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
Filed by a party other than the Registrant
_________________________________
Check the appropriate box:
Preliminary Proxy Statement X 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 B
(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:
November 25, 2002
Dear Beneficiaries of AFG Investment Trust B:
It has been determined by the Managing Trustee that it would be in the best
interest of the Beneficiaries of AFG Investment Trust B (the "Trust") to
liquidate and dissolve the Trust. We are asking for your consent to the Plan of
Liquidation and Dissolution as well as to the other proposals listed below. 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 December 26, 2002 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.
As part of the Trust liquidation, we are asking for your consent on related
proposals to permit or facilitate the sale of certain assets of the Trust to
affiliates of the Trust where the assets are jointly held. Each proposal is
described in the enclosed Consent Solicitation Statement. We hope that you take
the time to read and carefully consider the following proposals:
(1) To approve the liquidation and dissolution of the Trust under the terms
and conditions of the Plan of Liquidation and Dissolution, pursuant to which
Beneficiaries will receive cash distributions upon final dissolution.
(2) To amend Section 7.3 of the Trust Agreement to allow for the sale of
assets by the Trust to its affiliates.
(3) To approve the sale of the Trust's membership interest in MILPI
Holdings, LLC, which is owned jointly with affiliates of the Trust.
(4) To amend Section 8.1(b) of the Trust Agreement, which currently allows
for distributions in-kind on a pro rata basis to all Beneficiaries upon the
liquidation and dissolution of the Trust, so that the Managing Trustee will have
the discretion to make special distributions in-kind to affiliates of the Trust,
together with coinciding cash payments to the other Beneficiaries, and to
concurrently amend Section 7.7 of the Trust Agreement to allow for such
distributions in-kind permitted by Section 8.1(b).
THE MANAGING TRUSTEE RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS.
YOUR CONSENT TO THESE PROPOSALS IS IMPORTANT. PLEASE RETURN THE ENCLOSED
CONSENT FORM PRIOR TO DECEMBER 26, 2002 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 liquidate and dissolve under the terms and
conditions of a Plan of Liquidation and Dissolution, PURSUANT TO WHICH
BENEFICIARIES WILL RECEIVE CASH DISTRIBUTIONS UPON FINAL DISSOLUTION.
- - The staff of the SEC has informed the Trust that it believes that the
Trust is an unregistered investment company. Accordingly, while the Trust,
after consulting with its counsel, does not believe that it is an unregistered
investment company, the Managing Trustee of the Trust believes it to be in the
best interest of the Trust to liquidate to avoid the burden and extra expense of
continuing to pursue this issue with the staff of the SEC. In addition,
the staff of the SEC has informed the Managing Trustee that, in the event that
Beneficiaries do not approve Proposal One, the question of whether the Trust is
an unregistered investment company will need to be resolved in some other
manner. The laws and regulations governing investment companies place
restrictions on the capital structure and business activities of investment
companies, including prohibiting certain types of affiliated transactions and
prohibit, among other things, the purchase and sale of securities and engaging
in interstate commerce by unregistered investment companies. If the Trust is
deemed to be an unregistered investment company, its business would be adversely
affected.
PROPOSAL TWO (P. 7)
- - The Trust proposes to amend Section 7.3 of its Trust Agreement to allow
for the sale of assets by the Trust to its affiliates.
- - As currently in effect, Section 7.3 of the Trust Agreement provides
guidelines for allowing asset purchases between the Trust and its affiliates,
but it does not provide guidelines for allowing asset sales between these
related parties. It is proposed that Section 7.3 be amended to provide
guidelines for asset sales between the Trust and the Managing Trustee or its
affiliates.
PROPOSAL THREE (P. 11)
- - The Trust and AFG Investment Trust A intend to sell their membership
interests in MILPI Holdings, LLC ("MILPI") to AFG Investment Trusts C and D -
indirectly, through MILPI buying the interests owned by the Trust and Trust A,
leaving Trusts C and D as the sole owners of MILPI - pursuant to a Membership
Interest Purchase Agreement. Trusts C and D currently intend to continue
operating PLM International, Inc. 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 Trusts C and 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 (for
instance if the beneficiaries of Trusts C and D do not approve the purchase),
the Managing Trustee would be authorized to determine, in its discretion, to
sell the Trust's and Trust A's MILPI interest to another affiliate. Any such
sale to an affiliate would be on the same terms and conditions as the proposed
sale back to MILPI.
- - As described in Proposal One, the staff of the SEC has informed the Trust
that it believes that the Trust is an unregistered investment company.
Accordingly, while the Trust does not believe that it is an unregistered
investment company, the Managing Trustee of the Trust believes it to be in the
best interest of the Trust to sell its interests in MILPI in order to resolve
the outstanding issue of the Trust's status with the SEC staff.
- - The sale is proposed to be accomplished pursuant to a Membership Interest
Purchase Agreement 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, aggregating $3,954,385.
- - THE MANAGING TRUSTEE BELIEVES THAT, DUE TO THE ILLIQUID NATURE OF THE
MEMBERSHIP INTERESTS IN MILPI, IT IS UNLIKELY THAT THE TRUST WOULD RECEIVE A
PURCHASE AMOUNT GREATER THAN THE PRICE EXPECTED TO BE PAID AND BELIEVES THAT A
SALE AT THAT PRICE WOULD PRODUCE A FAIR RETURN TO THE TRUST'S BENEFICIARIES FROM
A FINANCIAL POINT OF VIEW.
- - THE TRUST'S FINANCIAL ADVISORS HAVE DETERMINED THAT THE PROCEEDS TO BE
PAID IN CONNECTION WITH THE SALE ARE FAIR TO THE TRUST'S BENEFICIARIES FROM A
FINANCIAL POINT OF VIEW. SEE "PROPOSAL THREE - FAIRNESS OPINION."
PROPOSAL FOUR (P. 17)
- - The Trust proposes to amend Sections 7.1 and 8.1(b) of its Trust
Agreement, which currently allow for distributions in-kind on a pro rata basis
to all Beneficiaries of the Trust upon the liquidation and dissolution of the
Trust.
The amendment would permit the Managing Trustee to have the discretion to
make special distributions in-kind to affiliates of the Trust, together with
coinciding cash payments to the other Beneficiaries of the Trust.
AFG INVESTMENT TRUST B
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 B, 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 November 19, 2002 (the
"Record Date"). As of November 11, 2002, there were 498,540 Class A Interests
and 1,000,961 Class B Interests outstanding, of which 879 Class A Interests were
held by the Managing Trustee or its affiliates, and 997,374 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 in interest of the Class A Beneficiaries.
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 879 Class A
Interests they hold or control and will vote all of the 997,374 Class B
Interests they hold in accordance with the vote of a majority in interest of the
Class A Beneficiaries. 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
December 26, 2002 (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 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 have
the same effect as votes cast against the Proposals. 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 DECEMBER 26,
2002.
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 $3,000.
This Solicitation Statement is first being sent or given to Beneficiaries on or
about November 25, 2002.
THE MANAGING TRUSTEE RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS AND
URGES YOU TO COMPLETE AND RETURN THE ENCLOSED CONSENT FORM IMMEDIATELY. FOR
QUESTIONS RELATING TO THE PROPOSALS, PLEASE TELEPHONE THE ALTMAN GROUP AT (800)
461-2657.
TABLE OF CONTENTS
Page
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PROPOSAL 1 - APPROVAL OF THE LIQUIDATION AND DISSOLUTION OF THE TRUST UNDER THE
TERMS AND CONDITIONS OF THE PLAN OF LIQUIDATION AND DISSOLUTION 1
Background 1
Reason for the Dissolution 1
Terms of the Plan of Complete Liquidation and Dissolution 2
Assets Subject to Liquidation 3
Risks Involved with the Liquidation and Dissolution of the Trust 3
Tax Consequences 6
PROPOSAL 2 - APPROVAL OF THE AMENDMENT TO SECTION 7.3 OF THE TRUST AGREEMENT TO
ALLOW FOR THE SALE OF ASSETS BY THE TRUST TO ITS AFFILIATES 7
The Amendment 7
Reason for the Amendment 7
Risks of the Managing Trustee's History of Engaging in Transactions
with Affiliates 8
PROPOSAL 3 - APPROVAL OF THE SALE OF THE TRUST'S MEMBERSHIP INTEREST IN MILPI
HOLDINGS, LLC 11
Reason for the Sale 11
Terms of the Sale 11
Fairness Opinion 12
Selected Financial Data 16
Tax Consequences 16
PROPOSAL 4 - APPROVAL OF THE AMENDMENT TO SECTION 8.1(b) OF THE TRUST AGREEMENT
TO PERMIT THE MANAGING TRUSTEE TO MAKE DISTRIBUTIONS IN-KIND TO AFFILIATES OF
THE TRUST AND TO CONCURRENTLY AMEND SECTION 7.7 OF THE TRUST AGREEMENT 17
The Amendment 17
Reasons for the Amendment 17
UNAUDITED PRO FORMA FINANCIAL INFORMATION 18
Notes to Unaudited Pro Forma Financial Information 22
SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES IN CONNECTION WITH THE
PROPOSALS 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 25
ADDITIONAL INFORMATION CONCERNING THE TRUST 26
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 27
Annex A Plan of Complete Liquidation and Dissolution A-1
Annex B Fairness Opinion B-1
Annex C Text of Amendment C-1
Annex D Membership Interest Purchase Agreement D-1
PROPOSAL 1 - APPROVAL OF THE LIQUIDATION AND DISSOLUTION OF THE TRUST UNDER THE
TERMS AND CONDITIONS OF THE PLAN OF LIQUIDATION AND DISSOLUTION
BACKGROUND
The Trust is a Delaware business trust formed on May 28, 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 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. ("Semele"). 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 1050 Waltham Street,
Lexington, Massachusetts 02421.
EFG is the advisor to the Trust. As Advisor, EFG provides various services to
the Trust, including selection of the Trust's assets for acquisition by the
Trust and management of 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 November 11, 2002, there were 498,540 Class A Interests outstanding, of
which (i) 879 were held by Equis II Corporation or its affiliates, and (ii)
581,138 were held by 685 other Class A Beneficiaries. As of November 11, 2000,
there were 1,000,961 Class B Interests outstanding, of which (i) 997,374 were
held by Equis II Corporation, and (ii) 3,588 were held by four other Class B
Beneficiaries.
