SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
_________________________________
Filed by the Registrant X
Filed by a party other than the Registrant
_________________________________
Check the appropriate box:
X Preliminary Proxy Statement Definitive Proxy Statement
Definitive Additional Materials Soliciting Material Pursuant to
Rule 14a-12
Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
___________________________________________
AFG INVESTMENT TRUST C
(Name of Registrant as Specified in Its Charter)
___________________________________________
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: 1
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
1 Set forth the amount on which the filing fee is calculated and state how
it was determined.
X Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule
0-1l(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
February ___, 2003 [INSERT MAILING DATE]
Dear Beneficiaries of AFG Investment Trust C:
In December 2000, AFG Investment Trust C (the "Trust"), along with three
other affiliated trusts, made a tender offer through a subsidiary of MILPI
Holdings, LLC ("MILPI") for all of the outstanding shares of PLM International,
Inc. ("PLM"), an equipment leasing and management company. The four trusts
collectively hold all of the outstanding membership interests in MILPI. In
February 2002, MILPI completed the acquisition of PLM. The Managing Trustee
believes that its interest in PLM, held through MILPI, currently constitutes the
Trust asset with the most income and growth potential. It also intends for the
operation of PLM to be the Trust's primary future business.
Your consent is being sought to proposals, listed below, that the Managing
Trustee believes would increase the income and value of PLM and in turn your
investment in the Trust. Your consent is also being sought to proposals that
the Managing Trustee believes would be in the best interest of the Trust in
order to enable the Trust to continue its ongoing business. As discussed below,
other than investments related to the business of PLM, or additional investments
to support assets the Trust already owns, the Trust does not anticipate
acquiring other investments. Each proposal is described in the enclosed Consent
Solicitation Statement. Please take the time to read and carefully consider
these proposals. A form of consent is enclosed with this Consent Solicitation
Statement and instructions on how to submit your consent are included herein.
Consents must be received no later than February ___, 2003 [30 DAYS AFTER
MAILING DATE] to be counted, unless the return date is extended (for up to 90
days) by the Managing Trustee in the event that a sufficient number of consents
required for the adoption (or rejection) of the proposals has not been received
by such date. In the event that the deadline is extended, the Managing Trustee
will provide notice to Beneficiaries by means of a press release or a letter
mailed to each Beneficiary.
Your consent is being sought with respect to the following proposals, which the
Managing Trustee believes will provide the best opportunity to maximize the
value of the Trust's assets, including its interest in PLM:
(1) To allow PLM, its parent, MILPI, and the subsidiaries and affiliates
that they control, to continue to operate their ongoing business making
investments after December 31, 2002, notwithstanding the end of the reinvestment
period for the Trust.
(2) To approve a transaction whereby a newly formed subsidiary of PLM, RMLP,
Inc., will receive a contribution from Semele Group, Inc. of partnership
interests in BMIF/BSLF II Rancho Malibu Limited Partnership, a partnership that
owns and is developing approximately 270 acres of land in Malibu, California, in
exchange for $5.5 million in cash, a $2.5 million promissory note and 182 shares
(15.4%) of the common stock of RMLP, Inc.
Your consent is also being sought with respect to the following proposals:
(3) To amend Section 7.5 of the Trust Agreement to approve grants and
exercises of rights of first refusal in connection with joint ventures between
the Trust and its affiliates.
(4) To approve the purchase by MILPI of the membership interests in MILPI
held by AFG Investment Trust A and AFG Investment Trust B, which would give the
Trust, together with AFG Investment Trust D, shared 100% ownership of MILPI.
(5) To allow the Trust, in its operation of PLM, to enter into business
arrangements with affiliates of the Trust in the ordinary course of business on
terms no less favorable than those that they would receive if such arrangements
were being entered into with independent third parties.
THE MANAGING TRUSTEE BELIEVES THAT THE ADOPTION OF EACH OF THE PROPOSALS IS IN
THE BEST INTEREST OF THE TRUST AND RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH OF
THE PROPOSALS. PLEASE RETURN THE ENCLOSED CONSENT FORM PRIOR TO FEBRUARY
___, 2003 TO MAKE SURE THAT YOUR CONSENT IS COUNTED.
Very truly yours,
Gary D. Engle
President
AFG ASIT Corporation, as Managing Trustee
SUMMARY TERM SHEET
Set forth below is a brief summary of the proposals included in this
Consent Solicitation Statement. This summary may not contain all of the
information that is important to you. Therefore, to better understand the
proposals and for a more complete description of their terms, in addition to
this summary you should carefully read this Consent Solicitation Statement and
the annexes attached to it in their entirety.
PROPOSAL ONE (P. 1)
- - The Trust proposes to allow PLM International, Inc. ("PLM") and its parent,
MILPI Holdings, LLC, ("MILPI") to continue to operate their ongoing business
making investments after December 31, 2002, notwithstanding the end of the
reinvestment period for the Trust.
- - The Managing Trustee believes that the timing restrictions on investments
set forth in the Trust's Trust Agreement do not apply to PLM, as an indirect
subsidiary of the Trust. Unlike the Trust, PLM is an infinite life corporation
engaged in the ongoing business of purchasing, managing and leasing assets
directly or through investment programs similar to the Trust. The primary
source of incremental income to PLM is from making new investments and then
selling them either to investment programs or other third parties. Accordingly,
in order to resolve any question as to whether or not the Trust's
restriction on reinvestment might be construed to apply to PLM or MILPI, the
Managing Trustee recommends that Beneficiaries of the Trust consent to PLM
continuing to make investments after December 31, 2002.
PROPOSAL TWO (P. __)
- - The Trust proposes to engage in a transaction whereby a newly formed
subsidiary of PLM International, Inc., RMLP, Inc., will receive a contribution
from Semele Group, Inc. of partnership interests in BMIF/BSLF II Rancho Malibu
Limited Partnership, a partnership that owns and is developing approximately 270
acres of land in Malibu, California.
- - In exchange for the contribution, RMLP will deliver to Semele $5.5 million in
cash, a $2.5 million promissory note (bearing interest at the rate of 7% per
annum) and 182 shares (15.4%) of the common stock of RMLP. - The Managing
Trustee believes that the proposed investment in the Rancho Malibu partnership
represents a sound investment that is expected to provide reasonable,
risk-adjusted pre-tax and post-tax rates of return to the Trust.
- - The Trust's financial advisors have determined that the price to be paid
by MILPI in connection with the purchase is fair to the Trust from a financial
point of view. See "Proposal Two - Fairness Opinion."
PROPOSAL THREE (P. __)
- - The Trust proposes to amend Section 7.5 of its Trust Agreement to approve
grants and exercises of rights of first refusal in connection with joint
ventures between the Trust and its affiliates.
- - Section 7.5 of the Trust Agreement initially provided that the Trust has
the right of first refusal in the event of a proposed sale of an asset, or an
interest therein, initiated by a joint venturer. However, when Section 7.5 was
amended in June 1999, the provision was deleted. The Managing Trustee believes
that the deletion of this right was inadvertent and that the right should be
reinstated.
PROPOSAL FOUR (P. __)
- - The Trust proposes to cause MILPI to purchase the membership interests in
MILPI held by two related entities, AFG Investment Trust A and AFG Investment
Trust B, which would give the Trust, together with AFG Investment Trust D,
shared 100% ownership of MILPI. The Trust and Trust D currently intend to
continue operating PLM through MILPI as an ongoing business until the
Trusts are liquidated pursuant to the terms of their respective Trust
Agreements. Although it is anticipated that the Trust and Trust D will sell
their interests in MILPI at the time of such liquidations, the Trusts have no
current intentions regarding the terms of any such sales or the parties to whom
the interest will be sold. If the sale of the Trust's MILPI interest back to
MILPI is not concluded for any reason the Managing Trustee would be authorized
to determine, in its discretion, to sell Trust A's and Trust B's MILPI interest
to another affiliate.
- - The staff of the SEC has informed two affiliates of Trust A and Trust B that
it believes that they may be unregistered investment companies. Accordingly,
while they have publicly stated that they do not believe they are unregistered
investment companies, they are in the process of liquidating their remaining
assets to avoid the burden and extra expense of continuing to pursue this issue
with the staff of the SEC.
- - The proposed acquisition is to be accomplished pursuant to a Membership
Interest Purchase Agreement at the initial price paid to purchase the interests,
less any dividends paid, plus the reimbursement of acquisition fees paid by the
Trust to the Managing Trustee pursuant to the Trust Agreement in connection with
the purchase of its MILPI membership interests.
- - The Trust's financial advisors have determined that the price to be paid by
MILPI in connection with the purchase is fair to the Trust from a financial
point of view. See "Proposal Four - Fairness Opinion."
PROPOSAL FIVE (P. __)
- - The Trust proposes, in its operation of PLM International, Inc., to enter into
business arrangements with affiliates of the Trust in the ordinary course of
business on terms no less favorable than those that they would receive if such
arrangements were being entered into with independent third parties.
- - As stated elsewhere in this Consent Solicitation Statement, the Managing
Trustee believes that its interest in PLM, held through MILPI,
currently constitutes the Trust's asset with the most growth and income
potential and that it intends to conduct as much of the Trust's future business
as possible through PLM. In order to do so, the Trust believes it must be able
to operate PLM as an ongoing business and enter into agreements, understandings
and arrangements with affiliates of the Trust in the ordinary course of
business, despite any conflicts that may arise under the Trust Agreement.
AFG INVESTMENT TRUST C
200 NYALA FARMS
WESTPORT, CONNECTICUT 06880
This Consent Solicitation Statement (this "Solicitation Statement") is
being furnished to each holder (individually, a "Beneficiary," and,
collectively, the "Beneficiaries") of Class A Beneficiary Interests ("Class A
Interests") and Class B Subordinated Beneficiary Interests ("Class B Interests";
the Class A Interests and the Class B Interests, collectively, the "Interests")
in AFG Investment Trust C, a Delaware business trust (the "Trust"), by the
Managing Trustee of the Trust, AFG ASIT Corporation, a Massachusetts corporation
(the "Managing Trustee"), in connection with the solicitation by the Trust of
the consent of the Beneficiaries to the above stated proposals.
This Solicitation Statement and the accompanying consent form are being mailed
to Beneficiaries of record as of the close of business on February ___
2003 [INSERT DATE 2-3 DAYS BEFORE MAILING DATE] (the "Record Date"). As of
__________, 2002, there were 1,787,153 Class A Interests and 3,024,740 Class B
Interests outstanding, of which 14,450 Class A Interests were held by the
Managing Trustee or its affiliates, and 3,019,222 Class B Interests were held by
the Managing Trustee or its affiliates.
Pursuant to Section 11.2 of the Second Amended and Restated Declaration of Trust
of the Trust, as amended (the "Trust Agreement"), Beneficiaries are entitled to
cast one vote for each Class A Interest or Class B Interest they own. In
general, a majority in interest of all of the Beneficiaries is required to take
action on behalf of the Trust. However, in the case of a transaction that is
deemed to be an "Interested Transaction" pursuant to the Trust Agreement, the
Managing Trustee and its affiliates must vote their Class B Interests in
accordance with the vote of a majority of the Class A Interests actually voted.
In addition, the Managing Trustee and its affiliates may not vote their Class A
Interests in connection with an Interested Transaction.
The Managing Trustee and its affiliate, Equis II Corporation, have agreed to
treat all of the proposals as if they are Interested Transactions. Accordingly,
the Managing Trustee and Equis II Corporation will not vote the 14,450 Class A
Interests they hold or control and will vote all of the 3,019,222 Class B
Interests they hold in accordance with the vote of a majority of the Class A
Interests actually voted. Each proposal will therefore be adopted or rejected
based upon the majority of the Class A Interests actually voted by the
Beneficiaries not affiliated with the Managing Trustee. For example, if a
majority of the Class A Interests that vote are voted by the unaffiliated
Beneficiaries to approve a proposal, all of the Class B Interests owned by the
Managing Trustee and Equis II Corporation will also be voted to approve the
proposal and it will be adopted. If a majority of the Class A Interests that
vote are voted against a proposal, those Class B Interests will all be voted
against the proposal and the proposal will be rejected.
Under Delaware law, no dissenters' rights (i.e., rights of nonconsenting
Beneficiaries to exchange their Interests in the Trust for payment of their fair
value) are available to any Beneficiary of the Trust regardless of whether such
Beneficiary has or has not consented to a given Proposal.
The consent form enclosed with this Solicitation Statement, to be valid, must be
signed by the record owner(s) of the Interests and returned to the Managing
Trustee by February ___, 2003 (subject to extension for up to 90 days at
the discretion of the Managing Trustee in the event that a sufficient number of
consents required for the adoption - or rejection - of the proposals has not
been received by such date). The Managing Trustee will provide notice to
Beneficiaries of any extensions by means of a press release or a letter mailed
i
to each Beneficiary. You may return the consent form to the Managing Trustee by
fax, mail or hand-delivery c/o The Altman Group, Inc., 60 East 42nd Street,
Suite 405, New York, New York 10165, telephone: (800) 461-2657, facsimile: (212)
973-9818. A stamped envelope addressed to the Managing Trustee is enclosed for
you to mail your consent form. To be valid, a consent form must be signed by the
record owner(s) of the Interests represented thereby as listed in the records of
the Trust on the Record Date and, if returned by fax, both sides of the consent
form must be returned.
Pursuant to Section 12.1 of the Trust Agreement, a written consent may not be
withdrawn or voided once the consent form is received by the Managing Trustee. A
properly executed consent form received by the Managing Trustee will be voted in
accordance with the directions indicated on the form. If no direction is
indicated as to a Proposal, a properly executed consent form received by the
Managing Trustee will be voted in favor of that Proposal. However, brokers do
not have discretionary authority to vote Interests held in street name.
Therefore, the failure by beneficial owners of Interests held in street name to
give voting instructions to brokers will result in broker non-votes. Broker
non-votes, abstentions and the failure to consent will all be treated as
non-votes. All questions as to the validity (including time of receipt) of
all consent forms will be determined by the Managing Trustee, which
determinations will be final and binding. Voting on the Proposals will be
conducted only by written consent and no formal meeting of the Beneficiaries
will be held. THE MANAGING TRUSTEE RECOMMENDS THAT YOU CONSENT TO EACH OF THE
PROPOSALS.
PLEASE VOTE BY MARKING AND SIGNING THE ACCOMPANYING CONSENT FORM AND RETURNING
IT PROMPTLY IN THE ENCLOSED ENVELOPE SO THAT IT IS RECEIVED BY FEBRUARY
___, 2003.
This Solicitation Statement has been prepared under the direction of the
Managing Trustee on behalf of the Trust. The costs of preparing and mailing
this Solicitation Statement and the enclosed consent form and soliciting
consents will be paid by the Trust. In addition to soliciting the consent of
Beneficiaries by mail, representatives of the Managing Trustee may, at the
Trust's expense, solicit the consent of Beneficiaries by telephone, telegraph,
in person or by other means. In addition, the Managing Trustee has retained The
Altman Group to solicit consents. The fees of The Altman Group will be paid by
the Trust and are estimated to be $_______.
This Solicitation Statement is first being sent or given to Beneficiaries on or
about February ___, 2003.
THE MANAGING TRUSTEE RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS AND
URGES YOU TO COMPLETE AND RETURN THE ENCLOSED CONSENT FORM IMMEDIATELY. IF YOU
HAVE QUESTIONS RELATING TO THE PROPOSALS, PLEASE TELEPHONE THE ALTMAN GROUP AT
(800) 461-2657.
ii
TABLE OF CONTENTS
PAGE
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PROPOSAL 1 - TO ALLOW PLM, ITS PARENT, MILPI, AND THE SUBSIDIARIES AND
AFFILIATES THAT THEY CONTROL, TO CONTINUE TO OPERATE THEIR ONGOING BUSINESS
MAKING INVESTMENTS AFTER DECEMBER 31, 2002, NOTWITHSTANDING THE END OF THE
REINVESTMENT PERIOD FOR THE TRUST 1
PROPOSAL 2 - APPROVAL OF THE ACQUISITION OF PARTNERSHIP INTERESTS IN RANCHO
MALIBU LIMITED PARTNERSHIP FROM SEMELE GROUP, INC. BY RMLP, INC., A SUBSIDIARY
OF PLM 3
SUMMARY 3
RISK FACTORS 8
THE PARTIES 16
The Trust 16
Semele 16
Rancho Malibu 17
RMLP 17
C & D Joint Venture 17
THE TRANSACTION 18
Background to the Transaction 18
Description of the Rancho Malibu Project 18
Structure of the Transaction 19
Financing of the Transaction 20
Potential Partnering with California Developer 21
Reasons for the Transaction 21
Interests of Certain Persons in the Transaction 22
Imperial Capital Fairness Opinion 22
Regulatory Matters 24
Appraisal Rights 25
Selected Financial Data 25
THE CONTRIBUTION, ASSIGNMENT, ASSUMPTION AND ACKNOWLEDGMENT AGREEMENT 26
Conditions to Completion of the Transaction 26
Conduct of Business Pending the Consummation of the Transaction 27
Termination 28
iii
Description of the Promissory Note 28
Description of the Common Stock of RMLP 29
PROPOSAL 3 - APPROVAL OF THE AMENDMENT TO SECTION 7.5 OF THE TRUST AGREEMENT TO
APPROVE GRANTS AND EXERCISES OF RIGHTS OF FIRST REFUSAL IN JOINT VENTURES
BETWEEN THE TRUST AND ITS AFFILIATES 31
The Amendment 31
Reason for the Amendment 31
PROPOSAL 4 - APPROVAL OF THE PURCHASE BY MILPI OF THE MEMBERSHIP INTERESTS IN
MILPI HELD BY TRUST A AND TRUST B, WHICH WOULD GIVE THE TRUST, TOGETHER WITH
TRUST D, SHARED 100% OWNERSHIP OF MILPI 32
Reason for the Sale 32
Terms of the Sale 32
Fairness Opinion 33
Selected Financial Data 36
FINANCIAL INFORMATION WITH RESPECT TO MILPI 37
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Period February 7, 2001 through December 31, 2001 for MILPI
37
Consolidated Financial Statements for the period February 7, 2001 through
December 31, 2001 for MILPI 44
Notes to Consolidated Financial Statement 50
Management's Discussion and Analysis of Financial Condition and Results of
Operations for Periods Ended September 30, 2002 for MILPI 62
Unaudited Consolidated Financial Statements For Periods Ended September 30,2002
for MILPI 70
Notes to Condensed Consolidated Financial Statements (Unaudited) 75
PROPOSAL 5 - TO ALLOW THE TRUST, IN ITS OPERATION OF PLM, TO ENTER INTO BUSINESS
ARRANGEMENTS WITH AFFILIATES IN THE ORDINARY COURSE OF BUSINESS ON TERMS NO LESS
FAVORABLE THAN THOSE THAT THEY WOULD RECEIVE IF SUCH ARRANGEMENTS WERE BEING
ENTERED INTO WITH INDEPENDENT THIRD PARTIES 82
UNAUDITED PRO FORMA FINANCIAL INFORMATION 83
Notes to Unaudited Pro Forma Financial Information 88
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 91
ADDITIONAL INFORMATION CONCERNING THE TRUST 92
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 92
iv
Annex A Malibu Contribution Agreement A-1
Annex B Malibu Joint Venture Agreement B-1
Annex C Malibu Amended Partnership Agreement C-1
Annex D-1 Malibu Fairness Opinion D-1
Annex D-2 Malibu Real Estate Appraisal D-4
Annex E Text of Amendment E-1
Annex F MILPI Purchase Agreement F-1
Annex G MILPI Fairness Opinion G-1
v
PROPOSAL 1 - TO ALLOW PLM, ITS PARENT, MILPI, AND THE SUBSIDIARIES AND
AFFILIATES THAT THEY CONTROL, TO CONTINUE TO OPERATE THEIR ONGOING BUSINESS
MAKING INVESTMENTS AFTER DECEMBER 31, 2002, NOTWITHSTANDING THE END OF THE
REINVESTMENT PERIOD
FOR THE TRUST
MILPI is currently owned by all four of the AFG Investment Trusts. MILPI
in turn owns PLM. As an indirect owner of PLM, the Trust receives potential
income through acquisition fees and management fees earned by PLM, MILPI and
their subsidiaries and affiliates. In addition to fee income, as the value of
the PLM investment programs increase, so does the value of the Trust's
membership interests in MILPI, thus creating value for the Trust.
Under Section 4.2(b)(iv) of the Trust Agreement governing the Trust, the Trust
may not reinvest in additional Assets (as defined in the Trust Agreement) past
December 31, 2002. A similar provision is included in the Trust Agreement
governing Trust D as well. The provision restricting reinvestment reflects the
Trust's investment policy and finite life, its stated intention to liquidate its
Assets within seven years and the requirement to dissolve on or before December
31, 2004. This proposal does not contemplate any reinvestment of the Trust's
funds and does not extend the Trust's reinvestment period beyond the December
31, 2002 deadline. Nor does the proposal change the termination date for the
Trust or permit the Trust's funds or other assets to be used to provide funds
for PLM to use. However, the Managing Trustee believes that neither the timing
restrictions on investments in the Trust Agreement nor the definition of Assets
in the Trust Agreement apply to PLM, as an indirect subsidiary of the Trust.
Unlike the Trust, PLM is an infinite life corporation engaged in the ongoing
business of purchasing, managing and leasing assets directly or through
investment programs similar to the Trust. Prior to its acquisition by MILPI, PLM
operated as a public company with no restrictions on the reinvestment of its
funds. MILPI's acquisition of PLM was predicated on PLM continuing to operate as
it had in the past. Accordingly, notwithstanding the end of the reinvestment
period for the Trust and Trust D, PLM will continue to make investments as part
of its ongoing business. In order to resolve any question as to whether or not
the Trust's restriction on reinvestment might be construed to apply to PLM, the
Managing Trustee recommends that the Beneficiaries consent to PLM continuing to
make investments after December 31, 2002.
The primary source of potential income to PLM and its subsidiaries and
affiliates is acquisition fees and management fees. PLM is currently entitled
to receive such fees with respect to three PLM funds and on sales to third
parties. PLM is also the general partner in the funds it manages, and therefore
the value of its general partnership interest is maximized by having the PLM
funds make investments that produce attractive returns.
Pursuant to the terms of the Trust Agreement, EFG or the Managing Trustee would
normally receive fees in the amount of 1% on equipment acquisitions carried out
by the Trust, and a 2% annual management fee on such equipment. The Managing
Trustee would normally receive fees in the amount of 1% on non-equipment
acquisitions carried out by the Trust and a 1% annual management fee on such
assets. However, EFG and the Managing Trustee have agreed to limit any
acquisition fees related to PLM to the extent they are in excess of 1% or 50% of
what PLM or its affiliates would otherwise be entitled to receive. To the
extent the existing Trust and PLM agreements provide no fee to the Managing
Trustee, no modification to the agreements is proposed. After December 31,
2002, the Trust does not anticipate making any direct investments itself except
for those investments related to maintaining existing Trust assets. PLM and its
subsidiaries and affiliates are expected to be the principal investment vehicles
in the future.
THE MANAGING TRUSTEE RECOMMENDS THAT BENEFICIARIES CONSENT TO THE APPROVAL OF
PROPOSAL ONE.
2
PROPOSAL 2 - APPROVAL OF THE ACQUISITION OF PARTNERSHIP
INTERESTS IN RANCHO MALIBU LIMITED PARTNERSHIP FROM
SEMELE GROUP, INC. BY RMLP, INC., A SUBSIDIARY OF PLM
SUMMARY
This summary highlights some of the questions that you, as a Beneficiary,
may have concerning the proposed acquisition for which your consent is sought.
This summary may not contain all of the information that is important to you.
Therefore, to better understand the proposed acquisition and for a more complete
description of the terms of the proposed acquisition, in addition to this
summary you should carefully read this entire proposal and the related annexes
attached hereto.
THE PARTIES
AFG INVESTMENT TRUST C
The Trust is a Delaware business trust formed in 1992 to acquire and lease
to third parties a diversified portfolio of capital equipment. The Trust's
primary assets currently consist of capital equipment, as well as ownership
interests in EFG Kirkwood LLC, a resort business, Kettle Valley, LLC, a real
estate development company, and PLM , a company that manages and owns an
equity interest in a diversified portfolio of transportation and related
equipment for various investment programs sponsored by PLM and for other
third-party investors.
The Managing Trustee of the Trust is AFG ASIT Corporation, which is a
wholly-owned subsidiary of Equis II Corporation, a wholly-owned subsidiary of
Semele Group, Inc. ("Semele").
The address of the Trust is 200 Nyala Farms, Westport, Connecticut 06880,
telephone: (203) 341-0555.
SEMELE
Semele is a Delaware corporation that was organized in 1987 as Banyan
Strategic Land Fund II to invest primarily in short-term, junior,
pre-development and construction mortgage loans. Today, Semele is engaged in
various real estate activities, including residential property development, and
holds investments in other companies operating in niche financial markets,
principally involving real estate and equipment leasing. Semele's common stock
is quoted on the OTC Bulletin Board, commonly referred to as the "over the
counter market," under the trading symbol VSLF.OB.
Semele is the owner of Equis II Corporation, which in turn is the owner of the
Managing Trustee of the Trust. Semele also owns BSLF II Rancho Malibu Corp.
("Rancho Malibu Corp."). BMIF/BSLF II Rancho Malibu Limited Partnership (the
"Rancho Malibu partnership") is 73.95% owned by Rancho Malibu Corp., as a
co-managing general partner, and 1.05% owned by Semele, as a limited partner.
The address of the Semele is 200 Nyala Farms, Westport, Connecticut 06880,
telephone: (203) 341-0555.
RANCHO MALIBU
The Rancho Malibu partnership is 73.95% owned by Rancho Malibu Corp., which
is 100% owned by Semele. The Rancho Malibu partnership owns approximately 270
acres of land in Malibu, California (the "Rancho Malibu property"), which is
being developed as a single-family luxury residential subdivision. The Rancho
Malibu property was acquired by an affiliate of Semele by deed in lieu of
foreclosure in December 1990. To date, the Rancho Malibu partnership has
obtained regulatory permits, commenced construction of an off-site waterline and
planned the development's infrastructure. The address of the Rancho Malibu
partnership is c/o PLM International, Inc., 200 Nyala Farms, Westport,
Connecticut 06880, telephone: (203) 341-0555.
RMLP
RMLP, Inc. ("RMLP") was formed for the purpose of engaging in the proposed
Malibu transaction and currently has no operations. RMLP is 100% owned by PLM.
PLM is owned by MILPI, and MILPI is in turn owned by the Trust and three other
affiliated trusts. The address of RMLP is c/o PLM International, Inc., 200
Nyala Farms, Westport, Connecticut 06880, telephone: (203) 341-0555.
THE TRANSACTION
Pursuant to a Contribution Agreement (the "Agreement"), RMLP will receive a
capital contribution from Semele of Semele's limited partnership interests and
from Rancho Malibu Corp. of Rancho Malibu Corp.'s general partnership interests
in the Rancho Malibu partnership, in exchange for consideration, as more fully
described below and in the Agreement. The Agreement is attached hereto as Annex
A. You should read the entire Agreement before making any decision with respect
to Proposal Two, as it is the principal document governing the acquisition.
REASONS FOR THE TRANSACTION (P. 16)
The Managing Trustee believes that the proposed investment in the Rancho
Malibu partnership represents a sound investment that is expected to provide
reasonable, risk-adjusted pre-tax and post-tax rates of return to the Trust.
STRUCTURE AND BACKGROUND OF THE TRANSACTION (PP. 13 AND 14)
On March 1, 2002, the Trust and Trust D formed C & D IT LLC, a Delaware
limited liability company, as a 50%/50% owned and managed joint venture (the "C
& D Joint Venture"), for the purpose of making a conditional contribution of $2
million to the Rancho Malibu partnership in exchange for 25% of the interests in
the Rancho Malibu partnership (the "C & D Joint Venture Contribution"). The
Joint Venture Agreement between the Trust and Trust D that created the C & D
Joint Venture is attached hereto as Annex B. You should read the entire Joint
Venture Agreement before making any decision with respect to Proposal Two.
The C & D Joint Venture was admitted to the Rancho Malibu partnership as a
co-managing general partner pursuant to the terms of an Amendment to Limited
Partnership Agreement dated March 12, 2002 (the "Amendment to the Partnership
Agreement"). The Amendment to the Partnership Agreement is attached hereto as
Annex C. You should read the entire Amendment to the Partnership Agreement
before making any decision with respect to Proposal Two.
The C & D Joint Venture Contribution was made in anticipation of, and subject
to, the consummation of the transactions contemplated by the Agreement, and on
the condition that Semele contribute to the Rancho Malibu partnership 100% of
the membership interests it held in RM Financing LLC, a Delaware limited
liability company, the sole asset of which is a Note dated December 31, 1990
having an original principal amount of $12,750,000, increased to $14,250,000,
with a 15.3% interest rate, made by the Rancho Malibu partnership in favor of
Semele (the Note has been held by a Semele affiliate since it received a deed in
lieu of foreclosure on the property from the original owner).
The C & D Joint Venture possesses the right to demand the return of the C & D
Joint Venture Contribution from the Rancho Malibu partnership if the
transactions contemplated by the Agreement have not been consummated within 90
days of the receipt by the Rancho Malibu partnership and Semele of notice from
the C & D Joint Venture that the requisite consents of the Beneficiaries of the
Trust and Trust D have, or have not, been received. This right of the C & D
Joint Venture is secured by a pledge of 50% of the capital stock of Rancho
Malibu Corp. and 50% of the interests in the Rancho Malibu partnership held by
Semele and Rancho Malibu Corp.
Currently, the Amendment to the Partnership Agreement provides that cash
proceeds from the Rancho Malibu partnership will be paid as follows:
- - 80% to the C & D Joint Venture and 20% to Semele until the C & D Joint
Venture has received an aggregate of $2 million plus a 6% cumulative compounded
annual rate of return thereon;
- - Thereafter, 100% to Rancho Malibu Corp. until Rancho Malibu Corp. has
received an aggregate of $9 million plus a 6% cumulative compounded annual rate
of return thereon; and
- - Thereafter, 25% to the C & D Joint Venture and 75% to Rancho Malibu Corp.
If the transactions contemplated by the Agreement are consummated, RMLP
will be entitled, by virtue of the assignment of the interests in the Rancho
Malibu partnership by Semele and Rancho Malibu Corp. to RMLP, to receive the
distributions described above that would previously have been paid to Semele and
Rancho Malibu Corp. RMLP will also succeed Rancho Malibu Corp. as a co-managing
general partner of the Rancho Malibu partnership with the C & D Joint Venture.
POTENTIAL PARTNERING WITH CALIFORNIA DEVELOPER (P. 15)
It is anticipated that the Rancho Malibu partnership will seek an
experienced California real estate developer and form a joint venture to further
develop the property. Accordingly, the Rancho Malibu partnership is presently
in discussions with potential developers, none of whom are affiliated with the
Trust or PLM. It is possible that the Rancho Malibu partnership would enter
into a joint venture arrangement with one of them prior to the deadline for
submitting consent forms pursuant to this Solicitation Statement. Because such
discussions are still in the preliminary stages, it is not yet clear what form a
potential joint venture would take or what interest, financially or otherwise, C
& D Joint Venture would have in the new entity. However, it is likely that the
structure of any such joint venture would result in the developer receiving a
preferential return prior to or simultaneously with any funds being distributed
to C & D Joint Venture or RMLP.
FINANCING OF THE TRANSACTION (P. 15)
RMLP will receive a capital contribution from Semele of its limited
partnership interests and of the general partnership interests of its wholly
owned subsidiary, Rancho Malibu Corp., in the Rancho Malibu partnership,
constituting a 75% interest in the partnership.
In exchange for such contribution, RMLP will pay total consideration
consisting of:
- - $5.5 million in cash (to be funded by PLM);
- - $2.5 million in the form of a promissory note (bearing interest at the
rate of 7% per annum) in favor of Rancho Malibu Corp.; and
- - 182 shares of common stock of RMLP, constituting 15.4% of the outstanding
shares of RMLP, valued at $1 million.
For the terms and conditions of the financing, including the terms of the
promissory note and the common stock, see "The Contribution, Assignment,
Assumption and Acknowledgment Agreement - Description of the Promissory Note"
and "- Description of the Common Stock of RMLP," respectively.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION (P. 16)
Semele presently owns 75% of the interests in the Rancho Malibu
partnership, directly as a limited partner and indirectly as owner of its
general partner. In addition, the Managing Trustee of the Trust is indirectly
owned by Semele through its ownership of Equis II Corp. Gary D. Engle has a
40.3% interest in Semele and James A. Coyne has a 17.6% interest in Semele.
Semele also owns 100% of Equis II Corporation, which owns 99.61% of the Class B
Interests of the Trust. Together, Messrs. Engle and Coyne control a majority of
interest in Semele and, through Equis II Corp. 99.61% of the Class B Interests.
The interests of these two individuals could differ from the interests of the
Trust's other Beneficiaries.
IMPERIAL CAPITAL FAIRNESS OPINION (P. 16)
In deciding whether to approve the proposed acquisition, you should
consider, among other things, the opinion of PLM's financial advisor, Imperial
Capital, LLC, dated as of April 29, 2002, to the effect that, as of such date
and based upon and subject to the various considerations set forth in such
opinion, the price to be paid for the acquisition of the partnership interests
in Rancho Malibu is fair to RMLP (and therefore to PLM) from a financial point
of view. This opinion is attached hereto as Annex D-1. The California real
estate market can be volatile and the development of the Rancho Malibu property
is subject to complex permitting, zoning and financial considerations, so you
are encouraged to read Imperial Capital, LLC's opinion carefully in its entirety
for a description of the assumptions made, matters considered and limitations on
the review undertaken. This opinion is not a recommendation to Beneficiaries as
to how they should vote with respect to the proposed acquisition.
REGULATORY MATTERS (P. 19)
The Trust does not believe that any material federal or state regulatory
approvals, filings or notices are required to be filed in connection with the
proposed transaction, other than such approvals, filings or notices required
pursuant to federal and state securities laws.
APPRAISAL RIGHTS (P. 19)
Beneficiaries will not have any appraisal rights in connection with the
proposed transaction.
SELECTED FINANCIAL DATA (P. 19)
See "Selected Financial Data."
RISK FACTORS
THERE ARE GENERAL RISKS ASSOCIATED WITH REAL ESTATE AND RELATED INVESTMENTS
The Trust is subject to the risks associated with ownership, development
and financing of real estate. The acquisition of the Rancho Malibu partnership
will increase the Trust's exposure to real estate risk. These risks include,
but are not limited to, liability for environmental hazards; changes in general
or local economic conditions; changes in interest rates and the availability of
construction and permanent mortgage financing which may render the development,
sale or financing of a property difficult or unattractive and which may make
debt service burdensome; changes in real estate, land use and zoning laws;
changes in income taxes, real estate taxes (including increases due to
development of the property) or federal or local economic controls; floods,
earthquakes and other acts of nature; competition and possible over-building in
the Malibu area or nearby communities; and other factors beyond the Trust's
control. In addition, the illiquidity, in general, of real estate investments
could impair the Trust's ability to respond promptly to changing circumstances.
THERE ARE RISKS ASSOCIATED WITH THE DEVELOPMENT OF THE RANCHO MALIBU PROPERTY
The Rancho Malibu property is not fully developed. Existing or future
development activities of the Rancho Malibu partnership entail certain risks.
These risks include the expenditure of funds on and devotion of management's
time to certain aspects of the project which may not come to fruition; the risk
that development costs of the project may exceed original estimates, possibly
making the project uneconomical; the risk that the pads to be developed on the
Rancho Malibu property will not sell as quickly as anticipated or at the prices
anticipated; and the risk that permits and other governmental approvals
required, or extensions of such permits and approvals, will not be obtained.
In addition, the development of the Rancho Malibu property will require a
significant investment of capital, beyond that which the Trust itself can
provide. The Trust will be required to obtain funds for its capital
expenditures through additional property-related joint ventures, cash flow from
operations, property sales or financings. If the Trust and its joint venturers
are unable to obtain such funds, it or they may have to defer or otherwise limit
certain development activities. In addition, it likely will be necessary to
secure any debt financing by offering the Rancho Malibu property as security.
In the event of a default on any of such debt, the lender may foreclose on the
Rancho Malibu property.
The Managing Trustee presently believes that the development costs of the Rancho
Malibu property will approximate $12 million, of which approximately $1 million
has already been spent. However, because the partnership would probably begin
receiving income from the sale of lots prior to the completion of the project,
it is estimated that the capital need will be no more than approximately $10
million. Although it is currently anticipated that this capital will be
provided by either a construction loan, joint venture equity, or both, it is not
feasible at this time to determine the terms on which such capital would be
provided or the sources thereof.
THERE ARE RISKS ASSOCIATED WITH THE PRIOR HISTORY OF THE RANCHO MALIBU PROPERTY
The Rancho Malibu property was initially acquired by Semele by deed in lieu of
foreclosure. At the time of such acquisition, the property was valued at less
than the aggregate amount of the indebtedness that the property secured.
Additionally, Semele has in the past incurred and capitalized significant costs
to acquire permits to develop the property, many of which costs resulted in an
impairment taken to the project. There is therefore a risk that, depending upon
the improvements needed to be made, the project may be subject to additional
impairments in the future. Jones & Company did not consider the prior history
of the Rancho Malibu property in preparing its appraisal. Imperial Capital
considered the prior history of the Rancho Malibu property in preparing its
fairness opinion only to the extent of reviewing Rancho Malibu's income tax
return for the year ended December 31, 2001.
THERE ARE RISKS ASSOCIATED WITH THE MANAGING TRUSTEE'S HISTORY OF ENGAGING IN
TRANSACTIONS WITH AFFILIATES
The principal risk of this proposal is that the Managing Trustee will not
act in the best interest of investors and that the price paid by the Trust may
not be appropriate. During the course of its management of the Trust, the
Managing Trustee has from time to time engaged the Trust in transactions with
affiliates. A risk of transactions with affiliates is that, despite good faith
efforts to adhere to the conflicts of interest and related party transactions
provisions of the governing instruments and to act in the best interest of
investors, a manager, managing trustee, director, officer or general partner may
pay or accept a price in an affiliated transaction that proves to be too high or
too low, as the case may be, or a transaction may prove over time not to be as
successful as originally anticipated.
Several of these transactions have been the subject of claims asserted in the
recently settled Rosenblum class action lawsuit described below that the
Managing Trustee and/or its affiliates breached their fiduciary duties to the
investors. The Trust's Declaration of Trust generally prohibits the Managing
Trustee from entering into arrangements on behalf of the Trust with any
affiliate except as specifically permitted by the Declaration of Trust. The
Declaration of Trust specifically provides that the Trust may enter into a
general partnership, joint venture, trust or other business arrangement,
collectively defined as Joint Ventures, with affiliates of the Managing Trustee
if certain conditions are met. In addition, certain investment programs
sponsored by affiliates of the Managing Trustee have experienced defaults and
bankruptcies by lessees, which have adversely affected, or may in the future
adversely affect, the economic results of such investment programs. Several of
the investment programs sponsored by EFG or its predecessors, including the
Trust, have experienced financial losses and write-downs in the carrying value
of assets. There can be no assurance that future circumstances will not require
further write-downs to the carrying value or losses with respect to the Trust's
aircraft, investments in real estate development or to any of its other assets.
The following is a description of the Rosenblum class action, certain
transactions with affiliates entered into by the Trust and affiliated investment
programs, certain other non-equipment transactions entered into by the Trust and
affiliated investment programs that have not proved to be as successful as
originally anticipated, and the de-listing of Semele, an affiliate of the
Managing Trustee.
ALLEGED BREACHES OF FIDUCIARY DUTY IN THE ROSENBLUM CLASS ACTION
In January 1998, certain plaintiffs filed a class and derivative action,
known as Leonard Rosenblum, et al. v. Equis Financial Group Limited Partnership,
et al., in the United States District Court for the Southern District of Florida
(the "Class Action") on behalf of the investors in 28 equipment leasing
programs, including the Trust, against EFG and a number of its affiliates,
including the Managing Trustee, as defendants. Plaintiffs alleged, among other
things, that the defendants breached their fiduciary duties to the partnerships
and their investors.
The Managing Trustee and its affiliates denied that any of them have committed
any violations of law or breached any fiduciary duties to the plaintiffs or the
nominal defendants and believe the allegations to be without merit.
The defendants' and plaintiffs' counsel subsequently negotiated settlements of
the claims on behalf of the investors in the 28 programs including the Trust,
and the Court issued its Order and Final Judgment, approving the final
settlement and dismissing the Class Action in June 2002.
LOANS BY PARTNERSHIPS TO AFFILIATE IN CONNECTION WITH A PRELIMINARY SETTLEMENT
AGREEMENT IN THE ROSENBLUM CLASS ACTION AS POSSIBLE VIOLATIONS OF THE
PARTNERSHIP AGREEMENTS
In connection with a preliminary settlement agreement for the claims
asserted in the Class Action on behalf of 11 limited partnerships, the Court
permitted the partnerships to invest in any new investment, including, but not
limited to, new equipment or other business activities, subject to certain
limitations. The partnerships loaned $32 million to a newly formed real estate
company, Echelon Residential Holdings, that used the loan proceeds to acquire
various real estate assets from an unrelated real estate company. The
partnerships subsequently wrote down the net carrying value of the loans and
related accrued interest to $29.2 million and ceased accruing interest. The
partnership agreements prohibit the partnerships from making loans to their
general partners or their affiliates. A former officer of the general partner
employed by EFG agreed to serve as the initial equity holder of Echelon
Residential Holdings and as an unpaid manager of Echelon Residential Holdings.
He made a $185,465 equity investment in Echelon Residential Holdings. His return
on his equity investment is restricted to the same rate of return as the
partnerships realize on their loans. If the former officer were deemed to be an
affiliate of the partnerships, the loans could appear to have been made in
violation of the prohibition in the partnership agreements against loans to
affiliates. Although the partnerships were repaid their $32 million
principal amount plus 7.5% interest by the defendants pursuant to the terms of
the settlement, the loans could not have been repaid if the source of repayment
had depended upon the real estate investment made with the loan proceeds.
THE EFFECT OF BELOW MARKET CASH TENDER OFFERS ON CERTAIN INVESTORS
In 1995, an affiliate of the Managing Trustee made a cash tender offer for
a portion of the units held by investors in each of 21 equipment leasing limited
partnerships. In 1997, the Trust and three affiliated trusts made a cash offer
to redeem a portion of the beneficial interests held by investors in the four
trusts. Neither offer was conditioned on any minimum number of units being
tendered, and investors were free to accept or reject the offers, which offered
them cash for their investment. The purchase prices offered to investors for
units in all but one of the partnerships and in one of the four trusts were
below the reported bid and asked prices in the secondary market for units prior
to the commencement of the offers and were below the then-current liquidation
values of the units, which was disclosed to investors in the tender offer
documents. However, certain investors may have tendered their units without
recognizing that the tender offer prices were for less than the liquidation
value of the assets.
THE MANAGING TRUSTEE CAUSED THE TRUSTS TO GUARANTEE AN AFFILIATE'S OBLIGATIONS
In March 2000, the Trust and three affiliated trusts entered into a
guarantee pursuant to which the trusts guaranteed an affiliate's obligations as
master lessee under a master lease agreement with Heller Affordable Housing
Florida, Inc., HAHF Trust I and HAHF Trust II , as master lessors. The maximum
exposure under the guarantee initially was $34,500,000, which maximum exposure
amount was reduced to $7,000,000 by December 2000. During the year 2001, the
obligations of the trusts under the guarantee terminated by its terms. The
trusts were paid aggregate fees of approximately $1,140,000 for providing the
guarantee. While this guarantee has terminated, there is a risk that these
types of transactions may involve a conflict of interest under the Trust
Agreement.
EXTENSION OF MATURITY DATE OF EXISTING LOAN AS POSSIBLE VIOLATION OF PROHIBITION
AGAINST LOANS TO AFFILIATES
In 1997, five partnerships and Trust A sold their beneficial interests in
three cargo vessels to Semele in exchange for an aggregate of $3,800,000 cash,
198,700 shares of Semele common stock and beneficial interest in a note from
Semele (the "Semele Note") of $4,419,500. At the time of the sale, Semele was a
public company unaffiliated with the general partners and Managing Trustee.
Subsequently, Semele became affiliated with them. The Semele Note bears an
annual interest rate of 10% and was originally scheduled to mature in April
2001. The maturity date was subsequently extended to April 2003. The extension
of the maturity date could be deemed to be a new loan in violation of the
prohibition against loans to affiliates. The extension of maturity relieved
Semele (whose common stock was recently delisted) of the responsibility to pay
or refinance the Semele Note at its original maturity date. If Semele had
borrowed funds to repay the Semele Note at its original maturity date the
interest rate might have been greater than 10%.
INVESTMENTS IN NON-EQUIPMENT TRANSACTIONS
In an effort to boost the returns to the investors over that expected
from its equipment leasing portfolio and to better diversify its assets base,
the Trust, three affiliated trusts and Semele formed joint ventures to acquire
PLM (an equipment leasing and management company), and interests in the Kirkwood
Mountain Resort in northern California and the Purgatory Ski Resort near
Durango, Colorado (both of which own undeveloped real estate) and in a real
estate development project in British Columbia known as Kettle Valley. To date,
the real estate and ski resort joint ventures have incurred losses, some of
which may be attributable to the real estate development cycle, some to the
decline in the economy, and, in the case of the ski resorts only, a shortage of
snow last year. The Trust may not be able to recoup its losses prior to the
Trust's requirement to dissolve on or before December 31, 2004. PLM has
experienced a decline in revenues and net income in the first three quarters of
2002, in part, because of management's decision not to make new investments due
to declining asset values, particularly of used aircraft and railroad rolling
stock.
PLM. In December 2000, the Trust and three affiliated trusts formed MILPI.
The Trusts collectively paid $1.2 million for their membership interests in
MILPI, and MILPI purchased all of the common stock of MILPI Acquisition Corp.
for an aggregate purchase price of $1.2 million. MILPI Acquisition entered into
an agreement with PLM for the purpose of acquiring up to 100% of the outstanding
common stock of PLM for an approximate purchase price of up to $27 million. In
connection with the acquisition, on December 29, 2000, MILPI Acquisition
commenced a tender offer to purchase any and all of PLM's outstanding common
stock.
Pursuant to the cash tender offer, MILPI Acquisition acquired 83% of PLM's
outstanding common stock in February 2001 for a total purchase price of
approximately $21.8 million. Under the terms of the agreement, with the
approval of the holders of 50.1% of the outstanding common stock of PLM, MILPI
Acquisition would merge into PLM, with PLM being the surviving entity. After a
special meeting of the PLM stockholders, the merger was consummated on February
6, 2002. Because Trusts A and B have determined to liquidate their assets, the
Trust and Trust D provided the funds necessary to acquire the remaining 17% of
PLM's outstanding common stock. As a result of the merger, the Trust and Trusts
A, B and D collectively own 100% of the outstanding common stock of PLM through
their ownership of MILPI. PLM's revenues of $3,854,000 for the nine months
ended September 30, 2002 declined from its revenues of $6,793,000 for the period
February 7, 2001 through September 30, 2001. PLM's net income declined to
$1,464,000 from $2,637,000 during the same periods.
SKI RESORTS. The Trust, three affiliated trusts and Semele in May 1999 formed a
joint venture, EFG Kirkwood LLC, that in turn acquired interests in a joint
venture, with independent third parties, that owns Kirkwood Mountain Resort in
northern California and a controlling interest in Purgatory Ski Resort near
Durango, Colorado. The Managing Trustee is the manager of EFG Kirkwood. To date,
EFG Kirkwood has incurred losses aggregating $3,323,063.
In March 1999, the Trust, an affiliated trust and Semele formed EFG/Kettle
Development LLC that in turn acquired an indirect ownership interest, with an
independent third party, in a residential and commercial real estate development
project in British Columbia, Canada. The developer of the project is Kettle
Valley Development Limited Partnership. The general partner of Kettle Valley
Development Limited Partnership is a subsidiary of Semele. To date,
EFG/Kettle Development LLC has incurred losses aggregating $1,104,671.
SEMELE DELISTING
On August 7, 2001, The Nasdaq Stock Market, Inc. informed Semele, an
affiliate of the Managing Trustee, that its common stock would no longer be
listed on The Nasdaq SmallCap Market because Semele no longer met the net
tangible assets/market capitalization/net income requirement for continued
inclusion. Semele's fall in net income below the $500,000 minimum requirement
was a result of Semele's acquisition of Equis II Corporation, an affiliate, in
2000 and the related effect of that acquisition on Semele's balance sheet at
December 31, 2000.
THE TRUST COULD INCUR SIGNIFICANT COSTS AND EXPENSES RELATED TO ENVIRONMENTAL
PROBLEMS
The Rancho Malibu property is subject to various federal, state, and local
laws and regulations relating to environmental matters. Accordingly, although
the Managing Trustee is not aware of any material environmental issues relating
to the Rancho Malibu property, if the Trust acquires partnership interests in
the Rancho Malibu partnership, the Trust may be at risk because the Rancho
Malibu partnership could be exposed to liability primarily as an owner of real
property, and as such, could be responsible for the clean-up or other
remediation of hazardous or toxic substances located on the property.
Contamination for which the Rancho Malibu partnership, and indirectly the Trust,
could be liable may even include liability for historic contamination that could
be imposed in certain circumstances without regard to whether the Rancho Malibu
partnership or the Trust knew of, or was responsible for, the presence of such
contamination or hazardous or toxic substances. The presence of or failure to
properly clean up or remediate hazardous or toxic substances could impair the
Rancho Malibu partnership's and the Trust's ability to sell or borrow against
the property. These laws and regulations also impose liability on persons who
arrange for the disposal or treatment of hazardous or toxic substances at
another location for the costs of removal or remediation of these hazardous
substances at a disposal or treatment facility. Further, these laws often
impose liability regardless of whether the entity arranging for the disposal
ever owned or operated the disposal facility. Other environmental laws and
regulations impose liability on owners or operators of property for injuries
relating to the release of asbestos-containing materials into the air. If it
was determined that there were any hazardous or toxic substances on the Rancho
Malibu property, as an owner of the property and as a potential arranger for
hazardous substance disposal, the Trust could be liable for removal or
remediation costs, governmental penalties, property damage, personal injuries
and related expenses. Payment of these costs and expenses could impair the
Trust's financial condition and materially harm its business.
In addition, environmental laws and regulations can change rapidly and the
Rancho Malibu property could become subject to more stringent environmental laws
and regulations in the future. If the proposed acquisition is approved and the
Trust becomes an indirect owner of the Rancho Malibu property, compliance with
more stringent environmental laws and regulations could have a material adverse
effect on the Trust's business, financial condition or results of operations.
THE TRUST COULD BE REQUIRED TO MAKE SIGNIFICANT EXPENDITURES TO COMPLY WITH REAL
ESTATE REGULATIONS
The Rancho Malibu property is subject to various other federal, state and
local regulatory requirements such as zoning laws, local building codes and
other similar regulations. Failure to comply with these requirements could
result in the imposition of fines by governmental authorities or awards of
damages to private litigants. The Trust believes that the Rancho Malibu
property is currently in substantial compliance with all applicable regulatory
requirements, although if there are changes in these laws, the Rancho Malibu
partnership may be required to make expenditures to comply with changes in these
laws. No material expenditures are contemplated at this time in order to comply
with any such laws or regulations; however, there can be no assurance that these
requirements will not be changed or that new requirements will not be imposed
that would require significant unanticipated expenditures. Such additional
expenditures could have an adverse effect on the business, financial condition
and results of operations of the Trust if the Trust were required to fund all or
a portion of the additional expenditures required on behalf of the Rancho Malibu
partnership.
THE RANCHO MALIBU PARTNERSHIP MAY NOT BE ABLE TO INSURE AGAINST ALL LOSSES
The Rancho Malibu partnership will carry insurance on the Rancho Malibu
property in the form of comprehensive general liability, fire, flood and
extended coverage loss insurance with policy specifications, limits and
deductibles customarily carried for similar properties. There are, however,
certain types of risks (generally of a catastrophic nature such as from wars or
environmental contamination) that are either uninsurable or not economically
insurable.
The Rancho Malibu partnership intends to carry insurance for earthquake risks if
Proposal Two is approved, subject to certain policy limits and deductibles.
However, there can be no assurance that, if an earthquake were to occur on the
Rancho Malibu property, which is located in a historically earthquake-prone
area, the recoverable amount of insurance proceeds would be sufficient to fully
cover reconstruction costs and other losses suffered. Should an uninsured or
underinsured loss occur, the Trust could lose its investment in, and anticipated
income and cash flows from, the Rancho Malibu property, even though the Rancho
Malibu partnership would continue to be obligated to repay any recourse mortgage
indebtedness on the Rancho Malibu property.
Additionally, although the Rancho Malibu partnership intends to obtain an
owner's title insurance policy with respect to the property if Proposal Two is
approved, the amount of coverage under such policy may be less than the full
value of such property. If a loss occurs resulting from a title defect with
respect to the property where there is no title insurance or the loss is in
excess of insured limits, the Trust could lose all or part of its investment in,
and anticipated income and cash flows from, the Rancho Malibu property.
THE TRUST'S MANAGERS AND AFFILIATES MAY HAVE INTERESTS IN THE PROPOSED MALIBU
TRANSACTION THAT ARE DIFFERENT FROM OR IN ADDITION TO THE INTERESTS OF OTHER
BENEFICIARIES
In considering the recommendation of the Managing Trustee with respect to
the Malibu transaction and deciding whether or not to approve Proposal Two,
Beneficiaries should be aware that the Managing Trustee and its affiliates may
have interests in the Malibu transaction that are different from or in addition
to those of other Beneficiaries. As owners, collectively, of approximately
57.9% interest in Semele, Gary D. Engle and James A. Coyne have a significant
interest in the development of the Rancho Malibu property and the sale of the
Rancho Malibu partnership interests to the Trust. In addition, Semele
indirectly owns approximately 28% of the Trust and Trust D. If third party
investors, such as the Trusts and other possible investors, do not participate
in the future development of the Rancho Malibu property, the Rancho Malibu
partnership may not have the available cash, or access to funds to complete the
development of the Rancho Malibu property.
In addition, the Rancho Malibu partnership has certain built-in losses (where
the tax basis of its assets exceeds the value of the assets) that will be
recognized when the individual lots are sold. The proposed transactions are
expected to permit PLM to use the tax losses to offset its income. If, however,
a third party, such as RMLP, does not purchase the partnership interests, the
Rancho Malibu partnership will be unable to avail itself of certain tax benefits
associated with its current net operating loss. See "Proposal Two - Selected
Financial Data."
PLM MAY NOT BE ABLE TO RECOGNIZE THE TAX BENEFITS IT EXPECTS FROM THE
TRANSACTION
The Managing Trustee believes that the investment provides reasonable
pre-tax and post-tax risk-adjusted returns. However, if tax benefits are not
realized because certain net operating losses are not allowed, it would reduce
the overall after-tax return to PLM.
THERE ARE RISKS ASSOCIATED WITH JOINT VENTURES
If the Malibu proposal is approved, the Trust, through its investment in
PLM, would own its interest in the Rancho Malibu property through a joint
venture, with Trust D, that will own RMLP. In addition, the Rancho Malibu
partnership is negotiating to enter into a joint venture with an unaffiliated
California real estate developer to help develop the Rancho Malibu property.
Because of the expertise the developer likely would bring to the project, it is
likely that the developer would receive a preferential return prior to or
simultaneously with any funds being distributed to the Rancho Malibu
partnership.
Joint ventures involve certain risks, including:
- - the possibility that a co-venturer may at any time have economic or
business interests or goals that are inconsistent with those of the Trust or
take actions contrary to the instructions or requests of the Trust or contrary
to the Trust's policies or objectives with respect to its real estate
investments;
- - the risk that the Trust's co-venturers could experience financial
difficulties or seek the protection of bankruptcy, insolvency or other similar
laws, which could result in additional financial demands on the Trust to
maintain and operate the Rancho Malibu property or repay the co-venturers' share
of property debt guaranteed by the Trust or for which the Trust is jointly and
severally liable, and in delays, expenses and other problems associated with
obtaining a court approval of joint venture decisions;
- - the need to obtain co-venturers' consent with respect to certain major
decisions, including the decision to distribute cash, obtain financing or sell a
property; and
- - the fiduciary duties owed by co-venturers to one another may conflict with
those owed to the Beneficiaries.
The Trust does not have sole control of certain major decisions relating to
the Rancho Malibu property, including decisions relating to the development of
the property and the sale of lots developed on the property, refinancing and
timing and amount of distributions of cash from the Rancho Malibu property to
the Trust. In addition, the sale or transfer of interests in the joint venture
may be subject to rights of first refusal or first offer and buy-sell or similar
arrangements. Such rights may be triggered at a time when the Trust may not
desire to sell but may be forced to do so because it does not have the cash to
purchase the other parties' interests. Such rights may also inhibit the ability
of the Trust to sell its interest in the Rancho Malibu property or the joint
venture within the time frame or otherwise on the basis desired by the Trust.
In addition, because it is likely that the developer would receive a
preferential return prior to or simultaneously with any funds being distributed
to the Rancho Malibu partnership, there is a risk that the Trust may not receive
any actual return from the investment prior to its scheduled termination on
December 31, 2003. In such event, the investment may be inappropriate for the
Trust because the Trust could be forced to rely upon a sale to an affiliate in
order to exit its investment. However, in the event all or any portion of the
development costs are funded out of a construction loan, the Managing Trustee
currently anticipates that the construction loan would allow for payments to the
equity participants, including PLM, prior to retiring such debt. The Managing
Trustee also expects to be able to make use of anticipated tax benefits from
built-in losses discussed above at the time each individual lot is sold, which
is likely to be prior to the partnership's realizing any cash flow from the
investment. Furthermore, the Managing Trustee believes that the transaction
will enhance the value of the Trust's interest in MILPI, because the Rancho
Malibu investment may reduce the deferred tax liability of PLM, prior to the
time that the Trust is required to dissolve.
THE PARTIES
THE TRUST
The Trust is a Delaware business trust formed on August 31, 1992, to
acquire and lease to third parties a diversified portfolio of capital equipment.
The Managing Trustee of the Trust and of three other Delaware business trusts
(collectively, the "AFG Investment Trusts" or the "Trusts") is AFG ASIT
Corporation, a Massachusetts corporation that was organized on August 13, 1991.
