties to the proceeding in question, (b) by independent legal counsel appointed by the Managers or the Members or (c) by the holders of all of the Membership Interests of the Members who are not parties to the proceeding in question. The Company shall be obliged to pay indemnification applied for by a Manager unless there is an adverse determination (as provided above) within forty-five (45) days after the application. If indemnification is denied, the applicant may seek an independent determination of its right to indemnification by a court, and in such event, the Company shall have the burden of proving that the applicant was ineligible for indemnification under this Article. Notwithstanding the foregoing, in the case of a proceeding by or in the right of the Company in which a Manager is adjudged liable to the Company, indemnification hereunder shall be provided to such Manager only upon a determination by a court having jurisdiction that in view of all the circumstances of the case, such Manager is fairly and reasonably entitled to indemnification for such expenses as the court shall deem proper. 4.4. Successful Defense. Notwithstanding any contrary provisions of this ------------------- Article, if a Manager has been wholly successful on the merits in the defense of any proceeding in which it was involved by reason of its position as Manager or as a result of serving in such capacity (including termination of investigative or other proceedings without a finding of fault on the part of the Manager), the Manager shall be indemnified by the Company against all expenses incurred by the Manager in connection therewith. 4.5. Advance Payments. Except as limited by law, expenses incurred by a ----------------- Manager in defending any proceeding, including a proceeding by or in the right of the Company, shall be paid by the Company to the Manager in advance of final disposition of the proceeding upon receipt of its written undertaking to repay such amount if the Manager is determined pursuant to this Article or adjudicated to be ineligible for indemnification, which undertaking shall be an unlimited general obligation but need not be secured and may be accepted without regard to the financial ability of the Manager to make repayment; provided, however, that -------- ------- no such advance payment of expenses shall be made if it is determined pursuant to Section 4.3 of this Article on the basis of the circumstances known at the time (without further investigation) that the Manager is ineligible for indemnification. 4.6. Insurance. The Company shall have power to purchase and maintain --------- insurance on behalf of any Manager, officer, agent or employee against any liability or cost incurred by such person in any such capacity or arising out of its status as such, whether or not the Company would have power to indemnify against such liability or cost. 4.7. Heirs and Personal Representatives. The indemnification provided by ------------------------------------- this Article shall inure to the benefit of the heirs, personal representatives, successors and assigns of each Manager. 4.8. Non-Exclusivity. The provisions of this Article shall not be construed --------------- to limit the power of the Company to indemnify its Managers, Members, officers, employees or agents to the full extent permitted by law or to enter into specific agreements, commitments or arrangements for indemnification permitted by law. The absence of any express provision for indemnification herein shall not limit any right of indemnification existing independently of this Article. 4.9. Amendment. The provisions of this Article IV may be amended or --------- repealed in accordance with Section 10.5; provided, however, that no amendment -------- ------- or repeal of such provisions that adversely affects the rights of a Manager under this Article IV with respect to its acts or omissions at any time prior to such amendment or repeal shall apply to such Manager without its consent. ARTICLE V Conflicts of Interest --------------------- 5.1. Transactions with Interested Persons. Unless prohibited by the charter ------------------------------------ documents of any Member and unless entered into in bad faith, no contract or transaction between the Company and one or more of its Managers or Members, or between the Company and any other corporation, partnership, association or other organization in which one or more of its Managers or Members have a financial interest or are directors, partners, Managers or officers, shall be voidable solely for this reason or solely because such Manager or Member was present or participated in the authorization of such contract or transaction if: (a) the material facts as to the relationship or interest of such Manager or Member and as to the contract or transaction were disclosed or known to the other Managers (if any) or Members and the contract or transaction was authorized by the disinterested Managers (if any) or Members; or (b) the contract or transaction was fair to the Company as of the time it was authorized, approved or ratified by the disinterested Managers (if any) or Members; and no Manager or Member interested in such contract or transaction, because of such interest, shall be considered to be in breach of this Agreement or liable to the Company, any Manager or Member, or any other person or organization for any loss or expense incurred by reason of such contract or transaction or shall be accountable for any gain or profit realized from such contract or transaction. ARTICLE VI Capital Accounts and Contributions ---------------------------------- 6.1. Capital Accounts. ----------------- (a) There shall be established on the books of the Company a separate capital account (a "Capital Account") for each Member. (b) The Capital Account of each Member (regardless of the time or manner in which such Member's interest was acquired) shall be maintained in accordance with the rules of Section 704(b) of the Internal Revenue Code of 1986, as amended, from time to time (the "Code"), and Treasury Regulation Section 1.704-1(b)(2)(iv). Adjustments shall be made to the Capital Accounts for distributions and allocations as required by the rules of Section 704(b) of the Code and the Treasury Regulations thereunder. (c) If there is a transfer of all or a part of an interest in the Company by a Member, the Capital Account of the transferor that is attributable to the transferred interest shall carry over to the transferee of such Member. (d) Subject to Section 7.2, notwithstanding any other provision contained herein to the contrary, no Member shall be required to restore any negative balance in its Capital Account. 6.2. Contributions. Each Member shall make the contributions to the capital ------------- of the Company (herein "Contributions") specified on Schedule A. All ----------- Contributions shall be paid in cash unless otherwise specified on Schedule A or ---------- agreed to by the Members. Except as set forth on Schedule A, no Member or ---------- Manager shall be entitled or required to make any contribution to the capital of the Company unless approved by all Managers and Members; however, the Company may borrow from its Members as well as from banks or other lending institutions to finance its working capital or the acquisition of assets upon such terms and conditions as shall be approved by the Managers, and any such borrowing from Members shall not be considered Contributions or reflected in their Capital Accounts. The value of all non-cash Contributions made by Members shall be set forth on Schedule A. No Member shall be entitled to any interest or ----------- compensation with respect to its Contribution or any services rendered on behalf -- of the Company except as specifically provided in this Agreement or approved by the Managers. No Member shall have any liability for the repayment of the Contribution of any other Member and each Member shall look only to the assets of the Company for return of its Contribution. ARTICLE VII Profits, Losses and Distributions --------------------------------- 7.1. Profits, Losses and Distributions. ------------------------------------ (a) All profits and losses arising from the normal course of business operations or otherwise and all cash available for distribution from whatever source, commencing with the date of this Agreement, shall be allocated or distributed to the Members according to their Membership Interests. (b) All profits and losses allocated to the Members shall be credited or charged, as the case may be, to their Capital Accounts. The terms "profits" and "losses" as used in this Agreement shall mean income and losses, and each item of income, gain, loss, deduction or credit entering into the computation thereof, as determined in accordance with the accounting methods followed by the Company and computed in a manner consistent with Treasury Regulation Section 1.704-1(b)(2)(iv). Profits and losses for Federal income tax purposes shall be allocated in the same manner as profits and losses for purposes of this Article VII, except as provided in Section 7.3(a). 7.2. Distributions Upon Dissolution. -------------------------------- (a) Upon dissolution and termination, after payment of, or adequate provision for, the debts and obligations of the Company, the remaining assets of the Company (or the proceeds of sales or other dispositions in liquidation of the Company assets, as may be determined by the remaining or surviving Member(s)) shall be distributed to the Members in accordance with the positive balances in their Capital Accounts after taking into account all Capital Account adjustments for the Company taxable year. In the event that a Member has a negative balance in his Capital Account following the liquidation of the Company or his interest in the Company after taking into account all Capital Account adjustments for the Company taxable year in which the liquidation occurs, such Member shall pay to the Company in cash an amount equal to the deficit balance in the Capital Account of such Member. (b) With respect to assets distributed in kind to the Members in liquidation or otherwise, (i) any unrealized appreciation or unrealized depreciation in the values of such assets shall be deemed to be profits and losses realized by the Company immediately prior to the liquidation or other distribution event; and (ii) such profits and losses shall be allocated to the Members and credited or charged to their Capital Accounts, and any property so distributed shall be treated as a distribution of an amount in cash equal to the excess of such fair market value over the outstanding principal balance of and accrued interest on any debt by which the property is encumbered. For the purposes of this Section 7.2(b), "unrealized appreciation" or "unrealized depreciation" shall mean the difference between the fair market value of such assets, taking into account the fair market value of the associated financing but subject to Section 7701(g) of the Code, and the Company's basis in such assets as determined under Treasury Regulation Section 1.704-1(b). This Section 7.2(b) is merely intended to provide a rule for allocating unrealized gains and losses upon liquidation or other distribution event, and nothing contained in this Section 7.2(b) or elsewhere in this Agreement is intended to treat or cause such distributions to be treated as sales for value. The fair market value of such assets shall be determined by an appraiser to be selected by the Manager with the Consent of the Members. 7.3. Special Provisions. ------------------- Notwithstanding the foregoing provisions in this Article VII: (a) Income, gain, loss and deduction with respect to Company property which has a variation between its basis computed in accordance with Treasury Regulation Section 1.704-(b) and its basis computed for Federal income tax purposes shall be shared among Members so as to take account of the variation in a manner consistent with the principles of Section 704(c) of the Code and Treasury Regulation Section 1.704-3. (b) Section 704 of the Code and the Treasury Regulations issued thereunder, including but not limited to the provisions of such regulations addressing qualified income offset provisions, minimum gain chargeback requirements and allocations of deductions attributable to nonrecourse debt and partner nonrecourse debt, are hereby incorporated by reference into this Agreement. 7.4. Distribution of Assets in Kind. No Member shall have the right to ---------------------------------- require any distribution of any assets of the Company to be made in cash or in kind. If the Managers determine to distribute assets of the Company in kind, such assets shall be distributed on the basis of their fair market value as determined by the Managers. Any Member entitled to any interest in such assets shall, unless otherwise determined by the Managers, receive separate assets of the Company, and not an interest as tenant-in-common with other Members so entitled in each asset being distributed. Distributions in kind need not be made on a pro-rata basis but may be made on any basis which the Managers determine to be reasonable under the circumstances. ARTICLE VIII Transfers of Interests ---------------------- 8.1. Transfer of a Member's Membership Interest. Subject to the provisions ------------------------------------------- of this Article VIII, each Member may sell, assign, give, pledge, hypothecate, encumber or otherwise transfer, including, without limitation, any assignment or transfer by operation of law or by order of court, such Member's Membership Interest in the Company, with the consent of the other Members and the Managers (which may not be unreasonably withheld or delayed). 8.2. Death, Incompetence, Dissolution of a Member. If a Member dies, such ---------------------------------------------- Member's executor, administrator, or trustee, or, if he or she is adjudicated incompetent, such Member's guardian, or, if it is a corporation, trust, limited liability company or partnership and is dissolved, the liquidator, shall automatically become an assignee (the "Assignee") of the Membership Interest of the deceased, incompetent, or dissolved Member. The Assignee may receive distributions and shall have all the rights of a Member for the purpose of settling or managing such deceased or incompetent Member's estate, but shall not be a Member and shall not have the power to vote such Member's Membership Interest. The Assignee shall also have such power as the decedent, incompetent or dissolved entity possessed: (1) to assign all or any part of the Member's Membership Interest subject to Section 8.1; and (2) to satisfy conditions precedent to the assignment of the Membership Interest set forth in Section 8.1. 8.3. Admission of Member; Effect of Transfer. -------------------------------------------- (a) If the transferee of any Member is admitted as a Member or is already a Member, the Member transferring its Membership Interest shall be relieved of liability with respect to the transferred Membership Interest arising or accruing under this Agreement on or after the effective date of the transfer, unless the transferring Member (the "Transferring Member") affirmatively assumes such liability; provided, however, that the Transferring Member shall not be -------- ------- relieved of any liability for prior distributions and unpaid contributions unless the transferee affirmatively assumes such liabilities. (b) Any person who acquires in any manner a Membership Interest or any part thereof in the Company, whether or not such person has accepted and assumed in writing the terms and provisions of this Agreement or been admitted as a Member, shall be deemed by the acquisition of such Membership Interest to have agreed to be subject to and bound by all of the provisions of this Agreement with respect to such Membership Interest, including without limitation, the provisions hereof with respect to any subsequent transfer of such Membership Interest. 8.4 Right of First Refusal. All or any part of a Member's Interest in ----------------------- the Company proposed to be transferred by a Member shall be subject to the right of first refusal contained in this Section 8.4: (a) Notice of Proposed Transfer. The Transferring Member, prior to ------------------------------ making any proposed transfer of all or any part of such Transferring Member's Membership Interest in the Company, shall first give written notice to the other Members of the proposed transfer and the terms of the proposed transfer (such notice being hereinafter referred to as the "First Offer Notice"). Such First Offer Notice shall constitute an offer by the Transferring Member to sell to the other Members all, but not less than all, of the Membership Interest in the Company that the Transferring Member proposes to transfer (the "Offered Interest") upon the terms and conditions set forth in the First Offer Notice. The last of the dates on which, pursuant to the provisions of Section 10.2, the First Offer Notice is deemed to be given to the Members is hereinafter referred to as the "Notice Date." Those non-transferring Members desiring to purchase all or a portion of the Offered Interest shall agree among themselves as to the portion of the Offered Interest to be purchased by each. In the absence of such an agreement, each non-transferring Member desiring to purchase all or a portion of the Offered Interest shall be entitled to purchase a portion of the Offered Interest in the same ratio as the percentage of Membership Interests held by such non-transferring Member holds relative to the collective percentage of Membership Interests held by all non-transferring Members desiring to purchase all or a portion of the Offered Interest. (b) Notice of Acceptance. The non-transferring Members shall have ---------------------- sixty (60) days from the Notice Date to purchase the Offered Interest. Such election shall be exercised by the giving of notice of such exercise to the Transferring Member. No such exercise shall be valid unless said option to purchase has been exercised with respect to the entire Offered Interest. (c) Acceptance of Offer; Closing. Upon the acceptance by all or some of the ---------------------------- non-transferring Members of the Transferring Member's offer, the transfer of the Offered Interest from the Transferring Member to the purchasing Member(s) (the "Purchasing Member(s)") shall be closed and consummated in the principal office of the Company, on or before 11:00 A.M. local time on the ninetieth (90th) day following the Notice Date (or, if such day is not a business day, the business day next following such day). At such closing, the Transferring Member shall execute and deliver all documents and instruments to the Purchasing Member(s) as are reasonably deemed appropriate by counsel to the Company to effectuate the transfer. The Purchasing Member(s) shall acquire the Offered Interest subject to the transfer restrictions of this Agreement as to further Transfers of all or any part of such Offered Interest. (d) Transfer to Third Party; Later Transfer. If the Members fail to give ------------------------------------------ timely notice of their desire to acquire the Offered Interest, then the Transferring Member shall be permitted to transfer all, but not less than all, of the Offered Interest; provided, however, that such transfer shall be made substantially in accordance with the terms of the proposed transfer as described in the First Offer Notice; and provided further that such transfer must be consummated prior to the one hundred eightieth (180th) day following the Notice Date; and provided further that such transfer shall comply with all the terms and conditions of this Article VIII. The transferee shall acquire the Offered Interest subject to all of the terms and previsions of this Agreement, including without limitation, the transfer restrictions and substitution provisions of this Article VIII. In the event the Transferring Member fails, prior to such date, to consummate such proposed transfer, then prior to any subsequent transfer of all or any part of the Transferring Member's Interest in the Company, the Transferring Member shall be required to give the Members Notice thereof, and the right of first refusal provisions described in this Section 8.4 shall again be exercisable with respect thereto. ARTICLE IX Dissolution, Liquidation and Termination ---------------------------------------- 9.1. Dissolution. The Company shall dissolve and its affairs shall be wound ----------- up upon the first to occur of the following: (a) the written consent of the Members; (b) the entry of a decree of judicial dissolution under Section 18-802 of the Act; or (c) the consolidation or merger of the Company in which it is not the resulting or surviving entity. 