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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 [FEE REQUIRED]
For the fiscal year ended December31, 1996
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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
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Commission file number 0-19137
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AIRFUND II International Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3057290
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 N. Washington St., Fifth Floor, Boston, MA 02114
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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:
2,714,647Units Representing Limited Partnership Interest
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(Title of class)
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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, 1996 (Part I and II)
AIRFUND II INTERNATIONAL LIMITED PARTNERSHIP
FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the Partnership's Securities and Related Security Holder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 7
PART III
Item 10. Directors and Executive Officers of the Partnership 8
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and Management 10
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 13-15
-2-
PART I
ITEM 1. BUSINESS.
(a) General Development of Business
AIRFUND II International Limited Partnership (the "Partnership") was
organized as a limited partnership under the Massachusetts Uniform Limited
Partnership Act (the "Uniform Act") on July 20, 1989 for the purpose of
acquiring and leasing to third parties a specified portfolio of used
commercial aircraft. Partners' capital initially consisted of contributions
of $1,000 from the General Partner (AFG Aircraft Management Corporation, a
Massachusetts corporation) and $100 from the Initial Limited Partner (AFG
Assignor Corporation, a Massachusetts corporation). The Partnership issued
2,714,647 units, representing assignments of limited partnership interests
(the "Units"), to 4,192 investors. Unitholders and Limited Partners (other
than the Initial Limited Partner) are collectively referred to as Recognized
Owners. The General Partner is an affiliate of Equis Financial Group Limited
Partnership (formerly American Finance Group), a Massachusetts limited
partnership ("EFG"). The common stock of the General Partner is owned by
AF/AIP Programs Limited Partnership. EFG and a wholly-owned affiliate are the
99% limited partners and AFG Programs, Inc., a Massachusetts corporation
which is wholly-owned by EFG, is the 1% general partner. The General Partner
is not required to make any other capital contributions except as may be
required under the Uniform Act and Section 6.1(b) of the Amended and Restated
Agreement of Limited Partnership (the "Restated Agreement, as amended").
(b) Financial Information About Industry Segments
The Partnership is engaged in only one industry segment: the business of
acquiring used commercial aircraft and leasing the aircraft 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 aircraft. Operating leases are those in which the aggregate noncancellable
rental payments are less than the Purchase Price of the aircraft). Industry
segment data is not applicable.
(c) Narrative Description of Business
The Partnership was organized to acquire a specified portfolio of used
commercial jet aircraft subject to various full-payout and operating leases and
to lease the aircraft to third parties as income-producing investments. More
specifically, the Partnership's primary investment objectives are to acquire and
lease aircraft which will:
1. Generate quarterly cash distributions;
2. Preserve and protect invested capital; and
3. Maintain substantial residual value for ultimate sale of the aircraft.
The Partnership has the additional objective of providing certain federal
income tax benefits.
The initial Interim Closing date of the Offering of Units of the Partnership
was May 17, 1990. The initial purchase of aircraft and the associated lease
commitments occurred on May 18, 1990. Additional purchases of aircraft (or
proportionate interests in aircraft) occurred at each of five subsequent Interim
Closings, the last of which occurred on June 28, 1991, the Final Closing. The
acquisitions of the Partnership's aircraft and the associated leases is
described in Note 3 to the financial statements included in Item 14, herein. The
Partnership will terminate no later than December 31, 2005.
The Partnership has no employees; however, it entered into a Management
Agreement with AF/AIP Programs Limited Partnership. At the same time, AF/AIP
Programs Limited Partnership entered into an identical Management Agreement with
EFG (the "Manager") (collectively, the "Management Agreement"). The Manager's
role, among other things, is to (i) evaluate, select, negotiate, and consummate
the acquisition of aircraft, (ii) manage the leasing, re-leasing, financing, and
refinancing of aircraft, and (iii) arrange the resale of aircraft. The Manager
is compensated for such services as described in the Restated Agreement, as
amended, in Item 13, herein and Note 4 to the financial statements included in
Item 14, herein.
-3-
The Partnership's investment in commercial aircraft 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 aircraft is the possibility that aggregate lease revenues and aircraft
sale proceeds will be insufficient to provide an acceptable rate of return on
invested capital after payment of all operating expenses. Consequently, the
success of the Partnership is largely dependent upon the ability of the General
Partner and its Affiliates to forecast technological advances, the ability of
the lessees to fulfill their lease obligations and the quality and marketability
of the aircraft at the time of sale.