AFG ASIT Corporation is a wholly owned subsidiary of Equis II Corporation and an
affiliate of Equis Financial Group, Limited Partnership, a Massachusetts limited
partnership ("EFG" or the "Advisor"). Equis II Corporation is a wholly owned
subsidiary of Semele Group Inc. The principal executive office of the Trust is
at 200 Nyala Farms, Westport, Connecticut 06880. The principal executive office
of the Managing Trustee and EFG is at 88 Broad Street, Boston, Massachusetts
02110.
EFG serves as advisor to the Trust pursuant to a separate agreement. As
Advisor, EFG provides various services to the Trust, including selection of the
Trust's equipment assets for acquisition by the Trust and management of
equipment assets, for which it receives compensation as provided in the Trust
Agreement. Semele is Special Beneficiary of the Trust, holding an 8.25% carried
interest in the Trust. As such, it participates in Trust distributions, but
does not have the right to vote.
As of __________, 2002, there were 1,787,153 Class A Interests outstanding,
which were held by 1,945 investors. As of __________, 2002, there were
3,024,740 Class B Interests outstanding, of which (i) 3,019,222 were held by
Equis II Corporation, and (ii) 5,518 were held by nine other investors.
The Trust's primary assets currently consist of capital equipment, as well as
ownership interests in EFG Kirkwood LLC, a resort business, Kettle Valley, LLC,
a real estate development company, and PLM, a company which manages a
diversified portfolio of transportation and related equipment for various
investment programs sponsored by PLM and for other third-party investors.
SEMELE
Semele is a Delaware corporation that was organized in 1987 as Banyan
Strategic Land Fund II to invest primarily in short-term, junior,
pre-development and construction mortgage loans. Today, Semele is engaged in
various real estate activities, including residential property development, and
holds investments in other companies operating in niche financial markets,
principally involving real estate and equipment leasing. Semele's common stock
is quoted on the over the counter market under the trading symbol VSLF.OB.
Semele is the owner of Equis II Corporation, which in turn is the owner of the
Managing Trustee of the Trust. Semele also owns Rancho Malibu Corp. The Rancho
Malibu partnership is 73.95% owned by Rancho Malibu Corp., as a co-managing
general partner, and 1.05% owned by Semele, as a limited partner.
The address of the Semele is 200 Nyala Farms, Westport, Connecticut 06880,
telephone: (203) 341-0555.
RANCHO MALIBU
The Rancho Malibu partnership is 73.95% owned by Rancho Malibu Corp., as a
co-managing general partner, and 1.05% owned by Semele, as a limited partner.
Rancho Malibu Corp., is 100% owned by Semele. The remaining 25% interest in the
Rancho Malibu partnership is owned by the C & D Joint Venture. The Rancho
Malibu partnership owns approximately 270 acres of land in Malibu, California,
that is being developed as a single-family luxury residential subdivision.
Semele acquired the Rancho Malibu property by deed in lieu of foreclosure
through an affiliated entity in December 1990.
RMLP
RMLP is 100% owned by PLM. MILPI in turn owns 100% of PLM. The Trust and
other affiliated trusts jointly own all of the membership interests in MILPI.
RMLP was formed for the purpose of engaging in the Malibu transaction and it
currently has no operations.
C & D JOINT VENTURE
On March 1, 2002 the Trust and Trust D formed the C & D Joint Venture as a
50%/50% owned and managed joint venture for the purpose of making the C & D
Joint Venture Contribution. The C & D Joint Venture was admitted to the Rancho
Malibu partnership as a co-managing general partner with a 25% equity interest
pursuant to the terms of the Amendment to the Partnership Agreement.
THE TRANSACTION
BACKGROUND TO THE TRANSACTION
In December 2000, the Trust, along with Trust A, Trust B and Trust D, made
a tender offer through a subsidiary of MILPI for all of the outstanding shares
of PLM. In February 2002, MILPI completed the acquisition of PLM. The four
trusts collectively hold all of the outstanding membership interests in MILPI.
Accordingly, the four trusts indirectly hold all of the outstanding shares of
PLM. However, pursuant to separate consent solicitation statements, Trust A and
Trust B are seeking the consent of their beneficiaries to transfer their
respective interests in MILPI back to MILPI and the Trust and Trust D are
seeking the consent of their respective beneficiaries to approve the purchase of
such interests by MILPI. If the transfer of the membership interests back to
MILPI is approved by each of the four trusts, and the transfer is consummated,
the Trust and Trust D will hold directly all of the membership interests in
MIPLI and indirectly all of the outstanding shares of PLM.
Each of the four trusts are managed by AFG ASIT Corporation, the Managing
Trustee, which is a wholly-owned subsidiary of Equis II Corporation. Equis II
Corporation is a wholly-owned subsidiary of Semele.
Semele also owns 1.05% of the Rancho Malibu partnership, and 100% of Rancho
Malibu Corp., which owns 73.95% of the Rancho Malibu partnership and is its
co-managing general partner. Accordingly, the officers and directors of Semele
as well as affiliates of the Managing Trustee have interests in both the Rancho
Malibu partnership and in the Trust. In particular, Gary D. Engle is President
and Director of the Managing Trustee and Chairman and Chief Executive Officer of
Semele and has a 40.3% interest in Semele. James A. Coyne is President and
Chief Operating Officer of Semele and has a 17.6% interest in Semele. Semele
also owns 100% of Equis II Corporation, which owns 99.61% of the Class B
Interests of the Trust.
The Board of Directors of Semele formed a special committee, consisting of its
three independent directors, for the purpose of considering the sale of its
limited partnership interests, and the general partnership interests of its
wholly owned subsidiary, Rancho Malibu Corp., in the Rancho Malibu partnership.
This special committee retained separate counsel to advise it with respect to
the proposed transaction and to negotiate the terms of the Amendment to the
Partnership Agreement whereby the C & D Joint Venture was admitted into the
Rancho Malibu partnership and to negotiate the terms of the Contribution
Agreement. The Trust was informed on May 28, 2002 that the special committee
had approved the proposed transaction pursuant to the terms of the Contribution
Agreement, subject to a review of certain background information.
DESCRIPTION OF THE RANCHO MALIBU PROJECT
The Rancho Malibu partnership owns approximately 270 acres of land in
Malibu, California, which is being developed as the Estates at Rancho Malibu.
The Estates at Rancho Malibu will likely consist of 46 custom lot pads in a
single-family luxury residential subdivision. The individual lots will likely
range from a minimum of 9,000 square feet to a maximum of 18,900 square feet,
with an average of 13,242 square feet of area per lot. The average retail value
per pad is estimated at approximately $715,000.
The Estates at Rancho Malibu is located in the Encinial Canyon community of
Malibu, California, in an unincorporated area just north of the Malibu city
boundary. This area lies in the West Los Angeles area of Los Angeles County.
The project site is located east of Encinial Canyon Road approximately three
miles north of Pacific Coast Highway.
The Rancho Malibu property was acquired by an affiliate of Semele in 1992. To
date, the Rancho Malibu partnership has secured development permits and
performed market studies, retail lot pricing analysis and economic analysis in
order to prepare its plan of development for the Estates and the infrastructure.
Securing development permits from the many regulatory bodies has been a very
cumbersome and complicated task that has taken more than ten years. Initial
grading has begun on the property. The Estates at Rancho Malibu will be the
first ocean view single-family development in Malibu in several years. This is
an important factor in the Managing Trustee's belief that this is a unique and
attractive project.
The development plan for the 46 single-family pads for Rancho Malibu includes
the construction of complete infrastructure within the site (including roads,
curbs, drainage, utilities, etc.), an on-site private sewage system, entry
features and drought tolerant landscaping features. Activities to date include
the construction of off-site water lines, off-site road work at the project
entrance, wildlife survey, complete sewer plan design, development of a
marketing program and the completion of legal and engineering work. The project
has received permits from the Army Corp. of Engineers, the California Department
of Fish and Game, the California Coastal Commission, the California Regional
Water Quality Control Board, the Liberty Canyon Wild Life Corridor Riparian
Restoration Project and the Mountains Recreation and Conservation Authority.
Construction of the infrastructure to bring water to the site started in June
2001 and is 90% complete. Construction to grade the lots is scheduled to begin
in the second quarter of 2002. Infrastructure development is scheduled to be
completed in December of 2002, with a majority of the lots ready for sale at
that time.
To generate liquidity for the Rancho Malibu partnership, the development plan
allows for a minimum of 15 lots (32.6% of the lots) to be pre-sold prior to
completion of the project at a 15% discount. The partnership has been in
discussions with builders regarding pre-sales and, although there has been
preliminary interest, there have been no sales to date. In addition, the
partnership is discussing a potential joint venture with an experienced
California home builder. In connection with serving as the local manager of the
Estates at Rancho Malibu and running the development of the project, an
unaffiliated individual may be offered the opportunity to purchase some of the
lots at a discount from the estimated retail value of the lots.
STRUCTURE OF THE TRANSACTION
On March 1, 2002, the Trust and Trust D formed the C & D Joint Venture as a
50%/50% owned and managed joint venture for the purpose of making the C & D
Joint Venture Contribution. The Joint Venture Agreement between the Trust and
Trust D that created the C & D Joint Venture is attached hereto as Annex B. You
should read the entire Joint Venture Agreement before making any decision with
respect to Proposal Two.
The C & D Joint Venture was admitted to the Rancho Malibu partnership as a
co-managing general partner pursuant to the terms of the Amendment to
Partnership Agreement. The Amendment to the Partnership Agreement is attached
hereto as Annex C. You should read the entire Amendment to the Partnership
Agreement before making any decision with respect to Proposal Two.
The C & D Joint Venture Contribution was made in anticipation of, and subject
to, the consummation of the transactions contemplated by the Agreement, and on
the condition that Semele contribute to the Rancho Malibu partnership 100% of
the membership interests it held in RM Financing LLC, a Delaware limited
liability company, the sole asset of which is a Note dated December 31, 1990,
having an original principal amount of $12,750,000, increased to $14,250,000,
with a 15.3% interest rate, made by the Rancho Malibu partnership in favor of
Semele (the Note had been held by Semele's affiliate when it took a deed in lieu
of foreclosure on the property from the original owner).
The C & D Joint Venture possesses the right to demand the return of the C & D
Joint Venture Contribution from the Rancho Malibu partnership if the
transactions contemplated by the Agreement have not been consummated within 90
days of the receipt by the Rancho Malibu partnership of notice from the C & D
Joint Venture that the requisite consent of the Beneficiaries of the Trust and
Trust D have, or have not, been received. This right of the C & D Joint Venture
is secured by a pledge of 50% of the capital stock of Rancho Malibu Corp. and
50% of the interests in the Rancho Malibu partnership held by Semele and Rancho
Malibu Corp.
Currently, the Amendment to the Partnership Agreement provides that cash
proceeds from the sale and/or development of the Rancho Malibu property will be
distributed as follows:
- - 80% to the C & D Joint Venture and 20% to Semele until the C & D Joint
Venture has received an aggregate of $2 million plus a 6% cumulative compounded
annual rate of return thereon;
- - Thereafter, 100% to Rancho Malibu Corp. until Rancho Malibu Corp. has
received an aggregate of $9 million plus a 6% cumulative compounded annual rate
of return thereon; and
- - Thereafter, 25% to the C & D Joint Venture and 75% to Rancho Malibu Corp.
If the transactions contemplated by the Agreement are consummated, RMLP
will be entitled, by virtue of the assignment of the interests in the Rancho
Malibu partnership by Semele and Rancho Malibu Corp. to RMLP, to receive the
distributions described above that would previously have been paid to Semele and
Rancho Malibu Corp. RMLP will also succeed Rancho Malibu Corp. as a co-managing
general partner of the Rancho Malibu partnership with the C & D Joint Venture.
FINANCING OF THE TRANSACTION
RMLP will receive a capital contribution from Semele of its limited
partnership interests and of the general partnership interests of its wholly
owned subsidiary, Rancho Malibu Corp., in the Rancho Malibu partnership,
constituting a 75% interest in the partnership.
In exchange for such contribution, RMLP will pay total consideration
consisting of:
- - $5.5 million in cash (to be funded by PLM);
- - $2.5 million in the form of a promissory note (bearing interest at the
rate of 7% per annum) in favor of Rancho Malibu Corp.; and
- - 182 shares of common stock of RMLP constituting 15.4% of the outstanding
shares of RMLP, valued at $1 million.
For the terms of the financing, including the terms of the promissory note
and the common stock, see "The Contribution, Assignment, Assumption and
Acknowledgment Agreement - Description of the Promissory Note" and "-
Description of the Common Stock of RMLP," respectively.
POTENTIAL PARTNERING WITH CALIFORNIA DEVELOPER
It is anticipated that the Rancho Malibu partnership will enter into a
joint venture with an experienced California real estate developer. The Rancho
Malibu partnership is presently in discussions with potential developers, none
of whom are affiliated with the Trust or PLM, and it is possible that the Rancho
Malibu partnership will enter into a joint venture arrangement with one of them
prior to the deadline for submitting consent forms pursuant to this Solicitation
Statement. Because such discussions are still in the preliminary stages, it is
not yet clear what form a potential joint venture would take. However, it is
likely that the Rancho Malibu partnership would contribute the Rancho Malibu
property and the developer would contribute a combination of cash and a
guarantee of the Rancho Malibu property construction loan. In addition, because
of the expertise the developer likely would bring to the project, it is likely
that the developer would receive a preferential return prior to or
simultaneously with any funds being distributed to the Rancho Malibu
partnership. However, the Managing Trustee believes that the participation of
an experienced real estate developer will enhance the potential for the success
of the project and could result in a larger overall return on the Rancho Malibu
property.
REASONS FOR THE TRANSACTION
In reaching its decision to admit the Trust to the Rancho Malibu
partnership and enter into negotiations with respect to the Agreement, the
Managing Trustee independently considered the terms of the Agreement and the
transactions contemplated thereby. Based upon this review, among other things,
the Managing Trustee determined to seek the approval of the Beneficiaries to the
proposed transaction.
The Managing Trustee believes that the development and sale of the lots at the
Estates at Rancho Malibu represents a sound investment, with significant
barriers to local competitive real estate pressures, that is expected to provide
an attractive risk-adjusted rate of return to the Trust. The Southern
California housing market generally is in a period of growth in terms of
increasing home price sales. The Rancho Malibu site provides ocean view lots
and a Malibu address, yet resides just outside the Malibu city limits.
In addition to a favorable rate of return on its investment, the Managing
Trustee also believes that the Trust, through PLM, which generates taxable
income, could benefit from certain tax losses through its partnership interests.
The Rancho Malibu property has built-in losses (where the tax basis of the
property exceeds its value) resulting from its tax basis of approximately
$30,772,000. This basis will result in substantial tax losses as the lots are
sold because the basis will be offset against the selling price of the lots.
The contemplated transactions are structured so that the basis of the property
will be preserved and will allow PLM to offset these tax losses against income
or its other sources of income or from the property.
The foregoing assessment of the expected benefits of the contemplated
transaction are based upon the Managing Trustee's expectations concerning future
results; however, the Managing Trustee can make no assurance that, if the
transaction is consummated, any of the results, benefits or returns described
herein can or will be achieved. See "Risk Factors" and "Special Note Regarding
Forward-Looking Statements."
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
The Rancho Malibu partnership is indirectly majority owned by Semele. In
addition, the Managing Trustee of the Trust is indirectly owned by Semele. Gary
D. Engle has a 40.3% interest in Semele and James A. Coyne has a 17.6% interest
in Semele. Semele also owns 100% of Equis II Corporation, which owns 99.61% of
the Class B Interests of the Trust. Together, Messrs. Engle and Coyne control a
majority of interest in Semele and of the Class B interests. The interests of
these two individuals could differ from the interests of the Trust's other
Beneficiaries. See "Risk Factors - The Trust's Managers and Affiliates may have
Interests in the Proposed Malibu Transaction that are Different from or in
Addition to the Interests of Other Beneficiaries."
IMPERIAL CAPITAL FAIRNESS OPINION
Imperial Capital, LLC ("Imperial Capital") was engaged by the board of
directors of PLM to provide a fairness opinion in connection with Proposal Two.
The opinion, which Imperial Capital delivered to PLM on April 29, 2002, stated
that, as of such date and based upon and subject to certain matters stated
therein, the aggregate consideration to be contributed by RMLP in exchange for
75% of the partnership interests in the Rancho Malibu partnership is fair to
RMLP from a financial point of view.
A copy of the opinion, which sets forth the assumptions made, matters considered
and scope and limitations of the review undertaken and the procedures followed
by Imperial Capital, is attached hereto as Annex D-1 and is incorporated by
reference into this Solicitation Statement. You are urged to read the Imperial
Capital opinion carefully and in its entirety for assumptions made, matters
considered and limits of the review by Imperial Capital. Beneficiaries should
note that the opinion expressed by Imperial Capital was prepared at the request
and for the information of the Board of Directors of PLM and does not constitute
a recommendation to any Beneficiary as how to vote with respect to Proposal Two.
The Imperial Capital opinion does not address the business decision or the
relative merits of the decision of the Board of Directors of PLM. No
limitations were placed on Imperial Capital with respect to the investigation
made, the procedures followed or the factors considered in preparing and
rendering its opinion.
In preparing its opinion, Imperial Capital relied solely upon the Limited
Appraisal, Restricted Report, dated March 1, 2002, prepared by Jones & Company,
a professional real estate appraisal firm with experience in California, with
the consent of Jones & Company. The appraisal, a copy of which is attached to
the Imperial Capital fairness opinion in Annex D-2, established an $11 million
value for the Rancho Malibu property on an "as is - where is" basis. In
preparing its appraisal, Jones & Company (a) made comparisons with three recent
bulk land sales for upper-end projects in Los Angeles County, and (b) considered
the value of a sell-off of the individual lots once they are developed. Jones &
Company was paid a fee of $7,500 for preparing the appraisal.
In connection with rendering its opinion, Imperial Capital among other things:
- - assumed that the Rancho Malibu partnership would have no assets or
liabilities, at the time of the contemplated transactions, other than the Rancho
Malibu property;
- - assumed a liquidation of the Rancho Malibu property on the date of the
opinion, and a payout of the proceeds pursuant to the Amendment to the
Partnership Agreement, as a condition precedent to the contemplated transactions
(and assumed that any liquidation costs or accrued interest at the time of the
contemplated transactions would be offset by potential tax benefits);
- - analyzed certain historical business and financial information related to
the Rancho Malibu partnership, including the most recent tax return for the year
ended December 31, 2001, which was provided by Equis II Corporation;
- - reviewed certain information relating to the business, earnings, taxes and
cash flow of the Rancho Malibu partnership, furnished to Imperial Capital by
Equis II Corporation;
- - reviewed certain business and financial information relating to the Rancho
Malibu partnership that Imperial Capital deemed relevant;
- - conducted discussions with members of senior management of PLM, Semele and
Equis II Corporation concerning the matters described above, as well as the
prospects and strategic objectives of the Rancho Malibu partnership; and
- - conducted such other financial studies, analyses and investigations and
took into account such other matters as Imperial Capital deemed necessary,
including its assessment of general economic, market and monetary conditions.
In preparing its opinion and with PLM's consent, Imperial Capital relied on
the accuracy and completeness of the foregoing financial and other information
and did not assume responsibility for independent verification of such
information or conduct an independent valuation or appraisal of any assets of
PLM, RMLP or the Rancho Malibu partnership. With respect to the information
provided, Imperial Capital assumed, with PLM's consent, that such information
was reasonably prepared on bases reflecting the best currently available
estimates and judgments of PLM and Equis II Corporation. Imperial Capital also
relied upon assurances of senior management of PLM, Semele and Equis II
Corporation that they were unaware of any facts that would make the information
or financial forecasts provided to Imperial Capital incomplete or misleading.
Imperial Capital assumed no responsibility for, and expressed no view as to, the
assumptions on which the information was based.
LIQUIDATION ANALYSIS. In arriving at its opinion, Imperial Capital conducted a
liquidation analysis as of the date of the opinion. The liquidation analysis
was used to estimate the proceeds that would be assumed to be received in a
liquidation of the Rancho Malibu property. This analysis indicated that the
approximately $9 million of proceeds that would be payable upon liquidation to
RMLP (after the C & D Joint Venture was repaid its initial $2 million capital
contribution) would be sufficient to repay the $2.5 million note (which at the
time of the contemplated transactions would not have accrued any interest) as
well as to return the full amount of the cash portion of the consideration
initially contributed by RMLP.
Because Imperial Capital undertook only one form of analysis, it is possible
that its conclusions may be less reliable than if it had conducted several
methods of analysis and compared or averaged the results. However, Imperial
Capital believes that a liquidation analysis is the appropriate and preferred
method of analysis because a liquidation of the Rancho Malibu property, and a
payout of the proceeds pursuant to the Amendment to the Partnership Agreement,
is a condition precedent to the contemplated transactions.
The summary of the Imperial Capital opinion set forth above does not purport to
be a complete description of the data and analyses presented or considered by
Imperial Capital. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant quantitative methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Accordingly, Imperial Capital's
analysis must be considered as a whole and considering any portion of Imperial
Capital's analysis and of the factors considered, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying the Imperial Capital opinion.
In the ordinary course of business and in accordance with applicable state and
federal securities laws, Imperial Capital may make a market in securities of
Semele, the Trusts or their affiliates and may trade the securities of Semele,
the Trusts or their affiliates for its own account and for the account of
customers and, accordingly, may at any time hold long or short positions in such
securities. In addition, Imperial Capital previously acted as financial advisor
to PLM and certain of its affiliates in connection with the acquisition of PLM
by a subsidiary of MILPI. Imperial Capital rendered its opinion to PLM's board
of directors on December 21, 2000 and was paid a fee of $175,000, plus expenses
for such opinion. Imperial Capital also has been paid a fee of $37,500 in
connection with Proposal Four, discussed below. As of the date of the opinion,
Imperial Capital and its affiliates owned approximately 4% of the common stock
of Semele, based on the number of shares publicly reported by Semele to be
outstanding.
Imperial Capital was paid a fee of $37,500 for its fairness opinion rendered to
PLM in connection with this Proposal Two, and was paid $772,398 for other
services rendered to PLM during the prior two years. PLM also agreed to
indemnify Imperial Capital, its affiliates and each of their respective
directors, officers and employees and each other person, if any, controlling
Imperial Capital or any of its affiliates against certain liabilities.
Imperial Capital is engaged, among other things, in the valuation of businesses
and their securities in connection with mergers and acquisitions, divestitures,
leveraged buyouts, private placements and other situations. PLM retained
Imperial Capital to provide the fairness opinion because of Imperial Capital's
expertise, reputation and familiarity with PLM and with assets similar to those
being acquired by PLM.
REGULATORY MATTERS
The Trust does not believe that any material federal or state regulatory
approvals, filings or notices are required to be filed in connection with the
proposed acquisition, other than such approvals, filings or notices required
pursuant to federal and state securities laws. If any such additional filings
or consents are required, such filings or consents could delay or prevent the
closing of the Malibu transaction.
APPRAISAL RIGHTS
Delaware law does not grant beneficiaries of business trusts who dissent
from approval of a transaction, such as the proposed Malibu transaction, the
right to demand an appraisal for their interests. Accordingly, Beneficiaries
who object to Proposal Two and the proposed Malibu transaction do not have a
right to demand payment for their Interests.
SELECTED FINANCIAL DATA
For the nine months ended September 30, 2002 and each of the five years in
the period ended December 31, 2001:
September 30, September 30,
Summary of Operations 2002 2001 2001 2000 1999 1998
- ------------------------------- --------------- --------------- ------------ ----------- ----------- -----------
Lease revenue $ 4,186,474 $ 4,941,320 $ 6,519,899 $ 7,733,941 $10,286,635 $15,201,411
Total income $ 4,014,524 $ 5,289,869 $ 6,985,008 $10,785,068 $15,453,298 $19,153,506
Net income (loss) $ (1,082,681) $ (206,461) $(5,599,193) $ 2,050,016 $ 5,802,601 $ 4,999,220
Per Beneficiary Interest:
Net income (loss)
Class A Interests $ (0.62) $ 0.14 $ (2.84) $ 0.66 $ 1.13 $ 1.17
Class B Interests $ - $ (0.11) $ (0.10) $ 0.18 $ 0.75 $ 0.39
Cash distributions declared
Class A Interests $ - $ - $ - $ - $ 4.56 $ 1.64
Class B Interests $ - $ - $ - $ - $ 3.66 $ 2.10
Financial Position
- -------------------------------
Total assets $ 38,512,194 $ 49,316,029 $42,170,719 $51,641,436 $71,090,942 $72,908,929
Total long-term obligations $ 19,263,085 $ 23,332,484 $22,382,964 $26,220,794 $32,573,152 $35,072,883
Participants' capital $ 16,506,686 $ 23,718,444 $17,589,367 $23,188,560 $21,158,711 $36,360,494
Summary of Operations 1997
- ------------------------------- ------------
Lease revenue $16,912,628
Total income $17,455,773
Net income (loss) $ 877,213
Per Beneficiary Interest:
Net income (loss)
Class A Interests $ 0.49
Class B Interests $ (0.12)
Cash distributions declared
Class A Interests $ 3.11
Class B Interests $ 0.30
Financial Position
- -------------------------------
Total assets $82,036,778
Total long-term obligations $39,928,173
Participants' capital $41,159,172
The Rancho Malibu property is under development and all costs associated
with the property are being capitalized. As such, this transaction is not
expected to have any short-term impact on the financial statements of the Trust.
Accordingly, no pro forma adjustments related to Proposal Two have been recorded
in the accompanying pro forma financial statements. However, in the event all
or a portion of the investment in the Rancho Malibu property, or its
subsequently capitalized costs, are not recoverable, this could have a negative
impact on the Trust's financial statements.
THE CONTRIBUTION, ASSIGNMENT, ASSUMPTION
AND ACKNOWLEDGMENT AGREEMENT
The following description summarizes the material provisions of the
Contribution, Assignment, Assumption and Acknowledgment Agreement, by and among
RMLP, the Rancho Malibu partnership, Rancho Malibu Corp. and Semele (the
"Agreement"), whereby RMLP will receive a capital contribution from Semele of
its limited partnership interests and of the general partnership interests of
its wholly owned subsidiary Rancho Malibu Corp., in the Rancho Malibu
partnership. You should carefully read the entire Agreement, which is attached
hereto as Annex A, before making any decision with respect to Proposal One.
CONDITIONS TO COMPLETION OF THE TRANSACTION
Pursuant to the terms of the Agreement, each party's obligation to effect
the transaction is subject to the satisfaction or waiver of various conditions,
including the following:
- - no consent of any governmental authority or any other person or entity
shall be required to be made or obtained by the Rancho Malibu partnership or by
Semele or Rancho Malibu Corp. in connection with the Agreement, except where the
failure to obtain any such consents would not prevent Semele or Rancho Malibu
Corp. from performing its obligations under the Agreement;
- - there shall be no suit, action or other proceeding pending or threatened
and no court with appropriate jurisdiction shall have issued an order or
injunction which would restrain, enjoin or prohibit the transaction or which
would compel RMLP to dispose of or discontinue the business or a portion of the
business of the Rancho Malibu partnership;
- - Semele and Rancho Malibu Corp. shall have obtained all necessary approvals
to authorize the transactions contemplated by the Agreement;
- - the Beneficiaries of the Trust and of Trust D shall have approved the
transaction;
- - the assets of the Rancho Malibu partnership shall have been appraised by
an independent appraiser and the appraised value of the assets shall be
acceptable to RMLP;
- - the representations and warranties of Semele and RMLP set forth in the
Agreement shall be true and correct in all material respects as though made on
and as of the closing date of the transaction;
- - Semele and RMLP shall each have performed and complied with all agreements
and conditions required to be performed or complied with by it prior to the
closing date, in all material respects;
- - each of Semele and RMLP shall have furnished the other party with a
certificate dated as of the closing date certifying the fulfillment of certain
conditions;
- - there shall be no material adverse change in the business or results of
operations or condition of the Rancho Malibu partnership; and
- - the business of the Rancho Malibu partnership shall have been conducted in
the ordinary course and shall have complied in all material respects with the
course of conduct described in the Agreement and RMLP shall have been furnished
with a certificate of Semele, dated as of the closing date, certifying as such.
The Managing Trustee can provide no assurance that all of the conditions
precedent to the transaction have or will be satisfied or waived by the party
permitted to do so. The Managing Trustee cannot at this point determine whether
it would resolicit consents in the event that it decides to waive any of the
items listed above. This decision would depend upon the facts and circumstances
leading to the decision to complete the Malibu transaction and whether the
Managing Trustee believes there has been a material change in the terms of the
transaction and its effect on the Trust and its Beneficiaries.
CONDUCT OF BUSINESS PENDING THE CONSUMMATION OF THE TRANSACTION
Until the closing of the transaction, except as contemplated by the
Agreement, each of Semele and Rancho Malibu Corp. has agreed that it will:
- - use its best efforts to preserve the business of the Rancho Malibu
partnership;
- - maintain or cause to be maintained satisfactory relationships with
suppliers, customers and others having business relationships with the Rancho
Malibu partnership which are material to the success of its business;
- - conduct or enter into business of and transactions by the Rancho Malibu
partnership only in the usual and ordinary course; and
- - allow representatives of RMLP access to the personnel, offices,
properties, books and records of the partnership and furnish RMLP with such
financial and operating data as RMLP shall reasonably request.
Semele has further agreed that it will not cause or permit the Rancho
Malibu partnership, except in the ordinary course of business, to:
- - mortgage, pledge or subject to lien, charge or other encumbrance any
assets, or enter into any agreement resulting in the imposition of any such
mortgage, lien or charge;
- - sell or purchase, assign or transfer any intangible property;
- - suffer any casualty losses, whether insured or uninsured, and whether or
not in the control of Semele or the Rancho Malibu partnership or Rancho Malibu
Corp., in excess of $5,000 in the aggregate, or waive any rights of any material
value, individually or in the aggregate, unless such loss or waiver is reflected
in the balance sheets;
- - incur any indebtedness for money borrowed or any noncurrent indebtedness
for the purchase price of any fixed or capital asset;
- - make (i) any change in properties and assets or in liabilities, (ii) any
commitment for any capital expenditure, or (iii) any sale, lease or other
disposition of any capital asset;
- - make any change in the partnership agreement of the Rancho Malibu
partnership;
- - issue any new percentage interest to a third party or grant or issue any
option or warrant for the purchase of any new percentage interest to a third
party, or make any commitment relating thereto;
- - make any distribution or payment to Semele;
- - amend, make or enter into any agreement with any employee, agent or
consultant;
- - amend any material contract, lease or agreement listed; or
- - voluntarily incur any material obligation or liability, absolute or
contingent, except in the ordinary course of business or pursuant to existing
contracts and agreements described in the Agreement or in the schedules
delivered pursuant hereto.
- - The Agreement contains customary representations and warranties by Semele
and Rancho Malibu Corp.
TERMINATION
The Agreement may be terminated at any time prior to the date of closing:
- - by either Semele or Rancho Malibu Corp. or RMLP, if any party or
government agency institutes any proceeding to enjoin or prevent consummation of
the transactions contemplated by the Agreement or seeks any material damages
that may result from the consummation of the transactions under the Agreement;
- - by either Semele or Rancho Malibu Corp. or RMLP, if a material default is
made by the other party with respect to the performance of any of the covenants
or agreements or any of the representations and warranties made by such party in
the Agreement, which default has not been cured within 15 days after the
delivery of a notice of default specifying such breach;
- - by Semele or Rancho Malibu Corp., if all of the conditions set forth in
the Agreement have not been satisfied or waived by Semele prior to the date of
closing;
- - by RMLP, if all of the conditions set forth in the Agreement have not been
satisfied or waived by RMLP prior to the date of closing; and
- - by RMLP, if a material adverse effect has occurred.
DESCRIPTION OF THE PROMISSORY NOTE
As part of the consideration to be paid to Semele pursuant to the
Agreement, RMLP will issue to Rancho Malibu Corp. an unsecured promissory note
(the "Note"). The Note will be for the principal amount of $2.5 million or such
lesser amount as is outstanding pursuant to the terms of the Note. The Note
will bear interest at the rate of 7% per annum, calculated on the basis of a
year with 360 days. The entire principal amount of, and accrued interest on,
the Note will be due and payable on December 31, 2006, subject to extension upon
the mutual agreement of Rancho Malibu Corp. and RMLP.
The Note may be prepaid at any time, without premium or penalty, at the option
of RMLP in principal increments of $100,000. Additionally, RMLP is obligated to
make annual prepayments on the Note to the extent of any Excess Cash Flow (as
defined in the Note).
RMLP may make payments of principal of, and accrued interest on, the Note either
in cash or, if prior to the second anniversary of the Note, by delivering clear
title to a subdivided portion of the real property owned by the Rancho Malibu
partnership, in which case the value of such prepayment will be determined by
the total appraised fair market value of such real property, determined by a
nationally recognized real estate appraiser mutually agreeable to RMLP, the C &
D Joint Venture and Semele. In the event RMLP desires to make any such
prepayment in-kind, the Rancho Malibu partnership, pursuant to the terms of its
amended Partnership Agreement, will distribute the real property to RMLP or, at
the direction of RMLP, to the payee under the Note and at the same time will
make an appropriate increase in the ownership interests held by the C & D Joint
Venture in order to reflect the return on capital paid to RMLP.
Upon the occurrence of an Event of Default (as defined in the Note), Rancho
Malibu Corp. may declare the entire unpaid balance of the principal amount of,
and accrued interest on, the Note immediately due and payable. In such event,
RMLP will be obligated to pay all of Rancho Malibu Corp.'s costs and expenses,
including reasonable attorneys' fees, incurred in enforcing or collecting any of
the obligations of RMLP under the Note. During the continuation of an Event of
Default, all such amounts, plus the entire unpaid balance of the principal
amount of, and accrued interest on, the Note, will bear interest at the rate of
8.5% per annum.
The Note is governed by Delaware law and does not place any restrictions on
RMLP's ability to incur additional indebtedness.
DESCRIPTION OF THE COMMON STOCK OF RMLP
The following summary of the common stock of RMLP is subject in all
respects to applicable Delaware law, RMLP's certificate of incorporation and
RMLP's by-laws. See "Where You Can Find More Information."
RMLP's authorized capital stock consists of 3,000 shares of common stock, par
value $.01 per share. As of the Record Date, 1,000 shares of RMLP common stock
were outstanding and held by PLM. If Proposal One is adopted and the Malibu
transaction is consummated, pursuant to the Agreement, Semele will receive 182
shares of RMLP common stock, representing 15.4% of the then outstanding shares.
Holders of RMLP's common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of
RMLP's common stock are not entitled to cumulative voting rights with respect to
the election of directors and, as a consequence, minority shareholders will not
be able to elect directors on the basis of their votes alone. Subject to
preferences that may be applicable to any shares of preferred stock issued in
the future, holders of common stock are entitled to receive ratably such
dividends as may be declared from time to time by RMLP's board of directors out
of funds legally available for payment.
In the event of a liquidation, dissolution or winding up of RMLP, holders of
RMLP's common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any then outstanding
preferred stock. Holders of common stock have no preemptive rights and no right
to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to RMLP's common stock. All
shares of RMLP's common stock to be outstanding upon completion of the Malibu
transaction will be fully paid and non-assessable.
THE MANAGING TRUSTEE RECOMMENDS THAT BENEFICIARIES CONSENT TO THE APPROVAL OF
PROPOSAL TWO.
PROPOSAL 3 - APPROVAL OF THE AMENDMENT TO SECTION 7.5 OF THE
TRUST AGREEMENT TO APPROVE GRANTS AND EXERCISES OF RIGHTS
OF FIRST REFUSAL IN JOINT VENTURES BETWEEN THE TRUST AND ITS AFFILIATES
THE AMENDMENT
As currently in effect, Section 7.5 of the Trust Agreement does not provide
the Trust with a right of first refusal in the event of a sale of an asset by a
joint venturer. It is proposed that Section 7.5 be amended to provide the Trust
with such a right of first refusal.
REASON FOR THE AMENDMENT
Section 7.5 of the Trust Agreement initially provided that the Trust has
the right of first refusal in the event of a proposed sale of an asset, or an
interest therein, initiated by a joint venturer. However, when Section 7.5 was
amended in June 1999, the provision was deleted. The Managing Trustee believes
that the deletion of this right was inadvertent and that the right should be
reinstated.
The Trust distributed a Consent Solicitation Statement on May 5, 1998 to its
Beneficiaries to ask them to vote on, among other items, an amendment to Section
7.5 governing joint ventures between the Trust and the Managing Trustee or its
affiliates. As the Consent Solicitation Statement stated, the purpose of
amending Section 7.5 was to permit the Trust to enter into joint ventures with
affiliated joint venturers that have different investment objectives than the
Trust. Prior to the amendment, Section 7.5 required that the Trust have
identical investment objectives with its affiliated joint venturers, which the
Managing Trustee believed limited the opportunity of the Trust to co-invest with
affiliates of the Managing Trustee. The Consent Solicitation Statement did not
address, however, the deletion of the right of first refusal. The Managing
Trustee believes that, because the stated purpose of the amendment to Section
7.5 was to remove unnecessary limits on the Trust's right to enter into joint
ventures, it is unlikely that the intention of the amendment was to remove the
right of first refusal, thereby further limiting the Trust.
Apart from potentially acquiring the MILPI interests from Trusts A and B, the
Trust has no current intention to purchase an interest of a joint venturer
during the remainder of 2002. Therefore, the amendment is not likely to benefit
the Trust's beneficiaries because the Trust does not have the authority to
reinvest in additional assets after December 31, 2002. However, in order to be
better prepared for any unforeseen events, the Managing Trustee believes that it
would be helpful to reinstate the provision because there are benefits to be
derived by the Trust by allowing a right of first refusal in connection with
joint ventures. For instance, the Trust may be engaged in businesses that use
the type of assets being disposed of, such that the asset would be of value to
the Trust even if it was no longer of value to the joint venture. By allowing
the Trust a right of first refusal to purchase such assets, the Trust would have
greater control of its assets and therefore better protection of the value of
the assets.
Before voting on this proposal, Beneficiaries are urged to read the full text of
the proposed amendment to Section 7.5, which is included in Annex E, attached
hereto.
THE MANAGING TRUSTEE RECOMMENDS THAT BENEFICIARIES CONSENT TO THE APPROVAL OF
PROPOSAL THREE.
PROPOSAL 4 - APPROVAL OF THE PURCHASE BY MILPI OF
THE MEMBERSHIP INTERESTS IN MILPI HELD BY
TRUST A AND TRUST B, WHICH WOULD GIVE THE TRUST,
TOGETHER WITH TRUST D, SHARED 100% OWNERSHIP OF MILPI
REASON FOR THE SALE
The Managing Trustee believes that it would be in the best interest of the Trust
for MILPI to purchase the membership interests in MILPI back from Trust A and
Trust B. In December 2000, the Trust entered into a joint venture with Trust A,
Trust B and Trust D whereby each of the trusts purchased membership interests in
MILPI. A subsidiary of MILPI subsequently entered into an agreement to acquire
PLM, and in order to obtain the approval of its stockholders, PLM filed a proxy
statement with the Securities and Exchange Commission (the "SEC"). In connection
with the review of PLM's preliminary proxy materials, the staff of the SEC
informed Trust A and Trust B that the staff believed that the two trusts may be
unregistered investment companies within the meaning of the Investment Company
Act of 1940. Although Trust A and Trust B have publicly stated that they do not
believe they are unregistered investment companies, based upon the advice of
counsel, the two trusts are in the process of liquidating their remaining
assets to avoid the burden and extra expense of continuing to pursue this issue
with the staff of the SEC. Accordingly, Trust A and Trust B have approved the
sale of their membership interests in MILPI.
Currently, the Trust has a 37.5% interest in MILPI. The Managing Trustee's
strategy is to maximize the value of the Trusts' interests in PLM through the
management of PLM's equipment leasing business and the simplification of PLM's
balance sheet. The Managing Trustee believes that this will allow the Trust and
Trust D to more readily and more profitably dispose of their assets, including
PLM, prior to the time that each of the Trusts is required to dissolve. Upon
completion of the proposed purchase, the Trust and Trust D each will own a 50%
interest in MILPI. The Managing Trustee believes that the Trust and Trust D will
each have greater liquidity in their investments if they have a 50% interest in
MILPI rather than their current minority interests.
As stated above, Trust A and Trust B have approved the sale of their
membership interests in MILPI. If MILPI does not purchase these interests from
Trust A and Trust B, the two Trusts could then sell their MILPI interests to a
third party. The third party would be a joint venturer in MILPI and would
have a minority interest in management decisions, with the Trust and Trust D
having a combined majority interest. Although pursuant to the terms of MILPI's
Operating Agreement, a third party purchaser would only have a minority interest
and the Trust and Trust D could withhold their consent to the sale of MILPI
interests to any given third party, there could be no assurance that any third
party that purchased the interests would have similar management objectives as
the Trust.
TERMS OF THE SALE
The membership interests in MILPI of Trust A and Trust B would be bought
back by MILPI, pursuant to a Membership Interest Purchase Agreement, at the
price paid to purchase such interests, less any dividends paid, plus the
reimbursement of acquisition fees paid by the Trust to the Managing Trustee
pursuant to the Trust Agreement in connection with the purchase of its MILPI
membership interests, aggregating approximately $5.9 million. The Managing
Trustee has agreed to waive all fees that would otherwise be due to it by the
Trust under the terms of the Trust Agreement in connection with a sale of Trust
assets. A copy of the Membership Interest Purchase Agreement is attached hereto
as Annex F. As noted below, the Trust's financial advisors have determined that
the proceeds to be paid in connection with the sale is fair to the Beneficiaries
from a financial point of view. See "Proposal Four - Fairness Opinion."
The aggregate purchase price to be paid by MILPI was set by the Managing
Trustee, rather than being the result of arm's length negotiations as to the
underlying value of the assets. In setting the purchase price, the Managing
Trustee took into account, on the one hand, the expectation by Trust A and Trust
B that they would recognize a return on their investment of capital and, on the
other hand, the expectation by the Trust and Trust D that the purchase price
would reflect a decline in the value of the underlying equipment assets,
including aircraft, since MILPI's acquisition of PLM, primarily as a result of
generally unfavorable economic conditions occurring since the acquisition. In
order to reconcile these two positions, the Managing Trustee proposes that the
Trust sell its membership interests in MILPI back to MILPI at the original
purchase price, plus the reimbursement of the membership fees paid to the
Managing Trustee of the Trust in connection with the purchase of the interests
pursuant to the Trust Agreement, less distributions or dividends.
There is a risk that PLM may have declined significantly in value from the time
it was acquired by MILPI as a result of a decline in the value of the assets
held by PLM. If this were the case, then the aggregate purchase price to be
paid by the Trust and Trust D, indirectly through MILPI, may be too high.
However, during the time PLM was held by MILPI, PLM has been able to monetize
many of PLM's non-core assets. PLM was also successful during this time in
settling its outstanding class action litigation, resolving a significant
management issue and reducing the potentially high cost of its litigation.
These factors, when combined, cause the Managing Trustee to believe that the
aggregate purchase price to be paid by MILPI is fair to the Trust and Trust D.
In addition, the Managing Trustee obtained a fairness opinion from Imperial
Capital, which is summarized in the following section.
FAIRNESS OPINION
Imperial Capital was engaged by the Trust and Trust D to provide a fairness
opinion in connection with Proposal Four. The opinion, which Imperial Capital
delivered to the Trust and Trust D on April 10, 2002, stated that, as of such
date and based upon and subject to certain matters stated therein, the aggregate
consideration to be paid by MILPI in connection with the repurchase of the
interests in MILPI held by Trust A and Trust B is fair to the Trust and Trust D
from a financial point of view. A copy of the opinion, which sets forth the
assumptions made, matters considered and scope and limitations of the review
undertaken and the procedures followed by Imperial Capital, is attached hereto
as Annex G and is incorporated by reference into this Solicitation Statement.
You are urged to read the Imperial Capital opinion carefully and in its entirety
for assumptions made, matters considered and limits of the review by Imperial
Capital.
Beneficiaries should note that the opinion expressed by Imperial Capital was
prepared at the request and for the information of the Trust and Trust D and
does not constitute a recommendation to any Beneficiary as how to vote with
respect to Proposal Four. Further, the opinion relies on only two analyses,
bids taken on PLM two years ago which do not reflect the possible decline in
value since then, and a discounted cash flow analysis of projected earnings
which exceed the actual 2002 earnings by approximately 32%.
The Imperial Capital opinion does not address the business decision or the
relative merits of the decision of the Trust and Trust D. No limitations were
placed on Imperial Capital with respect to the investigation made, the
procedures followed or the factors considered in preparing and rendering its
opinion.
Because the only asset of MILPI is its 100% ownership in PLM, Imperial Capital
performed its analysis on the operations and projections of PLM and attributed
no positive or negative value to MILPI.
In connection with rendering its opinion, Imperial Capital among other things:
- - analyzed certain historical business and financial information relating to
PLM, including a draft of PLM's annual financial statements for the year ended
December 31, 2001 and balance sheet for March 31, 2002 which were provided by
PLM;
- - reviewed certain information, including financial forecasts, relating to
the business, earnings, taxes and cash flow, furnished to Imperial Capital by
PLM;
- - reviewed certain publicly available business and financial information
relating to PLM that Imperial Capital deemed relevant;
- - conducted discussions with members of senior management of PLM concerning
the matters described above, as well as the prospects and strategic objectives
of PLM and expected cost and corporate overhead savings as PLM investment
vehicles continue to liquidate;
- - reviewed public information with respect to certain other companies with
financial profiles that Imperial Capital deemed to be relevant;
- - reviewed the historical market prices and trading activity for PLM's
common stock through the date of PLM's merger with MILPI Acquisition Corp.;
- - reviewed the results of the sale process in which PLM was sold to MILPI
Acquisition Corp., and
- - conducted such other financial studies, analyses and investigations and
took into account such other matters as Imperial Capital deemed necessary,
including its assessment of general economic, market and monetary conditions.
In preparing its opinion and with the consent of the Trust and Trust D,
Imperial Capital relied on the accuracy and completeness of the foregoing
financial and other information and did not assume responsibility for
independent verification of such information or conduct an independent valuation
or appraisal of any of MILPI's or PLM's assets, nor was Imperial Capital
furnished with any such appraisals. With respect to the financial forecasts,
Imperial Capital assumed, with the consent of the Trust and Trust D, that they
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of MILPI and PLM as to the future
financial performance of PLM. Imperial Capital also relied upon assurances of
senior management of PLM that they were unaware of any facts that would make the
information or financial forecasts provided to Imperial Capital incomplete or
misleading. Imperial Capital assumed no responsibility for, and expressed no
view as to, such forecasts or the assumptions on which they were based.
The Imperial Capital opinion was based upon economic, monetary and market
conditions existing on the date of the opinion. Imperial Capital expressed no
opinion, nor should one be implied, as to the current fair market value of the
Interests.
The following two paragraphs summarize the analyses performed by Imperial
Capital in arriving at its opinion:
- - MARKET APPROACH ANALYSIS. The market approach is a valuation technique in
which fair market value is estimated based on market prices in actual
transactions and on asking prices for currently available assets. Normally,
Imperial Capital would review publicly traded companies and comparable
transactions with these companies, but due to PLM's unique business structure
and small number of equity holders and the fact that PLM is currently being
managed in order to liquidate its various investment vehicles, Imperial Capital
did not believe that this technique was applicable. Instead, Imperial Capital
reviewed (i) PLM's trading history, which showed that from February 18, 2001
through February 8, 2002, PLM's stock traded between $2.80 and $3.44 per share,
and (ii) the competitive auction process by which PLM was sold to MILPI
Acquisition Corp., whereby PLM received bids ranging from $2.07 to $3.60 per
share. Based upon the number of shares of PLM that were outstanding during the
relevant periods, these amounts translate into a value of between $3.9 million
and $6.8 million for the 25% of MILPI that the Interests represent, or an
enterprise value of between $15.6 million and $27.2 million.
- - DISCOUNTED CASH FLOW ANALYSIS. The fundamental premise of the discounted
cash flow approach is to estimate the available cash flows a prudent investor
would expect a company to generate over its remaining life. To determine this
amount, Imperial Capital used cash flow projections from PLM's 2002 budget and
PLM's liquidation analysis for the nine months ending December 31, 2002 and the
fiscal years ended December 31, 2003 through 2007. In applying this approach,
Imperial Capital estimated an appropriate discount rate to be between 20% and
25% based on a number of factors, including that significant assets have been
monetized since the acquisition of PLM, management of PLM used conservative
estimates of its future cash flows, a class action lawsuit filed against PLM has
been settled, and effects on the credit quality underlying PLM's assets as a
result of events since September 11, 2001. Imperial Capital also assumed that,
because PLM is in a liquidation mode, it would not have any residual or terminal
value. Based on this analysis, Imperial Capital determined PLM's total
enterprise value to be approximately $24.6 to $26.2 million and its equity value
to be approximately $24.2 to $25.9 million. Therefore, because the Interests
represent 25% ownership of MILPI, they would have an estimated value ranging
between $6.4 and $6.8 million. This valuation compares with the aggregate
purchase price of approximately $5.9 million to be paid to Trust A and Trust B
(reflecting an enterprise value of approximately $23.7 million), which purchase
price reflects the payment of dividends and acquisition fees by PLM subsequent
to MILPI's acquisition of PLM aggregating approximately $0.6 million to Trust A
and Trust B.
The summary of the Imperial Capital opinion set forth above does not
purport to be a complete description of the data and analyses presented or
considered by Imperial Capital. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant quantitative
methods of financial analyses and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. Accordingly, Imperial
Capital's analysis must be considered as a whole and considering any portion of
Imperial Capital's analysis and of the factors considered, without considering
all analyses and factors, could create a misleading or incomplete view of the
process underlying the Imperial Capital opinion.
In the ordinary course of business and in accordance with applicable state and
federal securities laws, Imperial Capital may make a market in securities of
Semele, the Trust and Trusts A, B and D and may trade the securities of such
entities for its own account and for the account of customers and, accordingly,
may at any time hold long or short positions in such securities. In addition,
Imperial Capital previously acted as financial advisor to PLM and certain of its
affiliates in connection with the acquisition of PLM by a subsidiary of MILPI.
Imperial Capital rendered its opinion to PLM's board of directors on December
21, 2000 and was paid a success fee of $175,000, plus expenses for such opinion.
Imperial Capital also has been paid a fee of $37,500 in connection with Proposal
Two, discussed above. As of the date of the opinion, Imperial Capital and its
affiliates owned approximately 4% of the common stock of Semele, based on the
number of shares publicly reported by Semele to be outstanding.
Imperial Capital has been paid a fee of $37,500 for its fairness opinion
rendered to the Trust and Trust D. The Trust and Trust D also agreed to
indemnify Imperial Capital, its affiliates and each of their respective
directors, officers and employees and each other person, if any, controlling
Imperial Capital or any of its affiliates against certain liabilities.
Imperial Capital is engaged, among other things, in the valuation of businesses
and their securities in connection with mergers and acquisitions, divestitures,
leveraged buyouts, private placements and other situations. The Trust and Trust
D retained Imperial Capital to provide the fairness opinion because of Imperial
Capital's expertise, reputation and familiarity with MILPI and with securities
similar to those being acquired by MILPI.
SELECTED FINANCIAL DATA
For the nine months ended September 30, 2002 and each of the five years in
the period ended December 31, 2001, and for the pro forma information for the
nine months ended September 30, 2002 and the year ended December 31, 2001:
.. . . . . . .
.. . Pro Forma . Pro Forma . .
.. September30, September 30, . December 31, September 30, .
Summary of Operations 2002 2002 (1) 2001 2001 (1) 2001 2000
- ------------------------------- ------------ --------------- ------------ -------------- --------------- -----------
Lease revenue $ 4,186,474 $ 4,186,474 $ 6,519,899 $ 6,519,899 $ 4,941,320 $ 7,733,941
Total income $ 4,014,524 $ 4,014,524 $ 6,985,008 $ 6,985,008 $ 5,289,869 $10,785,068
Net income (loss) $(1,082,681) $ (887,178) $(5,599,193) $ (5,164,952) $ (206,461) $ 2,050,016
Per Beneficiary Interest:
Net income (loss)
Class A Interests $ (0.62) $ (0.56) $ (2.84) $ (2.60) $ 0.14 $ 0.66
Class B Interests $ - $ 0.01 $ (0.10) $ (0.10) $ (0.11) $ 0.18
Cash distributions declared
Class A Interests $ - $ - $ - $ - $ - $ -
Class B Interests $ - $ - $ - $ - $ - $ -
Financial Position
- -------------------------------
Total assets $38,512,194 $ 39,166,870 $42,170,719 - $ 49,316,029 $51,641,436
Total long-term obligations $19,263,085 $ 19,263,085 $22,382,964 - $ 23,332,484 $26,220,794
Participants' capital $16,506,686 $ 17,161,362 $17,589,367 - $ 23,718,444 $23,188,560
.. . . .
.. . . .
.. . . .
Summary of Operations 1999 1998 1997
- ------------------------------- ----------- ----------- ------------
Lease revenue $10,286,635 $15,201,411 $16,912,628
Total income $15,453,298 $19,153,506 $17,455,773
Net income (loss) $ 5,802,601 $ 4,999,220 $ 877,213
Per Beneficiary Interest:
Net income (loss)
Class A Interests $ 1.13 $ 1.17 $ 0.49
Class B Interests $ 0.75 $ 0.39 $ (0.12)
Cash distributions declared
Class A Interests $ 4.56 $ 1.64 $ 3.11
Class B Interests $ 3.66 $ 2.10 $ 0.30
Financial Position
- -------------------------------
Total assets $71,090,942 $72,908,929 $82,036,778
Total long-term obligations $32,573,152 $35,072,883 $39,928,173
Participants' capital $21,158,711 $36,360,494 $41,159,172
____________________
(1) The Trust's unaudited pro forma financial statements for the nine months
ended September 30, 2002 and the year ended December 31, 2001 have been prepared
as if the purchase by MILPI of the membership interests in MILPI held by Trust A
and Trust B had occurred on January 1, 2001. See "Unaudited Pro Forma Financial
Information."
THE MANAGING TRUSTEE RECOMMENDS THAT BENEFICIARIES CONSENT TO THE APPROVAL
OF PROPOSAL FOUR.
FINANCIAL INFORMATION WITH RESPECT TO MILPI
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE PERIOD FEBRUARY 7, 2001 THROUGH DECEMBER 31, 2001 FOR MILPI
MILPI was formed on December 12, 2000, under the laws of the State of
Delaware and is governed by its Operating Agreement, dated December 13, 2000.
MILPI had no activities from December 12, 2000 through February 7, 2001. MILPI
was created by four separate trusts (Trust A, Trust B, the Trust and Trust D)
for the sole purpose of acquiring PLM and its subsidiaries. PLM is an equipment
management company and operates in one business segment, the leasing of
transportation equipment and the creation of equipment-leasing solutions for
domestic and international customers.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires MILPI to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On a regular basis, MILPI reviews these estimates
including those related to asset lives and depreciation methods, impairment of
long-lived assets, allowance for doubtful accounts, reserves related to legally
mandated equipment repairs and contingencies and litigation. These estimates
are based on MILPI's historical experience and on various other assumptions
believed to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions. MILPI believes,
however, that the estimates, including those for the above-listed items, are
reasonable and that actual results will not vary significantly from the
estimated amounts.
MILPI believes the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of MILPI's financial
statements:
Asset Lives and Depreciation Methods. The primary business of the managed
- ----------------------------------------
programs involves the purchase and subsequent lease of long-lived transportation
and related equipment. MILPI has chosen asset lives that it believes
correspond to the economic life of the related asset. MILPI has chosen a
deprecation method that it believes matches the benefit to the managed programs
from the asset with the associated costs. These judgments have been made based
on MILPI's expertise in each equipment segment that the managed programs
operate. If the asset life and depreciation method chosen does not reduce the
book value of the asset to at least the potential future cash flows from the
asset to the managed programs, the managed programs would be required to record
a loss on revaluation. Likewise, if the net book value of the asset was reduced
by an amount greater than the economic value has deteriorated, the managed
programs may record a gain on sale upon final disposition of the asset. In
either instance, this would impact the amount of MILPI's equity income in
managed programs reported on its consolidated statement of operations.
Impairment of Long-lived Assets. On a regular basis, MILPI reviews the carrying
- -------------------------------
value of the managed programs' equipment and investments in unconsolidated
special purpose entities to determine if the carrying value of the assets may
not be recoverable due to current economic conditions. This requires MILPI to
make estimates related to future cash flows from each asset as well as the
determination if the deterioration is temporary or permanent. If these
estimates or the related assumptions change in the future, the managed programs
may be required to record an impairment charge. This would impact the amount of
MILPI's equity income in managed programs reported on its consolidated statement
of operations.
Allowance for Doubtful Accounts. MILPI maintains allowances for doubtful
- ----------------------------------
accounts and other receivables for estimated losses resulting from the inability
of the customer to make the customer payments. These estimates are primarily
based on the amount of time that has lapsed since the related payments were due
as well as specific knowledge related to the ability of the lessees to make the
required payments. If the financial condition of MILPI's lessees were to
deteriorate, additional allowances could be required that would reduce income.
Conversely, if the financial condition of the lessees were to improve or if
legal remedies to collect past due amounts were successful, the allowance for
doubtful accounts may need to be reduced and income would be increased. In
addition, the managed programs maintain similar allowances for their
receivables. If the financial condition of the companies with payments due to
the managed programs were to change, this would impact the amount of the
management fee revenue earned by MILPI.
Reserves for Repairs. The managed programs accrue for legally required repairs
- ---------------------
to equipment such as dry docking for marine vessels and engine overhauls to
aircraft engines over the period prior to the required repairs. The amount that
is reserved is based on MILPI's expertise in each equipment segment, the past
history of such costs for that specific piece of equipment and discussions with
independent, third party equipment brokers. If the amount reserved for is not
adequate to cover the cost of such repairs or if the repairs must be performed
earlier than MILPI estimated, the managed programs would incur additional repair
and maintenance or equipment operating expenses. This would impact the amount
of MILPI's equity interest in affiliates reported on its consolidated statement
of operations.
Contingencies and Litigation. MILPI is subject to legal proceedings involving
- ------------------------------
ordinary and routine claims related to its business. The ultimate legal and
financial liability with respect to such matters cannot be estimated with
certainty and requires the use of estimates in recording liabilities for
potential litigation settlements. Estimates for losses from litigation are
disclosed if considered possible and accrued if considered probable after
consultation with counsel. If estimates of potential losses increase or the
related facts and circumstances change in the future, MILPI may be required to
record additional litigation expense. In addition, the managed programs are
also subject to legal proceedings. If estimates of losses for the programs
change in the future, this would impact MILPI's equity interest in affiliates
reported on its consolidated statement of operations.
