<PAGE>
As filed with the Securities and Exchange Commission on September [18], 1996
Registration No. 333-05693
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P
(Exact name of registrant as specified in governing instruments)
CALIFORNIA 7377 68-0382148
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Classification Code Identification No.)
organization) Number)
2401 Kerner Boulevard
San Rafael, California 94901
415-485-4500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
PARITOSH K. CHOKSI
2401 Kerner Boulevard
San Rafael, California 94901
415-485-4500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
RONALD WARNER, ESQ.
Thelen, Marrin, Johnson & Bridges
333 South Grand Avenue, 34th Floor
Los Angeles, California 90071
213-229-2062
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
CROSS REFERENCE SHEET PURSUANT TO RULE 404
FORM S-1 ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
-------------------------------- ---------------------
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus Inside Front Cover Page;
Outside Back Cover Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges Summary of the Program and the
Offering; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Conflicts of Interest --
Distribution of Units; The
Offering
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Front Cover Page; The
Offering; Plan of Distribution
9. Description of Securities to be Summary of Restated Agreement
Registered of Limited Partnership; Cash
Distributions and Redemptions
10. Interests of Names Experts and Counsel *
11. Information with Respect to the Summary of the program and the
Registrant Offering; Management;
Compensation; Fees and
Interest of General Partner;
Summary of Certain Prior
Partnerships' Performance;
Prior Partnerships;
Capitalization
12. Disclosure of Commission Position on
Indemnification for Securities Act Fiduciary Responsibilities of
Liabilities the General Partner
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* Omitted because item is not applicable or the answer is negative.
<PAGE>
PROSPECTUS
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
$1,200,000 (Minimum) Equipment Leasing Program
60,000 (Minimum) Limited Partnership Units
$20 per Unit -- Minimum Purchase 100 Units ($2,000)
IRA, Keogh and other Qualified Plans -- Minimum Investment 50 Units ($1,000)
Limited partnership interests ("Units") are hereby offered in Phoenix
Leasing American Business Fund II, L.P. (the "Program"), a California limited
partnership. The Program will invest in various types of capital equipment
and other assets, and will provide leasing or secured financing of the same
to third parties, on either a long-term or short-term basis. See "Investment
Objectives and Policies." The Program would have approximately 80.77%
($969,231) of the gross offering proceeds available for investment if 60,000
(the minimum number of) Units ($1,200,000) were sold and approximately 82.69%
($41,346,154) if 2,500,000 (the maximum number of) Units ($50,000,000) were
sold. See "Use of Proceeds." If fewer than 60,000 Units have been sold by
the Program within one year from the date of this Prospectus, none will be
sold, and all funds received by the Program in payment for any Units will be
promptly returned in full, together with any interest earned thereon. Until
60,000 Units have been sold, funds will be placed in escrow with Imperial
Bank. See "The Offering." THESE SECURITIES ARE SUBJECT TO RISKS. PROSPECTIVE
INVESTORS SHOULD CONSIDER THE FOLLOWING WHICH ARE MORE FULLY EXPLAINED UNDER
"RISK FACTORS":
* CREDIT RISKS OF PROGRAM CUSTOMERS. Despite the possibility of higher
returns, certain business segments in which the Program will invest may
present a higher default risk than other business segments, the effect
of which could reduce Program revenues.
* TOTAL RELIANCE ON GENERAL PARTNER/LIMITED VOTING RIGHTS OF INVESTORS.
The General Partner has complete authority in managing the Program's
business, the effect of which is that investors must rely solely on the
General Partner's management ability.
* AUTHORIZATION OF SUBSTANTIAL FEES TO GENERAL PARTNER AND ITS AFFILIATES.
The General Partner will receive an Acquisition Fee and a Management Fee
throughout the term of the Program and will be reimbursed for certain
expenses that it incurs on behalf of the Program.
(COVER PAGE TEXT CONTINUED ON FOLLOWING PAGE)
<TABLE>
<CAPTION>
Underwriting
Broker-Dealer
Sales Proceeds to
Price to Public Commissions(1) Program(2)
--------------- ----------- -------
<S> <C> <C> <C>
Per Unit (Minimum Investment-100 Units) $ 20 $ 1.60 $ 18.40
Total Minimum (12,500 Units) $ 1,200,000 $ 120,000 $ 1,080,000
Total Maximum (2,500,000 Units) $ 50,000,000 $ 5,000,000 $ 45,000,000
</TABLE>
(FOOTNOTES ARE ON FOLLOWING PAGE)
The date of this Prospectus is [_______________, 1996].
<PAGE>
* USE OF LEVERAGE. The Program intends to incur debt (in a maximum amount
of 45% of the purchase price of the assets directly acquired by the
Program), to finance the purchase of assets, which will require the
Program to satisfy its debt repayment obligations regardless of the
revenues generated by the Program. This could affect distributions to
investors.
* RETURN OF CAPITAL. A significant portion of Program distributions every
year will constitute a return of investors' capital in the Program.
* LIMITED TRANSFERABILITY OF UNITS. Investors may not be able to
liquidate their investment in the Program in the event of an emergency
or for any other reason. No present market exists for the transfer of
Units and it is unlikely that any will develop.
* IDENTIFICATION OF AND DEMAND FOR ASSETS. The assets in which the
Program will invest have not been identified as of the date of this
Prospectus. Investors must rely on the ability of the General Partner
to identify assets for which demand will exist.
THE PROGRAM IS SUBJECT TO VARIOUS CONFLICTS OF INTEREST ARISING OUT OF ITS
RELATIONSHIP WITH THE GENERAL PARTNER AND AFFILIATES THEREOF. SUCH CONFLICTS
ARE MORE FULLY EXPLAINED UNDER "CONFLICTS OF INTEREST."
The General Partner has the authority, without the consent of the Limited
Partners, to increase the size of this offering or, if the minimum 60,000 Units
has been sold, to extend the offering of Units (upon the renewal of its permit
in any state requiring renewal thereof after [___________, 1997] (one year from
the date of the Program's original Prospectus). The offering period, however,
will terminate on [_________, 1998] (two years from the date of the Program's
original Prospectus).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(COVER PAGE TEXT CONTINUED ON FOLLOWING PAGE)
- ------------------
(FOOTNOTES FOR TABLE ON COVER PAGE)
(1 See "Plan of Distribution" for a description of the Program's
arrangements with broker-dealers, including the wholesaling arrangement
entered into with an Affiliate of the Program.
(2) See "The Offering" for a description of the terms of the offering of
Units. See "Use of Proceeds" for a description of how the proceeds from
the offering are to be employed.
<PAGE>
THE USE OF PROJECTIONS IN THIS OFFERING IS PROHIBITED BY RULES OF THE CALIFORNIA
CORPORATIONS COMMISSIONER AND THE STATEMENT OF POLICY FOR EQUIPMENT PROGRAMS
PROMULGATED BY THE NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION. ANY
REPRESENTATION TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE
WHICH MAY FLOW FROM AN INVESTMENT IN THIS PROGRAM IS A VIOLATION OF LAW.
UNTIL [__________, 1996] (90 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Suitability Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Summary of the Program and the Offering. . . . . . . . . . . . . . . . . . . 4
General Partner and Affiliates. . . . . . . . . . . . . . . . . . . . . . 4
Organization of the Program . . . . . . . . . . . . . . . . . . . . . . . 4
Management of the Program . . . . . . . . . . . . . . . . . . . . . . . . 4
Compensation to General Partner . . . . . . . . . . . . . . . . . . . . . 5
Prior Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Program Objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distributions to Partners . . . . . . . . . . . . . . . . . . . . . . . . 7
Leverage Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Method of Cost Recovery (Depreciation). . . . . . . . . . . . . . . . . . 8
Terms of Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Sales Literature. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Risks Associated with the Business of the Program . . . . . . . . . . . .10
Credit and Collection Risks . . . . . . . . . . . . . . . . . . . . .10
Companies Engaged in the Development of Technologies and Other
Growth Industry Businesses Product Development Risks. . . . . . . . .11
Collection and Residual Value Risks Associated with Financing
Arrangements with Franchisees . . . . . . . . . . . . . . . . . . . .11
Obligation to Repay Debt. . . . . . . . . . . . . . . . . . . . . . .12
Losses of Certain Prior Partnerships. . . . . . . . . . . . . . . . .13
Inability of Investor to Assess Business Risks. . . . . . . . . . . .13
Obsolescence of Equipment and Equipment Remarketing . . . . . . . . .14
Industry Wide Risks . . . . . . . . . . . . . . . . . . . . . . . . .15
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Impasse in Joint Venture Decisions. . . . . . . . . . . . . . . . . .15
Subordinated Loans. . . . . . . . . . . . . . . . . . . . . . . . . .16
Uninsured Losses. . . . . . . . . . . . . . . . . . . . . . . . . . .16
Additional Lending Considerations . . . . . . . . . . . . . . . . . .16
Risks Associated with an Investment in the Program. . . . . . . . . . . .17
Transferability of Units; Lack of a Public Market . . . . . . . . . .17
Federal Income Tax Consequences and Appropriateness for Qualified
Plan Investment . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Inability of Limited Partners to Participate in Program Management. .19
Summary of Prior Partnerships' Performance . . . . . . . . . . . . . . . . .21
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Summary of Relationships . . . . . . . . . . . . . . . . . . . . . . . . . .26
Compensation, Fees and Interest of General Partner . . . . . . . . . . . . .27
Organizational and Offering Stages. . . . . . . . . . . . . . . . . . . .27
Operational Stage . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
<PAGE>
PAGE
----
Conflicts of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Use of Personnel. . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Competition with Other Partnerships for Investments . . . . . . . . . . .33
Participation in Joint Venture Arrangements . . . . . . . . . . . . . . .35
Ownership of General Partner Interest . . . . . . . . . . . . . . . . . .36
Distribution of Units . . . . . . . . . . . . . . . . . . . . . . . . . .36
Transactions by Certain Persons . . . . . . . . . . . . . . . . . . . . .36
Lack of Separate Representation . . . . . . . . . . . . . . . . . . . . .37
Determination of Cash Available for Distribution. . . . . . . . . . . . .37
Fiduciary Responsibilities of the General Partner. . . . . . . . . . . . . .37
Cash Distributions and Redemptions . . . . . . . . . . . . . . . . . . . . .40
Prior Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Prior Experience of the General Partner . . . . . . . . . . . . . . . . .44
Summary of Prior Partnerships' History. . . . . . . . . . . . . . . . . .45
Operations of Prior Partnerships. . . . . . . . . . . . . . . . . . . . .45
Capitalization of the Program. . . . . . . . . . . . . . . . . . . . . . . .48
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . .53
Investment Objectives . . . . . . . . . . . . . . . . . . . . . . . . . .53
Equipment Leasing and Financing Structures. . . . . . . . . . . . . . . .54
Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Types of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Investment Limitations. . . . . . . . . . . . . . . . . . . . . . . . . .64
Borrowing Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Other Investment Policies . . . . . . . . . . . . . . . . . . . . . . . .67
Summary Of Federal Income Tax Consequences . . . . . . . . . . . . . . . . .68
Federal Income Tax Consequences. . . . . . . . . . . . . . . . . . . . . . .71
Tax Consequences of Status of the Program . . . . . . . . . . . . . . . .80
Basis of Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
At Risk Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Limitations on Losses and Credits from Passive Activities . . . . . . . .83
Program Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . .87
Taxable Income in Excess of Distributions . . . . . . . . . . . . . . . .90
Fees, Expenses and Costs. . . . . . . . . . . . . . . . . . . . . . . . .91
Cost Recovery Deductions. . . . . . . . . . . . . . . . . . . . . . . . .93
Investment Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . .96
Interest Deduction Limitations. . . . . . . . . . . . . . . . . . . . . .97
Program Tax Accounting Principles . . . . . . . . . . . . . . . . . . . .98
Activities Not Engaged In For Profit. . . . . . . . . . . . . . . . . . .99
Disposition of Property . . . . . . . . . . . . . . . . . . . . . . . . 100
Disposition of Units. . . . . . . . . . . . . . . . . . . . . . . . . . 101
Liquidation of the Program. . . . . . . . . . . . . . . . . . . . . . . 102
Termination of the Program. . . . . . . . . . . . . . . . . . . . . . . 103
ii
<PAGE>
PAGE
----
Income Tax Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Alternative Minimum Tax . . . . . . . . . . . . . . . . . . . . . . . . 104
Investment by Qualified Plans . . . . . . . . . . . . . . . . . . . . . 106
Trusts May Be Taxable as Corporations . . . . . . . . . . . . . . . . . 107
Tax Returns, Audit Risk and Tax Shelter Registration. . . . . . . . . . 108
Penalty Taxes and Interest. . . . . . . . . . . . . . . . . . . . . . . 110
Tax Law Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
State and Local Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 114
Summary of Amended and Restated Agreement of Limited Partnership . . . . . 115
Nature of the Program . . . . . . . . . . . . . . . . . . . . . . . . . 116
Control of Operations of the Program. . . . . . . . . . . . . . . . . . 116
Term of Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . 116
Additional Contributions. . . . . . . . . . . . . . . . . . . . . . . . 117
Withdrawals of Capital Contributions. . . . . . . . . . . . . . . . . . 117
Allocation of Income and Loss; Distributions to Partners. . . . . . . . 117
General Partner Fees and Reimbursement of General and Administrative
Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Limited Transferability of Units. . . . . . . . . . . . . . . . . . . . 118
Allocation of Net Income and Net Loss in Respect to Program Units
Transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Dissolution and Liquidation . . . . . . . . . . . . . . . . . . . . . . 118
Insurance and Limits of Liability . . . . . . . . . . . . . . . . . . . 119
Resignation or Removal of General Partner; Election of General Partner. 119
Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Voting and Other Rights of the Limited Partners . . . . . . . . . . . . 120
Meetings and Consent. . . . . . . . . . . . . . . . . . . . . . . . . . 121
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Sales Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Financial Statements
Phoenix Leasing American Business Fund II, L.P. . . . . . . . . . . . . 126
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . 126
Balance Sheet at July 31, 1996. . . . . . . . . . . . . . . . . . . 127
Notes to Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . 128
Phoenix Leasing Associates IV, L.P. . . . . . . . . . . . . . . . . . . 130
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . 130
Balance Sheet at June 30, 1996. . . . . . . . . . . . . . . . . . . 131
Notes to Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . 132
iii
<PAGE>
PAGE
----
Phoenix Leasing Associates IV, Inc. . . . . . . . . . . . . . . . . . . 134
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . 134
Balance Sheet at June 30, 1996. . . . . . . . . . . . . . . . . . . 135
Notes to Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . 136
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Exhibit A Amended and Restated Agreement of Limited Partnership of Phoenix
Leasing American Business Fund II, L.P.
Exhibit B Prior Performance Schedules
Schedule A General Information About Certain Prior Partnerships
Schedule B Asset Portfolio of Certain Prior Partnerships
Schedule C Annual Operating Results of Certain Prior Partnerships
Schedule D Cash Distributions for $1,000 Investment in Certain Prior
Partnerships
Schedule E Compensation Paid and Accrued to General Partners of Certain
Prior Partnerships
Schedule F General Information About Completed Partnerships
Exhibit C Subscription Agreement
iv
<PAGE>
SUITABILITY STANDARDS
This offering is limited to investors who meet the financial suitability
standards described below. An investor will be admitted to the Program as a
limited partner (a "Limited Partner") no later than the last day of the calendar
month following the date the General Partner accepts such person's subscription.
Regardless of when they are admitted to the Program, the Limited Partners will
pay the same price per Unit, but they will not share in Program profits, losses
or distributions relating to periods prior to their admission into the Program.
Each potential investor should realize that (1) the Units being offered
hereby are subject to certain restrictions concerning their transfer and (2) it
is unlikely that any public market will develop for the resale of Units. See
"Risk Factors -- Transferability of Units; Lack of a Public Market."
The General Partner requires each broker-dealer selling Units on
behalf of the Program to make every reasonable effort to assure that each
person being offered or sold Units is suitable in light of such person's age,
educational level, knowledge of investment and other pertinent factors. The
General Partner is relying on the broker-dealers' regulatory requirements to
adhere to procedures assuring compliance with the applicable suitability
standards. The General Partner may, however, request additional information
regarding such adherence. Each investor should independently make the same
determination. In addition, because of the various risk factors and the
relative lack of liquidity of securities of this type of program, as compared
with other investments in securities, each investor must be of sufficient
financial means to assume the risks inherent in the purchase of Units. Each
investor must evaluate whether this is a suitable investment based upon such
person's investment objectives, financial situation and needs.
For investors residing in any state or territory (including without
limitation the District of Columbia and Puerto Rico), other than those set forth
in the paragraphs below: No Units will be sold to an investor unless such person
has (a) a minimum annual income from all sources of $30,000 and a net worth
(exclusive of home, furnishings and automobiles) at least equal to $30,000 in
excess of the investor's capital contribution, or (b) a net worth (exclusive of
home, furnishings and automobiles) at least equal to $75,000 in excess of the
investor's capital contribution. Units may be sold to fiduciary accounts that
represent in writing that (i) the fiduciary account, (ii) the beneficiary or
(iii) if the donor is the fiduciary, the donor who directly or indirectly
supplies the funds to purchase the Units has such net worth and annual income as
set forth in clause (a) or such net worth as set forth in clause (b).
For New Hampshire investors only: No Units will be sold to an investor
unless such person has (a) a minimum annual income from all sources of $35,000
and a net worth (exclusive of home, furnishings and automobiles) at least equal
to $35,000 in excess of the investor's capital contribution, or (b) a net worth
(exclusive of home, furnishings and automobiles) at least equal to $75,000 in
excess of the investor's capital contribution. Units may be sold to fiduciary
<PAGE>
accounts that represent in writing that (i) the fiduciary account, (ii) the
beneficiary or (iii) if the donor is the fiduciary, the donor who directly or
indirectly supplies the funds to purchase the Units has such net worth and
annual income as set forth in clause (a) or such net worth as set forth in
clause (b).
For Oregon investors only: No Units will be sold to an investor unless
such person has (a) a minimum annual income from all sources of $35,000 and a
net worth (exclusive of home, furnishings and automobiles) at least equal to
$35,000 in excess of the investor's capital contribution, or (b) a net worth
(exclusive of home, furnishings and automobiles) at least equal to $100,000 in
excess of the investor's capital contribution. Units may be sold to fiduciary
accounts that represent in writing that (i) the fiduciary account, (ii) the
beneficiary or (iii) if the donor is the fiduciary, the donor who directly or
indirectly supplies the funds to purchase the Units has such net worth and
annual income as set forth in clause (a) or such net worth as set forth in
clause (b).
For Alabama, Arizona, Arkansas, California, Indiana, Iowa, Kansas,
Kentucky, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska,
New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, South
Dakota, Tennessee, Texas, Vermont, Washington and Wisconsin investors only:
No Units will be sold to an investor unless such person has (a) a minimum
annual income from all sources of $45,000 and a net worth (exclusive of home,
furnishings and automobiles) at least equal to $45,000 in excess of the
investor's capital contribution, or (b) a net worth (exclusive of home,
furnishings and automobiles) at least equal to $150,000 in excess of the
investor's capital contribution. Units may be sold to fiduciary accounts
that represent in writing that (i) the fiduciary account, (ii) the
beneficiary or (iii) if the donor is the fiduciary, the donor who directly or
indirectly supplies the funds to purchase the Units has such net worth and
annual income as set forth in clause (a) or such net worth as set forth in
clause (b). In addition, Michigan transferees must meet these same
suitability requirements.
For Missouri investors only: No Units will be sold to an investor
unless such person has (a) a minimum annual income from all sources of $60,000
and a net worth (exclusive of home, furnishings and automobiles) at least equal
to $60,000 in excess of the investor's capital contribution, or (b) a net worth
(exclusive of home, furnishings and automobiles) at least equal to $225,000 in
excess of the investor's capital contribution. Units may be sold to fiduciary
accounts that represent in writing that (i) the fiduciary account, (ii) the
beneficiary or (iii) if the donor is the fiduciary, the donor who directly or
indirectly supplies the funds to purchase the Units has such net worth and
annual income as set forth in clause (a) or such net worth as set forth in
clause (b).
The General Partner may require that transferees of Units or
purchasers of outstanding Units represent that they meet the applicable
suitability standards prior to permitting the admission of such transferees
or purchasers as substituted Limited Partner.
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The General Partner has decided that a minimum investment of $2,000 (100
Units) must be made by each investor, except that, in the case of an IRA, Keogh
or qualified pension, profit sharing plan and other tax-exempt entity
("Qualified Plans"), the minimum investment may be $1,000 (50 Units). Residents
of certain states may be required to make different minimum investments, as
described below.
For Iowa residents only: A minimum investment of $2,000 (100 Units)
must be made for all investors other than IRA'S, Keoghs and other qualified
plans, in which case the minimum investment requirement is $2,500 (125 Units).
For Michigan, Ohio and Pennsylvania residents only: In no event may an
investor's investment in Units exceed ten percent of the investor's net worth
(exclusive of home, furnishings and automobiles).
For Minnesota residents only: A minimum investment of $2,500 (125
Units) must be made for all investors other than IRA'S, Keoghs and other
qualified plans, in which case the minimum investment requirement is $2,000 (100
Units).
For Nebraska residents only: A minimum investment of $5,000 (250 Units)
must be made for all investors other than IRA'S, Keoghs and other qualified
plans, in which case the minimum investment requirement is $1,000 (50 Units).
For North Carolina residents only: A minimum investment of $2,500
(125 Units) must be made for all investors other than IRA'S, Keoghs and other
qualified plans, in which case the minimum investment requirement is $1,000
(50 Units).
The issuance of all Units offered hereby and any subsequent transfers of
Units will be subject to the following legend condition (required by the
California Corporations Commissioner) restricting transfer to and from
California residents: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF A UNIT,
OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. Furthermore,
certain states may require that resales of Units by a Limited Partner may be
made only if such purchaser meets the suitability standards imposed by that
state.
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SUMMARY OF THE PROGRAM AND THE OFFERING
The following is a summary of the pertinent facts and highlights from
the material contained in this Prospectus. The purchase of Units involves
risks; prospective purchasers of Units should carefully review such risks,
including those appearing under "Risk Factors." More detailed information with
respect to this offering may be found in the remainder of this Prospectus.
Defined or capitalized terms used in this portion of the Prospectus and
elsewhere are more fully described in the Glossary, appearing on page 139.
GENERAL PARTNER AND AFFILIATES. The General Partner is a California
limited partnership, Phoenix Leasing Associates IV, L.P., the general partner of
which is Phoenix Leasing Associates IV, Inc. ("PLA"), a Nevada corporation and a
wholly-owned subsidiary of Phoenix Leasing Incorporated, a California
corporation ("PLI"). PLA will have complete authority in all aspects of
management and control of the General Partner and will exercise all authority
granted to the General Partner under the Program's Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement"). The principal
offices of the General Partner are located at 2401 Kerner Boulevard, San Rafael,
California 94901-5529, and its telephone number is (415) 485-4500. The limited
partner of the General Partner is a corporation controlled by an officer of PLA.
The persons performing services for the Program will predominantly be
employees of PLI. PLI has outside business interests to which it will devote
substantial portions of its employees' time. PLI and its Affiliates also are or
have been general partners in 31 other limited partnerships (the "Prior
Partnerships") formed to make investments in capital assets and to engage in the
leasing business. PLI's employees have duties in connection with the operations
of such partnerships essentially similar to their duties on behalf of the
General Partner under the Partnership Agreement. See "Summary of
Relationships," "Conflicts of Interest," "Prior Partnerships" and "Management."
ORGANIZATION OF THE PROGRAM. The Program was organized on May 6,
1996. The Program has not offered any Units to anyone other than for
organizational purposes to the initial limited partners (who are two officers
of the general partner of the General Partner). The General Partner
anticipates commencing liquidation of the Program's portfolio of assets seven
years after the close of the offering of Units. The Program will terminate
on December 31, 2011, unless sooner terminated by vote of the Limited
Partners or the liquidation of all assets. See "Summary of Amended and
Restated Agreement of Limited Partnership -- Dissolution and Liquidation."
MANAGEMENT OF THE PROGRAM. The General Partner has complete authority
in the overall management and control of the Program and is responsible for
supervising the Program's acquisition, leasing, financing and remarketing of
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assets. See "Summary of Amended and Restated Agreement of Limited
Partnership." The General Partner believes that through all phases of the
Program's operations, it will be able to devote sufficient staff, equipment
and other resources to discharge fully its responsibilities to the Program.
Subject to the supervision of the General Partner, and pursuant to the terms
of the Management Agreement entered into with PLA, PLI will provide
management services in connection with the operation and administration of
the Program. See "Compensation, Fees and Interest of General Partner" and
"Management." During the period of the Program's initial acquisition of
equipment and other assets (which is generally one year beyond the offering
period), the General Partner anticipates, based on PLI's experience with the
operations of the Prior Partnerships, that the General Partner and PLI will
be spending a substantial portion of their time on activities of the Program.
After such period, although the General Partner and PLI will still devote
considerable time to the activities of the Program, it is not anticipated
that the day-to-day operations of the Program will require them to devote as
much time to the Program's affairs. See "Conflict of Interests -- Use of
Personnel."
COMPENSATION TO GENERAL PARTNER. During Program operations, the General
Partner will receive an Acquisition Fee in connection with the analysis,
selection and acquisition or financing of assets, and the continuing analysis of
the overall portfolio of the Program's assets, and a Management Fee in
connection with managing the operations of the Program. In addition, the
General Partner will receive an interest in the Program's profits, losses and
distributions. The amounts of such fees and interests and the terms under which
they are payable are described under "Compensation, Fees and Interest of General
Partner" and "Cash Distributions and Redemptions."
PRIOR OPERATIONS. Affiliates of the General Partner have sponsored 31
Prior Partnerships, six of which have investment objectives similar to the
Program. For a description of the operations of the Prior Partnerships, see
"Prior Partnerships."
PROGRAM OBJECTIVES. The Program will invest in various types of capital
equipment and other assets, and provide leasing and secured financing of the
same to third parties, on either a long-term or short-term basis. The
objectives of the Program are to (1) produce cash distributions (a significant
portion of which will be a return of capital) on a continuing basis over the
life of the Program through leasing equipment primarily to and financing assets
primarily for companies engaged in the development of technologies and other
growth industry businesses, franchisees, and other third party lessees and
customers, (2) reinvest, during the operating phase of the Program (after
payment of expenses, including debt service requirements, and distributions to
the Partners), in additional equipment and assets to increase the overall size
of the portfolio, and (3) commence liquidation of the
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Program's portfolio of assets seven years after the close of the offering of
Units. There is, however, no certainty that the Program's objectives will be
attained. See "Risk Factors" and "Investment Objectives and Policies --
Business Segments." To accomplish these objectives, the Program will invest in,
or will have as collateral, various types of assets, including (i) production,
manufacturing, fabrication and test equipment, (ii) lab and medical equipment,
(iii) furniture and fixtures, (iv) personal computers and workstations, (v)
property management systems, including computer reservation systems, and phone
and telecommunication systems, (vi) computer peripheral equipment, mainframes,
small computer systems, CAE/CAD/CAM equipment, communications equipment, office
systems and computer software products, and (vii) various types of other
equipment, furnishings, fixtures, leasehold improvements and assets, including
certain intangible assets, such as franchise fees. See "Investment Objectives
and Policies -- Types of Assets."
The Program will primarily purchase or finance Equipment and other
Program Property for which a lease or loan exists or will be entered into
contemporaneously with the consummation of the transaction. In connection with
all of its activities, the General Partner or its Affiliates may acquire assets
and hold title on a temporary basis to facilitate investment by the Program. In
that event, the Program will pay to the General Partner or its Affiliates the
purchase price paid by the General Partner or its Affiliates plus their carrying
costs (I.E., taxes, insurance, maintenance, interest) during the time the
General Partner or its Affiliates held such equipment or assets less any rental
or other payments received by the General Partner or its Affiliates during such
period.
Currently, 13 Prior Partnerships engaged in equipment leasing may have
funds available to purchase equipment or pursue financing opportunities.
However, only four of these Prior Partnerships and the Affiliate of the General
Partner are expected to acquire significant amounts of additional assets
concurrently with the Program. Such entities may lease such equipment and
provide financing to the same customers under similar arrangements. See
"Conflicts of Interest."
If the quantity of available investments were to be less than
anticipated by the General Partner, a conflict of interest might arise among any
of the Prior Partnerships that had uninvested funds available for the additional
investments or between these Prior Partnerships and the Program. As of August
30, 1996, the 13 Prior Partnerships had funds aggregating approximately
$10,783,000 available for investments. To date, no newly-offered partnership,
such as the Program, has been adversely affected by the amount of funds
available for investment by the Prior Partnerships, or Affiliates of the General
Partner.
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In the event that the availability of investment funds were to create
adverse consequences to any partnership, the General Partner would allocate the
available investments among the various partnerships and its Affiliates after an
analysis of all relevant factors, and if necessary, apply a rotation or pro rata
allocation method. See "Conflicts of Interest -- Competition with Other
Partnerships for Investments," "Risk Factors -- Competition" and "Investment
Objectives and Policies."
DISTRIBUTIONS TO PARTNERS. Until the Limited Partners have received
cumulative cash distributions equal to the greater of (a) 177% of the Limited
Partners' Capital Contributions or (b) 100% of the Limited Partners' Capital
Contributions plus an 11% annual return, compounded quarterly, on their adjusted
Capital Contributions (such greater amount is hereafter referred to as the
"Priority Return"), Cash Available for Distribution generally will be
distributed 96% to the Limited Partners and four percent to the General Partner.
Thereafter, Cash Available for Distribution will be distributed 85% to the
Limited Partners and 15% to the General Partner. (Cash Available for
Distribution is defined in the Partnership Agreement generally as all cash
derived by the Program from all sources less expenses and amounts set aside as
reserves.) The Priority Return is used to determine the sharing relationship
between the Limited Partners and the General Partner in connection with
distributions to the Partners; the establishment of the amount of the Priority
Return is not necessarily indicative of the potential return to an investor,
which depends upon the results of the Program's activities. A significant
portion of total Program distributions will constitute a return of capital. The
successful operation of the Program is subject to various risks. See "Risk
Factors."
During the period beginning on the date of admission of a Limited
Partner to the Program and ending seven years after the end of the calendar
quarter that includes such admission date (the "Subordination Period"), the
General Partner's interest in Cash Available for Distribution is subordinated in
each calendar quarter to a Limited Partner receiving a quarterly distribution
equal to 2.75% of such Limited Partner's Capital Contribution. Any amounts that
would be distributable to the General Partner, but are otherwise subordinated,
will be distributed to the General Partner as a special distribution of Cash
Available for Distribution, at such time as a Limited Partner has received
cumulative distributions equal to the product of (a) 2.75% of such Limited
Partner's Capital Contribution and (b) the number of calendar quarters (prorated
for any partial period) up to but not including 29 that the Units were issued
and outstanding. In addition, since Limited Partners will be admitted to the
Program on different dates, the Subordination Period will have a different
reference in relation to each Limited Partner.
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Limited Partners who purchase at least 500 Units ($10,000) will be
entitled to receive monthly distributions. However, prior to the third monthly
distribution of any quarter, Limited Partners who have not received monthly
distributions must receive the same proportionate distribution amount within
that quarter that the monthly distributees already received before the monthly
distributees receive any further distributions for that quarter.
For further details regarding distributions and allocations to Partners,
please see "Compensation, Fees and Interest of the General Partner," "Cash
Distributions and Redemptions," and "Summary of Amended and Restated Agreement
of Limited Partnership."
LEVERAGE LIMITATIONS. The Program will incur debt to finance the
purchase of various assets. However, by the end of the Program's offering
period and at all times thereafter during the life of the Program, the aggregate
amount of outstanding debt directly incurred by the Program will not exceed 45%
of the purchase price of the assets directly acquired by the Program. However,
there are requirements imposed on the Program regarding the minimum amount of
Capital Contributions which must be invested in Program Property. See
"Investment Objectives and Policies -- Borrowing Policies." No Limited Partner
will have any personal liability for the repayment of any such debt. The
Program may, at the sole discretion of the General Partner, also enter into
various venture arrangements, including joint ventures with other partnerships
sponsored by the General Partner or its Affiliates (including certain of the
Prior Partnerships) and other entities that the General Partner deems desirable
(excluding the General Partner and certain of its Affiliates), and some of such
ventures will use leverage to acquire assets. All debt to Leveraged Joint
Ventures ("LJVs") in which the Program will participate will be recourse only to
the equipment owned by the venture and to the lease stream payments related
thereto, and will be non-recourse to all other assets of the Program.
Accordingly, neither the Program, the General Partner nor the Limited Partners
will be directly liable for any such debt. After the termination of the
offering of Units, such investment in LJVs will not account for more than five
percent of the Net Capital Contributions to the Program, and the amount of LJV
debt may not exceed, after the close of the offering and any time thereafter,
35% of Net Capital Contributions to the Program. An LJV investment is defined
as the capital contribution to all LJVs by the Program less any cash distributed
to the Program by all LJVs. See "Investment Objectives and Policies --
Borrowing Policies."
METHOD OF COST RECOVERY (DEPRECIATION). For tax reporting purposes, the
Program will use the straight line or the prescribed accelerated method over the
prescribed recovery period for the recovery of the cost of the equipment.
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TERMS OF OFFERING. The offering consists of a maximum of 2,500,000
units of limited partnership interest (the "Units") at a price of $20 per Unit,
subject to a minimum investment requirement of 100 Units ($2,000) per investor,
except in the case of a Qualified Plan, where the minimum investment is 50 Units
($1,000). Residents of certain states may be required to make different minimum
investments. A minimum of 60,000 Units is required to be sold within one year
from the date of this Prospectus before the Program can commence operations.
See "Capitalization" and "The Offering." The General Partner has the authority,
without the consent of the Limited Partner's, to increase the size of this
offering or, if the minimum 60,000 Units has been sold, to extend the offering
of Units (upon the renewal of its permit in any state requiring renewal thereof
after [__________, 1997 (one year from the date of the Program's original
Prospectus). The offering period, however, will terminate on [__________, 1998]
(two years from the date of the Program's original Prospectus). See "Summary of
Restated Agreement of Limited Partnership -- Capital Contributions." Although
the Program has the right to raise additional capital in the future in excess of
the $50,000,000 being raised in this offering, there is no present intention to
do so. The effect of such additional capital would be to provide additional
funds available for investment, which would be used to acquire additional assets
described in "Investment Objectives and Policies." See "The Offering."
PLAN OF DISTRIBUTION. Offers and sales of the Units will be
effected only through selected members of the National Association of
Securities Dealers, Inc. (the "NASD"). Sales commissions will be payable by
the Program at the rate of eight percent ($1.60 per Unit) of the sales price
of the Units. The Program will pay additional commissions and reimbursements
for wholesaling fees. The maximum compensation to be paid by the Program to
NASD member broker-dealers in connection with the distribution of Units will
not exceed ten percent of the sales price of Units, including the sales
commissions, the wholesalers fees and expenses and any other sales incentives
which may be used. In addition, up to an additional one-half percent of the
sales price of the Units may be paid to NASD member broker-dealers for
actual, accountable and bona fide due diligence expenses. The Program has
agreed to indemnify soliciting broker-dealers against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Plan of Distribution" for a description
of the Program's arrangements with broker-dealers.
There is no assurance that any of the Units offered hereby will be sold.
The Units are being offered through selected members of the NASD, on a "best
efforts" basis, when, as, and if issued by the Program and subject to prior
sale. There is no firm commitment to purchase or sell any of the Units. See
"The Offering" for a description of the terms of the offering of Units. See
"Use of Proceeds" for a description of how the proceeds from the offering are to
be employed.
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SALES LITERATURE. No sales literature is authorized, except as
described in this Prospectus. See "Sales Literature."
RISK FACTORS
AS A RESULT OF THE RISKS DESCRIBED BELOW, NO ASSURANCE CAN BE GIVEN THAT THE
GENERAL PARTNER WILL BE ABLE TO ACHIEVE THE INVESTMENT OBJECTIVES OF THE
PROGRAM. SEE "INVESTMENT OBJECTIVES AND POLICIES."
RISKS ASSOCIATED WITH THE BUSINESS OF THE PROGRAM
1. CREDIT AND COLLECTION RISKS (CERTAIN BUSINESS SEGMENTS MAY HAVE
HIGHER DEFAULT RISK THAN OTHER BUSINESS SEGMENTS). The principal business
segments that the Program will invest in (E.G., companies engaged in the
development of technologies and other growth industry businesses, and franchise
businesses) present a higher risk of loss caused by default than do investments
in other business segments (E.G., more established businesses, such as Fortune
1000 companies and their subsidiaries). Many of the companies with which the
Program will enter into leasing or other financing arrangements will not have
had substantial operating histories, and also may be particularly susceptible to
changes in the financial and technology markets, which may impact their ability
to raise additional capital. The Program, to a lesser extent, may provide
financing to companies which have successfully completed reorganizations (I.E.,
re-emerging companies) under federal bankruptcy laws.
Although the Program will own equipment that is leased by it to
third parties and will have a security interest in any equipment or other assets
financed by it and in the receivables due under any lease or rental agreement
relating to such equipment, in the case of a lessee default or a default under
any financing arrangement, the Program may not be able to acquire possession of
such equipment or other assets or avoid involvement in disputes with other
creditors, including creditors senior in priority to the Program. Efforts to
gain possession of the equipment or other assets to resolve such disputes could
result in considerable cash expenditures by the Program.
The default by a lessee or borrower under a lease or loan
agreement may cause equipment or other assets to be returned to or foreclosed
upon by the Program at a time when the General Partner or its agents may be
unable to arrange promptly for the re-leasing, leasing or sale of such equipment
or other assets, thus resulting in the loss of anticipated revenues and,
ultimately, the potential inability of the Program to recover its investment.
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The General Partner and its Affiliates have developed a
methodology for credit review, which may involve an analysis of profitability,
financial ratios, cash flow, financial reports, references, credit reports, and
the borrower's or lessee's business and management, as well as the entity
funding the company (I.E., the sponsor's or franchisor's financial strength),
which they believe tends to mitigate the credit risk.
2. COMPANIES ENGAGED IN THE DEVELOPMENT OF TECHNOLOGIES AND OTHER
GROWTH INDUSTRY BUSINESSES -- PRODUCT DEVELOPMENT RISKS (SUCH COMPANIES' NEED
FOR CAPITAL MAY AFFECT THEIR PERFORMANCE AND REVENUES). It is expected that the
Program will invest a significant portion of the net proceeds of this offering,
as well as reinvest a substantial portion of its cash flow during Program
operations, in leasing and financing transactions with companies engaged in the
development of technologies and other growth industry businesses. It is not
expected that many of these companies will be organizations with substantial
revenues, operating histories or profits, and many of these companies are
expected to require significantly more capital to complete product development,
market their product (or service) and obtain or maintain adequate market share.
Such companies are expected to face significant competition in their niche
markets and unique risks related to new product development, product
marketability and product obsolescence. These risks may include (1) the
development of laboratory products, such as drugs, which may not produce
continuous revenues for a long period of time even if successful, or which may
never be produced, (2) the delay in time between the prototype development of a
product, such as a computer chip or local area network, and volume manufacturing
and shipping, and (3) the necessity, after development of products (such as
local area networks for example), for expansion capital in order to achieve
rapid market share. Such companies may also require additional funding to
develop, complete or market new products, which funding may not be available at
critical junctures in the product development cycle. Since companies engaged in
the development of technologies and other growth industry businesses (many of
which are emerging companies) face these special risks and often are thinly
capitalized, the Program is subject to the risk of nonperformance (I.E.,
default) by these companies of their payment and other obligations under the
lease and loan agreements entered into with the Program. The Program is not
required to obtain approval of the Limited Partners, either under California
law or under the terms of its Partnership Agreement, to make investments in
the types of businesses described above.
3. COLLECTION AND RESIDUAL VALUE RISKS ASSOCIATED WITH FINANCING
ARRANGEMENTS WITH FRANCHISEES (TYPES OF ASSETS AND USERS MAY MAKE IT MORE
DIFFICULT FOR PROGRAM TO RECOVER SUMS IF USERS DEFAULT). There may be greater
collection risks associated with lease or loan transactions entered into with
franchisees than would be the case with more established businesses,
particularly since prospective lessees or borrowers will include first-time
franchisees. Long-term credit histories are generally not available for
evaluation by the Program and, in addition, because the Program generally will
not obtain
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additional collateral to secure franchisee payment obligations, amounts
available for lease or loan payments to the Program generally will be limited to
revenues derived from franchise operations, some of which will be start-up
operations. Furthermore, although the Program will be the owner of any assets
leased to a franchisee and will have a security interest in any assets financed
for a franchisee, certain franchise assets (E.G., window, wall and floor
coverings, franchise signs, certain furnishings, leasehold improvements,
software and franchise fees) will have little or no resale value, and may also
be difficult to foreclose upon in the event of a lessee or borrower default.
Accordingly, the Program may not be able to remove or remarket certain assets in
the event of a franchisee default under any lease or loan arrangement with the
Program. To a limited extent, the Program also will finance certain intangible
property (such as franchise fees) that may not be secured by additional
collateral. Also, franchisees in certain industries, such as the hospitality
(E.G., hotel/motel) and fast food industries, may present a greater risk of
default due to high competition in such industries. However, the General
Partner and its Affiliates believe that the franchisee collection and residual
value risk is mitigated by their franchise credit review process, which involves
an analysis of the franchisee and the franchisor (including an analysis of the
franchisor's profitability and its investment and credit requirements for
franchisees, the credit of the franchisee, the franchise consultation, marketing
and support services provided by the franchisor to the franchisee, and the
number of terminated franchisees and other franchisee defaults).
4. OBLIGATION TO REPAY DEBT (LEVERAGE REQUIRES PROGRAM TO SERVICE
DEBT REGARDLESS OF REVENUE GENERATED). The use of leverage by the Program to
acquire various assets will cause the risk of loss to the Limited Partners to be
greater than it would be if none of the Program's equipment were purchased with
borrowed funds because payment obligations must be met on certain specified
dates regardless of the amount of revenues derived by the Program from such
equipment. The Program's use of leverage generally can be expected to be
profitable only if assets acquired generate, at a minimum, sufficient cash
revenues to service the related debt and cover other Program fees and expenses.
A lender may also require the Program to maintain certain reserves or
compensating balances or place other financial restrictions on the Program,
which may adversely affect cash flow and distributions to the Limited Partners.
Additionally, in connection with its borrowings, the Program
will be required to maintain certain financial covenants, which may include
certain ratios of debt to net equity. An event of default pursuant to the
Program's loans may occur in the event that such covenants are not maintained,
and the Program may be required to sell certain assets in order to prevent (or
cure) any such defaults under its loan agreements. By the end of the Program's
offering period and thereafter, during the life of the Program, the aggregate
amount of outstanding debt will not exceed 45% of the purchase price of the
assets directly acquired by the
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Program. However, there are requirements imposed on the Program regarding the
minimum amount of Capital Contributions which must be invested in Program
Property. Limitations on maximum Program borrowings will also be imposed. In
this regard, investments in LJVs may not exceed, after the close of the offering
and any time thereafter, five percent of the Program's Net Capital
Contributions, and the amount of LJV debt may not exceed, after the close of the
offering and any time thereafter, 35% of the Program's Net Capital
Contributions. See "Investment Objectives and Policies -- Borrowing Policies."
Furthermore, the amount of Cash Available for Distribution is
dependent upon revenue generated from the Program's portfolio of assets, which
revenue may be increased by additional assets acquired with borrowed amounts.
In such event, distributions may depend upon the availability and terms of
financing sought by the Program for the acquisition of assets. No assurance can
be given that adequate financing will be available in the future or, if
available, that it will be provided upon terms which the General Partner deems
reasonable. It is anticipated that the Program may borrow funds to some extent
at interest rates fixed at the time of borrowing and primarily at rates varying
with various market indices. Consequently, to the extent funds are borrowed at
such varying interest rates, since lease revenues may be fixed, an increase in
borrowing costs due to a rise in such indices will reduce the amount of Program
net income, as well as Cash Available for Distribution.
5. LOSSES OF CERTAIN PRIOR PARTNERSHIPS (THE PROGRAM'S RESULTS MAY
BE AFFECTED BY VARIOUS FACTORS). Prospective investors are urged to read the
section of the Prospectus entitled "Prior Partnerships -- Operations of Prior
Partnerships," which discusses the negative effect that various past factors,
namely the general nationwide recession in the early 1990s, competitive sales
practices and certain lending restrictions, had (and continue to have) on the
performance of certain recent Prior Partnership and, which taken as a whole,
could affect the rate of distributions and ultimately, the return of investors'
capital in such Prior Partnerships. Prospective investors should also take into
account that the equipment leasing industry as a whole is more susceptible to
fluctuations in the economy than are other types of investments such as insured
deposit accounts. Consequently, investment results achieved in the industry,
although believed to be more predictable than other types of pass through
investments, could be adversely affected by any weakening of the economy.
6. INABILITY OF INVESTOR TO ASSESS BUSINESS RISKS (LIMITED PARTNERS
MUST RELY SOLELY ON JUDGMENT OF GENERAL PARTNER IN MANAGING PROGRAM). A risk is
presented by total reliance on the General Partner in the selection of Program
investments, since neither the assets to be purchased or financed by the
Program, nor the lessees or borrowers with whom the Program will enter into
transactions, have been identified. The prospective investor has no
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information as to the identity, financial condition and creditworthiness
(i.e., the payment history and financial strength) of the lessees or
borrowers. Once their investment has been made, the Limited Partners must
rely solely on the judgment and ability of the General Partner with respect
to the selection and method of investment and reinvestment in equipment and
other assets, evaluation of equipment manufacturers and potential lessees or
borrowers, and the management of the proceeds of this offering and future
revenues of the Program. Furthermore, a delay may occur between the time at
which a Unit is purchased and the time at which the proceeds thereof are
invested. The Prospectus will be supplemented quarterly to reflect
acquisitions of Equipment and other Program Property and financings provided
to third parties.
7. OBSOLESCENCE OF EQUIPMENT AND EQUIPMENT REMARKETING
(REMARKETING MAY BE REQUIRED TO RETURN PROGRAM'S INVESTMENT). It is an
objective of the Program that the equipment purchased by the Program
will be leased primarily pursuant to Full Payout Leases or loans secured by
equipment and, to a lesser extent, Operating Leases. As a result, unless the
terms of a specific Operating Lease transaction and the lessee thereunder
are, or the equipment leased is,
of extremely high quality, leasing pursuant to Full Payout Leases will be the
dominant activity. Consequently, the program will not be subject to as
significant obsolescence or remarketing risks as compared to conducting
business under Operating Leases. See "Investment Objectives and Policies --
Equipment Leasing and Financing Structures." Full Payout Leases are leases
under which the noncancellable rental payments due during the initial term of
the lease are at least sufficient to recover the purchase price of the
subject equipment. Operating Leases, which generally have terms of shorter
duration than Full Payout Leases, are leases that will return to the lessor
less than the purchase price of the equipment from rentals payable during the
initial term of the lease. Generally, the projected yield associated with
Operating Leases is greater than that associated with Full Payout Leases, if
other factors remain constant, such as, for example, the creditworthiness of
the lessee and the type of equipment leased. However, operating Leases with
respect to any particular lessee generally represent a greater risk to the
Program than do some Full Payout Leases because it is necessary to extend the
lease term with the existing lessee, enter into a new lease with another
person or sell the equipment in order to recover the purchase price of the
equipment and to earn a return on the investment. This is a process known as
"remarketing." While in some cases there will be remarketing risks associated
with equipment leased pursuant to Full Payout Leases, the risks inherent in
Operating Leases are appreciably greater because the full purchase price of
leased equipment will not be received during the initial lease term. In
order to recover its investment in equipment leased pursuant to an Operating
Lease, the Program will, on termination of such lease, have to remarket the
equipment. Failure to remarket such equipment after the expiration of the
initial term of an Operating Lease will result in the loss of anticipated
revenues, a lower anticipated return on investment, or, possibly, the
inability to recover the Program's investment in such assets. In addition,
in a significant number of cases there will be a remarketing risk associated
with equipment leased pursuant to Full Payout Leases, and the Program's
expected return on its investment in these Full Payout Leases may not be
14
<PAGE>
realized if the equipment is not successfully remarketed. The Program's
ability to remarket its equipment or that of its Affiliates in remarketing
services and technical operations mitigates this risk. The Program's ability
to remarket its equipment on expiration of the initial lease term is
dependent on many factors, including possible technological or economic
obsolescence of the equipment, competitive practices, and terms and
conditions of vendor remarketing agreements. See "Risk Factors -- Industry
Wide Risks" and "-- Competition." However, the General Partner believes that
the expertise and experience of its personnel and that of its Affiliates in
remarketing services and technical operations tends to mitigate this risk.
8. INDUSTRY WIDE RISKS (THE PROGRAM'S RESULTS MAY BE AFFECTED BY
EQUIPMENT OBSOLESCENCE AND USER DEFAULTS). Equipment leasing and financing is
subject to the risks of technological and economic equipment obsolescence and
the risks attendant upon defaults by lessees or borrowers. No combination of
management ability, experience, knowledge, care or scientific approach can avoid
the inherent possibilities of loss. The success of the Program will largely
depend upon the creditworthiness of its customers and the quality of the assets
leased or financed by the Program, the viability of equipment manufacturers and
the timing of the purchases of Equipment and other Program Property. In order
to minimize the risks associated with investments in equipment leased pursuant
to Operating Leases, as well as the risks associated with certain investments in
equipment leased pursuant to Full Payout Leases, the General Partner has
established certain policies with respect to such investments. See "Investment
Objectives and Policies -- Equipment Leasing and Financing Structures." The
General Partner believes that the expertise, sophistication, and experience of
its management and that of its Affiliates mitigate this risk.
9. COMPETITION (COMPANIES WITH GREATER FINANCIAL STRENGTH WILL
COMPETE WITH THE PROGRAM). In the portion of the equipment leasing and
financing business in which the Program will be engaged, the Program expects
that it will be subject to the risk of competition with many well-established
companies having substantially greater financial resources. In addition, the
Program's customers are subject to competitive factors in their respective
industries which may adversely affect them and ultimately the Program. See
"Investment Objectives and Policies -- Competition." Also, the Program will
generally be in competition with the Prior Partnerships. See "Conflicts of
Interest."
10. IMPASSE IN JOINT VENTURE DECISIONS (LESS FAVORABLE DECISIONS MAY
BE MADE THAN IN THE ABSENCE OF VENTURE INVESTMENTS). Certain types of
arrangements may present difficulty in reaching decisions for the Program. The
Program intends to take part in joint ventures, on both a leveraged and non-
leveraged basis, including joint ventures with other partnerships (including
certain of the Prior Partnerships sponsored by Affiliates of the General
Partner) and other
15
<PAGE>
entities (excluding the General Partner and certain of its Affiliates) that the
General Partner deems desirable. The Program may not have a majority interest
in any venture arrangement in which it invests; therefore an impasse may result
in arriving at certain joint venture decisions. The General Partner anticipates
that the Program may enter into joint venture arrangements to mitigate the risks
associated with high cost per unit items of equipment or highly leveraged
transactions. Although a joint venturer may buy the equipment held by the joint
venture in the event of a sale, it may not have the resources to do so. Since
the General Partner and its Affiliates will have a fiduciary responsibility to
any Prior Partnership (and any future partnership sponsored by the General
Partner or its Affiliates) participating in such a joint venture arrangement,
such obligation may require it to reach a decision less favorable to the Program
than one taken without such conflict of interest.
11. SUBORDINATED LOANS (SENIOR DEBT OBLIGATIONS OF USERS WILL HAVE
PRIORITY IN PAYMENT). There are collection risks associated with subordinated
loans to be made by the Program in connection with financings provided to
businesses by the Program. The Program's secured loans may be subordinated in
priority and in those instances will be junior to those of other institutions
providing senior debt. Subordinated loans create greater collection risks than
senior loans because of their junior priority. See "Credit and Collection
Risks" above. In order to minimize the risks in connection with these
transactions, the Program intends to primarily enter into subordinated debt
arrangements with companies that are producing positive cash flow.
12. UNINSURED LOSSES (ABSENCE OF INSURANCE MAY AFFECT PROGRAM'S
RETURN). There are certain types of losses (generally of a catastrophic nature)
which may be either uninsurable or not economically insurable. Such risks may
include, without limitation, wars, civil insurrections, earthquakes and floods.
Any uninsured losses may result in a loss to the Program. Subject to the
foregoing, the Program will either arrange comprehensive insurance, or require
lessees or borrowers to arrange comprehensive insurance, including casualty,
liability, fire and extended coverage, which is customarily obtained for assets
similar to the Equipment and other Program Property owned by the Program. In
certain instances, the Program may permit lessees or borrowers to be
self-insured.
13. ADDITIONAL LENDING CONSIDERATIONS (CERTAIN LAWS MAY AFFECT
PROGRAM'S RIGHTS AS LENDER). In addition to the general credit risks to which
the Program may be subject as a lender (see "Credit and Collection Risks"
above), other risks may arise from lending activities, including potential usury
and lender liability.
16
<PAGE>
POTENTIAL USURY. Potential usury may pose a risk to the
Program. Some courts have held that certain loan features (E.G., warrants,
equity participations, etc.) constitute additional interest. Any such finding
could result in a Program loan with such features being declared usurious and
all or a portion of the interest owed to the Program being declared void.
LENDER LIABILITY. Theories of lender liability may pose a risk
to the Program. Various common law and statutory theories have been advanced to
hold lenders liable to their borrowers. The general theory for this liability
is that lenders have an underlying duty to their borrowers, regardless of the
terms of the loan agreements, and breach of that duty may constitute a
successful cause of action for damages. Although the General Partner intends to
act in good faith with respect to the Program's borrowers and in a manner to
mitigate potential lender liability with respect to the Program's lending
activities, this area of law is rapidly changing. As a result, certain
positions taken by the Program with respect to loans made by it could be found,
given the facts and circumstances, to result in liability.
RISKS ASSOCIATED WITH AN INVESTMENT IN THE PROGRAM
1. TRANSFERABILITY OF UNITS; LACK OF A PUBLIC MARKET (AN INVESTMENT
IN THE PROGRAM IS NOT READILY TRANSFERABLE). Limited Partners may not be able
to liquidate their investment in the event of an emergency or for any other
reason, and Units may not be readily acceptable as collateral for a loan. Units
may only be transferred after certain requirements are satisfied, and
transferees may become Limited Partners only with the consent of the General
Partner, which consent may be granted or withheld at its sole discretion. See
"Summary of Amended and Restated Agreement of Limited Partnership -- Limited
Transferability of Units." Furthermore, certain states may require that resales
of Units by a Limited Partner to a resident of those states are permissible only
if the purchaser meets the suitability standards imposed by that state. No
market presently exists for Units and it is unlikely that any will develop.
Under certain circumstances, however, a Limited Partner may be able to redeem
all or a portion of such Limited Partner's Units, but such redemption right is
conditioned upon, among other things, the financial condition of the Program.
See "Cash Distributions and Redemptions."
2. FEDERAL INCOME TAX CONSEQUENCES AND APPROPRIATENESS FOR
QUALIFIED PLAN INVESTMENT (APPLICATION OF TAX LAWS MAY AFFECT AN INVESTOR'S
RETURN). Prospective investors in the Program should make an investment based
on economic rather than tax factors.
PARTNERSHIP STATUS. If the Program is not classified as a
partnership for federal income tax purposes, the Program's taxable income will
be taxable at applicable federal corporate tax rates and distributions to
investors will
17
<PAGE>
be taxable as dividends to the extent of earnings and profits. No rulings have
been sought from the Internal Revenue Service (the "Service") with respect to
the status of the Program as a partnership for federal income tax purposes or
any of the other tax matters discussed herein. See "Federal Income Tax
Consequences." The Program will rely on an opinion of counsel as to the status
of the Program as a partnership for federal income tax purposes and certain
other tax matters. The opinion of counsel is based on certain assumptions set
forth in the opinion. The opinion is not binding on the Service.
CHALLENGE TO TAX DEDUCTIONS. Audit adjustments by the Service
may affect both the timing and the amount of Program taxable income and loss,
and an audit of the Program's information returns for income tax purposes may
result in an audit of an investor's tax returns.
LIMITATION ON THE DEDUCTIONS OF LOSSES. Certain provisions of
the Code limit the allowance of the deduction to individuals, trusts, estates
and personal service corporations for losses attributable to "passive
activities." Tax losses from the Program, if any, will be subject to these
rules. Moreover, the portfolio income expected to be realized by the Program
is not considered to be passive income against which passive losses might be
offset. See "Federal Income Tax Consequences -- Limitations on Losses and
Credits from Passive Activities." In addition, other rules restricting
losses, such as the "at risk" limitations will apply. See "Federal Income
Tax Consequences -- At Risk Rules."
UNRELATED BUSINESS INCOME OF TAX-EXEMPT INVESTORS. Investors
that are entities exempt from regular federal income taxes, including Qualified
Plans, and certain charitable and other organizations described in Section
501(c) of the Code, are subject to an "unrelated business tax" on "unrelated
business taxable income." Such entities are required to file federal income tax
returns if they have gross unrelated business income in excess of $1,000 per
year. Program leasing income and certain other Program income will generally
constitute unrelated business income taxable to such entities. See "Federal
Income Tax Consequences -- Investment by Qualified Plans."
APPROPRIATENESS FOR QUALIFIED PLAN INVESTMENT. Under certain
circumstances, an investment in Units may not be an appropriate investment for
Qualified Plans. Fiduciaries of Qualified Plans in consultation with their
advisers, should carefully consider: (1) whether an investment in Units is
consistent with their fiduciary responsibilities; (2) the effect of the possible
treatment of assets if the Program's underlying assets are treated as "plan
assets;" and (3) other factors discussed in greater detail under "Federal Income
Tax Consequences -- Investment by Qualified Plans."
18
<PAGE>
RE-ALLOCATION OF PROFITS AND LOSSES. The allocations of profits
and losses between the General Partner and the Limited Partners are summarized
under "Summary of Amended and Restated Agreement of Limited Partnership --
Allocation of Income and Loss; Distributions to Partners." These allocations
might be successfully challenged by the Service unless they have substantial
economic effect or are made in accordance with the "interests" of the Partners.
If such a challenge were upheld, taxable income and loss might be reallocated,
resulting in the Limited Partners being allocated increased taxable income or
less loss than is allocated to them under the Partnership Agreement. See
"Federal Income Tax Consequences -- Partnership Allocations."
AVAILABILITY OF COST RECOVERY DEDUCTIONS. The Program and joint
ventures in which it invests will be entitled to cost recovery, depreciation or
amortization deductions with respect to their properties only if they are
considered to be the equitable owners of the properties for federal income tax
purposes. The determination of who is the equitable owner is based on many
factors. If the Program were not deemed to be the equitable owner of its
properties, it would not be entitled to cost recovery, depreciation or
amortization deductions and the character of Program leasing income might be
deemed to be non-passive. See "Federal Income Tax Consequences -- Cost Recovery
Deductions -- Equitable Owner of Properties" and "-- Limitations on Losses and
Credits From Passive Activities."
3. INABILITY OF LIMITED PARTNERS TO PARTICIPATE IN PROGRAM
MANAGEMENT (GENERALLY INVESTORS WILL HAVE NO RIGHT TO PARTICIPATE IN PROGRAM
MANAGEMENT). The Limited Partners will not have a right to participate in the
management of the business of the Program. See "Summary of Amended and Restated
Agreement of Limited Partnership." However, the consent of Limited Partners
holding a majority of the Units is required (1) to amend the Partnership
Agreement (subject to certain limited exceptions), (2) to approve or disapprove
the sale of all or substantially all of the assets of the Program prior to seven
years after the close of the offering of the Units, (3) to dissolve the Program,
(4) to remove the General Partner, (5) to elect a substitute General Partner and
(6) to continue the Program under certain circumstances. Such consent is not
granted by the Limited Partners under the power of attorney they will provide
upon joining the Program. In addition, the Program may not engage in a Roll-Up
Transaction without approval of 66-2/3% in interest of the Limited Partners.
Also, Limited Partners holding ten percent or more of the Units have the right
to call meetings of the Program and propose amendments of the Partnership
Agreement. See "Summary of Amended and Restated Agreement of Limited
Partnership." In this regard, Limited Partners holding more than 50% (or
66-2/3% in the case of a Roll-Up Transaction) of the Units may by a vote
substantially change the nature of an investment in the Program through an
amendment to the Partnership Agreement, merger of the Program with another
entity or otherwise. If the aforementioned
19
<PAGE>
rights were exercised and if the laws of certain states other than California
were to apply, an argument could be made that the Limited Partners may have been
deemed to have exercised control over the Program and thereby incurred personal
liability for the debts of the Program as general partners.
20
<PAGE>
SUMMARY OF PRIOR PARTNERSHIPS' PERFORMANCE
AS OF JUNE 30, 1996
The following table summarizes certain information relating to the investments
and distributions of certain of the Prior Partnerships. See "Prior
Partnerships" and Schedules A through F set forth in Exhibit B to this
Prospectus for more complete information as to the uses of proceeds and result
of operations for certain of the Prior Partnerships.
Information in this table should not be considered as indicative of the possible
capitalization, acquisition of equipment, operations or distributions of the
Program. By investing in the Units offered by this Prospectus, Limited Partners
will not acquire any ownership interest in any of the Prior Partnerships.
<TABLE>
<CAPTION>
DATE NUMBER OF INITIAL PURCHASE
OFFERING OFFERING BENEFICIAL CAPITAL PRICE OF
PARTNERSHIP(1) DATE COMPLETED HOLDERS CONTRIBUTIONS ASSETS
- ----------- ---- --------- ------- ------------- ------
<S> <C> <C> <C> <C> <C>
Phoenix Leasing Cash Distribution Fund II. . . . . . 11/20/86 2/4/88 9,172 $ 96,577,000 $ 175,590,006
Phoenix Leasing Cash Distribution Fund III . . . . . 1/5/88 12/31/90 12,925 132,037,750 219,986,420
Phoenix Leasing Cash Distribution Fund IV. . . . . . 12/27/89 12/27/91 8,473 129,847,540 265,461,356
Phoenix Income Fund, L.P.. . . . . . . . . . . . . . 1/18/91 7/28/92 3,881 43,821,250 90,185,673
Phoenix Leasing Cash Distribution Fund V, L.P. . . . 11/4/91 10/28/93 2,435 40,916,760 83,916,698
Phoenix Leasing American Business Fund, L.P. . . . . 10/19/93 (2) 1,446 27,824,500 45,553,819
----- ---------- ----------
38,332 $ 471,024,800 $ 880,693,972
------ -------------- --------------
------ -------------- --------------
</TABLE>
- ------------------
(1) Eighteen Prior Partnerships have been officially terminated, and seven
additional Prior Partnerships whose offerings were completed prior to
1988, or which have different investment objectives than the Program,
continue in operation. The terminated Prior Partnerships not included
in the above table raised an aggregate of $182,775,497 in capital from
22,930 investors and purchased an aggregate of $459,159,167 of assets.
The continuing Prior Partnerships not reflected on the above table
raised an aggregate of $287,697,450 from 42,886 investors and, as of
June 30, 1996, had purchased an aggregate of $582,976,350 of assets.
(2) Phoenix Leasing American Business Fund, L.P. had not completed its
offering as of June 30, 1996.
21
<PAGE>
SUMMARY OF PRIOR PARTNERSHIPS' PERFORMANCE (CONTINUED)
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
TOTAL CASH
DISTRIBUTIONS TO
LIMITED PARTNERS
TOTAL CASH TOTAL CASH CONSIDERED A TOTAL CASH
DISTRIBUTIONS TO DISTRIBUTIONS TO RETURN OF DISTRIBUTIONS
LIMITED PARTNERS PER LIMITED INITIAL CAPITAL TO GENERAL
PARTNERSHIP $1,000 INVESTED PARTNERS(2) CONTRIBUTIONS PARTNER(3)
- ----------- --------------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Phoenix Leasing Cash Distribution Fund II. . . . . . $ 837.95 $ 80,926,739 $ 80,926,739 $ 2,818,662
Phoenix Leasing Cash Distribution Fund III . . . . . 753.73 99,520,417 99,520,417 2,052,581
Phoenix Leasing Cash Distribution Fund IV(1) . . . . 636.94 82,704,573 82,704,573 4,177,112
Phoenix Income Fund, L.P.(1) . . . . . . . . . . . . 609.45 26,706,661 26,706,661 1,374,329
Phoenix Leasing Cash Distribution Fund V, L.P.(1). . 375.04 15,345,297 15,345,297 430,318
Phoenix Leasing American Business Fund, L.P.(1). . . 165.98 4,618,411 4,618,411 171,745
--------- --------- ------
$ 309,822,098 $ 309,822,098 $ 11,024,747
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
- ----------------
(1) These Prior Partnerships are expected to continue to purchase
significant amounts of assets.
(2) Included in "Total Cash Distributions to Limited Partners" are cash
redemptions paid to limited partners. The cumulative cash redemptions
paid to limited partners as of June 30, 1996 are as follows:
Phoenix Leasing Cash Distribution Fund II $723,629; Phoenix Leasing Cash
Distribution Fund III $1,341,170; Phoenix Leasing Cash Distribution Fund
IV $2,000,234; Phoenix Income Fund, L.P. $594,411; Phoenix Leasing Cash
Distribution Fund V, L.P. $949,075; and Phoenix Leasing American
Business Fund, L.P. $123,095.
(3) In addition to cash distributions, the general partner also receives
acquisition and management fees. For detailed information regarding
the amounts of these payments, see "Schedule E -- Compensation Paid and
Accrued to General Partners of Certain Prior Partnerships" commencing
on page B-25.
22
<PAGE>
USE OF PROCEEDS
The following table sets forth certain information concerning the use of
the gross proceeds of the offering of Units being made hereby. The Program will
use the net proceeds from the offering of Units to invest in capital equipment
and other assets, and provide leasing and secured financing of the same to third
parties, on either a long-term or short-term basis. See "Investment Objectives
and Policies." The amount available for investment (estimated to be 80.77% of
the gross offering proceeds if the minimum offering amount is sold and 82.69% of
the gross offering proceeds if the maximum offering amount is sold) is computed
after deducting from the gross offering proceeds the public offering expenses
(estimated to be 15% of the gross offering proceeds if the minimum offering
amount is sold and 13% of the gross offering proceeds if the maximum offering
amount is sold) and the acquisition fees payable to the General Partner
(estimated to be 3.23% of the gross offering proceeds if the minimum offering
amount is sold and 3.31% of the gross offering proceeds if the maximum offering
amount is sold).