Under the Trust Agreement, as amended, the Trust may enter into joint ventures
with affiliates of the Managing Trustee or EFG or other programs sponsored by
EFG or its affiliates; provided that the Managing Trustee will enter into such
joint ventures only if it believes that it is in the best interests of the
Beneficiaries to do so, and the Trust's participation is on terms and conditions
that are fair to the Trust and the Beneficiaries, taking into account the
participation of the other affiliated venturers, and will allow the Trust to
better attain its revised investment objectives.
REASON FOR THE DISSOLUTION
In December 2000, the Trust entered into a joint venture with Trust A,
Trust C and Trust D, whereby each of the Trusts became a member in MILPI. MILPI
owns 100% of PLM International, Inc. ("PLM"). In December 2000, a subsidiary of
MILPI entered into an agreement to acquire PLM, a company engaged primarily in
the business of equipment leasing. Pursuant to the terms of the agreement, the
subsidiary of MILPI launched a cash tender offer for the outstanding shares of
PLM in December 2000. The subsidiary then filed a proxy statement with the
Securities and Exchange Commission (the "SEC") in order to obtain the approval
of the remaining PLM stockholders to merge with PLM.
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In connection with its review of PLM's preliminary proxy materials, the staff of
the SEC informed the Trust that the staff believes that the Trust may be an
unregistered investment company within the meaning of the Investment Company Act
of 1940. Pursuant to Section 7.1 of the Trust Agreement, the Managing Trustee
is required to use its best efforts to only acquire securities in such a manner
so as to ensure that the Trust will not be deemed to be an investment company.
Although the Trust believes, after consulting with counsel, that it is not an
unregistered investment company, the Managing Trustee has determined that it is
in the best interest of the Trust to liquidate to avoid the burden and extra
expense of continuing to pursue this issue with the staff of the SEC.
Accordingly, after consultation with its counsel, the Trust has agreed to
liquidate its assets in order to resolve this issue with the SEC staff. In
addition, the staff of the SEC has informed the Managing Trustee that, in the
event that Beneficiaries do not approve Proposal One, the question of whether
the Trust is an unregistered investment company will need to be resolved in some
other manner. The laws and regulations governing investment companies place
restrictions on the capital structure and business activities of investment
companies, including prohibiting certain types of affiliated transactions and
prohibit, among other things, the purchase and sale of securities and engaging
in interstate commerce by unregistered investment companies. If the Trust is
deemed to be an unregistered investment company, its business would be adversely
affected.
Notwithstanding the outstanding issue with the SEC, pursuant to the Trust
Agreement, the Managing Trustee is required to use its best efforts to cause the
Trust to sell all of the Trust's assets not later than the end of the tenth year
following the Final Closing, and dissolve by the end of its eleventh year.
Accordingly, even if the Trust had not agreed to liquidate its assets in order
to resolve this issue, pursuant to the terms of the Trust Agreement, the
Managing Trustee would endeavor to sell all of the Trust's assets by December
31, 2002 and the Trust would be dissolved by December 31, 2003. As a result,
even if the adoption of the Plan of Liquidation and Dissolution is not approved
under Proposal One, the Managing Trustee will be required to use its best
efforts to liquidate the Trust's assets and dissolve the Trust by the end of
2003.
TERMS OF THE PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
The following is a brief summary of the Plan of Complete Liquidation and
Dissolution (the "Plan"). The summary is qualified in its entirety by reference
to the full text of the Plan attached hereto as Annex A and incorporated herein
by reference. You are encouraged to read the Plan in its entirety for the
express legal terms of the Plan and other information that may be important to
you.
The Plan provides that the Trust will take such actions as are deemed necessary
or appropriate by the Managing Trustee to wind up all Trust business and affairs
and sell, exchange or otherwise dispose of all or substantially all of the
assets of the Trust. The Plan provides that the proceeds from the sale of the
Trust's assets will be distributed to the Beneficiaries. As part of the Plan,
existing debts and obligations of the Trust will be satisfied from the proceeds
of the sale of the Trust's assets.
It is difficult to predict the amount and timing of the sale of the Trust's
assets and, consequently, the amount and timing of liquidating distributions to
the Beneficiaries. To date, with the exception of the Trust's membership
interests in MILPI and the sale in the ordinary
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course of its interest in an aircraft, no discussions have occurred and no
negotiations have been entered into with prospective buyers of the Trust's
assets. The actual amount and timing of distributions to the Beneficiaries will
be determined by the Managing Trustee in its sole discretion and will depend
upon the timing and receipt of proceeds of the sale and the amounts deemed
necessary by the Managing Trustee to pay or provide for all of the Trust's
liabilities and obligations.
Upon the complete liquidation of the Trust and distribution of its assets
to or for the benefit of the Beneficiaries, the Managing Trustee, in accordance
with the terms of the Plan and Section 3810(d) of the Delaware Business Trust
Act, will execute and file a Certificate of Cancellation with the State of
Delaware, which will terminate the existence of the Trust.
The Managing Trustee may modify or amend the Plan at any time if it determines
that such action would be advisable and in the best interest of the Trust. In
addition, the Managing Trustee may abandon and revoke the Plan at any time prior
to the filing of the Plan among the records of the Trust. However, the Managing
Trustee will re-solicit the consent of Beneficiaries before making any material
or adverse modifications or amendments to the Plan.
ASSETS SUBJECT TO LIQUIDATION
The Trust has made investments in major capital equipment and other
long-term assets, including ownership interests in EFG Kirkwood LLC, a resort
business, and in PLM. For a full description of the Trust's assets, see the
Trust's financial statements, included in the Trust's Annual Report on Form
10-K/A for the fiscal year ended December 31, 2001, which is incorporated herein
by reference. See "Additional Information Concerning the Trust." If the Plan
is approved by the Beneficiaries, it would give the Managing Trustee the power
to sell any and all of the assets of the Trust, without further approval by the
Beneficiaries. The Managing Trustee intends to conduct the sale of the Trust's
assets in an orderly manner, and will seek offers for specific pools of assets,
although individual sales of assets may be effected, such as the sale of the
Trust's interest in MILPI, and offers for the entire portfolio of investment
(apart from the Trust's interest in MILPI) may be sought. Proposal Two
establishes guidelines for asset sales between the Trust and the Managing
Trustee or its affiliates. If Proposal Four, regarding special distributions
in-kind to affiliates of the Trust is approved by the Beneficiaries, the
Managing Trustee will have the right to make in-kind distributions to its
affiliates on a pro rata basis.
RISKS INVOLVED WITH THE LIQUIDATION AND DISSOLUTION OF THE TRUST
In addition to the other information included elsewhere in this document,
you should carefully consider the following factors in determining whether to
vote in favor of the Plan. In considering these factors, you should note that
even if the Plan is not adopted, many of these risks will be present in
connection with the liquidation of the Trust in the ordinary course pursuant to
the terms of the Trust Agreement. Furthermore, 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.
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THE TRUST MAY NOT REALIZE GAINS FROM ASSET SALES MADE IN CONNECTION WITH THE
LIQUIDATING DISTRIBUTIONS.
There can be no assurances that the Trust and its Beneficiaries will
receive gains in connection with the sale of the Trust's assets. It is
difficult to predict the timing of the sale of the assets or the amount that the
Trust will receive for the assets in connection with any sales. To date, the
Trust has not entered into any discussions or negotiations with prospective
purchasers of the Trust's assets, other than with respect to a sale of the
Trust's membership interests in MILPI (see Proposal Three, which describes a
proposal for the Trust to sell its 16.67% membership interest in MILPI for an
aggregate consideration of $3,954,385). However, it is anticipated that some of
the assets may currently be illiquid. For instance, under current market
conditions it may be difficult to sell certain of the Trust's assets, such as
its interest in EFG Kirkwood LLC, a resort business. Adverse market conditions
may have a negative impact on the proceeds that may be realized from such asset
sales.
The sale of the interest in MILPI is at an amount less than the Trust's carrying
value at September 30, 2002. As such, the proposed structure of the sale of the
Trust's membership interest in MILPI will result in a book loss.
In addition, there can be no assurance that, even if the Beneficiaries vote to
approve the liquidation and dissolution, any asset sales will be consummated or
that they will be consummated on favorable terms. For instance, the closing of
each of the Trust's asset sales may be subject to numerous conditions, including
the satisfactory completion by the purchaser of its due diligence investigation
and the receipt of consents from third parties. If the Trust cannot sell its
assets on the terms and at the times targeted, the dissolution could be delayed
and distributions to Beneficiaries could be less than expected or paid later
than estimated.
If the Trust sells some or all of its assets on an installment basis and the
purchaser subsequently defaults in its payment on the related promissory note or
installment contract, the Trust's exercise of remedies, which may include
foreclosure on any property securing the promissory note, will likely result in
the Trust incurring additional costs and expenses. This could in turn result in
delays in effecting the dissolution and reductions or delays in the payment of
distributions to Beneficiaries.
THE TRUST'S MANAGERS, OFFICERS AND AFFILIATES MAY HAVE INTERESTS IN THE
LIQUIDATION AND DISSOLUTION 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 liquidation and dissolution and deciding whether or not to approve Proposal
One, Beneficiaries should know that the Managing Trustee, its officers and its
affiliates may have interests in the liquidation and dissolution that are
different from or in addition to those of other Beneficiaries. The Trust
Agreement provides that the Managing Trustee will receive a special allocation
of losses, if any, in connection with a dissolution event, and that the Managing
Trustee is entitled to receive at least 1% of the profits and losses of the
Trust in connection with a dissolution event. In addition, if Proposal Four is
adopted, affiliates of the Trust could receive special distributions in-kind in
connection with the liquidation and dissolution of the Trust, which would result
in affiliates of the Trust receiving property for which valuations have been
made on the basis of a
4
determination of fair market value by an independent expert rather than in an
arm's length transaction and, as such, may prove to be more or less favorable to
such affiliates than might have been the case if the property had been sold in
an arm's length transaction. Further, it is expected that the liquidation of
the Trust will resolve the issue between the SEC staff and the Trust, the
Managing Trustee and its affiliates over whether or not the Trust has become an
unregistered investment company within the meaning of the Investment Company Act
of 1940 (the "1940 Act"). In addition to benefiting the Trust by reducing its
expenses and eliminating the uncertainty of its status under the 1940 Act, this
could potentially relieve the Managing Trustee from incurring, or reduce the
likelihood that the Managing Trustee will incur, liability that it might
otherwise be subject to pursuant to Section 7.1 of the Trust Agreement if the
SEC were to deem the Trust an investment company, as such term is defined in the
1940 Act, or at law, or reduce the magnitude of any such liability. However,
the staff of the SEC has informed the Managing Trustee that, in the event that
Beneficiaries do not approve Proposal One, the question of whether the Trust is
an unregistered investment company will need to be resolved in some other
manner. The Act places restrictions on the capital structure and business
activities of investment companies, including prohibiting certain types of
affiliated transactions and prohibit, among other things, the purchase and sale
of securities and engaging in interstate commerce by unregistered investment
companies. If the Trust is deemed to be an unregistered investment company, its
business would be adversely affected.