Goodwill. MILPI has goodwill which represents the excess of the aggregate
--------
purchase price paid for PLM over the fair market value of its identifiable
assets. In accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142"), MILPI regularly reviews
the recoverability of this asset which requires the use of estimates. If actual
facts and circumstances change in the future, MILPI may be required to record an
impairment.
Income Taxes. MILPI accounts for income taxes in accordance with the
-------------
provisions of Statement of Financial Accounting Standard No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). This requires MILPI to make estimates as to
the temporary differences between the tax basis of assets and liabilities and
the carrying values for financial statement purposes. Estimates include
assessing the realizability of deferred income tax assets. Management considers
whether it is more likely than not that some portion or all of the deferred
income tax assets will not be realized. The ultimate realization of deferred
income tax assets is dependent upon the generation of future taxable income
during the periods in which those differences become deductible.
MANAGEMENT OF INVESTMENT PROGRAMS
PLM syndicated investment programs from which it earns various fees and
equity interests. Professional Lease Management Income Fund I, LLC("Fund I") was
structured as a limited liability company with a no front-end fee structure. The
previously syndicated limited partnership programs allow MILPI to receive fees
for the acquisition and initial leasing of the equipment. The Fund I program
does not provide for acquisition and lease negotiation fees. PLM invested the
equity raised through syndication for these programs in transportation equipment
and related assets, which it manages on behalf of the investors. The equipment
management activities for these types of programs generate equipment management
fees for MILPI over the life of a program. The limited partnership agreements
entitle MILPI to receive a 1% or 5% interest in the cash distributions and
earnings of a partnership, subject to certain allocation provisions. The Fund I
agreement entitles MILPI to a 15% interest in the cash distributions and 1% of
earnings of the program, subject to certain allocation provisions per the
operating agreement. MILPI's interest in the earnings and distributions of Fund
I will increase to 25% after the investors have received distributions equal to
their original invested capital.
MILPI is not syndicating new investment programs nor does it expect to in the
future. As a result, revenues earned from managed programs, which include
management fees, partnership interests and other fees, and acquisition and lease
negotiation fees will be reduced in the future as the older programs liquidate
and the managed equipment portfolio is reduced.
In accordance with certain limited partnerships' agreements, four limited
partnerships have entered their liquidation phases and MILPI has commenced an
orderly liquidation of the partnerships' assets. One of the limited
partnerships, PLM Equipment Growth Fund III is expected to be liquidated by the
end of 2003. Three of the limited partnerships, PLM Equipment Growth Fund, PLM
Equipment Growth Fund II and PLM Equipment Growth Fund IV will terminate on
December 31, 2006 unless terminated earlier upon the sale of all equipment or
by certain other events.
MILPI will occasionally own transportation equipment prior to sale to affiliated
programs. During this period, MILPI earns lease revenue and may incur interest
expense.
DISCUSSION OF MILPI'S OPERATING RESULTS FOR THE PERIOD FROM FEBRUARY 7, 2001
THROUGH DECEMBER 31, 2001
The following analysis reviews the operating results of MILPI:
Revenues.
- --------
For the Period From
February 7, 2001 through
December 31, 2001
(in thousands of dollars)
--------------------------
Operating lease income $ 472
Management fees 5,217
Partnership interests and other fees 1,716
Acquisition and lease negotiation fees 2,032
Loss on disposition of assets (91)
Other 1,030
--------------------------
Total revenues $ 10,376
==========================
Operating Lease Income: Operating lease income consists of rental revenues
generated from assets held for operating leases and assets held for sale that
are on lease. Assets held for operating leases include commercial and
industrial equipment. Operating lease income is expected to decline in the
future as MILPI's commercial and industrial equipment portfolio is sold and not
replaced.
Management Fees: Management fees are, for the most part, based on the gross
revenues generated by equipment under management. Management fees were $5.2
million for the period from February 7, 2001 through December 31, 2001.
Management fees from the older programs are decreasing and are expected to
continue to decrease as the programs liquidate their equipment portfolios.
Partnership Interests and Other Fees: PLM Financial Services Inc. ("FSI") is the
General Partner or manager of nine investment programs. Distributions of the
programs are allocated as follows: 99% to the limited partners and 1% to the
General Partner in PLM Equipment Growth Fund (EGF) I and PLM Passive Income
Investors 1988-II; 95% to the limited partners and 5% to the General Partner in
EGFs II, III, IV, V, VI, and PLM Equipment Growth & Income Fund VII; and 85% to
the members and 15% to the manager in Fund I. PLM's interest in the cash
distributions of Fund I will increase to 25% after the investors have received
distributions equal to their invested capital. Net income is allocated to the
General Partner subject to certain allocation provisions. Most of the investment
program agreements contain provisions for special allocations of the programs'
gross income.
MILPI records as revenues its equity interest in the earnings of MILPI's managed
programs. MILPI's income from the managed programs was $1.7 million for the
period from February 7, 2001 through December 31, 2001.
Acquisition and Lease Negotiation Fees: Concurrent with the final settlement of
the Koch and Romei matters in the third quarter of 2001 (see Note 7 to MILPI's
audited consolidated financial statements), MILPI recognized income of $1.8
million consisting of acquisition and lease negotiation fees. These fees were
earned on equipment purchased in prior periods for investment programs that had
reached the maximum allowable fees that could be taken. With the settlement of
these lawsuits, the amount of fees that could be earned from these investment
programs was increased and the previously deferred fees were taken into income.
During the period from February 7, 2001 through December 31, 2001, MILPI, on
behalf of the managed programs, purchased transportation equipment for $7.0
million, and $0.4 million in acquisition and lease negotiation fees were earned
on these purchases.
Other Revenue: Other revenue consists primarily of revenue earned from
data processing fees charged to the managed programs.
Costs and Expenses.
- --------------------
For the Period From
February 7, 2001 through
December 31, 2001
(in thousands of dollars)
--------------------------
Operations support $ 800
Impairment of investment in managed programs 511
Depreciation and amortization 1,255
General and administrative 3,290
--------------------------
Total costs and expenses $ 5,856
==========================
Operations Support: Operations support expense includes salary and
office-related expenses for operational activities.
Impairment of Investment in Managed Programs: In accordance with the Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," ("SFAS No. 121"), MILPI reviews the
carrying value of its investments whenever circumstances indicate that the
carrying value may not be recoverable. If projected undiscounted future cash
flows are lower than the carrying value of its equity interest in affiliates, an
impairment would be recorded. During the period from February 7, 2001 through
December 31, 2001, MILPI recorded an impairment of $0.5 million on its equity
interest in affiliates due to a change in market conditions, primarily in the
airline industry, after the events of September 11, 2001.
Depreciation and Amortization: Depreciation and amortization includes
depreciation of assets held for lease and amortization of goodwill associated
with the acquisition of PLM. Amortization of goodwill and depreciation of fixed
assets was approximately $0.8 million and $0.5 million, respectively.
Depreciation is expected to continue to decline in the future as MILPI's
commercial and industrial equipment portfolio is sold and not replaced. On
January 1, 2002, MILPI adopted SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). The standard requires the discontinuance of goodwill
and other intangible asset amortization. As a result, MILPI's amortization
expense is expected to decrease in the future due to the new accounting
pronouncement.
General and Administrative: General and administrative expenses consist of
salary, office rent, insurance, professional fees and other costs associated
with administrative functions.
Other Income and Expenses.
----------------------------
For the Period From
February 7, 2001 through
December 31, 2001
(in thousands of dollars)
--------------------------
Interest expense $ (6)
Interest Income $ 384
Other income, net $ 89
Interest Income: Interest income is earned on MILPI's cash and cash
equivalents balance during the year. Cash equivalents are invested in
instruments with a maturity date of 90 days or less.
Provision For Income Taxes. For the period from February 7, 2001 through
- -----------------------------
December 31, 2001, the provision for income taxes was $1.6 million, representing
an effective rate of 32%. The 32% rate is lower than the expected combined
federal and state effective rate of 38% as a result of income recognized at the
MILPI level which is not subject to taxation. MILPI is treated as a partnership
for tax purposes. Therefore, income it earns is not taxed at the entity level.
Minority Interest Expense. Minority interest expense is the portion of PLM's
- ---------------------------
operating results attributable to shares of its stock owned by investors other
than MILPI. MILPI's minority interest consists of approximately 17% of the
stock outstanding owned by unrelated investors that was not acquired in the
February 7, 2001 acquisition. Minority interest was $0.4 million for the period
from February 7, 2001 through December 31, 2001. MILPI acquired the remaining
17% outstanding shares of PLM on February 6, 2002. Once the acquisition was
completed, MILPI no longer recorded minority expense.
Liquidity and Capital Resources. Cash requirements in 2001 were satisfied
- ----------------------------------
through cash flow from investing activities.
During the period from February 7, 2001 through December 31, 2001, accounts
receivable decreased $1.2 million. This decrease was primarily caused by the
collection of the lease receivables from assets held for sale that were
outstanding at February 7, 2001.
During the period from February 7, 2001 through December 31, 2001, receivables
from affiliates decreased $0.4 million resulting from lower management fees
earned from the affiliated programs.
During the period from February 7, 2001 through December 31, 2001, equity
interest in affiliates decreased $0.4 million. The decrease was attributable to
a $0.5 million write-down of the equity investments to fair value and a $1.6
million of cash distributions offset by $1.7 million in equity income earned
from the programs.
As of February 7, 2001, MILPI had $10.3 million in marine containers that were
reported as assets held for sale. During the period from February 7, 2001
through December 31, 2001, MILPI sold these marine containers to affiliated
programs at cost, which approximated their fair market value. As of December
31, 2001, MILPI had no assets held for sale.
During the period from February 7, 2001 through December 31, 2001, restricted
cash decreased $1.7 million. MILPI's agreement to purchase PLM required $1.7
million in cash to be placed into an escrow account. Concurrent with the
conclusion of the tender offer in February 2001, the $1.7 million in restricted
cash held in an escrow account was released to MILPI.
During the period from February 7, 2001 through December 31, 2001, other assets
decreased $0.6 million. Approximately $0.4 million of the decrease was
attributable to the sale and depreciation of assets held for lease.
Approximately $0.2 million of the decrease was attributable to a reduction in
prepaid insurance and prepaid rent.
During the period from February 7, 2001 through December 31, 2001, accounts
payable and accrued expenses decreased $10.5 million. The decrease was
attributable to $2.4 million of costs accrued on February 7, 2001 in conjunction
with the purchase of PLM that were paid during the year. Such costs included
severance, moving and other miscellaneous transactions fees. Additionally, $4.7
million of the decrease was the result of a reduction in the current federal and
state income tax payable due to tax payments made during the period. Accounts
payable and other accrued liabilities decreased by $3.4 million due to the
payment of deferred compensation, profit sharing and bonuses during the period.
Warehouse Credit Facility: In April 2001, PLM entered into a $15.0 million
warehouse facility, (which is shared by PLM Equipment Growth Fund VI, PLM
Equipment Growth & Income Fund VII, and Fund I) which allows PLM to purchase
equipment prior to its designation to a specific program. Borrowings under this
facility by the other eligible borrowers reduced the amount available to be
borrowed by PLM. Individual borrowings may be outstanding for no more than 270
days, with all advances due no later than April 12, 2002. Interest accrues at
either the prime rate or adjusted LIBOR plus 2.00%, at the borrower's option,
and is set at the time of an advance of funds. This facility was amended in
December 2001 to lower the amount available to be borrowed to $10.0 million.
This facility expires in July 2002. As of December 31, 2001, PLM had no
borrowings outstanding under this facility and there were no borrowings
outstanding under this facility by any other eligible borrower.
Management believes that, through debt financing and cash flows from operations,
MILPI will have sufficient liquidity and capital resources to meet its projected
future operating needs over the next twelve months.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the discussion in this
document contains forward-looking statements that contain risks and
uncertainties, such as statements of MILPI's plans, objectives, expectations,
and intentions. The cautionary statements made in this document should be read
as being applicable to all related forward-looking statements wherever they
appear in this discussion. MILPI's actual results could differ materially from
those discussed here.
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FEBRUARY 7, 2001 THROUGH
DECEMBER 31, 2001 FOR MILPI
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Description Page
- ------------------------------------------------------------------------------ ----
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . 45
Consolidated Balance Sheet as of December 31, 2001 . . . . . . . . . . . . . . 46
Consolidated Statement of Operations for the period February 7, 2001
(Date of Inception) through December 31, 2001. . . . . . . . . . . . . . . . 47
Consolidated Statement of Shareholders' Equity for the period February 7, 2001
(Date of Inception) through December 31, 2001. . . . . . . . . . . . . . . . 48
Consolidated Statement of Cash Flows for the period February 7, 2001
(Date of Inception) through December 31, 2001. . . . . . . . . . . . . . . . 49
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 50
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Members
MILPI Holdings, LLC:
We have audited the accompanying consolidated balance sheet of MILPI Holdings,
LLC, a Delaware limited liability company, and subsidiary (the "Company") as of
December 31, 2001 and the related statements of operations, shareholders' equity
and cash flows for the period February 7, 2001 (date of inception) through
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
2001, and the results of its operations and its cash flows for the period
February 7, 2001 (date of inception) through December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 12, 2002
(January 24, 2003 as to Note 15)
MILPI HOLDINGS, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2001
(in thousands of dollars, except share amounts)
ASSETS
Cash and cash equivalents $14,037
Receivables, net of allowance for doubtful accounts of $45 39
Receivables from affiliates 951
Equity interest in affiliates 20,948
Restricted cash and cash equivalents 75
Other assets, net 2,759
Goodwill, net of accumulated amortization of $765 4,590
-------
Total assets $43,399
=======
LIABILITIES
Payables and other liabilities $ 5,702
Deferred income taxes 9,751
-------
Total liabilities 15,453
-------
Minority interest 3,029
-------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock ($0.01 par value, 20 shares authorized and outstanding) -
Paid-in capital, in excess of par 21,970
Retained earnings 2,947
-------
Total shareholders' equity 24,917
-------
Total liabilities, minority interest and shareholders' equity . $43,399
=======
See accompanying notes to these consolidated financial statements.
MILPI HOLDINGS, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 7, 2001 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 2001
(in thousands of dollars)
REVENUES
Operating lease income $ 472
Management fees 5,217
Partnership interests and other fees 1,716
Acquisition and lease negotiation fees 2,032
Loss on disposition of assets, net (91)
Other 1,030
------
Total revenues 10,376
------
EXPENSES
Operations support 800
Impairment of investment in managed programs 511
Depreciation and amortization 1,255
General and administrative 3,290
------
Total costs and expenses 5,856
------
Operating income 4,520
Interest expense (6)
Interest income 384
Other income, net 89
------
Income before income taxes and minority interest 4,987
Provision for income taxes 1,611
Minority interest 429
------
Net income $ 2,947
======
Net income per weighted-average common share
Outstanding $ 147
======
See accompanying notes to these consolidated financial statements.
MILPI HOLDINGS, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FEBRUARY 7, 2001 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 2001
(in thousands of dollars, except shares)
Common Additional Retained
Shares Stock Paid in Capital Earnings Total
------ ------ ----------------- --------- --------
Balance at February 7, 2001 20 $ - $ 21,776 $ - $21,776
Capital contribution - - 194 - 194
Net income - - - 2,947 2,947
------ ------ ----------------- --------- --------
Balance at December 31, 2001 20 $ - $ 21,970 $ 2,947 $24,917
====== ======= ================ ========= =======
See accompanying notes to these consolidated financial statements.
MILPI HOLDINGS, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FEBRUARY 7, 2001
(DATE OF INCEPTION) THROUGH DECEMBER 31, 2001
(in thousands of dollars)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 2,947
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 1,255
Compensation expense related to variable stock options. 315
Loss on disposition of assets, net. . . . . . . . . . . 91
Partnership interests and other fees. . . . . . . . . . (1,716)
Impairment of investment in managed programs. . . . . . 511
Increase in deferred income taxes . . . . . . . . . . . 867
Minority interest . . . . . . . . . . . . . . . . . . . 429
Changes in assets and liabilities:
Decrease in payables and other liabilities. . . . . . . (9,484)
Decrease in receivables and receivables from affiliates 1,576
Increase in other assets. . . . . . . . . . . . . . . . (176)
--------
Net cash used in operating activities . . . . . . . . (3,385)
--------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Cash distribution from managed programs . . . . . . . . . 1,591
Loans made to affiliates. . . . . . . . . . . . . . . . . (5,500)
Repayment of loans made to affiliates . . . . . . . . . . 5,500
Purchase of property, plant and equipment . . . . . . . . (71)
Proceeds of sale of equipment for lease . . . . . . . . . 313
Proceeds from the sale of assets held for sale. . . . . . 10,250
Decrease in restricted cash . . . . . . . . . . . . . . . 1,673
--------
Net cash provided by investing activities . . . . . . 13,756
--------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Capital contribution. . . . . . . . . . . . . . . . . . . 194
Redemption of stock options . . . . . . . . . . . . . . . (919)
--------
Net cash used in financing activities . . . . . . . . (725)
--------
Net increase in cash and cash equivalents . . . . . . . . 9,646
Cash and cash equivalents at beginning of period. . . . . 4,391
--------
Cash and cash equivalents at end of period. . . . . . . . $14,037
========
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest. . . . . . . . . $ 6
========
Cash paid during the period for income taxes. . . . . . . $ 6,216
========
See accompanying notes to these consolidated financial statements.
MILPI HOlDINGS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
MILPI Holdings, LLC and subsidiary ("MILPI") was formed on December 12,
2000, under the laws of the State of Delaware and is governed by its Operating
Agreement, dated December 13, 2000. There were no activities of MILPI from
December 12, 2000 through February 7, 2001. MILPI was created by four separate
trusts (AFG Investment Trust A, AFG Investment Trust B, AFG Investment Trust C
and AFG Investment Trust D, collectively the "Trusts") for the purpose of
acquiring PLM International Inc. and subsidiaries ("PLM"). PLM is an equipment
management company and operates in one business segment, the leasing of
transportation equipment and the creation of equipment-leasing solutions for
domestic and international customers.
On February 7, 2001 ("Date of Inception"), MILPI Acquisition Corp. ("MAC"), a
wholly-owned subsidiary of MILPI, closed on a Tender Offer ("Tender Offer") to
purchase all of the outstanding shares of PLM for a cash price of approximately
$21.8 million, resulting in goodwill of approximately $5.8 million. The $21.8
million of cash used in the Tender Offer was contributed by the Trusts and
represents their initial capital contribution. MAC acquired 83% of the common
shares outstanding of PLM through the Tender Offer. On February 6, 2002, MAC
completed its acquisition of PLM through the acquisition of the remaining 17% of
the outstanding PLM common shares and by effecting a merger of MAC into PLM,
under Delaware law, with PLM as the surviving entity. Concurrent with the
completion of the merger, PLM ceased to be publicly traded. PLM's shareholders
approved the merger pursuant to a special shareholders' meeting.
The acquisition of the stock of PLM was accounted for using the purchase method
of accounting in accordance with Accounting Principles Board Opinion No. 16
("APB No. 16"). In accordance with APB No. 16, MILPI allocated the total
purchase price to the assets acquired and liabilities assumed based on the
estimated fair market values at the date of acquisition. There are no
contingencies or other matters that could materially affect the allocation of
the purchase cost.
MILPI's consolidated balance sheet, reflecting the above business
combination, as of February 7, 2001 was as follows (in thousands of dollars):
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 4,391
Restricted cash and cash equivalents . . . . . . . . . . . . . . . . 1,748
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,222
Receivables from affiliates. . . . . . . . . . . . . . . . . . . . . 1,344
Equity interest in affiliates. . . . . . . . . . . . . . . . . . . . 21,334
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . 10,250
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,406
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,840
-------
Total assets $49,535
=======
LIABILITIES
Payables and other liabilities . . . . . . . . . . . . . . . . . . . $16,275
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . 8,884
-------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 25,159
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . 2,600
SHAREHOLDERS' EQUITY
Common stock ($0.01 par value, 20 shares authorized and outstanding) -
Paid-in capital, in excess of par. . . . . . . . . . . . . . . . . . 21,776
-------
Total liabilities, minority interest and shareholders' equity. . . $49,535
=======
MILPI's fiscal year end is December 31.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
MILPI Holdings, LLC and its majority-owned subsidiary. In addition, investments
for which MILPI has less than a 50% ownership interest are accounted for using
the equity method. All significant intercompany balances and transactions among
the consolidated group have been eliminated.
MILPI has recorded a minority interest in MILPI's consolidated balance sheet as
of December 31, 2001 to reflect the ownership of PLM's common shares that were
not tendered as of that date.
ESTIMATES
These consolidated financial statements have been prepared on the accrual
basis of accounting in accordance with accounting principles generally accepted
in the United States of America. This requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INVESTMENT IN AND MANAGEMENT OF EQUIPMENT GROWTH FUNDS, OTHER LIMITED
PARTNERSHIPS, PRIVATE PLACEMENT PROGRAMS AND LIMITED LIABILITY COMPANY
MILPI earns revenues in connection with the management of limited
partnerships and other managed programs. Equipment acquisition and lease
negotiation fees are earned through the purchase and initial lease of equipment,
and are recognized as revenue when MILPI completes all of the services required
to earn the fees, typically when binding commitment agreements are signed.
Management fees are earned for managing the equipment portfolios and
administering investor programs as provided for in various agreements, and are
recognized as revenue over time as they are earned.
As compensation for organizing a partnership investment program, MILPI was
granted an interest (between 1% and 5%) in the earnings and cash distributions
of the program, in which PLM Financial Services, Inc. ("FSI"), a wholly owned
subsidiary of PLM, is the General Partner. MILPI recognizes as partnership
interests its equity interest in the earnings of the partnerships, after
adjusting such earnings to reflect the effect of special allocations of the
programs' gross income allowed under the respective partnership agreements.
From May 1995 through May 1996, Professional Lease Management Income Fund
I, LLC ("Fund I"), a limited liability company with a no front-end fee
structure, was offered as an investor program. FSI serves as the manager for the
program. No compensation was paid to PLM for the organization and syndication of
interests, the acquisition of equipment, the negotiation of leases for
equipment, or the placement of debt. PLM funded the costs of organization,
syndication, and offering through the use of operating cash and has capitalized
these costs as its investment in Fund I. PLM has an equity interest of 15% for
its contribution to the program.
In return for its investment, PLM is entitled to a 15% interest in the cash
distributions and earnings of Fund I, subject to certain allocation provisions.
PLM's interest in the cash distributions and earnings of Fund I will increase to
25% after the investors have received distributions equal to their invested
capital. PLM is entitled to monthly fees for equipment management services and
reimbursement for providing certain administrative services.
MILPI is entitled to reimbursement from the investment programs for providing
certain administrative services at the lesser of cost or market rates.
In accordance with Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of," ("SFAS No.
121") MILPI reviews the carrying value of its investments whenever circumstances
indicate that the carrying values may not be recoverable. If projected
undiscounted future cash flows are lower than the carrying value of its equity
interest in affiliates, a loss on revaluation is recorded. The loss recorded is
equal to the difference between the carrying amount and the fair value of the
asset. The fair value of the asset is determined based on a valuation model
which includes expected future cash flows of the investment. During the period
February 7, 2001 through December 31, 2001, MILPI recorded an impairment of
$511,000 on its equity interest in affiliates due to a change in market
conditions, primarily in the airline industry, after the events of September 11,
2001.
OPERATING LEASE INCOME
Operating lease income consists of rental revenues generated from assets
held for operating leases and assets held for sale that are on lease.
RESTRICTED CASH AND CASH EQUIVALENTS
MILPI considers highly liquid investments readily convertible into known
amounts of cash with original maturities of 90 days or less as cash equivalents.
Restricted cash consists of bank accounts and short-term investments that are
primarily subject to withdrawal restrictions per loan and other legally binding
agreements.
GOODWILL
Goodwill of approximately $5.8 million was originally recorded in
conjunction with the acquisition of 83% of the common stock of PLM. This
goodwill included approximately $2.0 million of total costs estimated for
severance of PLM employees and relocation costs in accordance with management's
formal plan to involuntarily terminate employees, which plan was developed in
conjunction with the acquisition. During the fourth quarter of 2001, the
estimates for severance and relocation costs were reduced by $0.5 million based
on actual costs incurred related to these activities and, therefore, total
goodwill was reduced by $0.5 million. Goodwill is amortized using the
straight-line method over the estimated life of PLM, which is 7 years.
In accordance with SFAS No. 121, MILPI reviews the carrying value of its
goodwill whenever circumstances indicate that the carrying value may not be
recoverable. If projected undiscounted future cash flows are lower than the
carrying value of its goodwill, a loss is recorded. The loss recorded is equal
to the difference between the carrying amount and the fair value of the asset.
The fair value of the asset is determined based on a valuation model which
includes future cash flows of MILPI. There was no impairment of goodwill
recorded in 2001.
INCOME TAXES
MILPI is a partnership for tax purposes and as such is not taxed on its
operations. MAC and PLM are C corporations, which recognize income tax expense
using the asset and liability method. Deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
Deferred income taxes arise primarily because of differences in the timing
of reporting equipment depreciation, equity income in managed programs, and
certain accruals for financial statement and income tax reporting purposes.
NEW ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, SFAS No. 141, "Business Combinations" ("SFAS No. 141"),
was approved by the FASB. SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Goodwill and certain intangible assets with indefinite lives will remain on the
balance sheet and not be amortized. MILPI implemented SFAS No. 141 on July 1,
2001. The adoption of SFAS No. 141 did not have an impact on the results of
operations or financial position of MILPI.
On June 29, 2001, SFAS No. 142, "Goodwill and other Intangible Assets" ("SFAS
No. 142"),was approved by the FASB. SFAS No. 142 changes the accounting for
goodwill and other intangible assets determined to have an indefinite useful
life from an amortization method to an impairment-only approach. Amortization of
applicable intangible assets will cease upon adoption of this statement. MILPI
is required to implement SFAS No. 142 on January 1, 2002 and has not yet
determined the impact, if any, this statement will have on its financial
position or results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"), which replaces SFAS No. 121.
SFAS No. 144 provides updated guidance concerning the recognition and
measurement of an impairment loss for certain types of long-lived assets,
expands the scope of a discontinued operation to include a component of an
entity, and eliminates the current exemption to consolidation when control over
a subsidiary is likely to be temporary. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. MILPI will apply the new rules on
accounting for the impairment or disposal of long-lived assets beginning in the
first quarter of 2002, and they are not anticipated to have an impact on the
MILPI's earnings or financial position.
NOTE 2 - ASSETS HELD FOR SALE
As of February 7, 2001, MILPI had $10.3 million in marine containers
classified as assets held for sale, which were acquired in the PLM acquisition.
During 2001, MILPI sold these marine containers to affiliated programs at cost,
which approximated their fair market value.
As of December 31, 2001, MILPI had no assets held for sale.
NOTE 3 - EQUITY INTEREST IN AFFILIATES
FSI is the General Partner or manager of nine investment programs.
Distributions of the programs are allocated as follows: 99% to the limited
partners and 1% to the General Partner in PLM Equipment Growth Fund (EGF) I and
PLM Passive Income Investors 1988-II; 95% to the limited partners and 5% to the
General Partner in EGFs II, III, IV, V, VI, and PLM Equipment Growth & Income
Fund VII (EGF VII); and 85% to the members and 15% to the manager in Fund I.
PLM's interest in the cash distributions of Fund I will increase to 25% after
the investors have received distributions equal to their invested capital. Net
income is allocated to the General Partner subject to certain allocation
provisions. FSI also receives a management fee on a per car basis at a fixed
rate each month, plus an incentive management fee equal to 15% of "Net Earnings"
over $750 per car per quarter from Covered Hopper Program 1979-1.
Most of the investment program agreements contain provisions for special
allocations of the programs' gross income.
While none of the partners or members, including the General Partner and
manager, are liable for program borrowings, and while the General Partner or
manager maintains insurance against liability for bodily injury, death, and
property damage for which an investment program may be liable, the General
Partner or manager may be contingently liable for nondebt claims against the
program that exceed asset values.
The summarized combined financial data for FSI's affiliates, in which FSI
is the General Partner or manager, as of and for the period February 7, 2001
(date of inception) through December 31, 2001 is as follows (in thousands of
dollars):
Total assets. . . $229,358
Total liabilities $ 67,579
Partners' equity. $161,779
Total revenues. . $ 91,085
Total expenses. . $ 70,688
Net income. . . . $ 20,397
NOTE 4 - OTHER ASSETS, NET
Other assets, net, consists of the following as of December 31, 2001 (in
thousands of dollars):
Cash surrender value of officers' life insurance policies $2,343
Commercial and industrial equipment, net 178
Prepaid expenses, deposits and other 153
Furniture, fixtures, and equipment 85
------
Total other assets, net $2,759
======
NOTE 5 - WAREHOUSE CREDIT FACILITY
In April 2001, PLM entered into a $15.0 million warehouse facility, which
is shared with PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund
VII, and Fund I, that allows PLM to purchase equipment prior to its designation
to a specific program. Borrowings under this facility by the other eligible
borrowers reduce the amount available to be borrowed by PLM. All borrowings
under this facility are guaranteed by PLM. This facility provides for financing
up to 100% of the cost of the asset. Interest accrues at prime or LIBOR plus
200 basis points, at the option of PLM. Borrowings under this facility may be
outstanding up to 270 days. This facility was amended in December 2001 to lower
the amount available to be borrowed to $10.0 million. This facility expires in
April 2002. All borrowings must be repaid upon the expiration of this facility.
PLM believes it will be able to extend the facility with similar terms upon the
facility's expiration. As of December 31, 2001, PLM had no borrowings
outstanding under this facility and there were no borrowings outstanding under
this facility by any other eligible borrower.
NOTE 6 - INCOME TAXES
The provision for income taxes attributable to income from operations
consists of the following (in thousands of dollars):
Federal State Total
-------- ------ ------
Current $ 551 $ 193 $ 744
Deferred 705 162 867
-------- ------ ------
Total $ 1,256 $ 355 $1,611
======== ====== ======
Amounts for the current year are based upon estimates and assumptions as of
the date of this report and could vary significantly from amounts shown on the
tax returns ultimately filed.
The difference between the effective rate and the expected federal
statutory rate is reconciled below:
Federal statutory tax expense rate 34%
State income tax rate 5
Income reportable at the partnership level (7)
---
Effective tax expense rate 32%
===
There are no net operating loss carryforwards for federal income tax
purposes or alternative minimum tax credit carryforwards as of December 31,
2001.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities as of December 31 are presented below
(in thousands of dollars):
Deferred tax assets from continuing operations:
Partnership Organization and Syndication costs $ 8,300
Federal benefit of state taxes 735
Other 329
--------
Total gross deferred tax assets 9,364
Less valuation allowance (8,594)
--------
Net deferred tax assets 770
--------
Deferred tax liabilities:
Partnership interests 10,520
Other 1
--------
Total deferred tax liabilities 10,521
--------
Total net deferred tax liabilities 9,751
========
Management has reviewed all established interpretations of items reflected
in its consolidated tax returns and believes that these interpretations require
valuation allowances as described in SFAS No. 109, "Accounting for Income
Taxes." The valuation allowance contained in the 2001 deferred tax account
includes items that may result in future capital losses.
See discussion in Note 7 relative to an Internal Revenue Service audit.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LITIGATION
Two class action lawsuits which were filed against PLM and various of its
wholly owned subsidiaries in January 1997 in the United States District Court
for the Southern District of Alabama, Southern Division (the "court"), Civil
Action No. 97-0177-BH-C (the "Koch action"), and June 1997 in the San Francisco
Superior Court, San Francisco, California, Case No. 987062 (the "Romei action"),
were fully resolved during the fourth quarter 2001.
The named plaintiffs were individuals who invested in PLM Equipment Growth Fund
IV, PLM Equipment Growth Fund V (Fund V), PLM Equipment Growth Fund VI, and PLM
Equipment Growth & Income Fund VII (the "Partnerships"), each a California
limited partnership for which FSI acts as the General Partner. The complaints
asserted causes of action against all defendants for fraud and deceit,
suppression, negligent misrepresentation, negligent and intentional breaches of
fiduciary duty, unjust enrichment, conversion, conspiracy, unfair and deceptive
practices and violations of state securities law. Plaintiffs alleged that each
defendant owed plaintiffs and the class certain duties due to their status as
fiduciaries, financial advisors, agents, and control persons. Based on these
duties, plaintiffs asserted liability against defendants for improper sales and
marketing practices, mismanagement of the Partnerships, and concealing such
mismanagement from investors in the Partnerships. Plaintiffs sought unspecified
compensatory damages, as well as punitive damages.
In February 1999, the parties to the Koch and Romei actions agreed to monetary
and equitable settlements of the lawsuits, with no admission of liability by any
defendant, and filed a Stipulation of Settlement with the court. The court
preliminarily approved the settlement in August 2000, and information regarding
the settlement was sent to class members in September 2000. A final fairness
hearing was held on November 29, 2000, and on April 25, 2001, the federal
magistrate judge assigned to the case entered a Report and Recommendation
recommending final approval of the monetary and equitable settlements to the
federal district court judge. On July 24, 2001, the federal district court
judge adopted the Report and Recommendation, and entered a final judgment
approving the settlements. No appeal has been filed and the time for filing an
appeal has run.
The monetary settlement provides for a settlement and release of all claims
against defendants in exchange for payment for the benefit of the class of up to
$6.6 million, consisting of $0.3 million deposited by PLM and the remainder
funded by an insurance policy. The final settlement amount of $4.9 million (of
which PLM's share was approximately $0.3 million) was paid out in the fourth
quarter of 2001 and was determined based upon the number of claims filed by
class members, the amount of attorneys' fees awarded by the court to plaintiffs'
attorneys, and the amount of the administrative costs incurred in connection
with the settlement.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Partnerships' equipment, except for Fund IV, (b) the extension (until
December 31, 2004) of the period during which FSI can reinvest the Funds' funds
in additional equipment, except for Fund IV, (c) an increase of up to 20% in the
amount of front-end fees (including acquisition and lease negotiation fees) that
FSI is entitled to earn in excess of the compensatory limitations set forth in
the North American Securities Administrator's Association's Statement of Policy;
except for Fund IV, (d) a one-time purchase by each of Funds V, VI and VII of up
to 10% of that partnership's outstanding units for 80% of net asset value per
unit at September 30, 2000; and (e) the deferral of a portion of the management
fees paid to an affiliate of FSI until, if ever, certain performance thresholds
have been met by the Funds. The equitable settlement also provides for payment
of additional attorneys' fees to the plaintiffs' attorneys from Fund funds in
the event, if ever, that certain performance thresholds have been met by the
Funds. Following a vote of limited partners resulting in less than 50% of the
limited partners of each of Funds V, VI and VII voting against such amendments
and after final approval of the settlement, each of such Fund's limited
partnership agreement was amended to reflect these changes. During the fourth
quarter of 2001, the respective Funds repurchased limited partnership units from
those equitable class members who submitted timely requests for repurchase.
PLM is involved as plaintiff or defendant in various other legal actions
incidental to its business. Management does not believe that any of these
actions will be material to the financial condition or results of operations of
MILPI.
LEASE AGREEMENTS
PLM and its subsidiaries have entered into operating leases for office
space. PLM's total net rent expense was $0.4 million in 2001. The portion of
rent expense related to its principal office, net of sublease income of $0.4
million was $0.3 million in 2001. The remaining rent expense was related to
other office space and rental yard operations.
Annual lease commitments for all of PLM's locations total $0.3 million in 2002
and 2003, $0.2 million in 2004 and $0.1 million in 2005.
CORPORATE GUARANTEE
As of December 31, 2001, PLM had guaranteed certain obligations up to $0.4
million of a Canadian railcar repair facility, in which PLM has a 10% ownership
interest.
EMPLOYMENT AGREEMENTS
PLM entered into employment agreements with five individuals that require
PLM to pay severance to these individuals up to two years of their base salaries
and benefits if their employment is terminated after a change in control as
defined in the employment agreement. As of December 31, 2001, the total future
contingent liability for these payments was $0.2 million.
WAREHOUSE CREDIT FACILITY
See Note 5 for discussion of PLM's credit warehouse facility.
INTERNAL REVENUE SERVICE AUDIT
In March 2001, the Internal Revenue Service notified PLM that it would
conduct an audit of certain Forms 1042, "Annual Withholding Tax Return for U.S.
Source Income of Foreign Persons". The audit relates to payments to unrelated
foreign entities made by two partnerships in which PLM formerly held interests
as the 100% direct and indirect owner. One partnership's audit relates to Forms
1042 for the years 1997, 1998 and 1999, while the other partnership's audit
relates to Forms 1042 for the years 1998 and 1999. The audits remain pending,
with the Internal Revenue Service presently reviewing documents and information
provided to it by PLM. The Internal Revenue Service has not proposed any
adjustments to the Forms 1042, and management believes that the withholding tax
returns will be accepted as filed. If the withholding tax returns are not
accepted as filed by the Internal Revenue Service, the recipient foreign
entities are legally obligated to indemnify PLM for any losses. If the
withholding tax returns are not accepted as filed by the Internal Revenue
Service, and the recipient foreign entities do not honor the indemnification,
MILPI's financial condition, results of operations, and liquidity would be
materially impacted.
OTHER
PLM has life insurance policies on certain current and former employees,
which had a $2.3 million cash surrender value as of December 31, 2001 and are
included in other assets.
NOTE 8 - PROFIT SHARING, 401(K) PLAN AND STOCK OPTION PLANS
The PLM Profit Sharing and 401(k) Plan (the "Plan") provides for deferred
compensation as described in Section 401(k) of the Internal Revenue Code. The
Plan is a contributory plan available to essentially all full-time employees of
PLM in the United States. In 2001, PLM employees who participated in the Plan
could elect to defer and contribute to the trust established under the Plan up
to 9% of pretax salary or wages up to $10,500. PLM matched up to a maximum of
$4,000 of PLM employees' 401(k) contributions in 2001 to vest in four equal
installments over a four-year period. MILPI's total 401(k) contributions, net of
forfeitures, were $0.1 million for 2001.
Profit-sharing contributions are allocated equally among the number of eligible
Plan participants. There were no profit-sharing contributions accrued in 2001.
PLM had two nonqualified stock option plans that reserved up to 780,000 shares
of PLM's common stock for key employees and directors. Under these plans, the
price of the shares issued under an option must be at least 85% of the fair
market value of the PLM common stock at the date of grant. Vesting of the
options granted under these plans occurred in three equal installments of 33.3%
per year, initiating from the date of the grant. Prior to the completion of the
Tender Offer by MAC, PLM's Board of Directors voted to immediately vest all
options outstanding under these plans. As of December 31, 2001, grants could no
longer be made under either the employee or directors' plan.
In May 1998, PLM's Board of Directors adopted the 1998 Management Stock
Compensation Plan, which reserved 800,000 shares (in addition to the 780,000
shares above) of PLM's common stock for issuance to certain management and key
employees of PLM upon the exercise of stock options. The completion of the
Tender Offer by MAC in February 2001 was deemed a change in control in
accordance with the terms of the 1998 Management Stock Compensation Plan and all
options that had been granted immediately vested.
In February 2000, PLM's Board of Directors adopted the 2000 Management Stock
Compensation Plan, which reserved 70,000 shares with respect to which options
may be granted under the 2000 Directors' Plan. In February 2000, each
non-employee director of PLM was granted an option to purchase 8,000 shares of
common stock under this Plan. Prior to completion of the Tender Offer by MAC,
PLM's Board of Directors voted to immediately vest all options outstanding under
this plan.
Concurrent with the completion of the Tender Offer by MAC in February 2001, PLM
redeemed all vested options currently outstanding. PLM paid the difference
between the grant price of the option and $3.46 (the amount offered for PLM
shares in the Tender Offer). The total cash paid to redeem all outstanding
options was $0.9 million.
As of December 31, 2001, the 1998 Management Stock Compensation Plan and the
2000 Management Stock Compensation Plan continued to be in effect. There were no
options outstanding under either of these plans at December 31, 2001.
NOTE 9 - TRANSACTIONS WITH AFFILIATES
In addition to various fees payable to PLM or its subsidiaries, the
affiliated programs reimburse PLM for certain expenses, as allowed in the
program agreements. Reimbursed expenses totaling $1.8 million in 2001 have been
recorded as reductions of operations support or general and administrative
expenses. Outstanding amounts are paid under normal business terms. As of
December 31, 2001, MILPI had receivables from affiliates of $1.0 million, which
represented unpaid management fees.
NOTE 10 - RISK MANAGEMENT
Financial instruments that potentially subject MILPI to concentrations of
credit risk consist principally of temporary cash investments and receivables
from affiliated entities.
MILPI places its temporary cash investments with financial institutions and
other creditworthy issuers and limits the amount of credit exposure to any one
party. MILPI's involvement with the management of the receivables from
affiliated entities limits the credit exposure from affiliated entities.
In 2001, Fund 1, PLM Equipment Growth Fund VI and PLM Equipment Growth and
Income Fund VII, accounted for 26% of total revenues. No other customer
accounted for over 10% of revenue in 2001.
As of December 31, 2001, management believes MILPI had no other significant
concentrations of credit risk that could have a material adverse effect on
MILPI's business, financial condition, or results of operations.
NOTE 11 - GEOGRAPHIC INFORMATION
All of MILPI's revenues for the period from February 7, 2001 (date of
inception) through December 31, 2001 were recognized from entities domiciled in
the United States and all of MILPI's long-lived assets are located in the United
States.
NOTE 12 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of amounts reported in the consolidated financial
statements has been determined by using available market information and
appropriate valuation methodologies. The carrying value of all current assets
and current liabilities approximates fair value because of their short-term
nature.
NOTE 13 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations of MILPI
for the period February 7, 2001 (date of inception) through December 31, 2001(in
thousands of dollars):
March 31, June 30, September 30, December 31, Total
---------- --------- -------------- ------------- -------
Revenue $ 2,077 $ 2,434 $ 3,586 $ 2,279 $10,376
Net income $ 776 $ 568 $ 1,293 $ 310 $ 2,947
Net income per weighted-average
common share outstanding: $ 39 $ 28 $ 65 $ 16 $ 147
In the third quarter of 2001, PLM earned acquisition and lease negotiation
fees of $1.8 million, which resulted in after-tax net income of $1.1 million.
NOTE 14 - SUBSEQUENT EVENTS
On February 6, 2002, MILPI completed its acquisition of PLM through the
acquisition of the remaining 17% of the outstanding PLM common shares and by
effecting a merger of MAC into PLM. The merger was completed when MILPI
obtained approval of the merger from PLM's shareholders pursuant to a special
shareholders' meeting. The remaining interest was purchased for approximately
$4.4 million and resulted in approximately $3.8 million in goodwill. Concurrent
with the completion of the merger, PLM ceased to be publicly traded.
On February 11, 2002, MILPI entered into separate promissory notes with AFG
Investment Trusts C and D, both shareholders in MILPI, loaning those entities an
aggregate of $1.3 million. The loans are unsecured and have a term of 364 days.
Interest accrues at LIBOR plus 200 basis points.
On March 12, 2002, MILPI declared and paid a cash dividend of approximately $2.7
million to its shareholders, the Trusts.
NOTE 15 - SFAS NO. 142 TRANSITIONAL DISCLOSURE
The Company adopted SFAS No. 142 on January 1, 2002. As a result, the
discontinuance of goodwill and other intangible asset amortization was effective
upon adoption of SFAS No.142. SFAS No. 142 also includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill, and
the identification of reporting units for purposes of assessing potential future
impairments of goodwill. The amount of the impairment is the difference between
the carrying amount and the fair value of the asset. Fair value of the asset is
calculated using several valuation models which utilize the expected future cash
flows of the Company. SFAS No. 142 requires the Company to complete a
transitional goodwill impairment test within six months from January 1, 2002,
the date of adoption. The Company completed the goodwill impairment analysis
performed as of January 1, 2002, during the quarter ended June 30, 2002. There
was no impact on the Company's financial statements as a result of this
analysis.
The amortization expense and net income for the period from February 7, 2001
through December 31, 2001 is summarized as follows (in thousands of dollars):
For the
Period From
February 7, 2001
Through
December 31, 2001
------------------
Reported net income: $ 2,947
Add back: goodwill amortization 765
------------------
Adjusted net income $ 3,712
==================
Basic and fully diluted earnings per share:
Reported net income $ 147
Add back: Goodwill amortization 38
------------------
Adjusted net income $ 186
==================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR PERIODS ENDED SEPTEMBER 30, 2002 FOR MILPI
MILPI was formed on December 12, 2000, under the laws of the State of
Delaware and is governed by its Operating Agreement, dated December 13, 2000.
MILPI had no activities from December 12, 2000 through February 7, 2001. MILPI
was created by four separate trusts (Trust A, Trust B, the Trust and Trust D)
for the sole purpose of acquiring PLM. PLM is an equipment management company
and operates in one business segment, the leasing of transportation equipment
and the creation of equipment-leasing solutions for domestic and international
customers.
On February 6, 2002, MILPI, completed its acquisition of PLM by purchasing
the remaining 17% of the outstanding PLM common stock and by effecting a merger
of MAC into PLM, with PLM as the surviving entity. The merger was completed
when approval of the merger was obtained from PLM's shareholders pursuant to a
special shareholder's meeting. Concurrent with the completion of the merger,
PLM ceased to be publicly traded.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires MILPI to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On a regular basis, MILPI reviews these estimates
including those related to asset lives and depreciation methods, impairment of
long-lived assets, allowance for doubtful accounts, reserves related to legally
mandated equipment repairs and contingencies and litigation. These estimates
are based on MILPI's historical experience and on various other assumptions
believed to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions. MILPI believes,
however, that the estimates, including those for the above-listed items, are
reasonable and that actual results will not vary significantly from the
estimated amounts.
MILPI believes the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of MILPI's financial
statements:
Asset lives and depreciation methods: The primary business of the managed
programs involves the purchase and subsequent lease of long-lived transportation
and related equipment. MILPI has chosen asset lives that it believes
correspond to the economic life of the related asset. MILPI has chosen a
deprecation method that it believes matches the benefit to the managed programs
from the asset with the associated costs. These judgments have been made based
on MILPI's expertise in each equipment segment that the managed programs
operate. If the asset life and depreciation method chosen does not reduce the
book value of the asset to at least the potential future cash flows from the
asset to the managed programs, the managed programs would be required to record
a loss on revaluation. Likewise, if the net book value of the asset was reduced
by an amount greater than the economic value has deteriorated, the managed
programs may record a gain on sale upon final disposition of the asset. In
either instance, this would impact the amount of MILPI's equity income in
managed programs reported on its consolidated statement of operations.
Impairment of Long-lived Assets. On a regular basis, MILPI reviews the carrying
- --------------------------------
value of the managed programs' equipment and investments in unconsolidated
special purpose entities to determine if the carrying value of the assets may
not be recoverable due to current economic conditions. This requires MILPI to
make estimates related to future cash flows from each asset as well as the
determination if the deterioration is temporary or permanent. If these
estimates or the related assumptions change in the future, the managed programs
may be required to record an impairment charge. This would impact the amount of
MILPI's equity income in managed programs reported on its consolidated statement
of operations.
Allowance for Doubtful Accounts. MILPI maintains allowances for doubtful
- ----------------------------------
accounts and other receivables for estimated losses resulting from the inability
of the customer to make the customer payments. These estimates are primarily
based on the amount of time that has lapsed since the related payments were due
as well as specific knowledge related to the ability of the lessees to make the
required payments. If the financial condition of MILPI's lessees were to
deteriorate, additional allowances could be required that would reduce income.
Conversely, if the financial condition of the lessees were to improve or if
legal remedies to collect past due amounts were successful, the allowance for
doubtful accounts may need to be reduced and income would be increased. In
addition, the managed programs maintain similar allowances for their
receivables. If the financial condition of the companies with payments due to
the managed programs were to change, this would impact the amount of the
management fee revenue earned by MILPI.
Reserves for Repairs. The managed programs accrue for legally required repairs
- ---------------------
to equipment such as dry docking for marine vessels and engine overhauls to
aircraft engines over the period prior to the required repairs. The amount that
is reserved is based on MILPI's expertise in each equipment segment, the past
history of such costs for that specific piece of equipment and discussions with
independent, third party equipment brokers. If the amount reserved for is not
adequate to cover the cost of such repairs or if the repairs must be performed
earlier than MILPI estimated, the managed programs would incur additional repair
and maintenance or equipment operating expenses. This would impact the amount
of MILPI's equity interest in affiliates reported on its consolidated statement
of operations.
Contingencies and Litigation. MILPI is subject to legal proceedings involving
- ------------------------------
ordinary and routine claims related to its business. The ultimate legal and
financial liability with respect to such matters cannot be estimated with
certainty and requires the use of estimates in recording liabilities for
potential litigation settlements. Estimates for losses from litigation are
disclosed if considered possible and accrued if considered probable after
consultation with counsel. If estimates of potential losses increase or the
related facts and circumstances change in the future, MILPI may be required to
record additional litigation expense. In addition, the managed programs are
also subject to legal proceedings. If estimates of losses for the programs
change in the future, this would impact MILPI's equity interest in affiliates
reported on its consolidated income statement of operations.
Goodwill. MILPI has goodwill which represents the excess of the aggregate
- --------
purchase price paid for PLM over the fair market value of its identifiable
assets. In accordance with SFAS No. 142, MILPI regularly reviews the
recoverability of this asset which requires the use of estimates. If actual
facts and circumstances change in the future, MILPI may be required to record an
impairment.
Income Taxes. MILPI accounts for income taxes in accordance with the provisions
- ------------
of SFAS No. 109. This requires MILPI to make estimates as to the temporary
differences between the tax basis of assets and liabilities and the carrying
values for financial statement purposes. Estimates include assessing the
realizability of deferred income tax assets. Management considers whether it is
more likely than not that some portion or all of the deferred income tax assets
will not be realized. The ultimate realization of deferred income tax assets is
dependent upon the generation of future taxable income during the periods in
which those differences become deductible.
MANAGEMENT OF INVESTMENT PROGRAMS
PLM syndicated investment programs from which it earns various fees and
equity interests. Fund I was structured as a limited liability company with a
no front-end fee structure. The previously syndicated limited partnership
programs allow MILPI to receive fees for the acquisition and initial leasing of
the equipment. The Fund I program does not provide for acquisition and lease
negotiation fees. PLM invested the equity raised through syndication for these
programs in transportation equipment and related assets, which it manages on
behalf of the investors. The equipment management activities for these types of
programs generate equipment management fees for MILPI over the life of a
program. The limited partnership agreements entitle MILPI to receive a 1% or 5%
interest in the cash distributions and earnings of a partnership, subject to
certain allocation provisions. The Fund I agreement entitles MILPI to a 15%
interest in the cash distributions and 1% of earnings of the program, subject to
certain allocation provisions per the operating agreement. MILPI's interest in
the earnings and distributions of Fund I will increase to 25% after the
investors have received distributions equal to their original invested capital.
MILPI is not syndicating new investment programs nor does it expect to in the
future. As a result, revenues earned from managed programs, which include
management fees, equity interests and other fees, and acquisition and lease
negotiation fees will be reduced in the future as the older programs liquidate
and the managed equipment portfolio is reduced.
In accordance with certain limited partnerships' agreements, four limited
partnerships have entered their liquidation phases and MILPI has commenced an
orderly liquidation of the partnerships' assets. One of the limited
partnerships, PLM Equipment Growth Fund III is expected to be liquidated by the
end of 2003. Three of the limited partnerships, PLM Equipment Growth Fund, PLM
Equipment Growth Fund II and PLM Equipment Growth Fund IV will terminate on
December 31, 2006 unless terminated earlier upon the sale of all equipment or
by certain other events.
MILPI will occasionally own transportation equipment prior to sale to affiliated
programs. During this period, MILPI earns lease revenue and may incur interest
expense.
DISCUSSION OF MILPI'S OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2002 AND 2001 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND THE PERIOD FROM
FEBRUARY 7, 2001 THROUGH SEPTEMBER 30, 2001
REVENUES (in thousands of dollars):
For the Period
For the Nine From
For the Three Months Ended Months Ended February 7, 2001 through
September 30, September 30, September 30,
2002 2001 2002 2001
--------- --------- ------------ -------------
Management fees $ 972 $ 1,375 $ 3,404 $ 3,605
Operating lease (loss) income (8) 65 77 444
Acquisition and lease negotiation fees - 1,846 - 2,032
Gain on disposition of assets - 22 2 104
Other 47 182 371 608
--------- --------- ------------ -------------
Total revenues $ 1,011 $ 3,490 $ 3,854 $ 6,793
========= ======== ============ =============
The following analysis reviews the operating results of MILPI:
Management Fees: Management fees are primarily based on the gross revenues
generated by equipment under management. Management fees decreased by $0.4
million for the three months ended September 30, 2002 compared to the three
months ended September 30, 2001. Management fees also decreased by $0.2 million
for the nine months ended September 30, 2001 compared to the period from
February 7, 2001 through September 30, 2001. The decrease in management fee
revenue is attributable to the reduction in size of the managed equipment
portfolio.
Operating Lease Income: Operating lease income consists of rental revenues
generated from assets held for operating leases and assets held for sale that
are on lease. Assets held for operating leases include commercial and
industrial equipment. Operating lease income decreased by $0.4 million for the
nine months ended September 30, 2002 as compared to the period from February 7,
2001 through September 30, 2001. A decrease of $0.1 million is attributable to
lease revenue earned on assets held for sale during 2001. No similar revenue
was earned in 2002. The remaining decrease is attributable to the sale of
commercial and industrial equipment. Operating lease income is expected to
decline in the future as MILPI's commercial and industrial equipment portfolio
is sold and not replaced.
Acquisition and Lease Negotiation Fees: Acquisition and lease negotiation fees
were $0 for the three and nine months ended September 30, 2002 compared to $1.8
million and $2.0 million for the three months ended September 30, 2001 and the
period from February 7, 2001 through September 30, 2001, respectively. The
decrease was attributable to approximately $1.8 million of fees recognized in
the third quarter of 2001 associated with the settlement of the Koch and Romei
settlement. These fees were earned on equipment purchased in prior periods for
investment programs that had reached the maximum allowable fees that could be
taken. With the settlement of these lawsuits, the amount of fees that could be
earned from these investment programs was increased and the previously deferred
fees were taken into income. The remaining decrease is due to the fact that no
equipment was purchased during 2002.
Costs and Expenses. (in thousands of dollars):
--------------------
For the Period From
For the Nine February 7, 2001
For the Three Months Ended Months Ended through
September 30, September 30, September 30,
2002 2001 2002 2001
--------------------------- -------------- -------------------- -------------------
Depreciation and amortization $ 1 $ 313 $ 100 $ 971
General and administrative 587 1,111 1,854 3,043
--------------------------- -------------- -------------------- -------------------
Total expenses $ 588 $ 1,424 $ 1,954 $ 4,014
=========================== ============== ==================== ===================
Depreciation and Amortization: Depreciation and amortization includes
depreciation of assets held for lease and amortization of goodwill associated
with the acquisition of PLM. Amortization expense decreased by $0.6 million for
the nine months ended September 30, 2002 compared to the period from February 7,
2001 through September 30, 2001. In addition, amortization expense decreased
$0.2 million for the three months ended September 30, 2002 compared to the three
months ended September 30, 2001. The decrease is attributable to MILPI's
adoption of SFAS. No. 142 on January 1, 2002. SFAS No. 142 required the
discontinuance of goodwill and other intangible asset amortization. The
remaining decrease is attributable to a decrease in depreciation expense
associated with the sale of MILPI's commercial and industrial equipment.
Depreciation and amortization is expected to continue to decline in the future
as MILPI's commercial and industrial equipment portfolio is sold and not
replaced.
General and Administrative: General and administrative expenses consist of
salary, office rent, insurance, professional fees and other costs. General and
administrative expenses decreased by $0.5 million for the three months ended
September 30, 2002 compared to the three months ended September 30, 2001.
General and administrative expenses also decreased by $1.2 million for the nine
months ended September 30, 2002 compared to the period from February 7, 2001
through September 30, 2001. The decrease for both periods is attributable to
the relocation and consolidation of corporate service function including
staffing reductions and lower rent on office space.
Equity (Loss) Income in Managed Programs. FSI is the General Partner or
-------------------------------------------
manager of nine investment programs. Distributions of the programs are allocated
as follows: 99% to the limited partners and 1% to the General Partner in PLM
Equipment Growth Fund (EGF) I and PLM Passive Income Investors 1988-II; 95% to
the limited partners and 5% to the General Partner in EGFs II, III, IV, V, VI,
and PLM Equipment Growth & Income Fund VII; and 85% to the members and 15% to
the manager in Fund I. PLM's interest in the cash distributions of Fund I will
increase to 25% after the investors have received distributions equal to their
invested capital. Net income is allocated to the General Partner subject to
certain allocation provisions. Most of the investment program agreements
contain provisions for special allocations of the programs' gross income.
MILPI records as revenues its equity interest in the earnings of MILPI's
affiliated programs. Equity income in managed programs decreased by $0.2
million for the three months ended September 30, 2002 compared to the three
months ended September 30, 2001. Equity income in managed programs decreased by
$1.1 million for the nine months ended September 30, 2002 compared to the period
from February 7, 2001 through September 30, 2001. The decrease in equity
interest in managed programs is attributable to significant amount of assets
sold in the managed programs in 2001 which resulted in a gain. Asset sales were
not as significant in 2002.
Provision for Income Taxes. MILPI's tax provision was $0.9 million for the
--------------------------
nine months ended September 30, 2002 and $1.4 million for the period from
February 7, 2001 through September 30, 2001 resulting in an effective tax rate
of 38% and 32%, respectively. The change in the effective tax rate of 6% was
attributable to income recognized by MILPI in 2001 that was not subject to
taxation. Because MILPI is treated as a partnership for tax purposes, income it
earns is not subject to taxation at the entity level. As such, the overall
effective rate for the Company was reduced to 32% in 2001.
Minority Interest Expense. Minority interest expense is the portion of
---------------------------
PLM's operating results attributable to shares of its stock owned by investors
other than MILPI. Minority interest decreased by $0.2 million for the three
months ended September 30, 2002 compared to the same period in 2001. Minority
interest decreased by $0.3 million for the nine months ended September 30, 2002
compared to the period from February 7, 2001 through September 30, 2001. The
decrease in minority interest is attributable to MILPI's purchase of the
remaining 17% minority interest in the first quarter of 2002.
