UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________________ to ____________________
Commission file number 0-21390
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AFG Investment Trust B
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(Exact name of registrant as specified in its charter)
Delaware 04-3157230
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88 Broad St., Sixth Floor, Boston, MA 02110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
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Securities registered pursuant to Section 12(b) of the Act NONE
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Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
665,494 Class A Trust Beneficiary Interests
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(Title of class)
1,000,961 Class B Trust Beneficiary Interests
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XX No
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State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. Not applicable. Securities are nonvoting for this purpose.
Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1997 (Part I and II)
AFG Investment Trust B
FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the Trust's Securities and Related
Security Holder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 8
PART III
Item 10. Directors and Executive Officers of the Trust 9
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners and Management 11
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 13-15
PART I
ITEM 1. BUSINESS.
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(a) General Development of Business
AFG Investment Trust B (the "Trust") was organized as a Delaware
business trust in accordance with the Delaware Business Trust Act on May 28,
1992 for the purpose of acquiring and leasing to third parties a diversified
portfolio of capital equipment. Participants' capital initially consisted of
contributions of $1,000 from the Managing Trustee, AFG ASIT Corporation, $1,000
from the Special Beneficiary, Equis Financial Group Limited Partnership
(formerly American Finance Group), a Massachusetts limited partnership, ("EFG"
or the "Advisor") and $100 from the Initial Beneficiary, AFG Assignor
Corporation, a wholly-owned affiliate of EFG. The Trust issued an aggregate of
665,494 Beneficiary Interests (hereinafter referred to as Class A Interests) at
a subscription price of $25.00 each ($16,637,350 in total) to 803 investors on
September 8, 1992. On July 18, 1997, the Trust issued 1,000,961 Class B
Interests at $5.00 each ($5,004,805 in total), of which (i) 997,373 interests
are held by Equis II Corporation, an affiliate of EFG, and (ii) 3,588 interests
are held by 5 Class A investors. The Trust repurchased 82,837 Class A Interests
on October 10, 1997 and an additional 640 Class A Interests on December 1, 1997
using proceeds from the offering of Class B Interests. Accordingly, there are
582,017 Class A Interests currently outstanding.
The Trust has one Managing Trustee, AFG ASIT Corporation, a
Massachusetts corporation, and one Special Beneficiary, EFG. AFG ASIT
Corporation is a wholly-owned subsidiary of Equis II Corporation and an
affiliate of EFG. Class A Interests and Class B Interests basically have
identical voting rights and, therefore, Equis II Corporation has control over
the Trust on all matters on which the Beneficiaries may vote. The Managing
Trustee and the Special Beneficiary are not required to make any other capital
contributions except as may be required under the Second Amended and Restated
Declaration of Trust (the "Trust Agreement").
(b) Financial Information About Industry Segments
The Trust is engaged in only one industry segment: the business of
acquiring capital equipment and leasing the equipment to creditworthy lessees on
a full-payout or operating lease basis. Full-payout leases are those in which
aggregate noncancellable rents equal or exceed the Purchase Price of the leased
equipment. Operating leases are those in which the aggregate noncancellable
rental payments are less than the Purchase Price of the leased equipment.
Industry segment data is not applicable.
(c) Narrative Description of Business
The Trust was organized to acquire a diversified portfolio of capital
equipment subject to various full-payout and operating leases and to lease the
equipment to third parties as income-producing investments. More specifically,
the Trust's primary investment objectives are to acquire and lease equipment
which will:
1. Generate monthly cash distributions;
2. Preserve and protect Trust capital; and
3. Maximize residual value for ultimate sale.
The Trust has the additional objective of providing certain federal
income tax benefits.
The Closing Date of the offering of Class A Beneficiary Interests was
September 8, 1992. Significant operations commenced coincident with the Trust's
initial purchase of equipment and associated lease commitments on September 8,
1992. The acquisition of the equipment and its associated leases is described in
detail in Note 3 to the financial statements included in Item 14, herein. The
Trust is expected to terminate by December 31 of the eleventh year following its
Closing Date, or December 31, 2003; however, the Trust is a Nominal Defendant in
a Class Action Lawsuit. The outcome of the Class Action Lawsuit could alter the
future business operations of the Trust. See Note 7 to the accompanying
financial statements.