9.2. Liquidation. Upon dissolution of the Company, the Managers shall act ----------- as its liquidating trustees or the Managers may appoint one or more Managers or Members as liquidating trustee. The liquidating trustees shall proceed diligently to liquidate the Company and wind up its affairs and shall dispose of the assets of the Company as provided in Section 7.2 hereof. Until final distribution, the liquidating trustees may continue to operate the business and properties of the Company with all of the power and authority of the Managers. As promptly as possible after dissolution and again after final liquidation, the liquidating trustees shall cause an accounting by the accounting firm then serving the Company of the Company's assets, liabilities, operations and liquidating distributions to be given to the Members. 9.3. Certificate of Cancellation. Upon completion of the distribution of ----------------------------- Company assets as provided herein, the Company shall be terminated, and the Managers (or such other person or persons as the Act may require or permit) shall file a Certificate of Cancellation with the Secretary of State of Delaware under the Act, cancel any other filings made pursuant to Sections 1.1 and 1.5 and take such other actions as may be necessary to terminate the existence of the Company. ARTICLE X General Provisions ------------------ 10.1. Offset. Whenever the Company is obligated to make a distribution or ------ payment to any Member, any amounts that Member owes the Company may be deducted from said distribution or payment by the Managers. 10.2. Notices. Except as expressly set forth to the contrary in this ------- Agreement, all notices, requests, or consents required or permitted to be given under this Agreement must be in writing and shall be deemed to have been properly given if sent by registered or certified mail, postage prepaid, by commercial overnight courier, by facsimile or if delivered in hand to Members at their addresses on Schedule A, or such other address as a Member may specify by ---------- notice to the Managers and to the Company or the Managers at the address of the principal office of the Company specified in Section 1.3. Whenever any notice is required to be given by law, the Certificate or this Agreement, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. 10.3. Entire Agreement; Binding Effect. This Agreement constitutes the ----------------------------------- entire agreement of the Members and the Managers relating to the Company and supersedes all prior oral or written agreements or understandings with respect to the Company. This Agreement is binding on and inures to the benefit of the parties and their respective successors, permitted assigns and legal representatives. 10.4. Amendment or Modification. Except as specifically provided herein, --------------------------- this Agreement may be amended or modified from time to time only by a written instrument signed by all of the Members. 10.5. Governing Law; Severability. This Agreement is governed by and shall ---------------------------- be construed in accordance with the law of the State of Delaware, exclusive of its conflict-of-laws principles. In the event of a conflict between the provisions of this Agreement and any provision of the Certificate or the Act, the applicable provision of this Agreement shall control, to the extent permitted by law. If any provision of this Agreement or the application thereof to any person or circumstance is held invalid or unenforceable to any extent, the remainder of this Agreement and the application of that provision shall be enforced to the fullest extent permitted by law. 10.6. Further Assurances. In connection with this Agreement and the ------------------- transactions contemplated hereby, each Member shall execute and deliver any additional documents and instruments and perform any additional acts that may be necessary or appropriate to effectuate and perform the provisions of this Agreement and those transactions, as requested by the Managers. 10.7. Waiver of Certain Rights. [Each Member irrevocably waives any right -------------------------- it may have to maintain any action for dissolution of the Company or for partition of the property of the Company.] The failure of any Member to insist upon strict performance of a covenant hereunder or of any obligation hereunder, irrespective of the length of time for which such failure continues, shall not be a waiver of such Member's right to demand strict compliance herewith in the future. No consent or waiver, express or implied, to or of any breach or default in the performance of any obligation hereunder shall constitute a consent or waiver to or of any other breach or default in the performance of the same or any other obligation hereunder. 10.8. Third-Party Beneficiaries. The provisions of this Agreement are not -------------------------- intended to be for the benefit of any creditor or other person to whom any debts or obligations are owed by, or who may have any claim against, the Company or any of its Members or Managers, except for Members or Managers in their capacities as such. Notwithstanding any contrary provision of this Agreement, no such creditor or person shall obtain any rights under this Agreement or shall, by reason of this Agreement, be permitted to make any claim against the Company or any Member or Manager. 10.9. Interpretation. For the purposes of this Agreement, terms not defined -------------- in this Agreement shall be defined as provided in the Act; and all nouns, pronouns and verbs used in this Agreement shall be construed as masculine, feminine, neuter, singular, or plural, whichever shall be applicable. Titles or captions of Articles and Sections contained in this Agreement are inserted as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. 10.10. Counterparts. This Agreement may be executed in any number of ------------ counterparts with the same effect as if all parties had signed the same document, and all counterparts shall be construed together and shall constitute the same instrument. [The remainder of this page is left intentionally blank.] IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the date set forth above. MANAGERS AND MEMBERS: AFG INVESTMENT TRUST C By: AFG ASIT CORPORATION, not in its individual capacity but solely as Managing Trustee By: /s/ Gary D. Engle -------------------- Its: President --------- AFG INVESTMENT TRUST D By: AFG ASIT CORPORATION, not in its individual capacity but solely as Managing Trustee By: /s/ Gary D. Engle -------------------- Its: President --------- OPERATING AND JOINT VENTURE AGREEMENT OF C & D IT LLC Schedule A ---------- MEMBERS Membership Name and Address of Member Contribution Interest -------------------------- ------------ ------------- AFG INVESTMENT TRUST C c/o AFG ASIT Corporation, its Managing Trustee 200 Nyala Farms Westport, CT 06880 $1,000,000 50% AFG INVESTMENT TRUST D c/o AFG ASIT Corporation, its Managing Trustee 200 Nyala Farms Westport, CT 06880 $1,000,000 50% Annex C AMENDMENT TO PARTNERSHIP AGREEMENT ---------------------------------- OF -- BMIF/BSLF II RANCHO MALIBU LIMITED PARTNERSHIP ---------------------------------------------- an Illinois Limited Partnership (the "Partnership") --------------------------------------------------- This Amendment to Partnership Agreement is made as of the 12th day of March, 2002 by and between Semele Group, Inc., a Delaware corporation ("Semele"), as sole limited partner, BSLF II Rancho Malibu Corp., an Illinois corporation ("BSLF"), as general partner, and upon the execution and delivery hereof, a co-managing general partner, and C & D IT LLC, a Delaware limited liability company ("C & D"), upon the execution and delivery hereof a co-managing general partner. RECITALS: -------- WHEREAS: A. The Partnership exists under the terms of a certain limited partnership agreement dated as of the 1st day of July, 1992 as subsequently modified and amended (the "Partnership Agreement"); and B. Prior to the execution and delivery of this Amendment, Semele and BSLF were the sole limited and general partners, respectively, of the Partnership (together, the "Old Partners"); and C. The Old Partners desire to admit C & D as a co-managing general partner of the Partnership and desire to enter into this Amendment for such purpose; and D. Semele is willing to make a capital contribution of all of the membership interests in RM Financing LLC, a Delaware limited liability company; E. In consideration of its admission as co-managing general partner and the capital contribution by Semele, C & D is willing to make a capital contribution of $2,000,000 to the Partnership; and F. The Old Partners and C & D (collectively the "Partners" and individually a "Partner") also desire to make certain changes to the terms of the Partnership Agreement and desire to enter into this Amendment for such purpose; NOW, THEREFORE, in consideration of the Recitals, which are incorporated herein, the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: C-1 1. Definitions. Except as otherwise defined in this Amendment, terms used ----------- herein shall have the same meaning as in the Partnership Agreement. The following specific definitions shall apply with respect to this Amendment: "Affiliate" of a Person means a Person who controls, is controlled by, or is --------- under common control with such Person. For purposes of this definition, -- "control" means the ability to control the management or policies of a Person, -- whether through the ownership of voting securities, by contract or otherwise. "CERCLA" means the Comprehensive Environmental Response, Compensation and ------ Liability Act of 1980, as amended (42 U.S.C. 9601 et seq.). ----- "Clean Water Act" means the Federal Water Pollution Control Act, as amended (33 ---------------- U.S.C. 1251 et seq.). "Code" means the Internal Revenue Code of 1986, as amended. ---- "Environmental Citations" means any written notice, communication, inquiry, ------------------------ warning, citation, summons, directive, injunction, order or claim, concerning --- the ownership, maintenance, operation or occupancy of the Malibu Property or any - portion thereof by the Partnership or any other person, which relates to Hazardous Activity, Hazardous Materials or violation of any Environmental Law in connection with the Malibu Property or any portion thereof, or any leachate or contamination or materials emanating therefrom. "Environmental Laws" means all applicable foreign, federal, state, regional, ------------------- county and local administrative, regulatory and judicial laws, rules, statutes, -- codes, ordinances, regulations, binding interpretations, binding policies, licenses, permits, approvals, plans, authorizations, directives, rulings, injunctions, decrees, orders, judgments, common law and any similar items in effect on the date of this Amendment and through the date hereof relating to the protection of human health, safety, or the environment (including ambient air, surface water, ground water, land surface or subsurface strata); including, without limitation, the following laws, as amended: (a) CERCLA; (b) the ------ Hazardous Materials Transportation Control Act of 1970 (49 U.S.C. 1802 et seq.); (c) the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. 6901 et seq.); (d) the Clean Water Act; (e) the Safe Drinking Water Act (42 U.S.C. 300h et seq.); (f) the Clean Air Act (42 U.S.C. 1857 et seq.); (g) the Solid Waste Disposal Act (42 U.S.C. 6901 et seq.); (h) the Toxic Substances Control Act (15 U.S.C. 2601 et seq.); (i) the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. 11001 et seq.); (j) the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136 et seq.); (k) the Radon Gas and Indoor Air Quality Research Act (42 U.S.C. 7401 et seq.); (l) the National Environmental Policy Act of 1975 (42 U.S.C. 4321); (m) the Rivers and Harbors Act of 1899 (33 U.S.C. 401 et seq.); (n) the Oil Pollution Act of 1990 (33 U.S.C. 3321 et seq.); (o) the Porter-Cologne Water Quality Control Act (Cal. Wat. Code 13020 et seq.); (p) the Safe Drinking Water and Toxic Enforcement Act of 1986 (Cal. Health & Saf. Code 25300 et seq.); (q) the Hazardous Substance Account Act (Cal. Health & Saf. Code 25300 et seq.); (r) the Hazardous Waste Control Act (Cal. Health & Saf. Code 25100 et seq.); (s) Section 2782.6(d) of the California Civil Code and Chapter 11 of Title 22 of the California Code of Regulations; and (t) any and all laws, rules, codes, ordinances, regulations, binding interpretations, binding policies, licenses, permits, approvals, plans, authorizations, directives, rulings, injunctions, decrees, orders and judgments relating to hazardous wastes, hazardous substances, toxic substances, pollution, water safety, polychlorinated biphenyls, petroleum (its derivatives, by-products, or constituents) the protection of human health, safety, or the environment. "Hazardous Activity" means the generation, transportation, deposit, disposal ------------------- (including, without limitation, arrangement for placement in any landfill, -- temporary or permanent holding area, impoundment, sump or dump), dumping, -- escaping, placing, dispersal, release, discharge, spill, emission, injection, -- leak, leaching, migration of Hazardous Materials in, on, under, about or from - any specified property or any part thereof into the indoor or outdoor - environment including, without limitation, the ambient air, surface water, - groundwater or surface or subsurface strata and any other act or thing, business - or operation, that materially increases the danger, or risk of danger, or poses an unreasonable risk of harm to persons or property, on or off any specified property, or which may materially adversely impact the value of such specified property. "Hazardous Material" means any solid, liquid or gaseous material, alone or in ------------------- combination, mixture or solution, which is defined, listed or identified as - "hazardous" (including "hazardous substances" and "hazardous wastes"), "toxic", - a "pollutant" or a "contaminant" pursuant to any Environmental Law including, without limitation, asbestos, urea formaldehyde, polychlorinated biphenyls (PCB's), radon, fuel oil, petroleum (including its derivatives, by-products or other constituents) and any other dangerous, explosive, corrosive, flammable, infectious, radioactive, carcinogenic or mutagenic material which is prohibited, limited, controlled or regulated under any Environmental Law, or which poses a threat or nuisance to the safety or health of any person on any specified property or any property geologically or hydrologically adjacent to, or surrounding, such specified property or the environment, or the presence of which could constitute a trespass by the Partnership. "Improvements" means the improvements to the Malibu Property as are described in ------------ the Plans and Specifications (as hereinafter defined) including, without limitation, forty-six (46) single-family finished lots, together with roads, sewers, utilities and other on-site and off-site improvement, including those improvements required to be constructed by the Project Requirements. "Malibu Property" means approximately 274 acres of undeveloped land located in ---------------- Los Angeles County, California, as more particularly described in the Partnership Agreement. "Material Adverse Effect" means a material adverse effect (a) on the business, ------------------------- assets or financial condition of the Partnership, or (b) on the ability of the Partnership to carry on its business, as it is presently being conducted, including without limitation the development of the Project. "Permits" means all governmental or other licenses, permits certificates, ------- approvals, authorizations and orders material to the ability of the Partnership ----- to carry on its business as it is presently being conducted (other than those relating to the Benefit Plans), including without limitation those necessary to construct, subdivide, occupy, operate, market and sell the Property (and any portion or subdivision thereof) in accordance with all Project Requirements. "Benefit Plans" means all "employee benefit plans," within the meaning of ------------- Section 3(3) of ERISA (other than any plan which is exempt from Title I of ---- ERISA), for the employees or former employees of the Partnership, or their --- respective dependents, survivors or beneficiaries, (a) which are currently --- maintained by the Partnership, (b) which were previously maintained by the --- Partnership within the six (6) year period preceding the date hereof or (c) in --- which the Partnership is or was, within such six-year period, a participating employer. "Plans and Specifications" means those certain Plans and Specifications prepared ------------------------ for the Project. "Project" means (i) the subdivision of the Property (as hereinafter defined) ------- into forty-six (46) single-family lots, three (3) open space lots, one (1) -- sewage treatment lot, and one (1) road lot; and (ii) the construction of the -- Improvements (as hereinafter defined), all in accordance with the Project -- Requirements (as hereinafter defined). -- "Project Requirements" means all applicable federal, state, local and other --------------------- laws, regulations, codes, orders, ordinances, policies, rules, regulations, --- reports, standards, statutes, and agreements that apply or pertain to the --- Project, including without limitation those relating to fire, safety, land use, --- health, labor, environmental protection, seismic design, conservation, parking, zoning and building, and all restrictive covenants (if any) and other title encumbrances, affecting all or any part of the Property or the Improvements constructed thereon. "Property" means the Malibu Property and all related permits, engineering work -------- product, Improvements and assets and entitlements required to develop the Project in accordance with the Project Requirements. "Semele" means Semele Group Inc., a Delaware corporation ------ 2. Capital Contributions. ---------------------- (a) In consideration of its admission to the Partnership as a co-managing general partner, C & D hereby agrees to make a Capital Contribution (the "C & D Capital Contribution") to the Partnership in the amount of $2,000,000 in immediately available funds. For the avoidance of doubt, the C & D Capital Contribution shall not be deemed to trigger any obligation on the part of the Old Partners to make any Additional Capital Contribution to the Partnership. (b) In order to induce C & D to make the C & D Capital Contribution, Semele hereby agrees to make a capital contribution of all of the membership interests it holds in RM Financing LLC, a Delaware limited liability company, pursuant to the terms of a Contribution, Assignment and Assumption Agreement of even date herewith by and between Semele and the Partnership (the "Semele Capital Contribution"). 3. Admission of C & D. Upon payment of the C & D Capital Contribution, C & ------------------- D shall be deemed to have been admitted to the Partnership as a co-managing general partner and C & D shall have the benefit of all rights and be bound by all obligations as a Partner in the Partnership. 4. C & D Capital Account. As of the date hereof, C & D's Capital Account ------------------------ shall be $2,000,000. 5. Percentage Interests. Upon the payment of the C & D Capital --------------------- Contribution, the contribution of the Semele Capital Contribution and the ----- execution and delivery of this Amendment, the Percentage Interests of the Partners shall be as reflected on Exhibit A attached hereto and shall be ------- - incorporated herein by reference. 6. Right of First Offer. The right of first offer pursuant to Section 8.3 ---------------------- of the Partnership Agreement shall benefit each Partner. An Offeror shall make an Offer to each Partner other than the Offeror, each of whom shall be deemed an Offeree under the Partnership Agreement. In the event that more than one Offeree accepts an Offer, then each accepting Offerees shall have the right to purchase a percentage of the Offeror's Partnership Interest, calculated based on a fraction, the numerator of which is the Partnership Interest of the Offeree and the denominator of which is the total Partnership Interest of all Offerees. 7. Special Distribution to Semele. Notwithstanding any provision of the ---------------------------------- Partnership Agreement to the contrary, including, without limitation, Sections 3.3 and 3.4, upon the execution and delivery of this Amendment and the receipt by the Partnership of the C & D Capital Contribution, the Partnership shall distribute $2,000,000.00 to Semele in repayment to Semele of debt owed to Semele by the Partnership. 