Liquidity and Capital Resources. Cash requirements in 2002 were satisfied
--------------------------------
through cash flow from operations and capital contributions from MILPI's
shareholders. In 2001, the cash requirements were primarily satisfied by the
proceeds from the sale of assets held for sale of $10.3 million.
During the nine months ended September 30, 2002, accounts receivable
increased by $0.2 million. This increase was primarily caused by miscellaneous
advances and refunds that were reimbursed in the fourth quarter of 2002. Such
receivables include tax refunds and advances to affiliates.
During the nine months ended September 30, 2002, notes receivable from
affiliates increased by $1.3 million. During this period, MILPI loaned $1.3
million to two of the trusts that own MILPI. In December 2002, the notes plus
accrued interest were prepaid in full.
Receivables from affiliates decreased by $0.4 million for the nine months ended
September 30, 2002 resulting from lower management fees earned from the
affiliated programs. The decrease in management fee revenue is attributable to
the reduction in size of the managed equipment portfolio.
During the nine months ended September 30, 2002, equity interest in affiliates
decreased $0.5 million. The decrease was attributable to $1.2 million in cash
distributions from the managed programs partially offset by $0.3 million of
equity income in managed programs recognized and $0.4 million increase in the
investment balance associated with the acquisition of the outstanding interest
in PLM.
Assets held for sale increased by $4.8 million for the nine months ended
September 30, 2002. MILPI has arranged for the lease or purchase of a total of
1,050 pressurized tank railcars by (i) partnerships and managed programs in
which FSI serves as the general partner or manager and holds an ownership
interest ("Program Affiliates") or (ii) partnerships or managed programs in
which FSI provides management services but does not hold an ownership interest
("Non-Program Affiliates"). These railcars will be delivered over the next
three years. A leasing company affiliated with the manufacturer will acquire
approximately 70% of the railcars and lease them to a Non-Program Affiliate.
The remaining 30% will either be purchased by other third parties to be managed
by MILPI or by the Program Affiliates. MILPI will manage the leased and
purchased railcars. MILPI will not be liable for these railcars. MILPI
estimates that the total value of purchased railcars will not exceed $26.0
million with one third of the railcars being purchased in each of 2002, 2003 and
2004. As of September 30, 2002, MILPI had purchased $4.8 million of these
railcars. MILPI expects to sell these railcars to affiliated entities in the
first quarter of 2003.
During the nine months ended September 30, 2002, other assets increased by $0.2
million. The increase is due to a $0.3 million increase in the cash surrender
value of MILPI's insurance policies. This increase was partially offset by a
decrease of $0.1 million in commercial and industrial equipment.
Deferred income taxes increased $2.7 million for the nine months ended September
30, 2002. The increase in deferred income taxes is attributable to $2.0 million
associated with the final acquisition of PLM and recognition of the deferred tax
liability after effecting the merger of MAC into PLM. The remaining increase
resulted from changes in temporary differences for the nine month period and by
applying the enacted statutory tax rates applicable to future years to these
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities.
Deferred income taxes arise primarily because of differences in the timing of
reporting equipment depreciation, equity income in managed programs, and certain
accruals for financial statement and income tax reporting purposes.
Commitments and Contingencies. Commitments and contingencies as of
-------------------------------
September 30, 2002 are as follows (in thousands of dollars):
Less than 1-3 4-5 After 5
Current Obligations Total 1 year Years Years Years
- ------------------------------- ---------- ------- ------- -------- ------
Commitment to purchase railcars $ 21,200 $ 7,067 $14,133 $ - $ -
Line of credit - - - - -
---------- ------- ------- -------- ------
$21,200 $ 7,067 $ 14,133 $ - $ -
========== ======= ======== ======= ======
Commitment to Purchase Railcars: MILPI has arranged for the lease or
purchase of a total of 1,050 pressurized tank railcars by Program Affiliates or
Non-Program Affiliates. These railcars will be delivered over the next three
years. A leasing company affiliated with the manufacturer will acquire
approximately 70% of the railcars and lease them to a Non-Program Affiliate.
The remaining 30% will either be purchased by other third parties to be managed
by MILPI or by the Program Affiliates. MILPI will manage the leased and
purchased railcars. MILPI will not be liable for these railcars. MILPI
estimates that the total value of purchased railcars will not exceed $26.0
million with one third of the railcars being purchased in each of 2002, 2003 and
2004. As of September 30, 2002, MILPI had purchased $4.8 million of these
railcars. MILPI expects to sell these railcars to affiliated entities in the
first quarter of 2003.
Warehouse Credit Facility: MILPI has a $10.0 million warehouse facility which
is shared with PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, PLM
Equipment Growth & Income Fund VII, and Fund I, that allows MILPI to purchase
equipment prior to its designation to a specific program. Borrowings under this
facility by the other eligible borrowers reduce the amount available to be
borrowed by MILPI. All borrowings under this facility are guaranteed by PLM.
This facility provides for financing up to 100% of the cost of the asset.
Interest accrues at prime or LIBOR plus 200 basis points, at the option of PLM.
Borrowings under this facility may be outstanding up to 270 days. In July 2002,
PLM reached an agreement with the lenders of the $10.0 million warehouse
facility to extend the expiration date to June 30, 2003. All borrowings must be
repaid upon the expiration of this facility. As of September 30, 2002, PLM had
no borrowings outstanding under this facility and there were no borrowings
outstanding under this facility by any other eligible borrower.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the discussion in this
document contains forward-looking statements that contain risks and
uncertainties, such as statements of MILPI's plans, objectives, expectations,
and intentions. The cautionary statements made in this document should be read
as being applicable to all related forward-looking statements wherever they
appear in this discussion. MILPI's actual results could differ materially from
those discussed here.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR PERIODS ENDED SEPTEMBER 30, 2002
FOR MILPI
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Description Page
- --------------------------------------------------------------------------- ----
Unaudited Condensed Consolidated Balance Sheets as of September 30,
2002 and December 31, 2001. . . . . . . . . . . . . . . . . . . . . . . . 71
Unaudited Condensed Consolidated Statements of Income for the three and
nine months ended September 30, 2002 and for the three months ended
September 30, 2001 and for the period from February 7, 2001 through
September 30, 2001 72
Unaudited Condensed Consolidated Statements of Shareholders' Equity for the
nine months Ended September 30, 2002. . . . . . . . . . . . . . . . . . . 73
Unaudited Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2002 and for the period from February 7, 2001
through September 30, 2001. . . . . . . . . . . . . . . . . . . . . . . . 74
Notes to Unaudited Condensed Consolidated Financial Statements. . . . . . . 75
MILPI HOLDINGS, LLC AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except share amounts)
September 30, December 31,
2002 2001
-------------- -------------
ASSETS
Cash and cash equivalents $ 7,422 $ 14,037
Receivables, net of allowance for doubtful accounts of $132 at
September 30, 2002 and $45 at December 31, 2001 226 39
Notes receivable from affiliates 1,345 -
Receivables from affiliates 587 951
Equity interest in affiliates 20,464 20,948
Restricted cash and cash equivalents 75 75
Assets held for sale 4,830 -
Goodwill, net of accumulated amortization of $765 as of
September 30, 2002 and December 31, 2001 8,369 4,590
Other assets, net 2,912 2,759
-------------- -------------
Total assets $ 46,230 $ 43,399
============== =============
LIABILITIES
Payables and other liabilities $ 5,741 $ 5,702
Deferred income taxes 12,411 9,751
-------------- -------------
Total liabilities 18,152 15,453
-------------- -------------
MINORITY INTERESTS - 3,029
-------------- -------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock ($0.01 par value, 20 shares authorized and outstanding) - -
Paid-in capital, in excess of par 23,667 21,970
Retained earnings 4,411 2,947
-------------- -------------
Total stockholders' equity 28,078 24,917
-------------- -------------
Total liabilities, minority interests and stockholders' equity $ 46,230 $ 43,399
============== =============
See accompanying notes to these unaudited condensed consolidated financial
statements.
MILPI HOLDINGS, LLC AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars)
For the Period
For the Nine From February 7,
For the Three Months Ended Months Ended 2001 through
September 30, September 30, September 30,
2002 2001 2002 2001
--------------- -------------- ------------------ ----------------
REVENUES
Management fees $ 972 $ 1,375 $ 3,404 $3,605
Operating lease (loss) income (8) 65 77 444
Acquisition and lease negotiation fees - 1,846 - 2,032
Gain on disposition of assets - 22 2 104
Other 47 182 371 608
--------------- -------------- ------------------ ----------------
Total revenues 1,011 3,490 3,854 6,793
--------------- -------------- ------------------ ----------------
EXPENSES
Depreciation and amortization 1 313 100 971
General and administrative 587 1,111 1,854 3,043
--------------- -------------- ------------------ ----------------
Total expenses 588 1,424 1,954 4,014
--------------- -------------- ------------------ ----------------
Operating income 423 2,066 1,900 2,779
Equity (loss) income in managed programs (115) 96 246 1,304
Interest income, net 85 100 242 304
Other (expense) income, net (3) (1) 52 (62)
--------------- -------------- ------------------ ----------------
Income before taxes and minority interest 390 2,261 2,440 4,325
Provision for income taxes 286 724 936 1,384
Minority interest - 244 40 304
--------------- -------------- ------------------ ----------------
Net income $ 104 $ 1,293 $ 1,464 $2,637
============== ============== ================= ===============
Net income per weighted-average
common share outstanding $ 5 $ 65 $ 73 $ 132
============== ============== ================= ===============
See accompanying notes to these unaudited condensed consolidated financial
statements.
MILPI HOLDINGS, LLC AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(in thousands of dollars, except shares)
Common Additional Retained
Shares Stock Paid in Capital Earnings Total
------ ------- ---------------- --------- -------
Balance at December 31, 2001 20 $ - $ 21,970 $ 2,947 $24,917
Capital contribution - - 4,363 - 4,363
Dividends paid - - (2,666) - (2,666)
Net income - - - 1,464 1,464
------ ------- ---------------- --------- -------
Balance at September 30, 2002 20 $ - $ 23,667 $ 4,411 $28,078
====== ======= ================ ========= =======
See accompanying notes to these unaudited condensed consolidated financial
statements.
MILPI HOLDINGS, LLC AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the Period from
For the Nine February 7,
Months Ended 2001 through
September 30, September 30,
2002 2001
-------------- ---------------------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income $ 1,464 $ 2 ,637
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization expense 100 971
Compensation expense related to variable stock options - 315
Gain on disposition of assets (2) (104)
Equity income in managed programs (246) (1,304)
Minority interest 40 304
Deferred income taxes 196 57
Changes in assets and liabilities: -- --
Receivables and receivables from affiliates 177 1,523
Other assets, net (307) 146
Payables and other liabilities (408) (8,616)
-------------- ---------------------
Net cash provided by (used in) operating activities 1,014 (4,071)
-------------- ---------------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Cash distributions from managed programs 1,156 1,365
Loans made to affiliates (1,345) (5,500)
Repayment of loans made to affiliates - 5,500
Purchase of property, plant and equipment (11) (71)
Proceeds of sale of equipment for lease 67 258
Proceeds from the sale of assets held for sale - 10,250
Purchase of the assets held for sale (4,830) -
Purchase of PLM International, Inc. common stock (4,363) -
Decrease in restricted cash - 1,748
-------------- ---------------------
Net cash (used in) provided by investing activities (9,326) 13,550
-------------- ---------------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Capital contribution 4,363 -
Dividends paid (2,666) -
Redemption of stock options - (919)
-------------- ---------------------
Net cash provided by (used in) in financing activities 1,697 (919)
-------------- ---------------------
Net (decrease) increase in cash and cash equivalents (6,615) 8,560
Cash and cash equivalents at beginning of period 14,037 4,391
-------------- ---------------------
Cash and cash equivalents at end of period $ 7,422 $ 12,951
============== ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for taxes $ 252 $ 6,175
============== ====================
See accompanying notes to unaudited condensed consolidated financial
statements.
MILPI HOLDINGS LLC AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
MILPI Holdings, LLC and subsidiary ("MILPI") was formed on December 12,
2000, under the laws of the state of Delaware and is governed by its Operating
Agreement, dated December 13, 2000. MILPI had no activities from December 12,
2000 through February 7, 2001. MILPI was created by four separate trusts (AFG
Investment Trust A, AFG Investment Trust B, AFG Investment Trust C and AFG
Investment Trust D, collectively the "Trusts") for the purpose of acquiring the
entire interest in PLM International, Inc. and subsidiaries ("PLM"). PLM is an
equipment management company and operates in one business segment, the leasing
of transportation equipment and the creation of equipment-leasing solutions for
domestic and international customers.
On February 7, 2001, MILPI Acquisition Corp. ("MAC"), a wholly-owned subsidiary
of MILPI, closed on its tender offer to purchase any and all of PLM's
outstanding common stock for a purchase price of $3.46 per share. The purchase
price was determined based on competitive bids and a valuation model using the
expected future cash flows of MILPI. MILPI also hired an investment banking firm
to issue a fairness opinion on the purchase price. Pursuant to the cash tender
offer, the Trusts through MAC acquired approximately 83% of PLM's common stock
in February 2001 for a total purchase price of $21.8 million and contributed the
shares to MILPI. The assets of PLM included cash and cash equivalents of
approximately $4.4 million. The acquisition resulted in goodwill of
approximately $5.4 million.
On February 6, 2002, the AFG Investment Trusts through MAC, completed its
acquisition of PLM by purchasing the remaining 17% of the outstanding PLM common
stock and by effecting a merger of MAC into PLM, with PLM as the surviving
entity. The merger was completed when MAC obtained approval of the merger from
PLM's shareholders pursuant to a special shareholder's meeting. The remaining
interest was purchased for $4.4 million at the $3.46 per common share price
established in the tender offer, resulting in additional goodwill of
approximately $3.8 million. No goodwill is expected to be deducted for tax
purposes. Concurrent with the completion of the merger, PLM ceased to be
publicly traded. The results of operations of PLM since the respective
acquisition dates have been included in the consolidated financial statements.
The acquisition of the stock of PLM was accounted for using the purchase method
of accounting in accordance with Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations" ("SFAS No. 141"). In accordance with
SFAS No. 141, MILPI allocates the total purchase price to the assets acquired
and liabilities assumed based on the respective fair market values at the date
of acquisition.
The unaudited pro forma condensed consolidated statement of operations for
the three and nine months ended September 30, 2002 and the three months ended
September 30, 2001 and the period from February 7, 2001 through September 30,
2001 are as follows (in thousands of dollars):
For the period from
For the three For the three For the nine February 7, 2001
months ended months ended months ended Through
September 30, 2002 September 30, 2001 September 30, 2001 September 30, 2001
------------------- ------------------- ------------------- --------------------
Total revenues $ 1,011 $ 3,490 $ 3,854 $ 6,793
Net income $ 104 $ 1,537 $ 1,504 $ 2,941
Per share information:
Net income $ 5 $ 77 $ 75 $ 147
These amounts include PLM's actual results for the nine months ended September
30, 2002 and 2001 adjusted for various purchase accounting adjustments,
including elimination of minority interest. The amounts are based upon certain
assumptions and estimates, and do not reflect any benefit from economies which
might be achieved from combined operations. The pro forma results do not
necessarily represent results which would have occurred if the acquisition had
taken place on the basis assumed above, nor are they indicative of the results
of future combined operations.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of MILPI Holdings, LLC and its wholly-owned subsidiary. In
addition, investments for which MILPI has less than a 50% ownership interest are
accounted for using the equity method. All significant intercompany balances and
transactions among the consolidated group have been eliminated.
MILPI has recorded a minority interest in MILPI's condensed consolidated balance
sheet as of December 31, 2001 to reflect PLM's common shares not owned by MILPI
as of that date.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position, results of operations and the statement of changes in shareholders'
equity and statements of cash flows have been made and are reflected. Certain
amounts previously reported have been reclassified to conform to the September
30, 2002 financial statement presentation. These reclassifications did not have
any effect on total assets, total liabilities, shareholders' equity, or net
income (loss).
Certain information and note disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted from the
accompanying condensed financial statements. For further information, reference
should be made to the financial statements and notes thereto included in the
audited financial statement for the year ended December 31, 2001.
ESTIMATES
These condensed consolidated financial statements have been prepared on the
accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America. This requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
condensed consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
INVESTMENT IN AND MANAGEMENT OF EQUIPMENT GROWTH FUNDS, OTHER LIMITED
PARTNERSHIPS, PRIVATE PLACEMENT PROGRAMS AND LIMITED LIABILITY COMPANY
MILPI earns revenues in connection with the management of limited
partnerships and other managed programs. Equipment acquisition and lease
negotiation fees are earned through the purchase and initial lease of equipment,
and are recognized as revenue when MILPI completes all of the services required
to earn the fees, typically when binding commitment agreements are signed.
Management fees are earned for managing the equipment portfolios and
administering investor programs as provided for in various agreements, and are
recognized as revenue over time as they are earned.
As compensation for organizing a partnership investment program, MILPI was
granted an interest (between 1% and 5%) in the earnings and cash distributions
of the program, in which PLM Financial Services, Inc. ("FSI"), a wholly owned
subsidiary of PLM, is the General Partner. MILPI recognizes as partnership
interests its equity interest in the earnings of the partnerships, after
adjusting such earnings to reflect the effect of special allocations of the
programs' gross income allowed under the respective partnership agreements.
From May 1995 through May 1996, Professional Lease Management Income Fund I, LLC
("Fund I"), a limited liability company with a no front-end fee structure, was
offered as an investor program. FSI serves as the manager for the program. No
compensation was paid to PLM for the organization and syndication of interests,
the acquisition of equipment, the negotiation of leases for equipment, or the
placement of debt. PLM funded the costs of organization, syndication, and
offering through the use of operating cash and has capitalized these costs as
its investment in Fund I. PLM has an equity interest of 15% for its contribution
to the program. In return for its investment, PLM is entitled to a 15% interest
in the cash distributions and earnings of Fund I, subject to certain allocation
provisions. PLM's interest in the cash distributions and earnings of Fund I will
increase to 25% after the investors have received distributions equal to their
invested capital.
MILPI is entitled to reimbursement from the investment programs for providing
certain administrative services at the lesser of cost or market rates.
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144"), MILPI evaluates long-lived assets for
impairment whenever events or circumstances indicate that the carrying values of
such assets may not be recoverable. Losses for impairment are recognized when
the undiscounted cash flows estimated to be realized from a long-lived asset are
determined to be less than the carrying value of the asset and the carrying
amount of long-lived assets exceed its fair value. The determination of net
realizable value for a given investment requires several considerations,
including but not limited to, income expected to be earned from the asset,
estimated sales proceeds, and holding costs excluding interest. No impairment
was recorded for the nine months ended September, 30, 2002 and for the period
from February 7, 2001 through September 30, 2001.
GOODWILL
Goodwill is calculated as the excess of the aggregate purchase price over
the fair market value of identifiable net assets acquired in accordance with
SFAS No. 141. MILPI allocates the total purchase price to the assets acquired
and liabilities assumed based on the respective fair market values at the date
of acquisition.
MILPI adopted Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS. No. 142") on January 1, 2002. As a result, the
discontinuance of goodwill and other intangible asset amortization was effective
upon adoption of SFAS No. 142. SFAS No. 142 also includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill, and
the identification of reporting units for purposes of assessing potential future
impairments of goodwill. The amount of the impairment is the difference between
the carrying amount and the fair value of the asset. Fair value of the asset is
calculated using several valuation models which utilize the expected future cash
flows of MILPI. SFAS No. 142 requires MILPI to complete a transitional goodwill
impairment test within six months from January 1, 2002, the date of adoption.
MILPI completed the goodwill impairment analysis performed as of January 1,
2002, during the quarter ended June 30, 2002. There was no impact on MILPI's
financial statements as a result of this analysis.
Goodwill of approximately $5.4 million was recorded in conjunction with the
acquisition of 83% of the common stock of PLM. This goodwill included
approximately $2.0 million of total costs estimated for severance of PLM
employees and relocation costs in accordance with management's formal plan to
involuntarily terminate employees, which plan was developed in conjunction with
the acquisition.
MILPI recorded goodwill of approximately $3.8 million in conjunction with the
acquisition of the remaining 17% of the outstanding common stock of PLM in
February 2002. This goodwill included approximately $0.4 million of costs
estimated for severance of PLM employees and relocation costs in accordance with
management's formal plan to involuntarily terminate employees, which plan was
developed in conjunction with the acquisition.
MILPI adopted SFAS No. 142 on January 1, 2002. The amortization expense
and net income for the nine months ended 2002 and 2001 are summarized as follows
(in thousands of dollars):
For the Period From
For the Three For the Nine February 7,
Months Ending Months Ended 2001 Through
September 30, September 30, September 30,
2002 2001 2002 2001
----- ------ ------------- ------------
Reported net income $ 104 $1,293 $1,464 $2,637
Add back: goodwill amortization - 209 - 765
----- ------ ------ ------------
Adjusted net income $ 104 $1,502 $1,464 $3,402
===== ====== ====== ===========
Basic and fully diluted earnings per share:
Reported net income $ 5 $ 65 $ 73 $ 132
Add back: goodwill amortization - 10 - 38
----- ------ ------ ------------
Adjusted net income $ 5 $ 75 $ 73 170
===== ====== ====== ===========
The changes in the carrying amount of goodwill for the nine months ended
September 30, 2002 are as follows (in thousands of dollars):
Balance as of December 31, 2001 $4,590
Add: Goodwill acquired during the year 3,779
------
Balance at September 30, 2002 $8,369
======
NOTE 2 - ASSETS HELD FOR SALE
With the acquisition of PLM, MILPI acquired $10.3 million in marine
containers that were classified as assets held for sale. MILPI sold the marine
containers to affiliated programs at cost, which approximated fair value in the
first quarter of 2001.
MILPI has arranged for the lease or purchase of a total of 1,050 pressurized
tank railcars by (i) partnerships and managed programs in which FSI serves as
the general partner or manager and holds an ownership interest ("Program
Affiliates") or (ii) managed programs in which FSI provides management services
but does not hold an ownership interest ("Non-Program Affiliates"). These
railcars will be delivered over the next three years. A leasing company
affiliated with the manufacturer will acquire approximately 70% of the railcars
and lease them to a Non-Program Affiliate. The remaining 30% will either be
purchased by other third parties to be managed by MILPI or by the Program
Affiliates. MILPI will manage the leased and purchased railcars. MILPI will not
be liable for these railcars. MILPI estimates that the total value of purchased
railcars will not exceed $26.0 million with one third of the railcars being
purchased in each of 2002, 2003 and 2004. As of September 30, 2002, MILPI had
purchased $4.8 million of these railcars. MILPI expects to sell these railcars
to affiliated entities in the first quarter of 2003.
NOTE 3 - EQUITY INTEREST IN AFFILIATES
FSI is the General Partner or manager of nine investment programs.
Distributions of the programs are allocated as follows: 99% to the limited
partners and 1% to the General Partner in PLM Equipment Growth Fund (EGF) I and
PLM Passive Income Investors 1988-II; 95% to the limited partners and 5% to the
General Partner in EGFs II, III, IV, V, VI, and PLM Equipment Growth & Income
Fund VII (EGF VII); and 85% to the members and 15% to the manager in Fund I.
PLM's interest in the cash distributions of Fund I will increase to 25% after
the investors have received distributions equal to their invested capital. Net
income is allocated to the General Partner subject to certain allocation
provisions.
Most of the investment program agreements contain provisions for special
allocations of the programs' gross income.
While none of the partners or members, including the General Partner and
manager, are liable for program borrowings, and while the General Partner or
manager maintains insurance against liability for bodily injury, death, and
property damage for which an investment program may be liable, the General
Partner or manager may be contingently liable for nondebt claims against the
program that exceed asset values.
NOTE 4 - MINORITY INTEREST
Minority interest is related to the portion of PLM's stock not owned by
MILPI. The decrease in minority interest is attributable to MILPI's purchase of
the remaining 17% minority interest in the first quarter of 2002. Because all of
the remaining minority interest shares were purchased in the first quarter of
2002, minority interest has been eliminated.
NOTE 5 - WAREHOUSE CREDIT FACILITY
In July 2002, MILPI reached an agreement with the lenders of the $10.0
million warehouse facility to extend the expiration date of the facility to June
30, 2003. The warehouse facility is shared by MILPI, PLM Equipment Growth Fund
V, PLM Equipment Growth Fund VI, PLM Equipment Growth and Income Fund VII and
Fund I. The facility provides for financing up to 100% of the cost of
equipment. Outstanding borrowings by one borrower reduce the amount available
to each of the other borrowers under the facility. Individual borrowings may be
outstanding for no more than 270 days, with all advances due no later than June
30, 2003. Interest accrues either at the prime rate or LIBOR plus 2.0% at the
borrower's option and is set at the time of an advance of funds. All borrowings
are guaranteed by PLM.
As of September 30, 2002, there were no outstanding borrowings on this facility
by any of the eligible borrowers.
NOTE 6 - NOTES RECEIVABLE FROM AFFILIATES
On February 11, 2002, MILPI loaned $1.3 million to two of the trusts that
own MILPI. The notes bear interest at LIBOR plus 200 basis points and mature on
January 6, 2003. The interest rate charged on the loan is consistent with third
party rates. As of September 30, 2002, the notes had a principal and accrued
interest balance which totaled $1.3 million. Subsequent to September 30, 2002,
the balance of the notes were paid in full plus all outstanding accrued interest
(See Note 9).
NOTE 7 - TRANSACTIONS WITH AFFILIATES
In addition to various fees payable to MILPI or its subsidiaries, the
affiliated programs reimburse MILPI for certain expenses, as allowed in the
program agreements. Reimbursed expenses totaled $1.1 million and $2.5 million
for the nine months ended September 30, 2002 and 2001, respectively.
Outstanding amounts are paid under normal business terms.
As of September 30, 2002, MILPI had receivables from affiliates of approximately
$0.6 million, which represented unpaid management fees.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
In March 2001, the Internal Revenue Service notified PLM that it would
conduct an audit of certain Forms 1042, "Annual Withholding Tax Return for U.S.
Source Income of Foreign Persons." The audit related to payments to unrelated
foreign entities made by two partnerships in which PLM formerly held interests
as the 100% direct and indirect owner. One partnership's audit related to Forms
1042 for the years 1997, 1998 and 1999, while the other partnership's audit
related to Forms 1042 for the years 1998 and 1999. In September 2002, the
Internal Revenue Service notified PLM that they have completed their examination
of the related tax returns and that they have assessed no changes to the
reported taxes.
NOTE 9 - SUBSEQUENT EVENTS
In the fourth quarter of 2002, MILPI purchased railcars totaling $1.4
million. In the first quarter of 2003, MILPI sold its entire portfolio of
railcars to a managed program for its cost of $6.2 million, which approximated
fair market value.
On December 19, 2002, MILPI declared and paid a cash dividend of $1.9 million to
its shareholders.
On December 19, 2002, the notes receivable from affiliates were repaid in full
plus all outstanding accrued interest.
PROPOSAL 5 - TO ALLOW THE TRUST, IN ITS OPERATION OF PLM,
TO ENTER INTO BUSINESS ARRANGEMENTS WITH AFFILIATES
IN THE ORDINARY COURSE OF BUSINESS ON TERMS NO LESS FAVORABLE THAN THOSE THAT
THEY WOULD RECEIVE IF SUCH ARRANGEMENTS WERE BEING ENTERED INTO WITH INDEPENDENT
THIRD PARTIES
As stated elsewhere in this Solicitation Statement, the Managing Trustee
believes that its interest in PLM, held through MILPI, currently constitutes the
Trust's asset with the most growth and income potential and that it intends to
conduct as much of the Trust's future business as possible through PLM.
In order to do so, the Trust must be able to operate PLM as an ongoing business
and enter into agreements, understandings and arrangements with affiliates of
the Trust in the ordinary course of business, despite any conflicts that may
arise under the Trust Agreement. Such arrangements, understandings and
agreements could include, among other things, ordinary business operations such
as the payment of rent, leasing of office space and office equipment, providing
management services and paying of salaries. For instance, an affiliate of the
Trust may lease office space and office equipment and may be willing to share
such office space with or sublet such equipment to PLM. Or, the Trust may
employ an individual to perform services for the Trust such that similar
services could be provided for PLM and the individual's salary could be paid pro
rata by the Trust and PLM. Or an affiliate of the Trust may provide advisory,
acquisition, liquidation, negotiation and asset management or similar services
to the Trust, PLM or their affiliates for fees. Although the foregoing only
provides examples of the types of arrangements that could benefit the Trust and
its affiliates, the Managing Trustee believes that these types of arrangements,
which PLM would normally be allowed to enter into with unaffiliated third
parties, could provide cost savings and synergies that would be in the best
interest of the Trust. Any such arrangements or agreements would be entered
into as if they were arms' length transactions, on terms no less favorable than
what PLM would receive if they were entering into arrangements with third
parties for goods or services of a similar quality.
Various provisions of the Trust Agreement could prohibit such transactions,
arrangements or agreements between the Trust, the Managing Trustee and their
affiliates. For instance, Section 5.3 of the Trust Agreement prohibits the
Trust from participating in any reciprocal business arrangements with an
affiliate which could have the effect of circumventing any of the provisions of
the Trust Agreement. Although the Managing Trustee does not believe that
arrangements such as those described above would have the effect of
circumventing the provisions of the Trust Agreement, the Managing Trustee
nonetheless seeks the consent of the Beneficiaries to enter into such
arrangements, notwithstanding any provision of the Trust Agreement that would
prohibit it from doing so.
THE MANAGING TRUSTEE RECOMMENDS THAT BENEFICIARIES CONSENT TO THE APPROVAL OF
PROPOSAL FIVE.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The audited financial statements of the Trust as of and for the year ended
December 31, 2001 and the Trust's unaudited financial statements for the nine
months ended September 30, 2002 have previously been filed with the Securities
and Exchange Commission on Form 10-K/A and Form 10-Q, respectively. The
unaudited pro forma financial information presented are based on the estimates
and information set forth herein and have been prepared utilizing the audited
financial statements and notes thereto appearing in the Trust's Form 10-K/A as
of and for the year ended December 31, 2001 and the Trust's unaudited financial
statements and notes thereto appearing in the Trust's Form 10-Q as of and for
the nine months ended September 30, 2002. The unaudited pro forma financial
information should be read in conjunction with the historical audited and
unaudited financial statements of the Trust, including the related notes
thereto.
In December 2000, the Trust, along with Trust A, Trust B and Trust D, made a
tender offer through a subsidiary of MILPI for all of the outstanding common
stock of PLM, an equipment leasing and management company. The four trusts
collectively hold all of the outstanding membership interests in MILPI.
Pursuant to the cash tender offer, MILPI acquired approximately 83% of PLM's
outstanding common stock in February 2001. In February 2002, MILPI completed
the acquisition of PLM by acquiring the remaining 17% of PLM's common stock.
The Trust and Trust D provided MILPI with the funds to acquire the remaining 17%
of PLM's common stock resulting in the Trust's membership interests in MILPI
increasing from 34% to 37.5%. Coincident with the stock acquisition, MILPI's
wholly owned subsidiary merged into PLM.
The following unaudited pro forma financial information of the Trust are
presented to give effect to the purchase by MILPI of the membership interests in
MILPI held by Trust A and Trust B, as described in Proposal Four. This
transaction would result in the Trust and Trust D having equally shared 100%
ownership in MILPI. As such, the pro forma analysis was prepared assuming the
Trust and Trust D would equally share income for the periods presented. As the
acquisition of the 17% of PLM's common stock occurred in February 2002 and is
reflected in the Trust's unaudited financial statements as of and for the nine
months ended September 30, 2002, no pro forma adjustments have been recorded in
the accompanying pro forma financial statements related to the February 2002
stock acquisition.
In addition, Proposal Two of this Solicitation Statement seeks approval of a
transaction whereby a newly formed subsidiary of PLM, RMLP, will receive a
contribution from Semele of partnership interests in the Rancho Malibu
partnership, a partnership that owns and is developing approximately 270 acres
of land in Malibu, California, in exchange for $5.5 million in cash (to be
funded by PLM), a $2.5 million promissory note (bearing interest at the rate of
7% per annum) and 182 shares (15.4%) of the common stock of RMLP. The Rancho
Malibu property is under development and all costs associated with the property
are being capitalized. As such, this transaction is not expected to have any
short-term impact on the financial statements of the Trust. Accordingly, no pro
forma adjustments have been recorded in the accompanying pro forma financial
statements related to Proposal Two. However, in the event all or a portion of
the investment in the Rancho Malibu property, or its subsequently capitalized
costs, are not recoverable, this could have a negative impact on the Trust's
financial statements.
As required by Rule 11-02 of Regulation S-X, the Trust's unaudited pro forma
statements of operations for the nine months ended September 30, 2002 and the
year ended December 31, 2001 have been prepared as if the purchase by MILPI of
the membership interests in MILPI held by Trust A and Trust B had occurred on
January 1, 2001. The Trust's unaudited pro forma statement of financial
position as of September 30, 2002 has been prepared as if the purchase had
occurred on September 30, 2002.
The accompanying financial statements are unaudited and are not necessarily
indicative of the results that would have occurred if the transaction had
occurred on January 1, 2001, or any particular date thereafter, nor do they
purport to represent the financial position or results of operations that may be
achieved by the Trust in future periods.
AFG INVESTMENT TRUST C
PRO FORMA STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 2002
(UNAUDITED)
HISTORICAL AT . PRO FORMA AT
SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
2002 ADJUSTMENTS 2002
--------------- ------------ ---------------
ASSETS
Cash and cash equivalents $ 857,210 - $ 857,210
Rents receivable 47,849 - 47,849
Accounts receivable - affiliate 109,637 - 109,637
Loan receivable - EFG/Kettle Development LLC 145,224 - 145,224
Interest in EFG/Kettle Development LLC 3,781,524 - 3,781,524
Interest in EFG Kirkwood LLC 2,957,331 - 2,957,331
Interest in MILPI Holdings, LLC 10,502,187 654,676 A 11,156,863
Interest in C & D IT LLC 1,000,000 - 1,000,000
Investments - other 262,787 - 262,787
Other assets, net of accumulated amortization
of $82,317 and $47,039 at September 30, 2002 and
December 31, 2001, respectively 410,923 - 410,923
Equipment at cost, net of accumulated depreciation of
27,316,476 and $27,813,022 at September 30, 2002
and December 31, 2001, respectively 18,437,522 - 18,437,522
--------------- ------------ ---------------
Total assets $ 38,512,194 $ 654,676 $ 39,166,870
=============== ============ ===============
Notes payable 19,263,085 - 19,263,085
Note payable- affiliate 719,760 - 719,760
Accrued interest 133,111 - 133,111
Accrued interest - affiliate 19,972 - 19,972
Accrued liabilities 231,158 - 231,158
Accrued liabilities - affiliates 31,905 31,905
Deferred rental income 8,062 - 8,062
Other liabilities 1,598,455 - 1,598,455
--------------- ------------ ---------------
Total liabilities 22,005,508 - 22,005,508
--------------- ------------ ---------------
Participants' capital (deficit):
Managing Trustee (25,231) 31,978 A 6,747
Special Beneficiary - 54,011 A 54,011
Class A Beneficiary Interests (1,787,153 interests;
initial purchase price of $25 each) 18,870,284 429,003 A 19,299,287
Class B Beneficiary Interests (3,024,740 interests;
initial purchase price of $5 each) - 139,684 A 139,684
Treasury Interests (223,861 Class A interests at cost) (2,338,367) - (2,338,367)
--------------- ------------ ---------------
Total participants' capital 16,506,686 654,676 17,161,362
--------------- ------------ ---------------
Total liabilities and participants' capital $ 38,512,194 $ 654,676 $ 39,166,870
=============== ============ ===============
See accompanying notes
AFG INVESTMENT TRUST C
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
Historical . Pro forma
For the Nine . For the Nine
Months Ended Pro forma Months Ended
September 30, 2002 Adjustments September 30, 2002
-------------------- ------------ --------------------
INCOME
Lease revenue $ 4,186,474 $ $ 4,186,474
Interest income 10,272 - 10,272
Gain on sale of equipment 106,439 - 106,439
Loss on sale of equipment (288,661) - (288,661)
-------------------- ------------ --------------------
Total income 4,014,524 - 4,014,524
-------------------- ------------ --------------------
EXPENSES
Depreciation and amortization 2,455,004 - 2,455,004
Write-down of equipment 483,648 - 483,648
Interest expense 1,453,268 - 1,453,268
Interest expense - affiliate 19,972 - 19,972
Management fees - affiliates 321,209 - 321,209
Operating expenses 511,648 - 511,648
Operating expenses - affiliate 232,317 - 232,317
-------------------- ------------ --------------------
Total expenses $ 5,477,066 - $ 5,477,066
-------------------- ------------ --------------------
EQUITY INTERESTS
Equity in net loss of EFG/Kettle Development LLC (135,247) - (135,247)
Equity in net loss of EFG Kirkwood LLC (45,404) - (45,404)
Equity in net loss of MILPI Holdings, LLC 560,512 195,503 B 756,015
-------------------- ------------ --------------------
Total income (loss) from equity interests 379,861 195,503 575,364
-------------------- ------------ --------------------
Net income loss $ (1,082,681) $ 195,503 $ (887,178)
==================== ============ ====================
Net income loss
per Class A Beneficiary Interest $ (0.62) - $ (0.56)
per Class B Beneficiary Interest - - 0.01
See accompanying notes
AFG INVESTMENT TRUST C
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(UNAUDITED)
HISTORICAL . PRO FORMA
FOR THE . FOR THE
YEAR ENDED PRO FORMA YEAR ENDED
DECEMBER 31, 2001 ADJUSTMENTS DECEMBER 31, 2001
------------------- ------------ -------------------
INCOME
Lease revenue $ 6,519,899 $ - $ 6,519,899
Interest income 157,725 - 157,725
Gain on sale of equipment 124,658 - 124,658
Other income 182,726 - 182,726
------------------- ------------ -------------------
Total income 6,985,008 - 6,985,008
------------------- ------------ -------------------
EXPENSES
Depreciation and amortization 3,933,784 - 3,933,784
Write-down of equipment 5,578,975 - 5,578,975
Interest expense 2,055,063 - 2,055,063
Management fees - affiliates 433,247 - 433,247
Operating expenses - affiliate 1,143,620 - 1,143,620
------------------- ------------ -------------------
Total expenses 13,144,689 - 13,144,689
------------------- ------------ -------------------
EQUITY INTERESTS
Equity in net loss of EFG/Kettle Development
LLC (332,692) - (332,692)
Equity in net loss of EFG Kirkwood LLC (91,100) - (91,100)
Equity in net income of MILPI Holdings, LLC 984,280 434,241 B 1,418,521
------------------- ------------ -------------------
Total income from equity interests 560,488 434,241 994,729
------------------- ------------ -------------------
Net income (loss) $ (5,599,193) $ 434,241 $ (5,164,952)
=================== ============ ===================
Net income (loss)
per Class A Beneficiary Interest $ (2.84) - $ (2.60)
per Class B Beneficiary Interest $ (0.10) - $ (0.10)
See accompanying notes
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited pro forma financial information of the Trust are
presented to give effect to the purchase by MILPI of the membership interests in
MILPI held by Trust A and Trust B, as described in Proposal Four. This
transaction would result in the Trust and Trust D having equally shared 100%
ownership in MILPI.
As described below, MILPI acquired all of PLM's common stock by acquiring
approximately 83% and 17% of the common stock in February 2001 and February
2002, respectively. As the acquisition of the 17% of the common stock of PLM
occurred in February 2002 and is reflected in the Trust's unaudited financial
statements as of and for the nine months ended September 30, 2002, no pro forma
adjustments have been recorded in the accompanying pro forma financial
statements related to the February 2002 acquisition.
In addition, Proposal Two of this Solicitation Statement seeks approval of a
transaction whereby a newly formed subsidiary of PLM, RMLP, will receive a
contribution from Semele of partnership interests in the Rancho Malibu
partnership, a partnership that owns and is developing approximately 270 acres
of land in Malibu, California, in exchange for $5.5 million in cash (to be
funded by PLM), a $2.5 million promissory note (bearing interest at the rate of
7% per annum) and 182 shares (15.4%) of the common stock of RMLP. The Rancho
Malibu property is under development and all costs associated with the property
are being capitalized. As such, this transaction is not expected to have any
short-term impact on the financial statements of the Trust. Accordingly, no pro
forma adjustments have been recorded in the accompanying pro forma financial
statements related to Proposal Two. However, in the event all or a portion of
the investment in the Rancho Malibu property, or its subsequently capitalized
costs, are not recoverable, this could have a negative impact on the Trust's
financial statements.
As required by Rule 11-02 of Regulation S-X, the Trust's unaudited pro forma
statements of operations for the nine months ended September 30, 2002 and the
year ended December 31, 2001 have been prepared as if the purchase by MILPI of
the membership interests in MILPI held by Trust A and Trust B had occurred on
January 1, 2001. The Trust's unaudited pro forma statement of financial
position as of September 30, 2002 has been prepared as if the purchase had
occurred on September 30, 2002.
The accompanying financial statements are unaudited and are not necessarily
indicative of the results that would have occurred if the transaction had
occurred on January 1, 2001, or any particular date thereafter, nor do they
purport to represent the financial position or results of operations that may be
achieved by the Trust in future periods.
NOTE 2 - PRO FORMA ADJUSTMENTS
The pro forma adjustments outlined below relate solely to the purchase by
MILPI of the membership interests in MILPI held by Trust A and Trust B. In
December 2000, the Trust, along with Trust A, Trust B and Trust D, made a tender
offer through a subsidiary of MILPI for all of the outstanding common stock of
PLM, an equipment leasing and management company. The trusts collectively hold
all of the outstanding membership interests in MILPI. Pursuant to the cash
tender offer, MILPI acquired approximately 83% of PLM's outstanding common stock
in February 2001. In February 2002, MILPI completed the acquisition of PLM by
acquiring the remaining 17% of PLM's common stock. The Trust and Trust D
provided MILPI with the funds to acquire the remaining 17% of PLM's common stock
resulting in the Trust's membership interests in MILPI increasing from 34% to
37.5%. Coincident with the stock acquisition, MILPI's wholly owned subsidiary
merged into PLM.
The Trust accounts for its membership interests in MILPI using the equity method
of accounting. Under the equity method of accounting, the Trust's interests are
(i) increased (decreased) to reflect the Trust's share of income (loss) of
MILPI, and (ii) decreased to reflect any dividends the Trust received from
MILPI. The excess of the Trust's cost to acquire its membership interests in
MILPI and the fair market value of the net identifiable assets purchased is
considered to be goodwill and, through December 31, 2001, was amortized over the
estimated economic life of seven years from the date of acquisition, based on
the estimated economic lives of PLM's assets.
The Trust is not a taxable entity and therefore pro forma income tax adjustments
are not applicable.
(A) Adjustment to record the impact to the Trust's interest in MILPI of
the purchase by the Trust and Trust D, pursuant to the Membership Interest
Purchase Agreement. At the date of the purchase, the Trust will recognize an
increase in its interest in MILPI equal to the Trust's portion of the excess of
the share of the net assets of MILPI acquired from Trust A and Trust B and the
purchase price paid by MILPI to Trust A and Trust B for their membership
interests. The increase to the Trust's interest in MILPI is determined as
follows:
Aggregate share of net assets of MILPI acquired by MILPI $ 7,240,930
Aggregate Purchase Price paid by MILPI 5,931,578 (i)
----------------
Aggregate increase in Trusts C and D's interests in MILPI 1,309,352
The Trust's ownership interest in MILPI 50%
----------------
The Trust's share of increase in interest in MILPI 654,676
(i) Defined in the Membership Interest Purchase Agreement between MILPI and
Trust A and Trust B as the original purchase price of the membership interests,
plus the reimbursement of membership fees paid to the Managing Trustee in
connection with the purchase and management of the membership interests, less
dividends or distributions received from the membership interests.
The Purchase was at a price in excess of fair value of the underlying assets and
therefore include an element of goodwill. However, consistent with SFAS No.
142, there is no pro forma adjustment for amortization expense recorded
related to that goodwill because the Purchase was after the transition date of
July 1, 2001 when goodwill resulting from acquisitions are no longer amortized.
The allocation of the Trust's share of the increase in MILPI was calculated in
accordance with the Second Amended and Restated Declaration of Trust, as
amended.
(B) Adjustment to increase the Trust's share of the net income of MILPI
recorded under the equity method of accounting, as discussed above. The
proposed transaction would increase the Trust's ownership interest in MILPI from
37.5% to 50%.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Trust's
Interests, as of ______, 2002, by each person known by the Trust to be the
beneficial owner of more than 5% of any class of its outstanding Interests.
.. NUMBER OF . . . PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL CLASS A PERCENT OF CLASS A NUMBER OF CLASS PERCENT OF CLASS B SPECIAL BENEFICIARY
OWNER (1) INTERESTS INTEREST OWNED B INTERESTS INTEREST OWNED INTEREST OWNED
- ------------------------------- ---------
Equis II Corporation (2). . . . 5,240 * 3,019,222 99.8% -
Semele Group, Inc. (3). . . . . 14,450 * 3,019,222 99.8% 100%
Gary D. Engle (4) . . . . . . . 14,450 * 3,019,222 99.8% -
James A. Coyne (5). . . . . . . 14,450 * 3,019,222 99.8% -
___________________
* Represents less than 1% of the outstanding Interests.
(1) The business address of each Beneficiary listed above is c/o Equis
Financial Group, L.P., 200 Nyala Farms, Westport, Connecticut 06880.
(2) Equis II Corporation, a wholly-owned subsidiary of Semele, owns
5,240 Class A Interests and 3,019,222 Class B Interests.
(3) Semele owns 100% of Equis II Corporation and, as such, has shared
investment power with respect to the Class B Interests owned by Equis II
Corporation. Old North Capital Limited Partnership, a controlled affiliate of
Semele, owns 9,210 Class A Interests.
(4) Mr. Engle has a 40.3% ownership interest in Semele. Mr. Engle, together
with Mr. Coyne, controls a majority of the interest in Semele and Equis II
Corporation.
(5) Mr. Coyne has a 17.6% ownership interest in Semele. Mr. Coyne, together
with Mr. Engle, controls a majority of the interest in Semele and Equis II
Corporation.
ADDITIONAL INFORMATION CONCERNING THE TRUST
The Class A Interests are registered under the Securities Act of 1933 and
as a result the Trust files annual and quarterly reports and other information
with the SEC. You may read and copy any reports and other information that the
Trust files with the SEC at the following SEC locations:
Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549
Copies of such materials may be obtained from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The SEC also maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. The address of such Web site is http://www.sec.gov.
The SEC allows the Trust to "incorporate by reference" information into
this Solicitation Statement. This means that the Trust can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part
of this Solicitation Statement, except for any information that is superseded by
information that is included directly in this Solicitation Statement.
This Solicitation Statement incorporates by reference the documents listed below
that the Trust has previously filed with the SEC. Copies of each of such
documents are being delivered to Beneficiaries along with this Consent
Solicitation Statement.
Company SEC Filings Period
- ------------------------------- --------------------------------
Annual Report on Form 10-K/A Year ended December 30, 2001
Quarterly Report on Form 10-Q/A Quarter ended March 31, 2002
Quarterly Report on Form 10-Q/A Quarter ended June 30, 2002
Quarterly Report on Form 10-Q Quarter ended September 30, 2002
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Solicitation Statement contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations and business
strategies of the Trust. Statements in this Solicitation Statement that are not
historical facts are hereby identified as "forward-looking statements" for the
purpose of the safe harbor provided by Section 21E of the Exchange Act and
Section 27A of the Securities Act. Such forward-looking statements, including,
without limitation, those relating to the future business prospects, revenues
and income, wherever they occur in this document, are necessarily estimates
reflecting the best judgment of the Managing Trustee and involve a number of
risks and uncertainties that could cause actual results to differ materially
from those suggested by the forward-looking statements. Such forward-looking
statements should, therefore, be considered in light of various important
factors, including those set forth in this Solicitation Statement.
Words such as "estimate," "project," "plan," "intend," "expect," "believe,"
"anticipate," and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are found at various places
throughout this Solicitation Statement and the other documents incorporated by
reference, including, but not limited to, the Trust's Annual Report on Form
10-K/A for the year ended December 31, 2001. You are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this Solicitation Statement. The Trust does not undertake any
obligation to publicly update or release any revisions to these forward-looking
statements to reflect events or circumstances after the date of this
Solicitation Statement or to reflect the occurrence of unanticipated events.
ANNEX A
CONTRIBUTION, ASSIGNMENT, ASSUMPTION AND ACKNOWLEDGMENT AGREEMENT
BY AND AMONG
RMLP INC.,
BMIF/BSLF II RANCHO MALIBU LIMITED PARTNERSHIP,
BSLF II RANCHO MALIBU CORP.,
C&D IT LLC,
AND SEMELE GROUP INC.
DATED AS OF _________ __, 2002
A-1
Annex A - Percentage Interests
Exhibit A - Property Description
Exhibit B - Promissory Note
Schedules
- ---------
4.5 Joint Ventures
4.6(a) Limited Partnership's Agreements of Indebtedness
4.6(b) Additional Liabilities of the Limited Partnership
4.6(c) Court or Governmental Judgments or Orders
4.7 Non-Compliance with Laws and/or Permits
4.8(a) Non-Compliance with Environmental laws
4.8(b) Non-Compliance with Permit Requirements
4.8(c) Environmental Citations
4.8(d) Hazardous Activity
4.8(e) Hazardous Materials
4.8(f) Violations of Environmental Law
4.9 Extraordinary Business Activities since February 6, 2002
4.11(b) Title Exceptions
4.11(d) Ownership by Affiliates
4.12 Pending Litigation
4.13(a) Material Contracts Extending Beyond February 6, 2002
4.13(b) Outstanding Guaranty Obligations of the Limited Partnership
4.13(d) Limited Partnership's Contractual Parties which are Non-Compliant or
in Default
4.14(a) Insurance Policies
4.16(c) Bank Accounts and Powers of Attorney
4.17 Project Budget
CONTRIBUTION, ASSIGNMENT, ASSUMPTION AND ACKNOWLEDGMENT AGREEMENT
This Contribution, Assignment, Assumption and Acknowledgment Agreement
dated __________ ___, 2002 is by and among RMLP Inc., a Delaware corporation
("RMLP"), BMIF/BSLF II Rancho Malibu Limited Partnership, an Illinois limited
---
partnership (the "Limited Partnership"), BSLF II Rancho Malibu Corp., an
--------------------
Illinois corporation ("BSLF"), C&D IT LLC, a Delaware limited liability company
("C&D LLC"), and Semele Group Inc., a Delaware corporation ("Semele").
-------- ------
RECITALS
WHEREAS, the Limited Partnership owns approximately 270 acres of
undeveloped land located in Los Angeles County, California, as more particularly
described on Exhibit A attached hereto and incorporated herein by reference (the
---------
"Malibu Property");
----------------
WHEREAS, Semele owns one hundred percent (100%) of the capital stock of BSLF,
the General Partner of the Limited Partnership;
WHEREAS, Semele owns, directly or indirectly, seventy-five percent (75%) of the
undivided Percentage Interests (as such term is defined in the Partnership
Agreement) of the Limited Partnership, comprised of the 73.95% BSLF Percentage
Interest and the 1.05% Semele Percentage Interest;
WHEREAS, the other 25% of the undivided Percentage Interests of the Limited
Partnership are owned by C&D LLC whose sole members are AFG Investment Trust C
and AFG Investment Trust D;
WHEREAS, RMLP desires to contribute the Contribution Consideration to BSLF, and
BSLF and Semele desire to assign and deliver in exchange and in consideration
therefor to RMLP, upon the terms and conditions set forth herein, the Semele
Percentage Interest and the BSLF Percentage Interest; and
WHEREAS, RMLP desires to accept such assignment and delivery of all benefits,
right, title and interest in and to the Semele Percentage Interest and the BSLF
Percentage Interest and assume all of the duties and obligations thereunder of
Semele and BSLF, respectively.
WHEREAS, the parties hereto intend that the contribution of the Contribution
Consideration in exchange and in consideration for the Semele Percentage
Interest and the BSLF Percentage Interest contemplated hereby together shall
constitute a tax-free exchange governed by the provisions of Section 351 of the
Code.
NOW THEREFORE, in consideration of the mutual agreements, covenants and
provisions herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which hereby are acknowledged, the parties agree as
follows:
ARTICLE ONE
DEFINITIONS
As used herein, the following capitalized terms shall have the following
meanings:
1.1 "AFFILIATE" of a Person means a Person who controls, is controlled by,
---------
or is under common control with such Person. For purposes of this definition,
"control" means the ability to control the management or policies of a Person,
-------
whether through the ownership of voting securities, by contract or otherwise.
1.2 "AGREEMENT" means this Contribution, Assignment, Assumption and
---------
Acknowledgment Agreement.
1.3 "BSLF" means BSLF II Rancho Malibu Corp., an Illinois corporation.
----
1.4 "BSLF PERCENTAGE INTEREST" means the 73.95% Percentage Interest owned by
------------------------
BSLF.
1.5 "CERCLA" means the Comprehensive Environmental Response, Compensation
------
and Liability Act of 1980, as amended (42 U.S.C. 9601 et seq.).
-- ---
1.6 "CLAIMS NOTICE" means a notice to be given by RMLP to Semele of any
--------------
Indemnity Claim which describes the Indemnity Claim in reasonable detail,
indicates the amount (estimated, if necessary) of the Loss that has been or may
be suffered by RMLP and, in the case of any claim, action or proceeding brought
by a third party, includes a copy of any claim, process or legal pleadings with
respect thereto.
1.7 "CLEAN WATER ACT" means the Federal Water Pollution Control Act, as
-----------------
amended (33 U.S.C. 1251 et seq.)
-- ---
1.8 "CLOSING" means the consummation of the contribution of the Contribution
-------
Consideration by RMLP to BSLF and the contribution of the Semele Percentage
Interest and the BSLF Percentage Interest from Semele and BSLF to RMLP pursuant
to this Agreement.
1.9 "CLOSING DATE" means ____________, 2002, or such other date as may be
-------------
mutually agreed upon by RMLP and Semele and BSLF.
1.10 "CODE" means the Internal Revenue Code of 1986, as amended.
----
1.11 "COMMON STOCK" means 182 shares of the RMLP Common Stock, $.01 par
-------------
value per share, to be issued to BSLF as a portion of the Contribution
Consideration hereunder, and representing approximately fifteen and four-tenths
percent (15.4%) of the issued and outstanding capital stock of RMLP.
1.12 "CONTRIBUTION CONSIDERATION" means an amount equal to Five Million Five
--------------------------
Hundred Thousand Dollars (US$5,500,000) payable in immediately available funds,
plus the Promissory Note, plus the Common Stock.
- ---- ----
1.13 "ENVIRONMENTAL CITATIONS" means any written notice, communication,
------------------------
inquiry, warning, citation, summons, directive, injunction, order or claim,
concerning the ownership, maintenance, operation or occupancy of the Malibu
Property or any portion thereof by the Limited Partnership or any other person,
which relates to Hazardous Activity, Hazardous Materials or violation of any
Environmental Law in connection with the Malibu Property or any portion thereof,
or any leachate or contamination or materials emanating therefrom.
1.14 "ENVIRONMENTAL LAWS" means all applicable foreign, federal, state,
-------------------
regional, county and local administrative, regulatory and judicial laws, rules,
statutes, codes, ordinances, regulations, binding interpretations, binding
policies, licenses, permits, approvals, plans, authorizations, directives,
rulings, injunctions, decrees, orders, judgments, common law and any similar
items in effect on the date of this Agreement and through the Closing Date
relating to the protection of human health, safety, or the environment
(including ambient air, surface water, ground water, land surface or subsurface
strata); including, without limitation, the following laws, as amended: (a) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. 9601 et seq.) ("CERCLA"); (b) the Hazardous Materials
-- --- ------
Transportation Control Act of 1970 (49 U.S.C. 1802 et seq.); (c) the Resource
-- ---
Conservation and Recovery Act of 1976, as amended (42 U.S.C. 6901 et seq.);
-- ---
(d) the Clean Water Act; (e) the Safe Drinking Water Act (42 U.S.C. 300h et
--
seq.); (f) the Clean Air Act (42 U.S.C. 1857 et seq.); (g) the Solid Waste
- -- ---
Disposal Act (42 U.S.C. 6901 et seq.); (h) the Toxic Substances Control Act
- -- ---
(15 U.S.C. 2601 et seq.); (i) the Emergency Planning and Community
-- ---
Right-to-Know Act of 1986 (42 U.S.C. 11001 et seq.); (j) the Federal
-- ---
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136 et seq.); (k) the
-- ---
Radon Gas and Indoor Air Quality Research Act (42 U.S.C. 7401 et seq.); (l)
-- ---
the National Environmental Policy Act of 1975 (42 U.S.C. 4321); (m) the Rivers
and Harbors Act of 1899 (33 U.S.C. 401 et seq.); (n) the Oil Pollution Act of
-- ---
1990 (33 U.S.C. 3321 et seq.); (o) the Porter-Cologne Water Quality Control
-- ---
Act (Cal. Wat. Code 13020 et seq.); (p) the Safe Drinking Water and Toxic
-- ---
Enforcement Act of 1986 (Cal. Health & Saf. Code 25300 et seq.); (q) the
-- ---
Hazardous Substance Account Act (Cal. Health & Saf. Code 25300 et seq.); (r)
-- ---
the Hazardous Waste Control Act (Cal. Health & Saf. Code 25100 et seq.); (s)
-- ---
Section 2782.6(d) of the California Civil Code and Chapter 11 of Title 22 of the
California Code of Regulations; and (t) any and all laws, rules, codes,
ordinances, regulations, binding interpretations, binding policies, licenses,
permits, approvals, plans, authorizations, directives, rulings, injunctions,
decrees, orders and judgments relating to hazardous wastes, hazardous
substances, toxic substances, pollution, water safety, polychlorinated
biphenyls, petroleum (its derivatives, by-products, or constituents) the
protection of human health, safety, or the environment.
1.15 "HAZARDOUS ACTIVITY" means the generation, transportation, deposit,
-------------------
disposal (including, without limitation, arrangement for placement in any
landfill, temporary or permanent holding area, impoundment, sump or dump),
dumping, escaping, placing, dispersal, release, discharge, spill, emission,
injection, leak, leaching, migration of Hazardous Materials in, on, under, about
or from any specified property or any part thereof into the indoor or outdoor
environment including, without limitation, the ambient air, surface water,
groundwater or surface or subsurface strata and any other act or thing, business
or operation, that materially increases the danger, or risk of danger, or poses
an unreasonable risk of harm to persons or property, on or off any specified
property, or which may materially adversely impact the value of such specified
property.