<TABLE>
<CAPTION>
Minimum Maximum
------------------------------------ -------------------------------------
Percentage of Percentage of
Gross Offering Gross Offering
Anticipated Use Amount(1) Proceeds Amount(1) Proceeds
- --------------- ------ -------- ------ --------
<S> <C> <C> <C> <C>
Gross Offering Proceeds $ 1,200,000 100.00% $ 50,000,000 100.00%
Public Offering Expenses:
Organizational and Offering Expenses
charged to the Program (2) 60,000 5.00 1,500,000 3.00
Underwriting Commissions to Unaffiliated
Broker-Dealers
Sales Commissions(3) 96,000 8.00 4,000,000 8.00
Wholesaling Expenses(4) 24,000 2.00 1,000,000 2.00
------ ---- --------- ----
Net Offering Proceeds 1,020,000 85.00% 43,500,000 87.00%
Reserves(5) 12,000 1.00 500,000 1.00
Acquisition Fee (4% of Purchase Price or
Financing Amount of Program Property)
Payable to the General Partner(6) 38,769 3.23 1,653,846 3.31
------ ---- --------- ----
Amount Available for Investment(7)(8) $ 969,231 80.77% $ 41,346,154 82.69%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
(FOOTNOTES ARE ON FOLLOWING PAGE)
23
<PAGE>
(Footnotes for table on preceding page)
(1) The figures set forth above are estimated, cannot be precisely
calculated at the present time, and, consequently, should not be relied
upon as being definitive.
(2) Consists of estimated fees and expenses incurred in connection with the
organization and formation of the Program, registration and
qualification fees and estimated legal and accounting fees, printing
expenses, advertising expenses, General Partner seminar costs, escrow
fees and disbursements, and reimbursement for accountable due diligence
expenses made in connection with the sale and distribution of the Units.
Such expenses, when added to the sales commissions payable to
broker-dealer's may not exceed 15% of the gross offering proceeds. Any
expenses in excess of the 15% limitation will be paid by the General
Partner.
(3) Consists of sales commissions payable to unaffiliated broker-dealers.
See "Plan of Distribution."
(4) Consists of wholesaling fees and expenses payable to Phoenix Securities,
Inc., an affiliate of the General Partner. See "Compensation, Fees and
Interest of General Partner."
(5) The Program will maintain working capital reserves in an amount which
will fluctuate from time to time depending upon the needs of the
Program, but which will be at least one percent of the gross offering
proceeds during the Program's operational phase.
(6) Consists of Acquisition Fees payable to the General Partner and
Affiliates related to assets acquired through the use of net offering
proceeds and leverage. See "Compensation, Fees and Interest of General
Partner" and "Investment Objectives and Policies -- Borrowing Policies."
(7) In addition, the Program may borrow funds to provide additional amounts
available for investment. By the end of the Program's offering period
and thereafter during the life of the Program, the aggregate amount of
outstanding debt may not exceed 45% of the purchase price of the assets
directly acquired by the Program. However, there are requirements
imposed on the Program regarding the minimum amount of Capital
Contributions which must be invested in Program Property. See
"Investment Objectives and Policies -- Borrowing Policies." The effect
of such leverage (if fully utilized) for the minimum and maximum
offering amounts is to provide amounts available for investment by the
Program of approximately $1,708,475 and $72,881,356, respectively, and
Acquisition Fees payable to the General Partner of approximately $68,339
and $2,915,254, respectively. The Program may further increase the
effect of leverage by investing in LJVs, although as of the date of this
Prospectus, the Program had not made any such investments. Investments
in LJVs may not exceed, after the close of the offering and any time
thereafter, five percent of the Program's Net Capital
Contributions, and the amount of
24
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
LJV debt may not exceed, after the close of the offering and any time
thereafter, 35% of the Program's Net Capital Contributions. See
"Investment Objectives and Policies -- Borrowing Policies." The
effect of fully utilized LJV investments for the minimum and maximum
offering amounts is to increase the amounts available for investment by
the Program to approximately $2,014,342 and $85,925,684, respectively,
and the Acquisition Fees payable to the General Partner to approximately
$80,574 and $3,437,027, respectively.
(8) The General Partner intends to use the amount available for investment
to acquire or finance the types of assets described in "Investment
Objectives and Policies." The investment criteria that the General
Partner will employ will remain the same regardless of the amount of
Units sold. The Prospectus will be supplemented quarterly to reflect
acquisitions of Equipment and other Program Property, and financings
provided to third parties.
25
<PAGE>
SUMMARY OF RELATIONSHIPS
--------------------
--- Phoenix American ---
| Incorporated |
(1) | -------------------- | (1)
| |
-------------------- ------------------------
Phoenix Leasing Phoenix Securities, Inc.
Incorporated
(PLI)
-------------------- ------------------------
. | ||
. (3) | (1) ||
. | ||
----------------- ------------------- ||
31 Prior Phoenix Leasing ||
Phoenix Sponsored Associates IV, Inc. ||
Partnerships* ||
----------------- ------------------- ||
. ||
. (3) ||
. || (2)
------------------- ||
Phoenix Leasing ||
Associates IV, L.P. ||
(General Partner) ||
------------------- ||
. ||
. (3) ||
. ||
------------------------------- ||
Phoenix Leasing ||
American Business Fund II, L.P.---------||
(the Program) -----------
-------------------------------
- ----- (1) Denotes Subsidiary * Three of such partnerships
had as General Partner a
- ----- (2) Denotes Wholesaling Services affiliates of Phoenix Leasing
- ----- Incorporated
..... (3) Denotes General Partner Interest
26
<PAGE>
COMPENSATION, FEES AND INTEREST OF GENERAL PARTNER
Certain fees described below will be paid to the General Partner and its
Affiliates by the Program, and the General Partner will receive an interest in
the Program as set forth below. The General Partner and its Affiliates will be
reimbursed for any expenses incurred by them in the name, or on behalf, of the
Program or in such manner that such expenses shall appear in the books and
records of the Program as expenses of the Program. Any reimbursement for
administrative services shall be charged at the lesser of the cost of such
services or 90% of the competitive rates for providing similar services,
subject, in the case of certain general and administrative expenses, to the
limitation on expense reimbursement contained in Section 7.1 of the Partnership
Agreement. Expenses incurred in the name, or on behalf, of the Program or on
its books and records will be only those actually and necessarily incurred in
connection with the offering of the Units, the acquisition and operation of the
Program's properties, and the operation of the business of the Program. Subject
to the supervision of the General Partner, PLI will provide management services
in connection with the operation and administration of the Program. As an
Affiliate of the General Partner, PLI will be reimbursed by the Program for any
expenses incurred, subject to the same limitations on expense reimbursement as
the General Partner. In addition, a significant portion of the General
Partner's compensation and distributions will be paid to PLI by the General
Partner.
THE GENERAL PARTNER WILL ONLY RECEIVE COMPENSATION, FEES AND AN INTEREST IN THE
PROGRAM (NONE OF WHICH HAS BEEN DETERMINED AS A RESULT OF ARM'S-LENGTH
NEGOTIATIONS) AS FOLLOWS:
Name of Entity
Receiving Compensation
or Interest and Form of
Compensation or Interest Amount of Compensation or Interest
- ------------------------ ----------------------------------
Organizational and Offering Stages
- ----------------------------------
Phoenix Securities, Inc. Phoenix Securities, Inc., an Affiliate
Wholesaling Compensation of the General Partner, employs certain
persons who will receive certain
compensation for wholesaling activities
performed in connection with the
offering of the Units through
broker-dealers. The amount of such
compensation will not exceed two percent
of the Capital Contributions. It is
estimated that up to $24,000 and
27
<PAGE>
Name of Entity
Receiving Compensation
or Interest and Form of
Compensation or Interest Amount of Compensation or Interest
- ------------------------ ----------------------------------
$1,000,000 will be paid to Phoenix
Securities, Inc. if the minimum and
maximum amounts of Units are sold,
respectively. This represents $0.40 per
Unit.
General Partner The General Partner will be reimbursed
Reimbursement of Organizational by the Program for all Organizational
and Offering Expenses and Offering Expenses that it incurs on
behalf of the Program. As of July 31,
1996, reimburseable expenses incurred
by the General Partner were approximately
$77,845. Such reimbursable expenses will
be limited to $60,000 ($1.00 per Unit)
and are anticipated to be $1,500,000
($.60 per Unit) if the minimum and
maximum amounts of Units are sold,
respectively. The reimbursement is
subject to the limitation that the
maximum amount of all Organizational and
Offering Expenses (which also include
sales commissions paid by the Program
to affiliated and unaffiliated broker-
dealers) may not exceed 15% of the gross
offering proceeds. See "Use of
Proceeds." To the extent that any
Organizational and Offering Expenses
exceed 15% of the gross offering
proceeds, the General Partner will pay
the amount of such excess.
OPERATIONAL STAGE
- -----------------
General Partner The General Partner will be compensated
Acquisition Fee for services performed in connection
with the analysis of assets available to
the Program, the selection of such
assets and the acquisition or financing
thereof, including obtaining lessees for
the equipment, and the continuing
analysis of the overall portfolio of
the assets of the
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<PAGE>
Name of Entity
Receiving Compensation
or Interest and Form of
Compensation or Interest Amount of Compensation or Interest
- ------------------------ ----------------------------------
Program. As compensation for such
acquisition services, the General
Partner will receive a fee equal to four
percent of (a) the purchase price of
equipment and other assets acquired by
the Program, or (b) financing provided
to businesses, payable upon such
acquisition or financing, as the case
may by. It is estimated that the General
Partner will receive Acquisition Fees of
approximately $38,769 if the minimum
offering amount of Units is sold and
approximately $1,653,846 if the maximum
offering amount of Units is sold. Such
amounts do not include the estimated
effect of Program borrowings, which
would increase the amount of assets to
be acquired by the Program. The effect
of such leverage (if fully utilized) for
the minimum and maximum offering amounts
is to provide Acquisition Fees payable
to the General Partner of approximately
$68,339 and $2,915,254, respectively.
The Program may further increase the
effect of leverage by investing in LJVs.
The effect of fully utilized LJV
investments for the minimum and maximum
offering amounts is to increase the
Acquisition Fees payable to the General
Partner to approximately $80,574 and
$3,437,027, respectively. It is not
possible to estimate the amount of the
Acquisition Fee that the General Partner
will receive in connection with
reinvestment activities.
29
<PAGE>
Name of Entity
Receiving Compensation
or Interest and Form of
Compensation or Interest Amount of Compensation or Interest
- ------------------------ ----------------------------------
General Partner The General Partner will be compensated
Management Fee for services performed in connection
with, among other things, managing the
operations of the Program. As
compensation for the management services
it performs, the General Partner will
receive a fee payable monthly in an
amount equal to two percent of the
Program's gross revenues, which revenues
shall include rental receipts, proceeds
from the sale of equipment and other
assets, loan payments and other revenues
(other than interest income from
short-term, temporary investments). In
the event that the Program does not
generate sufficient cash from operations
to pay such Management Fee or, even if
it does, at the discretion of the
General Partner, such fee will be
accrued as a non-interest bearing debt
of the Program payable out of future
revenues. It is not possible to
estimate the total amount of the
Management Fee that the General Partner
will receive.
General Partner As discussed in the introductory
Reimbursement of paragraph to this Section, the General
Operational Expenses Partner or its Affiliates will be
reimbursed for certain expenses incurred
by them in the name, or on behalf, of
the Program. Any reimbursement for
administrative services will be charged
at the lesser of the cost of such
services or 90% of the competitive rates
for providing similar services. The
Partnership Agreement provides for
limitations on the reimbursement of
certain recurring operational expenses
(excluding acquisition expenses,
organizational and offering expenses and
expenses arising from or relating to
asset management).
30
<PAGE>
Name of Entity
Receiving Compensation
or Interest and Form of
Compensation or Interest Amount of Compensation or Interest
- ------------------------ ----------------------------------
Such expenses will not be reimbursed to
the extent they exceed, on a cumulative
basis, the greater of (i) three and
one-half percent of the Program's gross
revenues, or (ii) the sum of $50,000
plus one-quarter of one percent of
Capital Contributions per year. It is
not possible to estimate any future
amount or the total amount of the
reimbursements that the General Partner
will receive.
General Partner Until the Limited Partners have received
Interest in Distributions cumulative cash distributions equal to
the greater of (a) 177% of the Limited
Partners' Capital Contributions, or (b)
100% of the Limited Partners' Capital
Contributions plus an 11% annual return
compounded quarterly, on their adjusted
Capital Contributions (such greater
amount is hereafter referred to as the
"Priority Return"), Cash Available for
Distribution generally will be
distributed 96% to the Limited Partners
and four percent to the General Partner.
Thereafter Cash Available for
Distribution will be distributed 85% to
the Limited Partners and 15% to the
General Partner. The phrase "cumulative
cash distributions," as used in the
first sentence of this paragraph, is
the total of all cash received by the
Limited Partners from operations of the
Program as of any time of calculation.
The Priority Return is used to determine
the sharing relationship between the
Limited Partners and the General Partner
in connection with distributions to the
Partners; the establishment of the
amount of the Priority Return is not
necessarily indicative of the potential
return to an investor, which depends
upon the results of the Program's
activities. The successful operation of
the Program is subject to various risks.
See "Risk Factors."
31
<PAGE>
Name of Entity
Receiving Compensation
or Interest and Form of
Compensation or Interest Amount of Compensation or Interest
- ------------------------ ----------------------------------
During the period beginning on the date
of admission of a Limited Partner to the
Program and ending seven years after the
end of the calendar quarter that
includes such admission date (the
"Subordination Period"), the General
Partner's interest in Cash Available for
Distribution is subordinated in each
calendar quarter to a Limited Partner
receiving a quarterly distribution equal
to 2.75% of such Limited Partner's
Capital Contribution. Any amounts that
would be distributable to the General
Partner, but are otherwise subordinated,
will be distributed to the General
Partner as a special distribution of
Cash Available for Distribution, at such
time as a Limited Partner has received
cumulative distributions equal to the
product of (a) 2.75% of such Limited
Partner's Capital Contribution and (b)
the number of calendar quarters
(prorated for any partial period) up to
but not including 29 that the Units were
issued and outstanding. In addition,
since Limited Partners will be admitted
to the Program on different dates, the
Subordination Period will have a
different reference in relation to each
Limited Partner.
On liquidation, the General Partner
generally will be entitled to receive
distributions equal to any positive
balance in its Capital Account. If the
General Partner has a deficit balance in
its Capital Account at such time, it
will be required to contribute the
amount of such deficit to the Program.
The General Partner will also be
allocated gross rental and interest
income in amounts equal to the
distributions that it
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<PAGE>
receives from the Program and one
percent of all Profits and Losses. It
is not possible to estimate any future
amount or the total amount of Cash
Available for Distribution that the
General Partner will receive.
CONFLICTS OF INTEREST
The Program is subject to various conflicts of interest arising out of
its relationship with the General Partner and Affiliates of the General Partner.
However, nothing herein affects the general fiduciary obligations that the
General Partner and its Affiliates have to the Program. These conflicts involve
the following:
1. USE OF PERSONNEL. PLI and its Affiliates serve or have served
as a general partner in 31 other partnerships, all of which are or were engaged
in the leasing and financing business. Eighteen of the Prior Partnerships have
completed their terms and liquidated their portfolios. See "Prior
Partnerships." PLI, acting on behalf of the General Partner, will have
conflicts of interest in allocating management, time, services and functions
among the various active Prior Partnerships, the Program and any future
partnerships and other entities that may be organized. The General Partner and
PLI believe that they have or can employ sufficient staff, equipment or other
resources to be fully capable of discharging their responsibilities to the
Program and to each such partnership and other entity.
2. COMPETITION WITH OTHER PARTNERSHIPS FOR INVESTMENTS. The
General Partner will have conflicts of interest to the extent the various
affiliated partnerships may compete for opportunities in the acquisition and
leasing of equipment and loan financings. Currently, thirteen Prior
Partnerships and an Affiliate of the General Partner may have funds available to
purchase equipment or pursue financing opportunities, of which four of these
Prior Partnerships and the Affiliate of the General Partner are expected to
acquire significant amounts of additional assets. Certain of the assets to be
acquired by such Prior Partnerships and the Program will be substantially
identical and may be leased and financed to the same customers. The General
Partner or its Affiliates may in the future form additional partnerships or
other entities having similar objectives, and accordingly, the Program will
generally be in competition with all prior and future partnerships formed by the
General Partner or its Affiliates.
If more than one partnership affiliated with the General Partner
or PLI has funds available at the same time to purchase the same equipment or
pursue the same financing opportunities, then conflicts of interest might arise
as to which of the partnerships should proceed to purchase such equipment or
provide
33
<PAGE>
such financing. In such situations, the General Partner or its Affiliates will
analyze the assets already acquired and investment objectives of each
partnership involved, and will make the decision as to which partnership will
purchase the equipment or render the financing based upon such factors, among
others, as (a) the amount of cash available in each partnership for such
acquisition and the length of time such funds have been available, (b) the
current and long-term liabilities of each partnership, (c) the cash distribution
objectives of each partnership, and (d) the effect of such acquisition on the
diversification of each partnership's asset portfolio. The General Partner or
its Affiliates intend, whenever practicable, to give priority to newly-offered
partnerships in allocating available equipment and financing opportunities,
since such partnerships will have the greatest amount of uninvested funds, and
therefore, the greatest investment requirements. If, after analyzing the
foregoing and any other appropriate factors, the General Partner determines that
such acquisition would be equally suitable for more than one partnership, then
the General Partner and its Affiliates will purchase such equipment or pursue
such financing for the partnerships on a pro rata allocation method on the basis
of rotation with the order of priority determined by the date of each such
partnership formation. As of August 30, 1996, the thirteen Prior Partnerships
had funds aggregating approximately $10,783,000 available for investments. See
"Investment Objectives and Policies." To date, the General Partner and its
Affiliates have not encountered any material conflicts between the interests of
a newly-formed partnership and those of any Prior Partnership or among any of
the Prior Partnerships.
In addition, conflicts could arise as to the selection of
particular assets for a partnership. To minimize this conflict and decrease
reliance on the financial strength of any group of customers, or investments in
any one specific manufacturer's model of equipment, when the Program is fully
funded, the Program intends to limit certain of its investments in Equipment and
other Program Property, as described herein. As of and following the end of the
offering period, assuming the maximum amount of net proceeds is raised and
leverage (including LJV leverage) is fully utilized, and further assuming
cumulative reinvestments as of the time of any computation hereunder (such
aggregate amount is referred to herein as the "cumulative proceeds available for
investment"), the Program will have the following investment goals: (i) new
investments in Equipment or other Program Property leased to or financed for any
one Program customer (I.E., lessee or borrower), when added to existing
portfolio investments leased to or financed for such Program customer, will not
exceed five percent of the cumulative proceeds available for investment; (ii)
new investments in any one model of equipment, from any one manufacturer, when
added to existing portfolio investments in such specific manufacturer's model of
equipment, will not exceed ten percent of the cumulative proceeds available for
investment; and (iii) new investments in any one manufacturer of equipment, when
added to existing portfolio investments in such manufacturer's equipment, will
not exceed fifteen
34
<PAGE>
percent of the cumulative proceeds available for investment. If, however,
among other factors, the maximum amount of net proceeds is not raised, the
maximum leverage (including LJV leverage) is not utilized or adequate
alternatives for investment are not available, then there is no assurance
that these goals will be attained.
A conflict also could arise if the Program and the other
partnerships are in the process of remarketing equipment held for sale or re-
lease. The General Partner believes this type of conflict is not likely to
become a material problem since the Program will lease equipment primarily
subject to Full Payout Leases or loans and will have a significant concentration
in franchise business which typically have a fixed purchase option. Assets in
such categories do not present a significant need for remarketing in order to
realize a return on the investments in such assets, unless there is a bankruptcy
of the user. In addition, various types of equipment will become available for
remarketing at different times and remarketing efforts would be directed to find
another lessee or purchaser who had a need for such type of equipment. However,
if a larger amount of equipment were to become available for remarketing at the
same time, any conflict that might arise would be resolved by the General
Partner using the length of time that such equipment was held pending sale or
re-lease.
The General Partner believes that it is in the best interests of
the Program to have a balanced and diversified portfolio of assets. The General
Partner and its Affiliates intend to allocate available assets among the
Program, other partnerships and Affiliates with a view to diversifying the type
of assets purchased and financed by the Program, and the various business
segments with which the Program will enter into leasing and other financing
transactions. In this way, it is the General Partner's intent that the Program
will not be unduly dependent on the continued economic strength or product
viability of a particular customer, or any particular product. Affiliates of
the General Partner have done consistent business with lessees and other
customers, from or to whom the Program may buy or lease equipment or with whom
the Program may pursue financing opportunities, and have purchased equipment
manufactured by certain companies with which the Program may contract. For a
description of the business segments and types of equipment in which the Program
intends to conduct business and to invest, see "Investment Objectives and
Policies -- Business Segments" and "-- Types of Assets."
3. PARTICIPATION IN JOINT VENTURE ARRANGEMENTS. The Program may,
at the sole discretion of the General Partner, enter into various joint venture
arrangements (on both leveraged and unleveraged bases), including joint ventures
with other partnerships sponsored by the General Partner or its Affiliates
(including certain of the Prior Partnerships) and other entities that the
General Partner deems desirable (excluding the General Partner and certain of
its
35
<PAGE>
Affiliates). The General Partner and its Affiliates may have a conflict of
interest in determining which partnerships or other entities enter into any
particular venture arrangement. In addition, although there will not be any
duplication of fees to the General Partner or its Affiliates by virtue of its or
their activities in connection with the formation and management of any venture,
or its or their participation in any such arrangement, the timing and amount of
certain fees may be different if assets are acquired or financed through a
venture rather than directly by the Program.
4. OWNERSHIP OF GENERAL PARTNER INTEREST. The General Partner has
an interest in Program profits, losses, distributions and liquidation proceeds.
Affiliates of the General Partner have acquired in the past, and the General
Partner and such Affiliates may also acquire in the future, interests in other
partnerships with which they are affiliated. Conflicts of interest may arise in
the course of operations of the Program as a result of such ownership of
interests. Interests acquired by the General Partner will be held for
investment and not for resale.
5. DISTRIBUTION OF UNITS. No independent underwriter has been
engaged for the distribution of the Units. Therefore, the value of the Units
has not been determined as a result of arm's-length negotiations, and the terms
of the offering have not been negotiated in the same manner as if an independent
underwriter were involved. In addition, since the Program only recently
commenced operations, the value of the Units has been arbitrarily established
without reference to such factors as prior earnings or book value.
6. TRANSACTIONS BY CERTAIN PERSONS. With a view to avoiding
certain conflicts of interest that might otherwise arise in the operation of the
Program, the Partnership Agreement provides that the Program may not purchase
(except as described above in the section entitled "Participation in Joint
Venture Arrangements"), finance or lease, directly or indirectly, properties or
assets, real or personal, in which the General Partner or any Affiliate thereof,
or any partner, officer or director of any of them, either currently has, or in
the past has had, an interest. Under certain circumstances, however, assets may
be acquired by the General Partner or its Affiliates and subsequently
transferred to the Program. In the case of leased equipment and assets
financed, the Program will pay to the General Partner or its Affiliates the
purchase price paid by the General Partner or its Affiliates plus their carrying
costs (I.E., taxes, insurance, maintenance, interest) during the time the
General Partner or its Affiliates held such equipment or assets less any rental
or other payments received by the General Partner or its Affiliates during such
period. The General Partner will receive its Acquisition Fee upon the Program's
acquisition of such equipment or assets. See "Compensation, Fees and Interest
of General Partner." Further, under certain limited circumstances, the Program
may sell assets to the General Partner or its Affiliates in order to effect a
liquidation of the Program. The purchase price of assets, which are subject to
the
36
<PAGE>
limitations contained in Section 9.5.3 of the Partnership Agreement, will be at
least equal to the average of two independent appraisals. This provision is
designed to ensure that there is a purchaser available for all of the Program's
assets at the end of the Program's term. In addition, the General Partner and
its Affiliates are not restricted from acquiring assets and engaging in leasing
and financing activities, which may be in competition with the Program; however,
the Limited Partners will not participate in any such activities, nor in any
income or profits derived therefrom, as a result of their investment in the
Program. Nonetheless, the General Partner and its Affiliates have a fiduciary
duty to the Program with respect to opportunities that are suitable to the
Program. See "Fiduciary Responsibilities of the General Partner."
7. LACK OF SEPARATE REPRESENTATION. The Program, the General
Partner and prospective Limited Partners have not been represented by separate
counsel in connection with the formation of the Program, the drafting of the
Partnership Agreement, or the offering of the Units. The attorneys, accountants
and other experts who perform services for the Program also perform similar
services for Affiliates of the Program, and it is contemplated that such dual
representation will continue in the future. However, should a dispute arise
between the Program and the General Partner, the General Partner will cause the
Program to retain separate counsel in connection with such matters.
8. DETERMINATION OF CASH AVAILABLE FOR DISTRIBUTION. The Program's
annual cash flow will be used to acquire additional assets during the second and
subsequent years of the Program's term, but only after payment of expenses,
including debt service requirements, and cash distributions to Limited Partners,
at a minimum, sufficient to pay Limited Partner tax liabilities created by the
sale or refinancing of Equipment and other Program Property. The determination
of the amount of Cash Available for Distribution is subject to, among other
things, the General Partner's establishment of reserves for the operation of the
Program and arrangements for additional Program financings and purchases of
Equipment and other Program Property. See "Cash Distributions and Redemptions."
FIDUCIARY RESPONSIBILITIES OF THE GENERAL PARTNER
Under California law, the General Partner is accountable to the Limited
Partners and the Program as a fiduciary and consequently must exercise good
faith and integrity in handling the Program's affairs. The parameters of the
fiduciary duty of general partners to limited partners under California law have
not been extensively litigated in the California court system; however, the main
elements of the fiduciary duty are good faith, care, fairness and loyalty, as
well as a duty to render full and adequate disclosure of all facts affecting the
rights or interests of
37
<PAGE>
limited partners. Except for certain activities provided for in Section 7 of
the Partnership Agreement relating to certain expense reimbursements made to the
General Partner, and Section 9 of the Partnership Agreement relating to certain
permitted transactions with Affiliates, the Partnership Agreement does not
attempt to modify the General Partner's fiduciary duties to the Program or its
Limited Partners. As described below, however, the Partnership Agreement
provides some indemnities to the General Partner under certain circumstances.
The provisions of Section 7 of the Partnership Agreement allow the
General Partner to provide certain services to the Program, so long as such
services are provided at a price less than would be charged by independent third
parties. The benefits to the Limited Partners are that (i) the Limited Partners
are getting the expertise of the General Partner, (ii) the work is being
performed under the control of the General Partner and (iii) there is in-house
quality assurance with respect to those services. There is no material economic
benefit to the General Partner for providing such services, although
well-serviced programs enhance the General Partner's reputation in the
investment community.
The provisions in Section 9 of the Partnership Agreement with respect to
dealings with the General Partner fall into two categories: (1) purchases by
the General Partner of property for the Program; and (2) purchases by the
General Partner of property from the Program.
In the first case under Section 9, the General Partner is permitted to
acquire property for re-sale to the Program. The re-sale is effected with no
mark-up. The General Partner can sell the property to the Program for its cost
plus carrying costs (I.E., taxes, insurance, maintenance, interest), less any
income that is received from the property. The purpose of this and the benefit
to the Limited Partners is to provide the Program with the ability to obtain
assets when the Program may not have the financial resources to purchase the
assets, thereby securing the best purchase terms then available. Because no
mark-up is permitted on the sale of property to the Program, there is no
material economic benefit to the General Partner.
In the second case under Section 9, at the end of the term of the
Program, the equipment may be sold to the General Partner in order to effect an
orderly liquidation if other methods of orderly liquidation cannot take place.
Such provisions require independent appraisals and other safeguards to obtain
the best value for the Program. The benefit to the Limited Partners is that the
Limited Partners may receive cash for assets which may continue on lease after
the expiration of the term of the Program. This permits Limited Partners to
avoid potential liability after the expiration of the term of the Program as
either tenants-in-common or general partners in connection with the ownership of
assets still
38
<PAGE>
under lease. There will likely be no material economic benefit to the General
Partner.
Under the California Revised Limited Partnership Act, a limited partner
may institute legal action on behalf of himself or herself and all other
similarly situated limited partners (a class action) to recover damages for a
breach by a general partner of its fiduciary duty, or on behalf of the
partnership (a partnership derivative action) to recover damages from third
parties. Some courts in jurisdictions outside California have permitted similar
class actions without the benefit of a specific statute. In defending against a
Limited Partner's claim for breach of fiduciary duty, the General Partner would
almost certainly assert a form of the so-called "business judgment rule" as a
defense. The "business judgment rule" is designed to insulate persons or
entities (such as the General Partner) against liability for actions reasonably
taken which later prove to be faulty.
In the context of the Program, absent self-interest on the part of the
General Partner, the "business judgment rule" would provide the General Partner
a complete defense if it could be established that the General Partner acted on
an informed basis, in good faith, and in the honest belief that the action taken
was in the best interests of the Program. If self-interest of the General
Partner were involved, then a transaction or decision would be reviewed for
fundamental fairness to the Program and/or the Limited Partners before assessing
liability to the General Partner.
The General Partner may not be liable to the Program or the Limited
Partners for errors in judgment or other acts or omissions not amounting to
negligence, misconduct or breach of fiduciary duty, since provision has been
made in the Partnership Agreement for indemnification of the General Partner.
Therefore, purchasers of the Units may have a more limited right of action than
they would have absent the limitation in the Partnership Agreement. IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, RELEASE OF LIABILITIES
ARISING OUT OF THE SECURITIES ACT IS CONTRARY TO PUBLIC POLICY AND IS,
THEREFORE, UNENFORCEABLE.
It should be noted that the foregoing summary describing in general
terms the remedies available under state and federal law to limited partners for
breach of fiduciary duty by a general partner is based on statutes, rules and
decisions as of the date of this Prospectus. Therefore, Limited Partners who
have questions concerning the duties of the General Partner should consult their
own counsel as to the status of the law at such time.
Notwithstanding the fiduciary relationship, the General Partner has
broad discretionary powers to manage the affairs of the Program under the terms
of the Partnership Agreement and under the California Revised Limited
Partnership Act.
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<PAGE>
Generally, actions taken by the General Partner are not subject to vote or
review by the Limited Partners, except to the limited extent provided in the
Partnership Agreement and under California law. See "Summary of Amended and
Restated Agreement of Limited Partnership."
The Program is not an investment company for purposes of the Investment
Company Act of 1940. See "Investment Objectives and Policies -- Investment
Limitations."
CASH DISTRIBUTIONS AND REDEMPTIONS
The objectives of the Program are to (1) produce cash distributions on a
continuing basis over the life of the Program through leasing equipment
primarily to and financing assets primarily for companies engaged in the
development of technologies and other growth industry businesses, franchisees,
and other third party lessees and customers, (2) reinvest, during the operating
phase of the Program (after payment of expenses, including debt service
requirements, and distributions to the Partners), in additional equipment and
assets to increase the overall size of the portfolio, and (3) commence
liquidation of the Program's portfolio of assets seven years after the close of
the offering of Units. There is, however, no certainty that the Program's
objectives will be attained. See "Risk Factors" and "Investment Objectives and
Policies." A significant portion of total Program distributions will constitute
a return of capital.
Separate capital accounts will be kept for each Partner. A Limited
Partner's share of Program profits and losses will be based upon the amount of
the Limited Partner's Net Capital Contribution and the date on which the Limited
Partner's Capital Contribution was made. During the liquidation phase of the
Program (I.E., when the Limited Partners' aggregate capital accounts for
financial accounting purposes are less than or equal to 20% of the aggregate
Capital Contributions of all Limited Partners), a Limited Partner's share of
cash distributions will be based upon the amount of the Limited Partner's
capital account for financial accounting purposes. During the operational phase
of the Program (I.E., all other times), a Limited Partner's share of cash
distributions will be based upon the amount of the Limited Partner's Net Capital
Contribution and the date on which the Limited Partner's Capital Contribution
was made. For this purpose, Net Capital Contribution is generally equal to a
Limited Partner's Capital Contribution minus the Limited Partner's share of
syndication expenses and the commissions paid with respect to the Limited
Partner's Units. Accordingly, Limited Partners who invest the same amount in
the Program, but make such investments on different dates, will be allocated
different shares of Program profits and losses, and may receive different
amounts of cash distributions.
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<PAGE>
The General Partner will receive an Acquisition Fee and a Management Fee
during the term of the Program, and will be reimbursed for certain expenses that
it incurs on behalf of the Program. See "Compensation, Fees and Interest of
General Partner." Such fees and expenses are obligations of the Program without
regard to the level of cash distributions to the Limited Partners. The General
Partner currently intends that a portion of the Program's excess cash will be
used to acquire additional assets during the first seven to nine years of the
Program's term. The General Partner anticipates commencing liquidation of the
Program's portfolio of assets seven years after the close of the offering of
Units.
Until the Limited Partners have received cumulative cash distributions
equal to the greater of (a) 177% of the Limited Partners' Capital Contributions
or (b) 100% of the Limited Partners' Capital Contributions plus an 11% annual
return, compounded quarterly, on their adjusted Capital Contributions (such
greater amount is hereafter referred to as the "Priority Return"), Cash
Available for Distribution generally will be distributed 96% to the Limited
Partners and four percent to the General Partner. Thereafter, Cash Available
for Distribution will be distributed 85% to the Limited Partners and 15% to the
General Partner. (Cash Available for Distribution is defined in the Partnership
Agreement generally as all cash derived by the Program from all sources less
expenses and amounts set aside as reserves.) The Priority Return is used to
determine the sharing relationship between the Limited Partners and the General
Partner in connection with distributions to the Partners; the establishment of
the amount of the Priority Return is not necessarily indicative of the potential
return to an investor, which depends upon the results of the Program's
activities. The successful operation of the Program is subject to various
risks. See "Risk Factors."
During the period beginning on the date of admission of a Limited
Partner to the Program and ending seven years after the end of the calendar
quarter that includes such admission date (the "Subordination Period"), the
General Partner's interest in Cash Available for Distribution is subordinated in
each calendar quarter to a Limited Partner receiving a quarterly distribution
equal to 2.75% of such Limited Partner's Capital Contribution. Any amounts that
would be distributable to the General Partner, but are otherwise subordinated,
will be distributed to the General Partner as a special distribution of Cash
Available for Distribution, at such time as a Limited Partner has received
cumulative distributions equal to the product of (a) 2.75% of such Limited
Partner's Capital Contribution and (b) the number of calendar quarters (prorated
for any partial period) up to but not including 29 that the Units were issued
and outstanding. In addition, since Limited Partners will be admitted to the
Program on different dates, the Subordination Period will have a different
reference in relation to each Limited Partner.
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<PAGE>
The term "Cash Available for Distribution" means (a) the amount of cash
from all operations without deduction for depreciation (including, but not
limited to, all cash received from the sale of any Program Property) remaining
in the Program after expenses of, and proper payments by, the Program (including
payment of the Acquisition Fee and Management Fee to the General Partner), plus
(b) cash funds available for distribution from surplus Program reserves, less
(c) any reserves established by the General Partner, which it deems reasonably
necessary for the operation of the Program and Program Property and purchases of
additional equipment and other Program Property.
The Program's distribution formula may generally be illustrated by
several examples set forth below. These examples do not represent the General
Partner's view of anticipated results and are not intended to be a projection of
future results, as projections will not be used in connection with this
offering. Each example assumes an investment of $2,000 by an investor. The
first example shows the effect of cash distributions prior to the end of the
Subordination Period at a level that would only provide distributions to the
Limited Partners because of the subordination requirements of the General
Partner's interest in cash distributions. The second example shows the effect
of cash distributions prior to the end of the Subordination Period at a higher
level that would permit distributions to the General Partner as well as the
Limited Partners. The third and fourth examples show the effect of the same
level of distributions after the end of the Subordination Period. The fifth
example shows the effect of distributions subsequent to cumulative distributions
to the Limited Partners equal to their Priority Returns.
Example 1: $100 Cash Available for Distribution per year (prior to the end of
the Subordination Period)
Cash distributions: $ 100.00-Limited Partners(100%)
$ 0.00-General Partner(0%)
Example 2: $240 Cash Available for Distribution per year (prior to the end of
the Subordination Period)
Cash distributions: $ 230.40-Limited Partners(96%)
$ 9.60-General Partner(4%)
Example 3: $100 Cash Available for Distribution per year (after the end of the
Subordination Period)
Cash distributions: $ 96.00-Limited Partners(96%)
$ 4.00-General Partner(4%)
Example 4: $240 Cash Available for Distribution per year (after the end of the
Subordination Period)
Cash distributions: $ 230.40-Limited Partners(96%)
$ 9.60-General Partner(4%)
42
<PAGE>
Example 5: Cash Available for Distribution after Limited Partners receive
cumulative distributions equal to their Priority Returns
(a) Cash Available for Distribution = $100
Cash distributions: $ 85.00-Limited Partners(85%)
$ 15.00-General Partner(15%)
(b) Cash Available for Distribution = $240
Cash distributions: $ 204.00-Limited Partners(85%)
$ 36.00-General Partner(15%)
Limited Partners who purchase at least 500 Units ($10,000) will be
entitled to receive monthly distributions. However, prior to the third monthly
distribution of any quarter, Limited Partners who have not received monthly
distributions must receive the same proportionate distribution amount within
that quarter that the monthly distributees already received before the monthly
distributees receive any further distributions for that quarter.
Upon dissolution of the Program, the Program's ' assets will be
liquidated and the net proceeds, after payment and discharge of all of the
Program's debts and liabilities, will be distributed to all Partners, including
the General Partner, in proportion to their Capital Account balances. In the
event the General Partner has a deficit balance in its Capital Account at such
time, it will be required to contribute the amount of such deficit to the
Program.
A Limited Partner who has held his or her Units for at least six months
will also have the right at any time following such six month holding period to
make a written request to the Program for redemption of all or any portion of
the Limited Partner's Units. The redemption will only be made to the extent
permitted by applicable laws and regulations (including regulations of the
California Department of Corporations prohibiting redemption of Units if such
redemption impairs the capital or operation of the Program) and if, in the
opinion of the General Partner, it is in the best interests of the Program.
Further, in no event will the General Partner accept any redemption request that
causes the Program to violate Rule 10b-6 under the Securities Exchange Act of
1934, as amended. In addition, redemptions will not be made if such redemptions
would cause the Program to be categorized as a publicly traded partnership for
federal income tax purposes. This generally means that redemptions will not be
made to the extent that the sum of the percentage interests in Program capital
or profits represented by Units redeemed during the taxable year, along with
Units sold, transferred, assigned or otherwise disposed of during such year,
exceeds five percent of the total interest in Program capital and profits. The
foregoing five percent limitation on transfers of Units will be calculated
without regard to certain transfers, including intra-family transfers and
transfers on death.
43
<PAGE>
The Program will acquire such Units for an amount equal to 90% of the
"accrual basis capital account" relating to the redeemed Units. The Program
will retain the remaining ten percent of the "accrual basis capital account"
relating to the redeemed Units. For this purpose, "accrual basis capital
account" is computed in accordance with the books and records regularly
maintained by the Program for financial reporting purposes, utilizing the
accrual method of accounting.
Redemption requests will be accepted or denied in the order in which
they are received. If the redemption request is accepted by the General
Partner, then redemptions will be payable within 60 days from the date the
General Partner receives the redemption request, or 60 days from such later date
as all redemption documentation necessary to process the request is received
from the Limited Partner. If the redemption request is accepted by the General
Partner, (a) the redemption value will be determined as of the end of the
calendar quarter preceding the calendar quarter in which the redemption
documentation is received, (b) with respect to the tendered Units, the Limited
Partner will be entitled to receive such cash distributions as are attributable
to calendar quarters preceding the calendar quarter in which the redemption
documentation is received, and (c) all distributions made after the date as of
which the redemption value is determined will reduce the redemption value.
Upon any redemption by the Program, the tendered Units will be canceled
and will no longer be deemed to represent an interest in the Program, and the
interests of the Limited Partners (including the person whose interests were
redeemed) will thereupon be adjusted accordingly. Neither the General Partner
nor any of its Affiliates may participate in this redemption program.
PRIOR PARTNERSHIPS
PRIOR EXPERIENCE OF THE GENERAL PARTNER
Although the General Partner is a recently-formed entity and as such has
not previously served as a general partner, Affiliates of the General Partner
are general partners of all Prior Partnerships as shown on the Summary of
Relationships chart. As of June 30, 1996, such Prior Partnerships had
raised a total of $941,497,747 from 103,948 investors, and had purchased
equipment and provided financing for an aggregate of approximately
$1,922,829,489 of assets. Eighteen of the Prior Partnerships have finished
their operations and dissolved. The Prior Partnerships, all California limited
partnerships, were formed to make investments in capital assets, and to engage
in the leasing business. One of the officers of the General Partner's general
partner also serves as an individual general partner in some of the Prior
Partnerships. See "Summary of Relationships" and "Conflicts of Interest."
44
<PAGE>
SUMMARY OF PRIOR PARTNERSHIPS' HISTORY
Within the last ten years, Affiliates of the General Partner have
sponsored seven limited partnerships, all of which have been publicly-owned.
Certain of the Prior Partnerships, including all of the Cash Distribution Funds,
were formed with the objective of maximizing the cash flow generated from their
assets (acquired on a leveraged basis) with no intent to provide significant tax
benefits. One Prior Partnership was formed to invest in leasing and financing
activities with respect to venture capital-backed growth-oriented companies and
operators of pay television systems. Certain of the Prior Partnerships, all
formed prior to 1986, have leased and financed all of their assets on a
non-leveraged basis in order to maximize the cash flow generated from such
assets and reduce the risks attendant thereto. Ten of the Prior Partnerships,
all formed prior to 1982, were structured to invest in capital assets on a
leveraged basis and to provide income tax and other benefits for their
investors. One Prior Partnership, formed in 1975, was formed to acquire, on a
highly leveraged basis, certain specified equipment through which its investors
would receive less income but greater tax benefits than could be derived by
investing in the other Prior Partnerships.
The General Partner hereby undertakes to provide upon request for no
fee, the most recent Form 10-K Annual Report filed with the Securities and
Exchange Commission by any Prior Partnership that has reported to the Securities
and Exchange Commission within the last 24 months from the date of this
Prospectus. The General Partner also hereby undertakes to provide, for a
reasonable fee, the exhibits to each such Form 10-K. The Prior Partnerships
that are the subject of these undertakings are Phoenix Leasing Income Fund 1977;
Phoenix Leasing Income Fund 1980; Phoenix Leasing Income Fund 1981; Phoenix
Leasing Growth Fund 1982; Phoenix Leasing Income Fund 1982-2; Phoenix Leasing
Income Fund VI; Phoenix Leasing Income Fund VII; Phoenix Leasing Capital
Assurance Fund; Phoenix Leasing Cash Distribution Fund II; Phoenix Leasing Cash
Distribution Fund III; Phoenix High Tech/High Yield Fund; Phoenix Leasing Cash
Distribution Fund IV; Phoenix Income Fund, L.P.; Phoenix Leasing Cash
Distribution Fund V, L.P.; and Phoenix Leasing American Business Fund, L.P.
OPERATIONS OF PRIOR PARTNERSHIPS
The Prior Performance Schedules are set forth in Exhibit B to this
Prospectus. Schedule A shows as of June 30, 1996, general information
relating to certain of the Prior Partnerships. Schedule B shows as of June
30, 1996, the categories and cost of assets acquired by certain of the Prior
Partnerships. Schedule C shows as of December 31, 1995 (and as of December
31 for certain prior fiscal years), the annual operating results of certain
of the Prior Partnerships. Schedule D shows as of June 30, 1996, the amounts
of cash distributions available with respect to a $1,000 investment in
certain of the Prior Partnerships,
45
<PAGE>
as well as the amount of distributions constituting a return of capital as of
such date. In this regard, prospective investors should note that it is
expected that a significant portion of Program distributions will constitute a
return of the investors' investment capital rather than investment income.
Schedule E shows as of June 30, 1996, compensation paid and accrued to the
general partners of certain of the Prior Partnerships. Schedule F shows general
information about completed Prior Partnerships.
Prospective investors in Units should note that by investing in Units
they will not acquire any ownership interest in any of the Prior Partnerships or
in the General Partner or its Affiliates. Prospective investors should also not
construe the inclusion of the schedules in Exhibit B to this Prospectus as
implying or indicating in any manner that the Program's investments may be
comparable to those reflected in the schedules with respect to cash
distributions, federal income tax deductions available to investors or other
results.
Certain of the Prior Partnerships have contributed a portion of their
capital to joint ventures sponsored by Affiliates of the General Partner. Such
joint ventures have acquired assets on a leveraged and non-leveraged basis. The
results of the operations of the joint ventures are reflected in the operating
results of the Prior Partnerships.
The combined results of operations for the Prior Partnerships resulted
in net income of $18,066,349 in the aggregate for the year ended December 31,
1995 as compared to net income of $12,289,736 in the aggregate for the year
ended December 31, 1994. The combined results of operations for the Prior
Partnerships resulted in net income of $11,210,022 in the aggregate for the
six months ended June 30, 1996, as compared to net income of $8,933,383 in
the aggregate for the six months ended June 30, 1995. The actual and
prospective results of the Prior Partnerships have been, and may in the
future be, affected by a variety of factors, such as the condition of certain
manufacturers, market demand for equipment in a partnership's portfolio and
remarketability, the condition and the rate of obsolescence of equipment, and
the state of the economy.
For example, in recent years certain of the Prior Partnerships, namely
Phoenix Leasing Cash Distribution Fund, Phoenix Leasing Cash Distribution Fund
II and Phoenix Leasing Cash Distribution Fund III (collectively, the "Early CDF
Funds"), were negatively impacted by several factors. Such factors include. the
short-term issues described above and others of longer duration. The most
significant long-term factor was the general nationwide recession, the effects
of which were dramatic for more than two years.
The recession in the early 1990s, as well as prior banking regulatory
practices, had (and continue to have) a major impact on the performance of the
Early CDF Funds. The effects of these conditions on the performance of the
Early CDF Funds are described in greater detail below.
46
<PAGE>
MANUFACTURER SALES PRACTICES. As a result of the recession, several
computer manufacturers from which the Early CDF Funds purchased equipment or
compete with in the user market were adversely affected. As a result, in order
to maintain market share and some continuing income stream (albeit at a lower
profit margin or even at a loss), such manufacturers engaged in highly
aggressive sales practices including discounting new products by as much as
50-60%. These practices precipitated a commensurate drop in the value of used
equipment, and have resulted in the Early CDF Funds earning lower than
anticipated re-leasing and resale revenues, thus causing them to achieve returns
and recovery of investment in lower than anticipated amounts. These lower
revenues have had an additional negative impact on the Early CDF Funds, which
were structured to maximize performance by reinvesting a portion of cash flow
generated by them; lower revenues caused (and will continue to cause) the Early
CDF Funds to purchase less equipment over the duration of their terms than
originally planned. As a result, the Early CDF Funds' difficulties have been
compounded.
UNAVAILABILITY OF DEBT. Earlier government regulations affecting banks
and financial institutions and the internal policies previously adopted by
certain of such institutions reduced significantly the availability and degree
of leverage to finance the acquisition of cable television systems and the
operations thereof. As a result, potential buyers of cable systems were not
able to obtain borrowings to finance the acquisition or to negotiate
satisfactory terms. This eroding purchase capability had the additional effect
of depressing demand and further reducing the value of certain systems. In
turn, the difficulties experienced by cable system operators in obtaining loans
to fund operations and contingencies, and the unavailability of buyers for their
companies, caused them to default on loans to Phoenix Leasing Cash Distribution
Fund III and other parties, and some systems to seek bankruptcy protection.
OTHER EFFECT OF RECESSION. An additional result of the recession was an
increase in the number of lessee defaults under the equipment leases generated
by the Early CDF Funds. Many lessees were delinquent on lease payments and a
number of them filed for protection under the bankruptcy laws. As a result, the
Early CDF Funds either suffered a loss of revenues generated from the delinquent
or defaulted leases or had to renegotiate the lease arrangements on, far less
favorable terms. In those cases involving bankruptcies, although the Early CDF
Funds took (and continue to take) aggressive action to protect their positions,
the process has been slow and expensive, resulting in a further delay in
collections and additional operating expenses.
The continued persistence of the recession through 1992 and its impact
on IBM and the data processing industry, as well as prior lending practices by
financial institutions in the cable industry, caused (and are expected to
continue to cause) Phoenix Leasing Cash Distribution Fund and Phoenix Leasing
Cash
47
<PAGE>
Distribution Fund II to produce only minimal distributions, and also caused
Phoenix Leasing Cash Distribution Fund III to adopt reduced distribution
policies. Due to the untoward combined effect of the above-described
conditions, Affiliates of the General Partner believe that it is more probable
than not that investors in Phoenix Leasing Cash Distribution Fund II and Phoenix
Leasing Cash Distribution Fund III may not receive cumulative distributions
equal to their original investment amounts. Phoenix Leasing Cash Distribution
Fund and Phoenix Leasing Cash Distribution Fund II reduced the amounts to be
distributed on an annual basis to their limited partners commencing in April
1992 and January 1993, respectively. Phoenix Leasing Cash Distribution Fund III
reduced the amounts to be distributed on an annual basis to its limited partners
commencing in January 1994. Phoenix Leasing Cash Distribution Fund reached the
end of its term on June 30, 1995 and completed its liquidation on December 31,
1995. The cumulative cash distributions made to limited partners, including
cash redemptions paid to limited partners, was approximately 99% of the total
initial capital contributions made by limited partners.
CAPITALIZATION OF THE PROGRAM
The capitalization of the Program as of July 31, 1996 and as adjusted to
reflect the sale of the minimum and maximum number of Units offered hereby, is
as follows:
<TABLE>
<CAPTION>
As Adjusted As Adjusted
As of For For
Title of Class July 31, 1996 Minimum Maximum
- -------------- ------------- ------- -------
<S> <C> <C> <C>
Limited Partnership Units(1) $2,000 $1,200,000 $50,000,000
General Partner Investment 1,000 1,000 1,000
------ ---------- -----------
Total Program Capitalization $3,000 $1,201,000 $50,001,000
------ ---------- -----------
------ ---------- -----------
</TABLE>
- ----------------
(1) Before deducting sales commissions of eight percent ($1.60 per Unit) and
other Organizational and Offering Expenses. The Program may also pay
additional commissions and reimbursements for sales promotion and
wholesaling services, but in no event will the total of all commissions,
additional marketing compensation and reimbursements payable by the
Program exceed ten percent of the offering price of the Units sold. In
addition, the Program may pay up to one-half percent of the price of the
Units for actual, accountable and bona fide due diligence expenses.
The foregoing due diligence expenses will be those incurred by broker-
dealers in performing actual investigations of the Program and its
Affiliates. Such payments will be predicated on performance of such
investigations in accordance with customary industry procedures and
NASD guidelines. The General Partner will pay all expenses, if any,
that exceed 15% of the Capital Contributions. See the Cover Page,
"Use of Proceeds" and "The Offering."
(2) The General Partner has acquired 50 units of limited partnership
interest in the Program.
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<PAGE>
MANAGEMENT
The General Partner will have general responsibility for supervising the
Program's operations, including supervising compliance with legal and regulatory
requirements and the preparation and transmission of periodic and annual reports
to the Limited Partners. The General Partner has the ultimate authority in all
matters affecting the business and affairs of the Program and the formulation of
guidelines and limitations with respect to the Program's investments. The
General Partner may resign from the Program under the conditions set forth in
the Partnership Agreement. The General Partner may be removed by the vote of
the Limited Partners holding a majority of the Units. See "Summary of Amended
and Restated Agreement of Limited Partnership -- Control of Operations of the
Program" and "--Resignation or Removal of General Partner; Election of General
Partner."
The General Partner is Phoenix Leasing Associates IV, L.P., a California
limited partnership formed in 1996. Its general partner is Phoenix Leasing
Associates IV, Inc. ("PLA"), a Nevada corporation formed in 1996, and its
limited partner is a corporation controlled by an officer of PLA. PLA is a
wholly-owned subsidiary of Phoenix Leasing Incorporated ("PLI"), a California
corporation, which was incorporated in 1972 for the purpose of engaging in and
providing management services in the equipment leasing business. PLA will have
complete authority in all aspects of management and control of the General
Partner and will exercise all authority granted to the General Partner under the
Partnership Agreement. Subject to the supervision of the General Partner, and
pursuant to the terms of the Management Agreement entered into with PLA, PLI
will perform management services in connection with the operation and
administration of the Program. PLI is under no obligation to provide funding
to the Program. Accordingly, an audited balance sheet of PLI is not included
as part of the financial statements contained in this Prospectus.
The Program's, the General Partner's, PLA's and PLI's principal offices
are located at 2401 Kerner Boulevard, San Rafael, California 94901-5529. In
1982, PLI became a wholly-owned subsidiary of Phoenix American Incorporated, now
a Nevada corporation. PLI and its affiliates currently serve or have served as
a general partner in 31 other California limited partnerships engaged in the
equipment leasing business. See "Prior Partnerships -- Prior Experience of the
General Partner."
The officers and directors of PLA, the General Partner's general
partner, and certain Affiliates of the General Partner, together with their
principal occupations, are as follows:
49
<PAGE>
GUS CONSTANTIN, age 58, is President and a Director of PLA, Chairman of
the Board, President, Chief Executive Officer and a Director of Phoenix American
Incorporated, President and a Director of Phoenix Securities, Inc., President,
Chief Executive Officer and a Director of PLI, and President and a Director of
Phoenix Growth Capital Corp. (PLI and Phoenix Securities, Inc. are wholly-owned
subsidiaries of Phoenix American Incorporated, and Phoenix Growth Capital Corp.
is wholly-owned by PLI.) Mr. Constantin received a B.S. degree in Engineering
from the University of Michigan and a Master's Degree in Management Science from
Columbia University. From 1969 to 1972, he served as Director, Computer and
Technical Equipment of DCL Incorporated (formerly Diebold Computer Leasing
Incorporated), a corporation formerly listed on the American Stock Exchange, and
as Vice President and General Manager of DCL Capital Corporation, a wholly-owned
subsidiary of DCL Incorporated. Mr. Constantin was actively engaged in
marketing manufacturer leasing programs to computer and medical equipment
manufacturers and in directing DCL Incorporated's IBM System/370 marketing
activities. Prior to 1969, Mr. Constantin was employed by IBM as a data
processing systems engineer for four years. Mr. Constantin is an individual
general partner in two of the active Prior Partnerships and is an NASD
registered principal. Mr. Constantin is the founder of PLI and the beneficial
owner of all of the common stock of Phoenix American Incorporated.
PARITOSH K. CHOKSI, age 43, is Senior Vice President, Chief Financial
Officer and Treasurer of PLI and Phoenix American Incorporated and Senior Vice
President, Chief Financial Officer, Treasurer and Director of Phoenix Growth
Capital Corp. and PLA. He is Chief Financial Officer and a Director of Phoenix
Securities, Inc. He has been associated with PLI since 1977. Mr. Choksi
oversees the finance, accounting, information services and systems development
departments of the General Partner, PLA and PLI, and oversees the structuring,
planning and monitoring of the partnerships sponsored by the General Partner and
its Affiliates. He is also responsible for all banking relationships on
behalf of Phoenix American Incorporated and its affiliated corporations,
partnerships and securitized asset pools. Mr. Choksi graduated from the Indian
Institute of Technology, Bombay, India with a degree in Engineering. He holds
an M.B.A. degree from the University of California, Berkeley.
GARY W. MARTINEZ, age 45, is Senior Vice President and Director of PLA,
Senior Vice President of PLI, Phoenix American Incorporated and Phoenix Growth
Capital Corp. He has been associated with PLI since 1976. He manages the Asset
Management Department, which is responsible for lease and loan portfolio
management. This includes credit analysis, contract terms, documentation and
funding; remittance application, change processing and maintenance of customer
accounts; customer service, invoicing, collection, settlements and litigation;
negotiating lease renewals, extensions, sales and buyouts; and management
information reporting. From 1973 to 1976, Mr. Martinez was a Loan Officer with
Crocker National Bank, San Francisco.
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<PAGE>
Prior to 1973, he was an Area Manager with Pennsylvania Life Insurance Company.
Mr. Martinez is a graduate of California State University, Chico.
BRYANT J. TONG, age 41, is Senior Vice President, Financial Operations
of Phoenix American Incorporated and PLI, and Senior Vice President Financial
Operations of PLA and Phoenix Growth Capital Corp. He has been with PLI since
1982. Mr. Tong is responsible for investor services and overall company
financial operations. He is also responsible for the technical and
administrative operations of the cash management, corporate accounting,
partnership accounting, accounting systems, internal controls and tax
departments, in addition to Securities and Exchange Commission and other
regulatory agency reporting. Prior to his association with PLI, Mr. Tong was
Controller-Partnership Accounting with the Robert A. McNeil Corporation for two
years and was an auditor with Ernst & Whinney (succeeded by Ernst & Young) from
1977 through 1980. Mr. Tong holds a B.S. in Accounting from the University of
California, Berkeley, and is a Certified Public Accountant.
CYNTHIA E. PARKS, age 40, is Secretary of PLA, Vice President, General
Counsel, Assistant Secretary and Director of PLI and Phoenix American
Incorporated, and Secretary of Phoenix Growth Capital Corp. and Phoenix Cable
Incorporated. Prior to joining PLI in 1984, she was with GATX Leasing
Corporation, and had previously been Corporate Counsel for Stone Financial
Companies, and an Assistant Vice President of the Bank of America, Bank
Amerilease Group. She has a Bachelor's degree from Santa Clara University, and
earned her J.D. from the University of San Francisco School of Law.
HOWARD SOLOVEI, age 34, is a Vice President and Director of Phoenix
American Incorporated and PLI and a Vice President of
Phoenix Growth Capital Corp. and PLA. He has been associated with PLI since
1984. Mr. Solovei is responsible for arranging and administering Phoenix
American Incorporated's and PLI's banking transactions. Mr. Solovei is also
involved in corporate financial planning and various date processing-related
projects. Mr. Solovei graduated with a B.S. in Business Administration from
the University of California at Berkeley.
SUSAN D. ACKERMAN, age 55, is Assistant Secretary of PLA, Vice President
and Secretary of Phoenix American Incorporated and PLI, Secretary and a Director
of Phoenix Securities, Inc., and Assistant Secretary of Phoenix Cable
Incorporated. She joined PLI in 1978. She oversees the personnel, corporate
secretarial and corporate communications functions of PLA, PLI and Phoenix
American Incorporated. Her duties include responsibility for recruitment and
placement of personnel, and development and administration of employee benefits,
salary and bonus policies. Prior to her association with PLI, Ms. Ackerman
served
51
<PAGE>
as Educational and Administrative Assistant to the Business, Economics and
Foreign Language Departments at the College of Marin and as legal assistant to
an appellate attorney. She attended St. Olaf College and the University of
Oslo.
ERNEST M. BERGMAN, age 48, is Senior Vice President, Marketing and a
Director of Phoenix Securities, Inc., Vice President of PLA and Phoenix American
Incorporated, and Vice President and National Sales Manager of PLI. His
responsibilities include overseeing the development and marketing of Phoenix
Leasing investment products, and managing the national wholesaler team, and he
is also responsible for in-house marketing, SEC/NASD compliance,
marketing/support services to broker/dealers, and business development/due
diligence. Mr. Bergman is also the designated NASD Principal and Office of
Supervisory Jurisdiction for Phoenix Securities, Inc. Prior to joining Phoenix
in 1986, Mr. Bergman was a wholesaler with VMS Realty. Previously, he worked
with Dean Witter Reynolds for nine years in various capacities, including retail
account executive, senior instructor for the national training center and senior
consultant in the retirement planning division. He was also Vice President for
Intercapital, Dean Witter's mutual fund division. Mr. Bergman received his B.A.
in business administration from San Francisco State University, attended
graduate courses at San Francisco State University, and is a Certified Financial
Planner.
NORMAN H. NELSON, age 50, is Senior Vice President and a Director of
Phoenix Growth Capital Corp., and Vice President of PLI and Phoenix American
Incorporated. Mr. Nelson is responsible for overseeing leasing and financing
transactions entered into with companies engaged in the development of
technologies and other growth industries. Prior to joining PLI in 1983, he
managed the West Coast office of Continental Bank Leasing, having previously
held positions in marketing and operations with U.S. Leasing Corporation from
1972 to 1982. Mr. Nelson received his Bachelor's degree in Economics from
Purdue University and his MBA from San Francisco State University.
CALVIN A. ROTHMAN, age 53, is Vice President of PLI. He has been
associated with PLI since 1984, and is responsible for financing transactions
entered into with hotel, restaurant and other franchisees, as well as small
businesses. Prior to joining PLI in 1984 when a company he founded in 1983 was
acquired by PLI, he was Senior Lease Consultant for IFG Leasing Company from
1980 to 1983. He graduated from California State University, Fresno, with a
Bachelor's degree in Education and Social Science.
52
<PAGE>
Other officers of Affiliates of PLA are as follows:
Name, Age Position
- --------- --------
Thomas A. Hurt, 54 Vice President of PLI and Phoenix American
Incorporated
Ronald Demer, 59 Vice President of Phoenix Growth Capital
Corp., PLI and Phoenix American Incorporated
Kirby Fiegel, 41 Vice President, Marketing Services of PLI and
Phoenix American Incorporated
Thomas K. Morrison, 54 Vice President of Phoenix Growth Capital
Corp.
Victoria Marie Sturiale, 42 Assistant Vice President of Phoenix
Securities, Inc.
Sherri Lynn Hillemeyer, 33 Assistant Vice President of Phoenix
Securities, Inc.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Program will invest in various types of capital equipment and other
assets, and provide leasing and secured financing of the same to third parties,
on either a long-term or short-term basis. The objectives of the Program are to
(1) produce cash distributions on a continuing basis over the life of the
Program through leasing equipment primarily to and financing assets primarily
for companies engaged in the development of technologies and other growth
industry businesses, franchisees, and other third party lessees and customers,
(2) reinvest, during the operating phase of the Program (after payment of
expenses, including debt service requirements, and distributions to the
Partners), in additional equipment and assets to increase the overall size of
the portfolio, and (3) commence liquidation of the Program's portfolio of assets
seven years after the close of the offering of Units. There is, however, no
certainty that the Program's objectives will be attained. See "Risk Factors"
and "Investment Objectives and Policies -- Business Segments." To accomplish
these objectives, the Program will invest in, or will have as collateral,
various types of assets, including (i)
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<PAGE>
production, manufacturing, fabrication and test equipment, (ii) lab and medical
equipment, (iii) furniture and fixtures, (iv) personal computers and
workstations, (v) property management systems, including computer reservations
systems, and phone and telecommunications systems, (vi) computer peripheral
equipment, mainframes, small computer systems, CAE/CAD/CAM equipment,
communications equipment, office systems and computer software products, and
(vii) various types of other equipment, furnishings, fixtures, leasehold
improvements and assets, including to a limited extent certain intangible
assets. See "Investment Objectives and Policies -- Types of Assets."
The Program will commit a substantial portion of the offering proceeds
toward investments as described in this Prospectus, which portion will be at
least equal to the minimum percentage required to be so invested under Section
IV.C. of the NASAA Equipment Policy. In addition, the General Partner intends
that the Program will acquire (and reinvest in) additional assets during
subsequent years of the Program's term. The Program's annual cash flow may be
used for such purposes, but only after the payment of expenses, including debt
service requirements, and cash distributions to Limited Partners, at a minimum,
sufficient to pay Limited Partner tax liabilities created by the sale or
refinancing of Equipment and other Program Property. The General Partner
anticipates commencing liquidation of the Program's portfolio of assets seven
years after the close of the offering of Units. There is no certainty, however,
that any or all of the investment objectives discussed herein will be attained.
EQUIPMENT LEASING AND FINANCING STRUCTURES
The Program will acquire, lease (or license) or finance the capital
equipment and other assets described below under the heading "Investment
Objectives and Policies -- Types of Assets." Equipment and other Program
Property purchased or financed by the Program will be leased to or financed for
companies engaged in the development of technologies and other growth industry
businesses, franchisees, and other third party lessees and customers, primarily
throughout the United States, and, to a considerably lesser extent, in certain
foreign jurisdictions. See "Investment Objectives and Policies -- Business
Segments."
The General Partner anticipates that a substantial portion of the net
proceeds to the Program will be invested in equipment subject to Full Payout
Leases. Full Payout Leases are leases under which the noncancellable rental
payments due during the initial term of the lease are at least sufficient to
recover the purchase price of the subject equipment. Operating Leases, which
generally have terms of shorter duration than Full Payout Leases, are leases
that will return to the lessor less than the purchase price of the equipment
from rentals payable during the initial term of the lease. Generally, the
projected yield associated with
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Operating Leases is greater than that associated with Full Payout Leases, if
other factors remain constant, such as, for example, the creditworthiness of the
lessee and the type of equipment leased.
To enhance the return on Full Payout Leases, the Program may enter into
transactions that have various types of purchase options on the part of the
user. They include fair market value purchase options, minimum percentage of
purchase price options, or fixed buy-out options. Also, the Program may enter
into Full Payout Leases which provide for automatic renewals at fair market
rental rates or minimum percentage of rental rate terms. These types of
purchase options and renewal terms will minimize the "remarketing" risks
described below.
Operating Leases with respect to any particular lessee generally
represent a greater risk to the Program than do some Full Payout Leases because
it is necessary to extend the lease term with the existing lessee, enter into a
new lease with another lessee or sell the equipment in order to recover the
purchase price of the equipment and earn a return on the investment. This is a
process known as "remarketing." While in some cases there will be remarketing
risks associated with equipment leased pursuant to Full Payout Leases, the risks
inherent in Operating Leases are appreciably greater because the full purchase
price of the leased equipment will not be received during the initial lease
term. However, there will be remarketing risks associated with equipment leased
pursuant to Full Payout Leases, since the anticipated return on the Program's
investments in Full Payout Leases may not be realized if the equipment is not
successfully remarketed; however, as discussed above, such risks may be
mitigated by the purchase option and renewal terms of the Full Payout Leases.