8. Distributions. Subject only to the terms of this Amendment and ------------- notwithstanding any provision of the Partnership Agreement to the contrary, -- including, without limitation, the provisions of Sections 3.4, and 3.5, from and after the date hereof, Cash From Operations and Cash From Financing (collectively the "Cash Flow") shall be distributed to the Partners as follows: (a) 80% of the Cash Flow shall be distributed to C & D until such time as the total sum of $2,000,000.00 plus a rate of return thereon equal to 6% per annum has been paid to C & D. (b) Until such time as all the full amount of the distribution to C & D described in (a) above has been made, the remaining 20% of the Cash Flow shall be distributed to BSLF. (c) From and after such time as the distribution to C & D described in (a) above has been made in full, 100% of the Cash Flow shall be distributed to BSLF until such time as an aggregate sum of $9,000,000.00 plus a rate of return thereon equal to 6% per annum (such amount to be inclusive of any distributions made pursuant to (b) above) has been distributed to BSLF. (d) From and after such time as the distributions set forth in (a) and (c) have been made, the Cash Flow shall be distributed 25% to C & D and 75% to the Old Partners, and the Old Partners shall share such distributions in proportion (as between the Old Partners) to their respective Percentage Interests. 9. Management. Notwithstanding any provision of the Partnership Agreement ---------- to the contrary, including without limitation Section 5.1, for so long as C & D is a Partner: (i) it is the intent and shall be the practice of the Partners that the management and control of the operations, business and affairs of the Partnership shall be jointly and equally vested in C & D and BSLF and all decisions with respect to such management and control shall be made unanimously by C & D and BSLF, and (ii) all provisions of the Partnership Agreement which require the approval of "BSLF II" shall be deemed to mean the unanimous approval of both C & D and BSLF. 10. Buy/Sell Option. From and after the date hereof and continuing until ---------------- such time as C & D is no longer a Partner, the parties hereto covenant and agree that no Partner shall have the right to exercise any rights granted to such Partner pursuant to Article XII of the Partnership Agreement. 11. Contingent Return of Capital. C & D is making its Capital Contribution ----------------------------- in reliance on the representation, warranty and covenant of the Old Partners that the Old Partners will approve, execute and deliver or cause to be approved, executed and delivered, a Contribution Agreement, by and among the Partnership, the Old Partners and RMLP, Inc., a Delaware corporation, in a form reasonably acceptable to C & D, and close the transactions contemplated thereby (the "RMLP Closing"). If, after not less than (30) thirty days after the mailing of a definitive solicitation statement for the solicitation of consents of the beneficial interest holders of the members of C & D to such holders (the "Consent Solicitations"), the RMLP Closing has not been consummated for any reason within ninety (90) days after Semele and the Partnership have been advised by C & D that the requisite consents relating to the approval of the beneficial interest holders of the members of C & D to the transactions contemplated by the RMLP Closing has or has not been obtained, then C & D shall have the right, exercisable in its sole and exclusive discretion, to demand the Old Partners to immediately disgorge or cause the Partnership to immediately disgorge the C & D Capital Contribution. The obligations of the Old Partners and the Partnership under this Section (the "Secured Obligations") shall be secured by the following (together, the "Security Documents"): (i) a pledge of fifty percent (50%) of the BSLF capital stock held by Semele, substantially in the form of Exhibit B hereto and (ii) a pledge of fifty percent (50%) of the ------- - Partnership Interests held by the Old Partners, substantially in the form of Exhibit C hereto. For the avoidance of doubt, the Secured Obligations hereunder ---- - are intended to provide C & D with reasonably security for the C & D Capital Contribution plus a ten percent (10%) rate of return per annum and the terms of the Security Documents shall be limited to such extent. Upon discharge in full of the Secured Obligations, C & D's interest as a Partner hereunder shall be extinguished and all of C & D's rights and obligations under this Agreement shall terminate, provided however, that C & D's interest as a Partner shall not be extinguished if the RMLP Closing occurs. 12. Representations and Warranties. -------------------------------- A. Representations and Warranties of the Old Partners and the Partnership. ---------------------------------------------------------------------- All Schedules referenced in this Amendment to be delivered by any of the Old Partners or the Partnership shall be delivered to C & D no later than three (3) business days prior to the mailing of the Consent Solicitations (the "Delivery Date"). Each of the Old Partners and the Partnership, hereby severally represent and warrant to C & D that the following representations and warranties are true and correct as of the Delivery Date: (1) Necessary Authorization or Approvals. Each of the Old Partners and the Partnership have full power, authority and legal capacity to execute and deliver, or cause to be executed and delivered, this Amendment and the other agreements and instruments to be executed and delivered by either of the Old Partners or the Partnership pursuant hereto and to consummate the transactions contemplated hereby. This Amendment has been duly executed and delivered by BSLF and the Partnership and constitutes the legal, valid and binding obligation of each of them enforceable in accordance with its terms. (2) [intentionally omitted] (3) Organization, Powers, Ownership and Assets of the Partnership. The Partnership is a limited partnership duly organized and validly existing under the laws of the State of Illinois and has the power to carry on its business, as such business is now being conducted, and to own, lease or operate the properties and assets it now owns, leases or operates. There are no existing options, warrants, contracts, calls, commitments, demands or other agreements of any character to which either of the Old Partners and the Partnership is a party which could require the purchase or sale of any Percentage Interest. The Property constitutes all of the material assets of the Partnership. (4) Qualification or Licensing to Carry on Business; Subsidiaries. The Partnership has not failed to qualify to do business in any jurisdiction where such qualification is required and where the failure to be so qualified would or could have a Material Adverse Effect. The Partnership does not have, nor has it ever had, any subsidiaries whatsoever. Additionally, except as set forth in Schedule 12(a)(4), to the knowledge of each of the Old Partners and the --------------- Partnership, the Partnership has never entered into any joint ventures. ----- (5) Liabilities. (a) Schedule 12(a)(5)(a) lists all agreements, notes, instruments or other --------------------- documents relating to (i) indebtedness owed by or to the Partnership, and (ii) money borrowed or loaned by or to the Partnership in satisfaction of obligations of or to the Partnership, including but not limited to all mortgages, loan, credit, surety, guarantee, and lease-purchase arrangements or other financing agreements to which the Partnership is a party; and (iii) all conditional sales contracts, chattel mortgages and other security agreements or arrangements with respect to personal property used or owned by the Partnership, copies of which have been delivered or made available to C & D. (b) Except as set forth in Schedule 12(a)(5)(b) hereto, since February 6, -------------------- 2002, the only additional liabilities which have been incurred by the Partnership are of such a nature as are comparable to those normally incurred in the ordinary course of business during a comparable period of operations. (c) [intentionally omitted] (d) Except as set forth in Schedule 12(a)(5)(d), the Partnership is not a -------------------- party to or subject to, and no property or asset of the Partnership is subject to, any judgment, order, decree, stipulation or consent of or with any court, governmental body or agency which does or may have a Material Adverse Effect. (e) The Partnership is not a party to or subject to, and no property or asset of the Partnership is subject to, any contracts or commitments requiring performance by the Partnership of obligations thereunder beyond a one-year term following the Closing. (6) Compliance with Law and Permits. Except as set forth in Schedule -------- 12(a)(6) hereto, to the knowledge of either of the Old Partners or the ------- Partnership (a) the business of the Partnership has been at all times prior to ------- the date hereof, and is currently being operated, in compliance with all applicable governmental and regulatory laws, rules, regulations and ordinances, the non-compliance with which could or would have a Material Adverse Effect, (b) the development of the Project is in material compliance with all Project Requirements; (c) all Permits (as hereinafter defined, including without limitation, all Permits required to construct and complete the Project) have been obtained and are in full force and effect, except those which the failure to obtain would not result in a Material Adverse Effect; and (d) no claim has been made in writing (or to knowledge) by any governmental or regulatory authority, to the effect that the business conducted by the Partnership fails to comply with any law, rule, regulation or ordinance, or Project Requirements, or that a Permit is necessary with respect thereto (without such Permit having been obtained promptly after receipt of notice of any such claim). (7) Environmental Matters. (a) Except as set forth in Schedule 12(a)(7)(a), the location, construction, -------------------- ownership, occupancy, maintenance, operation and use of the Malibu Property is in compliance with all Environmental Laws, the non-compliance with which would or is reasonably likely to have a Material Adverse Effect. (b) Except as set forth in Schedule 12(a)(7)(b), all Permits with respect to -------------------- the use of the Malibu Property which are required pursuant to Environmental Laws have been obtained and the same are in full force and effect (other than any Permit where the failure to obtain such Permit or its lapse would not have a Material Adverse Effect) and there has been no change in any fact or circumstance reported or assumed in any application for or grant thereof that would or is reasonably likely to have a Material Adverse Effect on the validity of any such Permit or the renewal or transfer thereof. (c) Except as set forth in Schedule 12(a)(7)(c), (i) neither the Old --------------------- Partners nor the Partnership has received (nor has knowledge of) any Environmental Citations and (ii) to the knowledge of either of the Old Partners and the Partnership, no Environmental Citation is pending or threatened under any Environmental Law concerning the past or present ownership, maintenance, operation or occupancy of the Malibu Property, or any portion thereof or concerning the Partnership or which relates to Hazardous Activity or Hazardous Materials. Except as set forth in Schedule 12(a)(7)(c), neither the Partnership -------------------- nor either of the Old Partners have been advised in writing by any governmental agency or any previous owner that any previous owner or any past operator, user or occupant of the Malibu Property has received any Environmental Citations. (d) Except as set forth in Schedule 12(a)(7)(d) hereto, neither the Old -------------------- Partners nor the Partnership have, to either of their knowledge, permitted, conducted, nor is aware of any Hazardous Activity conducted with respect to the Malibu Property in violation of, or creating any liability under, any Environmental Law the non-compliance with which or liability under would or is reasonably likely to have a Material Adverse Effect. (e) Except as set forth in Schedule 12(a)(7)(e) hereto, to the knowledge of -------------------- either of the Old Partners or the Partnership, there are no Hazardous Materials present in the surface water, groundwater or soil (either surface or subsurface) at the Malibu Property or at any geologically or hydrologically connected property including, without limitation, any Hazardous Materials contained in barrels, above or underground storage tanks, landfills, land disposals, land treatment units, waste piles, containment buildings, dumps, solid waste management units, equipment (movable or fixed) or other containers, either temporary or permanent, and deposited or located in or on land, water, sumps, or any other part of the Malibu Property or such connected property, or incorporated into any structure thereon, in violation of, or creating any liability under, any Environmental Law the non-compliance with which or liability under would or could have a Material Adverse Effect. (f) Except as set forth in Schedule 12(a)(7)(f) hereto, to the knowledge of -------------------- either of the Old Partners or the Partnership, the Partnership has not been accused, or found liable under any Environmental Law and the Partnership is not now under investigation in respect thereof and neither the Malibu Property nor any other site or facility (as defined under CERCLA) of the Partnership is listed or proposed for listing on the National Priorities List or is listed on the Comprehensive Environmental Response, Compensation, Liability Information System List or any comparable list maintained by any foreign, federal, state, regional, county or local authority. Except as set forth in Schedule -------- 12(a)(7)(f) hereto, to the knowledge of either of the Old Partners or the - Partnership, there are no proceedings pending, or threatened under any Environmental Law against or affecting the Partnership or the Malibu Property in any court or before any governmental authority or arbitration board or tribunal which, if adversely determined, would or could have a Material Adverse Effect. The Partnership is not in default with respect to any order of any court or governmental authority or arbitration board or tribunal relating to Environmental Laws. (8) Absence of Certain Changes or Events. Since February 6, 2002, the business of the Partnership has been conducted in the ordinary course and, except as set forth in Schedule 12(a)(8), the Partnership has not taken or ------------------ suffered any action or entered into any material transaction, including but not limited to the following, except in the ordinary course of business or as contemplated by this Amendment and the transaction contemplated herein: (a) mortgaging, pledging or subjecting to lien, charge or other encumbrance any assets, or entering into any agreement resulting in the imposition of any such mortgage, lien or charge; (b) selling or purchasing, assigning or transferring any intangible property; (c) suffering any casualty losses, whether insured or uninsured, and whether or not in the control of either of the Old Partners or the Partnership, in excess of $5,000 in the aggregate, or waiving any rights of any material value, individually or in the aggregate; (d) incurring any indebtedness for money borrowed or any noncurrent indebtedness for the purchase price of any fixed or capital asset; (e) except in the ordinary course of business, making (i) any change in properties and assets or in liabilities, (ii) any commitment for any capital expenditure or (iii) any sale, lease or other disposition of any capital asset; (f) making any change in the Partnership Agreement; (g) (i) issuing any new Percentage Interest to a third party or (ii) granting or issuing any option or warrant for the purchase of any new Percentage Interest to a third party, or made any commitment relating thereto; (h) making any distribution or payment to the Old Partners; (i) amending, making or entering into any agreement with any employee, agent or consultant; (j) amending any material contract, lease or agreement listed; and/or (k) voluntarily incurring any material obligation or liability, absolute or contingent, except in the ordinary course of business or pursuant to existing contracts and agreements described in this Amendment or in the schedules delivered pursuant hereto. Since February 6, 2002, there has been no material adverse change in the results of operations, revenues, manner of conducting business, condition (financial or otherwise) or any material adverse change in any material asset (including, without limitation, accounts receivable) of the Partnership since such date, and no event has occurred which has resulted, or which is reasonably likely to result, in a Material Adverse Effect. BSLF is not aware of any event, circumstance or condition which could reasonably be expected to result in any such Material Adverse Effect. (9) Tax Returns and Liabilities. The Partnership is taxed as a partnership and, as such, is a flow through entity for tax purposes. (10) Title to and Use of Properties; Absence of Liens and Encumbrances, etc. (a) [intentionally omitted] (b) Except for the Malibu Property, the Partnership has not owned nor does it currently own any fee interest in any real property, nor has the Partnership agreed to purchase or is it obligated to purchase any interest in any real property. There are no outstanding contracts of sale, options to purchase, rights or first refusal or rights of first offer with respect to all or any portion of the Malibu Property. (c) Except as disclosed in Schedule 12(a)(10)(c), the Partnership has good --------------------- and marketable title to all of the properties and assets, real and personal, that the Partnership purports to own which form a part of the business of the Partnership including, without limitation, the properties and assets of the Partnership (other than such properties and assets as shall have been sold or otherwise disposed of in the ordinary course of business) free and clear of any agreement or understanding with respect to the use or possession thereof or any rights thereto and of all liens (including, without limitation, statutory liens arising by reason of labor or materials furnished or claimed to have been furnished to the Partnership or any predecessor in interest), mortgages, pledges, encumbrances, security interests, conditional sales agreements or charges of any kind or character except (i) encumbrances solely with respect to personal property incurred in the ordinary course of business; (ii) liens and encumbrances on the Property reflected in that certain ALTA Loan Policy of Title Insurance dated February 21, 2001 issued to Seller by Lawyers Title Insurance Company as Policy No. 5104950-M; (iii) liens for current taxes and assessments not yet due and payable; and (iv) encumbrances solely with respect to personal property which are minor in amount and do not materially impair the value or use in accordance with past practices of the assets affected thereby. (d) The Partnership has the right to use all real and personal properties presently utilized in the business of the Partnership that are not owned by the Partnership, and the Partnership is not in material default with respect to any lease material to such business and there exists no event, occurrence, condition or act which, with the giving of notice or the lapse of time, or both, would become a default under any such lease. (e) Except as disclosed in Schedule 12(a)(10)(e), no property utilized by --------------------- the Partnership in its business which is not owned by the Partnership is owned by any officer, director or shareholder of either of the Old Partners or any Affiliate of either of the Old Partners (or any relative or spouse of any officer, director or shareholder or any relative of such spouse or any corporation, partnership, trust or other entity in which any officer, director or shareholder or any such relative or spouse has any beneficial interest). (f) To the knowledge of either of the Old Partners or the Partnership, neither the whole nor any portion of the Malibu Property nor any interest therein has been condemned, requisitioned or otherwise taken by any public authority, and no such condemnation, requisition or taking has been threatened in writing or is contemplated. (11) Litigation and Claims. Except as set forth in Schedule 12(a)(11), ------------------ the Partnership is not a party to, nor is any property or asset owned by the Partnership the subject of, any suit, action, or administrative, arbitration or other proceeding (including, without limitation, proceedings concerning labor disputes or grievances or union recognition or concerning condemnation, eminent domain or the like) or government investigation or proceeding that is currently pending or which has been pending within the three year period prior to the date hereof and none