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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
For the fiscal year ended December 31, 1997
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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.)
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:
2,714,647 Units 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, 1997 (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
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 Equis Financial Group Limited Partnership (formerly American Finance
Group), a Massachusetts limited partnership ("EFG"). 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 is expected to terminate no later than December 31,
2005; however, the Partnership is a Nominal Defendant in a Class Action Lawsuit.
The outcome of the Class Action Lawsuit could alter the nature of the
Partnership's organization and its future business operations. See Note 7 to the
accompanying financial statements.
The Partnership has no employees; however, it is managed pursuant to a
Management Agreement with EFG or one of its affiliates (the "Manager"). 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
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described in the Restated Agreement, as amended, in Item 13, herein and Note 4
to the financial statements included in Item 14, herein.
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 certain models of 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. 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, 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 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 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 Partnership and several other
Direct-Participation equipment leasing programs sponsored or co-sponsored by
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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
Partnership and the Other Investment Programs and to continue managing all
assets owned by the Partnership and the Other Investment Programs.
(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 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, 1997, there were 3,913 record holders 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.
Distributions may be made to the General Partner prior to the end of the 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. As the
General Partner attempts to remarket the Partnership's aircraft, the amount of
cash available for distribution fluctuates widely. The Partnership has been, and
may continue to be, required to incur significant costs to upgrade certain
aircraft to meet the standards of potential successor lessees. Accordingly, the
General Partner did not declare any distributions to the Partners in 1997 and
expects to continue to suspend such distributions between the periods
corresponding to major remarketing events.
Distributions declared in 1997 and 1996 were made as follows:
General Recognized
Total Partner Owners
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Total 1996 distributions $ 6,384,542 $ 276,587 $ 6,107,955
"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.
"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
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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 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.
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 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
- ----------------------- ------------------------------------- ----- ------------
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 General Partner 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 General Partner 49
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and
Clerk of the General Partner 38
James A. Coyne Executive Vice President of EFG 37
Michael J. Butterfield Vice President, Finance and Treasurer
of EFG and Treasurer of the
General Partner 38
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 Partners,
Directors or Executive Officers.
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(e) Business Experience
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 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 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 General Partner. On December 16, 1994, Mr.
Engle acquired control of EFG, the General Partner and each of EFG's
subsidiaries. Mr. Engle 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"). 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 General
Partner. Mr. Romano is 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. Coyne, age 37, is Executive Vice President of EFG and President,
Chief Operating Officer and a member of the Board of Directors of Semele. 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. Mr. Coyne is a limited partner in ONC. 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 38, 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 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. Livesey, age 48, 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 47, 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.
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Ms. Ofgant, age 32, 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. 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:
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1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
3. Removal of the General Partner; and
4. Approval or disapproval of the sale of all, or 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,
1998.
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,
1997, 1996 and 1995, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
1997 1996 1995
----------- ----------- ----------
Equipment management fees $ 161,231 $ 235,339 $ 329,292
Administrative charges 50,304 28,694 21,000
Reimbursable operating expenses
due to third parties 1,240,204 2,071,725 136,035
----------- ----------- ----------
Total $ 1,451,739 $ 2,335,758 $ 486,327
----------- ----------- ----------
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.
-11-
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, 1997, the
Partnership was owed $305,359 by EFG for such funds and the interest thereon.
These funds were remitted to the Partnership in January 1998.
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 EFG's former majority owned subsidiary, AIRFUND Corporation
("AFC"), for the provision of aircraft remarketing services.
Old North Capital Limited Partnership ("ONC"), a Massachusetts Limited
Partnership, formed in 1995 and owned and controlled by certain principals of
EFG, owns 40,000 Units or 1.47% of the total outstanding units of the
Partnership. 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 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, 1997 and 1996................................*
Statement of Operations
for the years ended December 31, 1997, 1996 and 1995.........*
Statement of Changes in Partners' 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 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 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 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.
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* 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).
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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 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 (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 (e) and is incorporated herein by reference.
99 (e) Lease agreement with American Trans Air, Inc. was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 as Exhibit 99 (f) and is incorporated herein
by reference.
99 (f) Lease agreement with Southwest Airlines, Inc. is filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and is included herein.
99 (g) Lease agreement with Southwest Airlines, Inc. is filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and is included herein.
99 (h) Lease agreement with Southwest Airlines, Inc. is filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and is included herein.
99 (i) Lease agreement with Finnair OY is filed in the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1997 and is included herein.
99 (j) Lease agreement with Finnair OY is filed in the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1997 and is included herein.
99 (k) Lease agreement with Transmeridian Airlines, 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.
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, 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 FG and Treasurer
of the General Partner of the General Partner
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 31, 1998 Date: March 31, 1998
------------------------- -------------------------
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