In addition, the leasing industry is very competitive. Although all funds
available for acquisitions have been invested in aircraft, subject to
noncancellable lease agreements, the Partnership will encounter considerable
competition when the aircraft are re-leased or sold at the expiration of current
lease terms. The Partnership will compete with lease programs offered directly
by manufacturers and other equipment leasing companies, including lease programs
organized and managed similarly to the Partnership, and including other
EFG-sponsored partnerships and trusts, which may seek to re-lease or sell
aircraft within their own portfolios to the same customers as the Partnership.
Many competitors have greater financial resources and more experience than the
Partnership, the General Partner and the Manager.
In recent years, market values for used commercial jet aircraft have
deteriorated. Consistent price competition and other pressures within the
airline industry have inhibited sustained profitability for many carriers. Most
major airlines have had to re-evaluate their aircraft fleets and operating
strategies. Such issues complicate the determination of net realizable value for
specific aircraft, and particularly used aircraft, because cost-benefit and
market considerations may differ significantly between the major airlines.
Aircraft condition, age passenger capacity, distance capability, fuel
efficiency, and other factors also influence market demand and market values for
passenger jet aircraft.
Notwithstanding the foregoing, the ultimate realization of residual value
for any aircraft is dependent upon many factors, including EFG's ability to sell
and re-lease the aircraft. Changes in market conditions, industry trends,
technological advances, and other events could converge to enhance or detract
from asset values at any given time. Accordingly, EFG will attempt to monitor
changes in the airline industry in order to identify opportunities which may be
advantageous to the Partnership and which will maximize total cash returns for
each aircraft.
The General Partner will determine when each aircraft should be sold and the
terms of such sale based upon numerous factors with a view toward achieving the
investment objectives of the Partnership. The General Partner is authorized to
sell the aircraft prior to the expiration of the initial lease terms and intends
to monitor and evaluate the market for resale of the aircraft to determine
whether an aircraft should remain in the Partnership's portfolio or be sold. As
an alternative to sale, the Partnership may enter re-lease agreements when
considered advantageous by the General Partner and the Manager.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1996, 1995 and 1994 is
incorporated herein by reference to Note 2 to the financial statements in the
1996 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
Default by a lessee under a lease may cause aircraft to be returned to the
Partnership at a time when the General Partner or the Manager is unable to
arrange for the re-lease or sale of such aircraft. This could result in the loss
of a material portion of anticipated revenues and significantly weaken the
Partnership's ability to recover the cost of invested capital.
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 Equipment Manager or Advisor to the Partnership and
several other Direct-Participation equipment leasing programs sponsored or
co-sponsored by EFG (the "Other Investment Programs"). The Company arranges to
broker or originate equipment leases, acts as remarketing agent and asset
manager, and provides leasing support services, such as billing, collecting, and
asset tracking.
-4-
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 (the "Buyer"). AFG changed
its name to Equis Financial Group Limited Partnership after the sale was
concluded. Pursuant to terms of the sale agreements, EFG agreed not to
compete with the Buyer's lease origination business for a period of five
years; however, EFG is permitted to originate certain equipment leases,
principally those involving non-investment grade lessees and ocean-going
vessels, which are not in competition with the Buyer. In addition, the sale
agreements specifically reserved to EFG the rights to continue using the name
American Finance Group and its acronym in connection with the Partnership and
the Other Investment Programs and to continue managing all assets owned by
the Partnership and the Other Investment Programs, including the right to
satisfy all required equipment acquisitions utilizing either brokers or the
Buyer. Geoffrey A. MacDonald, Chairman of Equis Corporation and Gary D. Engle
agreed not to compete with the sold business on terms and conditions similar
to those for the Company.
(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 1996 Annual Report.
ITEM 3. LEGAL PROCEEDINGS.
Incorporated herein by reference to Note 7 to the financial statements in
the 1996 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
-5-
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS.
(a) Market Information
There is no public market for the resale of the Units and it is not
anticipated that a public market for resale of the Units will develop.
(b) Approximate Number of Security Holders
At December 31, 1996, there were 3,946 recordholders of Units in the
Partnership.