The Trust has no employees; however, it entered into an Advisory
Agreement with EFG. EFG's role, among other things, is to (i) evaluate, select,
negotiate, and consummate the acquisition of equipment, (ii) manage the leasing,
re-leasing, financing, and refinancing of equipment, and (iii) arrange the
resale of equipment.
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The Advisor is compensated for such services as described in the Trust
Agreement, Item 13 herein, and in Note 4 to the financial statements, included
in Item 14, herein.
The Trust's investment in equipment is, and will continue to be, subject
to various risks, including physical deterioration, technological obsolescence
and defaults by lessees. A principal business risk of owning and leasing
equipment is the possibility that aggregate lease revenues and equipment sale
proceeds will be insufficient to provide an acceptable rate of return on
invested capital after payment of all debt service costs and operating expenses.
Consequently, the success of the Trust is largely dependent upon the ability of
the Managing Trustee and its Affiliates to forecast technological advances, the
ability of the lessees to fulfill their lease obligations and the quality and
marketability of the equipment at the time of sale.
In addition, the leasing industry is very competitive. Although
substantially all funds available for acquisitions have been invested in
equipment, subject to noncancellable lease agreements, the Trust will encounter
considerable competition when equipment is re-leased or sold at the expiration
of primary lease terms. The Trust will compete with lease programs offered
directly by manufacturers and other equipment leasing companies, including
business trusts and limited partnerships organized and managed similarly to the
Trust and including other EFG-sponsored partnerships and trusts, which may seek
to re-lease or sell equipment within their own portfolios to the same customers
as the Trust. Many competitors have greater financial resources and more
experience than the Trust, the Managing Trustee and the Advisor.
The Trust Agreement provided for the reinvestment of Cash From Sales or
Refinancings in additional equipment until September 1996, a period of four
years following Closing (see Note 10 to the financial statements included in
Item 14 herein). Upon the expiration of each primary lease term, the Managing
Trustee will determine whether to sell or re-lease the Trust's equipment,
depending on the economic advantages of each alternative. Over time, the Trust
will begin to liquidate its portfolio of equipment.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1997, 1996 and 1995 is
incorporated herein by reference to Note 2 to the financial statements in the
1997 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
Default by a lessee under a lease agreement may cause equipment to be
returned to the Trust at a time when the Managing Trustee or the Advisor is
unable to arrange the sale or re-lease of such equipment. This could result in
the loss of a portion of potential lease revenues and weaken the Trust's ability
to repay related indebtedness.
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Manager or Advisor to the Trust and several other
Direct-Participation equipment leasing programs sponsored or co-sponsored by EFG
(the "Other Investment Programs"). The Company arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager, and provides
leasing support services, such as billing, collecting, and asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President and Chief Executive Officer. Equis Corporation also owns
a controlling 1% general partner interest in EFG's 99% limited partner, GDE
Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were
established in December 1994 by Mr. Engle for the sole purpose of acquiring the
business of AFG.
In January 1996, the Company sold certain assets of AFG relating
primarily to the business of originating new leases, and the name "American
Finance Group," and its acronym, to a third party. AFG changed its name to Equis
Financial Group Limited Partnership after the sale was concluded. Pursuant to
terms of the sale agreements, EFG specifically reserved the rights to continue
using the name American Finance Group and its acronym in connection with the
Trust and the Other Investment Programs and to continue managing all assets
owned by the Trust and the Other Investment Programs.
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(d) Financial Information About Foreign and Domestic Operations and
Export Sales
Not applicable.
ITEM 2. PROPERTIES.
Incorporated herein by reference to Note 3 to the financial statements
in the 1997 Annual Report.
ITEM 3. LEGAL PROCEEDINGS.
Incorporated herein by reference to Note 7 to the financial statements
in the 1997 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR THE TRUST'S SECURITIES AND RELATED SECURITY HOLDER MATTERS.
(a) Market Information
There is no public market for the resale of the Interests and it is not
anticipated that a public market for resale of the Interests will develop.
(b) Approximate Number of Security Holders
At December 31, 1997, there were 680 record holders (674 Class A
Interests and 6 Class B Interests) in the Trust.