1.16 "HAZARDOUS MATERIAL" means any solid, liquid or gaseous material, alone
------------------
or in combination, mixture or solution, which is defined, listed or identified
as "hazardous" (including "hazardous substances" and "hazardous wastes"),
"toxic", a "pollutant" or a "contaminant" pursuant to any Environmental Law
including, without limitation, asbestos, urea formaldehyde, polychlorinated
biphenyls (PCB's), radon, fuel oil, petroleum (including its derivatives,
by-products or other constituents) and any other dangerous, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic or mutagenic
material which is prohibited, limited, controlled or regulated under any
Environmental Law, or which poses a threat or nuisance to the safety or health
of any person on any specified property or any property geologically or
hydrologically adjacent to, or surrounding, such specified property or the
environment, or the presence of which could constitute a trespass by the Limited
Partnership.
1.17 "IMPROVEMENTS" means the improvements to the Malibu Property as are
------------
described in the Plans and Specifications including, without limitation,
forty-six (46) single-family finished lots, together with roads, sewers,
utilities and other on-site and off-site improvements, including those
improvements required to be constructed by the Project Requirements.
1.18 "INDEMNITY CLAIM" means any claim of a RMLP Indemnified Party resulting
---------------
from (a) any breach of Semele's Representations and Warranties; or (b) the
non-fulfillment of any of Semele's covenants, agreements or undertakings
contained in this Agreement or in any agreement or document to be delivered
pursuant to this Agreement.
1.19 "KNOWLEDGE" or "TO THE KNOWLEDGE" of any person, or words of similar
--------- -----------------
import, mean the actual knowledge of such person. With respect to Semele and
BSLF, "knowledge" shall mean the actual knowledge of James A. Coyne.
1.20 "LIMITED PARTNERSHIP" means BMIF/BSLF II Rancho Malibu Limited
--------------------
Partnership, an Illinois limited partnership.
1.21 "LOSSES" means any and all loss, cost, damage (including without
------
limitation consequential damages) or expense arising or resulting from any
Indemnity Claim, including but not limited to reasonable costs and expenses,
including fees and disbursements of counsel, accountants and other experts,
incident to any and all actions, suits, demands, assessments and judgments
related to any claim made hereunder, but excluding (i) amounts to the extent
reserved or accrued for by the Limited Partnership, and (ii) amounts for which
any RMLP Indemnified Party has recovered proceeds under any insurance policy or
third party guaranty, indemnity or other obligation.
1.22 "MALIBU PROPERTY" means approximately 270 acres of undeveloped land
----------------
located in Los Angeles County, California, as more particularly described on
Exhibit A hereto.
-------
1.23 "MATERIAL ADVERSE EFFECT" means a material adverse effect (a) on the
-------------------------
business, assets or financial condition of the Limited Partnership or (b) on the
ability of the Limited Partnership to carry on its business as it is presently
being conducted, including without limitation the development of the Project.
1.24 "PARTNERSHIP AGREEMENT" means the Partnership Agreement of the Limited
----------------------
Partnership, as amended and as in effect on the date hereof.
1.25 "PERCENTAGE INTEREST" with respect to a Person means the Percentage
--------------------
Interest of the Limited Partnership, as such term is further defined in the
Partnership Agreement, owned by such Person set forth opposite such Person's
name in the column entitled "Percentage Interest" on Annex A to this Agreement.
1.26 "PERMITS" means all governmental or other licenses, permits
-------
certificates, approvals, authorizations and orders material to the ability of
-
the Limited Partnership to carry on its business as it is presently being
conducted, including without limitation those necessary to construct, subdivide,
occupy, operate, market and sell the Property (and any portion or subdivision
thereof) in accordance with all Project Requirements.
1.27 "PERSON" means any individual, partnership, firm, corporation,
------
association, trust, unincorporated organization or other entity.
1.28 "PLANS AND SPECIFICATIONS" means those certain Plans and Specifications
------------------------
prepared for the Project.
1.29 "PROJECT" means (i) the subdivision of the Property into forty-six (46)
-------
single-family lots, three (3) open space lots, one (1) sewage treatment lot, and
one (1) road lot; and (ii) the construction of the Improvements, all in
accordance with the Project Requirements.
1.30 "PROJECT BUDGET" means the line item budget made available to RMLP
---------------
pursuant to Section 4.17 hereof.
1.31 "PROJECT REQUIREMENTS" means all applicable federal, state, local and
---------------------
other laws, regulations, codes, orders, ordinances, policies, rules,
regulations, reports, standards, statutes, and agreements that apply or pertain
to the Project, including without limitation those relating to fire, safety,
land use, health, labor, environmental protection, seismic design, conservation,
parking, zoning and building, and all restrictive covenants (if any) and other
title encumbrances, affecting all or any part of the Property or the
Improvements constructed thereon.
1.32 "PROMISSORY NOTE" means the promissory note of even date herewith in
----------------
the original principal amount of Two Million Five Hundred Thousand Dollars
($2,500,000) made by RMLP in favor of BSLF, in substantially the form of Exhibit
-------
B hereto.
1.33 "PROPERTY" means the Malibu Property and all related permits,
--------
engineering work product, Improvements and assets and entitlements required to
develop the Project in accordance with the Project Requirements, all as owned by
the Limited Partnership as of the date hereof.
1.34 "RMLP" means RMLP Inc., a Delaware corporation.
----
1.35 "RMLP INDEMNIFIED PARTIES" means RMLP and its Affiliates, directors,
--------------------------
officers, employees and agents of each.
1.36 "SEMELE" means Semele Group Inc., a Delaware corporation.
------
1.37 "SEMELE PERCENTAGE INTEREST" means the 1.05% Percentage Interest owned
---------------------------
by Semele.
ARTICLE TWO
CONTRIBUTION, ASSIGNMENT, ASSUMPTION AND ACKNOWLEDGMENT
2.1 CONTRIBUTION AND ASSIGNMENT OF SEMELE PERCENTAGE INTEREST AND BSLF
PERCENTAGE INTEREST. Subject to the terms and conditions herein contained,
including the conditions set forth in Article 7 hereof, Semele and BSLF each
agree to convey, contribute, transfer, assign and deliver to RMLP, and RMLP
agrees to accept such assignments of, and acquire from, Semele and BSLF,
respectively, on the Closing Date, the Semele Percentage Interest and the BSLF
Percentage Interest, free and clear of any security interest, pledge mortgage,
lien, charge, encumbrance, option, adverse claim or restrictions of any kind
(other than as set forth in the Partnership Agreement).
2.2 CONTRIBUTION CONSIDERATION. On the Closing, as consideration for the
conveyance, contribution, transfer, assignment and delivery of the Semele
Percentage Interest and the BSLF Percentage Interest by Semele and BSLF, RMLP
agrees to make deliver and pay the Contribution Consideration to BSLF.
2.3 ASSUMPTION OF SEMELE OBLIGATIONS. On the Closing, RMLP, as additional
consideration for the conveyance, contribution, transfer, assignment and
delivery of the Semele Percentage Interest and the BSLF Percentage Interest by
Semele and BSLF, respectively, shall assume all duties and obligations of Semele
and BSLF relating to (i) the Semele Percentage Interest and the BSLF Percentage
Interest and under the Partnership Agreement and (ii) BSLF's role as the
co-managing general partner of the Limited Partnership to be evidenced by an
amendment to the Partnership Agreement dated as of the Closing Date.
2.4 ACKNOWLEDGMENT OF CONTRIBUTION. The Limited Partnership and C&D LLC
hereby acknowledge the terms of this Agreement and further acknowledge (a) the
assignment by (i) BSLF of the BSLF Percentage Interest and (ii) Semele of the
Semele Percentage Interest, and (b) the acceptance of such assignments and
assumption of all the duties and obligations by RMLP relating to the BSLF
Percentage Interest and the Semele Percentage Interest in, to and under the
Partnership Agreement, including the assumption of BSLF's role and obligations
as co-managing general partner of the Partnership.
ARTICLE THREE
THE CLOSING
3.1 TIME AND PLACE OF CLOSING. Unless this Agreement is earlier terminated
as hereinafter provided, the Closing shall be held at the offices of Nixon
Peabody LLP in Boston, Massachusetts at 10:00 A.M. on the Closing Date or at
such other place and at such other time as may be mutually agreed upon by RMLP
and Semele and BSLF.
3.2 ACTIONS TO BE TAKEN. The following actions shall be taken at or prior
to the Closing:
(a) (i) Semele shall deliver or cause to be delivered to RMLP
assignments of limited partnership interests, in form acceptable to RMLP and its
counsel, assigning the Semele Percentage Interest and the BSLF Percentage
Interest to RMLP, and
(ii) BSLF shall deliver its resignation as co-managing general partner and
RMLP, Semele and BSLF shall execute an Amended and Restated Partnership
Agreement and shall take all other necessary actions to, inter alia, designate
and appoint RMLP and C&D LLC as co-managing general partners of the Partnership
and to permit RMLP at any time prior to the second anniversary of the Promissory
Note to cause the Limited Partnership to distribute and deliver title to
subdivided lots comprised of portions of the Property upon RMLP's election to
voluntarily prepay the Promissory Note with portions of the Property as provided
therein.
(b) The cash amount of the Contribution Consideration shall be paid by RMLP
by wire transfer as directed by BSLF, and RMLP shall deliver to BSLF the
Promissory Note and a stock certificate representing the Common Stock.
(c) Semele and BSLF shall cause to be delivered to RMLP such certificates of
an officer of Semele, an officer of BSLF and the Limited Partnership's general
partner, together with such other documents or schedules as may be requested by
RMLP or its counsel, evidencing satisfaction of the terms and conditions
specified in this Agreement, including without limitation, that the
representations and warranties of Semele and BSLF contained in Article Four
hereof are true, correct and complete in all material respects as of the Closing
as if Semele and BSLF had jointly and severally made such representations and
warranties on the Closing Date.
(d) RMLP shall deliver to Semele and BSLF a certificate executed by an
officer of RMLP together with such other documents or schedules as may be
requested by Semele and BSLF or their counsel evidencing satisfaction of the
terms and conditions specified in the Agreement, including without limitation
that the representations and warranties of RMLP contained in Article Five hereof
are true, correct and complete in all material respects as of the Closing as if
RMLP had made such representations and warranties on the Closing Date.
3.3 TAX REPORTING. The parties hereto agree to notify one another of any
communication from or with the Internal Revenue Service or any other taxing
authority that relates in any way to the characterization of the transactions
governed by this Agreement. Each of the parties hereto will file with its
federal income tax return for the taxable year in which the Closing occurs
(which tax return shall be timely filed) the information required by Treas. Reg.
Section 1.351-3 and to provide one another upon request with a statement to
the effect that such party has complied with this requirement for filing. The
parties hereto also will maintain such permanent records as are required by
Treas. Reg. Section 1.351-3(c).
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF SEMELE AND BSLF
Semele and BSLF jointly and severally hereby represent and warrant to RMLP
that the representations and warranties are true and correct as of the date of
this Agreement and will be true and correct on the Closing Date (as updated by
the delivery of updated Schedules on or prior to the Closing Date) as if made on
that date. RMLP expressly acknowledges and agrees that the Schedules attached
to this Agreement are an integral part of this Agreement and that any disclosure
made on one such Schedule shall be deemed a disclosure on all such schedules.
4.1 TITLE TO SEMELE PERCENTAGE INTEREST AND BSLF PERCENTAGE INTEREST.
Semele and BSLF have good, valid and marketable title to the Semele Percentage
Interest and the BSLF Percentage Interest, respectively, free and clear of any
security interest, pledge, mortgage, lien, charge, encumbrance, option, adverse
claim or other restrictions of any kind (other than as set forth in the
Partnership Agreement). Semele and BSLF have full right, power and authority to
convey, contribute, transfer, assign and deliver the Semele Percentage
Interest and BSLF Percentage Interest to RMLP, and upon the delivery at Closing
of the deliveries and payments specified in Section 3.2, Semele and BSLF will
have transferred to RMLP valid and full legal title to the Semele Percentage
Interest and BSLF Percentage Interest free and clear of any liens, encumbrances,
equities and adverse claims of any kind or nature.
4.2 NECESSARY AUTHORIZATION OR APPROVALS. Semele and BSLF have full power,
authority and right to execute and deliver, or cause to be executed and
delivered, this Agreement and the other agreements and instruments to be
executed and delivered by Semele, the Limited Partnership or BSLF pursuant
hereto and to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Semele, BSLF and the Limited Partnership
and constitutes the legal, valid and binding obligation of each of them
enforceable in accordance with its terms.
4.3 ORGANIZATION, POWERS, OWNERSHIP AND ASSETS OF THE LIMITED PARTNERSHIP.
The Limited Partnership is a limited partnership duly organized and validly
existing under the laws of the State of Illinois and has the power to carry on
its business, as such business is now being conducted, and to own, lease or
operate the properties and assets it now owns, leases or operates. Except as
set forth on Schedule 4.3, there are no existing options, warrants, contracts,
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calls, commitments, demands or other agreements of any character to which the
Limited Partnership, Semele or BSLF is a party which could require the purchase
or sale of any Percentage Interest, including without limitation the Semele
Percentage Interest and the BSLF Percentage Interest. The Property constitutes
all of the material assets of the Limited Partnership.
4.4 ORGANIZATION, POWERS, OWNERSHIP AND ASSETS OF BSLF. BSLF is a
corporation duly organized, validly existing and in corporate good standing
under the laws of the State of Illinois and has the power to carry on its
business, as such business is now being conducted, and to own, lease or operate
the properties and assets it now owns, leases or operates. BSLF's Percentage
Interest in the Limited Partnership constitutes all of the material assets of
BSLF.
4.5 QUALIFICATION OR LICENSING TO CARRY ON BUSINESS; SUBSIDIARIES. The
Limited Partnership has not failed to qualify to do business in any jurisdiction
where such qualification is required and where the failure to be so qualified
would or would reasonably be likely to have a Material Adverse Effect. The
Limited Partnership has not, nor has it ever had, any subsidiaries whatsoever.
Additionally, except as set forth in Schedule 4.5, to the knowledge of Semele or
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BSLF, the Limited Partnership has never entered into any joint ventures.
4.6 LIABILITIES.
(a) Schedule 4.6(a) lists all agreements, notes, instruments or other
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documents relating to (i) indebtedness owed by or to the Limited Partnership and
(ii) money borrowed or loaned by or to the Limited Partnership in
satisfaction of obligations of or to the Limited Partnership, including but not
limited to all mortgages, loan, credit, surety, guarantee, and lease-purchase
arrangements or other financing agreements to which the Limited Partnership is a
party; and (iii) all conditional sales contracts, chattel mortgages and other
security agreements or arrangements with respect to personal property used or
owned by the Limited Partnership, copies of which have been delivered or made
available to RMLP.
(b) Except as set forth in Schedule 4.6(b), since February 6, 2002, the only
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additional liabilities which have been incurred by the Limited Partnership are
of such a nature as are comparable to those normally incurred in the ordinary
course of business during a comparable period of operations.
(c) Except as set forth in Schedule 4.6(c), the Limited Partnership is not a
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party to or subject to, and no property or asset of the Limited Partnership is
subject to, any judgment, order, decree, stipulation or consent of or with any
court, governmental body or agency which does or may have a Material Adverse
Effect.
4.7 COMPLIANCE WITH LAW AND PERMITS. Except as set forth in Schedule 4.7,
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(a) the business of the Limited Partnership has been at all times prior to the
date hereof, and is currently being operated, in compliance with all applicable
governmental and regulatory laws, rules, regulations and ordinances, the
non-compliance with which would or is reasonably likely to have a Material
Adverse Effect, (b) the development of the Project is in compliance with all
Project Requirements in all material respects; (c) all Permits (as hereinafter
defined, including without limitation, all Permits required to construct and
complete the Project) have been obtained and are in full force and effect,
except those which the failure to obtain would not result in a Material Adverse
Effect; and (d) no claim has been made in writing (or to the knowledge of Semele
or BSLF) by any governmental or regulatory authority, to the effect that
the business conducted by the Limited Partnership fails to comply with any law,
rule, regulation or ordinance, or Project Requirements, or that a Permit is
necessary with respect thereto (without such Permit having been obtained
promptly after receipt of notice of any such claim).
4.8 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Schedule 4.8(a), the location, construction,
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ownership, occupancy, maintenance, operation and use of the Malibu Property is
in compliance with all Environmental Laws, the non-compliance with which would
or is reasonably likely to have a Material Adverse Effect.
(b) Except as set forth in Schedule 4.8(b), all Permits with respect to the
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use of the Malibu Property which are required pursuant to Environmental Laws
have been obtained and the same are in full force and effect (other than any
Permit where the failure to obtain such Permit or its lapse would not have a
Material Adverse Effect) and there has been no change in any fact or
circumstance reported or assumed in any application for or grant thereof that
would or is reasonably likely to have a Material Adverse Effect on the validity
of any such Permit or the renewal or transfer thereof.
(c) Except as set forth in Schedule 4.8(c), (i) none of Semele, BSLF or the
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Limited Partnership have received (nor has Knowledge of) any Environmental
Citations and (ii) to the knowledge of Semele or BSLF, no Environmental Citation
is pending or, to the knowledge of Semele or BSLF, threatened under any
Environmental Law concerning the past or present ownership, maintenance,
operation or occupancy of the Malibu Property, or any portion thereof or
concerning the Limited Partnership or which relates to Hazardous Activity or
Hazardous Materials. Except as set forth in Schedule 4.8(c), neither Semele nor
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BSLF has been advised in writing by any governmental agency or any previous
owner that any previous owner or any past operator, user or occupant of the
Malibu Property has received any Environmental Citations.
(d) Except as set forth in Schedule 4.8(d), the Limited Partnership has not
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permitted, conducted, nor is Semele, BSLF or the Limited Partnership aware of
any Hazardous Activity conducted with respect to the Malibu Property in
violation of, or creating any liability under, any Environmental Law the
non-compliance with which or liability under would or is reasonably likely to
have a Material Adverse Effect.
(e) Except as set forth in Schedule 4.8(e), to the knowledge of Semele or
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BSLF, there are no Hazardous Materials present in the surface water, groundwater
or soil (either surface or subsurface) at the Malibu Property or at any
geologically or hydrologically connected property including, without limitation,
any Hazardous Materials contained in barrels, above or underground storage
tanks, landfills, land disposals, land treatment units, waste piles, containment
buildings, dumps, solid waste management units, equipment (movable or fixed) or
other containers, either temporary or permanent, and deposited or located in or
on land, water, sumps, or any other part of the Malibu Property or such
connected property, or incorporated into any structure thereon, in violation of,
or creating any liability under, any Environmental Law the non-compliance with
which or liability under would or could have a Material Adverse Effect.
(f) Except as set forth in Schedule 4.8(f), the Limited Partnership has not
---------------
been accused, or found liable under any Environmental Law and, to the knowledge
of Semele or BSLF, the Limited Partnership is not now under investigation in
respect thereof and neither the Malibu Property nor any other site or facility
(as defined under CERCLA) of the Limited Partnership is listed or proposed for
listing on the National Priorities List or is listed on the Comprehensive
Environmental Response, Compensation, Liability Information System List or any
comparable list maintained by any foreign, federal, state, regional, county or
local authority. Except as set forth in Schedule 4.8(f) there are no
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proceedings pending, or to the knowledge of Semele or BSLF, threatened, under
any Environmental Law against or affecting the Limited Partnership or the Malibu
Property in any court or before any governmental authority or arbitration board
or tribunal which, if adversely determined, would or could have a Material
Adverse Effect. The Limited Partnership is not in default with respect to any
order of any court or governmental authority or arbitration board or tribunal
relating to Environmental Laws.
4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since February 6, 2002, the
business of the Limited Partnership has been conducted in the ordinary course
and, except as set forth in Schedule 4.9, the Limited Partnership has not taken
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or suffered any action or entered into any material transaction, including but
not limited to the following, except in the ordinary course of business or as
contemplated by this Agreement and the transactions contemplated herein:
(a) mortgaging, pledging or subjecting to lien, charge or other encumbrance
any assets, or entering into any agreement resulting in the imposition of any
such mortgage, lien or charge;
(b) selling or purchasing, assigning or transferring any intangible
property;
(c) suffering any casualty losses, whether insured or uninsured, and whether
or not in the control of Semele, BSLF or the Limited Partnership, in excess of
$5,000 in the aggregate, or waiving any rights of any material value,
individually or in the aggregate;
(d) incurring any indebtedness for money borrowed or any noncurrent
indebtedness for the purchase price of any fixed or capital asset;
(e) other than contemplated in the Plans and Specifications, making (i) any
change in properties and assets or in liabilities, (ii) any commitment for any
capital expenditure, or (iii) any sale, lease or other disposition of any
capital asset;
(f) making any change in the Partnership Agreement;
(g) (i) issuing any new Percentage Interest to a third party or (ii)
granting or issuing any option or warrant for the purchase of any new Percentage
Interest to a third party, or made any commitment relating thereto;
(h) making any distribution or payment to Semele or BSLF;
(i) amending, making or entering into any agreement with any employee, agent
or consultant;
(j) amending any material contract, lease or agreement listed;
(k) voluntarily incurring any material obligation or liability, absolute or
contingent, except pursuant to existing contracts and agreements described in
this Agreement or in the schedules delivered pursuant hereto.
(l) Since February 6, 2002, there has been no material adverse change in the
results of operations, revenues, manner of conducting business, condition
(financial or otherwise) or any material adverse change in any material asset
(including, without limitation, accounts receivable) of the Limited Partnership
since such date, and no event has occurred which has resulted, or which is
reasonably likely to result, in a Material Adverse Effect. Neither Semele nor
BSLF is aware of any event, circumstance or condition which could reasonably be
expected to result in any such Material Adverse Effect.
4.10 TAX RETURNS AND LIABILITIES. The Partnership is taxed as a partnership
and, as such, is a flow-through entity for tax purposes.
4.11 TITLE TO AND USE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES, ETC.
(a) Except for the Malibu Property, the Limited Partnership has not owned
and it does not currently own any fee interest in any real property, and the
Limited Partnership, has not agreed to purchase or may be obligated to purchase
any interest in any real property. There are no outstanding contracts of sale,
options to purchase, rights or first refusal or rights of first offer with
respect to all or any portion of the Malibu Property.
(b) Except as disclosed in Schedule 4.11(b), the Limited Partnership has
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good and marketable title to all of the properties and assets, real and
personal, it purports to own which form a part of the business of the Limited
Partnership (other than such properties and assets as shall have been sold or
otherwise disposed of in the ordinary course of business) free and clear of any
agreement or understanding with respect to the use or possession thereof or any
rights thereto and of all liens (including, without limitation, statutory liens
arising by reason of labor or materials furnished or claimed to have been
furnished to the Limited Partnership or any predecessor in interest), mortgages,
pledges, encumbrances, security interests, conditional sales agreements or
charges of any kind or character except (i) encumbrances solely with respect to
personal property incurred in the ordinary course of business which are minor in
amount and do not materially impair the value or use in accordance with past
practices of the assets affected thereby, or (ii) liens and encumbrances on the
Property reflected in that certain ALTA Loan Policy of Title Insurance dated
February 21, 2001 issued to Seller by Lawyers Title Insurance Company as Policy
No. 5104950-M; and (iii) liens for current taxes and assessments not yet due and
payable.
(c) The Limited Partnership has the right to use all real and personal
properties presently utilized in the business of the Limited Partnership that
are not owned by the Limited Partnership, and it is not in material default with
respect to any lease material to such business and there exists no event,
occurrence, condition or act which, with the giving of notice or the lapse of
time, or both, would become a default under any such lease; except where such
condition would not or would not be reasonably likely to have a Material Adverse
Effect.
(d) To the knowledge of Semele or BSLF, except as disclosed in Schedule
--------
4.11(d), no property utilized by the Limited Partnership in its respective
---
business which is not owned by the Limited Partnership is owned by any officer,
-
director or shareholder of Semele or any Affiliate of Semele (or any relative or
spouse of any officer, director or shareholder or any relative of such spouse or
any corporation, partnership, trust or other entity in which any officer,
director or shareholder or any such relative or spouse has any beneficial
interest).
(e) To the knowledge of Semele or BSLF, neither the whole nor any portion of
the Malibu Property nor any interest therein has been condemned, requisitioned
or otherwise taken by any public authority and no such condemnation, requisition
or taking has been threatened in writing or is contemplated.
4.12 LITIGATION AND CLAIMS. Except as set forth in Schedule 4.12, the
-------------
Limited Partnership is not a party to, nor is any property or asset owned by the
Limited Partnership the subject of, any suit, action, or administrative,
arbitration or other proceeding (including, without limitation, proceedings
concerning labor disputes or grievances or union recognition or concerning
condemnation, eminent domain or the like) or government investigation or
proceeding that is currently pending or which has been pending within the three
(3) year period prior to the Closing Date and none of the foregoing has been
threatened in writing against any of Semele, the Limited Partnership, BSLF, or
the assets or properties of the Limited Partnership.
4.13 CONTRACTS AND CONTRACTUAL COMPLIANCE.
(a) Schedule 4.13(a) lists a description of each written or oral contract or
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agreement which will involve from and after February 6, 2002 a present
commitment for the receipt or expenditure by the Limited Partnership under any
of the foregoing, of monies or value equivalent to $50,000 or more during any
fiscal year, including a list of all outstanding purchase and sale orders and
commitments for personal property and services (but excluding purchase and sale
orders or commitments for personal property or services entered into in the
ordinary course of business since February 6, 2002) of the Limited Partnership.
Complete and correct copies of such agreements have been made available to RMLP.
Except as set forth on Schedule 4.13(a), the Limited Partnership is not in
default in any material respect (and the Limited Partnership has not been
notified to such effect) with respect to any obligation to be performed under
any contract, lease, guaranty, indenture, loan agreement, document or other
agreement or arrangement (including, without limitation, those listed or
described on Schedule 4.13(a)) to which the Limited Partnership or any assets of
----------------
the Limited Partnership are subject, except where such default or defaults,
individually or in the aggregate, would not have a Material Adverse Effect.
(b) Except as set forth on Schedule 4.13(b), the Limited Partnership has not
----------------
guaranteed the indebtedness or obligations of any other Person, and no other
Person whose obligations have been so guaranteed as disclosed on such Schedule
is in default of the obligations so guaranteed, and neither Semele nor BSLF is
aware of any event which, with the passage of time, the giving of notice, or
both, would constitute such a default.
(c) Except as set forth on Schedule 4.13(c), neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will constitute a default under any contract (including, without
limitation, those listed or described on Schedules 4.13(a) and (b)) involving
-------------------------
the Limited Partnership or impose any penalty upon the Limited Partnership in
the performance of such contract, or accelerate the performance thereof, or
result in the creation of any lien, charge or encumbrance upon any of the
properties or assets of the Limited Partnership make any contract to which the
Limited Partnership is a party subject to termination or cancellation, except
where the imposition of such penalty, the acceleration of such performance or
the creation of such lien, charge or encumbrance would not and would not be
reasonably expected to create a Material Adverse Effect.
(d) Except as set forth on Schedule 4.13(d), all parties with which the
----------------
Limited Partnership has contractual arrangements are, to the knowledge of Semele
or BSLF, in substantial compliance therewith and are not in default (and to the
knowledge of Semele or BSLF no event has occurred which, with the passage of
time, the giving of notice, or both, would constitute a default) thereunder,
except where such default or defaults, individually or in the aggregate, would
not have a Material Adverse Effect.
4.14 INSURANCE.
(a) Schedule 4.14(a) lists a summary description (including the name of the
-----------------
insurer, the policy number, period of coverage, and the amount of coverage) of
the coverage under all insurance policies pertaining to the operations or
business of the Limited Partnership which are currently in effect, and which
have been in effect within the last five years, together with the amount of the
current annual premiums under such policies and copies of any written notice of
possible cancellation of, or premium increases with respect to, such insurance
policies. Complete and correct copies of such policies have been made available
to RMLP.
(b) All policies of insurance reflected on Schedule 4.14(a) are on the date
----------------
hereof and to the knowledge of Semele or BSLF will be on the Closing Date valid
and enforceable in accordance with their terms and in full force and effect,
subject to the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and subject, as
to enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law);
all premiums due thereon as of the date hereof have been paid in full and all
premiums which will be due thereon as of the Closing Date will have been paid as
of such date. None of the insurance policies have provisions for retrospective
or contingent premium charges or any waiver of premium provisions; and there are
no minimum premium insurance policies or administrative service contracts for
medical benefits. The Limited Partnership has not received any written notice
or other written communication from any issuer of any of its insurance policies
canceling or materially amending any of such policies, materially increasing any
deductibles or retained amounts thereunder, or materially increasing the annual
or other premiums payable thereunder, and no written threat of such
cancellation, amendment or increase of deductibles, retainages or premiums has
been received.
4.15 GOVERNMENT CONTRACTS. To the knowledge of Semele and BSLF, there have
not been, within the past ten (10) years, and are not presently, any contracts
or subcontracts to which the Limited Partnership is a party with the United
States Government or any department, agency or instrumentality thereof.
4.16 ADDITIONAL INFORMATION SUPPLIED. Semele and BSLF have delivered or
made available, to the extent available, to, or caused the Limited Partnership
to deliver or make available, to the extent available, to, RMLP the following
documents and schedules of information relating to the Limited Partnership and
the business conducted by the Limited Partnership, each of which, to the
knowledge of Semele and BSLF, is true, correct and complete.
(A) PARTNERSHIP AGREEMENT. A copy of the Partnership Agreement, as amended
to date, of the Limited Partnership, certified as true, correct and complete by
an officer of the General Partner of the Limited Partnership.
(B) MINUTES. Minutes of all meetings of, or other evidence of action taken
by, the partners of the Limited Partnership since January 1, 1996.
(C) BANK ACCOUNTS AND POWERS OF ATTORNEY, ETC. Schedule 4.16(c) lists the
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name and address of each bank, together with the name and number of each
account, in which the Limited Partnership has an account or safe-deposit box,
the names of all persons authorized to draw thereon or to have access thereto,
and the names of any persons holding powers of attorney with respect to the
business of the Limited Partnership and a summary of the terms thereof.
4.17 PROJECT BUDGET. The most recent line item budget for the Project (the
"Project Budget") has been made available to RMLP. To the Knowledge of Semele
---------------
or BSLF, the Project Budget contains reasonable estimates by the Limited
Partnership of the costs for each of the items identified therein which have yet
to be completed.
4.18 ACCURACY OF INFORMATION. To the knowledge of Semele or BSLF, neither
this Agreement nor any certificate, document or information furnished by Semele,
BSLF or the Limited Partnership under this Agreement contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF RMLP
RMLP represents and warrants to Semele and BSLF that the representations
and warranties set forth herein are true and correct as of the date of this
Agreement and will be true and correct on the Closing Date as if made on that
date. RMLP further represents and warrants that to its knowledge neither this
Article Five nor any information required to furnished to Semele pursuant to
this Agreement by RMLP, in a certificate or otherwise, contains or will contain
as of the Closing Date any untrue statement of a material fact or fails or will
fail to state any material fact necessary to make the statements contained
therein not misleading.
5.1 ORGANIZATION OF RMLP. RMLP is a corporation duly organized, validly
existing and in good standing under the laws of Delaware and has the full
corporate power and authority to carry on its business as now being conducted.
5.2 NECESSARY AUTHORIZATION AND APPROVAL. RMLP has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, including without limitation the authority to
deliver the Promissory Note and a stock certificate representing the Common
Stock to Semele in accordance with the terms hereof. This Agreement has been
duly executed and delivered by RMLP and constitutes the legal, valid and binding
obligation of RMLP enforceable in accordance with its terms. Other than
required corporate action and filings, neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby is prohibited by, or requires RMLP to obtain any consent,
authorization, approval or registration under, any law, rule or regulation,
other than as contemplated hereby, or any judgment, order, writ, injunction or
decree, which is binding on RMLP or the terms of any contract to which RMLP or
any of its Affiliates is a party.
5.3 CAPITALIZATION OF RMLP; REGISTRATION RIGHTS. The authorized capital
stock of RMLP as of the Closing Date is 3,000 shares of Common Stock, $.01 par
value per share ("RMLP Common Stock"). As of the date hereof, there are one
------------------
thousand (1,000) shares of RMLP Common Stock issued and outstanding in the name
of PLM International Inc. There are no other outstanding rights, options,
warrants, conversion rights or other agreements, orally or in writing, for the
purchase or acquisition from RMLP of any of its capital stock. RMLP is not a
party or subject to any agreement or understanding between any persons or
entities which affects or relates to the voting or giving of written consents
with respect to securities or by any director of RMLP. RMLP has not granted or
agreed to grant any rights relating to registration of its capital stock under
the Securities Act of 1933, as amended, or applicable state securities laws.
5.4 QUALIFICATION OR LICENSING TO CARRY ON BUSINESS. RMLP has not failed to
qualify to do business in any jurisdiction where such qualification is required
and where the failure to be so qualified would or would reasonably be likely to
have a Material Adverse Effect.
5.5 LITIGATION AND CLAIMS. RMLP is not a party to, nor is any property or
asset owned by RMLP the subject of, any suit, action, or administrative,
arbitration or other proceeding (including without limitation, proceedings
concerning labor disputes or grievances or union recognition or concerning
condemnation, eminent domain or the like) or government investigation or
proceeding that is currently pending or which has been pending within the three
(3) year period prior to the Closing Date and none of the foregoing has been
threatened in writing against RMLP or the assets or properties of RMLP.
5.6 LIABILITIES. Schedule 5.6 lists all agreements, notes, instruments or
other documents relating to indebtedness owed by RMLP, other than the Promissory
Note.
ARTICLE SIX
AGREEMENTS OF SEMELE, BSLF AND RMLP
Semele, BSLF and RMLP agree that from and after the date of this Agreement
to and until the Closing Date, and thereafter to the extent provided below, they
shall take, and Semele and BSLF shall cause the Limited Partnership to take, the
following actions:
6.1 CONSENTS; PRESERVATION OF BUSINESS. Semele and BSLF agree to use their
best efforts to (a) obtain the necessary consents, authorizations or approvals
of any governmental or other third party to the transactions contemplated
hereby; and (b) preserve the business of the Limited Partnership intact and
maintain or cause to be maintained satisfactory relationships with suppliers,
customers and others having business relationships with the Limited Partnership
which are material to the success of its business.
6.2 COURSE OF CONDUCT. Semele and BSLF agree that the business of, and all
transactions by, the Limited Partnership will be conducted or entered into only
in the usual and ordinary course and that neither Semele nor BSLF shall cause or
permit the Limited Partnership to engage in any of the activities listed in
Section 4.9(a) through (l) hereof, except as may be first approved by RMLP
(which approval shall not be unreasonably withheld and shall be promptly
confirmed in writing) or as is otherwise permitted or contemplated by this
Agreement.
6.3 ACCESS TO MANAGEMENT, PROPERTIES AND RECORDS. Semele and BSLF shall
afford or cause the Limited Partnership to afford the officers, attorneys,
accountants and other authorized representatives of RMLP free and full access
upon reasonable notice and during normal business hours to all senior management
personnel, offices, properties, books and records of the Limited Partnership so
that RMLP may have full opportunity to make such investigation as it shall
desire to make of the Limited Partnership (provided that such access is not
unreasonably disruptive to the normal business operations of the Limited
Partnership), and RMLP shall be permitted to make abstracts from, or copies of,
all such books and records. The investigation contemplated hereunder shall
include but not be limited to environmental inspection and testing of soil,
water and air conditions on the Malibu Property. Semele and BSLF shall cause
the Limited Partnership to furnish to RMLP such financial and operating data and
other information as to the Limited Partnership's assets and business as RMLP
shall reasonably request. In connection therewith, RMLP shall have the right to
contact and hold discussions with the Limited Partnership's suppliers and
customers and the landlord of any leased premises; provided, however, that RMLP
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shall not contact any of such parties without first notifying the Limited
Partnership and receiving the consent of the Limited Partnership in the first
sentence of this Section 6.3, which consent shall not be unreasonably withheld
or delayed, and provided further that such individual(s) shall be permitted to
participate in any such discussions. RMLP shall cooperate with the Limited
Partnership in structuring such contacts so as to provide minimal disruption to
the Limited Partnership's relationships and business.
ARTICLE SEVEN
CONDITIONS OF CLOSING
7.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF RMLP HEREUNDER. The
obligations of RMLP under this Agreement to deliver the Contribution
Consideration in exchange for the Semele Percentage Interest and the BSLF
Percentage Interest and to consummate the other transactions contemplated
hereunder are subject to the fulfillment, prior to or at the Closing, of each of
the following conditions, except to the extent that RMLP may waive any one
or more thereof:
(a) Semele's and BSLF's Representations and Warranties (as updated by the
delivery of updated schedules on or prior to the Closing) shall be true, correct
and complete in all material respects on and as of the Closing Date with
the same effect as if said representations and warranties had been made on and
as of the Closing Date and shall have been certified as such as provided in
Section 3.2(c) hereof; Semele and BSLF shall have performed and complied with
all agreements and conditions required by this Agreement to be performed or
complied with by either of them prior to or at the Closing in each case, in all
material respects; since February 6, 2002, there shall have been no material
adverse change in the business or results of operations or condition (financial
or otherwise) of the Limited Partnership that would have a Material Adverse
Effect; and RMLP shall have been furnished with a certificate of each of Semele
and BSLF, dated the Closing Date, certifying in such detail as RMLP may
reasonably request, to the fulfillment of the foregoing conditions.
(b) Except as may otherwise have been approved by RMLP in writing or as
otherwise disclosed to RMLP, since February 6, 2002, the business of the Limited
Partnership shall have been conducted only in the ordinary course and, without
limiting the generality of the foregoing, shall have complied in all material
respects with the course of conduct described in Section 6.2 hereof, and RMLP
shall have been furnished with a certificate of each of Semele and BSLF, dated
the Closing Date, certifying, in such detail as RMLP may reasonably request, to
the fulfillment of the foregoing conditions. In this regard, Semele and BSLF
shall have caused the Limited Partnership to deliver schedules supplementary to
the schedules delivered pursuant to Article Four hereof, which supplementary
schedules shall be dated the Closing Date and shall show the changes, if any, to
the schedules delivered on or prior to the date of execution of this Agreement,
and indicate the authority for each such change, if such change would otherwise
be in violation of the course of conduct described in Section 6.2 hereof.
(c) No consent of any governmental authority, or any other person or entity,
shall be required to be made or obtained by the Limited Partnership or by Semele
or BSLF in connection with the execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby, except
where the failure to obtain any such consents would not, individually or in the
aggregate prevent Semele or BSLF from performing its obligations under this
Agreement.
(d) On the Closing Date:
(i) there shall be no injunction, restraining order or order of any nature
issued by any court of competent jurisdiction which: (x) directs that this
Agreement or any material transaction contemplated hereby shall not be
consummated as herein provided, (y) compels or would compel RMLP to dispose of
or discontinue the business or a portion of the business of the Limited
Partnership as a result of the consummation of any of the transactions
contemplated hereby, or (z) imposes a fine, awards damages or imposes or awards
any other monetary or non-monetary penalty or relief against RMLP or the Limited
Partnership based on the transactions hereby contemplated; and
(ii) there shall be no suit, action or other proceeding by any person
pending before any court or governmental agency, or threatened in writing to be
filed or initiated, which, in the reasonable judgment of RMLP, may result in the
restraint or prohibition of the consummation of any transaction contemplated
hereby or the obtaining of an amount from RMLP or the Limited Partnership in
payment of damages from or other relief against any of the parties hereto or
against any director or officer of RMLP or any of its Affiliates, in connection
with the consummation of any transaction contemplated hereby.
(e) PLM International Inc., the corporate parent of RMLP, shall have
obtained all necessary approvals to authorize the transactions contemplated by
this Agreement.
(f) The assets of the Limited Partnership shall have been appraised by an
independent appraiser and the appraised value of the assets shall be acceptable
to RMLP in its sole discretion.
(g) All proceedings, corporate or otherwise, to be taken by Semele or the
Limited Partnership in connection with the transactions contemplated by this
Agreement, and all documents incident thereto, shall be reasonably satisfactory
in form and substance to RMLP, and Semele and BSLF shall have made available, or
caused the Limited Partnership to make available, to counsel for RMLP all
records and documents relating to the business and affairs of the Limited
Partnership which such counsel may reasonably request in connection with its
review as aforesaid.
7.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SEMELE HEREUNDER. All
obligations of Semele and BSLF under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions,
except to the extent that Semele may waive any one or more thereof:
(a) The representations and warranties of RMLP contained in this Agreement
shall be true in all material respects on and as of the Closing Date with the
same effect as if said representations and warranties had been made on and as of
the Closing Date and shall have been certified as such as provided in
Section 3.2(c) hereof; RMLP shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by it prior to or at the Closing; and Semele and BSLF shall have been
furnished with certificates of an officer of RMLP dated the Closing Date,
certifying in such detail as Semele and BSLF may reasonably request, to the
fulfillment of the foregoing conditions.
(b) RMLP shall have delivered the Contribution Consideration in accordance
with Section 3.2(a) above.
(c) All proceedings, corporate or otherwise, to be taken by RMLP in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to Semele and BSLF.
(d) On the Closing Date:
(i) there shall be no injunction, restraining order or order of any nature
issued by any court of competent jurisdiction which directs that this Agreement
or any material transaction contemplated hereby shall not be consummated as
herein provided, or imposes a fine, awards damages or imposes or awards any
other monetary or non-monetary penalty or relief against Semele or BSLF based on
the transactions hereby contemplated; and
(ii) there shall be no suit, action or other proceeding by any person
pending before any court or governmental agency, or threatened to be filed or
initiated, which, in the judgment of Semele or BSLF, may result in the restraint
or prohibition of the consummation of any transaction contemplated hereby or the
obtaining from Semele or BSLF of an amount in payment of damages from or other
relief against any of the parties hereto or against any director or officer of
Semele or BSLF, or any of their respective Affiliates, in connection with the
consummation of any transaction contemplated hereby; and
(e) Semele and BSLF shall have obtained all necessary approvals to authorize
the transactions contemplated by this Agreement.
ARTICLE EIGHT
SURVIVAL OF SEMELE'S AND BSLF'S
REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 REPRESENTATIONS AND WARRANTIES.
(a) Semele's and BSLF's Representations and Warranties shall be deemed to be
material to RMLP and to have been relied upon by it notwithstanding any
investigation heretofore or hereafter made or omitted by it. The
representations and warranties of Semele and BSLF contained in Sections 4.1,
4.2, 4.3 and 4.4 shall continue indefinitely or until the expiration of any
applicable statute of limitations, and the representations and warranties of
Semele and BSLF contained in Section 4.5 through the balance of the Sections in
Article Four shall continue in full force and effect for a period of eighteen
(18) months following the Closing Date, at which time they shall terminate
except (i) as to claims which are asserted by third parties prior to such date
and notice of which shall have been given by RMLP to Semele and BSLF prior to
such date; and (ii) the representations and warranties set forth in Sections 4.8
and 4.11 which shall continue in full force and effect until the fifth
anniversary of the Closing Date.
(b) Notwithstanding the foregoing, (i) any cause of action based on fraud
may be brought at any time until the expiration of the relevant statute of
limitations, and (ii) any representation or warranty in respect of which
indemnity may be sought shall survive the time at which it would otherwise
terminate if written notice of the incorrectness or breach reciting the alleged
cause of such incorrectness or breach and the Loss occasioned by such
incorrectness or breach with reasonable particularity shall have been given to
the party against whom such indemnity may be sought prior to such time.
8.2 SURVIVAL OF COVENANTS. All covenants made in this Agreement which by
their terms are to be performed after the Closing shall survive the Closing
until they are performed.
ARTICLE NINE
INDEMNIFICATION
9.1 GENERAL INDEMNIFICATION BY SEMELE AND BSLF. Semele and BSLF shall
jointly and severally indemnify and hold the RMLP Indemnified Parties harmless
against all Losses related to any breach of the representations and warranties
contained in Sections 4.1, 4.2, 4.3, 4.4, 4.8 and 4.11.
9.2 SPECIFIC PROVISIONS RELATING TO INDEMNIFICATION.
(a) Neither Semele nor BSLF shall have any obligation to indemnify RMLP for
any voluntary assessment or remedial actions related to environmental matters
for properties or operations that are the subject of this Agreement; and Semele
and BSLF shall have no obligation to indemnify RMLP for any action related to
environmental matters for such properties or operations that are the result of
voluntary (as compared to required) actions by RMLP with respect to
environmental matters, including notifications reports, examinations
inspections, studies, testing or inquiries by RMLP; provided, however, that with
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the sole exception of the foregoing, Semele and BSLF shall indemnify and
hold the RMLP Indemnified Parties harmless against any and all Losses arising
out of any environmental liability relating in any way to the Malibu Property
which was known to Semele or the Limited Partnership, or which was being
investigated by a governmental authority, on or before the Closing Date,
including without limitation any such environmental liability or potential
liability described on the Schedules hereto, notwithstanding its inclusion
thereon; and
(b) All amounts to be paid to a RMLP Indemnified Party pursuant to a claim
for indemnification under this Agreement shall be reduced directly by the amount
of insurance proceeds paid to such RMLP Indemnified Party in connection with the
circumstances giving rise to the indemnification. All such determinations shall
be computed after giving effect to the present value of any tax benefit arising
in favor of the RMLP Indemnified Party.
9.3 DELIVERY OF CLAIMS NOTICE. Promptly after any RMLP Indemnified Party
becomes aware of Indemnity Claims such RMLP Indemnified Party shall deliver to
Semele and BSLF, in the manner specified in this Agreement, a Claims Notice.
9.4 OPPORTUNITY TO DEFEND.
(a) The RMLP Indemnified Parties shall give Semele and BSLF prompt written
notice of claims, assertions, events or proceedings by or in respect of a third
party, as to which it may request indemnification hereunder as soon as is
practicable and in any event within thirty (30) days of the time that the RMLP
Indemnified Parties learns of such claims, assertions, events or proceedings;
provided, however, that the failure to so notify Semele and BSLF shall not
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affect rights to indemnification hereunder except to the extent that Semele and
---
BSLF are actually prejudiced by such failure. Semele and BSLF shall have the
right to direct, through counsel of their own choosing, the defense or
settlement of any such claim or proceeding at their own expense. If Semele and
BSLF elect to assume the defense of any such claim or proceeding, Semele and
BSLF shall provide the RMLP Indemnified Parties with prompt notice of such
assumption and the RMLP Indemnified Parties may participate in such defense, but
in such case the expenses of the RMLP Indemnified Parties shall be paid by
the RMLP Indemnified Parties. The RMLP Indemnified Parties shall provide Semele
and BSLF with reasonable access to their records and personnel relating to any
such claim, assertion, event or proceeding during normal business hours and
shall otherwise cooperate with Semele in the defense or settlement thereof, and
Semele and BSLF shall reimburse the RMLP Indemnified Parties for all of their
reasonable out-of-pocket expenses in connection therewith. If Semele and BSLF
elect to direct the defense of any such claim or proceeding, the RMLP
Indemnified Parties shall not pay, or permit to be paid, any part of any claim
or demand arising from such asserted liability, unless Semele and BSLF consent
in writing to such payment or unless Semele and BSLF, subject to the Section
9.4(c) hereof, withdraw from the defense of such asserted liability, or unless a
final judgment from which no appeal may be taken by or on behalf of Semele and
BSLF is entered against any RMLP Indemnified Party for such liability. If any
RMLP Indemnified Party assumes the defense of any such claim or proceeding
pursuant to this Section 9.4 and proposes to settle such claim or proceeding
prior to final judgment thereon or to forego appeal with respect thereto, then
such RMLP Indemnified Party shall give Semele and BSLF written notice thereof,
and Semele and BSLF shall have the right to participate in the settlement or
assume or reassume the defense of such claim or proceeding on appeal.
(b) Notwithstanding the foregoing, neither Semele nor BSLF shall be entitled
to assume control or defense of a claim or proceeding (unless otherwise agreed
to in writing by RMLP) and shall pay the reasonable fees and expenses of counsel
retained by the RMLP Indemnified Parties if (i) the claim or proceeding relates
to or arises in connection with any criminal or quasi-criminal proceeding,
action, indictment, allegation or investigation; (ii) RMLP reasonably believes
an adverse determination with respect to the claim or proceeding would be
materially detrimental to or materially injure RMLP's reputation or the future
business prospects of the Limited Partnership; (iii) the claim or proceeding
seeks an injunction or equitable relief against any RMLP Indemnified Party or,
the Limited Partnership; (iv) RMLP has been advised by counsel that a reasonable
likelihood exists of a conflict of interest between the RMLP Indemnified Parties
and the Limited Partnership on the one hand and Semele on the other as to the
claim or proceeding in question (but not due to the fact that indemnification
may be required hereunder); or (v) upon written request by RMLP if Semele and
BSLF have failed or are failing to vigorously prosecute or defend the claim or
proceeding. The RMLP Indemnified Parties shall cooperate with all reasonable
requests made by Semele and BSLF relating to the compromise of, or defense
against, such claim or proceeding and shall make available to Semele and BSLF
any books, records, other documents or personnel within its control that are
necessary or appropriate for such defense.
(c) If Semele and BSLF elect to assume control of such claim or proceeding,
it shall conduct such claim or proceeding in a manner reasonably satisfactory
and effective to protect the RMLP Indemnified Parties fully; no compromise or
settlement shall be agreed or made without RMLP's written consent which shall
not be unreasonably withheld or delayed. In any case, the RMLP Indemnified
Parties shall have the right to employ their own counsel and such counsel may
participate in such action, but the fees and expenses of such counsel shall be
at the expense of the RMLP Indemnified Parties unless RMLP shall have reasonably
concluded that any of the provisions of Section 9.4(b) above are applicable. If
a firm written offer is made to settle any claim against a RMLP Indemnified
Party and Semele and BSLF propose to accept such settlement and RMLP refuses to
consent to such settlement, then (i) Semele and BSLF shall be excused from, and
RMLP shall be solely responsible for all further defense of such claim, demand,
action or proceeding; (ii) the maximum liability of Semele and BSLF shall be the
amount of the proposed settlement if the amount thereafter recovered from RMLP
is greater than the amount of the proposed settlement, and (iii) RMLP shall pay
all attorneys' fees, costs and expenses incurred after the rejection by RMLP of
Semele's and BSLF's offer to settle.
(d) If Semele and BSLF do not elect to assume the claim or proceeding in a
manner reasonably satisfactory to protect the RMLP Indemnified Parties fully,
the RMLP Indemnified Parties may engage independent counsel selected by RMLP to
assume the defense and may contest, pay, settle or compromise any such claim on
such terms and conditions as RMLP may determine. The fees and disbursements of
such counsel shall constitute amounts for which indemnification shall be made
hereunder.
9.5 TIME PERIOD FOR ASSERTING INDEMNIFICATION. A claim for indemnification
pursuant to this Article must be asserted by delivery of a Claims Notice within
the following periods:
(a) With respect to claims based on a breach of any representation or
warranty of Semele or BSLF contained herein, within the survival period for the
specific representation or warranty as determined pursuant to Article 8.
(b) With respect to claims based upon the nonfulfillment of any covenant or
failure to perform any undertaking contained in this Agreement, on or prior to
the later of (i) two (2) years after the latest date on which fulfillment of the
covenant is required hereunder or (ii) the expiration of such longer period, if
any, as may be specified in this Agreement with respect to any covenant or
undertaking.
(c) With respect to any other claims, within two (2) years following the
Closing Date.
ARTICLE TEN
TERMINATION OF AGREEMENT PRIOR TO CLOSING DATE
10.1 TERMINATION BY EITHER SEMELE AND BSLF OR RMLP. This Agreement may be
terminated by Semele and BSLF or RMLP if any party or government agency shall
institute any proceeding seeking to enjoin or prevent consummation of the
transactions contemplated hereby or seeking any material amount of damages as a
result thereof.
10.2 TERMINATION BY SEMELE. This Agreement may be terminated by Semele and
BSLF if:
(a) a material default shall be made by (i) RMLP with respect to the due and
timely performance of any of the covenants and agreements contained herein
which is applicable to it, or (ii) RMLP with respect to due compliance with any
of the representations and warranties made by it herein, and such default shall
not have been cured within fifteen (15) days after delivery of notice specifying
particularly such default; provided, however, that if such default shall have
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been cured, but such fifteen-day period shall not have expired, on or prior to
the Closing Date, the Closing Date shall be extended accordingly; or
(b) all of the conditions set forth in Section 7.2 of this Agreement shall
not have been satisfied on or before the Closing Date or waived by Semele and
BSLF on or before such date.
10.3 TERMINATION BY RMLP. This Agreement may be terminated by RMLP if:
(a) a material default shall be made by Semele or BSLF with respect to the
due and timely performance of any of its covenants and agreements contained
herein, or with respect to due compliance with any of Semele's and BSLF's
Representations and Warranties contained herein, and such default shall not have
been cured within fifteen (15) days after delivery of notice specifying
particularly such default; provided, however, that if such default shall have
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been cured, but such fifteen-day period shall not have expired, on or prior to
the Closing Date, the Closing Date shall be extended accordingly;
(b) all of the conditions set forth in Section 7.1 of this Agreement shall
not have been satisfied by the Closing Date in all material respects, or waived
by RMLP on or before such date; or
(c) a Material Adverse Effect has occurred.
10.4 EFFECT OF TERMINATION. Upon any termination of this Agreement pursuant
to this Article Ten, none of Semele, BSLF or RMLP shall have any liability
one to the other; provided, however, that the foregoing shall not relieve any
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party of liability for any breach of its obligations hereunder. Notwithstanding
the foregoing provisions of this Article Ten, no party hereto shall be entitled
to exercise any right to terminate and abandon this Agreement if such party has
willfully and intentionally defaulted under any provision of this Agreement or
willfully and intentionally taken any action which resulted in the
nonfulfillment of any condition to Closing hereunder unless such default shall
have been cured and shall not be continuing at the time of the exercise of such
right.
ARTICLE ELEVEN
MISCELLANEOUS
11.1 AMENDMENT OR WAIVER. Any party to this Agreement may waive or modify
in writing any term or provision hereof existing for its benefit at any time.
No such waiver, and no amendment of this Agreement, shall be effective unless
contained in an instrument in writing signed by the party against whom such
waiver or amendment is sought to be enforced.
11.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the law of the [STATE OF DELAWARE] without regard to choice of
law principles which would require the application of the law of any other
jurisdiction.
11.3 FURTHER ASSURANCES. The parties agree that after the Closing Date,
upon the request of the other party, they will from time to time execute and
deliver all such instruments and documents of further assurances as shall be
necessary to effectuate the transactions contemplated in this Agreement.
11.4 FINDERS.
(a) Semele and BSLF represent and warrant that neither they nor the Limited
Partnership nor anyone acting on their behalf or on behalf of the Limited
Partnership has made any commitment or done any other act which might result in
the imposition of any liability on RMLP, the Limited Partnership for any
brokerage, finder's or similar fee or commission in connection with the
transactions contemplated by this Agreement.
(b) RMLP represents and warrants that neither it nor anyone acting on its
behalf has made any commitment or done any other act which might result in the
imposition of any liability on Semele or BSLF for any brokerage, finder's or
similar fee or commission in connection with the transactions contemplated by
this Agreement.
11.5 NOTICES. Any and all notices and other communications hereunder shall
be in writing addressed to the parties at the addresses specified below or such
other addresses as either party may direct by notice given in accordance with
this section, and shall be delivered in one of the following manners: (i) by
personal delivery, in which case notice shall be deemed to have been duly given
when delivered; (ii) by certified mail, return receipt requested, with postage
prepaid, in which case notice shall be deemed to have been duly given on the
date indicated on the return receipt; (iii) by reputable delivery service
(including by way of example and not limitation FedEx, UPS and DHL) which makes
a record of the date and time of delivery, in which case notice shall be deemed
to have been duly given on the date indicated on the delivery service's record
of delivery; or (iv) by fax transmission during regular business hours to the
fax numbers given below, with confirmation of good receipt and confirmed by
letter to the addresses set forth below, in which case notice shall be deemed to
have been duly given on the date indicated in the confirmation of fax
transmission:
If to RMLP, to:
RMLP Inc.
200 Nyala Farms
Westport, CT 06880
Attention:
Fax: 203-341-9988
With copies to:
Nixon Peabody LLP
101 Federal Street
Boston, MA 02110
Fax: 617-345-1300
Attention: Alexander J. Jordan, Jr., Esq.
If to Semele, BSLF or the Limited Partnership, to:
Semele Group, Inc.
200 Nyala Farms
Westport, CT 06880
Attention:
Fax: 203-341-9988
With copies to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Chicago, IL 60611
Attention:
Fax: 312-527-5921
11.6 NON-APPLICATION OF WITHHOLDING UNDER TREASURY REGULATION 1.1445-2.
Semele and BSLF hereby certify under penalties of perjury, and verifies as true,
that: (i) neither Semele nor BSLF is a nonresident alien, foreign
corporation, foreign partnership, foreign trust, or foreign estate (as those
terms are defined in the Code and Income Tax Regulations) for purposes of U.S.
income taxation; (ii) Semele's and BSLF's U.S. taxpayer identification number
(social security number or employer identification number) is shown on Annex A;
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and (iii) Semele's and BSLF's business address is set forth in Section 11.5
hereof. Semele and BSLF understands that this certification may be disclosed to
the Internal Revenue Service by RMLP and that any false statement could be
punished by fine, imprisonment, or both.
11.7 ARTICLE, SECTION AND PARAGRAPH HEADINGS. The article, section and
paragraph headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
11.8 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
11.9 SUCCESSORS AND ASSIGNS. The respective rights and obligations of the
parties hereto shall not be assignable without the prior written consent of the
other parties, except that RMLP may assign its rights and obligations hereunder
to any wholly-owned Affiliate of RMLP. This Agreement shall be binding upon and
inure to the benefit of the heirs, distributees, successors and assigns of the
parties hereto. Nothing herein contained is intended to confer upon any person,
other than the parties hereto and their respective permitted successors, assigns
and nominees, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
11.10 EXPENSES. Except as otherwise expressly provided herein, Semele, BSLF
and RMLP will pay all of their own expenses (including attorneys' and
accountants' fees) in connection with the negotiation of this Agreement, the
performance of their respective obligations hereunder and the consummation of
the transactions contemplated by this Agreement (whether consummated or not).