(c) Dividend History and Restrictions
Pursuant to Article VI of the Restated Agreement, as amended, the
Partnership's Distributable Cash From Operations and Distributable Cash From
Sales or Refinancings are determined and distributed to the Partners
quarterly. Each quarter's distribution may vary in amount. Distributions may
be made to the General Partner prior to the end of a fiscal quarter; however,
the amount of such distribution reflects only amounts to which the General
Partner is entitled at the time such Distribution is made. Currently, there
are no restrictions that materially limit the Partnership's ability to
distribute Distributable Cash From Operations and Distributable Cash From
Sales or Refinancings or that the Partnership believes are likely to
materially limit the future distribution of Distributable Cash From
Operations and Distributable Cash From Sales or Refinancings. The Partnership
expects to continue to distribute all available Distributable Cash From
Operations and Distributable Cash From Sales or Refinancings on a quarterly
basis.
Distributions declared in 1996 and 1995 were made as follows:
GENERAL RECOGNIZED
TOTAL PARTNER OWNERS
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Total 1996 distribution $ 6,384,542 $ 276,587 $ 6,107,955
Total 1995 distributions 5,000,665 250,033 4,750,632
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Total $ 11,385,207 $ 526,620 $ 10,858,587
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Distributions payable at December 31, 1995 was $714,381.
"Distributable Cash From Operations" means the net cash provided by the
Partnership's normal operations after general expenses and current
liabilities of the Partnership are paid, reduced by any reserves for working
capital and contingent liabilities to be funded from such cash, to the extent
deemed reasonable by the General Partner, and increased by any portion of
such reserves deemed by the General Partner not to be required for
Partnership operations and reduced by all accrued and unpaid Equipment
Management Fees and, after Payout, further reduced by all accrued and unpaid
Subordinated Remarketing Fees. Distributable Cash From Operations does not
include any Distributable Cash From Sales or Refinancings.
"Distributable Cash From Sales or Refinancings" means Cash From Sales or
Refinancings as reduced by (i) (a) for a period of two years from Final
Closing, Cash From Sales or Refinancings, which the General Partner at its
sole discretion reinvests in additional aircraft, provided, however, that
Cash From Sales or Refinancings will be reinvested in additional aircraft
only if Partnership revenues are sufficient to make distributions to the
Recognized Owners in the amount of the income tax, if any, due from a
Recognized Owner in the 33% combined federal and state income tax bracket as
a result of such sale or refinancing of aircraft, and (b) amounts realized
from any loss or destruction of any aircraft which the General Partner
reinvests in replacement aircraft to be leased under the original lease of
the lost or destroyed aircraft, and (ii) any accrued and unpaid Equipment
Management Fees and, after Payout, any accrued and unpaid Subordinated
Remarketing Fees.
-6-
"Cash From Sales or Refinancings" means cash received by the Partnership
from Sale or Refinancing transactions, as (i) reduced by (a) all debts and
liabilities of the Partnership required to be paid as a result of Sale or
Refinancing transactions, whether or not then due and payable (including any
liabilities on aircraft sold which are not assumed by the buyer and any
remarketing fees required to be paid to persons not affiliated with the
General Partner, but not including any Subordinated Remarketing Fees required
to be paid) and (b) any reserves for working capital and contingent
liabilities funded from such cash to the extent deemed reasonable by the
General Partner and (ii) increased by any portion of such reserves deemed by
the General Partner not to be required for Partnership operations. In the
event the Partnership accepts a note in connection with any Sale or
Refinancing transaction, all payments subsequently received in cash by the
Partnership with respect to such note shall be included in Cash From Sales or
Refinancings, regardless of the treatment of such payments by the Partnership
for tax or accounting purposes. If the Partnership receives purchase money
obligations in payment for aircraft sold, which are secured by liens on such
aircraft, the amount of such obligations shall not be included in Cash From
Sales or Refinancings until the obligations are fully satisfied.
Each distribution of Distributable Cash From Operations and Distributable
Cash From Sales or Refinancings of the Partnership shall be made as follows:
Prior to Payout, (i) Distributable Cash From Operations will be distributed
95% to the Recognized Owners and 5% to the General Partner and (ii)
Distributable Cash From Sales or Refinancings shall be distributed 99% to the
Recognized Owners and 1% to the General Partner. After Payout, (i) all
Distributions will be distributed 99% to the General Partner and 1% to the
Recognized Owners until the General Partner has received an amount equal to
5% of all Distributions made by the Partnership and (ii) thereafter, all
Distributions will be made 90% to the Recognized Owners and 10% to the
General Partner.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Recognized Owners of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Recognized Owners' original capital contributions plus a cumulative annual
return of 10% (compounded quarterly and calculated beginning with the last day
of the month of the Partnership's Closing Date) on their aggregate unreturned
capital contributions. For purposes of this definition, capital contributions
shall be deemed to have been returned only to the extent that distributions of
cash to the Recognized Owners exceed the amount required to satisfy the
cumulative annual return of 10% (compounded quarterly) on the Recognized Owners'
aggregate unreturned capital contributions, such calculation to be based on the
aggregate unreturned capital contributions outstanding on the first day of each
fiscal quarter.