(c) Dividend History and Restrictions
In addition to the Managing Trustee and the Special Beneficiary, the
Trust has Class A and Class B Beneficiaries. Pursuant to Article VIII of the
Trust Agreement, the Trust's Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings (each as defined below) are
determined and distributed to the Trust's Participants monthly. Each monthly
distribution may vary in amount. Notwithstanding the foregoing, the Managing
Trustee may, in its sole discretion, restrict or suspend distributions if it
believes such action to be in the best interests of the Trust. Each distribution
shall be made 90.75% to the Class A and Class B Beneficiaries, 8.25% to the
Special Beneficiary, and 1% to the Managing Trustee. Currently, there are no
restrictions that materially limit the Trust's ability to make distributions or
that the Trust believes are likely to materially limit future distributions. The
Trust expects to continue to make distributions on a monthly basis.
Distributions, prior to Class B Payout (defined below), are allocated to
the Class A and Class B Beneficiaries as follows: first, 100% to the Class A
Beneficiaries up to $0.41 per Class A Interest; second, 100% to the Class B
Beneficiaries up to $0.164 per Class B Interest, reduced by the Class B
Distribution Reduction Factor (defined later herein); third, 100% to the Class A
Beneficiaries up to an additional $0.215 per Class A Interest; and fourth, until
Class B Payout has been attained, 80% to the Class B Beneficiaries and 20% to
the Class A Beneficiaries. After Class B Payout, all further distributions will
be made to the Class A Beneficiaries and the Class B Beneficiaries in amounts so
that each Class A Beneficiary receives, with respect to each Class A Interest,
an amount equal to 400%, divided by the difference between 100% and the Class B
Distribution Reduction Factor, of the amount so distributed with respect to each
Class B Interest. The Class B Distribution Reduction Factor means the percentage
determined as a fraction, the numerator of which is the aggregate amount of any
cash distributions paid to the Class B Beneficiaries as a return of their
original capital contributions (on a per Class B Subordinated Interest basis),
discounted at 8% per annum (commencing August 1, 1997, the first day of the
month following the Class B Closing) and the denominator of which is $5.00.
Distributions in 1997 and 1996 were as follows:
Managing Special
Total Trustee Beneficiary Beneficiaries
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Total 1997 distributions:
Class A Interests $2,118,339 $ 11,389 $ 93,958 $2,012,992
Class B Interests 328,714 3,287 27,119 298,308
Total 1996 distributions:
Class A Interests 1,039,491 10,395 85,758 943,338
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Total $3,486,544 $ 25,071 $ 206,835 $3,254,638
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Distributions payable at December 31, 1997 and 1996 were $235,577 and
$200,199, respectively.
"Distributable Cash From Operations" means the net cash provided by the
Trust's normal operations after general expenses and current liabilities of the
Trust are paid, reduced by any reserves for working capital and
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contingent liabilities to be funded from such cash, to the extent deemed
reasonable by the Managing Trustee, and increased by any portion of such
reserves deemed by the Managing Trustee not to be required for Trust operations
and reduced by all accrued and unpaid management fees and, after Payout, further
reduced by all accrued and unpaid Subordinated Remarketing Fees. Distributable
Cash From Operations does not include any Distributable Cash From Sales or
Refinancings.
"Distributable Cash From Sales or Refinancings" means Cash From Sales or
Refinancings as reduced by (i)(a) amounts reinvested in additional equipment in
accordance with Sections 4.2(b)(v) and 4.2(b)(vi) of the Trust Agreement, or (b)
the proceeds from the sale of an interest in a joint venture which are
reinvested in additional equipment, (ii) any accrued and unpaid Equipment
Management Fee and Acquisition Fees and Acquisition Expenses paid with respect
to additional equipment acquired through reinvestment of Cash From Sales or
Refinancings in accordance with Section 4.2(b)(v) of the Trust Agreement and
(iii) after Payout, any accrued and unpaid Subordinated Resale Fees.
"Cash From Sales or Refinancings" means cash received by the Trust from
sale or refinancing transactions, as reduced by (i)(a) all debts and liabilities
of the Trust required to be paid as a result of sale or refinancing
transactions, whether or not then due and payable (including any liabilities on
an item of equipment sold which are not assumed by the buyer and any remarketing
fees required to be paid to persons not affiliated with the Managing Trustee,
but not including any Subordinated Resale Fees whether or not then due and
payable) and (b) general expenses and current liabilities of the Trust and (c)
any reserves for working capital and contingent liabilities funded from such
cash to the extent deemed reasonable by the Managing Trustee and (ii) increased
by any portion of such reserves deemed by the Managing Trustee not to be
required for Trust operations. In the event the Trust accepts a note in
connection with any sale or refinancing transaction, all payments subsequently
received in cash by the Trust with respect to such note shall be included in
Cash From Sales or Refinancings, regardless of the treatment of such payments by
the Trust for tax or accounting purposes. If the Trust receives purchase money
obligations in payment for equipment sold, which are secured by liens on such
equipment, the amount of such obligations shall not be included in Cash From
Sales or Refinancings until the obligations are fully satisfied.