The Program's ability to remarket its equipment on expiration of the initial
lease term is dependent on many factors, including possible technological or
economic obsolescence of the equipment, competitive practices, and terms and
conditions of vendor remarketing agreements. See "Risk Factors -- Obsolescence
of Equipment and Equipment Remarketing," "-- Collection and Residual Value Risks
Associated with Financing Arrangements with Franchisees," "-- Losses of Certain
Prior Partnerships," and "-- Industry Wide Risks." Although there can be no
certainty that in the future the Program will be successful in remarketing its
equipment profitably, the General Partner believes that the expertise,
sophistication and experience of its management and that of its Affiliates
mitigate this risk. The General Partner, through its Affiliates, will be
responsible for the remarketing of Equipment and other Program Property, and
will be reimbursed by the Program for, the lesser of cost or 90% of the
competitive rates for performing such remarketing services. However,
remarketing of certain Equipment may be done, to a minimal degree, by the
manufacturer of the Equipment, in the event that a remarketing agreement is
entered into with such manufacturer.
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To minimize the credit, remarketing and other risks associated with too
high of a concentration of investment in any one specific manufacturer's model
of equipment, manufacturer of equipment or Program customer, the Program intends
to limit certain of its investments in Equipment and other Program Property, as
described herein. As of and following the end of the offering period, assuming
the maximum amount of net proceeds is raised and leverage (including LJV
leverage) is fully utilized, and further assuming cumulative reinvestments as of
the time of any computation hereunder (such aggregate amount is referred to
herein as the "cumulative proceeds available for investment"), the Program will
have the following investment goals: (i) new investments in Equipment or other
Program Property leased to or financed for any one Program customer (I.E.,
lessee or borrower), when added to existing portfolio investments leased to or
financed for such Program customer, will not exceed five percent of the
cumulative proceeds available for investment; (ii) new investments in any one
model of equipment, from any one manufacturer, when added to existing portfolio
investments in such specific manufacturer's model of equipment, will not exceed
ten percent of the cumulative proceeds available for investment; and (iii) new
investments in any one manufacturer of equipment, when added to existing
portfolio investments in such manufacturer's equipment, will not exceed fifteen
percent of the cumulative proceeds available for investment. If, however, among
other factors, the maximum amount of net proceeds is not raised, the maximum
leverage (including LJV leverage) is not utilized or adequate alternatives for
investment are not available, then there is no assurance that these goals will
be attained.
Some of the Full Payout Leases or Operating Leases pursuant to which
Equipment is leased may be subject to lease arrangements in the form of a master
lease agreement. Under a master lease agreement, the General Partner (or an
Affiliate) and the lessee would agree to all of the terms of the lease other
than the actual equipment to be acquired, the payment amount and the length of
the lease term for a specific item of equipment. As the lessee leases equipment
pursuant to the master lease agreement, these TERMS would be included in a
schedule to the master lease agreement. The presence of a master lease
agreement does not ensure that any lessee will lease equipment from the Program.
The Program will primarily purchase equipment that is, or
contemporaneously with the consummation of the acquisition will be, subject to a
lease. In connection with certain lease and loan transactions, the Program may
enter into certain arrangements affording the Program additional security or
collateral protection.
Generally, the Program will purchase and lease the equipment so that the
Program is considered the equitable owner of the equipment for income tax
purposes and therefore the Program will claim the benefit of any cost recovery
(depreciation) on the equipment. In a significant amount of cases, however, the
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Program may employ an "equipment lease intended for security" structure in its
equipment financing transactions. These types of transactions are analogous to
conditional or installment sales agreements. Title to the financed assets does
not pass to the lessee until all payments owed have been made. The transactions
are structured, however, so that the lessee can claim any cost recovery
(depreciation) deductions.
The amounts financed by the Program generally will be secured by the
equipment or other assets financed under such arrangements and by the
receivables due under any lease or rental agreement relating to such equipment
or other assets. Such financings normally will be structured as senior liens on
the assets financed, thereby providing the Program with the right, upon default
by any borrowers under the financing arrangements, to obtain possession of the
assets financed. However, as described in "Investment Objectives and
Policies -- Business Segments," the Program will also provide financing in the
form of secured subordinated debt, which will be junior in priority to lending
institutions that provided the senior debt. See "Risk Factors -- Subordinated
Loans." To a limited extent, as described herein, the Program also will finance
certain intangible property (such as franchise fees) that may not be secured by
additional collateral. See "Risk Factors -- Collection and Residual Value Risks
Associated with Financing Arrangements with Franchisees."
The Program's leases and loans will generally provide that the lessee or
borrower, as the case may be, insure the Equipment or other Program Property,
pay taxes relating to the lease or use of the Equipment or other Program
Property, maintain the Equipment or other Program Property and indemnify the
Program, in its capacity as either lessor or lender, from and against any
liability suffered by the Program as the result of any act or omission of the
lessee or borrower, as the case may be, and their respective agents. In certain
instances, the Program may permit the lessee or borrower to be self-insured.
Under certain circumstances, as described in Section 9.5.2 of the
Partnership Agreement, assets may be acquired by the General Partner or its
Affiliates and subsequently transferred by the Program. In the case of leased
equipment and assets financed, the Program will pay to the General Partner or
its Affiliates the purchase price paid by the General Partner or its Affiliates
plus their carrying costs (I.E., taxes, insurance, maintenance, interest) during
the time the General Partner or its Affiliates held such equipment or assets
less any rental or other payments received by the General Partner or its
Affiliates during such period.
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BUSINESS SEGMENTS
FINANCING OF COMPANIES ENGAGED IN THE DEVELOPMENT OF TECHNOLOGIES AND
OTHER GROWTH INDUSTRY BUSINESSES. The Program will provide financing, in the
form of equipment leases or secured loans, to companies engaged in the
development of technologies and other growth industry businesses (the "growth
capital" portion of the Program's business). Growth capital leases and loans
are extended to companies which vary in size and state of profitability, but are
most often young companies (inception to three years in operation), whose
financing has been provided by venture capitalists, strategic corporate partners
or other investors expert in the particular industry. Financing arrangements
with each company are negotiated on a case-by-case basis and take into account
various factors, including the equity sponsors of the company and their industry
reputation and financial strength, the type of equipment or other financed
assets, the creditworthiness of the company, the growth potential of the company
and the nature of any additional security provided by the company. Some
companies may be required to provide additional collateral in the form of cash
deposits, letters of credit, pledges of securities or other deposits or
guarantee arrangements, or to grant a security interest in certain additional
inventory, receivables, equipment or other assets of the lessee.
The companies with which the Program will enter into growth capital
lease or loan transactions will be engaged in a variety of businesses providing
a wide range of products or services, including in the semiconductor,
biotechnology, medical device, software, communications, data storage, computer,
retail and other industries. The types of equipment and other assets in which
the Program will invest include fabrication, production and test equipment, lab
and medical equipment, local area networks, personal computers and workstations,
furniture and fixtures, leasehold improvements, communications equipment,
vehicles, and other office, manufacturing and capital equipment required by such
companies. It is not expected that many of these companies will be
organizations with substantial revenues, operating histories or profits.
Leasing or financing arrangements in the growth capital portion of the
Program's business will be negotiated on a case-by-case basis and will take into
account various factors, including the type of equipment or other assets, the
nature of any security, the company's lease or loan needs, the creditworthiness
of the company, the growth potential of the company, the venture capital firm
involved, the potential market for the Company's products and the Company's
management team.
Equipment lease and loan terms for growth capital transactions will
generally be three to five years, and transaction sizes generally will range
from $250,000 to $4,000,000. Larger transactions may be subject to joint
venture
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arrangements. Most of the financial arrangements will consist of Full Payout
Leases or loans secured by the assets financed thereby. The amounts financed by
the Program generally will be structured as senior debt, but the Program may
also provide financing in the form of secured subordinated debt. The Program
will have a lien on any equipment or other assets financed by the Program and a
security interest in the receivables due under any lease or rental agreement
relating to such equipment or other assets, which lien or security interest in
the case of secured subordinated financing provided by the Program will be
junior in priority to the lien or security interest of any lending institution
providing senior debt. In some cases, lessees and borrowers will be required to
provide additional collateral in the form of cash deposits, letters of credit,
pledges of securities or other deposits or guarantee arrangements, or to grant a
security interest in certain additional inventory, receivables, equipment or
other assets of the lessee or borrower. In some cases, the General Partner may
condition credit approval on receipt by the Program of warrants, options or
other subscription rights to purchase equity in the lessee or borrower. The
warrants, options or subscription rights would be an additional compensation
element to the Program for writing a lease or making a loan to the lessee or
borrower. No assurance can be given that such warrants, options or other
subscription rights will be available or that the General Partner will be able
to negotiate successfully for the issuance of any such subscription rights.
Each prospective lessee or borrower is subject to a comprehensive due
diligence review process and credit analysis. This analysis includes interviews
with senior management of a company and, in some cases, certain of its
investors, reference calls to industry analysts and customers of the company, an
evaluation of the company's annual and interim financial statements, and a
review of its financial projections. The analysis also includes an evaluation
of the current development status of the company, the product of the company,
and the product's niche in the marketplace or potential market. Additionally,
any equipment which is the subject of a lease or loan transaction, and any asset
pledged as additional security under the terms thereof, is evaluated to
determine both initial and residual collateral value.
To a lesser extent, the Program may also engage in certain financing
transactions with companies that have successfully re-emerged from bankruptcy
reorganization proceedings. Companies re-emerging from bankruptcy generally
have successfully completed bankruptcy reorganization because of the solution of
certain problems, which resulted in the institution of such proceedings, such as
an inadequate equity capital base, lack of experienced management, excessive
debt, poor marketing or planning efforts, or a combination of such factors and
others. The Program may also enter into certain financing arrangements with new
companies that have been spun-off in connection with a management buyout. As in
the case of transactions with high technology companies and other growth
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industry businesses, these transactions will be entered into only if they
satisfy the Program's credit criteria and are otherwise consistent with the
Program's investment objectives. In the case of re-emerging companies,
particular emphasis will be placed on the terms of the plan of reorganization to
which such companies are subject, including the legal protection that can be
afforded the Program. Such transactions typically will be secured by the
equipment financed, but may have other assets that serve as additional
collateral.
FINANCING OF FRANCHISEES. The Program will provide financing,
predominantly in the form of Full Payout Leases and loans, to first-time and
existing franchisees engaged in various franchise businesses in the hospitality
(E.G., hotel/motel), fast food, office supply, printing, communications and
other franchise industries (the "franchise" portions of the Program's business).
Franchise assets financed by the Program generally will include furniture,
fixtures, signs, leasehold improvements, software, equipment and other assets,
including intangible assets (such as franchise fees), that are used in
connection with, or are otherwise necessary to, the operation of a franchise
business. In the case of hospitality and certain other franchise businesses,
the assets financed by the Program may also include property management systems
(including reservation systems), phone systems and energy conservation systems.
In certain cases, the Program will provide financing in the form of loans
secured by the furniture, fixtures, leasehold improvements, equipment and other
assets financed thereby. Although it is not possible to predict what portion of
the proceeds available for investment (or reinvestment) will ultimately be
invested in franchise assets, it is currently contemplated that the Program will
invest a significant portion of its initial proceeds available for investment,
and reinvest a significant portion of its cash flow during Program operations,
in financing arrangements with franchisees. Financing arrangements with
franchisees will be subject to credit, collection, remarketing and other risks,
including the risk of competition in certain franchise industries. See "Risk
Factors -- Collection and Residual Value Risks Associated with Financing
Arrangements with Franchisees" and "-- Competition."
Equipment lease and loan terms generally will be three to seven years,
and transaction sizes generally will range from $20,000 to $1,000,000. Each
prospective lessee or borrower (I.E., franchisee) is subject to a credit
analysis, which analysis includes a credit review of the franchisor, including
its franchisee investment requirements, and a credit review of the franchisee,
including verification of the capitalization required by the franchisor. While
the credit analysis includes a review of certain franchisor financial and other
information, the franchisee (which may be a first-time franchisee), not the
franchisor, is the party responsible for all lease and loan payments to the
Program. See "Risk Factors." In limited cases, a franchisee may be required to
provide additional collateral in the form of a cash deposit or other property,
or a personal or other guarantee, to secure the performance of its obligations
under any lease or loan transaction entered into
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with the Program. Franchise asset transactions may be treated for tax purposes
as loans even though structured as a lease transaction. Such transactions are
generally secured by the assets being financed.
OTHER PERMISSIBLE INVESTMENTS. In order to diversify the remaining
portion of the Program's portfolio of assets, the General Partner, through its
Affiliates, will also attempt to directly enter into arrangements (including
master lease agreements) with certain corporations for the lease of data
processing and other equipment. This is a highly competitive environment, which
usually creates a bidding situation. The terms of such arrangements may vary
but they have included, in similar transactions engaged in by Affiliates,
covenants that: (a) the equipment is under warranty by the manufacturer, (b) the
lessee will provide for maintenance of the equipment through the original
manufacturer or a third party; and (c) the Program is indemnified against
malfunction of the equipment, patent infringement, patent violation claims and
other similar actions. The General Partner will ascertain the creditworthiness
of a lessee prior to bidding for any lease of such data processing or other
equipment.
The Program's lease business may also take the form of arrangements with
manufacturers pursuant to which the manufacturer secures lessees and remarkets
the equipment. This type of business, with respect to the Prior Partnerships,
has been decreasing in volume significantly over the past several years and has
been virtually minimal in the last few years. The General Partner, in its sole
discretion, will determine those manufacturers, if any, with which the Program
will enter into equipment purchase and remarketing agreements. In such
situations, the lease terms may have already been negotiated and the lease
agreement executed between the manufacturer and the lessee. The Program,
however, will, under such equipment purchase and remarketing agreements,
generally have the right to approve both the credit of each lessee and the terms
of the lease. The terms of such agreements may vary, but they will generally
include, among other provisions, covenants by the manufacturer to: (a) warrant
the equipment and its use; (b) provide for the maintenance of the equipment and
the supply of replacement parts; (c) indemnify the Program against patent
infringement and patent violation claims, and other similar actions; and (d)
assist the Program in obtaining new leases for, or arranging the sale of, the
equipment upon termination of the subject leases. Ordinarily, the manufacturer
will not be required to repurchase off-lease equipment, but will be required to
use its best efforts, through the use of its sales force and contacts with its
customers, to remarket such equipment. The General Partner will evaluate the
creditworthiness of the manufacturer and the lessee prior to entering into any
such equipment purchase and remarketing agreement.
In certain cases, the Program may provide financing to hotel owners or
operators, or other third party customers, in the form of leases or loans
secured by the furniture, fixtures, leasehold improvements, equipment and other
assets
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financed thereby. In addition, the Program may provide, to a limited extent,
unsecured financing of certain intangible property. The General Partner may
also, in its discretion, cause the Program to purchase, own, lease, finance and
sell other types of Equipment and Program Property, as described below under the
heading "Types of Assets." Factors that the General Partner may consider in its
decision with respect to activities concerning other types of Equipment and
Program Property would include review and analysis of standard credit criteria
and information for businesses of the type engaged in by a prospective customer
of the Program, with particular emphasis placed on the General Partner's
assessment that a viable market exists for such customer's products or services.
TYPES OF ASSETS
The assets described below represent the types of equipment and other
assets the General Partner currently anticipates will be purchased, leased (or
licensed) or financed by the Program, although at any time investments in other
types of equipment or assets may be more attractive or more readily available.
SMALL COMPUTER SYSTEMS, PERSONAL COMPUTERS AND WORKSTATIONS. The
Equipment includes small computer systems, as well as personal computers and
workstations. A small computer system typically consists or a central
processing unit, disk or tape drives or both, printers and interactive
typewriters or video display type terminals, and will often also possess data
communication capabilities of a limited nature. A small computer system is
generally used by businesses in various functions such as accounting, inventory
control and sales management operations. Personal (or micro) computers include
central processing units that generally use Intel or Motorola based processors.
Workstations are high performance engineering and design systems that are far
more sophisticated and complex than microcomputers. These workstations are able
to communicate with each other at very high speeds and are the overwhelming
choice of technical professionals in many fields.
FURNITURE AND FIXTURES. This Equipment includes virtually any type of
furniture or fixtures used by a company in connection with its business,
including without limitation wall, window and floor coverings, signs,
appliances, furnishings, fixtures and certain leasehold improvements.
INTANGIBLES. Intangibles include certain soft costs including but not
limited to: installation, freight and shipping charges related to Equipment, and
franchise fees due to the franchisor.
OFFICE SYSTEMS -- Equipment generally used for office environment
support and automation, including copiers and high volume duplication equipment,
word processing systems and electronic mail devices.
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COMPUTER SOFTWARE -- Software products consisting of computer programs
for use on mainframe, mini-computers and micro-computers.
PROPERTY MANAGEMENT SYSTEMS, INCLUDING COMPUTER RESERVATION SYSTEMS.
This type of equipment is used in the hotel/motel industry for front office
functions, as well as for everyday counter type tasks, such as microcomputer
based fileservers connected to several personal computers equipped with a number
of peripheral devices, including credit card readers, modems and electronic cash
drawers. Specialized software provides a complete turnkey solution for
everything from cash and credit card transactions, billing and verification to
accounting functions.
PHONE AND TELECOMMUNICATIONS SYSTEMS. Typically, telecommunications
systems consist of a desk phone plus a switchboard and its attendants. Most
often a change to a telecommunications system will entail upgrading a network
usually known as a Private Branch Exchange, or PBX, into a system that can
transmit both voice and data. In effect, this upgrade will transform each
telephone into a computer component.
LABORATORY AND TEST EQUIPMENT. Laboratory and test equipment leased
includes microscopes, centrifuges, spectrometers and spectrophotometers,
incubators, laminar flow hoods and environmental control systems. The
laboratory gear and test equipment is used across a broad range of scientific
disciplines including biotechnology research and development.
PRODUCTION, MANUFACTURING AND FABRICATION EQUIPMENT. This Equipment
includes virtually any type of equipment typically used by companies that are in
a position to commence (or continue) production of recently developed products.
This is equipment that the lessee would use in the manufacture of its product.
To facilitate remarketing, the Program will endeavor to include only equipment
that could easily be used by others in the production of similar products.
OTHER COMPUTER, COMPUTER-RELATED AND HIGH TECHNOLOGY EQUIPMENT. The
Program will invest, to a lesser extent, in the following types of equipment and
products:
COMPUTER PERIPHERAL EQUIPMENT -- Devices that are used in connection
with a computer systems mainframe or central processing unit (the so-called
"brain" of a computer system).
IBM-SOFTWARE COMPATIBLE AND OTHER MAINFRAMES -- Systems compatible with
IBM software which have alternative central processing units to mainframes
manufactured by IBM.
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SMALL COMPUTER SYSTEMS -- Systems typically consisting of a central
processing unit, disk or tape drives or both, printers and interactive
typewriters or video display type terminals.
CAE/CAD/CAM EQUIPMENT -- Computer aided engineering, design and
manufacturing systems housing advanced computer and communications technologies
and sophisticated product data management software.
COMMUNICATIONS EQUIPMENT -- Equipment consisting of devices that convert
computer data for transmission over telephone lines and then reconvert it back
to its original form for use by the computer at the other end, or entire systems
housing their own central processing units, the purpose of which is to monitor
and control incoming data via communications lines.
OTHER EQUIPMENT AND PROGRAM PROPERTY. The Program may acquire or finance
various types of other equipment and assets, including to a limited extent
certain intangible assets. Such other Equipment and Program Property may
include, without limitation, furniture, fixtures and leasehold improvements,
vehicles, and other office, manufacturing and capital equipment, to be used for
general business purposes within the construction, agriculture, engineering,
retail, hospitality, restaurant, automobile, maintenance, warehouse, hospital,
services and other industries.
INVESTMENT LIMITATIONS
Pending expenditures of funds, or to provide a source from which to meet
contingencies, the proceeds of this offering may be temporarily invested in
short-term, highly liquid investments where there is appropriate safety of
principal, such as U.S. Treasury Bills and money market funds. Any proceeds of
this offering not invested within the later of [__________, 1997] or one year
from the termination of the offering (except for necessary operating reserves)
will be distributed to the Limited Partners as a return of capital, as well as a
pro rata return of Organizational and Offering Expenses. The Program does not
intend to invest more than 40% of its assets in "securities," as defined in the
Investment Company Act of 1940; however, the definition of "securities," in such
Act is quite broad. Although the General Partner does not believe that the
intended method of operations of the Program would constitute the purchase of
"securities," if such a determination were made with respect to the business of
the Program, the Program would be obligated (1) to register as an investment
company under the Investment Company Act of 1940, (2) if the facts warrant, to
file an Application of Exemption from such Act, or (3) to terminate its
operations. There is no certainty that the Securities and Exchange Commission
would grant any such exemption from such
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Act, and, if the Program were required to and did register under such Act, it
could not conduct operations as described in this Prospectus.
BORROWING POLICIES
The Program will incur debt to finance the purchase of assets. However,
by the end of the Program's offering period and at all times thereafter during
the life of the Program, the aggregate amount of outstanding debt directly
incurred by the Program will not exceed 45% of the purchase price of the assets
directly acquired by the Program. In no event, however, will the aggregate
amount of Capital Contributions which must be invested in Program Property be
less than the amounts required by the NASAA Equipment Policy. It is expected
that borrowed funds will be obtained from banks.
The timing of the borrowing and the precise amount borrowed by the
Program will depend upon the amount and timing of Capital Contributions to
the Program, the availability of financing, interest rates and costs incurred
by the Program. There is no assurance that credit will be available to the
Program in the amount desired or on terms considered reasonable by the
General Partner. It is anticipated that the Program may borrow funds both at
interest rates fixed at the time of borrowing and primarily at rates that may
vary with market indices, and consequently, in the latter case since cash
revenues may be fixed, a rise in such market indices may increase borrowing
costs and reduce the amount of the Program's net income and Cash Available
for Distribution. It is not possible to estimate the total amount of
interest that the Program will be charged in connection with its borrowings.
The General Partner and its Affiliates will not receive loans from the
Program. It is not contemplated that the General Partner or its Affiliates
will make any loans to the Program. In the event of an extraordinary
occurrence, the General Partner has the ability under the Partnership
Agreement to lend funds to the Program for not longer than 12 months at
prevailing rates.
In situations where funds are borrowed, the General Partner anticipates
that interest on the outstanding loan balances will be at market rates,
competitive with rates available at the time of the particular borrowing to
borrowers of similar creditworthiness. The actual rate charged will depend upon
a number of factors including the amount of leverage, the portfolio mix (I.E.,
the creditworthiness of the lessees, the types of leases and the quality of the
equipment) and market indices. Loans will generally be recourse to the assets
of the Program. As a result, the precise amount of interest that the Program
may be charged cannot be predicted, and the amount of Cash Available for
Distribution may be adversely affected.
The Program may enter into joint venture arrangements, including joint
venture agreements with other partnerships sponsored by the General Partner or
its Affiliates (including certain of the Prior Partnerships), or other entities
selected by the General Partner (excluding the General Partner or certain of its
Affiliates), some of which would finance their acquisition of assets by the use
of leverage. There are certain restrictions and limitations proposed to be
placed on the
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borrowings incurred by a leveraged joint venture ("LJV"). Among other
covenants, debt incurred by any LJV would be nonrecourse as to the Program,
the General Partner and the Limited Partners. Loans to LJVs will be recourse
to the assets of the LJV and not to any of the constituent members thereof or
their assets. Also, investments in LJVs may not exceed, after the close of
the offering and any time thereafter, five percent of the Program's Net
Capital Contributions and the amount of LJV debt may not exceed, after the
close of the offering and any time thereafter, 35% of the Program's Net
Capital Contributions. An LJV investment is defined as the Program's capital
contribution to the LJV less any funds distributed to it by the LJV.
COMPETITION
The equipment leasing and finance industry is highly competitive. The
equipment leasing industry offers to users an alternative to the purchase of
nearly every type of equipment, with leases offered on a wide variety of
equipment ranging from construction equipment to entire manufacturing
facilities. Competitive factors include pricing, technological innovation and
methods of financing (including the use of various short-term and long-term
financing plans, as well as the outright purchase of equipment). Accordingly,
competition from many sources may impact the Program's business. The General
Partner intends to concentrate the Program's activities, however, in markets and
business segments in which the General Partner and its Affiliates have
expertise.
In particular, there is substantial competition for attractive
investment opportunities, both leasing and financing, in the markets and
business segments in which the Program intends to invest. In connection with
its leasing activities, the Program will compete with numerous leasing
companies, many of which are significant competitors in these markets and
business segments. Such leasing companies will compete with respect to lease
rates, additional collateral requirements and other lease terms. In connection
with its lending activities, the Program will compete with banks, finance
companies and other institutional, governmental and private lenders. Such
lenders will compete with respect to interest rates, payment and repayment
terms, maturity dates and other loan terms. Many of the entities with which the
Program will compete have substantially greater financial resources than the
Program.
In addition, there are competitive factors affecting the various
industries in which the Program's customers operate, which may adversely affect
such customers. In particular, companies engaged in the development of
technologies and other growth industry businesses are expected to face
significant competition in their niche markets and unique risks related to new
product development, product marketability and product obsolescence. See "Risk
Factors." It is possible that the competitive factors affecting particular
industries or businesses in which Program customers engage could have a material
adverse affect on such customers
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and in turn, depending on the extent of. the Program's transactions with such
customers, a material adverse effect on the Program's performance.
The Program intends to lease or finance equipment manufactured by the
computer industry, which is intensely competitive. Competitive factors include
pricing, technological innovation and methods of financing (including use of
various short-term and long-term financing plans, as well as the outright
purchase of equipment). Certain manufacturer-lessors maintain advantages
through patent protection, where applicable, and through product protection with
the use of "bundling" (a term denoting a policy that combines service and
hardware benefits, with payment for such benefits accomplished through a single
periodic charge). Although IBM, for years the mainstay of the industry, remains
one of the dominant factors in the computer equipment marketplace, it has been
adversely affected by wide-spread competition in this industry. Given the high
degree of competition and rapid pace of technological development in the
computer equipment industry, the General Partner anticipates that revolutionary
changes with respect to pricing, marketing practices, technological innovation
and the availability of new and attractive financing plans could occur at almost
any time. Significant action in any of these areas might materially and
adversely affect the remarketability of equipment owned by the Program. Any
such adverse effect on remarketability could also be reflected in the overall
return realized by the Program. The General Partner believes that IBM and its
competitors will continue to make significant advances in the computer equipment
industry, some of which may result in revolutionary changes with respect to
small, medium and large computer systems.
The Program may, to varying degrees, compete with the Prior Partnerships
(or with future partnerships formed by the General Partner or its Affiliates) in
the acquisition of assets and leasing of equipment. See "Conflicts of Interest
- -- Competition Among the Partnerships for Investments."
OTHER INVESTMENT POLICIES
Subject to limitations set forth in its Partnership Agreement, the
Program may enter into joint venture arrangements, general partnerships and
other participations with other leasing companies, manufacturers, brokers or
other Persons. Under certain conditions described in the Partnership Agreement,
the Program may invest in partnership or venture arrangements with partnerships
formed or to be formed by the General Partner or its Affiliates (including
certain of the Prior Partnerships), or other entities (excluding the General
Partner or certain of its Affiliates) deemed desirable by the General Partner.
The General Partner currently intends that the Program will participate in one
or more such venture arrangements. Subject to the limitations set forth in its
Partnership Agreement, the Program may also enter into arrangements whereby the
Program acquires or finances assets through a subsidiary of the Program.
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Because the Program generally will not have exclusive control over the
operations of a venture, it is possible that an impasse may result in arriving
at certain venture decisions. in the event of a deadlock the General Partner
will, subject to its fiduciary responsibility described elsewhere in this
Prospectus, make the ultimate decision.
The Program will not underwrite securities of other issuers, issue
securities in exchange for property or invest in securities of other issuers for
the purpose of exercising control.
The Program may sell assets to the General Partner or its Affiliates
under certain conditions set forth in Section 9.5.3 of the Partnership Agreement
for the sole purpose of effecting a liquidation of the Program's assets at the
end of the Program's term.
THERE CAN BE NO CERTAINTY THAT OBSERVANCE OF THE FOREGOING STANDARDS
WILL RESULT IN THE PROGRAM REALIZING CASH FLOW ON ITS INVESTMENTS AT ANY
SPECIFIED LEVEL. MOREOVER, IT SHOULD BE NOTED THAT CASH FLOW MAY CONSIST, IN
WHOLE OR IN PART, OF A RETURN OF INVESTMENT CAPITAL RATHER THAN INVESTMENT
INCOME.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The following summary of the material federal income tax consequences of
an investment in the Units is qualified in its entirety by reference to the
opinion of tax counsel to the Program included in "Federal Income Tax
Consequences." Counsel to the Program has rendered its opinion as to the likely
outcome on the merits of each material federal income tax issue. Counsel has
not, however, rendered any opinions with respect to facts unique to any
particular investor. The summary below indicates a number of areas where the
federal income tax consequences are dependent upon the facts attributable to a
particular investor.
1. CLASSIFICATION OF THE PROGRAM AS A PARTNERSHIP. If the Program
is classified as a partnership for federal income tax purposes, the Program
itself will not be subject to federal income tax on its taxable income.
Instead, each Partner will be required to take into account in computing his or
her income tax liability, his or her share of the items of income, gain, loss,
deduction, credit and tax preference of the Program for the taxable year of the
Program ending with or within the taxable year of the Partner, whether or not
he or she has received or will receive any cash distributions from the Program.
If the Program were not classified as a partnership for federal income tax
purposes, then the Program would be subject to tax on its taxable income at
applicable corporate tax rates, and the
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Partners would be treated as shareholders. As discussed in "Tax Status of the
Program," counsel to the Program is of the opinion that the Program will be
classified as a partnership for federal income tax purposes under currently
applicable statutes, Regulations and case law. See "Federal Income Tax
Consequences -- Tax Status of the Program."
2. AT RISK RULES. Generally, non-corporate partners are subject
to the at risk rules with respect to the Program's activities and may not
deduct the losses from that activity to the extent that such losses exceed
the at risk amount with respect to the activity. Generally, a partner's at
risk amount will equal cash contributed to the partnership minus any prior
allocations of losses and distributions, plus prior allocations of profits.
The at risk rules will apply to a Partner as a consequence of his investment
in the Program. However, the application of such rules as they relate to a
particular investor depends upon facts unique to each particular investor.
See "Federal Income Tax Consequences -- At Risk Rules."
3. LIMITATIONS ON LOSSES AND CREDITS FROM PASSIVE ACTIVITIES. The
Code severely restricts the deduction of losses from the Program. Losses
arising from a passive activity, such as the Program, generally will be
deductible only against income from other passive activities. Moreover, the
portfolio income expected to be realized by the Program is not considered to be
passive income against which passive losses might be offset. The application of
these rules as they relate to a particular investor depends upon facts unique to
each particular investor. See "Federal Income Tax Consequences -- Limitations on
Losses and Credits from Passive Activities."
4. PROGRAM ALLOCATIONS. In general, the allocation of taxable
income or loss among the Partners will be controlled by the Partnership
Agreement unless the allocation is found not to have "substantial economic
effect" under the Code. An allocation will generally be found to have
substantially economic effect if it is consistent with the underlying economic
arrangement among the Partners and reflects the manner in which the economic
benefits and burdens are shared by the Partners. Counsel is of the opinion
that, provided the Partnership Agreement is followed throughout the entire term
thereof in making distributions, maintaining Capital Accounts, allocating
income, gains, losses and deductions and in determining the rights and
obligations of the Partners upon dissolution and termination of the Program, the
allocations will generally be considered to have "substantial economic effect"
for federal income tax purposes to the extent such allocations do not cause or
increase a deficit balance in any Limited Partner's Capital Account. See
"Federal Income Tax Consequences -- Program Allocations."
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5. FEES, EXPENSES AND COSTS. The Program will incur certain
fees, expenses and costs, some of which may be currently deductible, some of
which may be capitalized and amortized and some of which must be capitalized
without amortization. Counsel is of the opinion that reasonable expenditures
for such fees are generally afforded the treatment discussed in "Federal
Income Tax Consequences -- Fees, Expenses and Costs." However, the question
of whether all or a portion of such expenditures are a reasonable amount for
the items provided involves factual determination and counsel has not
rendered an opinion on that matter. See "Federal Income Tax Consequences --
Fees, Expenses and Costs."
6. COST RECOVERY DEDUCTIONS. The Program will be entitled to cost
recovery, depreciation or amortization deductions with respect to its properties
only if it is considered to be the equitable owner of such properties for
federal income tax purposes. The determination of who is the equitable owner is
based on many factors. Counsel is of the opinion that the Program should be
treated as the equitable owner of its equipment other than equipment subject to
financings (I.E., leases intended for security). Additionally, if the purchase
of properties by the Program is leveraged, the depreciable basis of such
property will depend in part on the inclusion of such liabilities in the tax
bases of the properties. Counsel is generally of the opinion that liabilities
incurred by the Program to acquire properties should be included in the tax
bases of such properties upon their purchase. See "Federal Income Tax
Consequences -- Cost Recovery Deductions."
7. INTEREST DEDUCTION LIMITATIONS. The Code limits the deduction
of investment interest expense to the amount of an investor's investment income.
Interest expense that is subject to the passive loss limitations discussed above
is generally not subject to the investment interest limitation rules. See
"Federal Income Tax Consequences -- Interest Deduction Limitations."
8. ACTIVITIES NOT ENGAGED IN FOR PROFIT. The Code limits the
deduction of losses from an activity not engaged in for profit. There is a
statutory presumption available if an activity produces net income for a
required period of time. There is, however, no certainty that the Program will
have income sufficient to entitle it to the benefit of this presumption.
Accordingly, the Program (and perhaps, each Partner) may be required to
demonstrate that the Program (or the Partner's) activities are engaged in for
profit. Counsel, which has assumed for purposes of its overall opinion that
losses will not be disallowed under this Code provision, is generally of the
opinion that it is more likely than not that this Code Section should not
operate to limit the deduction from the Program's activities. See "Federal
Income Tax Consequences -- Activities Not Engaged In For Profit."
9. DISPOSITION OF PROPERTY. The Program will realize taxable gain
or loss on any sale or other disposition of property measured by the difference
between the selling price and the adjusted tax basis of the property. Any such
gain
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will generally be taxed under recapture provisions as ordinary income. Losses
will generally also be ordinary losses. See "Federal Income Tax Consequences --
Disposition of Property."
10. ALTERNATIVE MINIMUM TAX. The Code imposes an alternative
minimum tax ("AMT") in addition to the regular income tax. The Program as such
is not subject to the AMT. However, each Partner must take into account his or
her share of Program items relevant to computing his or her AMT. The
application of the AMT as it relates to a particular investor depends upon facts
unique to that particular investor. See "Federal Income Tax
Consequences -- Alternative Minimum Tax."
11. INVESTMENT BY QUALIFIED PLANS. Qualified plans (generally
tax-exempt entities) are generally exempt from federal income taxation, except
to the extent of unrelated business taxable income ("UBTI") in excess of $1,000
during any taxable year. The investment in the Program by a qualified plan will
generally cause it to have UBTI with respect to the Program's leasing
activities. See "Federal Income Tax Consequences -- Investment by Qualified
Plans."
12. TAX RETURNS, AUDIT RISK AND TAX SHELTER REGISTRATION. The
Program will file tax information returns annually. Any audit of the Program's
information return may also result in an audit of a Partner's return and an
adjustment of non-Program items as well as Program items. The Program is not
liable for any tax of a Partner attributable to his or her investment in the
Program, and any additional tax (together with interest and applicable
penalties) imposed on the Partner as the result of any adjustment by the Service
of the taxable income or loss of the Program must be paid by such Partner. See
"Federal Income Tax Consequences -- Tax Returns, Audit Risk and Tax Shelter
Registration."
13. PENALTY TAXES AND INTEREST. Penalties and interest may be
imposed under the Code under certain circumstances (a) on the Program, (b) on a
Limited Partner with respect to Program items or (c) on a Limited Partner with
respect to his or her reporting positions. See "Federal Income Tax Consequences
- -- Penalty Taxes and Interest."
FEDERAL INCOME TAX CONSEQUENCES
The following discussion constitutes the opinion of Thelen, Marrin,
Johnson & Bridges, counsel to the Program, as to the material federal income tax
consequences attendant upon an investment in the Units. It is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the non-codified
provisions of the Tax Reform Act of 1986 (the "1986 Act"), the Income Tax
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Regulations ("Regulations") promulgated under the Code, judicial decisions,
current positions of the Treasury Department and the Internal Revenue Service
(the "Service") contained in published Revenue Rulings and Revenue Procedures,
and current administrative positions of the Service, any of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
Certain state and local income tax consequences of an investment in the Program
are discussed under "State and Local Taxes." However, the following discussion
does not address all of the federal, state or local income tax consequences of
an investment in the Program or the numerous differences among federal, state
and local tax laws. The following discussion also summarizes certain non-tax
considerations of an investment in the Program by certain tax-exempt investors
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
See "Federal Income Tax Consequences -- Investment by Qualified Plans."
No advance rulings have been or will be obtained from the Service with
respect to any aspect relating to the Program. Counsel to the Program, Thelen,
Marrin, Johnson & Bridges, has delivered its opinion to the Program with respect
to its classification as a partnership for federal income tax purposes and
certain other tax matters, as set forth herein. Except as otherwise set forth
herein, counsel to the Program has rendered its opinion as to the likely outcome
on the merits of each material federal income tax issue. Counsel has not,
however, rendered any opinions with respect to facts unique to any particular
investor. The opinions of counsel are dated as of the date of this Prospectus
and are based upon the facts described in this Prospectus and upon certain facts
represented to counsel by the General Partner or determined by counsel as of the
date of this Prospectus. Counsel has advised the Program that its advice and
opinion as to the tax considerations described herein could change if the
organization or operation of the Program or relevant facts deviate from those
described herein. The opinions of counsel are based upon existing law, which is
subject to change as described above. A copy of such opinion is included in the
registration statement filed by the Program with the Securities and Exchange
Commission. No other opinion of counsel has been or will be obtained with
respect to any tax aspect of the Program. Unlike an advance ruling, counsel's
opinion is not binding on the Service and provides no certainty that the Service
will not challenge the tax classification of the Program or the Program's
treatment of its income and expenditures or a Partner's tax treatment of his or
her investment in the Program. In the event of such a challenge, the Partners
could be adversely affected and personally may incur substantial legal and
accounting fees and costs even if the challenge proves unsuccessful. The
adverse consequences might not be the same for all Partners.
It is impractical to summarize all aspects of federal, state and local
income tax laws that may affect the Program and the Partners. Consequently, the
following discussion should not be regarded as a complete analysis of all the
possible tax risks and tax consequences of an investment in the Program, or as a
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substitute for careful tax planning by prospective investors. The following
discussion does not address the special considerations that may apply to foreign
investors or to corporate investors subject to special rules, such as the
personal holding company tax, the accumulated earnings tax and certain S
corporation rules. EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF AN
INVESTMENT AS THEY RELATE TO HIS OR HER PERSONAL TAX SITUATION. The costs of
such consultations will be borne by prospective investors and will reduce the
anticipated yield from an investment.
As discussed in "Investment Objectives and Policies -- Other
Investment Policies," the Program may invest in venture arrangements and
general partnerships (collectively referred to herein as "ventures") formed
to acquire assets and lease equipment consistent with the investment policies
of the Program. The following discussion, to the extent it relates to
partnerships in general, is also relevant to the tax consequences of the
Program's investment in such ventures, and in turn to the tax consequences of
an investment in the Program, with respect to such assets. Since the Program
has not yet invested in any such venture arrangement, counsel to the Program
has not expressed any opinion as to any such venture.
TAX STATUS OF THE PROGRAM
PROGRAM CLASSIFICATION. Counsel to the Program is of the opinion that,
subject to the discussion below and the continuing accuracy of the assumptions
set forth below, the Program will be classified as a partnership for federal
income tax purposes under currently applicable statutes, Regulations and case
law. However, the question of the tax status of a partnership is an area of the
law that has been and is likely to continue to be the subject of considerable
legislative, administrative and judicial scrutiny, and there can be no certainty
that the tax status of the Program will not be challenged by the Service.
ASSUMPTIONS. The opinion of counsel that the Program will be classified
as a partnership for federal income tax purposes is based on current law, which
may be changed, and is subject to the continuing accuracy at all relevant times
of the following assumptions which are based in part on representations of the
General Partner:
(a) Neither the General Partner nor any owner, directly or
indirectly, of any beneficial interest in the General Partner, nor any Affiliate
of any of the foregoing, (i) will be under the individual or collective control
of the Limited Partners, (ii) will act as an agent of the Limited Partners,
(iii) will control the Limited Partners, or (iv) will be under common control or
have an identity of interests with the Limited Partners with respect to the
Program, except with respect
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to the initial Limited Partners. The General Partner's interest as a Limited
Partner will be less than ten percent following the admission of investors as
additional Limited Partners.
(b) Following the sale of Units, the purchasers of Units have been
and will be admitted to the Program, the Partnership Agreement has been duly
executed and all filings have been made in compliance with the applicable
provisions of the California Revised Limited Partnership Act. All parties will
adhere to, and act in accordance with, the Partnership Agreement.
(c) Neither the Program nor any Partner has elected or will elect to
be excluded from the partnership provisions of the Code.
APPLICABLE AUTHORITIES.
GENERAL. Section 301.7701-2 of the Regulations sets forth four
corporate characteristics to be used in distinguishing partnerships from
associations taxable as corporations: continuity of life; centralization of
management; limited liability; and free transferability of interests. In
addition, "other factors" may be present in some cases that may be significant
in classifying certain organizations. An unincorporated organization is not
classified as an association unless it has more corporate characteristics than
noncorporate characteristics.
CONTINUITY OF LIFE. An organization lacks continuity of life if any
member has the power to dissolve the organization. The Regulations provide that
a limited partnership subject to a statute corresponding to the Uniform Limited
Partnership Act lacks continuity of life. The Program will be subject to the
California Revised Limited Partnership Act, which is a statute corresponding to
the Uniform Limited Partnership Act. See Rev. Rul. 93-2, 1993-1 C.B. 239.
In MCA INC. V. UNITED STATES, 502 F. Supp. 838 (C.D. Cal. 1980), REV'D,
685 F.2d 1099 (9th Cir. 1982), a California District Court took into account the
likelihood that certain contractual provisions would be enforced in finding that
certain foreign entities possessed the corporate characteristic of continuity of
life. The owners of the entities in question were found to be under common
control and to have an "identity of interests" with respect to the entities,
thus making it unlikely, in the court's view, that provisions relating to
dissolution of the entities would be enforced. The District Court decision in
MCA was reversed by the Ninth Circuit based on its determination that the owners
of the entities in question had separate and distinct economic interests. To
date, counsel to the Program is not aware of any authority for extending the
District Court holding to a partnership in which substantially all the owners do
not have an "identity of interests" or are not under common control, or to
partnerships organized under statutes corresponding to the Uniform Limited
Partnership Act. Moreover, in Revenue Ruling 93-4,
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1993-1 C.B. 238, the Service held that the presence or absence of separate
interests is not relevant to the determination of whether an entity possesses
continuity of life.
Counsel has assumed that none of the persons and entities referred to in
paragraph (a) above under "Assumptions" will be under common control or will
have an identity of interests with respect to the Program, except as discussed
above. Consequently, based upon counsel's assumptions and the Service's
position in Revenue Ruling 93-4, the MCA District Court decision should have no
adverse effect on the classification of the Program.
Based on the foregoing analysis, counsel is of the opinion that the
Program will lack the corporate characteristic of continuity of life.
CENTRALIZATION OF MANAGEMENT. The corporate characteristic of
centralized management ordinarily does not exist in a limited partnership
subject to a statute corresponding to the Uniform Limited Partnership Act unless
"substantially all" the interests in the partnership are owned by limited
partners. The Tax Court has held that centralized management is not present if
the general partner in a limited partnership has a "meaningful proprietary
interest" in the partnership. PHILLIP G. LARSON, 66 T.C. 159 (1976), ACQ. 1979-1
C.B. 1. The Service will issue a private letter ruling that centralized
management does not exist if the general partners own, in the aggregate, more
than 20% of the interests in the partnership. However, this ruling policy is not
necessarily determinative of whether centralized management is present under the
Regulations.
The Partnership Agreement provides that the General Partner is entitled
to receive certain distributions and to be allocated certain percentages of
income and losses and other items of the Program. Accordingly, the General
Partner has an interest in the Program. However, because of the lack of
authority as to what constitutes a meaningful proprietary interest for this
purpose, counsel is unable to opine that the Program will lack the corporate
characteristic of centralized management.
LIMITED LIABILITY. An organization has the corporate characteristic of
limited liability if no member has personal liability "for the debts of or
claims against the organization." Generally, personal liability exists with
respect to each general partner in a limited partnership subject to a statute
corresponding to the Uniform Limited Partnership Act. However, personal
liability does not exist with respect to a general partner "where he has no
substantial assets (other than his interest in the partnership) which could be
reached by a creditor of the organization and when he is merely a 'dummy' acting
as the agent of the limited partners." The courts have held that personal
liability exists unless a general partner both (a) lacks substantial assets and
(b) is a "dummy." A "dummy" is one
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who is under the control of the limited partners or is an agent of the limited
partners. PHILLIP G. LARSON; ZUCKMAN V. UNITED STATES, 524 F.2d 729 (Ct. Cl.
1975).
Counsel has assumed that none of the persons and entities referred to in
paragraph (a) above under "Assumptions" will be under the individual or
collective control of the Limited Partners or will act as an agent of the
Limited Partners, except as discussed above. Consequently, under the present
court interpretations of the Regulations, it is not necessary to determine
whether the General Partner has substantial assets (other than its interest in
the Program) that could be reached by Program creditors, and counsel is of the
opinion that personal liability will exist. Accordingly, counsel is of the
opinion that the Program should not possess the corporate characteristic of
limited liability.
FREE TRANSFERABILITY OF INTERESTS. The corporate characteristic of free
transferability of interests exists if each member or those members owning
substantially all the interests have the power, without the consent of other
members, to substitute for themselves in the organization a person who is not a
member. The Regulations further provide that the power of substitution does not
exist unless the member is able, without the consent of other members, to confer
upon his or her substitute all the attributes of his or her interest in the
organization, including his or her right to participate in the management of the
organization.
The Partnership Agreement permits Limited Partners to assign their Units
under certain circumstances, but provides that no assignee may be admitted as a
substituted Limited Partner without the consent of the General Partner. Under
the California Revised Limited Partnership Act and the Partnership Agreement, an
assignee of a Limited Partner who does not become a substituted Limited Partner
is not entitled to exercise any rights and is entitled only to receive the
distributions and allocations to which the assignor would be entitled.
Accordingly, a Limited Partner does not have the unilateral right to confer upon
his or her assignee all the attributes of his or her interest in the Program.
In the MCA case referred to above, the District Court held that the
corporate characteristic of free transferability of interests was present
notwithstanding certain contractual restrictions on transfers of interests in
certain foreign entities. This holding was based on the court's conclusion that
since the owners of the entity were under common control and had an "identity of
interests" with respect to the entities, they could not be expected to enforce
the contractual restrictions on transfers. For the reasons set forth above in
connection with the discussion of the characteristic of continuity of life,
counsel believes that the District Court decision in MCA should have no adverse
effect on the classification of the Program.
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In Revenue Ruling 93-4, the Service held that where all the members of
an entity were commonly controlled free transferability of interests was
present. The Service concluded that in order to lack free transferability, the
possibility of an impediment to transfer must exist. Counsel has assumed that
none of the persons and entities referred to in paragraph (a) above under
"Assumptions" will be under common control or will have an identity of interests
with respect to the Program, except as discussed above. Consequently, Revenue
Ruling 93-4 should have no adverse effect on the classification of the Program.
Based on the foregoing analysis, counsel is of the opinion that the
Program will not possess the corporate characteristic of the free
transferability of interests.
OTHER FACTORS. In some cases "other factors," in addition to the four
major characteristics discussed above, may be significant in classifying an
organization as an association or a partnership. The Tax Court in LARSON has
indicated that it will not give controlling weight to such "other factors"
unless their materiality is "unmistakable." The Service has set forth in Revenue
Ruling 79-106, 1979-1 C.B, 448, seven factors that it will not treat as "other
factors" for purposes of partnership classification. In view of the
"unmistakable" materiality standard set forth in LARSON and the Service's
position in Revenue Ruling 79-106, counsel does not believe there are any "other
factors" with respect to the Program that would justify altering its
classification as determined on the basis of the four major characteristics
discussed above.
PUBLICLY TRADED PARTNERSHIPS. Provisions of the Code generally provide
that a "publicly traded partnership" will be taxed as a corporation. Section
7704(b) defines a "publicly traded partnership" as any partnership whose
interests are traded on an established securities market or are readily tradable
on a "secondary market" (or the substantial equivalent thereof). Treasury
Regulations provide further clarification of the meaning of the term "publicly
traded partnership." Pursuant to one of those safe harbors ("De Minimis Trading
Exception"), interests in a partnership will not be treated as readily tradable
on a secondary market or the substantial equivalent thereof if generally the sum
of percentage interests in partnership capital and profits transferred during
the taxable year of the partnership does not exceed two percent. The
Partnership Agreement contains provisions which satisfy the requirements of the
De Minimis Trading Exception.
The Partnership Agreement provides that the General Partner may require
as a condition to any sale, assignment or other disposition of Units the receipt
of an opinion that such sale, assignment or other disposition will not result in
the Program being treated as a publicly traded partnership for Federal income
tax purposes. Any such opinion will be constrained by the terms of the
provisions of Regulations Section 1.7704-1, accordingly, additional restrictions
may thereby be
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imposed on the number of permitted transfers of Units to conform to any such
safe harbors.
CONCLUSION AS TO PROGRAM CLASSIFICATION. Under the existing Code,
Regulations, court decisions and other applicable law, and based on the
assumptions set forth above, counsel to the Program is of the opinion that the
Program will not have more corporate characteristics than noncorporate
characteristics and that the Program will not be treated as a publicly traded
partnership. Accordingly, counsel is of the opinion that for federal income tax
purposes the Program will be classified as a partnership rather than as an
association taxable as a corporation. However, counsel's opinion could be
adversely affected by a change in applicable law.
The continued treatment of the Program as a partnership for federal
income tax purposes is dependent upon the provisions of the Code, Regulations,
court interpretations of the Code and administrative rulings, all of which are
subject to change. The Tax Court in LARSON suggested that the Service
reconsider the Regulations regarding the tax classification of a partnership.
If the existing Regulations were amended, the Program might not qualify as a
partnership under the amended Regulations. In this respect, amended Regulations
have been proposed in the past and withdrawn as to the classification of
partnerships as associations for tax purposes, which would have had a
substantially adverse effect on the Program. Furthermore, from time to time
legislation has been proposed, but not enacted, that would materially alter the
rules relating to the classification of partnerships as associations. See,
E.G., Revenue Bill of 1978, H.R. 12078, 95th Cong., 2d Sess. Sec. 244 (1978).
Legislation may be enacted, which would have an adverse effect upon the
classification of the Program as a partnership for tax purposes.
In Revenue Procedure 89-12, 1989-1 C.B. 633, as supplemented by Revenue
Procedures 91-13, 1991-1 C.B. 447 and 92-33, 1992-1 C.B. 782, the Service
published procedural guidelines prescribing the circumstances in which favorable
tax status rulings may be issued to limited partnerships, such as the Program.
The Revenue Procedure indicates that its provisions are not intended to be
substantive rules for the determination of partner and partnership status and
are not to be applied upon audit of taxpayers' returns. It is expected that the
Program will satisfy many, but not all, of the factors enumerated in such
Revenue Procedure. However, no advance rulings have been or will be obtained
from the Service with respect to any aspect relating to the Program.
There can be no certainty that the Program will continue to be
classified as a partnership for federal income tax purposes. The Partners would
suffer substantial adverse tax consequences if the Program ceased to be
classified as a partnership.
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On March 29, 1995 the Service issued Notice 95-14 which announced that
the Service and the Treasury Department are considering simplifying the
classification regulations to allow taxpayers to treat domestic
unincorporated business organizations as partnerships or associations on an
elective basis. On May 10, 1996, the Service issued Proposed Regulations
under Code Section 7701 to implement the simplified entity classification
proposal announced in Notice 95-14. If adopted in their current form, these
regulations generally would not change the status of current law governing
the classification of the Program as a partnership as discussed above. An
entity which is publicly traded and is taxed as a corporation under Code
Section 7704 would continue to be taxed as a corporation under the Proposed
Regulations which are generally proposed to be effective when they are
published in final form. Although the final form of the Proposed Regulations
cannot be predicted, it is not anticipated that the adoption of such
Regulations in final form would have any adverse impact on the status of the
Program as a partnership for federal income tax purposes.
ANTI-ABUSE REGULATIONS. Pursuant to Regulations issued under Section
701 of the Code, the Service is authorized, in certain "abusive" transactions
involving partnerships, to disregard the form of transaction and recast it for
federal income tax purposes as it deems appropriate (the "Anti-Abuse
Regulations"). The Anti-Abuse Regulations would apply if the partnership is
found or availed of in connection with a transaction (or series of transactions)
with a principal purpose of substantially reducing the present value of the
partners'' aggregate federal tax liability in a way inconsistent with the intent
of the partnership provisions of the Code. Based on its review of the
Anti-Abuse Regulations and the examples contained therein, the terms of the
offering and the proposed business plan of the Program, and based on the
expectation of the General Partner that an investment in the Program will not
reduce the tax liability of any investor during the first five-year period of
the program counsel does not believe such regulations would be applicable to
recharacterize the classification of the Program as a partnership for federal
income tax purposes. However, because such regulations are broad in scope and
would be applied based on an analysis of all the facts and circumstances,
counsel can give no assurance the Service would not attempt to apply such
regulations to the Program.
CLASSIFICATION OF VENTURES. As discussed in "Investment Objectives and
Policies -- Other Investment Policies," the Program may enter into ventures with
other partnerships sponsored by the General Partner or its Affiliates. The
General Partner and its Affiliates, with management control of such ventures,
intend to use their best efforts to ensure that such ventures will be classified
as partnerships for federal income tax purposes rather than as associations
taxable as corporations. Any such venture will be formed as a general
partnership pursuant to the Uniform Partnership Act as adopted by the state in
which it is formed. The Regulations generally provide that a general partnership
formed under a state statute
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corresponding to the Uniform Partnership Act will be classified as a partnership
rather than as a corporation. Counsel to the Program, however, has not
expressed an opinion as to the tax status of any venture in which the Program
may invest because the Program has not yet invested in any venture.
TAX CONSEQUENCES OF STATUS OF THE PROGRAM
PROGRAM CLASSIFIED AS A PARTNERSHIP. If the Program is classified as a
partnership for federal income tax purposes, the Program itself will not be
subject to federal income tax on its taxable income. See "Tax Returns, Audit
Risk and Tax Shelter Registration." Each Partner will be required to take into
account in computing his or her income tax liability his or her share of the
items of income, gain, loss, deduction, credit and tax preference of the Program
for the taxable year of the Program ending with or within the taxable year of
the Partner, whether or not he or she has received or will receive any cash
distributions from the Program. See "Program Allocations." During some taxable
years, the taxable income of the Program may exceed the cash distributable to
the Partners. To the extent a Partner's tax liabilities attributable to his or
her investment in the Program exceed his or her cash distributions from the
Program in any year, he or she will be required to pay such excess tax
liabilities from sources other than the Program.
The Program will adopt the calendar year as its taxable year. The
ability of the Program to adopt the calendar year depends on the taxable year of
some or all of the Partners. If the Program is not authorized under the Code to
adopt the calendar year, the Program may request permission from the Service to
do so, although there can be no certainty that such request would be approved.
The Program's use of a taxable year other than the taxable year of a Partner
will affect the timing of the Partner's reporting of his or her share of the
income, gain, loss, deduction, credit and tax preference of the Program.
A Partner's share of taxable loss of the Program for a year which may be
deducted on his or her personal tax return cannot exceed the adjusted tax basis
of his or her Units as of the close of such year. See "Basis of Units." The
deduction of losses is also limited by the limits on passive losses. See
"Limitations on Losses and Credits from Passive Activities." In addition, a
Partner (other than a corporation that is not a closely-held corporation) cannot
deduct his or her share of Program losses for a year for an activity to the
extent such share exceeds the aggregate amount he or she is "at risk" as of the
close of such year for such activity. See "At Risk Rules." If a Partner's
share of Program losses is not deductible because the loss exceeds the adjusted
tax basis of his or her Units or the amount he or she is at risk, the disallowed
loss may be carried forward by him or her and deducted in subsequent taxable
years to the extent he or she then has tax basis or at risk amount.
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Cash distributions by the Program to a Partner generally will not be
taxable to him or her unless they exceed the adjusted tax basis of his or her
Units. In which case, he or she generally will recognize gain in the amount of
such excess. However, with respect to a Partner subject to the at risk rules for
an activity, if his or her share of losses or distributions from such activity
reduces his or her at risk amount to zero, subsequent distributions of cash or
other property to him or her attributable to such activity will cause him or her
to "recapture" as ordinary income an equal amount of losses from such activity
previously deducted by him or her. A reduction in a Partner's share of Program
liabilities will be treated for federal income tax purposes as a cash
distribution to him or her to the extent of the amount of such reduction.
PROGRAM CLASSIFIED AS AN ASSOCIATION. If the Program were classified
for federal income tax purposes as an association taxable as a corporation
rather than as a partnership, the Program would be subject to tax on its taxable
income at the corporate tax rates, and the Partners would be treated as
shareholders. The Partners would not report their shares of Program items of
income, gain, loss, deduction, credit and tax preference for tax purposes. Cash
distributions to the Partners would be treated as dividends taxable to them as
ordinary income to the extent of current and accumulated earnings and profits of
the Program. Distributions in excess of earnings and profits would first be
applied to reduce the Partners' adjusted tax bases of their Units, and the
balance would be considered gain with respect to their Units.
CLASSIFICATION OF VENTURES. If any venture in which the Program invests
is classified as a partnership for federal income tax purposes, such venture
will not be subject to federal income tax on its taxable income. Instead, the
Program will be required to take into account its share of the items of income,
gain, loss, deduction, credit and tax preference of such venture for its taxable
year ending with or within the taxable year of the Program, whether or not the
Program has received or will receive any cash distributions from such venture.
In turn, as discussed above, each Partner of the Program will be required to
take into account his or her share of Program items attributable to operations
of ventures and operations of the Program. If a venture were classified as an
association taxable as a corporation, the tax consequences to such venture and
the Program would be similar to those discussed if the Program were classified
as an association taxable as a corporation.
BASIS OF UNITS
The adjusted tax basis of the Units of a Partner is important in
determining the amount of Program Losses he or she may deduct, the taxation of
distributions by the Program to him or her, the gain or loss realized on
disposition of his or her Units, and the tax consequences to him or her on
liquidation or termination of the Program. See "Tax Consequences of Status of
the Program,"
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"Disposition of Units," "Liquidation of the Program" and "Termination of the
Program." See "At Risk Rules" and "Limitations on Losses and Credits from
Passive Activities" regarding the tax consequences to Partners subject to the at
risk rules and the limitations on passive loss rules.
The tax basis of the Units of a Partner initially will equal the sum of
(i) his or her Capital Contribution to the Program, and (ii) his or her share of
Program liabilities for which no Partner or person related to such Partner
within the meaning of Treasury Regulation Section 1.752-1(a)(2) bears the
economic risk of loss for such liabilities ("nonrecourse" liabilities), provided
such liabilities do not exceed the fair market value of the properties securing
their repayment. The tax basis attributable to recourse liabilities will be
generally allocated solely to the General Partner, who will bear the economic
risk of loss with respect to such liabilities. The Program has incurred and may
continue to incur nonrecourse indebtedness in connection with the acquisition of
assets. Furthermore, the Program's share of nonrecourse liabilities of joint
ventures in which it invests will be treated as Program liabilities for this
purpose, provided such joint ventures are classified as partnerships for federal
income tax purposes and such liabilities do not exceed the fair market value of
the properties securing their repayment. Under the Regulations, a Partner's
share of nonrecourse Program liabilities is generally determined in accordance
with his or her ratio for sharing Program Profits.
Generally, the tax basis of the Units of a Partner subsequently will be
increased by (i) his or her share of Program taxable income and other items
described in Code Section 705(a)(1), and (ii) his or her share of any increase
in nonrecourse Program liabilities, and will be reduced (but not below zero) by
(i) distributions of cash and other property to him or her from the Program,
(ii) his or her share of Program Losses and other items described in Code
Sections 705(a)(2) and (3), and (iii) reductions in his or her share of
nonrecourse Program liabilities. A Partner's share of nonrecourse liabilities
will increase or decrease if the total amount of such liabilities increases or
decreases, or if his or her share of such liabilities increases or decreases
(for example, as a result of the transfer of all or a portion of his or her
Units or the admission of additional Limited Partners).
AT RISK RULES
In general, Partners other than corporations that are not closely-held
corporations (I.E., corporations in which five or fewer shareholders own
directly or indirectly more than 50% of the stock, other than certain leasing
companies) are subject to the at risk rules with respect to the Program's
activities. A Partner who is subject to the at risk rules with respect to a
Program activity may not deduct his or her share of losses for a year from that
activity to the extent such share exceeds the amount he or she is at risk with
respect to the activity as of the close of such year. Excess losses are carried
forward to subsequent years in which a sufficient at
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risk amount is present. The Tax Reform Act of 1984 (the "1984 Act") amended the
at risk rules in the Code to provide that all leased personal property placed in
service during the same year is treated as a single and separate activity.
Accordingly, a Partner will have separate at risk amounts for his or her share
of personal property placed in service in different years. Pending the issuance
of Regulations interpreting these provisions, it is uncertain how a Partner's
overall at risk amount should be allocated among personal property placed in
service in different years.
Generally, a Partner's at risk amount for an activity equals the
adjusted tax basis of his or her Units attributable to the activity less his or
her share of nonrecourse Program liabilities attributable to the activity.
However, a Partner is not at risk to the extent the adjusted tax basis of his or
her Units includes borrowed amounts contributed by him or her to the Program
unless he or she is personally liable for repayment of such amounts or has
pledged property (other than his or her Units) as security for repayment (to the
extent of the net fair market value of his or her interest in the pledged
property). In addition, a Partner is not at risk with respect to amounts he or
she contributes to the Program, which have been borrowed from persons (or
persons related to such persons within the meaning of Code Section 465(b)(3)(C))
who have an interest, other than as a creditor, in the Program.
The application of the at risk rules to a Partner will depend on his or
her at risk amount for each activity and his or her share of losses, if any,
each year from each such activity. Distributions from an activity also affect a
Partner's at risk amount and, in some cases, may cause his or her at risk amount
to be less than zero (I.E., negative). If a Partner's at risk amount for any
activity is negative at the close of any tax year, he or she will be required to
include in gross income for that year an amount sufficient to restore his or her
at risk amount to zero. Any amount included in gross income because of a
negative at risk amount is allowable as a deduction, allocable to such activity,
in the succeeding tax year.
Any potential investor who intends to borrow any portion of his or her
Capital Contribution to the Program on a nonrecourse basis (or from a person or
persons related to such persons within the meaning of Code Section 465(b)(3)(C))
should consult his or her personal tax advisor regarding the at risk rules
before investing.
LIMITATIONS ON LOSSES AND CREDITS FROM PASSIVE ACTIVITIES
Provisions enacted in the Code in the 1986 Act severely restrict the
deduction of losses from the Program. Losses arising from a passive activity
generally will be deductible only against income from other passive activities
under the passive loss rules of Code Section 469. The passive loss rules apply
to
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individuals, estates, and trusts. The rules also apply to professional service
corporations and to the portfolio income of certain closely-held corporations
subject to the rule limiting deductions to amounts at risk.
A passive activity is defined as an activity which involves the conduct
of a trade or business in which the taxpayer does not materially participate.
An individual will participate materially in an activity only if the individual
is involved in the operations of the activity on a regular, continuous and
substantial basis. A limited partner is generally not treated as materially
participating in any activity of a limited partnership. Accordingly, ownership
of a limited partnership interest will generally be treated as a passive
activity.
Losses attributable to passive activities may generally be deducted
against income or gains attributable to other passive activities but may not be
deducted against other types of income such as salary, interest, dividends and
active business income. Disallowed losses are prorated among each passive
activity that generated losses. For example, if an individual had losses from
more than one passive activity, the disallowed portion (I.E., the excess of
passive activity losses over passive activity income), would be prorated among
the activities on the basis of the overall loss from each activity. Credits
from passive activities generally will be limited to the tax allocable to the
passive activities. Losses and credits that are disallowed under the passive
loss rules may be carried forward to subsequent taxable years and deducted or
credited to the extent that the taxpayer has net passive income in such
subsequent years, subject generally to the application of the passive loss rules
in such years.
Income or loss from the leasing activities of the Program will generally
be classified as passive income. The Program will elect to treat all of its
leasing activities as a single activity for the purpose of the passive loss
rules. However, not all of the income generated that may be generated by the
Program will be classified as passive income. Specifically, portfolio income is
not considered to be passive income against which passive losses may be offset.
For purposes of the passive loss rules, portfolio income, which is accounted for
separately from passive income, includes interest, dividends, royalties, and
gain or loss attributable to disposition of property that is held for investment
and property that normally produces interest, dividends or royalty income. The
Program will maintain cash balances invested on a short term basis, which will
produce portfolio income. To the extent that the Program is in the trade or
business of lending money, Temporary Regulations provide that interest income
derived from the lending of money by an equity financed lender like the Program
will not be passive activity income against which passive losses might be
offset. Additionally, to the extent that the Program is not deemed to be the
equitable owner of its properties, the character of Program leasing income may
be deemed to be non-passive as an equity financed lending activity. See
"Federal Income Tax Consequences -- Cost Recovery Deductions -- Equitable
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Owner of Properties." Sales proceeds from the sale of an investment that is a
passive activity will not be treated as portfolio income. Thus, it is expected
that the Program will have both passive and non-passive income.