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings ("Distributions") are distributed within 30 days after the
completion of each quarter, beginning with the first full fiscal quarter
following the Partnership's Closing Date. Each Distribution is described in a
statement sent to the Recognized Owners.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated herein by reference to the section entitled "Selected Financial
Data" in the 1996 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
1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated herein by reference to the financial statements and
supplementary data included in the 1996 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
-7-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
(a-b) Identification of Directors and Executive Officers
THE PARTNERSHIP HAS NO DIRECTORS OR OFFICERS. As indicated in Item 1 of
this report, AFG Aircraft Management Corporation is the sole General Partner
of the Partnership. Under the Restated Agreement, as amended, the General
Partner is solely responsible for the operation of the Partnership's
properties and the Recognized Owners have no right to participate in the
control of such operations. The names, titles and ages of the Directors and
Executive Officers of the General Partner as of March 15, 1997 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF
THE GENERAL PARTNER (See Item 13)
NAME TITLE AGE TERM
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Geoffrey A. MacDonald Chairman and a member of the Until a
Executive Committee of successor
EFG and President and a Director is duly
of the General Partner 48 elected
and
Gary D. Engle President and Chief Executive qualified
Officer and member of the
Executive Committee of EFG and a
Director of the General Partner 48
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and Clerk
of the General Partner 37
James A. Coyne Senior Vice President of EFG 36
Michael J. Butterfield Vice President, Finance and Treasurer
of EFG and Treasurer of the
General Partner 37
James F. Livesey Vice President, Aircraft and Vessels
of EFG 47
Sandra L. Simonsen Senior Vice President, Information
Systems of EFG 46
Gail D. Ofgant Vice President, Lease Operations
of EFG 31
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners, Directors
or Executive Officers.
(e) Business Experience
-8-
Mr. MacDonald, age 48, is a co-founder, Chairman and a member of the
Executive Committee of EFG and President and a Director of the General
Partner. Mr. MacDonald was also a co-founder, Director and Senior Vice
President of EFG's predecessor corporation from 1980 to 1988. Mr. MacDonald
is Vice President of American Finance Group Securities Corp. and a limited
partner in Atlantic Acquisition Limited Partnership ("AALP"). 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 48, 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 General Partner. On December 16, 1994, Mr. Engle acquired
control of EFG, the General Partner and each of EFG's subsidiaries. Mr. Engle
controls the general partner of AALP and is also a limited partner in AALP.
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 37, is Executive Vice President and Chief Operating
Officer of EFG and certain of its affiliates and Clerk of the General
Partner. Mr. Romano joined EFG in November 1989 and was appointed Executive
Vice President and Chief Operating Officer in April 1996. Prior to joining
EFG, Mr. Romano was Assistant Controller for a privately-held real estate
company which he joined in 1987. Mr. Romano held audit staff and manager
positions at Ernst & Whinney (now Ernst & Young LLP) from 1982 to 1986. Mr.
Romano is a C.P.A. and holds a B.S. degree from Boston College.
Mr. Coyne, age 36, is Senior Vice President of EFG. Mr. Coyne joined EFG
in 1989, remained until May 1993, and rejoined EFG in November 1994. From May
1993 through November 1994, he was with the Raymond Company, a private
investment firm, where he was responsible for financing corporate and real
estate acquisitions. From 1985 through 1989, Mr. Coyne was affiliated with a
real estate investment company and an equipment leasing company. Prior to
1985 he was with the accounting firm of Ernst & Whinney (now Ernst & Young
LLP). He has a BS in Business Administration from John Carroll University, a
Masters Degree in Accounting from Case Western Reserve University and is a
Certified Public Accountant.
Mr. Butterfield, age 37, joined EFG in June 1992 and became Vice
President, Finance and Treasurer of EFG and certain of its affiliates in
April 1996 and is Treasurer of the General Partner. Prior to joining EFG, Mr.
Butterfield was an Audit Manager with Ernst & Young LLP, which he joined in
1987. Mr. Butterfield was employed in public accounting and industry
positions in New Zealand and London (U.K.) prior to coming to the United
States in 1987. Mr. Butterfield attained his Associate Chartered Accountant
(A.C.A.) professional qualification in New Zealand and has completed his
C.P.A. requirements in the United States. He holds a Bachelor of Commerce
degree from the University of Otago, Dunedin, New Zealand.