Class A Payout means the first time when the aggregate amount of all
distributions actually made to the Class A Beneficiaries equals $25 per Class A
Interest (minus all uninvested capital contributions returned to the Class A
Beneficiaries) plus a cumulative annual distribution of 10% compounded quarterly
and calculated beginning with the last day of the month of the Trust's initial
Class A Closing.
Class B Payout means the first time when the aggregate amount of all
distributions actually made to the Class B Beneficiaries equals $5 per Class B
Interest plus a cumulative annual return of 8% per annum compounded quarterly
with respect to capital contributions returned to them as a Class B Capital
Distribution and 10% per annum, compounded quarterly, with respect to the
balance of their capital contributions and calculated beginning August 1, 1997,
the first day of the month following the Class B Closing.
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings ("Distributions") are determined and paid within 45 days after the
completion of each calendar month. Each Distribution is described in a statement
sent to the Beneficiaries.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated herein by reference to the section entitled "Selected
Financial Data" in the 1997 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1997 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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Incorporated herein by reference to the financial statements and
supplementary data included in the 1997 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE TRUST.
(a-b) Identification of Directors and Executive Officers
The Trust has no Directors or Officers. As indicated in Item 1 of this
report, AFG ASIT Corporation is the Managing Trustee of the Trust. Under the
Trust Agreement, the Managing Trustee is solely responsible for the operation of
the Trust's properties and the Beneficiaries have no right to participate in the
control of such operations. The names, titles and ages of the Directors and
Executive Officers of the Managing Trustee as of March 15, 1998 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS
OF THE MANAGING TRUSTEE (See Item 13)
Name Title Age Term
- ----------------------- -------------------------------------------- ------- -------------
Geoffrey A. MacDonald Chairman and a member of the Until a
Executive Committee of EFG successor
and President and a Director is duly
of the Managing Trustee 49 elected and
qualified
Gary D. Engle President and Chief Executive Officer
and member of the Executive
Committee of EFG and a Director
of the Managing Trustee 49
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and
Clerk of the Managing Trustee 38
Michael J. Butterfield Vice President, Finance and Treasurer
of EFG and Treasurer of the
Managing Trustee 38
James A. Coyne Executive Vice President of EFG and
Vice President of the Managing Trustee 37
James F. Livesey Vice President, Aircraft and Vessels
of EFG 48
Sandra L. Simonsen Senior Vice President, Information Systems
of EFG 47
Gail D. Ofgant Vice President, Lease Operations
of EFG 32
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Directors or
Executive Officers.
(e) Business Experience
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Mr. MacDonald, age 49, is a co-founder, Chairman and a member of the
Executive Committee of EFG and President and a Director of the Managing Trustee.
Mr. MacDonald was also a co-founder, Director and Senior Vice President of EFG's
predecessor corporation from 1980 to 1988. Mr. MacDonald is President of
American Finance Group Securities Corp. and a limited partner in Old North
Capital Limited Partnership ("ONC"). Prior to co-founding EFG's predecessors,
Mr. MacDonald held various executive and management positions in the leasing and
pharmaceutical industries. Mr. MacDonald holds an M.B.A. from Boston College and
a B.A. degree from the University of Massachusetts (Amherst).
Mr. Engle, age 49 is President and Chief Executive Officer and a member
of the Executive Committee of EFG and President of AFG Realty Corporation. Mr.
Engle is Vice President and a Director of certain of EFG's affiliates and a
Director of the Managing Trustee. Mr. Engle owns a controlling interest in and
is President of Equis II Corporation and is a limited partner in ONC. Mr. Engle
is also Chairman, Chief Executive Officer and a member of the Board of Directors
of Semele Group, Inc. ("Semele"). On December 16, 1994, Mr. Engle acquired
control of the Managing Trustee, EFG and each of EFG's subsidiaries. From
1987 to 1990, Mr. Engle was a principal and co-founder of Cobb Partners
Development, Inc., a real estate and mortgage banking company. From 1980 to
1987, Mr. Engle was Senior Vice President and Chief Financial Officer of
Arvida Disney Company, a large scale community development company owned by
Walt Disney Company. Prior to 1980, Mr. Engle served in various management
consulting and institutional brokerage capacities. Mr. Engle has an M.B.A.
from Harvard University and a B.S. degree from the University of
Massachusetts (Amherst).