The Program will be required to allocate its operating expenses,
overhead expenses (including the Management Fee and Acquisition Fee) and
interest expenses between its passive activities and its portfolio income
activities.
Expenses, other than interest, are attributable to portfolio income if
such expenses are incurred as a result of, or incident to, an activity in which
such gross income is derived or in connection with the property from which such
gross income is derived. For example, general and administrative expenses
attributable to the performance of services that do not directly benefit or are
not incurred by reason of a particular activity or particular property are not
clearly and directly allocable to portfolio income and are, accordingly,
passive.
Temporary Regulations provide that debt is allocated to expenditures in
accordance with the use of the debt proceeds and interest expense accruing on a
debt during any period is generally allocated to expenditures in the same manner
as debt is allocated from time to time during such period. Debt is allocated by
tracing disbursements of the debt proceeds to specific expenditures.
Additionally, if an investor borrows money to purchase or carry his or her
Units, the same tracing rules apply.
No further administrative guidance other than the Temporary Regulations
regarding expense allocations has been released. The Program will attempt to
comply with the Temporary Regulations. However, it is possible that the
Program's methods may not ultimately be permitted when more specific
administrative guidance is provided by the Service. This may result in a
modification of the Program's portfolio and passive income or loss which could
result in the Limited Partners being required to file amended tax returns.
A deduction that is suspended under the at risk rules (Code Section 465)
or because a Partner does not have sufficient basis in his or her Units (Code
Section 704(d)) is not a passive activity deduction until it is permitted under
such rules. Moreover, if a loss is disallowed under Code Section 465 or 704(d),
Temporary Regulations provide that a prorated portion of each deduction taken
into account in computing such loss (E.G., passive or portfolio) is disallowed.
Expenses other than interest are treated as passive activity deductions
under the Temporary Regulations for a taxable year if the deduction (a) arises
in connection with the conduct of an activity that is passive activity for the
taxable year or (b) is carried over from the preceding taxable year under Code
Section 469(b). In other words, a deduction is not taken into account in
computing the
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passive activity loss until the first taxable year in which the deduction is not
disallowed by any applicable limitation other than those with respect to passive
activity losses and capital losses. The determination of whether a deduction
from an activity is a passive activity deduction does not depend on the
character of the activity in taxable years in which the deduction is disallowed
under limitations other than Code Section 469.
Gain or loss realized by a Limited Partner on the disposition of his or
her Units will be treated as passive income or loss. Upon a fully taxable
disposition of a Limited Partner's entire interest in the Program to an
unrelated party, the Limited Partner may deduct any loss incurred on the
disposition, any suspended loss from the Program from prior years and any
current year loss from the Program. Such losses must be first deducted against
the Limited Partner's other passive income for the year, and any excess may be
deducted against other types of income such as salary or portfolio income. If
the loss is a capital loss, it is subject to the general limitation that an
individual may deduct capital losses in a particular year only to the extent of
capital gains plus $3,000.
A mere change in the form of ownership of Units (such as a non-taxable
transfer to a controlled corporation) will not result in the allowance of
suspended losses. Similarly, if Units are acquired by a person who is related
to the Limited Partner within the meaning of section 267(b) or 707(b)(1) of the
Code, the suspended losses are not deductible by the Limited Partner until the
Units are acquired in a fully taxable transaction by a person who is not related
to the Limited Partner. If a Limited Partner transfers his or her Units as a
gift, any suspended losses are added to the donee's tax basis in the Units but
are not separately deductible by the donor or the donee. If Units are
transferred as a result of the death of a Limited Partner, suspended losses may
be allowed as deductions on the decedent's final return, but only to the extent
that the suspended losses exceed the increase, if any, in tax basis of the Units
that is allowed to the decedent's successor in interest under the rules
governing the tax basis of property passing by reason of death.
Credits with respect to passive activities will be used to offset tax
attributable to passive income with the amount of tax to be determined by
comparing the tax that the taxpayer would pay with regard to all income from
whatever source with the tax the taxpayer would pay with regard to taxable
income other than net passive income. Passive losses will therefore be used to
reduce the passive income before credits arising with respect to passive
activities may be used.
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PROGRAM ALLOCATIONS
VALIDITY OF PROGRAM ALLOCATIONS. In general, the allocation of overall
taxable income or loss of the Program among the Partners, as well as any item of
income, gain, loss or deduction, will be controlled by the Partnership
Agreement, unless the allocation is found not to have "substantial economic
effect" under Code Section 704(b)(2). An allocation will generally be found to
have substantial economic effect if it is consistent with the underlying
economic arrangement among the Partners and reflects the manner in which the
economic benefits and burdens are shared by the Partners. If an allocation
does not have substantial economic effect, a Partner's share will be determined
in accordance with his or her interest in the Program, taking into account all
the facts and circumstances. In such event, (i) the taxable income allocable to
the Limited Partners might be increased and any losses and credits allocable to
them might be decreased, and (ii) the Limited Partners' shares of nonrecourse
Program liabilities includable in the adjusted tax bases of their Units might be
reduced.
In recent years the Service has promulgated and amended Section 704(b)
Regulations on numerous occasions relating to the determination of a partner's
distributive share of partnership income, gains, losses, deductions and credits.
The Regulations, in general, provide that partnership allocations do not have
"economic effect" unless the following provisions are included in the
partnership agreement: (1) partners' capital accounts must be maintained in
accordance with the Regulations; (2) upon liquidation of the partnership,
liquidating distributions must be made in accordance with positive capital
account balances; and (3) a partner is required to contribute capital to the
partnership equal to any deficit capital account balance following liquidation
of the partner's interest in the partnership. For business reasons, the
Partnership Agreement does not include the third provision. The Regulations
provide an alternate test for economic effect if the partnership agreement
contains a "qualified income offset." The Partnership Agreement attempts to
comply with this alternate test as well as the other applicable requirements of
the Regulations. The Partnership Agreement provides that those Partners who
have or would have, as a result of an allocation of losses, deficit capital
accounts in excess of their shares of Program or Partner nonrecourse deductions
(I.E., deficits caused by losses funded by nonrecourse debt) shall be allocated
income as rapidly as possible so as to reduce such deficit Capital Account
balances to zero. The result could be an acceleration in the income allocated
to Limited Partners. To the extent allocations fail to qualify for the
alternate test for economic effect, the allocations in the Partnership Agreement
will be governed by the Partners' interests in the Program, taking into account
all the facts and circumstances.
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The Regulations provide that where capital accounts are maintained in
accordance with the rules of the Regulations and liquidating distributions are
to be made in accordance with positive capital account balances, the partners'
interests in the partnership each year generally will be determined by comparing
the manner in which distributions (and contributions) would be made if all
partnership property were sold at book value and the partnership were liquidated
immediately prior to the taxable year, with the manner in which distributions
and contributions would be made if the sale of partnership property at book
value and liquidation occurred at the end of the taxable year. Allocations made
under this rule generally would be similar to those provided in the Partnership
Agreement, although there is no assurance the Service would not be successful
in reallocating Program income or loss in a different manner with the result
that the share of income of Limited Partners might be increased or their share
of losses decreased.
The Program and the ventures in which it may invest anticipate financing
the purchase of equipment with nonrecourse liabilities. See "Investment
Objectives and Policies -- Borrowing Policies." The Regulations provide special
rules for allocations of deductions and losses attributable to nonrecourse
liabilities. Deductions and losses are generally attributable to nonrecourse
liabilities to the extent of the net increase in the amount of "partnership
minimum gain" during a fiscal year. Partnership minimum gain generally is the
aggregate amount of gain that would be realized by the Program if it disposed of
all assets subject to nonrecourse liabilities in full satisfaction of all such
nonrecourse liabilities. Generally, minimum gain will exist when the adjusted
tax bases of Program assets securing nonrecourse liabilities become less than
the aggregate balances of the nonrecourse liabilities. This may occur over the
term of the Program as a result of depreciation and amortization deductions,
which reduce basis.
Under the Regulations, allocations of nonrecourse deductions will be
respected if (1) partners' capital accounts are maintained in accordance with
the requirements of the Regulations, (2) liquidating distributions are made in
accordance with positive capital account balances, (3) allocations of
nonrecourse deductions are made among the Partners in a manner which is
reasonably consistent with allocations that have substantial economic effect of
some other significant partnership item attributable to the assets securing the
nonrecourse liabilities, (4) the partnership agreement contains a "minimum gain
chargeback" (I.E., a chargeback of income or gain to partners who have been
allocated nonrecourse deductions in an amount equal to the net reduction in such
partners' shares of partnership minimum gain), and (5) all other material
allocations and capital account adjustments under the partnership agreement are
recognized under the Regulations. Counsel is of the opinion that the
Partnership Agreement satisfies each of the foregoing requirements. If these
requirements are not satisfied, nonrecourse deductions must be allocated in
accordance with the overall economic interests of the Partners.
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It should be noted that if the Program incurs deductions that are
attributable to loans made by the General Partner or its Affiliates (or to loans
guaranteed by the General Partner or such Affiliates), under the Regulations
those deductions would be reallocated to the General Partner.
The Program has been advised by counsel that provided the Partnership
Agreement is followed throughout the entire term thereof in allocating and
making distributions, maintaining Capital Accounts, allocating income, gains,
losses and deductions (including nonrecourse deductions), and in determining the
rights and obligations of Partners upon dissolution and termination of the
Program, counsel is of the opinion that allocations of income, gain, loss,
deduction and credit under the Partnership Agreement will generally be
considered to have "substantial economic effect" for Federal income tax purposes
to the extent such allocations do not cause or increase a deficit balance in any
Limited Partner's capital account (after taking into account the adjustments
required by Regulation Section 1.704-1(b)(2)(ii)(d)). Counsel is also of the
opinion that allocations attributable to nonrecourse indebtedness that result in
deficit capital account balances will be respected for Federal income tax
purposes. However, as provided in the current Regulations, allocations to
Limited Partners that actually result in deficit capital account balances and
are not attributable to nonrecourse indebtedness likely would not be recognized
for Federal income tax purposes. The General Partner does not anticipate,
however, that the Program's operations will result in any Limited Partner having
a deficit balance in his or her capital account that is not attributable to
nonrecourse debt. Notwithstanding the opinion of counsel, there can be no
absolute assurance that the Service will not challenge the allocations in the
Partnership Agreement.
In the event any allocation fails to satisfy the substantial economic
effect requirements or in the case of any allocation of items of loss and
deduction attributable to nonrecourse indebtedness, such allocation fails to be
in accordance with the Partner's interest in the Program, each Partner's share
of the allocation will be determined in accordance with his or her "interest in
the Program," taking into account all facts and circumstances. Any such
adjustment could have an adverse effect on the investment of the Limited
Partners.
The allocations of any venture in which the Program invests also will be
controlled by the partnership agreement of such venture if the allocations have
substantial economic effect. A determination by the Service that the
allocations do not have substantial economic effect might result in an increase
in the taxable income (or decrease in the taxable loss) of the venture allocable
to the Program, and in turn to the Partners of the Program. In addition, the
Program's share of nonrecourse liabilities of such venture, and in turn the
Partners' shares of such liabilities, might be reduced, resulting in a decrease
in the adjusted tax bases of the Partners' Units. The General Partner has
represented that it will use its best efforts
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to ensure that the allocations of any venture in which the Program invests have
substantial economic effect. However, counsel has not expressed an opinion as
to the validity of the allocations of any such venture because the Program has
not as yet invested in any venture.
ALLOCATIONS AMONG LIMITED PARTNERS. Code Section 706(d) prohibits
retroactive allocations of profits, losses and other items of a partnership
among its partners. Generally, a partner's share of such items must be
determined by taking into account his or her varying interest in the partnership
during any taxable period, and a partner may not be allocated a share of
partnership items that are attributable to any period during which he or she was
not a partner. Accordingly, each Limited Partner's share of Program allocations
will depend on his or her interest in the Program and when he or she became a
Limited Partner.
POTENTIAL RECHARACTERIZATION OF DISTRIBUTIONS AND ALLOCATIONS. The
General Partner has an interest in certain Program distributions as discussed in
"Cash Distributions and Redemptions," and will be allocated Program gross rental
and interest income consistent with such distributions. Under certain
circumstances, related allocations and distributions to a partner may be
recharacterized under Code Section 707(a)(2)(A) as fees for services performed,
or payments for property transferred by, a non-partner if the performance of
such services or the transfer of such property is properly characterized as a
transaction between the partnership and the partner acting other than in his or
her capacity as a partner. The recharacterization of any related allocations and
distributions would increase the income (or decrease the losses) allocable to
the Limited Partners unless such payments were currently deductible. The Tax
Reform Act of 1984 (the "1984 Act") directs the Treasury Department to issue
Regulations implementing this provision. Until such regulations are issued, the
application of this provision to specific situations is unclear. Until
Regulations are issued, there can be no certainty as to whether any related
allocations and distributions will be recharacterized as payment for services or
property. Any such recharacterization could result in adverse tax consequences
to the Limited Partners.
TAXABLE INCOME IN EXCESS OF DISTRIBUTIONS
A Partner's share of Program taxable income in some years may exceed his
or her distributions from the Program. The likelihood that this may occur is
increased by the Program's plan to invest a substantial portion of its cash flow
during the early years of the Program in debt instruments and additional assets
(see "Cash Distributions and Redemptions"). Interest income from partnership
loans will be taxable to the partners and may not be offset against losses from
the partnership operations which are classified as passive losses. See
"Limitations on Losses and Credits from Passive Activities."
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Moreover, it is possible that a Partner's liability with respect to such
share of Program taxable income may exceed the amount of cash distributed to
him or her from the Program, in which event he or she will have to pay the
excess liability with funds derived from sources other than the Program.
The amount of gain recognized by a Partner on a sale or other
disposition (including a gift) of his or her Units or his or her share of gain
on a sale (including a foreclosure sale) or other disposition of property of the
Program or joint ventures may exceed the cash, if any, available to him or her
from such sale or other disposition. See "Disposition of Units" and
"Disposition of Property." Moreover, it is possible that his or her tax
liability with respect to such gain may exceed the cash available to him or her,
in which event any excess tax liability will have to be paid by him or her from
sources other than the Program.
FEES, EXPENSES AND COSTS
As more fully described in "Compensation, Fees and Interest of General
Partner," "Investment Objectives and Policies," "Use of Proceeds," "The
Offering" and "Plan of Distribution," the Program will incur a number of fees,
expenses and costs, including the following:
(a) ORGANIZATIONAL AND SYNDICATION EXPENSES. The Program has
incurred and will incur organizational and syndication expenses in connection
with organizing the Program and offering Units in the Program. Code Section 709
provides that organizational expenses may be amortized over a period of no less
than 60 months, but syndication expenses must be capitalized and cannot be
amortized. The Regulations include as organizational expenses legal fees for
services incident to the organization of the partnership, such as for
negotiation and preparation of the partnership agreement, and accounting fees
for services incident to the organization of the partnership. Syndication
expenses include expenses connected with the issuing and marketing of interests
in the partnership, such as commissions, registration fees, printing costs, and
legal fees for securities advice and for advice pertaining to the adequacy of
tax disclosures in the prospectus or placement memorandum for securities law
purposes, and accounting fees for preparation of representations to be included
in the offering materials. The Program intends to treat as syndication expenses
the commissions and other amounts it pays in connection with the sale of Units.
The Program intends to allocate its other Organizational and Offering Expenses
between organizational expenses and syndication expenses and to elect to
amortize its organizational expenses over a 60-month period.
(b) BUSINESS START-UP COSTS. Start-up costs of creating or
investigating the creation of an active trade or business cannot be currently
deducted. However, start-up costs may be capitalized and amortized under Code
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Section 195 if they would have been deductible if incurred in connection with
the operation of an existing business in the same field. Start-up costs are
amortizable over a period of no less than 60 months beginning in the month in
which the business begins if an amortization election is made for the year in
which the business begins. The Program intends to amortize its start-up costs,
if any, over a 60-month period.
(c) PURCHASE PRICE AND ACQUISITION FEES. The Program's purchase
price of equipment for which it is treated as the equitable owner will be
capitalized and recovered through cost recovery deductions to the extent
allowable. See "Cost Recovery Deductions." In addition, acquisition fees paid
for services rendered in connection with the review, selection, and acquisition
of assets for the Program and continuing analysis of the Program's portfolio of
assets will be either capitalized as a cost of the equipment and recovered
through cost recovery deductions to the extent allowable or capitalized and
amortized in the discretion of the General Partner. Acquisition fees payable
with respect to financing provided by the Program will be amortized over the
term of such financing.
(d) PROGRAM MANAGEMENT FEES. The Program will pay a Management Fee
for services performed by the General Partner in managing the day-to-day
operations of the Program. The Program intends to deduct the Management Fee on
a current basis. The 1986 Act provides that certain partnerships, such as the
Program, must use the accrual method of accounting. Section 461(h) of the Code
provides that accrued expenses for services may be deducted no earlier than when
the services are performed even though the general standards for deductibility
under the accrual method of accounting may be met.
(e) OTHER EXPENSES. The Program also has incurred and will continue
to incur operating expenses, E.G., insurance, utilities and property tax
expenses. The Program intends to deduct operating expenses on a current basis.
Counsel to the Program is of the opinion that reasonable expenditures
for the items discussed above are generally afforded the tax treatment discussed
above. Adverse tax consequences would occur if any expenditures were determined
to be unreasonable in amount or were attributable to a greater degree than
described above to items that are not deductible or amortizable, E.G.,
syndication expenses, or to items amortized over an extended period. The
question of whether all or a portion of the expenditures are reasonable in
amount for the items provided involves factual determinations and, accordingly,
counsel to the Program has not rendered an opinion on this matter. The General
Partner has represented that all of the expenditures will be reasonable in
amount and will relate solely to the items provided and to the periods for which
they are payable. However, there can be no certainty that the Service will not
take a contrary position.
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The tax treatment of expenditures of joint ventures in which the Program
invests will depend on the nature of such expenditures.
COST RECOVERY DEDUCTIONS
COST RECOVERY RULES. Code Section 168 provides for a cost recovery
deduction system that applies to new and used tangible property ("recovery
property"). The cost or other tax basis of recovery property is capitalized and
recovered through cost recovery deductions over a prescribed period, which is
dependent on the type of property involved.
The Code provides that tangible, personal property will be depreciated
over a three, five, seven, ten, fifteen or twenty year period. A 200 percent
declining balance method may be used for the three, five, seven and ten year
classes of property, switching to the straight-line method at a time to maximize
the depreciation allowance. The straight-line method may also be used. The
Code also provides for an alternative depreciation system whereby the Program
may elect to recover the costs of property over the class life or, generally,
the ADR mid-point life, using the straight-line method.
Except as discussed below with respect to computer software, it is
anticipated that a substantial portion of the recovery property of the Program
and joint ventures in which it invests will be "5-year property." Accordingly,
the tax basis of such property will be recovered using either an accelerated
method or the straight-line method over the prescribed recovery period. The tax
basis of equipment placed in service in some years may be recovered on a
straight-line basis and the tax basis of equipment placed in service in other
years may be recovered on the accelerated method. Both the accelerated and
straight-line methods are applied to the entire tax basis of equipment without
regard to salvage value.
Both the straight-line method and the accelerated method utilize a
"half-year" convention, which assumes that property is placed in service at the
midpoint of the taxable year regardless of when it is actually placed in
service. Therefore, if the straight-line method is elected, ten percent of the
tax basis of the equipment generally will be recovered in the year it is placed
in service, 20% will be recovered in each of the next four years, and the
remaining ten percent will be recovered in the sixth year. Under the
accelerated method, 20% of the tax basis of the equipment generally will be
recovered in the first year, 32% in the second year, 19.2% in the third year,
11.52% in the fourth and fifth years, and 5.76% in the sixth year. The Code
provides that a "mid-quarter" convention is applied to all property if more than
40 percent of all property is placed in service by a taxpayer during the last
three months of the taxable year or the taxpayer has a short taxable year of
three months or less. The mid-quarter convention treats all property placed
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in service during any quarter of a taxable year as having been placed in service
on the mid-point of such quarter.
Cost recovery deductions generally are required to be determined on a
straight-line method over extended recovery periods (generally, E.G., six years
for computer equipment or a longer term depending on the length of the lease)
for the portion of properties of the Program and joint ventures that are leased
to government agencies, tax-exempt entities or foreign persons or entities. The
impact of this rule on cost recovery deductions will depend on the extent to
which properties are subject to such leases.
The cost recovery rules do not apply to property subject to the
"anti-churning" rules in Code Section 168(e)(4) as in effect prior to the
enactment of the 1986 Act. Equipment subject to the anti-churning rules
continues to be subject to the depreciation rules under Section 167. In
addition, special rules under Section 168 apply to recovery property used
predominantly outside the United States. The General Partner does not
anticipate that a significant amount of property acquired by the Program and
joint ventures will be subject to these rules.
A portion of the property acquired by the Program and ventures may
consist of computer software. There are a number of uncertainties as to the
proper tax treatment of computer software costs. However, Revenue Procedure
69-21, 1969-2 C.B. 303, provides that if computer software costs are included,
without being separately stated, in the costs of computer hardware, the software
costs may be recovered on the same basis as the hardware costs. If computer
software costs are separately stated, the software may be treated as an
intangible asset and its cost may be amortized ratably over a thirty-six month
period.
EQUITABLE OWNER OF PROPERTIES. The Program and ventures in which it
invests will be entitled to cost recovery, depreciation or amortization
deductions with respect to their properties only if they are considered to be
the equitable owners of the properties for federal income tax purposes. The
determination of who is the equitable owner is based on many factors. Counsel
is of the opinion that the Program and such ventures should be treated as the
equitable owners of the equipment other than equipment subject to financings
(I.E., leases intended for security). Counsel's opinion is based on the current
status of the tax law and, in part, on the following representations of the
General Partner with respect to such properties; (i) legal title to, and
possession of, the properties will be transferred to the Program or such
ventures; (ii) the Program's or a venture's purchase price of a property will
not exceed its fair market value; (iii) leases for properties will be in the
form of leases; (iv) the Program and ventures will treat such leases as leases
for federal income tax purposes; (v) the rents to be paid pursuant to such
leases will be commercially reasonable; (vi) the exercise price for any purchase
option for any property or portion thereof will not be less than the fair market
value or the
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anticipated fair market value on the option exercise date, the lessee will not
be under an economic compulsion to exercise any purchase option taking into
account the terms of the lease, and no offset to the exercise price of any
purchase option will be allowed for any lease payments; and (vii) each property
should have a useful life beyond the term of its lease and a significant value
at the termination of its lease.
INCLUSION OF LIABILITIES IN BASIS OF PROPERTIES. The purchase of
properties by the Program or ventures in which the Program invests may be
leveraged and the tax bases of such properties will depend in part on the
inclusion of such liabilities in the tax bases of the properties. Liabilities
incurred in connection with the purchase of a property generally are included in
the tax basis unless some portion of the liabilities is treated as contingent
debt or the purchase price of the property exceeds its fair market value. In
either event, the tax basis of the property would be reduced together with the
cost recovery, depreciation or amortization deductions for the property.
Except as discussed below, counsel is of the opinion that the
liabilities incurred by the Program or joint ventures to acquire properties
should be included in the tax bases of such properties upon their purchase.
Counsel's opinion is based on the current status of the tax law and, in part, on
the facts that, as represented by the General Partner, (i) the Program's or the
ventures' obligations to pay the liabilities will not be contingent, and (ii)
the purchase price of each leveraged property will not exceed its fair market
value.
Under certain circumstances, when property is purchased on a leveraged
basis from the seller, either the imputed interest rules or the original issue
discount rules of the Code may apply to recharacterize a portion of the purchase
price as interest expense deductible over the period of the seller financing.
Any portion of the purchase price recharacterized as interest will reduce the
tax basis of the property by the same amount. These rules apply when the
effective interest rate on the seller financing is lower than the applicable
rate prescribed by the Code.
ALTERNATIVE TREATMENT FOR ALTERNATIVE MINIMUM TAX PURPOSES. As
discussed in "Alternative Minimum Tax," tax preference items may increase the
income tax liabilities of taxpayers. For property placed in service on or after
January 1, 1987 and not grandfathered under any cost recovery transition rule
under the 1986 Act, both corporate and noncorporate taxpayers must substitute
the method of cost recovery deductions prescribed for alternative minimum tax
purposes for the regular tax treatment. Generally, this means that in the early
years of a property's cost recovery period, cost recovery deductions for regular
tax purposes will exceed the cost recovery deductions for alternative minimum
tax purposes and in the later years, cost recovery deductions for alternative
minimum tax purposes will exceed the cost recovery deductions for regular tax
purposes.
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Under this system, other than for property with respect to which the taxpayer
elects or is required to use a straight-line method for regular tax purposes,
the cost of property is recovered using the 150 percent declining balance
method, switching to the straight-line method, generally over the ADR mid-point
life. Property subject to straight-line cost recovery methods for regular tax
purposes is also subject to the same method for alternative minimum tax
purposes, generally over the ADR mid-point life.
RECAPTURE OF COST RECOVERY DEDUCTIONS. Cost recovery, depreciation and
amortization deductions of the Program and joint ventures with respect to their
properties may be recaptured as ordinary income under Code Section 1245 upon a
subsequent disposition of property (see "Disposition of Property") or, with
respect to a Partner's share of such deductions, upon the disposition of the
Partner's Units (see "Disposition of Units"). Such deductions will be
recaptured to the extent of any gain on disposition of such property. For
recapture purposes, any reduction in the tax basis of property for any tax
credits for such property, which have been earned on the disposition of the
property is treated as a deduction subject to recapture. The Partners will be
required to recapture deductions in the year of the disposition of property even
if the property is sold for deferred payments and the gain from the disposition
is reported on the installment method. Such recapture or the tax attributable
to such recapture may exceed the cash, if any, available from such disposition
during the year of disposition. Any excess tax liability will have to be paid
by the Partners from sources other than the Program.
If the Program and joint ventures have not made basis adjustment
elections under Code Section 754, a subsequent purchaser of Units may be
required to recapture amounts attributable to prior cost recovery, depreciation
and amortization deductions when property subject to recapture is disposed of or
when he or she resells his or her Units. The Program is not obligated and does
not intend to make an election under Section 754. The absence of such an
election may make it more difficult for a Limited Partner to dispose of his or
her Units.
INVESTMENT TAX CREDIT
The 1986 Act has repealed the investment tax credit for personal
property placed in service after December 31, 1985. Accordingly, the General
Partner does not expect that any investment tax credit will be available as a
result of an investment in the Program.
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INTEREST DEDUCTION LIMITATIONS
Interest expense generally is deductible when paid or incurred according
to a taxpayer's method of accounting. See "Program Tax Accounting Principles."
However, the Code imposes a number of limitations and restrictions on deducting
interest, including the following:
(a) INVESTMENT INTEREST LIMITATIONS. Under the Code, certain
limitations are imposed on the deduction of interest accrued on funds borrowed
by non-corporate taxpayers to acquire investment property.
Under these rules interest paid on money borrowed for investment
purposes is limited to the taxpayer's net investment income for each year.
Taxpayers applying the 28% maximum long term capital gains tax rate applicable
to individuals to a sale of investment property will not be able to consider
such gain to be investment income. For purposes of the investment interest
deduction limitation, if the taxpayer elects to treat such gain as ordinary
income, it will be treated as investment income against which investment
interest may be reduced. Excess investment interest deductions may be carried
over to subsequent years and deducted, subject to the application of the
investment interest limitations rules in those years.
"Net investment income" is generally defined as the excess of a
taxpayer's investment income over the deductions for expense directly connected
with the production of such investment income.
Interest expenses that are subject to the passive loss limitation rules,
discussed above, are not included in determining net investment income and are
not subject to the investment interest limitation rules. Accordingly, it is not
anticipated that the investment interest limitations should have any material
impact on an investor as a result of an investment in the Program. However, if
an investor borrows money in order to purchase or carry his or her Units, the
passive loss Temporary Regulations provide that interest expense is allocated
between passive and portfolio income activities. See "Limitations on Losses and
Credits from Passive Activities." Any interest expense attributable to
portfolio income activities would be subject to the investment interest
limitation. Accordingly, any investor who intends to borrow money to purchase or
carry his or her Units should consult his or her personal tax advisor regarding
the investment interest limitations before investing.
(b) CODE SECTION 265. Sections 265(a)(2) and 265(a)(4) disallow any
deduction for interest paid by a taxpayer on indebtedness incurred or continued
for the purpose of purchasing or carrying tax-exempt obligations or stock of a
regulated investment company distributing exempt-interest dividends. Interest
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disallowed under Section 265 may not be deducted in any year. The Service
announced in Revenue Procedure 72-18, 1972-1 C.B. 740, that the proscribed
purpose generally will be deemed to exist with respect to indebtedness incurred
to finance a "portfolio investment," including a limited partnership interest.
Accordingly, in the case of a Partner owning tax-exempt obligations or stock of
a regulated investment company, the Service may take the position that his or
her share of interest expense of joint ventures in which the Program invests and
any interest expense he or she incurs to purchase to carry his or her Units
should be viewed as incurred on loans that enable him or her to continue to
carry his or her tax-exempt obligations or regulated investment company stock.
If this position were sustained, he or she would not be allowed to deduct such
interest.
PROGRAM TAX ACCOUNTING PRINCIPLES
As required by the Code, the Program will use the accrual method of
accounting. In general, under the accrual method, income is includable for the
year in which it is earned and expenditures are deductible for the year in which
the liability for the expenditures arises. However, there are a number of
exceptions to this rule, which may affect the timing of income or deductions of
the Program and joint ventures, including the following:
(a) Organizational expenses and business start-up costs must be
capitalized and amortized, and syndication expenses must be capitalized but
cannot be amortized. See "Fees, Expenses and Costs."
(b) Acquisition costs of property must be capitalized and recovered
through cost recovery, depreciation or amortization deductions to the extent
allowable. See "Cost Recovery Deductions."
(c) Prepaid expenses may be required to be capitalized under Code
Section 263 and other Sections and deducted for the periods to which the
prepayments relate.
(d) In the year of the disposition of property, cost recovery,
depreciation or amortization deductions will be recaptured as ordinary income,
to the extent discussed in "Cost Recovery Deductions -- Recapture of Cost
Recovery Deductions," even if the property is sold for deferred payments and
gain from the disposition is reported on the installment method.
(e) Code Section 467 requires that rental income be taken into
account by applying accrual accounting principles and present value concepts if
any payments under a lease are deferred by more than one full taxable year or
there are increases in the amounts paid as rent under the lease. Proposed
Regulations under Section 467 were issued by the Service in June 1996 which
provide complex
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rules concerning the proper accrual of rental income and deductions, with
special rules and safe harbors applicable to leases providing for the deferral
of rent.
(f) In the event a taxpayer enters into financing transactions,
which involve the deferral of the payment or the receipt of interest expense or
interest income, the original issue discount rules in the Code may cause such
interest to be deductible or includable prior to its payment or receipt. For
example, the original issue discount rules may apply with respect to deferred
payments on the purchase or sale of property.
(g) The Service has broad discretion under Code Section 446(b) to
determine that a taxpayer's method of accounting does not "clearly reflect
income" and to require the taxpayer to use a different accounting method. If
such a determination is made by the Service, it may be difficult to demonstrate
that the Service had abused its discretion in this manner.
ACTIVITIES NOT ENGAGED IN FOR PROFIT
Code Section 183 and similar general tax principles limit the deduction
of losses from an activity not engaged in for profit. There is a presumption
under Section 183 that an activity is engaged in for profit if the gross income
from the activity exceeds deductions attributable to the activity in three or
more of the five consecutive taxable years ending with the current taxable year.
There is, however, no certainty that the Program will have income sufficient to
entitle it to the benefit of this presumption. Accordingly, the Program (and,
perhaps, each Partner) may be required to demonstrate that the Program's
activities are engaged in for profit.
There is no precise standard by which to measure the requisite profit
objective with respect to the Program's activities. However, significant weight
should be given to Congress' sanction of equipment leasing activities through
the tax laws and to the intent of the Partners in investing in the Program. In
this regard, the General Partner has represented that the Program will be
operated for the purpose of providing an economic profit to Partners without
regard to any tax benefits of an investment in the Program. Based on such
representations, the anticipated business activities of the Program, and the
foregoing discussion, counsel to the Program is of the opinion that it is more
likely than not that Section 183 and similar general tax principles should not
apply to limit the deductions from the Program's activities. However, if they
apply, any tax benefits of investing in the Program could be reduced
substantially.
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DISPOSITION OF PROPERTY
The Program and joint ventures in which it invests will realize taxable
gain or loss on any sale or other disposition of property measured by the
difference between the selling price and the adjusted tax basis of the property.
The Program also will realize gain or loss on the disposition of its interest in
any joint venture. If any property is disposed of, which has been held for one
year or less or which is held primarily for sale to customers in the ordinary
course of business ("dealer property"), any gain or loss in general will be
ordinary income or ordinary loss. If any property that is not held as dealer
property is disposed of after it has been held for more than one year, a
Partner's share of any gain or loss generally will be treated as Code Section
1231 gain or loss, except to the extent that any gain is attributable to
recapture of cost recovery, depreciation and amortization deductions and taxed
as ordinary income. See "Cost Recovery Deductions -- Recapture of Cost Recovery
Deductions." It is anticipated that all or substantially all of any gains will
be attributable to such deductions and taxed as ordinary income.
A Partner will aggregate his or her share of any Code Section 1231 gain
or loss from the Program for each year with his or her Code Section 1231 gain or
loss from other sources. If a Partner's Code Section 1231 losses exceed his or
her Code Section 1231 gains, his or her net Code Section 1231 loss will be
treated as an ordinary loss. If a Partner's Code Section 1231 gains exceed his
or her Code Section 1231 losses, his or her net Code Section 1231 gain will be
treated as ordinary income to the extent his or her net Code Section 1231 losses
exceed his or her net Code Section 1231 gains for the five preceding years
beginning after 1981. The balance of any net Code Section 1231 gain will be
treated as long-term capital gain.
The selling price of property for purposes of determining gain or loss
includes not only the cash and any other property received on sale but also any
indebtedness to which the property is subject. It is possible that a Partner's
share of any gain or the tax attributable thereto on the disposition of property
(including a foreclosure sale) may exceed his or her distributions from the
Program. In such event, he or she will have to pay any excess tax liability
from sources other than the Program.
The Partners will be required to recapture cost recovery, depreciation
and amortization deductions, to the extent discussed in "Cost Recovery
Deductions -- Recapture of Cost Recovery Deductions" in the year of the
disposition of property even if the property is sold for deferred payments and
gain from the disposition is reported on the installment method. Such recapture
or the tax attributable to such recapture may exceed the cash, if any, available
from such disposition during the year of disposition. Any excess tax liability
will have to be paid by the Partners from sources other than the Program.
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DISPOSITION OF UNITS
Although no public market for Units exists nor is one expected to
develop, a Partner who sells or otherwise disposes of his or her Units will
realize taxable gain or loss measured by the difference between the selling
price and the adjusted tax basis of his or her Units. The selling price of
Units includes the cash and property received, as well as the amount of the
selling Partner's share of nonrecourse Program liabilities.
Gain or loss on the disposition of an interest in a partnership
generally is taxed as short-term or long-term capital gain or loss, depending on
whether the interest has been held for more than one year provided the interest
is not held primarily for sale in the ordinary course of a trade or business.
However, gain on a disposition of a Partner's Units attributable to his or her
share of substantially appreciated inventory and unrealized receivables of the
Program is taxable as ordinary income. Unrealized receivables include any cost
recovery, depreciation and amortization deductions that would have been
recaptured upon a hypothetical sale of the properties of the Program and joint
ventures in which it invests. See "Cost Recovery Deductions -- Recapture of
Cost Recovery Deductions." It is anticipated that all or substantially all of
any gains will be attributable to such deductions and taxed as ordinary income.
Any gain of a Partner attributable to unrealized receivables may be
taxed in the year of the disposition of his or her Units even if the Units are
sold for deferred payments and gain is reported on the installment method.
Although the Code is unclear in this regard, the General Explanation of the 1984
Act prepared by the Staff of the Joint Committee on Taxation interprets the Code
as requiring such gain to be taxed in the year of disposition.
The amount of gain recognized by a Partner on the sale or other
disposition of his or her Units, or the tax attributable to such gain, may
exceed the cash, if any, available from such sale or disposition. Any excess
tax liability will have to be paid by the Partner from sources other than the
Program.
Section 10.7 of the Partnership Agreement provides that a Limited
Partner may tender to the Program for redemption all of his or her Units. If
the tender is accepted by the General Partner, the redemption value (as
determined under Section 10.7 of the Partnership Agreement) will be paid to the
Limited Partner.
In general, the federal income tax consequences to a Limited Partner
whose Units are redeemed will be the same as if he or she had sold his or her
Units to a third party, as discussed above. Accordingly, the Limited Partner's
selling price for determining his or her gain or loss would include the
redemption value
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paid to him or her and his or her share of nonrecourse Program and joint venture
liabilities.
A Partner who transfers Units must promptly notify the Program of the
transfer if the Program owns substantially appreciated inventory or unrealized
receivables. The Program may have unrealized receivables in the form of
property subject to the recapture rules discussed above. Any Partner who fails
to notify the Program will be subject to penalties. The Program will be
required to file annual reports with the Service describing all such transfers.
Each transferor and transferee of Units will receive a copy of the portion of
such report that relates to him or her.
A gift, including a charitable contribution, of a Partner's Units may be
treated as a part-sale, part-gift of the Units if the Partner's adjusted tax
basis for his or her Units includes a share of Program liabilities. This may
result in taxable gain to the Partner. Further, a gift of a Partner's Units may
result in the imposition of a gift tax on the Partner, regardless of the
inclusion of Program liabilities in the Partner's adjusted tax basis.
A Partner who transfers his or her Units during a taxable year must
include in his or her tax returns his or her share of the taxable income or loss
of the Program for the portion of the taxable year of the Program during which
he or she owned the transferred Units.
LIQUIDATION OF THE PROGRAM
The Partnership Agreement provides generally that on liquidation of the
Program its assets will be sold and the sales proceeds will be distributed
pursuant to the terms of the Partnership Agreement. The Program will realize
gain or loss on the sale of its assets and each Partner will report his or her
share of such gain or loss, together with his or her share of other items of
Program income, gain, loss and deduction for the year of liquidation. In
addition, a Partner will recognize gain or loss under Code Section 731 measured
by the difference between the cash he or she receives in liquidation (including
cash constructively received as a result of relief of liabilities) and the
adjusted tax basis of his or her Units. Gain or loss recognized generally will
be taxable as short-term or long-term capital gain or loss, depending on whether
the Partner has held his or her Units for more than one year. However, gain
attributable to the recapture of cost recovery deductions will be taxable as
ordinary income. See "Cost Recovery Deductions -- Recapture of Cost Recovery
Deductions." It is anticipated that all or substantially all of any gains will
be attributable to such deductions and taxed as ordinary income.
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In the case of a Partner with a taxable year other than the taxable year
of the Program, the termination of the taxable year of the Program upon its
liquidation may result in the Partner reporting in his or her tax return for the
year of liquidation his or her share of more than twelve months' taxable income
or loss of the Program.
TERMINATION OF THE PROGRAM
The Program will be treated as terminating under Code Section
708(b)(1)(B) if 50% or more of its capital and profits interests are sold or
exchanged within any twelve-month period. It is not anticipated that this will
occur. If such a termination were to occur, it would result in the closing of
the Program's taxable year for all Partners, and the Program's assets would be
treated as distributed to the Partners and reconveyed to a new partnership. In
general, termination of the Program would not cause a Partner to recognize gain
unless his or her share of the Program's cash (including cash constructively
received as a result of relief of liabilities) exceeded the adjusted tax basis
of his or her Units. In the case of a Partner with a taxable year other than
the taxable year of the Program, the closing of the taxable year of the Program
upon its termination could result in the Partner reporting in his or her tax
return for the year of termination his or her share of more than twelve months'
taxable income or loss of the Program.
INCOME TAX RATES
For 1996, the top rate is 39.6% for taxable income over $263,750
($131,875 for married individuals filing separately). Taxable income below this
amount is taxed at rates ranging from 15% to 36%. The brackets are adjusted
annually for inflation. Taxpayers with adjusted gross income in excess of a
threshold adjusted annually for inflation ($117,950, but $58,975 for married
individuals filing separately) will have their allowable itemized deductions,
reduced by three percent of their adjusted gross income in excess of the
threshold. The reduction in allowable itemized deductions does not apply to
medical expenses, casualty and theft losses, and investment interest, which are
already subject to other limitations. These limits on allowable deductions may
not reduce such deductions by more than 80%.
The benefit of personal exemptions is phased out above a threshold level
adjusted annually for inflation (for adjusted gross income above $176,950 for
joint returns, $147,450 for head of household, $117,950 for single taxpayer, and
$86,025 for married taxpayers filing separately). Once the threshold is
reached, personal exemptions are reduced by two percent for each $2,500 ($1,250
for married persons filing separately) which adjusted gross income exceeds the
threshold. Thus, the phase out of personal exemptions results in a rate increase
of
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approximately one-half percent for each personal exemption until the personal
exemption has been completely phased out.
The top corporate tax rate is 35%, and the number of income tax brackets
is four, consisting of 15%, 25% and 34%, as well as 35%. A three percent surtax
is imposed on corporations with more than $15,000,000 of taxable income, such
that the benefit of the graduated rates is phased out.
ALTERNATIVE MINIMUM TAX
In addition to the regular income tax, the Code imposes an alternative
minimum tax ("AMT") on both corporate and non-corporate taxpayers. The Program
as such is not subject to AMT. However, each Partner must take into account his
or her share of those Program items relevant to computing his or her AMT. The
AMT only applies to the extent it exceeds the taxpayer's regular tax and is
imposed at the rate of 26% of the first $175,000 ($87,500 for married
individuals filing separately) on the excess of the taxpayer's alternative
minimum taxable income ("AMTI") above an exemption amount and 28% thereafter.
AMTI is computed by reference to the taxpayer's taxable income plus tax
preferences and certain other adjustments.
The exemption amount is $45,000 in the case of married taxpayers filing
a joint return, corporations or surviving spouses, $22,500 for married persons
filing separately, estates or trusts, and $33,750 for single individuals other
than surviving spouses. The exemption amount is reduced by $0.25 for each
dollar of AMTI above: $150,000 for corporations, married persons filing jointly
and surviving spouses; $112,500 for single individuals (other than surviving
spouses); and $75,000 for estates, trusts, and married persons filing
separately.
Among the preference adjustments are: (i) the allowance for
depreciation is computed using the alternative system, E.G., 40 years for real
estate and 150% declining balance method depreciation over the alternative
depreciation life of equipment, which may be applicable as a result of an
investment in the Program, and (ii) gain from an installment sale of property,
which would be included in inventory in the hands of a taxpayer or is held for
sale in the ordinary course of a trade or business is fully reported in the year
of sale.
The 1986 Act added a minimum tax credit, which will now be allowed
against the regular tax liability for the prior years' minimum tax liabilities
attributable to tax preferences such as the difference between regular
depreciation and the alternative depreciation allowed in computing AMTI.
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The alternative minimum tax on tax preference items is not imposed on
the Program, as such. Instead, each Partner takes into account his or her share
of the Program's tax preference items for the purpose of computing his or her
liability for the alternative minimum tax. Because the liability for the
alternative minimum tax is computed by taking into account the regular income
tax liability of the taxpayer, the extent, if any, to which any tax preference
items directly or indirectly resulting from investment in the Program would be
subject to the alternative minimum tax will depend on the facts of each
Partner's particular tax situation. Accordingly, counsel cannot express an
opinion as to the application of the AMT as it impacts on any particular
investor. However, for taxpayers with substantial tax preferences, the
alternative minimum tax could reduce the after-tax economic benefits of
investment in the Program.
Individual investors must consult their own tax advisors with respect to
the effects of the tax preference items on them as a result of investing in the
Program.
CORPORATIONS. The 1986 Act repealed the add-on minimum tax and imposed
a 20% alternative minimum tax on corporations. Because liability for the
corporate minimum tax will depend upon the income tax liability and tax
preference items of the corporate Limited Partner, the extent, if any, to which
any tax preference items resulting from ownership of a Unit would be subject to
the tax will depend on each corporate Limited Partner's particular situation.
Each corporate investor must consult its tax advisor with respect to the
possible effects of such tax preference items on it.
The alternative minimum tax is imposed on a corporation's AMTI less a
$40,000 exemption. AMTI is equal to regular taxable income plus tax preference
items and less certain deductions. The corporate preference adjustments
include: (i) the allowance for depreciation is computed using the alternative
system, E.G., 40 years for real estate and 150% declining balance method
depreciation over the alternative depreciation life of equipment, which may be
applicable as a result of an investment in the Program, (ii) gain from an
installment sale of property, which would be included in inventory in the hands
of a taxpayer or is held for sale in the ordinary course of a trade or business
is fully reported in the year of sale.
AMTI also includes 75% of the excess of "adjusted current earnings" of
the corporation over the corporation's other AMTI for the year. Adjusted
current earnings is defined in Sections 56(g)(3) and (4) of the Code to mean
AMTI adjusted by: (i) generally reducing depreciation using the Code's
alternative system recovery periods (40 years for real estate and the ADR class
life for equipment) and the 150% declining balance method (the straight-line
method for property placed in service in 1992), (ii) adding any amount of income
that is included in computing earnings and profits under Section 312 of the Code
but
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otherwise is excluded in computing AMTI (such as tax-exempt interest and any
deferred installment income) and disallowing any deductions not allowed in
computing earnings and profits.
The Code contains special rules concerning corporate tax preference
items and corporate AMT. The effect of an investment in the Program upon an
investor's AMT will depend upon the facts and circumstances unique to such
investor. Accordingly, counsel cannot express an opinion as to the application
of AMT as it impacts on any particular investor. Prospective investors,
including corporations, are urged to consult their personal tax advisors as to
applicability of the AMT with respect to their individual tax situations.
INVESTMENT BY QUALIFIED PLANS
TAXATION OF QUALIFIED PLANS. Qualified pension, profit sharing and
stock bonus plans, Individual Retirement Accounts and other tax-exempt entities
("Qualified Plans") are generally exempt from federal income taxation, except to
the extent of unrelated business taxable income ("UBTI") (determined in
accordance with Code Sections 511-514) in excess of $1,000 during any taxable
year. The investment by a Qualified Plan in the Program will generally cause it
to have UBTI with respect to the Program's leasing activities. See "Cost
Recovery Deductions -- Equitable Owner of Properties." Certain types of income
to be realized by the Program, I.E., interest income and gain on the sales of
loans generally are excluded from the computation of UBTI. However, if the
Program acquires property partially with borrowed funds, as the owner of
financed property, income from such property or the gain from the sale of such
property may also constitute UBTI or unrelated debt-financed income, a form of
UBTI. Additionally, any Qualified Plan that incurs indebtedness to purchase or
carry its Units may produce unrelated debt-financed income, a form of UBTI.
Qualified Plans with UBTI also are subject to the alternative minimum tax with
respect to tax preference items that enter into the computation of unrelated
business taxable income. See "Alternative Minimum Tax." In view of the special
problems that must be considered in determining whether a Qualified Plan should
invest in the Program, a Qualified Plan should consult with its tax advisor
before investing.
ERISA CONSIDERATIONS. In considering an investment in the Program, a
fiduciary of a pension, profit sharing or stock bonus plan or an Individual
Retirement Account should consider, among other things: (i) whether the
investment is permissible under the documents and instruments governing the
plan; (ii) whether the investment satisfies the diversification requirements of
ERISA; (iii) whether the investment is prudent considering all of the facts and
circumstances, including the fact that there is not expected to be any public
market for the disposition of Units; and (iv) whether the investment could
result in a prohibited transaction. These issues are factual matters that will
vary with each
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investing Qualified Plan, and counsel to the Program is unable to make any
determination in this regard.
A fiduciary should also consider whether the underlying assets of the
Program, rather than the Units held by the investing plan constitute plan
assets. Under the Department of Labor regulations, the underlying assets of the
Program are not expected to be considered to be plan assets because Units are
expected to be publicly-offered. If Program assets were considered to be plan
assets, (i) the General Partner would be a fiduciary under ERISA Section
3(21)(A) with respect to investing plans because it manages the Program's
assets; (ii) the General Partner would be subject to the general fiduciary
responsibility provisions of ERISA with respect to the management of the
Program's assets and also would be a party in interest with respect to investing
plans under ERISA; (iii) transactions between existing parties in interest with
respect to investing plans and the Program would be subject to the prohibited
transaction rules of ERISA and the Code; and (iv) the trustee of an investing
plan may be considered to have delegated improperly the trustee's responsibility
to manage plan assets under ERISA.
Finally, to comply with the requirements of ERISA and the Code,
investing plans will be required to value Units in the Program at least
annually. Because there is not expected to be any secondary market for the
Units, the General Partner anticipates that it will estimate the value of Units
from time to time and communicate that value to investors. Counsel to the
Program has determined that the methods the General Partner currently expects to
use for calculating the value of the Units are reasonable. Prudence might
suggest, however, the need for an independent appraisal in appropriate cases.
TRUSTS MAY BE TAXABLE AS CORPORATIONS
A trust that acquires Units may, as a result of that investment, be
classified as an association taxable as a corporation. Regulations provide that
trusts that engage in the conduct of a trade or business may, under some
circumstances, be taxed as corporations. A trust that owns Units may be treated
as engaged in the trade or business in which the Program itself is engaged. It
is anticipated that the Program will be treated as engaged in a trade or
business for this purpose. If the Partners are treated as engaged in the same
business as the Program, a Partner that is a trust may have all of its income
taxed at corporate rates at the trust level, whether or not the income is
distributed to the beneficiaries. There may be a number of other factors that
are relevant in determining whether a trust investing in the Program is to be
classified as an association taxable as a corporation. Accordingly, any trustee
contemplating an investment of trust funds in the Program should consult with
his or her tax advisor with regard to these matters.
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TAX RETURNS, AUDIT RISK AND TAX SHELTER REGISTRATION
TAX RETURNS AND AUDIT RISK. The Program and ventures in which it
invests will file tax information returns annually. As soon as practicable
after the close of each taxable year, the Program will furnish to Partners
income tax information, including each Partner's share of items of income, gain,
loss, deduction, credit and tax preference to be reported on the Partner's
personal income tax returns. All Partners are required either to report their
shares of Program items in a manner consistent with the tax information
furnished to them by the Program or to file statements with their personal tax
returns identifying any inconsistent positions they take.
Counsel to the Program will not prepare or review any of the information
returns. The information returns will be prepared by the General Partner and
independent accountants for the Program. The General Partner will make a number
of decisions and elections on tax matters affecting the Program, often with the
advice of independent accountants retained by the Program. These decisions and
elections and any other tax matters affecting the Program will not be reviewed
by counsel unless specifically requested to do so by the General Partner.
The information returns filed by the Program and ventures are subject to
audit by the Service, and any audit may result in adjustments. The Service is
engaged in an intensive audit program under which it audits a substantially
greater number of partnership tax information returns than it audited in prior
years. The possible registration of the Program or any venture as a "tax
shelter," as discussed below, may further increase the likelihood that the
information returns filed will be audited. Any audit of an information return
may also result in an audit of a Partner's return. An audit of a Partner's
return could result in adjustment of non-Program items on his or her return as
well as Program items.
The Program is not liable for any tax of a Partner attributable to his
or her investment in the Program, and any additional tax (together with interest
and applicable penalties) imposed on the Partner as the result of any
adjustment by the Service of the taxable income or loss of the Program will be
paid by such Partner. The normal statute of limitations for assessment of
federal income tax deficiencies attributable to a Partner's share of Program
items for a year is the later of three years after the date the Program return
or the Partner's return for the year is considered filed with the Service, but
may be longer under certain circumstances.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the
Service, and tax settlement proceedings. The tax treatment of partnership items
of income, gain, loss, deduction and credit are determined at the partnership
level in a unified partnership proceeding rather than in separate proceedings
with the partners. The
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Code provides for one partner to be designated as the "Tax Matters Partner" for
these purposes. The Partnership Agreement appoints the General Partner as the
Tax Matters Partner for the Program.
The Tax Matters Partner is entitled to make certain elections on behalf
of the Program and the Partners and can extend the statute of limitations for
assessment of tax deficiencies against Partners with respect to Program items.
The Tax Matters Partner may bind to a settlement with the Service any Partner
with less than a one percent profits interest in the Program unless the Partner
elects, by filing a statement with the Secretary of the Treasury, not to give
such authority to the Tax Matters Partner. The Tax Matters Partner may seek
judicial review (to which all Partners are bound) of a final Program
administrative adjustment and, if the Tax Matters Partner fails to seek judicial
review, such review may be sought by any Partner with at least a one percent
profits interest or by any group of Partners having in the aggregate at least a
five percent profits interest. However, only one action for judicial review will
go forward, and each Partner with an interest in the outcome may participate.
REGISTRATION OF TAX SHELTERS. The Code requires organizers of certain
"tax shelters" to register them with the Service and maintain a list of
investors. Temporary and Proposed Regulations generally define a "tax shelter"
as any entity with respect to which it could reasonably be inferred that any
investor, including a general partner, may have cumulative gross deductions as
of the end of any of the first five years, determined without regard to any
gross income of the entity, in excess of two times the amount of money and the
adjusted basis of other property (excluding certain borrowed amounts)
contributed to the entity by the investor as of the end of such year. For this
purpose, gross deductions include 350% of any tax credits available with respect
to the investment. Based on this definition, the Program may be "tax shelter."
However, the Temporary and Proposed Regulations also provide that a tax shelter
need not be registered initially if it is a "projected income investment."
Generally, a "projected income investment" is any tax shelter which is not
expected to reduce the cumulative tax liability of any investor as of the close
of any of the first five years of the investment. THE GENERAL PARTNER EXPECTS
THAT AN INVESTMENT IN THE PROGRAM WILL NOT REDUCE THE TAX LIABILITY OF ANY
INVESTOR FOR ANY YEAR DURING SUCH FIVE YEAR PERIOD OR IN ANY OTHER YEAR.
Accordingly, the General Partner believes that the Program is not required to
register as a tax shelter at this time.
The General Partner's expectation that an investment in the Program will
not reduce the tax liability of any investor is based on certain economic and
business assumptions which the General Partner believes are reasonable.
However, there can be no assurance that unexpected economic or business
developments will not cause investors in the Program to incur tax losses and,
perhaps, economic
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losses. In the event any investor in the Program actually realizes a cumulative
net reduction in his or her tax liabilities at the end of any year in the
five-year period described above by reason of his or her investment in the
Program, the Program will cease to be a "projected income investment" and will
be required to register as a tax shelter no later than 30 days after the end of
such year. The General Partner will notify Limited Partners if the Program
ceases to be a "projected income investment" for registration purposes. If
registration is required, the General Partner will notify Limited Partners of
the reporting and recordkeeping requirements imposed on the Program and the
Limited Partners under the registration rules.
PENALTY TAXES AND INTEREST
Penalties and interest may be imposed under the Code under certain
circumstances (a) on the Program, (b) on a Limited Partner with respect to
Program items, or (c) on a Limited Partner with respect to his or her reporting
positions. Such penalties and interest include the following:
A. ACCURACY PENALTIES. The Revenue Reconciliation Act of 1989 (the
"1989 Act") repealed the generally applicable penalties related to accuracy of
tax returns and consolidated in their place one accuracy-related penalty at the
rate of 20% of the portion of any underpayment of tax attributable to (1)
negligence or disregard of rules or regulations; (2) any substantial
understatement of income tax; or (3) any substantial valuation misstatement.
The 1989 Act eliminated any stacking of these penalties and coordinates them
with the fraud penalty.
1. NEGLIGENCE. Code Section 6662 imposes a penalty on
underpayments attributable to negligence or disregard of rules or regulations
equal to 20% of the amount of such underpayment. Negligence includes any
failure to make a reasonable attempt to comply with the provisions of the Code.
Disregard of rules or regulations include careless, reckless or intentional
disregard.
Under the Regulations, negligence also includes the failure to exercise
ordinary and reasonable care in the preparation of a tax return. Any position
or item claimed on a return that is frivolous is also considered attributable to
negligence. A position or item that is not frivolous but that nevertheless
lacks a reasonable basis is also considered attributable to negligence. The term
"negligence" also includes a failure by the taxpayer to maintain adequate books
and records or to substantiate items properly.
The 1989 Act repealed the presumption of negligence where the
underpayment is due to a failure to include on an income tax return an amount
reported on an information return. Such failure would instead be strong
evidence of negligence. In addition, under the Regulations, negligence is
strongly indicated
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where a taxpayer fails to make reasonable inquiries into a deduction, credit or
exclusion which, if claimed, would result in a tax benefit to the taxpayer which
should seem "too good to be true" to a reasonable and prudent person. The
failure by a partner to treat a partnership item on his or her tax return in a
manner consistent with the treatment of the item on the partnership tax return
is strong evidence of negligence as well.
2. SUBSTANTIAL UNDERSTATEMENTS. Code Section 6662 imposes a
penalty on underpayments attributable to "any substantial understatement of
income tax" equal to 20% of such underpayment. An understatement generally is
the excess of a taxpayer's correct tax for a year over the tax reported by the
taxpayer on his or her tax return for the year. An understatement is
"substantial" if it exceeds the greater of ten percent of the amount determined
to be the correct tax for the year or $5,000 ($10,000 for corporations other
than S corporations and personal holding companies).
For penalty purposes, except for items attributable to a "tax shelter,"
an understatement is generally reduced by the tax attributable to a particular
item if either there is or was "substantial authority" for the tax treatment of
such item or the relevant facts affecting the tax treatment are "adequately
disclosed" in the tax return and there is a reasonable basis for the tax
treatment of such item by the taxpayer. The Regulations provide that
"substantial authority" exists if, using an objective standard, the weight of
authorities supporting the taxpayer's position is substantial when compared with
those supporting contrary positions. In determining whether substantial
authority exists, applicable Code and other statutory provisions, court
opinions, Proposed, Temporary and Final Regulations, Revenue Rulings and Revenue
Procedures involving the same or similar circumstances will be considered, as
well as any relevant expressions of congressional intent. In addition, a
taxpayer may generally rely on General Explanations of tax legislation prepared
by the Joint Committee on Taxation, private letter rulings, technical advice
memoranda, actions on decisions, general counsel memoranda, information or press
releases, notices, any other similar documents published by the Service in the
Internal Revenue Bulletin and tax treaties and regulations thereunder.
Conclusions reached by counsel in any legal opinions are not substantial
authority.
The Code also requires the Service to publish at least once a year a
list of positions for which the Service believes there is no substantial
authority and which affect a significant number of taxpayers. The purpose of
this list is to assist taxpayers in determining whether a position should be
disclosed in order to avoid the penalty. The Regulations set forth certain
guidelines for determining whether the tax treatment of an item is "adequately
disclosed."
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In the case of a taxpayer other than a corporation, an understatement
will not be reduced for penalty purposes for an item attributable to a "tax
shelter" unless, in addition to substantial authority, the taxpayer reasonably
believed that his or her treatment of such item was more likely than not the
proper treatment. The Regulations set forth certain guidelines for what
constitutes reasonable belief. Disclosure made with respect to a tax shelter
item does not affect the amount of an understatement. For this purpose, in
contrast to the tax shelter registration rule discussed in "Tax Returns, Audit
Risk and Tax Shelter Registration -- Registration of Tax Shelters," a "tax
shelter" is defined as any partnership, or other entity, plan or arrangement if
its principal purpose is the avoidance or evasion of federal income tax. The
Regulations provide that the determination of the principal purpose is based on
objective evidence. The Regulations also provide that claiming tax benefits
(E.G., accelerated cost recovery deductions) in a manner consistent with the
congressional purpose does not constitute a principal purpose of tax avoidance.
An additional exception to the penalties imposed by Section 6662 is
provided by Code Section 6664 which provides that no penalty may be imposed upon
a showing by the taxpayer of reasonable cause and good faith. The Regulations
set forth certain guidelines for what constitutes reasonable cause and good
faith. Proposed Regulations also provide additional guidance with respect to
the reasonable cause exception of Section 6664(c) to a substantial
understatement penalty attributable to a tax shelter item for a corporation.
There are uncertainties under the Code and the Regulations as to whether
a particular partnership, plan or arrangement will constitute a tax shelter for
penalty purposes. Therefore, there can be no assurance that the Service will
not treat the Program or any joint venture in which it invests as a tax shelter
for penalty purposes. In addition, there is uncertainty regarding the proper
tax treatment of various items. There can be no assurance that the Service will
agree that the treatment of various items of the Program or any joint venture is
supported by substantial authority or is adequately disclosed. If a penalty is
assessed against a Partner for a substantial understatement with respect to any
item, the Partner and not the Program or any joint venture or any other Partner
will be required to pay the penalty.
If the penalty otherwise applies, the Service has discretion to waive
all or any portion of the penalty on a showing that there was reasonable cause
for the understatement (or part thereof) and that the taxpayer acted in good
faith.
3. SUBSTANTIAL VALUATION MISSTATEMENTS. Code Section 6662 imposes
a penalty on underpayments attributable to "substantial valuation misstatements"
on tax returns equal to 20% of such underpayments. A valuation misstatement
occurs if the basis or value of property claimed on a return is 200% or more of
the amount determined to be the correct amount. A valuation
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misstatement also occurs if the price for any property or services (or for the
use of property) claimed on a return in connection with any transaction between
persons described in Section 482 of the Code is 200% or more (or 50% or less) of
the amount determined to be the correct amount. The penalty is to apply only if
the underpayment attributable to the valuation misstatement exceeds $5,000
($10,000 in the case of most corporations). In the case of a gross valuation
misstatement (I.E., a valuation overstatement of 400% or more of the amount
determined to be the correct amount), the accuracy penalty is doubled to 40%.
The General Partner does not expect that this penalty will apply to any Partner
as a consequence of his or her investment in the Program.
4. FRAUD PENALTY. Code Section 6663 imposes a penalty on
underpayments attributable to fraud equal to 75% of such underpayment. The Code
provides that the 20% general accuracy-related penalty is not to apply to any
portion of any underpayment on which the fraud penalty is imposed. The Code
further provides that an entire underpayment is treated as attributable to fraud
if the Service establishes that any portion of it is attributable to fraud,
unless the taxpayer establishes by preponderance of the evidence that certain
items are not attributable to fraud.
B. DELINQUENCY PENALTIES. Code Section 6664 provides that the
fraud and negligence penalties do not apply in the case of a negligent or
fraudulent failure to file a return. However, in the case of a fraudulent
failure to file a return, the failure to file penalty for returns due after that
date is increased to 15% per month of the tax required to be shown on the
return, up to a maximum of 75%.
C. FAILURE TO DEPOSIT TAXES. Code Section 6656 imposes a penalty
for the failure to deposit taxes with a government depositary unless there is
reasonable cause and not willful neglect.
D. WITHHOLDING WITH RESPECT TO FOREIGN PERSONS. Persons having
control, receipt, custody, disposal or payment of certain types of United States
income of foreign persons are required under the Code to deduct and withhold
United States tax from such income and are liable for the tax. Such withholding
agents are also liable for any applicable penalties and additions to tax for
their failure to withhold, even if the foreign person subsequently satisfies the
underlying tax liability. This provision would apply to failures to deduct and
withhold taxes after December 31, 1989.
E. INFORMATION REPORTING PENALTIES. Code Sections 6721 and 6722
impose penalties for failure to file various information return and payee
statements. The penalties vary in amount depending on when a taxpayer
ultimately complies with the reporting obligation and whether the failure to
file was intentional. These
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penalty provisions apply to information returns and payee statements due
(without regard to extensions) after December 31, 1989.
F. INTEREST ON ADDITIONAL TAX AND PENALTIES. If any additional tax
is payable by a Partner with respect to his or her share of any adjustment of
the taxable income or loss of the Program, interest will accrue and will be
payable by the Partner on the additional tax from the due date of the Partner's
tax return for which the tax relates (excluding any filing extensions) to the
date of payment. Interest accrues at a rate three percentage points over the
applicable federal short-term rate as that term is defined in Code Section
1274(d). Interest compounds on a daily basis. Interest on accuracy penalties
begins accumulating from the due date of the taxpayer's tax return for which the
penalty relates (including any filing extensions) to the date of payment.
Interest also accrues on accuracy-related penalties from the date of notice and
demand until paid. Partners other than corporations may not deduct interest paid
on such tax or penalties or on loans the proceeds of which were used to pay such
tax or penalties.
TAX LAW CHANGES
The foregoing discussion is based on the existing tax law, including the
Code, Regulations, Revenue Rulings and Procedures and judicial authority. It
cannot be predicted whether any changes in tax law will occur which could affect
any of the tax aspects of an investment in the Program. There have been other
numerous legislative proposals introduced and discussed by members of the
Congress in leadership positions which would alter certain features of the
present tax structure under the Code, including a flat tax proposal which could
lower tax rates and reduce or eliminate most deductions. In August 1996,
Congress passed the Small Business Job Protection Act, the Health Insurance
Portability and Accountability Act, and the Welfare Reform Act, each of which
contain tax law changes and each of which was signed by the President. Other
tax law changes have been proposed by the administration, including those
included in the President's balanced budget proposal submitted to Congress in
January 1996. It cannot be predicted whether any of these proposals will be
enacted into law. In addition, the Service is considering numerous regulations
projects which could result in the promulgation of Regulations which could
alter interpretations of current provisions of the Code.
STATE AND LOCAL TAXES
The state and local tax consequences of an investment in the Program may
vary materially from the federal income tax consequences. A Partner's share of
the taxable income or loss of the Program may be required to be included in
determining his or her taxable income or loss for state or local tax purposes in
the state or locale in which he or she resides. In addition, any state or
locale in which the Program or joint ventures in which it invests own property
may require
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nonresident Partners to file state or local income tax returns and to pay taxes
determined with reference to their shares of taxable income derived in such
state or locale. Also, a Partner's share of any taxable loss attributable to
operations in a state or locale may be available to offset income from other
sources only within the same state or locale. A corporate Limited Partner may
be required to pay minimum franchise taxes (E.G., $800 in California, $250 in
New York) in each jurisdiction in which the Program engages in business,
regardless of the size of its investment in the Program. Additionally, the
Program will be obligated to pay the minimum franchise taxes in California. To
the extent a nonresident Partner incurs a tax liability by virtue of operations
in a state or locale, it is possible that he or she will be entitled to a
deduction or credit with respect to his or her tax liability for his or her
state or locale of residence. In this regard, the California Revenue and
Taxation Code requires partnerships to withhold seven percent of distributions
of California source income to domestic nonresident (I.E.,
non-California) partners if the partnership is so notified by the Franchise Tax
Board. It is anticipated that a substantial portion of the Program's income
will be California source income. No withholding is required, however, if the
distributions of California source income to the Partner are $1,500 or less. In
this regard, the Program has been notified by the Franchise Tax Board that the
applicable withholding is required. Partners should consult their own tax
advisors with respect to all state and local tax matters affecting them.