of the foregoing has been threatened in writing against any of the Partnership, or the assets or properties of the Partnership. (12) Contracts and Contractual Compliance. (a) Schedule 12(a)(12)(a) lists a description of each written or oral ---------------------- contract or agreement which will involve a present commitment for the receipt or expenditure by the Partnership under any of the foregoing, of monies or value equivalent to $50,000 or more during any fiscal year, including a list of all outstanding purchase and sale orders and commitments for personal property and services (but excluding purchase and sale orders or commitments for personal property or services entered into in the ordinary course of business) of the Partnership. Complete and correct copies of such agreements have been made available to C & D. The Partnership is not in default in any material respect (nor has the Partnership been notified to such effect) with respect to any obligation to be performed under any contract, lease, guaranty, indenture, loan agreement, document or other agreement or arrangement (including, without limitation, those listed or described on Schedule 12(a)(12)(a)) to which the --------------------- Partnership or any assets of the Partnership are subject, except where such default or defaults, individually or in the aggregate, would not have a Material Adverse Effect. (b) [intentionally omitted] (c) Except as set forth on Schedule 12(a)(12)(c), the Partnership has not --------------------- guaranteed the indebtedness or obligations of any other Person, and no other Person whose obligations have been so guaranteed as disclosed on such Schedule is in default of the obligations so guaranteed, and neither the Old Partners nor the Partnership are aware of any event which, with the passage of time, the giving of notice, or both, would constitute such a default. (d) Neither the execution and delivery of this Amendment nor the consummation of the transactions contemplated hereby will constitute a default under any contract (including, without limitation, those listed or described on Schedules 12(a)(12)(a), (b) and (c)) involving the Partnership or impose any --------------------------------------- penalty upon the Partnership in the performance of such contract, or accelerate --- the performance thereof, or result in the creation of any lien, charge or encumbrance upon any of the properties or assets of the Partnership make any contract to which the Partnership is a party subject to termination or cancellation. (e) Except as set forth on Schedule 12(a)(12)(e), all parties with which the --------------------- Partnership has contractual arrangements are, to the knowledge of either of the Old Partners or the Partnership, in substantial compliance therewith and are not in default (and to the knowledge of each of the Old Partners no event has occurred which, with the passage of time, the giving of notice, or both, would constitute a default) thereunder, except where such default or defaults, individually or in the aggregate, would not have a Material Adverse Effect. (13) Insurance. (a) Schedule 12(a)(13)(a) lists a summary description (including the name of --------------------- the insurer, the policy number, period of coverage, and the amount of coverage) of the coverage under all insurance policies pertaining to the operations or business of the Partnership which are currently in effect, and which have been in effect within the last five years, together with the amount of the current annual premiums under such policies and copies of any written notice of possible cancellation of, or premium increases with respect to, such insurance policies. Complete and correct copies of such policies will be available on request to C & D. (b) All policies of insurance reflected on Schedule 12(a)(13)(a) are on the --------------------- date hereof and to the knowledge of the Old Partners are on the date hereof valid and enforceable in accordance with their terms and in full force and effect, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); all premiums due thereon as of the date hereof have been paid in full and all premiums which will be due thereon as of the date hereof have been paid. None of the insurance policies have provisions for retrospective or contingent premium charges or any waiver of premium provisions; and there are no minimum premium insurance policies or administrative service contracts for medical benefits. The Partnership has not received any written notice or other written communication from any issuer of any of its insurance policies canceling or materially amending any of such policies, materially increasing any deductibles or retained amounts thereunder, or materially increasing the annual or other premiums payable thereunder, and no written threat of such cancellation, amendment or increase of deductibles, retainages or premiums has been received. (14) Government Contracts. To the knowledge of the Old Partners or the Partnership, there have not been, within the past ten (10) years, and are not presently, any contracts or subcontracts to which the Partnership is a party with the United States Government or any department, agency or instrumentality thereof. (15) Additional Information Supplied. The Partnership has made available to C & D, to the extent available, the following documents and schedules of information relating to the Partnership and the business conducted by the Partnership, each of which are, and to the knowledge of each of the Old Partners are, true, correct and complete. (a) Partnership Agreement. A copy of the Partnership Agreement, as amended to date, of the Partnership, certified as true, correct and complete by an officer of the General Partner of the Partnership. (b) Minutes. Minutes of all meetings of, or other evidence of action taken by, the partners of the Partnership since January 1, 1996. (c) Bank Accounts and Powers of Attorney, etc. Schedule 12(a)(15)(c) lists --------------------- the name and address of each bank, together with the name and number of each account, in which the Partnership has an account or safe-deposit box, the names of all persons authorized to draw thereon or to have access thereto, and the names of any persons holding powers of attorney with respect to the business of the Partnership and a summary of the terms thereof. (16) Project Budget. Attached hereto as Schedule 12(a)(16) is the most ------------------ recent line item budget for the Project (the "Project Budget"). To the --------------- knowledge of each of the Old Partners or the Partnership, the Project Budget contains reasonable estimates of the costs for each of the items identified therein which have yet to be completed. (17) [intentionally omitted] (18) Accuracy of Information. To the knowledge of each of the Old Partners or the Partnership, neither this Amendment, nor any certificate, document or information furnished pursuant to this Amendment contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. B. Representations and warranties of C & D. C & D represents and --------------------------------------------- warrants to the Partnership and the Old Partners that the following representations and warranties are true and correct as of the date of this Amendment: (1) Organization of C & D. C & D is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has the full power and authority to carry on its business as now being conducted. (2) Necessary Authorization and Approval. C & D has full power and authority to execute and deliver this Amendment and to consummate the transactions contemplated hereby. This Amendment has been duly executed and delivered by C & D and constitutes the legal, valid and binding obligation of C & D enforceable in accordance with its terms. Other than required trust action and filings, neither the execution, delivery or performance of this Amendment nor the consummation of the transactions contemplated hereby is prohibited by, or requires C & D to obtain any consent, authorization, approval or registration under, any law, rule or regulation, other than as contemplated hereby, or any judgment, order, writ, injunction or decree, which is binding on C & D or the terms of any contract to which C & D or any of its Affiliates is a party. 13. Distributions in Liquidation. Section 9.3 of the Partnership Agreement ----------------------------- is hereby amended to provide that in the event of the dissolution of the Partnership, no distributions shall be made until such time as the distribution to C & D described in paragraph 8(a) above has been made in full, and such distribution shall be the first priority distribution in the event of the liquidation of the Partnership, notwithstanding anything to the contrary contained in the Partnership Agreement. 14. Number; Co-Managing General Partners. The Partnership Agreement is --------------------------------------- hereby amended as reasonably necessary and as deemed required by the context to reflect that there are three Partners rather than two and that BSLF and C & D are, from and after the date hereof, co-managing general partners of the Partnership and that the unanimous consent of both of BSLF and C & D as co-managing general partners is necessary for the Partnership to take any action on behalf of the Partnership or the General Partner. Without limiting the foregoing, references to "either" and "neither" Partner and the "other Partner" are modified as required by the context of their use to reflect that, from and after the date hereof, there are three Partners rather than two. 15. Consent. To the extent that the consent of either of the Old Partners ------- is required for any of the actions or transactions contemplated by this Amendment, the Old Partners each hereby consent to each such action. 16. Ratification. Except as modified hereby, the terms and conditions of ------------ the Partnership Agreement are ratified and affirmed. 17. Headings; Severability. The headings and section references contained ----------------------- herein are for convenience only. If any of the provisions herein is deemed unenforceable or illegal, it is the intent of the parties that the remaining provisions of this Amendment be interpreted so as to give maximum effect to such remaining provisions. 18. Entire Agreement; Amendment. The Partnership Agreement, this Amendment ---------------------------- and the Security Documents constitute the entire understanding of the parties with respect to the transactions contemplated herein and such documents supersede any other understanding of the parties whether written or oral. 19. Conflict. In the event of a conflict between the terms of this -------- Amendment and the terms of the Partnership Agreement, the terms of this Amendment shall govern. [The remainder of this page is left intentionally blank.] IN WITNESS WHEREOF, the undersigned have executed this Amendment to Partnership Agreement as of the date first given above. BSLF II RANCHO MALIBU CORP., as General Partner, and from and after the execution and delivery hereof, the Co-Managing General Partner By: /s/ James A. Coyne --------------------- Its: Vice President --------------- SEMELE GROUP, INC. , as sole limited Partner By: /s/ James A. Coyne --------------------- Its: President --------- C & D IT LLC By: AFG Investment Trust C, member/manager By: AFG ASIT Corporation, not in its individual capacity but solely as Managing Trustee By: /s/ Gary D. Engle -------------------- Its: President --------- By: AFG Investment Trust D, member/manager By: AFG ASIT Corporation, not in its individual capacity but solely as Managing Trustee By: /s/ Gary D. Engle -------------------- Its: President --------- ACKNOWLEDGED AND AGREED: ------------------------- BMIF/BSLF II RANCHO MALIBU LIMITED PARTNERSHIP By: BSLF II Rancho Malibu Corp., as General Partner, and from and after the execution and delivery hereof, the Co-Managing General Partner By: /s/ James A. Coyne --------------------- Its: Vice President --------------- Exhibits: --------- A - Percentage Interests of the Partners B - Semele Pledge of BSLF Capital Stock C - Old Partners' Pledge of Partnership Interests D - Deed of Trust Schedules: ---------- 12(a)(4) - Partnership Joint Venture Relationships 12(a)(5)(a) - Instruments re Indebtedness of/to the Partnership; Other Security Agreements or Arrangements 12(a)(5)(b) - Partnership Additional Liabilities 12(a)(5)(d) - Pending Court/Governmental Judgments 12(a)(6) - Non-Compliance with Law and Permits 12(a)(7)(a) - Non-Compliance with Environmental Laws 12(a)(7)(b) - Non-Compliance with Environmental Permit Regulations 12(a)(7)(c) - Environmental Citations of the Partnership and/or Semele 12(a)(7)(d) - Hazardous Activity 12(a)(7)(e) - Hazardous Materials 12(a)(7)(f) - Pending or Threatened Environmental Law Violations 12(a)(8) - Extraordinary Business Transactions 12(a)(10)(c) - Title Exclusions 12(a)(10)(e) - Partnership Use of Property Owned by Affiliates 12(a)(11) - Pending Litigation 12(a)(12)(a) - Yearly Expenses/Receipts in Excess of $5,000 12(a)(12)(c) - Partnership Guarantees (and Related Defaults, if any) 12(a)(12)(e) - Non-Compliance/Defaults under Contractual Arrangements 12(a)(13)(a) - Insurance Policies 12(a)(15)(c) - Bank Accounts and Powers of Attorney 12(a)(16) - Project Budget EXHIBIT A To Amendment to Partnership Agreement of BMIF/BSLF II Rancho Malibu Limited Partnership PERCENTAGE INTERESTS -------------------- C & D: 25% Semele: 1.05% BSLF: 73.95% ANNEX D-1 IMPERIAL CAPITAL, LLC 150 SOUTH RODEO DRIVE. SUITE 100 BEVERLY HILLS, CA 90212 310-246-3700 800-929-2299 FAX 310-246-3794 May 20, 2002 The Board of Directors of PLM INTERNATIONAL, INC. 200 Nyala Farms Westport, Connecticut 06880 Gentlemen: You have requested our opinion as to the fairness, from a financial point of view, to RMLP Inc. ("RMLP"), of the aggregate consideration to be contributed by RMLP in exchange for 75% of the partnership interests in BMIF/BSLF II Rancho Malibu Limited Partnership (the "Partnership") (the "Transaction") currently owned by Semele Group, Inc. and BSLF II Rancho Malibu Corp. (together the "Sellers") (the "Partnership Interests"). The remaining 25% of the partnership interests in the Partnership are owned by C & D IT LLC (the "C & D Joint Venture"). We understand that, at the time of the Transaction, RMLP will be a 100% wholly owned subsidiary of PLM International, Inc. ("PLM") formed for the sole purpose of performing the Transaction and whose sole asset upon completion of the Transaction will be the Partnership Interests. We understand that the Partnership's sole asset is approximately 270 acres of land in Malibu, California (the "Malibu Property"), which was appraised to have a market value "as is" of $11 million by Jones & Company, a real estate appraisal and consulting firm, on February 28, 2002 (the "Appraisal") and that the Partnership will have no outstanding liabilities on a consolidated basis with its subsidiaries to any third parties at the time of the Transaction. We have been informed of the provisions of an amendment to the Partnership Agreement of BMIF/BSLF II Rancho Malibu Limited Partnership entered into on July 1, 1992, as amended, which sets forth the allocation of proceeds to the partners in the event of a liquidation, and we understand that the execution of such amendment is a condition precedent to RMLP entering into the Transaction. Therefore, in order to form our opinion as to the fairness, from a financial point of view, of the Transaction, with your consent, we performed our analysis on the consideration to be contributed by RMLP, described below, relying solely on the Appraisal for an estimate of the market value of the Partnership Interests on a "as is - where is" basis and assuming the liquidation of the Malibu Property at the time of the Transaction. Pursuant to the Transaction, RMLP will contribute total consideration (the "Consideration") to the Sellers for the Partnership Interests consisting of: D-1 - $5.5 million in cash; - $2.5 million in stated principal amount of an unsecured promissory note to be issued by RMLP bearing interest at 7% per annum with no covenants precluding additional indebtedness or other liens; and - 182 shares of common stock of RMLP constituting 15.4% of the outstanding shares of RMLP at the time of the Transaction. The Sellers are affiliated with Semele Group Inc. and Equis II Corp., which are also indirectly affiliated with PLM. In connection with the rendering of this opinion, we have: (i) Relied solely on the Limited Appraisal, Restricted Use Report dated March 1, 2002 prepared by Jones & Company, to establish a value for the subject properties on as "as is - where is" basis at $11 million; (ii) Analyzed certain historical business and financial information relating to the Partnership, including the most recent tax return for the year ended December 31, 2001, which was provided by management of Equis II Corp.; (iii) Assumed a liquidation of the Malibu Property on the date of this letter and a payout of proceeds pursuant to the amendment to the Partnership Agreement as a condition precedent to the Transaction; (iv) Reviewed certain information relating to the business, earnings, taxes and cash flow of the Partnership, furnished to us by management of Equis II Corp.; (v) Reviewed certain business and financial information relating to the Partnership that we deemed relevant; (vi) Conducted discussions with members of senior management of Semele Group Inc., Equis II Corp., and PLM concerning the matters described in clauses (i), (ii), (iii), (iv) and (v) above, as well as the prospects and strategic objectives of the Partnership; and (vii) Conducted such other financial studies, analyses and investigation and took into account such other matters as we deemed necessary, including our assessment of general economic, market and monetary conditions. With your consent, we have relied upon the accuracy and completeness of the foregoing financial and other information and have not assumed responsibility for independent verification of such information or conducted any independent valuation or appraisal of any assets of PLM, RMLP or the Partnership. With respect to the information provided, we have assumed, with your consent, that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the providers of such information. We have also relied upon the assurances of senior management of Semele Group, Inc., Equis II Corp. and PLM that they are unaware of any facts that would make the information provided to us incomplete or misleading. We assume no responsibility for, and express no view as to the assumptions on which the information is based. Our opinion expressed herein has been prepared for the information of the Board of Directors of PLM, and our opinion is rendered in connection with the purchase of the Partnership Interests. This opinion does not constitute a recommendation to the Sellers as to whether they should sell their interests to RMLP. This opinion does not address the business decision or the basis for recommendation to engage in the Transaction or address the relative merits of any alternatives discussed by the Board of Directors of PLM. No opinion is expressed herein, nor should one be implied, as to the fair market value of the Partnership's interests or the prices at which it may trade at any time. It is understood that this opinion may not be disclosed or otherwise referred to or used for any other purpose without our prior written consent, except as may otherwise be required by law or by a court of competent jurisdiction; provided, however, that this opinion may be reproduced in full in the proxy statements of AFG Investment Trust C and AFG Investment Trust D (the "Trusts") related to the Transaction. In the ordinary course of its business and in accordance with applicable state and federal securities laws, Imperial Capital, LLC may make a market in securities of Semele Group Inc., the Trusts or any of their affiliates and may trade the securities of Semele Group Inc., the Trusts or any of their affiliates for its own account and for the accounts of customers and, accordingly, may at any time hold long or short positions in such securities. Imperial Capital, LLC previously acted as financial advisor to PLM and certain affiliates of PLM in connection with the sale of PLM to MILPI Acquisition Corp. and received a fee in connection with the rendering of fairness opinions to PLM and certain affiliates of PLM in connection with such sale. Additionally, Imperial Capital, LLC has performed investment banking services for affiliates of PLM and the Sellers in the past. As of the date hereof Imperial Capital, LLC and its affiliates own approximately 4% of the common stock of Semele Group Inc., based on the number of shares publicly reported by Semele Group Inc. to be outstanding. Based on and subject to the foregoing, we are of the opinion that as of the date hereof, the Consideration to be paid by RMLP in the Transaction is fair to RMLP from a financial point of view. Very truly yours, /s/ Imperial Capital, LLC Imperial Capital, LLC The following projections were provided to Imperial Capital in order to assist it in rendering the foregoing fairness opinion. They were prepared strictly for purpose of internal review and have not been reviewed by independent auditors or outside counsel. They constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements should therefore be considered in light of various important factors, including those set forth in the Solicitation Statement. MEMORANDUM TO: The Files FROM: Tom Goodwin SUBJECT: Rancho Mailbu Tax Performance Assuming the PLM transaction is approved, the amounts reflected in the Proxy are achieved, the tax basis is accepted, and the partners' priority payments are made in January 2005, the following is a summary of the activity:
BOOK --------------------------------------------------------- Total 2002 2003 2004 2005 ----------- ---------- --------- --------- --------- LOTS SALES REVENUES 32,000,000 2,800,000 9,700,000 9,700,000 9,800,000 PROJECT COSTS (23,000,000) (2,000,000) 7,000,000 7,000,000 7,000,000 ECONOMIC GAIN 9,000,000 800,000 2,700,000 2,700,000 2,800,000 TRUSTS 2,070,000 155,000 630,000 630,000 655,000 PLM 6,390,000 645,000 2,070,000 2,070,000 2,145,000 TAX --------------------------------------------------------- REVENUE 32,000,000 2,800,000 9,700,000 9,700,000 9,800,000 TAX BASIS (42,145,000) (3,700,000) (12,800,000)(12,800,000)(12,845,000) TAX LOSS (10,145,000) (900,000) (3,100,000) (3,100,000) (3,045,000) TRUSTS 2,070,000 155,000 630,000 630,000 655,000 PLM (12,215,000) (1,055,000) (3,730,000) (3,730,000) (3,700,000)
It is possible that there could be another $1.0 million or so of tax basis depending on how the waterline and other early 2002 costs factor into the economic costs reflected in the proxy information. At a minimum, there is sufficient basis for PLM to shelter all of its economic profit ($6,930,000) and create additional tax losses of $12.2 million, (additional tax savings of about $4.6 million). ANNEX D-2 JONES & COMPANY ----------------- Real Estate Appraisal and Consulting 3156 Linnington Avenue Los Angeles, California (310) 475-1124 - Fax (310) 475-4494 March 1, 2002 Mr. Gary Engle AFG ASIT CORP. 450 Carillon Parkway, Suite 200 St. Petersburg, Florida 33716 Reference: Limited Appraisal in a Restricted Report regarding The Estates at Rancho Malibu, a proposed 46 unit detached residential subdivision, located on the east side of Encinal Canyon Road, roughly two miles north of Pacific Coast Highway, in unincorporated Los Angeles County, California. Dear Mr. Engle: In accordance with the request and authorization dated February 26, 2002, this letter is accompanied by a limited appraisal in a restricted report concerning the subject. The intended use of the appraisal is for internal valuation exclusively and may only be utilized for the client, and no other potential user. This is the restriction on use related to this specific appraisal assignment. This report is not being prepared for financing, or for any other purpose, only for internal valuation purposes for the client referenced above. To develop the opinion of value as indicated herein, Jones & Company performed a limited appraisal as defined by the Uniform Standards of Professional Appraisal Practice (USPAP). This means the departure provision from Standard 1 of USPAP was invoked. Specifically, this report is provided in a restricted use format, whereby more specific information pertaining to our value estimates are retained in the work file and not incorporated as part of this report. We have utilized information provided by the client pertaining to cost details and have assumed this information is accurate. Lastly, we have utilized information from a market study report prepared by The Meyers Group regarding the subject site and retained in our files and have assumed the data is accurate. Based on the research and analyses contained in the limited appraisal in a restricted report, we have concluded the market value "as is" of the fee simple interest in the subject property, as of February 28, 2002, was: ELEVEN MILLION DOLLARS $11,000,000 Thank you for the opportunity to be of service to you. We welcome any comments or questions regarding the content or opinions presented in the attached appraisal report. Respectfully submitted, /s/ Wesley Jones ------------------------ Wesley Jones, MAI California State Certification AG021591 ANNEX E The full text of the proposed Amendment to the Trust Agreement is as follows: AMENDMENT NO. 3 To SECOND AMENDED AND RESTATED DECLARATION OF TRUST THE SECOND AMENDED AND RESTATED DECLARATION OF TRUST OF AFG INVESTMENT TRUST C made and agreed to by the Trustees and the Beneficiaries as of July 15, 1997 (the "Trust Agreement"), is hereby amended as of _________, 2002, as follows: 1. The second Paragraph of Section 7.5 is hereby deleted and the following inserted in lieu thereof: The Trust may enter into Joint Ventures with Affiliates of the Managing Trustee or EFG or programs sponsored by the Managing Trustee or its Affiliates (including Joint Ventures organized after the Closing) (collectively, "Affiliated Venturers") but only if (i) no such Joint Venture shall be entered into by the Trust which involves the payment of duplicative equipment management or other fees or which would have the effect of circumventing any of the restrictions on prohibitions of transactions involving conflicts of interest contained in this Agreement, (ii) the compensation to the Managing Trustee and its Affiliates with respect to such Joint Ventures shall be substantially identical to the compensation described in this Agreement, and (iii) in the event of a proposed sale of the Asset or interest therein initiated by another Joint Venture partner, the Trust has a right of first refusal, pro rata with the other remaining parties, to purchase the other party's or parties' interest. Further, no lender to a Joint Venturer may have a security or other interest in the Trust's interest in the Joint Venture except to the extent of funds loaned directly to or for the benefit of the Trust. The Trust may cease to be a party to a Joint Venture by sale of its interest to another Joint Venturer or to a third party purchaser. Except as specifically amended hereby, the Trust Agreement as in effect prior to this Amendment thereof remains in full force and effect. E-1 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment No. 3 as of the ____ day of __________, 2002. CLASS A AND B BENEFICIARIES By: AFG ASIT Corporation, as Attorney-in- Fact for each of the Beneficiaries pursuant to Article XIII of the Trust Agreement By: Name: Title: AFG ASIT Corporation, as Managing Trustee By: Name: Title: Wilmington Trust Company, as Delaware Trustee By: Name: Title: Semele Group Inc., as Special Beneficiary By: Name: Title: ANNEX F MEMBERSHIP INTEREST PURCHASE AGREEMENT This Membership Interest Purchase Agreement (this "AGREEMENT"), dated as of ______ __, 2002, is entered into by and among MILPI Holdings, LLC, a Delaware limited liability company ("PURCHASER"), and AFG Investment Trust A and AFG Investment Trust B (collectively, the "SELLERS"), each a trust formed in accordance with the Delaware Business Trust Act. WITNESSETH: WHEREAS, in connection with the liquidation of the trust assets of each of the Sellers respectively, the Sellers desire to sell to Purchaser, and Purchaser desires to reacquire all of the Membership Interests held by the Sellers; WHEREAS, pursuant to separate Consent Solicitations, the Sellers and the non-transferring members of Purchaser have each obtained the requisite approval of the purchase of their respective Class A and Class B Beneficiaries. NOW THEREFORE, in consideration of the premises and of the mutual agreements and covenants hereinafter set forth and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I. DEFINITIONS ----------- Section 1.01 "CLASS A BENEFICIARIES" means the holders of the Class A Beneficiary Interests of each of the Sellers. Section 1.02 "CLASS B BENEFICIARIES" means the holders of the Class B Subordinated Beneficiary Interests of each of the Sellers. Section 1.03 "MANAGING TRUSTEE" means the managing trustee of Sellers, AFG ASIT Corporation. Section 1.04 "MEMBERSHIP INTERESTS" means all of the outstanding membership interests of Purchaser held by Sellers. Section 1.05 "PURCHASE FEES" means any and all fees that were paid by the Sellers to the Managing Trustee in connection with the purchase of the Sellers' Membership Interests. Section 1.06 "SALE FEE" means fees payable to the Managing Trustee in connection with the sale of the Sellers' assets, including the Membership Interests pursuant to the respective trust agreements governing the Sellers. F-1 ARTICLE II. PURCHASE AND SALE OF MEMBERSHIP INTERESTS; PURCHASE PRICE --------------------------------------------------------- Section 2.01 Purchase and Sale of Membership Interests. Upon the terms and conditions set forth in this Agreement, Purchaser shall repurchase from each of the Sellers, each of its entire right, title and interest in and to the Membership Interests as listed on Annex A. The Sellers acknowledge that the ------- Membership Interests transferred under this Agreement shall be transferred in full to Purchaser such that upon the completion of the sale, the Sellers shall no longer have any Membership Interests in Purchaser. Section 2.02 Purchase Price. In consideration of the sale by the Sellers of the Membership Interests, Purchaser shall pay to each Seller the amount paid to purchase such Membership Interests, less any dividends paid, plus the Purchase Fees relating to the purchase of such Membership Interests by such Seller. The Managing Trustee has agreed to waive the Sale Fee that would otherwise be due to it under the terms of each of the Sellers' trust agreements in connection with the sale of each of the Sellers' Membership Interests. Section 2.03 Waiver of Legal Opinion. The parties hereto each hereby waive delivery of a written opinion of counsel regarding the purchase and sale of the Membership Interests contemplated hereby pursuant to Sections 8.1 and 10.7 of the Purchaser's Operating Agreement, dated December 13, 200. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND PURCHASERS ------------------------------------------------------------ Section 3.01 Representations and Warranties of the Sellers. Each of the Sellers hereby represents and warrants to Purchaser that (a) it has valid title to the Membership Interests, (b) it is a trust, validly existing and in good standing under the laws of the State of Delaware, (c) it has the requisite trust power and authority to execute and to deliver this Agreement and to perform its obligations hereunder, (d) neither the execution and delivery of this Agreement, nor the performance by it of the transactions contemplated hereby, will conflict with or violate any provision of its declaration of trust, result in any violation of, or breach of any of the terms or provisions of, constitute a default under, accelerate any obligations under, or conflict with any agreements or instruments to which it is a party or by which it or its properties are bound, or materially violate any material law applicable or binding upon it or the Membership Interests, and (e) once executed, this Agreement shall be remain in full force and effect and the terms of the transaction consummated so as to effect the original intent of the parties hereto. Section 3.02 Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to the Sellers that (a) it is a limited liability company, validly existing and in good standing under the laws of the State of Delaware, (b) it has the requisite power and authority to execute and to deliver this Agreement and to perform its obligations hereunder, (c) neither the execution and delivery of this Agreement, nor the performance by it of the transactions contemplated hereby, will conflict with or violate any provision of its operating agreement, result in any violation of, or breach of any of the terms or provisions of, constitute a default under, accelerate any obligations under, or conflict with any agreements or instruments to which it is a party or by which it or its properties are bound, or materially violate any material law applicable or binding upon it, and (d) once executed, this Agreement shall be remain in full force and effect and the terms of the transaction consummated so as to effect the original intent of the parties hereto. ARTICLE IV. GENERAL PROVISIONS ------------------ Section 4.01 Headings. The headings and captions contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 4.02 Severability. If any term or other provisions of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the essential economic or legal substance of the transactions contemplated hereby is not affected. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. Section 4.03 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect tot he subject matter hereof and supersedes all prior agreements and undertakings, oral and written, between the parties hereto with respect to the subject matter hereof. Section 4.04. Governing Law. This Agreement shall be governed by, and construed in accordance with the substantive laws of the State of New York without reference to choice of law principles. All actions, claims and disputes arising out of or relating to this offer letter shall be heard and determined by the courts in the Southern District of New York and the parties hereto each hereby irrevocably submit to the jurisdiction of such courts in any action or proceeding and waive the defense of an inconvenient forum to the maintenance of any such action or proceeding. Section 4.05 Counterparts; Facsimile Signatures. This Agreement may be executed in one or more counterparts, and by different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Execution of this Agreement may be made by facsimile signature, which, for all purposes, shall be deemed to be an original signature. IN WITNESS WHEREOF, the parties hereto have cause this Membership Interest Purchase Agreement to be executed as of the date first above written. AFG INVESTMENT TRUST A By: AFG ASIT Corporation, its Managing Trustee By: Name: James A. Coyne Title: Senior Vice President AFG INVESTMENT TRUST B By: AFG ASIT Corporation, its Managing Trustee By: Name: James A. Coyne Title: Senior Vice President MILPI HOLDINGS, LLC By: AFG INVESTMENT TRUST A, its Member By: AFG ASIT Corporation, its Managing Trustee By: Name: Title: By: AFG INVESTMENT TRUST B, its Member By: AFG ASIT Corporation, its Managing Trustee By: Name: Title: By: AFG INVESTMENT TRUST C, its Member By: AFG ASIT Corporation, its Managing Trustee By: Name: Title: By: AFG INVESTMENT TRUST D, its Member By: AFG ASIT Corporation, its Managing Trustee By: Name: Title: ANNEX G IMPERIAL CAPITAL, LLC 150 SOUTH RODEO DRIVE. SUITE 100 BEVERLY HILLS, CA 90212 310-246-3700 800-929-2299 FAX 310-246-3794 May 20, 2002 AFG INVESTMENT TRUST C AND AFG INVESTMENT TRUST D 200 Nyala Farms Westport, Connecticut 06880 Gentlemen: You have requested our opinion as to the fairness, from a financial point of view, to AFG Investment Trust C and AFG Investment Trust D (the "Trusts"), of the aggregate consideration to be paid by MILPI Holdings LLC ("MILPI"), a joint venture among AFG Investment Trust A and AFG Investment Trust B (the "Sellers") and the Trusts, in connection with the repurchase of the membership interests in MILPI (the "Transaction") currently owned by the Sellers (the "Membership Interests"). We understand that MILPI is a holding company whose sole asset is its wholly-owned subsidiary, PLM International, Inc. ("PLM"). Therefore, in order to form our opinion as to the fairness, from a financial point of view, of the Transaction, with your consent, we performed our analysis on the operations and projections of PLM and have attributed no positive or negative value to MILPI, other than with respect to PLM. Pursuant to the Transaction, MILPI will pay cash consideration equal to $5,931,578 (the "Consideration") to the Sellers for the Membership Interests. The Sellers and the Trusts are affiliated with Semele Group Inc., which is also indirectly affiliated with PLM. In connection with the rendering of this opinion, we have: (i) Analyzed certain historical business and financial information relating to PLM, including a draft of PLM's annual financial statements for the year ended December 31, 2001 and balance sheet for March 31, 2002, which was provided by management of PLM; (ii) Reviewed certain information including financial forecasts, relating to the business, earnings, taxes and cash flow, furnished to us by management of PLM; (iii) Reviewed certain publicly available business and financial information relating to PLM that we deemed relevant; (iv) Conducted discussions with members of senior management of PLM concerning the matters described in clauses (i), (ii) and (iii) above, as well as the prospects and strategic objectives of PLM and expected cost and corporate overhead savings as PLM's investment vehicles continue to liquidate; (v) Reviewed public information with respect to certain other companies with financial profiles which we deemed to be relevant; (vi) Reviewed the historical market prices and trading activity for PLM's common stock through the date of PLM's merger with MILPI Acquisition Corp. (a wholly-owned subsidiary of MILPI), an affiliate of Semele Group Inc.; (vii) Reviewed the results of the sale process in which PLM was sold to MILPI Acquisition Corp.; and (viii) Conducted such other financial studies, analyses and investigation and took into account such other matters as we deemed necessary, including our assessment of general economic, market and monetary conditions. With your consent, we have relied upon the accuracy and completeness of the foregoing financial and other information and have not assumed responsibility for independent verification of such information or conducted any independent valuation or appraisal of any assets of MILPI or PLM, nor have we been furnished with any such appraisals. With respect to the financial forecasts, we have assumed, with your consent, that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of management of MILPI and PLM as to the future financial performance of PLM. We have also relied upon the assurances of senior management of PLM that they are unaware of any facts that would make the information or financial forecasts provided to us incomplete or misleading. We assume no responsibility for, and express no view as to such forecasts or the assumptions on which they are based. Our opinion expressed herein has been prepared for the information of the Trusts, and our opinion is rendered in connection with the repurchase of the Membership Interests. This opinion does not constitute a recommendation to the Sellers as to whether they should sell the Membership Interests to MILPI. This opinion does not address the business decision or the basis for recommendation to engage in the Transaction or address the relative merits of any alternatives discussed by the Trusts. No opinion is expressed herein, nor should one be implied, as to the fair market value of MILPI's membership interests or the prices at which they may trade at any time. It is understood that this opinion may not be disclosed or otherwise referred to or used for any other purpose without our prior written consent, except as may otherwise be required by law or by a court of competent jurisdiction; provided, however, that this opinion may be reproduced in full in the Solicitation Statements of the Trusts related to the Transaction. In the ordinary course of its business and in accordance with applicable state and federal securities laws, Imperial Capital, LLC may make a market in securities of Semele Group Inc., the Sellers, or the Trusts and may trade the securities of Semele Group Inc. or any of its affiliates including the Sellers and the Trusts for its own account and for the accounts of customers and, accordingly, may at any time hold long or short positions in such securities. Imperial Capital, LLC previously acted as financial advisor to PLM and certain affiliates of PLM in connection with the sale of PLM to MILPI Acquisition Corp. and received a fee in connection with the rendering of fairness opinions to PLM and certain affiliates of PLM in connection with such sale. Additionally, Imperial Capital, LLC has performed investment banking services for affiliates of MILPI and the Sellers in the past. As of the date hereof, Imperial Capital, LLC and its affiliates own approximately 4% of the common stock of Semele Group Inc., based on the number of shares publicly reported by Semele Group Inc. to be outstanding. Based on and subject to the foregoing, we are of the opinion that as of the date hereof, the Consideration to be paid by MILPI in the Transaction is fair to the Trusts from a financial point of view. Very truly yours, /s/ Imperial Capital, LLC Imperial Capital, LLC The following projections were provided to Imperial Capital in order to assist it in rendering the foregoing fairness opinion. They were prepared strictly for purpose of internal review and have not been reviewed by independent auditors or outside counsel. They constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements should therefore be considered in light of various important factors, including those set forth in the Solicitation Statement.