THERE ARE NO DISSENTERS' RIGHTS FOR BENEFICIARIES.
Delaware law does not grant beneficiaries of business trusts who dissent
from approval of the liquidation and dissolution the right to demand an
appraisal for their interests and payment of their fair cash value. As a
result, Beneficiaries who object to Proposal One and the liquidation and
dissolution of the Trust do not have a right to demand a different payment for
their Interests.
SALES OF ASSETS WILL NOT BE SUBJECT TO FURTHER APPROVAL OF BENEFICIARIES.
If the Beneficiaries approve the liquidation and dissolution, the Managing
Trustee will be authorized to dispose of the Trust's assets on such terms and
conditions as it determines appropriate. As a result, the Managing Trustee will
have full authority to negotiate the individual assets sales and the
Beneficiaries will not be entitled to review or approve the terms or conditions,
including the sale price of assets, in connection with any individual sales.
This will be the case even if the Trust disposes of all or substantially all of
its assets.
THE LIQUIDATION AND DISSOLUTION MAY NOT RESULT IN GREATER RETURNS TO
BENEFICIARIES THAN IF THE TRUST CONTINUED AS A GOING CONCERN.
If the Beneficiaries do not approve the adoption of the Plan, the Trust
would continue as a going concern until such time as the Managing Trustee sells
or otherwise disposes of the Trust's assets, winds up the affairs of the Trust
and dissolves the Trust, which must happen no later than December 31, 2003.
Alternatively, it is possible that a third party could be interested in entering
into a business combination with the Trust. There can be no assurance that the
liquidation and dissolution will result in greater returns to the Beneficiaries
than if the Trust continued as a going concern until its dissolution or entered
into a business combination with a third party.
5
THE MANAGING TRUSTEE MAY AMEND THE PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
EVEN IF BENEFICIARIES APPROVE THE LIQUIDATION AND DISSOLUTION.
Even if Beneficiaries vote to approve the Plan, the Managing Trustee may
amend the Plan without further approval of the Beneficiaries, except as required
by Delaware law or the Trust Agreement.
TAX CONSEQUENCES
For a discussion of the tax consequences in connection with Proposal One,
see "Certain Federal Income Tax Consequences in Connection with the Proposals."
THE MANAGING TRUSTEE RECOMMENDS THAT THE BENEFICIARIES CONSENT TO PROPOSAL ONE.
6
PROPOSAL 2 - APPROVAL OF THE AMENDMENT TO SECTION 7.3 OF THE
TRUST AGREEMENT TO ALLOW FOR THE SALE OF ASSETS BY THE TRUST TO ITS AFFILIATES
THE AMENDMENT
As currently in effect, Section 7.3 of the Trust Agreement provides
guidelines for allowing asset purchases between the Trust and the Managing
Trustee or its affiliates, but it does not provide guidelines for allowing asset
sales between these related parties. It is proposed that Section 7.3 be amended
to provide guidelines for asset sales between the Trust and the Managing Trustee
or its affiliates.
REASON FOR THE AMENDMENT
Section 7.3 of the current Trust Agreement allows the Trust to purchase
assets in which the Managing Trustee or any of its affiliates have an interest
in connection with a joint venture, and provides guidelines for doing so.
However, with respect to the sale of assets by the Trust to the Managing Trustee
or any of its affiliates, Section 7.3 merely states that the Trust shall only
sell assets to the Managing Trustee or its affiliates as allowed in such
section; yet, the section does not provide any guidelines to effect a sale.
Accordingly, the Managing Trustee proposes that Section 7.3 be amended to allow
for sales to affiliates of the Trust on generally the same terms that
acquisitions from affiliates of the Trust are allowed, to the extent that such
terms are relevant in the context of a sale. More specifically, sales of assets
to affiliates of the Trust would be permitted in the event that:
- - the sale is in the best interests of the Trust;
- - the asset is sold for a price no less than the fair market value thereof,
as determined by an independent expert; and
- - no other benefit arises out of such transaction to the affiliate apart
from compensation otherwise permitted by the Trust Agreement.
The Managing Trustee believes that there are benefits to the Trust to be
derived from allowing sales of the assets to affiliates of the Trust in
connection with joint ventures. For instance, in joint venture structures,
there are often inherent problems in finding new investors, which could lead to
a liquidity problem if the Trust were to seek to sell its assets in a joint
venture to a non-affiliate. In particular, documents governing joint ventures
often contain conditions to and prohibitions against venturers exiting the joint
venture and/or selling their assets. Therefore, the Managing Trustee believes
that it may often be in the best interests of the Trust to allow the Trust to
sell joint venture assets to affiliates of the Trust.
Whether or not this proposed amendment to Section 7.3 is approved, the Trust is
separately seeking approval, pursuant to Proposal Three, to the sale of its
interests in MILPI. Although approval of this amendment to Section 7.3 would
allow the Trust to effectuate the sale of its interest in MILPI, the Managing
Trustee is including Proposal Three because it believes
7
that the sale of the Trust's MILPI interest constitutes a transaction that
should be considered whether or not Proposal Two is approved.
If the proposed amendment to Section 7.3 is approved, the Trust would not
be required to obtain the Beneficiaries' approval for these types of
transactions in the future. For instance, although there have been no specific
negotiations with respect to a sale of the Trust's membership interests in EFG
Kirkwood, LLC, the Trust may wish to sell these interests in the future, which
it would be allowed to do under Section 7.3 without the consent of the
Beneficiaries if Proposal Two is adopted. Similarly, if the sale of the Trust's
MILPI interest back to MILPI is not concluded for any reason (for instance if
the beneficiaries of Trusts C and D do not approve the purchase), the Managing
Trustee would be authorized to determine, in its discretion, to sell the Trust's
MILPI interest to another affiliate. Any such sale to an affiliate shall be on
the same terms and conditions as the proposed sale pursuant to Proposal Three.
Before voting on this proposal, Beneficiaries are urged to read the full text of
the proposed amendment to Section 7.3, which is included in Annex C, attached
hereto.
RISKS OF THE MANAGING TRUSTEE'S HISTORY OF ENGAGING IN TRANSACTIONS WITH
AFFILIATES
The principal risk of this amendment is that the Managing Trustee will not
act in the best interest of investors and that the price paid by affiliated
parties 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. 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.
The following is a description of the Rosenblum class action and of certain
transactions with affiliates entered into by the Trust and affiliated investment
programs.
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.
8
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 eleven 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.
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
9
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 the Trust 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. The Trust's share of the proceeds was
$433,036 in cash, 20,969 shares of Semele stock and a $462,353 beneficial
interest in the Semele Note. 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%.
THE MANAGING TRUSTEE RECOMMENDS THAT BENEFICIARIES CONSENT TO PROPOSAL TWO.
10
PROPOSAL 3 - APPROVAL OF THE SALE OF THE TRUST'S MEMBERSHIP INTEREST IN MILPI
HOLDINGS, LLC
The Trust and Trust A intend to sell their membership interests in MILPI to
Trusts C and D - indirectly, through MILPI buying the interests owned by the
Trust and Trust A, leaving Trusts C and D as the sole owners of MILPI - pursuant
to a Membership Interest Purchase Agreement. Trusts C and 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 Trusts C and 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 and Trust A's MILPI interests back to MILPI is not
concluded for any reason (for instance if the beneficiaries of Trusts C and D do
not approve the purchase), the Managing Trustee would be authorized to
determine, in its discretion, to sell the Trust's MILPI interest to another
affiliate. Any such sale to an affiliate would be on the same terms and
conditions as the proposed sale back to MILPI.
REASON FOR THE SALE
The Managing Trustee believes that it would be in the best interest of the
Trust to sell the Trust's membership interests in MILPI back to MILPI or another
affiliate. The MILPI membership interests were initially acquired by the Trust
in December 2000. As noted above in Proposal One, the staff of the SEC has
informed the Trust that it believes that the Trust is an unregistered investment
company. Accordingly, while the Trust, after consulting with its counsel, does
not believe that it is an unregistered investment company, the Managing Trustee
has agreed to liquidate its assets. See "Proposal One - Reasons for the
Liquidation." If Proposal One is adopted, the Trust's membership interests in
MILPI will be sold in connection with the Plan. However, even if the Plan is
not approved, the Trust will sell its interests in MILPI in order to resolve the
outstanding issue of the Trust's status with the SEC staff. Currently, the
Trust has a 16.67% interest in MILPI. Upon completion of the sale, the Trust
would no longer have an interest in MILPI.
The Managing Trustee believes that, due to the illiquid nature of the membership
interests in MILPI, it is unlikely that the Trust would receive a purchase
amount greater than the price discussed below, which price the Managing Trustee
believes would produce a fair return to the Beneficiaries from a financial point
of view.
TERMS OF THE SALE
The Trust's membership interests in MILPI would be sold back to MILPI or
another affiliate designated by the Managing Trustee, pursuant to a Membership
Interest Purchase Agreement, at the original purchase price, plus the
reimbursement of the membership fees paid to the Managing Trustee in connection
with the purchase of the interests pursuant to the Trust Agreement, less
distributions or dividends, aggregating $3,954,385. The Managing Trustee has
agreed to waive the fees in connection with the sale of the interests that would
otherwise be due to it under the terms of the Trust Agreement in connection with
a sale of the assets. A copy of the Membership Interest Purchase Agreement is
attached hereto as Annex D. As noted below, the Trust's financial advisors have
determined that the proceeds to be paid in connection with the
11
sale are fair to the Beneficiaries from a financial point of view. See
"Proposal Three - Fairness Opinion."
FAIRNESS OPINION
Crossroads, LLC ("Crossroads") was engaged by the Trust and Trust A to
provide a fairness opinion in connection with Proposal Three. The opinion,
which Crossroads delivered to the Trust and Trust A on May 15, 2002, stated that
the consideration to be received by the Trust and Trust A in connection with the
sale of their membership interests in MILPI is fair to the Trust and Trust A
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 Crossroads, is attached hereto as
Annex B (together with certain financial forecasts relied upon by Crossroads)
and is incorporated by reference into this Solicitation Statement. You are
urged to read the Crossroads opinion carefully and in its entirety for
assumptions made, matters considered and limits of the review by Crossroads.