Mr. Romano, age 38, is Executive Vice President and Chief Operating
Officer of EFG and certain of its affiliates and Clerk of the Managing Trustee.
Mr. Romano is also Secretary of Equis II Corporation and Vice President and
Chief Financial Officer of Semele. Mr. Romano joined EFG in November 1989 and
was appointed Executive Vice President and Chief Operating Officer in April
1996. Prior to joining EFG, Mr. Romano was Assistant Controller for a
privately-held real estate company which he joined in 1987. Mr. Romano held
audit staff and manager positions at Ernst & Whinney (now Ernst & Young LLP)
from 1982 to 1986. Mr. Romano is a C.P.A. and holds a B.S. degree from Boston
College.
Mr. Butterfield, age 38, joined EFG in June 1992 and was appointed Vice
President, Finance and Treasurer of EFG and certain affiliates in April 1996,
and is Treasurer of the Managing Trustee, Equis II Corporation and Semele. Prior
to joining EFG, Mr. Butterfield was an Audit Manager with Ernst & Young LLP,
which he joined in 1987. Mr. Butterfield was employed in public accounting and
industry positions in New Zealand and London (U.K.) prior to coming to the
United States in 1987. Mr. Butterfield attained his Associate Chartered
Accountant (A.C.A.) professional qualification in New Zealand and has completed
his C.P.A. requirements in the United States. He holds a Bachelor of Commerce
degree from the University of Otago, Dunedin, New Zealand.
Mr. Coyne, age 37, is Executive Vice President of EFG and Vice President
of the Managing Trustee and Equis II Corporation. Mr. Coyne is Chief Operating
Officer of Semele, a stockholder of Equis II Corporation and a limited partner
in ONC. Mr. Coyne joined EFG in 1989, remained until May 1993, and rejoined EFG
in November 1994. Mr. Coyne was appointed Executive Vice President of EFG in
September 1997. From May 1993 through November 1994, he was with the Raymond
Company, a private investment firm, where he was responsible for financing
corporate and real estate acquisitions. From 1985 through 1989, Mr. Coyne was
affiliated with a real estate investment company and an equipment leasing
company. Prior to 1985 he was with the accounting firm of Ernst & Whinney (now
Ernst & Young LLP). He has a BS in Business Administration from John Carroll
University, a Masters Degree in Accounting from Case Western Reserve University
and is a Certified Public Accountant.
Mr. Livesey, age 48, is Vice President, Aircraft and Vessels. Mr.
Livesey joined EFG in October, 1989, and was promoted to Vice President in
January 1992. Prior to joining EFG, Mr. Livesey held sales and marketing
positions with two privately-held leasing firms. Mr. Livesey holds an M.B.A.
from Boston College and B.A. degree from Stonehill College.
Ms. Simonsen, age 47, joined EFG in February 1990. She became Senior
Vice President, Information Systems in April 1996. Prior to joining EFG, Ms.
Simonsen was Vice President, Information Systems with Investors Mortgage
Insurance Company which she joined in 1973. Ms. Simonsen provided systems
consulting for a subsidiary of American International Group and authored a
software program published by IBM. Ms. Simonsen holds a B.A. degree from Wilson
College.
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Ms. Ofgant, age 32, joined EFG in July 1989, and is currently Vice
President, Lease Operations. Ms. Ofgant held the position of Manager, Lease
Operations at EFG through March, 1996. Prior to joining EFG, Ms. Ofgant was
employed by Security Pacific National Trust Company. Ms. Ofgant holds a BS
Degree in Finance from Providence College.
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
See Item 10 (a-b) above.
ITEM 11. EXECUTIVE COMPENSATION.