THE FOREGOING SUMMARY IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING BY
EACH PROSPECTIVE INVESTOR. ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES OF AN INVESTMENT IN THE PROGRAM WITH SPECIFIC REFERENCE TO THEIR
INDIVIDUAL TAX SITUATIONS AND POTENTIAL CHANGES IN APPLICABLE LAWS.
SUMMARY OF AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
A prospective Limited Partner should read and be familiar with the
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement"), a copy of which is attached hereto as Exhibit A, which will govern
the operation of the Program. The summary of the Partnership Agreement
contained below does not purport to be complete and is qualified in its entirety
by reference to the Partnership Agreement itself.
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NATURE OF THE PROGRAM
The Program is a limited partnership formed pursuant to the California
Revised Limited Partnership Act. The liability of each Limited Partner is
limited to the amount of the Limited Partner's investment in the Program,
together with any undistributed share of the profits of the Program that from
time to time may be credited to such Limited Partner's Capital Account.
Accordingly, unlike a general partner which is generally personally liable for
all obligations of a limited partnership, a limited partner does not have
personal liability for partnership obligations and the limited partner's risk of
loss is limited to the amount of the limited partner's investment in the limited
partnership, together with such limited partner's interest, if any, in any
undistributed partnership assets. (Sections 2.1 and 6.3) A Limited Partner may
also be required to return certain distributions under certain circumstances as
required by California law.
CONTROL OF OPERATIONS OF THE PROGRAM
The powers vested in the General Partner in the Partnership Agreement
are quite broad. Generally, the General Partner has full, exclusive and
complete discretion in the management and control of the Program. (Section 9.1)
The General Partner is, however, subject to certain limitations on its
authority, as discussed in "Voting and Other Rights of the Limited Partners"
below.
TERM OF PROGRAM
The term of the Program cannot be determined at this time. However, the
General Partner anticipates commencing liquidation of the Program's portfolio of
assets seven years after the close of the offering of Units; the Program will,
in ALL events, terminate on December 31, 2011 unless dissolved sooner as set
forth in Section 12.1 of the Partnership Agreement. (Sections 5 and 12.1)
CAPITAL CONTRIBUTIONS
Each Limited Partner is required to purchase a minimum of 100 Units at a
total purchase price of $2,000 (50 Units or $1,000 in the case of a Qualified
Plan). Residents of certain states may be required to make different minimum
investments. After acceptance of an investor's subscription, the Partnership
Agreement will be amended to provide for such investor's admission as a Limited
Partner whereupon the investor will become a Limited Partner in the Program.
The General Partner is authorized, in its discretion, to issue additional Units
and to cause the Program to make subsequent offerings of its securities,
including additional Units. (Section 6.2)
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ADDITIONAL CONTRIBUTIONS
Upon dissolution and termination of the Program, the General Partner
will contribute to the Program an amount equal to the deficit balance, if any,
in its Capital Account at such termination. (Section 6.1)
WITHDRAWALS OF CAPITAL CONTRIBUTIONS
Except as otherwise provided in the Partnership Agreement, no Limited
Partner shall have the right to withdraw or reduce his or her Capital
Contribution or to demand or receive property other than cash. (Section 6.5)
ALLOCATION OF INCOME AND LOSS; DISTRIBUTIONS TO PARTNERS
ALLOCATION OF INCOME AND LOSS. Profits and Losses with respect to THE
Program will be allocated between the General Partner and the Limited Partners
in the manner described under "Cash Distributions and Redemptions" and Section 8
of the Partnership Agreement. Generally, Profits and Losses will be allocated
99% to the Limited Partners and one percent to the General Partner. In
addition, the General Partner will generally be allocated gross rental and
interest income in amounts equal to the distributions that it receives from the
Program. (Section 8)
DISTRIBUTIONS OF CASH AVAILABLE FOR DISTRIBUTION. Distributions will be
made to the General Partner and the Limited Partners in the manner described
under "Cash Distributions and Redemptions" and Section 8.8 of the Partnership
Agreement. (Section 8.8) The successful operation of the Program is subject to
various risks. See "Risk Factors."
Limited Partners who purchase at least 500 Units ($10,000) will be
entitled to receive monthly distributions. However, prior to the third monthly
distribution of any quarter, Limited Partners who have not received monthly
distributions must receive the same proportionate distribution amount within
that quarter that the monthly distributees already received before the monthly
distributees receive any further distributions for that quarter. (Section 8.8)
GENERAL PARTNER FEES AND REIMBURSEMENT OF GENERAL AND ADMINISTRATIVE EXPENSES
During Program operations, the General Partner will receive an
Acquisition Fee and a Management Fee. (Sections 7.2 and 7.3) The General
Partner and its Affiliates will be reimbursed for any expenses incurred by them
in the name, or on behalf, of the Program or in such manner that such expenses
shall appear in the books and records of the Program as expenses of the Program.
Any reimbursement for administrative services shall be charged at the lesser of
the cost
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of such services or 90% of the competitive rates for providing similar services,
subject, in the case of certain operational expenses, to the limitation on
expense reimbursement described in Section 7.1 of the Partnership Agreement.
(Section 7.1) Competitive rates will be determined by the General Partner by
periodically requesting bids from third parties, undertaking surveys of service
providers and generally conducting market analyses of the supply and cost of
necessary services.
LIMITED TRANSFERABILITY OF UNITS
There are a number of restrictions on the transferability of Units,
including the following: (1) transfers of less than 100 Units (50 Units in the
case of a Qualified Plan) will not be permitted except for intra-family and
similar types of transfers; (2) the transferor Limited Partner must acknowledge
and deliver to the General Partner such instruments of transfer and assignment
as may be required by, and in form and substance satisfactory to, the General
Partner, and (3) a transferee of a Unit will not be admitted to the Program as a
Limited Partner without the consent of the General Partner (which consent may be
withheld at the sole discretion of the General Partner). An amount sufficient
to cover transfer costs (not to exceed $75) will be established by the General
Partner and payment thereof shall be a condition to effectiveness of a transfer.
In addition, no sales or transfers of Units can be made in violation of any
applicable securities laws, including the Securities Act. (Section 10)
There will be no public market for Units, but, subject to certain
conditions, a Limited Partner may redeem his or her Units. The General Partner
will not, however, accept any redemption request with respect to Units sold
pursuant to this Prospectus unless a Limited Partner has held his or her Units
for at least six months. In no event, however, will the General Partner accept
any redemption request that causes the Program to violate Securities and
Exchange Commission Rule 10b-6. (Section 10.7)
ALLOCATION OF NET INCOME AND NET LOSS IN RESPECT TO PROGRAM UNITS TRANSFERRED
If Units are transferred during any taxable year of the Program, the net
income or net loss attributable to the Units for that taxable year will be
divided and allocated between the transferor and transferee. (Section 8.9)
DISSOLUTION AND LIQUIDATION
The Program will be dissolved upon the occurrence of either (1) the vote
of Limited Partners holding a majority of the Units or (2) the resignation,
removal, death or dissolution or adjudication of bankruptcy or in capacity of
any General Partner, unless Limited Partners holding a majority of the Units
elect to continue
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the Program. The Program will be dissolved on December 31, 2011, unless
dissolved sooner as set forth in Section 12.1 of the Partnership Agreement.
The General Partner anticipates commencing liquidation of the Program's
portfolio of assets seven years after the close of the offering of Units.
(Sections 12.1 and 12.2)
Upon dissolution, the affairs of the Program will be wound up and its
assets liquidated as promptly as practicable. Liquidation proceeds will be used
first to pay Program liabilities and the balance will be distributed to the
Partners in proportion to their respective Capital Accounts. Upon dissolution
and termination of the Program, the General Partner will be required to
contribute to the Program an amount equal to the deficit balance, if any, in its
Capital Account at such termination. (Sections 6.1 and 12.3)
INSURANCE AND LIMITS OF LIABILITY
The General Partner intends to maintain or cause to be maintained at the
expense of the Program such liability, casualty or other insurance as it deems
necessary and desirable to protect the Program's property and affairs. The
partnership Agreement provides that the General Partner will have no liability
to the Limited Partners for loss of, or damage to, the Program resulting from an
act or omission of the General Partner in the absence of its negligence or
misconduct. The Partnership Agreement provides that the Program will indemnify
the General Partner in respect of any act or omission other than one that would
constitute negligence or misconduct or, under certain circumstances, as to
liabilities arising under the Securities Act. (Section 15.2)
RESIGNATION OR REMOVAL OF GENERAL PARTNER; ELECTION OF GENERAL PARTNER
The General Partner may resign from the Program upon obtaining the
consent of Limited Partners holding a majority of the Units, and the opinion of
counsel for the Program that such resignation will not jeopardize the Program's
federal tax status as a partnership. The General Partner may be removed from
the Program upon a vote of Limited Partners holding a majority of the Units.
The General Partner automatically and immediately ceases to be the General
Partner of the Program upon dissolution or upon being adjudicated bankrupt, and
the Program is thereupon dissolved unless Limited Partners holding a majority of
the Units elect to continue the Program and, if necessary, elect a successor
General Partner. (Section 11)
If the General Partner resigns or is removed, and if the Limited
Partners vote to continue the Program, such resigned or removed General
Partner's interest in the Program must be purchased by the Program at its fair
market value. (Section 11.6)
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AMENDMENTS
Amendments to the Partnership Agreement may be proposed by the General
Partner or by Limited Partners holding ten percent or more of the Units in the
Program. A proposed amendment generally will be adopted and effective if it
receives the affirmative vote of Limited Partners holding a majority of the
Units. However, an amendment to extend the term of the Program beyond December
31, 2011 must receive an affirmative vote of all Partners. (Section 16.5)
VOTING AND OTHER RIGHTS OF THE LIMITED PARTNERS
The consent of Limited Partners holding a majority of the Units is
required (1) to amend the Partnership Agreement, (2) to approve or disapprove
the sale of all or substantially all of the assets of the Program prior to seven
years after the close of the offering of the Units, (3) to dissolve the Program,
(4) to remove the General Partner, (5) to elect a substitute General Partner and
(6) to continue the Program under certain circumstances. Also, the Program may
not engage in a Roll-Up Transaction without the approval of 66-2/3% in interest
of the Limited Partners. This provision may not be amended without the approval
of 66-2/3% in interest of the Limited Partners. (Section 9.4.3) Limited Partners
who dissent from the Roll-Up Transaction will be entitled to dissenting Limited
Partners' rights under California law. Other restrictions are imposed on the
ability of the General Partner to engage in Roll-Up Transactions. (Section 9.5.4
and Sections 9.5.7 through 9.5.12) In this regard, Limited Partners holding
more than 50% (or 66-2/3% in the case of a Roll-Up Transaction) of the Units may
by a vote substantially change the nature of an investment in the Program
through an amendment to the Partnership Agreement, merger of the Program with
another entity or otherwise. (Sections 9.4.2, 11.1, 11.2 and 16.5)
Upon the request of any Limited Partner, the Program is obligated to
supply the Limited Partner with (1) an alphabetical list of the names, addresses
and business telephone numbers of the Limited Partners, along with the number of
Units held by each of them, as such information is reflected in the records of
the Program as of the time of the request, (2) a copy of the certificate of
limited partnership of the Program and all amendments thereto, and (3) a copy of
the Partnership Agreement and all amendments thereto. Additionally, each
Limited Partner has the right upon reasonable request to inspect and copy at the
Limited Partner's own expense (1) copies of the Program's federal, state and
local tax returns for the six most recent fiscal years, (2) financial statements
of the Program for the six most recent fiscal years and (3) all other books and
records of the Program as they relate to the internal affairs of the Program for
at least the current and past three fiscal years. (Section 13.1) Neither the
Partnership Agreement nor the California Revised Limited Partnership Act (as
applicable to the Program)
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grants Limited Partners any appraisal or dissenters' rights, except in
connection with Roll-Up Transactions.
MEETINGS AND CONSENT
Meetings of the General and Limited Partners may be called by the
General Partner or by Limited Partners holding ten percent or more of the Units.
The General Partner is required to provide Limited Partners with a notice of
such meeting and each Limited Partner may consent in person or by proxy at such
meeting. The General Partner does not contemplate holding regular meetings.
(Section 16.6)
THE OFFERING
A minimum of 60,000 Units and a maximum of 2,500,000 Units are being
offered hereby. The General Partner has the authority, without the consent of
the Limited Partners, to increase the size of this offering, or to extend the
offering of Units (upon the renewal of its permit in any state requiring renewal
thereof) after [_________, 1997 (one year from the date of the Program's
original Prospectus). The offering period, however, will terminate on
[__________, 1998 (two years from the date of the Program's original
Prospectus). The General Partner reserves the unconditional right to extend the
offering period beyond [__________, 1997], subject to renewing the Program's
permit in any state requiring renewal thereof, or to terminate the offering of
Units prior to such dates. Although the Program has the right to raise
additional capital in the future in excess of the $50,000,000 being raised in
this offering, there is no present intention to do so. The effect of such
additional capital would be to provide additional funds available for
investment, which would be used to acquire additional assets described in
"Investment Objectives and Policies."
The price for each Unit is $20, payable only in cash (or a cash
equivalent, such as a check). The Units are offered on a "best efforts" basis
through selected members of the NASD. See "Plan of Distribution." Prospective
investors desiring to purchase Units will be required to subscribe for a minimum
of 100 Units or $2,000 (50 Units or $1,000 in the case of a Qualified Plan) by
completing and executing the Subscription Agreement attached hereto as Exhibit
C, and delivering it, together with a check for the full purchase price of the
Units being subscribed for, to the NASD member firm which solicited the purchase
of Units by the subscriber. Prospective investors must meet the suitability
requirements applicable to their state of residence. See "Suitability
Standards." Any subscription that fails to meet those requirements will be
rejected. Residents of certain states may also be required to make different
minimum investments. Checks must be payable (a) with respect to subscriptions
for the first 60,000 Units to "Imperial Bank,
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American Business Fund II Escrow" for deposit in an escrow account at
Imperial Bank and (b) with respect to all other subscriptions to "Phoenix
Leasing American Business Fund II, L.P." Imperial Bank, the escrow agent,
neither endorses the Program's offering of Units, nor recommends or guarantees
the purchase of Units offered for sale, pursuant to this Prospectus.
All funds will be held in an escrow account for the Program until 60,000
Units have been sold, whereupon the funds will be released to the Program for
the purposes intended. See "Use of Proceeds."
If fewer than 60,000 Units have been sold by the Program within one year
from the date of this Prospectus, none will be sold and all funds received by
the Program in payment for any Units will be promptly refunded in full, together
with any interest earned thereon. Interest on funds held in escrow will be
computed on a weighted average basis, taking into account the amount deposited
and the length of time during which such funds were held in the escrow account.
The General Partner has the unconditional right to accept or reject
any subscription and will promptly determine whether to accept or reject each
subscription. Subject to such right, subscriptions in complete and proper
form and satisfactory in substance to the General Partner will be accepted in
the chronological order in which they are received, but not prior to the
fifth day after the subscriber has received a copy of this Prospectus. If
the General Partner rejects a subscription, the funds submitted with such
subscription will be promptly returned to the subscriber without interest.
The Organizational and Offering Expenses other than sales commissions
payable to unaffiliated broker-dealers by the Program are expected to aggregate
approximately $2,500,000 ($1.00 per Unit) if the maximum number of Units is
sold. Such expenses include, without limitation, all fees and expenses incurred
in connection with the organization and formation of the Program, printing
costs, attorneys' and accountants' fees, registration and filing fees, escrow
fees, and disbursements made in connection with the sale and distribution of the
Units. In the event that the sales commissions and such other Organizational
and Offering Expenses exceed 15% of the gross proceeds of this offering ($3 per
Unit), such excess will be paid by the General Partner and not the Program.
PLAN OF DISTRIBUTION
Solicitation of subscriptions for Units will be made on a "best efforts"
basis only through selected members of the NASD, in compliance with the NASD
Rules of Fair Practice. Sales commissions will be payable by the Program at the
rate of eight percent ($1.60 per Unit) of the sales price of the Units. The
Program will pay wholesaling fees to persons performing services for Phoenix
Securities,
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Inc. See "Compensation, Fees and Interest of General Partner." In no event,
however, will the total of such wholesaling fees, reimbursements, commissions
paid to participating broker-dealers and sales incentives, if any, exceed ten
percent of the offering price of the Units sold. In addition, up to an
additional one-half percent of the sales price of the Units may be paid to NASD
member broker-dealers for actual accountable and bona fide due diligence
expenses.
Any broker-dealer who effects sales of the Units for the Program and any
other person who participates in a distribution of the Units may be deemed to be
an "underwriter" as that term is defined in the Securities Act. The Program has
agreed to indemnify soliciting dealers against certain civil liabilities,
including liabilities under the Securities Act.
Neither the General Partner nor participating broker-dealers shall
directly or indirectly pay or award any finder's fees, commissions or other
compensation (except as described above) to any person engaged by a potential
investor for investment advice as an inducement to such advisor to provide
advice to the prospective purchaser of Units.
In addition to the sales commissions payable to selected members of the
NASD, the Program may provide non-cash incentive compensation to such members
and associated persons of such members. Each item of non-cash compensation
would have a value of $100 or less. Any items of non-cash compensation will be
provided pursuant to operating procedures conforming to the rules of the NASD.
The General Partner will provide such items to persons who have met or are
expected to meet certain performance criteria to be established by the General
Partner. The aggregate value of all non-cash incentive items, and the total of
sales commissions and wholesaling fees, will not exceed ten percent of the
offering price of the Units sold.
REPORTS
The financial statements of the Program will be audited annually by a firm of
independent public accountants. The books of account and records will be kept
at the principal place of business of the Program and each Limited Partner, or
his or her duly authorized representative(s), will have, upon giving prior
written notice, free access at all times during reasonable business hours to
such books and records, and the right to inspect and copy them. Within 75 days
after the close of each fiscal year, there will be distributed to the Limited
Partners tax information necessary for the preparation of the Limited Partners'
federal income tax returns. Within 120 days after the close of each fiscal
year, reports will be distributed to the Limited Partners which will include
audited financial statements (including a balance sheet and statements of
operations, partners' capital, and cash flow)
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prepared in accordance with generally accepted accounting principles,
accompanied by a copy of the accountant's report, with a reconciliation to the
tax information, and information concerning fees paid to the General Partner and
Affiliates in the same detail as appears in this Prospectus, to be supplied in
such reports. In addition, each Limited Partner, within 60 days of the close of
each fiscal quarter, will be furnished with a copy of an unaudited balance sheet
and operating statement.
SALES LITERATURE
The Program will utilize certain sales material in connection with the
offering of the Units. This material may include reports describing the General
Partner and its Affiliates, pictures and summary descriptions of the assets and
facilities of lessees and borrowers of the Program and of prior Phoenix
sponsored partnerships, a brochure and audio-visual materials or taped
presentations highlighting various features of this offering. The General
Partner and its Affiliates may also respond to specific questions from broker-
dealers and prospective investors. Business reply cards, introductory letters
or similar materials may be sent to broker-dealers for customer use, and other
information relating to the offering may be made available to broker-dealers for
their internal use. However, the offering is made only by means of this
Prospectus. Except as described herein or in supplements hereto, the Program
has not authorized the use of other sales materials in connection with the
offering. Although the information contained in such material does not conflict
with any of the information contained in this Prospectus, such material does not
purport to be complete and should not be considered as a part of this Prospectus
or the Registration Statement of which this Prospectus is a part, or as
incorporated in this Prospectus or the Registration Statement by reference, or
as forming the basis of the offering of the Units described herein.
LEGAL MATTERS
The legality of the securities offered hereby and the question of the
taxation of the Program as a partnership and not as an association taxable as a
corporation for federal income tax purposes and certain other tax matters have
been passed upon by Thelen, Marrin, Johnson & Bridges, Los Angeles, California,
counsel for the Program.
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EXPERTS
The balance sheet of Phoenix Leasing American Business Fund II, L.P. as
of July 31, 1996 appearing in this Prospectus and Registration Statement has
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement, and
is included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The balance sheets of the General Partner and its general partner
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
A Registration Statement under the Securities Act has been filed with
the Securities and Exchange Commission, Washington, D.C., with respect to the
securities offered hereby. This Prospectus, which forms a part of the,
Registration Statement filed with the Securities and Exchange Commission
contains information concerning the Program and includes a copy of the Program's
Amended and Restated Agreement of Limited Partnership, but does not contain all
the information set forth in the Registration Statement and exhibits thereto.
The information omitted may be obtained from the Commission's principal office
in Washington, D.C., upon payment of the fee prescribed by the Rules and
Regulations of the Commission or examined there without charge.
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REPORT OF INDEPENDENT AUDITORS
To the Partners of
Phoenix Leasing American Business Fund II, L.P.
We have audited the accompanying balance sheet of Phoenix Leasing American
Business Fund II, L.P. (a California limited partnership) as of July 31, 1996.
This balance sheet is the responsibility of the Partnership's management.
Our responsibility is to express an opinion on this balance sheet based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Phoenix Leasing American
Business Fund II, L.P. at July 31, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Francisco, California
September 16, 1996
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PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
BALANCE SHEET
ASSETS
July 31,
1996
--------
Cash and cash equivalents. . . . . . . . . . . . . . . $ 2,021
--------
Total Assets. . . . . . . . . . . . . . . . . . . . $ 2,021
--------
--------
PARTNERS' CAPITAL
Commitments and Contingencies (Note 1)
Partners' Capital
General Partner, 50 units issued and outstanding . . . $ 1,000
Limited Partners, 2,500,000 units
authorized and 100 units issued and
outstanding. . . . . . . . . . . . . . . . . . . . . 2,021
Less:
Receivable from General Partner . . . . . . . . . (1,000)
--------
Total Partners' Capital . . . . . . . . . . . . . . $ 2,021
--------
--------
The accompanying notes are an integral
part of this balance sheet.
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PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
NOTES TO BALANCE SHEET
JULY 31, 1996
NOTE 1. ORGANIZATION AND PARTNERSHIP MATTERS:
Phoenix Leasing American Business Fund II, L.P. (the "Partnership"), was
organized as a California limited partnership on May 6, 1996. The General
Partner is Phoenix Leasing Associates IV, L.P., the general partner of which
is Phoenix Leasing Associates IV, Inc., a wholly-owned subsidiary of Phoenix
Leasing Incorporated. The objectives of the Partnership are to (1) produce
cash distributions on a continuing basis over the life of the Partnership
through leasing equipment primarily to and financing assets primarily for
companies engaged in the development of technologies and other growth
industry businesses, franchisees, and additional third party lessees and
customers, (2) reinvest, during the operating phase of the Partnership (after
payment of expenses, including debt service requirements, and distributions
to the Partners), in additional equipment and assets to increase the overall
size of the portfolio, and (3) commence liquidation of the Partnership's
portfolio of assets seven years after the close of the offering of Units.
As more fully described in the Partnership Agreement, Partnership net
income and net losses will be allocated 99% to the Limited Partners and one
percent to the General Partner. Syndication costs, as defined, will be
allocated one percent to the General Partner and 99% to the Limited Partners.
In addition, the General Partner will generally be allocated gross rental
and interest income in amounts equal to the distributions that it receives
from the Partnership.
Until the Limited Partners have received cumulative cash distributions
equal to the greater of (a) 177% of the Limited Partners' Capital
Contributions or (b) 100% of the Limited Partners' Capital Contributions plus
an 11% annual return, compounded quarterly, on their adjusted Capital
Contributions (such greater amount is hereafter referred to as the "Priority
Return"), Cash Available for Distribution generally will be distributed 96%
to the Limited Partners and four percent to the General Partner. Thereafter,
Cash Available for Distribution will be distributed 85% to the Limited
Partners and 15% to the General Partner. During the period beginning on the
date of admission of a Limited Partner to the Partnership and ending seven
years after the end of the calendar quarter that includes such admission
date, the General Partner's interest in Cash Available for Distribution is
subordinated in each calendar quarter to a Limited Partner receiving a
quarterly distribution equal to 2.75% of such Limited Partner's Capital
Contribution.
In the event the General Partner has a deficit balance in its capital
account at the time of Partnership liquidation, it will be required to
contribute the amount of such deficit to the Partnership.
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The General Partner will be compensated for services performed in
connection with the analysis, selection, and acquisition or financing of
assets, and the continuing analysis of the overall portfolio of the
Partnership's assets. As compensation for such acquisition services, the
General Partner will receive a fee equal to four percent of the purchase
price of equipment or financing amount. In addition, the General Partner
will receive a fee of two percent of the Partnership's gross revenues for
managing the operations of the Partnership. These fees are subject to
limitations contained in the Partnership Agreement.
Phoenix Securities, Inc., an affiliate of the General Partner, will
receive compensation for activities performed in connection with the offering
of the Units. The amount of such compensation when added to sales
commissions payable to broker-dealers will not exceed ten percent of the
Capital Contributions.
As of July 31, 1996, the General Partner had paid certain costs related to
the initial formation and organization of the Partnership of approximately
$77,845. These costs will be reimbursed by the Partnership as Limited Partner
Capital Contributions are received, provided the Partnership has raised its
minimum offering amount. In no event, however, will the total of sales
commissions, wholesaling fees and other organizational and offering expenses
exceed 15% of the Capital Contributions. Accordingly, these costs have not
been accrued by the Partnership in the July 31, 1996 balance sheet as they
are not an obligation of the Partnership until the Partnership raises the
minimum offering amount. These costs will be reimbursed as Capital
Contributions are received, in amounts not to exceed the 15% limitation.
NOTE 2. INCOME TAXES:
Federal and state income tax regulations provide that taxes on the income
or loss of the Partnership are reportable by the partners in their individual
income tax returns. Accordingly, no provision for such taxes had been made
in the accompanying balance sheet.
NOTE 3. RELATED ENTITIES:
Affiliates of the General Partner serve as general partners in other
partnerships that engage generally in the leasing and financing of various
types of capital equipment. The General Partner will be reimbursed for
certain expenses, as described in Section 7.1 of the Partnership Agreement,
incurred on behalf of the Partnership. The General Partner may only be
reimbursed for the administrative services necessary to the prudent operation
of the Partnership. Reimbursement for administrative services will be
limited to the lower of the actual costs of such services or 90% of the
competitive rates for providing similar services, as further described in
Section 7.1 of the Partnership Agreement.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Phoenix Leasing Associates IV, Inc.:
We have audited the accompanying consolidated balance sheet of Phoenix
Leasing Associates IV, Inc. (a Nevada Corporation) as of June 30, 1996. This
consolidated balance sheet is the responsibility of the Company's management.
Our responsibility is to express an opinion on this consolidated balance
sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated balance sheet is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated balance
sheet. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated balance sheet presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Phoenix Leasing
Associates IV, Inc. as of June 30, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
September 4, 1996
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PHOENIX LEASING ASSOCIATES IV, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
June 30,
1996
-------
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 131
Deferred organizational and offering costs . . . . . . . . 62,602
-----------
Total Assets. . . . . . . . . . . . . . . . . . . . . $ 62,733
============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . $ 4,000
Due to PLI. . . . . . . . . . . . . . . . . . . . . . . . 48,526
-----------
Total Liabilities. . . . . . . . . . . . . . . . . . . 52,526
-----------
Minority Interest in Consolidated Subsidiary. . . . . . . 30
-----------
Shareholder's Equity:
Common Stock, without par value, 100 shares
authorized and outstanding. . . . . . . . . . . . . . . 1,000,100
Retained earnings. . . . . . . . . . . . . . . . . . . . 10,077
Less:
Note receivable from PLI. . . . . . . . . . . . . . . . (1,000,000)
-----------
Total Shareholder's Equity. . . . . . . . . . . . . . 10,177
-----------
Total Liabilities and Shareholder's Equity $ 62,733
============
The accompanying notes are an integral
part of this balance sheet.
131
<PAGE>
PHOENIX LEASING ASSOCIATES IV, INC.
NOTES TO THE CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Phoenix Leasing Associates IV, Inc. (the Company) was formed under the
laws of Nevada on April 19, 1996. The Company's fiscal year ends on June 30.
The Company is a wholly owned subsidiary of Phoenix Leasing Incorporated
(PLI), a California corporation.
On May 6, 1996, the Company organized Phoenix Leasing Associates IV,
L.P., a California limited partnership (PLAIVLP) to serve as the general
partner in the Phoenix Leasing American Business Fund II, L.P. (the Program).
The limited partner of PLAIVLP is Lease Management Associates, Inc., a Nevada
corporation controlled by an officer of the Company, who also owns the parent
company of PLI. As the general partner of the Program, PLAIVLP will earn the
acquisition and management fees and receive the profits, losses and
distributions (Note 6). The Company is the general partner of PLAIVLP and as
of June 30, 1996 has a 70% ownership interest. This ownership interest is
subject to change in accordance with the PLAIVLP Partnership Agreement.
Profits and distributions attributable to acquisition fees paid to PLAIVLP by
the Program are to be allocated in proportion to the partners' ownership
interests. All other profits, losses and distributions shall be allocated to
the Company. The financial statements of June 30, 1996 are presented on a
consolidated basis as discussed in Note 2.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
NOTE 2. PRINCIPLES OF CONSOLIDATION:
The consolidated balance sheet as of June 30, 1996 include the accounts of
the Company and its subsidiary PLAIVLP. All significant intercompany
accounts and transactions have been eliminated in consolidation. The minority
interest in consolidated subsidiary represents the limited partner's interest
in PLAIVLP.
PLAIVLP will record its investment in the Program under the equity method
of accounting. As general partner of PLAIVLP, the Company has complete
authority in, and responsibility for, the overall management and control of
the Program, which includes responsibility for supervising the Program's
acquisition, leasing and remarketing activities, and its sale of equipment.
132
<PAGE>
PHOENIX LEASING ASSOCIATES IV, INC.
NOTES TO THE CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
NOTE 3. NOTE RECEIVABLE FROM AFFILIATE:
PLI, the sole shareholder of the Company, as of June 30, 1996 has issued
a demand promissory note to the Company totaling $1,000,000. The note
provides that its principal amount automatically increases to five percent of
the aggregate capital contributions to the Program by its limited partners.
There are no restrictions or covenants associated with this note which would
preclude the Company from receiving the principal or interest amounts under
the terms of the note. The note bears interest at a rate equal to the lesser
of ten percent or the prime rate as determined by Citibank, N.A., New York,
New York, plus one percent. Interest is payable by PLI on the first business
day of each calendar quarter. The principal amount is due and payable upon
demand by the Company. PLI is under no obligation to provide additional
funding to the Program.
NOTE 4. INCOME TAXES:
The Company's income or loss for tax reporting purposes is included in
the consolidated and combined tax returns filed by Phoenix American
Incorporated (PAI), an affiliated Nevada corporation. These returns are
prepared on the accrual basis of accounting. In accordance with a Tax
Sharing Agreement between the Company and PAI, PAI had assumed all tax
liabilities and benefits arising from the Company's income or loss.
NOTE 5. ORGANIZATION AND SYNDICATION COSTS:
Prior to the organization of PLAIVLP, the Company, on behalf of the
program, paid certain organization and syndication costs associated with the
formation and initial equity raising of the program. The Company funded these
reimbursable costs through an advance from PLI. Beginning May 6, 1996,
PLAIVLP began paying these reimbursable costs through advances from the
Company. Any costs in excess of 15% of equity raised at the termination of
the offering period will be paid by PLAIVLP through advances from the
Company. The Company has funded these advances from PLI and earnings.
NOTE 6. COMPENSATION AND FEES:
PLAIVLP will receive acquisition fees equal to four percent of the
purchase price of assets acquired or financed by the Program in connection
with the analysis, selection and acquisition or financing of assets, and the
continuing analysis of the overall portfolio of the Program's assets, and
management fees equal to two percent of the Program's gross revenues in
connection with managing the operations of the Program. In addition, PLAIVLP
will receive an interest in the Program's profits, losses and distributions.
133
<PAGE>
PHOENIX LEASING ASSOCIATES IV, INC.
NOTES TO THE CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
NOTE 7. RELATED PARTIES:
Phoenix Securities, Inc., an affiliate of the Company, will receive a fee
for wholesaling activities performed in connection with the offering of the
limited partnership units of the Program.
The Company has entered into an agreement with PLI, whereby PLI will
provide management services to PLAIVLP in connection with the operation and
administration of the Program. In consideration for the services and
activities to be performed by PLI pursuant to this agreement, the Company
shall pay PLI fees in an amount equal to: two percent of the Program's
cumulative gross revenues plus the lesser of two and one half percent of the
purchase price of equipment acquired by and financing provided to businesses
by the Program or 100% of the net cash attributable to the acquisition fee
which has been distributed to the Company plus 100% of all other net cash
from operations of PLAIVLP.
134
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Phoenix Leasing Associates IV, L.P.:
We have audited the accompanying balance sheet of Phoenix Leasing Associates
IV, L.P. (a California limited partnership) as of June 30, 1996. This
balance sheet is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Phoenix Leasing Associates IV,
L.P. as of June 30, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Francisco, California
September 4, 1996
135
<PAGE>
PHOENIX LEASING ASSOCIATES IV, L.P.
BALANCE SHEET
ASSETS
June 30,
1996
------------
Cash and cash equivalents. . . . . . . . . . . . . $ 100
Deferred organizational and offering costs . . . . 62,602
------------
Total Assets. . . . . . . . . . . . . . . . . $ 62,702
============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses. . . . . . $ 2,000
Due to General Partner . . . . . . . . . . . . . 60,602
------------
Total Liabilities . . . . . . . . . . . . . . 62,602
Partners' Capital:
General Partner (70 partnership units) . . . . . 70
Limited Partner (30 partnership units) . . . . . 30
------------
Total Partners' Capital . . . . . . . . . . . 100
Total Liabilities and Partners' Capital . . $ 62,702
============
The accompanying notes are an integral
part of this balance sheet.
136
<PAGE>
PHOENIX LEASING ASSOCIATES IV, LP.
NOTES TO THE BALANCE SHEET
JUNE 30, 1996
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Phoenix Leasing Associates IV, L.P., a California limited partnership
(the Partnership), was formed under the laws of the State of California on
May 6, 1996, to act as the general partner of Phoenix Leasing American
Business Fund II, L.P. (the Program), a California limited partnership. The
Partnership has a June 30 fiscal year-end. The general partner of the
Partnership is Phoenix Leasing Associates IV, Inc. (PLAIV), a Nevada
corporation and wholly owned subsidiary of Phoenix Leasing Incorporated, a
California corporation. The limited partner of the Partnership is Lease
Management Associates, Inc., a Nevada corporation controlled by an officer of
PLAIV, who owns the ultimate parent of PLAIV.
The Partnership records its investment in the Program under the equity
method of accounting. As general partner, the Partnership has complete
authority in, and responsibility for, the overall management and control of
the Program, which includes responsibility for supervising the Program's
acquisition, leasing and remarketing activities, and its sale of equipment.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
discloure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
NOTE 2. INCOME TAXES:
The Partnership is not subject to federal and state income taxes on its
income. Federal and state income tax regulations provide that items of
income, gain, loss and deductions, credits and tax preference items of
limited partnerships are reportable by the individual partners in their
respective income tax returns. Accordingly, no liability for such taxes will
be recorded on the Partnership's balance sheet.
NOTE 3. ORGANIZATION AND SYNDICATION COSTS:
The Partnership on behalf of the Program will pay certain organization
and syndication costs associated with the formation and initial equity
raising of the Program. The Partnership will fund these reimbursable costs
primarily through
137
<PAGE>
PHOENIX LEASING ASSOCIATES IV, LP.
NOTES TO THE BALANCE SHEET
JUNE 30, 1996
NOTE 3. ORGANIZATION AND SYNDICATION COSTS (CONTINUED):
advances from PLAIV. Any costs in excess of 15% of equity raised at the
termination of the offering period will be paid by the Partnership.
NOTE 4. COMPENSATION AND FEES:
The Partnership will receive acquisition fees equal to four percent of
the purchase price of assets acquired or financed by the Program in
connection with the analysis, selection and acquisition or financing of
assets, and the continuing analysis of the overall portfolio of the Program's
assets, and management fees equal to two percent of the Program's gross
revenues in connection with managing the operations of the Program. In
addition, the Partnership will receive an interest in the Program's profits,
losses and distributions.
NOTE 5. ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS:
Profits and losses attributable to acquisition fees paid to the
Partnership by the Program shall be allocated to the partners in proportion
to their ownership interests. All other profits and losses shall be
allocated to PLAIV. Distributions are made in accordance with the terms of
the partnership agreement.
NOTE 6. RELATED PARTIES:
Phoenix Securities, Inc., an affiliate of the Partnership, will receive a
fee for wholesaling activities performed in connection with the offering of
the limited partnership units of the Program.
PLAIV has entered into an agreement with Phoenix Leasing Incorporated
(PLI), whereby PLI will provide management services to the Partnership in
connection with the operations and administration of the Program. In
consideration for the services and activities to be performed by PLI pursuant
to this agreement, PLAIV shall pay PLI fees in an amount equal to: two
percent of the Program's cumulative gross revenues plus the lesser of two and
one half percent of the purchase price of equipment acquired by and financing
provided to businesses by the Program or 100% of the net cash attributable to
the acquisition fee which has been distributed to PLAIV plus 100% of all
other net cash from operations of the Partnership.
138
<PAGE>
GLOSSARY
Any terms not otherwise defined herein or in this Prospectus may be defined
in the Partnership Agreement.
ACQUISITION FEE. The term "Acquisition Fee" means that fee payable to the
General Partner in the amount and under the terms set forth in "Compensation,
Fees and Interest of General Partner," as more fully described in Section 7.2 of
the Partnership Agreement.
AFFILIATE. The term "Affiliate" means (a) any Person directly, or
indirectly controlling, controlled by, or under common control with another
Person, (b) any Person owning or controlling ten percent or more of the
outstanding voting securities of such other Person, (c) any officer, director or
partner of such other Person and (d) if such other Person is an officer,
director or partner, any company for which such Person acts in any such
capacity.
CALIFORNIA REVISED LIMITED PARTNERSHIP ACT. The "California Revised
Limited Partnership Act" means the Revised Limited Partnership Act of the State
of California as set forth in Chapter 3 of Title 2 of the California
Corporations Code.
CAPITAL ACCOUNT. The term "Capital Account" means, with respect to any
Partner, such Partner's Capital Account determined in accordance with Section
8.10 of the Partnership Agreement.
CAPITAL CONTRIBUTION. The term "Capital Contribution" means the gross
amount of investment in the Program by a Partner or all Partners as the case may
be.
CASH AVAILABLE FOR DISTRIBUTION. The term "Cash Available for
Distribution" means (a) the amount of cash from all operations, without
deduction for depreciation (including, but not limited to, all cash received
from the sale of any Program Property) remaining in the Program after expenses
of, and proper payments by, the Program (including payment of the Acquisition
Fee and Management Fee to the General Partner), plus (b) cash funds available
for distribution from surplus Program reserves, less (c) any reserves
established by the General Partner, which it deems reasonably necessary for the
operation of the Program and Program Property and purchases of additional
Equipment and other Program Property.
CODE. The term "Code" means the Internal Revenue Code of 1986, as amended.
139
<PAGE>
COMMISSIONS. The term "Commissions" means all sales commissions, finders'
fees or other similar kinds of compensation paid in connection with the offer
and sale of UNITS, sales promotion and wholesaling services.
EQUIPMENT. The term "Equipment" means the capital equipment and other
tangible and intangible assets, including, without limitation, software
products, which the Program will directly or indirectly (through venture
arrangements) purchase, own, lease and sell to others, and the financing of
capital equipment and other assets.
ERISA. The term "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
FULL PAYOUT LEASES. The term "Full Payout Leases" means leases under which
the non-cancelable rental payments due during the initial term of the lease are
sufficient to recover the purchase price of the equipment.
GENERAL PARTNER. The term "General Partner" means Phoenix Leasing
Associates IV, L.P., the general partner of the Program.
IBM. The term "IBM" means International Business Machines Corporation.
LIMITED PARTNERS. The term "Limited Partners" means such Persons as shall
be admitted to the Program from time to time as limited partners pursuant to the
terms hereof and in accordance with the California Revised Limited Partnership
Act.
LJVS. The term "LJVs" means venture arrangements, including joint ventures
between the Program and other partnerships sponsored by the General Partner or
its Affiliates (including certain of the Prior Partnerships) and other entities
which the General Partner deems desirable (excluding the General Partner and
certain of its Affiliates), some of which ventures will use leverage to acquire
assets. The term "LJVs" also includes arrangements whereby the Program acquires
or finances assets through a subsidiary of the Program.
MANAGEMENT AGREEMENT. The term "Management Agreement" means that certain
Partnership Management Agreement entered into between PLA IV and PLI as of
[__________, 1996].
MANAGEMENT FEE. The term "Management Fee" means that fee payable to the
General Partner in the amount and under the terms set forth in "Compensation,
Fees and Interest of General Partner," as more fully described in Section 7.3 of
the Partnership Agreement.
140
<PAGE>
NASAA EQUIPMENT POLICY. The term "NASAA Equipment Policy" means the
Statement of Policy for Equipment Programs adopted by the North American
Securities Administrators Association, as in effect on [__________, 1996], the
date of the Program's original Prospectus.
NET CAPITAL CONTRIBUTION. The term "Net Capital Contribution" has the
meaning set forth in Section 1.1.16 of the Partnership Agreement.
OPERATING LEASES. The term "Operating Leases" means the leases which will
return to the lessor less than the purchase price of the equipment from rentals
payable during the initial term of the lease.
ORGANIZATIONAL AND OFFERING EXPENSES. The term "Organizational and
Offering Expenses" means expenses incurred in connection with preparing the
Program for registration and subsequently offering and distributing it to the
public, including sales commissions paid to broker-dealers in connection with
the distribution of Units, and all advertising expenses, except advertising
expenses related to the leasing and financing of Equipment and other Program
Property.
PARTNERSHIP AGREEMENT. The term "Partnership Agreement" means the Amended
and Restated Agreement of Limited Partnership of Phoenix Leasing American
Business Fund II, L.P., attached to this Prospectus as Exhibit A.
PERSON. The term "Person" means any natural person, partnership,
corporation, association or other legal entity.
PLA IV. The term "PLA IV" means Phoenix Leasing Associates IV, Inc., a
Nevada corporation a wholly-owned subsidiary of PLI and the general partner of
the General Partner.
PLI. The term "PLI" means Phoenix Leasing Incorporated, a California
corporation.
PRIOR PARTNERSHIPS. The term "Prior Partnerships" means 31 other
California limited partnerships: Phoenix Leasing Fund-I (dissolved on
November 30, 1988); Phoenix Leasing Fund 1973 (dissolved on December 31, 1983);
Phoenix Leasing Fund 1974 (dissolved on December 31, 1984); Phoenix Leasing
Private Fund 1975 (dissolved on December 31, 1985); Phoenix Leasing Income Fund
1975 (dissolved on December 31, 1995); Phoenix Leasing Investment Fund 1975
(dissolved on December 31, 1986); Phoenix Leasing Performance Fund 1976
(dissolved on December 31, 1986); Phoenix Leasing Income Fund 1977; Phoenix
Leasing Performance Fund 1977 (dissolved on December 31, 1987); Phoenix Leasing
Private Fund 1979-1 (dissolved on December 31, 1987); Phoenix Leasing
Performance Fund 1979 (dissolved on December 31, 1989); Phoenix
141
<PAGE>
Leasing Income Fund 1980 (dissolved on December 31, 1995); Phoenix Leasing
Performance Fund 1980 (dissolved December 31, 1990); Phoenix Leasing Performance
Fund 1981 (dissolved on December 31, 1991); Phoenix Leasing Income Fund 1981;
Phoenix Leasing Growth Fund 1982; Phoenix Leasing Income Fund 1982-1 (dissolved
on December 28, 1994); Phoenix Leasing Income Fund 1982-2 (dissolved on December
31, 1995); Phoenix Leasing Income Fund 1982-3 (dissolved on December 28, 1994);
Phoenix Leasing Income Fund 1982-4 (dissolved on December 28, 1994); Phoenix
Leasing Income Fund VI; Phoenix Leasing Income Fund VII; Phoenix Leasing Cash
Distribution Fund (dissolved on December 31, 1995); Phoenix Leasing Capital
Assurance Fund; Phoenix Leasing Cash Distribution Fund II; Phoenix Leasing Cash
Distribution Fund III; Phoenix High Tech/High Yield Fund; Phoenix Leasing Cash
Distribution Fund IV; Phoenix Income Fund, L.P.; Phoenix Leasing Cash
Distribution Fund V, L.P; and Phoenix Leasing American Business Fund, L.P.
PRIORITY RETURN. The term "Priority Return" has the meaning set forth in
Section 1.1.24 of the Partnership Agreement.
PROFITS AND LOSSES. The terms "Profits" and "Losses" have the respective
meanings set forth in Section 1.1.25 of the Partnership Agreement.
PROGRAM. The term "Program" means Phoenix Leasing American Business Fund
II, L.P., a California limited partnership.
PROGRAM PROPERTY. The term "Program Property" means the Equipment and
other tangible and intangible assets, including, without limitation, furniture,
fixtures and leasehold improvements (and related furnishings and equipment),
directly or indirectly (through venture arrangements) acquired, owned, leased,
sold or financed by the Program.
QUALIFIED PLANS. The term "Qualified Plans" means an IRA, Keogh or
qualified pension, profit sharing or stock bonus plan and other tax-exempt
entities.
ROLL-UP TRANSACTION. The term "Roll-Up Transaction" has the meaning set
forth in Section 9.4.3 of the Partnership Agreement.
SECURITIES ACT. The term "Securities Act" means the Securities Act of 1933,
as amended.
SERVICE. The term "Service" means the Internal Revenue Service.
SUBSCRIPTION AGREEMENT. The term "Subscription Agreement" means the
subscription agreement included as Exhibit C to this Prospectus, executed by any
Person in connection with the purchase of Units.
142
<PAGE>
TREASURY REGULATIONS. The term "Treasury Regulations" means the Income Tax
Regulations promulgated under the Code (or any corresponding provision or
provisions of successor regulations).
UNITS. The term "Units" means the 2,500,000 units of limited partnership
interest of Phoenix Leasing American Business Fund II, L.P., which are being
offered by means of this Prospectus.
143
<PAGE>
EXHIBIT A
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
<PAGE>
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
TABLE OF CONTENTS
SECTION PAGE
SECTION 1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Organization . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3. Principal Place of Business. . . . . . . . . . . . . . . . . 11
SECTION 4. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 6. Capital Contributions and Status . . . . . . . . . . . . . . 12
6.1 Capital Contribution of General Partner. . . . . . . . . . . . 12
6.2 Capital Contributions of Limited Partners. . . . . . . . . . . 12
6.3 Limited Liability. . . . . . . . . . . . . . . . . . . . . . . 13
6.4 Role of Limited Partner. . . . . . . . . . . . . . . . . . . . 13
6.5 Withdrawal of Capital Contributions. . . . . . . . . . . . . . 13
SECTION 7. Charges and Expenses of and Fees Paid to General Partner. . . 13
7.1 Expenses of General Partner. . . . . . . . . . . . . . . . . . 13
7.2 General Partner's Acquisition Fee. . . . . . . . . . . . . . . 14
7.3 General Partner's Management Fee . . . . . . . . . . . . . . . 15
7.4 No Additional Compensation . . . . . . . . . . . . . . . . . . 15
7.5 Comprehensive Fee Limitations. . . . . . . . . . . . . . . . . 15
SECTION 8. Allocation of Profits and Losses; Other Items; Distributions;
Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . 16
8.1 Allocation of Profits. . . . . . . . . . . . . . . . . . . . . 16
8.2 Allocation of Losses . . . . . . . . . . . . . . . . . . . . . 16
8.3 Special Allocations: Items in the Nature of Income or Gain. . 16
8.4 Special Allocations: Items in the Nature of Expenses
or Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.5 Other Allocations Rules. . . . . . . . . . . . . . . . . . . . 17
8.6 Tax Allocations: Code Section 704(c). . . . . . . . . . . . . 19
8.7 Allocations Among Unit Holders . . . . . . . . . . . . . . . . 20
8.8 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . 20
8.9 Distributions and Allocations of Profits and Losses in
Respect to Transferred Units . . . . . . . . . . . . . . . . . 21
8.10 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . 22
8.11 Amounts Withheld . . . . . . . . . . . . . . . . . . . . . . . 23
8.12 Power of General Partner to Vary Allocations of Profits
and Losses . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.13 Interest of General Partner in Material Program Items. . . . . 24
8.14 Financial Accounting Allocations . . . . . . . . . . . . . . . 24
SECTION 9. Rights, Powers, and Obligations of the General Partner . . . .24
9.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.2 Independent Activities . . . . . . . . . . . . . . . . . . . . 26
9.3 Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.4 Certain Limitations. . . . . . . . . . . . . . . . . . . . . . 27
9.5 Certain Restrictions . . . . . . . . . . . . . . . . . . . . . 30
<PAGE>
SECTION PAGE
SECTION 10. Transfer of Units. . . . . . . . . . . . . . . . . . . . . 34
10.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.2 Restrictions on Transfer of Units and Conditions of
Permitted Transfers. . . . . . . . . . . . . . . . . . . . . . 34
10.3 Substituted Limited Partners . . . . . . . . . . . . . . . . . 36
10.4 Nontransferability of the General Partner's Interest . . . . . 36
10.5 Purchase of Units by the General Partner . . . . . . . . . . . 37
10.6 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.7 Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.8 Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 11. Resignation or Removal of a General Partner; Election of
a General Partner . . . . . . . . . . . . . . . . . . . . . .38
11.1 Resignation of a General Partner. . . . . . . . . . . . . . . .38
11.2 Removal of a General Partner . . . . . . . . . . . . . . . . . 38
11.3 Notice of Resignation or Removal . . . . . . . . . . . . . . . 39
11.4 Liability of a General Partner after Resignation or Removal. . 39
11.5 Election of a Substitute General Partner . . . . . . . . . . . 39
11.6 Purchase of Interest of a General Partner. . . . . . . . . . . 40
SECTION 12. Dissolution and Winding Up of the Program . . . . . . . . . 41
12.1 Dissolution of the Program . . . . . . . . . . . . . . . . . . 41
12.2 Election Upon Dissolution. . . . . . . . . . . . . . . . . . . 41
12.3 Winding Up of the Program. . . . . . . . . . . . . . . . . . . 42
12.4 Compliance With Timing Requirements of Treasury
Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 13. Books of Accounts, Accounting, Reports, Tax Year,
Banking and Tax Elections . . . . . . . . . . . . . . . . . . 43
13.1 Books of Account. . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Accounting and Reports. . . . . . . . . . . . . . . . . . . . 43
13.3 Annual Audit. . . . . . . . . . . . . . . . . . . . . . . . . 45
13.4 Tax Year. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.5 Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.6 Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . 45
13.7 Program Returns . . . . . . . . . . . . . . . . . . . . . . . 46
13.8 Information . . . . . . . . . . . . . . . . . . . . . . . . . 46
13.9 Acquisition Reports . . . . . . . . . . . . . . . . . . . . . 47
13.10 Filings with Securities Commissioners . . . . . . . . . . . . 47
SECTION 14. Power of Attorney . . . . . . . . . . . . . . . . . . . . . 47
14.1 Power of Attorney for General Partner . . . . . . . . . . . . 47
14.2 Scope of Power of Attorney. . . . . . . . . . . . . . . . . . 48
SECTION 15. Liability and Indemnification of the General Partner . . . . 48
15.1 Exclusion of Liability for Return of Capital Contributions. . 48
15.2 Limitation on Liability of General Partner; Indemnification . 48
SECTION 16. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . 49
16.1 Special Accommodations to Limited Partners. . . . . . . . . . 49
16.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
16.3 Section Captions. . . . . . . . . . . . . . . . . . . . . . . 51
ii
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SECTION PAGE
16.4 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 51
16.5 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . 51
16.6 Meetings and Consent. . . . . . . . . . . . . . . . . . . . . 51
16.7 Right to Rely Upon the Authority of General Partner . . . . . 51
16.8 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 52
16.9 California Law. . . . . . . . . . . . . . . . . . . . . . . . 52
16.10 Waiver of Action for Partition. . . . . . . . . . . . . . . . 52
16.11 Counterpart Execution . . . . . . . . . . . . . . . . . . . . 52
16.12 Parties in Interest . . . . . . . . . . . . . . . . . . . . . 52
16.13 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
16.14 Gender. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
16.15 Integrated Agreement. . . . . . . . . . . . . . . . . . . . . 53
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AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement") is made and entered into as of the _____ day of _____________,
1996, between Phoenix Leasing Associates IV, L.P., a California limited
partnership (the "General Partner"), with principal offices at 2401 Kerner
Boulevard, San Rafael, California 94901-5527, and persons who by virtue of
their execution hereof have agreed to become limited partners (the "Limited
Partners") in the Program (as defined below) organized pursuant to this
Agreement.
W I T N E S S E T H :
WHEREAS, on May __, 1996, a California limited partnership currently
known as Phoenix Leasing American Business Fund II, L.P. (the "Program") was
formed pursuant to the laws of the State of California;
WHEREAS, on __________, 1996, the Partners amended and restated in full
the partnership agreement of the Program (the "Partnership Agreement "); and
WHEREAS, it is desirable to amend and restate in its entirety the
Restated Partnership Agreement to incorporate in one document the agreement
of the Partners;
NOW, THEREFORE, the parties hereto in consideration of the premises and
mutual covenants and agreements contained herein hereby agree as follows:
1. DEFINITIONS
1.1 The following terms used in this Agreement shall (unless expressly
provided herein or unless the context otherwise requires) have the following
respective meanings:
1.1.1 "Accrual Basis Capital Account" means, with respect to any Limited
Partner, such Limited Partner's capital account determined in accordance with
the books and records regularly maintained by the Program for financial
reporting purposes, utilizing the accrual method of accounting applied in a
consistent manner. In the event any Units are transferred in accordance with
the provisions of this Agreement, the transferee shall succeed to the Accrual
Basis Capital Account of the transferor to the extent such Accrual Basis
Capital Account relates to the transferred Units.
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1.1.2 "Acquisition Fee" means the fee paid by the Program to the General
Partner in accordance with the provisions of Section 7.2.
1.1.3 "Act" means the California Revised Limited Partnership Act as set
forth in Chapter 3 of Title 2 of the California Corporations Code.
1.1.4 "Agreement" means this Restated Agreement of Limited Partnership
as amended from time to time.
1.1.5 "Capital Account" means, with respect to the General Partner or
any Unit Holder, such Person's Capital Account determined in accordance with
Section 8.10.
1.1.6 "Cash Available for Distribution" means (a) the amount of cash
from all operations, without deduction for depreciation (including, but not
limited to, all cash received from the sale of any Program Property)
remaining in the Program after expenses of, and proper payments by, the
Program (including payment of the Acquisition Fee and Management Fee to the
General Partner), plus (b) cash funds available for distribution from Program
reserves, less (c) any reserves established by the General Partner, which it
deems reasonably necessary for the operation of the Program and Program
Property and purchases of additional Equipment and other Program Property.
For purposes of Section 7.5 only, Cash Available for Distribution shall
exclude all cash received from the sale of Program Property.
1.1.7 "Commissions" means all sales commissions, finders' fees or other
similar kinds of compensation paid in connection with the offer and sale of
Units, sales promotion and wholesaling services.
1.1.8 "Code" means the Internal Revenue Code of 1986, as amended. All
references herein to Code Sections shall include corresponding provisions of
future federal tax statutes.
1.1.9 "Depreciation" means, for each fiscal year or other period, an
amount equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year or other period,
except that if the Gross Asset Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such year or other
period, Depreciation shall be an amount, which bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation,
amortization or other cost recovery deduction for such year or other period
bears to such beginning adjusted tax basis.
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1.1.10 "Equipment" means the capital equipment and other tangible and
intangible assets, including, without limitation, software products, which
the Program will directly or indirectly (through venture arrangements)
purchase, own, lease and sell to others, and the financing of capital
equipment and other assets.
1.1.11 "General Partner" means Phoenix Leasing Associates IV, L.P., a
California limited partnership, and any substitute or successor approved as
provided in Section 11.
1.1.12 "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Program shall be the gross fair market value of such asset, as
determined by the contributing Partner and the Program;
(b) The Gross Asset Values of all Program assets shall be adjusted
to equal their respective gross fair market values, as determined by the
General Partner, as of the following times: (i) the acquisition of an
additional interest in the Program (other than pursuant to Section 6.2) by
any new or existing Partner in exchange for more than a DE MINIMIS Capital
Contribution; (ii) the distribution by the Program to a Partner or Unit
Holder of more than a DE MINIMIS amount of Program Property other than money,
unless all Partners and Unit Holders receive simultaneous distributions of
undivided interests in the distributed property in proportion to their
interests in the Program; and (iii) the termination of the Program for
federal income tax purposes pursuant to Code Section 708(b)(1)(B);
(c) If the Gross Asset Value of an asset has been determined or
adjusted pursuant to Section 1.1.12(a) or 1.1.12(b), such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing Profits and Losses.
1.1.13 "Limited Partners" means such Persons as shall be admitted to the
Program from time to time as limited partners pursuant to the terms hereof
and in accordance with the Act.
1.1.14 "Liquidation" means the earlier of (a) the termination of the
Partnership under Code Section 708(b)(1) or (b) the date upon which the
Partnership ceases to be a going concern (even though it may continue in
existence for the purpose of winding up its affairs, paying its debts and
distributing any remaining balance to the Partners and Unit Holders).
Liquidation shall be further determined in accordance with the rules of
Treasury Regulation 1.704-1(b)(2)(ii)(g) and any subsequent rule or
regulation governing the determination of Liquidation.
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1.1.15 "Management Fee" means the fee paid by the Program to the
General Partner in accordance with the provisions of Section 7.3 for
supervising Equipment Management services.
1.1.16 "Net Capital Contribution" means with respect to each Unit
Holder, the Capital Contribution of such Unit Holder, reduced by the sum of
any Commissions and Syndication Expenses, respectively, allocated to the Unit
Holder pursuant to Sections 8.4(b) and 8.4(a).
1.1.17 "Nonrecourse Deductions" means the net increase, if any, in the
amount of Partnership Minimum Gain during the taxable year. The Nonrecourse
Deductions of a taxable year shall consist first of depreciation or cost
recovery deductions with respect to each item of Program Property to the
extent of the increase in Partnership Minimum Gain attributable to
nonrecourse liabilities of the Program secured by such Program Property, with
the remainder of any Nonrecourse Deductions made up of a pro rata portion of
the Program's other items of deduction, loss and nondeductible expenditures
(to the extent such nondeductible expenditures reduce Capital Accounts).
Nonrecourse Deductions shall be further determined in accordance with the
rules of Treasury Regulation Section 1.704-2(c) and any subsequent rule or
regulation governing the determination of nonrecourse deductions.
1.1.18 "Partner Nonrecourse Debt Minimum Gain" means an amount
determined by first computing for each Partner Nonrecourse Debt any gain that
the Program would realize if it disposed of the property subject to that
liability for no consideration other than full satisfaction of the liability,
and then aggregating the separately computed gains. Partner Nonrecourse Debt
Minimum Gain with respect to each Program asset shall be further determined
in accordance with the rules of Treasury Regulation Section 1.704-2(i) and
any subsequent rule or regulation governing the determination of partner
nonrecourse debt minimum gain. A Partner's share of Partner Nonrecourse Debt
Minimum Gain at the end of any Program year shall equal the aggregate Partner
Nonrecourse Deductions allocated to such Partner (or his or her
predecessors-in-interest) up to that time, less such Partner's (and
predecessors') aggregate share of decrease in Partner Nonrecourse Debt
Minimum Gain determined in accordance with Treasury Regulation Section
1.704-2(i)(5).
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1.1.19 "Partner Nonrecourse Debt" means a nonrecourse liability of the
Program for which any Partner bears the economic risk of loss. Partner
Nonrecourse Debt shall be further determined in accordance with the rules of
Treasury Regulation Section 1.704-2(i) and any subsequent rule or regulation
governing the determination of partner nonrecourse debt.
1.1.20 "Partner Nonrecourse Deductions" means the net increase, if any,
in the amount of Partner Nonrecourse Debt Minimum Gain during the taxable
year. The Partner Nonrecourse Deductions of a taxable year shall consist
first of depreciation or cost recovery deductions with respect to each item
of Program Property to the extent of the increase in Partner Nonrecourse Debt
Minimum Gain attributable to Partner Nonrecourse Debt of the Program secured
by such Program Property, with the remainder of any Partner Nonrecourse
Deductions made up of a pro rata portion of the Program's other items of
deduction, loss and nondeductible expenditures (to the extent such
nondeductible expenditures reduce Capital Accounts). Partner Nonrecourse
Deductions shall be further determined in accordance with the rules of
Treasury Regulation Section 1.704-2(i)(2) and any subsequent rule or
regulation governing the determination of partner nonrecourse deductions.
1.1.21 "Partners" means collectively the General Partner and the Limited
Partners.
1.1.22 "Partnership Minimum Gain" means an amount determined by first
computing for each Program nonrecourse liability any gain that the Program
would realize if it disposed of any Program Property subject to that
liability for no consideration other than full satisfaction of the liability,
and then aggregating the separately computed gains. Partnership Minimum Gain
with respect to each Program asset shall be further determined in accordance
with the rules of Treasury Regulation Section 1.704-2(d) and any subsequent
rule or regulation governing the determination of partnership minimum gain. A
Partner's share of Partnership Minimum Gain at the end of any Program year
shall equal the aggregate Nonrecourse Deductions allocated to such Partner
(or his or her predecessors-in-interest) up to that time, less such Partner's
(and predecessors') aggregate share of decrease in Partnership Minimum Gain
determined in accordance with Treasury Regulation Section 1.704-2(g).
1.1.23 "Permitted Disposition" means (a) transfers in which the basis of
the Units in the hands of the transferee is determined, in whole or in part,
by reference to its basis in the hand of the transferor, or as determined
under Code Section 732; (b) transfers at death; (c) transfer between members
of a family (as defined in Code Section 267(c)(4)); (d) the issuance of
interests by or on behalf of the Program in exchange for cash, property or
services; (e) distributions from a retirement plan qualified under Code
Section 401(a); and (f) block transfers. For purposes of this Section 1.36,
the term "block transfer" means the transfer by a Unit Holder in one or more
transactions during any 30 calendar day period of Units representing in the
aggregate more than five percent of the total interest in Program capital or
profits. The Program shall determine the percentage interest in capital and
profits for each transfer of an interest during the 30 calendar day period by
reference to the Units that are outstanding immediately prior to such
transfer.
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1.1.24 "Priority Return" means with respect to each Unit Holder, a
sum equivalent to 177% of such Unit Holder's (or his or her predecessor's)
Capital Contribution; PROVIDED, HOWEVER, that if on any date of
determination, the amount calculated by determining an 11% annual return
(compounded quarterly) on such Unit Holder's adjusted capital contribution
(prorated for any partial period) exceeds 177%, THEN the term 'Priority
Return' shall mean such greater amount. For purposes of this Section 1.1.24,
the term" adjusted capital contribution' means, as of any date, the Capital
Contribution made with respect to the Units held by any Person (or the
predecessor of such Person) on or before such date, increased on a quarterly
basis by 2.75% (prorated for any partial period) beginning on the date the
Capital Contribution was made and ending on the date of determination, and
decreased on a quarterly basis by any distributions with respect to such
Units on or before the date of determination pursuant to any provision of
this Agreement.
1.1.25 "Profits" and "Losses" mean, respectively, the Program's taxable
income and loss for federal income tax purposes for the applicable period,
determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or
loss), with the following adjustments:
(a) Any income of the Program that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses
pursuant to this Section 1.1.25 shall be added to such taxable income or loss;
(b) Any expenditures of the Program described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Profits or Losses pursuant to this Section 1.39
shall be subtracted from such taxable income or loss;
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(c) Gain or loss resulting from any disposition of Program
Property with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
(d) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be tken into account Depreciation for such fiscal year or
other period, computed in accordance with Section 1.1.9; and
(e) Notwithstanding any other provision of this Section 1.1.25,
any items that are specially allocated pursuant to Section 8.3 or Section 8.4
shall not be taken into account in computing Profits or Losses.
1.1.26 "Program Percentage" for any calendar quarter means, with respect
to any Unit Holder, a percentage determined by dividing (a) the "Day Weighted
Capital" of such Unit Holder for such calendar quarter, by (b) the total "Day
Weighted Capital" of all Unit Holders for such calendar quarter. For
purposes of the preceding sentence, "Day Weighted Capital" for any calendar
quarter means, with respect to any Unit Holder the product of (a) such Unit
Holder's Net Capital Contribution as of the first day of such calendar
quarter (or, with respect to any Unit Holder who is admitted to the Program
pursuant to Section 6.2 during such calendar quarter, as of the day of such
admission), multiplied by (b) the number of days during such calendar quarter
that such Unit Holder holds the Units to which such Net Capital Contribution
relates.
1.1.27 "Program Property" means the Equipment and other tangible and
intangible assets, including, without limitation, furniture, fixtures and
leasehold improvements (and related furnishings and equipment), directly or
indirectly (through venture arrangements) acquired, owned, leased, sold or
financed by the Program.
1.1.28 "Program Return" means the Annual Information Return (Form 1065)
required to be filed by the Program for federal income tax purposes.
1.1.29 "Roll-Up Transaction" has the meaning assigned to such term in
Section 9.4.3. of this Agreement.
1.1.30 "Subscription Agreement" means the subscription agreement
included as Exhibit C to the Prospectus, executed by any Person in connection
with the purchase of Units.