Beneficiaries should note that the opinion expressed by Crossroads was prepared
at the request and for the information of the Trust and Trust A and does not
constitute a recommendation to any Beneficiary as how to vote with respect to
Proposal Three. The opinion does not address the business decision or the
relative merits of the decision of the Trust and Trust A. No limitations were
placed on Crossroads 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, Crossroads
performed its analysis on PLM.
The aggregate purchase price to be paid by MILPI or another affiliate designated
by the Managing Trustee 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 the Trust and Trust A that they would realize a
return on their investment of capital and, on the other hand, the expectation by
Trust C 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 or another affiliate designated by the Managing
Trustee 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.
In connection with rendering its opinion, Crossroads considered, among other
things:
- - the history and nature of the business of PLM;
- - the book value and financial condition of PLM;
- - the earnings capacity of PLM;
- - PLM management's financial forecasts of earnings and cash flow;
- -
12
publicly available business and financial information relating to PLM;
- - the market prices and trading activity for PLM's common stock;
- - the sale process in which PLM was sold to MILPI Acquisition Corp., a
wholly owned subsidiary of MILPI; and
- - the market prices and rates of return of publicly traded comparable
companies.
In preparing its opinion, Crossroads was not requested to, and did not
make, any independent evaluation or appraisal of PLM's assets or liabilities,
contingent or otherwise, and was not furnished with any such evaluations or
appraisals. Crossroads did not assume any responsibility for independent
investigation or verification of any of the information that was provided to it,
and Crossroads relied on such information being complete and accurate in all
material respects. With respect to the financial forecasts prepared and
provided by PLM, Crossroads assumed that the forecasts were reasonably prepared
on bases reflecting the best currently available estimates and judgments of
PLM's management as to the future financial performance of PLM.
The Crossroads opinion was based upon economic, monetary and market conditions
existing on the date of the opinion. Crossroads expressed no opinion, nor
should one be implied, as to the current fair market value of the Trust's
membership interests in MILPI.
The following three paragraphs summarize the significant analyses performed by
Crossroads in arriving at its opinion:
- - MARKET APPROACH ANALYSIS. The market approach is a valuation technique in
which the fair market value of a business is estimated by comparing the target
company to be valued to industry guideline companies whose stock is publicly
traded. Normally, Crossroads would review comparable publicly traded companies
and comparable transactions with these companies. However, due to PLM's unique
business structure and small number of equity holders and the fact that it is
being managed in order to liquidate its various investment vehicles, Crossroads
did not use the market approach to estimate PLM's value.
- - DISCOUNTED CASH FLOW ANALYSIS. In performing its valuation, Crossroads
prepared a discounted cash flow analysis of PLM's free cash flows expected to be
generated over the remaining life of the business. Crossroads relied upon cash
flow projections provided by PLM's management along with other estimates
provided by PLM. In applying this approach, Crossroads accepted a range of 20%
to 25% for its estimate of PLM's cost of capital based on the Capital Asset
Pricing Model (which considers risk-free rate of return, general equity risk
premium, size premium and company-specific risk premium). Crossroads also
assumed that, because the Managing Trustee has indicated its intention to
liquidate or sell PLM prior to or simultaneously with the liquidation of its
investment vehicles in 2007, it would not have any residual or terminal value.
Based on its analysis, Crossroads determined the enterprise value of PLM to be
approximately $25.8 million to $27.5 million, with a mid-point value of $26.7
million. Based on this range, the value of the Trust's and Trust A's combined
13
25% interest in MILPI would be approximately $6.5 to $6.9 million. This
valuation compares with the aggregate purchase price of approximately $5.9
million to be paid to the Trust and Trust B ($3,954,385 to the Trust, as
disclosed above, and $1,977,193 to Trust A, reflecting an enterprise value of
approximately $23.7 million), which purchase price reflects the payment of
dividends and fees by PLM subsequent to MILPI's acquisition of PLM.
The aggregate purchase price of approximately $5.9 million to be paid to the
Trust and Trust B for their combined 25% interest in MILPI is not as high as the
approximately $6.5 to $6.9 million value attributed to such interest by the
discounted cash flow analysis. Therefore, the discounted cash flow analysis
does not directly support the consideration to be received in the proposed
transaction. However, opinions as to the value of assets are necessarily based
on a variety of factors, including the judgment of the person making the
valuation. In this respect, the aggregate purchase price was supported by the
trading history analysis (see "Trading History Analysis" section below).
Additionally, as stated in the Crossroads opinion, the discounted cash flow
analysis involved a number of assumptions, including an assumption about the
appropriate discount rate, which have a material impact on the resulting values.
In an effort to treat both the Trust and Trust B, and Trusts C and D fairly, the
Managing Trustee proposed that the Trust and Trust B sell their interest in
MILPI back to MILPI or another affiliate designated by the Managing Trustee at
the original purchase price plus the reimbursement of the membership fees paid
in connection with the purchase of the interests pursuant to the Trust
Agreement, less distributions or dividends. Based on all of the facts and
circumstances, the Managing Trustee believes that the purchase price for the
Trust's and Trust B's interest in MILPI is fair to the Trust and Trust B, and
this judgment is supported by the written opinion of Crossroads.
- - TRADING HISTORY ANALYSIS. To validate the integrity of its discounted
cash flow analysis, Crossroads reviewed PLM's traded stock price leading up to
its acquisition by MILPI Acquisition Corp. During the period from December 22,
2000 through February 8, 2002, which coincided with the period from the public
announcement of MILPI Acquisition Corp.'s tender offer to the de-listing of
PLM's shares, PLM's stock traded between $2.80 and $3.44 per share, with a final
trading price on February 8, 2002 of $3.43 per share. The range of PLM's stock
prices and its final trading price compares with Crossroads' discounted cash
flow price range of $3.42 to $3.64 per share (calculated by dividing the
approximate enterprise value of $25.8 million to $27.5 million discussed above
in connection with the discounted cash flow analysis by 7,554,510, the number of
shares outstanding at the time of the acquisition of PLM) and with an imputed
purchase price of $3.14 per share (calculated by dividing $23.7 million, the
approximate enterprise value of MILPI based on the purchase price, by
7,554,510).
The summary of the Crossroads opinion set forth above does not purport to
be a complete description of the data and analyses presented or considered by
Crossroads. The preparation of a
14
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,
Crossroads' analysis must be considered as a whole and considering any portion
of Crossroads' analysis and of the factors considered, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying the Crossroads opinion.
Crossroads has been paid a fee of $35,000 for its fairness opinion rendered
to the Trust and Trust A. The Trust and Trust A also agreed to indemnify
Crossroads against certain liabilities.
Crossroads is principally and continually engaged 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
A retained Crossroads to provide the fairness opinion because of Crossroads'
expertise, reputation and familiarity with the Trust and Trust A and with assets
similar to those being acquired by the Trust and Trust A.
15
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
September 30, September 30, . December 31,
Summary of Operations 2002 2002 (1) 2001 2001 (1) 2000 1999
- -------------------------------- --------------- --------------- ---------- -------------- ----------- -----------
Lease revenue $ 207,999 $ 207,999 $ 518,671 $ 518,671 $1,036,919 $ 1,325,194
Total income $ 219,618 $ 219,618 $ 706,012 $ 706,012 $1,562,804 $ 2,634,958
Net income (loss) $ (671,085) $ (903,449) $ 311,982 $ (222,170) $ 498,917 $ 1,470,149
Per Beneficiary Interest:
Net income (loss)
Class A Interests $ (1.09) $ (1.57) $ 0.50 $ (0.36) $ (0.12) $ 0.98
Class B Interests $ (0.02) $ (0.02) $ 0.01 $ - $ 0.32 $ 0.57
Cash distributions declared
Class A Interests $ - $ - $ - $ - $ - $ 4.73
Class B Interests $ - $ - $ - $ - $ - $ 3.76
Financial Position
- --------------------------------
Total assets $ 7,689,549 $ 6,812,379 $8,439,956 - $8,226,549 $13,052,016
Total long-term obligations $ 336,772 $ 336,772 $ 420,027 - $ 553,729 $ 656,454
Participants' capital $ 7,116,854 $ 6,239,684 $7,787,939 - $7,475,957 $ 6,982,082
Summary of Operations 1998 1997
- -------------------------------- ----------- -----------
Lease revenue $ 2,646,205 $ 5,400,331
Total income $ 3,719,953 $ 5,741,393
Net income (loss) $ 993,932 $ 1,174,206
Per Beneficiary Interest:
Net income (loss)
Class A Interests $ 1.04 $ 1.05
Class B Interests $ 0.23 $ 0.05
Cash distributions declared
Class A Interests $ 1.64 $ 3.11
Class B Interests $ 2.06 $ 0.30
Financial Position
- --------------------------------
Total assets $14,037,315 $17,214,157
Total long-term obligations $ 818,841 $ 2,038,628
Participants' capital $12,635,661 $14,816,135
____________________
(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 the
Trust and Trust A had occurred on January 1, 2001. See "Unaudited Pro Forma
Financial Information."
16
TAX CONSEQUENCES
For a discussion of the tax consequences in connection with Proposal Three,
see "Certain Federal Income Tax Consequences in Connection with the Proposals."
THE MANAGING TRUSTEE RECOMMENDS THAT BENEFICIARIES CONSENT TO PROPOSAL THREE.
17
PROPOSAL 4 - APPROVAL OF THE AMENDMENT TO SECTION 8.1(B)
OF THE TRUST AGREEMENT TO PERMIT THE MANAGING TRUSTEE
TO MAKE DISTRIBUTIONS IN-KIND TO AFFILIATES OF THE TRUST AND TO CONCURRENTLY
AMEND SECTION 7.7 OF THE TRUST AGREEMENT
THE AMENDMENT
Section 8.1(b) of the Trust Agreement currently allows for distributions
in-kind to Beneficiaries, the Special Beneficiary and the Managing Trustee (the
"Participants") on a pro rata basis upon final dissolution and termination of
the Trust. It is proposed that Section 8.1(b) be amended to allow the Managing
Trustee, in its discretion, to make special distributions in-kind to certain
affiliates of the Trust prior to, but in connection with, the final liquidation
and dissolution of the Trust.