PLM EQUIPMENT GROWTH FUND I Income Forecast 10/8/2002 OPERATING REVENUES 9/30/2002 12/31/2002 3/31/2003 6/30/2003 9/30/2003 12/31/2003 3/31/2004 6/30/2004 9/30/2004 ----------------------------- --------- ---------- --------- --------- --------- ---------- --------- --------- --------- Annual Revenue - - - - - - - - - Containers Revenue 6,006 5,112 4,322 3,687 2,899 1,243 - - - MODU Revenue Railcars Revenue 1,243,941 1,265,780 1,357,338 1,341,806 1,350,584 1,319,399 1,341,324 1,336,349 1,325,657 Trailers Revenue - - - - - - - - - Vessels Revenue 882,464 882,464 863,280 872,872 882,464 882,464 872,872 872,872 882,464 Other Interest/Other Revenue - - - - - - - - - ----------------------------- --------- ---------- --------- --------- --------- ---------- --------- --------- --------- Total 2,132,411 2,153,356 2,224,940 2,218,365 2,235,948 2,203,105 2,214,196 2,209,221 2,208,121 OPERATING EXPENSES Direct Operating Expenses Air Expenses - - - - - - - - - Container Expenses 279 279 279 279 279 279 - - - Rail Expenses 483,957 483,957 491,113 491,113 486,267 482,023 495,208 494,585 491,102 Trailer Expense - - - - - - - - - Vessel Expenses 680,800 680,800 666,000 673,400 680,800 680,800 673,400 673,400 680,800 ----------------------------- --------- ---------- --------- --------- --------- ---------- --------- --------- --------- Total 1,165,036 1,165,036 1,157,392 1,164,792 1,167,346 1,163,102 1,168,608 1,167,985 1,171,902 Indirect Operating Expense Legal 1,941 2,013 2,381 1,199 1,894 1,942 2,280 1,164 1,840 Audit 12,545 12,545 - - - - - - - Insurance 10,078 13,464 40,097 7,092 9,835 12,994 38,389 6,884 9,553 Other 89,030 131,709 35,301 31,761 44,784 44,339 34,218 31,109 32,643 Management Fees 85,378 82,859 98,977 101,352 101,209 98,073 97,070 100,208 99,218 Interest Expense - - - - - - Total 198,973 242,589 176,756 141,403 157,722 157,348 171,956 139,364 143,254 ----------------------------- --------- ---------- --------- --------- --------- ---------- --------- --------- --------- Total All Expenses 1,364,009 1,407,625 1,334,148 1,306,196 1,325,067 1,320,450 1,340,564 1,307,349 1,315,157 ----------------------------- --------- ---------- --------- --------- --------- ---------- --------- --------- --------- NET OPERATING CASH FLOW 768,402 745,731 890,791 912,170 910,881 882,656 873,632 901,872 892,964
PLM EQUIPMENT GROWTH FUND I Income Forecast 10/8/2002 OPERATING REVENUES 12/31/2004 3/31/2005 6/30/2005 9/30/2005 12/31/2005 3/31/2004 3/31/2004 ----------------------------- ----------- ---------- --------- --------- ---------- --------- --------- Annual Revenue - - - - - - - Containers Revenue - - - - - - - MODU Revenue Railcars Revenue - - - - - - - Trailers Revenue - - - - - - - Vessels Revenue 882,464 - - - - - - Other Interest/Other Revenue - - - - - - - ----------------------------- ----------- ---------- --------- --------- ---------- --------- --------- Total 882,464 - - - - - - OPERATING EXPENSES Direct Operating Expenses Air Expenses - - - - - - - Container Expenses - - - - - - - Rail Expenses - - - - - - - Trailer Expense - - - - - - - Vessel Expenses 680,800 - - - - - - ----------------------------- ----------- ---------- --------- --------- ---------- --------- --------- Total 680,800 - - - - - - Indirect Operating Expense Legal 1,897 30 - - - - - Audit - - - - - - - Insurance 12,691 511 - - - - - Other 32,547 308 - - - - - Management Fees 75,612 (85) - - - - - Interest Expense ----------------------------- ----------- ---------- --------- --------- ---------- --------- --------- Total 122,748 764 - - - - - Total All Expenses 803,548 764 - - - - - ----------------------------- ----------- ---------- --------- --------- ---------- --------- --------- NET OPERATING CASH FLOW 78,916 (764) - - - - - PLM EQUIPMENT GROWTH FUND I Income Forecast OPERATING REVENUES Annual Revenue IRR Containers Revenue MODU Revenue 6.07% Railcars Revenue Trailers Revenue Vessels Revenue Other Interest/Other Revenue Assume 3% of prev. qtr's balance Total ----------------------------- OPERATING EXPENSES Direct Operating Expenses Air Expenses Container Expenses Rail Expenses Trailer Expense Vessel Expenses Total ----------------------------- Indirect Operating Expense Legal Audit Insurance Other Management Fees Interest Expense Total ----------------------------- Total All Expenses NET OPERATING CASH FLOW
PLM EQUIPMENT GROWTH FUND I Reconciliation Of Cash balances 10/8/2002 9/30/2002 12/31/2002 3/31/2003 6/30/2003 9/30/2003 12/31/2003 3/31/2004 ------------------------------------- --------- ---------- ----------- --------- --------- ---------- ----------- BEGINNING CASH BALANCE 4,761,703 5,531,493 6,285,551 - 916,334 1,929,933 2,909,000 Net Operating Cash Flow 768,402 745,731 890,791 912,170 910,881 882,656 873,632 Non-Operating Cash Flow - - - - - - - Dry-dock Accrual Addback - - - - - - - Actual Dry-dock/Other - - - - - - - Cash Flows From Financing Activities: Proceeds from Notes Payable Principal Payments on Notes Debt fees Normal Distributions - - - - - - - Special Distributions - - (7,335,578) - - - (3,794,270) Repurchase of Units Cash Flows from Investing Activities: Current Quarter Purchases Fees on Purchases Capitalized Costs Proceeds from Liquidations 1,388 8,327 159,235 4,164 102,719 96,411 11,637 ------------------------------------- --------- ---------- ----------- --------- --------- ---------- ----------- Net Change in Cash 769,790 754,058 (6,285,551) 916,334 1,013,600 979,067 (2,909,000) ENDING CASH BALANCE 5,531,493 6,285,551 - 916,334 1,929,933 2,909,000 - PLM EQUIPMENT GROWTH FUND I Reconciliation Of Cash balances 6/30/2004 9/30/2004 12/31/2004 3/31/2005 BEGINNING CASH BALANCE - 913,056 1,859,664 11,178,242 Net Operating Cash Flow 901,872 892,964 78,916 (764) Non-Operating Cash Flow - - - - Dry-dock Accrual Addback - - - - Actual Dry-dock/Other - - - - Cash Flows From Financing Activities: Proceeds from Notes Payable Principal Payments on Notes Debt fees Normal Distributions - - - - Special Distributions - - - (11,177,477) Repurchase of Units Cash Flows from Investing Activities: Current Quarter Purchases Fees on Purchases Capitalized Costs Proceeds from Liquidations 11,184 53,644 9,239,661 - ------------------------------------- --------- --------- ---------- ------------ Net Change in Cash 913,056 946,608 9,318,578 (11,178,242) ENDING CASH BALANCE 913,056 1,859,664 11,178,242 -
PLM EQUIPMENT GROWTH FUND II Income Forecast 10/8/2002 OPERATING REVENUES 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 TOTALS ------------------------------ --------- -------- -------- --------- -------- -------- -------- --------- Aircraft Revenue - - - - - - - - Containers Revenue - - - - - - - - Railcars Revenue 309,342 303,168 - - - - - 612,509 Trailers Revenue 419,505 415,232 196,138 - - - - 1,030,875 Vessels Revenue - Interest Revenue 23,502 26,869 29,884 - - - - 80,255 Other - ------------------------------ --------- -------- -------- --------- -------- -------- -------- --------- Total 752,349 745,269 226,022 - - - - 1,723,639 OPERATING EXPENSES Direct Operating Expenses Air Expenses - - - - - - - - Container Expenses - - - - - - - - Rail Expenses 191,975 191,975 - - - - - 383,950 Trailer Expense 204,523 225,636 97,990 - - - - 528,150 ------------------------------ --------- -------- -------- --------- -------- -------- -------- --------- Total 396,498 417,611 97,990 - - - - 912,100 Indirect Operating Expense Legal 1,095 690 280 790 - - - 2,854 Audit 13,139 13,139 - - - - - 26,278 Insurance 10,115 7,603 8,753 10,115 - - - 36,585 Other 64,485 98,695 - - - - - 163,180 Management Fees 42,629 41,983 9,807 - - - - 94,419 Interest Expense - - - - - - - - ------------------------------ --------- -------- -------- --------- -------- -------- -------- --------- Total 131,462 162,110 18,840 10,905 - - - 323,317 Total All Expenses 527,960 579,721 116,830 10,905 - - - 1,235,416 ------------------------------ --------- -------- -------- --------- -------- -------- -------- --------- NET OPERATING CASH FLOW 224,388 165,547 109,192 (10,905) - - - 488,223
PLM EQUIPMENT GROWTH FUND II Reconciliation of Cash balances 10/8/2002 9/30/2002 12/31/2002 3/31/2003 6/30/2003 9/30/2003 12/31/2003 3/31/2004 ------------------------------------- --------- ---------- ---------- ------------ --------- ---------- ---------- BEGINNING CASH BALANCE 2,014,277 2,284,830 2,496,542 11,607,871 - - - Net Operating Cash Flow 224,388 165,547 109,192 (10,905) - - - Non-Operating Cash Flow Dry-dock Accrual Addback Actual Dry-dock/Other Cash Flows From Financing Activities: Proceeds from Notes Payable Principal Payments on Notes Debt fees Cash Distributions - - - - - - - Special Distributions - - - (11,596,967) - - - Repurchase of Units Cash Flows from Investing Activities: Current Quarter Purchases Fees on Purchases Capitalized Costs Proceeds from Liquidations 46,164 46,164 9,002,138 - - - - ------------------------------------- --------- ---------- ---------- ------------ --------- ---------- ---------- Net Change in Cash 270,553 211,712 9,111,330 (11,607,871) - - - ENDING CASH BALANCE 2,284,830 2,496,542 11,607,871 (0) - - -
PLM EQUIPMENT GROWTH FUND III Income Forecast 10/8/2002 OPERATING REVENUES 09/30/02 12/31/02 3/31/03 06/30/03 09/30/03 12/31/03 03/31/04 ----------------------------- --------- -------- ------- -------- -------- -------- -------- Aircraft Revenue - - - - - - - Containers Revenue - - - - - - - IRR Railcars Revenue - - - - - - - -0.01% Trailers Revenue - - - - - - - Vessels Revenue - - - - - - - Other Interest Revenue 53,255 60,300 63,141 - - - - 3% ----------------------------- --------- -------- ------- -------- -------- -------- -------- Total 53,255 60,300 63,141 - - - - OPERATING EXPENSES Direct Operating Expenses ----------------------------- --------- -------- ------- -------- -------- -------- -------- Air Expenses - - - - - - - Container Expenses - - - - - - - Rail Expenses - - - - - - Trailer Expense - - - - - - - Vessel Expenses - - - - - - - ----------------------------- --------- -------- ------- -------- -------- -------- -------- Total - - - - - - - Indirect Operating Expense Legal Audit - - - - - - - Insurance - - - - - - - Other - - - - - - - Management Fees - - - - - - - Interest Expense - - - - - - - ----------------------------- --------- -------- ------- -------- -------- -------- -------- Total - - - - - - - Total All Expenses - - - - - - - ----------------------------- --------- -------- ------- -------- -------- -------- -------- NET OPERATING CASH FLOW 53,255 60,300 63,141 - - - -
PLM EQUIPMENT GROWTH FUND III Reconciliation Of Cash balances 10/8/2002 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 ------------------------------------- ------------ --------- ----------- -------- -------- -------- -------- BEGINNING CASH BALANCE 7,691,396 8,388,651 8,448,951 - - - - Net Operating Cash Flow 53,255 60,300 63,141 - - - - Non-Operating Cash Flow - - - - - - - Dry-dock Accrual Addback - - - - - - - Actual Dry-dock/Other - - - - - - - Cash Flows From Financing Activities: Proceeds from Notes Payable Principal Payments on Notes - - - - - - - Debt fees Cash Distributions - - - - - - - Special Distributions (10,000,000) - (8,512,092) - - - - Repurchase of Units Cash Flows from Investing Activities: Current Quarter Purchases Fees on Purchases Capitalized Costs Proceeds from Liquidations 10,644,000 - - - - - - ------------------------------------- ------------ --------- ----------- -------- -------- -------- -------- NET CHANGE IN CASH 697,255 60,300 (8,448,951) - - - - ENDING CASH BALANCE 8,388,651 8,448,951 - - - - -
PLM EQUIPMENT GROWTH FUND IV Income Forecast OPERATING REVENUES 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 ---------------------------- -------- -------- -------- -------- -------- -------- -------- Aircraft Revenue - - - - - - - Containers Revenue - - - - - - - IRR Railcars Revenue 647,349 - - - - - - -4.74% Trailers Revenue - - - - - - - Vessels Revenue - - - - - - - Other Interest Revenue 39,995 43,737 71,940 - - - - ---------------------------- -------- -------- -------- -------- -------- -------- -------- Total 687,343 43,737 71,940 - - - - OPERATING EXPENSES Direct Operating Expenses Air Expenses - - - - - - - Container Expenses - - - - - - - Rail Expenses 167,969 - - - - - - Trailer Expense - - - - - - - Vessel Expenses - - - - - - - ---------------------------- -------- -------- -------- -------- -------- -------- -------- Total 167,969 - - - - - - Indirect Operating Expense Legal - - - - - - - Audit Insurance - - - - - - - Other - - - - - - - Management Fees - - - - - - - Interest Expense - - - - - - - ---------------------------- -------- -------- -------- -------- -------- -------- -------- Total - - - - - - - Total All Expenses 167,969 - - - - - - ---------------------------- -------- -------- -------- -------- -------- -------- -------- NET OPERATING CASH FLOW 519,374 43,737 71,940 - - - -
PLM EQUIPMENT GROWTH FUND IV Reconciliation Of Cash balances 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 ------------------------------------- --------- ---------- ------------ -------- -------- ---------- -------- BEGINNING CASH BALANCE 5,571,856 6,091,230 13,092,867 - - - - Net Operating Cash Flow 519,374 43,737 71,940 - - - - Non-Operating Cash Flow Dry-dock Accrual Addback - - - - - - - Actual Dry-dock/Other - - - - - - - Cash Flows From Financing Activities: Proceeds from Notes Payable Principal Payments on Notes Debt fees Cash Distributions - - - - - - - Special Distributions - - (13,164,807) - - - - Repurchase of Units Cash Flows from Investing Activities: Current Quarter Purchases Fees on Purchases Capitalized Costs Proceeds from Liquidations - 6,957,900 - - - - - ------------------------------------- --------- ---------- ------------ -------- -------- ---------- -------- Net Change in Cash 519,374 7,001,637 (13,092,867) - - - - ENDING CASH BALANCE 6,091,230 13,092,867 - - - - -
PLM EQUIPMENT GROWTH FUND V INCOME FORECAST OPERATING REVENUES 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 06/30/04 09/30/04 ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Aircraft Revenue 1,956,074 1,197,146 1,190,737 1,065,293 851,218 843,917 836,292 819,084 713,499 Containers Revenue 57,138 52,694 49,932 46,994 46,389 43,376 42,218 39,272 39,128 Railcars Revenue 501,638 497,818 500,203 489,859 494,616 481,030 499,140 497,766 490,395 Trailers Revenue 104,698 104,698 99,422 99,422 99,422 97,393 86,580 82,816 79,052 Vessels Revenue 1,070,696 1,070,696 - - - - - - - Redeployment (Net) 195,000 195,000 195,000 195,000 195,000 195,000 195,000 195,000 195,000 Interest Revenue 157,819 156,667 181,105 241,427 329,478 411,759 462,840 469,823 491,304 Other ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 4,043,064 3,274,719 2,216,399 2,137,993 2,016,123 2,072,475 2,122,070 2,103,762 2,008,377 OPERATING EXPENSES Direct Operating Expenses Air Expenses 67,641 67,224 91,614 26,895 34,231 34,020 46,363 23,776 27,811 Container Expenses 773 773 796 796 796 796 820 820 820 Rail Expenses 151,315 153,029 157,735 169,652 155,855 157,620 162,467 174,741 160,530 Trailer Expense 33,957 33,957 33,957 33,957 33,957 33,957 32,571 31,185 29,799 Vessel Expenses 611,800 611,800 - - - - - - - Other ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 865,486 866,783 284,101 231,300 224,838 226,393 242,220 230,522 218,960 Indirect Operating Expenses Legal 5,051 4,421 7,114 2,936 3,076 2,996 4,812 2,765 2,798 Audit 19,128 19,128 19,702 19,702 19,702 19,702 20,293 20,293 20,293 Insurance 9,981 11,999 43,390 6,553 6,078 8,131 29,350 6,172 5,529 Other 161,403 148,973 168,675 158,088 131,145 127,392 155,929 155,274 127,592 Management Fees 203,712 165,460 111,562 104,619 94,428 93,079 93,596 92,542 84,057 Interest Expense 59,375 56,250 53,125 50,000 46,875 43,750 40,625 37,500 34,375 ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 458,649 406,231 403,567 341,898 301,303 295,050 344,605 314,546 274,645 Total All Expenses 1,324,135 1,273,013 687,668 573,197 526,142 521,442 586,825 545,068 493,604 ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- NET OPERATING CASH FLOWS 2,718,928 2,001,706 1,528,731 1,564,796 1,489,981 1,551,033 1,535,245 1,558,694 1,514,772 PLM EQUIPMENT GROWTH FUND V INCOME FORECAST OPERATING REVENUES 12/31/04 Aircraft Revenue 651,456 Containers Revenue - Railcars Revenue 495,010 Trailers Revenue 75,601 Vessels Revenue - Redeployment (Net) 195,000 Interest Revenue 518,574 Other ---------------------------- --------- Total 1,935,642 ---------------------------- --------- OPERATING EXPENSES Direct Operating Expenses Air Expenses 23,937 Container Expenses - Rail Expenses 162,349 Trailer Expense 28,413 Vessel Expenses - Other ---------------------------- --------- Total 214,699 Indirect Operating Expenses Legal 2,562 Audit 20,293 Insurance 6,952 Other 121,815 Management Fees 80,754 Interest Expense 31,250 ---------------------------- --------- Total 263,625 Total All Expenses 478,324 ---------------------------- --------- NET OPERATING CASH FLOWS 1,457,318
PLM EQUIPMENT GROWTH FUND V INCOME FORECAST OPERATING REVENUES 03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 06/30/06 09/30/06 12/31/06 03/31/07 Aircraft Revenue 315,000 315,000 315,000 315,000 315,000 315,000 315,000 315,000 - Containers Revenue - - - - - - - - - Railcars Revenue 488,419 491,972 477,450 461,027 481,575 478,852 470,367 - - Trailers Revenue 70,922 67,852 64,782 61,712 57,667 55,264 52,861 25,830 - Vessels Revenue - - - - - - - - - Redeployment (Net) 195,000 195,000 195,000 195,000 195,000 195,000 195,000 97,500 - Interest Revenue 553,367 578,497 577,812 577,556 577,351 576,824 576,161 575,822 - Other ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 1,622,709 1,648,320 1,630,044 1,610,294 1,626,593 1,620,940 1,609,389 1,014,152 - OPERATING EXPENSES Direct Operating Expenses Air Expenses 22,333 11,453 16,984 16,879 23,003 11,797 17,494 17,386 - Container Expenses - - - - - - - - - Rail Expenses 167,341 179,983 165,346 167,219 167,813 180,835 165,209 - - Trailer Expense 7,258 26,103 24,948 23,793 22,638 21,714 20,790 19,866 - Vessel Expenses - - - - - - - - - Other ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 216,932 217,539 207,278 207,891 213,455 214,346 203,493 37,252 - Indirect Operating Expenses Legal 3,405 1,956 2,219 2,159 3,478 2,000 2,269 2,207 - Audit 20,902 20,902 20,902 20,902 21,529 21,529 21,529 21,529 - Insurance 20,765 4,367 4,385 5,860 21,215 4,463 4,484 5,990 - Other 146,335 145,356 119,621 115,859 146,583 145,606 120,012 113,366 - Management Fees 63,235 63,331 62,161 60,857 62,094 61,783 61,069 21,916 - Interest Expense 28,125 25,000 21,875 18,750 15,625 12,500 9,375 6,250 3,125 ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 282,767 260,911 231,163 224,387 270,524 247,881 218,738 171,259 3,125 Total All Expenses 499,699 478,451 438,441 432,279 483,979 462,227 422,230 208,511 3,125 ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- NET OPERATING CASH FLOWS 1,123,010 1,169,870 1,191,603 1,178,015 1,142,614 1,158,714 1,187,159 805,642 (3,125)
PLM EQUIPMENT GROWTH FUND V Reconciliation Of Cash Balances 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 ----------- ----------- ----------- ----------- ----------- ----------- BEGINNING CASH BALANCE 11,143,956 13,922,778 15,053,969 23,574,333 29,142,083 36,739,379 - - - - - - Net Operating Cash Flow 2,718,928 2,001,706 1,528,731 1,564,796 1,489,981 1,551,033 Non-Operating Cash Flow 243,638 249,774 256,182 147,876 154,866 162,167 paradise repayment Dry-dock Accrual Addback - - - - - - Actual Dry-dock/Other - - - - - - Cash Flows From Financing Activities: Management fee deferral 50,928 41,365 27,890 26,155 23,607 23,270 Proceeds from Notes Payable - - - - - - Principal Payments on Notes (250,000) (250,000) (250,000) (250,000) (250,000) (250,000) Mandatory Prepayments 60% - - - - - - Cash Distributions - (954,306) (954,306) (954,306) (954,306) (954,306) Special Distributions - - - - - - Repurchase of Units Redemption of units-Class Action settlement Cash Flows from Investing Activities: Current Quarter Purchases - - - - - - Fees on Purchases - - - - - - Capitalized Costs - - - - - - Proceeds from Liquidations 15,327 42,653 7,911,867 5,033,230 7,133,148 43,543 -------------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- Net Change in Cash 2,778,822 2,778,822 2,778,822 2,778,822 2,778,822 2,778,822 ENDING CASH BALANCE 13,922,778 16,701,600 17,832,790 26,353,154 31,920,905 39,518,200 PLM EQUIPMENT GROWTH FUND V Reconciliation Of Cash Balances 03/31/04 06/30/04 09/30/04 12/31/04 ----------- ----------- ----------- ----------- BEGINNING CASH BALANCE 37,315,084 37,856,671 40,751,911 42,219,939 - - - - Net Operating Cash Flow 1,535,245 1,558,694 1,514,772 1,457,318 Non-Operating Cash Flow 169,793 177,757 (9,410) (9,410) paradise repayment Dry-dock Accrual Addback - - - - Actual Dry-dock/Other - - - - Cash Flows From Financing Activities: Management fee deferral 23,399 23,136 - - Proceeds from Notes Payable - - - - Principal Payments on Notes (250,000) (250,000) (250,000) (250,000) Mandatory Prepayments 60% - - - - Cash Distributions (954,306) (954,306) (954,306) (954,306) Special Distributions - - - - Repurchase of Units Redemption of units-Class Action settlement Cash Flows from Investing Activities: Current Quarter Purchases - - - - Fees on Purchases - - - - Capitalized Costs - - - - Proceeds from Liquidations 17,456 2,339,960 1,166,972 3,855,298 -------------------------------------------- ----------- ----------- ----------- ----------- Net Change in Cash 2,778,822 2,778,822 2,778,822 2,778,822 ENDING CASH BALANCE 40,093,906 40,635,492 43,530,733 44,998,761