Mr. Livesey, age 47, is Vice President, Aircraft and Vessels, of EFG. Mr.
Livesey joined EFG in October, 1989, and was promoted to Vice President in
January 1992. Prior to joining EFG, Mr. Livesey held sales and marketing
positions with two privately-held equipment leasing firms. Mr. Livesey holds
an M.B.A. from Boston College and B.A. degree from Stonehill College.
Ms. Simonsen, age 46, joined EFG in February 1990 and was promoted to
Senior Vice President, Information Systems of EFG in April 1996. Prior to
joining EFG, Ms. Simonsen was Vice President, Information Systems with
Investors Mortgage Insurance Company which she joined in 1973. Ms. Simonsen
provided systems consulting for a subsidiary of American International Group
and authored a software program published by IBM. Ms. Simonsen holds a B.A.
degree from Wilson College.
Ms. Ofgant, age 31, is Vice President, Lease Operations of EFG and
certain of its affiliates. Ms. Ofgant joined EFG in June 1989, and was
promoted to Manager, Lease Operations in April 1994. In April 1996, Ms.
-9-
Ofgant was appointed Vice President, Lease Operations. Prior to joining EFG,
Ms. Ofgant was employed by Security Pacific National Trust Company. Ms.
Ofgant holds a B.S. degree in Finance from Providence College.
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
See Item 10 (a-b) above.
ITEM 11. EXECUTIVE COMPENSATION.
- --------------------------------
(a) Cash Compensation
Currently, the Partnership has no employees. However, under the terms of the
Restated Agreement, as amended, the Partnership is obligated to pay all costs of
personnel employed full or part-time by the Partnership, including officers or
employees of the General Partner or its Affiliates. There is no plan at the
present time to make any partners or employees of the General Partner or its
Affiliates employees of the Partnership. The Partnership has not paid and does
not propose to pay any options, warrants or rights to the officers or employees
of the General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other compensation
Although the Partnership has no employees, as discussed in Item 11(a),
pursuant to Section 10.4(c) of the Restated Agreement, as amended, the
Partnership incurs a monthly charge for personnel costs of the Manager for
persons engaged in providing administrative services to the Partnership. A
description of the remuneration paid by the Partnership to the Manager for such
services is included in Item 13, herein, and in Note 4 to the financial
statements included in Item 14, herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the General Partner or
its Affiliates which results or may result from their resignation, retirement or
any other termination.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
By virtue of its organization as a limited partnership, the Partnership has
outstanding no securities possessing traditional voting rights. However, as
provided for in Section 11.2(a) of the Restated Agreement, as amended (subject
to Sections 11.2(b) and 11.3), a majority interest of the Recognized Owners have
voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
3. Removal of the General Partner; and
-10-
4. Approval or disapproval of the sale of substantially all of the assets of
the Partnership (except in the orderly liquidation of the Partnership upon its
termination and dissolution).
No person or group is known by the General Partner to own beneficially more
than 5% of the Partnership's 2,714,647 outstanding Units as of March 1, 1997.
The ownership and organization of EFG is described in Item 1 of this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The General Partner of the Partnership is AFG Aircraft Management
Corporation, an affiliate of EFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
1996, 1995 and 1994, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
1996 1995 1994
------------ ---------- ----------
Equipment management fees $ 235,339 $ 329,292 $ 450,100
Administrative charges 28,694 21,000 12,000
Reimbursable operating expenses
due to third parties 2,071,725 136,035 116,701
------------ ---------- ----------
Total $ 2,335,758 $ 486,327 $ 578,801
------------ ---------- ----------
------------ ---------- ----------
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG was
compensated by an amount equal to 3.07% of Equipment Base Price paid by the
Partnership. For management services, EFG is compensated by an amount equal to
the lesser of (i) 5% of gross operating lease rental revenues and 2% of gross
full payout lease rental revenues received by the Partnership or (ii) fees which
the General Partner reasonably believes to be competitive for similar services
for similar equipment. Both of these fees are subject to certain limitations
defined in the Management Agreement. Compensation to EFG for services connected
to the sale of equipment is calculated as the lesser of (i) 3% of gross sale
proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under
arm's length circumstances. Payment of the remarketing fee is subordinated to
Payout and is subject to certain limitations defined in the Management
Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
10.4(c) of the Restated Agreement, as amended, for persons employed by EFG who
are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by EFG
on behalf of the Partnership which are reimbursed to EFG.