REASONS FOR THE AMENDMENT
The proposed amendment to Section 8.1(b) would allow the Managing Trustee
to make special distributions in-kind to itself and its affiliates in connection
with a liquidation or dissolution and to pay in cash each of the Participants
not receiving the in-kind distribution their pro rata share of the fair market
value of the assets in-kind being distributed. Under the terms of the proposed
amendment, the fair market value of the in-kind assets distributed would be
determined by an Independent Expert. Independent Expert is defined in the Trust
Agreement as a person or entity with no current material or prior business or
personal relationship with any person directly or indirectly instrumental in
organizing, wholly or in part, the Trust, or the Managing Trustee or its
affiliates.
Instead of receiving assets, the Beneficiaries would receive the cash value of
such assets providing them with liquidity and the assurance that, because the
valuation would be performed by an Independent Expert, the value of the assets
distributed in-kind would not exceed the cash being distributed on a ratable
basis. The Managing Trustee believes that the proposed amendment would be
beneficial to the Beneficiaries because the Managing Trustee and its affiliates
could dispose of certain assets, that would otherwise be difficult to sell or
for which the costs of maintaining the assets would be greater than the revenue
derived, by making distributions in-kind. As a result, the Trust would be able
to rid itself of its less profitable assets more quickly, dissolve and avoid the
ongoing expenses that it might otherwise be subject to if it had to continue as
a going concern in order to dispose of its hard-to-sell assets.
Attached hereto as Annex C is the full text of the proposed amendment to the
Trust Agreement, which includes the proposed amendments to Section 8.1(b) and
Section 7.7.
THE MANAGING TRUSTEE RECOMMENDS THAT THE BENEFICIARIES CONSENT TO PROPOSAL FOUR.
18
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.
The following unaudited pro forma financial information of the Trust are
presented to give effect to the sale of the Trust's membership interests in
MILPI as described in Proposal Three contained in this Solicitation Statement.
MILPI was formed in December 2000, for the purpose of acquiring 100% of the
outstanding common stock of PLM.
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 sale of the Trust's
interest in MILPI 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 sale had occurred on September 30, 2002.
The unaudited pro forma financial information of the Trust are presented on a
going concern basis, which may differ materially from a liquidation basis
presentation. Apart from the proposed sale of the Trust's membership interests
in MILPI pursuant to Proposal Three and the sale in the ordinary course of its
interest in an aircraft, the Trust has engaged only in preliminary discussions
with prospective purchasers of the assets of the Trust and, to date, no
agreements have been entered into. Therefore, no adjustments have been made to
reflect the Trust's assets as "Held for Sale" under SFAS No. 121 and No. 144 (in
other words, the value of the assets has not been adjusted to be the lower of
carrying value or fair value, less the cost of sale). Additionally, if Proposal
Four is adopted, the Trust may make special in-kind distributions of assets to
the Managing Trustee and its affiliates. However, the Trust has not yet
determined which assets might be distributed in such manner. Consequently, as a
result of the foregoing, the historical and unaudited pro forma financial
information of the Trust included in this Solicitation Statement are not
necessarily indicative of the liquidation value of the Trust's assets and
therefore should not be solely relied upon by Beneficiaries in deciding whether
or not to consent to the Proposals contained herein.
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.
19
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 2002
(UNAUDITED)
Historical at . Pro forma at
September 30, Pro forma September 30,
2002 Adjustments 2002
-------------- -------------- ---------------
ASSETS
Cash and cash equivalents $ 897,784 $ 3,954,385A $ 4,852,169
Rents receivable - - -
Accounts receivable - affiliate 2,818 - 2,818
Interest receivable - affiliate - - -
Note receivable - affiliate - - -
Investment securities - affiliate - - -
Interest in EFG Kirkwood LLC 1,478,666 - 1,478,666
Interest in MILPI Holdings, LLC 4,831,555 (4,831,555)A -
Investments - other 99,392 - 99,392
Other assets 5,090 - 5,090
Equipment at cost, net of accumulated depreciation
of $1,859,235 and $1,477,696 at September 30, 2002
and December 31, 2001, respectively 374,244 - 374,244
-------------- -------------- ---------------
Total assets $ 7,689,549 $ (877,170) $ 6,812,379
============== ============== ==============
LIABILITIES AND PARTICIPANTS' CAPITAL
Notes payable $ 336,772 - $ 336,772
Accrued interest 572 - 572
Accrued liabilities 210,172 - 210,172
Accrued liabilities - affiliates 17,117 - 17,117
Deferred rental income 8,062 - 8,062
-------------- -------------- ---------------
Total liabilities 572,695 - 572,695
-------------- -------------- ---------------
Participants' capital (deficit):
Managing Trustee (14,704) (8,772)A (23,476)
Special Beneficiary - - -
Class A Beneficiary interests (482,016 interests;
initial purchase price of $25 each) 7,922,933 (868,398)A 7,054,535
Class B Beneficiary interests (826,072 interests;
initial purchase price of $5 each)
Treasury interests (67,202 Class A interests at cost) (791,375) - (791,375)
-------------- -------------- ---------------
Total participants' capital 7,116,854 (877,170) 6,239,684
-------------- -------------- ---------------
Total liabilities and participants' capital $ 7,689,549 $ (877,170) $ 6,812,379
============== ============== ==============
See accompanying notes.
20
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 $ 207,999 - $ 207,999
Interest income 11,219 - 11,219
Interest income - affiliate - - -
Gain on sale of equipment 400 - 400
Other income - - -
------------------ -------------- -------------------
Total income 219,618 - 219,618
------------------ -------------- -------------------
EXPENSES
Depreciation and amortization 45,761 - 45,761
Interest expense 20,518 - 20,518
Management fees - affiliates 58,508 (32,574) D 25,934
Write-down of investment securities - affiliate - - -
Write-down of equipment 483,648 - 483,648
Operating expenses 365,987 - 365,987
Operating expenses - affiliate 158,517 - 158,517
------------------ -------------- -------------------
Total expenses 1,132,939 (32,574) C 1,100,365
------------------ -------------- -------------------
EQUITY INTERESTS
Equity in net income (loss) of EFG Kirkwood LLC (22,702) - (22,702)
Equity in net income of MILPI Holdings, LLC 264,938 (264,938) -
------------------ -------------- -------------------
Total income (loss) from equity interests 242,236 (264,938) (22,702)
------------------ -------------- -------------------
Net loss $ (671,085) $ (232,364) $ (903,449)
==================== ============== ====================
Net loss
per Class A Beneficiary Interest $ (1.09) - $ (1.57)
==================== ====================
per Class B Beneficiary Interest $ (0.02) - $ (0.02)
==================== ====================
See accompanying notes.
21
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 $ 518,671 $ - $ 518,671
Interest income 71,832 - 71,832
Gain on sale of equipment 82,360 - 82,360
Other income 33,149 - 33,149
------------------- ------------- -------------------
Total income 706,012 - 706,012
------------------- ------------- -------------------
EXPENSES
Depreciation and amortization 86,898 (5,704) B 81,194
Interest expense 23,292 - 23,292
Management fees - affiliates 85,830 (39,132) D 46,698
Operating expenses - affiliate 731,446 - 731,446
------------------- ------------- -------------------
Total expenses 927,466 (44,836) 882,630
------------------- ------------- -------------------
EQUITY INTERESTS
Equity in net loss of EFG Kirkwood LLC (45,552) - (45,552)
Equity in net income of MILPI Holdings, LLC 578,988 (578,988) C -
------------------- ------------- ------
Total income (loss) from equity interests 533,436 (578,988) (45,552)
------------------- ------------- -------------------
Net income (loss) $ 311,982 $ (534,152) $ (222,170)
=================== ============= ===================
Net income (loss)
per Class A Beneficiary Interest $ 0.50 - $ (0.36)
per Class B Beneficiary Interest $ 0.01 - $ -
See accompanying notes.
22
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 sale of the Trust's membership interests in
MILPI as described in Proposal Three contained in this Solicitation Statement.
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 sale of the Trust's membership interests in MILPI 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 sale 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 to the sale of the Trust's
membership interest in MILPI. MILPI was formed in December 2000, for the
purpose of acquiring 100% of the outstanding common stock of PLM, an equipment
leasing and asset management company. In February 2001, MILPI, through a wholly
owned subsidiary, acquired 83% of the outstanding common stock of PLM pursuant
to a cash tender offer. In February 2002, pursuant to the terms of an agreement
with PLM, MILPI acquired the remaining 17% of PLM's outstanding common stock at
which point MILPI's wholly owned subsidiary merged into PLM, with PLM being the
surviving entity. Since the Trust and Trust A are proposing to liquidate their
assets (see Proposal One), two other affiliated trusts, which hold the balance
of the membership interests in MILPI, provided the funds necessary to acquire
the additional 17% of PLM's outstanding common stock. Prior to the acquisition
of the additional common stock, the Trust held a 20% membership interest in
MILPI that was reduced to 16.67% upon completion of the subsequent acquisition.
The Trust accounts for its membership interest in MILPI using the equity method
of accounting. Under the equity method of accounting, the Trust's interest is
(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 interest 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.
23
The Trust is not a taxable entity and therefore pro forma income tax adjustments
are not applicable.
(A) Adjustment to record the sale of the Trust's membership interest in
MILPI for cash proceeds of $3,954,385, pursuant to the Membership Interest
Purchase Agreement. The Trust's interest in MILPI had a carrying value of
$4,831,555 at September 30, 2002 which would result in a pro forma loss on the
sale of the interest of $877,170. The sale price was calculated in accordance
with the Membership Interest Purchase Agreement as follows:
Original purchase price of the membership interest $ 4,355,145
Plus: Purchase Fees 43,551 (i)
Less: Dividend paid to the Trust (444,311) (ii)
----------------
Sale Price of membership interest $ 3,954,385
================
(i) Defined as all fees paid by the Trust to the Managing Trustee in connection
with the purchase of the Trust's membership interest in MILPI.
(ii) On March 12, 2002, PLM declared and paid a cash dividend to MILPI of
approximately $2.7 million. MILPI then declared and paid a cash dividend to its
members of approximately $2.7 million, of which the Trust's share was $444,311.
(B) Adjustment to reverse the goodwill amortization expense recorded by the
Trust related to the acquisition of its membership interest in MILPI, as
discussed above.
(C) Adjustment to reverse the Trust's share of the net income of MILPI
recorded under the equity method of accounting, as discussed above.
(D) Adjustment to reverse the management fees paid to the Managing Trustee
in connection with the management of the Trust's membership interest in MILPI as
described in (A) above.
24
SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES
IN CONNECTION WITH THE PROPOSALS
If the Plan of Liquidation and Dissolution is approved pursuant to Proposal
One, the tax consequences will be consistent with the existing partnership tax
rules. The Trust will recognize gain or loss for income tax purposes on the
sale of assets based upon the difference between the sale price and the tax
basis of the asset sold. The gain or loss will be capital or ordinary depending
upon the holding period of the asset and the nature of the underlying asset.