PLM EQUIPMENT GROWTH FUND V Reconciliation Of Cash Balances 03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 06/30/06 ----------- ----------- ----------- ----------- ----------- ----------- BEGINNING CASH BALANCE 46,318,838 46,240,632 46,209,285 46,199,672 46,176,471 46,115,369 - - - - - - Net Operating Cash Flow 1,123,010 1,169,870 1,191,603 1,178,015 1,142,614 1,158,714 Non-Operating Cash Flow (9,410) (9,410) (9,410) (9,410) (9,410) (9,410) paradise repayment Dry-dock Accrual Addback - - - - - - Actual Dry-dock/Other - - - - - - Cash Flows From Financing Activities: Management fee deferral - - - - - - Proceeds from Notes Payable - - - - - - Principal Payments on Notes (250,000) (250,000) (250,000) (250,000) (250,000) (250,000) Mandatory Prepayments 60% - - - - - - Cash Distributions (954,306) (954,306) (954,306) (954,306) (954,306) (954,306) Special Distributions - - - - - - Repurchase of Units Redemption of units-Class Action settlement Cash Flows from Investing Activities: - Current Quarter Purchases - - - - - - Fees on Purchases - - - - - - Capitalized Costs - - - - - - Proceeds from Liquidations 12,500 12,500 12,500 12,500 10,000 10,000 ----------- ----------- ----------- ----------- ----------- ----------- Net Change in Cash 2,778,822 2,778,822 2,778,822 2,778,822 2,778,822 2,778,822 ENDING CASH BALANCE 49,097,660 49,019,453 48,988,107 48,978,494 48,955,293 48,894,191 PLM EQUIPMENT GROWTH FUND V Reconciliation Of Cash Balances 09/30/06 12/31/06 03/31/07 ----------- ----------- ------------ BEGINNING CASH BALANCE 46,070,367 46,061,209 53,955,862 - - - Net Operating Cash Flow 1,187,159 805,642 (3,125) Non-Operating Cash Flow (9,410) (9,410) - paradise repayment Dry-dock Accrual Addback - - - Actual Dry-dock/Other - - - Cash Flows From Financing Activities: Management fee deferral - - - Proceeds from Notes Payable - - - Principal Payments on Notes (250,000) (250,000) (250,000) Mandatory Prepayments 60% - - - Cash Distributions (954,306) - - Special Distributions - - (53,702,737) Repurchase of Units Redemption of units-Class Action settlement Cash Flows from Investing Activities: Current Quarter Purchases - - - Fees on Purchases - - Capitalized Costs - - - Proceeds from Liquidations 17,399 7,348,421 - ----------- ----------- ------------ Net Change in Cash 2,778,822 2,778,822 2,778,822 ENDING CASH BALANCE 48,849,188 48,840,031 56,734,683
PLM EQUIPMENT GROWTH FUND VI Income Forecast OPERATING REVENUES 09/30/01 12/31/01 03/31/02 06/30/02 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 Aircraft Revenue 908,193 620,743 902,883 913,024 907,013 900,735 802,679 795,831 788,680 Containers Revenue 1,105,341 1,200,316 1,164,179 1,165,776 1,167,263 1,156,117 1,103,533 1,072,002 1,041,205 MODU Revenue - - - - - - - - - Railcars Revenue 827,227 878,453 915,070 973,118 962,271 963,740 958,061 968,688 945,882 Trailers Revenue 222,924 277,304 243,584 243,584 243,584 243,584 231,308 231,308 231,308 Vessels Revenue 1,170,993 1,207,500 1,181,250 964,688 1,183,350 1,183,350 - - - Redeployment (Net) - - - - - - - - - Interest Revenue 178,851 232,384 136,064 142,689 250,880 254,790 271,012 285,252 289,097 Other Revenue - ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 4,413,529 4,416,699 4,543,029 4,402,878 4,714,361 4,702,316 3,366,593 3,353,081 3,296,171 OPERATING EXPENSES Direct Operating Expenses Air Expenses 37,678 138,985 66,602 57,066 55,875 143,155 64,899 55,607 54,447 Container Expenses 15,261 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 MODU Expenses - - - - - - - - - Rail Expenses 444,660 313,605 323,013 323,013 321,844 321,259 329,693 329,693 329,659 Trailer Expense 151,880 131,977 119,022 118,553 122,237 135,936 122,592 122,110 125,904 Vessel Expenses 617,088 664,920 650,744 643,999 652,096 652,096 - - - ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 1,266,567 1,252,487 1,162,380 1,145,632 1,155,053 1,255,446 520,184 510,409 513,011 Indirect Operating Expense Legal 41,395 3,992 6,849 3,226 4,625 3,390 5,571 2,585 3,655 Audit 38,364 22,756 23,439 23,439 23,439 23,439 24,142 24,142 24,142 Insurance 16,125 13,542 43,856 8,240 10,327 11,501 35,671 6,603 8,159 Other 154,683 140,339 145,831 147,953 136,063 117,533 142,435 144,893 128,103 Management Fees 219,899 220,203 228,450 222,157 232,285 231,705 166,936 165,966 162,687 Interest Expense 1,571,872 397,500 187,500 403,125 381,908 360,691 339,474 318,257 297,039 ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 2,042,338 798,332 635,925 808,140 788,646 748,258 714,227 662,445 623,785 Total All Expenses 3,308,905 2,050,819 1,798,305 1,953,771 1,943,699 2,003,704 1,234,411 1,172,854 1,136,796 ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- NET OPERATING CASH FLOW 1,104,624 2,365,881 2,744,723 2,449,107 2,770,662 2,698,611 2,132,182 2,180,227 2,159,375 PLM EQUIPMENT GROWTH FUND VI Income Forecast OPERATING REVENUES 12/31/03 ------------------------------ --------- Aircraft Revenue 781,211 Containers Revenue 1,000,385 MODU Revenue Railcars Revenue 937,755 Trailers Revenue 226,574 Vessels Revenue - Redeployment (Net) - Interest Revenue 283,649 Other Revenue ------------------------------ --------- Total 3,229,573 OPERATING EXPENSES Direct Operating Expenses Air Expenses 139,494 Container Expenses 3,000 MODU Expenses - Rail Expenses 329,643 Trailer Expense 134,283 Vessel Expenses - ------------------------------ --------- Total 606,420 Indirect Operating Expense Legal 3,162 Audit 24,142 Insurance 10,726 Other 117,173 Management Fees 159,691 Interest Expense 275,822 ------------------------------ --------- Total 590,716 Total All Expenses 1,197,136 ------------------------------ --------- NET OPERATING CASH FLOW 2,032,437
PLM EQUIPMENT GROWTH FUND VI Income Forecast OPERATING REVENUES 03/31/04 06/30/04 09/30/04 12/31/04 03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Aircraft Revenue 773,410 765,263 700,898 569,200 569,200 569,200 569,200 569,200 345,640 Containers Revenue 940,964 885,236 842,192 792,657 729,900 694,753 661,272 622,642 573,598 MODU Revenue - - - - Railcars Revenue 925,561 928,692 918,373 916,658 907,132 878,327 880,877 823,733 797,007 Trailers Revenue 201,393 192,924 184,767 176,925 165,792 158,731 151,976 145,529 136,358 Vessels Revenue - - - - - - - - - Redeployment (Net) - 810,000 1,458,000 1,458,000 1,458,000 1,458,000 1,458,000 1,458,000 1,458,000 Interest Revenue 277,257 222,579 98,194 47,073 68,058 76,232 85,785 95,148 103,503 Other Revenue ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 3,118,585 3,804,693 4,202,424 3,960,513 3,898,081 3,835,243 3,807,110 3,714,251 3,414,107 OPERATING EXPENSES Direct Operating Expenses Air Expenses 66,846 57,275 56,080 126,349 60,547 51,878 50,796 130,140 62,363 Container Expenses 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 MODU Expenses - Rail Expenses 339,498 339,498 335,737 335,721 345,110 338,641 338,498 319,076 310,301 Trailer Expense 115,932 110,695 109,206 116,384 100,396 95,834 94,516 100,765 86,956 Vessel Expenses - - - - - - - - - ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 525,276 510,468 504,023 581,454 509,053 489,353 486,810 552,981 462,621 Indirect Operating Expense Legal 5,326 3,239 5,235 4,223 7,155 3,331 4,711 4,090 6,879 Audit 24,866 24,866 24,866 24,866 25,612 25,612 25,612 25,612 26,380 Insurance 34,104 8,275 11,688 14,327 45,814 8,509 10,518 13,876 44,047 Other 144,550 155,105 147,910 132,064 157,629 159,702 144,952 132,970 159,788 Management Fees 154,451 191,798 219,628 214,005 209,644 205,517 203,684 197,430 181,470 Interest Expense 254,605 233,388 212,171 190,954 169,737 148,520 127,303 106,086 84,868 ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 617,902 616,671 621,499 580,440 615,591 551,191 516,779 480,063 503,433 Total All Expenses 1,143,179 1,127,139 1,125,522 1,161,893 1,124,644 1,040,544 1,003,589 1,033,044 966,054 ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- NET OPERATING CASH FLOW 1,975,407 2,677,553 3,076,902 2,798,619 2,773,438 2,794,698 2,803,520 2,681,207 2,448,053 PLM EQUIPMENT GROWTH FUND VI Income Forecast OPERATING REVENUES 06/30/06 09/30/06 12/31/06 03/31/07 ------------------------------ --------- --------- --------- --------- Aircraft Revenue 315,000 315,000 315,000 - Containers Revenue 546,168 520,023 252,228 - MODU Revenue Railcars Revenue 784,428 775,420 - - Trailers Revenue 130,651 125,245 61,271 - Vessels Revenue - - - - Redeployment (Net) 1,458,000 1,458,000 729,000 - Interest Revenue 110,063 114,967 97,032 362,202 Other Revenue ------------------------------ --------- --------- --------- --------- Total 3,344,310 3,308,655 1,454,531 362,202 OPERATING EXPENSES Direct Operating Expenses Air Expenses 53,434 52,320 134,044 10,355 Container Expenses 3,000 3,000 3,000 - MODU Expenses Rail Expenses 304,230 301,509 - - Trailer Expense 83,103 82,065 - - Vessel Expenses - - - - ------------------------------ --------- --------- --------- --------- Total 443,767 438,894 137,044 10,355 Indirect Operating Expense Legal 3,181 4,509 3,918 - Audit 26,380 26,380 26,380 - Insurance 8,125 10,066 13,291 - Other 161,952 145,574 133,487 - Management Fees 177,401 175,193 69,100 - Interest Expense 63,651 42,434 21,217 (0) ------------------------------ --------- --------- --------- --------- Total 440,691 404,157 267,394 (0) Total All Expenses 884,458 843,050 404,438 10,355 ------------------------------ --------- --------- --------- --------- NET OPERATING CASH FLOW 2,459,852 2,465,604 1,050,093 351,847
PLM EQUIPMENT GROWTH FUND VI Reconciliation Of Cash balances 09/30/01 12/31/01 03/31/02 06/30/02 09/30/02 12/31/02 03/31/03 ----------- ------------ ----------- ----------- ----------- ----------- ----------- BEGINNING CASH BALANCE 18,173,856 19,007,586 2,762,626 20,067,608 20,073,193 20,693,218 22,668,728 Net Operating Cash Flow 1,104,624 2,365,881 2,744,723 2,449,107 2,770,662 2,698,611 2,132,182 Non-Operating Cash Flow 1,134,080 124,112 129,623 135,378 141,389 147,667 154,223 Dry-dock Accrual Addback - 12,824 12,824 6,341 - - - Actual Dry-dock/Other - - - (262,500) - - - Cash Flows From Financing Activities: management fee deferral -- -- 57,113 55,539 58,071 57,926 41,734 Proceeds from Notes Payable - 15,000,000 15,000,000 - - - - Principal Payments on Notes - (30,000,000) (750,000) (1,539,474) (1,539,474) (1,539,474) (1,539,474) Debt fees - (1,069,364) - - - (61,579) - Cash Distributions - - - (948,254) (948,254) (948,254) (948,254) Special Distributions - - - - - - - Repurchase of Units - - - - - - - 6% special redemption for lawsuit settlement (2,767,587) Cash Flows from Investing Activities: Lease Negotiation Fees (150,573) Current Quarter Purchases - - - - - - - Fees on Purchases (1,310,006) - - - - - - Capitalized Costs - - - - - - - Proceeds from Liquidations 55,605 89,175 110,700 109,447 137,630 1,620,613 462,386 ------------------------------------- ----------- ------------ ----------- ----------- ----------- ----------- ----------- Net Change in Cash 833,730 (16,244,960) 17,304,982 5,585 620,025 1,975,511 302,797 ------------------------------------- ----------- ------------ ----------- ----------- ----------- ----------- ----------- ENDING CASH BALANCE 19,007,586 2,762,626 20,067,608 20,073,193 20,693,218 22,668,728 22,971,526 PLM EQUIPMENT GROWTH FUND VI Reconciliation Of Cash balances 06/30/03 09/30/03 12/31/03 03/31/04 ----------- ----------- ----------- ------------ BEGINNING CASH BALANCE 22,971,526 23,284,003 22,099,759 22,261,424 Net Operating Cash Flow 2,180,227 2,159,375 2,032,437 1,975,407 Non-Operating Cash Flow 161,071 168,222 175,691 183,492 Dry-dock Accrual Addback - - - - Actual Dry-dock/Other - - - - Cash Flows From Financing Activities: management fee deferral 41,492 40,672 39,923 38,613 Proceeds from Notes Payable - - - - Principal Payments on Notes (1,539,474) (1,539,474) (1,539,474) (1,539,474) Debt fees - - (46,184) -- Cash Distributions (948,254) (948,254) (948,254) (948,254) Special Distributions - (1,465,484) - (1,293,074) Repurchase of Units - - - - 6% special redemption for lawsuit settlement Cash Flows from Investing Activities: Lease Negotiation Fees Current Quarter Purchases - - - (15,000,000) Fees on Purchases - - - (825,000) Capitalized Costs - - - - Proceeds from Liquidations 417,416 400,698 447,526 8,498,004 ------------------------------------- ----------- ----------- ----------- ------------ Net Change in Cash 312,477 (1,184,244) 161,665 (8,910,287) ------------------------------------- ----------- ----------- ----------- ------------ ENDING CASH BALANCE 23,284,003 22,099,759 22,261,424 13,351,137
PLM EQUIPMENT GROWTH FUND VI Reconciliation Of Cash balances 06/30/04 09/30/04 12/31/04 03/31/05 06/30/05 09/30/05 12/31/05 ------------ ----------- ----------- ----------- ----------- ----------- ----------- BEGINNING CASH BALANCE 13,351,137 2,359,926 5,171,697 5,717,575 6,479,617 7,245,911 7,977,711 Net Operating Cash Flow 2,677,553 3,076,902 2,798,619 2,773,438 2,794,698 2,803,520 2,681,207 Non-Operating Cash Flow 191,639 - - - - - - Dry-dock Accrual Addback - - - - - - - Actual Dry-dock/Other - - - - - - - Cash Flows From Financing Activities: management fee deferral 47,949 (239,516) (239,516) Proceeds from Notes Payable Principal Payments on Notes (1,539,474) (1,539,474) (1,539,474) (1,539,474) (1,539,474) (1,539,474) (1,539,474) Debt fees -- -- (30,789) -- -- -- (15,395) Cash Distributions (948,254) (948,254) (948,254) (948,254) (948,254) (948,254) (948,254) Special Distributions - - - - - - - Repurchase of Units 6% special redemption for lawsuit settlement Cash Flows from Investing Activities: Lease Negotiation Fees - Current Quarter Purchases (12,000,000) - - Fees on Purchases Capitalized Costs Proceeds from Liquidations 579,375 2,462,113 505,291 476,332 459,323 416,008 427,027 ------------------------------------- ------------ ----------- ----------- ----------- ----------- ----------- ----------- Net Change in Cash (10,991,211) 2,811,771 545,878 762,042 766,294 731,800 605,112 ------------------------------------- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ENDING CASH BALANCE 2,359,926 5,171,697 5,717,575 6,479,617 7,245,911 7,977,711 8,582,823 PLM EQUIPMENT GROWTH FUND VI Reconciliation Of Cash balances 03/31/06 06/30/06 09/30/06 12/31/06 03/31/07 ----------- ----------- ----------- ----------- ------------ BEGINNING CASH BALANCE 8,582,823 9,027,310 9,367,334 6,157,770 51,794,539 Net Operating Cash Flow 2,448,053 2,459,852 2,465,604 1,050,093 351,847 Non-Operating Cash Flow - - - - - Dry-dock Accrual Addback - - - - - Actual Dry-dock/Other - - - - - Cash Flows From Financing Activities: management fee deferral Proceeds from Notes Payable Principal Payments on Notes (1,539,474) (1,539,474) (1,539,474) (1,539,474) Debt fees -- -- -- 0 Cash Distributions (948,254) (948,254) (948,254) (948,254) - Special Distributions - - (3,519,643) - (52,146,386) Repurchase of Units 6% special redemption for lawsuit settlement Cash Flows from Investing Activities: Lease Negotiation Fees Current Quarter Purchases Fees on Purchases Capitalized Costs Proceeds from Liquidations 484,162 367,900 332,202 47,074,403 - ------------------------------------- ----------- ----------- ----------- ----------- ------------ Net Change in Cash 444,487 340,025 (3,209,564) 45,636,768 (51,794,539) ------------------------------------- ----------- ----------- ----------- ----------- ------------ ENDING CASH BALANCE 9,027,310 9,367,334 6,157,770 51,794,539 -
PLM EQUIPMENT GROWTH FUND VII Income Forecast OPERATING REVENUES 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 06/30/04 09/30/04 ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Aircraft Revenue 757,339 486,000 486,000 486,000 486,000 486,000 486,000 486,000 486,000 Containers 1,686,923 1,680,712 1,636,753 1,654,720 1,664,036 1,653,220 1,609,446 1,602,871 1,596,161 Railcars Revenue 597,472 586,349 577,322 573,089 574,561 543,137 523,539 543,492 544,491 Trailers Revenue 174,497 174,497 165,703 165,703 165,703 162,998 146,183 141,477 137,086 Vessels Revenue 1,389,568 1,389,568 1,359,360 1,374,464 1,389,568 1,389,568 1,374,464 1,374,464 1,389,568 Redeployment (Net) 157,500 367,500 367,500 367,500 583,500 583,500 583,500 799,500 799,500 Interest Revenue 37,212 37,646 27,801 43,585 43,278 45,205 56,590 41,268 44,113 Other - - - - - - - - - Total 4,800,511 4,722,272 4,620,438 4,665,061 4,906,646 4,863,628 4,779,722 4,989,072 4,996,919 ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- OPERATING EXPENSES Direct Operating Expenses Air Expenses 39,316 29,771 23,858 27,321 32,831 24,860 24,574 28,141 33,816 Containers 1,545 1,545 36,421 36,808 40,756 40,731 48,876 48,796 49,072 Rail Expenses 204,407 203,821 206,379 197,420 197,420 192,609 198,233 197,781 197,781 Trailer Expense 87,568 97,381 87,822 87,475 90,195 98,665 86,026 82,929 82,852 Vessel Expenses 549,424 549,424 537,480 543,452 549,424 549,424 543,452 543,452 549,424 ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 882,259 881,943 891,961 892,477 910,625 906,289 901,161 901,098 912,944 Indirect Operating Expense Legal 5,845 5,274 9,057 5,639 5,919 5,592 9,928 5,964 6,244 Audit 18,282 18,282 18,831 18,831 18,831 18,831 19,396 19,396 19,396 Insurance 11,135 14,137 53,810 11,284 11,276 14,990 58,987 11,934 11,895 Other 168,995 160,326 184,262 206,268 173,170 166,773 192,519 213,711 179,664 Management Fees 235,364 230,156 224,775 224,651 235,741 232,166 226,677 236,245 235,162 Interest Expense 252,508 252,508 197,983 197,983 197,983 197,983 143,458 143,458 143,458 ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 692,130 680,684 688,718 664,656 642,919 636,335 650,964 630,707 595,818 Total All Expenses 1,574,389 1,562,626 1,580,679 1,557,133 1,553,544 1,542,624 1,552,125 1,531,805 1,508,762 ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- NET OPERATING CASH FLOW 3,226,122 3,159,646 3,039,759 3,107,928 3,353,102 3,321,004 3,227,596 3,457,267 3,488,157 ============================== ========= ========= ========= ========= ========= ========= ========= ========= ========= PLM EQUIPMENT GROWTH FUND VII Income Forecast OPERATING REVENUES 12/31/04 ------------------------------ --------- Aircraft Revenue 486,000 Containers 1,581,276 Railcars Revenue 542,800 Trailers Revenue 132,694 Vessels Revenue 936,448 Redeployment (Net) 799,500 Interest Revenue 73,744 Other - ------------------------------ --------- Total 4,552,462 OPERATING EXPENSES Direct Operating Expenses Air Expenses 25,606 Containers 48,819 Rail Expenses 197,507 Trailer Expense 90,691 Vessel Expenses 370,264 ------------------------------ --------- Total 732,887 Indirect Operating Expense Legal 4,919 Audit 19,396 Insurance 13,184 Other 163,159 Management Fees 209,930 Interest Expense 143,458 ------------------------------ --------- Total 554,045 Total All Expenses 1,286,932 ------------------------------ --------- NET OPERATING CASH FLOW 3,265,530 ============================== =========