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1.1.31 "Syndication Expenses" shall have the meaning set forth in
Section 1.709-2(b) of the Treasury Regulations; provided that Syndication
Expenses shall not include Commissions. Syndication Expenses shall be taken
into account under this Agreement at the time they would be taken into
account under the Program's method of accounting if they were deductible
expenses.
1.1.32 "Treasury Regulations" means the Income Tax Regulations
promulgated under the Code (or any corresponding provision or provisions of
successor regulations).
1.1.33 "Unit" means an interest in the Program acquired by a Limited
Partner pursuant to a Subscription Agreement in exchange for a cash
contribution of $20 paid (generally with a minimum of $2,000 or 100 Units
required to be invested, except in the case of an IRA, Keogh or other benefit
plan, where the minimum investment generally is $1,000 or 50 Units) in
accordance with the provisions of Section 6.2.
1.1.34 "Unit Holder" means any Person who holds one or more Units as of
any day, without regard to whether such Person has been admitted as a Limited
Partner.
1.2 The following terms shall have the meanings set forth in the
Statement of Policy for Equipment Programs adopted by the North American
Securities Administrators Association, as in effect on _______________, 1996,
the date of the Program's original Prospectus (the "NASAA Equipment Policy"),
as follows:
1.2.1 "Acquisition Expenses" means those expenses, including but not
limited to legal fees or expenses, travel and communication expenses, costs
of appraisals, accounting fees and expenses, and miscellaneous expenses
relating to the selection and acquisition, of Equipment or other Program
Property, whether or not acquired.
1.2.2 "Acquisition Fees" means the total of all fees and commissions
paid by any party in connection with the initial purchase or manufacture of
Equipment or other Program Property acquired by the Program. Included in the
computation of such fees or commissions shall be any commission, selection
fee, construction supervision fee, financing fee, non-recurring management
fee or any fee of a similar nature, however designated.
1.2.3 "Affiliate" means (a) any Person directly, or indirectly
controlling, controlled by, or under common control with another Person, (b)
any Person owning or controlling ten percent or more of the outstanding
voting securities of such other Person, (c) any officer, director or partner
of such other Person and (d) if such other Person is an officer, director or
partner, any company for which such Person acts in any such capacity.
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1.2.4 "Capital Contribution" means the gross amount of investment in the
Program by a Partner or all Partners as the case may be.
1.2.5 "Equipment Management" means personnel and services necessary to
the leasing activities of the Program, including but not limited to, leasing
and re-leasing of Equipment or other Program Property, arranging for
necessary maintenance and repair of the Equipment or other Program Property,
collecting revenues, paying operating expenses, determining that the
Equipment or Program Property is used in accordance with all operative
contractual arrangements and providing clerical and bookkeeping services
necessary to the operation of the Equipment or Program Property.
1.2.6 "Front-End Fees" means fees and expenses paid by any party for any
services rendered during the Program's organizational or acquisition phase,
including Organizational and Offering Expenses, Leasing Fees, Acquisition
Fees, Acquisition Expenses and any other similar fees however designated by
the Sponsor. Front-End Fees shall not include any Acquisition Fees or
Acquisition Expenses paid by a manufacturer of equipment to any of its
employees unless such Persons are Affiliates of the Sponsor.
1.2.7 "Full Payout Leases" means leases under which the non-cancelable
rental payments due during the initial term of the lease are sufficient to
recover the Purchase Price of Equipment.
1.2.8 "Independent Expert" has the meaning assigned to such term in
Section 9.5.7 of this Agreement.
1.2.9 "Investment in Program Assets" means the amount of Capital
Contributions actually paid or allocated to the purchase, manufacture,
renovation of Equipment or other Program Property acquired by the Program,
including the purchase of equipment, working capital reserves allocable
thereto (except that working capital reserves in excess of three percent will
not be included) and other cash payments such as interest and taxes but
excluding Front-End Fees.
1.2.10 "Leasing Fees" means the total of all fees and commissions paid
by any party in connection with the initial lease of Equipment or other
Program Property acquired by the Program.
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1.2.11 "Net Disposition Proceeds" means the proceeds realized by the
Program from sale, refinancing or other disposition of Equipment, including
insurance proceeds or lessee indemnity payments arising from the loss of
destruction of the Equipment, less all Program liabilities.
1.2.12 "Net Lease Provisions" means contractual arrangements under which
the lessee assumes responsibility for, bears the cost of, insurance, taxes,
maintenance, repair and operation of the leased asset and where the
non-cancelable rental payments under the lease are absolutely net to the
lessor.
1.2.13 "Operating Leases" means the leases which will return to the
lessor less than the Purchase Price of Equipment from rentals payable during
the initial term of the lease.
1.2.14 "Organizational and Offering Expenses" means expenses incurred in
connection with preparing the Program for registration and subsequently
offering and distributing it to the public, including sales commissions paid
to broker-dealers in connection with the distribution of Units, and all
advertising expenses, except advertising expenses related to the leasing and
financing of Equipment and other Program Property.
1.2.15 "Person" means any natural person, partnership, corporation,
association or other legal entity.
1.2.16 "Prospectus" shall have the meaning given to that term by Section
2(10) of the Securities Act of 1933, including a preliminary Prospectus;
provided, however, that such term as used herein shall also include an
offering circular as described in Rule 256 of the General Rules and
Regulations under the Securities Act of 1933, or, in the case of an
intrastate offering, any document by whatever name known, utilized for the
purpose of selling securities to the public.
1.2.17 "Purchase Price of Equipment" means the price paid upon the
purchase or sale of a particular item of Equipment or other Program Property,
including the amount of Acquisition Fees and all liens and mortgages on the
Equipment or other Program Property, but excluding points and prepaid
interest.
1.2.18 "Roll-Up Entity" has the meaning assigned to such term in Section
9.4.3 of this Agreement.
1.2.19 "Sponsor" means any Person directly or indirectly instrumental in
organizing wholly or in part, the Program or any Person who will manage or
participate in the management of a Program, and any Affiliate of such
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Person. "Sponsor" does not include a Person whose only relation with the
Program is that of an independent equipment manager and whose only
compensation is as such. "Sponsor" does not include wholly independent third
parties such as attorneys, accountants and underwriters whose only
compensation is professional services rendered in connection with the offering
of Units.
2. ORGANIZATION
2.1 FORMATION. The parties do hereby continue a limited partnership
under and pursuant to the Act.
2.2 NAME. The name of the Program, a California limited partnership, is
Phoenix Leasing American Business Fund II, L.P. The business of the Program
may be conducted under any name chosen by the General Partner, and the
General Partner may, in its sole discretion, from time to time change the
name of the Program.
3. PRINCIPAL PLACE OF BUSINESS
The principal place of business of the Program will be located at 2401
Kerner Boulevard, San Rafael, California 94901-5529, or at such other place
as the General Partner may from time to time determine.
4. BUSINESS
The objectives of the Program are to (1) produce cash distributions on a
continuing basis over the life of the Program through leasing equipment
primarily to and financing assets primarily for companies engaged in the
development of technologies and other growth industry businesses,
franchisees, and other third party lessees and customers, (2) reinvest,
during the operating phase of the Program (after payment of expenses,
including debt service requirements, and distributions to the Partners), in
additional equipment and assets to increase the overall size of the
portfolio, and (3) commence liquidation of the Program's portfolio of assets
seven years after the close of the offering of Units. There is, however, no
certainty that the Program's objectives will be attained. To accomplish
these objectives, the Program will invest in, or will have as collateral,
various types of assets, including (i) production, manufacturing, fabrication
and test equipment, (ii) lab and medical equipment, (iii) furniture and
fixtures, (iv) personal computers and workstations, (v) property management
systems, including computer reservation systems, and phone and
telecommunication systems, (vi) computer peripheral equipment, mainframes,
small computer systems, CAE/CAD/CAM equipment, communications equipment,
office systems and computer software products, and (vii) various types of
other equipment,
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furnishings, fixtures, leasehold improvements and assets,
including to a limited extent certain intangible assets. The General Partner
may, in its discretion and on behalf of the Program, purchase, own, lease,
finance and sell other types of Equipment and other Program Property. The
Program will primarily purchase or finance Equipment or other Program
Property for which a lease or loan exists or will be entered into
contemporaneously with the consummation of the transaction.
5. TERM
The term of the Program commenced on May 6, 1996, and shall continue
until December 31, 2011, unless dissolved sooner pursuant to Section 12
hereof.
6. CAPITAL CONTRIBUTIONS AND STATUS
6.1 CAPITAL CONTRIBUTION OF GENERAL PARTNER. Upon dissolution and
termination of the Program, the General Partner shall contribute to the
Program an amount equal to, but in no event more than, the deficit balance in
its Capital Account as provided in Section 12.4. At such termination and at
the other times set forth herein, the General Partner shall, pursuant to
Section 7, receive compensation for its services to the Program.
6.2 CAPITAL CONTRIBUTIONS OF LIMITED PARTNERS. Each Limited Partner
shall make a Capital Contribution in an amount equal to the number of Units
for which he or she has subscribed multiplied by $20 (with a minimum initial
aggregate Capital Contribution of $2,000, except in the case of an IRA, Keogh
or other benefit plan, when the minimum investment is $1,000), all of which
shall be paid to the Program. Residents of certain states may be required to
make different minimum investments. Investors whose subscriptions have been
accepted by the General Partner will be admitted as Limited Partners within
15 days after the minimum of $1,200,000 from the sales of Units has been
received by the General Partner. Thereafter, investors will be admitted as
Limited Partners no later than the last day of the calendar month following
the date the General Partner accepts the subscriptions. The General Partner
will accept or reject subscriptions within 30 days after receipt thereof.
Funds received with respect to a subscription that has been rejected by the
General Partner shall be returned to the subscriber immediately upon such
rejection. The General Partner, in its sole discretion, may increase the
size of the Program's offering, or, if the minimum of 60,000 Units has been
sold, extend the offering of Units, upon the renewal of the Program's permit
in any state requiring renewal thereof, after ___________, 1997. The
offering termination date, however, will be _____________, 1998, unless an
extension is permitted.
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6.3 LIMITED LIABILITY. The liability of the Limited Partners for the
debts and obligations of the Program shall be limited to the amount of their
Capital Contributions and their interest, if any, in any undistributed
Program assets. The Limited Partners will not be obligated to make any
assessment payments, installment payments, warrants payments, option payments
or other staged or deferred payments.
6.4 ROLE OF LIMITED PARTNER. Except as otherwise provided in this
Agreement, a Limited Partner shall not take part in or interfere in any
manner with the conduct or control of the business of the Program and shall
have no right or authority to act for or bind the Program.
6.5 WITHDRAWAL OF CAPITAL CONTRIBUTIONS. Except as otherwise provided
in Section 10.7, or in other Sections of this Agreement, no Partner shall
have the right to withdraw or reduce his or her Capital Contribution. No
Limited Partner shall have the right to bring an action for partition against
the Program or to demand or receive property other than cash. Except as
otherwise provided in Section 8 of this Agreement, no Limited Partner shall
have priority over any other Limited Partner, either as to the return of his
or her Capital Contribution or as to Profits and Losses.
7. CHARGES AND EXPENSES OF AND FEES PAID TO GENERAL PARTNER
7.1 EXPENSES OF GENERAL PARTNER. All expenses of the Program shall be
billed directly to and paid by the Program. The General Partner, its
employees or agents may be reimbursed for the actual cost of goods and
materials used for or by the Program and obtained from entities unaffiliated
with the General Partner. The General Partner and its Affiliates may only be
reimbursed for the administrative services necessary to the prudent operation
of the Program, provided that the reimbursement will be limited to the lesser
of the cost of such services or 90% of competitive rates for providing
similar services. Administrative services performed for the Program by the
General Partner and its Affiliates may include, without limitation,
administrative services (as provided by independent parties) related to,
among other things, outside contractors, data processing, investor and
customer communications, lease and loan administration and accounting, and
equipment re-leasing or remarketing. The following shall be excluded from
allowable reimbursements: (i) rent or depreciation, utilities and capital
equipment; and (ii) salaries, fringe benefits, travel expenses and other
administrative items incurred or allocated to any Controlling Persons, as
such, of the General Partner or its Affiliates. "Controlling Persons" for
purposes of this Section 7.1 shall include those Persons who perform
functions for the General Partner or its Affiliates and possess discretionary
authority, including those Persons who carry a title of Senior Vice President
and, provided such Persons possess discretionary authority, a title
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such as Vice President, although it is not intended that every Person who
carries a title such as Vice President (or Assistant Vice President) be
considered a Controlling Person. In addition, a Controlling Person shall
also include a Person holding five percent or more of the equity interest in
the General Partner or its Affiliates. Notwithstanding the foregoing
reimbursement provisions, the reimbursement for certain operational expenses
incurred on a recurring basis, including certain office expenses, certain legal
fees and expenses, audit and accounting expenses, data processing and
information services expenses directly related to the foregoing expenses, and
investor services expenses, but specifically excluding Acquisition Expenses,
Organization and Offering Expenses, and any expenses arising from or relating
to Equipment Management, including, without limitation, legal and accounting
fees and expenses, shall be limited, on a cumulative basis, to the greater of
(i) three and one-half percent of the Program's gross revenues (before gains
or losses recorded for the period), including the Program's pro rata share of
the gross revenues of any venture in which the Program has invested, or (ii)
the sum of fifty thousand dollars plus one quarter of one percent of total
Capital Contributions per year. For purposes of this Section 7.1, the term
"gross revenues" shall mean cash receipts from all sources, including,
without limitation, lease and rental payments, loan payments (including
principal and interest), proceeds from the sale of Equipment and other
Program Property (including the disposition of notes receivable), interest
income, insurance proceeds and any other revenues derived from the Program's
operations. The Program will pay all Organizational and Offering Expenses,
which may be payable to Affiliates, provided that the General Partner will
pay any Organizational and Offering Expenses that exceed 15% of the gross
offering proceeds. Notwithstanding anything to the contrary contained in
this Section 7.1, the General Partner will not be reimbursed by the Program
for services for which the General Partner is entitled to compensation by way
of a separate fee. The annual report to Partners described in Section 13.2
will contain a breakdown of costs reimbursed to the General Partner and its
Affiliates during the period covered by the report, including notes to the
Program's financial statements providing a category-by-category breakdown of
such costs for each year covered by the annual report. Within the scope of
the annual audit of the financial statements of the General Partner and its
Affiliates, the independent certified public accountants will issue a special
report on the allocation of reimbursed costs, which report will provide (i) a
review of the time records of individual employees, the cost of whose
services were reimbursed and (ii) a review of the specific nature of the work
performed by each such employee, in compliance with Section V.G.1(c) of the
NASAA Equipment Policy.
7.2 GENERAL PARTNER'S ACQUISITION FEE. In consideration for the
services and activities to be performed by the General Partner in connection
with (a) the analysis of equipment available to the Program, (b) the
selection of such equipment and the acquisition thereof (including
negotiating and concluding
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agreements with equipment manufacturers), (c) the analysis of financing
transactions, including assessment of credit risk and evaluation of
underlying assets or security, and (d) refinement of the acquisition
guidelines pertaining to the portfolio of assets of the Program in the
context of ongoing analysis of the overall portfolio of assets of the
Program as the same may be affected by current market conditions,
technological changes and assets available to the Program, the General
Partner will receive an Acquisition Fee equal to four percent of (i) the
purchase price of Equipment and other Program Property acquired by the
Program, or the purchase price of Equipment and other Program Property leased
by manufacturers, the financing for which is provided by the Program, or (ii)
any financings provided to third party businesses or other customers by the
Program. The Acquisition Fee is payable upon such acquisition or loan or
financing transaction, as the case may be.
7.3 GENERAL PARTNER'S MANAGEMENT FEE. In consideration for the services
and activities to be performed by the General Partner in connection with
investor, manufacturer, lessee and borrower relations and the managing of the
activities described in Section 9.1 hereof, the General Partner shall receive
a Management Fee equal to two percent of the cumulative gross payments due to
the Program (determined in accordance with generally accepted accounting
principles), which payments shall include rental receipts, proceeds from the
sale of Equipment and other Program Property, loan payments and other
revenues (other than interest income from short-term temporary investments),
PROVIDED that the amount of the Management Fee shall not exceed the
competitive amounts charged by unaffiliated Persons for similar services.
The Management Fee is payable monthly in an amount that gives effect to prior
amounts paid with respect to the Management Fee. Notwithstanding any other
provisions of this Agreement, this Management Fee is intended to compensate
the General Partner for services rendered as an employee or independent
contractor of the Program and not for services rendered in its capacity as
General Partner. The Management Fee shall be paid to the General Partner for
such services upon conclusion of each calendar month. In the event that the
Program does not generate sufficient cash from operations to pay the
Management Fee in any given period, or, even if it does, such Management Fee
may be accrued as a non-interest bearing debt of the Program payable out of
future available cash, if the General Partner determines that such action is
in the best interest of the Program.
7.4 NO ADDITIONAL COMPENSATION. Except as provided in the Prospectus
and in Sections 7.1, 7.2, 7.3, 8.8 and 12.3 hereof, no compensation or fees
shall be paid to the General Partner or any Affiliates.
7.5 COMPREHENSIVE FEE LIMITATIONS. The General Partner will commit a
percentage of total Capital Contributions to Investment in Program Assets,
which is equal to the greater of (i) 80% of the total Capital Contributions
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reduced by .0625% for each one percent of indebtedness encumbering the
Program Assets or (ii) 75% of the total Capital Contributions. The percent
of indebtedness encumbering Program Property is calculated by dividing the
amount of indebtedness by the Purchase Price of Equipment, excluding the
Front-End Fees. The resulting quotient is then multiplied by .0625% to
determine the percentage to be deducted from 80%. The Management Fee,
together with other compensation payable to, or the interest of, the General
Partner or its Affiliates pursuant to Sections 7.2, 8.8 and 12.3 hereof will
not in any event exceed the aggregate maximum compensation permitted by the
NASAA Equipment Policy. For purposes of determining compliance with the NASAA
Equipment Policy, the Sponsor's promotional interest as set forth in the
NASAA Equipment Policy is equal to five percent of all distributions from
Cash Available for Distribution and one percent of all distributions from Net
Disposition Proceeds until such time as the Limited Partners have received
cumulative distributions equal to their Capital Contributions plus an eight
percent per annum cumulative daily compounded return on the difference
between such Capital Contributions and cumulative distributions in excess of
eight percent per annum (daily compounded) on such Capital Contributions, as
adjusted; thereafter the Sponsor's interest in all distributed Cash Available
for Distribution plus distributed Net Disposition Proceeds may increase to
15%. Within the scope of its annual audit of the financial statements of the
Program, the independent certified public accountants will review this
limitation for compliance.
8. ALLOCATION OF PROFITS AND LOSSES; OTHER ITEMS; DISTRIBUTIONS; CAPITAL
ACCOUNTS
8.1 ALLOCATION OF PROFITS. Except as otherwise provided in this
Section 8, Profits shall be allocated one percent to the General Partner and
99% to the Unit Holders.
8.2 ALLOCATION OF LOSSES. Except as otherwise provided in this Section
8, all Losses shall be allocated one percent to the General Partner and 99%
to the Unit Holders.
8.3 SPECIAL ALLOCATIONS: ITEMS IN THE NATURE OF INCOME OR GAIN.
(a) In the event any Unit Holders unexpectedly receive any
adjustments, allocations or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Treasury Regulations, items of
Program income and gain shall be specially allocated to such Unit Holders in
an amount and manner sufficient to eliminate, to the extent required under
Section 1.704-1(b) of the Treasury Regulations, the deficit balances in their
Capital Accounts created by such adjustments, allocations, or distributions
as quickly as possible. Any special
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allocations of items of income or gain pursuant to this Section 8.3 shall be
taken into account in computing subsequent allocations of Profits pursuant to
this Section 8, so that the net amount of the Profits, Losses and all other
items allocated to each Unit Holder pursuant to this Section 8 shall, to the
extent possible, be equal to the net amount that would have been allocated to
each Unit Holder pursuant to the provisions of this Section 8 if such unexpected
adjustments, allocations or distributions had not occurred.
(b) The General Partner shall be allocated gross rental and interest
income in an amount equal to the excess, if any, of (i) the cumulative
distributions to the General Partner pursuant to Sections 8.8 and 12.3.3
hereof on or before the last day of such accounting period, over (ii) the
cumulative gross rental and interest income allocated to the General Partner
pursuant to this Section 8.3(b) for all prior accounting periods.
8.4 SPECIAL ALLOCATIONS: ITEMS IN THE NATURE OF EXPENSES OR LOSSES
(a) Syndication Expenses for any fiscal year or other period shall
be specially allocated one percent to the General Partner and 99% to the Unit
Holders in proportion to their Units; provided, that if additional Limited
Partners are admitted to the Program pursuant to Section 6.2 on different
dates, all Syndication Expenses allocable to the Unit Holders shall be
divided among the Persons who own Units from time to time so that, to the
extent possible, the cumulative Syndication Expenses allocated with respect
to each Unit at any time is the same amount. In the event the General
Partner determines that such result is not likely to be achieved through
future allocations of Syndication Expenses, the General Partner may allocate
a portion of Profits or Losses so as to achieve the same effect on the
Capital Accounts of the Unit Holders, notwithstanding any other provision of
this Agreement.
(b) Commissions paid with respect to any Unit shall be specially
allocated to the Unit Holder who acquired such Unit.
8.5 OTHER ALLOCATIONS RULES
(a) The basis (or cost) of any Program Code Section 38 property
shall be allocated among the General Partner and Unit Holders in accordance
with Treasury Regulations Section 1.46-3(f)(2)(i). All tax credits shall be
allocated among the General Partner and Unit Holders in accordance with
applicable law.
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(b) To the extent that any Unit Holders have or would have, as a
result of an allocation of Loss (or item thereof), deficit balances in their
Capital Accounts (excluding the portion of such deficit balances that must be
restored to the Program upon Liquidation), such amount of Loss shall be
allocated to the other Unit Holders in accordance with Sections 8.1 and 8.7,
but in a manner which will not produce deficit Capital Account balances as
described above. To the extent such allocation would result in all Unit
Holders having such deficit balances in their Capital Accounts, such Losses
shall be allocated to the General Partner.
(c) To the extent that the Capital Account balances of any Unit
Holders become deficit in excess of the amounts, if any, that must be
restored to the Program upon Liquidation, and such excess deficits exist
following the allocations referred to in Section 8.1 or 8.7 and clauses (d)
and (e) of this Section 8.5, such Unit Holders shall be allocated income (or
items thereof) in proportion to such remaining excess deficit amounts in
accordance with the requirements of the alternative test of economic effect
of the Treasury Regulations issued under Section 704 of the Code (or any
corresponding provisions of succeeding law).
(d) If there is a net decrease in Partnership Minimum Gain during a
Program fiscal year, each Partner shall be allocated items of income and gain
for such year equal to such Partner's share of the net decrease in
Partnership Minimum Gain, except to the extent not required by Treasury
Regulation Section 1.704-2(f) (the "Minimum Gain Chargeback"). The Minimum
Gain Chargeback allocated in any Program year shall consist first of gains
from the disposition of Program assets subject to nonrecourse liabilities of
the Program with the remainder of the Minimum Gain Chargeback, if any, made
up of a pro rata portion of the Program's other items of income or gain for
such year. The Minimum Gain Chargeback shall be further determined in
accordance with the rules of Treasury Regulation Section 1.704-2(f) and any
subsequent role or regulation governing the minimum gain chargeback. For
purposes of Section 8.3 and this Section 8.5, a Partner shall not be treated
as having a deficit Capital Account balance to the extent of his or her share
of Partnership Minimum Gain determined in accordance with Treasury
Regulations Section 1.704-2(g).
(e) If there is a net decrease in Partner Nonrecourse Debt Minimum
Gain during a Program fiscal year, each Partner who has a share of the
Partner Nonrecourse Debt Minimum Gain determined in accordance with Treasury
Regulation Section 1.704-2(i)(5), shall be allocated items of income and gain
for such year (and, if necessary, subsequent years) equal to such Partner's
share of the net decrease in Partner Nonrecourse Debt Minimum Gain (the
"Partner Nonrecourse Debt Minimum Gain Chargeback"). The Partner Nonrecourse
Debt Minimum Gain Chargeback allocated in any Program year shall consist
first of
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gains from the disposition of Program assets subject to nonrecourse
liabilities of the Partnership with the remainder of the Partner Nonrecourse
Debt Minimum Gain Chargeback, if any, made up of a pro rata portion of the
Program's other items of income or gain for such year. For purposes of
Section 8.3 and this Section 8.5, a Partner shall not be treated as having a
deficit Capital Account balance to the extent of his or her share of Partner
Nonrecourse Debt Minimum Gain determined in accordance with Treasury
Regulations Section 1.704-2(i)(3).
(f) Except as otherwise provided in this Agreement, all items of
Program income, gain, loss, deduction and any other allocations not otherwise
provided for shall be divided among the General Partner and Unit Holders in
the same proportions as they share Profits or Losses, as the case may be, for
the year.
(g) The Unit Holders are aware of the income tax consequences of
the allocations made by this Section 8 and hereby agree to be bound by the
provisions of this Section 8 in reporting their shares of Program income and
loss for income tax purposes.
8.6 TAX ALLOCATIONS: CODE SECTION 704(c)
In accordance with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss and deduction with respect to any property
contributed to the capital of the Program shall, solely for tax purposes, be
allocated among the General Partner and Unit Holders so as to take account of
any variation between the adjusted basis of such property to the Program for
federal income tax purposes and its initial Gross Asset Value (computed in
accordance with Section 1.1.12(a)).
In the event the Gross Asset Value of any Program asset is adjusted
pursuant to Section 1.1.12(b), subsequent allocations of income, gain, loss
and deduction with respect to such asset shall take account of any variation
between the adjusted basis of such asset for federal income tax purposes and
its Gross Asset Value in the same manner as under Code Section 704(c) and the
Treasury Regulations thereunder.
Any elections or other decisions relating to such allocations shall
be made by the General Partner in any manner that reasonably reflects the
purpose and intention of this Agreement. Allocations pursuant to this
Section 8.6 are solely for purposes of federal, state and local taxes and
shall not affect, or in any way be taken into account in computing, any
Person's Capital Account or share of Profits, Losses, other items or
distributions pursuant to any provision of this Agreement.
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8.7 ALLOCATIONS AMONG UNIT HOLDERS. Except as otherwise provided in
this Agreement, all Profits and Losses allocated to the Unit Holders shall be
divided among them as follows:
(a) First, all Profits and Losses allocated to the Unit Holders
with respect to any accounting period shall be allocated among the calendar
quarters of such accounting period by the General Partner on the basis of (i)
the number of days in each such calendar quarter, (ii) interim closings of
the books of the Program, or (iii) any other method selected by the General
Partner and permitted by the Code; and
(b) Profits and Losses so allocated to any calendar quarter shall
be divided among the Unit Holders in proportion to their Program Percentages
for such calendar quarter.
8.8 DISTRIBUTIONS
(a) Except as otherwise provided in Section 12.3, relating to
distributions in connection with the winding up of the Program, Cash
Available for Distribution shall be distributed to the Partners and Unit
Holders quarterly or as otherwise determined by the General Partner, and all
distributions with respect to any calendar quarter shall be distributed not
later than 90 days after the end of such quarter. With respect to Unit
Holders who own at least 500 Units (I.E., Capital Contributions of at least
$10,000), such Unit Holders may receive monthly distributions, provided that
with respect to the third month of any calendar quarter, every Unit Holder
who does not receive monthly distributions shall receive the same
proportionate distribution amount within that quarter that the monthly
distributees already received before the monthly distributees receive any
further distributions for that quarter. Cash Available for Distribution
shall be distributed 96% to the Unit Holders and four percent to the General
Partner until the Unit Holders have received cumulative distributions equal
to their Priority Returns. Thereafter Cash Available for Distribution shall
be distributed 85% to the Unit Holders and 15% to the General Partner.
(b) The Cash Available for Distribution to be distributed to the
General Partner shall be subordinated as described below. All references to
amounts distributable to any Unit Holder pursuant to this Section 8.8(b)
shall include all amounts, if any, distributed to any predecessor in interest
to such Unit Holder.
(i) With respect to the current quarterly portion of Cash
Available for Distribution, the subordination of the General Partner's
interest in Cash Available for Distribution shall be determined with
reference to the
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distributions made to each Unit Holder. An amount equal to
4.167% of the Cash Available for Distribution that was distributed to such
Unit Holder, and that would have been distributable to the General Partner
pursuant to Section 8.8(a), is hereby subordinated in each calendar quarter
during the period beginning with such Unit Holder's (or his or her
predecessor's) admission to the Program and ending on the 28th full calendar
quarter after such admission date (the "Subordination Period") to such Unit
Holder receiving distributions in a calendar quarter equal to 2.75% of the
Capital Contribution (prorated for any partial period) made with respect to
each such Unit. There shall be no further subordination with respect to the
current, quarterly portions of the General Partner's interest in Cash
Available for Distribution beyond the Subordination Period. (The 4.167%
amount referred to herein constitutes the ratio of the General Partner's four
percent interest in Cash Available for Distribution to the Unit Holder's 96%
interest in Cash Available for Distribution); and
(ii) With respect to the cumulative portion of Cash Available
for Distribution (I.E., Cash Available for Distribution that would have been
distributed to the General Partner but for the subordination provisions of
Section 8.8(b)(i)), the General Partner shall be entitled to receive such
subordinated amount as a special distribution of Cash Available for
Distribution, during or after the Subordination Period, when such Unit Holder
has received cumulative distributions equal to the product of (x) 2.75% of
the Capital Contribution made with respect to each such Unit and (y) the
number of calendar quarters up to but not including 29 (prorated for any
partial period) that such Unit was issued and outstanding.
(c) Distributions to the Unit Holders pursuant to Section 8.8(a)
during the Liquidation Phase shall be divided among them in proportion to
their Accrual Basis Capital Accounts. At all other times, distributions to
the Unit Holders pursuant to Section 8.8(a) shall be divided among them in
proportion to their Program Percentages. For purposes of this Section
8.8(c), the term "Liquidation Phase" means the period beginning after the end
of the first quarter in which the aggregate Accrual Basis Capital Accounts of
all Limited Partners are less than or equal to 20% of the aggregate Capital
Contributions of all Limited Partners.
8.9 DISTRIBUTIONS AND ALLOCATIONS OF PROFITS AND LOSSES IN RESPECT TO
TRANSFERRED UNITS. If any Units are transferred during any period, Profits,
Losses, each item thereof and all other items attributable to such Units for
such period shall be divided and allocated between the transferor and
transferee by taking into account their varying interests during the period
in accordance with Code Section 706(d), utilizing any conventions permitted
by law and selected by the General Partner in its sole and absolute
discretion. All distributions on or before the date
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the transfer of such Units is recognized by the Program shall be made to the
transferor, and all distributions thereafter shall be made to the transferee.
Solely for purposes of allocating such items and making such distributions, the
Program shall recognize the transfer of such Units not later than the end of the
calendar month during which it receives written notice of such transfer,
provided that if the Program does not receive a written notice stating the
date such interest was transferred and such other information as the General
Partner may reasonably require within 30 days after the end of the accounting
period during which the transfer occurs, then all of such items shall be
allocated, and all distributions shall be made, to the Person who, according to
the books and records of the Program, on the last day of the accounting period
during which the transfer occurs, was the owner of the Units. The General
Partner and the Program shall incur no liability for making allocations and
distributions in accordance with the provisions of this Section 8.9, whether
or not the General Partner or the Program has knowledge of any transfer of
ownership of any Unit.
8.10 CAPITAL ACCOUNTS. An individual Capital Account shall be
maintained for the General Partner and each Unit Holder in accordance with
the following provisions:
(a) To each such Person's Capital Account there shall be credited
such Person's Capital Contributions, such Person's distributive share of
Profits and any items in the nature of income or gain, which are specially
allocated pursuant to Section 8.3, and the amount of any Program liabilities
assumed by such Person or which are secured by any Program Property
distributed to such Person;
(b) To each such Person's Capital Account there shall be debited
the amount of cash and the Gross Asset Value of any Program Property
distributed to such Person pursuant to any provision of this Agreement, such
Person's distributive share of Losses and any items in the nature of expenses
or losses, which are specially allocated pursuant to Section 8.4, and the
amount of any liabilities of such Person assumed by the Program or which are
secured by any property contributed by such Person to the Program.
In the event any interest in the Program is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to
the Capital Account of the transferor to the extent it relates to the
transferred interest; provided that if the transfer causes a termination of
the Program pursuant to Code Section 708(b)(1)(B), the Capital Accounts for
all Persons, including the transferee, shall be redetermined as of the date
of such termination. In such event, each Person's Capital Account shall be
equal to the net fair market value of his Program interest as of such date.
Subsequent to such redetermination, allocations of depreciation, cost
recovery deductions, gain and loss with respect to assets held
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by the Program on the date of such determination shall be governed by the
principles set forth in Code Section 704(c) and the Treasury Regulations
thereunder.
In the event the Gross Asset Values of Program assets are adjusted
pursuant to Section 1.1.12(b), the Capital Accounts of the General Partner
and all Unit Holders shall be adjusted simultaneously to reflect the
aggregate net adjustment as if the Program recognized gain or loss equal to
the amount of such aggregate net adjustment.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulations Section 1.704-1(b), and shall be interpreted and applied
in a manner consistent with such Treasury Regulations. In the event the
General Partner shall determine that it is prudent to modify the manner in
which the Capital Accounts, or any debits or credits thereto, are computed in
order to comply with such Treasury Regulations, the General Partner may make
such modification, provided that it is not likely to have a material effect
on the amounts distributable to the General Partner or any Unit Holder
pursuant to Section 12 upon the dissolution of the Program. The General
Partner shall adjust the amount debited or credited to Capital Accounts with
respect to (a) any property contributed to the Program or distributed to the
General Partner and Unit Holders, and (b) any liabilities which are secured
by such contributed or distributed property or which are assumed by the
Program or the General Partner and Unit Holders, in the event the General
Partner shall determine such adjustments are necessary or appropriate
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv). The General
Partner also shall make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Treasury Regulations Section 1.704-1(b).
8.11 AMOUNTS WITHHELD. All amounts withheld pursuant to the Code or any
provision of any state or local tax law with respect to any payment to the
Program or the Partners shall be treated as amounts distributed to the
Partners pursuant to Section 8.8 for all purposes under this Agreement.
Amounts treated as distributed to a Partner pursuant to this Section 8.11
shall reduce the amounts otherwise distributed to such Partner pursuant to
Section 8.8. The General Partner shall have sole and absolute discretion to
allocate any such amounts among the Partners, provided only that any such
allocation shall be in accordance with the Code and other applicable law.
8.12 POWER OF GENERAL PARTNER TO VARY ALLOCATIONS OF PROFITS AND LOSSES.
It is the intent of the Partners that each Partner's distributive share of
Profit, Loss and tax credits shall be determined and allocated in accordance
with
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this Paragraph 8 to the fullest extent permitted by Section 704(b) of
the Code. Therefore, if the Program is advised that the allocations provided
in Paragraph 8 of this Agreement are unlikely to be respected for Federal
income tax purposes, the General Partner has been granted the power in
Section 9.4.1.6 of this Agreement to amend the allocation provisions of this
Agreement, on advice of accountants or legal counsel, to the minimum extent
necessary to effect the plan of allocations and distributions provided in
this Agreement.
8.13 INTEREST OF GENERAL PARTNER IN MATERIAL PROGRAM ITEMS.
Notwithstanding anything to the contrary in this Section 8, the interest of
the General Partner in each material Program item of income, gain, loss,
deduction or credit shall at all times be at least equal to one percent.
8.14 FINANCIAL ACCOUNTING ALLOCATIONS. For financial accounting
purposes, income, losses and other items shall be allocated in a manner
consistent with the allocations set forth in this Section 8.
9. RIGHTS, POWERS, AND OBLIGATIONS OF THE GENERAL PARTNER
9.1 POWERS. The management and control of the Program and its business
and affairs shall rest exclusively with the General Partner. The General
Partner, and only the General Partner, shall have all the rights and powers
that may be possessed by a general partner pursuant to Section 15643 of the
Act, and such additional rights and powers otherwise conferred or permissible
by law as are necessary, advisable or convenient to the discharge of its
duties under Section 9.3, subject to the restrictions otherwise set forth in
this Agreement. Without limiting the generality of the foregoing, the
General Partner shall have the following rights and powers, which it may
exercise at the cost, expense and risk of the Program:
9.1.1 To spend the capital and income of the Program in the
exercise of any rights or powers possessed by the General Partner hereunder,
provided that the General Partner will not be paid any commission in
connection with the reinvestment of any proceeds derived from the resale,
exchange or refinancing of Equipment or other Program Property, except as
otherwise permitted in Section 7;
9.1.2 To acquire, purchase, hold, sell, exchange or otherwise
transfer the Equipment and other Program Property, to lease the Equipment and
other Program Property to third parties pursuant to Full Payout Leases or
Operating Leases, to loan money to businesses and other customers as provided
for in Section 4 hereof, and to enter into agreements with others with
respect to the foregoing activities, which agreements may contain such terms,
provisions and conditions as the General Partner in its sole and absolute
discretion shall approve;
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9.1.3 To purchase from or through others contracts of liability,
casualty and other insurance, which the General Partner deems advisable,
appropriate or convenient for the protection of the Equipment, Program
Property or the affairs of the Program or for any purpose convenient or
beneficial to the Program, provided that the General Partner will not provide
insurance services to the Program;
9.1.4 To borrow money for any purpose, other than for making
distributions, including, but not limited to (i) the acquisition and
financing of Equipment and other Program Property, (ii) the discharge of any
Program obligation and the protection and preservation of the assets of the
Program, PROVIDED that the minimum amount of Capital Contributions invested
in Equipment meets the requirements set forth in Section IV.C of the NASAA
Equipment Policy;
9.1.5 Subject to the restrictions set forth in Section 9.4.2, to
sell, dispose of, trade, exchange, convey, quitclaim, surrender, release or
abandon, upon such terms and conditions as the General Partner may deem
advisable, appropriate or convenient, all or any portion of the Equipment or
other Program Property;
9.1.6 To execute leases, loans, financing agreements, licenses and
rental use agreements of and with respect to all or any portion of the
Equipment or other Program Property;
9.1.7 To invest Program funds in commercial paper, government
securities, certificates of deposit, Eurodollar deposits, savings and loan
depositors' accounts, bankers' acceptances, money market certificates or
accounts, or other short-term investments (such as money market funds);
9.1.8 To invest in general partnerships or ventures with
non-Affiliates provided that (a) the Program acquires a controlling interest
in such other general partnerships or ventures and the non-controlling
interest is owned by a non-Affiliate, (b) there are no duplicate fees and (c)
any such venture with a non-Affiliate has as an objective, investment in
specific assets. Notwithstanding the foregoing, the Program may invest in
partnership or venture arrangements with other limited partnerships formed or
to be formed by the General Partner or its Affiliates, if such ventures or
partnerships own or finance specified equipment or other assets provided:
(i) the participating partnerships or co-venturers in such
joint venture arrangements have substantially the same investment objectives;
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(ii) there are no duplicate fees;
(iii) the sponsor compensation is substantially identical in
each participating partnership;
(iv) the Program has a right of first refusal to buy if a
participating partnership or co-venturer desires to sell assets held in the
joint venture; such assets shall be allocated among joint venturers seeking
to purchase it pro rata to their capital contributions to the joint venture;
(v) the investment of each participating partnership or
co-venturer is on substantially the same terms and conditions; and
(vi) the joint venture is formed for the purpose of effecting
appropriate diversification for the participating partnerships or for the
purpose of reducing costs to the Program;
9.1.9 To reinvest cash flow in additional Equipment and other
Program Property; provided that any such reinvestment is for all Limited
Partners upon the same terms, and provided further that reinvestment of
proceeds from the sale or refinancing of Equipment or other Program Property
may only take place after cash distributions to the Limited Partners, at a
minimum, sufficient to pay Limited Partner tax liabilities created by the
sale or refinancing of such Equipment or other Program Property; and
9.1.10 To delegate all or any of its duties hereunder, and in
furtherance of any such delegation to appoint, employ or contract with any
Persons, which Persons may, under the supervision of the General Partner:
administer or assist in the day-to-day operations of the Program; act as
consultants, accountants, correspondents, attorneys, brokers, escrow agents
or in any other capacity deemed by the General Partner necessary or
desirable; investigate, select and, on behalf of the Program, pay fees to,
enter into contracts with, or employ, or retain services performed or to be
performed by, or with, any of such Persons, in connection with the Equipment
and Program Property; and perform such other acts or services for the Program
as the General Partner in its sole and absolute discretion may approve,
provided that the Program shall not give the General Partner or any Affiliate
an exclusive right to sell or exclusive employment to sell Equipment and
Program Property for the Program. The General Partner and its Affiliates
will not be paid for services that they do not provide to the Program.
9.2 INDEPENDENT ACTIVITIES. The General Partner and each Limited
Partner may, notwithstanding the existence of this Agreement, engage in
whatever activities they choose, whether the same be competitive with the
Program or
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otherwise, without having or incurring any obligation to offer any
interest in such activities to the Program or any party hereto; provided,
however, that in the event opportunities arise that are suitable for both the
General Partner and the Program, the General Partner will place the interests
of the Program ahead of its own interests, consistent with its fiduciary duty
to the Program. Neither this Agreement nor any activity undertaken pursuant
hereto shall prevent the General Partner from engaging in any activity, or
require the General Partner to permit the Program or any Limited Partner to
participate therein, and, as a material part of the consideration for the
General Partner's execution hereof and admission of the Limited Partners,
each Limited Partner hereby waives, relinquishes and renounces any such right
or claim of participation in any other venture or activity engaged or
participated in by the General Partner. It is specifically understood and
agreed that the General Partner may organize and participate as general
partner in partnerships, which may engage in activities substantially
identical to the activities engaged in by this Program. Notwithstanding the
provisions of this Section 9.2, no activity permitted to the General Partner
hereunder may be in derogation of the General Partner's fiduciary duties to
the Program; PROVIDED, FURTHER, that the Limited Partners do not and shall
not waive, relinquish or renounce their interest in the Program's interest in
any joint venture or similar program between the Program and the General
Partner (or any of its Affiliates). Nothing contained in this Agreement shall
restrict the General Partner from making any distributions to its partners,
nor shall any of its partners be restricted from making any distributions
(dividends or otherwise) to their partners or shareholders.
9.3 DUTIES. The General Partner shall manage and control the Program
and its business and affairs to the best of its ability, and shall use its
best efforts to carry out the business of the Program. The General Partner
shall devote such time to the business of the Program as in its sole and
absolute discretion it determines is necessary for the efficient carrying on
thereof. The General Partner shall have fiduciary responsibility for the
safekeeping and use of all Program funds and assets, whether or not in its
immediate possession or control, and it shall not employ, or permit another
Person to employ, such funds or assets in any manner except for the exclusive
benefit of the Program. The General Partner will not permit the Limited
Partners to enter into any amendment to this Agreement, pursuant to which the
Limited Partners would contract away the fiduciary duty owed to the Limited
Partners by the General Partner under common law.
9.4 CERTAIN LIMITATIONS
9.4.1 Without obtaining the consent of all of the Limited Partners,
the General Partner shall not do any of the following:
9.4.1.1 Act in contravention of this Agreement;
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9.4.1.2 Except as provided in Section 12, do any act, which would
make it impossible to carry on the ordinary business of the Program;
9.4.1.3 Admit a Person as a General Partner except as otherwise
provided in this Agreement;
9.4.1.4 Execute or deliver any assignment for the benefit of the
creditors of the Program;
9.4.1.5 Amend this Agreement so as to extend the term of the
Program beyond December 31, 2011; or
9.4.1.6 Amend this Agreement relating to allocations of Profit and
Losses among Partners, except that if the Program is advised at any time by
the Program's accountants or legal counsel that the allocations contained in
Section 8 of this Agreement are unlikely to be respected for federal income
tax purposes, either because of further promulgation or interpretation of
Treasury Regulations under Section 704 of the Code or other developments in
law, in which case no consent of the Limited Partners is necessary. In that
event, the General Partner is empowered to amend such provisions to the
minimum extent necessary in accordance with the advice of such accountants or
legal counsel to effect the plan of distributions provided for in this
Agreement. New allocations made by the General Partner in reliance upon the
advice of the accountants or legal counsel described above shall be deemed to
be made pursuant to the fiduciary obligation of the General Partner to the
Program and the Limited Partners.
9.4.2 Without obtaining the consent of the Limited Partners having
a majority in interest of the Units, the General Partner shall not do any of
the following:
9.4.2.1 Sell or transfer all or substantially all of the assets of
the Program prior to seven years after the close of the offering of the
Units, except in the ordinary course of business; provided, however, that any
such sale or transfer beyond such seven-year period shall only be made
without the consent of a majority-in-interest of the Limited Partners in the
instance of liquidating the Program;
9.4.2.2 Borrow any money except as provided in Section 9.1.4;
9.4.2.3 Amend this Agreement, except as set forth in Sections 8.12,
9.4.1.5, 9.4.1.6 and Section 16.5 or except (i) to reflect the addition or
substitution of any Limited Partner, (ii) to add to the representations,
duties or
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obligations of the General Partner or its Affiliates or to
surrender any right or power granted to the General Partner or its Affiliates
herein for the benefit of the Limited Partners, (iii) to cure any ambiguity,
to correct or supplement any provision herein, which may be inconsistent with
any other provision herein, or to add any other provisions with respect to
matters or questions arising under this Agreement, which will not be
inconsistent with the provisions or purposes of this Agreement and (iv) to
delete or add any provision from or to this Agreement requested to be so
deleted or added by any state or federal regulatory agency, the deletion or
addition of which is deemed by such regulatory agency to be for the benefit
or protection of the Limited Partners, which amendments may be made without
the consent or vote of the Limited Partners; or
9.4.2.4 Retire or dissolve the Program.
9.4.3 Without obtaining the consent of the Limited Partners having
66-2/3% in interest of the Units, the General Partner shall not engage in a
"Roll-Up Transaction." For purposes of this Agreement, a "Roll-Up
Transaction" is any transaction that involves the acquisition, merger,
conversion or consolidation, either directly or indirectly, of the Program
and the issuance of securities of a "Roll-Up Entity." The term "Roll-Up
Transaction" does not include: (a) a transaction involving securities of a
Program that have been for at least 12 months listed on a national securities
exchange or traded through the National Association of Securities Dealers
Automated Quotation National Market System; or (b) any transaction, whether
or not the securities involved therein are securities which are listed or
traded, as the case may be, as described in clause (a) above, as to which (i)
the provisions of Sections 25014.5 through 25014.7 of the California
Corporations Code apply and (ii) the terms of such transaction comply with
such provisions; or (c) a transaction involving the conversion to corporate,
trust or association form of only the Program if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following: (i) the Limited Partners' voting rights; (ii) the term of
existence of the Program; (iii) the Sponsor's compensation, or (iv) the
Program's investment objectives. For purposes of this Agreement, the term
"Roll-Up Entity" means the partnership, corporation, trust or other entity
that would be created or would survive after the successful completion of a
proposed Roll-Up Transaction. Limited Partners who dissent with respect to a
Roll-Up Transaction proposal will have the rights of a dissenting Limited
Partner as provided under Sections 15679.1 through 15679.14 of the Act.
Notwithstanding any other provision of this Agreement, this Section 9.4.3 may
not be amended without the approval of 66-2/3% in interest of the Limited
Partners.
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9.5 CERTAIN RESTRICTIONS
9.5.1 The General Partner shall not receive any rebates or
give-ups, or participate in any reciprocal business arrangements that would
circumvent the NASAA Equipment Policy, or which would circumvent the NASAA
Equipment Policy's restrictions against dealing with Affiliates. Investment
in limited partnership interests of another partnership shall be prohibited;
provided, however, that nothing herein shall preclude the investment in
general partnerships or ventures, which own or finance specified Equipment or
Program Property as provided in Section 9.1.8; provided, further, that
investment in limited partnership interests of another partnership shall be
permitted pursuant to an order of a court of competent jurisdiction in
connection with the workout of any bankrupt lessee or borrower. The General
Partner and its Affiliates shall not receive any fees or compensation other
than those provided for in this Agreement and the marketing compensation
payable to Affiliates, as described in the Prospectus.
9.5.2 The General Partner shall not cause the Program to purchase,
finance or lease, directly or indirectly, properties or assets, real or
personal, in which the General Partner or any Affiliate thereof (including
any limited partnership sponsored by the General Partner which has been
liquidated), currently has, or in the past has had, an interest, except for
properties or assets which the General Partner or Affiliates, including
Phoenix Leasing Incorporated (but excluding any limited partnerships
sponsored by the General Partner or any Affiliate), have purchased, financed
or leased (and assumed loans in connection therewith) in its or their own
names and held title thereto on a temporary or interim basis (generally not
in excess of six months) for the purpose of facilitating the acquisition of
such properties or assets or the borrowing of money or obtaining of financing
for the Program or any other purpose related to the business of the Program
and provided that (a) it is in the best interests of the Program, (b) such
properties or assets are purchased by the Program in an amount no greater
than the cost of such properties or assets to the General Partner or
Affiliates (including related direct expenses paid to unaffiliated third
parties) (except reimbursement or compensation to the General Partner or
Affiliates pursuant to Sections 7.1, 7.2, 7.3, 8.8 or 12.3 of this Agreement)
plus its carrying costs less gross rental or other proceeds received in each
case during the period the General Partner or Affiliates held such properties
or assets, (c) there is no difference in interest terms of the loans secured
by such properties or assets at the time acquired by the General Partner or
Affiliates and the time acquired by the Program, and (d) no other benefit
arises out of such transaction to the General Partner or its Affiliates apart
from compensation otherwise permitted. The term "carrying costs" for purposes
of this Section means the cost of funds to the General Partner or Affiliates
in advancing the purchase price for the Program. Carrying costs will include
only reasonable,
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necessary and actual expenses incurred by the General
Partner, as determined in accordance with general accepted accounting
principles in holding title to properties or assets on a temporary or interim
basis.
9.5.3 In the absence of a secondary market for Program assets at
the end of the term of the Program, the Program may sell assets to the
General Partner or any Affiliate thereof for cash on a one-time basis only to
effect a liquidation of the Program's assets at the end of the Program's term
(whether by expiration of its term or by dissolution pursuant to Section 12
or otherwise) if all of the following conditions have been met: (i) the
Program has obtained, at its cost, two independent appraisals of the fair
market value of the assets to be sold, (ii) the sales price of the assets to
be sold is at least equal to the average of the two appraisals, (iii) the
sales price so determined does not exceed 20% of the original cost of such
assets on an aggregate basis or 10% of the original cost of all assets
acquired on an aggregate basis throughout the term of the Program, (iv) such
sale is in the best interests of the Limited Partners and (v) the General
Partner or its Affiliates do not sell such assets to another limited
partnership sponsored by the General Partner of its Affiliates. In the event
that, at the time of liquidation of the Program's assets at the end of the
Program's term, the Program's assets include warrants or other equity
subscription rights obtained by the Program in connection with certain lease
or loan financings provided to companies engaged in the development of
technologies or other growth industry businesses, such warrants or other
subscription rights to purchase equity in the lessee or borrower will be
deposited in a liquidating trust, together with any funds the General Partner
deems sufficient to exercise the warrants or other subscription rights that
the General Partner determines are likely to be exercised. Except as set
forth above, the Program will not sell any assets to the General Partner or
any of its Affiliates.
9.5.4 The Program may not lease any assets or make any loans to the
General Partner or its Affiliates. Funds of the Program will not be
commingled with the funds of any other Person. The General Partner shall not
purchase Equipment or Program Property on behalf of the Program in exchange
for Units. Neither the General Partner, nor any Person acting as a
broker-dealer, shall directly or indirectly pay or award any finder's fees,
commissions or other compensation to any Person engaged by a potential
investor for investment advice as an inducement to such advisor to provide
advice to the prospective purchaser of Units. Subject to the provisions of
Section 9.5.12, the General Partner shall not cause the Program to compensate
any broker-dealer for soliciting votes or tenders from Limited Partners in
connection with a proposed Roll-Up Transaction, unless such compensation:
(i) is payable and equal in amount regardless of whether the
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Limited Partners vote affirmatively or negatively on the proposed Roll-Up
Transaction; (ii) in the aggregate does not exceed two percent of the exchange
value of the newly-created securities; and (iii) is paid regardless of whether
the Limited Partners reject the proposed Roll-Up Transaction. Program funds will
not be deposited with any financial institutions or other entities that are
affiliated with the General Partner. Program funds will not be used in a
compensating balance arrangement for the benefit of any Person other than the
Program.
9.5.5 While the proceeds of the offering of Units are awaiting
investment in Equipment or Program Property, such proceeds may be temporarily
placed in short-term, highly liquid investments, which afford appropriate
safety of principal. Any proceeds from the offering of Units not committed
for investment within the later of two years from the date of effectiveness
or one year from the end of the Program's offering period (except for
necessary operating capital) shall be distributed pro rata to the Unit
Holders as well as a pro rata return of Organizational and Offering Expenses.
9.5.6 When financing is made available to the Program by the
General Partner or its Affiliates, the General Partner and its Affiliates may
not receive interest and other financing charges or fees in excess of the
amounts that would be charged by unrelated lending institutions on comparable
loans for the same purpose. The General Partner and its Affiliates shall be
prohibited from providing permanent financing for the Program. For purposes
of this Section 9.5.6, permanent financing shall mean any financing with a
term in excess of 12 months.
9.5.7 In connection with a proposed Roll-Up Transaction, an
appraisal of all Program assets shall be obtained from a competent,
"Independent Expert." For purposes of this Agreement, the term "Independent
Expert" means a Person with no current material or prior business or personal
relationship with the Sponsor who is engaged to a substantial extent in the
business of rendering opinions regarding the value of assets of the type held
by the Program and is qualified to perform such work. If the appraisal will
be included in a prospectus used to offer the securities of a Roll-Up Entity,
the appraisal shall be filed with the Securities and Exchange Commission and
the appropriate state securities administrators as an exhibit to the
Registration Statement for the offering. The appraisal shall be based on an
evaluation of all relevant information and shall indicate the value of the
Program's assets as of a date immediately prior to the announcement of the
proposed Roll-Up Transaction. The appraisal shall assume an orderly
liquidation of Program assets over a 12-month period. The terms of the
engagement of the Independent Expert shall clearly state that the engagement
is for the benefit of the Program and the Limited Partners. A summary of the
independent appraisal, indicating all material assumptions underlying the
appraisal, shall be included in a report to the Limited Partners in
connection with a proposed Roll-Up Transaction.
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9.5.8 In connection with a proposed Roll-Up Transaction, if such
transaction is approved by the Limited Partners, any Limited Partner voting
"yes" on the proposal shall receive the securities offered by the Roll-Up
Entity and the person sponsoring the Roll-Up Transaction shall offer to any
Limited Partner who votes "no" on the proposal the choice of:
(a) accepting the securities of the Roll-Up Entity offered in
the proposed Roll-Up Transaction; or
(b) one of the following:
(i) remaining as a Limited Partner in the Program and
preserving his or her interest therein on the same terms and conditions as
existed previously; or
(ii) receiving cash in an amount equal to such Limited
Partner's pro-rata share of the appraised value of the net assets of the
Program.
9.5.9 The Program shall not participate in any proposed Roll-Up
Transaction which would result in Limited Partners having democracy rights in
the Roll-Up Entity which are less than those provided for under this
Agreement. If the Roll-Up Entity is a corporation, the voting rights of
Limited Partners shall correspond to the voting rights provided for in this
Agreement to the greatest extent possible.
9.5.10 The Program shall not participate in any proposed Roll-Up
Transaction which includes provisions which would operate to materially
impede or frustrate the accumulation of shares by any purchaser of the
securities of the Roll-Up Entity (except to the minimum extent necessary to
preserve the tax status of the Roll-Up Entity). The Program shall not
participate in any proposed Roll-Up Transaction which would limit the ability
of a Limited Partner to exercise the voting rights of his or her securities
of the Roll-Up Entity on the basis of the number of Units held by that
Limited Partner.
9.5.11 The Program shall not participate in any proposed Roll-Up
Transaction in which Limited Partners' rights of access to the records of the
Roll-Up Entity will be less than those provided for under this Agreement.
9.5.12 The Program shall not participate in any proposed Roll-Up
Transaction in which any of the proxy costs of the transaction (including
compensation payable to any broker-dealer under Section 9.5.4) would be borne
by the Program if the Roll-Up Transaction is not approved by the Limited
Partners.
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9.5.13 Notwithstanding anything to the contrary contained in
Sections 9.5.7 through 9.5.12, the Program shall not engage in a Roll-Up
Transaction without first obtaining a permit from the California Department
of Corporations qualifying the securities proposed to be issued in connection
with the Roll-Up Transaction, in the event that such a permit is required
under California law.
9.5.14 The General Partner will not cause any of its Affiliates to
act in any way that would constitute a prohibited action of the General
Partner pursuant to Sections 9.4.1, 9.4.2 or 9.5 of this Agreement.
10. TRANSFER OF UNITS
10.1 IN GENERAL. A Unit Holder may not sell, transfer, assign or
subject to a security interest all or any part of his Units or any of the
attributes or rights with respect thereto except as permitted in this Section
10, and any act in violation of this Section shall be null and void AB INITIO.
10.2 RESTRICTIONS ON TRANSFER OF UNITS AND CONDITIONS OF PERMITTED
TRANSFERS.
10.2.1 Except for a Permitted Disposition, no Unit Holder
shall sell, transfer, assign or otherwise dispose of his or her Units, in
whole or in part, unless the sum of the percentage interest in Program
capital or profits represented by Units that are sold, transferred, assigned
or otherwise disposed of (including without limitation, redemptions by the
Program pursuant to Section 10.7 hereof) during the fiscal year does not
exceed two percent of the total interest in Program capital or profits. The
total interest in Program capital and profits shall be determined by
reference to all outstanding interests (including interests owned by the
General Partner). If, however, the General Partner and any Persons related
to the General Partner (within the meaning or either Code Section 267(b) or
Code Section 707(b)(1)) own, in the aggregate more than ten percent of the
outstanding interest in Program capital or profits at any one time during the
taxable year of the Program, the total interest in Program capital and
profits shall be determined without reference to interests owned by the
General Partner and such related Persons. The percentage interests in
Program capital and profits represented by Program interests that are sold,
transferred, assigned or otherwise disposed of during a taxable year of the
Program is equal to the sum of the percentage interest sold or otherwise
disposed of for each calendar month during the taxable year of the Program in
which a sale, transfer, assignment or other disposition of the Program occurs
(other than a Permitted Disposition). The Program shall determine the
percentage interests in capital and profits of interests that are sold,
transferred, assigned or otherwise disposed of during a calendar month by
reference to the
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Program interests that are outstanding during such month. In
determining the interests outstanding for a month, the Program may use any
reasonable convention, provided such convention is consistently used by the
Program month to month during a taxable year and from year to year.
10.2.2 Any sale, transfer, assignment or other disposition of
Units permitted pursuant to Section 10.2.1 hereof or a Permitted Disposition
shall be subject to Section 10.3 and the following conditions:
(a) Any such sale, transfer, assignment or other
disposition must be in multiples of Units, with a minimum of 100 Units (50
Units in the case of an IRA, Keogh or other benefit plan). Certain
transfers, as determined by the General Partner, such as those made by gift
or inheritance, intra-family transfers, transfers resulting from family
dissolutions and transfers to Affiliates may be made in multiples of Units
with a minimum amount of 50 Units for each such transfer;
(b) Such Unit Holder and his or her purchaser,
transferee or assignee must execute, acknowledge and deliver to the General
Partner such instruments of transfer and assignment with respect to such
transaction as are in form and substance satisfactory to the General Partner;
(c) Such Unit Holder pays the Program all reasonable
expenses of the Program in connection with such transaction (not to exceed
$75);
(d) The purchaser, transferee or assignee of such Units
must represent, in writing, to the General Partner that he or she will not
resell or otherwise dispose of the Units acquired by him or her except in
accordance with the provisions of this Section 10;
(e) Such sale, transfer, assignment or other disposition
shall not be in violation of any applicable federal or state securities laws,
including the Securities Act of 1933, as amended;
(f) The General Partner may require an opinion of
counsel to the Program (the costs of which shall be borne by the Program) to
the effect that such sale, transfer, assignment or other disposition (i)
would not cause the termination of the Program for Federal income tax
purposes, (ii) would not result in the General Partner being a plan fiduciary
under the Employee Retirement Income Security Act of 1974, as amended,
("ERISA"), (iii) would not be in violation of any Federal or state securities
laws (including any investor suitability standards applicable to the Program,
and (iv) would not result in the Program
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being treated as a publicly traded partnership for Federal income tax purposes.
Any attempted sale, transfer, assignment or other disposition not in accordance
with this Section 10 shall be void AB INITIO; and
(g) The sale, transfer, assignment or Permitted
Disposition shall not entitle the assignee to any rights granted to a Limited
Partner pursuant to Section 15634 of the Act.
10.3 SUBSTITUTED LIMITED PARTNERS. No assignee of Units, including any
transferee in a Permitted Disposition or under Section 10.2.1, shall have the
right to become a substituted Limited Partner in place of his or her assignor
unless (1) the General Partner consents to the admission of such assignee as
a substituted Limited Partner within the meaning of the Act (which consent
may be granted or withheld in the sole discretion of the General Partner) and
(2) each of the following conditions of this Section 10.3 is satisfied:
10.3.1 Such assignee elects to become a substituted Limited
Partner by delivering a written notice of such election to the General
Partner;
10.3.2 Such assignee executes and acknowledges such other
instruments as the General Partner may deem necessary or advisable to effect
the admission of such Person as a substituted Limited Partner, including,
without limitation, the written acceptance and adoption by such Person of the
provisions of this Agreement; and
10.3.3 Such assignee pays a transfer fee as required by Section
10.2(c) plus such additional fee, if any, as is determined by the General
Partner to be required to pay the costs of admission as a substituted Limited
Partner. All steps shall be taken (at least once in each calendar quarter),
which, in the opinion of the General Partner, are reasonably necessary to
admit such Person under the Act as a substituted Limited Partner and such
Person shall thereupon become a substituted Limited Partner within the
meaning of the Act. Any assignment of Units not involving a substitution
pursuant to this Section 10.3 shall be recognized by the Program not later
than the last day of the calendar month following receipt of notice of the
assignment and all requested documentation.
10.4 NONTRANSFERABILITY OF THE GENERAL PARTNER'S INTEREST. The General
Partner may not assign, transfer or sell any portion of its interest in the
Program without the consent of the Limited Partners having a majority of the
Units, PROVIDED that the General Partner may pledge or grant a security
interest in its interest in the Program as security for any loans to the
Program, the General Partner or its Affiliates.
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10.5 PURCHASE OF UNITS BY THE GENERAL PARTNER. The General Partner may
(but shall not be obligated to) acquire Units from any Limited Partner or
from the Program, and, if with respect to such Units, the General Partner
becomes a substituted Limited Partner within the meaning of the Act, the
General Partner shall, with respect to such Units, enjoy all rights and be
subject to all of the obligations and duties of Limited Partners, PROVIDED
that the General Partner and its Affiliates shall not be permitted to vote
any such Units on matters which the Limited Partners may vote with respect to
any transaction between the Program and the General Partner or its
Affiliates, or if such Persons in the aggregate hold ten percent or more of
the outstanding Units, with respect to (a) the rollup, consolidation, merger
or other reorganization of the Program with any other Person, (b) the
cancellation of any contracts with Affiliates of the General Partner, (c) the
sale of Program assets to the General Partner or any Affiliate pursuant to
Section 9.5.3, (d) the sale of the General Partner's interest in the Program,
and (e) the election of any successor or substitute General Partner.
10.6 LEGEND. This Agreement and any securities issued to California
residents representing an interest in the Program shall bear the following
legend:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY,
OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
10.7 REDEMPTION. Provided a Unit Holder has held his or her Units for
at least six months, such Unit Holder shall have the right at any time
following such six month holding period to tender to the Program for
redemption all or a portion of the Units (other than fractional Units) owned
of record by such Unit Holder. To the extent permitted by applicable laws
and regulations (including regulations of the California Department of
Corporations prohibiting redemption of partnership interests if such
redemption impairs the capital or operation of the Program and regulations of
the Securities and Exchange Commission ("SEC") prohibiting redemptions in
violation of SEC Rule 10b-6) and if, in the opinion of the General Partner,
it is in the best interests of the Program, the Program will acquire such
Units (but in no event less than the amount tendered) from such Unit Holder,
provided that the maximum amount of redemptions in any fiscal year shall not
exceed 2.5% of the Limited Partners' aggregate Capital Contributions; and
provided further that the sum of (a) the maximum amount of redemptions in
each calendar month of the taxable year and (b) sales, transfers, assignments
or other dispositions in each calendar month of the taxable year shall not
exceed five percent of the total interest in Program capital or profits,
computed in accordance
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with Section 10.2.1 hereof. Unit Holders desiring to
sell Units to the Program shall submit a written request to the General
Partner. If a Unit Holder requests redemption and such request is accepted
by the General Partner, (x) the redemption value will be determined as of the
end of the calendar quarter preceding the calendar quarter in which the
redemption documentation is received, (y) the Unit Holder will be entitled to
receive cash distributions with respect to the tendered Units attributable to
calendar quarters preceding the calendar quarter in which the redemption
documentation is received, and (z) the Program will redeem the tendered Units
(but in no event less than the amount tendered) within 60 days from the date
on which all redemption documentation necessary to process the request is
received from the Limited Partner. The redemption value shall be equal to
90% of the Accrual Basis Capital Account with respect to the tendered Units
as of the end of the appropriate calendar quarter, reduced by all subsequent
distributions with respect to the tendered Units, and shall be paid in cash,
without interest. Upon any such redemption by the Program, the tendered
Units shall be canceled as of the valuation date and will no longer be deemed
to represent an interest in the Program. The Program Percentages of the Unit
Holders (including the Person whose Units were redeemed) will thereupon be
adjusted accordingly. Neither the General Partner nor any of its Affiliates
may redeem their Units under this Section 10.7.