(a) Cash Compensation
Currently, the Trust has no employees. However, under the terms of the
Trust Agreement, the Trust is obligated to pay all costs of personnel employed
full or part-time by the Trust, including officers or employees of the Managing
Trustee or its Affiliates. There is no plan at the present time to make any
officers or employees of the Managing Trustee or its Affiliates employees of the
Trust. The Trust has not paid and does not propose to pay any options, warrants
or rights to the officers or employees of the Managing Trustee or its
Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Trust has no employees, as discussed in Item 11(a),
pursuant to section 10.4(c) of the Trust Agreement, the Trust incurs a monthly
charge for personnel costs of EFG for persons engaged in providing
administrative services to the Trust. A description of the remuneration paid by
the Trust to the Managing Trustee and its Affiliates for such services is
included in Item 13 of this report and in Note 4 to the financial statements
included in Item 14 herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the Managing
Trustee or its Affiliates which results or may result from their resignation,
retirement or any other termination.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
By virtue of its organization as a trust, the Trust has outstanding no
securities possessing traditional voting rights. However, as provided in Section
11.2(a) of the Trust Agreement (subject to Section 11.2(b)), a majority interest
of the Beneficiaries have voting rights with respect to:
1. Amendment of the Trust Agreement;
2. Termination of the Trust;
3. Removal of the Managing Trustee; and
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4. Approval or disapproval of the sale of all, or substantially all,
of the assets of the Trust (except in the orderly liquidation of
the Trust upon its termination and dissolution).
As of March 1, 1998, the following person or group owns beneficially
more than 5% of the Trust's outstanding Beneficiary interests:
Name and Amount Percent
Title Address of of Beneficial of
of Class Beneficial Owner Ownership Class
------------------------- --------------------- ----------------- ---------
Interests Representing Equis II Corporation
Class B Beneficiary 88 Broad Street 997,373 Interests 99.64%
Boston, MA 02110
No person or group is known by the Managing Trustee to own beneficially
more than 5% of the Trust's 582,017 outstanding Class A Interests as of March 1,
1998.
Equis II Corporation is controlled by EFG's President and Chief
Executive Officer, Gary D. Engle (see Item 10 and Item 13 of this report).
The ownership and organization of EFG is described in Item 1 of this
report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Managing Trustee of the Trust is AFG ASIT Corporation, an affiliate
of EFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Trust are paid by EFG on behalf
of the Trust and EFG is reimbursed at its actual cost for such expenditures.
Fees and other costs incurred during the years ended December 31, 1997, 1996 and
1995, which were paid or accrued by the Trust to EFG or its Affiliates, are as
follows:
1997 1996 1995
-------- -------- --------
Equipment acquisition fees $ -- $ 36,673 $107,415
Offering costs 50,048 -- --
Equipment management fees 235,030 249,205 244,800
Administrative charges 65,196 42,123 21,000
Reimbursable operating expenses
due to third parties 207,741 98,758 100,358
-------- -------- --------
Total $558,015 $426,759 $473,573
-------- -------- --------
-------- -------- --------
As provided under the terms of the Trust Agreement, EFG is compensated
for its services to the Trust. Such services include all aspects of acquisition,
management and sale of equipment. For acquisition services, EFG is compensated
by an amount equal to .28% of Asset Base Price paid by the Trust. For
acquisition services resulting from reinvestment, EFG is compensated by an
amount equal to 3% of Equipment Base Price paid by the Trust. For management
services, EFG is compensated by an amount equal to the lesser of (i) 5% of gross
operating lease rental revenue and 2% of gross full payout lease rental revenue
received by the Trust or (ii) fees which the Managing Trustee reasonably
believes to be competitive for similar services for similar equipment. Both of
these fees are subject to certain limitations defined in the Trust Agreement
(see Note 10 to the financial statements included in Item 14 herein concerning
proposed changes to the fees paid to EFG and its affiliates). Compensation to
EFG for services connected to the remarketing of equipment is calculated as the
lesser of (i) 3% of gross sale proceeds or (ii) one-half of reasonable brokerage
fees otherwise payable under arm's length circumstances. Payment of the
remarketing fee is subordinated to Payout and is subject to certain limitations
defined in the Trust Agreement.
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Administrative charges represent amounts owed to EFG, pursuant to
Section 10.4(c) of the Trust Agreement, for persons employed by EFG who are
engaged in providing administrative services to the Trust. Reimbursable
operating expenses due to third parties represent costs paid by EFG on behalf of
the Trust which are reimbursed to EFG.
All equipment was purchased from EFG or directly from external vendors.