PLM EQUIPMENT GROWTH FUND VII Income Forecast OPERATING REVENUES 03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 06/30/06 09/30/06 12/31/06 ------------------------------ --------- --------- --------- --------- ---------- ---------- ---------- --------- Aircraft Revenue 486,000 486,000 486,000 486,000 335,611 315,000 315,000 315,000 Containers 1,512,393 1,507,343 1,469,122 1,425,964 1,347,667 1,317,219 1,035,592 - Railcars Revenue 525,225 513,289 518,354 498,573 451,996 449,691 445,747 - Trailers Revenue 125,572 121,274 117,283 113,598 107,525 103,920 100,316 49,257 Vessels Revenue - - - - - - - - Redeployment (Net) 961,500 961,500 961,500 961,500 961,500 961,500 961,500 480,750 Interest Revenue 85,356 93,347 74,292 55,638 35,385 13,146 34,830 52,971 Other - - - - - - - - ------------------------------ --------- --------- --------- --------- ---------- ---------- ---------- --------- Total 3,696,047 3,682,753 3,626,552 3,541,273 3,239,684 3,160,476 2,892,985 897,978 OPERATING EXPENSES Direct Operating Expenses Air Expenses 25,311 28,985 34,830 26,374 26,070 29,854 35,875 27,165 Containers 68,259 68,460 119,227 117,829 186,527 185,504 183,844 - Rail Expenses 197,597 196,524 196,524 191,123 173,902 171,551 170,266 - Trailer Expense 79,127 75,990 75,811 83,082 72,581 Vessel Expenses - - - - - - - - ------------------------------ --------- --------- --------- --------- ---------- ---------- ---------- --------- Total 370,295 369,959 426,393 418,409 459,080 386,910 389,985 27,165 Indirect Operating Expense Legal 8,399 5,028 5,242 4,920 8,324 4,957 4,822 268 Audit 19,977 19,977 19,977 19,977 20,577 20,577 20,577 20,577 Insurance 49,902 10,061 9,986 13,187 49,454 9,920 9,186 720 Other 189,980 211,131 174,580 166,554 194,188 215,680 174,730 122,410 Management Fees 166,359 163,855 162,575 159,105 145,232 142,611 140,944 62,289 Interest Expense 70,758 70,758 70,758 70,758 (1,942) (1,942) (1,942) (1,942) ------------------------------ --------- --------- --------- --------- ---------- ---------- ---------- --------- Total 505,376 480,810 443,119 434,501 415,832 391,803 348,316 204,322 Total All Expenses 875,671 850,769 869,512 852,910 874,912 778,713 738,301 231,488 ------------------------------ --------- --------- --------- --------- ---------- ---------- ---------- --------- NET OPERATING CASH FLOW 2,820,375 2,831,984 2,757,040 2,688,363 2,364,772 2,381,764 2,154,685 666,491 ============================== ========= ========= ========= ========= ========== ========== ========== ========= PLM EQUIPMENT GROWTH FUND VII Income Forecast OPERATING REVENUES 03/31/07 ------------------------------ --------- Aircraft Revenue - Containers - Railcars Revenue - Trailers Revenue - Vessels Revenue - Redeployment (Net) - Interest Revenue 300,781 Other - ------------------------------ --------- Total 300,781 OPERATING EXPENSES Direct Operating Expenses Air Expenses - Containers - Rail Expenses - Trailer Expense Vessel Expenses - ------------------------------ --------- Total - Indirect Operating Expense Legal 0 Audit 0 Insurance 0 Other 0 Management Fees 0 Interest Expense (1,942) ------------------------------ --------- Total (1,942) ------------------------------ --------- Total All Expenses (1,942) ------------------------------ --------- NET OPERATING CASH FLOW 302,723 ============================== =========
PLM EQUIPMENT GROWTH FUND VII Reconciliation Of Cash balances 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- BEGINNING CASH BALANCE 4,035,871 1,987,472 2,460,622 4,512,980 2,411,462 4,821,283 4,233,093 - - - - - - - Net Operating Cash Flow 3,226,122 3,159,646 3,039,759 3,107,928 3,353,102 3,321,004 3,227,596 - - - - - - - Non-Operating Cash Flow - - - - - - - - - - - - Dry-dock Accrual Addback - - - - - - - Actual Dry-dock/Other - - - - - - - Management fee deferral - - - - - - - Cash Flows From Financing Activities: - - - - - - - - - - - - - - Proceeds from Notes Payable - - - - - - - Principal Payments on Notes - (3,000,000) - - - (3,000,000) - Debt fees - - - - - - - Cash Distributions (1,064,714) (1,064,714) (1,064,714) (1,064,714) (1,064,714) (1,064,714) (1,064,714) Special Distributions - - - - - - - Repurchase of Units - - - - - - - 5% special redemption for lawsuit settlement - - - - - - - Cash Flows from Investing Activities: - - - - - - - - - - - - - - Current Quarter Purchases (4,000,000) - - (4,000,000) - - (4,000,000) Fees on Purchases (220,000) - - (220,000) - - (220,000) Capitalized Costs - - - - - - - Proceeds from Liquidations 10,193 1,378,218 77,313 75,268 121,433 155,520 193,765 ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net Change in Cash (2,048,399) 473,150 2,052,359 (2,101,518) 2,409,821 (588,190) (1,863,353) ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ENDING CASH BALANCE 1,987,472 2,460,622 4,512,980 2,411,462 4,821,283 4,233,093 2,369,740 06/30/04 09/30/04 ------------------------------------- ----------- ----------- BEGINNING CASH BALANCE 2,369,740 4,688,369 - - Net Operating Cash Flow 3,457,267 3,488,157 - - Non-Operating Cash Flow - - Dry-dock Accrual Addback - - Actual Dry-dock/Other - - Management fee deferral - - Cash Flows From Financing Activities: - - - - Proceeds from Notes Payable - Principal Payments on Notes - - Debt fees - - Cash Distributions (1,330,892) (1,330,892) Special Distributions - - Repurchase of Units - - 5% special redemption for lawsuit settlement - - Cash Flows from Investing Activities: - - - - Current Quarter Purchases - Fees on Purchases - - Capitalized Costs - - Proceeds from Liquidations 192,255 264,980 Net Change in Cash 2,318,629 2,422,244 ------------------------------------- ----------- ----------- ENDING CASH BALANCE 4,688,369 7,110,614
PLM EQUIPMENT GROWTH FUND VII Reconciliation Of Cash balances 12/31/04 03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 06/30/06 ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- BEGINNING CASH BALANCE 7,110,614 6,546,394 8,389,072 3,497,721 5,404,312 257,308 1,845,972 - - - - - - - Net Operating Cash Flow 3,265,530 2,820,375 2,831,984 2,757,040 2,688,363 2,364,772 2,381,764 - - - - - - - Non-Operating Cash Flow - - - - - - - - - - - - - - Dry-dock Accrual Addback - - - - - - - Actual Dry-dock/Other - - - - - - - Management fee deferral - 41,590 40,964 40,644 39,776 36,308 35,653 Cash Flows From Financing Activities: - - - - - - - - - - - - - - Proceeds from Notes Payable - - - - - - - Principal Payments on Notes (4,000,000) - - - (4,000,000) - - Debt fees - - - - - - - Cash Distributions (1,330,892) (1,330,892) (1,330,892) (1,330,892) (1,330,892) (1,330,892) (1,064,714) Special Distributions - - (6,774,590) - (3,000,000) - - Repurchase of Units - - - - - - - 5% special redemption for lawsuit settlement - - - - - - - Cash Flows from Investing Activities: - - - - - - - - - - - - - - Current Quarter Purchases (3,000,000) - - - - - - Fees on Purchases (165,000) - - - - - - Capitalized Costs - - - - - - - Proceeds from Liquidations 4,666,143 311,605 341,184 439,799 455,749 518,476 528,188 Net Change in Cash (564,220) 1,842,678 (4,891,350) 1,906,591 (5,147,004) 1,588,664 1,880,891 ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ENDING CASH BALANCE 6,546,394 8,389,072 3,497,721 5,404,312 257,308 1,845,972 3,726,863 09/30/06 12/31/06 03/31/07 ------------------------------------- ----------- ----------- ------------ BEGINNING CASH BALANCE 3,726,863 4,748,537 43,376,366 - - - Net Operating Cash Flow 2,154,685 666,491 302,723 - - - Non-Operating Cash Flow - - - - - - Dry-dock Accrual Addback - - - Actual Dry-dock/Other - - - Management fee deferral (117,467) (117,467) Cash Flows From Financing Activities: - - - - - - Proceeds from Notes Payable - - - Principal Payments on Notes - - - Debt fees - - - Cash Distributions - - - Special Distributions (3,726,863) (4,748,537) (43,679,088) Repurchase of Units - - - 5% special redemption for lawsuit settlement - - - Cash Flows from Investing Activities: - - - - - - Current Quarter Purchases - - - Fees on Purchases - - - Capitalized Costs - - - Proceeds from Liquidations 2,711,319 42,827,342 - Net Change in Cash 1,021,674 38,627,829 (43,376,366) ------------------------------------- ----------- ----------- ------------ ENDING CASH BALANCE 4,748,537 43,376,366 -
PLM INCOME FUND I INCOME FORECAST 10/9/2002 OPERATING REVENUES 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 06/30/04 09/30/04 --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Aircraft Revenue 1,329,242 315,000 315,000 315,000 315,000 315,000 315,000 315,000 315,000 Containers Revenue 1,431,266 1,427,028 1,377,685 1,388,376 1,403,066 1,397,148 1,366,728 1,324,667 1,334,848 Railcars Revenue 847,019 771,874 806,848 839,537 830,766 822,562 804,320 812,966 809,413 Trailers Revenue 314,095 314,095 298,266 298,266 298,266 292,179 260,055 249,389 239,037 Vessels Revenue 2,208,000 2,208,000 - - - - - - - Redeployment (Net) - - - - - - - - - Interest Revenue 280,079 313,119 321,004 173,358 37,810 146,603 188,652 79,996 36,398 --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 6,409,700 5,349,115 3,118,803 3,014,537 2,884,908 2,973,491 2,934,755 2,782,017 2,734,696 --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- - - OPERATING EXPENSES - - Direct Operating Expenses - - Air Expenses 44,078 37,362 44,991 31,642 45,400 38,483 19,083 13,421 19,256 Container Expenses 1,545 1,545 36,907 37,300 38,388 38,388 46,063 107,680 108,181 Rail Expenses 223,916 222,223 227,140 228,308 228,308 227,682 233,298 234,497 234,497 Trailer Expense 116,424 116,424 116,424 116,424 116,424 111,672 107,184 102,696 98,472 Vessel Expenses 1,196,000 1,196,000 - - - - - - - --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 1,581,963 1,573,554 425,462 413,674 428,520 416,225 405,628 458,294 460,406 Indirect Operating Expense Legal 5,623 6,549 11,668 6,181 5,792 6,745 12,018 6,367 5,966 Audit 25,000 25,000 25,750 25,750 25,750 25,750 26,523 26,523 26,523 Insurance 13,948 13,948 60,107 10,775 14,366 14,366 61,910 11,098 14,797 Other 152,579 158,314 188,458 190,181 147,863 156,724 193,418 195,079 151,707 Management Fees 320,569 264,597 154,360 157,395 157,528 156,649 151,666 150,959 150,916 Interest Expense 348,175 348,175 293,200 293,200 293,200 293,200 238,225 238,225 238,225 --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 865,894 816,583 733,543 683,482 644,499 653,435 683,760 628,250 588,134 Total All Expenses 2,447,857 2,390,137 1,159,005 1,097,156 1,073,019 1,069,659 1,089,388 1,086,544 1,048,540 NET OPERATING CASH FLOW 3,961,844 2,958,978 1,959,798 1,917,381 1,811,889 1,903,831 1,845,367 1,695,473 1,686,155
PLM INCOME FUND I INCOME FORECAST 10/9/2002 OPERATING REVENUES 1997 12/31/04 03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 06/30/06 09/30/06 --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Aircraft Revenue 315,000 315,000 315,000 315,000 315,000 315,000 315,000 315,000 Containers Revenue 1,328,217 1,249,641 1,242,503 1,222,253 1,202,529 1,115,919 1,088,443 1,074,616 Railcars Revenue 809,519 804,809 792,281 791,911 780,203 783,898 780,216 778,309 Trailers Revenue 229,312 215,223 206,319 197,722 189,433 177,506 169,997 162,789 Vessels Revenue - - - - - - - - Redeployment (Net) - - - - - - - - Interest Revenue 39,234 23,076 6,413 8,188 9,732 (20,552) (51,106) (50,272) --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 2,721,283 2,607,749 2,562,515 2,535,075 2,496,897 2,371,771 2,302,549 2,280,442 ------------------------------------ --------- --------- --------- --------- --------- ---------- ---------- ---------- OPERATING EXPENSES Direct Operating Expenses Air Expenses 16,322 19,655 13,824 19,834 16,812 20,245 14,238 20,429 Container Expenses 107,506 138,114 172,433 222,908 220,111 256,005 252,389 248,869 Rail Expenses 234,436 240,223 241,453 241,453 241,390 240,747 242,009 241,380 Trailer Expense 94,512 90,552 86,856 83,160 79,728 76,296 73,128 69,960 Vessel Expenses - - - - - - - - --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 452,776 488,544 514,566 567,355 558,041 593,293 581,765 580,638 Indirect Operating Expense Legal 6,948 12,378 6,558 6,145 7,156 12,750 6,755 6,329 Audit 26,523 27,318 27,318 27,318 27,318 28,138 28,138 28,138 Insurance 14,797 63,767 11,431 15,241 15,241 65,680 11,774 15,699 Other 160,572 198,183 200,174 155,554 164,624 203,343 205,337 159,394 Management Fees 147,381 144,950 144,318 142,652 141,418 139,191 139,221 139,391 Interest Expense 238,225 183,250 183,250 183,250 183,250 91,625 91,625 91,625 --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total 594,445 629,847 573,049 530,161 539,008 540,727 482,849 440,575 Total All Expenses 1,047,222 1,118,391 1,087,615 1,097,516 1,097,049 1,134,020 1,064,614 1,021,213 NET OPERATING CASH FLOW 1,674,061 1,489,358 1,474,900 1,437,559 1,399,848 1,237,751 1,237,935 1,259,228 PLM INCOME FUND I INCOME FORECAST OPERATING REVENUES 12/31/06 03/31/07 TOTALS Aircraft Revenue 315,000 10,914,582 IRR Containers Revenue - - 0 Railcars Revenue - - 3,623,057 Trailers Revenue 79,592 - 3,616,364 Vessels Revenue - - 4,929,219 Redeployment (Net) - - 0 Assume 5% of prev qtr's Interest Revenue (49,343) 438,131 cash bal. Total 345,249 - 27,129,958 ------------------------------------ --------- -------- ---------- OPERATING EXPENSES Direct Operating Expenses Air Expenses 17,316 - 96,626 Container Expenses - - 678 Rail Expenses - - 1,037,243 Trailer Expense - - 1,043,221 Vessel Expenses - - 2,580,164 Total 17,316 - 4,832,191 Indirect Operating Expense Legal 7,371 - 103,419 Audit 28,138 - 41,325 Insurance 15,699 - 38,975 Other 163,996 - 474,837 Management Fees 50,239 - 1,320,710 Interest Expense 91,625 - 1,417,581 Total 357,068 - 3,396,847 Total All Expenses 374,384 - 8,229,038 NET OPERATING CASH FLOW (29,135) - 18,900,921
PLM INCOME FUND I Reconciliation Of Cash balances 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 ------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------ ----------- BEGINNING CASH BALANCE 23,704,006 26,395,045 24,965,561 2,771,717 3,277,937 20,178,468 10,005,883 Net Operating Cash Flow 3,961,844 2,958,978 1,959,798 1,917,381 1,811,889 1,903,831 1,845,367 Other Cash Flow from Operations 191,345 41,347 41,347 41,347 41,347 41,347 41,347 Dry-dock Accrual Addback - - - - - - - Actual Dry-dock/Other - - - - - - - Cash Flows From Financing Activities: Proceeds from Notes Payable - - - - - - - Principal Payments on Notes - (3,000,000) - - - (3,000,000) - Debt fees - N/A - - - - - - - Cash Distributions (1,462,150) (1,462,150) (1,462,150) (1,462,150) (1,462,150) (1,462,150) (1,462,150) Special Distributions - - (22,753,411) - - (12,966,318) - Other Financing - - - - - - - Cash Flows from Investing Activities: Current Quarter Purchases - - - - - - - Fees on Purchases - N/A - - - - - - - Capitalized Costs - - - - - - - Proceeds from Liquidations - 32,342 20,572 9,641 16,509,446 5,310,705 156,828 ------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------ ----------- NET CHANGE IN CASH 2,691,039 (1,429,483) (22,193,844) 506,219 16,900,531 (10,172,585) 581,392 ENDING CASH BALANCE 26,395,045 24,965,561 2,771,717 3,277,937 20,178,468 10,005,883 10,587,275 PLM INCOME FUND I Reconciliation Of Cash balances 06/30/04 09/30/04 ------------------------------------- ----------- ----------- BEGINNING CASH BALANCE 10,587,275 10,823,865 Net Operating Cash Flow 1,695,473 1,686,155 Other Cash Flow from Operations 41,347 41,347 Dry-dock Accrual Addback - - Actual Dry-dock/Other - - Cash Flows From Financing Activities: Proceeds from Notes Payable - - Principal Payments on Notes - - Debt fees - N/A - - Cash Distributions (1,657,104) (1,657,104) Special Distributions - Other Financing - - Cash Flows from Investing Activities: Current Quarter Purchases - - Fees on Purchases - N/A - - Capitalized Costs - - Proceeds from Liquidations 156,873 146,786 ------------------------------------- ----------- ----------- NET CHANGE IN CASH 236,590 217,185 ------------------------------------- ----------- ----------- ENDING CASH BALANCE 10,823,865 11,041,051
PLM INCOME FUND I Reconciliation Of Cash balances 12/31/04 03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 06/30/06 ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- BEGINNING CASH BALANCE 11,041,051 8,238,567 8,374,933 8,522,675 8,621,869 3,677,269 3,733,179 Net Operating Cash Flow 1,674,061 1,489,358 1,474,900 1,437,559 1,399,848 1,237,751 1,237,935 Other Cash Flow from Operations 41,347 41,347 41,347 41,347 41,347 41,347 41,347 Dry-dock Accrual Addback - - - - - - - Actual Dry-dock/Other - - - - - - - Cash Flows From Financing Activities: Proceeds from Notes Payable - - - - - - - Principal Payments on Notes (3,000,000) - - - (5,000,000) - - Debt fees - N/A - - - - - - - Cash Distributions (1,657,104) (1,657,104) (1,657,104) (1,657,104) (1,657,104) (1,657,104) (1,657,104) Special Distributions - - - - - - - Other Financing - - - - - - - Cash Flows from Investing Activities: Current Quarter Purchases - - - - - - - Fees on Purchases - N/A - - - - - - - Capitalized Costs - - - - - - - Proceeds from Liquidations 139,212 262,765 288,597 277,391 271,309 433,916 455,396 ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- NET CHANGE IN CASH (2,802,484) 136,366 147,742 99,194 (4,944,599) 55,910 77,575 ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ENDING CASH BALANCE 8,238,567 8,374,933 8,522,675 8,621,869 3,677,269 3,733,179 3,810,754 PLM INCOME FUND I Reconciliation Of Cash balances 09/30/06 12/31/06 03/31/07 ------------------------------------- ----------- ----------- ----------- BEGINNING CASH BALANCE 3,810,754 3,881,877 28,170,935 Net Operating Cash Flow 1,259,228 (29,135) - Other Cash Flow from Operations 41,347 - - Dry-dock Accrual Addback - - - Actual Dry-dock/Other - - - Cash Flows From Financing Activities: Proceeds from Notes Payable - - - Principal Payments on Notes - (5,000,000) - Debt fees - N/A - - - Cash Distributions (1,657,104) (1,657,104) - Special Distributions - - (28,170,935) Other Financing - - - Cash Flows from Investing Activities: Current Quarter Purchases - - - Fees on Purchases - N/A - - - Capitalized Costs - - - Proceeds from Liquidations 427,650 30,975,297 - ------------------------------------- ----------- ----------- ----------- NET CHANGE IN CASH 71,123 24,289,058 (28,170,935) ------------------------------------- ----------- ----------- ----------- ENDING CASH BALANCE 3,881,877 28,170,935 -
AFG INVESTMENT TRUST C 200 Nyala Farms Westport, Connecticut 06880 Consent of Beneficiary (SOLICITED ON BEHALF OF THE MANAGING TRUSTEE) I have received and reviewed the Solicitation Statement dated February __, 2003 (the "Solicitation Statement"), from AFG Investment Trust C (the "Trust") concerning the five proposals. For purposes of Article XII, Section 12.1, of the Trust Agreement, I hereby vote as follows. If this signed Consent contains no specific voting instructions, my Interests will be voted FOR the adoption of each of the Proposals. THE MANAGING TRUSTEE RECOMMENDS A VOTE FOR THE ADOPTION OF EACH OF THE PROPOSALS. (1) To allow PLM International, Inc., MILPI Holdings, LLC and the subsidiaries and affiliates that they control, to continue to operate their ongoing business making investments after December 31, 2002, notwithstanding the end of the reinvestment period for the Trust. ______ FOR ______ AGAINST ______ ABSTAIN (2) To approve a transaction whereby a newly formed subsidiary of PLM, RMLP, Inc., will receive a contribution from Semele Group, Inc. of partnership interests in BMIF/BSLF II Rancho Malibu Limited Partnership, a partnership that owns and is developing approximately 270 acres of land in Malibu, California in exchange for $5.5 million in cash, a $2.5 million promissory note and 182 shares of common stock of RMLP, Inc. ______ FOR ______ AGAINST ______ ABSTAIN (3) To amend Section 7.5 of the Trust Agreement to approve grants and exercises of rights of first refusal in connection with joint ventures between the Trust and its affiliates. ______ FOR ______ AGAINST ______ ABSTAIN (4) To approve the purchase by MILPI Holdings, LLC of the membership interests in MILPI Holdings, LLC held by AFG Investment Trust A and AFG Investment Trust B, which would give the Trust, together with AFG Investment Trust D, shared 100% ownership of MILPI Holdings, LLC. ______ FOR ______ AGAINST ______ ABSTAIN (5) To allow the Trust, in its operation of PLM International, Inc., to enter into business arrangements with affiliates of the Trust in the ordinary course of business on terms no less favorable than those that they would receive if such arrangements were being entered into with independent third parties. ______ FOR ______ AGAINST ______ ABSTAIN A properly executed Consent of Beneficiary received by the Managing Trustee will be voted in accordance with the directions indicated above. If no specific voting instructions are indicated, a properly executed Consent of Beneficiary received by the Managing Trustee will be voted FOR Proposals 1 through 5. Number of Class A Beneficiary Interests Held: __________ Number of Class B Beneficiary Interests Held: __________ If the Beneficiary is an Individual: Signature Date Signature Date Print Name Print Name ----------- ----------- (IF JOINT TENANTS OR TENANTS-IN-COMMON, BOTH OWNERS MUST SIGN): If the Beneficiary is a Corporation, Partnership or Trust: Name of Entity Signature Print Name Title Date THIS CONSENT FORM MAY BE RETURNED BY FAX, MAIL OR HAND-DELIVERY. PLEASE RETURN THIS CONSENT FORM NO LATER THAN FEBRUARY __, 2003 (SUBJECT TO EXTENSION AT THE DISCRETION OF THE MANAGING TRUSTEE), TO: THE ALTMAN GROUP, INC. 60 East 42nd Street, Suite 405 New York, New York 10165 Telephone: (800) 461-2657 Facsimile: (212) 973-9818 In the event that a sufficient number of consents required for the adoption - or rejection - of the proposals has not been received by February __, 2003, the Managing Trustee may, at its discretion, extent the deadline for up to 90 days, in which case the Managing Trustee will provide notice to Beneficiaries by means of a press release or a letter mailed to each Beneficiary.