All aircraft were purchased from EFG or one of its affiliates. The
Partnership's Purchase Price was determined by the method described in Note 2 to
the financial statements included in Item 14, herein.
All rents and proceeds from the sale of equipment are paid directly to EFG.
EFG temporarily deposits collected funds in a separate interest-bearing escrow
account prior to remittance to the Partnership. At December 31, 1996, the
Partnership was owed $146,567 by EFG for such funds and the interest thereon.
These funds were remitted to the Partnership in January 1997.
In 1990, EFG assigned its equipment Management Agreement with the
Partnership to AF/AIP Programs Limited Partnership, and AF/AIP Programs Limited
Partnership entered into an identical management agreement with EFG. AF/AIP
Programs Limited Partnership also entered into a nonexclusive confirmatory
agreement with
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EFG's former majority owned subsidiary, AIRFUND Corporation ("AFC"), for the
provision of aircraft remarketing services.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management to the Partnership
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, 1996 and 1995............................................... *
Statement of Operations
for the years ended December 31, 1996, 1995 and 1994........................ *
Statement of Changes in Partners' Capital
for the years ended December 31, 1996, 1995 and 1994........................ *
Statement of Cash Flows
for the years ended December 31, 1996, 1995 and 1994........................ *
Notes to the Financial Statements........................................... *
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K, as set forth in
Item 601 of Regulation S-K, are not applicable.
EXHIBIT
NUMBER
--------
4 Amended and Restated Agreement and Certificate of Limited Partnership included as
Exhibit A to the Prospectus which is included in Registration Statement on Form S-1
(No. 33-25334).
13 The 1996 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 Northwest Airlines, Inc. was filed in the Registrant's Annual
Report on Form 10-K for the period May 17, 1990 (commencement of operations) to
December 31, 1990 as Exhibit 28 (a) and is incorporated herein by reference.
* Incorporated herein by reference to the appropriate portion of the 1996 Annual
Report to security holders for the year ended December 31, 1996. (See Part II)
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EXHIBIT
NUMBER
--------
99 (b) Lease agreement with Northwest Airlines, Inc. was filed in the Registrant's Annual
Report on Form 10-K for the period May 17, 1990 (commencement of operations) to
December 31, 1990 as Exhibit 28 (b) and is incorporated herein by reference.
99 (c) Lease agreement with Alaska Airlines, Inc. was filed in the Registrant's Annual
Report on Form 10-K for the period May 17, 1990 (commencement of operations) to
December 31, 1990 as Exhibit 28 (c) and is incorporated herein by reference.
99 (d) Lease agreement with Cathay Pacific Airways Limited was filed in the Registrant's
Annual Report on Form 10-K for the period May 17, 1990 (commencement of operations)
to December 31, 1990 as Exhibit 28 (d) and is incorporated herein by reference.
99 (e) Lease agreement with Cathay Pacific Airways Limited was filed in the Registrant's
Annual Report on Form 10-K for the period May 17, 1990 (commencement of operations)
to December 31, 1990 as Exhibit 28 (e) and is incorporated herein by reference.
99 (f) Lease agreement with American Trans Air, Inc. is filed in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996 and is included herein.
(b) Reports on Form 8-K
None.
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Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of AIRFUND II International Limited Partnership of our report dated
March 14, 1997, included in the 1996 Annual Report to Partners of AIRFUND II
International Limited Partnership.
ERNST & YOUNG LLP
Boston, Massachusetts
March 14, 1997
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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.
AIRFUND II INTERNATIONAL LIMITED PARTNERSHIP
By: AFG Aircraft Management Corporation,
a Massachusetts corporation and the
General Partner of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
- -------------------------------------- ------------------------------------
Geoffrey A. MacDonald Gary D. Engle
Chairman and a member of the President and Chief Executive
Executive Committee of EFG and Officer and a member of the
President and a Director of the Executive Committee of EFG and a
General Partner Director of the General Partner
(Principal Executive Officer)
Date: March 31, 1997 Date: March 31, 1997
- -------------------------------------- ---------------------------------------
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 Treasure
of the General Partner of the General Partner
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 31, 1997 Date: March 31, 1997
- -------------------------------------- -------------------------------
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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report has been sent to the Recognized Owners. A report will be
furnished to the Recognized Owners subsequent to the date hereof.
No proxy statement has been or will be sent to the Recognized Owners.
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