The Trust's Purchase Price is determined by the method described in Note 2 to
the Trust's financial statements included in Item 14, herein.
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Trust. At
December 31, 1997, the Trust was owed $350,009 by EFG for such funds and the
interest thereon. These funds were remitted to the Trust in January 1998.
On July 18, 1997, the Trust issued 1,000,961 Class B Interests at $5.00
per interest, thereby generating $5,004,805 in aggregate Class B capital
contributions. Class A Beneficiaries purchased 3,588 Class B Interests,
generating $17,940 of such aggregate capital contributions, and the Special
Beneficiary, EFG, purchased 997,373 of such Class B Interests, generating
$4,986,865 of such aggregate capital contributions. The Trust incurred offering
costs in the amount of $50,048 in connection with this offering.
Subsequently, EFG transferred its Class B Interests to a special-purpose
company, Equis II Corporation, a Delaware corporation. EFG also transferred its
ownership of AFG ASIT Corporation, the Managing Trustee of the Trust, to Equis
II Corporation. As a result, Equis II Corporation has voting control of the
Trust through its ownership of the majority of the Trust's outstanding voting
interests, as well as its ownership of AFG ASIT Corporation. Equis II
Corporation is controlled by EFG's President and Chief Executive Officer, Gary
D. Engle. Accordingly, control of the Managing Trustee did not change as a
result of the foregoing transactions.
Old North Capital Limited Partnership ("ONC"), a Massachusetts Limited
Partnership formed in 1995 and owned and controlled by certain principals of
EFG, owns 839 Class A Interests or less than 1% of the total outstanding Class A
Interests of the Trust. EFG owns a 49% limited partnership interest in ONC,
which it acquired in December 1996.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Trust
None.
(d) Transactions with Promoters
See Item 13(a) above.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors..........................*
Statement of Financial Position
at December 31, 1997 and 1996...........................*
Statement of Operations
for the years ended December 31, 1997, 1996 and 1995....*
Statement of Changes in Participants' Capital
for the years ended December 31, 1997, 1996 and 1995....*
Statement of Cash Flows
for the years ended December 31, 1997, 1996 and 1995....*
Notes to the Financial Statements.......................*
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K,
as set forth in Item 601 of Regulation S-K, are not
applicable.
Exhibit
Number
------
4 Second Amended and Restated Declaration of Trust.
13 The 1997 Annual Report to security holders, a copy of
which is furnished for the information of the
Securities and Exchange Commission. Such Report, except
for those portions thereof which are incorporated
herein by reference, is not deemed "filed" with the
Commission.
23 Consent of Independent Auditors.
99 (a) Lease agreement with OMI Corporation was filed in
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 as Exhibit 28 (d) and is
incorporated herein by reference.
* Incorporated herein by reference to the appropriate portion of the 1997
Annual Report to security holders for the year ended December 31, 1997 (see
Part II).
Exhibit
Number
------
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99 (b) Lease agreement with Alaska Airlines, Inc. was
filed in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993 as Exhibit 28 (e)
and is incorporated herein by reference.
99 (c) Lease agreement with Tarmac Mid-Atlantic,
Incorporated was filed in the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1993 as Exhibit 28 (g) and is incorporated herein by
reference.
99 (d) Lease agreement with Montgomery Ward and Company,
Inc. is filed in the Registrant's Annual Report on form
10-K for the year ended December 31, 1997 and is
included herein.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on behalf of the registrant and in the
capacity and on the date indicated.
AFG Investment Trust B
By: AFG ASIT Corporation,
a Massachusetts corporation and the
Managing Trustee of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
-------------------------------- -------------------------------
Geoffrey A. MacDonald Gary D. Engle
Chairman and a member of the President and Chief Executive
Executive Committee of EFG and Officer and a member of the
President and a Director of the Executive Committee of EFG and
Managing Trustee a Director of the Managing Trustee
(Principal Executive Officer)
Date: March 31, 1998 Date: March 31, 1998
------------------------------- ------------------------------
By: /s/ Gary M. Romano By: /s/ Michael J. Butterfield
-------------------------------- -------------------------------
Gary M. Romano Michael J. Butterfield
Executive Vice President and Chief Vice President, Finance and
Operating Officer of EFG and Clerk Treasurer of EFG and Treasurer
of the Managing Trustee of the Managing Trustee
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 31, 1998 Date: March 31, 1998
------------------------------- ------------------------------
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