Income will increase the Beneficiary's basis in his or her Interest and a loss
will decrease his or her basis. Distributions will not be taxable unless they
exceed the Beneficiary's basis in his or her Interest. Distributions in-kind to
Beneficiaries will not result in taxable gain or loss to the Trust. Rather,
they affect the basis of that Beneficiary's Interest. Although distributions
in-kind may affect the timing of income/loss recognition if the dissolution goes
into 2003, it will not affect the amount of gain or loss ultimately recognized
by the Beneficiaries. Also, because the investment generally qualifies as a
"passive activity" for purposes of determining the deductibility of losses on a
Beneficiary's personal return, dissolution of the Trust will allow Beneficiaries
to fully utilize suspended passive losses in the year of dissolution.
If Proposal Three is approved, gain or loss from the sale of the Trust's
membership interests in MILPI will constitute capital gain or loss to the Trust,
a Beneficiary's share of which will pass through to it and be reportable on its
federal income tax return. Such gain or loss will be long-term or short-term
depending upon the Trust's holding period in the securities. Any gain will
increase, and any loss will decrease, a Beneficiary's adjusted federal tax basis
in its Interest. The Trust is not separately taxed on its income.
THE TAX CONSEQUENCES DISCUSSED HEREIN MAY AFFECT BENEFICIARIES DIFFERENTLY
DEPENDING UPON THEIR PARTICULAR TAX SITUATIONS UNRELATED TO THE LIQUIDATING
DISTRIBUTION. ACCORDINGLY, THIS SUMMARY IS NOT A SUBSTITUTE FOR CAREFUL TAX
PLANNING ON AN INDIVIDUAL BASIS. BENEFICIARIES MAY WISH TO CONSULT THEIR
PERSONAL TAX ADVISERS CONCERNING THEIR PARTICULAR TAX SITUATIONS AND THE IMPACT
THEREON OF RECEIVING THE LIQUIDATING DISTRIBUTION, INCLUDING ANY STATE AND LOCAL
TAX CONSEQUENCES.
This summary is based on the federal tax laws and regulations in effect on the
date of this Solicitation Statement, all of which are subject to change by
legislative or administrative action, possibly with retroactive effect. The
discussion herein does not address the particular federal income tax
consequences that may apply to certain Beneficiaries such as trusts, estates,
tax-exempt organizations, qualified plans, individual retirement accounts,
nonresident aliens or other foreign investors. This summary also does not
address the state, foreign or local tax consequences of a Beneficiary's holding
of an interest in the Trust.
25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Trust's
Interests, as of November 11, 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 PERCENT OF PERCENT OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL CLASS A CLASS A INTERESTS NUMBER OF CLASS B INTEREST SPECIAL BENEFICIARY
OWNER (1) INTERESTS OWNED CLASS B INTERESTS OWNED INTEREST OWNED
- ---------------------------------------- --------- ----------------- --------- ----------------- --------------------
Equis II Corporation (2). . . . 40 * 997,374 99.6% -
Semele Group, Inc. (3). . . . . 879 * 997,374 99.6% 100%
Gary D. Engle (4) . . . . . . . 879 * 997,374 99.6% -
James A. Coyne (5). . . . . . . 879 * 997,374 99.6% -
* Represents less than 1% of the outstanding Interests.
(1) The business address of each Beneficiary listed above is c/o Equis
Financial Group Limited Partnership, 200 Nyala Farms, Westport, Connecticut
06880.
(2) Equis II Corporation, a wholly owned subsidiary of Semele, owns 40 Class
A Interests and 997,374 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 839 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.
26
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 Quarter ended March 31, 2002
Quarterly Report on Form 10-Q Quarter ended June 30, 2002
Quarterly Report on Form 10-Q Quarter ended September 30, 2002
27
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.
28
A-1
ANNEX A
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
This Plan of Complete Dissolution and Liquidation (this "Plan"), is entered
into as of _________ __, 2002, by AFG ASIT Corporation, not in its individual
capacity but solely as Managing Trustee (the "Managing Trustee") of AFG
Investment Trust B, a trust formed under the laws of the State of Delaware (the
"Trust"), under a certain Second Amended and Restated Declaration of Trust dated
as of July 15, 1997, as the same has been amended thereafter from time to time
(the "Trust Agreement"), and Wilmington Trust Company, not in its individual
capacity but solely as Delaware Trustee (the "Delaware Trustee") of the Trust.
R E C I T A L S
---------------
WHEREAS, pursuant to Section 1.6 of the Trust Agreement the Trust shall
continue in full force and effect until December 31, 2003, except that the Trust
shall be dissolved, its affairs wound up and its assets liquidated prior to
December 31, 2003 upon the sale or other disposition of all or substantially all
of the Assets of the Trust, unless the Managing Trustee elects to continue the
Trust business for the purpose of the receipt and collection of any
consideration to be received in exchange for Assets (which activities shall be
deemed to be a part of such sale or other disposition and the winding up of the
affairs of the Trust); and
WHEREAS, the Trust Agreement provides that the Managing Trustee shall use its
best efforts to sell all of the Assets of the Trust not later than the end of
the tenth year following the Trust's Final Closing, provided that market
conditions existing at the time permit sale of the Assets on terms deemed
reasonable by the Managing Trustee; and
WHEREAS, pursuant to the Trust Agreement, the Managing Trustee shall have full
power and authority on behalf on the Trust to sell, exchange or otherwise
dispose of the Assets on terms the Managing Trustee deems to be in the best
interests of the Trust; and
WHEREAS, the Managing Trustee has determined that it is necessary and advisable
and in the best interest of the Trust to sell or otherwise dispose of all or
substantially all of its Assets; and
WHEREAS, the Beneficiaries of the Trust have agreed by the written consent of%
of the Class A and Class B Interests to liquidate and dissolve the Trust in
accordance with the terms hereof; and
WHEREAS, upon the consummation of such sale or other disposition of all or
substantially all of the Assets of the Trust, the Managing Trustee shall
dissolve the Trust and wind up the business of the Trust in accordance with the
Trust Agreement, pursuant to this Plan, and in conformity with the laws of the
State of Delaware; and
WHEREAS, capitalized terms used herein but not defined herein shall have the
meanings ascribed to them in the Trust Agreement.
A-1
NOW THEREFORE, the Managing Trustee shall take, or cause to be taken, the
following actions on behalf of the Trust:
1. The Managing Trustee shall cause the Trust to sell or otherwise dispose
of all or substantially all of the Assets of the Trust. The Managing Trustee
may determine, in its sole discretion, the means, manner and terms of such sales
or other dispositions of the Trust's Assets.
2. Upon the consummation of the sale or other disposition of all or
substantially all of the Trust's Assets, the Managing Trustee shall dissolve the
Trust, apply and distribute the proceeds thereof in accordance with
Sections 1.6 and 8.1(b) of the Trust Agreement, and wind up the affairs of the
Trust. Nothing in this Plan shall be interpreted to modify or limit in any way
the Managing Trustee's power to (i) pursuant to Section 1.6 of the Trust
Agreement, defer the liquidation of any Assets if an immediate sale is
impermissible, impractical or would create an undue loss for the Managing
Trustee or any beneficiary of the Trust (other than those necessary to satisfy
the debts and obligations of the Trust) and withhold from distribution such
proceeds from the sale or other disposition of any of the Assets of the Trust
for a reasonable time, or (ii) pursuant to Section 8.1(b), pay to the Trust in
cash an amount equal to the deficit balance in its Capital Account within a
specified period of time, which amount shall, upon liquidation of the Trust, be
paid to recourse creditors of the Trust.
3. Upon the consummation of the sale or other disposition of all or
substantially all of the Assets of the Trust and the winding up of the affairs
of the Trust, the Trust shall be dissolved and, pursuant to Section 3810(d) of
the Delaware Business Trust Act and in accordance with Section 1.6 of the Trust
Agreement, the Managing Trustee shall cause the Trust to file a Certificate of
Cancellation, a form of which is attached hereto as Exhibit A, which shall
------- -
state, inter alia, the future effective date or time certain at which the
cancellation of the Trust shall be effective.
4. The Managing Trustee may modify or amend this Plan at any time if it
determines that such action would be advisable and in the best interests of the
Trust. In addition, the Trust may abandon this Plan at any time prior to the
filing of the Plan among the records of the Trust if it determines that
abandonment would be advisable and in the best interests of the Trust.
5. In addition to and without limitation of the foregoing, the Managing
Trustee shall take any and all other actions deemed required, necessary or
desirable to complete the liquidation and dissolution of the Trust.
[The remainder of this page is left intentionally blank.]
IN WITNESS WHEREOF, the Managing Trustee has executed this Plan as of the date
first set forth above.
AFG ASIT CORPORATION, as Managing
Trustee and not individually
By:
Name:
Title:
WILMINGTON TRUST COMPANY, as Delaware
Trustee and not individually
By:
Name:
Title:
EXHIBIT A TO
PLAN OF LIQUIDATION
CERTIFICATE OF CANCELLATION
OF
CERTIFICATE OF TRUST
OF
AFG INVESTMENT TRUST B
Delaware Business Trust Act Section 3810(d)
AFG Investment Trust B, a business trust incorporated under the laws of the
State of Delaware, hereby submits a Certificate of Cancellation of the
Certificate of Trust under Delaware Business Trust Act, Section 3810(d):
1. The name of the Trust is: AFG Investment Trust B.
2. The date the Trust filed its certificate of trust was: May 28, 1992.
3. The effective date of the cancellation of the Trust shall be:
________________.
IN WITNESS WHEREOF, the undersigned, being all the Trustees of AFG Investment
Trust B, have signed this Certificate of Cancellation of Certificate of Trust as
Trustees as of the ____ day of ___________, 200_.
AFG ASIT CORPORATION, as Managing Trustee
and not individually
By:
Name:
Title:
WILMINGTON TRUST COMPANY, as Delaware
Trustee and not individually
By:
Name:
Title:
Crossroads
Experience * Support * Solutions
ANNEX B
May 15, 2002
AFG Investment Trust A
AFG Investment Trust B
200 Nyala Farms
Westport, CT 06880-6267
Gentlemen:
You have engaged Crossroads, LLC to render an opinion as to the fairness, from a
financial point of view, of the consideration to be paid to AFG Investment Trust
A and AFG Investment Trust B (collectively known as the "Sellers") in connection
with the sale of their membership interests of MILPI Holdings, LLC ("MILPI").