10.8 OTHER MATTERS. In the event a Partner or Unit Holder sells,
assigns, transfers or otherwise disposes of, or pledges, hypothecates,
creates a security interest in or otherwise encumbers all or any part of his
or her Units without complying with the provisions of this Section 10, such
action shall not cause or constitute a dissolution of the Program. Any other
party to such action shall have no right to any information or accounting of
the affairs of the Program, shall not be entitled to inspect the books or
records of the Program, and shall not be entitled to any of the rights of a
General Partner or a Limited Partner under the Act or this Agreement, except
as otherwise set forth in the Act.
11. RESIGNATION OR REMOVAL OF A GENERAL PARTNER; ELECTION OF A GENERAL
PARTNER
11.1 RESIGNATION OF A GENERAL PARTNER. A General Partner may not
retire or withdraw without the consent of the Limited Partners having a
majority of the Units and unless it obtains the opinion of counsel for the
Program that such resignation will not jeopardize the Program's federal tax
status as a partnership. Such a resignation shall not constitute a breach of
this Agreement.
11.2 REMOVAL OF A GENERAL PARTNER. A General Partner shall be removed,
and cease to be a General Partner of the Program:
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11.2.1 Upon the vote of Limited Partners having a majority of the
Units, excluding any Units held by the General Partner or its Affiliates,
subject to the provisions of Section 11.6, PROVIDED that as a condition to
effective removal, the successor, if any, elected by the Limited Partners
pursuant to Section 11.5 shall agree in writing to be bound by the provisions
of this Agreement, to assume the obligations of a General Partner pursuant to
this Agreement, and to indemnify the removed party and hold it harmless from
and against any and all loss, damage, liability and expense, including costs
and reasonable attorneys' fees, to which the removed party may be put or
which it may incur by reason of or in connection with any of the debts,
obligations or liabilities of the Program thereafter made, incurred or
created. If a General Partner is removed, the Program shall promptly comply
with the provisions of Section 15642 of the Act;
11.2.2 Immediately upon the death or dissolution of such General
Partner; or
11.2.3 Immediately upon the adjudication that such General Partner
is mentally incompetent, insolvent or bankrupt.
11.3 NOTICE OF RESIGNATION OR REMOVAL. Written notice of the
resignation of a General Partner shall be given by such General Partner to
the Limited Partners, and the remaining General Partner, if any, and written
notice of the removal of a General Partner shall be given to such General
Partner or its representatives, the remaining General Partners, if any, and
the other Limited Partners by the Limited Partners voting to remove such
General Partner pursuant to Section 11.2. Such notice shall set forth the
date upon which the resignation or removal became or is to become effective,
which date, in the case of a resignation, shall be not less than 60 days
after such notice is given to the party or parties being notified.
Effectiveness of the resignation of a General Partner on the date specified
in any notice thereof shall be subject to the prior receipt of the consent of
the Limited Partners having a majority of the Units, and the opinion referred
to under Section 11.1.
11.4 LIABILITY OF A GENERAL PARTNER AFTER RESIGNATION OR REMOVAL. If a
General Partner resigns or is removed in accordance with the provisions of
this Agreement, its liability as a General Partner shall cease with respect
to all actions taken by the Program or any Partner after the effective date
of the resignation or removal and the Program shall promptly take all steps
reasonably necessary to cause such cessation of liability.
11.5 ELECTION OF A SUBSTITUTE GENERAL PARTNER. Limited Partners having
a majority of the Units may elect a new General Partner at all times. If a
General Partner resigns or is removed pursuant to this Agreement, and the
Limited
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Partners elect to continue the business of the Program pursuant to
Section 12.2, and if also pursuant to such Section, a substitute General
Partner is to be elected by the Limited Partners, any Partner shall, promptly
after the election to continue the Program, nominate a Person for election as
a substitute General Partner. Such Person shall not become a General Partner
unless elected by a vote (which may be by written consent) of Limited
Partners having a majority of the Units. In the event that such proposed
General Partner is not elected, any Partner shall as soon as practicable
thereafter nominate another substitute General Partner, and shall continue to
do so until a substitute General Partner is elected, or the Program has been
dissolved pursuant to Section 12.1.2.
11.6 PURCHASE OF INTEREST OF A GENERAL PARTNER. Upon the voluntary or
involuntary termination of a General Partner, the following shall apply:
11.6.1 Upon the removal or resignation of the General Partner, the
party who is removed or has resigned shall be paid the then present fair
market value of its Program interest, determined in the manner described in
Section 11.6.2 hereof. Where the General Partner has been removed, payment
shall be in the form of an interest bearing promissory note maturing in not
less than five years, such amount to be paid in five equal annual
installments of principal, with interest computed and due annually at a rate
of Prime plus two percent, calculated on the unpaid principal balance of the
amount owed as of the date of each annual determination. The first payment
of principal and interest shall be made on the first anniversary date of such
removal, with subsequent payments of principal and interest to be made on
successive anniversary dates thereof. For purposes of this Section 11.6.1,
the term "Prime" means the base rate of interest announced publicly by
Citibank, N.A., in New York, New York from time to time, commonly known as
the bank's "prime rate," then in effect and most recently available before
the date on which each annual interest rate determination is made. Where the
General Partner has resigned, payment of the Program interest shall be in the
form of a non-interest bearing unsecured promissory note with principal
payable, if at all, from distributions which the resigned General Partner
otherwise would have received under this Agreement had the General Partner
not resigned.
11.6.2 The then present fair market value of the resigned or
removed General Partner's Program interest shall be determined by agreement
between the resigned or removed General Partner and the Program (which
agreement shall require the written consent of Limited Partners holding a
majority of the Units). The then present fair market value of the General
Partner's interest shall be the amount the terminated General Partner would
receive upon dissolution and termination of the Program assuming that such
dissolution or termination occurred on the date of the terminating event and
the assets of the Program were sold for their then present fair market value
without any compulsion on the part of
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the Program to sell such assets. If the resigned or removed General Partner
and the Program cannot agree on the then present fair market value of such
Program interest within 30 days of the effective date in the notice referred to
in Section 11.3 hereof, the then present fair market value thereof shall be
determined in the manner provided in the Code of Civil Procedure of the State of
California for the determination of controversies by arbitration: the resigned
or removed General Partner to choose one arbitrator, the Program to choose one
arbitrator; and the two arbitrators so chosen to choose a third arbitrator.
The decision of a majority of such arbitrators as to the then present fair
market value of such Program interest shall be final and binding and may be
enforced by legal proceedings. The resigned or removed General Partner and
the Program shall each compensate the arbitrator appointed by it; the
compensation of the third arbitrator shall be borne equally by such parties.
12. DISSOLUTION AND WINDING UP OF THE PROGRAM
12.1 DISSOLUTION OF THE PROGRAM. The Program shall be dissolved upon
the first to occur of any of the following events:
12.1.1 The death, mental incompetency, insanity, resignation,
bankruptcy or removal of a General Partner, unless the remaining General
Partner or General Partners elected pursuant to Section 11.5 continue(s) the
business of the Program pursuant to Section 15681(c) of the Act;
12.1.2 The vote so to do of Limited Partners holding a majority of
the Units and delivery by such Limited Partners of written notice of such
vote to the General Partners;
12.1.3 The expiration of the term of the Program;
12.1.4 The failure to elect a new General Partner or General
Partners in the event all of the General Partners cease to be General
Partners pursuant to Section 11; or
12.1.5 The sale of all or substantially all of the assets of the
Program.
12.2 ELECTION UPON DISSOLUTION. Upon a dissolution of the Program
pursuant to Section 12.1, if the business of the Program has not been
continued pursuant to Section 12.1.1, any remaining General Partner shall,
promptly after such dissolution, give notification thereof to the Limited
Partners, and shall call for a vote of the Limited Partners to determine
whether to continue the business of the Program or to wind up the Program
pursuant to Section 12.3. If there is no
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General Partner, as provided in Section 15681(c) of the Act, all Partners must
agree in writing to continue the business of the Program and admit one or more
General Partners. If the required vote is not obtained within 90 days after any
such dissolution, the Program shall be wound up pursuant to Section 12.3. If the
required vote for continuation of the Program business is obtained, and there is
at least one remaining General Partner, the Limited Partners shall also elect
either to continue the business of the Program with the General Partner(s) then
serving or to replace the General Partners, the resignation or removal of which
dissolved the Program. Such election shall be by a vote of Limited Partners
having a majority of the Units. If the Limited Partners elect to replace
such General Partner, a substitute General Partner shall be elected pursuant
to Section 11.5.
12.3 WINDING UP OF THE PROGRAM. Upon a dissolution of the Program, the
General Partner, or court-appointed trustee if there is no General Partner,
shall take full account of the Program's assets and liabilities and the
assets shall be liquidated as promptly as is consistent with obtaining the
fair value thereof, and the proceeds therefrom to the extent sufficient
therefor, shall be applied and distributed in the following order:
12.3.1 To the payment and discharge of all of the Program's debts
and liabilities, including the establishment of any necessary contingency
reserve;
12.3.2 To the payment of the balance, if any, of the General
Partner's Management Fee and Acquisition Fee;
12.3.3 To the General Partner, an amount equal to the distribution
the General Partner would be entitled to receive pursuant to the terms of
Section 8.8 if the balance of the liquidation proceeds were treated as Cash
Available for Distribution distributable pursuant to Section 8.8; and
12.3.4 The balance, if any, to the General Partner and the Unit
Holders, in proportion to their Capital Accounts as of the date of such
distribution, after giving effect to all contributions, prior distributions
and allocations of Profits and Losses and other items for all periods,
including the period during which such distribution occurs.
12.4 COMPLIANCE WITH TIMING REQUIREMENTS OF TREASURY REGULATIONS. In
the event the Program is "liquidated" within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(g), (a) distributions shall be made
pursuant to this Section 12 (if such liquidation constitutes a dissolution of
the Program) or Section 8 (if it does not) to the Partners and Unit Holders
who have positive Capital Accounts in compliance with Treasury Regulations
Section
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1.704-1(b)(2)(ii)(b)(2), and (b) if any General Partner's Capital
Account has a deficit balance (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year
during which such liquidation occurs), such General Partner shall contribute
to the capital of the Program the amount necessary to restore such deficit
balance to zero in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(3). Distributions pursuant to the preceding sentence may
be distributed to a trust established for the benefit of the Partners and
Unit Holders for the purposes of liquidating Program assets, collecting
amounts owed to the Program, and paying any contingent or unforeseen
liabilities or obligations of the Program or of the Partners arising out of
or in connection with the Program. The assets of any such trust shall be
distributed in cash or readily marketable securities to the Partners and Unit
Holders from time to time, in the reasonable discretion of the General
Partner, in the same proportions as the amount distributed to such trust by
the Program would otherwise have been distributed to the Partners and Unit
Holders pursuant to this Agreement; PROVIDED, HOWEVER, that any Partner or
Unit Holder may instead elect to have his or her proportionate share of
readily marketable securities converted into cash, and to receive (in lieu of
such proportionate share of readily marketable securities) the proceeds (net
of expenses) derived from the conversion of such securities.
13. BOOKS OF ACCOUNTS, ACCOUNTING, REPORTS, TAX YEAR, BANKING AND TAX
ELECTIONS
13.1 BOOKS OF ACCOUNT. The Program's books and records and this
Agreement shall be maintained at the principal office of the Program, and
each Partner, upon giving written notice shall have free access at all
reasonable times to such books and records and the right to inspect and copy
them at such Partner's expense as set forth in Section 15634 of the Act. An
alphabetical list of the names, addresses and business telephone numbers of
all of the Limited Partners, along with the number of Units held by each of
them, will be maintained as part of the books and records of the Program and
available for inspection pursuant to this Section 13.1. The books and
records shall be kept on the accrual method of accounting applied in a
consistent manner by the Program and shall reflect all Program transactions
and be appropriate and adequate for the Program's business.
13.2 ACCOUNTING AND REPORTS.
(a) As soon as reasonably practicable after the end of each fiscal
year, but not later than 120 days after such end, each Partner shall be
furnished with a copy of an annual report, containing a balance sheet as of
the end of the Program's fiscal year and statements of income, Partner's
equity and cash flow (the footnotes to such financial statements to include a
detailed reconciliation of Program net income for financial reporting
purposes to Program net income for
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tax purposes for the fiscal year just ended), a schedule of all distributions
to the Partners identifying the source of each, the report on cash flow
available for distribution described in subsection (b) below, and a schedule of
all compensation paid and distributions made to the General Partner, including a
description of the service performed and identifying the source of each such
distribution. Such annual report shall contain information on Equipment and
Program Property acquisitions and leases, and on financings provided, by the
Program during the fiscal year just ended. In the event a piece of Equipment
or other Program Property is acquired by the Program which represents at least
ten percent of the Program's total investment in Equipment and other Program
Property, a status report relating to such piece of Equipment or other
Program Property shall be included with the annual report. Such annual
report shall also contain an annual average Unit valuation, as estimated by
the General Partner, which generally will be based upon (a) par value (I.E.,
original cost), for each of the first two calendar years following
commencement of the Program's public offering of Units (including the year of
commencement of the Program's public offering of Units), and (b) for each
successive year thereafter, either (i) the discounted value of estimated
future cash flows or (ii) book value (determined in accordance with generally
accepted accounting principles). Notwithstanding the foregoing, the General
Partner shall have sole and absolute discretion to select the valuation
method used to determine any annual per Unit valuation, provided such method
is a reasonable valuation method. Such annual per Unit valuation shall be
included in the Program's annual report on Form 10-K or its next filed
quarterly report on Form 10-Q. In addition to the annual report, as soon as
reasonably practicable after the end of the first six-month period from the
date of commencement of the offering of the Units, but not later than 60 days
after such end, each Partner shall be furnished with a semiannual report
containing a balance sheet and statements of income for such period, and
thereafter, at the end of each calendar quarter, but not later than 60 days
after such end, each Partner shall be furnished with a quarterly report
setting forth a balance sheet, a statement of income, a cash flow statement
and other pertinent information, if any, regarding the Program and its
activities for such period, including the amount, if any, of the Management
Fee paid to the General Partner. Within 60 days after the end of each
calendar quarter, the Limited Partners shall be furnished with a report
containing information regarding the services rendered for which the General
Partner received a fee and the amount of such fee.
(b) A report on cash flow available for distribution shall be
included in the Program's annual report to Partners. The report on cash flow
available for distribution shall be calculated based upon the net income
(loss) reported by the Program for the period before gains (losses) on
equipment dispositions, refinancings and other extraordinary events and shall
show a detailed reconciliation of such items used to calculate the cash flow
available for
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distribution, beginning with the Program's net income. Any
item not anticipated and specifically referenced to in this Section 13.2(b)
may be included or excluded in such report as determined by the General
Partner on a case by case basis. For purposes of preparing this report only,
the cash flow available for distribution shall not be affected by the
following items: equipment acquisitions, organizational and offering
expenses, capital contributions, cash distributions and redemptions made to
partners, equity in earnings or losses from joint ventures, amortization of
acquisition fees and gains or losses from sales or early payoffs of program
property. The following additions shall be made to the report as follows:
payments received from notes receivable and financing leases, proceeds from
sales of program property, proceeds from investments in joint ventures,
increases in accounts payable, decreases in receivables, depreciation and
amortization, net realizable value allowances and any other non-recurring
payments that occur only during the Program's offering and acquisition phase.
The following deductions shall be made to the report as follows: decreases
in accounts payable, increases in receivables, deferred interest income on
notes receivable and payments of principal on debt service. Within the scope
of its annual audit of the financial statements of the Program, the
independent certified public accountants will issue a special report on the
Program's compliance with the calculation methodology set forth in this
Section 13.2(b).
13.3 ANNUAL AUDIT. As soon as practicable after the end of the fiscal
year, but not later than 120 days after such end, the financial statements of
the Program shall be audited by an independent certified public accountant
and such financial statements shall be accompanied by a report of such
accountant containing its opinion. Subject to the provisions of Section 7.1,
the cost of such audits will be an expense of the Program. A copy of the
audited financial statements and the accountant's report will be furnished to
each Limited Partner within the period specified in Section 13.2. The
General Partner will select the accountant to conduct the audit.
13.4 TAX YEAR. The tax year of the Program shall be determined by the
General Partner subject to the consent, if required, of any applicable taxing
authority. The Program's fiscal year shall be the same as its tax year.
13.5 BANKING. Subject to Section 9.1.7, all funds of the Program shall
be deposited in a separate bank account or accounts or in an account or
accounts of a savings and loan association as shall be determined by the
General Partner.
13.6 TAX ELECTIONS. Upon the transfer of an interest in the Program or
in the event of a distribution of Program Property, the Program may, in the
sole and absolute discretion of the General Partner, elect pursuant to Code
Section 754 to adjust the basis of the Program Property as allowed by Code
Sections 734(b) and
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743(b). In addition, the General Partner may, in its
sole and absolute discretion, make any or all elections that it is entitled
to make on behalf of the Program and the Limited Partners for federal, state,
and local tax purposes, including, without limitation, any election, if
permitted by applicable law: (1) to extend the statute of limitations for
assessment of tax deficiencies against Partners with respect to adjustments
to the Program's federal, state or local tax returns; and (2) to represent
the Program and the Partners before taxing authorities or courts of competent
jurisdiction in tax matters affecting the Program and the Partners in their
capacity as Partners, and to execute any agreements or other documents
relating to or settling such tax matters, including agreements or other
documents that bind the Partners with respect to such tax matters or
otherwise affect the rights of the Program or the Partners. The General
Partner is specifically authorized to act as the "Tax Matters Partner" under
the Code and in any similar capacity under state or local law.
13.7 PROGRAM RETURNS. The General Partner shall, for each tax year,
file on behalf of the Program a Program Return within the time prescribed by
law (including extensions) for such filing. All information necessary for
the preparation of Limited Partners' federal income tax returns shall be
distributed within 75 days after the end of the fiscal year. The General
Partner shall also file on behalf of the Program such California and other
state and local income tax returns as may be required by law.
13.8 INFORMATION. Upon written request, the Program will promptly
supply any Limited Partner with an alphabetical list of the names, addresses
and business telephone numbers of the Limited Partners, along with the number
of Units held by each of them, as such information is reflected in the
records of the Program as of the time of said request. The Program shall
update the above list at least quarterly to reflect changes in the
information contained therein and shall mail such list, printed (or copied)
on white paper and in a readily readable type size (in no event smaller than
10-point type) within ten business days following receipt of such request so
long as the requesting Limited Partner pays the Program its costs of postage
and the reasonable charge for duplication. Notwithstanding anything to the
contrary contained herein, the Program may restrict the use of such list to
noncommercial purposes and may condition provision of the list upon receipt
by the Program of written representations to such effect. Subject to the
foregoing, including without limitation, satisfaction of the requirements for
requests contained herein, in the event that the Program neglects or refuses
to exhibit, produce or mail a copy of the above list to any Limited Partner
requesting such list,
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the Program will be liable to such Limited Partner for (1) actual costs
(including attorneys' fees) incurred by such Limited Partner for compelling
production of such list and (2) actual damages suffered by such Limited
Partner directly as a result of the Program's neglect or refusal to produce
such list. The General Partner may require the Limited Partner requesting the
above list to represent that the list is not requested for a commercial
purpose unrelated to the Limited Partner's interest in the Program, and it
shall be a defense to the Program's neglect or refusal to produce such list
that the actual purpose and reason for the request for inspection or for a
copy of the list is to secure such list or other information for the purpose
of selling such list or copies thereof, or of using the same for a commercial
purpose other than in the interest of the applicant as a Limited Partner
relative to the affairs of the Program.
The remedies provided for under this Section 13.8 are in addition to, and
shall not in any way limit, other remedies available to the Limited Partners
under federal, California or, if applicable, other state law.
13.9 ACQUISITION REPORTS. Until such time as the proceeds of the
offering of Units are invested or committed to investment, within 60 days
after the end of each calendar quarter, each Partner shall be furnished with
a quarterly report of investments in Program Property during such quarter,
including the types of Program Property, the purchase price thereof or
investment amount relating thereto and any other material terms of
investment, such as average lease term, average lease rate, average loan term
and average loan rate, a statement of the total amount of cash expended by
the Program in connection with such investments in Program Property and a
statement of the amount of net offering proceeds which remain available for
investment.
13.10 FILINGS WITH SECURITIES COMMISSIONERS. The General Partner shall
prepare and file with the appropriate state authorities, including without
limitation the California Corporations Commissioner and the Arizona
Securities Division, all reports required to be filed with such state
securities authorities.
14. POWER OF ATTORNEY
14.1 POWER OF ATTORNEY FOR GENERAL PARTNER. Provided that the action
to be taken is in accordance with the terms of this Agreement, each Limited
Partner hereby makes, constitutes and appoints the General Partner with full
power of substitution and resubstitution, his or her true and lawful attorney
for him or her in his or her name, place and stead and for his or her use and
benefit to sign, execute, certify, acknowledge, file and record this
Agreement, and to sign, execute, certify, acknowledge, file and record all
instruments amending this Agreement, as now or hereafter amended, that may be
appropriate, including, without limitation, agreements or other instruments
or documents: (1) to reflect the exercise by the General Partner of any of
the powers granted to it under this Agreement; (2) to reflect any amendments
made to this Agreement by the Partners pursuant to this Agreement; (3) to
reflect the admission to the Program of any substituted Limited Partner or
the withdrawal of any Partner, in the manner prescribed in this Agreement;
and (4) to reflect actions that may be required of the Program or the
Partners by the laws of the State of California or any other jurisdiction. Each
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Limited Partner authorizes such attorney-in-fact to take any further
action, which such attorney-in-fact shall consider necessary or advisable in
connection with any of the foregoing, hereby giving such attorney-in-fact
full power and authority to do and perform each and every act or thing
whatsoever requisite or advisable to be done in and about the foregoing as
fully as such Limited Partner might or could if personally present, hereby
ratifying and confirming all that such attorney-in-fact shall lawfully do or
cause to be done by virtue hereof.
14.2 SCOPE OF POWER OF ATTORNEY. The power of attorney granted
pursuant to Section 14.1:
14.2.1 Is a special power of attorney coupled with an interest and
is irrevocable;
14.2.2 May be exercised by such attorney-in-fact by listing all of
the Limited Partners executing any agreement, certificate, instrument or
document with the signature of such attorney-in-fact acting as
attorney-in-fact for all of them; and
14.2.3 Shall survive the delivery of an assignment by a Limited
Partner of the whole or a portion of his or her interest in the Program,
except that where the purchaser, transferee or assignee thereof is admitted
as a substituted Limited Partner, the power of attorney shall survive the
delivery of such assignment for the sole purpose of enabling such
attorney-in-fact to execute, acknowledge and file any such agreement,
certificate, instrument or document necessary to effect such substitution.
15. LIABILITY AND INDEMNIFICATION OF THE GENERAL PARTNER
15.1 EXCLUSION OF LIABILITY FOR RETURN OF CAPITAL CONTRIBUTIONS.
Subject to Section 15.2 hereof, nothing contained in this Section 15.1 shall
prevent claims against the General Partner for liability if its actions or
failure to act cause damages to the Limited Partners.
15.2 LIMITATION ON LIABILITY OF GENERAL PARTNER; INDEMNIFICATION
15.2.1 Any General Partner or any Affiliate shall be held harmless
for any loss or liability suffered by the Program, which arises out of any
action or inaction of such General Partner or Affiliate, provided (1) such
General Partner or Affiliate, in good faith, determined that it acted in the
best interests of the Program; and (2) such liability or loss was not the
result of negligence or misconduct of such General Partner or any Affiliate.
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15.2.2 The Program shall indemnify any General Partner or any
Affiliate for any losses or liabilities, including amounts paid in settlement
of any claims, sustained by them in connection with the Program, provided
that such General Partner or any Affiliate in good faith determines that it
acted in the best interests of the Program, and, provided that such losses or
liabilities were not the result of negligence or misconduct on the part of
such General Partner or any Affiliate, and provided further that,
notwithstanding anything to the contrary contained in Section 15.2.1, neither
any General Partner, its Affiliates, nor any Person acting as a broker-dealer
shall be indemnified for liabilities or costs associated therewith arising
under Federal or state securities laws unless a court of competent
jurisdiction approves the indemnification, including, if applicable, the
indemnification of litigation costs where either (1) there has been a
successful adjudication on the merits of each count involving securities law
violations, (2) the court approves the settlement and finds that
indemnification of the settlement and related costs should be made, or (3)
such claims have been dismissed with prejudice on the merits by the court;
provided, however, that such General Partner, its Affiliates or such Person
acting as a broker-dealer must apprise the court of the positions of the
Securities and Exchange Commission, the California Commissioner of
Corporations, the Massachusetts Securities Division, the Pennsylvania
Securities Commissioner, the Texas Securities Commissioner, the Tennessee
Securities Division and other state securities commissioners, as applicable,
with respect to indemnification for securities law violations before seeking
court approval for indemnification. Any amounts payable to such General
Partner, its Affiliates, or such Person acting as a broker-dealer pursuant to
the foregoing are recoverable only out of assets of the Program and not from
the Limited Partners. The Program shall not incur the cost of that portion
of liability insurance that insures the General Partner, its Affiliates, or
such Person acting as a broker-dealer for any liability as to which the
General Partner, its Affiliates, or such Person acting as a broker-dealer are
prohibited from being indemnified. For purposes of this Section 15, the term
"Affiliate" shall mean any Person who performs services on behalf of the
Program and acting within the scope of the General Partner's authority, who
meets one of the requirements of Section 1.2.3(a)-(d).
15.2.3 The indemnification provided by this Section shall only be
recoverable out of the assets of the Program.
16. MISCELLANEOUS
16.1 SPECIAL ACCOMMODATIONS TO LIMITED PARTNERS. Notwithstanding the
provisions of Section 7.1, each Limited Partner shall reimburse the Program
for costs, if any, for special services or accommodations requested by such
Limited Partner to be performed by the Program or the General Partner (or
their employees,
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agents, attorneys, accountants and Affiliates), including,
without limitation, the cost and expenses incurred in connection with any
change of ownership rights of Units; special accounting for tax or other
purposes; accounting and/or appraisal or other means of evaluating Program
assets or Units; special reports relating to Program business, including its
fiscal condition or the value of Units; legal, accounting or other services
required in matters relating to probate, divorce and other such actions,
which may be demanded by any Limited Partner or required by a court. Any
such expenses incurred by the Program shall be due and payable by such
Limited Partner upon the performance of such services, and the General
Partner shall be reimbursed by the Program upon the performance of such
services, if any, in providing such accommodations on behalf of any Limited
Partner. Any request for such accommodation or special services shall be
submitted in writing. Upon receipt by the Program of a written request for
an estimate of the costs of rendering the special services or accommodations
requested by such Limited Partner, the General Partner shall cause to be
prepared and transmitted to the Limited Partner an estimate of the costs of
the services requested of the persons or firms whose services are to be
rendered, which estimate is subject to change and in no event shall be
limiting upon the Program, but rather the charge for any such services shall
be based upon the expenses actually incurred, and the cost of any services
actually rendered, by the Program or the General Partner.
16.2 NOTICES. Any notice, payment, demand, offer or communication
required or permitted to be given by any provision of this Agreement shall be
deemed to have been delivered and given for all purposes (1) if delivered
personally to the party or to an officer of the party to whom it is directed
OR (2) whether or not it is actually received, (a) in the case of meetings
called by Limited Partners holding ten percent or more of the Units, if sent
by registered or certified mail, postage and charges prepaid, and (b) in all
other cases, if deposited in a regularly maintained receptacle for the
deposit of United States mail, postage and charges prepaid, addressed as
follows: if to the General Partner, at its business address set forth in the
first paragraph of this Agreement or to such other addresses as the General
Partner may from time to time specify by written notice to the Limited
Partners; and if to a Limited Partner, to such Limited Partner's address set
forth on his or her Subscription Agreement or to such other addresses as such
Limited Partner may from time to time specify by written notice to the
General Partner. Any such notice shall be deemed to be given as of the date
so delivered if delivered personally, or as of the date on which the same was
deposited in a regularly maintained receptacle for the deposit of United
States mail, addressed and sent as aforesaid.
A-50
<PAGE>
16.3 SECTION CAPTIONS. Section and other captions contained in this
Agreement are for reference purposes only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
16.4 SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the
validity of the remainder of this Agreement.
16.5 AMENDMENTS. Amendments to this Agreement may be proposed by the
General Partner or by Limited Partners holding ten percent or more of the
Units. Following such proposal, the General Partner shall submit to the
Limited Partners a verbatim statement of any proposed amendment and shall
include in any such submission its recommendation as to the proposed
amendment. The General Partner shall seek the written approval of its
recommendation by the Limited Partners or shall call a meeting of the Limited
Partners to vote thereon and to transact any other business that it may deem
appropriate. For purposes of obtaining a written approval, the General
Partner may require responses within a specified time, but not less than 30
days. A proposed amendment shall be adopted and effective as an amendment
hereto, except as otherwise provided in Section 9.4, if it receives the
approval of Limited Partners holding a majority of the Units.
Notwithstanding the foregoing, an amendment to extend the term of the Program
beyond December 31, 2007 or an amendment to Section 12.2 shall not be adopted
and effective unless it receives the affirmative vote of all Partners.
16.6 MEETINGS AND CONSENT. Meetings of the Partners may be called by
the General Partner or by Limited Partners holding ten percent or more of the
Units, for any matters for which the Limited Partners may vote as set forth
in this Agreement. The call shall state the nature of the business to be
transacted. Within ten days after receipt of a call, the General Partner
shall provide (in the manner described in Section 16.2) all Partners with a
notice of such meeting specifying the purposes, place and time (which shall
not be less than 15 days nor more than 60 days after receipt of such call for
such meeting). Partners may consent in Person or by proxy at any such
meeting. Whenever the approval or consent of Partners is permitted or
required under this Agreement, such approval or consent may be given at a
meeting of Partners or may be given in writing in accordance with the
procedure for obtaining written consent prescribed in Section 16.5.
16.7 RIGHT TO RELY UPON THE AUTHORITY OF GENERAL PARTNER. No Person
dealing with the General Partner shall be required to determine its authority
to make any commitment or undertaking on behalf of the Program, nor to
determine any fact or circumstance bearing upon the existence of its
authority. In addition, no
A-51
<PAGE>
purchaser of Program Property shall be required to determine the sole and
exclusive authority of the General Partner to sign and deliver on behalf of the
Program any such instrument of transfer, or to see to the application or
distribution of revenues or proceeds paid or credited in connection therewith,
unless such purchasers shall have received written notice from the Program
affecting the same.
16.8 LITIGATION. The General Partner shall prosecute and defend such
actions at law or in equity as may be necessary to enforce or protect the
interests of the Program. The Program and the General Partner shall respond
to any final decree, judgment or decision of any court, board or authority
having jurisdiction in the premises. The General Partner shall satisfy any
such judgment, decree or decision first out of any insurance proceeds
available therefor, next out of the assets of the Program and finally out of
the assets of the General Partner.
16.9 CALIFORNIA LAW. The laws of the State of California shall govern
the validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties, without giving effect
to any conflict of laws or choice of law provisions, PROVIDED that causes of
action for violations of Federal or state securities laws shall not be
governed by this Section 16.9. Venue for any legal action brought hereunder
shall be in the Superior Court for San Francisco County, California, or in
cases where Federal diversity jurisdiction is available, in the United States
District Court for the Northern District of California.
16.10 WAIVER OF ACTION FOR PARTITION. Each of the parties hereto
irrevocably waives during the term of the Program and during the period of
its liquidation following any dissolution, any right that he or she may have
to maintain any action for partition with respect to any of the assets of the
Program.
16.11 COUNTERPART EXECUTION. This Agreement may be executed in any
number of counterparts with the same effect as if all parties hereto had
signed the same document. All counterparts shall be construed together and
shall constitute one Agreement.
16.12 PARTIES IN INTEREST. Subject to the provisions contained in
Section 10, each and every covenant, term, provision and agreement herein
contained shall be binding upon and inure to the benefit of the successors
and assigns of the respective parties hereto.
16.13 TIME. Time is of the essence with respect to this Agreement.
16.14 GENDER. Whenever necessary or appropriate in order to construe
the provisions of this Agreement, the masculine gender shall include the
feminine or neuter and vice versa, and the singular shall include the plural
and the plural, the singular.
A-52
<PAGE>
16.15 INTEGRATED AGREEMENT. This Agreement constitutes the entire
understanding and agreement among the parties hereto with respect to the
subject matter hereof, and there are no agreements, understandings,
restrictions, representations or warranties among the parties other than
those set forth herein.
IN WITNESS WHEREOF, this Restated Agreement of Limited Partnership has
been executed as of the date first above written.
GENERAL PARTNER: LIMITED PARTNERS:
PHOENIX LEASING ASSOCIATES IV, L.P. By: Phoenix Leasing Associates IV, L.P. as
General Partner Attorney-in-Fact for the Limited Partners
By: Phoenix Leasing Associates IV, By: Phoenix Leasing Associates IV, Inc.,
Inc., its general partner its general partner
By _____________________________ By _____________________________
Gus Constantin, President Gus Constantin, President
A-53
<PAGE>
Schedule A shows as of June 30, 1996, general information relating to
certain of the Prior Partnerships. See the section in the Prospectus
entitled "Prior Partnerships." The data is significant in analyzing the
prior experience of Affiliates of the General Partner. The Prior
Partnerships shown on Schedule A had investment objectives similar to the
Program, which are to maximize the cash flow generated on its assets
(purchased on a leveraged basis) with no intent to provide significant tax
benefits. Prospective investors should be aware that the results of the Prior
Partnerships are not necessarily indicative of the potential results of the
Program.
SCHEDULE A
GENERAL INFORMATION ABOUT CERTAIN PRIOR PARTNERSHIPS
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
Phoenix Phoenix Phoenix Phoenix
Leasing Leasing Phoenix Leasing Leasing
Cash Cash Income Cash American
Distribution Distribution Fund, Distribution Business
Fund III Fund IV L.P. Fund V, L.P. Fund, L.P.(2)
-------- ------- ------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Offering Information
Dollar Amount Offered . . . . . . . . . . . . . . . . $ 150,000,000 $ 130,000,000 $ 75,000,000 $ 100,000,000 $ 50,000,000
----------- ----------- ---------- ----------- ----------
Dollar Amount Sold. . . . . . . . . . . . . . . . . . 132,037,750 129,847,540 43,821,250 40,916,760 27,824,500
Offering Expenses Paid by the Partnership . . . . . . 17,240,775 16,257,944 6,016,522 6,131,434 4,172,663
----------- ----------- ---------- ----------- ----------
Net Proceeds Available from Offering. . . . . . . . . $ 114,796,975 $ 113,589,596 $ 37,804,728 $ 34,785,326 $ 23,651,837
----------- ----------- ---------- ----------- ----------
----------- ----------- ---------- ----------- ----------
Cumulative Investment Results
Federal Income Tax Information:
Taxable Ordinary Income (Loss) through
December 31, 1995 . . . . . . . . . . . . . . . . . $ 3,103,584 $ 33,062,197 $ 17,071,585 $ 14,353,502 $ (2,015,360)
Average per $1,000 investment . . . . . . . . . . . 24 255 390 351 (84)
Portfolio Income and Section 1231 Gain (Loss)
through December 31, 1995 (1) . . . . . . . . . . . 1,324,041 (13,574,861) (9,567,641) (5,430,946) 364,453
Average per $1,000 investment . . . . . . . . . . . 10 (105) (218) (133) 15
</TABLE>
- ---------------
(1) Portfolio income was not a separate item until 1987.
(2) As of June 30, 1996, Phoenix Leasing American Business Fund, L.P.
had not completed its offering.
B-1
<PAGE>
SCHEDULE A
GENERAL INFORMATION ABOUT CERTAIN PRIOR PARTNERSHIPS (CONTINUED)
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
Phoenix Phoenix Phoenix Phoenix
Leasing Leasing Phoenix Leasing Leasing
Cash Cash Income Cash American
Distribution Distribution Fund, Distribution Business
Fund III Fund IV (1) L.P. (1) Fund V, L.P.(1) Fund, L.P. (1)(3)
----------- ------------- ---------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Timing and Investor Information
Date Offering Commenced . . . . . . . . . . . . . . 1/5/88 12/27/89 1/18/91 11/4/91 10/19/93
Amount of Minimum Offering. . . . . . . . . . . . . $ 250,000 $ 250,000 $ 250,000 $ 250,000 $ 1,200,000
Date of Completion of Minimum Offering. . . . . . . 1/21/88 1/12/90 2/21/91 1/7/92 1/27/94
Date Total Offering Completed . . . . . . . . . . . 12/31/90 12/27/91 7/28/92 10/28/93 --
Date Asset Purchases Commenced. . . . . . . . . . . 1/21/88 12/18/89 1/29/91 8/23/91 1/7/94
Total Assets Purchased (2). . . . . . . . . . . . . $ 219,986,420 $ 265,461,356 $ 90,185,673 $ 83,916,698 $ 45,553,819
Average Initial Term of Leases (in months). . . . . 38.64 43.11 42.18 46.62 49.12
Average Net Monthly Rate as a Percentage of
Original Lease Cost. . . . . . . . . . . . . . . . 2.52% 2.71% 2.73% 2.70% 2.84%
Average Initial Term of Loans (in months) . . . . . 58.77 62.41 66.78 51.81 45.39
Average Interest Rate of Loans. . . . . . . . . . . 15.04% 16.68% 15.62% 16.11% 16.17%
Book Value of Assets Not Leased or Committed for
Lease as a Percentage of Portfolio Book Value (2). .01% 1.60% 1.69% 1.34% 2.44%
Number of Beneficial Holders. . . . . . . . . . . . 13,571 9,748 4,030 2,682 1,744
</TABLE>
- ------------------
(1) These Prior Partnerships are expected to acquire significant
amounts of assets.
(2) Includes the partnership's pro rata interest in equipment held through
joint venture investments.
(3) As of June 30, 1996, Phoenix Leasing American Business Fund, L.P. had
not completed its offering.
B-2
<PAGE>
Schedule B shows as of June 30, 1996, the categories and purchase
price of equipment and other assets acquired by certain of the Prior
Partnerships. The data is significant in analyzing the asset mix of the
Prior Partnerships. The Prior Partnerships shown on Schedule B had
investment objectives similar to the Program, which are to maximize the cash
flow generated on its assets (purchased on a leveraged basis) with no intent
to provide significant tax benefits. Prospective investors should be aware
that the results of the Prior Partnerships are not necessarily indicative of
the potential results of the Program.
SCHEDULE B
ASSET PORTFOLIO
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
Phoenix Leasing Phoenix Leasing
Cash Distribution Cash Distribution Phoenix Income
Fund III Fund IV Fund, L.P.
----------------- ----------------- --------------
Percentage Percentage Percentage
Purchase of Total Purchase of Total Purchase of Total
Price Assets Price Assets Price Assets
---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Computer Peripheral Equipment. . . . . . . . $ 75,117,418 34.15% $ 93,481,277 35.21% $ 48,866,172 54.18%
Mini-Computers . . . . . . . . . . . . . . . 21,635,871 9.84 32,467,735 12.23 8,077,887 8.96
Electronic Production Equipment. . . . . . . 72,200 0.03 149,326 0.06 -0- 0.00
Furniture and Fixtures . . . . . . . . . . . -0- 0.00 21,962,016 8.27 7,455,138 8.27
Reproduction Equipment . . . . . . . . . . . 11,720,334 5.33 19,295 0.01 -0- 0.00
Reception and Communication Equipment. . . . 1,200,765 .55 5,731,557 2.16 1,465,856 1.63
Miscellaneous Equipment (Transportation,
Medical, Automotive, Solar) . . . . . . . . 678,601 0.31 6,535,601 2.46 721,369 0.80
Computer Mainframes. . . . . . . . . . . . . 47,250,213 21.48 29,584,486 11.14 -0- 0.00
Capital Equipment Leased to Emerging
Growth Companies. . . . . . . . . . . . . . 17,376,072 7.90 43,637,925 16.44 16,424,411 18.21
Financing of Emerging Growth Companies . . . 2,163,209 0.98 9,707,317 3.66 1,653,374 1.83
Financing of Cable Systems . . . . . . . . . 38,300,678 17.41 13,405,871 5.05 3,982,727 4.42
Financing of Manufacturers . . . . . . . . . 621,862 0.28 -0- 0.00 -0- 0.00
Financing Related to Security Monitoring
Systems Companies . . . . . . . . . . . . . 2,411,681 1.10 -0- 0.00 -0- 0.00
Financing of Other Businesses. . . . . . . . 1,437,516 .64 8,778,950 3.31 1,538,739 1.70
----------- ------ ----------- ------ ---------- ------
Total. . . . . . . . . . . . . . . . . . . . $219,986,420 100.00% $265,461,356 100.00% $ 90,185,673 100.00%
----------- ------ ----------- ------ ---------- ------
----------- ------ ----------- ------ ---------- ------
</TABLE>
B-3
<PAGE>
SCHEDULE B
ASSET PORTFOLIO (CONTINUED)
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
Phoenix Leasing Phoenix Leasing
Cash Distribution American Business
Fund V, L.P. Fund, L.P. (1)
----------------- -----------------
Percentage Percentage
Purchase of Total Purchase of Total
Price Assets Price Assets
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Computer Peripheral Equipment. . . . . . . . . . . . . $29,104,133 34.69% $ 42,575 0.09%
Mini-Computers . . . . . . . . . . . . . . . . . . . . 3,841,052 4.58 2,452,829 5.42
Furniture and Fixtures . . . . . . . . . . . . . . . . 22,777,697 27.15 16,226,152 35.85
Reception and Communication Equipment. . . . . . . . . 1,564,190 1.86 113,969 0.25
Miscellaneous Equipment (Transportation, Medical,
Automotive, Solar). . . . . . . . . . . . . . . . . . 896,695 1.07 465,826 1.03
Computer Mainframes. . . . . . . . . . . . . . . . . . 1,752,500 2.09 -0- 0.00
Capital Equipment Leased to Emerging
Growth Companies. . . . . . . . . . . . . . . . . . . 18,541,261 22.10 18,815,068 41.57
Financing of Emerging Growth Companies . . . . . . . . 1,912,058 2.27 5,609,608 12.39
Financing of Cable Systems.. . . . . . . . . . . . . . 1,884,778 2.24 -0- 0.00
Financing of Other Businesses. . . . . . . . . . . . . 1,642,334 1.95 1,537,792 3.40
---------- ------ ---------- ------
Total $83,916,698 100.00% $45,263,819 100.00%
---------- ------ ---------- ------
---------- ------ ---------- ------
</TABLE>
- -----------------
(1) As of June 30, 1996, Phoenix Leasing American Business Fund,
L.P. had not completed its offering.
B-4
<PAGE>
Schedule C shows as of December 31, 1995 (and as of December 31 for
certain prior fiscal years), the annual operating results of certain of the
Prior Partnerships. This data may be used to analyze the success of the
operations of certain of the Prior Partnerships. The Prior Partnerships
shown on Schedule C had investment objectives similar to the Program, which
are to maximize the cash flow generated on its assets (purchased on a
leveraged basis) with no intent to provide significant tax benefits.
Prospective investors should be aware that the results of the Prior
Partnerships are not necessarily indicative of the potential results of the
Program.
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING CASH DISTRIBUTION FUND III
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1991 1992 1993
------------------------- --------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations (1)
Gross Revenue. . . . . . . . . . . . . $34,245,078 $25,220,978 $ 15,345,260
Deduct: Operating Expenses . . . . . . . $10,007,414 $13,822,364 $6,462,039
Depreciation . . . . . . . . . . 25,572,971 17,761,177 8,539,254
Interest Expense . . . . . . . . 2,937,553 (38,517,938) 755,820 (32,339,361) 149,776 (15,151,069)
----------- ---------- ----------- ---------- --------- ----------
Net Income (Loss). . . . . . . . . . . . (4,272,860) (7,118,383) 194,191
Computation of Taxable Income (Loss) (2)
Deduct: Additional Depreciation (3). . . 1,951,826 2,123,640 2,756,046
Accrual Basis Revenue. . . . . . -0- (1,951,826) -0- (2,123,640) 1,460,049 (4,216,095)
----------- ----------- --------- ----------
Add: Difference in Revenue Reporting. 5,197,835 51,203 -0-
Accrued Operating Expenses . . . 3,154,836 7,632,014 2,049,229
Accrued Interest Expense . . . . (47,101) 8,305,570 (19,589) 7,663,628 (843) 2,048,386
----------- ---------- ----------- ---------- --------- ----------
Taxable Ordinary Income (Loss) . . . . . 2,080,884 (1,578,395) (1,973,518)
Portfolio Income and Section 1231
Gain (Loss). . . . . . . . . . . (1,674,560) (6,122,124) 263,018
</TABLE>
- --------------
(1) The information in the section of the Schedule, "Summary of Operations,"
is presented on the accrual method of accounting under generally accepted
accounting principles.
(2) The above partnership currently files its partnership returns of income
under the accrual method of accounting.
(3) For income tax purposes, Phoenix Leasing Cash Distribution Fund III uses
different methods of depreciation than for book purposes.
B-5
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING CASH DISTRIBUTION FUND III
(Continued)
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1994 (4) 1995 (4)
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Summary of Operations (1)
Gross Revenue. . . . . . . . . . . . . . . . . $7,696,282 $ 5,109,121
Deduct: Operating Expenses . . . . . . . . . . $3,349,830 $ 460,312
Depreciation . . . . . . . . . . . . . 3,387,413 816,548
Interest Expense . . . . . . . . . . . 14,508 (6,751,751) 31,997 (1,308,857)
Net Income (Loss). . . . . . . . . . . . . . . 944,531 3,800,264
Computation of Taxable Income (Loss) (2)
Deduct: Additional Depreciation (3). . . . . . 215,147 (260,348)
Accrual Basis Revenue. . . . . . . . . 645,726 (860,873) 909,691 (649,343)
Add: Difference in Revenue Reporting. . . . -0- -0-
Accrued Operating Expenses . . . . . . 707,988 (3,177,571)
Accrued Interest Expense . . . . . . . (6,426) 701,562 9,239 (3,168,332)
Taxable Ordinary Income (Loss) . . . . . . . . 785,220 (17,411)
Portfolio Income and Section 1231 Gain (Loss). (162,188) (521,429)
</TABLE>
(1) The information in the section of the Schedule, "Summary
of Operations," is presented on the accrual method of accounting under
generally accepted accounting principles.
(2) The above partnership currently files its partnership returns of income
under the accrual method of accounting.
(3) For income tax purposes, Phoenix Leasing Cash Distribution Fund III uses
different methods of depreciation than for book purposes.
(4) The "Summary of Operations," "Computation of Taxable Income (Loss)" and
"Computation of Cash Generated" include the consolidated operations of the
Partnership's majority owned subsidiary.
B-6
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING CASH DISTRIBUTION FUND III
(Continued)
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1991 1992 1993
---------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Computation of Cash Generated
Add: Partners Equity Contributions.......... $ -0- $ -0- $ -0-
Depreciation........................... 27,524,797 19,884,817 1,295,300
Proceeds from Loans.................... -0- -0- -0-
Principal Payments from Notes Receivable 1,447,718 2,907,630 1,909,430
Distributions from Joint Ventures...... 616,965 734,330 2,038,379
Taxable Loss (Gain) on Sale of Equipment 5,114,650 6,326,709 1,778,638
Proceeds from Sale of Equipment........ 5,107,314 8,769,258 4,132,421
Bad debt write-off..................... -0- -0- -0-
Other.................................. 3,135,883 $42,947,327 9,577,758 $ 48,200,502 1,120,908 22,275,076
----------- ------------ -----------
Deduct: Acquisition of Assets................ 2,904,309 844,149 132,962
Sales Commissions and Offering Expenses 159,192 -0- -0-
Loan Reductions........................ 26,000,696 16,001,521 5,164,963
Other.................................. -0- (29,064,197) -0- (16,845,670) -0- (5,297,925)
------------ ----------- ----------- ------------ ---------- -----------
------------ ----------- -----------
Cash Generated............................... 14,289,454 23,654,313 15,266,651
Cash Distributions to Partners (1)
Cash Distributions to General Partner...... (693,311) -0- -0-
Cash Distributions to Limited Partners
considered a return of capital............ (17,688,785) (18,322,592) (18,885,931)
Cash Distributions to Limited Partners
in excess of return of capital............ -0- -0- -0-
Investment Redemptions..................... (525,899) (295,389) (245,430)
---------- ---------- ------------
---------- ----------
Cash Generated after Distributions.......... $(4,618,541) $ 5,036,332 $ (3,864,710)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
(1) Cash distributions made to partners includes distributions made to both
the general partner and the limited partners. A portion of the cash
distributions made to limited partners is considered a return of capital.
From the inception of the program through December 31, 1995, total
distributions and redemptions of $97,566,777 have been made to limited
partners of which $97,566,777 is considered a return of the limited partners'
initial capital contributions, the determination of which is calculated by
taking the cumulative distributions and redemptions less the sum of
cumulative profits, cumulative losses and cumulative sales commissions and
offering expenses of the program.
B-7
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING CASH DISTRIBUTION FUND III
(Continued)
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1994 1995
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
Computation of Cash Generated
Add: Partners Equity Contributions. . . . . . $ -0- $ -0-
Depreciation . . . . . . . . . . . . . . 3,602,560 556,200
Proceeds from Loans . . . . . . . . . . -0- 2,000,000
Principal Payments from Notes Receivable 925,534 8,937,236
Distributions from Joint Ventures. . . . 59,613 600,505
Taxable Loss on Sale of Equipment. . . . 674,047 244,217
Proceeds from Sale of Equipment. . . . . 1,964,856 622,606
Bad debt write-off . . . . . . . . . . . -0- 2,453,810
Other. . . . . . . . . . . . . . . . . . 1,545,318 $ 8,771,928 -0- $15,414,574
---------- ----------
Deduct: Acquisition of Assets 296,153 6,194,478
Sales Commissions and Offering Expenses. -0- -0-
Loan Reductions. . . . . . . . . . . . . 1,479,234 1,671,391
Other. . . . . . . . . . . . . . . . . . -0- (1,775,387) 275,691 (8,141,560)
---------- ----------- ----------- -----------
Cash Generated . . . . . . . . . . . . . . . . . 7,619,573 6,734,174
Cash Distributions to Partners (1). . . . . . .
Cash Distributions to General Partner. . . . . -0- -0-
Cash Distributions to Limited Partners
considered a return of capital. . . . . . . . (7,309,891) (3,988,554)
Cash Distributions to Limited Partners
in excess of return of capital. . . . . . . . (440,954) (3,762,288)
Investment Redemptions. . . . . . . . . . . . . -0- -0-
---------- ----------
---------- ----------
Cash Generated after Distributions . . . . . . . $ (131,272) $(1,016,668)
---------- ----------
---------- ----------
</TABLE>
(1) Cash distributions made to partners includes distributions made to both
the general partner and the limited partners. A portion of the cash
distributions made to limited partners is considered a return of capital.
From the inception of the program through December 31, 1995, total
distributions and redemptions of $97,566,777 have been made to limited
partners of which $97,566,777 is considered a return of the limited partners'
initial capital contributions, the determination of which is calculated by
taking the cumulative distributions and redemptions less the sum of
cumulative profits, cumulative losses and cumulative sales commissions and
offering expenses of the program.
B-8
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING CASH DISTRIBUTION FUND IV
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1991 1992 1993
------------------------- ------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations (1)
Gross Revenue. . . . . . . . . . . . . . . $37,947,021 $41,748,499 $35,233,863
Deduct: Operating Expenses . . . . . . . . $ 6,599,909 $ 7,590,836 $ 8,796,345
Depreciation . . . . . . . . . . . 23,251,821 27,273,081 24,051,250
Interest Expense . . . . . . . . . 4,642,640 (34,494,370) 2,444,123 (37,308,040) 1,406,477 (34,254,072)
------------ ----------- ------------ ----------- ----------- ------------
- -----------
Net Income (Loss). . . . . . . . . . . . . 3,452,651 4,440,459 979,791
Computation of Taxable Income (Loss)(2)
Deduct: Additional Depreciation(3) . . . . 1,382,741 3,368,916 5,482,008
Accrual Basis Revenue. . . . . . . -0- (1,382,741) -0- (3,368,916) -0- (5,482,008)
Add: Difference in Revenue Reporting. . 1,091,221 8,385,203 10,124,836
Accrued Operating Expenses . . . . 1,030,177 1,719,354 2,330,018
Accrued Interest Expense . . . . . (32,065) 2,089,333 (21,045) 10,083,512 (108) 12,454,746
Taxable Ordinary Income (Loss). . . . . . 4,159,243 11,155,055 7,952,529
Portfolio Income and Section 1231 Gain(Loss)(3) 1,937,143 287,698 (5,926,005)
</TABLE>
- ---------------------------
(1) The information in the section of the Schedule, "Summary of Operations,"
is presented on the accrual method of accounting under generally accepted
accounting principles.
(2) The above partnership currently files its partnership returns of income
under the accrual method of accounting.
(3) For income tax purposes, Phoenix Leasing Cash Distribution Fund IV uses
different methods of depreciation than for book purposes.
B-9
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING CASH DISTRIBUTION FUND IV
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1994 1995(4)
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
Summary of Operations (1)
Gross Revenue ................................... $20,588,912 $15,468,296
Deduct: Operating Expenses....................... $ 8,178,810 $ 5,509,477
Depreciation............................. 13,137,742 5,650,011
Interest Expense......................... 489,371 (21,805,923) 81,088 (11,240,576)
------------ ------------ ----------- -----------
Net Income (Loss)................................ (1,217,011) 4,227,720
Computation of Taxable Income(Loss)(2)
Deduct: Additional Depreciation(3)............... 11,620,454 10,075,179
Accrual Basis Revenue.................... -0- (11,620,454) -0- (10,075,179)
------------ -----------
Add: Difference in Revenue Reporting.......... 12,630,301 11,887,833
Accrued Operating Expenses............... 2,235,468 898,083
Accrued Interest Expense................. (3,835) 14,861,934 (82,043) 12,703,873
------------ ------------ ----------- -----------
Taxable Ordinary Income (Loss).................... 2,024,469 6,856,414
Portfolio Income and Section 1231 Gain(Loss)(3)... (6,474,575) (4,291,284)
</TABLE>
- ----------------------------
(1) The information in the section of the Schedule, "Summary of Operations,"
is presented on the accrual method of accounting under generally accepted
accounting principles.
(2) The above partnership currently files its partnership returns of income
under the accrual method of accounting.
(3) For income tax purposes, Phoenix Leasing Cash Distribution Fund IV uses
different methods of depreciation than for book purposes.
(4) The "Summary of Operations," "Computation of Taxable Income (Loss)" and
"Computation of Cash Generated" include the consolidated operations of the
Partnership's majority owned subsidiary.
B-10
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING CASH DISTRIBUTION FUND IV
(Continued)
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1991 1992 1993
------------------------ ------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Computation of Cash Generated
Add: Partners Equity Contributions..... $73,016,220 $ (7,000) $ -0-
Depreciation...................... 24,634,562 30,641,997 29,533,258
Proceeds from Loans............... 26,212,887 7,479,752 -0-
Principal Payments from Notes
Receivable....................... 1,775,443 1,908,078 2,185,883
Distributions from Joint Ventures. -0- -0- 419,336
Taxable Loss on Sale of Equipment. 800,159 2,495,382 8,795,388
Proceeds from Sale of Equipment... 4,228,701 3,301,154 7,696,020
Other............................. 2,154,713 $132,822,685 -0- $ 45,819,363 990,278 $ 49,620,163
----------- ---------- -----------
Deduct: Acquisition of Assets 65,933,504 31,578,615 26,455,336
Sales Commissions and
Offering Expenses................ 8,348,217 627,089 430
Loan Reductions................... 30,413,495 20,090,067 22,906,043
Other............................. -0- (104,695,216) 644,522 (52,940,293) -0- (49,361,809)
----------- ------------ ----------- ---------- ----------- ------------
Cash Generated............................ 34,223,855 4,321,823 2,284,878
Cash Distributions to Partners (1)
Cash Distributions to General Partner... (458,421) (798,430) (814,729)
Cash Distributions to Limited Partners
considered a return of capital......... (6,405,691) (11,749,382) (15,309,447)
Cash Distributions to Limited Partners
in excess of return of capital.......... (2,999,779) (3,641,131) (165,062)
Investment Redemptions..................... (154,719) (383,770) (601,856)
----------- ---------- -----------
Cash Generated after Distributions....... $ 24,205,245 $(12,250,890) $(14,606,216)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- -------------------------------
(1) Cash distributions made to partners includes distributions made to both
the general partner and the limited partners. A portion of the cash
distributions made to limited partners is considered a return of capital.
From the inception of the program through December 31, 1995, total
distributions and redemptions of $74,820,682 have been made to limited
partners of which $74,820,682 is considered a return of the limited partners'
initial capital contributions, the determination of which is calculated by
taking the cumulative distributions and redemptions less the sum of
cumulative profits, cumulative losses and cumulative sales commissions and
offering expenses of the program.
B-11
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING CASH DISTRIBUTION FUND IV
(Continued)
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1994 1995
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
Computation of Cash Generated
Add: Partners Equity Contributions. . . . . . $ -0- $ -0-
Depreciation . . . . . . . . . . . . . . 24,758,196 15,725,190
Proceeds from Loans. . . . . . . . . . . -0- -0-
Principal Payments from Notes Receivable 8,822,292 4,947,362
Distributions from Joint Ventures. . . . 9,713,067 1,195,025
Taxable Loss on Sale of Equipment. . . . 8,017,681 5,569,571
Proceeds from Sale of Equipment. . . . . 4,868,844 3,428,024
Other. . . . . . . . . . . . . . . . . . 447,748 $56,627,828 -0- $30,865,172
---------- ----------
Deduct: Acquisition of Assets. . . . . . . . . . 18,169,502 8,381,064
Sales Commissions and Offering Expenses. -0- -0-
Loan Reductions. . . . . . . . . . . . . 14,311,146 3,195,301
Other. . . . . . . . . . . . . . . . . . 55 (32,480,703) 2,201,930 (13,778,295)
---------- ---------- ---------- ----------
Cash Generated . . . . . . . . . . . . . . . . . 19,697,019 19,652,007
Cash Distributions to Partners (1). . . . . . .
Cash Distributions to General Partner. . . . . (809,506) (803,910)
Cash Distributions to Limited Partners
considered a return of capital. . . . . . . . (15,364,118) (12,655,489)
Cash Distributions to Limited Partners
in excess of return of capital. . . . . . . . -0- (2,602,133)
Investment Redemptions . . . . . . . . . . . . . (402,933) (422,657)
---------- -----------
Cash Generated after Distributions . . . . . . . $ 3,120,462 $ 3,167,818
---------- -----------
---------- -----------
</TABLE>
- -----------------------------
(1) Cash distributions made to partners includes distributions made to both
the general partner and the limited partners. A portion of the cash
distributions made to limited partners is considered a return of capital.
From the inception of the program through December 31, 1995, total
distributions and redemptions of $74,820,682 have been made to limited
partners of which $74,820,682 is considered a return of the limited partners'
initial capital contributions, the determination of which is calculated by
taking the cumulative distributions and redemptions less the sum of
cumulative profits, cumulative losses and cumulative sales commissions and
offering expenses of the program.
B-12
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX INCOME FUND, L.P.
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1991(1) 1992 1993
-------------------------- ------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations (2)
Gross Revenue........................... $6,362,160 $14,809,344 $17,421,457
Deduct: Operating Expenses.............. $ 949,361 $2,238,730 $ 2,814,555
Depreciation.................... 4,114,517 9,630,768 11,902,803
Interest Expense................ 852,704 (5,916,582) 1,474,848 (13,344,346) 1,142,446 (15,859,804)
------------ --------- --------- ---------- ---------- ----------
Net Income (Loss)....................... 445,578 1,464,998 1,561,653
Computation of Taxable Income (Loss)(3)
Deduct: Additional Depreciation(4)...... (390,100) 946,064 2,046,513
Accrual Basis Revenue........... 121,047 269,053 -0- (946,064) -0- (2,046,513)
------------ --------- ----------
Add: Difference in Revenue Reporting. -0- 3,182,693 5,460,377
Accrued Operating Expenses...... 79,334 404,843 695,854
Accrued Interest Expense........ -0- 79,334 (204) 3,587,332 (1,914) 6,154,317
------------ --------- --------- ---------- ---------- ----------
--------- ----------
Taxable Ordinary Income (Loss).......... 793,965 4,106,266 5,669,457
Portfolio Income and Section 1231
Gain(Loss)(4).......................... 176,218 637,276 78,331
</TABLE>
- ----------------------------
(1) Phoenix Income Fund, L.P. commenced operations on February 21, 1991.
Consequently, the information for 1991 covers the period from February 21,
1991 to December 31, 1991.
(2) The information in the section of the Schedule, "Summary of Operations,"
is presented on the accrual method of accounting under generally accepted
accounting principles.
(3) The above partnership currently files its partnership returns of income
under the accrual method of accounting. (4) For income tax purposes, Phoenix
Income Fund, L.P. uses different methods of depreciation than for book
purposes.
B-13
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX INCOME FUND, L.P.
(Continued)
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1991(1) 1992 1993
------------------------- ------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
Computation of Cash Generated
Add: Partners Equity Contributions. . . $26,207,500 $17,610,750 $ -0-
Depreciation . . . . . . . . . . . 3,724,417 10,576,832 13,949,316
Proceeds from Loans. . . . . . . . 28,776,794 13,839,201 -0-
Principal Payments from Notes
Receivable. . . . . . . . . . . . -0- 5,874 150,645
Distributions from Joint Ventures. -0- -0- -0-
Taxable Loss on Sale of Equipment. -0- -0- 662,644
Proceeds from Sale of Equipment. . 131,700 247,373 821,374
Other. . . . . . . . . . . . . . . 916,781 $59,757,192 -0- $42,280,030 $ 482,918 $16,066,897
------------ ----------- -----------
----------- -----------
Deduct: Acquisition of Assets. . . . . . . 38,375,873 35,067,775 7,748,659
Sales Commissions and
Offering Expenses . . . . . . . . 3,721,403 2,294,314 805
Loan Reductions. . . . . . . . . . 5,830,541 7,653,549 11,316,188
Payments of Accounts Payable . . . -0- -0- 179,695
Other . . . . . . . . . . . . . . -0- (47,927,817) 3,984,452 (49,000,090) -0- (19,245,347)
------------ ------------ ----------- ----------- ------------ -----------
------------ -----------
Cash Generated . . . . . . . . . . . . . . 12,799,558 (1,976,518) 2,569,338
Cash Distributions to Partners (2). . . .
Cash Distributions to General Partner. . (38,245) (233,227) (301,479)
Cash Distributions to Limited Partners
considered a return of capital. . . . . (323,391) (3,211,815) (4,467,942)
Cash Distributions to Limited Partners
in excess of return of capital. . . . . (403,260) (1,219,500) (1,260,165)
Investment Redemptions. . . . . . . . . . -0- (194,208) (103,545)
---------- ---------- -----------
Cash Generated after Distributions . . . . $12,034,662 $(6,835,268) $(3,563,793)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- --------------------------------
(1) Phoenix Income Fund, L.P. commenced operations on February 21, 1991.
Consequently, the information for 1991 covers the period from February 21,
1991 to December 31, 1991.
(2) Cash distributions made to partners includes distributions made to both
the general partner and the limited partners. A portion of the cash
distributions made to limited partners is considered a return of capital.
From the inception of the program through December 31, 1995, total
distributions and redemptions of $23,523,650 have been made to limited
partners of which $23,523,650 is considered a return of the limited partners'
initial capital contributions, the determination of which is calculated by
taking the cumulative distributions and redemptions less the sum of
cumulative profits, cumulative losses and cumulative sales commissions and
offering expenses of the program.
B-14
<PAGE>
SCHEDULE C
ANNUAL OPERATIONS RESULTS OF PHOENIX INCOME FUND, L.P. (CONTINUED)
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1994 1995
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Summary of Operations (2)
Gross Revenue. . . . . . . . . . . . . . . . . . . $11,664,400 $ 5,973,527
Deduct: Operating Expenses . . . . . . . . . . . . $3,417,831 $1,722,676
Depreciation . . . . . . . . . . . . . . . 9,343,565 3,037,841
Interest Expense . . . . . . . . . . . . . 710,901 (13,472,297) 137,168 (4,897,685)
---------- ----------- --------- ---------
---------
Net Income (Loss). . . . . . . . . . . . . . . . . (1,807,897) 1,075,842
Computation of Taxable Income (Loss) (3). . . . . .
Deduct: Additional Depreciation (4). . . . . . . . 749,494 4,362,004
Accrual Basis Revenue. . . . . . . . . . . -0- (749,494) -0- (4,362,004)
---------- --------
Add: Difference in Revenue Reporting . . . . . . 6,177,738 5,416,252
Accrued Operating Expenses. . . . . . . . . 587,622 72,067
Accrued Interest Expense. . . . . . . . . . (58) 6,765,302 (8,161) 5,580,158
---------- ----------- --------- ---------
---------
Taxable Ordinary Income (Loss) . . . . . . . . . . 4,207,911 2,293,996
Portfolio Income and Section 1231 Gain (Loss)(4) . (6,501,515) (3,957,992)
</TABLE>
- ------------------------------
(1) Phoenix Income Fund, L.P. commenced operations on February 21, 1991.
Consequently, the information for 1991 covers the period from February 21,
1991 to December 31, 1991.
(2) The information in the section of the Schedule, "Summary of Operations,"
is presented on the accrual method of accounting under generally accepted
accounting principles.
(3) The above partnership currently files its partnership returns of income
under the accrual method of accounting.
(4) For income tax purposes, Phoenix Income Fund, L.P. uses different methods
of depreciation than for book purposes.