11.11 ENTIRE AGREEMENT. This Agreement, including the Exhibits and Annexes
hereto and the Schedules referred to herein, constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
hereof. None of the parties hereto shall be bound by or charged with any oral
or written agreements, representations, warranties, statements, promises,
information, arrangements or understandings not specifically set forth in this
Agreement and the Schedules, Exhibits and Annexes or in the schedules, documents
and instruments to be delivered on or before the Closing Date pursuant to this
Agreement. The parties hereto further acknowledge and agree that, in entering
into this Agreement and in delivering the schedules, documents and instruments
to be delivered on or before the Closing Date they have not in any way relied,
and will not in any way rely, upon any oral or written agreements,
representations, warranties, statements, promises, information, arrangements or
understandings, express or implied, not specifically set forth in this Agreement
or in such schedules, documents or instruments.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY.]
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
RMLP INC. BMIF/BSLF II RANCHO MALIBU LIMITED
PARTNERSHIP
By: By: BSLF II RANCHO MALIBU CORP.,
its General Partner
Print Name: By:
Its: Print Name:
Its:
SEMELE GROUP INC. BSLF II RANCHO MALIBU CORP.
By: _________________________________ By:
________________________________
Print Name: __________________________ Print Name:
_________________________
Its: _________________________________ Its:
________________________________
ANNEX A
PERCENTAGE INTERESTS
NAME, ADDRESS AND TAXPAYER IDENTIFICATION NUMBER
- ------------------------------------------------------
PERCENTAGE INTEREST
--------------------
BSLF II Rancho Malibu Corp. 73.95%
------
Semele Group Inc.
200 Nyala Farms
Westport, CT 06880 1.05%
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C&D IT LLC 25.00%
------
ANNEX B
C & D IT LLC
OPERATING AND JOINT VENTURE AGREEMENT
-------------------------------------
This Operating and Joint Venture Agreement (this "Agreement") of C & D IT
LLC (the "Company") is made as of March 1, 2002, by and between the persons
identified as the Members on Schedule A attached hereto (such persons and their
----------
respective successors in office or in interest being hereinafter referred to
individually as a "Member" or collectively as the "Members").
WHEREAS, the Managing Trustee of AFG Investment Trust C and AFG Investment
Trust D has determined that a joint investment by the trusts through a joint
venture entity in BMIF/BSLF II Rancho Malibu Limited Partnership would be in the
best interest of the respective trusts;
WHEREAS, the Members of the Company desire that PLM International,
Incorporated, a jointly-owned, indirect subsidiary of the Members, through a
to-be-organized subsidiary (the "Acquisition Sub") enter into a contribution
agreement with Semele Group, Inc. ("Semele") and the Acquisition Sub, BSLF II
Rancho Malibu Corp. ("BSLF") by which the Acquisition Sub will contribute
consideration to Semele in exchange for all of Semele's limited partnership
interest in BMIF/BSLF II Rancho Malibu Limited Partnership ("RM Limited
Partnership") and all of the capital stock of BSLF, the general Partner of RM
Limited Partnership (the "RMLP Closing");
WHEREAS, the Members of the Company will obtain the approval of their
respective beneficiaries to said contribution through the solicitation of
consents and such solicitations will take several months to accomplish and may
not be successful;
WHEREAS, Semele will not defer taking other action with respect to its
interests in RM Limited Partnership without a $2 million financial commitment
from the Members during the period of time before the Members receive the
consents of their respective beneficiaries;
WHEREAS, the Members have determined to contribute $1 million each to the
Company;
WHEREAS, the Members have directed the Company to contribute $2 million to
RM Limited Partnership in exchange for a general partnership interest in RM
Limited Partnership that (a) gives the Company rights as a co-managing general
partner, and (b) is subject to a "claw back" right that requires the refund of
said $2 million contribution in the event that (i) said consents of the Members'
beneficiaries are not obtained by the deadline for such consents, or (ii) the
RMLP Closing has not occurred within 45 days after the date the forms of
consents must be received by the Members, which claw back right shall be secured
by the pledge of a security interest by Semele of all of its capital stock in
BSLF, its limited partnership interest in RM Limited Partnership and all of the
assets of RM Limited Partnership;
B-1
WHEREAS, the Company was formed as a limited liability company under the
Delaware Limited Liability Company Act (as amended from time to time, the "Act")
pursuant to the Certificate of Formation of the Company dated March 1, 2002 (the
"Certificate of Formation");
WHEREAS, the Members desire to engage in a joint venture which will act as
a co-managing general partner of RM Limited Partnership;
WHEREAS, the Members will actively manage the joint venture and will act as
the initial Managers of the Company (each Member in its capacity as Manager
referred to herein as a "Manager" and, collectively, the "Managers"), although
the Members intend to reserve the right in the future to appoint Managers who
are not Members; and
WHEREAS, the Members wish to set out fully their respective rights,
obligations and duties regarding the Company, its assets and liabilities and the
joint venture;
NOW, THEREFORE, in consideration of the mutual covenants expressed herein,
the parties hereby agree as follows:
ARTICLE I
Organization and Powers
1.1. Organization. The Company has been formed by the filing of its
------------
Certificate of Formation (as amended from time to time, the "Certificate" or the
"Certificate of Formation") with the Delaware Secretary of State pursuant to the
Act. The Certificate of Formation may be restated by the Managers as provided
in the Act or amended by the Managers to change the address of the office of the
Company in Delaware and the name and address of its resident agent in Delaware
or to make corrections required by the Act. Other additions to or amendments of
the Certificate of Formation shall be authorized by the Members as provided in
Section 10.4.
1.2. Purposes and Powers. The Company shall have authority to engage in any
-------------------
lawful business, trade, purpose or activity permitted by the Act, and it shall
possess and may exercise all of the powers and privileges granted by the Act and
any powers incidental thereto, so far as such powers and privileges are
necessary or convenient to the conduct, promotion or attainment of the business,
purposes or activities of the Company, including without limitation the
following powers:
(a) to conduct its business and operations in any state, territory or
possession of the United States or in any foreign country or jurisdiction;
(b) to purchase, receive, take, lease or otherwise acquire, own, hold,
improve, maintain, use or otherwise deal in and with, sell, convey, lease,
exchange, transfer or otherwise dispose of, mortgage, pledge, encumber or create
a security interest in all or any of its real or personal property, or any
interest therein, wherever situated;
(c) to borrow or lend money or obtain or extend credit and other financial
accommodations, to invest and reinvest its funds in any type of security or
obligation of or interest in any public, private or governmental entity, and to
give and receive interests in real and personal property as security for the
payment of funds so borrowed, loaned or invested;
(d) to make contracts, including contracts of insurance, incur liabilities
and give guaranties, whether or not such guaranties are in furtherance of the
business and purposes of the Company, including without limitation guaranties of
obligations of other persons who are interested in the Company or in whom the
Company has an interest;
(e) to appoint one or more Managers of the Company, to employ officers,
employees, agents and other persons, to fix the compensation and define the
duties and obligations of such personnel, to establish and carry out retirement,
incentive and benefit plans for such personnel and to indemnify such personnel
to the extent permitted by this Agreement and the Act;
(f) to make donations irrespective of benefit to the Company for the public
welfare or for community, charitable, religious, educational, scientific, civic
or similar purposes;
(g) to institute, prosecute and defend any legal action or arbitration
proceeding involving the Company, and to pay, adjust, compromise, settle or
refer to arbitration any claim by or against the Company or any of its assets;
and
(h) to be a partner in one or more partnerships or a member or manager in
one or more limited liability companies.
Notwithstanding the foregoing, however, the Company shall not have the authority
to engage in any business, trade, purpose or activity or exercise any power or
privilege that (i) exceeds the authority, rights, privileges or powers conferred
to any Member in such Member's charter documents, or (ii) contravenes or
conflicts with the charter documents of any Member.
1.3. Principal Place of Business. The principal office and place of
------------------------------
business of the Company shall initially be 200 Nyala Farms, Westport, CT 06880.
The Members may change the principal office or place of business of the Company
at any time and may cause the Company to establish other offices or places of
business.
1.4. Fiscal Year. The fiscal year of the Company shall end on December 31
------------
in each year.
1.5. Qualification in Other Jurisdictions. The Managers shall cause the
---------------------------------------
Company to be qualified or registered under applicable laws of any jurisdiction
in which the Company transacts business and shall be authorized to execute,
deliver and file any certificates and documents necessary to effect such
qualification or registration, including without limitation the appointment of
agents for service of process in such jurisdictions.
ARTICLE II
Members
2.1. Members. The initial Members of the Company and their addresses shall
-------
be listed on Schedule A and such Schedule shall be amended from time to time by
----------
the Managers to reflect the withdrawal of Members or the admission of new or
additional Members pursuant to this Agreement. Schedule A shall set forth the
----------
percentage interest which each Member holds in the profits and losses of the
Company (the "Membership Interests"). The Members shall constitute a single
class or group of Members of the Company for all purposes of the Act, unless
otherwise expressly provided herein. The Managers shall notify the Members of
changes in Schedule A, which shall constitute the record list of the Members for
----------
all purposes of this Agreement.
2.2. Admission of New Members. Additional persons may be admitted to the
---------------------------
Company as Members and may participate in the profits, losses, distributions,
allocations and capital contributions of the Company upon such terms as are
established by the Managers, which may include the establishment of classes or
groups of one or more Members having different relative rights, powers and
duties, or the right to vote as a separate class or group on specified matters,
by amendment of this Agreement under Section 10.4. Existing Members shall have
no preemptive or similar right to subscribe to the purchase of new membership
interests in the Company.
2.3. Meetings of Members.
---------------------
(a) Meetings of Members may be called for any proper purpose at any time by
the Managers or by any Member. The Managers or the Members calling the meeting
shall determine the date, time and place of each meeting of Members, and written
notice thereof shall be given by the Managers to each Member not less than seven
(7) days nor more than sixty (60) days prior to the date of the meeting. Notice
shall be sent to Members of record on the date when the meeting is called. The
business of each meeting of Members shall be limited to the purposes described
in the notice. A written waiver of notice, executed before or after a meeting
by a Member or its authorized attorney and delivered to the Managers, shall be
deemed equivalent to notice of the meeting.
(b) All Members must be present for the transaction of any business at a
meeting of Members. Members may attend a meeting in person or by proxy.
Members may also participate in a meeting by means of conference telephone or
similar communications equipment that permits all Members present to hear each
other. If less than all of the Members are present, the meeting may be
adjourned by the chairman to a later date, time and place, and the meeting may
be held as adjourned without further notice. When an adjourned meeting is
reconvened, any business may be transacted that might have been transacted at
the original meeting.
(c) A chairman selected by the Managers shall preside at all meetings of the
Members unless the Members elect a Member to act as a chairman of the meeting.
The chairman shall determine the order of business and the procedures to be
followed at each meeting of Members.
2.4. Action Without a Meeting. There is no requirement that the Members
---------------------------
hold a meeting in order to take action on any matter. Any action required or
permitted to be taken by the Members may be taken without a meeting if one or
more written consents to such action shall be signed by Members holding all of
the Membership Interests in the Company. Such written consents shall be
delivered to the Managers at the principal office of the Company and unless
otherwise specified shall be effective on the date when the first consent is so
delivered. The Managers shall give prompt notice to all Members who did not
consent to any action taken by written consent of Members without a meeting.
2.5. Voting Rights. All actions, approvals and consents to be taken or
--------------
given by the Members under the Act, this Agreement or otherwise shall require
the affirmative vote or written consent of all Members.
2.6. Limitation of Liability of Members. Except as otherwise provided in
-------------------------------------
the Act, no Member of the Company shall be obligated personally for any debt,
obligation or liability of the Company or of any other Member, whether arising
in contract, tort or otherwise, solely by reason of being a Member of the
Company. Except as otherwise provided in the Act, by law or expressly in this
Agreement, no Member shall have any fiduciary or other duty to another Member
with respect to the business and affairs of the Company, and no Member shall be
liable to the Company or any other Member for acting in good faith reliance upon
the provisions of this Agreement. Subject to Section 7.2, no Member shall have
any responsibility to restore any negative balance in its Capital Account (as
defined in Section 6.1) or to contribute to or in respect of the liabilities or
obligations of the Company or return distributions made by the Company except as
required by the Act or other applicable law; provided, however, that Members are
-------- -------
responsible for their failure to make required Contributions under Section 6.2.
The failure of the Company to observe any formalities or requirements relating
to the exercise of its powers or the management of its business or affairs under
this Agreement or the Act shall not be grounds for making its Members or
Managers responsible for the liabilities of the Company.
2.7. Authority. Unless specifically authorized by the Managers, no Member
---------
that is not a Manager shall be an agent of the Company or have any right, power
or authority to act for or to bind the Company or to undertake or assume any
obligation or responsibility of the Company or of any other Member.
2.8. No Right to Withdraw; No Appraisal Rights. No Member shall have any
--------------------------------------------
right to resign or withdraw from the Company without the consent of the other
Members or to receive any distribution or the repayment of its capital
contribution except as provided in Section 7.2 and Article IX upon dissolution
and liquidation of the Company. No Member shall have any right to have the fair
value of its Membership Interest in the Company appraised and paid out upon the
resignation or withdrawal of such Member or any other circumstances.
2.9. Rights to Information. Members shall have the right to receive from
-----------------------
the Managers upon request a copy of the Certificate and of this Agreement, as
amended from time to time, and such other information regarding the Company as
is required by the Act, subject to reasonable conditions and standards
established by the Managers, as permitted by the Act, which may include without
limitation withholding or restricting the use of confidential information.
ARTICLE III
Management
----------
3.1. Managers. The Members shall be the initial Managers of the Company
--------
hereunder. The names and addresses of the Managers shall be listed on Schedule
--------
A which shall be amended from time to time by the Managers to reflect the
resignation or removal of Managers or the appointment of new or additional
Managers pursuant to this Agreement.
3.2. Qualification. Each Manager shall actively devote such time to the
-------------
business and affairs of the Company as is reasonably necessary for the
performance of such Manager's duties, but shall not be required to devote
exclusive efforts to the performance of such duties and may delegate its
responsibilities as provided in Section 3.3. A Manager need not be a Member.
3.3. Powers and Duties of the Managers. The business and affairs of the
-------------------------------------
Company shall be managed under the direction of the Managers, who shall have and
may exercise on behalf of the Company all of its rights, powers, duties and
responsibilities under Section 1.2 or as provided by law, including without
limitation the right and authority:
(a) to manage the business and affairs of the Company and for this purpose
to employ, retain or appoint any officers, employees, consultants, agents,
brokers, professionals or other persons in any capacity for such compensation
and on such terms as the Managers deem necessary or desirable and to delegate to
such persons such of their duties and responsibilities as the Managers shall
determine;
(b) to enter into, execute, deliver, acknowledge, make, modify, supplement
or amend any documents or instruments in the name of the Company;
(c) to borrow money or otherwise obtain credit and other financial
accommodations on behalf of the Company on a secured or unsecured basis as
provided in Section 1.2(c), and to perform or cause to be performed all of the
Company's obligations in respect of its indebtedness and any mortgage, lien or
security interest securing such indebtedness; and
(d) to make elections and prepare and file returns regarding any federal,
state or local tax obligations of the Company.
Unless otherwise provided in this Agreement, any action taken by a Manager, and
the signature of a Manager on any agreement, contract, instrument or other
document on behalf of the Company, shall be sufficient to bind the Company and
shall conclusively evidence the authority of that Manager and the Company with
respect thereto.
3.4. Tax Matters Partner. The Members shall serve as the "Tax Matters
---------------------
Partners" of the Company for purposes of Section 6231(a)(7) of the Internal
Revenue Code of 1986, as amended (the "Code"), with power to manage and
represent the Company in any administrative proceeding of the Internal Revenue
Service.
3.5. Reliance by Third Parties. Any person dealing with the Company, the
----------------------------
Managers or any Member may rely upon a certificate signed by any Manager as to
(i) the identity of any Manager or Member; (ii) any factual matters relevant to
the affairs of the Company; (iii) the persons who are authorized to execute and
deliver any document on behalf of the Company; or (iv) any action taken or
omitted to be taken by the Company, the Managers or any Member.
3.6. Resignation and Removal. Any Manager may resign upon at least sixty
-------------------------
(60) days' notice to the Members and the other Managers (unless notice is waived
by them). Any Manager may be removed at any time with or without cause by the
Members.
3.7. Meetings and Action of Managers. Unless otherwise determined by the
----------------------------------
Members or Managers, all action to be taken by the Managers shall be taken by
majority vote or written consent of a majority of the Managers then in office.
There is no requirement that the Managers hold a meeting in order to take action
on any matter. Meetings of the Managers may be called by any Manager. If
action is to be taken at a meeting of the Managers, notice of the time, date and
place of the meeting shall be given to each Manager by an officer or the Manager
calling the meeting by personal delivery, telephone or fax sent to the business
or home address of each Manager at least twenty-four (24) hours in advance of
the meeting, or by written notice mailed to each Manager at either such address
at least seventy-two (72) hours in advance of the meeting; however, no notice
need be given to a Manager who waives notice before or after the meeting, or who
attends the meeting without protesting at or before its commencement the
inadequacy of notice to him or her. Managers may also attend a meeting in
person or by proxy, and they may also participate in a meeting by means of
conference telephone or similar communications equipment that permits all
Managers present to hear each other. A chairman selected by the Managers shall
preside at all meetings of the Managers. The chairman shall determine the order
of business and the procedures to be followed at each meeting of the Managers.
3.8. Compensation. Each Manager may receive such compensation for his
------------
services and benefits as may be approved from time to time by the Members. In
addition, the Managers shall be entitled to reimbursement for out-of-pocket
expenses incurred by them in connection with the performance of their duties for
the Company.
3.9. Limitation of Liability of Manager. No Manager shall be obligated
--------------------------------------
personally for any debt, obligation or liability of the Company or of any
Member, whether arising in contract, tort or otherwise, solely by reason of
being or acting as Manager of the Company. No Manager shall be personally
liable to the Company or to its Members for breach of any fiduciary or other
duty that does not involve (i) a breach of the duty of loyalty to the Company or
its Members, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or (iii) a transaction
from which the Manager derived an improper personal benefit.
ARTICLE IV
Indemnification
---------------
4.1. Definitions. For purposes of this Article IV:
-----------
(a) "Manager" includes (i) a person serving as a Manager of the Company or
in a similar executive capacity appointed by the Managers and exercising rights
and duties delegated by the Managers, (ii) a person serving at the request of
the Company as a director, Manager, officer, employee or other agent of another
organization, and (iii) any person who formerly served in any of the foregoing
capacities;
(b) "expenses" means all expenses, including attorneys' fees and
disbursements, actually and reasonably incurred in defense of a proceeding or in
seeking indemnification under this Article, and except for proceedings by or in
the right of the Company or alleging that a Manager received an improper
personal benefit, any judgments, awards, fines, penalties and reasonable amounts
paid in settlement of a proceeding; and
(c) "proceeding" means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, and any
claim which could be the subject of a proceeding.
4.2. Right to Indemnification. Except as limited by law and subject to the
-------------------------
provisions of this Article, the Company shall indemnify each of its Managers
against all expenses incurred by them in connection with any proceeding in which
a Manager is involved as a result of serving in such capacity, except that no
indemnification shall be provided for a Manager regarding any matter as to which
it shall be finally determined that such Manager did not act in good faith and
in the reasonable belief that its action was in the best interests of the
Company. Subject to the foregoing limitations, such indemnification may be
provided by the Company with respect to a proceeding in which it is claimed that
a Manager received an improper personal benefit by reason of its position,
regardless of whether the claim arises out of the Manager's service in such
capacity, except for matters as to which it is finally determined that an
improper personal benefit was received by the Manager.
4.3. Award of Indemnification. The determination of whether the Company is
-------------------------
authorized to indemnify a Manager hereunder and any award of indemnification
shall be made in each instance (a) by a majority of the Managers who are not
parties to the proceeding in question, (b) by independent legal counsel
appointed by the Managers or the Members or (c) by the holders of all of the
Membership Interests of the Members who are not parties to the proceeding in
question. The Company shall be obliged to pay indemnification applied for by a
Manager unless there is an adverse determination (as provided above) within
forty-five (45) days after the application. If indemnification is denied, the
applicant may seek an independent determination of its right to indemnification
by a court, and in such event, the Company shall have the burden of proving that
the applicant was ineligible for indemnification under this Article.
Notwithstanding the foregoing, in the case of a proceeding by or in the right of
the Company in which a Manager is adjudged liable to the Company,
indemnification hereunder shall be provided to such Manager only upon a
determination by a court having jurisdiction that in view of all the
circumstances of the case, such Manager is fairly and reasonably entitled to
indemnification for such expenses as the court shall deem proper.
4.4. Successful Defense. Notwithstanding any contrary provisions of this
-------------------
Article, if a Manager has been wholly successful on the merits in the defense of
any proceeding in which it was involved by reason of its position as Manager or
as a result of serving in such capacity (including termination of investigative
or other proceedings without a finding of fault on the part of the Manager), the
Manager shall be indemnified by the Company against all expenses incurred by the
Manager in connection therewith.
4.5. Advance Payments. Except as limited by law, expenses incurred by a
-----------------
Manager in defending any proceeding, including a proceeding by or in the right
of the Company, shall be paid by the Company to the Manager in advance of final
disposition of the proceeding upon receipt of its written undertaking to repay
such amount if the Manager is determined pursuant to this Article or adjudicated
to be ineligible for indemnification, which undertaking shall be an unlimited
general obligation but need not be secured and may be accepted without regard to
the financial ability of the Manager to make repayment; provided, however, that
-------- -------
no such advance payment of expenses shall be made if it is determined pursuant
to Section 4.3 of this Article on the basis of the circumstances known at the
time (without further investigation) that the Manager is ineligible for
indemnification.
4.6. Insurance. The Company shall have power to purchase and maintain
---------
insurance on behalf of any Manager, officer, agent or employee against any
liability or cost incurred by such person in any such capacity or arising out of
its status as such, whether or not the Company would have power to indemnify
against such liability or cost.
4.7. Heirs and Personal Representatives. The indemnification provided by
-------------------------------------
this Article shall inure to the benefit of the heirs, personal representatives,
successors and assigns of each Manager.
4.8. Non-Exclusivity. The provisions of this Article shall not be construed
---------------
to limit the power of the Company to indemnify its Managers, Members, officers,
employees or agents to the full extent permitted by law or to enter into
specific agreements, commitments or arrangements for indemnification permitted
by law. The absence of any express provision for indemnification herein shall
not limit any right of indemnification existing independently of this Article.
4.9. Amendment. The provisions of this Article IV may be amended or
---------
repealed in accordance with Section 10.5; provided, however, that no amendment
-------- -------
or repeal of such provisions that adversely affects the rights of a Manager
under this Article IV with respect to its acts or omissions at any time prior to
such amendment or repeal shall apply to such Manager without its consent.
ARTICLE V
Conflicts of Interest
---------------------
5.1. Transactions with Interested Persons. Unless prohibited by the charter
------------------------------------
documents of any Member and unless entered into in bad faith, no contract or
transaction between the Company and one or more of its Managers or Members, or
between the Company and any other corporation, partnership, association or other
organization in which one or more of its Managers or Members have a financial
interest or are directors, partners, Managers or officers, shall be voidable
solely for this reason or solely because such Manager or Member was present or
participated in the authorization of such contract or transaction if:
(a) the material facts as to the relationship or interest of such Manager or
Member and as to the contract or transaction were disclosed or known to the
other Managers (if any) or Members and the contract or transaction was
authorized by the disinterested Managers (if any) or Members; or
(b) the contract or transaction was fair to the Company as of the time it
was authorized, approved or ratified by the disinterested Managers (if any) or
Members;
and no Manager or Member interested in such contract or transaction, because of
such interest, shall be considered to be in breach of this Agreement or liable
to the Company, any Manager or Member, or any other person or organization for
any loss or expense incurred by reason of such contract or transaction or shall
be accountable for any gain or profit realized from such contract or
transaction.
ARTICLE VI
Capital Accounts and Contributions
----------------------------------
6.1. Capital Accounts.
-----------------
(a) There shall be established on the books of the Company a separate
capital account (a "Capital Account") for each Member.
(b) The Capital Account of each Member (regardless of the time or manner in
which such Member's interest was acquired) shall be maintained in accordance
with the rules of Section 704(b) of the Internal Revenue Code of 1986, as
amended, from time to time (the "Code"), and Treasury Regulation Section
1.704-1(b)(2)(iv). Adjustments shall be made to the Capital Accounts for
distributions and allocations as required by the rules of Section 704(b) of the
Code and the Treasury Regulations thereunder.
(c) If there is a transfer of all or a part of an interest in the Company by
a Member, the Capital Account of the transferor that is attributable to the
transferred interest shall carry over to the transferee of such Member.
(d) Subject to Section 7.2, notwithstanding any other provision contained
herein to the contrary, no Member shall be required to restore any negative
balance in its Capital Account.
6.2. Contributions. Each Member shall make the contributions to the capital
-------------
of the Company (herein "Contributions") specified on Schedule A. All
-----------
Contributions shall be paid in cash unless otherwise specified on Schedule A or
----------
agreed to by the Members. Except as set forth on Schedule A, no Member or
----------
Manager shall be entitled or required to make any contribution to the capital of
the Company unless approved by all Managers and Members; however, the Company
may borrow from its Members as well as from banks or other lending institutions
to finance its working capital or the acquisition of assets upon such terms and
conditions as shall be approved by the Managers, and any such borrowing from
Members shall not be considered Contributions or reflected in their Capital
Accounts. The value of all non-cash Contributions made by Members shall be set
forth on Schedule A. No Member shall be entitled to any interest or
-----------
compensation with respect to its Contribution or any services rendered on behalf
--
of the Company except as specifically provided in this Agreement or approved by
the Managers. No Member shall have any liability for the repayment of the
Contribution of any other Member and each Member shall look only to the assets
of the Company for return of its Contribution.
ARTICLE VII
Profits, Losses and Distributions
---------------------------------
7.1. Profits, Losses and Distributions.
------------------------------------
(a) All profits and losses arising from the normal course of business
operations or otherwise and all cash available for distribution from whatever
source, commencing with the date of this Agreement, shall be allocated or
distributed to the Members according to their Membership Interests.
(b) All profits and losses allocated to the Members shall be credited or
charged, as the case may be, to their Capital Accounts. The terms "profits" and
"losses" as used in this Agreement shall mean income and losses, and each item
of income, gain, loss, deduction or credit entering into the computation
thereof, as determined in accordance with the accounting methods followed by the
Company and computed in a manner consistent with Treasury Regulation Section
1.704-1(b)(2)(iv). Profits and losses for Federal income tax purposes shall be
allocated in the same manner as profits and losses for purposes of this Article
VII, except as provided in Section 7.3(a).
7.2. Distributions Upon Dissolution.
--------------------------------
(a) Upon dissolution and termination, after payment of, or adequate
provision for, the debts and obligations of the Company, the remaining assets of
the Company (or the proceeds of sales or other dispositions in liquidation of
the Company assets, as may be determined by the remaining or surviving
Member(s)) shall be distributed to the Members in accordance with the positive
balances in their Capital Accounts after taking into account all Capital Account
adjustments for the Company taxable year. In the event that a Member has a
negative balance in his Capital Account following the liquidation of the Company
or his interest in the Company after taking into account all Capital Account
adjustments for the Company taxable year in which the liquidation occurs, such
Member shall pay to the Company in cash an amount equal to the deficit balance
in the Capital Account of such Member.
(b) With respect to assets distributed in kind to the Members in liquidation
or otherwise, (i) any unrealized appreciation or unrealized depreciation in the
values of such assets shall be deemed to be profits and losses realized by the
Company immediately prior to the liquidation or other distribution event; and
(ii) such profits and losses shall be allocated to the Members and credited or
charged to their Capital Accounts, and any property so distributed shall be
treated as a distribution of an amount in cash equal to the excess of such fair
market value over the outstanding principal balance of and accrued interest on
any debt by which the property is encumbered. For the purposes of this Section
7.2(b), "unrealized appreciation" or "unrealized depreciation" shall mean the
difference between the fair market value of such assets, taking into account the
fair market value of the associated financing but subject to Section 7701(g) of
the Code, and the Company's basis in such assets as determined under Treasury
Regulation Section 1.704-1(b). This Section 7.2(b) is merely intended to
provide a rule for allocating unrealized gains and losses upon liquidation or
other distribution event, and nothing contained in this Section 7.2(b) or
elsewhere in this Agreement is intended to treat or cause such distributions to
be treated as sales for value. The fair market value of such assets shall be
determined by an appraiser to be selected by the Manager with the Consent of the
Members.
7.3. Special Provisions.
-------------------
Notwithstanding the foregoing provisions in this Article VII:
(a) Income, gain, loss and deduction with respect to Company property which
has a variation between its basis computed in accordance with Treasury
Regulation Section 1.704-(b) and its basis computed for Federal income tax
purposes shall be shared among Members so as to take account of the variation in
a manner consistent with the principles of Section 704(c) of the Code and
Treasury Regulation Section 1.704-3.
(b) Section 704 of the Code and the Treasury Regulations issued thereunder,
including but not limited to the provisions of such regulations addressing
qualified income offset provisions, minimum gain chargeback requirements and
allocations of deductions attributable to nonrecourse debt and partner
nonrecourse debt, are hereby incorporated by reference into this Agreement.
7.4. Distribution of Assets in Kind. No Member shall have the right to
----------------------------------
require any distribution of any assets of the Company to be made in cash or in
kind. If the Managers determine to distribute assets of the Company in kind,
such assets shall be distributed on the basis of their fair market value as
determined by the Managers. Any Member entitled to any interest in such assets
shall, unless otherwise determined by the Managers, receive separate assets of
the Company, and not an interest as tenant-in-common with other Members so
entitled in each asset being distributed. Distributions in kind need not be
made on a pro-rata basis but may be made on any basis which the Managers
determine to be reasonable under the circumstances.
ARTICLE VIII
Transfers of Interests
----------------------
8.1. Transfer of a Member's Membership Interest. Subject to the provisions
-------------------------------------------
of this Article VIII, each Member may sell, assign, give, pledge, hypothecate,
encumber or otherwise transfer, including, without limitation, any assignment or
transfer by operation of law or by order of court, such Member's Membership
Interest in the Company, with the consent of the other Members and the Managers
(which may not be unreasonably withheld or delayed).
8.2. Death, Incompetence, Dissolution of a Member. If a Member dies, such
----------------------------------------------
Member's executor, administrator, or trustee, or, if he or she is adjudicated
incompetent, such Member's guardian, or, if it is a corporation, trust, limited
liability company or partnership and is dissolved, the liquidator, shall
automatically become an assignee (the "Assignee") of the Membership Interest of
the deceased, incompetent, or dissolved Member. The Assignee may receive
distributions and shall have all the rights of a Member for the purpose of
settling or managing such deceased or incompetent Member's estate, but shall not
be a Member and shall not have the power to vote such Member's Membership
Interest. The Assignee shall also have such power as the decedent, incompetent
or dissolved entity possessed: (1) to assign all or any part of the Member's
Membership Interest subject to Section 8.1; and (2) to satisfy conditions
precedent to the assignment of the Membership Interest set forth in Section 8.1.
8.3. Admission of Member; Effect of Transfer.
--------------------------------------------
(a) If the transferee of any Member is admitted as a Member or is already a
Member, the Member transferring its Membership Interest shall be relieved of
liability with respect to the transferred Membership Interest arising or
accruing under this Agreement on or after the effective date of the transfer,
unless the transferring Member (the "Transferring Member") affirmatively assumes
such liability; provided, however, that the Transferring Member shall not be
-------- -------
relieved of any liability for prior distributions and unpaid contributions
unless the transferee affirmatively assumes such liabilities.
(b) Any person who acquires in any manner a Membership Interest or any part
thereof in the Company, whether or not such person has accepted and assumed in
writing the terms and provisions of this Agreement or been admitted as a Member,
shall be deemed by the acquisition of such Membership Interest to have agreed to
be subject to and bound by all of the provisions of this Agreement with respect
to such Membership Interest, including without limitation, the provisions hereof
with respect to any subsequent transfer of such Membership Interest.
8.4 Right of First Refusal. All or any part of a Member's Interest in
-----------------------
the Company proposed to be transferred by a Member shall be subject to the right
of first refusal contained in this Section 8.4:
(a) Notice of Proposed Transfer. The Transferring Member, prior to
------------------------------
making any proposed transfer of all or any part of such Transferring Member's
Membership Interest in the Company, shall first give written notice to the other
Members of the proposed transfer and the terms of the proposed transfer (such
notice being hereinafter referred to as the "First Offer Notice"). Such First
Offer Notice shall constitute an offer by the Transferring Member to sell to the
other Members all, but not less than all, of the Membership Interest in the
Company that the Transferring Member proposes to transfer (the "Offered
Interest") upon the terms and conditions set forth in the First Offer Notice.
The last of the dates on which, pursuant to the provisions of Section 10.2, the
First Offer Notice is deemed to be given to the Members is hereinafter referred
to as the "Notice Date." Those non-transferring Members desiring to purchase
all or a portion of the Offered Interest shall agree among themselves as to the
portion of the Offered Interest to be purchased by each. In the absence of such
an agreement, each non-transferring Member desiring to purchase all or a portion
of the Offered Interest shall be entitled to purchase a portion of the Offered
Interest in the same ratio as the percentage of Membership Interests held by
such non-transferring Member holds relative to the collective percentage of
Membership Interests held by all non-transferring Members desiring to purchase
all or a portion of the Offered Interest.
(b) Notice of Acceptance. The non-transferring Members shall have
----------------------
sixty (60) days from the Notice Date to purchase the Offered Interest. Such
election shall be exercised by the giving of notice of such exercise to the
Transferring Member. No such exercise shall be valid unless said option to
purchase has been exercised with respect to the entire Offered Interest.
(c) Acceptance of Offer; Closing. Upon the acceptance by all or some of the
----------------------------
non-transferring Members of the Transferring Member's offer, the transfer of the
Offered Interest from the Transferring Member to the purchasing Member(s) (the
"Purchasing Member(s)") shall be closed and consummated in the principal office
of the Company, on or before 11:00 A.M. local time on the ninetieth (90th) day
following the Notice Date (or, if such day is not a business day, the business
day next following such day). At such closing, the Transferring Member shall
execute and deliver all documents and instruments to the Purchasing Member(s) as
are reasonably deemed appropriate by counsel to the Company to effectuate the
transfer. The Purchasing Member(s) shall acquire the Offered Interest subject
to the transfer restrictions of this Agreement as to further Transfers of all or
any part of such Offered Interest.
(d) Transfer to Third Party; Later Transfer. If the Members fail to give
------------------------------------------
timely notice of their desire to acquire the Offered Interest, then the
Transferring Member shall be permitted to transfer all, but not less than all,
of the Offered Interest; provided, however, that such transfer shall be made
substantially in accordance with the terms of the proposed transfer as described
in the First Offer Notice; and provided further that such transfer must be
consummated prior to the one hundred eightieth (180th) day following the Notice
Date; and provided further that such transfer shall comply with all the terms
and conditions of this Article VIII. The transferee shall acquire the Offered
Interest subject to all of the terms and previsions of this Agreement, including
without limitation, the transfer restrictions and substitution provisions of
this Article VIII. In the event the Transferring Member fails, prior to such
date, to consummate such proposed transfer, then prior to any subsequent
transfer of all or any part of the Transferring Member's Interest in the
Company, the Transferring Member shall be required to give the Members Notice
thereof, and the right of first refusal provisions described in this Section 8.4
shall again be exercisable with respect thereto.
ARTICLE IX
Dissolution, Liquidation and Termination
----------------------------------------
9.1. Dissolution. The Company shall dissolve and its affairs shall be wound
-----------
up upon the first to occur of the following:
(a) the written consent of the Members;
(b) the entry of a decree of judicial dissolution under Section 18-802 of
the Act; or
(c) the consolidation or merger of the Company in which it is not the
resulting or surviving entity.
9.2. Liquidation. Upon dissolution of the Company, the Managers shall act
-----------
as its liquidating trustees or the Managers may appoint one or more Managers or
Members as liquidating trustee. The liquidating trustees shall proceed
diligently to liquidate the Company and wind up its affairs and shall dispose of
the assets of the Company as provided in Section 7.2 hereof. Until final
distribution, the liquidating trustees may continue to operate the business and
properties of the Company with all of the power and authority of the Managers.
As promptly as possible after dissolution and again after final liquidation, the
liquidating trustees shall cause an accounting by the accounting firm then
serving the Company of the Company's assets, liabilities, operations and
liquidating distributions to be given to the Members.
9.3. Certificate of Cancellation. Upon completion of the distribution of
-----------------------------
Company assets as provided herein, the Company shall be terminated, and the
Managers (or such other person or persons as the Act may require or permit)
shall file a Certificate of Cancellation with the Secretary of State of Delaware
under the Act, cancel any other filings made pursuant to Sections 1.1 and 1.5
and take such other actions as may be necessary to terminate the existence of
the Company.
ARTICLE X
General Provisions
------------------
10.1. Offset. Whenever the Company is obligated to make a distribution or
------
payment to any Member, any amounts that Member owes the Company may be deducted
from said distribution or payment by the Managers.
10.2. Notices. Except as expressly set forth to the contrary in this
-------
Agreement, all notices, requests, or consents required or permitted to be given
under this Agreement must be in writing and shall be deemed to have been
properly given if sent by registered or certified mail, postage prepaid, by
commercial overnight courier, by facsimile or if delivered in hand to Members at
their addresses on Schedule A, or such other address as a Member may specify by
----------
notice to the Managers and to the Company or the Managers at the address of the
principal office of the Company specified in Section 1.3. Whenever any notice
is required to be given by law, the Certificate or this Agreement, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice.
10.3. Entire Agreement; Binding Effect. This Agreement constitutes the
-----------------------------------
entire agreement of the Members and the Managers relating to the Company and
supersedes all prior oral or written agreements or understandings with respect
to the Company. This Agreement is binding on and inures to the benefit of the
parties and their respective successors, permitted assigns and legal
representatives.
10.4. Amendment or Modification. Except as specifically provided herein,
---------------------------
this Agreement may be amended or modified from time to time only by a written
instrument signed by all of the Members.
10.5. Governing Law; Severability. This Agreement is governed by and shall
----------------------------
be construed in accordance with the law of the State of Delaware, exclusive of
its conflict-of-laws principles. In the event of a conflict between the
provisions of this Agreement and any provision of the Certificate or the Act,
the applicable provision of this Agreement shall control, to the extent
permitted by law. If any provision of this Agreement or the application thereof
to any person or circumstance is held invalid or unenforceable to any extent,
the remainder of this Agreement and the application of that provision shall be
enforced to the fullest extent permitted by law.
10.6. Further Assurances. In connection with this Agreement and the
-------------------
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions, as requested by the Managers.
10.7. Waiver of Certain Rights. [Each Member irrevocably waives any right
--------------------------
it may have to maintain any action for dissolution of the Company or for
partition of the property of the Company.] The failure of any Member to insist
upon strict performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
be a waiver of such Member's right to demand strict compliance herewith in the
future. No consent or waiver, express or implied, to or of any breach or
default in the performance of any obligation hereunder shall constitute a
consent or waiver to or of any other breach or default in the performance of the
same or any other obligation hereunder.
10.8. Third-Party Beneficiaries. The provisions of this Agreement are not
--------------------------
intended to be for the benefit of any creditor or other person to whom any debts
or obligations are owed by, or who may have any claim against, the Company or
any of its Members or Managers, except for Members or Managers in their
capacities as such. Notwithstanding any contrary provision of this Agreement,
no such creditor or person shall obtain any rights under this Agreement or
shall, by reason of this Agreement, be permitted to make any claim against the
Company or any Member or Manager.
10.9. Interpretation. For the purposes of this Agreement, terms not defined
--------------
in this Agreement shall be defined as provided in the Act; and all nouns,
pronouns and verbs used in this Agreement shall be construed as masculine,
feminine, neuter, singular, or plural, whichever shall be applicable. Titles or
captions of Articles and Sections contained in this Agreement are inserted as a
matter of convenience and for reference, and in no way define, limit, extend or
describe the scope of this Agreement or the intent of any provision hereof.
10.10. Counterparts. This Agreement may be executed in any number of
------------
counterparts with the same effect as if all parties had signed the same
document, and all counterparts shall be construed together and shall constitute
the same instrument.
[The remainder of this page is left intentionally blank.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date set forth above.
MANAGERS AND MEMBERS:
AFG INVESTMENT TRUST C
By: AFG ASIT CORPORATION, not in its individual capacity but solely as Managing
Trustee
By: /s/ Gary D. Engle
--------------------
Its: President
---------
AFG INVESTMENT TRUST D
By: AFG ASIT CORPORATION, not in its individual capacity but solely as Managing
Trustee
By: /s/ Gary D. Engle
--------------------
Its: President
---------
OPERATING AND JOINT VENTURE AGREEMENT
OF
C & D IT LLC
Schedule A
----------
MEMBERS
Membership
Name and Address of Member Contribution Interest
-------------------------- ------------ -------------
AFG INVESTMENT TRUST C
c/o AFG ASIT Corporation, its Managing Trustee
200 Nyala Farms
Westport, CT 06880 $1,000,000 50%
AFG INVESTMENT TRUST D
c/o AFG ASIT Corporation, its Managing Trustee
200 Nyala Farms
Westport, CT 06880 $1,000,000 50%
Annex C
AMENDMENT TO PARTNERSHIP AGREEMENT
----------------------------------
OF
--
BMIF/BSLF II RANCHO MALIBU LIMITED PARTNERSHIP
----------------------------------------------
an Illinois Limited Partnership (the "Partnership")
---------------------------------------------------
This Amendment to Partnership Agreement is made as of the 12th day of
March, 2002 by and between Semele Group, Inc., a Delaware corporation
("Semele"), as sole limited partner, BSLF II Rancho Malibu Corp., an Illinois
corporation ("BSLF"), as general partner, and upon the execution and delivery
hereof, a co-managing general partner, and C & D IT LLC, a Delaware limited
liability company ("C & D"), upon the execution and delivery hereof a
co-managing general partner.
RECITALS:
--------
WHEREAS:
A. The Partnership exists under the terms of a certain limited partnership
agreement dated as of the 1st day of July, 1992 as subsequently modified and
amended (the "Partnership Agreement"); and
B. Prior to the execution and delivery of this Amendment, Semele and BSLF
were the sole limited and general partners, respectively, of the Partnership
(together, the "Old Partners"); and
C. The Old Partners desire to admit C & D as a co-managing general partner
of the Partnership and desire to enter into this Amendment for such purpose; and
D. Semele is willing to make a capital contribution of all of the membership
interests in RM Financing LLC, a Delaware limited liability company;
E. In consideration of its admission as co-managing general partner and the
capital contribution by Semele, C & D is willing to make a capital contribution
of $2,000,000 to the Partnership; and
F. The Old Partners and C & D (collectively the "Partners" and individually
a "Partner") also desire to make certain changes to the terms of the Partnership
Agreement and desire to enter into this Amendment for such purpose;
NOW, THEREFORE, in consideration of the Recitals, which are incorporated
herein, the mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
C-1
1. Definitions. Except as otherwise defined in this Amendment, terms used
-----------
herein shall have the same meaning as in the Partnership Agreement. The
following specific definitions shall apply with respect to this Amendment:
"Affiliate" of a Person means a Person who controls, is controlled by, or is
---------
under common control with such Person. For purposes of this definition,
--
"control" means the ability to control the management or policies of a Person,
--
whether through the ownership of voting securities, by contract or otherwise.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
------
Liability Act of 1980, as amended (42 U.S.C. 9601 et seq.).
-----
"Clean Water Act" means the Federal Water Pollution Control Act, as amended (33
----------------
U.S.C. 1251 et seq.).
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Environmental Citations" means any written notice, communication, inquiry,
------------------------
warning, citation, summons, directive, injunction, order or claim, concerning
---
the ownership, maintenance, operation or occupancy of the Malibu Property or any
-
portion thereof by the Partnership or any other person, which relates to
Hazardous Activity, Hazardous Materials or violation of any Environmental Law in
connection with the Malibu Property or any portion thereof, or any leachate or
contamination or materials emanating therefrom.
"Environmental Laws" means all applicable foreign, federal, state, regional,
-------------------
county and local administrative, regulatory and judicial laws, rules, statutes,
--
codes, ordinances, regulations, binding interpretations, binding policies,
licenses, permits, approvals, plans, authorizations, directives, rulings,
injunctions, decrees, orders, judgments, common law and any similar items in
effect on the date of this Amendment and through the date hereof relating to the
protection of human health, safety, or the environment (including ambient air,
surface water, ground water, land surface or subsurface strata); including,
without limitation, the following laws, as amended: (a) CERCLA; (b) the
------
Hazardous Materials Transportation Control Act of 1970 (49 U.S.C. 1802 et
seq.); (c) the Resource Conservation and Recovery Act of 1976, as amended (42
U.S.C. 6901 et seq.); (d) the Clean Water Act; (e) the Safe Drinking Water Act
(42 U.S.C. 300h et seq.); (f) the Clean Air Act (42 U.S.C. 1857 et seq.);
(g) the Solid Waste Disposal Act (42 U.S.C. 6901 et seq.); (h) the Toxic
Substances Control Act (15 U.S.C. 2601 et seq.); (i) the Emergency Planning
and Community Right-to-Know Act of 1986 (42 U.S.C. 11001 et seq.); (j) the
Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136 et seq.); (k)
the Radon Gas and Indoor Air Quality Research Act (42 U.S.C. 7401 et seq.);
(l) the National Environmental Policy Act of 1975 (42 U.S.C. 4321); (m) the
Rivers and Harbors Act of 1899 (33 U.S.C. 401 et seq.); (n) the Oil Pollution
Act of 1990 (33 U.S.C. 3321 et seq.); (o) the Porter-Cologne Water Quality
Control Act (Cal. Wat. Code 13020 et seq.); (p) the Safe Drinking Water and
Toxic Enforcement Act of 1986 (Cal. Health & Saf. Code 25300 et seq.); (q) the
Hazardous Substance Account Act (Cal. Health & Saf. Code 25300 et seq.); (r)
the Hazardous Waste Control Act (Cal. Health & Saf. Code 25100 et seq.); (s)
Section 2782.6(d) of the California Civil Code and Chapter 11 of Title 22 of the
California Code of Regulations; and (t) any and all laws, rules, codes,
ordinances, regulations, binding interpretations, binding policies, licenses,
permits, approvals, plans, authorizations, directives, rulings, injunctions,
decrees, orders and judgments relating to hazardous wastes, hazardous
substances, toxic substances, pollution, water safety, polychlorinated
biphenyls, petroleum (its derivatives, by-products, or constituents) the
protection of human health, safety, or the environment.
"Hazardous Activity" means the generation, transportation, deposit, disposal
-------------------
(including, without limitation, arrangement for placement in any landfill,
--
temporary or permanent holding area, impoundment, sump or dump), dumping,
--
escaping, placing, dispersal, release, discharge, spill, emission, injection,
--
leak, leaching, migration of Hazardous Materials in, on, under, about or from
-
any specified property or any part thereof into the indoor or outdoor
-
environment including, without limitation, the ambient air, surface water,
-
groundwater or surface or subsurface strata and any other act or thing, business
-
or operation, that materially increases the danger, or risk of danger, or poses
an unreasonable risk of harm to persons or property, on or off any specified
property, or which may materially adversely impact the value of such specified
property.
"Hazardous Material" means any solid, liquid or gaseous material, alone or in
-------------------
combination, mixture or solution, which is defined, listed or identified as
-
"hazardous" (including "hazardous substances" and "hazardous wastes"), "toxic",
-
a "pollutant" or a "contaminant" pursuant to any Environmental Law including,
without limitation, asbestos, urea formaldehyde, polychlorinated biphenyls
(PCB's), radon, fuel oil, petroleum (including its derivatives, by-products or
other constituents) and any other dangerous, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic or mutagenic material which is prohibited,
limited, controlled or regulated under any Environmental Law, or which poses a
threat or nuisance to the safety or health of any person on any specified
property or any property geologically or hydrologically adjacent to, or
surrounding, such specified property or the environment, or the presence of
which could constitute a trespass by the Partnership.
"Improvements" means the improvements to the Malibu Property as are described in
------------
the Plans and Specifications (as hereinafter defined) including, without
limitation, forty-six (46) single-family finished lots, together with roads,
sewers, utilities and other on-site and off-site improvement, including those
improvements required to be constructed by the Project Requirements.
"Malibu Property" means approximately 274 acres of undeveloped land located in
----------------
Los Angeles County, California, as more particularly described in the
Partnership Agreement.
"Material Adverse Effect" means a material adverse effect (a) on the business,
-------------------------
assets or financial condition of the Partnership, or (b) on the ability of the
Partnership to carry on its business, as it is presently being conducted,
including without limitation the development of the Project.
"Permits" means all governmental or other licenses, permits certificates,
-------
approvals, authorizations and orders material to the ability of the Partnership
-----
to carry on its business as it is presently being conducted (other than those
relating to the Benefit Plans), including without limitation those necessary to
construct, subdivide, occupy, operate, market and sell the Property (and any
portion or subdivision thereof) in accordance with all Project Requirements.
"Benefit Plans" means all "employee benefit plans," within the meaning of
-------------
Section 3(3) of ERISA (other than any plan which is exempt from Title I of
----
ERISA), for the employees or former employees of the Partnership, or their
---
respective dependents, survivors or beneficiaries, (a) which are currently
---
maintained by the Partnership, (b) which were previously maintained by the
---
Partnership within the six (6) year period preceding the date hereof or (c) in
---
which the Partnership is or was, within such six-year period, a participating
employer.
"Plans and Specifications" means those certain Plans and Specifications prepared
------------------------
for the Project.
"Project" means (i) the subdivision of the Property (as hereinafter defined)
-------
into forty-six (46) single-family lots, three (3) open space lots, one (1)
--
sewage treatment lot, and one (1) road lot; and (ii) the construction of the
--
Improvements (as hereinafter defined), all in accordance with the Project
--
Requirements (as hereinafter defined).
--
"Project Requirements" means all applicable federal, state, local and other
---------------------
laws, regulations, codes, orders, ordinances, policies, rules, regulations,
---
reports, standards, statutes, and agreements that apply or pertain to the
---
Project, including without limitation those relating to fire, safety, land use,
---
health, labor, environmental protection, seismic design, conservation, parking,
zoning and building, and all restrictive covenants (if any) and other title
encumbrances, affecting all or any part of the Property or the Improvements
constructed thereon.
"Property" means the Malibu Property and all related permits, engineering work
--------
product, Improvements and assets and entitlements required to develop the
Project in accordance with the Project Requirements.
"Semele" means Semele Group Inc., a Delaware corporation
------
2. Capital Contributions.
----------------------
(a) In consideration of its admission to the Partnership as a co-managing
general partner, C & D hereby agrees to make a Capital Contribution (the "C & D
Capital Contribution") to the Partnership in the amount of $2,000,000 in
immediately available funds. For the avoidance of doubt, the C & D Capital
Contribution shall not be deemed to trigger any obligation on the part of the
Old Partners to make any Additional Capital Contribution to the Partnership.
(b) In order to induce C & D to make the C & D Capital Contribution,
Semele hereby agrees to make a capital contribution of all of the membership
interests it holds in RM Financing LLC, a Delaware limited liability company,
pursuant to the terms of a Contribution, Assignment and Assumption Agreement of
even date herewith by and between Semele and the Partnership (the "Semele
Capital Contribution").
3. Admission of C & D. Upon payment of the C & D Capital Contribution, C &
-------------------
D shall be deemed to have been admitted to the Partnership as a co-managing
general partner and C & D shall have the benefit of all rights and be bound by
all obligations as a Partner in the Partnership.
4. C & D Capital Account. As of the date hereof, C & D's Capital Account
------------------------
shall be $2,000,000.
5. Percentage Interests. Upon the payment of the C & D Capital
---------------------
Contribution, the contribution of the Semele Capital Contribution and the
-----
execution and delivery of this Amendment, the Percentage Interests of the
Partners shall be as reflected on Exhibit A attached hereto and shall be
------- -
incorporated herein by reference.
6. Right of First Offer. The right of first offer pursuant to Section 8.3
----------------------
of the Partnership Agreement shall benefit each Partner. An Offeror shall make
an Offer to each Partner other than the Offeror, each of whom shall be deemed an
Offeree under the Partnership Agreement. In the event that more than one
Offeree accepts an Offer, then each accepting Offerees shall have the right to
purchase a percentage of the Offeror's Partnership Interest, calculated based on
a fraction, the numerator of which is the Partnership Interest of the Offeree
and the denominator of which is the total Partnership Interest of all Offerees.
7. Special Distribution to Semele. Notwithstanding any provision of the
----------------------------------
Partnership Agreement to the contrary, including, without limitation, Sections
3.3 and 3.4, upon the execution and delivery of this Amendment and the receipt
by the Partnership of the C & D Capital Contribution, the Partnership shall
distribute $2,000,000.00 to Semele in repayment to Semele of debt owed to Semele
by the Partnership.
8. Distributions. Subject only to the terms of this Amendment and
-------------
notwithstanding any provision of the Partnership Agreement to the contrary,
--
including, without limitation, the provisions of Sections 3.4, and 3.5, from and
after the date hereof, Cash From Operations and Cash From Financing
(collectively the "Cash Flow") shall be distributed to the Partners as follows:
(a) 80% of the Cash Flow shall be distributed to C & D until such time as
the total sum of $2,000,000.00 plus a rate of return thereon equal to 6% per
annum has been paid to C & D.
(b) Until such time as all the full amount of the distribution to C & D
described in (a) above has been made, the remaining 20% of the Cash Flow shall
be distributed to BSLF.
(c) From and after such time as the distribution to C & D described in (a)
above has been made in full, 100% of the Cash Flow shall be distributed to BSLF
until such time as an aggregate sum of $9,000,000.00 plus a rate of return
thereon equal to 6% per annum (such amount to be inclusive of any distributions
made pursuant to (b) above) has been distributed to BSLF.
(d) From and after such time as the distributions set forth in (a) and (c)
have been made, the Cash Flow shall be distributed 25% to C & D and 75% to the
Old Partners, and the Old Partners shall share such distributions in proportion
(as between the Old Partners) to their respective Percentage Interests.
9. Management. Notwithstanding any provision of the Partnership Agreement
----------
to the contrary, including without limitation Section 5.1, for so long as C & D
is a Partner: (i) it is the intent and shall be the practice of the Partners
that the management and control of the operations, business and affairs of the
Partnership shall be jointly and equally vested in C & D and BSLF and all
decisions with respect to such management and control shall be made unanimously
by C & D and BSLF, and (ii) all provisions of the Partnership Agreement which
require the approval of "BSLF II" shall be deemed to mean the unanimous
approval of both C & D and BSLF.
10. Buy/Sell Option. From and after the date hereof and continuing until
----------------
such time as C & D is no longer a Partner, the parties hereto covenant and agree
that no Partner shall have the right to exercise any rights granted to such
Partner pursuant to Article XII of the Partnership Agreement.
11. Contingent Return of Capital. C & D is making its Capital Contribution
-----------------------------
in reliance on the representation, warranty and covenant of the Old Partners
that the Old Partners will approve, execute and deliver or cause to be approved,
executed and delivered, a Contribution Agreement, by and among the Partnership,
the Old Partners and RMLP, Inc., a Delaware corporation, in a form reasonably
acceptable to C & D, and close the transactions contemplated thereby (the "RMLP
Closing"). If, after not less than (30) thirty days after the mailing of a
definitive solicitation statement for the solicitation of consents of the
beneficial interest holders of the members of C & D to such holders (the
"Consent Solicitations"), the RMLP Closing has not been consummated for any
reason within ninety (90) days after Semele and the Partnership have been
advised by C & D that the requisite consents relating to the approval of the
beneficial interest holders of the members of C & D to the transactions
contemplated by the RMLP Closing has or has not been obtained, then C & D shall
have the right, exercisable in its sole and exclusive discretion, to demand the
Old Partners to immediately disgorge or cause the Partnership to immediately
disgorge the C & D Capital Contribution. The obligations of the Old Partners
and the Partnership under this Section (the "Secured Obligations") shall be
secured by the following (together, the "Security Documents"): (i) a pledge of
fifty percent (50%) of the BSLF capital stock held by Semele, substantially in
the form of Exhibit B hereto and (ii) a pledge of fifty percent (50%) of the
------- -
Partnership Interests held by the Old Partners, substantially in the form of
Exhibit C hereto. For the avoidance of doubt, the Secured Obligations hereunder
---- -
are intended to provide C & D with reasonably security for the C & D Capital
Contribution plus a ten percent (10%) rate of return per annum and the terms of
the Security Documents shall be limited to such extent. Upon discharge in full
of the Secured Obligations, C & D's interest as a Partner hereunder shall be
extinguished and all of C & D's rights and obligations under this Agreement
shall terminate, provided however, that C & D's interest as a Partner shall not
be extinguished if the RMLP Closing occurs.
12. Representations and Warranties.
--------------------------------
A. Representations and Warranties of the Old Partners and the Partnership.
----------------------------------------------------------------------
All Schedules referenced in this Amendment to be delivered by any of the Old
Partners or the Partnership shall be delivered to C & D no later than three (3)
business days prior to the mailing of the Consent Solicitations (the "Delivery
Date"). Each of the Old Partners and the Partnership, hereby severally
represent and warrant to C & D that the following representations and warranties
are true and correct as of the Delivery Date:
(1) Necessary Authorization or Approvals. Each of the Old Partners and
the Partnership have full power, authority and legal capacity to execute and
deliver, or cause to be executed and delivered, this Amendment and the other
agreements and instruments to be executed and delivered by either of the Old
Partners or the Partnership pursuant hereto and to consummate the transactions
contemplated hereby. This Amendment has been duly executed and delivered by
BSLF and the Partnership and constitutes the legal, valid and binding obligation
of each of them enforceable in accordance with its terms.
(2) [intentionally omitted]
(3) Organization, Powers, Ownership and Assets of the Partnership. The
Partnership is a limited partnership duly organized and validly existing under
the laws of the State of Illinois and has the power to carry on its business, as
such business is now being conducted, and to own, lease or operate the
properties and assets it now owns, leases or operates. There are no existing
options, warrants, contracts, calls, commitments, demands or other agreements of
any character to which either of the Old Partners and the Partnership is a party
which could require the purchase or sale of any Percentage Interest. The
Property constitutes all of the material assets of the Partnership.
(4) Qualification or Licensing to Carry on Business; Subsidiaries. The
Partnership has not failed to qualify to do business in any jurisdiction where
such qualification is required and where the failure to be so qualified would or
could have a Material Adverse Effect. The Partnership does not have, nor has it
ever had, any subsidiaries whatsoever. Additionally, except as set forth in
Schedule 12(a)(4), to the knowledge of each of the Old Partners and the
---------------
Partnership, the Partnership has never entered into any joint ventures.