MILPI will pay an aggregate amount of $5,931,578 in cash consideration to
repurchase the membership interests, which are currently owned by the Sellers.
PLM International, Inc. ("PLM"), a wholly-owned subsidiary of MILPI, is the sole
asset of MILPI. Therefore, the value of MILPI is best represented by the equity
value of PLM. Accordingly, in order to render an opinion as to the fairness of
the transaction between MILPI and the Sellers, we performed a valuation analysis
of PLM.
In connection with this opinion, we considered the following relevant factors:
History and nature of the business;
The book value and financial condition of the business;
The earnings capacity of the business;
Management's financial forecasts of earnings and cash flow;
Publicly available business and financial information relating to PLM;
The market prices and trading activity for PLM's common stock;
PLM's sale process; and
The market prices and rates of return of publicly-traded comparable
companies
Please refer to our Statement of Assumptions and Limiting Conditions, attached
to this report, which specified the terms and conditions under which Crossroads
LLC performed this engagement (TAB 2).
Crossroads was not requested to, and did not, make an independent evaluation or
appraisal of PLM's assets or liabilities, contingent or otherwise, and was not
furnished with any such evaluations or appraisals.
In connection with its review, Crossroads did not assume any responsibility for
independent investigation or verification of any of the information that was
provided to it and it relied on such information being complete and accurate in
all material respects.
With respect to the financial forecasts prepared and provided by PLM's
management ("Management"), Crossroads was advised, and assumed, that the
forecasts were reasonably prepared on bases reflecting their best currently
available estimates and judgments as to PLM's future financial performance.
B-1
The materials and information presented in this report have been prepared for
illustrative purposes only, and do not represent a prediction, forecast or
projection of actual results. Crossroads disclaims any assurance on the
underlying assumptions and the user of this report should not rely on such
assumptions as achievable since the actual results may significantly differ from
the underlying assumptions. Furthermore, Crossroads does not make, and expressly
disclaims, any warranty or guarantee of any particular result and the user of
this report should not rely on this analysis and valuation.
Our opinion has been prepared for the information of the Sellers, and our
opinion is rendered in connection with the repurchase of MILPI's membership
interests. This opinion does not constitute a recommendation to the Sellers as
to whether they should sell their 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 considered by the Sellers.
No opinion is expressed, nor should one be implied, as to the fair market value
of MILPI's membership interests or the prices at which it may trade at any time.
It is understood 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. However,
Crossroads hereby consents to this opinion being reproduced in full in the proxy
statements of AFG Investment Trust A and B related to the subject matter of this
opinion.
Based on and subject to the foregoing, we are of the opinion that as of the date
hereof, the Consideration to be received by the Sellers in the Transaction is
fair to the Sellers from a financial point of view.
Very truly yours,
/s/ Crossroads, LLC
Crossroads, LLC
EXHIBIT A TO
FAIRNESS OPINION
PLM International, Inc.
Summary of Management Projections by Program
Discounted Cash Flow Analysis
FISCAL YEAR ENDING DECEMBER 31,
-------------------------------
($IN THOUSANDS) 2002 2003 2004 2005 2006 2007
-------- -------- -------- -------- -------- ---------
EGF I
- -----------------------------------------------------
Partnership Distributions (100%) $ - $ 7,336 $ 3,794 $11,177 $ - $ -
Distribution to PLMI @ 1% - 73 38 112 - -
Management Fees 260 400 372 - - -
-------- -------- -------- -------- -------- ---------
EGF I Cash Flows 260 473 410 112 - -
EGF II
- -----------------------------------------------------
Partnership Distributions (100%) - 11,608 - - - -
Distribution to PLMI @ 5% - 580 - - - -
Management Fees 143 10 - - - -
-------- -------- -------- -------- -------- ---------
EGF II Cash Flows 143 590 - - - -
EGF III
- -----------------------------------------------------
Partnership Distributions (100%) 15,000 8,512 - - - -
Distribution to PLMI @ 5% 750 426 - - - -
Management Fees 121 - - - - -
-------- -------- -------- -------- -------- ---------
EGF III Cash Flows 871 426 - - - -
EGF IV
- -----------------------------------------------------
Partnership Distributions (100%) 4,000 13,161 - - - -
Distribution to PLMI @ 5% 200 658 - - - -
Management Fees 170 - - - - -
-------- -------- -------- -------- -------- ---------
EGF IV Cash Flows 370 658 - - - -
EGF V
- -----------------------------------------------------
Partnership Distributions (100%) 954 3,817 3,817 3,817 2,863 53,289
Distribution to PLMI @ 5% 48 191 191 191 143 2,664
Management Fees 297 404 351 250 207 -
Deferred Management Fees (114) (101) (44) - - -
-------- -------- -------- -------- -------- ---------
EGF V Cash Flows 230 494 498 441 350 2,664
Deferred Fees as a % of Mgmt. Fees 38% 25% 13%
EGF VI
- -----------------------------------------------------
Partnership Distributions (100%) 2,845 3,793 3,793 3,793 3,793 63,583
Distribution to PLMI @ 5% 142 190 190 190 190 3,179
Management Fees 545 694 633 564 382 -
Deferred Management Fees - (174) (158) (70) - -
EGF VI Cash Flows 687 710 665 684 572 3,179
-------- -------- -------- -------- -------- ---------
Deferred Fees as a % of Mgmt. Fees 0% 25% 25% 12%
EGF VII
- -----------------------------------------------------
Partnership Distributions (100%) 799 3,194 3,194 3,194 3,194 69,757
Distribution to PLMI @ 5% 40 160 160 160 160 3,488
Management Fees 801 822 759 460 323 -
Deferred Management Fees - - - (115) (40) -
-------- -------- -------- -------- -------- ---------
EGF VII Cash Flows 841 982 919 505 443 3,488
Deferred Fees as a % of Mgmt. Fees 0% 0% 0% 25% 12%
IF I
- -----------------------------------------------------
Partnership Distributions (100%) 5,849 5,849 5,849 5,849 5,849 74,031
Distribution to PLMI @ 15% 877 877 877 877 877 3,650
Distribution to PLMI @ 25% - - - - - 12,425
Management Fees 1,109 626 601 573 468 -
-------- -------- -------- -------- -------- ---------
EGF II Cash Flows 1,986 1,503 1,478 1,450 1,345 16,075
Special Purpose Entities (Management Fees) 954 - - - - -
Total Gross Fees and Income From Investment Programs 6,342 5,836 3,970 3,192 2,710 25,406
Management Fees From Private Retailers 688 648 608 568 528 488
-------- -------- -------- -------- -------- ---------
FISCAL YEAR ENDING DECEMBER 31,
-------------------------------
($IN THOUSANDS) 2002 2003 2004 2005 2006 2007
-------- -------- -------- -------- -------- ---------
TOTAL GROSS FEES AND INCOME 7,030 6,484 4,578 3,760 3,238 25,894
Reimbursement of Data Processing Costs 478 408 393 339 303 190
Sale of Forklift (less transaction fees) 171
Total Adjusted Corporate Overhead Expense (2,991) (2,100) (1,814) (1,538) (1,355) (775)
Depreciation (114) (114) (114) (114) (114) (114)
Earnings Before Taxes 4,574 4,678 3,043 2,447 2,072 25,195
Estimated Taxes 40% (1,830) (1,871) (1,217) (979) (829) (10,078)
Additional Tax Related to Deferred Taxes Liability (200) (200) (100) (250)
-------- -------- -------- -------- -------- ---------
Earnings After Taxes 2,544 2,608 1,726 1,218 1,243 15,117
Plus Depreciation 114 114 114 114 114 114
-------- -------- -------- -------- -------- ---------
NET CASH FLOW 2,658 2,722 1,840 1,332 1,357 15,231
-------- -------- -------- -------- -------- ---------
MANAGEMENT OVERHEAD ADJUSTMENTS FISCAL YEAR ENDING DECEMBER 31,
------------------------------- -------------------------------
.. 2002 2003 2004 2005 2006 2007
---------- ------ ---- ---- ---- ----
CORPORATE OVERHEAD EXPENSE
- ------------------------------------------
Total Corporate Overhead Expenses 2,989
Adjustments to Corporate Overhead Expenses 2002 IQ
San Francisco Salary Reduction Pro Forma Cost Savings
[Employee A 100% (250) - - - - - 250 (63)
Employee B 10% (11) - - - - - 110 (3)
Employee C 20% (18) - - - - - 88 (4)
Employee D 100% (70) - - - - - 70 (18)
Employee E 100% (35) - - - - - 35 (9)
Employee F] 90% (59) - - - - - 65 (15)
---------- ------ ------ ---- ---- ---- ---- --- -----
Total San Francisco Salary Reductions (442) - - - - - 618 (111)
Estimated San Francisco Benefits 20% (88) - - - - - (22)
San Francisco Phone, fees, 401(k), etc. (120) - - - - - 120 (30)
San Francisco Rent - - - - - -
Replacement Employees in Florida 100 - - - - - 100 25
Replacement Employees Benefits 20% 20 - - - - - 5
---------- ------------- ---- ---- ---- ---- --- -----
Total Adjustments to Corporate Overhead (531) - - - - -
----------
Pro Forma Corporate Overhead Expense 2,458
----------
FISCAL YEAR ENDING DECEMBER 31,
2002 2003 2004 2005 2006 2007
------------- ------ ------ ------ ------ -----
CORPORATE OVERHEAD EXPENSE
- -------------------------------------------
Total Corporate Overhead Expenses 2,989
Adjustments to Corporate Overhead Expenses 2002 IQ
San Francisco Salary Reduction Pro Forma Cost Savings
[Employee A 100% (188) - - - - - 250 (63)
Employee B 10% (8) - - - - - 110 (3)
Employee C 20% (13) - - - - - 88 (4)
Employee D 100% (53) - - - - - 70 (18)
Employee E 100% (26) - - - - - 35 (9)
Employee F] 90% (44) - - - - - 65 (15)
Total San Francisco Salary Reductions (332) - - - - - 618 (111)
------------- ------ ------ ------ ---- --- --- -----
Estimated San Francisco Benefits 20% (66) - - - - - (22)
San Francisco Phone, fees, 401(k), etc. (90) - - - - - 120 (30)
San Francisco Rent - - - - - -
Replacement Employees in Florida 75 - - - - - 100 25
Replacement Employees Benefits 20% 15 - - - - -
------------- ------ ------ ------ ---- ----- --- -----
Total Adjustments to Corporate Overhead (398) - - - - -
------------- ------ ------ ------ ---- ----- --- -----
Pro Forma Corporate Overhead Expense(6) 2,591 2,100 2,018 1,742 1,559 979
Moving Costs 400 - - - - -
Less San Francisco Rent - - (204) (204) (204) (204)
------------- ------ ------ ------ ------ -----
Total Adjusted Corporate Overhead Expense 2,991 2,100 1,814 1,538 1,355 755
------------- ------ ------ ------ ---- -----
PLM INTERNATIONAL, INC.