B-15
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX INCOME FUND, L.P. (Continued)
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1994 1995
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
Computation of Cash Generated
Add: Partners Equity Contributions. . . . . . . $ -0- $ -0-
Depreciation . . . . . . . . . . . . . . . 10,093,059 7,399,845
Proceeds from Loans. . . . . . . . . . . . -0- -0-
Principal Payments from Notes Receivable . 4,240,098 557,617
Distributions from Joint Ventures. . . . . 4,843,520 511,659
Taxable Loss on Sale of Equipment. . . . . 7,199,526 4,307,201
Proceeds from Sale of Equipment. . . . . . 4,165,161 1,016,229
Other. . . . . . . . . . . . . . . . . . . 1,396,875 $31,938,239 -0- $13,792,551
----------- ----------
Deduct: Acquisition of Assets. . . . . . . . . . . 7,157,955 1,716,892
Sales Commissions and Offering Expenses. . -0- -0-
Loan Reductions. . . . . . . . . . . . . . 11,855,130 5,960,586
Payments of Accounts Payable . . . . . . . -0- 791,379
Other. . . . . . . . . . . . . . . . . . . -0- (19,013,085) 491,350 (8,960,207)
---------- ------------- --------- -----------
Cash Generated . . . . . . . . . . . . . . . . . . 10,631,550 3,168,348
Cash Distributions to Partners (2)
Cash Distributions to General Partner. . . . . . (315,329) (320,105)
Cash Distributions to Limited Partners
considered a return of capital. . . . . . . . . (5,991,250) (5,646,000)
Cash Distributions to Limited Partners
in excess of return of capital. . . . . . . . . -0- (436,003)
Investment Redemptions. . . . . . . . . . . . . . (251,485) (114,671)
---------- -----------
Cash Generated after Distributions . . . . . . . . $ 4,073,486 $(3,348,431)
---------- -----------
---------- -----------
</TABLE>
- ------------------------------
(1) Phoenix Income Fund, L.P. commenced operations on February 21, 1991.
Consequently, the information for 1991 covers the period from February 21,
1991 to December 31, 1991.
(2) Cash distributions made to partners includes distributions made to both
the general partner and the limited partners. A portion of the cash
distributions made to limited partners is considered a return of capital.
From the inception of the program through December 31, 1995, total
distributions and redemptions of $23,523,650 have been made to limited
partners of which $23,523,650 is considered a return of the limited partners'
initial capital contributions, the determination of which is calculated by
taking the cumulative distributions and redemptions less the sum of
cumulative profits, cumulative losses and cumulative sales commissions and
offering expenses of the program.
B-16
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING CASH DISTRIBUTION FUND V, L.P.
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1991(1) 1992 1993
------------------- ----------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations (2)
Gross Revenue. . . . . . . . . . . . . . . . $572,421 $4,892,650 $10,850,241
Deduct: Operating Expenses . . . . . . . . . $103,132 $ 762,177 $2,352,875
Depreciation . . . . . . . . . . . . 413,907 3,328,704 6,190,095
Interest Expense . . . . . . . . . . 177,519 (694,558) 498,105 (4,588,986) 748,225 (9,291,195)
-------- --------- --------- ----------- --------- -----------
Net Income (Loss). . . . . . . . . . . . . . (122,137) 303,664 1,559,046
Computation of Taxable Income (Loss) (3)
Deduct: Additional Depreciation (4). . . . . 60,436 203,514 2,989,098
Accrual Basis Revenue. . . . . . . . 4,262 (64,698) -0- (203,514) -0- (2,989,098)
-------- --------- ----------
Add: Difference in Revenue Reporting. . . -0- 1,456,951 4,629,603
Accrued Operating Expenses . . . . . 5,063 115,917 667,580
Accrued Interest Expense . . . . . . -0- 5,063 (208) 1,572,660 (8) 5,297,175
-------- -------- -------- --------- ---------- ---------
Taxable Ordinary Income (Loss) . . . . . . . (181,772) 1,672,810 3,867,123
Portfolio Income and Section 1231 Gain (Loss)(4) 4,090 201,366 288,119
</TABLE>
(1) Phoenix Leasing Cash Distribution Fund V, L.P. began acquiring equipment
subject to lease on August 23, 1991. Consequently, the information for 1991
does not represent a full year of operating results.
(2) The information in the section of the Schedule, "Summary of Operations,"
is presented on the accrual method of accounting under generally accepted
accounting principles.
(3) The above partnership currently files its partnership returns of income
under the accrual method of accounting.
(4) For income tax purposes, Phoenix Leasing Cash Distribution Fund V, L.P.
uses different methods of depreciation than for book purposes.
B-17
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING CASH DISTRIBUTION FUND V, L.P.
(Continued)
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1991(1) 1992 1993
----------------------- ------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Computation of Cash Generated
Add: Partners Equity Contributions. . . . $ -0- $26,718,040 $14,196,720
Depreciation . . . . . . . . . . . . 474,343 3,532,218 9,179,193
Proceeds from Loans. . . . . . . . . 4,737,535 10,143,138 9,588,369
Distributions from Joint Ventures. . -0- -0- -0-
Taxable Loss on Sale of Equipment. . -0- -0- 69,926
Proceeds from Sale of Equipment. . . -0- -0- 21,881
Other. . . . . . . . . . . . . . . . 153,316 $5,365,194 -0- $40,393,396 -0- $33,056,089
---------- ----------- -----------
Deduct: Acquisition of Assets. . . . . . 4,743,435 27,190,560 31,763,482
Sales Commissions and Offering
Expenses . . . . . . . . . . . -0- 3,887,637 2,164,467
Loan Reductions. . . . . . . . . . . . -0- 1,716,757 4,906,407
Other. . . . . . . . . . . . . . . . . -0- (4,743,435) 2,260,263 (35,055,217) 568,153 (39,402,509)
---------- ----------- ---------- ------------ ---------- ------------
Cash Generated . . . . . . . . . . . . . 444,077 7,212,355 (2,191,178)
Cash Distributions to Partners (2)
Cash Distributions to General Partner -0- (22,440) (95,366)
Cash Distributions to Limited Partners
considered a return of capital . . -0- (610,904) (1,846,744)
Cash Distributions to Limited Partners
in excess of return of capital . . -0- (397,242) (1,449,043)
Investment Redemption. . . . . . . . . -0- -0- (100,529)
---------- ----------- ------------
Cash Generated after Distributions . . . $ 444,077 $ 6,181,769 $ 5,682,860
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
(1) Phoenix Leasing Cash Distribution Fund V, L.P. began acquiring equipment
subject to lease on August 23, 1991. Consequently, the information for 1991
does not represent a full year of operating results.
(2) Cash distributions made to partners includes distributions made to both
the general partner and the limited partners. A portion of the cash
distributions made to limited partners is considered a return of capital.
From the inception of the program through December 31, 1995, total
distributions and redemptions of $12,935,825 have been made to limited
partners of which $12,935,825 is considered a return of the limited partners'
initial capital contributions, the determination of which is calculated by
taking the cumulative distributions and redemptions less the sum of
cumulative profits, cumulative losses and cumulative sales commission and
offering expenses of the program.
B-18
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING CASH DISTRIBUTION FUND V, L.P.
(Continued)
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1994 1995
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
Summary of Operations (2)
Gross Revenue . . . . . . . . . . . . . . . . . . . $12,678,294 $ 9,728,268
Deduct: Operating Expenses. . . . . . . . . . . . . $2,562,097 $2,054,989
Depreciation. . . . . . . . . . . . . . . . 6,562,903 6,780,206
Interest Expense. . . . . . . . . . . . . . 943,239 (10,068,239) 553,129 (9,388,324)
---------- ------------ ---------- -----------
Net Income (Loss) . . . . . . . . . . . . . . . . . 2,610,055 339,944
Computation of Taxable Income (Loss) (3). . . . . . .
Deduct: Additional Depreciation (4) . . . . . . . . 6,178,803 3,331,708
Accrual Basis Revenue . . . . . . . . . . . -0- (6,178,803) -0- (3,331,708)
---------- ----------- ---------- -----------
Add: Difference in Revenue Reporting . . . . . . 6,839,146 8,110,681
Accrued Operating Expenses. . . . . . . . . 484,688 123,304
Accrued Interest Expense. . . . . . . . . . (442) 7,323,392 (1,524) 8,232,461
---------- ---------- --------- -----------
Taxable Ordinary Income (Loss). . . . . . . . . . . 3,754,644 5,240,697
Portfolio Income and Section 1231 Gain (Loss)(4). . (764,135) (5,160,472)
</TABLE>
(1) Phoenix Leasing Cash Distribution Fund V, L.P. began acquiring equipment
subject to lease on August 23, 1991. Consequently, the information for 1991
does not represent a full year of operating results.
(2) The information in the section of the Schedule, "Summary of Operations," is
presented on the accrual method of accounting under generally accepted
accounting principles.
(3) The above partnership currently files its partnership returns of income
under the accrual method of accounting.
(4) For income tax purposes, Phoenix Leasing Cash Distribution Fund V, L.P.
uses different methods of depreciation than for book purposes.
B-19
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING CASH DISTRIBUTION FUND V, L.P.
(Continued)
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1994 1995
--------------------------- ------------------------------
<S> <C> <C> <C> <C>
Computation of Cash Generated
Add: Partners Equity Contributions. . . . . . . $ -0- $ -0-
Depreciation . . . . . . . . . . . . . . . 12,741,706 10,111,914
Proceeds from Loans. . . . . . . . . . . . -0- -0-
Distributions from Joint Ventures. . . . . 6,974,201 527,593
Principal Payments from Notes Receivable . 968,414 1,311,409
Taxable Loss on Sale of Equipment. . . . . 1,128,190 5,684,230
Proceeds from Sale of Equipment. . . . . . 1,222,641 1,074,655
Other. . . . . . . . . . . . . . . . . . . -0- $ 23,035,152 -0- $ 18,709,801
------------ ------------
Deduct: Acquisition of Assets. . . . . . . . . . . 10,610,725 5,754,902
Sales Commissions and Offering Expenses. . -0- -0-
Loan Reductions. . . . . . . . . . . . . . 6,602,726 7,648,467
Other. . . . . . . . . . . . . . . . . . . 1,294,124 (18,507,575) 1,845,599 (15,248,968)
------------ ------------- ------------ --------------
------------ ------------- ------------ --------------
Cash Generated . . . . . . . . . . . . . . . . . . 7,518,086 3,541,058
Cash Distributions to Partners (2)
Cash Distributions to General Partner. . . . . (125,812) (124,971)
Cash Distributions to Limited Partners
considered a return of capital . . . . . . . (1,613,132) (3,818,852)
Cash Distributions to Limited Partners
in excess of return of capital . . . . . . . (2,459,401) (212,824)
Investment Redemptions . . . . . . . . . . . . . (209,692) (308,714)
------------- ------------
Cash Generated after Distributions . . . . . . . . $ 3,110,049 $ (924,303)
------------- ------------
------------- ------------
</TABLE>
(1) Phoenix Leasing Cash Distribution Fund V, L.P. began acquiring equipment
subject to lease on August 23, 1991. Consequently, the information for 1991
does not represent a full year of operating results.
(2) Cash distributions made to partners includes distributions made to both the
general partner and the limited partners. A portion of the cash distributions
made to limited partners is considered a return of capital. From the inception
of the program through December 31, 1995, total distributions and redemptions
of $12,935,825 have been made to limited partners of which $12,935,825 is
considered a return of the limited partners' initial capital contributions,
the determination of which is calculated by taking the cumulative distributions
and redemptions less the sum of cumulative profits, cumulative losses and
cumulative sales commission and offering expenses of the program.
B-20
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1993(1) 1994 1995
-------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations (2)
Gross Revenue. . . . . . . . . . . . . . $ 25 $ 2,150,314 $ 4,430,411
Deduct:
Operating Expenses . . . . . . . . . . $ -0- $ 939,725 $1,564,627
Depreciation . . . . . . . . . . . . . -0- -0- 470,097
Equipment Obsolescence . . . . . . . . -0- -0- -0-
Interest Expense . . . . . . . . . . . -0- -0- 775,299 (1,715,024) 1,252,956 (3,287,680)
-------- --------- ----------- ----------- --------- -----------
Net Income (Loss). . . . . . . . . . . . . 25 435,290 1,142,731
Computation of Taxable Income (Loss) (3)
Deduct:
Additional Depreciation (4). . . . . . -0- 4,292,927 8,118,536
Accrual Basis Revenue. . . . . . . . . 25 (25) -0- (4,292,927) -0- (8,118,536)
-------- --------- ---------
Add:
Difference in Revenue Reporting. . . . -0- 2,601,118 5,341,553
Accrued Operating Expenses . . . . . . -0- 231,213 583,730
Accrued Interest Expense . . . . . . . -0- -0- -0- 2,832,331 60,468 5,985,751
-------- -------- ---------- ----------- --------- ----------
Taxable Ordinary Income (Loss) . . . . . . -0- (1,025,306) (990,054)
Portfolio Income and Section 1231 Gain (Loss) (4) 25 225,030 139,398
</TABLE>
(1) Phoenix Leasing American Business Fund, L.P. began acquiring equipment
subject to lease October 1993. Consequently, the information for 1993 does
not represent a full year of operating results.
(2) The information in the section of the Schedule, "Summary of Operations,"
is presented on the accrual method of accounting under generally accepted
accounting principles.
(3) The above partnership currently files its partnership returns of income
under the accrual method of accounting.
(4) For income tax purposes, Phoenix Leasing American Business Fund, L.P. uses
different methods of depreciation than for book purposes.
B-21
<PAGE>
SCHEDULE C
ANNUAL OPERATING RESULTS OF PHOENIX LEASING AMERICAN BUSINESS FUND, L.P.
(Continued)
AS OF DECEMBER 31,
<TABLE>
<CAPTION>
1993(1) 1994 1995
---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Computation of Cash Generated
Add:
Partners Equity Contributions. . . . . . $ -0- $ 13,278,460 $ 10,709,680
Depreciation . . . . . . . . . . . . . . -0- 4,292,927 8,588,633
Proceeds from Loans. . . . . . . . . . . -0- 16,300,000 5,700,000
Principal Payments from Notes Receivable -0- 291,713 943,745
Distributions from Joint Ventures. . . . -0- -0- 64,285
Taxable Loss (Gain) on Sale of Equipment -0- (23,369) 477,844
Proceeds from Sale of Equipment . . . . -0- 561,621 -0-
Other. . . . . . . . . . . . . . . . . . 536536 -0- 34,701,352 -0- 26,484,187
------- ---------- ----------
Deduct:
Acquisition of Assets. . . . . . . . . . -0- 24,780,807 15,631,613
Sales Commissions and Offering Expenses. -0- 1,971,913 1,585,481
Loan Reductions. . . . . . . . . . . . . -0- 2,860,417 4,645,583
Other. . . . . . . . . . . . . . -0- -0- 1,546,555 (31,159,692) 1,104,774 (22,967,451)
-------- ------- ---------- ----------- ---------- ------------
Cash Generated . . . . . . . . . . . . . . . . . . 561 2,741,384 2,666,080
Cash Distributions to Partners (2)
Cash Distributions to General Partner. . . . . -0- (16,313) (75,337)
Cash Distributions to Limited Partners
considered a return of capital . . . . . . . -0- (139,009) (920,428)
Cash Distributions to Limited Partners
in excess of return of capital . . . . . . . -0- (414,813) (1,056,719)
Investment Redemptions . . . . . . . . . . . . . -0- -0- (28,104)
---------- ------------ -----------
Cash Generated after Distributions . . . . . . . . $ 561 $ 2,171,249 $ 585,492
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
(1) Phoenix Leasing American Business Fund, L.P. began acquiring equipment
subject to lease October 1993. Consequently, the information for 1993 does
not represent a full year of operating results.
(2) Cash distributions made to partners includes distributions made to both
the general partner and the limited partners. A portion of the cash
distributions made to limited partners is considered a return of capital.
From the inception of the program through December 31, 1995, total
distributions and redemptions of $2,555,970 have been made to limited partners
of which $2,555,970 is considered a return of the limited partners' initial
capital contributions, the determination of which is calculated by taking
the cumulative distributions and redemptions less the sum of cumulative
profits, cumulative losses and cumulative sales commissions and offering
expenses of the program.
B-22
<PAGE>
Schedule D shows as of June 30, 1996, the amounts of cash distributions
with respect to a $1,000 investment in certain of the Prior Partnerships. This
data is significant in analyzing the success of certain of the Prior
Partnerships in making distributions to their respective partners. Please note
that a portion (or all) of the distributions consist of a return of capital.
The Prior Partnerships shown on Schedule D had investment objectives similar to
the Program, which are to maximize the cash flow generated on its assets
(purchased on a leveraged basis) with no intent to provide significant tax
benefits. Prospective investors should be aware that the results of the Prior
Partnerships are not necessarily indicative of the potential results of the
Program.
SCHEDULE D
CASH DISTRIBUTIONS
FOR $1,000 INVESTMENT IN CERTAIN PRIOR PARTNERSHIPS
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
Phoenix Leasing Phoenix Leasing Phoenix Phoenix Leasing
Cash Distribution Fund III Cash Distribution Fund IV Income Fund, L.P. Cash Distribution Fund V,L.P.
Investment Date: December 29, 1988 January 2, 1991 April 4, 1991 December 8, 1992
------------------- ----------------- -------------- ----------------------
Cash Cash Cash Cash
Period Distributions Percent Distributions Percent Distributions Percent Distributions Percent
- ------ ------------- ------- ------------- ------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1989 Total Amount . . . $ 98.29 9.83%
1990 Total Amount . . . 129.99 13.00
1991 Total Amount . . . 140.00 14.00 $ 89.68 8.97% $ 64.11 6.41%
1992 Total Amount . . . 140.10 14.01 120.00 12.00 130.09 13.01
1993 Total Amount . . . 149.90 14.99 120.00 12.00 134.92 13.49 $ 81.45 8.15%
1994 Total Amount . . . 60.00 6.00 120.00 12.00 140.00 14.00 100.00 10.00
1995 Total Amount . . . 60.00 6.00 120.00 12.00 145.01 14.50 100.00 10.00
1996 through June 30. . 15.12 1.51 60.00 6.00 75.21 7.52 50.00 5.00
------ ----- ------ ----- ------ ----- ------ -----
Total . . . . . . . . . $793.40 79.34% $629.68 62.97% $689.34 68.93% $331.45 33.15%
------ ----- ------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ ----- ------ -----
Amount of total
distributions
considered a return
of initial capital
contribution . . . . $793.40 $629.68 $689.34 $331.45
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
B-23
<PAGE>
SCHEDULE D
CASH DISTRIBUTIONS
FOR $1,000 INVESTMENT IN CERTAIN PRIOR PARTNERSHIPS (CONTINUED)
AS OF JUNE 30, 1996
Phoenix Leasing
American Business Fund L.P. (1)
Investment Date: January 27, 1994
-------------------------------
Cash
Period Distributions Percent
- ------ ------------- -------
1994 Total Amount . . . . . . . . . . $ 74.84 7.48%
1995 Total Amount . . . . . . . . . . 110.02 11.00
1996 through June 30. . . . . . . . . 79.93 7.99
------ -----
Total . . . . . . . . . . . . . . . . $264.79 26.47%
------ -----
------ -----
Amount of total distributions
considered a return of initial
capital contribution . . . . . . . $239.67
------
------
(1) As of June 30, 1996, Phoenix Leasing American Business Fund, L.P. had not
completed its offering.
B-24
<PAGE>
Schedule E shows as of June 30, 1996, compensation paid and accrued to the
general partners of certain of the Prior Partnerships. The Prior Partnerships
shown on Schedule E had investment objectives similar to the Program, which are
to maximize the cash flow generated on its assets (purchased on a leveraged
basis) with no intent to provide significant tax benefits. Prospective
investors should be aware that the results of the Prior Partnerships are not
necessarily indicative of the potential results of the Program.
SCHEDULE E
COMPENSATION PAID AND ACCRUED TO GENERAL PARTNERS
OF CERTAIN PRIOR PARTNERSHIPS
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
Phoenix Phoenix Phoenix Phoenix
Leasing Cash Leasing Cash Phoenix Leasing Cash Leasing American
Distribution Distribution Income Distribution Business Fund,
Fund III Fund IV Fund, L.P. Fund V, L.P. L. P. (1)
-------- ------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Date offering commenced . . . . . . . . . . . . 1/5/88 12/27/89 1/18/91 11/4/91 10/19/93
Dollar amount raised. . . . . . . . . . . . . . $132,037,750 $129,847,540 $43,821,250 $40,916,760 $27,824,500
Amounts paid to General Partner or
Affiliates from proceeds of offering:
Compensation for wholesaling
activities . . . . . . . . . . . . . . . . . 1,107,660 2,496,949 438,107 738,655 556,470
Acquisition fees. . . . . . . . . . . . . . . 4,415,268 4,368,831 1,454,028 1,013,165 909,686
Cash generated from operations before
deducting payments to sponsor as
of December 31, 1995. . . . . . . . . . . . . 232,981,212 262,684,521 88,553,439 75,728,437 13,698,414
Amounts paid to sponsor from operations:
Management fees . . . . . . . . . . . . . . . 8,785,484 9,758,964 3,205,681 2,047,577 503,894
Acquisition fees. . . . . . . . . . . . . . . 3,861,356 6,227,929 2,140,117 1,495,636 900,867
Reimbursed expenses . . . . . . . . . . . . . 8,611,056 8,679,562 2,647,251 2,345,801 1,093,337
</TABLE>
- -----------------------------------------------
(1) As of June 30, 1996, Phoenix Leasing American Business Fund, L.P. had not
completed its offering.
B-25
<PAGE>
Schedule F shows the results of completed operations for the Prior
Partnerships that had completed their operations as of June 30, 1996. The data
is significant in analyzing the results of operations of the Prior Partnerships
that have liquidated. No completed Partnership had investment objectives
similar to the Program, which are to maximize the cash flow generated on its
assets (purchased on a leveraged basis) with no intent to provide significant
tax benefits. Prospective investors should be aware that the results of the
Prior Partnerships are not necessarily indicative of the potential results of
the Program.
SCHEDULE F
GENERAL INFORMATION ABOUT COMPLETED PARTNERSHIPS
<TABLE>
<CAPTION>
Phoenix Leasing Phoenix Phoenix Phoenix Leasing Phoenix Leasing
Private Leasing Leasing Investment Performance
Partnerships (1)* Fund 1973* Fund 1974* Fund 1975* Fund 1976*
---------------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Dollar Amount Raised. . . . . . . . . . . . . . $1,476,520 $ 1,293,000 $ 923,232 $ 1,995,000 $ 4,753,000
Total Assets Purchased. . . . . . . . . . . . . 9,244,651 10,870,590 10,819,614 16,121,559 18,243,124
Date Offering Completed . . . . . . . . . . . . -- 2/28/74 12/31/74 12/31/75 12/31/76
Total Cash Distributions:
Limited Partners. . . . . . . . . . . . . . . 3,014,987 3,710,270 2,857,915 5,271,543 8,526,519
Average per $1,000 investment . . . . . . . . 2,041 2,870 3,096 2,642 1,794
Amount of total distributions considered
a return of capital. . . . . . . . . . . . . 1,476,520 1,293,000 923,232 1,995,000 4,753,000
General Partner(s)(2) . . . . . . . . . . . . 19,767 36,584 23,099 42,817 68,297
Date of Partnership Liquidation . . . . . . . . -- 12/1/87 12/1/87 12/1/87 12/1/87
Taxable Ordinary Income (Loss). . . . . . . . . $1,888,470 $ 3,643,286 $ 2,739,690 $ 4,473,711 $ 4,286,467
Average per $1,000 investment . . . . . . . . 1,279 2,818 2,968 2,242 902
Portfolio Income and Section 1231
Gain (Loss)(3). . . . . . . . . . . . . . . . (182,506) (179,416) (81,955) (280,784) (134,352)
Average per $1,000 investment . . . . . . . . (124) (139) (89) (141) (28)
</TABLE>
(1) Includes Phoenix Leasing Private Fund 1979-1, Phoenix Leasing Private Fund
1975 and Phoenix Leasing Fund I.
(2) In addition to cash distributions, the general partner also received
management, liquidation, acquisition and/or incentive fees.
(3) Portfolio income was not a separate income item until 1987. The foregoing
Prior Partnerships had different investment objectives than the Program.
B-26
<PAGE>
SCHEDULE F
GENERAL INFORMATION ABOUT COMPLETED PARTNERSHIPS (CONTINUED)
<TABLE>
<CAPTION>
Phoenix Leasing Phoenix Leasing Phoenix Leasing Phoenix Leasing
Performance Performance Performance Performance
Fund 1977* Fund 1979* Fund 1980* Fund 1981*
---------------- ---------------- ---------- ------------
<S> <C> <C> <C> <C>
Dollar Amount Raised. . . . . . . . . . $ 8,458,245 $ 13,906,000 $ 18,618,000 $ 9,759,000
Total Assets Purchased. . . . . . . . . 28,227,552 37,809,233 39,383,093 25,184,155
Date Offering Completed . . . . . . . . 6/2/78 6/30/80 12/19/80 12/31/81
Total Cash Distributions:
Limited Partners. . . . . . . . . . . 16,382,476 18,453,946 18,896,545 7,875,409
Average per $1,000 investment . . . . 1,937 1,327 1,015 807
Amount of total distributions
considered
a return of capital . . . . . . . . . 8,458,245 13,906,000 18,618,000 7,875,409
General Partner(s)(1) . . . . . . . . 127,565 195,411 209,542 103,715
Date of Partnership Liquidation . . . . 12/1/88 12/31/89 12/31/90 12/31/91
Taxable Ordinary Income (Loss). . . . . $ 9,073,568 $ 5,992,904 $ 2,608,765 $ (549,155)
Average per $1,000 investment . . . . 1,073 431 140 (56)
Portfolio Income and Section 1231 Gain
(Loss)(2) . . . . . . . . . . . . . . (57,694) (93,050) (83,275) (270,564)
Average per $1,000 investment . . . . (7) (7) (4) (28)
</TABLE>
- ---------------
(1) In addition to cash distributions, the general partner also received
management, liquidation, acquisition and/or incentive fees.
(2) Portfolio income was not a separate income item until 1987. *The foregoing
Prior Partnerships had different investment objectives than the Program.
B-27
<PAGE>
SCHEDULE F
GENERAL INFORMATION ABOUT COMPLETED PARTNERSHIPS (CONTINUED)
<TABLE>
<CAPTION>
Phoenix Leasing Phoenix Leasing Phoenix Leasing
Income Income Income
Fund 1982-1* Fund 1982-3* Fund 1982-4*
-------------- --------------- ----------------
<S> <C> <C> <C>
Dollar Amount Raised. . . . . . . . . . . $ 8,226,000 $ 8,973,000 $ 12,832,000
Total Assets Purchased. . . . . . . . . . 15,814,701 16,134,192 24,596,304
Date Offering Completed . . . . . . . . . 3/31/82 9/30/82 11/19/82
Total Cash Distributions (3):
Limited Partners. . . . . . . . . . . . 6,595,962 8,142,772 11,744,217
Average per $1,000 investment . . . . . 801 907 915
Amount of total distributions
considered
a return of capital. . . . . . . . . . 6,595,962 8,142,772 11,744,217
General Partner(s)(1). . . . . . . . . 489,080 457,276 676,631
Date of Partnership Liquidation. . . . . 12/28/94 12/28/94 12/28/94
Taxable Ordinary Income (Loss) . . . . . $ (175,571) $ 241,519 $ (71,478)
Average per $1,000 investment. . . . . (21) 27 (6)
Portfolio Income and Section 1231
Gain (Loss)(2) . . . . . . . . . . . . (489,274) 55,593 693,036
Average per $1,000 investment. . . . . (59) 6 54
</TABLE>
- ---------------
(1) In addition to cash distributions, the general partner also received
management, liquidation, acquisition and/or incentive fees.
(2) Portfolio income was not a separate income item until 1987.
(3) Included in "Total Cash Distributions to Limited Partners" are cash
redemptions paid to limited partners. The cumulative cash redemptions paid to
limited partners as of the termination date are as follows: Phoenix Leasing
Income Fund 1982-1 $461,334; Phoenix Leasing Income Fund 1982-3 $195,471; and
Phoenix Leasing Income Fund 1982-4 $383,620.
* The foregoing Prior Partnerships had different investment objectives than
the Program.
B-28
<PAGE>
SCHEDULE F
GENERAL INFORMATION ABOUT COMPLETED PARTNERSHIPS (CONTINUED)
<TABLE>
<CAPTION>
Phoenix Leasing Phoenix Leasing Phoenix Leasing Phoenix Leasing
Income Income Income Cash Distribution
Fund 1975 Fund 1980 Fund 1982-2 Fund
---------------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
Dollar Amount Raised. . . . . . . . . . $ 2,996,500 $ 28,750,000 $ 9,816,000 $ 50,000,000
Total Assets Purchased. . . . . . . . . 22,659,436 67,820,604 19,279,072 96,951,287
Date Offering Completed . . . . . . . . 1/14/77 8/31/81 6/30/82 10/31/86
Total Cash Distributions (3):
Limited Partners. . . . . . . . . . . 11,120,120 33,299,498 8,815,530 49,283,843
Average per $1,000 investment . . . . 3,711 1,158 898 986
Amount of total distributions
considered
a return of capital . . . . . . . . . 2,996,500 28,750,000 8,815,530 49,283,843
General Partner(s)(1) . . . . . . . . 95,556 2,309,163 625,615 1,856,472
Date of Partnership Liquidation . . . . 12/31/95 12/31/95 12/31/95 12/31/95
Taxable Ordinary Income (Loss). . . . . 8,663,169 12,599,214 372,517 7,444,293
Average per $1,000 investment . . . . 2,891 438 38 149
Portfolio Income and Section 1231
Gain (Loss)(2). . . . . . . . . . . . (272,778) (2,303,018) (283,271) (942,265)
Average per $1,000 investment . . . . (91) (80) (29) (19)
</TABLE>
- ----------------
(1) In addition to cash distributions, the general partner also received
management, liquidation, acquisition and/or incentive fees.
(2) Portfolio income was not a separate income item until 1987.
(3) Included in "Total Cash Distributions to Limited Partners" are cash
redemptions paid to limited partners. The cumulative cash redemptions paid to
limited partners as of the termination date are as follows: Phoenix Leasing
Income Fund 1975 $2,075,963; Phoenix Leasing Income Fund 1980 $2,149,840;
Phoenix Leasing Income Fund 1982-2 $221,211; and Phoenix Leasing Cash
Distribution Fund $572,739.
B-29
<PAGE>
EXHIBIT C
INVESTORS OTHER THAN QUALIFIED PLANS:
INVESTOR INSTRUCTIONS:
* Minimum investment is $2,000 with additional increments of $20. Unit size
is $20.00. Residents of certain states are required to make different
minimum investments. (See "Suitability Standards" in the Prospectus.)
* Complete sections 1 - 4 and 6 of the Signature Page. For trust and
partnership investors, please provide copies of first and last page of
executed trust or partnership agreement. For corporate investors, please
provide an incumbency certificate designating the officer(s) authorized to
sign on behalf of the corporation.
* MAKE CHECK PAYABLE TO "Phoenix Leasing American Business Fund II, L.P."
unless instructed by broker-dealer to make payable to escrow account.
* Complete SPLIT DISTRIBUTION FORM if you wish to split your distributions.
* Give paperwork and check to your Registered Representative for processing.
- --------------------------------------------------------------------------------
BROKER-DEALER INSTRUCTIONS:
ALL SUBSCRIPTION AGREEMENTS MUST BE
SIGNED BY A PRINCIPAL.
* Complete broker-dealer box and have signed by a Registered Representative
and a Principal.
* PLEASE MAIL COMPLETED PAPERWORK AND CHECK, unless otherwise specified by
your home office, to:
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
2401 KERNER BOULEVARD
SAN RAFAEL, CALIFORNIA 94901-5529
1-4154854500
CONTINUED ON REVERSE SIDE
C-1
<PAGE>
INVESTMENTS MADE BY QUALIFIED PLANS
INVESTOR INSTRUCTIONS:
* Minimum investment is $1,000 with additional increments of $20. Unit size
$20.00. Residents of certain states are required to make different minimum
investments. (See "Suitability Standards" in the Prospectus.)
* If you are a qualified plan investor not using Sterling Trust Company,
please contact your custodian/trustee directly for instructions.
* If you are a qualified plan investor using Sterling Trust Company as
custodial please:
* Complete the Sterling Trust IRA Application (obtain from your Registered
Representative) Sterling will complete the Phoenix Leasing American
Business Fund Signature Page for you.
* Make check payable to "Sterling Trust Company."
* Give paperwork and check to your Registered Representative.
- --------------------------------------------------------------------------------
BROKER-DEALER INSTRUCTIONS:
ALL SUBSCRIPTION AGREEMENTS MUST BE
SIGNED BY A PRINCIPAL.
* Complete broker-dealer box and have signed by a Registered Representative
and a Principal.
* PLEASE MAIL PAPERWORK AND CHECK TO TRUSTEE (unless otherwise specified by
your home office).
* FOR STERLING TRUST COMPANY INVESTMENTS ONLY: PLEASE MAIL PAPERWORK AND
CHECK (unless otherwise specified by your home office) directly to:
(U.S. MAIL) (OVERNIGHT MAIL)
STERLING TRUST COMPANY STERLING TRUST COMPANY
P.O. BOX 2526 7901 FISH POND RD.
WACO, TEXAS 76702-2526 WACO, TEXAS 76710
1-800-955-3434 1-800-955-3434
C-2
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
SUBSCRIPTION AGREEMENT
Phoenix Leasing Associates IV, L.P.
General Partner of Phoenix Leasing American Business Fund II, L.P.
2401 Kerner Boulevard
San Rafael, California 94901-5529
To the General Partner:
The investor, by subscribing for limited partnership interests ('Units') in
Phoenix Leasing American Business Fund II, L.P. (the 'Program'), a California
limited partnership, hereby makes application to purchase Units. The General
Partner hereby informs the investor that no representations should be relied
upon other than those contained in the
Program's Prospectus or sales literature approved by the General Partner.
The investor, by subscribing for Units, agrees to be bound by the Subscription
Agreement and
Power of Attorney indicating thereon the number of Units applied for ($20 per
Unit), and encloses a check made payable (a) to "Phoenix Leasing American
Business Fund II, L.P." or (b) in the case of sale of first 60,000 links, to
"Imperial Bank American Business Fund II Impound Account."
There are restrictions on transferability of Units obtained in the
Partnership Agreement and various states may require any person to whom the
investor may transfer the
Units to meet standards similar to those set forth in paragraph (2) below.
The Units are subject to the following legend conditions imposed by the
California Department of Corporations restricting transfer to and from
California residents:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
The sale of Units cannot be completed until at least five
business days after the date the investor received the Program's Prospectus.
There will be no public market for Units. In light of these considerations,
it may not be possible for the investor to liquidate his/her investment readily
or at all.
The investor, by subscribing for Units, hereby acknowledges receipt of a copy
of the Prospectus, dated [__________, 1996], as the same may be amended or
supplemented from time to time, together with Exhibits A, B and C thereto.
The investor, by subscribing for Units, hereby represents and warrants to you
as follows:
(1) I have received the Prospectus and the form of the Restated Agreement
of Limited Partnership (the "Partnership Agreement') attached as Exhibit A
thereto, and hereby specifically adopt every provision of the Partnership
Agreement and agree to be bound thereby. __________
initial
(2) For investors residing in any state or territory (including without
limitation the District of Columbia and Puerto Rico), other than as set forth in
the paragraphs below I (a) have a minimum annual income of $30,000 and a net
worth (exclusive of home, furnishings and automobiles) at least equal to S30,000
in excess of my capital contribution, or (b) have a net worth (exclusive of
home, furnishings and automobiles) at least equal to $75,000 in excess of my
capital contribution, or (c) am purchasing in a fiduciary capacity for a person
or entity, and either the beneficiary or the fiduciary account, or, if the donor
is the fiduciary, the donor who is directly or indirectly supplying the funds to
purchase the Units subscribed for, meets the suitability standards set forth in
clause (a) or (b). __________
initial
For New Hampshire investors only: I (a) have a minimum annual income of
35,000 and a net worth (as described above) of 75,000 in excess of my capital
contribution, or (b) have a net worth (as described above) of $75,000 in excess
of my capital contribution or (c) am purchasing in a fiduciary capacity for a
person or entity, and either the benefits or the fiduciary account, or, if the
donor is the fiduciary, the donor who is directly or indirectly supplying the
funds to purchase the Units subscribed for, meets the suitability standards set
forth in clause (a) or (b). __________
initial
For Maine and Oregon investors only: I (a) have a minimum annual income
of $35,000 and a net worth (as described above) of $35,000 in excess of my
capital contribution, or (b) have a net worth (as described above) of $100,000
in excess of my capital contribution or (c) am purchasing in a fiduciary
capacity for a person or entity and either the beneficiary or the fiduciary
account, or, if the donor is the fiduciary, the donor who is directly or
indirectly supplying the funds to purchase the Units subscribed for, meets the
suitability standards set forth in clause (a) or (b). __________
initial
For Alabama, Arizona, Arkansas, California, Indiana, Iowa, Kansas,
Kentucky, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, New
Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, South
Dakota, Tennessee, Texas, Vermont and Washington investors only: I (a) have a
minimum annual income of S45,000 and a net worth (as described above) of
$45,000 in excess of my capital contribution, or (b) have a net worth (as
described above) of $150,000 in excess of my capital contribution or (c) am
purchasing in a fiduciary capacity for a person or entity, and either the
beneficiary or the fiduciary account, or, it the donor is the fiduciary, the
donor who is directly of indirectly supplying the funds to purchase the Units
subscribed for, meets the suitability standards set forth in clause (a) or
(b). Additionally, for Michigan, Ohio and Pennsylvania investors only: My
investment in Units does not exceed ten percent of my net worth (exclusive of
home, furnishings and automobiles). __________
initial
For Missouri investors only: I (a) have a minimum annual income of
$60,000 and a net worth (as described above) of $60,000 in excess of my
capital contribution, or (b) have a net worth (as described above) of
S225,000 in excess of my capital contribution or (c) am purchasing in a
fiduciary capacity for a person or entity, and either the beneficiary or the
fiduciary account, or, if the donor is the fiduciary, the donor who is
directly or indirectly supplying the funds to purchase the Units subscribed
for, meets the suitability standards set forth in clause (a) or (b). __________
initial
Under penalty of perjury, the undersigned investor certifies that (a) the
number provided herein is the investor's correct Taxpayer Identification Number,
and (b) the investor is not subject to backup withholding because (i) the
investor is exempt from backup withholding, or (ii) the investor has not been
notified by the Internal Revenue Service that the investor is subject to backup
withholding as a result of a failure to report all interest or dividends, or
(iii) the Internal Revenue Service has notified the investor that the investor
is no longer subject to backup withholding. If the undersigned investor has
been notified that the investor is currently subject to backup withholding, the
investor has stricken the language under clause (b) before signing).
The investor, by subscribing for Units, understands and agrees that you may
rely on the representations and warranties made by the undersigned on the
Subscription Agreement,
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
In WITNESS WHEREOF the investor, by subscribing for Units, agrees to be bound
by this Subscription Agreement by executing or having executed on his/her behalf
the Signature Page to the Subscription Agreement and Power of Attorney attached
hereto.
The investor, by subscribing for Units, desires to become a Limited Partner
of the Program, pursuant to the Restated Agreement of Limited Partnership in the
form included as Exhibit A to the Prospectus dated [__________, 1996]. The
investor, by subscribing for Units agrees to all the terms of said Agreement and
further agrees by subscribing for Units, to all the terms and representations of
the Subscription Agreement included as Exhibit C to the Prospectus referred to
above. The investor by subscribing for Units, further constitutes and appoints
the General Partner of the Program with full power of substitution, his/her true
and lawful attorney for him/her and in his/her name to execute, acknowledge and
file (a) the Partnership Agreement in substantially the form attached as Exhibit
A to the Prospectus as well as amendments thereto, for the purpose of adding the
undersigned and others as Limited Partners in the Program; and (b) any document
required to effect the continuation of the Program or which counsel to the
Program deems necessary or advisable to comply with any state or federal law.
The investor, by subscribing for Units, hereby joins in and executes the
Partnership Agreement, thereby authorizing the Signature Page to be attached to
such Agreement and amendments, if any. The power of attorney hereby granted is
irrevocable and coupled with an interest, and may be exercised by the signature
of such attorney-in-fact acting for all the Limited Partners.
The place of residence of the investor is as shown on the reverse side of
this subscription agreement. If acting in a representative capacity, the
investor, by subscribing for Units, represents that he/she has authority to act
on behalf of the person or entity being represented.
Continued on Reverse Side
C-3
<PAGE>
<TABLE>
<S> <C>
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P. SIGNATURE PAGE
1. INVESTMENT INFORMATION
IN WITNESS WHEREOF, I have executed this subscription on this ________ day of _________________, 19____.
FOLLOWING SALE OF FIRST 60,000 UNITS, MAKE CHECKS PAYABLE TO "PHOENIX LEASING AMERICAN BUSINESS FUND II. L.P." Any change(s)
made to the Signature Page must be initialed by the investor.
/ / Initial Subscription U.S. RESIDENT / / YES / /NO POINT OF SALE (STATE) ____
/ / Additional investment into Phoenix Leasing American Business Fund II, L.P. (if add-on to original investment, title must be held
exactly as original investment)
I DESIRE TO PURCHASE ____UNITS FOR A TOTAL INVESTMENT IN PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P. OF
$ _______________. (UNIT SIZE = $20.00)
If total investment (including add-ons) is for at least $10,000, indicate choice of distribution frequency:
/ / MONTHLY / / QUARTERLY (FAILURE TO INDICATE A CHOICE WILL RESULT IN QUARTERLY DISTRIBUTIONS.) (MONTHLY DISTRIBUTIONS FOR
ADD-ON INVESTMENTS WILL BEGIN ON THE 15TH OF THE FIRST MONTH FOLLOWING THE QUARTER IN WHICH THE INVESTMENT IS MADE.)
TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER ___________________________ ________________________________
Have you previously invested in any prior Phoenix Leasing partnerships? / / Yes / / No
2. OWNERSHIP TYPE: (CHECK ONE)
Individual IRA Keough Joint Community Tenants Pension Plan Trust Partnership Corporation UGMA Profit Sharing
Owner Tenants Property in-Common Plan
3. PRINT NAME(S) IN WHICH UNITS ARE TO BE REGISTERED: (USE ONLY SPACES PROVIDED - IF ABBREVIATION IS NECESSARY, USE PREFERRED
ABBREVIATION.)
__________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
X___________________________________________________________ X____________________________________________________________
INVESTOR'S SIGNATURE REQUIRED AUTHORIZED SIGNATURE (CUSTODIAN OR TRUSTEE)
X___________________________________________________________ X____________________________________________________________
INVESTOR'S SIGNATURE REQUIRED AUTHORIZED SIGNATURE (CUSTODIAN OR TRUSTEE)
4. INVESTOR(S) ADDRESS:
STREET ADDRESS ___________________________________________________________________________________________________________________
CITY__________________________________ STATE ___________________ ZIP CODE____________ DAY TELEPHONE NUMBER________________________
5. CUSTODIAN OR TRUST COMPANY ADDRESS.
STREET ADDRESS ___________________________________________________________________________________________________________________
CITY__________________________________ STATE ___________________ ZIP CODE____________ DAY TELEPHONE NUMBER________________________
6. MAILING ADDDRESS FOR CHECKS: (IF DIFFERENT FROM ABOVE)
COMPANY OR BANK NAME _____________________________________________________________________________________________________________
____________________________________________________________ ACCOUNT NUMBER ______________________________________________________
STREET ADDRESS ___________________________________________________________________________________________________________________
CITY__________________________________ STATE ___________________ ZIP CODE____________ DAY TELEPHONE NUMBER________________________
- ---------------------------------------------------------- ------------------------------------------------------------------------
FOR USE BY PHOENIX LEASING ASSOCIATES IV, L.P. ONLY TO BE COMPLETED BY BROKER/DEALER
The undersigned broker/dealer reasonably believes that (i) the
REC'D __________________ INV. DATE_______________ subscriber(s) whose name(s) appear above will be in a financial
position appropriate to realize to a significant extent the benefits
TR _________ SSN _______________ PRT ___________ described in the Prospectus, (ii) the subscriber(s) has or have a
fair market net worth sufficient to sustain the risks inherent in
B/D ________ SLS _______________ CB ____________ this investment and (iii) this investment is suitable for the
subscriber(s). The undersigned further represents that he had
HOLD ___________________________________________ informed such subscriber(s) as to the liquidity and marketability
of an investment in the Program.
X__________________________________________________
SIGNATURE OF REGISTERED REPRESENTATIVE
ACCEPTED: PHOENIX LEASING ASSOCIATES IV, L.P. REGISTERED NAME OF
REPRESENTATIVE REGISTERED REPRESENTATIVE _________________________
BY _____________________________________________ (LAST, FIRST, MIDDLE INITIAL
- ----------------------------------------------------------
- ----------------------------------------------------------
MAIL WITH CHECK PAYABLE TO "PHOENIX LEASING AMERICAN
BUSINESS FUND II, L.P."
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
2401 KERNER BOULEVARD
SAN RAFAEL, CALIFORNIA 94901
- ----------------------------------------------------------
MAY, 1996
</TABLE>
C-4
<PAGE>
SPLIT DISTRIBUTION FORM 2401 Kerner Boulevard
INSTRUCTIONS San Rafael, California 94901
(415) 485-4500
Please use this form only if you would like your cash distribution to be issued
in TWO SEPARATE CHECKS and sent to TWO SEPARATE LOCATIONS.
- --------------------------------------------------------------------------------
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
- --------------------------------------------------------------------------------
ATTENTION: INVESTOR SERVICES DEPARTMENT
This is to request that, until further notification, any distributions from
Phoenix Leasing American Business Fund II, L.P., be paid by two checks.
OPTION #1
DISTRIBUTIONS TO BE SPLIT BY $ AMOUNT
Complete dollar distribution information on reverse side.
In the event that the distribution check does not at least equal the dollar
amount specified for Destination #1 (on reverse), the entire amount of the
distribution check will be sent to Destination #1. The amount of each
distribution in excess of such specified dollar amount, if any, will be made
payable to Destination #2 (on reverse).
-OR-
OPTION #2
DISTRIBUTIONS TO BE SPLIT BY PERCENTAGE
Complete percentage distribution information on reverse side.
The two percentages should equal 100%.
NOTE: CHECKS MAY BE DIRECTED TO THE LOCATION OF YOUR CHOICE; HOWEVER, EACH
CHECK MUST BE WRITTEN TO THE ACCOUNT OF THE PHOENIX LEASING AMERICAN BUSINESS
FUND II INVESTOR(S) ONLY.
COMPLETE REVERSE SIDE
C-5
<PAGE>
SPLIT DISTRIBUTION FORM
- --------------------------------------------------------------------------------
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
- --------------------------------------------------------------------------------
DESTINATION #1 DESTINATION #2
$_______________ OR %________ $_______________ OR %________
(Please complete EITHER dollar amount or percentage amount; DO NOT complete BOTH
dollar and percentage amounts.)
- ---------------------------------------- ---------------------------------
NAME OF DESIGNATION #1 NAME OF DESIGNATION #2
- ---------------------------------------- ---------------------------------
*ACCOUNT NUMBER *ACCOUNT NUMBER
- ---------------------------------------- ---------------------------------
STREET ADDRESS STREET ADDRESS
- ---------------------------------------- ---------------------------------
CITY STATE ZIP CODE CITY STATE ZIP CODE
*If you currently do not have an account number, please notify your
representative when you receive it.
NOTE: CHECKS MAY BE DIRECTED TO THE LOCATION OF YOUR CHOICE; HOWEVER, EACH CHECK
MUST BE WRITTEN TO THE ACCOUNT OF THE PHOENIX LEASING AMERICAN BUSINESS FUND II
INVESTOR(S) ONLY.
ALL INVESTORS ON ACCOUNT MUST SIGN.
The undersigned represents that the foregoing institution or inn, if applicable,
maintains an account in the name of the undersigned and such account is solely
for the benefit of the undersigned.
- --------------------------- ------------------------------------------------
DATE INVESTOR'S SIGNATURE CUSTODIAN/TRUSTEE'S SIGNATURE (if applicable)
- --------------------------- ------------------------------------------------
DATE INVESTOR'S SIGNATURE PLEASE PRINT NAME AND TITLE OF ABOVE
C-6
<PAGE>
- --------------------------------------------------------------------------------
$50,000,000
PHOENIX LEASING
AMERICAN BUSINESS FUND II, L.P.
2,500,000 UNITS OF LIMITED
PARTNERSHIP INTEREST
*
$20 PER UNIT
*
MINIMUM PURCHASE - 100 UNITS
($2,000)
*
IRAS, KEOGHS AND OTHER
QUALIFIED PLANS - 50 UNITS
($1,000)
--------------
PROSPECTUS
--------------
[__________, 1996]
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE PROGRAM OR THE GENERAL PARTNER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN
THE UNITS OF LIMITED PARTNERSHIP INTEREST TO WHICH IT RELATES, OR ANY OF SUCH
UNITS TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16.EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(A) EXHIBITS:
1.01 Revised Form of Selling Agreement
3.01 Form of Restated Agreement of Limited Partnership (hereby
incorporated herein by reference to Exhibit A of the
Prospectus)
24.04 Consent of Ernst & Young LLP
24.05 Consent of Arthur Andersen LLP
(B) FINANCIAL STATEMENTS:
(i) Included in the Prospectus:
For the Registrant:
Report of Independent Auditors.
Balance Sheet at July 31, 1996.
Notes to Balance Sheet.
***
For the General Partner:
Report of Independent Public Accountants.
Balance Sheet at June 30, 1996.
Notes to Balance Sheet.
***
For the general partner of the General Partner:
Report of Independent Public Accountants.
Balance Sheet at June 30, 1996.
Notes to Balance Sheet.
(ii) Included in Part II of the Registration Statement:
All schedules are omitted as the required information is
inapplicable or is presented in the balance sheets or related notes.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment to Registration Statement to be
signed on itsbehalf by the undersigned, thereunto duly authorized, in the city
of San Rafael, the State of California, on this 18th day of September 1996.
PHOENIX LEASING AMERICAN BUSINESS FUND II,
L.P., a California limited partnership
By: Phoenix Leasing Associates IV, L.P.,
a California limited partnership,
General Partner
By: Phoenix Leasing Associates IV,
Inc., a Nevada corporation, its
general partner
By /s/ Gus Constantin
-------------------------------
Gus Constantin, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ Gus Constantin President and Director September 18, 1996
- ------------------------------ of Phoenix Leasing
Gus Constantin Associates IV, Inc.
/s/ Paritosh K. Choksi Senior Vice President, September 18, 1996
- ------------------------------ Chief Financial
Paritosh K. Choksi Officer, Treasurer
and Director
of Phoenix Leasing
Associates IV, Inc.
/s/ Bryant J. Tong Senior Vice President, September 18, 1996
- ------------------------------ Financial Operations,
Bryant J. Tong and Principal
Accounting Officer of
Phoenix Leasing
Associates IV, Inc.
/s/ Gary W. Martinez Senior Vice President September 18, 1996
- ------------------------------ and Director of Phoenix
Gary W. Martinez Leasing Associates IV,
Inc.
II-2
<PAGE>
EXHIBIT INDEX
1.01 Revised Form of Selling Agreement
3.01 Form of Restated Agreement of Limited Partnership (hereby
incorporated herein by reference to Exhibit A of the Prospectus)
24.04 Consent of Ernst & Young LLP
24.05 Consent of Arthur Andersen LLP
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
$50,000,000 OF LIMITED PARTNERSHIP INTERESTS
SELLING AGREEMENT
Dear Sir or Madam:
Phoenix Leasing American Business Fund II, L.P. (the "Program"), a
California limited partnership, and the general partner of such Program (the
"General Partner") propose to offer and sell to qualified investors, upon the
terms and conditions set forth in the Prospectus, dated the date upon which the
Partnership's Registration Statement (of which the Prospectus is a part) is
declared effective by the Securities and Exchange Commission, and as the same
may be amended or supplemented from time to time (the "Prospectus"), limited
partnership interests in the Program ("Units") aggregating $50,000,000 sold as
described in the Prospectus, at $20 per Unit. A minimum purchase of 100 Units
($2,000) is required of each investor, except in the case of an Individual
Retirement Account, Keogh or qualified pension, profit sharing or stock bonus
plan or other tax exempt entity, where the minimum investment may be 50 Units
($1,000). As described in the Prospectus, residents of certain states are
subject to different minimum investment requirements. The Program and the
General Partner further propose to amend the Program's Amended and Restated
Agreement of Limited Partnership, adding each qualified investor as a limited
partner ("Limited Partner") of the Program.
You are invited to participate on a nonexclusive basis in this public
offering of Units and by your execution of the confirmation attached hereto, you
agree to use your best efforts, consistent with the terms of this offering as
set forth in the Prospectus, to find purchasers for the Units who meet the
suitability standards established in the Prospectus and are acceptable to the
General Partner, in accordance with the following terms and conditions:
1. SOLICITATION AND SOLICITATION MATERIAL. Solicitation and other
activities by you hereunder shall be undertaken only in accordance with
applicable laws and regulations and the terms hereof. Accompanying this letter
is a copy of the Prospectus which you may use to familiarize yourself with the
terms of this offering. You will be furnished with certain additional written
information ("Sales Literature") prepared by the Program for use in conjunction
with the public offer and sale of Units. Additional copies of Sales Literature
and the Prospectus will be sent to you in reasonable quantities upon your
request. No person is authorized to use any solicitation material other than
that referred to in the Prospectus and no person is authorized to use any
solicitation material in any state where such use is prohibited by law.
2. MANNER OF MAKING OFFERS. Offers will be made only by delivery of a
copy of the Prospectus to a prospective purchaser (an "Offeree") whom you
reasonably believe meets the applicable suitability standards set forth in the
Prospectus. Before you receive a Subscription Agreement and Power of Attorney
from an Offeree you should verify that the Offeree (i) understands that this
offering is limited to investors who meet the applicable suitability standards
set forth in the Prospectus, (ii) has received, read and is familiar with the
Prospectus, and (iii) understands that Units should only be purchased for long-
term investment and that no public market for their resale will exist. You
agree that you will not execute any transaction involving the sale of Units
in a discretionary account without the prior written approval of such
transaction by your customer.
3. COMPENSATION. As compensation for services rendered in soliciting and
obtaining purchasers of the Units, the Program has agreed to pay to you a
commission equal to eight percent. Such commissions will be evidenced by the
appearance on the Subscription Agreements and Powers of Attorney which have been
accepted by the General Partner of the name of your firm as the Broker-Dealer
having solicited such purchases. You agree that all funds received by you with
respect to any Subscription Agreement shall be promptly transmitted, by the end
of the next business day after receipt, to Imperial Bank, 9920 South La
Cienega Blvd., Suite 628, Inglewood, CA 90301, until receipt
and acceptance of subscriptions for a minimum of 60,000 Units and thereafter
directly to the Program. You will agree to instruct investors to make checks
payable to "Imperial Bank, American Business Fund II Escrow,"
<PAGE>
American Business Fund Impound Account" until the receipt and acceptance of
subscriptions for a minimum of 60,000 Units. Under no circumstances may you
withhold any portion of the purchase price received from a purchaser of Units to
be applied toward payment of your commission. It is expressly understood that
any and all costs and other related matters which you incur other than those
which the General Partner agrees in writing shall be reimbursed will be your
sole responsibility. In the event that the Program decides in the future to
provide compensation in the form of cash sales incentives, such payments would
only be made pursuant to applicable regulatory requirements and approval; if
such items were approved and instituted, your firm would be required to control
the distribution of such items to persons associated with your firm and your
firm would be required to reflect the value of such items on your books and
records. In addition to sales commissions payable to your firm, the Program may
provide non-cash incentive compensation to your firm and persons associated with
your firm. Each item of non-cash compensation shall have a value of $100 or
less and shall be included by your firm as compensation received in connection
with the offering of Units.
4. CONDITIONS FOR PAYMENT OF SALES COMPENSATION. All commissions and
agreed reimbursements of expenses payable by the Program under Paragraph 3 above
are subject to acceptance of the Subscription Agreement and Power of Attorney by
the General Partner and the General Partner specifically reserves the right to
reject any such Agreement. In the event that the offering is not completed or
if the transactions referred to herein and in the Prospectus are not consummated
for any reason, all subscription payments shall be refunded to all investors and
no commission will be due or payable to you. Commissions and agreed
reimbursements of expenses to be paid to you pursuant to Paragraph 3 hereof
shall be paid by the Program to the Broker-Dealer as shown on the Subscription
Agreement and Power of Attorney within 15 days following the end of the month in
which the subject Subscription Agreement(s) is accepted by the General Partner.
5. UNAUTHORIZED INFORMATION AND REPRESENTATIONS. Neither you nor any
other person is authorized by the Program, the General Partner or any other
person to give any information or make any representations in connection with
this Agreement or the offering of the Units other than those contained in the
Prospectus and Sales Literature furnished by the Program and the General
Partner. You agree not to publish, circulate, or otherwise use any other
advertisement or solicitation material under any circumstances.
6. BLUE SKY QUALIFICATIONS. The Program assumes no obligation or
responsibility with respect to the qualification of the Units or the right to
solicit purchases of the Units under the laws of any state or other
jurisdiction, but the Program will advise you in writing as to the states or
other jurisdictions in which it is believed that solicitations of purchases of
the Units may be made under the applicable blue sky or securities laws. Such
advice from the Program shall not be considered Sales Literature as that term is
used herein. Solicitations are to be made only by Broker-Dealers, agents and
salesmen qualified to act as such for such purpose within the states or other
jurisdictions in which they make such solicitations.
7. GENERAL. You hereby represent that you are a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD") and that you
will continue such qualification during the term of this Agreement. Upon your
acceptance of this Agreement and in your soliciting purchases of the Units, you
agree to comply with any applicable requirements of the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and the published
rules and regulations thereunder, and the rules and regulations of all state
securities authorities, as applicable. You agree to comply with the rules and
regulations of the NASD including Sections 8, 24, 25, 34 and 36 of Article III
of the NASD's Rules of Fair Practice. In reference to those Sections, you agree
in recommending the purchase, sale or exchange of Units to a participant, you
will have reasonable grounds to believe that the Program is suitable for the
participant, and that, prior to participating in the sale of Units hereunder,
you shall have reasonable grounds to believe that all material facts related to
the offering are fully and accurately disclosed and provide a basis for
evaluating the offering, and that prior to any purchase, you shall inform the
prospective participant of all relevant facts relating to the liquidity and
marketability of the Program. No purchase with the assets of any employee
benefit plan (including Individual Retirement Accounts) will be made by you if
you (i) have investment discretion with respect to such assets or (ii) regularly
give individualized investment advice which serves as the primary basis for the
investment decisions made with respect to such assets. You agree that each
Subscription Agreement will be executed by a principal of your firm. You
acknowledge your obligation to assure the adequacy and accuracy of the material
facts relating to, without limitation, items of
2
<PAGE>
compensation, physical properties, tax aspects, financial stability and expenses
of the General Partner, the Program's conflict and risk factors, and appraisals
and other pertinent reports. You agree not to deliver the Sales Literature to
any person unless such Sales Literature is accompanied or preceded by the
Prospectus. You further agree not to deliver to any prospective investor, or
any other person not employed by your firm, Sales Literature which bears a
legend restricting its use to Broker-Dealers only ("Broker-Dealer Material"), or
Sales Literature prepared in connection with any other offering. You further
agree to keep Broker-Dealer Material confidential, limiting its distribution and
use solely to persons employed by your firm.
8. TERMINATION. This Agreement may be terminated by written or
telegraphic notice to you from the Program and, in any case, will terminate at
the close of business at the end of the 365th day following the date of the
Prospectus (unless extended thereafter by the General Partner, provided that all
compensation payable to you under the terms and conditions hereof shall be paid
when due, although this Agreement shall have theretofore been terminated).
9. LIABILITY OF PARTICIPATING BROKER-DEALERS AND INDEMNIFICATION.
Nothing herein contained shall constitute the General Partner of the Program and
the Broker-Dealers, or any of them, an association, partnership, unincorporated
business or other separate entity.
(a) The Program and the General Partner agree to indemnify and hold
harmless you and each person who controls you within the meaning of the
Securities Act of 1933, as amended (the "Act"), against any losses, claims,
damages or liabilities, joint or several, to which you may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in the
Prospectus, (B) in any Sales Literature (as defined in Paragraph 1 hereof)
furnished to you or other participating Broker-Dealers for use in selling the
Units or (C) in any state securities or "blue sky" application or other document
executed by the Program specifically for that purpose or based upon written
information furnished by the Program filed in any state or other jurisdiction in
order to qualify any or all of the Units or perfect exemptions from
qualification under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"); or (ii) the
omission or alleged omission to state in the Prospectus or in any such Sales
Literature or in any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein in the light of the
circumstances under which they were made not misleading; and will reimburse you
for any legal or other expenses reasonably incurred by you in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that you shall not be indemnified for any losses, liabilities
or expenses arising from or out of an alleged violation of federal or state
securities laws unless (1) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as to the
particular indemnitee, or (2) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee
or (3) a court of competent jurisdiction approves a settlement of the claims
against a particular indemnitee. In any claim for indemnification for federal
or state securities law violations, the party seeking indemnification shall
place before the court the position of the Securities and Exchange Commission
and the position, if applicable, of any state securities regulatory authority in
any jurisdiction in which Units were sold with respect to the issue of
indemnification for securities law violations. The Program and the General
Partner shall not incur the cost of that portion of any insurance, other than
public liability insurance, which insures any party against any liability the
indemnification of which is herein prohibited.
(b) You agree to indemnify and hold harmless the Program and the
General Partner against any losses, claims, damages or liabilities to which the
Program or such General Partner may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact in any communication between you, your
representatives or agents and an investor, or (ii) the omission or alleged
omission to state a material fact required to be stated in any communication
between you, your representatives or agents and any investor, or necessary to
make the statements to said investor not misleading.
3
<PAGE>
(c) Promptly after receipt by an indemnified party under this
Paragraph 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereto is to be made against any indemnifying party
under this Paragraph 9, notify in writing the indemnifying party of the
commencement thereof; and the omission so to notify the indemnifying party will
relieve it from any liability under this Paragraph 9 as to the particular item
for which indemnification is then being sought but not from any other liability
which it may have to any indemnified party. In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will not be liable to such
indemnified party under this Paragraph 9 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. If any such indemnifying
party elects to defend any such action, such indemnifying party shall not be
liable to any such indemnified party on account of any settlement of such claim
or action effected without the consent of such indemnifying party. Any
indemnified party may, at its own cost and expense, participate at any time in
any claim or action covered by this Paragraph 9.
(d) You agree that you will perform appropriate due diligence in
respect to the offering, and that you will not rely on any due diligence
performed by Phoenix Securities, Inc.
10. MISCELLANEOUS. You shall retain on behalf of the Program, in your
files, for a period of at least four years, information which will establish
that each purchaser of Units meets the applicable suitability standards set
forth in the Prospectus.
In the event that any dispute arises between you and the Program out
of or by any reason of this Agreement, then and in that event such parties do
hereby agree that said dispute shall be arbitrated in accordance with the then
existing rules of the American Arbitration Association at San Francisco,
California, and that any award rendered thereunder, including attorneys' fees
and costs to the prevailing party, may be entered in any court of competent
jurisdiction, state or federal, including attorneys' fees and costs to
prevailing party.
This Agreement constitutes the entire agreement between you and the Program
and any change, amendment or alteration to this Agreement shall be ineffective
unless reduced to writing and executed by both parties. This Agreement shall be
governed by California law without giving effect to conflicts of law or choice
of law provisions. Each party agrees to perform any further acts and execute
and deliver any other documents which may reasonably be necessary to carry out
the terms of this Agreement.
It is expressly understood that no representations have been made in
connection with this Agreement other than as herein set forth, except those
representations contained in the Prospectus or the Sales Literature provided to
you.
Very truly yours,
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P., a
California limited partnership
By: PHOENIX LEASING ASSOCIATES IV, L.P.,
a California limited partnership, General Partner
By: PHOENIX LEASING ASSOCIATES IV, INC.,
a Nevada corporation, its general partner
By
-----------------------------------------
Authorized Signature
4
<PAGE>
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
2401 Kerner Boulevard, San Rafael, California 94901
Dear Sir or Madam:
We hereby confirm our acceptance of the terms and conditions of the foregoing
Selling Agreement. We hereby acknowledge receipt of the Prospectus referred to
in the foregoing Agreement and confirm that in executing this confirmation we
have relied upon such Prospectus and upon no other representations whatsoever,
written or oral. We confirm that we are members in good standing of the
National Association of Securities Dealers, Inc. and that we will comply with
the Rules of Fair Practice of that association, and we are qualified to act as a
securities broker-dealer in all states or jurisdictions in which we intend to
solicit purchasers of Units, as indicated below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
/ / Alabama / / Illinois / / Montana / / Puerto Rico
/ / Alaska / / Indiana / / Nebraska / / Rhode Island
/ / Arizona / / Iowa / / Nevada / / South Carolina
/ / Arkansas / / Kansas / / New Hampshire / / South Dakota
/ / California / / Kentucky / / New Jersey / / Tennessee
/ / Colorado / / Louisiana / / New Mexico / / Texas
/ / Connecticut / / Maine / / New York / / Utah
/ / Delaware / / Maryland / / North Carolina / / Vermont
/ / District of Columbia / / Massachusetts / / North Dakota / / Virginia
/ / Florida / / Michigan / / Ohio / / Washington
/ / Georigia / / Minnesota / / Oklahoma / / West Virginia
/ / Hawaii / / Mississippi / / Oregon / / Wisconsin
/ / Idaho / / Missouri / / Pennsylvania / / Wyoming
</TABLE>
OR
/ / All juridications in the United States
OR
/ / All jurisdications in the United States except
- --------------------------------------------------------------------------------
(The foregoing does not indicate Blue Sky status of the Offering)
- ----------------------------------- -----------------------------------
Broker-Dealer Name Date
- ----------------------------------- -----------------------------------
By: (Authorized Signature:
President, Partner or Proprietor) (Main Office Address)
- ----------------------------------- -----------------------------------
(Print or Type Name) (City and State)
- ----------------------------------- -----------------------------------
(Print or Type Title) (Telephone Number)
PHOENIX LEASING AMERICAN BUSINESS FUND II, L.P.
2401 Kerner Boulevard, San Rafael, California 94901
(800) 227-2626
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated September 16, 1996, in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-05693) and related Prospectus of
Phoenix Leasing American Business Fund II, L.P. for the registration of
2,500,000 units of limited partnership interests.
/s/ Ernst & Young LP
San Francisco, California
September 16, 1996
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of Registration
Statement File Number 333-05693.
/s/ Arthur Andersen LLP
San Francisco, California
September 13, 1996