-----
(5) Liabilities.
(a) Schedule 12(a)(5)(a) lists all agreements, notes, instruments or other
---------------------
documents relating to (i) indebtedness owed by or to the Partnership, and (ii)
money borrowed or loaned by or to the Partnership in satisfaction of obligations
of or to the Partnership, including but not limited to all mortgages, loan,
credit, surety, guarantee, and lease-purchase arrangements or other financing
agreements to which the Partnership is a party; and (iii) all conditional sales
contracts, chattel mortgages and other security agreements or arrangements with
respect to personal property used or owned by the Partnership, copies of which
have been delivered or made available to C & D.
(b) Except as set forth in Schedule 12(a)(5)(b) hereto, since February 6,
--------------------
2002, the only additional liabilities which have been incurred by the
Partnership are of such a nature as are comparable to those normally incurred in
the ordinary course of business during a comparable period of operations.
(c) [intentionally omitted]
(d) Except as set forth in Schedule 12(a)(5)(d), the Partnership is not a
--------------------
party to or subject to, and no property or asset of the Partnership is subject
to, any judgment, order, decree, stipulation or consent of or with any court,
governmental body or agency which does or may have a Material Adverse Effect.
(e) The Partnership is not a party to or subject to, and no property or
asset of the Partnership is subject to, any contracts or commitments requiring
performance by the Partnership of obligations thereunder beyond a one-year term
following the Closing.
(6) Compliance with Law and Permits. Except as set forth in Schedule
--------
12(a)(6) hereto, to the knowledge of either of the Old Partners or the
-------
Partnership (a) the business of the Partnership has been at all times prior to
-------
the date hereof, and is currently being operated, in compliance with all
applicable governmental and regulatory laws, rules, regulations and ordinances,
the non-compliance with which could or would have a Material Adverse Effect, (b)
the development of the Project is in material compliance with all Project
Requirements; (c) all Permits (as hereinafter defined, including without
limitation, all Permits required to construct and complete the Project) have
been obtained and are in full force and effect, except those which the failure
to obtain would not result in a Material Adverse Effect; and (d) no claim has
been made in writing (or to knowledge) by any governmental or regulatory
authority, to the effect that the business conducted by the Partnership fails to
comply with any law, rule, regulation or ordinance, or Project Requirements, or
that a Permit is necessary with respect thereto (without such Permit having been
obtained promptly after receipt of notice of any such claim).
(7) Environmental Matters.
(a) Except as set forth in Schedule 12(a)(7)(a), the location, construction,
--------------------
ownership, occupancy, maintenance, operation and use of the Malibu Property
is in compliance with all Environmental Laws, the non-compliance with which
would or is reasonably likely to have a Material Adverse Effect.
(b) Except as set forth in Schedule 12(a)(7)(b), all Permits with respect to
--------------------
the use of the Malibu Property which are required pursuant to Environmental Laws
have been obtained and the same are in full force and effect (other than any
Permit where the failure to obtain such Permit or its lapse would not have a
Material Adverse Effect) and there has been no change in any fact or
circumstance reported or assumed in any application for or grant thereof that
would or is reasonably likely to have a Material Adverse Effect on the validity
of any such Permit or the renewal or transfer thereof.
(c) Except as set forth in Schedule 12(a)(7)(c), (i) neither the Old
---------------------
Partners nor the Partnership has received (nor has knowledge of) any
Environmental Citations and (ii) to the knowledge of either of the Old Partners
and the Partnership, no Environmental Citation is pending or threatened under
any Environmental Law concerning the past or present ownership, maintenance,
operation or occupancy of the Malibu Property, or any portion thereof or
concerning the Partnership or which relates to Hazardous Activity or Hazardous
Materials. Except as set forth in Schedule 12(a)(7)(c), neither the Partnership
--------------------
nor either of the Old Partners have been advised in writing by any governmental
agency or any previous owner that any previous owner or any past operator, user
or occupant of the Malibu Property has received any Environmental Citations.
(d) Except as set forth in Schedule 12(a)(7)(d) hereto, neither the Old
--------------------
Partners nor the Partnership have, to either of their knowledge, permitted,
conducted, nor is aware of any Hazardous Activity conducted with respect to the
Malibu Property in violation of, or creating any liability under, any
Environmental Law the non-compliance with which or liability under would or is
reasonably likely to have a Material Adverse Effect.
(e) Except as set forth in Schedule 12(a)(7)(e) hereto, to the knowledge of
--------------------
either of the Old Partners or the Partnership, there are no Hazardous Materials
present in the surface water, groundwater or soil (either surface or subsurface)
at the Malibu Property or at any geologically or hydrologically connected
property including, without limitation, any Hazardous Materials contained in
barrels, above or underground storage tanks, landfills, land disposals, land
treatment units, waste piles, containment buildings, dumps, solid waste
management units, equipment (movable or fixed) or other containers, either
temporary or permanent, and deposited or located in or on land, water, sumps, or
any other part of the Malibu Property or such connected property, or
incorporated into any structure thereon, in violation of, or creating any
liability under, any Environmental Law the non-compliance with which or
liability under would or could have a Material Adverse Effect.
(f) Except as set forth in Schedule 12(a)(7)(f) hereto, to the knowledge of
--------------------
either of the Old Partners or the Partnership, the Partnership has not been
accused, or found liable under any Environmental Law and the Partnership is not
now under investigation in respect thereof and neither the Malibu Property nor
any other site or facility (as defined under CERCLA) of the Partnership is
listed or proposed for listing on the National Priorities List or is listed on
the Comprehensive Environmental Response, Compensation, Liability Information
System List or any comparable list maintained by any foreign, federal, state,
regional, county or local authority. Except as set forth in Schedule
--------
12(a)(7)(f) hereto, to the knowledge of either of the Old Partners or the
-
Partnership, there are no proceedings pending, or threatened under any
Environmental Law against or affecting the Partnership or the Malibu Property in
any court or before any governmental authority or arbitration board or tribunal
which, if adversely determined, would or could have a Material Adverse Effect.
The Partnership is not in default with respect to any order of any court or
governmental authority or arbitration board or tribunal relating to
Environmental Laws.
(8) Absence of Certain Changes or Events. Since February 6, 2002, the
business of the Partnership has been conducted in the ordinary course and,
except as set forth in Schedule 12(a)(8), the Partnership has not taken or
------------------
suffered any action or entered into any material transaction, including but not
limited to the following, except in the ordinary course of business or as
contemplated by this Amendment and the transaction contemplated herein:
(a) mortgaging, pledging or subjecting to lien, charge or other encumbrance
any assets, or entering into any agreement resulting in the imposition of any
such mortgage, lien or charge;
(b) selling or purchasing, assigning or transferring any intangible
property;
(c) suffering any casualty losses, whether insured or uninsured, and whether
or not in the control of either of the Old Partners or the Partnership, in
excess of $5,000 in the aggregate, or waiving any rights of any material value,
individually or in the aggregate;
(d) incurring any indebtedness for money borrowed or any noncurrent
indebtedness for the purchase price of any fixed or capital asset;
(e) except in the ordinary course of business, making (i) any change in
properties and assets or in liabilities, (ii) any commitment for any capital
expenditure or (iii) any sale, lease or other disposition of any capital asset;
(f) making any change in the Partnership Agreement;
(g) (i) issuing any new Percentage Interest to a third party or (ii)
granting or issuing any option or warrant for the purchase of any new Percentage
Interest to a third party, or made any commitment relating thereto;
(h) making any distribution or payment to the Old Partners;
(i) amending, making or entering into any agreement with any employee, agent
or consultant;
(j) amending any material contract, lease or agreement listed; and/or
(k) voluntarily incurring any material obligation or liability, absolute or
contingent, except in the ordinary course of business or pursuant to existing
contracts and agreements described in this Amendment or in the schedules
delivered pursuant hereto.
Since February 6, 2002, there has been no material adverse change in the
results of operations, revenues, manner of conducting business, condition
(financial or otherwise) or any material adverse change in any material asset
(including, without limitation, accounts receivable) of the Partnership since
such date, and no event has occurred which has resulted, or which is reasonably
likely to result, in a Material Adverse Effect. BSLF is not aware of any event,
circumstance or condition which could reasonably be expected to result in any
such Material Adverse Effect.
(9) Tax Returns and Liabilities. The Partnership is taxed as a partnership
and, as such, is a flow through entity for tax purposes.
(10) Title to and Use of Properties; Absence of Liens and Encumbrances,
etc.
(a) [intentionally omitted]
(b) Except for the Malibu Property, the Partnership has not owned nor does
it currently own any fee interest in any real property, nor has the Partnership
agreed to purchase or is it obligated to purchase any interest in any real
property. There are no outstanding contracts of sale, options to purchase,
rights or first refusal or rights of first offer with respect to all or any
portion of the Malibu Property.
(c) Except as disclosed in Schedule 12(a)(10)(c), the Partnership has good
---------------------
and marketable title to all of the properties and assets, real and personal,
that the Partnership purports to own which form a part of the business of the
Partnership including, without limitation, the properties and assets of the
Partnership (other than such properties and assets as shall have been sold or
otherwise disposed of in the ordinary course of business) free and clear of any
agreement or understanding with respect to the use or possession thereof or any
rights thereto and of all liens (including, without limitation, statutory liens
arising by reason of labor or materials furnished or claimed to have been
furnished to the Partnership or any predecessor in interest), mortgages,
pledges, encumbrances, security interests, conditional sales agreements or
charges of any kind or character except (i) encumbrances solely with respect to
personal property incurred in the ordinary course of business; (ii) liens and
encumbrances on the Property reflected in that certain ALTA Loan Policy of Title
Insurance dated February 21, 2001 issued to Seller by Lawyers Title Insurance
Company as Policy No. 5104950-M; (iii) liens for current taxes and assessments
not yet due and payable; and (iv) encumbrances solely with respect to personal
property which are minor in amount and do not materially impair the value or use
in accordance with past practices of the assets affected thereby.
(d) The Partnership has the right to use all real and personal properties
presently utilized in the business of the Partnership that are not owned by the
Partnership, and the Partnership is not in material default with respect to any
lease material to such business and there exists no event, occurrence, condition
or act which, with the giving of notice or the lapse of time, or both, would
become a default under any such lease.
(e) Except as disclosed in Schedule 12(a)(10)(e), no property utilized by
---------------------
the Partnership in its business which is not owned by the Partnership is owned
by any officer, director or shareholder of either of the Old Partners or any
Affiliate of either of the Old Partners (or any relative or spouse of any
officer, director or shareholder or any relative of such spouse or any
corporation, partnership, trust or other entity in which any officer, director
or shareholder or any such relative or spouse has any beneficial interest).
(f) To the knowledge of either of the Old Partners or the Partnership,
neither the whole nor any portion of the Malibu Property nor any interest
therein has been condemned, requisitioned or otherwise taken by any public
authority, and no such condemnation, requisition or taking has been threatened
in writing or is contemplated.
(11) Litigation and Claims. Except as set forth in Schedule 12(a)(11),
------------------
the Partnership is not a party to, nor is any property or asset owned by the
Partnership the subject of, any suit, action, or administrative, arbitration or
other proceeding (including, without limitation, proceedings concerning labor
disputes or grievances or union recognition or concerning condemnation, eminent
domain or the like) or government investigation or proceeding that is currently
pending or which has been pending within the three year period prior to the date
hereof and none of the foregoing has been threatened in writing against any of
the Partnership, or the assets or properties of the Partnership.
(12) Contracts and Contractual Compliance.
(a) Schedule 12(a)(12)(a) lists a description of each written or oral
----------------------
contract or agreement which will involve a present commitment for the receipt or
expenditure by the Partnership under any of the foregoing, of monies or value
equivalent to $50,000 or more during any fiscal year, including a list of all
outstanding purchase and sale orders and commitments for personal property and
services (but excluding purchase and sale orders or commitments for personal
property or services entered into in the ordinary course of business) of the
Partnership. Complete and correct copies of such agreements have been made
available to C & D. The Partnership is not in default in any material respect
(nor has the Partnership been notified to such effect) with respect to any
obligation to be performed under any contract, lease, guaranty, indenture, loan
agreement, document or other agreement or arrangement (including, without
limitation, those listed or described on Schedule 12(a)(12)(a)) to which the
---------------------
Partnership or any assets of the Partnership are subject, except where such
default or defaults, individually or in the aggregate, would not have a Material
Adverse Effect.
(b) [intentionally omitted]
(c) Except as set forth on Schedule 12(a)(12)(c), the Partnership has not
---------------------
guaranteed the indebtedness or obligations of any other Person, and no other
Person whose obligations have been so guaranteed as disclosed on such Schedule
is in default of the obligations so guaranteed, and neither the Old Partners nor
the Partnership are aware of any event which, with the passage of time, the
giving of notice, or both, would constitute such a default.
(d) Neither the execution and delivery of this Amendment nor the
consummation of the transactions contemplated hereby will constitute a default
under any contract (including, without limitation, those listed or described on
Schedules 12(a)(12)(a), (b) and (c)) involving the Partnership or impose any
- ---------------------------------------
penalty upon the Partnership in the performance of such contract, or accelerate
- ---
the performance thereof, or result in the creation of any lien, charge or
encumbrance upon any of the properties or assets of the Partnership make any
contract to which the Partnership is a party subject to termination or
cancellation.
(e) Except as set forth on Schedule 12(a)(12)(e), all parties with which the
---------------------
Partnership has contractual arrangements are, to the knowledge of either of the
Old Partners or the Partnership, in substantial compliance therewith and are not
in default (and to the knowledge of each of the Old Partners no event has
occurred which, with the passage of time, the giving of notice, or both, would
constitute a default) thereunder, except where such default or defaults,
individually or in the aggregate, would not have a Material Adverse Effect.
(13) Insurance.
(a) Schedule 12(a)(13)(a) lists a summary description (including the name of
---------------------
the insurer, the policy number, period of coverage, and the amount of coverage)
of the coverage under all insurance policies pertaining to the operations or
business of the Partnership which are currently in effect, and which have been
in effect within the last five years, together with the amount of the current
annual premiums under such policies and copies of any written notice of possible
cancellation of, or premium increases with respect to, such insurance policies.
Complete and correct copies of such policies will be available on request to C &
D.
(b) All policies of insurance reflected on Schedule 12(a)(13)(a) are on the
---------------------
date hereof and to the knowledge of the Old Partners are on the date hereof
valid and enforceable in accordance with their terms and in full force and
effect, subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to the effect of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law); all premiums due thereon as of the date hereof have been paid
in full and all premiums which will be due thereon as of the date hereof have
been paid. None of the insurance policies have provisions for retrospective or
contingent premium charges or any waiver of premium provisions; and there are no
minimum premium insurance policies or administrative service contracts for
medical benefits. The Partnership has not received any written notice or other
written communication from any issuer of any of its insurance policies canceling
or materially amending any of such policies, materially increasing any
deductibles or retained amounts thereunder, or materially increasing the annual
or other premiums payable thereunder, and no written threat of such
cancellation, amendment or increase of deductibles, retainages or premiums has
been received.
(14) Government Contracts. To the knowledge of the Old Partners or the
Partnership, there have not been, within the past ten (10) years, and are not
presently, any contracts or subcontracts to which the Partnership is a party
with the United States Government or any department, agency or instrumentality
thereof.
(15) Additional Information Supplied. The Partnership has made available to
C & D, to the extent available, the following documents and schedules of
information relating to the Partnership and the business conducted by the
Partnership, each of which are, and to the knowledge of each of the Old Partners
are, true, correct and complete.
(a) Partnership Agreement. A copy of the Partnership Agreement, as amended
to date, of the Partnership, certified as true, correct and complete by an
officer of the General Partner of the Partnership.
(b) Minutes. Minutes of all meetings of, or other evidence of action taken
by, the partners of the Partnership since January 1, 1996.
(c) Bank Accounts and Powers of Attorney, etc. Schedule 12(a)(15)(c) lists
---------------------
the name and address of each bank, together with the name and number of each
account, in which the Partnership has an account or safe-deposit box, the names
of all persons authorized to draw thereon or to have access thereto, and the
names of any persons holding powers of attorney with respect to the business of
the Partnership and a summary of the terms thereof.
(16) Project Budget. Attached hereto as Schedule 12(a)(16) is the most
------------------
recent line item budget for the Project (the "Project Budget"). To the
---------------
knowledge of each of the Old Partners or the Partnership, the Project Budget
contains reasonable estimates of the costs for each of the items identified
therein which have yet to be completed.
(17) [intentionally omitted]
(18) Accuracy of Information. To the knowledge of each of the Old Partners
or the Partnership, neither this Amendment, nor any certificate, document or
information furnished pursuant to this Amendment contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained herein or therein not
misleading.
B. Representations and warranties of C & D. C & D represents and
---------------------------------------------
warrants to the Partnership and the Old Partners that the following
representations and warranties are true and correct as of the date of this
Amendment:
(1) Organization of C & D. C & D is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the full power and authority to carry on its business as now
being conducted.
(2) Necessary Authorization and Approval. C & D has full power and
authority to execute and deliver this Amendment and to consummate the
transactions contemplated hereby. This Amendment has been duly executed and
delivered by C & D and constitutes the legal, valid and binding obligation of C
& D enforceable in accordance with its terms. Other than required trust action
and filings, neither the execution, delivery or performance of this Amendment
nor the consummation of the transactions contemplated hereby is prohibited by,
or requires C & D to obtain any consent, authorization, approval or registration
under, any law, rule or regulation, other than as contemplated hereby, or any
judgment, order, writ, injunction or decree, which is binding on C & D or the
terms of any contract to which C & D or any of its Affiliates is a party.
13. Distributions in Liquidation. Section 9.3 of the Partnership Agreement
-----------------------------
is hereby amended to provide that in the event of the dissolution of the
Partnership, no distributions shall be made until such time as the distribution
to C & D described in paragraph 8(a) above has been made in full, and such
distribution shall be the first priority distribution in the event of the
liquidation of the Partnership, notwithstanding anything to the contrary
contained in the Partnership Agreement.
14. Number; Co-Managing General Partners. The Partnership Agreement is
---------------------------------------
hereby amended as reasonably necessary and as deemed required by the context to
reflect that there are three Partners rather than two and that BSLF and C & D
are, from and after the date hereof, co-managing general partners of the
Partnership and that the unanimous consent of both of BSLF and C & D as
co-managing general partners is necessary for the Partnership to take any action
on behalf of the Partnership or the General Partner. Without limiting the
foregoing, references to "either" and "neither" Partner and the "other Partner"
are modified as required by the context of their use to reflect that, from and
after the date hereof, there are three Partners rather than two.
15. Consent. To the extent that the consent of either of the Old Partners
-------
is required for any of the actions or transactions contemplated by this
Amendment, the Old Partners each hereby consent to each such action.
16. Ratification. Except as modified hereby, the terms and conditions of
------------
the Partnership Agreement are ratified and affirmed.
17. Headings; Severability. The headings and section references contained
-----------------------
herein are for convenience only. If any of the provisions herein is deemed
unenforceable or illegal, it is the intent of the parties that the remaining
provisions of this Amendment be interpreted so as to give maximum effect to such
remaining provisions.
18. Entire Agreement; Amendment. The Partnership Agreement, this Amendment
----------------------------
and the Security Documents constitute the entire understanding of the parties
with respect to the transactions contemplated herein and such documents
supersede any other understanding of the parties whether written or oral.
19. Conflict. In the event of a conflict between the terms of this
--------
Amendment and the terms of the Partnership Agreement, the terms of this
Amendment shall govern.
[The remainder of this page is left intentionally blank.]
IN WITNESS WHEREOF, the undersigned have executed this Amendment to
Partnership Agreement as of the date first given above.
BSLF II RANCHO MALIBU CORP., as General Partner, and from and after the
execution and delivery hereof, the Co-Managing General Partner
By: /s/ James A. Coyne
---------------------
Its: Vice President
---------------
SEMELE GROUP, INC. , as sole limited Partner
By: /s/ James A. Coyne
---------------------
Its: President
---------
C & D IT LLC
By: AFG Investment Trust C, member/manager
By: AFG ASIT Corporation, not in its individual capacity
but solely as Managing Trustee
By: /s/ Gary D. Engle
--------------------
Its: President
---------
By: AFG Investment Trust D, member/manager
By: AFG ASIT Corporation, not in its individual capacity
but solely as Managing Trustee
By: /s/ Gary D. Engle
--------------------
Its: President
---------
ACKNOWLEDGED AND AGREED:
- -------------------------
BMIF/BSLF II RANCHO MALIBU LIMITED PARTNERSHIP
By: BSLF II Rancho Malibu Corp., as General Partner, and from and after the
execution and delivery hereof, the Co-Managing General Partner
By: /s/ James A. Coyne
---------------------
Its: Vice President
---------------
Exhibits:
- ---------
A - Percentage Interests of the Partners
B - Semele Pledge of BSLF Capital Stock
C - Old Partners' Pledge of Partnership Interests
D - Deed of Trust
Schedules:
- ----------
12(a)(4) - Partnership Joint Venture Relationships
12(a)(5)(a) - Instruments re Indebtedness of/to the Partnership; Other
Security Agreements or Arrangements
12(a)(5)(b) - Partnership Additional Liabilities
12(a)(5)(d) - Pending Court/Governmental Judgments
12(a)(6) - Non-Compliance with Law and Permits
12(a)(7)(a) - Non-Compliance with Environmental Laws
12(a)(7)(b) - Non-Compliance with Environmental Permit Regulations
12(a)(7)(c) - Environmental Citations of the Partnership and/or Semele
12(a)(7)(d) - Hazardous Activity
12(a)(7)(e) - Hazardous Materials
12(a)(7)(f) - Pending or Threatened Environmental Law Violations
12(a)(8) - Extraordinary Business Transactions
12(a)(10)(c) - Title Exclusions
12(a)(10)(e) - Partnership Use of Property Owned by Affiliates
12(a)(11) - Pending Litigation
12(a)(12)(a) - Yearly Expenses/Receipts in Excess of $5,000
12(a)(12)(c) - Partnership Guarantees (and Related Defaults, if any)
12(a)(12)(e) - Non-Compliance/Defaults under Contractual Arrangements
12(a)(13)(a) - Insurance Policies
12(a)(15)(c) - Bank Accounts and Powers of Attorney
12(a)(16) - Project Budget
EXHIBIT A
To Amendment to Partnership Agreement
of
BMIF/BSLF II Rancho Malibu Limited Partnership
PERCENTAGE INTERESTS
--------------------
C & D: 25%
Semele: 1.05%
BSLF: 73.95%
ANNEX D-1
IMPERIAL
CAPITAL, LLC
150 SOUTH RODEO DRIVE. SUITE 100 BEVERLY HILLS, CA 90212
310-246-3700 800-929-2299 FAX 310-246-3794
May 20, 2002
The Board of Directors of
PLM INTERNATIONAL, INC.
200 Nyala Farms
Westport, Connecticut 06880
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to RMLP Inc. ("RMLP"), of the aggregate consideration to be contributed
by RMLP in exchange for 75% of the partnership interests in BMIF/BSLF II Rancho
Malibu Limited Partnership (the "Partnership") (the "Transaction") currently
owned by Semele Group, Inc. and BSLF II Rancho Malibu Corp. (together the
"Sellers") (the "Partnership Interests"). The remaining 25% of the partnership
interests in the Partnership are owned by C & D IT LLC (the "C & D Joint
Venture"). We understand that, at the time of the Transaction, RMLP will be a
100% wholly owned subsidiary of PLM International, Inc. ("PLM") formed for the
sole purpose of performing the Transaction and whose sole asset upon completion
of the Transaction will be the Partnership Interests. We understand that the
Partnership's sole asset is approximately 270 acres of land in Malibu,
California (the "Malibu Property"), which was appraised to have a market value
"as is" of $11 million by Jones & Company, a real estate appraisal and
consulting firm, on February 28, 2002 (the "Appraisal") and that the Partnership
will have no outstanding liabilities on a consolidated basis with its
subsidiaries to any third parties at the time of the Transaction. We have been
informed of the provisions of an amendment to the Partnership Agreement of
BMIF/BSLF II Rancho Malibu Limited Partnership entered into on July 1, 1992, as
amended, which sets forth the allocation of proceeds to the partners in the
event of a liquidation, and we understand that the execution of such amendment
is a condition precedent to RMLP entering into the Transaction. Therefore, in
order to form our opinion as to the fairness, from a financial point of view, of
the Transaction, with your consent, we performed our analysis on the
consideration to be contributed by RMLP, described below, relying solely on the
Appraisal for an estimate of the market value of the Partnership Interests on a
"as is - where is" basis and assuming the liquidation of the Malibu Property at
the time of the Transaction. Pursuant to the Transaction, RMLP will contribute
total consideration (the "Consideration") to the Sellers for the Partnership
Interests consisting of:
D-1
- - $5.5 million in cash;
- - $2.5 million in stated principal amount of an unsecured promissory note to
be issued by RMLP bearing interest at 7% per annum with no covenants precluding
additional indebtedness or other liens; and
- - 182 shares of common stock of RMLP constituting 15.4% of the outstanding
shares of RMLP at the time of the Transaction.
The Sellers are affiliated with Semele Group Inc. and Equis II Corp., which
are also indirectly affiliated with PLM.
In connection with the rendering of this opinion, we have:
(i) Relied solely on the Limited Appraisal, Restricted Use Report dated
March 1, 2002 prepared by Jones & Company, to establish a value for the subject
properties on as "as is - where is" basis at $11 million;
(ii) Analyzed certain historical business and financial information relating
to the Partnership, including the most recent tax return for the year ended
December 31, 2001, which was provided by management of Equis II Corp.;
(iii) Assumed a liquidation of the Malibu Property on the date of this
letter and a payout of proceeds pursuant to the amendment to the Partnership
Agreement as a condition precedent to the Transaction;
(iv) Reviewed certain information relating to the business, earnings, taxes
and cash flow of the Partnership, furnished to us by management of Equis II
Corp.;
(v) Reviewed certain business and financial information relating to the
Partnership that we deemed relevant;
(vi) Conducted discussions with members of senior management of Semele Group
Inc., Equis II Corp., and PLM concerning the matters described in clauses (i),
(ii), (iii), (iv) and (v) above, as well as the prospects and strategic
objectives of the Partnership; and
(vii) Conducted such other financial studies, analyses and investigation and
took into account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
With your consent, we have relied upon the accuracy and completeness of the
foregoing financial and other information and have not assumed responsibility
for independent verification of such information or conducted any independent
valuation or appraisal of any assets of PLM, RMLP or the Partnership. With
respect to the information provided, we have assumed, with your consent, that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the providers of such information. We have
also relied upon the assurances of senior management of Semele Group, Inc.,
Equis II Corp. and PLM that they are unaware of any facts that would make the
information provided to us incomplete or misleading. We assume no
responsibility for, and express no view as to the assumptions on which the
information is based.
Our opinion expressed herein has been prepared for the information of the Board
of Directors of PLM, and our opinion is rendered in connection with the purchase
of the Partnership Interests. This opinion does not constitute a recommendation
to the Sellers as to whether they should sell their interests to RMLP. This
opinion does not address the business decision or the basis for recommendation
to engage in the Transaction or address the relative merits of any alternatives
discussed by the Board of Directors of PLM. No opinion is expressed herein, nor
should one be implied, as to the fair market value of the Partnership's
interests or the prices at which it may trade at any time. It is understood
that this opinion may not be disclosed or otherwise referred to or used for any
other purpose without our prior written consent, except as may otherwise be
required by law or by a court of competent jurisdiction; provided, however, that
this opinion may be reproduced in full in the proxy statements of AFG Investment
Trust C and AFG Investment Trust D (the "Trusts") related to the Transaction.
In the ordinary course of its business and in accordance with applicable state
and federal securities laws, Imperial Capital, LLC may make a market in
securities of Semele Group Inc., the Trusts or any of their affiliates and may
trade the securities of Semele Group Inc., the Trusts or any of their affiliates
for its own account and for the accounts of customers and, accordingly, may at
any time hold long or short positions in such securities.
Imperial Capital, LLC previously acted as financial advisor to PLM and certain
affiliates of PLM in connection with the sale of PLM to MILPI Acquisition Corp.
and received a fee in connection with the rendering of fairness opinions to PLM
and certain affiliates of PLM in connection with such sale. Additionally,
Imperial Capital, LLC has performed investment banking services for affiliates
of PLM and the Sellers in the past. As of the date hereof Imperial Capital, LLC
and its affiliates own approximately 4% of the common stock of Semele Group
Inc., based on the number of shares publicly reported by Semele Group Inc. to be
outstanding.
Based on and subject to the foregoing, we are of the opinion that as of the date
hereof, the Consideration to be paid by RMLP in the Transaction is fair to RMLP
from a financial point of view.
Very truly yours,
/s/ Imperial Capital, LLC
Imperial Capital, LLC
The following projections were provided to Imperial Capital in order to assist
it in rendering the foregoing fairness opinion. They were prepared strictly for
purpose of internal review and have not been reviewed by independent auditors or
outside counsel. They constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements should therefore be considered in light of various
important factors, including those set forth in the Solicitation Statement.
MEMORANDUM
TO: The Files
FROM: Tom Goodwin
SUBJECT: Rancho Mailbu Tax Performance
Assuming the PLM transaction is approved, the amounts reflected in the Proxy are
achieved, the tax basis is accepted, and the partners' priority payments are
made in January 2005, the following is a summary of the activity:
BOOK
---------------------------------------------------------
Total 2002 2003 2004 2005
----------- ---------- --------- --------- ---------
LOTS SALES REVENUES 32,000,000 2,800,000 9,700,000 9,700,000 9,800,000
PROJECT COSTS (23,000,000) (2,000,000) 7,000,000 7,000,000 7,000,000
ECONOMIC GAIN 9,000,000 800,000 2,700,000 2,700,000 2,800,000
TRUSTS 2,070,000 155,000 630,000 630,000 655,000
PLM 6,390,000 645,000 2,070,000 2,070,000 2,145,000
TAX
---------------------------------------------------------
REVENUE 32,000,000 2,800,000 9,700,000 9,700,000 9,800,000
TAX BASIS (42,145,000) (3,700,000) (12,800,000)(12,800,000)(12,845,000)
TAX LOSS (10,145,000) (900,000) (3,100,000) (3,100,000) (3,045,000)
TRUSTS 2,070,000 155,000 630,000 630,000 655,000
PLM (12,215,000) (1,055,000) (3,730,000) (3,730,000) (3,700,000)
It is possible that there could be another $1.0 million or so of tax basis
depending on how the waterline and other early 2002 costs factor into the
economic costs reflected in the proxy information. At a minimum, there is
sufficient basis for PLM to shelter all of its economic profit ($6,930,000) and
create additional tax losses of $12.2 million, (additional tax savings of about
$4.6 million).
ANNEX D-2
JONES & COMPANY
- -----------------
Real Estate Appraisal and Consulting
3156 Linnington Avenue
Los Angeles, California
(310) 475-1124 - Fax (310) 475-4494
March 1, 2002
Mr. Gary Engle
AFG ASIT CORP.
450 Carillon Parkway, Suite 200
St. Petersburg, Florida 33716
Reference: Limited Appraisal in a Restricted Report regarding The Estates at
Rancho Malibu, a proposed 46 unit detached residential subdivision, located on
the east side of Encinal Canyon Road, roughly two miles north of Pacific Coast
Highway, in unincorporated Los Angeles County, California.
Dear Mr. Engle:
In accordance with the request and authorization dated February 26, 2002, this
letter is accompanied by a limited appraisal in a restricted report concerning
the subject. The intended use of the appraisal is for internal valuation
exclusively and may only be utilized for the client, and no other potential
user. This is the restriction on use related to this specific appraisal
assignment. This report is not being prepared for financing, or for any other
purpose, only for internal valuation purposes for the client referenced above.
To develop the opinion of value as indicated herein, Jones & Company performed a
limited appraisal as defined by the Uniform Standards of Professional Appraisal
Practice (USPAP). This means the departure provision from Standard 1 of USPAP
was invoked. Specifically, this report is provided in a restricted use format,
whereby more specific information pertaining to our value estimates are retained
in the work file and not incorporated as part of this report. We have utilized
information provided by the client pertaining to cost details and have assumed
this information is accurate. Lastly, we have utilized information from a
market study report prepared by The Meyers Group regarding the subject site and
retained in our files and have assumed the data is accurate.
Based on the research and analyses contained in the limited appraisal in a
restricted report, we have concluded the market value "as is" of the fee simple
interest in the subject property, as of February 28, 2002, was:
ELEVEN MILLION DOLLARS
$11,000,000
Thank you for the opportunity to be of service to you. We welcome any comments
or questions regarding the content or opinions presented in the attached
appraisal report.
Respectfully submitted,
/s/ Wesley Jones
- ------------------------
Wesley Jones, MAI
California State Certification AG021591
ANNEX E
The full text of the proposed Amendment to the Trust Agreement is as
follows:
AMENDMENT NO. 3
To
SECOND AMENDED AND RESTATED DECLARATION OF TRUST
THE SECOND AMENDED AND RESTATED DECLARATION OF TRUST OF AFG INVESTMENT
TRUST C made and agreed to by the Trustees and the Beneficiaries as of July 15,
1997 (the "Trust Agreement"), is hereby amended as of _________, 2002, as
follows:
1. The second Paragraph of Section 7.5 is hereby deleted and the following
inserted in lieu thereof:
The Trust may enter into Joint Ventures with Affiliates of the Managing
Trustee or EFG or programs sponsored by the Managing Trustee or its Affiliates
(including Joint Ventures organized after the Closing) (collectively,
"Affiliated Venturers") but only if (i) no such Joint Venture shall be entered
into by the Trust which involves the payment of duplicative equipment management
or other fees or which would have the effect of circumventing any of the
restrictions on prohibitions of transactions involving conflicts of interest
contained in this Agreement, (ii) the compensation to the Managing Trustee and
its Affiliates with respect to such Joint Ventures shall be substantially
identical to the compensation described in this Agreement, and (iii) in the
event of a proposed sale of the Asset or interest therein initiated by another
Joint Venture partner, the Trust has a right of first refusal, pro rata with the
other remaining parties, to purchase the other party's or parties' interest.
Further, no lender to a Joint Venturer may have a security or other interest in
the Trust's interest in the Joint Venture except to the extent of funds loaned
directly to or for the benefit of the Trust. The Trust may cease to be a party
to a Joint Venture by sale of its interest to another Joint Venturer or to a
third party purchaser.
Except as specifically amended hereby, the Trust Agreement as in effect
prior to this Amendment thereof remains in full force and effect.
E-1
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment No. 3 as of the ____ day of __________, 2002.
CLASS A AND B BENEFICIARIES
By: AFG ASIT Corporation, as Attorney-in-
Fact for each of the Beneficiaries pursuant to Article XIII of the Trust
Agreement
By:
Name:
Title:
AFG ASIT Corporation, as
Managing Trustee
By:
Name:
Title:
Wilmington Trust Company, as
Delaware Trustee
By:
Name:
Title:
Semele Group Inc., as
Special Beneficiary
By:
Name:
Title:
ANNEX F
MEMBERSHIP INTEREST PURCHASE AGREEMENT
This Membership Interest Purchase Agreement (this "AGREEMENT"), dated as of
______ __, 2002, is entered into by and among MILPI Holdings, LLC, a Delaware
limited liability company ("PURCHASER"), and AFG Investment Trust A and AFG
Investment Trust B (collectively, the "SELLERS"), each a trust formed in
accordance with the Delaware Business Trust Act.
WITNESSETH:
WHEREAS, in connection with the liquidation of the trust assets of each of
the Sellers respectively, the Sellers desire to sell to Purchaser, and Purchaser
desires to reacquire all of the Membership Interests held by the Sellers;
WHEREAS, pursuant to separate Consent Solicitations, the Sellers and the
non-transferring members of Purchaser have each obtained the requisite approval
of the purchase of their respective Class A and Class B Beneficiaries.
NOW THEREFORE, in consideration of the premises and of the mutual agreements and
covenants hereinafter set forth and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I.
DEFINITIONS
-----------
Section 1.01 "CLASS A BENEFICIARIES" means the holders of the Class A
Beneficiary Interests of each of the Sellers.
Section 1.02 "CLASS B BENEFICIARIES" means the holders of the Class B
Subordinated Beneficiary Interests of each of the Sellers.
Section 1.03 "MANAGING TRUSTEE" means the managing trustee of Sellers, AFG
ASIT Corporation.
Section 1.04 "MEMBERSHIP INTERESTS" means all of the outstanding membership
interests of Purchaser held by Sellers.
Section 1.05 "PURCHASE FEES" means any and all fees that were paid by the
Sellers to the Managing Trustee in connection with the purchase of the Sellers'
Membership Interests.
Section 1.06 "SALE FEE" means fees payable to the Managing Trustee in
connection with the sale of the Sellers' assets, including the Membership
Interests pursuant to the respective trust agreements governing the Sellers.
F-1
ARTICLE II.
PURCHASE AND SALE OF MEMBERSHIP INTERESTS; PURCHASE PRICE
---------------------------------------------------------
Section 2.01 Purchase and Sale of Membership Interests. Upon the terms
and conditions set forth in this Agreement, Purchaser shall repurchase from each
of the Sellers, each of its entire right, title and interest in and to the
Membership Interests as listed on Annex A. The Sellers acknowledge that the
-------
Membership Interests transferred under this Agreement shall be transferred in
full to Purchaser such that upon the completion of the sale, the Sellers shall
no longer have any Membership Interests in Purchaser.
Section 2.02 Purchase Price. In consideration of the sale by the Sellers of
the Membership Interests, Purchaser shall pay to each Seller the amount paid to
purchase such Membership Interests, less any dividends paid, plus the Purchase
Fees relating to the purchase of such Membership Interests by such Seller. The
Managing Trustee has agreed to waive the Sale Fee that would otherwise be due to
it under the terms of each of the Sellers' trust agreements in connection with
the sale of each of the Sellers' Membership Interests.
Section 2.03 Waiver of Legal Opinion. The parties hereto each hereby waive
delivery of a written opinion of counsel regarding the purchase and sale of the
Membership Interests contemplated hereby pursuant to Sections 8.1 and 10.7 of
the Purchaser's Operating Agreement, dated December 13, 200.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND PURCHASERS
------------------------------------------------------------
Section 3.01 Representations and Warranties of the Sellers. Each of
the Sellers hereby represents and warrants to Purchaser that (a) it has valid
title to the Membership Interests, (b) it is a trust, validly existing and in
good standing under the laws of the State of Delaware, (c) it has the requisite
trust power and authority to execute and to deliver this Agreement and to
perform its obligations hereunder, (d) neither the execution and delivery of
this Agreement, nor the performance by it of the transactions contemplated
hereby, will conflict with or violate any provision of its declaration of trust,
result in any violation of, or breach of any of the terms or provisions of,
constitute a default under, accelerate any obligations under, or conflict with
any agreements or instruments to which it is a party or by which it or its
properties are bound, or materially violate any material law applicable or
binding upon it or the Membership Interests, and (e) once executed, this
Agreement shall be remain in full force and effect and the terms of the
transaction consummated so as to effect the original intent of the parties
hereto.
Section 3.02 Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to the Sellers that (a) it is a limited liability
company, validly existing and in good standing under the laws of the State of
Delaware, (b) it has the requisite power and authority to execute and to deliver
this Agreement and to perform its obligations hereunder, (c) neither the
execution and delivery of this Agreement, nor the performance by it of the
transactions contemplated hereby, will conflict with or violate any provision of
its operating agreement, result in any violation of, or breach of any of the
terms or provisions of, constitute a default under, accelerate any obligations
under, or conflict with any agreements or instruments to which it is a party or
by which it or its properties are bound, or materially violate any material law
applicable or binding upon it, and (d) once executed, this Agreement shall be
remain in full force and effect and the terms of the transaction consummated so
as to effect the original intent of the parties hereto.
ARTICLE IV.
GENERAL PROVISIONS
------------------
Section 4.01 Headings. The headings and captions contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 4.02 Severability. If any term or other provisions of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the essential economic
or legal substance of the transactions contemplated hereby is not affected.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
Section 4.03 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect tot he subject matter hereof
and supersedes all prior agreements and undertakings, oral and written, between
the parties hereto with respect to the subject matter hereof.
Section 4.04. Governing Law. This Agreement shall be governed by, and
construed in accordance with the substantive laws of the State of New York
without reference to choice of law principles. All actions, claims and disputes
arising out of or relating to this offer letter shall be heard and determined by
the courts in the Southern District of New York and the parties hereto each
hereby irrevocably submit to the jurisdiction of such courts in any action or
proceeding and waive the defense of an inconvenient forum to the maintenance of
any such action or proceeding.
Section 4.05 Counterparts; Facsimile Signatures. This Agreement may be
executed in one or more counterparts, and by different parties hereto in
separate counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement. Execution of this Agreement may be made by facsimile signature,
which, for all purposes, shall be deemed to be an original signature.
IN WITNESS WHEREOF, the parties hereto have cause this Membership Interest
Purchase Agreement to be executed as of the date first above written.
AFG INVESTMENT TRUST A
By: AFG ASIT Corporation, its Managing Trustee
By:
Name: James A. Coyne
Title: Senior Vice President
AFG INVESTMENT TRUST B
By: AFG ASIT Corporation, its Managing Trustee
By:
Name: James A. Coyne
Title: Senior Vice President
MILPI HOLDINGS, LLC
By: AFG INVESTMENT TRUST A, its Member
By: AFG ASIT Corporation, its Managing Trustee
By:
Name:
Title:
By: AFG INVESTMENT TRUST B, its Member
By: AFG ASIT Corporation, its Managing Trustee
By:
Name:
Title:
By: AFG INVESTMENT TRUST C, its Member
By: AFG ASIT Corporation, its Managing Trustee
By:
Name:
Title:
By: AFG INVESTMENT TRUST D, its Member
By: AFG ASIT Corporation, its Managing Trustee
By:
Name:
Title:
ANNEX G
IMPERIAL
CAPITAL, LLC
150 SOUTH RODEO DRIVE. SUITE 100 BEVERLY HILLS, CA 90212
310-246-3700 800-929-2299 FAX 310-246-3794
May 20, 2002
AFG INVESTMENT TRUST C AND
AFG INVESTMENT TRUST D
200 Nyala Farms
Westport, Connecticut 06880
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to AFG Investment Trust C and AFG Investment Trust D (the "Trusts"), of
the aggregate consideration to be paid by MILPI Holdings LLC ("MILPI"), a joint
venture among AFG Investment Trust A and AFG Investment Trust B (the "Sellers")
and the Trusts, in connection with the repurchase of the membership interests in
MILPI (the "Transaction") currently owned by the Sellers (the "Membership
Interests"). We understand that MILPI is a holding company whose sole asset is
its wholly-owned subsidiary, PLM International, Inc. ("PLM"). Therefore, in
order to form our opinion as to the fairness, from a financial point of view, of
the Transaction, with your consent, we performed our analysis on the operations
and projections of PLM and have attributed no positive or negative value to
MILPI, other than with respect to PLM. Pursuant to the Transaction, MILPI will
pay cash consideration equal to $5,931,578 (the "Consideration") to the Sellers
for the Membership Interests. The Sellers and the Trusts are affiliated with
Semele Group Inc., which is also indirectly affiliated with PLM.
In connection with the rendering of this opinion, we have:
(i) Analyzed certain historical business and financial information relating
to PLM, including a draft of PLM's annual financial statements for the year
ended December 31, 2001 and balance sheet for March 31, 2002, which was provided
by management of PLM;
(ii) Reviewed certain information including financial forecasts, relating to
the business, earnings, taxes and cash flow, furnished to us by management of
PLM;
(iii) Reviewed certain publicly available business and financial information
relating to PLM that we deemed relevant;
(iv) Conducted discussions with members of senior management of PLM
concerning the matters described in clauses (i), (ii) and (iii) above, as well
as the prospects and strategic objectives of PLM and expected cost and corporate
overhead savings as PLM's investment vehicles continue to liquidate;
(v) Reviewed public information with respect to certain other companies with
financial profiles which we deemed to be relevant;
(vi) Reviewed the historical market prices and trading activity for PLM's
common stock through the date of PLM's merger with MILPI Acquisition Corp. (a
wholly-owned subsidiary of MILPI), an affiliate of Semele Group Inc.;
(vii) Reviewed the results of the sale process in which PLM was sold to
MILPI Acquisition Corp.; and
(viii) Conducted such other financial studies, analyses and investigation
and took into account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
With your consent, we have relied upon the accuracy and completeness of the
foregoing financial and other information and have not assumed responsibility
for independent verification of such information or conducted any independent
valuation or appraisal of any assets of MILPI or PLM, nor have we been furnished
with any such appraisals. With respect to the financial forecasts, we have
assumed, with your consent, that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of management of
MILPI and PLM as to the future financial performance of PLM. We have also
relied upon the assurances of senior management of PLM that they are unaware of
any facts that would make the information or financial forecasts provided to us
incomplete or misleading. We assume no responsibility for, and express no view
as to such forecasts or the assumptions on which they are based.
Our opinion expressed herein has been prepared for the information of the
Trusts, and our opinion is rendered in connection with the repurchase of the
Membership Interests. This opinion does not constitute a recommendation to the
Sellers as to whether they should sell the Membership Interests to MILPI. This
opinion does not address the business decision or the basis for recommendation
to engage in the Transaction or address the relative merits of any alternatives
discussed by the Trusts. No opinion is expressed herein, nor should one be
implied, as to the fair market value of MILPI's membership interests or the
prices at which they may trade at any time. It is understood that this opinion
may not be disclosed or otherwise referred to or used for any other purpose
without our prior written consent, except as may otherwise be required by law or
by a court of competent jurisdiction; provided, however, that this opinion may
be reproduced in full in the Solicitation Statements of the Trusts related to
the Transaction.
In the ordinary course of its business and in accordance with applicable state
and federal securities laws, Imperial Capital, LLC may make a market in
securities of Semele Group Inc., the Sellers, or the Trusts and may trade the
securities of Semele Group Inc. or any of its affiliates including the Sellers
and the Trusts for its own account and for the accounts of customers and,
accordingly, may at any time hold long or short positions in such securities.
Imperial Capital, LLC previously acted as financial advisor to PLM and certain
affiliates of PLM in connection with the sale of PLM to MILPI Acquisition Corp.
and received a fee in connection with the rendering of fairness opinions to PLM
and certain affiliates of PLM in connection with such sale. Additionally,
Imperial Capital, LLC has performed investment banking services for affiliates
of MILPI and the Sellers in the past. As of the date hereof, Imperial Capital,
LLC and its affiliates own approximately 4% of the common stock of Semele Group
Inc., based on the number of shares publicly reported by Semele Group Inc. to be
outstanding.
Based on and subject to the foregoing, we are of the opinion that as of the date
hereof, the Consideration to be paid by MILPI in the Transaction is fair to the
Trusts from a financial point of view.
Very truly yours,
/s/ Imperial Capital, LLC
Imperial Capital, LLC
The following projections were provided to Imperial Capital in order to assist
it in rendering the foregoing fairness opinion. They were prepared strictly for
purpose of internal review and have not been reviewed by independent auditors or
outside counsel. They constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements should therefore be considered in light of various
important factors, including those set forth in the Solicitation Statement.
PLM EQUIPMENT GROWTH FUND I
Income Forecast
10/8/2002
OPERATING REVENUES
9/30/2002 12/31/2002 3/31/2003 6/30/2003 9/30/2003 12/31/2003 3/31/2004 6/30/2004 9/30/2004
- ----------------------------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
Annual Revenue - - - - - - - - -
Containers Revenue 6,006 5,112 4,322 3,687 2,899 1,243 - - -
MODU Revenue
Railcars Revenue 1,243,941 1,265,780 1,357,338 1,341,806 1,350,584 1,319,399 1,341,324 1,336,349 1,325,657
Trailers Revenue - - - - - - - - -
Vessels Revenue 882,464 882,464 863,280 872,872 882,464 882,464 872,872 872,872 882,464
Other
Interest/Other Revenue - - - - - - - - -
- ----------------------------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
Total 2,132,411 2,153,356 2,224,940 2,218,365 2,235,948 2,203,105 2,214,196 2,209,221 2,208,121
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses - - - - - - - - -
Container Expenses 279 279 279 279 279 279 - - -
Rail Expenses 483,957 483,957 491,113 491,113 486,267 482,023 495,208 494,585 491,102
Trailer Expense - - - - - - - - -
Vessel Expenses 680,800 680,800 666,000 673,400 680,800 680,800 673,400 673,400 680,800
- ----------------------------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
Total 1,165,036 1,165,036 1,157,392 1,164,792 1,167,346 1,163,102 1,168,608 1,167,985 1,171,902
Indirect Operating Expense
Legal 1,941 2,013 2,381 1,199 1,894 1,942 2,280 1,164 1,840
Audit 12,545 12,545 - - - - - - -
Insurance 10,078 13,464 40,097 7,092 9,835 12,994 38,389 6,884 9,553
Other 89,030 131,709 35,301 31,761 44,784 44,339 34,218 31,109 32,643
Management Fees 85,378 82,859 98,977 101,352 101,209 98,073 97,070 100,208 99,218
Interest Expense - - - - - -
Total 198,973 242,589 176,756 141,403 157,722 157,348 171,956 139,364 143,254
- ----------------------------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
Total All Expenses 1,364,009 1,407,625 1,334,148 1,306,196 1,325,067 1,320,450 1,340,564 1,307,349 1,315,157
- ----------------------------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
NET OPERATING CASH FLOW 768,402 745,731 890,791 912,170 910,881 882,656 873,632 901,872 892,964
PLM EQUIPMENT GROWTH FUND I
Income Forecast
10/8/2002
OPERATING REVENUES
12/31/2004 3/31/2005 6/30/2005 9/30/2005 12/31/2005 3/31/2004 3/31/2004
- ----------------------------- ----------- ---------- --------- --------- ---------- --------- ---------
Annual Revenue - - - - - - -
Containers Revenue - - - - - - -
MODU Revenue
Railcars Revenue - - - - - - -
Trailers Revenue - - - - - - -
Vessels Revenue 882,464 - - - - - -
Other
Interest/Other Revenue - - - - - - -
- ----------------------------- ----------- ---------- --------- --------- ---------- --------- ---------
Total 882,464 - - - - - -
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses - - - - - - -
Container Expenses - - - - - - -
Rail Expenses - - - - - - -
Trailer Expense - - - - - - -
Vessel Expenses 680,800 - - - - - -
- ----------------------------- ----------- ---------- --------- --------- ---------- --------- ---------
Total 680,800 - - - - - -
Indirect Operating Expense
Legal 1,897 30 - - - - -
Audit - - - - - - -
Insurance 12,691 511 - - - - -
Other 32,547 308 - - - - -
Management Fees 75,612 (85) - - - - -
Interest Expense
- ----------------------------- ----------- ---------- --------- --------- ---------- --------- ---------
Total 122,748 764 - - - - -
Total All Expenses 803,548 764 - - - - -
- ----------------------------- ----------- ---------- --------- --------- ---------- --------- ---------
NET OPERATING CASH FLOW 78,916 (764) - - - - -
PLM EQUIPMENT GROWTH FUND I
Income Forecast
OPERATING REVENUES
Annual Revenue IRR
Containers Revenue
MODU Revenue 6.07%
Railcars Revenue
Trailers Revenue
Vessels Revenue
Other
Interest/Other Revenue Assume 3% of prev. qtr's balance
Total
- -----------------------------
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses
Container Expenses
Rail Expenses
Trailer Expense
Vessel Expenses
Total
- -----------------------------
Indirect Operating Expense
Legal
Audit
Insurance
Other
Management Fees
Interest Expense
Total
- -----------------------------
Total All Expenses
NET OPERATING CASH FLOW
PLM EQUIPMENT GROWTH FUND I
Reconciliation Of Cash balances
10/8/2002
9/30/2002 12/31/2002 3/31/2003 6/30/2003 9/30/2003 12/31/2003 3/31/2004
- ------------------------------------- --------- ---------- ----------- --------- --------- ---------- -----------
BEGINNING CASH BALANCE 4,761,703 5,531,493 6,285,551 - 916,334 1,929,933 2,909,000
Net Operating Cash Flow 768,402 745,731 890,791 912,170 910,881 882,656 873,632
Non-Operating Cash Flow - - - - - - -
Dry-dock Accrual Addback - - - - - - -
Actual Dry-dock/Other - - - - - - -
Cash Flows From Financing Activities:
Proceeds from Notes Payable
Principal Payments on Notes
Debt fees
Normal Distributions - - - - - - -
Special Distributions - - (7,335,578) - - - (3,794,270)
Repurchase of Units
Cash Flows from Investing Activities:
Current Quarter Purchases
Fees on Purchases
Capitalized Costs
Proceeds from Liquidations 1,388 8,327 159,235 4,164 102,719 96,411 11,637
- ------------------------------------- --------- ---------- ----------- --------- --------- ---------- -----------
Net Change in Cash 769,790 754,058 (6,285,551) 916,334 1,013,600 979,067 (2,909,000)
ENDING CASH BALANCE 5,531,493 6,285,551 - 916,334 1,929,933 2,909,000 -
PLM EQUIPMENT GROWTH FUND I
Reconciliation Of Cash balances
6/30/2004 9/30/2004 12/31/2004 3/31/2005
BEGINNING CASH BALANCE - 913,056 1,859,664 11,178,242
Net Operating Cash Flow 901,872 892,964 78,916 (764)
Non-Operating Cash Flow - - - -
Dry-dock Accrual Addback - - - -
Actual Dry-dock/Other - - - -
Cash Flows From Financing Activities:
Proceeds from Notes Payable
Principal Payments on Notes
Debt fees
Normal Distributions - - - -
Special Distributions - - - (11,177,477)
Repurchase of Units
Cash Flows from Investing Activities:
Current Quarter Purchases
Fees on Purchases
Capitalized Costs
Proceeds from Liquidations 11,184 53,644 9,239,661 -
- ------------------------------------- --------- --------- ---------- ------------
Net Change in Cash 913,056 946,608 9,318,578 (11,178,242)
ENDING CASH BALANCE 913,056 1,859,664 11,178,242 -
PLM EQUIPMENT GROWTH FUND II
Income Forecast
10/8/2002
OPERATING REVENUES
09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 TOTALS
- ------------------------------ --------- -------- -------- --------- -------- -------- -------- ---------
Aircraft Revenue - - - - - - - -
Containers Revenue - - - - - - - -
Railcars Revenue 309,342 303,168 - - - - - 612,509
Trailers Revenue 419,505 415,232 196,138 - - - - 1,030,875
Vessels Revenue -
Interest Revenue 23,502 26,869 29,884 - - - - 80,255
Other -
- ------------------------------ --------- -------- -------- --------- -------- -------- -------- ---------
Total 752,349 745,269 226,022 - - - - 1,723,639
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses - - - - - - - -
Container Expenses - - - - - - - -
Rail Expenses 191,975 191,975 - - - - - 383,950
Trailer Expense 204,523 225,636 97,990 - - - - 528,150
- ------------------------------ --------- -------- -------- --------- -------- -------- -------- ---------
Total 396,498 417,611 97,990 - - - - 912,100
Indirect Operating Expense
Legal 1,095 690 280 790 - - - 2,854
Audit 13,139 13,139 - - - - - 26,278
Insurance 10,115 7,603 8,753 10,115 - - - 36,585
Other 64,485 98,695 - - - - - 163,180
Management Fees 42,629 41,983 9,807 - - - - 94,419
Interest Expense - - - - - - - -
- ------------------------------ --------- -------- -------- --------- -------- -------- -------- ---------
Total 131,462 162,110 18,840 10,905 - - - 323,317
Total All Expenses 527,960 579,721 116,830 10,905 - - - 1,235,416
- ------------------------------ --------- -------- -------- --------- -------- -------- -------- ---------
NET OPERATING CASH FLOW 224,388 165,547 109,192 (10,905) - - - 488,223
PLM EQUIPMENT GROWTH FUND II
Reconciliation of Cash balances
10/8/2002
9/30/2002 12/31/2002 3/31/2003 6/30/2003 9/30/2003 12/31/2003 3/31/2004
- ------------------------------------- --------- ---------- ---------- ------------ --------- ---------- ----------
BEGINNING CASH BALANCE 2,014,277 2,284,830 2,496,542 11,607,871 - - -
Net Operating Cash Flow 224,388 165,547 109,192 (10,905) - - -
Non-Operating Cash Flow
Dry-dock Accrual Addback
Actual Dry-dock/Other
Cash Flows From Financing Activities:
Proceeds from Notes Payable
Principal Payments on Notes
Debt fees
Cash Distributions - - - - - - -
Special Distributions - - - (11,596,967) - - -
Repurchase of Units
Cash Flows from Investing Activities:
Current Quarter Purchases
Fees on Purchases
Capitalized Costs
Proceeds from Liquidations 46,164 46,164 9,002,138 - - - -
- ------------------------------------- --------- ---------- ---------- ------------ --------- ---------- ----------
Net Change in Cash 270,553 211,712 9,111,330 (11,607,871) - - -
ENDING CASH BALANCE 2,284,830 2,496,542 11,607,871 (0) - - -
PLM EQUIPMENT GROWTH FUND III
Income Forecast
10/8/2002
OPERATING REVENUES
09/30/02 12/31/02 3/31/03 06/30/03 09/30/03 12/31/03 03/31/04
- ----------------------------- --------- -------- ------- -------- -------- -------- --------
Aircraft Revenue - - - - - - -
Containers Revenue - - - - - - - IRR
Railcars Revenue - - - - - - - -0.01%
Trailers Revenue - - - - - - -
Vessels Revenue - - - - - - -
Other
Interest Revenue 53,255 60,300 63,141 - - - - 3%
- ----------------------------- --------- -------- ------- -------- -------- -------- --------
Total 53,255 60,300 63,141 - - - -
OPERATING EXPENSES
Direct Operating Expenses
- ----------------------------- --------- -------- ------- -------- -------- -------- --------
Air Expenses - - - - - - -
Container Expenses - - - - - - -
Rail Expenses - - - - - -
Trailer Expense - - - - - - -
Vessel Expenses - - - - - - -
- ----------------------------- --------- -------- ------- -------- -------- -------- --------
Total - - - - - - -
Indirect Operating Expense
Legal
Audit - - - - - - -
Insurance - - - - - - -
Other - - - - - - -
Management Fees - - - - - - -
Interest Expense - - - - - - -
- ----------------------------- --------- -------- ------- -------- -------- -------- --------
Total - - - - - - -
Total All Expenses - - - - - - -
- ----------------------------- --------- -------- ------- -------- -------- -------- --------
NET OPERATING CASH FLOW 53,255 60,300 63,141 - - - -
PLM EQUIPMENT GROWTH FUND III
Reconciliation Of Cash balances
10/8/2002
09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04
- ------------------------------------- ------------ --------- ----------- -------- -------- -------- --------
BEGINNING CASH BALANCE 7,691,396 8,388,651 8,448,951 - - - -
Net Operating Cash Flow 53,255 60,300 63,141 - - - -
Non-Operating Cash Flow - - - - - - -
Dry-dock Accrual Addback - - - - - - -
Actual Dry-dock/Other - - - - - - -
Cash Flows From Financing Activities:
Proceeds from Notes Payable
Principal Payments on Notes - - - - - - -
Debt fees
Cash Distributions - - - - - - -
Special Distributions (10,000,000) - (8,512,092) - - - -
Repurchase of Units
Cash Flows from Investing Activities:
Current Quarter Purchases
Fees on Purchases
Capitalized Costs
Proceeds from Liquidations 10,644,000 - - - - - -
- ------------------------------------- ------------ --------- ----------- -------- -------- -------- --------
NET CHANGE IN CASH 697,255 60,300 (8,448,951) - - - -
ENDING CASH BALANCE 8,388,651 8,448,951 - - - - -
PLM EQUIPMENT GROWTH FUND IV
Income Forecast
OPERATING REVENUES 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04
- ---------------------------- -------- -------- -------- -------- -------- -------- --------
Aircraft Revenue - - - - - - -
Containers Revenue - - - - - - - IRR
Railcars Revenue 647,349 - - - - - - -4.74%
Trailers Revenue - - - - - - -
Vessels Revenue - - - - - - -
Other
Interest Revenue 39,995 43,737 71,940 - - - -
- ---------------------------- -------- -------- -------- -------- -------- -------- --------
Total 687,343 43,737 71,940 - - - -
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses - - - - - - -
Container Expenses - - - - - - -
Rail Expenses 167,969 - - - - - -
Trailer Expense - - - - - - -
Vessel Expenses - - - - - - -
- ---------------------------- -------- -------- -------- -------- -------- -------- --------
Total 167,969 - - - - - -
Indirect Operating Expense
Legal - - - - - - -
Audit
Insurance - - - - - - -
Other - - - - - - -
Management Fees - - - - - - -
Interest Expense - - - - - - -
- ---------------------------- -------- -------- -------- -------- -------- -------- --------
Total - - - - - - -
Total All Expenses 167,969 - - - - - -
- ---------------------------- -------- -------- -------- -------- -------- -------- --------
NET OPERATING CASH FLOW 519,374 43,737 71,940 - - - -
PLM EQUIPMENT GROWTH FUND IV
Reconciliation Of Cash balances
09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04
- ------------------------------------- --------- ---------- ------------ -------- -------- ---------- --------
BEGINNING CASH BALANCE 5,571,856 6,091,230 13,092,867 - - - -
Net Operating Cash Flow 519,374 43,737 71,940 - - - -
Non-Operating Cash Flow
Dry-dock Accrual Addback - - - - - - -
Actual Dry-dock/Other - - - - - - -
Cash Flows From Financing Activities:
Proceeds from Notes Payable
Principal Payments on Notes
Debt fees
Cash Distributions - - - - - - -
Special Distributions - - (13,164,807) - - - -
Repurchase of Units
Cash Flows from Investing Activities:
Current Quarter Purchases
Fees on Purchases
Capitalized Costs
Proceeds from Liquidations - 6,957,900 - - - - -
- ------------------------------------- --------- ---------- ------------ -------- -------- ---------- --------
Net Change in Cash 519,374 7,001,637 (13,092,867) - - - -
ENDING CASH BALANCE 6,091,230 13,092,867 - - - - -
PLM EQUIPMENT GROWTH FUND V
INCOME FORECAST
OPERATING REVENUES 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 06/30/04 09/30/04
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Aircraft Revenue 1,956,074 1,197,146 1,190,737 1,065,293 851,218 843,917 836,292 819,084 713,499
Containers Revenue 57,138 52,694 49,932 46,994 46,389 43,376 42,218 39,272 39,128
Railcars Revenue 501,638 497,818 500,203 489,859 494,616 481,030 499,140 497,766 490,395
Trailers Revenue 104,698 104,698 99,422 99,422 99,422 97,393 86,580 82,816 79,052
Vessels Revenue 1,070,696 1,070,696 - - - - - - -
Redeployment (Net) 195,000 195,000 195,000 195,000 195,000 195,000 195,000 195,000 195,000
Interest Revenue 157,819 156,667 181,105 241,427 329,478 411,759 462,840 469,823 491,304
Other
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 4,043,064 3,274,719 2,216,399 2,137,993 2,016,123 2,072,475 2,122,070 2,103,762 2,008,377
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses 67,641 67,224 91,614 26,895 34,231 34,020 46,363 23,776 27,811
Container Expenses 773 773 796 796 796 796 820 820 820
Rail Expenses 151,315 153,029 157,735 169,652 155,855 157,620 162,467 174,741 160,530
Trailer Expense 33,957 33,957 33,957 33,957 33,957 33,957 32,571 31,185 29,799
Vessel Expenses 611,800 611,800 - - - - - - -
Other
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 865,486 866,783 284,101 231,300 224,838 226,393 242,220 230,522 218,960
Indirect Operating Expenses
Legal 5,051 4,421 7,114 2,936 3,076 2,996 4,812 2,765 2,798
Audit 19,128 19,128 19,702 19,702 19,702 19,702 20,293 20,293 20,293
Insurance 9,981 11,999 43,390 6,553 6,078 8,131 29,350 6,172 5,529
Other 161,403 148,973 168,675 158,088 131,145 127,392 155,929 155,274 127,592
Management Fees 203,712 165,460 111,562 104,619 94,428 93,079 93,596 92,542 84,057
Interest Expense 59,375 56,250 53,125 50,000 46,875 43,750 40,625 37,500 34,375
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 458,649 406,231 403,567 341,898 301,303 295,050 344,605 314,546 274,645
Total All Expenses 1,324,135 1,273,013 687,668 573,197 526,142 521,442 586,825 545,068 493,604
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET OPERATING
CASH FLOWS 2,718,928 2,001,706 1,528,731 1,564,796 1,489,981 1,551,033 1,535,245 1,558,694 1,514,772
PLM EQUIPMENT GROWTH FUND V
INCOME FORECAST
OPERATING REVENUES 12/31/04
Aircraft Revenue 651,456
Containers Revenue -
Railcars Revenue 495,010
Trailers Revenue 75,601
Vessels Revenue -
Redeployment (Net) 195,000
Interest Revenue 518,574
Other
- ---------------------------- ---------
Total 1,935,642
- ---------------------------- ---------
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses 23,937
Container Expenses -
Rail Expenses 162,349
Trailer Expense 28,413
Vessel Expenses -
Other
- ---------------------------- ---------
Total 214,699
Indirect Operating Expenses
Legal 2,562
Audit 20,293
Insurance 6,952
Other 121,815
Management Fees 80,754
Interest Expense 31,250
- ---------------------------- ---------
Total 263,625
Total All Expenses 478,324
- ---------------------------- ---------
NET OPERATING
CASH FLOWS 1,457,318
PLM EQUIPMENT GROWTH FUND V
INCOME FORECAST
OPERATING REVENUES 03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 06/30/06 09/30/06 12/31/06 03/31/07
Aircraft Revenue 315,000 315,000 315,000 315,000 315,000 315,000 315,000 315,000 -
Containers Revenue - - - - - - - - -
Railcars Revenue 488,419 491,972 477,450 461,027 481,575 478,852 470,367 - -
Trailers Revenue 70,922 67,852 64,782 61,712 57,667 55,264 52,861 25,830 -
Vessels Revenue - - - - - - - - -
Redeployment (Net) 195,000 195,000 195,000 195,000 195,000 195,000 195,000 97,500 -
Interest Revenue 553,367 578,497 577,812 577,556 577,351 576,824 576,161 575,822 -
Other
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 1,622,709 1,648,320 1,630,044 1,610,294 1,626,593 1,620,940 1,609,389 1,014,152 -
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses 22,333 11,453 16,984 16,879 23,003 11,797 17,494 17,386 -
Container Expenses - - - - - - - - -
Rail Expenses 167,341 179,983 165,346 167,219 167,813 180,835 165,209 - -
Trailer Expense 7,258 26,103 24,948 23,793 22,638 21,714 20,790 19,866 -
Vessel Expenses - - - - - - - - -
Other
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 216,932 217,539 207,278 207,891 213,455 214,346 203,493 37,252 -
Indirect Operating Expenses
Legal 3,405 1,956 2,219 2,159 3,478 2,000 2,269 2,207 -
Audit 20,902 20,902 20,902 20,902 21,529 21,529 21,529 21,529 -
Insurance 20,765 4,367 4,385 5,860 21,215 4,463 4,484 5,990 -
Other 146,335 145,356 119,621 115,859 146,583 145,606 120,012 113,366 -
Management Fees 63,235 63,331 62,161 60,857 62,094 61,783 61,069 21,916 -
Interest Expense 28,125 25,000 21,875 18,750 15,625 12,500 9,375 6,250 3,125
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 282,767 260,911 231,163 224,387 270,524 247,881 218,738 171,259 3,125
Total All Expenses 499,699 478,451 438,441 432,279 483,979 462,227 422,230 208,511 3,125
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET OPERATING
CASH FLOWS 1,123,010 1,169,870 1,191,603 1,178,015 1,142,614 1,158,714 1,187,159 805,642 (3,125)
PLM EQUIPMENT GROWTH FUND V
Reconciliation Of Cash Balances
09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03
----------- ----------- ----------- ----------- ----------- -----------
BEGINNING CASH BALANCE 11,143,956 13,922,778 15,053,969 23,574,333 29,142,083 36,739,379
- - - - - -
Net Operating Cash Flow 2,718,928 2,001,706 1,528,731 1,564,796 1,489,981 1,551,033
Non-Operating Cash Flow 243,638 249,774 256,182 147,876 154,866 162,167
paradise repayment
Dry-dock Accrual Addback - - - - - -
Actual Dry-dock/Other - - - - - -
Cash Flows From Financing Activities:
Management fee deferral 50,928 41,365 27,890 26,155 23,607 23,270
Proceeds from Notes Payable - - - - - -
Principal Payments on Notes (250,000) (250,000) (250,000) (250,000) (250,000) (250,000)
Mandatory Prepayments 60% - - - - - -
Cash Distributions - (954,306) (954,306) (954,306) (954,306) (954,306)
Special Distributions - - - - - -
Repurchase of Units
Redemption of units-Class Action settlement
Cash Flows from Investing Activities:
Current Quarter Purchases - - - - - -
Fees on Purchases - - - - - -
Capitalized Costs - - - - - -
Proceeds from Liquidations 15,327 42,653 7,911,867 5,033,230 7,133,148 43,543
- -------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Net Change in Cash 2,778,822 2,778,822 2,778,822 2,778,822 2,778,822 2,778,822
ENDING CASH BALANCE 13,922,778 16,701,600 17,832,790 26,353,154 31,920,905 39,518,200
PLM EQUIPMENT GROWTH FUND V
Reconciliation Of Cash Balances
03/31/04 06/30/04 09/30/04 12/31/04
----------- ----------- ----------- -----------
BEGINNING CASH BALANCE 37,315,084 37,856,671 40,751,911 42,219,939
- - - -
Net Operating Cash Flow 1,535,245 1,558,694 1,514,772 1,457,318
Non-Operating Cash Flow 169,793 177,757 (9,410) (9,410)
paradise repayment
Dry-dock Accrual Addback - - - -
Actual Dry-dock/Other - - - -
Cash Flows From Financing Activities:
Management fee deferral 23,399 23,136 - -
Proceeds from Notes Payable - - - -
Principal Payments on Notes (250,000) (250,000) (250,000) (250,000)
Mandatory Prepayments 60% - - - -
Cash Distributions (954,306) (954,306) (954,306) (954,306)
Special Distributions - - - -
Repurchase of Units
Redemption of units-Class Action settlement
Cash Flows from Investing Activities:
Current Quarter Purchases - - - -
Fees on Purchases - - - -
Capitalized Costs - - - -
Proceeds from Liquidations 17,456 2,339,960 1,166,972 3,855,298
- -------------------------------------------- ----------- ----------- ----------- -----------
Net Change in Cash 2,778,822 2,778,822 2,778,822 2,778,822
ENDING CASH BALANCE 40,093,906 40,635,492 43,530,733 44,998,761
PLM EQUIPMENT GROWTH FUND V
Reconciliation Of Cash Balances
03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 06/30/06
----------- ----------- ----------- ----------- ----------- -----------
BEGINNING CASH BALANCE 46,318,838 46,240,632 46,209,285 46,199,672 46,176,471 46,115,369
- - - - - -
Net Operating Cash Flow 1,123,010 1,169,870 1,191,603 1,178,015 1,142,614 1,158,714
Non-Operating Cash Flow (9,410) (9,410) (9,410) (9,410) (9,410) (9,410)
paradise repayment
Dry-dock Accrual Addback - - - - - -
Actual Dry-dock/Other - - - - - -
Cash Flows From Financing Activities:
Management fee deferral - - - - - -
Proceeds from Notes Payable - - - - - -
Principal Payments on Notes (250,000) (250,000) (250,000) (250,000) (250,000) (250,000)
Mandatory Prepayments 60% - - - - - -
Cash Distributions (954,306) (954,306) (954,306) (954,306) (954,306) (954,306)
Special Distributions - - - - - -
Repurchase of Units
Redemption of units-Class Action settlement
Cash Flows from Investing Activities:
-
Current Quarter Purchases - - - - - -
Fees on Purchases - - - - - -
Capitalized Costs - - - - - -
Proceeds from Liquidations 12,500 12,500 12,500 12,500 10,000 10,000
----------- ----------- ----------- ----------- ----------- -----------
Net Change in Cash 2,778,822 2,778,822 2,778,822 2,778,822 2,778,822 2,778,822
ENDING CASH BALANCE 49,097,660 49,019,453 48,988,107 48,978,494 48,955,293 48,894,191
PLM EQUIPMENT GROWTH FUND V
Reconciliation Of Cash Balances
09/30/06 12/31/06 03/31/07
----------- ----------- ------------
BEGINNING CASH BALANCE 46,070,367 46,061,209 53,955,862
- - -
Net Operating Cash Flow 1,187,159 805,642 (3,125)
Non-Operating Cash Flow (9,410) (9,410) -
paradise repayment
Dry-dock Accrual Addback - - -
Actual Dry-dock/Other - - -
Cash Flows From Financing Activities:
Management fee deferral - - -
Proceeds from Notes Payable - - -
Principal Payments on Notes (250,000) (250,000) (250,000)
Mandatory Prepayments 60% - - -
Cash Distributions (954,306) - -
Special Distributions - - (53,702,737)
Repurchase of Units
Redemption of units-Class Action settlement
Cash Flows from Investing Activities:
Current Quarter Purchases - - -
Fees on Purchases - -
Capitalized Costs - - -
Proceeds from Liquidations 17,399 7,348,421 -
----------- ----------- ------------
Net Change in Cash 2,778,822 2,778,822 2,778,822
ENDING CASH BALANCE 48,849,188 48,840,031 56,734,683
PLM EQUIPMENT GROWTH FUND VI
Income Forecast
OPERATING REVENUES
09/30/01 12/31/01 03/31/02 06/30/02 09/30/02 12/31/02 03/31/03 06/30/03 09/30/03
Aircraft Revenue 908,193 620,743 902,883 913,024 907,013 900,735 802,679 795,831 788,680
Containers Revenue 1,105,341 1,200,316 1,164,179 1,165,776 1,167,263 1,156,117 1,103,533 1,072,002 1,041,205
MODU Revenue - - - - - - - - -
Railcars Revenue 827,227 878,453 915,070 973,118 962,271 963,740 958,061 968,688 945,882
Trailers Revenue 222,924 277,304 243,584 243,584 243,584 243,584 231,308 231,308 231,308
Vessels Revenue 1,170,993 1,207,500 1,181,250 964,688 1,183,350 1,183,350 - - -
Redeployment (Net) - - - - - - - - -
Interest Revenue 178,851 232,384 136,064 142,689 250,880 254,790 271,012 285,252 289,097
Other Revenue -
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 4,413,529 4,416,699 4,543,029 4,402,878 4,714,361 4,702,316 3,366,593 3,353,081 3,296,171
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses 37,678 138,985 66,602 57,066 55,875 143,155 64,899 55,607 54,447
Container Expenses 15,261 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000
MODU Expenses - - - - - - - - -
Rail Expenses 444,660 313,605 323,013 323,013 321,844 321,259 329,693 329,693 329,659
Trailer Expense 151,880 131,977 119,022 118,553 122,237 135,936 122,592 122,110 125,904
Vessel Expenses 617,088 664,920 650,744 643,999 652,096 652,096 - - -
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 1,266,567 1,252,487 1,162,380 1,145,632 1,155,053 1,255,446 520,184 510,409 513,011
Indirect Operating Expense
Legal 41,395 3,992 6,849 3,226 4,625 3,390 5,571 2,585 3,655
Audit 38,364 22,756 23,439 23,439 23,439 23,439 24,142 24,142 24,142
Insurance 16,125 13,542 43,856 8,240 10,327 11,501 35,671 6,603 8,159
Other 154,683 140,339 145,831 147,953 136,063 117,533 142,435 144,893 128,103
Management Fees 219,899 220,203 228,450 222,157 232,285 231,705 166,936 165,966 162,687
Interest Expense 1,571,872 397,500 187,500 403,125 381,908 360,691 339,474 318,257 297,039
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 2,042,338 798,332 635,925 808,140 788,646 748,258 714,227 662,445 623,785
Total All Expenses 3,308,905 2,050,819 1,798,305 1,953,771 1,943,699 2,003,704 1,234,411 1,172,854 1,136,796
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET OPERATING
CASH FLOW 1,104,624 2,365,881 2,744,723 2,449,107 2,770,662 2,698,611 2,132,182 2,180,227 2,159,375
PLM EQUIPMENT GROWTH FUND VI
Income Forecast
OPERATING REVENUES
12/31/03
- ------------------------------ ---------
Aircraft Revenue 781,211
Containers Revenue 1,000,385
MODU Revenue
Railcars Revenue 937,755
Trailers Revenue 226,574
Vessels Revenue -
Redeployment (Net) -
Interest Revenue 283,649
Other Revenue
- ------------------------------ ---------
Total 3,229,573
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses 139,494
Container Expenses 3,000
MODU Expenses -
Rail Expenses 329,643
Trailer Expense 134,283
Vessel Expenses -
- ------------------------------ ---------
Total 606,420
Indirect Operating Expense
Legal 3,162
Audit 24,142
Insurance 10,726
Other 117,173
Management Fees 159,691
Interest Expense 275,822
- ------------------------------ ---------
Total 590,716
Total All Expenses 1,197,136
- ------------------------------ ---------
NET OPERATING
CASH FLOW 2,032,437
PLM EQUIPMENT GROWTH FUND VI
Income Forecast
OPERATING REVENUES
03/31/04 06/30/04 09/30/04 12/31/04 03/31/05 06/30/05 09/30/05 12/31/05 03/31/06
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Aircraft Revenue 773,410 765,263 700,898 569,200 569,200 569,200 569,200 569,200 345,640
Containers Revenue 940,964 885,236 842,192 792,657 729,900 694,753 661,272 622,642 573,598
MODU Revenue - - - -
Railcars Revenue 925,561 928,692 918,373 916,658 907,132 878,327 880,877 823,733 797,007
Trailers Revenue 201,393 192,924 184,767 176,925 165,792 158,731 151,976 145,529 136,358
Vessels Revenue - - - - - - - - -
Redeployment (Net) - 810,000 1,458,000 1,458,000 1,458,000 1,458,000 1,458,000 1,458,000 1,458,000
Interest Revenue 277,257 222,579 98,194 47,073 68,058 76,232 85,785 95,148 103,503
Other Revenue
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 3,118,585 3,804,693 4,202,424 3,960,513 3,898,081 3,835,243 3,807,110 3,714,251 3,414,107
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses 66,846 57,275 56,080 126,349 60,547 51,878 50,796 130,140 62,363
Container Expenses 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000
MODU Expenses -
Rail Expenses 339,498 339,498 335,737 335,721 345,110 338,641 338,498 319,076 310,301
Trailer Expense 115,932 110,695 109,206 116,384 100,396 95,834 94,516 100,765 86,956
Vessel Expenses - - - - - - - - -
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 525,276 510,468 504,023 581,454 509,053 489,353 486,810 552,981 462,621
Indirect Operating Expense
Legal 5,326 3,239 5,235 4,223 7,155 3,331 4,711 4,090 6,879
Audit 24,866 24,866 24,866 24,866 25,612 25,612 25,612 25,612 26,380
Insurance 34,104 8,275 11,688 14,327 45,814 8,509 10,518 13,876 44,047
Other 144,550 155,105 147,910 132,064 157,629 159,702 144,952 132,970 159,788
Management Fees 154,451 191,798 219,628 214,005 209,644 205,517 203,684 197,430 181,470
Interest Expense 254,605 233,388 212,171 190,954 169,737 148,520 127,303 106,086 84,868
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 617,902 616,671 621,499 580,440 615,591 551,191 516,779 480,063 503,433
Total All Expenses 1,143,179 1,127,139 1,125,522 1,161,893 1,124,644 1,040,544 1,003,589 1,033,044 966,054
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET OPERATING
CASH FLOW 1,975,407 2,677,553 3,076,902 2,798,619 2,773,438 2,794,698 2,803,520 2,681,207 2,448,053
PLM EQUIPMENT GROWTH FUND VI
Income Forecast
OPERATING REVENUES
06/30/06 09/30/06 12/31/06 03/31/07
- ------------------------------ --------- --------- --------- ---------
Aircraft Revenue 315,000 315,000 315,000 -
Containers Revenue 546,168 520,023 252,228 -
MODU Revenue
Railcars Revenue 784,428 775,420 - -
Trailers Revenue 130,651 125,245 61,271 -
Vessels Revenue - - - -
Redeployment (Net) 1,458,000 1,458,000 729,000 -
Interest Revenue 110,063 114,967 97,032 362,202
Other Revenue
- ------------------------------ --------- --------- --------- ---------
Total 3,344,310 3,308,655 1,454,531 362,202
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses 53,434 52,320 134,044 10,355
Container Expenses 3,000 3,000 3,000 -
MODU Expenses
Rail Expenses 304,230 301,509 - -
Trailer Expense 83,103 82,065 - -
Vessel Expenses - - - -
- ------------------------------ --------- --------- --------- ---------
Total 443,767 438,894 137,044 10,355
Indirect Operating Expense
Legal 3,181 4,509 3,918 -
Audit 26,380 26,380 26,380 -
Insurance 8,125 10,066 13,291 -
Other 161,952 145,574 133,487 -
Management Fees 177,401 175,193 69,100 -
Interest Expense 63,651 42,434 21,217 (0)
- ------------------------------ --------- --------- --------- ---------
Total 440,691 404,157 267,394 (0)
Total All Expenses 884,458 843,050 404,438 10,355
- ------------------------------ --------- --------- --------- ---------
NET OPERATING
CASH FLOW 2,459,852 2,465,604 1,050,093 351,847
PLM EQUIPMENT GROWTH FUND VI
Reconciliation Of Cash balances
09/30/01 12/31/01 03/31/02 06/30/02 09/30/02 12/31/02 03/31/03
----------- ------------ ----------- ----------- ----------- ----------- -----------
BEGINNING CASH BALANCE 18,173,856 19,007,586 2,762,626 20,067,608 20,073,193 20,693,218 22,668,728
Net Operating Cash Flow 1,104,624 2,365,881 2,744,723 2,449,107 2,770,662 2,698,611 2,132,182
Non-Operating Cash Flow 1,134,080 124,112 129,623 135,378 141,389 147,667 154,223
Dry-dock Accrual Addback - 12,824 12,824 6,341 - - -
Actual Dry-dock/Other - - - (262,500) - - -
Cash Flows From Financing Activities:
management fee deferral -- -- 57,113 55,539 58,071 57,926 41,734
Proceeds from Notes Payable - 15,000,000 15,000,000 - - - -
Principal Payments on Notes - (30,000,000) (750,000) (1,539,474) (1,539,474) (1,539,474) (1,539,474)
Debt fees - (1,069,364) - - - (61,579) -
Cash Distributions - - - (948,254) (948,254) (948,254) (948,254)
Special Distributions - - - - - - -
Repurchase of Units - - - - - - -
6% special redemption
for lawsuit settlement (2,767,587)
Cash Flows from Investing Activities:
Lease Negotiation Fees (150,573)
Current Quarter Purchases - - - - - - -
Fees on Purchases (1,310,006) - - - - - -
Capitalized Costs - - - - - - -
Proceeds from Liquidations
55,605 89,175 110,700 109,447 137,630 1,620,613 462,386
- ------------------------------------- ----------- ------------ ----------- ----------- ----------- ----------- -----------
Net Change in Cash 833,730 (16,244,960) 17,304,982 5,585 620,025 1,975,511 302,797
- ------------------------------------- ----------- ------------ ----------- ----------- ----------- ----------- -----------
ENDING CASH BALANCE 19,007,586 2,762,626 20,067,608 20,073,193 20,693,218 22,668,728 22,971,526
PLM EQUIPMENT GROWTH FUND VI
Reconciliation Of Cash balances
06/30/03 09/30/03 12/31/03 03/31/04
----------- ----------- ----------- ------------
BEGINNING CASH BALANCE 22,971,526 23,284,003 22,099,759 22,261,424
Net Operating Cash Flow 2,180,227 2,159,375 2,032,437 1,975,407
Non-Operating Cash Flow 161,071 168,222 175,691 183,492
Dry-dock Accrual Addback - - - -
Actual Dry-dock/Other - - - -
Cash Flows From Financing Activities:
management fee deferral 41,492 40,672 39,923 38,613
Proceeds from Notes Payable - - - -
Principal Payments on Notes (1,539,474) (1,539,474) (1,539,474) (1,539,474)
Debt fees - - (46,184) --
Cash Distributions (948,254) (948,254) (948,254) (948,254)
Special Distributions - (1,465,484) - (1,293,074)
Repurchase of Units - - - -
6% special redemption
for lawsuit settlement
Cash Flows from Investing Activities:
Lease Negotiation Fees
Current Quarter Purchases - - - (15,000,000)
Fees on Purchases - - - (825,000)
Capitalized Costs - - - -
Proceeds from Liquidations
417,416 400,698 447,526 8,498,004
- ------------------------------------- ----------- ----------- ----------- ------------
Net Change in Cash 312,477 (1,184,244) 161,665 (8,910,287)
- ------------------------------------- ----------- ----------- ----------- ------------
ENDING CASH BALANCE 23,284,003 22,099,759 22,261,424 13,351,137
PLM EQUIPMENT GROWTH FUND VI
Reconciliation Of Cash balances
06/30/04 09/30/04 12/31/04 03/31/05 06/30/05 09/30/05 12/31/05
------------ ----------- ----------- ----------- ----------- ----------- -----------
BEGINNING CASH BALANCE 13,351,137 2,359,926 5,171,697 5,717,575 6,479,617 7,245,911 7,977,711
Net Operating Cash Flow 2,677,553 3,076,902 2,798,619 2,773,438 2,794,698 2,803,520 2,681,207
Non-Operating Cash Flow 191,639 - - - - - -
Dry-dock Accrual Addback - - - - - - -
Actual Dry-dock/Other - - - - - - -
Cash Flows From Financing Activities:
management fee deferral 47,949 (239,516) (239,516)
Proceeds from Notes Payable
Principal Payments on Notes (1,539,474) (1,539,474) (1,539,474) (1,539,474) (1,539,474) (1,539,474) (1,539,474)
Debt fees -- -- (30,789) -- -- -- (15,395)
Cash Distributions (948,254) (948,254) (948,254) (948,254) (948,254) (948,254) (948,254)
Special Distributions - - - - - - -
Repurchase of Units
6% special redemption
for lawsuit settlement
Cash Flows from Investing Activities:
Lease Negotiation Fees -
Current Quarter Purchases (12,000,000) - -
Fees on Purchases
Capitalized Costs
Proceeds from Liquidations
579,375 2,462,113 505,291 476,332 459,323 416,008 427,027
- ------------------------------------- ------------ ----------- ----------- ----------- ----------- ----------- -----------
Net Change in Cash (10,991,211) 2,811,771 545,878 762,042 766,294 731,800 605,112
- ------------------------------------- ------------ ----------- ----------- ----------- ----------- ----------- -----------
ENDING CASH BALANCE 2,359,926 5,171,697 5,717,575 6,479,617 7,245,911 7,977,711 8,582,823
PLM EQUIPMENT GROWTH FUND VI
Reconciliation Of Cash balances
03/31/06 06/30/06 09/30/06 12/31/06 03/31/07
----------- ----------- ----------- ----------- ------------
BEGINNING CASH BALANCE 8,582,823 9,027,310 9,367,334 6,157,770 51,794,539
Net Operating Cash Flow 2,448,053 2,459,852 2,465,604 1,050,093 351,847
Non-Operating Cash Flow - - - - -
Dry-dock Accrual Addback - - - - -
Actual Dry-dock/Other - - - - -
Cash Flows From Financing Activities:
management fee deferral
Proceeds from Notes Payable
Principal Payments on Notes (1,539,474) (1,539,474) (1,539,474) (1,539,474)
Debt fees -- -- -- 0
Cash Distributions (948,254) (948,254) (948,254) (948,254) -
Special Distributions - - (3,519,643) - (52,146,386)
Repurchase of Units
6% special redemption
for lawsuit settlement
Cash Flows from Investing Activities:
Lease Negotiation Fees
Current Quarter Purchases
Fees on Purchases
Capitalized Costs
Proceeds from Liquidations
484,162 367,900 332,202 47,074,403 -
- ------------------------------------- ----------- ----------- ----------- ----------- ------------
Net Change in Cash 444,487 340,025 (3,209,564) 45,636,768 (51,794,539)
- ------------------------------------- ----------- ----------- ----------- ----------- ------------
ENDING CASH BALANCE 9,027,310 9,367,334 6,157,770 51,794,539 -
PLM EQUIPMENT GROWTH FUND VII
Income Forecast
OPERATING REVENUES
09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 06/30/04 09/30/04
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Aircraft Revenue 757,339 486,000 486,000 486,000 486,000 486,000 486,000 486,000 486,000
Containers 1,686,923 1,680,712 1,636,753 1,654,720 1,664,036 1,653,220 1,609,446 1,602,871 1,596,161
Railcars Revenue 597,472 586,349 577,322 573,089 574,561 543,137 523,539 543,492 544,491
Trailers Revenue 174,497 174,497 165,703 165,703 165,703 162,998 146,183 141,477 137,086
Vessels Revenue 1,389,568 1,389,568 1,359,360 1,374,464 1,389,568 1,389,568 1,374,464 1,374,464 1,389,568
Redeployment (Net) 157,500 367,500 367,500 367,500 583,500 583,500 583,500 799,500 799,500
Interest Revenue 37,212 37,646 27,801 43,585 43,278 45,205 56,590 41,268 44,113
Other - - - - - - - - -
Total 4,800,511 4,722,272 4,620,438 4,665,061 4,906,646 4,863,628 4,779,722 4,989,072 4,996,919
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses 39,316 29,771 23,858 27,321 32,831 24,860 24,574 28,141 33,816
Containers 1,545 1,545 36,421 36,808 40,756 40,731 48,876 48,796 49,072
Rail Expenses 204,407 203,821 206,379 197,420 197,420 192,609 198,233 197,781 197,781
Trailer Expense 87,568 97,381 87,822 87,475 90,195 98,665 86,026 82,929 82,852
Vessel Expenses 549,424 549,424 537,480 543,452 549,424 549,424 543,452 543,452 549,424
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 882,259 881,943 891,961 892,477 910,625 906,289 901,161 901,098 912,944
Indirect Operating Expense
Legal 5,845 5,274 9,057 5,639 5,919 5,592 9,928 5,964 6,244
Audit 18,282 18,282 18,831 18,831 18,831 18,831 19,396 19,396 19,396
Insurance 11,135 14,137 53,810 11,284 11,276 14,990 58,987 11,934 11,895
Other 168,995 160,326 184,262 206,268 173,170 166,773 192,519 213,711 179,664
Management Fees 235,364 230,156 224,775 224,651 235,741 232,166 226,677 236,245 235,162
Interest Expense 252,508 252,508 197,983 197,983 197,983 197,983 143,458 143,458 143,458
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 692,130 680,684 688,718 664,656 642,919 636,335 650,964 630,707 595,818
Total All Expenses 1,574,389 1,562,626 1,580,679 1,557,133 1,553,544 1,542,624 1,552,125 1,531,805 1,508,762
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET OPERATING CASH FLOW 3,226,122 3,159,646 3,039,759 3,107,928 3,353,102 3,321,004 3,227,596 3,457,267 3,488,157
============================== ========= ========= ========= ========= ========= ========= ========= ========= =========
PLM EQUIPMENT GROWTH FUND VII
Income Forecast
OPERATING REVENUES
12/31/04
- ------------------------------ ---------
Aircraft Revenue 486,000
Containers 1,581,276
Railcars Revenue 542,800
Trailers Revenue 132,694
Vessels Revenue 936,448
Redeployment (Net) 799,500
Interest Revenue 73,744
Other -
- ------------------------------ ---------
Total 4,552,462
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses 25,606
Containers 48,819
Rail Expenses 197,507
Trailer Expense 90,691
Vessel Expenses 370,264
- ------------------------------ ---------
Total 732,887
Indirect Operating Expense
Legal 4,919
Audit 19,396
Insurance 13,184
Other 163,159
Management Fees 209,930
Interest Expense 143,458
- ------------------------------ ---------
Total 554,045
Total All Expenses 1,286,932
- ------------------------------ ---------
NET OPERATING CASH FLOW 3,265,530
============================== =========
PLM EQUIPMENT GROWTH FUND VII
Income Forecast
OPERATING REVENUES
03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 06/30/06 09/30/06 12/31/06
- ------------------------------ --------- --------- --------- --------- ---------- ---------- ---------- ---------
Aircraft Revenue 486,000 486,000 486,000 486,000 335,611 315,000 315,000 315,000
Containers 1,512,393 1,507,343 1,469,122 1,425,964 1,347,667 1,317,219 1,035,592 -
Railcars Revenue 525,225 513,289 518,354 498,573 451,996 449,691 445,747 -
Trailers Revenue 125,572 121,274 117,283 113,598 107,525 103,920 100,316 49,257
Vessels Revenue - - - - - - - -
Redeployment (Net) 961,500 961,500 961,500 961,500 961,500 961,500 961,500 480,750
Interest Revenue 85,356 93,347 74,292 55,638 35,385 13,146 34,830 52,971
Other - - - - - - - -
- ------------------------------ --------- --------- --------- --------- ---------- ---------- ---------- ---------
Total 3,696,047 3,682,753 3,626,552 3,541,273 3,239,684 3,160,476 2,892,985 897,978
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses 25,311 28,985 34,830 26,374 26,070 29,854 35,875 27,165
Containers 68,259 68,460 119,227 117,829 186,527 185,504 183,844 -
Rail Expenses 197,597 196,524 196,524 191,123 173,902 171,551 170,266 -
Trailer Expense 79,127 75,990 75,811 83,082 72,581
Vessel Expenses - - - - - - - -
- ------------------------------ --------- --------- --------- --------- ---------- ---------- ---------- ---------
Total 370,295 369,959 426,393 418,409 459,080 386,910 389,985 27,165
Indirect Operating Expense
Legal 8,399 5,028 5,242 4,920 8,324 4,957 4,822 268
Audit 19,977 19,977 19,977 19,977 20,577 20,577 20,577 20,577
Insurance 49,902 10,061 9,986 13,187 49,454 9,920 9,186 720
Other 189,980 211,131 174,580 166,554 194,188 215,680 174,730 122,410
Management Fees 166,359 163,855 162,575 159,105 145,232 142,611 140,944 62,289
Interest Expense 70,758 70,758 70,758 70,758 (1,942) (1,942) (1,942) (1,942)
- ------------------------------ --------- --------- --------- --------- ---------- ---------- ---------- ---------
Total 505,376 480,810 443,119 434,501 415,832 391,803 348,316 204,322
Total All Expenses 875,671 850,769 869,512 852,910 874,912 778,713 738,301 231,488
- ------------------------------ --------- --------- --------- --------- ---------- ---------- ---------- ---------
NET OPERATING CASH FLOW 2,820,375 2,831,984 2,757,040 2,688,363 2,364,772 2,381,764 2,154,685 666,491
============================== ========= ========= ========= ========= ========== ========== ========== =========
PLM EQUIPMENT GROWTH FUND VII
Income Forecast
OPERATING REVENUES
03/31/07
- ------------------------------ ---------
Aircraft Revenue -
Containers -
Railcars Revenue -
Trailers Revenue -
Vessels Revenue -
Redeployment (Net) -
Interest Revenue 300,781
Other -
- ------------------------------ ---------
Total 300,781
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses -
Containers -
Rail Expenses -
Trailer Expense
Vessel Expenses -
- ------------------------------ ---------
Total -
Indirect Operating Expense
Legal 0
Audit 0
Insurance 0
Other 0
Management Fees 0
Interest Expense (1,942)
- ------------------------------ ---------
Total (1,942)
- ------------------------------ ---------
Total All Expenses (1,942)
- ------------------------------ ---------
NET OPERATING CASH FLOW 302,723
============================== =========
PLM EQUIPMENT GROWTH FUND VII
Reconciliation Of Cash balances
09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04
- ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BEGINNING CASH BALANCE 4,035,871 1,987,472 2,460,622 4,512,980 2,411,462 4,821,283 4,233,093
- - - - - - -
Net Operating Cash Flow 3,226,122 3,159,646 3,039,759 3,107,928 3,353,102 3,321,004 3,227,596
- - - - - - -
Non-Operating Cash Flow - - - - - - -
- - - - -
Dry-dock Accrual Addback - - - - - - -
Actual Dry-dock/Other - - - - - - -
Management fee deferral - - - - - - -
Cash Flows From Financing Activities: - - - - - - -
- - - - - - -
Proceeds from Notes Payable - - - - - - -
Principal Payments on Notes - (3,000,000) - - - (3,000,000) -
Debt fees - - - - - - -
Cash Distributions (1,064,714) (1,064,714) (1,064,714) (1,064,714) (1,064,714) (1,064,714) (1,064,714)
Special Distributions - - - - - - -
Repurchase of Units - - - - - - -
5% special redemption for
lawsuit settlement - - - - - - -
Cash Flows from Investing Activities: - - - - - - -
- - - - - - -
Current Quarter Purchases (4,000,000) - - (4,000,000) - - (4,000,000)
Fees on Purchases (220,000) - - (220,000) - - (220,000)
Capitalized Costs - - - - - - -
Proceeds from Liquidations
10,193 1,378,218 77,313 75,268 121,433 155,520 193,765
- ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Change in Cash (2,048,399) 473,150 2,052,359 (2,101,518) 2,409,821 (588,190) (1,863,353)
- ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
ENDING CASH BALANCE 1,987,472 2,460,622 4,512,980 2,411,462 4,821,283 4,233,093 2,369,740
06/30/04 09/30/04
- ------------------------------------- ----------- -----------
BEGINNING CASH BALANCE 2,369,740 4,688,369
- -
Net Operating Cash Flow 3,457,267 3,488,157
- -
Non-Operating Cash Flow - -
Dry-dock Accrual Addback - -
Actual Dry-dock/Other - -
Management fee deferral - -
Cash Flows From Financing Activities: - -
- -
Proceeds from Notes Payable -
Principal Payments on Notes - -
Debt fees - -
Cash Distributions (1,330,892) (1,330,892)
Special Distributions - -
Repurchase of Units - -
5% special redemption for
lawsuit settlement - -
Cash Flows from Investing Activities: - -
- -
Current Quarter Purchases -
Fees on Purchases - -
Capitalized Costs - -
Proceeds from Liquidations
192,255 264,980
Net Change in Cash 2,318,629 2,422,244
- ------------------------------------- ----------- -----------
ENDING CASH BALANCE 4,688,369 7,110,614
PLM EQUIPMENT GROWTH FUND VII
Reconciliation Of Cash balances
12/31/04 03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 06/30/06
- ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BEGINNING CASH BALANCE 7,110,614 6,546,394 8,389,072 3,497,721 5,404,312 257,308 1,845,972
- - - - - - -
Net Operating Cash Flow 3,265,530 2,820,375 2,831,984 2,757,040 2,688,363 2,364,772 2,381,764
- - - - - - -
Non-Operating Cash Flow - - - - - - -
- - - - - - -
Dry-dock Accrual Addback - - - - - - -
Actual Dry-dock/Other - - - - - - -
Management fee deferral - 41,590 40,964 40,644 39,776 36,308 35,653
Cash Flows From Financing Activities: - - - - - - -
- - - - - - -
Proceeds from Notes Payable - - - - - - -
Principal Payments on Notes (4,000,000) - - - (4,000,000) - -
Debt fees - - - - - - -
Cash Distributions (1,330,892) (1,330,892) (1,330,892) (1,330,892) (1,330,892) (1,330,892) (1,064,714)
Special Distributions - - (6,774,590) - (3,000,000) - -
Repurchase of Units - - - - - - -
5% special redemption for
lawsuit settlement - - - - - - -
Cash Flows from Investing Activities: - - - - - - -
- - - - - - -
Current Quarter Purchases (3,000,000) - - - - - -
Fees on Purchases (165,000) - - - - - -
Capitalized Costs - - - - - - -
Proceeds from Liquidations
4,666,143 311,605 341,184 439,799 455,749 518,476 528,188
Net Change in Cash (564,220) 1,842,678 (4,891,350) 1,906,591 (5,147,004) 1,588,664 1,880,891
- ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
ENDING CASH BALANCE 6,546,394 8,389,072 3,497,721 5,404,312 257,308 1,845,972 3,726,863
09/30/06 12/31/06 03/31/07
- ------------------------------------- ----------- ----------- ------------
BEGINNING CASH BALANCE 3,726,863 4,748,537 43,376,366
- - -
Net Operating Cash Flow 2,154,685 666,491 302,723
- - -
Non-Operating Cash Flow - - -
- - -
Dry-dock Accrual Addback - - -
Actual Dry-dock/Other - - -
Management fee deferral (117,467) (117,467)
Cash Flows From Financing Activities: - - -
- - -
Proceeds from Notes Payable - - -
Principal Payments on Notes - - -
Debt fees - - -
Cash Distributions - - -
Special Distributions (3,726,863) (4,748,537) (43,679,088)
Repurchase of Units - - -
5% special redemption for
lawsuit settlement - - -
Cash Flows from Investing Activities: - - -
- - -
Current Quarter Purchases - - -
Fees on Purchases - - -
Capitalized Costs - - -
Proceeds from Liquidations
2,711,319 42,827,342 -
Net Change in Cash 1,021,674 38,627,829 (43,376,366)
- ------------------------------------- ----------- ----------- ------------
ENDING CASH BALANCE 4,748,537 43,376,366 -
PLM INCOME FUND I
INCOME FORECAST
10/9/2002
OPERATING REVENUES
09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04 06/30/04 09/30/04
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Aircraft Revenue 1,329,242 315,000 315,000 315,000 315,000 315,000 315,000 315,000 315,000
Containers Revenue 1,431,266 1,427,028 1,377,685 1,388,376 1,403,066 1,397,148 1,366,728 1,324,667 1,334,848
Railcars Revenue 847,019 771,874 806,848 839,537 830,766 822,562 804,320 812,966 809,413
Trailers Revenue 314,095 314,095 298,266 298,266 298,266 292,179 260,055 249,389 239,037
Vessels Revenue 2,208,000 2,208,000 - - - - - - -
Redeployment (Net) - - - - - - - - -
Interest Revenue 280,079 313,119 321,004 173,358 37,810 146,603 188,652 79,996 36,398
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 6,409,700 5,349,115 3,118,803 3,014,537 2,884,908 2,973,491 2,934,755 2,782,017 2,734,696
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- -
OPERATING EXPENSES - -
Direct Operating Expenses - -
Air Expenses 44,078 37,362 44,991 31,642 45,400 38,483 19,083 13,421 19,256
Container Expenses 1,545 1,545 36,907 37,300 38,388 38,388 46,063 107,680 108,181
Rail Expenses 223,916 222,223 227,140 228,308 228,308 227,682 233,298 234,497 234,497
Trailer Expense 116,424 116,424 116,424 116,424 116,424 111,672 107,184 102,696 98,472
Vessel Expenses 1,196,000 1,196,000 - - - - - - -
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 1,581,963 1,573,554 425,462 413,674 428,520 416,225 405,628 458,294 460,406
Indirect Operating Expense
Legal 5,623 6,549 11,668 6,181 5,792 6,745 12,018 6,367 5,966
Audit 25,000 25,000 25,750 25,750 25,750 25,750 26,523 26,523 26,523
Insurance 13,948 13,948 60,107 10,775 14,366 14,366 61,910 11,098 14,797
Other 152,579 158,314 188,458 190,181 147,863 156,724 193,418 195,079 151,707
Management Fees 320,569 264,597 154,360 157,395 157,528 156,649 151,666 150,959 150,916
Interest Expense 348,175 348,175 293,200 293,200 293,200 293,200 238,225 238,225 238,225
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 865,894 816,583 733,543 683,482 644,499 653,435 683,760 628,250 588,134
Total All Expenses 2,447,857 2,390,137 1,159,005 1,097,156 1,073,019 1,069,659 1,089,388 1,086,544 1,048,540
NET OPERATING CASH FLOW 3,961,844 2,958,978 1,959,798 1,917,381 1,811,889 1,903,831 1,845,367 1,695,473 1,686,155
PLM INCOME FUND I
INCOME FORECAST
10/9/2002
OPERATING REVENUES 1997
12/31/04 03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 06/30/06 09/30/06
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Aircraft Revenue 315,000 315,000 315,000 315,000 315,000 315,000 315,000 315,000
Containers Revenue 1,328,217 1,249,641 1,242,503 1,222,253 1,202,529 1,115,919 1,088,443 1,074,616
Railcars Revenue 809,519 804,809 792,281 791,911 780,203 783,898 780,216 778,309
Trailers Revenue 229,312 215,223 206,319 197,722 189,433 177,506 169,997 162,789
Vessels Revenue - - - - - - - -
Redeployment (Net) - - - - - - - -
Interest Revenue 39,234 23,076 6,413 8,188 9,732 (20,552) (51,106) (50,272)
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 2,721,283 2,607,749 2,562,515 2,535,075 2,496,897 2,371,771 2,302,549 2,280,442
- ------------------------------------ --------- --------- --------- --------- --------- ---------- ---------- ----------
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses 16,322 19,655 13,824 19,834 16,812 20,245 14,238 20,429
Container Expenses 107,506 138,114 172,433 222,908 220,111 256,005 252,389 248,869
Rail Expenses 234,436 240,223 241,453 241,453 241,390 240,747 242,009 241,380
Trailer Expense 94,512 90,552 86,856 83,160 79,728 76,296 73,128 69,960
Vessel Expenses - - - - - - - -
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 452,776 488,544 514,566 567,355 558,041 593,293 581,765 580,638
Indirect Operating Expense
Legal 6,948 12,378 6,558 6,145 7,156 12,750 6,755 6,329
Audit 26,523 27,318 27,318 27,318 27,318 28,138 28,138 28,138
Insurance 14,797 63,767 11,431 15,241 15,241 65,680 11,774 15,699
Other 160,572 198,183 200,174 155,554 164,624 203,343 205,337 159,394
Management Fees 147,381 144,950 144,318 142,652 141,418 139,191 139,221 139,391
Interest Expense 238,225 183,250 183,250 183,250 183,250 91,625 91,625 91,625
- --------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 594,445 629,847 573,049 530,161 539,008 540,727 482,849 440,575
Total All Expenses 1,047,222 1,118,391 1,087,615 1,097,516 1,097,049 1,134,020 1,064,614 1,021,213
NET OPERATING CASH FLOW 1,674,061 1,489,358 1,474,900 1,437,559 1,399,848 1,237,751 1,237,935 1,259,228
PLM INCOME FUND I
INCOME FORECAST
OPERATING REVENUES
12/31/06 03/31/07 TOTALS
Aircraft Revenue 315,000 10,914,582 IRR
Containers Revenue - - 0
Railcars Revenue - - 3,623,057
Trailers Revenue 79,592 - 3,616,364
Vessels Revenue - - 4,929,219
Redeployment (Net) - - 0
Assume 5%
of prev qtr's
Interest Revenue (49,343) 438,131 cash bal.
Total 345,249 - 27,129,958
- ------------------------------------ --------- -------- ----------
OPERATING EXPENSES
Direct Operating Expenses
Air Expenses 17,316 - 96,626
Container Expenses - - 678
Rail Expenses - - 1,037,243
Trailer Expense - - 1,043,221
Vessel Expenses - - 2,580,164
Total 17,316 - 4,832,191
Indirect Operating Expense
Legal 7,371 - 103,419
Audit 28,138 - 41,325
Insurance 15,699 - 38,975
Other 163,996 - 474,837
Management Fees 50,239 - 1,320,710
Interest Expense 91,625 - 1,417,581
Total 357,068 - 3,396,847
Total All Expenses 374,384 - 8,229,038
NET OPERATING CASH FLOW (29,135) - 18,900,921
PLM INCOME FUND I
Reconciliation Of Cash balances
09/30/02 12/31/02 03/31/03 06/30/03 09/30/03 12/31/03 03/31/04
- ------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
BEGINNING CASH BALANCE 23,704,006 26,395,045 24,965,561 2,771,717 3,277,937 20,178,468 10,005,883
Net Operating Cash Flow 3,961,844 2,958,978 1,959,798 1,917,381 1,811,889 1,903,831 1,845,367
Other Cash Flow from Operations 191,345 41,347 41,347 41,347 41,347 41,347 41,347
Dry-dock Accrual Addback - - - - - - -
Actual Dry-dock/Other - - - - - - -
Cash Flows From Financing Activities:
Proceeds from Notes Payable - - - - - - -
Principal Payments on Notes - (3,000,000) - - - (3,000,000) -
Debt fees - N/A - - - - - - -
Cash Distributions (1,462,150) (1,462,150) (1,462,150) (1,462,150) (1,462,150) (1,462,150) (1,462,150)
Special Distributions - - (22,753,411) - - (12,966,318) -
Other Financing - - - - - - -
Cash Flows from Investing Activities:
Current Quarter Purchases - - - - - - -
Fees on Purchases - N/A - - - - - - -
Capitalized Costs - - - - - - -
Proceeds from Liquidations - 32,342 20,572 9,641 16,509,446 5,310,705 156,828
- ------------------------------------- ----------- ----------- ------------ ----------- ----------- ------------ -----------
NET CHANGE IN CASH 2,691,039 (1,429,483) (22,193,844) 506,219 16,900,531 (10,172,585) 581,392
ENDING CASH BALANCE 26,395,045 24,965,561 2,771,717 3,277,937 20,178,468 10,005,883 10,587,275
PLM INCOME FUND I
Reconciliation Of Cash balances
06/30/04 09/30/04
- ------------------------------------- ----------- -----------
BEGINNING CASH BALANCE 10,587,275 10,823,865
Net Operating Cash Flow 1,695,473 1,686,155
Other Cash Flow from Operations 41,347 41,347
Dry-dock Accrual Addback - -
Actual Dry-dock/Other - -
Cash Flows From Financing Activities:
Proceeds from Notes Payable - -
Principal Payments on Notes - -
Debt fees - N/A - -
Cash Distributions (1,657,104) (1,657,104)
Special Distributions -
Other Financing - -
Cash Flows from Investing Activities:
Current Quarter Purchases - -
Fees on Purchases - N/A - -
Capitalized Costs - -
Proceeds from Liquidations 156,873 146,786
- ------------------------------------- ----------- -----------
NET CHANGE IN CASH 236,590 217,185
- ------------------------------------- ----------- -----------
ENDING CASH BALANCE 10,823,865 11,041,051
PLM INCOME FUND I
Reconciliation Of Cash balances
12/31/04 03/31/05 06/30/05 09/30/05 12/31/05 03/31/06 06/30/06
- ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BEGINNING CASH BALANCE 11,041,051 8,238,567 8,374,933 8,522,675 8,621,869 3,677,269 3,733,179
Net Operating Cash Flow 1,674,061 1,489,358 1,474,900 1,437,559 1,399,848 1,237,751 1,237,935
Other Cash Flow from Operations 41,347 41,347 41,347 41,347 41,347 41,347 41,347
Dry-dock Accrual Addback - - - - - - -
Actual Dry-dock/Other - - - - - - -
Cash Flows From Financing Activities:
Proceeds from Notes Payable - - - - - - -
Principal Payments on Notes (3,000,000) - - - (5,000,000) - -
Debt fees - N/A - - - - - - -
Cash Distributions (1,657,104) (1,657,104) (1,657,104) (1,657,104) (1,657,104) (1,657,104) (1,657,104)
Special Distributions - - - - - - -
Other Financing - - - - - - -
Cash Flows from Investing Activities:
Current Quarter Purchases - - - - - - -
Fees on Purchases - N/A - - - - - - -
Capitalized Costs - - - - - - -
Proceeds from Liquidations 139,212 262,765 288,597 277,391 271,309 433,916 455,396
- ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
NET CHANGE IN CASH (2,802,484) 136,366 147,742 99,194 (4,944,599) 55,910 77,575
- ------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
ENDING CASH BALANCE 8,238,567 8,374,933 8,522,675 8,621,869 3,677,269 3,733,179 3,810,754
PLM INCOME FUND I
Reconciliation Of Cash balances
09/30/06 12/31/06 03/31/07
- ------------------------------------- ----------- ----------- -----------
BEGINNING CASH BALANCE 3,810,754 3,881,877 28,170,935
Net Operating Cash Flow 1,259,228 (29,135) -
Other Cash Flow from Operations 41,347 - -
Dry-dock Accrual Addback - - -
Actual Dry-dock/Other - - -
Cash Flows From Financing Activities:
Proceeds from Notes Payable - - -
Principal Payments on Notes - (5,000,000) -
Debt fees - N/A - - -
Cash Distributions (1,657,104) (1,657,104) -
Special Distributions - - (28,170,935)
Other Financing - - -
Cash Flows from Investing Activities:
Current Quarter Purchases - - -
Fees on Purchases - N/A - - -
Capitalized Costs - - -
Proceeds from Liquidations 427,650 30,975,297 -
- ------------------------------------- ----------- ----------- -----------
NET CHANGE IN CASH 71,123 24,289,058 (28,170,935)
- ------------------------------------- ----------- ----------- -----------
ENDING CASH BALANCE 3,881,877 28,170,935 -
AFG INVESTMENT TRUST C
200 Nyala Farms
Westport, Connecticut 06880
Consent of Beneficiary
(SOLICITED ON BEHALF OF THE MANAGING TRUSTEE)
I have received and reviewed the Solicitation Statement dated February __,
2003 (the "Solicitation Statement"), from AFG Investment Trust C (the
"Trust") concerning the five proposals. For purposes of Article XII, Section
12.1, of the Trust Agreement, I hereby vote as follows. If this signed Consent
contains no specific voting instructions, my Interests will be voted FOR the
adoption of each of the Proposals.
THE MANAGING TRUSTEE RECOMMENDS A VOTE FOR THE ADOPTION OF EACH OF THE
PROPOSALS.
(1) To allow PLM International, Inc., MILPI Holdings, LLC and the
subsidiaries and affiliates that they control, to continue to operate their
ongoing business making investments after December 31, 2002, notwithstanding the
end of the reinvestment period for the Trust.
______ FOR ______ AGAINST ______ ABSTAIN
(2) To approve a transaction whereby a newly formed subsidiary of PLM, RMLP,
Inc., will receive a contribution from Semele Group, Inc. of partnership
interests in BMIF/BSLF II Rancho Malibu Limited Partnership, a partnership that
owns and is developing approximately 270 acres of land in Malibu, California in
exchange for $5.5 million in cash, a $2.5 million promissory note and 182 shares
of common stock of RMLP, Inc.
______ FOR ______ AGAINST ______ ABSTAIN
(3) To amend Section 7.5 of the Trust Agreement to approve grants and
exercises of rights of first refusal in connection with joint ventures between
the Trust and its affiliates.
______ FOR ______ AGAINST ______ ABSTAIN
(4) To approve the purchase by MILPI Holdings, LLC of the membership
interests in MILPI Holdings, LLC held by AFG Investment Trust A and AFG
Investment Trust B, which would give the Trust, together with AFG Investment
Trust D, shared 100% ownership of MILPI Holdings, LLC.
______ FOR ______ AGAINST ______ ABSTAIN
(5) To allow the Trust, in its operation of PLM International, Inc., to
enter into business arrangements with affiliates of the Trust in the ordinary
course of business on terms no less favorable than those that they would receive
if such arrangements were being entered into with independent third parties.
______ FOR ______ AGAINST ______ ABSTAIN
A properly executed Consent of Beneficiary received by the Managing Trustee
will be voted in accordance with the directions indicated above. If no specific
voting instructions are indicated, a properly executed Consent of Beneficiary
received by the Managing Trustee will be voted FOR Proposals 1 through 5.
Number of Class A Beneficiary Interests Held: __________
Number of Class B Beneficiary Interests Held: __________
If the Beneficiary is an Individual:
Signature Date Signature Date
Print Name Print Name
- ----------- -----------
(IF JOINT TENANTS OR TENANTS-IN-COMMON, BOTH OWNERS MUST SIGN):
If the Beneficiary is a Corporation, Partnership or Trust:
Name of Entity
Signature
Print Name
Title Date
THIS CONSENT FORM MAY BE RETURNED BY FAX, MAIL OR HAND-DELIVERY. PLEASE RETURN
THIS CONSENT FORM NO LATER THAN FEBRUARY __, 2003 (SUBJECT TO EXTENSION
AT THE DISCRETION OF THE MANAGING TRUSTEE), TO:
THE ALTMAN GROUP, INC.
60 East 42nd Street, Suite 405
New York, New York 10165
Telephone: (800) 461-2657
Facsimile: (212) 973-9818
In the event that a sufficient number of consents required for the adoption - or
rejection - of the proposals has not been received by February __, 2003,
the Managing Trustee may, at its discretion, extent the deadline for up to 90
days, in which case the Managing Trustee will provide notice to Beneficiaries by
means of a press release or a letter mailed to each Beneficiary.