MANAGEMENT CASH FLOW PROJECTIONS
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------
FISCAL YEAR ENDING DECEMBER 31,
2002 2003 2004 2005 2006 2007
-------- -------- -------- -------- -------- ---------
($ in thousands)
EGF I Cash Flows 260 473 410 112 - -
EGF II Cash Flows 143 590 - - - -
EGF III Cash Flows 871 426 - - - -
EGF IV Cash Flows 370 658 - - - -
EGF V Cash Flows 230 494 498 440 350 2,664
EGF VI Cash Flows 687 710 665 685 572 3,179
EGF VII Cash Flows 841 982 919 504 442 3,488
IF I Cash Flows 1,986 1,503 1,478 1,451 1,345 16,075
Special Purpose Entities (Management Fees) 954 - - - - -
-------- -------- -------- -------- -------- ---------
Total Gross Fees and Income From Investment Programs 6,342 5,836 3,970 3,192 2,709 25,406
Management Fees From Private Railcars 688 648 608 568 528 488
-------- -------- -------- -------- -------- ---------
TOTAL GROSS FEES AND INCOME 7,030 6,484 4,578 3,760 3,237 25,894
Reimbursement of Data Processing Costs 478 408 393 339 303 190
Sale of Forklift (less transaction fees) 171
Total Adjustment Corporate Overhead Expense (2,991) (2,100) (1,814) (1,538) (1,355) (775)
Depreciation (114) (114) (114) (114) (114) (114)
-------- -------- -------- -------- -------- ---------
Earnings Before Taxes 4,574 4,678 3,043 2,447 2,071 25,195
Estimated Taxes 40% (1,830) (1,871) (1,217) (979) (828) (10,078)
Additional Tax Related to Deferred Taxes Liability (200) (200) (100) (250)
-------- -------- -------- -------- -------- ---------
Earnings After Taxes 2,544 2,607 1,726 1,218 1,243 15,117
Plus Depreciation 114 114 114 114 114 114
-------- -------- -------- -------- -------- ---------
NET CASH FLOW $ 2,658 $ 2,721 $ 1,840 $ 1,332 $ 1,357 $ 15,231
-------- -------- -------- -------- -------- ---------
NET PRESENT VALUE 20% $11,457 23% $10,414 25% $ 9,791
Cash on Balance Sheet 14,112 14,112 14,112
Cash Surrender Value of Officer's Life Insurance Policies 2,300 2,300 2,300
-------- -------- --------
Total Enterprise Value 27,869 26,826 26,203
Less: Debt (400) (400) (400)
-------- -------- --------
Fair Market Value of Equity 27,469 26,426 25,803
Total Shares Outstanding 7,555 7,555 7,555
Price Per Share $ 3.64 $ 3.50 $ 3.42
ANNEX C
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 B 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. Section 7.3 of the Trust Agreement is hereby deleted and the following
inserted in lieu thereof:
The Trust may not purchase Assets in which the Managing Trustee or any of
its Affiliates (individually, an "Interested Party") has an interest, except for
Assets acquired on an interim basis (generally not in excess of six months) by
an Interested Party for the purpose of facilitating the acquisition by the Trust
of the Asset or obtaining financing for the Trust or in connection with a Joint
Venture. Except as provided herein, the Trust may not purchase Assets from any
program in which the Managing Trustee or any of its Affiliates has an interest;
provided that such restriction shall not prohibit the Trust from being a
participant in a Joint Venture. The Trust may acquire any such Assets from an
Interested Party only if: (i) such acquisition is in the best interests of the
Trust; (ii) such Asset is purchased by the Trust for a price no greater than the
Asset Base Price; (iii) there is no difference in interest terms of the loans
secured by such Asset at the time acquired by the Interested Party and the time
acquired by the Trust, unless any such difference is favorable to the Trust; and
(iv) no other benefit arises out of such transaction to the Interested Party
apart from compensation otherwise permitted by this Agreement. Assets shall not
be acquired from an Interested Party if such transaction would involve the
payment of duplicative Asset Management Fees or other fees or would have the
effect of circumventing any of the restrictions on and prohibitions of
transactions involving conflicts of interest contained herein. The aggregate
primary term rental payments received or accrued to the Interested Party with
respect to Assets prior to the time that the Trust purchases the Asset from the
Interested Party shall reduce the purchase price paid by the Trust for such
Asset by such amounts unless such primary term rental payments are assigned to
the Trust.
Except as provided herein, the Trust may not sell Assets to an Interested Party.
The Trust may sell any Assets to an Interested Party only if: (i) such sale is
in the best interests of the Trust; (ii) such Asset is sold for a price no less
than the Fair Market Value, as determined by an Independent Expert; and (iii) no
other benefit arises out of such transaction to the Interested Party apart from
compensation otherwise permitted by this Agreement. Asset sales to an
Interested Party may not involve the payment of duplicative Asset Management
Fees or other fees in circumvention of any of the
C-1
restrictions on and prohibitions of transactions involving conflicts of interest
contained herein.
If an Interested Party purchases an Asset in its own name in order to
facilitate the ultimate purchase by the Trust, the Trust may purchase such Asset
and such Interested Party will be entitled to receive interest on the funds
expended for such purchase on behalf of the Trust. Interest on such temporary
purchases will be charged at a floating rate equal to the rate of interest
charged by third party financing institutions on comparable loans for the same
purpose (but not in excess of 2% per annum over the base rate from time to time
announced by Fleet Bank of Massachusetts, N.A.). Interest shall accrue and be
payable at the above-determined rate from the date of the Managing Trustee's or
Affiliate's acquisition of the Asset until such Asset is sold to the Trust.
The Trust shall not lease Assets from or to the Interested Parties.
2. Section 7.7 is hereby deleted and the following is hereby
substituted in lieu thereof:
The Trust shall not make in-kind distributions to the Participants, except
as provided in Section 8.1(b) hereof.
3. Section 8.1(b) is hereby deleted and the following is hereby
substituted in lieu thereof:
(b) Liquidation Distributions. In connection with the liquidation and
dissolution of the Trust, the Managing Trustee may, in its discretion,
distribute Trust Assets to itself as well as to its Affiliates in whole or in
part in lieu of cash distributions, while making cash distributions to other
Beneficiaries. Assets which are distributed in-kind shall have a Fair Market
Value, as determined by an Independent Expert, equal to the amount of cash that
would have been distributed to the Beneficiaries receiving the in-kind
distribution, had such distribution been made in cash rather than in-kind, as of
a date no earlier than 30 days prior to the announcement of the proposed
distribution. In addition, upon dissolution and termination of the Trust, after
payment of, or adequate provision for, the debts and obligations of the Trust,
the Managing Trustee may distribute the remaining assets of the Trust (or the
proceeds of sales or other dispositions in liquidation of Trust assets, as may
be determined by the remaining or surviving Trustees) to the Participants in
accordance with the positive balances in their Capital Accounts after taking
into account all Capital Account adjustments for the Trust's taxable year,
including adjustments to Capital Accounts pursuant to Section 8.2(a). In the
event that the Managing Trustee has a deficit balance in its Capital Account
following the liquidation of the Trust or its interest in the Trust as
determined after taking into account all Capital Account adjustments for the
Trust taxable year in which such liquidation occurs, the Managing Trustee shall
pay to the Trust in cash an amount equal to the deficit balance in its Capital
Account by the end of such taxable year (or, if later, within ninety (90) days
after the date of such liquidation) which amount shall, upon liquidation of the
Trust, be paid to recourse creditors of the Trust or distributed to the Trust
Beneficiaries in accordance with their positive Capital accounts balances.
Except as specifically amended hereby, the Trust Agreement as in effect prior to
this Amendment thereof remains in full force and effect.
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:
D-1
ANNEX D
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 or another affiliate designated by the Managing
Trustee] ("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.
D-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, 2000.
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 caused 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 [OR DESIGNATED PURCHASER]
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:
MILPI HOLDINGS, LLC
ANNEX A
MEMBERS
Name and Address of Member (1) Total Membership Interests Prior to Sale (2) Total Membership Interests After Sale (3)
- ------------------------------ -------------------------------------------- -----------------------------------------
AFG Investment Trust A 8.33% 0%
AFG Investment Trust B 16.66% 0%
AFG Investment Trust C 37.50% 50%
AFG Investment Trust D 37.50% 50%
TOTAL 100.00% 100%
__________________________
(1) Address for each of the trusts is 200 Nyala Farms, Westport, Connecticut
06880.
(2) Represents the Membership interests of the members prior to the
execution of the Membership Interest Purchase Agreement.
(3) Represents the Membership interests of the members from and after the
execution of the Membership Interest Purchase Agreement.
AFG INVESTMENT TRUST B
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 November __,
2002, (the "Solicitation Statement"), from AFG Investment Trust B (the "Trust")
concerning the four 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 approve the liquidation and dissolution of the Trust under the terms
and conditions of the Plan of Liquidation and Dissolution, pursuant to which
Beneficiaries will receive cash distributions upon final dissolution.
______ FOR ______ AGAINST ______ ABSTAIN
(2) To amend Section 7.3 of the Trust Agreement to allow for the sale of
assets by the Trust to its affiliates.
______ FOR ______ AGAINST ______ ABSTAIN
(3) To approve the sale of the Trust's membership interest in MILPI
Holdings, LLC, which is owned jointly with affiliates of the Trust.
______ FOR ______ AGAINST ______ ABSTAIN
(4) To amend Section 8.1(b) of the Trust Agreement, which currently allows
for distributions in-kind on a pro rata basis to all Beneficiaries upon the
liquidation and dissolution of the Trust, so that the Managing Trustee will have
the discretion to make distributions in-kind to affiliates of the Trust,
together with coinciding cash payments to the other Beneficiaries, and to
concurrently amend Section 7.7 of the Trust Agreement to allow for such
distributions in-kind permitted by Section 8.1(b).
______ 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 4.
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
By:
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 DECEMBER 26, 2002, 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 December 26, 2002, the
Managing Trustee may, at its discretion, extend 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.
(4) Proposed maximum aggregate value of transaction: